Operator
Ladies and gentlemen, thank you for standing by. Welcome to the Tallinn Energy First Quarter Earnings Call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you'll need to press star 11 on your telephone. You'll then hear an automated message advising your hand is raised. To withdraw your question, please press star 1-1 again. 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.
Today, we are making some forward-looking statements based on current expectations and assumptions. Both 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.
Thank you, Sergio, and good afternoon, everyone. We appreciate your interest and talent, 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 startup 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 talent 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 their cornerstone acquisition, which positions us to close as quickly as possible once we receive all regulatory approvals. COLA 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 replaced some higher cost debt. The carry 27 and 28 outlooks include the cornerstone assets as well as other updates, including higher current forward mark-to-market values from 331 of this year, improved financing costs. 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 talent 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 and new build 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 and for 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 and we still do expect rationalization across projects in 2026. All that said, we are building a pipeline of real opportunities that can win. Thank you, Mac, and good afternoon, everyone.
Financial and operating results 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 talent has achieved through acquisitions and fundamental growth in the Our fleet achieved strong levels of safety and reliability during the quarter, which is even more noteworthy given the frigid temperatures and icy conditions that were present in late January and early February. We are currently in the middle of our spring outage season across the field. The fueling outage at 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 synced back to the grid yesterday. Towns have continued to demonstrate strong operational and safety performance. In efforts, none of this is possible to welcome the employees from Freedom & Guernsey who were onboarded to town in April and congratulate them on their strong safety records. Safety remains our top priority across the fleet and our team works safely during a busy Our recordable incident rate was 0.37, which continues to be below industry average. Our fleet ran well and we generated approximately 16 terawatt hours of electricity, achieving a 55% fleet-wide capacity factor as our intermediate and peaking assets continue the trend of higher run times to see tightening markets driven by increased demand. In Q1, we saw approximately 3% of incremental deliveries on a weather-adjusted basis in PJM 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 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. Spark spreads, we have seen a continued appreciation in the forward curves for the remainder of 2026 through 2028. Spark spreads across PJM, 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. Price action that is resulting in widening term basis between West Hub and PPL zone is based on recency bias due to transmission work impacting the zone and not fundamental factors. This basis will tighten as the transmission network and load evolve. 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. We're 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-in. Slide six, we are working diligently to close the Cornerstone acquisition that we announced earlier this year, which will further diversify Talon's generation portfolio and enhance our large-load contracting operation. In updates 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. 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. On the land development and contract and growth options Mack mentioned earlier. In the near term, we have several 1 plus gigawatt opportunities for long-term PPAs at our existing sites as well as other sites and are advancing potential opportunities across the remainder of our footprint. The 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, 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 site. Additionally, we have the ability at several of these sites to install new generations of 500 megawatts to 1 gigawatt. In 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. 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 will reiterate today, development of new generation will need to be done either through long-term offtake agreement or through the PJM-RBP with a focus on financial discipline related to investment returns. New generation development is capital light with no material capital required during the initial stage. Development advances, spending will be tied to customer contracts and underwriting, and we will likely utilize project financing structures related to these projects. With that, let me turn it over to Cole to cover our financial results.
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 currency acquisitions. Moving to slide 9, we are reaffirming the previously announced 2026 guidance ranges. We had a strong first quarter, though it's not our practice to make adjustments this early in the year. Our adjusted EBITDA range is $1.75 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 three and a half times. As of March 31st, our forecasted 2026 net leverage ratio was 3.1 times. I will note this excludes any impacts 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 three and a half times net leverage by year end 20 we recently secured attractive acquisition financing for the cornerstone assets which also provided us also provided us an opportunity to optimize the balance sheet we raised four billion dollars of senior unsecured notes in a private placement across five and seven year tranches at a blended rate just above six and a quarter percent de-risking 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% 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 MMPI 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 asset sooner and benefit more from the peak summer period. We estimate the value of one 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 realize 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 standalone letter of credit facility to $1.5 billion. We are also extending the LTF maturity through December 2029. These credit facility changes go into effect upon closing the Cornerstone transaction. Slide 12, we show a preliminary update to our 2027 and 2028 outlook that includes the cornerstone assets along with impacts across the business since last September's investor day, including spark spread expansion through March 31st 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 the creative M&A, which we demonstrated with the Freedom in Guernsey 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 SPARC 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 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 a megawatt hour impact across 30 plus terawatt hours in PPL zone presents a compelling upside opportunity, particularly as low 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 talent flywheel. Turning to slide 13, we show the overall contractive 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 a AA credit counterparty will be our largest revenue stream, de-risking long-term exposure to PJM capacity in 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 one 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.
