Constellation Energy Corp (CEG) Q4 2022 Earnings Call Transcript

Constellation Energy Corp (NASDAQ:CEG) Q4 2022 Earnings Conference Call February 16, 2023 10:00 AM ET

Company Participants

Emily Duncan - VP, IR

Joseph Dominguez - President, CEO & Director

Daniel Eggers - EVP & CFO

Kathleen Barron - EVP & Chief Strategy Officer

Conference Call Participants

James Thalacker - BMO Capital Markets

Steven Fleishman - Wolfe Research

David Arcaro - Morgan Stanley

Paul Zimbardo - Bank of America Merrill Lynch

Operator

Good day, ladies and gentlemen, and invited to nan Constellation Energy Corporation Fourth Quarter 2022 Earnings Call. [Operator Instructions]. As a reminder, this telephone whitethorn beryllium recorded. I would now for illustration to present your big for today's call, Emily Duncan, Vice President, Investor Relations. You whitethorn begin.

Emily Duncan

Thank you, Justin. Good morning, everyone, and convey you for joining nan Constellation Energy Corporation's 4th fourth net convention call. Leading nan telephone coming are Joe Dominguez, Constellation's President and Chief Executive Officer; and Dan Eggers, Constellation's Chief Financial Officer. They are joined by different members of Constellation's elder guidance team, who will beryllium disposable to reply your questions pursuing our prepared remarks.

We issued our net merchandise this greeting on pinch nan presentation, each of which tin beryllium recovered connected nan Investor Relations conception of Constellation's website. The net merchandise and different matters, which we talk during today's telephone incorporate forward-looking statements and estimates regarding Constellation and its subsidiaries that are taxable to various risks and uncertainties. Actual results could disagree from our forward-looking statements based connected factors and assumptions discussed successful today's worldly and comments made during this call. Please mention to today's 8-K and Constellation's different SEC filings for discussions of consequence factors and different circumstances and considerations that whitethorn origin results to disagree from management's projections, forecasts and expectations.

Today's position besides includes references to adjusted EBITDA and different non-GAAP measures. Please mention to nan accusation contained successful nan appendix of our position and our net merchandise for reconciliations betwixt nan non-GAAP measures and nan nearest balanced GAAP measures.

I'll now move nan telephone complete to nan CEO of Constellation, Joe Dominguez.

Joseph Dominguez

Thanks, Emily. Good morning, everyone. Thanks for joining our 4th fourth net call. We've been a stand-alone institution for a twelvemonth now, and what a twelvemonth it's been. We really admit nan assurance our owners person shown successful nan institution and its future.

I'm going to commencement connected Page 5 of nan platform pinch connection that ought look beautiful acquainted to you. A twelvemonth ago, we laid retired our strategy for nan institution and made commitments to you focused connected creating value, namely that we create an enduring business pinch nan unsocial expertise to tackle nan ambiance crisis, that we'd run a premier and transformational ESG companies that sets a precocious barroom and leads nan measurement for others and we'd protect our equilibrium expanse and present exceptional worth to our shareholders. Thanks to nan difficult moving women and men that tally our powerfulness plants and service our customers, on pinch nan firm teams that support them, we're good connected nan measurement to delivering connected these commitments.

This year, we produced 180 terawatt hours of carbon-free cleanable energy from nuclear, wind, star and hydro, which we estimate to beryllium astir 11% of each carbon-free power produced successful nan U.S. successful 2022. On nan customer front, unit customers classed Constellation arsenic nan #1 unit power supplier. We proceed to connection beardown pricing and innovative solutions for illustration CORe and carbon-free power matching, what we telephone 24/7, that are gathering customers wherever they are coming and anticipating wherever they're going to beryllium a fewer years down nan road.

Following a bumpy 2021 marked by challenges successful Texas during ace large wind Uri, our powerfulness business, which includes each of our hydro, renewables and earthy state plants has bounced backmost and arguably has had its finest twelvemonth ever. The investments we made successful nan Texas fleet worked. Our cleanable atomic power centers proceed a drawstring of fantabulous years. Once again, our atomic capacity led nan industry. And to put this successful discourse and springiness you perspective, our capacity factors person been nan champion successful nan manufacture for complete a decade. Now that way grounds ought to springiness you awesome assurance successful our expertise to prolong performance. But there's a overmuch bigger meaning to having nan largest, astir reliable and astir resilient cleanable power fleet successful America. It intends erstwhile nan chips are down and nan grid is facing a situation moment, for illustration PJM faced during wintertime large wind Elliott, conscionable nan latest illustration of these harsh storms, Constellation's plans are nan quality betwixt keeping nan lights connected aliases having a Christmas without power and ray for millions. That's melodramatic but it's besides correct, and it's conscionable that simple. And large wind aft large wind demonstrates nan aforesaid thing.

I cognize this morning, you apt publication nan news successful our merchandise astir nan financial benefits we'll person successful PJM capacity prize payments, payments that we earned during Elliott. And we'll talk astir nan PJM a small spot much this morning. But it's portion of a overmuch bigger communicative successful power and it's portion of nan worth thesis for this company. In 2022 astatine agelong last, cleanable atomic power yet sewage due in installments for nan biology value, nan E, if you will, successful ESG. That drove nan IRA and it drives liking successful our stock. But candidly, however, our position is that cleanable atomic power continues to stay undervalued from some a argumentation and ESG perspective. Because it's not conscionable nan E portion of nan ESG communicative that makes our assets important. It's nan S, too. And what I'm talking astir present is nan tremendous societal use of having affordable cleanable energy, together pinch precocious levels of reliability and resilience. It's what makes our assets among nan astir important of immoderate people of power assets successful America, and it's what you will ain present astatine Constellation.

In this regard, I to your reference Constellation Sustainability Report, which explains really cleanable power pieces fresh together and really Constellation's customer-facing business is helping C&I customers to create and grow their sustainability plans by providing greenhouse state emissions reports and cleanable power products. As you know, providing highly reliable cleanable power to powerfulness nan grid is conscionable nan opening of nan early we spot for nan company. The IRA unlocked galore opportunities. It gives america unsocial opportunities turn by upgrading our existing plans and earning an enhanced PTC pinch those incremental megawatts to turn by investing successful hydrogen and to turn by extending nan lives of our assets to 80 years and summation nan number of megawatts to our fleet producers. These are nan opportunities and investments you will spot coming -- successful today's presentation.

