Constellation Energy Corporation (CEG) Earnings Call Transcript & Summary

Good day, ladies and gentlemen, and welcome to the Constellation Energy Corporation Business Update Conference Call. [Operator Instructions]. As a reminder, this call may be recorded. I would now like to introduce your host for today's conference, Emily Duncan, Senior Vice President, Investor Relations and Strategic Growth. Please go ahead.

Good morning, everyone, and thank you for joining Constellation Energy Corporation's call to announce the acquisition of Calpine on short notice this morning. Leading the call today are Joe Dominguez, Constellation's President and Chief Executive Officer; and Dan Eggers, Constellation's Chief Financial Officer. We are also joined by Andrew Novotny, President and Chief Executive Officer of Calpine. 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 a press release this morning along with the presentation, all of which can be found in the Investor Relations section of Constellation's website. The release and other matters, which we will discuss during today's call contain forward-looking statements and estimates regarding Constellation and its subsidiaries and Calpine 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 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 releases for reconciliations between the non-GAAP measures and the nearest equivalent GAAP measures. I'll now turn the call over to Joe.

Thanks, Emily. Happy New Year, everyone. It's off the bang for us. Thanks for joining us on short notice as we share the exciting news about our acquisition of Calpine. It brings together 2 amazing teams of people and world-class assets that include the best-run fleet of nuclear, natural gas and geothermal power plants anywhere. This combination creates the largest, cleanest and importantly, most reliable fleet in the nation, with a coast-to-coast presence that positions Constellation to meet the growing energy needs of all of our customers from the largest companies on the planet to the millions of families that we power every day. Over the next hour, Dan and I will walk through the strategic fit and the value drivers for this once in a lifetime opportunity. But before we do that, let me just level set on where we stand as we close a wonderful 2024 and look forward. Last year was a remarkable operational and financial year for Constellation. As always, it's due to the hard work and the dedication of our great team and all of the women and men that work at Constellation. We reset guidance twice. And while we're still finalizing fourth quarter and full year results, I'm very pleased to say that we are confident that we will exceed the top end of the guidance range. Now this is the second year in a row where we have exceeded the top end of the range and the third year out of 3 in existence where we've outperformed. As I've told you before, this is a team that expects to deliver on what we promise, but we always aim to deliver more than you expect. In that vein, in Dan's section, we will cover how 2025 and 2026 are improved versus our previous disclosures with plenty of time to continue to improve that outlook in a very constructive market. Now turning to the news of the day. We have a lot of slides here. And I'm not going to drain all of them. Some I'll just touch on lightly, but the information will be useful to you as you reflect. In a nutshell, here's what this is about. We love our story and our strategy. It's unique, and we're hitting on all cylinders. You've seen that now for 3 years in a row, and you're going to keep seeing it. But we're not the only ones who love our story and strategy. Calpine's owners love it too. That gave us the opportunity to acquire a great company with amazing zero and low carbon assets at an incredible value. It produces immediate financial benefits for you in EPS and cash flow accretion numbers that I have never seen in 25 years in this business. We believe that natural gas and geothermal along with nuclear will be critically important to the nation, and that translates into great results for both our customers and for you, our owners. The transaction gives us a geographic diversity and reach, and leverage exposure to Texas where many of our customers are growing. But beyond that, what excites me the most is the ability to combine 2 great teams. The ability to see how we could put together these fleets and provide commercial synergies through new products and services that no one else can provide. And finally, this transaction gives us the financial scale to build and grow so that we can meet head on the growing needs of our country. Before I turn to the slides, I just want to acknowledge the teams that worked so hard over the holidays: Corporate Development, Finance, Legal, HR, IR, Commercial, Generation and Communication, and all of their counterparts at Calpine for their tireless work to get this done. Special thanks to Andrew, who is here with us today. I also want to thank both companies' bankers, lawyers and advisers. It wasn't easy by any stretch to pull this together, and everyone sacrificed a lot of time with their family over the holidays to get it done, but the results are fabulous. You're all incredible. Thank you. Turning to Slide 5. This gives you an overview of the Calpine business. Calpine is the largest owner and operator of natural gas-fired power plants in the United States, with most of these being very efficient combined cycle gas turbines or CCGTs. It's the largest geothermal operator in the United States. It's the leading cogen operator. It's got a growing and able platform of storage capability. It is a large retail provider, serving 59 million-megawatt hours of power to mostly C&I customers, a perfect complement to the work we do here at Constellation. And most importantly, it is run by an exceptional team, some of the best people in the industry, and we're so excited to partner with them. Calpine's low-carbon natural gas assets are not only incredibly well run, but they are some of the newest lowest emitting