When the owners of the Homer City Generating Station announced that it would finally be shuttering by July of 2023 due to competition from cheap natural gas and the costs of adhering to environmental regulations, it signaled a long-anticipated shift in Pennsylvania’s energy mix. The coal-fired power plant was the last in the state — and the largest — to make decommissioning plans, so the announcement gave some in the fossil-fuel heavy Keystone State a sense of relief, both in terms of environmental impact and health effects.
“This will prevent premature deaths, illness & slash CO2 emissions,” former Pennsylvania Department of Environmental Protection Secretary John Hanger tweeted.
But many across the political spectrum feared what would happen next to the small community of Homer City, in southwestern Pennsylvania, home to just over 1,500 people. Years of instability meant its shuttering could have been better prepared for. The plant owners gave just 90 days’ notice of its closure as more than 120 workers prepared to pack their bags to face an uncertain future. “Instead of recognizing the market shift and preparing for the transition to clean, renewable generation,” Leigh Martinez, communications director at nonprofit advocacy group PennFuture, wrote in a statement, “fossil fuel-friendly legislators have spent years in denial.” Homer City residents and former plant employees say the community has been left in dire straits as a result.
That denial campaign was waged in part by the plant’s private equity owners, who slashed headcount and cut back on maintenance to keep the plant alive and squeeze whatever profit they could out of the aging facility. After the plant was acquired by private equity in 2017, Homer City Generation President and CEO William Wexler cut right to the chase about his intentions: “I’ve spoken to all the employees, and I explained who we are and what we’re here to do… to get this plant to be a far more profitable member of the community and to sell it.”
“Changes in ownership, operators, and gaps in maintenance have led to operational issues and instability” at the plant, energy firm NRG, which once managed the plant, wrote in a one-pager, which has since been taken down.
For some industry observers and analysts, the Homer City station stands as a cautionary tale regarding the growing role of private equity, typically backed by large institutional investors, like pension funds, in the financing of coal production and the operation of coal-fired power plants, marked by a desire for quick profits. While banks have increasingly pulled back from financing fossil fuels, notorious for their damage to the environment, private equity has helped keep the coal industry alive. In the case of Homer City, the plant’s private equity owners kept a failing company operating for another six years — as it further polluted the environment and extended the power sector’s reliance on coal.
A Polluting Behemoth
Homer City — a 2,000 megawatt power plant an hour east of Pittsburgh in Indiana County, Pennsylvania — was once known as one of the biggest polluters in the state. (“A polluting behemoth,” Hanger called the site in his tweet.)
In 2011, the U.S. Environmental Protection Agency sued Homer City’s owners for operating new equipment without permits; the following year, the plant came under fire for exceeding federal limits on sulfur dioxide, a pollutant that wreaks havoc on the respiratory system. A few years prior, the state fined the Homer City plant for improperly dispatching selenium, toxic to aquatic life, and wastewater into nearby creeks.
But its reputation as a “terrible neighbor” was eventually eclipsed by its apparent financial instability. Over the 2010s, Homer City endured two bankruptcies and two subsequent changes of ownership, at least one default on a debt payment, a lawsuit against its coal supplier and staff cutbacks — the lattermost, it eventually came to blame on Pennsylvania’s looming entry into the Regional Greenhouse Gas Initiative (RGGI), a regional cap-and-trade program the state has yet to join.
Yet, amid the tumult, its smokestacks — known as the tallest in America, towering over farmland and the modest town of Homer City — continued to run. By April 2023, the plant was managed by a lean team; the remaining 129 employees were to be laid off in the wake of the closure. This number had fallen from 240 in 2017.
The plant hadn’t run at full capacity for years — in the six years before it closed, it operated at around 20%, on the hook to supply power to PJM Interconnection, the regional grid operator delivering power from Delaware to Michigan, on an as-needed basis.
The parties responsible for managing this contract were a group of private equity firms that included Knighthead Management, which “specializes in event driven, distressed credit and special situation opportunities,” and, at one point, the Carlyle Group, a global behemoth that was given a failing grade by the Private Equity Stakeholder Project in 2022 for the millions of tons of carbon dioxide its assets emit, despite the firm’s net zero by 2050 commitment.
Homer City was acquired by private equity in 2017 after its previous owner filed for bankruptcy, aiming to erase $600 million in debt from its balance sheet. It was owned by General Electric, and by the utility Edison International, before that. The new owners formed a limited liability company (LLC), Homer City Generation LLC, a way of protecting themselves from responsibility for the company’s debts.
Very little is known about what happened within the plant after this, because private companies operate without regulatory oversight, largely out of view of the public. Sometimes, they buy assets from publicly traded companies responding to increased environmental scrutiny from shareholders. It’s widely understood that these firms aim to drive profitability in the short term, typically cutting overhead along the way.
