What changed in this filing

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Item 1. Business

2025-02-28 compared with 2016-02-29 · 411 added, 374 removed, 4 unchanged (99% of the section changed)

Capitalized terms and abbreviations are defined in the glossary.

Dollars are in millions, unless otherwise noted.

Talen Energy Corporation, through its principal subsidiary Talen Energy Supply, is a North American competitive energy and power generation and marketing company headquartered in Allentown, Pennsylvania.

Talen Energy produces and sells electricity, capacity and ancillary services from its fleet of power plants totaling approximately 17,400 MW of generating capacity.

Talen Energy's portfolio of generation assets is principally located in the Northeast, Mid-Atlantic and Southwest regions of the U.S.

Properties" for additional information on Talen Energy's plants.

Talen Energy's business was formed on June 1, 2015 by the spinoff of Talen Energy Supply, the competitive power generation business owned by PPL, and the substantially contemporaneous combination of that business with RJS Power, the competitive power generation business controlled by Riverstone Holdings LLC, under a new holding company, Talen Energy Corporation.

See Notes 1 , 3 and 6 to the Financial Statements for additional information on the spinoff and acquisition.

Talen Energy seeks to optimize the value from its competitive power generation assets and marketing portfolio while mitigating near-term volatility in both cash flow and earnings metrics.

Talen Energy endeavors to accomplish this by matching projected output from its generation assets with forward power sales in the wholesale and retail markets while effectively managing exposure to fuel price volatility, counterparty credit risk and operational risk.

Talen Energy is focused on safe, reliable, and resilient operations, disciplined capital investment, portfolio optimization, cost management and the pursuit of value-enhancing growth opportunities.

To manage financing costs and access to credit markets, and to fund capital expenditures and growth opportunities, a key objective of Talen Energy is to maintain adequate liquidity capacity.

In addition, Talen Energy has a financial risk management policy and operational procedures that, among other things, are designed to monitor and manage exposure to earnings and cash flow volatility related to, as applicable, changes in energy and fuel prices, interest rates, counterparty credit quality and the operating performance of generating units.

To manage these risks, Talen Energy generally uses contracts such as forwards, options, swaps and insurance contracts primarily focused on mitigating cash flow volatility within the next 12 month period.

The following chart illustrates Talen Energy's organizational structure as of December 31, 2015 .

Talen Energy's subsidiaries, Talen Generation, Raven, Jade, Sapphire, and MACH Gen, own and operate competitive power generation facilities.

Another Talen Energy subsidiary, Talen Energy Marketing, markets the output of Talen Energy's plants, electricity, capacity and ancillary services, and other energy-related products in competitive wholesale and retail markets.

Talen Energy Marketing sells the output of its affiliated generation facilities to a diverse group of wholesale customers, including RTOs and ISOs, utilities, cooperatives, municipalities, power marketers, and financial counterparties.

Talen Energy Marketing also sells the output of its affiliated generation plants to commercial, industrial and residential retail customers.

Talen Energy earns revenue primarily by participating in energy and capacity markets and by providing related ancillary services.

The energy markets in which Talen Energy participates are designed to meet the short-term needs for electricity.

They include day-ahead markets, where hourly prices are calculated for the next operating day based on bids and offers, and real-time spot markets, in which energy is continuously bought and sold based on actual grid operating conditions.

The capacity markets in which Talen Energy participates are designed to procure sufficient generating capacity to meet forecasted peak demand to ensure that the longer-term needs for electricity are met to keep the applicable power grids operating reliably.

PJM and ISO-NE procure capacity three years in advance whereas NYISO conducts three nearer term auctions;

a six-month summer and winter strip auction, a monthly auction and a spot auction.

Capacity markets provide generation owners, such as Talen Energy, some forward-looking revenue visibility.

Ancillary services, such as non-spinning reserves, responsive reserves and regulation up/down, are supplied in some of the markets in which Talen Energy operates to help maintain system reliability by compensating generators for being available during short-term capacity shortage conditions.

Talen Energy's generation fleet is diverse in terms of fuel, technology, dispatch characteristics and location.

A majority of Talen Energy's revenue comes from the sale of electricity produced by its generation facilities.

Talen Energy also produces additional revenue from the sale of capacity within the PJM, ISO-NE and NYISO markets as well as by providing ancillary services.

The charts below illustrate the composition and diversity of Talen Energy's generation portfolio capacity (summer rating) by market and fuel type as of December 31, 2015 :

The charts above do not reflect the completed or announced divestitures of approximately 1,400 MW of generation capacity to satisfy the FERC approved mitigation in connection with the RJS Power acquisition.

