SEC Filing | Talen Energy Corporation

View:

Download DOC

Download PDF

Download XLS

Download XBRL

tln-20240630

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)


☒			QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2024


☐			TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from __________ to __________

Commission File Number: 001-37388

Talen Energy Corporation

(Exact name of registrant as specified in its charter)


Delaware			47-1197305
(State or other jurisdiction of incorporation or organization)			(IRS Employer Identification No.)

2929 Allen Pkwy, Suite 2200 Houston, TX			77019
(Address of principal executive offices)			(Zip Code)

(888) 211-6011

(Registrant’s telephone number, including area code)

Not applicable

(Former name, former address and former fiscal year, if changed since last report)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

Trading

Symbol(s)

Name of each exchange

on which registered

Common stock, par value $0.001 per share

TLN

The Nasdaq Global Select Market

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☐ No ☒

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

☐

Large accelerated filer

☐

Accelerated filer

☐

Emerging growth company

☒

Non-accelerated filer

☐

Smaller reporting company

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Sections 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court. Yes ☐ No ☒

As of August 13, 2024, the registrant had 51,001,450 shares outstanding of common stock, par value $0.001 per share.

TALEN ENERGY CORPORATION AND SUBSIDIARIES

QUARTERLY REPORT ON FORM 10-Q

TABLE OF CONTENTS


			Page
CAUTIONARY NOTE REGARDING FORWARD -LOOKING INFORMATION			1


PART I. FINANCIAL INFORMATION
	I TEM 1. FINANCIAL STATEME NTS
		Condensed Consolidated Statements of Operations	2
		Condensed Consolidated Statements of Comprehensive Income (Loss)	3
		Condensed Consolidated Balance Sheets	4
		Condensed Consolidated Statements of Cash Flows	5
		Condensed Consolidated Statements of Equity	7
		Notes to the Interim Financial Statements (Unaudited)
		1. Organization and Operations	9
		2. Basis of Presentation and Summary of Significant Accounting P olicies	9
		3. Risk Management, Derivative Instruments and Hedging Activities	1 1
		4. Revenue	1 4
		5. Income Taxes	1 6
		6. Inventory	1 6
		7. Nuclear Decommissioning Trust Funds	1 7
		8. Property, Plant and Equipment	1 8
		9. Asset Retirement Obligations and Accrued Environmental Costs	2 0
		10. Commitments and Contingencies	2 0
		11. Long-Term Debt and Other Credit Facilities	2 8
		12. Fair Value	3 0
		13. Postretirement Benefit Obligations	3 1
		14. Earnings Per Share	3 2
		15. Stockholders' Equity	3 2
		16. Supplemental Cash Flow Information	3 4
		17. Acquisitions and Divestitures	3 5
		18. Segments	3 7
	I TEM 2. MANAGEMENT ’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIO N A ND RESULTS OF OPERATION S
		Overview	3 8
		R ece nt Deve lopment	3 8
		Factors Affecting Our Financial Condition and Results of Operations	3 9
		Results of Operations	4 2
		Liquidity and Capital Resources	5 0
		Cash Flow Activities	5 1
		Contractual Obligations and Commitments	5 2
		Non-GAAP Financial Measure	5 2
		Critical Accounting Policies and Estimates	5 4
	ITEM 3. QUA NTITATIVE AND QUALITATIVE DISCLO SURES ABOUT MARKET RISK		55
	ITEM 4. C ONTROLS AND PROCEDURES		55
P ART II. OTHER INFORMATION
	IT EM 1. L EGAL PROCEEDINGS		56
	I TEM 1A. R ISK FACTORS		5 6
	I TEM 2. U NRE G ISTERED SALES OF EQUITY AND USE OF PROCEEDS		56
	ITEM 3. D EF AULTS UPON SENIOR SECURITI ES		57
	I TEM 4. MINE S AF ET Y DISCLOSURES		57
	I TEM 5. O THER IN FORMATION		5 7
	I TEM 6. EXHIBITS		5 7
G LOSSAR Y OF TERMS AND ABBREVIA TIONS			5 8
SIGN ATURES			6 5

CAUTIONARY NOTE REGARDING FORWARD-LOOKING INFORMATION

This Quarterly Report (this “Report”) contains forward-looking statements concerning expectations, beliefs, plans, objectives, goals, strategies, future events or performance and underlying assumptions and other statements that are not statements of historical fact. These statements often include words such as “believe,” “expect,” “anticipate,” “intend,” “plan,” “estimate,” “target,” “project,” “forecast,” “seek,” “will,” “may,” “should,” “could,” “would” or similar expressions. Although we believe that the expectations and assumptions reflected in these forward-looking statements are reasonable, there can be no assurance that these expectations and assumptions will prove to be correct. Forward-looking statements are subject to many risks and uncertainties. The results, events or circumstances reflected in forward-looking statements may not be achieved or occur, and actual results, events or circumstances may differ materially from those discussed in forward-looking statements.

