Release Date: August 06, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Constellation Energy Corp (CEG, Financial) reported strong second-quarter GAAP earnings of $2.58 per share and adjusted operating earnings of $1.68 per share.
- The company raised its adjusted operating earnings guidance for the year to a range of $7.60 to $8.40 per share, reflecting strong business performance.
- CEG's nuclear fleet delivered reliable, clean power during a hot summer, with a nuclear capacity factor of 95.4%, including refueling outages.
- The company completed $500 million in share buybacks during the quarter, bringing the total to $1 billion for the year.
- CEG's commercial business continues to thrive, optimizing generation and load positions, and providing customized sustainability solutions to customers.
Negative Points
- Higher employee stock compensation expenses due to strong stock performance created headwinds.
- The Illinois ZEC program's banked credits were lower this year, impacting quarterly earnings compared to the previous year.
- The PJM capacity market auction results indicate tightening supply and demand fundamentals, which could lead to higher prices for customers.
- Ongoing regulatory and policy discussions, particularly around colocation and the FERC technical conference, could delay deal announcements and create uncertainty.
- The company faces challenges in managing the economic viability and regulatory approval of colocation projects with data centers.
Q & A Highlights
Highlights from Constellation Energy Corp (CEG) Q2 2024 Earnings Call
Q: Does the FERC technical conference prolong the timeline for a deal announcement regarding colocation?
A: Joe Dominguez, CEO: It could slow things down for those seeking certainty, but the economic viability of these projects remains strong. We are working on contractual provisions to manage any contingencies from the FERC process and do not see an outcome where FERC will prohibit these projects. We continue to work towards finalizing deals.
Q: What is your view on the commentary from T&D utilities regarding PPA or rate basing peakers in PJM if the market doesn't move fast enough?
A: Joe Dominguez, CEO: States like Pennsylvania and Ohio have been clear about wanting markets to work. The PJM market has historically worked well, and we believe competition will address the problem. Policymakers are unlikely to favor further monopolization of the generation sector.
Q: Does the outcome of the PJM auction increase the urgency from potential data center counterparties to finalize colocation deals?
A: Joe Dominguez, CEO: Yes, it increases urgency for both colocation and in-front-of-the-meter deals. The tightening market creates a significant opportunity for our commercial team to meet customer demand for clean and reliable megawatts.
Q: Should we assume that dual unit plants make the most sense for colocation, with one unit acting as backup?
A: Joe Dominguez, CEO: Dual units are the most natural starting point due to the backup they provide during outages. However, configurations may evolve, and we could see behind-the-meter data centers located near on-grid data centers, providing reliability through fiber connections.
Q: Can you clarify the timeline for colocation deals given the FERC process?
A: Joe Dominguez, CEO: We are not time-bounded by the FERC process. We are working on contractual provisions to manage any outcomes from FERC. Deals could be announced even while the FERC process is ongoing.
Q: Is the public and noisy process around colocation impacting your ability to finalize deals with customers?
A: Joe Dominguez, CEO: Not yet, but customers and policymakers are paying attention. Policymakers want these projects to happen for economic development, and we are working to resolve issues in a way that aligns with their goals.
Q: What are your state legislative priorities to support the colocation strategy?
A: Joe Dominguez, CEO: We are largely reactive to what we see but will work with customers and labor unions to ensure all opportunities for economic growth remain on the table. We believe these issues can be handled in the regulatory arena.
Q: Do you have any estimates of the benefits for ratepayers from a hypothetical 1-gigawatt data center colocation?
A: Joe Dominguez, CEO: We generally see billion-dollar costs associated with a gigawatt of load, with much of that cost socialized to other customers. In our colocation applications, hyperscalers pay for the connection, which is significantly cheaper and more efficient.
Q: Does the PJM auction result in higher prices impacting customer bills?
A: Joe Dominguez, CEO: Higher prices do impact families and businesses, but our commercial team is working to provide solutions that manage risk and smooth out bumps. Adjusted for inflation, PJM energy and capacity prices are still lower today than 15 years ago.
Q: What is the impact of the PJM capacity auction results on your financial outlook?
A: Daniel Eggers, CFO: The auction results were higher than expected, leading to an increase in our earnings outlook. For 2025, we expect a $0.25 per share increase, and for 2026, a $1.25 per share increase, assuming similar capacity prices in future auctions.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
