What changed in this filing

/stocks — the workspaceLOADING

Item 8. Financial Statements and Supplementary Data

2025-02-28 compared with 2016-02-29 · 2300 added, 2335 removed, 93 unchanged (98% of the section changed)

FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

CONSOLIDATED STATEMENTS OF INCOME FOR THE YEARS ENDED DECEMBER 31,

TALEN ENERGY CORPORATION AND SUBSIDIARIES

(Millions of Dollars, Except Share Data)

Operating Revenues

Wholesale energy

Wholesale energy to affiliate

Retail energy

Energy-related businesses

Total Operating Revenues

Report of Independent Registered Public Audit Firm (PCAOB ID 238 )

Consolidated Statements of Operations

Consolidated Statements of Comprehensive Income (Loss)

Consolidated Balance Sheets

Consolidated Statements of Cash Flows

Consolidated Statements of Equity

Notes to the Annual Financial Statements

Organization and Operations

Basis of Presentation and Summary of Significant Accounting Policies

Talen Emergence from Restructuring

F resh Start Accounting

Risk Management, Derivative Instruments and Hedging Activities

Nuclear Decommissioning Trust Funds

Property, Plant and Equipment

Asset Retirement Obligations and Accrued Environmental Costs

Commitments and Contingencies

Long-Term Debt and Other Credit Facilities

Postretirement Benefit Obligations

Stock-Based Com pensation

Earnings Per Share

Stockholders' Equity

Supplemental Cash Flow Information

Acquisitions and Divestitures

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Stockholders of Talen Energy Corporation

Opinion on the Financial Statements

We have audited the accompanying consolidated balance sheets of Talen Energy Corporation and its subsidiaries (Successor) (the "Company") as of December 31, 2024 and 2023, and the related consolidated statements of operations, comprehensive income (loss), equity and cash flows for the year then ended December 31, 2024 and for the period from May 18, 2023 through December 31, 2023, including the related notes and financial statement schedule listed in the accompanying index (collectively referred to as the "consolidated financial statements").

In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2024 and 2023, and the results of its operations and its cash flows for the year ended December 31, 2024 and for the period from May 18, 2023 through December 31, 2023 in conformity with accounting principles generally accepted in the United States of America.

Basis of Accounting

As discussed in Note 3 to the consolidated financial statements, the United States Bankruptcy Court for Southern District of Texas confirmed the Company's Plan of Reorganization (the "plan") in December 2022.

Confirmation of the plan resulted in the discharge of all claims against the Company that arose before May 9, 2022 and substantially alters rights and interests of equity security holders as provided for in the plan.

The plan was substantially consummated on May 17, 2023 and the Company emerged from bankruptcy.

In connection with its emergence from bankruptcy, the Company adopted fresh start accounting as of May 17, 2023.

Basis for Opinion

These consolidated financial statements are the responsibility of the Company’s management.

Our responsibility is to express an opinion on the Company’s consolidated financial statements based on our audit.

We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S.

federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audit of these consolidated financial statements in accordance with the standards of the PCAOB.

Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud.

Our audit included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks.

Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements.

Our audit also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements.

We believe that our audit provides a reasonable basis for our opinion.

Critical Audit Matters

The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was communicated or required to be communicated to the audit committee and that (i) relates to accounts or disclosures that are material to the consolidated financial statements and (ii) involved our especially challenging, subjective, or complex judgments.

The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.

Commodity Derivatives Valuation

As described in Notes 2, 5 and 14 to the consolidated financial statements, the Company had a fair value net derivative asset position of $71 million and a fair value net derivative liability position of $7 million, as of December 31, 2024.

As disclosed by management, the Company utilizes exchange-traded and over the-counter traded derivative instruments to economically hedge the commodity price risk of the forecasted future sales and purchases of commodities associated with their generation portfolio.

Commodity derivative contracts are valued using inputs and assumptions such as contractual volumes, delivery location, forward commodity prices, commodity price volatility, discount rates, and credit worthiness of counterparties.

The principal considerations for our determination that performing procedures relating to commodity derivative valuation is a critical audit matter are (i) the significant judgment by management when developing the valuation of commodity derivatives;

(ii) a high degree of auditor judgment and effort in performing procedures and evaluating management’s significant assumptions related to the forward commodity prices and commodity price volatility;

and (iii) the audit effort involved the use of professionals with specialized skill and knowledge.

Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on the consolidated financial statements.

These procedures included, among others, (i) testing management’s process for developing the valuation of commodity derivatives;

(ii) evaluating the appropriateness of management’s model;

(iii) testing, on a sample basis, the completeness and accuracy of the underlying contract terms and the accounting treatment conclusions;

and (iv) evaluating, on a sample basis, the reasonableness of the significant assumptions used by management related to forward commodity prices and commodity price volatility.

Professionals with specialized skill and knowledge were used to assist in evaluating the reasonableness of forward commodity prices and commodity price volatility assumptions.

/s/ PricewaterhouseCoopers LLP

Houston, Texas

February 27, 2025

We have served as the Company’s auditor since 2017.

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Managers and Members of Talen Energy Supply, LLC

Opinion on the Financial Statements

We have audited the consolidated statements of operations, comprehensive income (loss), equity and cash flows of Talen Energy Supply, LLC and its subsidiaries (Predecessor) (the “Company”) for the period from January 1, 2023 through May 17, 2023 and for the year then ended December 31, 2022, including the related notes (collectively referred to as the “consolidated financial statements”).

In our opinion, the consolidated financial statements present fairly, in all material respects, the results of operations and cash flows of the Company for the period from January 1, 2023 through May 17, 2023 and for the year then ended December 31, 2022 in conformity with accounting principles generally accepted in the United States of America.

Basis of Accounting

As discussed in Note 3 to the consolidated financial statements, the Company filed a petition on May 9, 2022 with the United States Bankruptcy Court for the Southern District of Texas for reorganization under the provisions of Chapter 11 of the Bankruptcy Code.

The Company’s Plan of Reorganization was substantially consummated on May 17, 2023 and the Company emerged from bankruptcy.

In connection with its emergence from bankruptcy, the Company adopted fresh start accounting.

Basis for Opinion

These consolidated financial statements are the responsibility of the Company’s management.

Our responsibility is to express an opinion on the Company’s consolidated financial statements based on our audits.

federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits of these consolidated financial statements in accordance with the standards of the PCAOB and in accordance with auditing standards generally accepted in the United States of America.

Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks.

Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements.

Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements.

We believe that our audits provide a reasonable basis for our opinion.

/s/ PricewaterhouseCoopers LLP

Houston, Texas

March 14, 2024

We have served as the Company’s auditor since 2017.

TALEN ENERGY CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

Successor Predecessor

(Millions of Dollars, except share data) Year Ended December 31, 2024 May 18 through December 31, 2023 January 1 through May 17, 2023 Year Ended December 31, 2022

Capacity revenues $ 192 $ 133 $ 108 $ 377

Energy and other revenues 1,881 1,156 1,042 2,035

Unrealized gain (loss) on derivative instruments (Note 5) 42 55 60 677

Operating Revenues (Note 6) 2,115 1,344 1,210 3,089

Fuel and energy purchases ( 694 ) ( 424 ) ( 176 ) ( 938 )

Nuclear fuel amortization ( 123 ) ( 108 ) ( 33 ) ( 94 )

Unrealized gain (loss) on derivative instruments (Note 5) 20 ( 3 ) ( 123 ) ( 52 )

Energy Expenses ( 797 ) ( 535 ) ( 332 ) ( 1,084 )

Operating Expenses

Energy purchases

Operation and maintenance

Loss on lease termination

Taxes, other than income

Energy-related businesses

Total Operating Expenses

Operation, maintenance and development ( 592 ) ( 358 ) ( 285 ) ( 610 )

General and administrative ( 163 ) ( 93 ) ( 51 ) ( 106 )

Depreciation, amortization and accretion (Note 10) ( 298 ) ( 165 ) ( 200 ) ( 520 )

Impairments (Note 10) ( 1 ) ( 3 ) ( 381 ) —

Operational restructuring — — — ( 488 )

Other operating income (expense), net ( 38 ) ( 30 ) ( 37 ) ( 40 )

Operating Income (Loss) 226 160 ( 76 ) 241

Other Income (Expense) - net

Interest Expense

Income (Loss) from Continuing Operations Before Income Taxes

Income (Loss) from Continuing Operations After Income Taxes

Income (Loss) from Discontinued Operations (net of income taxes)

Net Income (Loss)

Net Income (Loss) Attributable to Noncontrolling Interests

Net Income (Loss) Attributable to Talen Energy Corporation Stockholders

Earnings Per Share of Common Stock Attributable to Talen Energy Corporation Stockholders:

Income (Loss) from continuing operations after income taxes

Income (Loss) from discontinued operations (net of income taxes)

Net Income (Loss)

Income (Loss) from continuing operations

Income (Loss) from discontinued operations (net of income taxes)

Nuclear decommissioning trust funds gain (loss), net (Note 9) 178 108 57 ( 184 )

Interest expense and other finance charges (Note 13) ( 238 ) ( 176 ) ( 163 ) ( 359 )

Reorganization income (expense), net (Note 4) — — 799 ( 812 )

Consolidation of subsidiary gain (loss) (Note 2) — — — ( 170 )

Gain (loss) on sale of assets, net (Note 20) 884 7 50 —

Other non-operating income (expense), net 61 95 10 ( 44 )

Income (Loss) Before Income Taxes 1,111 194 677 ( 1,328 )

Income tax benefit (expense) (Note 7) ( 98 ) ( 51 ) ( 212 ) 35

Net Income (Loss) 1,013 143 465 ( 1,293 )

Weighted-Average Shares of Common Stock Outstanding (in thousands)

The accompanying Notes to Consolidated Financial Statements are an integral part of the financial statements.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME FOR THE YEARS ENDED DECEMBER 31,

Net income (loss) attributable to noncontrolling interest 15 9 ( 14 ) ( 4 )

Net Income (Loss) Attributable to Stockholders (Successor) / Member (Predecessor) $ 998 $ 134 $ 479 $ ( 1,289 )

Per Common Share (Successor)

Net Income (Loss) Attributable to Stockholders - Basic $ 18.40 $ 2.27 N/A N/A

Net Income (Loss) Attributable to Stockholders - Diluted $ 17.67 $ 2.26 N/A N/A

Weighted-Average Number of Common Shares Outstanding - Basic (in thousands) 54,254 59,029 N/A N/A

Weighted-Average Number of Common Shares Outstanding - Diluted (in thousands) 56,486 59,399 N/A N/A

The accompanying Notes to the Annual Financial Statements are an integral part of the financial statements.

TALEN ENERGY CORPORATION AND SUBSIDIARIES

(Millions of Dollars)

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

Successor Predecessor

(Millions of Dollars) Year Ended December 31, 2024 May 18 through December 31, 2023 January 1 through May 17, 2023 Year Ended December 31, 2022

Net Income (Loss) $ 1,013 $ 143 $ 465 $ ( 1,293 )

Other Comprehensive Income (Loss)

Amounts arising during the period - gains (losses), net of tax (expense) benefit:

Available-for-sale securities, net of tax of $5, ($40), ($72)

Defined benefit plans:

Prior service costs, net of tax of $1, ($6), ($1)

Net actuarial gain, net of tax of ($30), $83, ($49)

Reclassifications from AOCI - (gains) losses, net of tax expense (benefit):

Available-for-sale securities, net of tax of $2, $7, $4

Qualifying derivatives, net of tax of $12, $17, $84

Defined benefit plans:

Prior service costs, net of tax of $0, ($1), ($3)

Net actuarial loss, net of tax of $11, ($4), ($10)

Total other comprehensive income (loss) attributable to Talen Energy Corporation Stockholders

Available-for-sale securities unrealized gain (loss), net (Note 9) ( 14 ) 2 6 ( 69 )

Postretirement benefit actuarial (gain) loss, net (Note 15) 5 ( 38 ) — ( 15 )

Postretirement benefit prior service (credits) costs, net (Note 15) 21 — — —

Income tax benefit (expense) 5 8 ( 2 ) 31

Gains (losses) arising during the period, net of tax 17 ( 28 ) 4 ( 53 )

Available-for-sale securities unrealized (gain) loss, net (Note 9) 1 7 4 33

Qualifying derivatives unrealized (gain) loss, net — — ( 1 ) ( 2 )

Postretirement benefit prior service (credits) costs, net (Note 15) ( 1 ) — — 1

Postretirement benefit actuarial (gain) loss, net (Note 15) — — 2 27

Income tax (benefit) expense ( 6 ) ( 2 ) ( 3 ) ( 21 )

Reclassifications from AOCI, net of tax ( 6 ) 5 2 38

Total Other Comprehensive Income (Loss) 11 ( 23 ) 6 ( 15 )

Comprehensive Income (Loss) 1,024 120 471 ( 1,308 )

Comprehensive income attributable to noncontrolling interests

Comprehensive income (loss) attributable to Talen Energy Corporation Stockholders

The accompanying Notes to Consolidated Financial Statements are an integral part of the financial statements.

CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31,

Talen Energy Corporation and Subsidiaries

(Millions of Dollars)

Cash Flows from Operating Activities

Net income (loss)

Adjustments to reconcile net income (loss) to net cash provided by operating activities

Pre-tax gain from the sale of Montana hydroelectric generation business

Defined benefit plans - expense

Deferred income taxes and investment tax credits

Impairment of assets

Unrealized (gains) losses on derivatives, and other hedging activities

Loss on lease termination

Change in current assets and current liabilities

Accounts receivable

Accounts payable

Unbilled revenues

Fuel, materials and supplies

Counterparty collateral

Price risk management assets and liabilities

Taxes payable

Other operating activities

Defined benefit plans - funding

Other liabilities

Net cash provided by operating activities

Cash Flows from Investing Activities

Expenditures for property, plant and equipment

Proceeds from the sale of Montana hydroelectric generation business

Expenditures for intangible assets

Acquisition of MACH Gen

Purchases of nuclear plant decommissioning trust investments

Proceeds from the sale of nuclear plant decommissioning trust investments

Proceeds from the sale of the Renewable business

Proceeds from the receipt of grants

Net (increase) decrease in restricted cash and cash equivalents

Other investing activities

Net cash provided by (used in) investing activities

Cash Flows from Financing Activities

Issuance of long-term debt

Retirement of long-term debt

Contributions from predecessor member

Distributions to predecessor member

Net increase (decrease) in short-term debt

Other financing activities

Net cash provided by (used in) financing activities

Net Increase (Decrease) in Cash and Cash Equivalents

Cash and Cash Equivalents at Beginning of Period

Cash and Cash Equivalents at End of Period

Supplemental Disclosures of Cash Flow Information

Cash paid (received) during the period for:

Interest - net of amount capitalized

Income taxes - net

The accompanying Notes to Consolidated Financial Statements are an integral part of the financial statements.

CONSOLIDATED BALANCE SHEETS AT DECEMBER 31,

Comprehensive income (loss) attributable to noncontrolling interest 15 9 ( 14 ) ( 4 )

Comprehensive Income (Loss) Attributable to Stockholders (Successor) / Member (Predecessor) $ 1,009 $ 111 $ 485 $ ( 1,304 )

The accompanying Notes to the Annual Financial Statements are an integral part of the financial statements.

TALEN ENERGY CORPORATION AND SUBSIDIARIES

(Millions of Dollars, Shares in Thousands)

Current Assets

CONSOLIDATED BALANCE SHEETS

(Millions of Dollars, except share data) December 31,

2024 December 31,

Cash and cash equivalents $ 328 $ 400

Restricted cash and cash equivalents

Accounts receivable (less reserve:

Accounts receivable from affiliates

Unbilled revenues

Fuel, materials and supplies

Price risk management assets

Assets held for sale

Restricted cash and cash equivalents (Note 19) 37 501

Accounts receivable (Note 6) 123 137

Inventory, net (Note 8) 302 375

Derivative instruments (Notes 5 and 14) 66 89

Other current assets 184 52

Total current assets 1,040 1,554

Nuclear plant decommissioning trust funds

Other investments

Total Investments

Property, Plant and Equipment

accumulated depreciation

Property, plant and equipment, net

Construction work in progress

Total Property, Plant and Equipment, net

Other Noncurrent Assets

Other intangibles

Price risk management assets

Property, plant and equipment, net (Note 10) 3,154 3,839

Nuclear decommissioning trust funds (Notes 9 and 14) 1,724 1,575

Derivative instruments (Notes 5 and 14) 5 6

Other noncurrent assets 183 147

Total Other Noncurrent Assets

The accompanying Notes to Consolidated Financial Statements are an integral part of the financial statements.

CONSOLIDATED BALANCE SHEETS AT DECEMBER 31,

Talen Energy Corporation and Subsidiaries

(Millions of Dollars, Shares in Thousands)

Total Assets $ 6,106 $ 7,121

Liabilities and Equity

Current Liabilities

Short-term debt

Long-term debt due within one year

Accounts payable

Accounts payable to affiliates

Price risk management liabilities

Liabilities held for sale

Long-term debt, due within one year (Notes 13 and 14) $ 17 $ 9

Accrued interest 18 32

Accounts payable and other accrued liabilities 266 344

Derivative instruments (Notes 5 and 14) — 32

Other current liabilities 154 69

Total current liabilities 455 486

Long-term Debt

Deferred Credits and Other Noncurrent Liabilities

Deferred income taxes

Investment tax credits

Price risk management liabilities

Accrued pension obligations

Asset retirement obligations

Other deferred credits and noncurrent liabilities

Total Deferred Credits and Other Noncurrent Liabilities

Commitments and Contingent Liabilities (Note 11)

Predecessor Member's Equity (a)

Common Stock - $0.001 par value (b)

Long-term debt (Notes 13 and 14) 2,987 2,811

Derivative instruments (Notes 5 and 14) 7 11

Postretirement benefit obligations (Note 15) 305 368

Asset retirement obligations and accrued environmental costs (Note 11) 468 469

Deferred income taxes (Note 7) 362 407

Other noncurrent liabilities 135 35

Total Liabilities $ 4,719 $ 4,587

Commitments and Contingencies (Note 12)

Stockholders' Equity (Note 18)

Common stock ($ 0.001 par value, 350,000,000 shares authorized) (a)

Additional paid-in capital 1,725 2,346

Accumulated deficit

Accumulated retained earnings (deficit) ( 326 ) 134

Accumulated other comprehensive income (loss) ( 12 ) ( 23 )

Total Stockholders' Equity 1,387 2,457

Noncontrolling interests — 77

Total Equity 1,387 2,534

Total Liabilities and Equity $ 6,106 $ 7,121

Represents Talen Energy Supply's predecessor member's equity prior to the June 1, 2015 spinoff transaction.

Upon completion of the spinoff, the predecessor member's equity was transferred to Talen Energy Corporation's additional paid-in capital.

See Note 1 for additional information on the spinoff.

1,000,000 shares authorized;

128,509 shares issued and outstanding at December 31, 2015 .

The accompanying Notes to Consolidated Financial Statements are an integral part of the financial statements.

CONSOLIDATED STATEMENTS OF EQUITY

__________________

(a) 45,961,910 and 59,028,843 shares issued and outstanding as of December 31, 2024 (Successor) and December 31, 2023 (Successor), respectively.

The accompanying Notes to the Annual Financial Statements are an integral part of the financial statements.

TALEN ENERGY CORPORATION AND SUBSIDIARIES

(Millions of Dollars)

Common stock shares (a)

Additional paid-in capital

Accumulated deficit

Non-controlling interests

Predecessor member's equity (b)

December 31, 2012

Net income (loss)

Other comprehensive income (loss)

Distributions to predecessor member

Contributions from predecessor member

December 31, 2013

Net income (loss)

Other comprehensive income (loss)

Distributions to predecessor member

Contributions from predecessor member

December 31, 2014

Net income (loss) from January 1, 2015 to May 31, 2015

Net income (loss) from June 1, 2015 to December 31, 2015

Other comprehensive income (loss)

Distributions to predecessor member

Contributions from predecessor member

Common stock issued for acquisition of RJS Power

Stock issuance

Stock issuance expense

Stock-based compensation

Consummation of spinoff transaction (b)

December 31, 2015

Shares in thousands.

Each share entitles the holder to one vote on any questions presented at any stockholders' meeting.

Upon consummation of the spinoff on June 1, 2015, Talen Energy Supply's predecessor member's equity balance was transferred to Talen Energy Corporation's "Additional paid-in capital." See Note 1 for additional information on the spinoff.

The accompanying Notes to Consolidated Financial Statements are an integral part of the financial statements.

CONSOLIDATED STATEMENTS OF INCOME FOR THE YEARS ENDED DECEMBER 31,

Talen Energy Supply, LLC and Subsidiaries

(Millions of Dollars)

Operating Revenues

Wholesale energy

Wholesale energy to affiliate

Retail energy

Energy-related businesses

Total Operating Revenues

Operating Expenses

Energy purchases

Operation and maintenance

Loss on lease termination

Taxes, other than income

Energy-related businesses

Total Operating Expenses

Operating Income (Loss)

Other Income (Expense) - net

Interest Expense

Income (Loss) from Continuing Operations Before Income Taxes

Income (Loss) from Continuing Operations After Income Taxes

Income (Loss) from Discontinued Operations (net of income taxes)

Net Income (Loss)

Net Income (Loss) Attributable to Noncontrolling Interests

Net Income (Loss) Attributable to Talen Energy Supply Member

Amounts Attributable to Talen Energy Supply Member:

Income (Loss) from Continuing Operations After Income Taxes

Income (Loss) from Discontinued Operations (net of income taxes)

Net Income (Loss)

The accompanying Notes to Consolidated Financial Statements are an integral part of the financial statements.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME FOR THE YEARS ENDED DECEMBER 31,

Talen Energy Supply, LLC and Subsidiaries

(Millions of Dollars)

Net income (loss)

Other comprehensive income (loss):

Amounts arising during the period - gains (losses), net of tax (expense) benefit:

Available-for-sale securities, net of tax of $5, ($40), ($72)

Defined benefit plans:

Prior service costs, net of tax of $1, ($6), ($1)

Net actuarial gain, net of tax of ($30), $83, ($49)

Reclassifications from AOCI - (gains) losses, net of tax expense (benefit):

Available-for-sale securities, net of tax of $2, $7, $4

Qualifying derivatives, net of tax of $12, $17, $84

Defined benefit plans:

Prior service costs, net of tax of $0, ($1), ($3)

Net actuarial loss, net of tax of $11, ($4), ($10)

Total other comprehensive income (loss) attributable to Talen Energy Supply Member

Comprehensive income (loss)

Comprehensive income attributable to noncontrolling interests

Comprehensive income (loss) attributable to Talen Energy Supply Member

The accompanying Notes to Consolidated Financial Statements are an integral part of the financial statements.

CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31,

Talen Energy Supply, LLC and Subsidiaries

(Millions of Dollars)

Cash Flows from Operating Activities

CONSOLIDATED STATEMENTS OF CASH FLOWS

Successor Predecessor

(Millions of Dollars) Year Ended December 31, 2024 May 18 through December 31, 2023 January 1 through May 17, 2023 Year Ended December 31, 2022

Operating Activities

Net income (loss) $ 1,013 $ 143 $ 465 $ ( 1,293 )

Adjustments to reconcile net income (loss) to net cash provided by operating activities

Pre-tax gain from the sale of Montana hydroelectric generation business

Defined benefit plans - expense

Deferred income taxes and investment tax credits

Impairment of assets

Unrealized (gains) losses on derivatives, and other hedging activities

Loss on lease termination

Change in current assets and current liabilities

Non-cash reconciliation adjustments:

(Gain) loss on AWS Data Campus Sale and ERCOT Sale (Note 20) ( 886 ) — — —

Depreciation, amortization and accretion (Note 19) 285 157 208 549

NDT funds (gain) loss, net (excluding interest and fees) (Note 9) ( 130 ) ( 78 ) ( 43 ) 227

Nuclear fuel amortization (Note 10) 123 108 33 94

Unrealized (gains) losses on derivative instruments (Note 5) ( 69 ) ( 40 ) 65 ( 647 )

Deferred income taxes ( 46 ) 55 195 ( 48 )

Impairments (Note 10) 1 3 381 —

(Gain) loss on sales of assets, net — ( 7 ) ( 50 ) —

Reorganization (income) expense, net (Note 4) — — ( 933 ) 99

Operational restructuring — — — 488

Consolidation of subsidiary (gain) loss (Note 2) — — — 170

Other (Note 19) ( 26 ) 7 7 200

Changes in assets and liabilities:

Inventory, net 67 ( 68 ) 10 ( 55 )

Accounts receivable 14 8 261 ( 298 )

Accounts payable

Unbilled revenues

Fuel, materials and supplies

Counterparty collateral

Price risk management assets and liabilities

Taxes payable

Other operating activities

Defined benefit plans - funding

Other assets ( 61 ) 147 98 ( 46 )

Accounts payable and accrued liabilities ( 69 ) ( 49 ) ( 69 ) 187

Accrued interest ( 15 ) 28 ( 124 ) 250

Other liabilities 55 ( 12 ) ( 42 ) 310

Net cash provided by operating activities

Cash Flows from Investing Activities

Expenditures for property, plant and equipment

Proceeds from the sale of Montana hydroelectric generation business

Expenditures for intangible assets

Acquisition of MACH Gen

Purchases of nuclear plant decommissioning trust investments

Proceeds from the sale of nuclear plant decommissioning trust investments

Proceeds from the sale of the Renewable business

Proceeds from the receipt of grants

Net (increase) decrease in restricted cash and cash equivalents

Net cash provided by (used in) operating activities 256 402 462 187

Investing Activities

NDT funds investment purchases (Note 9) ( 2,295 ) ( 1,290 ) ( 959 ) ( 2,271 )

NDT funds investment sale proceeds (Note 9) 2,263 1,265 949 2,243

Proceeds from AWS Data Campus Sale and ERCOT Sale (Note 20) 1,398 — — —

Nuclear fuel expenditures (Note 10) ( 104 ) ( 45 ) ( 49 ) ( 80 )

Property, plant and equipment expenditures (Note 10) ( 85 ) ( 116 ) ( 138 ) ( 232 )

Equity investments in affiliates ( 10 ) ( 5 ) ( 8 ) ( 162 )

Proceeds from the sale of assets 2 8 46 —

Increase (decrease) in cash and restricted cash due to consolidation of subsidiaries — — — 123

Other investing activities 2 12 2 11

Net cash provided by (used in) investing activities 1,171 ( 171 ) ( 157 ) ( 368 )

Cash Flows from Financing Activities

Issuance of long-term debt

Retirement of long-term debt

TALEN ENERGY CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

Successor Predecessor

(Millions of Dollars) Year Ended December 31, 2024 May 18 through December 31, 2023 January 1 through May 17, 2023 Year Ended December 31, 2022

Financing Activities

Share repurchases (Note 18) ( 1,958 ) — — —

TES debt issuance (Note 13) 849 — — —

TES debt repayments (Note 13) ( 479 ) — — —

Cumulus Digital TLF repayment (Note 13) ( 182 ) ( 15 ) — —

Repurchase of noncontrolling interest (Note 18) ( 125 ) ( 19 ) — —

Cash settlement of restricted stock units ( 32 ) — — —

Exercise or repurchase of warrants (Note 18) ( 16 ) ( 40 ) — —

Deferred financing costs ( 13 ) ( 7 ) ( 74 ) ( 59 )

LMBE-MC TLB payments — ( 294 ) ( 7 ) ( 52 )

TLB-1 proceeds, net — 288 — —

Repayment of prepetition secured indebtedness (Note 4) — — ( 3,898 ) —

Financing proceeds at Emergence, net of discount (Note 4) — — 2,219 —

Contributions from member — — 1,393 —

Distributions to member

Net increase (decrease) in short-term debt

Other financing activities

Payment of make-whole premiums on prepetition secured indebtedness — — ( 152 ) —

Derivatives with financing elements — — ( 20 ) ( 104 )

Debtor-in-possession credit facilities proceeds, net — — — 987

Prepetition deferred capacity obligations repayments — — — ( 176 )

Prepetition inventory repurchase obligations, net increase (decrease) — — — ( 165 )

Prepetition senior secured revolving credit facility proceeds — — — 62

Prepetition senior secured revolving credit facility repayments — — — ( 62 )

Other ( 7 ) 3 — ( 5 )

Net cash provided by (used in) financing activities ( 1,963 ) ( 84 ) ( 539 ) 426

Net Increase (Decrease) in Cash and Cash Equivalents

Cash and Cash Equivalents at Beginning of Period

Cash and Cash Equivalents at End of Period

Supplemental Disclosures of Cash Flow Information

Cash paid (received) during the period for:

Interest - net of amount capitalized

Income taxes - net

The accompanying Notes to Consolidated Financial Statements are an integral part of the financial statements.

CONSOLIDATED BALANCE SHEETS AT DECEMBER 31,

Talen Energy Supply, LLC and Subsidiaries

(Millions of Dollars)

Current Assets

Cash and cash equivalents

Restricted cash and cash equivalents

Accounts receivable (less reserve:

Accounts receivable from affiliates

Unbilled revenues

Fuel, materials and supplies

Price risk management assets

Assets held for sale

Other current assets

Total Current Assets

Nuclear plant decommissioning trust funds

Other investments

Total Investments

Property, Plant and Equipment

accumulated depreciation

Property, plant and equipment, net

Construction work in progress

Total Property, Plant and Equipment, net

Other Noncurrent Assets

Other intangibles

Price risk management assets

Other noncurrent assets

Total Other Noncurrent Assets

The accompanying Notes to the Consolidated Financial Statements are an integral part of the financial statements.

CONSOLIDATED BALANCE SHEETS AT DECEMBER 31,

Talen Energy Supply, LLC and Subsidiaries

(Millions of Dollars)

Liabilities and Equity

Current Liabilities

Short-term debt

Long-term debt due within one year

Accounts payable

Accounts payable to affiliates

Price risk management liabilities

Liabilities held for sale

Other current liabilities

Total Current Liabilities

Long-term Debt

Deferred Credits and Other Noncurrent Liabilities

Deferred income taxes

Investment tax credits

Price risk management liabilities

Accrued pension obligations

Asset retirement obligations

Other deferred credits and noncurrent liabilities

Total Deferred Credits and Other Noncurrent Liabilities

Commitments and Contingent Liabilities (Note 11)

Member's Equity

Total Liabilities and Equity

The accompanying Notes to the Consolidated Financial Statements are an integral part of the financial statements.

Net Increase (Decrease) in Cash and Cash Equivalents and Restricted Cash and Cash Equivalents ( 536 ) 147 ( 234 ) 245

Beginning of period cash and cash equivalents and restricted cash and cash equivalents 901 754 988 743

End of period cash and cash equivalents and restricted cash and cash equivalents $ 365 $ 901 $ 754 $ 988

See Note 19 for supplemental cash flow information.

The accompanying Notes to the Annual Financial Statements are an integral part of the financial statements.

TALEN ENERGY CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF EQUITY

Talen Energy Supply, LLC and Subsidiaries

(Millions of Dollars)

Member's equity

December 31, 2012

(Millions of Dollars, except share data) Common stock shares (a)

Additional paid-in capital Accumulated earnings (deficit) AOCI Treasury stock Member's Equity Non

controlling Interest Total Equity

December 31, 2021 (Predecessor) — $ — $ — $ — $ — $ 733 $ — $ 733

Net income (loss) — — — — — ( 1,289 ) ( 4 ) ( 1,293 )

Other comprehensive income (loss) — — — — — ( 15 ) — ( 15 )

Distributions to member

Contributions from member

December 31, 2013

Non-cash consolidation of affiliate subsidiary — — — — — — 71 71

Non-cash distribution to member — — — — — ( 2 ) — ( 2 )

Non-cash contribution from member — — — — — — 17 17

Cash contribution — — — — — — 7 7

December 31, 2022 (Predecessor) — $ — $ — $ — $ — $ ( 573 ) $ 91 $ ( 482 )

Net income (loss) — — — — — 479 ( 14 ) 465

Other comprehensive income (loss) — — — — — 6 — 6

Distributions to member

Contributions from member

December 31, 2014

Cancellation of member’s equity (b)

— — — — — 88 — 88

Issuance of member’s equity (b)

— — — — — 2,313 — 2,313

Issuance of warrants (b)

— — — — — 8 — 8

Common equity from member’s equity exchange 59,029 2,321 — — — ( 2,321 ) — —

Non-cash contributions (c)

— — — — — — 38 38

Non-cash distributions (d)

— — — — — — ( 5 ) ( 5 )

May 17, 2023 (Predecessor) 59,029 $ 2,321 $ — $ — $ — $ — $ 110 $ 2,431

May 18, 2023 (Successor) 59,029 $ 2,321 $ — $ — $ — $ — $ 110 $ 2,431

Net income (loss) — — 134 — — — 9 143

Other comprehensive income (loss) — — — ( 23 ) — — — ( 23 )

Distributions to member (a)

Contributions from member (a)

December 31, 2015

(a) Includes the contribution of RJS Power as of the acquisition date.

See Notes 1 and 6 for additional information.

The accompanying Notes to the Consolidated Financial Statements are an integral part of the financial statements.

Combined Notes to the Financial Statements

Summary of Significant Accounting Policies

Capitalized terms and abbreviations appearing in the combined notes to the financial statements are defined in the glossary.

Dollars are in millions, except per share data, unless otherwise noted.

As Talen Energy Corporation is substantially comprised of Talen Energy Supply, LLC and its subsidiaries, to avoid repetition, most disclosures refer to Talen Energy which indicates the disclosure applies to Talen Energy Corporation and Talen Energy Supply, LLC.

This presentation has been applied where identification of particular subsidiaries is not material to the matter being disclosed, and to conform narrative disclosures to the presentation of financial information on a consolidated basis.

When identification of a particular registrant or subsidiary is considered important to understanding the matter being disclosed, the specific entity's name is used, in particular, for those few disclosures that apply only to Talen Energy Corporation.

Each disclosure referring to a subsidiary applies to both Talen Energy Corporation and Talen Energy Supply and each disclosure referring to Talen Energy Supply applies to Talen Energy Corporation through consolidation.

Business and Basis of Presentation

Business - Spinoff from PPL and formation of Talen Energy Corporation

Talen Energy Corporation, through its principal subsidiary Talen Energy Supply, is a competitive energy and power generation company primarily engaged in the production and sale of electricity, capacity and related products.

Talen Energy is headquartered in Allentown, Pennsylvania and owns and operates a portfolio of generation assets principally located in the Northeast, Mid-Atlantic and Southwest regions of the U.S.

In June 2014, PPL and Talen Energy Supply executed definitive agreements with the Riverstone Holders to combine their competitive power generation businesses into a new, stand-alone, publicly traded company named Talen Energy Corporation.

On June 1, 2015, PPL completed the spinoff to PPL shareowners of a newly formed entity, Talen Energy Holdings, Inc.

(Holdco), which at such time owned all of the membership interests of Talen Energy Supply and all of the common stock of Talen Energy Corporation.

Immediately following the spinoff, Holdco merged with a special purpose subsidiary of Talen Energy Corporation, with Holdco continuing as the surviving company to the merger and as a wholly owned subsidiary of Talen Energy Corporation and the sole owner of Talen Energy Supply.

PPL does not have an ownership interest in Talen Energy Corporation after completion of the spinoff.

Substantially contemporaneous with the spinoff and merger, RJS Power was contributed by the Riverstone Holders to become a subsidiary of Talen Energy Supply (referred to as the "combination" or the "acquisition").

Subsequent to the acquisition, RJS Power was merged into Talen Energy Supply.

Talen Energy has treated the combination with RJS Power as an acquisition, with Talen Energy Supply considered the accounting acquirer in accordance with business combination accounting guidance.

See Note 3 for information on Talen Energy Corporation's common shares issued as a result of the formation of Talen Energy Corporation.

See Note 6 for additional information on the acquisition.

Following the announcement of the transaction to form Talen Energy, efforts were initiated to identify the appropriate staffing for Talen Energy following completion of the spinoff.

Organizational plans were substantially completed in 2014.

The organizational plans identified the need to resize and restructure the Talen Energy organization and as a result, in 2014, charges of $16 million for employee separation benefits were recorded in "Operation and maintenance" on the Statement of Income and in "Other current liabilities" on the Balance Sheet, related to 112 eliminated positions.

The separation benefits include cash severance compensation, lump sum COBRA reimbursement payments and outplacement services.

At December 31, 2014 , the recorded liability related to separation benefits was $9 million and included in "Other current liabilities" on the Balance Sheets.

Most separations and payment of separation benefits have now been completed and the recorded liability at December 31, 2015 was insignificant.

In connection with the spinoff transaction, additional employee-related costs were incurred primarily related to accelerated stock-based compensation and pro-rated performance-based cash incentive and stock-based compensation awards previously issued under PPL stock incentive programs, primarily for Talen Energy Supply employees and for PPL employees who became Talen Energy Supply employees in connection with the transaction.

These costs were recognized at the closing of the spinoff.

During 2015, Talen Energy Supply recorded $25 million related to these accelerated stock-based compensation and pro-rated stock-based compensation awards at spinoff.

As the vesting for all Talen Energy Supply employees was accelerated and all remaining unrecognized compensation expense accelerated concurrently with the spinoff, Talen Energy does not expect to recognize future compensation costs for equity awards from PPL stock incentive programs held by Talen Energy Supply employees.

See Note 8 for additional information on stock-based compensation.

In addition, during 2015 , Talen Energy incurred $12 million of restructuring costs related to the spinoff transaction which are recorded in "Operation and maintenance" on the Statements of Income.

Prior to completion of the spinoff, Talen Energy Supply's financial statements included certain transactions with affiliates of PPL, which were disclosed as related party transactions.

After June 1, 2015, all transactions with PPL or its affiliates are no longer related party transactions.

See Note 12 for additional information on related party transactions.

Following the spinoff, certain services, including information technology, financial and accounting, human resource and other specified services are provided by PPL on a transition basis pursuant to the TSA.

The TSA with PPL is for a period of up to two years from the date of the spinoff.

For 2015, the costs incurred for these services were $23 million .

See Note 12 for information on the TSA with Topaz Power Management, LP.

In connection with the FERC approval of the combination of Talen Energy Supply with RJS Power, PPL, Talen Energy and RJS Power agreed that within twelve months following the closing of the transaction, Talen Energy would enter into an agreement to divest between 1,300 MW and 1,400 MW of assets in one of two groups of assets (both of which include the Sapphire facilities within PJM and the first of which also included the Holtwood, Lake Wallenpaupack and C.P.

Crane facilities and the other of which includes the Ironwood facility) and to limit PJM energy market offers from assets it would retain in the other group to cost-based offers.

In September 2015, Talen Energy requested that the FERC approve a third option for complying with the mitigation requirement that consists of divesting the Holtwood, Lake Wallenpaupack, C.P.

Crane and Ironwood facilities, and will have the ability to retain the Sapphire facilities located in PJM, provided PJM energy market offers from such retained assets are limited to cost-based offers.

In October 2015, Talen Energy entered into agreements to sell the Holtwood, Lake Wallenpaupack, Ironwood and C.P.

Crane facilities.

In November 2015, the FERC accepted the alternative plan on the terms requested.

See Note 6 for information on the sales.

Basis of Presentation

Talen Energy Corporation's obligation to report under the Securities and Exchange Act of 1934, as amended, commenced on May 1, 2015, the date Talen Energy Corporation's Registration Statement on Form S-1 relating to the spinoff transaction was declared effective by the SEC.

Talen Energy Supply is a separate registrant and is considered the accounting predecessor of Talen Energy Corporation.

Therefore, the financial information prior to June 1, 2015 presented in this Annual Report on Form 10-K for both registrants includes only legacy Talen Energy Supply information.

From June 1, 2015, upon completion of the spinoff and acquisition, Talen Energy Corporation's and Talen Energy Supply's consolidated financial information also includes RJS.

As such, Talen Energy Corporation's and Talen Energy Supply's consolidated financial information presented in this Annual Report on Form 10-K for the 2015 period represents twelve months of legacy Talen Energy Supply information consolidated with seven months of RJS information, while the 2014 and earlier periods represent only legacy Talen Energy Supply information.

The assets and liabilities related to the Holtwood, Lake Wallenpaupack, C.P.

Crane and Ironwood facilities have been classified as "Assets held for sale" and "Liabilities held for sale" at December 31, 2015 but their operating results have not been reclassified to "Income (Loss) from Discontinued Operations (net of income taxes)" on the Statements of Income in accordance with the new accounting guidance on reporting discontinued operations.

See Note 6 for additional information on these announced divestitures and "New Accounting Guidance Adopted - Reporting of Discontinued Operations" below for additional information on this new accounting guidance.

"Income (Loss) from Discontinued Operations (net of income taxes)" on the 2014 and 2013 Statements of Income represents the operating results of Talen Montana's hydroelectric generating facilities sold in the fourth quarter of 2014.

The Statements of Cash Flows do not separately report the cash flows of discontinued operations.

Purchase of noncontrolling interest (e)

— 5 — — — — ( 24 ) ( 19 )

Cash contribution — — — — — — 1 1

Non-cash distributions (d)

— — — — — — ( 20 ) ( 20 )

Stock-based compensation expense — 19 — — — — — 19

Other — 1 — — — — 1 2

December 31, 2023 (Successor) 59,029 $ 2,346 $ 134 $ ( 23 ) $ — $ — $ 77 $ 2,534

Net income (loss) — — 998 — — — 15 1,013

Other comprehensive income (loss) — — — 11 — — — 11

Share repurchases ( 13,227 ) — — — ( 1,977 ) — — ( 1,977 )

Retirement of treasury stock — ( 519 ) ( 1,458 ) — 1,977 — — —

Purchase of noncontrolling interest (e)

— ( 87 ) — — — — ( 38 ) ( 125 )

Cash settlement of restricted stock units — ( 32 ) — — — — — ( 32 )

Exercise of warrants 160 ( 16 ) — — — — — ( 16 )

Cash distributions (f)

— — — — — — ( 2 ) ( 2 )

Non-cash distributions (g)

— — — — — — ( 52 ) ( 52 )

Stock-based compensation expense — 33 — — — — — 33

December 31, 2024 (Successor) 45,962 $ 1,725 $ ( 326 ) $ ( 12 ) $ — $ — $ — $ 1,387

__________________

(a) Shares in thousands.

(b) Pursuant to the Plan of Reorganization:

(i) existing equity interests were canceled;

and (ii) new equity interests and equity-classified warrants were issued.

(d) Related primarily to distributions of Bitcoin to TeraWulf.

(e) TES acquisition of remaining noncontrolling interests in Cumulus Digital and Nautilus.

See Note 18 for additional information.

As described above, as part of the FERC approval of the combination with RJS Power as part of the spinoff transaction, certain assets were required to be disposed of under a mitigation plan.

Under GAAP, assets acquired through a business combination that are immediately classified as held for sale should be classified as a discontinued operation from the date of acquisition.

The Sapphire portfolio was included in both of the original divestiture packages approved by the FERC when approving the combination with RJS Power.

Therefore, the Sapphire portfolio met the criteria for classification as assets and liabilities held for sale on the balance sheet and as discontinued operations on the statement of income upon acquisition.

In November 2015, when the FERC approved the third mitigation package excluding the Sapphire portfolio as discussed above, the assets and liabilities and operating results were reclassified to held and used and to continuing operations as the sale of the Sapphire portfolio was no longer probable and therefore, no longer met the held for sale criteria.

When this reclassification occurred, an

impairment charge was recorded based on the then current estimated fair values of the facilities.

See Notes 14 and 16 for additional information on the impairment charges for the Sapphire plants.

The financial statements of Talen Energy include each company's own accounts as well as the accounts of all entities in which the company has a controlling financial interest.

Entities for which a controlling financial interest is not demonstrated through voting interests are evaluated based on accounting guidance for VIEs.

Talen Energy consolidates a VIE when they are determined to have a controlling interest in the VIE, and thus are the primary beneficiary of the entity.

Talen Energy is not the primary beneficiary in any material VIEs.

Investments in entities in which a company has the ability to exercise significant influence but does not have a controlling financial interest are accounted for under the equity method.

All other investments are carried at cost or fair value.

All significant intercompany transactions have been eliminated.

Any noncontrolling interests are reflected in the financial statements.

The financial statements of Talen Energy include their share of any undivided interests in jointly owned facilities, as well as their share of the related operating costs of those facilities.

(f) Distributions to noncontrolling interest owners of Cumulus Digital and Nautilus.

(g) Related primarily to distribution of Bitcoin and cryptocurrency miners to TeraWulf.

The accompanying Notes to the Annual Financial Statements are an integral part of the financial statements.

TALEN ENERGY CORPORATION AND SUBSIDIARIES

NOTES TO THE ANNUAL FINANCIAL STATEMENTS

Capitalized terms and abbreviations appearing in these Notes to the Annual Financial Statements Financial Statements are defined in the glossary.

Dollars are in millions, unless otherwise noted.

“TEC” refers to Talen Energy Corporation.

“TES” refers to Talen Energy Supply, LLC.

For periods after May 17, 2023, the terms “Talen,” “Successor,” the “Company,” “we,” “us,” and “our” refer to TEC and its consolidated subsidiaries (including TES), unless the context clearly indicates otherwise.

For periods on or before May 17, 2023, the terms “Talen,” “Predecessor,” the “Company,” “we,” “us,” and “our” refer to TES and its consolidated subsidiaries, unless the context clearly indicates otherwise.

See Note 2 for additional information.

This presentation has been applied where identification of subsidiaries is not material to the matter being disclosed, and to conform narrative disclosures to the presentation of financial information on a consolidated basis.

When identification of a subsidiary is considered important to understanding the matter being disclosed, the specific entity’s name is used.

Each disclosure referring to a subsidiary also applies to TEC insofar as such subsidiary’s financial information is included in TEC’s consolidated financial information.

TEC and each of its subsidiaries and affiliates are separate legal entities and, except by operation of law, are not liable for the debts or obligations of one another absent an express contractual undertaking to the contrary.

