Talen Energy Corp (TLN)

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) should be read in conjunction with the Interim Financial Statements, the Annual Financial Statements, and the Notes thereto. The discussion contains forward-looking statements as well as estimates regarding market and industry data, which involve risks, uncertainties, and assumptions. See “Cautionary Note Regarding Forward-Looking Information” and “Market and Industry Data” for additional information. Dollars are in millions, unless otherwise noted.

Recent Developments

PJM 2028/2029 Base Residual Auction

In July 2026, PJM announced the results of the 2028/2029 PJM BRA. Talen cleared 10,180 MWs at a price of $325.00/MWd for the MAAC, PPL, and RTO locational deliverability areas.

See “—Factors Affecting Our Financial Condition and Results of Operations—Capacity Markets” for additional information.

Closing of the Cornerstone Acquisition

In June 2026, the Company consummated the Cornerstone Acquisition for an aggregate $3.5 billion, consisting of $2.6 billion in cash, and 2,399,998 shares of TEC common stock, valued at $927 million. The cash portion of the consideration was funded using a portion of the net proceeds of the issuance and sale of the Unsecured Notes due 2031 and 2033 in April 2026. Additionally, in June 2026, we increased the capacities of our existing RCF and LCF.

In connection with the closing of the Cornerstone Acquisition, and pursuant to the Cornerstone RRA, the Company filed a registration statement on Form S-3 (Reg. No. 333-296901), with the SEC on June 18, 2026, registering the shares issued as equity consideration.

See Notes 10 and 17 to the Interim Financial Statements for additional information on the Cornerstone Acquisition and related financing transactions and “Part I, Item 1A. Risk Factors—Risks Related to the Cornerstone Acquisition” of our 2025 Annual Report for a discussion of the associated risks.

Financing Transactions

During the second quarter 2026, TES entered into various amendments to the Credit Agreement.

Repricing Transactions. In May 2026, TES repriced the RCF, TLB-1, and TLB-2.

Upsizes and Extensions. In June 2026, in connection with the Cornerstone Acquisition, TES (i) upsized its existing RCF (including its revolving LC capacity) from $900 million to $1.35 billion; and (ii) upsized its existing $1.1 billion LCF to $1.5 billion and extended its maturity from December 2027 to December 2029. In May 2026, TES extended the maturity of the TLB-1 from May 2030 to November 2032.

Unsecured Notes due 2031 and 2033. In April 2026, TES issued in private placement transactions not involving a public offering: (i) $1.5 billion in aggregate principal amount of 6.125% Senior Unsecured Notes due 2031; and (ii) $2.5 billion in aggregate principal amount of 6.375% Senior Unsecured Notes due 2033. The net proceeds from the issuance and sale of the Unsecured Notes due 2031 and 2033 were used to (i) fund the Cornerstone Acquisition and (ii) redeem the Company’s outstanding Secured Notes.

Secured Notes. In April 2026, TES redeemed in full the Company’s outstanding Secured Notes in aggregate principal amount of $1.2 billion, using a portion of the net proceeds of the Unsecured Notes due 2031 and 2033.

See Note 10 the Interim Financial Statements for additional information on the financing transactions.

Common Stock Repurchases

During the three months ended June 30, 2026, we repurchased and retired 550,000 shares of TEC’s outstanding common stock under the SRP. The aggregate purchase price, including transaction fees, was $198 million at a weighted average price of $359.54 per share. As of June 30, 2026, the remaining capacity under the SRP is $1.7 billion through 2028.

See Note 15 to the Interim Financial Statements and “Item 2. Unregistered Sales of Equity Securities and Use of Proceeds” of this Report for additional information on the SRP.

Factors Affecting Our Financial Condition and Results of Operations

Earnings in future periods are subject to various uncertainties and risks. See “Cautionary Note Regarding Forward-Looking Information,” “Item 1A. Risk Factors” of our 2025 Annual Report, as updated by our Q1 2026 Quarterly Report, and Notes 2 and 9 to the Interim Financial Statements for additional information on our risks.

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Commodity Markets

During the second quarter 2026, PJM market conditions were influenced by weather-related volatility, as periods of above-average temperatures increased electricity demand and contributed to higher settled on-peak power prices. TETCO M‑3 natural gas prices settled below the five-year average, reflecting ample supply conditions. Natural gas storage inventories remained above the five-year average throughout the quarter.

