Talen Energy's sale of 3 Pa. plants not the end of sell-offsDeal affects Ironwood, Holtwood and Wallenpaupack facilities

Three plants down, 400 or so megawatts to go.

Talen Energy Corp. will sell two midstate power facilities and one in Northeastern Pennsylvania in a pair of sales expected to generate $1.51 billion and partially satisfy federal divestiture requirements imposed as part of Talen's creation earlier this year.

But the sale of just under 1,000 megawatts of capacity also means Talen still must shed additional properties to meet the Federal Energy Regulatory Commission's condition to sell off between 1,300 and 1,400 megawatts of capacity.

Under one of the deals announced Thursday, Talen will sell the gas-fired PPL Ironwood plant in South Lebanon Township, Lebanon County, a gas-fired facility with a capacity of 704 megawatts.

A second deal will result in the sale of the 249-megawatt PPL Holtwood hydroelectric station in Martic Township, Lancaster County; and the 44-megawatt Wallenpaupack hydroelectric station on the border of Wayne and Pike counties in northeastern Pennsylvania.

Ironwood will be sold to a subsidiary of TransCanada Corporation for $654 million. The Holtwood and Lake Wallenpaupack facilities will be sold to a subsidiary of Bermuda-based Brookfield Renewable Energy Partners LP for $860 million.

About 50 employees — approximately 25 from Ironwood and an additional 25 from the two hydroelectric facilities — will transfer to the new owner at the time of closing, which is anticipated in the first quarter of 2016, Talen spokesman Todd L. Martin said.

"We recognize and appreciate the dedicated employees who operate, maintain and support the hydro plants. They have done an outstanding job, and their skill and experience will prove invaluable to Brookfield in continuing the legacy of operating excellence and citizenship at both facilities," said Paul Farr, Talen Energy president and CEO.

Farr went on to praise the buyers.

"We have made substantial improvements during our ownership of Ironwood, and appreciate the efforts of the dedicated employees who have operated and maintained the plant very well. We are pleased that we will be conveying ownership to TransCanada, a large and diversified energy company with extensive plant operating experience," he said.

"Brookfield Renewable Energy Partners is an experienced owner and operator of hydroelectric projects and has extensive operations across North America, including the Safe Harbor hydroelectric project on the Susquehanna River just upstream from Holtwood," Farr added.

More sales needed

Talen was created June 1, born as PPL. Corp's spinoff of PPL Energy Supply and its combination with generation assets owned by RJS Power Holdings LLC, an affiliate of Riverstone Holdings LLC.

Among the reasons for the spin off, PPL cited increasing pressure from falling natural-gas prices.

The result was one of the largest power generations in the country, with a portfolio of 25 plans and more than 15,000 megawatts of generating capacity.

Given the new company's size, the divestiture requirement was imposed by FERC in order to prevent the creation of Allentown-based Talen from squelching competition in the PJM Interconnection.

That regional transmission organization serves all or parts of 13 states — including Pennsylvania, plus the District of Columbia — an area that includes more than 51 million people. FERC's concern was competition in PJM's eastern Pennsylvania, Maryland and New Jersey region.

FERC has given Talen Energy until June 1, 2016, to announce which plants will be sold to comply with the order. Martin said he was unable to speculate on what additional properties might be sold, but did say announcements about the additional sales are expected by the end of the fourth quarter.

He did, however, point to the details of an amended mitigation proposal which Talen submitted to FERC last month. Under that proposal, five other plants in New Jersey and the gas-fired York Power Plant in York County would be excluded from the sale plan. 

That would appear to leave the 404-megawatt C.P. Crane coal plant in Middle River, Md., as the only remaining facility proposed by Talen for sale — and if so, bringing the company in line with FERC's total megawatt reduction.

Martin declined to confirm or deny CPBJ's reading of the proposal.

"There are simply too many variables, the most significant being that FERC has not approved option 3 and could require additional divestiture based on their regulatory authority," Martin said. 

"We are continuing to look at all assets listed in each of the options as a mean of compliance and are open to discussing offers for any of those assets based on the return provided to Talen Energy and its shareholders."

$1.16 billion net

The transactions involving Ironwood, Holtwood and Wallenpaupack are expected to result in net proceeds of approximately $1.16 billion, according to Talen's statement.

"In the near term, Talen Energy plans to use proceeds of the transactions to retire pre-payable and maturing debt," the company added.

Ironwood, Holtwood and Wallenpaupack would have been expected to contribute adjusted EBITDA and adjusted free cash flow on a full-year 2016 basis of approximately $140 million and $80 million, respectively, and net income and cash from operations on a full-year 2016 basis of approximately $56 million and $101 million, respectively, the statement added.

For the Ironwood transaction, Credit Suisse served as financial adviser to Talen Energy, and Kirkland & Ellis LLP was transaction counsel.

For the hydro transaction, RBC Capital Markets served as financial adviser to Talen Energy, and Simpson Thacher & Bartlett LLP was transaction counsel.

Source: Central Penn Business Journal