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AES CEO: 'We feel optimistic' on Ohio generation rider

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Essential Energy Insights - September 17, 2020

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AES CEO: 'We feel optimistic' on Ohio generation rider

ismoving ahead with its generation rider in Ohio, with parent company executivesbrushing off concerns of FERCintervention and comparing the plan to modified proposals fromin-state competitors.

"Webelieve that our proposal avoided some of the issues raised by the PPAs,"AES Corp. Presidentand CEO Andrés Gluski said May 9 on the company's first-quarter 2016 call. "We continueto feel that that's the correct path to go. We feel optimistic. We feel it's ineverybody's interest."

DP&Lfiled an electricsecurity plan in February that includes an income guarantee for its share ofmore than 8,000 MW of coal-fired generation, which it estimates at 2,181 MW.DP&L contends that the assets "remain at risk" of closure becauseof "adverse conditions in the energy and capacity markets," as wellas environmental regulations.

Therefore,the proposal includes a new charge that would appear on all customer bills and "resetbased on actual market conditions," subject to review by PUCO.

DP&Lmaintains that under the 10-year plan, the average residential customer's totalbill will increase by $1.21 per month, or approximately 1%. The company saidits electric security plan and "reliable electricity rider" will runfrom Jan. 1, 2017, through Dec. 31, 2026.

Gluskiwas asked by an analyst whether the company would consider to the rider, such asthose proposed by AmericanElectric Power Co. Inc. and FirstEnergy Corp., or the sale of generation assets, toavoid FERC review and combat volatility.

"You'recorrect that there's a certain amount of volatility due to the uncontractednature of the generation assets at DP&L … but, especially if we get thereliability rider, we have to think of it as an integrated business at thatpoint," Gluski said. "What we have filed is not much different [than]what they have filed as their new case, if you wish. If you look at our Plan A… it's not much different than what [FirstEnergy] has ."

AESExecutive Vice President and CFO Thomas O'Flynn said the company "saw thepotential for similar arguments"that led to FERC's decision to review the AEP and FirstEnergy plans to impactother subsidy proposals before PUCO.

"Consequently,when we filed our plan, we included an alternative proposal that provided anoption for the PUCO to approve a nonbypassable charge structured in the sameway as the one approved in our existing ESP," O'Flynn said on the call. "Webelieve that this alternative falls under the PUCO's authority and alsoachieves the policy goals set out by the commission."

DP&L,in its filing, offered an alternative to its reliable electricity rider in theform of a 10-year nonbypassable rider that would recover a fixed amount eachyear with no true-up.

"Thatamount would be based upon the estimated market price for 2017 and the same ROEas supported within this application," DP&L wrote in its filing. Acompany witness has recommended PUCO adopt an ROE of approximately 10.7% forthe plan.

"Wecontinue to believe this alternative provides a viable path forward for DPL andOhio, and that the commission is seeking a reasonable resolution in the matterbefore the end of this year," O'Flynn said.

PUCOhas ordered the company to transferits generation assets to an affiliate by Jan. 1, 2017.

WhileAEP is exploring the saleof its generation assets in Ohio, alongside pursuing re-regulation, FirstEnergyis hopeful that its revised rate mechanism will appease state and federalregulators.

MorganStanley Research, however, believes FERC will still view the revised ratemechanism as an "impermissibleaffiliate transaction."