The weighted average settled on-peak power prices and natural gas prices for the PJM market for the three months ended June 30, were:

The weighted average forward market prices for the periods from July 1 through December 31 as of June 30, were:

__________________

(a)Spark spreads are computed based on day-ahead PJM West Hub ATC prices, TETCO M-3 natural gas prices, and a heat rate of 7 MMBtu/MWh.

(b)Spark spreads are computed based on day-ahead PJM West Hub ATC prices, TETCO M-2 natural gas prices, and a heat rate of 7 MMBtu/MWh.

Capacity Markets

Our generation facilities are located primarily in markets with capacity products, which are intended to ensure long-term grid reliability for customers by securing sufficient power supply resources to meet predicted future demand. Capacity prices are affected by supply and demand fundamentals, such as generation facility additions and retirements, capacity imports from and exports to adjacent markets, generation facility retrofit costs, non-performance risk premium penalties, demand response products, power demand forecasts, reserve margin targets and, in PJM, adjustments to the PJM market seller offer cap as determined by the PJM independent market monitor. Additionally, capacity prices may be affected by regulatory proceedings and (or) interventions by government stakeholders.

PJM Capacity Auctions. Under the PJM Reliability Pricing Model, when held on schedule, the PJM BRA is required to be conducted in the month of May three years prior to the start of the applicable PJM Capacity Year in order for PJM to secure commitments from capacity resources. The results of each PJM BRA impact our capacity revenues expected to be earned for the specific PJM Capacity Year. The capacity market construct provides generation owners some opportunity for revenue visibility on a multiyear basis and is intended to provide a price signal for new generation to be built in the future. Recently, PJM has delayed its auctions, which has resulted in less than 3 years between each auction and the start of the relevant PJM Capacity Year.

See Note 9 to the Interim Financial Statements for additional information on the PJM capacity market, systemic risks, auction delays, and related legal actions.

Capacity Prices. The following table displays the cleared capacity prices for completed PJM BRAs for the markets and zones in which we primarily operate:

__________________

(a)Displayed prices are from the applicable market publications.

The PJM BRA for the 2028/2029 PJM Capacity Year was held in July 2026 and the Company cleared 10,180 MW at a price of $325.00/MWd.

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Seasonality/Scheduled Maintenance

The demand for and market prices of electricity and natural gas are affected considerably by weather and, as a result, our operating results may fluctuate significantly on a seasonal basis. In general, below-average temperatures in the winter and above-average temperatures in the summer tend to increase electricity demand, energy prices, and revenues. Alternatively, moderate temperatures tend to decrease electricity demand and may adversely affect resulting energy margins, particularly in PJM. In addition, our operating expenses typically fluctuate geographically on a seasonal basis, with peak power generation and expenses during the winter in the Mid-Atlantic.

We ordinarily perform planned facility maintenance during milder non-peak demand periods in the spring and fall to ensure reliability during peak periods. The pattern of fluctuations in our operating results varies depending on the type and location of the facilities being serviced, the capacity markets served, the maintenance requirements of our facilities, and the terms of bilateral contracts to purchase or sell electricity. We maintain our fossil generation fleet through a combination of self-service and contracted maintenance activity (including long-term service agreements at certain facilities). Our largest recurring maintenance project is the annual spring refueling outage at Susquehanna. Susquehanna commenced its planned refueling outage on Unit 1 on March 23, 2026 and successfully completed the work on May 4, 2026.

Results of Operations

The results of operations presented below are prepared in accordance with GAAP and should be reviewed in conjunction with the Interim Financial Statements and the related Notes in this Report. The following discussion provides an analysis of the changes in our results of operations for the three and six months ended June 30, 2026, compared to the three and six months ended June 30, 2025.

In the explanations below, “Energy and other revenues” and “Fuel and energy purchases” are evaluated collectively because the price for power is generally determined by the variable operating cost of the next marginal generator dispatched to meet demand. “Energy and other revenues” relate to sales to an RTO or ISO, and sales under wholesale bilateral contracts. “Fuel and energy purchases” includes costs for fuel to generate electricity and settlements of financial and physical transactions related to fuel and energy purchases.

Unrealized gains (losses) on derivative instruments resulting from changes in fair value during the periods are presented separately as revenues within “Operating Revenues” and expenses within “Energy Expenses.” We evaluate them collectively because they represent the changes in fair value of our economic hedging activities.

