Thomas Shipp | Head of Equity Research Last Updated: June 05, 2025 Rising Utility: Independent Power Producers in an Electricity Bull Market The energy landscape, and particularly the market for electricity, is evolving rapidly. Electricity demand and energy infrastructure spending are expected to continue growing over the coming years. Several catalysts have been cited for this growth — grid modernization to support renewable energy, electric vehicle (EV) adoption, and increased electrification broadly. However, the market didn’t credit utility stocks for these supposed growth drivers and only became interested when artificial intelligence (AI) was part of the story. In today’s blog, we discuss how AI-driven power demand, and the associated hyperscaler capital expenditures cycle, ultimately brought investor focus to the utility stocks purported to benefit most: Independent Power Producers (IPPs). These companies, including Constellation Energy (CEG), Vistra Corp (VST), and NRG Energy (NRG), own and operate power generation facilities. Unlike traditional utilities, IPPs operate in competitive markets, selling electricity directly to retail and wholesale customers. The Data Center Connection Much investor excitement around IPPs comes from the growth of power-hungry data centers, driven by continued investment in AI from cash-rich cloud computing hyperscalers, such as Amazon Web Services (AMZN), Microsoft Azure (MSFT), and Google Cloud Platform (GOOG/L). Technology companies beyond the cloud hyperscalers, such as OpenAI (privately held) and Meta Platforms (META), are also driving data center demand, and the requisite electricity, as they seek to build their own tech infrastructure, further reversing the trend of “asset-light” capital allocation policies seen in mega cap tech over the last decade. META announced a long-term power deal with CEG just this week. Data centers require substantial amounts of reliable “always-on” power, and thus, suppliers of said power provide a highly valuable raw input for the latest AI model or application. Let’s explore longer term U.S. power demand forecasts to provide a contextual backdrop before analyzing the potential advantages held by IPPs. Growing Demand for Power Supports IPPs’ Strengths Demand for electricity is on the rise, and the trend is expected to continue for the foreseeable future. According to the U.S. Energy Information Administration (EIA), U.S. electricity consumption is forecasted to increase in 2025 and 2026, surpassing the all-time high reached in 2024. This growth is largely driven by the commercial and industrial (C&I) sectors, including data centers and manufacturing establishments. Additionally, a report by industry consultant ICF International (ICFI) suggests that U.S. electricity demand is expected to grow by 25% by 2030 and 78% by 2050 . Market consensus believes IPPs are among the best positioned to capitalize on this growing electricity demand. The smattering of long-term power supply contracts between technology companies and IPPs, as well as the increased investment from the IPPs themselves, supports this thesis. This can be attributed to several factors: Increased Capacity. IPPs are investing heavily in expanding their generation capacity by reviving/extending existing nuclear power plants and purchasing natural gas power plants (see below on IPP Growth Strategies). Market Dynamics. The competitive nature of the IPP market drives efficiency. Companies that can produce electricity at lower costs and with higher reliability are rewarded with better market positions and potentially lucrative long-term contracts. Policy Support. U.S. industrial policies are providing incentives to promote energy infrastructure investment, such as nuclear production tax credits. Investor Confidence. The combination of growing demand, innovative and flexible capacity expansion, and supportive federal policies and regulations has led to increased investor confidence. As a result, the stocks of IPPs have seen impressive returns, which in turn have allowed IPPs to leverage elevated equity values for growth investments. IPP Growth Strategies in Power Generation Portfolio Large public IPPs have pursued mergers and acquisitions (M&A) this year to enhance their power generation portfolios and capitalize on market opportunities. Below, we outline three deals from this year to demonstrate how the IPP flexible business model (and elevated equity valuations) supports capturing increased electricity demand. Constellation Energy Group (CEG). In January, CEG agreed to acquire privately-held Calpine for $29.1 billion (inclusive of assuming $12.7 billion in Calpine’s debt), valuing the equity at $16.4 billion. CEG is funding the deal with ~$11.9 billion in stock (issuing 50 million shares, or ~13.1% of post-issuance total shares outstanding) and $4.5 billion in cash. After netting out cash generation at Calpine during 2025 (deal expected to close