See "Acquisitions and Divestitures" below and Notes 1 and 6 to the Financial Statements for additional information.

Included in the table below are the markets in which Talen Energy operates and the revenue opportunities presented by each:

Revenue Opportunities

All or part of thirteen states in the Northeast U.S.

and the District of Columbia (DE, IL, IN, KY, MD, MI, NC, NJ, OH, PA, TN, VA & WV)

Majority of the State of Texas

State of New York

New England states (CT, MA, ME, NH, RI & VT)

Investor Owned Utilities

14 States in the Western U.S., 2 Canadian provinces and northern Baja Mexico (AZ, CA, CO, ID, MT, NE, NM, NV, OR, SD, portion of TX, UT, WA & WY)

Members are uniquely structured in that they typically do not have organized markets, but rather, are organized into 38 separate Balancing Authorities (BAs).

Each BA is responsible for balancing loads and resources within their respective boundaries.

Properties" for additional information on Talen Energy's generating plants, including each plants' market location.

Recent Market Developments

As a result of unusual market and weather volatility in the first quarter of 2014, PJM determined that changes were necessary to ensure system reliability.

In December 2014, PJM proposed to add an enhanced Capacity Performance (CP) product to the capacity market structure to permit additional compensation for generation owners/operators to make the necessary investments to maintain system reliability in exchange for stronger performance requirements, with higher penalties for non-performers.

For more information on recent PJM market developments, see "Item 7.

Combined Management's Discussion and Analysis of Financial Condition and Results of Operations" for additional information.

The PUCT and ERCOT have taken significant measures to improve scarcity pricing in ERCOT.

ERCOT's system-wide offer cap was increased from $7,000 per MWh to $9,000 per MWh effective June 1, 2015.

An operating reserve demand curve (ORDC) was implemented in June 2014, which is intended to produce longer periods of gradually increasing scarcity prices, and the PUCT and ERCOT are currently evaluating whether any changes need to be made to improve the operation of the ORDC during scarcity conditions.

The NYISO will be undertaking its triennial Demand Curve Reset (DCR) process, which will reset the capacity auction parameters, potentially impacting compensation to capacity resources.

Draft tariff sheets reflecting recommended changes to the DCR process are to be presented to the NYISO's Installed Capacity Working Group in February 2016.

Two major initiatives, Reform the Energy Vision and the Clean Energy Standard are being pursued in New York State.

Both of these initiatives are long term endeavors and either or both could have impacts on the overall New York energy market.

Talen Energy is still assessing any potential impacts to both the market and its portfolio.

ISO-NE added an enhanced Performance Incentive (PI) product to the capacity market structure to permit additional compensation for generation owners/operators to make the necessary investments to maintain system reliability in exchange for stronger performance requirement, with higher penalties for non-performers without exception.

The PI product was first implemented in the ninth forward capacity auction for delivery year 2018/19, which was held in February 2015.

ISO-NE merged the Northeast Massachusetts zone with the Southeastern Massachusetts/Rhode Island capacity zone to create the import-constrained Southern New England (SENE) zone.

The tenth forward capacity auction will now only consist of two zones:

SENE and Rest of Pool (including Maine, Western/Central Massachusetts, New Hampshire and Vermont).

ISO-NE has unveiled a new, sloped demand curve design that could be implemented for the eleventh forward capacity auction and would likely put downward pressure on clearing prices.

RESERVE MARGINS

Reserve margin is a measure of generation capacity available to meet peak demand.

Each ISO/RTO sets a target reserve margin to ensure grid reliability, which is used as an indicator of a supply surplus or deficit based on the requirement.

If the actual reserve margin exceeds the requirement, the system is in a surplus and energy prices should remain lower and stable.

A deficit to the required reserve margin could trigger energy price spikes and volatility, sending a signal to the market that more capacity is needed.

PJM, NYISO, and ISO-NE have forward looking capacity markets to procure sufficient capacity to meet forecasted demand.

ERCOT operates in an energy only market, where scarcity pricing sends the signal to develop more capacity.

Each market is currently well supplied and reserve margins exceed their targets and low energy prices are reflective of the adequate reserves.

The table below contains the target reserve margin and the expected reserve margin for the 2015/16 planning year for each of the aforementioned ISOs/RTOs:

Target Reserve Margin (a)

2015/16 Planning Year Reserve Margin (a)

data obtained from applicable ISO/RTO or other federal agency publications.

