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Dynegy welcomes FERC's decision to revoke AEP, FirstEnergy affiliate waivers

welcomed FERC'sdecision to revokewaivers of affiliate power sales restrictions granted to 's and 's Ohio utilities. FERC on April 27 directed the companies tofile the controversial affiliate power purchase agreements with the agency forapproval.

"Dynegyapplauds the Federal Energy Regulatory Commission's unanimous action to protectconsumers and the wholesale markets from abuse by ridding Ohio of the affiliatewaivers for AEP and FirstEnergy. FERC agreed that customers are indeed captiveto the out-of-market and exorbitantly priced PPA proposals that were acceptedby the Public Utilities Commission of Ohio, and has now ensured a transparentand thorough review for the benefit of Ohio residents and businesses,"Dynegy President and CEO Robert Flexon said in a statement released early April28.

Thewaivers were approved by the Public Utilities Commission of Ohio and weredesigned to provide income guarantees to FirstEnergy's and AEP's Ohio utilitiesfor their share of the output from certain "vital" power plants thatface economic challenges. The cost of the eight-year subsidy plans was to berecovered through a nonbypassable "rider charge" assessed to allend-use customers in FirstEnergy's and AEP's Ohio service territories,regardless of whether they took retail service from those utilities.

Flexonhad warned that if FERC were to decide to let the waivers stand, it would justset a "bad precedent." Dynegy was among the opponents of the incomeguarantee proposal.

"…[It really] justopens the door for more abuse and it really starts tearing apart the constructof the market. And these subsidies, these handouts, are completely unnecessary.This is just the utility telling the state how to run its business,"Flexon said in a recent interview with S&P Global Market Intelligence.

Withthe PPA, Morgan Stanley on April 28 said it estimates FirstEnergy's EPS at$2.70 in 2017 and $2.96 in 2018. Without the PPA, the brokerage estimates 2017EPS of $2.28 and 2018 EPS of $2.27, and FirstEnergy could need up to $2 billionof equity to reduce debt and improve its credit metrics.

FirstEnergyshares were down 8.46% at $36.05 in pre-market trading Thursday, April 28.

MorganStanley sees less earnings impact to AEP, estimating "very modest earningsand cash flow at current forward prices for the ~2.7 GW of assets."

at AEP fell to $501.2 million, or $1.02 per share, with earnings at thegeneration and marketing segment down $112.3 million year over year to $70.7million, followed by the vertically integrated utilities segment, down $21.7million year over year to $277.6 million.