Emergence from Restructuring

12 Months Ended

Dec. 31, 2024

Plan of Reorganization [Abstract]

Emergence from Restructuring

3. Emergence from Restructuring

Voluntary Reorganization Under Chapter 11 of the U.S. Bankruptcy Code

In May 2022, TES and 71 of its subsidiaries voluntarily commenced the Restructuring under Chapter 11 of the U.S. Bankruptcy Code. TEC joined the Restructuring in December 2022. The Plan of Reorganization was approved by the requisite parties and confirmed by the bankruptcy court in late 2022, and was consummated and became effective in May 2023, when TEC, TES, and the other debtors emerged from the Restructuring.

Prior to and during the Restructuring, TES and its debtor subsidiaries reached a number of settlements with various stakeholders (including certain holders of claims under TES’s prepetition indebtedness, certain affiliates Riverstone Holdings, LLC (“Riverstone”) (which then held all of the equity in TEC), TEC, and the Official Committee of Unsecured Creditors), the terms of which were incorporated into the Plan of Reorganization. Under the settlements, the Company agreed to conduct a common equity rights offering, which certain holders of prepetition unsecured notes agreed to backstop in exchange for subscription rights to purchase 30% of the new equity issued plus a backstop premium payment in the form of cash and (or) new equity.

Restructuring Transactions and Emergence

The Restructuring transactions were completed, and the Company emerged from the Restructuring, on May 17, 2023. Pursuant to the Plan of Reorganization, among other things:

•Claims against TEC were paid in full in cash or reinstated. All existing equity interests in TEC were extinguished, and new equity interests in TEC were issued as follows:

•Holders of unsecured claims under TES’s prepetition indebtedness (including the backstopping holders) received: (i) TEC equity; and (ii) subscription rights to purchase additional TEC equity in the equity rights offering.

•The equity rights offering was consummated, resulting in $1.4 billion in net cash proceeds to the Company. The backstopping holders (i) fully exercised their subscription rights; (ii) were required to purchase additional unsubscribed-for TEC equity; and (iii) were paid the remaining portion of the backstop premium in the form of TEC equity.

•Riverstone received: (i) 1% of the equity in TEC; (ii) a contingent right to receive additional TEC equity or cash upon certain conditions following Emergence; and (iii) warrants to purchase additional TEC equity. In the third quarter 2023, Riverstone surrendered the warrants and waived its contingent right to additional TEC equity or cash in exchange for $40 million in cash.

•The existing intercompany ownership structure of the debtors remained in place and intercompany claims were extinguished.

•The Company consummated its exit financings, comprised of the RCF, TLB-1, TLC, TLC LCF, Bilateral LCF, and Secured Notes. The PEDFA 2009B and 2009C Bonds remained outstanding following the Restructuring.

•The proceeds of the equity rights offering and the exit financings, together with cash on hand, were used to fully repay the Company’s debtor-in-possession credit facilities and to pay $3.1 billion relating to other secured claims.

•Holders of other unsecured claims received interests in a designated $26 million pool of cash, to which Talen Montana subsequently contributed an additional $11 million from proceeds of the PPL/Talen Montana settlement. See Note 12 for additional information on the PPL/Talen Montana settlement.

4. Fresh Start Accounting

At Emergence, TES adopted fresh start accounting as: (i) the holders of existing voting shares before the consummation of the Plan of Reorganization received less than 50% of the voting shares of the Successor; and (ii) the reorganization value of TES’s assets immediately prior to confirmation of the Plan of Reorganization of $7.8 billion was less than the total of post-petition liabilities and allowed claims of $9.8 billion. Accordingly, TES allocated its reorganization value to its individual assets based on their estimated fair values.

