Talen Energy, which will be one of the largest independent power producers in the U.S., on March 18 filed with the SEC its latest prospectus statement, the first since December, related to its planned IPO.
This version still lacks details on the number of shares to be offered and at what price. That will come later, closer to the actual initial public offering.
The shareholders of PPL Corp. (NYSE: PPL), which is contributing power plants to Talen, will own 65% of Talen Energy’s outstanding shares of common stock and entities (like Raven Power Holdings LLC) associated with privately-held RJS Power, which is also contributing power plants, will hold the other 35%. Talen Energy has applied to list its common stock on the New York Stock Exchange under the symbol “TLN.”
Talen Energy will be one of the largest competitive energy and power generation companies in North America. Its primary business will be the production and sale of electricity, capacity and related products from a fleet of power plants totaling approximately 14,000 MW of generating capacity. This portfolio of generation assets is principally located in the PJM Interconnection and Electric Reliability Council of Texas (ERCOT) regions, which Talen considers to be two of the most attractive power markets in the United States.
Its generation fleet is diverse in terms of fuel, technology, dispatch characteristics and location. A majority of its generation revenue is expected to come from its efficient low-cost baseload and intermediate generation facilities. PPL’s big Brunner Island (1,411 MW) and Montour (1,504 MW) coal plants in Pennsylvania are mainstays of that portfolio. It also expects to capture additional value by selling power during periods of peak demand from its quick-start peaking facilities. Talen plans to further enhance margins by selling capacity within the PJM markets, both in the three-year forward PJM base residual auction and through bilateral agreements with power purchasers, as well as by providing ancillary services to support transmission system reliability.
The filing noted: “PJM is the largest wholesale energy market in the United States and ERCOT is the oldest ISO in the country. PJM is characterized by improving fundamentals due to limited import capacity, significant anticipated capacity retirements, an improving demand outlook and a forward capacity market that provides future cash flow visibility for generation asset owners. Specific efforts are being undertaken by PJM to support and potentially increase capacity prices for existing generation to ensure the availability of adequate resources. ERCOT is an attractive wholesale electricity market with historically above-average demand growth, tight reserve margins, increasing price caps and an increasing reliance on flexible and quickly-dispatchable natural gas-fired assets. Additionally, the ERCOT sub region in which we operate, ERCOT-South, has historically experienced premium energy pricing relative to the average price for the broader ISO. We consider PJM and ERCOT to be two of the most well-developed power markets in the United States, providing significant price transparency, market liquidity and support to competitive generators, including recent proposed reforms that we believe will enhance the value of our portfolio.”
Talen Energy’s top management has a PPL past
Said the prospectus about the company’s management team:
- “Our President and Chief Executive Officer, Paul Farr, has over 20 years of power and utilities experience having spent more than seven years as Chief Financial Officer of PPL prior to being named President of Energy Supply at the announcement of the Transactions. Mr. Farr also has extensive operations experience, having served as Chief Operating Officer of PPL Global, LLC for over three years, which included responsibility for all of PPL’s international utilities operations in Latin America and the United Kingdom, as well as global corporate strategy. Mr. Farr was also integral to the establishment of PPL’s competitive power generation business in Montana from 1999 to 2001.
- “Jeremy McGuire, our Senior Vice President and Chief Financial Officer, served as Vice President–Strategic Development of PPL Strategic Development, LLC since 2008. Prior to joining PPL, Mr. McGuire was an investment banker for 13 years, ten of which were focused on competitive power companies and utilities. Mr. Farr and Mr. McGuire were instrumental in PPL’s acquisition and financing of $14 billion in utility businesses in Kentucky and the United Kingdom, which nearly doubled PPL’s asset base, increased annual revenues by 70 percent and helped grow market capitalization by 40 percent between 2009 and 2011.
- “Rob Gabbard, our Senior Vice President and Chief Commercial Officer, is an industry veteran with over three decades of marketing and trading experience. Since 2008, he served as the President of PPL EnergyPlus, managing PPL’s wholesale and competitive retail energy sales and services operations.
- “Joe Hopf, our Senior Vice President and Chief Fossil and Hydro Generation Officer, has more than 30 years of experience in the electricity business serving in various roles in power plant operations, trading and risk management. Most recently, Mr. Hopf led PPL’s fossil and hydro generating operations with nearly 8,000 MWs of generating capacity.
- “Tim Rausch, our Senior Vice President and Chief Nuclear Officer, served as PPL Generation’s Senior Vice President and Chief Nuclear Officer since 2009. Mr. Rausch came to PPL after 25 years of experience in virtually all disciplines of the nuclear power industry.
- “Jim Schinski, our Senior Vice President and Chief Administrative Officer, joined PPL Services in 2009 as Vice President-Chief Information Officer. Prior to joining PPL, Mr. Schinski served as Chief Information Officer and Vice President of Human Resources for the Midwest Independent System Operator since 2004, where he was responsible for design, development, implementation and operation of technology systems for one of the country’s largest electricity markets.
Talen readies itself for what EPA has to offer
A big issue for Talen Energy’s coal plants is clean-air compliance.
