2008 Annual Report
2008 Annual Report
Highlights
Market value per share at December 31
Earnings (millions)
Earnings per share of common stock – Basic:
From continuing operations
From discontinued operations
Total
Earnings per share of common stock – Diluted:
From continuing operations
From discontinued operations
Total
Average shares outstanding (millions)
Basic
Diluted
Net cash provided by operating activities (millions)
Long term debt including current portion (millions)
Interest expense (millions)
Construction additions (millions)
Dividends paid per share
$
$
$
$
$
$
$
$
2008
22.84
244.5
2.22
–
2.22
2.12
–
2.12
110.2
115.4
363.2
$
$ 1,551.8
90.7
$
228
1.10
$
$
System peak load – MW (calendar year)
Average retail price per kWh (calendar year) (cents/kWh)
3,027
8.13
Corporate Profile
DPL Generating Units
$
$
$
$
$
$
$
$
2007
29.65
221.8
1.97
0.09
2.06
1.80
0.08
1.88
107.9
117.8
$
318.1
$ 1,642.2
$
$
$
81.0
347
1.04
3,270
7.83
2006
27.78
139.6
1.12
0.12
1.24
1.03
0.12
1.15
$
$
$
$
$
$
$
$
112.3
121.9
$
286.8
$ 1,777.7
$
$
$
102.2
352
1.00
3,240
7.59
DPL Inc. (NYSE: DPL) is a regional electric energy
and utility company. DPL’s principal subsidiaries
M I C H I G A N
include The Dayton Power and Light Company
(DP&L); DPL Energy, LLC (DPLE); and DPL Energy
Resources, Inc. (DPLER). DP&L, a regulated
electric utility, provides service to over 513,000 retail
customers in West Central Ohio; DPLE engages in
the operation of merchant peaking generation
facilities; and DPLER is a competitive retail electric
supplier in Ohio, selling to major industrial and
commercial customers. DPL, through its subsidiaries,
Indianapolis
owns approximately 3,700 megawatts of generation
capacity, of which 2,800 megawatts are low cost
coal-fired units and 900 megawatts are natural
gas and diesel peaking units. Further information
can be found at www.dplinc.com.
A
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Y
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P
h
g
r
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b
s
t
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Detroit
Toledo
E
I
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E
K
A
L
Cleveland
Montpelier
D P & L
S E R V I C E A R E A
A
N
A
I
D
N
I
Tait
Hutchings
Dayton
Miami Fort
East Bend
Cincinnati
Beckjord
Zimmer
Stuart
Killen
O H I O
Columbus
Conesville
O hio Riv er
Charleston
Louisville
Frankfort
K E N T U C K Y
W E S T V I R G I N I A
p Natural Gas Peaking Generation Units
l Wholly & Commonly Owned Coal-Fired Generating Plants
Chairman’s Letter
Dear Fellow Stakeholders:
Looking back, 2008 was a tough year economically,
not only for the Dayton region but the nation as a whole.
In spite of the challenging economic conditions,
I am pleased to report that DPL is a stronger company
today than it was when 2008 began. We have main-
tained our credit ratings. We have exceeded most
analysts’ projections of fully diluted earnings per share
for the year. And, your board has elected to increase
the dividend again, reflecting an optimistic viewpoint
of DPL’s future.
So, how did DPL do it? The answer is very simple.
A company is only as good as its people. Underlying
DPL’s 2008 success is an employee workforce that
Glenn E. Harder
delivers strong performance day in and day out through
and CEO of CareSource, a non-profit managed health
hard work, continuous improvement, and dedication
care plan. Pam brings an entrepreneurial perspective
to the core values of the company. I would be remiss
to the board and has strong ties to Dayton. We look
if I didn’t mention how proud the board is of all of
forward to Pam’s contributions.
our employees.
The picture I am trying to paint for you is one of a
Additionally, Paul Barbas continues to build bench
company that has dedicated employees, a solid execu-
strength within the company and to augment that
tive team, and a board whose sole motivation is to
internal talent with selective skill sets from the broader
try to do what is best for our company’s stakeholders.
market. In 2008 we promoted Fred Boyle to senior
Looking ahead, the economic landscape looks to
vice president and chief financial officer, and
be equally challenging as that experienced in 2008.
added Doug Taylor as senior vice president and
However, I believe our conservative risk profile positions
general counsel.
us well to weather the storm and to continue to provide
Also on the personnel front, I am especially proud of
value to all of our stakeholders.
the DPL board. It is a diverse and talented group.
I feel these things deeply, and I hope you can sense
We have a unique blend of financial executives; public
the same. Thank you for allowing the board of directors
company, private company and non-profit CEOs;
the honor of serving you, and thank you for your
people with utility industry expertise; and people with
investment in DPL.
strong ties to our regional community. But beyond
the credentials, I am most proud of the board’s culture
of mutual trust, open discussion, and healthy dissent
when necessary to reach the best decisions for
our stakeholders.
In this regard, I must mention Gus Hillenbrand who
retired from the DPL board after 16 years of service to
stakeholders. Gus was especially focused on customer
service, and his business acumen and problem solving
skills were invaluable to the board. We wish him well
and are extremely grateful for his contributions to
the company. Replacing Gus is Pam Morris, president
Glenn E. Harder
Chairman
February 26, 2009
President & CEO’s Letter
Dear Fellow Stakeholders,
The year 2008 was filled with the most significant
challenges and events of my tenure: new Ohio energy
legislation, the wrath of Mother Nature, and a severe
economic downturn, both regionally and nationally.
In response, I share the Board’s pride in the dedicated
performance of our 1,500 employees. Our focus upon
execution served our stakeholders well:
u We delivered on earnings. Total diluted earnings
per share for 2008 were $2.12 versus $1.88 for 2007.
u We delivered on cost control. Operation and
maintenance expenses were essentially flat for
the year.
u We delivered on our commitment to install
state-of-the-art scrubbers at Killen and Stuart stations,
resulting in cleaner air and greater flexibility for
managing fuel expenses.
u We delivered reliable service to our customers,
meeting PUCO targets for the sixth year in a row.
Some of the lessons learned during
our recovery from Hurricane Ike reinforced
our values and the plans we have in place
to work through the many challenges
we will face in 2009.
our entire service territory. Ike appears to have been
a precursor to the economic storm this country is facing
which began in earnest during the following week.
Some of the lessons learned during our recovery from
Ike reinforced our values and the plans we have in
place to work through the many challenges we will face
in 2009. To provide you with a few examples:
u Teamwork, Teamwork, Teamwork. Although it
may sound like a cliché, the teamwork throughout the
company pulled us through the storm.
u Use all available resources, internally and externally.
We were able to enlist the help of other utilities as well
as contractors from over a twelve state area. At our
peak, we had over 1,700 people directly involved in
u We provided community support in the face of
our recovery effort.
tough economic times through both financial
donations and the countless volunteer hours of
hundreds of employees.
And finally, based on the company’s performance
u Communicate frequently, openly and honestly.
Although we took our share of criticism during the
storm, we proactively reached out to numerous media
outlets and communities on a daily basis and had
and outlook, we recently delivered a dividend increase
personnel available 7 x 24 to handle media requests
to our shareholders of four cents per share, bringing
and customer inquiries.
the annual rate to $1.14.
Our solid performance in the face of
adversity makes me confident that our
team is up to the task.
u Stay focused on the core goal. Despite the chaos
and distractions caused by such an event, we stayed
focused on the safe and efficient restoration of power.
Notwithstanding the magnitude of the damage,
we did not have any reported incidents of an electricity
related injury among our customers or our workforce.
Like all companies, we face our challenges as we
u Try new ideas, and learn from your experiences.
move forward and have targeted critical areas
During the storm we experimented with a new, mobile
for improvement. But, our solid performance in the
computing application to more quickly update our
face of adversity makes me confident that our team
outage system. As we worked through the process
is up to the task.
Take Hurricane Ike for instance. On Sunday, September
14th, 2008, hurricane-force winds blew through our
region, creating unprecedented damage throughout
changes required by this software advance, we were
able to identify more effective technology that we
have installed for future events. (Continued)
2
I am confident that the
learning and adaptive culture of
our company will prevail.
cleaner air to our region at an attractive price for our
customers and shareholders. We are excited about
the advances occurring throughout our industry and
look forward to testing and implementing these
technologies where they make sense for our customers
and other stakeholders.
Third, as we implement detailed plans around new
customer programs, smart grid and renewable energy,
it is imperative that we engage in open and honest
dialogue with our customers, the Public Utilities
Paul M. Barbas
(President & CEO’s Letter Continued)
How are these lessons relevant to the challenges
Commission, our investors, vendors and all interested
we face in 2009?
parties. This will increase the chances of a successful
First, we need to work together in a team effort with
outcome for these programs.
all of our stakeholders to invest in and upgrade the
Lastly, during 2008 we were able to keep our focus
systems and facilities that support our customers. Many
upon our goals despite the “storms” around us. It is
of you have been hearing and reading about the “smart
quite possible that 2009 will provide even sterner tests
grid.” Over the last eighteen months, DP&L has been
than those we faced last year. I am confident that
honing its plan to upgrade its system to be “smart”. . .
the learning and adaptive culture of our company will
to be able to communicate digitally back and forth with
prevail, just as we demonstrated during 2008.
our customers, to further increase our reliability and to
provide customers with tools to manage their energy
expenses. In October we filed our plans with the Public
Utilities Commission of Ohio and we look forward to
working with all of our stakeholders towards fashioning
a program utilizing the most current technology.
Thank you for your support.
Second, we will be trying a variety of new technologies
President and Chief Executive Officer
Paul M. Barbas
February 26, 2009
and exploring new thinking as we examine potential
smart grid investments and renewable resources in
response to Ohio Senate Bill 221. DPL has had some
recent successes in this regard. During the summer of
2008 we brought on line the last set of scrubbers
at our Stuart plant, completing the largest environmen-
tal project in the company’s history. When the Killen
scrubber was finished in 2007, the Chiyoda technology
we utilized was the first commercial scale implementa-
tion of this system in North America. Its combination
of relatively low investment per kilowatt coupled with its
reliability and performance have helped provide
3
Unprecedented
Restoration Effort
In September, Hurricane Ike tore through the
Midwest with winds up to 80 miles per hour.
More than 300,000 customers in the 24 counties
that DP&L serves were affected by the destruc-
tive winds that brought down countless trees –
and with them, power lines and poles.
Although only mild winds were predicted for
the day, DP&L crews were quickly mobilized
when it became clear that this windstorm
was a once-in-100-years event.
After the winds died down, the severity of the
storm damage was evident. A restoration team
of more than 1,700 people was assembled to
handle the massive clean-up and repairs. Many
of our employees worked long shifts around
the clock to ensure that customers’ power
was restored as quickly and safely as possible –
even if they themselves were still without
power at home.
The windstorm was a rare occurrence in DP&L’s
service territory, but our employees showed
the same professionalism, resilience, customer
focus, and service orientation that they
consistently exhibit in the face of challenges.
In recognition of our response to the Hurricane
Ike windstorm, DP&L was awarded the
Edison Electric Institute’s Emergency Response
Award, which “recognizes member companies
that put forth outstanding efforts to restore
service promptly to the public following a
natural disaster.”
4
Above: Standing in a sea of transformers, DP&L employees Lynda
Stephens, Bryan Curtis, Jim Ferriell, Becki Mount, Georgene Dawson,
Kelly Millhouse, Connie Fisk, Kathy Hatton, Teri Dawson, and Mark
Gonet were among the 1,700 people who worked around the clock to
restore power after the devastating Hurricane Ike windstorm.
DP&L crews were quickly mobilized
when it became clear that this windstorm
was a once-in-100-years event.
Far left: Workers navigated tree-filled backyards to replace wires,
repair poles, and safely restore power to thousands of customers.
Windstorm damage affected each of the 24 counties in DP&L’s service
territory – more than 6,000 square miles of urban, suburban, and
rural areas. Many mature trees were blown down onto power lines,
resulting in a massive clean-up effort.
5
DPL’s Largest
Environmental
Investment Complete
In July, DPL brought the fourth and final
scrubber on line at the 2,400 megawatt Stuart
electric generating plant. This signified the
completion of the DPL-managed construction
program, which included a total of five
scrubbers at both Stuart and Killen stations.
This construction program was the largest
environmental investment in our company’s
history – approximately $600 million – and
was completed on time while breaking
new ground in the U.S. for scrubber design.
DPL was the first utility in the United States
to use this type of FGD technology commer-
cially, which was developed by the Chiyoda
Corporation. The system pumps flue gas
through a limestone and water bath instead
of the traditional method of spraying gases
with a limestone mist. DPL’s early adoption of
DPL’s early adoption of
this type of system resulted
in capital costs well below
industry averages.
this type of system resulted in capital
costs well below industry averages. In
addition, the simple design will have lower
operating and maintenance expense
compared to traditional scrubber designs.
The end result is cleaner air at a very
competitive cost.
Scrubbers, technically referred to as flue
gas desulfurization (FGD) units, remove
almost all sulfur dioxide from power plant
emissions. In addition, the FGD units,
in conjunction with existing environmental
controls, capture significant mercury
and fine particulate emissions.
A by-product of the flue gas desulfurization
process is gypsum that can be used in
the manufacturing of wallboard.
Brett Walton, Phil Copsey, John Hendrix,
Lionel Smith, Tina Purvis, David Seaman,
Earl Bush, Gary Sheets, Zach Mullikin,
Andy Woehr, Chris Patterson, (kneeling)
Wendell Adkins, and Yolanda Burns
were part of the team that worked on the
multi-year-long flue gas desulfurization
(FGD, or scrubber) project.
The scrubber construction project was the
largest environmental investment in DPL’s
history. The company was the first utility
in the United States to use this type of FGD
technology commercially.
Caring for
the Community
DPL is committed to the communities
it serves. Once again in 2008, DPL and
the DP&L Foundation provided more
than $1 million in support to education,
arts, and human services organizations
in West Central Ohio.
Also, our employees continue to serve
on the boards of many local non-profit
organizations, and provide generous
donations to Culture Works and the
United Way.
DPL remains steadfast
in its dedication to
serving its customers
and communities.
A tangible example of DPL employees’
caring was visible in the amount of
food that was collected during various
food drives throughout the company.
This past holiday season was difficult
for many families due to economic
hardship. DPL employees recognized
the great need in our communities,
and donated an incredible amount of
nonperishable food and household
items to local food banks.
Ginny Strausburg, Kellie Heironimus,
Claudius Walker, Dianna Greene,
and Jack Hounshell were among the
many employees who opened their
pantries to help the hungry in our
communities.
DPL employees donated nearly a
truckload of nonperishable items
to food banks to sustain local families
during the holiday season.
In addition, the company and the
DP&L Foundation donated more
than $100,000 to numerous human
services organizations to assist
in recovery efforts in the aftermath
of the Hurricane Ike windstorm.
DPL Inc.
and
Dayton Power and Light (DP&L)
Combined Form 10-K
United States Securities and Exchange Commission Washington, D.C. 20549
Form 10-K
(X) Annual Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the fiscal year ended December 31, 2008
or
( ) Transition Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the transition period from ___________ to ___________
Commission
File Number
1-9052
1-2385
Registrant, State of Incorporation,
Address and Telephone Number
DPL Inc.
(An Ohio Corporation)
1065 Woodman Drive, Dayton, Ohio 45432
937-224-6000
The Dayton Power and Light Company
(An Ohio Corporation)
1065 Woodman Drive, Dayton, Ohio 45432
937-224-6000
I.R.S. Employer
Identification No.
31-1163136
31-0258470
Each of the following classes or series of securities registered pursuant to Section 12 (b) of the
Act is registered on the New York Stock Exchange:
Registrant
DPL Inc.
Description
Common Stock, $0.01 par value and Preferred Share Purchase Rights
The Dayton Power
and Light Company
None
Securities registered pursuant to Section 12(g) of the Act: None
2
DPL Inc.
Indicate by check mark if each registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
DPL Inc.
The Dayton Power and Light Company
Yes __✔___
Yes _____
No _____
No __✔___
Indicate by check mark if each registrant is not required to file reports pursuant to Section 13 or Section 15(d) of
the Exchange Act.
DPL Inc.
The Dayton Power and Light Company
Yes _____
Yes _____
No __✔___
No __✔___
Indicate by check mark whether each registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of
the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
DPL Inc.
The Dayton Power and Light Company
Yes __✔___
Yes __✔___
No _____
No _____
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein,
and will not be contained, to the best of each registrant’s knowledge, in definitive proxy or information statements incorporated
by reference in Part III of this Form 10-K or any amendment to this Form 10-K.
DPL Inc.
The Dayton Power and Light Company
_____
_____
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer.
See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act.
DPL Inc.
The Dayton Power and Light Company
Large
Accelerated
filer
__✔___
_____
Accelerated
filer
_____
_____
Non-accelerated
filer
_____
__✔___
Smaller
reporting
company
_____
_____
Indicate by check mark whether each registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
DPL Inc.
The Dayton Power and Light Company
Yes _____
Yes _____
No __✔___
No __✔___
The aggregate market value of DPL Inc.’s common stock held by non-affiliates of DPL Inc. as of June 30, 2008
was approximately $3.0 billion based on a closing sale price of $26.38 on that date as reported on the
New York Stock Exchange. All of the common stock of The Dayton Power and Light Company is owned by
DPL Inc. As of February 24, 2009, each registrant had the following shares of common stock outstanding:
Registrant
DPL Inc.
The Dayton Power
and Light Company
Description
Common Stock, $0.01 par value
and Preferred Share Purchase Rights
Shares Outstanding
115,962,529
Common Stock, $0.01 par value
41,172,173
This combined Form 10-K is separately filed by DPL Inc. and The Dayton Power and Light Company.
Information contained herein relating to any individual registrant is filed by such registrant on its own behalf.
Each registrant makes no representation as to information relating to a registrant other than itself.
Documents Incorporated by Reference
Portions of DPL’s definitive proxy statement for its 2009 Annual Meeting of Shareholders are incorporated
by reference in Part III of this Form 10-K.
DPL Inc.
3
DPL Inc. and The Dayton Power and Light Company
Index to Annual Report on Form 10K
Fiscal Year Ended December 31, 2008
Business
Risk Factors
Unresolved Staff Comments
Properties
Legal Proceedings
Submission of Matters to a Vote of Security Holders
Market for Registrant’s Common Equity, Related Shareholder Matters
and Issuer Purchases of Equity Securities
Selected Financial Data
Management’s Discussion and Analysis of Financial Condition and
Results of Operations
Quantitative and Qualitative Disclosures about Market Risk
Financial Statements and Supplementary Data
Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure
Controls and Procedures
Other Information
Directors and Executive Officers of the Registrant
Executive Compensation
Security Ownership of Certain Beneficial Owners and Management
and Related Shareholder Matters
Certain Relationships and Related Transactions
Principal Accountant Fees and Services
Exhibits and Financial Statement Schedules
Signatures
Schedule II – Valuation and Qualifying Accounts
Subsidiaries of DPL Inc. and The Dayton Power and Light Company
Consent of Independent Registered Public Accounting Firm
Page No.
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24
24
25
26
28
29
52
53
102
102
102
103
103
103
103
103
104
112
113
114
115
Part I
Item 1
Item 1a
Item 1b
Item 2
Item 3
Item 4
Part II
Item 5
Item 6
Item 7
Item 7a
Item 8
Item 9
Item 9a
Item 9b
Part III
Item 10
Item 11
Item 12
Item 13
Item 14
Part IV
Item 15
Other
4
DPL Inc.
Part I
Item 1 Business
This report includes the combined filing of DPL Inc. (DPL) and The Dayton Power and Light Company (DP&L).
DP&L is the principal subsidiary of DPL providing approximately 98% of DPL’s total consolidated revenue
and approximately 93% of DPL’s total consolidated asset base. Throughout this report the terms we, us, our and
ours are used to refer to both DPL and DP&L, respectively and altogether, unless the context indicates otherwise.
Discussions or areas of this report that apply only to DPL or DP&L will clearly be noted in the section.
Website Access To Reports
DPL and DP&L file current, annual and quarterly reports and other information required by the Securities
Exchange Act of 1934, as amended, with the Securities and Exchange Commission (SEC). You may read and copy
any document we file at the SEC’s public reference room located at 100 F Street N.E., Washington, D.C. 20549,
USA. Please call the SEC at (800) SEC-0330 for further information on the public reference rooms. Our SEC filings
are also available to the public from the SEC’s website at http://www.sec.gov.
Our public internet site is http://www.dplinc.com. We make available, free of charge, through our internet
site, our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and Forms 3,
4 and 5 filed on behalf of our directors and executive officers and amendments to those reports filed or furnished
pursuant to the Securities Exchange Act of 1934, as amended, as soon as reasonably practicable after we
electronically file such material with, or furnish it to, the SEC.
In addition, our public internet site includes other items related to corporate governance matters, including,
among other things, our governance guidelines, charters of various committees of the Board of Directors
and our code of business conduct and ethics applicable to all employees, officers and directors. You may obtain
copies of these documents, free of charge, by sending a request, in writing, to DPL Investor Relations, 1065
Woodman Drive, Dayton, Ohio 45432.
Organization
DPL is a regional energy company organized in 1985 under the laws of Ohio. Our executive offices are located
at 1065 Woodman Drive, Dayton, Ohio 45432 – telephone (937) 224-6000.
DPL’s principal subsidiary is DP&L. DP&L is a public utility incorporated in 1911 under the laws of Ohio. DP&L
sells electricity to residential, commercial, industrial, and governmental customers in a 6,000 square mile area
of West Central Ohio. Electricity for DP&L’s 24 county service area is primarily generated at eight coal-fired power
plants and is distributed to more than 515,000 retail customers. Principal industries served include automotive,
food processing, paper, plastic, manufacturing and defense. DP&L’s sales reflect the general economic conditions
and seasonal weather patterns of the area. DP&L sells any excess energy and capacity into the wholesale market.
DP&L also sells electricity to DPL Energy Resources, Inc. (DPLER), an affiliate, to satisfy the electric requirements
of its retail customers.
DPL’s other significant subsidiaries (all of which are wholly-owned) include: DPL Energy, LLC (DPLE), which
engages in the operation of peaking generating facilities and sells power in wholesale markets; DPLER, which sells
retail electric energy under contract to major industrial and commercial customers in West Central Ohio; and
Miami Valley Insurance Company (MVIC), which is our captive insurance company that provides insurance to us
and our subsidiaries.
DPL and DP&L conduct their principal business in one business segment – Electric.
DPL, DP&L, and its subsidiaries employed 1,588 persons as of January 30, 2009, of which 1,365 were full-time
employees and 223 were part-time employees. Approximately 54% of our employees are under a collective
bargaining agreement. During 2008, we negotiated a new three-year collective bargaining agreement with the
covered employees. See Collective Bargaining Agreement below.
Significant Developments
Credit Rating Upgrades
The rating agencies maintained our debt credit ratings but revised the outlook to positive. The following table
outlines the rating and outlook of each company and the date each outlook was revised:
Fitch Ratings
Moody’s Investors Service
Standard & Poor’s Corp.
DPL
BBB+
Baa2
BBB-
DP&L
Outlook
Effective
A+
A2
A-
Positive
Positive
Positive
April 2008
July 2008
April 2008
DPL Inc.
5
Pollution Control Bonds
Income Tax Settlement
On November 15, 2007, The Ohio Air Quality
Development Authority (OAQDA) issued $90 million of
collateralized, variable rate OAQDA Revenue Bonds,
2007 Series A due November 1, 2040. In turn, DP&L
borrowed these funds from the OAQDA. The payment
of principal and interest on the bonds when due was
insured by an insurance policy issued by Financial
Guaranty Insurance Company (FGIC). During the first
quarter of 2008, all three credit rating agencies down-
graded FGIC. These downgrades, as well as the down-
grades of our major bond insurers, resulted in auction
rate security bonds carrying substantially higher
interest rates in succeeding auctions and incurring
failed auctions. On April 4, 2008, DP&L converted
the 2007 Series A Bonds from Auction Rate Securities
to Variable Rate Demand Notes. At that time, DP&L
purchased these notes out of the market and placed
them with the Trustee to be held until the capital
markets corrected. These notes were redeemed in
December 2008 (see below).
On December 4, 2008, the OAQDA issued
$100 million of collateralized, variable rate Revenue
Refunding Bonds Series A and B due November 1,
2040. In turn, DP&L borrowed these funds from the
OAQDA. The payment of principal and interest on
the bonds when due is backed by a standby letter of
credit issued by a syndicated bank group credit
facility. DP&L is using $10 million of these bonds to
finance its portion of the costs of acquiring, construct-
ing and installing certain solid waste disposal and
air quality facilities at the Conesville generating station.
The remaining $90 million was used to redeem the
2007 Series A Bonds. The above transactions are
further discussed in Note 7 of Notes to Consolidated
Financial Statements.
On June 27, 2008, we entered into a $42 million settle-
ment agreement with the Ohio Department of Taxation
(ODT) resolving all outstanding audit issues and
appeals, including uncertain tax positions for tax years
1998 through 2006. The $42 million payment was made
to the ODT in July 2008. Due to this settlement agree-
ment, the balance of our unrecognized state tax liabili-
ties recorded at December 31, 2007, in the amount
of $56.3 million, was reversed resulting in a recorded
income tax benefit of $8.5 million, net of federal tax
impact, in 2008. See Note 8 of Notes to Consolidated
Financial Statements.
Clean Air Interstate Rule (CAIR) decision by the U.S.
Court of Appeals for the District of Columbia Circuit
On July 11, 2008, the United States Court of Appeals
for the District of Columbia Circuit issued a deci-
sion that vacated the U.S. Environmental Protection
Agency’s (USEPA’s) Clean Air Interstate Rule (CAIR)
and its associated Federal Implementation Plan. This
decision remanded these issues back to the USEPA.
The USEPA issued CAIR on March 10, 2005 to regulate
certain upwind states with respect to fine particulate
matter and ozone. CAIR created interstate trading
programs for annual nitrogen oxide (NOx) emission
allowances and made modifications to an existing trad-
ing program for sulfur dioxide (SO2) that were to take
effect in 2010. The court’s decision, in part, invalidated
the new NOx annual emission allowance trading pro-
gram and the modifications to the SO2 emission trad-
ing program and created uncertainty regarding future
NOx and SO2 emission reduction requirements and
their timing. On December 23, 2008, the court reversed
part of its decision that vacated CAIR. Thus, CAIR
currently remains in effect, but the USEPA remains
subject to the court’s order to revise the program.
Long-Term Debt Redemption
FGD Project Implementation
DPL redeemed the $100 million 6.25% Senior Notes
on their maturity date of May 15, 2008.
Ohio Senate Bill 221
On May 1, 2008, substitute Senate Bill 221 (SB 221),
an Ohio electric energy bill, was signed by the
Governor and went into effect July 31, 2008. Among
other requirements, this new law contains annual tar-
gets relating to advanced energy portfolio standards,
renewable energy, demand reduction, and energy
efficiency standards. The bill is further discussed
under Ohio Retail Rates in Item 1 – Competition and
Regulation below.
Installation and testing of flue gas desulfurization
(FGD) equipment on all four units at the Stuart station
was successfully completed by August 2008. This
FGD equipment is currently in service.
Storm Costs
On September 14, 2008, the Midwest region was
severely affected by hurricane-force winds which
resulted in significant property damage and
disruptions to the supply of electric energy to retail
customers. Through December 31, 2008, we deferred
approximately $13 million of incremental operation and
maintenance costs associated with storm restoration
6
DPL Inc.
efforts for that storm and other major storms in 2008. On December 31, 2008, DP&L filed a request for an account-
ing order with the Public Utilities Commission of Ohio (PUCO) seeking to defer these incremental costs. On January
14, 2009, the PUCO granted that authority.
Collective Bargaining Agreement
In August 2008, we began negotiations with employees covered under our collective bargaining agreement which
expired October 31, 2008. On October 24, 2008, we reached an agreement with these employees on a new three-
year labor agreement. This agreement was ratified by the covered employees on November 12, 2008.
Sales of Coal and Excess Emission Allowances
During 2008, DP&L sold coal and excess emission allowances to various counterparties realizing a total net gain of
$118.2 million. This gain is recorded as a component of DP&L’s fuel costs and reflected in operating income.
Warrants Exercised
On September 18, 2008, Lehman Brothers Inc. exercised 12 million DPL warrants under a cashless exercise trans-
action. Each warrant was exercisable for one share of DPL common stock, subject to anti-dilution adjustments
(e.g., stock split, stock dividend) at an exercise price of $21.00 per common share. This exercise resulted in the
issuance of 2.3 million shares of common stock from DPL’s shares held in treasury.
Increase in Dividends on DPL’s Common Stock
On December 10, 2008, DPL’s Board of Directors authorized a quarterly dividend rate increase of approximately
4%, increasing the quarterly dividend per DPL common share from $.275 to $.285. If this increase were main-
tained, the annualized dividend rate would increase from $1.10 per share to $1.14 per share.
Electric Sales and Revenues
Electric Sales (millions of kWh)
Residential
Commercial
Industrial
Other retail
Total retail
Wholesale
Total
DPL Inc.
DP&L (a)
2008
2007
2006
2008
2007
2006
5,533
3,959
3,986
1,454
14,932
2,240
17,172
5,535
3,990
4,241
1,468
15,234
3,364
18,598
5,218
3,835
4,286
1,428
14,767
3,651
18,418
5,533
3,959
3,986
1,454
14,932
2,173
17,105
5,535
3,990
5,241
1,468
15,234
3,364
18,598
5,218
3,835
4,286
1,428
14,767
3,651
18,418
Operating Revenues ($ in thousands)
Residential
Commercial
Industrial
Other retail
Other miscellaneous revenues
$ 544,561 $ 532,956 $ 490,514
332,010
300,908
321,051
240,450
244,260
240,041
88,307
94,568
97,592
11,174
13,340
9,042
$ 544,561 $ 532,956 $ 490,514
308,934
278,082
301,455
130,119
132,359
133,832
88,203
77,184
78,905
11,215
13,387
9,046
Total retail
Wholesale
RTO revenues
Other revenues, net of fuel costs
1,223,246
149,874
217,357
11,080
1,206,175
180,257
118,386
10,911
1,131,353
174,114
77,231
10,821
1,075,278
293,500
204,074
–
1,057,341
331,725
118,386
–
998,133
309,885
77,231
–
Total
$ 1,601,557 $ 1,515,729 $ 1,393,519
$ 1,572,852 $ 1,507,452 $ 1,385,249
Electric Customers at end of period
Residential
Commercial
Industrial
Other
Total
456,770
50,190
1,797
6,517
456,989
49,875
1,818
6,443
457,054
49,284
1,822
6,349
456,770
50,190
1,797
6,517
456,989
49,875
1,818
6,443
457,054
49,284
1,822
6,349
515,274
515,125
514,509
515,274
515,125
514,509
(a) DP&L sells power to DPLER (a subsidiary of DPL). These sales are classified as wholesale sales for DP&L and retail sales
for DPL. The kWh volumes contain all volumes distributed on the DP&L system which include the retail sales by DPLER. The sales
for resale volumes are omitted to avoid duplicate reporting.
DPL Inc.
7
Electric Operations and Fuel Supply
2008 Summer Generating Capacity
Amounts in MWs
DPL
DP&L
Coal Fired
2,778
2,778
Peaking
Units
919
435
Total
3,697
3,213
DPL’s present summer generating capacity, including peaking units, is approximately 3,697 MW. Of this
capacity, approximately 2,778 MW, or 75%, is derived from coal-fired steam generating stations and the balance
of approximately 919 MW, or 25%, consists of combustion turbine and diesel peaking units.
DP&L’s present summer generating capacity, including peaking units, is approximately 3,213 MW. Of this
capacity, approximately 2,778 MW, or 86%, is derived from coal-fired steam generating stations and the balance
of approximately 435 MW, or 14%, consists of combustion turbine and diesel peaking units.
Combustion turbine output is dependent on ambient conditions and is higher in the winter than in the summer.
Our all-time net peak load was 3,270 MW, occurring August 8, 2007.
Approximately 89% of the existing steam generating capacity is provided by certain generating units owned as
tenants in common with Duke Energy-Ohio (or its subsidiaries The Cincinnati Gas & Electric Company
[CG&E], or Union Heat, Light & Power) and AEP (or its subsidiary Columbus Southern Power [CSP]). As tenants
in common, each company owns a specified undivided share of each of these units, is entitled to its share of
capacity and energy output, and has a capital and operating cost responsibility proportionate to its ownership
share. DP&L’s remaining steam generating capacity (approximately 301 MW) is derived from a generating
station owned solely by DP&L. Additionally, DP&L, CG&E and CSP own, as tenants in common, 884 circuit miles
of 345,000-volt transmission lines. DP&L has several interconnections with other companies for the purchase,
sale and interchange of electricity.
In 2008, we generated 99.4% of our electric output from coal-fired units and 0.6% from oil and natural
gas-fired units.
The following table sets forth DP&L’s and DPLE’s generating stations and, where indicated, those stations
which DP&L owns as tenants in common.
Station
Ownership*
Operating Company
Location
DPL Portion
Total
Approximate Summer
MW Rating
Coal Units
Hutchings
Killen
Stuart
Conesville – Unit 4
Beckjord – Unit 6
Miami Fort – Units 7 & 8
East Bend – Unit 2
Zimmer
Combustion Turbines or Diesel
Hutchings
Yankee Street
Monument
Tait Diesels
Sidney
Tait Units 1-3
Killen
Stuart
Montpelier Units 1-4
Tait Units 4-7
W
C
C
C
C
C
C
C
W
W
W
W
W
W
C
C
W
W
DP&L
DP&L
DP&L
CSP
CG&E
CG&E
CG&E
CG&E
DP&L
DP&L
DP&L
DP&L
DP&L
DP&L
DP&L
DP&L
DPLE
DPLE
Miamisburg, OH
Wrightsville, OH
Aberdeen, OH
Conesville, OH
New Richmond, OH
North Bend, OH
Rabbit Hash, KY
Moscow, OH
Miamisburg, OH
Centerville, OH
Dayton, OH
Dayton, OH
Sidney, OH
Moraine, OH
Wrightsville, OH
Aberdeen, OH
Montpelier, IN
Moraine, OH
301
402
820
129
207
368
186
365
23
107
12
10
12
256
12
3
192
292
301
600
2,340
780
414
1,020
600
1,300
23
107
12
10
12
256
18
10
192
292
Total approximate summer generating capacity
3,697
8,287
* W = Wholly-Owned C = Commonly-Owned
8
DPL Inc.
In addition to the above, DP&L also owns a 4.9% equi-
ty ownership interest in Ohio Valley Electric Corporation
(OVEC), an electric generating company. OVEC has
two plants in Cheshire, Ohio and Madison, Indiana
with a combined generation capacity of approximately
2,265 MW. DP&L’s share of this generation capacity is
approximately 111 MW.
DPL has substantially all of the total expected
coal volume needed to meet its retail and firm whole-
sale sales requirements for 2009 under contract. The
majority of the contracted coal is purchased at fixed
prices. Some contracts provide for periodic adjust-
ments and some are priced based on market indices.
Substantially all contracts have features that limit price
escalations in any given year. Fuel costs are impacted
by changes in volume and price and are driven by a
number of variables including weather, the wholesale
market price of power, certain provisions in coal con-
tracts related to government imposed costs, counter-
party performance and credit, scheduled outages, and
generation plant mix. Based on higher volume and
price, fuel costs excluding gains from the sale
of emission allowances are forecasted to be 25% to
35% higher in 2009 compared to 2008. Our emission
allowance consumption was reduced in 2008 due to
the installation of flue gas desulfurization equipment
(scrubbers) at the Killen and J.M. Stuart electric gen-
erating stations. Due to the installation of this emission
control equipment and barring any changes in the
regulatory environment in which we operate, we expect
to have emission allowance inventory in excess of our
needs, which we plan to sell during 2009 and in future
periods. We did not purchase SO2 allowances or NOx
allowances during 2008, nor do we plan to purchase
any in 2009.
The gross average cost of fuel consumed per kilowatt-
hour (kWh) was as follows:
Average Cost of Fuel Consumed (¢/kWh)
2008
2.28
2.22
2007
1.97
1.91
2006
2.00
1.94
DPL
DP&L
Seasonality
The power generation and delivery business is
seasonal and weather patterns have a material impact
on operating performance. In the region we serve,
demand for electricity is generally greater in the sum-
mer months associated with cooling and in the winter
months associated with heating as compared to other
times of the year. Historically, our power generation
and delivery operations have generated less revenue
and income when weather conditions are warmer
in the winter and cooler in the summer.
Rate Regulation and Government Legislation
DP&L’s sales to retail customers are subject to rate
regulation by the PUCO. DP&L’s transmission rates
and wholesale electric rates to municipal corporations,
rural electric co-operatives and other distributors of
electric energy are subject to regulation by the Federal
Energy Regulatory Commission (FERC) under the
Federal Power Act.
Ohio law establishes the process for determining
retail rates charged by public utilities. Regulation
of retail rates encompasses the timing of applications,
the effective date of rate increases, the recoverable
costs basis upon which the rates are based and
other related matters. Ohio law also established the
Office of the Ohio Consumers’ Counsel (OCC), which
has the authority to represent residential consumers
in state and federal judicial and administrative rate
proceedings.
Ohio legislation extends the jurisdiction of the
PUCO to the records and accounts of certain public
utility holding company systems, including DPL. The
legislation extends the PUCO’s supervisory powers
to a holding company system’s general condition and
capitalization, among other matters, to the extent
that they relate to the costs associated with the provi-
sion of public utility service. Based on existing
PUCO and FERC authorization, regulatory assets and
liabilities are recorded on the consolidated balance
sheets. See Note 3 of Notes to Consolidated Financial
Statements.
Competition and Regulation
Ohio Matters
Ohio Retail Rates
Since January 2001, DP&L’s electric customers have
been permitted to choose their retail electric generation
supplier. DP&L continues to have the exclusive right
to provide delivery service in its state certified territory
and the obligation to supply retail generation service to
customers that do not choose an alternative supplier.
The PUCO maintains jurisdiction over DP&L’s delivery
of electricity, standard service offer, and other retail
electric services.
On May 1, 2008, substitute Senate Bill 221 (SB
221), an Ohio electric energy bill, was signed by the
Governor and went into effect July 31, 2008. This new
DPL Inc.
9
law states that all Ohio distribution utilities must file
either an electric security plan or a market rate option
to be in effect January 1, 2009. Under the market rate
option, a periodic competitive bid process will set
the retail generation price after the utility demonstrates
that it can meet certain market criteria and bid require-
ments set out in the bill. Also, under this option, utili-
ties that still own generation in the state are required
to phase in the market rate option over a period of not
less than five years. An electric security plan may allow
for adjustments to the standard offer for costs associat-
ed with environmental compliance; fuel and purchased
power; construction of new or investment in specified
generating facilities; and the provision of standby and
default service, operating, maintenance, or other costs
including taxes. As part of its electric security plan,
the utility is permitted to file an infrastructure improve-
ment plan that will specify the initiatives the utility will
take to rebuild, upgrade, or replace its electric distribu-
tion system, including cost recovery mechanisms.
Both the market rate option and electric security plan
option involve a “substantially excessive earnings” test
based on the earnings of other companies with similar
business and financial risks. The PUCO issued three
sets of rules related to implementation of the new law.