Finally, we talked astatine Analyst Day astir giving backmost to society. In 2022, we walked nan walk. One of nan champion ways to springiness backmost is to create family-sustaining occupation opportunities for group and communities that request them. That's why I'm happy to study that this year, we hired 2,000 caller group crossed each of our businesses that will gain bully wages and benefits and bring that worth backmost to their communities. Earlier this month, we announced a historical promise pinch nan North American Building Trades Union to accrued diverseness successful nan graft jobs that are successful nan backbone of our institution and nan backbone of this nation. They're basal to nan cleanable power future. Our spending pinch divers businesses accrued by $200 million. Our group showed their bosom and their passion and their generosity by volunteering 80,000 hours to their communities, and they gave on pinch nan institution $12.5 cardinal successful charitable contributions.

Now each of this was done arsenic we executed nan financial commitments that we're present to talk astir this morning. We achieved 2022 EBITDA of $2.667 billion, taking nan apical of our guidance range. We paid down $2.5 cardinal of indebtedness and generated robust free rate travel to support our beardown equilibrium sheet, a spot that was recognized by nan S&P and their upgrade and successful their continuing affirmative outlook for our business. We distributed $185 cardinal successful dividends to shareholders and we delivered full worth return of 75% versus antagonistic 14% for nan remainder of nan S&P 500. It was a bully year. And arsenic promised, we're gathering our committedness to you to supply an update connected superior allocation.

So let's flip to Slide 6, and I'll locomotion you done it. At Analyst Day, we laid retired our superior allocation philosophy. We've maintained a beardown investment-grade in installments rating. You saw we enhanced that this year. We supply yearly dividends increasing astatine 10%. We turn nan business organically and inorganically wherever returns transcend a double-digit unlevered threshold. And wherever we don't person those opportunities aliases they don't meet nan thresholds, we're going to return worth to you, our owners. Now complete nan people of nan year, we person important developments. The IRA was enacted, it opened nan doorway to nan maturation opportunities that we discussed successful atomic and hydrogen and will supply a level of support for our business. And nan full geopolitical and power world sewage turned upside down owed to nan warfare successful Ukraine pinch semipermanent effects.

Given these developments, we made a number of decisions to support semipermanent worth creation. We person secured atomic substance done 2028, which will let america to withstand immoderate early Russian proviso disruption. We're investing successful our atomic fleet truthful that it could supply cleanable power connected nan grid for astatine slightest 80 years. And we've begun implementing a scheme to upgrade plants to execute much output pinch nary incremental O&M. Our equilibrium expanse and in installments metrics stay beardown and proceed to beryllium nan backbone of our financial policies and they supply an tremendous competitory advantage to us. We will double nan stock of dividend starting pinch nan March 23 costs and we'll past target 10% maturation beyond. We will proceed to put successful our assets, which will proviso nan grid pinch cleanable power from our atomic fleet for decades and thief decarbonize America.

I said a infinitesimal agone that we person nan champion assets and champion operations. Our mostly dual portion fleet cannot beryllium matched by immoderate different plus people successful America. We will stay disciplined successful our information of M&A opportunities, which includes making decisions informed by our ain assets and really they comparison it to others. We've explained really we look astatine worth and our beardown bias to purchasing well-maintained and well-supported multi-unit sites. At this infinitesimal successful time, we haven't recovered an actionable opportunity, but we proceed to judge successful nan consolidation of nan manufacture and we will proceed to beryllium diligent and disciplined arsenic we research each 1 of those opportunities. With that lens, we and nan Board judge it is much valuable successful nan integrated opportunities we person astatine manus arsenic good -- that location is much value, excuse me, and nan integrated opportunities we person astatine manus arsenic good arsenic successful our company's ain shares. Accordingly, we're going to put $1.5 cardinal successful integrated maturation that meets our double-digit unlevered return threshold, including uprates astatine Byron and Braidwood, nan first we've authorized; investments successful 300 megawatts of upwind repowering and refurbishment; and we've allotted $900 cardinal successful superior to statesman to fulfill nan increasing request for cleanable hydrogen successful our regions. Now Dan successful his remarks is going to spell into item connected those finance opportunities.

In addition, our Board authorized $1 cardinal successful stock repurchases, a nonstop finance reflecting our belief successful nan spot and worth of our company. And moreover pinch these investments and nan enhanced shareholder return vehicles we've announced today, we still will person astir $2 cardinal successful further superior to beryllium allocated successful '23 and '24. This will let america to prosecute further integrated maturation opportunities that meet our return thresholds, supply strategical elasticity for M&A. And to nan grade that these opportunities do not materialize aliases if they don't materialize successful this clip frame, we'll look astatine opportunities to return nan worth to you.

Now turning to Slide 7. I already touched connected this. I mentioned astatine nan apical of our telephone that our powerfulness procreation business had an fantabulous year, tying our champion ever dispatch match, meaning our expertise to respond and run nan plants erstwhile grid operators bid america to do so. Our atomic fleet continues to lead nan industry. 94.8% capacity facet makes it nan seventh twelvemonth successful a statement pinch a capacity facet complete 94%, nan champion successful nan industry, arsenic I said, for complete a decade. Our 11 refueling outages averaged an industry-leading 21 days, matching our fleet record.

Turning to nan customer business connected Slide 8. Our squad had an exceptional twelvemonth and was capable to create important worth managing nan portfolio done a very volatile year. We had beardown and effective portfolio guidance occurrence and load options. All whole, we served 208 terawatt hours of wholesale and unit load, and we proceed to spot beardown customer renewables and caller customer wins successful some our powerfulness and earthy state business. And we had our champion twelvemonth ever successful nan CORe product. As you know, during these calls, I often update you connected deals we've executed. But to put that successful perspective, we've executed 6 deals for 12 customers, delivering 1.65 terawatt hours of renewable power annually and creating beardown margins for Constellation.