and most efficient in the nation. And critically for us, Calpine owns no coal. It has no residual coal plant liabilities. That means it meets a bright line in our M&A strategy and a very bright line for many of our owners as well. Like Constellation, Calpine is committed to environmental sustainability. They operate the largest and best zero carbon geothermal fleet, which is like our nuclear fleet, is very unique and they have created an outstanding energy storage business with a strong pipeline. Working with DOE, Calpine is at the leading edge of developing promising new host combustion carbon capture and sequestration technology, creating a pathway that could help this country sustainably transition away from emitting resources and extend the lives of all of our existing gas-fired plants and unlock the true potential of America's abundant natural gas resources for the long term. Turning to Slide 6. As I just laid out, we're buying a fantastic company. I hate the word buying, by the way. It's what the documents say, but what this is, is a wonderful combination. And it's thrilling to see what the combination of 2 great teams can do. We're going to create this largest, cleanest, reliable fleet of generation at a time when these megawatts are being recognized as premium products because they are needed to meet the growing demand for energy for our customers. We believe that the combination of the leading nuclear and natural gas platforms will significantly complement each other. This will complement and expand our ability to offer nuclear solution sets through a combination of nuclear and gas blended products and customer solutions on a scale that neither company can achieve on its own. As you'll see from the financials that Dan will cover, the numbers just leap off the page. It's immediately more than 20% EPS accretive in 2026, will add at least $2 of EPS each year throughout our plan and will add at least $2 billion in annual cash flow before growth to our already robust cash generation platform. I'll walk through the transaction details in a second. Our coast-to-coast reach will open up even more opportunities to sell our products to customers and to meet the demands of some of the world's largest customers. The combination brings together, as I said, 2 great teams. Importantly, teams that share the same vision of customer service and environmental sustainability. Our balance sheet strength will continue to be a market differentiator, a competitive advantage that provides us with strategic flexibility to do big deals like this, support our customers and critically, to invest in the assets America is going to need in the future. Our combined capabilities create the potential to add at least 3,500 megawatts of reliable resources to the grid, things like our crane restart, our upgrade plan and other opportunities. And finally, we have tremendous opportunities to further improve our strong financial outlook through deals like the deal we just did with the GSA and also our ongoing work with customers in the data economy. Turning to the financial terms. We're on Page 7, we're acquiring Calpine for an effective enterprise value of $26.6 billion. And we will pay Calpine's owners $4.5 billion in cash and 50 million shares of Constellation stock for an equity purchase price of $16.4 billion. Because of the strength of our balance sheet, we can do all of this without issuing any new debt or raising additional equity beyond the shares exchanged with Calpine's owners. In many respects, outside of Constellation, we believe that Calpine would have traded at the best multiples in the business had it pursued an alternate path to an IPO, all of which makes the 7.9x EV to EBITDA acquisition multiple on '26 earnings extremely compelling. Now we've already been asked by several people this morning how we were able to reach such a value-enhancing agreement. Not to candy coat it, I think the bottom line question is, why would Calpine's owners sell to us at such a discount. As I explained at the outset, I think the answer is pretty simple. Calpine's owners equally believe in the value creation potential of the combined company as evidenced by their willingness to transact in mostly stock and their commitment to remain owners for a period of time. They did a lot of work on us, and clearly, they liked what they saw. I said earlier that this was a lifetime opportunity, once in a lifetime opportunity for Constellation. And in many respects, I think that is equally true for Calpine. We're especially delighted to work with the Calpine team. It's been a pleasure for me to work with Andrew Novotny, and I'm super excited that he's going to join the Constellation team as an Executive Vice President of Constellation, and he'll remain President of Calpine. I got to spend a lot of time with Andrew, and he's an incredible leader and an incredible person. We're excited to have Andrew and others from his management team join our strong team here at Constellation. Now I touched upon the tremendous EPS and free cash flow before growth that Calpine will add on the previous slide. But importantly, with the acquisition, we will keep all that we've had. We will maintain our 13% compounded base EPS growth rate through the decade, and Calpine will be additive to our base earnings. We previewed the transaction with the rating agencies and expect that both S&P and Moody's will affirm our current ratings. We plan to return to our target credit metrics by the end of 2027, and we will use the cash flow generated by the business to pay down some of the debt we are absorbing with Calpine. We have several needed approvals for the transaction with the significant ones being the Department of Justice and FERC. We intend to take a proactive approach to resolving any potential market power concerns with the divestiture of assets. Given the strong interest in generation assets in the market today, we are very confident that there will be considerable interest in the assets we need to divest and that we will receive a fair price. Turning to