Results for the Three Months Ended June 30, 2026 and 2025

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ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) should be read in conjunction with the Annual Financial Statements and the accompanying notes included elsewhere in this Report.

This MD&A discusses activity for the years ended December 31, 2025 (Successor) and December 31, 2024 (Successor). The operating results for the period from May 18 through December 31, 2023 (Successor) and for the period from January 1 through May 17, 2023 (Predecessor) are not comparable with the operating results for the years presented in this MD&A due to the application of fresh start accounting after our Emergence from Restructuring in May 2023. See “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our 2024 Annual Report on Form 10-K, filed with the SEC on February 28, 2025, for a discussion of the activities and results of operations for each of these periods.

The discussion contains forward-looking statements as well as estimates regarding market and industry data, which involve risks, uncertainties, and assumptions. See “Cautionary Note Regarding Forward-Looking Information” and “Market and Industry Data” for additional information. Dollars are in millions, unless otherwise noted.

Recent Developments

Cornerstone Acquisition

On January 15, 2026, we entered into the Cornerstone Merger Agreement to acquire from affiliates of Energy Capital Partners (“ECP”) the 875 MW Waterford Energy Center and 456 MW Darby Generating Station, both located in Ohio, and the 1,120 MW Lawrenceburg Power Plant located in Indiana, for an aggregate purchase price of $3.45 billion, consisting of $2.55 billion in cash, subject to working capital and other customary adjustments, and 2,400,000 shares of Talen common stock, valued at approximately $900 million at the time of the entry into the Cornerstone Merger Agreement. The Company expects the cash portion of the purchase price to be funded from the proceeds of new indebtedness. The stock consideration will be subject to lock-ups of 90 days on 50% of the stock consideration and 180 days on the remaining stock consideration.

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The addition of these assets to Talen’s portfolio will increase generation capacity by approximately 2.5 GW of natural gas generation, substantially expanding Talen’s presence in the western PJM market and adding additional efficient baseload generation assets to its fleet.

In connection with the stock consideration, at the closing of the Cornerstone Acquisition, we intend to enter into the Cornerstone RRA with certain parties thereto substantially in the form attached to this Report as Exhibit 4.16. Pursuant to the terms of the Cornerstone RRA, the Company will agree to use its commercially reasonable efforts to file a registration statement on Form S-3 under the Securities Act of 1933, as amended, to register the TEC common stock issued pursuant to the Cornerstone Merger Agreement with the SEC within three business days (and in any event within five business days) after issuance. See also “Item 1A. Risk Factors—Financial and Equity Risks—A number of factors could adversely affect the market price or trading volume of our common stock, even if our business is doing well, including but not limited to substantial sales of our common stock by existing shareholders, future issuances of equity or debt securities by us, and (or) research or reports published by financial analysts.”

The proposed Cornerstone Acquisition is subject to regulatory approvals and the satisfaction of other customary closing conditions, and is expected to close early in the second half of 2026.

See Note 17 to the Annual Financial Statements for additional information on the Cornerstone Acquisition and “Item 1A. Risk Factors—Risks Related to the Cornerstone Acquisition” of this Report for a discussion of the associated risks.

The foregoing description of the Cornerstone Merger Agreement and the transaction contemplated thereby is only a summary, does not purport to be complete, and is qualified in its entirety by reference to the full text of the Cornerstone Merger Agreement, a copy of which is incorporated by reference as Exhibit 2.1 to this Report. The Cornerstone Merger Agreement is being filed only to provide investors with information regarding their terms and are not intended to provide any other factual information about the parties thereto. Investors should not rely on the representations, warranties, or covenants in the Cornerstone Merger Agreement, which may be subject to important limitations and qualifications, and which may change after the date of the Cornerstone Merger Agreement, as characterizations of the actual state of facts or condition of the Company, the sellers, or any of their respective subsidiaries or affiliates.

PJM 2027/2028 Base Residual Auction

In December 2025, PJM announced the results of the 2027/2028 PJM BRA. Talen cleared 8,745 MW at a price of $333.44/MWd.

See “—Factors Affecting Our Financial Condition and Results of Operations—Capacity Markets” for additional information.

Closing of the Freedom and Guernsey Acquisitions

In November 2025, the Company consummated the Freedom and Guernsey Acquisitions for an aggregate $3.8 billion which is subject to certain post-closing adjustments for net working capital and other customary items. The Freedom and Guernsey Acquisitions were funded from the proceeds of the Unsecured Notes and the TLB-3. Additionally, TES increased its RCF (including its revolving LC capacity) from $700 million to $900 million and increased its LCF from $900 million to $1.1 billion and extended its maturity from December 2026 to December 2027.

