Constellation Energy Corporation (CEG) Q3 2025 Earnings Report, Transcript and Summary

Good morning, ladies and gentlemen and welcome to the Constellation Energy Corporation Third 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 Initiatives. You may begin.

Thank you, Olivia. Good morning, everyone, and thank you for joining Constellation Energy Corporation's third 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 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.

Thanks, Emily, and thanks Olivia, our operator this morning for getting us started. Thanks to all of you for your continued support, for your interest in the company and for joining us today at the end of a very busy week for all of you. As always, I want to start by thanking the incredible women and men at Constellation for delivering another quarter of strong operational and financial performance. Powering America is a 24/7 business, and our continued success derives from the simple fact that our folks are exceptional at what they do. This summer, our nuclear plants delivered near-perfect reliability. Our power fleet of gas and renewables answered the bell when dispatched and our commercial and retail teams have once again proven why they are some of the best in the business. I'm going to turn to Slide 5 to get us started with our financial results. We delivered third quarter GAAP earnings of $2.97 per share and adjusted operating earnings of $3.04 per share, higher than the third quarter of last year. Our commercial and generation teams delivered outstanding performance and the stock has performed tremendously again this year, benefiting you, our owners. But this great performance also benefits our people through stock compensation plans that we have aligned with your interest as owners. This year, because of the magnificent performance over a number of years, these plans are triggered and create some nonrecurring O&M headwinds that Dan will cover in his section. But notwithstanding these onetime events, what I don't want you to miss is the continued growth and strong performance of our business. On the data economy front, our team has never been more active with serious and knowledgeable customers. I know in the last call, I hinted that we are far along on a transaction, making use of a baseball metaphor that we were past the seventh-inning stretch. That remains true, and we continue to progress. But as we have recently witnessed in real life baseball and as I'm sure, Dodgers and Blue Jays fans, especially can attest, some of the later innings can seemingly drag out. Nonetheless, we're confident in our ability to complete these transactions, and we will let you know just as soon as we can. But perhaps more important to you than any set of transactions is what we are seeing in the broader data economy market. Our general observation is that the market is hotter now than ever. And the real big difference we're seeing is buyer maturity. In the earliest days, we had a great deal of interest from a lot of customers. But I think it's fair to say in retrospect that many customers in the early days were exploring options, kicking tires, as some might say. Sometimes, they were wondering whether nuclear energy would fit into their own sustainability plans. And even the most serious buyers were still on the shallow part of the learning curve when it came to understanding our markets and the interconnection of really large loads. Today, we're seeing a far more sophisticated and aggressive customer walk through our door. They have done deals. They understand pricing and term. They know they want nuclear. They understand the accounting and the collateral needs of a large transaction. They understand the interconnection process. Most importantly, they walk in our door with a strong understanding of what we can offer and what we need to secure on behalf of our owners and therefore, how to best execute. At the end of the day, we are often paced by the speed of interconnection in these deals. But in terms of our own commercial terms, the negotiations move much more quickly than ever before. Now with regard to the interconnection process, we were encouraged to see the letter from Secretary Wright to FERC, ordering FERC to initiate a rule-making proceeding to develop a standard approach for quickly connecting large loads to the transmission system. It was a clear message from the administration. If America is going to maintain a leadership position in artificial intelligence, we need practical reforms to make it easier to connect large loads to the grid. As you know, this is something we have been saying for a long time. We look forward to FERC's quick action. They have a docket in PJM that is complete with evidence and with arguments. It's ready for decision. Turning to other developments this quarter. We reached a landmark agreement with the state of Maryland and other key stakeholders that lays out the path for the continued operation of Conowingo Dam for the next 50 years. On Slide 5, you can see a picture of the stakeholders that gathered together with Governor Moore and others to celebrate this outcome. You see the handsome guy in the middle of the photograph and to my right, is Governor Moore. This was a win-win outcome. It brought together previously opposed coalitions to create a long-term solution that helps and protects the bay, while ensuring the continued operations of a vital source of Maryland Clean Energy for the region. I want to thank Governor Moore and Attorney General Brown for their leadership. We look forward to continuing to work with them and other elected officials to explore energy options for Maryland and the region. Lastly, Calpine remains on track to close in the fourth quarter. The DOJ is our final approval, and we presently are not seeing any effect on their work from the government shutdown. We're looking forward to getting the transaction closed, and to start working as a combined company to bring coast-to-coast solutions for our customers and to create value for you, our owners and for our communities. Turning to Slide 6. The momentum and support for nuclear has never been stronger. Nearly 3/4 of the public now supports nuclear energy. But it doesn't stop there. 9 out of 10 people think that the licenses on existing nuclear plants should be extended, and you know we're doing that work. And 2 out of 3 people believe we should be building more nuclear plants in the U.S. This is a tremendous level of public support. The public gets it and so do the policymakers. I'd point out to you that just in the last 10 days, the Trump administration and Westinghouse announced a public private partnership with the goal of building 10 gigawatts of new nuclear reactors. And the government is pledging $80 billion to help ensure it happens. Our nation recently announced a trade deal with Japan and the centerpiece of that was the investment of more capital in nuclear and the data economy. And then finally, NextEra, a company known for renewables announced the restart of Duane Arnold, all enabled by another contract with hyperscalers. And that's just what happened in the last 10 days, and it builds upon the bipartisan support that we've seen for nuclear tax credits that not only support new nuclear, but crucially support the existing fleet so that it could continue to operate, uprate and relicense. States are also leading the way through ZEC and other programs to ensure that clean, reliable nuclear power continues to benefit their citizens. Under Governor Hochul's leadership in New York, the state is looking to build 1 gigawatt of new nuclear built on a foundation of the new -- of the existing nuclear fleet that has been so successful for New York. The Public Service Commission has called for the extension of the ZEC programs, and we are involved in that proceeding. All of these developments are wonderful and a great affirmation of what I think has been the core principle of this company from its beginning. Nuclear energy is the most valuable and important energy commodity in the world today, and Constellation produces more of it than any other private sector company in the world. But our advantage doesn't just stop with the existing fleet. I think the most valuable asset that we have, that presently isn't fully recognized is the nuclear sites themselves. This is the place where nuclear was built. It's the place where we have the infrastructure, the land, the capability and the talent to build the next generation of nuclear plants. These land assets that Constellation owns more than anyone provides unique value that is difficult, if not impossible, to replicate. And what it means to me is that the path to new nuclear in many places is going to walk through Constellation. Turning to Slide 7. Constellation has had an excellent track record, as you know, of working with stakeholders to find solutions. And we once again stepped up to meet the needs of the grid by answering Maryland's call with options for the state to consider that would bring new dispatchable generation resources to the state as well as the continued operation and expansion of the world's best 24/7 clean energy resources. As part of the Next Generation Energy Act of 2025, the Maryland Public Service Commission solicited applications for dispatchable generation and large capacity resources that could proceed through an expedited process known as a CPCN or Certificate of Public Necessity. In response, we're providing Maryland options to potentially bring up to 800 megawatts of battery storage and more than 700 megawatts of low-carbon natural gas to help Maryland meet its future energy needs. Being part of the solution is who we are at Constellation, and no other company is doing more to bring and secure power for our communities than Constellation. As you know, we've committed to bring 835 megawatts through the restart of the Crane Clean Energy Center. We continue to provide nearly 600 megawatts from the relicensing of Conowingo that we spoke about a moment ago. We are bringing 160 megawatts of new nuclear uprates online at Byron and Braidwood beginning next year, and we're doing far more than this. As we talked about last quarter, we're collaborating with customers to pioneer about 1,000 megawatts of AI-enabled demand response capacity. We're targeting 500 megawatts under contract this year and another 500 next year. And we have identified an additional 900 megawatts of uprates at our sites, including 190 megawatts at Calvert Cliffs in Maryland. Constellation has and will continue to support reliability everywhere and operate in our competitive markets, effectively and performing well. And we have seen that over a decade since deregulation with generators, the competitive market has provided the best solutions to customers. With that, I'm going to turn it over to Dan for the financial results.