These rules address topics such as the information
that must be included in an electric security plan
as well as a market rate option, the significantly exces-
sive earnings test requirements, corporate separation
revisions, rules relating to the recovery of transmission
and ancillary service costs, electric service and safety
standards dealing with the statewide line extension
policy, and rules relating to advanced energy portfolio
standards, renewable energy, demand reduction
and energy efficiency standards.
SB 221 and the implementation rules contain tar-
gets relating to advanced energy portfolio standards,
renewable energy, demand reduction, and energy
efficiency standards. The standards require that, by the
year 2025, 25% of the total number of kilowatt hours of
electricity sold by the utility to retail electric consumers
must come from alternative energy resources, which
include “advanced energy resources” such as distrib-
uted generation, clean coal, advanced nuclear, energy
efficiency, and fuel cell technology; and “renewable
energy resources” such as solar, hydro, wind, geother-
mal, and biomass. At least half of the 25% must be
generated from renewable energy resources, including
0.5% from solar energy. The advanced energy portfolio
and energy efficiency standards begin in 2009 with
increases in required percentages each year. SB 221
and the implementation rules do not include interim
annual targets for energy efficiency and peak demand
reductions, but require that energy efficiency programs
save 22.3% compared to a baseline energy usage by
2025 and that peak demand reductions reach 7.75%
by 2018. If any targets are not met, compliance penal-
ties will apply.
DP&L provided comments on the rules as did
many other interested parties. While the overall finan-
cial impact of this bill will not be known for some
time, implementation of the bill and compliance with
its requirements could have a material impact on our
financial condition.
In compliance with SB 221, DP&L filed its electric
security plan at the PUCO on October 10, 2008.
This plan contained three parts: 1) a standard offer
plan; 2) a customer conservation and energy manage-
ment plan; and 3) an alternative energy plan. The
standard offer plan stated that DP&L intends to main-
tain its current rate plan through December 31, 2010,
and addressed compliance issues related to the
PUCO rules.
On February 24, 2009, DP&L filed a Stipulation
and Recommendation (the Stipulation) signed by the
Staff of the PUCO, the Office of the Ohio Consumers’
Counsel and various intervening parties. The material
terms agreed to under the Stipulation include the
following:
n DP&L’s current rate plan will be extended
through 2012.
n DP&L will be permitted to implement a fuel and
purchased power recovery mechanism beginning
January 1, 2010 which will track and adjust fuel and
purchased power costs on a quarterly basis.
n The rate stabilization surcharge remains a non-
bypassable provider of last resort charge at its current
rate amount, but may be bypassable by customers
served by a government aggregator beginning 2011.
n The last phase of the environmental investment rider
increase will occur in 2010 as previously approved
by the PUCO and thereafter will remain at that level
through 2012.
n DP&L’s base distribution and generation rates will
be frozen through 2012.
n DP&L may seek recovery of certain cost increases
such as storm damage expenses, regulatory or tax
changes, costs associated with new climate change
or carbon regulations, certain costs associated with
10 DPL Inc.
the operation of the Hutchings station, costs associ-
ated with transmission cost recovery rider (TCRR), and
Regional Transmission Organization costs not covered
by the TCRR.
n The significantly excessive earnings test will not
apply to DP&L until 2012.
n DP&L will be permitted to begin its energy efficiency
and demand response programs immediately with
recovery scheduled to begin in 2009, with a two year
reconciliation. DP&L’s smart grid deployment initia-
tive will be revised and resubmitted to the PUCO for
approval by September 2009 with the anticipation
that the plans and recovery will begin January 1, 2010
also with a two year reconciliation.
n DP&L’s proposed alternative energy plans will
be approved and recovery of these costs will begin
in 2009 with an annual reconciliation.
n Mercantile (large use) customers can obtain
exemption from the energy efficiency rider if self-direct-
ed energy and demand programs generate reductions
equal to or greater than DP&L’s energy and demand
reduction benchmarks.
The Stipulation may be approved, modified or rejected
by the PUCO. A final decision from the PUCO
regarding the Stipulation is expected by the end of
the second quarter of 2009.
As a member of PJM, DP&L is subject to charges
and costs associated with PJM operations as approved
by the FERC. FERC Orders issued in 2007 regarding
the allocation of costs of large transmission facilities
within PJM, could result in additional costs being
allocated to DP&L of approximately $12 million or
more annually by 2012. DP&L filed a notice of appeal
to the U.S. Court of Appeals, D.C. Circuit on March 18,
2008. The appeal has been consolidated with other
appeals taken by other interested parties of the
same FERC Orders and the consolidated cases have
been assigned to the 7th Circuit. The Company
cannot predict the outcome or timing of a decision
on the appeals. On November 7, 2008, DP&L filed a
request at the PUCO for authority to defer costs associ-
ated with transmission, capacity, ancillary service
and other PJM related charges incurred as a member
of PJM. DP&L sought deferral until such time as it files
to seek recovery of these costs from retail ratepayers.
On February 19, 2009, the PUCO approved DP&L’s
request to defer these costs. DP&L anticipates filing
a request with the PUCO before the end of April 2009
seeking to recover these costs.
Ohio Competitive Considerations and Proceedings
As of December 31, 2008, four unaffiliated marketers
were registered as Competitive Retail Electric Service
(CRES) providers in DP&L’s service territory. While
there has been some customer switching associated
with unaffiliated marketers, it represented less than
0.12% of sales in 2008. DPLER, an affiliated company,
is also a registered CRES provider and accounted for
99.4% of the total kWh supplied by CRES providers
within DP&L’s service territory in 2008. In addition, sev-
eral communities in DP&L’s service area have passed
ordinances allowing the communities to become
government aggregators for the purpose of offering
alternative electric generation supplies to their citizens.
To date, none of these communities have aggregated
their generation load.
Federal Matters
Like other electric utilities and energy marketers,
DP&L and DPLE may sell or purchase electric
products on the wholesale market. DP&L and DPLE
compete with other generators, power marketers,
privately and municipally-owned electric utilities and
rural electric cooperatives when selling electricity. The
ability of DP&L and DPLE to sell this electricity will
depend on how DP&L’s and DPLE’s price, terms and
conditions compare to those of other suppliers.
As part of Ohio’s electric deregulation law, all of
the state’s investor-owned utilities are required to join a
Regional Transmission Organization (RTO). In October
2004, DP&L successfully integrated its 1,000 miles of
high-voltage transmission into the PJM Interconnection,
L.L.C. (PJM) RTO. The role of the RTO is to administer
an electric marketplace and ensure reliability of the
transmission grid. PJM ensures the reliability of the
high-voltage electric power system serving 51 million
people in all or parts of Delaware, Illinois, Indiana,
Kentucky, Maryland, Michigan, New Jersey, North
Carolina, Ohio, Pennsylvania, Tennessee, Virginia,
West Virginia and the District of Columbia. PJM
coordinates and directs the operation of the region’s
transmission grid, administers the world’s largest com-
petitive wholesale electricity market and plans regional
transmission expansion improvements to maintain
grid reliability and relieve congestion.
As a member of PJM, the value of DP&L’s gen-
eration capacity is affected by changes in and the
clearing results of the PJM capacity market. The
market utilizes a Reliability Pricing Model (RPM) that
changes the way generation capacity is priced and
planned for by PJM. PJM held a series of capacity
DPL Inc.
11
auctions, the results of which have not had a material
impact on our results of operations, financial position
or cash flows. The FERC decisions establishing RPM
have been appealed by various entities to a Federal
appeals court. RPM remains in effect pending the
outcome of the appeal. DP&L has intervened in sup-
port of the FERC decisions. On March 19, 2008, a
large coalition of consumers filed a motion to request
a FERC Technical Conference to evaluate whether the
RPM market is performing as expected, and proposed
that the RPM market structure should be modified or
replaced. In a related but separate action, many of the
same group of consumers filed a complaint, on May
30, 2008, alleging that bidding approaches and other
actions taken by unspecified market participants have
resulted in unjust and unreasonable allocation of costs
of $26 billion across PJM. On September 18, 2008,
FERC dismissed the complaint, but directed PJM and
its stakeholders to evaluate the design of the RPM
with the intention of making changes on a prospective
basis. After numerous stakeholder meetings failed to
result in a consensus, PJM filed on December 12, 2008
to modify certain RPM rules and requested FERC to
initiate a formal settlement proceeding. FERC held four
settlement conferences in January 2009; however, on
January 15, 2009, the settlement judge recommended
the process be terminated as the parties had reached
an impasse. Certain parties, including PJM, may make
partial or contested settlement proposals. A FERC
ruling on PJM’s latest tariff filing proposing changes
to the RPM rules remains pending. DP&L is unable to
predict any potential changes in the PJM capacity
market that may result from these proceedings.
DP&L provides transmission and wholesale elec-
tric service to twelve municipal customers in its service
territory, which in turn distribute electricity principally
within their incorporated limits. DP&L also maintains
an interconnection agreement with one municipality
that has the capability to generate a portion of its own
energy requirements. Approximately one percent
of total electricity sales in 2008 represented sales to
these municipalities.
In April 2008, DPL was notified that the IRS would
audit its 2005 and 2006 federal income tax returns.
That IRS audit has commenced and, at this time, DPL
cannot determine the outcome of the audit.
We have been informed that we will be subject to
a routine audit beginning in June 2009 by the North
American Electric Reliability Corporation (NERC).
NERC is the FERC-certified electric reliability organiza-
tion responsible for developing and enforcing manda-
tory reliability standards.
Environmental Considerations
DPL, DP&L and our subsidiaries’ facilities and opera-
tions are subject to a wide range of environmental reg-
ulations and laws by federal, state and local authorities.
The environmental issues that may impact us include:
n The Federal Clean Air Act (CAA) and state laws
and regulations (including State Implementation Plans)
which require compliance, obtaining permits and
reporting as to air emissions.
n Litigation with federal and certain state governments
and certain special interest groups regarding whether
modifications to or maintenance of certain coal-fired
generating plants require additional permitting or
pollution control technology, and/or whether emissions
from coal-fired generating plants cause or contribute
to global climate changes.
n Rules issued by the United States Environmental
Protection Agency (USEPA) and Ohio Environmental
Protection Agency (Ohio EPA) that require substantial
reductions in SO2, particulates, mercury and NOx
emissions. DPL is installing (and has installed) emis-
sion control technology and is taking other measures
to comply with required reductions.
n The Federal Clean Water Act (FCWA), which prohib-
its the discharge of pollutants into waters of the United
States except pursuant to appropriate permits. In July
2004, the USEPA adopted a new Clean Water Act rule
to reduce the number of fish and other aquatic organ-
isms affected by cooling water intakes at power plants.
n Solid and hazardous waste laws and regulations,
which govern the management and disposal of certain
waste. The majority of solid waste created from the
combustion of coal and fossil fuels is fly ash and
other coal combustion by-products, which the EPA
has determined are not hazardous waste subject to the
Resource Conservation and Recovery Act (RCRA).
As well as imposing continuing compliance obligations,
these laws and regulations authorize the imposition
of substantial penalties for noncompliance, including
fines, injunctive relief and other sanctions. In the
normal course of business, we have investigatory
and remedial activities underway at these facilities
to comply, or to determine compliance, with such
regulations. We record liabilities for probable estimated
loss in accordance with Statement of Financial
Accounting Standards No. 5 (SFAS 5) “Accounting
for Contingencies,” as discussed in Note 1 of Notes
to Consolidated Financial Statements. DPL, through
its wholly-owned captive insurance subsidiary MVIC,
has an actuarially calculated reserve for environmental
12 DPL Inc.
matters. We evaluate the potential liability related
to probable losses quarterly and may revise our
estimates. Such revisions in the estimates of the
potential liabilities could have a material effect on our
results of operations, financial position or cash flows.
In addition to the requirements related to emissions
of SO2, particulates, mercury, and NOx noted above,
there is a growing concern nationally and international-
ly about global climate change and the contribution of
emissions of greenhouse gases, including most signifi-
cantly, carbon dioxide (CO2). This concern has led to
increased interest in legislation at the federal level and
actions at the state level as well as litigation relating
to greenhouse gas emissions, including a recent U.S.
Supreme Court decision holding that the USEPA has
the authority to regulate carbon dioxide emissions from
motor vehicles under the CAA. Increased pressure for
carbon dioxide emissions reduction also is coming
from investor organizations and the international com-
munity. Environmental advocacy groups are also focus-
ing considerable attention on carbon dioxide emissions
from power generation facilities and their potential
role in climate change. Although several bills have
been introduced in Congress that would compel CO2
emission reductions, no bills have passed to date.
Future changes in environmental regulations governing
these pollutants could make some of our electric gen-
erating units uneconomical to maintain or operate.
In addition, any legal obligation would require exten-
sive mitigation efforts and, in the case of CO2 legisla-
tion, would raise uncertainty about the future viability
of fossil fuels, particularly coal, as an energy source
for new and existing electric generation facilities. If
legislation or regulations are passed at the federal or
state levels imposing mandatory reductions of carbon
dioxide and other greenhouse gases on generation
facilities, the cost to DPL and DP&L of such reductions
could be material.
Environmental Regulation and Litigation
Related to Air Quality
Regulation Proceedings – Air
In 1990, the federal government amended the CAA to
further regulate air pollution. Under the law, the USEPA
sets limits on how much of a pollutant can be in the
air anywhere in the United States. The CAA allows
individual states to have stronger pollution controls, but
states are not allowed to have weaker pollution controls
than those set for the whole country. The CAA has a
material effect on our operations and such effects are
detailed below with respect to certain programs under
the CAA.
On October 27, 2003, the USEPA published final
rules regarding the equipment replacement provision
(ERP) of the routine maintenance, repair and replace-
ment (RMRR) exclusion of the CAA. Subsequently,
on December 24, 2003, the United States Court of
Appeals for the D.C. Circuit stayed the effective date of
the rule pending its decision on the merits of the law-
suits filed by numerous states and environmental orga-
nizations challenging the final rules. As a result of the
stay, the Ohio EPA delayed its previously announced
intent to adopt the RMRR rule. On October 20, 2005,
USEPA proposed to revise the emissions test for
existing electric generating units. At this time, we are
unable to determine the impact of the ERP appeal or
the outcome of the proposed emissions test.
In a regulation proceeding relating to the same
issue decided by the U.S. Supreme Court in the Duke
Energy case discussed below, the USEPA issued a
proposed rule in October 2005 concerning the test for
measuring whether modifications to electric generating
units should trigger application of New Source Review
(NSR) standards under the CAA. The proposed rule
seeks comments on two different hourly emissions
test options as well as the USEPA’s current method of
measuring previous actual emission levels to projected
actual emission levels after the modification. A third
option that tests emissions increase based upon emis-
sions per unit of energy output is also available for
comment. We cannot predict the outcome of this rule-
making or its impact on current environmental litigation.
On December 17, 2003, the USEPA proposed
the Interstate Air Quality Rule (IAQR) designed to
reduce and permanently cap SO2 and NOx emissions
from electric utilities. The proposed IAQR focused on
states, including Ohio, whose power plant emissions
are believed to be significantly contributing to fine
particle and ozone pollution in other downwind states
in the eastern United States. On June 10, 2004, the
USEPA issued a supplemental proposal to the IAQR,
now renamed the Clean Air Interstate Rule (CAIR). The
final rules were signed on March 10, 2005 and were
published on May 12, 2005. CAIR created an interstate
trading program for annual NOx emission allowances
and made modifications to an existing trading program
for SO2. On August 24, 2005, the USEPA proposed
additional revisions to the CAIR. On July 11, 2008,
the U.S. Court of Appeals for the District of Columbia
Circuit issued a decision to vacate the USEPA’s CAIR
and its associated Federal Implementation Plan and
remanded to the USEPA with instructions to issue
new regulations that conformed with the procedural
and substantive requirements of the Clean Air Act.
DPL Inc.
13
The Court’s decision, in part, invalidated the new NOx
annual emission allowance trading program and the
modifications to the SO2 emission trading program
established by the March 10, 2005 rules, and created
uncertainty regarding future NOx and SO2 emission
reduction requirements and their timing. The USEPA
and a group representing utilities filed a request for
a rehearing en banc on September 24, 2008. On
December 23, 2008, the U.S. Court of Appeals issued
an order on reconsideration that permits CAIR to
remain in effect until the USEPA issues new regulations
that would conform to the Clean Air Act requirements
and the Court’s July 11, 2008 decision.
We cannot predict the timing or the outcome of
any new regulations relating to CAIR. CAIR has and will
continue to have a material effect on our operations. In
2007, the Ohio EPA revised their State Implementation
Plan (SIP) to incorporate a CAIR program consis-
tent with the IAQR. The Ohio EPA had been await-
ing approval from the USEPA when the U.S. Court of
Appeals issued its July 11, 2008 decision. As a
result of the December 23, 2008 order, the Ohio EPA
continues to expect to receive that approval.
In the fourth quarter of 2007, DP&L began a pro-
gram for selling excess emission allowances, including
annual NOx emission allowances and SO2 emission
allowances that were the subject of CAIR trading
programs. In subsequent quarters, DP&L recognized
gains from the sale of excess emission allowances
to third parties. The court’s CAIR decision affected
the trading market for excess allowances and impact-
ed DP&L’s program for selling additional excess
allowances in 2008. The long-term impact of the court’s
decision, and of the actions the USEPA or others will
take in response to this decision, on DPL and DP&L
is not fully known at this time and could have an
adverse effect on us. In January 2009, we resumed
selling excess allowances due to the revival of the
trading market.
The regulations as promulgated tended to promote
decisions to install Flue Gas Desulfurization (FGD)
equipment and continuous operations of the currently
installed Selective Catalytic Reduction (SCR) equip-
ment. DP&L has installed FGD and SCR equipment on
the single unit at the Killen generating station and on
all four units at the Stuart generating station.
On January 30, 2004, the USEPA published its
proposal to restrict mercury and other air toxins from
coal-fired and oil-fired utility plants. The USEPA “de-
listed” mercury as a hazardous air pollutant from coal-
fired and oil-fired utility plants and, instead, proposed
a cap-and-trade approach to regulate the total amount
of mercury emissions allowed from such sources. The
final Clean Air Mercury Rule (CAMR) was signed March
15, 2005 and was published on May 18, 2005. On
March 29, 2005, nine states sued USEPA, opposing the
cap-and-trade regulatory approach taken by USEPA.
In 2007, the Ohio EPA adopted rules implementing the
CAMR program. On February 8, 2008, the Court of
Appeals struck down the USEPA regulations, finding
that the USEPA had not complied with statutory require-
ments applicable to “de-listing” a hazardous air pollut-
ant and that a cap-and-trade approach was not autho-
rized by law for “listed” hazardous air pollutants. A
request for rehearing before the entire Court of Appeals
was denied and a petition for a writ of certiorari was
filed with the U.S. Supreme Court on September 17,
2008. If the petition is not accepted by the Supreme
Court, or if the Supreme Court grants certiorari and
upholds the D.C. Circuit Court’s decision, USEPA
will have to move forward to set Maximum Available
Control Technology (MACT) standards for coal- and
oil-fired electric generating units. We anticipate that it
will take a few years for the USEPA to gather new data
to promulgate updated MACT standards and for the
regulations to become effective. At this time, DP&L is
unable to determine the impact of the promulgation of
new MACT standards on its financial position or results
of operations.
If the U.S. Court of Appeals’ ruling is not reversed,
we cannot project the final costs we may incur to com-
ply with any resulting mercury restriction regulations.
On July 15, 2003, the Ohio EPA submitted to the
USEPA its recommendations for eight-hour ozone non-
attainment boundaries for the metropolitan areas within
Ohio. On April 15, 2004, the USEPA issued its list of
ozone non-attainment designations. Since these initial
designations, the Ohio EPA has recommended that
nine areas designated non-attainment be designated
as attainment. Currently USEPA has redesignated eight
of those areas as attainment for the eight-hour ozone
national ambient air quality standards, including coun-
ties where DP&L owns and/or operates a number of
facilities. In redesignating these counties as attainment,
the Ohio EPA submitted and USEPA approved amend-
ments to the SIP that include maintenance plans for
these areas. In June 2007, the Ohio EPA submitted a
plan to USEPA for attaining the eight-hour ozone stan-
dard for the Cincinnati-Hamilton area in which DP&L
owns a number of facilities. DP&L cannot determine
the outcome of this redesignation effort at this time.
On January 5, 2005, the USEPA published its final
non-attainment designations for the national ambient
air quality standard for Fine Particulate Matter 2.5 (PM
14 DPL Inc.
2.5). These designations included counties and partial
counties in which DP&L operates and/or owns gen-
erating facilities. On March 4, 2005, DP&L and other
Ohio electric utilities and electric generators filed a
petition for review in the D.C. Circuit Court of Appeals,
challenging the final rule creating these designations.
On November 30, 2005, the court ordered USEPA to
decide on all petitions for reconsideration by January
20, 2006. On January 20, 2006, USEPA denied the
petitions for reconsideration. Petitioners submitted their
principal briefs in February 2008, their reply briefs in
August 2008, and their final briefs in September 2008.
Oral argument had been scheduled but, on December
19, 2008, the D.C. Circuit on its own motion indicated
it will reschedule oral argument at a later date. DP&L
cannot determine the outcome of the petition for
review or the effect such Ohio EPA regulations will
have on its operations.
On May 5, 2004, the USEPA issued its proposed
regional haze rule, which addresses how states should
determine the Best Available Retrofit Technology
(BART) for sources covered under the regional haze
rule. Final rules were published July 6, 2005, provid-
ing states with several options for determining whether
sources in the state should be subject to BART. In the
final rule, USEPA made the determination that CAIR
achieves greater progress than BART and may be
used by states as a BART substitute. Numerous units
owned and operated by us will be impacted by BART.
We cannot determine the extent of the impact until
Ohio determines how BART will be implemented.
Sierra Club Litigation
In September 2004, the Sierra Club filed a lawsuit
against DP&L and the other owners of the Stuart
generating station in the U.S. District Court for the
Southern District of Ohio for alleged violations of the
Clean Air Act (CAA) and the station’s operating
permit. On August 7, 2008, a consent decree was filed
in the U.S. District Court in full settlement of these
CAA claims. Under the terms of the consent decree,
DP&L and the other owners of the Stuart generating
station agreed to: (i) certain emission targets related
to NOx, SO2 and particulate matter; (ii) make energy
efficiency and renewable energy commitments that are
conditioned on receiving PUCO approval for the recov-
ery of costs; (iii) forfeit 5,500 sulfur dioxide allowances;
and (iv) provide funding to a third party non-profit
organization to establish a solar water heater rebate
program. DP&L and the other owners of the station
also entered into an attorneys’ fee agreement to pay a
portion of the Sierra Club’s attorney and expert witness
fees. The parties to the lawsuit filed a joint motion
on October 22, 2008, seeking an order by the U.S.
District Court approving the consent decree with
funding for the third party non-profit organization set
at $300,000. On October 23, 2008, the U.S. District
Court approved the consent decree. We have deter-
mined that the terms of the consent decree will not
have a material impact on our overall results of opera-
tions, financial position, or cash flows.
Litigation Involving Co-Owned Plants
In March 2000, as amended in June 2004, the U.S.
Department of Justice filed a complaint in an Indiana
federal court against Cinergy Corp. (now part of Duke
Energy) and two Cinergy subsidiaries for alleged
violations of the CAA at various generation units
operated by PSI Energy, Inc. and CG&E, including
generation units co-owned by DP&L (Beckjord Unit
6 and Miami Fort Unit 7). Prior to trial, plaintiffs chose
not to pursue allegations that had been made with
respect to Miami Fort 7. On May 22, 2008, the jury
rendered a verdict in favor of Cinergy with respect to
the allegations made involving projects at Beckjord
Unit 6. The jury found for the plaintiffs with respect to
units at one of Duke Energy’s wholly-owned facilities. In
mid-December 2008, the judge ordered a retrial after
hearing arguments regarding the potential prejudicial
effect of Duke’s failure to disclose that certain of
its witnesses were paid for their time and expertise.
No date has been established for retrying the case
and DP&L is unable to predict the outcome or timing
of any retrial.
In November 2004, various residents of the Village
of Moscow, Ohio sued CG&E, as the operator of
Zimmer generating station (co-owned by CG&E, DP&L
and CSP), for alleged violations of the CAA and air pol-
lution nuisances. CG&E, on behalf of all co-owners, is
leading the defense of this matter.
Notices of Violation Involving Co-Owned Plants
On March 13, 2008, Duke Energy Ohio Inc., the
operator of the Zimmer generating station, received
a Notice of Violation (NOV) and a Finding of Violation
from the USEPA alleging violations of the CAA, the
Ohio State Implementation Program (SIP) and permits
for the Station in areas including SO2, opacity and
increased heat input. DP&L is a co-owner of the
Zimmer generating station and could be affected by
the eventual resolution of this matter. Duke Energy
Ohio Inc. is expected to act on behalf of itself and
the co-owners with respect to this matter. At this time,
DP&L is unable to predict the outcome of this matter.
DPL Inc.
15
In June 2000, the USEPA issued a NOV to the
DP&L-operated Stuart generating station (co-owned
by DP&L, CG&E, and CSP) for alleged violations of the
CAA. The NOV contained allegations consistent with
NOVs and complaints that the USEPA had recently
brought against numerous other coal-fired utilities in
the Midwest. The NOV indicated the USEPA may: (1)
issue an order requiring compliance with the require-
ments of the Ohio SIP; or (2) bring a civil action seek-
ing injunctive relief and civil penalties of up to $27,500
per day for each violation. To date, neither action
has been taken.
In November 1999, the USEPA filed civil com-
plaints and NOVs against operators and owners of
certain generation facilities for alleged violations of the
CAA. Generation units operated by CG&E (Beckjord
Unit 6) and CSP (Conesville Unit 4) and co-owned by
DP&L were referenced in these actions. Numerous
northeast states have filed complaints or have indicat-
ed that they will be joining the USEPA’s action against
CG&E and CSP. DP&L was not identified in the NOVs,
civil complaints or state actions.
In December 2007, the Ohio EPA issued a NOV to
the DP&L-operated Killen generating station (co-owned
by DP&L and CG&E) for alleged violations of the
CAA. The NOVs alleged deficiencies in the continuous
monitoring of opacity. A compliance plan has been
submitted to the Ohio EPA. To date, no further actions
have been taken by the Ohio EPA.
Other Issues Involving Co-Owned Plants
In 2006, DP&L detected a malfunction with its emission
monitoring system at the DP&L-operated Killen gen-
erating station (co-owned by DP&L and CG&E) and
ultimately determined its SO2 and NOx emissions data
were under reported. DP&L has petitioned the USEPA
to accept an alternative methodology for calculating
actual emissions for 2005 and the first quarter 2006.
DP&L has sufficient allowances in its general account
to cover the understatement and is working with the
USEPA to resolve the matter. Management does not
believe the ultimate resolution of this matter will have a
material impact on results of operations, financial posi-
tion or cash flows.
Notices of Violation Involving Wholly-Owned Plants
In 2007, the Ohio EPA and the USEPA issued NOVs
to DP&L for alleged violations of the CAA at the O.H.
Hutchings station. The NOVs alleged deficiencies
relate to stack opacity and particulate emissions.
Discussions are under way with the USEPA, the U.S.
Department of Justice and Ohio EPA. DP&L has pro-
vided data to those agencies regarding its mainte-
nance expenses and operating results. On December
15, 2008, DP&L received a request from the USEPA for
additional documentation with respect to those issues
and other Clean Air Act issues including issues relating
to capital expenses and any changes in capacity or
output of the units at the O.H. Hutchings station.
DP&L is complying with that request. DP&L is unable
to determine the timing, costs, or method by which
the issues may be resolved.
Environmental Regulation and Litigation
Related to Water Quality
On July 9, 2004, the USEPA issued final rules pursuant
to the Clean Water Act governing existing facilities that
have cooling water intake structures. The rules require
an assessment of impingement and/or entrainment
of organisms as a result of cooling water withdrawal.
A number of parties appealed the rules to the Federal
Court of Appeals for the Second Circuit in New York
and the Court issued an opinion on January 25, 2007
remanding several aspects of the rule to USEPA for
reconsideration. Several parties petitioned the U.S.
Supreme Court for review of the lower court decision.
On April 14, 2008, the Supreme Court elected to
review the lower court decision on the issue of whether
USEPA can compare costs with benefits in determining
the best technology available for minimizing adverse
environmental impact at cooling water intake structures.
Briefs were submitted to the Court last summer and
oral arguments were held in December 2008.
On May 4, 2004, the Ohio EPA issued a final
National Pollutant Discharge Elimination System permit
(the Permit) for J.M. Stuart Station that continued our
authority to discharge water from the station into the
Ohio River. During the three-year term of the Permit,
we conducted a thermal discharge study to evaluate
the technical feasibility and economic reasonableness
of water cooling methods other than cooling towers.
In December 2006, we submitted an application for
the renewal of the Permit that was due to expire on
June 30, 2007. In July 2007 we received a draft permit
proposing to continue our authority to discharge water
from the station into the Ohio River. On February 5,
2008 we received a letter from Ohio EPA indicating that
they intended to impose a compliance schedule as
part of the final Permit, that requires us to implement
one of two diffuser options for the discharge of water
from the station into the Ohio River as identified in the
thermal discharge study. On March 6, 2008, represen-
tatives from DP&L met with Ohio EPA to discuss the
issue and reiterate our position that diffusers were not
cost-effective. We agreed to explore other potential
solutions and share findings with Ohio EPA. On June 6,
16 DPL Inc.
2008, DP&L sent a letter to Ohio EPA stating that we
would be willing to restrict public access to the thermal
discharge during the warmest months of the year. On
August 22, 2008, we received word from Ohio EPA that
this option would be acceptable and would be incor-
porated in the NPDES permit, which was received in
draft form on November 12, 2008, subject to comment
and the review of the USEPA. In December 2008, the
USEPA requested that the Ohio EPA provide additional
information regarding the draft permit and the timing
for issuance of a final permit is uncertain.
Environmental Regulation and Litigation Related to
Land Use and Solid Waste Disposal
DP&L has been identified, either by a government
agency or by a private party seeking contribution to
site clean-up costs, as a Potentially Responsible Party
(PRP) at two sites pursuant to state and federal laws.
In September 2002, DP&L and other parties
received a special notice that the USEPA considers us
to be PRPs for the clean-up of hazardous substances
at the South Dayton Dump landfill site. In August 2005,
DP&L and other parties received a general notice
regarding the performance of a Remedial Investigation
and Feasibility Study (RI/FS) under a Superfund
Alternative Approach. In October 2005, DP&L received
a special notice letter inviting it to enter into negotia-
tions with USEPA to conduct the RI/FS. Information
available to DP&L does not demonstrate that it contrib-
uted hazardous substances to the site. Should USEPA
pursue a civil action, DP&L will challenge it.
In December 2003, DP&L and other parties
received a special notice that the USEPA considers us
to be PRPs for the clean-up of hazardous substances
at the Tremont City landfill site. Information available to
DP&L does not demonstrate that it contributed hazard-
ous substances to the site.
In November 2007, a PRP group contacted DP&L
seeking our financial participation in a settlement that
the group had reached with the federal government
with respect to the clean-up of an industrial site once
owned by Carolina Transformer, Inc. DP&L’s business
records clearly show we did not conduct business
with Carolina Transformer that would require our partici-
pation in any clean-up of the site. DP&L has declined
to participate in the clean-up of this site.
In August 2006, Ohio EPA issued draft rules for
interested party comment related to the disposal of
industrial waste. DP&L, through the Ohio Electric
Utility Institute, submitted comments on the draft rules.
DP&L cannot predict the impact of the draft rules on
future operations.
Capital Expenditures for Environmental Matters
Test operations of the flue gas desulfurization (FGD)
equipment on all four units at the Stuart generating
station were completed during 2008. The equipment
is currently in service.
DP&L’s construction additions were approximately
$228 million, $347 million and $352 million in 2008,
2007 and 2006, respectively, and are expected to
approximate $150 million for 2009. DP&L’s construction
additions were approximately $225 million, $344 million
and $349 million in 2008, 2007 and 2006, respectively.
Planned construction additions of DP&L for 2009
are expected to approximate $147 million and relate
to DP&L’s environmental compliance program, power
plant equipment, and its transmission and distribution
system. All environmental additions made during
the past three years pertain to DP&L and approximate
$90 million, $206 million and $246 million in 2008,
2007 and 2006, respectively.
Item 1a Risk Factors
This annual report and other documents that we file
with the SEC and other regulatory agencies, as well as
other oral or written statements we may make from time
to time, contain information based on management’s
beliefs and include forward-looking statements (within
the meaning of the Private Securities Litigation Reform
Act of 1995) that involve a number of known and
unknown risks, uncertainties and assumptions. These
forward-looking statements are not guarantees of future
performance and there are a number of factors includ-
ing, but not limited to, those listed below, which could
cause actual outcomes and results to differ materially
from the results contemplated by such forward-looking
statements. We do not undertake any obligation
to publicly update or revise any forward-looking state-
ments, whether as a result of new information, future
events or otherwise. These forward-looking state-
ments are identified by terms and phrases such as
“anticipate,” “believe,” “intend,” “estimate,” “expect,”
“continue,” “should,” “could,” “may,” “plan,” “project,”
“predict,” “will” and similar expressions.
Future operating results are subject to fluctuations
based on a variety of factors, including but not limited
to: unusual weather conditions; catastrophic weather-
related damage; unscheduled generation outages;
unusual maintenance or repairs; changes in fuel and
purchased power costs, emissions allowance costs,
or availability constraints; environmental compliance;
and electric transmission system constraints.
DPL Inc.
17
The following is a listing of risk factors that DPL
and DP&L consider to be the most significant to your
decision to invest in our stock. If any of these events
occur, our business, results of operations, financial
position or cash flows could be materially affected.
Senate Bill 221
We operate in a rapidly changing industry with evolving
industry standards and regulations. In recent years a
number of federal and state developments aimed
at promoting competition triggered industry restructur-
ing. Regulatory factors such as changes in the policies
and procedures that set rates; changes in tax laws,
tax rates and environmental laws and regulations;
changes in DP&L’s ability to recover expenditures for
environmental compliance, fuel and purchased power
costs and investments made under traditional regula-
tion through rates; and changes to the frequency
and timing of rate increases could affect our results
of operations, financial condition or cash flows.
Additionally, financial or regulatory accounting prin-
ciples or policies imposed by governing bodies can
increase our operational, monitoring and information
technology costs affecting our results of operations
and financial condition.
Before 2001, Ohio electric utilities provided electric
generation, transmission and distribution services as a
single product to retail customers at prices set by the
PUCO. In 1999, Ohio enacted legislation that partially
deregulated utility service, effective January 1, 2001,
making retail generation service a competitive service.
Customers may choose to take generation service from
CRES providers that register with the PUCO but are
otherwise unregulated. In connection with this deregu-
lation of the electric industry in Ohio, electric utilities
have had to restructure their service and their rates to
accommodate competition.
and became effective July 31, 2008. This new law
states that all Ohio distribution utilities must file either
an electric security plan or a market rate option to be
in effect January 1, 2009. An electric security plan may
allow for adjustments to the standard offer for costs
associated with environmental compliance; fuel and
purchased power; construction of new or investment in
specified generating facilities; the provision of standby
and default service, operating, maintenance, or other
costs including taxes. As part of its electric security
plan, the utility is permitted to file an infrastructure
improvement plan that will specify the initiatives the util-
ity will take to rebuild, upgrade, or replace its electric
distribution system, including cost recovery mecha-
nisms. Both the market rate option and the electric
security plan option involve a “substantially excessive
earnings” test based on the earnings of other compa-
nies with similar business and financial risks.
The new law also contains annual targets relating
to advanced energy portfolio standards, renewable
energy, and energy efficiency standards. The stan-
dards require that, by 2025, 12.5% of the generation
used to supply standard offer generation service by
the utility must come from advanced energy resources,
which may include distributed generation, cogenera-
tion, clean coal technology, nuclear technology or ener-
gy efficiency. By 2025, another 12.5% of the generation
used to supply standard offer generation service by the
utility must come from renewable energy resources, of
which 0.5% must come from solar energy resources.
In addition, the proposed bill requires annual energy
efficiency reductions that reach 22.3% by 2025 and
peak demand reduction requirements that reach 7.75%
by 2018. The advanced energy portfolio and energy
efficiency standards begin in 2009, with increases in
required percentages each year. If any targets are not
met, compliance penalties will apply.
Many of the requirements of the Ohio deregulation
In compliance with substitute Senate Bill 221,
law were premised on the assumption that the whole-
sale generation market and, in turn, the retail genera-
tion market, would fully develop by the end of 2005,
and that the price for generation for even those cus-
tomers who choose to continue to purchase the service
from the regulated utility would be set purely by the
market. That did not occur. As a result, the PUCO and
the utilities, including DP&L, put rate stabilization plans
in place to provide standard offer service to customers
at tariffed rates. DP&L’s plan was the only one to con-
tinue through 2010.
On May 1, 2008, substitute Senate Bill 221, an
Ohio electric energy bill, was signed by the Governor
DP&L filed its electric security plan on October 10,
2008. On February 24, 2009, DP&L filed a Stipulation
and Recommendation (the Stipulation) signed by the
Staff of the PUCO, the Office of the Ohio Consumers’
Counsel and various intervening parties. The PUCO
has the authority to approve, modify or reject the
Stipulation. The Stipulation is further discussed
under Ohio Retail Rates in Item 1 – Competition and
Regulation. While the overall impact of Senate Bill 221
is not known, implementation of the bill and compliance
with its requirements could have a material impact on
us. The outcome of this proceeding should be known
by the end of the second quarter of 2009.
18 DPL Inc.
Clean Air Interstate Rule (CAIR) decision by the U.S.
Court of Appeals for the District of Columbia Circuit
On July 11, 2008, the United States Court of Appeals
for the District of Columbia Circuit issued a deci-
sion that vacated the U.S. Environmental Protection
Agency’s (USEPA’s) Clean Air Interstate Rule (CAIR)
and its associated Federal Implementation Plan. This
decision remanded these issues back to the USEPA.
The USEPA issued CAIR on March 10, 2005 to regulate
certain upwind states with respect to fine particulate
matter and ozone. CAIR created interstate trading
programs for annual NOx emission allowances and
made modifications to an existing trading program for
SO2 that were to take effect in 2010. The court’s deci-
sion, in part, invalidated the new NOx annual emission
allowance trading program and the modifications to the
SO2 emission trading program and created uncertainty
regarding future NOx and SO2 emission reduction
requirements and their timing. On December 23, 2008,
the court reversed part of its decision that vacated
CAIR. Thus, CAIR currently remains in effect, but
the USEPA remains subject to the court’s order to
revise the program.
In the fourth quarter of 2007, DP&L began a pro-
gram for selling excess emission allowances, including
annual NOx emission allowances and SO2 emission
allowances that were the subject of CAIR trading
programs. In subsequent quarters, DP&L recognized
gains from the sale of excess emission allowances
to third parties. The court’s CAIR decision has affected
the trading market for excess allowances and impact-
ed DP&L’s program for selling additional excess allow-
ances in 2008. The long-term impact of the court’s
decision, and of the actions the USEPA or others will
take in response to this decision, on DPL and DP&L
is not fully known at this time and could have an
adverse effect on us. In January 2009, we resumed
selling excess allowances due to the revival of the
trading market.
