TLN - NASDAQ

Ladies and gentlemen, thank you for standing by. Welcome to the Talen Energy Corporation Fourth Quarter 2025 Earnings Call. [Operator Instructions] Please be advised that today's conference is being recorded. I would now like to turn the conference over to Sergio Castro, Vice President and Treasurer. Please go ahead.

Thank you, Michelle, and welcome to Talen Energy's Fourth Quarter 2025 Conference Call. Speaking today our Chief Executive Officer, Mac McFarland; President, Terry Nutt; and Chief Financial Officer, Cole Muller. They are joined by other Talen senior executives to address questions during the second part of today's call as necessary. We issued our earnings release this afternoon, along with the presentation, all of which can be found in the Investor Relations section of Talen's website, talenenergy.com. Today, we are making some forward-looking statements based on current expectations and assumptions. Actual results could differ due to risk factors and other considerations described in our financial disclosures and other SEC filings. Today's discussion also includes references to certain non-GAAP financial measures. We have provided information reconciling our non-GAAP measures to the most directly comparable GAAP measures in our earnings release and the appendix of our presentation. And with that, I will now turn the call over to Mac.

Great. Thanks, Sergio, and welcome, everyone, to today's call. As always, we appreciate your ongoing interest in Talen and participation in our calls. We closed out the full year 2025 with strong results in Q4, adding the Freedom and Guernsey assets and operating well during the early winter in December. And 2026 is starting off the same with overall strong performance by the fleet and the commercial teams during the cold winter months. And I'd mentioned that PJM and other operators also performed well, maintaining grid reliability during some of the highest day after day loads we have seen. We saw a fair amount of elevated prices and volatility. And all in all, 2026 is off to a good start, and we are reaffirming our 2026 guidance range. Just recall that, that range does not include the recently announced Cornerstone acquisition that we anticipate closing this summer. As I reflect back on 2025, we said it was going to be an exciting year, and it was across the IPP space and at Talen we accomplished a lot. We signed the reliability-must-run agreements. We signed a revamped and doubled front-of-the-meter PPA with Amazon at Susquehanna. We signed and closed Freedom and Guernsey and we delivered on the basics of being an IPP, which is safely, reliably and profitably delivering megawatts to the grid thanks to all the Talen employees that make this possible. Looking forward to 2026, we are optimistic about the continued long arc of the powering AI thesis and Talen's position in it. As I've been saying, 2025 was a year of option development, and 2026 will be the year of rationalization. In 2025, as everyone in the space was racing to develop options for data center development, and the associated power, a bow wave of expectations built across the industry for deals and more deals, whether they were virtual purchase power agreements or behind-the-meter developments. Investors were anticipating the next big thing and the next big announcement. To some 2025 fell short, for others that grasps this long arc, they believe things will rationalize themselves out. Some projects will simply not make it [ in ] others will, some will be delayed and will need to be rationalized in 2027. But overall, we believe the long arc remains unchanged. As the CEO of Anthropic wrote in his recent essay, and I quote, "every few months public sentiment either becomes convinced that AI is hitting a wall or becomes excited about some new breakthrough that will fundamentally change the game. But the truth is that behind the volatility in public speculation, there has been a smooth unyielding increase in AI's cognitive capabilities". Again, that's a quote from the CEO of Anthropic. From my perspective, you could replace AI in that quote with IPPs or replace AI with Talen itself and the quote would keep its same meaning. And this is what I mean when I say a long arc, our capabilities to power data centers and AI have had a smooth unyielding increase. That said, there has been a lot of near-term noise that can be conflated with the rational long arc view, reliability backstop auction, overbuild, resource adequacy, regulated new build behind-the-meter, front-of-the-meter, local zoning. They are each relevant in their own sense, interrelated in some sense. And when taken all together, culminate in a vastness of noise, noise that can be misunderstood or worse yet turned into something that it is not. But when taken in reality, they don't change the long arc, and we remain committed to our Talen flywheel strategy. For investors, please know that we managed this long arc and seek to maximize long-term value creation and not to short-term events. We do not over rotate, nothing has changed our fundamental view that data centers are coming, coming at a rapid pace. We have the ability to contract with these entities across our fleet. We are building a further diversified fleet to support those contracts and we are building capabilities to contribute to the addition of new build. With respect to Montour, what is our plan B? That is and remains the question asked by many. I see this situation analogous to the ISA denial and the questions after the FERC decision about our initial plans at Susquehanna. But what did we do? We stay flexible, we retooled and ultimately pivoted to a better commercial solution. We remain confident that we can do the same in this instance, too. Short-term hurdles do not define long-term success, how you respond to them does. And so therefore, we press on. Of course, Montour is just one opportunity we have in our pipeline, albeit the most well-known, and that is likely my fault for talking about it too much. We have numerous other organic and inorganic sites we are developing across the PJM footprint, to further implement the Talen flywheel. This includes both powered land opportunities as well as new build opportunities. And I know many of you will want to dig into this pipeline of opportunities. But before you ask about them, let me say this, we will not discuss them at any level of detail, and we no longer plan to discuss development in the public forum and repeat the frenzied speculation that ensued around one decision by Montour County commissioners. But you can be rest assured knowing that we are working the pipeline every day and have options at our disposal. On the regulatory front, we are engaging with policymakers at both the state federal and RTO level to bring about the reliability backstop procurement, or RBP, formerly the RBA, in PJM that provides for a onetime solution to resource adequacy, which will minimize the cost on the system and allows time for real capacity market reform. And that is what our broad-based coalition of generators, hyperscalers and utilities recently proposed at a PJM workshop. We look forward to continuing the dialogue on this critical policy development. And in the meantime, we support the extension of the current floor and cap of the base residual auction in order to provide time to make these longer-term reforms. Before I turn the call over to Terry, let me conclude with this. Our strategy, and therefore, our investment thesis, is based on real assets on the ground today that can support data center buildout. In doing so, we are creating infrastructure assets out of what were previously merchant generation assets subject to commodity prices, and that, in turn, is driving lower capital costs and higher returns for our investors. While we have room to run on this current portfolio, we are also set up for the future. In the future, we can augment our current assets with contracted new build and future inorganic powered land site, something that we started last year, by the way, creating a pipeline of opportunities, as I previously described. And we have dedicated part of our management team to go after this opportunity with the recent management changes announced last December. This is a durable and tangible model built on today's reality, but with an eye towards future growth. We look forward to your questions. And with that, I'll turn the call over to Terry.

