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Analyst Questions DP&L Decision to Side With Sierra Club


Murray Energy Corp. is pushing back against a controversial plan by Dayton Power & Light Co. (DP&L), Ohio’s smallest investor-owned electric utility, to close the coal-burning J.M. Stuart and Killen power plants in the state by mid-2018. 

DP&L, an AES Corp. subsidiary, recently entered into a stipulation with several parties including the Sierra Club in support of a revised electric security plan that would provide the utility with $125 million in revenue from customers annually for five years — a total of $625 million, to strengthen its balance sheet.

Closing Stuart and Killen now is part of the plan, but it was not always so. DP&L previously floated a proposal with the Ohio Public Utilities Commission (PUC) that could have ensured the continued operation of both baseload plants for another 10 years.

Because DP&L shares ownership of Stuart and Killen with other electric utilities such as Dynegy Inc. and American Electric Power Co., it cannot shut either plant unilaterally. As a result, negotiations are under way to secure the approval of all co-owners.

Ohio-based Murray, the largest privately owned and underground mining company in the U.S., is intervening at the PUC against the DP&L stipulation to protect its business interests, as it sells steam coal to both plants.

In a March 1 filing with the commission, Energy Ventures Analysis Inc. principal Emily Medine, testifying on behalf of Murray, made a case for the sale of Stuart and Killen by DP&L, not the plants’ retirements. She also questioned the decision by DP&L to enter into a stipulation with the Sierra Club, a national environmental group that opposes coal-fired generation and coal mining throughout the country.

“Given the information available, it appears committing to the closure of Killen and Stuart was the price for garnering Sierra Club support and that DP&L believes it has a better chance of obtaining approval for its ESP with Sierra Club support than without, and that the ESP with the closure of Killen and Stuart is a better outcome for DP&L than no ESP,” Medine said.

But she disagrees. A sale of the plants “should generate positive value to DP&L both through a payment and a transfer of costs related to the ultimate closing of the plants, thereby reducing the revenue needed to support DPL’s heavy debt load,” she said. Also, while DP&L may own only about 1,100 megawatts (MW) at the two generating stations, which account for about 3,000 MW of generation combined.

“Historically and prospectively, this capacity has at most times been ‘in the money,’” she said. “If the capacity is retired, the supply curve contracts and other power prices would be higher.”

Medine noted there has been considerable interest in third-party acquisitions of existing coal plants. Earlier this year, for example, a joint venture of Blackstone and ArcLight Capital Partners LLC purchased the 2,600-MW Gavin coal plant in Ohio from AEP. Two years ago, Dynegy bought coal plants belonging to Duke Energy Ohio.

As a result, Medine said, DP&L should market both Stuart and Killen to potential joint ventures, merchant generators or even coal companies interested in vertically integrating their businesses. “Coal producers and transporters are increasingly flexible with respect to their pricing structure to improve the dispatch of coal plants,” she said. “In some markets, coal producers have been known to provide discounts and premiums to the coal price based upon real-time power pricing. Depending upon the discounts, this could reduce the fuel cost to very low levels during off-peak periods, allowing plants to dispatch ahead of gas.”

A Murray spokesman declined to comment on whether his company might be interested in buying Stuart or Killen.