AES to retrofit IPL coal fleet; reduces expectations on DPL

AES (NYSE: AES) said Nov. 7 that it has decreased its short-term expectations for its DPL utility in Ohio, will retrofit the baseload coal plants at its IPL utility in Indiana and expects to make money in 2013 from its U.S. investment in wind power.

In addition, AES officials said they plan to shrink their international footprint by divesting assets in less-profitable regions where they don’t hold a competitive edge.

AES, which is based in Virginia, only gets about 25% of its adjusted pre-tax contribution to its business from its North American electric utilities and generating business. 

By contrast, it relies upon Latin America for 45% of its pre-tax contributions. In the next four years AES anticipates adding major generation assets in locales ranging from Chile to Vietnam. The company has 2,160 MW of international generation currently under construction.

The company has announced the sale of some major generating assets in China.

“We continue to take important steps to better align the organization with our strategic goals. We recently announced a reorganization of the Company that will streamline how we work and decrease our company-wide overhead,” said AES President and CEO Andrés Gluski.

Returns and tax benefits from wind power in the United States should start to pay off in 2013, Gluski said.

In the U.S., AES will take “goodwill impairment” for the recently acquired DPL unit, ranging from $1.7bn to $2bn. AES now expects lower growth from DPL in 2014 and 2015, the parent company said.

AES acquired DPL, the parent of Dayton Power & Light, in November 2011. DPL has roughly 3,800 MW of generating capacity and 2,800 MW of it is coal-fired.

“Performance has been adversely affected compared to our expectations at the time of acquisition,” AES said in its third-quarter earnings call with analysts. The parent company attributed the impairment to both lower natural gas prices and increased switching. As of September 2012, 63% of the regulated load had switched, AES said.

In a related note, AES said the subsidiary has filed an updated energy security plan in Ohio in hopes of getting regulatory resolution by the first quarter of 2013.

AES has significant infrastructure spending in the works for 2,500 MW of Indianapolis Power & Light’s coal fleet in Indiana. AES said the company is installing pollution controls to ensure the IPL coal fleet can comply with the EPA’s Mercury and Air Toxic Standards (MATS).

AES said its third quarter adjusted earnings per share increased $0.08 to $0.36, driven by contributions from new businesses, cost cutting and a lower share count, partially offset by unfavorable foreign currency exchange rates. Third quarter diluted earnings per share from continuing operations decreased $2.01 to ($2.10), primarily due to a $2.46 per share goodwill impairment loss at DPL in the United States, partially offset by higher operating earnings.

About Wayne Barber 4201 Articles
Wayne Barber, Chief Analyst for the GenerationHub, has been covering power generation, energy and natural resources issues at national publications for more than 20 years. Prior to joining PennWell he was editor of Generation Markets Week at SNL Financial for nine years. He has also worked as a business journalist at both McGraw-Hill and Financial Times Energy. Wayne also worked as a newspaper reporter for several years. During his career has visited nuclear reactors and coal mines as well as coal and natural gas power plants. Wayne can be reached at wayneb@pennwell.com.