Talen Energy Corp Stock

Good day, and thank you for standing by. Welcome to the Talen Energy Corporation Third Quarter 2026 Earnings Conference Call. [Operator Instructions] Please be advised that today's conference is being recorded. I would now like to turn the conference over to your speaker for today, Bill Apaselle. Please go ahead.

Thank you, Lisa. Welcome to Talen Energy's Third Quarter 2026 Conference Call. Speaking today are Chief Executive Officer, Matt McFarland; President, Terry Knut and Chief Financial Officer, Cole Moller. 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 morning along with the presentation, all of which can be found on the Investor Relations section of Town'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 had provided information reconciling our non-GAAP measures to the most directly comparable GAAP measures in our earnings release in the appendix of our presentation. With that, I will turn the call over to Mac.

Thanks, Bill. Good morning, everyone, and thank you for joining us. Before we get into the quarterly results, I want to spend a few minutes on what we're seeing in the market, how we're thinking about the business and a few topics on investors' minds. Talen is in a fundamentally stronger position today than at any point since we began rebuilding this company.

Our financial outlook continues to improve. Our cash flows are becoming more durable, and we have more ways to create value than ever before.

We own advantaged assets in advantaged locations in markets where demand is growing, supply remains constrained and the value of our reliable generation continues to increase. These assets would be extraordinarily difficult, expensive and time-consuming to replicate today. Across PJM, we've seen a significant move in forward power prices and spark spreads this year.

I know there's a debate about whether those levels are sustainable. Our view is straightforward. We don't expect markets to move in a straight line. There will be volatility, but we don't believe this is simply another commodity cycle. The underlying fundamentals have changed.

Demand is growing, new supply is difficult and expensive to build and the time line for bringing new generation online continues to stretch. The demand is here, the supply isn't and we already own the assets the market needs. Now basis matters, congestion matters and how we hedge and manage our portfolio matters.

Our commercial team remains focused on managing those exposures and converting stronger market conditions into realized financial performance. We're seeing that translate directly into our financial outlook. Today, we're providing 2027 guidance, updating our '28 outlook, and initiating our 2029 outlook. Focusing on the '29 outlook, our adjusted free cash flow is in the range of $56 to $60 per share. That outlook assumes no additional large load transactions. That's the cash-generating power of the business we've built, supported by our capital allocation strategy.

Additional large load contracting and powered land monetization represent upside. While the magnitude of the cash flow is important, so is its quality. Our objective is to generate more durable cash flow and grow that cash flow on a per share basis. That's what the Talent Flywheel is all about. Strong assets in attractive markets generate significant cash flow.

That gives us the flexibility to make high-return investments, pursue attractive long-term contracts, optimize our portfolio and return capital to shareholders, all while maintaining our balance sheet discipline. Contracting can lock in attractive economics and reduce risk. Strategic investments can expand our earnings base and disciplined share repurchases can drive further growth and free cash flow per share.

We're not dependent on any single lever to create value. We have several and they reinforce 1 another. That's the power of the flywheel, and it's working which brings me to large load contracting and powered land monetization. I know there's a lot of interest in when we're going to announce our next data center transaction. So let me address that directly.

We're actively engaged with customers across our footprint, evaluating a variety of commercial structures and working to bring additional transactions to fruition. We have existing generation infrastructure interconnections and strategically located land. Those are all real advantages for customers trying to solve increasingly difficult power challenges. Some need speed to power, some need reliability. Some need long-term price certainty. Increasingly, they need all 3.

We can provide solutions ranging from long-term power contracts to powered land development and monetization. We don't have to build a position in these markets. We already have one. And we're going to be disciplined about how we monetize it. We are focused on creating value, not headlines.

The objective is to lock in attractive economics, increase the durability of our cash flows and create lasting value for our shareholders. We know what we own, we know what it's worth, and we're not going to compromise that value to meet someone else's time line. That's not a lack of urgency, that's just discipline. Every attractive transaction we execute creates an opportunity to build on an already compelling financial outlook.

We're negotiating from a power -- position of strength, not necessity and that matters. That same conviction is reflected in our capital allocation decisions. The $1.5 billion ASR is a tangible example. We believe in the value of the business and the ASR puts capital behind that conviction. Our cash generation gives us the flexibility to invest in the business and return capital to shareholders.

We can advance large load contracting, monetize powered land, optimize our portfolio and repurchase shares. These opportunities aren't mutually exclusive. We're focused on maximizing value per share, period. All of this is happening against the backdrop of the continued regulatory and market design reform in PJM. There is considerable discussion around large load interconnections, reliability requirements, capacity market design, price caps and how the cost of serving new demand should be allocated.

We support reforms that facilitate load growth, maintain reliability, protect existing customers from inappropriate cost shifts and provide the economic incentives necessary to retain and build new generation. But I've made 2 points. First, the changing market rules doesn't change the underlying physics of the system.

PJM needs more reliable generation to meet growing demand. That generation takes time and capital to develop and the existing fleet needs to be maintained economically viable. Whatever market structure ultimately emerges has to recognize those realities. You can't regulate your way out of a physical supply shortage. You can change how the market compensates generation, you can't change the fact that the system needs it.

Second, we're not waiting for every regulatory issue to be resolved before moving our business forward. We're continuing to engage with customers advanced development opportunities and evaluate commercial structures in parallel with the regulatory process. Because we have multiple ways to serve large load customers, we believe we're well positioned to adapt as those rules evolve.

Regulatory uncertainty may change the path. It doesn't change the fundamental need for power or the value of the assets we own. Capacity market design matters and auction outcomes matter, and we'll continue to engage constructively in that process. So let me close with this. We have attractive market fundamentals, an advantaged portfolio and a strategy focused on generating increasingly durable cash flows and growing adjusted free cash flow per share, and we're not done.

We're working to capture additional value through large load contracting, optimizing our portfolio and returning capital to shareholders. We've built a company with multiple paths to create value and the financial strength to pursue them. The strategy is working. The flywheel is working and the opportunity in front of talent is substantial.

As I look ahead to the leadership transition, I have tremendous confidence in Talen's future. Carrying the entire management team know these assets, understand these markets and have the experience and discipline to take this business forward.

One of the things that I'm most proud of is that we've built a company whose success isn't dependent on any 1 individual. We have the strategy, the culture and the leadership team to keep moving forward and creating value. I believe the best days for talent are still ahead of us. And with that, I'll turn the call over to Terry.

Thank you, Matt, and good morning, everyone. Turning to our key highlights for the quarter. Our plants performed well during periods of strong demand, and I'm pleased to report that we delivered $669 million of adjusted EBITDA and $433 million of adjusted free cash flow in the quarter.

In September, we announced an increase in our share repurchase program to $3 billion through the end of 2028, including the $1.5 billion accelerated share repurchase previously announced. And when that transaction is completed, we expect to have repurchased approximately 1/3 of our shares outstanding since emergence just 3 years ago.

That's a significant return of capital and a clear demonstration of our commitment to creating value for our shareholders. PJM fundamentals remain strong. We saw continued improvement in forward spark spreads across 80 hub and PPL zones where we have significant generation exposure.

During the quarter, strong demand, tightening reserve margins and elevated outages across PJM drove increased run hours across our fleet. The market increasingly needs reliable generation. we own it, and we're seeing that value reflected in both our operating performance and our financial outlook.

With 9 months behind us, we're reaffirming our 2026 guidance and introducing formal 2027 guidance. We're also increasing our 2028 outlook and initiating our 2029 outlook. We expect to generate approximately $6 billion of cumulative adjusted free cash flow through 2029, and with continued disciplined capital allocation, we expect adjusted free cash flow per share to reach $56 to $60 per share in 2029 representing nearly a 30% annual growth rate from our original 2026 space. We have multiple opportunities to create additional value beyond that. The strategy is working, and we're executing.

Turning to Slide 3. For the 9 months ended September 30, 2026, we are reporting $1.516 billion of adjusted EBITDA and $995 million of adjusted free cash flow. Numbers that validate the continued growth trajectory over the past several years. Turning to our operational metrics. Our fleet achieved strong levels of safety and reliability during the year. including during the record-setting demand that PJM experienced during the third quarter.

We generated approximately 53 terawatt hours of power with a capacity factor of 64% so far this year. Our intermediate dispatch assets continue to have increased run times to support the higher demand in PJM. We took time in September and October during the seasonal outage period for additional maintenance to ensure the fleet is ready for the winter.

We continue to make investments in our assets to ensure that our fleet meets the level of reliability and performance standards we expect. This will continue to be a focus for us through the coming years, especially as the market backdrop continues to point to tightening supply and demand for several years to come.

Safety remains our first priority across the fleet, and our year-to-date recordable incident rate was 0.31. I would like to thank the men and women of Talen who continue to demonstrate strong operational and safety performance. The team's commitment to operate in a safe and reliable manner is an important part of Talen's value proposition.

Turning to Slide 4. We have seen a continued appreciation in the forward curves through the next several years. While not as pronounced as the moves in PJM West Hub, 2028 AD hub and PPL Spark spreads rose 19% and 11%, respectively, over the quarter, as you can see from the graph on the bottom right-hand side of the slide. On a year-to-date basis, 2028 AD hub and PPL zone spark spreads both increased by nearly 30%. Our views on PPL's zonal basis remain unchanged.

We continue to see this as an upside lever to our financial outlook as the combination of load ramping in the zone and completion of transmission network upgrades drive a narrowing of the zonal spread over time. In the meantime, our commercial team continues to deploy a hedging strategy around zonal basis that mitigates short and near-term risk associated with price volatility. We while larger macro factors like transmission build-out, line upgrades and load growth within the zones, will impact the longer-term outlook.

Moving to Slide 5. The power demand outlook continues to remain strong. The 2 charts on the top of the slide show cumulative load additions for AEP and PPL zones. By 2031, AEP is estimated to have an additional 31 gigawatts of contracted large load additions and PPL will have an additional 10.7 gigawatts. In the PPL zone, this includes 6 gigawatts of data centers currently under construction. We have assets and locations that are able to support the coming increase in load. The increase in demand is illustrated in the lower left of the slide where you can see the Q3 average electricity demand in PJM.

2026 demand was significantly above both 2025 and the 5-year average. Increased demand and higher prices result in higher run times for our intermediate fleet as you can see on the bottom right. Compared to Q3 2025, the capacity factor for our intermediate fleet increased from approximately 36% to 52%. This continues the trend that we have seen over the past several years.

All of this validates our driving thesis. That large load growth is here and more is coming. It's notable demand and the desire for more long-term certainty has not been slowed by regulatory rulings as shown by recent transactions in the market.

On the regulatory front, we view the Pennsylvania executive order as setting balance standards for project development and we are working with stakeholders to ensure future projects have a fair and measured approach. We have a track record of working well with the state, as evidenced by the Susquehanna AWS transaction.

and intend to continue working to bring large loads and the related economic benefits to Pennsylvania. In addition, recent regulatory progress from PJM and FERC has been helpful and we continue to see opportunities in the bilateral market as counterparties look for energy and capacity.

Turning now to our long-term contracting solutions. As Matt noted, we continue to work with customers to find the right solutions for their needs. We believe these offerings will continue to translate into value-enhancing contracts that leverage our assets. We have 6 gigawatts of baseload generation length across our portfolio that can support customers who desire price certainty and/or physical capacity commitments.

We have 4 gigawatts of powered land sites with significant speed to power advantages. These sites can be grid connected in the 2028, 2029 window and continue to advance. Sites with this timing and scale are very attractive to hyperscalers and large developers. We also have a 3-plus gigawatt pipeline of new capacity projects under development, including uprates, batteries and peakers.

Some customers specifically desire these types of projects to help either meet their rate payer protection pledge or other corporate commitments. Additionally, Talen can offer both existing generation such as the 300 megawatts of uncontracted nuclear power from Susquehanna or 1 of the lowest carbon intensity combined cycle portfolios in the PJM fleet as well as new capacity options like multiple battery projects under development. With that, I'll turn the call over to Cole to discuss our financial performance and outlook.

Thanks, Terry, and good morning. Terry described how stronger demand is driving higher dispatch across our fleet and outline the commercial opportunities ahead, and I'll focus on how these dynamics translate into cash generation, our financial outlook and value per share.

On Slide 7, third quarter adjusted EBITDA was $669 million and adjusted free cash flow was $433 million. nearly double what it was for the same period just a year ago.

Year-over-year improvement reflects contributions from Freedom and Guernsey and beginning fully this quarter, Lawrenceburg, Waterford and Darby. We also benefited from higher settled power prices, greater generation volumes and increased cleared capacity revenues.

Realized hedge results partially offset these gains while acquisition financing increased cash interest payments. Our expanded fleet and stronger market conditions are translating into higher cash generation. That is the financial foundation for the per share growth Mac described earlier.

On Slide 8, we are reaffirming our 2026 guidance midpoints of $2.125 billion in adjusted EBITDA and $1.275 billion in adjusted free cash flow, and we have narrowed each range by $25 million on either side. We're also introducing our 2027 guidance. Adjusted EBITDA was a $2.675 billion midpoint and adjusted free cash flow with a $1.625 billion midpoint.

At these midpoints, this represents more than 25% growth over the 2026 adjusted EBITDA and adjusted free cash flow. This guidance reflects our larger portfolio and September 30 forward curves and that we are approximately 70% hedged r expected 2027 generation.

For 2028, we are approximately 35% hedged. And in 2029, we remain largely open except for the impact of the AWS contract. Our commercial desk continues to manage zonal basis exposure as we approach the delivery year. As Mac emphasized, the investment case does not depend on another large load agreement.

This guidance is grounded in the portfolio that we own today. Please see updated modeling assumptions and hedge disclosures in the appendix for more detail. Slide 9 goes to our central measure of value creation, adjusted free cash flow per share. The bar shading distinguishes underlying cash generation from the incremental per share effect of future repurchases.

Holding our share count constant at approximately 42.9 million shares following the completion of the ASR our base guidance is approximately $38 per share of adjusted free cash flow in 2027, and our 2028 outlook has a midpoint of $48 per share. This 2028 base outlook has increased approximately 20% since just last quarter.

In 2029, we introduced an outlook range of $46 to $50 per share. We provide a range given we're still 3 years out. Our 2029 range midpoint is flat to 2028, overcoming Bruner Island shipped to gas only and the backwardation in current forward curves, which declined by more than $2 per megawatt hour year-over-year.

We mark our outlook to these curves rather than assuming a recovery of power prices. Applying our capital allocation assumptions, including repurchases funded with roughly 70% of annual adjusted free cash flow, our 2028 outlook grows to $53 per share and 2029 increases to a range of $56 to $60 per share. This more than doubles our 2026 baseline of $26.60 per share outlined last quarter.

At today's share price, our free cash flow yield is approximately 17% when looking out to 2029. Importantly, this outlook is just executing on the base business and does not require us to capture additional opportunities in front of us. These incremental opportunities represent upside to this outlook, and that is the distinction Mac made earlier. The base outlook can stand on its own with new contracting and powered land opportunities providing potential upside.

Slide 10 shows the magnitude of these potential upside levers on a free cash flow per share basis. The M&A and new data center contract upsides are illustrative impacts based on our recently announced transactions. Accelerating the AWS campus load ramp by 1 year would add approximately $2 of incremental adjusted free cash flow per share. We remain encouraged by the pace of development and see potential for the load ramp to exceed the existing contractual schedule, perhaps by multiple years.

Turning to the market sensitivities. Our outlook incorporates backward dated forward curves, as I mentioned earlier. A move to flat curves would represent approximately $2 to $3 per share of additional adjusted free cash flow with further potential if curves move contango. These are upside sensitivities, not assumptions embedded in our outlook. This also holds true for zonal basis. every $5 per megawatt hour improvement in general basis across the portfolio corresponds to approximately $5 of annual adjusted free cash flow per share.

These are illustrative and depends on transaction terms, timing and execution, but illustrates the additional growth potential of the business. Our test for every opportunity remains the same. Does it improve risk-adjusted value per share relative to the alternative.

On Slide 11, we show how we are putting our capital discipline to work. In September, we expanded our share repurchase authorization of $3 billion through December 2028, including the announced $1.5 billion accelerated share repurchase. The ASR is supported by our capacity monetization transaction, which brings forward contracted cash flows through May 2029.

Approximately 3.8 million shares were retired upfront and we expect to complete the ASR by the end of the first quarter 2027 with the final share count subject to the discounted vapor the duration of the program. We continue to target returning approximately 70% of adjusted free cash flow to shareholders. repurchasing our own shares remains the benchmark against which we evaluate other uses of capital, not a reason to pass on investments that offer superior risk-adjusted returns.

Across our outlook for 2029, we expect to generate approximately $6 billion of adjusted free cash flow, $6 billion to enable significant value creation opportunities for shareholders over the next few years. At our targeted allocation rate, that supports more than $4 billion of aggregate repurchases, including the ASR, while retaining flexibility for strategic investments and balance sheet priorities.

Balance sheet strength remains core to our framework, and we continue to target net leverage of 3.5x over the long term. Following the capacity monetization, we expect this obligation to amortize between June 2027 through May 29. Together with expected growth in the business, this supports our objective of returning to approximately 3.5x net leverage in the second half of 2027.

Slide 12 illustrates another part of the flywheel, the opportunity to improve cash flow durability through long-term contracting while retaining participation in attractive power markets. The objective is not simply to contract more megawatts. It is to lock in attractive risk-adjusted economics.

The existing AWS agreement continues to ramp towards its full contracted level, which gets us to approximately 35% contracted gross margin. Additional contracts could increase the contracted portion of gross margin and reduced reliance on future market conditions. We show the impact of another 2 gigawatts of premium data center deals, which would take us to 60% plus contracted with potential to meaningfully go further.

These incremental opportunities are illustrative and not included in our base outlook. The overall combination, higher underlying cash generation, disciplined capital allocation and opportunities to contract at attractive economics is how we intend to compound value per share. With that, I'll turn it back to Mick.

Great. Thanks, Cole, and we're going to turn it back to the operator to open the line for questions at this point.

[Operator Instructions] Our first question today will be coming from the line of Shar Purreza of Wells Fargo.

Mac, Harry, just on the negative zonal basis in PJM, I mean we you continue to see even further widening, especially after you guys marked on September 30. I guess what are you assuming is the normalization path there -- and has that kind of been incorporated into the free cash flow figures for '27 and '28?

Yes. Shar, let me start on this, and then I'll turn it over to Kyle to give you some details of what's in our numbers. We continue to think that the believe that the zonal basis is going to narrow over the next couple of years. And we think there's 2 primary drivers to that. One, Obviously, we see load growing inside of PPL zone. We can see that very clearly with respect to the AWS Susquehanna campus that's going up today as well as other projects in the -- and then secondly, there's a significant amount of transmission upgrade work that's getting done. It's been -- that work started at the end of last year and continues into this year and goes into the next year. So we're confident that, that basis will narrow. With respect to the numbers, let me turn it over to Cole, and he can give you some details on what's included.

Thanks, Terry, and Maria. Yes. So in terms of the impact for '27 and '28, as I said earlier, our our free cash flow guidance and outlook looks at just whatever the marks are. So for basis, we mark to our zonal pricing for all of our assets. And so that's already incorporated that widening basis as of 9/30, right? And so again, all these -- all these numbers are reflective of the 9/30 curve. And just as a reminder, as I said in the script, we're hedged 70% in '27 and 35% in and our commercial desk is always actively working to minimize any exposure that we have on the zonal basis.

Got it. Okay. Perfect. And then just on the 4 gigawatts opportunity, I know you noted that powered land is kind of the higher-value solution that you are marketing. I guess what's the right benchmark in terms of return on invested capital, especially relative to new build options and off-grid solutions.

So maybe another way to ask is how much margin above current market prices, which are obviously up significantly, does that solution require? And is it still kind of competitive?

Shar, it's Mac. Look, I think the monetization of powered land for us is a means to an end, the end being long-term capacity and energy contracts and how we service those off of a combination sometimes we describe as a hybrid model, which is bringing some new capacity from these additions that we have in the pipeline or selling our existing capacity and energy in combo or discretely against those power land opportunities. So we're not necessarily -- obviously, when we -- if we invest in acquiring land we want to get a fair return for that acquisition, but that is a means to an end.

We're not looking to create premium out of that. What we're looking to do is facilitate the ability to locate data centers principally in the PPL zone for a lot of those that we've -- that we're advancing. And so -- our goal is to take those -- combine them into a transaction with a long-term PPA, if you will, and create value off of our existing fleet plus potential capacity additions in a hybrid model.

So when we think about what a fair return for that hold is we -- first of all, we're not investing a lot of dollars in that. Let's just be clear. It's not like we're going out and investing hundreds of millions of dollars in these assets billions of dollars in these assets. We're acquiring land that we hope to just get a fair sort of equity-type return on for the whole period. So I hope that answers your question. If you have a follow-up, please let us know.

No, no, that actually do touch it. I appreciate it guys. That's all I had and terrific execution.

[Operator Instructions] Our next question is coming from the line of Matt Pettit of Barclays.

It's actually Nick Campanella on for Matt. Maybe just to ducktail off that last question, just with the end of the bilateral contracting window now being in February, I believe. Can you just talk about your interest in participating in that as an avenue and just given the fact that you're talking about you can get people connected to '28 now. I'm just curious, why would that not be the window to do deals now and net down this RBA requirement? Are there reasons we could be waiting past February. Could you talk to that a little?

Sure, Nick, it's Cole -- as we've said before, we're not beholding to a specific time line for our deals. And so Obviously, the RVP window has been extended here. So as deals get done between now and when that option is run, of course, there may be some additional netting -- but we don't see the RVP timing as kind of driving hyperscaler decisions and our time line necessarily. -- if deals get done within that time frame, great. We're obviously working on a bunch of opportunities, as Mac and Tory outlined. And when we got something to talk about, we'll talk about it.

Okay. Great. And then maybe just with the BRA still on track for December, seemingly, this is the last 1 that's capped, I believe. Just what are stakeholders or yourselves advocating for as we kind of look forward to the spring in terms of keeping the cap or reevaluating this?

Nick, I'll respond to that. Obviously, we've got the December auction coming up. parameters are out there. I think most everybody has got a similar view that that's going to clear at a pretty high level all the way to the gap at the end of the day.

I think when we look towards the May auction, a couple of things from our vantage point. One, we need to make sure that auctions continue to get executed on time, continue to move forward. I think that's 1 of the challenges that the market experienced several years ago when we got into the delay is we had to delay.

And then we had price clear that was fairly high. There is discussion out there, rumors that maybe there's another price cap in the spring -- we'll obviously participate in that discussion as it comes around. But our biggest driver is we need to continue to have the options to execute because at the end of the day, we think that's a primary the primary function of the market is to have sort of durability and certainty around those capacity revenues because that's ultimately going to be what helps finance new build and new generation.

Our next question is coming from the line of Michael Sullivan of Wolf.

Hey, good morning. I wanted to ask maybe just -- Terry, on Slide 10, when you list out the incremental value drivers, what would you say is your highest conviction 1 of being realized over the kind of near medium term?

Michael, this is Cole. Great question. Look, we outlined levers there that we think they're all great opportunities for them across we wouldn't be talking about them. Obviously, some of them we control more than others.

The bottom 3, for sure, depending on other parties, right, the market on the bottom 2 on Sparks and general basis, days in our build-out, which we don't control, but we -- as I said in the script, we see great progress.

It continues to progress more than linear. I wish folks could get out there and see the site. So that's the upside that we see that's tangible. But again, we don't control it. Obviously, deals, the top 2 M&A and data center deals sorry, got them flipped the second and third one, but you get the point. data center deals and M&A, there's stuff we can control somewhat, but obviously depend on good deals and willing counterparties. So all are good upsides. I know I'm not answering your question directly, but we see them all as potential here.

Okay. Great. No, that makes sense. And just a follow-up on the acceleration of the AWS contract, I think you've got here going to 480 megawatts in the '28 guide. What is embedded in the '29 outlook?

Yes. So we don't embed any acceleration within the range. Obviously, as we accelerate and as we outlined for every year of acceleration, you can see a couple of dollars per share increase. So to get to the higher end of the range in 29 for sure, some of that acceleration could be helpful. But to get into that range, we're not dependent on any acceleration. It's the minimum commit, basically the contract, Michael.