Organization and Operations

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

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

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

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

Talen is headquartered in Houston, Texas.

Basis of Presentation and Summary of Significant Accounting Policies

Basis of Presentation and Principles of Consolidation

These Annual Financial Statements, which are prepared in accordance with GAAP, include:

(i) the accounts of all controlled subsidiaries;

(ii) elimination adjustments for intercompany transactions between controlled subsidiaries;

(iii) any undivided interests in jointly owned facilities consolidated on a proportionate basis;

and (iv) all adjustments considered necessary for a fair presentation of the information set forth.

All adjustments are of a normal recurring nature except as otherwise disclosed.

Emergence from Restructuring, Fresh Start Accounting, and Reverse Acquisition.

In May 2022, TES and 71 of its subsidiaries voluntarily commenced the Restructuring under Chapter 11 of the U.S.

Bankruptcy Code.

TEC joined the Restructuring in December 2022.

The Plan of Reorganization was approved by the requisite parties and confirmed by the bankruptcy court in late 2022, and was consummated and became effective in May 2023, when TEC, TES, and the other debtors emerged from the Restructuring.

Upon commencement of the Restructuring, TES was deconsolidated from TEC for financial reporting purposes because TEC no longer controlled TES.

TEC regained control of TES at Emergence, which resulted in TEC’s reconsolidation of TES.

The combination was accounted for as a reverse acquisition in which TEC was the legal acquirer and TES was the accounting acquirer.

Accordingly, these Annual Financial Statements are issued under the name of TEC, the legal parent of TES and accounting acquiree, but represent the continuation of the financial statements of TES, the accounting acquirer.

After Emergence, TES applied fresh start accounting, which resulted in a new basis of accounting, as the Company became a new financial reporting entity.

As a result of the application of fresh start accounting and the implementation of the Plan of Reorganization, our financial position and results of operations beginning after Emergence are not comparable to our financial position or results of operations prior to that date.

The financial results are presented for:

(i) the Predecessor periods from January 1 through May 17, 2023 (Predecessor) and the year ended December 31, 2022 (Predecessor);

and (ii) the Successor periods from May 18 through December 31, 2023 (Successor) and the year ended December 31, 2024 (Successor).

These Annual Financial Statements and notes hereto have been presented with a black line division to delineate the lack of comparability between the Predecessor and Successor .

See Note 3 for additional information on the Restructuring and Note 4 for additional information on fresh start accounting.

Consolidation of an Affiliate’s Subsidiary.

In September 2022, as part of a settlement of certain matters in the Restructuring, TES exchanged preferred units in subsidiaries of Cumulus Digital for common units in Cumulus Digital.

Following the consummation of the exchange and other related transactions, TES became the primary beneficiary of Cumulus Digital, a variable interest entity, due to its ability to control the activities that most significantly impacted Cumulus Digital.

Accordingly, Cumulus Digital and its subsidiaries were consolidated by TES as of September 30, 2022.

The difference between (i) the fair value of Cumulus Digital and its subsidiaries;

and (ii) the carrying value of the preferred units immediately before the exchange resulted in a loss of $ 170 million presented as “Consolidation of subsidiary gain (loss)” on the Consolidated Statements of Operations for the year ended December 31, 2022 (Predecessor).

Summary of Significant Accounting Policies

Reclassifications.

Certain amounts in the prior period financial statements were reclassified to conform to the current period’s presentation.

The reclassifications did not affect operating income, net income, total assets, total liabilities, net equity, or cash flows.

Use of Estimates.

1 unchanged sentence

Actual results could differ from those estimates.

Loss Accruals

Potential losses are accrued when (1) information is available that indicates it is "probable" that a loss has been incurred, given the likelihood of the uncertain future events and (2) the amount of the loss can be reasonably estimated.

Accounting guidance defines "probable" as cases in which "the future event or events are likely to occur." Talen Energy continuously assesses potential loss contingencies for environmental remediation, litigation claims, regulatory penalties and other events.

Loss accruals for environmental remediation are discounted when appropriate.

Reclassifications

Certain amounts in the prior period financial statements have been reclassified to conform to current period's presentation, including the change in presentation discussed below.

The reclassifications did not affect operating income, net income or equity.

In these financial statements, revenue and expense from derivatives is recorded based on Talen Energy's economic hedging strategy.

For example, all purchases and sales associated with economic hedging of the sale of energy using contracts accounted for as derivatives are recorded within "Operating Revenues" and all purchases and sales associated with economic hedging of the procurement of fuel or purchasing energy using contracts accounted for as derivatives are recorded as "Operating Expenses" on the Statements of Income.

Prior to 2015, Talen Energy classified all non-trading commodity hedge transactions as revenue or expense based upon whether each specific transaction was a sale or purchase, which in certain instances, created losses within revenue and gains within expense.

As a result of this change in presentation, there was an equal and offsetting increase of $845 million in 2014 and a decrease of $19 million in 2013 primarily in "Wholesale energy" and "Energy purchases" on the Statements of Income.

Earnings Per Share for Talen Energy Corporation

See Note 3 for information on the calculation of EPS.

Price Risk Management

Energy and energy-related contracts are used to hedge the variability of expected cash flows associated with the competitive generating units and marketing activities, as well as for trading purposes.

Interest rate contracts may be utilized to hedge exposures to changes in the fair value of debt instruments and to hedge exposures to variability in expected cash flows associated with existing floating-rate debt instruments or forecasted fixed-rate issuances of debt.

Similar derivatives may receive different accounting treatment, depending on management's intended use and documentation.

Certain energy and energy-related contracts meet the definition of a derivative, while others do not meet the definition of a derivative because they lack a notional amount or a net settlement provision.

In cases where there is no net settlement provision, markets are periodically assessed to determine whether market mechanisms have evolved that would facilitate net settlement.

Certain derivative energy contracts have been excluded from the requirements of derivative accounting treatment because NPNS has been elected.

These contracts are accounted for using accrual accounting.

All other contracts that have been classified as derivative contracts are reflected on the balance sheets at fair value.

These contracts are recorded as "Price risk management assets" and "Price risk management liabilities" on the Balance Sheets.

The portion of derivative positions that settle within a year are included in "Current Assets" and "Current Liabilities," while the portion of derivative positions that settle beyond a year are recorded in "Other Noncurrent Assets" and "Deferred Credits and Other Noncurrent Liabilities." Talen Energy considers intra-month transactions to be spot activity, which is not accounted for as a derivative.

Energy and energy-related contracts are assigned a strategy and accounting classification.

Processes exist that allow for subsequent review and validation of the contract information.

See Note 15 for more information.

The accounting department provides the traders and the risk management department with guidelines on appropriate accounting classifications for various contract types and strategies.

Some examples of these guidelines include, but are not limited to:

Physical coal, limestone, lime, uranium, electric transmission, gas transportation, gas storage and renewable energy credit contracts not traded on an exchange are not derivatives due to the lack of net settlement provisions.

Only contracts where physical delivery is deemed probable throughout the entire term of the contract can qualify for NPNS.

Derivative transactions that do not qualify for NPNS, or for which NPNS treatment is not elected, are recorded at fair value through earnings.

A similar process is also followed by the treasury department as it relates to interest rate derivatives.

Examples of accounting guidelines provided to the treasury department staff include, but are not limited to:

Transactions to lock in an interest rate prior to a debt issuance can be designated as cash flow hedges, to the extent the forecasted debt issuances remain probable of occurring.

Transactions entered into to hedge fluctuations in the fair value of existing debt can be designated as fair value hedges.

Cash inflows and outflows related to derivative instruments are included as a component of operating, investing or financing activities on the Statements of Cash Flows, depending on the classification of the hedged items.

Talen Energy has elected not to offset net derivative positions against the right to reclaim cash collateral (a receivable) or the obligation to return cash collateral (a payable) under master netting arrangements.

Talen Energy reflects its net realized and unrealized gains and losses associated with all derivatives that are held for trading purposes in "Wholesale energy" on the Statements of Income.

See Notes 14 and 15 for additional information on derivatives.

Revenue Recognition

Operating revenues from the sale of energy, capacity and ancillary services are recognized when the product or service is delivered to a customer or contractually earned, unless they meet the definition of and are accounted for as derivatives.

See "Accounting and Reporting" in Note 15 for additional information on the accounting for derivatives.

Operating revenues are recorded based on energy deliveries through the end of the calendar month.

Unbilled retail revenues result because customers' meters are read and bills are rendered throughout the month, rather than all being read at the end of the month.

Unbilled revenues for a month are calculated by multiplying an estimate of unbilled kWh by the estimated average cents per kWh.

Unbilled wholesale energy revenues are recorded at month-end to reflect estimated amounts until actual dollars and MWhs are confirmed and invoiced.

Immaterial differences between estimated and actual revenues are adjusted the following month.

"Energy-related businesses" revenue primarily includes revenue from Talen Energy's mechanical contracting and engineering subsidiaries.

These subsidiaries record revenue from construction contracts on the percentage-of-completion method of accounting, measured by the actual cost incurred to date as a percentage of the estimated total cost for each contract.

Accordingly, costs and estimated earnings in excess of billings on uncompleted contracts are recorded within "Unbilled revenues" on the Balance Sheets, and billings in excess of costs and estimated earnings on uncompleted contracts are recorded within "Other current liabilities" on the Balance Sheets.

The amount of costs and estimated earnings in excess of billings was $18 million and $20 million at December 31, 2015 and 2014 , and the amount of billings in excess of costs and estimated earnings was $44 million and $41 million at December 31, 2015 and 2014 .

During 2015 , Talen Energy recorded a $7 million decrease to "Retail energy" revenues on the Statements of Income.

Prior to the spinoff, Talen Energy billed and collected amounts from a third party that had a transmission operating agreement with Talen Energy's former affiliate, PPL Electric.

Such amounts should have been recognized as an affiliate payable, but were inadvertently recorded as revenue.

The $4 million after-tax impact ( $0.04 per share for Talen Energy Corporation) of correcting this overstatement of "Retail energy" revenues decreased "Income (Loss) from Continuing Operations after Income Taxes" and "Net Income (Loss)" on the 2015 Statement on Income.

The impact of the overstatement was not material to the previously-issued financial statements and the correction was not material to the full year results for 2015 .

During 2014 , Talen Energy recorded a $17 million increase to "Energy-related businesses" revenues and "Income (Loss) from Continuing Operations before Income Taxes" on the 2014 Statement of Income related to the timing of revenue recognition for a mechanical contracting and engineering subsidiary in prior periods.

The $10 million after-tax impact ( $0.13 per share for Talen Energy Corporation) of correcting this error increased "Income (Loss) from Continuing Operations after Income Taxes" and "Net Income (Loss)" in 2014 .

The impact of the error was not material to the previously-issued financial statements and the correction was not material to the full year results for 2014 .

Restructuring Effects.

Income, expenses, gains, or losses that were incurred or realized as a direct result of the Restructuring since entering bankruptcy proceedings are presented as “Reorganization income (expense), net” on the Consolidated Statements of Operations.

See Notes 3 and 4 for additional information on the Restructuring and fresh start accounting.

Fair Value of Financial Instruments and Derivatives.

We carry a portion of our assets and liabilities at fair value that are measured at a reporting date using an exit price (i.e., the price that would be received to sell an asset or paid to transfer a liability).

An exit price may be developed under a market approach utilizing market transactions, an income approach utilizing present value techniques, or a replacement cost approach.

The exit prices are disclosed according to the quality of valuation inputs under a three-tiered hierarchy comprised of:

(i) Level 1 inputs that are quoted prices (unadjusted) in active markets for identical assets or liabilities;

(ii) Level 2 inputs that are other than quoted prices that are directly or indirectly observable;

and (iii) Level 3 inputs are unobservable inputs for assets or liabilities.

The classification of an asset or liability is based on the lowest level of input significant to its fair value.

Those initially classified as Level 3 are subsequently reported as Level 2 when the fair value derived from unobservable inputs is inconsequential to the overall fair value, or if corroborated market data becomes available.

Those initially classified as Level 2 are subsequently reported as Level 3 if corroborated market data is no longer available.

Transfers occur at the end of the reporting period.

See Notes 5, 10, 14, and 15 for fair value disclosures.

Operating Revenues and Revenue Recognition.

Operating revenues on the Consolidated Statements of Operations are primarily comprised of items presented as:

(i) “Capacity revenues;” (ii) “Energy and other revenues;” and (iii) “Unrealized gain (loss) on derivative instruments” for certain electricity contracts.

Capacity revenues.

Includes amounts earned from auctions in ISOs and RTOs and under bilateral contracts to provide available generation capacity that is needed to satisfy system reliability and integrity requirements.

Capacity revenues are recognized ratably over the PJM Capacity Year by Talen-owned generation facilities that participate in the auctions and stand ready to deliver generated power.

Capacity revenues are based on invoiced amounts corresponding directly to the value provided over a specific time interval.

Energy and other revenues.

Energy revenues primarily include:

(i) amounts earned from sales to ISOs and RTOs for electric generation and ancillary services products that support transmission and grid operations;

(ii) amounts earned for wholesale electricity sales to bilateral counterparties;

and (iii) realized gains and losses on commodity derivative instruments.

Sales of each electric generation and ancillary services to ISOs and RTOs represent performance obligations recognized over time based on volumes delivered or services performed at contractually agreed upon day-ahead or real-time market prices.

Sales of wholesale electricity to bilateral counterparties represent performance obligations recognized over a contractually agreed period of time based on volumes delivered at the contractually agreed price.

Sales of electric generation, ancillary services, and wholesale electricity to bilateral counterparties are recognized based on invoiced amounts which corresponds directly with the value provided over a specific time interval.

Certain contracts constitute bundled agreements to sell energy, capacity, and (or) ancillary services.

In such cases, all performance obligations are deemed to be delivered and (or) performed at the same time.

Accordingly, as the timing of revenue recognition for all performance obligations is the same and occurs over a contractually agreed period of time, it is unnecessary to allocate transaction price to multiple performance obligations.

Realized gains and losses on commodity derivative instruments include the settlements of financial and physical power transactions utilized for the Company’s commercial risk management objectives.

Realized settlements of these derivative instruments are recognized and presented net within “Energy and other revenues” on the Consolidated Statements of Operations based on the delivery period of the underlying contract at contractually agreed prices.

See “Energy Expenses” below for additional information on realized gains and losses of derivative instruments presented as “Fuel and energy purchases” on the Consolidated Statements of Operations.

Other revenues primarily include:

(i) Nuclear PTC revenues;

and (ii) Nautilus revenues from Bitcoin mining.

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

These credits, which are accounted for by analogy to income-based grants under international accounting standards for government grants and disclosure of government assistance, are recognized when there is reasonable assurance that the Company will comply with the applicable conditions and that the credit will be received, which is generally over the period of production.

As the credits that are generated each tax year are based on annual gross receipts and production volumes, the measurement of the credit value is estimated at each period until the final value can be determined at the end of the year, which may be different than the estimated amount.

The credit value includes a five -times multiplier (up to $ 15 per MWh) for meeting prevailing wage requirements.

Accordingly, Nuclear PTCs are recognized based on production volumes generated during the period and measured at the credit value for the tax year.

See Note 6 for amounts recognized, which are presented as “Energy and other revenues” on the Consolidated Statements of Operations and “Other current assets” on the Consolidated Balance Sheets.

Credits that are utilized to reduce federal income taxes payable are presented as a reduction of “Other current liabilities” on the Consolidated Balance Sheets.

There have been no transfers of Nuclear PTCs to third parties during the year ended December 31, 2024 (Successor).

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

Treasury and IRS may impact the credit value recognized.

The primary output of Nautilus’s ordinary business activities is providing hash calculation services to solve complex cryptographic algorithms in support of blockchain mining.

Nautilus is party to a mining pool arrangement to provide an unspecified amount of its available hash calculations to an unaffiliated mining pool operator.

Nautilus is entitled to an enforceable right to compensation from the mining pool operator only for the duration of time over which Nautilus provides its hash calculations.

In exchange for providing hash calculation services to the mining pool operator, Nautilus is entitled to consideration, whether or not the mining pool operator successfully solves a block, based on a ‘full-pay-per-share’ payout methodology.

Nautilus’s only performance obligation is to provide hash calculations to the mining pool operator.

If Nautilus does not provide hash calculations to the mining pool operator, no consideration is earned by Nautilus nor does Nautilus incur any penalties from the mining pool operator.

The Bitcoin earned by Nautilus is all variable noncash consideration.

Accordingly, Nautilus recognizes revenue that is measured at fair value using the quoted price for Bitcoin in Nautilus’s principal market at the beginning of each day (Coordinated Universal Time).

Nautilus operations were suspended in October 2024.

Unrealized gain (loss) on derivative instruments.

Includes unrealized gains and losses resulting from changes in the fair value of certain power contracts that qualify as derivative instruments.

See “Derivative Instruments” below for the recognition criteria of unrealized gains and losses on commodity derivative instruments.

See “Energy Expenses” below for additional information on unrealized gains and losses of derivative instruments presented as “Energy Expenses” on the Consolidated Statements of Operations.

See Note 6 for additional information on revenue.

Energy Expenses.

Energy expenses on the Consolidated Statements of Operations are primarily comprised of items presented as:

(i) “Fuel and energy purchases;” (ii) “Nuclear fuel amortization;” and (iii) “Unrealized gain (loss) on derivative instruments” for certain commodity purchase contracts.

Fuel and energy purchases.

Primarily includes:

(i) fuel costs;

(ii) environmental product costs;

and (iii) realized gain (loss) on commodity derivative instruments.

Fuel costs include the costs incurred by Talen-owned generation facilities for the conversion of natural gas, coal, and (or) oil products to electricity.

Fuel for electric generation from natural gas purchases are recognized at the agreed price for natural gas delivered to the applicable generation facility over a contractually agreed period of time.

Fuel for electric generation from coal and oil product inventories are recognized at the applicable weighted average inventory cost of volumes consumed.

Environmental product costs primarily include RGGIs and other emission product compliance costs that are mandated by certain states.

The estimated cost of compliance is accrued at the time an obligation under the applicable terms of each state's environmental compliance program arises.

Realized gains and losses on commodity derivative instruments primarily include the settlements of financial and physical fuel contracts utilized for the Company’s commercial risk management objectives.

Realized settlements of these derivative instruments are recognized and presented net within “Fuel and energy purchases” on the Consolidated Statements of Operations based on the delivery period of the underlying contract at contractually agreed prices.

See “Operating Revenues and Revenue Recognition” above for additional information on realized gains and losses on derivative instruments presented as “Energy and other revenues” on the Consolidated Statements of Operations.

Nuclear fuel amortization.

Nuclear fuel-related costs, including procurement of uranium, conversion, enrichment, fabrication and assemblies, are capitalized and presented as “Property, plant and equipment, net” on the Consolidated Balance Sheets and presented as a cash outflow within the investing activities section on the Consolidated Statements of Cash Flows.

Such costs are amortized as the fuel is consumed using the units-of-production method and presented as “Nuclear fuel amortization” on the Consolidated Statements of Operations.

Unrealized gain (loss) on derivative instruments.

Includes unrealized gains and losses resulting from changes in the fair value of certain fuel contracts and environmental product contracts that qualify as derivative instruments.

See “Derivative Instruments” below for the recognition criteria of unrealized gains and losses on commodity derivative instruments.

See “Operating Revenues and Revenue Recognition” above for additional information on unrealized gains and losses of derivative instruments presented as “Operating Revenues” on the Consolidated Statements of Operations.

Derivative Instruments.

The fair value of derivative contracts required to be measured at fair value are presented as “Derivative instruments” within assets or liabilities on the Consolidated Balance Sheets.

The primary type of derivative instruments utilized are commodity derivatives.

For derivatives that trade in liquid markets, such as generic forwards, swaps, and options, the inputs and assumptions are generally observable.

Such instruments are categorized in Level 2.

In most instances, master netting agreements govern derivative transactions between parties and contain certain provisions for setoff rights.

The fair value of derivative instruments is presented net of setoff rights and cash collateral deposits.

The fair value of commercial contracts that are not subject to netting and (or) collateral provisions is presented gross.

Prior to Emergence, the fair value of derivative instruments presented on the Consolidated Balance Sheets was presented gross of setoff rights and cash collateral deposits exchanged between parties under such arrangements.

Unrealized gains or losses associated with a derivative instrument that economically hedges certain risks but where qualified cash flow hedge accounting is not elected or not met are presented on the Consolidated Statements of Operations in the period when such gains or losses arise.

As there are no derivatives where qualified hedge accounting has been elected, changes in the fair value of commodity derivatives are presented as “Unrealized gain (loss) on derivative instruments,” as a component of either “Operating Revenues” or “Energy Expenses” on the Consolidated Statements of Operations in a manner consistent with the presentation of net realized gains and losses.

See “Operating Revenues” and “Energy Expenses” above for a discussion of net realized gains and losses on commodity derivatives.

The cumulative net gains or losses for interest rate contracts are presented as “Interest expense and other finance charge s ” on the Consolidated Statements of Operations.

See Notes 5 and 14 for additional information on the presentation of derivative contracts and fair value measurements.

Operation, Maintenance and Development.

The costs of removal, repairs, maintenance, and other operating costs, pre-commercial development activities, and salaries and benefits for operations personnel that each do not meet capitalization criteria are recognized as an expense when incurred.

Materials and supplies inventories are recognized as an expense at the weighted average cost of materials consumed as they are used for repairs and maintenance.

Costs for pre-commercial development stages of certain projects that are not capitalized as “Property, plant and equipment, net” on the Consolidated Balance Sheets and recurring operational and maintenance activities are each presented as “Operation, maintenance and development” on the Consolidated Statements of Operations.

Development expenses incurred are primarily for pre-commercial activities at Nautilus and hyperscale construction activities at Cumulus Digital.

Stock-Based Compensation.

TEC grants performance stock units (“PSUs”) and restricted stock units (“RSUs”) to certain employees and non-employee directors.

The fair value of PSUs is estimated on the grant date utilizing a Monte Carlo Valuation Model, which contains significant unobservable inputs that are believed to be consistent with those used by principal market participants.

The fair value of RSUs is derived from the closing price of TEC common stock at the grant date.

Forfeitures are recognized as they occur.

Unvested PSUs and RSUs are entitled to dividends or dividend equivalents, which are accrued and distributed to award recipients at the time such awards vest.

Dividends and dividend equivalents are subject to the same vesting and forfeiture provisions as the underlying awards.

Stock-based compensation expense is recognized for both graded and cliff vesting awards on a straight-line basis over the requisite service period for the entire award.

Stock-based compensation expense is presented as “General and administrative” on the Consolidated Statements of Operations.

See Note 16 for additional information on stock-based compensation.

Income Taxes.

TEC and its subsidiaries file a consolidated U.S.

federal income tax return.

Income taxes are accounted for under the asset and liability method.

Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying values of existing assets and liabilities and their respective tax basis, tax credits and NOL carryforwards.

Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which temporary differences are expected to be recovered or settled.

The effect on deferred tax assets and liabilities due to a change in tax rates is recognized as income in the period that includes the enactment date.

Valuation allowances are recognized to reduce deferred tax assets to the extent necessary to result in an amount that is more likely than not to be realized.

Disproportionate income tax effects are removed from AOCI when the circumstance upon which they are premised ceases to exist.

The financial statement effect of a tax position is recognized when it is more-likely-than-not, based on the technical merits, that the position will be sustained upon examination.

A tax position that meets the more-likely-than-not recognition threshold is measured as the largest amount of tax benefit that is greater than 50% likely of being realized upon ultimate settlement with a taxing authority.

A previously recognized tax position is reversed in the first period in which it is no longer more-likely-than-not that the tax position would be sustained upon examination.

Interest and penalties from tax uncertainties are presented as “Income tax benefit (expense)” on the Consolidated Statements of Operations.

See Note 7 for additional information on income taxes.

Loss Contingencies.

Potential losses are accrued when:

(i) information is available that indicates it is probable (i.e., likely to occur) that a loss has been incurred, given the likelihood of the uncertain future events;

and (ii) the amount of the loss can be reasonably estimated.

We continuously assess potential loss contingencies for environmental remediation, litigation claims, regulatory penalties and other events.

Loss contingencies are discounted when appropriate.

Legal costs are expensed as incurred.

See Note 12 for additional information.

Concentrations of Credit Risk.

Concentrations of credit risk exist primarily within cash and cash equivalents, receivables, and commodity derivative assets.

Cash and cash equivalents are generally held in accounts where the amounts deposited exceed the maximum deposit insurance provided by the Federal Deposit Insurance Corporation.

Cash and cash equivalents and restricted cash balances are primarily deposited in accounts with major financial institutions with investment grade credit ratings.

In certain instances, funds are invested in highly liquid U.S.

Treasury securities or other obligations with original maturities of less than 90 days that are issued by or guaranteed by the U.S.

Concentrations of credit risk for receivables are primarily attributable to entities that reimburse Talen for certain capital expenditures and operating costs associated with jointly owned facilities.

Concentrations of credit risk for commodity derivative assets are primarily attributable to unaffiliated investment grade counterparties which engage in energy marketing activities with Talen Energy Marketing.

See Note 5 for additional information on concentrations of credit risk.

Cash and Cash Equivalents.

Bank deposits, liquid investments, and other similar assets with original maturities of three months or less.

Bank deposits, commodity exchange deposits, liquid investments, and other similar assets with original maturities of three months or less that are restricted by agreement are presented as “Restricted cash and cash equivalents” on the Consolidated Balance Sheets.

See Note 19 for additional information.

Accounts Receivable.

Accounts receivable are reported on the Balance Sheets at the gross outstanding amount adjusted for an allowance for doubtful accounts.

Accounts receivable that are acquired are initially recorded at fair value on the date of acquisition.

Accounts receivable collectability is evaluated using a combination of factors, including past due status based on contractual terms, trends in write-offs, the age of the receivable, counterparty creditworthiness and economic conditions.

Specific events, such as bankruptcies, are also considered.

Adjustments to the allowance for doubtful accounts are made when necessary based on the results of analysis, the aging of receivables and historical and industry trends.

Accounts receivable are written off in the period in which the receivable is deemed uncollectible.

Recoveries of accounts receivable previously written off are recorded when it is known they will be received.

The changes in the allowance for doubtful accounts were:

Balance at Beginning of Period

Charged to Income

Charged to Other Accounts

Deductions (a)

Balance at End of Period

Primarily related to uncollectible accounts written off.

In 2011, a wholesale customer filed for bankruptcy protection under Chapter 11 of the U.S.

Bankruptcy code.

In 2014, Talen Energy Marketing received an insignificant amount of cash, settling the outstanding administrative claim and therefore, the related reserve balance was offset against the accounts receivable balance.

Cash Equivalents

All highly liquid investments with original maturities of three months or less are considered to be cash equivalents.

Restricted Cash and Cash Equivalents

Bank deposits and other cash equivalents that are restricted by agreement or that have been clearly designated for a specific purpose are classified as restricted cash and cash equivalents.

The change in restricted cash and cash equivalents is reported as an investing activity on the Statements of Cash Flows.

On the Balance Sheets, the current portion of restricted cash and cash

equivalents is shown as "Restricted cash and cash equivalents" while the noncurrent portion is included in "Other noncurrent assets."

At December 31, the balances of restricted cash and cash equivalents included the following.

Margin deposits posted to counterparties

Ironwood debt service reserves

Fair Value Measurements

Talen Energy values certain financial and nonfinancial assets and liabilities at fair value.

Generally, the most significant fair value measurements relate to price risk management assets and liabilities, investments in securities including investments in the NDT funds and defined benefit plans, and cash and cash equivalents.

Talen Energy uses, as appropriate, a market approach (generally, data from market transactions), an income approach (generally, present value techniques and option-pricing models) and/or a cost approach (generally, replacement cost) to measure the fair value of an asset or liability.

These valuation approaches incorporate inputs such as observable, independent market data and/or unobservable data that management believes are predicated on the assumptions market participants would use to price an asset or liability.

These inputs may incorporate, as applicable, certain risks such as nonperformance risk, which includes credit risk.

Talen Energy classifies fair value measurements within one of three levels in the fair value hierarchy.

The level assigned to a fair value measurement is based on the lowest level input that is significant to the fair value measurement in its entirety.

The three levels of the fair value hierarchy are as follows:

Level 1 - quoted prices (unadjusted) in active markets for identical assets or liabilities that are accessible at the measurement date.

Active markets are those in which transactions for the asset or liability occur with sufficient frequency and volume to provide pricing information on an ongoing basis.

Level 2 - inputs other than quoted prices included within Level 1 that are either directly or indirectly observable for substantially the full term of the asset or liability.

Level 3 - unobservable inputs that management believes are predicated on the assumptions market participants would use to measure the asset or liability at fair value.

Assessing the significance of a particular input requires judgment that considers factors specific to the asset or liability.

As such, Talen Energy's assessment of the significance of a particular input may affect how the assets and liabilities are classified within the fair value hierarchy.

Generally, the original maturity date of an investment and management's intent and ability to sell an investment prior to its original maturity determine the classification of investments as either short-term or long-term.

Investments that would otherwise be classified as short-term, but are restricted as to withdrawal or use for other than current operations or are clearly designated for expenditure in the acquisition or construction of noncurrent assets or for the liquidation of long-term debts, are classified as long-term.

Short-term Investments

Short-term investments generally include certain deposits as well as securities that are considered highly liquid or provide for periodic reset of interest rates.

Investments with original maturities greater than three months and equal to or less than a year, as well as investments with original maturities of greater than a year that management has the ability and intent to sell within a year, are included in "Other current assets" on the Balance Sheets.

Receivables primarily consist of amounts due from customers or other contract counterparties, net of any collection allowances.

Uncollected receivables greater than 30 days past due are assessed for collectability based on a variety of factors that include, but are not limited to, customer credit worthiness, duration receivables are outstanding, and (or) historical collection experience.

Management continuously assesses and considers current economic trends that might impact the amount of future credit losses.

Additionally, if it becomes known that a specific customer may have the inability to settle its obligation that is not yet past due, such receivables are assessed for collectability.

If these assessments indicate a receivable collection is remote, its carrying value is reduced through an allowance for doubtful accounts measured at management’s best estimate, and a charge is presented on the Consolidated Statements of Operations.

If any portion of the original carrying value of the receivable is recovered, the allowance and the associated charge are reversed in the period of collection.

Inventory consists of fuel for generation (primarily coal and fuel oil), materials and supplies, and environmental products each of which are valued at the lower of weighted average cost or net realizable value.

See Note 8 for additional information on inventory.

Variable Interest Entities.

The primary beneficiary (a controlling financial interest) of a VIE is required to consolidate the VIE when it has both:

(i) the power to direct the activities that most significantly impact the entity’s economic performance;

and (ii) the obligation to absorb losses or receive benefits from the entity that could potentially be significant to the VIE.

Talen consolidates a VIE when it is determined that it is the primary beneficiary of the VIE.

Investments in entities in which Talen has the ability to exercise significant influence but does not have a controlling financial interest are accounted for under the equity method.

Investments in Debt and Equity Securities.

Investments in debt securities are classified as held-to-maturity and measured at amortized cost when there is an intent and ability to hold the securities to maturity.

Debt and equity securities held principally to capitalize on fluctuations in their value with the intention of selling them in the near-term are classified as trading.

All other investments in debt and equity securities are classified as available-for-sale.

Both trading and available-for-sale securities are carried at fair value.

The NDT holds investments in available-for-sale debt securities and equity securities, which are carried at fair value and presented as “Nuclear decommissioning trust funds” on the Consolidated Balance Sheets.

Unrealized gains and losses, net of income tax, on available-for-sale debt securities are presented as “Other Comprehensive Income (Loss)” on the Consolidated Statements of Comprehensive Income in the period when such gains and losses arise.

Realized gains and losses on available-for-sale debt securities are transferred from AOCI to “Nuclear decommissioning trust funds gain (loss), net” on the Consolidated Statements of Operations in the period when the sale of the security occurs.

The specific identification method is used to calculate realized gains and losses on debt and equity securities.

Any unrealized gains and losses on trading securities are included in earnings.

The criteria for determining whether a decline in fair value of a debt security is other than temporary and whether the other-than-temporary impairment is recognized in earnings or reported in OCI require that when a debt security is in an unrealized loss position and:

there is an intent or a requirement to sell the security before recovery, the other-than-temporary impairment is recognized currently in earnings;

there is no intent or requirement to sell the security before recovery, the portion of the other-than-temporary impairment that is considered a credit loss, if any, is recognized currently in earnings and the remainder of the other-than-temporary impairment is reported in OCI, net of tax.

Unrealized gains and losses on available-for-sale equity securities are reported, net of tax, in OCI.

When an equity security's decline in fair value below cost is determined to be an other-than-temporary impairment, the unrealized loss is recognized currently in earnings.

If an available-for-sale debt security's fair value declines below cost and the decline is determined to be other-than-temporary, the unrealized loss is recognized on the Consolidated Statements of Comprehensive Income in the period when such determination arises.

Unrealized gains and losses and realized gains and losses on equity securities are presented as “Nuclear decommissioning trust funds gain (loss), net” on the Consolidated Statements of Operations in the period when such gains or losses arise.

See Notes 9 and 14 for additional information on investments in debt and equity securities.

Long-Lived and Intangible Assets

Property, Plant and Equipment.

PP&E is recorded at original cost, unless impaired.

PP&E acquired in business combinations is recorded at fair value at the time of acquisition, which establishes its original cost.

If impaired, the asset is written down to fair value at that time, which becomes the new cost basis of the asset.

Original cost for constructed assets includes material, labor, contractor costs, certain overheads and financing costs, where applicable.

The cost of repairs and minor replacements are charged to expense as incurred.

Costs associated with planned major maintenance projects are recorded in the period in which the costs are incurred.

No costs associated with planned major maintenance projects are accrued in advance of the period in which the work is performed.

Nuclear fuel-related costs, including fuel, conversion, enrichment, fabrication and assemblies, are capitalized as PP&E.

Such costs are amortized as the fuel is spent using the units-of-production method and included in "Fuel" on the Statements of Income.

Talen Energy capitalizes interest costs as part of construction costs.

Capitalized interest was as follows for the years ended December 31 .

Depreciation is recorded over the estimated useful lives of property using primarily the straight-line, composite and group methods.

When a component of PP&E that was depreciated under the composite or group method is retired, the original cost is charged to accumulated depreciation.

When all or a significant portion of an operating unit that was depreciated under the composite or group method is retired or sold, the property and the related accumulated depreciation account is reduced and any gain or loss is included in income.

The weighted-average rates of depreciation were 3.18% and 3.28% at December 31, 2015 and 2014 .

Goodwill and Other Intangible Assets

Goodwill represents the excess of the purchase price paid over the fair value of the identifiable net assets acquired in a business combination.

Other acquired intangible assets are initially measured based on their fair value.

Intangibles that have finite useful lives are amortized over their useful lives based upon the pattern in which the economic benefits of the intangible assets are consumed or otherwise used.

Costs incurred to obtain an initial license and renew or extend terms of licenses are capitalized as intangible assets.

When determining the useful life of an intangible asset, including intangible assets that are renewed or extended, Talen Energy and its subsidiaries consider the expected use of the asset;

the expected useful life of other assets to which the useful life of the intangible asset may relate;

legal, regulatory, or contractual provisions that may limit the useful life;

the company's historical experience as evidence of its ability to support renewal or extension;

the effects of obsolescence, demand, competition, and other economic factors;

and the level of maintenance expenditures required to obtain the expected future cash flows from the asset.

Talen Energy accounts for emission allowances and RGGI emission credits (RGGI credits) as intangible assets.

Talen Energy is allocated emission allowances by states based on its generation facilities' historical emissions experience, and has purchased emission allowances generally or RGGI credits when it is expected that additional allowances or RGGI credits will be needed.

The carrying value of allocated emission allowances is initially recorded at zero value and purchased allowances and RGGI emissions credits are initially recorded based on their purchase price.

When consumed or sold, emission allowances and RGGI credits are removed from the Balance Sheet at their weighted-average carrying value.

Since the economic benefits of emission allowances and RGGI credits are not diminished until they are consumed, emission allowances and RGGI credits are not amortized;

rather, they are expensed when consumed or a gain or loss is recognized when sold.

Such expense is included in "Fuel" on the Statements of Income.

Gains and losses on the sale of emission allowances and RGGI credits are included in "Operation and maintenance" on the Statements of Income.

Asset Impairment (Excluding Investments)

Talen Energy reviews long-lived assets that are subject to depreciation or amortization, including finite-lived intangibles, for impairment when events or changes in circumstances indicate carrying amounts may not be recoverable.

A long-lived asset classified as held and used is impaired when the carrying amount of the asset exceeds the sum of the undiscounted cash flows expected to result from the use and eventual disposition of the asset.

If impaired, the asset's carrying value is written down to its fair value.

See Notes 14 and 16 for a discussion of an impairment of an asset classified as held and used.

A long-lived asset classified as held for sale is impaired when the carrying amount of the asset (disposal group) exceeds its fair value less cost to sell.

If impaired, the asset's (disposal group's) carrying value is written down to its fair value less cost to sell.

See Notes 14 and 16 for a discussion of impairments of an asset group initially classified as held for sale at acquisition and subsequently reclassified as held and used.

Talen Energy reviews goodwill for impairment at the reporting unit level annually or more frequently when events or circumstances indicate that the carrying amount of a reporting unit may be greater than the unit's fair value.

Additionally, goodwill must be tested for impairment in circumstances when a portion of goodwill has been allocated to a business to be disposed.

Talen Energy's reporting units are at the operating segment level.

Talen Energy may elect either to initially make a qualitative evaluation about the likelihood of an impairment of goodwill or to bypass the qualitative evaluation and test goodwill for impairment using a two-step quantitative test.

If the qualitative evaluation (referred to as "step zero") is elected and the assessment results in a determination that it is not more likely than not that the fair value of a reporting unit is less than the carrying amount, the two-step quantitative impairment test is not necessary.

However, the quantitative impairment test is required if management concludes it is more likely than not that the fair value of a reporting unit is less than the carrying amount based on the step zero assessment.

If the carrying amount of the reporting unit, including goodwill, exceeds its fair value, the implied fair value of goodwill must be calculated in the same manner as goodwill in a business combination.

The fair value of a reporting unit is allocated to all assets and liabilities of that unit as if the reporting unit had been acquired in a business combination.

The excess of the fair value of the reporting unit over the amounts assigned to its assets and liabilities is the implied fair value of goodwill.

If the implied fair value of goodwill is less than the carrying amount, goodwill is written down to its implied fair value.

See Note 16 for information on a goodwill impairment recorded in the third quarter of 2015, which fully impaired Talen Energy's previously recognized goodwill.

Expenditures for land, the construction of facilities, the addition or refurbishment of major equipment, and commercially viable new development projects are capitalized at cost.

Such capitalized amounts include interest costs, where appropriate.

Facilities, land, and other equipment acquired in a business combination is recognized at fair value.

In each case, such amounts are presented as “Property, plant and equipment, net” on the Consolidated Balance Sheets.

Reductions in the carrying value of PP&E are accumulated over the estimated useful life of each depreciable unit using straight-line or group depreciation methods, where appropriate.

Such periodic reduction is presented as a charge to “Depreciation, amortization and accretion” on the Consolidated Statements of Operations.

Generally, upon normal retirement of PP&E under the group depreciation method, the costs of such assets are retired against accumulated depreciation in the period of the retirement and no gain or loss is recognized.

Any remaining carrying value of PP&E at its retirement date that depreciated under the straight-line depreciation method is presented as a loss within “Other operating income (expense), net” on the Consolidated Statements of Operations.

Any remaining carrying value of PP&E at its sale date and any proceeds from the disposition are presented as a gain or loss net on the Consolidated Statements of Operations.

Expenditures for intangible assets such as contractual rights, software and licenses are capitalized at cost and are presented as “Property, plant and equipment, net” on the Consolidated Balance Sheets.

Reductions in the carrying value of intangible assets with finite useful lives are accumulated over the estimated useful life of each intangible asset using an amortization pattern which reflects the economic benefits of the intangible asset.

Such periodic reduction is presented as a charge to “Depreciation, amortization and accretion” on the Consolidated Statements of Operations.

See “Impairments” below for additional information regarding impairments on the carrying values of PP&E.

See Note 10 for additional information on PP&E.

PP&E used in operations are assessed for impairment whenever changes in facts and circumstances indicate the carrying value of the asset group may not be recoverable.

Indicators of impairment may include changes in the economic environment, negative financial trends, physical damage to assets or decisions of management regarding strategic initiatives.

Where applicable, individual assets are grouped for impairment purposes at the lowest level for which there are identifiable cash flows that are largely independent of the cash flows of other assets and liabilities.

If there is an indication the carrying value of an asset group may not be recovered, management reviews the expected future cash flows of the asset group.

If the sum of the undiscounted pre-tax cash flows is less than the carrying value of the asset group, the asset group is written down to its estimated fair value.

Impairment charges are presented as “Impairments” on the Consolidated Statements of Operations in the period in which the impairment condition arises.

If facts and circumstances indicate that the carrying value of an asset under construction will have no future economic benefit, such amounts are presented on the Consolidated Statements of Operations in the period in which such projects are abandoned, canceled, or management otherwise determines the costs to be unrecoverable.

Fair value may be determined by a variety of valuation methods including third-party appraisals, market prices of similar assets, and present value techniques.

However, as there is generally a lack of quoted market prices for long-lived assets, the fair value of impaired assets is typically determined based on the present values of expected future cash flows using discount rates that are believed to be consistent with those used by principal market participants.

The estimated cash flows and related fair value computations consider all available evidence at the date of the review, such as estimated future generation volumes, forward capacity and commodity prices, energy prices, operating costs, capital expenditures, and environmental costs.

See Note 10 for information on impairments.

Asset Retirement Obligations.

Talen Energy records liabilities to reflect various legal obligations associated with the retirement of long-lived assets.

Initially, this obligation is measured at fair value and offset with an increase in the value of the capitalized asset, which is depreciated over the asset's useful life.

Until the obligation is settled, the liability is increased through the recognition of accretion expense classified within "Operation and maintenance" on the Statements of Income to reflect changes in the obligation due to the passage of time.

Estimated ARO costs and settlement dates, which affect the carrying value of the ARO and the related capitalized asset, are reviewed periodically to ensure that any material changes are incorporated into the latest estimate of the ARO.

Any change to the capitalized asset, positive or negative, is generally amortized over the remaining life of the associated long-lived asset.

A liability for an ARO or conditional ARO exists when a legal obligation arises from laws, regulations or other contractual requirements for the retirement of tangible long-lived assets.

When an ARO liability is incurred, which is typically at asset construction or through assumption of the liability in connection with a business combination, it is initially recognized at fair value.

Fair value measurements are estimated under a present value technique and are discounted using a credit-adjusted risk-free rate.

Additionally, given the inherent uncertainty in estimating the amount of cash flows to settle an ARO liability or its settlement date, fair value estimates include a market risk premium and a range of possible cash flow outcomes, where applicable.

At the initial recognition, the effects on the Consolidated Balance Sheets include:

(i) an increase to “Asset retirement obligations and accrued environmental costs” for the portion of ARO to be settled after one year and (or) “Other current liabilities” for the portion of the ARO to be settled within one year;

and (ii) an offsetting increase to “Property, plant and equipment, net” for the asset retirement capitalized cost.

Estimated future ARO cash expenditures and settlement dates are reviewed periodically to identify any required amendments to the carrying value of each ARO liability.

ARO liabilities increase over a period of time through the recognition of accretion expense to recognize changes in the obligation due to the passage of time.

The asset retirement capitalized cost is depreciated at a rate consistent with the useful life of the associated long-lived asset.

The depreciation of the asset retirement capitalized cost and the accretion of the ARO liability are each presented as “Depreciation, amortization and accretion” on the Consolidated Statements of Operations.

An ARO liability amendment associated with a long-lived asset that is not fully impaired or depreciated is recognized through an adjustment to the ARO liability and the asset retirement capitalized cost.

Any revision to the asset retirement capitalized cost is generally depreciated over the remaining life of the associated long-lived asset.

An ARO liability amendment associated with a fully impaired or depreciated asset is presented as “Other operating income (expense), net” on the Consolidated Statements of Operations.

At settlement, a gain or loss will arise if the cash expenditures to settle the ARO liabilities are different than the carrying values.

Such gains or losses are presented as “Other operating income (expense), net” on the Consolidated Statements of Operations.

A conditional ARO refers to an entity’s legal obligation to perform an asset retirement activity in which the timing or method of settlement is conditional on a future event that may or may not be within the entity’s control, including legal or regulatory requirements.

There may also be instances when there is no available information regarding the ultimate ARO settlement timing or the fair value of the obligation may not be reasonably estimable.

If sufficient information becomes available to reasonably estimate the fair value of the liability for an ARO or a conditional ARO, a liability is recognized in the period in which it is determined.

See Note 11 for additional information on AROs.

Compensation and Benefits

Defined Benefits

Talen Energy Supply and certain of its subsidiaries sponsor or participate in, as applicable, various qualified funded and non-qualified unfunded defined benefit pension plans and both funded and unfunded other postretirement benefit plans.

Prior to the June 1, 2015 spinoff, Talen Energy participated in plans sponsored by PPL.

An asset or liability is recorded with an offsetting entry to AOCI to recognize the funded status of all defined benefit plans sponsored by Talen Energy Supply and its subsidiaries.

Consequently, the funded status of all sponsored defined benefit plans is fully recognized on the Balance Sheets.

The expected return on plan assets is determined based on a market-related value of plan assets, which is calculated by rolling forward the prior year market-related value with contributions, disbursements and long-term expected return on investments.

One-fifth of the difference between the actual value and the expected value is added (or subtracted if negative) to the expected value to determine the new market-related value.

Talen Energy uses an accelerated amortization method for the recognition of gains and losses for its defined benefit pension plans.

