Talen Energy Corp 10-Q

ITEM 1. FINANCIAL STATEMENTS TALEN ENERGY CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED) Successor Predecessor (Millions of Dollars, except share data) Three Months Ended September 30, 2024 Three Months Ended September 30, 2023 Nine Months Ended September 30, 2024 May 18 through September 30, 2023 January 1 through May 17, 2023 Capacity revenues $ 50 $ 44 $ 141 $ 70 $ 108 Energy and other revenues 505 600 1,444 788 1,042 Unrealized gain (loss) on derivative instruments (Note 3) 95 ( 128 ) 63 ( 41 ) 60 Operating Revenues (Note 4) 650 516 1,648 817 1,210 Fuel and energy purchases ( 222 ) ( 253 ) ( 535 ) ( 310 ) ( 176 ) Nuclear fuel amortization ( 30 ) ( 47 ) ( 93 ) ( 72 ) ( 33 ) Unrealized gain (loss) on derivative instruments (Note 3) 7 44 ( 5 ) ( 2 ) ( 123 ) Energy Expenses ( 245 ) ( 256 ) ( 633 ) ( 384 ) ( 332 ) Operating Expenses Operation, maintenance and development ( 127 ) ( 140 ) ( 445 ) ( 209 ) ( 285 ) General and administrative ( 38 ) ( 37 ) ( 121 ) ( 55 ) ( 51 ) Depreciation, amortization and accretion (Note 8) ( 75 ) ( 66 ) ( 225 ) ( 94 ) ( 200 ) Impairments (Note 8) — ( 2 ) — ( 2 ) ( 381 ) Other operating income (expense), net ( 7 ) ( 8 ) ( 14 ) ( 11 ) ( 37 ) Operating Income (Loss) 158 7 210 62 ( 76 ) Nuclear decommissioning trust funds gain (loss), net 67 ( 24 ) 169 15 57 Interest expense and other finance charges (Note 11) ( 66 ) ( 68 ) ( 187 ) ( 101 ) ( 163 ) Reorganization income (expense), net — — — — 799 Gain (loss) on sale of assets, net (Note 17) — — 885 — 50 Other non-operating income (expense), net 20 ( 7 ) 60 ( 18 ) 10 Income (Loss) Before Income Taxes 179 ( 92 ) 1,137 ( 42 ) 677 Income tax benefit (expense) (Note 5) ( 11 ) 16 ( 192 ) ( 3 ) ( 212 ) Net Income (Loss) 168 ( 76 ) 945 ( 45 ) 465 Less: Net income (loss) attributable to noncontrolling interest — 1 29 3 ( 14 ) Net Income (Loss) Attributable to Stockholders (Successor) / Member (Predecessor) $ 168 $ ( 77 ) $ 916 $ ( 48 ) $ 479 Per Common Share (Successor) Net Income (Loss) Attributable to Stockholders - Basic $ 3.30 $ ( 1.30 ) $ 16.44 $ ( 0.81 ) N/A Net Income (Loss) Attributable to Stockholders - Diluted 3.16 ( 1.30 ) 15.86 ( 0.81 ) N/A Weighted-Average Number of Common Shares Outstanding - Basic (in thousands) 50,924 59,029 55,703 59,029 N/A Weighted-Average Number of Common Shares Outstanding - Diluted (in thousands) 53,169 59,029 57,756 59,029 N/A The accompanying Notes to the Interim Financial Statements are an integral part of the financial statements. 2 TALEN ENERGY CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) (UNAUDITED) Successor Predecessor (Millions of Dollars) Three Months Ended September 30, 2024 Three Months Ended September 30, 2023 Nine Months Ended September 30, 2024 May 18 through September 30, 2023 January 1 through May 17, 2023 Net Income (Loss) $ 168 $ ( 76 ) $ 945 $ ( 45 ) $ 465 Other Comprehensive Income (Loss) Available-for-sale securities unrealized gain (loss), net 17 ( 20 ) 5 ( 26 ) 6 Postretirement benefit prior service (credits) costs, net 21 — 21 — — Income tax benefit (expense) ( 7 ) 7 ( 2 ) 9 ( 2 ) Gains (losses) arising during the period, net of tax 31 ( 13 ) 24 ( 17 ) 4 Available-for-sale securities unrealized (gain) loss, net ( 2 ) 6 ( 1 ) 7 4 Qualifying derivatives unrealized (gain) loss, net — — — — ( 1 ) Postretirement benefit actuarial (gain) loss, net — — — — 2 Income tax (benefit) expense ( 5 ) ( 2 ) ( 5 ) ( 2 ) ( 3 ) Reclassifications from AOCI, net of tax ( 7 ) 4 ( 6 ) 5 2 Total Other Comprehensive Income (Loss) 24 ( 9 ) 18 ( 12 ) 6 Comprehensive Income (Loss) 192 ( 85 ) 963 ( 57 ) 471 Less: Comprehensive income (loss) attributable to noncontrolling interest — 1 29 3 ( 14 ) Comprehensive Income (Loss) Attributable to Stockholders (Successor) / Member (Predecessor) $ 192 $ ( 86 ) $ 934 $ ( 60 ) $ 485 The accompanying Notes to the Interim Financial Statements are an integral part of the financial statements. 3 TALEN ENERGY CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED) Successor (Millions of Dollars, except share data) September 30, 2024 December 31, 2023 Assets Cash and cash equivalents $ 648 $ 400 Restricted cash and cash equivalents (Note 16) 484 501 Accounts receivable (Note 4) 97 137 Inventory, net (Note 6) 297 375 Derivative instruments (Notes 3 and 12) 50 89 Other current assets 97 52 Total current assets 1,673 1,554 Property, plant and equipment, net (Note 8) 3,228 3,839 Nuclear decommissioning trust funds (Notes 7 and 12) 1,737 1,575 Derivative instruments (Notes 3 and 12) 22 6 Other noncurrent assets 188 147 Total Assets $ 6,848 $ 7,121 Liabilities and Equity Long-term debt, due within one year (Notes 11 and 12) $ 9 $ 9 Accrued interest 54 32 Accounts payable and other accrued liabilities 210 344 Derivative instruments (Notes 3 and 12) 6 32 Other current liabilities 129 69 Total current liabilities 408 486 Long-term debt (Notes 11 and 12) 2,616 2,811 Derivative instruments (Notes 3 and 12) 4 11 Postretirement benefit obligations (Note 13) 318 368 Asset retirement obligations and accrued environmental costs (Note 9) 475 469 Deferred income taxes (Note 5) 452 407 Other noncurrent liabilities 130 35 Total Liabilities $ 4,403 $ 4,587 Commitments and Contingencies (Note 10) Stockholders’ Equity Common stock ($ 0.001 par value 350,000,000 shares authorized) (a)(b) $ — $ — Additional paid-in capital 1,980 2,346 Accumulated retained earnings (deficit) 412 134 Accumulated other comprehensive income (loss) ( 5 ) ( 23 ) Total Stockholders’ Equity 2,387 2,457 Noncontrolling interests 58 77 Total Equity 2,445 2,534 Total Liabilities and Equity $ 6,848 $ 7,121 __________________ (a) As of September 30, 2024 (Successor): 50,855,417 shares issued and outstanding, (b) 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. 4 TALEN ENERGY CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) Successor Predecessor (Millions of Dollars) Nine Months Ended September 30, 2024 May 18 through September 30, 2023 January 1 through May 17, 2023 Operating Activities Net income (loss) $ 945 $ ( 45 ) $ 465 Non-cash reconciliation adjustments: Unrealized (gains) losses on derivative instruments ( 59 ) 49 65 (Gain) loss on Cumulus Data Campus Sale and ERCOT Sale ( 886 ) — — (Gain) loss on sales of assets, net — — ( 50 ) Nuclear fuel amortization 93 71 33 Depreciation, amortization and accretion 216 89 208 Impairments — 2 381 NDT funds (gain) loss, net (excluding interest and fees) ( 135 ) 1 ( 43 ) Deferred income taxes 39 ( 4 ) 195 Reorganization (income) expense, net — — ( 933 ) Other ( 58 ) 23 7 Changes in assets and liabilities: Accounts receivable, net 41 ( 23 ) 261 Inventory, net 73 9 10 Other assets 28 45 98 Accounts payable and accrued liabilities ( 115 ) ( 89 ) ( 69 ) Accrued interest 22 65 ( 124 ) Other liabilities 42 ( 13 ) ( 42 ) Net cash provided by (used in) operating activities 246 180 462 Investing Activities Property, plant and equipment expenditures ( 58 ) ( 60 ) ( 138 ) Nuclear fuel expenditures ( 89 ) ( 43 ) ( 49 ) NDT funds investment sale proceeds 1,646 768 949 NDT funds investment purchases ( 1,670 ) ( 780 ) ( 959 ) Equity investments in affiliates ( 6 ) ( 3 ) ( 8 ) Proceeds from Cumulus Data Campus Sale and ERCOT Sale (Note 17) 1,398 — — Proceeds from the sale of assets 1 — 46 Other investing activities 3 10 2 Net cash provided by (used in) investing activities 1,225 ( 108 ) ( 157 ) 5 TALEN ENERGY CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) Successor Predecessor (Millions of Dollars) Nine Months Ended September 30, 2024 May 18 through September 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 ) TLB proceeds, net — 289 — LMBE-MC TLB payments — ( 294 ) ( 7 ) Cumulus Digital TLF repayment ( 182 ) — — Share repurchases (Note 15) ( 956 ) — — Repurchase of noncontrolling interest ( 39 ) ( 19 ) — Cash settlement of restricted stock units ( 31 ) — — Deferred finance costs — ( 4 ) ( 74 ) Repurchase of warrants — ( 40 ) — Derivatives with financing elements — — ( 20 ) Other ( 32 ) 6 — Net cash provided by (used in) financing activities ( 1,240 ) ( 62 ) ( 539 ) Net Increase (Decrease) in Cash and Cash Equivalents and Restricted Cash and Cash Equivalents 231 10 ( 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 $ 1,132 $ 764 $ 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. 6 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 repurchases ( 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 Net income (loss) — — 168 — — — 168 Other comprehensive income (loss) — — — 24 — — 24 Share repurchases ( 2,560 ) — — — ( 304 ) — ( 304 ) Retirement of treasury stock — ( 100 ) ( 204 ) — 304 — — Cash settlement of restricted stock units — ( 3 ) — — — — ( 3 ) Exercise of warrants 160 ( 16 ) — — — — ( 16 ) Non-cash distributions (b) — — — — — ( 3 ) ( 3 ) Stock-based compensation — 7 — — — — 7 September 30, 2024 (Successor) 50,855 $ 1,980 $ 412 $ ( 5 ) $ — $ 58 $ 2,445 __________________ (a) Shares in thousands. (b) Related primarily to distributions of Bitcoin to TeraWulf. (c) TES acquisition of remaining noncontrolling interests in Cumulus Digital Holdings. See Note 15 for additional information. (d) Distributions to noncontrolling interest owners of Cumulus Digital Holdings. The accompanying Notes to the Interim Financial Statements are an integral part of the financial statements. 