Okay. So I just wanted to make sure because I think there's a step function change there, if I remember correctly, like the original slides had 840 to 1,200 megawatts. Though is $840 the right number to use there basically?

Yes. So the PPA does start to ramp faster once you get out to 29% because of the revamped deal that we did. And so they start moving from 120-megawatt increments to 360, so the minimum commits out in '29 as we outlined a little over a year ago, to ramped 840 in 2029.

Our question will be coming from the line of Jeremy Donut of JPMorgan Securities.

Just wanted to come back to Power Lane, if I could, and specifically for time to power. Just wondering if you could talk a bit, I guess, about the different types of solutions for resource their battery, solar, fuel cell, small gen assets.

Where do you see, I guess, the best opportunities right now when we focused on speed.

Yes, Jeremy, I'll start and then Mac and Cole can chime in. I think, first of all, the interconnection to the grid in the 2028 time frame is really key for a number of customers, right? When you talk about large-scale reliability and what they want, getting that interconnection and getting it in a short amount of time is 1 of the highest priorities when we talk to hyperscalers and other developers.

The additional capacity resource, whether, as I mentioned in the script, to meet their rate payer protection commitment or other sort of corporate commitments, it varies. There are some customers who are really keen on battery technology and storage technology.

And that has been a topic of conversation that we've had with a number of counterparties. And then some are more interested in maybe a combination. I think 1 of the interesting things that we've noted and we'll reiterate here is -- at the end of the day, the solution matters, but the cost also matters. I think that's been a misnomer in the market is that these hyperscalers or some of these large entities will will pay any price whatsoever.

You take a look at some of the inflation on large-scale generation technology, and it's been pretty sizable in the last several years. And so we still think cost matters because ultimately impacts what they pay for and what the affordability is. And so those solutions make a ton of sense as we're talking to customers.

Jeremy, it's Mac. Let me tack on there a little bit. First of all, I think that the focus over the past year has been on land opportunities or data center sites that could be electrified '27, '28. And I think '29 is becoming the new '28 as we roll into next year.

And so I think you'll see a focus and we sit squarely with our land opportunities in that sort of '29 development time frame, which is what we've been trying to do in the background for the past years is to advance those. I think the other thing that sometimes, and I'll throw this little nugget out there, I think 1 of the things that's a growing trend isn't that it's just new capacity additions in addition to existing contracting for capacity and energy off of existing assets, but also the opportunity to look at curtailment in terms of PPA of existing that can then satisfy the requirements.

Because if you think about it, if you can curtail AKA demand response, you can provide effectively a -- something that looks like a peaker or a battery. It's just by having net negative load at that time or negative or 0 load at that time, providing that resource that then satisfies the hours that you're effectively developing a reserve margin across all of PJM 4.

I think that's going to become a growing trend and I think that's going to become a -- the other growing trend is that '29 is going to be the new focus of data center development

Got it. That's -- very helpful there. And then maybe just, I guess, pivoting when you talk about new deals, we've only seen nuclear so far. Just wondering how you think about the potential for other resources coming forward here in the future?

They're coming. That's how we see it. They're coming. Trust me.

Our next question is coming from the line of Julian Dolan Smith of Jefferies.

Excellent. Good morning, team. Thanks for the time. I appreciate it. Look, maybe Mac, you just said it yourself, a second ago, why don't we take it up a little bit on that curtailment subject because that's certainly a burgeoning subject. I'm glad to hear you talk about it. How do you think about cultivating that yourself as a business?

A, we have some of your peers that have these DR businesses embedded. But what I hear you saying is this is the curtailment of the actual load site. You don't need to develop a full VR suite of capabilities I presume. How do you think about pivoting your business to enable that kind of contracting? And when you say they're coming a second ago, is that sort of the principal vector for addressing additionality that you're thinking through today? Is that lends for me that pledge?

First of all, Look, Julian, I I would tell you that in addition to capacity additions, whether it be batteries, peakers, combined cycles that helps solve some of the in so-called additionality requirement, which is really ill defined by the way.

But there are ratepayer protection pledges and people are thinking about how to meet some of these obligations. I think we've been talking for at least I've been mentioning this for a year that load management on the data center on the demand side needs to get better. And in the past, it was you popped out a data center.

You took power when you needed it, you didn't take power when you didn't need it and you didn't worry about any of the rest of it. But now when you're developing gigawatt or more than in Susquehanna's case, 1.9 gig of data center development, you need to think about your load management.

And I think that, that's a growing concern. And so we are advocating, and I think we would all take the position that PJM needs to come out with a new large load demand response product that's different than what I think you were mentioning with C&I.

The C&I type demand response stuff is stacking nickels and dimes to make a dollar. These things are dollars themselves and need to be -- need to have a different construct. They need to be paid for it. So that's the carrot as opposed to the stick of like an IRAS.

You know that we were never supporters of IRS. We've talked about that. and we think that it's discriminatory and all the other pieces. But if you could voluntarily subscribe to a demand response that was equitable and fair and paid appropriately. And then, I'll call it dispatched appropriately within the response by PJM, that is a solution that can be 1 of the most economic to solve some of these issues with respect to reliability and the capacity market.

So when Terry was talking about the capacity market reforms, 1 of the things we'd like to see is how does demand response fit in there? I think we started to see a rationalization of load forecast. You saw that most recently going into this auction about what the load forecast would be, what will be the requirements of the RVP, et cetera.

So we're starting to get real sort of rationalized supply -- demand forecast. Now let's add load management to those demand forecasts and get real about what is the right solution there. And I think there's a growing consensus that demand response is going to solve some of these issues. But I don't think it's akin to the C&I that you described there. I think it's something different because it's much larger.

It needs to be managed not real time, somewhat longer in advance. So it's either a day ahead, DR or a week ahead type DR response because people need to know how to shut down a gigawatt. So I can give you an example, like Terry and I, when we were working in ERCOT, there's a big assembly line in Fort Worth.

That was a big 50-megawatt -- that was a big demand response asset that provided optionality. That's 50 megawatts. That was huge. Okay? We're talking gigs here and people that are managing the gigawatts or greater than gigawatts of load need to have a signal further in advance. So we're out pushing and advocating for a demand response product to be incorporated in long-term capacity reform.

Yes. No, thank you for elucidating on that point because I think that's what I was trying to tease out is the difference for the new versus the old DR paradigm. If I can, just to follow up a little bit. Like I'm trying to read between the lines on the leverage target.

Do you say an ability to achieve 3.5 net leverage target by the back half of '27. I don't know if that's an incremental take on your prior commitment. And really, what I'm trying to get at there is how do you think about deploying the balance sheet? Obviously, we see the ASR here.

But how do you think about deploying strategically? You went back to this contract by philosophy earlier. Where are we in potentially going back in and diversifying the portfolio further? And again, maybe I'm trying to read too much into some of the credit commentary here. But it would seem as if there's a a little of different permutations that you could evaluate here that would diversify you in different directions from what you have today?

Julien, yes, it's a good question. It's a good point. Obviously, we view the balance sheet as a key part of our strategic options, right? We've -- as we've done in the past, we've taken the opportunity to take leverage up slightly to do really accretive transactions for the business, and we'll continue to focus on it.

Our 3.5x net leverage target is a target, obviously, we went up a little bit above that to this most recent acquisition. And the idea is, okay, let's get back to a level to where we can sort of redeploy it again. I think we'll always look at how to utilize that in any part of our strategic alternatives, whether it's in the M&A space or the share repurchase space, or other ways to grow the business and ultimately grow free cash flow per share.

And Julian, just as Terry said, when we've done the last 2 acquisitions, we've temporarily gone above the target, but with line of sight to get back down. And we meaningfully did that this quarter post the Cornerstone acquisition. The comment in the script around second half of '27 is reflective of a lot of folks are going to treat the capacity monetization of short-term debt and so as that amortizes we'll get right back down to the 3.5x this time next year going forward.

You were asking a question about diversification. I mean, look, we like the position we're in. Let's not forget that we sold the ERCOT assets a couple of years ago, recycled that capital into share repurchases at a time that now in hindsight, that doubled up the value that we sold those assets for.

We are more than doubled, as I'm reminded here in the room. I was being conservative there. But look, that -- we like the position that we've concentrated in PJM. We like the exposure to PJM. We diversified through 2 acquisitions of over $7 billion and toggle the balance sheet to do so, toggled equity issuance to do so. So we remain flexible across all of those things, and I think we remain disciplined with respect to maintaining our balance sheet. But at the same time, we're willing to lean in and toggle those different aspects when we find the right opportunities. And so we'll do that in the future if we find a new one, too.

Our next question is coming from the line of Angie Storozynski of Seaport.

Thank you, and good morning. My first question is we're hearing a lot about the return on investment for data centers and how sensitive hyperscalers have been coming to the cost of these investments and how big a component of that is power.

So just wondering how that is reflected in your discussions about what type of power source hyperscalers want. I mean we've all been waiting for announcements about contracts for combined cycles. Those are not coming seemingly or at least they haven't come yet. And just wonder how you're positioned vis-a-vis this new increase sensitivity on the cost side for hyperscalers?

Angie, it's Mac. That's a great question. We've always said, I think, that there's price sensitivity by the hyperscalers. A lot of people have said, well, they'll just pay anything because it's irrelevant. But we've always said that they're price-sensitive. Cole has been saying that for years. And we're very much attuned to that.

And I think that's why -- when you look at some of the solutions, and I'll just go through a couple quickly. First of all, you're looking north of $120 all-in a megawatt hour for a combined cycle, a new combined cycle. And that -- those costs aren't going down. They keep going up. anytime you read them.

And so I do think -- and maybe just to mention it quickly, the demand response piece that I was articulating earlier or batteries or some other new new capacity with existing gen is a much more economic solution. So we remain focused there. I think a lot of people have talked about the behind-the-meter solutions, which I do think that because of speed to power and sort of '27, '28 delivery, there's been a move into the behind the meter.

But all -- every time we talk to people, there's a reason why to be grid connected. It's much more reliable it in the long run is the lower cost. And so we're focused on grid-connected front-of-the-meter solutions, providing some form of additionality either through our backlog and new capacity or in figuring out this demand response aspect of things. So I do agree with you that there's price sensitive. We've always been in that price-sensitive camp and attuned to it. And so the solutions we're providing, we think, fit within that. And that's why we've targeted them.

Great. And a little bit of a different topic. So if you're looking at power flows like exports and imports within PJM, it's pretty clear that the load growth is primarily in the Minion zone at least for now and that is a zone that continues to attract more and more imports from outside of Virginia.

So -- I mean, is it just that we are still waiting for these data centers to be energized in Pennsylvania and Ohio, those 2 states that seem to attract most debates about the power position or what is driving that?

Again, it just feels like the import of into Virginia continues to grow at a pace which is just not comparable to any other state.

Well, yes, I think you're right with respect to Northern Virginia, okay, or Dominion zone. And that's where a lot of this transmission that we think is going to get built over the next couple of years. We'll help in fact, there's 1 particular line, I can't remember the name of it. Chris probably knows. But those projects have been started. When you drive through Loudon County, which I did within the past year. When you go through, you'll see projects that are being completed.

Those things were started a long time ago, and so that's why you see those energized. But I do think that those projects are being built in Pennsylvania, I know that when we recently -- Terry and I and Brad, our Chief Operating Officer, were recently on the road and we went to all of our sites in Ohio. And as we drove into Columbus, you can see the data centers being built there live on the ground, just like if you look -- if you come up to Susquehanna, you can see in Burwick, you can see what's going on there. And there was just another site approved in Salem Township recently, I think, last week on the 28th or something like that. So they're coming.

It's just that I think Northern Virginia had a head start and they're just completing projects. I think Columbus and the surrounding areas in Ohio have a head start and they're completing projects. And so those will be energized just like the AWS contract. So I think that you're right with respect to Loudon County, but I also think they're coming in Ohio, and I think they're coming in Pennsylvania.

Yes. And Angie, maybe to add to Mac's comments on that. I think the other thing that we see is when you look at interconnection, which once again goes back to key that the hyperscalers and the developers want. You get into some zones like Dominion where the transmission build out is there's just not a lot of ability to do anymore.

But then you take a look at PPL and different zones like AEP and they've got the ability to build out more transmission PPL, for example, already has done that, which is why you see a lot more focus in that market because there is the ability to get connected to the grid faster for reliability. So we think that, that advantages the grid and advantage of the assets that we have there, and that's why we expect to see more load growth. And obviously, we've got materials in the slides that show the projections for those 2 zones over the next several years, and we continue to have a strong belief that it will accelerate.

Yes. And just 1 other question, completely unrelated. If you guys could explain to us what are -- how do we actually understand the upgrades of gas plants because I think we're all used to like very small capacity increases like anywhere between 3% to 5%. We see them being pursued, for example, by Capital Power on some of the assets that they recently acquired. When you guys talk about uprates of your assets, what kind of a percentage of the installed capacity are we talking about as a potential increase? And what do they entail?

Angie, it's Cole. Look, as you said, there's a lot of different upgrade opportunities across the asset base, not just ours. Obviously, there's nuclear upgrades. We've said we've done our -- the larger ones. And so we have relatively small number of upgrades at nuke -- on the gas side, combined cycles, depending on the vintage, have different upgrade capabilities, and they're all in different stages of that so there's not 1 percentage.

There's also opportunities to convert simple-cycle to combined cycle. Those have meaningful larger percentages because you're kind of, let's call it, just doubling the size there, rough numbers. So we're evaluating all those opportunities and think that there's attractive opportunities to do those on a cost-effective basis relative to new build and also from a time frame standpoint on the execution front.

Look, Angie, we have a couple of hundred megawatts or more across our fleet. And you're right. When it comes to the gas plant, particularly when you go back to the F frames, you're talking about doing these -- I think we're [indiscernible] right now. and there's a [indiscernible] upgrade and you get those smaller percentages. But those come around like every 3 to 5 years from GE to upgrade and squeeze more megawatts out. So those are the kind of upgrades that you're looking at. That's absolutely right.

This does conclude today's Q&A session. I would like to turn the call back to Mac for closing remarks. Please go ahead.

Great. Thank you. Thanks, everyone, for joining us, and I appreciate your interest in Talen. We've got a bright future ahead of us, and we look forward to continue to execute. Thanks again. Take care.

Thank you. This concludes today's program. Thank you so much for joining. You may now disconnect.

Good day, and thank you for standing by. Welcome to the Talen Energy Corporation Second Quarter 2026 Earnings Call. [Operator Instructions] Please be advised that today's conference is being recorded.

I would now like to hand the conference over to your first speaker today, Sergio Castro, Vice President and Treasurer. Please go ahead.

Thank you, Amber, and welcome to Talen Energy's Second Quarter 2026 Conference Call. Speaking today our Chief Executive Officer, Mac McFarland President, Terry nuts; and Chief Financial Officer, Cole Muller. We are joined by other talent 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 talent 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 most directly comparable GAAP measures in our earnings release and the appendix of our presentation.

With that, I will now turn the call over to Mac.

Thank you, Sergio, and good afternoon, everyone. We appreciate your interest in Talend, and we look forward to the discussion during our Q&A. Let me start by addressing our strategy and its intersection with the markets and the regulatory environment. At Talend, we remain committed to our flywheel strategy of owning low-cost existing baseload assets and entering into long-term contracts. And like any good strategy, the key is to build a solid foundation on a view that is directionally accurate, but not precise, accurate in that the direction of travel maximizes value in any future but not so precise in that the strategy can be constantly refreshed to take advantage of changes without creating wholesale change in the overall direction of travel.

Our direction of travel remains fundamentally the same. We believe we control our future in whatever form the future takes, and we have advantaged assets in advantaged locations, and we have built on those assets with our development pipeline of powered land and capacity additions. Our assets primarily sit in the PPL zone and in AEP Ohio. PPL is a zone that has 2x the generating capacity of current load and has excess transmission capacity within the zone. This means that large loads can be absorbed within the region, and that is why you see the AWS campus being built as well as many other large data centers being developed in the PPL region.

And we are an AEP Ohio, a region that is business-friendly, data center-friendly and already a large health for data centers. We like our positioning of existing assets. We believe energy in these areas will be increasingly valuable in any future. A fact that is proving out as we speak, with energy prices rising and capacity continuing to clear at the caps. We continue to believe in this underlying value and the ability to contract for both energy and capacity of our existing assets. Yes, despite the noise around regulatory rule making, it does not change the fact that our assets provide for the base energy and capacity for the region and again, in PPL more specifically.

And if they are contracted stand-alone, contracted in the hybrid model contracted to C&I are simply taken to market, these assets are becoming more and more valuable in PJM. The PPL zone is constrained that it has more gen than load and transmission doesn't allow it to get out to the fullest extent. That will be fixed as transmission is built which has already been approved, and it will be fixed as more load is brought to the region. And again, that load is already in development.

Terry and Cole will expand on both these aspects later. Advantaged assets and advantaged location. The same is true for our Ohio assets, but I won't belabor the point. That said, we, as well as some of our customers do recognize that new capacity will need to be brought online. That is why we are also supplementing these advantaged assets with our development pipeline, powered land and new capacity.

Our powered land development is not because we are getting into the digital space, nor do we expect you to value us off of land development? That is not our business nor our value proposition. We exited that business when we sold the campus to AWS. However, by working with local communities and the local utilities to power sites for late 2020s electrification, we are enabling front-of-the-meter solutions, solutions that provide the opportunity for long-term contracts of energy from our existing portfolio. Additionally, capacity for these contracts can come in 2 forms, from existing sites or from capacity additions.

And that is why we have developed a pipeline of new capacity focusing on batteries, peakers and up REITs. We believe blending new capacity with existing energy on a front of the meter grid-connected site is more reliable and durable and in fact, less expensive than any behind-the-meter solution, and we think that is a winning proposition in the long run for our customers and is the basis for our strategy.

In summary, we remain flexible, commercial and forward leaning, and we like the direction of travel with the talent flywheel.

Now turning to the quarter. The fleet performed well, and we delivered $374 million of adjusted EBITDA and $212 million of adjusted free cash flow for the quarter demonstrating the value of our recent acquisitions. In June, we closed on the Waterford Darby and Lawrenceburg plants, bringing over 2.5 gigawatts of efficient natural gas-fired generation assets into our portfolio just in time for the peak summer demand.

I'd like to welcome the teams at these sites into the Talend family. We look forward to your safe and reliable operations for years to come. We executed on our share repurchase program by buying back 550,000 shares during the quarter, and we are committed to our target of returning 70% of adjusted free cash flow to shareholders through the SRP. Cole will discuss the power of our near-term cash flows and how that capital return impacts our '27 and '28 outlooks later in the presentation.

PJM fundamentals continue to strengthen and we have seen a nearly 50% increase in West Hub Sparks since last year. It is interesting to note that just a short while ago, we were discussing transacting long-term PPAs with hyperscalers at prices in the $80 per megawatt hour range. And now the forward wholesale prices for capacity and energy are approaching those levels, if not exceeding them. Long-term forwards have finally caught a bid and as we like to joke internally, Chris was finally right. And we are seeing the renewed interest in long-term contracts in the C&I space.

And what is interesting here is that while broker quotes for capacity are in the mid- to upper 200s for the years post the cap auctions. In the bilateral market, we have seen bids at the cap level for the early 2030s and for tenure. A word of caution in that these are then we treated but 1 should also view this as a supportive sign of capacity pricing in the out years. The near-term PJM capacity markets continue to reflect strengthening fundamentals as well. With the last 3 base residual capacity auctions clearing at the price cap and uncapped prices that would have settled in excess of $500 a megawatt day.

As we discussed last quarter, now that the Cornerstone transaction is closed, we are updating and raising our 2026 guidance for the acquisition. Additionally, we are increasing our '27 and '28 adjusted free cash flow per share outlook. We'll provide '27 guidance and '28 and '29 outlooks during the third quarter earnings call, which you should expect as normal course going forward. Our annual plan is to provide guidance for the upcoming year each fall, along with an outlook for the 2 following years.

We did this a couple of additional times this year because of the uniqueness of adding a significant gas portfolio through M&A early in the year. However, you shouldn't expect that going forward. Well that is, unless we have other significant business changes that would warrant an update.

With that, I'll turn the call over to Terry.

Thank you, Mac, and good afternoon, everyone. Turning to Slide 3, which covers our year-to-date financial and operating results. Talend continued to build on its strong first quarter results, delivering $847 million of adjusted EBITDA and $562 million of adjusted free cash flow year-to-date. This results in a free cash flow conversion rate in the mid-60% range, continuing our focus of generating strong cash flows for our shareholders. We currently have over $1.9 billion of liquidity, thanks to cash generated from operations. This gives us capital allocation flexibility and enables us to focus on shareholder returns.

Turning to our operational metrics. Safety remains our top priority across the fleet, and our team worked safely during a busy spring outage season. Our recordable incident rate was 0.27, which continues to be below the industry average. I would like to thank the men and women of Town who continue to demonstrate strong operational and safety performance while also integrating new generation assets into the fleet over the past several months.

The commitment of the team to operate in a safe and reliable manner is an important part of Talend's value proposition. Our fleet ran well with a 3.9% equivalent forced outage factor and we generated approximately 30 terawatt hours of electricity, achieving a 51% fleet-wide capacity factor, which is 14 percentage points higher than the prior year as we added Freedom and Guernsey to the fleet, and our intermediate and peaking assets continue the trend of higher run times to support the grid.

Moving to Slide 4, I would like to talk about the overall market fundamentals and load growth across the U.S. and in PJM. Since the inception of the modern day PJM, 70% of the 10 highest peak load days have occurred over the last 15 months, which you can see in the green on the upper left graph. Five of these peak load days were just in the month of July. For Talend, this means higher run times, which you can see as our total generation grew by 13% when compared to a pro forma amount from last year, which also includes the assets that we have acquired.

In PJM, demand is forecasted to grow over 17% through the end of the decade, meaning higher run times for our existing generation fleet. To provide some color on what that means for Talend, a few years ago, our Montour plant was utilized as peaking assets with multiple start-ups and shutdowns and running only over the peak-demand hours during the day. However, the last 2 years have produced a very different run profile with the plant running at full capacity for 30 to 40 days at a time to meet the rising market demand.

Turning to the upper right of the slide, total U.S. power demand is forecasted to continue to grow by over 20% through the end of the decade. All of this helps validate 1 of our driving theses. Significant load growth is here and more is coming. It also means higher power prices and higher spark spreads, which you can see on Slide 5. Power is up and sparks are widening, both as of March 31 of this year and continuing through today as compared to the July 2025 pricing that was used at our Investor Day.

You can see from the graph on the bottom right hand of the slide, 2028 PPL spark spreads are up 28%, while 80 hub parks are up 27%. In the prior couple of years, forward power markets were showing limited reaction to the demand growth, but that has shifted over the past several months as load continues to verify in the PJM real-time market, and record peak demand events get factored into the forward curves.

Turning to Slide 6. Let me provide some color on the basis in PPL that we mentioned last quarter. Historically, the PPL power price discount compared to PJM West Hub was approximately $9 per megawatt hour. Over the last several months, we have seen the basis grow to approximately $20 per megawatt hour. This widening is driven by several factors, including a significant amount of recent transmission work that has been taking place over the spring and summer. The transmission outages related to this work have been taking place south of our generation as part of a broader system upgrade in between PPL zone and the load pockets of BG&E and Dominion.

This transmission work will provide more reliable transmission into those southern zones. While the states work has been conducted during the spring and summer, it limits the power flow south, and that shows up as a larger discount in PPO pricing in the day ahead and real-time energy markets. The forward PPO zone curve has been impacted by the recent trend that has been seen in the cash market. Two main drivers will work to compress that basis as we move forward. First, completion of the transmission upgrade work between the North and South regions of PJM and second, further load growth within the PPL zone.

As you can see on the upper right, PPO is currently a net exporter of power but as load grows in the zone, assuming no further generation supply, the volumes exported should decline and that will have a positive impact on the PPL basis price. For Talend, this represents an opportunity to narrow the basis, which will result in higher pricing. I'll now turn the call over to Cole to discuss our financial performance.

