We Generate Energy for a Brighter Tomorrow Talen Energy Third Quarter Conference Call November 5, 2015
Safe Harbor 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 prospectus filed with the SEC pursuant to Rule 424(b)(3) on November 3, 2015 and the Company s Quarterly Report on Form 10-Q for the quarter ended June 30, 2015. Talen Energy Corporation 2015 2
Agenda Quarterly Review & Strategic Update Commercial & Operational Review Financial Review P. Farr P. Farr J. McGuire Q&A Talen Energy Corporation 2015 3
3 rd Quarter Review 3 rd Quarter Highlights Q3 Adjusted EBITDA Review Solid financial results drive increase in 2015 Adjusted EBITDA & FCF projections Strong quarter for generation fleet - Continued excellent performance at Susquehanna nuclear plant; operated at capacity factors >100% - Strong PJM spark spreads deliver year-over-year outperformance in eastern gas fleet Continuing progress on synergies from RJS merger - Now project to achieve $135 million in 2015 (previously estimated at $115 million) - Maintain run-rate target of $165 - $175 million Closed acquisition of 2,500 MW MACH Gen portfolio Announced sales of Eastern Hydro, Ironwood and C.P. Crane for combined $1.5 billion in gross proceeds ($ in millions) $247 $935 $357 Q3 $357 $605 $765 YTD $841 2014 2015 2015 (Guidance Basis) Increasing 2015 Projections $1,085 $1,100 $1,050 Raising midpoints & narrowing guidance ranges Adjusted EBITDA (2)(3) $415 $425 $265 Adjusted FCF (2) $375 Prior 2015E Updated 2015E Prior 2015E Updated 2015E Note: Refer to Supplemental Information Regulation G Reconciliations for reconciliation of non-gaap financial measures RJS Power was consolidated into Talen Energy s financials as of June 1, 2015. Excludes contributions from the five-month period prior to acquisition of RJS Power (2) Reflects RJS Power results for the five months of 2015 prior to the acquisition and an adjustment for PPL allocations not expected to continue in future periods (3) 2015 projections have not been adjusted to reflect the acquisition of MACH Gen or the sale of Talen Renewable Energy, which both closed on November 2, 2015 Talen Energy Corporation 2015 4
Optimizing Talen Energy s Portfolio Strategically Expanding the Fleet at Attractive Value Athens 1,080 MW CCGT; NYISO Experienced commercial operations team to enhance capability of a high-quality asset, expected to lead to substantial improved capacity factors in the near-term with additional upside due to key location for expanding pipeline interconnection in NYISO Millennium 360 MW CCGT; ISO-NE Poised to capitalize on the pending retirements in ISO-NE Harquahala 1,092 MW CCGT; WECC robust capacity market and Multiple opportunities to enhance a highly reliable asset that is well-positioned to capture value from 111(d) compliance Maximizing Value from Dispositions Through Exceptional Execution East Hydro 292 MW; PJM Exceptional value of ~$3,000 / kw Ironwood 704 MW CCGT; PJM Over $900 / kw for PJM CCGT with a 7,100 heat rate Renewables 25 various projects totaling 65 MW; PJM Group of small non-core assets netting ~$1,800 / kw C.P. Crane 399 MW Coal; PJM Clean exit from a challenged asset Purchases @ ~6.0x Adjusted EBITDA Sales @ ~11.0x Adjusted EBITDA (2) (3) Reinvesting capital in an accretive manner, while diversifying into key markets and efficient, gas-fired assets East Hydro, Ironwood and C.P. Crane sales expected to close in Q1 2016 (2) Based on purchase price adjusted for net present value of tax attributes, monetization of Harquahala and projected 2016 Adjusted EBITDA as reflected in July 20, 2015 investor presentation (3) Based on gross sale proceeds and projected 2016 Adjusted EBITDA as previously disclosed Talen Energy Corporation 2015 5
Achieving Key Priorities Catalyst 2018/19 PJM Capacity Auction Results Expected Timing Q3 2015 Announce Mitigation Divestitures MACH Gen Closing/Begin Integration Q4 2015 Q4 2015 Brunner Island Dual-Fuel Project Keystone & Conemaugh Operational Improvements Harquahala Optimization Montour Dual-Fuel Project Q4 2016 COD 2016-2017 2017 2018 Execution on these fronts expected to enhance shareholder value Project under review and dependent on development of certain natural gas pipelines Talen Energy Corporation 2015 6
Commercial & Operational Review Talen Energy Corporation 2015 7
