Talen Energy Second Quarter Conference Call - August 4, 2016 - Investor Relations
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We Generate Energy for a Brighter Tomorrow Talen Energy Second Quarter Conference Call August 4, 2016
Disclaimer
Forward Looking Statements:
Any statements made in this presentation about future operating results or other future
events are forward-looking statements under the Safe Harbor Provisions of the Private
Securities Litigation Reform Act of 1995. Actual results may differ materially from such
forward-looking statements. A discussion of factors that could cause actual results or
events to vary is contained in the Supplemental Information to this presentation and in
the Company’s SEC filings, including the factors discussed under “Risk Factors” in the
Company’s annual report on Form 10-K for the year ending December 31, 2015.
Important Information For Investors And Stockholders:
This communication does not constitute an offer to sell or the solicitation of an offer to
buy any securities or a solicitation of any vote or approval. The proposed acquisition of
the Talen Energy by affiliates of Riverstone Holdings LLC will be submitted to the
stockholders of the Company for their consideration. See slide 22 for additional
information.
© Talen Energy Corporation 2016 2
Agenda
Quarterly Review P. Farr
Transaction Update P. Farr
Q&A
© Talen Energy Corporation 2016 3Second Quarter Highlights
Highlights Second Quarter Results
($ in millions)
2Q results in line with expectations Net Income Adjusted EBITDA
- Lower margins from lower energy prices & nuclear
$408
availability primarily offset by reduced O&M $367
spending
$122 $148 $171
$132
Solid first half of 2016 leads to reaffirmed 2016 $26
guidance ranges
-$3
2Q YTD
Announced definitive merger agreement with 2Q YTD
2015 2016
Riverstone affiliates on June 3rd that, when
completed, would result in Talen Energy Reaffirmed 2016 Guidance Ranges
becoming privately held
($ in millions)
- Stockholders to receive $14.00 per share in cash Adjusted EBITDA Adjusted FCF
- Subject to stockholder vote, regulatory approvals $855
and other customary closing conditions
- “Go-shop” period expired on July 12th without any
$460
qualifying superior offers $655
- Completion expected by the end of 2016
$260
2016 2016
Adjusted EBITDA Adjusted FCF
Note: Refer to “Supplemental Information – Regulation G Reconciliations” for reconciliation of non-GAAP financial measures
© Talen Energy Corporation 2016 4Second Quarter Financial Review
Adjusted EBITDA Walk – Q2 2015 to Q2 2016
($ in millions)
$171 ($30)
$4 ($7) ($6) $132
Q2 2015 Margins O&M Taxes, OTI Other Q2 2016
Adjusted EBITDA Adjusted EBITDA
Adjusted EBITDA Highlights 2Q Results by Segment
($ in millions)
Margins:
+ Higher margins from assets acquired in 2015
Operating Income Adjusted EBITDA
- Divestiture of Ironwood, East hydro & renewable assets
2Q 2015 2Q 2016 2Q 2015 2Q 2016
- Lower nuclear availability
- Lower spark spreads East $147 $152 $214 $165
- Lower realized energy prices and generation in Montana West -$20 -$52 -$1 -$20
- Lower other portfolio margins
Other -$92 -$52 -$42 -$13
O&M: Total $35 $48 $171 $132
+ Lower corporate costs following spinoff from PPL
− Operating costs of assets acquired in 2015
Note: Refer to “Supplemental Information – Regulation G Reconciliations” for reconciliation of non-GAAP financial measures
© Talen Energy Corporation 2016 5Transaction Update
Key Regulatory Approvals:
Hart-Scott-Rodino
On June 24, 2016, the Antitrust Division of the US Department of Justice and the Federal Trade Commission
