Fitch: PUCO's Approval of DP&L's Rate Stabilization Charge Mitigates Near-Term Pressure

NEW YORK--(BUSINESS WIRE)-- The Public Utilities Commission of Ohio (PUCO)'s approval of Dayton Power and Light's (DP&L, rated 'BB+'/Negative Outlook) request to implement the rate stabilization charge (RSC) from its first electric security plan (ESP I) mitigates negative rating pressure in the near term, according to Fitch Ratings.

However, the resolution of the Negative Outlook and the long-term rating stability at DP&L and its parent DPL Inc. (DPL, 'B+'/Negative Outlook) depend upon the approval of a new ESP and the ability of DP&L and PUCO to defend against potential future legal challenges associated with it. DP&L's ESP III application remains pending with PUCO.

On Aug. 26, 2016, the PUCO granted DP&L's request to withdraw ESP II, and revert to ESP I rates that had been previously approved and that included a rate stabilization charge (RSC). The PUCO further ordered that such rates should remain in effect until a new ESP is approved.

As part of this order, the PUCO also denied the environmental investment rider (EIR), as it determined that the environmental controls on the generating units that the EIR intended to cover in ESP I are no longer used for non-shopping customers since DP&L currently obtains wholesale electricity through a competitive bidding process. The denial of the EIR will reduce rate relief by approximately $12 million for the remainder of 2016 and $36 million on an annual basis, per Fitch's estimate.

The RSC and EIR were the two primary components in ESP I, which collectively provided approximately $110 million in rate relief annually, similar to the amount of the "service stability rider" (SSR) in ESP II.

PUCO's order follows the Supreme Court of Ohio's decision to reject the SSR in ESP II in June 2016. Subsequently, DP&L withdrew its ESP II and requested EPS I to be implemented. The new tariff must be put into place within 7 days of the order which will effectively terminate the SSR.

On Aug. 24, 2016, DP&L secured a $445 million term loan facility maturing Aug. 24, 2022 and used the proceeds to repay the $445 million 1.875% First Mortgage Bonds due on Sept. 15, 2016. The next debt maturities in 2016 are in October 2016 and October 2019 when $57 million of senior unsecured notes and $200 million of senior unsecured notes are due at DPL Inc.

Additional information is available at 'www.fitchratings.com'.

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Fitch Ratings
Primary Analyst
Shalini Mahajan
Managing Director
Fitch Ratings, Inc.
33 Whitehall St.
New York, NY, 10004
+1-212-908-0351
or
Second Analyst
Julie Jiang
Director
+1-212-908-0708
or
Media Relations
Alyssa Castelli
+1-212-908-0540
New York
[email protected]

Source: Fitch Ratings

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