CONSTELLATION ENERGY GENERATION LLC

PJM Market Reform

In January 2026, the National Energy Dominance Council, with support from Governors within the PJM territory, urged PJM to file proposed tariff revisions at FERC to improve reliability and cost-effectiveness within its capacity auctions. During the first quarter of 2026, PJM began stakeholder discussions and preparatory work in response to this directive, including evaluation of a potential reliability backstop mechanism, enhancements to large load forecasting methodologies, and actions to accelerate generator interconnection studies. In February 2026, PJM filed tariff revisions proposing to extend the existing RPM capacity market price collar—consisting of a price cap of approximately $325/MW‑day and a price floor of approximately $175/MW‑day—for the 2028/2029 and 2029/2030 Base Residual Auctions. In an order issued by FERC in April 2026, FERC accepted PJM’s tariff revisions, allowing the continued application of the price collar for the specified delivery years. The Commission found the filing sufficiently justified to proceed, citing ongoing reliability concerns and extraordinary demand growth, including data center load expansion, and anticipated market reforms.

FERC Issues Order in PJM Show Cause Proceeding

In December 2025, FERC issued a draft order finding PJM's tariff unjust and unreasonable as it relates to colocated load, citing lack of sufficient clarity and consistency regarding rates, terms, and conditions of service for interconnection customers serving co-located load. The draft order also found that behind-the-meter generation rules in PJM's current tariff are no longer appropriate. PJM's current tariff requires that all co-located load be served through the PJM transmission system and that any planned modifications to generating facilities would require reliability studies and be subject to PJM's approval. FERC is now directing PJM to revise its tariff to: a) detail the terms and conditions for interconnection customers serving co-located load, b) require transmission customers serving co-located load to choose from four specific service options, and c) revise behind-the-meter generation rules, including the development of a transition period and grandfather clause for certain existing contracts. Through the date of this filing, PJM had not filed its final compliance tariff revisions, and the ultimate form and timing of these changes remain subject to further stakeholder processes and FERC review.

Russia and Ukraine Conflict

We are closely monitoring developments of the ongoing Russia and Ukraine conflict, including United States, United Kingdom, European Union, and Canadian sanctions, and legislation that may impact exports and imports of Russian nuclear fuel supply and enrichment activities, as well as the potential for Russia to limit fuel deliveries. The U.S. “Prohibiting Russian Uranium Imports Act” became effective in August 2024, banning the import of low-enriched uranium into the U.S. that is produced in Russia or by Russian entities, absent a waiver from the DOE. Under a corollary bill, the Department of Energy has begun the process of distributing billions of dollars to support expansion of the domestic nuclear fuel cycle within the United States to improve emissions-free energy security. In November 2024, the Russian government issued a decree imposing temporary restrictions on the export of enriched uranium from Russia to the U.S. but allowing for a special Russian export license to be issued for individual shipments. Our nuclear fuel is obtained predominantly through long-term uranium supply and service contracts. We work with a diverse set of domestic and international suppliers years in advance to procure our nuclear fuel to support our refueling needs and mitigate the risk of exposure to Russian nuclear fuel supply. Recognizing the potential for the continuing conflict to impact our longer-term security and cost of supply, we have entered into contracts to increase the size of our nuclear fuel inventory. Our fuel procurement activities comply with all U.S. and international trade laws and we continue to take advantage of all available avenues to maintain continuity in our nuclear fuel supply, including working with the U.S. Government and our diverse set of suppliers to secure the nuclear fuel needed to continue to operate our nuclear fleet long-term.

Environmental Regulation

California Assembly Bill 32, as amended by Senate Bill 32 in 2016, directed the California Air Resources Board (CARB) to adopt regulations to achieve the maximum technologically feasible and cost-effective reductions in GHG emissions, targeting statewide GHG emissions at 1990 levels by 2020 and to at least 40% below 1990 levels by 2030. The California Climate Crisis Act was enacted in 2022 and further establishes the state's policy to achieve net zero GHG emissions as soon as possible, but no later than 2045, and to reduce statewide anthropogenic GHG emissions to 85% below 1990 levels by 2045. To achieve these targets, CARB has promulgated complementary regulatory measures, including the Cap-and-Trade Program and Mandatory Greenhouse Gas Emissions Reporting Regulation. Covered entities, such as our power plants, must surrender compliance instruments, which include both allowances and offset credits, in an amount equivalent to their GHG emissions. Assembly Bill 398, enacted in 2017, authorized the extension of the Cap-and-Trade Program through 2030 and required several changes to the program, including establishing a price ceiling and other price mitigative mechanisms and limiting the amount of offsets allowed to comply with the regulation. In September 2025, California Governor Gavin Newsom signed AB 1207 and SB 840 into law, extending the state’s Cap-and-Trade Program through January 1, 2046, and renaming it the “Cap and Invest" Program.

In September 2021, Illinois Governor JB Pritzker signed into law the Climate and Equitable Jobs Act, which, among other things, establishes a schedule for eliminating CO2 emissions by EGUs. Under that schedule, privately owned natural gas units that exceed an established level of NOx or SO 2 emissions and are located within three miles of an environmental justice community, or an equity investment-eligible community must permanently eliminate CO2 and co-pollutant emissions by January 1, 2030, subject to certain reliability exceptions. Unless relief from the requirements is provided this could require our natural gas generation facility Zion Energy Center, acquired as part of Calpine, to shut down by January 2030.

See ITEM 1. BUSINESS, Environmental Matters and Regulation of our 2025 Form 10-K for additional information on environmental legislation and regulation we are subject to.