Thanks, Gerry, and good afternoon, everyone. Now turning to the financial results for the quarter. we are reporting adjusted EBITDA of $374 million and adjusted free cash flow of $212 million. These results are substantially higher when compared to the same period last year and continue to be primarily driven by the contribution of Freedom and Guernsey, higher PJM capacity pricing, higher generation volumes from Susquehanna and the fossil fleet and the AWS contract, which continues to ramp. Year-to-date, we are also seeing the benefits of higher realized market prices on our open generation portfolio.

These strong results demonstrate the strengthening cash flow profile of the business. As Mac mentioned earlier, now that the Cornerstone acquisition has closed, we are raising our 2026 guidance ranges, as shown on Slide 8. Our adjusted EBITDA range for 2026 has increased to $2.025 billion to $2.225 billion, which includes the Cornerstone acquisition impacts, updated market conditions and an offset due to the pending sale of our interest in Keystone.

We are also raising our adjusted free cash flow range to $1.2 billion to $1.35 billion, which also includes impacts from our financing activities earlier this year that have strengthened our balance sheet.

Turning to Slide 9. When we announced the Cornerstone transaction back in January, we indicated a pro forma 2027 EBITDA of approximately $2.6 billion, and I'm pleased to say that we are exceeding that level with this update. We expect to provide formal 2027 guidance on our upcoming Q3 earnings call. But in the meantime, we are increasing our 2027 and 2028 outlooks. Our base case hold share count flat as of the end of Q2. 47.9 million shares. This is net of equity issuances to ECP in conjunction with the Cornerstone acquisition and share repurchases made during the quarter.

For our 2027 base case, our free cash flow outlook remains $34 per share, increasing to $40 per share in 2028. We also anticipate generating approximately $4 billion of adjusted free cash flow between the balance of this year through the end of 2028 and forecast returning at least 70% of this cash, $2.8 billion to shareholders through share buybacks. For context, that's almost 20% of our current market cap. Note that our authorized share repurchase program has $1.7 billion remaining. So in time, we will require board approval to fully execute.

When accounting for buybacks, we forecast 2027 cash flow at approximately $37 a share and 2028 now at $48 a share or over 14% free cash flow yield on 2028 cash flows at current share price levels. This leaves more than $1.3 billion of excess cash to fund additional value creation opportunities. For example, more buybacks at mid-teens free cash flow yields for selective growth investments. Whatever is the highest and best use of capital for our shareholders, all while continuing to target our net leverage ratio at 3.5x.

Additionally, we see significant upside opportunities through a variety of levers, accretive M&A, acceleration of our existing 2 gigawatt PPA and expanding our flywheel strategy with new data center PPAs, each of which could add 10% or more to our cash flow profile. Expanding spark spreads and normalization of zonal basis are also additional upside levers and ones that we are well positioned for given the market fundamentals that Terry discussed earlier.

To be clear, our forecast include recent PPL marks that reflect the widened basis and a good rule of thumb is that for every $1 improvement in zonal basis across our portfolio equates to approximately $1 increase in adjusted free cash flow per share. Each of these levers provides meaningful opportunity that could see our adjusted free cash flow exceed $50 per share by 2028, continuing to widen the potential free cash flow yield into the high teens.

I want to emphasize that we will continue to maintain capital discipline with a clear focus on accretive levers that meaningfully increased the free cash flow per share available to investors through the Talent flywheel. Speaking of the flywheel. As we discussed last quarter, we have several opportunities for long-term PPAs that support a range of customer solutions. This includes approximately 4 gigawatts of advantaged data center sites with utility load commitments that provide speed to market advantages.

These opportunities include organic sites adjacent to our generation as well as sites that we have acquired and advanced development on over the past few months. We have also advanced our 2-plus gigawatts of new build capacity projects backed with interconnection positions and are in the process of additional developments related to both upgrades and new capacity projects. We are working on these developments to support the flywheel with our overall goal of contracting more of our baseload portfolio. We continue to focus on meeting the highest priority needs of our potential customers with 2 key areas of focus.

First, we continue to engage with counterparties on solutions that rely on our existing generation portfolio, i.e., leveraging both our existing energy and capacity and we see the customer universe expanding beyond hyperscalers to include co-locators, needle clouds and even large C&I customers. The exact structure of these deals will vary by counterparty, but it is clear to us that existing generation is going to be needed power data centers that are energized over the coming years. And second, some customers are focused on solutions that will also provide some level of new capacity, and our hybrid structure fits this need well.

Under this approach, we are pairing our existing energy from the baseload talent portfolio with our new capacity development projects to cover at least a percentage of the load needs. This percentage is likely to vary by circumstance and counterparts. Our speed-to-market sites already provide access to Grey Power, which is the primary preference of our customers and where we remain focused as we target long-term PPAs supplied by our existing portfolio.

On the next slide, we show the evolution of our contracted profile as our existing nearly 2 gigawatt contract ramps through 2030, alongside an illustrative view of what that portfolio could look like in 2030 and beyond. In our 2028 outlook, our margin composition is primarily driven by PJM energy and capacity revenues, which allows us to participate in widening PJM power pricing and smart spreads in the near term.

As the AWS Campus ramps a full build-out, projected to be sometime between 2028 and 2030, as shown in the middle chart, our long-term contracted margin increases from 10% to 35%. This makes contracted gross margin with a AA credit counterparty, our largest revenue stream, derisking longer-term exposure to PJM capacity and energy markets beyond 2030.

Moving to the chart on the right, we show an illustrative portfolio margin mix beyond 2030 that reflects the impact of an additional approximately 2 gigawatts of long-term contracts as we continue to execute on the Talend flywheel. Assuming similar economics and structure of our existing PPA we could reach 60% of our gross margin mix under long-term contracts. This potential mix would significantly reduce our reliance on the merchant PJM markets and continue shifting towards a more infrastructure-like cash flow profile.

We believe this is a differentiated position with growing cash flows that are tied in the near term to favorable market dynamics with the potential to convert to increasingly durable cash flows under long-term contracts.

I'll turn it back to Matt.

Great. Thanks, Cole. And with that, I guess, we'll unpack what we just discussed in Q&A. So I'll turn it back to the operator and open the line.

[Operator Instructions] Our first question comes from Carly Davenport of Goldman Sachs.

Maybe to start, there's been a lot of news flow out of PJM over the last couple of weeks here. Just maybe you can give us your thoughts on anything that's out to you in PJM's FERC filing last week on the RBP framework? And are you able to share to what degree you plan to participate in either the central procurement or the bilateral process and how that might relate to the development pipeline that you've highlighted today?

Yes. Carla, it's Mac. Well look, the RVP filing was a lot as expected. We've been supportive of the RVP. We do -- and we do plan to participate. We can't guarantee that we're going to. We plan to participate, and we're looking at that because we have a number of options that we think might fit. I think it came back with a lot of the components that we thought were valuable. We thought that the PJM yielding on the 205 part of the process to where FERC could modify it on sort of line item type changes was a good move there.

There are certain things that we're working through. I mean I think 695 pages. We're still -- I mean, I know we've had 3 or 4 days. But digging through it and understanding each of the different aspects of it. We appreciated the preamble that basically said that existing contracts would be protected. And we're just going to have to see how the process plays out, but we're hopeful that the schedule will be met. It's looking for something to be finalized at FERC by September 29 and then executed on the 30th, which is a short time frame, but I do think it's imperative that we continue down that path as an RTO because it's been too long in the making, and we've got to get this run before the December auction.

So a lot of the concepts that we thought were beneficial, the 555 cap, which is sort of a soft cap because it's the average. We think that that's a good aspect of things. It allows for the potential to solve more based off of where offers may come in. But overall, it's largely as expected, but with a few added touches in there. So we like it holistically, but we're still thinking about how we might comment or are there possible avenues to make it better, and we'll engage in that process.

And then like I said, we've been developing and Dale sitting right here, we've been developing a number of projects, and we feel as though they may be viable candidates to participate in this, but we'll have to see how that all plays out over time.

Got it. Okay. I appreciate all those thoughts. That's really helpful. And then maybe just 1 clarification question the prepared remarks. On the updated '27 and '28 free cash flow per share outlook, can you just expand on the pricing assumptions that are embedded there? And then if there's any assumption on PPL basis narrowing to sort of bridge to that '28 figure?

Carl, it's Cole. Yes, happy to answer that. So what we use and what I said in the remarks is we use the PPL marks as is, as we said, our '27 and '28 and so the upside would be narrowing of that basis as discussed. So hopefully, that answers the question.

Our next question comes from Moses Sutton of BNP Paribas.

Great update. Can you discuss any changes being contemplated for the hedging strategy perhaps with the curves in PJM, the comments between zones all of it's truly in flux, and we could be in a position where 2028 to 2030 could have more stepwise moves? And then when you have your AWS contract, capacity auction support maybe from the 4 gigawatt opportunity stuff even more. So there's a lot of free cash flow support. So sorry for the long-winded question, but how are you thinking about maintaining upside potential under scenarios, whether that's a PPL comment, broader PJM where we get more stepwise moves and you can kind of capture that value, both through volume on running higher capacity factors, but of course, on Sparks potentially rising more?

Moshe, this is Terry. Happy to dive in that question. I'll tell you, first of all, we always -- as we give those updates, you can see how we expressed our sort of point of view on the next few years as you look at the hedge profile. We have been I think, fairly consistent on how we think about some of those years, especially '28 and beyond. That being said, when we put the hedging strategy together, we do like to use some instruments that allow us to fence in outcomes to where maybe we're on the higher end of where we think it might come out, but we put a little sense around some outcomes in pricing to where we can still participate in the upside.

And so we do have some positions that are Delta positions, and you'll see the hedge percentage move around as prices move around. But yes, when we give our information every quarter, I mean, the best way for us to talk about is just seeing what our hedge profile is.

So let me pick up on that just to back up on back of what Terry said, you can see the hedge profile that's back on Page 15 in the deck. And you'll notice that while we've increased hedges, I think, about 5% in '28 quarter-over-quarter, 25% to 30%. We are longer out on the back end of the curve, even with or this assumes sort of minds on the contract ramp associated with AWS. So obviously, that would that would create a bit of a shorter position but it does influence how we think about just the overall hedging strategy.

And I made a little bit of a joke at Chris' expense earlier, but we've been asked for, I don't know, several quarters when are the forwards going to start to reflect the tightness. And our answer was that it's coming, and we don't understand why the forwards are at their current spot. They have now started to reflect the tightness. And to your point, will they reflect even further tightness as you get out beyond it's yet to be seen. The markets are pretty thin out there.

The second point that I'd make is not only does it impact how we thought about hedges, it also impacted how we thought about acquisitions. We purposely got longer baseload generation energy in the market, one, to supplement our ability to sell long-term contracts off of energy and capacity but also from the perspective of just that we felt as though energy and capacity was underpriced and it's going to be more valuable in the future.

So not that you can -- that's not exactly how you underwrite it, but it's a perspective that went into what is the equity upside piece to those acquisitions.

Incredibly helpful from both of you. If I could just add 1 follow-up to Carl's comments on the base FCF going up $4 on your 2028 outlook. It's not buybacks. That's a different point there. Cornerstone is already in there. It curves were already up. So -- and maybe I just want to see if you could clarify a little more. Is there anything else because you're saying the narrowing of the zones would be upside there. Anything like OpEx post acquisitions, maybe synergies there or volumes terawatt hours expected in there that's part of the increase in the base outlook for 2028. It's good to see, just trying to understand a little more on what's actually in there going from $36 to $40?

So coal can obviously recite and Terry, the numbers and the bowels of this much better than me. But look, when we go through and put an outlook together, we're looking at what our outages look like out there? What does our CapEx look like out there? What is our O&M out there, and it's a recent update and a bring down on all those factors. So now the marks are the things that have moved the most. And these marks what we do is we market the end of each quarter as we've done here. It's gotten us into a little bit of a do-loop as we go through quarters because people are looking at what are the outlooks in the out years.

And that's why I made the point of saying we're not going to do this as frequently going forward. And I know there's a lot of people that are out there doing mark-to-market. But we are at this point, and hopefully, we'll come to finality of doing this too often as we gave guidance for '27 and then outlook for '28 and '29 with the third quarter. But we put it all in there. we have a corporate model, if you want to call it that, which feeds our business plan, looks at all of that, it looks at the marks, but then looks at all of our operating characteristics, things that we're going through, and it's all in there.

Yes. And Moses soon as Max said, it's a number of things. But on the Cornerstone piece, just to be clear, those cornerstone assets are in AV Hub and not PPOs you need to look at both PPL zone quarter-over-quarter and also ADH, which is obviously the large update was adding the Cornerstone assets into the calculation there.

Our next question comes from James West of Melius Research.

So I think so with the hybrid strategy that you guys have in place and it's all grid connected, you seem to be in a very enviable position here because we're hearing and we've heard us in the last 1.5 weeks from some of the hyperscalers that power is going to be a constraint. It's not -- it's not going to be a constraint. It is a constraint. It may actually caused them in some ways to moderate their CapEx growth because there's waiting for energy. But you've got some of it now and you'll build some of it with this strategy. I mean when do you anticipate contracting on this? And is there some gating item, whether it's the auction or just figuring out all the regulations in finalizing those in PJM? Is there some gating item? Or is this coming down the pipe pretty quick?

So James, it's Mac. Look, I think there's a number of factors. Obviously, we're getting a lot -- we're getting to the endpoint on the RVP. We'll get the I guess, this week or next week -- this week, okay, that's what I thought this week. And that will help provide, I'll call it, some more clarity on things. I think that 1 of the things that needs some discussion here is, first of all, I appreciate your comments because what we're trying to build is a suite of options that solve a number of different customer needs were requirements.

The 1 we're not doing is behind the meter. I do think that there's solutions that will be behind the meter. There's no doubt about it. They've already been announced and will there be more announced maybe. But we don't think that, that's a long-term solution. We think the long-term solution is front of the meter grid connected with or without new capacity additions or and new energy, et cetera. And we do think that also having powered land as an addition to that, help that out, bringing those front-of-the-meter solutions to bear.

But we are approaching 2027 here. We're at the end of 2026. And in 2027, '29 becomes the new '28 and hyperscalers right now are all looking for something that can be done exactly in '28. We already did that, right? We -- and it's being built out at the Susquehanna campus. And so when you say what is any gating item? I don't know that there's any 1 particular gating item. I know people want to point to regulatory noise and say, that's regulatory neopolitical noise and say it's political noise. I think it's -- those things are a factor, but not necessarily the biggest factor.

I think the biggest factor is these guys are all spending $50 billion a year, thinking about where they put their chips down and they're working on the very near term, like what are we doing to put those chips down '27, '28 and then they're going to start working on '29. And it's just -- it is how much cycles, how much time do they have to spend on all different factors. And so when you think about where each of them are, it's just -- it's an allocation of time. And I know everybody wants it to be built out quicker.

But even they are struggling with getting it built out quicker. So I think it's a matter of when, not if is the real point here, and I don't know that the determinant on if there's any 1 factor.

Okay. That's very helpful, Mac, and that explains a lot. Just 1 quick follow-up for me on the backstop auction with the cap at I think $5.55 does that kind of change what you add into that -- or what you bid into that auction, does that shift towards more batteries? Because I would think new build gas would not pencil at that level. Maybe I'm wrong.

I don't think so. If you're talking CCGTs. But the way that, that 555 works is it's sort of a floating cap. So if you have and this is dangerous to try to do averages. But if you have something 1,000 or 3,000 megawatts at $455 and 3,000 megawatts at $6.55, that averages to $555 million that's how that works. So you can go above the cap. That's our understanding of how it works. We want to make sure we get clarity on that. So maybe there will be some things that clear up the stack in those numbers.

But if you look at the -- what we think are the winning solution. It's up rate first, right? It's batteries and it's maybe peakers, even peakers are going to be up that stack, particularly as you try to either -- and it's going to depend, , it depends on people how to look at it. If they're trying to amortize everything over the 15-year period or they're going to take a big sort of balloon merchant risk year 16 like people are going to have to make some of these decisions there. And so we'll see what goes on. We are hopeful that the RBP is headed in the right direction and that it will be successful in solving this what I consider a near-term sort of political problem, and then we can get on to the longer-term capacity reforms because we have a market that's working.

And let me just say something on that for just a second. I think piece -- the first step in the right direction because it's procuring incremental generation, right? It's bringing new gen in to help solve the problem. I think the IRAs, which is going to come out and which is just connect and managed by another name, is talking about curtailing load during emergency, at least that's how it was originally proposed. We got to see what the rule looks like but we as an industry need to focus on not curtailing load, figuring out how to solve the load problem.

This is like 1 of the greatest opportunities we've seen in this sector in a long time and we should focus on how to bring new generation to bear to solve the load requirements, not try to curtail load or stop load from being built, particularly given the economic developments and everything else that goes along with it. So I probably rambled more than you expected, but that's posing myself.

Our next question comes from NG Sterno from Seaport.

So first, on the Connect and managed. So I'm just wondering I know you guys have been waiting for regulatory priority. But given the sort of matching or potential matching of both existing capacity with new capacity, how important is Connect and managed to your strategy, again, given the new build portfolio that you've been working on and given the locational benefits that your existing assets have, especially in the PPL zone?

Well, Angie, it's Mac. Let me try to take this and pull in the rest of the team here. First of all, the hybrid strategy and the rest of it, just to be like specific to answer that, we think, provides a safe harbor to connect to manage. Now that's assuming the Connected Manage and the rest of it gets implemented. And quite frankly, we think that there's all sorts of jurisdictional and discriminatory issues associated with it. I've always said that and continue to say that because IRAS is just connected manage.

I'm glad you use that price in another name. But to answer your question with respect to like how impactful it is on the rest of our business and how we think about it, it's really hard to answer that question. I'm going to try, but it's really hard because you got to -- it's a hypothetical and I know you have to appreciate, and I appreciate why the relevance of the question, Angie, but you also have to appreciate. It's a bit of a hypothetical until we get proposal that comes out because there were some changes to the RVP that were filed in the 700 pages.

We haven't seen whatever number of pages are going to come out with IRAS. But -- so even if we could and have those specific details, we'd have to then step forward with understanding and making a lot of assumptions to answer the question, including the FERC rejected not rejected because of the discriminatory nature does it withstand the judicial review, will PA implement it the same as Ohio we don't know. And oh, by the way, the rule as we read it is really about curtailment during emergency situations in the order of operations, which PJM already has that authority.

It's just that they're changing the way that they're doing it a little bit and allocating it based off of like snapping a line at some time frame. So it's really hard to answer how it goes out, but we look forward to getting this Friday, understanding it and then working to see if it is a reasonable outcome and all we have to go on is what PJM released last Friday.

And Angie, let me add to Max's comment. I think another thing that we would mention, and I'm going to go back to a comment that Matt made in the script, we've got advantaged assets in advantaged locations -- and what I mean by that is, keep in mind that -- so let's talk about the interim resource adequacy service or IRAS. PPL zone does not have a resource adequacy problem. -- right? It is oversupplied for generation, even take a look at the discussion that we've had around basis. The reason that we have this basis is there's ample generation in PPL zone.

So when you take a look at the specific resource adequacy, our assets are situated where we're not in locations where you have an adequacy problem. And so I do think that our assets, in particular, are situated really well. To Matt's point, let's see what comes out on Friday, we'll see the details of it. but we think the portfolio is situated really well.

Great. And just 1 follow-up. So you guys mentioned that the 4 curves plus capacity have basically caught up with the terms of your existing Susquehanna contract. And so I'm wondering if could maybe tell us what is the premium or what is the spread over those observable forwards that you could contract gas assets at. And I understand that it's a spark spread as opposed to the total price, but I'm hoping directionally if there's been sort of any compression of that premium as the forwards pick up or the market expectations continue to grow along with the forwards other hyperscaler or your expectations?

Yes. It's a willing buyer and willing seller proposition for a long-term contract, Angie, as you know, I started to answer this with your favorite answer for me, which is I'm not going to say anything to you about it. But I didn't just -- so I'm on a little light humor, Angie. So the -- it's hard to say. I mean I think that the thing that I would tell you is that when we look at selling energy off of the existing portfolio and even with new capacity in the peakers form and the rest of it. We think that we can blend that together over a long-term contract that creates value versus where we are.

It creates a long-term contract, which lowers our cost of capital and it beats any new build CCGT and any behind-the-meter solution on a total cost. So we think that's a winning proposition. That's why we continue to develop both new capacity additions in the form of peakers and batteries and upgrades. And while we're putting the power land pieces together that helps it advance it. And all of that is positive. If we get it done with our advantaged assets in the advantaged region of PPL as Terry and Cole we're talking about, when you think about the basis because nothing solves bases like low.

And PPL can solve PPL can absorb that load, as I mentioned in the opening remarks. So we like where we are with all of this.

Our next question comes from David Arcaro from Morgan Stanley.

I guess just curious if you could maybe elaborate to the extent you can, just -- what's the interest level that you're seeing in new megawatts, bringing new capacity and just broader trend toward more and more need for getting new megawatts onto the grid. So I'm curious if there's more of a trend in your data center discussions toward hybrid newbuild solutions overall versus existing gene?

David, it's Cole. I'll start here. Look, as I outlined in the prepared remarks, we're seeing a variety of different types of data center customers interested in both types of products that we're really focused on, one, being to selling megawatts off of our existing portfolio. And those are the folks that would be willing to potentially accept curtailment under some kind of connected manage scenario if and when that comes into play. But yes, we're seeing folks hyperscalers and others engaging on the hybrid model.

Certainly, the bring your own new capacity or bring new capacity to the system is of interest. And I think that's a compelling offering that we have, and it's 1 of kind of the 2 main areas that we're looking at. And we obviously wouldn't be talking about so much. We didn't think that hyperscalers and others had significant interest.

And Cole, just to add to that. And David, just to -- like when you think about it, I think we used the word hyperscaler as it's -- everybody is the same. -- right? And everybody has the same desires. And I don't know that, that's exactly true. I mean people have ratepayer protection pledges, et cetera. But they have different views on new capacity, how much new capacity versus existing what form that's in. And then if you expand and I think Cole went through this slide, we had Neo clouds there and co-locators who are getting back into the game.

There are certain aspects of data centers that might be okay to be curtailed. That doesn't mean that we think IRAS should be implemented in the way that it was under Connect manage. Don't take that the wrong way. But they should be incented to do that in a market and create demand response product that they can participate in. And some people may be okay with that. And some people might not be okay with that and want to bring capacity. And some people may be okay with just having a contract and seeing what comes in the future with the changes over these types of things.

And so that's why we've developed a suite of options and are working on advancing that suite of options so that we can participate in anything in the future holds with the exception, as I mentioned before, buying the meter because that's just not -- it's not our thing.

Yes. Got it. Understood. That's helpful color. And then just curious if you could elaborate a bit on how you're thinking about M&A, the M&A landscape and just how you would prioritize that in terms of allocation of capital currently where things stand?

So David, this is Terry. I'll take that and Mac and others can chime in. Obviously, M&A has been part of our strategy. When you take a look at the growth in our earnings and our free cash flow per share, it's been a core part of our strategy. We'll look at it as a path just like we'll look at anything else, right? First and foremost, with our -- where our share prices are, our free cash flow yield is very attractive. So the share repurchase program is our hurdle.

We've always talked about that. But if we could find an accretive M&A transaction that -- similar to what we've done in the past and it adds free cash flow to the overall mix, and we can do it in a manner that's clearing those returns, we'll do it. So yes, we're always in the M&A market, and I think that's just sort of something that you've got to do to look at growing the business.

But I want to say the same thing that we always say, which is like our hurdle is like and we showed it in the charts on as of Page 10, whatever the free cash flow per share churn but sorry, the free cash flow per share chart, that the reason we show 70% of our cash flow being returned is because that's our hurdle like we think of it that way. But as Terry said, we've been flexible. We've issued shares to do deals. We've taken on debt with a paydown over with a distinct time frame.

And so we've been able to use those toggles, but we always go back to measuring ourselves in particular, depending upon where the share price is and the free cash flow yield in the out year. how we might take that capital and return it to shareholders.

Our next question comes from Shar Pourreza from Wells Fargo.