Under the accelerated method, actuarial gains and losses in excess of 30% of the plan's projected benefit obligation are amortized on a straight-line basis over one-half of the expected average remaining service of active plan participants.

Actuarial gains and losses in excess of 10% of the greater of the plan's projected benefit obligation or the market-related value of plan assets and less than 30% of the plan's projected benefit obligation are amortized on a straight-line basis over the expected average remaining service period of active plan participants.

See Note 9 for additional information about the plans and the accounting for defined benefits, including a discussion of the newly created pension and other postretirement benefit plans sponsored by Talen Energy Supply that replaced Talen Energy Supply's participation in similar PPL plans effective with the June 1, 2015 spinoff.

Stock-Based Compensation

Talen Energy Corporation has stock-based compensation plans for purposes of granting stock options, restricted stock, restricted stock units and performance units to certain employees as well as stock units and restricted stock units to directors.

Prior to the June 1, 2015 spinoff Talen Energy Supply participated in plans sponsored by PPL.

Talen Energy recognizes compensation expense for stock-based awards based on the fair value method.

Stock options that vest in installments are valued as a single award.

Talen Energy Corporation grants stock options with an exercise price that is not less than the fair value of Talen Energy Corporation's common stock on the date of grant.

All awards are recorded as equity or a liability on the Balance Sheets.

Stock-based compensation is primarily included in "Operation and maintenance" on the Statements of Income.

Stock-based compensation expense for periods prior to the June 1, 2015 spinoff also includes an allocation of PPL Services' expense.

See Note 8 for additional information on stock-based compensation.

Talen Energy Corporation and its subsidiaries file a consolidated U.S.

federal income tax return.

Significant management judgment is required in developing Talen Energy's provision for income taxes, primarily due to the uncertainty related to tax positions taken or expected to be taken in tax returns and valuation allowances that may be required to offset deferred tax assets.

In order to determine the amount of benefit to be recognized in relation to an uncertain tax position, Talen Energy uses a two-step process to evaluate tax positions.

The first step requires an entity to determine whether, based on the technical merits supporting a particular tax position, it is more likely than not (greater than a 50% chance) that the tax position will be sustained.

This determination assumes that the relevant taxing authority will examine the tax position and is aware of all the relevant facts surrounding the tax position.

The second step requires an entity to recognize in the financial statements the benefit of a tax position that meets the more-likely-than-not recognition criterion.

The benefit recognized is measured at the largest amount of benefit that has a likelihood of realization, upon settlement, that exceeds 50%.

The amounts ultimately paid upon resolution of issues raised by taxing authorities may differ materially from the amounts accrued and may materially impact the financial statements in future periods.

Deferred income taxes reflect the net future tax effects of temporary differences between the carrying amounts of assets and liabilities for accounting purposes and their basis for income tax purposes, as well as the tax effects of net operating loss carryforwards and tax credit carryforwards.

Talen Energy records valuation allowances to reduce deferred tax assets to the amounts that are more likely than not to be realized.

Talen Energy considers the ability to carryback attributes, the reversal of temporary differences, future taxable income and ongoing prudent and feasible tax planning strategies in initially recording and subsequently reevaluating the need for valuation allowances.

If Talen Energy determines that it is able to realize deferred tax assets in the future in excess of recorded net deferred tax assets, adjustments to the valuation allowances increase income by reducing tax expense in the period that such determination is made.

Likewise, if Talen Energy determines that it is not able to realize all or part of net deferred tax assets in the future, adjustments to the valuation allowances would decrease income by increasing tax expense in the period that such determination is made.

Talen Energy defers investment tax credits when the credits are utilized and amortizes the deferred amounts over the average lives of the related assets.

Talen Energy classifies interest and penalties from tax uncertainties in "Income Taxes" on its Statements of Income.

Talen Energy records the receipt of grants related to assets as a reduction to the book basis of the property and the related deferred income taxes as an immediate reduction to income tax expense.

The income tax provision for Talen Energy Supply is calculated in accordance with an intercompany tax sharing agreement which provides that taxable income be calculated as if Talen Energy Supply and any subsidiaries each filed a separate consolidated return.

Tax benefits are not shared between companies.

The entity that generates a tax benefit is the entity that is entitled to the tax benefit.

The effect of Talen Energy Corporation filing a consolidated tax return is taken into account in the settlement of current taxes and the recognition of deferred taxes.

Prior to the spinoff, the income tax provision for Talen Energy Supply was calculated in accordance with an intercompany tax sharing agreement with PPL, which provided that taxable income be calculated as if Talen Energy Supply, and any of PPL's domestic subsidiaries, each filed a separate consolidated return.

Tax benefits were not shared between companies.

The entity that generated a tax benefit was the entity that was entitled to the tax benefit.

At December 31, 2014 Talen Energy Supply had a $105 million intercompany tax receivable with PPL recorded under the tax sharing agreement, which was settled prior to the spinoff from PPL.

Taxes, Other Than Income

Talen Energy presents sales taxes in "Other current liabilities." These taxes are not reflected on the Statements of Income.

See Note 4 for details on taxes included in "Taxes, other than income" on the Statements of Income.

Talen Energy evaluates whether arrangements entered into contain leases for accounting purposes.

See Note 7 for a discussion of arrangements under which Talen Energy is a lessee for accounting purposes.

Fuel, Materials and Supplies

Fuel, materials and supplies are valued at the lower of cost or market using the average cost method.

Generally, cost is reduced to market if the value of inventory has declined and it is probable that the utility of inventory in the ordinary course of business will not be recovered through revenue earned.

Fuel costs for electric generation are charged to expense as used.

Materials and supplies are charged to "Operation and maintenance" on the Statements of Income as they are used for repairs and maintenance or capitalized to PP&E as they are used for capital projects.

"Fuel, materials and supplies" on the Balance Sheets consisted of the following at December 31 .

Contingencies.

Management continuously assesses potential loss contingencies for environmental remediation, litigation claims, regulatory penalties and other events.

Potential losses are accrued when:

(i) information is available that indicates it is probable (i.e., likely to occur) that a loss has been incurred, given the likelihood of the uncertain future events;

and (ii) the amount of the loss can be reasonably estimated.

Loss contingencies are recognized at management's best estimate, which may be discounted, where appropriate.

Loss contingencies exclude estimates for any legal fees, which are recognized as incurred when the legal services are performed.

See Note 12 for additional information on loss contingencies.

Business interruption insurance proceeds are considered gain contingencies and not recognized until realized.

Proceeds received on the issuance of new term loans, secured notes, unsecured notes, bonds, and similar indebtedness are presented as “Long-term debt” or “Long-term debt, due within one year” on the Consolidated Balance Sheets.

Interest incurred as paid-in-kind, whether accrued or capitalized as additional principal are presented as “Long-term debt” with the associated outstanding amounts of indebtedness.

Costs incurred to issue new indebtedness and any original issuance discounts or premiums are deferred at issuance on the Consolidated Balance Sheets and presented together with the associated outstanding principal amounts of indebtedness.

Interest accrues on outstanding principal amounts of indebtedness based on contractually determined rates during each period.

Costs incurred for the issuance of indebtedness and any original issuance discounts or premiums are subsequently amortized through the expected maturity date of the associated indebtedness under the effective interest rate method and are presented as “Interest expense and other finance charges” on the Consolidated Statements of Operations.

Gains and losses on the:

(i) early redemption of indebtedness;

or (ii) early termination and (or) reduction of revolving credit facility committed capacity are presented as a gain or loss on the Consolidated Statements of Operations.

Such amounts include the proportional derecognition of any deferred financing costs, fees, discounts, and (or) premiums associated with the indebtedness.

Direct cash borrowings under secured lines of credit, revolving credit facilities, and similar indebtedness are presented as a current liability on the Consolidated Balance Sheets.

Costs incurred to issue new arrangements are deferred and presented as “Other current assets” or “Other noncurrent assets” on the Consolidated Balance Sheets.

Interest accrues on direct cash borrowings and LCs based on contractually determined rates during each period.

Costs incurred to issue new arrangements are subsequently amortized through the expected expiration of the associated arrangement under the straight-line method.

Commitment fees on available but unused credit facility capacity are expensed as incurred.

Such costs are presented as “Interest expense and other finance charges” on the Consolidated Statements of Operations.

See Note 13 for additional information on debt.

Postretirement Benefit Obligations.

Certain Talen subsidiaries sponsor various defined benefit pension plans and other postretirement benefit plans.

Gains and losses, net of income tax, that arise and are not a component of net periodic defined benefit costs are presented as “Other Comprehensive Income (Loss)” on the Consolidated Statements of Comprehensive Income.

Following Emergence, actuarial gains and losses in excess of the greater of 10% of the plan's projected benefit obligation or the market-related value of plan assets are amortized over (i) the expected average remaining service period of active plan participants for active plans;

or (ii) the average future remaining lifetime of the plan participants of frozen plans.

Prior to Emergence, Talen used an accelerated amortization method for the recognition of gains and losses for defined benefit pension plans:

(i) actuarial gains and losses in excess of 30% of the plan's projected benefit obligation are amortized on a straight-line basis over one-half of the expected average remaining service of active plan participants;

and (ii) actuarial gains and losses in excess of 10% of the greater of the plan's projected benefit obligation or the market-related value of plan assets and less than 30% of the plan's projected benefit obligation are amortized on a straight-line basis over the expected average remaining service period of active plan participants.

Following Emergence, a spot rate curve that represents a portfolio of high-quality corporate bonds is used to develop the discount rate utilized to measure the projected benefit obligations and service costs for benefit plans.

Prior to Emergence, a bond matching methodology was utilized, based on a specific portfolio of bonds that closely match the overall cash flow timing and duration of the benefit plans.

Talen is obligated to provide health care benefits under the Coal Act and pneumoconiosis (black lung) benefits under the Black Lung Act for retired miners and eligible beneficiaries.

Benefits are funded from a Voluntary Employees’ Benefit Association (“VEBA”) trust and a trust maintained under certain federal and state black lung legislation.

Shortfalls in funded status of the plans are assessed as contingent liabilities.

As such, Talen recognizes funding shortfalls on its balance sheet, where applicable, if benefit obligations of either plan exceed the fair value of available trust assets.

See Note 15 for additional information on the plans and the accounting for defined benefits.

Treasury Stock and Retirement of Treasury Shares.

Share repurchases are accounted for under the cost method, which recognizes the entire cost of the acquired stock, including transaction costs and excise tax, as a reduction in additional paid-in-capital and are presented as “Treasury stock” on the Consolidated Balance Sheets.

Share repurchases are recognized on a trade date basis when we are contractually obligated to purchase the shares.

Treasury shares are retired on the settlement date of the transaction.

At retirement, the common stock balance is reduced for the par value of the shares.

The excess of the acquisition cost of repurchased shares over the par value is recognized in additional paid-in capital (up to the amount credited to additional paid-in capital upon original issuance of the shares), with any remaining cost deducted from retained earnings.

Recently Adopted Accounting Pronouncements

ASU 2023-07 .

In November 2023, the Financial Accounting Standards Board (the “FASB”) issued ASU 2023-07, Segment Reporting (Topic 280):

Improvements to Reportable Segment Disclosures.

This ASU requires enhanced disclosures about significant segment expenses.

The ASU is effective for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024.

Early adoption is permitted.

The Company adopted the fiscal year disclosure requirements for this ASU beginning January 1, 2024, and will adopt interim period disclosure requirements beginning January 1, 2025.

Recent Accounting Pronouncements Not Yet Adopted

In December 2023, the FASB issued ASU 2023-09 Income Taxes (Topic 740):

Improvements to Income Tax Disclosures.

This ASU requires annual disclosures for specific categories in the rate reconciliation and additional information for reconciling items that meet a quantitative threshold.

The ASU is effective for fiscal years beginning after December 15, 2024.

Early adoption is permitted for annual financial statements that have not yet been issued.

The Company is evaluating the disclosure impact of this ASU and expects to adopt it in the required period.

In November 2024, the FASB issued ASU 2024-03, Expense Disaggregation Disclosures (Subtopic 220-40):

Disaggregation of Income Statement Expenses.

This ASU requires public companies to disclose, in the notes to financial statements, specified information about certain costs and expenses at each interim and annual reporting period.

This ASU is effective for annual reporting periods beginning after December 15, 2026.

Early adoption is permitted.

The Company is evaluating the disclosure impact of this ASU and expects to adopt it in the required period.

Emergence from Restructuring

Voluntary Reorganization Under Chapter 11 of the U.S.

Bankruptcy Code

In May 2022, TES and 71 of its subsidiaries voluntarily commenced the Restructuring under Chapter 11 of the U.S.

Bankruptcy Code.

TEC joined the Restructuring in December 2022.

Prior to and during the Restructuring, TES and its debtor subsidiaries reached a number of settlements with various stakeholders (including certain holders of claims under TES’s prepetition indebtedness, certain affiliates Riverstone Holdings, LLC (“Riverstone”) (which then held all of the equity in TEC), TEC, and the Official Committee of Unsecured Creditors), the terms of which were incorporated into the Plan of Reorganization.

Under the settlements, the Company agreed to conduct a common equity rights offering, which certain holders of prepetition unsecured notes agreed to backstop in exchange for subscription rights to purchase 30 % of the new equity issued plus a backstop premium payment in the form of cash and (or) new equity.

Restructuring Transactions and Emergence

The Restructuring transactions were completed, and the Company emerged from the Restructuring, on May 17, 2023.

Pursuant to the Plan of Reorganization, among other things:

• Claims against TEC were paid in full in cash or reinstated.

All existing equity interests in TEC were extinguished, and new equity interests in TEC were issued as follows:

• Holders of unsecured claims under TES’s prepetition indebtedness (including the backstopping holders) received:

(i) TEC equity;

and (ii) subscription rights to purchase additional TEC equity in the equity rights offering.

• The equity rights offering was consummated, resulting in $ 1.4 billion in net cash proceeds to the Company.

The backstopping holders (i) fully exercised their subscription rights;

(ii) were required to purchase additional unsubscribed-for TEC equity;

and (iii) were paid the remaining portion of the backstop premium in the form of TEC equity.

• Riverstone received:

(i) 1 % of the equity in TEC;

(ii) a contingent right to receive additional TEC equity or cash upon certain conditions following Emergence;

and (iii) warrants to purchase additional TEC equity.

In the third quarter 2023, Riverstone surrendered the warrants and waived its contingent right to additional TEC equity or cash in exchange for $ 40 million in cash.

• The existing intercompany ownership structure of the debtors remained in place and intercompany claims were extinguished.

• The Company consummated its exit financings, comprised of the RCF, TLB-1, TLC, TLC LCF, Bilateral LCF, and Secured Notes.

The PEDFA 2009B and 2009C Bonds remained outstanding following the Restructuring.

• The proceeds of the equity rights offering and the exit financings, together with cash on hand, were used to fully repay the Company’s debtor-in-possession credit facilities and to pay $ 3.1 billion relating to other secured claims.

• Holders of other unsecured claims received interests in a designated $ 26 million pool of cash, to which Talen Montana subsequently contributed an additional $ 11 million from proceeds of the PPL/Talen Montana settlement .

See Note 12 for additional information on the PPL/Talen Montana settlement.

Fresh Start Accounting

At Emergence, TES adopted fresh start accounting as:

(i) the holders of existing voting shares before the consummation of the Plan of Reorganization received less than 50 % of the voting shares of the Successor;

and (ii) the reorganization value of TES’s assets immediately prior to confirmation of the Plan of Reorganization of $ 7.8 billion was less than the total of post-petition liabilities and allowed claims of $ 9.8 billion.

Accordingly, TES allocated its reorganization value to its individual assets based on their estimated fair values.

Reorganization Value

Reorganization value is derived from an estimate of enterprise value, or the fair value of the Company’s interest-bearing debt and member’s equity.

As negotiated in the Plan of Reorganization and related disclosure statement approved by the Bankruptcy Court, the enterprise value as of Emergence was $ 4.5 billion.

Management engaged third-party valuation advisors to assist in estimating the enterprise value and allocating the enterprise value to the assets and liabilities for financial reporting purposes as of Emergence.

Enterprise value assumptions incorporated:

(i) economic and industry information relevant to the business;

(ii) internal financial information and operating data;

(iii) historical financial information;

and (iv) financial projections and other applicable assumptions.

The valuation techniques used to estimate the enterprise value as of Emergence included the income approach, market approach, and cost approach, with consideration of the exit market and nature of the applicable asset or liability subject to valuation.

The Company’s principal assets are generation facilities whose values were determined by a discounted cash flow analysis based on management’s latest outlook of the business through the end of their expected useful lives.

The forward-looking projections considered:

(i) company-specific factors, such as unit characteristics, plant dispatch, operating expenses, capital expenditures and estimated economic useful lives;

and (ii) macroeconomic factors, such as capacity prices, energy prices, fuel prices, market supply and demand factors, inflation factors, and environmental regulations.

Commodity prices used to estimate future cash flows in observable periods were primarily based on adjusted exchange prices, prices provided by brokers, or prices provided by price service companies that are corroborated by market data.

Commodity prices for future unobservable periods used third party pricing services that incorporate industry standard methodologies that may consider the historical relationships among various commodities, modeled market prices, inflation assumptions, and other relevant economic measures.

Future estimates for capital expenditures and operating expenses, such as major maintenance and employee compensation were estimated considering unit operating experience, recent historical financial information, and expected operating performance.

The expected useful lives of the generation facilities were estimated through 2050 and incorporated expectations regarding the economic prospects of each unit, permitting and licensing, regulatory requirements, and (or) other considerations.

The cash flow estimates incorporated a federal effective tax rate of 21% and the applicable state tax rate based on the location of each generation facility.

The present value of expected future cash flows utilized a weighted average cost of capital discount rate that ranged from 8.5 % to 46.5 %.

The discount rate utilized for nuclear generation was 8.5 % and certain natural gas generation facilities were estimated near the low end of the range.

Certain coal and natural gas generation units were estimated near the high end of the range.

Discount rates for each generation facility considered, among other things, unit characteristics, fuel type, and market location.

The assumptions used to estimate the reorganization value considered all available evidence as of Emergence and are believed to be consistent with those used by the principal market participants and outlook for each generation facility and represent management’s best estimate of reorganization value.

However, such assumptions are inherently uncertain and require judgment.

Accordingly, changes to sensitive assumptions, which primarily include commodity prices and discount rates, would have a reasonable possibility of significantly affecting the measurement of the reorganization value.

See below under “Fresh Start Adjustments” for additional information regarding assumptions used in the measurement of the Company’s various other significant assets and liabilities.

Upon the application of fresh start accounting, the Company preliminarily allocated the reorganization value to its individual assets based on their estimated fair values.

The following table reconciles the Company’s enterprise value to the estimated reorganization value at Emergence:

Enterprise value (a)

Cash and cash equivalents and Restricted cash and cash equivalents (b)

Current liabilities excluding long-term debt due within one year 514

Non-current liabilities excluding long-term debt and liability-classified warrants 1,234

Fair value of noncontrolling interest 110

Reorganization value to be allocated $ 7,059

__________________

(a) Excludes any value associated with noncontrolling interest.

(b) Excludes $ 52 million for payment of professional fees.

The following table reconciles TES’s enterprise value to the estimated fair value at Emergence:

Enterprise value (a)

Cash and cash equivalents and Restricted cash and cash equivalents (b)

Fair value of debt ( 2,845 )

Liability-classified warrants ( 35 )

Fair value of member’s equity (c)

Fair value of noncontrolling interest 110

Fair value of equity $ 2,431

__________________

(a) Excludes any value associated with noncontrolling interest.

(b) Excludes $ 52 million for payment of professional fees.

Includes 59,028,843 shares of TEC common stock and $ 8 million of equity-classified warrants.

Consolidated Balance Sheet

The “Reorganization Adjustments” on the fresh start Consolidated Balance Sheet as of Emergence present the aggregate effect of the transactions contemplated by the Plan of Reorganization.

The “Fresh Start Adjustments” present the preliminary fair value and other required adjustments as a result of applying fresh start accounting.

The explanatory notes provide additional information related to the adjustments, the methods used to determine fair values, and significant assumptions.

Assets Predecessor Reorganization

Adjustments (a)

Adjustments Successor

Cash and cash equivalents $ 1,302 $ ( 1,133 ) (b) $ — $ 169

Restricted cash and cash equivalents 240 426 (c) ( 81 ) (q) 585

Accounts receivable, net 148 ( 3 ) (d) — 145

Inventory, net 448 — ( 141 ) (r) 307

Derivative instruments 818 — ( 632 ) (q) 186

Other current assets 135 — ( 5 ) (s) 130

Total current assets 3,091 ( 710 ) ( 859 ) 1,522

Property, plant and equipment, net 4,322 — ( 458 ) (t) 3,864

Nuclear decommissioning trust funds 1,465 — — 1,465

Derivative instruments 37 — ( 37 ) (q) —

Other noncurrent assets 146 ( 12 ) (e) 74 (u) 208

Total Assets $ 9,061 $ ( 722 ) $ ( 1,280 ) $ 7,059

Liabilities and Equity

Revolving credit facilities $ 848 $ ( 848 ) (f) $ — $ —

Long-term debt, due within one year 1,005 ( 1,000 ) (g) — 5

Accrued interest 288 ( 284 ) (h) — 4

Accounts payable and other accrued liabilities 382 3 (i) — 385

Derivative instruments 711 — ( 654 ) (q) 57

Other current liabilities 414 ( 349 ) (j) 3 (v) 68

Total current liabilities 3,648 ( 2,478 ) ( 651 ) 519

Long-term debt 2,504 281 (k) 55 (w) 2,840

Liabilities subject to compromise 2,788 ( 2,788 ) (l) — —

Derivative instruments 135 — ( 93 ) (q) 42

Postretirement benefit obligations ( 1 ) 302 (m) 34 (x) 335

Asset retirement obligations and accrued environmental costs 580 202 (m) ( 340 ) (y) 442

Deferred income taxes 82 283 (n) ( 8 ) (z) 357

Other noncurrent liabilities 19 60 (o) 14 (aa) 93

Total Liabilities 9,755 ( 4,138 ) ( 989 ) 4,628

Member’s equity ( 818 ) 3,416 (p) ( 277 ) (bb) 2,321

Noncontrolling interests 124 — ( 14 ) (cc) 110

Total Equity ( 694 ) 3,416 ( 291 ) 2,431

Total Liabilities and Equity $ 9,061 $ ( 722 ) $ ( 1,280 ) $ 7,059

Reorganization Adjustments

The reorganization adjustments required in connection with the application of fresh start accounting and the allocation of the enterprise value were:

(a) Emergence adjustments for the implementation of the Plan of Reorganization.

Such adjustments include:

(i) settlement of prepetition liabilities subject to compromise;

(ii) payment of certain prepetition indebtedness;

(iii) issuances of member’s equity;

(iv) recognition of new indebtedness and related restricted cash;

and (v) other items.

(b) The uses of “Cash and cash equivalents” at Emergence resulting from the implementation of the Plan of Reorganization were:

Proceeds from rights offering $ 1,400

Proceeds from TLB-1 and TLC 1,019

Proceeds from Secured Notes 1,200

Release of restricted cash 89

Payment of claims under prepetition senior secured revolving credit facility ( 1,029 )

Payment of claims under other prepetition secured indebtedness ( 2,136 )

Payment of debtor-in-possession term loan ( 1,012 )

Restriction of cash relating to TLC LCF ( 470 )

Payment of debt issuance costs on exit financing (TLB-1, TLC, and Secured Notes) ( 54 )

Funding of professional fees escrow account ( 52 )

Payment of hedge rejections ( 42 )

Payment to general unsecured creditors trust ( 26 )

Payment of professional fees ( 22 )

Total uses of Cash and cash equivalents $ ( 1,133 )

__________________

(a) Includes $ 1 million of proceeds from Riverstone for payment to general unsecured creditors trust.

Restriction of cash relating to TLC LCF $ 470

Funding of professional fees escrow account 52

Release of restricted cash ( 89 )

Payment of professional fees ( 7 )

Net change in Restricted cash and cash equivalents $ 426

(d) “Accounts receivable, net” net change related to settlement of affiliate receivables.

(e) “Other noncurrent assets” net change:

Write-off of debt issuance costs associated with prepetition senior secured revolving credit facility $ ( 22 )

Reclassification of previously capitalized debt issuance costs to Long-term debt ( 14 )

Capitalization of debt issuance costs 24

Net change in Other noncurrent assets $ ( 12 )

(f) Payment of principal amounts owed under prepetition senior secured revolving credit facility.

(g) Repayment of debtor-in-possession credit facilities.

(h) “Accrued interest” net change:

Payment of accrued interest on prepetition senior secured revolving credit facility $ ( 183 )

Payment of accrued interest on other prepetition secured indebtedness ( 89 )

Payment of accrued interest on debtor-in-possession credit facilities ( 12 )

Net change in Accrued interest $ ( 284 )

(i) “Accounts payable and other accrued liabilities” net change:

Payment of hedge contract rejections $ ( 42 )

Payment of professional fees ( 6 )

Reinstatement of liabilities subject to compromise 38

Accrual for professional fees incurred at Emergence 13

Net change in Accounts payable and other accrued liabilities $ 3

(j) “Other current liabilities” net change:

Issuance of equity for backstop premium $ ( 380 )

Reinstatement of liabilities subject to compromise 31

Net change in Other current liabilities $ ( 349 )

(k) “Long-term debt” net change:

Payment of claims under prepetition secured indebtedness $ ( 2,048 )

Borrowings of $ 1.2 billion under the Secured Notes (a)

Borrowings of $ 580 million under TLB-1 (b)

Borrowings of $ 470 million under TLC (c)

Reinstatement of PEDFA 2009B Bonds and PEDFA 2009C Bonds (d)

Write-off of prepetition secured indebtedness issuance costs 26

Net change in Long-term debt $ 281

______________

(a) Net of an aggregate initial purchaser discount and debt issuance costs of $ 21 million.

(b) Net of an aggregate original issue discount and debt issuance costs of $ 32 million.

(d) Includes recognition of $ 4 million of interest expense.

(l) “Liabilities subject to compromise” settled or reinstated at Emergence in accordance with the Plan of Reorganization :

Liabilities subject to compromise prior to Emergence

Termination of retail contracts 447

Postretirement benefit obligations 305

Asset retirement obligations and accrued environmental costs 220

Other liabilities 92

Deferred tax liabilities 77

Accounts payable and accrued liabilities 51

Accrued interest 41

Reinstatement and settlements of certain Liabilities subject to compromise

Reinstatement of liabilities subject to compromise (a)

Excess fair value ascribed to lenders participating in rights offering ( 315 )

Issuance of member’s equity to holders of claims under prepetition unsecured notes and PEDFA 2009A Bonds ( 186 )

Payment to general unsecured creditors trust ( 24 )

Total ( 1,326 )

Gain on derecognition of certain Liabilities subject to compromise (b)

______________

(a) Primarily includes postretirement benefit obligations, AROs, and deferred income taxes.

(b) Represents liabilities subject to compromise that were discharged in accordance with the Plan of Reorganization.

(m) Reinstatement of “Liabilities subject to compromise.”

(n) “Deferred income taxes” net change:

Increase in deferred tax liabilities primarily due to estimated tax attribute reduction from the recognition of cancellation of debt income, partially offset by change in valuation allowance $ 206

Reinstatement of liabilities subject to compromise 77

Net change in Deferred income taxes $ 283

(o) “Other noncurrent liabilities” net change:

Issuance of liability-classified warrants $ 35

Reinstatement of liabilities subject to compromise 25

Net change in Other noncurrent liabilities $ 60

The estimated fair value of liability-classified warrants was determined using a Black-Scholes Option Pricing Model with the following assumptions at Emergence:

Expected volatility 30 %

Expected term (years) 5

Expected dividend yield — %

Risk-free interest rate 3.6 %

Strike price per share $ 52.92

Fair value per share $ 11.29

(p) “Member’s equity” net change:

Gain on settlement of liabilities subject to compromise $ 1,462

Other losses attributable to gain on debt discharge ( 3 )

Gain on debt discharge 1,459

Write-off of deferred financing cost ( 46 )

Professional fees expensed at Emergence ( 27 )

Restructuring-related compensation expense ( 8 )

Total reorganization items from reorganization adjustments 1,378

Interest expense incurred at Emergence ( 4 )

Income from reorganization adjustments before income taxes 1,374

Income tax expense ( 206 )

Net income from reorganization adjustments 1,168

Issuance of member’s equity in connection with rights offering 1,715

Issuance of member’s equity for backstop premium 380

Issuance of member’s equity to holders of claims under prepetition unsecured notes and PEDFA 2009A Bonds 186

Issuance of equity-classified warrants 8

Issuance of liability-classified warrants ( 35 )

Net change in Member’s equity $ 3,416

______________

(a) Includes $ 1 million of proceeds from Riverstone for payment to general unsecured creditors trust.

Fresh Start Adjustments

(q) Net presentation of derivatives on the Consolidated Balance Sheets.

See Note 2 for additional information on the related accounting policy.

(r) “Inventory, net” fair value adjustments:

Coal $ ( 33 )

Oil products 11

Materials and supplies ( 133 )

Generally, the initial measurement of a guarantee liability is the fair value of the guarantee at its inception.

However, there are certain guarantees excluded from the scope of accounting guidance and other guarantees that are not subject to the initial recognition and measurement provisions of accounting guidance that only require disclosure.

See Note 11 for further discussion of recorded and unrecorded guarantees.

New Accounting Guidance Adopted

Reporting of Discontinued Operations

Effective January 1, 2015, Talen Energy prospectively adopted accounting guidance that changes the criteria for determining what should be classified as a discontinued operation and the related presentation and disclosure requirements.

A discontinued operation may include a component of an entity or a group of components of an entity, or a business activity.

A disposal of a component of an entity or a group of components of an entity is required to be reported in discontinued operations if the disposal represents a strategic shift that has (or will have) a major effect on the entity's operations and financial results when any of the following occurs:

(1) the components of an entity or a group of components of an entity meets the criteria to be classified as held for sale, (2) the component of an entity or a group of components of an entity is disposed of by sale, or (3) the component of an entity or a group of components of an entity is disposed of other than by sale (for example, by abandonment or in a distribution to owners in a spinoff).

In addition, the guidance provides that upon acquisition, if a business or activity meets the held for sale criteria, it is then also to be classified as a discontinued operation.

The initial adoption of this guidance did not have a significant impact on Talen Energy but will impact the amounts presented as discontinued operations and will enhance the related disclosure requirements related to future disposals or held for sale classifications.

Accounting for Measurement-Period Adjustments

Effective September 30, 2015, Talen Energy prospectively adopted accounting guidance that requires an acquirer in a business combination to recognize measurement-period adjustments in the period in which the amounts are determined, including the effect on earnings of any amounts that would have been recorded in prior periods as if the accounting would have been completed at the acquisition date.

The acquirer must disclose, by line item, the portion of the adjustment recorded in the current period income statement that would have been recognized in prior periods if the adjustment had been recognized as of the acquisition date.

The guidance applies to open measurement periods as of the adoption date and therefore applies to any measurement period adjustment made for the acquisitions of RJS Power and MACH Gen.

See Note 6 for additional information.

Balance Sheet Classification of Deferred Taxes

Effective December 31, 2015, Talen Energy prospectively adopted accounting guidance that requires deferred tax liabilities and assets to be classified as noncurrent in the balance sheet.

The prior period amounts were not retrospectively adjusted.

The current requirement that deferred tax assets and liabilities of a tax-paying component of an entity be offset and presented as a single amount is not affected by the guidance.

Segment and Related Information

Prior to the spinoff transaction, Talen Energy operated within a single reportable segment.

Immediately following the spinoff, Talen Energy determined that it operated in two reportable segments:

East and West, primarily based on geographic location and energy market characteristics.

After the completion of the MACH Gen acquisition in November 2015, management reevaluated its segment composition.

At December 31, 2015 , Talen Energy continues to operate in two reportable segments, however with a different composition than prior to the November 2015 MACH Gen acquisition, primarily based on geographic location.

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

The West segment includes the generating, marketing and trading activities in ERCOT and WECC, including the coal-fired facility, Colstrip, in Montana, which was included in the East segment prior to the segment reevaluation.

Segment information for prior periods has been revised to reflect the current period presentation as the composition of the segments and the measurement of segment performance has changed.

Previously, net income was used as the measure of segment performance.

Beginning in June 2015, operating income, as well as the non-GAAP measures, Adjusted EBITDA and Margins, is used as a measure of segment performance.

"Other" primarily includes wages, benefits, services, certain insurance, rent, financing costs incurred primarily at Talen Energy, which have not been allocated or assigned to the segments and inter-company eliminations, and is presented to reconcile segment information to consolidated results.

Financial data for the segments and reconciliation to consolidated results for the years ended December 31 are:

Revenues from external customers by product

Energy-related business

Total Revenues

Operating income (loss) (a)

Amortization (b)

Unrealized (gains) losses on derivatives and other hedging activities (c)

Impairments (d)

Expenditures for long-lived assets (e)

Total assets (f)

Revenues from external customers by product

Energy-related business

Total Revenues

Operating income (loss)

Amortization (b)

Unrealized (gains) losses on derivatives and other hedging activities (c)

Expenditures for long-lived assets

Total assets (f)

Revenues from external customers by product

Energy-related business

Total Revenues

Operating income (loss) (a)

Amortization (b)

Unrealized (gains) losses on derivatives and other hedging activities (c)

Impairments (d)

Expenditures for long-lived assets

In 2015, the East segment includes impairment charges of $657 million related to goodwill and other asset impairments.

See Notes 14 and 16 for additional information.

In 2013, the West segment includes a charge of $697 million for the termination of the lease of the Colstrip plant and a $65 million impairment charge related to the Corette plant.

See Notes 6 and 14 for additional information.

Represents non-cash items that include the amortization of nuclear fuel, debt discounts and premiums, debt issuance costs, emission allowances and RECs.

See Note 15 for additional information.

See Notes 14 and 16 for additional information.

Does not include expenditures for business acquisitions.

Other primarily consists of unallocated items, including cash and PP&E.

Earnings (Loss) Per Share for Talen Energy Corporation

On June 1, 2015, the spinoff date, Talen Energy Corporation issued 128,499,023 shares of common stock, including 83,524,365 shares issued to PPL's shareholder's and 44,974,658 shares issued in a private placement to the Riverstone Holders.

To calculate basic and diluted EPS for periods presented prior to June 1, 2015, Talen Energy Corporation used the shares issued to PPL's shareholders on the date of the spinoff as Talen Energy Corporation was a wholly owned subsidiary of PPL and no shares were outstanding prior to that date.

The calculation of basic and diluted earnings per share for 2015 utilized the weighted-average shares outstanding during the year assuming the shares issued to PPL's shareholders were outstanding during the entire year and reflects the impact of the private placement of shares to the Riverstone Holders on the spinoff date.

For 2014 and 2013, weighted average shares outstanding assumed the shares issued to PPL's shareholders at the spinoff date in 2015 were outstanding during those entire years.

Basic EPS is computed by dividing income by the weighted-average number of common shares outstanding during the applicable period.

Diluted EPS is computed by dividing income by the weighted-average number of common shares outstanding, increased by incremental shares that would be outstanding if potentially dilutive non-participating securities were converted to common shares as calculated using the Treasury Stock Method.

Reconciliations of the amounts of income and shares of Talen Energy Corporation common stock (in thousands) for the years ended December 31 used in the EPS calculation are:

Income (Numerator)

Attributable to Talen Energy Corporation Stockholders

Income (Loss) from continuing operations after income taxes

Income (Loss) from discontinued operations (net of income taxes)

Net Income (Loss)

Shares of Common Stock (Denominator)

Weighted-average shares - Basic EPS

Weighted-average shares - Diluted EPS

Share-based payment awards of 731 thousand were excluded from weighted-average shares in the computation of diluted EPS for 2015 because the effect would have been antidilutive.

Income and Other Taxes

Details of the components of income tax expense, a reconciliation of federal income taxes derived from statutory tax rates applied to "Income (Loss) from Continuing Operations Before Income Taxes" to income taxes for reporting purposes, and details of "Taxes, other than income" were as follows:

Income Tax Expense (Benefit)

Current - Federal

Current - State

Total Current Expense

Deferred - Federal

Deferred - State

Total Deferred Expense (Benefit)

Investment tax credit, net - federal

Total income taxes (benefits) from continuing operations (a)

Total income tax expense (benefit) - Federal

Total income tax expense (benefit) - State

Total income taxes (benefits) from continuing operations (a)

Excludes current and deferred federal and state tax expense recorded to Discontinued Operations of $109 million and $17 million in 2014 and 2013 .

Also excludes federal and state tax expense (benefit) recorded to OCI of $(1) million , $(56) million and $47 million in 2015 , 2014 and 2013 .

Reconciliation of Income Tax Expense

Federal income tax on Income from Continuing Operations Before Income Taxes at statutory tax rate - 35%

Increase (decrease) due to:

State income taxes, net of federal income tax benefit

Federal and state tax reserve adjustments (a)

Federal income tax credits (b)

State deferred tax rate change, net of federal benefit (c)

Federal and state income tax return adjustments

Goodwill Impairment (d)

Total increase (decrease)

Total income taxes

Effective income tax rate

In 2015, open audits for the tax years 2008-2011 were settled by PPL with the IRS resulting in a tax benefit of $12 million for Talen Energy's portion of the settlement of previously unrecognized tax benefits.

During 2015, Talen Energy recorded a benefit primarily related to the recognition of previously unamortized tax credits as a result of the sale of Talen Renewable Energy in November 2015.

During 2013, Talen Energy recorded deferred tax benefits related to investment tax credits on progress expenditures for the Holtwood hydroelectric plant expansion.

Environmental products 14

Total adjustment to Inventory, net $ ( 141 )

The fair values for oil, coal and environmental products were estimated using current market prices.

The fair values of materials and supplies were estimated using an indirect cost approach.

The cost approach estimates fair value by considering the amount required to construct or purchase a new asset of equal utility at current prices, with adjustments for asset function, age, physical deterioration, and obsolescence.

(s) “Other current assets” primarily represents miscellaneous fair value adjustments.

(t) “Property, plant and equipment, net” fair value adjustments:

Electric generation $ ( 350 )

Other property and equipment ( 80 )

Intangible assets ( 65 )

Capitalized software ( 3 )

Construction work in progress 40

Total adjustment to Property, plant and equipment, net $ ( 458 )

The fair value of “Property, plant and equipment, net” was estimated using the income approach, market approach and cost approach, as applicable.

The fair value of land was estimated utilizing the market approach, which considered comparable market-based transactions within a defined area based on size, use and utility.

(u) “Other noncurrent assets” fair value adjustments:

Favorable supply contracts (a)

Fair value adjustment to equity method investments 3

Eliminate debt issuance costs associated with debtor-in-possession credit facilities ( 29 )

Fair value reduction to other miscellaneous assets ( 9 )

Total adjustment to Other noncurrent assets $ 74

__________________

(a) The fair value of supply contracts was determined utilizing the present value of the after-tax difference between the pricing of actual contracts in place and a current market benchmark.

(v) “Other current liabilities” fair value adjustments, primarily related to short-term AROs.

(w) “Long-term debt” fair value adjustments:

Eliminate debt issuance costs associated with prepetition secured notes, prepetition TLB and LMBE-MC TLB $ 48

Fair value adjustment to Cumulus Digital TLF 11

Fair value adjustment to LMBE-MC TLB ( 4 )

Total adjustment to Long-term debt $ 55

Fair value adjustments to “Long-term debt” were determined using a lattice model, given that the debt can be prepaid by the borrower prior to the maturity date.

(x) Change in accounting policy for discount rates used to estimate postretirement obligations from a bond-matching model to yield curve approach.

See Note 2 for additional information.

During 2015 , 2014 and 2013 , Talen Energy recorded adjustments related to its December 31 state deferred tax liabilities as a result of annual changes in state apportionment and the impact on the future estimated state income tax rate.

A significant portion of the impairment was related to non-deductible goodwill.

See Note 16 for additional information on the goodwill impairment.

Taxes, other than income

State gross receipts

State capital stock

Property and other

At December 31 , significant components of Talen Energy's deferred income tax assets and liabilities were as follows

Deferred Tax Assets

Deferred investment tax credits

Accrued pension costs

Federal net operating loss carryforwards

Federal tax credit carryforwards

State net operating loss carryforwards

Valuation allowances

Total deferred tax assets

(y) Adjustment to present at fair value AROs using assumptions as of Emergence, including an inflation factor of 2 %- 3 % and an estimated 5 - to 20 -year credit-adjusted risk-free rate of 8 %- 12 %based on timing of cash flows for each underlying obligation.

(z) Adjustment to “Deferred income taxes” for the change in financial reporting basis of assets and liabilities as a result of the adoption of fresh start accounting.

(aa) Fair value adjustments primarily related to unfavorable supply contracts of $ 13 million and the recognition of unfavorable lease liabilities.

The fair value of supply contracts was determined utilizing the present value of the after-tax difference between the pricing of actual contracts in place and current market benchmarks.

(bb) Cumulative impact of fresh start accounting adjustments presented herein.

(cc) “Noncontrolling interests” fair value adjustments for certain subsidiaries .

Liabilities Subject to Compromise

As of December 31, 2022 (Predecessor), prepetition liabilities and obligations whose treatment and satisfaction were dependent on the outcome of the Restructuring were presented as “Liabilities subject to compromise” on the Consolidated Balance Sheets.

The carrying value of prepetition liabilities that were subject to compromise are presented at the best estimate of the claim amount permitted by the Bankruptcy Court.

Such amounts presented as “Liabilities subject to compromise” on the Consolidated Balance Sheets were subject to adjustments depending on bankruptcy court actions, developments with respect to disputed claims, determination of secured status of certain claims, the determination as to the value of any collateral securing claims, proof of claims and (or) other events.

December 31, 2022

Termination of retail power and other contracts 447

Postretirement benefit obligations (a)

Asset retirement obligations and accrued environmental costs (a)

Other liabilities (a)

Deferred tax liabilities 83

Accounts payable and accrued liabilities 53

Accrued interest 41

Derivatives (a)

Liabilities Subject to Compromise $ 2,825

__________________

(a) Includes both current and noncurrent amounts.

Reorganization Income (Expense), net

“Reorganization income (expense), net” for the relevant periods were:

January 1 through May 17, 2023 Year Ended December 31, 2022

Backstop premium $ ( 70 ) $ ( 310 )

Gain (loss) on debt discharge 1,459 —

Gain (loss) on revaluation adjustments ( 460 ) —

Professional fees ( 56 ) ( 210 )

Make-whole premiums and accrued interest on certain indebtedness ( 21 ) ( 183 )

Professional fees incurred to obtain the debtor-in-possession credit facilities — ( 70 )

Write-off of deferred financing cost and original issue discount ( 46 ) ( 30 )

Other ( 7 ) ( 9 )

Reorganization Income (Expense), net $ 799 $ ( 812 )

In the preceding table, make-whole premiums and accrued interest on certain indebtedness primarily represents charges recognized by the debtors for estimates related to make-whole premiums and accrued interest, where applicable, on the prepetition senior secured revolving credit facility and certain other prepetition secured indebtedness.

As of the bankruptcy petition date, the debtors ceased recognizing interest expense on certain outstanding unsecured or under-secured prepetition indebtedness.

Contractual interest expense represented amounts due under the terms of outstanding prepetition indebtedness.

The charges are presented as “Reorganization income (expense), net” on the Consolidated Statements of Operations and included in “Accrued interest” on the Consolidated Balance Sheets.

Cash paid for certain reorganization expenses was $ 308 million for the period from January 1 through May 17, 2023 (Predecessor).

Cash paid for the year ended December 31, 2022 (Predecessor) for debtor-in-possession credit facilities financing fees is presented as “Financing Activities” on the Consolidated Statements of Cash Flows.

Risk Management, Derivative Instruments and Hedging Activities

Risk Management Objectives

We are exposed to risks arising from our business, including but not limited to market and commodity price risk, credit and liquidity risk, and interest rate risk.

The hedging strategies deployed by our commercial organization manage and (or) balance these risks within a structured risk management program in order to minimize near-term future cash flow volatility.

Our risk management committee, comprised of certain senior management members across the organization, oversees the management of these risks in accordance with our risk policy.

In turn, the risk management committee is overseen by the risk committee of the Board of Directors.

The Board of Directors, including the risk committee, and management have established procedures to monitor, measure, and manage hedging activities and credit risk in accordance with the risk policy.

Key risk control activities, which are designed to ensure compliance with the risk policy, include, among other activities, credit review and approval, validation of transactions and market prices, verification of risk and transaction limits, portfolio stress tests, analysis and monitoring of margin at risk, and daily portfolio reporting.

Market and Commodity Price Risk.

Volatility in the wholesale power markets provides uncertainty in the future earnings and cash flows of the business.

The price risk Talen is exposed to includes the price variability associated with future sales and (or) purchases of power, natural gas, coal, uranium, oil products, environmental products, and other energy commodities in competitive wholesale markets.

Several factors influence price volatility, including:

(i) seasonal changes in demand;

(ii) weather conditions;

(iii) available regional load-serving supply;

(iv) regional transportation and (or) transmission availability;

(v) market liquidity;

and (vi) federal, regional, and state regulations.

Within the parameters of our risk policy, we generally utilize exchange-traded and over-the-counter traded derivative instruments and, in certain instances, structured products, to economically hedge the commodity price risk of the forecasted future sales and purchases of commodities associated with our generation portfolio.

Open commodity purchase (sales) derivatives range in maturity through 2026.

The net notional volumes of open commodity derivatives were:

December 31, 2024 (a)

December 31, 2023 (a)

Power (MWh) ( 38,615,192 ) ( 27,557,871 )

Natural gas (MMBtu) 32,405,460 8,314,060

Emission allowances (tons) 100,000 500,000

__________________

(a) The volumes may be less than the contractual volumes, as the probability that option contracts will be exercised is considered in the volumes displayed.

Interest Rate Risk.