Capacity Factor (%) 3 rd Quarter Operational Review Solid Asset Performance East Segment: Net Generation (GWh) Capacity Factor EAF 3Q 2015 YTD 3Q 2015 YTD 3Q 2015 YTD Coal - PJM 6,273 15,487 47.2% 48.0% 92.4% 89.2% Coal - Montana 1,027 2,770 87.9% 74.8% 92.7% 87.5% Hydro 182 711 28.2% 37.1% 97.5% 98.5% Natural Gas CCGT 2,304 6,981 86.6% 88.4% 88.5% 88.7% Natural Gas/Oil 2,256 3,889 36.0% 26.3% 91.4% 87.2% Nuclear 4,982 13,690 100.5% 93.1% 99.7% 91.2% (2) Unit Reliability EFOF Strong fleet-wide reliability supporting solid 3Q results 7% 4% 3% 1% 0% 3% 3% 3% 2% 5% 3% 1% 0% 1% West Segment Natural Gas 1,203 1,495 30.4% 28.5% 95.7% 90.3% (3) TOTAL 18,227 45,023 55.3% 52.4% 93.5% 89.4% Q3 2015 Q3 2014 Susquehanna Operations Unit 1 Unit 2 95.3% 104.0% 100.5% 100.8% 102.7% 103.6% 101.5% 49.5% 101.5% Safety - TCIR (4) Average recordable incident rate per Bureau of Labor Statistics 2.10 1.80 (5) Q4 2014 Q1 2015 Q2 2015 Q3 2015 Q4 2014 Q1 2015 Q2 2015 Q3 2015 Adjusting for 2Q 2015 refueling outage at Unit 2, Susquehanna has averaged a station CF of > 100% over LTM YTD 2015 EFOF Equivalent Forced Outage Factor (2) EAF Equivalent Availability Factor, which includes scheduled outages (3) YTD excludes metrics from RJS Power for the five-month period prior to acquisition (4) TCIR Total Case Incidence Rate using OSHA measurement standards. Reflects nine months of RJS statistics (5) Based upon 2013 average incident rate for the utilities sector (NAICS 221) Talen Energy Corporation 2015 8
$/MW-day MW Spark Spread $ / MWh Spark Spread $ / MWh Market Overview PJM On-peak Spark Spreads $30 ERCOT On-peak Spark Spreads $30 $25 $25 $20 $20 $15 $15 $10 12/31/2013 6/30/2014 12/31/2014 6/30/2015 2016 PJM Spark Spread 2017 PJM Spark Spread Source: ICE, Talen Energy. Assumes PJM West Hub vs. TETCO M3 forward prices at a 7 heat rate Supportive PJM CP Auction Results $225 $226.15 $175 $167.46 $164.77 $151.50 $134.00 $133.37 $136.50 $125 $120.00 $119.13 $10 12/31/2013 6/30/2014 12/31/2014 6/30/2015 2016 ERCOT Spark Spread 2017 ERCOT Sprak Spread Source: ICE, Talen Energy. Assumes ERCOT North Hub vs. Henry Hub forward prices at a 7 heat rate Past Five ERCOT Hourly Peak Records 70,000 69,000 68,000 67,000 66,000 New Peak Demand Records Reflect Demand Growth & Support Prices 65,761 67,929 65,414 68,305 66,950 68,459 68,242 68,912 69,783 69,395 $2,500 $2,000 $1,500 $1,000 $500 $/MWh $75 2012/2013 2013/2014 2014/2015 2015/2016 2016/2017 2017/2018 2018/2019 65,000 2-Aug-2011 3-Aug-2011 5-Aug-2015 6-Aug-2015 10-Aug-2015 $- MAAC - Base CP / Transional Results Peak Hour Load Forecast Peak Hour Actual Load Peak Hour Day-Ahead South Hub Price CP / Transitional clearing price results for MAAC Talen Energy Corporation 2015 9
Hedging & Commercial Management Expected Generation Hedge Position Coal and Nuclear Fuel Hedge Position 98% 92% 98% 85% 96% Portfolio Targets: 75% 1-year forward 25% 2-years forward 100% 97% 100% 100% 100% 67% 56% 63% 60% 54% 0% 2015 2016 East Nuclear, Coal & Hydro East Gas/Oil Montana Coal West Gas/Oil Total Portfolio Note: Excludes expected generation from MACH Gen assets, which are expected to be unhedged at acquisition date Margin Sensitivities ($ millions) 2015 2016 Nuclear East Coal West Coal Average Hedge Prices 2015 $16 $9 $17 $18 ($13) ($8) ($15) $182 $140 2016 $221 $18 2015 2016 East Segment: PJM Power: Nuclear, Coal, Hydro ($/MWh) $41-42 $40-42 PJM Consumed Coal (Delivered $/ton) $71-72 $67-70 (2) Spark Spread ($/MWh) $14-15 $12-13 MT Power: Coal ($/MWh) $40-41 $36-38 MT Consumed Coal (Delivered $/ton) $26-28 $27-33 Gas +/- $0.50/mmBtu Heat Rate +/- 1.0 mmbtu ($131) Power +/- $5/MWh ($109) ($172) ERCOT 1 hour @ Offer Cap West Segment: Spark Spread ($/MWh) $22-23 - Notes: As of September 30, 2015. 2016 hedge position and sensitivities reflect announced assets sales of Ironwood, the East Hydros and C.P. Crane Gas price sensitivity assumes system heat rate is unchanged. Heat Rate sensitivity assumes power prices move and gas price is unchanged. Power price sensitivity assumes gas price is unchanged (2) Excludes out of the money heat rate call options related to the Sapphire portfolio that were included in the RJS Power acquisition and expire by the end of 2016 Talen Energy Corporation 2015 10
Financial Review Talen Energy Corporation 2015 11
3 rd Quarter Financial Highlights Adjusted EBITDA Walk Q3 2015 vs. Q3 2014 ($ in millions) $97 $9 $10 ($6) $357 $247 Q3 2014 Adjusted EBITDA Margins O&M Other Taxes, other than income Q3 2015 Adjusted EBITDA Adjusted EBITDA Highlights East margins up 10% year-over-year driven by: - Higher PJM capacity prices - Improved nuclear operational performance - Higher spark spreads - Addition of Raven assets Solid asset performance in ERCOT - 96% unit availability Lower Corporate O&M costs Adjusted EBITDA by Segment ($ in millions) East West Other $337 $290 $43 Q3 2014 Q3 2015 ($43) ($23) Notes: Refer to Supplemental Information Regulation G Reconciliations for reconciliation of non-gaap financial measures Talen Energy Corporation 2015 12