PJM announced that the target reserve margin increased to 16.5% for planning year 2019/20.

Revenues by Segment

Talen Energy is organized in two segments:

East and West, based on geographic location.

The East segment includes the generating, marketing and trading activities in PJM, NYISO and ISO-NE.

The West segment includes the generating, marketing and trading activities located in ERCOT and WECC.

See Note 2 to the Financial Statements for additional information on Talen Energy's segments and the segment reevaluation.

Details of revenue by segment for the years ended December 31 as adjusted to reflect the November 2015 segment reevaluation referenced above, are as follows:

Wholesale energy (a)

Retail energy

Energy-related businesses (b)

Included in these amounts for 2015 , 2014 and 2013 are $14 million, $84 million and $51 million of wholesale electricity sales to a former affiliate, PPL Electric.

Energy-related businesses are mechanical contracting and services subsidiaries that primarily support the generation and marketing businesses in Talen Energy's East segment.

Activities of these businesses include developing renewable energy projects and providing energy-related products and services to commercial and industrial customers.

Power Generation by Fuel Source and Segment

During 2015 , Talen Energy owned or controlled power plants (including facilities for which Talen Energy has the rights to the output) that generated the following amounts of electricity (by segment):

Natural Gas/Oil

Renewables (b)

Represents Talen Energy's share of the total output.

In 2015 , Talen Energy owned or controlled renewable energy projects (including facilities for which Talen Energy has the rights to the output) located in Pennsylvania, New Jersey, Vermont and New Hampshire with an aggregate generating capacity (summer rating) of 26 MW.

Talen Energy Marketing sold the energy, capacity and RECs produced by these plants into the wholesale market as well as to commercial and industrial customers.

In November 2015, projects that had an aggregate generating capacity of 19 MW were sold.

For the projects sold, the above generation amounts include generation through their date of sale.

Properties" for information on the fuel source for each of Talen Energy's plants.

The nuclear fuel cycle consists of several material and service components:

the mining and milling of uranium ore to produce uranium concentrates;

the conversion of these concentrates into uranium hexafluoride, a gas component;

the enrichment of the hexafluoride gas;

the fabrication of fuel assemblies for insertion and use in the reactor core;

and the temporary storage and final disposal of spent nuclear fuel.

Susquehanna Nuclear has a portfolio of supply contracts, with varying expiration dates, for nuclear fuel materials and services.

These contracts are expected to provide sufficient fuel to permit Unit 1 to operate into the first quarter of 2020 and Unit 2 to operate into the first quarter of 2019.

Susquehanna Nuclear anticipates entering into additional contracts to ensure continued operation of the nuclear units.

Susquehanna Nuclear has an on-site spent fuel storage facility employing dry cask fuel storage technology, which, together with the spent fuel pools, has the capacity to accommodate spent fuel expected to be discharged through 2017.

This spent fuel storage facility is currently in the process of being expanded to accommodate additional spent fuel storage, and assuming appropriate approvals are obtained, additional expansion will take place in the future such that, together, the spent fuel pools and the expanded dry fuel storage facility will accommodate all of the spent nuclear fuel expected to be discharged through 2044, the current licensed life of the plant.

In May 2011, Susquehanna Nuclear entered into a settlement agreement with the U.S.

Government relating to Susquehanna Nuclear's 2004 lawsuit against the U.S.

Government for partial breach of the standard contract for disposal of spent nuclear fuel.

The settlement included reimbursement of certain costs to store spent nuclear fuel at the Susquehanna nuclear plant incurred through December 31, 2013, and Susquehanna Nuclear received payments for its claimed costs for those periods.

In exchange, Susquehanna Nuclear waived any claims against the U.S.

Government for costs paid or injuries sustained related to storing spent nuclear fuel at the Susquehanna nuclear plant through December 31, 2013.

In January 2014, Susquehanna Nuclear entered into an addendum to that agreement to extend the settlement agreement on the same terms for an additional three years to the end of 2016.

Susquehanna Nuclear expects to enter into discussions with the DOE this year to further extend the settlement agreement beyond 2016.

Talen is a leading independent power producer and energy infrastructure company dedicated to powering the future.

We own and operate approximately 10.7 gigawatts of power infrastructure in the United States, including 2.2 gigawatts of nuclear power and a significant dispatchable generation fleet.

We produce and sell electricity, capacity, and ancillary services into wholesale U.S.

power markets, with our generation fleet principally located in the Mid-Atlantic and Montana.