granted early termination of the applicable waiting period under the Hart-Scott-Rodino Antitrust Improvements
Act of 1976, as amended
Federal Energy Regulatory Commission (FERC)
Application filed on July 15, 2016 and awaiting approval
Nuclear Regulatory Commission (NRC)
Application filed on June 29, 2016 and awaiting approval
New York Public Service Commission (NYPSC)
Petition filed on July 15, 2016 and awaiting approval
Stockholder Approval:
The proposed acquisition will be submitted to the stockholders of the Company for their
consideration
On July 1, 2016, Talen Energy filed with the SEC a preliminary proxy statement. When completed, a definitive
proxy statement and a form of proxy will be filed with the SEC and mailed to the Company’s stockholders
Definitive proxy statement will include record date and date/location of special stockholder meeting
Expect transaction to be completed by the end of 2016
© Talen Energy Corporation 2016 6Supplemental Information © Talen Energy Corporation 2016 7
Second Quarter Operational Review
Net Generation (GWh) Equivalent Forced Outage Factor (EFOF)
4,453
3,678
3,423 3,250 3,332 3,408 17%
15%
1,571 8%
7%
707 3%
308 292 466 2% 2% 2%
1% 0% 0%
(1) (1)
Gas/Oil - East Nuclear Coal - PJM Hydro Gas - West Coal - MT Gas/Oil - East Nuclear Coal - PJM Hydro Gas - West Coal - MT
Q2 2015 Q2 2016 Q2 2015 Q2 2016
(2) (3)
Equivalent Availability Factor (EAF) Safety - TCIR
99%
85% 82%
78% 74% 76% (4)
74% 73% BLS Utility Average 2.4
66% 67%
59%
1.5
1.4
(1)
Gas/Oil - East Nuclear Coal - PJM Hydro Gas - West Coal - MT
Q2 2015 Q2 2016
Q2 2015 Q2 2016
Note: 2015 metrics include only one month of RJS results (acquired in June 2015). 2015 metrics exclude MACH Gen asset results (acquired in November 2015)
(1) Talen Energy’s hydro assets were sold on April 1, 2016, therefore no comparable data exists for Q2 2016
(2) EAF reflects planned, maintenance and forced outages
(3) TCIR – Total Case Incidence Rate using OSHA measurement standards
(4) Based upon 2014 Bureau of Labor Statistics (BLS) average incident rate for the utilities sector (NAICS 221)
© Talen Energy Corporation 2016 8Comparative Operational Statistics
(1) (2)
Quarter-to-date Net Generation (GWh) Capacity Factor Availability (EAF) EFOF
Q2 2015 Q2 2016 Q2 2015 Q2 2016 Q2 2015 Q2 2016 Q2 2015 Q2 2016
East:
Natural Gas/Oil 4,201 4,453 40.6% 42.7% 80.7% 85.4% 1.8% 0.7%
Nuclear 3,678 3,250 75.0% 66.3% 73.9% 66.2% 0.1% 2.2%
Coal - PJM 4,290 3,408 34.8% 27.8% 78.4% 66.5% 2.3% 8.0%
West:
Natural Gas 1,004 1,571 15.8% 23.7% 75.2% 76.2% 17.8% 1.5%
Coal - Montana 707 466 61.2% 40.3% 72.6% 58.8% 6.6% 15.2%
TOTAL GENERATION 13,880 13,148 39.7% 37.3% 77.7% 73.5% 4.8% 4.1%
(1) (2)
Year-to-date Net Generation (GWh) Capacity Factor Availability (EAF) EFOF
YTD 2015 YTD 2016 YTD 2015 YTD 2016 YTD 2015 YTD 2016 YTD 2015 YTD 2016
East:
Natural Gas/Oil 7,165 8,261 34.0% 38.7% 84.3% 87.2% 2.6% 2.7%
Nuclear 8,707 7,647 89.3% 78.0% 86.8% 77.1% 0.1% 1.1%
Coal - PJM 12,078 7,474 49.3% 30.4% 84.6% 77.2% 2.6% 5.6%
West:
Natural Gas 1,685 2,643 13.4% 20.3% 75.0% 80.8% 15.3% 1.1%
Coal - Montana 1,590 1,214 69.2% 52.6% 83.6% 74.0% 5.7% 10.5%
TOTAL GENERATION 31,225 27,239 44.7% 38.5% 83.1% 80.6% 4.6% 3.5%
Statistics shown here reflect Talen Energy’s current portfolio of assets for comparative and modeling purposes.
Statistics for assets no longer owned by Talen Energy are excluded from current and prior year. Statistics for assets
acquired during 2015 (RJS and MACH Gen assets) are included for all periods of 2015 for a full, relative comparison.