2015 EBITDA and FCF ($ in millions) Prior 2015 Guidance Updated 2015 Guidance Low Mid High Low Mid High Adjusted EBITDA $935 $1,010 $1,085 $1,050 $1,075 $1,100 (excluding MACH Gen Contribution) +$115 +$65 +$15 (2) Adjusted Free Cash Flow $265 $340 $415 $375 $400 $425 (excluding MACH Gen Contribution) +$110 +$60 +$10 Projected Net Debt Outstanding at 12/31/2015 $3,700 $3,500 (excluding MACH Gen Financing) (3) Projected Net Debt / Adjusted EBITDA 3.7x 3.3x Strong performance leads to over 6% increase to Adjusted EBITDA midpoint & ~18% increase to Adjusted FCF midpoint Notes: Refer to Supplemental Information Regulation G Reconciliations for reconciliation of non-gaap financial measures 2015 forecasts include twelve months of performance from RJS, including the five-month period prior to the acquisition and an adjustment for PPL allocations not expected to continue in future periods. 2015 projections have not been adjusted to reflect the acquisition of MACH Gen or the sale of Talen Renewable Energy, which both closed on November 2, 2015. Does not reflect announced sales of Ironwood, East Hydro and C.P. Crane which are expected to close in Q1 2016 (2) Does not include growth capex of $38 million (3) Includes $170 million in projected short-term debt outstanding Talen Energy Corporation 2015 13
2016 EBITDA and FCF ($ in millions) Prior 2016 Estimate 2016E 2016E Adjusted for MACH Adjustment for Adjusted Gen & Sale of Talen Ironwood, East Hydro Projections (2) Renewable Energy & Crane Sales Adjusted EBITDA $990 ($145) $845 (3) (4) Adjusted Free Cash Flow $310 ($50) $260 Projected Net Debt at 12/31/2015 $4,785 (5) Projected Net Debt at 12/31/2016 $3,200 (including MACH Gen Financing) (including net asset sale proceeds) Projected Net Debt / Adjusted EBITDA 4.8x 3.8x Substantial Asset Sale Proceeds Expected to Drive Down Talen Energy s Leverage Notes: Refer to Supplemental Information Regulation G Reconciliations for reconciliation of non-gaap financial measures Does not reflect sales of Ironwood, East Hydro and C.P. Crane (2) Adjustment reflects full year projections for Ironwood, East Hydro or C.P. Crane announced sales, which are expected to close in Q1 2016 (3) Does not include growth capex of $85 million (4) Reflects $35 million of after-tax interest savings by retiring debt with asset sale proceeds (5) Reflects gross proceeds from announced sales of Ironwood, East Hydro and C.P Crane less marginal taxes and 2016 projected change in cash Talen Energy Corporation 2015 14
Capital Allocation Capital Priorities Post MACH Gen transaction, de-levering the balance sheet with substantial proceeds from asset sales - Pay down revolver used to finance a portion of the transaction and other maturing & pre-payable debt Will continue to assess growth opportunities to diversify the portfolio in an accretive manner Leverage Lane of 3x 5x Net Debt / Adj. EBITDA - 3x bias towards growth investment/capital return - 5x bias towards debt retirement Long-term Maturities / Pre-payable Debt $400 $578 $301 $391 $400 (2) Maturing Debt Pre-payable Debt (3) $1,220 $1,743 2015 2016 2017 2018 2019 2020 & Beyond Revolving Credit Facility (4) Leverage Lane: Net Debt / Adjusted EBITDA Before and After Asset Sale Proceeds Leverage ticks upward due to MACH Gen acquisition 5.0 x 3.0 x 4.8x 3.8x 5.0 x 3.0 x Expect to use mitigation proceeds to pay down revolver and additional cash available to extinguish maturing and prepayable debt 2015 2016 $300 million 5.70% REset Put Securities due 2035 were repurchased and retired on October 15, 2015. In connection with the repurchase, Talen Energy Supply paid $134 million to terminate the remarketing of the notes (2) Maturing debt includes $41 million for Talen Ironwood LLC s 8.857% senior notes that are expected to be repaid and retired in Q1 2016 in connection with the announced sale of Ironwood (3) Pre-payable debt reflects existing debt at New MACH Gen, LLC, including $475 million under a Term Loan B facility and approximately $103 million drawn under a revolving credit facility. The Term Loan B is eligible to be paid down without a make whole premium starting in July 2016 (4) $400 million Talen Energy Supply revolver draw to partially fund the MACH Gen acquisition expected to be paid down in 2016 with proceeds from announced asset sales Talen Energy Corporation 2015 15
Closing Remarks Talen Energy Corporation 2015 16