Our team is committed to generating power safely and reliably, delivering the most value per megawatt produced and driving the energy transition.

Talen is also powering the digital infrastructure revolution.

We are well-positioned to capture this significant growth opportunity, as data centers serving artificial intelligence increasingly demand more reliable, clean power.

Our Operations

The following discussion provides a brief overview of our fleet.

Properties” for additional information on each of our facilities.

Baseload, carbon-free nuclear facility.

We operate, and own a 90% interest in, the 2.5 GW Susquehanna facility, the sixth largest nuclear-powered generation facility in the U.S.

Susquehanna typically comprises approximately half of our total annual generation.

In 2024, Talen produced over 18 GWh of reliable, zero-carbon power from Susquehanna at a low all-in cost of less than $24 per MWh, while also maintaining excellent safety and operational performance (when measured by standards adopted by the nuclear industry) .

Susquehanna’s efficient cost structure is supported in part by a portfolio of supply contracts for all stages of the nuclear fuel cycle.

See “—Fuel Supply—Nuclear” for additional information.

Susquehanna’s two units are currently licensed through 2042 and 2044, respectively (with up to 20-year extensions possible with regulatory approval).

Susquehanna has historically generated revenues primarily from energy sales into the PJM wholesale market, PJM capacity sales, and strategic hedging.

As part of the AWS Data Campus Sale in 2024, Susquehanna and AWS have contracted under the AWS PPA for the long-term, fixed-price supply of power directly from Susquehanna to the adjacent AWS Data Campus.

See Note 20 to the Annual Financial Statements for additional information on the AWS Data Campus Sale and “—Our Key Markets and Revenue Streams—Contracted Revenues—AWS PPA” for additional information on the AWS PPA.

Susquehanna also benefits from the Nuclear PTC included under the Inflation Reduction Act, which runs through 2032 and provides a tax credit of up to $43.75 per MW (indexed to inflation) for power produced from a nuclear generation source.

See “—Our Key Markets and Revenue Streams—Nuclear PTC” for additional information on the Nuclear PTC.

F o r m 10- K Table of Contents

Dispatchable natural gas and oil intermediate and peaking units.

Our 6.3 GW natural gas and oil fleet (of which 3.2 GW is from Brunner Island, Montour, and H.A Wagner Unit 3 after conversion, as discussed below) includes seven technologically diverse natural gas and oil generation facilities across the generation stack (including intermediate and peaking dispatch).

Certain units are capable of utilizing multiple fuel sources, providing meaningful operational flexibility.

These strategically located assets include significant generation in attractive wholesale markets (primarily PJM), allowing them to generate predictable revenues on cleared capacity while also benefiting from varying market dynamics.

Properties” for additional information on each of these facilities.

Reliability assets and carbon deleveraging.

Our coal-fired generation assets continue to be impacted by changing environmental regulations and power market economics.

We have already completed the conversion of approximately 3.2 GW of our legacy coal fleet to lower-carbon fuels, including our Brunner Island and Montour facilities, which together represent over 25% of our total generation capacity, and Unit 3 of our H.A Wagner facility.

We previously requested deactivation of both H.A Wagner and our wholly-owned 1.3 GW Brandon Shores facility in mid-2025.

However, PJM subsequently notified us that both H.A Wagner and Brandon Shores are needed past their previously planned retirement dates to maintain reliability in PJM.

In January 2025, we reached a settlement (which remains subject to FERC approval) with key stakeholders to continue running both facilities through May 2029 under an RMR arrangement.

See “—Our Key Markets and Revenue Streams—Contracted Revenues—Brandon Shores and H.A Wagner RMR Arrangements” and Note 10 to the Annual Financial Statements for additional information on the RMR proceedings and settlement.

We also own minority interests, totaling approximately 800 MW, in three coal-fired generation facilities in PJM and WECC, and we are exploring ways to maximize the value of these assets in the context of changing market conditions.

Properties” for additional information on each of these facilities.

Our Key Markets and Revenue Streams

Our operating revenues have historically consisted primarily of capacity revenues, energy/ancillary services revenues, and unrealized gain (loss) on hedging instruments.

As further discussed below, we sell capacity and energy through a combination of forward auctions, bilateral contracts, and spot market sales (as applicable).

See “—Our Strategies—Optimize risk management program and hedging” for a discussion of our commercial optimization strategy.

Beginning in mid-2025, we expect our Brandon Shores and H.A.