7 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 59,029 2,321 — — ( 2,321 ) — — Non-cash distributions (b) — — — — — ( 3 ) ( 3 ) May 17, 2023 (Predecessor) 59,029 $ 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 Net income (loss) — — ( 77 ) — — 1 ( 76 ) Other comprehensive income (loss) — — — ( 9 ) — — ( 9 ) Repurchase of NCI — 5 — — — ( 24 ) ( 19 ) Non-cash distributions (d) — — — — — ( 5 ) ( 5 ) Other — 7 — — — — 7 September 30, 2023 (Successor) 59,029 $ 2,337 $ ( 48 ) $ ( 12 ) $ — $ 81 $ 2,358 __________________ (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. 8 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 September 30, 2024 (Successor), our generation capacity was 10,676 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 various other 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 September 30, 2023, and from January 1 through September 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. 9 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 repurchased 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 nine months ended September 30, 2024 (Successor). Additional guidance expected to be issued from the U.S. Treasury and IRS may impact the credit value recognized. 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. 10 Open commodity purchase (sales) derivatives as of September 30, 2024 (Successor) range in maturity through 2026. The net notional volumes of open commodity derivatives were: Successor September 30, 2024 (a) December 31, 2023 (a) Power (MWh) ( 32,222,671 ) ( 27,557,871 ) Natural gas (MMBtu) 37,757,360 8,314,060 Emission allowances (tons) 346,000 500,000 __________________ (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 mature in 2026. The net notional volumes of open interest rate derivatives were: Successor September 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 that 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 September 30, 2024 (Successor) and December 31, 2023 (Successor). As of September 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 $ 309 million and its credit exposure net of such effects was $ 68 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 66 % 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 September 30, 2024 (Successor) and December 31, 2023 (Successor). 11 Derivative Instrument Presentation Balance Sheets Presentation. The fair value of derivative instruments presented within assets and liabilities on the Consolidated Balance Sheets were: Successor September 30, 2024 December 31, 2023 Assets Liabilities Assets Liabilities Commodity contracts $ 50 $ 6 $ 88 $ 32 Interest rate contracts — — 1 — Total current derivative instruments 50 6 89 32 Commodity contracts 22 1 6 5 Interest rate contracts — 3 — 6 Total non-current derivative instruments $ 22 $ 4 $ 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 September 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 September 30, 2024 (Successor) Assets $ 211 $ ( 139 ) $ 72 $ — $ 72 Liabilities 172 ( 139 ) 33 ( 23 ) 10 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 Three Months Ended September 30, 2024 Three Months Ended September 30, 2023 Nine Months Ended September 30, 2024 May 18 through September 30, 2023 January 1 through May 17, 2023 Realized gain (loss) on commodity contracts Energy revenues (a) $ 60 $ 177 $ 256 $ 247 $ 644 Fuel and energy purchases (a) ( 24 ) ( 49 ) ( 31 ) ( 70 ) ( 34 ) Unrealized gain (loss) on commodity contracts Operating revenues (b) 95 ( 128 ) 63 ( 41 ) 60 Energy expenses (b) 7 44 ( 5 ) ( 2 ) ( 123 ) Realized and unrealized gain (loss) on interest rate contracts Interest expense and other finance charges ( 6 ) — 3 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. 12 4. Revenue The disaggregation of our operating revenues for the periods were: Successor Predecessor Three Months Ended September 30, 2024 Three Months Ended September 30, 2023 Nine Months Ended September 30, 2024 May 18 through September 30, 2023 January 1 through May 17, 2023 Capacity revenues $ 50 $ 44 $ 141 $ 70 $ 108 Electricity sales and ancillary services, ISO/RTO 351 558 865 688 281 Physical electricity sales, bilateral contracts, other 38 35 124 41 62 Other revenue from customers 20 29 91 44 27 Total revenue from contracts with customers 459 666 1,221 843 478 Realized and unrealized gain (loss) on derivative instruments 119 ( 150 ) 276 ( 26 ) 732 Nuclear PTC and other revenue (a) 72 — 151 — — Operating revenues $ 650 $ 516 $ 1,648 $ 817 $ 1,210 __________________ (a) During the nine months ended September 30, 2024, $ 90 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 September 30, 2024 December 31, 2023 Customer accounts receivable $ 50 $ 52 Other accounts receivable 47 85 Accounts receivable, net $ 97 $ 137 During the nine months ended September 30, 2024 (Successor), the period from May 18 through September 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. 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 BRAs. As of September 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 $ 51 $ 478 $ 280 $ 3 $ 1 __________________ (a) For the period from October 1 through December 31, 2024. 13 5. Income Taxes Effective Tax Rate Reconciliations The reconciliations of the effective tax rate for the periods were: Successor Predecessor Three Months Ended September 30, 2024 Three Months Ended September 30, 2023 Nine Months Ended September 30, 2024 May 18 through September 30, 2023 January 1 through May 17, 2023 Income (loss) before income taxes $ 179 $ ( 92 ) $ 1,137 $ ( 42 ) $ 677 Income tax benefit (expense) ( 11 ) 16 ( 192 ) ( 3 ) ( 212 ) Effective tax rate 6.1 % 17.4 % 16.9 % ( 7.1 %) 31.3 % Federal income tax statutory tax rate 21 % 21 % 21 % 21 % 21 % Income tax benefit (expense) computed at the federal income tax statutory tax rate ( 38 ) 19 ( 239 ) 9 ( 143 ) Income tax increase (decrease) due to: State income taxes, net of federal benefit ( 5 ) 3 ( 34 ) 1 ( 34 ) Change in valuation allowance 29 ( 12 ) 63 ( 10 ) 129 Production tax credits 16 — 34 — — Other permanent differences ( 3 ) 3 10 — ( 16 ) Nuclear decommissioning trust taxes ( 10 ) 3 ( 26 ) ( 3 ) ( 9 ) Reorganization adjustments — — — — ( 138 ) Other — — — — ( 1 ) Income tax benefit (expense) $ ( 11 ) $ 16 $ ( 192 ) $ ( 3 ) $ ( 212 ) Valuation Allowance Management assesses the available positive and negative evidence to estimate whether it is more likely than not that sufficient future taxable income will be generated to permit use of existing deferred tax assets. The assessment of future taxable income includes the scheduled reversal of taxable temporary differences, projected future taxable income, tax planning strategies, and results of recent operations. For the nine months ended September 30, 2024 (Successor), Talen recognized a $ 63 million tax benefit for the reduction in federal and state valuation allowances, primarily related to year-to-date divestitures and year-to-date income which increase the amount of tax attributes that can be utilized. See Note 17 for information on divestitures. At each period, management will continue to assess the available positive and negative evidence to determine the need for a valuation allowance. We believe that there is a reasonable possibility that within the next 12 months, sufficient positive evidence may become available to allow us to reach a conclusion that a significant portion of the valuation allowance may no longer be needed. 6. Inventory Successor September 30, 2024 December 31, 2023 Coal $ 104 $ 152 Oil products 69 75 Fuel inventory for electric generation 173 227 Materials and supplies, net 83 72 Environmental products 41 76 Inventory, net $ 297 $ 375 Inventory net realizable value and obsolescence charges on coal and fuel oil inventories are presented as “Other operating income (expense), net” on the Consolidated Statements of Operations. Such non-cash charges were non-material for the nine months ended September 30, 2024 (Successor), non-material for the period from May 18 through September 30, 2023 (Successor), and $ 37 million for the period from January 1 through May 17, 2023 (Predecessor) . Of the above charges incurred during the period from January 1 through May 17, 2023 (Predecessor), $ 24 million is related to Brandon Shores inventories. See Note 8 for additional information on the Brandon Shores recoverability assessment. 