Reorganization Value

Reorganization value is derived from an estimate of enterprise value, or the fair value of the Company’s interest-bearing debt and member’s equity. As negotiated in the Plan of Reorganization and related disclosure statement approved by the Bankruptcy Court, the enterprise value as of Emergence was $4.5 billion. Management engaged third-party valuation advisors to assist in estimating the enterprise value and allocating the enterprise value to the assets and liabilities for financial reporting purposes as of Emergence. Enterprise value assumptions incorporated: (i) economic and industry information relevant to the business; (ii) internal financial information and operating data; (iii) historical financial information; and (iv) financial projections and other applicable assumptions. The valuation techniques used to estimate the enterprise value as of Emergence included the income approach, market approach, and cost approach, with consideration of the exit market and nature of the applicable asset or liability subject to valuation.

The Company’s principal assets are generation facilities whose values were determined by a discounted cash flow analysis based on management’s latest outlook of the business through the end of their expected useful lives. The forward-looking projections considered: (i) company-specific factors, such as unit characteristics, plant dispatch, operating expenses, capital expenditures and estimated economic useful lives; and (ii) macroeconomic factors, such as capacity prices, energy prices, fuel prices, market supply and demand factors, inflation factors, and environmental regulations. Commodity prices used to estimate future cash flows in observable periods were primarily based on adjusted exchange prices, prices provided by brokers, or prices provided by price service companies that are corroborated by market data. Commodity prices for future unobservable periods used third party pricing services that incorporate industry standard methodologies that may consider the historical relationships among various commodities, modeled market prices, inflation assumptions, and other relevant economic measures. Future estimates for capital expenditures and operating expenses, such as major maintenance and employee compensation were estimated considering unit operating experience, recent historical financial information, and expected operating performance. The expected useful lives of the generation facilities were estimated through 2050 and incorporated expectations regarding the economic prospects of each unit, permitting and licensing, regulatory requirements, and (or) other considerations. The cash flow estimates incorporated a federal effective tax rate of 21% and the applicable state tax rate based on the location of each generation facility. The present value of expected future cash flows utilized a weighted average cost of capital discount rate that ranged from 8.5% to 46.5%. The discount rate utilized for nuclear generation was 8.5% and certain natural gas generation facilities were estimated near the low end of the range. Certain coal and natural gas generation units were estimated near the high end of the range. Discount rates for each generation facility considered, among other things, unit characteristics, fuel type, and market location.

The assumptions used to estimate the reorganization value considered all available evidence as of Emergence and are believed to be consistent with those used by the principal market participants and outlook for each generation facility and represent management’s best estimate of reorganization value. However, such assumptions are inherently uncertain and require judgment. Accordingly, changes to sensitive assumptions, which primarily include commodity prices and discount rates, would have a reasonable possibility of significantly affecting the measurement of the reorganization value. See below under “Fresh Start Adjustments” for additional information regarding assumptions used in the measurement of the Company’s various other significant assets and liabilities.

Upon the application of fresh start accounting, the Company preliminarily allocated the reorganization value to its individual assets based on their estimated fair values. The following table reconciles the Company’s enterprise value to the estimated reorganization value at Emergence:

	May 17, 2023
Enterprise value (a)	$	4,500
Plus: Cash and cash equivalents and Restricted cash and cash equivalents (b)	701
Plus: Current liabilities excluding long-term debt due within one year	514
Plus: Non-current liabilities excluding long-term debt and liability-classified warrants	1,234
Plus: Fair value of noncontrolling interest	110
Reorganization value to be allocated	$	7,059

__________________

(a)Excludes any value associated with noncontrolling interest.

(b)Excludes $52 million for payment of professional fees.

The following table reconciles TES’s enterprise value to the estimated fair value at Emergence:

	May 17, 2023
Enterprise value (a)	$	4,500
Plus: Cash and cash equivalents and Restricted cash and cash equivalents (b)	701
Less: Fair value of debt	(2,845)
Less: Liability-classified warrants	(35)
Fair value of member’s equity (c)	2,321
Plus: Fair value of noncontrolling interest	110
Fair value of equity	$	2,431

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(a)Excludes any value associated with noncontrolling interest.