Wagner facilities to begin operating as reliability resources under an RMR agreement that will provide fixed payments to Talen in addition to reimbursement for certain costs and expenses.

In addition, our Susquehanna facility is party to the AWS PPA for the supply of power from Susquehanna to AWS through long-term, fixed-price power commitments that increase over time.

See “—Contracted Revenues” for additional information on both the RMR arrangements and the AWS PPA.

We continue to evaluate business opportunities resulting from industrial load growth.

See “—Demand Growth from Multiple Sources” for additional information.

We also benefit from the Nuclear PTC under the Inflation Reduction Act.

See “—Nuclear PTC” for additional information.

Wholesale Markets

The substantial majority of our generation capacity is located in, and accordingly the majority of our revenues are derived from, PJM.

Specifically, a majority of our generation capacity (over 10 GW) is located in the MAAC (Mid-Atlantic Area Council) and BGE (Baltimore Gas and Electric) regions of PJM.

The remainder of our generation capacity is in ISO-NE and WECC.

Properties” for additional information on the market location of each of our facilities.

PJM is an RTO responsible for the operation of wholesale electric markets and for centrally dispatching electric systems in all or parts of 13 states and the District of Columbia.

It coordinates the dispatch of approximately 180,000 MW of generating capacity to more than 65 million people and operates wholesale electricity markets with approximately 1,090 members.

Generators in PJM may earn revenues from sales of capacity, energy, and (or) ancillary services.

The PJM Reliability Pricing Model is intended to ensure that resources are available when needed for grid reliability.

Under this model, PJM conducts a series of forward capacity auctions, which establish a long-term market for capacity.

We sell capacity through PJM Base Residual Auctions and, to the extent we are unable to sell capacity through the PJM BRAs, we may sell uncleared capacity through PJM Incremental Auctions or bilateral capacity transactions.

PJM BRAs are typically conducted three years prior to the start of the applicable capacity year (which runs from June 1–May 31), but FERC has recently accepted requests by PJM to delay certain PJM BRAs in order to propose additional changes to the PJM Reliability Pricing Model.

See “Item 1A.

Risk Factors—Regulatory, Environmental, and Legal Risks—We could be impacted by changes in, or state interference with, the structure or operation of the markets in which we operate, including ongoing market restructuring in PJM.” and Note 12 to the Annual Financial Statements for additional information on ongoing market reforms in PJM and related auction delays.

PJM also operates day-ahead and real-time markets into which generators can bid to provide energy and ancillary services.

We sell energy/ancillary services into these markets.

We also enter into bilateral transactions for the sale of energy directly to power purchasers .

ISO-NE is an ISO that manages the flow of electricity from approximately 30,000 MW of generation capacity to approximately 15 million people in all or part of six states in New England.

ISO-NE conducts forward capacity auctions and operates day-ahead and real-time energy/ancillary services markets.

In ISO-NE, we both earn capacity revenues and sell energy/ancillary services into the spot markets from our Dartmouth generating facility.

F o r m 10- K Table of Contents

WECC is a non-profit corporation that promotes a reliable and secure bulk electric system in the Western Interconnection, covering all or parts of Montana, 13 other U.S.

States, Canada, and Mexico.

WECC does not operate energy or capacity markets.

The Colstrip facility in Montana operates within NorthWestern’s Balancing Authority within WECC.

We enter into bilateral transactions for the direct sale of energy from our portion of the generation from Colstrip.

Contracted Revenues

Brandon Shores and H.A Wagner RMR Arrangements.

In 2023, we notified PJM of our intent to deactivate electric generation at both our Brandon Shores and H.A.

Wagner facilities on June 1, 2025.

However, PJM subsequently notified us that both Brandon Shores and H.A Wagner are needed past their previously planned retirement dates to maintain reliability in PJM.

In January 2025, we reached a settlement (which remains subject to FERC approval) with key stakeholders on the terms of an RMR arrangement and filed with FERC the resulting Joint Offers of Settlement regarding both facilities’ RMR Continuing Operations Rates Schedules (the “CORS”).

If approved, the proposed RMR arrangements will extend the operating life of these plants through May 31, 2029, or until such time as the necessary transmission upgrades are placed into service.

Beginning June 1, 2025, the CORS will provide a monthly fixed-cost payment of $12,083,333 ($312/MW-day) for Brandon Shores and $2,916,667 ($137/MW-day) for H.A Wagner, which includes a performance “hold back” of $416,667 per month for Brandon Shores and $208,333 per month for H.A Wagner, each to be paid out based on unit performance.