The risks, uncertainties and other factors that could cause actual results to differ materially from the forward-looking statements made by us include those discussed in this Report, as well as the items discussed in our Registration Statement and the included Annual Financial Statements. Moreover, we operate in a very competitive and rapidly changing environment. New risks and uncertainties emerge from time to time, and it is not possible for us to predict all risks and uncertainties that could have an impact on the forward-looking statements contained in this Report.

You should not rely on forward-looking statements as predictions of future events. We have based the forward-looking statements contained in this Report primarily on our current expectations and assumptions about future events. Furthermore, statements that “we believe” and similar statements reflect our beliefs and opinions on the relevant subject. These statements are based on information available to us as of the date of this Report. While we believe such information provides a reasonable basis for these statements, such information may be limited or incomplete, and there can be no assurance that any expectations, assumptions, beliefs or opinions will prove to be correct. Our statements should not be read to indicate that we have conducted an exhaustive inquiry into, or review of, all relevant information. These statements are inherently uncertain, and investors are cautioned not to unduly rely on these statements.

The forward-looking statements made in this Report relate only to events as of the date on which the statements are made. We undertake no obligation to update any forward-looking statements made in this Report to reflect events or circumstances after the date of this Report or to reflect new information, actual results, revised expectations or the occurrence of unanticipated events, except as required by law. We may not actually achieve the plans, intentions or expectations described in our forward-looking statements, and you should not place undue reliance on our forward-looking statements. Our forward-looking statements do not reflect the potential impact of any future acquisitions, mergers, dispositions, joint ventures or investments.

PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

TALEN ENERGY CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)


	Successor				Predecessor		Successor				Predecessor
(Millions of Dollars, except share data)	Three Months Ended June 30, 2024		May 18 through June 30, 2023		April 1 through May 17, 2023		Six Months Ended June 30, 2024		May 18 through June 30, 2023		January 1 through May 17, 2023
Capacity revenues	$	46	$	26	$	42	$	91	$	26	$	108
Energy and other revenues	367		188		180		939		188		1,042
Unrealized gain (loss) on derivative instruments	76		87		(85)		(32)		87		60
Operating Revenues	489		301		137		998		301		1,210

Fuel and energy purchases	(163)		(57)		(69)		(313)		(57)		(176)
Nuclear fuel amortization	(28)		(25)		(9)		(63)		(25)		(33)
Unrealized gain (loss) on derivative instruments	15		(46)		(9)		(12)		(46)		(123)
Energy Expenses	(176)		(128)		(87)		(388)		(128)		(332)

Operating Expenses
Operation, maintenance and development	(164)		(69)		(108)		(318)		(69)		(285)
General and administrative	(40)		(18)		(22)		(83)		(18)		(51)
Depreciation, amortization and accretion	(75)		(28)		(68)		(150)		(28)		(200)
Impairments	—		—		(16)		—		—		(381)
Operational restructuring	(1)		—		—		(1)		—		—
Other operating income (expense), net	(6)		(3)		(28)		(6)		(3)		(37)
Operating Income (Loss)	27		55		(192)		52		55		(76)
Nuclear decommissioning trust funds gain (loss), net	27		39		11		102		39		57
Interest expense and other finance charges	(62)		(33)		(59)		(121)		(33)		(163)
Reorganization income (expense), net	—		—		838		—		—		799

Gain (loss) on sale of assets, net (Note 17)	561		—		15		885		—		50
Other non-operating income (expense), net	17		(11)		4		40		(11)		10
Income (Loss) Before Income Taxes	570		50		617		958		50		677
Income tax benefit (expense)	(112)		(19)		(198)		(181)		(19)		(212)
Net Income (Loss)	458		31		419		777		31		465
Less: Net income (loss) attributable to noncontrolling interest	4		2		(12)		29		2		(14)
Net Income (Loss) Attributable to Stockholders (Successor) / Member (Predecessor)	$	454	$	29	$	431	$	748	$	29	$	479
Per Common Share (Successor)
Net Income (Loss) Attributable to Stockholders - Basic	$	7.90	$	0.49	N/A		$	12.87	$	0.49	N/A
Net Income (Loss) Attributable to Stockholders - Diluted	7.60		0.49		N/A		12.41		0.49		N/A
Weighted-Average Number of Common Shares Outstanding - Basic (in thousands)	57,434		59,029		N/A		58,119		59,029		N/A
Weighted-Average Number of Common Shares Outstanding - Diluted (in thousands)	59,775		59,088		N/A		60,269		59,088		N/A

The accompanying Notes to the Interim Financial Statements are an integral part of the financial statements.

