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Item 1A. Risk Factors

2025-02-28 compared with 2016-02-29 · 527 added, 374 removed, 3 unchanged (100% of the section changed)

We face various risks associated with our businesses.

Our businesses, financial condition, cash flows or results of operations could be materially adversely affected by any of these risks.

In addition, this report also contains forward-looking and other statements about our businesses that are subject to numerous risks and uncertainties.

See "Forward-Looking Information," "Item 1.

Business," "Item 7.

Combined Management's Discussion and Analysis of Financial Condition and Results of Operations" and Note 11 to the Financial Statements for more information concerning the risks described below and for other risks, uncertainties and factors that could impact our businesses and financial results.

As used in this Item 1A., the terms "we," "our" and "us" generally refer to Talen Energy and its consolidated subsidiaries taken as a whole.

Talen Energy's business was formed on June 1, 2015, by the spinoff of Talen Energy Supply and the subsequent combination of that business with RJS Power, to form an independent, publicly traded company (collectively, the "Talen Transactions").

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

Risks Related to Our Business

Adverse economic conditions could adversely affect our financial condition and results of operations.

Adverse economic conditions and declines in wholesale electricity prices have significantly impacted our earnings.

The breadth and depth of these negative economic conditions had a wide-ranging impact on the U.S.

business environment, including our businesses.

In addition, adverse economic conditions also reduce the demand for energy commodities.

This reduced demand continues to impact the key domestic wholesale electricity markets we serve.

The combination of lower demand for power and increased supply of natural gas has put downward price pressure on wholesale electricity markets in general, further impacting our energy marketing results.

In general, economic and commodity market conditions will continue to impact our unhedged future energy margins, liquidity, earnings growth and overall financial condition.

In addition, adverse economic conditions, declines in wholesale electricity prices, reduced demand for power and other factors may negatively impact the trading price of our common stock and impact forecasted cash flow, which may require us to evaluate our assets for impairment.

Any such impairment could have a material impact on our results of operations and financial statements.

Adverse changes in commodity prices and related costs may decrease our future energy margins, which could adversely affect our earnings and cash flows.

Our energy margins, or the amount by which our revenues from the sale of power exceed our costs to supply power, are impacted by changes in market prices for electricity, fuel, fuel transportation, emission allowances, RECs, electricity capacity and related congestion charges and other costs.

Unlike most commodities, the limited ability to store electricity requires that it must be consumed at the time of production.

As a result, wholesale market prices for electricity may fluctuate substantially over relatively short time periods and can be unpredictable.

Among the factors that influence such prices are:

demand for electricity;

supply of electricity available from current or new generation resources;

variable production costs, primarily fuel (and associated transportation costs) and emission allowance expense for the generation resources used to meet the demand for electricity;

transmission capacity and service into, or out of, markets served;

changes in the regulatory framework for wholesale power markets;

liquidity in the wholesale electricity market, as well as general creditworthiness of key participants in the market;

weather and economic conditions affecting demand for or the price of electricity or the facilities necessary to deliver electricity.

Our risk management policy and procedures relating to electricity and fuel prices, interest rates and counterparty credit and non-performance risks may not work as planned, and we may suffer economic losses despite such programs.

We actively manage the market risk inherent in our generation and energy marketing activities, as well as our debt and counterparty credit positions.

We have implemented procedures to monitor compliance with our risk management policy, including independent validation of transaction and market prices, verification of risk and transaction limits, portfolio stress tests, sensitivity analyses and daily portfolio reporting of various risk management metrics.

Nonetheless, our risk management policy may not work as planned.

For example, actual electricity and fuel prices may be significantly different or more volatile

than the historical trends and assumptions upon which we based our risk management calculations.

Additionally, unforeseen market disruptions could decrease market depth and liquidity, negatively impacting our ability to enter into new transactions.

We enter into financial contracts to hedge commodity "basis risk," and as a result are exposed to the risk that the correlation between delivery points could change with actual physical delivery.

Similarly, interest rates could change in significant ways that our risk management procedures were not designed to address.

As a result, we cannot always predict the impact that our risk management decisions may have on us if actual events result in greater losses or costs than our risk models predict or greater volatility in our earnings and financial position.

In addition, our trading, marketing and hedging activities are exposed to counterparty credit risk and market liquidity risk.

As part of our risk management policy, we have established credit procedures to evaluate counterparty credit risk.

However, if counterparties fail to perform, we may be forced to enter into alternative arrangements at then-current market prices.

In that event, our financial results could be adversely affected.

We do not always hedge against risks associated with electricity and fuel price volatility.

We attempt to mitigate risks associated with satisfying our contractual electricity sales obligations by either reserving generation capacity to deliver electricity or purchasing the necessary financial or physical products and services through competitive markets to satisfy our net firm sales contracts.

We also routinely enter into contracts, such as fuel and electricity purchase and sale commitments, to hedge our exposure to fuel requirements and other electricity-related commodities.

However, based on economic and other considerations, we may decide not to hedge the entire exposure.

To the extent we do not hedge against such exposure and fuel requirements and applicable commodity prices change in ways that would be adverse to us, our results of operations and financial position may be adversely affected.

To the extent we do hedge, those hedges may not ultimately prove to be effective.

The accounting for our hedging activities may increase the volatility in our quarterly and annual financial results.

We engage in commodity-related marketing and price-risk management activities in order to physically and financially hedge our exposure to market risk with respect to electricity sales from our generation assets, fuel utilized by those assets and emission allowances.

We generally attempt to balance our fixed-price physical and financial purchases and sales commitments in terms of contract volumes and the timing of performance and delivery obligations through the use of financial and physical derivative contracts.

These derivatives are recorded on the balance sheet at fair value with changes in the fair value resulting from fluctuations in the underlying commodity prices immediately recognized in earnings, unless the derivative qualifies for the NPNS exception.

Specific criteria are required in order to elect the NPNS exception, which permits qualifying hedges to be treated under the accrual accounting method.

All economic hedges may not necessarily qualify for the NPNS exception, or we may elect not to utilize the NPNS exception.

As a result, our quarterly and annual results are subject to significant fluctuations caused by changes in market prices.

We are exposed to operational, price and credit risks associated with selling and marketing products in the wholesale and retail electricity markets.

We sell electricity in wholesale markets under market-based rates throughout the U.S.

and also enter into short-term agreements to market available electricity and capacity from our generation assets with the expectation of profiting from market price fluctuations.

It is possible, however, that market price fluctuations and the absence of long-term agreements could adversely impact our profitability and results of operations.

To the extent that we do have agreements in place to deliver firm electricity and capacity and fail to do so, we could be required to pay damages.

These damages would generally be based on the difference between the market price to acquire replacement electricity or capacity and the contract price of any undelivered capacity or electricity.

Depending on price volatility in the wholesale electricity markets, such damages could be significant.

Extreme weather conditions, unplanned generation facility outages, environmental compliance costs, transmission disruptions, and other factors could affect our ability to meet our obligations, or cause significant increases in the market price of replacement capacity and electricity.

Our wholesale power sales agreements typically include provisions requiring us to post collateral for the benefit of our counterparties if the market price of electricity varies from the contract prices in excess of certain predetermined amounts.

We currently believe that we have sufficient liquidity to fulfill our potential collateral obligations under these power sales contracts.

However, our obligation to post collateral could exceed the amount of our facilities or our ability to increase our facilities could be limited by financial markets or other factors.

We also face credit risk that counterparties with whom we contract in both the wholesale and retail markets will default in their performance, in which case we may have to sell our electricity into a lower-priced market or make purchases in a higher-priced

market than existed at the inception of the contract.

Whenever feasible, we attempt to mitigate these risks using various means, including agreements that require our counterparties to post collateral for our benefit if the market price of electricity varies from the contract price in excess of certain predetermined amounts.

However, there can be no assurance that we will avoid counterparty nonperformance risk, including bankruptcy, which could adversely impact our ability to meet our obligations to other parties, which could in turn subject us to claims for damages.

The full-requirements sales contracts that Talen Energy Marketing is awarded do not provide for specific levels of load and actual load significantly below or above our forecasts could adversely affect our energy margins.

We generally hedge our full-requirements sales contracts with our own generation or electricity purchases from third parties.

If the actual load is significantly lower than the expected load, we may be required to resell power at a lower price than was contracted for to supply the load obligation, resulting in a financial loss.

Alternatively, a significant increase in load could adversely affect our energy margins because we are required under the terms of full-requirements sales contracts to provide the electricity necessary to fulfill increased demand at the contract price, which could be lower than the cost to procure additional electricity on the open market or could mean that we are required to operate our plants to meet the requirements despite the fact that it may be unprofitable to do so.

Therefore, any significant decrease or increase in load compared with our forecasts could have a material adverse effect on our results of operations and financial position.

Our operating revenues could fluctuate on a seasonal basis, especially as a result of extreme weather conditions.

Our businesses are subject to seasonal demand cycles.

For example, in some markets demand for, and market prices of, electricity peak during hot summer months, while in other markets such peaks occur in cold winter months.

As a result, our overall operating results in the future may fluctuate substantially on a seasonal basis if weather conditions such as heat waves, extreme cold, unseasonably mild weather or severe storms occur.

The patterns of these fluctuations may change depending on the type and location of our facilities and the terms of our contracts to sell electricity.

Operating expenses could be affected by weather conditions, including storms, as well as by significant manmade or accidental disturbances, including terrorism or natural disasters.

Weather and these other factors can significantly affect our profitability or operations by causing outages, damaging infrastructure and requiring significant repair costs.

Storm outages and damage often directly decrease revenues and increase expenses, due to reduced usage and restoration costs.

We may experience disruptions in our fuel supply, which could adversely affect our ability to operate our generation facilities.

We purchase fuel and other products consumed during the production of electricity (such as coal, natural gas, oil, water, uranium, lime, limestone and other chemicals) from a number of suppliers.

Delivery of these fuels to our facilities is dependent upon the continuing financial viability of contractual counterparties as well as the infrastructure (including rail lines, rail cars, barge facilities, roadways, riverways and natural gas pipelines) available to serve each generation facility.

As a result, we are subject to the risks of disruptions or curtailments in the production of power at our generation facilities if fuel is unavailable at any price or if a counterparty fails to perform or if there is a disruption in the fuel delivery infrastructure.

Disruption in the delivery of fuel, including disruptions as a result of weather, transportation difficulties, global demand and supply dynamics, labor relations, environmental regulations or the financial viability of our fuel suppliers, could adversely affect our ability to operate our facilities, which could result in lower sales and/or higher costs and thereby adversely affect our results of operations.

We have sold forward a portion of our power in order to lock in long-term prices that we deemed to be favorable at the time we entered into the forward sale contracts.