Credit Market
The current global credit crisis may adversely affect
our business and financial results. Since mid-2007,
and particularly during the second half of 2008, the
financial services industry and the securities markets
generally were materially and adversely affected by
significant declines in the values of nearly all asset
classes and by a serious lack of liquidity. This was
initially triggered by declines in the values of subprime
mortgages, but spread to all mortgage and real estate
asset classes, to leveraged bank loans and to nearly
all asset classes, including equities. Liquidity and
credit concerns were further exacerbated in September
2008 with Lehman Brothers’ bankruptcy filing, the sale
of Merrill Lynch to Bank of America, the U.S. govern-
ment conservatorship of Fannie Mae and Freddie Mac,
and the U.S. government loan to AIG. Because of this,
the ability of corporations to obtain funds through the
issuance of debt was negatively impacted. Disruptions
in the credit markets make it harder and more expen-
sive to obtain funding for our business. We issue debt
to cover the costs of certain of our operations and
expenditures and the inability to issue such debt on
reasonable terms, or at all, could negatively affect our
business and financial results. If our available funding
is limited or we are forced to fund our operations at a
higher cost, these conditions may require us to curtail
our business activities and increase our cost of fund-
ing, both of which could reduce our profitability.
Market performance and other changes may
decrease the value of benefit plan assets, which
could require significant additional funding.
The performance of the capital markets affects the
values of the assets that are held in trust to satisfy
future obligations under DPL’s and DP&L’s pension
and postretirement benefit plans. These assets are
subject to market fluctuations and will yield uncertain
returns, which may fall below our projected return
rates. A decline in the market value of the pension and
postretirement benefit plan assets, as was experienced
in 2008, will increase the funding requirements under
our pension and postretirement benefit plans if the
actual asset returns do not recover these declines in
value in the foreseeable future. Future pension funding
requirements, and the timing of funding payments, may
also be subject to changes in legislation. The Pension
Protection Act, enacted in August 2006, requires
underfunded pension plans to improve their funding
ratios within prescribed intervals based on the level
of their underfunding. As a result, our required contri-
butions to these plans may increase in the future.
In addition, our pension and postretirement benefit
plan liabilities are sensitive to changes in interest rates.
As interest rates decrease, the liabilities increase,
potentially increasing benefit expense and funding
requirements. Further, changes in demographics,
including increased numbers of retirements or changes
in life expectancy assumptions, may also increase
the funding requirements of the obligations related to
the pension and other postretirement benefit plans.
If market conditions continue to be unfavorable, our
results of operations, financial position or cash flows
could be adversely impacted.
DPL Inc.
19
Fuel and Commodity Prices
n DP&L’s Standard Service Offer
Recently, the coal market has experienced significant
price volatility. We are now in a global market for coal
in which our domestic price is increasingly affected by
international supply disruptions and demand balance.
Coal exports from the U.S. have increased significantly
in recent years. In addition, domestic issues like gov-
ernment-imposed direct costs and permitting issues
are affecting mining costs and supply availability.
Our approach is to hedge the fuel costs for our antici-
pated electric sales. For the years ending December
31, 2009 and 2010, we have hedged our coal require-
ments with coal mine operators and financial institu-
tions to meet our committed sales. However, we may
not be able to hedge the entire exposure of our opera-
tions from commodity price volatility. To the extent our
suppliers do not meet their contractual commitments,
we cannot secure adequate coal supplies in a timely
or cost-effective manner or we are not hedged against
price volatility, our results of operations, financial
position or cash flows could be materially affected.
As part of its electric security plan filing, DP&L
requested regulatory authority to defer fuel and fuel
related costs that exceed the amount that is in cur-
rent rates. On February 24, 2009, DP&L filed a
Stipulation and Recommendation (the Stipulation)
signed by the Staff of the PUCO, the Office of the Ohio
Consumers’ Counsel and various intervening parties.
The Stipulation includes the implementation of a fuel
and purchased power recovery mechanism begin-
ning January 1, 2010 which will track and adjust fuel
costs on a quarterly basis. The PUCO has the author-
ity to approve, modify or reject the Stipulation. The
Stipulation is further discussed under Ohio Retail Rates
in Item 1 – Competition and Regulation. A final decision
from the PUCO regarding the Stipulation is expected
by the end of the second quarter of 2009.
Customer Switching
Changes in our customer base, including government
aggregation, could lead to the entrance of competitors
in our marketplace, affecting our results of operations,
financial condition or cash flows. Although retail gen-
eration service has been a competitive service since
January 1, 2001, the competitive generation market
has not developed in DP&L’s service territory to any
significant degree. The following are factors that could
result in increased switching by customers to CRES
providers in the future:
Customers that take service from a CRES provider
are able to bypass the Environmental Investment
Rider (EIR). Because this charge increases each year
through 2010, the price that a CRES provider can
offer to save customers money changes each year.
Depending on the development of the wholesale mar-
ket and the level of wholesale prices, CRES providers
could become more active in DP&L’s service territory.
n CRES Supplier Initiatives
Customers can elect to take generation service from
a CRES provider offering services to customers in
DP&L’s service territory. As of December 31, 2008,
five CRES providers have been certified by the PUCO
to provide generation service to DP&L customers.
One of those five, DPL Energy Resources, Inc.
(DPLER), is a wholly-owned affiliate of DPL. DPLER
supplied 99.4% of the total kWh consumed by custom-
ers served by CRES providers in DP&L’s service
territory in 2008. Depending on the development of
the wholesale market and the level of wholesale prices,
CRES providers could become more active in DP&L’s
service territory and may begin to offer prices lower
than DP&L’s standard offer. This could result in more
switching by DP&L’s customers and a further loss
of revenues by DP&L.
n Governmental Aggregation Programs
DP&L could also experience customer switching
through “governmental aggregation.” Under this
program, municipalities may contract with a CRES
provider to provide generation service to the customers
located within the municipal boundaries. Several
communities in DP&L’s service territory have passed
ordinances allowing them to become government
aggregators. Although an aggregation program
has not yet been implemented, that too could
change if CRES providers offer prices below DP&L’s
standard offer.
Risks Associated with Our Pre-determined Rates
DP&L has provided service at rates governed by the
PUCO-approved transition, market development and
rate stabilization plans. The protection afforded by
retail fuel clause recovery mechanisms was eliminated
effective January 1, 2001 by the implementation of
customer choice in Ohio. Likewise, through the RSS
Stipulation, DP&L extended its commitment to maintain
pre-determined rates for generation through December
31, 2010, and in exchange is permitted to charge two
20 DPL Inc.
new rate riders to offset increases in fuel and environ-
mental costs. Beginning January 1, 2006, a RSS was
implemented that recovered approximately $65 million
additional revenue in 2006, net of customer discounts.
The EIR could result in approximately $35 million addi-
tional revenue each year, net of customer discounts
and assuming insignificant levels of customer switch-
ing. The PUCO ruled this rider will be bypassable
by all customers who take service from alternative
generation suppliers. Accordingly, the rates DP&L is
allowed to charge may or may not match its expenses
at any given time. Therefore, during this period (or
possibly earlier by order of the PUCO), while DP&L will
be subject to prevailing market prices for electricity,
it would not necessarily be able to charge rates
that produce timely or full recovery of its expenses.
DP&L has historically maintained its rates at consis-
tent levels since 1994 when the final phase of DP&L’s
last traditional rate case was implemented. However,
as DP&L operates under its PUCO-approved RSS
Stipulation, there can be no assurance that DP&L will
be able to timely or fully recover unanticipated levels
of expenses, including but not limited to those relating
to fuel, coal and purchased power, compliance
with environmental regulation, reliability initiatives and
capital expenditures for the maintenance or repair
of its plants or other properties.
Regional Transmission Organizational Risks
On October 1, 2004, in compliance with Ohio law,
DP&L turned over control of its transmission functions
and fully integrated into PJM. The price at which DPL
and DP&L can sell its generation capacity and energy
is now more dependent upon the overall operation
of the PJM market. While DP&L can continue to make
bi-lateral transactions to sell its generation through
a willing-buyer and willing-seller relationship, any
transactions that are not pre-arranged are subject to
market conditions at PJM. The rules governing the vari-
ous regional power markets also change from time to
time which could affect DP&L’s costs and revenues.
DP&L incurs fees and costs to participate in the RTO.
We may be limited with respect to the price at which
power may be sold from certain generating units and
we may be required to expand our transmission system
according to decisions made by the RTO rather than
our internal planning process. While RTO transmission
rates were initially designed to be revenue neutral,
various proposals and proceedings currently taking
place at FERC may cause transmission rates to change
from time to time. In addition, developing rules associ-
ated with the allocation and methodology of assigning
costs associated with improved transmission reliability,
reduced transmission congestion and firm transmis-
sion rights may have a financial impact on DP&L.
Likewise, in December 2006, FERC approved PJM’s
Reliability Pricing Model (RPM). RPM became effective
in 2007 and provides forward and locational pricing for
generation capacity. The financial impact of RPM on
DP&L will depend on a variety of factors, including the
market behavior of various participants. At this time,
the RPM auction results are expected to have no mate-
rial financial impact to DPL. Because the RTO market
rules are continuing to evolve, we cannot fully assess
the impact that these power markets or other ongoing
RTO developments may have on DP&L. On February
19, 2009, the PUCO approved DP&L’s request to defer
costs associated with transmission, capacity, ancillary
service and other PJM related charges incurred as
a member of PJM. DP&L anticipates filing a request
with the PUCO before the end of April 2009 seeking
to recover these costs. Also, on February 24, 2009,
DP&L filed a Stipulation and Recommendation (the
Stipulation) signed by the Staff of the PUCO, the Office
of the Ohio Consumers’ Counsel and various interven-
ing parties. The Stipulation states that DP&L may seek
recovery of RTO costs which are not covered by other
recovery mechanisms. The PUCO has the author-
ity to approve, modify or reject the Stipulation. The
Stipulation is further discussed under Ohio Retail Rates
in Item 1 – Competition and Regulation. A final decision
from the PUCO regarding the Stipulation is expected
by the end of the second quarter of 2009. If in the
future we are unable to defer or recover these costs, it
could have a material adverse effect on us.
As a member of PJM, DP&L and DPLE are subject
to certain additional risks including those associated
with the allocation among PJM members of losses
caused by unreimbursed defaults of other participants
in PJM markets and those associated with complaint
cases filed against PJM that may seek refunds of rev-
enues previously earned by PJM members including
DP&L and DPLE.
PJM Infrastructure Risks
Annually, PJM performs a review of the capital addi-
tions required to provide reliable electric transmission
services throughout its territory. PJM traditionally allo-
cated the costs of constructing these facilities to those
entities that benefited directly from the additions. On
April 19, 2007, the FERC issued an order that modified
the traditional method of allocating costs associated
DPL Inc.
21
with new high voltage planned transmission facilities.
FERC ordered that the cost of new high-voltage facili-
ties be socialized across the PJM region. The costs
of the new facilities at lower voltages will continue
to be assigned to the load centers that benefit from
the new facilities. In a companion order also issued
on April 19, 2007, FERC did not change the existing
allocation of costs associated with existing trans-
mission facilities, upholding the existing PJM rate
design. The overall impact of FERC’s orders cannot be
definitively assessed at this time because not all new
planned construction is likely to happen. The additional
costs allocated to DP&L for new large transmission
approved projects were immaterial in 2008 and are
not expected to be material in 2009, but could rise to
approximately $12 million or more annually by 2012.
As a result, in 2008 DP&L sought and obtained PUCO
authority to defer costs associated with these new
high-voltage transmission projects for future recovery
through retail rates. If in the future we are unable to
defer or recover these costs, it could have a material
adverse effect on us.
Reliance on Third Parties
We rely on many suppliers for the purchase and deliv-
ery of inventory, including coal and equipment compo-
nents, to operate our energy production, transmission
and distribution functions. Unanticipated changes
in our purchasing processes, delays and supplier avail-
ability may affect our business and operating results.
In addition, we rely on others to provide professional
services, such as, but not limited to, actuarial calcula-
tions, internal audit services, payroll processing and
various consulting services.
Historically, some of our coal suppliers have not
performed their contracts as promised and have failed
to timely deliver all coal as specified under their con-
tracts. Such failure could significantly reduce DP&L’s
inventory of coal and may cause DP&L to purchase
higher priced coal on the spot market. When the fail-
ure is for a short period of time, DP&L can absorb the
irregularity due to existing inventory levels. If we are
required to purchase a substantial amount of coal on
the spot market for a significant period of time, it may
materially impact our cost of operations.
DP&L is a co-owner in certain generation facilities
where it is a non-operating partner. DP&L does not
procure the fuel for these facilities, but is responsible
for its proportionate share of the cost of fuel procured
at these facilities. Partner operated facilities do not
always have realized coal costs that are equal to
our co-owners’ projections, and we are responsible for
our proportionate share of any increase in coal costs.
Greenhouse Gases
The rules issued by the USEPA and Ohio Environmental
Protection Agency (Ohio EPA) that require substantial
reductions in SO2, NOx and mercury emissions
may impact our business and operations. We are
installing (and have installed) emission control technol-
ogy and are taking other measures to comply
with required reductions.
In addition to the requirements related to emis-
sions of SO2, NOx and mercury noted above, there is
a growing concern nationally and internationally about
global climate change and the contribution of emis-
sions of greenhouse gasses, including most signifi-
cantly, CO2. This concern has led to increased interest
in legislation at the federal level and actions at the
state level, as well as litigation relating to greenhouse
gas emissions, including a recent U.S. Supreme Court
decision holding that the USEPA has the authority
to regulate CO2 emissions from motor vehicles under
the Clean Air Act (CAA). Increased pressure for
carbon dioxide emissions reduction is also coming
from investor organizations and the international
community. There are also indications that the new
government administration formed in 2009 is likely to
pursue aggressive policies to limit greenhouse gas
emissions and that legislation is likely to be passed in
the future. If legislation or regulations are passed at the
federal or state levels imposing mandatory reductions
of CO2 and other greenhouse gasses on generation
facilities, the cost of achieving such reduction could
be material to us.
Environmental Compliance
Our facilities (both wholly-owned and co-owned with
others) are subject to continuing federal and state
environmental laws and regulations. We own a non-
controlling, minority interest in several generating sta-
tions operated by CG&E or its affiliate, Union Heat,
Light & Power, and CSP. These parties will take steps
to ensure that these stations remain in compliance with
applicable environmental laws and regulations. As a
non-controlling owner in these generating stations,
we will be responsible for our pro rata share of these
expenditures based upon our ownership interest.
During 2008, a major spill occurred at an ash
pond owned by the Tennessee Valley Authority (TVA)
as a result of a dike failure and generated a significant
amount of national news coverage. DP&L has ash
ponds at the Killen and J.M. Stuart stations which
it operates, and also at other generating stations oper-
ated by others but in which DP&L has an ownership
interest. We frequently inspect our ash ponds and do
22 DPL Inc.
not anticipate any failures like that which occurred at
TVA. It is widely expected that the federal government
will consider imposing additional monitoring, testing,
or construction standards with respect to ash ponds.
DP&L is unable to assess the timing or impact of
any such governmental response that may occur or
whether it would be limited to the type of ash pond
operated by TVA or applied more broadly.
Flue Gas Desulfurization Project
We have constructed and placed into service flue gas
desulfurization (FGD) facilities at our Killen and J. M.
Stuart electric generating stations. The operation of this
FGD equipment is required for the achievement of cer-
tain emission targets. We are also co-owners of electric
generating stations operated by other investor-owned
utilities, who are in various stages of constructing FGD
facilities at these generating stations. In the event that
we experience significant FGD equipment operational
failure or significant construction delays at those elec-
tric generating stations where we are co-owners but
not the operators, we may not meet certain emission
targets that could result in a substantial increase in our
operating costs to these facilities beginning in 2009.
Our Stock Price May Fluctuate
The market price of DPL’s common stock has fluctu-
ated over a wide range. Over the past three years, the
market price of our common stock has fluctuated with
a low of $19.16 and a high of $31.91. The global mar-
kets in recent years have experienced significant price
and volume variations that have often been unrelated
to our operating performance. Over the previous year,
the global markets have increasingly been character-
ized by substantially increased volatility and short-sell-
ing and an overall loss of investor confidence, initially
in financial institutions but, more recently, in companies
in a number of other industries and in the broader
markets. The market price of our common stock may
continue to significantly fluctuate in the future and may
be affected adversely by factors such as actual or
anticipated change in our operating results, acquisition
activity, changes in financial estimates by securities
analysts, general market conditions, rumors and other
factors, which factors may increase price volatility and
be exacerbated by continued disruption in the global
markets at large.
Economic Conditions
Economic pressures, as well as changing market con-
ditions and other factors related to physical energy and
financial trading activities, which include price, credit,
liquidity, volatility, capacity, transmission and interest
rates can have a significant effect on our operations
and the operations of our retail, industrial and com-
mercial customers. The direction and relative strength
of the global economy has recently been increasingly
uncertain due to softness in the residential real estate
and mortgage markets, volatility in fuel and other
energy costs, difficulties in the financial services sector
and credit markets, and other factors. Many of these
factors have disproportionately impacted Ohio, which
is the only state in which DPL and DP&L sell electricity.
DPL and DP&L’s results of operations may be
negatively affected by sustained downturns or a slug-
gish economy, all of which are beyond our control.
Sustained downturns, recession or a sluggish economy
generally affect the markets in which DP&L operates
and negatively influences DP&L’s energy operations.
A falling, slow or sluggish economy could reduce
the demand for energy in areas in which we are doing
business. Our commercial and industrial customers
use our energy in the production of their products.
During economic downturns, these customers may see
a decrease in demand for their products, which in turn
may lead to a decrease in the amount of energy they
require for production.
Regulatory Uncertainties and Litigation
In the normal course of business, we are subject to
various lawsuits, actions, proceedings, claims and
other matters asserted under laws and regulations.
Additionally, we are subject to diverse and complex
laws and regulations, including those relating to corpo-
rate governance, public disclosure and reporting, and
taxation, which are rapidly changing and subject to
additional changes in the future. As further described
in Item 3 – “Legal Proceedings,” we are also currently
involved in various pieces of litigation in which the
outcome is uncertain. Compliance with these rapid
changes may substantially increase costs to our orga-
nization and could affect our future operating results.
Warrant Exercise
DPL’s warrant holders could exercise their warrants to
purchase 19.6 million shares of common stock at their
discretion until March 12, 2012. As a result, DPL could
be required to issue up to 19.6 million common shares
in exchange for the receipt of the exercise price of
$21.00 per share or pursuant to a cashless exercise
process. The exercise of all warrants would have a
dilutive effect on us and would increase the number of
common shares outstanding and increase our common
share of dividend costs, thus affecting any existing
guidance on earnings per share and our cash flows.
DPL Inc.
23
Internal Controls
Our internal controls, accounting policies and prac-
tices, and internal information systems are designed
to enable us to capture and process transactions in a
timely and accurate manner in compliance with gen-
erally accepted accounting principles (GAAP) in the
United States of America, laws and regulations, taxa-
tion requirements and federal securities laws and regu-
lations. We implemented corporate governance, inter-
nal control and accounting rules issued in connection
with the Sarbanes-Oxley Act of 2002 (the “Act”). Our
internal controls and policies have been and continue
to be closely monitored by management and our Board
of Directors to ensure continued compliance with
Section 404 of the Act. While we believe these controls,
policies, practices and systems are adequate to verify
data integrity, unanticipated and unauthorized actions
of employees, temporary lapses in internal controls due
to shortfalls in oversight or resource constraints could
lead to improprieties and undetected errors that could
impact our results of operations, financial condition
or cash flows.
Collective Bargaining Agreements
Approximately 54% of our employees are under a col-
lective bargaining agreement which is in effect until
October 31, 2011. If collective bargaining agreements
expire before new agreements are reached, we would
attempt to persuade our employees to continue work-
ing while negotiations continue. We believe that we
maintain a satisfactory relationship with our employees;
however, it is possible that labor disruptions affecting
some or all of our operations could occur during the
period of the bargaining agreement or at the expiration
of collective bargaining agreements before new agree-
ments are negotiated. Lengthy strikes by our employ-
ees would have an adverse effect on our operations
and financial condition.
Cyber Security and Terrorism
Man-made problems such as computer viruses or ter-
rorism may disrupt our operations and harm our oper-
ating results. We operate in a highly regulated industry
that requires the continued operation of sophisticated
information technology systems and network infrastruc-
ture. Despite our implementation of security measures,
all of our technology systems are vulnerable to dis-
ability or failures due to hacking, viruses, acts of war or
terrorism, and other causes. If our technology systems
were to fail and we were unable to recover in a timely
way, we would be unable to fulfill critical business func-
tions, which could have a material adverse effect on
our business, operating results, and financial condition.
In addition, our generation plants, fuel storage facilities,
transmission and distribution facilities may be targets
of terrorist activities that could disrupt our ability to pro-
duce or distribute some portion of our energy products.
Any such disruption could result in a material decrease
in revenues and significant additional costs to repair
and insure our assets, which could have a material
adverse effect on our business, operating results, and
financial condition. The continued threat of terrorism
and heightened security and military action in response
to this threat, or any future acts of terrorism, may cause
further disruptions to the economies of the United
States and other countries and create further uncertain-
ties or otherwise materially harm our business, operat-
ing results, and financial condition.
Item 1b Unresolved Staff Comments
None.
Item 2 Properties
Information relating to our properties is contained in
Item 1 – Electric Operations and Fuel Supply and Note
4 of Notes to Consolidated Financial Statements.
Substantially all property and plants of DP&L are
subject to the lien of the mortgage securing DP&L’s
First and Refunding Mortgage, dated as of October 1,
1935 with the Bank of New York, as Trustee (Mortgage).
Item 3 Legal Proceedings
In the normal course of business, we are subject to
various lawsuits, actions, proceedings, claims and
other matters asserted under laws and regulations. We
are also from time to time involved in other reviews,
investigations and proceedings by governmental and
regulatory agencies regarding our business, certain of
which may result in adverse judgments, settlements,
fines, penalties, injunctions or other relief. We believe
the amounts provided in our consolidated financial
statements, as prescribed by GAAP, for these matters
are adequate in light of the probable and estimable
contingencies. However, there can be no assurances
that the actual amounts required to satisfy alleged
liabilities from various legal proceedings, claims and
other matters (including those matters noted below),
24 DPL Inc.
and to comply with applicable laws and regulations will
not exceed the amounts reflected in our consolidated
financial statements. As such, costs, if any, that may
be incurred in excess of those amounts provided as of
December 31, 2008, cannot be reasonably determined.
Insurance Recovery Claim
On May 16, 2007, DPL filed a claim with Energy
Insurance Mutual (EIM) to recoup legal expenses asso-
ciated with our litigation against former executives.
That claim is pending.
State Income Tax Audit Reviews
On February 13, 2006, we received correspondence
from the Ohio Department of Taxation (ODT) notify-
ing us that ODT has completed their examination and
review of our Ohio Corporation Franchise Tax Returns
for tax years 2002 through 2004 and that the final
proposed audit adjustments result in a balance due
of $90.8 million before interest and penalties. On June
27, 2008, we entered into a $42.0 million settlement
agreement with the ODT resolving all outstanding audit
issues and appeals, including uncertain tax positions
for tax years 1998 through 2006. The $42.0 million was
paid to the ODT in July 2008.
Sierra Club
In September 2004, the Sierra Club filed a lawsuit
against DP&L and the other owners of the Stuart gen-
erating station in the United States District Court for
the Southern District of Ohio for alleged violations of
the Clean Air Act (CAA) and the station’s operating
permit. On August 7, 2008, a consent decree was filed
in the United States District Court in full settlement of
these CAA claims. Under the terms of the consent
decree, the co-owners of the Stuart generating station
agreed to: (i) certain emission targets related to NOx,
SO2 and particulate matter; (ii) make energy efficiency
and renewable energy commitments that are condi-
tioned on receiving Public Utilities Commission of Ohio
approval for the recovery of costs; (iii) forfeit 5,500
sulfur dioxide allowances; and (iv) provide funding to
a third party non-profit organization to establish a solar
water heater rebate program. DP&L and the other
owners of the station also entered into an attorney fee
agreement to pay a portion of the Sierra Club’s attor-
ney and expert witness fees. On October 23, 2008,
the United States District Court approved the consent
decree with funding for the third party non-profit orga-
nization set at $300,000. We have determined that the
terms of the consent decree will not have a material
impact on our overall results of operations, financial
position or cash flows.
Governmental and Regulatory Inquiries
On March 10, 2004, DPL’s and DP&L’s Corporate
Controller, sent a memorandum (the Memorandum) to
the Chairman of the Audit Committee of our Board
of Directors. The Memorandum expressed the
Corporate Controller’s “concerns, perspectives and
viewpoints” regarding financial reporting and gover-
nance issues within DPL and DP&L. In response the
Board initiated an internal investigation whose findings
and recommendations led to corrective action taken
regarding internal controls, process issues and the
tone at the top.
On May 28, 2004, the U.S. Attorney’s Office for
the Southern District of Ohio, assisted by the Federal
Bureau of Investigation, notified DPL and DP&L that it
had initiated an inquiry involving matters connected to
our internal investigation. This inquiry remains pending.
On or about June 24, 2004, the SEC commenced
a formal investigation into the issues raised by the
Memorandum. This investigation remains pending.
Additional information relating to legal proceedings
involving DPL and DP&L is contained in Item 1 –
Environmental Considerations, Item 1 – Competition
and Regulation, and Item 8 – Note 18 of Notes to
Consolidated Financial Statements and is incorporated
by reference into this Item.
Item 4 Submission of Matters to a
Vote of Security Holders
None.
DPL Inc.
25
Part II
Item 5 Market for Registrant’s Common Equity, Related Stockholder Matters and
Issuer Purchases of Equity Securities
As of February 24, 2009, there were 21,534 holders of record of DPL common equity, excluding individual
participants in security position listings. The following table presents the high and low per share sales prices for
DPL common stock as reported by the New York Stock Exchange for each quarter of 2008 and 2007:
First Quarter
Second Quarter
Third Quarter
Fourth Quarter
2008
2007
High
$ 30.18
$ 28.70
$ 26.76
$ 24.59
Low
$ 24.58
$ 26.10
$ 23.00
$ 19.16
High
$ 31.44
$ 31.91
$ 29.36
$ 30.83
Low
$ 27.56
$ 28.08
$ 26.04
$ 26.05
DP&L’s common stock is held solely by DPL and, as a result, is not listed for trading on any stock exchange.
As long as DP&L preferred stock is outstanding, DP&L’s Amended Articles of Incorporation contain
provisions restricting the payment of cash dividends on any of its common stock if, after giving effect to such
dividend, the aggregate of all such dividends distributed subsequent to December 31, 1946 exceeds the net
income of DP&L available for dividends on its Common Stock subsequent to December 31, 1946, plus
$1.2 million. As of December 31, 2008, all earnings reinvested in the business of DP&L were available for DP&L
common stock dividends. We expect all 2008 earnings reinvested in the business of DP&L to be available
for DP&L common stock dividends, payable to DPL.
On December 10, 2008, DPL’s Board of Directors authorized a quarterly dividend rate increase of approxi-
mately 4%, increasing the quarterly dividend per DPL common share from $.275 to $.285. If this increase were
maintained, the annualized dividend rate would increase from $1.10 per share to $1.14 per share.
Additional information concerning dividends paid on DPL common stock is set forth under Selected
Quarterly Information in Item 8 – Financial Statements and Supplementary Data.
Information regarding DPL’s equity compensation plans as of December 31, 2008 is disclosed in Item 12 –
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters,
which incorporates such information by reference from DPL’s proxy statement for the 2009 Annual Meeting
of Shareholders.
26 DPL Inc.
The following graph compares the cumulative 5-year total return to shareholders on DPL Inc.’s common stock
relative to the cumulative total returns of the Dow Jones US Industrial Average index, the S&P Utilities index,
and the S&P Electric Utilities index. An investment of $1,000 (with reinvestment of all dividends) is assumed to
have been made in the company’s common stock and in each index on December 31, 2003 and its relative
performance is tracked through December 31, 2008.
Comparison of 5 Year Cumulative Total Return*
Among DPL Inc., The Dow Jones US Industrial Average Index,
The S&P Electric Utilities Index and The S&P Utilities Index
$ 2,500
2,000
1,500
1,000
500
$1,675 S&P Electric Utilities
$1,490 S&P Utilities
$1,331 DPL Inc.
$945
Dow Jones
US Industrial Average
12/2003
12/2004
12/2005
12/2006
12/2007
12/2008
* $1000 invested on 12/31/03 in stock or index-including reinvestment of dividends.
Fiscal year ending December 31.
Copyright ©2009, Standard & Poor’s, a division of The McGraw-Hill Companies, Inc. All rights reserved.
www.researchdatagroup.com/S&P.htm
U.S. dollars
12/03
12/04
12/05
12/06
12/07
12/08
1,000
DPL Inc.
Dow Jones US Industrial Average 1,000
1,000
S&P Electric Utilities
1,000
S&P Utilities
1,255
1,053
1,266
1,243
1,348
1,071
1,489
1,452
1,495
1,275
1,835
1,757
1,653
1,389
2,259
2,097
1,331
945
1,675
1,490
The stock price performance included in this graph is not necessarily indicative
of future stock price performance.
DPL Inc.
27
Item 6 Selected Financial Data
$ in millions except per share amounts or as indicated
2008
2007
2006
2005
2004
For years ended December 31,
DPL Inc.
Basic earnings (loss) per share of common stock:
Continuing operations (c)
Discontinued operations
Cumulative effect of accounting change (a)
Total basic earnings per common share
Diluted earnings (loss) per share of common stock:
Continuing operations (c)
Discontinued operations
Cumulative effect of accounting change (a)
Total dilutive earnings per common share
$
$
$
$
$
$
$
$
2.22
–
–
2.22
2.12
–
–
2.12
$
$
$
$
$
$
$
$
1.97
0.09
–
2.06
1.80
0.08
–
1.88
$
$
$
$
$
$
$
$
1.12
0.12
–
1.24
1.03
0.12
–
1.15
$
$
$
$
$
$
$
$
1.03
0.44
(0.03)
1.44
0.97
0.41
(0.03)
1.35
$
$
$
$
$
$
$
$
1.01
0.80
–
1.81
1.00
0.78
–
1.78
Dividends declared per share
Dividend payout ratio
1.10
$
49.5%
1.04
$
50.5%
1.00
$
80.7%
0.96
$
66.7%
0.96
$
53.0%
Total Electric sales (millions of kWh)
17,172
18,598
18,418
17,906
18,465
Results of Operations:
Revenues
Earnings from continuing operations, net of tax (c)
Earnings (loss) from discontinued operations, net of tax
Cumulative effect of accounting change, net of tax
Net Income
Financial Position items at December 31,:
Total Assets
Long-term Debt (b)
Total construction additions
Senior unsecured debt ratings at December 31,:
Fitch Ratings
Moody’s Investors Service
Standard & Poor’s Corporation
$ 1,601.6
$ 244.5
–
$
–
$
$ 244.5
$ 1,515.7
$ 211.8
10.0
$
–
$
$ 1,393.5
$ 125.6
14.0
$
–
$
$ 1,284.9
$ 124.7
52.9
$
(3.2)
$
$ 1,199.9
$ 121.5
95.8
$
–
$
$ 221.8
$ 139.6
$ 174.4
$ 217.3
$ 3,675.1
$ 1,376.1
$ 227.8
$ 3,566.6
$ 1,541.5
$ 346.7
$ 3,612.2
$ 1,551.8
$ 351.6
$ 3,791.7
$ 1,677.1
$ 179.7
$ 4,165.5
$ 2,117.3
98.0
$
BBB+
Baa2
BBB-
BBB+
Baa2
BBB-
BBB
Baa3
BB
BBB-
Ba1
BB-
BB
Ba3
B+
Number of Shareholders – Common Stock
21,628
22,771
24,434
26,601
28,079
The Dayton Power and Light Company
Total Electric sales (millions of kWh)
17,105
18,598
18,418
17,906
18,465
Results of Operations:
Revenues
Earnings on Common Stock (c)
Financial Position items at December 31,:
Total Assets
Long-term Debt (b)
Senior secured debt ratings at December 31,:
Fitch Ratings
Moody’s Investors Service
Standard & Poor’s Corporation
Number of Shareholders – Preferred Stock
$ 1,572.9
284.9
$
$ 1,507.4
$ 270.7
$ 1,385.2
$ 241.6 $
$ 1,276.9
210.9
$ 1,192.2
$ 208.1
$ 3,435.8
884.0
$
$ 3,276.7
$ 874.6
$ 3,090.3
$ 785.2
$ 2,738.6
$ 685.9
$ 2,641.4
$ 686.6
A+
A2
A-
256
A+
A2
BBB+
281
A
A3
BBB
290
A-
Baa1
BBB-
BBB
Baa3
BBB-
329
357
(a) In 2005, we recorded a cumulative effect of an accounting change related to an additional obligation in response to FASB Interpretation
Number (FIN) 47, “Accounting for Conditional Asset Retirement Obligations, an interpretation of FASB Statement No. 143.”
(b) Excludes current maturities of long-term debt.
(c) In the fourth quarter of 2006, DPL entered into agreements to sell two of its peaking facilities resulting in a $44.2 million ($71 million pre-tax)
impairment charge. The sale was finalized in April 2007. During 2006, DPL recorded a $37.3 million ($61.2 million pre-tax) charge for early
redemption of debt. DP&L recorded a $2.5 million ($4.1 million pre-tax) charge for early redemption of debt in 2006. In May 2007, DPL settled
the litigation with the former executives resulting in a $19.7 million ($31 million pre-tax) gain. In April 2007, DPL also recouped legal costs
associated with the litigation with the former executives from one of its insurers resulting in a $9.2 million ($14.5 million pre-tax) gain. In 2008,
DPL sold coal and excess emission allowances to various counterparties, realizing net gains of $58.2 million ($83.4 million pre-tax) and
$24.3 million ($34.8 million pre-tax), respectively. Also, in June 2008, DPL entered into a $42 million tax settlement with Ohio Department of
Taxation resulting in a recorded income tax benefit of $8.5 million.
28 DPL Inc.
Item 7 Management’s Discussion
and Analysis of Financial Condition
and Results of Operations
This report includes the combined filing of DPL Inc.
(DPL) and The Dayton Power and Light Company
DP&L. DP&L is the principal subsidiary of DPL pro-
viding approximately 98% of DPL’s total consolidated
revenue and approximately 93% of DPL’s total con-
solidated asset base. Throughout this report the terms
we, us, our and ours are used to refer to both DPL and
DP&L, respectively and altogether, unless the context
indicates otherwise. Discussions or areas of this report
that apply only to DPL or DP&L will clearly be noted
in the section.
Certain statements contained in this discussion
are “forward-looking statements” within the meaning
of the Private Securities Litigation Reform Act of 1995.
Matters discussed in this report that relate to events or
developments that are expected to occur in the future,
including management’s expectations, strategic objec-
tives, business prospects, anticipated economic perfor-
mance and financial condition and other similar matters
constitute forward-looking statements. Forward-looking
statements are based on management’s beliefs,
assumptions and expectations of future economic per-
formance, taking into account the information currently
available to management. These statements are not
statements of historical fact and are typically identified
by terms and phrases such as “anticipate,” “believe,”
“intend,” “estimate,” “expect,” “continue,” “should,”
“could,” “may,” “plan,” “project,” “predict,” “will” and
similar expressions. Such forward-looking statements
are subject to risks and uncertainties, and investors are
cautioned that outcomes and results may vary materi-
ally from those projected due to various factors beyond
our control, including but not limited to: abnormal or
severe weather and catastrophic weather-related dam-
age; unusual maintenance or repair requirements;
changes in fuel costs and purchased power, coal,
environmental emissions, natural gas and other com-
modity prices; volatility and changes in markets for
electricity and other energy-related commodities; per-
formance of our suppliers; increased competition and
deregulation in the electric utility industry; increased
competition in the retail generation market; changes in
interest rates; state, federal and foreign legislative and
regulatory initiatives that affect cost and investment
recovery, emission levels, rate structures or tax laws;
changes in federal and/or state environmental laws
and regulations to which DPL and its subsidiaries are
subject; the development and operation of Regional
Transmission Organizations (RTOs), including PJM
Interconnection, L.L.C. (PJM) to which DPL’s operating
subsidiary DP&L has given control of its transmission
functions; changes in our purchasing processes, pric-
ing, delays, contractor and supplier performance and
availability; significant delays associated with large
construction projects; growth in our service territory
and changes in demand and demographic patterns;
changes in accounting rules and the effect of account-
ing pronouncements issued periodically by accounting
standard-setting bodies; financial market conditions;
the outcomes of litigation and regulatory investigations,
proceedings or inquiries; general economic conditions;
and the risks and other factors discussed in this report
and other DPL and DP&L filings with the Securities
and Exchange Commission.
Forward-looking statements speak only as of the
date of the document in which they are made. We
disclaim any obligation or undertaking to provide any
updates or revisions to any forward-looking state-
ment to reflect any change in our expectations or any
change in events, conditions or circumstances on
which the forward-looking statement is based.
The following discussion should be read in con-
junction with the accompanying financials and related
footnotes included in Item 8 – Financial Statements
and Supplementary Data.
Business Overview
DPL is a regional electric energy and utility company
and through its principal subsidiary, DP&L, is primarily
engaged in the generation, transmission and distribu-
tion of electricity in West Central Ohio. DPL and
DP&L strive to achieve disciplined growth in energy
margins while limiting volatility in both cash flows and
earnings and to achieve stable, long-term growth
through efficient operations and strong customer and
regulatory relations. More specifically, DPL and DP&L’s
strategy is to match energy supply with load or cus-
tomer demand, maximizing profits while effectively
managing exposure to movements in energy and fuel
prices and utilizing the transmission and distribution
assets that transfer electricity at the most efficient
cost while maintaining the highest level of customer
service and reliability.
We operate and manage generation assets and
are exposed to a number of risks. These risks include
but are not limited to electricity wholesale price risk,
fuel supply and price risk and power plant perfor-
mance. We attempt to manage these risks through
various means. For instance, we operate a portfolio
of wholly-owned and jointly-owned generation assets
DPL Inc.
29
that is diversified as to coal source, cost structure
and operating characteristics. We are focused on the
operating efficiency of these power plants and main-
taining their availability.
We operate and manage transmission and dis-
tribution assets in a rate-regulated environment.
Accordingly, this subjects us to regulatory risk in terms
of the costs that we may recover and the investment
returns that we may collect in customer rates. We are
focused on delivering electricity and maintaining high
standards of customer service and reliability in a cost-
effective manner.