Talen Energy Investment Highlights Focused Purpose Power production and marketing through wholesale and retail channels Best Markets With the addition of MACH Gen, will have presence in the most constructive and liquid competitive markets Superior Fleet Modern gas, flexible dual-fuel, low-cost nuclear and hydro and efficient supercritical coal requiring modest environmental capital for known requirements. Strong fleet wide reliability Attractive Value Strong free cash flow generation and lower financial leverage relative to peers Value Catalysts Brunner Island dual-fuel project, Keystone & Conemaugh Operational Improvements, Harquahala optimization, Gas infrastructure improvements at Athens and Millennium Talen Energy Corporation 2015 17
Supplemental Information Talen Energy Corporation 2015 18
Operational Statistics Quarter-to-date Q3 2015 Q3 2014 Q3 2015 Q3 2014 Q3 2015 Q3 2014 Q3 2015 Q3 2014 East: Coal - PJM 6,273 3,771 47.2% 28.4% 92.4% 87.4% 1.0% 2.7% Coal - Montana 1,027 1,227 87.9% 82.1% 92.7% 91.1% 7.1% 4.1% Hydro 182 126 28.2% 19.5% 97.5% 62.4% 0.1% 2.9% (3) Natural Gas Combined Cycle 2,304 2,613 86.6% 98.2% 88.5% 97.1% 1.6% 2.8% Natural Gas/Oil 2,256 1,453 36.0% 24.0% 91.4% 96.5% 3.3% 0.8% Nuclear 4,982 4,509 100.5% 91.0% 99.7% 90.0% 0.0% 1.0% West: Natural Gas 1,203 959 30.4% 23.7% 95.7% 94.5% 2.8% 5.0% TOTAL GENERATION 18,227 14,657 55.3% 44.1% 93.5% 90.8% 1.8% 2.5% Year-to-date (4)(5) Net Generation (GWh) Capacity Factor Availability Net Generation (GWh) Capacity Factor Availability YTD 2015 YTD 2014 YTD 2015 YTD 2014 YTD 2015 YTD 2014 YTD 2015 YTD 2014 East: Coal - PJM 18,462 19,015 47.2% 48.2% 86.1% 85.4% 2.1% 2.6% Coal - Montana 2,770 2,843 74.8% 64.1% 87.5% 80.1% 5.8% 12.0% Hydro 711 765 37.1% 39.9% 98.5% 83.8% 0.2% 1.9% (3) Natural Gas Combined Cycle 6,981 7,052 88.4% 89.6% 88.7% 90.1% 1.9% 3.9% Natural Gas/Oil 4,481 2,859 24.1% 15.6% 84.4% 91.0% 2.9% 2.3% Nuclear 13,690 11,995 93.1% 81.1% 91.2% 80.1% 0.0% 0.4% West: Natural Gas 2,654 2,723 22.4% 22.3% 78.7% 84.6% 16.9% 3.0% TOTAL GENERATION 49,750 47,252 50.9% 47.7% 86.2% 85.7% 3.8% 2.4% EAF Equivalent Availability Factor, which includes scheduled outages (2) EFOF Equivalent Forced Outage Factor (3) Includes Ironwood and Lower Mount Bethel (4) Includes nine month RJS operating statistics for comparative purposes (5) Includes Corette Talen Energy Corporation 2015 19 (2) EFOF (2) EFOF
Projected Capital Expenditures ($ in millions) Updated to reflect MACH Gen Acquisition & Anticipated Sales of Ironwood, East Hydro & C.P. Crane $452 $29 $31 $45 $38 $2 $560 $25 $28 $42 $85 $85 $6 $464 $23 $37 $21 $120 $6 $1 $6 $476 $20 $13 $126 $11 $1 $6 $405 $32 $11 $129 $2 $1 $101 $206 $289 $256 $299 $224 2015 2016 2017 2018 2019 Sustenance Nuclear Fuel Growth Information Technology Environmental Regulatory Discretionary Reflects RJS Power expenditures for the five months of 2015 prior to the acquisition Talen Energy Corporation 2015 20
Liquidity Available Liquidity Liquidity Facilities as of 9/30/2015 ($ millions) ($ millions) 9/30/2015 6/30/2015 $3,500 Cash & cash equivalents $648 $352 Credit facility commitments 2,350 2,350 $3,000 $2,998 $2,664 Available (2)(3) Total Liquidity $2,998 $2,702 Less: Current credit facility usage 334 309 $2,500 $2,000 $1,850 Total Available Liquidity $2,664 $2,393 (3) $1,500 $1,000 $500 Substantial liquidity to support asset optimization $500 $- $648 Cash CDS Backed Syndicated Excludes $800 million secured trading facility (2) $334 million of letters of credit outstanding on the $1,850 million syndicated secured credit facility as of 9/30/2015 (3) In October 2015, Talen Energy borrowed $400 million under the syndicated secured credit facility to finance a portion of the MACH Gen acquisition Talen Energy Corporation 2015 21
Long-term Debt Maturities ($ in millions) 2020 Talen Energy Supply, LLC 2015 2016 2017 2018 2019 & Beyond Senior Notes: Maturity (yr) Talen ES 5.70% 2015 300 - - - - - Talen ES 6.20% 2016-350 - - - - Talen ES 6.50% 2018 - - - 400 - - Talen ES 5.125% 2019 - - - - 1,220 - Talen ES 4.60% 2021 - - - - - 712 Talen ES 6.50% 2025 - - - - - 600 Talen ES 6.00% 2036 - - - - - 200 Total Senior Notes 300 350-400 1,220 1,512 Municipal Bonds: Maturity (yr) Talen ES variable-rate Series A 2038 - - - - - 100 (2) Talen ES variable-rate Series B 2038 - - - - - 50 (2) Talen ES variable-rate Series C 2037 - - - - - 81 Total Municipal Bonds - - - - - 231 Talen Ironwood, LLC Maturity (yr) (3) Talen Ironwood 8.857% 2025 1 41 - - - - Total Maturities 301 391-400 1,220 1,743 Note: As of September 30, 2015 $300 million 5.70% REset Put Securities due 2035 were repurchased and retired on October 15, 2015. In connection with the repurchase, Talen Energy Supply paid $134 million to terminate the remarketing of the notes in October (2) Bonds are subject to mandatory repurchase and optional remarketing in 2020 (3) Talen Ironwood LLC s 8.857% senior notes are expected to be repaid and retired in Q1 2016 in connection with the announced sale of Ironwood Talen Energy Corporation 2015 22