14 7. Nuclear Decommissioning Trust Funds Successor September 30, 2024 December 31, 2023 Amortized Cost Unrealized Gains Unrealized Losses Fair Value Amortized Cost Unrealized Gains Unrealized Losses Fair Value Cash equivalents $ 8 $ — $ — $ 8 $ 9 $ — $ — $ 9 Equity securities 504 672 44 1,132 491 575 53 1,013 Debt securities 581 12 — 593 570 10 1 579 Receivables (payables), net 4 — — 4 ( 26 ) — — ( 26 ) NDT funds $ 1,097 $ 684 $ 44 $ 1,737 $ 1,044 $ 585 $ 54 $ 1,575 See Note 12 for additional information on the NDT fair value. There were no available-for-sale debt securities with credit losses as of September 30, 2024 (Successor) and December 31, 2023 (Successor). The contractual maturities for available-for-sale debt securities presented on the Consolidated Balance Sheets were: Successor September 30, 2024 December 31, 2023 Maturities within one year $ 63 $ 105 Maturities within two to five years 185 194 Maturities thereafter 345 280 Debt securities, fair value $ 593 $ 579 The sales proceeds, gains, and losses for available-for-sale debt securities for the periods were: Successor Predecessor Three Months Ended September 30, 2024 Three Months Ended September 30, 2023 Nine Months Ended September 30, 2024 May 18 through September 30, 2023 January 1 through May 17, 2023 Sales proceeds of NDT funds investments (a) $ 545 $ 492 $ 1,578 $ 763 $ 839 Gross realized gains 4 1 9 1 7 Gross realized losses ( 2 ) ( 5 ) ( 8 ) ( 7 ) ( 12 ) __________________ (a) Sales proceeds are used to pay income taxes and trust management fees. Remaining proceeds are reinvested in the NDT. 8. Property, Plant and Equipment Successor September 30, 2024 December 31, 2023 Estimated Useful Life (years) Gross Value Accumulated Provision Carrying Value Gross Value Accumulated Provision Carrying Value Electric generation 3 - 27 $ 3,020 $ ( 246 ) $ 2,774 $ 3,178 $ ( 109 ) $ 3,069 Nuclear fuel 1 - 6 322 ( 129 ) 193 228 ( 55 ) 173 Other property and equipment 1 - 26 148 ( 36 ) 112 358 ( 21 ) 337 Capitalized software 1 - 5 9 ( 3 ) 6 6 ( 1 ) 5 Construction work in progress 143 — 143 255 — 255 Property, plant and equipment, net $ 3,642 $ ( 414 ) $ 3,228 $ 4,025 $ ( 186 ) $ 3,839 15 The components of “Depreciation, amortization and accretion” presented on the Consolidated Statements of Operations for the periods were: Successor Predecessor Three Months Ended September 30, 2024 Three Months Ended September 30, 2023 Nine Months Ended September 30, 2024 May 18 through September 30, 2023 January 1 through May 17, 2023 Depreciation expense (a) $ 56 $ 53 $ 172 $ 76 $ 173 Amortization expense (b) 5 — 11 1 4 Accretion expense (c) 14 13 42 17 24 Other — — — — ( 1 ) Depreciation, amortization, and accretion $ 75 $ 66 $ 225 $ 94 $ 200 __________________ (a) Electric generation and other property and equipment. (b) Intangible assets and capitalized software. (c) ARO and accrued environmental cost accretion. See Note 9 for additional information. The cost of nuclear fuel is presented as “Nuclear fuel amortization” on the Consolidated Statements of Operations. Reliability Impact Assessments PJM RMR Assessments. In 2023, Talen provided notifications to PJM it intends to deactivate electric generation at both Brandon Shores and H.A. Wagner on June 1, 2025. PJM has notified Talen that the generation units at each facility are needed for reliability. In April 2024, cost-of-service rate schedules covering the period of June 1, 2025 through December 31, 2028 were filed at FERC for the continued operation and provision of service from Brandon Shores Units 1 and 2 and H.A Wagner Units 3 and 4. Each of the filed rate schedules sets forth the terms, conditions, and cost-based rates under which the applicable generation facility will agree to continue to operate its generation units. In June 2024: (i) FERC accepted each rate schedule, subject to refund; (ii) an administrative settlement judge was appointed; and (iii) settlement proceedings commenced. No assurance can be provided as to when, if at all, final rate schedules for each generation facility will be approved by FERC or how the rate schedules and resulting revenues may ultimately be modified in the course of settlement judge procedures, or, should they be necessary, in the course of any subsequent evidentiary hearing procedures. 2023 Impairment Brandon Shores Asset Group. Brandon Shores is required by contract and permit to cease coal combustion by December 31, 2025. In the first quarter 2023, Talen canceled its plan to convert Brandon Shores to an oil combustion facility due to an increase in expected conversion costs. This decision triggered a recoverability assessment of the carrying value of the Brandon Shores asset group. The recoverability analysis indicated that the Brandon Shores asset group carrying value exceeded its future estimated undiscounted cash flows, which required an impairment charge to amend the asset group’s carrying value of its property, plant and equipment to its estimated fair value. Accordingly, for the period from January 1 through May 17, 2023 (Predecessor), a $ 361 million non-cash pre-tax impairment charge on the asset group’s undepreciated property, plant and equipment is presented as “Impairments” on the Consolidated Statements of Operations. 9. Asset Retirement Obligations and Accrued Environmental Costs Successor September 30, 2024 December 31, 2023 Asset retirement obligations $ 495 $ 464 Accrued environmental costs 22 23 Total asset retirement obligations and accrued environmental costs 517 487 Less: asset retirement obligations and accrued environmental costs due within one year (a) 42 18 Asset retirement obligations and accrued environmental costs due after one year $ 475 $ 469 __________________ (a) Presented as “Other current liabilities” on the Consolidated Balance Sheets. 16 Asset Retirement Obligations The changes of the ARO carrying value were: ARO Rollforward Carrying value, December 31, 2023 (Successor) $ 464 Obligations settled ( 9 ) Accretion expense 40 Carrying value, September 30, 2024 (Successor) $ 495 Supplemental information for the ARO: Successor September 30, 2024 December 31, 2023 Supplemental Information Nuclear (a) $ 234 $ 214 Non-Nuclear (b) 261 250 Carrying value $ 495 $ 464 __________________ (a) Obligations are expected to be settled with available funds in the NDT at the time of decommissioning. See Note 12 for additional information on the NDT. (b) Certain obligations are: (i) partially supported by surety bonds, some of which have been collateralized with cash and (or) LCs; or (ii) partially prefunded under phased installment agreements. As a result of environmental regulations issued by the EPA or other rule-making entities, the Company may be required to revise and (or) recognize new AROs. See “Environmental Matters” in Note 10 for additional information. See “Talen Montana Financial Assurance” in Note 10 for information on Talen Montana’s requirement to provide financial assurance for certain environmental decommissioning and remediation liabilities related to Colstrip. 10. Commitments and Contingencies Legal Matters Talen is involved in certain legal proceedings, claims, and litigation. While we believe that we have meritorious positions and will continue to defend our positions in these matters vigorously, we may not be successful in our efforts. If an unfavorable outcome is probable and can be reasonably estimated, a liability is recognized. In the event of an unfavorable outcome, the liability may be in excess of amounts currently accrued. Because of the inherently unpredictable nature of legal proceedings and the wide range of potential outcomes for any such matter, no estimate of the possible losses in excess of amounts accrued, if any, can be made at this time regarding the matters specifically described below. As a result, additional losses actually incurred in excess of amounts accrued could be substantial. Pending Legal Matters ERCOT Weather Event (Winter Storm Uri) Lawsuits. In May 2024, the Company closed on the ERCOT Sale but retained certain potential liabilities in connection with Winter Storm Uri (see Note 17 for information on the ERCOT Sale). In December 2023, five multi-district litigation (“MDL”) bellwether suits against Talen’s former subsidiaries and other power generation facility market participants were dismissed by the MDL court. The plaintiffs allege they suffered losses due to the defendants’ failure to provide sufficient power to the grid and have been seeking unspecified damages. The plaintiffs filed a motion for rehearing on the matter and, if unsuccessful, it’s expected the plaintiffs will petition the Texas Supreme Court to review the decision. The cases dismissed and now on appeal were selected by the MDL court as representative of all 58 cases filed in the Winter Storm Uri litigation. If affirmed by the Texas Supreme Court, Talen expects the MDL court to apply its dismissal ruling broadly to all Winter Storm Uri cases involving Talen defendants. Talen’s maximum potential damages on prepetition Winter Storm Uri claims are expressly limited to payments from the Talen defendants’ insurers pursuant to the Plan of Reorganization. However, claims filed by plaintiffs after the Restructuring commenced who did not receive effective notice of the Restructuring, if any, may not be subject to the Plan of Reorganization. Talen cannot predict the effect of an adverse outcome for any such claims. 17 Resolved Legal Matters Pension Litigation. In July 2024, the U.S. District Court for the Eastern District of Pennsylvania approved a $ 20 million settlement in a class action lawsuit brought by former Talen employees who alleged they were owed enhanced benefits under the TERP. Under the terms of the settlement, Talen agreed to pay: (i) approximately $ 6 million for administrative costs of the settlement and for plaintiff attorneys fees, which were partially offset by insurance recoveries; and (ii) approximately $ 14 million to class members from the TERP. Both payment obligations were substantially completed during the three months ended September 30, 2024 (Successor). PUCT Repricing. In June 2021, Talen intervened in proceedings in which certain market participants challenged the validity of two Public Utility Commission of Texas (“PUCT”) orders directing ERCOT to price energy at the maximum of $ 9,000 per MWh during Winter Storm Uri. Talen opposed this relief. In June 2024, the Texas Supreme Court found the PUCT substantially complied with the Administrative Procedure Act’s procedural rulemaking requirements. Subject to any successful motion for rehearing in the Texas Supreme Court, this matter is effectively concluded in the Company’s favor. See Note 12 in Notes to the Annual Financial Statements for legal matters resolved previously. Regulatory Matters Talen is subject to regulation by federal and state agencies and other bodies that exercise regulatory authority in the