Slide 8. We spent a lot of time on calls and in meetings with you talking about this new era of demand growth we're seeing. So I'm not going to rehash all of that. You've seen the projections in a lot of our other presentations, and it just seems like there's a new story every day about the NAND growth. The fact of the matter is demand for our products is, it is expected to grow at levels we haven't seen in a lifetime. On this slide, you're seeing the projections for ERCOT and PJM. These will be the 2 largest markets for the pro forma company. These charts show you revisions in their demand forecast over the last few years. Now listen, I get it, we can all raise questions about the ultimate magnitude of these increases. Do we believe all of it is real? It's hard to say, really. But let me offer a couple of thoughts here. First, even if only half or 1/3 of this forecasted growth occurs, it's a very big deal, and the combined company assets will be very well positioned. Second, what's more compelling to me than the ultimate amount of projected growth, which is, again, something we could always debate, is that we're seeing year-over-year increases to the annual forecast, and you see those forecasts in the solid lines on this slide. It's not forecast we're seeing. We're seeing a lot of activity on the ground. Just if you look at the news recently, you see Microsoft's announcement to spend $80 billion this year on building data centers to support AI development. The demand is real and the demand for reliable power assets that can operate at high capacity factors is growing even more dramatically because of the composition of the demand. I've touched on this before. This is not peaking demand. What we're seeing here is, especially with the data centers, resources that call on the system for 24/7 energy. So we're seeing high capacity demands and also high energy demands. That lines up perfectly for machines that could operate at high capacity factors 24/7. Again, assets like our nuclear plants and Calpine's highly efficient combined cycle plants in growing markets. Turning to Slide 7 -- or Slide 9, pardon me. The supply side is equally interesting. Now in contrast to the 24/7 demand we're seeing, the reality is the megawatts that we're adding to the system, those megawatts that are in the queue are primarily intermittent resources and short-duration battery storage. There's just very limited dispatchable generation planned to be added in PJM, ERCOT, and none in the California ISO. We've talked about this on our call last February. Renewable generation has an enormous role for the country moving forward. But we see also enormous variability, not only seasonally, but day to day. That strains reliability. As we've said for a long time now, it's very hard to run a full-time grid on part-time power. And when we couple that with the reality of additional fossil retirements and now the load growth, it's clear that we're going to see a premium and long-term value for resources that can deliver reliable and clean power to our customers and to the grid. That's the benefit of the combined fleet we're creating here. Turning to Slide 10. This slide pretty interesting, I think, because it shows how independent studies from every ISO and even from some environmental NGOs, all agree on the continued need for natural gas fire generation. Historically, we've asked ourselves how long will these assets run? Well, you know what's powerful here is if you look at this slide, in the first bar chart is California. You can probably all agree that California is further along on the transition than any other state. And yet in California, the ISO predicts that it will continue to need virtually all its natural gas generation for decades. You see that same picture for all of the other ISOs. And notably, if you actually look at the date that these studies were done, many were done before we saw these big revisions in demand forecasts. So in my view, they're understated. We believe our natural gas fleet will be important to the nation for the long term. I said this on our February call. Reliability is equally important as sustainability, and we have to solve for both. We just don't have a choice. That's why the most valuable energy commodity in the world is a clean and reliable megawatt. That's what Constellation does today and what the combined company will do together. Turning to Slide 11. We're combining the largest nuclear fleet in the country with the largest natural gas fleet and we'll generate more electricity than any other company in the United States. We're going to have more than 60 gigawatts of capacity from nuclear, natural gas, geothermal, wind and solar, an 80% increase to Constellation's capacity capability. These plants will produce an industry-leading 308 million-megawatt hours of electricity every year, and that's before we bring back Crane. That's before we implement the uprates, and that's before the growth that we anticipate. Constellation currently provides 10% of the nation's emissions-free energy, and the inclusion of Calpine's geothermal fleet will add meaningfully to that. Together, we're going to produce 183 million-megawatt hours of clean emissions free energy, and we will continue post this transaction to be the lowest carbon intensity of any large generator in the United States. Take a look at that, folks. Bottom line here is, post this transaction, we're the biggest fleet in the country and we will continue to be the cleanest fleet in the country, big deal here. Turning to Slide 12. Our North Star is to add complementary people and capabilities when it makes Constellation better able to serve its customers, from individual families to the world's largest businesses. That is where this transaction really shines. The combined company footprint will span the continental United States, giving us an unparalleled coast-to-coast presence. It will enable us to offer energy and sustainability to products to more customers and positioning us to be truly a nationwide partner for all customers. Now