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Talen Energy in dog-eat-dog business

Since Talen Energy split from PPL Corp. in June, there has been plenty of hand-wringing over where the new power producer will put down permanent roots.

Hoping to keep Talen here, Allentown’s Neighborhood Improvement Zone Development Authority paved the way last week for the energy company — located for now at PPL Plaza on Hamilton Street — to move to The Waterfront, a new mixed-use complex on the Lehigh River.

No matter where it lands, it won’t offer the anchor-like stability provided by its stodgier, more predictable parent, PPL Corp.

Companies like Talen that operate power plants and sell electricity on the open market do business in a competitive realm prone to reversals of fortune that can be driven by weather, fluctuating gas, coal and oil prices, emissions regulations and stagnant U.S. demand. In a consolidating industry, Talen will need to acquire other, smaller power producers to avoid becoming an acquisition target itself, analysts say.

Talen’s falling stock price has only added to the uncertainty. After going public in June at more than $21 a share, Talen stock has fallen to $10.78 at Friday’s close, cutting its market value nearly in half from $2.6 billion to $1.3 billion.

“They could be purchased if the right purchaser came along and they wanted to sell,” said Roy M. Palk, senior energy industry adviser for national law firm LeClairRyan. “But I don’t think they want to sell.”

Unlike PPL and other utilities, which can recover operating costs from their customers by raising rates, Talen has no safety net, said Eric Hittinger, an energy policy expert at Rochester Institute of Technology.

“A regulated utility isn’t worried about whether it will be around in 10 years,” he said. “They know, they can make decisions with that in mind. An independent power producer needs to worry about how they are going to make money in the next few years, and building their business.”

No matter what happens, state Sen. Pat Browne, whose legislation created the Neighborhood Improvement Zone, said he hopes Talen maintains local operations.

“Mergers and acquisitions are possible for any public company, especially one in such a volatile industry,” Browne said. “But Talen doesn’t just have a responsibility to consider its shareholders. It has a responsibility to its employees and customers, as well. Talen would not exist if not for generations of support from this community.”

Talen spokesman George Lewis said the goal is not to sell the company, that it is focused on growth.

“What happens in the market is very unpredictable,” Lewis said. “We think we have a model that will enable us to grow this company so we can do more acquistions on our own over time. We’re confident we can be one of the successful companies in the business and in this sector.”

Read full article at The Morning Call