As we look forward, there are a number of issues
that we believe may have a significant impact on
our business and operations described above. The
following issues mentioned below are not meant
to be exhaustive but to provide insight to matters that
have or are likely to have an effect on our industry
and business:
Credit Markets
The current global credit crisis may adversely affect
our business and financial results. Since mid-2007,
and particularly during the second half of 2008, the
financial services industry and the securities markets
generally were materially and adversely affected by
significant declines in the values of nearly all asset
classes and by a serious lack of liquidity. This was
initially triggered by declines in the values of subprime
mortgages, but spread to all mortgage and real estate
asset classes, to leveraged bank loans and to nearly
all asset classes, including equities. Liquidity and
credit concerns were further exacerbated in September
2008 with Lehman Brothers’ bankruptcy filing, the sale
of Merrill Lynch to Bank of America, the U.S. govern-
ment conservatorship of Fannie Mae and Freddie Mac,
and the U.S. government loan to AIG. Because of this,
the ability of corporations to obtain funds through the
issuance of debt was negatively impacted. Disruptions
in the credit markets make it harder and more expen-
sive to obtain funding for our business. We issue debt
to cover the costs of certain of our operations and
expenditures and the inability to issue such debt on
reasonable terms, or at all, could negatively affect our
business and financial results. If our available funding
is limited or we are forced to fund our operations at a
higher cost, these conditions may require us to curtail
our business activities and increase our cost of fund-
ing, both of which could reduce our profitability.
Regulatory Environment
n Clean Air Interstate Rule (CAIR) decision by the U.S.
Court of Appeals for the District of Columbia Circuit
On July 11, 2008, the United States Court of Appeals
for the District of Columbia Circuit issued a decision
that vacated the United States Environmental Protection
Agency’s (USEPA) CAIR and its associated Federal
Implementation Plan. This decision remanded these
issues back to the USEPA. The USEPA issued CAIR
on March 10, 2005 to regulate certain upwind states
with respect to fine particulate matter and ozone. CAIR
created interstate trading programs for annual nitrogen
oxide (NOx) emission allowances and made modifica-
tions to an existing trading program for sulfur dioxide
(SO2) that were to take effect in 2010. The court’s deci-
sion, in part, invalidated the new NOx annual emission
allowance trading program and the modifications to the
SO2 emission trading program, and created uncertain-
ty regarding future NOx and SO2 emission reduction
requirements and their timing. On December 23, 2008,
the court reversed part of its decision that vacated
CAIR. Thus, CAIR currently remains in effect, but the
USEPA remains subject to the court’s order to revise
the program.
In the fourth quarter of 2007, DP&L began a pro-
gram for selling excess emission allowances, including
annual NOx emission allowances and SO2 emission
allowances that were the subject of CAIR trading pro-
grams. In subsequent quarters, DP&L recognized
gains from the sale of excess emission allowances to
third parties. The court’s CAIR decision has affected
the trading market for excess allowances and impact-
ed DP&L’s program for selling additional excess allow-
ances. The overall impact of the court’s decision, and
of the actions the USEPA or others will take in response
to this decision, on DPL and DP&L is not fully known
at this time and could have an adverse effect on us. In
January 2009, we resumed selling excess allowances
due to the revival of the trading market.
n Senate Bill 221 and ESP filing
On May 1, 2008, substitute Senate Bill 221, an Ohio
electric energy bill, was signed by the Governor
and went into effect July 31, 2008. In compliance with
SB 221, DP&L filed its electric security plan at the
PUCO on October 10, 2008. This plan contained three
parts: 1) a standard offer plan; 2) a customer conser-
vation and energy management plan; and 3) an alter-
native energy plan. The standard offer plan stated that
30 DPL Inc.
DP&L intends to maintain its current rate plan through
December 31, 2010, and addressed compliance
issues related to the PUCO rules. On February 24,
2009, DP&L filed a Stipulation and Recommendation
(the Stipulation) signed by the Staff of the PUCO,
the Office of the Ohio Consumers’ Counsel and vari-
ous intervening parties. The PUCO has the author-
ity to approve, modify or reject the Stipulation. The
Stipulation is further discussed under Ohio Retail Rates
in Item 1 – Competition and Regulation. A final decision
from the PUCO regarding the Stipulation is expected
by the end of the second quarter of 2009.
n Greenhouse Gases
The rules issued by the United States Environmental
Protection Agency (USEPA) and Ohio Environmental
Protection Agency (Ohio EPA) that require substantial
reductions in SO2, mercury and NOx emissions
may impact our business and operations. We are
installing (and have installed) emission control technol-
ogy and are taking other measures to comply with
required reductions.
In addition to the requirements related to emis-
sions of SO2, NOx and mercury noted above, there
is a growing concern nationally and internationally
about global climate change and the contribution of
emissions of greenhouse gases, including most sig-
nificantly, carbon dioxide (CO2). This concern has led
to increased interest in legislation at the federal level
and actions at the state level as well as litigation relat-
ing to greenhouse gas emissions, including a recent
U.S. Supreme Court decision holding that the USEPA
has the authority to regulate CO2 emissions from motor
vehicles under the Clean Air Act (CAA). Increased
pressure for carbon dioxide emissions reduction is
also coming from investor organizations and the inter-
national community. If legislation or regulations are
passed at the federal or state levels imposing manda-
tory reductions of CO2 and other greenhouse gases
on generation facilities, the cost to DPL and DP&L of
such reductions could be material.
n Storm Costs
On September 14, 2008, the Midwest region was
severely affected by hurricane-force winds which
resulted in significant property damage and disruptions
to the supply of electric energy to retail customers.
Through December 31, 2008, we deferred approxi-
mately $13 million of incremental operation and
maintenance costs associated with storm restoration
efforts related to this storm and other major storms in
2008. On December 31, 2008, DP&L filed a request
for an accounting order with the PUCO seeking to
defer these incremental costs. On January 14, 2009
the PUCO granted that authority.
n Transmission, Ancillary Service and Capacity Costs
As a member of PJM Interconnection, L.L.C. (PJM),
DP&L is subject to charges associated with PJM oper-
ations as approved by the Federal Energy Regulatory
Commission (FERC). On November 7, 2008, DP&L
filed a request at the PUCO for authority to defer
costs associated with transmission, capacity, ancillary
service and other PJM related charges incurred as a
member of PJM. DP&L sought deferral until such time
as it files to seek recovery of these costs from retail
ratepayers. On February 19, 2009, the PUCO approved
DP&L’s request to defer these costs. DP&L anticipates
filing a request with the PUCO before the end of April
2009 seeking to recover these costs.
Fuel and Related Costs
n Fuel and Commodity Prices
Recently, the coal market has experienced significant
price volatility. We are now in a global market for coal
in which our domestic price is increasingly affected
by international supply disruptions and demand bal-
ance. Coal exports from the U.S. have increased sig-
nificantly in recent years. In addition, domestic issues
like government-imposed direct costs and permitting
issues are affecting mining costs and supply avail-
ability. Our approach is to hedge the fuel costs for
our anticipated electric sales. For the years ending
December 31, 2009 and 2010, we have hedged our
coal requirements with coal mine operators and finan-
cial institutions to meet our committed sales. We may
not be able to hedge the entire exposure of our opera-
tions from commodity price volatility. To the extent our
suppliers do not meet their contractual commitments or
we are not hedged against price volatility, our results
of operations, financial position or cash flows could be
materially affected. As part of its electric security plan
filing, DP&L requested regulatory authority to defer
fuel and fuel related costs that exceed the amount that
is in current rates. On February 24, 2009, DP&L filed
a Stipulation and Recommendation (the Stipulation)
signed by the Staff of the PUCO, the Office of the Ohio
Consumers’ Counsel and various intervening par-
DPL Inc.
31
ties. The Stipulation is further discussed under Ohio
Retail Rates in Item 1 – Competition and Regulation.
The Stipulation includes the implementation of a fuel
and purchased power recovery mechanism beginning
January 1, 2010 which will track and adjust fuel costs
on a quarterly basis. The PUCO has the authority to
approve, modify or reject the Stipulation. A final deci-
sion from the PUCO regarding the Stipulation is expect-
ed by the end of the second quarter of 2009.
n Sales of Coal and Excess Emission Allowances
During 2008, DP&L sold coal and excess emission
allowances to various counterparties realizing total net
gains of $83.4 million and $34.8 million, respectively.
These gains are recorded as a component of DP&L’s
fuel costs and reflected in operating income. Coal
sales are impacted by a range of factors but can be
largely attributed to the following: variation in power
demand, the market price of power compared to the
cost to produce power; as well as optimization oppor-
tunities in the coal market. Sales of excess emission
allowances are impacted, among other factors, by:
general economic conditions; fluctuations in market
demand and pricing; availability of excess inventory
available for sale; and changes to the regulatory envi-
ronment in which we operate. The combined impact
of these factors on our ability to sell coal and emission
allowances in 2009 and beyond is not fully known
at this time and could materially impact the amount of
gains that will be recognized in the future.
Financial Overview
As more fully discussed in later sections of this MD&A,
the following were the significant themes and events
for 2008:
n For the year ended December 31, 2008, DPL’s
basic and diluted earnings per share (EPS) of $2.22
and $2.12, respectively, increased over the basic and
dilutive EPS for the same period in 2007 by $0.16
and $0.24, respectively.
n Revenues for DPL and DP&L increased by 6% and
4%, respectively, over 2007 primarily due to increased
RTO capacity and other RTO revenues, and increased
retail prices, partially offset by decreased retail and
wholesale sales volume.
n Fuel costs for both DPL and DP&L, excluding the
gains from the sale of emission allowances discussed
below, decreased by 16% over 2007 mainly due to
decreased generation output and gains from the sale
of coal (see below).
n During the year ended December 31, 2008, DP&L
sold excess emission allowances to various counter-
parties realizing total net gains of $34.8 million com-
pared to net gains of $1.2 million realized in 2007.
n During 2008, DP&L also realized total net gains of
$83.4 million from coal sales to various counterparties
related to both DP&L and partner-operated generating
facilities. In 2007, the net gains realized from similar
sales amounted to $0.6 million.
Net gains realized from both emission allowance and
coal sales are recorded as a component of fuel costs
and reflected in operating income.
n Purchased power costs for DPL and DP&L
increased by 31% and 27%, respectively, over 2007
mainly due to increased RTO capacity and other
RTO charges, partially offset by reduced purchased
power volumes.
n DPL redeemed the $100 million 6.25% Senior Notes
on their May 15, 2008 maturity date.
n On June 27, 2008, DPL entered into a $42.0 million
settlement agreement with the Ohio Department of
Taxation (ODT) resolving all outstanding audit issues
and appeals, including uncertain tax positions for tax
years 1998 through 2006. The $42.0 million payment
was made to the ODT in July 2008. Due to this settle-
ment agreement, the balance of the unrecognized
state tax liabilities recorded at March 31, 2008, in the
amount of $56.3 million, was reversed, resulting in a
recorded income tax benefit in 2008 of $8.5 million,
net of federal tax impact.
n On September 18, 2008, Lehman Brothers Inc.
exercised 12 million DPL warrants under a cashless
exercise transaction. Each warrant was exercisable for
one common share, subject to anti-dilution adjustments
(e.g., stock split, stock dividend) at an exercise price
of $21.00 per common share. This exercise resulted
in the issuance of 2.3 million shares of DPL common
stock from DPL’s shares held in treasury.
n On November 15, 2007, The Ohio Air Quality
Development Authority (OAQDA) issued $90 million of
collateralized, variable rate OAQDA Revenue Bonds,
2007 Series A due November 1, 2040. In turn, DP&L
borrowed these funds from the OAQDA. The payment
of principal and interest on the bonds when due was
32 DPL Inc.
insured by an insurance policy issued by Financial
Guaranty Insurance Company (FGIC). During the
first quarter of 2008, all three credit rating agencies
downgraded FGIC. These downgrades, as well as the
downgrades of our major bond insurers, resulted in
auction rate security bonds carrying substantially high-
er interest rates in succeeding auctions and incurring
failed auctions. On April 4, 2008, DP&L converted the
2007 Series A Bonds from Auction Rate Securities to
Variable Rate Demand Notes. At that time, DP&L pur-
chased these notes out of the market and placed them
with the Trustee to be held until the capital markets
corrected. These notes were redeemed in December
2008 as discussed in the following paragraph.
On December 4, 2008, the OAQDA issued
$100 million of collateralized, variable rate Revenue
Refunding Bonds Series A and B due November 1,
2040. In turn, DP&L borrowed these funds from
the OAQDA. The payment of principal and interest
on the bonds when due is backed by a standby letter
of credit issued by a syndicated bank group credit
facility. DP&L is using $10 million of these bonds to
finance its portion of the costs of acquiring, construct-
ing and installing certain solid waste disposal and
air quality facilities at the Conesville generation station.
The remaining $90 million was used to redeem the
2007 Series A Bonds. The above transactions are
further discussed in Note 7 of Notes to Consolidated
Financial Statements.
n On December 10, 2008, DPL’s Board of Directors
authorized a quarterly dividend rate increase of
approximately 4%, increasing the quarterly dividend
per DPL common share from $.275 to $.285. If this
increase were maintained, the annualized dividend
rate would increase from $1.10 per share to $1.14
per share.
n The four FGD units were completed, tested and are
fully operational at the Stuart station. The increased
operating costs and depreciation in 2008 are mainly
associated with these units.
Results of Operations – DPL Inc.
DPL’s results of operations include the results of its
subsidiaries, including the consolidated results of its
principal subsidiary DP&L and all of DP&L’s consoli-
dated subsidiaries. DP&L provides approximately 98%
of the total revenues of DPL. All material intercompany
accounts and transactions have been eliminated in
consolidation. A separate specific discussion of the
results of operations for DP&L is presented elsewhere
in this report.
Income Statement Highlights – DPL
$ in millions
2008
2007
2006
Revenues:
$ 1,223.3 $ 1,206.2 $ 1,131.4
Retail
174.1
180.3
149.9
Wholesale
77.2
87.4
RTO revenues
110.4
–
30.9
RTO capacity revenues 106.9
10.8
10.9
11.1
Other revenues
Total revenues
$ 1,601.6 $ 1,515.7 $ 1,393.5
Cost of revenues:
Fuel costs
Gains from sale of
$ 361.2 $ 330.0 $ 349.1
coal
(83.4)
(0.6)
Gains from sale of
emission allowances
(34.8)
(1.2)
–
–
Net fuel
243.0
328.2
349.1
Purchased power
RTO charges
RTO capacity charges
148.7
127.8
100.9
156.9
101.9
28.4
109.6
49.4
–
Total purchased power 377.4
287.2
159.0
Total cost of revenues
$ 620.4 $ 615.4 $ 508.1
Gross margins (a)
$ 981.2 $ 900.3 $ 885.4
Gross margin as a
percentage of revenues 61.3%
59.4%
63.5%
Operating income
$ 435.5 $ 370.1 $ 281.0
Basic earnings per share:
Continuing operations $
Discontinued operations
2.22 $
–
1.97 $
0.09
Total basic
$
2.22 $
2.06 $
Diluted earnings per share:
Continuing operations $
Discontinued operations
2.12 $
–
1.80 $
0.08
Total diluted
$
2.12 $
1.88 $
1.12
0.12
1.24
1.03
0.12
1.15
(a) For purposes of discussing operating results, we present and
discuss gross margins. This format is useful to investors because
it allows analysis and comparability of operating trends and includes
the same information that is used by management to make decisions
regarding our financial performance.
DPL Inc. – Revenues
Retail customers, especially residential and commercial
customers, consume more electricity on warmer and
colder days. Therefore, DPL’s retail sales volume is
impacted by the number of heating and cooling degree
days occurring during a year. Since DPL plans to uti-
lize its internal generating capacity to supply its retail
customers’ needs first, increases in retail demand will
decrease the volume of internal generation available to
be sold in the wholesale market and vice versa.
The wholesale market covers a multi-state area
and settles on an hourly basis throughout the year.
Factors impacting DPL’s wholesale sales volume each
DPL Inc.
33
hour of the year include wholesale market prices;
DPL’s retail demand; retail demand elsewhere through-
out the entire wholesale market area; and DPL and
non-DPL plants’ availability to sell into the wholesale
market and weather conditions across the multi-state
region. DPL’s plan is to make wholesale sales when
market prices allow for the economic operation of
its generation facilities not being utilized to meet its
retail demand.
The following table provides a summary of
changes in revenues from prior periods:
$ in millions
2008 vs. 2007
2007 vs. 2006
Retail
Rate
Volume
Other miscellaneous
Total retail change
Wholesale
Rate
Volume
Total wholesale change
RTO capacity and other
RTO capacity and
other revenues
Total revenues change
$ 45.1
(23.7)
(4.3)
$ 17.1
$ 29.8
(60.2)
$ (30.4)
$ 38.4
34.1
2.3
$ 74.8
$ 19.8
(13.6)
$ 6.2
$ 99.2 $
$ 85.9
41.2
$ 122.2
For the year ended December 31, 2008, revenues
increased $85.9 million, or 6%, over the same period in
the prior year. This increase was primarily the result
of higher average rates for retail and wholesale sales
and an increase in RTO capacity and other RTO
revenues, partially offset by lower retail and wholesale
sales volume.
n The net increase in retail revenues results primarily
from a 4% increase in average retail rates due largely
to the second phase of an environmental investment
rider, partially offset by a 2% decrease in sales volume.
n The decrease in retail sales volume is primarily a
result of milder weather which caused cooling degree
days to decrease 26% and a 6% decrease in volume
of sales to industrial customers. The lower sales to
industrial customers is largely a direct result of the
downturn in the economy which has severely affected
the automotive and other related industries in the
region resulting in plant closures and reduced pro-
duction. These decreases were partially offset by an
increase in heating degree days of 9%.
n The net decrease in wholesale revenues is
primarily a result of a 33% decrease in sales volume
due largely to unplanned outages, partially offset by
a 25% increase in wholesale average rates.
n RTO capacity and other RTO revenues, consisting
primarily of compensation for use of DP&L’s transmis-
sion assets, regulation services, reactive supply and
operating reserves, and capacity payments under
the RPM construct, increased $99.2 million over the
same period of the prior year. This increase primarily
resulted from additional income realized from the
PJM capacity auction and other RTO revenues.
For the year ended December 31, 2007, revenues
increased $122.2 million, or 9%, over the same period
in the prior year. This increase was primarily the result
of higher average rates for retail and wholesale sales,
higher retail sales volume and an increase in RTO
capacity and other RTO revenues, partially offset by
lower wholesale sales volume.
n The net increase in retail revenues results primarily
from a 3% increase in weather driven sales volume as
total degree days increased 9%, and a 3% increase
in average retail rates primarily relating to the environ-
mental investment and storm recovery riders.
n The net increase in wholesale revenues is primarily
a result of a 12% increase in wholesale average rates,
partially offset by an 8% decrease in sales volume.
n RTO capacity and other RTO revenues, consisting
primarily of compensation for use of DP&L’s transmis-
sion assets, regulation services, reactive supply and
operating reserves and capacity payments under the
RPM construct, increased $41.2 million over the same
period in 2006. This increase primarily resulted from
additional income realized from the PJM capacity
auction, the PJM transmission losses and congestion
credits, and from other RTO revenues.
DPL Inc. – Cost of Revenues
For the year ended December 31, 2008:
n Fuel costs, which include coal (net of sales), gas,
oil, and emission allowance sales and costs,
decreased $85.2 million, or 26%, compared to the
same period in 2007, primarily due to increases in
net gains of $33.6 million from the sale of DP&L’s
34 DPL Inc.
excess emission allowances and $82.8 million real-
ized from the sale of DP&L’s coal combined with a
decrease in the usage of fuel due mainly to a 6%
decrease in generation output largely attributable to
unplanned outages. These decreases were partially
offset by increased fuel prices. The successful
installation of FGD equipment at Miami Fort, Killen
and Stuart stations has allowed us the ability to burn
coal with a wide range of sulfur content and, accord-
ingly, we purchase and sell coal as we seek to achieve
optimum levels of production efficiency. Gains or
losses from sales of coal and emission allowances
are recorded as components of fuel costs.
n Purchased power costs increased $90.2 million,
or 31%, compared to the same period in 2007. The
increase in purchased power primarily results from
a $15.3 million increase relating to higher average
market rates and a $98.4 million increase in RTO
capacity and other RTO charges, partially offset by
a $23.5 million decrease relating to lower volumes of
purchased power. We purchase power to satisfy
retail sales volume when generating facilities are not
available due to planned and unplanned outages, or
when market prices are below the marginal costs
associated with our generating facilities.
For the year ended December 31, 2007:
n Fuel costs decreased by $20.9 million, or 6%, in
2007 compared to the same period in 2006 primar-
ily due to a decrease in the usage of fuel due mainly
to a 4% decrease in generation output resulting from
scheduled and unscheduled plant outages, as well
as a 2% decrease in average fuel prices.
n Purchased power costs increased $128.2 million
in 2007 compared to the same period in 2006. The
increase in purchased power primarily resulted from
a $57.6 million increase related to higher purchased
power volume and a $80.9 million increase in RTO
capacity and other RTO charges, partially offset by a
$10.4 million decrease related to lower average
market rates. We purchase power to satisfy retail sales
volume when generating facilities are not available
due to planned and unplanned outages, or when
market prices are below the marginal costs associated
with our generating facilities.
DPL Inc. – Gross Margins
During 2008, gross margin of $981.2 million increased
$80.9 million, or 9%, from $900.3 million in 2007. As
a percentage of total revenues, gross margin increased
to 61% in 2008 compared to 59% in 2007.
During 2007, gross margin of $900.3 million
increased $14.9 million, or 2%, from $885.4 million in
2006. As a percentage of total revenues, gross
margin decreased to 59% in 2007 as compared to
64% in 2006.
These gross margin results reflect the impact of
revenues and cost of revenues discussed above.
DPL Inc. – Operation and Maintenance
$ in millions
Legal costs
Deferred compensation
2008 vs. 2007
$ (17.6)
(primarily mark-to-market adjustments)
(8.1)
Employee stock ownership plan
(ESOP) expenses
Pension
Insurance settlement
Generating facilities operating expenses
Gain on sale of corporate aircraft
Turbine maintenance costs
Boiler maintenance costs
Other, net
(7.1)
(2.4)
14.5
11.1
6.0
4.1
1.0
(1.8)
Total operation and maintenance expense
$ (0.3)
During the year ended December 31, 2008, operation
and maintenance expense decreased $0.3 million,
or less than 1%, as compared to 2007. This variance
was primarily due to:
n a decrease in legal costs due largely to the
litigation settlement with three of our former executives
in May 2007,
n a decrease in deferred compensation costs
(primarily mark-to-market adjustments) associated to
a large degree with deferred compensation liabilities
for the former executives,
n a decrease in employee compensation expense
associated with the ESOP due mainly to the additional
shares that were released from the ESOP in 2007, and
n lower pension costs primarily due to the plan funding
made in November 2007.
These decreases were partially offset by:
n the 2007 insurance settlement which reimbursed
us for legal fees relating to the litigation with three
former executives,
DPL Inc.
35
n an increase in operating expenses largely due to
the operation of flue gas desulfurization (FGD)
and Selective Catalytic Reduction (SCR) equipment,
and related gypsum disposal,
n the gain on sale of the corporate aircraft realized
in 2007, and
n an increase in turbine maintenance costs incurred
due to an unplanned outage at a jointly-owned
production unit.
$ in millions
Boiler maintenance costs
Generating facilities operating expenses
Employee stock ownership plan
2007 vs. 2006
$ 17.7
9.4
(ESOP) expenses
4.4
Turbine maintenance costs
3.5
Overhead line and substation maintenance costs 3.0
(14.5)
Insurance settlement
(6.0)
Gain on sale of corporate aircraft
(4.2)
Legal costs
(0.4)
Employee benefits including pension
(5.5)
Other, net
Total operation and maintenance expense
$ 7.4
During the year ended December 31, 2007, operation
and maintenance expense increased $7.4 million, or
3%, as compared to 2006. This variance was primarily
due to:
n an increase in boiler maintenance costs largely
attributable to timing of scheduled outages,
n an increase in operating expenses largely due to
the operation of the FGD and SCR equipment, and
related gypsum disposal,
n an increase in employee compensation expense
associated with the ESOP due mainly to additional
shares being released from the ESOP, and
n increases in turbine maintenance costs as well as
overhead line and substation maintenance costs.
These increases were partially offset by:
n an insurance settlement reimbursing us for legal
fees relating to the litigation with the three former
executives,
n a gain on the sale of the corporate aircraft,
n a decrease in legal costs primarily resulting
from the settlement of the litigation with the former
executives, and
DPL Inc. – Depreciation and Amortization
During 2008, depreciation and amortization expense
increased $2.9 million as compared to 2007. This
increase was primarily a result of higher plant balances
due largely to installation of the FGD equipment, par-
tially offset by the impact of lower depreciation rates
for generation property which were put into effect on
August 1, 2007.
During 2007, depreciation and amortization
expense decreased $17.0 million as compared to
2006, primarily due to:
n the absence of depreciation for the peaking units
sold in April 2007 which reduced the expense by
$10.0 million, and
n the impact of lower depreciation rates for generation
property which were put into effect on August 1, 2007,
reducing the expense by $9.5 million.
This decrease was partially offset by a $2.4 million
increase to the expense related to increased plant
balances primarily resulting from the installation
of pollution control equipment.
DPL Inc. – General Taxes
During 2008, general taxes increased $13.7 million
as compared to 2007, primarily as a result of higher
property taxes due mainly to capital improvements
which have led to higher assessed property values,
combined with increased tax rates.
There were no significant fluctuations in the
general taxes in 2007 as compared to 2006.
DPL Inc. – Amortization of Regulatory Assets
There were no significant fluctuations in the amortiza-
tion of regulatory assets in 2008 as compared to 2007.
During 2007, amortization of regulatory assets
increased $3.2 million as compared to 2006, primarily
reflecting the amortization of incremental 2004/2005
severe storm costs that began on August 1, 2006.
DPL Inc. – Investment Income
During 2008, investment income decreased $7.7
million as compared to 2007. This decrease was
primarily the result of:
n $3.2 million of gains realized in 2007 from the sale
of financial assets held in DP&L’s Master Trust Plan for
deferred compensation which were used for the settle-
ment payment to the three former executives, and
n a decrease in employee benefits costs resulting from
a $5.2 million reduction in pension expense, partially
offset by a $4.8 million increase in employee benefits.
n lower cash and short-term investment balances
combined with overall lower market yields on invest-
ments in 2008 compared to 2007.
36 DPL Inc.
During 2007, investment income decreased $6.5
million as compared to 2006. This decrease was
primarily the result of lower interest income relating to
lower cash and short-term investment balances in
2007 compared to 2006. This decrease was partially
offset by $3.2 million in realized gains from the sale
of financial assets held in DP&L’s Master Trust Plan
for deferred compensation used for the settlement
payment to the three former executives.
DPL Inc. – Net Gain on Settlement of
Executive Litigation
On May 21, 2007, we settled litigation with three former
executives. In exchange for our payment of $25 million,
the three former executives relinquished and dismissed
all of their claims, including those related to deferred
compensation, restricted stock units (RSUs), MVE
incentives, stock options and legal fees. As a result
of this settlement, during 2007, DPL realized a net
pre-tax gain in continuing operations of approximately
$31.0 million. See Note 15 of Notes to Consolidated
Financial Statements.
DPL Inc. – Interest Expense
During 2008, interest expense increased $9.7 million,
or 12%, as compared to 2007 primarily as a result of:
n $12.9 million of lower capitalized interest due to the
completion of the FGD projects at Miami Fort, Killen,
and Stuart stations,
n the write-off of unamortized debt issuance costs
amounting to $1.6 million relating to pollution control
bonds following their repurchase from the bondholders
on April 4, 2008 (See Note 7 of Notes to Consolidated
Financial Statements) and
n $0.9 million of additional interest expense associated
with DP&L’s $90 million variable rate pollution control
bonds issued November 15, 2007 and repurchased on
April 4, 2008.
These increases were partially offset by a $7.0 million
interest expense reduction due to the redemption of
the $225 million 8.25% Senior Notes in March 2007
and the $100 million 6.25% Senior Notes in May 2008.
During 2007, interest expense decreased $21.2 million,
or 21%, as compared to the same period in 2006
primarily as a result of:
n $15.5 million less interest associated with the
redemption of DPL debt ($225 million, 8.25% Senior
Notes) and
n $9.1 million of greater capitalized interest
pri marily related to increased pollution control capital
expenditures.
These decreases were partially offset by an additional
$3.4 million of interest expense associated with
DP&L’s $100 million, 4.8% Series pollution control
bonds issued September 13, 2006.
DPL Inc. – Other Income (Deductions)
During 2008, other deductions of $1.0 million changed
from other income of $2.9 million recorded in 2007.
The change from other income to other deductions
primarily resulted from the recognition in 2007 of a
$2.1 million deferred credit related to a litigation
settlement (which was not part of the executive litiga-
tion settlement).
During 2007, other income of $2.9 million
increased $4.1 million from other deductions of $1.2
million recorded for the same period of the prior
year. The increase primarily resulted from the recogni-
tion of a $2.1 million deferred credit related to a
litigation settlement (which was not part of the execu-
tive litigation settlement).
DPL Inc. – Income Tax Expense
During 2008, income taxes decreased $19.6
million, or 16%, as compared to 2007, primarily due
to a decrease in the effective tax rate reflecting:
n the phase-out of the Ohio Franchise Tax (see
below), and
n the settlement of the Ohio Franchise Tax issue which
resulted in a recorded benefit of $8.5 million in 2008.
During 2007, income taxes from continuing operations
increased $52.7 million, or 76%, as compared to 2006
primarily due to:
n an increase in pre-tax book income,
n a decrease in the effective tax rate primarily
resulting from the phase-out of the Ohio Franchise
Tax (see below), and
n adjustments recorded in 2006 to true-up book tax
expense to the tax return.
On June 30, 2005, Governor Taft signed House Bill
66 into law which significantly changed the tax struc-
ture in Ohio. The major provisions of the bill included
phasing-out the Ohio Franchise Tax, phasing-out the
Ohio Personal Property Tax for non-utility taxpayers
and phasing-in a Commercial Activities Tax. The Ohio
Franchise Tax phase-out is complete as of December
31, 2008.
DPL Inc.
37
Results of Operations –
The Dayton Power and Light Company (DP&L)
of its generation facilities that are not being utilized
to meet its retail demand.
The following table provides a summary of
changes in revenues from prior periods:
$ in millions
2008 vs. 2007
2007 vs. 2006
Income Statement Highlights – DP&L
$ in millions
2008
2007
2006
Revenues:
Retail
Wholesale
RTO revenues
RTO capacity revenues
$ 1,075.3 $ 1,057.4 $ 998.1
309.9
331.7
293.5
77.2
87.4
108.3
–
30.9
95.8
Total revenues
$ 1,572.9 $ 1,507.4 $ 1,385.2
Cost of revenues:
Fuel costs
Gains from sale of
$ 349.6 $ 317.2 $ 335.2
Retail
Rate
Volume
Other miscellaneous
Total retail change
Wholesale
Rate
Volume
coal
(83.4)
(0.6)
Gains from sale of
emission allowances
(34.8)
(1.2)
–
–
Total wholesale change
RTO capacity and other
RTO capacity and other
Net fuel
231.4
315.4
335.2
revenues
Total revenues change
$ 43.0
(20.8)
(4.3)
$ 17.9
$ 79.2
(117.4)
$ (38.2)
$ 25.8
31.2
2.3
$ 59.3
$ 46.2
(24.4)
$ 21.8
$ 85.8 $
$ 65.5
41.1
$ 122.2
Purchased power
RTO charges
Capacity charges
152.4
126.6
100.9
170.0
101.9
28.4
122.5
49.4
–
Total purchased power 379.9
300.3
171.9
Total cost of revenues
$ 611.3 $ 615.7 $ 507.1
Gross margins (a)
$ 961.6 $ 891.7 $ 878.1
Gross margin as a
percentage of revenues 61.1%
59.2%
63.4%
Operating Income
$ 436.6 $ 375.1 $ 402.5
(a) For purposes of discussing operating results, we present and
discuss gross margins. This format is useful to investors because
it allows analysis and comparability of operating trends and includes
the same information that is used by management to make decisions
regarding our financial performance.
DP&L – Revenues
Retail customers, especially residential and commercial
customers, consume more electricity on warmer and
colder days. Therefore, DP&L’s retail sales volume is
impacted by the number of heating and cooling degree
days occurring during a year. Since DP&L plans to
utilize its internal generating capacity to supply its retail
customers’ needs first, increases in retail demand will
decrease the volume of internal generation available to
be sold in the wholesale market and vice versa.
The wholesale market covers a multi-state area
and settles on an hourly basis throughout the year.
Factors impacting DP&L’s wholesale sales volume
each hour of the year include wholesale market pric-
es; DP&L’s retail demand, retail demand elsewhere
throughout the entire wholesale market area; DP&L
and non-DP&L plants’ availability to sell into the whole-
sale market and weather conditions across the multi-
state region. DP&L’s plan is to make wholesale sales
when market prices allow for the economic operation
38 DPL Inc.
For the year ended December 31, 2008, revenues
increased $65.5 million, or 4%, over the same period in
the prior year. This increase was primarily the result
of higher average rates for retail and wholesale sales,
and an increase in RTO capacity and other RTO
revenues, partially offset by lower retail and wholesale
sales volume.
n The net increase in retail revenues results primarily
from a 4% increase in average retail rates due largely
to the second phase of an environmental investment
rider, partially offset by a 2% decrease in sales volume.
n The decrease in retail sales volume is primarily a
result of milder weather which caused cooling degree
days to decrease 26% and a 6% decrease in volume of
sales to industrial customers. The lower sales to indus-
trial customers is largely a direct result of the downturn
in the economy which has severely affected the
automotive and other related industries in the region
resulting in plant closures and reduced production.
These decreases were partially offset by an increase
in heating degree days of 9%.
n The net decrease in wholesale revenues is primar-
ily a result of a 35% decrease in sales volume due
largely to unplanned outages, partially offset by a 37%
increase in wholesale average rates.
n RTO capacity and other RTO revenues, consisting
primarily of compensation for use of DP&L’s trans-
mission assets, regulation services, reactive supply
and operating reserves, and capacity payments
under the RPM construct, increased $85.8 million
over the same period of the prior year. This increase
resulted from additional income realized from the
PJM capacity auction and other RTO revenues.
For the year ended December 31, 2007, revenues
increased $122.2 million, or 9%, over the same period
in the prior year. This increase was primarily the result
of higher average rates for retail and wholesale sales,
higher retail sales volume and an increase in RTO
capacity and other RTO revenues. These increases
were partially offset by lower wholesale sales volume.
n The net increase in retail revenues results primarily
from a 3% increase in weather driven sales volume
as total degree days increased 9%, and a 3% increase
in the average retail rates primarily relating to the
environmental investment and storm recovery riders.
n The net increase in wholesale revenues is primarily
a result of a 15% increase in wholesale average rates,
partially offset by an 8% decrease in sales volume.
n RTO capacity and other RTO revenues, consisting
primarily of compensation for use of DP&L’s transmis-
sion assets, regulation services, reactive supply
and operating reserves and capacity payments under
the RPM construct, increased $41.1 million over the
same period in 2006. This increase primarily resulted
from additional income realized from the PJM capacity
auction, the PJM transmission losses and congestion
credits and from other RTO revenues.
DP&L – Cost of Revenues
For the year ended December 31, 2008:
n Fuel costs, which include coal (net of sales), gas,
oil, and emission allowance sales and costs, decreased
$84.0 million, or 27%, compared to the same period in
2007, primarily due to increases in net gains of $33.6
million from the sale of DP&L’s excess emission
allowances and $82.8 million realized from the sale of
DP&L’s coal combined with a decrease in the usage
of fuel due mainly to a 6% decrease in generation out-
put largely attributable to unplanned outages. These
decreases were partially offset by increased fuel
prices. The successful installation of FGD equipment
at Miami Fort, Killen and Stuart stations has allowed
us the ability to burn coal with a wide range of sulfur
content and, accordingly, we purchase and sell coal as
we seek to achieve optimum levels of production effi-
ciency. Gains or losses from sales of coal and emission
allowances are recorded as components of fuel costs.
n Purchased power costs increased $79.6 million,
or 27%, compared to the same period in 2007. The
increase in purchased power primarily results from a
$11.8 million increase relating to higher average
market rates and a $97.2 million increase in RTO
capacity and other RTO charges, partially offset
by a $29.3 million decrease relating to lower volumes
of purchased power. We purchase power to satisfy
retail sales volume when generating facilities are not
available due to planned and unplanned outages,
or when market prices are below the marginal costs
associated with our generating facilities.
For the year ended December 31, 2007:
n Fuel costs decreased by $19.8 million, or 6%, in
2007 compared to the same period in 2006 primar-
ily due to a decrease in the usage of fuel due mainly
to a 4% decrease in generation output resulting from
scheduled and unscheduled plant outages, as well
as a 2% decrease in average fuel prices.
n Purchased power costs increased $128.4 million
in 2007 compared to the same period in 2006. The
increase in purchased power primarily resulted from
a $59.5 million increase related to higher purchased
power volume and a $80.9 million increase in RTO
capacity and other RTO charges, partially offset
by a $12.1 million decrease related to lower average
market rates. We purchase power to satisfy retail sales
volume when generating facilities are not available
due to planned and unplanned outages, or when
market prices are below the marginal costs associated
with our generating facilities.
DP&L – Gross Margins
During 2008, gross margin of $961.6 million increased
$69.9 million, or 8%, from $891.7 million in 2007. As
a percentage of total revenues, gross margin increased
to 61% in 2008 as compared to 59% in 2007.
During 2007, gross margin of $891.7 million
increased $13.6 million, or 2%, from $878.1 million in
2006. As a percentage of total revenues, gross margin
decreased to 59% in 2007 compared to 63% in 2006.
These gross margin results reflect the impact
of revenues and cost of revenues discussed above.
DP&L – Operation and Maintenance
$ in millions
2008 vs. 2007
Employee stock ownership plan
(ESOP) expense
Deferred compensation
(primarily mark-to-market adjustments)
Legal costs
Pension
Generating facilities operating expenses
Turbine maintenance costs
Boiler maintenance costs
Other, net
$ (7.0)
(5.8)
(3.9)
(2.4)
11.1
4.1
1.0
(5.1)
Total operation and maintenance expense
$ (8.0)
DPL Inc.
39
During the year ended December 31, 2008, operation
and maintenance expense decreased $8.0 million as
compared to 2007. This variance was primarily due to:
n a decrease in employee compensation expense
associated with the ESOP due mainly to the additional
shares that were released from the ESOP in 2007,
n a decrease in deferred compensation costs
(primarily mark-to-market adjustments) associated to
a large degree with deferred compensation liabilities
for the former executives,
n a decrease in legal fees, and
n lower pension costs primarily due to the plan funding
made in November 2007.
These decreases were partially offset by:
n an increase in operating expenses at our generating
facilities largely due to the operation of the FGD and
SCR equipment, and related gypsum disposal, and
n an increase in turbine maintenance costs incurred
due to an unplanned outage at a jointly-owned
production unit.
$ in millions
2007 vs. 2006
Boiler maintenance costs
$ 17.7
9.4
Generating facilities operating expenses
Employee stock ownership plan (ESOP) expense 4.4
Turbine maintenance costs
3.5
Overhead line and substation maintenance costs 3.0
(0.3)
Employee benefits including pension
1.6
Other, net
Total operation and maintenance expense
$ 39.3
During the year ended December 31, 2007, operation
and maintenance expense increased $39.3 million,
or 17%, as compared to 2006. This variance was
primarily due to:
n an increase in boiler maintenance costs largely
attributable to timing of scheduled outages,
n an increase in operating expenses largely due to
the operation of the FGD and SCR equipment, and
related gypsum disposal,
n an increase in employee compensation expense
associated with the ESOP due mainly to additional
shares being released from the ESOP, and
n increases in turbine maintenance costs as well as
overhead line and substation maintenance costs.
