Constellation Energy Corp
NASDAQ:CEG
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Constellation Energy Corp
Earnings Call Analysis
Q3-2024 Analysis
Constellation Energy Corp
In the third quarter, Constellation Energy Corporation reported impressive financial performance, achieving GAAP earnings of $3.82 per share and adjusted operating earnings of $2.74 per share, marking a significant $0.61 increase compared to last year. The company's robust earnings reflect favorable market conditions, including lower natural gas prices and strong performance from renewables. This solid quarter has led to a raised midpoint in the adjusted operating earnings guidance for the full year from $8.00 to $8.20 per share, with a new range set between $8.00 and $8.40. The commercial business has played a key role in this outperformance, continuing to exceed expectations in a volatile market【4:4†source】.
Constellation's strategy is underpinned by its commitment to sustainable energy. The company reiterated its target of achieving a minimum compound annual growth rate of 13% in EPS through 2030, buoyed by federal production tax credits and a strong portfolio of nuclear assets. The company noted that it is the largest operator of carbon-free, reliable nuclear plants, which are increasingly in demand as the transition to clean energy accelerates【4:5†source】【4:18†source】.
A significant driver of Constellation's outlook is the growing demand from the data economy, which includes large-scale clients like Microsoft. The company has a unique ability to offer energy solutions across state lines, facilitating regional clean energy use and meeting contractual needs. This positions Constellation to leverage its assets and enhance partnerships further with technology giants, thus creating additional revenue opportunities【4:12†source】【4:18†source】.
In operational performance, Constellation excelled with its nuclear plants achieving high output levels. The plants produced over 41 million megawatt-hours with an exceptional capacity factor of 95%. Despite this operational strength, the company noted it faces increasing operating and maintenance costs due to higher levels of performance-related compensation and regulatory challenges connected to future operations【4:1†source】【4:5†source】.
The reopening of the Crane Clean Energy Center is emblematic of Constellation's transformative vision within the nuclear sector, signifying not just a revival but a commitment to sustainable energy production. The company's ability to increase its nuclear capacity while simultaneously improving efficiency standards exemplifies its strategic initiatives to capture upcoming market demands. Furthermore, an additional 2,000 megawatts of nuclear generation is expected to be available by 2027【4:12†source】【4:18†source】.
Constellation's management remains optimistic about navigating regulatory challenges, particularly concerning colocation and energy delivery strategies within the PJM market. They foresee enhanced flexibility in regulatory frameworks allowing for rapid deployment of energy solutions tailored to the increasing demands from hyperscalers and data centers. This adaptability is crucial for meeting the evolving needs of the energy landscape【4:3†source】【4:19†source】.
While the firm is currently authorized for $1 billion in stock buybacks, it paused purchasing during the quarter amid ongoing negotiations surrounding the Crane site restart. Investors can expect future share repurchase activity as the company resolves its operational planning, along with extensive capital allocation to ensure continued growth【4:4†source】【4:1†source】.
Overall, Constellation Energy Corporation demonstrates a solid financial performance and a clear path to future growth within the clean energy sector. With increased guidance, operational strengths, and a commitment to sustainability, the future looks favorable for investors who value long-term growth aligned with the transition to cleaner energy sources【4:18†source】【4:12†source】.
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Thank you for standing by, and welcome to Constellation Energy Corporation's Third Quarter 2024 Earnings Conference Call. [Operator Instructions] As a reminder, this call may be recorded.
I would now like to hand the call over to Emily Duncan, Senior Vice President, Investor Relations and Strategic Growth. Please, you may begin.
Thank you, Latif. 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 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 respect to various risks and uncertainties. Actual results could differ from our forward-looking statements based on factors and assumptions discussed in today's material 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.
Thanks, Emily. Good morning, everyone. Thank you for joining us today, and a big thank you to our amazingly talented team at Constellation. Today, Dan and I once again have the privilege to share their results, results that outperform our plan, your expectations and require us to raise guidance.
But before I do that, I want to touch upon Friday's FERC ruling that I know is top of mind for many folks. In Constellation's view the 2:1 ruling rejecting Talend's ISA by a fraction of the commission is not the final word from FERC on colocation. The ruling as many of you know, is very narrow, and we believe that all of the commissioners, including the 2 who recuse themselves from Friday's decision, understand the critical importance of providing additional guidance.