(1) EAF – Equivalent Availability Factor, which reflects planned, maintenance and forced outages
(2) EFOF – Equivalent Forced Outage Factor
© Talen Energy Corporation 2016 9Hedging & Commercial Management
Hedge Position for Expected Generation Nuclear and Coal Fuel Hedge Position
100% 100% 100% 100%
88% 88%
82%
73% 75%
67%
52% 50% 57%
46%
12%
6%
2016 2017 2016 2017
(1)
East Nuclear & Coal East Gas/Oil West Coal West Gas (2) Total Portfolio Nuclear East Coal West Coal
(3)
Margin Sensitivities Average Hedge Prices
($ millions)
2016 2017
2016 2017 East Segment:
PJM Power: Nuclear & Coal ($/MWh) $40-42 $36-38
$211
$134
PJM Consumed Coal (Delivered $/ton) $65-67 $64-67
$100 $126 (1)
$66 $58 Spark Spread ($/MWh) $10-12 $15-16
($45) ($40)
($70)
West Segment:
($106) ($118) MT Power: Coal ($/MWh) $35-36 $38-40
($186)
MT Consumed Coal (Delivered $/ton) $27-30 $28-31
(2)
Gas Heat Rate
Spark Spread ($/MWh) $18-19 $25-26
Power
+/- $0.50/mmBtu +/- 1.0 mmBtu/MWh +/- $5/MWh
Notes: As of June 30, 2016. Hedge detail and sensitivities exclude assets sold in conjunction with FERC mitigation (Ironwood, East hydro and C.P. Crane)
(1) 2016 excludes generation from Sapphire portfolio and out of the money heat rate call options related to the Sapphire portfolio that were included in the RJS Power acquisition and expire by the end of 2016
(2) Excludes Harquahala
(3) Gas price sensitivity assumes system heat rate is unchanged. Heat Rate sensitivity assumes power prices move and gas price is unchanged. Power price sensitivity assumes gas price is unchanged
© Talen Energy Corporation 2016 10Projected Capital Expenditures
($ in millions)
$542
$518 $6
$26
$6
$26 $15 $482
$15 $7 $468
$17
$16 $8 $6 $1
$61 $20 $422
$57 $50
$4 $6 $-
$17 $39
$114 $14
$102 $132
$137
$143
$82
$305 $295
$257
$228 $220
2016 2017 2018 2019 2020
(1) (2)
Sustenance Nuclear Fuel Growth Information Technology Environmental Regulatory Discretionary
(1) Updated to reflect addition of approximately $70 million related to projected plant modifications for the Montour co-fire project and removal of approximately $15 million of
capitalized interest and expenditures related to the Bell Bend nuclear project due to the full impairment in 2Q 2016
(2) Reflects Talen Energy’s best estimate of environmental capital expenditures that may be required through 2020. Actual costs may be significantly lower or higher
depending on the final compliance expenses, which are not now determinable, but could be significant
© Talen Energy Corporation 2016 11Liquidity
Available Liquidity
($ millions)
Liquidity Sources 3/31/2016 6/30/2016
(1)
Cash $ 465 $ 1,144
Liquidity facility arrangements 3,810 3,810
Total Liquidity $ 4,275 $ 4,954
Less: Current liquidity facility usage 402 748
Total Available Liquidity $ 3,873 $ 4,206
Liquidity Facility Arrangements
($ millions)
As of June 30, 2016
(2)
Expiration Outstanding LCs / Total Cash /
Facility Date Capacity Lien-Based Borrowed Unused Capacity
(1)
Cash $ 1,144 - - $ 1,144
(3)
CDS Backed Jun-17 500 - - 500
New MACH Gen Revolver Jul-21 160 $ 32 $ 108 20
Secured Trading (4) Dec-20 1,300 63 - 1,237
Talen Revolver Jun-20 1,850 195 350 1,305
Total $ 4,954 $ 290 $ 458 $ 4,206
(1) Total cash & cash equivalents including restricted cash used in collateral postings of $53 million at June 30, 2016 and $72 million at March 31, 2016
(2) Letters of Credit
(3) Facility allows Talen Energy Supply to request up to $500 million of committed unsecured letter of credit capacity at fees to be agreed upon at the time of each request,
based on certain market conditions
(4) Facility allows Talen Energy Supply to receive credit to satisfy collateral posting obligations related to Talen Energy’s energy marketing and trading activities
© Talen Energy Corporation 2016 12Long-term Debt Maturities
($ in millions)
2021
Talen Energy Supply, LLC 2016 2017 2018 2019 2020 & Beyond Total
Senior Notes: Maturity (yr)
Talen ES 6.50% 2018 $ - $ - $ 400 $ - $ - $ - $ 400
Talen ES 4.625% 2019 - - - 1,220 - - 1,220
Talen ES 4.60% 2021 - - - - - 712 712
Talen ES 6.50% 2025 - - - - - 600 600
Talen ES 6.00% 2036 - - - - - 200 200
Total Senior Notes $ - $ - $ 400 $ 1,220 $ - $ 1,512 $ 3,132
Municipal Bonds: Maturity (yr) -
Talen ES 6.40% Series A 2038 - - - - - 100 100
(1)
Talen ES 5.00% Series B 2038 - - - - 50 - 50
(1)
Talen ES 5.00% Series C 2037 - - - - 81 - 81
Total Municipal Bonds $ - $ - $ - $ - $ 131 $ 100 $ 231
New MACH Gen, LLC Maturity (yr)
(2)
Term Loan B 2022 2 5 24 24 48 368 471
Total Maturities $ 2 $ 5 $ 424 $ 1,244 $ 179 $ 1,980 $ 3,834
Note: As of June 30, 2016
(1) Bonds are subject to mandatory repurchase and optional remarketing in 2020
(2) Annual interest rate is equivalent to 12-month LIBOR plus 5.50%. Maturities reflect principal amortization
© Talen Energy Corporation 2016 13Talen Energy Corporate Structure
Talen Energy Corporation
(NYSE: TLN)
Talen Energy Holdings, Inc.