Talen Energy Corporate Structure Talen Energy Corporation (NYSE: TLN) Talen Energy Holdings, Inc. Talen Energy Supply, LLC $4,013mm Senior Unsecured Notes Outstanding Legacy Energy Supply Subs RJS Subs MACH Gen LLC $42mm Ironwood Senior Secured Notes Outstanding $475mm MACH Gen Term Loan B (in millions) First Lien New MACH Gen Term Loan B $ 475 Senior Secured Talen Ironwood Notes 42 Senior Unsecured Talen Energy Supply Notes 4,013 Total Long-Term Debt $ 4,530 As of September 30,2015 Note: Reflects Talen Energy capital structure post closing of MACH Gen acquisition on November 2, 2015. Ironwood debt expected to be repaid in connection with closing of pending sale in Q1 2016 Non-recourse debt Talen Energy Corporation 2015 23
Talen Energy Asset Overview Asset Location Fuel Type Ownership Net Heat Rate (Btu / kwh) Owned Capacity COD Region East Assets 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 C.P. Crane MD Coal 100% 10,616 402 1961-1967 PJM-SWMAAC Conemaugh PA Coal 16% 9,700 285 1970-1971 PJM-RTO Keystone PA Coal 12% 9,600 212 1967-1968 PJM-RTO 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 Eastern Hydro PA Hydro 100% N/A 308 1910-1926 PJM-MAAC Ironwood PA Natural Gas 100% 7,127 661 2001 PJM-MAAC Lower Mt. Bethel PA Natural Gas 100% 7,170 555 2004 PJM-MAAC York PA Natural Gas 100% 9,551 46 1989 PJM-MAAC 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 Martins Creek 3&4 PA Natural Gas/Oil 100% 11,744 (Gas) / 10,676 (Oil) 1,708 1975-1977 PJM-MAAC Newark Bay NJ Natural Gas/Oil 100% 8,680 122 1993 PJM-PS North Peakers PA Natural Gas/Oil 100% Various 370 1967-1973 PJM Pedricktown NJ Natural Gas/Oil 100% 8,455 117 1992 PJM-EMAAC Susquehanna PA Nuclear 90% N/A 2,262 1983-1985 PJM-MAAC Renewables PA Renewables 100% Various 7 Various PJM-MAAC Colstrip 1 & 2 MT Coal 50% 10,941 307 1975, 1976 WECC Colstrip 3 MT Coal 30% 10,660 222 1984, 1986 WECC Subtotal 13,241 West Assets 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 Nueces Bay 7 TX Natural Gas 100% 7,100 648 2010 ERCOT-South Subtotal 1,793 MACH Gen Assets Athens NY Natural Gas 100% 7,100 1,138 2004 NYISO Millennium MA Natural Gas 100% 6,975 335 2001 ISO-NE Harquahala AZ Natural Gas 100% 7,100 1,054 2004 WECC Subtotal 2,527 Total Talen 17,561 Note: Does not reflect the announced sale of Ironwood, East Hydro and C.P.Crane Includes Holtwood and Wallenpaupack Talen Energy Corporation 2015 24
FERC Required Mitigation Mitigation Overview PPL and RJS Power identified possible FERC horizontal market power concerns in PJM submarket 5004/5005 in their FERC application for approval on July 15, 2014 and proposed two divestiture options Each divestiture option requires divestiture of one of two proposed groups of between 1,300 and 1,400 MW of generating capacity (based on summer ratings), with some overlapping assets On December 19, 2014, FERC conditionally approved the transaction pending additional mitigation measures - Option 1: Divest all assets from one group while limiting assets retained from other group to cost-based rates - Option 2: Divest all 2,000 MW of capacity from both groups - Option 3: Propose an alternative mitigation plan PPL, Talen Energy and RJS Power accepted Option 1 and committed that Talen Energy would divest all assets from one group and bid the retained assets at cost-based rates in the energy market In September 2015, Talen Energy requested that the FERC approve a third option for complying with the mitigation requirement that consists of Ironwood, Holtwood, Wallenpaupack and C.P. Crane, and excludes the Sapphire facilities. The timing of FERC's response is not known at this time Talen Energy has until June 2016 to enter into definitive agreements under the terms of the existing order Facility Group 1 Group 2 MW Bayonne 0165 Camden 0145 Elmwood Park 0070 Newark Bay 0122 Pedricktown 0117 York 0046 Ironwood 0661 Total 1,326 Facility MW Bayonne 0165 Camden 0145 Elmwood Park 0070 Newark Bay 0122 Pedricktown 0117 York 0046 C.P. Crane 0402 Holtwood 0262 Wallenpaupack 0045 Total 1,374 Pedricktown capacity includes capacity dedicated to serving landlord load (which has historically averaged 9 MW) Talen Energy Corporation 2015 25