Now how that's going to come, could occur in a number of different ways. We could see the commission take action, we could see PJM take action or parties like ourselves could take action. It's premature at this point to say which of those pathways we are going to pursue. But we know this. Colocation and competitive markets remains one of the best ways for the U.S. to quickly build large data centers that are necessary to lead on AI.
As Chairman Philips explained, our nation's entire economy and national security is at stake if we do not lead in AI. That sentiment is shared by both presidential candidates. As National Security Adviser Jake Sullivan, worn just 2 weeks ago, even if we have the best AI models, but our competitors are faster to deploy, we could see them seize the advantage in using AI capabilities against our people, our forces and our partners and allies.
We all know that Power has emerged as the key to America's ability to meet the challenge and Constellation uniquely is positioned to help. There are multiple regulatory and commercial pathways to resolve the colocation issues, and we will work quickly with customers and other stakeholders to put these in place.
In PJM, we have abundant baseload power almost all times of the year. We can power AI. I think sometimes we get sloppy and say we have energy issues with AI growth. We don't. We have a capacity issue that manifests itself just a few hours of the year. This problem is fairly simple to address with demand response, peakers and batteries all provided that we have the right market price signals. But to be fair, we have been a bit challenged on the issue of getting the capacity market moving. Now we agree with PJM's to decision to delay the latest auction, and we encourage PJM to do that because we support changing the reference unit and addressing the RMR units. Those narrow reforms should provide clarity, fair pricing and price stability for customers and generators alike.
PJM should also proceed with streamlining the process for adding generation like our crane restart. We're happy to see PJM progressing on this front, and we're working hard to bring Crane on in 2027. We trust that FERC will prioritize these RPM matters and urge FERC to act on them quickly. The load is going up and the market needs the price signal to react. We note that the recent utility filings with PJM already indicate another 5 to 6 gigawatts of load in the next auction that we expect PJM to implement in its planning parameters. The PJM capacity market has a long track record of being able to deliver new capacity and to drive customer demand response, but we need to let it work.
Colocation will add not detract from reliability in PJM. Here, Constellation's principles have been quite simple. First, in times of emergency, our power should support the grid. To be absolutely clear about what I am saying, that means that nuclear energy supporting a co-located load will be switched to the grid when needed to prevent the reliability crisis. and it should be fairly compensated when so-called. Second, if the co-located load has backup power, it should be allowed to offer that power to the grid. Subject, of course, to state and environmental permitting rules.
Third, co-located load should pay its fair share of Grid Cross for what it uses. These issues should be brought together and advanced at FERC. Frankly, I think part of the issue with the ISA proceeding is that it did not bring these issues together and understandably, some of the commissioners want to see the complete package. We will pursue this when you look at regulatory clarity while simultaneously pursuing commercial strategies for colocation that are permitted under existing rules.
Now turning to our results and guidance updates. In the third quarter, our 14,000-person team here at Constellation delivered GAAP earnings of $2.82 per share and adjusted operating earnings of $2.74 per share. Due to this strong performance, we are raising and narrowing our adjusted operating earnings guidance for the full year to $8 to $8.40 per share. This brings our midpoint to $8.20 per share, a whopping $0.60 per share above our original guidance midpoint. And we remain bullish on the balance of the year.
Our core value proposition is strong, and our strategy remains on track. We will grow our base EPS by at least 13% through 2030. And growth that is backstopped by nuclear production tax credit. We have the best operated and largest fleet of carbon-free reliable nuclear plants that run 24/7 and we will be needed by the energy system for decades to come. These assets will benefit from both increasing demand for carbon-free electricity and reliable power.
Through our industry-leading C&I business, we provide the innovative products and services our customers want. Our strong investment-grade balance sheet, along with strong free cash flows that continue to be used for growth, meet our threshold and provide valuable opportunities for you, our owners. And finally, as you've seen this year, we have the ability to do better than our base level of earnings through multiple paths, including optimizing our portfolio and getting better than average margins. It's been an incredible 3 years for Constellation. A remarkable journey that perhaps is best epitomized by the restart of the Crane Clean Energy Center that we announced in September. Crane validates 3 points that we have discussed many times before. First, it's a powerful symbol of the rebirth of nuclear energy. And it happens at a location that once came to represent nuclear energies demise. Second, it confirms our thesis that the most valuable energy commodity in the world today is clean and reliable electricity. And third, it underscores the growing demand for 24/7 clean energy, driven by the data economy, onshoring and electrification. All of these macro points benefit our owners. We have talked about them before, and I don't think we need to talk about it much more because by now, these points have become self-evident.
