Talen Energy affiliate, others sue PPL for $733 million

Morning Call (Allentown, PA)

Oct. 30--PPL Corp. was hit with two lawsuits Monday, filings that claim the Allentown utility-holding company stripped the value out of its Montana generating assets and rendered operations there insolvent before spinning off that part of its business in June 2015.

Now an affiliate of Talen Energy Corp. is leading the charge in an attempt to recover $733 million from PPL.

Talen Montana, the Talen Montana Retirement Plan and other plaintiffs filed the complaints in Montana, going after the money they claim was "extracted by PPL" during the company's tenure as owner of several generating assets in the state between 1999 and 2015, Talen said in a news release Monday.

In an emailed statement, PPL said it is reviewing the matter and noted the Talen spinoff occurred more than three years ago. Before the spinoff, Talen Montana was known as PPL Montana.

Specifically at issue is a transaction completed in November 2014, when PPL announced its PPL Montana affiliate had completed the sale of 11 hydroelectric plants in Montana to NorthWestern Energy, netting the company $890 million.

The problem with that, according to the lawsuits, is the proceeds were immediately transferred out of PPL Montana and up through the chain of ownership to PPL.

"We believe that we acted appropriately with regard to the sale of PPL Montana's hydroelectric generating assets, and that the subsequent distribution of proceeds was in compliance with applicable laws," PPL said in the statement. "As such, we will defend ourselves vigorously against these actions."

The filings claim PPL's actions eventually left Talen Montana in a tough spot.

After it sold the hydroelectric plants, PPL Montana's remaining assets were the company's interests in two coal-fired plants, Colstrip and J.E. Corette, that were projected to generate "negative cash flows for the foreseeable future," the lawsuits note.

Colstrip had been assigned a fair market valuation in December 2013 of $5 million, while Corette was eventually retired in 2015, court papers note.

"PPL and PPL Montana's PPL-controlled managers knew, at the time of the distribution, that both facilities were deeply troubled and burdened by mounting obligations," the Talen Montana lawsuit claims.

The situation at Colstrip, a four-unit, 2,094-megawatt coal-fired generation facility that employs 320 people, has been a back-and-forth affair in recent years.

Last summer, Talen said it would continue operating the Colstrip plant, a reversal from its stance in 2016 when the company said a new operator would be needed by mid-2018. Talen executives said the plant was no longer economically viable and was losing a reported $30 million annually.

Talen Montana owns 50 percent of units 1 and 2 at Colstrip, with a 15 percent economic interest in units 3 and 4 at the plant. Units 1 and 2 are scheduled to shut down by mid-2022, under a settlement with conservation groups that resolved a 2013 lawsuit over alleged emissions violations.

"Over the last two years, we have worked tirelessly to improve the difficult financial condition of the Colstrip power plant that we inherited from PPL," Talen Montana President Dale Lebsack said in a news release. "We are asking PPL to fulfill its obligations to the Colstrip plant, the state of Montana, and to the Colstrip plant employees and retirees."

Talen Montana said it plans to set up a Montana state remediation trust for any recovery from the lawsuits. Assets from the trust would then be used to fund and pay for Talen Montana's environmental liabilities and satisfy the company's other creditors, including Talen Montana's qualified pension plan.

The Talen Montana Retirement Plan, sponsored and funded by Talen Montana, covers about 770 active and former employees of the company.

Talen Energy was acquired in 2016 by New York private equity firm Riverstone Holdings, which turned Talen into a private company. PPL, one of two Fortune 500 companies based in the Lehigh Valley, saw its stock price close at $30.54 Monday, up almost 2 percent.

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