Citing natural gas prices and green energy regulations, nuclear, coal, and gas giant Talen Energy filed for chapter 11.
According to court filings in the United States Bankruptcy Court for the Southern District of Texas, Talen Energy Supply LLC, a subsidiary of Riverstone Holdings LLC, can no longer meet its financial obligations.
An aggressive clean-energy strategy coupled with a spike in gas prices last year left Talen cash-strapped with roughly $4.5 billion in liabilities. They are now requesting that the court allow them to hand over control to unsecured bondholders who have agreed to convert $1.4 billion of the debt Talen owes to them into equity in the company. They would also provide an additional $1.65 billion in equity financing.
Talen Energy Supply is a subunit of the Talen Energy Corporation, one of the largest privately-owned power generation companies. They employ over 2,000 people and offer 13,000 megawatts of electricity to the East Coast, Montana, and Texas markets. Their energy portfolio powers millions of homes throughout their regions of operation, but not always reliably.
In Texas, they face lawsuits “in multiple state courts” where plaintiffs accuse Talen of failing to adequately prepare for the inclement winter weather that left Texans without power for over two weeks.
Alvarez & Marshal, a consulting firm retained by Talen to navigate the restructuring process, filed a declaration explaining that “global climate issues” have played a significant role in the company’s financial woes:
“Many political and regulatory authorities, along with certain of the Debtor’s financing sources and well-funded activist groups, are making substantial efforts to minimize fossil fuel use. Concerns about the environmental impacts of fossil fuel combustion, including impacts on global climate issues, are resulting in increased regulation of coal combustion and other sustainability mandates, which in turn result in unfavorable lending policies and difficulty in raising capital toward financing for traditional fossil fuel-powered generation facilities.”
Talen’s advisors further elaborated on the “dilemma” they face from consumers due to the efforts of these activist groups. “Today’s electricity consumers, businesses, and technologies demand electricity that is not only low-cost but also reliable and zero-carbon,” their filing says. To achieve a “decarbonized future,” the company decided to eliminate the use of coal in all wholly-owned facilities.
To pursue operation in the future, they plan to build and connect cloud computing data servers and bitcoin mining operations — powering these new carbon-free ventures from nuclear power generated at their plant in Berwick, Pennsylvania. They estimate that the project’s total cost will be $875 million.
After shopping this plan to investors at an event in 2021, “only one unaffiliated party,” Orion Energy Partners, took interest. If the court accepts the restructuring plan, bankruptcy might put Talen’s green energy project on hold — the bondholders have only agreed to negotiate the matter “in good faith” at a later date.
In 2012, the Montana Department of Environmental Quality ordered Talen to execute a facility closure plan at their Colstrip Plant, which “occupies 20 square miles” and is co-owned with public utility companies. As part of the closure plan, Talen was required to pay for remediation with an outstanding balance of $388 million.
Riverstone, Talen’s parent company, has been a stalwart investor in green energy initiatives and has invested hundreds of millions of dollars in photovoltaic installations, electric vehicle charging stations, and biomass ventures. Their control of Talen Energy has pushed the electricity producer to invest in similar projects.
In Washingtonville, Pennsylvania, Talen opted to convert their coal-fired plant to natural gas as part of their company-wide “decarbonization” strategy. The initial plans, which began soon after they acquired the site in 2015, estimated the total costs to be around $70 million. After spending $19.6 million, they now estimate that the complete conversion will cost more than twice as much.
Explaining the rationale behind the company’s decision to convert to natural gas, Alvarez & Marshal said, “the previously low price of natural gas has meant that coal-fueled assets are no longer economical to run or keep updated.”
Other consulting firms that specialize in the energy industry do not share that opinion. Timcast previously reported on natural gas price projections from McKinsey, which estimates demand for the fuel will increase by 20% as electric vehicles expand their market share.
They also argue that this decision will benefit the local economy by “preserving 80 full-time, permanent jobs,” indicating that they plan to eliminate 43% of their 140 current employees.
Government regulations also forced Talen’s hand, the declaration explains. Cap-and-trade obligations demand that regional greenhouse gas credits offset their carbon emissions at the state level. Switching to a lower carbon fuel like natural gas limits the regulatory costs of business, they argue.
Preceding quotes from this article may be found in filings for case number 22-90054.