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
Thank you. At this time, we'll conduct the question and answer session. As a reminder, to ask a question, you'll need to press star 11 on your telephone and wait for your name to be announced. To withdraw your question, please press star 11 again. Please limit yourself to one question and one follow-up. Please stand by while we compile our Q&A roster. Your first question comes to the line of Char-Pereza with Wells Fargo. Your line is now open.
Hi, good afternoon, team. It's actually Constantine here for Char. 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 one-to-one ratio, or how flexible would you anticipate that to be going forward, especially as the reserve auction is trying to kind of back solve this capacity issue?
I've 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, and how to incentivize is 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 three to five 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, a percentage of new build be part of the solution.
Hey, Constantine, 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, Cole, Terry, and I, and the rest of the team here for a number of years now, is that that's really a 50-hour problem. And so we're looking at opportunities to solve that. And as Cole said, it doesn't necessarily need to be a one-to-one 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, you know, and we can get into this, and Terry mentioned it, like we have a mix of 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 one-to-one to where if you had 1,000 megawatt PPA, you'd 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 some of the site development that you're looking for, right?
What is likely to happen in the RBP, uprates you're going to see CTs converted to CCGTs, which is effectively an up rate 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 events for the RVP, it is a pay-as-bid affordability 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 solve the reserve margin.
Yeah, and Constantine, to add to Mac's comments, when you take a look at our existing fleet-wide capacity factor, outside of those 50 hours a year where you have, you know, real constraint and real capacity needs, you can see that there's excess generation on the grid that can support more megawatts outside of those peak periods, right? And so, you know, if you go back to the side that we presented and, you know, you see this slow, steady creep up in demand, there's still excess capacity. So we think that's a reason why you don't need to have this one-for-one type, you know, construct in the grand scheme of things. We're really solvent for the peak hours of the day in very tight periods of time, which, as Max said, it's a capacity issue, not an overall energy issue.
Excellent. And maybe just quickly following up on kind of a regulatory issue here, with the PJM co-location 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 while rules are still being finalized? Is there any thresholds kind of to look out for that maybe you're looking out for?
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, you know, 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, you know, 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, you know, we think that, you know, hyperscalers and others will, you know, certainly understand that they need to incentivize and bring new generation in five-plus years, but, you know, we don't see any threshold that they're working towards. Yeah.
And, Constantine, maybe to add just one more, a little bit more color to Cole's comments, you know, the existing development and construction that we see at data center sites all across PA and obviously using the site near our Susquehanna facility is a great example, you know, that activity is continued at a steady pace. They're moving forward, getting, you know, data halls filled, getting things electrified. So we don't see a slowdown in that. 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 their 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 tangible infrastructure.
Excellent. Sounds good. Thank you. Thank you for taking the time.
Operator
Thank you. Your next question comes to the line of Renee Singh with Bank of America. Your line is now over.
Hi, guys. I just had a question first on, you know, the power prices. I know you said that PPL is trading a little bit different than PGM West just because of the recency bias. When do you think, you know, we might see a correction in that? And is there, like, a specific catalyst to watch for?
Yeah, Renee, let me start on this one, and then I'll hand it over to Chris, who's got transmission work in and around PPL zone 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 to form, we think that that obviously would trend and come back in line. Chris, you want to add anything?
