Talen Energy Corp Q1 FY2025 earnings call

• Mac McFarland emphasized the strategic path forward, noting a solid quarter bolstered by strong load and power prices, and operations at fossil plants, Susquehanna, and the commercial team. He mentioned the AWS campus has been electrified and is delivering power under contract, with plans to ramp up to 120 megawatts. The fundamental view of tightening power markets, growing data center load, and Pennsylvania as a data center hub remains strong. - Terry Nutt discussed financial and operating results, noting the fleet ran well during high demand, generated 9.7 terawatt hours, with a focus on safety with a recordable incident rate of 0.4. He provided financial details, including adjusted EBITDA of $200 million and adjusted free cash flow of $87 million, and reaffirmed narrowed 2025 guidance. - Chris Morice highlighted the hedging strategy, layering on additional hedges in 2026 and 2027 when the forward market was well bid to maintain appropriate risk tolerances and protect cash flows.

During the first quarter, Talen Energy Corporation had a solid performance. The fleet generated 9.7 terawatt hours of power with an equivalent force status factor of 1.2%. Slightly less than half of the generation came from the carbon-free Susquehanna nuclear facility, while the fossil fleet ran more during periods of high demand. Adjusted EBITDA was $200 million and adjusted free cash flow was $87 million. The fossil fleet, including Montour and Bruner Island facilities, saw significant increases in generation during the quarter. In terms of revenue contribution, slightly less than half of the 9.7 terawatt hours generated came from the nuclear facility, with the fossil fleet contributing the remainder during high demand periods.

• Narrowed 2025 adjusted EBITDA range to $975 million to $1.125 billion and adjusted free cash flow range to $450 million to $540 million, affirming guidance after strong Q1 performance offsetting impacts of the extended Susquehanna outage. - 2026 outlook remains unchanged from Investor Day in September. - Layered on additional hedges in 2026 and 2027 during the first quarter when the forward market was well bid.

• Uncertainty around supply chains, tariffs, and tax policy hindering renewable development. - Thinly traded forward markets not reflecting the new normal of tight power markets, which some skeptics question the underlying thesis in the IPP space and its intersection with data centers.

Q: Following up on comments of peers about front-of-the-meter deals, could you elaborate on current conversations and the FERC process?

A: Mac McFarland mentioned they have an ongoing contract with AWS and are actively looking at various ways to power data centers and expand growth strategy. The FERC process is evolving, with PJM submitting eight options, and they support resolving it quickly. Cole Muller added they've been working on front-of-the-meter solutions for a while and PPL's data center development is supportive.

Q: About the current status of the FERC process and colocation, how do you see it playing out?

A: Mac McFarland said the FERC process is evolving, with Chairman Christy wanting to resolve it quickly. The PJM eight options need to be preserved, and they're involved in the process while also progressing on commercial activities to get data centers power.

Q: On the PPL zone and expansion of existing assets, any comments?

A: Mac McFarland stated their growth strategy is focused on leveraging their platform, looking at how to use their portfolio of assets to provide a platform solution. They don't comment on specific commercial arrangements or M&A activity but are focused on executing their strategy.

Q: Detail on the Susquehanna outage, confidence in timeline and what's being improved?

A: Mac McFarland said the target is mid-May for the outage to end. The work involves incremental maintenance on the extraction steam system between the condenser and the turbine, expecting to get incremental megawatts and a payback on the $20 million incremental cost over time.

Q: On capital allocation and buybacks, any thoughts on pace given volatility?

A: Terry Nutt said they get out there and execute buybacks when market opportunities present themselves, with over $270 million in cash on the balance sheet. Mac McFarland added they've been supportive of buybacks, using capital to return to shareholders before alternative uses, and noted limits on volume per day but are ready to transact when possible.

Q: On PJM auction and new builds, thoughts?

A: Terry Nutt said new builds are challenged due to high costs and supply chain issues. Chris Morice added the capacity auction has variable outcomes with steep curves and price variability, but fundamentals still show tight markets.

Q: On Montour asset and additionality, thoughts?

A: Mac McFarland said there's a capacity shortage for twenty to forty hours in the near term, and additionality discussion is for the out years. Cole Muller added it's a question of scale and reliability, and they're working on creative solutions. Terry Nutt noted high heat rate machines aren't a natural fit for additionality in the near term.

Q: On FERC process and settlement talks, views?

A: Mac McFarland said they weren't party to the show cause order, and the regular course of the process is the most effective way to get a resolution, with an overall guiding principle to solve it sooner rather than later.