Regulation G Reconciliations Quarter-to-date Adjusted EBITDA ($ in millions) Three Months 2015 2014 East West Other Total East West Other Total Net income (loss) $ (401) $ 101 (Income) loss from discontinued operations (net of tax) 62 (7) Interest expense 55 31 Income taxes 39 74 Other (income) expense - net (10) Operating income (loss) $ (230) $ 24 $ (40) $ (246) $ 242 $ $ (53) $ 189 Depreciation 84 10 1 95 74 74 Other income (expense) - net 1 1 11 10 Sapphire EBITDA (a) (100) (100) EBITDA $ (245) $ 34 $ (39) $ (250) $ 327 $ $ (54) $ 273 Unrealized (gain) loss on derivative contracts (b) (59) 9 (50) (26) (26) Stock-based compensation expense (c) 1 1 3 3 (Gain) loss from NDT funds (10) (10) ARO accretion 8 8 8 8 Coal contract adjustment (d) 41 41 Impairments (e) 588 588 Mechanical subsidiary revenue adjustment (f) (14) (14) TSA costs 14 14 Separation benefits (g) 8 8 RJS transaction costs 1 1 Other (l) 5 5 5 5 Adjusted EBITDA $ 337 $ 43 $ (23) $ 357 $ 290 $ $ (43) $ 247 Note: Please refer to Regulation G Reconciliation footnotes for quarter-to-date and year-to-date EBITDA on slide 28 Talen Energy Corporation 2015 26
Regulation G Reconciliations Year-to-date Adjusted EBITDA ($ in millions) Nine Months 2015 2014 East West O ther Total East West O ther Total Net income (loss) $ (279) $ 48 (Income) loss from discontinued operations (net of tax) 61 (10) Interest expense Income taxes 146 49 95 16 Other (income) expense - net (11) (23) O perating income (loss) $ 132 $ 18 $ (184) $ (34) $ 307 $ $ (181) $ 126 Depreciation 244 13 2 259 225 225 Other income (expense) - net 12 11 22 1 23 Sapphire EBITDA (a) (99) (99) EBITDA $ 289 $ 31 $ (183) $ 137 $ 554 $ $ (180) $ 374 Unrealized (gain) loss on derivative contracts (b) (117) 14 (103) 192 192 Stock-based compensation expense (c) 41 41 15 15 (Gain) loss from NDT funds (11) (11) (21) (21) ARO accretion 25 25 23 23 Coal contract adjustment (d) 41 41 Impairments (e) 588 588 Mechanical subsidiary revenue adjustment (f) (17) (17) TSA costs 19 19 Separation benefits (g) 2 2 30 30 Corette closure costs (h) 4 4 Terminated derivative contracts (i) (13) (13) Revenue adjustment (j) 7 7 RJS transaction costs 6 6 Restructuring costs (k) 10 10 Other (l) 12 12 9 9 Adjusted EBITDA $ 825 $ 45 $ (105) $ 765 $ 740 $ $ (135) $ 605 Note: Please refer to Regulation G Reconciliation footnotes for quarter-to-date and year-to-date EBITDA on slide 28 Talen Energy Corporation 2015 27
Regulation G Reconciliations Quarter-to-date and Year-to-date Adjusted EBITDA Footnotes (a) Sapphire has been classified as discontinued operations since its June 1, 2015 acquisition. This includes an impairment recorded during the three and nine months ended September 30, 2015. (b) Represents unrealized gains (losses) on derivatives. Amounts have been adjusted for option premiums of $5 million and $14 million for the three and nine months ended September 30, 2015 and $2 million and $6 million for the same periods in 2014. (c) For periods prior to June 2015, represents the portion of PPL's stock-based compensation cost allocable to Talen Energy. Amounts for the 2014 periods were cash settled with a former affiliate. (d) To mitigate the risk of oversupply, Talen Energy incurred pre-tax charges of $41 million for the three and nine months ended September 30, 2015 to reduce its 2015 2018 contracted coal deliveries. (e) Includes charges for goodwill and certain long lived assets. (f) In 2014, Talen Energy recorded $14 million and $17 million for the three and nine month periods to "Energy-related businesses" revenues on the 2014 Statement of Income related to prior periods and the timing of revenue recognition for a mechanical contracting and engineering subsidiary. (g) In June 2014, Talen Energy Supply's largest IBEW local ratified a new three-year labor agreement. In connection with the new agreement, estimated bargaining unit one-time voluntary retirement benefits were recorded. In addition, the three and nine month periods in 2014 include separation costs related to the spinoff transaction. (h) Operations were suspended and the Corette plant was retired in March 2015. (i) Represents net realized gains on certain derivative contracts that were early-terminated due to the spinoff transaction. (j) Relates to a prior period revenue adjustment for the receipt of revenue under a transmission operating agreement with Talen Energy Supply's former affiliate, PPL Electric. (k) Costs related to the spinoff transaction, including FERC-required mitigation plan expenses and legal and professional fees. (l) All periods include OCI amortization on non-active derivative positions and the 2015 periods include an asset write-off. Talen Energy Corporation 2015 28
Regulation G Reconciliations Year-to-Date Adjusted Free Cash Flow ($ in millions) Nine Months Ended September 30, 2015 2014 Cash from Operations $ 731 $ 465 Capital Expenditures, excluding growth (265) (299) Counterparty collateral paid (received) (76) 18 Adjusted Free Cash Flow, including other adjustments 390 184 Cash adjustments (after tax): Coal contract adjustment 25 Transition Services Agreement costs 11 Separation benefits 1 18 Corette closure costs (a) 2 RJS transaction costs 4 Restructuring costs (b) 6 Adjusted Free Cash Flow $ 439 $ 202 (a) Operations were suspended and the Corette plant was retired in March 2015. (b) Costs related to the spinoff transaction, including FERC-required mitigation plan expenses and legal and professional fees. Talen Energy Corporation 2015 29