Thank you, Joe, and good morning, everyone. Beginning on Slide 8, we earned $2.97 per share in GAAP earnings and $3.04 per share in adjusted operating earnings in the third quarter, which was $0.30 per share higher than last year. In the third quarter, we saw fewer nuclear outage days, both planned and unplanned compared to the same period last year. These results reflect the outstanding efforts of our teams whose dedication and skill have driven higher generation volumes and help us operate more efficiently than ever with lower O&M expenses on a year-over-year basis. Last quarter marked the first period where we recognized a full 3 months of higher PJM capacity revenues following the breakout 2025, 2026 capacity auction. With our plants currently near or above the top end of the PTC zone, the non-CMC units captured almost all of the benefit of higher capacity prices. This capacity upside is partially offset by a reduction in PTC revenues compared to last year when more of our plants were in the PTC zone. Additionally, ZEC prices in both the Midwest and New York were lower compared to the third quarter of last year. As a reminder, for the full year 2025, our Illinois ZEC revenues are about the same as last year, but the timing is different since we booked banked ZECs last quarter, whereas in 2024, more of the ZECs were booked across the quarters. Moving to Slide 9. Our nuclear team continues to execute at levels of reliability and with a commitment to excellence that yields differentiated operating performance. During the third quarter, they once again hit that mark with a fleet-wide capacity factor of 96.8%. Our team consistently delivers a capacity factor about 4% higher than the industry average, which at our fleet size is the equivalent to having another reactor's worth of power on a full year basis. Our renewable and natural gas fleets performed near plan during the quarter, with renewable energy capture at 96.8% and power dispatch match at 95.5%. Consistent, reliable and excellent operations across our generation fleet, especially during the critical summer months, are a testament to the thousands of tasks and hours of planning, our teams complete on an ongoing basis to make sure we can meet our commitment to provide clean, firm and reliable power. Turning to Slide 10. Our commercial team continues to meet the needs of our customers, delivering tailored energy solutions that meet their evolving needs. This collaborative approach is driving strong performance with sales margins above the long-term averages we use in our forecast and above the margins we anticipated at the beginning of this year. The renewal rates for both power and gas remained strong. The quarter-over-quarter decline we experienced in our C&I gas renewal rate is almost entirely driven by the loss of one very large, low-margin customer and expected part of the normal ebbs and flows of the business. Our relationships with long-standing customers remain strong and our scale and ability to deliver products to meet the needs of our customers remains a competitive advantage. Continuing on Slide 11. We are narrowing our full year stand-alone adjusted operating earnings guidance range to $9.05 to $9.45 per share. The commercial and generation businesses have had another outstanding year. Our commercial team's ability to optimize the portfolio and deliver value beyond targets is a key driver again this year. Additionally, the world-class operating performance of our nuclear fleet has also contributed upside to our gross margin. This operational strength reinforces the reliability and consistency of our company's earnings profile. Our stock has appreciated over 50% year-to-date, significantly benefiting our owners, but also creating O&M headwinds from stock compensation, which is offsetting much of the gross margin favorability this year. Finally, as a reminder, our revised guidance is stand-alone to Constellation and does not include any impacts from the Calpine transaction. Speaking of guidance and looking to 2026 with the Calpine deal, we get a lot of questions on what to expect. We plan to provide combined company guidance and modeling tools on or around our typical fourth quarter call in late February. We expect to fold Calpine into our current base and enhanced EPS constructs. And as you all revisit your models in the interim, let me remind you when we announced the transaction in January, we provided preliminary expectations for EPS and free cash flow accretion. Those expectations were based on forward power prices and spreads that look relatively similar to today despite the market having moved around a lot since last December. Calpine also has a history of locking in sales or hedging its fleet like other generators to ensure meeting its financial commitments. So near-term open exposure is relatively limited. And the guidance included our view of expected synergies, which, as we talked about, were not a major value driver for this deal, but were anticipated based on what we knew about putting the 2 companies together, and recognizing Calpine was long held by private equity outside of the public markets. It also reflected estimates for accounting policy harmonization adjustments and purchase accounting with fair value calculations, which are inherently difficult to model from your seats. We will fill in all the details when we get to early spring. But I know it has been a little while since the deal was announced. So we thought a quick refresh back to our original conversation would be helpful for all of you. Turning to Slide 12. In September, we executed a renewal and upsizing of our credit facilities, positioning us for the close of the Calpine transaction. Combining the expanded revolver with the other liquidity tools that we use, we'll have $14 billion of liquidity after the deal closes, underscoring the strength of our balance sheet and the strategic flexibility afforded by our investment-grade credit rating allowing us to move forward with confidence. We're also asked regularly about our capital allocation strategy after the deal closes, and it remains unchanged. With the significant free cash flow the combined company is expected to generate, our priorities remain clear. We will maintain a strong balance sheet and high investment-grade credit ratings targeting a return to our metrics by year-end 2027, deliver at least 10% annual dividend growth, pursue growth opportunities that meet our double-digit unlevered return threshold, and return capital to shareholders with $600 million remaining on our existing buyback program. Our goal remains the same: to deliver long-term value for our owners. The philosophy behind our capital allocation strategy is consistent even as we evolve into a larger, more diversified company with even greater opportunities. With that, I'll turn the call back to Joe for his closing remarks.

