Fitch Ratings worries about DP&L revenue

Dayton utility tells state its financial health ‘remains weak’

A company that rates business credit-worthiness is expressing concern about how a new Ohio Supreme Court ruling could affect a Dayton Power & Light (DP&L) revenue source.

The Ohio Supreme Court last week struck down a “distribution modernization” rider or monthly charge — also called a “DMR” — for Ohio utility FirstEnergy.

On Monday, Fitch Ratings said the ruling may have relevance to DP&L’s own DMR rider, saying the ruling “highlights the vulnerability of the controversial recovery mechanism.”

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Fitch estimated that if DP&L lost its DMR, that “could result in an approximately $30 to $40 million (pre-tax) reduction in rates.”

DP&L’s DMR charge is being challenged in court. An appeal against the charge by the Office of the Ohio Consumers’ Counsel is awaiting oral argument before the Ohio Supreme Court.

The Public Utilities Commission of Ohio (PUCO) first approved the charge for DP&L in late 2017. On average, the DMR costs $115 per DP&L customer annually, according to the counsel’s office.

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DP&L’s charge is set to expire set in October 2020 — unless the PUCO approves an extension that DP&L is seeking.

In January this year, DP&L filed at the PUCO to extend the charge for two more years. DP&L also asked the commission to set the charge at $199 million so that “DP&L can maintain its financial integrity and bring substantial benefits associated with grid modernization to its customers.”

The Dayton utility has told state regulators that its “financial condition remains weak.”

“The net cash that DP&L has received and will receive over that period (from the DMR) will be significantly below projections, which necessitates an increase in the level of the DMR,” DP&L told the PUCO.

Fitch supports an extension.

“Fitch believes the DMR extension is crucial for … DP&L to maintain stability from a credit perspective,” the ratings company said. “In addition to debt repayment, the DMR will provide funding for a more appropriate level of capex (capital spending), from a level that was depressed during the tumultuous period of electric industry deregulation in Ohio.”

A Supreme Court ruling against DP&L’s charge could affect the Dayton company’s “credit metrics,” Fitch said. “However, Fitch understands that any court ruling will be applied to future rates as retroactive rate making is not permitted in Ohio,” the debt ratings service added.

Since the 2017 DMR approval, DP&L has been able to repay $388 million in debt, Fitch said.

A message seeking comment was sent to DP&L Monday.

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