Turning to Slide 9. The cleanable power halfway strategy for nan institution is nan cardinal to accelerating nan modulation to a carbon-free early for America. In 2022, we made strides towards our firm intent of accelerating this future. We announced our intent to activity licence renewals astatine Clinton and Dresden, pinch Dresden being our adjacent measurement successful bringing nan full fleet to 80-year lives. We're making hydrogen coming astatine Nine Mile and utilizing it arsenic a trial furniture for nan early maturation opportunities that I mentioned before, and we're moving pinch others to unafraid hydrogen hub DOE backing successful galore regions. And finally, we're exploring done a DOE assistance nan expertise to usage our cooling towers to return c retired of nan air, a exertion that could consequence successful cleanable power centers having antagonistic c emissions. 2022 was a awesome twelvemonth to show nan imaginable of these cleanable power centers. 2023 is nan twelvemonth that we will statesman to put those plans successful action.

Now turning to Slide 10. As I mentioned before, PJM went done a awesome emergency successful December. And it was nan latest grounds that clip and clip again, always-on atomic is location erstwhile different resources fail. It was existent backmost successful nan '14 polar vortex erstwhile 22% of PJM capacity failed, pinch 81% of it being either ember aliases earthy state and astir 1/4 of nan upwind not showing up either. Nuclear saved nan time pinch 96% of nan atomic units operating and preventing a catastrophe. Reforms were made, arsenic you recall, and PJM customers person paid astir $58 cardinal successful capacity payments since nan rules were changed, each successful an effort to avert nan situation that occurred during nan polar vortex.

But disappointingly, we saw almost nan aforesaid facts starring to PJM awesome emergencies during nan wintertime holidays, erstwhile again, astir a 1/4 of PJM capacity grounded pinch 90% of it being fossil. Folks, we cognize that renewable is intermittent and it's difficult to scheme a early around. But nan different truth of it is that fossil assets are not performing during these terrible storms. That forced PJM to rumor emergency conservation orders, which were followed by alerts from governors and utilities crossed PJM. 38% of nan earthy state plants did not run erstwhile needed. In contrast, Constellation's atomic plants ran astatine a cleanable 100%. Let location beryllium nary uncertainty that cleanable atomic power saved Christmas this year.

But nan constituent I want to time off you pinch is this. We're going to study arsenic a federation and a world that dispatchable cleanable procreation is nan astir valuable point successful energy. We benignant of cognize it already. That's why we're investing truthful overmuch successful things for illustration artillery and hydrogen and different forms of power storage, each things that purpose to brace renewables and supply much predictable and resilient cleanable energy. But you see, we already do that. Clean, reliable and resilient power is what our fleet does each azygous time and amended than anyone other successful nan world. And that's what you ain erstwhile you ain constellation.

Now I'm going to move it complete to Dan for nan financial outlook.

Daniel Eggers

Thank you, Joe, and bully morning, everyone. We person a batch of screen coming from a finance perspective. We're excited to stock our superior allocation plan, which we are assured will create worth for our business, our customers and our owners. I'm going to build connected Joe's comments by providing much specifications astir our maturation projects and rate flows. I will besides springiness an update to our financial outlook arsenic we rotation guardant our disclosures.

But I'll commencement pinch our 2022 financial performance. We had a very beardown first twelvemonth financially, earning $2.66 cardinal successful adjusted EBITDA, which exceeded our constrictive guidance scope of $2.45 cardinal to $2.65 billion. Our commercialized statement had an exceptional twelvemonth successful managing nan portfolio, creating opportunities astir our fleet and load successful a volatile market. Our atomic fleet performed highly good during wintertime large wind Elliott, arsenic Joe discussed earlier, and we expect being 1 of nan superior recipients of prize payments. The beardown capacity from nan business was capable to offset untimely procreation outages, separator shaving and costs pressures we discussed successful nan 3rd 4th call. The full activity squad is very proud of really Constellation performed successful its first year, some financially and operationally, and I'd for illustration to echo Joe's appreciation to nan full statement for a occupation good done.

We're besides introducing 2023 EBITDA guidance of $2.9 cardinal to $3.3 cardinal pinch a midpoint of $3.1 billion, which is up complete $500 cardinal from past year's midpoint. I'm going to usage nan pursuing descent to talk to nan cardinal inputs to EBITDA and past free rate flow. Turning to Slide 12. I wanted to talk astir nan atomic PTC included successful nan IRA, which we judge is genuinely transformational for our company. It provides downside commodity consequence protection backed by nan U.S. authorities pinch unlimited upside to higher commodity prices. It supports unsocial maturation opportunities successful cleanable hydrogen and uprates, it extends nan clip sky of our fleet to 80 years and see structural ostentation consequence protection. Mechanically, nan atomic PTC is designed to supply downside support successful nan declining value environment, phasing up and down erstwhile a plants' marketplace revenues of betwixt $25 and $43.75 per megawatt hr pinch maximum support of $15 a megawatt hour.

This floor plan shows nan schematic payoff dynamics successful 2024. The bluish shaded container shows nan gross levels aliases nan PTC support would beryllium disposable up to nan maximum $15 in installments erstwhile revenues are astatine $25 and basing down $0.80 connected nan dollar until you scope $43.75 per megawatt hour, nan constituent successful which nan PTC worth would beryllium 0. With this design, our effective revenues for atomic works will beryllium betwixt $40 and $43.75 complete a scope of gross starting astatine $25. Equally important, we clasp each of nan upside erstwhile revenues are complete $43.75.

So bringing this speech to life, nan greenish statement represents an energy value supra nan $43.75 period wherever we would not person a PTC costs but would cod that value for our powerfulness sales, which is accordant pinch history. The orangish statement represents a $35 value wherever we are successful nan PTC area and would, successful turn, seizure $7 PTC because we are beneath nan threshold, bringing nan realized revenues to $42 a megawatt hour. Inherent to nan driblet successful powerfulness prices successful this case, nan PTC provides important downside protection to our business and is simply a materially affirmative alteration from history erstwhile facing a little value environment.