Good afternoon, team. It's actually Constantine -- really appreciate all the great answers and maybe we can -- maybe we just clean up a couple of housekeeping items and leftovers, but -- maybe just to help clarify on the site development plan. The 4 gigawatts. There's no change from kind of the prior 3 to 4 that you were looking at, right? And are those kind of contemplating the same characteristics that you highlighted in the first quarter, like the '28, '29 grid connections and gigawatt type sites.

Just maybe any impact that you've seen on those from the PJM rule changes?

as it's Dean. Look, largely speaking, we're advancing the portfolio, and we're always looking to add to the portfolio -- but we outlined a number of sites, at least in terms of size of megawatts. And as I said in the script, we're developing those and advancing those, but we're still looking to continue to add to the funnel there. So I'm not going to comment on specific numbers of projects going. But yes, in terms of the characteristics, the charters are the same speed to market advantages sites that can be scaled to gigawatt plus data centers are clearly the kind of the value add that we're providing to customers.

And then constant, maybe to add to Cole's comments, -- when you look at the new build capacity, I would say that the 1 thing that we've added in there for this quarter, and it's on the back of closing the Cornerstone transaction as we do have some upgrades that we're looking at, obviously, adding these additional gas plants in the system. That's something that we can look at from a new build standpoint. But once again, going back to 1 of the other questions, obviously, we'll have to clear the right hurdle rate before we'll do anything with those.

Right. And then any impact from the PJM rule changes that's kind of starting to get felt within that development portfolio or still too soon?

I think still too soon. Obviously, we'll see where IRAS comes out and what the RBP is. But I think several of these projects that we have sort of meet the requirements or need that.

Okay. And then we've seen some waves on data center development from Texas this week being made? And do you see that creating any opportunities like sending projects to PJM or other areas, just in general, maybe kind of your view on the scarcity signals for on-grid solutions. Just curious kind of where the strategic focus lies as the dynamics evolve and would you look outside of PJM or just double down on the current plan?

Constant I think that there's a lot of things that are -- that are real, but that are also politics. And that lockage and read into things and a lot that shouldn't get read in and some things that probably should get read into these things. And it's just -- at the end of the day, there's politics. There's going to be politics in there's politics in Texas. I think it's pretty sure to talk about data centers. But my view is that data centers are -- I'm not going to say that we need win this, but I do think there is a strategic advantage for the United States, and it's something that we need to really rally around and they bring economic development to communities and but there just happens to be -- we got midterms coming up.

We've got elections coming up and this happens to be a political football. And I just think there's a lot of that noise in the air, whether it be in Texas or anywhere else. And so I don't know that there's any particular application. If they want to throw the data center, Pennsylvania will take them. I mean we're all.

Excellent. And then maybe just a quick follow-up on kind of the basis issues and the mismatch with the PTL zone. And do you have any thoughts around kind of how to monetize that basis mismatch whether it's FDR strategies or just flexibility around hedging strategy?

Yes. There is there's flexibility around it. I mean, we got to answer this because we've got time for like 1 more question here consenting after you. But like the -- there is ways to do it, but the problem with is sort of PPL, PICO, PEG, Jersey Central Power and Light, all of these places you could trade they're not deeply traded. It might become expensive to do it. FTRs are only on either -- on the auction basis and don't trade that far in front and there's so much recently bias in it.

And we were talking about it internally. I mean, people forget that. If you go back over a decade and PECO and PSEG were premium zones to WestuAnd then all the generation got built and things changed. But my only point being is that it's hard to manage that, and that's why West Hub, it's like trading NYMEX, right? It's an easily definable point whereas you can go have delivery points on gas and get really complicated, but people do things at West Hub and that just happens to be the more liquid piece of it.

So there are transmission that's being built. There is load that's coming. This will subside and by the way, there were some should mention this, there were some like specific in June of this year, there were some specific line outages as people were doing work. Now you'd ask why are they doing in June when it got hot. Well, that's just how it's planned. but there were some line outages that were taken out of service in order to like make improvements that will help relieve this over the long term.

And there's going to be more of those that go on. But it's not like 1 defining event of this transmission is going to solve it and then loads coming. But -- just to answer your question specifically, it's a difficult thing to deal with. And so yes, it informs our hedging strategy, but West Health is still the most liquid delivery point. So with that, going to go 1 more opportunity -- really appreciate it.

Our last question comes from Michael Sullivan of Wolfe.

In terms of these new capacity options that you have, can you give us any sense of where you're at in terms of sourcing equipment and what costs might be looking like?

Question was on new capacity projects. I'm sorry, it was a little weak coming through.

Just the peakers, the batteries, the new capacity solutions that you're looking to offer, where you're at in terms of equipment and what costs are looking like?

Michael, this is Terry. We've talked to a number of different suppliers across the board, both batteries and peakers. The supplies there is available. It's just a question of pricing at the end of the day and then what's the end solution. And once again, going back to what we mentioned earlier. Obviously, we're not going to go on the road of spending too much money on a project like that unless we know what the returns are on the back end. So I think that is a way for you to understand sort of where we're moving on that.

Okay. And then last one, just on the future of the PJM capacity auction. Maybe just first, when you think we'll have clarity on the structure there post the cap rolling off? And then also how to think about the IRS provision of pulling out new load that isn't match with NewGen and any implications there for the future of the auction?

So sorry, Michael, you're coming in a bit faint. I think you asked when do we think the longer-term capacity reforms are going to be post the cap. I think we're going to -- I think that was the first question. We're going to find out we may have to get that expedited. That's why we want to get the RVP behind us is going to get this IRAS behind us and move on to these longer-term reforms because we think that, again, like go back, we should be trying to figure out how to solve the load by bringing new gen, not curtailing it, not connect and managing it, not all these other things.

And so that's our perspective. And we're going to work vigorously to help PJM with doing that and hopefully, we can make some meaningful reform. I didn't quite hear on IRAS, but let me just -- because we're a few minutes over and I apologize. But Again, we got to wait and see what comes out. I think you heard our position. We're fairly -- we're going to be -- I think we -- I think it's prudent to see what comes out because there were some changes. I think people have heard some feedback we'll see where it comes out. I don't think that we should be judging until we see that. So we're going to have to take that time.

So Michael, happy to follow up with you. And by the way, there are a lot of people here, unfortunately, that we haven't gotten to. We've gone over a full hour appreciate everybody's questions, interest and talent. We look forward to catching up with all of you and all of our investors over the coming as we get back to the sort of investor flow after the dog days of summer here in early August, but look forward to catching up with everybody. Thank you for your interest in Talen. Have a great day.

Thank you for your participation in today's conference. This does conclude the program, and you may now disconnect.

Ladies and gentlemen, thank you for standing by. Welcome to the Talen Energy First Quarter 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, Kathy, and welcome to Talen Energy's First Quarter 2026 Conference Call. Speaking today are Chief Executive Officer, Mac McFarland; President, Terry Nut; 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, talentenergy.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.

With that, I will now turn the call over to Mac.

Great. Thank you, Sergio, and good afternoon, everyone. We appreciate your interest in Talen, and we look forward to the discussion during our Q&A. But I'll start with our first quarter results. In the first quarter, we delivered strong operational and financial results, including strong plant performance during the winter cold events, and we are off to a good start to the outage season. In fact, we are in start-up at Susquehanna, slightly exceeding our planned outage duration.

Terry and Cole will discuss all of this more in more detail later. Also in the first quarter, we signed a Cornerstone transaction, advancing our Talen flywheel strategy and adding meaningful free cash flow per share growth through acquisitions. Today, we are reaffirming our 2026 guidance and providing a preliminary view of our '27 and '28 outlooks. Our 2026 guidance does not include the Cornerstone assets. However, we expect to close as soon as this summer, and we will update 2026 guidance once we close. We recently closed on the financing for the Cornerstone acquisition, which positions us to close as quickly as possible once we receive all regulatory approvals. Cole will explain why we acted now in more detail, but in short, the carry cost of funding now should be more than offset by closing as soon as possible. We have also reduced market volatility risk and replace some higher cost debt.

Our preliminary '27 and '28 outlooks do include the cornerstone assets as well as other updates, including higher current forward mark-to-market values from 3/31 of this year, improved financing costs and several other changes. These outlooks show significant year-over-year growth in free cash flow per share and meaningful upside versus the outlook we shared recently this past January.

This demonstrates the strength of our business and our continued ability to return cash to shareholders through meaningful share repurchases. These outlooks also imply we are trading at double-digit free cash flow yields, which we do not believe reflect our increasingly contracted portfolio, and that does not include the other levers that we have for further upside and Cole will walk you through those later.

Looking ahead, nothing has changed in our Talen flywheel strategy. Our direction of travel remains the same. We continue to believe in data center contracting for megawatts, and we are building a pipeline of both powered land and new build options. Terry will walk you through these development activities and how we see the market evolving towards what we call a hybrid model, which uses existing generation for speed to market and is supplemented by new build in later years.

Some of you may remember me saying that 2025 was a year of options and 26 will be a year of market rationalization and that we would not discuss development activities. While we're not going into specific project details, we will provide a high-level view of our development portfolio today, and we still do expect rationalization across projects in 2026. All that said, we are building a pipeline of real opportunities that can win.

With that, I'll turn the call over to Terry.

Thank you, Mac, and good afternoon, everyone. Let's look at our first quarter financial and operating results. For the first 3 months of 2026, we are reporting $473 million of adjusted EBITDA and $350 million of adjusted free cash flow. A comparison of these amounts to the same quarter last year provides clear evidence of the accretion talented achieved through acquisitions and fundamental growth in the business.

Our fleet achieved strong levels of safety and reliability during the quarter. which is even more noteworthy given the frigid temperatures and IT conditions that were present in late January and early February. We are currently in the middle of our spring outage season across the fleet.

Our refueling outage of Susquehanna Unit 1 has progressed well, including executing work similar to what we had on Unit 2 last spring. The current outage has been more efficient due to the learnings that we had from last year. which has resulted in the unit being sneak back to the grid yesterday.

I would like to thank the men and women of Talen who continue to demonstrate strong operational and safety performance. Without their efforts, none of this is possible. I'd also like to welcome the employees from Freedom and Guernsey, who are on board as the town in April and congratulate them on their strong safety records since startup. Safety remains our top priority across the fleet, and our team worked safely during a busy quarter. Our recordable incident rate was 0.37, which continues to be below industry average. Our fleet ran well, and we generated approximately 16 gigawatt hours of electricity, achieving a 55% fleet-wide capacity factor as our intermediate and peaking assets continue the trend of higher run times to support the grid.

Moving to Slide 4. We continue to see tightening markets driven by increased demand. In Q1, we saw approximately 3% of incremental deliveries on a weather-adjusted basis in PJM and when compared to the same period in 2025. This is a clear sign of demand growth and supports our view that energy demand will increase the dispatch of our flexible fleet.

To further illustrate the demand growth trend, on the lower left of this slide, you can see our first quarter generation from 2023 through 2026, which increases every year. During this time, our intermediate and peaking assets in particular, Montour and Martins Creek had significantly higher run times than the same quarter in the prior year, continuing the trend that we have seen in the past several years.

In relation to spark spreads, we continue -- we have seen a continued appreciation in the forward curves for the remainder of 2026 through 2028, with the growth in spark spreads across AGM, inclusive of the zones where our generation is located. PPL zone spark spreads have seen appreciation since July of last year, but not as pronounced as the moves in PJM West Hub. We believe that some of this price action that is resulting in widening term basis between West Hub and PPL zone is based on recent bias due to transmission work impacting the zone and not fundamental factors. Our expectation is that this basis will tighten as the transmission network and load evolve.

Turning to Slide 5. As you can see from the graph on the left, summer spark spreads continue to move higher, driven by fundamentally tight market conditions in PJM. This is even more evident as we have seen increased instances of demand-driven volatility widening cash market spark spreads, which in turn is helping to drive the term sparks higher. This is beginning to validate our earlier views that the market response would come as fundamental drivers are seen in the cash market. As I mentioned earlier, demand continues to increase with no meaningful increase in supply. This demonstrates the value of still on the ground.

Turning to Slide 6. We are working diligently to close the Cornerstone acquisition that we announced earlier this year, which will further diversify Talen's generation portfolio and enhance our large load contracting opportunities. As an update on the regulatory approvals, we filed our 203 application with FERC in January and anticipate approval by this summer. The HSR waiting period expired in March, meaning that we have completed the DOJ approval process. And lastly, there was a hearing with the Indiana Utility Regulatory Commission in April and the unopposed final order was submitted. We anticipate approval in Indiana by this summer.

Moving to Slide 7. I'd like to give you some color on the land development and contract and growth options Mac mentioned earlier. In the near term, we have several 1-plus gigawatt opportunities for long-term PPAs and at our existing sites as well as other sites in Pennsylvania and are advancing potential opportunities across the remainder of our footprint. In relation to specific site development opportunities for land, that we are currently working on. We're progressing on several different fronts. Those opportunities include land of up to 3,000 acres in total that can support 3 to 4 gigawatts of data center capacity using current compute density. The zoning of the property ranges from fully zoned acreage to zoning activity that is still in process, such as our Montour side.

Additionally, we have the ability at several of these sites to install a new generation of 500 megawatts to 1 gigawatt. As part of our strategy, we are advancing a mix of gas and storage generation projects totaling over 2 gigawatts at our sites to support data center contracting and reliability needs. Last week, we submitted several new projects into PJM's Cycle 1 interconnection study cluster. These projects are a mix of generation solutions, including CTs, batteries and CCGTs. These new generation sources in combination with our existing assets, provide us the ability to offer a solution to customers that is a hybrid approach of receiving power from existing generation now and new generation down the road.

As we have stated before and we'll reiterate today, development of new generation will need to be done either through long-term offtake agreements or through the PJM RBP with a focus on financial discipline related to investment returns. This initial generation development is capital light with no material capital required during the initial stages. As development advances, spending will be tied to customer contracts and underwriting and we will likely utilize project financing structure to relate these projects.

With that, let me turn it over to Cole to cover our financial results.

Thanks, Terry, and good afternoon, everyone. On Slide 8, looking at our financial results for the first quarter, we reported $473 million of adjusted EBITDA and $350 million of adjusted free cash flow. Adjusted EBITDA more than doubled and adjusted free cash flow quadrupled year-over-year, showing the impact of the Freedom and Guernsey acquisitions that we closed in Q4 last year. These results were also driven by higher prices and spark spreads, higher capacity and RR revenues that started in June 2025 and the ongoing AWS PPA ramp. Our adjusted free cash flow also benefited from reduced cash tax payments largely related to the impacts from our Freedom and Guernsey acquisitions.

Moving to Slide 9. We are reaffirming the previously announced 2026 guidance ranges. We had a strong first quarter that it's not our practice to make adjustments this early in the year. 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. These ranges do not include any contribution from the pending Cornerstone acquisition, and we expect to provide an update to 2026 guidance after closing the transaction.

We remain committed to maintaining sufficient liquidity and keeping our long-term net leverage ratio below our stated target of 3.5x. As of March 31, our forecasted 2026 net leverage ratio was 3.1x. And I will note this excludes any impact from the Cornerstone acquisition and the associated debt that we raised back in April. Upon closing the Cornerstone transaction, we expect to maintain the ability to achieve below 3.5x net leverage by year-end 2026.

On to Slide 11. We recently secured attractive acquisition financing for the Cornerstone assets, which also provided also provided us an opportunity to optimize the balance sheet. We raised $4 billion of senior unsecured notes in a private placement across 5- and 7-year tranches at a blended rate just above 6.25%, derisking the Cornerstone acquisition financing at attractive pricing and allowing us to be ready to close upon regulatory approvals. We also took out our $1.2 billion senior secured notes that had an 8 5/8% coupon, delivering more than $40 million per year in interest expense reduction which adds nearly $1 to our free cash flow per share.

I'll spend a moment to give more color on why we made the decision to raise the financing ahead of regulatory approvals. First, doing this now, we avoided potential risks to market availability such as impacts from geopolitical events and upcoming midterm elections as well as lock in attractive long-term rates in the process. We also removed any complications if we needed to raise funds while potentially in possession of M NPI in future months.

And second, having the financing already in place ahead of regulatory approvals speeds up time to close, meaning we can own the assets sooner and benefit more from the peak summer period. We estimate the value of 1 additional month at approximately $30 million in additional cash flow, which far outweighs the net negative carry of only a few million dollars a month. Note that a portion of the proceeds allowed us to take out the more expensive senior secured notes last week and immediately realized interest savings.

Considering where things stand with the regulatory approval processes, we feel that this was the right time to lock down the financing. In eliminating the senior secured notes, we have materially reduced our secured debt composition from approximately 60% of total debt down to 30%, leading to improved credit ratings across multiple agencies. Concurrent with this financing, we are enhancing our liquidity through commitments to upsize our existing revolving credit facility to $1.35 billion and our stand-alone letter of credit facility to $1.5 billion. We are also extending the LCF maturity through December 2029. These credit facility changes go into effect upon closing the Cornerstone transaction.

On Slide 12, we show a preliminary update to our 2027 and '28 outlook that includes the Cornerstone assets along with impacts across the business since last September's Investor Day, including spark spread expansion through March 31 and impacts from the recent financing that I walked through a moment ago. We also separately include the expected impacts of executing on our share repurchase program assuming we utilize 70% of available free cash flow.

In our base case, we hold share count flat projecting free cash flow at approximately $34 per share in 2027 and approximately $36 per share in 2028, a 15% improvement from our January estimates, which included the Cornerstone acquisition. When factoring in our share repurchase program, we project approximately $41 per share in 2028, a 30% increase to what we showed back in January. At these projected levels, our free cash flow yield is about 11%. Note that this assumes we use 70% of free cash flow, leaving approximately $1 billion of additional cash available across 2027 and '28 as more upside for shareholders.

In addition, we continue to see upside through the flywheel with accretive M&A, which we demonstrated with the Freedom and Gurnsey and now Cornerstone acquisitions and also through acceleration of the Amazon ramp established in our existing PPA new data center contracting opportunities and further spark spread expansion as markets continue to tighten. In fact, as you can see in our appendix, we have already seen significant improvements in spark spreads since the 3/31 pricing date of approximately $5 a megawatt hour beyond what is shown in these numbers, which translates to several more dollars per share if marked today.

We also expect the recent widening of the West Hub to PPL zonal basis to revert to more recent average levels. Note that in our outlook here, we include the most visible mark that reflects this elevated zonal basis, though as Terry mentioned earlier, we don't see this recent shift being fundamentally driven. A $5 our impact across 30-plus terawatt hours in PPL zone presents a compelling upside opportunity, particularly as load growth occurs within the zone.

Each of these opportunities could provide 10-plus percent in additional free cash flow per share growth beyond what's shown here, offering a compelling set of further growth opportunities. I should note that there may also be additional upside in 2026 that is not reflected here based on closing the Cornerstone acquisition this summer and/or executing on our share repurchase program throughout the remainder of the year.

I want to emphasize that we will continue to maintain capital discipline with a clear focus on accretive levers that meaningfully increase free cash flow per share available to investors through the Talen flywheel.

Turning to Slide 13. We show the overall contracted profile of our business when our existing nearly 2 gigawatt PPA reaches full ramp, inclusive of the megawatts and cash flows from the Cornerstone assets. With 35% of our gross margin contracted in the long term, contracted cash flows with the AA credit counterparty will be our largest revenue stream, derisking long-term exposure to PJM capacity and energy markets. In addition, for every incremental 1 gigawatt PPA that we secure our long-term contracted gross margin increases by 15%, meaning that our next 1 gigawatt PPA may increase our long-term contracted gross margin to 50%. We believe this is a differentiated position with growing cash flows that are becoming more durable.

I'll now turn it back to Mac.

All right. Thanks for joining us. That's our prepared remarks. I'll now turn it back to the operator and open the line for questions.

[Operator Instructions] Your first question comes from the line of Shar Pourreza with Wells Fargo.

It's actually Constantine here for Shar. Congrats on a great quarter and the development updates. Maybe just starting off on the PJM backdrop with the site development for data centers. Is there a tentative framework on things like new capacity versus existing capacity matching, like a 1:1 ratio? Or how flexible would you anticipate that to be going forward, especially as the reserve auction is trying to kind of max all this capacity issue?

Yes. Thanks, Constantine. This is Cole. Look, I mean, as we have talked about previously, and we continue to believe there's opportunity here to contract off of our existing generation. Obviously, new generation is an important component in how to incentivize a lot of -- it's a topic for a lot of discussion right now.

And as Terry mentioned in the remarks, we do see bringing new generation on the back of a PPA with existing generation this hybrid model that we've been talking about and working on will help incentivize both contracting near term as load grows over the next 3 to 5 years, but also bring new generation in the 2030 and beyond time frame certainly not in a one-for-one manner, but we do think a percentage as you've seen some other deals over the last number of months, percentage of new build be part of the solution.

It's Mac. Just a follow up on what Cole said. I think when you look at things, we have a reserve problem issue that's been identified in terms of a resource adequacy problem. And as we've said, Terry and I and the rest of the team here for a number of years now is that, that's really a 50-hour a problem. And so we're looking at opportunities to solve that.

And as Cole said, it doesn't necessarily need to be a 1:1 for the baseload generation because there's plenty of hours where there's tons of energy available. So what solves those 50 hours. And that's why -- and we can get into this and Terry mentioned it, like we have a mix of both batteries, which is the next quickest to market, CTs most cost-effective thereafter and CCGTs for the long run.

So we're looking at it all in the construct, but I don't think it starts, as Cole said, on a 1-to-1 to where if you had a 1,000 megawatt PPA, you necessarily need 1,000 megawatts of additionality to solve the problem because you can do that with a number of things to increase the reserve margin for that load.

Okay. So just maybe to ask a little bit differently, it does not have to be a CCGT based solution for kind of some of the site development that you're looking for, right?

No. I mean just to go and jump in here, guys, but the -- we actually think that if you look at what is likely to happen in the RVP, you're going to see upgrades you're going to see CTs converted to CCGTs, which is effectively an upgrade of an existing machine I think you're going to see batteries and peakers be the least cost solution. And -- as you know, in our coalition broad-based coalition that we put forth for the RVP and even support the it is pay as bid in order to drive home the fact ability issue that's out there. So we think that that's the least cost way to do that.

And CCGPs happen to be at the steeper end of that curve and up on the cost curve, and we think that there's more effective ways to solving the reserve margin.

Yes. And Constantine to add to Mac's comment, when you take a look at our existing fleet-wide capacity factor outside of those 50 hours a year, where you have real constraint and real capacity needs, you can see that there is excess generation on the grid that can support more megawatts outside of those peak periods, right?

And so if you go back to the slide that we presented and you see this slow steady creep up in demand, there's still excess capacity. So we think that's the reason why you don't need to have this one-for-one type construct in the grand scheme of things. We're really solving for the peak hours of the day in very tight periods of time, which as Mac said, it's a capacity issue, not an overall energy issue.

Excellent. And maybe just quickly following up on kind of the regulatory issue here. with the PGM colocation rules kind of progressing at FERC, how comfortable are your customers in terms of progressing with some of the data center development and the site development rules are still being finalized. Is there any thresholds kind of to look out for that maybe you're looking out for?

Yes. Look, I wouldn't say there's any thresholds. I mean, obviously, there's a lot of dialogue of where things are going. You mentioned the co-location docket. There's obviously the RVP, -- there's some other kind of related things that are out there that PJM and others are talking through. So certainly, no threshold. We still see significant interest in connecting to the grid and taking power as soon as possible, and that's going to be done off of existing generation. And we think that hyperscalers and others will certainly understand that they need to incentivize and bring new generation in 5-plus years, but we don't see any threshold that they're working towards. Yes.

And Constantine, maybe to add just one more a little bit more color to Cole's comments, the existing development and construction that we see at data center sites all across PA and obviously, using the site and there our Susquehanna facility is a great example -- that activity has continued at a steady pace. They're moving forward, getting data hostile, getting things electrified. So we don't see a slowdown in that at all.

Obviously, the hyperscalers had their earnings call, various earnings calls last week, and you see the continued trend from all of them with respect to what they're doing, whether it be in our hosting business or in other parts of their business. The revenue streams are there. They're moving forward fast and the capital still is hitting the ground in intangible infrastructure.

Your next question comes from the line of Rinny Singh with Bank of America.