at end of 2025), the total enterprise value consideration is expected to be $26.6 billion, which the companies estimate is 7.9x 2026 estimated EBITDA. The Calpine deal will make CEG the largest power producer in the U.S., adding 26gigawatts (GW) of gas-fired turbine power generation and 1.5GW of geothermal/renewables to its existing 33GW power generation (two-thirds of which is nuclear — CEG possesses the largest nuclear generation fleet). Vistra (VST). In May, VST announced they would acquire natural gas assets from Lotus Infrastructure Partners for $1.9 billion, which represents a 7x 2026 adjusted EBITDA multiple. The deal is expected to close in late 2025 or early 2026. This natural gas deal quickly added 2.6GW of capacity, representing a 6.5% boost to VST’s capabilities. This capacity was added at a cost of ~$743/kilowatt (kW) which is two-thirds cheaper than the estimated $2,000/kW price of building, with the added benefit of faster integration. NRG Energy (NRG). In May, NRG agreed to acquire 13 GW of gas generation from LS Power for a total enterprise value of ~$12 billion at a 7.5x 2026 enterprise value (EV)/EBITDA multiple. The equity value of ~$9 billion is being funded using two-thirds cash on hand and one-third stock. The deal is expected to close in early 2026, and the company noted that the acquisition would double NRG’s generation capacity. Each of these deals followed similar growth strategies focused on natural gas generation. These deals, done at approximately 7–8x EBITDA, are currently cheaper and faster than building new facilities.; GE Vernova (GEV), a leading manufacturer of gas-fired turbines, recently said that orders placed today will not be delivered until 2028. Valuation Insights Since it was spun off from Exelon Corp (EXC) in January 2022, CEG has traded at an average 35%valuation premium to the peer group average. This premium can be attributed to its better credit profile, larger size, geographic mix, and carbon-free portfolio. VST has historically traded around the peer group average, and NRG has traded at a discount. NRG’s discount to peers could be attributed to its smaller size and less direct “pure-play data center/AI” thematic, which has only recently started to be discounted by the market, as the deal with LS Power not only expands NRG’s total generation capacity, but also significantly diversifies its geographic footprint. IPP Valuations: Market Multiples Show CEG’s Premium, NRG’s Re-Rating

Fear is Good By Peter Mullin Investments climb a wall of worry. From November through the start of December 2024, fear was nowhere to be found. There were signs of euphoria. Folks wondered why they hadn't dug deeper into the darlings of 2024. Here is one reason why we don't (and probably shouldn't): What goes up 15% can go down 15%. What goes up 40% can go down 40%. Then the new year came around. And this last week, China said it beat the US in AI engineering – at just 3% of the cost (VentureBeat, 2025). I joined a conference call on Wednesday to chat about this DeepSeek AI. I raised skepticism. I called back to how China has a habit of grandiose stories. Read this story about the Chinese real estate bust: China's Economy Is Burdened by Years of Excess. Here's How Bad It Really Is . (WSJ, January 1, 2025). Something that is different is the fact that this DeepSeek is open source. That means that anyone should be able to look at it and see how it operates. Is it as good as they claim? We will see. However, we can also anticipate further disruptive announcements in the years ahead. AI will expand. I remember an investment outfit telling a tale of how they were impressed by the Chinese real estate market over 12 years ago. It was incredible, they said. They were building droves of huge apartment complexes. And people could only move in once the entire development was rented. They said the demand was huge as folks joined a lottery to come from rural farmlands to the urban areas. At least, that is what they said. AI For Us Common Folks Two words that we common folk think we do not know a lot about might be "AI" and "semiconductors." Admittedly, I am not writing programs for these large companies. But I know what the vision and goals of them are. I have used them quite a bit. I want to be able to keep up with them so I don't have to rely on my 9-year-old to teach me. AI is the ability to train a computer or machine to think and compute like the human brain, except with massive efficiency. It might take you hours to research and book your vacation online today. Someday soon you may be able to book your whole vacation by telling a program a few key data points. You will get it for the optimal price and according to your preferences. AI may also add a few surprises that you find you enjoy while on vacation. I could run this letter through AI and ask it to sound different. (But I won't. I enjoy writing. And our voice comes through in our writing.) But AI is