In addition to Crane, we have at least 1,000 megawatts of additional nuclear generation that we could bring on to the grid through uprates. And I'm pleased to report to you that we are seeing a wave of interest from customers who are interested in these opportunities and in our relicensing and we are making significant progress on contracting. The intensity of our negotiations with hyperscalers and others keeps going up and up. Our entire team is focused on executing transactions and supporting data center development anywhere in PJM.
Now I want to emphasize the word anywhere. Recall that when Microsoft announced the Crane offtake agreement, they explained that their agreement with Constellation enables them to use the energy in 4 different states, not just Pennsylvania. That should tell you that Constellation easily construct transactions to sell energy, capacity and sustainability products to data economy customers anywhere in PJM and in some cases, outside of PJM. And we can make those fixed price deals for as long as our counterparties desire. That's pretty unique to us. The governors in the states where we operate clean energy centers certainly understand the national security imperative and the value of economic development in their states.
They want us to use the clean energy in their states, and we want that too, but we will follow the customers to all utilities and regions that are working with us to advance economic development and meet the vital national security needs of the nation.
So as we look forward to the inevitable regulatory certainty and flexibility on co-location that Chairman Philips emphasized and is [indiscernible]. Constellation is continuing to hit on all cylinders on colocation opportunities, grid sales and in delivering new megawatts to the grid at attractive prices. We are proud that no one, no one is doing more to sustain an increased clean and reliable energy for America than Constellation. And we continue to lead research on new nuclear energy designs, such as SMRs and for natural gas with sequestration. Our partnership with Rolls-Royce Nuclear is advancing a very promising SMR design, and we are working with other SMR developers as well.
Our pioneering investment in NET Power is poised to undergo advanced engineering tests at our facility in La Porte, Texas. And we're partnering with GE on engineering tests and a pre-FEED study for CCUS at Colorado Bend. As I've said to you many times before, natural gas is a big part of our bridging strategy and we continue to be a player in natural gas provided we have a real pathway to sustainability. Because while powering the data economy is vital patient, defending the climate crisis is vital to the world.
In conclusion, our people are leading on all fronts. The 13% compounded growth that we've committed to you through the end of the decade is secure and we're very confident that we will outperform this target as we layer in new opportunities, just as you have seen us continuously outperform quarter-to-quarter and year-to-year.
Turning to Slide 6. Nuclear performance was once again strong. We produced more than 41 million-megawatt hours of a reliable, available and carbon-free generation from our nuclear plants with a capacity factor of 95%. Our refueling beverage performance was exceptional during the quarter. We completed 2 refueling outages during the quarter with each lasting less than 18 days on average. Great job to Brian Hansen, David Rhodes and that team.
For the year, our average is under 20 days, tracking 2 days are almost 10% below our historical averages and well below the industry average of 40 days. Our renewables and natural gas fleet similarly performed very well with 96% renewable energy capture and 98.2% power dispatch matching.
Turning to Slide 7. We talk a lot about the advantage of creating value between our best-in-class generation fleet and our exceptional commercial business. Our results this year are further proof of the strategic advantages of the combination of these businesses. This is an area where the numbers, not the words, do most of the talking and you could see from the numbers just how spectacularly the commercial team has performed. We performed so well because our customer business is meeting demand in many ways, including through our CORe+ and CFE products, where we enable new renewable generation to be built and carbon-free electricity to be shared with our customers. Since 2020, our core plus business has grown by leaps and bounds as customers look for products to help them meet their energy and sustainability goals. As I mentioned before, through this product, 2,800 megawatts of wind and solar have been added to the system, helping to meet not only our customers' needs, but the systems [ gains ]. We think CORe+ is a great way for customers to move forward on their sustainability efforts and it's a complementary pathway to our elite CFE product that provides 24/7 time and geographically matched clean energy.
I'm now going to turn the call over to Dan for the financial update. Dan?
Thank you, Joe, and good morning, everyone. Beginning on Slide 8, we earned $3.82 per share in GAAP earnings and $2.74 per share in adjusted operating earnings which was $0.61 higher than last year. Starting with the generation, when we look at the quarter and the year, we've seen actual power prices materialize well below the outlook at the start of the year largely given weather-driven declines in natural gas prices as well as generally good renewables performance.
Fortunately, with the nuclear PTC now in place, the means-based tax credit worked like it was supposed to providing the revenue support as anticipated and helping us to meet our expectations. We also benefited from the earnings contribution from our interest in the South Texas project, which we acquired late last year.