Issuance of Senior Notes. In October 2025, TES issued (i) $1.4 billion in aggregate principal amount of 6.25% Senior Unsecured Notes due 2034, and (ii) $1.3 billion in aggregate principal amount of 6.50% Senior Unsecured Notes due 2036.

See Notes 10 and 17 to the Annual Financial Statements for additional information on the financing transactions and issuance of the Unsecured Notes, and the Freedom and Guernsey Acquisitions, respectively.

Factors Affecting Our Financial Condition and Results of Operations

Earnings in future periods are subject to various uncertainties and risks. See “Cautionary Note Regarding Forward-Looking Information,” “Item 1A. Risk Factors,” and Notes 2 and 9 to the Annual Financial Statements for additional information on our risks.

Commodity Markets

During 2025, PJM experienced weather-related volatility, as extreme winter and summer temperatures over certain days contributed to increased load demand and higher settled on-peak power prices during the year. TETCO M-3 natural gas prices settled higher in the period due to the effect of increased electric demand despite elevated storage levels that exceeded the five-year average.

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The weighted average settled on-peak power prices and natural gas prices for the PJM market for the years ended December 31, were:

As of December 31, 2025 (Successor), the weighted average forward market prices for the following years were:

__________________

(a)Spark spreads are computed based on day-ahead PJM West Hub ATC prices, TETCO M-3 natural gas prices, and a heat rate of 7 MMBtu/MWh.

As of December 31, 2024 (Successor), the weighted average forward market prices for the following years were:

__________________

(a)Represents forward prices for 2025 as of December 31, 2024 (Successor). See weighted average settled prices table above for 2025 realized prices.

(b)Spark spreads are computed based on day-ahead PJM West Hub ATC prices, TETCO M-3 natural gas prices, and a heat rate of 7 MMBtu/MWh.

Capacity Markets

Our generation facilities are located primarily in markets with capacity products, which are intended to ensure long-term grid reliability for customers by securing sufficient power supply resources to meet predicted future demand. Capacity prices are affected by supply and demand fundamentals, such as generation facility additions and retirements, capacity imports from and exports to adjacent markets, generation facility retrofit costs, non-performance risk premium penalties, demand response products, power demand forecasts, reserve margin targets and, in PJM, adjustments to the PJM market seller offer cap as determined by the PJM independent market monitor. Additionally, capacity prices may be affected by regulatory proceedings and (or) interventions by government stakeholders.

PJM Capacity Auctions. Under the PJM Reliability Pricing Model, when held on schedule, the PJM BRA is required to be conducted in the month of May three years prior to the start of the applicable PJM Capacity Year in order for PJM to secure commitments from capacity resources. The results of each PJM BRA impact our capacity revenues expected to be earned for the specific PJM Capacity Year.

Recently, PJM has delayed its auctions, which has resulted in less than 3 years between each auction and the start of the relevant PJM Capacity Year. The PJM BRA for the 2027/2028 PJM Capacity Year was held in December 2025. The capacity market construct provides generation owners some opportunity for revenue visibility on a multiyear basis and is intended to provide a price signal for new generation to be built in the future. See Note 9 to the Annual Financial Statements for additional information on the PJM capacity market, systemic risks, auction delays, and related legal actions.

Capacity Prices. The following table displays the cleared capacity prices for completed PJM BRAs for the markets and zones in which we primarily operate:

__________________

(a)Displayed prices are from the applicable market publications.

For the 2027/2028 PJM Capacity Year, the Company cleared 8,745 MW at a price of $333.44/MWd.

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Form 10-K Table of Contents

Nuclear Production Tax Credit

The Nuclear PTC program, established by the Inflation Reduction Act, provides qualified nuclear power generation facilities with a transferable tax credit for electricity produced and sold to an unrelated party during each tax year. The credit provides support beginning when annual gross receipts decline below an equivalent $44.60/MWh, increases ratably up to $3/MWh when annual gross receipts are equivalent to $26/MWh, and is subject to potential adjustments including inflation escalators and a five-times increase in value (up to $15/MWh) for meeting prevailing wage requirements (which we expect to meet). Electricity produced and sold by Susquehanna to third parties from December 31, 2023 through December 31, 2032 will be el

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