In order to hedge our obligations under these forward power sales contracts, we have entered into long-term and short-term contracts for the purchase and delivery of fuel.

Many of the forward power sales contracts do not allow us to pass through changes in fuel costs or discharge the power sale obligations in the case of a disruption in fuel supply due to force majeure events or the default of a fuel supplier or transporter.

Disruptions in our fuel supplies may therefore require us to find alternative fuel sources at higher costs, to find other sources of power to deliver to counterparties at a higher cost, or to pay damages to counterparties for failure to deliver power as contracted.

Any such event could have a material adverse effect on our financial performance.

We also buy significant quantities of fuel on a short-term or spot market basis.

Prices for all of our fuels fluctuate, sometimes rising or falling significantly over a relatively short period of time.

The price we can obtain for the sale of electricity may not rise at the same rate, or may not rise at all, to match a rise in fuel or delivery costs.

This may have a material adverse effect on our financial performance.

Changes in market prices for coal, oil and natural gas may result from the following:

weather conditions;

demand for energy commodities and general economic conditions;

disruption or other constraints or inefficiencies of electricity, gas or coal transmission or transportation;

additional generating capacity;

availability and levels of storage and inventory for fuel stocks;

natural gas, crude oil, refined products and coal production levels;

changes in market liquidity;

federal, state and foreign governmental regulation and legislation;

the creditworthiness and liquidity of fuel suppliers and/or transporters and their willingness to do business with us.

Our plant operating characteristics and equipment, particularly at our coal-fired plants, often dictate the specific fuel quality to be combusted.

The availability and price of specific fuel qualities may vary due to supplier financial or operational disruptions, transportation disruptions and force majeure.

At times, coal of a specific quality may not be available at any price, or we may not be able to transport such coal to our facilities on a timely basis.

In this case, we may not be able to run the coal facility even if it would be profitable.

Operating a coal facility with different quality coal can lead to emission or operating problems.

If we have sold forward the power from such a coal facility, we could be required to supply or purchase power from alternate sources, perhaps at a loss.

This could have a material adverse impact on the financial results of specific plants and on our results of operations.

Unforeseen circumstances could cause us to hold excess coal inventories and incur contract termination costs.

Because we enter into guaranteed supply contracts to provide for the amount of coal needed to operate our base load coal-fired generating facilities, we may experience periods where we hold excess amounts of coal.

For example, extraordinarily low natural gas prices could cause natural gas to be the more cost-competitive fuel compared to coal for generating electricity, and as a result we may reduce or idle coal-fired generating facilities in favor of operating available alternative natural gas-fired generating facilities.

In addition, we may incur costs to terminate supply contracts for coal in excess of our generating requirements.

For example, to mitigate the risk of oversupply, we incurred charges of $41 million during 2015 to reduce our contracted coal deliveries.

If the services provided by the transmission facilities that deliver the wholesale power from our generation facilities are inadequate, our ability to sell and deliver wholesale power may be materially adversely affected.

Furthermore, any change in the structure and operation of, or the various pricing limitations imposed by, the RTOs and ISOs that operate these transmission facilities may adversely affect the profitability of our generation facilities.

We do not own or control the transmission facilities required to sell the wholesale power from our generation facilities.

If the transmission service from these facilities is unavailable or disrupted, or if the transmission capacity infrastructure is inadequate, our ability to sell and deliver wholesale power may be materially adversely affected.

RTOs and ISOs provide transmission services, administer transparent and competitive power markets and maintain system reliability.

Many of these RTOs and ISOs operate in the real-time and day ahead markets in which we sell electricity.

The RTOs and ISOs that oversee most of the wholesale power markets impose, and in the future may continue to impose, offer caps and other mechanisms to guard against the potential exercise of market power in these markets as well as price limitations.

These types of price limitations and other regulatory mechanisms may adversely affect the profitability of our generation facilities that sell electricity and capacity into the wholesale power markets.

Problems or delays that may arise in the formation and operation of maturing RTOs and similar market structures, or changes in geographic scope, rules or market operations of existing RTOs, may also affect our ability to sell, the prices we receive or the cost to transmit power produced by our generating facilities.

Rules governing the various regional power markets may also change from time to time, which could affect our costs or revenues.

Additionally, if the transmission service from these facilities is unavailable or disrupted, or if the transmission capacity infrastructure is inadequate, our ability to sell and deliver wholesale power may be materially adversely affected.

Furthermore, the rates for transmission capacity from these facilities are set by others and thus are subject to changes, some of which could be significant.

As a result, our financial condition, results of operations and cash flows may be materially adversely affected.

The FERC has issued regulations that require wholesale electricity transmission services to be offered on an open-access, non-discriminatory basis.

Although these regulations are designed to encourage competition in wholesale market transactions for electricity, there is the potential that fair and equal access to transmission systems will not be available or that transmission

capacity will not be available in the amounts we require.

We cannot predict the timing of industry changes as a result of these initiatives or the adequacy of transmission facilities in specific markets or whether ISOs and RTOs in applicable markets will efficiently operate transmission networks and provide related services.

Because our generation facilities are part of interconnected regional grids, we face the risk of blackout due to a disruption on a neighboring interconnected system.

Major electric power blackouts are possible and have occurred, which could disrupt electrical service for extended periods of time.

If a blackout were to occur, the impact could result in interruptions to our operations, increased costs to replace existing contractual obligations, the possibility of regulatory investigations and potential operational risks to our facilities.

Additionally, in response to a blackout, there could be changes or developments in applicable regulations or market structures that could have longer-term impact on our business and results of operations.

We face intense competition in the competitive power generation market, which may adversely affect our ability to operate profitably and generate positive cash flow.

Our generation business is dependent on our ability to operate successfully in a competitive environment and is not assured of any rate of return on capital investments through a regulated rate structure.

Competition is affected by electricity and fuel prices, relative cost of production of energy products, new market entrants, construction by others of generating assets and transmission capacity, technological advances in power generation, the actions of environmental and other regulatory authorities, establishment of legislation which favors one form of generation over another, such as investment tax credits or production tax credits, and other factors.

These competitive factors may negatively affect our ability to sell electricity and related products and services, as well as the prices that we receive for such products and services, which could adversely affect our results of operations and our ability to grow our business.

We sell our available electricity and capacity products into competitive wholesale markets through contracts of varying duration.

Competition in the wholesale electricity markets occurs principally on the basis of the price of products and, to a lesser extent, reliability and availability.

We believe that the commencement of commercial operation of new electricity generating facilities in the regional markets where we own or control generation facilities and the evolution of demand side management resources will continue to increase competition in the wholesale electricity markets in those regions, which could have an adverse effect on electricity and capacity prices.

We also face competition in the wholesale markets for generation capacity and ancillary services.

Competitors in the wholesale power markets in which we operate include regulated utilities, industrial companies, non-utility generators, competitive subsidiaries of regulated utilities, financial institutions and other energy marketers.

We compete against these entities based on the cost of producing our products, which can include costs attributable to our access to credit sources and the levels of unsecured credit extended to our competitors.

In retail power markets, we primarily compete with other electricity suppliers based on our 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.

Despite federal and state deregulation initiatives, our generation business is still subject to extensive regulation, including requirements that we obtain and comply with government permits and approvals, which may increase our costs, reduce our revenues, or prevent or delay operation of our facilities.

We are required to obtain, and to comply with, numerous permits, approvals, licenses and certificates from federal, state and local governmental agencies.

The process of obtaining and renewing necessary permits can be lengthy and complex and can sometimes result in the establishment of permit conditions that make the project or activity for which the permit was sought unprofitable or otherwise unattractive.

In addition, such permits or approvals may be subject to denial, revocation or modification under various circumstances.

Failure to obtain or comply with the conditions of permits or approvals, or failure to comply with applicable laws or regulations, may result in the delay or temporary suspension of our operations and electricity sales or the curtailment of our power delivery and may subject us to penalties and other sanctions.

Although various regulators routinely renew existing licenses, renewal could be denied or jeopardized by various factors, including failure to provide adequate financial assurance for closure;

local community, political or other opposition;

and executive, legislative or regulatory action.

Our cost or inability to obtain and comply with the permits and approvals required for our operations could have a material adverse effect on our operations and cash flows.

In addition, our generation subsidiaries sell electricity into the wholesale market.

Generally, our generation subsidiaries and our marketing subsidiaries are subject to regulation by the FERC.

The FERC has authorized us to sell generation from our

facilities and power from our marketing subsidiaries at market-based prices.

The FERC retains the authority to modify or withdraw our market-based rate authority and to impose "cost of service" rates if it determines that the market is not competitive, that we possess market power or that we are not charging just and reasonable rates.

Any reduction by the FERC in the rates we may receive or any unfavorable regulation of our business by state regulators could materially adversely affect our results of operations.

In addition, pursuant to PJM's new Capacity Performance construct, we may be subject, in certain PJM emergency events, to economic penalties for generation non-performance, which could be material.

Business-Markets - Recent Market Developments - PJM" in this Form 10-K for additional information.

Our costs to comply with federal, state and local statutes, rules and regulations relating to environmental protection and worker health and safety could be material and could cause the continued operation of certain of our generation facilities to be uneconomic.

Our business is subject to extensive federal, state and local statutes and regulations relating to environmental protection and worker health and safety.

These laws and regulations, which have become more stringent over time, impose numerous requirements, including the acquisition of permits to conduct regulated activities, the incurrence of capital or operating expenditures to limit or prevent releases of hazardous materials, the imposition of specific standards addressing worker protection, and the imposition of substantial liabilities and remedial obligations for pollution or contamination.

If there is any delay in obtaining any environmental regulatory approvals necessary for our operations or capital projects, or if we fail to obtain, maintain or comply with any such approvals, operations at our affected facilities could be halted, reduced or subjected to additional costs.

For example, the EPA's ELGs and the EPA's CCR Rule could adversely affect our operations and restrict or delay our ability to obtain permits.

Moreover, the EPA's Clean Power Plan could have a significant impact on current operations and future opportunities, though it is not possible at this time to predict how this and other pending and/or recently promulgated regulations and laws will impact our business.

We have spent and expect to spend substantial amounts in the future on measures regarding environmental control and compliance, including, but not limited, with respect to pollution control technology.

At some of our older generating facilities, it may be uneconomic for us to install necessary controls to comply with new or proposed legislation or regulations, which could cause us to retire those units.

Certain of our operations pose risks of environmental liability due to leakage, migration, emission, releases or spills of hazardous substances to the air, surface or subsurface soils, surface water or groundwater.

We may be required to remediate contaminated properties currently or formerly owned or operated by us or facilities of third parties that received waste generated by our operations regardless of whether such contamination resulted from the conduct of others or from our own actions that were in compliance with all applicable laws at the time those actions were taken.