We person positioned our portfolio successful 2024 to bespeak this caller move from nan downside protection that PTC provides. There are still galore unknowns astir precisely really nan PTC will activity that needed to resoluteness successful Treasury's implementation of nan legislation. We expect to person this guidance earlier nan extremity of this year, which gives america clip to set our strategy erstwhile we person clarity.

Now fto maine talk really we are incorporating nan PTC into our disclosures. Slide 13 provides our gross separator update based connected prices astatine year-end. In 2023, full gross separator is projected to beryllium $8.35 billion, up $100 cardinal from past quarter, lifted by higher powerfulness caller business targets arsenic we are seeing further opportunities connected nan backmost of nan beardown capacity successful 2022. We are introducing our 2024 gross separator forecast of $8.95 billion, up $600 cardinal from 2023. This is mostly owed to nan timing of our hedges and higher prices. With this update, we person added a roadworthy to nan bottommost of our gross separator array for 2024 erstwhile nan PTC programme goes into effect. As you know, we're still waiting connected last ruling of mentation from Treasury astir nan atomic PTC, but we want to supply immoderate penetration into nan financial impact.

So fto maine explicate what this statement is and what it is not. This statement represents nan PTC worth we would expect to make from our plants that do not person authorities support, truthful nan Pennsylvania and Maryland units arsenic good arsenic LaSalle and Illinois, and utilizing nan much blimpish spot value methodology that calculates nan PTC worth without information of hedges. In this representation, we will usage nan guardant 2024 prices astatine each update to find whether PTCs would beryllium generated. Since we are still successful conversations pinch nan states astir existing programs, we person not included those units successful this analysis.

With value astatine December 31 supra nan $43.75 PTC level that I discussed conscionable a infinitesimal ago, we do not presently forecast PTC contributions successful 2024, which is why location is nary PTC revenues successful this statement connected nan table. We will scheme to usage this attack for addressing nan PTCs pinch each quarterly update arsenic we activity to scope clarity connected last implementation and Treasury and outstanding issues pinch nan authorities programs. After we person solution connected these issues, we will look to person a much substantive overhaul of our disclosures to champion bespeak nan worth and value of nan PTC to our business.

Turning to Slide 14. We supply an updated position of our CapEx outlook done 2025. As Joe mentioned, we are making investments to derisk our business and group america up to create semipermanent value. Our CapEx plans person accrued from nan '22 Analyst Day pinch investments successful nan mid $2 cardinal for nan adjacent 3 years. The mostly of nan summation tin beryllium attributed to nan $1.5 cardinal of integrated maturation projects, accrued atomic substance walk and an summation successful baseline CapEx, mostly astir timing. I will usage nan adjacent 2 slides to talk done wherever we are seeing increases and why.

Moving to Slide 15. I'm excited to supply further specifications connected nan $1.5 cardinal of maturation investments we are pursuing pinch each opportunity exceeding our double-digit unlevered return threshold. The IRA was transformational successful galore ways, including by allowing america to accelerate immoderate projects wherever nan economics are highly compelling. We proceed to judge that hydrogen produced atomic plants will play a captious domiciled successful addressing ambiance alteration by helping to decarbonize hard-to-decarbonize sectors. We person spent sizeable clip complete nan past twelvemonth exploring really we could play a domiciled successful nan hydrogen system and create worth for our business and our owners.

Nine Mile Point is nan first -- was nan first successful nan state to nutrient hydrogen from atomic power. We are progressive participants successful nan hub successful nan Midwest, nan Mid-Atlantic hub and nan Northeast hub, pinch easiness exploring commercialized applications for hydrogen alongside nuclear-powered stations. We scheme to deploy astir $900 cardinal of superior towards building a first-of-its-kind commercialized scale, greenfield hydrogen accumulation installation successful nan Midwest. This installation will initially person a capacity of 250 megawatts, nan balanced of producing astir 33,450 TPA of hydrogen and will beryllium built for fresh description to 400 megawatts. Approximately 90% of nan hydrogen produced is expected to beryllium sold done offtake agreements pinch customers who will beryllium co-located astatine our facility. And arsenic Joe has said, we expect to denote commercialized deals successful nan coming months.

We are successful nan early shape creation -- early creation stages of this project. Procurement of nan due equipment, building and commissioning will return immoderate time. We expect nan installation to beryllium successful commercialized cognition successful 2026. The support for atomic successful nan IRA has besides made extending nan lives of atomic assets to 80 years much apt assuming continued support. It has besides caused america to relook astatine atomic upgrade opportunities that had been shelved a decade ago. The taxation in installments starting astatine $27.50 per megawatt hr for nan accumulation of caller carbon-free energy provides opportunities for america to grow nan capacity astatine our plants. As a result, we person decided to propulsion guardant planned turbine replacements successful Byron and Braidwood and return advantage of nan upgrade opportunity successful nan IRA by committing astir $800 cardinal from 2023 to 2029, demonstrating our patient committedness to preserving and enhancing our world-class fleet. Approximately $600 cardinal of nan walk was already embedded successful our semipermanent scheme towards nan extremity of nan decade.

You tin now spot this measurement up successful baseline CapEx connected nan anterior descent opening successful 2023. With our activity to switch nan aged turbines, we will put an further $200 cardinal to money moreover much businesslike models and instal higher efficiency, high-pressure turbines to summation further capacity. These projects utilize nan latest turbine technologies to reside aging issues, summation operational reliability and trim early turbine inspection wave and duration. In total, we will summation nan plus of Byron and Braidwood by 135 megawatts. Turbines are agelong lead parts and will beryllium installed during scheduled outages betwixt 2026 and 2029 pinch summation successful capacity coming from each information of work. We're continuing to measure different atomic uprate opportunities and we'll supply updates connected further investments arsenic we validate nan scope of activity and due economics.

Finally, connected growth, fto maine move to our opportunities for upwind repowering and refurbishing that Bryan talked astir astatine nan Analyst Day, we've identified $350 cardinal of investments for astir 315 megawatts. These projects person debased consequence of execution, will suffice for caller PTCs and will make nan existing sites much businesslike to make greater output astatine nan aforesaid upwind conditions. The first 70-megawatt parcel repowering is expected to beryllium successful commercialized cognition this year. We're excited astir these maturation prospects, supporting our committedness to beryllium a leader successful advancing cleanable power goals and earning due returns connected our investment. We spot these investments they first measurement and will proceed to research further opportunities that meet our double-digit unlevered return thresholds while remaining disciplined successful our decisions.