Federal Mercury and Air Toxics Standards (MATS) compliance
“In February 2012, the EPA finalized MATS requiring fossil-fuel fired plants to reduce emissions of mercury and other hazardous air pollutants by April 16, 2015. The EPA has subsequently proposed changes to the rule with respect to new sources to address the concern that the rule effectively precludes construction of any new coal-fired plants. In April 2014, the U.S. Court of Appeals for the District of Columbia Circuit (‘D.C. Court of Appeals’) upheld MATS, which may lead to the premature retirement of a number of older coal-fired generation units. On November 25, 2014, the U.S. Supreme Court granted certiorari in several petitions for review of the D.C. Court of Appeals’ decision to uphold MATS. Specifically, the U.S. Supreme Court will consider whether the EPA unreasonably refused to consider costs in determining whether to regulate hazardous air pollutants from fossil-fuel fired plants. Apart from the EPA’S MATS rule, several states have enacted or proposed regulations requiring reductions in mercury emissions from coal-fired power plants.
“[PPL] Energy Supply and RJS Power are generally well-positioned to comply with MATS, primarily due to recent investments in environmental controls. Energy Supply is evaluating chemical additive systems for mercury control at Brunner Island, and modifications to existing controls at Colstrip for improved emission reductions. In September 2012, Energy Supply announced its intention to place its Corette plant [in Montana] in long-term reserve status beginning in April 2015 due to expected market conditions and costs to comply with MATS. The Corette plant asset group was determined to be impaired in December 2013. Given the air emission controls already employed, RJS Power expects that each of RJS Power’s facilities will be in compliance with the MATS rule emission limits without the need for significant additional investment. Energy Supply has received approval for one-year compliance extensions for certain plants in Pennsylvania, and a one-year extension request has been submitted for Colstrip. Other Energy Supply extension requests are under regulatory consideration.”
Compliance under EPA’s Regional Haze program
“Under the EPA’s regional haze programs (developed to eliminate man-made visibility degradation by 2064), states are required to make reasonable progress every decade, including the application of Best Available Retrofit Technology (‘BART’) on power plants commissioned between 1962 and 1977. For the eastern U.S., the EPA determined that region-wide reductions under the [Cross-State Air Pollution Rule] trading program could be utilized under state programs to satisfy BART requirements for SO2 and NOX. Although the D.C. Court of Appeals recently lifted the CSAPR stay in response to a U.S. Supreme Court action in April, 2014 (see CSAPR/CAIR discussion above), future decisions by the EPA and the courts will determine whether power plants located in the eastern U.S., including Energy Supply’s plants in Pennsylvania, will be subject to further reductions in those pollutants in accordance with BART requirements.
“The EPA signed its final Federal Implementation Plan (‘FIP’) of the Regional Haze Rules for Montana in September 2012, with tighter emissions limits for Energy Supply’s Colstrip Units 1 & 2 based on the installation of new controls (no limits or additional controls were specified for Energy Supply’s Colstrip Units 3 & 4), and tighter emission limits for Energy Supply’s Corette plant (which are not based on additional controls). The cost of the potential additional controls for Colstrip Units 1 & 2, if required, could be significant. Energy Supply expects to meet the tighter permit limits at Corette without any significant changes to operations, although other requirements have led to the planned suspension of operations at Corette beginning in April 2015. Both PPL and environmental groups have appealed the final FIP rules to the U.S. Court of Appeals for the Ninth Circuit and litigation is ongoing.”
National Ambient Air Quality Standards
“In 2008, the EPA revised the National Ambient Air Quality Standard for ozone. As a result, states in the ozone transport region (OTR), including Pennsylvania and Maryland, are required by the Clean Air Act to impose additional reductions in nitrogen oxide emissions based upon reasonably available control technologies. The [Pennsylvania Department of Environmental Protection] has issued a draft rule requiring reasonable reductions. However, the proposal is being questioned as too lenient by the EPA, other [ozone transport region] states and environmental groups. The PADEP may impose more stringent emission limits than those set forth in the proposed rule which could have a significant impact on Energy Supply’s Pennsylvania coal plants. The PADEP is expected to finalize its rule in 2015.
“On November 25, 2014, the EPA issued a proposal to further tighten the ozone standard, which may require further nitrogen oxide controls, particularly for fossil-fueled plants within the OTR. The EPA is under court order to finalize the standard by October 1, 2015. States are also obligated to address interstate transport issues associated with new ozone standards through the establishment of ‘good neighbor’ state implementation plans for those states that are found to contribute significantly to another states’ non-attainment. The EPA recently sent a policy memo to state agencies to facilitate the development of these plans, including modeling data showing which states are contributing. The implementation of such plans could have an impact on the structure and stringency of CSAPR Phase 2 reductions.
“On December 1, 2014, the Maryland Department of the Environment issued a notice of proposed action to adopt new regulations, to place NOX emissions limits on coal-fired electric generation units within Maryland and require certain units to either put on [selective catalytic reduction], repower to natural gas or shut down by June 2020. These regulations, if promulgated as proposed, will apply to certain RJS Power generation units within Maryland and will require [the coal-fired] Crane 1 and 2 and Wagner 2 to make such an election by June 2020.”