various regions where we conduct business, including but not limited to, FERC; the Department of Energy; the Federal Communications Commission; the NRC; NERC; and state public utility commissions. The RTOs and ISOs in the regions in which we conduct business inherently have complex rules that are intended to balance the interests of market stakeholders. Proposed market structure modifications may lead to disputes among stakeholders that might not be resolved for a period of time as a result of regulatory and (or) legal proceedings. Accordingly, Talen is subject to uncertainty with respect to: (i) new or amended regulations issued by regulatory agencies; and (ii) changes in market design, tariff structure, capacity auctions, and (or) pricing rules. Unless otherwise discussed below, we are unable to predict the outcome of any regulatory matters or reasonably estimate the amount of any associated costs and (or) potential liabilities. Additionally, it is possible that any outcome to Talen with respect to such matters, including market modifications, could have a material impact on our capacity revenues, energy revenues, results of operations, liquidity, or financial condition. PJM Capacity Market Reform. In June 2023, FERC accepted a request by PJM to delay certain PJM BRAs in order for PJM to propose market reforms. PJM filed its market reform proposals with FERC in October 2023. In early 2024, FERC accepted portions of PJM’s proposed market changes. PJM held the PJM BRA for the 2025/2026 PJM Capacity Year in July 2024 which incorporated the FERC accepted changes. The PJM BRAs for the 2026/2027, 2027/2028, and 2028/2029 PJM Capacity Years were previously scheduled for December 2024, June 2025, and December 2025, respectively; however in September 2024, the Sierra Club and other public interest organizations filed a complaint at FERC challenging PJM’s rules establishing must-offer exceptions for PJM BRA participation by PJM RMR resources and seeking to delay the 2026/2027 PJM BRA pending resolution of its complaint. In October 2024, PJM announced it has concerns about FERC considering the Sierra Club’s complaints about PJM RMR resources in isolation and therefore intends to file a Section 205 proceeding under the Federal Power Act seeking FERC’s approval of to-be-determined market reforms not limited to potential revisions to the treatment of PJM RMR resources. As a result, in October 2024 PJM formally requested that FERC approve six-month delays in the PJM BRAs for the 2026/2027, 2027/2028, 2028/2029, and 2029/2030 PJM Capacity Years and in November 2024, FERC approved the auction delays. Talen can provide no assurance that the four scheduled auctions will be held as scheduled or at all. Susquehanna ISA Amendment. Under a prior, FERC-accepted interconnection agreement between PJM, Susquehanna, and a subsidiary of PPL Corporation (“PPL”) (collectively, the “ISA Parties”), Susquehanna is permitted to decrease by up to 300 MW the amount of power supply that it would otherwise provide to the power grid within PPL’s service area. Susquehanna currently provides that power to load via load-owned transmission directly connected to Susquehanna rather than supplying load from the power grid. In June 2024, PJM filed at FERC an Amended Interconnection Service Agreement (“Amended ISA”) executed between the ISA Parties permitting Susquehanna to decrease by up to 480 MW the amount of power supply that it would otherwise provide to the power grid and now intends to sell to AWS instead. PJM previously concluded such increase in the amount of withheld power would have no reliability impacts on the grid. In June 2024, despite the Amended ISA being applicable solely to the PPL service area, Exelon Corporation and AEP filed a protest to the Amended ISA at FERC and raised generic issues involving the direct connection of load service to generators. FERC responded by issuing a deficiency letter in August 2024 seeking more information about the arrangement described in the Amended ISA and separately setting a Technical Conference for November 2024 to discuss broader issues related to (i) co-located load connected directly to generation; and (ii) emerging reliability issues resulting from the dramatic rise in data center demand for power. In September 2024, PJM provided a response to FERC’s August 2024 deficiency letter on the Amended ISA and filed a Construction Service Agreement between the ISA Parties and Mid-Atlantic Interstate Transmission, LLC to facilitate certain network upgrades to ultimately accommodate a 960 MW decrease of power supply to the grid. Talen filed its own comments in September 2024 and written testimony in the Technical Conference proceeding in October 2024. Shortly after the conclusion of the FERC Technical Conference on November 1, 2024, FERC issued a 2-1 decision rejecting the Amended ISA. Talen may seek a rehearing of the FERC order within the 30-day deadline for such motions and, if necessary, file a subsequent appeal in a U.S. Court of Appeals. 18 The prior FERC-accepted interconnection agreement between the ISA Parties permitting Susquehanna to decrease 300 MW of its current power supply from the power grid remains in place and facilitates the initial sale of power to AWS under the AWS PPA. The Company is evaluating its commercial and legal options to provide the most efficient path to full development of the AWS data center campus. Such options include, but are not limited to, potential submission of a revised form of Amended ISA or alternate contract structures with AWS. If the Company is unable commercially or legally to resolve the Amended ISA approval impediments and realize the full development of the AWS data center campus, there may be a material impact on our future results of operations and (or) financial condition. Environmental Matters Extensive federal, state, and local environmental laws and regulations are applicable to our business, including those related to air emissions, water discharges, and hazardous and solid waste management. From time to time, in the ordinary course of our business, Talen may be: (i) subject to environmental remediation work at its facilities; (ii) involved in other environmental matters; or (iii) become subject to other, new or revised environmental statutes, regulations, or requirements. It may be necessary for us to modify, curtail, replace, or cease operation of certain facilities or performance of certain operations to comply with statutes, regulations, and other requirements imposed by regulatory bodies, courts, or environmental groups. We may incur significant costs to comply with these requirements, including increased capital expenditures or operation and maintenance expenses, monetary fines, remediation costs, penalties, or other restrictions. Legal challenges to environmental rules or permits add to the uncertainty of estimating future compliance costs. Additionally, costs may increase significantly if the requirements or scope of environmental laws or regulations, or similar rules, are expanded or changed. Unless otherwise discussed below, we are unable to predict the outcome of any environmental matters or reasonably estimate the amount of any associated costs and (or) potential liabilities. It is possible that any adverse outcome to Talen with respect to such matters could have a material impact on our results of operations, liquidity, and (or) financial condition. EPA Cross-State Air Pollution Rule (“EPA CSAPR”) and Nitrogen Oxides (“NOx”) Requirements. Coal-fired generation facilities, including those in which Talen has ownership, have been the subject of EPA regulations and efforts by certain states and other parties to strengthen applicable NOx emission limits under the Clean Air Act. In 2015, the EPA’s 2015 revision to the 8-hour ozone National Ambient Air Quality Standards for ground-level ozone to 70 parts per billion (the “EPA 2015 Ozone Standard”) was issued, which triggered updates to state-specific compliance requirements as well as provisions that are intended to limit cross-state emissions. In June 2023, the EPA published a rule in connection with the EPA 2015 Ozone Standard updating the EPA CSAPR ozone season NOx allowance trading program for 2023 and beyond (“Good Neighbor Plan FIP”). Talen’s facilities in Maryland, Pennsylvania, and New Jersey are subject to the new rule; however, the entire rule has been challenged by multiple parties. The Good Neighbor Plan FIP was stayed in its entirety by the U.S. Supreme Court in June 2024 pending a complete review of the rule by the D.C. Circuit Court of Appeals. In the meantime, EPA has issued a direct final rule indicating it plans to provide NOx allocations and budgets from the previously applicable and less restrictive revised CSAPR rule until the Good Neighbor Plan FIP matter is resolved. EPA Mercury and Air Toxics Standards Rule (“EPA MATS Rule”). In May 2024, the EPA published a rule that requires coal-fired generation facilities to reduce particulate matter (“PM”) emissions by the middle of 2027 (or 2028, if an extension is approved). Colstrip is not expected to meet the new PM standard without substantial upgrades to its control equipment. As a result, Talen Montana and the other Colstrip co-owners face the decision either to invest in new cost-prohibitive control equipment or retire the Colstrip facility. Such decision must be evaluated in conjunction with compliance requirements under the May 2024 EPA GHG Rule due to timing and costs. Challenges to the EPA MATS Rule have been filed in the D.C. Circuit Court of Appeals, including by Talen and 23 states. After motions to stay the EPA MATS Rule during the pendency of the litigation were denied by the D.C. Circuit Court of Appeals, Talen and other parties filed emergency stay request applications with the U.S. Supreme Court in September 2024, which were denied in October 2024. The appeal on the merits of the new rule remains pending in the D.C. Circuit Court of Appeals. No assurance can be provided as to when the challenges to the EPA MATS Rule will be resolved or whether such challenges will be resolved in the Company’s favor. As the timeline for compliance with the new standards is accelerated and must be considered in tandem with the new EPA GHG Rule, it is possible the Company will need to make operating decisions about the future of Colstrip before the Company has clarity about the outcome of the litigation. 