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Settlement in DP&L case could signal Ohio utility's exit from coal generation

Once hopeful and confident about the prospects of receiving an income guarantee for more than 2,000 MW of coal-fired generation in Ohio, Dayton Power and Light Co. pivoted to retiring and selling coal capacity to advance its new, six-year electric security plan.

The AES Corp. subsidiary filed a settlement agreement Jan. 30 with the Public Utilities Commission of Ohio that includes a commitment to pursuing the sale of its ownership interests in the Conesville, Miami Fort and W.H. Zimmer coal plants. DP&L also has reached a separate agreement in principle with the Sierra Club to retire the coal-fired 2,308-MW J.M. Stuart and 600-MW Killen Station plants in June 2018. The Sierra Club, therefore, could sign on to the settlement filed with PUCO this week.

The utility agreed to develop at least 300 MW of solar and wind generation in Ohio by 2022, as well as invest $35 million in smart grid investments and more than $2 million in economic assistance and job training.

A spokeswoman for DP&L said discussions with co-owners of the J.M. Stuart and Killen Station plants concerning their potential retirement are "ongoing and confidential."

DP&L owns 67% of Killen and 35% of the J.M. Stuart plant, according to SNL Energy data. Independent power producer Dynegy Inc. owns the remaining 33% of Killen and a 39% share in J.M. Stuart. American Electric Power Co. Inc. competitive subsidiary AEP Generation Resources owns the remaining 26% stake in J.M. Stuart, SNL Energy data shows.

"DP&L has recommended shutdown of Stuart to the plant's co-owners. While AEP hasn't formally given its consent for retirement, we are in conceptual agreement with their recommendation to retire the plant," AEP spokeswoman Melissa McHenry said in an email. AEP has signaled that it could divest its interests in J.M. Stuart, as well as the Conesville and W.H. Zimmer plants.

Dynegy, in November 2016, said it was interested in owning 100% of W.H. Zimmer and Miami Fort, while possibly looking to cede its interest in Conesville, J.M Stuart and Killen Station to AEP and AES.

"Our goal has been and continues to be to own 100% of the co-owned units we operate, Miami [Fort] and Zimmer," Dynegy spokesman David Onufer said in an email. "Retirements of jointly owned units must be agreed upon by all owners. Although [the Sierra Club] likes to feel part of the decision, we have had no discussions with them and none are planned."

"Any closure decision would be based on economics," Onufer added. "These plants, like many others, are being negatively impacted by subsidies paid to other less efficient forms [of] generation."

Distribution riders

In return for DP&L's agreement to retire and pursue the sale of coal generation, the utility will receive a five-year distribution infrastructure rider designed to collect $35 million per year tied to smart grid and advanced metering investments. DP&L also would implement a distribution modernization rider to support debt repayment and capital expenditures to upgrade infrastructure. The five-year distribution modernization rider would be designed to collect $90 million per year and targeted to achieve a consolidated adjusted FFO/debt ratio of 11% for direct parent DPL Inc.

"During the sixth year of the plan, both distribution riders will expire and no longer be collected," DP&L said in a news release.

DP&L sought to recover $145 million annually, or more than $1 billion, through a seven-year distribution modernization rider to help the company maintain its financial strength and "access equity and debt capital in order to finance transmission and distribution infrastructure modernization investments."

The PUCO in October 2016 approved a three-year, $204 million distribution rider for FirstEnergy Corp.'s Ohio utilities designed to support the parent company's credit ratings while benefiting customers through grid modernization.

The PUCO staff also has not yet signed on to the stipulation, which must be approved by the commission.

A final decision by the PUCO is expected by March 31. If the PUCO approves the settlement, DP&L said the average residential customer in its service territory using 1,000 kWh of electricity can expect a monthly bill increase of $2.39. (PUCO docket 16-0395-EL-SSO)

SNL Energy is an offering of S&P Global Market Intelligence.