Federal Energy Regulatory Commission staff on Nov. 9 asked Dayton Power and Light and AES Ohio Generation LLC to answer some questions, mostly having to do with cross-subsidization issues, and submit them as an amendment to their Aug. 25 application to transfer several power generating assets from Dayton Power to AES Ohio.
The two companies, both subsidiaries of AES Corp. (NYSE: AES), had applied under sections 203(a)(1)(B) and 203(a)(1)(D) of the Federal Power Act for authorization for a transaction whereby Dayton Power will transfer certain generation assets to AES Ohio. The Public Utilities Commission of Ohio has already approved this sale as part of its utility deregulation process.
FERC staff said that on the cross-subsidization issue having to do with “safe harbors,” the companies said this deal is a transaction that does not involve a utility with captive customers and is subject to review by a state commission. Commission staff requires further explanation of these statements:
- For purposes of section 203, the commission has defined captive customers as “any wholesale or retail electric energy customers served by a franchised public utility under cost-based regulation.” Staff asked for an explanation whether Dayton Power has any wholesale electric customers (including, but not limited to, requirements customers), wholesale transmission, or retail electric energy customers served under cost-based regulation.
- If these are customers served under cost-based regulation, they were asked to explain whether they meet the definition of captive customers used above. If so, then please explain why such captive customers should not be a concern for purposes of FERC’s review of whether this transaction results in inappropriate cross-subsidization.
- FERC has stated it “intends to defer to state commissions where the state adopts or has in place ring-fencing measures to protect customers against inappropriate cross-subsidization or the encumbrance of utility assets for the benefit of the ‘unregulated’ affiliates.” The parties were asked to explain in detail any ring-fencing provisions that the Public Utilities Commission of Ohio has in place to protect customers, including restrictions on intra-company transfers, dividend payments, and provisions of services.
The application represents that the transaction will not result in any new affiliate contracts between a non-utility associate company and a traditional public utility associate company that has captive customers or that own or provide transmission service over jurisdictional transmission facilities, other than non-power goods and services agreements subject to review under sections 205 and 206 of the Federal Power Act. “Please explain what, if any, affiliate contracts or agreements will exist between Applicants immediately following the closing of the Proposed Transaction. Also, please explain whether there is a mechanism for the transfer of benefits from Dayton Power to AES Ohio, within any affiliate contract,” said the staff inquiry.
Section 203(a)(4) is not an absolute prohibition on the cross-subsidization of a non-utility associate company or the pledge or encumbrance of utility assets for the benefit of an associate company. If the commission determines that the cross-subsidization, pledge or encumbrance will be consistent with the public interest, such action may be permitted. Staff added: “Please provide a detailed explanation regarding why any cross-subsidization will be consistent with the public interest in the context of the Proposed Transaction.”
In 2014, the Public Utilities Commission of Ohio (PUCO) approved a plan for DP&L to divest its generation on or before Jan. 1, 2017. This transaction involves the transfer by DP&L of generation facilities, along with ancillary assets and property associated with generation assets, to an affiliated entity, AES Ohio Gen. AES Ohio Gen, as the ultimate acquiring entity, will consolidate these assets with its existing generation assets and will continue to use its existing and newly acquired generation assets to make wholesale sales in interstate commerce under its market based rate authority granted by FERC.
AES Ohio Gen is an Ohio public utility, engaged in the generation of electric power and wholesale power sales from its existing generation assets located in Ohio and Indiana. Prior to Feb. 1, 2016, it operated under the legal name of DPL Energy LLC. Its existing generation assets are capacity resources within the PJM region and are bid into markets administered by PJM. AES Ohio Gen owns no transmission facilities except those necessary to interconnect with the PJM transmission grid.
The generation assets owned by Dayton Power to be transferred to AES Ohio Gen are:
- Stuart Units 1-4, 35% ownership, 808 MW summer rating (DP&L share), Coal
- Stuart Diesel, 35% ownership, 3 MW summer rating (DP&L share), Oil
- Killen Unit 2, 67% ownership, 402 MW summer rating (DP&L share), Coal
- Killen CT, 67% ownership, 12 MW summer rating (DP&L share), Oil
- Conesville Unit 4, 16.5% ownership, 129 MW summer rating (DP&L share), Coal
- Miami Fort Units 7-8, 36% ownership, 368 MW summer rating (DP&L share), Coal
- Zimmer Station, 28.1% ownership, 371 MW summer rating (DP&L share), Coal
- Hutchings Turbine Unit 7, 100% ownership, 25 MW summer rating, Gas
- Tait CT Units 1-3, 100% ownership, 256 MW summer rating, Gas
- Tait Diesel, 100% ownership, 10 MW summer rating, Oil
- Monument, 100% ownership, 12 MW summer rating, Oil
- Sidney, 100% ownership, 12 MW summer rating, Oil
- Yankee Street CT Units 1-7, 100% ownership, 101 MW summer rating, Gas
- Yankee Solar, 100% ownership, 1 MW, Solar