Homer City Generation, operator of a three-unit, 1,884-MW coal-fired generating station about 45 miles northeast of Pittsburgh, Pa., has initiated a voluntary, pre-packaged Chapter 11 case in the U.S. Bankruptcy Court for the District of Delaware.
The financial restructuring process is expected to eliminate more than $600 million in existing secured debt from Homer City’s balance sheet and provide for an orderly transition of ownership, according to the company. The plant expects to continue operating, and to meet its ordinary obligations, as the case proceeds.
Filing a pre-packaged Chapter 11 case means the company has already arranged the necessary approvals for its proposed plan of reorganization. By doing so, the company is able to expedite the process, while eliminating some of the uncertainty.
Homer City has been struggling due to depressed power market prices, resulting from the low cost of natural gas. Located virtually in the center of the Marcellus Formation, Homer City’s finances have been doomed by the abundance of natural gas, combined with higher environmental compliance costs.
The facility is a PJM capacity resource and primarily sells its power through PJM’s annual capacity auction. The station also has the ability to sell energy into the New York Independent System Operator market, subject to certain restrictions. But the flexibility does not seem to have paid significant dividends.
“Today, with the strong support of the noteholders, we are taking the next step to implement Homer City’s financial restructuring plan,” John Boken, a senior managing director at Zolfo Cooper, who will serve as Homer City Generation’s chief restructuring officer during the process, said in a release issued on January 11.
It’s not the first time Homer City has faced financial difficulty. GE Capital took control of the facility in 2012 after Edison International was unable to secure financing for scrubbers and other air pollution equipment. GE Capital subsequently spent more than $700 million on retrofits. But the investment hasn’t resulted in profits (Homer City Generation reported a net loss of more than $48 million through the first nine months of 2016).
Since July, Homer City has been embroiled in a lawsuit filed by CONSOL Energy over the alleged breach of a coal contract. (For more on that, see “Coal Fuel Contracts: A Moving Target” in the upcoming February 2017 issue of POWER.) However, on January 6, the two companies reached a settlement and executed a new coal supply agreement.
The latest deal calls for minimum monthly and quarterly deliveries of coal by CONSOL to Homer City, amounting to at least 1.2 million tons per year through the end of 2018. The agreement will become effective once the restructuring process is complete, provided everything is finalized on or before May 13, 2017.
Pursuant to the settlement, CONSOL will dismiss its claims against Homer City regarding the breach of contract litigation. For its part, Homer City and its owners will release all claims that they have against CONSOL, with respect to the lawsuit.
The deal with CONSOL, along with the support of approximately 86% of Homer City’s existing secured noteholders, made the restructuring support agreement possible. Homer City said all trade creditors and other general unsecured creditors will be paid in full for goods and services provided prior to the filing date. All goods and services provided on or after the filing date will be paid in accordance with normal terms and conditions.
—Aaron Larson, associate editor (@AaronL_Power, @POWERmagazine)