Turning to the commercial business. As Joe mentioned, we continue to perform exceptionally well. The team has done an excellent job managing the variability in loads and market prices, reinforcing how it thrives in volatile markets. We're also continuing to see margins above the long-term averages we use in our forecast and above the enhanced margins we disclosed in February.
Finally, as we discussed last quarter, our financial results and our stock have continued to perform very well year-to-date, which results in higher employee compensation expense year-over-year. Altogether, we had a strong third quarter that is contributing to our improved outlook for the year. Before I turn to guidance, given the timing of our announced crane restart and where negotiations were during the quarter following our second quarter earnings call, we were unable to be in the market and unfortunately, did not repurchase any shares during the quarter. We still have approximately $1 billion of share buybacks currently authorized by the Board. As well as $1.8 billion of unallocated capital for the 2024-2025 period, which I should remind is not updated for the increase in 2024 earnings guidance or outlook for 2025.
Moving to Slide 9. We are raising the midpoint and narrowing full year adjusted operating earnings guidance. The updated midpoint goes from $8 per share to $8.20 with a range of $8.00 to $8.40. The new range is effectively above the top end of our guidance of our original guidance range of $7.23 million to $8.03 per share. The commercial business continues to outperform plan, allowing us to increase our earnings outlook for the year once again.
As you can see in the appendix on Slide 21. We increased our enhanced gross margin by $275 million as a result of the commercial team's continued strong performance, created an additional value compared to plan through the optimization of our portfolio. As previously discussed, we are seeing higher O&M due to the strong earnings results and stock comp.
On the fourth quarter call, we will roll forward our earnings guidance and other disclosures to include 2026.
As you think through your modeling and as reflected in the disclosures in this deck, I want to remind you that we'll have more refueling outages in 2026 that in 2025, and these outages will be longer than our average outages because we'll be installing the first of our planned uprates at Byron and Bradewood. As a result, we will produce less electricity and have higher O&M.
In addition, we expect the PTC 4 to be flat in 2025. We still forecast at least 13% compound base EPS growth through 2030 and we'll look for ways to further enhance our opportunity from here.
Thank you, and I'll turn the call back to Joe.
Thanks, Dan. Good job as always. Folks Constellation is like no other company. We have a unique set of existing assets that creates opportunities that no one else has. As Dan and I both hit -- we expect to see 13% compounded growth through the end of the decade, uniquely, it's backstopped by the federal government. We're the best operator of nuclear plants in the world, and our plant's performance is only getting better.
We have 20% market share in competitive -- with competitive C&I customers. And that's allowed us to have the products and services that now we are uniquely using with the data economy customers. Our strategy from the beginning is to provide America solutions to its energy problems, and we're doing that. We're not done as a company, not far from done.
Power demand is growing and at the same on reliabilities becoming a premium product. We don't need to look further than the recent capacity auctions and the load growth projections to see that. We see increased demand from the data economy, but also from electrification and from onshoring. And it's going to mean that our resources are more important than ever. We have opportunities in the data economy for front of the meter deals. We've shown that through clean.
We've shown that through our CFE product, and we continue to see opportunities behind the meter in co-location, we've got 2,000 megawatts of new nuclear that we bring to the grid beginning in 2027. So think about that. That's 2,000 megawatts, roughly the equivalent of Vogtle and we think we could get that done all within the next handful of years. We're going to benefit from government procurements from clean energy, and we're going to be able to capture energy and capacity prices above the PTC floor.
Finally, I'd just like to say something about tomorrow's election and how it could impact us at Constellation. We're proud that nuclear energy has strong and bipartisan support from federal and state policymakers and from the American people. And in fact, the majority of Americans support nuclear. Congress has passed several pieces of prone legislation in recent years, including the Advance, which passed Congress with strong bipartisan support. You'll recall, and we've told you this before that the origins of the production tax credit came from Republicans in the House and the Senate. And both Vice President, Harris and former President Trump have been strong supporters of existing and new nuclear during their time and office. Politically, and unfortunately, there are deep divisions in the country. but all Americans want clean and reliable energy, and we're proud to provide what they want. We're proud to provide what our customers and our communities, what no matter who wins tomorrow, who are going to continue to do that.
With that, Latif, we'll end our prepared remarks and open it up for questions.
[Operator Instructions] Our first question comes from the line of Jeremy Tonet of JPMorgan Securities.