We will also receive separate reimbursement for variable costs and approved project investments.

See Note 10 to the Annual Financial Statements for additional information on the RMR proceedings and settlement.

In connection with the AWS Data Campus Sale in 2024, we and AWS entered into the AWS PPA, pursuant to which we agreed to supply long-term, carbon-free power from Susquehanna to the AWS Data Campus through fixed-price power commitments.

Under the AWS PPA, AWS has minimum contractual power commitments that increase in 120 MW increments annually (or earlier, at AWS’s option), with a one-time option to either cap commitments at 480 MW or otherwise purchase, in continuing annual steps, up to 960 MW.

Each step up in capacity commitment has a fixed price for an initial 10-year term, after which AWS has the option to renew each step at a price that includes a fixed margin above then-applicable PJM energy and capacity prices.

The initial term of the AWS PPA is 18 years, with two 10-year extensions at AWS’s option.

Under a separate agreement, we will receive additional revenue from AWS related to the sales of carbon-free energy to the grid.

We expect to begin receiving initial revenues from power sales in 2025.

See Note 20 to the Annual Financial Statements for additional information on the AWS Data Campus Sale.

In November 2024, FERC issued an order denying the Susquehanna ISA Amendment between PJM, PPL Corporation, and Susquehanna that would permit Susquehanna to decrease the amount of power supply it would otherwise provide to the power grid.

Such order does not have an impact on the existing ISA permitting 300 MW of co-located load at Susquehanna to supply power for the first phases of the AWS Data Campus.

In December 2024, FERC issued an order stating that it would address our request for rehearing in a future order, which FERC has not yet issued.

Due to FERC’s decision not to address the merits of our motion for rehearing, we have filed an appeal in the U.S.

Court of Appeals for the Fifth Circuit.

Delivery “behind-the-meter” of more than 300 MW of power under the AWS PPA requires that FERC approve an amended ISA between Susquehanna, PPL, and PJM.

Without an amendment we will be unable to deliver the full amount of contract volume under the AWS PPA on a behind-the-meter basis, which may require a contract renegotiation to deliver the additional power “in-front-of-the-meter.” We are evaluating our commercial and legal options to provide the most efficient path to full development of the AWS Data Campus.

Such options include, but are not limited to, potential submission of a revised form of Susquehanna ISA Amendment or alternative contract structures with AWS.

Legal Proceedings” and “Item 1A.

Risk Factors—Regulatory, Environmental, and Legal Risks—Our business is subject to extensive energy-related regulation and oversight.” for additional information on the Susquehanna ISA Amendment.

Demand Growth from Multiple Sources

Power demand forecasts continue to rise over time in PJM compared to previous expectations.

In January 2025, PJM released updated long-term load forecasts which point to RTO-wide load in summer 2030 and 2035 that is approximately 10% and 17% higher, respectively, than 2024 expectations.

Fundamental demand growth in PJM is expected to come from multiple sources, most notably high-performance computing and data center demand, continued re-shoring in the wake of the COVID-19 pandemic and associated supply chain disruptions, and continued electrification of the U.S.

This demand growth is not currently well matched with increases in supply, as the PJM queue for new-build generation is predominately intermittent rather than dispatchable in nature.

In addition, continued PJM coal plant retirements are expected through the end of the decade.

These drivers of demand have had, and could continue to have, direct impacts on the overall supply/demand balance and resulting energy and capacity prices in the markets in which we operate, the profitability, value, and growth prospects of our business, and the regulatory framework under which we operate.

F o r m 10- K Table of Contents

The Inflation Reduction Act was signed into law in August 2022.

Among the Act’s provisions are amendments to the Internal Revenue Code to create a nuclear production tax credit program.

The Nuclear PTC program provides qualified nuclear power generation facilities with a transferable tax credit for electricity produced and sold to an unrelated party during each tax year.

The credit provides support beginning when annual gross receipts decline below an equivalent $43.75/MWh, increases ratably up to $3/MWh when annual gross receipts are equivalent to $25/MWh, and is subject to potential adjustments including inflation escalators and a five-times increase in value (up to $15/MWh) for meeting prevailing wage requirements (which we expect to meet).

Electricity produced and sold by Susquehanna to third parties from December 31, 2023 through December 31, 2032 will be eligible for the credit.

This program serves as an important tool for mitigating power price exposure, effectively creating a minimum price that Susquehanna is expected to receive for its generation.