I'm not saying, we are going to win everything coast-to-coast. We can't. But I think what this transaction does is puts us in the customer conversation in every region of the country that's competitive. And that's exciting because what it does is it transitions relationships with customers from transactional to truly strategic where we could serve in multiple markets and give them multiple options. Turning to Slide 13. The combination creates substantial market diversification. It moderates our reliance on PJM, and it expands our presence in Texas, the fastest-growing power demand market, and in California, where we've been growing a customer business for the last couple of decades. As you all know, we really like the business we built here at Constellation. I love it. But look, if I'm going to be honest, what we didn't have is enough exposure to Texas, which has been the fastest-growing market in the U.S. It's been our place where many of our national customers have grown and they want to continue to grow. We've tried to address this need at Constellation by growing our generation business in Texas. You all saw that with our SDP purchase, right? That's what we were trying to do, get bigger and scale up in Texas. But we couldn't do it fast enough. Through this combination, our owners will have better upside exposure to growth in Texas, will diversify geographic risk. And as I said, we're going to be better able to meet the needs of our customers. Let me turn to Slide 14. I always begin calls like this talking about our teams because companies can't succeed without good people. You've heard me talk about the management team and the women and men who work at Constellation. And you know that I believe that we have some of the best people in the business. They're critical to our success, and the results that Dan and I get to report every quarter are about what they do every day. I want to thank them for everything they do to make Constellation what it is today and what it will be in the future. Like everyone else in the industry, we have enormous regard for Calpine's people, from their leadership team led by Andrew to their newest employee. We've gotten to know them much better in recent months. And all I could say is this. They're incredibly talented. They care about the same things we care about. They have an intense focus on operations and they have a culture built around innovation, commercial savvy and customer service. I can't wait to work with all of them. With this acquisition, we're bringing together these 2 world-class teams, and I can't wait to see what we're going to be able to accomplish. Turning to Slide 15. The combined portfolio of nuclear and gas generating assets is best-in-class. On the left side of this slide, you can see Constellation's excellent nuclear performance numbers. We've talked about that on prior calls. Constellation has been a leader in this industry for many, many years. On the right-hand side, you see the high availability and capacity factors of Calpine's gas assets. They, likewise, have been amazing performers on the natural gas side of the business. Through this combination, we're going to bring together these terrific operational teams. Turning to Slide 16. All the benefits we've been covering, everything I've talked about is about better serving our customers. That's our North Star. Our combined commercial business will serve approximately 200 million-megawatt hours of retail electric load to customers across the country, making us the leading competitive electric provider and the only one with a true national presence. Our customer mix will remain 90% commercial and industrial customers. That's been a long-standing focus because we think those are the customers that we pair up best given the composition of our assets. The platform is going to be able to sell more products to all of these customers. Products like our highly successful hourly CFE product, a product that we again featured in the GSA deal. And like us, Calpine has been developing sustainability products for their customers, blending natural gas power with renewable power to create a pathway for sustainability. That has been a great product. And I think that blending natural gas and nuclear power, along with renewables and storage, is going to allow us to create even more diverse customer offerings to help them along on their sustainability solutions. In particular, we believe that natural gas and clean energy blended together will be very attractive to customers and will help customers that can't afford today the full cost of going 24/7 but want to start on the pathway to sustainability. It also, if you think about it, gives us the ability to help data economy customers near the locations where we have gas assets and to provide environmental credit coverage to those transactions. A great, exciting opportunity for us. Turning to Slide 17. Constellation and Calpine's portfolios are extremely complementary to each other and they'll create benefits when they're combined. We talked about this before. But the core product, the CFE product have been fantastic for us. We're going to offer those to Calpine. Calpine will be able to offer their products to our customers. Cross-selling these products is going to be extremely interesting in the creation of new products by these teams, and some, it's a commercial value that we're just not yet able to quantify, but I think it's going to add significant value to the numbers we're presenting today. Turning to Slide 18. We're really excited to put the companies together. I've walked through most of this already, but I think this is kind of a pretty terrific summary of how the transaction offers strategic benefits that neither company could get on its own. And it does all of this and adds the EPS and cash flow accretion that we've been talking about. I've been talking for a long time. I need to rest, so I'm going to flip it over to Dan Eggers to walk through some of the financials, and I'll come back to close, and then we'll take your questions. Dan?