19 EPA Greenhouse Gas Rule (“EPA GHG Rule”). In May 2024, the EPA published a rule that establishes carbon dioxide limits for new electric generating units (“EGUs”) and greenhouse gas (“GHG”) emission guidelines for certain existing EGUs. Under the guidelines, if existing coal-fired EGUs operate beyond 2031, GHG reductions, such as those achieved by the addition of carbon capture and sequestration (“CCS”), are required to be implemented by the end of 2031. Colstrip is not expected to meet the new rules without substantial technology upgrades and pipeline infrastructure build-out. As a result, Talen Montana and the other Colstrip co-owners face the decision either to invest in new cost-prohibitive controls (e.g., CCS technology) or retire the Colstrip facility by the end of 2031. Such decision must be evaluated in conjunction with compliance requirements under the May 2024 EPA MATS Rule. Petitions have been filed in the D.C. Circuit Court of Appeals, including by coalitions representing 27 states and an ad hoc coalition of power producers of which Talen is a member, requesting a review of the EPA GHG Rule. Stay motions were denied by the D.C. Circuit Court of Appeals in July 2024 and the U.S. Supreme Court in October 2024. Appeals of the EPA GHG Rule remain pending in the D.C. Circuit Court of Appeals. No assurance can be provided as to when the challenges to the EPA GHG Rule will be resolved or whether such challenges will be resolved in the Company’s favor. The EPA has also stated its intent to develop GHG regulations for existing natural gas combustion turbines; however, no rule has been proposed. As the timeline for compliance with the new standards is accelerated and must be considered in tandem with the new EPA MATS Rule, it is possible the Company will need to make operating decisions about the future of Colstrip before the Company has clarity about the outcome of the litigation. Pennsylvania RGGI. In April 2022, Pennsylvania entered the RGGI program, with compliance set to begin on July 1, 2022. However, in November 2023, the Commonwealth Court of Pennsylvania ruled RGGI was an invalid tax and voided the rulemaking. The Pennsylvania Department of Environmental Protection appealed this decision to the Pennsylvania Supreme Court and filed notice with the court that the RGGI program would not be implemented while the appeal is pending. In July 2024, the Pennsylvania Supreme Court permitted certain non-profit environmental groups to intervene in the litigation. EPA Effluent Limitation Guidelines Rule (“EPA ELG Rule”). In November 2015, the EPA revised the effluent limitation guidelines for certain power generation facilities, which imposed more stringent standards for wastewater streams as facility discharge permits are renewed. In 2020, the EPA issued changes that would exempt coal generation facility operators from meeting certain wastewater standards if the facility would commit to cease coal-fired generation by the end of 2028, which Talen elected for its wholly owned coal operations. In May 2024, the EPA published revisions to the EPA ELG Rule, which imposed additional requirements for legacy wastewater and combustion residual leachate. Such EPA ELG Rule revisions impact Talen’s active generation facilities that have both CCR units and hold National Pollutant Discharge Elimination System (“NPDES”) discharge permits. These sites include Brandon Shores, Brunner Island, Montour, and potentially Martins Creek. Talen is evaluating what: (i) potential discharge limits may apply; (ii) treatment may be required; and (iii) the implementation timeline may be. Obligations for installing any new wastewater treatment equipment, if necessary, will not be known until each applicable state where the active generation facilities operate makes their own determination with respect to NPDES permit renewals with new limits and associated timing. As a result of the future permit conditions, additional capital expenditures and (or) AROs may be required, which may have a material impact on our results of operations and (or) financial condition. Multiple challenges, including stay requests, to the EPA ELG Rule have been filed in various U.S. Courts of Appeal by parties that include 15 states, environmental groups, and industry groups, including the Utility Water Act Group (“UWAG”), of which Talen is a member. The appeals have been consolidated in the U.S. Court of Appeals for the Eighth Circuit, and in October 2024, stay requests were denied. No assurance can be provided as to when the challenges to the EPA ELG Rule merits will be resolved or whether such challenges will be resolved in the Company’s favor. EPA Coal Combustion Residuals Rule (“EPA CCR Rule”). In April 2015, the EPA established regulations under the Resource Conservation and Recovery Act to identify CCRs as nonhazardous solid waste and provided CCR management and siting requirements. The 2015 rule was modified in 2020 after a 2018 D.C. Circuit Court of Appeals ruling found that, among other things, the EPA did not adequately regulate unlined impoundments. In its 2020 rulemaking, the EPA specified procedures for owners to extend the operating timeline of certain unlined impoundments. Talen submitted an extension request under this process for an unlined impoundment at Montour, which the EPA has not yet acted upon. The 2018 D.C. Circuit Court of Appeals ruling also found that the EPA did not properly address legacy surface impoundments in the 2015 CCR rule. As a result of the finding, in May 2024, the EPA finalized additional federal CCR regulations with an effective date in November 2024, which provided new requirements for legacy CCR surface impoundments and new requirements for other CCR disposal and management areas at active power plants (“CCR Management Units” or “CCRMUs”). This rule has been challenged in the D.C. Circuit Court of Appeals by multiple parties, including two industry groups of which Talen is a member. Additionally, the EPA is being challenged by other industry parties on new regulatory interpretations that could be consequential to CCR unit closure practices and costs. No assurance can be provided at this time as to when the legal challenges to the EPA’s CCR Rule and interpretations will be resolved or whether such challenges will be decided in the Company’s favor. Talen continues to review the 2024 EPA CCR Rule provisions, perform the required applicability assessments, and await additional information and guidance from the EPA concerning the rule’s requirements. Pursuant to the regulations, initial facility evaluation reports to identify CCR areas which may become regulated and subject to the rule’s requirements are due in February 2026. Following that, site investigation may be required to further investigate applicability and a subsequent facility report is due in February 2027. The Company has initiated reviews under the facility evaluation report requirements at locations with ash impoundments that have long since ceased coal operations as well as at locations with current coal operations. No assurance can be provided as to whether any specific ash impoundments owned by the Company may or may not be within scope of the new EPA CCR Rule until the Company completes its assessments within the regulatory timeframe. 