Thank you, Mac, and good afternoon, everyone. Moving to Slide 3 for a quick review of our strategic activity in 2025. During the year, we introduced the Talen's flywheel, a repeatable value creation strategy that leverages our reliable, scalable generation assets and commercial capabilities to deliver durable free cash flow per share growth for our shareholders. As part of this strategy, we executed on the contracting component of the flywheel through the Amazon 2.0 PPA that was executed in June, which moved the transaction to a front-of-the-meter arrangement and upsized the volumes to 1.9 gigawatts in total. Transactions such as this will provide cash flows to support other parts of our overall strategy. In July, we executed on the acquisition component of our strategy by announcing the purchase of the Freedom and Guernsey plants, adding approximately 2.8 gigawatts of efficient CCGTs, including a significant foundational position in Ohio and subsequently brought those assets into the portfolio in late November. Throughout the year, we focused on continuing our balance sheet discipline with the ability to reduce our net leverage to below 3.5x by the end of 2026, while also maintaining a clear focus on our shareholders by increasing our share repurchase program to $2 billion through 2028. In 2026, we will continue this path of maximizing value with a focus on creating the most adjusted free cash flow per share while selectively exploring inorganic and organic opportunities that support the Talen flywheel. Turning to Slide 4. Let's talk about how we are continuing to grow the Talen fleet through acquisitions. As previously mentioned, we expanded our presence in Pennsylvania through the acquisition of Freedom and expanded our footprint into Western PJM with the acquisition of Guernsey. Shortly after closing those transactions, we entered into an agreement to acquire the 3 cornerstone generation assets located in Ohio and Indiana. Western PJM has significant data center tailwinds and accessibility to reliable, low-cost natural gas from the Marcellus and Utica shales. And Ohio is an active data center hub that continues to grow. Additionally, these acquisitions diversify Talen's generation portfolio by adding high capacity factor assets that have high free cash flow conversion rates. The assets will also enhance Talen's large load contracting opportunities. As a reminder, we underwrite acquisitions on a merchant basis using current forward market energy and capacity prices, combined with more normalized views in the out years. Executing offtake agreements on these assets creates additional upside potential. Turning to Slide 5. The driving factors behind large load growth and overall power demand fundamentals continue to remain constructive. One of the largest driving forces is the significant amount of capital that is being deployed by the most well-capitalized technology firms in the world. Recent CapEx forecast from the largest hyperscalers show significant increases in spending in 2026 and beyond, including over $650 billion of estimated spend in this year alone. We see the resulting growth of data center capacity from that spend showing up in several states where we have or plan to have solid generation positions, including Pennsylvania, Ohio and Indiana. A deeper dive into the fundamentals through the most recent PJM peak load forecast for the primary regions that we operate in provides a view of the expected load growth over the next several years. This forecast, even after the recent modifications to put more rigor around proposed large loads, shows PPL zone increasing peak load by over 70% in the next 5 years, while AEP zone increases by over 30% in the same period. Earlier this month, AEP reported contracted load growth of 4 gigawatts in PJM in 2026, largely driven by load growth in Ohio. Approximately 90% of AEP's reported 15 gigawatts of incremental load growth through 2030 is supported by executed take-or-pay electric service agreements. Meanwhile, PPL also reported significant growth in its territory and expects to have 10 gigawatts of signed agreements by the end of the first quarter of 2026. So what does this all mean for Talen? Two primary results: First, demand growth means higher run times for our existing generation fleet, especially our intermediate dispatch and peaking units; second, increased demand will drive more attractive economics for spark spreads and potential offtake agreements. Moving to Slide 6 and to follow up on what Mac mentioned earlier. Nothing has changed in the outlook for basic market fundamentals. Talen's underlying value proposition remains the same and still points up and to the right. The PJM capacity markets have been reflective of these tightening fundamentals as well, with the last 2 base residual capacity auctions clearing up the price gap. This trend is expected to continue and PJM, with the support of the governors and other stakeholders has indicated it intends to seek an extension of the price collar for 2 additional base residual auctions. In relation to energy and spark spreads, we have seen appreciation in the forward curves for 2026 to 2028 from the end of July to the end of the year, with growth in spark spreads and PJM increasing over 15% during that period. Turning to Slide 7. I'd like to provide a brief update on our hedging activity this past quarter. As a reminder, we have a pragmatic, not programmatic hedging strategy. Our strategy is focused on maintaining appropriate risk tolerances and financial discipline to support cash flow stability while also leaving room to capture upside when opportunities arise. This gives our team the flexibility to add hedges during higher pricing periods as detailed on the right-hand side. As you can see from the graph in the table on the slide, spark spreads for the PJM market for 2026 to 2028 experienced upward movements during the fourth quarter, which allowed our commercial team to layer in additional hedges for 2026 and 2027 as the opportunities present themselves. I'll now turn the call over to Cole to discuss our financial and operating performance.