Thank you, Joe. Good morning, everyone. Today's announcement is another exciting day for Constellation, bringing together these 2 great companies to create the largest, cleanest and most reliable generation fleet with coast-to-coast customer reach. The transactional build on our success and positions Constellation to better meet the growing demand for electricity. Echoing Joe's comments, I also want to welcome all the talented women and men at Calpine. We watched your excellent work from a distance, and we can't wait to succeed together. Before I get into the details of the transaction, given the timing of this announcement, I want to first provide an update on Constellation's financial expectations for 2024 and 2025. I'll start with 2024 on Slide 19. As you have seen across our quarterly updates, 2024 was another exceptional year with the company firing on all cylinders with continued strong performance from our commercial team, optimizing our generation and load portfolio as well as taking advantage of the sustained market volatility. We are still in the process of closing our books, but we are confident we'll earn more than the $8.40 per share coming in above the top of our twice revised guidance range. Moving to Slide 20. We are initiating our 2025 adjusted operating earnings guidance range of $8.90 to $9.60 per share, with base earnings expected at $6.70 to $6.80 per share. The midpoint of our revised 2025 base earnings guidance range is $0.30 higher than what we provided in our business and earnings outlook in February. We told you then, we would continue to evaluate our base EPS composition and make adjustments since we thought we were taking a conservative view on our assumptions in this first pass of base. The increase today is driven by several updates. Continued strong performance in our commercial business is giving us comfort in tightening our margin assumptions to a 10-year historic and forward average that lifts margins, more visibility to durable value associated with managing our PTC portfolio, lower D&A expense due to longer expected asset lives largely around the license extension work at the nuclear plants, partially offset by higher O&M and a higher effective tax rate as we mark the rates of our current view of prices and the impacts of the PTC. Tools for calculating base earnings and modeling inputs are in the appendix as well as our O&M and CapEx forecast. Turning to Slide 21. This transaction will add significant EPS and free cash flow in the first year. The addition of Calpine is expected to be at least 20% accretive to 2026 EPS, and expected to add at least $2 per share and more than $2 billion in free cash flow before growth annually across our remaining planning horizon. The headline purchase price for Calpine is $29.1 billion on an enterprise value basis with the expected close in the fourth quarter of 2025. Breaking down the purchase price, we will assume approximately $12.7 billion of net debt at year-end 2025, a $4.5 billion in cash and offer 50 million shares to Calpine's owners, which on the 20-day trailing VWAP of $237.98 per share would be $11.9 billion. We retained the free cash generated by Calpine in 2025, which will in turn be used to cover some of the cash purchase price. Combined with the NPV of tax attributes, we had offset the headline enterprise value by $2.5 billion, bringing the effective purchase price to $26.6 billion. In addition to being a truly unique opportunity to bring together an incredible set of assets, platform and a talented team with great earnings and cash flow accretion, we were able to do it an exceptional value of 7.9x the 2026 effective EV to EBITDA multiple. Turning to Slide 22. As I mentioned, this transaction is highly and immediately accretive to our stand-alone plan, adding at least $2 in earnings on top of our 2026 expectations of $8.70 to $9.70 per share. Specific to 2026, and as we highlighted again as recently as the third quarter call, we will face some lumpiness by year in our long-term growth trajectory. As you see in 2026, depending on PTC price increases, our nuclear outage calendar, the roll-off of the CMC contracts, the restart of Crane, et cetera, but the path to higher EPS is visible and ratably calculable. Looking out for the pro forma company, we plan to provide updated disclosures and drivers for modeling the pro forma company sometime around deal close. But we also know that you all appreciate the visibility and durability of our earnings outlook. So let me offer some perspective today to help calibrate expectations in the interim. We continue to see value in the base EPS construct. For now, you can use the outlook we provided at the Crane Clean Energy Center restart announcement where we pointed to at least 13% compound growth from the 2024 base EPS of $5.45 to $5.55 out to 2030. This holds up with the addition of Calpine. For enhanced earnings, we are seeing more in the market around volatility, margins and optimization. It gives us great confidence in this bucket. So from what we said in February that this looks like 10% to 20% of total EPS, you can use 20% to 25% at this point. And then you can add the at least $2 of EPS accretion from Calpine on top of these numbers. We expect this accretion to be some combination of benefit to our base and our enhanced EPS. We'll come back to you with that with the future state disclosures. We're excited about the earnings and growth outlook for the pro forma company. And turning to Slide 23 and speaking of excitement, there remain many opportunities for us to do better than our forecast by capturing additional value from the clean, reliable megawatts that our combined fleet produces. The value of clean and reliable continues to be recognized by customers and policymakers at the national and state levels. We share their belief that these megawatts are a premium product, and we will continue to work to capture those premiums. You've seen the upper chart -- the upper left chart before, but it now includes the megawatts on Calpine's geothermal fleet, which are currently under contracts to reflect the value of their clean, firm attributes to the system. We continue to have success in selling these clean megawatts to our