Thanks, Dan. So folks Constellation performed very well during the third quarter and throughout the year. But we've got 2 months basically to finish it up. And so we've got a lot of work going on in the business, and we remain focused on closing the Calpine transaction and bringing together these 2 great companies. We're looking forward to proving that 1 plus 1 will equal 3. And that the size and scale of the combined company will deliver value for our customers and for our nation that neither company could have done on its own. We're working hard to execute transactions with our customers in the data economy. And we're working with the states and regulators to provide sensible solutions for meeting this moment where new generation and new capabilities are going to be needed to allow America to lead as it should on AI. Constellation is built on a foundation unlike any other company in the energy sector. That foundation enables us to consistently deliver value to our owners year after year. We generate strong cash flow and base earnings supported by a nuclear production tax credit, which continues to enjoy broad and growing bipartisan support. We have a strong earnings growth profile through the decade, and we are in the middle of strategic transactions or PPAs with hyperscalers, which we expect to complete, which will be additive to both our growth and our base earnings. We benefit uniquely from higher inflation, which causes the PTC floor to automatically adjust and further strengthens the economics of our nuclear fleet. We're well positioned to capture value from the opportunities ahead, selling our megawatts at a premium through long-term contracts with customers, including those in the rapidly expanding data economy, which we've talked about quite a bit during this call. As overall power demand grows and new generation resources are required, our existing fleet is ready to meet the needs with clean, reliable and available today energy, and our land gives us a great opportunity to participate in future development. With that, I look forward to your questions.