(b)Excludes $52 million for payment of professional fees.

(c)Issued in accordance with the Plan of Reorganization. Includes 59,028,843 shares of TEC common stock and $8 million of equity-classified warrants.

Consolidated Balance Sheet

The “Reorganization Adjustments” on the fresh start Consolidated Balance Sheet as of Emergence present the aggregate effect of the transactions contemplated by the Plan of Reorganization. The “Fresh Start Adjustments” present the preliminary fair value and other required adjustments as a result of applying fresh start accounting. The explanatory notes provide additional information related to the adjustments, the methods used to determine fair values, and significant assumptions.

	May 17, 2023
Assets	Predecessor		Reorganization Adjustments (a)			Fresh Start Adjustments			Successor
Cash and cash equivalents	$	1,302	$	(1,133)	(b)	$	—		$	169
Restricted cash and cash equivalents	240		426		(c)	(81)		(q)	585
Accounts receivable, net	148		(3)		(d)	—			145
Inventory, net	448		—			(141)		(r)	307
Derivative instruments	818		—			(632)		(q)	186
Other current assets	135		—			(5)		(s)	130
Total current assets	3,091		(710)			(859)			1,522
Property, plant and equipment, net	4,322		—			(458)		(t)	3,864
Nuclear decommissioning trust funds	1,465		—			—			1,465
Derivative instruments	37		—			(37)		(q)	—
Other noncurrent assets	146		(12)		(e)	74		(u)	208
Total Assets	$	9,061	$	(722)		$	(1,280)		$	7,059
Liabilities and Equity
Revolving credit facilities	$	848	$	(848)	(f)	$	—		$	—
Long-term debt, due within one year	1,005		(1,000)		(g)	—			5
Accrued interest	288		(284)		(h)	—			4
Accounts payable and other accrued liabilities	382		3		(i)	—			385
Derivative instruments	711		—			(654)		(q)	57
Other current liabilities	414		(349)		(j)	3		(v)	68
Total current liabilities	3,648		(2,478)			(651)			519
Long-term debt	2,504		281		(k)	55		(w)	2,840
Liabilities subject to compromise	2,788		(2,788)		(l)	—			—
Derivative instruments	135		—			(93)		(q)	42
Postretirement benefit obligations	(1)		302		(m)	34		(x)	335
Asset retirement obligations and accrued environmental costs	580		202		(m)	(340)		(y)	442
Deferred income taxes	82		283		(n)	(8)		(z)	357
Other noncurrent liabilities	19		60		(o)	14		(aa)	93
Total Liabilities	9,755		(4,138)			(989)			4,628
Member’s equity	(818)		3,416		(p)	(277)		(bb)	2,321
Noncontrolling interests	124		—			(14)		(cc)	110
Total Equity	(694)		3,416			(291)			2,431
Total Liabilities and Equity	$	9,061	$	(722)		$	(1,280)		$	7,059

Reorganization Adjustments

The reorganization adjustments required in connection with the application of fresh start accounting and the allocation of the enterprise value were:

(a)Emergence adjustments for the implementation of the Plan of Reorganization. Such adjustments include: (i) settlement of prepetition liabilities subject to compromise; (ii) payment of certain prepetition indebtedness; (iii) issuances of member’s equity; (iv) recognition of new indebtedness and related restricted cash; and (v) other items.

(b)The uses of “Cash and cash equivalents” at Emergence resulting from the implementation of the Plan of Reorganization were:

Proceeds from rights offering	$	1,400
Proceeds from TLB-1 and TLC	1,019
Proceeds from Secured Notes	1,200
Release of restricted cash	89
Payment of claims under prepetition senior secured revolving credit facility	(1,029)
Payment of claims under other prepetition secured indebtedness	(2,136)
Payment of debtor-in-possession term loan	(1,012)
Restriction of cash relating to TLC LCF	(470)
Payment of debt issuance costs on exit financing (TLB-1, TLC, and Secured Notes)	(54)
Funding of professional fees escrow account	(52)
Payment of hedge rejections	(42)
Payment to general unsecured creditors trust	(26)
Payment of professional fees	(22)
Other (a)	2
Total uses of Cash and cash equivalents	$	(1,133)

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(a)Includes $1 million of proceeds from Riverstone for payment to general unsecured creditors trust.

