Constellation Energy Corporation — 2022 Form 10-K
Reporting period: Fiscal year ended December 31, 2022; comparisons are primarily with 2021. The filing covers Constellation Energy Corporation and its operating subsidiary, Constellation Energy Generation, LLC. The February 1, 2022 separation from Exelon makes 2022 the company’s first year as an independent public company; historical and current periods may not be directly comparable.
Business context
Constellation operates a large competitive energy supply and generation business, serving approximately 2 million customers. At year-end, owned generation capacity was 32,355 MW, with total owned and contracted resources of 36,238 MW. Its fleet is predominantly carbon-free, led by nuclear generation. Nuclear capacity factor was 94.8% in 2022, versus 94.5% in 2021.
Financial performance and liquidity
| Metric | 2022 | 2021 |
|---|---|---|
| Operating revenue | $24.440 billion | $19.649 billion |
| Operating income (loss) | $495 million | $(346) million |
| Net loss attributable to common shareholders | $(160) million | $(205) million |
| Adjusted EBITDA (non-GAAP) | $2.667 billion | $2.185 billion |
| Operating cash flow | $(2.353) billion | $(1.338) billion |
| Capital expenditures | $1.689 billion | $1.329 billion |
- Operating margin was approximately 2.0%; net margin was approximately negative 0.7%. Adjusted EBITDA was higher, but is a non-GAAP measure and should be considered alongside GAAP results.
- Revenue increased 24.4%, driven largely by higher energy prices and natural gas revenue. Purchased power and fuel expense rose $5.299 billion, partly offsetting revenue growth. Revenue also included $1.188 billion of mark-to-market losses, compared with $633 million of losses in 2021.
- Cash from operations declined, with working-capital and other asset/liability changes a major use of cash; the filing also identifies collateral postings. Investing cash flow was positive $3.104 billion, including $4.964 billion of net collections related to the receivables financing facility. Financing cash flow was negative $799 million.
- At year-end, cash and cash equivalents were $422 million ($528 million including restricted cash). Debt comprised approximately $1.159 billion of short-term borrowings, $143 million of current long-term debt, and $4.466 billion of long-term debt. The company reported $5.8 billion of aggregate bank commitments and $2.2 billion of available capacity and cash on hand in its liquidity discussion. It was in compliance with debt covenants.
- Nuclear decommissioning ARO was $12.5 billion; nuclear decommissioning trust funds totaled approximately $14.1 billion on the balance sheet. These funds are restricted for decommissioning purposes.
Material changes and notable items
- Revenue rose substantially, but RNF (revenue net of purchased power and fuel expense), a non-GAAP operating measure, fell to $6.978 billion from $7.486 billion. Higher energy and gas prices, increased purchase costs, and hedge settlements contributed to the different trends.
- Depreciation and amortization fell to $1.091 billion from $3.003 billion, largely because 2021 included accelerated depreciation tied to the previously announced early retirement of Byron and Dresden; the retirement decision was reversed in 2021.
- Other, net shifted from $795 million of income to $786 million of expense, primarily reflecting NDT investment losses and related items. The 2022 ARO update reduced the recorded obligation by $648 million and reduced operating and maintenance expense by $226 million.
- The company recorded $140 million of separation costs in 2022 and expects approximately $80 million of additional separation costs in 2023. It received a $1.75 billion cash contribution from Exelon in January 2022.
- For winter storm Elliott in December 2022, the company recorded an estimated $109 million pre-tax net benefit from PJM performance bonuses, subject to revision as PJM completes its processes.
Outlook, risks and contingencies
- Management estimates capital expenditures of approximately $2.6 billion in 2023 and $5.0 billion for 2024–2025. The plan includes $1.5 billion of growth investment over three years, including nuclear uprates, wind repowering, and hydrogen initiatives.
- Management announced a 2023 quarterly dividend of $0.2820 per share, double the 2022 quarterly rate, with a stated target of 10% annual dividend growth. The board also authorized a $1.0 billion share repurchase program.
- Management expects the Inflation Reduction Act’s nuclear production tax credit, available from 2024 through 2032 subject to phase-out, to support continued nuclear operations. The company targets a 100% carbon-free owned generation mix by 2040, subject to policy support and technology advances.
- Key exposures include power and fuel price volatility, unhedged generation, weather and outages, nuclear safety and decommissioning costs, regulatory and market-design changes, environmental requirements, counterparty and credit risk, and cyber or physical security events. Russia-related disruption could affect nuclear fuel supply; the company increased fuel inventory and said deliveries had not been affected as of the filing.
- A downgrade below investment grade could trigger approximately $3.3 billion of additional collateral requirements. Conowingo’s 50-year license was vacated by a court and remanded; Peach Bottom’s extended license dates remained subject to NRC review. Litigation related to the 2021 Texas winter storm remained unresolved, with no loss contingency recorded because losses were not then considered probable or reasonably estimable.
- The company disclosed environmental remediation and other contingencies, including an accrued $119 million for environmental liabilities and asbestos-related liabilities of approximately $95 million. The filing states that additional costs in some matters could be material.
Investor verification priorities
- Reconcile the 2022 operating cash outflow with working-capital movements, collateral, and receivables-facility activity; assess the sustainability of cash generation apart from these timing effects.
- Review the quality and timing of mark-to-market results, hedge settlements, and the $109 million preliminary PJM storm-performance benefit.
- Confirm capital-spending, growth-return, dividend-growth, and buyback assumptions against liquidity, credit targets, and actual execution.
- Track nuclear fuel sourcing and inventory coverage, state and federal support programs, and NRC/FERC outcomes affecting plant operating lives and economics.
- Assess sensitivity of the $12.5 billion nuclear decommissioning obligation and trust funds to discount rates, inflation, investment returns, retirement dates, and regulatory requirements.
- Review the latest developments in Texas storm litigation, Conowingo licensing, environmental remediation, and other contingencies; the filing does not provide a clear ultimate loss value for several matters.