[Operator Instructions] Our first question coming from the line of Shar Pourreza with Wells Fargo.

Joe, just on your hyperscaler comment. I mean, obviously, we've seen a lot of BTM deals being done ironically with nonpower companies. Couldn't quite tell from the baseball analogy, but are you still kind of confident with announcing another hyperscale deal by year-end? Or should we assume early next year. And despite FERC, should we still assume that this deal or any deal will be structured in front of the meter?

Yes. As to the last question, yes, right now, as I've indicated on prior calls, we're really focused exclusively on front-of-the-meter deals, which is why this interconnection process ends up becoming, to a certain extent, the gating function on these deals, and we often have to wait for other parties. Shar, my expectation is that deals will be completed soon. I think it will happen before we talk again. But I don't -- there are these approval processes that customers have to go through that sometimes are time consuming. And I don't want -- I can't guarantee the work of other parties. But we're quite close here. So I'm hopeful that this stuff will get done soon and certainly before our fourth quarter call.

Okay. No, that's actually helpful. And then just lastly, just from a contracting pricing perspective, I mean, we obviously -- we have a proxy right now in Texas for BTM deal with significant backup gen. Are you seeing FOM and BTM pricing kind of converge in your conversations, especially since you're focused more on the FOM side? And just what about gas versus nuclear, especially as you're closing the Calpine deal?

Yes. I think gas has some capabilities in this space. Just to answer that part of your question. I think the real issue with gas for the customers is twofold. One is, does it meet their longer-term sustainability goals? For some customers, it's okay. For other customers, it isn't. And then separately, in the case of gas, it's sometimes more difficult to predict the kind of long-term pricing. So when you're asking me to compare pricing for gas, whether that's behind the meter or front of the meter to a nuclear deal, we end up having to speculate about what future gas prices are going to be, say, over 20 years, we end up having to speculate whether or not there are going to be other compliance costs associated with carbon emissions from gas. So really hard to do that. Oftentimes, the gas deals leave those issues open to different inputs for either a carbon price, a change in policy and of course, for the underlying cost of gas. So hard to compare the 2 things. And generally speaking, the deals that you're alluding to that have been done really haven't been done with new clean resources that allow for the comp. So a bit hard to say. I do think that from an economic perspective, what we're offering, and I think it's part of the heat that we're seeing in terms of the inflow of customers through the door is very attractive pricing relative to other options, and pricing that's firm and sustainable for a long-term period and something that they know from their own environmental pledges and sustainability goals is going to be compliant for them.

Got it. But just -- I guess, just focusing a little bit on just nuclear FOM versus BTM pricing. Is there a material difference? Are you seeing when those conversations just honing in on nuclear?

Shar, I think it's hard yet to fully understand what the new nuclear pricing is going to be. I mean, that's -- the bottom line is we do a tremendous amount of work on that. And I think it's far from settled what that's going to look like. Obviously, what we could offer is significantly more economic. And most importantly, it's available right now.

Our next question coming from the line of Steve Fleishman with Wolfe Research.

I guess, first, just a question on the Calpine. There were some stories about a potential delay in the asset sale process by you? Just is there anything that we should read into that?