Thanks for all the details on the call. Just wanted to come back to postbirthere and thoughts. Just wondering if Constellation were to pursue more front-of-the-meter deals, how do you think that, I guess, impacts value creation and speed to market relative to, I guess, behind the meter solutions here. It seems like there's still an opportunity to get to the same place, but just wondering any other thoughts that you can share?
Yes, Jeremy, our foot is on the accelerator pressed all the way down on deals, whether they're front or behind the meter. And so we're pursuing both. I think We've, as I said, demonstrated through Crane, our ability to use our power stations to support data center development anywhere. And so I think that's going to create some real opportunities for partnering with utilities that want to ensure that customers in their region or their utility get first access to clean and reliable power so that they could meet their growth objectives and we look forward to partnering with them and customers who want to be in those areas. Speed to market is very clearly the most important thing for customers. And so that's going to depend on the transmission configuration in different places and certain places are going to be frankly, more attractive to others for the data economy customers, and we're going to follow them where they need to go.
Got it. That makes sense. And then I guess also looking at the state level, you see certain states out there really looking to promote the data economy development in their states. And I think there's some actions coming out of the governors to really promote, I guess, quicker speech market interconnect Q timelines and just wondering any other thoughts that you could share there as far as what could be done on the state level?
Yes, that's the irony of it. I have not -- look, I've talked to every governor in states from which we operate clean energy centers. And I could assure you that they all want to get this economy going they understand that it's important for national security, but it's also critically important for economic development in their states. And moreover, they understand this kind of fundamental point that they are part of an interstate grid. So that if they don't build the power from power plants that might be in their state is going to flow to different places where those data centers are going to be built and those states are going to get the economic benefits, the jobs, the taxes, all the other things that come with it.
So I see it as a circumstance where they're all leaning into this. And I think we will see more of that lean more aggressively into trying to advance rules at FERC and trying to do things that attract data center development to their jurisdictions. And that's Republicans and Democrats alike. So we're following that closely. We -- as I said, we'll continue to meet with utilities that we have common interest with and want to really advance data economy development work in those states, and we could go anywhere. We've -- we have been selling hundreds of terawatt hours every year to customers across PJM and other RTOs. We know how to do that. We know how to manage the risk. We know what our costs are going to be 10, 20 years from now. We know how to get capacity to all places. And as more transmission is built, we'll be able to move even more capacity in a different place. So we'll follow the customers where they go, that's the entire focus of Jim's team and the work that Kathleen and others are doing right now. And that's what I have said before that the discussion with hyperscalers is only ramping up. It's about this sort of thing. How do they buy the energy capacity that they could deploy wherever they want.
Our next question comes from the line of Shar Pourreza of Guggenheim Partners.
I appreciate sort of the color you're giving around sort of the markets and stuff. But maybe just if you could speak a little more to the transmission capacity within the ComEd and PECO zones around your plants as you see it. I mean, 1 of your peers has pitched capacity in its primary zone is kind of advantageous in the shift towards more front of the meter deals. And obviously, some of the stock reactions we're seeing this morning is prompting that.
So I just want to get a little bit more color there.
Yes. Look, sure, I think both from a temporal standpoint, a long-term standpoint, we happen to operate in markets that have fairly robust transmission capabilities, right? When you think about the ComEd zone, as an example, it has probably the most robust export capabilities of any zone within PJM. I think numerically, that's accurate. And we're seeing new transmission being built all over the place, that's really expanding that. So the ability to move energy and capacity in different places is growing really as the plans come into fruition and transmission is built. But there's a lot of lanes right now for us to move our power. So that's what we're exploring.
Got it. Okay. Perfect. And then just the pathways to getting some clarity on BTM tariffs. I guess what is the -- what do you see as kind of a realistic time line? I had a conference on Friday. It could be a new chair next year with the election tomorrow. I guess what is the fastest this could get resolved at this point? Do you wait for an [indiscernible] can you or PJM do something to expedite?
I mean there's a lot of options that are being thrown around, but nothing seems to be a quick fix besides shifting to sort of in front of the meter.
Yes. Look, I probably would agree with you that there's not a quick fix. But by that, I mean, it's not going to happen tomorrow, but there are a lot of parties interested in moving this forward. people are reacting to the tech conference. I think the bigger development wasn't the ISA, which was a narrow thing. But how do we deal with the comments that came out of the tech conference and craft something globally that addresses those comments. I touched a little bit on that in terms of the principles that we think would be framework for a bigger deal.