Certain environmental laws impose strict as well as joint and several liability (that could result in an entity paying more than its fair share) for costs required to remediate and restore sites.

In addition, claims for damages to persons or property, including natural resources, may result from the environmental, health and safety impacts of our operations.

Failure to comply with applicable laws, regulations and permits may result in liability for administrative, civil and/or criminal penalties, the imposition of remedial obligations, and the issuance of injunctions limiting or preventing some or all of our operations.

In addition, private parties may also have the right to pursue legal actions to enforce compliance, as well as to seek damages for non-compliance, with environmental laws, regulations and permits or for personal injury or property damage.

Business - Environmental Matters" for additional information regarding environmental laws and regulations applicable to our operations.

Our businesses are subject to physical, market and economic risks relating to potential effects of climate change.

Climate change may produce changes in weather or other environmental conditions, including temperature or precipitation levels, and thus may impact consumer demand for electricity.

In addition, the potential physical effects of climate change, such as increased frequency and severity of storms, floods and other climatic events, could disrupt our operations and cause us to incur significant costs in preparing for or responding to these effects.

You should carefully read and consider all the risks and uncertainties described below, as well as the other information included in this Report, including the Annual Financial Statements.

Although we believe the following discussion includes the key risks affecting our business, new risks and uncertainties emerge from time to time, and it is not possible for us to predict all risks and uncertainties that could have an impact on our business.

The occurrence of any of the following risks, or additional risks and uncertainties not presently known to us or that we currently believe to be immaterial, could materially and adversely affect our business, financial condition, results of operations, cash flows, and (or) liquidity.

Industry and Market Risks

We may be adversely impacted by changes in the market prices, availability, and transmission of electricity, fuel, and other commodities.

Market prices for electricity, capacity, ancillary services, natural gas, uranium, coal, and fuel oil are unpredictable and fluctuate substantially over relatively short periods.

Market prices for electricity are particularly volatile due to the inability to store electricity in large quantities (requiring it to be used as it is produced), which can result in significant price fluctuations based on supply and demand imbalances in the day-ahead and real-time markets.

Because natural gas facilities often serve as the marginal, price-setting generating units, there is a strong positive correlation between the price of natural gas and the wholesale market price of electricity in the competitive power markets in which we operate.

In recent years, the market price of natural gas has experienced substantial volatility, while prices for other fuels have also varied.

Our energy margin is influenced by the relationship between the prices of electricity and natural gas and, to a lesser extent, other fuels like coal and uranium.

A decline, or significant volatility, in the price of natural gas or other fuels could negatively impact energy margin and energy revenues.

Additionally, we purchase some of our fuel and other consumables such as water, lime, limestone, and other chemicals and sorbents on a short-term or spot market basis.

Delivery of these products to our facilities depends on available transportation infrastructure and available shipping capacity.

In certain market conditions, transportation costs to our facilities may be significant and fluctuate substantially.

Accordingly, as the prices for our fuels, other consumables, and transportation fluctuate, the price we can obtain for the sale of electricity may not rise similarly or at all to match any increase in our costs.

Any inability to obtain supply or delivery of necessary fuel or other products could impair our ability to operate our facilities profitably or at all.

Our business is subject to physical, market, economic, and regulatory risks relating to weather conditions and extreme weather events.

Because weather can influence actual and expected electricity demand, as well as current and future prices of electricity and fuel, mild or unexpected weather conditions could have an adverse effect on our business.

Our operations are substantially concentrated in PJM, where sustained cold weather during the winter and sustained hot weather during the summer generally result in increased market demand and higher prices for electricity.

Conversely, mild winter or summer temperatures in the Mid-Atlantic tend to suppress electric demand and may result in lower overall settled prices that reduce our energy margin.

Additionally, extreme weather events or sustained mild weather could result in market conditions that generate substantial gains or losses.

For example, certain market and operating conditions may require us to purchase electricity in the wholesale market during periods of unusually high prices to meet our supply obligations or to sell electricity in the wholesale market during periods of low prices.

F o r m 10- K Table of Contents

The effects of storms, floods, and other climatic events could disrupt our operations and cause us to incur significant costs in preparing for or responding to these effects.

These or other meteorological changes could lead to increased operating costs, capital expenses, or power purchase costs.

Climate change could also affect the availability of a secure and economical supply of water in some locations, which is essential for the continued operation of our generation plants.

Business - Environmental Matters" for additional information regarding the potential impact of climate change and related regulations on our business.

The availability and cost of emission allowances could negatively impact our costs of operations.

We are required to maintain, through either allocations or purchases, sufficient emission allowances for sulfur dioxide, nitrogen oxide and carbon dioxide to support our operations in the ordinary course of operating our power generation facilities.

These allowances are used to meet the obligations imposed on us by various applicable environmental laws.

If our operational needs require more than our allocated allowances, we may be forced to purchase such allowances on the open market, which could be costly.

If we are unable to maintain sufficient emission allowances to match our operational needs, we may have to curtail our operations so as not to exceed our available emission allowances, or install costly new emission controls.

As we use the emission allowances that we have purchased on the open market, costs associated with such purchases will be recognized as operating expense.

If such allowances are available for purchase, but only at significantly higher prices, the purchase of such allowances could materially increase our costs of operations in the affected markets.

Changes in legislative and regulatory policy, including the promotion of renewable energy, energy efficiency, conservation and self-generation, may adversely impact our business.

Economic downturns, periods of high energy supply costs and other factors can lead to changes in or the development of legislative and regulatory policy designed to promote reductions in energy consumption, increased energy efficiency, renewable energy and self-generation by customers.

This focus on conservation, renewable energy, energy efficiency and self-generation may result in a decline in electricity demand, which could in turn adversely affect our business.

We are subject to certain risks associated with nuclear generation, including the risk that our nuclear generating facility could become subject to increased security or safety requirements that would increase capital and operating expenditures, uncertainties regarding spent nuclear fuel, and uncertainties associated with decommissioning our plant at the end of its licensed life.

Nuclear generation accounted for about 31% of our 2015 competitive power generation output (including output of (i) RJS as of June 2015, (ii) MACH Gen as of November 2015, (iii) certain of our renewables businesses prior to their sale in November 2015 and (iv) the facilities that we have announced are to be sold to satisfy the FERC order approving the combination of Talen Energy Supply and RJS Power).

The risks of nuclear generation generally include:

the potential harmful effects on the environment and human health from the operation of nuclear facilities and the storage, handling and disposal of radioactive materials;

limitations on the amounts and types of insurance commercially available to cover losses and liabilities that might arise in connection with nuclear operations;

uncertainties with respect to the technological and financial aspects of decommissioning nuclear plants at the end of their licensed lives.

The licenses for our two nuclear units expire in 2042 and 2044.

The NRC has broad authority under federal law to impose licensing requirements, including security, safety and employee-related requirements for the operation of nuclear generation facilities.

In the event of noncompliance, the NRC has authority to impose fines or shut down a unit, or both, depending upon its assessment of the severity of the situation, until compliance is achieved.

In addition, revised security or safety requirements promulgated by the NRC, particularly in response to the 2011 incident in Fukushima, Japan, could necessitate substantial capital or operating expenditures at our Susquehanna nuclear plant.

There also remains substantial uncertainty regarding the temporary storage and permanent disposal of spent nuclear fuel, which could result in substantial additional costs to us that cannot be predicted.

In addition, although we have no reason to anticipate a serious nuclear incident at our Susquehanna nuclear plant, if an incident did occur, any resulting operational loss, damages and injuries could have a material adverse effect on our results of operations, cash flows and financial condition.

Our indebtedness could adversely affect our financial condition and impair our ability to operate our business.

As of December 31, 2015, we had $ 4,811 million in total indebtedness.

Our indebtedness could have important consequences to our future financial condition, operating results and business, including the following:

requiring that a substantial portion of our cash flows from operations be dedicated to payments on our indebtedness instead of other purposes, including operations, capital expenditures and future business opportunities;

Such climatic events could also affect the availability of a secure and economical water supply in some locations, which is essential for the continued operation of our generation facilities.

Furthermore, under PJM’s Capacity Performance model, we may be (and have in the past been) subject to substantial monetary penalties for failing to meet the Capacity Performance requirements set forth by PJM in certain emergency events, including extreme weather events.

See also “—Commercial and Operational Risks—We may experience unplanned interruptions or periods of reduced output, which could result in lower energy margin, lost opportunities, monetary penalties, contractual damages, and (or) other losses.” Extreme weather events could also result (and in the past have resulted) in governmental investigations and changes in applicable laws and regulations, reliability requirements, and market rules, including efforts to reform PJM.

See also “—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 “—Regulatory, Environmental, and Legal Risks—We may be affected by changes in applicable laws and regulations.”

Expected demand growth from the technology sector, manufacturing, and other uses of electricity, which has driven recent improvements in the outlook for the competitive wholesale power generation market, may not actually occur or be sustained.

Recently, the market outlook for competitive wholesale power generation has improved largely based on expected future demand from several sources, including data centers and other technology sector requirements, re-shoring of manufacturing in the U.S., the electrification of industry, and other demand drivers.

Various factors including but not limited to unfavorable macroeconomic conditions, increases in energy efficiency or supply, or advances in technology, could result in lower-than-expected electricity demand and unfavorable market conditions for our business.

A general economic slowdown or recession, a downturn in technology, manufacturing, or other sectors, an oversupply of generation resources or natural gas, or various other economic conditions could reduce electricity demand and prices.

Improvements in energy efficiency, conservation efforts, and demand-side power management technologies, as well as other shifts in energy consumption, may reduce demand or slow demand growth.

Furthermore, the penetration of renewable generation resources has, and may continue to have, negative effects on wholesale power prices and the economics of dispatchable generation units.

Advances in technology may also provide alternative methods to produce, dispatch, and store power, which could also lead to increased overall electricity supply.

Any of these factors could impact the dispatch, capacity factors, and value of our generation facilities.

We face intense competition in the competitive power generation market.

Market competition may adversely affect our ability to operate profitably and generate positive cash flow.

We sell our capacity, electricity, and ancillary services into competitive wholesale markets through a combination of capacity auctions, day-ahead and real-time spot markets, and bilateral agreements.

Our business model depends on us successfully operating in a competitive environment and, unlike regulated utilities, we are not assured of any rate of return on capital investments through a regulated rate structure.

Competitors in wholesale power markets include other non-utility generators, regulated utilities and their competitive subsidiaries, industrial companies, financial institutions, and other energy marketers.

See also “Item 1.

Business—Our Operations—Competition.” Some of our competitors may have advantages over us through access to greater resources, newer generation facilities, lower costs, or more experience.