Probably a couple of things, Steve. One is we kicked off the asset sale process because we weren't sure how much time we were going to be given to divest needed assets. And so we're feeling more confident that we're going to have a reasonable amount of time to execute the divestiture post regulatory approvals. And secondly, as we complete the regulatory approvals, it is, as you know, DOJ and FERC utilize different tests. And so we want to make sure we're targeting the exact right assets to divest. Biggest point here is that we just don't feel like we need to be in a hurry to complete an asset sale transaction, and we want to take our time. The market is very supportive of sales of these assets right now.

Yes. And I guess there'll be others that have pending ones that will be done later on maybe. That could be buyers. Okay. So the other question is more just high level, I mean for the last several months, we just keep hearing different new entrants to the Power business, whether it's oil companies, gas companies, new technologies, et cetera. And then obviously, huge focus on time to power. But then at the same time, it seems to take a very long time to work out deals for those same customers with the assets that are there already. And maybe you can just help connect the dots of what's going on and your conviction level that you'll be able to kind of execute on the ability to capture these new customers?

I think the excitement and interest in new generation is just really a reflection on how durable this growth cycle is going to be. We're seeing these -- the investment in new data centers just grow over year-over-year, and we're now seeing capital deployment projected to be $0.75 trillion on building data centers. And notably, that's probably twice as large as the 3 largest publicly traded power companies in the United States. So we're seeing an investment in the data economy that's simply enormous, and it's going to call for all hands on deck. And I'm always pleased to see that they believe in it so much that they're lining up power needs that are really going to come on 5 or in certain cases, maybe up to 10 years down the road. So I think that's all indicative of the size of the opportunity that we're seeing. Steve, I'd just simply stand by my earlier comments that the amount of interest we have, the number of deals that are being negotiated is far different now and far bigger and more serious now than it's been before. And so that's what gives me confidence we're going to be able to continue to execute the strategy. And I think we provide something uniquely and that's available now, power, with a predictable opportunity to scale that.

Our next question coming from Jeremy Tonet with JPMorgan.

We just wondered if you could provide a little bit of color on Three Mile Island, it seems like progress is going well there. Just wondering if you could provide any updated thoughts?

Well, just what you said. I mean the progress is going well there. We've had a number of critical items that we've completed just recently. The plant looks really well. We talked at the beginning of this whole project that we are going to need a couple of components, the main transformer being one of them. Fuel was another gating item, getting the people ready to operate the site. That was a gating item, Bryan, who's here and his entire team have just done an exceptional job getting the plant ready and really tackling some of these challenges that we identified. Most importantly, we're not seeing new challenges emerge, right? So as we continue to do our work, there's always going to be some discovery that comes along with the inspections of the plant. And what gives me great confidence is that we're not unearthing anything that we didn't anticipate. And in point of fact, the condition of the plant is better.

Got it. Very helpful there. And just wondering if you might be able to comment a little bit as well separately on power markets. We've seen energy prices moving up recently and just wondering thoughts you have on these moves where it could go, and do you see this having any, I guess, impact on conversations when you're discussing contracts?

Well, I think it has 2 impacts strategically for us. One, right, is the -- questions I think we've already gotten here. Are we seeing some sort of convergence that causes us to think we're not going to achieve our pricing expectations? And I would say the opposite is true. And then secondly, we're going to have to sell some assets here to get through regulatory approvals. And I think the impact there, again, is favorable and that the environment for the sale of assets is more constructive now than probably when we started the -- when we announced the Calpine deal. But let me ask Jim McHugh, who's here to kind of weigh in on what he's seeing in the power markets and their durability.

Yes. Yes. Thanks, Joe. I'd break it into a couple of components. One is maybe short term, we've seen a small rebound in the nearby, just kind of the nearby months, maybe gas rebound a little bit, that's had somewhat to do with power upward pressure that we've seen. But actually, the power upside has been longer duration than that, and it's been stronger in the outer years. And it's really outperformed gas. I think we're seeing expansion -- heat rates expanding and spark spreads expanding, mainly due to the data growth we're talking about, the load growth in general that we're talking about. We'll have continued -- some continued retirements down the road. There's less line of sight right now, as we've talked about, to additional megawatts in the grid except for all these wonderful opportunities that we've talked about in -- that Joe talked about in the call earlier as well as what we're seeing in terms of our corporate PPAs, bringing on new generation too. But really, it's -- over the last few months, it's been the realization and positive developments on load interconnection and the reality of load growth happening where I think the power markets are pushing stronger. It's still rather tight on the supply-demand fundamentals in general. And it's really about the expectation that we'll see higher energy prices to go with some of the upward pressure we've seen on capacity prices in these markets, too.