customers. And as you know, we've announced several hourly matched CFE deals with customers like Microsoft and Comcast. And more recently, we announced a historic deal of the General Services Administration to provide them with nuclear power. We have many paths to getting paid for our carbon-free and reliable attributes, whether through front of the meter or behind the meter configurations for the data economy through state and federal procurements or through our 24/7 carbon-free matching product. And as you can see on the chart, the number of available megawatt hours will grow through the decade as state programs roll off plus the potential to add even more megawatts through additional uprates. I also want to remind you that our current plan assumes 2% inflation for the nuclear PTC, which is reflected in our base earnings growth projections and our growth rate target. Inflation above 2% would be additive to our base EPS outlook by raising the PTC floor prices. And a 3% inflation case, we'd add more than $750 million in revenues. For a new rule thumb, pro forma for the Calpine acquisition, every $0.01 of EPS is just under $5 million pretax. Turning to the balance sheet on Slide 24. Our high investment-grade credit ratings are foundational and a reflection of the high-quality nature of our business. They are a competitive advantage, allowing us to better serve our customers, take advantage of market opportunities and execute on transactions like Calpine with a more modest use of our equity. We are committed to managing our balance sheet in a disciplined manner to maintain our credit ratings and ensure our competitive advantage. As I mentioned earlier, we plan to finance this transaction without acquisition debt, although we may decide to issue debt to retire more expensive Calpine debt. Taking into account the strong free cash flow generation of the combined company, we will return to our target leverage ratios by the end of 2027, with additional capital still available for allocation. After reviewing the transaction, we expect S&P and Moody's to affirm their BBB+ and Baa1 ratings, respectively, based on our pro forma cash generation and deleveraging plan. We also expect both agencies to recognize that the added geographic and fuel diversification, our track record of M&A and our commitment to meeting balance sheet targets warranted maintaining our current ratings. We look forward to continuing our strong relationship with the agencies, and we thank them for their consideration and partnership. Our credit profile remains a strategic advantage, with our balance sheet providing ample access to liquidity to serve Constellation's and Calpine's customer base across power and gas and all U.S. competitive markets. We see real benefits to Calpine's commercial business when coupled to an investment-grade balance sheet, an advantage we have had as Constellation. On Slide 25, our capital allocation strategy has not changed with this transaction. With the significant free cash flow, we will still start with the balance sheet and our priority of high investment-grade ratings, continue to target at least 10% annual dividend growth, pursue growth that meets our double-digit unlevered return threshold and return capital to shareholders. We have $1 billion remaining on our existing buyback program, and we'll be opportunistic in returning that capital to our owners. Our goal is to continue delivering value for our owners through the capital allocation plan and our philosophy on how to do so is unchanged with the combined company. I also don't want this point to be lost in today's conversation. The pro forma company will be a significant free cash flow generator, which will afford us the flexibility to invest in our strategy of being a clean energy leader, and helps to meet the country's need for electricity as we face unprecedented power demand growth. Turning to Slide 26. The combined Constellation and Calpine will have the largest, cleanest and most reliable fleet in the country built on nuclear and natural gas assets that is the backbone of our energy system today and will be for the foreseeable future. But as Joe talked about, we are facing historic demand growth across our markets, and we are doing our part today to help meet this call with opportunities ahead to do even more. Constellation will support the advancement of clean energy technologies, including new nuclear and innovations in clean gas generation, develop firm, reliable resources to meet system demands and invest strategically in the rapidly expanding data economy. The combined company is already announcing a number of investments that will advance a clean, reliable energy system and help meet the projected demand. Only a few months ago, we announced the restart of the Crane Clean Energy Center, bringing back to light 835 megawatts of clean and reliable energy. Another 160 megawatts of new capacity from Byron and Braidwood, which is becoming online beginning in 2026. We continue to invest in our plants -- in our nuclear plants with the goal of extending their useful lives, which is crucial to maintain a stable and continuous supply of clean energy. Calpine has one of the very best storage development teams in the industry and their renewable project, one of the world's largest, is nearing completion. And both Constellation and Calpine had natural gas projects selected to go through the due diligence phase of the Texas Energy Fund program. These are all projects underway today. And critically, we have a robust set of opportunities still ahead of us. We continue to evaluate up to 1,000 megawatts of additional nuclear uprates as well as nuclear license extensions across our fleet. We are in early stage work on partnering with the government and other customers in the development of new nuclear. Calpine brings valuable expertise in natural gas sequestration, focusing on capturing and storing CO2 emissions from natural gas plants with projects under consideration receiving DOE support. And Calpine also brings a pipeline of battery storage, solar projects that could be also pursued. We're very excited about what the combined company is going to do together. And with that, I'll turn the call back to Joe.