TALEN ENERGY CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) (UNAUDITED)


	Successor				Predecessor		Successor				Predecessor
(Millions of Dollars)	Three Months Ended June 30, 2024		May 18 through June 30, 2023		April 1 through May 17, 2023		Six Months Ended June 30, 2024		May 18 through June 30, 2023		January 1 through May 17, 2023
Net Income (Loss)	$	458	$	31	$	419	$	777	$	31	$	465
Other Comprehensive Income (Loss)
Available-for-sale securities unrealized gain (loss), net	2		(6)		(4)		1		(6)		6

Income tax benefit (expense)	(1)		2		2		—		2		(2)
Gains (losses) arising during the period, net of tax	1		(4)		(2)		1		(4)		4
Available-for-sale securities unrealized (gain) loss, net	(5)		1		(2)		(12)		1		4
Qualifying derivatives unrealized (gain) loss, net	—		—		—		—		—		(1)

Postretirement benefit actuarial (gain) loss, net	—		—		1		—		—		2
Income tax (benefit) expense	2		—		—		5		—		(3)
Reclassifications from AOCI, net of tax	(3)		1		(1)		(7)		1		2
Total Other Comprehensive Income (Loss)	(2)		(3)		(3)		(6)		(3)		6
Comprehensive Income (Loss)	456		28		416		771		28		471
Less: Comprehensive income (loss) attributable to noncontrolling interest	4		2		(12)		29		2		(14)
Comprehensive Income (Loss) Attributable to Stockholders (Successor) / Member (Predecessor)	$	452	$	26	$	428	$	742	$	26	$	485

The accompanying Notes to the Interim Financial Statements are an integral part of the financial statements.

TALEN ENERGY CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)


	Successor
(Millions of Dollars, except share data)	June 30, 2024		December 31, 2023
Assets
Cash and cash equivalents	$	632	$	400
Restricted cash and cash equivalents (Note 16)	483		501
Accounts receivable, net (Note 4)	151		137
Inventory, net (Note 6)	280		375
Derivative instruments (Notes 3 and 12)	27		89

Other current assets (a)	380		52
Total current assets	1,953		1,554
Property, plant and equipment, net (Note 8)	3,250		3,839
Nuclear decommissioning trust funds (Notes 7 and 12)	1,659		1,575
Derivative instruments (Notes 3 and 12)	13		6
Other noncurrent assets	207		147
Total Assets	$	7,082	$	7,121

Liabilities and Equity


Long-term debt, due within one year (Notes 11 and 12)	$	9	$	9


Accrued interest	31		32
Accounts payable and other accrued liabilities	212		344
Derivative instruments (Notes 3 and 12)	63		32

Other current liabilities	118		69
Total current liabilities	433		486
Long-term debt (Notes 11 and 12)	2,617		2,811

Derivative instruments (Notes 3 and 12)	1		11
Postretirement benefit obligations (Note 13)	364		368
Asset retirement obligations and accrued environmental costs (Note 9)	473		469
Deferred income taxes (Note 5)	495		407
Other noncurrent liabilities	127		35
Total Liabilities	$	4,510	$	4,587
Commitments and Contingencies (Note 10)

Stockholders’ Equity

Common stock ($0.001 par value 350,000,000 shares authorized) (b) (c)	$	—	$	—

Additional paid-in capital	2,092		2,346
Accumulated retained earnings (deficit)	448		134
Accumulated other comprehensive income (loss)	(29)		(23)
Total Stockholders’ Equity	2,511		2,457
Noncontrolling interests	61		77
Total Equity	2,572		2,534
Total Liabilities and Equity	$	7,082	$	7,121

__________________

(a)Includes $300 million of proceeds from the Cumulus Data Campus Sale held in escrow.

(b)As of June 30, 2024 (Successor): 53,259,981 shares issued, 53,254,954 shares outstanding, and 5,027 shares held as treasury stock.

(c)As of December 31, 2023 (Successor): 59,028,843 shares issued and outstanding.

The accompanying Notes to the Interim Financial Statements are an integral part of the financial statements.

TALEN ENERGY CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)


	Successor				Predecessor
(Millions of Dollars)	Six Months Ended June 30, 2024		May 18 through June 30, 2023		January 1 through May 17, 2023
Operating Activities
Net income (loss)	$	777	$	31	$	465
Non-cash reconciliation adjustments:
Unrealized (gains) losses on derivative instruments	36		(39)		65
(Gain) loss on Cumulus Data Campus Sale and ERCOT Sale	(886)		—		—
(Gain) loss on sales of assets, net	—		—		(50)
Nuclear fuel amortization	63		25		33
Depreciation, amortization and accretion	144		27		208
Impairments	—		—		381

NDT funds (gain) loss, net (excluding interest and fees)	(80)		(33)		(43)
Deferred income taxes	94		16		195
Reorganization (income) expense, net	—		—		(933)
Other	(58)		17		7
Changes in assets and liabilities:
Accounts receivable, net	(14)		(5)		261
Inventory, net	90		(11)		10
Other assets	34		22		98
Accounts payable and accrued liabilities	(114)		(89)		(69)
Accrued interest	(1)		25		(124)
Other liabilities	65		13		(42)
Net cash provided by (used in) operating activities	150		(1)		462
Investing Activities
Property, plant and equipment expenditures	(45)		(20)		(138)
Nuclear fuel expenditures	(44)		(14)		(49)
NDT funds investment sale proceeds	1,095		273		949
NDT funds investment purchases	(1,110)		(279)		(959)
Equity investments in affiliates	(5)		—		(8)
Proceeds from Cumulus Data Campus Sale and ERCOT Sale (Note 17)	1,089		—		—
Proceeds from the sale of assets	1		—		46