Talen Energy Supply, LLC $3,363mm Senior Unsecured Notes Outstanding
Legacy Energy RJS
MACH Gen LLC
Supply Subs Subs
(1)
$471mm New MACH Gen Term Loan B
(in millions)
First Lien New MACH Gen Term Loan B $ 471
Senior Unsecured Talen Energy Supply Notes 3,363
Total Long-Term Debt $ 3,834
As of June 30, 2016
(1) Debt is non-recourse to Talen Energy entities other than the MACH Gen entities
© Talen Energy Corporation 2016 14Talen Energy Asset Overview
Asset Location Fuel Type Ownership Net Heat Rate (Btu / kWh) Owned Capacity (1) COD Region
East Assets
Nuclear & Coal
Susquehanna PA Nuclear 90% N/A 2,262 1983 - 1985 PJM-MAAC
Brandon Shores MD Coal 100% 10,252 1,274 1984 - 1991 PJM-SWMAAC
Brunner Island PA Coal 100% 9,842 1,428 1961 - 1969 PJM-MAAC
Conemaugh PA Coal 16% 9,700 285 1970 - 1971 PJM-MAAC
Keystone PA Coal 12% 9,600 212 1967 - 1968 PJM-MAAC
Montour PA Coal 100% 9,661 1,528 1972 - 1973 PJM-MAAC
H.A. Wagner MD Coal/NG/Oil 100% 10,663 966 1956 - 1972 PJM-SWMAAC
Natural Gas / Oil
Athens NY Natural Gas 100% 7,100 969 2004 NYISO
Bayonne NJ Natural Gas/Oil 100% 8,857 165 1988 PJM-PS North
Camden NJ Natural Gas/Oil 100% 8,675 145 1993 PJM-PSEG
Dartmouth MA Natural Gas/Oil 100% 8,715 (CCGT) / 11,326 (Peaker) 82 1996 ISO-NE
Elmwood Park NJ Natural Gas/Oil 100% 9,500 70 1989 PJM-PS North
Lower Mt. Bethel PA Natural Gas 100% 7,170 555 2004 PJM-MAAC
Martins Creek 3&4 PA Natural Gas/Oil 100% 11,744 (Gas) / 10,676 (Oil) 1,708 1975 - 1977 PJM-MAAC
Millennium MA Natural Gas 100% 6,975 335 2001 ISO-NE
Newark Bay NJ Natural Gas/Oil 100% 8,680 122 1993 PJM-PS North
Pennsylvania Peakers PA Natural Gas/Oil 100% Various 370 1967 - 1973 PJM-MAAC
Pedricktown NJ Natural Gas/Oil 100% 8,455 117 1992 PJM-EMAAC
York PA Natural Gas 100% 9,551 46 1989 PJM-MAAC
Renewables
Renewables PA Renewable 100% Various 7 Various PJM-MAAC
East Subtotal 12,646
West Assets
Natural Gas / Oil
Barney Davis 1 TX Natural Gas 100% 10,100 318 1974 ERCOT-South
Barney Davis 2 TX Natural Gas 100% 7,100 646 2010 ERCOT-South
Laredo 4 TX Natural Gas 100% 8,900 92 2008 ERCOT-South
Laredo 5 TX Natural Gas 100% 8,900 89 2008 ERCOT-South
Harquahala AZ Natural Gas 100% 7,100 1,040 2004 WECC
Nueces Bay 7 TX Natural Gas 100% 7,100 648 2010 ERCOT-South
Coal
Colstrip 1 & 2 MT Coal 50% 10,941 307 1975, 1976 WECC
Colstrip 3 MT Coal 30% 10,660 222 1984, 1986 WECC
West Subtotal 3,362
Total Talen Energy 16,008
(1) Summer rating
© Talen Energy Corporation 2016 15Regulation G Reconciliations
Quarter-to-date Adjusted EBITDA Three Months Ended June 30,
($ in millions) 2016 2015
East West Other Total East West Other Total
Net income (loss) $ (3) $ 26
Interest expense 60 55
Income taxes (3) (43)
Other (income) expense - net (6) (3)
Operating income (loss) $ 152 $ (52) $ (52) $ 48 $ 147 $ (20) $ (92) $ 35
Depreciation 97 11 1 109 82 4 1 87
Other income (expense) - net 4 (1) 3 6 4 — (1) 3
EBITDA $ 253 $ (42) $ (48) $ 163 $ 233 $ (16) $ (92) $ 125
Margins: —
Unrealized (gain) loss on derivative contracts (a) 137 13 — 150 (22) 15 — (7)
Terminated derivative contracts (b) — — — — (13) — — (13)
Revenue adjustment (c) — — — — 7 — — 7
Other (d) 2 — — 2 1 — — 1
Operation and maintenance:
Stock-based compensation expense (e) — — 3 3 — — 31 31
ARO accretion, net 6 — — 6 9 — — 9
Impairments (f) 204 9 — 213 — — — —
(Gain) loss on dispositions (g) (423) — — (423) — — — —
TSA costs — — 11 11 — — 5 5
Separation benefits — — 9 9 — — 2 2
Transaction and restructuring costs (i) — — 12 12 — — 12 12
Other (5) — — (5) 3 — — 3
Other income (expense):
(Gain) loss from NDT funds (9) — — (9) (4) — — (4)
Adjusted EBITDA $ 165 $ (20) $ (13) $ 132 $ 214 $ (1) $ (42) $ 171
Note: Please refer to Regulation G Reconciliation footnotes for year-to-date Adjusted EBITDA on slide 18
© Talen Energy Corporation 2016 16Regulation G Reconciliations
Year-to-date Adjusted EBITDA Six Months Ended June 30,
($ in millions) 2016 2015
East West Other Total East West Other Total
Net income (loss).................................................... $ 148 $ 122
Interest expense ...................................................... 120 91
Income taxes ......................................................... 103 10
Other (income) expense - net ..................................... (12) (10)
Operating income (loss) ..........................................$ 544 $ (80) $ (105) $ 359 $ 378 $ (21) $ (144) $ 213
Depreciation .......................................................... 192 24 2 218 159 4 1 164
Other income (expense) - net ..................................... 9 — 3 12 11 — (1) 10
EBITDA ..............................................................$ 745 $ (56) $ (100) $ 589 $ 548 $ (17) $ (144) $ 387
Margins: —
Unrealized (gain) loss on derivative contracts (a) ............ 56 12 — 68 (70) 17 — (53)
Terminated derivative contracts (b).............................. — — — — (13) — — (13)