Our ability to compete is affected primarily by electricity prices, fuel prices, the relative cost of electric generation, and the reliability and availability of generation assets.

These factors can be impacted by generation additions or retirements from the market, changes in natural gas distribution networks that affect the price and availability of fuel utilized for electric generation, changes in storage assets and transmission capacity, and technological advances in power generation and efficiency.

Competition may also be impacted by the actions of environmental and other governmental authorities, including but not limited to the establishment of legislation or subsidies favoring one form of generation over another (such as investment tax credits, production tax credits, and other factors);

for example, the Inflation Reduction Act contains a number of tax credits and incentives relating to renewable energy projects and clean energy technologies.

Any negative impact on our ability to compete could adversely impact our business.

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Our business is subject to extensive regulation, which may increase our costs, reduce our revenues, or limit operation of our facilities.

Our business is subject to extensive energy, reliability, market, nuclear, environmental, and safety laws, regulations, and requirements, among others.

See also “Item 1.

Business—Legal, Regulatory, and Environmental Matters.” Some of the key rules and regulations impacting our business include, among others, those set forth by:

(i) FERC, relating to the generation, sale, and transmission of electricity, and its designated Electric Reliability Organization (currently NERC), relating to reliability standards for the bulk power system;

(ii) PJM and ISO-NE, relating to the reliability and performance of generation facilities and operation of the energy and capacity markets;

(iii) the NRC, relating to the licensing, operation, and ownership of nuclear facilities;

(iv) the EPA, relating to environmental protection and permitting;

and (v) various state and local jurisdictions, relating to similar and other matters.

We may also from time-to-time become subject to new or revised laws, regulations, or requirements.

The costs of compliance with these requirements may be substantial, and any non-compliance or inability to comply could result in the suspension or curtailment of our electricity sales and power delivery;

the cessation, suspension, delay, or limitation of our operations;

premature unit retirements;

and (or) monetary penalties, increased compliance obligations, or other types of sanctions.

See also “—Regulatory, Environmental, and Legal Risks.”

Our business could be adversely affected by events outside of our control, including armed conflicts, war, terrorist attacks or threats, pandemics, natural disasters, cyber-based attacks, or other significant events.

Instability and unrest, as well as war, other armed conflicts, economic sanctions, acts of terrorism, or threats thereof may lead to economic disruption that could adversely affect our business through high volatility in fuel and other commodity prices, difficulty obtaining products such as nuclear fuel, disruptions in supply chains, disruptions or volatility in financial markets, or other factors.

In addition, we could be adversely affected by an epidemic, an infectious disease outbreak, or other public health events, which could impact our workforce and the availability of other resources, resulting in decreased service levels and increased costs.

Furthermore, as a significant portion of our power generation facilities are geographically concentrated in the mid-Atlantic area of the United States, we face increased risk that a natural or man-made disaster in that area could adversely affect a large part of our operations.

We are also subject to cyber-based security disruption and integrity risk, which could result in an adverse impact to our results of operations or business reputation.

The operation of our business relies on cyber-based technologies and is, therefore, subject to the risk that such systems could be the target of disruptive actions, particularly through cyberattack or cyberintrusion by hackers, foreign governments, state-sponsored actors, or cyberterrorists.

Our cyber-based systems and technologies may otherwise also be compromised by unintentional errors or other events, including by vendors or third-parties.

As a result, operations could be interrupted or impacted, property or other assets damaged, funds misappropriated, security compromised, or employee or third-party information lost or stolen, causing us to incur significant revenue losses, costs to replace or repair equipment, and other liabilities and damages, including regulatory actions, litigation, or reputational harm.

In addition, we may also incur increased capital and operating costs to implement increased cybersecurity systems and protections throughout our business.

Commercial and Operational Risks

Operation of power generation facilities involves significant risks and hazards customary to the power industry, which we cannot assure our insurance will be adequate to cover.

Power generation involves hazardous activities, including transporting, storing and handling fuel, operating industrial, electrical and other equipment, and connecting to high voltage transmission and distribution systems.

As a result, our assets, employees, contractors, customers, and the general public may be exposed to risks inherent in the nature of our operations, including hazards such as nuclear accidents, accidents involving high voltage electrical equipment, environmental hazards, fires or explosions, structural failures, machinery failures, and other dangerous incidents.

These and other hazards can cause damage or destruction of our assets or other property and equipment, personal injury or loss of life, pollution or environmental damage, and (or) suspension of operations, and any such event may expose us to liability for substantial damages, fines, or penalties.

Although we maintain insurance that we believe is reasonable and prudent under the circumstances to cover our operations and assets, we cannot provide any assurance that our insurance program will be sufficient or effective under all circumstances and against all hazards or liabilities to which we may be subject.

See also “Item 1.

Business—Our Operations—Insurance.” Even if we do have coverage for a particular incident, we may be subject to deductibles, caps, and (or) policy limits, and the amount recoverable under applicable insurance may not fully cover the impacts on our revenue or other potential consequences.

Furthermore, due to rising insurance costs and changes in the insurance markets, we cannot provide any assurance that our insurance coverage will continue to be available at economic rates or at all.

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Our activities related to hedging and asset management may result in economic losses and (or) volatility in our financial results.

We are exposed to price variability associated with future sales and (or) purchases of power products, fuel, environmental products, and other commodities in competitive wholesale markets, which contribute to uncertainty in the future performance and cash flows of our business.

See also “—Industry and Market Risks—We may be adversely impacted by changes in the market prices, availability, and transmission of electricity, fuel, and other commodities.” We actively manage the market risk inherent in our business through our commercial risk management activities, which utilize a variety of physical and financial instruments to protect cash flow and preserve forward margin.

See also “Item 1.

Business—Our Strategies—Optimize risk management program and hedging.” Nonetheless, such activities may not effectively manage or fully eliminate risks as expected due to differing conditions than those assumed or forecasted, including those related to demand, pricing, volatility, market correlations, generation facility availability, unforeseen market disruptions, and weather events.

Given the inherent uncertainty in developing future market expectations, actual market conditions could be materially different than our expectations.

The financial markets in which we hedge may have insufficient liquidity or excessive counterparty risk, impairing our ability to enter into new transactions.

Furthermore, when a commercial contract expires or is terminated, we may not secure replacement on acceptable terms or at all, and it is possible that subsequent commercial contracts may not be available at prices that permit the operation of our generation fleet on a profitable basis.

If our commercial risk management activities are unable to predict or manage the market risk inherent in our operations, economic losses or other costs to our business could result.

Additionally, our commercial risk management activities could contribute to significant volatility in our financial results.

Commercial transactions with future delivery dates may meet certain accounting criteria requiring them to be carried on the balance sheet at fair value.

The “mark-to-market” effect, or remeasurement of these transactions to fair value at current market prices, is generally recognized in earnings through contract delivery.

However, many commercial transactions with future delivery dates do not meet the criteria for “mark-to-market” accounting, and the income effect of these transactions is generally recognized at contract delivery.

Accordingly, we are exposed to timing differences in the earnings recognition for commercial contracts with the same delivery date.

As a result, during periods of extreme price volatility or significant changes in market prices, our quarterly and annual results may be subject to fluctuations due to changes in fair values of commercial transactions caused by changes in market prices.

We may experience unplanned interruptions or periods of reduced output, which could result in lower energy margin, lost opportunities, monetary penalties, contractual damages, and (or) other losses.

Our facilities require periodic planned outages to perform maintenance and repair activities, which are typically scheduled during seasonal non-peak demand periods to minimize their financial impacts to our business.

However, our facilities may also experience unplanned outages, periods of reduced output, or other interruptions due to a number of factors, including but not limited to equipment failures, accidents, electrical delivery or transportation problems, fuel supply disruptions, acts of nature, environmental incidents, security or information technology breaches, labor disputes, intentional attacks, obsolescence, or below-expected performance.

Any unexpected failure, including those associated with breakdowns or forced outages, could result in reduced profitability, including from lost energy margin, costs to cover power at then-current market prices to satisfy our commitments, and additional repair and (or) ongoing maintenance costs.

Although we maintain customary insurance coverage for certain of these risks, no assurance can be given that our insurance coverage will be sufficient to fully compensate us for any such losses.

Facility outages could also subject us to market or contractual penalties.

Under PJM’s Capacity Performance model, we may be (and have in the past been) subject to substantial monetary penalties for failing to meet the Capacity Performance requirements set forth by PJM in certain emergency events.

For example, during Winter Storm Elliott in 2022, certain of our generation facilities failed to meet PJM’s Capacity Performance requirements and, as a result, we incurred final aggregate net Capacity Performance penalties of $29 million.

See also “Item 1.

Business—Legal, Regulatory, and Environmental Matters” and “—Regulatory, Environmental, and Legal Risks.” Any failure to meet contractual terms, whether for regulatory or other reasons, could result in transaction cancellation, costly disputes or litigation, breakage or other fees, or other costs and liabilities.

No assurance can be provided that any such transaction will result in the anticipated benefits to our business or stockholders.

Regulatory, Environmental, and Legal Risks

Our business is subject to extensive energy-related regulation and oversight.

We are 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;

and state public utility commissions.

See also “Item 1.

Business—Legal, Regulatory, and Environmental Matters—Energy Regulation” and “—Our ownership and operation of a nuclear power facility subjects us to regulations, costs, and liabilities uniquely associated with these types of facilities.”

Certain of our subsidiaries sell electricity into the wholesale markets and are subject to rate, financial, and organizational regulation by FERC.

FERC has authorized us to sell energy, capacity, and ancillary services at wholesale at market-based rates and has granted us various related customary waivers and blanket approvals, including a blanket authorization to issue securities and to assume liabilities.

FERC retains the authority to modify or withdraw our market-based rate authority and impose cost-based rates if it determines that the market is not competitive, we possess market power in one or more markets, we are not charging just and reasonable and not unduly discriminatory rates, or we have violated FERC’s market behavior rules or engaged in market manipulation.

Any reduction by FERC in the rates that we may receive, revocation of FERC’s waivers and blanket authorizations, or unfavorable changes to the regulation of our business by federal or state regulators could materially adversely affect our business.

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.” See "Item 3.

Legal Proceedings” for additional information on the Susquehanna ISA Amendment.

In addition, if we were found to have violated FERC’s market behavior rules or other FERC requirements, FERC could impose civil penalties or order us to disgorge associated profits.

Our generation assets are also subject to the reliability standards promulgated by the FERC-designated Electric Reliability Organization (currently NERC) and approved by FERC.

If we fail to comply with the mandatory reliability standards, we could be subject to sanctions, including substantial monetary penalties and increased compliance obligations.

In addition to federal regulation, our operations are subject to various state laws and regulations.

