DALLAS – Ohio-based public utility, Dayton Power and Light, plans to shift its business away from coal-fired generation and modernize its grid under an electric security plan that's seen as a credit positive.
The change, if approved, would aid the utility's financial performance and reduce business risk, according to Moody's Investors Service.
The Ohio utility and its parent, DPL Inc. are seeking approval from the Ohio Public Utilities Commission to implement two non-bypassable charges: a $35 million distribution investment rider over six years to fund distribution-network-related investments and a $90 million distribution modernization rider, or special customer charge.
The proposed Distribution Modernization Rider will be dedicated to continuing DP&L's debt repayment to enable the company to make additional capital expenditures to modernize and maintain transmission and distribution systems. During the sixth year of the plan, both distribution riders will expire and no longer be collected.
Moody's said that DPL can use the cash flows to reduce its $1.9 billion consolidated debt, a credit positive.
"The terms of this $90 million distribution modernization rider were designed for DPL to target an 11% consolidated funds from operations (FFO)/debt ratio by the end of the distribution modernization rider period," Moody's said in its weekly outlook publication released Monday. "Therefore, we estimate that based on the nearly $1.9 billion consolidated debt at year-end 2016, the agreement's approval would allow DPL consolidated FFO of approximately $200 million per year during this five-year period."
PUCO's approval of the settlement agreement is uncertain, according to Moody's. "The PUCO staff, who were involved in the negotiation, were not a party to the agreement, which is an indication that they may oppose it in the approval hearing before the commissioners," Moody's said.
The hearing is scheduled for Wednesday. A final decision by the utilities commission is expected by March 31.
The utility has ownership stakes in five coal-fired facilities that it plans to exit, subject to approval from PUCO.
"Exiting the power generation operations will reduce DPL's and DP&L's business risk because it will eliminate their exposure to the volatile unregulated power market and low power prices, a credit positive," Moody's said in the report.
The rating agency said that depressed power prices contributed to the company's $857.1 million of asset impairments in the first nine months of last year and their relatively low book value.
"While this settlement is still subject to approval by the PUCO, we believe it meets our goals of providing the company an opportunity to achieve the credit metrics necessary to establish financial security," Tom Raga, DP&L president and CEO, said in a statement.
Moody's rates the utility Baa3 and its parent company, DPL Inc, Ba3. The outlook is negative.