Other investing activities	(2)		2		2
Net cash provided by (used in) investing activities	979		(38)		(157)

TALEN ENERGY CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)


	Successor				Predecessor
(Millions of Dollars)	Six Months Ended June 30, 2024		May 18 through June 30, 2023		January 1 through May 17, 2023
Financing Activities

Contributions from member	—		—		1,393
Financing proceeds at Emergence, net of discount	—		—		2,219
Repayment of Prepetition Secured Indebtedness	—		—		(3,898)
Payment of make-whole premiums on Prepetition Secured Indebtedness	—		—		(152)





LMBE-MC TLB payments	—		(1)		(7)
Cumulus Digital TLF repayment	(182)		—		—
Share repurchases (Note 15)	(654)		—		—
Repurchase of noncontrolling interest	(39)		—		—
Cash settlement of restricted stock units	(28)		—		—



Deferred finance costs	—		—		(74)


Derivatives with financing elements	—		—		(20)
Other	(12)		1		—
Net cash provided by (used in) financing activities	(915)		—		(539)
Net Increase (Decrease) in Cash and Cash Equivalents and Restricted Cash and Cash Equivalents	214		(39)		(234)
Beginning of period cash and cash equivalents and restricted cash and cash equivalents	901		754		988
End of period cash and cash equivalents and restricted cash and cash equivalents	$	1,115	$	715	$	754

See Note 16 for supplemental cash flow information.

The accompanying Notes to the Interim Financial Statements are an integral part of the financial statements.

TALEN ENERGY CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF EQUITY (UNAUDITED)


(Millions of Dollars, except share data)	Common stock shares (a)	Additional paid-in capital		Accumulated earnings (deficit)		AOCI		Treasury Stock		Non controlling Interest		Total Equity




















December 31, 2023 (Successor)	59,029	$	2,346	$	134	$	(23)	$	—	$	77	$	2,534
Net income (loss)	—	—		294		—		—		25		319
Other comprehensive income (loss)	—	—		—		(4)		—		—		(4)
Share repurchase	(493)	—		—		—		(39)		—		(39)
Purchase of noncontrolling interest (c)	—	(15)		—		—		—		(24)		(39)
Cash distributions (d)	—	—		—		—		—		(1)		(1)
Non-cash distributions (b)	—	—		—		—		—		(12)		(12)
Stock-based compensation	—	8		—		—		—		—		8
March 31, 2024 (Successor)	58,536	$	2,339	$	428	$	(27)	$	(39)	$	65	$	2,766

Net income (loss)	—	—		454		—		—		4		458
Other comprehensive income (loss)	—	—		—		(2)		—		—		(2)
Share repurchases	(5,281)	—		—		—		(622)		—		(622)
Retirement of treasury stock	—	(227)		(434)		—		661		—		—
Cash settlement of restricted stock units	—	(28)		—		—		—		—		(28)

Non-cash distributions (b)	—	—		—		—		—		(8)		(8)
Stock-based compensation	—	8		—		—		—		—		8
June 30, 2024 (Successor)	53,255	$	2,092	$	448	$	(29)	$	—	$	61	$	2,572

__________________

(a)Shares in thousands.

(b)Related primarily to distribution of Bitcoin to TeraWulf.

(c)TES acquisition of remaining noncontrolling interests in Cumulus Digital Holdings. See Note 17 for additional information.

(d)Distribution to noncontrolling interest owners of Cumulus Digital Holdings.

The accompanying Notes to the Interim Financial Statements are an integral part of the financial statements.

TALEN ENERGY CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF EQUITY (UNAUDITED)


(Millions of Dollars, except share data)	Common stock shares (a)		Additional paid-in capital		Accumulated earnings (deficit)		AOCI		Member's Equity		Non controlling Interest		Total Equity
December 31, 2022 (Predecessor)	$	—	$	—	$	—	$	—	$	(573)	$	91	$	(482)
Net income (loss)	—		—		—		—		48		(2)		46
Other comprehensive income (loss)	—		—		—		—		9		—		9
Non-cash contributions (c)	—		—		—		—		—		38		38
Non-cash distribution, net (d)	—		—		—		—		—		(2)		(2)



March 31, 2023 (Predecessor)	$	—	$	—	$	—	$	—	$	(516)	$	125	$	(391)


Net income (loss)	—		—		—		—		431		(12)		419
Other comprehensive income (loss)	—		—		—		—		(3)		—		(3)
Cancellation of member’s equity (b)	—		—		—		—		88		—		88
Issuance of member’s equity (b)	—		—		—		—		2,313		—		2,313
Issuance of warrants (b)	—		—		—		—		8		—		8
Common equity from member's equity exchange	—		2,321		—		—		(2,321)		—		—
Non-cash distributions (d)	—		—		—		—		—		(3)		(3)
May 17, 2023 (Predecessor)	$	—	$	2,321	$	—	$	—	$	—	$	110	$	2,431


May 18, 2023 (Successor)	59,029		$	2,321	$	—	$	—	$	—	$	110	$	2,431
Net income (loss)	—		—		29		—		—		2		31
Other comprehensive income (loss)	—		—		—		(3)		—		—		(3)
Non-cash distribution (d)	—		—		—		—		—		(3)		(3)
Other	—		4		—		—		—		—		4



June 30, 2023 (Successor)	59,029		$	2,325	$	29	$	(3)	$	—	$	109	$	2,460

__________________

(a)Shares in thousands.