These include oversight of siting, permitting, and environmental compliance for our facilities, as well as participation in state-specific energy markets and programs.

In addition, 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.

See also “—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.”

Our business is subject to extensive state, federal, and local statutes, rules, regulations, and permitting requirements relating to environmental protection and worker health and safety, which could limit our operations, increase our costs, result in other liabilities to us, or render continued operation of certain of our facilities uneconomic.

Our business is subject to extensive federal, state, and local laws, regulations, and requirements relating to environmental protection and human health and safety, which have become more stringent over time.

These requirements impose, among other things, permitting requirements for regulated activities, costs to limit or prevent pollution or other contamination, substantial liabilities and remedial obligations for pollution or contamination, and specific standards addressing worker protection and process safety.

See also “Item 1.

Business—Legal, Regulatory, and Environmental Matters—Environmental Regulation.”

We are required to obtain and to comply with numerous permits, approvals, licenses, and certificates from various environmental agencies, which can be a lengthy and complex process that can sometimes result in permit conditions that make certain activities overly restrictive or uneconomic.

Moreover, renewal of existing permits could be denied or jeopardized by various factors, including litigation, environmentalist or community opposition, and political pressures.

Costs, conditions, denials or non-renewals, or non-compliance associated with any required permits or approvals could result in increased costs;

the cessation, suspension, delay, or limitation of our operations;

premature unit retirements;

and monetary penalties, increased compliance obligations, or other types of sanctions.

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Furthermore, certain of our operations pose risks of liability due to leakage, migration, emissions, releases, or spills of hazardous or otherwise regulated substances to the air, surface or subsurface soils, surface water, or groundwater.

Certain environmental laws impose strict as well as joint and several liability for costs to remediate and restore sites.

In addition, claims for personal or property damage may result from the environmental, health, and safety impacts of our operations.

We could be held responsible for all liabilities associated with the environmental condition of our facilities, regardless of whether we were responsible for the creation of the environmental condition, it arose from the activities of predecessors or third parties, or our operations met previous industry standards at the time conducted.

New or more stringent enforcement of existing laws or regulations could also adversely affect our business.

See also “—We may be affected by changes in applicable laws and regulations.” As a result of various factors, including existing and recently revised rules and regulations, such as those pertaining to air, waste, and water (including the EPA MATS, GHG, CCR, and ELG Rules) we have spent, and expect to continue to spend, substantial amounts on environmental compliance, controls, and remediation.

Business—Legal, Regulatory, and Environmental Matters—Environmental Regulation” and Note 12 to the Annual Financial Statements for additional information.

Failure to comply with applicable environmental laws, regulations, and permits could result in liability for administrative, civil, or criminal fines or penalties or in other costs or obligations, including requirements to install additional equipment or make substantial changes to our operations.

In addition, private parties may also have the right to pursue legal actions to enforce compliance and seek damages for non-compliance.

These factors have also resulted in continuing uncertainty around the environmental costs, profitability, and continued operations of our fossil fuel-fired facilities, and coal-fired facilities in particular.

See also “—There is uncertainty related to the future profitability of our fossil fuel-fired power generation business and the amount and timing of associated environmental costs.” and “—Existing and emerging legal and regulatory requirements related to coal-fired generation operations and CCR could adversely affect our business.”

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.

We do not own or control the transmission facilities required to deliver the wholesale power from our generation facilities to load.

FERC has issued regulations that require wholesale electricity transmission services, even when offered by parties other than RTOs and ISOs, to be offered on an open-access, non-discriminatory basis.

Although these regulations are designed to encourage competition in wholesale markets, there can be no assurance that transmission capacity will be available in the amounts we require.

We cannot predict the timing of industry changes as a result of these initiatives, the adequacy of transmission facilities, or whether RTOs, ISOs, or other transmission providers will efficiently operate transmission networks and provide related services.

Furthermore, regulatory approvals and orders that we have obtained may be subject to challenge and protest from time to time.

In most cases, RTOs and ISOs operate transmission facilities and provide related services, administer organized power markets, and maintain system reliability.

Many of these RTOs and ISOs operate the real-time and day-ahead markets in which we sell electricity, as well as the forward markets in which we sell capacity, and may impose offer caps, price limitations, and other mechanisms to guard against the potential exercise of market power.

These and other regulatory mechanisms may adversely affect our profitability.

Changes in the rules, market operations, or geographic scope of existing RTOs, ISOs, and various regional power markets, as well as any challenges in the formation and operation of similar emerging market structures, could also affect our ability to sell, the prices we receive, or the costs to transmit electricity and capacity from our generation facilities.

The wholesale energy markets vary from region to region with distinct rules, practices, and procedures.

Changes in these market rules, problems with rule implementation, and compliance or failure of any of these markets could adversely impact our business.

The PJM market is undergoing significant restructuring due to projected increases in demand, projected retirements of supply, and recent weather events that have exposed systemic flaws.

Ongoing market reforms have caused delays in the PJM Base Residual Auctions, which determine capacity prices in upcoming years, leading to unpredictability around capacity revenues due to lack of reliable pricing and on-schedule BRAs.

While PJM has established dates for certain upcoming PJM BRAs based upon FERC orders establishing rules for such capacity markets, we cannot guarantee those auctions will take place on those dates or at all.

In addition, under PJM’s Capacity Performance model, we may be (and have in the past been) subject to substantial monetary penalties for failing to meet the Capacity Performance requirements set forth by PJM in certain emergency events.

Continued efforts to address perceived capacity market design issues are ongoing, and we cannot predict the outcome of these market reforms or their impact on future capacity revenues.

See Note 12 to the Annual Financial Statements for additional information on the PJM capacity market, systemic risks, BRA delays, and related legal actions.

Our power generation business relies on a competitive marketplace.

See also “—Industry and Market Risks—We face intense competition in the competitive power generation market.” The competitive wholesale marketplace may be undermined by changes in market structure as well as the actions of federal or state entities that interfere in the competitive marketplace, such as subsidies, out-of-market payments, incentives, or bailouts to new or uneconomic facilities;

imports of power;

permission for regulated utilities to build generation and add it to the rate base;

renewable mandates or incentives;

and mandates to sell power below cost.

Actions that undermine the competitive marketplace could suppress capacity and energy prices or lead to premature retirement of existing facilities, among other things.

See also “—We may be affected by changes in applicable laws and regulations.”

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There is uncertainty related to the future profitability of our fossil fuel-fired power generation business and the amount and timing of associated environmental costs.

Many political and regulatory authorities, environmental groups, and investors are devoting substantial efforts to minimizing or eliminating fossil fuel-fired electricity generation, which could reduce demand and pricing for electricity generated at our fossil fuel-fired facilities and adversely impact our business, financial condition, growth prospects, and ability to raise capital.

See also “—Financial and Equity Risks—We may not have sufficient access to financing for our business.”

These efforts are resulting in increased regulation of fossil fuel combustion, GHG emissions, and other related activities.

Any resulting changes to the legal and regulatory framework governing electric generation could materially impact our business.

For example, new air, waste, and water rules finalized by the EPA in 2024 could require us to incur significant costs if they withstand legal challenges and potential rescission or revision by the Trump administration.

These costs include ARO revisions, potential asset modifications, including investments in environmental control equipment, premature retirement or reduced operations, and increased public reporting requirements.

Business—Legal, Regulatory, and Environmental Matters—Environmental Regulation” and Note 12 to the Annual Financial Statements for additional information.

Furthermore, any new legislation or regulatory programs could also increase the cost of electricity production or make certain units unavailable or restricted, overall reducing the amount of reliable and affordable power available to meet our nation’s growing electricity demand.

For example, compliance with the recently revised EPA MATS Rule will require either investment in additional control equipment at Colstrip or retirement of the plant by 2027.

We and the other Colstrip co-owners have not yet determined whether to install the equipment necessary to comply with the new EPA MATS Rule;

meanwhile, we and others are actively challenging the EPA MATS Rule in ongoing litigation as well as advocating for changes administratively.

Furthermore, if we and our co-owners elect to install additional control equipment at Colstrip, the recently revised EPA GHG Rule could still force the plant to retire by 2032, before the costs of installing the equipment can be recovered.

We operate an aging fossil fuel fleet and many of our facilities require periodic maintenance and repair.

If we significantly modify a unit such that regulated pollutants are increased beyond thresholds set by the EPA pursuant to New Source Review guidelines promulgated under the Clean Air Act, we may be required to install the best available control technology or to achieve the lowest achievable emission rates, which would likely result in substantial additional capital expenditures or premature retirement.

However, the EPA MATS, GHG, CCR, and ELG Rules are currently subject to ongoing litigation.

As a result, future implementation and enforcement of these rules remains uncertain.

To the extent that new or amended laws or regulations further restrict emissions from the combustion of coal, natural gas, or oil, such requirements could result in further capital expenditures or premature retirements.

Existing and emerging legal and regulatory requirements related to coal-fired generation operations and CCR could adversely affect our business.

In accordance with the relevant legal and regulatory requirements, we perform certain activities to manage large quantities of CCR material resulting from decades of coal-fired electric generation.

In particular, Talen Montana and Brunner Island have significant decommissioning and environmental remediation liabilities, primarily consisting of remediation, closure, and decommissioning costs for coal ash impoundments.

Where applicable, across the fleet, we carry the expected cost of the known CCR and associated wastewater obligations within our ARO liabilities.

Actual cash expenditures associated with these AROs are expected to materially increase over the next five years due to recent regulatory changes unless the rules do not withstand legal challenges or are rescinded by the Trump administration.

These potential increases would be somewhat offset by ongoing remediation, closure, and decommissioning activities, which will reduce ARO liabilities as scopes are completed.

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

Future adjustments to our coal ash ARO estimates may be required due to evolving regulatory programs and associated remediation requirements under federal rules and state obligations, which could have an adverse effect on our business.

If the assumptions underlying these ARO estimates do not materialize as expected, actual cash expenditures and costs could be materially different.

See Note 11 to the Annual Financial Statements for additional information on AROs.

In addition, the EPA recently finalized standards under the EPA GHG Rule for new and certain existing power plants.

These regulations primarily affect baseload units in the national power fleet, including our coal-fired generation facilities that have not set near-term retirement dates (e.g., Colstrip).

More stringent limits on carbon dioxide and other GHG emissions and carbon taxes could be implemented or expanded at the state or regional levels.

Recently, certain state legislatures have considered bills that could materially affect our ability to operate our coal-fueled generation facilities.

Furthermore, other recent EPA rules (e.g., the EPA MATS, CCR, and ELG Rules) could have a significant impact on our business as discussed herein.

Each of these rules are currently subject to ongoing legal challenges.