How that happens I don't think we're literally, what, 72 hours away from the tech conference and still putting that together or meeting with counterparties and we'll figure out how to move forward. I don't know if FERC at this point is going to take the lead, PJM will or other parties as well, it's just too early in the game for us to say that. But look, I think there's a strong appetite. I don't care who's in the White House. AI is going to be a growing importance. I fundamentally believe this are -- this is the issue of our time. It transcends the energy business. This is the issue that will define America's success in this century, whether we lead or fall behind is going to be of critical importance.
That may not be universally known to others, clearly, Chairman, Phillips, understood that with great clarity the other day in his comments. But not everybody does right now. in November of 2024. A handful of next year. I think that whole picture will change and the energy around this issue is going to intensify and FERC and others will have to clear up these rules quickly.
Our next question comes from the line of Steve Fleishman of Wolfe Research.
I guess I'd like to -- Joe, you talked about some kind of colocation broad thematics that including the first 1 being that nuclear would be switched to the grid emergencies and be fairly compensated. Could you just talk more to that because that -- it seems like a little different than at least the things that we've seen so far structurally. So I'd like to give more color on how that would work? And then tied in with that, the DR aspect with the data center since that's been kind of a challenge since they run all the time. If you could talk to those 2 issues be helpful.
Yes, sure, Steve. Let me do it kind of backwards. I think we've seen historically, we have lots of megawatts show up of demand response when the price signals within PJM are consistent and sufficiently robust for commercial industrial customers like ours to pull back energy consumption during peak out and the challenge, frankly, for that DR market isn't that the thesis doesn't work, it's that prices dropped so precipitously in capacity markets that it no longer made sense for businesses to participate to be willing to disrupt their business. But at the price levels we saw in the last auction to the extent that prices in that vicinity are sustained, I see a reemergence of DR as an immediate resource that's going to address some of these hours of peak demand. That's what I was talking about. And I think we're in a good spot because we have those customers, those clients that could respond. And so I happen to know from our commercial team that we believe that those folks will respond if the price signal is right.
So that's kind of the answer to that. But we've got to get this capacity market up and running. We can't be doing hand wringing about capacity and then at the same time, keep tweaking and delaying auctions that set the price signals to the market so that market responds. We know historically the market always responds. So that's point one, point two, what I'm talking about in terms of the nuclear units returning is -- and I think we're seeing some of this in ERCOT at some level, right, of advanced warning when the grid reaches some level and it's kind of multi-step hierarchy of a grid crisis, the nuclear unit will shut down the co-located load and cut back to the grid. And so we can get some legs under that exactly when it will happen.
But that's something we're absolutely willing to do and our customers understand we will do. So this kind of notion that we're taking the energy off the grid, and it never comes back or some kind of unrealistic fantasy that the grid is down, data center is up surrounding the nuclear plant is just -- it's a poor narrative. It's not -- doesn't accurately reflect what will happen.
We will always go back to the grid as promising. In terms of being compensated, we have offered solutions that allow us to continue to participate in the capacity market and return to the grid in all configurations when needed. Now unfortunately, in the past, as an isolated issue that didn't make its way through the PJM committee process. But my point in my opening comments is we've got to bring all of this back together in response to what we heard at the tech [indiscernible] and provide a credible and viable pathway for the [indiscernible] to come back when needed, but also to serve the co-located load that is vital for this AI fell.
One other, I guess, follow-up question. Just in the event that you wanted to shift to co-located structures that are more, I guess, front of the meter -- could you give us a sense of just the timeline that delay that, that would cause in your kind of key regions relative to being able to do it behind the meter.
Yes. Look, I don't know, Steve. It will probably require some more study process, but I think we've got -- it's going to depend on what the transmission is around the site, how long that study process will be. I think it is a bit of a longer solution, but I think it could be staged cooperatively in a manner that really doesn't cost that much time. We have some ideas about how we will do that in accordance with the existing tariffs that allow us to get to the end state fairly quickly. We're probably going to be a little careful here on an earnings call spelling out exactly how that will work.
Our next question comes from the line of Paul Zimbardo of Jeffries.
It's Julian. I appreciate it. Just wanted to follow up a little bit on the sort of the cadence of the last 2 questions and asking, how do you think about [indiscernible] confidence is probably pretty key here right now. How do you think about being able to come to market with whatever it is, whether it's a behind [indiscernible] type arrangement or some sort of portfolio in front of the meter type deal.,
How do you think about Friday representing any kind of setback in timeline on your front? Or do you think that you're still front foot here in terms of being able to bring something to market sooner than later?
