WEBVTT - Constellation Energy CEO Joe Dominguez Talks Tariffs Impact on Energy

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<v Speaker 1>Bloomberg Audio Studios, podcasts, radio news, Joe.

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<v Speaker 2>The Buzzword today, recession, slow and growth, other issues. Are

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<v Speaker 2>you noticing any of that A constellation?

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<v Speaker 1>No, not yet, certainly not in powered demand.

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<v Speaker 2>So what kind of power demand are you seeing? There's

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<v Speaker 2>been a lot of change in terms of deep seek.

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<v Speaker 2>There's been questions about how long the CAPEX cycle can

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<v Speaker 2>last for hyperscalers.

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<v Speaker 3>What are you seeing?

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<v Speaker 1>We don't see an end in sight right now. We're

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<v Speaker 1>starting to see it get rationalized. And by that I

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<v Speaker 1>mean we're not seeing the same request for data centers

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<v Speaker 1>popping up in five or six utilities. So I think

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<v Speaker 1>the hyperscalers are beginning to figure out where they want

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<v Speaker 1>to go. And it's not the frenzy of activity, but

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<v Speaker 1>in terms of the deal pace, it continues the same

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<v Speaker 1>way we saw it last year.

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<v Speaker 2>And how are the deals like? How is it to

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<v Speaker 2>get them done?

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<v Speaker 3>Is it hard? Is it coming up with a structure

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<v Speaker 3>the money? Like? What is it?

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<v Speaker 1>It's not hard, but they're complicated because they're multi billion

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<v Speaker 1>dollar deals, right, So we're talking about twenty year deals

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<v Speaker 1>for power that sometimes could cost five or ten billion dollars.

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<v Speaker 1>So like any commercial deal of that scale, it's going

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<v Speaker 1>to take a long time to negotiate, and each time

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<v Speaker 1>you need to do that with a new party you

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<v Speaker 1>have to go through all the terms and conditions again.

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<v Speaker 1>But I think we're going to get some some deals

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<v Speaker 1>done this year.

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<v Speaker 2>Can you give me some hints, like in maybe areas,

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<v Speaker 2>what kind of deals, like what kind of power?

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<v Speaker 1>Well, I think nuclear continues to be very attractive for

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<v Speaker 1>the hyperscalers because it operates twenty four to seven, it's cleaned,

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<v Speaker 1>so it meets their environmental goals, and it matches up

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<v Speaker 1>really well from a reliability standpoint.

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<v Speaker 3>So let's go to the money then for a second.

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<v Speaker 2>So coming up with the deals is very interesting, particularly

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<v Speaker 2>the one you do with Microsoft to restart three Mile Island.

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<v Speaker 3>Are your costs going up right now?

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<v Speaker 1>A little bit? But it's really labor inflation that we

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<v Speaker 1>mostly see. Now. Remember we have existing nuclear plants that

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<v Speaker 1>are already built, so a lot of the cost of

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<v Speaker 1>the raw materials that you're saying, you know, potentially impacted

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<v Speaker 1>by arafs in the long run, but an escalation through inflation.

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<v Speaker 1>We're not seeing much of that tiny bid on uranium pricing.

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<v Speaker 1>But most of what we're seeing is labor contracting, So are.

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<v Speaker 2>You planning for a tariff increase that we should be

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<v Speaker 2>seeing on steel and aluminum on Wednesday?

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<v Speaker 3>Right? You would have no, that would have limited impact.

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<v Speaker 1>How do you see that pretty limited impact on us?

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<v Speaker 1>It would impact replacement parts and that sort of thing,

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<v Speaker 1>But it's going to be a deminimous impact on our budget.

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<v Speaker 2>And if you wind up seeing an increase, right even

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<v Speaker 2>in labor does how does that change in your contracts?

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<v Speaker 2>Like you've already said it, you have to go back

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<v Speaker 2>to them and say, hey, listen, we got to renegotiate

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<v Speaker 2>my costs are going on.

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<v Speaker 1>No, there's no reopeners up or down for those sorts

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<v Speaker 1>of inflation.

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<v Speaker 3>So you're really taking on that risk.

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<v Speaker 1>Sure, yeah, yeah, we're taking it on for over twenty

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<v Speaker 1>year period. And that's the importance of being able to

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<v Speaker 1>do this with nuclear, Right, we know exactly what our

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<v Speaker 1>cost structure is going to be within a range for

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<v Speaker 1>ten and twenty years. Harder to do with our natural

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<v Speaker 1>gas assets, where we don't know what the price of

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<v Speaker 1>now gas is going to be ten years out, or

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<v Speaker 1>whether we're going to have a carbon tax, or what

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<v Speaker 1>the changes in environmental regulations are.

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<v Speaker 3>Going to be So how do you manage that risk?

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<v Speaker 1>Well, I think what's really difficult to do that. In

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<v Speaker 1>the case of natural gas, I think there what you're

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<v Speaker 1>doing is something that looks more like an index product

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<v Speaker 1>that is indexed either inflation or natural gas prices.

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<v Speaker 2>When you talk about the different parts of your business,

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<v Speaker 2>how much of the capex that you're spending is going

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<v Speaker 2>to new stuff, beefing up old stuff, or just replacing

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<v Speaker 2>and making sure everything stays on track.

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<v Speaker 1>Yeah, So for us alex we face a critical decision

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<v Speaker 1>as to whether to relicnse the nuclear plants for another

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<v Speaker 1>twenty years, and we're facing that across the fleet. So

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<v Speaker 1>when you say new, if we don't do this, it's

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<v Speaker 1>going to be retired, very much like Three Mile Island

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<v Speaker 1>was retired. So the distinction between keeping existing open and

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<v Speaker 1>something that's truly new is immaterial. Right. If it's gone,

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<v Speaker 1>it's gone. It's the same as if it were never built.