Our next question coming from the line of David Arcaro with Morgan Stanley. David just withdrew his question. Our next question coming from the line of Andrew Weisel with Scotiabank.

A few questions for you. First, in Maryland. You talked about the 700 megawatts of natural gas capacity. I believe that's existing assets and you mentioned relocated turbines. Can you get a little more specific, where would those be coming from? And maybe on timing, how quickly would those be available to come online?

They're physically located in buildings in the Midwest and in New England. And they're -- I would describe them as incredibly lightly used assets that we could relocate relatively quickly to Maryland. But in terms of their performance capabilities are relatively speaking, state-of-the-art in terms of their heat rates. And we have taken measures to refurbish those units and get them ready for rapid redeployment. So that, I think, is the answer to your question.

Great. Then on new nuclear. I know I'm pretty new to the story, but I know that you sounded pretty cautious about new nuclear construction, given the high cost and risks. But with the announcements from the federal government, has that changed your comfort level or given -- has that changed your appetite? And what would it take you to get you to move forward? Whether you need government support and the customer contracts? I know you've talked about exploring potentially 2 gigawatts near Calvert Cliffs in Maryland. And New York is considering adding a gigawatt, as you mentioned. Maybe just high-level thoughts on all of that?

First and foremost is a PPA, right? We need a durable PPA. And the second thing is, we need clear pricing that we're going to be able to achieve with constructability. And that means good partners that bring the technical capability and the ability to construct along with that. We also think, as I alluded to in my prepared remarks, we also think the land value that we offer is the secret sauce to this whole thing. I think you're not going to build nuclear plants in the places we do business with the exception perhaps of Texas, in communities that have never had nuclear before. And I think there's a huge value to having that talent, having the big water, the rail, all the infrastructure and most importantly, the community acceptance. So what I'm looking to do is to monetize the value of that land and that set of capabilities that we bring and convert that into a position that gives us some of the output of the new units. The next thing we're trying to do is make sure that whatever gets operated on our land because we have operating units, gets operated by us, not by others. So an operating services agreement will have to be part of it. In terms of what enables it, I talked about the importance of a PPA. I think the involvement of the administration and the way that they're talking about with Westinghouse likewise is going to be critically important. And I commend President Trump for his incredible leadership on nuclear. We still need to see the details, and we still need to see, as I said, earlier, some very, very clear cost numbers and some very, very clear commitments to deliver those costs on time and on schedule with an operating unit before we are going to put significant capital at risk for these things. I like the way things are evolving. I have been cautious, and I remain cautious, and I will always be cautious because it's a lot of your money that we are talking about here. But I am gaining confidence daily as more and more qualified players are coming forward. And as we're seeing things like the Westinghouse announcement. We still need to get all of the details to really fully understand it, but it is no doubt a positive.

Our next question coming from the line of David Arcaro with Morgan Stanley.

Could you maybe also reflect on your demand response efforts and the initiative that you're pursuing there? And I know you've talked about flexibility of data centers in the past. Are you seeing progress there in terms of data center willingness to go that route? And just the update on that initiative across different markets?

Well, let me start on what I'm seeing in terms of flexibility from a technical capability. And then I'm going to turn it over to Jim McHugh, again, who runs our commercial team to talk about this exciting work we're doing on demand response. So we have been, since the very beginning, one of the core participants in EPRI and their DC Flex or data center flex capability. And we're seeing a lot of great capability to use backup generation and flex compute. I don't want to overstate that, however, I don't think we're going to get to a point where we could flex on and off the full output of data centers. I think it's going to have a meaningful impact, but it's going to have an impact at the margins. That's why we began to explore using AI to see if we can attract some of our other customers to actually providing the relief or the slack on the system during the key hours, and they would then use their own backup generation or curtail their own consumption of energy during peak hours. And we could play this kind of well, middleman role between the hyperscalers and the data center owners and operators and our other customers through this commercial agreement that gives them the ability to call on our other customers to curtail during high-demand events. So Jim will talk about the work that we've done to start developing that and the exciting progress we've made.

Yes. Thanks, Joe. It kind of started with what we were doing in the market prior to kind of the recent dynamics. We still had a large amount of our customers who are interested in peak response programs and managing their energy usage. But really with the dynamic shifting towards supply needed in the capacity markets, we saw the opportunity that some of these customers may be interested in being demand response providers and supply to the capacity markets. So we're partnering with Grid Beyond and who is going to help us do a lot of the execution on the operations side with our demand response customers, but we're seeing interest from our industrial customer base to participate in this demand response product. And what's a little unique about the product we're offering is we've gone to customers to get longer tenors or longer-term commitments and they're interested in potentially longer-term deals with good pricing associated with it and we're providing some floor pricing capability in that too for them to be incented to sign up for these longer duration. So we've found kind of this unique opportunity. We're trying to be innovative around the product structure itself. And the pipeline looks really strong right now. We started executing the deals that Joe talked about working towards 1,000 megawatts or so between now and the next couple of capacity auctions. So things are going well.