Look, I think Friday is just what I said. I think it's a narrow ruling by 3 commissioners. I'm not even sure that's the ruling we would have seen if the 2 commissioners didn't recuse themselves. So -- it's going to be dependent on how fast we always anticipated after the tech conference, there would be a process to deal with issues that came up. So that has been in our thinking from a strategic standpoint and in the thinking of our customers. And I just don't over-rotate on what happened on Friday and the ISA because I don't think that really brought the issues together in the most favorable way.
So my point is, from our internal planning, it's kind of the same thing. In terms of front-end the meter deals, we're doing that already. We've done it with dozens and dozens of customers already in PJM and you'll see those numbers in our disclosures. So -- and as well as the operates and other opportunities. Those things are moving along at pace and if anything, have intensive after the Microsoft deal with [indiscernible], the appetite and desire to talk to us about the uprates has gone up pretty considerably
So we're moving at pace on all of those things. And I think they're all going to be additive to the 13%. We just got to get the deals done and incorporate them into our numbers, and you'll see it.
Yes. I appreciate all this takes some time, right. I mean obviously, TMI a lot of planning. How do you think about the upgrade structures here? I mean, obviously, there's incremental megawatts potential here. But as you think about contracting here, would you think of that as being kind of an opportunity to recontract entire plants? Or would you think about this being more discrete to the additionality provided by the specific megawatt upgrades? What you think about the structure of that timing?
All of the above. But guys, I think we're seeing such interest in the operates that we want to package it with other opportunities, okay? I think I have fewer operates than I have customers to sell them to. So there's a scarcity of that product. And so that tells us we should pair it with other things that we care about. Relicensing are another thing, that hyperscalers want to be a part of and support, right?
So that makes a good [indiscernible]. So I think about the upgrades as a scarce opportunity that we have at Constellation and an opportunity we want to share with customers that are interested in a broader or strategic relationship and perhaps just the upgrades.
Our next question comes from the line of David Arcaro of Morgan Stanley.
Wondering what's the perspective that you're hearing from the hyperscalers? What's the urgency level? Are they worried about regulatory issues in PJM? Are they sticking with PJM and still looking for behind-the-meter approach? Any changes in their thinking?
David, where are they going to go? Right. It's not like it's a lot better anywhere else than PJM. I think the reality everyone is facing is simply this. This power issue has become unlocking the whole deal. They're investing billions and as you can see from their disclosures, they're not slowing the pace of their investment. But what they're seeing is that there's no Nervana out there. There's no place where you could easily hook up the amount of energy that they're looking to hook up.
So no, I don't I don't see them as saying, "Oh, no, PJM is not the place to go. I think competitive markets and PJM very much remain on their list of priority sites. But the truth of all of this, and I think Philip's added exactly right, is this is going to require a degree of regulatory flexibility and creativeness that's going to stretch everybody. And that's no true, by the way, in vertically integrated markets than it is here. And you see that time and again. What won't -- I'll tell you what won't be the solution and I know this with absolute certainty. They're not going to wait around for 10 years until somebody builds a power plant transmission lines to power the data economy. If that's the U.S. plan, then we've got bigger problems than picking the right RTO.
Yes. Got you. I appreciate that. That makes a lot of sense. And then maybe thinking about the PJM market broadly to appreciate your comments before, and we're still waiting for this kind of supply response, but there's some stakeholders that may not be as patient here. You mentioned demand response, but, what are you thinking there about potential major market changes or like subsidized new generation or reregulation just some of these broader approaches that have started to pick up in PGM discussions.
Yes, I'd give you the same answer I gave you last quarter. I don't think that's realistic. I don't think it's lost on governors or stakeholders that we've had one option and we've now delayed the second option. We don't have final rules. We have a reference unit that was creating really this enormous variability in pricing against very few megawatts. That was the wrong decision. PJM is going to revisit that decision. They're going to do what they're going to do with the RMR units. And what I think the combination of those things is going to create is a more realistic pattern of pricing that's going to incentivize demand response and incentivize competitive supply options.
So look, I know people talk about these things. They've been talking about these things for 20 years and they haven't made any significant progress on these fronts. But it's not the first time we've seen high prices result in utilities saying, "Oh, we want to build -- we welcome them into the water anytime they want to create emerging part of their business and invest in power plant generation. But we got to kind of let this market work, and I think folks will want the market work.
Our next question comes from the line of Nick Campanella of Barclays.