Talen is exposed to interest rate risk from the possibility that changes in interest rates will affect future cash flows associated with existing floating rate debt issuances.

To reduce interest rate risk, derivative instruments are utilized to economically hedge the interest rates for a predetermined contractual notional amount, which results in a cash settlement between counterparties.

To the extent possible, first lien interest rate fixed-for-floating swaps are utilized to hedge this risk.

Open interest rate derivatives are related to the TLB-1 indebtedness and mature in 2026.

The net notional volumes of open interest rate derivatives were:

December 31, 2024 December 31, 2023

Interest rate (in millions)

Credit risk, which is the risk of financial loss if a customer, counterparty, or financial institution is unable to perform or pay amounts due, is applicable to cash and cash equivalents, restricted cash and cash equivalents, derivative instruments, and accounts receivable.

The maximum amount of credit exposure associated with financial assets is equal to the carrying value of such assets.

Credit risk, which cannot be completely eliminated, is managed through a number of practices such as ongoing reviews of counterparty creditworthiness, prepayment, inclusion of termination rights in contracts which are triggered by certain events of default, and executing master netting arrangements that permit amounts between parties to be offset.

Additionally, credit enhancements such as cash deposits, LCs, and credit insurance may be employed to mitigate credit risk.

Cash and cash equivalents are placed in depository accounts or high-quality, short-term investments with major international banks and financial institutions.

Individual counterparty exposure from over-the-counter derivative instruments is managed within predetermined credit limits and includes the use of master netting arrangements and cash-call margins, when appropriate, to reduce credit risk.

Exchange-traded commodity contracts, which are executed through futures commission merchants, have minimal credit risk because they are subject to mandatory margin requirements and are cleared with an exchange.

However, Talen is exposed to the credit risk of the futures commission merchants arising from daily variation margin cash calls.

Restricted cash and cash equivalents deposited to meet initial margin requirements are held by futures commission merchants in segregated accounts for the benefit of Talen.

Outstanding accounts receivable include those from sales of capacity, generated electricity, and ancillary services through contracts directly with ISOs and RTOs and realized settlements of physical and financial derivative instruments with commodity marketers.

Additionally, Talen carries accounts receivable due from joint owners for their portion of operating and capital costs for certain jointly owned facilities that are operated by the Company.

The majority of outstanding receivables, which are continually monitored, have customary payment terms.

The allowance for doubtful accounts was a non-material amount as of December 31, 2024 (Successor) and December 31, 2023 (Successor).

As of December 31, 2024 (Successor), Talen’s aggregate credit exposure, which excludes the effects of netting arrangements, cash collateral, LCs, and any allowances for doubtful collections, was $ 350 million and its credit exposure including such net effects was $ 91 million.

Excluding ISO and RTO counterparties, whose accounts receivable settlements are subject to applicable market controls, the ten largest single net credit exposures account for 71 % of Talen’s total net credit exposure, which are primarily with entities assigned investment grade credit ratings.

Certain derivative instruments contain credit risk-related contingent features, which may require us to provide cash collateral, LCs, or guarantees from a creditworthy entity if the fair value of a liability eclipses a certain threshold or upon a decline in Talen’s credit rating.

The fair values of derivative instruments in a net liability position, and that contain credit risk-related contingent features, were non-material as of December 31, 2024 (Successor) and December 31, 2023 (Successor).

Derivative Instrument Presentation

Balance Sheets Presentation.

The fair value of derivative instruments presented within assets and liabilities on the Consolidated Balance Sheets were:

December 31, 2024 December 31, 2023

Assets Liabilities Assets Liabilities

Commodity contracts $ 65 $ — $ 88 $ 32

Interest rate contracts 1 — 1 —

Total current derivative instruments 66 — 89 32

Commodity contracts 4 7 6 5

Interest rate contracts 1 — — 6

Total non-current derivative instruments $ 5 $ 7 $ 6 $ 11

All commodity and interest rate derivatives are economic hedges where the changes in fair value are presented immediately in income as unrealized gains and losses.

Changes in the fair value and realized settlements on commodity derivative instruments are presented as separate components of “Energy and other revenues” and “Fuel and energy purchases” on the Consolidated Statements of Operations.

See Note 2 for additional information on derivative instruments and Note 14 for additional information on fair value.

Effect of Netting.

Generally, the right of setoff within master netting arrangements permits the fair value of derivative assets to be offset with derivative liabilities.

As an election, derivative assets and derivative liabilities are presented on the Consolidated Balance Sheets with the effect of such permitted netting as of December 31, 2024 (Successor) and December 31, 2023 (Successor).

The net amounts of “Derivative instruments” presented as assets and liabilities on the Consolidated Balance Sheets considering the effect of permitted netting and where cash collateral is pledged in accordance with the underlying agreement were:

Gross Derivative Instruments Eligible for Offset Net Derivative Instruments Collateral (Posted) Received Net Amounts

December 31, 2024 (Successor)

Assets $ 227 $ ( 154 ) $ 73 $ ( 2 ) $ 71

Liabilities 173 ( 154 ) 19 ( 12 ) 7

December 31, 2023 (Successor)

Assets $ 295 $ ( 198 ) $ 97 $ ( 2 ) $ 95

Liabilities 300 ( 198 ) 102 ( 59 ) 43

Statements of Operations Presentation.

The location and pre-tax effect of “Derivative instruments” presented on the Consolidated Statements of Operations for the periods were:

Successor Predecessor

Year Ended December 31, 2024 May 18 through December 31, 2023 January 1 through May 17, 2023 Year Ended December 31, 2022

Realized gain (loss) on commodity contracts

Energy revenues (a)

$ 317 $ 360 $ 644 $ ( 613 )

Fuel and energy purchases (a)

( 35 ) ( 91 ) ( 34 ) 127

Unrealized gain (loss) on commodity contracts

Operating revenues (b)

Energy expenses (b)

20 ( 3 ) ( 123 ) ( 52 )

Realized and unrealized gain (loss) on interest rate contracts

Interest expense and other finance charges 9 ( 4 ) — 30

__________________

(a) Does not include those derivative instruments that settle through physical delivery.

(b) Presented as “Unrealized gain (loss) on derivative instruments” on the Consolidated Statements of Operations.

Contract Terminations

Commodity Hedge Terminations.

In March and April 2022, Talen Energy Marketing and a counterparty terminated certain derivative contracts in a net liability position with a carrying value and fair value of $ 124 million prior to the agreements’ scheduled maturity dates.

As the parties agreed to a monthly settlement through January 2023, repayments are presented as “Derivatives with financing elements” on the Consolidated Statements of Cash Flows.

In May 2022, certain commodity counterparties of Talen Energy Marketing terminated derivative contracts in a net liability position with a carrying value and fair value of $ 33 million prior to the agreements’ scheduled maturity dates.

During 2022, Talen Energy Marketing received $ 7 million in net settlements from counterparties and, at Emergence, settled the remaining $ 40 million.

The components of operating revenues for the periods were:

Successor Predecessor

Year Ended December 31, 2024 May 18 through December 31, 2023 January 1 through May 17, 2023 Year Ended December 31, 2022

Capacity revenues $ 192 $ 133 $ 108 $ 377

Electricity sales and ancillary services, ISO/RTO 1,144 880 281 2,534

Physical electricity sales, bilateral contracts, other 147 71 62 298

Other revenue from customers 91 81 27 —

Total revenue from contracts with customers 1,574 1,165 478 3,209

Realized and unrealized gain (loss) on derivative instruments 307 179 732 ( 120 )

Nuclear PTC (a)

Other revenue 14 — — —

Operating revenues $ 2,115 $ 1,344 $ 1,210 $ 3,089

__________________

(a) During the year ended December 31, 2024 (Successor), $ 70 million of estimated Nuclear PTCs were utilized as a credit against our federal income tax payable.

See Note 7 for additional information on the tax impact of the Nuclear PTC .

Accounts Receivable

“Accounts receivable” presented on the Consolidated Balance Sheets were:

December 31, 2024 December 31, 2023

Customer accounts receivable $ 66 $ 52

Other accounts receivable 57 85

Accounts receivable $ 123 $ 137

During the year ended December 31, 2024 (Successor), the period from May 18 through December 31, 2023 (Successor), and the period from January 1 through May 17, 2023 (Predecessor), there were no significant changes in accounts receivable other than normal receivable recognition and collection transactions.

See Note 5 for additional information on Talen’s credit risk on the carrying value of its receivables and for additional information on a Talen Energy Marketing receivables sales arrangement that was terminated in May 2022.

Future Performance Obligations

In the normal course of business, Talen has future performance obligations for capacity sales awarded through market-based capacity auctions and (or) for capacity sales under bilateral contractual arrangements.

The PJM Base Residual Auction for the 2025/2026 PJM Capacity Year was held in July 2024.

Talen cleared a total of 6,820 MW at a clearing price of $ 269.92 per MW-day for the MAAC, PPL, and PSEG locational deliverability areas.

The PJM BRAs for any years thereafter have not yet been held, and the PJM BRA for delivery year 2026/2027 has been postponed to July 2025.

See Note 12 for additional information on the PJM BRAs.

As of December 31, 2024 (Successor), the expected future period capacity revenues subject to unsatisfied or partially unsatisfied performance obligations were:

2025 2026 (a)

2027 2028 2029

Expected capacity revenues $ 478 $ 281 $ 3 $ 1 $ —

__________________

(a) Estimated through May 31, 2026.

The PJM BRA for the 2026/2027 PJM Capacity Year has been delayed to July 2025.

The components of “Income tax benefit (expense)” for the periods were:

Successor Predecessor

Year Ended December 31, 2024 May 18 through December 31, 2023 January 1 through May 17, 2023 Year Ended December 31, 2022

Federal $ ( 113 ) $ 3 $ ( 15 ) $ ( 9 )

State ( 31 ) 1 ( 2 ) ( 4 )

Current income taxes ( 144 ) 4 ( 17 ) ( 13 )

Federal 47 ( 55 ) ( 184 ) 68

State ( 1 ) — ( 11 ) ( 21 )

Deferred income taxes 46 ( 55 ) ( 195 ) 47

Investment tax credit — — — 1

Income tax benefit (expense) $ ( 98 ) $ ( 51 ) $ ( 212 ) $ 35

Effective Tax Rate Reconciliations

The reconciliations of the effective tax rate for the periods were:

Successor Predecessor

Year Ended December 31, 2024 May 18 through December 31, 2023 January 1 through May 17, 2023 Year Ended December 31, 2022

Income (loss) before income taxes $ 1,111 $ 194 $ 677 $ ( 1,328 )

Income tax benefit (expense) ( 98 ) ( 51 ) ( 212 ) 35

Effective tax rate

8.8 % 26.3 % 31.3 % 2.6 %

Federal income tax statutory tax rate 21 % 21 % 21 % 21 %

Income tax benefit (expense) computed at the federal income tax statutory tax rate $ ( 234 ) $ ( 41 ) $ ( 143 ) $ 279

Income tax increase (decrease) due to:

Change in valuation allowance 128 ( 43 ) 129 ( 198 )

Nuclear PTC 46 — — —

Reorganization adjustments 23 26 ( 138 ) —

Return to provision 11 — — —

Other permanent differences 3 22 ( 16 ) ( 94 )

Nuclear decommissioning trust taxes ( 27 ) ( 16 ) ( 9 ) 28

State income taxes, net of federal benefit ( 48 ) 1 ( 34 ) 19

Other — — ( 1 ) 1

Income tax benefit (expense) $ ( 98 ) $ ( 51 ) $ ( 212 ) $ 35

Deferred Taxes

The components of deferred tax liabilities and deferred tax assets were:

December 31, 2024 December 31, 2023

Nuclear decommissioning trust $ 502 $ 443

Property, plant and equipment, net 465 560

Unrealized gain on qualifying derivatives 32 12

Total deferred tax liabilities

Net deferred tax liability

At December 31 , Talen Energy had the following federal and state net operating loss carryforwards.

Loss carryforwards

Federal net operating losses (a) (b)

State net operating losses (a) (b)

(a) The federal and state net operating loss carryforwards presented above are net of unrecognized tax benefits recorded for deferred tax assets.

(b) A portion of the net operating loss carryforwards consist of tax losses obtained as a result of the acquisition of MACH Gen.

The utilization of these carryforwards are subject to annual limitations imposed by Section 382 of the Internal Revenue Code, which limits a company’s ability to deduct prior net operating losses following a more than 50 percent change in ownership.

The Section 382 limitation is not expected to prevent Talen Energy from utilizing its federal loss carryforwards in future years.

State net operating loss carryforwards are also dependent upon state taxable income or loss, the state’s proportion of taxable net income and the application of state laws, which can change from year to year and impact the amount of such carryforward utilization.

Valuation allowances have been established for the amount that, more likely than not, will not be realized.

The changes in deferred tax valuation allowances were as follows:

Balance at Beginning of Period

Charged to Income

Charged to Other Accounts (a)

Balance at End of Period

2015 decreased by $78 million for valuation allowances against deferred tax assets retained by PPL upon spinoff and increased by $10 million for valuation allowances established against deferred tax assets acquired in the MACH Gen acquisition in November 2015.

Investment in subsidiaries — 14

Deferred tax liabilities 999 1,029

Interest limitation carryforward 340 336

Federal net operating loss carryforwards 164 273

Accrued pension costs 80 78

Accrued liabilities 30 26

State net operating loss carryforwards 15 26

Deferred tax assets 637 749

Valuation allowance — ( 128 )

Deferred tax liabilities, net $ 362 $ 408

Net Operating Losses

The components of NOL carryforwards were:

December 31, 2024 December 31, 2023

Federal, expirations 2036 - 2037 $ — $ 43

Federal, indefinite expiration, limited to annual utilization of 80% 783 1,258

State, expirations 2025 - 2043 310 555

See “Emergence from Restructuring” below for information on limitations on our NOLs.

Unrecognized Tax Benefits

Changes to unrecognized tax benefits were as follows:

Beginning of period

Increases based on tax positions of prior years (a)

Decreases relating to settlements with taxing authorities (b)

End of period

Increased unrecognized tax benefits were established to offset the deferred tax asset related to net operating loss carryforwards as a result of the MACH Gen acquisition in November 2015.

Decreased as a result of IRS audit settlements for tax years 1998-2011 during the year ended December 31, 2015.

A change in unrecognized tax benefits is not expected to occur in the next twelve months.

At December 31, 2015 and 2014 the total unrecognized tax benefits and related indirect effects that, if recognized, would impact the effective tax rate were $30 million and $14 million .

At December 31, 2014 a receivable balance of $16 million was recorded for interest related to tax positions, which was settled in connection with the 1998-2011 IRS settlement, prior to the spinoff from PPL.

The following interest expense (benefit) was recognized in income taxes for the years ended December 31 .

The federal and state income tax provisions for Talen Energy are calculated in accordance with an intercompany tax sharing agreement which provides that taxable income be calculated as if each subsidiary filed a separate return.

Talen Energy or its subsidiaries indirectly or directly file tax returns primarily in two tax jurisdictions.

With few exceptions, at December 31, 2015 , the tax years in these jurisdictions that remain subject to examination are:

2009 - present

Pennsylvania (state)

2012 - present

Financing Activities

Credit Arrangements and Short-term Debt

Talen Energy maintains credit arrangements to enhance liquidity and provide credit support.

For reporting purposes, on a consolidated basis, the credit arrangements of Talen Energy Supply and its subsidiaries also apply to Talen Energy Corporation.

Revolving Credit Facilities

The following secured revolving credit facilities were in place at December 31, 2015 :

Talen Energy Supply RCF (a)

New MACH Gen RCF (b)

Total Credit Facilities

The facility is syndicated and provides capacity available for short-term borrowings and up to $925 million of letters of credit.

The facility requires Talen Energy Supply to maintain a senior secured net debt to adjusted EBITDA ratio (as defined in the agreement) of less than or equal to 4.50 to 1.00 as of the last day of any fiscal quarter.

Talen Energy Supply pays customary fees on the facility and borrowings bear interest at its option at either a defined base rate or LIBOR-based rates, in each case plus an applicable margin.

The weighted average interest rate on outstanding borrowings at December 31, 2015 was 2.67% .

The facility provides capacity available for short-term borrowings and up to $120 million of letters of credit.

New MACH Gen pays customary fees on the facility and borrowings bear interest at 12-month LIBOR, plus an applicable margin.

The weighted average interest rate on outstanding borrowings at December 31, 2015 was 5.04% .

The amounts borrowed are recorded as "Short-term debt" on the Balance Sheet.

The Talen Energy Supply RCF was entered into on June 1, 2015 in connection with the completion of the spinoff transaction and replaced Talen Energy Supply's previously existing unsecured syndicated credit facility.

Any outstanding principal amounts under the old facility were repaid prior to the termination of the old facility and outstanding letters of credit were transferred to the Talen Energy Supply RCF.

The facility is secured by liens on a majority of Talen Energy Supply's assets and is guaranteed by certain Talen Energy Supply subsidiaries, which guarantees are in turn secured by liens on assets of such subsidiaries with an aggregate carrying value of $7 billion at December 31, 2015 .

The facility provides the option to raise incremental credit facilities, refinance the loans with debt incurred outside the facility and extend the maturity date of the revolving credit commitments and loans and, if applicable, term loans, subject to certain limitations.

The Talen Energy Supply letter of credit facility and uncommitted credit facilities that existed at December 31, 2014 either expired or matured during the first quarter of 2015.

Any previously issued letters of credit under these facilities were either terminated or reissued under the then-outstanding unsecured syndicated credit facility and upon closing of the spinoff were reissued under the Talen Energy Supply RCF described above.

During the year ended December 31, 2015 , Talen Energy wrote-off $12 million of unamortized fees to "Interest expense" on the Statements of Income as a result of the termination of the prior unsecured syndicated credit facility.

The New MACH Gen RCF is a component of the $642 million First Lien Credit and Guaranty Agreement, which was outstanding when Talen Energy acquired MACH Gen in November 2015.

The First Lien Credit and Guaranty Agreement also contains a Term Loan B as described in "Long-term Debt" below.

Obligations under the First Lien Credit and Guaranty Agreement are guaranteed by each of New MACH Gen's subsidiaries and are secured by a first priority security interest, subject to possible shared first lien status with certain permitted hedge and power sale agreements, in all of the assets of New MACH Gen and each guarantor, including the equity interests in New MACH Gen and each guarantor, which assets collectively have an aggregate carrying value of approximately $1 billion at December 31, 2015.

Talen Energy is not a guarantor or obligor of borrowings under the First Lien Credit and Guaranty Agreement.

Other Facilities

Talen Energy Supply maintains a $500 million agreement expiring June 2017 that provides Talen Energy Supply the ability to request up to $500 million of committed unsecured letter of credit capacity at fees to be agreed upon at the time of each request, based on certain market conditions.

At December 31, 2015 , Talen Energy Supply had not requested any capacity for the issuance of letters of credit under this arrangement.

In December 2015, Talen Energy Supply and Talen Energy Marketing entered into the Amended Secured Energy Marketing and Trading Facility Agreement (Amended STF Agreement) to amend the $800 million Secured Energy Marketing and Trading Facility Common Agreement, dated as of November 1, 2010.

The Amended STF Agreement increased the facility capacity to $1.3 billion .

The facility allows Talen Energy Supply to receive credit to satisfy collateral posting obligations related to Talen Energy's energy marketing and trading activities with counterparties participating in the facility.

Prior to the Talen Energy spinoff transactions, Montour, LLC and Brunner Island, LLC had guaranteed certain of Talen Energy Marketing's obligations and had granted mortgage liens on their respective generating facilities to secure such guarantees.

Brunner Island and Montour have since been released as parties.

Obligations under the Amended STF Agreement are secured by the same collateral that secures the Talen Energy Supply RCF described above.

The facility is for a five -year term that is subject to an automatic one -year extension each year until termination under the provisions of the Amended STF Agreement.

The initial term expires in December 2020 .

There were $54 million of secured obligations outstanding under this facility at December 31, 2015 .

Long-term Debt

The following long-term debt was outstanding at December 31:

Weighted-Average Rate

Senior Unsecured Notes

Senior Secured Notes

Total Long-term Debt Before Adjustments

Fair market value adjustments

Unamortized premium and (discount), net

Total Long-term Debt

Less current portion of Long-term Debt, including fair market value adjustment

Total Long-term Debt, noncurrent

The aggregate maturities of long-term debt are as follows:

Long-term Debt Activity

In May 2015, Talen Energy Supply issued $600 million of 6.50% Senior Unsecured Notes due 2025 .

Talen Energy Supply received proceeds of $591 million , net of underwriting fees, which were used for repayment of short-term debt.

The notes may be redeemed at Talen Energy Supply's option, in whole at any time or in part from time to time, prior to June 1, 2020 at a price equal to 100% of their principal amount plus a make-whole premium and on or after June 1, 2020 at specified redemption prices.

In addition, on or prior to June 1, 2018, up to 35% of the notes may be redeemed by Talen Energy Supply with proceeds from certain equity offerings at a price equal to 106.5% of the principal amount.

In June 2015, Talen Energy Supply assumed $1.25 billion of RJS Power Holdings LLC's 5.125% Senior Notes due 2019 as a result of the merger of RJS Power Holdings LLC into Talen Energy Supply, by which Talen Energy Supply became the obligor of these notes.

In connection with this event and pursuant to the terms of the indenture governing the notes, the coupon on the notes was reduced to 4.625% in July 2015.

In September 2015, Talen Energy Supply completed a remarketing of $231 million of Exempt Facilities Revenue Refunding Bonds, Series 2009A due 2038, Series 2009B due 2038, and Series 2009C due 2037 that were issued by PEDFA on behalf of Talen Energy Supply in 2009.

All series bore interest at a fixed rate of 3.0% prior to the remarketing.

The Series 2009A Bonds, with a principal amount of $100 million , were remarketed at a fixed coupon of 6.40% to maturity.

The Series 2009B Bonds and Series 2009C Bonds, with an aggregate principal amount of $131 million , were remarketed at a fixed rate of 5.00% for five years, at which time they will be subject to mandatory repurchase and optional remarketing.

This transaction is excluded from the Statement of Cash Flows as a non-cash transaction.

In October 2015, Talen Energy Supply's $300 million of 5.70% REset Put Securities due 2035 (REPS) were subject to mandatory tender to the remarketing dealer.

However, the remarketing dealer and Talen Energy Supply mutually agreed to terminate the remarketing dealer's right to remarket the REPS and, in accordance with the terms of the REPS, Talen Energy Supply repurchased the REPS at par.

The total aggregate consideration paid to repurchase the REPS was $434 million , which included $300 million of principal and $134 million of remarketing option value paid to the remarketing dealer.

The termination payment to the remarketing dealer was recorded to "Other Income (Expense) - net" on the 2015 Statement of Income and is reflected in "Cash from operating activities" on the 2015 Statement of Cash Flows.

Following the MACH Gen acquisition in November 2015, $475 million of New MACH Gen Term Loan B debt secured under the First Lien Credit and Guaranty Agreement, which is described above, remained outstanding.

The Term Loan B provides customary annual amortization paid quarterly and may also be repaid, in whole or in part, beginning in the third quarter of 2016 without any make-whole premium.

See "Credit Arrangements and Short-term Debt - Revolving Credit Facilities" above for information regarding guarantees of and security interests with respect to the First Lien Credit and Guaranty Agreement.

In December 2015, Talen Energy Supply announced an "exchange offer" for its 6.5% Senior Unsecured Notes due 2025 that were issued in May 2015.

Pursuant to the terms of the notes, Talen Energy Supply offered to exchange all of the outstanding notes for a like principal amount of its 6.5% Senior Notes due 2025 that, have been registered under the Securities Exchange Act of 1933, as amended.

In January 2016, the exchange offer was completed with all of the notes exchanged.

In connection with the sale of Talen Ironwood Holdings, LLC, in January 2016, a Talen Ironwood Holdings, LLC subsidiary completed the redemption of $41 million of its 8.857% Senior Secured Notes due 2025 prior to the closing of the sale transaction, which occurred in February 2016.

The redemption included the payment of a make whole premium of $14 million , which will be recorded as a component of the expected gain on sale in "Operating Income" on the Statement of Income in 2016.

See Note 6 for additional information on the sale of Talen Ironwood Holdings, LLC.

Preferred Stock of Talen Energy Corporation

Talen Energy Corporation is authorized under its Amended and Restated Certificate of Incorporation to issue up to 100 million shares of preferred stock.

No shares of preferred stock were issued or outstanding at December 31, 2015 .

Legal Separateness

The subsidiaries of Talen Energy Corporation are separate legal entities.

Talen Energy Corporation's subsidiaries are not liable for the debts of Talen Energy Corporation.

Accordingly, creditors of Talen Energy Corporation may not satisfy their debts from the assets of Talen Energy Corporation's subsidiaries absent a specific contractual undertaking by a subsidiary to pay Talen Energy Corporation's creditors or as required by applicable law or regulation.

Similarly, Talen Energy Corporation is not liable for the debts of its subsidiaries, nor are its subsidiaries liable for the debts of one another.

Accordingly, creditors of Talen Energy Corporation's subsidiaries may not satisfy their debts from the assets of Talen Energy Corporation or its other subsidiaries absent a specific contractual undertaking by Talen Energy Corporation or its other subsidiaries to pay the creditors or as required by applicable law or regulation.

Similarly, the subsidiaries of Talen Energy Supply are each separate legal entities.

These subsidiaries are not liable for the debts of Talen Energy Supply.

Accordingly, creditors of Talen Energy Supply may not satisfy their debts from the assets of their subsidiaries absent a specific contractual undertaking by a subsidiary to pay the creditors or as required by applicable law or regulation.

Similarly, Talen Energy Supply is not liable for the debts of its subsidiaries, nor are the subsidiaries liable for the debts of one another.

Accordingly, creditors of these subsidiaries may not satisfy their debts from the assets of Talen Energy Supply absent a specific contractual undertaking by that parent or other subsidiary to pay such creditors or as required by applicable law or regulation.

As indicated above, certain debt agreements, including, but not limited to, the Talen Energy Supply RCF, the First Lien Credit and Guaranty Agreement and the Amended STF Agreement, include contractual undertakings by certain Talen Energy subsidiaries to guarantee the obligations of other Talen Energy entities arising under those agreements.

Distribution Related Restrictions for Talen Energy Corporation

Certain of Talen Energy's debt agreements include covenants that could effectively restrict the payment of distributions, loans or advances, either directly to Talen Energy Corporation or to Talen Energy Supply or one of its subsidiaries.

At December 31, 2015 , $3.3 billion of Talen Energy Corporation subsidiaries net assets were restricted for the purposes of transferring funds to Talen Energy Corporation in the form of distributions, loans or advances.

Acquisitions, Development and Divestitures

Talen Energy from time to time evaluates opportunities for potential acquisitions, divestitures and development projects.

Development projects are periodically reexamined based on market conditions and other factors to determine whether to proceed with the projects, sell, cancel or expand them, execute tolling agreements or pursue other options.

Any resulting transactions may impact future financial results.

On November 2, 2015, Talen Energy completed the acquisition of the membership interests of MACH Gen for $603 million in cash consideration (based on estimated working capital).

The final cash purchase price, after post-closing adjustments, was $600 million .

The purchase price was funded by a borrowing under the Talen Energy Supply RCF and cash on hand.

The Term Loan B and revolving credit facility of New MACH Gen remain outstanding following the completion of the transaction.

Unrecognized tax benefits as of December 31, 2024 (Successor) and December 31, 2023 (Successor) were a non-material amount and it is not expected the total amount of unrecognized tax benefit will change significantly within one year.

All tax returns filed for years December 31, 2021 and forward are open to examination by the relevant taxing authorities.

Emergence from Restructuring

The Company evaluated, including the change in control resulting from its Emergence from bankruptcy, the tax impact of its Restructuring as described in Note 3.

As part of the Restructuring, a substantial portion of the Company’s prepetition debt was extinguished, resulting in cancellation of debt income (“CODI”).

A taxpayer emerging from bankruptcy may exclude CODI from taxable income but must first reduce its tax attributes by the amount of CODI realized.

The Company realized CODI of $ 1.2 billion, which resulted in a partial reduction in tax basis in PP&E assets.

Upon Emergence, the Company experienced an ownership change under Section 382 of the Internal Revenue Code.

The Internal Revenue Code Sections 382 and 383 impose limitations on the ability of a company to utilize tax attributes after experiencing an ownership change.

States generally have similar tax attribute limitation rules following an ownership change.

The Company also applied fresh start accounting.

As a result, deferred tax assets and liabilities were adjusted based on the Successor GAAP financial statements.

See Note 4 for additional information on fresh start accounting.

Valuation Allowance

The Company’s most significant deferred tax assets are its net operating losses and interest limitation carryforward.

Management assesses the available positive and negative evidence to estimate whether it is more likely than not that sufficient future taxable income will be generated to permit the use of existing deferred tax assets.

Such assessment includes the evaluation of historical earnings after adjusting for certain nonrecurring items for the purpose of projecting future taxable income.

Negative evidence in the form of cumulative losses are no longer present as the Company has returned to profitability.

The existence of objective positive evidence allows for consideration of other subjective evidence, including (but not limited to) Talen’s projections for future income which would allow for utilization of all net operating losses and interest limitation carryforwards.

At each period, management will continue to assess the available positive and negative evidence to determine the need for a valuation allowance.

As a result of the assessment, it was determined that it is more likely than not that federal and state deferred tax assets will be fully utilized by future taxable income.

As of December 31, 2024 (Successor), the entire federal and state valuation allowances were released, resulting in a $ 128 million tax benefit.

For the period from May 18 through December 31, 2023 (Successor), a $ 43 million tax expense was recognized for the increase in federal and state valuation allowances based on the realizability of deferred tax assets.

For the period from January 1 through May 17, 2023 (Predecessor), a $ 129 million benefit was recognized for the reduction in federal and state valuation allowances.

The change in valuation allowance estimates was the result of tax attribute reduction from the cancellation of debt income that was realized upon Emergence.

For the year ended December 31, 2022 (Predecessor) a $ 198 million tax expense was recognized for the increase in federal and state valuation allowances based on realizability of deferred tax assets.

Inflation Reduction Act of 2022

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

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

The Nuclear PTC program provides qualified nuclear power generation facilities with a $ 3 per MWh transferable credit for electricity produced and sold to an unrelated party during each tax year.

Electricity produced and sold by Susquehanna to third parties after December 31, 2023 through December 31, 2032 qualifies for the credit, which is subject to potential adjustments.

Such adjustments include inflation escalators, a five -times increase in tax credit value (to $ 15 per MWh) if the qualifying generation facility meets prevailing wage requirements (which we expect to meet), and a pro-rata decrease in tax credit value once the annual gross receipts of a qualifying generation facility exceeds $ 25 per MWh.

As the credit is eliminated when the annual gross receipts are equivalent to $ 43.75 per MWh (adjusted for inflation), the Nuclear PTC program is expected to create a minimum price Susquehanna is expected to receive for its generation.

Susquehanna generated 17 million MWh sold to third parties in calendar year 2024.

The credit would be:

Annual Gross Receipts Credit Amount

$ 25 per MWh or less

Greater than $ 25 per MWh

Ratably reduced until gross receipts equal $ 43.75 per MWh, $ 0 after that threshold

The Inflation Reduction Act’s provisions are subject to implementation regulations, the terms of which are not yet fully known.

No assurance can be provided as to the magnitude of the benefit to Susquehanna, as the Inflation Reduction Act’s provisions, including the computations of the Nuclear PTC, are subject to implementation regulations that could impact the credit value recognized to date and credit value available in future periods.

Accordingly, Talen cannot fully predict the realization of any minimum price for Susquehanna’s generation and (or) impacts to Talen’s liquidity or results of operations.

See Note 6 for additional information on Nuclear PTC revenue recognized.

Current Taxes Payable

Current tax liabilities presented as “Other current liabilities” on the Consolidated Balance Sheets were $ 53 million as of December 31, 2024 (Successor) and $ 2 million as of December 31, 2023 (Successor).

December 31, 2024 December 31, 2023

Coal $ 92 $ 152

Oil products 65 75

Fuel inventory for electric generation 157 227

Materials and supplies, net 88 72

Environmental products 57 76

Inventory, net $ 302 $ 375

Inventory net realizable value and obsolescence charges on coal and fuel oil inventories are presented as “Other operating income (expense), net” on the Consolidated Statements of Operations.

Such non-cash charges were non-material for the year ended December 31, 2024 (Successor), non-material for the period from May 18 through December 31, 2023 (Successor), $ 37 million for the period from January 1 through May 17, 2023 (Predecessor) , and non-material for the year ended December 31, 2022 (Predecessor).

During the period from January 1 through May 17, 2023 (Predecessor), $ 24 million of adjustments were related to Brandon Shores coal and materials and supplies inventories.

See Note 10 for additional information on the Brandon Shores recoverability assessment.

Nuclear Decommissioning Trust Funds

December 31, 2024 December 31, 2023

Amortized Cost Unrealized Gains Unrealized Losses Fair Value Amortized Cost Unrealized Gains Unrealized Losses Fair Value

Cash equivalents $ 3 $ — $ — $ 3 $ 9 $ — $ — $ 9

Equity securities 509 651 55 1,105 491 575 53 1,013

Debt securities 615 3 7 611 570 10 1 579

Receivables (payables), net 5 — — 5 ( 26 ) — — ( 26 )

NDT funds $ 1,132 $ 654 $ 62 $ 1,724 $ 1,044 $ 585 $ 54 $ 1,575

See Note 14 for additional information on the NDT fair value.

There were no available-for-sale debt securities with credit losses as of December 31, 2024 (Successor) and December 31, 2023 (Successor).

As of December 31, 2024 (Successor), there was no intent to sell available-for-sale debt securities with unrealized losses, and it is not more likely than not that each of these investments will be required to be sold before the recovery of its amortized cost.

The aggregate related fair value of available-for-sale debt securities with unrealized losses as of December 31, 2024 (Successor) were:

Fair Value Unrealized Losses

Corporate debt securities $ 71 $ ( 2 )

Municipal debt securities 60 ( 1 )

Government debt securities 226 ( 4 )

Debt securities in unrealized loss position $ 357 $ ( 7 )

As of December 31, 2024 (Successor), the aggregate fair value of debt securities in a loss position for a duration of one year or longer were $ 15 million and the unrealized losses were non-material.

The contractual maturities for available-for-sale debt securities presented on the Consolidated Balance Sheets were:

December 31, 2024 December 31, 2023

Maturities within one year $ 82 $ 105

Maturities within two to five years 220 194

Maturities thereafter 309 280

Debt securities, fair value $ 611 $ 579

The sales proceeds, gains, and losses for available-for-sale debt securities for the periods were:

Successor Predecessor

Year Ended December 31, 2024 May 18 through December 31, 2023 January 1 through May 17, 2023 Year Ended December 31, 2022

Sales proceeds of NDT funds investments (a)

$ 2,132 $ 1,259 $ 839 $ 2,081

Gross realized gains 12 5 7 10

Gross realized losses ( 13 ) ( 11 ) ( 12 ) ( 43 )

__________________

(a) Sales proceeds are used to pay income taxes and trust management fees.

Remaining proceeds are reinvested in the NDT.

Property, Plant and Equipment

December 31, 2024 December 31, 2023

Estimated Useful Life (years) Gross Value Accumulated Depreciation Carrying Value Gross Value Accumulated Depreciation Carrying Value

Electric generation 3 - 27

$ 3,030 $ ( 292 ) $ 2,738 $ 3,178 $ ( 109 ) $ 3,069

Nuclear fuel 1 - 6

322 ( 152 ) 170 228 ( 55 ) 173

Other property and equipment 1 - 26

90 ( 18 ) 72 358 ( 21 ) 337

Capitalized software 1 - 5

8 ( 3 ) 5 6 ( 1 ) 5

Construction work in progress 169 — 169 255 — 255

Property, plant and equipment, net $ 3,619 $ ( 465 ) $ 3,154 $ 4,025 $ ( 186 ) $ 3,839

The components of “Depreciation, amortization and accretion ” presented on the Consolidated Statements of Operations for the periods were:

Successor Predecessor

Year Ended December 31, 2024 May 18 through December 31, 2023 January 1 through May 17, 2023 Year Ended December 31, 2022

Depreciation expense (a)

$ 225 $ 133 $ 173 $ 432

Amortization expense (b)

Accretion expense (c)

— — ( 1 ) ( 2 )

Depreciation, amortization and accretion $ 298 $ 165 $ 200 $ 520

__________________

(a) Electric generation and other property and equipment.

(b) Intangible assets and capitalized software.

See Note 11 for additional information.

MACH Gen's total generating capacity is 2,344 MW (summer rating).

The MACH Gen acquisition was accounted for as a business combination, with the identifiable tangible and intangible assets and liabilities of MACH Gen, recorded at their estimated fair values on the acquisition date.

The acquisition is consistent with management's strategy of business growth, fuel type diversity and replacing the assets being divested as part of the FERC approval of the RJS Power acquisition.

The following table summarizes the allocation of the purchase price to the fair values of the major classes of assets and liabilities of MACH Gen.

Current assets (a)

Intangible assets

Short-term debt

Current liabilities

The cost of nuclear fuel and the amortization of nuclear fuel intangible assets are presented as “Nuclear fuel amortization” on the Consolidated Statements of Operations.

Amortization expense related to nuclear fuel intangible assets was $ 33 million for the year ended December 31, 2024 (Successor) and $ 53 million for the period from May 18 through December 31, 2023 (Successor).

Estimated intangible assets amortization expense for the next four years is:

2025 2026 2027 2028 (a)

Estimated amortization expense $ 14 $ 5 $ 3 $ 1

__________________

(a) Supply contracts underlying the nuclear fuel intangible assets expire in 2028.

The carrying value of nuclear fuel intangible assets presented as “Other noncurrent assets” on the Consolidated Balance Sheets was $ 23 million as of December 31, 2024 (Successor) and $ 56 million as of December 31, 2023 (Successor).

Jointly Owned Facilities

Certain of Talen's subsidiaries own undivided interests in jointly owned electric generation facilities and related assets.

These generation facilities and other assets are maintained and operated pursuant to their joint ownership participation and operating agreements.

Under such arrangements, each participant is responsible for funding its proportional share of costs and is entitled to its proportionate share of electric generation and (or) other attributes of the relevant jointly owned facilities.

Talen's proportional share of gross margin and other operating costs for its undivided interests is presented within the Consolidated Statements of Operations.

Talen owns undivided interest of 90 % in Susquehanna, 22.22 % in Conemaugh, and 12.34 % in Keystone.

See below for information regarding the ownership of Colstrip in Montana.

The carrying value of Colstrip, Conemaugh, and Keystone were non-material as of December 31, 2024 (Successor) and December 31, 2023 (Successor).

The proportionate share of “Property, plant and equipment, net” related to Susquehanna presented on the Consolidated Balance Sheets was:

December 31, 2024 December 31, 2023

Ownership interest 90 % 90 %

Electric generation $ 2,206 $ 2,187

Nuclear fuel 322 228

Other property and equipment 25 19

Capitalized software 2 2

Construction work in progress 109 95

Proportionate property, plant and equipment, cost 2,664 2,531

accumulated depreciation and amortization 326 121

Proportionate property, plant and equipment, net $ 2,338 $ 2,410

Talen Montana.

Talen Montana owns 30 % of Colstrip Unit 3 and does not own any portion of Colstrip Unit 4.

However, it is a participant in a joint-owner sharing agreement which governs each party’s responsibilities and rights whereby Talen Montana is responsible for 15 % of the total operating costs and expenditures of Colstrip Unit 3 and 15 % of Colstrip Unit 4.

Accordingly, it is entitled to 15 % of the available generation from each of these units.

In January 2020, Talen Montana and the other co-owner of Colstrip Units 1 and 2 permanently retired the units.

Talen Montana is responsible for 50 % of the decommissioning and other related costs of Colstrip Units 1 and 2.

Reliability Impact Assessments

Brandon Shores and H.A Wagner RMR Arrangements.

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

Wagner facilities on June 1, 2025.

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

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

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

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

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

2023 Impairment

Brandon Shores Asset Group.

Brandon Shores is required by contract and permit to cease coal combustion by December 31, 2025.

In the first quarter 2023, Talen canceled its plan to convert Brandon Shores to an oil combustion facility due to an increase in expected conversion costs.

This decision triggered a recoverability assessment of the carrying value of the Brandon Shores asset group.

Brandon Shores notified PJM that it will deactivate electric generation on June 1, 2025.

See above for additional information.

The recoverability analysis indicated that the Brandon Shores asset group carrying value exceeded its future estimated undiscounted cash flows, which required an impairment charge to amend the asset group’s carrying value of its PP&E to its estimated fair value.

The estimated fair value of the asset group was determined by a discounted cash flow technique that utilized significant unobservable inputs including an 11 % discount rate.

We believe that the utilized discount rate and other discounted cash flow assumptions are consistent with those used by principal market participants.

Such assumptions consider available evidence regarding the prospects of future cash flows for the Brandon Shores asset group, including but not limited to estimated available future generation volumes and useful lives, capacity prices, energy prices, operating costs, capital expenditures, and environmental costs.

Accordingly, for the period from January 1 through May 17, 2023 (Predecessor), a $ 361 million non-cash pre-tax impairment charge on the asset group’s undepreciated PP&E is presented as “Impairments” on the Consolidated Statements of Operations.

Equity Method Investments

Talen holds equity interests in Conemaugh Fuels and Keystone Fuels equal to its respective undivided ownership interests in Conemaugh and Keystone.

Conemaugh Fuels and Keystone Fuels were formed to purchase coal and sell it to Conemaugh and Keystone.

Additionally, they may sell coal to any entity that manufactures or produces synthetic fuel from coal for resale to Conemaugh and Keystone.

The aggregate affiliated fuel purchases by Talen from Conemaugh Fuels and Keystone Fuels is presented as “Fuel and energy purchases” on the Consolidated Statements of Operations.

Talen’s aggregate fuel purchases for Conemaugh and Keystone Fuels were $ 35 million for the year ended December 31, 2024 (Successor), $ 23 million for the period from May 18 through December 31, 2023 (Successor) and $ 14 million for the period from January 1 through May 17, 2023 (Predecessor).

For the year ended December 31, 2022 (Predecessor), Talen’s aggregate fuel purchases were $ 63 million.

Asset Retirement Obligations and Accrued Environmental Costs

December 31, 2024 December 31, 2023

Asset retirement obligations $ 498 $ 464

Accrued environmental costs 21 23

Total asset retirement obligations and accrued environmental costs 519 487

asset retirement obligations and accrued environmental costs due within one year (a)

Asset retirement obligations and accrued environmental costs due after one year $ 468 $ 469

__________________

(a) Presented as “ Other current liabilities ” on the Consolidated Balance Sheets.

Asset Retirement Obligations

Certain subsidiaries of the Company have legal retirement obligations for the decommissioning and environmental remediation costs associated with our current and former generation, which include activities such as structure removal and remediation of coal piles, wastewater basins, and ash impoundments.

Most of these obligations, except remediation of some ash impoundments, are not expected to be paid until several years, or decades, in the future.

The most significant obligations are associated with the decommissioning of Susquehanna (for which the NDT is expected to fund) and coal ash disposal units associated with legacy coal-fired generation facilities (for which the Company has posted surety bonds and letters of credit for certain facilities).

The carrying value of these obligations include assumptions of estimated future ARO cash expenditures, cost escalation rates, probabilistic cash flow models and discount rates.

The ARO carrying value of AROs associated with legacy coal-fired generation facilities may be impacted by current or future EPA rulemaking.

Additionally, as of December 31, 2024 (Successor), the fair values of certain AROs as a result of the EPA CCR Rule cannot be determined.

See Note 12 for additional information on the EPA CCR Rule and the regulatory timeline that is expected to determine the associated scope of work.

Additionally, certain subsidiaries of the Company have legal retirement obligations associated with the removal, disposal, and (or) monitoring of asbestos-containing material at certain generation facilities.

Given that the ultimate volume of asbestos-containing material is not yet known, the fair value of these obligations cannot be reasonably estimated.

These obligations will be recognized upon a change in economic events or other circumstances which enables the fair value to be estimable.

The changes of the ARO carrying value during the periods were:

Carrying value, December 31, 2022 (Predecessor) $ 751

Obligations settled ( 11 )

Changes in estimates and (or) settlement dates 3

Accretion expense 23

Carrying value, May 17, 2023 (Predecessor) $ 766

Carrying value, May 18, 2023 (Successor) $ 766

Fair value adjustment at Emergence ( 321 )

Obligations settled ( 11 )

Accretion expense 30

Carrying value, December 31, 2023 (Successor) $ 464

Obligations settled ( 13 )

Changes in estimates and (or) settlement dates ( 17 )

Accretion expense 55

Obligations incurred 9

Carrying value, December 31, 2024 (Successor) $ 498

Supplemental information for the ARO:

December 31, 2024 December 31, 2023

Supplemental Information

Non-Nuclear (b)

Carrying value $ 498 $ 464

__________________

(a) Obligations are expected to be settled with available funds in the NDT at the time of decommissioning.

See Note 14 for additional information on the NDT.

(b) Certain obligations are:

(i) partially supported by surety bonds, some of which have been collateralized with cash and (or) LCs;

or (ii) partially prefunded under phased installment agreements.

Each joint owner of Susquehanna is obligated to fund their proportional share of Susquehanna's ARO.

Talen’s proportionate share of decommissioning activities will be funded from the NDT when decommissioning commences in connection with the expiration of Susquehanna’s licenses.

The licenses for Susquehanna Unit 1 and Unit 2 expire in 2042 and 2044, respectively, and can be extended subject to NRC approval.

The NRC has jurisdiction over the decommissioning of nuclear power generation facilities and requires minimum decommissioning funding based upon a formula.

Under the most recent calculation in 2022, the NDT exceeds the NRC's minimum funding requirements.

Each joint owner of Susquehanna is obligated to fund their proportional decommissioning costs if their respective nuclear decommissioning trusts do not contain sufficient funds.