20 As of September 30, 2024 (Successor), the Company has recognized required cost estimates in order to comply with the rule’s initial compliance requirements and deadlines. However, the Company does not yet have sufficient information available to estimate costs for the future compliance obligations under the rule. As the Company continues its applicability evaluations and site assessments to determine the scope of work on its properties imposed by the new rule, additional new AROs and (or) revisions could be required. It is expected estimates will be available, under the timeline provided for by the regulations, as described above, at the completion of the initial facility evaluation reports or at the completion of a subsequent site investigation. Such AROs or ARO changes could be material and, as a result, may have a material impact on our results of operations and (or) financial condition. Guarantees and Other Assurances In the normal course of business, the Company enters into agreements to provide financial performance assurance to third parties on behalf of certain subsidiaries. These agreements primarily support or enhance the stand-alone creditworthiness attributed to a subsidiary or facilitate the commercial activities in which these subsidiaries engage. Such agreements may include guarantees, stand-by LCs, and (or) surety bonds. Additionally, they may include customary indemnifications to third parties related to asset sales and other transactions. The probability of expected material payment and (or) performance for these assurance agreements is believed to be remote. Surety Bonds. Surety bonds provide financial performance assurance to third parties on behalf of certain Company subsidiaries for obligations including, but not limited to, environmental obligations and AROs. In the event of nonperformance by the applicable subsidiary, the beneficiary would make a claim to the surety, and the Company would be required to reimburse any payment by the surety. Talen’s liability with respect to any particular surety bond is released once the obligations secured by the surety bond are performed. Surety bond providers generally have the right to request additional collateral or request that such bonds be replaced by alternate surety providers. As of September 30, 2024 (Successor) and December 31, 2023 (Successor), the aggregate amount of surety bonds outstanding was $ 234 million and $ 240 million, respectively, including surety bonds posted on behalf of Talen Montana as discussed below. Talen Montana Financial Assurance. Pursuant to the Colstrip Administrative Order on Consent (the “Colstrip AOC”), Talen Montana, in its capacity as the Colstrip operator, is obligated to close and remediate coal ash disposal impoundments at Colstrip. The Colstrip AOC specifies an evaluation process between Talen Montana and the Montana Department of Environmental Quality (the “MDEQ”) on the scope of remediation and closure activities, requires the MDEQ to approve such scope, and requires financial assurance to be provided to the MDEQ on approved plans. Each of the co-owners of Colstrip has provided its proportionate share of financial assurance to the MDEQ for estimates of coal ash disposal impoundments remediation and closure activities approved by the MDEQ. The aggregate amount of surety bonds posted to the MDEQ on behalf of Talen Montana’s proportionate share of such activities was $ 125 million as of September 30, 2024 (Successor) and $ 115 million as of December 31, 2023 (Successor). Talen Montana’s surety bond requirements may increase due to scope changes, cost revisions, and (or) other factors when the MDEQ conducts annual reviews of approved remediation and closure plans as required under the Colstrip AOC. The surety bond requirements are expected to decrease as Colstrip’s coal ash impoundments remediation and closure activities are completed. Other Commitments and Contingencies Talen Montana Fuel Supply. Talen Montana purchases coal from a coal mine owned by Westmoreland Rosebud Mining, LLC (the “Rosebud Mine”) for its interest in Colstrip Units 3 and 4 under a full requirements contract with an unaffiliated coal mine operator. Two lawsuits have been brought against the Rosebud Mine challenging permits issued to it by the State of Montana. Talen Montana is not party to either lawsuit, but is monitoring the progress of each to assess the impact to its operations. In the first lawsuit, the Montana Supreme Court affirmed a lower court’s ruling to vacate a mining permit and require the Montana Board of Environmental Review to perform an additional review of the permit. In the second lawsuit, the Montana Federal District Court ordered a branch of the U.S. Department of the Interior to complete an updated Environmental Impact Statement (“EIS”). In April 2024, the Montana Federal District Court granted an extension to the EIS completion date to January 31, 2025. At this time, Talen cannot predict the effect of that an adverse outcome of these lawsuits to Rosebud Mine would have on: (i) Talen Montana’s ability to source fuel for its share of Colstrip operations; or (ii) Talen Montana’s operations, results of operations, or liquidity. 21 11. Long-Term Debt and Other Credit Facilities Long-Term Debt Successor Interest Rate (a) September 30, 2024 December 31, 2023 TLB 8.60 % $ 859 $ 866 TLC 8.60 % 470 470 Secured Notes 8.63 % 1,200 1,200 PEDFA 2009B Bonds 5.25 % 50 50 PEDFA 2009C Bonds 5.25 % 81 81 Cumulus Digital TLF, including paid-in-kind interest (b) — % — 182 Total principal 2,660 2,849 Unamortized deferred finance costs and original issuance discounts ( 35 ) ( 29 ) Total carrying value 2,625 2,820 Less: long-term debt, due within one year 9 9 Long-term debt $ 2,616 $ 2,811 __________________ (a) Computed interest rate as of September 30, 2024 (Successor). (b) The Cumulus Digital TLF was repaid and extinguished in March 2024. See “2024 Transactions – Cumulus Digital TLF Repayment” below for additional information. The aggregate long-term debt maturities, including amortization and early redemption provisions, as of September 30, 2024 (Successor) were: 2024 (a) 2025 2026 2027 2028 Thereafter Total Total maturities $ 2 $ 9 $ 9 $ 9 $ 9 $ 2,623 $ 2,660 __________________ (a) For the period from October 1 through December 31, 2024. Revolving Credit and Other Facilities Successor September 30, 2024 December 31, 2023 Expiration Committed Capacity Direct Cash Borrowings LCs Issued Unused Capacity Direct Cash Borrowings LCs Issued RCF (a) May 2028 $ 700 $ — $ — $ 700 $ — $ 62 TLC LCF (b)(c) May 2030 470 — 311 159 — 404 Bilateral LCF (b) May 2028 75 — 18 57 — 74 Total $ 1,245 $ — $ 329 $ 916 $ — $ 540 __________________ (a) RCF committed capacity can be used for direct cash borrowings and (or) LCs, subject to a $ 475 million LC sublimit. (b) Direct cash borrowings are not permitted under the facility. (c) LCs are collateralized by $ 472 million of cash as of September 30, 2024 (Successor) and December 31, 2023 (Successor), which is presented as “Restricted cash and cash equivalents” on the Consolidated Balance Sheets. 2024 Transactions Remarketing of PEDFA Bonds. In June 2024, the Company completed the remarketing of $ 50 million in aggregate principal amount of its PEDFA 2009B and $ 81 million in aggregate principal amount of its PEDFA 2009C Bonds. The remarketed bonds bear interest at 5.25 % until the end of the new term rate period on June 1, 2027. In connection with the remarketing, $ 133 million of LCs issued under the TLC LCF that had previously supported the bonds were terminated, providing the Company with increased LC capacity under the TLC LCF. The remarketing transaction is excluded from the Consolidated Statements of Cash Flows as a non-cash item. Long-Term Debt Repricing. In May 2024, the Company completed a repricing transaction with respect to the TLB and TLC. The new rate applicable to the TLB and TLC is the Standard Overnight Financing Rate (SOFR) plus 350 basis points, which reduces the interest rate margin by 100 basis points. The applicable SOFR floor was reduced from 50 to 0 basis points. Additionally, in connection with the repricing, the lenders under the TLB and TLC agreed to: (i) waive any mandatory prepayment obligations in connection with the ERCOT Sale; and (ii) certain other amendments permitting Talen additional capacity for dispositions, restricted payments, and investments under the Credit Agreement. See Note 17 for additional information on the ERCOT Sale. The repricing transaction is excluded from the Consolidated Statements of Cash Flows as a non-cash item. 22 Cumulus Digital TLF Repayment. In connection with the Cumulus Data Campus Sale, the Cumulus Digital TLF was paid in full in March 2024, together with all accrued interest and other outstanding amounts. See “Non-Recourse Debt and Other Credit Facilities – Cumulus Digital TLF” in Note 13 in Notes to the Annual Financial Statements for additional information on the related release of liens, termination of guarantees, and cancellation of LCs. See Note 17 for additional information on the Cumulus Data Campus Sale. Talen Energy Supply Long-Term Debt, Revolving Credit, and Other Facilities As of September 30, 2024 (Successor), Talen was not in default under any of its debt agreements. See “Talen Energy Supply Post-Emergence Long-Term Debt, Revolving Credit and Other Facilities” in Note 13 in Notes to the Annual Financial Statements for a description of the material terms of our Credit Facilities, Secured Notes, PEDFA Bonds, and Secured ISDAs. See “Security Interests, Guarantees, and Cross-Defaults on TES Post-Emergence Obligations” in Note 13 in Notes to the Annual Financial Statements for additional information on the security interests and guarantees supporting these obligations. In addition to the obligations outlined under “Long-Term Debt” and “Revolving Credit and Other Facilities” above, secured obligations included approximately $ 18 million under Secured ISDAs as of September 30, 2024 (Successor). 