Revenue adjustment (c) ............................................ — — — — 7 — — 7
Other (d) ............................................................... 5 — — 5 4 — — 4
Operation and maintenance:
Stock-based compensation expense (e) ......................... — — 8 8 — — 40 40
ARO accretion, net .................................................. 15 1 — 16 17 — — 17
Impairments (f)....................................................... 204 9 — 213 — — — —
(Gain) loss on dispositions (g) ....................................(563) — — (563) — — — —
TSA costs.............................................................. — — 24 24 — — 5 5
Separation benefits .................................................. — — 9 9 — — 2 2
Corette closure costs (h)............................................ — — — — — 4 — 4
Transaction and restructuring costs (i) .......................... — — 15 15 — — 15 15
Legal contingency (j) ............................................... — 4 — 4 — — — —
Other ................................................................... (8) — — (8) 3 — — 3
Other income (expense):
(Gain) loss from NDT funds ...................................... (13) — — (13) (10) — — (10)
Adjusted EBITDA .................................................$ 441 $ (30) $ (44) $ 367 $ 486 $ 4 $ (82) $ 408
Note: Please refer to Regulation G Reconciliation footnotes for year-to-date Adjusted EBITDA on slide 18
© Talen Energy Corporation 2016 17Regulation G Reconciliations
Adjusted EBITDA Footnotes
a) Represents unrealized (gains) losses on derivatives. Amounts have been adjusted for insignificant
option premiums for the three months ended June 30, 2016 and 2015, and $6 million and $9
million for the six months ended June 30, 2016 and 2015
b) Represents net realized gains on certain derivative contracts that were terminated due to the
spinoff transaction
c) Related to a prior period revenue adjustment for the receipt of revenue under a transmission
operating agreement with Talen Energy Supply's former affiliate, PPL Electric Utilities Corporation
d) Includes OCI amortization on non-active derivative positions
e) For the periods prior to June 2015, represents the portion of PPL's stock-based compensation cost
allocable to Talen Energy
f) Relates to Bell Bend Combined Operating License Application costs and Harquahala plant
impairments
g) Relates to Ironwood, Holtwood, Lake Wallenpaupack and C.P. Crane sales
h) Operations were suspended and the Corette plant was retired in March 2015
i) Costs related to the spinoff transaction, including expenses associated with the FERC-required
mitigation and legal and professional fees. Also includes transaction costs related to the proposed
merger with Riverstone affiliates that was announced in June 2016
j) Contingency relates to the termination of a gas supply contract
© Talen Energy Corporation 2016 18Regulation G Reconciliations
Year-to-Date Adjusted Free Cash Flow
($ in millions)
Six Months Ended June 30,
2016 2015
Cash from Operations $ 207 $ 355
Capital Expenditures, excluding growth (a) ................................................................................ (235) (197)
Counterparty collateral paid (received) ........................................................................................ 57 (36)
Adjusted Free Cash Flow, including other adjustments ....................................................... 29 122
Cash adjustments:
Transition Services Agreement costs ........................................................................................... 23 5
Legal settlement (b) ......................................................................................................................... 3 —
Separation benefits........................................................................................................................... 3 2
Corette closure costs (c).................................................................................................................. — 4
Transaction and restructuring costs (d) ........................................................................................ 35 15
Taxes on above adjustments (e)..................................................................................................... (26) (11)
Adjusted Free Cash Flow .............................................................................................................. $ 67 $ 137
(a) Includes expenditures related to intangible assets
(b) Contingency relates to the termination of a gas supply contract
(c) Operations were suspended and the Corette plant was retired in March 2015
(d) Costs related to the spinoff transaction, including FERC-required mitigation plan expenses and legal and professional fees. Also includes transaction costs related to the
proposed merger with Riverstone affiliates that was announced in June 2016