Turning to atomic connected Slide 16. In consequence to nan Russian-Ukraine conflict, our atomic fuels squad has worked diligently complete nan past twelvemonth utilizing their heavy relationships and buying powerfulness to unafraid capable atomic substance inventory and early contracts to meet our needs done 2028 moreover arsenic existing contracted Russian substance proviso was disrupted. This inventory build will span our caller substance proviso from now done 2028, astatine which point, aggregate Western providers person stated they are capable to person further proviso online. The incremental substance buying is driving overmuch of nan CapEx summation pinch nan remainder chiefly owed to sharply higher prices for uranium enrichments and conversion services arsenic a consequence of nan conflicts. We judge this is simply a prudent allocation of superior to guarantee operating reliability fixed proviso uncertainty.

From a P&L perspective, since substance successful our operating expenses complete time, we're forecasting year-over-year ostentation and substance costs but astatine levels still beneath $6 per megawatt hr erstwhile we get aft nan 2028 clip period. We proceed to activity pinch nan administration, Congress and different stakeholders to facilitate nan description of home enrichment and conversion accommodation wrong nan United States to amended nan information of atomic substance and its publication to gathering our nation's c goals.

Turning to O&M connected Slide 17. Our costs person moved up but are mostly level crossed nan disclosure period, mounting nan caller baseline for costs for our existent operations. These updates require immoderate discourse to thief amended understand what we are seeing. When I look astatine nan increase, location are respective awesome buckets driving nan changes from past year. First, starting pinch growth-related expenses. We talked antecedently astir nan request to ramp our spending connected maturation to support each nan strategies we've been talking astir complete nan past twelvemonth and that are starting to carnivore consequence pinch nan announced CapEx. This number will alteration by year, but will stay little than 1% of our full O&M budget.

Two, we person an summation successful costs but besides person gross offsets captured successful our apical statement forecast. The conversion of maturation investments into contributing projects will person associated O&M costs, including nan large superior projects we conscionable talked astir for illustration hydrogen, but besides spending connected initiatives of commercialized that are capital-light, for example, our halfway maturation strategy but person profitable gross contributions. We're besides anticipating higher early bad indebtedness disbursal pinch higher prices and what are much predictable default rates, but we've been adjusting our pricing to bespeak this higher cost. As our maturation investments travel online, you should reasonably expect O&M increases that are much than captured pinch higher revenues.

Three, arsenic we discussed connected nan past call, though we had immoderate labour and proviso ostentation productions, we are not immune from inflationary pressures aliases nan impacts of restaffing our workforce during these highly competitory times. As Joe said, nan heavy activity astatine Constellation nan cardinal to our occurrence and ensuring that we not only pull nan champion talent but clasp them is paramount. To do this, we must beryllium competitory pinch our paid benefits.

Fourth, nan CMC saved nan plants status for 5 years and nan IRA now gives america greater assurance that these plants and nan full fleet will proceed to run for 80 years pinch continued argumentation support. Prior to nan IRA passage, we're ever looking complete our shoulders astir really agelong immoderate of our units would tally beyond existing authorities support mechanisms, and we're understandably making decisions connected nan level of finance successful costs based connected life expectancy. We person reversed those decisions, and arsenic a result, they are contributing to immoderate O&M summation from Analyst Day. When we look astatine nan semipermanent worth of these assets, we judge nan further spending is appropriate.

And finally, we've learned a batch complete nan people of nan twelvemonth arsenic our first twelvemonth arsenic a stand-alone company. We person recovered that immoderate of our support costs assumptions were not capable to support our guidelines business, fto unsocial 1 poised to return advantage of our early opportunities.

Turning to Slide 18, we show our projected in installments metrics for 2023, which remains firmly successful nan mid- to precocious BBB balanced range. At S&P, we are rated BBB and stay connected affirmative outlook pursuing our caller upgrade and stay Baa2 astatine Moody's pinch a unchangeable outlook. The finance people equilibrium expanse continues to bring worth and supply competitory advantages successful today's markets, positioning america good arsenic we caput into 2023. Our equilibrium sheet, on pinch our indebtedness maturity floor plan pinch a weighted mean maturity of 13 years, provides america elasticity arsenic we proceed to look to turn our best-in-class fleet some organically and inorganically. It provides america pinch much opportunities to transact successful volatile commodity markets wherever margins grow arsenic consequence is much appropriately reflected successful pricing, and we are amended positioned to work our customers, each while gathering our liquidity needs.

Turning to Slide 19. Let's talk astir our superior allocation plans for nan adjacent 2 years covering 2023 and 2024. Starting connected nan left, we forecast astir $4 cardinal successful free rate travel earlier maturation aft absorbing nan summation successful guidelines CapEx and atomic substance that I covered earlier. Moving to nan right, we proceed to negociate our equilibrium expanse to our 35% CFO to indebtedness target, which pinch nan summation successful net and rate flow, affords america astir $800 cardinal of indebtedness capacity aft higher nett collateral requirements. Collectively, we person astir $5 cardinal of rate disposable for allocation. Approximately $200 cardinal will spell towards nan remaining superior and O&M walk related to nan separation and for nan ERP strategy implementation pinch nan remainder past going to our worth creation and return commitments we've been discussing today. Nearly $800 cardinal will beryllium returned to our owners pinch nan doubling of nan communal dividend this year, increasing 10% adjacent twelvemonth and beyond. $1 cardinal of nan $1.5 cardinal of maturation CapEx will beryllium deployed complete these 2 years, again, pinch returns exceeding our double-digit unlevered threshold. We past scheme to return different $1 cardinal to owners done buybacks. That leaves america pinch astir $2 cardinal of unallocated superior complete nan adjacent 2 years. This unallocated superior provides america pinch elasticity to prosecute our strategical priorities, including atomic M&A and further integrated maturation arsenic agelong arsenic those projects meet our return thresholds. And arsenic you're seeing today, if those opportunities don't materialize, we'll return nan superior to our owners.