(c)“Restricted cash and cash equivalents” net change:

Restriction of cash relating to TLC LCF	$	470
Funding of professional fees escrow account	52
Release of restricted cash	(89)
Payment of professional fees	(7)
Net change in Restricted cash and cash equivalents	$	426

(d)“Accounts receivable, net” net change related to settlement of affiliate receivables.

(e)“Other noncurrent assets” net change:

Write-off of debt issuance costs associated with prepetition senior secured revolving credit facility	$	(22)
Reclassification of previously capitalized debt issuance costs to Long-term debt	(14)
Capitalization of debt issuance costs	24
Net change in Other noncurrent assets	$	(12)

(f)Payment of principal amounts owed under prepetition senior secured revolving credit facility.

(g)Repayment of debtor-in-possession credit facilities.

(h)“Accrued interest” net change:

Payment of accrued interest on prepetition senior secured revolving credit facility	$	(183)
Payment of accrued interest on other prepetition secured indebtedness	(89)
Payment of accrued interest on debtor-in-possession credit facilities	(12)
Net change in Accrued interest	$	(284)

(i)“Accounts payable and other accrued liabilities” net change:

Payment of hedge contract rejections	$	(42)
Payment of professional fees	(6)
Reinstatement of liabilities subject to compromise	38
Accrual for professional fees incurred at Emergence	13
Net change in Accounts payable and other accrued liabilities	$	3

(j)“Other current liabilities” net change:

Issuance of equity for backstop premium	$	(380)
Reinstatement of liabilities subject to compromise	31
Net change in Other current liabilities	$	(349)

(k)“Long-term debt” net change:

Payment of claims under prepetition secured indebtedness	$	(2,048)
Borrowings of $1.2 billion under the Secured Notes (a)	1,179
Borrowings of $580 million under TLB-1 (b)	548
Borrowings of $470 million under TLC (c)	446
Reinstatement of PEDFA 2009B Bonds and PEDFA 2009C Bonds (d)	130
Write-off of prepetition secured indebtedness issuance costs	26
Net change in Long-term debt	$	281

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(a)Net of an aggregate initial purchaser discount and debt issuance costs of $21 million.

(b)Net of an aggregate original issue discount and debt issuance costs of $32 million.

(c)Net of an aggregate original issue discount and debt issuance costs of $24 million.

(d)Includes recognition of $4 million of interest expense.

(l)“Liabilities subject to compromise” settled or reinstated at Emergence in accordance with the Plan of Reorganization:

Liabilities subject to compromise prior to Emergence
Debt	$	1,555
Termination of retail contracts	447
Postretirement benefit obligations	305
Asset retirement obligations and accrued environmental costs	220
Other liabilities	92
Deferred tax liabilities	77
Accounts payable and accrued liabilities	51
Accrued interest	41
Total	2,788
Reinstatement and settlements of certain Liabilities subject to compromise
Reinstatement of liabilities subject to compromise (a)	(801)
Excess fair value ascribed to lenders participating in rights offering	(315)
Issuance of member’s equity to holders of claims under prepetition unsecured notes and PEDFA 2009A Bonds	(186)
Payment to general unsecured creditors trust	(24)
Total	(1,326)
Gain on derecognition of certain Liabilities subject to compromise (b)	$	1,462

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(a)Primarily includes postretirement benefit obligations, AROs, and deferred income taxes.

(b)Represents liabilities subject to compromise that were discharged in accordance with the Plan of Reorganization.