“The big concern with private equity swooping in,” says Nichole Heil, research and campaign coordinator at the Private Equity Stakeholder Project, “They come into a coal plant … and they are looking to squeeze as much profit out of it as they can.”
“They’re looking to get in and get out,” she said.
Money First
Private equity firms have come under fire for operating with a profit-first strategy in a range of industries — slashing nursing home staff, eliminating services at prisons and raising patient costs at healthcare facilities. In the power sector, that business model could look like forgoing energy efficiency upgrades in pursuit of short-term profits before shutting an asset down. In Homer City’s case, it meant keeping alive a plant that would’ve been well-suited for a staged decommissioning years ago — only to close it and leave the community picking up the pieces.
“PE firms push risks onto the communities,” Dennis Wamsted, energy analyst at the Institute for Energy Economics and Financial Analysis (IEEFA), writes in an August 2023 report on private equity in PJM. “When their plants are no longer economic, PE generators can simply decide to close up shop and get out, leaving unprepared localities facing significant economic dislocations from job and tax losses.”
“This exact scenario played out … at the Homer City power plant,” he continued.
Though long-anticipated, the closure felt disconcertingly abrupt, says a former employee who spoke with Capital & Main on the condition of anonymity. The worker says they never heard from the union representing Homer City staff, IBEW Local 459, nor from politicians who had publicly advocated for the plant. The energy firm contracted to manage the plant, NRG Energy, offered job relocation, but many of those roles were out of state, and thus impractical for those with families, or who didn’t want to move, says the former employee. Workers were also referred to a state-run career portal, but many of those jobs didn’t pay close to what they’d earned at Homer City, they said.
“Everybody just kind of walked away from us,” said the worker, for whom the reality of life outside the plant felt particularly harsh after years at a steady job that routinely required 18-hour shifts and holiday work.
“We always heard from all our politicians that there will be jobs to transition into,” the worker continued. “No politicians came and talked to us.”
Multiple sources Capital & Main spoke with emphasized the economic ripple effects of the Homer City’s closure on the broader community. Rob Nymick, Homer City borough manager, doesn’t mince words: “We’re fighting for our survival right now.”
Nymick says the plant’s closure, and the shrinking coal economy in the years leading up to it, have hit the town’s tax base hard. That’s affected the local school district above all else.
A 60-year resident of this part of the state, Nymick remembers when Homer City’s economy was built not just on the power plant, but on the coal mines that fueled it. He watched those mines shutter, sat through several waves of layoffs at the plant and says its closure was only a matter of time. “We knew this day was coming, he said. “Maybe we weren’t as prepared for it, because it always seemed to get bailed out.”
Wamsted urges other towns to look to Homer City as a cautionary tale. “That community is not likely going to be the last unless local leaders begin planning now,” he warned in his report.
Private capital — a mix of private companies and private equity firms — owns some 60% of fossil-fuel generation in PJM, according to the August report, and is responsible for more than 50% of the region’s annual CO2 releases. Seven years ago, the biggest players in PJM were publicly traded energy companies, per the Institute for Energy Economics and Financial Analysis’ December report. Today, the biggest players in the regional market are private equity firms. “Difficult-to-track private equity (PE) investment has reshaped the PJM power market in the past decade,” the report reads.
Experts see private equity ownership slowly taking over the economy, gaining a steady grip on sectors like hospitals, mobile home communities and prisons. Some notoriously bad actors in the energy sector are owned at least in part by private equity firms: Diversified, an oil and gas operator known for buying more “low-decline, low-cost,” aging oil wells than any other company in the U.S., inked a $1 billion partnership with private equity firm Oaktree in 2021 to expand its operations into Southern states. Private equity giant KKR has a majority stake in the Coastal GasLink Pipeline, which has faced years of resistance for cutting through Wet’suwet’en lands in northern British Columbia without consent from local hereditary chiefs. The list goes on.
Unlike utilities, which are publicly traded and must file routinely with regulators, private equity firms can operate in relative secrecy — about their ownership, financials, expenses, risks and the like. Soon, publicly traded companies will be required to disclose their emissions and climate-related risks, per a pending federal rule. Private companies will be left out of this standard.
“When a utility owns a power plant, they would have to file their expenditures on maintenance with the Public Service Commission,” Wamsted says. “When a private equity company does that, they don’t have to file anything.
“So you have no idea, really, what they’re repairing, when they’re repairing and how much their power costs,” he said.
These companies may end up selling their assets when they’re no longer profitable — and operate them with the aim of increasing their profitability above all else. After the plant was acquired by Knighthead in 2017, Homer City CEO William Wexler told the Pittsburgh Post-Gazette that his aim was to make the plant lucrative ahead of a future sale.
First steps to achieving this aim included cutting costs of fuel and maintenance, he told the Post-Gazette. It also included layoffs — “a pretty standard PE trick,” Wamsted told Capital & Main. “Cut expenses to the bone.”