(b)Pursuant to the Plan of Reorganization: (i) existing equity interests were canceled; and (ii) new equity interests and equity-classified warrants were issued.

(c)Relates to contributions of cryptocurrency mining machines by TeraWulf to Nautilus.

(d)Relates primarily to distributions of cryptocurrency mining machines or Bitcoin to TeraWulf.

The accompanying Notes to the Interim Financial Statements are an integral part of the financial statements.

TALEN ENERGY CORPORATION AND SUBSIDIARIES

NOTES TO THE INTERIM FINANCIAL STATEMENTS (UNAUDITED)

Capitalized terms and abbreviations appearing in these Notes to the Interim Financial Statements are defined in the glossary. Dollars are in millions, unless otherwise noted. References to the “Annual Financial Statements” are to the audited Talen Energy Corporation 2023 Annual Financial Statements and Notes thereto, which are attached to the Registration Statement.

“TEC” refers to Talen Energy Corporation. “TES” refers to Talen Energy Supply, LLC. For periods after May 17, 2023, the terms “Talen,” “Successor,” the “Company,” “we,” “us” and “our” refer to TEC and its consolidated subsidiaries (including TES), unless the context clearly indicates otherwise. For periods on or before May 17, 2023, the terms “Talen,” “Predecessor,” the “Company,” “we,” “us” and “our” refer to TES and its consolidated subsidiaries, unless the context clearly indicates otherwise. See “Emergence from Restructuring, Fresh Start Accounting, and Reverse Acquisition” in Note 2 for information on an accounting reverse acquisition that occurred at Emergence.

This presentation has been applied where identification of subsidiaries is not material to the matter being disclosed, and to conform narrative disclosures to the presentation of financial information on a consolidated basis. When identification of a subsidiary is considered important to understanding the matter being disclosed, the specific entity’s name is used. Each disclosure referring to a subsidiary also applies to TEC insofar as such subsidiary’s financial information is included in TEC’s consolidated financial information. TEC and each of its subsidiaries and affiliates are separate legal entities and, except by operation of law, are not liable for the debts or obligations of one another absent an express contractual undertaking to the contrary.

1. Organization and Operations

Talen owns and operates power infrastructure in the United States. We produce and sell electricity, capacity, and ancillary services into wholesale power markets in the United States primarily in PJM and WECC, with our generation fleet principally located in the Mid-Atlantic region of the United States and Montana. The majority of our generation is produced at our zero-carbon nuclear and lower-carbon gas-fired facilities. As of June 30, 2024 (Successor), our generation capacity was 10,665 MW (summer rating). Talen is headquartered in Houston, Texas.

2. Basis of Presentation and Summary of Significant Accounting Policies

Basis of Presentation and Principles of Consolidation

Our Interim Financial Statements, which are prepared in accordance with GAAP and pursuant to the rules and regulations of the SEC for Quarterly Reports on Form 10-Q, include: (i) the accounts of all controlled subsidiaries; (ii) elimination adjustments for intercompany transactions between controlled subsidiaries; (iii) any undivided interests in jointly owned facilities consolidated on a proportionate basis; and (iv) all adjustments considered necessary for a fair statement of the information set forth. All adjustments are of a normal recurring nature except as otherwise disclosed. Certain information and note disclosures have been condensed or omitted from the Interim Financial Statements in accordance with GAAP. The Consolidated Balance Sheet as of December 31, 2023 (Successor) is derived from the 2023 Consolidated Balance Sheet in the Annual Financial Statements. The Interim Financial Statements and Notes thereto should be read in conjunction with the Annual Financial Statements and Notes thereto. The results of operations presented in our Interim Financial Statements are not necessarily indicative of the results to be expected for the full year or for other future periods because interim period results can be disproportionately influenced by operational developments, seasonality, and other various factors.

Emergence from Restructuring, Fresh Start Accounting, and Reverse Acquisition. In May 2022, TES and 71 of its subsidiaries filed voluntary petitions seeking relief under Chapter 11 of the U.S. Bankruptcy Code. In December 2022, TEC became a debtor in the Restructuring in order to facilitate certain transactions contemplated by the Plan of Reorganization. The Plan of Reorganization was approved by the requisite parties in November 2022, was confirmed by the U.S. Bankruptcy Court in December 2022, and became effective in May 2023, when TEC, TES and the other debtors emerged from the Restructuring.

Upon commencement of the Restructuring, TES was deconsolidated from TEC for financial reporting purposes because TEC no longer controlled TES. TEC regained control of TES at Emergence, which resulted in TEC’s reconsolidation of TES. The combination was accounted for as a reverse acquisition in which TEC was the legal acquirer and TES was the accounting acquirer. Accordingly, our Interim Financial Statements are issued under the name of TEC, the legal parent of TES and accounting acquiree, but represent the continuation of the financial statements of TES, the accounting acquirer.