(m)Reinstatement of “Liabilities subject to compromise.”

(n)“Deferred income taxes” net change:

Increase in deferred tax liabilities primarily due to estimated tax attribute reduction from the recognition of cancellation of debt income, partially offset by change in valuation allowance	$	206
Reinstatement of liabilities subject to compromise	77
Net change in Deferred income taxes	$	283

(o)“Other noncurrent liabilities” net change:

Issuance of liability-classified warrants	$	35
Reinstatement of liabilities subject to compromise	25
Net change in Other noncurrent liabilities	$	60

The estimated fair value of liability-classified warrants was determined using a Black-Scholes Option Pricing Model with the following assumptions at Emergence:

Expected volatility	30		%
Expected term (years)	5
Expected dividend yield	—		%
Risk-free interest rate	3.6		%
Strike price per share	$	52.92
Fair value per share	$	11.29

(p)“Member’s equity” net change:

Gain on settlement of liabilities subject to compromise	$	1,462
Other losses attributable to gain on debt discharge	(3)
Gain on debt discharge	1,459
Write-off of deferred financing cost	(46)
Professional fees expensed at Emergence	(27)
Restructuring-related compensation expense	(8)
Total reorganization items from reorganization adjustments	1,378
Interest expense incurred at Emergence	(4)
Income from reorganization adjustments before income taxes	1,374
Income tax expense	(206)
Net income from reorganization adjustments	1,168
Issuance of member’s equity in connection with rights offering	1,715
Issuance of member’s equity for backstop premium	380
Issuance of member’s equity to holders of claims under prepetition unsecured notes and PEDFA 2009A Bonds	186
Issuance of equity-classified warrants	8
Issuance of liability-classified warrants	(35)
Other (a)	(6)
Net change in Member’s equity	$	3,416

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(a)Includes $1 million of proceeds from Riverstone for payment to general unsecured creditors trust.

Fresh Start Adjustments

(q)Net presentation of derivatives on the Consolidated Balance Sheets. See Note 2 for additional information on the related accounting policy.

(r)“Inventory, net” fair value adjustments:

Coal	$	(33)
Oil products	11
Materials and supplies	(133)
Environmental products	14
Total adjustment to Inventory, net	$	(141)

The fair values for oil, coal and environmental products were estimated using current market prices. The fair values of materials and supplies were estimated using an indirect cost approach. The cost approach estimates fair value by considering the amount required to construct or purchase a new asset of equal utility at current prices, with adjustments for asset function, age, physical deterioration, and obsolescence.

(s)“Other current assets” primarily represents miscellaneous fair value adjustments.

(t)“Property, plant and equipment, net” fair value adjustments:

Electric generation	$	(350)
Other property and equipment	(80)
Intangible assets	(65)
Capitalized software	(3)
Construction work in progress	40
Total adjustment to Property, plant and equipment, net	$	(458)

The fair value of “Property, plant and equipment, net” was estimated using the income approach, market approach and cost approach, as applicable. The fair value of land was estimated utilizing the market approach, which considered comparable market-based transactions within a defined area based on size, use and utility.

(u)“Other noncurrent assets” fair value adjustments:

Favorable supply contracts (a)	$	109
Fair value adjustment to equity method investments	3
Eliminate debt issuance costs associated with debtor-in-possession credit facilities	(29)
Fair value reduction to other miscellaneous assets	(9)
Total adjustment to Other noncurrent assets	$	74

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(a)The fair value of supply contracts was determined utilizing the present value of the after-tax difference between the pricing of actual contracts in place and a current market benchmark.

(v)“Other current liabilities” fair value adjustments, primarily related to short-term AROs.

(w)“Long-term debt” fair value adjustments:

Eliminate debt issuance costs associated with prepetition secured notes, prepetition TLB and LMBE-MC TLB	$	48
Fair value adjustment to Cumulus Digital TLF	11
Fair value adjustment to LMBE-MC TLB	(4)
Total adjustment to Long-term debt	$	55

Fair value adjustments to “Long-term debt” were determined using a lattice model, given that the debt can be prepaid by the borrower prior to the maturity date.