Thanks, Dan. Great job as always and great leadership through this transaction along with everyone else. We think we're entering an incredibly special time for the country, an important time where we have to develop technologies and power those technologies that are important to our economy, they're also important to our national security. There's going to be great opportunity. There are also great challenges, and we're building a special company to address those challenges. We're going to meet the needs of all of our customers better as a result of this transaction. We love what we have been doing for the last 3 years. We think it is a wonderful strategy. And we think this acquisition is a terrific complement to that strategy. In '24, we continued to deliver on all of our commitments to you. Financially, we've significantly outperformed our initial guidance and we're going to exceed our twice revised guidance range and return nearly $1.5 billion to you, our owners. We're always going to find ways to innovatively grow and develop this business. To that end, you saw an enormous milestone for the nuclear industry last year with the restart of Crane. This year began with the announcement of the GSA contract for nuclear power. We would have never been able to do that contract just a handful of years ago. As one of the largest energy buyers in the world, the U.S. government's inclusion of nuclear energy in its sustainability strategy is hugely important. We think it sets the stage for a similar strategy at states and utilities where they need to change their procurement policies and include nuclear as a sustainable energy resource. There's a lot more work to be done on that front, and we're after it. Second, we just saw the hydrogen rule. Now I don't know yet what the hydrogen opportunities are going to be. We're going to refresh all of those numbers. But what's important to me is it's yet another option for this country. We told you when the proposed rule came down, that it wouldn't stand. We told you that we would resolve it even if it may go on to the courts. But at the end of the day, the logic of our arguments persuaded Treasury to allow a significant amount of nuclear, merchant nuclear that is, to participate 200 megawatts per unit. And under the definitions of the rule, we are confident that every one of our units will be allowed to produce hydrogen with 200 megawatts. Just another instance, right, where the government is recognizing that existing nuclear is clean, worth preserving and importantly, is a treasure for the nation. So as I hope you could see, this is a company that never settles, right? This is a company that constantly and aggressively is looking for better options for our customers and for you, our owners. Today's announcement is a gigantic step in that direction. It gives us a scale, geographic diversification and capabilities that no one else in this industry has, and it's going to create financial value for our owners and great capabilities for the nation. I won't go through all of this, but the combined company is going to continue to deliver on all of the things that we have held dear from the beginning of this company. And I'm super excited by what's available to us in the future as we put these great teams together. With that, let me end our prepared remarks and open it up for your questions.

