AES Corp. executives assured analysts Aug. 6 that they expect company utilities DPL Inc. and Dayton Power and Light Co. to have their distribution modernization rider approved by the Public Utilities Commission of Ohio. However, concerns that it could be denied persist after the state's Supreme Court ruled in June for the removal of FirstEnergy Corp.'s annual distribution rider.
While the Supreme Court of Ohio's ruling did not specifically apply to DPL, the decision has created some uncertainty related to DPL's request to extend the distribution modernization rider, or DMR, for about $199 million annually through 2022. DPL's rider is being challenged in relation to distribution rider revenues being included in Dayton Power and Light's, or DP&L's, annual excessive earnings test and whether the company can collect its proportionate share of Ohio Valley Electric Corp. costs on a nonbypassable basis.
Rating agencies Moody's and S&P Global Ratings lowered their outlooks on the AES Ohio utilities shortly after the court's decision on FirstEnergy to reflect that the companies could see the rider, which accounts for about 30% of DP&L's cash flows, delayed, modified or changed.
"[W]e remain on track for an expected ruling in 2020 and continue to feel confident about the merits of our case," AES CFO Gustavo Pimenta said during the company's second-quarter earnings call.
The money from the DMR will help fill Ohio Valley Electric Corp.'s capital needs and add to AES' current guidance for 7% to 9% average annual growth through 2022. If the DMR is not approved, Pimenta said AES would still be able to reach that guidance. Although executives think they have a good case for the DMR, "it's fundamental that we secure the extension" in order to be an investment-grade company, Pimenta added.
Progress on renewables, decarbonization
AES also highlighted its growth in renewables and decarbonization efforts. The company expects to reduce its carbon intensity from 2016 levels by 50% in 2022 and by 70% in 2030, President and CEO Andres Gluski said. AES also estimated that coal generation will make up less than 30% of its portfolio.
AES has a 6.8-GW backlog that mostly consists of renewables projects and has signed about 1 GW in renewable energy power purchase agreements, including 500 MW since the company's May 7 earnings call. The company reiterated that it expects to sign 2 GW or 3 GW of renewable energy capacity, with an even split between wind and solar as well as U.S. and international.