Yeah, you know, given the sort of the auction process itself has some illiquidity and timing issues and so reflective in those marks is those auction clears and those disconnect from 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 yeah and really 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 that shows the the basis west of 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 months as Terry and Chris have noted that there's reasons why but you know from a just a mark perspective we stay true to what's visible and that's why we're calling it an upside opportunity.
Hey Rennie it's Matt 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, you know, the market was going to tighten. There's a term market 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, they're up even further if you went to yesterday. And so the markets are finally rationalizing, in our view, supply and demand. And this basis, we think, is a temporal issue.
Okay. Yeah, I think that makes sense. And then, you know, on this, you know, 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, you know, fill in that capacity price, but more so the energy risk. Is that just focus on long-term data center contracts and higher prices? Yeah.
Yeah, thanks, Rennie. Good question. Obviously, you've seen a significant amount of appreciation in sort of the turnkey cost for a CCGT and then, quite frankly, even, you know, a similar move for combustion turbines across the board. In our proposal for the RBP, and I think this is pretty consistent with what Pete Ams talked about, we really think that that should be a capacity product, right, and that's where you should focus, assuming that, you know, 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 We think that ultimately is what helps underwrite that, and I think we've talked about this before, I think the biggest challenge is not can you get additional resources on. It's really financing those resources and what is the underpinnings for somebody to underwrite and to get the financing associated with it. So we think the proposal that PJM has hits the marks on that. We think there's some, you know, some modifications that we'd like to see, but we think it gets there.
Okay, perfect. Thanks so much, Rez.
Operator
Thank you. Your next question comes to the line of Moses Sutton with BNP Paribas. Your line is now open.
Thanks for taking my question. It's really right. It's changing for people to 28. So last quarter, 3140, including Cornerstone, now moves to 41 plus, and you're not leaning on the upside drivers like M&A and PPA in there. How much of that roughly $10 increase is specifically driven by the spark spread expansion? versus balancing other factors? And I know 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?
You know, the 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, you know, the other levers here, which is around just the cornerstone numbers and the spark spreads and so forth, you know, You can kind of get to a directional answer there, but we're not going to break down kind of line by line on that.
Got it, got it. And on the backstop auction, so not specifically to you guys, but 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 some of it's going to go into that second stage of the clearing process or would you expect the bilateral process does most of the heavy lifting? I know it's hard to tell from here, but just curious to your market views.
To look at affordability, I think there's some obvious choices when it comes to PJM uses the cost of new entrant. That cost of new entrant is based off of a benchmark of a 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, you know, 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 longer wait time. And so you need to factor that in at the end of the day. But, yeah, I mean, we think that there's some, we think that there's some good things in the proposal. I will say the one thing that we think could be helpful, though, is the interconnection queue needs some clearing and needs 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, and And we'll see you at every couple of things.
Congrats on the outlook here.
Operator
Thank you. Your next question comes in the line of Michael Sullivan with Wolf. Your line is now open.
Hey, guys. Hey. 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 hangup there?
You know, well over a year. As you take a look at the different opportunities that we've developed, you know, the ones that you hear about are fine. Obviously, Montour has been in the press. I mean, 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, in February, there was a lot of focus on just one or two of these. And we wanted 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 the hyperscalers, 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 I think when you ask the question and you say, what's the hangup, I don't think that there's necessarily a hangup. 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, a.k.a. Montour, advancing faster because it was liked by a counterparty 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, you know, Montour is not our only – that's not the only thing we have.
Okay, that's very helpful. 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, you know, 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 do you think about that in the last, yeah, kind of the last couple of weeks' developments?
Yeah, so, Michael, let me start this, and then I'll let Chris chime in. And 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 market is really responding to that. You know, a couple of examples, obviously, more recent, late January and early February, we had a really significant, you know, pricing event for eight or nine days throughout the entire market. So, obviously, the market reacted to that. But even recently is this set of spring outages that we've had, right? You know, 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, you want to add some details to that?
Angel, yeah, 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 out-of-the-years. Again, below our historical ranges that we've typically been at. And so, more or less, you know, 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.
Very helpful. Much appreciated.
