PPL, Riverstone to combine assets into mega IPP

PPL Corp. (NYSE: PPL) and Riverstone Holdings LLC, a leading energy and power investment firm, announced June 9 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 diverse mix of 15,320 MW of generating capacity in key U.S. competitive energy markets, will be called Talen Energy Corp. 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 Corp. 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.

Upon closing, PPL Corp.’s shareowners will own 65% of Talen Energy and Riverstone will own 35%. PPL Corp. will have no continuing ownership interest in Talen Energy.

“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 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 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.

Michael Hoffman, a partner at Riverstone Holdings, said: “Riverstone is very excited about participating in this important transaction. The blending of our two complementary businesses will create, on day one, one of the largest independent power producers in the U.S. with more than 15,000 megawatts of diversified generating capacity in the most attractive U.S. markets, strong free cash flow, and a conservatively capitalized balance sheet. With an outstanding management team led by Paul Farr, we believe Talen Energy will be one of the most successful IPPs in North America.”

PPL to focus on regulated utilities, including two in Kentucky

Following the spinoff, PPL Corp. will focus on the high-performing regulated utilities it owns and operates in the United Kingdom, Kentucky and Pennsylvania, serving more than 10 million customers. These regulated businesses, which had 2013 revenues of $7.2 billion, provided more than 85% of PPL Corp.’s 2013 earnings from ongoing operations. That includes heavily coal-reliant Kentucky Utilities and Louisville Gas and Electric.

“As stand-alone companies, PPL Corporation and Talen Energy each will have compelling growth prospects, and we expect the financial markets will ascribe valuations that more appropriately recognize the inherent strengths of each company,” said Spence. “As PPL has grown its rate-regulated business portfolio significantly over the past several years, PPL’s Energy Supply business has not – in our view – achieved appropriate equity valuation.”

While the transaction represents a significant change for all company stakeholders, Spence said PPL decided on this direction following an in-depth analysis of its business mix.

“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.

Talen Energy will combine 5,325 MW of capacity owned and operated by Riverstone at 15 sites in Maryland, New Jersey, Texas and Massachusetts with 9,995 MW of capacity owned and operated by PPL Generation at 12 sites in Pennsylvania and Montana. That would include the big Colstrip coal-fired plant in Montana.

Some of the PPL plants in Pennsylvania that will go to Talen are:

  • Montour, coal, 1,505 MW;
  • Brunner Island, coal, 1,437 MW;
  • Keystone, coal, 12% of plant, PPL’s 210 MW share of total plant;
  • Conemaugh, coal, 16% of plant, 276 MW PPL share;
  • Martins Creek 3-4, gas/oil, 1,400 MW gas/1,700 MW oil;
  • Ironwood, gas, 660 MW; and
  • Lower Mt. Bethel Energy, gas, 551 MW.

The plants that Talen will get from Riverstone include three in Maryland that were sold as part of the Exelon takeover of Constellation Energy earlier this deacde. They are: Brandon Shores, coal, 1,273 MW; H.A. Wagner, coal/gas/oil, 976 MW; and C.P. Crane, coal, 399 MW. Other Riverstone plants that will go to Talen include:

  • Bayonne, New Jersey, gas/oil, 171 MW;
  • Camden, New Jersey, gas/oil, 151 MW;
  • Dartmouth, Massachusetts, gas/oil, 89 MW;
  • Barney Davis 1, Texas, gas, 335 MW;
  • Barney Davis 2, Texas, gas, 674 MW; and
  • Neuces Bay 7, Texas, gas, 678 MW.

The new company’s planned 15,320-MW portfolio will have fuel diversity, with 40% natural gas, 40% coal and 15% nuclear. Those numbers exclude capacity from PPL’s 11 hydroelectric units in Montana, which are expected to be sold to NorthWestern Energy under a September 2013 definitive agreement.

About 83% of the generating capacity to be owned by Talen Energy is located in the region served by PJM Interconnection, the world’s largest wholesale electricity marketplace.

Farr will lead the transition process to form Talen Energy. Jeremy McGuire, PPL’s vice president of strategic development, will also serve as a member of the transition team and, upon closing, will become the Chief Financial Officer of Talen Energy.

In addition to Farr, PPL will name four independent members to the eight-member Talen Energy board, while Riverstone will name three members, one of whom will be independent.

Talen to be based in Pennsylvania

Talen Energy will be headquartered at a yet-to-be-determined location in Pennsylvania. PPL Corp. and the company’s Pennsylvania electricity delivery operation, PPL Electric Utilities, will continue to be headquartered in Allentown, Pa.

PPL EnergyPlus will continue to serve its wholesale and retail customers in the mid-Atlantic region and Montana.

Spence emphasized that the PPL Generation plants moving to the new company will continue to be operated and maintained by many of the professionals who have been doing so for decades.

“PPL people have done an excellent job of operating and maintaining these power plants in a safe and reliable manner. That commitment to safe and reliable operation will continue unchanged, as many in the current management team are expected to be part of Talen Energy,” said Spence.

Many of the current employees of PPL Energy Supply and the employees of PPL Services Corp. who provide support for that business are expected to transfer to Talen Energy at closing. It is expected, however, that the combination of operations will result in the elimination of a number of positions at plant locations and in corporate support services.  The number of positions affected will be determined during the transition process, Spence said, noting that the company is confident in its forecast of synergies.

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 MW of regulated generating capacity owned by PPL’s Kentucky utilities. Those assets will continue to be owned and operated by Louisville Gas and Electric and Kentucky Utilities to serve customers in Kentucky and southwestern Virginia.

Spence said PPL Corp. continues to forecast significant rate base growth in its regulated businesses as it invests $16bn over the next five years in transmission facilities, in regulated power plants and in environmental improvements.

In addition to the utilities in Kentucky that serve 1.2 million customers, PPL operates utilities in Pennsylvania and the United Kingdom serving 1.4 million and 7.8 million customers, respectively.

PPL Corp., with 2013 revenues of $12bn, is one of the largest companies in the U.S. utility sector. The PPL family of companies delivers electricity and natural gas to about 10 million customers in the United States and the United Kingdom, owns more than 18,000 MW of generating capacity in the United States and sells energy in key U.S. markets.

Riverstone is an energy and power-focused private investment firm founded in 2000 by David Leuschen and Pierre Lapeyre, Jr. with approximately $27bn of equity capital raised. Riverstone conducts buyout and growth capital investments in the exploration and production, midstream, oilfield services, power and renewable sectors of the energy industry. With offices in New York, London, Houston and Mexico City, the firm has committed approximately $26.1bn to 108 investments in North America, Latin America, Europe, Africa and Asia.

About Barry Cassell 20414 Articles
Barry Cassell is Chief Analyst for GenerationHub covering coal and emission controls issues, projects and policy. He has covered the coal and power generation industry for more than 24 years, beginning in November 2011 at GenerationHub and prior to that as editor of SNL Energy’s Coal Report. He was formerly with Coal Outlook for 15 years as the publication’s editor and contributing writer, and prior to that he was editor of Coal & Synfuels Technology and associate editor of The Energy Report. He has a bachelor’s degree from Central Michigan University.