After Emergence, TES applied fresh start accounting, which resulted in a new basis of accounting as the Company became a new financial reporting entity. As a result of the application of fresh start accounting and the implementation of the Plan of Reorganization, our financial position and results of operations beginning after Emergence are not comparable to our financial position or results of operations prior to that date. The financial results are presented for: (i) the Predecessor period from January 1 through May 17, 2023; and (ii) the Successor periods from May 18 through June 30, 2023, and from January 1 through June 30, 2024. The Interim Financial Statements and Notes thereto have been presented with a black line division to delineate the lack of comparability between the Predecessor and Successor.

See Notes 2, 3 and 4 in Notes to the Annual Financial Statements for additional information on the reverse acquisition, the legal structure of the Restructuring transactions, and the impacts of fresh start accounting.

Summary of Significant Accounting Policies

Reclassifications. Certain amounts in the prior period financial statements were reclassified to conform to the current period’s presentation. The reclassifications did not affect operating income, net income, total assets, total liabilities, net equity or cash flows.

Use of Estimates. The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

Treasury Stock and Retirement of Treasury Shares. Share repurchases are accounted for under the cost method, which recognizes the entire cost of the acquired stock, including transaction costs and excise tax, as a reduction in additional paid-in-capital and are presented as “Treasury stock” on the Consolidated Balance Sheets. Share repurchases are recognized on a trade date basis when we are contractually obligated to purchase the shares. At retirement, the common stock balance is reduced for the par value of the shares. The excess of the acquisition cost of treasury shares over the par value is recognized in additional paid-in capital (up to the amount credited to additional paid-in capital upon original issuance of the shares), with any remaining cost deducted from retained earnings.

Nuclear PTCs. The Nuclear PTC program provides qualified nuclear power generation facilities with transferable credits for electricity produced and sold to an unrelated party during each tax year. These credits, which are accounted for by analogy to income-based grants under international accounting standards for government grants and disclosure of government assistance, are recognized when there is reasonable assurance that the Company will comply with the applicable conditions and that the credit will be received, which is generally over the period of production. As the credits that are generated each tax year are based on annual gross receipts and production volumes, the measurement of the credit value is estimated at each period until the final value can be determined at the end of the year, which may be different than the estimated amount. The credit value includes a five-times multiplier (up to $15 per MWh) for meeting prevailing wage requirements. Accordingly, Nuclear PTCs are recognized based on production volumes generated during the period and measured at the credit value for the tax year. See Note 4 for amounts recognized, which are presented as “Energy and other revenues” on the Consolidated Statements of Operations and “Other current assets” on the Consolidated Balance Sheets. Credits that are utilized to reduce federal income taxes payable are presented as a reduction of “Other current liabilities” on the Consolidated Balance Sheets. There have been no transfers of Nuclear PTCs to third parties during the six months ended June 30, 2024 (Successor). Additional guidance expected to be issued from the U.S. Treasury and IRS may impact the credit value received.

See Note 2 in Notes to the Annual Financial Statements for additional information on significant accounting policies.

3. Risk Management, Derivative Instruments and Hedging Activities

Risk Management Objectives

We are exposed to risks arising from our business, including, but not limited to, market and commodity price risk, credit and liquidity risk and interest rate risk. The hedging strategies deployed by our commercial organization manage and (or) balance these risks within a structured risk management program in order to minimize near-term future cash flow volatility. Our risk management committee, comprised of certain senior management members across the organization, oversees the management of these risks in accordance with our risk policy. In turn, the risk management committee is overseen by the risk committee of the Board of Directors.

The Board of Directors (including the risk committee) and management have established procedures to monitor, measure and manage hedging activities and credit risk in accordance with the risk policy.

Key risk control activities, which are designed to ensure compliance with the risk policy, include, among other activities, credit review and approval, validation of transactions and market prices, verification of risk and transaction limits, portfolio stress tests, analysis and monitoring of margin at risk and daily portfolio reporting.

Market and Commodity Price Risk. Volatility in the wholesale power markets provides uncertainty in the future performance and cash flows of the business. The price risk Talen is exposed to includes the price variability associated with future sales and (or) purchases of power, natural gas, coal, uranium, oil products, environmental products and other energy commodities in competitive wholesale markets. Several factors influence price volatility, including: seasonal changes in demand; weather conditions; available regional load-serving supply; regional transportation and (or) transmission availability; market liquidity; and federal, regional and state regulations.

Within the parameters of our risk policy, we generally utilize conventional first lien, exchange-traded and over-the-counter traded derivative instruments and, in certain instances, structured products, to economically hedge the commodity price risk of the forecasted future sales and purchases of commodities associated with our generation portfolio.

