PPL, Riverstone to combine generation units into new company

* PPL (Frankfurt: PP9.F - news) shareholders will own 65 pct of new company

* PPL to focus on rate-regulated utilities in US, UK

* PPL shares rise 3 pct (Adds details, background, shares, analyst comments)

June 10 (Reuters) - PPL Corp said it would combine part of its U.S. power generation business with that of private equity firm Riverstone Holdings LLC to form a listed company, as it tries to shield itself from the volatile power market.

PPL shareholders will own 65 percent of the new company, Talen Energy Corp, which will be one of the biggest independent power producers in the country. Riverstone will own the rest.

PPL, which will have no ownership interest in Talen Energy, will focus on the rate-regulated utilities it owns in the United Kingdom, Kentucky and Pennsylvania, which generated 84 percent of its earnings from ongoing operations last year.

PPL shares rose nearly 3 percent to $35.17 in morning trading on Tuesday.

PPL's spinoff comes after Duke Energy Corp in February announced plans to sell off its Midwest commercial generation business, including stakes in 13 power plants, citing "volatile returns" in a competitive market.

"The deal is definitely a marker that transactions are possible, where other power producers such as American Electric Power Co Inc could potentially divest their unregulated, generation businesses," said BGC Financial analyst Kit Konolige.

A glut of shale gas has weighed on power prices in some U.S. markets, prompting utilities to increase their reliance on the regulated portions of their businesses.

"As PPL has grown its rate-regulated business portfolio significantly over the past several years, PPL's Energy Supply business has not -- in our view -- achieved appropriate equity valuation," PPL's Chief Executive William Spence said in a statement.

The spinoff is expected to eliminate a number of positions at plants and in corporate support services but PPL did not specify the number of job cuts.

Talen Energy will operate 15,320 megawatts of generating capacity in Maryland, New Jersey, Texas, Massachusetts, Pennsylvania and Montana. The company is expected to be listed on the New York Stock Exchange.

The deal, which needs approvals from the Federal Energy Regulatory Commission, the Department of Justice, Nuclear Regulatory Commission and certain approvals from the Pennsylvania Public Utility Commission, is expected to close in the first or second quarter of 2015.

PPL said it may have to divest an estimated 1,000 MW of baseload-equivalent capacity to get necessary approvals.

PPL Chief Financial Officer Paul Farr will be Talen Energy's CEO. Jeremy McGuire, PPL's vice president of strategic development, will be Talen Energy's CFO.

PPL maintained its 2014 forecast of ongoing earnings of $2.15 to $2.30 per share, and said it expects 2015 earnings of $2.05 to $2.25 per share, excluding the supply business.

Citigroup Global Markets and Morgan Stanley (Berlin: DWD.BE - news) were financial advisers to PPL while Riverstone was advised by J.P. Morgan (Other OTC: MGHL - news) . Simpson Thacher & Bartlett LLP served as PPL's legal adviser and Vinson & Elkins was Riverstone's legal counsel. (Reporting by Swetha Gopinath, Supriya Kurane in Bangalore; Editing by Gopakumar Warrier and Don Sebastian)