These increases were partially offset by a $0.3 million
decrease in employee benefits costs resulting from
a $5.1 million reduction in pension expense, partially
offset by a $4.8 million increase in employee benefits.
DP&L – Depreciation and Amortization
During 2008, depreciation and amortization expense
increased $3.3 million as compared to 2007. This
increase was primarily a result of higher plant balances
due largely to the installation of FGD equipment, par-
tially offset by the impact of lower depreciation rates
for generation property which were put into effect on
August 1, 2007.
During 2007, depreciation and amortization
expense decreased $5.5 million as compared to 2006,
primarily reflecting the impact of lower depreciation
rates for generation property which were put into
effect on August 1, 2007, reducing the expense by
$9.5 million. This decrease was partially offset by
an increase to the expense related to increased plant
balances primarily resulting from the installation of
pollution control equipment.
DP&L – General Taxes
During 2008, general taxes increased $13.9 million
as compared to 2007, primarily as a result of higher
property taxes due mainly to capital improvements
which have led to higher assessed property values,
combined with increased tax rates.
There were no significant fluctuations in the
general taxes in 2007 as compared to 2006.
DP&L – Amortization of Regulatory Assets
There were no significant fluctuations in the amortiza-
tion of regulatory assets in 2008 as compared to 2007.
During 2007, amortization of regulatory assets
increased $3.2 million as compared to 2006, primarily
reflecting the amortization of incremental 2004/2005
severe storm costs that began on August 1, 2006.
DP&L – Investment Income
During 2008, investment income decreased $16.7
million as compared to 2007. This decrease was
primarily the result of:
n $14.8 million of gains realized in 2007 on the transfer
of DPL common stock to the DP&L Retirement Income
Plan Trust (Pension) and
n $3.2 million of gains realized in 2007 from the sale
of financial assets held in DP&L’s Master Trust
Plan for deferred compensation which were used for
the settlement payment to the three former executives.
40 DPL Inc.
During 2007, investment income increased $17.0
million as compared to 2006. This increase was
primarily the result of:
n a realized gain of $14.8 million on the transfer of
DPL common stock to the DP&L Retirement Income
Plan Trust (Pension) and
n $3.2 million in realized gains from the sale of financial
assets held in DP&L’s Master Trust Plan for deferred
compensation used for the settlement payment to the
three former executives.
DP&L – Net Gain on Settlement of Executive Litigation
On May 21, 2007, we settled the litigation with the three
former executives. In exchange for our payment of $25
million, the three former executives relinquished and
dismissed all of their claims including those related to
deferred compensation, RSUs, MVE incentives, stock
options and legal fees. As a result of this settlement,
during the second quarter ended June 30, 2007, DP&L
realized a net pre-tax gain in continuing operations
of $35.3 million. See Note 15 of Notes to Consolidated
Financial Statements.
DP&L – Interest Expense
During 2008, interest expense increased $14.2
million as compared to the same period in 2007
primarily from:
n $12.9 million of lower capitalized interest due to the
completion of the FGD projects at Miami Fort, Killen,
and Stuart stations,
n The write-off of unamortized debt issuance costs
amounting to $1.6 million relating to pollution control
bonds following their repurchase from the bondholders
on April 4, 2008 (See Note 7 of Notes to Consolidated
Financial Statements), and
n $0.9 million of additional interest expense associated
with DP&L’s $90 million variable rate pollution control
bonds issued November 15, 2007 and repurchased on
April 4, 2008.
During 2007, interest expense decreased $1.1 million,
or 5%, as compared to 2006 primarily as a result of
$9.1 million of greater capitalized interest primarily
related to increased pollution control capital expendi-
tures. This decrease was partially offset by
n $3.4 million of additional interest expense associated
with DP&L’s $100 million, 4.8% Series pollution control
bonds issued September 13, 2006 and
n $2.8 million in additional interest on a short-term
loan from DPL.
DP&L – Other Income (Deductions)
During 2008, other deductions of $1.1 million changed
from other income of $2.9 million recorded in 2007. The
change from other income to other deductions primarily
resulted from the recognition in 2007 of a $2.1 million
deferred credit related to a litigation settlement (which
was not part of the executive litigation settlement).
During 2007, other income of $2.9 million
increased $4.1 million from other deductions of $1.2
million recorded for the same period of the prior year.
The increase primarily resulted from the recognition
of a $2.1 million deferred credit related to a litigation
settlement (which was not part of the executive litiga-
tion settlement).
DP&L – Income Tax Expense
During 2008, income taxes decreased $22.9 million,
or 16%, as compared to 2007, primarily due
to a decrease in the effective tax rate reflecting:
n the phase-out of the Ohio Franchise Tax
(see below), and
n the settlement of the Ohio Franchise Tax issue which
resulted in a recorded benefit of $8.5 million in 2008.
During 2007, income taxes from continuing operations
increased $0.9 million compared to 2006 due to:
n an increase in pre-tax book income,
n a decrease in the effective tax rate primarily
reflecting the phase-out of the Ohio Franchise Tax
(see below) and
n adjustments recorded in 2006 to true-up book tax
expense to the tax return.
On June 30, 2005, Governor Taft signed House
Bill 66 into law which significantly changed the tax
structure in Ohio. The major provisions of the bill
included phasing-out the Ohio Franchise Tax,
phasing-out the Ohio Personal Property Tax for non-
utility taxpayers and phasing-in a Commercial
Activities Tax. The Ohio Franchise Tax phase-out is
complete as of December 31, 2008.
Financial Condition, Liquidity and
Capital Requirements
DPL’s financial condition, liquidity and capital require-
ments, includes the consolidated results of its principal
subsidiary DP&L and all of DP&L’s consolidated
subsidiaries. All material intercompany accounts and
transactions have been eliminated in consolidation.
DPL Inc.
41
On July 27, 2005, DPL’s Board authorized the
repurchase of up to $400 million of common stock
from time to time in the open market or through private
transactions. DPL completed this share repurchase
program through a series of open market purchases
on August 21, 2006. This resulted in 14.9 million shares
being repurchased at an average price of $26.91
per share and at a total cost of $400 million. These
shares are currently held as treasury shares at DPL.
No shares were repurchased during 2007 or 2008.
DPL’s Cash Position
DPL’s cash and cash equivalents totaled $62.5 million
at December 31, 2008, compared to $134.9 million at
December 31, 2007, a decrease of $72.4 million. The
decrease in cash and cash equivalents was primar-
ily attributed to $243.6 million in capital expenditures,
$190.0 million used to retire long-term debt and
pollution control bonds, and $120.5 million in dividends
paid on common stock, partially offset by $363.2
million in cash generated from operating activities,
$98.4 million in net proceeds from the issuance of
pollution control bonds, and net withdrawals of $22.5
million from restricted funds to pay for pollution control
capital expenditures. At December 31, 2008, DPL
had $14.5 million restricted funds held in trust that will
be used to fund pollution control capital expenditures.
DP&L’s Cash Position
DP&L’s cash and cash equivalents totaled $20.8
million at December 31, 2008, compared to $13.2 mil-
lion at December 31, 2007, an increase of $7.6 million.
The increase in cash and cash equivalents was
primarily attributed to $394.6 million in cash generated
from operating activities and net withdrawals of $22.5
million from restricted funds to pay for pollution control
capital expenditures, partially offset by $242.0 million
in capital expenditures and $155.0 million in dividends
paid on common stock to the parent. At December 31,
2008, DP&L had $14.5 million restricted funds
held in trust that will be used to fund pollution control
capital expenditures.
Operating Activities
For the years ended December 31, 2008, 2007 and
2006, cash flows from operations were as follows:
The tariff-based revenue from our energy business
continues to be the principal source of cash from
operating activities. Management believes that the
diversified retail customer mix of residential, commer-
cial and industrial classes coupled with the rate
relief approved by the PUCO for 2006 through 2010
provides us with a reasonably predictable gross
cash flow from operations.
DPL’s Cash provided by Operating Activities
The net cash provided by operating activities for 2008
was primarily the result of cash received from utility
customers and from the sales of coal and excess
emission allowances, partially offset by the $42 million
payment made to the Ohio Department of Taxation
(ODT) upon settlement of outstanding tax issues. For
2007 and 2006, net cash provided by operating activi-
ties was primarily the result of cash received from
utility customers. These cash receipts were partially
offset by cash used for fuel, purchased power, operat-
ing expenditures, interest and taxes. The year-to-year
fluctuations in working capital result from the sale of
coal and excess emission allowances in 2008 and from
the timing of payments made and cash receipts from
our utility customers.
DP&L’s Cash provided by Operating Activities
The net cash provided by operating activities for 2008
was primarily the result of cash received from utility
customers and from the sales of coal and excess emis-
sion allowances, partially offset by the $42 million pay-
ment made to the ODT upon settlement of outstanding
tax issues. For 2007 and 2006, net cash provided
by operating activities was primarily the result of cash
received from utility customers. These cash receipts
were partially offset by cash used for fuel, purchased
power, operating expenditures, interest and taxes. The
year-to-year fluctuations in working capital result from
the sale of coal and excess emission allowances in
2008 and from the timing of payments made and cash
receipts from our utility customers.
Investing Activities
For the years ended December 31, 2008, 2007
and 2006, cash flows used for investing activities
were as follows:
Net Cash provided by Operating Activities
Net Cash used for Investing Activities
$ in millions
DPL
DP&L
2008
2007
2006
$ in millions
2008
2007
2006
$ 363.2 $ 318.1 $ 286.8
$ 394.6 $ 353.0 $ 343.8
DPL
DP&L
$ (248.5) $ (187.8) $ (207.6)
$ (242.0) $ (343.2) $ (332.9)
42 DPL Inc.
DPL’s Cash used for Investing Activities
Net cash flows used for investing activities in 2008
were primarily related to capital expenditures. Net
cash flows used for investing activities in 2007 were
for capital expenditures, partially offset by the sale of
peakers and aircraft. Net cash flows used for investing
activities in 2006 were related to capital expenditures
and the purchases of short-term investments and
securities, partially offset by the sale of short-term
investments and securities.
DP&L’s Cash used for Investing Activities
Net cash flows used for investing activities for 2008,
2007 and 2006 were due to capital expenditures.
Financing Activities
For the years ended December 31, 2008, 2007
and 2006, cash flows used for financing activities
were as follows:
Net Cash used for Financing Activities
$ in millions
2008
2007
2006
DPL
DP&L
$ (187.1) $ (257.6) $ (412.8)
$ (145.0) $ (42.7) $
(11.0)
DPL’s Cash used for Financing Activities
Net cash flows used for financing activities in 2008
were primarily the result of cash used to redeem the
$100.0 million 6.25% Senior Notes on May 15, 2008
and the $90.0 million OAQDA Revenue Bonds, 2007
Series A on December 4, 2008. Also, $120.5 million
was used to pay dividends to common stockholders.
These uses of cash were partially offset by net
proceeds of $98.4 million related to the issuance of
$100 million variable rate Revenue Refunding Bonds
Series A and B, on December 4, 2008, as well as
net withdrawals of $22.5 million from the trust set up
as a result of issuing pollution control bonds. Net cash
flows used for financing activities in 2007 were primar-
ily the result of cash used to redeem the $225.0 million
8.25% Senior Notes on March 1, 2007, and to pay
dividends to common stockholders of $111.7 million.
These uses of cash were partially offset by $63.2 mil-
lion of withdrawals from the trust set up as a result of
issuing pollution control bonds. Net cash flows used for
financing activities in 2006 were the result of cash used
to repurchase $400.0 million of common stock and pay
dividends to common stockholders of $112.4 million.
These uses of cash were partially offset by $89.9
million of withdrawals from the trust set up as a result
of issuing pollution control bonds.
On December 10, 2008, DPL’s Board of Directors
raised the quarterly dividend on DPL’s common stock
to $0.285 per share effective with the next dividend
declaration date. This increase, if maintained, results
in a current annualized dividend rate of $1.14 per
DPL common share.
DP&L’s Cash used for Financing Activities
Net cash flows used for financing activities in 2008
were primarily the result of cash used to redeem the
$90.0 million OAQDA Revenue Bonds, 2007 Series A
on December 4, 2008, to pay common stock dividends
of $155.0 million to our parent DPL, and to repay a
short-term loan to DPL of $20.0 million. These uses of
cash were partially offset by net proceeds of $98.4
million related to the issuance of $100 million variable
rate Revenue Refunding Bonds Series A and B on
December 4, 2008, as well as net withdrawals of $22.5
million from the trust set up as a result of issuing pol-
lution control bonds. Net cash flows used for financ-
ing activities for 2007 were primarily the result of cash
used to pay common stock dividends to DPL of $125.0
million, partially offset by $63.2 million of withdrawals
from the trust set up as a result of issuing pollution
control bonds and net cash received from the issuance
of short-term debt. Net cash flows used for financing
activities for 2006 were primarily the result of cash
used to pay common stock dividends to DPL of $100.0
million, partially offset by $89.9 million of withdrawals
from the trust set up as a result of issuing pollution con-
trol bonds.
Future Liquidity Requirements
In addition to its working capital requirements for 2009,
DPL is projecting to spend approximately $150 million
on capital expenditures relating primarily to its trans-
mission and distribution system, plant and equipment
and its environmental compliance program. Also, DPL’s
$175 million 8.00% Senior Notes become due in March
2009. We expect to fund these liquidity requirements
using a combination of projected cash from operations,
cash on hand and short-term borrowings. In reviewing
our future liquidity requirements, we considered the
following:
n DPL has a $220 million unsecured revolving credit
facility expiring in November 2011 and this facility may
be increased by an additional $50 million at any time at
the option of DPL. We had no outstanding borrowings
under this credit facility at December 31, 2008. Three
banks participate in this facility.
DPL Inc.
43
n Our future capital expenditures are expected to decrease relative to prior years and are projected to
approximate a total of $475 million for the three-year period 2009, 2010 and 2011.
n Cash flows generated from operations are expected to remain strong in the foreseeable future. Our ability to
generate positive cash flows is dependent on general economic conditions, competitive pressures, and other
business and risk factors described in Item 1A of this Form 10-K. We have not seen any material increase in our
provision for bad debts or in our customer disconnections for non-payment of electric services.
Despite the unprecedented turmoil in the credit markets during recent months, we believe that our existing
sources of liquidity will be sufficient to meet our future cash obligations and those of our subsidiaries.
A discussion of each of our critical liquidity commitments is outlined below.
Capital Requirements
Construction Additions
$ in millions
DPL Inc.
DP&L
2008
$ 228
$ 225
Actual
2007
$ 347
$ 344
2006
$ 352
$ 349
2009
$ 150
$ 147
Projected
2010
$ 150
$ 148
2011
$ 175
$ 173
DPL’s construction additions were $228 million, $347 million and $352 million in 2008, 2007 and 2006, respectively,
and are expected to approximate $150 million in 2009. Planned construction additions for 2009 relate to
DP&L’s environmental compliance program, power plant equipment and its transmission and distribution system.
DP&L’s construction additions were $225 million, $344 million and $349 million in 2008, 2007 and 2006,
respectively, and are expected to approximate $147 million in 2009. Planned construction additions for 2009 relate
to DP&L’s environmental compliance program, power plant equipment and its transmission and distribution system.
Capital projects are subject to continuing review and are revised in light of changes in financial and economic
conditions, load forecasts, legislative and regulatory developments and changing environmental standards,
among other factors. DPL, through its subsidiary DP&L, is projecting to spend an estimated $475 million in capital
projects for the period 2009 through 2011. Our ability to complete capital projects and the reliability of future
service will be affected by our financial condition, the availability of internal funds and the reasonable cost of
external funds. We expect to finance our construction additions with a combination of cash on hand, short-term
financing, long-term debt and cash flows from operations.
Debt and Debt Covenants
On March 25, 2004, DPL completed a $175 million private placement of unsecured 8.00% Series Senior Notes
due March 2009. The purchasers were granted registration rights in connection with the private placement
under an Exchange and Registration Rights Agreement. Pursuant to this agreement, DPL was obligated to file
an exchange offer registration statement by July 22, 2004, have the registration statement declared effective by
September 20, 2004 and consummate the exchange offer by October 20, 2004. DPL failed: (1) to have a
registration statement declared effective; and (2) to complete the exchange offer according to this timeline. As a
result, DPL had been accruing additional interest at a rate of 0.5% per year for each of these two violations, up to
an additional interest rate not to exceed in the aggregate 1.0% per year. As each violation was cured, the addition-
al interest rate decreased by 0.5% per annum. DPL’s exchange offer registration statement for these securities
was declared effective by the U.S. Securities and Exchange Commission on June 27, 2006. As a result, on June
27, 2006, DPL ceased accruing 0.5% of the additional interest. On July 31, 2006, DPL ceased accruing the other
0.5% of additional interest when the exchange of registered notes for the unregistered notes was completed.
During the first quarter 2006, the Ohio Department of Development (ODOD) awarded DP&L the ability to
issue, over the next three years, up to $200 million of qualified tax-exempt financing from the ODOD’s 2005 volume
cap carryforward. The financing was to be used to partially fund the flue gas desulfurization capital projects. The
PUCO approved DP&L’s application for this additional financing on July 26, 2006.
On November 15, 2007, The Ohio Air Quality Development Authority (OAQDA) issued $90 million of
collateralized, variable rate OAQDA Revenue Bonds, 2007 Series A due November 1, 2040. In turn, DP&L
borrowed these funds from the OAQDA. The payment of principal and interest on the bonds when due was
44 DPL Inc.
insured by an insurance policy issued by Financial Guaranty Insurance Company (FGIC). During the first quarter
of 2008, all three credit rating agencies downgraded FGIC. These downgrades, as well as the downgrades
of our major bond insurers, resulted in auction rate security bonds carrying substantially higher interest rates in
succeeding auctions and incurring failed auctions. On April 4, 2008, DP&L converted the 2007 Series A Bonds
from Auction Rate Securities to Variable Rate Demand Notes. At that time, DP&L purchased these notes out
of the market and placed them with the Trustee to be held until the capital markets corrected. These notes were
redeemed in December 2008 as discussed in the following paragraph.
On December 4, 2008, the OAQDA issued $100 million of collateralized, variable rate Revenue Refunding
Bonds Series A and B due November 1, 2040. In turn, DP&L borrowed these funds from the OAQDA. The payment
of principal and interest on the bonds when due is backed by a standby letter of credit issued by a syndicated
bank group credit facility. DP&L is using $10 million of these bonds to finance its portion of the costs of acquiring,
constructing and installing certain solid waste disposal and air quality facilities at the Conesville generation station.
The remaining $90 million was used to redeem the 2007 Series A Bonds. The above transactions are further
discussed in Note 7 of Notes to Consolidated Financial Statements.
On November 21, 2006, DP&L entered into a $220 million unsecured revolving credit agreement replacing
its $100 million facility. This agreement had a five-year term that expires on November 21, 2011 and that provides
DP&L with the ability to increase the size of the facility by an additional $50 million at any time. The facility
contains one financial covenant; DP&L’s total debt to total capitalization ratio is not to exceed 0.65 to 1.00. This
covenant is currently met with a ratio of 0.39 to 1.00. DP&L had no outstanding borrowings under this credit facility
at December 31, 2008. Fees associated with this credit facility are approximately $0.2 million per year. Changes
in credit ratings, however, may affect fees and the applicable interest. This revolving credit agreement also
contains a $50 million letter of credit sub-limit. DP&L has certain contractual agreements for the sale and purchase
of power, fuel and related energy services that contain credit rating related clauses allowing the counter parties
to seek additional surety under certain conditions. As of December 31, 2008, DP&L had no outstanding letters of
credit against the facility.
During the second quarter ended June 30, 2007, DPL provided a short-term loan to DP&L in the amount
of $105 million. DP&L paid down $15 million of this loan during the third quarter ended September 30, 2007, an
additional $70 million during the fourth quarter ended December 31, 2007, and the final $20 million during
the first quarter ended March 31, 2008. This short-term loan does not affect our debt covenants. There are no
other inter-company debt collateralizations or debt guarantees between DPL, DP&L and their subsidiaries. None
of the debt obligations of DPL or DP&L are guaranteed or secured by affiliates and no cross-collateralization
exists between any subsidiaries.
Credit Ratings
Currently, DPL’s senior unsecured and DP&L’s senior secured debt credit ratings are as follows:
Fitch Ratings
Moody’s Investors Service
Standard & Poor’s Corp.
Off-Balance Sheet Arrangements
DPL Inc. - Guarantees
DPL
BBB+
Baa2
BBB-
DP&L
A+
A2
A-
Outlook
Positive
Positive
Positive
Effective
April 2008
July 2008
April 2008
In the normal course of business, DPL enters into various agreements with its wholly-owned generating
subsidiary DPLE providing financial or performance assurance to third parties. These agreements are entered into
primarily to support or enhance the creditworthiness otherwise attributed to DPLE on a stand-alone basis, thereby
facilitating the extension of sufficient credit to accomplish DPLE’s intended commercial purposes. Such agreements
fall outside the scope of FASB Interpretation No. 45, “Guarantor’s Accounting and Disclosure Requirements for
Guarantees, Including Indirect Guarantees of Indebtedness of Others.”
At December 31, 2008, DPL had $35.3 million of guarantees to third parties for future financial or performance
assurance under such agreements, on behalf of DPLE. The guarantee arrangements entered into by DPL
with these third parties cover all present and future obligations of DPLE to such beneficiaries and are terminable
at any time by DPL upon written notice to the beneficiaries. The carrying amount of obligations for commercial
DPL Inc.
45
transactions covered by these guarantees and recorded in our consolidated balance sheets was $1.6 million
at December 31, 2008 and $0.5 million at December 31, 2007.
In two separate transactions in November and December 2006, DPL also agreed to be a guarantor of the
obligations of DPLE regarding the sale in April 2007 of the Darby Electric Peaking Station to American Electric
Power and the sale of the Greenville Electric Peaking Station to Buckeye Electric Power, Inc. In both cases,
DPL agreed to guarantee the obligations of DPLE over a multiple year period as follows:
$ in millions
Darby
Greenville
2008
$ 23.0
$ 11.1
2009
$ 15.3
$ 7.4
2010
$ 7.7
$ 3.7
In 2008, neither DPL nor DP&L incurred any losses related to the guarantees of DPLE’s obligations and we
believe it is unlikely that either DPL or DP&L would be required to perform or incur any losses in the future
associated with any of the above guarantees of DPLE’s obligations.
DP&L – Equity Ownership Interest
DP&L owns a 4.9% equity ownership interest in an electric generation company. As of December 31, 2008,
DP&L could be responsible for the repayment of 4.9%, or $51.2 million, of a $1,045 million debt obligation that
matures in 2026. This would only happen if this electric generation company defaulted on its debt payments.
Other than the guarantees discussed above, DPL and DP&L do not have any other off-balance sheet
arrangements that have or are reasonably likely to have a current or future material effect on results of operations,
financial condition, or cash flows.
Contractual Obligations and Commercial Commitments
We enter into various contractual obligations and other commercial commitments that may affect the liquidity
of our operations. At December 31, 2008, these include:
$ in millions
Total
2009
2010-2011
2012-2013
Thereafter
Payment Year
DPL Inc.
Long-term debt
Interest payments
Pension and postretirement payments
Capital leases
Operating leases
Coal contracts (a)
Limestone contracts
Reserve for uncertain tax positions
Other contractual obligations
Total contractual obligations
DP&L
Long-term debt
Interest payments
Pension and postretirement payments
Capital leases
Operating leases
Coal contracts (a)
Limestone contracts
Reserve for uncertain tax positions
Other contractual obligations
Total contractual obligations
(a) Total at DP&L-operated units
$ 1,551.8
937.1
244.9
1.3
0.8
1,675.1
52.2
1.9
97.3
$ 4,562.4
$ 884.4
519.9
244.9
1.3
0.8
1,675.1
52.2
1.9
99.5
$ 3,480.0
$ 175.0
79.7
22.8
0.7
0.4
514.2
4.7
–
40.5
$ 838.0
$
–
40.0
22.8
0.7
0.4
514.2
4.7
–
41.6
$ 624.4
$ 297.4
145.7
46.7
0.6
0.3
539.8
10.8
1.9
46.9
$ 1,090.1
$
–
79.9
46.7
0.6
0.3
539.8
10.8
1.9
48.0
$ 728.0
$ 470.0
105.6
48.6
–
0.1
168.4
11.5
–
8.5
$ 812.7
$ 470.0
73.9
48.6
–
0.1
168.4
11.5
–
8.5
$ 781.0
$ 609.4
606.1
126.8
–
–
452.7
25.2
–
1.4
$ 1,821.6
$ 414.4
326.1
126.8
–
–
452.7
25.2
–
1.4
$ 1,346.6
46 DPL Inc.
Long-term debt:
DPL’s long-term debt as of December 31, 2008, con-
sists of DP&L’s first mortgage bonds, tax-exempt pol-
lution control bonds and DPL unsecured senior notes.
These long-term debt figures include current maturities
and unamortized debt discounts. During 2008, the
OAQDA issued $100 million of tax-exempt pollution
control bonds which mature in 2040. In turn, DP&L
borrowed the proceeds of the bonds and issued $100
million of its First Mortgage Bonds to secure its pay-
ment obligations.
DP&L’s long-term debt as of December 31, 2008,
consists of first mortgage bonds and tax-exempt
pollution control bonds. These long-term debt figures
include current maturities and unamortized debt dis-
counts. During 2008, the OAQDA issued $100 million
of tax-exempt pollution control bonds which mature
in 2040. In turn, DP&L borrowed the proceeds of the
bonds and issued $100 million of its First Mortgage
Bonds to secure its payment obligations.
See Note 7 of Notes to Consolidated Financial
Statements.
Interest payments:
Interest payments associated with the long-term debt
described above.
Pension and postretirement payments:
As of December 31, 2008, DPL, through its principal
subsidiary, DP&L, had estimated future benefit pay-
ments as outlined in Note 9 of Notes to Consolidated
Financial Statements. These estimated future benefit
payments are projected through 2018.
Capital leases:
As of December 31, 2008, DPL, through its principal
subsidiary, DP&L, had one capital lease that expires
in September 2010.
Operating leases:
As of December 31, 2008, DPL, through its principal
subsidiary, DP&L, had several operating leases with
various terms and expiration dates.
Coal contracts:
DPL, through its principal subsidiary, DP&L, has
entered into various long-term coal contracts to
supply the coal requirements for the generating plants
it operates. Contract prices are subject to periodic
adjustment and have features that limit price escalation
in any given year.
Limestone contracts:
DPL, through its principal subsidiary, DP&L, has
entered into various limestone contracts to supply
limestone for its generating facilities.
Reserve for uncertain tax positions:
On January 1, 2007, we adopted Financial Accounting
Standards Board (FASB) Interpretation No. 48,
“Accounting for Uncertainty in Income Taxes” (FIN 48).
As of December 31, 2008, our total reserve for
uncertain tax positions is $1.9 million. See Note 1 of
Notes to Consolidated Financial Statements.
Other contractual obligations:
As of December 31, 2008, DPL and DP&L had various
other contractual obligations including non-cancelable
contracts to purchase goods and services with various
terms and expiration dates.
At December 31, 2008, the commercial commitments
that may affect the liquidity of our operations include:
Credit facilities:
In November 2006, DP&L replaced its previous $100
million revolving credit agreement with a $220 million
five year facility that expires on November 21, 2011.
At December 31, 2008, there were no borrowings
outstanding under this credit agreement. DP&L has
the ability to increase the size of the facility by an
additional $50 million at any time.
Market Risk
During the conduct of our business, we are subject
to certain market risks including, but not limited to,
changes in commodity prices for electricity, coal,
environmental emissions and gas, and fluctuations in
interest rates. Commodity pricing exposure includes
the impacts of weather, market demand, increased
competition and other economic conditions. For
purposes of potential risk analysis, we use sensitivity
analysis to quantify potential impacts of market rate
changes on the results of operations. The sensitivity
analysis represents hypothetical changes in market
values that may or may not occur in the future.
Our Risk Management Committee (RMC) is respon-
sible for establishing risk management policies and the
monitoring and reporting of risk exposures. The RMC
meets on a regular basis with the objective of identify-
ing, assessing and quantifying material risk issues
and developing strategies to manage these risks.
DPL Inc.
47
Commodity Pricing Risk
Recently, the coal market has experienced unprec-
edented price volatility. We are now in a market
for coal that clears on international, rather than solely
domestic supply and consumption. Our domestic
price is increasingly affected by international supply
disruptions and demand balance. Exports from the
U.S. have increased in recent years and domestic
issues like government-imposed direct costs and per-
mitting issues are affecting mining costs and supply
availability. We have responded to increases in the
price of coal by entering into contracts to hedge our
exposure to fuel requirements and other energy-related
commodities. We may not be able to hedge the entire
exposure of our operations from commodity price
volatility. To the extent we are not able to hedge against
price volatility, our results of operations, financial
position or cash flows could be materially affected.
Approximately 16% of DPL’s and 25% of DP&L’s
2008 electric revenues were from sales of excess
energy and capacity in the wholesale market. Energy
and capacity in excess of the needs of existing retail
customers are sold in the wholesale market when
we can identify opportunities with positive margins.
As of December 31, 2008, a hypothetical increase or
decrease of 10% in DPL’s annual wholesale revenues
could result in approximately an $11 million increase
or decrease to net income, assuming no increases
in fuel and purchased power costs. As of December
31, 2008, a hypothetical increase or decrease of 10%
in DP&L’s annual wholesale revenues could result in
approximately a $21 million increase or decrease
to net income, assuming no increases in fuel and pur-
chased power costs.
DPL’s fuel (including coal, gas, oil and emission
allowances) and purchased power costs as a percent
of total operating costs in 2008 and 2007 were 33%
and 42%, respectively. DP&L’s fuel (including coal,
gas, oil and emission allowances) and purchased
power costs as a percent of total operating costs in
2008 and 2007 were 34% and 43%, respectively. We
have substantially all of the total expected coal volume
needed to meet our retail and firm wholesale sales
requirements for 2009 under contract. The majority of
our contracted coal is purchased at fixed prices. Some
contracts provide for periodic adjustment and some
are priced based on market indices. Substantially
all contracts have features that limit price escalations
in any given year. Our consumption of SO2 allow-
ances should decline in 2009 due to emission control
upgrades. We do not expect to purchase SO2
allowances for 2009. The exact consumption of SO2
allowances will depend on market prices for power,
availability of our generation units, the timing of emis-
sion control equipment upgrade completion and the
actual sulfur content of the coal burned. DP&L does
not plan to purchase NOx allowances for 2009. Fuel
costs are impacted by changes in volume and price
and are driven by a number of variables including
weather, reliability of coal deliveries, scheduled outag-
es and generation plant mix. Based on higher volume
and price, fuel costs excluding gains from the sale
of emission allowances are forecasted to be 25% to
35% higher in 2009 compared to 2008.
Purchased power costs depend, in part, upon the
timing and extent of planned and unplanned outages
of our generating capacity. We will purchase power
on a discretionary basis when wholesale market condi-
tions provide opportunities to obtain power at a cost
below our internal production costs. As of December
31, 2008, a hypothetical increase or decrease of
10% in DPL’s annual fuel and purchased power costs
could result in approximately a $30 million increase
or decrease to net income. As of December 31, 2008,
a hypothetical increase or decrease of 10% in DP&L’s
annual fuel and purchased power costs could result
in approximately a $29 million increase or decrease to
net income.
Interest Rate Risk
As a result of our normal investing and borrowing
activities, our financial results are exposed to fluctua-
tions in interest rates, which we manage through our
regular financing activities. We maintain both cash on
deposit and investments in cash equivalents that may
be affected by adverse interest rate fluctuations. DPL
has fixed-rate long-term debt and DP&L has both fixed
and variable-rate long-term debt. DP&L’s variable-rate
debt is comprised of publicly held pollution control
bonds. The variable-rate bonds bear interest based on
a prevailing rate that is reset weekly based on a com-
parable market index. Market indices can be affected
by market demand, supply, market interest rates and
other economic conditions.
On November 15, 2007, The Ohio Air Quality
Development Authority (OAQDA) issued $90 million of
collateralized, variable rate OAQDA Revenue Bonds,
2007 Series A due November 1, 2040. In turn, DP&L
48 DPL Inc.
borrowed these funds from the OAQDA. The payment of principal and interest on the bonds when due was insured
by an insurance policy issued by Financial Guaranty Insurance Company (FGIC). During the first quarter of 2008,
all three credit rating agencies downgraded FGIC. These downgrades, as well as the downgrades of our major
bond insurers, resulted in auction rate security bonds carrying substantially higher interest rates in succeeding
auctions and incurring failed auctions. On April 4, 2008, DP&L converted the 2007 Series A Bonds from Auction
Rate Securities to Variable Rate Demand Notes. At that time, DP&L purchased these notes out of the market
and placed them with the Trustee to be held until the capital markets corrected. These notes were redeemed in
December 2008 (see below).
On December 4, 2008, the OAQDA issued $100 million of collateralized, variable rate Revenue Refunding
Bonds Series A and B due November 1, 2040. In turn, DP&L borrowed these funds from the OAQDA. The payment
of principal and interest on the bonds when due is backed by a standby letter of credit issued by a syndicated
bank group credit facility. DP&L is using $10 million of these bonds to finance its portion of the costs of acquiring,
constructing and installing certain solid waste disposal and air quality facilities at the Conesville generating
station. The remaining $90 million was used to redeem the 2007 Series A Bonds. The above transactions are fur-
ther discussed in Note 7 of Notes to Consolidated Financial Statements.
The carrying value of DPL’s debt was $1,551.8 million at December 31, 2008, consisting of DP&L’s first mort-
gage bonds, DP&L’s tax-exempt pollution control bonds, DPL’s unsecured notes and DP&L’s capital lease. The
fair value of this debt was $1,470.5 million, based on current market prices or discounted cash flows using current
rates for similar issues with similar terms and remaining maturities. The following table provides information about
DPL’s debt obligations that are sensitive to interest rate changes:
Principal Payments and Interest Rate Detail by Contractual Maturity Date
DPL Inc.
$ in millions
Long-term debt
Variable-rate debt
Average interest rate
Fixed-rate debt
Average interest rate
Total
2009
2010
2011
2012
2013
Carrying
value at
Fair
value at
December 31, December 31,
2008
2008
Thereafter
$
–
N/A
$ 175.7
8.0%
– $
–
$
N/A
N/A
$ 0.6 $ 297.4
6.9%
2.0%
$
–
N/A
$
–
N/A
$
–
N/A
$ 470.0
5.1%
$ 100.0
0.8%
$ 508.1
6.1%
$ 100.0
0.8%
$ 1,451.8
6.2%
$ 100.0
$ 1,370.5
$ 1,551.8
$ 1,470.5
The carrying value of DP&L’s debt was $884.7 million at December 31, 2008, consisting of first mortgage
bonds, tax-exempt pollution control bonds and a capital lease. The fair value of this debt was $815.7 million,
based on current market prices or discounted cash flows using current rates for similar issues with similar
terms and remaining maturities. The following table provides information about DP&L’s debt obligations that
are sensitive to interest rate changes:
Principal Payments and Interest Rate Detail by Contractual Maturity Date
DP&L
$ in millions
Long-term debt
Variable-rate debt
Average interest rate
Fixed-rate debt
Average interest rate
Total
2009
2010
2011
2012
2013
Carrying
value at
Fair
value at
December 31, December 31,
2008
2008
Thereafter
$
–
N/A
0.7
$
2.0%
– $
$
N/A
$ 0.6 $
2.0%
–
N/A
–
N/A
$
–
N/A
–
$
N/A
$
–
N/A
$ 470.0
5.1%
$ 100.0
0.8%
$ 313.4
4.8%
$ 100.0
0.8%
$ 784.7
5.0%
$ 100.0
$ 715.7
$ 884.7
$ 815.7
Debt maturities occurring in 2009 are discussed under Financial Condition, Liquidity and Capital Requirements.
DPL Inc.
49
Critical Accounting Estimates
DPL’s and DP&L’s consolidated financial statements
are prepared in accordance with US GAAP. In connec-
tion with the preparation of these financial statements,
our management is required to make assumptions,
estimates and judgments that affect the reported
amounts of assets, liabilities, revenues, expenses and
the related disclosure of contingent liabilities. These
assumptions, estimates and judgments are based
on our historical experience and assumptions that
we believed to be reasonable at the time. However,
because future events and their effects cannot
be determined with certainty, the determination of
estimates requires the exercise of judgment. Our
critical accounting estimates are those which require
assumptions to be made about matters that are
highly uncertain.
Different estimates could have a material effect on
our financial results. Judgments and uncertainties
affecting the application of these policies and esti-
mates may result in materially different amounts being
reported under different conditions or circumstances.
Historically, however, recorded estimates have not dif-
fered materially from actual results. Significant items
subject to such judgments include: the carrying value
of property, plant and equipment; revenue recognition
including unbilled revenues; income taxes; valuation
of regulatory assets and liabilities; the valuation of
asset retirement obligations; the valuation of insurance
and claims costs; the valuation of assets and liabilities
related to employee benefits; and the valuation of con-
tingent and other obligations.
Impairments and Assets Held for Sale: In accordance
with Statement of Financial Accounting Standards No.
144 “Accounting for the Impairment or Disposal of
Long-Lived Assets” (SFAS 144), long-lived assets to
be held and used are reviewed for impairment when-
ever events or circumstances indicate that the carry-
ing amount may not be recoverable. When required,
impairment losses on assets to be held and used
are recognized based on the fair value of the asset.
We determine the fair value of these assets based
upon estimates of future cash flows, market value of
similar assets, if available or independent appraisals,
if required. In analyzing the fair value and recover-
ability using future cash flows, we make projections
based on a number of assumptions and estimates of
growth rates, future economic conditions, assignment
of discount rates and estimates of terminal values. An
impairment loss is recognized if the carrying amount of
the long-lived asset is not recoverable from its undis-
counted cash flows. The measurement of impairment
loss is the difference between the carrying amount
and fair value of the asset. Long-lived assets to be
disposed of and/or held for sale are reported at the
lower of carrying amount or fair value less cost to sell.
We determine the fair value of these assets in the same
manner as described for assets held and used.
Revenue Recognition (including Unbilled Revenue): We
consider revenue realized, or realizable, and earned
when persuasive evidence of an arrangement exists,
the products or services have been provided to the
customer, the sales price is fixed or determinable, and
collection is reasonably assured. The determination
of the energy sales to customers is based on the read-
ing of their meters, which occurs on a systematic basis
throughout the month. We recognize revenues using
an accrual method for retail and other energy sales that
have not yet been billed, but where electricity has
been consumed. This is termed “unbilled revenues”
and is a widely recognized and accepted practice for
utilities. At the end of each month, unbilled revenues
are determined by the estimation of unbilled energy
provided to customers since the date of the last meter
reading, projected line losses, the assignment of
unbilled energy provided to customer classes and the
average rate per customer class. Given our estimation
method and the fact that customers are billed monthly,
we believe it is unlikely that materially different results
will occur in future periods when these amounts are
subsequently billed.
Income Taxes: Judgment and the use of estimates are
required in developing the provision for income taxes
and reporting of tax-related assets and liabilities.
The interpretation of tax laws involves uncertainty, since
taxing authorities may interpret them differently.
