Dive Brief:

• Homer City Generation LP, which operates a three-unit, 1,900-MW coal-fired plant in Pennsylvania, is headed towards default and owner GE Capital US Holdings is trying to sell the plant, according to S&P Global Ratings.
• According to SNL Energy, the ratings agency downgraded the company's credit rating to CCC- from B-, and similarly knocked down its senior secured debt rating. Homer City faces a roughly $50 million debt payment this fall.
• News of Homer City's troubles is the latest datapoint in the growing story over how cheap natural gas has been pushing struggling plants out of the market. Moody's Investor Services earlier this month said commodity levels have "devastated" the merchant power sector.

Dive Insight:

Cheap natural gas continues to be a potentially-fatal thorn in the side of some struggling power plants, and SNL reports on the financials behind Homer City Generation, which operates a large coal-fired station in PJM that is staring down the barrel of an October default. The company has a $52 million debt payment due in several months, and S&P has indicated it looks like there is insufficient cash on hand.

"They do have some hedges in place that may help them over the summertime...But when you look at it, at the low price of gas, at least to us [it's] more likely than not they just may not make the money to meet the next [debt] payment in October," S&P credit analyst Terry Pratt told SNL. "And if they do, there's just more payments thereafter, and without any liquidity [that's] a little tough to do."

According to Homer City's 2015 financial statements, the plant generated about 9,000 GWh last year at an average realized price of $41.60/MWh. In 2014, it generated 11,500 GWh at an average price of $47.26/MWh.

With gas prices below $2.50/MMBtu for much of the winter, fuel switching became a factor for coal and nuclear plants in deregulated markets over the last year. 

"Low natural gas prices have devastated most of the US merchant power sector because gas-fired power plants often serve as the marginal plant during times of peak power demand," Moody's said in its report last month. "Lower natural gas prices have effectively driven down wholesale power prices for all generators, regardless of whether they are using natural gas, coal, nuclear power or renewable resources to generate their electricity."

The Homer City facility is located about 45 miles from Pittsburgh. Units 1 and 2 are almost 50 years old, and the company is installing pollution scrubbing devices on them. A third unit, completed in 1977, already has scrubbers installed.

The plant sells its baseload power into the PJM Interconnection and New York ISO markets.