And David, what's cool about that is when you think about that 1,000 megawatts at the electric load carrying capacity or through that computation that PJM does, that looks like a new nuclear plant. It's not like a 1,000 megawatts of battery, for example, that would look like at the end of the day, 1/10 of a new nuclear plant. But this portends to look like a full nuclear units worth of output in terms of demand response. So I think we're still in the early days of this, but I think the combination of the two things you talked about in your question, the ability to flex at the top of peak by the data centers themselves in combination with new commercial arrangements to get others to pull back consumption during these hours is really going to open up a lot of room on the system and really pave the way for easier interconnection.

Yes. Understood. Okay. Great. That's helpful color. Then I was wondering if you could just touch on what you're seeing in terms of retail margins in PJM. One of your peers suggested that margins in PJM might be somewhat more competitive. I'm wondering if that's reflective of what you're seeing.

Jim?

Yes, I think on the retail side, our margins are on the upper end of the range that we've always talked about. We've certainly seen on the wholesale auction, load auction and polar procurements. So we've seen some new participants coming in, that's gotten a little bit more competitive, but we're still seeing stronger margins than the historical averages there. On the retail side, really on the upper end of the ranges we've always talked about. And I want to -- I would have -- I'd be remiss if I didn't add since we're seeing a lot of success with some of these sustainability products and CFE and other types of solutions that are sustainability related, those margins tend to be stronger than pure true commodity margins, too.

Our next question coming from the line of Angie Storozynski with Seaport.

I'm just wondering, and again, somewhat of a playing the devil's advocate here. I mean you have a huge portfolio of generation assets, especially pro forma Calpine. There's this growing chatter about bringing your own generation. And I'm just wondering if you're feeling a bit unease about how many of these units you will be able to sign and granted that solar power curves are rising, but it's not just about earnings, right? It's also about the visibility and the quality of earnings. And so we do need more of your units to have that long-term visibility into their earnings power?

Yes, Angie, and I'll just -- my comments during the call were informed by all things, including what we're seeing in terms of policy regulatory, we still believe that we're going to be able to execute transactions. I think this product offering that Jim just talked about with demand response is a bit of an anticipation isn't it, some of what you're talking about, which is to try to make sure we have BYOG or bring your own generation equivalent as we think about demand response as we think about the turbines that we have on the sidelines as we think about our ability to offer up rates. And we also think that policymakers fully understand that relicensing, while not exactly a new megawatt, is the continuation of megawatts beyond the period that they might otherwise shut down. So we think that there's great awareness of that issue. I think in large measure, it was that issue and other compelling arguments that caused PJM to pull back from their bring-your-own generation kind of requirements that they had in other places. I think we might see some voluntary BYOG. But I'm frankly not concerned with where it is right now in the States. And we're marching forward on these transactions, and that has not been an issue for us right now.

Okay. And then so it's been mentioned by you in previous questions that we have seen a lot of announcements from other companies vaguely associated with power for power plants. And I'm wondering, is it -- do you think those are comparable deals like quality-wise, firmness wise, to the ones that you guys are working on? I mean some power companies suggest that those deals are more equivalent to LOIs than firm take-or-pay power contracts that public power companies announce?

Look, I think there's probably room for a bunch of different contracting. But Angie, I feel and I could only gauge this from the customer interest in what we're offering. I feel that what we have and what we're offering outcompetes just about any other opportunity in the space.

Our next question coming from the line of James West with Melius Research.

Curious, given all this demand from the data economy and the data centers, how are you thinking about the portfolio of generating assets that you would like to or would be comfortable locking into long-term PPAs versus keeping available for normal generation markets?

Great question. I think -- and you're certainly hearing this from Angie's question and others, I think there's more room to run on the long-term deals that we want to get executed. But there will be a point, and there will be a point where 1 or 2 things is going to happen. Either we're going to slow it up or we're going to change our pricing to more aggressive levels to reflect, frankly, the scarcity value of what we'll be able to offer. We're not quite there yet. But -- look, our incentive is to provide sustainable long-term and growing earnings for our owner base. That's what the company is set up to do. And so in the short term, what we're trying to do is get these deals done. We're happy with the kind of atmospherics in the market being quite positive for us. But we're not at a point where we're even entertaining the discussion of, hey, are we going to stop selling long term? I think it's in our interest, it's in our customers' interest, it's in the nation's interest, for us to meet this demand for this incredibly important load that's coming on the system. And so we're going to continue to execute in that space. And I appreciate your question, but I think it's probably more theoretical than practical at this point.