Regulation G Reconciliations Adjusted EBITDA Forecast ($ in millions) Low - 2015E (a) Midpoint - 2015E (a) High - 2015E (a) Midpoint 2016E - Adjusted for Anticipated Sales (b) Net Income (Loss) $ (388) $ (373) $ (358) $ 77 Income Taxes (37) (27) (17) 41 Interest Expense 363 363 363 225 Depreciation and Amortization 401 401 401 409 EBITDA 339 364 389 752 Non-Cash Compensation 45 45 45 21 Asset Retirement Obligation 34 34 34 37 MTM losses (gains) (101 ) (101 ) (101) Nuclear decommissioning trust losses (gains) (12 ) (12 ) (12) (10) Impairments 588 588 588 Adjusted EBITDA, including other adjustments 893 918 943 800 Other Adjustments: Transition Services Agreement costs and allocations (c) 66 66 66 45 Other (d) 91 91 91 Adjusted EBITDA $ 1,050 $ 1,075 $ 1,100 $ 845 (a) (b) (c) (d) 2015 forecasted amounts include twelve months of performance from RJS, including the five-month period prior to acquisition and an adjustment for PPL allocations not expected to continue in future periods, and have not been adjusted to reflect the acquisition of MACH Gen, LLC or the sale of Talen Renewable Energy. 2016 forecasted amounts have been adjusted to reflect the acquisition of MACH Gen, LLC and to remove the operations associated with the sales of Talen Renewable Energy and the Ironwood, Holtwood, Lake Wallenpaupack and C.P. Crane plants. Does not include the impact of the sales transactions gain or loss or related tax effects. Low, midpoint and high 2015 amounts include $33 million of allocations from PPL and $33 million of TSA costs that are not expected to continue in future periods. Restructuring costs that are not expected to continue in future periods. Talen Energy Corporation 2015 30
Regulation G Reconciliations Adjusted Free Cash Flow Forecast ($ in millions) Low - 2015E (a) Midpoint - 2015E (a) High - 2015E (a) Midpoint 2016E - Adjusted for Anticipated Sales (b) Cash from Operations $ 870 $ 885 $ 900 $ 698 Capital Expenditures, excluding growth (500) (490) (480) (465) Counterparty collateral paid (received) (76) (76 ) (76) Adjusted Free Cash Flow, including other adjustments 294 319 344 233 Cash adjustments (after tax): Transition Services Agreement costs and allocations (c) 39 39 39 27 Other (d) 42 42 42 Adjusted Free Cash Flow (e) $ 375 $ 400 $ 425 $ 260 (a) 2015 forecasted amounts include twelve months of performance from RJS, including the five-month period prior to acquisition and an adjustment for PPL allocations not expected to continue in future periods, and have not been adjusted to reflect the acquisition of MACH Gen, LLC or the sale of Talen Renewable Energy. (b) 2016 forecasted amounts have been adjusted to reflect the acquisition of MACH Gen, LLC and to remove the operations associated with the sales of Talen Renewable Energy and the Ironwood, Holtwood, Lake Wallenpaupack and C.P. Crane plants. Does not include the impact of the sales transaction s proceeds or related gain or loss and tax effects. (c) Low, midpoint and high 2015 amounts include $19 million of allocations from PPL and $20 million of TSA costs that are not expected to continue in future periods. (d) Restructuring and certain other costs that are not expected to continue in future periods. (e) Does not include growth capital expenditures of $38 million in 2015 and $84 million in 2016. Talen Energy Corporation 2015 31
Forward-Looking Information Statement Statements contained in this presentation, including statements with respect to future earnings, EBITDA, Adjusted EBITDA, Adjusted Free Cash Flow results, net debt, cash flows, tax attributes, financing, regulation and corporate strategy are "forward-looking statements" within the meaning of the federal securities laws. These statements often include words such as believe, expect, anticipate, intend, plan, estimate, target, project, forecast, seek, will, may, should, could, would or similar expressions. Although Talen Energy Corporation 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: market demand and prices for energy, capacity and fuel; weather conditions affecting customer energy usage and operating costs; competition in power markets; the effect of any business or industry restructuring; the profitability and liquidity of Talen Energy Corporation and its subsidiaries; new accounting requirements or new interpretations or applications of existing requirements; operating