We believe the NDT will be adequate to fund the Company’s proportionate share of decommissioning costs.

As of December 31, 2024 (Successor), the fair value of the NDT was $ 1.7 billion and the carrying value the Company’s proportionate share of the Susquehanna ARO, which is discounted under a present value technique, was $ 242 million.

See Note 2 for additional information on the measurement of AROs.

Talen Montana.

Talen Montana has significant decommissioning and environmental remediation liabilities primarily consisting of its proportionate share of remediation, closure and decommissioning costs for coal ash impoundments at Colstrip.

Due to the expected timing and scope of anticipated remediation activities, actual cash expenditures associated with these obligations are expected to materially increase over the next five years and will continue at a reduced spending level for several decades.

Talen Montana, along with the other co-owners of Colstrip, are working with the Montana Department of Environmental Quality (the “MDEQ”) to define the scope of required remediation, the scope of closure and decommissioning activities, and an estimate of the costs, including the amount of necessary financial assurance necessary to backstop these obligations.

Talen Montana's decommissioning and environmental remediation is expected to be paid by funds available to Talen Montana at the time of decommissioning.

Talen Montana's estimate of its proportionate share of the AROs, discounted using a credit adjusted risk-free rate, was $ 98 million at December 31, 2024 (Successor) and $ 107 million at December 31, 2023 (Successor).

As a result of environmental regulations issued by the EPA or other regulatory entities, the Company may be required to revise and (or) recognize new AROs.

Future adjustments may be required to the Talen Montana ARO estimates due to the ongoing remediation requirements under MDEQ obligations and the EPA CCR Rule.

If the assumptions underlying Talen Montana's estimates do not materialize as expected, actual cash expenditures and costs could be materially different than currently estimated.

Moreover, regulatory changes and (or) changes resulting from required scope revisions on remediation activities could affect these obligations.

See Note 12 for information on Talen Montana’s requirement to provide financial assurance for certain environmental decommissioning and remediation liabilities related to Colstrip.

Accrued Environmental Costs

Under the Pennsylvania Clean Streams Law, a Talen subsidiary is obligated to remediate acid mine drainage at a former mine site and may be required to take additional steps to prevent acid mine drainage at this site.

Liabilities related to the remediation were $ 21 million and $ 23 million as of December 31, 2024 (Successor) and December 31, 2023 (Successor), respectively, and were presented as “Other current liabilities” and “Asset retirement obligations and accrued environmental costs” on the Consolidated Balance Sheets.

Such liabilities were discounted based on a credit adjusted risk-free rate that was in existence at the time of initial liability recognition of 8.41 %.

The undiscounted amount of the liabilities was $ 32 million and $ 34 million as of December 31, 2024 (Successor) and December 31, 2023 (Successor).

Commitments and Contingencies

Legal, Regulatory, and Environmental Matters

We are regularly subject to various legal, regulatory, and environmental matters in connection with our business.

While we believe we have meritorious positions and will continue to vigorously defend our positions in these matters, we may not be successful in our efforts, and we cannot predict the effect of an adverse outcome of any such matter.

If an unfavorable outcome is probable and can be reasonably estimated, a liability is recognized.

In the event of an unfavorable outcome, the liability may be in excess of amounts currently accrued.

Because of the inherently unpredictable nature of legal, regulatory, and environmental matters and the wide range of potential outcomes for any such matter, no estimate of the possible losses in excess of amounts accrued, if any, can be made at this time regarding any matter specifically described below.

As a result, additional losses actually incurred in excess of amounts accrued could be substantial.

Unless otherwise disclosed below, we are unable to predict the outcome of any matter discussed below or reasonably estimate the amount of any associated costs and (or) potential liabilities.

Additionally, it is possible that the outcome of any such matter, including market modifications, could materially impact our business, financial condition, results of operations, cash flows, and (or) liquidity.

Legal Matters

We are involved in various legal and administrative proceedings, investigations, claims, and litigation from time to time in the course of our business.

Such matters may include, but are not limited to, those relating to employment and benefits, commercial disputes, personal injury, property damage, regulatory matters, environmental matters, and various other claims for injuries and (or) damages.

While we believe we have meritorious positions and will continue to appropriately respond to all legal matters, because of the inherently unpredictable nature of legal proceedings, there is a wide range of potential outcomes for any such matter.

ERCOT Weather Event (Winter Storm Uri) Lawsuits.

In connection with the ERCOT Sale (see Note 20 for additional information), the Company retained certain potential liabilities relating to claims filed from 2021 onward against its former Texas subsidiaries seeking unspecified damages for alleged losses caused by the defendants’ failure to provide sufficient power to the grid during Winter Storm Uri.

The claims also allege similar liability against numerous other ERCOT power market participants.

In December 2023, five multi-district litigation (“MDL”) bellwether lawsuits, which were selected by the MDL court as representative of all 58 cases filed in the Uri litigation, were dismissed by the MDL court, a ruling subsequently upheld by the Texas First Court of Appeals.

On January 31 and February 3, 2025, the plaintiffs (in two groups) filed for mandamus relief in the Texas Supreme Court, seeking to overturn the lower courts.

If affirmed by the Texas Supreme Court, Talen expects the dismissal ruling to apply broadly to all Uri cases against Talen’s former subsidiaries.

Pursuant to the Plan of Reorganization, Talen’s maximum potential damages on prepetition Uri claims are expressly limited to payments from Talen’s insurers.

However, claims filed after the Restructuring by plaintiffs who did not receive effective notice of the Restructuring, if any, may not be subject to the limitations in the Plan of Reorganization.

Spent Nuclear Fuel Litigation.

Federal law requires the U.S.

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

Until May 2014, the Department of Energy required nuclear generation facility operators to contribute to a fund intended to pay for the transportation and disposal of SNF, and Talen cannot predict if or when the government will reinstate any such fee in the future.

In May 2023, an existing settlement agreement between Susquehanna and the U.S.

government was extended through the end of 2025.

The settlement agreement requires the government to reimburse Susquehanna for certain SNF storage costs through 2025 and requires Susquehanna to waive certain claims against the government relating to temporary SNF storage.

As of December 31, 2024 (Successor), the Company has an accrued receivable of $ 14 million related to such reimbursements.

During the period from May 18 through December 31, 2023 (Successor) and the year ended December 31, 2022 (Predecessor), Susquehanna received reimbursements of $ 24 million and $ 7 million for such costs.

No assurance can be provided that this arrangement will be extended beyond 2025.

Regulatory Matters

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.

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.

Accordingly, we are subject to uncertainty with respect to:

(i) new or amended regulations issued by regulatory agencies;

and (ii) changes in market design, tariff structure, capacity auctions, and (or) pricing rules.

PJM Capacity Market Reform.

In June 2023, FERC accepted a request by PJM to delay certain PJM Base Residual Auctions in order for PJM to propose market reforms.

PJM filed its market reform proposals with FERC in October 2023.

In early 2024, FERC accepted portions of PJM’s proposed market changes.

PJM held the PJM BRA for the 2025/2026 PJM Capacity Year in July 2024 which incorporated the FERC accepted changes.

The PJM BRAs for the 2026/2027, 2027/2028, and 2028/2029 PJM Capacity Years were previously scheduled for December 2024, June 2025 (later changed to July 2025), and December 2025, respectively;

however in September 2024, the Sierra Club and other organizations filed a complaint at FERC challenging PJM’s rules establishing must-offer exceptions for PJM BRA participation by RMR resources and seeking to delay the 2026/2027 PJM BRA pending resolution of its complaint.

In October 2024, PJM announced it had concerns about FERC considering the Sierra Club’s complaints about RMR resources in isolation and therefore intended to file a Section 205 proceeding under the Federal Power Act seeking FERC’s approval of to-be-determined market reforms, including but not limited to potential revisions to the treatment of RMR resources.

As a result, in October 2024 PJM formally requested that FERC approve six-month delays in the PJM BRAs for the 2026/2027, 2027/2028, 2028/2029, and 2029/2030 PJM Capacity Years and in November 2024, FERC approved the auction delays.

The planning parameters for the 2026/2027 PJM BRA are expected in March 2025.

Talen can provide no assurance that the four scheduled auctions will be held as scheduled or at all.

A series of filings aimed at reforming the PJM capacity market were filed at FERC.

In November 2024, the Joint Consumer Advocates, comprised of consumer advocacy groups and government entities from Illinois, Maryland, New Jersey, Ohio, and the District of Columbia filed a complaint against PJM asking FERC to find that PJM’s existing capacity market rules are unjust and unreasonable and issue an order requiring certain short-term and longer-term changes to PJM’s capacity market rules.

In response, PJM made two FERC filings in December 2024 to address what they perceive as capacity market design issues (the “PJM Capacity Market 205 proceeding”).

PJM proposed to retain the dual fuel combustion turbine as the reference resource and to implement a uniform non-performance charge throughout the RTO for the 2026/2027 and 2027/2028 delivery years, and to administratively include RMR units that meet certain criteria as price takers in the capacity auctions for the next two delivery years and will not assess penalties or pay bonuses to these RMR units.

If approved, under PJM’s proposal, Talen’s Brandon Shores and H.A.

Wagner plants may meet the criteria for RMR inclusion in the capacity auctions.

PJM’s filing also clarifies that being excused from being required to offer into the capacity market is no defense to exercising market power by electing not to offer.

Further, PJM proposed to make changes to the capacity market mitigation rules.

This proposal will eliminate the must-offer exception for intermittent and limited duration resources that are eligible to participate in the capacity market and will allow market sellers to incorporate a risk component in their capacity market offers.

Following the above filings, in December 2024, the Pennsylvania Governor filed a complaint against PJM at FERC to address alleged elevated costs to consumers from the PJM capacity market in the 2026/2027 and 2027/2028 delivery years.

Among other things, the Governor’s complaint proposed to lower the capacity price cap and reopen the closed interconnection queue to get new projects online.

In January 2025, the Governor filed a motion to consolidate his complaint with the Joint Consumer Advocates complaint and two PJM filings referenced above.

On January 28, 2025, the Governor and PJM announced they had reached an agreement to resolve the Governor’s complaint.

That agreement would impose a collar on the capacity prices in the 2026/2027 and 2027/2028 BRAs, with a minimum capacity price of $ 175 /Megawatt-day (“MWd”) and a maximum price of $ 325 /MWd.

On February 14, 2025, FERC accepted PJM’s proposals in the PJM Capacity Market 205 proceeding and as a result, the changes to the BRA parameters described above as part of that proceeding will be adopted for the 2026/2027 and 2027/2028 delivery years.

Also on February 14, 2025, as a result of the agreement with PJM to collar the BRA results for the next two auction the Governor withdrew his complaints from FERC.

On February 20, 2025, PJM initiated a new Section 205 proceeding seeking FERC’s approval of a settlement that will revise the relevant auction parameters and impose the capacity price collar agreed to with the Governor.

The filing seeks expedited treatment intended to maintain the current auction schedule.

At this time, it is unknown whether the collar arrangement will be approved by FERC or whether the auction schedule will remain unchanged.

Talen filed comments in support of this proposal on February 24, 2025.

On February 20, 2025, FERC initiated a technical conference docket to consider broad resource adequacy issues across all RTOs, with the initial proceedings to take place on June 4 and 5, 2025.

The Company intends to intervene in the new technical conference docket and participate in those proceedings.

Environmental Matters

Extensive federal, state, and local environmental laws and regulations are applicable to our business, including those related to air emissions, water discharges, and hazardous substances and solid waste management.

From time to time, in the ordinary course of our business, Talen may be:

(i) subject to environmental remediation work at its facilities;

(ii) involved in other environmental matters;

or (iii) become subject to other, new or revised environmental statutes, regulations, or requirements.

It may be necessary for us to modify, curtail, replace, or cease operation of certain facilities or performance of certain operations to comply with statutes, regulations, and other requirements imposed by regulatory bodies, courts, or environmental groups.

We may incur significant costs to comply with these requirements, including increased capital expenditures or operation and maintenance expenses, monetary fines, remediation costs, penalties, or other restrictions.

Legal challenges to environmental rules or permits add to the uncertainty of estimating future compliance costs.

In addition, in January 2025, President Trump issued executive orders 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.

Further, costs may increase significantly if the requirements or scope of environmental laws or regulations, or similar rules, are expanded or changed.

EPA CSAPR and Nitrogen Oxides (“NOx”) Requirements.

Coal-fired generation facilities, including those in which Talen has ownership, have been the subject of EPA regulations and efforts by certain states and other parties to strengthen applicable NOx emission limits under the Clean Air Act.

In 2015, the EPA’s 2015 revision to the 8-hour ozone National Ambient Air Quality Standards for ground-level ozone to 70 parts per billion (the “EPA 2015 Ozone Standard”) was issued, which triggered updates to state-specific compliance requirements as well as provisions that are intended to limit cross-state emissions.

In June 2023, the EPA published a rule in connection with the EPA 2015 Ozone Standard updating the EPA CSAPR ozone season NOx allowance trading program for 2023 and beyond (“Good Neighbor Plan”).

Talen’s facilities in Maryland, Pennsylvania, and New Jersey are subject to the new rule;

however, the entire rule has been challenged by multiple parties.

The Good Neighbor Plan was stayed in its entirety by the U.S.

Supreme Court in June 2024 pending a complete review of the rule by the D.C.

Circuit Court of Appeals.

In November 2024, the EPA issued an interim final rule indicating it plans to provide NOx allocations and budgets from the previously applicable and less restrictive Revised CSAPR Update rule until the Good Neighbor Plan matter is resolved.

In February 2025, the D.C.

Circuit Court of Appeals denied the EPA’s motion requesting the Good Neighbor Plan litigation be held in abeyance for 60 days and ordered the parties to complete supplemental briefing in March 2025.

As a result, future implementation and enforcement of the Good Neighbor Plan remains uncertain at this time.

EPA MATS Rule.

In May 2024, the EPA published a rule that requires coal-fired generation facilities to reduce particulate matter emissions by the middle of 2027 (or 2028, if an extension is approved).

Colstrip is not expected to meet the new particulate matter standard without substantial upgrades to its control equipment.

As a result, Talen Montana and the other Colstrip co-owners face the decision either to invest in new cost-prohibitive control equipment or retire the Colstrip facility.

Such decision must be evaluated in conjunction with compliance requirements under the May 2024 EPA GHG Rule due to timing and costs.

Challenges to the EPA MATS Rule have been filed in the D.C.

Circuit Court of Appeals, including by Talen and 23 states.

After motions to stay the EPA MATS Rule during the pendency of the litigation were denied by the D.C.

Circuit Court of Appeals, Talen and other parties filed emergency stay request applications with the U.S.

Supreme Court in September 2024, which were denied in October 2024.

The appeal on the merits of the new rule remains pending in the D.C.

Circuit Court of Appeals.

In February 2025, the D.C.

Circuit Court of Appeals granted the EPA’s unopposed motion to hold the MATS litigation in abeyance for 90 days.

No assurance can be provided as to when the challenges to the EPA MATS Rule will be resolved or whether such challenges will be resolved in the Company’s favor.

As the timeline for compliance with the new standards is accelerated and must be considered in tandem with the new EPA GHG Rule, which is also subject to ongoing legal challenges, it is possible the Company will need to make operating decisions about the future of Colstrip before the Company has clarity about the outcome of the litigation.

EPA GHG Rule.

In May 2024, the EPA published a rule that establishes carbon dioxide limits for new electric generating units (“EGUs”) and GHG guidelines for certain existing EGUs.

Under the guidelines, if existing coal-fired EGUs operate beyond 2031, GHG reductions, such as those achieved by the addition of carbon capture and sequestration (“CCS”), are required to be implemented by the end of 2031.

Colstrip is not expected to meet the new rules without substantial technology upgrades and pipeline infrastructure build-out.

As a result, Talen Montana and the other Colstrip co-owners face the decision either to invest in new cost-prohibitive controls (e.g., CCS technology) or retire the Colstrip facility by the end of 2031.

Such decision must be evaluated in conjunction with compliance requirements under the May 2024 EPA MATS Rule.

Petitions have been filed in the D.C.

Circuit Court of Appeals, including by coalitions representing 27 states and an ad hoc coalition of power producers of which Talen is a member, requesting a review of the EPA GHG Rule.

Stay motions were denied by the D.C.

Circuit Court of Appeals in July 2024 and the U.S.

Supreme Court in October 2024.

Appeals of the EPA GHG Rule remain pending in the D.C.

Circuit Court of Appeals.

In February 2025, the D.C.

Circuit Court of Appeals granted the EPA’s unopposed motion to hold the litigation in abeyance for 60 days.

No assurance can be provided as to when the challenges to the EPA GHG Rule will be resolved or whether such challenges will be resolved in the Company’s favor.

The EPA has also stated its intent to develop GHG regulations for existing natural gas combustion turbines;

however, no rule has been proposed.

As the timeline for compliance with the new standards is accelerated and must be considered in tandem with the new EPA MATS Rule, which is also subject to ongoing legal challenges, it is possible the Company will need to make operating decisions about the future of Colstrip before the Company has clarity about the outcome of the litigation.

Pennsylvania RGGI.

In October 2019, the then-Governor of Pennsylvania signed an Executive Order directing the Pennsylvania Department of Environmental Protection (the “PDEP”) to draft regulations establishing a cap-and-trade program with the intent of enabling Pennsylvania to join the RGGI, a multi-state regional cap-and-trade program comprised of several Eastern U.S.

In April 2022, Pennsylvania entered the RGGI program, with compliance set to begin on July 1, 2022.

However, in November 2023, the Commonwealth Court of Pennsylvania ruled RGGI was an invalid tax and voided the rulemaking.

The PDEP appealed this decision to the Pennsylvania Supreme Court and filed notice with the court that the RGGI program would not be implemented while the appeal is pending.

In July 2024, the Pennsylvania Supreme Court permitted certain non-profit environmental groups to intervene in the litigation.

EPA ELG Rule.

In November 2015, the EPA revised the effluent limitation guidelines for certain power generation facilities, which imposed more stringent standards for wastewater streams as facility discharge permits are renewed.

In 2020, the EPA issued changes that would exempt coal generation facility operators from meeting certain wastewater standards if the facility would commit to cease coal-fired generation by the end of 2028, which Talen elected for its wholly owned coal operations.

In May 2024, the EPA published revisions to the EPA ELG Rule, which imposed additional requirements for legacy wastewater and combustion residual leachate.

Such EPA ELG Rule revisions impact Talen’s active generation facilities that have both CCR units and hold National Pollutant Discharge Elimination System (“NPDES”) discharge permits.

These sites include Brandon Shores, Brunner Island, Montour, and potentially Martins Creek.

Talen is evaluating what:

(i) potential discharge limits may apply;

(ii) treatment may be required;

and (iii) the implementation timeline may be.

Obligations for installing any new wastewater treatment equipment, if necessary, will not be known until each applicable state where the active generation facilities operate makes their own determination with respect to NPDES permit renewals with new limits and associated timing.

As a result of the future permit conditions, additional capital expenditures and (or) AROs may be required, which may have a material impact on our results of operations and (or) financial condition.

Multiple challenges, including stay requests, to the EPA ELG Rule have been filed in various U.S.

Courts of Appeal by parties that include 15 states, environmental groups, and industry groups, including the Utility Water Act Group, of which Talen is a member.

The appeals have been consolidated in the U.S.

Court of Appeals for the Eighth Circuit, and in October 2024, stay requests were denie d.

In February 2025, the EPA filed a motion in the U.S.

Court of Appeals for the Eight Circuit re questing that the litigation be held in abeyance for a period of 60 days with a motion to govern due at the end of that period.

No assurance can be provided as to when the challenges to the EPA ELG Rule merits will be resolved or whether such challenges will be resolved in the Company’s favor.

EPA CCR Rule.

In April 2015, the EPA established regulations under the Resource Conservation and Recovery Act (“RCRA”) to identify CCRs as nonhazardous solid waste and provided CCR management and siting requirements.

The 2015 rule was modified in 2020 after a 2018 D.C.

Circuit Court of Appeals ruling found that, among other things, the EPA did not adequately regulate unlined impoundments.

In its 2020 rulemaking, the EPA specified procedures for owners to extend the operating timeline of certain unlined impoundments.

Talen submitted an extension request under this process for an unlined impoundment at Montour, which was withdrawn in December 2024, following the end of basin operations and the initiation of basin closure.

The 2018 D.C.

Circuit Court of Appeals ruling also found that the EPA did not properly address legacy surface impoundments in the 2015 CCR rule.

As a result of the finding, in May 2024, the EPA finalized additional federal CCR regulations effective in November 2024, which provided new requirements for legacy CCR surface impoundments and new requirements for other CCR disposal and management areas at active power plants (“CCR Management Units” or “CCRMUs”).

This rule has been challenged in the D.C.

Circuit Court of Appeals by multiple parties, including two industry groups of which Talen is a member.

In December 2024, the U.S.

Supreme Court denied a requested stay of the legacy EPA CCR Rule.

In February 2025, the D.C Circuit Court of Appeals granted EPA’s unopposed motion to hold the litigation in abeyance for 120 days.

Additionally, the EPA is being challenged by other industry parties on new regulatory interpretations that could be consequential to CCR unit closure practices and costs.

No assurance can be provided at this time as to when the legal challenges to the EPA CCR Rule and interpretations will be resolved or whether such challenges will be decided in the Company’s favor.

Talen continues to review the new EPA CCR Rule provisions that went into effect in 2024, perform the required applicability assessments, and await additional information and guidance from the EPA concerning the rule’s requirements.

Pursuant to the regulations, initial facility evaluation reports to identify CCR areas which may become regulated and subject to the rule’s requirements are due in February 2026.

Following that, site investigation may be required to further investigate applicability, and a subsequent facility report is due in February 2027.

The Company has initiated reviews under the facility evaluation report requirements at locations with ash impoundments that have long since ceased coal operations as well as at locations with current coal operations.

No assurance can be provided as to whether any specific ash impoundments owned by the Company may or may not be within scope of the updated EPA CCR Rule until the Company completes its assessments within the regulatory timeframe.

As of December 31, 2024 (Successor), the Company has recognized required cost estimates in order to comply with the EPA CCR Rule’s initial compliance requirements and deadlines, including the initial groundwater monitoring requirements.

The Company does not yet have sufficient information available to estimate costs for the future compliance obligations under the rule.

As the Company continues its applicability evaluations and site assessments to determine the scope of work on its properties imposed by the new rule, additional new AROs and (or) revisions could be required.

It is expected estimates will be available, under the timeline provided for by the regulations, as described above, at the completion of the initial facility evaluation reports or at the completion of a subsequent site investigation.

Such AROs or ARO changes could be material and, as a result, may have a material impact on our results of operations and (or) financial condition.

Certain Resolved Matters

Pension Litigation.

In July 2024, a U.S.

District Court in Pennsylvania approved the settlement of a class action lawsuit brought by former Talen employees alleging they were owed enhanced benefits under the TERP.

Pursuant to the settlement, Talen agreed to pay:

(i) $ 6 million for settlement administrative costs and plaintiff attorneys fees, which were partially offset by insurance recoveries;

and (ii) $ 14 million to class members from the TERP.

Both payment obligations were substantially completed during the year ended December 31, 2024 (Successor).

PPL/Talen Montana Litigation.

In December 2023, a settlement was reached in (i) a 2018 class action lawsuit filed by the Talen Montana Retirement Plan against PPL and its affiliates claiming that an improper $ 733 million distribution to PPL left Talen Montana insolvent;

and (ii) a related 2018 lawsuit filed by PPL against Talen and affiliates seeking various substantive and procedural relief in the first case.

Under the terms of the settlement, PPL paid Talen Montana $ 115 million in exchange for a full release of claims, with $ 11 million of that amount remitted to the general unsecured creditors trust established under the Plan of Reorganization.

As a result, a $ 104 million net gain is presented as “Other non-operating income (expense), net” on the Consolidated Statements of Operations for the year ended December 31, 2023 (Successor) .

Winter Storm Elliott .

During December 2022, as a result of Winter Storm Elliott, PJM experienced conditions that resulted in PJM declaring a Capacity Performance event.

In April 202 3, we and certain other market participants filed FERC complaints against PJM disputing a portion of the penalties charged by PJM to generators (including us) for failing to meet PJM’s Capacity Performance requirements.

In December 2023, FERC approved a market-wide settlement resolving all Winter Storm Elliot complaints, including ours, which reduced our net aggregate penalties to an estimated $ 28 million.

Utilizing the best available information of PJM’s assessments:

(i) an initial penalty of $ 33 million was recognized for the year ended December 31, 2022 (Predecessor) ;

(ii) an increase of $ 13 million for the period from January 1 through May 17, 2023 (Predecessor) ;

and (iii) an increase of $ 2 million for the period from May 18 through December 31, 2023 (Successor) .

At the time of FERC’s approval, aggregate net penalty payments of $ 29 million had been remitted to PJM.

Accordingly, in December 2023 as a result of FERC’s approval, the remaining $ 19 million estimated liability was derecognized.

Guarantees and Other Assurances

In the normal course of business, the Company enters into agreements to provide financial performance assurance to third parties on behalf of certain subsidiaries.

These agreements primarily support or enhance the stand-alone creditworthiness attributed to a subsidiary or facilitate the commercial activities in which these subsidiaries engage.

Such agreements may include guarantees, stand-by LCs, and (or) surety bonds.

Additionally, they may include customary indemnifications to third parties related to asset sales and other transactions.

The probability of expected material payment and (or) performance for these assurance agreements is believed to be remote.

Surety Bonds.

Surety bonds provide financial performance assurance to third parties on behalf of certain Company subsidiaries for obligations including but not limited to environmental obligations and AROs.

In the event of nonperformance by the applicable subsidiary, the beneficiary would make a claim to the surety, and the Company would be required to reimburse any payment by the surety.

Talen’s liability with respect to any particular surety bond is released once the obligations secured by the surety bond are performed.

Surety bond providers generally have the right to request additional collateral or request that such bonds be replaced by alternate surety providers.

As of December 31, 2024 (Successor) and December 31, 2023 (Successor), the aggregate amount of surety bonds outstanding was $ 234 million and $ 240 million, respectively, including surety bonds posted on behalf of Talen Montana as discussed below.

Talen Montana Financial Assurance.

Pursuant to the Colstrip Administrative Order on Consent (the “Colstrip AOC”), Talen Montana, in its capacity as the Colstrip operator, is obligated to close and remediate coal ash disposal impoundments at Colstrip.

The Colstrip AOC specifies an evaluation process between Talen Montana and the MDEQ on the scope of remediation and closure activities, requires the MDEQ to approve such scope, and requires financial assurance to be provided to the MDEQ on approved plans.

Each of the co-owners of Colstrip has provided its proportionate share of financial assurance to the MDEQ for estimates of coal ash disposal impoundments remediation and closure activities approved by the MDEQ.

The aggregate amount of surety bonds posted to the MDEQ on behalf of Talen Montana’s proportionate share of such activities wa s $ 125 million and $ 115 million as of December 31, 2024 (Successor) and December 31, 2023 (Successor), respectively.

Talen Montana’s surety bond requirements may increase due to scope changes, cost revisions, and (or) other factors when the MDEQ conducts annual reviews of approved remediation and closure plans as required under the Colstrip AOC.

The surety bond requirements are expected to decrease as Colstrip’s coal ash impoundments remediation and closure activities are completed.

See Note 11 for additional information on Colstrip AROs.

Other Commitments and Contingencies

Nuclear Insurance.

The Price-Anderson Act is a federal law that governs liability-related issues and ensures the availability of funds for public liability claims arising from a nuclear incident at any U.S.

licensed nuclear facility.

It also seeks to limit the liability of nuclear reactor owners for such claims from any single incident.

As of December 31, 2024 (Successor), the liability limit per incident is $ 16.3 billion for such claims, which is funded by insurance coverage from American Nuclear Insurers ($ 500 million in coverage), with the remainder covered by an industry retrospective assessment program.

As of December 31, 2024 (Successor), under the industry retrospective assessment program, in the event of a nuclear incident at any of the reactors covered by the Price-Anderson Act, Susquehanna could be assessed deferred premiums of up to $ 332 million per incident, payable at a maximum of $ 49 million per year.

Additionally, Susquehanna purchases property insurance programs from Nuclear Electric Insurance Limited (“NEIL”), an industry mutual insurance company of which Susquehanna is a member.

As of December 31, 2024 (Successor), facilities at Susquehanna are insured against nuclear property damage losses up to $ 2 billion and non-nuclear property damage losses up to $ 1 billion.

Susquehanna also purchases an insurance program that provides coverage for the cost of replacement power during prolonged outages of nuclear units caused by certain specified conditions.

Under the NEIL property and replacement power insurance programs, Susquehanna could be assessed retrospective premiums in the event of the insurers’ adverse loss experience.

The maximum assessment for this premium is $ 48 million as of December 31, 2024 (Successor).

Talen has additional coverage that, under certain conditions, may reduce this exposure.

Talen Montana Fuel Supply.

Talen Montana purchases coal from a mine owned by Westmoreland Rosebud Mining, LLC (the “Rosebud Mine”) for its interest in Colstrip Units 3 and 4 under a full requirements contract with the mine operator.

Two lawsuits have been brought against the Rosebud Mine challenging permits issued to it by the State of Montana.

Talen Montana is not party to either lawsuit, but is monitoring the progress of each to assess the impact to its operations.

In the first lawsuit, the Montana Supreme Court affirmed a lower court’s ruling to vacate a mining permit and require the Montana Board of Environmental Review to perform an additional review of the permit.

In the second lawsuit, the Montana Federal District Court ordered a branch of the U.S.

Department of the Interior to complete an updated Environmental Impact Statement (“EIS”).

In December 2024, the Montana Federal District Court granted an extension to the EIS completion date to October 7, 2025.

At this time, Talen cannot predict the effect that an adverse outcome of these lawsuits to Rosebud Mine would have on:

(i) Talen Montana’s ability to source fuel for its share of Colstrip operations;

or (ii) Talen Montana’s operations, results of operations, or liquidity.

Long-term Debt and Other Credit Facilities

TES is the borrower/issuer under all the Company’s debt and credit facilities.

As of December 31, 2024 (Successor), TES was not in default under any of its debt or credit agreements.

Long-Term Debt

Deferred income taxes

Total purchase price

Includes gross contractual amounts of accounts receivable acquired of $9 million , which approximates fair value.

The purchase price allocation is considered by Talen Energy's management to be provisional due to pending finalization of valuations and could change materially in subsequent periods.

Any changes to the provisional purchase price allocation during the measurement period that result in material changes to the consolidated financial results will be adjusted prospectively.

The measurement period can extend up to a year from the date of acquisition.

The items pending finalization include, but are not limited to, the valuation of PP&E, certain other assets and liabilities and deferred income taxes.

Actual operating revenues and net income of MACH Gen, since the November 2, 2015 acquisition, included in Talen Energy's results for the year ended December 31, 2015 were:

Operating Revenues

Net Income (Loss)

On June 1, 2015, substantially contemporaneous with the spinoff by PPL to form Talen Energy, RJS Power was contributed by the Riverstone Holders to become a subsidiary of Talen Energy Supply in exchange for 44,974,658 shares of Talen Energy Corporation common stock.

See Notes 1 and 3 for additional information on the spinoff and acquisition.

In accordance with business combination accounting guidance, Talen Energy treated the combination with RJS Power as an acquisition and Talen Energy Supply is considered the acquirer of RJS Power.

Accordingly, Talen Energy applied acquisition accounting to the assets and liabilities of RJS Power whereby the purchase price was allocated to the underlying tangible and intangible assets and liabilities based on their respective fair values as of June 1, 2015, with the remainder allocated to goodwill.

The total consideration for the acquisition was deemed to be $902 million based on the fair value of the Talen Energy Corporation common stock issued for the acquisition using the June 1, 2015 closing "when-issued" market price.

The following table summarizes the allocation of the purchase price to the fair values of the major classes of assets and liabilities of RJS, all of which represent non-cash activity excluded from the Statement of Cash Flows for the year ended December 31, 2015 .

The purchase price allocation is considered by Talen Energy's management to be final as of December 31, 2015.

Current assets (a)

Assets of discontinued operations (b)

Other intangibles

Short-term debt

Current liabilities

Liabilities of discontinued operations

Interest Rate (a)

December 31, 2024 December 31, 2023

7.02 % $ 857 $ 866

TLB-2 7.02 % 850 —

Secured Notes 8.63 % 1,200 1,200

PEDFA 2009B Bonds

PEDFA 2009C Bonds

Cumulus Digital TLF (b)

Total principal 3,038 2,849

Unamortized deferred financing costs and original issuance discounts ( 34 ) ( 29 )

Total carrying value 3,004 2,820

long-term debt, due within one year 17 9

Long-term debt $ 2,987 $ 2,811

Deferred income taxes

Other noncurrent liabilities (c)

Net identifiable assets acquired

Net assets acquired

Includes gross contractual amount of the accounts receivable acquired of $41 million , which approximates fair value.

See Note 14 for information on impairment charges recorded during 2015 related to the Sapphire plants initial classification as assets held for sale and discontinued operations.

See Note 1 for additional information on the subsequent reclassification to assets held and used.

Includes $33 million of "out-of-the-money" coal contracts that will be amortized over the life of the contracts terms as the coal is consumed.

The allocation above is as of the acquisition date of June 1, 2015.

As further discussed in Note 16 , goodwill was fully impaired during 2015, which included the goodwill recognized in the acquisition of RJS Power.

Various purchase accounting valuation adjustments were made during the third and fourth quarters affecting certain current assets and liabilities, PP&E, other intangibles and related deferred income taxes resulting in a $5 million reduction in goodwill.

The statement of income effect of these adjustments recorded during the measurement period was insignificant.

Goodwill recorded as a result of the acquisition primarily reflected synergies expected to be achieved related to the spinoff and acquisition.

The goodwill is not deductible for income tax purposes and was assigned to the East segment.

See Note 16 for additional information related to the impairment of goodwill.

Actual operating revenues and net income of RJS, since the June 1 acquisition, included in Talen Energy's results for the year ended December 31, 2015 were:

Operating Revenues

Net Income (Loss) (a)

Includes certain asset impairments and excludes the impact of the goodwill impairment recorded in 2015 subsequent to the acquisition.

See Notes 14 and 16 for information on the impairments recorded.

Pro Forma Information for RJS Power and MACH Gen Acquisitions

Pro forma information (unaudited) for Talen Energy for the year ended December 31, as if both the RJS Power and MACH Gen acquisitions had occurred January 1, 2014, is as follows:

Operating Revenues

Income (Loss) After Tax from Continuing Operations

Basic and diluted earnings per share (for Talen Energy Corporation)

The unaudited pro forma financial information has been presented for illustrative purposes only and is not necessarily indicative of results of operations that would have been achieved had the acquisitions taken place on the date indicated, or the future consolidated results of operations of Talen Energy.

The pro forma financial information presented above has been derived from the historical consolidated financial statements of Talen Energy and MACH Gen and from the historical consolidated and combined financial statements of RJS Power.

The pro forma financial information presented above includes adjustments for (1) alignment of accounting policies, (2) incremental depreciation and amortization expense related to fair value adjustments to PP&E and identifiable intangible assets and liabilities, (3) incremental interest expense for outstanding borrowings to reflect the terms of the Talen Energy Supply RCF related to the RJS acquisition, (4) nonrecurring items (discussed below), (5) the tax effect of the above adjustments, and (6) the issuance of Talen Energy Corporation common stock in connection with the spinoff from PPL and the acquisition of RJS Power.

The pro forma financial information presented includes the impact of impairments recorded during the third and fourth quarters of 2015.

See Notes 14 and 16 for information on the impairments recorded.

Nonrecurring acquisition, integration and other costs directly related to the acquisitions of $20 million were incurred during 2015 and recorded in "Operation and maintenance" on the Statements of Income.

Adjustments were made in the calculation of pro forma amounts to remove the effect of these nonrecurring items and related income taxes.

The pro forma financial information does not include adjustments for potential future cost savings for either acquisition.

Talen Renewable Energy

In November 2015, Talen Energy completed the sale of Talen Renewable Energy for $116 million in cash and recorded a pre-tax gain on the sale of $10 million in the East segment, which is reflected in "Operation and maintenance" on the Statement of Income.

Announced Divestitures

Ironwood, Holtwood, Lake Wallenpaupack and C.P.

Crane Power Plants

In October 2015, Holtwood, LLC, a wholly owned, indirect subsidiary of Talen Energy, entered into an agreement to sell the Holtwood and Lake Wallenpaupack hydroelectric facilities in Pennsylvania for a purchase price of $860 million , subject to customary purchase price adjustments.

The facilities have a combined summer rating operating capacity of 308 MW.

The transaction is expected to close in March 2016, subject to customary closing conditions.

In October 2015, Talen Generation entered into an agreement to sell Talen Ironwood Holdings, LLC, which through its subsidiaries owns and operates the Ironwood natural gas combined-cycle plant in Pennsylvania, for a purchase price of $657 million , subject to customary purchase price adjustments.

In connection with the sale, in January 2016, Talen Energy repaid $41 million of indebtedness, plus a customary debt make-whole premium.

The Ironwood unit has a summer rating operating capacity of 660 MW.

The sale transaction closed in February 2016, with an estimated gain, net of transaction costs including

the make-whole premium on the debt, of $159 million , which will be recorded to "Operating Income" on the Statement of Income in 2016.

Proceeds from the sale of Ironwood were used to repay the majority of Talen Energy's short-term debt.

In October 2015, Raven Power Marketing LLC, a wholly owned, indirect subsidiary of Talen Energy, entered into an agreement to sell C.P.

Crane LLC, which owns and operates the C.P.

Crane coal-fired power plant in Maryland.

Crane plant has a summer rating operating capacity of 402 MW.

The transaction closed in February 2016.

The transaction is not expected to have a significant impact on Talen Energy's financial condition or results of operations.

See Notes 14 and 16 for information on impairments recorded in 2015 for this plant.

The sales are part of the requirement to divest certain PJM assets to satisfy a December 2014 FERC order approving the combination with RJS Power.

See Note 1 for information on the FERC order.

At December 31, 2015, the major component of assets held for sale related to the sale of these businesses was primarily $936 million of PP&E which was included in the East segment.

Talen Ironwood Holdings, LLC is considered an individually significant component whose pretax income (loss) attributable to Talen Energy for 2015, 2014, and 2013 was $73 million , $67 million , and $(22) million .

Discontinued Operations

Talen Montana Hydro Sale

In November 2014, Talen Montana completed the sale to NorthWestern Corporation of 633 MW of hydroelectric generating facilities located in Montana for approximately $900 million in cash.

The sale included 11 hydroelectric power facilities and related assets.

Following are the components of discontinued operations in the Statement of Income for the years ended December 31 .

Operating revenues

Gain on the sale (pre-tax)

Interest expense (a)

Income (loss) before income taxes

Income (Loss) from Discontinued Operations (net of income taxes)

Represents allocated interest expense based upon the discontinued operations share of the net assets of Talen Energy.

To facilitate the sale of the Montana hydroelectric generating facilities discussed above, Talen Montana terminated, in December 2013, its operating lease arrangement related to partial interests in Units 1, 2 and 3 of the Colstrip coal-fired generating facility and acquired those interests, collectively, for $271 million .

At lease termination, the existing lease-related assets on the balance sheet consisting primarily of prepaid rent and leasehold improvements were written off and the acquired Colstrip assets were recorded at fair value as of the acquisition date.

Talen Energy recorded a charge of $697 million ( $413 million after-tax) for the termination of the lease included in "Loss on lease termination" on the 2013 Statements of Income.

The $271 million payment is reflected in "Cash Flows from Operating Activities" on the 2013 Statement of Cash Flow.

Bell Bend COLA

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

Also in 2008, Bell Bend submitted Parts I and II of an application for a federal loan guarantee for Bell Bend to the DOE.

In February 2014, the DOE announced the first loan guarantee for a nuclear project in Georgia.

Although eight of the ten applicants that submitted Part II applications remain active in the DOE program, the DOE has stated that the $18.5 billion currently appropriated to support new nuclear projects would not likely be enough for more than three projects.

Bell Bend submits quarterly application updates for Bell Bend to the DOE to remain active in the loan guarantee application process.

The NRC continues to review the COLA.

Bell Bend does not expect to complete the COLA review process with the NRC prior to 2018.

Bell Bend has made no decision to proceed with construction and expects that such decision will not be made for several years given the anticipated lengthy NRC license approval process.

Additionally, Bell Bend does not expect to proceed with construction absent favorable economics, a joint arrangement with other interested parties and a federal loan guarantee or other acceptable financing.

Bell Bend is currently authorized by Talen Energy Corporation's Board of Directors to spend up to $256 million on the COLA and other permitting costs necessary for construction.

At December 31, 2015 and 2014 , $201 million and $188 million of costs, which includes capitalized interest, associated with the licensing application were capitalized and are included on the Balance Sheets in noncurrent "Other intangibles." Talen Energy continues to support the Bell Bend licensing project with a near term focus on obtaining the final environmental impact statement.

Talen Energy placed the NRC safety review (which supports issuance of their final safety evaluation report, the other key element of the COLA) on hold in 2014, due to a lack of progress by the reactor vendor with respect to its NRC design certification process, which is a prerequisite to the COLA.

Brunner Island Co-firing Project

Talen Energy is in the process of making modifications to its Brunner Island coal-fired generating facility to be able to co-fire using natural gas to better position the plant for low gas price environments.

Construction is under way and is expected to be completed by the end of 2016.

The project is expected to cost $118 million .

At December 31, 2015 and 2014 , $23 million and $5 million of costs, which include capitalized interest, associated with the project were capitalized and are included in "Construction work in progress" on the Balance Sheets.

Talen Energy and its subsidiaries have entered into various agreements for the lease of office space, vehicles, land, gas storage and other equipment.

At December 31, 2015 , Talen Energy's most significant lease, which expires in 2018, relates to its corporate headquarters.

Rent expense for the years ended December 31 for operating leases was as follows:

Total future minimum rental payments for all operating leases are estimated to be:

Stock-Based Compensation

Stock Incentive Plan

Talen Energy Corporation grants share-based compensation to eligible participants under the Talen Energy Stock Incentive Plan (SIP).

Under the SIP, restricted shares of Talen Energy Corporation stock, restricted stock units, performance units, stock options and stock appreciation rights may be granted to officers, directors and other key employees.

Additionally, Talen Energy Corporation will match shares of its common stock purchased by certain employees on the open market from June 1, 2015 through March 31, 2018 with grants of restricted stock units, subject to certain restrictions (Matching Grants).

Awards under the SIP are made by the Compensation, Governance and Nominating Committee (CGNC) of the Talen Energy Corporation Board of Directors or its delegate.

The total number of shares which may be issued under the plan is 5,630,000 and the maximum number of shares for which stock options may be granted is 2,000,000 .

Shares delivered under the SIP may be in the form of authorized and unissued Talen Energy Corporation common stock or common stock held in treasury by Talen Energy Corporation.

Restricted Stock Units

Restricted stock units are awards based on the fair value of a share of Talen Energy Corporation common stock on the date of grant.

Actual Talen Energy Corporation common shares will be issued upon completion of a vesting period of three years,

aside from Matching Grants that generally vest two years from the date of grant.

Substantially all restricted stock unit awards are expected to vest.

The fair value of restricted stock units granted is recognized as compensation expense on a straight-line basis over the service period.

Restricted stock units are subject to forfeiture or accelerated payout under the pertinent award agreement provisions for termination, disability and death of employees.

Restricted stock units vest fully, in certain situations, as defined by in the applicable award agreement.

The total restricted stock units granted, nonvested and outstanding through December 31, 2015 was 265,849 and the weighted-average grant date fair value per share was $18.74 .

Stock Options

Stock options have been granted with an option exercise price per share not less than the fair value of Talen Energy Corporation's common stock on the date of grant.

Options become exercisable in equal installments over a three -year service period beginning one year after the date of grant, assuming the individual is still employed by Talen Energy or a subsidiary.

The CGNC has discretion to accelerate the exercisability of the options.

All options expire no later than ten years from the grant date.

The options become exercisable immediately in certain situations, as defined by the pertinent award agreement.

The fair value of options granted is recognized as compensation expense on a straight-line basis over the service period.

Substantially all stock option awards are expected to vest.

The total stock options granted, nonvested and outstanding through December 31, 2015 was 991,101 and the grant date fair value per share was $4.91 .

The weighted-average exercise price per share is $19.00 and the weighted-average remaining contractual term is 9.4 years .

The stock options outstanding at December 31, 2015 are currently out of the money.

The fair value of each option granted is estimated using a Black-Scholes option-pricing model.

Talen Energy uses a risk-free interest rate, expected option life and expected volatility to value its stock options.

Talen Energy Corporation does not currently expect to pay dividends, therefore a dividend yield assumption is not used to value stock options.

The risk-free interest rate reflects the yield for a U.S.

Treasury Strip available on the date of grant with constant rate maturity approximating the option's expected life.

Expected life was calculated using the simplified method described in SEC Staff Accounting Bulletin (SAB) 107/110 (updated by SAB 110).

Expected volatility is derived from the historical volatility of a peer group selected by management as Talen Energy Corporation's common stock does not have a trading history.

The assumptions used in the model were:

Risk-free interest rate

Expected option life

Expected stock volatility

Performance Units

Performance units represent a target number of shares of Talen Energy Corporation's common stock that the recipient would receive upon Talen Energy Corporation's attainment of an applicable performance goal.

For awards granted in 2015, Talen Energy Corporation uses TSR, which is determined based on TSR during a three -year performance period.

At the end of the performance period, payout is determined by comparing Talen Energy Corporation's TSR to the TSR of peer group companies that Talen Energy Corporation has selected.

Awards are payable on a graduated basis, based on thresholds that measure Talen Energy Corporation's performance relative to the peer group companies, on which each years' awards are measured.

Awards can be paid up to 200% of the target award or forfeited with no payout if performance is below a minimum established performance threshold.