We can monetize the credit by reducing our income taxes payable or selling the credits to a third-party.

See Notes 6 and 7 to the Annual Financial Statements for additional information on Nuclear PTC revenue recognized and the Inflation Reduction Act.

Our power generation assets are advantaged by significant fuel diversity, including nuclear, natural gas, coal, oil, and various dual-fuel capabilities.

Further, our natural gas generation assets are situated near the Marcellus shale region of Pennsylvania, which provides access to fuel from one of the largest producing natural gas regions in the U.S.

Properties” for additional information on the fuel capabilities of each of our facilities.

Susquehanna has a portfolio of supply contracts for raw uranium, conversion, enrichment, and fabrication.

Our nuclear fuel cycle is fully contracted through the 2027 fuel load, almost entirely contracted through 2028, and over 70% contracted through 2029.

We have no current fuel exposure to any Russian-affiliated counterparties.

Susquehanna has an on-site dry-cask spent fuel storage facility that, together with its spent fuel pools, accommodates discharged SNF.

We expect to continue expanding this storage facility in phases to accommodate additional SNF and, assuming receipt of appropriate approvals, we expect such expansion to accommodate all of the SNF discharged by Susquehanna through 2044, the current license life of unit 2.

Federal law requires the U.S.

government to provide for the permanent disposal of commercial SNF, but the government has not yet done so.

Consequently, under a related settlement agreement, the government is required to reimburse Susquehanna for certain SNF storage costs through 2025.

See Note 12 to the Annual Financial Statements for additional information on this arrangement.

Natural Gas and Oil.

Talen Energy manages natural gas and oil supply utilizing a combination of contracted purchases, spot market purchases and storage for the commodities and pipeline capacity.

The amount and duration of contracted capacity varies due to factors including fuel availability, economic considerations and plant location on the pipeline grid.

Talen Energy has various short and

long-term natural gas supply and transportation contracts in place;

however, the majority of the natural gas supply needs are satisfied with short-term transactions on a spot basis.

Oil requirements are normally supplied by inventory and replenished through purchases on the spot market.

Talen Energy actively manages its coal requirements by purchasing coal from mines located in central and northern Appalachia and Colorado for its plants located within PJM and from mines located adjacent to the Colstrip facility in Montana.

Coal is delivered by rail, barge or conveyor.

We manage our natural gas and oil supply utilizing a combination of contracted purchases, spot market purchases, and on-site storage for the commodities and pipeline capacity.

The amount and duration of contracted purchases vary due to factors including fuel availability, economic considerations, and generation facility location on the pipeline grid.

A significant portion of our natural gas need is satisfied through short-term transactions on a spot basis.

Oil is generally supplied from on-site inventory and replenished through purchases on the spot market.

The price risk associated with these transactions is managed via financial hedges.

We actively manage our coal requirements by purchasing coal from central and northern Appalachia for our PJM facilities and from a mine adjacent to Colstrip for that facility.

Reliability of coal deliveries can be affected from time to time by a number of factors, including fluctuations in demand, coal mine production issues, and other supplier or transporter operating difficulties.

Coal inventory is maintained at levels estimated to be necessary to avoid operational disruptions at coal-fired generating units.

Long-term supply contracts support adequate levels of coal inventory and are augmented with spot market purchases, as needed.

Talen Energy has long-term supply agreements through 2018 for plants located in PJM and for the Colstrip plant through 2019.

The contracts in place are expected to provide 62% of 2016 requirements.

In addition, certain of Talen Energy's plants are equipped with flue gas desulfurization equipment or Scrubbers, which use limestone in their operations.

Talen Energy has entered into limestone contracts with suppliers that will provide limestone for the plants located in PJM through 2016 and for the Colstrip plant through 2030 and are expected to provide 100% of 2016 requirements.

See Note 10 to the Financial Statements for additional information on Talen Energy's ownership interest in and cost sharing arrangement related to Colstrip.

ACQUISITIONS AND DIVESTITURES

Completion Date

Acquisitions:

November 2015

NYISO, ISO-NE, WECC

PJM, ERCOT, ISO-NE

Divestitures:

February 2016

Talen Renewable Energy

November 2015

Montana Hydroelectric Business

November 2014

Announced Divestitures:

Holtwood and Lake Wallenpaupack

March 2016 (b)

Based on summer rating.

Anticipated closing date.

See Note 6 to the Financial Statements for additional information on acquisitions and divestitures.

FRANCHISES AND LICENSES

Talen Energy Marketing has a license from the DOE to export electricity to Canada.