Thanks, Terry, and good afternoon, everyone. As Mac mentioned earlier, for the year ended 2025, we are reporting $1.035 billion of adjusted EBITDA and $524 million of adjusted free cash flow. These results exceed the high end of our revised guidance ranges issued last quarter, primarily due to the closing of Freedom and Guernsey acquisitions in November 2025. We have more than $2 billion of liquidity available including $1.2 billion of cash and full availability of our $900 million revolving credit facility. Given that our net debt includes Freedom and Guernsey financing, but only 5 weeks of EBITDA contribution, our net leverage ratio using actual 2025 EBITDA is like comparing apples and oranges and therefore, is not a meaningful metric for 2025. Turning to our operational metrics. Safety remains our top priority across the fleet and our team worked safely during a busy year. Our recordable incident rate was 0.55, which continues to be below the industry average. Our fleet ran well with a 4.7% equivalent forced outage factor, and we generated approximately 40 terawatt hours, about 10% more than in 2024. This was driven by a significant increase in dispatch opportunities across our fossil fleet driving higher generation and energy margin. Turning to Slide 9. Our full year 2025 financial results were significantly higher than 2024 due to a number of factors: higher capacity prices and RMR revenues that began in June 2025, the continued ramp of AWS revenues as the campus continues to progress, 5 weeks of Freedom and Guernsey operations as well as higher power prices net of hedges. Our results were partially offset by the impacts from the Susquehanna Unit 2 extended outage last spring and Susquehanna also not receiving the PTC in 2025. During the fourth quarter, we generated adjusted EBITDA of $382 million and adjusted free cash flow of $292 million. Note that our adjusted free cash flow in Q4 2025 alone was higher than all of 2024, demonstrating the free cash flow growth of the business, growth that we can -- expect will continue as we move forward into 2026 and beyond. Speaking of 2026 on Slide 10, we are reaffirming the previously announced 2026 guidance ranges. Our adjusted EBITDA range is $1.75 billion to $2.05 billion and our adjusted free cash flow range is $980 million to $1.18 billion. All of this remains consistent with our Investor Day guidance and does not include any contribution from the pending Cornerstone acquisition. As Mac mentioned earlier, while our fleet ran well during the recent winter weather, it's still early in the year, and it's not our practice to make any adjustments halfway through the first quarter. Slide 11 may look familiar to those who listened last month when we announced the Cornerstone transaction. We project continued free cash flow per share growth with our 2026 forecast more than double our 2025 actual results. Further, we anticipate the Cornerstone acquisition to create more than $4 in incremental annual impact on adjusted free cash flow per share upon closing. While we illustrate this impact beginning in 2027, there's room for upside in 2026 as we anticipate closing the transaction as soon as this summer. And our base free cash flow per share continues to move higher, supported by increasingly contracted cash flows from our long-term AWS PPA ramp. We continue to see additional upside through the 4 growth levers we outlined at our Investor Day last September, with the uplift potential to further build on our increasing free cash flow per share. We illustrate this impact on the slide, noting that we already -- we are already executing on these levers as demonstrated through the Cornerstone acquisition. We are focused on building our track record of delivering on opportunities to create additional growth in the coming quarters and years. We remain committed to returning capital to our shareholders through our previously announced $2 billion share repurchase program and further data center contracting opportunities, including support for the AWS ramp and potential acceleration opportunities established in the existing PPA, and we're always evaluating accretive M&A opportunities. We will continue to maintain capital discipline and focus on the most accretive levers that meaningfully increase free cash flow per share available to investors while seeking compelling growth opportunities through the Talen flywheel. Now Slide 12. Our balance sheet strength is a strategic asset that gives us the flexibility to execute the flywheel and grow our free cash flow per share. We remain committed to maintaining sufficient liquidity and keeping our long-term net leverage ratio below our stated target of 3.5x. As of February 20, our net leverage ratio using our current net debt level and 2026 EBITDA guidance midpoint is 3.0x. Upon closing the Cornerstone transaction, we expect to maintain the ability to achieve below 3.5x net leverage on a go-forward basis by year-end 2026. I'll turn it back to Mac.

All right. Thanks, Cole. With that, Michelle, why don't we open the line for questions.

[Operator Instructions] And our first question will come from David Arcaro with Morgan Stanley.

Maybe if I could ask for a little bit more color on how you're thinking about the backstop auction. Just generally with some of the policy uncertainty in PJM, is it still -- or how are your contract negotiations and discussions progressing? Is there still interest? And is it still possible to successfully reach contracts while some of this uncertainty is going on in PJM?