Under the pertinent award agreement provisions, performance units are subject to forfeiture upon termination of employment except for in the event of a disability or death of an employee, in which case the total performance units remain outstanding and are eligible for vesting through the conclusion of the performance period.

The fair value of performance units is recognized as compensation expense on a straight-line basis over the three-year performance period.

Performance units vest on a pro rata basis, in certain situations, as defined by the applicable award agreement.

The fair value of performance units granted was estimated using a Monte Carlo pricing model that values market based performance conditions such as TSR.

The model assumed an expected stock volatility of 31.8% that was based on the historical volatility based on daily stock price changes of peer group companies.

The total performance units granted, nonvested and outstanding through December 31, 2015 was 158,900 and the weighted-average grant date fair value was $21.17 per share.

Directors Deferred Compensation Plan

Under the Talen Energy Corporation Directors Deferred Compensation Plan, or DDCP, stock units are granted to eligible directors of Talen Energy Corporation in connection with their retainers for service on Talen Energy Corporation’s board of directors and its committees.

Stock units are based on the fair market value of a share of Talen Energy Corporation’s common stock on the date of grant.

The total number of stock units granted under the DDCP through December 31, 2015 was 34,967 and the weighted average grant date fair value was $13.23 per share.

Compensation Expense

The year ended December 31, 2015 includes an insignificant amount of compensation expense for Talen Energy Corporation restricted stock units, performance units and stock options accounted for as equity awards.

The year ended December 31, 2014 includes compensation expense of $33 million and the associated income tax benefit of $14 million for restricted stock, restricted stock units, performance units and stock options accounted for as equity awards from PPL, which included an allocation of PPL Services' expense.

The year ended December 31, 2013 includes compensation expense of $27 million and the associated income tax benefit of $11 million for restricted stock, restricted stock units, performance units and stock options accounted for as equity awards from PPL, which included an allocation of PPL Services' expense.

At December 31, 2015, unrecognized compensation expense and the weighted-average period for recognition related to nonvested restricted stock units, performance units and stock option awards from Talen Energy was $11 million and 2.4 years .

Prior to the spinoff, restricted shares of PPL common stock and related restricted stock units, performance units and stock options were granted to officers and other key employees of Talen Energy.

At December 31, 2014 , these employees of Talen Energy had 1,457,900 of unvested shares of restricted stock and restricted stock units, 291,492 of performance units and 2,745,016 of outstanding stock options issued by PPL.

The vesting of these awards was accelerated in 2015 in connection with the spinoff from PPL.

See Note 1 for information on the recording of expense related to this acceleration and additional information on the spinoff from PPL.

For the year ended December 31, 2015 , compensation expense for these awards, excluding the acceleration, but including an allocation of PPL Services' compensation expense for similar awards, was $18 million .

Retirement and Postemployment Benefits

Prior to the June 1, 2015 spinoff, the majority of Talen Energy Supply's employees were eligible for pension benefits under a PPL non-contributory defined benefit pension plan, with benefits based on length of service and either career average pay or final average pay, as defined by the plan.

Prior to the June 1, 2015 spinoff, this plan was closed to all newly hired employees.

Newly hired employees were eligible to participate in a PPL 401(k) savings plan with enhanced employer contributions.

Talen Energy was allocated costs of the PPL pension plan based on its employees' participation in the plan.

Employees who participated in this PPL pension plan who became employees of Talen Energy Supply transferred into a newly created pension plan sponsored by Talen Energy Supply, which provides benefits similar to that of the PPL pension plan.

Prior to the June 1, 2015 spinoff, the majority of Talen Energy Supply's employees were also eligible for certain health care and life insurance benefits upon retirement through the PPL other postretirement benefit plans, which prior to June 1, 2015, were closed to all newly hired employees.

Talen Energy Supply was allocated costs of the PPL plans based on its employees' participation in the plans.

Employees who participated in the health care and life insurance plans and who became employees of Talen Energy Supply transferred into the newly created Talen Energy other postretirement benefit plans sponsored by Talen Energy Supply, which provide benefits similar to those of the PPL other postretirement benefit plans.

A remeasurement of the assets and the obligations for the PPL pension and other postretirement benefit plans was performed as of May 31, 2015 in order to separate the assets and obligations of the PPL plans attributable to Talen Energy, as required by the spinoff agreements.

The Talen Energy pension plan assumed from PPL the pension benefit obligations for active plan participants who became employees of Talen Energy in connection with the spinoff and for individuals who terminated employment from Talen Energy Supply on or after July 1, 2000.

A portion of the PPL pension plan assets were also allocated to the new Talen Energy pension plan.

The asset allocation was based on the rules prescribed by ERISA (Employee Retirement Income Security Act) for allocating assets in connection with a pension plan spinoff.

The Talen Energy other postretirement benefit plans assumed the other postretirement benefit obligations from PPL for active plan participants who became

employees of Talen Energy in connection with the spinoff.

PPL retained obligations attributable to existing retirees as of the date of the spinoff.

A portion of the PPL other postretirement benefit plan assets, which were held in VEBA trusts and a 401(h) account, were also allocated to the new Talen Energy other postretirement benefit plans.

The asset allocation was determined separately for each funding vehicle based on the ratio of the accumulated postretirement benefit obligation (APBO) assumed by Talen Energy to the total APBO attributed to each funding vehicle.

As a result of the above, the net funded status of the new Talen Energy pension and other postretirement benefit plans at June 1, 2015 was a liability of $257 million .

The majority of Talen Montana's employees are eligible for pension benefits under a cash balance plan.

Effective January 1, 2012, that plan was closed to all newly hired salaried employees.

Effective September 1, 2014, that plan was closed to all newly hired bargaining unit employees.

Newly hired employees are eligible to participate in a 401(k) savings plan with enhanced employer contributions.

The majority of Talen Montana's employees are also eligible for certain health care and life insurance benefits upon retirement, under a retiree health plan sponsored by Talen Montana, which is now closed to newly hired employees.

There were no changes to the pension and other postretirement benefit plans for employees of Talen Montana as a result of the spinoff transaction.

However, PPL retained the liability for other postretirement benefits attributable to existing retirees of Talen Montana as of the date of the spinoff.

Employees of certain of Talen Energy's mechanical contracting companies are eligible for benefits under multiemployer plans sponsored by various unions.

The following table provides the components of net periodic defined benefit costs for Talen Energy pension and other postretirement plans for the years ended December 31 , for which the 2015 periods include seven months of costs under the newly formed Talen Energy plans and a full year of Talen Montana plans.

__________________

(a) Computed interest rate as of December 31, 2024 (Successor).

(b) See “Recent Transactions” below for additional information on extinguishments of indebtedness.

Long-term debt maturities as of December 31, 2024 (Successor) were:

2025 2026 2027 2028 2029 Thereafter Total

Principal debt maturities $ 17 $ 17 $ 17 $ 17 $ 17 $ 2,952 $ 3,038

Revolving Credit and Other Facilities

December 31, 2024

Maturity Committed Capacity (a)

Direct Cash Borrowings LCs Issued Unused Capacity

December 2029 $ 700 $ — $ — $ 700

LCF December 2026 900 — 374 526

Total $ 1,600 $ — $ 374 $ 1,226

__________________

(a) RCF committed capacity can be used for direct cash borrowings and (or) LCs.

In December 2024, the TLC LCF and Bilateral LCF were terminated.

However, as certain LCs remained outstanding under these facilities pending their transition to the LCF, corresponding backstop LCs were issued under the LCF.

As of December 31, 2024 (Successor), the amount of such backstop LCs issued under the LCF were $ 297 million.

As of December 31, 2023 (Successor):

(i) the aggregate LCs issued under the TLC LCF and Bilateral LCF were $ 478 million;

and (ii) LCs issued under TLC LCF were collateralized by $ 472 million of cash presented as “Restricted cash and cash equivalents” on the Consolidated Balance Sheets.

The restricted cash was released in connection with the TLC LCF termination.

See “Recent Transactions–Credit Facilities” below for additional information on LC facility terminations.

Long-Term Debt, Revolving Credit, and Other Facilities

Certain key terms of our indebtedness include:

Secured Notes TLB-1 TLB-2 RCF LCF PEDFA Bonds

June 2030 May 2030 December 2031 December 2029 December 2026 2009B:

December 2038

December 2037

None Term SOFR Term SOFR Term SOFR None None

Rate, Applicable Margin, and Amortization:

8.625 % per annum fixed rate

No applicable margin

No amortization

2.50 % per annum applicable margin;

leverage-based step-downs to 2.25 % and 2.00 %

Amortization 1.00 % per annum;

paid quarterly

Same as TLB-1 Cash borrowings:

2.00 % per annum applicable margin;

leverage-based step-downs to 1.75 % and 1.50 %

LC fee equal to applicable margin above + fronting fee of 0.125 %

Unused commitments:

leverage-based step-down to 0.25 %

No amortization

Unused commitments:

5.25 % per annum fixed rate

No applicable margin

No amortization

Prepayment Penalty:

Prior to June 1, 2026:

Redeemable at par plus a customary “make-whole” premium.

40 % redeemable from the proceeds of certain equity offerings at 108.625 %.

10 % redeemable at 103 % from June 1, 2025 – May 31, 2026

On or after June 1 of the following years:

2028 and after:

1.00 % to the extent prepaid prior to June 20, 2025 in connection with a repricing transaction

1.00 % to the extent prepaid prior to June 13, 2025 in connection with a repricing transaction

None None Prior to June 1, 2026:

Par plus a customary “make-whole” premium

On or after June 1, 2026:

Credit Agreement .

The Credit Agreement governs the RCF, TLB-1, TLB-2, and LCF.

The Credit Agreement contains customary negative covenants including but not limited to limitations on incurrence of liens and additional indebtedness, making investments, payment of dividends, and asset sales.

The Credit Agreement also contains customary affirmative covenants.

Solely with respect to the RCF and LCF, and solely during a compliance period (i.e., when RCF cash borrowings exceed 50 % of revolving commitments), the Credit Agreement requires TES’s consolidated first lien net leverage ratio not to exceed 4.25 x.

This financial covenant does not apply to the TLB-1 or TLB-2.

The Credit Agreement also contains customary representations and warranties, events of default, and remedies (including acceleration of amounts due and (or) termination of commitments).

Secured Notes.

Interest on the Secured Notes is payable semi-annually on June 1 and December 1 of each year and at maturity.

The Secured Notes are subject to customary negative covenants, including but not limited to certain limitations on incurrence of liens and additional indebtedness, making investments, payment of dividends, and transactions involving the Susquehanna assets, but do not contain any financial covenants.

The Secured Notes also contain customary affirmative covenants, events of default, and remedies (including acceleration).

The PEDFA 2009B and 2009C Bonds were issued by the PEDFA on behalf of TES, and TES then received the proceeds under corresponding back-to-back exempt facilities loan agreements with the PEDFA.

Corresponding TES unsecured promissory notes for each series contain the applicable principal, interest, and prepayment provisions.

The PEDFA Bonds bear interest at a fixed rate until the end of the current term rate period on June 1, 2027, at which time they are subject to mandatory remarketing during which TES may elect a different interest rate mode.

Aside from principal amount and final maturity, the terms of the PEDFA 2009B Bonds and 2009C Bonds are substantially identical.

The PEDFA Bonds are subject to customary affirmative and negative covenants appropriate for such tax-exempt facilities, including but not limited to limitations on incurrence of liens (but not unsecured indebtedness), and asset sales.

The PEDFA Bonds are also subject customary events of default and remedies (including acceleration).

Secured ISDAs.

Talen Energy Marketing is party to certain Secured ISDAs, under which TES and the Subsidiary Guarantors provide the applicable counterparties with a first priority lien on and security interest (which ranks pari passu with the liens securing the Credit Facilities and the Secured Notes) in certain assets in lieu of posting collateral in the form of cash equivalents or LCs.

The secured obligations under the Secured ISDAs were $ 17 million as of December 31, 2024 (Successor).

Security Interests, Guarantees, and Cross-Defaults

Secured Obligations.

The obligations under the Credit Facilities, Secured Notes, and Secured ISDAs are secured by a first-priority lien on and security interest in substantially all of the assets of TES and the Subsidiary Guarantors.

The Subsidiary Guarantors guarantee TES’s obligations under the Credit Facilities and the Secured Notes.

TES and the Subsidiary Guarantors guarantee Talen Energy Marketing’s obligations under the Secured ISDAs.

The amount for which TES and the Subsidiary Guarantors may be liable is equal to the amount of obligations outstanding under such agreements and may also include unpaid interest, premiums, penalties, and (or) other fees and expenses.

An event of default under the Credit Facilities, Secured Notes, or Secured ISDAs, if not cured or waived, may result in a cross acceleration of amounts due and (or) cross termination across all these agreements.

Unsecured Obligations.

The PEDFA Bonds are senior unsecured obligations of TES that are effectively subordinated to TES’s secured obligations, including the Credit Facilities, Secured Notes, and Secured ISDAs, to the extent of the value of the assets securing those obligations.

Certain of the Subsidiary Guarantors also guarantee TES’s obligations under the PEDFA Bonds.

These guarantees are the general unsecured obligations of such Subsidiary Guarantors, rank equally with all of their other senior unsecured indebtedness, and are effectively subordinated to their secured obligations, including guarantees under the Credit Facilities, Secured Notes, and Secured ISDAs, to the extent of the value of the assets securing those obligations.

Recent Transactions

Secured Notes.

In January 2025, the indenture governing the Secured Notes was amended to, among other things:

(i) modify certain provisions, including certain covenants and related definitions, in order to substantially conform to the corresponding amendments to the Credit Agreement obtained in the December 2024 transactions discussed below;

and (ii) waive TES’s right to optionally redeem up to 10 % of the Secured Notes at a price of 103 % of par prior to June 1, 2025.

Credit Facilities.

In December 2024, TES completed several refinancing transactions:

Issued a new $ 850 million TLB-2, the proceeds of which were used, together with cash on hand, to repurchase shares of our outstanding common stock from Rubric.

See Note 18 for additional information on repurchases of common stock.

Repriced the existing $ 857 million TLB-1 to reduce the current interest rate margin by 100 basis points (to SOFR plus 250 basis points, with further leverage-based step downs available) to align pricing with the new TLB-2.

Repriced the existing $ 700 million RCF to reduce the current interest rate margin by 100 basis points (to SOFR plus 200 basis points, with further leverage-based step downs available), increased revolving LC capacity from $ 475 million to $ 700 million, and extended the maturity from May 2028 to December 2029.

Issued a new $ 900 million standalone secured LCF to transition LCs from the TLC LCF and Bilateral LCF.

LCs issued under the LCF are subject to an LC fee of 2.00 % per annum (with leverage-based step downs available) plus a fronting fee of 0.125 % per annum.

• TLC/TLC LCF:

Repaid in full the $ 470 million TLC utilizing the restricted cash collateralizing the TLC LCF, and terminated the TLC and associated $ 470 million TLC LCF.

• Bilateral LCF:

Terminated the $ 75 million Bilateral LCF.

In connection with these transactions, the requisite lenders under the Credit Agreement also consented to certain amendments, among other things, increasing the Company’s flexibility for restricted payments, investments, and dispositions under the Credit Facilities.

As a result of these transactions, the Company derecognized the carrying value of the extinguished TLC and presents the carrying value of the newly issued TLB-2 on the Consolidated Balance Sheet.

In May 2024, TES repriced the TLB-1 and TLC, and the lenders, as part of these debt modifications, agreed to waive mandatory prepayment obligations related to the ERCOT Sale.

See Note 20 for additional information on the ERCOT Sale.

Additionally, the lenders under the TLB-1, TLC, and RCF consented to certain other covenant improvements.

In June 2024, TES completed the remarketing of its outstanding $ 50 million in PEDFA 2009B Bonds and $ 81 million in PEDFA 2009C Bonds.

As part of the remarketing, (i) the PEDFA Bonds were transitioned from a variable daily interest rate to a fixed term rate of 5.25 % until June 1, 2027, at which time they are subject to mandatory remarketing during which TES may elect a different interest rate mode;

(ii) $ 133 million of TES LCs that had previously supported the PEDFA Bonds were terminated;

(iii) mandatory repurchase and optional redemption provisions were modified;

and (iv) certain covenants relating to changes of control, incurrence of liens, and asset sales were amended and became operative.

The remarketing transaction is excluded from the Consolidated Statements of Cash Flows as a non-cash item.

Cumulus Digital TLF Repayment.

In connection with the AWS Data Campus Sale, the Cumulus Digital TLF was paid in full in March 2024, together with all accrued interest and other outstanding amounts, and related liens, guarantees, and LCs were released and terminated.

See Note 20 for additional information on the AWS Data Campus Sale.

Recurring Fair Value Measurements

Financial assets and liabilities reported at fair value on a recurring basis primarily include energy commodity derivatives, interest rate derivatives, and investments held within the NDT.

The classifications of recurring fair value measurements within the fair value hierarchy were:

December 31, 2024 December 31, 2023

Level 1 Level 2 NAV Netting (a)

Total Level 1 Level 2 NAV Netting (a)

Cash equivalents $ — $ — $ 3 $ — $ 3 $ — $ — $ 9 $ — $ 9

Equity securities (b)

758 — 347 — 1,105 629 — 384 — 1,013

Government debt securities 353 — — — 353 337 — — — 337

Municipal debt securities — 85 — — 85 — 86 — — 86

Corporate debt securities — 173 — — 173 — 156 — — 156

Receivables (payables), net (c)

— — — — 5 — — — — ( 26 )

NDT funds 1,111 258 350 — 1,724 966 242 393 — 1,575

Commodity derivatives 134 91 — ( 156 ) 69 98 196 — ( 200 ) 94

Interest rate derivatives — 2 — — 2 — 1 — — 1

Total assets $ 1,245 $ 351 $ 350 $ ( 156 ) $ 1,795 $ 1,064 $ 439 $ 393 $ ( 200 ) $ 1,670

Commodity derivatives

$ 145 $ 29 $ — $ ( 167 ) $ 7 $ 155 $ 139 $ — $ ( 257 ) $ 37

Interest rate derivatives — — — — — — 6 — — 6

Total liabilities $ 145 $ 29 $ — $ ( 167 ) $ 7 $ 155 $ 145 $ — $ ( 257 ) $ 43

__________________

(a) Amounts represent netting pursuant to master netting arrangements and cash collateral held or placed with the same counterparty.

(b) Includes commingled equity and fixed income funds and real estate investment trusts.

(i) interest and dividends earned but not received;

and (ii) net sold or purchased investments, but not settled.

There were no recurring fair value measurements classified as Level 3 as of December 31, 2024 (Successor) and December 31, 2023 (Successor).

Nonrecurring Fair Value Measurements

There were no nonrecurring fair value measurements related to impairments of long-lived assets during the year ended December 31, 2024 (Successor) and for the period from May 18 through December 31, 2023 (Successor).

See Note 4 for information on the nonrecurring fair value measurements resulting in the application of fresh start accounting and Note 10 for information on the nonrecurring fair value measurement of Brandon Shores during the period from January 1 through May 17, 2023 (Predecessor).

Reported Fair Value

The carrying value of certain financial assets and liabilities on the Consolidated Balance Sheets, including “Cash and cash equivalents , ” “Restricted cash and cash equivalents , ” “Accounts receivable , ” and “Accounts payable and other accrued liabilities” approximate fair value.

The fair value measurements of indebtedness are classified as Level 2 within the fair value hierarchy.

The fair value of fixed rate debt was estimated primarily by utilizing an income approach whereby the future cash flows of the obligations are discounted at the estimated current cost of funding rates, which incorporates the credit risk associated with the obligations.

The carrying value of variable rate indebtedness approximates fair value.

The carrying value and fair value of indebtedness presented on the Consolidated Balance Sheets were:

December 31, 2024 December 31, 2023

Carrying Value Fair Value Carrying Value Fair Value

Long-term debt (a)

$ 3,004 $ 3,120 $ 2,820 $ 2,934

Other short-term indebtedness (b)

__________________

(a) Aggregate value of “Long-term debt” and “Long-term debt, due within one year” presented on the Consolidated Balance Sheets.

(b) Presented as “Other current liabilities” on the Consolidated Balance Sheets.

Postretirement Benefit Obligations

TES and certain subsidiaries sponsor postemployment benefits which include defined benefit pension plans, health and welfare postretirement plans (other postretirement benefit plans), and a defined contribution plan.

Pension and Other Postretirement Defined Benefit Plans

Obligations under the defined benefit pension and other postretirement plans are generally based on factors, among others, such as age of the participants, years of service, and compensation.

The pension and other postretirement plans are closed to new participants.

Effective December 31, 2018, all participants ceased accruing additional benefits in the TERP, the Company’s largest defined benefit pension plan.

Funded Status.

The net fair value of underfunded defined benefit pension and other postretirement plans are presented as “Postretirement benefit obligations” on the Consolidated Balance Sheets.

Certain other postretirement plans were overfunded by $ 36 million and $ 33 million as of December 31, 2024 (Successor) and 2023 (Successor), respectively, and are presented as “Other noncurrent assets” on the Consolidated Balance Sheets.

The current portion of certain unfunded postretirement obligations were non-material.

The aggregate funded status and the weighted average assumptions for the periods were:

Pension Benefits

Other Postretirement Benefits

Net periodic defined benefit costs (credits):

Successor Predecessor

Year Ended December 31, 2024 May 18 through December 31, 2023 January 1 through May 17, 2023

Change in benefit obligation

Benefit obligation beginning balance $ 1,308 $ 1,300 $ 1,273

Service cost 2 2 1

Interest cost 63 40 25

Expected return on plan assets

Amortization of:

Actuarial (gain) loss ( 81 ) 20 6

Curtailment charges (credits)

Net periodic defined benefit costs (credits)

Pension Benefits

Other Postretirement Benefits

Other changes in plan assets and benefit obligations recognized in OCI:

Actual benefits paid ( 105 ) ( 55 ) ( 34 )

Resolved litigation settlement and other charges 15 1 —

Benefit obligation ending balance $ 1,202 $ 1,308 $ 1,271

Change in plan assets

Plan assets fair value beginning balance 975 997 994

Actual return on plan assets ( 13 ) 24 35

Employer contributions 54 9 2

Actual benefits paid ( 105 ) ( 55 ) ( 34 )

Plan assets fair value ending balance $ 911 $ 975 $ 997

Funded status $ ( 291 ) $ ( 333 ) $ ( 274 )

Accumulated benefit obligation $ 1,202 $ 1,308 $ 1,271

Aggregate amounts of underfunded plans

Benefit obligation/Accumulated benefit obligation 1,202 1,308 1,271

Fair value of plan assets 911 975 997

Amounts recognized in accumulated other comprehensive income

Net (gain) loss 34 37 238

Prior service cost (credit)

Amortization of:

Actuarial gain (loss)

Prior service credit (cost)

Total recognized in OCI

Total recognized in net periodic defined benefit costs and OCI

Actuarial loss of $20 million related to these plans is expected to be amortized from AOCI into net periodic defined benefit costs in 2016.

The following net periodic defined benefit costs (credits) were charged to operating expense, excluding amounts charged to construction and other non-expense accounts.

Pension Benefits

Other Postretirement Benefits

In the table above, amounts include costs for the specific plans sponsored by Talen Energy and its subsidiaries and the following allocated costs of the PPL pension and other postretirement benefit plans prior to the spinoff, based on Talen Energy Supply's participation in those plans, which management believes were reasonable at the time:

Pension Benefits

Other Postretirement Benefits

At December 31, 2014 or June 1, 2015, as applicable, the plan sponsors adopted the mortality tables issued by the Society of Actuaries in October 2014 (RP-2014 base tables) for all applicable defined benefit pension and other postretirement benefit plans.

At December 31, 2014 or June 1, 2015, as applicable, the plan sponsors also selected the IRS BB 2-Dimensional mortality improvement scale on a generational basis for all applicable defined benefit pension and other postretirement benefit plans.

These mortality assumptions reflect the recognition of both improved life expectancies and the expectation of continuing improvements in life expectancies.

The following weighted-average assumptions were used in the valuation of the benefit obligations at December 31 .

Pension Benefits

Other Postretirement Benefits

Discount rate

Rate of compensation increase

The following weighted-average assumptions were used to determine the net periodic defined benefit costs for Talen Energy's plans for the years ended December 31 .

Pension Benefits

Other Postretirement Benefits

Total accumulated other comprehensive income $ 34 $ 37 $ 238

Discount rate 5.65 % 5.00 % 5.37 %

Interest crediting rate 6.00 % 6.00 % 6.00 %

Rate of compensation increase 3.45 % 3.45 % 3.45 %

Expected return on plan assets (a)

The expected long-term rates of return for pension and other postretirement benefits are based on management's projections using a best-estimate of expected returns, volatilities and correlations for each asset class.

Each plan's specific current and expected asset allocations are also considered in developing a reasonable return assumption.

The following table provides the assumed health care cost trend rates for the years ended December 31 .

Health care cost trend rate assumed for next year

Rate to which the cost trend rate is assumed to decline (the ultimate trend)

Year that the rate reaches the ultimate trend rate

A one percentage point change in the assumed health care costs trend rate assumption would have been insignificant to the other postretirement benefit plans in 2015 .

The funded status of Talen Energy's plans at December 31 was as follows:

Pension Benefits

Other Postretirement Benefits

Successor Predecessor

Year Ended December 31, 2024 May 18 through December 31, 2023 January 1 through May 17, 2023

Change in benefit obligation

Benefit obligation, beginning of period

Transfer of benefit obligation at spinoff (a)

Benefit obligation beginning balance $ 79 $ 78 $ 77

Service cost 1 1 —

Interest cost 3 2 1

1 unchanged sentence

Actuarial (gain) loss ( 3 ) 1 1

Net Transfers in (out)

Gross benefits paid

Benefit obligation, end of period

Plan participant contributions 2 2 1

Actual benefits paid ( 9 ) ( 5 ) ( 4 )

Benefit obligation ending balance $ 52 $ 79 $ 76

Change in plan assets

Plan assets at fair value, beginning of period

Transfer of plan assets at fair value at spinoff (a)

Plan assets fair value beginning balance 75 74 75

Actual return on plan assets 3 4 2

Employer contributions

Gross benefits paid

Plan assets at fair value, end of period

Funded status end of period

Amounts recognized in the Balance Sheets consist of:

Current Liability

Noncurrent liability

Net amount recognized, end of period

Amounts recognized in AOCI (pre-tax) consist of:

Plan participant contributions 2 2 1

Actual benefits paid ( 9 ) ( 5 ) ( 4 )

Plan assets fair value ending balance $ 71 $ 75 $ 74

Funded status $ 19 $ ( 4 ) $ ( 2 )

Aggregate amounts of underfunded plans

Benefit obligation / Accumulated benefit obligation $ 52 $ 78 $ 76

Fair value of plan assets 71 75 74

Amounts recognized in accumulated other comprehensive income

Net (gain) loss ( 2 ) ( 1 ) 4

Prior service cost (credit) ( 20 ) — ( 4 )

Total accumulated other comprehensive income $ ( 22 ) $ ( 1 ) $ —

Discount rate 5.63 % 5.01 % 5.36 %

Rate of compensation increase 2.31 % 2.31 % 2.31 %

During the year ended December 31, 2024 (Successor), the decrease in postretirement benefit obligations was primarily attributable to increasing interest rates, offset by actual returns being less than expected returns on plan assets.

In March 2024, $ 10 million of excess assets from the PA Mines United Mine Workers of America (“UMWA”) Plan VEBA were transferred to a separate VEBA, which provides benefits for participants in Talen’s health and welfare “wrap plan.” As such assets were not presented on the Consolidated Balance Sheets prior to the transfer of the assets from the VEBA, a transfer gain of $ 10 million was recognized for the year ended December 31, 2024 (Successor) and presented as “Other non-operating income (expense), net” on the Consolidated Statements of Operations.

Net Periodic Benefit Cost and Amounts Recognized in OCI.

Service cost is presented as “Postretirement benefits service (credit) costs, net,” while the other components of net periodic defined benefit cost (credit) for pension and other postretirement plans are presented as “Operation, maintenance and development” on the Consolidated Statements of Operations.

The portion of net periodic benefit cost capitalized during the year ended December 31, 2024 (Successor) and during the periods from May 18 through December 31, 2023 (Successor), and during the periods from January 1 through May 17, 2023 (Predecessor) was not material.

The components of net periodic benefit cost (credit), the amounts recognized in OCI and the associated weighted average assumptions for pension and other postretirement plans for the periods were:

Pension Benefits

Successor Predecessor

Year Ended December 31, 2024 May 18 through December 31, 2023 January 1 through May 17, 2023 Year Ended December 31, 2022

Net periodic benefit costs (credits):

Service cost $ 2 $ 2 $ 1 $ 4

Interest cost 63 40 25 50

Expected return on plan assets ( 66 ) ( 41 ) ( 30 ) ( 68 )

Amortization of net (gain) loss — — 2 27

Resolved litigation settlement and other charges 15 1 — —

Net periodic defined benefit cost (credit) 14 2 ( 2 ) 13

Net actuarial (gain) loss ( 3 ) 38 2 19

Total accumulated benefit obligation for defined benefit pension plans

Values determined as of the spinoff date as discussed above.

Talen Energy's pension plans had projected and accumulated benefit obligations in excess of the fair value of plan assets at December 31, 2015 and 2014.

In addition to the plans it sponsors, Talen Energy Supply and its subsidiaries were allocated a portion of the funded status and costs of the defined benefit plans sponsored by PPL Services based on their participation in those plans prior to the spinoff, which management believes were reasonable at that time.

The actuarially determined obligations of current active employees were used as a basis to allocate total plan activity, including active and retiree costs and obligations.

Allocations to Talen Energy Supply resulted in liabilities at December 31, 2014 as follows:

Pension plans

Other Postretirement Benefits

Successor Predecessor

Year Ended December 31, 2024 May 18 through December 31, 2023 January 1 through May 17, 2023 Year Ended December 31, 2022

Net periodic benefit costs (credits):

Service cost $ 1 $ 1 $ 1 $ 1

Interest cost 3 2 1 3

Expected return on plan assets ( 4 ) ( 2 ) ( 2 ) ( 4 )

Amortization of prior service cost (credit) ( 1 ) — — ( 1 )

Net periodic defined benefit cost (credit) ( 1 ) 1 — ( 1 )

Net actuarial (gain) loss ( 2 ) ( 1 ) — ( 3 )

Prior service credit ( 21 ) — — —

Reclassifications due to settlement and (or) curtailment:

Amortization of prior service cost (credit) 1 — — 1

Amortization of net (gain) loss — — — ( 1 )

Total recognized in OCI $ ( 22 ) $ ( 1 ) $ — $ ( 3 )

Total recognized in net periodic costs and OCI $ ( 23 ) $ — $ — $ ( 4 )

Discount rate 5.01 % 5.13 % 5.41 % 2.94 %

Rate of compensation increase 2.31 % 2.31 % 2.31 % 2.31 %

Expected return on plan assets 5.49 % 5.49 % 5.74 % 3.89 %

Health care grading trend rates (a)

7.10 % to 4.40 %

6.50 % to 4.50 %

__________________

(a) Trend rates grading to 2027.

In September 2024, the Company approved a plan amendment for certain other postretirement benefit plans, resulting in the recognition of prior service credits of $ 21 million and presented as “Postretirement benefit prior service (credits) costs, net” on the Consolidated Statements of Comprehensive Income (Loss).

See Note 12 for additional information on recently resolved litigation regarding certain of our defined benefit pension obligations.

The expected long-term rates of return for pension and other postretirement plans are based on management's projections using a best-estimate of expected returns, volatilities, and correlations for each asset class.

Each plan’s specific current and expected asset allocations are also considered in developing a reasonable return assumption.

Contributions and Payments .

TES contributed $ 43 million and $ 5 million to the TES sponsored pension plan during the year ended December 31, 2024 (Successor) and the period from May 18 through December 31, 2023 (Successor), respectively.

There were no contributions for the pension plans during the period from January 1 through May 17, 2023 (Predecessor).

Talen Montana contributed $ 10 million, $ 4 million, and $ 2 million of discretionary contributions to the Talen Montana sponsored pension plan during the year ended December 31, 2024 (Successor) and for the periods from May 18 through December 31, 2023 (Successor), and January 1 through May 17, 2023 (Predecessor), respectively, to the Talen Montana pension plan.

TES expects to contribute $ 65 million to the TES sponsored pension plan in 2025.

Talen Montana expects to contribute $ 8 million of discretionary contributions to the Talen Montana sponsored pension plan in 2025, of which $ 4 million is expected to be collected by Talen Montana from the other joint owners of Colstrip.

The aggregate benefits paid to pension and other postretirement plan participants was $ 114 million for year ended December 31, 2024 (Successor), $ 60 million during the period from May 18 through December 31, 2023 (Successor), and $ 38 million during the period from January 1 through May 17, 2023 (Predecessor).

The forecasted undiscounted benefit payments to plan participants as of December 31, 2024 (Successor) were:

2025 2026 2027 2028 2029 2030-2034

Pension plans $ 97 $ 94 $ 94 $ 93 $ 93 $ 452

Other Postretirement Benefit Payment

Savings Plans

Substantially all employees of Talen Energy are eligible to participate in deferred savings plans (401(k)s).

Employer contributions to the plans were $16 million in 2015 , $14 million in 2014 and $12 million in 2013 .

Separation Benefits

Talen Energy Supply and certain subsidiaries provide separation benefits to eligible employees.

These benefits may be provided in the case of separations due to performance issues, loss of job related qualifications or organizational changes.

Generally, applicable employees separated are eligible for cash severance payments, outplacement services and a single sum payment approximating the dollar amount of premium payments that would be incurred for continuation of group health and welfare coverage.

Separation benefits for certain bargaining unit employees also include enhanced pension and postretirement medical benefits.

Separation benefits are recorded when such amounts are probable and estimable.

See Note 1 for a discussion of separation benefits related to the spinoff and Note 11 for a discussion of separation benefits related to the one-time voluntary retirement window offered in 2014 to certain bargaining unit employees as part of the new three -year labor agreement with IBEW local 1600.

Separation benefits were not significant in 2013.

Jointly Owned Facilities

At December 31, 2015 and 2014 the Talen Energy Balance Sheets reflect the owned interests in the facilities below.

Ownership Interest

Electric Plant

Other Property

Accumulated Depreciation

Construction Work in Progress

December 31, 2015

Generating Plants

Colstrip Units 1 & 2

Colstrip Units 3

Merill Creek Reservoir

December 31, 2014

Generating Plants

Colstrip Units 1 & 2

Colstrip Unit 3

Merill Creek Reservoir

Each subsidiary owning these interests provides its own funding for its share of the facility.

Each receives a portion of the total output of the generating plants equal to its percentage ownership.

The share of fuel and other operating costs associated with the plants is included in the corresponding operating expenses on the Statements of Income.

Talen Montana and NorthWestern have a sharing agreement that governs each party's responsibilities and rights relating to the operation of Colstrip Units 3 and 4.

Under the terms of that agreement, each party is responsible for 15% of the total non-coal operating and construction costs of Colstrip Units 3 and 4, regardless of whether a particular cost is specific to Colstrip Unit 3 or 4, and is entitled to take up to the same percentage of the available generation from Units 3 and 4.

Commitments and Contingencies

Energy Purchase and Sales Commitments

Energy Purchase Commitments

Talen Energy enters into long-term energy and energy related contracts which include commitments to purchase:

Contract Type

Natural Gas Storage

Natural Gas Transportation

Power, excluding wind

Maximum Maturity Date

As a result of depressed wholesale market prices for electricity and natural gas.

Talen Energy has experienced a shift in the dispatching of its generation fleet from coal-fired to combined-cycle natural gas-fired generation.

This reduction in coal-fired generation output has resulted in a surplus of coal inventory at certain of Talen Energy's Pennsylvania plants.

To mitigate the risk of oversupply, Talen Energy incurred pre-tax charges of $41 million during 2015 in connection with an agreement to reduce its 2015 through 2018 contracted coal deliveries.

These charges were recorded to "Fuel" on the Statement of Income.

Energy Sale Commitments

In connection with its marketing activities or hedging strategies for its power plants, Talen Energy has entered into long-term power sales contracts that extend into 2020 .

Legal Matters

Legal Proceedings

Talen Energy is involved in the following legal proceedings, claims and litigation.

Talen Energy believes that it has meritorious defenses in connection with its current legal proceedings, claims and litigation, and it intends to vigorously contest each of them.

However, there can be no assurance that it will be successful in its efforts.

No estimate of the possible loss or range of loss in excess of amounts accrued, if any, can be made at this time regarding any of the matters specifically described below because the inherently unpredictable nature of legal proceedings may be exacerbated by various factors such as ongoing discovery, significant facts that are in dispute, the stage of the proceeding and the wide range of potential outcomes for any such matter.

As a result, any losses actually incurred could be substantial.

Sierra Club Litigation

In March 2013, the Sierra Club and MEIC filed a complaint in the U.S.

District Court, District of Montana, Billings Division against Talen Montana and the other Colstrip Steam Electric Station (Colstrip) owners:

Avista Corporation, Puget Sound Energy, Portland General Electric Company, NorthWestern Corporation and PacifiCorp.

Talen Montana operates Colstrip on behalf of the owners.

The complaint alleged certain violations of the Clean Air Act, including New Source Review, Title V and opacity requirements and listed 39 separate claims for relief.

The complaint requested injunctive relief and civil penalties on average of $36,000 per day per violation, including a request that the owners remediate environmental damage and that $100,000 of the civil penalties be used for beneficial mitigation projects.

In July 2013, the Sierra Club and MEIC filed an additional Notice of Intent to Sue, identifying additional plant projects that are alleged not to be in compliance with the Clean Air Act and, in September 2013, filed an amended complaint.

The amended complaint dropped all claims regarding pre-2001 plant projects, as well as the plaintiffs' Title V and opacity claims.

It did, however, add claims with respect to a number of post-2000 plant projects, which effectively increased the number of projects subject to the litigation by about 40 .

Talen Montana and the other Colstrip owners filed a motion to dismiss the amended complaint in October 2013.

In May 2014, the court dismissed the plaintiffs' independent Best Available Control Technology claims and their Prevention of Significant Deterioration (PSD) claims for three projects, but denied the owners' motion to dismiss the plaintiffs' other PSD claims on statute of limitation grounds.

In August 2014, the Sierra Club and MEIC filed a second amended complaint.

This complaint includes the same causes of action articulated in the first amended complaint, but in regard to only eight projects done between 2001 and 2013.

In September 2014, the Colstrip owners filed an answer to the second amended complaint.

Discovery closed in the first quarter of 2015, and in April, the plaintiffs indicated they intend to pursue claims related to only four of the remaining projects.

The magistrate judge entered an order on the parties' motions for summary judgment on December 31, 2015.

The judgment dismissed two of the plaintiffs' four remaining claims and provided more preferable legal standards for the remaining two claims.

The case has been bifurcated as to liability and remedy, and the liability trial is currently set for May 2016.

A trial date with respect to remedy, if there is a finding of liability, has not been scheduled.

Notice of Intent to File Suit

In October 2014, Talen Energy received a notice letter from the Chesapeake Bay Foundation (CBF) alleging violations of the Clean Water Act and Pennsylvania Clean Streams Law at the Brunner Island generation plant.

The letter was sent to Brunner Island, LLC and the PADEP and is intended to provide notice of the alleged violations and CBF's intent to file suit in Federal court after expiration of the 60 day statutory notice period.

Among other things, the letter alleges that Brunner Island, LLC failed to comply with the terms of its National Pollutant Discharge Elimination System permit and associated regulations related to the application of nutrient credits to the facility's discharges of nitrogen into the Susquehanna River.

The letter also alleges that PADEP has failed to ensure that credits generated from nonpoint source pollution reduction activities that Brunner Island, LLC applies to its discharges meet the eligibility and certification requirements under PADEP's nutrient trading program regulations.

If a lawsuit is filed by CBF, Talen Energy would expect CBF to seek injunctive relief, monetary penalties, fees and costs of litigation.

Montana Regional Haze

In September 2012, the EPA Region 8 developed a regional haze Federal Implementation Plan (FIP) for Montana.

The final FIP assumed no additional controls for Corette or Colstrip Units 3 and 4, but proposed stricter limits for Corette and Colstrip Units 1 and 2.

Talen Montana was meeting these stricter permit limits at Corette without any significant changes to operations, although other requirements led to the suspension of operations and retirement of Corette in March 2015.

The stricter limits at

Colstrip Units 1 and 2 would require additional controls to meet more stringent nitrogen oxides and sulfur dioxide limits, the cost of which could be significant.

Both Talen Montana and environmental groups appealed the final FIP to the U.S.

Court of Appeals for the Ninth Circuit where oral argument was heard in May 2014.

On June 9, 2015, the Ninth Circuit issued a decision that vacated as arbitrary and capricious the portions of the FIP setting stricter emissions limits for Colstrip Units 1 and 2 and Corette.

The Ninth Circuit upheld the EPA's decision not to require further emissions reductions at Colstrip Units 3 and 4.

The Ninth Circuit opinion requires the EPA to now reissue a FIP that is consistent with the opinion.

Colstrip Wastewater Facility Administrative Order on Consent

Talen Montana is party to an Administrative Order on Consent (AOC) with the MDEQ related to operation of the wastewater facilities at the Colstrip power plant.

In September 2012, Earthjustice, on behalf of Sierra Club, MEIC, and the National Wildlife Federation, filed an affidavit under Montana's Major Facility Siting Act (MFSA) that sought review of the AOC by Montana's Board of Environmental Review.

Talen Montana elected to have this proceeding conducted in Montana state district court, and in October 2012, Earthjustice filed a petition for review in Montana state district court in Rosebud County.

This matter was stayed in December 2012 pending the outcome of separate litigation where the same environmental groups challenged the AOC in a writ of mandamus.

That litigation was resolved in May 2013 when defendants Talen Montana and MDEQ won their motions to dismiss the matter, and the environmental groups did not appeal.

In April 2014, Earthjustice filed successful motions for leave to amend the petition for review and to lift the stay.

Talen Montana and the MDEQ responded to the amended petition and filed partial motions to dismiss in July 2014, which were denied in October 2014.

Discovery closed in October 2015, summary judgment motions on behalf of all parties are pending, and a bench trial is set for April 2016.

In addition to the above matters, from time-to-time in the ordinary course of its business Talen Energy may be subject to other legal proceedings, claims and litigation.

While the outcome of these legal proceedings, claims and litigation is uncertain, the likely results are not expected, either individually or in the aggregate, to have a material adverse effect on Talen Energy's financial condition or results of operations, although the effect could be material to Talen Energy's results of operations in any interim reporting period.

Regulatory Matters

Talen Energy is subject to regulation by federal and state agencies in the various regions where it conducts business, including with respect to the following matters.

New Jersey Capacity Legislation

In January 2011, New Jersey enacted a law (the Act) that Talen Energy believes would intervene in the wholesale capacity market to create incentives for the development of new, in-state electricity generation facilities even when, under the FERC-approved PJM economic model, such new generation would not be economic.

The Act could have the effect of depressing capacity prices in PJM in the short term, which could impact Talen Energy's revenues, and also could harm the long-term ability of the PJM capacity market to encourage necessary generation investment throughout PJM.

In February 2011, certain Talen Energy subsidiaries and several other companies filed a complaint in U.S.

District Court in New Jersey challenging the Act on the grounds that it violates the Supremacy and Commerce clauses of the U.S.

Constitution and requesting relief barring implementation.

In October 2013, the U.S.

District Court in New Jersey issued a decision finding the Act unconstitutional under the Supremacy Clause on the grounds that it infringes upon the FERC's exclusive authority to regulate the wholesale sale of electricity in interstate commerce.

The decision was appealed to the U.S.

Court of Appeals for the Third Circuit (Third Circuit) by CPV Power Development, Inc., Hess Newark, LLC and the State of New Jersey (the Appellants).

In September 2014, the Third Circuit affirmed the District Court's decision.

In December 2014, the Appellants filed a petition for certiorari before the U.S.

Supreme Court.

In March 2015, the U.S.

Supreme Court requested the U.

Solicitor General to submit briefs expressing its views as to the issues raised in this case.

In September 2015, the U.S.

Solicitor General filed a brief expressing the view of the United States that the case was rightly decided and that the petition for certiorari should be denied.

Talen Energy believes, though no assurances can be given, that the proceeding may be delayed pending the outcome of the Maryland Public Service Commission (MD PSC) action described below.

Based upon information currently available to it, Talen Energy cannot estimate a range of reasonably possible losses, if any, related to this matter.

Maryland Capacity Order

In April 2012, the MD PSC ordered (Order) three electric utilities in Maryland to enter into long-term contracts to support the construction of new electricity generating facilities in Maryland, the intent of which, Talen Energy believed, was to encourage the construction of new generation even when, under the FERC-approved PJM economic model, such new generation would not be economic.

The MD PSC action could have the effect of depressing capacity prices in PJM in the short term, which could impact Talen Energy's revenues, and also could harm the long-term ability of the PJM capacity market to encourage necessary generation investment throughout PJM.

In April 2012, Talen Energy subsidiaries and several other companies filed a complaint in U.S.

District Court (District Court) in Maryland challenging the Order on the grounds that it violates the Supremacy and Commerce clauses of the U.S.

Constitution, and requested declaratory and injunctive relief barring implementation of the Order by the MD PSC Commissioners.

In September 2013, the District Court issued a decision finding the order unconstitutional under the Supremacy Clause on the grounds that it infringes upon the FERC's exclusive authority to regulate the wholesale sale of electricity in interstate commerce.

The decision was appealed to the U.S.

Court of Appeals for the Fourth Circuit (Fourth Circuit) by CPV Power Development, Inc.

and the State of Maryland (the Appellants).

In June 2014, the Fourth Circuit affirmed the District Court's opinion and subsequently denied the Appellants' motion for rehearing.