In addition, in January 2025, President Trump issued an executive order directing the heads of all federal agencies to identify and begin the processes to suspend, revise, or rescind all agency actions, including existing regulations, that are unduly burdensome on the identification, development, or use of domestic energy resources.

Consequently, future implementation and enforcement of these rules remains uncertain at this time.

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Our ownership and operation of a nuclear power facility subjects us to regulations, costs, and liabilities uniquely associated with these types of facilities.

Under the Atomic Energy Act, our operation and 90% ownership of Susquehanna are subject to regulation by the NRC, including requirements pertaining to, among other matters:

licensing, inspection, and enforcement;

testing, evaluation, and modification of all aspects of nuclear reactor power generation facility design and operation;

environmental and safety performance;

handling and storage of SNF;

technical and financial qualifications;

decommissioning funding assurance;

and transfer and foreign ownership restrictions.

The NRC may modify, suspend, or revoke operating licenses and impose civil or criminal penalties for failure to comply with the Atomic Energy Act or the terms of nuclear operating licenses.

The current facility operating licenses for our two units at Susquehanna expire in 2042 and 2044.

The NRC could temporarily or permanently shut down Susquehanna, require it to modify its operations, or refuse to permit a unit to restart after any planned or unplanned outage.

See also “—Commercial and Operational Risks—We may experience unplanned interruptions or periods of reduced output, which could result in lower energy margin, lost opportunities, monetary penalties, contractual damages, and (or) other losses.” As a result of any shutdown or forced outage, we may also face substantial costs related to the storage and disposal of radioactive materials and SNF.

In addition, Susquehanna will be obligated to continue storing SNF if the Department of Energy continues to fail to meet its contractual obligations under the Nuclear Waste Policy Act of 1982 to accept and dispose of Susquehanna’s SNF.

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

NRC regulations also require us to demonstrate reasonable assurance that certain funds will be available to decommission each nuclear generation facility at the end of its life.

There are uncertainties with respect to certain technological and financial aspects of decommissioning these facilities, and related costs may exceed the amounts available from the NDT funds.

See Note 9 to the Annual Financial Statements for additional information on the NDT.

In addition, new or amended NRC safety and regulatory requirements may give rise to additional operation and maintenance costs and capital expenditures, and aging equipment may require more capital expenditures to keep Susquehanna operating efficiently.

Any unexpected failure, including failure associated with breakdowns or any unanticipated capital expenditures, could result in reduced profitability.

Costs associated with these risks could be substantial.

See also “—Commercial and Operational Risks—Our ownership and operation of Susquehanna subjects us to substantial risks associated with nuclear generation.”

While Susquehanna maintains property and liability insurance and is subject to NRC insurance requirements and the Price-Anderson Act scheme, there may be limitations on the amounts and types of insurance commercially available to us or we may have insufficient coverage with respect to any losses.

See Note 12 to the Annual Financial Statements for additional information on nuclear insurance.

Uninsured losses and other liabilities and expenses resulting from an incident at Susquehanna, to the extent not recovered from insurers or the nuclear industry, could be borne by us.

See also “—Industry and Market Risks—Operation of power generation facilities involves significant risks and hazards customary to the power industry, which we cannot assure our insurance will be adequate to cover.” Additionally, an accident or other significant event at a nuclear facility within the United States or abroad, whether owned by us or others, could result in increased regulation and reduced public support for nuclear-fueled energy.

If an incident did occur at Susquehanna, any resulting operational loss, damages, and injuries would likely have a material adverse effect on our business.

We may be affected by changes in applicable laws and regulations.

Our business is subject to various laws and regulations administered by federal, state, and local governmental agencies.

Changes in laws and regulations occur frequently, and sometimes dramatically, as a result of political, economic, or social events or in response to other significant events, and changes in state laws and regulations could be even less predictable, occur more rapidly, or have a more drastic effect than changes at the federal level.

For example, economic downturns, periods of high energy supply costs, and other factors can lead to changes in, or the development of, legislative and regulatory policies designed to promote reductions in energy consumption, increased energy efficiency, renewable energy, and self-generation by customers.

In addition, extreme weather events have resulted, and in the future may result, in governmental investigations and changes in applicable laws and regulations, reliability requirements, and market rules, including efforts to reform PJM.

In the future, we are likely to face additional severe weather events, which are inherently unpredictable in nature, location, scope, and timing, and which may give rise to investigations or other efforts to determine the causes or consequences of such events.

Any change in the legal and regulatory landscape for any reason (including but not limited to changes in administration or political climate, energy regulation and policy, environmental and permitting requirements and processes, employee healthcare and benefits obligations, health and safety standards, accounting standards, tax regulations and requirements, and competition laws) could impact our operations, competitive position, or outlook.

Business—Legal, Regulatory, and Environmental Matters—Environmental Regulation” and Note 12 to the Annual Financial Statements for additional information on new water, waste, air, and climate rules recently finalized by the EPA.

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The availability and cost of emission allowances could negatively impact our operating costs.

We are required to maintain, through either allocations or purchases, sufficient emission allowances for sulfur dioxide, nitrogen oxide, and carbon dioxide to support the operation of our power generation facilities.

These allowances are used to meet the obligations imposed on us by various applicable environmental laws and regulations.

Given the historical correlation between rising natural gas prices and increasing prices for wholesale electricity, we may idle our units less as natural gas prices increase, resulting in increased emissions.

If our operational needs require more than our allocated or otherwise acquired allowances, we may be forced to purchase additional allowances on the open market, which could be costly, if available at all.

If we are unable to maintain sufficient emission allowances to match our operational needs, we may be required to curtail our operations or install costly new emission controls.

In addition, laws and regulations governing emission allowance programs are changing and could continue to change in the future, which could have a negative impact on available allowances, our ability to purchase allowances, or the price of additional allowances.

See Note 12 to the Annual Financial Statements for additional information on the EPA CSAPR and nitrogen oxides requirements.

Changes in tax law (including any elimination of the Nuclear PTC), the implementation regulations of certain tax provisions, adverse decisions by tax authorities, or the imposition of tariffs may adversely affect our business.

The laws and rules pertaining to U.S.

federal, state, and local income taxation are routinely being reviewed and modified by governmental bodies, officials, and regulatory agencies, including the Internal Revenue Service (“IRS”) and the U.S.

Treasury Department.

It cannot be predicted whether, when, in what form, or with what effective dates tax laws, regulations, and rulings may be enacted, promulgated, or issued, which could result in changes in the estimated values of recorded deferred tax assets and liabilities and future income tax assets and liabilities and an increase in our effective tax rate and tax liability.

For example, the Inflation Reduction Act was signed into law in August 2022.

Among the Inflation Reduction Act’s provisions are changes to the U.S.

corporate income tax system, including a one percent excise tax on certain repurchases of stock (and economically similar transactions) after December 31, 2022.

The Inflation Reduction Act also includes amendments to the Internal Revenue Code of 1986, as amended (the “Code”), to create a nuclear production tax credit program.

While electricity produced and sold by Susquehanna through December 31, 2032 may qualify for the Nuclear PTC, which is subject to potential adjustments, these provisions are subject to implementation regulations, the terms of which are not yet fully known.

Accordingly, we cannot fully predict the impacts that any such tax credits may have on our liquidity or results of operations.

Additional guidance expected to be issued from the U.S.

Treasury and IRS may impact the credit value recognized, and any elimination of the Nuclear PTC may adversely affect our business and financial condition.

See Note 2 to the Annual Financial Statements for our accounting policy related to Nuclear PTC and Note 6 to the Annual Financial Statements for Nuclear PTC revenue recognized.

Additionally, the imposition of new tariffs by government authorities or the increase of existing tariffs could materially increase the prices we pay for fuel, materials, supplies, equipment, parts, and (or) other critical products that are integral to our operations.

Our tax reporting is subject to audit by tax authorities.

We may enter into transactions and arrangements in the ordinary course of business in which the tax treatment is not entirely certain.

We must therefore make estimates and judgments in determining our consolidated tax provisions and accruals.

The final outcome of any audits by tax authorities may differ from estimates and assumptions used in determining our consolidated tax provisions and accruals, and the resolution of tax assessments or audits by tax authorities could impact our results of operations.

This could result in a material and adverse effect on our consolidated income tax provision, financial position, and net income/loss for the period for which such determinations are made.

Our ability to utilize our tax attributes, including net operating loss carryforwards, remaining following Emergence, if any, may be limited.

As of December 31, 2024, we had $0.8 billion of U.S.

federal net operating loss carryforwards and $1.4 billion of disallowed business interest expense carryforwards under Section 163(j) of the Code and certain other tax attributes (including significant tax basis in assets).

Because the consummation of the Plan of Reorganization resulted in an ownership change for purposes of Sections 382 and 383 of the Code, our ability to utilize any remaining tax attributes after reduction and disallowed business interest expense carryforwards is subject to limitation under Sections 382 and 383 of the Code.

As a result, certain of our tax attributes have been substantially reduced, eliminated, or otherwise restricted.

We are subject to the risk of litigation and similar legal proceedings.

We are, and in the future may be, subject to litigation or similar legal proceedings arising out of our business and operations.

Damages or other remedies sought under such proceedings may be financially or operationally material, and a negative outcome could materially adversely impact our business, operations, and financial condition.

While we will assess the merits of any legal proceedings and defend such matters accordingly, we may be required to incur significant expense and (or) devote significant management attention to such defenses.

In addition, the adverse publicity surrounding such claims may negatively impact our business and reputation.

Our insurance may not adequately cover losses for damages claimed against us, and we do not have insurance coverage for all litigation risks.

See Note 12 to the Annual Financial Statements for additional information on our legal matters.

F o r m 10- K Table of Contents

Financial and Equity Risks

We may not have sufficient access to financing for our business.

Our primary liquidity requirements, in addition to our ordinary course operating expenses, are for debt service, capital expenditures, and collateral for our commercial program and AROs.

If our liquidity sources are not sufficient to fund our current or future needs, we may be required to take other actions, including refinancing, restructuring, or reorganizing all or a portion of our debt or capital structure, reducing or delaying capital investments, or obtaining alternative financing, which could result in a higher cost of capital and (or) require additional security, collateral, or other conditions.

Our ability to raise capital and access liquidity is subject to numerous factors, including conditions in the capital markets, our current operations, credit ratings, and other events which we may not be able to predict or control.

Furthermore, our ability to raise financing may be affected by current geopolitical-social views and investor expectations regarding fossil fuels and environmental matters, which have prompted unfavorable lending policies toward fossil fuel-fired generation facilities, guidelines preventing investors from increasing or taking new stakes in companies with exposure to fossil fuels, and divestment efforts affecting the investment community, all of which could negatively impact the demand for investments in our business.

Applicable regulations could also impose additional requirements that may increase the costs of conducting our business or accessing sources of capital and liquidity.

