Constellation Energy Corp. is seeing the advantage its nuclear fleet and the company's hedging plan can realize from the current high fuel price environment.

An increase in gas prices is being driven by tight supply and demand domestically on top of international constraints prompted by the war in Ukraine. This, in turn, has led to high power prices.

"We've certainly benefited from some of the changing fundamentals around natural gas and coal," Constellation President and CEO Joseph Dominguez said May 12 on the company's first-quarter earnings call. "We're not going to go back to the gas price and coal price environment that we saw just really, frankly, 12 to 18 months ago. And that provides strong support for nuclear."

Constellation Executive Vice President and CFO Daniel Eggers noted a "dramatic rise" in natural gas and power prices over roughly the last 12 months.

"Starting with Henry Hub natural gas prices, forwards have increased on average 75 cents/MMBtu since the beginning of the year through March 31 and $1.50 since the beginning of 2021," Eggers said. "As of Tuesday, spot gas was $6.49 per MMBtu, and forwards in [20]23 are at $5.25, levels we have not seen since 2008."

Constellation said this environment also offers a "compelling opportunity" to accelerate its hedging plan.

"With these upward moves in prices, we have used the flexibility in our ratable hedging program to lock in more forward sales for 2023 and beyond," Eggers said. "Locking in these prices reduces the volatility in our earnings outlook, provides more certainty to future earnings and cash flows, and provides us with greater visibility and confidence in future capital allocation decisions."

The CFO said the company expects higher natural gas prices to continue with no change in underlying dynamics "in the near term at the very least."

Policy support

Constellation also expects Washington to eventually provide more support for nuclear generation through the remnants of the stalled Build Back Better Act.

"Given the importance of nuclear energy, we don't think there will be an energy package that happens this year or anywhere down the road that isn't going to include nuclear energy," Dominguez said.

While there are a lot of challenges to getting bipartisan support, Constellation believes that Democrats will try to get a clean energy package with tax credits for nuclear energy done this year.

"I still believe that there is a strong appetite to get something done on clean energy," Dominguez said. "Whether or not there is something from a bipartisan standpoint or the Democrats decide at the end of the day that they have to move their own bill, we're going to know that here in the next four to eight weeks."

"I think all of the momentum is at our backs," the CEO said. "The climate change problems are not going away."

"That's what we built this company to address. That's what we will address, and I'm confident that policy will back it up," Dominguez said.

Hydrogen

Constellation is exploring opportunities for clean hydrogen powered by its 20,000-MW nuclear fleet. Most of the capacity is in the PJM Interconnection LLC and New York ISO regions.

The company is set to start hydrogen production this year at a 1-MW electrolyzer powered by its Nine Mile Point nuclear plant in New York.

Constellation also has been working with public and private sector entities on developing a bid for a hydrogen hub powered by nuclear energy.

"The opportunities for clean hydrogen are almost limitless," Dominguez said.

In addition, the company received a $2.5 million grant from the U.S. Energy Department to explore the use and benefits of direct air capture at its Byron Generating Station in Illinois.

Results

Constellation on May 12 reported adjusted EBITDA of $866 million for the first quarter. The S&P Capital IQ consensus EBITDA estimate for the quarter was about $670 million, based on the polling of four analysts.

The company's results for its first quarter as a stand-alone company improved from a loss of $465 million in the year-ago period as a unit of Exelon Corp.

Constellation began trading publicly Feb. 2 after completing its separation from Exelon.

The Baltimore-headquartered power provider reaffirmed its 2022 adjusted EBITDA guidance range of $2.35 billion to $2.75 billion.

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