[Operator Instructions] And our first question is going to come from the line of Paul Zimbardo with Jefferies.

Congratulations. So much to ask, it's hard to think where to start. But the first one, just to dive into, I know we've talked a lot in the past about data center deals at nuclear. Just I know it's early days, but kind of what conversations have you had with some of those same customer potential counterparties on the nuc side for potential natural gas colocation or other transactions?

Look, I -- remember, this isn't just developing new data centers. We have over 50 data center companies already, right, and that we're doing business with. The data economy as it is, is being powered right now by a lot of natural gas assets. So I don't think it's a new conversation we need to start. Obviously, we didn't want to get ahead of ourselves in terms of this transaction. But based on what we know, this is going to provide a great opportunity, right? We're going to be able to partner and offer these blended solutions that will satisfy their needs for sustainability and also for energy.

Okay. Understood. And then I apologize if I'm missing all the information. I didn't hear any commentary on synergies, whether costs or cross-selling? Just looking at Calpine, I know they run a very lean, efficient portfolio, but it seems like there's a $1 billion kind of year-to-date O&M, $200 million G&A. Just any commentary on cost opportunities to those revenue synergies, too?

Look, we hadn't put that in numbers. We'll update that as we get closer. I think we've said at least a couple of times in this because we see there's going to be commercial synergy opportunities and efficiencies we'll gain. But that's really not the thesis of this transaction. I know it has been the thesis for so many deals in the industry. Those opportunities will come to us. I know there are savings that are going to be available there. But the commercial opportunities in putting these 2 great teams together, putting these great assets together is what this is all about. We have not, as I said earlier, quantified that. That will be all additive and we'll update the numbers once we get closer to closing.

Paul, what I'd just add to that is that Calpine isn't a public company. So the amount of details you have to put a point of comparison is a bit of a challenge. When we gave you a view on accretion, both the free cash flow and EPS, we set at least or more than, right? I think that there's a view of opportunities for efficiencies in there, both on revenues and some overlaps that is embedded in those numbers. And when we get to close, we'll give you a more comprehensive view of what the pro forma company will be on a consolidated basis, and it will reflect all those opportunities as we see them at that point.

Paul, the numbers are spectacular as they stand. There's no reason to push it at this point. We've got some work to do, a lot of conversations as we integrate these businesses, and we'll provide the updates.

Absolutely. You know we're always looking for what's next. But no, very nicely done.

And our next question is going to come from the line of Shar Pourreza with Guggenheim Partners.

Congrats on the transaction and the multiples, obviously, very attractive that you paid. Joe, I know this has been kind of -- you've touched on this in some of your prepared remarks and things, but there's obviously kind of a scarcity value attached to kind of being a pure-play nuclear operator, right? Joe, what do you say to those investors who say you're just kind of increasing the exposure to the same old supply stack positioned, the sort of the issues that led parties like NRG to get out of generation in prior cycles. I guess what's different about this? And any color on how much long-term contracting you're trying to do in the next few years?

Yes. Paul, I think, let me kind of go in reverse order. I think both companies have been very active in terms of looking for long-term contract. And so as we've done our work on Calpine, we're very confident in the way that they have kind of set up the business commercially. In a very simple thought, here's the way I kind of think about this. We basically traded 1 megawatt of nuclear or 6 or 7 megawatts of gas in this transaction. They're going to be 15% of the equity in this business. We're netting out some of the cash that we're going to generate there is going to help pay down the debt. And that, in my view, is kind of at the end of the day, what this starts to look like. That enables us to achieve the diversification that we've been talking about, the exposure to Texas, the ability to combine these fleets, create new products and services. And that actually creates the financial benefits that we've seen here. So this is a very complementary deal for us. And it strikes me that all of the benefits that we're looking at are going to allow us to offer a lot more and create a very interesting platform that hasn't been developed for a very modest amount of shares relative to the whole. And so that's the way we saw it. The predominant theme, strategic theme and asset base of this company, the financials will continue to be the nuclear assets and all the benefits that we have talked about. Our owners are going to continue to get all of that, the growth rates to support all of that and then the exposure and upside to these wonderful things. And frankly, look, as we've entered this period of time. I think it's very different than any period of time, including the period of time that NRG made its decisions and others have made their decisions historically. We're seeing what -- frankly, I haven't seen in my career in this business, a growth in the sector that many haven't witnessed in the lifetime. And that requires us to consider the options to expand the portfolio to fully take advantage of that for our owners and to also be able to provide the customer service to our largest customers who want it.

Got it. Okay. That's helpful, Joe. And then just lastly, on just the market power in PJM. I guess, what does divestment look like? Should we be focusing on the peakers? And does the guided accretion take these divestments into account?

Yes. Well, again, I'll kind of flip it. All the EPS numbers and the cash flow numbers we're showing you take into consideration an aggressive amount of divestiture. What we will -- we're not going to get into specifics about the assets today. You'll see that very shortly as we file our pleadings. And we expect David Dardis, our GC, our Chief Legal Officer, excuse me, and Head of Government Affairs, is right next to me. He's been working nonstop on this. David, I don't know if you want to add any color on timing of things?

Yes. We'll be making our filings and the strategy will become clear when those filings go in over the next handful or a couple of handfuls of business days as we've agreed to in the underlying agreements. And I just want to pile on a little bit, as Joe said a couple of times about the complementary nature of this transaction, it's really one of the great benefits of the transaction, but it also makes the regulatory approval process a little bit more straightforward. By and large, Calpine's businesses and Constellation's businesses are in different markets in terms of where their concentration is. The one exception to that is in PJM, in the eastern part of PJM. And so we'll be, as Joe mentioned, proposing some asset sales in that market and we're going to lean into the regulatory approval process and be proactive. And so we see a pretty straightforward line of sight for getting approvals in an orderly fashion. And as Joe said, we'll be making those filings and this whole strategy will become clear once those go in, in the next week or so.