Operator
Thank you. Your next question comes from the line of Angie Storosinski with Seaport. Your line is now open. Thank you.
I wanted to talk about Ohio. I know that we're waiting for the Cornerstone acquisition to close, but you've owned the Guernsey 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, you know, how dissatisfied there with the pace of load interconnection in PJM. So it did sound like it was about Ohio. And also we saw some deals, you know, like behind the meter deals from Williams. And so you showed us, you know, opportunities for contracting assets in Pennsylvania. Could you comment about Ohio, especially vis-a-vis Guernsey, please?
I'll touch on that real quick. I will say in the prepared and active in Ohio. Obviously, we've had Guarns in the portfolio for a few months now. It 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 and we think it's a really good market and we think you know 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's several hubs in the area where you've got a lot of data centers and so we've we've we've really want to continue to push that forward just like we're pushing for Angie just to piggyback there obviously we liked Ohio we've amassed of over four 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 these fundamentals the price appreciation the price action that we just talked about is affecting those and it doesn't have the negative west hub but basis so that it'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 one more question about site 12 and the the
the talent 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 where 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 in consistency with what we shown before because this is the order that we showed it in before so obviously and i think we've
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 you know deciding to make strategic actions which are consistent with the talent flywheel that happen to be lumpy and yes we are diligently working i think cole mentioned it you know we're like thinking about how do we get to that 50 percent contracted energy margin we're looking at different opportunities across the way and those are those are developing you know we like what we've we've been doing yes would we satisfy investors if we had a you know you know had it 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 okay Understood.
Thanks, Angie. Thanks, Angie.
Operator
Thank you. Your next question comes to a line of Bill Apicelli with UBS. Your line is now open.
Hi. Good afternoon. 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, you know, where market conditions are currently.
And I think a lot of others, and it's not rocket science, you know, we'll do new build supported by some kind of commitment, whether that's a bilateral contract directly with a hyperscaler or through the RBP and through, therefore, PJM. But that gap's got to get, you know, bridged for us to make that, you know, large commitment, you know, and do so, you know, 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 LCOE. Combined cycles are the most expensive. They obviously have more energy margin. It's always a tradeoff, but the gap's not like a couple of bucks. It's a pretty large spread right now.
Right, okay. Yeah. And, I mean, do you have any concerns about sort of a bifurcated market where, you know, the new incremental megawatts are getting the sufficient payment, but, you know, existing generation is not? And I think that seems to be a concern, you know, in the market more broadly. So just curious your thoughts.
I'm concerned because as we've always stated and we supported the RVP, it was a one-time action. I do think as, you know, last week the cap was extended. that we were, you know, of the capacity clears, 29, 30, and so for two more years, afforded that, that gives, and to exercise the RVP going to be raised, but we don't share the same level of concern.
Okay. And then I guess maybe just lastly, you know, on the new gen options, would that include any repowerings or of your existing assets in terms of up rates or other things?
Okay. All right. Thank you.
Operator
Thank you. Your next question, come to a line of Julian Dumoulin-Smith with Jeffreys. Your line is now open.
Hey, good afternoon, Dean. Nice to chat. Thanks for the time. I appreciate it. Maybe just to rehash on a couple things. Hey, afternoon, guys. Just coming back to the ratepayer pledge here, that came out after your last call here. Can we talk a little bit about just did that change the name at all, away from the RBP and to come back to the protection pledge they made in March? Can you talk to that, if at all, if that changes strategy? I know you don't want to talk too much about it, but is there anything there? Did that evolve in any way? I just want to tackle that directly and explicitly here, and then I've got a quick follow-up. Look, the White House piece in March, yeah.
Yeah, so there's the implementation that this is working its way through, but I think in general, where do we see the – we are starting to see and discussed the development aspect of it to solve the so-called additionality or, you know, bringing addition. 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, you know, the hyperscalers have signed up to pay for all of this because that's not exactly how the, you know, reform markets work.