Ultimate resolution of income tax matters may result
in favorable or unfavorable impacts to net income
and cash flows and adjustments to tax-related assets
and liabilities could be material. Effective January 1,
2007, we adopted Financial Accounting Standards
Board Interpretation No. 48 (FIN 48), “Accounting for
Uncertainty in Income Taxes.” Taking into consideration
the uncertainty and judgment involved in the determi-
nation and filing of income taxes, FIN 48 establishes
standards for recognition and measurement, in finan-
cial statements, of positions taken, or expected to be
taken, by an entity on its income tax returns. Positions
taken by an entity on its income tax returns that are
recognized in the financial statements must satisfy
50 DPL Inc.
a more-likely-than-not recognition threshold, assuming
that the position will be examined by taxing authorities
with full knowledge of all relevant information.
Deferred income tax assets and liabilities are pro-
vided, representing future effects on income taxes for
temporary differences between the bases of assets
and liabilities for financial reporting and tax purposes.
We evaluate quarterly the probability of realizing
deferred tax assets by reviewing a forecast of future
taxable income and the availability of tax planning
strategies that can be implemented, if necessary, to
realize deferred tax assets. Failure to achieve forecast-
ed taxable income or successfully implement tax plan-
ning strategies may affect the realization of deferred
tax assets.
Regulatory Assets and Liabilities: Application of
FASB Statement of Financial Accounting Standards
No. 71, “Accounting for the Effects of Certain Types
of Regulation” (SFAS 71) requires us to reflect the
effect of rate regulation in our Consolidated Financial
Statements. For regulated businesses subject to fed-
eral or state cost-of-service rate regulation, regulatory
practices that assign costs to accounting periods may
differ from accounting methods generally applied
by nonregulated companies. When it is probable that
regulators will permit the recovery of current costs
through future rates charged to customers, we defer
these costs as regulatory assets that otherwise would
be expensed by nonregulated companies. Likewise,
we recognize regulatory liabilities when it is probable
that regulators will require customer refunds through
future rates and when revenue is collected from
customers for expenditures that are not yet incurred.
Regulatory assets are amortized into expense and
regulatory liabilities are amortized into income over the
recovery period authorized by the regulator.
We evaluate whether or not recovery of our regula-
tory assets through future rates is probable and make
various assumptions in our analyses. The expectations
of future recovery are generally based on orders issued
by regulatory commissions or historical experience, as
well as discussions with applicable regulatory authori-
ties. If recovery of a regulatory asset is determined to
be less than probable, it will be written off in the period
the assessment is made. We currently believe the
recovery of our regulatory assets is probable. See Note
3 of Notes to Consolidated Financial Statements.
Asset Retirement Obligations: In accordance with
FASB Statement of Financial Accounting Standards
No.143, “Accounting for Asset Retirement Obligations”
(SFAS 143) and FASB Interpretation No. 47 (FIN 47),
“Accounting for Conditional Asset Retirement
Obligations, an interpretation of FASB Statement
No. 143,” legal obligations associated with the retire-
ment of long-lived assets are required to be recog-
nized at their fair value at the time those obligations
are incurred. Upon initial recognition of a legal liability,
costs are capitalized as part of the related long-lived
asset and allocated to expense over the useful life
of the asset. SFAS 143 also requires that components
of previously recorded depreciation related to the cost
of removal of assets upon retirement, whether legal
asset retirement obligations or not, must be removed
from a company’s accumulated depreciation reserve.
We make assumptions, estimates and judgments that
affect the reported amounts of assets, liabilities and
expenses as they relate to asset retirement obligations.
These assumptions and estimates are based on
historical experience and assumptions that we believe
to be reasonable at the time.
Insurance and Claims Costs: In addition to insurance
provided through third-party providers, our wholly-
owned captive subsidiary (MVIC) provides insur-
ance coverage solely to us and to our subsidiaries.
Insurance and Claims Costs on the consolidated bal-
ance sheets includes insurance reserves of approxi-
mately $17.6 million and $20.0 million for 2008 and
2007, respectively, based on actuarial methods and
loss experience data. Such reserves are actuarially
determined, in the aggregate, based on a reasonable
estimation of insured events occurring. There is uncer-
tainty associated with the loss estimates, and actual
results may differ from the estimates. Modification
of these loss estimates, based on experience and
changed circumstances, is reflected in the period in
which the estimate is re-evaluated.
Pension and Postretirement Benefits: We account and
disclose pension and postretirement benefits in accor-
dance with the provisions of Statement of Financial
Accounting Standards No. 158, “Employers’ Accounting
for Defined Benefit Pensions and other Postretirement
Plans, an amendment to FASB Statements 87, 88, 106
and 132R” (SFAS 158). SFAS 158 requires the use of
assumptions, such as the discount rate and long-term
rate of return on assets, in determining the obligations,
annual cost, and funding requirements of the plans.
For 2009, we are maintaining our long-term rate
of return assumptions of 8.50% for pension and 6.00%
for other postretirement benefits assets that reflect the
effect of recent trends on our long-term view. We have
DPL Inc.
51
increased our assumed discount rate to 6.25% for
pension and postretirement benefits expense to reflect
current interest rate conditions. Changes in other
components used in the determination of pension and
postretirement benefits costs will result in an increase
of pension costs of $5.5 million, excluding any special
adjustments required under SFAS 88. We do not antici-
pate any special adjustments to expense in 2009.
In future periods, differences in the actual return on
pension plan assets and assumed return, or changes
in the discount rate, will affect the timing of contribu-
tions to the pension plan, if any. We provide postretire-
ment healthcare benefits to employees who retired
prior to 1987. A one percentage point change in the
assumed healthcare trend rate would affect postretire-
ment benefit costs by approximately $0.1 million.
Contingent and Other Obligations: During the conduct
of our business, we are subject to a number of federal
and state laws and regulations, as well as other factors
and conditions that potentially subject us to environ-
mental, litigation, insurance and other risks. We peri-
odically evaluate our exposure to such risks and record
reserves for those matters where a loss is considered
probable and reasonably estimable in accordance
with generally accepted accounting principles. In
recording such reserves, we may make assumptions,
estimates and judgments that affect the reported
amounts of assets, liabilities and expenses as they
relate to contingent and other obligations. These
assumptions and estimates are based on historical
experience and assumptions and may be subject to
change. We, however, believe such estimates and
assumptions are reasonable.
Legal and Other Matters
A discussion of Legal and Other Matters is described
in Note 18 of Notes to Consolidated Financial
Statements and in Item 3 – Legal Proceedings. A dis-
cussion of environmental matters affecting both DPL
and DP&L is described in Item 1 – Environmental
Considerations. Such discussions are incorpo-
rated by reference in this Management’s Discussion
and Analysis of Financial Condition and Results of
Operations and made a part hereof.
Recently Issued Accounting Pronouncements
A discussion of recently issued accounting
pronouncements is described in Note 1 of Notes to
Consolidated Financial Statements and such discus-
sion is incorporated by reference in this Management’s
Discussion and Analysis of Financial Condition
and Results of Operations and made a part hereof.
Item 7a Quantitative and Qualitative
Disclosures about Market Risk
The information required by this item of Form 10-K
is set forth in the Market Risk section under
Item 7 - Management’s Discussion and Analysis of
Financial Condition and Results of Operations.
52 DPL Inc.
Item 8 Financial Statements and Supplementary Data
This report includes the combined filing of DPL Inc. (DPL) and The Dayton Power and Light Company (DP&L).
DP&L is the principal subsidiary of DPL providing approximately 98% of DPL’s total consolidated revenue and
approximately 93% of DPL’s total consolidated asset base. Throughout this report the terms we, us, our and
ours are used to refer to both DPL and DP&L, respectively and altogether, unless the context indicates otherwise.
Discussions or areas of this report that apply only to DPL or DP&L will clearly be noted in the section.
DPL Inc.
Consolidated Statements of Results of Operations
$ in millions except per share amounts
2008
2007
2006
For the years ended December 31,
Revenues $
Cost of revenues:
Fuel
Purchased power
Total cost of revenues
Gross margin
Operating expenses:
Operation and maintenance
Impairment of peaking stations
Depreciation and amortization
General taxes
Amortization of regulatory assets
Total operating expenses
Operating income
Other income /(expense), net
Investment income
Net gain on settlement of executive litigation
Interest expense
Other income (deductions)
Total other income/(expense), net
Earnings from continuing operations before income tax
Income tax expense
Earnings from continuing operations
Earnings from discontinued operations, net of tax
1,601.6
$ 1,515.7
$ 1,393.5
243.0
377.4
620.4
981.2
272.5
–
137.7
125.5
10.0
545.7
435.5
3.6
–
(90.7)
(1.0)
(88.1)
347.4
102.9
244.5
–
328.2
287.2
615.4
900.3
272.8
–
134.8
111.8
10.8
530.2
349.1
159.0
508.1
885.4
265.4
71.0
151.8
108.6
7.6
604.4
370.1
281.0
11.3
31.0
(81.0)
2.9
(35.8)
334.3
122.5
211.8
10.0
17.8
–
(102.2)
(1.2)
(85.6)
195.4
69.8
125.6
14.0
Net Income
$ 244.5
$ 221.8
$ 139.6
Average number of common shares outstanding (millions)
Basic
Diluted
110.2
115.4
107.9
117.8
112.3
121.9
Earnings per share of common stock
Basic:
Earnings from continuing operations
Earnings from discontinued operations
Total Basic
Diluted:
Earnings from continuing operations
Earnings from discontinued operations
Total Diluted
$
$
$
$
2.22
–
2.22
2.12
–
2.12
$
1.97
0.09
$
2.06
$
1.80
0.08
$
1.88
$
$
$
$
1.12
0.12
1.24
1.03
0.12
1.15
Dividends paid per share of common stock
$
1.10
$
1.04
$
1.00
See Notes to Consolidated Financial Statements.
DPL Inc.
53
DPL Inc.
Consolidated Statements of Cash Flows
$ in millions
Cash flows from operating activities:
Net income
Less: Income from discontinued operations
Income from continuing operations
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization
Impairment of peaking stations
Amortization of regulatory assets
Net gain on settlement of executive litigation
Net gain on sale of aircraft
Deferred income taxes
Changes in certain assets and liabilities:
Accounts receivable
Deposits and other advances
Accounts payable
Accrued taxes payable
Accrued interest payable
Prepayments
Inventories
Deferred compensation assets
Deferred compensation obligations
Other
For the years ended December 31,
2008
2007
2006
$ 221.8
(10.0)
211.8
$ 139.6
(14.0)
125.6
$ 244.5
–
244.5
137.7
–
10.0
–
–
40.3
(9.1)
(8.9)
27.0
(65.4)
(0.8)
(1.1)
(0.2)
(4.4)
(8.4)
2.0
134.8
–
10.8
(31.0)
(6.0)
0.3
(19.1)
16.4
(0.5)
21.3
(9.4)
(0.9)
(19.6)
3.3
1.1
4.8
Net cash provided by operating activities
363.2
318.1
Cash flows from investing activities:
Capital expenditures
Proceeds from sale of property – peakers
Proceeds from sale of property – aircraft
Purchases of short-term investments and securities
Sales of short-term investments and securities
Net cash used for investing activities
Cash flows from financing activities:
Exercise of stock options
Tax impact related to exercise of stock options
Retirement of long-term debt
Retirement of pollution control bonds
Issuance of pollution control bonds, net
Pollution control bond proceeds held in trust
Withdrawal of restricted funds held in trust, net
Dividends paid on common stock
Withdrawals from revolving credit facility
Repayment of borrowings from revolving credit facility
Purchase of Company’s common stock
Net cash used for financing activities
Cash and cash equivalents:
Net change
Balance at beginning of period
Cash and cash equivalents at end of period
Supplemental cash flow information:
Interest paid, net of amounts capitalized
Income taxes paid, net
Non-cash financing and investing activities:
Restricted funds held in trust
Accruals for capital expenditures
See Notes to Consolidated Financial Statements.
54 DPL Inc.
(243.6)
–
–
(4.9)
–
(248.5)
2.2
0.3
(100.0)
(90.0)
98.4
(10.0)
32.5
(120.5)
115.0
(115.0)
–
(187.1)
(72.4)
134.9
$ 62.5
$ 86.8
$ 127.3
$ 14.5
$ 34.1
(346.2)
151.0
7.4
–
–
(187.8)
14.6
1.3
(225.0)
–
90.0
(90.0)
63.2
(111.7)
95.0
(95.0)
–
(257.6)
(127.3)
262.2
$ 134.9
$ 87.8
$ 115.6
$ 37.0
$ 45.6
151.8
71.0
7.6
–
–
(32.7)
(36.4)
(8.5)
19.9
(12.7)
4.9
5.4
(5.2)
0.4
2.3
(6.6)
286.8
(335.6)
–
–
(856.0)
984.0
(207.6)
7.8
1.9
–
–
100.0
(100.0)
89.9
(112.4)
–
–
(400.0)
(412.8)
(333.6)
595.8
$ 262.2
$ 91.4
$ 113.6
$ 10.1
$ 43.0
DPL Inc.
Consolidated Balance Sheets
$ in millions
Assets
Current assets:
Cash and cash equivalents
Restricted funds held in trust
Accounts receivable, less provision for uncollectible
accounts of $1.1 and $1.5, respectively
Inventories, at average cost
Taxes applicable to subsequent years
Other current assets
Total current assets
Property:
Property, plant and equipment
Less: Accumulated depreciation and amortization
Total net property
Other noncurrent assets:
Regulatory assets (Note 3)
Other assets
Total other noncurrent assets
Total Assets
Liabilities and Shareholders’ Equity
Current liabilities:
Current portion – long-term debt
Accounts payable
Accrued taxes
Accrued interest
Other current liabilities
Total current liabilities
Noncurrent liabilities:
Long-term debt
Deferred taxes
Unamortized investment tax credit
Insurance and claims costs
Other deferred credits
Total noncurrent liabilities
At December 31,
2008
2007
$
62.5
14.5
259.9
105.1
58.0
27.0
527.0
$
134.9
37.0
241.2
105.0
48.0
11.8
577.9
5,227.0
(2,350.6)
2,876.4
5,011.6
(2,234.6)
2,777.0
233.7
38.0
271.7
165.2
46.5
211.7
$ 3,675.1
$ 3,566.6
$
175.7
178.3
130.4
25.0
34.5
543.9
1,376.1
433.7
38.0
17.6
267.3
2,132.7
$
100.7
163.1
110.8
25.8
27.2
427.6
1,541.5
374.9
40.7
20.0
266.3
2,243.4
Cumulative preferred stock not subject to mandatory redemption
22.9
22.9
Commitments and contingencies (Note 17)
Common shareholders’ equity:
Common stock, at par value of $0.01 per share:
December 2008 December 2007
Shares authorized
Shares issued
Shares outstanding
250,000,000
163,724,211
115,961,880
250,000,000
163,724,211
113,558,444
Warrants
Common stock held by employee plans
Accumulated other comprehensive loss
Retained earnings
Total common shareholders’ equity
1.2
31.0
(27.6)
(44.6)
1,015.6
975.6
1.1
50.0
(39.7)
(9.2)
870.5
872.7
Total Liabilities and Shareholders’ Equity
$ 3,675.1
$ 3,566.6
See Notes to Consolidated Financial Statements.
DPL Inc.
55
DPL Inc.
Consolidated Statements of Shareholders’ Equity
$ in millions
Beginning balance
2006
Net income
Net change in unrealized gains (losses)
on financial instruments
Net change in deferred gains (losses)
on cash flow hedges
Minimum pension liability
Deferred income taxes related to
unrealized gains (losses)
Total comprehensive income
Common stock dividends (b)
Treasury shares purchased (c)
Treasury stock reissued
Tax effects to equity
Employee / Director stock plans
Other
FAS 158 adjustment
Common Stock
(a)
Outstanding
Shares Amount
Other
Paid-in
Capital Warrants
Common
Stock Held
by Employee
Plans
Accumulated
Other
Comprehensive
Income / (Loss)
Retained
Earnings
Total
127,526,404
$ 1.3
$ 25.1
$ 50.0
$ (86.1)
$ (14.2) $ 1,062.0 $ 1,038.1
139.6
1.6
0.7
11.8
(29.9)
(14,862,432)
355,000
(0.1)
(0.1)
(389.3)
360.4
1.8
1.8
0.2
(112.4)
(352.6)
(0.1)
123.8
(112.4)
(389.4)
7.8
1.8
18.8
0.1
23.5
17.1
23.5
Ending balance
113,018,972
$ 1.1
$ (0.0) $ 50.0
$ (69.0)
$
(6.5) $ 736.5 $ 712.1
2007
Net income
Net change in unrealized gains (losses)
on financial instruments
Net change in deferred gains (losses)
on cash flow hedges
Net change in unrealized gains (losses) on
pension and postretirement benefits
Deferred income taxes related to
unrealized gains (losses)
Total comprehensive income
Common stock dividends (b)
Treasury stock reissued
Tax effects to equity
Employee / Director stock plans
Other
539,472
(8.0)
1.3
6.6
0.1
29.2
0.1
221.8
(1.4)
(7.2)
3.4
2.5
(111.7)
24.0
(0.1)
219.1
(111.7)
16.0
1.3
35.7
0.2
Ending balance
113,558,444
$ 1.1
$ (0.0) $ 50.0
$ (39.7)
$
(9.2) $ 870.5 $ 872.7
2008
Net income
Net change in unrealized gains (losses)
on financial instruments
Net change in deferred gains (losses)
on cash flow hedges
Net change in unrealized gains (losses)
on pension and postretirement benefits
Deferred income taxes related to
unrealized gains (losses)
Total comprehensive income
Common stock dividends (b)
Treasury stock reissued
Tax effects to equity
Employee / Director stock plans
Other
2,403,436
0.1
(19.0)
(0.2)
0.3
(0.2)
0.1
12.1
244.5
(0.8)
(1.3)
(33.1
(0.2)
(120.5)
21.4
(0.1)
(0.2)
209.1
(120.5)
2.3
0.3
11.8
(0.1)
Ending balance
115,961,880
$ 1.2
$ (0.0) $ 31.0
$ (27.6)
$ (44.6) $ 1,015.6 $ 975.6
(a) $0.01 par value, 250,000,000 shares authorized.
(b) Common stock dividends per share were $1.00 in 2006, $1.04 in 2007 and $1.10 in 2008.
(c) Number of shares outstanding at December 31, 2005 were not affected by the December 30, 2005 transaction to purchase 406,000 shares
as the share repurchase was settled in early January 2006. DPL completed the share repurchase program in August 2006.
See Notes to Consolidated Financial Statements.
56 DPL Inc.
The Dayton Power and Light Company
Consolidated Statements of Results of Operations
$ in millions except per share amounts
Revenues
Cost of revenues:
Fuel
Purchased power
Total cost of revenues
Gross margin
Operating expenses:
Operation and maintenance
Depreciation and amortization
General taxes
Amortization of regulatory assets
Total operating expenses
Operating income
Other income /(expense), net
Investment income
Net gain on settlement of executive litigation
Interest expense
Other income (deductions)
Total other income / (expense), net
Earnings before income tax
Income tax expense
Net Income
Preferred dividends
Earnings on common stock
See Notes to Consolidated Financial Statements.
For the years ended December 31,
2008
2007
2006
$ 1,572.9
$ 1,507.4
$ 1,385.2
231.4
379.9
611.3
315.4
300.3
615.7
335.2
171.9
507.1
961.6
891.7
878.1
263.0
127.8
124.2
10.0
525.0
271.0
124.5
110.3
10.8
516.6
231.7
130.0
106.3
7.6
475.6
436.6
375.1
402.5
7.0
–
(36.5)
(1.1)
(30.6)
406.0
120.2
285.8
23.7
35.3
(22.3)
2.9
39.6
414.7
143.1
271.6
6.7
–
(23.4)
(1.2)
(17.9)
384.6
142.2
242.4
0.9
0.9
0.8
$ 284.9
$ 270.7
$ 241.6
DPL Inc.
57
The Dayton Power and Light Company
Consolidated Statements of Cash Flows
$ in millions
Cash flows from operating activities:
Net income
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization
Net gain on settlement of executive litigation
Gain on transfer of assets to pension
Amortization of regulatory assets
Deferred income taxes
Changes in certain assets and liabilities:
Accounts receivable
Deposits and other advances
Accounts payable
Accrued taxes payable
Accrued interest payable
Prepayments
Inventories
Deferred compensation assets
Deferred compensation obligations
Other
For the years ended December 31,
2008
2007
2006
$ 285.8
$ 271.6
$ 242.4
127.8
–
–
10.0
38.1
(6.6)
(9.2)
26.9
(56.5)
–
(1.3)
(0.2)
0.7
(8.4)
(12.5)
124.5
(35.3)
(14.8)
10.8
(3.0)
(18.9)
15.8
1.9
19.6
0.3
–
(20.6)
3.4
1.1
(3.4)
130.0
–
–
7.6
(16.3)
(29.0)
(11.0)
21.4
0.5
1.3
5.5
(5.2)
2.5
0.1
(6.0)
Net cash provided by operating activities
394.6
353.0
343.8
Cash flows from investing activities:
Capital expenditures
Net cash used for investing activities
Cash flows from financing activities:
Issuance of short-term debt
Payment of short-term debt
Issuance of pollution control bonds, net
Pollution control bond proceeds held in trust
Retirement of pollution control bonds
Withdrawal of restricted funds held in trust, net
Withdrawals from revolving credit facility
Repayment of borrowings from revolving credit facility
Dividends paid on preferred stock
Dividends paid on common stock to parent
Net cash used for financing activities
Cash and cash equivalents:
Net change
Balance at beginning of period
(242.0)
(242.0)
–
(20.0)
98.4
(10.0)
(90.0)
32.5
115.0
(115.0)
(0.9)
(155.0)
(145.0)
7.6
13.2
(343.2)
(343.2)
105.0
(85.0)
90.0
(90.0)
–
63.2
–
–
(0.9)
(125.0)
(42.7)
(32.9)
46.1
(332.9)
(332.9)
–
–
100.0
(100.0)
–
89.9
–
–
(0.9)
(100.0)
(11.0)
(0.1)
46.2
Cash and cash equivalents at end of period
$ 20.8
$
13.2
$ 46.1
Supplemental cash flow information:
Interest paid, net of amounts capitalized
Income taxes paid, net
Non-cash financing and investing activities:
Restricted funds held in trust
Accruals for capital expenditures
See Notes to Consolidated Financial Statements.
$ 33.4
$ 127.0
$ 14.5
$ 34.1
18.5
$
$ 114.7
$
$
37.0
45.6
$ 77.9
$ 158.1
$ 10.1
$ 43.0
58 DPL Inc.
The Dayton Power and Light Company
Consolidated Balance Sheets
$ in millions
Assets
Current assets:
Cash and cash equivalents
Restricted funds held in trust
Accounts receivable, less provision for uncollectible
accounts of $1.1 and $1.5, respectively
Inventories, at average cost
Taxes applicable to subsequent years
Other current assets
Total current assets
Property:
Property, plant and equipment
Less: Accumulated depreciation and amortization
Net property
Other noncurrent assets:
Regulatory assets
Other assets
Total other noncurrent assets
Total Assets
Liabilities and Shareholder’s Equity
Current liabilities:
Current portion – long-term debt
Accounts payable
Accrued taxes
Accrued interest
Short-term debt owed to parent
Other current liabilities
Total current liabilities
Noncurrent liabilities:
Long-term debt
Deferred taxes
Unamortized investment tax credit
Other deferred credits
Total noncurrent liabilities
At December 31,
2008
2007
$
20.8
14.5
225.4
103.8
57.9
24.1
446.5
$
13.2
37.0
221.8
103.6
48.0
13.4
437.0
4,970.9
(2,265.5)
2,705.4
4,757.0
(2,159.1)
2,597.9
233.7
50.2
283.9
165.2
76.6
241.8
$ 3,435.8
$ 3,276.7
$
0.7
176.6
128.0
12.9
–
34.0
352.2
884.0
417.8
38.0
267.4
$
0.7
161.9
112.7
12.9
20.9
26.9
336.0
874.6
367.0
40.7
266.2
1,607.2
1,548.5
Cumulative preferred stock not subject to mandatory redemption
22.9
22.9
Commitments and contingencies (Note 17)
Common shareholder’s equity:
Common stock, at par value of $0.01 per share
Other paid-in capital
Accumulated other comprehensive (loss) / income
Retained earnings
Total common shareholder’s equity
Total Liabilities and Shareholder’s Equity
See Notes to Consolidated Financial Statements.
0.4
783.1
(37.5)
707.5
0.4
784.8
6.5
577.6
1,453.5
1,369.3
$ 3,435.8
$ 3,276.7
DPL Inc.
59
The Dayton Power and Light Company
Consolidated Statements of Shareholder’s Equity
$ in millions
Beginning balance
2006
Net income
Net change in unrealized gains (losses)
on financial instruments
Net change in deferred gains (losses)
on cash flow hedges
Minimum pension liability
Deferred income taxes related to
unrealized gains (losses)
Total comprehensive income
Common stock dividends
Preferred stock dividends
Tax effects to equity
Employee / Director stock plans
Other
FAS 158 adjustment
Common Stock (a)
Outstanding
Shares
Amount
Other
Paid-in
Capital
Accumulated
Other
Comprehensive
Income / (Loss)
Retained
Earnings
Total
41,172,173
$ 0.4
$ 783.4
$ 5.1
$ 290.5
$ 1,079.4
3.9
0.7
11.8
(30.2)
23.8
1.8
(1.6)
0.1
242.4
(100.0)
(0.8)
(0.1)
228.6
(100.0)
(0.8)
1.8
(1.6)
–
23.8
Ending balance
41,172,173
$ 0.4
$ 783.7
$ 15.1
$ 432.0
$ 1,231.2
2007
Net income
Net change in unrealized gains (losses)
on financial instruments
Net change in deferred gains (losses)
on cash flow hedges
Net change in unrealized gains (losses)
on pension and postretirement benefits
Deferred income taxes related to
unrealized gains (losses)
Total comprehensive income
Common stock dividends
Preferred stock dividends
Tax effects to equity
Employee / Director stock plans
Other
271.6
(11.9)
(7.2)
3.5
7.1
(125.0)
(0.9)
(0.1)
(0.1)
263.1
(125.0)
(0.9)
1.3
(0.3)
(0.1)
1.3
(0.3)
0.1
Ending balance
41,172,173
$ 0.4
$ 784.8
$ 6.5
$ 577.6
$ 1,369.3
2008
Net income
Net change in unrealized gains (losses)
on financial instruments
Net change in deferred gains (losses)
on cash flow hedges
Net change in unrealized gains (losses)
on pension and postretirement benefits
Deferred income taxes related to
unrealized gains (losses)
Total comprehensive income
Common stock dividends
Preferred stock dividends
Tax effects to equity
Employee / Director stock plans
285.8
(15.0)
(1.2)
(33.4)
5.6
0.3
(2.0)
(155.0)
(0.9)
241.8
(155.0)
(0.9)
0.3
(2.0)
Ending balance
41,172,173
$ 0.4
$ 783.1
$ (37.5)
$ 707.5
$ 1,453.5
(a) 50,000,000 shares authorized.
See Notes to Consolidated Financial Statements.
60 DPL Inc.
Notes to Consolidated Financial Statements
This report includes the combined filing of DPL and
DP&L. DP&L is the principal subsidiary of DPL pro-
viding approximately 98% of DPL’s total consolidated
revenue and approximately 93% of DPL’s total
consolidated asset base. Throughout this report the
terms we, us, our and ours are used to refer to both
DPL and DP&L, respectively and altogether, unless
the context indicates otherwise. Discussions or areas
of this report that apply only to DPL or DP&L will
clearly be noted in the section.
DPL’s results of operations, financial position and
cash flows, include the consolidated results of its
subsidiaries, including its principal subsidiary DP&L
and all of its consolidated subsidiaries. All material
intercompany accounts and transactions have been
eliminated in consolidation. Some of the Notes present-
ed in this report are only applicable to DPL or DP&L
as indicated. The other Notes apply to both registrants
and the financial information presented is segregated
by registrant.
1 Summary of Significant Accounting
Policies and Overview
Description of Business
DPL is a diversified regional energy company orga-
nized in 1985 under the laws of Ohio. DPL’s principal
subsidiary is The Dayton Power and Light Company
(DP&L). DP&L is a public utility incorporated in 1911
under the laws of Ohio. DP&L sells electricity to
residential, commercial, industrial and governmental
customers in a 6,000 square mile area of West
Central Ohio. Electricity for DP&L’s 24 county service
area is primarily generated at eight coal-fired power
plants and is distributed to more than 515,000 retail
customers. DP&L also sells electricity to DPL Energy
Resources, Inc. (DPLER), an affiliate, to satisfy the
electric requirements of its retail customers. Principal
industries served include automotive, food processing,
paper, plastic manufacturing and defense. DP&L’s
sales reflect the general economic conditions and
seasonal weather patterns of the area. DP&L sells any
excess energy and capacity into the wholesale market.
DPL’s other significant subsidiaries (all of which
are wholly-owned) include DPL Energy LLC (DPLE),
which engages in the operation of peaking generat-
ing facilities; DPLER, which sells retail electric energy
under contract to major industrial and commercial
customers in West Central Ohio; and Miami Valley
Insurance Company (MVIC), our captive insurance
company that provides insurance sources to us and
our subsidiaries.
DPL and DP&L conduct their principal business
in one business segment – Electric.
Basis of Consolidation
We prepare consolidated financial statements in
accordance with generally accepted accounting prin-
ciples (GAAP) in the United States of America. The
consolidated financial statements include the accounts
of DPL and DP&L and their majority-owned subsidiar-
ies. Undivided interests in jointly-owned generation
facilities are consolidated on a pro rata basis. All
material intercompany accounts and transactions are
eliminated in consolidation.
Estimates and Judgments
The preparation of financial statements in conformity
with GAAP requires us to make estimates and judg-
ments that affect the reported amounts of assets and
liabilities, the disclosure of contingent assets and liabili-
ties at the date of the financial statements and the rev-
enue and expenses of the period reported. We record
liabilities for probable estimated losses in accordance
with Statement of Financial Accounting Standards
No. 5 (SFAS 5), “Accounting for Contingencies.” To the
extent a probable loss can only be estimated by
reference to a range of equally probable outcomes and
no amount within the range appears to be a better
estimate than any other amount, we accrue for the low
end of the range. Because of uncertainties related to
these matters, accruals are based on the best informa-
tion available at the time. We evaluate the potential
liability related to probable losses quarterly and may
revise our estimates. Judgments and uncertain-
ties affecting the application of these estimates may
result in materially different amounts being reported
under different conditions or circumstances that may
affect our financial position and results of operations.
Significant items subject to such estimates and judg-
ments include: the carrying value of property, plant and
equipment; unbilled revenues; the valuation of deriva-
tive instruments; the valuation of insurance and claims
costs; the valuation allowances for receivables and
deferred income taxes; regulatory assets and liabilities;
reserves recorded for income tax exposures; litigation;
contingencies and assets and liabilities related to
employee benefits.
DPL Inc.
61
Reclassifications
During the fourth quarter of 2007, we identified immate-
rial changes in certain accounts payable balances
that had not been correctly presented in our 2006 cash
flow statements. Changes in accounts payable bal-
ances representing capital expenditures had previously
been classified with cash flows from operating activities
and should have been classified with capital expendi-
tures as part of investing activities. Accordingly,
the DPL and DP&L consolidated statements of cash
flows for 2006 were reclassified to conform to the
current presentation. As a result of these reclassifica-
tions, cash provided by operating activities for DPL
decreased by $21.9 million from $308.7 million to
$286.8 million for the year ended December 31, 2006.
This same adjustment also decreased cash used for
capital expenditures within investing activities to $335.6
million from $357.5 million in 2006. Cash provided
by operating activities for DP&L decreased by $21.9
million from $365.7 million to $343.8 million for the year
ended December 31, 2006. This same adjustment
also decreased cash used for capital expenditures
within investing activities to $332.9 million from $354.8
million in 2006. These reclassifications did not impact
operating income or net income, working capital,
any earnings per share measures or net change in
cash and cash equivalents as previously reported.
Revenues
We consider revenue realized, or realizable, and
earned when persuasive evidence of an arrangement
exists, the products or services have been provided
to the customer, the sales price is fixed or determin-
able, and collection is reasonably assured. The deter-
mination of the energy sales to customers is based
on the reading of their meters, which occurs on a
systematic basis throughout the month. We recognize
revenues using an accrual method for retail and other
energy sales that have not yet been billed, but where
electricity has been consumed. This is termed “unbilled
revenues” and is a widely recognized and accepted
practice for utilities. At the end of each month, unbilled
revenues are determined by the estimation of unbilled
energy provided to customers since the date of the
last meter reading, projected line losses, the assign-
ment of unbilled energy provided to customer classes
and the average rate per customer class. Also
included in revenues are amounts charged to custom-
ers through a surcharge for recovery of uncollected
amounts from certain eligible low-income households.
These charges for both DPL and DP&L were $12.1
million for 2008, $13.1 million for 2007, and $11.9
million for 2006.
Accounts Receivable
Our accounts receivable includes utility customer
receivables, amounts due from our partners for jointly-
owned property, wholesale and subsidiary customer
receivables, and electric unbilled revenue. At
December 31, 2008 and 2007, DPL’s accounts receiv-
able include unbilled revenue of $82.5 million and
$68.4 million, respectively. DP&L’s accounts receivable
include unbilled revenue of $74.7 million and $60.5
million at December 31, 2008 and 2007, respectively.
We also include miscellaneous accounts receivables
such as refundable taxes. The amount is presented net
of a provision for uncollectible accounts in the accom-
panying consolidated balance sheets.
Allowance for Uncollectible Accounts
We establish provisions for uncollectible accounts
using both historical average credit loss percentages
of accounts receivable balances to project future
losses and specific provisions for known credit issues.
Property, Plant and Equipment
We record our ownership share of our undivided
interest in jointly-held plants as an asset in property,
plant and equipment. Property, plant and equipment
are stated at cost. For regulated property, cost
includes direct labor and material, allocable overhead
expenses and an allowance for funds used during
construction (AFUDC). AFUDC represents the cost of
borrowed funds and equity used to finance regulated
construction projects. Capitalization of AFUDC ceases
at either project completion or at the date specified
by regulators. AFUDC capitalized in 2008, 2007 and
2006 was not material.
For unregulated property, cost includes direct
labor, material and overhead expenses and interest
capitalized during construction using FASB Statement
of Accounting Standard No. 34, “Capitalization of
Interest Cost.” Capitalized interest was $8.9 million in
2008, $21.8 million in 2007 and $12.9 million in 2006.
For substantially all depreciable property, when
a unit of property is retired, the original cost of
that property less any salvage value is charged to
Accumulated Depreciation and Amortization.
Property is evaluated for impairment when events
or changes in circumstances indicate that its carrying
amount may not be recoverable.
62 DPL Inc.
Depreciation
Depreciation expense is calculated using the straight-line method, which allocates the cost of property over its
estimated useful life. For DPL’s generation, transmission, and distribution assets, straight-line depreciation
is applied on an average annual composite basis using group rates that approximated 2.7% in 2008, 2.9% in 2007
and 3.3% in 2006. In July 2007, DPL completed a depreciation rate study for non-regulated generation property
based on its property, plant and equipment balances during 2007. The results of the depreciation study concluded
that DPL’s depreciation rates should be reduced due to projected asset lives beyond previously estimated
useful lives. DPL adjusted the depreciation rates for its non-regulated generation property, effective August 1,
2007. For the period from August 1, 2007 to December 31, 2007, the reduction in depreciation expense increased
income from continuing operations by approximately $9.5 million, increased net income by approximately
$6.0 million, and increased basic EPS by approximately $0.06 per share. DPL’s depreciation expense was $137.7
million in 2008, $134.8 million in 2007, and $151.8 million in 2006.
The following is a summary of DPL’s property, plant and equipment with corresponding composite
depreciation rates at December 31, 2008 and 2007:
DPL
$ in millions
Regulated:
Transmission
Distribution
General
Non-depreciable
Total regulated
Unregulated:
Production
Other
Non-depreciable
Total unregulated
Total property in service
Construction work in process
Total property, plant and equipment
2008
Composite Rate
2007
Composite Rate
$ 350.2
1,146.1
66.7
56.9
$ 1,619.9
$ 3,403.0
31.8
18.7
$ 3,453.5
$ 5,073.4
153.6
$ 5,227.0
2.4%
3.7%
7.2%
N/A
2.4%
3.5%
N/A
2.9%
N/A
$ 348.2
1,104.2
65.0
56.3
$ 1,573.7
$ 3,024.4
31.0
18.0
$ 3,073.4
$ 4,647.1
364.5
$ 5,011.6
2.4%
3.6%
8.9%
N/A
2.6%
4.7%
N/A
2.9%
N/A
For DP&L’s generation, transmission, and distribution assets, straight-line depreciation is applied on an aver-
age annual composite basis using group rates that approximated 2.6% in 2008, 2.8% in 2007 and 3.2% in 2006.
DP&L’s depreciation expense was $127.8 million in 2008, $124.5 million in 2007 and $130.0 million in 2006.
The following is a summary of DP&L’s property, plant and equipment with corresponding composite depreciation
rates at December 31, 2008 and 2007:
DP&L
$ in millions
Regulated:
Transmission
Distribution
General
Non-depreciable
Total regulated
Unregulated:
Production
Non-depreciable
Total unregulated
Total property in service
Construction work in process
Total property, plant and equipment
2008
Composite Rate
2007
Composite Rate
$ 350.2
1,146.2
66.7
56.9
$ 1,620.0
$ 3,182.6
15.3
$ 3,197.9
$ 4,817.9
153.0
$ 4,970.9
2.4%
3.7%
7.2%
N/A
2.3%
N/A
2.6%
N/A
$ 348.2
1,104.2
65.0
56.3
$ 1,573.7
$ 2,804.2
15.3
$ 2,819.5
$ 4,393.2
363.8
$ 4,757.0
2.4%
3.6%
8.9%
N/A
2.5%
N/A
2.8%
N/A
DPL Inc.
63
Asset Retirement Obligations
We recognize asset retirement obligations (AROs)
in accordance with Financial Accounting Standards
Board (FASB) Statement of Financial Accounting
Standards No. 143, “Accounting for Asset Retirement
Obligations” (SFAS 143) and FASB Interpretation
No. 47, “Accounting for Conditional Asset Retirement
Obligations – an interpretation of FASB Statement
No. 143” (FIN 47). Both SFAS 143 and FIN 47 require
legal obligations associated with the retirement of
long-lived assets to be recognized at their fair value
at the time those obligations are incurred. Upon initial
recognition of a legal liability, costs are capitalized as
part of the related long-lived asset and depreciated
over the useful life of the related asset. SFAS 143 and
FIN 47 also require that components of previously
recorded depreciation related to the cost of removal of
assets upon retirement, whether legal AROs or not, be
removed from a company’s accumulated depreciation
reserve. Our legal obligations associated with the
retirement of our long-lived assets consisted primarily
of river intake and discharge structures, coal
unloading facilities, loading docks, ice breakers and
ash disposal facilities.
Estimating the amount and timing of future
expenditures of this type requires significant judgment.
Management routinely updates these estimates as
additional information becomes available.