performance of generating plants and other facilities; unanticipated difficulties or delays in our 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 delays in and/or additional costs to complete the proposed sales of Ironwood, East Hydro and C.P. Crane and/or the Brunner Island dualfuel project; unforeseen difficulties in successfully integrating the MACH Gen power facilities into Talen Energy's portfolio and/or in successfully executing efforts to optimize and/or monetize the value of the Harquahala plant; unexpected costs or liabilities associated with the MACH Gen power facilities; the length of scheduled and unscheduled outages at our generating plants; environmental conditions and requirements and the related costs of compliance, including environmental capital expenditures and emission allowance and other expenses; system conditions and operating costs; development of new projects, markets and technologies; performance of new ventures; asset or business acquisitions and dispositions; receipt of necessary governmental permits or approvals; Talen Energy s level of indebtedness; capital market conditions and decisions regarding capital structure; the impact of state, federal or foreign investigations applicable to Talen Energy Corporation and its subsidiaries; the outcome of litigation against Talen Energy Corporation and its subsidiaries; stock price performance; the market prices of equity securities and the impact on pension income and resultant cash funding requirements for defined benefit pension plans; the securities and credit ratings of Talen Energy Corporation and its subsidiaries; political, regulatory or economic conditions in states, regions or countries where Talen Energy Corporation or its subsidiaries conduct business, including any potential effects of threatened or actual terrorism or war or other hostilities; foreign exchange rates; new state, federal or foreign legislation, including new tax legislation; changes in earnings estimates or buy/sell recommendations by analysts; volatility in market demand and prices for energy, capacity, transmission services, emission allowances and RECs; competition in retail and wholesale power and natural gas markets; and the commitments and liabilities of Talen Energy Corporation and its subsidiaries. Any such forward-looking statements should be considered in light of such important factors and in conjunction with Talen Energy Corporation's prospectus filed with the Securities and Exchange Commission pursuant to Rule 424(b)(3) on November 3, 2015 and its other reports on file with the Securities and Exchange Commission. Talen Energy Corporation 2015 32
Definitions of Non-GAAP Financial Measures EBITDA as presented in this presentation represents net income (loss) before interest expense, income taxes, depreciation and amortization. Adjusted EBITDA as presented in this presentation 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 NDT funds, 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, operating income (loss) or net income (loss) as defined by U.S. Generally Accepted Accounting Principles ("GAAP") as indicators of operating performance and are not necessarily comparable to similarly-titled measures reported by other companies. Management cautions investors that amounts presented in accordance with Talen Energy s definitions of EBITDA and Adjusted EBITDA may not be comparable to similar measures disclosed by other companies because not all companies calculate EBITDA and Adjusted EBITDA in the same manner. Talen Energy believes EBITDA and Adjusted EBITDA are useful to investors in evaluating Talen Energy s 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, Talen Energy 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 management believes that these items would distort their ability to efficiently view and assess the company s core operating trends. In summary, 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, as measures of certain corporate financial goals used to determine variable compensation and in communications with the Talen Energy Corporation Board of Directors, senior management, shareholders, creditors, analysts and investors concerning Talen Energy s financial performance. Net debt as presented in this presentation represents total debt less cash and cash equivalents. Talen Energy Corporation 2015 33
Definitions of Non-GAAP Financial Measures Adjusted Free Cash Flow 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 GAAP. Talen Energy believes that Adjusted Free Cash Flow although a non-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. This measure is 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 2015 34