Constellation will soon launch as a new publicly traded retail and generation business with its nuclear fleet providing the engine for carbon-free opportunities and growth.

Constellation Energy Corp., the company's legal name, is expected to be officially formed Feb. 1 following the separation of Exelon Generation Co. LLC and retail business Constellation Energy Resources LLC from Chicago-headquartered Exelon Corp. The company's new management team held an analyst day Jan. 11 to discuss their business strategies and priorities while initiating 2022 adjusted EBITDA guidance of $2.35 billion to $2.75 billion.

Constellation's management team said they will focus on maintaining investment-grade credit ratings, growing the $180 million dividend by 10% annually, returning excess cash to shareholders, and pursuing organic and inorganic growth.

The company expects to have about $2 billion of unallocated free cash flow in 2022 and 2023 after spending about $1.8 billion to $2.2 billion on debt reduction with another $900 million tied to the dividend, separation costs and identified growth potential.

Executives emphasized the benefits Constellation's 22,000-MW nuclear fleet will provide to a cleaner energy economy.

"Our 24/7 emissions-free power plants are not a melting ice cube. They are not the climate problem," said Joseph Dominguez, Constellation's incoming president and CEO. "They are a big part of the climate solution."

The company will seek a 20-year renewal of operating licenses to extend the lives of its nuclear plants to as much as 80 years. After securing a second license renewal at the 2,658-MW Peach Bottom nuclear plant in Pennsylvania in March 2020, Constellation plans to seek license renewals in 2022 for the roughly 1,932-MW Nine Mile Point units in New York and the 1,078-MW Clinton Power Station in Illinois.

Constellation expects to seek license renewals for the rest of its nuclear fleet, depending on policy support, from 2023 through 2034.

Buyer and seller?

Outside of license extensions, management indicated the company will be open to growing its nuclear and carbon-free portfolio through potential acquisitions.

"We think we could operate plants as well as anyone in the world, frankly," Dominguez said, adding that Constellation has "tremendous scale" along with the engineering talent, supply chain and ability to improve the financial and operational performance of power plants.

"We anticipate having the cash to deploy in this space to the extent those opportunities come our way," Dominguez said. "We see ourselves as one of the only natural buyers of assets that become available in the market."

CreditSights analyst Andrew DeVries said Wall Street is "bullish" on Constellation acquiring nuclear plants as part of its growth plan.

In a Jan. 11 research report, the analyst pointed to Dominion Energy Inc.'s roughly 2,097-MW Millstone nuclear plant in Connecticut and Energy Harbor Corp.'s 1,872-MW Beaver Valley nuclear plant in Pennsylvania and its 908-MW Davis-Besse and 1,268-MW Perry nuclear plants in Ohio as "the most logical targets."

Executives were also asked to address their strategy for noncore assets and the future of the company's fleet in Texas in the wake of the February 2021 near grid collapse and skyrocketing fuel prices in the Electric Reliability Council of Texas Inc.

Constellation operates the 1,211.8-MW Colorado Bend Energy Center II, the 1,193-MW Wolf Hollow II and the 1,265-MW Handley natural gas plants in ERCOT, which were knocked offline temporarily during the deadly Texas freeze.

"On the Texas assets, we've seen what the [Public Utility Commission of Texas] has done down there in terms of improving the market design," Dominguez said. "But we do believe more work needs to be done by the commission, and we've been very, very clear about that. ... If we're unsatisfied with the market design there, we may make a move in Texas."

Clean spending, hydrogen potential

Constellation CFO Daniel Eggers said about 90% of the company's capital investment plan over the next three years will be dedicated to carbon-free initiatives. This capital plan involves spending $1.75 billion in 2022, $1.55 billion in 2023 and $1.30 billion in 2024.

In addition to potential acquisitions, Constellation also will look for opportunities to invest in its fleet and for behind-the-meter opportunities as well as pursuing customer product opportunities, advanced nuclear technology and hydrogen.

"Nuclear is the ideal vehicle for clean hydrogen production," Constellation Executive Vice President and Chief Generation Officer Bryan Hanson said.

Through a grant from the U.S. Energy Department, the company is demonstrating hydrogen production, storage and use through a pilot project that involves a 1-MW electrolyzer powered by its Nine Mile Point plant, which is on track to begin producing hydrogen before the end of 2022.

Outside of nuclear, Constellation operates 12,000 MW of generation capacity including 8,000 MW of natural gas, 1,000 MW of oil and 3,000 MW of hydro, wind and solar. The company has up to 500 MW of wind generation available for repowering beginning this year.

Constellation announced a goal of generating 95% carbon-free electricity by 2030 and 100% carbon-free electricity by 2040. In addition, the company plans to achieve a 100% reduction of operations-driven emissions by 2040 with a 30% reduction in methane emissions by 2030.