So a lot of questions have been answered. But I think a couple of quarters ago or I think it was even in the second quarter, you talked about grid charges. This is more in the face of the protest that was filed, and you argue these were in kind of like the low single digits on a dollar per megawatt hour basis. But just -- if we are shifting towards front of the meter, I'm also kind of acknowledging that every T&D operator has increased their visibility to the gigawatts that they're seeing on the grid, their queues are becoming more valuable and just -- do you see that impacting the overall front-of-the-meter charge? And how do we kind of think about how that impacts the economics and the return hurdles you're targeting? If you could just update us on what you think those front of the meter charges actually are now.
Yes. Nick, I haven't changed my view on what they should be. I think if they're charged for when they use the grid, I think the ranges I gave you before are still the same ranges. So that's -- there's nothing really that has changed that. Look, I think what's kind of misunderstood here is the -- as long as the interconnection is done efficiently, the more people you have using the transmission system, the more that cost will be broadly shared and that will be a mitigate. And that means that you have to -- that means you have to get the connection right to begin with. You can't spend a boatload of dough, locating some of these projects in places that are completely unreasonable and then trying to socialize all of those costs. That may be good for the utility, but it's not good for customers. But if you locate these things very near the data centers, who are very near the power sources on a co-located basis, you shouldn't see huge interconnection costs. And as a result, we're not going to see much higher prices than what I shared with you previously. But I think I laid this out in what you're referencing that this is not a dollars issue. This is a speed issue. And if you listen very carefully to the tech conference the other day, that's what the data economy customers are saying.
We're not saying they're not willing to pay their fair share. What they don't want to get this stock in as being mired in years of study processes. And I think some utilities are going to be able to distinguish themselves and get these things done faster than others.
I appreciate those thoughts. And then just 1 follow-up on the capital allocation. Do you see yourself leaning on the buyback more this year now that we've moved past this crane announcement? And then just set the table on what you're expecting to bring in the fourth quarter. Are you going to wrap in the earnings guidance to that $1.8 billion figure? And should we have kind of a wider update in the fourth quarter?
Yes, Nick. So just to give kind of our cadence now, right, as we provide a pretty comprehensive update on our financials on the fourth quarter earnings call we'll roll forward, right, give formal '25 guidance, we'll give you the same significant inputs for '26 as we have for '25 today to give you some visibility into that multiyear view we'll refresh the kind of the extended version of those numbers in the appendix right, so we kind of go out to 28 NAV. So we'll probably add another year there, so you'll see even further horizon and keep supporting getting back to the growth rate we talk about out to 2030.
On the 2-year cash available slide, yes, we'll update that for where we are closing out the year on cash and then our outlook for '25 and '26 will all go into that math. So you'll see a full new update on all those numbers and reflective of all of our CapEx plans and any growth opportunities that we haven't talked about with you guys at this point in time. On the buyback, we like you as long as we are not burdened by any material nonpublic information, we'll look to be in the market. We were bumped weren't able to do it last quarter when the stock was lower and certainly, we see opportunities. So as we relied to, we'll be there.
Our next question comes from the line of Durgesh Chopra of Evercore ISI.
I just had 1 question. Joe, I appreciate all the color. On the FERC decision, you shared -- you mentioned the decision being narrow. When we read through the order, there's clearly a willingness from 1 of the commissioners to get it right. They talk about not setting a precedent. Just do you expect FERC to start a process or some sort of a docket following the technical session on Friday? Or does something has to be initiated by you or your peers IPPs.
Yes. Look, I think that's 1 of the things we still don't know, right? Because there's not clarity on where FERC goes, but we could drive the agenda here. if we're unsatisfied with progress, and we know that. And so -- but we're not going to do that by ourselves. We'll do that with others better of a similar mind, and we'll get that proceeding going. But want to see where PJM is going to be. We want to see where FERC is going to be -- it was -- it's 1 where without hearing really from these other 2 commissioners who recuse themselves on it. It's kind of hard to gauge based on the opinion because we obviously didn't see their words.
So we got a little bit of work to do to understand it, and we're going to be doing that this week and formulating the plan over the next couple of weeks.
Thank you. I would now like to turn the conference back to Joe Dominguez for closing remarks. Sir?
Well, listen, I appreciate all of the good questions today and the discussion we're charging forward on all fronts, as I said. We think we have a pretty unique value proposition here with a 13% compounded growth and many, many opportunities not yet realized and we're quite excited for the future. So thanks again for your interest. And with that, Pipa conclude the call.
This concludes today's conference call. Thank you for participating. You may now disconnect. Have a great day.