David, it's Mac. I'll start and then anybody else can jump in. Look, first of all, with respect to the RBA, which is now being couched as the RBP is a procurement more than an auction, at least in our view because we think it should be done as pay as bid, and that's the distinction that's being made there. And I think that that's how it's starting to be referred to even at PJM. But look, I think that when you implement -- the concept of the backstop is to come in and use the existing tariff by which to procure and to fill a resource adequacy need for the out years, which would therefore relieve some of the tightness, if you will, in the market. But again, it's still keep -- if it's done at the same levels of whatever the load projections are, it wouldn't change the outcome. That's our view on that. So it's there to provide the supply to maintain the reserve margin because you know the last auction would have cleared over $500 if it had not been for the $330 cap that was imposed on that. But that backstop procurement in our mind, actually provides a relief valve and therefore, allows for contracts to continue to go forward. And it's one of the things -- it was one of the tenets of the NEDCs statement that came out, the National Energy Dominance Council in that group when they put that forth, said that in addition to it being onetime and limited and then there should be longer-term capacity reforms and then return to the outcome, but it should allow for continuation of existing contracts. And I think that by gaining more certainty as we work our way through the process that obviously continues to support that. And so that is, as a practical matter, we view that as a relief valve to doing existing contracts. And as far as existing contracts and the discussions that are on going there across the fleet and across our pipeline of opportunities, those have not slowed down. I think that the regulatory uncertainty, who pays for this and how it gets paid for and how it gets allocated and how it gets procured and all of that, will work its way through. But data centers are coming and they're not slowing down. And any time you talk to or hear any of the analyst calls, whether it be from the chip manufacturers to the hyperscalers themselves, they continue to talk about the race for creating data centers on the ground, powering them today, powering them in '28 and then soon '29 will become the new '28. And so I think that as we progress through that, it just further aids in the ability to continue those discussions. So we don't see any slowdown to it. And we think that the RBP will ultimately provide for -- will increase the level of those discussions.

Got it. Yes. I appreciate that color. And then maybe when it comes to the procurement, do you have upgrades or new builds that you think might be opportunities to bid in to the procurement?

We are working on a set of opportunities in the new build front. We do think that upgrades should count if you're asking that, if you're asking specifically if we have upgrades, most of the upgrades that we had at Susquehanna were put in about 10 years ago. So there's not a lot that goes there that you may hear from other producers. But there are opportunities we've been working on thinking across the spectrum of the form of generation, whether it be batteries, CTs or CCGTs in developing those opportunities. And look, with a 15-year contract at the right price, you can make the math work there. So obviously, we're gearing that up. And once the rules are more defined, we would look to see how we can participate.

And our next question will come from Angie Storozynski with Seaport.

So I'm just trying to link the comments that we're hearing from PPL and AP to your generation contracting. So for example, the comment that you quoted yourself, right, in the slides that PPL expects 10 gigs of load under ESAs by the end of the first quarter, which sounds like one more month. How does that relate to you being the largest generation company in the PPL zone and the -- signing generation contracts to back this 10 gigs of load?

Well, I mean, first, we don't have that list just to be specific. I mean PPL does. So what's in that list specifically, you'd have to talk to them. But I do think that is a very supporting point to the question that was just asked that this is not slowing down and that PPL is signing up the ESAs. Now signing up ESAs, you don't necessarily need to procure your energy and capacity or -- but what you're doing is making a commitment to pay for the network upgrades and the rest of it. That to me is just a -- that's a highly positive sign this -- that supports that nothing is slowing down. Now we don't have what the list is. But obviously, we're working a pipeline of opportunities ourselves and to participate on that front going forward.

So look, Angie, the ESA point, that's the first step. I mean without an ESA, data centers aren't going to contract for -- under a PPA, right? So I think that's just a good kind of leading indicator of PPAs coming. And just to be really clear, we obviously have announced 2 gigawatts roughly of tangible PPA in that zone. So I mean, again, leave it to PPL to break down their count, but that's 2 of the 10 right there.

Okay. Okay. I mean we're waiting as you are aware. So maybe know about...

Angie, I just -- I would just further add that we have a model that we're doing it with hyperscalers, but there's other people that develop that are just, I'll call them, co-locators, which are your typical data center people, which is build and connect data centers and then lease those out. And that is where energy and capacity typically can be just -- or in the old paradigm was a pass-through. Okay. So to Cole's point, you get the ESA first even in our model and then get the energy and capacity. But in some models, it just takes from the grid and as energy is a pass-through. And so it takes the lease -- the person that is signing the lease -- signing up for the lease to decide to contract for energy and capacity there. But again, hyperscalers and the like and the development model we have is powered land, get the ESA, get the energy capacity and then you put all that together and you have what we did at Susquehanna.

Okay. So the -- my other question is about Slide 11, and I know it's the same slide that you had in your Analyst Day presentation. So 2 things. One is the upside potential to the free cash flow per share, you're showing for 2028. So is this that there is no potential upside to, say, '27? So that's number one. And number 2 is, as you show us the new 1 gig of data center PPAs and then accelerated Susquehanna contract by 480. Is it just that metric, 480 here and 1 gig there? Is it just like a measurement? Or is it that this is basically what you would expect to happen as potential upside? So is it basically the cap of again, additional data center PPAs and additional ramp under the Susquehanna contract by '28?

Yes. Let me just provide some context on the slide overall, Angie, to answer your question, then Cole's going to take the 480. But when we did this slide at Investor Day, we ended with the 2028 outlook. And so we were showing levers that could pull, that would further increase free cash flow per share out there. Now the timing of them, they were all done off of a '28. Now the timing of them, if you look we pulled Cornerstone forward into 2027, and probably we can pull some of it into 2026 with the expected close here. So we're even -- there's more upside there to this guidance. But we were just showing it like if you looked at '28 as the terminal year that we were showing, we wanted to show that there's more levers to pull to create more value as we see the implementation of the flywheel. One of those was the -- and this is all without any repurchase built into it. And well, that's why we put the pluses at the top of this, but it didn't -- where it says $4 plus or $31.10 plus, $31.40 plus up at the top of the bars. But none of this is with share repurchases, right? And so we outlined that. We put the accretive M&A. We pulled that forward. Why don't we talk about the 480 and then maybe I can hit the last one on the chart.

