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Talen Sells $1.5B of PA Power Capacity, Including 704 MW NatGas Plant

Talen Energy Corp. has agreed to sell 996 MW of electric generation capacity, most of which comes from its Ironwood natural gas-fired power plant in Southeast Pennsylvania, for $1.51 billion in cash.

The divestiture includes two other hydroelectric facilities in Pennsylvania in addition to the Ironwood facility, which Talen is selling to TransCanada Corp. The sale stems from a 2014 Federal Energy Regulatory Commission order that required Talen to divest 1,300-1,400 MW of generating capacity in the PJM Interconnection market as part of its spin-off from utility PPL Corp. and its combination with the generation business formerly owned by private equity firm Riverstone Holdings LLC.

The Ironwood facility entered service in 2001 and was sold nearly four years ago to PPL for $304 million. The 704 MW plant is located in Lebanon County, PA, near Marcellus Shale natural gas production, and is being sold to TransCanada for $654 million. As part of the deal's closing, Talen would repay $42 million in debt to TransCanada.

"This acquisition presents a unique opportunity in the current market environment and is a natural extension of our U.S. Northeast power business, strengthening our overall portfolio of assets in the region," said TransCanada CEO Russ Girling. "This relatively new and highly efficient gas-fired power plant provides us with a solid platform from which to continue to grow our already substantial wholesale, commercial and industrial customer base in this market area." 

The company expects the facility to generate $90-110 million in pre-tax earnings once the sale closes. It would finance the acquisition with a combination of cash on hand and debt.

The Calgary-based company, which also operates a 42,100-mile network of natural gas pipelines in North America, has had a sizeable position in the U.S. Northeast power markets since 1998. It currently has 4,500 MW of hydroelectric, wind and natural gas power facilities that serve Massachusetts, Rhode Island, Maine, New Hampshire, Connecticut and New York. The company cited Ironwood's proximity to Marcellus production as a factor in its acquisition.

Talen is selling the other 292 MW of hydroelectric facilities to a renewable energy company for $860 million. All the sales are expected to close by the first quarter of 2016. Talen's net proceeds are expected to be $1.16 billion.

The divestiture comes after Talen's acquisition in July of New York-based MACH Gen LLC and its 2,500 MW of natural gas-fired electric generation capacity. That purchase gave Talen entry into the NYISO and ISO-NE markets (see Daily GPIJuly 21).

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