There can be no assurance that we will be able to obtain financing on commercially reasonable terms or at all, in compliance with the terms of our existing indebtedness, and (or) in a manner that does not negatively impact our business or that such actions, even if achieved, would allow us to meet our financial obligations and operating requirements.

Our historical financial information may not be indicative of our future financial performance.

Our capital structure was significantly altered in the Restructuring.

Upon Emergence, we adopted fresh start accounting, which required us to adjust our assets and liabilities to fair value and restate our accumulated deficit to zero.

We also adopted accounting policy changes that could result in material changes to our financial reporting and results.

Accordingly, our financial condition and results of operations in Successor periods following the Restructuring are not comparable to our financial condition and results of operations in Predecessor periods prior to the Restructuring.

See Notes 2 and 4 to the Audited Financial Statements for additional information on accounting policies and fresh start accounting.

The amount and terms of our indebtedness could adversely affect our financial condition and impair our ability to operate our business .

Our indebtedness could have important consequences to our future financial condition, operating results, and business, including:

requiring that a substantial portion of our cash flows from operations be dedicated to payments on our indebtedness instead of operations, capital expenditures, future business opportunities, or other purposes;

limiting our ability to obtain additional debt or equity financing for working capital, capital expenditures, debt service requirements, acquisitions, and general corporate or other purposes;

increasing our cost of borrowing;

limiting our ability to adjust to changing market and economic conditions and limiting our ability to carry out capital spending that is important to our growth.

Although the agreements governing the Talen Energy Supply RCF contain restrictions on the incurrence of additional indebtedness, these restrictions are subject to a number of qualifications and exceptions, and any additional indebtedness incurred in compliance with these restrictions could be substantial.

See Note 5 to the Financial Statements for additional information regarding our indebtedness.

The agreements governing our indebtedness contain covenants that may restrict our operational flexibility.

The Talen Energy Supply RCF contains financial and other covenants that restrict our ability to, among other things:

incur additional indebtedness, or issue guarantees or certain preferred shares;

pay dividends, redeem stock or make other distributions;

repurchase, prepay or redeem subordinated indebtedness;

make investments or acquisitions;

create liens;

make negative pledges;

consolidate or merge with another company;

sell or otherwise dispose of all or substantially all of our assets;

enter into certain transactions with affiliates.

The Amended STF Agreement and the First Lien Credit and Guaranty Agreement similarly contain customary covenants that may restrict our operational flexibility.

Our ability to borrow additional amounts under these agreements depends upon satisfaction of those covenants.

Events beyond our control could affect our ability to meet those covenants.

Our failure to comply with obligations under the agreements governing our indebtedness may result in an event of default under those agreements.

A default, if not cured or waived, may permit acceleration of our indebtedness.

If our indebtedness is accelerated, we cannot be certain that we will have sufficient funds available to pay the accelerated indebtedness or that we will have the ability to refinance the accelerated indebtedness on terms favorable to us or at all.

This could have serious consequences to our financial condition, operating results and business and could cause us to become bankrupt or insolvent.

See Note 5 to the Financial Statements for additional information regarding our indebtedness.

Our cash flow and ability to meet debt obligations depend on the performance of our subsidiaries and affiliates.

We are a holding company and conduct our operations primarily through subsidiaries.

Substantially all of our consolidated assets are held by such subsidiaries.

Accordingly, our cash flow and our ability to meet our obligations under certain of our debt instruments depend upon the earnings of these subsidiaries and the distribution or other payment of such earnings to us in the form of dividends, loans or advances or repayment of loans and advances from us.

The subsidiaries are separate and distinct legal entities and have no obligation to pay any amounts due on the notes or to make any funds available for such payment.

The debt agreements of some of our subsidiaries and affiliates contain provisions that might restrict their ability to pay dividends, make distributions or otherwise transfer funds to us upon failing to meet certain financial tests or other conditions prior to the payment of other obligations, including operating expenses, debt service and reserves.

Variable rate indebtedness subjects us to the risk of higher interest rates, which could cause our future debt service obligations to increase significantly.

Our borrowings under the Talen Energy Supply RCF and the First Lien Credit and Guaranty Agreement are at variable rates of interest and expose us to interest rate risk.

If interest rates increase, our debt service obligations on such variable rate indebtedness would increase even though the amount borrowed remained the same, and our net income would decrease.

Disruption in financial markets could adversely affect our financial condition and results of operations.

Our businesses are heavily dependent on credit and access to capital, among other things, for financing capital expenditures and providing collateral to support hedging in our energy marketing business.

Regulations under the Dodd-Frank Act in the United States and Basel III in Europe may impose costly additional requirements on our businesses and the businesses of others with whom we contract, such as banks or other counterparties, or simply result in increased costs to conduct our business or access sources of capital and liquidity upon which the conduct of our businesses is dependent.

We could be negatively affected by rising interest rates, downgrades to our credit ratings, adverse credit market conditions or other negative developments in our ability to access capital markets.

In the ordinary course of business, we are reliant upon adequate long-term and short-term financing to fund our significant capital expenditures, debt service and operating needs.

As a capital-intensive business, we are sensitive to developments in interest rates, credit rating considerations, insurance, security or collateral requirements, market liquidity and credit availability and refinancing opportunities necessary or advisable to respond to credit market changes.

Changes in these conditions as well as downgrades to our credit ratings could result in increased costs and decreased availability of credit.

Recent or future acquisition or divestiture activities may have adverse effects on our business, financial condition and results of operations.

From time to time, we may seek to acquire additional assets or businesses.

The acquisition of new assets or businesses is subject to substantial risks, including delays in completing such acquisitions, the failure to identify material problems during due diligence, the risk of over-paying for assets, the ability to retain customers or employees and the inability to arrange financing for an acquisition as may be required or desired.

We may acquire assets in geographic regions or markets in which we do not currently operate, which may expose us to increased market and/or regulatory risks.

In addition, we may not be able to achieve the anticipated operating and financial benefits of future acquisitions.

For example, we may not be able to achieve certain tax benefits related to our recently completed acquisition of MACH Gen to the extent we do not have adequate taxable income in future periods following completion of the acquisition.

Further, the integration and consolidation of acquired businesses requires substantial human, financial and other resources and, ultimately, such integration processes may result in unexpected costs or charges and we may not be able to operate the acquired businesses or assets in the manner in which we intended.

There can be no assurances that any future acquired businesses will perform as expected or that the returns from such acquisitions will support the indebtedness incurred to acquire them or the capital expenditures needed to develop them.

In addition, we are required to sell certain assets pursuant to the FERC order approving the combination of Talen Energy Supply and RJS Power and we may from time to time choose to sell certain other assets or businesses that are no longer core to our operations.

In connection with such dispositions, we may indemnify or guarantee counterparties against certain liabilities, which may result in future costs or liabilities payable by us.

For example, we have agreed to indemnify the buyers in each of the Holtwood and Lake Wallenpaupack, Ironwood and Crane transactions against certain losses pursuant to the terms of their respective sale agreements.

In addition, we may incur additional costs as a result of disposing of certain assets or businesses, and we may experience write-downs of assets if the carrying value of the assets or business sold exceeds the price received.

Changes in technology may negatively impact the value of our power plants.

A basic premise of our generation business is that generating electricity at central power plants achieves economies of scale and produces electricity at relatively low prices.

There are alternate technologies to supply electricity, most notably fuel cells, micro turbines, batteries, windmills and photovoltaic (solar) cells, the development of which has expanded due to global climate change and energy efficiency concerns.

Research and development activities are ongoing to seek improvements in alternate technologies.

It is possible that advances will reduce the cost of alternative generation to a level that is equal to or below that of certain central station production.

Also, as new technologies are developed and become available, the quantity and pattern of electricity usage (the "demand") by customers could decline, with a corresponding decline in revenues derived by generators.

These alternative energy sources could result in a decline to the dispatch and capacity factors of our plants.

As a result of all of these factors, the value of our generation facilities could be significantly reduced.

Our facilities may not operate as planned, which may increase our expenses and decrease our revenues and have an adverse effect on our financial performance.

Operation of our power plants, information technology systems and other assets and conduct of other activities subjects us to a variety of risks, including the breakdown or failure of equipment, accidents, security breaches, viruses or outages affecting information technology systems, labor disputes, obsolescence, delivery/ transportation problems and disruptions of fuel supply and performance below expected levels.

These events may impact our ability to conduct our businesses efficiently and lead to increased costs, expenses or losses.

Planned and unplanned outages at our power plants may require us to purchase power at then-current market prices to satisfy our commitments or, in the alternative, pay penalties and damages for failure to satisfy them.

Although we maintain customary insurance coverage for certain of these risks, no assurance can be given that such insurance coverage will be sufficient to compensate us fully in the event losses occur.

We plan to optimize our competitive power generation operations, which involves a number of uncertainties and may not achieve the desired financial results.

We plan to optimize our competitive power generation operations.

We plan to do this through the construction of new power plants or modification of existing power plants, and the potential closure of certain existing plants and acquisition of plants that may become available for sale.

These types of projects involve numerous risks.

Any planned power plant modifications could result in cost overruns, reduced plant efficiency and higher operating and other costs.

With respect to the construction of new plants or modification of existing plants, we may be required to expend significant sums for preliminary engineering, permitting, resource exploration, legal and other expenses before it can be established whether a project is feasible, economically attractive or capable of being financed.

For example, we recently committed capital to co-fire the Brunner Island coal facility on natural gas to better position the plant for low gas price environments, which is expected to be completed by the end of 2016.

The success of both a new or acquired project may be contingent, among other things, upon obtaining acceptable financing and maintaining acceptable credit ratings, as well as receipt of governmental approvals.

If we were unable to complete construction or expansion of a project, we may not be able to recover our investment in the project.

Furthermore, we might be unable to operate any new or modified plants as efficiently as projected, which could result in higher than projected operating and other costs and reduced earnings.

Significant increases in our operation and maintenance expenses, including health care and pension costs, could adversely affect our future earnings and liquidity.

We continually focus on limiting and reducing our operation and maintenance expenses.

However, we expect to continue to face increased cost pressures in our operations.

Increased costs of materials and labor may result from general inflation, increased regulatory requirements (especially in respect of environmental regulations), the need for higher-cost expertise in the workforce or other factors.

In addition, pursuant to collective bargaining agreements, we are contractually committed to provide specified levels of health care and pension benefits to certain current employees and retirees.

We provide a similar level of benefits to our management employees.

These benefits give rise to significant expenses.

Due to general inflation with respect to such costs, the aging demographics of our workforce and other factors, we have experienced significant health care cost inflation in recent years, and we expect our health care costs, including prescription drug coverage, to continue to increase despite measures that we have taken and expect to take to require employees and retirees to bear a higher portion of the costs of their health care benefits.