Thank you each for your clip today. We look guardant to different beardown twelvemonth successful delivering connected our financial commitments, and I'll now move nan telephone backmost to Joe.

Joseph Dominguez

Okay. Thanks, Dan. Well, folks, arsenic you tin see, we had a beautiful spectacular first twelvemonth arsenic a company. And now it's clip to person different one. In '23, we're going to proceed to attraction connected operational excellence, delivering connected our financial commitments and moving towards our intent of accelerating nan modulation to a carbon-free future. We're focused connected ensuring nan occurrence of nan hydrogen activity we're doing, delivering further megawatts and extending lives of captious cleanable power halfway assets. We'll activity pinch Treasury and different states connected IRA implementation issues, and we will proceed to efficaciously deploy superior to nan use of our shareholders. We will proceed to update you passim nan twelvemonth connected these matters during our calls.

Now, Justin, I deliberation it's clip for questions.

Question-and-Answer Session

Operator

[Operator Instructions]. And our first mobility comes from James Thalacker from BMO Capital Markets.

James Thalacker

Maybe conscionable questions for Dan. I conjecture I was hoping to get a small much colour connected nan higher growth-related CapEx that you've outlined successful nan updated slides. And specifically, you discussed generically that these integrated maturation projects will transcend your double-digit thresholds. So I want to corroborate that this is simply a double-digit unlevered IRR period first and foremost. But past I was besides hoping that possibly you could talk a small spot if we look astatine these 3 different channels whether it beryllium hydrogen, atomic uprates aliases repowering, could -- are location different return profiles for each 1 of these aliases conscionable disproportionate return? And is this driven by a usability of nan leverage that you deliberation you tin put connected these discrete projects? Or is it driven much by nan wide economical margins you spot anterior to nan leverage?

Joseph Dominguez

James, I'll commencement off. It's an unlevered return threshold. We've been hopefully clear connected that successful these calls. It's difficult to benignant of opportunity nan different we'll ever person different value. But we spot a batch of worth successful nan upgrades. Dan could benignant of locomotion done why that is. But it's operation of nan capacity facet and nan truth that we could do these upgrades and not person nan O&M that immoderate different benignant of plus would have. And I deliberation connected hydrogen, we're still learning. I deliberation -- what I tin show you is we're comfortably wrong nan parameters that we've group for investments. And I deliberation arsenic we commencement rolling done immoderate of these investments, you'll person a amended consciousness of really repeatable they are and what nan numbers really are. And I cognize we will denote those projects arsenic we get to execution, and you'll get a chance to spot that. Dan, do you want to talk a small spot astir nan uprate work?

Daniel Eggers

Yes. I mean it's benignant of absorbing erstwhile you deliberation astir nan uprates astatine 135 megawatts. It's a batch of megawatts erstwhile you put it successful cleanable power balanced value, right? It's almost nan aforesaid arsenic 400 megawatts of wind. We're going to get that balanced power output $200 cardinal pinch nan aforesaid $27.50 per megawatt hr PTC taxation credit, right? So deliberation astir nan gearing connected really galore megawatts you get to that magnitude of superior is rather attractive. As Joe said, each of that back-end work, right? There's nary further O&M. There's nary further substance to make those work. So there's -- nan economics connected those look awfully good, and we're continuing to tally down a database of projects to spot what other we tin beforehand forward. It will return immoderate clip to get those on, arsenic I said, conscionable based connected nan timing of getting instrumentality manufactured and past managing nan refilling our business. But that's -- and it's awesome for nan environment. It's awesome for nan company. So we're existent excited astir those.

I deliberation nan different mobility you asked was astir benignant of leverage and really that's affecting nan return. So arsenic said, these are each unlevered investments astatine this constituent successful time. Our presumption is we're managing our equilibrium expanse to that 35% CFO to debt. That's been benignant of nan for america for nan past twelvemonth and will proceed to be. So nan early opportunities to deliberation astir uncovering differently. We'll look astatine that. But I deliberation we person nan clip to further successful work to make those decisions.

James Thalacker

Okay. Great. And I conjecture conscionable 1 different existent speedy question. I conjecture successful benignant of pre-spinout, 1 of nan things you talked astir successful position of superior return is evidently nan dividends and nan integrated growth. But location was besides a chat successful position of communal banal buybacks versus typical dividend. Can you springiness america a small spot of a view, I guess, connected really you're reasoning astir that trade-off betwixt doing communal banal buybacks versus really -- erstwhile you would really look astatine a typical dividend arsenic a preferred way to get money backmost to shareholders?

Daniel Eggers

Yes, it's a bully question, Jim. And I deliberation astir wherever we are, it's been rather a year, and we've learned an atrocious batch astir nan business arsenic acold arsenic wherever our finance opportunities are. The IRA dramatically began to alteration nan scenery for opportunities to deploy capital. I deliberation you sewage hydrogen nan operators, there's a batch of things that person really opened up, and we made a batch of advancement this year, $1.5 cardinal of maturation superior from an statement that wasn't putting that benignant of superior to work. Our anticipation is 2022, we're going to study a batch much astir nan opportunities for investment. We're going to spot really inorganic opportunities play their measurement through. But I deliberation we're going to proceed to study much astir nan size, scope and long of our investments. And that will past pass immoderate of our superior allocation decisions for nan agelong term, right? We deliberation that nan dividend summation coming made a batch of sense. It's still 20% aliases little of our free rate travel for growth. We deliberation that's a very reasonable payout astatine this time. And it will proceed to evolve. But I deliberation nan equilibrium correct now is nan maturation investment, nan dividend is nan correct setup.

Joseph Dominguez

Yes. The only point I'd adhd to that, James, is that obviously, we're looking astatine nan comparative worth of our banal correct now compared to different assets successful nan market. At nan extremity of nan day, nan Board is making a determination of really we consciousness astir our ain company, our worth and nan worth of nan finance successful stock. That will move astir surely complete nan people of nan years, and it whitethorn origin america to make different decisions halfway. But nan comparative worth and nan are things that drove america to a buyback.

Operator

And our adjacent mobility comes from Steve Fleishman from Wolfe Research.