most certainly combing through my published words online and learning from them. Semiconductors are the power lines and transformers for data. They keep the computers clicking – fast and cool. Computers can run hot. And the more data you drive from the computer the hotter it can get. Imagine rubbing two sticks together to start a fire by hand. That was the 1980's for computers. Now attach one of those sticks to a drill and add a butane torch. Investment Implications I have heard the innovation song before. Read my take on the word on my blog here . Here is what happened this past week. I view this from the psychological side of money management. The self-off in technology may have been overdone. But it was also overdue. If stocks climb a wall of worry, then we need a wall in front of us to climb. That wall of worry seemed to be worn down to rubble on the back of two incredibly strong years of growth. After getting a health gut-check, we can dig our heels in, retest our convictions, and carry on. So, if investors were lucky enough to sidestep some of the quick, violent pullbacks on the AI investment space, they might want to revisit. And consider adding to the space at reduced prices. Because I don't think the AI story is done. Three things I think about when it comes to US Tech Leadership: #1. First, realize that tech stocks are not the only place to invest our hard-earned money. But also recognize that tech companies are the heavyweights in the US equity markets. #2: Moore's Law: Every two years, the capacity for a semiconductor DOUBLES. What are semiconductors, you ask? They make our phones, TVs, and computers – and all connected things work. #3. Jevons Paradox: Our first thought is that making something more efficient will decrease prices and demand. But the reverse is true. More folks are using computers today than they were in the 1980's. And they cost a whole lot less. The CEO of Microsoft just tweeted about Jevons Paradox in response to the Chinese AI story that appears to have caused a bump in AI-centric stocks. ______________________ Peter Mullin is an independent financial advisor registered through LPL Financial. He serves clients from his offices in Minnesota and states across the country. Investing involves risks including the possible loss of capital. The opinions voiced in this material are for general information only and are not intended to provide or be construed as providing specific investment advice or recommendations for any individual security. To determine which investments may be appropriate for you, consult your financial advisor prior to investing. All indexes are unmanaged and cannot be invested into directly. Unmanaged index returns do not reflect fees, expenses, or sales charges. Index performance is not indicative of the performance of any investment. All performance referenced is historical and is no guarantee of future results. Because of their narrow focus, investments concentrated in certain sectors or industries will be subject to greater volatility and specific risks compared with investing more broadly across many sectors, industries, and companies.

After August : Assertive Action “The pessimist complains about the wind. The optimist expects it to change. The leader adjusts the sails.” - John Maxwell I sent an update out weeks ago on a Friday in August. I subject line read: "Things are about to get interesting." That turned out to be prescient. It has helped me respond assertively for clients. Much of what seems like a routine, annual unwind in stocks appears to be occuring. The geopolitical saber-rattling in the Middle East and US Election have likely contributed to the latest unwind. Remember September "Overall, we expect volatility to remain elevated in the coming months as the market waits for more clarity on the economy and a better seasonal setup (as a reminder, September is the worst month for stocks)." - LPL Research September is infamous in market history for being a low or washout month. We can read that and be concerned. Or we can be ready to respond accordingly. This sort of choppy environment is the price of admission. We put up with mood swings and fears. I remind clients of facts and things that we can control when questions and concerns arise. The method of investing in an uncertain environment is still the same. We review the facts of the situation we are in. I listen to your input as a client and human. I emphasize how a strong dependency on your money to live comfortably will impact how we invest. Especially, in the near term. And then we execute our strategy. If we are nearing a retirement date or major purchase we can look to increase or add to our short-term, ultra-low risk portion of our portfolio. It is worth saving the graphic below if you become concerned when a portfolio draws down more than a bit. Portfolio mood swings are the price of admission—there is no such thing as a free lunch. Thank you, Peter Mullin