In December 2014, the Appellants filed a petition for certiorari before the U.S.

Supreme Court.

In March 2015, the U.S.

Supreme Court requested the U.S.

Solicitor General to submit briefs expressing its views as to the issues raised in this case.

In September 2015, the U.S.

Solicitor General filed a brief expressing the view of the United States that the case was rightly decided and that the petition for certiorari should be denied.

In October 2015, the U.S.

Supreme Court granted certiorari of the case, and oral arguments are scheduled for February 2016.

Based upon information currently available to it, Talen Energy cannot estimate a range of reasonable possible losses, if any, related to this matter.

Pacific Northwest Markets

Talen Energy Marketing and Talen Montana made spot market bilateral sales of power in the Pacific Northwest during the period from December 2000 through June 2001.

Several parties subsequently claimed refunds at the FERC as a result of these sales.

In June 2003, the FERC terminated proceedings to consider whether to order refunds for spot market bilateral sales made in the Pacific Northwest, including sales made by Talen Montana, during the period December 2000 through June 2001.

In August 2007, the U.S.

Court of Appeals for the Ninth Circuit reversed the FERC's decision and ordered the FERC to consider additional evidence.

In October 2011, the FERC initiated proceedings to consider additional evidence.

In December 2015, the United States Court of Appeals for the Ninth Circuit affirmed the FERC's October 2011 order setting out the remand process that the FERC has followed from 2011 to the present.

In July 2012, Talen Montana and the City of Tacoma, one of the two parties claiming refunds at the FERC, reached a settlement whereby Talen Montana paid $75 thousand to resolve the City of Tacoma's $23 million claim.

The settlement does not resolve the remaining claim outstanding by the City of Seattle for approximately $50 million .

Hearings before a FERC Administrative Law Judge (ALJ) regarding the City of Seattle's refund claims were completed in October 2013 and briefing was completed in January 2014.

In March 2014, the ALJ issued an initial decision denying the City of Seattle's complaint against Talen Montana.

In May 2015, the FERC issued an order affirming the ALJ's March 2014 decision, and in January 2016 the FERC denied requests for a rehearing of its order affirming the ALJ's decision.

In February 2016 the City of Seattle appealed the FERC's decision to the United States Court of Appeals for the Ninth Circuit.

Although Talen Energy and its subsidiaries believe they have not engaged in any improper trading or marketing practices affecting the Pacific Northwest markets, Talen Energy cannot predict the outcome of the above-described proceedings or whether any subsidiaries will be the subject of any additional governmental investigations or named in other lawsuits or refund proceedings.

Consequently, Talen Energy cannot estimate a range of reasonably possible losses, if any, related to this matter.

Electricity - Reliability Standards

The NERC is responsible for establishing and enforcing reliability standards (Reliability Standards) regarding the bulk power system.

The FERC oversees this process and independently enforces the Reliability Standards.

The Reliability Standards have the force and effect of law and apply to certain users of the bulk power electricity system, including electric utility companies, generators and marketers.

Under the Federal Power Act, the FERC may assess civil penalties of up to $1 million per day, per violation, for certain violations.

Talen Energy monitors its subsidiaries' compliance with the Reliability Standards and self-reports potential violations of certain applicable reliability requirements and submit accompanying mitigation plans, as required.

The resolution of a number of potential violations is pending.

In the course of implementing their programs to ensure compliance with the Reliability Standards by those Talen Energy subsidiaries subject to the standards, certain other instances of potential non-compliance may be identified from time to time.

Talen Energy cannot predict the outcome of these matters, and cannot estimate a range of reasonably possible losses, if any.

In addition to the regulatory matters discussed above, Talen Energy and its subsidiaries are party to other regulatory proceedings arising in the ordinary course of business or have other regulatory exposure.

While the outcome of these other regulatory matters and proceedings is uncertain, the likely results are not expected, either individually or in the aggregate, to have a material adverse effect on Talen Energy's financial condition or results of operations, although the effect could be material to Talen Energy's results of operations in any interim reporting period.

Environmental Matters

Environmental Laws and Regulations

Extensive federal, state and local environmental laws and regulations are applicable to Talen Energy's air emissions, water discharges and the management of hazardous and solid waste, as well as other aspects of its business.

In addition, many of these environmental considerations are also applicable to the operations of key suppliers, or customers, such as coal producers and industrial power users, and may impact the cost for their products or their demand for Talen Energy's services.

It may be necessary for Talen Energy to modify, curtail, replace or cease operation of certain facilities or performance of certain operations to comply with statutes, regulations and other requirements imposed by regulatory bodies, courts or environmental groups.

Talen Energy may incur costs to comply with environmental laws and regulations, including increased capital expenditures or operating and maintenance expenses, monetary fines, penalties or other restrictions, which could be material.

Legal challenges to environmental permits or rules add to the uncertainty of estimating the future cost of complying with these permits and rules.

In addition, costs may increase significantly if the requirements or scope of environmental laws or regulations, or similar rules, are expanded or changed.

Superfund and Other Remediation

Under the Pennsylvania Clean Streams Law, a subsidiary of Talen Generation is obligated to remediate acid mine drainage at a former mine site and may be required to take additional steps to prevent acid mine drainage at the previously capped refuse pile at this mine site.

The subsidiary is currently pumping and treating mine water at the former mine site.

At December 31, 2015, Talen Generation had accrued a discounted liability of $19 million to cover the costs of pumping and treating groundwater at the remaining mine site for 50 years.

Talen Energy discounted this liability based on a risk-free rate of 8.41% at the time of the mine closure.

Expected undiscounted payments are estimated to be insignificant for each of the years 2016 through 2020 and $92 million for work after 2020.

From time-to-time, Talen Energy undertakes investigative or remedial actions in response to notices of violations, spills or other releases at various on-site and off-site locations, negotiates with the EPA and state and local agencies regarding actions necessary for compliance with applicable requirements, negotiates with property owners and other third parties alleging impacts from Talen Energy's operations and undertakes similar actions necessary to resolve environmental matters which arise in the course of normal operations.

Based on analysis to-date, resolution of these known environmental matters is not expected to have a material adverse effect on Talen Energy's financial condition or results of operations.

Future investigation or remediation work at sites currently under review, or at sites not currently identified, may result in additional costs for Talen Energy, but at this time Talen Energy is unable to determine if such investigation or remediation work will have a material adverse effect on Talen Energy's financial condition or results of operations.

In addition to the environmental matters discussed above, from time-to-time in the ordinary course of its business Talen Energy may become involved in other environmental matters or become subject to other environmental statutes, regulations or requirements.

In the opinion of management, based upon information currently available to Talen Energy, while the outcome of these other environmental matters and proceedings is uncertain, the likely results are not expected, either individually or in the aggregate, to have a material adverse effect on Talen Energy's financial condition or results of operations, although the effect could be material to Talen Energy's results of operations in any interim reporting period.

Other Commitments and Contingencies

Nuclear Insurance

The Price-Anderson Act is a United States Federal law which governs liability-related issues and ensures the availability of funds for public liability claims arising from an incident at any U.S.

licensed nuclear facility.

It also seeks to limit the liability of nuclear reactor owners for such claims from any single incident.

At December 31, 2015 , the liability limit per incident is $13.3 billion for such claims which is funded by insurance coverage from American Nuclear Insurers and an industry assessment program.

Under the industry retroactive assessment program, in the event of a nuclear incident at any of the reactors covered by The Price-Anderson Act, as amended, Susquehanna Nuclear could be assessed deferred premiums of up to $255 million per incident, payable at a maximum of $38 million per year.

Additionally, Susquehanna Nuclear purchases property insurance programs from NEIL, an industry mutual insurance company of which Susquehanna Nuclear is a member.

Effective April 1, 2015, facilities at the Susquehanna plant are insured against property damage losses up to $2.0 billion .

Susquehanna Nuclear also purchases an insurance program that provides coverage for the cost of replacement power during prolonged outages of nuclear units caused by certain specified conditions.

Under the NEIL property and replacement power insurance programs, Susquehanna Nuclear could be assessed retrospective premiums in the event of the insurers' adverse loss experience.

This maximum assessment is $55 million .

Talen Energy has additional coverage that, under certain conditions, may reduce this exposure.

Labor Union Agreements

In May 2014, Talen Energy's bargaining agreement with its largest IBEW local expired.

Talen Energy finalized a new three -year labor agreement with IBEW local 1600 in May 2014 and the agreement was ratified in early June 2014.

As part of efforts to reduce operations and maintenance expenses, the new agreement offered a one-time voluntary retirement window to certain bargaining unit employees.

The benefits offered under this provision are consistent with the standard separation program benefits for bargaining unit employees.

In 2014, the following charges for separation benefits were recorded.

Pension Benefits

Severance Compensation

Total Separation Benefits

Number of Employees

The separation benefits are included in "Operation and maintenance" on the Statement of Income.

The liability for pension benefits is included in "Accrued pension obligations" on the Balance Sheets.

All of the severance compensation was paid in 2014.

Guarantees and Other Assurances

In the normal course of business, Talen Energy enters into agreements that provide financial performance assurance to third parties on behalf of certain subsidiaries.

Such agreements include, for example, guarantees, stand-by letters of credit issued by financial institutions and surety bonds issued by insurance companies.

These agreements are entered into primarily to support or enhance the creditworthiness attributed to a subsidiary on a stand-alone basis or to facilitate the commercial activities in which these subsidiaries engage.

The table below details guarantees provided as of December 31, 2015 .

"Exposure" represents the estimated maximum potential amount of future payments that could be required to be made under the guarantee.

The probability of expected payment/performance for the guarantees described below is remote.

There was no recorded liability at December 31, 2015 .

The recorded liability at December 31, 2014 was $13 million .

Talen Energy Supply has indemnifications related to sales of assets that are governed by the specific sales agreement and include breach of the representations, warranties and covenants, and liabilities for certain other matters.

Talen Energy's maximum exposure with respect to certain indemnifications and the expiration of the indemnifications cannot be estimated because the maximum potential liability is not capped by the transaction documents and the expiration date is based on the applicable statute of limitations.

The exposure and expiration date noted is based on those cases in which the agreements provide for specific limits.

The exposure at December 31, 2015 includes amounts related to the sale of the Talen Montana hydroelectric facilities.

See Note 6 for additional information related to the sale.

Talen Energy's exposure and related expiration dates are:

December 31, 2015

Expiration Date

Indemnifications for sales of assets

In connection with the acquisition of RJS Power and the spinoff from PPL, Talen Energy Supply agreed to indemnify PPL and its affiliates following the spinoff for liabilities primarily relating to the Talen Energy Supply business prior to the spinoff, as well as for losses arising out of breaches of Talen Energy's failure to perform covenants and agreements in the transaction agreements following the spinoff or arising out of breaches by the Riverstone Holders of certain representations and warranties in the transaction agreements.

Talen Energy Supply also agreed to indemnify PPL for liabilities relating to the employment or termination of service of PPL employees who primarily supported the Talen Energy Supply business prior to the spinoff (excluding however defined benefit pension obligations of PPL employees who terminated service prior to July 1, 2000 or who were not employed by Talen Energy Supply or its subsidiaries at the time of termination).

Talen Energy Supply also agreed to indemnify PPL from tax liabilities resulting from actions by Talen Energy following the closing resulting in the transaction failing to qualify for its intended tax-free treatment.

Talen Energy and/or its subsidiaries provide other miscellaneous guarantees through contracts entered into in the normal course of business.

These guarantees are primarily in the form of indemnification or warranties related to services or equipment and vary in duration.

The amounts of these guarantees often are not explicitly stated, and the overall maximum amount of the obligation under such guarantees cannot be reasonably estimated.

Historically, no significant payments have been made with respect to these types of guarantees and the probability of payment/performance under these guarantees is remote.

Talen Energy, on behalf of itself and certain of its subsidiaries, maintains insurance that covers liability assumed under contract for bodily injury and property damage.

The coverage provides maximum aggregate coverage of $100 million .

This insurance may be applicable to obligations under certain of these contractual arrangements.

Related Party Transactions

Prior to the spinoff, PPL Electric and PPL Services were affiliates of Talen Energy.

The disclosures below provide information regarding transactions that occurred prior to June 1, 2015.

After June 1, 2015, transactions with PPL Electric and PPL Services, or any other PPL subsidiaries are not related party transactions.

PLR Contracts/Sales of Accounts Receivable

PPL Electric holds competitive solicitations for PLR generation supply.

Talen Energy Marketing has been awarded a portion of the PLR generation supply through these competitive solicitations.

The sales between Talen Energy Marketing and PPL Electric for the five months ended May 31, 2015 and the years ended December 31, 2014 and 2013 are included in the Statements of Income as "Wholesale energy to affiliate" by Talen Energy.

PPL Electric's customers may choose an alternative supplier for their generation supply.

As part of a PUC-approved purchase of accounts receivable program, PPL Electric purchases certain accounts receivable from alternative electricity suppliers (including Talen Energy Marketing) at a discount.

During the five month period up to the spinoff included in the year ended December 31, 2015, Talen Energy Marketing sold accounts receivable to PPL Electric of $146 million , $336 million for the year ended December 31, 2014 and $ 294 million for the year ended December 31, 2013.

Losses resulting from the sales of accounts receivable to PPL Electric during these periods were not material.

Support Costs

Prior to the spinoff, Talen Energy was provided with administrative, management and support services, primarily from PPL Services.

Where applicable, the costs of these services were charged to Talen Energy Supply as direct support costs.

General costs that could not be directly attributed to a specific affiliate were allocated and charged to the respective affiliates, including Talen Energy Supply, as indirect support costs.

PPL Services used a three-factor methodology that includes the affiliates invested capital, operation and maintenance expenses and number of employees to allocate indirect costs, which methodology Talen Energy believes was reasonable.

Talen Energy Supply was charged, primarily by PPL Services, the following amounts for the years ended December 31, including amounts applied to accounts that are further distributed between capital and expense.

Transition Services Agreement

As part of the spinoff transaction, Talen Energy Supply entered into a TSA with Topaz Power Management, LP (an affiliate of Riverstone) for certain business administrative services.

For the year ended December 31, 2015 , these costs which are recorded in "Operation and maintenance" on the Statement of Income, were $6 million .

Gas Supply Contract

A subsidiary of Jade has a gas supply contract in place with TrailStone NA Logistics LLC (TrailStone), an affiliate of Riverstone, under which TrailStone supplies gas to the generation facilities owned by Jade.

For the year ended December 31, 2015 , Talen Energy incurred $52 million of costs for these gas purchases, which are primarily recorded in "Fuel" on the Statement of Income.

See Note 1 , for discussions regarding intercompany allocations associated with income taxes and stock-based compensation, and Note 9 for discussion regarding intercompany allocations associated with defined benefits.

Other Income (Expense) - net

Talen Energy's "Other Income (Expense) - net" for the year ended December 31, 2015 was primarily related to a charge for a termination payment to a remarketing dealer in conjunction with an October 2015 redemption of debt.

See Note 5 for additional information on the redemption.

For the years ended December 31, 2014 and 2013 , the activity was primarily related to the earnings on securities in NDT funds.

Fair Value Measurements and Credit Concentration

Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (an exit price).

A market approach (generally, data from market transactions), an income approach (generally, present value techniques and option-pricing models), and/or a cost approach (generally, replacement cost) are used to measure the fair value of an asset or liability, as appropriate.

These inputs may incorporate, as applicable, certain risks such as nonperformance risk, which includes credit risk.

The fair value of a group of financial assets and liabilities is measured on a net basis.

Transfers between levels are recognized at end-of-reporting-period values.

During 2015 and 2014 , there were no transfers between Level 1 and Level 2.

See Note 1 for information on the levels in the fair value hierarchy.

Recurring Fair Value Measurements

The assets and liabilities measured at fair value were:

December 31, 2015

December 31, 2014

Cash and cash equivalents

Restricted cash and cash equivalents (a)

Price risk management assets:

Energy commodities

Total price risk management assets

The target asset allocations for other postretirement benefit assets as of December 31, 2024 (Successor) were:

Cash and cash equivalents 4 %

Equity securities 11 %

mid/small-cap

Debt securities 84 %

government sponsored agency

Investment-grade corporate

Receivables (payables), net

Total NDT funds

Auction rate securities (b)

Price risk management liabilities:

Energy commodities

Total price risk management liabilities

Current portion is included in "Restricted cash and cash equivalents" and long-term portion is included in "Other noncurrent assets" on the Balance Sheets.

Included in "Other investments" on the Balance Sheets.

A reconciliation of net assets and liabilities classified as Level 3 for the years ended December 31, is as follows:

Fair Value Measurements Using Significant Unobservable Inputs (Level 3)

Energy Commodities, net

Auction Rate Securities

Energy Commodities, net

Auction Rate Securities

Balance at beginning of period

Total realized/unrealized gains (losses)

Included in earnings

Included in OCI

Purchases (a)

Transfers into Level 3

Transfers out of Level 3

Balance at end of period

2015 includes positions acquired through the acquisition of RJS Power.

The significant unobservable inputs used in and quantitative information about the fair value measurement of assets and liabilities classified as Level 3 are as follows:

December 31, 2015

Fair Value, net

Significant Unobservable

Energy commodities

Natural gas contracts (b)

Discounted cash flow

Proprietary model used to calculate forward prices

The classifications of other postretirement benefit plan asset fair value measurements within the fair value hierarchy were:

December 31, 2024 December 31, 2023

Level 1 Level 2 NAV Total Level 1 Level 2 NAV Total

Cash equivalents $ — $ — $ 4 $ 4 $ — $ — $ 7 $ 7

Commingled equity securities — — 10 10 — — 9 9

Government debt securities 7 — — 7 8 — — 8

Corporate debt securities — 18 — 18 — 16 — 16

Commingled debt securities — — 32 32 — — 34 34

Total trust funds 7 18 46 71 8 16 50 74

Restricted 401(h) assets (a)

— — — — — — — 1

Power sales contracts (c)

Discounted cash flow

Proprietary model used to calculate forward prices

Total plan assets $ 7 $ 18 $ 46 $ 71 $ 8 $ 16 $ 50 $ 75

__________________

FTR purchase contracts (d)

Discounted cash flow

Historical settled prices used to model forward prices

Heat rate call options (e)

Discounted cash flow

Proprietary model used to calculate forward prices

CRR purchase contracts (g)

Discounted cash flow

Proprietary model used to calculate forward prices

Auction rate securities (f)

Discounted cash flow

Modeled from SIFMA Index

(a) Other postretirement 401(h) benefits assets are a component of the pension plan master trust.

Accordingly, these are reported as postretirement assets.

Level 1 investments consist of U.S.

Treasury and (or) U.S.

government debt securities, which are valued using unadjusted prices available from the underlying market.

Level 2 investments consist of corporate debt securities, which are valued using observable inputs such as benchmark yields, relevant trade data, broker/dealer bid/ask prices, benchmark securities, and credit valuation adjustments.

Certain investments in money market funds, commingled equity securities, and commingled debt securities are not classified within the fair value hierarchy.

The fair value measurements of these funds are based on firm quotes of NAV per share, as a practical expedient for valuation, which are not obtained from a quoted price in an active market.

Investments in equity securities consist of investments in a passively managed equity index fund that invests in securities and a combination of other collective funds.

Investments in debt securities represent investments in funds that invest in a diversified portfolio of investment grade fixed income securities.

Defined Contribution Plan

Substantially all Company employees are eligible to participate in the Company’s 401(k) deferred savings plans.

Employer contributions to the plans were $ 25 million, $ 9 million, and $ 10 million during the year ended December 31, 2024 (Successor), for the period from May 18 through December 31, 2023 (Successor), and from the period January 1 through May 17, 2023 (Predecessor).

Coal Industry Retiree Benefit Plans

Talen is obligated under the Coal Act and the Black Lung Act to pay for certain health care and black lung benefits of retired miners and allowable beneficiaries.

These obligations are funded from medical VEBAs and a black lung trust.

The funded status of each plan as of December 31, 2024 (Successor) was:

Trust Asset Fair Value Obligation Fair Value Overfunded Status

Benefit Plan for UMWA Represented Retirees of Pennsylvania Mines, LLC $ 21 $ 16 $ 5

Coal Worker's Pneumoconiosis (Black Lung) Benefit Plan 9 5 4

Shortfalls in funded status of the plans are assessed as contingent liabilities.

As the fair value of VEBA and black lung trust assets exceed the plan obligations, both VEBA and black lung trust assets and the plan obligations are not reported on the Talen Consolidated Balance Sheets.

See in Note 2 for our accounting policy related to postretirement benefits.

Stock-Based Compensation

In June 2023, TEC began granting PSUs and RSUs to certain employees and non-employee directors under the 2023 Equity Incentive Plan.

The aggregate number of shares authorized for issuance under the 2023 Talen Equity Plan is 7,083,461 shares.

Stock-based Compensation Expense

Stock-based compensation expense presented as “General and administrative” on the Consolidated Statement of Operations for the periods was:

Year Ended December 31, 2024 May 18 through December 31, 2023

Stock-based compensation expense $ 33 $ 19

Income tax benefit ( 8 ) ( 2 )

After-tax stock-based compensation expense $ 25 $ 17

Performance Stock Units

PSUs vest three years after Emergence or a consummation of a change in control event based on the satisfaction of a continued employment condition and the achievement of certain market conditions over a performance period.

Participants will be awarded additional PSUs if market conditions exceed targets at the time of vesting.

If the Company declares any cash dividends while the PSUs are outstanding, participants will be credited a dividend, payable at the time of vesting, based on the number of shares of common stock underlying the PSUs.

The following table summarizes the Company’s non-vested PSUs and changes during the year:

Units Weighted-Average

Fair Value per Unit

Non-vested as of December 31, 2023 (Successor) 968,793 $ 54.35

Granted 4,945 96.00

Forfeited ( 17,391 ) 72.75

Non-vested as of December 31, 2024 (Successor) 956,347 $ 54.23

As of December 31, 2024, $ 24 million of unrecognized compensation cost related to unvested PSUs granted are expected to be recognized over a weighted average period of approximately 1.5 years.

The fair value of the PSUs was determined using a Monte Carlo valuation methodology based on the fair value of the underlying stock price at the grant date and the significant inputs and assumptions summarized below:

Year Ended December 31, 2024 May 18 through December 31, 2023

Volatility (a)

Expected term (in years) 2.4 3

Risk-free rate (b)

4.29 % 4.35 % - 4.59 %

December 31, 2014

Fair Value, net

Significant Unobservable

Energy commodities

Natural gas contracts (b)

Discounted cash flow

Proprietary model used to calculate forward prices

__________________

Power sales contracts (c)

Discounted cash flow

Proprietary model used to calculate forward prices

(a) Derived from an option pricing method based on the average asset volatility of peer companies and the Company’s leverage ratio.

(b) Based on the U.S.

constant maturity treasury rate with a term matching the expected time to the end of the performance measurement period.

Restricted Stock Units

RSUs have three-year ratable vesting schedules beginning on the grant date, with restrictions on transferring settled shares prior to the final scheduled vesting date for each award.

The fair value of the RSUs granted is derived from the closing price of TEC common stock on the grant date.

The following table summarizes the Company’s non-vested RSUs and changes during the year:

Units Weighted-Average

Fair Value per Unit

Non-vested as of December 31, 2023 (Successor) 845,269 $ 48.46

Granted 56,346 121.89

Forfeited ( 56,594 ) 55.01

Vested ( 295,616 ) 48.90

Non-vested as of December 31, 2024 (Successor) 549,405 $ 55.07

RSUs vested during the year ended December 31, 2024 (Successor) were settled in cash for $ 32 million.

As of December 31, 2024, $ 22 million of unrecognized compensation cost related to unvested RSUs granted are expected to be recognized over a weighted average period of approximately 1.5 years.

Earnings Per Share

Basic EPS is computed by dividing net income (loss) by the weighted average number of shares of common stock outstanding during the applicable period.

Diluted EPS is computed by dividing income by the weighted-average number of shares of common stock outstanding, increased by incremental shares that would be outstanding if potentially dilutive non-participating securities were converted to common stock as calculated using the treasury stock method.

EPS for the periods were:

Successor Predecessor

Year Ended December 31, 2024 May 18 through December 31, 2023 January 1 through May 17, 2023 Year Ended December 31, 2022

(Millions of Dollars)

Net Income (Loss) $ 1,013 $ 143 $ 465 $ ( 1,293 )

Net income (loss) attributable to noncontrolling interest 15 9 ( 14 ) ( 4 )

Net Income (Loss) Attributable to Stockholders (Successor) / Member (Predecessor) $ 998 $ 134 $ 479 $ ( 1,289 )

Weighted-Average Number of Common Shares Outstanding - Basic 54,254 59,029 — —

Warrants — 84 — —

Restricted stock units 354 166 — —

Performance stock units 1,878 120 — —

Weighted-Average Number of Common Shares Outstanding - Diluted 56,486 59,399 — —

Earnings per Share - Basic $ 18.40 $ 2.27 N/A N/A

Earnings per Share - Diluted 17.67 2.26 N/A N/A

For the period from January 1 through May 17, 2023 (Predecessor) and year ended December 31, 2022 (Predecessor), there were no outstanding shares of common stock.

There were no shares excluded from diluted EPS for the year ended December 31, 2024 (Successor).

134,798 PSUs were excluded from diluted EPS for the period from May 18 through December 31, 2023 (Successor) due to their anti-dilutive nature.

These awards are excluded from the calculation of EPS because the performance conditions have not been met during the reporting period.

Stockholders’ Equity

Common Stock Transactions

Share Repurchases and Retirements.

Summary of activity under the SRP and direct repurchases:

Year Ended December 31, 2024

Number of Shares (a) (b)

Share Price (c)

Share repurchases 13,227,222 $ 149.50 $ 1,977

Share retirements ( 13,227,222 ) 149.50 ( 1,977 )

__________________

FTR purchase contracts (d)

Discounted cash flow

Historical settled prices used to model forward prices

Heat rate call options (e)

Discounted cash flow

Proprietary model used to calculate forward prices

(a) Includes 7,307,300 shares repurchased from affiliates of Rubric in July 2024 and December 2024 at a weighted average price of $ 177.16 per share.

Of the total shares repurchased by the Company, $ 850 million purchased from affiliates of Rubric were not under the SRP.

(b) Includes 5,275,862 shares repurchased as result of a tender offer in June 2024 at a weighted average price of $ 117.16 per share.

As of December 31, 2024 (Successor), all repurchased shares have been retired.

See Note 2 for the accounting policy related to treasury stock and retirement of treasury shares.

As of February 27, 2025, TEC had 45,961,910 shares of common stock outstanding.

Exercise of Warrants.

In July 2024, a former executive exercised equity-classified warrants to 457,142 shares of the Company’s common stock in a non-cash transaction.

After giving effect to the non-cash exercise and related tax withholding, the Company issued 160,289 shares of the Company’s common stock.

Share Repurchases

In May 2024, the Board of Directors approved an increase of the SRP from $ 300 million to a remaining capacity of $ 1 billion.

In September 2024, the Board of Directors approved an increase of the remaining capacity to $ 1.25 billion through December 31, 2026.

As of December 31, 2024 (Successor), the Company had repurchased approximately 22 % of its outstanding shares of common stock for a total of $ 1.95 billion, exclusive of transaction costs and excise taxes.

The Board of Directors approved a portion of the share repurchases executed with Rubric in December 2024 outside of the existing authorization in the SRP.

The remaining capacity of the SRP as of December 31, 2024 (Successor) is $ 1.1 billion.

Employee Stock Purchase Plan

In November 2024, the Board of Directors approved the Company’s 2025 Employee Stock Purchase Plan (“ESPP”), which is subject to approval by shareholders.

Effective January 1, 2025, eligible employees can withhold between 1 % and 10 % of their eligible compensation to purchase TEC common stock at the lesser of 85 % of its market value on the offering date or 85 % of the market value on the exercise date.

Offering dates will occur each January 1 and July 1 and exercise dates each June 30 and December 31.

Initially, 500,000 shares may be issued pursuant to the ESPP, with automatic increases in the number of shares authorized for issuance beginning on January 1, 2026 and ending on January 1, 2034.

The maximum number of shares that may be issued under the ESPP is 5,000,000 shares.

Acquisition of Noncontrolling Interests

Purchase of Equity in Nautilus.

In October 2024, the Company acquired TeraWulf’s 25 % equity interest in Nautilus in exchange for $ 85 million and the distribution by Nautilus of its Bitcoin mining equipment to TeraWulf.

As a result of the transaction, the Company owns 100 % of the equity of Nautilus.

In conjunction with the transaction, we suspended Bitcoin mining operations at the facility.

Purchase of Equity in Cumulus Digital.

In March 2024, TES acquired all of the equity of Cumulus Digital held by affiliates of Orion Energy Partners and two former members of Talen senior management in exchange for an aggregate of $ 39 million.

Following these transactions, TES owns 100 % of the equity of Cumulus Digital.

Accumulated Other Comprehensive Income

Changes in AOCI for the periods were:

Successor Predecessor

Year Ended December 31, 2024 May 18 through December 31, 2023 January 1 through May 17, 2023 Year Ended December 31, 2022

Beginning balance $ ( 23 ) $ — $ ( 167 ) $ ( 152 )

Gains (losses) arising during the period (a)

12 ( 36 ) 6 ( 84 )

Auction rate securities (f)

Discounted cash flow

Modeled from SIFMA Index

Reclassifications to Consolidated Statements of Operations (b)

Income tax benefit (expense) ( 1 ) 6 ( 5 ) 10

Other comprehensive income (loss) 11 ( 23 ) 6 ( 15 )

Cancellation of equity at Emergence — — 161 —

Accumulated other comprehensive income (loss) $ ( 12 ) $ ( 23 ) $ — $ ( 167 )

__________________

The range and weighted average represent the percentage of fair value derived from the unobservable inputs.

As the forward price of natural gas increases/(decreases), the fair value of purchase contracts increases/(decreases).

As the forward price of natural gas increases/(decreases), the fair value of sales contracts (decreases)/increases.

As forward market prices increase/(decrease), the fair value of contracts (decreases)/increases.

As volumetric assumptions for contracts in a gain position increase/(decrease), the fair value of contracts increases/(decreases).

As volumetric assumptions for contracts in a loss position increase/(decrease), the fair value of the contracts (decreases)/increases.

As the forward implied spread increases/(decreases), the fair value of the contracts increases/(decreases).

The proprietary model used to calculate fair value incorporates market heat rates, correlations and volatilities.

As the market implied heat rate increases/(decreases), the fair value of purchased calls increases/(decreases).

As the market implied heat rate increases/(decreases), the fair value of sold calls (decreases)/increases.

The model used to calculate fair value incorporates an assumption that the auctions will continue to fail.

As the modeled forward rates of the SIFMA Index increase/(decrease), the fair value of the securities increases/(decreases).

As the forward implied spread increases/(decreases), the fair value of the contracts increases/(decreases).

Net gains and losses on assets and liabilities classified as Level 3 and included in earnings for the years ended December 31 are reported in the Statements of Income as follows:

Energy Commodities, net

Wholesale Energy

Retail Energy

Energy Purchases

Total gains (losses) included in earnings

Change in unrealized gains (losses) relating

to positions still held at the reporting date

Price Risk Management Assets/Liabilities - Energy Commodities

Energy commodity contracts are generally valued using the income approach, except for exchange-traded derivative contracts, which are valued using the market approach and are classified as Level 1.

Level 2 contracts are valued using inputs which may include quotes obtained from an exchange (where there is insufficient market liquidity to warrant inclusion in Level 1), binding and non-binding broker quotes, prices posted by ISOs or published tariff rates.

Furthermore, independent quotes are obtained from the market to validate the forward price curves.

Energy commodity contracts include forwards, futures, swaps, options

and structured transactions and may be offset with similar positions in exchange-traded markets.

To the extent possible, fair value measurements utilize various inputs that include quoted prices for similar contracts or market-corroborated inputs.

In certain instances, these contracts may be valued using models, including standard option valuation models and other standard industry models.

When the lowest level inputs that are significant to the fair value measurement of a contract are observable, the contract is classified as Level 2.

When unobservable inputs are significant to the fair value measurement, a contract is classified as Level 3.

Level 3 contracts are valued using Talen Energy's proprietary models which may include significant unobservable inputs such as delivery at a location where pricing is unobservable, delivery dates that are beyond the dates for which independent quotes are available, volumetric assumptions, implied volatilities, implied correlations, and market implied heat rates.

Forward transactions, including forward transactions classified as Level 3, are analyzed by Talen Energy's Risk Management department.

Accounting personnel interpret the analysis quarterly to appropriately classify the fair value measurements in the fair value hierarchy.

Valuation techniques are evaluated periodically.

Additionally, Level 2 and Level 3 fair value measurements include adjustments for credit risk based on Talen Energy's own creditworthiness (for net liabilities) and its counterparties' creditworthiness (for net assets).

Talen Energy's credit department assesses all reasonably available market information which is used by accounting personnel to calculate the credit valuation adjustment.

In certain instances, energy commodity contracts are transferred between Level 2 and Level 3.

The primary reasons for the transfers during 2015 were changes in the availability of market information and changes in the significance of the unobservable inputs utilized in the valuation of the contracts.

The market approach is used to measure the fair value of equity securities held in the NDT funds.

The fair value measurements of equity securities classified as Level 1 are based on quoted prices in active markets.

The fair value measurements of investments in commingled equity funds are classified as Level 2.

These fair value measurements are based on firm quotes of net asset values per share, which are not obtained from a quoted price in an active market.

The fair value of debt securities is generally measured using a market approach, including the use of pricing models which incorporate observable inputs.

Common inputs include benchmark yields, relevant trade data, broker/dealer bid/ask prices, benchmark securities and credit valuation adjustments.

Auction Rate Securities

The fair value of auction rate securities is estimated using an income approach that includes readily observable inputs, such as principal payments and discount curves for bonds with credit ratings and maturities similar to the securities, and unobservable inputs, such as future interest rates that are estimated based on the SIFMA Index, creditworthiness, and liquidity assumptions driven by the impact of auction failures.

The probability of realizing losses on these securities is not significant.

When the present value of future interest payments is significant to the overall valuation, the auction rate securities are classified as Level 3.

Auction rate securities are valued by the Treasury department.

Accounting personnel interpret the analysis quarterly to classify the fair value measurements in the fair value hierarchy.

Valuation techniques are evaluated periodically.

Nonrecurring Fair Value Measurements

The following nonrecurring fair value measurements occurred during the reporting periods, resulting in impairments:

Fair Value Measurements

Using Level 3 (b)

Pre-tax Loss (c)

Sapphire plants (November 30, 2015)

Sapphire plants and C.P.

Crane plant (September 30, 2015)

Kerr Dam Project (March 31, 2014) (d)

Corette plant and emission allowances (December 31, 2013)

Represents carrying value before fair value measurement.

For the Sapphire plants, also reflects estimated cost to sell at September 30, 2015.

The impairment on the Kerr Dam Project is included in "Income (Loss) from Discontinued Operations (net of income taxes)" on the Statement of Income.

The impairments on the C.P.

Crane plant and the Sapphire plants are included in "Impairments" on the Statement of Income.

The Kerr Dam Project was included in the sale of the Talen Montana hydroelectric facilities and the assets were removed from the Balance Sheet.

See Note 6 for additional information.

The significant unobservable inputs used in and the quantitative information about the nonrecurring fair value measurement of assets and liabilities classified as Level 3 are as follows:

Fair Value, net

Sapphire plants (November 30, 2015)

Discounted cash flow

Proprietary model used to calculate plant value

Sapphire plants and C.P.

Crane plant (September 30, 2015)

Discounted cash flow

Proprietary model used to calculate plant value

Kerr Dam Project (March 31, 2014)

Discounted cash flow

Proprietary model used to calculate plant value

Corette plant and emission allowances (December 31, 2013)

Discounted cash flow

Long-term forward prices and a proprietary model used to calculate plant value

The range and weighted average represent the percentage of fair value derived from the unobservable inputs.

Sapphire Plants and C.P.

In the third quarter of 2015, Talen Energy updated its fundamental pricing models in conjunction with market information gained as a result of the 2018/2019 planning year PJM capacity auction completed in August 2015.

As a result, Talen Energy assessed certain long-lived assets for impairment and determined that the C.P.

Crane coal-fired plant failed a recoverability test and as a result, recorded an impairment charge based on the plant's estimated fair value at September 30, 2015.

Additionally, because the Sapphire plants were classified as held for sale and had to be carried at the lower of their current carrying value or fair value less cost to sell, Talen Energy used updated cash flow information to calculate the estimated fair value of the Sapphire plants at September 30, 2015 and determined a write-down was necessary at that time based on estimated fair value.

The Sapphire plants were reclassified from held for sale to held and used as of November 30, 2015 and updated cash flow information was used to calculate the estimated fair value on that date of reclassification to held and used and an additional write-down was necessary at that time based on the updated estimated fair value.

To estimate the fair value of the Sapphire plants and C.P.

Crane plant, Talen Energy performed an internal analysis primarily using an income approach based on discounted cash flows (a proprietary Talen Energy model) to assess the fair value of these assets.

Assumptions used in the Talen Energy proprietary model were the forward energy and capacity price curves, forecasted generation, and forecasted operation, maintenance and capital expenditures and a market participant discount rate.

Through this analysis, Talen Energy determined the fair value of the C.P.

Crane plant at September 30, 2015 and the Sapphire plants at September 30 and November 30, 2015.

See Note 1 for additional information on the initial assets held for sale classification and subsequent reclassification to assets held and used for the Sapphire plants and Note 6 for additional information on the sale of the C.P.

The assets were valued by Talen Energy's financial planning and analysis personnel and accounting personnel interpreted the analysis to appropriately classify the fair value measurements in the fair value hierarchy.

Kerr Dam Project

Talen Montana previously held a joint operating license issued for the Kerr Dam Project.

The license extends until 2035 and, between 2015 and 2025, the Confederated Salish and Kootenai Tribes of the Flathead Nation (the Tribes) have the option to purchase, hold and operate the Kerr Dam Project.

The parties submitted the issue of the appropriate amount of the conveyance price to arbitration in February 2013.

In March 2014, the arbitration panel issued its final decision holding that the conveyance price payable by the Tribes to Talen Montana was $18 million .

As a result of the decision, Talen Energy performed a recoverability test on the Kerr Dam Project and recorded an impairment charge.

Talen Energy performed an internal analysis using an income approach based on discounted cash flows (a proprietary Talen Energy model) to assess the fair value of the Kerr Dam Project.

Assumptions used in the Talen Energy proprietary model were the conveyance price, forward energy price curves, forecasted generation, and forecasted operation and maintenance expenditures that were consistent with assumptions used in the business planning process and a market participant discount rate.

Through this analysis, Talen Energy determined the estimated fair value of the Kerr Dam Project at March 31, 2014.

The Kerr Dam Project was included in the November 2014 sale of the Talen Montana hydroelectric facilities.

See Note 6 for additional information on the sale of the Talen Montana hydroelectric facilities.

The assets were valued by the Talen Energy Financial Department.

Accounting personnel interpreted the analysis to appropriately classify the assets in the fair value hierarchy.

Corette Plant and Emission Allowances

During the fourth quarter 2013, Talen Montana recorded an impairment loss on the Corette plant and related emission allowances.

In connection with the completion of its 2013 annual business planning process that included revised long-term power and gas price assumptions and other factors, Talen Energy altered its expectations regarding the probability that the Corette plant would operate subsequent to initially placing it in long-term reserve status and determined the carrying amount for Corette was no longer recoverable.

As a result, Talen Energy performed an internal analysis using an income approach based on discounted cash flows (a proprietary Talen Energy model) to assess the fair value of the Corette asset group.

Assumptions used in the fair value assessment were forward energy prices, expectations for demand for energy in Corette's market and expected operation and maintenance and capital expenditures that were consistent with assumptions used in the business planning process and a market participant discount rate.

Through this analysis, Talen Energy determined the fair value of the asset group to be negligible.

Operations were suspended and the Corette plant was retired in the first quarter of 2015.

The assets were valued by the Talen Energy Financial Department.

Accounting personnel interpreted the analysis to appropriately classify the assets in the fair value hierarchy.

Financial Instruments Not Recorded at Fair Value

The carrying amounts of long-term debt on the Balance Sheets and its estimated fair values are set forth below.

The fair value was primarily estimated using an income approach by discounting future cash flows at estimated current cost of funding rates, which incorporates the credit risk of Talen Energy Supply.

Long-term debt is classified as Level 2.

December 31, 2015

December 31, 2014

Carrying Amount

Long-term debt

The carrying value of short-term debt, when outstanding, and MACH Gen's Term Loan B approximates fair value due to the variable interest rates associated with the debt and is classified as Level 2.

Credit Concentration Associated with Financial Instruments

Contracts are entered into with many entities for the purchase and sale of energy.

When NPNS is elected, the fair value of these contracts is not reflected in the financial statements.

However, the fair value of these contracts is considered when committing to new business from a credit perspective.

See Note 15 for information on credit procedures used to manage credit risk, including master netting arrangements and collateral requirements.

At December 31, 2015 , Talen Energy had credit exposure of $574 million from energy trading partners, excluding the effects of netting arrangements, reserves and collateral.

As a result of netting arrangements, reserves and collateral, Talen Energy's credit exposure was reduced to $368 million .

The top ten counterparties, including their affiliates, accounted for $173 million , or 47% , of these exposures.

Nine of these counterparties had an investment grade credit rating from S&P or Moody's and accounted for 90% of the top ten exposures.

The remaining counterparty has not been rated by S&P or Moody's, but is current on its obligations.

Derivative Instruments and Hedging Activities

Risk Management Objectives

Talen Energy has a risk management policy approved by the Talen Energy Corporation Board of Directors to manage market risk associated with commodities, interest rates on debt issuances and foreign exchange (including price, liquidity and volumetric risk) and credit risk (including non-performance risk and payment default risk).

A risk management committee, comprised of senior management and chaired by the Director-Risk Management, oversees the risk management function.

Key risk control activities designed to ensure compliance with the risk policy include, but are not limited to, credit review and approval, validation of transactions and market prices, verification of risk and transaction limits, VaR analysis, portfolio stress tests, cash flow at risk analysis, sensitivity analysis and daily portfolio reporting.

Market risk includes the potential loss that may be incurred as a result of price changes associated with a particular financial or commodity instrument as well as market liquidity and volumetric risks.

Forward and futures contracts, options, swaps and structured transactions are utilized as part of risk management strategies to minimize unanticipated fluctuations in earnings caused by changes in commodity prices, volumes of full-requirement sales contracts, basis exposure and interest rates.

Many of the contracts meet the definition of a derivative.

All derivatives are recognized on the Balance Sheets at their fair value, unless NPNS is elected.

Talen Energy is subject to market risks, which are actively mitigated through the risk management policy described above.

Such risks include:

Commodity price risk, including basis and volumetric risk

Interest rate risk

Commodity price risk

Talen Energy is exposed to commodity price risk for energy and energy-related products associated with the sale of electricity from its generating assets and other electricity and gas marketing activities and the purchase of fuel and fuel-related commodities for generating assets, as well as for proprietary trading activities.

Interest rate risk

Talen Energy is exposed to interest rate risk associated with forecasted fixed-rate and existing floating-rate debt issuances.

Credit risk is the potential loss that may be incurred due to a counterparty's non-performance.

Talen Energy is exposed to credit risk from "in-the-money" commodity derivatives with its energy trading partners, which include other energy companies, fuel suppliers, financial institutions and other wholesale and retail customers.

The majority of Talen Energy's credit risk stems from commodity derivatives for multi-year contracts for energy sales and purchases.

If Talen Energy's counterparties fail to perform their obligations under such contracts and Talen Energy could not replace the sales or purchases at the same or better prices as those under the defaulted contracts, Talen Energy would incur financial losses.

Those losses would be recognized immediately or through lower revenues or higher costs in future years, depending on the accounting treatment for the defaulted contracts.

Talen Energy has credit procedures in place to manage credit risk, including the use of an established credit approval process, daily monitoring of counterparty positions and the use of master netting agreements or provisions.

These agreements generally include credit mitigation provisions, such as margin, prepayment or collateral requirements.

Talen Energy may request additional credit assurance, in certain circumstances, in the event that the counterparties' credit ratings fall below investment grade or their exposures exceed an established credit limit.

See Note 14 for credit concentration associated with energy trading partners.

Master Netting Arrangements

Net derivative positions on the balance sheets are not offset against the right to reclaim cash collateral (a receivable) or the obligation to return cash collateral (a payable) under master netting arrangements.

Talen Energy did not have any obligation to return counterparty cash collateral under master netting arrangements at December 31, 2015 and had an $ 11 million obligation at December 31, 2014 .

Talen Energy did not post any cash collateral under master netting arrangements at December 31, 2015 and 2014 .

See "Offsetting Derivative Investments" below for a summary of derivative positions presented in the balance sheets where a right of setoff exists under these arrangements.

Commodity Price Risk (Non-trading)

Commodity price risk, including basis and volumetric risk, is among Talen Energy's most significant risks due to the level of investment that Talen Energy maintains in its competitive generation assets.

Several factors influence price levels and volatilities.

These factors include, but are not limited to, seasonal changes in demand, weather conditions, available generating assets within regions, transportation/transmission availability and reliability within and between regions, market liquidity, and the nature and extent of current and potential federal and state regulations.

Talen Energy has a formal hedging program to economically hedge the forecasted purchase and sale of electricity and related fuels for its competitive generation fleet, which has a generation capacity of 17,379 MW (summer rating).

Talen Energy's portfolio also includes full-requirement sales contracts and related supply contracts and retail natural gas and electricity sale contracts.

The strategies that Talen Energy uses to hedge its full-requirement sales contracts include supplying the energy, capacity and RECs from its generation assets and purchasing energy (at a liquid trading hub or directly at the load delivery zone), capacity and RECs in the market.

Talen Energy enters into financial and physical derivative contracts, including forwards, futures, swaps and options, to hedge the price risk associated with electricity, natural gas, oil and other commodities.