Got it. And then just to tie this back, I mean, as you guys talk about the 500 to a gig of new gen here potentially, I mean, would you think about that satiating, like one half of that equation when it comes to additionality such that, you know, you talk about these one plus gigawatt sites or what have you. Are you thinking about tethering the new gen back to it?
And so when you say tether, what we're saying is what we call is you put it 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, you know, a lot of the stuff, as you know, Julian, that's being talked about out there is now $3,000 to $4,000 for a new CCGT. More than $500 a megawatt day.
Absolutely, right? No, look, I hear you on the storage piece for sure. Right, right. And CT is in storage for now, right, for sure. But just to bring to 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 timelines, everyone's always peppering you on this question of when. But to come to fruition on it, 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. Conceptually, it'll be explicitly at that point in time tied to some of these contracting things you've been pursuing.
Julian, back to the or through an RBP award. So those are the two paths that you'll get there. And obviously, it'll depend on which path comes first.
All right, guys, I'll leave it there. Thank you guys very much. Appreciate it.
Operator
Thank you. Your next question comes in the line of Nick Amatucci with Evercore. Your line is now open.
Hey, guys. Happy Cinco de Mayo. A couple of quick ones for me. I'm actually piggybacking on Jillian's question there, too. so is it fair to say so the new generation you know could be it could be a long-term DC off-take agreement or the the RBP I guess how would you guys frame that kind of like the capital of the planet is it fair to say that the RBP is kind of more of a fallback or are you seeing economics that would compete with a hyperscaler PPA in the bilateral markets as well with these 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 one-time backstop, hence the name, to the market for the resource adequacy. And all the while, there's a bilateral market that's out there, too, that can bring the additionality through the hybrid model that we're discussing. So I don't think it's as discreet as that. I think that, you know, what people are seeing in terms of cost, it'll be interesting because people will have to bid. You know, we have a construct in there where, as it originally stood, it was 1.25 times, I think, the approved cost with it, net cone with it, so that you didn't have to get approval of your capacity bids, and the RVP, there's those that argue that that should probably go up, and I could see some logic behind that, and, you know, 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 we actually
think that there's some least cost solutions to bring things in under those those uh those costs so great um that makes sense and then uh if we think about it too i mean you guys had alluded to it earlier in the call just kind of a double digit free cash flow yield um but you know 100 million of share buybacks is nothing to shake a stick at, but still have $1.9 billion remaining through 2028. So, we expect any type of acceleration to the Q1 pace, particularly as we think about cornerstone closing and then leverage getting back down below the target.
You can say shake a stick at.
$2 billion allocated opportunity. well the purchase program impacts and and to get there that it's going to be doing stuff at scale and we're committed to doing that there all right thanks I was just trying to be polite Matt voluntary enjoy the tacos thank you our final question comes to the line of David or Carl with Morgan Stanley your
Speaker 1
line is now open hey thanks so much for taking my questions what what 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 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?
Hey, Dave, that'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. Obviously, as we've alluded to on this call, some of our discussions have moved to more 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, would they want, like, you know, 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, you know, we think that it's helpful that, you know, we've been providing comments on the RVP and one of them was don't make it such an extended program into next year and bringing it into the you know during the open sessions stakeholder sessions through the last couple they've started to change PGM 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 yeah that of course helps but are people still putting down as you know these capital plans that are you know just continue to to you know reach escape velocity at the hyperscalers I mean it's not slowing down so yes clarity helps but is it a necessary no unfortunately we're gonna have to end it there and I do see that there are a couple more questions in the queue apologize to everybody that we didn't get to we just run out of time here we're running up against our time but we do appreciate you for joining us today and your continued support of Talon I think in summary what I like to say is that we have a strong 27 28 outlook with multiple levers that we can pull and further outside from spark expansion I think we're also dim is hopefully providing some you know peeling back pulling back the curtain a little bit to show you that we are set up to execute the pipeline and the opportunities that we've been working on for some time. We're excited about that and we look forward to powering the future.
Operator
Thank you for your participation in today's conference. This does conclude the program. You may now disconnect.