Yes, the 480 and the 1 gigawatt, those were just to be representative. So folks can make their own assumptions and scale, right? So by 2028, the contract, as we've disclosed before, gets only up to the first 480 megawatts. So we just put out what it would take to get to the 960. We could have gone all the way to 1920, we didn't think that was necessarily helpful. We wanted to show the impact of every 480. And then on the data center -- the new data center PPA [ wasted ] a standard 1 gigawatt. Is it more potentially and you could scale from there.

But I think it's also an important part as to why that was the new 1 gigawatt data center. If you think about it, Angie, and you think about the ramp that's going on at Susquehanna, as Cole just described, any new data center PPA, and this maybe is going to feed into perhaps a little bit more of a discussion. I said we won't discuss Montour, but maybe we'll unpack it a little bit for you. And -- but the 1 gigawatt data center PPA is really more than likely post-2028 because when you think about when you've got to build data centers like it is going on at Susquehanna, there'd be a ramp rate and so that's why we showed that out there on '28. That one is probably the least likely to be pulled forward early because even if there was a signed contract today on the so-called Montour deal or some other virtual PPA across our pipelines of opportunity, the delivery of those megawatts is not going to be 2028. And this is something that I find very interesting, going back to the Montour whether Montour happens today or happens 6 months from now, it really is irrelevant to win the megawatts would flow under that type of arrangement because they're not going to be delivered until '28 and they're going to ramp up from there more than likely. So this is why I said there was a lot of sort of short-term discussion and sort of frenzied outcome around the County Commission vote. But when you look at it in the delivery of the megawatts, we're still on that long arc, as I described. The long arc hasn't changed. It's a short-term hurdle. Now would we -- rather the commission vote the other way? Absolutely, no doubt. But we are commercial, and we're going to figure that out. And we have a number of other opportunities in the pipeline that avail themselves to do the same thing. And so that's what we're looking at is adding another gigawatt data center contract, but the delivery won't start until '28, and it's almost irrelevant of when it's signed in 2026.

Can I ask just one follow-up on that one? Why is it at all linked to that Montour site? Because let's -- again, it's just assuming that it is potentially with AWS. I mean AWS has other sites in the PPL zone. And you have, as you said, existing assets in the PPL zone, your Susquehanna 2.0 contract supply, those other sites that are already -- data center sites that are being developed. So why couldn't I have a PPA that serves some of those other sites that are being developed and as such, the impact on the '28 EBITDA would actually be likely?

Excellent point, and you're making our point for us, which is that it is a virtual PPAs. And I'm going to come back and answer your question specifically. But if you go to the Susquehanna, when we moved it to the front-of-the-meter, remember, we said one of the attributes of that transaction was, is that we're obligated to deliver anywhere in Pennsylvania. So that goes back to this 480 acceleration, if there's other data centers, they can be -- they can take under that contract early, but then they're going to have -- if they build more than the 1920, they're going to have to add more megawatts in the back end, that's Amazon. That's just Amazon. There's others out there other than just Amazon. But with respect to your question about does it need to be linked to Montour, not necessarily, okay? There's a 1,200 or 1,000 megawatt or 1,200 megawatt or 960 megawatts, whatever the right number is, here, we just do 1 gig. Does that contract need to tie specifically to a site? Not necessarily. Because, again, it's about the delivery point. But it is when you think about if you're a data center developer, whether it's Amazon, whether it's anybody else, you need to have sites with a line of sight to be able to construct the data center by which to direct the megawatts to, okay? So while they are somewhat interrelated, they're not necessarily discretely intertwined. They can be, but they don't have to be.

And our next question will come from Michael Sullivan with Wolfe.

I wanted to maybe just unpack a little more of some of the cross currents within Pennsylvania, I guess, in light of latest commentary from Governor Shapiro and then with all this PPL load coming to the [ forward's ] here. I guess, where does existing generation versus new generation fit in? Can it all be served with the excess transmission capacity? And when do we need to start thinking about new build and how that ties to the political kind of rhetoric?

Yes. I think the political rhetoric is focused on affordability, focused on resource adequacy. And again, we think the RBP is the way to solve that. And it does provide a relief valve. I think that in any of the proposals, it contemplates that there is a carve-out for existing contracts with respect to cost allocation. That's one of the things that's been talked about. Like when you go procure and the NEDC used $15 billion as a number, how do you allocate that? But it would not be allocated to new loads if they had an existing contract. That's somewhat standard across the different coalitions, our coalition, other coalitions, there's an exemption for existing contracts. So again, it allows us to continue. It's yet to be seen how that allocation and the rest of the RBP will pan out. But in the meantime, again, I go back to nothing stopping. And so people are in the process of lining things up and trying to figure out where they go from here with respect to the RBP. But let me turn it over to Cole and see if he's got anything to add here.

Yes. All I'd say, Michael, is I think everyone would agree that data centers are coming and the loads are going to continue to increase and ramp up in 2027, 2028 and 2029 and continue from there. I don't know too many -- too much new gen that can actually serve that load. So we are -- continue to focus on conversations around existing gen. Obviously, at some point, new generation needs to come online. Those decisions need to be made soon. Obviously, the RBP is one angle, bilateral contract is another angle. And I think we've said fairly consistently that we think over time will start to shift to kind of hybrid models where there's existing gen powering the first 3- to 5-year build-out of the data centers across Pennsylvania, Ohio, Indiana and so forth. And then eventually backed by a second either upscaling of a PPA or a second PPA that enables new generation to kind of fill the gap from there.

New generation is either bring your own power or new generation that's procured through the RBP. So that's why this is all still going on, but it's sort of you wane off of the existing and you come on to the new, and it's whether it comes through the RBP or whether people bring their own power, that's yet to be determined. But I think to Cole's point, that's where you're going to see things heading.