In addition, we expect to continue to incur significant costs with respect to the defined benefit pension plans for our employees and retirees.

The measurement of our expected future health care and pension obligations and costs is highly dependent on a variety of assumptions, most of which relate to factors beyond our control.

These assumptions include investment returns, interest rates, health care cost trends, inflation rates, salary increases and the demographics of plan participants.

If our assumptions prove to be inaccurate, our future costs and cash contribution requirements to fund these benefits could increase significantly.

The loss of key personnel, the inability to hire and retain qualified employees, and strikes or work stoppages by unionized employees, could have an adverse effect on our business, financial position and results of operations.

Our operations depend on the continued efforts of our employees.

Retaining key employees and maintaining the ability to attract new employees are important to both our operational and financial performance.

We cannot guarantee that any member of our management or any one of our key employees will continue to serve in any capacity for any particular period of time.

Certain events, such as an aging workforce, mismatch of skill set or complement to future needs, or unavailability of contract resources may lead to operating challenges and increased costs.

The challenges we might face as a result of such risks include a lack of resources, losses to our knowledge base and the time required to develop new workers' skills.

In any such case, costs, including costs for contractors to replace employees, productivity costs and safety costs, may rise.

Failure to hire and adequately train replacement employees, including the transfer of significant internal historical knowledge and expertise to new employees, or changes in the availability and cost of contract labor may adversely affect our ability to manage and operate our business.

If we are unable to successfully attract and retain an appropriately qualified workforce, our financial position or results of operations could be negatively affected.

In addition to the foregoing, in the event that our union employees participate in a strike, work stoppage or engage in other forms of labor disruption, we would be responsible for procuring replacement labor and could experience reduced power generation or outages.

War, other armed conflicts or terrorist attacks, including cyber-based attacks, could have a material adverse effect on our business.

War and terrorist attacks have caused and may continue to cause instability in the world's financial and commercial markets and have contributed to high levels of volatility in prices for oil and gas.

Instability and unrest in the Middle East, Afghanistan, Ukraine and Iraq, as well as threats of war or other armed conflict elsewhere, may lead to additional acts of war or terrorism, including in the United States, as well as further disruption and volatility in prices for oil and gas.

Armed conflicts and terrorism and their effects on us or our markets may significantly affect our business and results of operations.

In addition, we

may incur increased costs for security, including additional physical plant security and security personnel or additional capability following a terrorist incident.

The operation of our generation plants, including the Susquehanna nuclear plant, and our energy marketing and trading businesses are reliant on computer systems and networks and, therefore, subject to the risk that such systems could be the target of disruptive actions, by terrorists, vandals or others.

As a result, operations could be interrupted, property could be damaged and sensitive customer information could be lost or stolen, causing us to incur significant losses of revenues, other substantial liabilities and damages, costs to replace or repair damaged equipment and damage to our reputation.

We are subject to risks associated with federal and state tax laws and regulations.

Changes in tax law as well as the inherent difficulty in quantifying potential tax effects of business decisions could negatively impact our results of operations.

We are required to make judgments in order to estimate our obligations to taxing authorities.

These tax obligations include income, property, gross receipts and franchise, sales and use, employment-related and other taxes.

We also estimate our ability to utilize tax benefits and tax credits.

Due to the revenue needs of the jurisdictions in which our businesses operate, various tax and fee increases may be proposed or considered.

We cannot predict whether such tax legislation or regulation will be introduced or enacted or the effect of any such changes on our businesses.

If enacted, any changes could increase tax expense and could have a significant negative impact on our results of operations and cash flows.

Risks Relating to or Arising out of the Talen Transactions

If the spinoff conducted as part of the Talen Transactions does not qualify as a tax-free distribution under the Code, including as a result of subsequent acquisitions of stock or equity of PPL or Talen Energy Corporation or Talen Energy Supply, then we may be liable for substantial U.S.

federal income taxes or may be required to indemnify PPL.

Among other requirements, the completion of the Talen Transactions was conditioned upon PPL's receipt of a legal opinion of tax counsel to the effect that, the contribution of Talen Energy Supply to HoldCo, together with the spinoff conducted by PPL, will qualify as a reorganization pursuant to Section 368(a)(1)(D) and a tax-free distribution pursuant to Section 355 of the Code, that the merger conducted as part of those transactions will qualify as a reorganization pursuant to Section 368(a) of the Code, and that such merger and the related contribution of RJS to Talen Energy will qualify as a transaction described in Section 351 of the Code.

That legal opinion is not binding on the IRS, and the IRS may reach conclusions that are different from the conclusions reached in such opinion.

We are not aware of any facts or circumstances that would cause the factual statements or representations on which the legal opinion was based to be materially different from the facts at the time the Talen Transactions were completed.

If, notwithstanding the receipt of such opinion, the IRS were to determine the spinoff to be taxable, PPL would recognize a tax liability that could be substantial.

We would be jointly and severally liable for such tax liability under applicable Treasury Regulations as a former member of the PPL consolidated federal income tax group.

In addition, the spinoff will be taxable to PPL pursuant to Section 355(e) of the Code if there is a 50% or greater change in ownership (by vote or value) of PPL, Talen Energy Corporation or Talen Energy Supply, directly or indirectly, as part of a plan or series of related transactions that include the spinoff.

Because PPL's shareholders collectively owned more than 50% of Talen Energy Corporation's common stock following the Talen Transactions, the Talen Transactions alone will not cause the spinoff to be taxable to PPL under Section 355(e) of the Code.

However, Section 355(e) of the Code might apply if acquisitions of stock of PPL before or after the spinoff, or stock or equity of Talen Energy Corporation or Talen Energy Supply after June 1, 2015, are considered to be part of a plan or series of related transactions that include the spinoff.

We are not aware of any such plan or series of transactions.

Under the separation agreement, however, in certain circumstances and subject to certain limitations, we would be required to indemnify PPL for certain taxes that may be imposed on the spinoff, including taxes that arise because acquisitions of Talen Energy Corporation stock or Talen Energy Supply equity result in the Talen Energy spinoff being taxable under Section 355(e) of the Code.

We may not realize the anticipated synergies, cost savings and growth opportunities from the Talen Transactions.

The benefits that we expect to achieve as a result of the Talen Transactions will depend, in part, on our ability to realize anticipated growth opportunities, cost savings and other synergies.

Our success depends on the continued integration of the Talen Energy and RJS Power businesses, which could result in significant expenses that may be difficult to estimate accurately at this time.

In addition, we may experience challenges when combining separate business cultures, information technology systems and employees, and those challenges may divert senior management's time and attention.

Even if we are able to complete the integration successfully, we may not fully realize all of the growth opportunities, cost savings and other synergies that we expect, either within the anticipated time frame for integration or at all.

For example, we may be unable to eliminate all duplicative costs.

Also, as a standalone company outside of the PPL and Riverstone groups of companies, we may not be able to replace the resources provided by PPL or Riverstone to the Talen Energy and RJS Power businesses prior to the Talen

Transactions.

Alternatively, we may be able to replace them but not at the same or lower cost as what previously was available, and any resulting incremental costs could be material.

Our accounting, management and financial reporting systems may not be adequately prepared to comply with the disclosure controls and internal control over financial reporting requirements to which we are subject.

Prior to June 1, 2015, our financial results were included within the consolidated results of PPL, and RJS Power was not subject to the reporting and other requirements of the Exchange Act.

We now are subject to reporting and other obligations under the Exchange Act and are responsible for ensuring that all aspects of our business comply with Section 404 of the Sarbanes-Oxley Act, under which we must maintain effective disclosure controls and procedures and internal control over financial reporting.

To comply with these requirements on a stand-alone basis separate from PPL and with the addition of the RJS Power business, we may need to upgrade our systems, implement additional financial and management controls, reporting systems and procedures, and hire additional accounting, legal and finance staff.

Along those lines, our report on our internal control over financial reporting in this Form 10-K includes a scope exception for the RJS Power business.

It also includes a scope exception for the MACH Gen business acquired in November 2015.

We expect to incur additional annual expenses for the purpose of addressing these reporting and compliance requirements, and those expenses may be significant.

If we are unable to upgrade our financial and management controls, reporting systems, IT systems and procedures in a timely and effective fashion, our ability to satisfy financial reporting requirements and other rules that apply to reporting companies under the Exchange Act and the Sarbanes-Oxley Act could be impaired.

Any failure to achieve and maintain effective internal controls could have a material adverse effect on our business, financial condition and results of operations.

Ownership of our common stock is highly concentrated, and the Riverstone Holders may exert significant influence over matters requiring Board of Directors and/or stockholder approval.

The Riverstone Holders, each of which is indirectly controlled by Riverstone, collectively beneficially own approximately 35% of the outstanding shares of our common stock.

As a result, the Riverstone Holders collectively exercise significant influence over all matters requiring stockholder approval for the foreseeable future, including approval of significant corporate transactions.

Moreover, pursuant to a stockholder agreement, the Riverstone Holders have the right to appoint individuals to serve on the Board of Directors of Talen Energy Corporation.

See "Item 13.

Certain Relationships and Related Transactions, and Director Independence." Currently, Messrs.

Alexander, Casey and Hoffman serve on the Board of Directors as designees of the Riverstone Holders.

As a result, the Riverstone Holders have the ability to exert significance influence over matters requiring approval of our Board of Directors and other matters subject to the terms of that stockholder agreement.

The interests of the Riverstone Holders may conflict with the interests of our other stockholders.

The Riverstone Holders may have an interest in having us pursue acquisitions, divestitures and other transactions that, in their judgment, could enhance their investment in us, even though such transactions might involve risks to other stockholders.

In addition, Riverstone and its affiliates engage in a broad spectrum of activities, including investments in the power generation industry.

In the ordinary course of their business activities, Riverstone and its affiliates may engage in activities where their interests conflict with our interests or those of our stockholders.

UNRESOLVED STAFF COMMENTS

Talen Energy Corporation and Talen Energy Supply, LLC

and (or) limiting our ability to adjust to changing market and economic conditions and to carry out capital spending that is important to our business.

Our borrowings under the Credit Facilities incur interest at variable interest rates that expose us to interest rate risk.

If interest rates increase, our debt service requirements would increase even though the amount borrowed remains the same.

Furthermore, although the agreements governing our current indebtedness contain restrictions on the incurrence of additional indebtedness, these restrictions are subject to a number of qualifications and exceptions, and any additional indebtedness incurred in compliance with these restrictions could be substantial.

If the principal or interest of our indebtedness were to increase, our ability to meet our debt service, operational, and other financial requirements may be adversely impacted.

What changed 10-K

Item 1A. Risk Factors