PPL Corp. (NYSE: PPL) said in its annual Form 10-K report, filed Feb. 23 with the Securities and Exchange Commission, that it expects the spinoff of its PPL Energy Supply division into the newly-created Talen Energy will occur in the second quarter of this year.
“In recognition of the changes in recent years in the wholesale power markets, PPL performed an in-depth analysis of its business mix to determine the best available opportunities to maximize the value of its competitive generation business for shareowners,” said the Form 10-K about the reason behind the spinoff. “As a result, in June 2014, PPL and PPL Energy Supply executed definitive agreements with affiliates of Riverstone to combine their competitive power generation businesses into a new, stand-alone, publicly traded company named Talen Energy.
“Under the terms of the agreements, at closing, PPL will spin off to PPL shareowners a newly formed entity, Talen Energy Holdings, Inc. (Holdco), which at such time will own all of the membership interests of PPL Energy Supply and all of the common stock of Talen Energy. Immediately following the spinoff, Holdco will merge with a special purpose subsidiary of Talen Energy, with Holdco continuing as the surviving company to the merger and as a wholly owned subsidiary of Talen Energy and the sole owner of PPL Energy Supply.
“Substantially contemporaneous with the spinoff and merger, RJS Power will be contributed by its owners to become a subsidiary of Talen Energy. Following completion of these transactions, PPL shareowners will own 65% of Talen Energy and affiliates of Riverstone will own 35%. PPL will have no continuing ownership interest in, control of, or affiliation with Talen Energy and PPL’s shareowners will receive a number of Talen Energy shares at closing based on the number of PPL shares owned as of the spinoff record date. The spinoff will have no effect on the number of PPL common shares owned by PPL shareowners or the number of shares of PPL common stock outstanding.”
In December 2014, the Federal Energy Regulatory Commission issued a final order approving, subject to certain market power mitigation requirements, the combination of the competitive generation assets to form Talen Energy. On Jan. 27, PPL and an affiliate of RJS Power filed a joint response with the FERC accepting additional market power mitigation measures required under FERC’s approval. PPL and RJS Power originally proposed divesting either of two groups of assets each having approximately 1,300 MW of capacity. PPL and RJS Power have agreed that within 12 months after closing of the transaction, Talen Energy will divest generating assets in one of the groups (from PPL Energy Supply’s existing portfolio, this includes either the Holtwood and Wallenpaupack hydroelectric facilities or the Ironwood facility), and limit PJM energy market offers from assets it would retain in the other group to cost-based offers.
The transaction is expected to close in the second quarter of 2015. Talen Energy will own and operate a diverse mix of about 14,000 MW (after divestitures to meet FERC market power standards) of generating capacity in certain U.S. competitive energy markets primarily in the PJM Interconnection and Electric Reliability Council of Texas (ERCOT) regions. Talen will, among other things, own PPL’s big Brunner Island and Montour coal plants in Pennsylvania.
Following the transaction, PPL’s focus will be on its regulated utility businesses in the U.K., Kentucky and Pennsylvania, serving more than 10 million customers. That includes heavily-coal-dependent utilities Kentucky Utilities and Louisville Gas & Electric. PPL said it intends to maintain a strong balance sheet and manage its finances consistent with maintaining investment grade credit ratings and providing a competitive total shareowner return, including an attractive dividend. Excluding costs required to provide transition services to Talen Energy and following the spinoff transaction, PPL expects to reduce annual ongoing corporate support costs by approximately $75 million.
Incidentally, Talen Energy has made two prospectus filings with the SEC, but nothing since Dec. 22.