Talen Files for Bankruptcy After Power Hedges Drained Cash (4)

Talen Energy Corp. placed its Talen Energy Supply unit in Chapter 11 bankruptcy on Monday after rising power and gas prices disrupted its hedges and sparked a liquidity crisis.

At least eight of the company’s 18 power plants rely on natural gas to make electricity, which means that when prices spiked in recent months, Talen was “exposed to market price volatility” restructuring adviser Ryan Omohundro said in court papers.

Talen’s strategy of using derivatives to manage commodity and power market volatility backfired when power and natural gas prices spiked last year, according to the filing. The hedges forced the company ...