By Rich Heidorn Jr. and Ted Caddell

AES Corp. announced last week that it is attempting to sell DPL Inc.’s generation fleet rather than spinning it off into an unregulated subsidiary.

The Public Utilities Commission of Ohio has ordered AES to separate DPL’s generation into an unregulated subsidiary by mid-2017, but Chief Financial Officer Tom O’Flynn told analysts Wednesday that the company may sell instead.

“We’ll explore all potential options to optimize the solution, and we recently began to evaluate the sale of DPL generation assets to an unaffiliated third-party…” O’Flynn said during an earnings call. “Obviously we can’t comment much as we’re in the very early stage of this process.”

$307 Million Charge

AES bought DPL, parent of Dayton Power and Light Co., in November 2011 for $3.5 billion in cash. The company said it wanted to increase its presence in the Midwest, where it already owned Indianapolis Power & Light Co.

Although the purchase price was a modest 9% premium to DPL’s stock price, the company now concedes the deal isn’t looking so smart. “To date, we have not realized the benefits that we anticipated at the time of acquisition,” AES said in its 10-K, filed last week.

The company recorded a $307 million charge ($0.41/share) for goodwill impairment at DPL in the fourth quarter of 2013, citing “lower than expected PJM cleared capacity prices for 2016/2017, lower expectations of future PJM capacity prices and lower projected energy margins.”

Retail Competition

Higher maintenance costs from planned outages and switching by retail customers also hurt DPL’s results for the year.

In 2013, about 42% of customers, representing two-thirds of the energy usage within DP&L’s service area, purchased power from competitive suppliers.

DP&L has been the default power supplier to those not shopping. But beginning this year, it will lose its monopoly on these Standard Service Offer customers. Ten percent of the SSO load will be sourced through competitive bids in 2014, rising to 100% in 2017.

DPL Energy Resources Inc., DPL’s competitive retail marketer, has more than 308,000 retail customers in Ohio and Illinois, including 130,000 of DP&L’s 515,000 distribution customers.

2013 Results

AES Corp.’s foreign businesses drove most of the company’s earnings news last week, with an unprecedented drought and bad currency exchange rates in Latin America to blame for much of its downturn in fortunes.

Its fourth quarter per-share earnings were 29 cents, compared to 31 cents in the previous year. Its year-end results were $1.29 per share, compared to $1.21 for 2012.

Like many other utilities, AES said it is going to concentrate on regulated business, and it is looking to sell generation assets. The company, which derives 75% of its earnings outside the U.S., announced late last year that it was shedding assets in Cameroon, India and Poland.

Generation Sale

AES will find a crowded field if it moves forward with a sale of DPL’s 3,453 MW of generation. Ameren Corp. sold five coal-fired merchant plants in Illinois to Dynegy Inc. last year.

Last month, Duke Energy announced its intention to sell its shares in 13 plants in the Midwest, including seven plants co-owned with DPL.

Dayton Power and Light owns 2,897 MW of capacity, most of it coal-fired. DPL subsidiary DPL Energy LLC owns 556 MW of peaking capacity in Ohio and Indiana.

Kathy Larsen contributed to this article.