Hummel Station LLC' Construction has been delayed approximately two months, and commercial operations date is now expected around the end of April 2018

Construction has been delayed approximately two months, and commercial 
operations date is now expected around the end of April 2018. The delay has 
been primarily driven by severe weather and lower-than-expected labor 
productivity, due to Bechtel's difficulty in finding skilled workers and 
negotiating wages. Despite this, we expect the cash-funded contingency to more 
than cover incremental costs, estimated at about $17 million to date. We 
further estimate that about $20 million will remain in the contingency fund 
once all costs are covered. While we do not currently believe the delay will 
materially affect the rating, we note that the project has an obligation to 
deliver capacity to the Pennsylvania-Jersey-Maryland (PJM) Interconnection 
beginning on June 1, 2018, and any failure to do so could have a negative 
impact on the rating.

At the end of August 2017, the total project was 81.8% complete against a plan 
of 88.7% to the guaranteed completion date. Engineering is 97.6% complete and 
construction is 72.5% complete. There is no change to the construction phase 
SACP of 'bbb-'; however, given the lower operations phase SACP, this does not 
affect the rating of the project.

The stable outlook reflects our expectation that the project will be completed 
in April 2018, a delay of about two months relative to original expectations. 
We expect that it will then earn DSCRs of about 1.4x on average, with a 1.36x 
minimum during the term loan B period. This hinges on continued stability in 
capacity payments and a robust PJM energy market, as well as availability of 
about 94%. This should yield leverage of about $590/kW at maturity, leaving 
the project with refinancing risk. 

We would consider a downgrade during construction if change orders became 
substantial, leading to considerable cost overruns that exceeded the cash 
contingency, or if construction delays caused an inability to meet the heat 
rate call operation (HRCO) agreement terms or capacity obligations for a 
prolonged period. Thereafter, lower ratings could stem from a weaker energy 
and capacity market or performance that is beneath our expectations, possibly 
resulting in a minimum DSCR under 1.35x or an increase in debt outstanding at 
maturity. We could also lower the rating if the project failed to sweep cash 
to the senior debt as expected, leading to increased refinancing risk and a 
PLCR below 1.5x.

While unlikely at this time, we could raise the rating if market conditions 
improved significantly in PJM, such that minimum DSCRs during the term loan B 
period exceeded 2x. Furthermore, the strengthening of existing HRCOs could 
lead to lower market risk and, possibly, higher ratings.