And Michael, maybe to add to those comments. Obviously, in the PJM discussions that are taking place around the RBP specifically to Governor Shapiro, his team is engaged in that. They're involved in the discussions. They've heard the proposals from the different coalition groups. They're an active participants. I think generally, obviously, the concept is going to get additional gen procured as it moves forward. And so I think they're supportive of that. And so they remain active and remain engaged, and they're right in the mix just with all the other stakeholders.

Okay. Great. And then I just wanted to ask on -- you mentioned -- I know you don't want to get into individual opportunities, but just within your pipeline, the organic opportunities, the inorganic powered land, maybe just more color on how you weigh those economics, speed? Presumably, you have a lot of land already, but maybe just the value prop of the inorganic powered land angle.

Yes. Look, Michael, it's a great question, and it's something that in a perfect world for just talking to investors, it's something we'd be excited to talk about. But every time we do, we're running a commercial trade in our face or we're creating an expectation about a certain outcome. And so that's why I made this opening remarks. It's not because there's not a frenzy level of activity going on here at Talen, there is. And it's around our existing sites, and it's around sites that aren't existing that other people have that want to work with us to do things, but we're not going to get into the specifics of those and how we're doing it because, one, it's commercially sensitive; and two, it creates these expectations. And so look, we created those expectations around Montour, our fault. No doubt about it. And -- but we'll figure that out. There's Plan B. But there's other opportunities in our pipeline that give us more of this. I mean if we had done -- if Montour had gone, let's just kind of provide the hypothetical, if Montour had gone and there had been a deal announced on that, everybody would say, what's your next deal? Well, it's not as though we're getting one deal done and then focusing on the next deal. We're working on multiple fronts all the time, okay? And what we realized is that there was just this sort of concentration on one outcome there, which really isn't going to define that long arc that I was trying to describe, that long arc that is constantly growing. That long arc that's constantly growing with AI capabilities and also our commercial abilities to get these things done. Our commercial abilities to build new build, our commercial abilities to contract new build, our commercial abilities to contract existing as Cole just said or a hybrid of the 2. And so we're working on sort of all of the above. We're working on getting prepared for bidding into the RBP if we can find the right pricing mechanisms and if the world works out the way that we think it should with respect to the RBP, we're going to contribute to all of that and it just becomes where do we allocate things. But we did get ourselves, quite frankly, caught in a little bit of this binary view that Montour was going to define what Talen is going to be. And we're just not going to get down that because of that one issue, but because also it impedes our ability to develop other things. And we're just steering away from that going forward. So probably doesn't satisfy your question, and -- but unfortunately, that's the path we're going down.

And our next question is going to come from Jeremy Tonet with JPMorgan Securities.

Just want to build, I guess, on some of your comments right here. And as the hyperscaler is head to DC next week. Just wondering what do you see, I guess, could be possible coming out of this? When those discussions of bringing their own generation, what does this mean in Talen's view? And how do you think this could impact market architecture?

Jeremy, Mac, I'll go first here. We don't know what they're going to commit to. There's been speculation as to what they're going to commit to. I think what you've seen is a commitment publicly by all of them to pay their fair share. The definition of what is fair share is interesting. From my perspective, and we've said this in many of forum, you don't -- PJM is an RTO that is based off of not this concept that the next incremental megawatt pays for the next -- of load pays for the next incremental megawatt of generation. It's never been that case. You have states that are deficit in generation that have paid for transmission and are using it. You have LSEs that are incredibly short. We happen to be in an LSE that's long in Pennsylvania and PPL and long transmission that has the ability to absorb these things. So it's all going to get around to the definition of what are they committed to in terms of what is fair share or pay for it in that definition, I don't know what they're going to commit to, Jeremy.

Got it. Fair enough there. We'll see what happens. And just wondering if we could pivot the conversation more towards, I guess, contracting as it relates to gas contracting, maybe the evolution of those discussions over time? And any comments you might be able to provide around hyperscaler appetite around absorbing the gas risk? Or could there be fixed capacity plus heat rate type of arrangements? Just wondering what you might -- how those conversations have evolved over time, where you see them going?

Jeremy, it's Cole. Look, I think we've talked about this a few times. I think -- not to be [ affluent ], but the answer depends on the counterparty, right? So some hyperscalers may have more appetite to take on the cost variability of gas and some less. So you mentioned a couple of different variations of contracting. I think it's suffice to say, we've explored a lot of different structures internally and with counterparties. And I think there's a number of different avenues to ultimately contract and protect ourselves in any structure here. And we've got a commercial desk that Chris leads that can also manage that position. And if we contracted in that manner, we would obviously have a different premium structure in the PPA to kind of accommodate that aspect. So I think there's a variety of different structures. And obviously, when we have a deal announced, we'll probably talk about that a little bit more.

I would just add on to -- Cole is exactly right. It's going to be dependent upon what somebody wants. But if I was advising somebody who is buying this, I would say that you want somebody who manages the commodity risk to take the commodity risk and to pay for somebody to do that unless you're going to warehouse that risk yourself. And we are set up to do that. And that's what we've talked about being able to provide credit support to be able to do that, to be able to manage the gas risk, to be able to manage the physical gas delivery to our plants and the rest of it, even if it's just financial, manage that financial risk associated with the gas. And so that's the service that we're trying to provide that full suite. Now someone to Cole's point, people can pick and choose across that, but that would be what we would advise.

And our next question is going to come from Nicholas Campanella with Barclays.