Changes in the Liability for Generation Asset
Retirement Obligations
$ in millions
Balance at January 1
Accretion expense
Additions
Settlements
Estimated cash flow revisions
2008
2007
$ 12.5
0.7
–
(1.0)
1.0
$ 11.7
0.2
0.3
(0.6)
0.9
Balance at December 31
$ 13.2
$ 12.5
We continue to record cost of removal for our regulated
transmission and distribution assets through our
depreciation rates and recover those amounts in rates
charged to our customers. There are no known legal
asset retirement obligations associated with these
assets. We have recorded $96.0 million and $91.5
million in estimated costs of removal at December 31,
2008 and 2007, respectively, as regulatory liabilities
for our transmission and distribution property. These
amounts represent the excess of the cumulative
removal costs recorded through depreciation rates
versus the cumulative removal expenditures actually
incurred. See Note 3 of Notes to Consolidated
Financial Statements.
Changes in the Liability for Transmission and
Distribution Asset Retirement Obligations
$ in millions
Balance at January 1
Additions
Settlements
Balance at December 31
2008
2007
$ 91.5
8.3
(3.8)
$ 86.2
8.0
(2.7)
$ 96.0
$ 91.5
Regulatory Accounting
We apply the provisions of FASB Statement of Financial
Accounting Standards No. 71, (SFAS 71) “Accounting
for the Effects of Certain Types of Regulation” to
the transmission and distribution portion of our busi-
ness. In accordance with SFAS 71, regulatory assets
and liabilities are recorded in the consolidated balance
sheets. Regulatory assets are the deferral of costs
expected to be recovered in future customer rates and
regulatory liabilities represent current recovery of
expected future costs.
We evaluate our regulatory assets each period
and believe recovery of these assets is probable. We
have received or requested a return on certain regula-
tory assets for which we are currently recovering or
seeking recovery through rates. If we were required to
terminate application of SFAS 71 for all of our regulated
operations, we would have to write off the amounts of
all regulatory assets and liabilities to the consolidated
statement of results of operations at that time. See
Note 3 of Notes to Consolidated Financial Statements.
Inventory
Inventories, carried at average cost, include coal,
limestone, oil and gas used for electric generation,
and materials and supplies for utility operations. We
account for our emission allowances as inventory,
and record emission allowance inventory at weighted
average cost. We calculate the weighted average
cost by each vintage (year) for which emission
allowances can be used and charge to fuel costs the
weighted average cost of emission allowances used
each quarter.
By the end of August 2008, we had successfully
installed and placed into service flue gas desulfuriza-
tion (FGD) equipment at our Killen and J.M. Stuart
stations and are in the process of installing similar
equipment at partner-operated facilities. The installa-
tion of the FGD equipment is expected to significantly
64 DPL Inc.
reduce our future emissions resulting in emission allow-
ance inventory in excess of our needs. Accordingly,
we plan for and manage our excess allowances as part
of our operations and record the net gains or losses
from sales of these excess allowances as a component
of our fuel costs and reflect these in operating income.
Repairs and Maintenance
Costs associated with all planned work and mainte-
nance activities, primarily power plant outages, are
recognized at the time the work is performed. These
costs, which include labor, materials and supplies, and
outside services required to maintain equipment and
facilities, are either capitalized or expensed based on
defined units of property as required by the Federal
Energy Regulatory Commission (FERC)
Income Taxes
We apply the provisions of FASB Statement of Financial
Accounting Standards No. 109, “Accounting for Income
Taxes” (SFAS 109). SFAS 109 requires an asset and
liability approach for financial accounting and reporting
of income taxes with tax effects of differences, based
on currently enacted income tax rates between the
financial reporting and tax basis of accounting reported
as deferred tax assets or liabilities in the consolidated
balance sheets. Deferred tax assets are recognized for
deductible temporary differences. Valuation allowances
are provided against deferred tax assets unless it is
more likely than not that the asset will be realized.
Investment tax credits, which have been used
to reduce federal income taxes payable, have been
deferred for financial reporting purposes. These
deferred investment tax credits are amortized over the
useful lives of the property to which they are related.
For rate-regulated operations, additional deferred
income taxes and offsetting regulatory assets or
liabilities are recorded to recognize that the income
taxes will be recoverable or refundable through
future revenues.
We file a consolidated U.S. federal income
tax return in conjunction with our subsidiaries. The
consolidated tax liability is allocated to each subsidiary
based on the separate return method which is speci-
fied in our tax alloca tion agreement and which provides
a consistent, systematic and rational approach. See
Note 8 of Notes to Consolidated Financial Statements.
Accounting for Uncertainty in Income Taxes
On January 1, 2007, we adopted FASB Interpretation
No. 48, “Accounting for Uncertainty in Income Taxes”
(FIN 48). There was no material impact to our overall
results of operations, cash flows or financial position.
A reconciliation of the beginning and ending amount of
unrecognized tax benefit is as follows:
$ in millions
Balance as of January 1, 2008
Tax positions taken during
prior periods
Tax positions taken during
current periods
Settlement with taxing authorities
Lapse of applicable statute of limitations
Balance as of December 31, 2008
$ 56.3
–
1.9
(56.3)
–
$ 1.9
Of the December 31, 2008 balance of unrecognized
tax benefits, $1.3 million is due to uncertainty in the
timing of deductibility.
We recognize interest and penalties related to
unrecognized tax benefits in income taxes. During
2008, as a result of the settlement of several uncertain
tax positions, we reversed all interest related to
unrecognized tax benefits. No interest or penalties
have been accrued as of December 31, 2008.
Taxes for calendar years 2005 through 2007
remain open to examination by the jurisdictions in
which we are subject to taxation. None of the unrec-
ognized tax benefits are expected to significantly
increase or decrease within the next twelve months.
Accounting for Taxes Collected from Customers
and Remitted to Governmental Authorities
In January 2007, we adopted Emerging Issues Task
Force (EITF) No. 6-03 “How Taxes Collected from
Customers and Remitted to Governmental Authorities
Should Be Presented in the Income Statement”
(EITF No. 6-03). EITF No. 6-03 requires a registrant to
disclose how taxes collected from customers are
presented in the financial statements, i.e., gross or
net. DP&L collects certain excise taxes levied by state
or local governments from its customers. DP&L’s
excise taxes are accounted for on a gross basis
and recorded as revenues and general taxes in the
accompanying Consolidated Statements of Results of
Operations for the twelve months ended December 31,
2008, December 31, 2007 and December 31, 2006
as follows:
Twelve months ended December 31,
$ in millions
2008
2007
2006
State/Local excise taxes
$ 52.3
$ 53.2
$ 51.3
DPL Inc.
65
Stock-Based Compensation
In December 2004, the FASB issued Statement of
Financial Accounting Standard No. 123 (revised 2004),
“Share-Based Payment” (SFAS 123R). SFAS 123R
requires a public entity to measure the cost of employ-
ee services received and paid with equity instruments
to be based on the fair-value of such equity on the
grant date. This cost is recognized in results of opera-
tions over the period in which employees are required
to provide service. Liabilities initially incurred are based
on the fair-value of equity instruments and are to be re-
measured at each subsequent reporting date until the
liability is ultimately settled. The fair-value for employee
share options and other similar instruments at the grant
date are estimated using option-pricing models and
any excess tax benefits are recognized as an addition
to paid-in capital. Cash retained from the excess tax
benefits is presented in the statement of cash flows as
financing cash inflows. The provisions of this statement
became effective as of January 1, 2006. See Note 11
of Notes to Consolidated Financial Statements.
Cash and Cash Equivalents
Cash and cash equivalents are stated at cost, which
approximates fair value. All highly liquid short-term
investments with original maturities of three months
or less are considered cash equivalents. DPL’s cash
and cash equivalents were $62.5 million at December
31, 2008 and $134.9 million at December 31, 2007.
DP&L’s cash and cash equivalents were $20.8 million
at December 31, 2008 and $13.2 million at December
31, 2007. At December 31, 2008, we had $14.5 million
restricted funds held in trust relating to the issuance
of the $100 million pollution control bonds. See Note 7
of Notes to Consolidated Financial Statements.
These restricted funds will be used to fund future
pollution control capital expenditures.
Financial Instruments
We apply the provision of FASB Statement of Financial
Accounting Standards No. 115, “Accounting for Certain
Investments in Debt and Equity Securities” (SFAS 115),
for our investments in debt and equity financial
instruments of publicly traded entities and classify the
securities into different categories: held-to-maturity
and available-for-sale. Available-for-sale securities are
carried at fair value and unrealized gains and losses
on those securities, net of deferred income taxes, are
presented as a separate component of shareholders’
equity. Other-than-temporary declines in value are
recognized currently in earnings. Financial instruments
classified as held-to-maturity are carried at amortized
cost. The valuation of public equity security investments
is based upon market quotations. The cost basis for
public equity security and fixed maturity investments is
average cost and amortized cost, respectively.
Financial Derivatives
We follow FASB Statement of Financial Accounting
Standards No. 133, “Accounting for Derivative
Instruments and Hedging Activity” (SFAS 133), as
amended. SFAS 133 requires that all derivatives
be recognized as either assets or liabilities in the
consolidated balance sheets and be measured
at fair value. Changes in the fair value are recorded
in earnings unless they are designated as a cash
flow hedge of a forecasted transaction or qualify
for the normal purchases and sales exception as
discussed below.
We use forward contracts and options to reduce
our exposure to changes in energy and commodity
prices and as a hedge against the risk of changes in
cash flows associated with expected electricity pur-
chases. These purchases are required to meet full load
requirements during times of peak demand or during
planned and unplanned generation facility outages.
We also hold forward sales contracts that hedge
against the risk of changes in cash flows associated
with power sales during periods of projected genera-
tion facility availability. We use cash flow accounting
under SFAS 133 guidance when the hedge is deemed
to be effective and mark to market accounting when
the hedge is not effective. See Note 10 of Notes to
Consolidated Financial Statements.
Captive Insurance Subsidiary
In addition to insurance provided through third-party
providers, a wholly-owned captive subsidiary of DPL
provides insurance coverage solely to us and to
our subsidiaries. Insurance and Claims Costs on
the consolidated balance sheets includes insurance
reserves of approximately $17.6 million and $20.0
million for 2008 and 2007, respectively. Such reserves
are actuarially determined, in the aggregate, based
on a reasonable estimation of insured events occur-
ring. There is uncertainty associated with the loss esti-
mates, and actual results may differ from the estimates.
Modification of these loss estimates based on
experience and changed circumstances is reflected
in the period in which the estimate is re-evaluated.
Pension and Postretirement Benefits
In September 2006, the FASB issued Financial
Accounting Standards No. 158, “Employers’ Accounting
for Defined Benefit Pension and Other Postretirement
66 DPL Inc.
Plans, an amendment of FASB Statements No. 87, 88,
106 and 132(R)” (SFAS 158). This Statement requires
an employer that is a business entity and sponsors one
or more single-employer defined benefit plans to: rec-
ognize the funded status of a benefit plan; recognize
as a component of other comprehensive income
(OCI), net of tax, the gains or losses and prior service
costs or credits that arise during the period but are
not recognized as components of net periodic benefit
cost; measure defined benefit plan assets and obliga-
tions as of the date of the employer’s fiscal year end
statement of financial position; and disclose in the
notes to financial statements additional information
about certain effects on net periodic benefit costs for
the next fiscal year that arise from delayed recognition
of the gains or losses, prior service costs or credits,
and transition assets or obligations. SFAS 158 was
effective for fiscal years ending after December 15,
2006, except for the measuring of plan assets at the
employer’s fiscal year end, which is effective for fiscal
years ending after December 15, 2008. We adopted
SFAS 158 effective December 31, 2006. We account
and disclose pension and postretirement benefits in
accordance with the provisions of SFAS 158. See Note
9 of Notes to Consolidated Financial Statements.
Contingencies
In the normal course of business, we are subject to
various lawsuits, actions, proceedings, claims and
other matters asserted under laws and regulations.
We believe the amounts provided in our consolidated
financial statements, as prescribed by GAAP,
are adequate in light of the probable and estimable
contingencies. However, there can be no assurances
that the actual amounts required to satisfy alleged
liabilities from various legal proceedings, claims, tax
examinations and other matters discussed below,
and to comply with applicable laws and regulations,
will not exceed the amounts reflected in our consoli-
dated financial statements. As such, costs, if
any, that may be incurred in excess of those amounts
provided as of December 31, 2008, cannot be
reasonably determined.
Recently Adopted Accounting Standards
Accounting for Fair Value Measurements
We adopted Statement of Financial Accounting
Standards No. 157, “Fair Value Measurements,” (SFAS
157), on January 1, 2008. SFAS 157 applies whenever
other standards require (or permit) assets or liabili-
ties to be measured at fair value. SFAS 157 clarifies
the principle that fair value should be based on the
assumptions market participants would use when
pricing the asset or liability. In support of this principle,
SFAS 157 establishes a fair value hierarchy that priori-
tizes the information used to develop those standards.
The fair value hierarchy gives the highest priority to
quoted prices in active markets and the lowest prior-
ity to unobservable data, for example, the reporting
entity’s own data. Under SFAS 157, fair value measure-
ments would be separately disclosed by level within
the fair value hierarchy. SFAS 157 does not expand the
use of fair value in any new circumstances. SFAS 157
did not have a material effect on our overall results
of operations, financial position or cash flows. See Note
10 of Notes to Consolidated Financial Statements.
Amendment of FASB Interpretation No. 39 “Offsetting
of Amounts Related to Certain Contracts”
We adopted Staff Position FIN 39-1, “Amendment of
FASB Interpretation 39” (FSP FIN 39-1), on January 1,
2008. FSP FIN 39-1 amends paragraph 10 of FIN 39
to “permit a reporting entity to offset fair value amounts
recognized for the right to reclaim cash collateral
(a receivable) or the obligation to return cash collateral
(a payable) against fair value amounts recognized for
derivative instruments executed with the same counter-
party under the same master netting arrangement that
have been offset in accordance with that paragraph.”
FSP FIN 39-1 did not have an effect on our overall
results of operations, financial position or cash flows.
Accounting for Income Tax Benefits of Dividends
on Share-Based Payment Awards
We adopted EITF Issue No. 06-11, “Accounting for
Income Tax Benefits of Dividends on Share-Based
Payment Awards” (EITF 06-11), on January 1, 2008.
The FASB ratified the EITF consensus that a realized
income tax benefit from dividends that are charged
to retained earnings, and are paid to employees for
equity classified non-vested equity shares, should be
recognized as an increase in additional paid-in-capital
and should be included in the pool of excess tax
benefits available to absorb potential future tax defi-
ciencies on share-based payment awards. EITF 06-11
did not have a material effect on our overall results of
operations, financial position or cash flows.
Determining Fair Value in an Inactive Market
We adopted FASB Staff Position SFAS 157-3,
“Determining the Fair Value of a Financial Asset when
the Market for That Asset is not Active” (FSP SFAS
157-3), on its issuance date of October 10, 2008. FSP
SFAS 157-3 clarifies the application of SFAS 157
DPL Inc.
67
in a market that is not active and provides an example
to illustrate key points. FSP SFAS 157-3 did not have
a material impact on our overall results of operations,
financial position or cash flows.
evaluated the impact of adopting FSP EITF 03-6-1
and do not expect these new rules to have a material
impact on our overall results of operations, financial
position or cash flows.
Recently Issued Accounting Standards
Disclosures about Derivative Instruments and
Hedging Activities
In March 2008, the FASB issued Statement of Financial
Accounting Standards No. 161, “Disclosures about
Derivative Instruments and Hedging Activities – an
amendment to FASB Statement No. 133” (SFAS 161),
effective for fiscal years beginning after November
15, 2008. We will adopt SFAS 161 on January 1, 2009.
SFAS 161 requires an entity to provide enhanced dis-
closures about: (a) how and why an entity uses deriva-
tive instruments; (b) how derivative instruments and
related hedged items are accounted for under SFAS
133 and its related interpretations; and (c) how deriva-
tive instruments and related hedged items affect an
entity’s financial position, financial performance and
cash flows. We have evaluated the impact of adopting
SFAS 161 and do not expect these new rules to have
a material impact on our overall results of operations,
financial position or cash flows.
Participating Securities and Earnings per Share (EPS)
In June 2008, the FASB issued Staff Position EITF
03-6-1, “Determining Whether Instruments Granted in
Share-Based Payment Transactions Are Participating
Securities” (FSP EITF 03-6-1), effective for fiscal
years beginning after December 15, 2008. We will
adopt FSP EITF 03-6-1 on January 1, 2009. FSP EITF
03-6-1 clarifies that unvested share-based awards that
contain non-forfeitable rights to dividends or dividend
equivalents (whether paid or unpaid) are participating
securities and must be included in the computation
of EPS pursuant to the two-class method. We have
Meaning of “Indexed to a Company’s Own Stock”
In June 2008, the FASB approved the consensus of
the Emerging Issues Task Force (EITF) on “Determining
Whether an Instrument (or Embedded Feature) is
Indexed to an Entity’s Own Stock” (EITF 07-5),
effective for fiscal years beginning after December
15, 2008. We will adopt EITF 07-5 on January 1, 2009.
EITF 07-5 gives guidance on when a financial instru-
ment is considered to be indexed to a company’s own
stock to meet the criteria for paragraph 11(a) of FASB
Statement No. 133, “Accounting for Derivative Financial
Instruments.” We have evaluated the impact of adopt-
ing EITF 07-5 and do not expect these new rules to
have a material impact on our overall results of opera-
tions, financial position or cash flows.
Disclosures about Pensions and Other
Postretirement Benefits
In December 2008, the FASB issued Staff Position
SFAS 132(R)-1, “Employers’ Disclosures about
Postretirement Benefit Plan Assets” [FSP SFAS 132(R)-
1], effective for fiscal years ending after December 15,
2009. FSP SFAS 132(R)-1 requires disclosures about
benefit plan assets similar to the disclosure required
in SFAS 157, “Fair Value Measurements.” It also
requires discussions on investment allocation deci-
sions, major categories of plan assets, and significant
concentrations of risk in plan assets for the period.
We are currently evaluating FSP SFAS 132(R)-1 and
do not expect these new rules to have a material
impact on our overall results of operations, financial
position or cash flows.
68 DPL Inc.
2 Supplemental Financial Information
DPL Inc.
$ in millions
Accounts receivable, net:
Unbilled revenue
Retail customers
Partners in commonly-owned plants
PJM including financial transmission rights
Coal sales
Refundable taxes
Wholesale and subsidiary customers
Other
Provision for uncollectible accounts
Total accounts receivable, net
Inventories, at average cost:
Fuel and emission allowances
Plant materials and supplies
Other
Total inventories, at average cost
Other current assets:
Deposits and other advances
Prepayments
Short-term investments
Current deferred income taxes
Other
Total other current assets
Property, plant and equipment:
Construction work in process
Property, plant and equipment
Total property, plant and equipment
Other deferred assets:
Master Trust assets
Unamortized debt expense
Investments
Commercial activities tax benefit
Prepaid pension
Other
Total other deferred assets
Accounts payable:
Trade payables
Fuel accruals
Other
Total accounts payable
Other current liabilities:
Customer security deposits
Low income service plan
Pension and retiree benefits payable
Other
Total other current liabilities
Other deferred credits:
Pension and retiree benefits
Asset retirement obligations – regulated property
SECA net revenue subject to refund
Deferred compensation obligations
Asset retirement obligations – generation property
Taxes payable
Litigation and claims reserve
Employee benefit reserves
Customer advances in aid of construction
Environmental reserves
Other
Total other deferred credits
At December 31,
2008
$
82.5
70.8
28.0
27.0
25.6
14.9
9.7
2.5
(1.1)
$ 259.9
$
68.7
36.3
0.1
$ 105.1
$
$
10.5
7.1
5.0
2.2
2.2
27.0
$ 153.6
5,073.4
$ 5,227.0
$
$
13.3
9.3
8.0
6.8
–
0.6
38.0
$
68.7
51.9
57.7
$ 178.3
$
$
19.8
2.4
0.8
11.5
34.5
$ 100.5
96.0
20.1
14.0
13.2
9.8
2.1
4.4
3.4
–
3.8
$ 267.3
2007
68.4
71.7
56.7
23.2
1.9
5.2
12.7
2.9
(1.5)
241.2
70.5
34.1
0.4
105.0
1.1
5.9
–
2.1
2.7
11.8
$
$
$
$
$
$
$
364.5
4,647.1
$ 5,011.6
$
$
$
$
$
$
$
$
9.6
10.9
8.8
6.8
9.9
0.5
46.5
65.6
34.4
63.1
163.1
19.2
2.2
0.8
5.0
27.2
40.6
91.5
20.1
20.4
12.5
65.3
4.3
4.3
3.5
0.1
3.7
266.3
DPL Inc.
69
DP&L
$ in millions
Accounts receivable, net:
Unbilled revenue
Retail customers
Partners in commonly-owned plants
Coal sales
PJM including financial transmission rights
Wholesale and subsidiary customers
Refundable franchise tax
Other
Provision for uncollectible accounts
Total accounts receivable, net
Inventories, at average cost:
Fuel and emission allowances
Plant materials and supplies
Other
Total inventories, at average cost
Other current assets:
Deposits and other advances
Prepayments
Current deferred income taxes
Other
Total other current assets
Property, plant and equipment:
Construction work in process
Property, plant and equipment
Total property, plant and equipment
Other deferred assets:
Master Trust assets
Unamortized debt expense
Prepaid pension
Other
Total other deferred assets
Accounts payable:
Trade payables
Fuel accruals
Other
Total accounts payable
Other current liabilities:
Customer security deposits
Low income service plan
Pension and retiree benefits payable
Other
Total other current liabilities
Other deferred credits:
Pension and retiree benefits
Asset retirement obligations – regulated property
SECA net revenue subject to refund
Deferred compensation obligations
Asset retirement obligations – generation property
Taxes payable
Employee benefit reserves
Litigation and claims reserve
Customer advances in aid of construction
Other
Total other deferred credits
70 DPL Inc.
At December 31,
2008
$
74.7
70.8
28.0
25.6
23.3
2.6
–
1.5
(1.1)
$ 225.4
$
68.7
35.0
0.1
$ 103.6
$
$
10.5
8.9
2.3
2.4
24.1
2007
60.5
71.7
56.7
1.9
23.1
3.5
3.1
2.8
(1.5)
221.8
70.5
32.7
0.4
103.6
0.9
7.5
2.1
2.9
13.4
$
$
$
$
$
$
$ 153.0 $
4,817.9
$ 4,970.9
363.8
4,393.2
$ 4,757.0
$
$
40.4
8.6
–
1.2
50.2
$
68.6
50.4
57.6
$ 176.6
$
$
19.8
2.4
0.8
11.0
34.0
$ 100.5
96.0
20.1
14.0
13.2
9.8
4.4
2.1
3.4
3.9
$ 267.4
$
$
$
$
$
$
$
$
56.0
9.6
9.9
1.1
76.6
64.8
34.1
63.0
161.9
19.2
2.2
0.8
4.7
26.9
40.5
91.5
20.1
20.4
12.5
65.3
4.3
4.3
3.5
3.8
266.2
3 Regulatory Matters
We apply the provisions of SFAS 71 to our regulated operations. This accounting standard defines regulatory
assets as the deferral of costs expected to be recovered in future customer rates and regulatory liabilities as
current cost recovery of expected future expenditures.
Regulatory liabilities are reflected on the consolidated balance sheets under the caption entitled “Other
Deferred Credits”. Regulatory assets and liabilities on the consolidated balance sheets include:
$ in millions
Regulatory Assets:
Deferred recoverable income taxes
Pension and postretirement benefits
Unamortized loss on reacquired debt
Electric Choice systems costs
Regional transmission organization costs
Deferred storm costs - 2004/2005
Deferred storm costs - 2008
PJM administrative costs
Power plant emission fees
Rate case expenses
Settlement system costs
Customer conservation and energy management costs
PJM integration costs
Other costs
Total regulatory assets
Regulatory Liabilities:
Asset retirement obligations – regulated property
Postretirement benefits
SECA net revenue subject to refund
Total regulatory liabilities
Type of
Recovery (a)
Amortization
Through
At December 31,
2008
2007
C/ B
C
C
F
C
F
D
F
C
F
D
D
F
Ongoing
Ongoing
Ongoing
2010
2014
2008
2009
Ongoing
2010
2015
$ 81.2
83.3
17.2
7.1
8.5
–
13.1
0.5
6.3
0.5
3.1
8.3
0.7
3.9
$ 233.7
$ 96.0
5.8
20.1
$ 121.9
$ 65.8
41.5
18.8
10.2
9.9
1.9
–
3.0
4.7
0.8
3.1
1.3
1.1
3.1
$ 165.2
$ 91.5
6.8
20.1
$ 118.4
(a) F – Recovery of incurred costs plus rate of return.
C – Recovery of incurred costs only.
B – Balance has an offsetting liability resulting in no impact on rate base.
D – Recovery not yet determined.
Regulatory Assets
We evaluate our regulatory assets each period and believe recovery of these assets is probable. We have
received or requested a return on certain regulatory assets for which we are currently recovering or seeking
recovery through rates.
Deferred recoverable income taxes represent deferred income tax assets recognized from the normalization of
flow-through items as the result of amounts previously provided to customers. Since currently existing temporary
differences between the financial statements and the related tax basis of assets will reverse in subsequent
periods, deferred recoverable income taxes are amortized.
Pension and postretirement benefits represent the unfunded benefit obligation related to the transmission
and distribution areas of our electric business. We have historically recorded these costs on the accrual basis
and this is how these costs have been historically recovered through rates. This factor, combined with the
historical precedents from the PUCO and the FERC, makes these costs probable of future rate recovery.
Unamortized loss on reacquired debt represents costs associated with the redemption of a series of bonds
financed by another issue. These costs are being amortized over the life of the original issue.
Electric Choice systems costs represent costs incurred to modify the customer billing system for unbundled
rates and electric choice bills relative to other generation suppliers and information reports provided to the
DPL Inc.
71
state administrator of the low-income electric pro-
gram. In March 2006, the PUCO issued an order that
approved our tariff as filed. We began collecting
this rider immediately, and expect to recover all costs
over five years.
Regional transmission organization costs repre-
sent costs incurred to join a Regional Transmission
Organization (RTO) that controls the receipt and
delivery of bulk power within the service area. These
costs are being amortized over a 10-year period
that commenced in October 2004.
Deferred storm costs in 2007 include costs incurred
by us to repair damage from December 2004 and
January 2005 ice storms. These costs were fully recov-
ered by July 2008. The costs recorded in 2008 relate
to the reparation of damage caused by hurricane force
winds in September 2008, as well as other major 2008
storms. On January 14, 2009, the PUCO granted
DP&L the authority to defer these costs with a return
until such time that DP&L seeks recovery in a future
rate proceeding. We have yet to file for recovery of
these 2008 costs.
PJM Interconnection, LLC (PJM) administrative costs
contain the administrative fees billed by PJM to us as
a member of the PJM RTO. Pursuant to a PUCO
order issued on January 25, 2006, these deferred
costs will be recovered over a 3-year period from retail
ratepayers beginning February 2006.
Power plant emission fees represent costs paid to the
State of Ohio for environmental monitoring that are or
will be recovered over various periods under a PUCO
rate rider from customers.
Settlement system costs represent costs to implement
a settlement system that reconciles the amount
of energy a competitive retail electric service (CRES)
supplier delivers to its customers and what its custom-
ers actually use. Based on case precedent in other
utilities’ cases, the cost of this system is recoverable
through DP&L’s next transmission rate case that
will be filed at the FERC. The timing of this case is
uncertain at this time.
PJM integration costs include infrastructure costs and
other related expenses incurred by PJM and reim-
bursed by DP&L to integrate us into the RTO. Pursuant
to a FERC order, the costs are being recovered over
a 10-year period beginning May 2005 from wholesale
customers within PJM.
Rate case expenses represent costs incurred in con-
nection with the Rate Stabilization Surcharge that was
approved by the PUCO and implemented in January
2006. These costs are being amortized over a five-
year period.
PJM transmission expansion costs represent costs
incurred as a result of PJM Regional Transmission
Expansion Plan (RTEP) cost assignments. On
December 21, 2007, DP&L filed seeking PUCO
authority to defer these costs for future recovery and
was granted that authority by the PUCO on August 8,
2008. These costs are included within Other costs.
Customer conservation and energy management costs
represent costs incurred as a result of studying and
developing distribution system upgrades and imple-
mentation of advanced metering infrastructure, as
well as DSM program development and various new
customer programs. The portion of these costs related
to energy efficiency will be recovered as part of
the Stipulation Agreement beginning in 2009. DP&L
intends to file a request for the recovery of the remain-
ing costs related to the advanced metering and smart
grid portions of the case later in 2009.
Other costs include consumer education advertising
regarding electric deregulation and rate case and are,
or will be, recovered over various periods.
Regulatory Liabilities
Asset retirement obligations – regulated property
reflect an estimate of amounts recovered in rates that
are expected to be expended to remove existing
transmission and distribution property from service
upon retirement.
Postretirement benefits reflect a regulatory liability that
was recorded for the portion of the unrealized gain
on our postretirement trust assets related to the trans-
mission and distribution areas of our electric business.
We have historically recorded these transactions
on the accrual basis and this is how these costs have
historically been recovered through rates. This fac-
tor, combined with the historical precedents from the
PUCO and the FERC, make it probable that these
amounts will be reflected in future rates.
SECA (Seams Elimination Charge Adjustment) net rev-
enue subject to refund represents our deferral of net
revenues collected in 2005 and 2006. SECA revenue
and expenses represent FERC-ordered transitional
payments for the use of transmission lines within PJM.
A hearing was held in early 2006 to determine if these
transitional payments are subject to refund, but no rul-
ing has been issued. We began receiving and paying
these transitional payments in May 2005.
72 DPL Inc.
4 Ownership of Facilities
We and other Ohio utilities have undivided ownership interests in seven electric generating facilities and
numerous transmission facilities. Certain expenses, primarily fuel costs for the generating units, are allocated to
the owners based on their energy usage. The remaining expenses (as well as investments in fuel inventory,
plant materials and operating supplies) and capital additions are allocated to the owners in accordance with their
respective ownership interests. As of December 31, 2008, we had $109.0 million of construction work in progress
at such facilities. Our share of the operating cost of such facilities is included in the consolidated statement of
results of operations and our share of the investment in the facilities is included in the consolidated balance sheets.
Our undivided ownership interest in such facilities at December 31, 2008, is as follows:
DP&L Share
DP&L Investment
Ownership (%)
Production
Capacity (MW)
Gross Plant
In Service
($ in millions)
Accumulated
Construction
Depreciation Work in Progress
($ in millions)
($ in millions)
Production Units:
Beckjord Unit 6
Conesville Unit 4
East Bend Station
Killen Station
Miami Fort Units 7&8
Stuart Station
Zimmer Station
Transmission (at varying percentages)
50.0
16.5
31.0
67.0
36.0
35.0
28.1
210
129
186
402
368
820
365
$
77
37
197
604
347
661
1,056
90
$
54
28
127
264
115
225
585
52
Total
2,480
$ 3,069
$ 1,450
DPL’s share of operating costs associated with the jointly-owned generating facilities are included within the corresponding line
in consolidated statements of results of operations.
$
1
68
1
2
6
25
6
–
$ 109
5 Assets Sales
Peaker Sales
During 2006, in connection with DPLE’s (wholly-owned subsidiary of DPL) decision to sell the Greenville
Station and Darby Station electric peaking generation facilities, DPL concluded that the related assets were
impaired. Greenville Station consisted of four natural gas peaking units with a net book value of approximately
$66 million. Darby Station consisted of six natural gas peaking units with a net book value of approximately
$156 million. During the fourth quarter of 2006, DPL recorded a $71.0 million impairment charge to write-down
the assets to their fair value. The Greenville Station and Darby Station assets were sold by DPLE in April 2007
for $49.2 million and $102.0 million, respectively, in two separate transactions.
Aircraft Sale
On June 7, 2007, Miami Valley CTC, Inc. (indirect, wholly-owned subsidiary of DPL), sold its corporate aircraft
and associated inventory and parts for $7.4 million. The net book value of the assets sold was approximately
$1.0 million, and severance and other costs of approximately $0.4 million were accrued. Miami Valley CTC, Inc.
recorded a net gain on the sale of approximately $6.0 million during the second quarter ending June 30, 2007,
which is included in DPL’s operation and maintenance expense.
6 Discontinued Operations
On February 13, 2005, DPL’s subsidiaries, MVE, Inc. (MVE) and MVIC, entered into an agreement to sell
their respective interests in forty-six private equity funds to AlpInvest/Lexington 2005, LLC, a joint venture of
AlpInvest Partners and Lexington Partners, Inc. During 2005, MVE and MVIC completed the sale of their
interests in forty-three funds and a portion of another of those private equity funds. During 2005, MVE entered
DPL Inc.
73
into alternative closing arrangements with AlpInvest/Lexington 2005, LLC for funds where legal title to said funds
could not be transferred until a later time. Pursuant to these arrangements, MVE transferred the economic aspects
of the remaining private equity funds, consisting of two funds and a portion of one fund, to AlpInvest/Lexington
2005, LLC without a change in ownership of the interests. The ownership interest in these funds was transferred
in 2006 and 2007, at which time DPL recognized previously deferred gains. DPL recognized $18.9 million of
these previously deferred gains in 2006 and the remaining balance of these gains in the amount of $7.9 million,
net of associated expenses ($4.9 million after tax), were recognized in 2007. This transaction was recorded in
discontinued operations for each period presented.
As a result of the May 21, 2007 settlement of the litigation with three former executives (see Note 15 of
Notes to Consolidated Financial Statements), the three former executives relinquished all of their rights to certain
deferred compensation, restricted stock units, MVE incentives, stock options and reimbursement of legal fees.
The reversal of accruals related to the performance of the financial asset portfolio was recorded in discontinued
operations. Additionally, a portion of the $25 million settlement expense was allocated to discontinued operations.
These transactions resulted in a net gain of $8.1 million, net of associated expenses ($5.1 million after tax), on
the settlement of litigation being recorded in discontinued operations in 2007.
There were no discontinued operations recorded in 2008.
7 Long-term Debt
DPL Inc.
$ in millions
DP&L – First mortgage bonds maturing 2013 – 5.125%
DP&L – Pollution control series maturing 2036 – 4.80%
DP&L – Pollution control series maturing 2040 – variable rates: 3.85% - 7.81% (b)
DP&L – Pollution control series maturing 2040 – variable rates: 0.80% - 1.25% (b)
DP&L – Pollution control series maturing through 2034 – 4.78% (a)
DPL Inc. – Note to Capital Trust II 8.125% due 2031
DPL Inc. – Senior Notes 6.875% Series due 2011
DPL Inc. – Senior Notes 8.00% Series due 2009
DP&L – Obligations for capital leases
Unamortized debt discount
Total
(a) Weighted average interest rate for 2008 and 2007.
(b) Range of interest rates for 2008 and 2007.
DP&L
$ in millions
DP&L – First mortgage bonds maturing 2013 – 5.125%
DP&L – Pollution control series maturing 2036 – 4.80%
DP&L – Pollution control series maturing 2040 – variable rates: 3.85% - 7.81% (b)
DP&L – Pollution control series maturing 2040 – variable rates: 0.80% - 1.25% (b)
DP&L – Pollution control series maturing through 2034 – 4.78% (a)
DP&L – Obligations for capital leases
Unamortized debt discount
Total
(a) Weighted average interest rate for 2008 and 2007.
(b) Range of interest rates for 2008 and 2007.
74 DPL Inc.
At December 31,
2008
$ 470.0
100.0
–
100.0
214.4
884.4
195.0
297.4
–
0.6
(1.3)
2007
$ 470.0
100.0
90.0
–
214.4
874.4
195.0
297.4
175.0
1.3
(1.6)
$ 1,376.1
$ 1,541.5
At December 31,
2008
$ 470.0
100.0
–
100.0
214.4
884.4
0.6
(1.0)
2007
$ 470.0
100.0
90.0
–
214.4
874.4
1.3
(1.1)
$ 884.0
$ 874.6
At December 31, 2008, DPL’s scheduled maturities
of long-term debt, including capital lease obligations,
over the next five years are $175.7 million in 2009,
$0.6 million in 2010, $297.4 million in 2011, $0 in 2012,
and $470.0 million in 2013.
At December 31, 2008, DP&L’s scheduled
maturities of long-term debt, including capital lease
obligations, over the next five years are $0.7 million in
2009, $0.6 million in 2010, $0 in 2011 and 2012, and
$470 million in 2013. Substantially all property of
DP&L is subject to the mortgage lien securing the first
mortgage bonds.
On March 1, 2007, pursuant to the Company’s
strategy of reducing its long-term debt, DPL redeemed
$225 million of 8.25% Senior Notes when they became
due. DPL also redeemed $100 million of 6.25% Senior
Notes when they became due on May 15, 2008.
Debt and Debt Covenants
On March 25, 2004, DPL completed a $175 million
private placement of unsecured 8.00% Series Senior
Notes due March 2009. The purchasers were granted
registration rights in connection with the private place-
ment under an Exchange and Registration Rights
Agreement. Pursuant to this agreement, DPL was
obligated to file an exchange offer registration state-
ment by July 22, 2004, have the registration state-
ment declared effective by September 20, 2004 and
consummate the exchange offer by October 20,
2004. DPL failed: (1) to have a registration statement
declared effective; and (2) to complete the exchange
offer according to this timeline. As a result, DPL had
been accruing additional interest at a rate of 0.5% per
year for each of these two violations, up to an addi-
tional interest rate not to exceed in the aggregate 1.0%
per year. As each violation was cured, the additional
interest rate decreased by 0.5% per annum. DPL’s
exchange offer registration statement for these securi-
ties was declared effective by the U.S. Securities and
Exchange Commission on June 27, 2006. As a result,
on June 27, 2006, DPL ceased accruing 0.5% of
the additional interest. On July 31, 2006, DPL ceased
accruing the other 0.5% of additional interest when
the exchange of registered notes for the unregistered
notes was completed.
During the first quarter of 2006, the Ohio
Department of Development (ODOD) awarded DP&L
the ability to have issued, over the next three years,
up to $200 million of qualified tax-exempt financing
from the ODOD’s 2005 volume cap carryforward. The
financing is to be used to partially fund the ongoing
flue gas desulfurization capital projects. The PUCO
approved DP&L’s application for this additional financ-
ing on July 26, 2006.
On November 21, 2006, DP&L entered into a $220
million unsecured revolving credit agreement replacing
its $100 million facility. This agreement had a five-year
term that expires on November 21, 2011 and that
provides DP&L with the ability to increase the size of
the facility by an additional $50 million at any time. The
facility contains one financial covenant: DP&L’s total
debt to total capitalization ratio is not to exceed 0.65 to
1.00. This covenant is currently met with a ratio of 0.39
to 1.00. DP&L had no outstanding borrowings under
this credit facility at December 31, 2008. Fees associ-
ated with this credit facility are approximately $0.2
million per year. Changes in credit ratings, however,
may affect fees and the applicable interest. This revolv-
ing credit agreement also contains a $50 million letter
of credit sub-limit. DP&L has certain contractual agree-
ments for the sale and purchase of power, fuel and
related energy services that contain credit rating relat-
ed clauses allowing the counter parties to seek addi-
tional surety under certain conditions. As of December
31, 2008, DP&L had no outstanding letters of credit
against the facility.
