What: Shares of wholesale power provider Calpine (NYSE:CPN) dropped more than 10% during the month of June as more and more people on Wall Street sold Calpine's stock short. Since May, short interest in Calpine has grown by 85%.

CPN Short Interest Chart

CPN Short Interest data by YCharts.

So what: Calpine is a slightly different breed of utility stock than most. Unlike regulated utilities that own generation and distribution assets and sell power directly to customers, Calpine is in the business of wholesale power that sells electricity to the regulated utilities and other power traders rather than the end customer. The upside is that profitability can be higher than a regulated utility; but a wholesale provider doesn't have the security of a guaranteed rate of return on its assets. 

While a regulated utility can be capitalized with a bit more debt on its balance sheet than other industries thanks to that guaranteed return, Calpine does not have that security. However, you wouldn't know that from looking at the company's balance sheet because it has one of the highest debt-to-capital ratios in the utility business at 78.6%. 

With that much debt on the books, it's not too hard to see why some investors may be looking at this situation, and seeing a company that may be over-reaching with its growth plans -- and could be headed for a downfall.

Now what: There are a couple things working in Calpine's favor, though. First, it has a very young fleet of combined cycle natural gas power stations that are well positioned in places such as California, Texas, and the Mid-Atlantic region that see high demand for power at peak times. As more older power-generation facilities start to retire and emissions regulations start to tighten even more, Calpine will be in a good position to sell not only power to these markets but also some renewable-energy credits that it generates from its geothermal and other alternative-energy facilities scattered across these regions.

For Calpine to really capitalize on those benefits, it will need to find a way to shed some debt while also investing in new generation facilities that will be able to offer better economics than traditional power sources. While today's price-to-earnings ratio of 7.4 looks pretty tempting, it may be worth holding off for a while to see how it deals with that large debt load.