Talen Energy Sinks Its Talons into Three Power Plants, 2.5 GW of Capacity

Talen Energy Corp. announced on July 20 that it has agreed to acquire MACH Gen LLC, which owns three combined cycle, natural gas–fired power plants with more than 2.5 GW of total capacity for $1.175 billion.

Talen Energy was formed on June 1 when PPL Corp. spun off its PPL Energy Supply business and combined it with RJS Power Holdings—a competitive power generation business owned by affiliates of Riverstone Holdings LLC—to establish a new publicly traded company. It was immediately one of the largest independent power producers in the U.S. with a portfolio capacity of about 15 GW mainly based in the PJM and ERCOT markets.

The MACH Gen-owned plants (Table 1) are located in New York, Massachusetts, and Arizona, which Talen Energy said would add new market and fuel diversity to the company’s fleet. The deal is expected to close by the end of the year, pending regulatory approvals.

Table 1. New territory. The MACH Gen plants add diversity to Talen Energy’s mainly PJM and ERCOT based portfolio. Source: Talen Energy

MACH Gen has seen its share of financial troubles in recent years. It refinanced debt and tried selling the Harquahala facility in 2012, but the deal fell through when the Federal Energy Regulatory Commission (FERC) found that MACH Gen, Saddle Mountain Power, and New Harquahala Generating Co. failed to show that the proposed transaction would not have an adverse effect on competition within the Arizona Public Service Co. balancing authority area.

In 2014, MACH Gen underwent Chapter 11 bankruptcy reorganization. In the filing, the company reported that its 2013 operating revenue was approximately $350 million, resulting in a net loss of about $120 million. The Restructuring Support Agreement reduced long-term liabilities—reported to be about $1.6 billion—by $1 billion.

A couple of the causes cited for MACH Gen’s financial woes were a decline in power demand and a growing supply of renewable energy. It was reported that the New York market was particularly hurt by imports from other regions.

If the purchase is approved, Talen Energy expects to finance the transaction with a combination of debt and cash. It said the final plan would take into consideration market conditions and the amount of existing MACH Gen debt to be assumed.

“This negotiated deal represents a significant step in the execution of our growth strategy, and provides meaningful improvement in our cash flow profile,” Paul Farr, president and CEO of Talen Energy, said in a press release. “The transaction adds highly competitive combined cycle gas assets in NYISO and ISO-NE, two mature and liquid wholesale power markets, with the opportunity to create significant value by optimizing a very efficient gas-fired plant in Arizona.”

Talen Energy’s generation mix was said to be about 43% natural gas or oil, 40% coal, 15% nuclear, and 2% hydro at its inception. However, the company must still rid itself of about 1,300 MW of generating assets in a specific region of PJM to meet a FERC mitigation order related to the transaction that created Talen Energy. The divestiture is required to occur by June 1, 2016.

—Aaron Larson, associate editor (@AaronL_Power, @POWERmagazine)