Certain contracts are non-derivatives or NPNS is elected and therefore they are not reflected in the financial statements until delivery.

Talen Energy segregates its non-trading activities into two categories:

cash flow hedges and economic activity as discussed below.

Cash Flow Hedges

Certain derivative contracts have qualified for hedge accounting so that the effective portion of a derivative's gain or loss is deferred in AOCI and reclassified into earnings when the forecasted transaction occurs.

In 2015 and 2014, there were no active cash flow hedges and there was no hedge ineffectiveness associated with energy derivatives.

At December 31, 2015 , the accumulated net unrecognized after-tax gains (losses) that are expected to be reclassified into earnings during the next 12 months were $12 million .

Cash flow hedges are discontinued if it is no longer probable that the original forecasted transaction will occur by the end of the originally specified time periods and any amounts previously recorded in AOCI are reclassified into earnings once it is determined that the hedge transaction is probable of not occurring.

There were no such reclassifications for 2015 , 2014 and 2013 .

Economic Activity

Many derivative contracts economically hedge the commodity price risk associated with electricity, natural gas, oil and other commodities but do not receive hedge accounting treatment because they were not eligible for hedge accounting or because hedge accounting was not elected.

These derivatives hedge a portion of the economic value of Talen Energy's competitive generation assets and competitive full-requirement and retail contracts, which are subject to changes in fair value due to market price volatility and volume expectations.

The derivative contracts in this category that existed at December 31, 2015 range in maturity through 2020 .

Examples of economic activity may include hedges on sales of nuclear, coal and hydroelectric generation, certain purchase contracts used to supply full-requirement sales contracts, FTRs, CRRs, or basis swaps used to hedge basis risk associated with the sale of competitive generation or supplying full-requirement sales contracts, Spark Spread hedging contracts, retail electric and natural gas activities, and fuel oil swaps used to hedge price escalation clauses in coal transportation and other fuel-related contracts.

Talen Energy also uses options, which include the sale of call options and the purchase of put options tied to a particular generating unit.

Since the physical generating capacity is owned, price exposure is generally capped at the price at which the generating unit would be dispatched and therefore does not expose Talen Energy to uncovered market price risk.

The unrealized gains (losses) for economic activity for the years ended December 31 were as follows.

Operating Revenues

Wholesale energy (a)

Retail energy

Operating Expenses

Energy purchases (a)

In the third quarter of 2015, Talen Energy refined an input used in its valuation technique for certain PJM basis curves as observable inputs became available.

This change resulted in the recording of a $30 million net unrealized gain, primarily reflected in "Wholesale energy" revenue on the Statement of Income.

Commodity Price Risk (Trading)

Talen Energy has a proprietary trading strategy which is utilized to take advantage of market opportunities primarily in its geographic footprint.

As a result, Talen Energy may at times create a net open position in its portfolio that could result in losses if prices do not move in the manner or direction anticipated.

Net energy trading margins, which are included in "Wholesale energy" on the Statements of Income, were $75 million in 2014 and insignificant for 2015 and 2013 .

Commodity Volumes

At December 31, 2015 , the net volumes of derivative (sales)/purchase contracts used in support of the various strategies discussed above were as follows.

Unit of Measure

Emission Allowances

Volumes for option contracts factor in the probability of an option being exercised and may be less than the notional amount of the option.

Accounting and Reporting

All derivative instruments are recorded at fair value on the Balance Sheet as an asset or liability unless NPNS is elected.

NPNS contracts for Talen Energy include certain full-requirement sales contracts, other physical purchase and sales contracts and certain retail energy and physical capacity contracts.

Changes in the fair value of derivatives not designated as NPNS are recognized currently in earnings.

Talen Energy has many physical and financial commodity purchases and sales contracts that economically hedge commodity price risk.

Certain of the economic hedging strategies employed by Talen Energy utilize a combination of financial purchases and sales contracts.

Realized and unrealized gains (losses) on these contracts are recorded currently in earnings.

Generally each contract is considered a unit of account and Talen Energy presents gains (losses) on physical and financial commodity contracts based upon their economic hedging strategy.

Generation revenue hedge strategies are recorded in "Wholesale energy" on the Statements of Income.

Retail sales strategies are recorded in "Retail energy" on the Statements of Income.

Gas, oil and coal generation supply strategies are recorded in "Fuel" on the Statements of Income.

Non-generation power and fuel supply strategies are recorded in "Energy purchases" on the Statements of Income.

Certain Talen Energy subsidiaries participate in RTOs and ISOs.

Talen Energy accounts for these transactions on a net hourly basis because the transactions are settled on a net hourly basis.

Talen Energy records realized hourly net sales or purchases of physical power with RTOs and ISOs in its Statements of Income as "Wholesale energy" if in a net sales position and "Energy purchases" if in a net purchase position.

See Note 1 for information on accounting policies related to derivative instruments.

The following table presents the fair value and location of commodity derivative instruments not designated as hedging instruments recorded on the Balance Sheets.

December 31, 2015

December 31, 2014

Price Risk Management Assets/Liabilities:

Total derivatives

The following tables present the pre-tax effect of derivative instruments recognized in income.

Gain (Loss) Reclassified from AOCI into Income

(Effective Portion)

Relationships

Location of Gain (Loss) Recognized in Income on Derivative

Cash Flow Hedges:

Commodity contracts

Wholesale energy

Energy purchases

Discontinued operations

Derivatives Not Designated as

Hedging Instruments

Location of Gain (Loss) Recognized in

Income on Derivative

Commodity contracts

Wholesale energy

Retail energy

Energy purchases

Discontinued operations

Offsetting Derivative Instruments

Certain subsidiaries of Talen Energy have master netting arrangements or similar agreements in place including derivative clearing agreements with futures commission merchants (FCMs) to permit the trading of cleared derivative products on one or more futures exchanges.

The clearing arrangements permit a FCM to use and apply any property in its possession as a setoff to pay amounts or discharge obligations owed by a customer upon default of the customer and typically do not place any restrictions on the FCM's use of collateral posted by the customer.

Certain subsidiaries of Talen Energy also enter into agreements pursuant to which they trade certain energy and other products.

Under the agreements, upon termination of the agreement as a result of a default or other termination event, the non-defaulting party typically would have a right to offset amounts owed under the agreement against any other obligations arising between the two parties (whether under the agreement or not), whether matured or contingent and irrespective of the currency, place of payment or place of booking of the obligation.

Talen Energy has elected not to offset derivative assets and liabilities and not to offset net derivative positions against the right to reclaim cash collateral pledged (an asset) or the obligation to return cash collateral received (a liability) under derivatives agreements.

The table below summarizes the energy commodities derivative positions presented in the balance sheets where a right of setoff exists under these arrangements and related cash collateral received or pledged.

Eligible for Offset

Cash Collateral Received

Cash Collateral Pledged

December 31, 2015

December 31, 2014

Credit Risk-Related Contingent Features

Certain derivative contracts contain credit risk-related contingent features which, when in a net liability position, would permit the counterparties to require the transfer of additional collateral upon a decrease in the credit ratings of Talen Energy.

Most of these features would require the transfer of additional collateral or permit the counterparty to terminate the contract if the applicable credit rating were to fall below investment grade.

Some of these features also would allow the counterparty to require additional collateral upon each downgrade in the credit rating at levels that remain above investment grade.

In either case, if the credit rating were to fall below investment grade, most of these credit contingent features require either immediate payment of the net liability as a termination payment or immediate and ongoing full collateralization on derivative instruments in net liability positions.

Talen Energy's credit rating is currently below investment grade.

Additionally, certain derivative contracts contain credit risk-related contingent features that require adequate assurance of performance be provided if the other party has reasonable concerns regarding the performance of Talen Energy's obligation under the contract.

A counterparty demanding adequate assurance could require a transfer of additional collateral or other security, including letters of credit, cash and guarantees from a creditworthy entity.

This would typically involve negotiations among the parties.

However, amounts disclosed below represent assumed immediate payment or immediate and ongoing full collateralization for derivative instruments in net liability positions with "adequate assurance" features.

At December 31, 2015 , the value of derivative contracts in a net liability position that contain credit risk-related contingent features was $70 million .

Collateral posted on those positions was $71 million and the additional potential collateral requirements, primarily related to further adequate assurance features, were $34 million , which is net of receivables and payables already recorded on the Balance Sheet.

Goodwill and Other Asset Impairments

GAAP requires that a long-lived asset (or asset group) be tested for recoverability whenever events or changes in circumstances indicate that the carrying amount may not be recoverable.

Similarly, a goodwill impairment test is performed annually or more frequently if events or changes in circumstances indicate that more likely than not the carrying amount of a reporting unit may be greater than its fair value.

During the second quarter of 2015, due to the impairment of its investment in PPL Energy Supply recorded by PPL (Talen Energy's former parent) at the time of the spinoff, coupled with, and, primarily driven by, Talen Energy Corporation's stock price at the spinoff date, Talen Energy's management concluded that these factors could be indicators of potential impairment with respect to certain long-lived assets and goodwill.

After considering additional information, Talen Energy determined that the undiscounted cash flows for potentially affected long-lived assets would not be directly impacted by these factors and therefore concluded that the undiscounted cash flows continued to exceed the carrying value and no further testing of long-lived assets was necessary in the second quarter.

Management also performed an interim goodwill impairment assessment as of June 1, 2015, the spinoff and acquisition date.

The goodwill impairment analysis is a two-step process.

The first step, used to identify potential impairment, is a comparison of the reporting unit's estimated fair value to its carrying value, including goodwill.

If the fair value of the reporting unit exceeds its carrying value, applicable goodwill is not considered to be impaired.

If the carrying value exceeds the fair value, there is an indication of impairment and the second step is performed to measure the amount of the impairment, if any.

The second step requires a company to calculate an implied fair value of goodwill based on a hypothetical purchase price allocation.

The East reporting unit, which is equivalent to the East segment, failed step one as of June 1, 2015.

The step two analysis was not able to be completed by the filing of the second quarter Form 10-Q.

As provided for in the applicable accounting guidance, no goodwill impairment charge was recorded based on management's best estimate at that time, which was confirmed when the second quarter analysis was subsequently completed.

As a result, Talen Energy assessed certain long-lived assets for impairment and determined that the C.P.

Crane coal-fired plant failed a recoverability test and as a result, recorded an impairment charge based on the plant's estimated fair value at September 30, 2015.

Additionally, because the Sapphire plants were classified as held for sale and must be carried at the lower of its current carrying value or fair value less cost to sell, Talen Energy used updated cash flow information to calculate the estimated fair value of the Sapphire plants at September 30, 2015 and recorded an impairment charge based on estimated fair value.

At November 30, 2015, in connection with the Sapphire plants being reclassified to held and used and continuing operations from held for sale and discontinued operations, management reassessed the fair value of each facility and recorded additional impairment charges.

See Note 14 for additional information on these fair value estimates and the resulting non-cash asset impairment charges.

In addition, management's forward view of energy and capacity prices in PJM used in its fundamental pricing models, along with the consideration of other market information, has put pressure on the recoverability assessment of Talen Energy's other coal-fired generation assets.

In December 2015, based on the availability of new gas price forecasts, management updated its fundamental view for long-term power, capacity and gas prices.

Based upon the change in this fundamental view, management tested its coal-fired generation located primarily within the PJM market for impairment and concluded that the plants were not impaired at December 31, 2015.

The recoverability assessment is very sensitive to forward energy and capacity price assumptions as well as forecasted operation and maintenance and capital spending.

Therefore, a further decline in forecasted long-term energy or capacity prices or changes in environmental laws requiring additional capital or operation and maintenance expenditures, could negatively impact Talen Energy's operations primarily at its PJM based coal-fired facilities and potentially result in impairment charges for some or all of the carrying value of these plants.

The carrying value of Talen Energy's coal-fired generation assets was more than $3 billion as of December 31, 2015.

Finally, Talen Energy Corporation's stock price declined significantly throughout the third quarter of 2015, indicating a significant change in the financial markets' view of the value of Talen Energy's business and/or the industry in which it operates and potential risks associated with an investment in Talen Energy Corporation's common stock.

As a result, Talen Energy management concluded that these factors could be indicators of goodwill impairment and reconsidered certain inputs incorporated in its assessment of fair value of both Talen Energy's overall business and the East reporting unit, where all of the goodwill was assigned.

These inputs include risk premiums, growth rates, Talen Energy Corporation's stock price expectations and implied multiples from comparable companies' stock prices.

Based on this reassessment, the East reporting unit further declined in fair value, when compared to the value calculated in the second quarter of 2015 and again failed step one as of September 30, 2015.

The step two analysis was also completed during the third quarter and resulted in a non-cash goodwill impairment charge of $466 million pre-tax recorded for the East segment included within "Income (Loss) from Continuing Operations" in the Statement of Income for the year ended December 31, 2015.

The impairment charge represented all of the goodwill reflected on the Balance Sheet.

Most of the impaired goodwill is not deductible for tax purposes and there is no cash tax benefit related to the impairment.

To estimate the fair value of Talen Energy's overall business and the East reporting unit, Talen Energy performed an internal analysis using a combination of a market approach using comparable businesses and an income approach based on discounted cash flows.

Assumptions used in the discounted cash flow model, in addition to those discussed above, were the forward energy and capacity price curves, forecasted generation, and forecasted operation, maintenance and capital expenditures and a market participant discount rate.

The market approach primarily applies EBITDA multiples, based on the implied market value of comparable publicly traded companies, to Talen Energy's and the East reporting unit's EBITDA to determine estimated fair values.

During the fourth quarter of 2015, Talen Energy recorded various adjustments to the purchase price allocation for the RJS Power acquisition resulting in an adjustment to the goodwill recognized for the acquisition, which resulted in an insignificant adjustment to the previously recorded goodwill impairment.

The changes in carrying amount of Talen Energy's goodwill by segment for the years ended December 31 were as follows.

Balance at beginning of period (a)

Goodwill recognized during the period (b)

Allocation to discontinued operations (c)

Balance at end of period (a)

There was no accumulated impairment loss related to goodwill at December 31, 2014 and $465 million at December 31, 2015.

Recognized as a result of the acquisition of RJS Power.

See Note 6 for additional information.

Goodwill allocated to the sale of the Talen Montana hydroelectric generating facilities and written off.

See Note 6 for additional information related to the sale.

In 2014 and 2013, Talen Energy also recorded impairments related to the Kerr Dam project and Corette plant, both in Montana.

See Note 14 for additional information.

Other Intangible Assets

The gross carrying amount and the accumulated amortization of other intangible assets were:

December 31, 2015

December 31, 2014

Gross Carrying Amount

Accumulated Amortization

Gross Carrying Amount

Accumulated Amortization

Land and transmission rights

Emission allowances/RECs (a)

Licenses and other (b) (c)

Includes emission allowances and RECs that are expensed when consumed or sold;

therefore, there is no accumulated amortization.

"Other" includes costs for the development of licenses, the most significant of which is the COLA.

Amortization of these costs begins when the related asset is placed in service.

See Note 6 for additional information on the COLA.

"Other" also includes intangibles acquired as part of the RJS Power acquisition including $28 million for a pipeline lease that is being amortized over a 14 year period and $16 million for an ash site permit that is being amortized over a 22 year period.

Current intangible assets are included in "Other current assets" and long-term intangible assets are presented as "Other intangibles" on the Balance Sheets.

Amortization expense for the years ended December 31, excluding consumption of emission allowances, RECs and RGGI credits of $44 million , $24 million and $23 million in 2015 , 2014 , and 2013 , was as follows:

Amortization Expense

Amortization expense, excluding consumption of emission allowances and RGGI credits is expected to be insignificant in future years.

Asset Retirement Obligations

Talen Energy has recorded AROs to reflect various legal obligations associated with the retirement of long-lived assets, the most significant of which relates to the decommissioning of the Susquehanna nuclear plant.

Assets in the NDT funds are legally restricted for the purpose of settling this ARO.

See Notes 14 and 19 for additional information on the nuclear decommissioning trust funds.

Other AROs recorded relate to various environmental requirements for coal piles, ash basins and other waste basin retirements.

Talen Energy has recorded several conditional AROs, the most significant of which is related to the removal and disposal of asbestos-containing material.

In addition to the AROs that were recorded for asbestos-containing material, Talen Energy identified other asbestos-related obligations, but was unable to reasonably estimate their fair values.

Talen Energy management was unable to reasonably estimate a settlement date or range of settlement dates for the remediation of all of the asbestos-containing material at certain of the generation plants.

If economic events or other circumstances change that enable Talen Energy to reasonably estimate the fair value of these retirement obligations, they will be recorded at that time.

Talen Energy also identified legal retirement obligations associated with the retirement of a reservoir that could not be reasonably estimated due to an indeterminable settlement date.

The changes in the carrying amounts of Talen Energy's AROs were as follows.

ARO at beginning of period

Accretion expense

Changes in estimate of cash flow or settlement date (a)

Obligations assumed in RJS Power acquisition

Obligations incurred

Obligations settled

ARO at end of period

Includes increases in 2015 of $41 million as a result of a new CCR rule.

Further changes to the AROs may be required as estimates are refined and analysis of the rule continues.

Substantially all of the ARO balances are classified as non-current at December 31, 2015 and 2014 .

Available-for-Sale Securities

Securities held by Talen Energy's NDT funds and auction rate securities are classified as available-for-sale.

The following table shows the amortized cost, the gross unrealized gains and losses recorded in AOCI and the fair value of Talen Energy's available-for-sale securities.

December 31, 2015

December 31, 2014

Cash and cash equivalents

Equity securities

Debt securities

Receivables/payables, net

Total NDT funds

Auction rate securities

See Note 14 for details on the securities held by the NDT funds.

There were no securities with credit losses at December 31, 2015 and 2014 .

The following table shows the scheduled maturity dates of debt securities held at December 31, 2015 .

Amortized cost

The following table shows proceeds from and realized gains and losses on sales of available-for-sale securities.

Proceeds from sales of NDT securities (a)

Other proceeds from sales

Gross realized gains (b)

Gross realized losses (b)

These proceeds are used to pay income taxes and fees related to managing the trust.

Remaining proceeds are reinvested in the trust.

Excludes the impact of other-than-temporary impairment charges recognized on the Statements of Income.

Amounts previously collected from PPL Electric's customers for decommissioning the Susquehanna nuclear plant, less applicable taxes, were deposited in external trust funds for investment and can only be used for future decommissioning costs.

To the extent that the actual costs for decommissioning exceed the amounts in the nuclear decommissioning trust funds, Susquehanna Nuclear would be obligated to fund 90% of the shortfall.

(a) Primarily related to “Postretirement benefit actuarial (gain) loss, net” for the period from May 18 through December 31, 2023 (Successor) and “Available-for-sale securities unrealized gain (loss), net” and “Postretirement benefit actuarial (gain) loss, net” for the year ended December 31, 2022 (Predecessor).

(b) Primarily related to “Available-for-sale securities unrealized gain (loss), net” and “Postretirement benefit actuarial (gain) loss, net” for the year ended December 31, 2022 (Predecessor).

The components of AOCI, net of tax, were:

December 31, 2024 December 31, 2023

Available-for-sale securities unrealized gain (loss), net $ ( 3 ) $ 5

Postretirement benefit prior service credits (costs), net 14 —

Postretirement benefit actuarial gain (loss), net ( 23 ) ( 28 )

Accumulated other comprehensive income (loss) $ ( 12 ) $ ( 23 )

The after-tax changes in Talen Energy's AOCI by component for the years ended December 31 were as follows.

Unrealized gains (losses)

Defined benefit plans

December 31, 2012

Amounts arising during the period

Reclassifications from AOCI

Net OCI during the period

December 31, 2013

Amounts arising during the period

Reclassifications from AOCI

Net OCI during the period

December 31, 2014

Amounts arising during the period

Reclassifications from AOCI

Net OCI during the period

December 31, 2015

The following table presents the gains (losses) and related income taxes for reclassifications from Talen Energy's AOCI for the years ended December 31 .

The defined benefit plan components of AOCI are not reflected in their entirety in the statement of income during the years;

The locations of pre-tax gains (losses) reclassified from AOCI and included on the Consolidated Statements of Operations for the periods were:

Successor Predecessor

Year Ended December 31, 2024 May 18 through December 31, 2023 January 1 through May 17, 2023 Year Ended December 31, 2022

Nuclear decommissioning trust funds gain (loss), net (a)

$ ( 1 ) $ ( 7 ) $ ( 4 ) $ ( 33 )

Depreciation, amortization and accretion (b)

Operation, maintenance and development (c)

Other non-operating income (expense), net (d)

— — ( 2 ) ( 27 )

Total $ — $ ( 7 ) $ ( 5 ) $ ( 59 )

__________________

(a) Available-for-sale securities unrealized gain (loss), net.

(b) Qualifying derivatives unrealized gain (loss).

(d) Postretirement benefit actuarial gain (loss), net.

The postretirement obligations components of AOCI are not presented in their entirety on the Consolidated Statements of Operations during the periods;

rather, they are included in the computation of net periodic defined benefit costs (credits).

See Note 15 for additional information.

Affected Line Item on the

Details about AOCI

Statements of Income

Available-for-sale securities

Other Income (Expense) - net

Total After-tax

Qualifying derivatives

Supplemental Cash Flow Information

Supplemental information for the Consolidated Statements of Cash Flows for the periods was:

Successor Predecessor

Year Ended December 31, 2024 May 18 through December 31, 2023 January 1 through May 17, 2023 Year Ended December 31, 2022

Cash paid during the period

Interest and other finance charges, net of capitalized interest (a)

$ 255 $ 133 $ 283 $ 277

Income taxes, net 20 12 7 14

Unrealized (gain) loss on derivative instruments included on the Statements of Cash Flows

Commodity contracts $ ( 62 ) $ ( 52 ) $ 63 $ ( 625 )

Wholesale energy

Energy purchases

Discontinued operations

Total Pre-tax

Total After-tax

Defined benefit plans

Prior service costs

Net actuarial loss

Total Pre-tax

Total After-tax

Total reclassifications during the period

New Accounting Guidance Pending Adoption

Accounting for Revenue from Contracts with Customers

In May 2014, the FASB issued accounting guidance that establishes a comprehensive new model for the recognition of revenue from contracts with customers.

This model is based on the core principle that revenue should be recognized to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services.

This guidance can be applied using either a full retrospective or modified retrospective transition method.

In August 2015, the FASB issued guidance that defers the effective date of the standard by one year, which for public business entities, results in initial application of this guidance in annual reporting periods beginning after December 15, 2017 and interim periods within those years.

Entities may early adopt the guidance as of the original effective date of the standard, which for public business entities is annual reporting periods beginning after December 15, 2016.

Talen Energy expects to adopt this guidance effective January 1, 2018.

Talen Energy is currently assessing the impact of adopting this guidance, as well as the transition method it will use.

Reporting Uncertainties about an Entity's Ability to Continue as a Going Concern

In August 2014, the FASB issued accounting guidance which will require management to assess, for each interim and annual period, whether there are conditions or events that raise substantial doubt about an entity's ability to continue as a going concern.

Substantial doubt about an entity's ability to continue as a going concern exists when relevant conditions and events, considered in the aggregate, indicate that it is probable that the entity will be unable to meet its obligations as they become due within one year after the date the financial statements are issued.

When management identifies conditions or events that raise substantial doubt about an entity's ability to continue as a going concern, management is required to disclose information that enables users of the financial statements to understand the principal conditions or events that raised substantial doubt about the entity's ability to continue as a going concern and management's evaluation of the significance of those conditions or events.

If substantial doubt about the entity's ability to continue as a going concern has been alleviated as a result of management's plan, the entity should disclose information that allows the users of the financial statements to understand those plans.

If the substantial doubt about the entity's ability to continue as a going concern is not alleviated by management's plans, management's plans to mitigate the conditions or events that gave rise to the substantial doubt about the entity's ability to continue as a going concern should be disclosed, as well as a statement that there is substantial doubt the entity's ability to continue as a going concern within one year after the date the financial statements are issued.

For all entities, this guidance should be applied prospectively within the annual periods ending after December 15, 2016, and for annual periods and interim periods thereafter.

Early adoption is permitted.

Talen Energy will adopt this guidance for the annual period ending December 31, 2016.

The adoption of this guidance is not expected to have a significant impact.

Determining Whether the Host Contract in a Hybrid Financial Instrument Issued in the Form of a Share Is More Akin to Debt or to Equity

In November 2014, the FASB issued guidance that clarifies how current accounting guidance should be interpreted when evaluating the economic characteristics and risks of a host contract of a hybrid financial instrument issued in the form of a share.

This guidance does not change the current criteria for determining whether separation of an embedded derivative feature from a hybrid financial instrument is required.

Entities are still required to evaluate whether the economic risks of the embedded derivative feature are clearly and closely related to those of the host contract, among other relevant criteria.

An entity should consider the substantive terms and features of the entire hybrid financial instrument, including the embedded derivative feature being evaluated for bifurcation, in evaluating the nature of the host contract to determine whether the host contract is more akin to a debt instrument or more akin to an equity instrument.

An entity should assess the relative strength of the debt-like and equity-like terms and features when determining how to weight those terms and features.

For public business entities, this guidance is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2015 and should be applied using a modified retrospective method for existing hybrid financial instruments

issued in the form of a share as of the beginning of the fiscal year the guidance is adopted.

Early adoption is permitted.

Retrospective application is permitted but not required.

Talen Energy will adopt this guidance effective January 1, 2016.

The adoption of this guidance is not expected to have a significant impact.

Simplifying the Presentation of Debt Issuance Costs

In April 2015, the FASB issued accounting guidance to simplify the presentation of debt issuance costs by requiring debt issuance costs to be presented on the balance sheet as a direct deduction from the carrying amount of the associated debt liability, consistent with the presentation of debt discounts.

Because this guidance did not address the treatment of debt issuance costs related to line-of-credit arrangements, additional guidance was issued in August 2015 stating that an entity may defer and amortize debt issuance costs over the term of a line-of-credit arrangement, regardless of whether there are any related outstanding borrowings.

For public business entities, this guidance should be applied retrospectively for financial statements issued for fiscal years beginning after December 15, 2015 and interim periods within those fiscal years.

Early adoption is permitted.

Talen Energy will adopt this guidance effective January 1, 2016.

The adoption of this guidance will require Talen Energy to reclassify debt issuance costs from assets to long-term debt, and is not expected to have a significant impact.

Recognition of Measurement of Financial Assets and Financial Liabilities

In January 2016, the FASB issued accounting guidance that affects the accounting for equity investments, financial liabilities under the fair value option, and the disclosure requirements for financial instruments.

This guidance generally requires entities to measure equity investments that are not accounted for under the equity method of accounting and do not result in consolidation at fair value and recognize any changes in fair value in net income.

Entities may elect to record equity investments without readily determinable fair values at cost, less impairment, adjusted for observable price changes.

The impairment model for equity investments subject to this election is a single-step qualitative assessment performed each quarter.

For financial liabilities measured using the fair value option, changes in fair value related to instrument-specific credit risk to be presented separately within OCI.

For public business entities, this guidance should generally be applied prospectively for financial statements issued for fiscal years beginning after December 15, 2017 and interim periods within those fiscal years.

Early adoption is generally not permitted, although entities may early adopt the provision related to financial liabilities under the fair value option.

Talen Energy expects to adopt this guidance effective January 1, 2018.

Upon adoption, an entity will record a cumulative-effect adjustment to beginning retained earnings as of the beginning of the first reporting period in which the guidance is adopted, with the exception that the amendments related to equity securities with readily determined fair values should be applied prospectively.

Talen Energy is currently assessing the impact of adopting this guidance, which may be significant for equity securities held in the NDT funds.

Accounting for Leases

In February 2016, the FASB issued accounting guidance that updates the accounting for leases.

The updated guidance will require lessees to recognize assets and liabilities for the rights and obligations created by their leases with lease terms of more than 12 months.

Consistent with current accounting guidance, the recognition, measurement, and presentation of expenses and cash flows arising from a lease by a lessee primarily will depend on its classification as a finance (similar to the current capital lease) or an operating lease.

However, unlike current accounting guidance, which requires only capital leases to be recognized on the balance sheet, the new accounting guidance will require both types of leases to be recognized on the balance sheet.

The new accounting guidance also will require disclosures to help investors and other financial statement users better understand the amount, timing, and uncertainty of cash flows arising from leases.

These disclosures include qualitative and quantitative requirements, providing additional information about the amounts recorded in the financial statements.

The accounting by lessors will remain largely unchanged.

However, the new accounting guidance contains some targeted improvements that are intended to align, where necessary, lessor accounting with the lessee accounting model and with the updated revenue recognition guidance issued in 2014 and discussed above.

For public business entities, this guidance is effective for annual reporting periods beginning after December 15, 2018 and interim periods within those years.

Early application is permitted.

In transition, lessees and lessors are required to recognize and measure leases at the beginning of the earliest period presented using a modified retrospective approach.

The modified retrospective approach includes a number of optional practical expedients that entities may elect to apply.

These practical expedients relate to the identification and classification of leases that commenced before the effective date, initial direct costs for leases that commenced before the effective date, and the ability to use hindsight in evaluating lessee options to extend or terminate a lease or to purchase the underlying asset.

An entity that elects to apply the practical expedients will, in effect, continue to account for leases that commence before the effective date in accordance with previous accounting guidance unless the lease is modified, except that lessees are required to recognize a right-of-use asset and a lease liability for all operating leases at each reporting date based on the present value of the remaining minimum rental payments that were tracked and disclosed under previous accounting guidance.

Talen Energy is currently assessing the impact of adopting this guidance and expects to adopt this guidance effective January 1, 2019.

SCHEDULE I - TALEN ENERGY CORPORATION

CONDENSED UNCONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Millions of Dollars, except share data)

Year Ended December 31, 2015 (a)

Inception through December 31, 2014 (a)

Interest rate swap contracts (interest expense) ( 7 ) 12 2 ( 23 )

Unrealized (gain) loss on derivative instruments $ ( 69 ) $ ( 40 ) $ 65 $ ( 648 )

Depreciation, amortization and accretion included on the Statements of Cash Flows

Depreciation, amortization and accretion $ 298 $ 165 $ 200 $ 520

Other ( 13 ) ( 8 ) 8 29

Depreciation, amortization and accretion $ 285 $ 157 $ 208 $ 549

Reconciliation of other non-cash operating activities

Bitcoin revenue $ ( 91 ) $ ( 81 ) $ ( 27 ) $ —

Stock-based compensation 33 19 — —

Fair value adjustment on distribution of miners 14 — — —

Derivative option premium amortization 11 52 29 67

Derivatives with financing elements — — — 104

Non-cash environmental liability revisions — — — 13

Other 7 17 5 16

$ ( 26 ) $ 7 $ 7 $ 200

Non-cash investing activities

Capital expenditure accrual increase (decrease) $ 6 $ 7 $ ( 28 ) 2

Accounts receivable contributed to equity method investment — — — 2

Non-cash financing activities

Non-cash increase to PP&E and decrease to other current assets for contribution of Bitcoin miners to Nautilus (b)

$ — $ — $ 14 $ 30

Non-cash decrease to PP&E and decrease to noncontrolling interest for distribution of Bitcoin miners to TeraWulf (c)

Non-cash increase to PP&E and increase to noncontrolling interest for contribution of Bitcoin miners by TeraWulf (b)

__________________

(a) Capitalized interest totaled $ 5 million for the year ended December 31, 2024 (Successor);

$ 10 million for the period from May 18 through December 31, 2023 (Successor);

and $ 12 million for the period from January 1 through May 17, 2023 (Predecessor), and $ 12 million for the year ended December 31, 2022 (Predecessor).

(b) In 2023, each of the joint venture partners of Nautilus made non-cash contributions to Nautilus of Bitcoin miners that increased PP&E.

(c) In 2024, Nautilus distributed Bitcoin miners to TeraWulf as part of the buyout of TeraWulf’s noncontrolling interest.

Cash and Restricted Cash

The following provides a reconciliation of “Cash and cash equivalents” and “Restricted cash and cash equivalents” presented on the Consolidated Statements of Cash Flows to line items within the Consolidated Balance Sheets:

December 31, 2024 December 31, 2023

Cash and cash equivalents $ 328 $ 400

Restricted cash and cash equivalents:

TES TLC debt restricted deposits — 472

Nautilus project restricted deposits — 10

Commodity exchange margin deposits 37 —

Cumulus Digital restricted deposits — 19

Restricted cash and cash equivalents 37 501

Acquisitions and Divestitures

2024 Activities

In May 2024, we sold our 1,710 MW Texas generation portfolio to CPS Energy for $ 785 million, subject to customary net working capital adjustments.

A gain on sale of $ 564 million is presented as “Gain (loss) on sale of assets, net” on the Consolidated Statements of Operations for the year ended December 31, 2024 (Successor).

AWS Data Campus Sale.

In March 2024, AWS purchased substantially all the assets related to the AWS Data Campus and certain other assets for gross proceeds of $ 650 million, of which $ 350 million were received at closing with the remaining $ 300 million held in escrow until August 2024.

For the year ended December 31, 2024 (Successor), a $ 324 million gain on sale is presented as “Gain (loss) on sale of assets, net” on the Consolidated Statements of Operations.

In connection with the AWS Data Campus Sale, the Company entered into the AWS PPA.

2023 Activities

Western Gas Book Divestiture.

In April 2023, Talen sold certain contracts relating to the transportation of natural gas in the southwestern United States for $ 15 million.

For the period from January 1 through May 17, 2023 (Predecessor), a $ 15 million gain was presented as “Gain (loss) on sale of assets, net” on the Consolidated Statements of Operations.

Pennsylvania Minerals Divestiture.

In March 2023, Talen sold certain mineral interests located in Pennsylvania for $ 29 million, while preserving the right to certain royalty payments from existing and future producing natural gas wells.

For the period from January 1 through May 17, 2023 (Predecessor), a $ 29 million gain was presented as “Gain (loss) on sale of assets, net” on the Consolidated Statements of Operations.

Talen’s operating segments are based on the market areas in which our generation facilities operate and reflect the manner in which our Chief Executive Officer, who is the chief operating decision maker, reviews results and allocate resources.

Adjusted EBITDA is the key profit metric used to measure financial performance of each segment.

Total assets or other asset metrics are not considered a key metric or reviewed by the chief operating decision maker.

“PJM” is engaged in electricity generation, marketing activities, commodity risk and fuel management within the PJM RTO or ISO markets and is comprised of Susquehanna and Talen’s natural gas and coal generation facilities.

“Other” represents an operating segment that includes the operating and marketing activities of Talen Montana’s proportionate share of Colstrip in the WECC market and other non-material operating and development activities.

“Other” also includes the operating activities of Nautilus until Bitcoin mining operations were suspended in October 2024 and the operating activities of our Texas power generation facilities in the ERCOT market prior to their disposal in May 2024.

We have determined it appropriate to aggregate results of Talen’s remaining non-reportable segments and other operating activities.

“Corporate and Eliminations” represents a non-reportable segment that includes:

(i) general and administrative expenses incurred by our corporate function;

(ii) interest expense and other corporate activities not allocated to our operating segments;

and (iii) intercompany eliminations.

This grouping is presented to reconcile the reportable segments to our consolidated results.

Financial results for the segments and reconciliation to consolidated results:

PJM Other Corporate and Eliminations Total

Year Ended December 31, 2024 (Successor)

Operating revenues $ 1,866 $ 367 $ ( 118 ) $ 2,115

Operating Expenses

Operating Income (Loss)

Other Income (Expense) - net

Equity in earnings of subsidiaries

Total Other Income (Expense) - net

Net Income (Loss) Attributable to Talen Energy Corporation Stockholders

Comprehensive Income (Loss) Attributable to Talen Energy Corporation Stockholders

Earnings Per Share of Common Stock:

Net Income (Loss) Available to Talen Energy Corporation Common Stockholders

Weighted-Average Shares of Common Stock Outstanding (in thousands) (b)

Talen Energy Corporation was incorporated in June 2014 and its business operations began in June 2015 after the completion of its spinoff from PPL.

Therefore, the 2015 results are primarily from June 1 to December 31, while the 2014 results are from the same period.

See Note 1 to the Unconsolidated Financial Statements for additional information.

Weighted average shares were calculated for the seven month period from June 1, 2015 to December 31, 2015.

The accompanying Notes to Condensed Unconsolidated Financial Statements are an integral part of the financial statements.

SCHEDULE I - TALEN ENERGY CORPORATION

CONDENSED UNCONSOLIDATED STATEMENTS OF CASH FLOWS

(Millions of Dollars)

Year Ended December 31, 2015 (a)

Inception through December 31, 2014 (a)

Cash Flows from Operating Activities

Net cash provided by (used in) operating activities

Cash Flows from Investing Activities

Net cash provided by (used in) investing activities

Cash Flows from Financing Activities

Net cash provided by (used in) financing activities

Net Increase (Decrease) in Cash and Cash Equivalents

Cash and Cash Equivalents at Beginning of Period

Cash and Cash Equivalents at End of Period

Talen Energy Corporation was incorporated in June 2014 and its business operations began in June 2015 after the completion of its spinoff from PPL.

Therefore, the 2015 results are primarily from June 1 to December 31, while the 2014 results are from the same period.

See Note 1 to the Unconsolidated Financial Statements for additional information.

The accompanying Notes to Condensed Unconsolidated Financial Statements are an integral part of the financial statements.

SCHEDULE I - TALEN ENERGY CORPORATION

CONDENSED UNCONSOLIDATED BALANCE SHEETS AT DECEMBER 31,

(Millions of Dollars, shares in thousands)

Affiliated companies at equity

Liabilities and Equity

Common stock - $0.001 par value (a)

Additional paid-in capital

Accumulated deficit

Accumulated other comprehensive loss

Total Liabilities and Equity

(a) 1,000,000 shares authorized;

128,509 shares issued and outstanding at December 31, 2015.

The accompanying Notes to Condensed Unconsolidated Financial Statements are an integral part of the financial statements.

SCHEDULE I - TALEN ENERGY CORPORATION

NOTES TO CONDENSED UNCONSOLIDATED FINANCIAL STATEMENTS

Basis of Presentation

In June 2014, Talen Energy Corporation was incorporated in connection with PPL and Talen Energy Supply executing definitive agreements with the Riverstone Holders to combine their competitive power generation businesses into a new, stand-alone, publicly traded company named Talen Energy Corporation.

On June 1, 2015, PPL completed the spinoff to PPL shareowners of a newly formed entity, Talen Energy Holdings, Inc.

(Holdco), which at such time owned all of the membership interests of Talen Energy Supply and all of the common stock of Talen Energy Corporation.

As a result, the operating results reflected on the Statement of Income represent activity that occurred after June 1, 2015.

Talen Energy Corporation conducts substantially all of its business operations through its subsidiaries.

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

These condensed unconsolidated financial statements and related footnotes have been prepared in accordance with Reg §210.12-04 of Regulation S-X.

On an unconsolidated basis, there is no comparable information for Talen Energy Corporation prior to the June 1, 2015 spinoff from PPL.

These statements should be read in conjunction with the consolidated financial statements and notes thereto of Talen Energy Corporation.

Talen Energy Corporation indirectly or directly owns all of the ownership interests of its significant subsidiaries.

See Note 5 to Talen Energy Corporation's consolidated financial statements for discussions on restricted net assets of its subsidiaries for the purpose of transferring funds to Talen Energy Corporation in the form of distributions, loans or advances.

Commitments and Contingencies

See Note 11 to Talen Energy Corporation's consolidated financial statements for commitments and contingencies of its subsidiaries.

Guarantees and Other Assurances

Talen Energy Corporation's subsidiaries are separate and distinct legal entities and have no obligation to pay any amounts that may become due under Talen Energy Corporation's guarantees or other assurances or to make any funds available for such payment.

In the normal course of business, Talen Energy Corporation enters into agreements that provide financial assurance to third parties on behalf of certain subsidiaries.

Such agreements include surety bonds issued by insurance companies.

QUARTERLY FINANCIAL DATA (UNAUDITED)

Talen Energy Corporation and Subsidiaries

(Millions of Dollars, except per share data)

For the 2015 Quarters Ended (a)

For the 2014 Quarters Ended (a)

Operating revenues as previously reported

Reclassification between revenue and expense (b)

Reclassification from discontinued operations (c)

Operation, maintenance and development expenses (a)

Interest expense and other finance charges — — 238 238

Other segment items (b)

Adjusted EBITDA

Capital expenditures 164 24 1 189

May 18 through December 31, 2023 (Successor)

Operating revenues $ 1,120 $ 397 $ ( 173 ) $ 1,344

Operating Income (Loss) as previously reported

Reclassification from discontinued operations (c)

Operating Income (Loss)

Income (Loss) from continuing operations after income taxes as previously reported

Reclassification from discontinued operations (c)

Income (Loss) from continuing operations after income taxes

Income (Loss) from discontinued operations as previously reported

Reclassification from discontinued operations (c)

Income (Loss) from discontinued operations

Net Income (Loss) Attributable to Talen Energy Corporation stockholders (d)

Income (Loss) from continuing operations after income taxes available to Talen Energy Corporation stockholders (e)

Diluted EPS (f)

Net Income (Loss) available to Talen Energy Corporation stockholders (e)

Diluted EPS (f)

Quarterly results can vary depending on, among other things, weather and the forward pricing of power.

Accordingly, comparisons among quarters of a year may not be indicative of overall trends and changes in operations.

In the fourth quarter of 2015, Talen Energy reclassified amounts between "Wholesale energy" within operating revenues and "Energy purchases" within operating expense on the Statements of Income.

See Note 1 to the Financial Statements for additional information.

In the fourth quarter of 2015, the Sapphire operations, which were originally classified as discontinued operations as part of the RJS Power acquisition, were reclassified to continuing operations.

See Note 1 to the Financial Statements for additional information.

The third and fourth quarters of 2015 include impairment charges related to goodwill, the Sapphire plants and the C.P.

The fourth quarter of 2014 includes a gain of $137 million (after tax) from the sale of hydroelectric generating facilities of Talen Montana.

See Note 6 to the Financial Statements for additional information on the sale and Notes 14 and 16 to the Financial Statements for additional information on the impairments.

The sum of the quarterly amounts may not equal annual earnings per share due to changes in the number of common shares outstanding during the year or rounding.

As a result of reported losses, weighted-average shares used in the diluted earnings per share computations for the quarters ended September 30 and December 31, 2015 excludes incremental shares as they were anti-dilutive.

CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS

ON ACCOUNTING AND FINANCIAL DISCLOSURE

Talen Energy Corporation and Talen Energy Supply, LLC

Operation, maintenance and development expenses (a)

294 78 ( 14 ) 358

Interest expense and other finance charges — — 176 176

Other segment items (b)

Adjusted EBITDA

Capital expenditures 110 45 6 161

January 1 through May 17, 2023 (Predecessor)

Operating revenues $ 1,052 $ 195 $ ( 37 ) $ 1,210

Operation, maintenance and development expenses (a)

245 47 ( 7 ) 285

Interest expense and other finance charges — — 163 163

Other segment items (b)

Adjusted EBITDA

Capital expenditures 132 53 2 187

Year ended December 31, 2022 (Predecessor)

Operating revenues $ 2,902 $ 194 $ ( 7 ) $ 3,089

Operation, maintenance and development expenses (a)

519 97 ( 6 ) 610

Interest expense and other finance charges — — 359 359

Other segment items (b)

Adjusted EBITDA

Capital expenditures 237 69 6 312

__________________

(a) This significant segment expense category aligns with the segment-level information that is regularly provided to the CODM.

(b) Other segment items are primarily comprised of fuel and energy purchases.

Reconciliation of segment Adjusted EBITDA to Net Income (Loss):

Successor Predecessor

Year Ended December 31, 2024 May 18 through December 31, 2023 January 1 through May 17, 2023 Year Ended December 31, 2022

Adjusted EBITDA:

PJM $ 775 $ 377 $ 688 $ 981

Total Segment Adjusted EBITDA $ 775 $ 377 $ 688 $ 981

Reconciling Items:

Interest expense and other finance charges $ ( 238 ) $ ( 176 ) $ ( 163 ) $ ( 359 )

Income tax benefit (expense) ( 98 ) ( 51 ) ( 212 ) 35

Depreciation, amortization and accretion ( 298 ) ( 165 ) ( 200 ) ( 520 )

Nuclear fuel amortization ( 123 ) ( 108 ) ( 33 ) ( 94 )

Reorganization (gain) loss, net — — 799 ( 812 )

Unrealized (gain) loss on commodity derivative contracts 62 52 ( 63 ) 625

Nuclear decommissioning trust funds gain (loss), net 178 108 57 ( 184 )

Stock-based compensation expense ( 33 ) ( 19 ) — —

Long-term incentive compensation expense ( 21 ) ( 2 ) — —

Gain (loss) on asset sales, net 884 7 50 —

Non-cash impairments ( 1 ) ( 3 ) ( 381 ) —

Legal settlements and litigation costs 10 84 ( 1 ) ( 20 )

Unusual market events 1 19 ( 14 ) ( 29 )

Net periodic defined benefit cost ( 14 ) ( 2 ) 3 ( 12 )

Operational and other restructuring activities ( 76 ) ( 48 ) ( 17 ) ( 570 )

Hedge termination losses, net — — — ( 158 )

Development expenses ( 1 ) ( 7 ) ( 10 ) ( 17 )

Non-cash inventory net realizable value, obsolescence, and other charges ( 20 ) ( 4 ) ( 56 ) ( 3 )

Consolidation of subsidiary gain (loss), net — — — ( 170 )

"Other" operating segment 71 113 37 103

Noncontrolling interest 21 42 14 ( 3 )

Corporate and Eliminations ( 76 ) ( 64 ) ( 30 ) ( 69 )

Other items 10 ( 10 ) ( 3 ) ( 17 )

Net Income (Loss) $ 1,013 $ 143 $ 465 $ ( 1,293 )

Form 10- K Table of Contents

CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 8. Financial Statements and Supplementary Data