Talen Energy Marketing also has a permit from the National Energy Board of Canada to export firm and interruptible electricity from Canada to the United States.

Susquehanna Nuclear operates Units 1 and 2 pursuant to NRC operating licenses that expire in 2042 for Unit 1 and in 2044 for Unit 2.

In 2008, a Talen Energy subsidiary, Bell Bend, LLC, submitted a COLA to the NRC for a new nuclear generating unit (Bell Bend) to be built adjacent to the Susquehanna nuclear plant.

Also in 2008, the COLA was formally docketed and accepted for review by the NRC.

Talen Energy does not expect the COLA review process with the NRC to be completed prior to 2018.

See Note 6 to the Financial Statements for additional information.

Holtwood, LLC, a subsidiary of Talen Generation that owns hydroelectric generating operations in Pennsylvania, operates the Holtwood and Lake Wallenpaupack hydroelectric generating plants pursuant to FERC-granted licenses that expire in 2030 and 2045, respectively.

In 2015, Talen Energy announced that it agreed to sell these facilities.

The sale is expected to close in March 2016.

In connection with the relicensing of these generating facilities, applicable law permits the FERC to relicense the original licensee or license a new licensee or allow the U.S.

government to take over the facility.

If the original licensee is not

relicensed, it is compensated for its net investment in the facility, not to exceed the fair value of the property taken, plus reasonable damages to other property affected by the lack of relicensing.

Since the early 1990s, there has been increased competition in U.S.

energy markets because of federal and state competitive market initiatives.

Although some states have created a competitive market for electricity generation, other states continue to consider different types of regulatory initiatives concerning competition in the power and gas industries.

Some states that were considering creating competitive markets have slowed their plans or postponed further consideration.

In addition, states that have created competitive markets have, from time to time, considered new market rules and re-regulation measures that could result in more limited opportunities for competitive energy suppliers.

However, these initiatives have not fully developed as a result of various efforts by industry participants to prevent the erosion of the competitive market structure.

As such, the markets in which Talen Energy participates are highly competitive.

The power generation business is a regional business that is diverse in terms of industry structure and fundamentals.

Demand for electricity may be met by generation capacity based on several competing generation technologies, such as natural gas-fired, coal-fired or nuclear generation, as well as power generation facilities fueled by alternative energy sources, including hydro power, synthetic fuels, solar, wind, wood, geothermal, waste heat and solid waste sources.

Talen Energy faces competition in wholesale markets for available energy, capacity and ancillary services.

Competition is impacted by electricity and fuel prices, congestion along the power grid, subsidies provided by state and federal governments for new generation facilities, new market entrants, construction of new generating assets, technological advances in power generation, the actions of environmental and other regulatory authorities and other factors.

In retail power markets, Talen Energy primarily competes with other electricity suppliers based on its ability to aggregate generation supply at competitive prices from different sources and to efficiently utilize transportation from third-party pipelines and transmission from electric utilities, ISOs and RTOs.

Competitors in wholesale power markets include regulated utilities, industrial companies, NUGs, competitive subsidiaries of regulated utilities, financial institutions and other energy marketers.

We maintain coal inventory at levels estimated to be necessary to avoid operational disruptions at our coal-fired units.

Short- and long-term supply contracts support adequate coal inventory levels and are augmented with spot market purchases as needed.

Seasonality/Scheduled Maintenance

The demand for and market prices of electricity and natural gas are affected considerably by weather and, as a result, our operating results may fluctuate significantly on a seasonal basis.

In general, below-average temperatures in the winter and above-average temperatures in the summer tend to increase electricity demand, energy prices, and revenues.

Alternatively, moderate temperatures tend to decrease electricity demand and may adversely affect resulting energy margins, particularly in PJM.

In addition, our operating expenses typically fluctuate geographically on a seasonal basis, with peak power generation and expenses during the winter in the Mid-Atlantic.

We ordinarily perform planned facility maintenance during milder non-peak demand periods in the spring and fall to ensure reliability during peak periods.

The pattern of fluctuations in our operating results varies depending on the type and location of the facilities being serviced, the capacity markets served, the maintenance requirements of our facilities, and the terms of bilateral contracts to purchase or sell electricity.

Our largest recurring maintenance project is the annual spring refueling outage at Susquehanna.

We serve our fossil generation fleet through a combination of self-service and contracted maintenance activity (including long-term service agreements at certain facilities).

What changed 10-K

Item 1. Business