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<v Speaker 1>So we are investing all of our moneies to secure

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<v Speaker 1>that fleet for the future, and we're also doing uprates

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<v Speaker 1>and restarts and other things like that. In terms of

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<v Speaker 1>a percentage to your question, I would say ninety percent

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<v Speaker 1>of our spend is in the existing assets and getting

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<v Speaker 1>them ready to run for decades to come.

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<v Speaker 2>So when we talk about power demand booming and increasing

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<v Speaker 2>by multiple digits, right, I mean ten percent would be huge.

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<v Speaker 2>How do you play that? Like, if it's not new,

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<v Speaker 2>is it just expanding?

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<v Speaker 1>While it is expanding, a lot of our clients are

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<v Speaker 1>interesting interested in operating that's increasing the output of existing

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<v Speaker 1>nuclear plants, and we're doing that in a number of

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<v Speaker 1>different regions. Obviously, the restart is more limited. You had

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<v Speaker 1>one plant there that you could turn on, and I

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<v Speaker 1>think there might be another in the nation. And then

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<v Speaker 1>the rest of that is going to be probably spent

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<v Speaker 1>on renewables, storage and natural gas for the time being,

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<v Speaker 1>and then the fullness of.

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<v Speaker 2>Time new nuclear em and a for that I know Calpine,

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<v Speaker 2>So that really beefs up your natural gas. Nuclear is

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<v Speaker 2>now fifty percent of your portfolio versus say seventy.

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<v Speaker 3>That was a big shift. What else is in your

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<v Speaker 3>pipeline for.

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<v Speaker 1>That, Well, we've got a lot on our plate. We've

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<v Speaker 1>got a lot of food d Yeah, and so this

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<v Speaker 1>year we're going to spend making sure that we're ready

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<v Speaker 1>to integrate Calpine and prepared for regulatory approvals at the

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<v Speaker 1>back end of the year. But as you said, it's

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<v Speaker 1>a big deal. And I think what we've indicated as

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<v Speaker 1>a company is M and A is a big part

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<v Speaker 1>of our strategy.

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<v Speaker 2>Yes, m and A in beefing up nuclear, natural gas,

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<v Speaker 2>or you want to diversity, all of the.

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<v Speaker 1>Above, all of the above. I think storage is going

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<v Speaker 1>to increasingly be a part of the story, so we'll

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<v Speaker 1>look at those opportunities as well.

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<v Speaker 2>Everyone now wants to get into power. It is the

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<v Speaker 2>coolest thing right now in the market. Whether you're looking

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<v Speaker 2>integrated utilities, regulated utilities, even energy companies.

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<v Speaker 3>Are you seeing more competition.

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<v Speaker 1>I think there's a lot of interest from all kinds

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<v Speaker 1>of places. There's a lot of foreign interest in investing

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<v Speaker 1>in the US. I think what people are trying to

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<v Speaker 1>figure out is whether they too can secure longer term contracts.

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<v Speaker 1>I don't see people building spec power plants hoping, you know,

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<v Speaker 1>the demand will come. So I think there's going to

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<v Speaker 1>be a lot of interest there, but it's largely going

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<v Speaker 1>to be fossil. It'll continue to be renewables, but it

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<v Speaker 1>always has been renewables. And then we'll see whether they

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<v Speaker 1>could get deals done. You know, the hyperscaler is going

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<v Speaker 1>to have to make some tough decisions between their own

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<v Speaker 1>climate goals on the one hand, and their growth needs.

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<v Speaker 1>We think there are other opportunities to introduce that demand

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<v Speaker 1>without necessarily building more emitting generation. And we think a

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<v Speaker 1>big part of the story is curtailment demand what we

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<v Speaker 1>call demand response in the business. There's a new study

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<v Speaker 1>out of Duke that's been making the rounds over the

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<v Speaker 1>last couple two three weeks that indicates we could build

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<v Speaker 1>seventy one gigawatts of data centers in the US by

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<v Speaker 1>just getting curtailment of about zero point two five of

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<v Speaker 1>one percent. So it's it's really a peaky system where

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<v Speaker 1>we have problems during certain hours, but overwhelmingly I'll give

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<v Speaker 1>you a statistic, eighty percent of the time we use

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<v Speaker 1>less than two thirds of the power in the country.

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<v Speaker 3>Wow. Okay, So efficiency it is key. We started with macro,

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<v Speaker 3>so I want to end with macro as well.

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<v Speaker 2>If we wind up getting inflation, if stagflation becomes an issue,

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<v Speaker 2>if rates stay higher for longer, right, if renewables get

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<v Speaker 2>more in the chopping block because returns are dented because

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<v Speaker 2>of those higher rates, how does that impact how do

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<v Speaker 2>you think about your business?

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<v Speaker 3>Well?

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<v Speaker 1>I think there's a lot of push pull in all

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<v Speaker 1>of that. What I think will be most meaningfully impacted

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<v Speaker 1>is new generation that would otherwise come online. So I

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<v Speaker 1>talked a moment ago about the need for long term

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<v Speaker 1>contract and to support the new gen that people are

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<v Speaker 1>talking about. Everybody. There's a frenzy of activity, as you indicated,

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<v Speaker 1>around that, but that only happens if we have growth,

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<v Speaker 1>So that's the first thing to fall off.