I just had a question first on the power prices. I know you said that PPL is trading a little bit different than PJM West just because of the recency buns. -- bias, when do you think we might see a correction in that? And is there like a state catalyst to watch for?

Yes, Rinny, let me start on this one, and then I'll hand it over to Chris who's with us here today. There's been a lot of transmission work in and around PPO and other parts of PJM, that's been worked on over the last several months. And so there is a lot of sort of temporal short-term congestion that we're seeing across the board.

I think our biggest view, and we mentioned this in the prepared remarks, is as load evolves and load pops up in PPL zone and these other load pockets that you're seeing in the form, we think that, that obviously would trend and come back in line. Chris, do you want to add anything to that.

Yes. Given the sort of the auction process itself has some illiquidity and timing issues. And so reflected in those marks is those auction clears and those disconnects from sort of the projections that we're making. And so near-term acuteness and basis as a result of this ongoing transmission work. is bleeding into that term price. And so picking a time in which that reverts or comes back to something more normal, will again happen through time as that load appears, but not as a binary instantaneous moment in time.

Rinny, look, I mean, as I said in the prepared remarks, we use the most visible marks out there, and so we use the PPL zone mark. So you can look in the appendix, we have a slide that shows the basis, West PPL basis over time. And for multiple years, it was trading very, very narrowly in a range -- and that's broken out over the last couple of months, as Terry and Chris have noted that there's reasons why, but from just a mark perspective, we say true to what's visible, and that's why we're calling it an upside opportunity.

Rinny, it's Mac. And just one further follow-on is let's not lose sight. While the basis has widened the entire market is up, and Chris is now being proven correct that the market was going to tighten as the term market is starting to agree with Chris.

And so while the basis has widened the market was up versus the 331 marks. And as Cole mentioned in his prepared piece there, very up even further, if you went to yesterday. And so the markets are finally rationalizing in our view, supply demand. And as basis, we think, is a temporal issue.

Okay. Yes, I think that makes sense. And then on this load growth, this capacity that you've highlighted, -- how are you guys thinking of -- what are you guys seeing for new prices essentially for whether it be CT or CCGT? And how are you guys thinking about managing the risk, obviously, of the RBP to kind of fill in that capacity price, but more so the energy risk. Is that just focus on long-term data center contracts and higher prices, yes?

Yes. Thanks, Rinny. Good question. Obviously, you've seen a significant amount of appreciation in sort of the turnkey cost for CCGT and then, quite frankly, even a similar move for combustion turbines across the board. And our proposal for the RBP, and I think this is pretty consistent with what PJM's talked about. -- you really -- we really think that, that should be a capacity product, right? And that's where you should focus assuming that you're going to build a CT on the back of a reliability backstop award, if you will.

And so the capacity component of that or the capacity revenue stream is really what should underwrite or incentivize that. The energy and any ancillaries off of that is sort of second tier but also the ability of getting that award for multiple years. And obviously, our proposal has up to 15 years. PJM's current proposal even talks about procurement up to 15 years.

So obviously, some similarities there. We think that ultimately is what helps underwrite that. And I think we've talked about this before. I think the biggest challenge is it's not can you get additional resources on. It's really financing those resources. And what is the underpinning for somebody to underwrite and to get the financing associated with this. So we think the proposal that PJM has hit the marks on that. We think there's some modifications that we'd like to see, but we think it gets there.

Your next question comes from the line of Moses Sutton with BNP.

It's really [indiscernible] including Cornerstone now moves to 41 plus, and you're not leaning on the upside drivers like M&A and PPA in there. So how much of that roughly $10 increase is specifically driven by the spark spread expansion? Versus the balance sheet and other factors. And I note you've said the basis aspect is not in there. And then finally, any assumption embedded in there of higher capacity factors on the fleet?

Yes. Thanks, Moses. Look, at the end of the day, we're not going to get too specific on all the different drivers and -- but we put it you all in there. I mean you can kind of dissect a little bit, and we obviously showed the impact of just the share repurchase program separately. But the other levers here, which is around just the Cornerstone numbers, and the spark spreads and so forth, you can kind of get to a directional answer there, but we're not going to be kind of line by line on that.

Got it. Got it. And on the backstop auction, so not specifically to you guys, but like just broadly, is there a view that you have of if they'll even clear 15 gigawatts, whether that means battery CT, some CCGTs in there. Can they build that much by 2031 with Q reform? And do you think that it's going to -- some of it is going to go into that second stage of the clearing process? Or do you -- would you expect the bilateral process does most of the heavy lifting. I know it's hard to tell from here, but just curious of your market views.

Yes, Moses a lot in there to unpack. Let me maybe hit a couple of those. I think when you take a look at the cost and you take a look at affordability at the end of the day, I think there's some obvious choices when it comes to technology. uses the cost of new entrants, that cost of new entrant is based off of a benchmark of the CT, which is the most affordable at the end of the day.

And so we also think that you can get certain types of CTs and batteries built in a more timely manner. And that's also something that, quite frankly, the reliability backstop needs to take into consideration. You sort of alluded to it in your comment, CCGTs and getting in the queue for a turbine or for a CCGT is a little bit of a longer wait time. And so you need to factor that in at the end of the day.

But yes, I mean, we think that there's -- we think that there's some good things in the proposal. I will say the one thing that we think could be helpful to is the interconnection queue needs some clearing and need some prioritization. That's one area where we're actively engaged in the stakeholder process, and we'll continue to be engaged in the stakeholder process because ultimately, that interconnection queue matters quite a bit on getting these new resources online. So hopefully, that gives you a little bit of color and we think it's good progress. It's a good progress, and we'll see it push forward here.

Your next question comes from the line of Michael Sullivan with Wolfe.

Maybe this is a silly one, but just -- and I know you don't want to get into specific opportunities, but when you laid out kind of your development capabilities there, why not just lean into the ones that are already fully zoned versus the ones that aren't that we're kind of hearing about more publicly that are getting pushback. And on the ones that are fully zoned, what is the hang up there?

Yes, Michael. So what we really want to try to do on that slide is to give a flavor of the work that team has been doing for well over a year across the board. As you take a look at the different opportunities that we've developed, the ones that you hear about are fine. Obviously, Montour has been in the press, so maybe we continue to progress that one. But we do have others that are not in the press. And quite frankly, we want to push those forward as well. As we talked about on the last call, back in February, there was a lot of focus on just 1 or 2 of these and 1 to make sure that investors understood that there was a broader sort of context.

I think the biggest thing that we think is helpful as well is as we think about this hybrid approach that we're moving forward with and trying to find some new generation to add into the mix, we think that, that solution is something that really sort of checks a lot of boxes for some of -- and that actually is going to be a big aspect of how you'll see these things progress forward. So it's not just zoning at the end of the day, whether it's industrial or sort of ag use. It's also the other implications around, okay, do you have some new gen to go with it? What's the existing gen that you can have on the back of it. But hopefully, that gives you some color.

And Michael, it's Mac. Maybe Real quick. I think when you asked the question and you say, what's the hang-up? I don't think that there's necessarily a hang up. What we're doing is what we've been talking about, which is developing a set of options, and they all have different statuses as they move through the process. And sometimes, one site that hasn't potentially reached zoning, AKA Montour might have been advancing faster because it was like by a counterparty more at that first piece, right? Now you have other ones that are more zoned. They come in -- and then we've got others that aren't fully zoned that we're working on as well.

So it's bringing along all of these different things, and it's not just working on one, and that's what we were trying to -- what we were mentioning when we said Montour's not our only we're not -- that's not the only thing we have in our development pipeline.

Okay. That's very helpful. I appreciate the color there. And then just back to some of the pricing action, I think you gave some pretty good points as to what happened in Q1. But things have obviously really started to move in the last couple of weeks here. And so just curious, as we're in like a shoulder season, what's driving that?

And then even on the basis side, like it seems like that's actually still going in the wrong direction. And so how you think about that in the last -- yes, kind of the last couple of weeks developments?

Yes. So Michael, let me start this, and then I'll let Chris chime in. And this sort of refers back to the prepared remarks. One of the things that you're seeing is as you see cash market activity in the real-time market, get really constrained and really tight. The term market is really responding to that. A couple of examples, obviously, more recent, late January and early February, -- we had a really significant pricing event for 8 or 9 days throughout the entire market. So obviously, the market reacted to that.

But even recently, as the spring outages that we've had, right, we normally have a traditional large set of spring outages across the system. You get some generation that's off, but even a modest amount of weather that comes in, we've seen price volatility and cash pick up. And so the term market feeds off of that. Chris, do you want to add some details to that?

So, yes, I think, again, the price appreciation is something that we've been tracking and certainly sort of identifying for several quarters now and would be remiss to not sort of highlight our current hedge percentages in those outer years, again, below our historical ranges that we've typically been at. And so more or less our conviction in those periods, our conviction on that price appreciation is being expressed through those historically low hedge percentages. And so as Terry alluded to, a lot of the fundamental drivers taking place in the cash market, manifesting themselves now through the curve so happening through time, but through different segments of cash and term.

Your next question comes from the line of Angie Storozynski with Seaport.

I wanted to talk about Ohio. I know that we're waiting for the Cornerstone acquisition to close, but you've owned Gardens for quite some time. And there's been a lot of chatter around data centers from Ohio, especially from the region where you own a plant already. We heard some comments from AP this morning about how to satisfy there with the pace of load interconnection in PJM. So it did sound like it was about Ohio.

And also, we saw some deals like behind the media deals from Williams. And so you showed us opportunities for contracting assets in Pennsylvania. Could you comment about Ohio, especially vis-a-vis Guernsey, please?

Yes. So Angie, maybe I'll touch on that real quick, and Mac may follow up on that. So obviously, on the slide, we talk about specific activity in Pennsylvania. I will say in the prepared remarks and also we do have one small sort of call out box. We have been active in Ohio. Obviously, we've had yarns in the portfolio for a few months now. It's performed really well in Q1. Obviously a big help to our overall financial performance. But we've been engaged in Ohio. We've talked to customers in and around that site as well as just the broader state in general. So we're active there.

Once again, I think we've been working on a number of different options. And as we restructured the leadership team at the end of last year, we put a lot more focus on different parts of the market and Ohio is definitely one of them. So it's a focus for us, and we think it's a really good market, and we think the customers like to be there. And there's a lot of customers that are already there today. It's a very established market in and around Columbus. There are several hubs in the area where you've got a lot of data centers. And so we've really want to continue to push that forward, just like we're pushing forward at Pennsylvania.

Angie, just to piggyback there. Obviously, we like Ohio. We've amassed over 4 gigawatt gas fleet across there, including the plant that's in Indiana that serves basically Ohio. And we did that for a reason. And so First, if you look at the fundamentals, the price appreciation, the price action that we just talked about is affecting those, and it doesn't have a negative Web Hub basis. So that's been a good position for us to take.

And the second thing I'll say about developing options in Ohio is we're developing options in Ohio. So it's just like we've been doing in Pennsylvania over time. We're just not going to get into the specifics.

Okay. And then 1 more question about Slide 12 in the Talen flywheel. So I mean, it was always my understanding that you go through M&A. And the next step is monetization of assets. Now in that box will you show upside to your free cash flow per share, you show M&A as the first driver. Is it fair to assume that we would first see some monetization of assets before we see another M&A transaction?

Yes. Andy, it's Mac. Maybe I'll address that. So first of all, there's nothing to the order of what's on the right-hand side other than it was to maintain consistency with what we've shown before because this is the order that we showed it in before.

So obviously -- and I think we've all said this in a perfect world, what you would do is you would add assets contract them up, recycle capital, then add assets and do that. But unfortunately, we're left with deciding to make strategic actions, which are consistent with the Talen flywheel that happened to be lumpy at periods of time.

And yes, we are diligently working. I think Cole mentioned it. We're thinking about how do we get to that 50% contracted energy margin. We're looking at different opportunities across the way. And those are developing. But we like what we've been doing. Yes. Would we satisfy investors as we had a deal announced by now. Sure. But these things take their time. We've said that, and we're working our way through and we feel like we've got a good pipeline of opportunities to get things done.

Your next question comes from the line of Bill Appicelli with UBS.

Just a question going back to a few of the comments earlier. When you guys look at the levelized cost of energy that's going to be needed for a lot of this new build. I mean, how wide is that spread even if you're looking at a CT relative to where market conditions are currently?

Bill, it's Cole. I'll start, and others can chime in here. Look, I mean, the gap is wide, right? Just on a merchant basis to support new build of any kind. And that's why we and I think a lot of others, it's not rocket science. We'll do newbuild supported by some kind of commitment, whether that's a bilateral contract directly with hyperscale or through the RBP and through therefore, PJM.

But that gap has got to get bridged for us to make that large commitment and do so in an accretive manner for our shareholders here. But I mean, the current capacity clears, as everyone knows, is not sufficient to stimulate new build and obviously, different technologies have different OCOE combined cycles are the most expensive. They obviously have more energy margin. So always a trade-off, but the gap is not like a couple of bucks. It's a pretty large spread right now.

Okay. And I mean, do you have any concern about sort of a bifurcated market where the new incremental megawatts are getting sufficient payment, but existing generation is not I think that seems to be a concern in the market more broadly. So just curious your thoughts.

Look, Bill, it's Mac. I would say that yes, it's concerns that people have broadly in the market. I don't know that we share the same level of concern because as we've always stated and we supported the RVP, it was a onetime action. I do think as last week, the cap was extended, we were the capacity clears 29, 30 and for so for 2 more years. We supported that. That gives time to create and to exercise the -- that's always a concern that's going to be raised, but we don't share the same level of concern.

Okay. And then I guess maybe just lastly, on the new gen options, would that include any repowerings or of your existing assets in terms of uprates or other things?

It does not.

Your next question comes from the line of Julien Dumoulin-Smith with Jefferies.

Nice to chat. Thanks for the time. I appreciate it. Maybe just to react on a couple of things. Just coming back to the repair pledge here that came out after your last call here. Can we talk a little bit about did that change the name at all, right away from the RBP and to come back to the protection pledge they made in March. Just can you talk to that, if at all, if that changed your strategy? I know you don't want to talk too much about it, but -- is there anything there does that evolve in any way? I just want to tackle that directly and explicitly here? And then I got a quick follow-up.

Look, you're talking about the in Pennsylvania? Or are you talking about what came out of the white house...

Yes, the White House piece in March, yes.

Yes. So look, I think that there's the plus that you heard the hyperscalers make that obviously, they committed to paying their fair share effectively. I think there's still an open debate as to what that fair share is and how that fair share is determined and how that all gets pushed through the system, as you know, right? Because we -- we operate in a reorganized market in PJM, and there's a certain construct and set of rules associated with that and ability in jurisdictions and authority, whether it be at PJM, the states or at FERC that have to set these rules. And so there's the implementation that this is working its way through.

But I think, in general, where do we see the puck going. It's we generally think that there's still the ability because of speed to market to contract through existing assets, we are starting to see the hybrid model that's been discussed during the remarks today as being the development aspect of it to solve the so-called additionality or bringing incremental generation to rate payer protection. So I think it's going to take time to evolve on that front. And I don't know that it's necessarily as clear as some people would say that the hyperscalers have signed up to pay for all of this because that's not exactly how the reform markets work.

Got it. And then just to tie this back, I mean as you guys talked about the 500 to 1 gig of new gen here potentially. I mean would you think about that satiating like 1/2 of that equation when it comes to additionality such that you talked about these 1-plus gigawatts sites or what have you, are you thinking about tethering the new gen back to it go forward?

Yes. No, I think Terry actually said I'm looking at it was actually it's 0.5 gig to a gig at a site and multiple sites that we see several gigs of opportunity. And then Dale, who's been working the development aspect of this, the asset development aspect of this, he was the one that submitted through the queue, the 2.3 gig or just over 2 gigs that we put in. And so when you say tethered, I think that's what we're -- tether is the same as what we're saying is what we call the hybrid model, which is as you put it with an existing and then you're solving that 50 hours a year, if it's batteries or peakers and then when you need to solve the energy, then it becomes CCGTs new, right?

But you can put those on the back of existing and solve a lot of the resource adequacy problem. -- at a lower cost in bringing CCGTs because I know a lot of the stuff, as you know, Julien, that's being talked about out there is now $3,000 or $4,000 for new CCGT. That's a lot more than $500 a megawatt day.

Absolutely. Right. No. Look, I hear you on the storage piece for sure Right, right. And CTs and storage now, right, for sure. But just the bring to a full conclusion that thought, right? You'll aim to bring this stuff up online, but basically leveraging this RBP that's when -- that's the moment that we could see something materialize if you think about like time lines, everyone's always peppering you on this question of when. But to kind of the [indiscernible] on it, if to the extent to which you all clear something from an RBP perspective, what have you, that is that tethering event that should unlock this opportunity actually it will be explicitly at that point in time tied to some of these contracting things you've been pursuing?

Julien, back to the earlier conversation and questions. I think we've got a very specific path on that. There's 1 or 2 ways that those new megawatts will come to the grid. It will be either through a direct offtake agreement with the hyperscaler or through an RVP award. So those are the 2 paths that you'll get there. And obviously, it will depend on which path comes first at the end of the day.

Your next question comes from the line of Nick Amicucci with Evercore.

Happy Cinco de Mayo. A couple of quick ones for me and actually piggybacking on Julian's question there, too. So is it fair to say -- so the new generation could be a long-term DC offtake agreement or the I guess, how would you guys frame that the capital deployment? Is it fair to say that BP is kind of more of a fall back? Or are you seeing economics that would compete with a hyperscaler PPA?

I think it's not discrete choice between the 2. It's Mac by the way. I don't think there's a discrete choice between the 2. I think we're going to participate in the RVP and we'll participate in the in the bilateral markets as well with the -- through the hybrid model as we've been saying. So I think that one is more of a centralized function that we think provides a onetime backstop and the name to the to the market for the resource adequacy.

And all the while, there's a bilateral market that's out there, too, that can bring tonality through the hybrid model that we're discussing. So I don't think it's as discrete as that I think that what people are seeing in terms of cost, it will be interesting because people will have to bid. We have a construct in there where as it originally stood, it was 1.25x, I think the improved cost with [indiscernible] with it so that you didn't have to get approval of your capacity bids in the RVP.

There's those that argue that, that should probably go up, and I could see some logic behind that. And but then people have to decide what are they willing to bid, what are they willing to put into that demand or capacity payment -- and then what are they willing to do on the energy side. And obviously, the CCGTs both require a bigger capacity component and a bigger energy margin expectation -- but we actually think that there's some lease cost solutions to bring things in under those costs.

Great. That makes sense. And then if we think about it to -- I mean, you guys had alluded to it earlier in the call, just kind of a double-digit free cash flow yield. But $100 million of share buybacks is nothing to shake a stick at. But still have $1.9 billion remaining through 2028. Should we expect any type of acceleration to the Q1 pace, particularly as we think about for some closing and then leveraging the leverage getting back down below the low target?

You can say shake a stick at it because it's $100 million out of a $2 billion allocation. And so like when we have the opportunity and can exercise we always like to get in and buy the shares back when we can.

And Nick, you look at Slide 12, the we broke out the share repurchase program impacts and to get there, it's going to be doing so at scale over time here. So we're committed to doing that.

Our final question comes to the line of David Arcaro with Morgan Stanley.

Wondering if you could just maybe give any color that you're hearing from potential counterparties here. Are they waiting for more clarity on the backstop procurement? And like are there milestones in that process that you think would maybe accelerate things, unlock some contracting activity. Is it the finalization of the rules from PJM? Or do we have to wait potentially for the actual procurement to be run before you see more activity?

David, it's a good question. I think, generally, it's sort of a balance of things there. There's a pretty good consensus now on the reliability backstop. Now we're really talking about the details of what it looks like. And I think a lot of stakeholders, including customers have gotten comfortable with that. As we -- obviously, as we've alluded to on this call, -- some of our discussions have moved to more of this hybrid approach where we're talking about bringing new generation and adding that to the solution mix.

So we don't think that it's necessarily anything that's sort of hindering or keeping folks from transacting. Now what they want, like 100% clarity, yes. But I think at the end of the day, they've also got some demand that they've got to make sure that they meet for their customer base. So it's a little bit of yes and no at the end of the day on that question.

I will say, David, it's also -- we think that it's helpful that we've been providing comments on the RVP and 1 of them was don't make it such an extended program into next year and bringing it into the during the open sessions, stakeholder sessions to the last couple of days, they've started to change -- PJM started to reformulate when they think the timing is and for it to be this fall. So we think that's a good thing. So anything like that, that brings a little more clarity yes, that, of course, helps. But are people still putting down a these capital plans that are just continue to reach escape velocity at the hyperscalers. I mean it's not slowing down. So yes, clarity helps, but is it necessary? No.

Unfortunately, we're going to have to end it there. And I do see that there are a couple more questions in the queue. I apologize to everybody that we didn't get to. We just run out of time here, and we're running up against our time. But we do appreciate you for joining us today and your continued support of Talen. I think in summary, what I'd like to say is that we have a strong '27, '28 outlook with multiple levers that we can pull and further upside from Spark expansion.

I think we're also hopefully providing some pulling back the curtain a little bit to show you that we are set up to execute on some of these growth through our development pipeline and the opportunities that we've been working on for some time. We're excited about that. We look forward to power in the future. Have a great day.

Thank you for your participation in today's conference. This does conclude the program. You may now disconnect.

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 [indiscernible] 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 [indiscernible] 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 and 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 Anthroopic wrote in his recent SA, 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 it 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 newbuild 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 talent flywheel.

Turning to Slide 4. Let's talk about how we are continuing to grow the talent 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 expect 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. Talon's underlying value proposition remains the same and still point up into 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 in 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 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 if it's 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 is 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 NDCs 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 aid in the ability to continue those discussions. So we don't see any slowdown to it. And we think that the [ RVP ] 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 PTL and AP to your generation contracting. So for example, the comment that you quoted yourself, right, in the slides that TPL 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 signing generation contracts to back this 10 gigs of loud?

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 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 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 you 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 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, 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 PTAs and then accelerated Susquehana contract by 480. Is it just that metric for [indiscernible] here and 1 gig there? Is it just like 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 take 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 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 Sasquehanna, 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 [indiscernible] 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 the political rhetoric is focused on affordability, focused on resource adequacy. And again, we think the RVP 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 RVP 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 RVP. 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 RVP 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 head.

And Michael, maybe to add to those comments. Obviously, in the PJM discussions that are taking place around the RVP 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 in active participants. I think generally, obviously, the concept is going to get additional in 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 power 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 power of the 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 [indiscernible] 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, 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 the hyperscalers head to DC next week. Just wondering what do you see, I guess, could be possible coming out of this? When those discussions are bringing [indiscernible] 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, if 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 [indiscernible], you don't -- PJM is an RTO that is based off of not this concept that the next incremental megawatt pace for the next -- of low 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 and 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 [indiscernible], 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 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 -- 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 rate payer protection pledge, some of the comments that you responded to 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 [indiscernible]. It's, yes. Do we think that there will be some [indiscernible] build in the future? Yes. I mean I'm not trying to be [indiscernible] 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 RVP 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 RVP versus sort of bring your own power or newbuild 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 RVP 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.

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 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 [indiscernible] and 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 leg and 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 contract in 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 and 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?

And -- look, I think that's a good run rate number. So we pick your assumption on a close date and I think 12 months [indiscernible] 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 to [indiscernible], but it's good for [indiscernible].

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

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 Max'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 & Guernsey transaction. [indiscernible] 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 -- 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 where you're closer to that and then the RVP 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 RVP, 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 [indiscernible] the ability to post an LC, do things first [indiscernible], 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.

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.

This concludes today's conference call. Thank you for participating, and you may now disconnect.

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

Thank you, Michelle. Good morning, everyone, and thank you for joining Talen's conference call. Participating on today's call are Chief Executive Officer, Mac McFarland; President, Terry Nutt; and Chief Financial Officer, Cole Muller. We issued a press release this morning, along with the presentation, all of which can be found in the Investor Relations section of Talen's website, talenenergy.com, which provides additional information and which we will refer to on this call. 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.

With that, I will now turn the call over to Matt.