Capital & Main reached out to Wexler and the union representing Homer City workers, IBEW Local 459, neither of which responded by publication time. IBEW has posted a handful of updates to its website in recent months addressed to “those affected by the closure of Homer City Generating Station.” As of February, those updates are now password-protected.
“Local Union 459 has received the unfortunate news that Homer City Generating Station will be decommissioned July 1, 2023,” the union posted several days after the site’s decommissioning announcement. “The Local has reached out to the Company for further information regarding this process. At this time the Company has not provided any further details.”
A Harbinger
Private equity firms find a grab-bag worth of aging, low-cost assets in what’s called a deregulated power market, wherein power generation and transmission are handled by different entities, and grid operators manage auctions to oversee the sale of energy between the camps.
In markets run by vertically integrated utilities, like in the Southeast and Northwest, by contrast, monopoly investor-owned utilities are responsible for production, transmission and distribution of energy. That is, how it’s made, how it makes it to the grid, and how it makes it to the customer.
PJM, specifically, offers aging assets profits via the capacity market, designed to ensure that the grid stays reliable under strain, like during cold snaps and heatwaves. While real-time and day-ahead markets offer generators a place to bid their energy for use in the short term, the capacity market contracts generators to be available to be called on at times of peak demand on the grid three years in advance. Operators agree to come online when they are needed; if they don’t, they’re subject to a steep fine.
Capacity markets play a “vital role” in “propping up older, less competitive generators,” Wamsted and co-authors write in a 2022 IEEFA report. They offer stable payments to power plants without asking for much in return, and are attractive for energy assets that aren’t competitive on the real-time and day-ahead markets — those not equipped to run efficiently enough, such as older power plants, or power plants being run on a shoestring budget, slashed by a private equity firm. Plants like Homer City.
Not all grid operators use capacity markets — and whether they’re the right tool to manage energy demand through a green transition remains the subject of rather esoteric theoretical debate. Sylwia Bialek-Gregory, head of the unit for microeconomics at the German Council of Economic Experts and former economist at New York University’s Institute for Policy Integrity, blames poor regulations for the proliferation of high-polluting, low-capacity plants.
She sees private equity firms as “bad guys” — but bad guys who are just doing their jobs within a weak regulatory landscape. Were carbon pricing or adequate emissions caps in place, aging power plants wouldn’t be nearly as profitable as they are.
“If you were to punish emitting [plants] for the damage they create to society, they wouldn’t be attractive for the private equity investors,” she said. “They would just not make a profit.”
Ironically, Homer City’s owners blamed regulations for the plant’s death. But many argue it was coal’s dwindling value compared to renewables that rendered Homer City uneconomical. A solar facility is sitting in PJM’s interconnection queue, ready to take up the plant’s valuable connection to the grid.
Nymick, Homer City borough manager, says he’s open to any energy form that could offer his community an economic lifeline. And, until that happens, he’s putting his faith in a new sector: tourism. He’s applied for a handful of state and federal grants to clean up acid mine drainage in two local creeks that coal mining polluted long ago. He’s not sure if this plan will reap the jobs coal once did, but nonetheless, Nymick wants to see Homer City “become more of a destination.”
“I think it’s very important to the growth of our community, looking beyond coal, and the power plant,” he said. “Our elected officials have relied on coal as the main driver for their reelection. And this is a whole different approach.”
With all of Pennsylvania’s coal-fired power plants in the process of decommissioning, Wamsted fears a similar future for a new wave of natural gas plants being kept alive on PJM’s capacity market, brought online by high capacity prices of the 2010s that have since halved. In June 2022, Wamsted called these capacity payments a “losing bet” for gas plants. In December of the following year, he called Homer City a “harbinger” for future plant closures. (Two other coal-fired plants, both less than 20 miles away in Indiana County, are slated to be decommissioned by 2028. The county has four years to prepare.)
Some 80% of new fracked gas energy capacity in PJM is owned by private equity or some other private ownership model, according to Wamsted’s August 2023 IEEFA report. Some 45,000 megawatts of generation capacity was built between 2011 and 2022, predicated in part on steady, high prices in the capacity market that ensured financers could cover their debt.
Those capacity prices have since fallen — new projects are being canceled, existing ones are seeing their credit ratings downgraded, and ratings agencies are expressing concern about power generators’ profitability. PJM is facing a yearslong queue backlog, and new projects permitted are likely to be renewable, Wamsted’s report argues. Gas plants that have come online in recent years could soon face a fate similar to that of coal plants like Homer City.
“We’ve been arguing it should have closed five years ago, because it wasn’t economic,” Wamsted said. “Unfortunately, we were right.
“But nobody planned for it to be closed,” he continued. “And so, now, people are going to be out of work. If this planning process had started five years ago, there might have been a possibility for a transition.”