Our last question coming from the line of Paul Zimbardo with Jefferies.

Joe, the powerbroker, that was a nice piece recently, I got to say, nicely done. Let me follow up a little bit...

Well, it's one of those embarrassing things that happens when you're in the middle of something like this, but thank you for noting it.

Absolutely. Not too shabby. Look, let me follow up on a couple of things here real quickly. First, with respect to uprates, you've alluded to it, both on scale and scope here. I mean can you speak to the opportunity generically? I'll take note of the Pennsylvania governor's disclosure on costs relative to the 340 megawatts at Limerick. I mean, are there more Limericks out there in terms of effectively providing an upgrade that's tantamount to the size of an SMR? And specifically, as it pertains to Limerick, can you elaborate a little bit on where you are on the transmission interconnect process there? I mean it seems like there's some public disclosure about some potential data center there, if you can?

Yes. So [ Julien ], I apologize for the Paul thing. I now see the 2 of you guys as the same person apparently, sorry about that. We identified about 900 extra megawatts. And so the big chunky ones there are LaSalle and Limerick, which are effectively kind of the same size, but have different costs. LaSalle is a bit easier to execute than Limerick. And I don't think we've published costs on that. And then we've got Calvert Cliffs, 190 megawatts that I talked about. So all told, we're looking at about 900 to 1,000 megawatts that we've completed engineering work on and feel pretty confident about. So that's the answer to the upgrade question. In terms of -- I think you were talking about Crane interconnection. Is that what you asked about?

Well, I was thinking about Limerick, right? I mean it seems like there's some transmission, yes, go for it.

Yes. So there's a good deal of demand going in that area. So we're quite hopeful that any new megawatts at Limerick would be welcomed and fairly easy to interconnect. That's a big growing area of Pennsylvania in terms of the data economy. That, and of course, the PPL zone. In terms of what's being done by customers to interconnect data centers around Limerick, I think I'm going to just kind of decide not to answer that question.

Don't worry, maybe I'll give you another one to follow up on here. You talked about the cost of new nuclear here, both for yourselves as well as the industry. I mean cost of these uprates though seems to be materially cheaper than any new nuclear costs we're seeing out there, even if it's more relevant than what we've seen historically. Would it be fair to assume that the next round of efforts on your front, especially with this focus on additionality would focus on these -- leveraging these uprate sites first and foremost? I mean, obviously, we've seen your restarts here take a lot of the limelight at the outset, but the uprates seem to be the next wave here of where you could really win on additionality and in contracting, it would seem, right?

Yes. Although [ Julien ], I tend not to think about these things as binary, i.e., you're not going to not do something because you're doing uprates. But in terms of the economic merits of the uprates, you're spot on. Those are great investments for us. They have the advantage of not just being additional. We think the relicensings are additional as well. But they also have the ability to be something that's really well within our wheelhouse to execute. We've done a lot of this work historically. And Bryan, the team do really great work in that regard. As I said, we've done the engineering work. It's in communities that already like this stuff. And most importantly, when you're talking about an uprate like this, reason the economics are so attractive is you're not adding people, you're not adding O&M. The plant is just getting more output, but you don't have either an O&M drag from people and you don't have an O&M drag on extra fuel. So it's hard to compare kind of the capital numbers for an uprate to a brand-new plant, which would, of course, require you to have a whole bunch of additional O&M. And I think let me just -- not to drag this out, but I think sometimes when people are talking about the cost of new nuclear and whether it's going to be competitive as a solution for contracts, so on and so forth. They tend to look at it from a capital cost perspective, and I certainly understand that because that's the way people have become accustomed to looking at things like renewables and storage and even new gas fire generation. But there's a huge O&M piece with nuclear that has to be carefully understood that factors into the ultimate price of that resource. Folks, I think that brings the end, Olivia, right? That's the end of the call list here?

Yes, sir, there are no further questions.

All right. Well, terrific. So we'll bring the conversation for this morning to a close. Thank you again for your interest in Constellation for your time during this busy week, and we look forward to catching up with you at the end of the fourth quarter.

Ladies and gentlemen, thank you for participating in today's conference. This concludes today's program. You may all disconnect. Everyone, have a great day.