Great. Thanks, Sergio. Good morning, everyone, and thank you for joining us on short notice. 2025 was an exciting time in the IPP space, and Talen was no exception. We expanded our nuclear relationship with Amazon to 2 gigawatts. FERC approved the RMR settlement for Brandon Shores and Wagner. We witnessed 2 consecutive BRA auction results that cleared at the cap, and we announced and closed on Freedom and Guernsey.

Today, we are excited to start 2026 with a new deal that adds to our flywheel strategy, a $3.45 billion acquisition of 3 high-quality assets, including 2 CCGTs and a quick start peaker. These are being acquired from ECP and deliver over 15% adjusted free cash flow per share accretion, achieving towards the high end of our guidance on M&A upside from Investor Day. This acquisition is essentially the same deal as Freedom and Guernsey, but it doesn't have the accelerated tax benefits and isn't an all debt funded deal.

The purchase price implies a 6.6x 2027 estimated adjusted EBITDA multiple with a high unlevered free cash flow conversion rate of approximately 85%. The transaction allows us to maintain our balance sheet strength and preserve financial flexibility as we have the ability to meet our targeted net leverage of 3.5x or less by the end of this year, while at the same time, continuing our previously announced $2 billion share repurchase program.

The 2.6 gigawatts of efficient natural gas assets we are acquiring diversifies Talen's generation portfolio in both capacity, energy gross margin and free cash flow by essentially adding the equivalent of another Susquehanna nuclear facility. We are expanding our presence in Western PJM, specifically Ohio and Indiana, where there are significant data center tailwinds and access to reliable, low-cost natural gas from the Marcellus and Utica. Additionally, this transaction further diversifies Talen by adding significant energy gross margin outside of our current PPL footprint.

As a reminder, when we underwrite these deals, we do so on a merchant basis using current market forwards and capacity pricing and then use more normalized views of both in the out years. Thus, executing on any contracts on these assets creates additional upside potential. ECP has agreed to take approximately $900 million or approximately 40% of its equity consideration in Talen shares, making them a significant equity partner going forward, demonstrating belief in our flywheel strategy.

As we enter 2026, the macro tailwinds continue to remain constructive. Power prices have risen and sparks have expanded, albeit there has been some pullback due to the lack of winter this year. The 2027, '28 PJM auction would have cleared at [ 530 ] a megawatt day without the cap, reflecting the overall tightness in the market. AI and data center capital budgets overall continue to expand, not contract. We are seeing new announcements and different kinds of strategies to power growing data center demand, which is good because we need an all-of-the-above approach, and we see the momentum gaining in 2026.

As we have been discussing, 2025 was a year in which we saw a lot of activity in the industry, hyperscalers, developers all creating options, and we believe 2026 will be the year of rationalization in which these options get struck and create new contracts and projects. And we have already seen them in early 2026, with some recent announcements. Additionally, we expect to have more clarity and optionality in meeting hyperscaler demand here soon after the FERC ordered PJM to develop rules for co-locating data centers.

Before anybody asks what's next, know that we are still working on the remaining levers of our talent flywheel strategy that will allow us to continue to power the future. And yes, this includes a new data center deal. As you know, our uncontracted portfolio includes Freedom, Guernsey, Montour and Lower Mount Bethel plus 300 megawatts of carbon-free power at Susquehanna before this acquisition and zoning work at Montour is progressing with the hearing occurring next week. As always, the deal will be announced on our time line when it is ready to be announced. So stay tuned because 2026 is already shaping up to be more exciting than '25.

I'd like to take a minute to thank our talent team in legal, finance and corp dev who worked until the early hours this morning getting this across the goal line. As you can see from the 8-K, I really mean the early hours this morning.

I will now pass it over to Terry to discuss some of the specifics of the assets. Terry?

Thanks, Mac, and good morning, everyone. Moving to Slide 4, let's discuss more details about the assets. As Mac mentioned, we are acquiring 3 high-quality natural gas-fired generation plants with approximately 2.6 gigawatts of capacity that will complement and continue to grow and diversify our existing fleet. The Lawrenceburg and Waterford plants are both highly efficient CCGTs that add 2.1 gigawatts of baseload generation and scale in Western PJM. These plants operate with efficient heat rates of 7.1 and 7.0, respectively, which allows them to generate over 15 terawatt hours per year, running at capacity factors above 80%. Additionally, these assets have high free cash flow conversion rates, which are approximately 85% on an unlevered free cash flow basis.

The addition of Darby, a 480-megawatt peaking facility to our portfolio will provide attractive commercial flexibility and optionality that we expect will be incrementally valuable in a tightening power market. Last year, we ventured into the Ohio market with our acquisition of the Guernsey CCGT facility. Both Waterford and Darby increase our presence in Ohio, allowing us to benefit from load growth from significant data center investments in the state. Furthermore, all 3 plants have reliable access to low-cost natural gas from the Marcellus and Utica shales.

Now let's highlight the pro forma impact of Talen scale on Slide 5. With the combined addition of these assets, along with Freedom and Guernsey, we are almost doubling our annual generation to approximately 71 terawatt hours per year. The addition of just Lawrenceburg and Waterford and Darby will increase our total capacity by 20% to 15.7 gigawatts. Importantly, our generation and capacity will be underpinned by 7.8 gigawatts of pro forma baseload capacity that is expected to produce over 80% of our total generation. Given the efficiency of both Lawrenceburg and Waterford, we expect that those assets will be in our top 5 highest generating plants based on 2024 generation output. This increased baseload generation profile will further strengthen our cash flow stability through greater dispatchability and reliability while enhancing our ability to pursue contracting opportunities with large loads.

I'll now turn the discussion over to Cole to cover the key terms and financial impacts of the transaction.

Thanks, Terry. We're looking forward to adding premium gas assets into the Talen portfolio and expanding our PJM footprint in Ohio and now also Indiana. On Slide 6, we provide more detail on the proposed transaction. We are acquiring the Lawrenceburg, Waterford and Darby assets for $3.45 billion in total consideration, which translates to an attractive 6.6x multiple on projected 2027 adjusted EBITDA. We are issuing approximately $900 million in talent equity to ECP with the remaining $2.55 billion to be paid in cash that we expect to finance through newly issued unsecured debt. This transaction also generates more than $1 billion in NOLs and tax basis step-up benefits that creates additional value to Talen over the coming years.

ECP will receive 2.4 million shares of Talen equity, becoming a significant shareholder, approximately 5% upon transaction close. These shares are subject to a phased lockup period that extends up to 6 months. This is a significant commitment by ECP and underscores their belief in Talen's value proposition to our equity holders.

As Mac highlighted upfront, this transaction is immediately more than 15% accretive to our projected 2027 adjusted free cash flow per share outlook that we shared at Investor Day last September. And that accretion carries forward throughout the coming years, providing a strong cash flow per share uplift to all equity holders.

As I mentioned, we plan to raise $2.55 billion of debt to finance this transaction, supported by an immediate uplift in EBITDA and cash flow. These cash flows support our ability to delever below our 3.5x net leverage target by year-end 2026. Given the quality of assets being acquired and the ability to rapidly deleverage the balance sheet, we expect all 3 ratings agencies to affirm our current ratings. We anticipate closing this transaction early in the second half of this year upon receiving the required regulatory approvals, including approvals from the Department of Justice, the FERC and Indiana Utility Regulatory Commission.

At our Investor Day in September, we highlighted 4 upside potential to our adjusted free cash flow per share outlook, including accretive M&A such as this transaction. On Slide 7, you can see the immediate impact from this transaction, which we estimate will create an adjusted free cash flow per share uplift of at least $4 per share to our 2027 outlook. As a reminder, we measure value to our shareholders through free cash flow per share after growth investments and taxes, i.e., the cash available to return to shareholders.

We continue to see each of these 4 upside levers as uplift potential to further build on our increasing free cash flow per share, noting that the base free cash flow per share continues to move higher. We are committed to 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 our existing PPA. And as always, we will continue to selectively explore inorganic opportunities to grow our fleet further with the right assets that support the talent flywheel.

On Slide 8, I'd like to take a moment to reflect on our transformation over the past few years. Upon close of this transaction, we will have more than tripled our projected 2027 adjusted EBITDA through premium data center contracts and baseload asset acquisitions in PJM. And these acquisitions are the equivalent to adding 2 additional nuclear plants to our portfolio. I'll also point out that our projected adjusted free cash flow per share has increased from just over $5 a share in 2024 to more than $30 a share in just 3 years, with additional built-in growth still to come as we ramp into our 2-gigawatt PPA.

We are diversifying our generation portfolio, nearly tripling our baseload profile spread now across 6 baseload plants and at the same time, expanding into Western PJM markets. Our baseload assets and our nearly 2 gigawatt data center PPA underpin more than 75% of our projected 2027 adjusted EBITDA, which translates to approximately $1.6 billion of adjusted free cash flow. This significant increase in cash flows provides attractive strategic and financial flexibility that will allow us to reload the balance sheet more quickly and continue executing on further growth opportunities. As we ramp into long-term PPAs, we also look forward to the increasingly contracted nature of our cash flows with AA credit counterparties, providing valuable stability that should be attractive to our shareholders.

It's been an exciting journey over the last few years, and we're looking forward to continuing our momentum into what is shaping up to be an exciting 2026. I'll now turn it back to Terry.

Thanks, Cole. Before moving to Q&A, I wanted to reiterate that we are excited about this transaction, but we're not done working. We continue to focus on executing on the Talen flywheel and remain committed to driving free cash flow per share for our shareholder base. The addition of these generation assets will provide a larger portfolio of options to execute on as our strategy evolves. This acquisition is another revolution in our flywheel, and we are excited about continuing the momentum.

We will now open the line for questions, and I'll turn the call back to Michelle.

[Operator Instructions] And our first question will come from Shar Pourreza with Wells Fargo.

Big congrats on this deal. Terry, Mac, just on the NOLs and the step-up basis, I guess, how do you expect to recognize the $1 billion tax benefit? And is that kind of included in the transaction financing at all?

Shar, I'll let Terry take this. We didn't include it. We just mentioned it here. But Terry, why don't you provide some further details there?

Yes. No, Mac, that's spot on. It's not included in the EBITDA multiple. As we had mentioned previously on the Freedom and Guernsey acquisition, we had a lot of tax attributes that we acquired on that deal that really made us a very limited federal taxpayer to the end of the decade. But we do have additional attributes that we'll get from this that will be helpful for us later on down the road.

Got it. Okay. That's helpful. And then just -- I know, Terry, you kind of touched on this a little bit, but just you just ticked off the accretive M&A bucket on Slide 10, but there seems to still be a lot of private assets in PJM. Do you still see more opportunities? Or should we just now assume that the focus is around harvesting the existing assets, including run times and PPA contracts, et cetera?

Yes. Good question, Shar. When we think about the flywheel, obviously, inorganic M&A is a potential cog in the wheel at the end of the day. On the private equity side, right, private equity has always been fairly active in the power space. And so you've seen transactions for the last couple of years, some fairly sizable ones across the public IPP space, engaging with private firms. And obviously saw another one last week from one of our peers and obviously, this one as well. That flow of transactions, we think, will always be there. We still have a ton of private equity capital that is in the space. And so I think we'll continue to see this. Obviously, you guys are well aware of some of the larger sort of public deals that are out there. But we think that, that flow of transactions will continue.

Big congrats on this deal.

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

Maybe just as you continue to grow as a PJM pure play here, just getting your views. I know you touched on kind of what you're underwriting, but views on PJM energy with kind of the latest moves in the curves and then capacity, which is also somewhat a supply-demand function, but also there's a lot of politics and regulatory component as well. Just kind of latest thoughts on the market.

Michael, it's Mac. I think that there's always the politics and the regulatory and everybody looks at that. We just continue to sort of have a focus that things will find a way to find a solution. And so therefore, we sort of like cut through the noise and continue to execute. As far as the power curves from an energy perspective and sparks, yes, they ran up in December when we had some cold weather. There's been a lack of winter here. And there's a lot of recency bias when you look out on the curve. And so whatever happens in this winter starts to drag down the forward curve, and it's regressed from where it was late last year. It's still higher a bit versus our Investor Day, but it's still down versus the highs. And that's just the recency bias. So you got to cut through that.

So when we underwrite, we think about where the capacity clears, we underwrite those, obviously, because those are known. We look at the forward curves. And then in the out years, we take a more fundamental view of what this would look like on a merchant basis, as I said in my opening remarks. And then that's how we underwrite. And when we do that, I think we generally take a more conservative approach because, obviously, we want to do so. We make sure we layer in the right amount of capital and operating expenses, et cetera. These are good assets, don't take it any different than that, but we go through and scrub that. And then we push through. And then we think about the upside from there is what is the ability that this gives us to further our contracting strategy. So we like what we're doing. We cut through the noise and just push on.

Terry, anything you want to add, Cole?

No, I think it's good.

Okay. Very helpful. And then just on the financing side. So getting back down to 3.5x, does that require any debt paydown? And then any sense of how much is left on the $2 billion buyback?

Michael, I'm out of town. So I'm going to let the guys that have to deal with the balance sheet and back in Houston deal with that. Terry, Cole?

Yes. I actually let Cole respond to this one because that's now his job.

Yes. Michael, good question. Yes, similar to the Freedom and Guernsey transaction, we are stretching a little bit to get above the 3.5x initially. And that's why we say we'll be back down below 3.5x or have the ability to get there by year-end here, and that does include a modest amount of debt paydown while also maintaining our share repurchase program, which was approved back in September by the Board, upsized to $2 billion. So we still have a lot of runway there, and we'll continue to balance getting below our net leverage target of 3.5x and also returning excess capital to shareholders through the SRP there.

Yes. And maybe just to add one thing to Cole's response there. Michael, it's a good question. And the main thing that I want to point out is when we think about the flywheel strategy, right, the ability to toggle the balance sheet and the leverage is a key component of that. And as we've shown in the Freedom and Guernsey transaction as to the deleveraging that Cole mentioned to, that will be part of what we continue to look to do as we move forward and obviously grow into the earnings profile and the cash flow profile that these assets give us. So it's a key part of what we'll do, and you guys should continue to sort of expect us to toggle around that.

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

So we didn't see this transaction coming. I mean we were waiting for a deal clarity, but not in Ohio. So I'm just wondering, are you maxed out in the PPL zone, Pennsylvania in general? Or is it just that you buy assets that look best and their location doesn't really matter?

Angie, a couple of questions in there. No, we're not tapped out in PPL zone as far as market power screens would go. Two, we like the counterparty here, obviously, in ECP, very sophisticated. And this is opportunistic for they and us to get together and for them to take stake in Talen at almost the 5% or right around the 5% level of equity. We like this transaction. And so when you can do things bilaterally like this with sophisticated parties, it makes a hell of a lot of sense. And so that's why we executed on this deal.

Yes. And maybe to add to Mac's comments, Angie, I think the other thing to think about is just the specific features of these assets, right? When we look at Freedom and Guernsey, right, newer vintage, super efficient sub-7 heat rates for those assets. You take a look at Lawrenceburg and Waterford, really efficient heat rates. The other thing is growing our presence in Ohio is key for us. And both the Waterford and Darby facilities, obviously, are in really good locations. And so we really -- I mean, I can't sort of express enough of this specific portfolio of assets and why we like it.

Angie, let me just add on to Terry for a second and something -- this is 2 gigs of F-frame machines, not the same as the age, but high-quality assets that have had a lot of a breaking in period. And so they're really good machines, and we understand them very well. They're like Lower Mount Bethel. But the other thing that's in this portfolio and sometimes can get lost in somewhat -- sometimes is that having a quick start peaker in that same zone gives us the ability to have a real-time call option to backstop the portfolio. And as we've always said in our contracting strategy, we like having some of those so-called knockout options, and you can't buy real-time backup options like you can with a quick start peaker. And so we like adding that peaker in the region as well.

Very good. And my other question is just managing the balance sheet vis-a-vis the CapEx that seems to be growing. And I'm not just talking about M&A. It feels to me like public thermal IPPs are starting to have some substantial growth CapEx. I mean you guys haven't mentioned anything, but we are seemingly seeing some either additional expansions of existing assets or ownership of backup generators. And I obviously saw the -- that you participated in this reliability backstop alternative proposal, right? So there seems to be some willingness from you guys and other IPPs to build new generation. And I'm just wondering how you manage that potential growth CapEx vis-a-vis those leverage targets.

Yes. Thanks, Angie. Look, first of all, we've stated since the beginning, when we show adjusted free cash flow, we don't separate after growth or before growth. It's just the all-in number, as Cole mentioned during his opening remarks. I think when you ask about getting into new build and spending money on development and projects like that, we're not adverse to doing that. It just has to be under the right construct. And I know it's a little bit of a cheap line to say, but with the right contract, with the right financing structure, with the right delayed draws, et cetera, there's an ability to do that. And we have substantial cash on the balance sheet right now. And we feel as though any of those opportunities that we would proceed with, we'd be able to finance and do so in the right structure, provided we can get the right returns with the right risk profile.

Cole, Terry, do you want to pick up on that?

Yes, Mac, I would add, I mean, Angie, I think we've demonstrated a fairly disciplined track record. When we've spent capital on the fleet, we're really doing it in areas where, one, we think it's a lower marginal cost because you're really increasing the benefit of an existing asset, which is always going to be a lower cost than building something new. I mean take our coal-to-gas conversion as an example of that. I mean that's not nearly the capital cost that you would see elsewhere. So I do think we've been disciplined about that.

To Mac's point, if we were in a situation where we would have build something new, the facts and circumstances are going to happen -- are going to matter. It's going to be what does that, what do those economics look like, what does sort of the commitment or contracting arrangement look like around it. And so we'll continue to be disciplined as we think about that moving forward. I think that's always been one of our calling cards.

And I think, Angie, just another thing that we did is when you looked at when Terry took the role as President, Cole moved into CFO, we also moved Brad into the Chief Operating Officer to focus on operations. But Dale, who's got a lot of experience with gas assets and development. We moved into the Chief Asset Development Officer role to focus specifically on that. But again, it's got to be with the right metrics for us to do it.

Good. Congratulations.

And the next question will come from David Arcaro with Morgan Stanley.

This is Alex Zimmermann on for Dave. So looking at potential future M&A, should we assume that your preference remains for baseload assets in PJM, consistent with the 2 recent acquisitions? Or could you diversify the region or technology in future deals?

Well, I'll go first, and then everybody can chime in. Look, I think we've had a focus in PJM, and we're expanding that. I think people looked and said, you're fairly concentrated in PPL and now we're not as concentrated. But we're still in PJM. We like that increased diversification. We like the diversification that you get in the energy gross margin from baseload assets as well. As Cole mentioned, we've added effectively 2 Susquehanna through the Freedom Guernsey and now this acquisition. And so that makes a lot of sense.

But when it comes to opportunities in the M&A space, Alex, I think we like to think of ourselves as pretty opportunistic, right? If the right opportunity comes along for the right asset, we'll go and execute. But it's all going to come down as -- and I'll use Terry's phrase to facts and circumstances at the time. So we remain open-minded, but we're also -- we try to stick as much as we can to our knitting and our strategy.

Cole, Terry?

I think that covers it.

Got it. That's clear. And then on the energy hedging of these assets, do they have any contracts currently in place? Or are they mostly unhedged?

Terry, do you want to cover the capacity?

Yes, I'll cover that. Good question, Alex. There are some hedges on the assets. And actually, I would tell you, if you look at Slide 6 in the deck that we provided, there's some details. In particular, the Lawrenceburg asset does have a bilateral capacity sale that goes from the middle of '28 through 2034. And so there is a bilateral capacity hedge. There are some energy hedges on them as well, but not something that's too sizable. So we will inherit some merchant length in this that will then put into our normal risk management profile. But yes, that should give you sort of a general sense of the hedge profile.

But they're largely unhedged to answer the question specifically with respect to the energy gross margin.

And our next question will come from Ivana Ergovic with Jefferies.

It's Julien. Can you hear me?

Loud and clear, Julien.

Awesome. So let's talk real quickly. Firstly, just on the -- you talked about by contract, by contract, obviously, be done by buy. How do you think about that contract piece next? You insinuated that you're literally pending here like a final detail. Is that the expectation you want to establish just to come back to you on that, a? And then b, additionality, we talked about it before. Just curious how you think about it in the context of this asset. Does it have that opportunity, whether it's co-located load or co-located supply additions and upgrades in brownfields and all that? Just in terms of the specific transaction. But again, in the context of anything you have imminent, how do you think about additionality and set expectations there?

Yes. Thanks, Julien. Look, markets are lumpy, and you've got to strike while iron is hot. And we still believe in the flywheel, which is buy, contract, et cetera, return cash to shareholders as we can and look to have stable cash flows. I think that you've got to -- the world is not perfect, and this is a good opportunity to add additional baseload assets. And so that's why we're doing this with a good counterparty, as I mentioned earlier.

As far as -- I think you put a few words in my mouth with respect to a pending deal on contract. I just said 2026 is shaping up to be exciting. So stay tuned. Obviously, we've been fairly clear that we've been working on other things. People are well versed and knowledgeable about the ongoing activities at Montour and the site there with respect to the rezoning. And look, we're going to continue to push forward on this strategy.

Terry, Cole?

I think that covers it.

Yes, I think it covers it. And I think on the last question on additionality with the assets, look, this acquisition was really stands on its own on the existing assets. Obviously, we'll always look across our portfolio to opportunities to add additional megawatts. Obviously, that's very much a topic of how do you expand the capacity base for PJM. And with additional assets, we'll continue to look to do that.

And I think there was a question earlier, Julien, about the RBA. And we're supportive of the RBA as a solution to get incremental megawatts. And under the right construct there, I think that would fill the additionality and solve some of the forecasted reserve margins, albeit there was a change to PJM's forecast yesterday in the near term. But in the longer term, to build assets and to keep the market going, there will need to be additional megawatts added. And we think that the RBA as well as a number of other people who have signed on to that proposal think that, that's the construct that is best for the solution here.

And the next question comes from Craig Shere with Tuohy Brothers.

Congratulations again. So Mac, I think you alluded to this a bit in response to Angie's question. But could you elaborate on the importance of a mix of assets, CCGT, simple cycle, various heat rates in both hyperscaler PPA execution and PJM and FERC clearance? And do you see long-duration energy storage being the last of a critical mix of assets to move over the finishing line on this?

Well, there's a lot in that question. So look, I think that if you look at our portfolio before this acquisition and perhaps even going back before the Freedom and Guernsey acquisition, we always talked about having real assets that have knockout options. So we talked about that at Montour. I'm going to ask maybe if Chris wants to chime in here. But like having those options to backstop to have a portfolio to sell contracted baseload 24/7 block product, there's operational issues, and you have to have a portfolio to be able to risk manage around that. So we have that with like Montour, for example, in the existing portfolio before the acquisitions. We acquired Guernsey. That was great. We could backstop it. There's basis differential. But now by having a peaker in Ohio as well as 2 more CCGTs plus Guernsey, we now have a backstop unit there and a quick start peaker. But perhaps the guys in Houston want to pick up on that further.

Yes. I'll touch on it, Mac. I think to your point, our generation is distributed across that supply curve. And so knockout option or higher priced dispatch, it's a supplement to our baseload gen at just a higher price strike, which helps us to manage that real-time volatility.

Yes. And maybe to add to both Mac and Chris' comments, when Talen came out of restructuring a number of years ago, right, the fleet had a certain profile with Susquehanna and Lower Mount Bethel being the 2 baseload units in the fleet and then obviously, some intermediate and peaking dispatch assets. Acquiring Freedom and Guernsey and then also with this transaction, Lawrenceburg and Waterford balances that out where we put more baseload generation in the fleet, high capacity factor really efficient machines. And so moderating out to where we have a good mix of that baseload energy margin or cash flow generating machines from energy margin, but then also the capacity revenues from the rest of the fleet, I think, is really just us trying to balance out the overall portfolio and giving a good amount of moderation as we think about the delivery and the service that we can provide to customers.

And any final thoughts about the energy storage?