(e) Assumed a marginal tax rate of 40%
© Talen Energy Corporation 2016 19Regulation G Reconciliations
Adjusted EBITDA Forecast
($ in millions)
Midpoint -
Low - 2016E 2016E High - 2016E
Net Income (Loss) $ 107 $ 167 $ 227
Income Taxes .................................................................................................. 72 112 152
Interest Expense .............................................................................................. 240 240 240
Depreciation and Amortization ....................................................................... 424 424 424
EBITDA 843 943 1,043
Stock-based compensation .............................................................................. 12 12 12
Asset retirement obligation, net ...................................................................... 35 35 35
Unrealized (gains) losses on derivative contracts (a) ...................................... 68 68 68
Nuclear decommissioning trust losses (gains) ................................................ (18) (18) (18)
(Gain) loss on sale (b) ..................................................................................... (563) (563) (563)
Asset impairments (c) ..................................................................................... 213 213 213
Transition Services Agreement costs and other adjustments (d) ..................... 65 65 65
Adjusted EBITDA $ 655 $ 755 $ 855
(a) Represents unrealized (gains) losses on derivatives. Amounts have been adjusted for insignificant option premiums
(b) Relates to Ironwood, Holtwood, Lake Wallenpaupack and C.P. Crane sales
(c) Relates to Bell Bend Combined Operating License Application costs and Harquahala plant impairments
(d) Other includes: (i) costs related to the spinoff transaction, including FERC-required mitigation plan expenses and legal and professional fees; (ii) separation benefits related
to workforce reductions; and (iii) costs related to the proposed merger with Riverstone affiliates that was announced in June 2016
© Talen Energy Corporation 2016 20Regulation G Reconciliations
Adjusted Free Cash Flow Forecast
($ in millions)
Low - 2016E Midpoint - 2016E High - 2016E
Cash from Operations (a) $ 321 $ 401 $ 481
Capital Expenditures, excluding growth (b) ....................... (467) (447) (427)
Counterparty collateral paid (received) .............................. 57 57 57
Transition Services Agreement costs .................................. 41 41 41
Legal settlement (c) ............................................................ 3 3 3
Separation benefits ............................................................. 3 3 3
Transaction and restructuring costs (d)............................... 35 35 35
Taxes on above adjustments (e) .......................................... (33) (33) (33)
Taxes on mitigated asset sales (f) ....................................... 300 300 300
Adjusted Free Cash Flow $ 260 $ 360 $ 460
(a) Excludes taxes paid on gains generated from the mitigated asset sales
(b) Includes expenditures related to intangible assets
(c) Contingency relates to the termination of a gas supply contract
(d) Costs related to the spinoff transaction, including FERC-required mitigation plan expenses and legal and professional fees. Also includes costs related to the proposed
merger with Riverstone affiliates that was announced in June 2016
(e) Assumed a marginal tax rate of 40%
(f) Estimated taxes associated with asset sales included in Cash from Operations
© Talen Energy Corporation 2016 21Important Information For Investors
and Stockholders
This communication does not constitute an offer to sell or the solicitation of an offer to buy any securities or a solicitation of any vote or approval. The
proposed acquisition of Talen Energy (the “Merger”) by affiliates of Riverstone Holdings LLC (“Riverstone”) will be submitted to the stockholders of
Talen Energy for their consideration. On July 1, 2016, Talen Energy filed with the Securities and Exchange Commission (“SEC”) a preliminary proxy
statement in connection with the Merger. When completed, a definitive proxy statement and a form of proxy will be filed with the SEC and mailed to
Talen Energy stockholders. Talen Energy also plans to file other documents with the SEC regarding the Merger. Investors and security holders of Talen
Energy are urged to read the proxy statement and other relevant documents that will be filed with the SEC carefully and in their entirety when they
become available because they will contain important information about the Merger. Investors and stockholders will be able to obtain free copies of the
proxy statement and other documents containing important information about Talen Energy and Riverstone, once such documents are filed with the
SEC, through the website maintained by the SEC at http://www.sec.gov. Copies of the documents filed with the SEC by Talen Energy will be available