12. Fair Value Recurring Fair Value Measurements Financial assets and liabilities reported at fair value on a recurring basis primarily include energy commodity derivatives, interest rate derivatives, and investments held within the NDT. The classifications of recurring fair value measurements within the fair value hierarchy were: Successor September 30, 2024 December 31, 2023 Level 1 Level 2 NAV Netting (a) Total Level 1 Level 2 NAV Netting (a) Total Assets Cash equivalents $ — $ — $ 8 $ — $ 8 $ — $ — $ 9 $ — $ 9 Equity securities (b) 755 — 377 — 1,132 629 — 384 — 1,013 U.S. Government debt securities 328 — — — 328 337 — — — 337 Municipal debt securities — 88 — — 88 — 86 — — 86 Corporate debt securities — 177 — — 177 — 156 — — 156 Receivables (payables), net (c) — — — — 4 — — — — ( 26 ) NDT funds 1,083 265 385 — 1,737 966 242 393 — 1,575 Commodity derivatives 108 103 — ( 139 ) 72 98 196 — ( 200 ) 94 Interest rate derivatives — — — — — — 1 — — 1 Total assets $ 1,191 $ 368 $ 385 $ ( 139 ) $ 1,809 $ 1,064 $ 439 $ 393 $ ( 200 ) $ 1,670 Liabilities Commodity derivatives $ 131 $ 38 $ — $ ( 162 ) $ 7 $ 155 $ 139 $ — $ ( 257 ) $ 37 Interest rate derivatives — 3 — — 3 — 6 — — 6 Total liabilities $ 131 $ 41 $ — $ ( 162 ) $ 10 $ 155 $ 145 $ — $ ( 257 ) $ 43 __________________ (a) Amounts represent netting pursuant to master netting arrangements and cash collateral held or placed with the same counterparty. (b) Includes commingled equity and fixed income funds and real estate investment trusts. (c) Represents: (i) interest and dividends earned but not received; and (ii) net sold or purchased investments, but not settled. There were no recurring fair value measurements classified as Level 3 as of September 30, 2024 (Successor) and December 31, 2023 (Successor). Nonrecurring Fair Value Measurements There were no nonrecurring fair value measurements related to impairments of long-lived assets during the nine months ended September 30, 2024 (Successor) and for the period from May 18 through September 30, 2023 (Successor). See Note 8 for information on the nonrecurring fair value measurement of Brandon Shores during the period from January 1 through May 17, 2023 (Predecessor). Reported Fair Value 23 The carrying value of certain financial assets and liabilities on the Consolidated Balance Sheets, including “Cash and cash equivalents,” “Restricted cash and cash equivalents,” “Accounts receivable, net,” and “Accounts payable and other accrued liabilities” approximate fair value. The fair value measurements of indebtedness are classified as Level 2 within the fair value hierarchy. The fair value of fixed rate debt was estimated primarily by utilizing an income approach whereby the future cash flows of the obligations are discounted at the estimated current cost of funding rates, which incorporates the credit risk associated with the obligations. The carrying value of variable rate indebtedness approximates fair value. The carrying value and fair value of indebtedness presented on the Consolidated Balance Sheets were: Successor September 30, 2024 December 31, 2023 Carrying Value Fair Value Carrying Value Fair Value Long-term debt (a) $ 2,625 $ 2,769 $ 2,820 $ 2,934 Other short-term indebtedness (b) — — 6 6 ______________ (a) Aggregate value of “Long-term debt” and “Long-term debt, due within one year” presented on the Consolidated Balance Sheets. (b) Presented as “Other current liabilities” on the Consolidated Balance Sheets. 13. Postretirement Benefit Obligations TES and certain subsidiaries sponsor postemployment benefits which include defined benefit pension plans, health and welfare postretirement plans (other postretirement benefit plans), and defined contribution plans. The components of net periodic benefit costs for the periods were: Successor Predecessor Three Months Ended September 30, 2024 Three Months Ended September 30, 2023 Nine Months Ended September 30, 2024 May 18 through September 30, 2023 January 1 through May 17, 2023 Postretirement benefits service cost (a) $ — $ — $ 2 $ 1 $ 1 Interest cost 17 17 50 25 27 Expected return on plan assets ( 17 ) ( 18 ) ( 52 ) ( 26 ) ( 33 ) Resolved litigation settlement 15 — 15 — — Amortization of: Net loss — — — — 2 Postretirement benefit (gain) loss, net (b) 15 ( 1 ) 13 ( 1 ) ( 4 ) Net periodic defined benefit cost (credit) $ 15 $ ( 1 ) $ 15 $ — $ ( 3 ) _____________ (a) Activity presented as “Operation, maintenance and development” on the Consolidated Statements of Operations. (b) Activity presented as “Other non-operating income (expense), net” on the Consolidated Statements of Operations. See Note 10 for additional information on recently resolved litigation regarding certain of our defined benefit pension obligations. In March 2024, $ 10 million of excess assets from the PA Mines UMWA Plan VEBA were transferred to a separate VEBA, which provides benefits for participants in Talen’s health and welfare “wrap plan.” As such assets were not presented on the Consolidated Balance Sheets prior to the transfer of the assets from the VEBA, a transfer gain of $ 10 million was recognized for the nine months ended September 30, 2024 (Successor) and presented as “Other non-operating income (expense), net” on the Consolidated Statements of Operations. In September 2024, the Company contributed $ 38 million to the TERP that is presented as “Postretirement benefit obligations” on the Consolidated Balance Sheets as of September 30, 2024 (Successor). In October 2024, the Company contributed an additional $ 6 million to the TERP. In September 2024, the Company approved a plan amendment for certain other postretirement benefit plans, resulting in the recognition of prior service credits of $ 21 million and presented as “Postretirement benefit prior service (credits) costs, net” on the Consolidated Statements of Comprehensive Income (Loss). 24 14. Earnings Per Share Basic EPS is computed by dividing net income (loss) by the weighted average number of shares of common stock outstanding during the applicable period. Diluted EPS is computed by dividing income by the weighted-average number of shares of common stock outstanding, increased by incremental shares that would be outstanding if potentially dilutive non-participating securities were converted to common stock as calculated using the treasury stock method. EPS for the periods were: Successor Predecessor Three Months Ended September 30, 2024 Three Months Ended September 30, 2023 Nine Months Ended September 30, 2024 May 18 through September 30, 2023 January 1 through May 17, 2023 Numerator: (Millions of Dollars) Net Income (Loss) $ 168 $ ( 76 ) $ 945 $ ( 45 ) $ 465 Less: Net income (loss) attributable to noncontrolling interest — 1 29 3 ( 14 ) Net Income (Loss) Attributable to Stockholders (Successor) / Member (Predecessor) $ 168 $ ( 77 ) $ 916 $ ( 48 ) $ 479 Denominator: (Thousands) Weighted-Average Number of Common Shares Outstanding - Basic 50,924 59,029 55,703 59,029 — Restricted stock units 376 — 292 — — Performance stock units 1,869 — 1,761 — — Weighted-Average Number of Common Shares Outstanding - Diluted 53,169 59,029 57,756 59,029 — Earnings per Share - Basic $ 3.30 $ ( 1.30 ) $ 16.44 $ ( 0.81 ) N/A Earnings per Share - Diluted 3.16 ( 1.30 ) 15.86 ( 0.81 ) N/A 15. Stockholders' Equity Common Stock Transactions In September 2024, the Board of Directors approved an increase of the remaining capacity under the Company’s share repurchase program to $ 1.25 billion through December 31, 2026. See Note 16 in Notes to the Annual Financial Statement for more information on the Company’s share repurchase program. The shares repurchased during nine months ended September 30, 2024 (Successor) represent 14 % of the Company’s outstanding common stock. Summary of activity under the Company’s share repurchase program: Successor Three Months Ended September 30, 2024 Nine Months Ended September 30, 2024 Number of Shares (a) Share Price (b) Total Amount Number of Shares (a) (c) Share Price (b) Total Amount Share repurchases 2,559,826 $ 118.82 $ 304 8,333,715 $ 115.87 $ 966 Share retirements ( 2,564,853 ) 118.81 ( 304 ) ( 8,333,715 ) 115.87 ( 966 ) _____________ (a) Includes 2,413,793 shares repurchased from affiliates of Rubric Capital Management LP in July 2024 at a weighted average price of $ 116.00 per share. (b) Weighted average price per share, including transaction costs and excise taxes. (c) Includes 5,275,862 shares repurchased as result of a tender offer in June 2024. In July 2024, a former executive exercised equity-classified warrants to 457,142 shares of the Company’s common stock in a non-cash transaction. After giving effect to the non-cash exercise and related tax withholding, the Company issued 160,289 shares of the Company’s common stock. As of September 30, 2024 (Successor), the Company had 50,855,417 shares of common stock outstanding. 25 Acquisition of Noncontrolling Interests Purchase of Equity in Nautilus. In October 2024, the Company acquired TeraWulf’s 25 % equity interest in in Nautilus in exchange for $ 85 million in cash and the distribution by Nautilus of its Bitcoin mining equipment to TeraWulf. As a result of the transaction, the Company owns 100 % of the equity of Nautilus. Purchase of Equity in Cumulus Digital Holdings. In March 2024, TES acquired all of the equity of Cumulus Digital Holdings held by affiliates of Orion and two former members of Talen senior management in exchange for an aggregate of $ 39 million. Following these transactions, TES owns 100 % of the equity of Cumulus Digital Holdings. Accumulated Other Comprehensive Income Changes in AOCI for the periods were: Successor Predecessor Nine Months Ended September 30, 2024 May 18 through September 30, 2023 January 1 through May 17, 2023 Beginning balance $ ( 23 ) $ — $ ( 167 ) Gains (losses) arising during the period (a) 26 ( 26 ) 6 Reclassifications to Consolidated Statements of Operations ( 1 ) 7 5 Income tax benefit (expense) ( 7 ) 7 ( 5 ) Other comprehensive income (loss) 18 ( 12 ) 6 Cancellation of equity at Emergence — — 161 Accumulated other comprehensive income (loss) $ ( 5 ) $ ( 12 ) $ — _____________ (a) Primarily related to “Postretirement benefit prior service (credits) costs, net” for the nine months ended September 30, 2024 (Successor) and “Available-for-sale securities unrealized gain (loss), net” for the period from May 18 through September 30, 2023 (Successor). The components of AOCI, net of tax, at September 30 were: Successor 2024 2023 Available-for-sale securities unrealized gain (loss), net $ 7 $ ( 12 ) Postretirement benefit prior service credits (costs), net 16 — Postretirement benefit actuarial gain (loss), net ( 28 ) — Accumulated other comprehensive income (loss) $ ( 5 ) $ ( 12 ) The postretirement obligations components of AOCI are not presented in their entirety on the Consolidated Statements of Operations during the periods; rather, they are included in the computation of net periodic defined benefit costs (credits). See Note 13 for additional information. 