Look, batteries or energy storage, I think that there's still work to be done there, but we do think that there's a place for -- as we roll forward and think about what is it that needs to be solving the reserve margin and resource adequacy going forward. We're advocates, as I mentioned in the previous conversation of the RBA. But we do think that there's been a fair amount of discussion about how things need to move to building CCGTs. And we think that there are more cost-efficient ways to solve the capacity issue over the next 5, 6 years before you get to building CCGTs and batteries should be part of that solution. And long-duration batteries with higher ELCCs and provide that capability. And so we're excited about the prospects, but it's still early, but we think that it's promising, and we continue to explore it.

And our next question will come from Ross Fowler with Bank of America.

Congrats on the transaction this morning. So just a couple for me. Maybe thinking about that peaker optionality. As you think about the on-peak power moves in the PJM curve and forget the fact that we're having a mild winter, like let's look at what's really fundamental here. And it's going up, right, because of the supply and demand. So how do you think about that maybe in the context of Darby's current run rate performance? And do you see a chance to optimize the peaker units and run them harder? Or does that just like do we get to breakage points too many maintenance issues as you think about capacity factors there?

Look, maybe, Ross, first of all, look, if you look at Montour 3 years ago, and I'll come back to Darby in just a second. But if you look at Montour 3 years ago, it was running at 7%. It's now running in the mid- to high 30%. And so things are getting dispatched as you move up the curve, which as you appropriately just stated. When I think about -- and others can chime in here, but when we think about it or when I think about like what does Darby provide for us, it provides us the opportunity to capture volatility or to backstop baseload sales off of our assets. The one thing we don't want to do is sell contracted baseload megawatts off of a contracted baseload asset and then have to reserve baseload assets to backstop that. And that's what Darby provides us to manage that. And if we're not using it to manage that, it gives us the opportunity to capture ball.

Chris or Terry, do you want to jump in on that?

Yes. I'll just -- I'll reckon back to this summer, kind of to your point, Ross, the underlying fundamentals are still there and sort of manifested through some of those peak demand days we saw in late June. Montour being a good example, increased run profiles, sort of a later in the day peak with some of the solar wind down. It was -- to your point on optimizing the peaker, it was when they were getting dispatched was what was unique. And so the baseload plants running more than expected. But additionally, the peaking units were being turned on later in that peak day. So it's sort of a combination of the 2. But again, both sort of indicative or reflective of your comments on just continued tightening fundamentals being manifested through that dispatch curve throughout different times of the day.

And then if I can kind of squeeze in one more here. If you close these 2 transactions, then you're kind of at the 16 gigawatt, just under 16 gigawatts of capacity in the portfolio. So you've got to a significant scale. So as you look and maybe alluding to one of the earlier questions, you're very PJM focused. Is it all still PJM? Is it closer to home? Is it MISO? Is it ERCOT as you look to -- or is it everything and anything, anything that makes sense? Maybe that's the right answer. I don't know. And then would you ever think about divesting any units in your portfolio as you optimize it to fund any future sort of acquisitions?

Ross, it's a great question. I'll answer it with yes. We're always looking to do hopefully smart things. That means acquiring things opportunistically when they make sense. Again, we have a North Star, which is our strategy of the flywheel. But that doesn't mean that we're not flexible and don't look at things opportunistically and think about how do we add to the portfolio. We also, as you know, and we've stated before, continuously, and I think we've demonstrated this over time, we're willing to reshape the portfolio through divestiture. We did it in ERCOT. We did it to some extent, if you want to talk about the Bitcoin mine that we had with TeraWulf in order to reshape that so that we could then further expand the AWS contract.

So we're always looking at those opportunities. And I think that's what you have to do as an IPP is to continue to focus on what is the best portfolio going forward. And a lot of this just comes down to opportunity, finding the right opportunity and then going after it.

Cole, Terry?

No, I agree. I think, Ross, to your question about looking at the rest of the portfolio, we're always looking at the rest of the portfolio. And to Mac's point earlier, we've shown with the divestiture of the ERCOT fleet, the ability to do that. And then the first part of that question, we're always going to look at whatever we can do to grow free cash flow per share. And that could be any region, any location as long as the right deal, and we believe in underwriting the fundamentals for the right deal. So those things are always going to guide us in how we think about inorganic M&A as we move forward.

Yes, fantastic. And congratulations again.

This does conclude our allotted time for today. I would now like to turn the call back over to Mac for closing remarks.

Yes. Thanks, Michelle. Thanks, everyone, again, for joining us on short notice, and I appreciate your interest in Talen. And look, 2026 is off to a fast start, and we're not even a month in. So I look forward to continuing the conversation and what lies ahead. Thanks, and have a great day.

Thank you for participating. This does conclude today's call. You may now disconnect.

Ladies and gentlemen, thank you for standing by. Welcome to Talen Energy Corporation Third Quarter 2025 Earnings Call. [Operator Instructions] Please be advised that today's conference is being recorded.

I would like now to turn the conference over to Sergio Castro, Vice President and Treasurer. Please go ahead.

Thank you, Michelle. Welcome to Talen Energy's Third Quarter 2025 Conference Call. Speaking today are Chief Executive Officer, Mac McFarland; and Chief Financial Officer, Terry Nutt. They are joined by other talented 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 our 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.

With that, I will now turn the call over to Mac.

Great. Thanks, Sergio, and welcome, everyone, to today's call. We appreciate your ongoing interest in Talen. Before we review the quarter, I'd like to start with where we are as Talen and talk about the broader landscape as we implement the Talen flywheel.

Sitting here today, the overall market continues in the same trajectory as we've discussed in prior calls. AI and data center capital budgets continue to impress and expand. It seems like every day there is another announcement, investment or idea on how to power growing data center demand. Demand for power keeps coming, and we will need an all-of-the-above approach to solve the growth from the supply side.

Pennsylvania continues to drive economic growth through data center development and remains a pro-business place to invest. Governor Shapiro, the Pennsylvania PUC and the local communities have embraced these investments and recognize the advantages Pennsylvania brings to developers, including speed to market while at the same time, they recognize the need to properly allocate cost, build new generation and keep residential rates in check.

We are doing our part by evaluating options to solve short-term capacity questions and longer-term resource adequacy. It's why we recently signed an MOU with Eos Energy to partner on battery development in Pennsylvania and PJM using Pennsylvania manufactured batteries. As I've said in the past, for the next five years, we are going to need to solve a capacity issue, not necessarily an energy issue and we believe batteries and peaking plants can solve this need much more readily than CCGTs and at overall lower cost. CCGTs will be needed too and we will look to build them in collaboration with the right partners and customers, but that is further off on the horizon. And while I have focused on Pennsylvania in these comments, we continue to be excited about the prospects in Ohio, given load there already exist, but more on that in the coming quarters.

At Talen, we have a number of things in flight. First, we continue to execute under our existing agreements with AWS and the Susquehanna site continues to be built at an amazing speed and has been electrified. Second, we are working diligently to close the Freedom and Guernsey acquisitions, which will add to our baseload fleet and to our large load contracting strategy.

As you know, we refiled our HSR application at the Department of Justice for a second time restarting the 30-day time line, which now runs through November 17. We believe it was prudent to give the DOJ additional time because the transaction fails zero market power screens. We remain confident that we will close these acquisitions. I do note that this might take a little longer and bleed into Q1 of 2026. That said, we are pressing to get these deals closed as soon as possible and might be able to get them done as early as late this year. We are optimistic that FERC can then act on our 203 filings in short order.

In addition to pushing our regulatory approvals or pushing them along, we also recently closed on a highly successful financing package. And lastly, with respect to the acquisitions, Dale and the Fossil team are well underway on the planning to add both Freedom and Guernsey to the fleet, and Chris and the commercial team are ready to fold them into the portfolio when they can. We are truly excited to get going with these assets and want to thank the Caithness team on the professional transition to date.

Third, we continue to pursue additions to the flywheel through large load contracts and additional megawatts for the portfolio. On the contracting, side, there has been a fair amount of noise in the market about our ability to contract when we might be able to contract, how we might do so and how we will manage the so-called gas risk. Trust me, when we hear all of that, we just go about our business. We built a good comprehensive playbook with the Amazon Susquehanna contract and our focus currently on execution.

Our strategy remains the same. Our efforts have only been redoubled and our focus has sharpened and our commercial learnings continue to expand. We have been working on the next thing since we signed the first AWS contract in early 2024, and gained a lot of commercial knowledge by changing that contract in front of the meter. Refiling of our HSR on Freedom and Guernsey does not change our path. Let me be more explicit as to why the exact closing of these deals doesn't impact our near-term strategy.

In the rest of the portfolio, excluding Freedom and Guernsey, we have approximately 4 gigawatts of gas-fired generation between Montour, Lower Mouth Bethel and Martins Creek as well as 300 megawatts of carbon-free power at Susquehanna remaining. Our efforts at Montour continue, and I'm sure you have seen that we are working on zoning and permitting at the site, which, by the way, if you were with us back in 2023 was the same activity we were undertaking at Susquehanna then. All of this activity goes on, all well before we close the acquisitions. And as I've said, we remain confident that we will still close the acquisitions in short order. So timing of closing of Freedom and Guernsey is really irrelevant to our contracting power strategy.

We feel good about our ability to look -- to add further expansion of the portfolio through acquisitions and continue to explore free cash flow accretive deals, and we are constantly challenging ourselves to reshape the portfolio. And I'm sure someone will ask, when we might expect to announce the next part of the flywheel. And I'll say the same thing that we always say, which frankly is next to nothing. You'll be the first to know when we're done. We want the right deals, not any deals and not on anyone else's time line.

In the meantime, 2026 is setting up well. We are reaffirming '26 guidance, and we are starting to see [ Ford tick up ]. Gas is up, sparks are expanding and load continues to be strong. All factors that continue to impact commercial positioning on long-term transactions. Terry and Chris will walk you through what we are seeing in the markets in just a bit.

Moving to the present in Q3 on Slide 2. As we said during our Investor Day call, we saw limited volatility and limited opportunity to capture incremental value in the third quarter and the quarter was a little light of our internal expectations, but we already knew that and acknowledge that in September at our Investor Day. Going into the summer, we were looking to regain some of the lost opportunity from the spring outage Susquehanna, but it just didn't materialize. Both July and August experienced fewer peak load days when compared to June, and we experienced incremental forest outages as our fleet continues to run with higher capacity factors and longer run times between maintenance. Terry will provide a few more details on this later.

During the quarter, we delivered $363 million of adjusted EBITDA and $223 million of adjusted free cash flow. So far in Q4, things are a bit better given the market move up but we are still projecting to be at the lower end of our guidance range as we previously stated at that September Investor Day.

Before I turn this over, I'd like to thank our entire Talen team for their hard work and dedication, and I'm happy to let you know that we have reached a 5-year extension of our local 1,600 contract with the IBEW. So a special thanks to Rusty and the IBEW leadership team. At Talen, we are powering the future together.

With that, Terry?

Thank you, Mac, and good afternoon, everyone. Turning now to Slide 3. Mac covered the regulatory process, but let me provide an update on the financing of Freedom and Guernsey. Last month, we successfully executed several financing transactions at attractive rates to fully fund the acquisitions including $2.7 billion of senior unsecured notes and a $1.2 billion senior secured term loan that contains a delayed draw feature. The pricing we received exceeded our initial expectations as the credit market continues to demonstrate demand for talent paper.

We also received commitments from our bank group to increase our existing revolving credit facility to $900 million and to increase our existing letter of credit facility to $1.1 billion, while also extending the LC maturity date by 1 year to December 2027, all to further support the impact of the acquisitions on the financial operations of the business. Congratulations to the treasury and legal teams for a successful set of transactions. We are currently earning interest on the senior unsecured note proceeds and will not draw on the term loan until the closing of either the Freedom or Guernsey acquisition.

Turning to Slide 4. As Max said earlier, nothing has changed thematically. The underlying fundamentals for Talen's value proposition remains strong. Macro fundamentals and AI demand remain intact. Last week, we continued to observe the trend of hyperscalers seeing tremendous growth in their cloud and AI businesses, which in turn has led them to continuing to raise or affirm their capital investment plans. As you can see in the chart on the upper left, the projected growth of spin from hyperscalers continues in earnest with total CapEx projected to be $700 billion in 2027. Not only is the capital commitment growing but the acceleration of demand for power continues.

For example, Amazon noted on their earnings call last week that they have accelerated capacity additions over the past 12 months by adding 3.8 gigawatts and expect to add over another 1 gigawatt in the upcoming fourth quarter. Further, they expect to double their overall capacity by 2027, which would add in excess of 10 gigawatts of capacity in North America alone.

We see significant load growth coming over the next decade from hyperscalers as well as reshoring of manufacturing and the ongoing electrification of the economy. But what about the current load conditions? 2025 provides a clear example of the change in the load growth in the PJM market. Overall, Q3 weather was flat compared to the same period in 2024, as measured by cooling degree days. However, the average electricity demand was higher.

During the quarter, we saw approximately 3.4% of incremental power deliveries on a weather-adjusted basis in PJM and when compared to the same period in 2024, a clear sign of demand growth in the market that is expected to continue. Furthermore, for the first time in over a decade, we experienced two of the top peak demand days at PJM during the heat event in June. These two demand peaks registered in at the third and fourth highest summer peak demand readings in the history of the market, further evidence of demand growth.

Let me now turn it over to Chris to cover some additional market fundamentals on Slide 5.

Thanks, Terry. This quarter, while relatively uneventful from a dispatch and weather perspective, did help validate our driving thesis. That data load is here an d more is coming. As Terry mentioned prior, below the surface, incremental load is beginning to manifest. We are seeing relative price strength in the face of very benign weather conditions.

As cash markets are starting to feel this tightening, so too are the forwards. Looking at the chart on the right, you can see the market response over the past couple of weeks. And as you can see further, it has been a recent phenomenon, but one that we have been anticipating. Power is up, sparks are widening, and it remains a good time to be empowered. And further, a really good time to be an IPP focused on being an IPP.

Our native position is along 7,000 megawatts of generation spread across the supply stack. Outside of the PTC and the data PPA, we have no other natural hedges. This informs our commercial strategy and allows us to participate meaningfully when we take a view on the market, and you can reference the appendix in back for those hedge percentages.

Similar to the forwards, PJM capacity markets have been reflective of these tightening fundamentals as well, expressed through the all-time high BRA clears. PJM shrinking reserve margins continue to be a topic of discussion, both inside and outside of the RTO. PJM and the DOE have flagged potential supply shortfalls by 2030 if the trend isn't reversed.

In addition to needing new supply resources, PJM's existing asset base will have to be relied on heavily to ensure grid reliability moving forward. The average amount of uncleared megawatts in the last two auctions was less than 1 gigawatt. And the recent release [ 2728 ] auction parameters show further evidence of continued tightening fundamentals. This auction is the final auction with [indiscernible] in place. I'll note, we remain active participants in ongoing stakeholder discussions with PJM and other governing bodies, and we will see the results from that capacity auction on December 17.

Back to you, Terry.

Now to Slide 6, which covers our year-to-date financial and operating results. For the nine months ended 2025, we were reporting $653 million of adjusted EBITDA and $232 million of adjusted free cash flow. Our liquidity remains substantial with $1.2 billion of liquidity available for working capital, including approximately $490 million of cash available. Once we close on the Freedom and Guernsey acquisitions, we'll have $200 million more of liquidity as our revolver capacity will increase to $900 million.

Excluding the acquisition financing, our leverage ratio is still within our 3.5x net debt to adjusted EBITDA target. Year-to-date, we generated 28 terawatt hours with over 40% of this generation coming from our carbon-free Susquehanna nuclear facility. Our year-to-date forced outage rate is higher than we have experienced in the past. This higher outage rate was largely driven by outages at our Martins Creek plant, which experienced prolonged outages due to induction fan repairs. These issues have been resolved, and the plant continues to serve as a peaking unit across the fleet. However, the outages did contribute to our inability to capture some upside as previously noted.

Safety remains our first priority across the fleet, and our year-to-date recordable incident rate was 0.64. While higher than prior quarters, this remains well below the industry average. The commitment of the team to operate in a safe and reliable manner is an important part of Talen's value proposition.

Now turning to the financial results on Slide 7. For the third quarter 2025, Talen reported adjusted EBITDA of $363 million and an adjusted free cash flow of $223 million. This quarter, our earnings include the higher 2025, 2026 PJM capacity pricing of approximately $270 per megawatt day and an increase in energy margin. Adjusted free cash flow includes higher CapEx associated with the extended Susquehanna refueling outage. Additionally, we also have higher cellular energy pricing, which resulted an increase in generation across the fleet.

Moving now to guidance on Slide 8. With three quarters behind us, we are narrowing our 2025 adjusted EBITDA as we are trending towards the low end of guidance as mentioned at our Investor Day. Due to the lack of volatility in prices in the third quarter and the extended outage at Susquehanna that offset our strong first half of 2025, adjusted free cash flow remains near the middle of our original range, driven by our continued focus on generating the most cash flow per share as possible. We are affirming our 2026 guidance and remain confident in both our adjusted EBITDA and adjusted free cash flow numbers. All of this remains consistent with our Investor Day.

Turning now to Slide 9. We remain committed to returning capital to shareholders. In September, we announced another upsizing of our share repurchase program, and we will have $2 billion of capacity remaining through year-end 2028 once we close on the acquisitions. We are supportive of targeting $500 million of annual share repurchases during the post-acquisition deleveraging period. Once we reach our targeted leverage of 3.5x or less, we intend to return to allocating 70% of adjusted free cash flow to shareholders on a significantly higher free cash flow base.

Lastly, during the quarter, we sold nuclear PTCs for approximately $190 million. We were able to monetize the credits due to the additional benefits from tax reform implemented this summer, along with the tax benefits from the upcoming acquisitions, which will significantly reduce our cash tax burden for the next several years. The monetization is just another example of talents focused on producing bottom line cash flow. The liquidity addition from these sales provides us more options on our deleveraging activity, share repurchases and other strategic transactions.

Turning to Slide 10. As of October 31, our forecasted 2025 year-end net leverage ratio is approximately 2.6x, well below our target. We will be focusing on debt paydown after the acquisitions to reach our targeted net leverage ratio by the end of 2026. And our pro forma net leverage is expected to remain below 3.5x by year-end 2026.

With that, I'll hand the discussion back to Mac.

Great. Thanks, Terry, and thanks to everyone for joining us on the call. We look forward to your questions. We'll turn it back to the operator, Michelle and open the lines for questions.

[Operator Instructions] And our first question is going to come from Angie Storozynski with Seaport.

So my question is, as you said, Mac, every day, we seem to be getting announcements about new power deals, just not from IPP teams. I mean we have conversions of bitcoin miners, oil and gas companies are jumping in, companies that completely had nothing to do with power until yesterday, seemingly building [indiscernible] and gas plants and yet, we're still waiting for public and private [ IPT ] to monetize their assets. So you're probably the last person I should push back against because you have been doing your share and some. But are you concerned that existing assets are losing the time to power benefit to the new build and those conversions?

Yes. Angie, and I appreciate the push actually. So no, we're not concerned. Look, we're going about our business, and we have been. As I said during some of the remarks there at the opening we've continued to work to execute. I think that one of the things that we've done over time has learned a lot of commercial knowledge. We still think that's very applicable. We still think that we offer speed to market solutions.

But I would note that these things are complicated. They will come. They just take time. And as I said during my comments, we want to do the right deals, and we want to do them on our time line and counterparties that we're working with time line to find the appropriate point by which to execute. That, to me, doesn't change the overall thesis nor does it change our thought process around this. It's just things take time.

I mean if you think about it, we've gone from a behind the meter to -- we all know the history, but the behind-the-meter deal with the ISA being kind of thrown in the air, rejected and then being working to solve that and then we went to work on a commercial solution, moved at the front of the meter lot of commercial learning there. We've always said we think that gas is the capability, a gas portfolio to be specific, not just single gas units that using a portfolio like we have the ability to backstop things in front of the meter type transactions that they're coming. And we continue to make progress.

I mentioned, for example, and I'll let Cole jump in here in a second. But we're advancing things. I mean you saw what's going on at the Montour site with the rezoning. We think that that's a good opportunity. We've described that in probably maybe too much detail over the past six months so that everybody wants to know when we're going to announce the deal there. But we're moving that forward in a positive fashion. We're going to get there. These things just take time. Cole?

Yes. I would just add that I think the deals that we've done, Angie, and continue to focus on our advantage from a speed to market, and we do provide an advantage there and probably on a different time frame than some of the deals that you're referring to being announced recently. And so we're really focused on those kind of deals that can get sites up and running and powered in the near term, like in our next year 2, 3-year window. And as Mac said, they're a little complicated, and we like to go for the gigawatt scale as well. And so just take some time, but we're pleased with where we're at and where we're progressing and where we're going.

Good. And just one follow-up. Mac, you mentioned the expansion of your portfolio. So I mean, I know that you have the 3.5x net debt to EBITDA leverage limit. I mean, is that a real limit? Or could you, for example, address it by, I don't know, securitization of the revenues that are coming from the Susquehanna contract just being a little bit more creative to give yourself more of a balance sheet move?

Well, I'll let Terry jump in here after he kicks me on the table because I always tell him that managing the balance sheet and credit is problem not mine. That's a joke, Angie, and for anybody on the [indiscernible] side. Terry is now kicking me literally under the table.

But the 3.5% -- look, and I think we've said this before and the way that we do capital allocation as well, the way we think about hedging and cash flow hedging and how that ties into making sure that we have appropriate cash flows, all of that ties into our overall strategy. We set net leverage at 3.5x. We said that we're willing to toggle it. We are toggling it for a short period of time as we take on this new debt, as we close the Freedom and Guernsey acquisitions, but we've made a commitment to return to the 3.5x net leverage by the end of 2026. So we all pull on all those strengths. I think that when you looked at the appetite, and Terry mentioned that there was an appetite and when we went through this financing for our paper, I think it was well subscribed. We got good rates that beat -- we were anticipating, which is great to exceed that. And there is an ability to do things. But when it goes to the creative securitizations, I go back to -- and I'm going to let Terry jump in here and clean up this. But like doing the securitizations and doing project-level financings and those types of things, we've made a concentrated concerted effort over the last several years to clean up the balance sheet taking out project level debt, taking out sponsors, taking out other people at lower levels in the projects and put things on a corporate balance sheet, which allows us to manage across the portfolio. And we think that having a portfolio, having the commercial knowledge on how to structure long-dated large contracts. But having that portfolio and having that corporate debt at that level provides us the opportunity to backstop it across the entire fleet, not just the project finance type level entity that you'd get into when you start securitizing things. We have people and Terry can speak to this, but Sergio as well, people come in and talk to us and want to put a contract over there with an asset over there and securitize it and offer debt in that form. But that has a different -- you start to having the quarter off credit. You have to start quartering off things as you deal with PJM and all of those things to us don't make sense as much as having a portfolio that can provide long-term contracting solutions.

Angie, this is Terry. Just to add on to Mac's comments, a couple of things. The 3.5x leverage ratio, it's a target for the right opportunity with the right return, we would be willing to push past that. The other thing to elaborate on as we think about the serving our debt, serving our interest and just serving the operations of the business. As long as we've got contracted cash flows that have limited risk, we feel really comfortable around that.

And this goes back to Mac's other comment is when we think about the balance sheet, we think about the leverage with respect to, okay, how are we hedged, how comfortable do we feel about those cash flows? And how does that sort of near-term outlook sort of all work together. And so we'll continue to do that.

The other thing I'll add to it as well is as we've grown the business and as we've added on the initial AWS transaction and the second one, and then, hopefully, here in short order, the Freedom and Guernsey assets, we're growing the earnings base. We're growing the cash flow base, which obviously has resonated with the credit market. And so when I got here 2.5 years ago, we had just issued some senior secured notes at like [ 8 5/8]. And here, we just get off the back of issuing two sets of unsecured notes that have a 6 handle on the interest rate. And so our cost of debt is going down in recognition of how well the business is performing and how well we're growing. So we think those things are all positive. They give us a lot of options as we think about growing the business, and we'll utilize it as we move forward.

And that balance sheet just gets stronger over time as we grow into the contracted aspect as the ramps up with the existing AWS contract stand-alone. But as we add more contracts to that, right, it's going to further strengthen the balance sheet and provide for visible visibility to those cash flows. So maybe later, but not now. I think we like the position we're in, and it gives us the flexibility to toggle things for short periods of time and then get back to our net leverage target of 3.5x net debt to EBITDA.