free of charge on Talen Energy’s website at www.talenenergy.com under the Investors & Media section or by contacting Talen Energy’s Investor
Relations Department at (610) 774-3389. Talen Energy and certain of its directors and executive officers may be deemed to be participants in the
solicitation of proxies from the stockholders of Talen Energy in connection with the Merger. Information about the directors and executive officers of
Talen Energy is set forth in its proxy statement for its 2016 annual meeting of stockholders, which was filed with the SEC on April 12, 2016. This
document can be obtained free of charge from the sources indicated above. Other information regarding the participants in the proxy solicitation and a
description of their direct and indirect interests, by security holdings or otherwise, will be contained in the proxy statement and other relevant materials
to be filed with the SEC when they become available.
© Talen Energy Corporation 2016 22Forward-Looking Information Statement
Statements contained in this presentation, including statements with respect to future earnings, EBITDA, Adjusted EBITDA or Adjusted Free Cash Flow
results, cash flows, tax attributes, financing, regulation, closing of the Merger, completion of co-firing projects and litigation settlement are "forward-
looking statements" within the meaning of the federal securities laws. These statements often include such words as "believe," "expect," "anticipate,"
"intend," "plan," "estimate," "target," "project," "forecast," "seek," "will," "may," "should," "could," "would" or similar expressions. Although Talen Energy
believes that the expectations and assumptions reflected in these forward-looking statements are reasonable, these statements are subject to a number
of risks and uncertainties, and actual results may differ materially from the results discussed in the statements. Among the important factors that could
cause actual results to differ materially from the forward-looking statements are: failure to complete the Merger, as a result of the failure to obtain
necessary stockholder or regulatory approvals or otherwise; the payment by Talen Energy of a termination fee if the Merger Agreement is terminated in
certain circumstances; the loss of key customers and suppliers resulting from any uncertainties associated with the Merger; the negative impact on
Talen Energy's business and the market price for Talen Energy's common stock should the Merger not be consummated; ability to secure final approval
of the Colstrip settlement agreement from the federal court; adverse economic conditions; changes in commodity prices and related costs; the
effectiveness of Talen Energy's risk management techniques, including hedging; accounting interpretations and requirements that may impact reported
results; operational, price and credit risks in the wholesale and retail electricity markets; Talen Energy's ability to forecast the actual load needed to
perform full-requirements sales contracts; weather conditions affecting generation, customer energy use and operating costs and revenues; disruptions
in fuel supply; circumstances that may impact the levels of coal inventory that are held; the performance of transmission facilities and any changes in
the structure and operation of, or the pricing limitations imposed by, the RTOs and ISOs that operate those facilities; blackouts due to disruptions in
neighboring interconnected systems; competition; federal and state legislation and regulation; costs of complying with environmental and related worker
health and safety laws and regulations; the impacts of climate change; the availability and cost of emission allowances; changes in legislative and
regulatory policy; security and safety risks associated with nuclear generation; Talen Energy's level of indebtedness; the terms and conditions of debt
instruments that may restrict Talen Energy's ability to operate its business; the performance of Talen Energy's subsidiaries and affiliates, on which its
cash flow and ability to meet its debt obligations largely depend; the risks inherent with variable rate indebtedness; disruption in financial markets; Talen
Energy's ability to access capital markets; acquisition or divestiture activities, and Talen Energy's ability to realize expected synergies and other
benefits from such business transactions, including in connection with the completed MACH Gen acquisition; changes in technology; any failure of
Talen Energy's facilities to operate as planned, including in connection with scheduled and unscheduled outages; Talen Energy's ability to optimize its
competitive power generation operations and the costs associated with any capital expenditures, including the Brunner Island and Montour dual-fuel