26 16. Supplemental Cash Flow Information Supplemental information for the Consolidated Statements of Cash Flows for the periods was: Successor Predecessor Nine Months Ended September 30, 2024 May 18 through September 30, 2023 January 1 through May 17, 2023 Cash paid during the period Interest and other finance charges, net of capitalized interest (a) $ 159 $ 30 $ 283 Income taxes, net 14 9 7 Unrealized (gain) loss on derivative instruments included on the Statements of Cash Flows Commodity contracts $ ( 58 ) $ 43 $ 63 Interest rate swap contracts (interest expense) ( 1 ) 6 2 Unrealized (gain) loss on derivative instruments $ ( 59 ) $ 49 $ 65 Depreciation, amortization and accretion included on the Statements of Cash Flows Depreciation, amortization and accretion $ 225 $ 94 $ 200 Other ( 9 ) ( 5 ) 8 Depreciation, amortization and accretion $ 216 $ 89 $ 208 Reconciliation of other non-cash operating activities Stock-based compensation $ 24 $ 11 $ — Derivative option premium amortization 16 31 29 Bitcoin revenue ( 91 ) ( 44 ) ( 27 ) Debt restructuring (gain) loss, net ( 9 ) — — Other 2 25 5 Total $ ( 58 ) $ 23 $ 7 Non-cash investing activities Capital expenditure accrual increase (decrease) $ ( 16 ) $ ( 8 ) $ ( 28 ) Non-cash financing activities Non-cash increase to PP&E and decrease to other current assets for contribution of Bitcoin miners to Nautilus (b) $ — $ — $ 14 Non-cash decrease to PP&E and decrease to noncontrolling interest for distribution of Bitcoin miners to TeraWulf — — 3 Non-cash increase to PP&E and increase to noncontrolling interest for contribution of Bitcoin miners by TeraWulf (b) — — 38 __________________ (a) Capitalized interest totaled $ 3 million for the nine months ended September 30, 2024 (Successor); $ 7 million for May 18 through September 30, 2023 (Successor); and $ 12 million for January 1 through May 17, 2023 (Predecessor). (b) In 2023, each of the joint venture partners of Nautilus made non-cash contributions to Nautilus of Bitcoin miners that increased PP&E. 27 Cash and Restricted Cash The following provides a reconciliation of “Cash and cash equivalents” and “Restricted cash and cash equivalents” presented on the Consolidated Statements of Cash Flows to line items within the Consolidated Balance Sheets: Successor September 30, 2024 December 31, 2023 Cash and cash equivalents $ 648 $ 400 Restricted cash and cash equivalents: TES TLC debt restricted deposits 472 472 Nautilus project restricted deposits 9 10 Commodity exchange margin deposits 3 — Cumulus Digital Holdings restricted deposits — 19 Restricted cash and cash equivalents 484 501 Total $ 1,132 $ 901 17. Acquisitions and Divestitures 2024 Activities ERCOT Sale. In March 2024, the Company and CPS Energy entered into an agreement for CPS Energy to acquire the Company’s 1,710 MW Texas generation portfolio located within the ERCOT market for $ 785 million, subject to customary net working capital adjustments. The sale closed in May 2024. A gain on sale of $ 564 million is presented as “Gain (loss) on sale of assets, net” on the Consolidated Statements of Operations for the nine months ended September 30, 2024 (Successor). Cumulus Data Campus Sale. In March 2024, AWS purchased substantially all the assets related to the Cumulus Data Campus and certain other assets for gross proceeds of $ 650 million, of which $ 350 million were received at closing with the remaining $ 300 million held in escrow pending achievement of certain development milestones. In August 2024, the milestones were met and the Company received the remaining consideration. For the nine months ended September 30, 2024 (Successor), a $ 324 million gain on sale is presented as “Gain (loss) on sale of assets, net” on the Consolidated Statements of Operations. In connection with the Cumulus Data Campus Sale, the Company entered into the AWS PPA. See Note 10 for additional information on the AWS PPA and the Amended ISA. 2023 Activities Western Gas Book Divestiture. In April 2023, Talen sold certain contracts relating to the transportation of natural gas in the southwestern United States for approximately $ 15 million. For the period from January 1 through May 17, 2023 (Predecessor), a $ 15 million gain was presented as “Gain (loss) on sale of assets, net” on the Condensed Consolidated Statements of Operations. Pennsylvania Minerals Divestiture. In March 2023, Talen sold certain mineral interests located in Pennsylvania for $ 29 million, while preserving the right to certain royalty payments from existing and future producing natural gas wells. For the period from January 1 through May 17, 2023 (Predecessor), a $ 29 million gain was presented as “Gain (loss) on sale of assets, net” on the Consolidated Statements of Operations. 28 18. Segments Talen’s operating segments are based on the market areas in which our generation facilities operate and reflect the manner in which our chief operating decision maker review results and allocate resources. Adjusted EBITDA is the key profit metric used to measure financial performance of each segment. Total assets or other asset metrics are not considered a key metric or reviewed by the chief operating decision makers. “PJM” is engaged in electricity generation, marketing activities, commodity risk and fuel management within the PJM RTO or ISO markets and is comprised of Susquehanna and Talen’s natural gas and coal generation facilities. “Other” represents a non-reportable segment that includes the operating and marketing activities of Talen Montana’s proportionate share of Colstrip in the WECC market, the operating activities of Nautilus, and other non-material operating and development activities. The “Other” segment also included the operating activities of our Texas power generation facilities in the ERCOT market prior to their disposal in May 2024. We have determined it appropriate to aggregate results of Talen’s remaining non-reportable segments and other operating activities. “Corporate and Eliminations” represents a non-reportable segment that includes: (i) general and administrative expenses incurred by our corporate function; (ii) interest expense and other corporate activities not allocated to our operating segments; and (iii) intercompany eliminations. This grouping is presented to reconcile the reportable segments to our consolidated results. Financial data for the segments and reconciliation to consolidated results are: PJM Other Corporate and Eliminations Total Three Months Ended September 30, 2024 (Successor) Operating revenues $ 575 $ 96 $ ( 21 ) $ 650 Interest expense — — 66 66 Capital expenditures 54 3 1 58 Adjusted EBITDA 217 28 245 Three Months Ended September 30, 2023 (Successor) Operating revenues $ 343 $ 243 $ ( 70 ) $ 516 Interest expense — — 68 68 Capital expenditures 50 16 3 69 Adjusted EBITDA 168 83 251 PJM Other Corporate and Eliminations Total Nine Months Ended September 30, 2024 (Successor) Operating revenues $ 1,446 $ 304 $ ( 102 ) $ 1,648 Interest expense — — 187 187 Capital expenditures 123 23 1 147 Adjusted EBITDA 592 71 663 May 18 through September 30, 2023 (Successor) Operating revenues $ 698 $ 213 $ ( 94 ) $ 817 Interest expense — — 101 101 Capital expenditures 73 26 4 103 Adjusted EBITDA 240 104 344 January 1 through May 17, 2023 (Predecessor) Operating revenues $ 1,054 $ 193 $ ( 37 ) $ 1,210 Interest expense — — 163 163 Capital expenditures 132 53 2 187 Adjusted EBITDA 688 37 725 29 Successor Predecessor Three Months Ended September 30, 2024 Three Months Ended September 30, 2023 Nine Months Ended September 30, 2024 May 18 through September 30, 2023 January 1 through May 17, 2023 Adjusted EBITDA: PJM $ 217 $ 168 $ 592 $ 240 $ 688 Other 28 83 71 104 37 Total Segment Adjusted EBITDA $ 245 $ 251 $ 663 $ 344 $ 725 Reconciling Items: Interest expense and other finance charges ( 66 ) ( 68 ) ( 187 ) ( 101 ) ( 163 ) Income tax benefit (expense) ( 11 ) 16 ( 192 ) ( 3 ) ( 212 ) Depreciation, amortization and accretion ( 75 ) ( 66 ) ( 225 ) ( 94 ) ( 200 ) Nuclear fuel amortization ( 30 ) ( 47 ) ( 93 ) ( 72 ) ( 33 ) Reorganization gain (loss), net — — — — 799 Unrealized (gain) loss on commodity derivative contracts 102 ( 84 ) 58 ( 43 ) ( 63 ) Nuclear decommissioning trust funds gain (loss), net 67 ( 24 ) 169 15 57 Stock-based compensation expense ( 8 ) ( 9 ) ( 24 ) ( 11 ) — Long-term incentive compensation expense ( 3 ) — ( 19 ) — — Gain (loss) on asset sales, net — — 885 — 50 Non-cash impairments — ( 2 ) — ( 2 ) ( 381 ) Operational and other restructuring activities ( 40 ) ( 4 ) ( 61 ) ( 30 ) ( 17 ) Development expenses ( 1 ) ( 5 ) ( 1 ) ( 7 ) ( 10 ) Non-cash inventory net realizable value, obsolescence, and other charges ( 2 ) 2 ( 5 ) ( 1 ) ( 56 ) Noncontrolling interest 3 14 21 22 14 Other items 2 ( 23 ) 13 ( 21 ) ( 15 ) Corporate and Eliminations ( 15 ) ( 27 ) ( 57 ) ( 41 ) ( 30 ) Net Income (Loss) $ 168 $ ( 76 ) $ 945 $ ( 45 ) $ 465 30