Open commodity purchase (sales) derivatives as of June 30, 2024 (Successor) range in maturity through 2026. The net notional volumes of open commodity derivatives were:


	Successor
	June 30, 2024 (a)	December 31, 2023 (a)
Power (MWh)	(38,172,764)	(27,557,871)
Natural gas (MMBtu)	70,334,960	8,314,060
Emission allowances (tons)	75,000	500,000

__________________

(a)The volumes may be less than the contractual volumes, as the probability that option contracts will be exercised is considered in the volumes displayed.

Interest Rate Risk. Talen is exposed to interest rate risk from the possibility that changes in interest rates will affect future cash flows associated with existing floating rate debt issuances. To reduce interest rate risk, derivative instruments are utilized to economically hedge the interest rates for a predetermined contractual notional amount, which results in a cash settlement between counterparties. To the extent possible, first lien interest rate fixed-for-floating swaps are utilized to hedge this risk.

Open interest rate derivatives are related to the TLB indebtedness and range in maturity dates through 2026. The net notional volumes of open interest rate derivatives were:


	Successor
	June 30, 2024		December 31, 2023
Interest rate (in millions)	$	290	$	290

Credit Risk. Credit risk, which is the risk of financial loss if a customer, counterparty or financial institution is unable to perform or pay amounts due, is applicable to cash and cash equivalents, restricted cash and cash equivalents, derivative instruments and accounts receivable. The maximum amount of credit exposure associated with financial assets is equal to the carrying value. Credit risk, which cannot be completely eliminated, is managed through a number of practices such as ongoing reviews of counterparty creditworthiness, prepayment, inclusion of termination rights in contracts which are triggered by certain events of default and executing master netting arrangements which permit amounts between parties to be offset. Additionally, credit enhancements such as cash deposits, LCs and credit insurance may be employed to mitigate credit risk.

Cash and cash equivalents are placed in depository accounts or high-quality, short-term investments with major international banks and financial institutions. Individual counterparty exposure from over-the-counter derivative instruments is managed within predetermined credit limits and includes the use of master netting arrangements and cash-call margins, when appropriate, to reduce credit risk. Exchange-traded commodity contracts, which are executed through futures commission merchants, have minimal credit risk because they are subject to mandatory margin requirements and are cleared with an exchange. However, Talen is exposed to the credit risk of the futures commission merchants arising from daily variation margin cash calls. Restricted cash and cash equivalents deposited to meet initial margin requirements are held by futures commission merchants in segregated accounts for the benefit of Talen.

Outstanding accounts receivable include those from sales of capacity, generated electricity and ancillary services through contracts directly with ISOs and RTOs and realized settlements of physical and financial derivative instruments with commodity marketers. Additionally, Talen carries accounts receivable due from joint owners for their portion of operating and capital costs for certain jointly owned facilities that are operated by the Company. The majority of outstanding receivables, which are continually monitored, have customary payment terms. The allowance for doubtful accounts was a non-material amount as of June 30, 2024 (Successor) and December 31, 2023 (Successor).

As of June 30, 2024 (Successor), Talen’s aggregate credit exposure, which excludes the effects of netting arrangements, cash collateral, LCs and any allowances for doubtful collections, was $437 million and its credit exposure net of such effects was $66 million. Excluding ISO and RTO counterparties, whose accounts receivable settlements are subject to applicable market controls, the ten largest single net credit exposures account for approximately 54% of Talen’s total net credit exposure, which are primarily with entities assigned investment grade credit ratings.

Certain derivative instruments contain credit risk-related contingent features, which may require us to provide cash collateral, LCs or guarantees from a creditworthy entity if the fair value of a liability eclipses a certain threshold or upon a decline in Talen’s credit rating. The fair values of derivative instruments in a net liability position, and that contain credit risk-related contingent features, were non-material as of June 30, 2024 (Successor) and December 31, 2023 (Successor).

Derivative Instrument Presentation

Balance Sheets Presentation. The fair value of derivative instruments presented within assets and liabilities on the Consolidated Balance Sheets were:


	Successor
	June 30, 2024				December 31, 2023
	Assets		Liabilities		Assets		Liabilities
Commodity contracts	$	24	$	63	$	88	$	32
Interest rate contracts	3		—		1		—

Total current derivative instruments	27		63		89		32
Commodity contracts	13		1		6		5
Interest rate contracts	—		—		—		6
Total non-current derivative instruments	$	13	$	1	$	6	$	11

All commodity and interest rate derivatives are economic hedges where the changes in fair value are presented immediately in income as unrealized gains and losses. Changes in the fair value and realized settlements on commodity derivative instruments are presented as separate components of “Energy revenues” and “Fuel and energy purchases” on the Consolidated Statements of Operations. See Note 12 for additional information on fair value.

Effect of Netting. Generally, the right of setoff within master netting arrangements permits the fair value of derivative assets to be offset with derivative liabilities. As an election, derivative assets and derivative liabilities are presented on the Consolidated Balance Sheets with the effect of such permitted netting as of June 30, 2024 (Successor) and December 31, 2023 (Successor).