projects; significant increases in operation and maintenance expenses; the loss of key personnel, the ability to hire and retain qualified employees and
the impact of collective labor bargaining negotiations; war, armed conflicts or terrorist attacks, including cyber-based attacks; risks associated with
federal and state tax laws and regulations; any determination that the transaction that formed Talen Energy does not qualify as a tax-free distribution
under the Internal Revenue Code; Talen Energy's ability to successfully integrate the RJS Power businesses and to achieve anticipated synergies and
cost savings as a result of the spinoff transaction and combination with RJS Power; costs of complying with reporting requirements as a newly public
company and any related risks of deficiencies in disclosure controls and internal control over financial reporting as a standalone entity; and the ability of
affiliates of Riverstone, to exercise influence over matters requiring Board of Directors and/or stockholder approval. Any such forward-looking
statements should be considered in light of such important factors and in conjunction with Talen Energy's Form 10-K for the year ended December 31,
2015 and its other reports on file with the SEC.
© Talen Energy Corporation 2016 23Definitions of Non-GAAP Financial Measures
EBITDA as presented in this presentation represents net income (loss) before interest expense, income taxes, depreciation and certain
amortization. Adjusted EBITDA represents EBITDA further adjusted for certain non-cash and other items that management believes are not
indicative of ongoing operations, including, but not limited to, unrealized gains and losses on derivative contracts, stock-based compensation
expense, asset retirement obligation accretion, gains and losses on securities in the nuclear decommissioning trust fund, impairments, gains or
losses on sales, dispositions or retirements of assets, debt extinguishments, and transition, transaction and restructuring costs.
EBITDA and Adjusted EBITDA are not intended to represent cash flows from operations or net income (loss) as defined by U.S. GAAP as
indicators of operating performance and are not necessarily comparable to similarly-titled measures reported by other companies. Talen Energy
believes EBITDA and Adjusted EBITDA are useful to investors and other users of its financial statements in evaluating its operating performance
because they provide additional tools to compare business performance across companies and across periods. Talen Energy believes that
EBITDA is widely used by investors to measure a company’s operating performance without regard to such items as interest expense, income
taxes, depreciation and amortization, which can vary substantially from company to company depending upon accounting methods and book
value of assets, capital structure and the method by which assets were acquired. Additionally, it believes that investors commonly adjust EBITDA
information to eliminate the effect of restructuring and other expenses, which vary widely from company to company and impair comparability.
Talen Energy adjusts for these and other items, as its management believes that these items would distort their ability to efficiently view and
assess its core operating trends. In summary, Talen Energy’s management uses EBITDA and Adjusted EBITDA as measures of operating
performance to assist in comparing performance from period to period on a consistent basis and to readily view operating trends, as measures for
planning and forecasting overall expectations and for evaluating actual results against such expectations, and in communications with its Board of
Directors, shareholders, creditors, analysts and investors concerning its financial performance.
Adjusted Free Cash Flow as presented in this presentation represents Cash from Operations less capital expenditures, excluding growth-related
capital expenditures, adjusted for changes in counterparty collateral and further adjusted for after-tax transaction and restructuring costs, and
certain other after-tax cash items that management believes are not indicative of ongoing operations. Adjusted Free Cash Flow should not be
considered an alternative to Cash from Operations, which is determined in accordance with U.S. GAAP. Talen Energy believes that Adjusted Free
Cash Flow, although a non-U.S. GAAP measure, is an important measure to both management and investors as an indicator of the company’s
ability to sustain operations without additional outside financing beyond the requirement to fund maturing debt obligations. These measures are
not necessarily comparable to similarly-titled measures reported by other companies as they may be calculated differently.
Net debt as presented in this presentation represents total debt less cash and cash equivalents.
© Talen Energy Corporation 2016 24You can also read