I just -- a lot of good answers in the commentary. But just I just wanted to follow up on how you guys are really trying to frame what's going on around RBA, ratepayer protection pledge, some of the comments that you responded to Michael, just do you still feel that you have the ability to sign gas with incumbent generation in a front-of-meter framework? And just trying to understand if you're really just trying to say that this would only now come with additionality and new build commitment? Maybe you can just kind of clarify just very clearly the expectations there.

Let me be very clear. Yes. We think you can continue to contract with the existing assets.

Others [indiscernible].

It's yes. Do we think that there will be some [ farm ] that may -- we may build in the future? Yes. I mean I'm not trying to be [ flippant ] about it. It's just that the answer is, yes. We believe that there's the capacity to do so. We believe that there's a desire and appetite to do so, and we're working on it.

And then just -- I know that in Montour hearing specifically, it was brought up by Amazon that this would not be kind of an additionality deal and that they talked about the current state of the supply chain. And I'm cognizant that some of your peers on their calls have been kind of talking about that they may have new build gas and utilizing turbines or bridge power that others have procured or don't have a spot for. So maybe could you just kind of talk to what your existing kind of EPC relationships would be or your ability to maybe do something either internal via a partnership or inorganic to secure the supply chain further to kind of be able to deliver on that?

Sure. Happy to do so. And just so you understand, I was just trying to be clear that we think that there's the ability to do so. I wasn't trying to be sharp edge there. But with respect to turbines and EPC relationships and the rest of it, our view and the reason why we've built up and invested in its existing assets is very much to the point, which we think that there's still the capability to use existing assets to contract. There's a lot of data centers that are out there right now that are looking at whether they contract for a longer period of time, existing ones, right? You saw that in a recent PPA announcement with the existing data center load. I think that when it comes to new build and there's a fair amount of discussion around new build, we view new build very simply. New build is going to require either winning in the RBP and having a 15-year contract that allows for a -- taking the merchant risk of the capacity off, thereby allowing financing or new build is going to require a contract. And so if you have either one of those, okay, and a slight difference with the RBP versus sort of bring your own power or new build generation, as Cole described in the hybrid. You're going to need the offtake agreement. It is the offtake agreement that defines this, in our opinion, not necessarily the turbine orders or the EPC. And the first group that has an offtake agreement will find all sorts of people that want to invest in it, all sorts of turbines that want to be part of it and all sorts of EPC providers that will want to be part of it because it is a live project once you have either that contract or the RBP award. So hopefully, that answers the question. I think that -- I hear your point, we have relationships with those. We put Dale in the spot in the Chief Asset Development Officer role, specifically to focus on technology, costing, EPC work, et cetera. That's very important, but it is the offtake that is most important.

And our next question will come from Nick Amicucci with Evercore.

Mac, I'm not going to ask you if you think that you could sign contracts currently. But I did want to ask on -- just as we kind of think about the hedge book kind of looking through 2027, so a lot of upside optionality there, how should we expect that to continue to creep up over time? Or can we -- are we going to -- are we comfortable kind of leaving that open to just given that the forward curve still aren't fully reflective of kind of the tightness?

Thanks, Nick. I'm going to get our Chief Commercial Officer to jump in here. But look, I think in macro and then Chris fill in the spot, but like we saw an opportunity in December of last year, as Terry walked through in his opening remarks, when prices went up to take some '27 off the table or to lock it in through the hedges, okay? We do that not necessarily, as we said, it's a pragmatic, not a programmatic. We don't like set limits like by this date, we got to be this hedge. And so when we look at it, we've been saying this for quarters that we haven't seen necessarily the forward market responding, but we saw the forward market responded and we [ lagged ] into that [indiscernible]. Now I can't tell you we see this, and we're sitting here today and sparks have moved up since our Investor Day presentation, they moved up dramatically versus it at some point and then came back down, they're moving all over the place. The good news is the general direction is up and to the right, and we believe that, that's consistent with our fundamental view, but we don't feel the need necessarily to go out and hedge. So it's hard to answer your question specifically, but let me throw that over to Chris.

Yes, you said it. I think we've been leaning in previous quarters on our intentional length in some of the outer periods, waiting for these instances of volatility seemingly happening with more frequency. And so has happened with this winter, as we expect it to continue to happen through the year, the tightening supply and demand will provide real-time opportunities for us to continue to lay off hedges. So we have stated targets. We have ranges. We've been on the lower end of those intentionally so, and we will continue to add to those as the market presents us with compelling opportunities.

Yes. I think that's an important part, which is when we came out of -- it's kind of a trip down memory lane here, but when we came out of [indiscernible], people were saying, how are you going to hedge this in and things of that nature, we put out stated targets of 60 to 80 and 40 to 60 prompts and prompt plus 1. And those are guidelines. And so -- but Chris manages the position. We have discussions with Terry, the risk management, Cole, Chris, get together. We talk about this. But when you're managing a big book, you can't just like eventually get to '27, long 10,000 megawatts. And that's what we're starting to become with the addition of Cornerstone, with the addition of Freedom and Guernsey. So you have to take some of these opportunities to [indiscernible] some, but then it's not like a forced take it off. We can decide how we want to tilt the book based off of our fundamental view.

Yes. And Nick, maybe to add to that, too, as we get more and more contracted margin in the overall portfolio, right, when we think about just the support to the cash flows that we need, you have less and less need to sort of lock those in. And so once again, when we take a look at our hedging program, we're taking a look at both, what's our contracted margin or contracted cash flows to support the business, be able to make our P&I payments, be able to make sure that we take care of sort of the basic needs. But as we get more and more of the contracted margin from the AWS deal, hedging is -- becomes a little bit more opportunistic. So we'll continue to have that view as we move forward. And I think that's a benefit that we really like having.

