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New IPP Talen Energy to Acquire PPL Retail Supplier, 15,000 MW of Merchant Generation
PPL Corporation and Riverstone Holdings LLC announced a definitive agreement to combine their merchant power generation businesses into a new stand-alone, publicly traded independent power producer.
The new company, which will own and operate a mix of 15,320 megawatts of generating capacity in U.S. competitive energy markets, will be called Talen Energy Corporation. Based on current generating capacity statistics, Talen Energy would be the third-largest investor-owned IPP in the nation.
Under the terms of the agreement, at closing, PPL Corporation will spin off PPL Energy Supply, LLC, the parent company of PPL Generation, LLC, and PPL EnergyPlus, LLC, to shareowners of PPL and then immediately combine that business with Riverstone's generation business to form Talen Energy Corporation, an independent publicly traded company expected to be listed on the New York Stock Exchange.
Talen Energy will combine 5,325 megawatts of capacity owned and operated by Riverstone at 15 sites in Maryland, New Jersey, Texas and Massachusetts with 9,995 megawatts of capacity owned and operated by PPL Generation at 12 sites in Pennsylvania and Montana. The new company's planned 15,320-megawatt portfolio will be 40 percent natural gas, 40 percent coal and 15 percent nuclear. The above numbers exclude capacity from PPL's 11 hydroelectric units in Montana, which are expected to be sold to NorthWestern Energy pursuant to a September 2013 definitive agreement.
About 83 percent of the generating capacity to be owned by Talen Energy is located in the region served by PJM Interconnection
Retail supplier PPL EnergyPlus will continue to serve its wholesale and retail customers in the mid-Atlantic region and Montana.
Talen Energy expects to realize annual run-rate synergy benefits of $155 million and projects 2015 "Model Year" Adjusted EBITDA of about $1.07 billion, inclusive of the run-rate forecast synergies.
Upon closing, PPL Corporation's shareowners will own 65 percent of Talen Energy and Riverstone will own 35 percent. PPL Corporation will have no continuing ownership interest in Talen Energy.
PPL Corporation's shareowners will receive a pro-rata distribution of Talen Energy shares at closing based on the number of PPL Corporation shares owned as of the spinoff record date. The spinoff will have no effect on their ownership of PPL Corporation common stock and there will be no change in the number of shares of PPL Corporation common stock outstanding. The transaction is designed to be tax-free to PPL Corporation and its shareowners.
"Talen Energy will be a very significant player in the U.S. competitive generation market, bringing together the best of two robust businesses with a very strong presence in the PJM region, as well as nearly 2,000 megawatts of generating capacity in the fast growing ERCOT market in Texas," said William H. Spence, PPL Chairman, President and Chief Executive Officer. "Talen Energy will have significant scale, a very competitive cost structure and the financial agility to pursue growth opportunities."
Spence announced that, upon closing, Paul A. Farr, PPL's executive vice president and Chief Financial Officer, will be Talen Energy's president and Chief Executive Officer and a director of the new corporation. To facilitate the transition process, Farr is being named president of PPL Energy Supply, effective June 10. Also effective June 10, Vincent Sorgi, currently vice president and controller for PPL, is being named a senior vice president of PPL and its Chief Financial Officer.
"Given the challenges, uncertainties and opportunities in the wholesale power markets, maintaining the status quo was not a viable option. This transaction provides greater clarity for shareowners, our PPL Energy Supply employees, customers and the communities we serve," said Spence.
PPL Energy Supply had total debt of $2.7 billion and cash of $520 million as of May 31, 2014. Riverstone's generation business is expected to have $1.25 billion of debt after giving effect to their planned refinancing.
The transaction is subject to approval by the Nuclear Regulatory Commission and the Federal Energy Regulatory Commission (including the required market power analysis); a Hart-Scott-Rodino review; certain approvals by the Pennsylvania Public Utility Commission; and other customary closing conditions. The transaction, which does not require PPL shareowner approval, is expected to close in nine to 12 months.
This transaction does not include the 8,100 megawatts of regulated generating capacity owned by PPL's Kentucky utilities. Those assets will continue to be owned and operated by Louisville Gas and Electric Company and Kentucky Utilities Company to serve customers in Kentucky and southwestern Virginia.
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June 10, 2014
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Copyright 2010-14 EnergyChoiceMatters.com
Reporting by Karen Abbott • kabbott@energychoicematters.com
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