And the next question comes from Shar Pourreza with Wells Fargo.

So Mac, just in Maryland, there's obviously a vocal IPP around supporting solutions to add incremental capacity in the state's expedited CPCN solicitation process. I guess what's your thoughts around offering up alternatives and maybe again your view on the construct in that state and then you can kind of be supportive of [ RA ] efforts there.

Yes. Thanks, Shar. Look, First, I'd say we're actually doing our part through the RMR. Those are units that were slated to shut down under basically an agreement with the environmental firms, et cetera. And so we've worked hard to execute those RMRs. we are looking at would it make sense to get more gas to that site and prolong and convert. But you got to be able to get gas to that site, and we're working with the local utility. But that's going to take some time.

I think that -- but where we have assets and where we're located there, it probably doesn't lend to sort of redevelopment and the size that you could do further on the eastern side of the Bay, which is over towards Chalk and that area, Chalk Point, where there's a couple CCGTs, there's open land, et cetera, and getting gas across the river or the lower Bay, Upper bay, however you want to talk about it, is that's a difficult proposition. So -- but we're working to try to get incremental gas there to see if we can take that co-unit and convert it like we did convert Brandon like we did at Montour and as we have done, I mean, we have the ability to do at Brunner.

Look, if there was an ability to figure something else out. we'd look at it. But right now, that's how we see us contributing to Maryland.

Got it. Okay. That's perfect. And then just lastly, shifting gears to Pennsylvania. I guess Mac, what do you need to see to build there. I mean, have you had any discussions with the utilities on their views of resource adequacy solution? And is there a common ground there that you can strike? It just seems like when you're hearing from Exelon and PPL, there's discussions to be had. But I just want to get a sense from you where the bid ask is there?

Sure. Well, first of all, there's the whole [indiscernible] that's going on about how do we solve that and we've been active in that, and we've got a couple of things that we're working on is to provide solutions there. We worked up a proposal with the consortium that included a couple of hyperscalers as well as some other IPPs and trying to be constructive there.

I think the real issue is that we are concerned about the so-called rate shock of capacity prices going to [ 330 ] and this last, cleared in [ 270 ] before. But those prices do not support new build. If you look at any of the economic analysis done as part of the quadrennial review, it's $500 a megawatt day, okay? And then you get into the debate of will 1 capacity clear incentivize that build? We think that there needs to be some structural changes to provide a longer-term perspective there for new build. There is talk about building in rate base, but it's always done if there's the right contract or the right ability or the right returns, and even if you do that, it's at $2,500 of [ KW ]. And if you -- even though the energy curves have ticked up and the capacity markets have moved up, they do not equate to what is necessary for a new build CCGT. We actually think that CCGTs are a solution that are needed in the future when overall energy demand rises, but there's plenty of energy on the grid. We can run mid-merit and peaking units more, we're setting our units up to do that. We mentioned Martins Creek, and we're running them harder and have less time for maintenance off-line, et cetera. And we're making adjustments in CapEx and O&M, as Terry mentioned earlier in the remarks, those can sop up a lot of energy demand, but it goes back to solving the 50 to 100 hours a year of capacity that needs to be solved. And we just think that, that is -- lends itself better to things like batteries or peakers rather than CCGTs and at lower overall cost and should be utilized. But to do those, a lot of people are sitting around thinking, okay, well, if we're not there yet, then -- and it's easy for us to say, right? We'll do something if someone provides us the right level of return for the investment over a long-term contract. Well, that's true, too, but the energy and capacity markets aren't there yet. But I do think you're going to see them get there over the next period of time, year 2 but it's going to be solved by something other than CCGTs because it's just a speed-to-market thing. You cannot get a CCGT built by this time. And the question that preceded you here talked about all these other solutions. Well, all of those other solutions are high-cost solutions that people are not grasping at, but they're proposing -- but they're very high-cost solutions because of the technology that's being used, but people are looking at it as a speed to market. And so we need to get CCGT going in the long term. But we've got to solve this 50 to 100 hours in the near term, and we just think that we're going to be able to participate in that by adding to our fleet and peakers, batteries, if we can get the right return mechanisms or if we can integrate it right with contracts, things of that nature. So I hope that answers your question, Shar.

And our next question will come from Bill Appicelli with UBS.

I just wanted to build upon some comments you just made there. You mentioned earlier about energy prices moving up. What are your thoughts on what's driving that? And where can that go, right? I mean if you discuss what you just mentioned there around the mid merit and the peakers running more, right? I mean, that's going to drive up the marginal cost on the energy side a bit. So I mean, is it driving to the upper $80, $90 in terms of cost of new entry on an energy level? Or how do we think about sort of what the backdrop is for the wholesale power markets?

Yes. Good question. Let's see if I can not mix metrics here. Look, on a megawatt hour basis all in, I think you're looking at 120 plus for a CCGT on a greenfield development, and you're looking at a 2030 plus delivery time frame of COD. I do think that you can find ways to add so-called additionality to the grid that are cheaper than that and quicker than that. And those -- I've already mentioned that. I do think that -- and to your point, and this is a little bit about what Chris mentioned when he talked about the curve and the recent phenomenon of going up the curve, some of that's gas driven a little bit, but some of it's also people looking at it and saying, sparks are expanding because you're getting to higher-cost units filling the energy demand overall energy demand is going up. So energy prices should go up. We -- as Chris said, we've been waiting to see that, and people often ask us, and even until recently, I mean, if you look at that chart that Chris was talking about, it's only been like the last three weeks that things gotten a bit. And -- but we were anticipating that it was going to go there. We set the portfolio up on that to think about when we go in and layer cash flow. I just -- Obviously, there's some timing that you can apply there. But there's also -- as Terry mentioned, managing the cash flow hedges to protect the downside as we look at security for having cash flows for debt service, et cetera, share buybacks, all the like.

So we do think that energy markets are going to go up. I don't know if it's 80%, 85%, but we're starting to see on peaks go up. And quite frankly, for the first time in a decade, we're starting to see summer on peak start to be winter on peak. And that hasn't been a phenomenon for a decade in PJM. And as I think Terry mentioned that third and fourth highest peak days in June that we've seen.

So a lot of this stuff is starting to manifest itself. I think that the tip of the iceberg was the 270 and then the 330, and that's the capacity market because it's further out in time. But now you're starting to see it in the '26 and '27 forward. And we just think that, that thesis is continuing.

Yes. And maybe, Bill, to add to Mac's comments, really, your second part of your question, I think what you're seeing in the forward is really driven by what we're seeing in the fundamentals, right? We've seen this demand growth. We've gone, I mean, effectively a decade with sort of flat to no growth in the PJM market from a load standpoint. And now we're starting to see tangible low growth on a year-over-year basis, and that expectation is going to continue. I think the recent peaks that we hit during the summer are other good indicators of it. And then also just people rolling forward and actually really thinking about how they're going to handle their wholesale power cost in '27 and '28 and beyond. So we've seen more activity in the market. We do think it's fundamental based and we think it's constructive. And to Mac's earlier point, to get to the level of value to where you can build a CCGT or anything else, right? The devil is in the details of what is that total cost and then what return are you solving for. But we're still far away from that point to Mac's comment, right? We think that, that number is well over $100 per megawatt. And so we've got quite a bit of ways to go before we can hit that point.

Okay. All right. No, that's very helpful. And then as far as additional asset acquisitions or [ you either ] speak to what's out there? And are there things that you would still consider folding into the portfolio at this point when you kind of are making the evaluations around capital allocation?

Well, I think on that, we'll continue. What we always say is, obviously, we're always in the market looking for things when we find something that we like and we think fits where we want to go. We'll definitely let the market know about it.

As you've seen, generally, right, there's still a lot of M&A activity in the space. It varies from one asset to small portfolios. Obviously, there's been several larger M&A deals done this year across the IPP space. But still a lot of activity. I think there's still a lot of holders of assets that have held them for a while that are probably in a spot where they're looking for an exit. And then obviously, you've seen Talen and others engaged from a buyer standpoint and.

So still active, still looking at things as they come around across our desk. And as we get to a place where we find something, we'll talk about then.

And the next question comes from Jeremy Tonet with JPMorgan.

I just wanted to pivot to battery storage, if I could. And wondering if you could talk a bit about why you chose to partner you chose. And do you have any thoughts specifically on long-duration energy storage for AI data center applications?

Yes. Look, first of all, we're working with EOS and looking at the deployment there. And there's something that we talk about long duration, which obviously their technology provides for long duration, but it also can be discharged it for 4 hours, can be discharged for up to 12 hours. You can go across that spectrum and you can dispatch it over time and reload the battery. And I think that, that is critical because managing load that helps in managing load. And when we think about batteries, we kind of think of them as net load, if you will, which is reducing peaks, which goes back to the 50 to 100 hours and can you do that across time. So we think that there's a good match up there.

I will also tell you that because of the technology that Eos uses, it has a distinct advantage in that the fire protection needed is not the same as lithium-ion or other batteries. And so because of the technology doesn't have the same components and doesn't need that. That allows them from a -- and I think Cole can probably expand on this. But as we think about load and we talk about co-location, but I want to talk about just like co-location relative to the grid. Being able to have batteries next to data centers or next to a nuclear unit or next to one of our other generating units you don't want to have to worry about fires there and that associated. So it has that incremental advantage as well as the advantage of being able to match up on a time duration at different intervals. Obviously, efficiencies go down depending upon what you choose, et cetera. But those are the two benefits I see. And then the ability -- again, that goes back to co-location. I don't know if there's anything you want to add there, Cole?

No. I think it's an interesting technology and opportunity for us that we're exploring and better understanding the value that the battery solution may provide to data centers is something that is certainly core to why we want to kind of proceed with some kind of partnership like this. And so we're exploring it and having discussions around what that value stream is. And as these solutions present themselves, I'm sure we'll be kind of talking more about that.

Got it. And I just wanted to pick up, I guess, with the forward curve moving up a bit here as you touched on before. I'm just wondering granted, at recent moves you talked about here. Has that started to, I guess, filter into conversations on long-term contracts, just these upward moves, has that changed anything in conversations?

Power is not getting any cheaper. So I think it informs things. But when we think about long-term contracts, I'm looking at Cole here to jump in, we're thinking about things over the long term. And we like matching that load over the long term, as Cole said, in the gigawatt size in the large size over time. And when you think about long-term contracts, the markets have gone up, they've gone down, et cetera. We like the ability to take our assets, contract them, provide the appropriate level of return, reduce risk. Therefore, we would contend would generate effectively the ability to have a lower free cash flow yield because it's lower risk and higher valuation. And that's the talent flywheel that we're trying to implement.

Yes. I think as energy prices go up, it informs us on the terms, not just the pricing but the overall terms, as Mac is talking about of any future deals. And also, I'm sure, it forms the counterparties on what their views are and what term and pricing and risk and so forth. So Look, I mean, I think, as Mac said, we're going to do deals on our time line. And I think as power prices are continuing to push higher, it continues to give us conviction that we're going to look at the right deals in size and pricing in all the terms. And there's no need to go rush to contract, but obviously do them prudently at the right time.

And -- but I also think I would just add that you can't see -- there's no visible curve for 10 years, whether it's capacity or energy. And so we're sitting back thinking about what is appropriate returns, how do we think about counterparty? How do we think about guest, how do we think about backstopping and what the portfolio is, I manage all those different things get into that. And then what does that do to our creditability that Terry was talking about earlier and managing our leverage ratio. There was a question earlier about could you do different things with your balance sheet as you grow into having a higher contracted portfolio over time. You could certainly do different things, but we're just not there yet. But we think that this is an overall -- we've got to embed the right risk and the right premium for taking these longer-term views and the same thing as Cole was saying, and then it just takes two to tango.

And our next question will come from Steve Fleishman with Wolfe Research.

Maybe following Angie's initial question. Just in terms of the customer interest, how much is kind of the desire for additionality in any way impacting demand for more contracts for you? And do you see likely -- I mean, the Sus deal had potentially adding SMRs? And do you see some type of new investment likely being part of any deals that you do?

Steve, it's Mac. The team can jump in. Look, I definitely think that the so-called additionality, I'm not even sure that there's a standardized definition of that, but incremental megawatts to serve incremental load is kind of how I'm going to frame it. But I do think that over time, we're not out of energy right now. We're actually not capacity short. Markets are clearing at the administrative caps and the things, and we've cleared closer to the real caps that's left uncapped. But we're starting to get to the point and these are in the out years of needing megawatts, but there's also the ramp of data centers over time. And the two of those things, at some point, you're going to have to say, all right, how do we make sure and it's the so-called BYOP or BYOG, bring your own power, bring your own generation, et cetera. Those things are going to intersect later in the decade. And we're supportive of thinking about how do we solve that in a market construct and our contracting strategies, et cetera. It just hasn't ripened yet. I think that there's just been a lot of talk about it. I think there's a lot of people out there with a lot of solutions trying to bring offering power without saying we can do certain things, but there's no offtakes associated with those yet. That just hasn't ripened I don't think, and Cole can jump in here, but I don't think the demand or the desire for -- quickly to connect power or to have power towards the end of the decade is changing. It's just how do you solve that, and we're actively thinking about that.

Yes. And I would just say that the data center hyperscalers and everyone in the data center build-out space is really thinking about the problem in multiple, I guess, lanes. That Mac talked about before, different phases of power, and there's like the near, medium and longer term. I think the medium and long term, yes, hyperscalers are looking at how do they add megawatts to the grid as they ramp up. But they're also very, very focused on the near term, 2026, 2027, 2028. And so we see them still being very active in getting existing power and connecting to existing power. And that's really, as I said earlier, where we're focused on. And then if there's an ability to also participate in a longer-term solution as we've talked about in previous settings around SMRs or newbuilds, as Terry was talking about earlier, having those conversations and exploring that as well. But to me, it's -- they're so very focused now on getting power as you saw, I'm sure, hyperscaler CEO is talking about doubling their capacity by 2027 from 2025, right? And the only way to do that [indiscernible] existing power on the grid. And so they're -- from, all of our conversations, very interested still.

Okay. And then PPL also reported today, and I mean their high probability gigawatts of data center demand by the end of the decade, I mean it's like a double or triple of their current peak. And so I'm curious, just maybe Chris could talk to. Just are you seeing all the zonal discounts that you historically had in there kind of start going away yet in the forward curve? Does it at some point this actually kind of flip maybe even to a premium or just I'm curious what you're seeing there.

Yes. Steve, it's Mac. I'll take this. We lost Chris, unfortunately, do some conflicts here. But that, Steve, is something that is the next evolution of what we think is going to happen. But if you think about ramp rates and et cetera, and where generation is on the grid today and the basis differential, I think what you're asking, if I'm understanding correctly, is like PPL zone versus West Hub because PPL trades at a discount. Well, over time, as you build load there, you start to sort of soak up the incremental megawatts there and you move the East West interface West. And so therefore, you get closer to the West Hub. And so therefore, it starts to close that differential. But that's probably not a necessarily near-term phenomenon until these things get ramped up. So if you think about our Susquehanna in [ '19/'20 ], that ramps, full ramp is 2031, '32. So we're 4 or 5 years from that. So there's no -- Steve, there's no way for us to go out and test the market, but I don't know that we would -- I think we would be in 2032, thinking that PPL should be a lot flatter to West Hub...

And Steve, maybe just to add to Mac's comments, that basis market historically term, the term will react if there's large transmission projects, and there's transmission projects that are being executed and built upon. But excluding that or excluding those projects that are out there and getting those completed, it does have a bit more of a recency bias of, okay, how is it showing up in the real time, how is that basis showing up as load comes in. And so as we see more of that as the load comes into the PPL zone, I think that will inform the term market a little bit more, and then you'll start seeing a change with respect to that. But it's a little bit more of a nuanced market and the fact that it trades off of fundamentals around transmission and then just what sort of a more recency bias, if you will.

And then just one last quick one. The Martins Creek issue this quarter and you mentioned you're just running these peakers harder. Just are you looking at needing to ramp up capital spending at all to do anything to the those units for next year?

Yes, and it was included in what we put into our guidance. And -- but we're also thinking about Steve, it's sort of this thing you've been doing this and covering it, I guess as long as I've been doing it too. But like the -- as power markets come off, you have to start to curtail capital plans and think about the way that the plant gets dispatched. When you go in the reverse direction, you have to do the same thing. We put more capital into '25. We're putting more into '26 but what we're also noticing, and I mentioned this is not only do we -- are we getting extended run times and extended dispatch, if you will, of the peakers, Montour, in particular, Martins Creek, et cetera. that Martins Creek was less than 4% type capacity factor for a couple of years ago and now is running teens. And so -- but what's going on is in the past, we always had the ability to take the unit offline, okay? and had an extended period offline by which we could do maintenance. Now we're seeing that, okay, it's running, it's running for extended duration periods of time, and we don't have to do that. So it's not just the capital that goes in. It's actually how you think about maintenance and maintaining the units during that. That is definitely true. That is not the issue at Martins Creek. We just had a particular ID fan that had some bearing sets that took a while to get but we just didn't have that downtime by which to recapture, get that ID fan done and get it back in there. And it was just -- it was something. We're always fairly -- not fairly I think we're transparent with respect to giving you some color as to what happened and that's what happened. But we're excited about, quite frankly. I mean, if you look at it overall, the idea, and it's something that we've been talking about, and it goes back to why are we seeing forward tick up and why didn't we see them before? I don't know. But why are we seeing them now? It's because we're going further up on the dispatch curve during most -- every hour is now getting further and further up on the dispatch curve, which means you're going to be up with higher heat rate units. And so we're seeing that manifest itself across our fleet.

And our next question will come from Nicholas Campanella with Barclays.

Thanks for getting me on. So just on the commentary about Amazon doubling their overall capacity by '27. That's their number. But just can you talk to the AWS ramp Obviously, like that data point is supportive, but just any indication that they could be ramping power draw sooner than expected. Any data points on the ground level that you can kind of point to?

Yes. So Nick, maybe just to touch on that and then have Cole chime in on this as well. As Mac mentioned in the opening remarks, obviously, the data center is powered, it's energized. They're taking electrons and moving forward. The construction of the site continues in earnest significant amount of work done over the past several months, and they continue to push forward. Obviously, we don't want to get into too much detail around what their ramp is like and what they're doing from a confidentiality standpoint. But we're fairly comfortable with how they're pushing forward. Cole, you want to add anything?

Yes. I would just kind of reiterate what we've talked about before and continued progress. There's multiple buildings being built on top of the building that we sold to them additional ground prep -- again, anyone that drives by can see all the activity. And just one point to remind folks that we talked about back in June is we transferred the old Nautilus buildings that can take up to 200 megawatts over to Amazon. Now what they do with that, that's, again, for them to speak to. But we're fairly we see a lot of signs that acceleration is going to continue and that will accelerate faster than the ramps we put out in June.

Awesome. And then just one cleanup question just with the acquisition. I just heard -- I hear you in prepared, you're working constructively with the DOJ, could target closing sooner than 1Q '26 now. But '26 guidance assumes Jan 1 closed. So just talk to the conservatism in that '26 number at this point and your ability to just kind of maintain that range if that gets pushed out.

Yes. So Look, there's a lot of moving pieces to a guidance range, right? Forwards are up. We've got -- that's within the range of what we provide. We've got potential for -- as we stated, this might slip into the Q1. We're still hopeful that we're working hard to get it done this year, and we'll see what happens. And as we get closer to that time frame, we'll provide updates on that, but we're just -- we're not at a point that suggests to us that we should change that range right now. So as we get closer there, we'll give you an update.

And then our next question will come from David Arcaro with Morgan Stanley.

I was just curious maybe where are we in terms of economics for battery storage in PJM? I just thinking about that Eos partnership. And wondering if you could characterize how you're seeing that opportunity across your fleet, if you were to add battery storage.

Yes. We're not quite there, David, and sorry for using your name, Nick. Look, I think that we're not quite there and ready to get into that. I think we're in the early days. But as we look at the economics and look at the capital buildings, the cost of batteries come down and their ability to basically think about -- and it goes back to, I'll call it, load balancing for all practical purposes, you could think of it as supply balancing, which is we've got a lot of incremental megawatts that can be run most of the hours except the peak. So why not use those to charge batteries and then discharge them during the peak. And we think that, that can become a more economic piece over time, obviously, batteries need to continue to evolve, bring their capital costs down and then bring their optimization methodologies into play. And we think that works well when you think about how do you take a load that is, for the most part, a baseload. And I'm talking about data centers and then think about how do you clip some of the peaks of that and then all you're doing is using all the rest of the hours other than the 50 to 100. So we think it's going to show some promise, but we're in the early days of getting through the economic model. So it's just -- David, it's just too soon.

And the next question will come from Julien Dumoulin-Smith with Jefferies.

Look, let me clean up a couple of things here. One on buybacks. I noticed there wasn't much activity there this quarter. Do you want to speak to that real quickly and perhaps more relevant again, you're going to last here, Mac. But [ MMPI ], anything to talk to on that front? Is there any twist there that's relevant?

Yes. So Julien, with respect to buybacks, obviously, we were fairly active during the quarter with the Freedom & Guernsey acquisition and then also getting ready for earnings and financing. So that really drove sort of the buybacks with respect to Q3, working hard to get those acquisitions done and announced and out there and then working on our Investor Day materials as well. So that was a big driver of where we stood on buybacks in Q3.

Okay. Sorry, you guys did do buybacks on Q3? That's what I was confused by.

No, we did not.

We did not. And that's -- you can see that we didn't disclose it, obviously, during -- that being said, there's a lot going on during the quarter. And whether that's [ MMPI ] or getting ready for financing and blackout periods with the results and then closing freedom -- [ signing ] Freedom and Guernsey. Yes, it's just -- you can call that -- we'll talk about [ MMPI ] in rears, maybe. And that would -- that precluded had a large preclusion across the quarter.

Absolutely. A couple of cleanup items. Is there any chance that you accelerate this Sus deal with AWS and then clean up the remainder of the uncontracted Sus here? I mean just want to come back to that concept. I mean you talked about the ramp-up of [ 31.32. ] everyone's grappling to get this stuff faster. In theory, this is a question of execution, right, to get it done faster with you guys. Can you speak to that a little bit on the ability to ramp it up?

So look, anecdotally, we speak about desires with respect to Amazon. With respect to the contract, we actually want to maintain confidentiality with our counterparty there. We can speak anecdotally about them speeding things up. We said it's a lever that can be pulled. We stand ready to deliver 19, 20 megawatts whenever they want to take it. That was the obligation that we said. And if you just think about where people are going and speed to market when you have a site that you're building at and you have the megawatts that are ready to go, that -- there's nothing more than speed to market than that, and that's about all we can talk about because we're not going to speak for Amazon, You'd have to talk to them. but we're excited about the possibility for them to ramp up. And if they did, we're willing and able to serve.

All right. No, fair enough. I appreciate that. And then lastly, just would you be in a position to get another gas contract here prior to the close of these acquisitions? Or would you tie those two together to the extent of what you get that the acquisition gets kicked out in 1Q?

Look, I think -- what, you've written about this? Frankly. So it's a good thing to have a discussion. I think that when we thought about this and let's step back before Freedom and Guernsey, before we had the announcement of Freedom Guernsey, we were already talking about working on the next deal. And that was even before we revamped the [ '19/'20 ] in front of the meter, and that's just a continuation of the process. And that's why when we looked at it, we were talking about we have Montour, we have Martins Creek, we still have 300 megawatts available there. I don't see the intersection of those two as a reality. Obviously, what happens with the Freedom & Guernsey acquisition is if we do a deal, we would eat into that amount of megawatts that we currently have, and therefore, Freedom and Guernsey reloads the bank. So that's how we view it.

That concludes our allotted time for questions. I would now like to turn the call back over to Mac for closing remarks.

Yes. So thank you, Michelle, and thanks, everyone, for joining us and for the Q&A period. We tried to spend some extra time, and I know there's a couple of people still in the queue that we didn't get to. We're happy to take your questions and look forward to seeing everybody in the balance of this year and early next year with a busy schedule on the road at conferences, and I appreciate everybody's interest in Talen, and we look forward to continuing to execute. Have a great day.

This concludes today's conference call. Thank you for participating. You may now disconnect.