(x)Change in accounting policy for discount rates used to estimate postretirement obligations from a bond-matching model to yield curve approach. See Note 2 for additional information.

(y)Adjustment to present at fair value AROs using assumptions as of Emergence, including an inflation factor of 2%-3% and an estimated 5- to 20-year credit-adjusted risk-free rate of 8%-12%based on timing of cash flows for each underlying obligation.

(z)Adjustment to “Deferred income taxes” for the change in financial reporting basis of assets and liabilities as a result of the adoption of fresh start accounting.

(aa)Fair value adjustments primarily related to unfavorable supply contracts of $13 million and the recognition of unfavorable lease liabilities. The fair value of supply contracts was determined utilizing the present value of the after-tax difference between the pricing of actual contracts in place and current market benchmarks.

(bb)Cumulative impact of fresh start accounting adjustments presented herein.

(cc)“Noncontrolling interests” fair value adjustments for certain subsidiaries.

Liabilities Subject to Compromise

As of December 31, 2022 (Predecessor), prepetition liabilities and obligations whose treatment and satisfaction were dependent on the outcome of the Restructuring were presented as “Liabilities subject to compromise” on the Consolidated Balance Sheets. The carrying value of prepetition liabilities that were subject to compromise are presented at the best estimate of the claim amount permitted by the Bankruptcy Court. Such amounts presented as “Liabilities subject to compromise” on the Consolidated Balance Sheets were subject to adjustments depending on bankruptcy court actions, developments with respect to disputed claims, determination of secured status of certain claims, the determination as to the value of any collateral securing claims, proof of claims and (or) other events.

	Predecessor
	December 31, 2022
Debt (a)	$	1,558
Termination of retail power and other contracts	447
Postretirement benefit obligations (a)	309
Asset retirement obligations and accrued environmental costs (a)	219
Other liabilities (a)	114
Deferred tax liabilities	83
Accounts payable and accrued liabilities	53
Accrued interest	41
Derivatives (a)	1
Liabilities Subject to Compromise	$	2,825

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(a)Includes both current and noncurrent amounts.

Reorganization Income (Expense), net

“Reorganization income (expense), net” for the relevant periods were:

	Predecessor
	January 1 through May 17, 2023		Year Ended December 31, 2022
Backstop premium	$	(70)	$	(310)
Gain (loss) on debt discharge	1,459		—
Gain (loss) on revaluation adjustments	(460)		—
Professional fees	(56)		(210)
Make-whole premiums and accrued interest on certain indebtedness	(21)		(183)
Professional fees incurred to obtain the debtor-in-possession credit facilities	—		(70)
Write-off of deferred financing cost and original issue discount	(46)		(30)
Other	(7)		(9)
Reorganization Income (Expense), net	$	799	$	(812)

In the preceding table, make-whole premiums and accrued interest on certain indebtedness primarily represents charges recognized by the debtors for estimates related to make-whole premiums and accrued interest, where applicable, on the prepetition senior secured revolving credit facility and certain other prepetition secured indebtedness. As of the bankruptcy petition date, the debtors ceased recognizing interest expense on certain outstanding unsecured or under-secured prepetition indebtedness. Contractual interest expense represented amounts due under the terms of outstanding prepetition indebtedness. The charges are presented as “Reorganization income (expense), net” on the Consolidated Statements of Operations and included in “Accrued interest” on the Consolidated Balance Sheets.

Cash paid for certain reorganization expenses was $308 million for the period from January 1 through May 17, 2023 (Predecessor). Cash paid for the year ended December 31, 2022 (Predecessor) for debtor-in-possession credit facilities financing fees is presented as “Financing Activities” on the Consolidated Statements of Cash Flows.