Yes. No, makes sense. And Cole, just really quickly, just on kind of a cleanup question, I guess, just with regards to the Cornerstone. Now obviously, it's going to depend on the timing, but of the closing of the acquisition. But is it fair to kind of take that $500 million in EBITDA and just kind of allocate that over the -- from the closing date across 2026? Or is there some growth embedded in there in 2027?

Nick. Look, I think that's a good run rate number. So we pick your assumption on a close date and I think 12 months forward from there, it's a good round number.

And if you wanted to get just a tad more precise, you got to think about, there's more value in July, August, December winter time frame too across that, but it's good round number.

Well, you guys know I'm not that precise. So fine.

And the next question is going to come from Craig Shere with Tuohy Brothers.

A year ago, if we talked about new build, I think that was not really a part of the discussion of Talen. And now it sounds like this is at least something quite plausible that we might have something by year-end, especially through the auction. And I'm wondering how you're thinking about capital and balance sheet management decisions over the next 2, 3 quarters, given the fact you might have some -- obviously, you would only do it if you're incentivized, but you might be incentivized towards some chunky new build. How do you think about maybe being -- would you be less aggressive with the balance sheet or if opportunities arise with the shares down or an acquisition, you're not going to change what you've done in the last year or 1.5 years?

Craig, it's Terry. Maybe one little sort of nuance to your comment. We've always said -- and this really dovetails with Mac's comment a few minutes ago. We've always said, if we've got the right certainty, whether it's through an offtake agreement or a very clear sort of underwriting case with an off-taker, we would be more than happy to do new builds, right? I think we've always had that as one of the talking points we've talked upon. That being said, I think the RBA is potentially gives you that clarity, right? If we end up in a procurement process where you can get a 15-year commitment, that's very -- that's what you need to underwrite and effectively finance the new build of an asset. That's a challenge that this market has had for the past several years. It's not the question of whether or not you can build something. It's whether or not you can finance it, in PJM in particular. Now back to your second part of that question, we are always balancing and looking for the highest and best use of our capital, whether that's buying the shares back, whether that's doing M&A, whether that's doing new build, and we're always looking at high teens returns, right? I mean we want to make sure that we stay disciplined in doing that. And so that's why you've seen us toggle through -- I mean, even for the last several years, we've toggled through a number of those different strategies and each time we're looking at returns that are significantly high. I mean just to give you 2 or 3 of those examples, we've done a significant amount of share repurchase over the last 2.5 years. I mean we bought back over $2 billion worth of stock, close to like 24% of the total float of the business at an average price of $149 a share. And those were really good strategic moves and a great use of our balance sheet and our capital. Take a look at the Freedom and Guernsey transaction, greater than 40% accretive free cash flow per share growth from those acquisitions, right? So we're always going to direct the capital and the use of our balance sheet to whatever the highest returns are. And we talk about it all the time. We sit around the table and as we think about what is the best use for that marginal dollar, we're going through all that entire list. I mean, very similar to the list that's on Slide 11 of how we think about growing the business and growing the free cash flow.

[indiscernible]

Go ahead.

You go ahead.

No, go ahead, Craig.

I was just going through another twist in there because you got the buybacks, you got the acquisitions and you've got kind of the new build organic growth which it seems like maybe there's more clarity -- potential clarity where that could be more real and incentivized by the end of this year than previously. But then you've got this whole discussion that's been brought up in this call about managing fuel/commodity risks on long-term gas-fired PPAs. And that requires balance sheet capacity as well, especially if you're -- look, if you're cash flowing really hard, it doesn't matter what you do to your balance sheet in 2, 3 years, it's going to be dry, right? But if you sign a PPA where you're delivering next year, maybe you need that capacity. And I'm just thinking that between the new build between managing the fuel risk, maybe there's more to think about the balance sheet today than there was a year ago.

Look, Craig, I think it's a good question. And let me just -- when you frame this question, you said a year ago, you weren't thinking about new build. I think a year ago, we said we would consider new build, we were thinking about it, but it's like a 2030, '32 time frame issue. Well, we're another year down and '29 is the new '28 when it comes to data center power and that we're a year closer to that and then the RBP has put this in further life. I think that it really is dependent upon what structure you go after because depending upon what the PPAs look like, with respect to the RBP, for example, you own the energy, and it just goes into the book like Chris, it's really -- you're receiving a capacity payment is how you think about bidding in there, which covers your cost and that allows for the financing, that could be actually in a project finance structure, which we haven't done. So it may require less balance sheet than you actually think in that system. If we're doing PPAs that are longer term and it requires credit support, we work through that. We think about, is there the ability to post an LC, do things first lien, et cetera. So there's not an easy answer to your question. I get it. But I think what we've always said is that we -- this is why we toggle things. We have the SRP. We have the net leverage of 3.5x. We've shown the ability to toggle back and forth between those. As Terry said, do share repurchase when we need to, push up the balance sheet with a clear view to bring it back down within space in order to do M&A. And so it really depends on when we get there and what the opportunity looks like. But I think we would just view that as how do we toggle the different aspects that we have in order to make things work if the right returns are there with the right contract. So I think we're about out of time. Do we have -- 2 more? What were you saying?

Yes, we are past time.

So I think we're going to end there. I apologize. I know there's a couple of people in the queue that we didn't get to, and we're happy to take follow-up questions to Sergio and the rest of us here. Appreciate everybody's interest in Talen and have a good evening.