The net amounts of “Derivative instruments” presented as assets and liabilities on the Consolidated Balance Sheets considering the effect of permitted netting and where cash collateral is pledged in accordance with the underlying agreement were:


	Gross Derivative Instruments		Eligible for Offset		Net Derivative Instruments		Collateral (Posted) Received		Net Amounts
June 30, 2024 (Successor)
Assets	$	286	$	(246)	$	40	$	—	$	40
Liabilities	332		(246)		86		(22)		64
December 31, 2023 (Successor)
Assets	$	295	$	(198)	$	97	$	(2)	$	95
Liabilities	300		(198)		102		(59)		43

Statements of Operations Presentation. The location and pre-tax effect of “Derivative instruments” presented on the Consolidated Statements of Operations for the periods were:



	Successor				Predecessor		Successor				Predecessor
	Three Months Ended June 30, 2024		May 18 through June 30, 2023		April 1 through May 17, 2023		Six Months Ended June 30, 2024		May 18 through June 30, 2023		January 1 through May 17, 2023
Realized gain (loss) on commodity contracts
Energy revenues (a)	$	38	$	70	$	65	$	196	$	70	$	644
Fuel and energy purchases (a)	(8)		(20)		(13)		(7)		(20)		(34)
Unrealized gain (loss) on commodity contracts
Operating revenues (b)	76		87		(85)		(32)		87		60
Energy expenses (b)	15		(46)		(9)		(12)		(46)		(123)
Realized and unrealized gain (loss) on interest rate contracts
Interest expense and other finance charges	1		1		—		9		1		—

__________________

(a)Does not include those derivative instruments that settle through physical delivery.

(b)Presented as “Unrealized gain (loss) on derivative instruments” on the Consolidated Statements of Operations.

4. Revenue

The disaggregation of our operating revenues for the periods were:


	Successor				Predecessor		Successor				Predecessor
	Three Months Ended June 30, 2024		May 18 through June 30, 2023		April 1 through May 17, 2023		Six Months Ended June 30, 2024		May 18 through June 30, 2023		January 1 through May 17, 2023
Capacity revenues	$	46	$	26	$	42	$	91	$	26	$	108
Electricity sales and ancillary services, ISO/RTO	249		130		85		514		130		281
Physical electricity sales, bilateral contracts, other	22		6		13		86		6		62
Other revenue from customers	29		15		18		71		15		27
Total revenue from contracts with customers	346		177		158		762		177		478
Realized and unrealized gain (loss) on derivative instruments	100		124		(21)		157		124		732
Nuclear PTC and other revenue (a)	43		—		—		79		—		—
Operating revenues	$	489	$	301	$	137	$	998	$	301	$	1,210

__________________

(a)During the six months ended June 30, 2024, $51 million of estimated Nuclear PTCs were utilized as a credit against our federal income tax payable. See Note 5 for additional information on the tax impact of the Nuclear PTC.

Accounts Receivable

“Accounts receivable, net” presented on the Consolidated Balance Sheets were:


	Successor
	June 30, 2024		December 31, 2023
Customer accounts receivable	$	104	$	52
Other accounts receivable	47		85
Accounts receivable, net	$	151	$	137

During the six months ended June 30, 2024 (Successor), the period from May 18 through June 30, 2023 (Successor), and the period from January 1 through May 17, 2023 (Predecessor), there were no significant changes in accounts receivable other than normal receivable recognition and collection transactions. See Note 3 for additional information on Talen’s credit risk on the carrying value of its receivables.

Future Performance Obligations

In the normal course of business, Talen has future performance obligations for capacity sales awarded through market-based capacity auctions and (or) for capacity sales under bilateral contractual arrangements.

As of June 30, 2024 (Successor), the expected future period capacity revenues subject to unsatisfied or partially unsatisfied performance obligations were:


	2024 (a)		2025		2026		2027		2028
Expected capacity revenues	$	101	$	85	$	3	$	3	$	1

__________________

(a)For the period from July 1 through December 31, 2024.

The PJM capacity auction for the 2025/2026 PJM Capacity Year was held in July 2024. Talen cleared a total of 6,820 MW at a clearing price of $269.92 per MW-day for the MAAC, PPL, and PSEG locational deliverability areas. The PJM capacity auctions for any years thereafter have not yet been held. See Note 10 for additional information on the PJM RPM and auctions.

5. Income Taxes

Effective Tax Rate Reconciliations

The reconciliations of the effective tax rate for the periods were:



	Successor				Predecessor		Successor				Predecessor
	Three Months Ended June 30, 2024		May 18 through June 30, 2023		April 1 through May 17, 2023		Six Months Ended June 30, 2024		May 18 through June 30, 2023		January 1 through May 17, 2023
Income (loss) before income taxes	$	570	$	50	$	617	$	958	$	50	$	677
Income tax benefit (expense)	(112)		(19)		(198)		(181)		(19)		(212)
Effective tax rate	19.6%		38.0%		32.1%		18.9%		38.0%		31.3%
Federal income tax statutory tax rate	21 %		21 %		21 %		21 %		21 %		21 %
Income tax benefit (expense) computed at the federal income tax statutory tax rate	(120)		(10)		(130)		(201)		(10)		(143)
Income tax increase (decrease) due to:
State income taxes, net of federal benefit