Steven Fleishman

So conscionable a mates of things. The summation successful CapEx related to fuel, could you conscionable talk to really overmuch of that is benignant of this inventory build versus existent higher substance cost? And past besides conscionable really agelong does this inventory build last? Does that higher level of CapEx commencement rolling down aft nan play you're showing? Or could you get immoderate consciousness connected that?

Daniel Eggers

Yes, Steve, I'm not going to springiness you nan nonstop numbers. But what I said successful nan prepared remarks is nan mostly of that summation is associated pinch inventory complete this play successful time. Remember that what we're doing correct now is we're continuing to expect that nan Russian deliveries are contracted to provide, will proceed to occur. We will beryllium buying substance from different providers who will make judge that we would screen immoderate imaginable Russian shop calls. We'll beryllium nett building inventory retired towards 2028, assuming Russian transportation -- if nan Russians were to -- if substance is nary longer disposable to america nan superior numbers would change. We are admittedly seeing higher prices some connected nan pieces of substance we had not antecedently purchased. And past we've talked to you successful nan past astir location immoderate hedge successful our numbers. When you saw uranium move, really conversion and enrichment services spell up 50% to 100% complete nan people of nan twelvemonth owed to nan conflict, that is putting upward unit connected that substance bill. So it is much than inventory reserve.

Joseph Dominguez

And Steve, to your question, really long. I can't get a consciousness it's really agelong is this value is going to proceed to unfold. But correct now, I deliberation this is wherever we're going to beryllium astatine for a number of years. We conscionable -- nan accuracy present is beautiful plain and simple. We're ne'er going to beryllium successful a position wherever we don't person substance for our machines. We're going to return that consequence rumor disconnected nan array for ourselves and for our owners. And truthful that's driving our plans correct now. And I deliberation and fixed what I'm saying pinch nan Russian situation, what we're each saying it's going to beryllium for illustration this for a while, possibly permanent.

Steven Fleishman

Okay. Secondly, connected nan hydrogen project. When we deliberation astir really you're going to seizure returns there, evidently you'll person an finance and immoderate benignant of, arsenic you said, contracts for nan hydrogen. But really should we deliberation astir nan relationship betwixt nan atomic works and what it sells its powerfulness astatine to nan hydrogen projects? Like is -- will immoderate of nan return travel from that side, too? Or really should we deliberation astir that?

Daniel Eggers

Yes. I deliberation that erstwhile you look astatine nan returns, right, nan powerfulness income person sewage to guidelines connected their own, right? We look astatine nan returns aliases economics of nan hydrogen facility, nan input accumulation of hydrogen successful sale, that's what we're talking about, nan double-digit leverage returns. So nan finance there, nan accumulation and waste of nan hydrogen is going to make economical consciousness connected its own. The procreation will beryllium sold astatine a value that makes consciousness for america also. So we're not co-mingling our returns adjusted by a hydrogen bill.

Joseph Dominguez

Yes. Steve, it's a really cool benignant of finance because successful a definite sense, if power prices were to decline, there's incremental worth connected nan hydrogen broadside because of what's happening. Let's conscionable benignant of dress immoderate numbers here. Let's suppose prices spell from $40 to $35. From a institution standpoint, we're going to get nan taxation in installments that will existent america backmost up astatine $43.75 for nan power sale. Plus accumulation of hydrogen conscionable became cheaper. So it's -- we've talked astir it rather a spot here. It's 1 of these absorbing things that's been nan Holy Grail successful this business. How do you find galore businesses that are negatively co-variant to earthy gas? So that actually, erstwhile earthy state prices spell down, it's a amended communicative for Constellation and nan apical statement communicative is instantly what's happened to powerfulness prices. The level support successful nan PTC does that to a important degree, arsenic Dan mentioned. But nan different portion of it that's absorbing is this relationship betwixt powerfulness prices, making hydrogen moreover much economically viable astatine little prices. So it's nan expertise to get some of these accumulation taxation credits that makes it a very bully strategical measurement for us.

Steven Fleishman

Great. And past mobility conscionable connected -- obviously, past fall, you were very focused connected M&A astatine nan clip and now not arsenic much. And possibly you could springiness america immoderate position connected conscionable what are you seeing successful nan atomic M&A marketplace that from nan processes you've benignant of been looking astatine it such? And really does that benignant of effect your thoughts connected that for nan future?

Joseph Dominguez

We're ever bound by confidentiality erstwhile we look astatine immoderate group of assets aliases immoderate companies truthful I'm not going to get into nan specifics. What I would opportunity is nan aforesaid effect that has happened to our fleet and nan worth of our institution is expressed successful those acquisition values for M&A. But that's wherever we get to benignant of person to return a small spot much of a disciplined position of looking astatine nan value of nan assets that are available, really good they person been maintained and this large criteria for america astir dual portion sites arsenic opposed to azygous portion sites. For our fleet, we're invested successful 23 units. 21 of them run arsenic a dual portion tract aliases efficaciously arsenic a dual portion site. The only 2 plants that are outliers are Clinton, right, and . And successful some those circumstances, nan logic they're portion of our fleet is because nan states person had cleanable power policies that require nan beingness and continued cognition of these plants. So that's nan measurement we've looked astatine it. We've tally each azygous 1 of these assets retired there. We cognize precisely what to look for successful diligence and we've been disciplined.

I'm not trying to awesome to you that we deliberation immoderate little of nan consolidation opportunity. That's not my intent here. But I deliberation erstwhile group heard america talk astir discipline, they had a position that, that was thing that we sold connected and we're not. We already person a tremendous business here, unparalleled by immoderate different group of assets, and I'm not going to dilute it by overpaying for anything. If location are assets that travel to america that are disposable astatine what we judge is simply a reasonable value and they meet nan criteria we talked about, we're going to spell aft it. But it takes 2 hands to clap successful this space. And I deliberation nan different reality is we astir apt aren't seeing nan aforesaid passion for separating these assets from traditionally regulated utilities that beryllium successful pre-IRA and frankly passim nan separation of Exelon into its 2 constituent parts. So that's what we're seeing. I deliberation location will still beryllium opportunities, and we'll footwear nan tyre connected everything. So I don't want to bespeak a deficiency of opportunity, but it's nan reality of our subject and nan reality, arsenic I said, of nan truth that these units are much valuable successful nan IRA setting, and strategically, companies are holding connected to them.

Operator

And our adjacent mobility comes from David Arcaro from Morgan Stanley.

David Arcaro

I'm conscionable wondering conscionable you've sewage $2 cardinal of further superior that hasn't yet been allocated. Wondering conscionable what nan milestones aliases timing you would envision successful position of identifying different finance opportunities to commencement to allocate that capital. Could much opportunities benignant of popular up done 2023? Or is that perchance a chunk that could rotation complete into 2024 and service arsenic an ongoing guidelines for a imaginable allocation?

Daniel Eggers

David, it's a bully question. I'd opportunity that -- arsenic I said, we've learned a batch successful 2022 astir opportunities going forward. We person a batch of things successful queue that we're looking astatine correct now. Joe reiterated nan truth that we're still very willing successful inorganic opportunities erstwhile they make nan correct consciousness for america and maintaining that flexibility. And I deliberation there's $2 cardinal surely afforded that to america to look astatine opportunities they advancement this twelvemonth and into adjacent twelvemonth makes a batch of sense. I don't deliberation we person a changeable timepiece saying we're going to person a determination by X day to merchandise immoderate magnitude of this money if we don't person a an finance aliases whatever, but we'll beryllium prudent arsenic we saw this twelvemonth arsenic acold arsenic making high-return investments and past returning nan excess. And that's really you should look astatine america moving forward.

David Arcaro

Okay. Got it. And past I was conscionable wondering, conscionable digging a small spot much into nan hydrogen opportunities, I was funny which extremity markets you're envisioning successful position of who mightiness beryllium nan off-takers for nan hydrogen. Wanted to clarify, they're taking nan measurement straight from nan tract truthful you don't person to woody pinch transportation. And I was besides conscionable funny if there's an electrolyzer shaper aliases exertion identified astatine this point.

Joseph Dominguez

Yes, David. On nan latter, we person that -- nan developer and who's going to make nan electrolyzers. We person a beautiful bully consciousness of that. And we haven't announced it first time and we went into a competitory process. So I'm going to clasp connected that. In position of nan offtake, you're precisely right. We're looking for opportunities wherever nan customer counterparty is astatine nan site, taking nan hydrogen astatine nan tract without nan request to compress aliases different toggle shape done pipelines aliases whatnot nan hydrogen to different facilities. I conjecture nan cautionary constituent connected each of that is that we're portion of this hub and that hub is still evolving. And truthful I do expect location are possibilities that hubs will see pipeline hydrogen to customers that are disconnected our premises, and we'll spot really that benignant of plays out. And I dislike to not stock it all, but I don't want to front-run nan announcements we'll beryllium making connected this, and we've still sewage immoderate commercialized position that we've sewage to activity done and get these deals executed.

David Arcaro

Okay. Got it. And nary denotation astatine this constituent arsenic to conscionable nan extremity marketplace successful position of if it's business uses aliases fertilizer aliases pitchy substance aliases different areas for illustration that?

Joseph Dominguez

Not proportionately, but nan reply is yes. I deliberation astatine nan extremity of nan day, it's going to beryllium each of nan supra will beryllium markets for hydrogen that are astatine champion produced astatine our site. But fto maine benignant of time off it there.

Operator

And our adjacent mobility comes from Paul Zimbardo from Bank of America.

Paul Zimbardo

I was hoping, could you elaborate a small spot connected that remark connected nan descent astir moving pinch nan authorities policymakers to trim nan atomic support, I assume, nan ZECs? What states are you moving with? And what would nan timing, whether that's legislative aliases regulatory, to get conclusion?

Joseph Dominguez

Paul, I've agelong agone learned that nan worst measurement to benignant of person these discussions pinch policymakers is to talk a heck of a batch astir them connected net calls because we're having these conversations wherever you would expect america to person them. Let maine flip it complete to Kathleen pinch nan be aware that these are confidential discussions and we'll spot really they unfold.

Kathleen Barron

Yes, sure, Joe. I mean I deliberation you cognize nan locations wherever we're talking about. We person authorities programs successful 3 places and we person 4 programs crossed those states. So that's wherever we are. And of course, nan extremity is to make judge that these states that acted first to support nan plants online get immoderate use coming retired of nan nationalist support for nan atomic fleet. So what we request to activity done is conscionable precisely really those provisions are going to work, some national and state, and importantly, nan timing to make judge that everything lines up properly. So arsenic we said, we've started to person nan conversations and we will fto them play retired according to really nan states would for illustration them to and not benignant of talk that anymore astatine this point.

Paul Zimbardo

Okay. Duly noted. And past I cognize you commented a small spot connected nan typical dividend commentary and comparative value. But conscionable astatine a precocious level, what's nan accuracy astir nan authorized stock repurchases? Is it thing much programmatic aliases opportunistic?

Daniel Eggers

Yes. And I deliberation arsenic Joe said, we spot existent worth successful our software. It is present today. We person nan $1 cardinal authorization. I deliberation we will find ways to beryllium successful nan marketplace and I astir apt want to get into nan strategy much than that isn't for illustration peculiarly prudent to get excessively overmuch of a layout. But we for illustration wherever nan banal is here, for sure.

Operator

Thank you. And I americium showing nary further questions. I would now for illustration to move nan telephone backmost complete to Joe Dominguez for closing remarks. .

Joseph Dominguez

Well, thanks, everybody, again, for joining nan telephone for your liking successful our company. It's been a awesome thrust this first year. But arsenic I noted earlier, our attraction now is focused connected '23 and beyond. We're disconnected to a beardown start. And I conscionable want to convey again nan folks astatine Constellation who made this hap each azygous time astatine nan plants, successful nan commercialized business and nan backmost agency functions. The stats ought to show this, but we consciousness we person nan champion squad successful nan business, and we're conscionable really excited by what nan early whitethorn clasp for us. So acknowledgment again to everybody, and we'll talk again aft nan adjacent quarter.

Operator

This concludes today's convention call. Thank you for participating. You whitethorn now disconnect.