During the second quarter ended June 30, 2007,
DPL entered into a short-term loan to DP&L for $105
million. DP&L paid down $15 million of this loan
during the third quarter ended September 30, 2007, an
additional $70 million during the fourth quarter ended
December 31, 2007, and the final $20 million during
the first quarter ended March 31, 2008. This short-term
loan does not affect our debt covenants. There are
no other inter-company debt collateralizations or debt
guarantees between DPL, DP&L and their subsidiar-
ies. None of the debt obligations of DPL or DP&L
are guaranteed or secured by affiliates and no cross-
collateralization exists between any subsidiaries.
On November 15, 2007, The Ohio Air Quality
Development Authority (OAQDA) issued $90 million of
collateralized, variable rate OAQDA Revenue Bonds,
2007 Series A due November 1, 2040. In turn, DP&L
borrowed these funds from the OAQDA. The payment
of principal and interest on the bonds when due was
insured by an insurance policy issued by Financial
Guaranty Insurance Company (FGIC). During the
first quarter of 2008, all three credit rating agencies
downgraded FGIC. These downgrades, as well as
the downgrades of our major bond insurers, resulted
in auction rate security bonds carrying substantially
higher interest rates in succeeding auctions and incur-
DPL Inc.
75
ring failed auctions. On April 4, 2008, DP&L converted the 2007 Series A Bonds from Auction Rate Securities
to Variable Rate Demand Notes. At that time, DP&L purchased these notes out of the market and placed
them with the Trustee to be held until the capital markets corrected. These notes were redeemed in December
2008 as discussed in the following paragraph.
On December 4, 2008, the OAQDA issued $100 million of collateralized, variable rate Revenue Refunding
Bonds Series A and B due November 1, 2040. In turn, DP&L borrowed these funds from the OAQDA. The
payment of principal and interest on the bonds when due is backed by a standby letter of credit issued by a
syndicated bank group credit facility. DP&L is using $10 million of these bonds to finance its portion of the costs
of acquiring, constructing and installing certain solid waste disposal and air quality facilities at the Conesville
generation station. The remaining $90 million was used to redeem the 2007 Series A Bonds.
8 Income Taxes
On February 13, 2006, we received correspondence from the Ohio Department of Taxation (ODT) notifying us
that ODT has completed their examination and review of our Ohio Corporation Franchise Tax Returns for tax
years 2002 through 2004 and that the final proposed audit adjustments result in a balance due of $90.8 million
before interest and penalties. On June 27, 2008, we entered into a $42.0 million settlement agreement with ODT
resolving all outstanding audit issues and appeals, including uncertain tax positions for tax years 1998 through
2006. The $42 million payment was made to the ODT in July 2008. Due to this settlement agreement, the
balance of our unrecognized state tax liabilities recorded at December 31, 2007, in the amount of $56.3 million,
was reversed resulting in a recorded income tax benefit of $8.5 million, net of federal tax impact, in 2008.
For the years ended December 31, 2008, 2007 and 2006, DPL’s components of income tax were as follows:
For the years ended December 31,
2008
2007
2006
$ 121.9
$ 117.3
$ 68.7
4.1
(4.3)
(2.8)
–
(4.2)
(7.2)
(4.6)
11.6
(4.8)
(2.8)
–
(2.0)
2.7
0.5
(4.0)
(3.1)
(2.9)
0.2
(0.8)
5.1
6.6
$ 102.9
$ 122.5
$ 69.8
$ 62.7
$ 100.8
$ 109.3
12.9
–
2.7
–
21.5
5.9
(2.8)
4.6
–
16.6
6.3
–
(3.0)
(2.8)
(37.9)
6.6
–
(3.4)
–
(1.9)
(2.9)
$ 102.9
$ 122.5
$ 69.8
DPL Inc.
$ in millions
Computation of Tax Expense
Federal income tax (a)
Increases (decreases) in tax resulting from –
State income taxes, net of federal effect (b)
Depreciation
Investment tax credit amortized
Non-deductible compensation
Section 199 – domestic production deduction
Accrual (settlement) for open tax years (c)
Other, net (d)
Total tax expense (e)
Components of Tax Expense
Taxes currently payable (b)
Deferred taxes –
Depreciation and amortization
Investment loss
Compensation
Employee benefits
Accrual for open tax years (f)
Other
Deferred investment tax credit, net
Total tax expense (e)
76 DPL Inc.
Components of Deferred Tax Assets and Liabilities
$ in millions
Net Non-Current Assets (Liabilities)
Depreciation / property basis
Income taxes recoverable
Regulatory assets
Investment tax credit
Investment loss
Compensation and employee benefits
Insurance
Other (g)
Net non-current (liabilities)
Net Current Asset (h)
Other
Net current assets
At December 31,
2008
2007
$ (416.7)
(28.4)
(7.7)
13.3
0.1
12.7
0.8
(7.8)
$ (433.7)
$ (395.2)
(23.0)
(9.6)
14.3
0.1
15.5
1.1
21.9
$ (374.9)
$
$
2.2
2.2
$
$
2.1
2.1
(a) The statutory tax rate of 35% was applied to pre-tax income from continuing operations before preferred dividends.
(b) We have recorded $0.2 million, $0.5 million and $10.4 million in 2008, 2007 and 2006, respectively, for state tax
credits available related to the consumption of coal mined in Ohio. In addition, ($0.5) million in 2008,$0.9 million in 2007 and
$1.0 million in 2006 was recorded as a result of the phase out of the Ohio Franchise Tax.
(c) We have recorded ($40.7) million, $2.7 million and $5.1 million in 2008, 2007 and 2006, respectively, of tax provisions for
tax deduction or income positions taken in prior tax returns that we believe were properly treated on such tax returns but for
which it is possible that these positions may be contested. The 2008 amount relates to the ODT settlement discussed above.
(d) Includes ($3.8) million in 2008 and $5.0 million in 2006 of income tax expense related to adjustments from prior years.
(e) Excludes $6.0 million in 2007 and $3.6 million in 2006 of income taxes reported as discontinued operations.
(f) We recorded $21.5 million in 2008 related to federal tax impacts on the ODT settlement discussed above.
(g) The Other non-current liabilities caption includes deferred tax assets related to state tax net operating loss carryforwards,
net of related valuation allowances of $10.7 million in 2008 and $12.4 million in 2007. As of December 31, 2008, all deferred
tax assets related to net operating losses were either written off or valued at zero.
(h) Amounts are included within other current assets in the consolidated balance sheets.
For the years ended December 31, 2008, 2007 and 2006, DP&L’s components of income tax were as follows:
DP&L
$ in millions
Computation of Tax Expense
Federal income tax (a)
Increases (decreases) in tax resulting from –
State income taxes, net of federal effect (b)
Depreciation
Investment tax credit amortized
Non-deductible compensation
Section 199 – domestic production deduction
Accrual (settlement) for open tax years (c)
Other, net (d)
For the years ended December 31,
2008
2007
2006
$ 142.1
$ 145.1
$ 134.6
2.6
(4.3)
(2.8)
–
(4.2)
(7.2)
(6.0)
9.6
(4.7)
(2.8)
–
(2.0)
2.7
4.8
2.4
(3.1)
(2.9)
0.1
(0.8)
5.1
6.8
Total tax expense
$ 120.2
$ 143.1
$ 142.2
Components of Tax Expense
Taxes currently payable (b)
Deferred taxes –
Depreciation and amortization
Compensation
Employee benefits
Accrual for open tax years (e)
Other
Deferred investment tax credit, net
Total tax expense
$ 82.1
$ 124.7
$ 158.5
11.3
2.7
–
21.5
5.4
(2.8)
1.7
19.5
6.3
–
(6.3)
(2.8)
(17.1)
–
(3.4)
–
7.1
(2.9)
$ 120.2
$ 143.1
$ 142.2
DPL Inc.
77
Components of Deferred Tax Assets and Liabilities
$ in millions
Net Non-Current Assets (Liabilities)
Depreciation / property basis
Income taxes recoverable
Regulatory assets
Investment tax credit
Compensation and employee benefits
Other (f)
Net non-current (liabilities)
Net Current Asset (g)
Other
Net current assets
At December 31,
2008
2007
$ (398.6)
(28.4)
(13.3)
13.3
12.7
(3.5)
$ (417.8)
$ (378.5)
(23.0)
(9.6)
14.3
15.5
14.3
$ (367.0)
$
$
2.3
2.3
$
$
2.1
2.1
(a) The statutory tax rate of 35% was applied to pre-tax income from continuing operations before preferred dividends.
(b) We have recorded $0.2 million, $0.5 million and $10.4 million in 2008, 2007 and 2006, respectively, for state tax credits
available related to the consumption of coal mined in Ohio. In addition, ($0.9) million in 2008, ($0.5) million in 2007 and
$3.1 million in 2006 was recorded as a result of the phase out of the Ohio Franchise Tax.
(c) We have recorded ($40.7) million, $2.7 million and $5.1 million in 2008, 2007 and 2006, respectively, of tax provisions for
tax deduction or income positions taken in prior tax returns that we believe were properly treated on such tax returns but for
which it is possible that these positions may be contested. The 2008 amount relates to the ODT settlement discussed above.
(d) Includes ($3.5) million in 2008 and $5.0 million in 2006 of income tax expense related to adjustments from prior years.
(e) We recorded $21.5 million in 2008 related to federal tax impacts on the ODT settlement discussed above.
(f) The Other non-current liabilities caption includes deferred tax assets related to state tax net operating loss carryforwards,
net of related valuation allowances of $0.3 million in 2007. At December 31, 2008, there were no deferred tax assets or valuation
allowances related to net operating losses on our books.
(g) Amounts are included within other current assets in the consolidated balance sheets.
9 Pension and Postretirement Benefits
We sponsor a defined benefit plan for substantially all employees. For collective bargaining employees, the
defined benefits are based on a specific dollar amount per year of service. For all other employees, the defined
benefit plan is based primarily on compensation and years of service. We fund pension plan benefits as accrued
in accordance with the minimum funding requirements of the Employee Retirement Income Security Act of 1974
(ERISA). In addition, we have a Supplemental Executive Retirement Plan (SERP) for certain active and retired
key executives. Benefits under this SERP have been frozen and no additional benefits can be earned. We also
have unfunded liabilities related to retirement benefits for certain active, terminated and retired key executives.
These liabilities totaled approximately $1.0 million at December 31, 2008.
On February 23, 2006, DPL’s Board of Directors approved a new compensation and benefits program that
includes The DPL Inc. Supplemental Executive Defined Contribution Retirement Plan (SEDCRP) which replaces
our Supplemental Executive Retirement Plan (SERP) that was terminated as to new participants in 2000. The
Compensation Committee of the Board of Directors designates the eligible employees. Pursuant to the SEDCRP,
we provide a supplemental retirement benefit to participants by crediting an account established for each
participant in accordance with the Plan requirements. We designate as hypothetical investment funds under the
SEDCRP one or more of the investment funds provided under The Dayton Power and Light Company Employee
Savings Plan. Each participant may change his or her hypothetical investment fund selection at specified times.
If a participant does not elect a hypothetical investment fund(s), then we select the hypothetical investment
fund(s) for such participant.
A participant shall become 100% vested in all amounts credited to his or her account upon the completion
of five vesting years, as defined in The Dayton Power and Light Company Retirement Income Plan, or
upon a change of control or the participant’s death or disability. If a participant’s employment is terminated,
other than by death or disability, prior to such participant becoming 100% vested in his or her account, the
78 DPL Inc.
account shall be forfeited as of the date of termination.
Qualified employees who retired prior to 1987 and their dependents are eligible for health care and life
insurance benefits, while qualified employees who retired after 1987 are eligible for life insurance benefits. We
have funded the union-eligible health benefit using a Voluntary Employee Beneficiary Association Trust.
We adopted SFAS 158 “Employers’ Accounting for Defined Benefit Pension and Other Postretirement Plans,
an amendment of FASB Statements No. 87, 88, 106 and 132(R)” for the year ended December 31, 2006.
SFAS 158 requires that an entity’s funded status of its pension and other postretirement benefit obligations be
recognized on the face of the financial statements and not just in the footnotes.
Regulatory assets and liabilities are recorded for the portion of the under- or over-funded obligations related
to the transmission and distribution areas of our electric business. We have historically recorded these costs
on the accrual basis and this is how these costs have been historically recovered. This factor, combined with
the historical precedents from the PUCO and FERC, make these costs probable of future rate recovery.
The following tables set forth our pension and postretirement benefit plans’ obligations and assets recorded
on the consolidated balance sheets as of December 31. The amounts presented in the following tables for
pension include both the defined benefit pension plan and the Supplemental Executive Retirement Plan in the
aggregate, and use a measurement date of December 31, 2008. The amounts presented for post-retirement
include both health and life insurance benefits and use a measurement date of December 31, 2008.
$ in millions
2008
2007
2008
2007
Pension
Postretirement
Change in Benefit Obligation During Year
Benefit obligation at January 1
Service cost
Interest cost
Plan amendments
Actuarial (gain) loss
Benefits paid
Benefit obligation at December 31
Change in Plan Assets During Year
Fair value of plan assets at January 1
Actual return on plan assets
Contributions to plan assets
Benefits paid
Medical reimbursements
Fair value of plan assets at December 31
$ 285.0
3.3
16.7
6.9
2.0
(19.3)
$ 294.6
$ 291.0
(46.7)
0.4
(19.3)
–
$ 225.4
$ 294.5
3.2
16.2
–
(9.6)
(19.3)
$ 285.0
$ 266.4
16.1
27.8
(19.3)
–
$ 291.0
$ 26.4
–
1.4
–
(0.1)
(2.5)
$ 25.2
$
6.5
0.2
2.1
(2.7)
0.1
$ 27.1
–
1.5
–
0.6
(2.8)
$ 26.4
$
7.0
0.3
2.0
(2.9)
0.1
$
6.2
$
6.5
Funded Status of Plan
$ (69.2)
$
6.0
$ (19.0)
$ (19.9)
Amounts Recognized in the
Consolidated Balance Sheets at December 31
Non-current assets
Current liabilities
Non-current liabilities
Net asset /(liability) at December 31
Amounts Recognized in Accumulated Other
Comprehensive Income, Regulatory Assets and
Regulatory Liabilities
Net transition obligation (asset)
Prior service cost (credit)
Net actuarial loss (gain)
Accumulated other comprehensive income,
$
–
(0.4)
(68.8)
$
9.9
(0.3)
(3.6)
$ (69.2)
$
6.0
$
(
–
0.4)
(18.6)
$ (19.0)
$
–
(0.5)
(19.4)
$ (19.9)
$
–
16.7
129.9
$
–
12.2
59.7
$
–
–
(7.8)
$
–
–
(8.9)
regulatory assets and regulatory liabilities, pre-tax
$ 146.6
$ 71.9
$
(7.8)
$
(8.9)
The accumulated benefit obligation for our defined benefit pension plans was $283.3 million and
$274.6 million at December 31, 2008 and 2007, respectively.
DPL Inc.
79
The net periodic benefit cost (income) of the pension and postretirement benefit plans at December 31 were:
Net Periodic Benefit Cost (Income)
$ in millions
2008
2007
2006
2008
2007
Pension
Postretirement
$
2006
–
1.5
(0.5)
(1.3)
–
0.2
(0.1)
–
–
–
1.5
(0.5)
(0.9)
–
0.2
0.3
–
–
$ 0.1
$ 0.3
$
(0.1)
Service cost
Interest cost
Expected return on assets (a)
Amortization of unrecognized:
Actuarial (gain) loss
Prior service cost
Transition obligation
Net benefit cost (income) before adjustments
Settlement costs (b)
Special termination benefit cost (c)
Net benefit cost (income) after adjustments
3.2
$
16.7
(24.1)
$
3.2
16.2
(22.0)
$
4.2
16.6
(21.7)
–
$
1.4
(0.4)
$
2.6
2.4
–
0.8
–
–
3.4
2.4
–
3.2
–
–
$
0.8
$
3.2
$
3.9
2.6
–
5.6
2.6
0.3
8.5
(0.9)
–
–
0.1
–
–
(a) The market-related value of assets is equal to the fair value of assets at implementation with subsequent asset gains and
losses recognized in the market-related value systematically over a three-year period.
(b) The settlement cost related to a former officer who elected to receive a lump sum distribution in 2007 from the Supplemental
Executive Retirement Plan.
(c) In 2006 and 2005, special termination benefit costs were recognized as a result of 32 employees who participated in a
voluntary early retirement program. 16 employees retired at various dates during 2005 and 16 additional employees retired at
various dates during 2006; this program was completed as of April 1, 2006.
Other Changes in Plan Assets and Benefit Obligation Recognized in
Accumulated Other Comprehensive Income
$ in millions
Net actuarial (gain) / loss
Prior service cost / (credit)
Reversal of amortization item:
Net actuarial (gain) / loss
Prior service cost / (credit)
Transition (asset) / obligation
Pension
2008
2007
$ 72.8
6.9
$
(3.7)
–
(2.6)
(2.4)
–
(3.4)
(2.4)
–
Total recognized in accumulated other
comprehensive income
Total recognized in net periodic benefit cost and
accumulated other comprehensive income
$ 74.7
$
(9.5)
$
1.1 $
$ 75.5
$
(6.3)
$
1.2 $
Estimated amounts that will be amortized from accumulated other comprehensive income into net periodic
benefit cost during 2009 are:
$ in millions
Net actuarial (gain) / loss
Prior service cost / (credit)
Pension
$
4.5
3.0
Postretirement
$
(0.2)
–
Postretirement
2008
2007
$
0.2 $
–
0.9
–
–
0.7
–
0.9
–
(0.2)
1.4
1.7
DP&L’s pension and postretirement plan assets were comprised of the following asset categories at December 31:
Asset Category
Equity securities
Debt securities
Other
Total
80 DPL Inc.
Pension
2008
2007
39%
45%
16%
100%
56%
33%
11%
100%
Postretirement
2008
2007
0%
100%
0%
100%
0%
100%
0%
100%
Plan assets are invested using a total return investment approach whereby a mix of equity securities, debt
securities and other investments are used to preserve asset values, diversify risk and achieve our target
investment return benchmark. Investment strategies and asset allocations are based on careful consideration
of plan liabilities, the plan’s funded status and our financial condition. Investment performance and asset
allocation are measured and monitored on an ongoing basis.
On November 26, 2007, DP&L contributed $27.4 million in DPL common stock from its Master Trust
assets to the Retirement Income Plan to fully fund the pension liability as of December 31, 2007. DPL common
stock is now 9% of plan assets.
Our expected return on plan asset assumptions, used to determine benefit obligations, are based on
historical long-term rates of return on investment, which use the widely accepted capital market principle that
assets with higher volatility generate a greater return over the long run. Current market factors, such as inflation
and interest rates, as well as asset diversification and portfolio rebalancing, are evaluated when long-term
capital market assumptions are determined. Peer data and historical returns are reviewed to verify reasonability
and appropriateness.
Our overall expected long-term rate of return on assets is approximately 8.50% for pension plan assets and
approximately 6.00% for retiree benefit plan assets. This expected return is based exclusively on historical returns,
without adjustments. There can be no assurance of our ability to generate that rate of return in the future.
Our overall discount rate was evaluated in relation to the December 31, 2008 Hewitt Yield Curve which
represents a portfolio of top-quartile AA-rated bonds used to settle pension obligations. Peer data and historical
returns were also reviewed to verify the reasonableness and appropriateness of our discount rate used in the
calculation of benefit obligations and expense.
The weighted average assumptions used to determine benefit obligations for the years ended
December 31 were:
Benefit Obligation Assumptions
Discount rate for obligations
Rate of compensation increases
Pension
2008
2007
6.25%
5.44%
6.00%
5.44%
Postretirement
2008
6.25%
N/A
2007
6.00%
N/A
The weighted-average assumptions used to determine net periodic benefit cost (income) for the
years ended December 31 were:
Net Periodic Benefit Cost (Income) Assumptions
Discount rate
Expected rate of return on plan assets
Rate of compensation increases
2008
6.00%
8.50%
5.44%
Pension
2007
5.75%
8.50%
5.44%
Postretirement
2006
2008
2007
5.75%
8.50%
5.44%
6.00%
6.00%
N/A
5.75%
6.75%
N/A
2006
5.75%
6.75%
N/A
The assumed health care cost trend rates at December 31 are as follows:
Health Care Cost Assumptions
Current health care cost trend rate
Ultimate health care cost trend rate
Ultimate health care cost trend rate – year
Expense
2008
2007
10.00%
5.00%
2013
10.00%
5.00%
2012
Benefit Obligations
2008
2007
9.50%
5.00%
2014
10.00%
5.00%
2013
DPL Inc.
81
The assumed health care cost trend rates have a significant effect on the amounts reported for the health
care plans. A one-percentage point change in assumed health care cost trend rates would have the following
effects on the net periodic postretirement benefit cost and the accumulated postretirement benefit obligation:
Effect of Change in Health Care Cost Trend Rate
$ in millions
Service cost plus interest cost
Benefit obligation
Increase 1%
Decrease 1%
$
$
0.1
1.5
$ (0.1)
$ (1.4)
The following benefit payments, which reflect future service, are expected to be paid as follows:
Estimated Future Benefit Payments
$ in millions
2009
2010
2011
2012
2013
2014 – 2018
Pension
$ 20.1
$ 20.5
$ 20.9
$ 21.5
$ 22.2
$ 117.1
Postretirement
$
$
$
$
$
$
2.7
2.7
2.6
2.5
2.4
9.7
We expect to contribute $0.4 million to our pension plans and $2.7 million to our other postretirement
benefit plans in 2009.
The Pension Protection Act (the Act) of 2006 contained new requirements for our single employer defined
benefit pension plans. In addition to establishing a 100% funding target for plan years beginning after December
31, 2008, the Act also limits some benefits if the funded status of pension plans drops below certain thresholds.
Among other restrictions under the Act, if the funded status of a plan falls below a predetermined ratio which
will increase to 80%, lump-sum payments to new retirees are limited to 50% of amounts that otherwise would have
been paid and new benefit improvements may not go into effect. This 80% funding threshold will be phased-in
through 2011 with 65% being the applicable ratio for 2008. For the 2008 plan year, the funded status of our defined
benefit pension plan as calculated under the requirements of the Act was 83% and is estimated to be 80% for
the 2009 plan year. The Worker, Retiree, and Employer Recovery Act of 2008 (WRERA), which was signed into law
on December 23, 2008, grants plan sponsors certain relief from funding requirements and benefit restrictions of
the Act. DPL and DP&L are in the process of evaluating the impact of this legislation on the funding requirements
and benefits restrictions of the Act. We do not expect the requirements of the Act to have a material impact on
our overall results of operations, financial position or cash flows.
10 Financial Instruments
In the normal course of business, DPL and DP&L enter into various financial instruments, including derivative
financial instruments. A description of these financial instruments is as follows:
Derivatives
We use derivatives principally to manage the risk of changes in market prices for commodities. The derivatives
that we use to hedge these risks are governed by our risk management policies for forward contracts, futures,
options, and swaps. Our net positions are continually assessed within our structured hedging programs to determine
whether new or offsetting transactions are required. The objective of the hedging program is generally to mitigate
financial risks while ensuring that sufficient volumes are available to meet our requirements. We monitor and
value derivative positions monthly as part of our risk management processes. We use published sources for pricing
when possible to mark positions to market. We rely on modeled valuations only when no other method exists.
Cash Flow Hedges
Our risk management processes identify the relationships between hedging instruments and hedged items, as
well as the risk management objective and strategy for undertaking various hedge transactions. The mark-to-
82 DPL Inc.
market value of cash flow hedges as determined by current public market prices will continue to fluctuate with
changes in market prices up to contract expiration. The effective portion of the hedging transaction is recognized
in Other Comprehensive Income (OCI) and transferred to earnings when the hedged forecasted transaction
takes place or when the hedged forecasted transaction is no longer probable of occurring. The ineffective portion
of the cash flow hedge is recognized in earnings in the current period.
These instruments are used to hedge the risk of price changes for sales and purchases of power. All risk
components were taken into account to determine the hedge effectiveness of the cash flow hedges. Power hedges
are usually transacted over a 1 to 3 month period. We recognized unrealized losses on our forward power cash
flow hedges of $0.3 million and $1.5 million in OCI in 2008 and 2007, respectively. Approximately $0.3 million
of accumulated losses in OCI related to the above mentioned power hedges are expected to be reclassified to
earnings over the next twelve months.
Changes in interest rates expose DPL and DP&L to risk as a result of the issuance of corporate bonds. In
2003, we entered into an interest rate hedge to manage risk. The balance of the remaining deferred gain from the
interest rate hedge in OCI was $17.2 million and $19.7 million in 2008 and 2007, respectively. Approximately
$2.5 million of accumulated gains in OCI related to the above referenced interest rate hedge are expected to be
reclassified to earnings over the next twelve months.
The following table provides information concerning gains or losses recognized in OCI for the cash
flow hedges:
$ in millions
Beginning accumulated
derivative (gain) / loss in OCI
Net change associated with current
period hedging transactions
Net amount of any reclassifications
December 31, 2008
December 31, 2007
December 31, 2006
Power and
Capacity
Interest Rate
Hedge
Power and
Capacity
Interest Rate
Hedge
Power and
Capacity
Interest Rate
Hedge
$ 1.5
$ (19.7)
$ (3.2)
$ (22.1)
$ 0.3
$ (24.6)
(7.4)
–
0.5
–
(9.4)
–
2.5
into earnings
6.2
2.5
4.2
2.4
5.9
Ending accumulated
derivative (gain) / loss in OCI
Mark to Market
$ 0.3
$ (17.2)
$ 1.5
$ (19.7)
$ (3.2)
$ (22.1)
Certain derivative contracts are entered into on a regular basis as part of our risk management program but do
not qualify for hedge accounting or the normal purchase and sales exceptions under SFAS No. 133, “Accounting
for Derivative Instruments and Hedging Activities,” as amended. Accordingly, such contracts are recorded at
fair value with changes in the fair value charged or credited to the income statement in the period in which
the change occurred. Contracts we enter into as part of our risk management program may be settled financially,
by physical delivery, or net settled with the counterparty.
Master Trust Assets
DP&L established a Master Trust to hold assets for the benefit of employees participating in DP&L’s Deferred
Compensation Plan and other employee benefit purposes and these assets are not used for general operating
purposes. These assets are primarily comprised of mutual funds and DPL common stock. The DPL common stock
held by the Master Trust in DP&L’s consolidated balance sheet is eliminated in consolidation and is not reflected
in DPL’s consolidated balance sheet. These assets are valued using current public market prices on a quarterly
basis. Any unrealized gains or losses are recognized in Other Comprehensive Income until the securities are sold.
DPL recognized $6.2 million of unrealized gains on the Master Trust assets in OCI in both 2008 and 2007
and $6.6 million and $5.9 million of unrealized losses in OCI in 2008 and 2007, respectively. DP&L recognized
$17.0 million and $31.2 million of unrealized gains and $6.6 million and $5.9 million of unrealized losses in OCI in
2008 and 2007, respectively. No unrealized gains or losses are expected to be transferred to earnings in 2009.
Transfer of Master Trust Assets to Pension
On October 26, 2007, the Board of Directors approved a resolution permitting the transfer of 925,000 shares of
DPL Inc. common stock from the DP&L Master Trust to The Dayton Power and Light Company Retirement Income
DPL Inc.
83
Plan Trust (Pension). This transaction was completed on November 26, 2007, contributing shares of common
stock with a fair value of $27.4 million to the Pension and resulting in a fully funded status at December 31, 2007.
Long-term Debt
Long-term debt is fair valued based on current public market prices for disclosure purposes only. Unrealized
gains or losses are not recognized in the financial statements, as long-term debt is presented at amortized cost
in the financial statements. The long-term debt amounts include the current portion payable in the next twelve
months and have maturities that range from 2009 to 2040.
The fair values of our financial instruments and debt are based on market quotes of similar instruments and
represent estimates of possible value that may not be realized in the future. The table below presents the fair
value and cost of these instruments at December 31, 2008 and 2007.
$ in millions
DPL Inc.
Assets
Master Trust Assets
Derivative Assets
Total Assets
Liabilities
Debt
Derivative Liabilities
Total Liabilities
DP&L
Assets
Master Trust Assets
Derivative Assets
Total Assets
Liabilities
Debt
Derivative Liabilities
Total Liabilities
At December 31,
2008
2007
Cost
Fair Value
Cost
Fair Value
$
–
$
13.6
13.6
$
–
$
13.1
13.1
$
$
9.2
0.4
9.6
$
$
9.6
0.4
10.0
$ 1,551.8
–
$ 1,470.5
6.6
$ 1,642.2
–
$ 1,664.3
1.5
$ 1,551.8
$ 1,477.1
$ 1,642.2
$ 1,665.8
$
–
$
$
29.9
29.9
884.7
–
$
–
$
$
40.2
40.2
815.7
6.6
$
$
$
30.5
0.4
30.9
875.3
–
$
$
$
56.0
0.4
56.4
871.5
1.5
$
884.7
$
822.3
$
875.3
$
873.0
Effective January 1, 2008, we adopted Statement of Financial Accounting Standards No. 157, “Fair Value
Measurements” (SFAS 157), which provides a framework for measuring fair value under GAAP. SFAS 157 requires
that the impact of this change in accounting for fair valued assets and liabilities be recorded as an adjustment
to beginning retained earnings in the period of adoption. We did not have any adjustments to beginning retained
earnings at adoption.
FSP SFAS 157-2 allows for a deferral from the SFAS 157 disclosures for non-financial assets or liabilities
until fiscal years beginning after November 15, 2008. We did not elect this deferral and have disclosed additional
layers to several asset retirement obligations.
SFAS 157 defines fair value as the exchange price that would be received for an asset or paid to transfer
a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly
transaction between market participants on the measurement date. SFAS 157 also establishes a fair value hierarchy
that requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs
when measuring fair value. The standard describes three levels of inputs that may be used to measure fair value:
Level 1
Level 1 inputs are defined as quoted prices in active markets for identical assets or liabilities. Our Level 1
assets and liabilities include equity securities held in various deferred compensation trusts and futures contracts
that are traded in an active exchange market.
84 DPL Inc.
Level 2
Level 2 inputs are observable inputs other than Level 1 prices such as quoted prices for similar assets or
liabilities, quoted prices in markets that are not active, or other inputs that are observable or can be corroborated
by observable market data for substantially the full term of the assets or liabilities. Our Level 2 assets and
liabilities include open-ended investment funds and forward contracts with quoted prices from over-the-counter
(OTC) markets or direct broker quotes that are traded less frequently than exchange-traded instruments.
Level 3
Level 3 inputs are unobservable inputs that are supported by little or no market activity and that are significant
to the fair value of the assets or liabilities. Our Level 3 assets and liabilities include asset retirement obligations
that are initially recognized at fair value.
Valuations of assets and liabilities reflect the value of the instrument including the values associated with
counterparty risk and performance risk. With the issuance of SFAS 157, the accounting industry clarified that
these values must also take into account our own credit standing.
The fair value of assets and liabilities measured on a recurring basis was determined as follows:
Assets and Liabilities Measured at Fair Value on a Recurring Basis
$ in millions
Assets
Master Trust Assets
Derivative Assets
Total
Liabilities
Derivative Liabilities
Total
Fair Value at
December 31, 2008
Based on Quoted Prices
in Active Market
Based on Other
Observable Inputs
Level 1
Level 2
Level 3
Unobservable
Inputs
DPL
DP&L(a)
DPL
DP&L(a)
DPL
DP&L
DPL
DP&L
$ 13.1
–
$ 13.1
$ 40.2
–
$ 40.2
$
$
–
–
–
$ 27.1
–
$ 27.1
$ 13.1
–
$ 13.1
$ 13.1
–
$ 13.1
$ 6.6
$ 6.6
$ 6.6
$ 6.6
$ 6.3
$ 6.3
$ 6.3
$ 6.3
$ 0.3
$ 0.3
$ 0.3
$ 0.3
$
$
$
$
–
–
–
–
–
$ –
–
$ –
$ –
$ –
(a) DP&L holds DPL stock in the Master Trust that is eliminated in consolidation.
Generally, for financial assets held by the Master Trust and for heating oil futures, fair value is determined
by reference to quoted market prices and other relevant information generated by market transactions.
Level 2 inputs are used to value derivatives such as financial transmission rights where the quoted prices are
from a relatively inactive market; forward power contracts which are valued using prices on the New York
Mercantile Exchange (NYMEX) for similar contracts on the OTC market; and open-ended funds that are valued
using the end of day Net Asset Value (NAV).
The fair value of assets and liabilities measured on a non-recurring basis was determined as follows:
Assets and Liabilities Measured at Fair Value on a Non-Recurring Basis
Fair Value at
December 31, 2008
Based on Quoted Prices
in Active Market
Based on Other
Observable Inputs
Level 1
Level 2
Level 3
Unobservable
Inputs
$ in millions
DPL
DP&L
DPL
DP&L
DPL
DP&L
DPL
DP&L
Asset retirement obligations
recorded during period
$ 0.6
$ 0.6
$
–
$
–
$
–
$
–
$ 0.6
$ 0.6
The fair value of an asset retirement obligation (ARO) is estimated by discounting expected cash outflows to
their present value. Cash outflows are based on the approximate future disposal cost as determined by
market information, historical information or management judgment. During the three months ended December 31,
2008, DP&L added an additional layer to several asbestos removal and ash landfill AROs in the amount of
$0.6 million due to changes in the cost and timing estimates for asbestos removal and ash landfill closures and
the acceleration of the removal of some asbestos.
At December 31, 2008, DPL had $15.0 million in money market mutual funds classified as cash and cash
equivalents in its consolidated balance sheet.
DPL Inc.
85
11 Stock-Based Compensation
The following table summarizes share-based compensation expense:
$ in millions
Stock options
Restricted stock units
Performance shares
Restricted shares
Non-employee directors’ RSUs
Management performance shares
Share-based compensation included in operations and
maintenance expense
Income tax expense
Total share-based compensation, net of tax
Twelve months ended December 31,
2008
–
$
(0.1)
0.9
0.3
0.5
0.3
1.9
(0.7)
$ 1.2
2007
$
–
–
1.5
0.3
0.3
–
2.1
(0.7)
$ 1.4
2006
$ 1.3
3.0
2.0
–
–
–
6.3
(2.2)
$ 4.1
Share-based awards issued in DPL’s common stock will be distributed from treasury stock. DPL has
sufficient treasury stock to satisfy all outstanding share-based awards.
Determining Fair Value
Valuation and Amortization Method – We estimate the fair value of stock options and RSUs using a Black-
Scholes-Merton model; performance shares are valued using a Monte Carlo simulation; restricted shares are
valued at the closing market price on the day of grant and the Directors’ RSUs are valued at the closing
market price on the day prior to the grant date. We amortize the fair value of all awards on a straight-line basis
over the requisite service periods, which are generally the vesting periods.
Expected Volatility – Our expected volatility assumptions are based on the historical volatility of DPL stock. The
volatility range captures the high and low volatility values for each award granted based on its specific terms.
Expected Life – The expected life assumption represents the estimated period of time from grant until exercise
and reflects historical employee exercise patterns.
Risk-Free Interest Rate – The risk-free interest rate for the expected term of the award is based on the correspond-
ing yield curve in effect at the time of the valuation for U.S. Treasury bonds having the same term as the expected
life of the award, i.e., a five year bond rate is used for valuing an award with a five year expected life.
Expected Dividend Yield – The expected dividend yield is based on DPL’s current dividend rate, adjusted as
necessary to capture anticipated dividend changes and the 12 month average DPL stock price.
Expected Forfeitures – The forfeiture rate used to calculate compensation expense is based on DPL’s historical
experience, adjusted as necessary to reflect special circumstances.
Stock Options
In 2000, DPL’s Board of Directors adopted and DPL’s shareholders approved The DPL Inc. Stock Option Plan.
On April 26, 2006, DPL’s shareholders approved The DPL Inc. 2006 Equity and Performance Incentive Plan (EPIP).
With the approval of the EPIP, no new awards will be granted under The DPL Inc. Stock Option Plan, but shares
relating to awards that are forfeited or terminated under The DPL Inc. Stock Option Plan may be granted under the
EPIP. As of December 31, 2008, there were no unvested stock options.
86 DPL Inc.
Summarized stock option activity was as follows:
Options:
Outstanding at beginning of year
Granted
Exercised
Forfeited (a)
Outstanding at year-end
Exercisable at year-end
Weighted average option prices per share:
Outstanding at beginning of year
Granted
Exercised
Forfeited
Outstanding at year-end
Exercisable at year-end
Twelve months ended December 31,
2008
2007
2006
946,500
–
(110,000)
–
836,500
836,500
$
$
$
$
$
$
24.09
–
18.56
–
24.64
24.64
5,091,500
–
(525,000)
(3,620,000)
946,500
946,500
$ 21.95
$
–
$ 26.79
$ 20.38
$ 24.09
$ 24.09
5,486,500
–
(355,000)
(40,000)
5,091,500
5,081,500
$ 21.86
$
–
$ 21.00
$ 15.88
$ 21.95
$ 21.94
(a) As a result of the settlement of the former executive litigation on May 21, 2007, 3.6 million outstanding options shown above were
forfeited in the second quarter of 2007 and another approximately one million disputed options not shown above were also forfeited.
The following table reflects information about stock options outstanding at December 31, 2008:
Range of
Exercise Prices
$ 14.95 – $ 21.00
$ 21.01 – $ 29.63
Outstanding
510,000
326,500
Options Outstanding
Options Exercisable
Weighted-Average Weighted-Average
Exercise Price
Contractual Life
Weighted-Average
Exercisable
Exercise Price
1.6 years
2.6 years
$ 20.98
$ 28.82
510,000
326,500
$ 20.98
$ 28.82
The following table reflects information about stock option activity during the period:
$ in millions
Weighted-average grant date fair value of options granted during the period $
$
Intrinsic value of options exercised during the period
$
Proceeds from stock options exercised during the period
$
Excess tax benefits from proceeds of stock options exercised
$
Fair value of shares that vested during the period
$
Unrecognized compensation expense
Weighted average period to recognize compensation expense (in years)
Twelve months ended December 31,
2008
–
1.0
2.2
0.3
–
–
–
2007
$
–
$ 2.3
$ 14.6
$ 1.3
–
$
–
$
–
2006
$
–
$ 2.5
$ 7.8
$ 1.9
$ 1.3
$ 0.1
1.0
No options were granted during 2006, 2007 or 2008.
Restricted Stock Units (RSUs)
RSUs were granted to certain key employees prior to 2001. As a result of the settlement of the former executive
litigation, all disputed RSUs were forfeited by the three former executives. There were 10,120 RSUs outstanding
as of December 31, 2008, none of which has vested. The non-vested RSUs will be paid in cash upon vesting
and will vest as follows: 6,809 in 2009 and 3,311 in 2010. Non-vested RSUs are valued quarterly at fair value using
the Black-Scholes-Merton model to determine the amount of compensation expense to be recognized. Non-vested
RSUs do not earn dividends.
$ in millions
Non-vested at January 1, 2008
Granted in 2008
Vested in 2008
Forfeited in 2008
Non-vested at December 31, 2008
Number of
RSUs
Weighted-Average
Grant Date Fair Value
22,976
–
(11,253)
(1,603)
10,120
$ 0.5
$
–
$ (0.2)
–
$
$ 0.3
DPL Inc.
87
Summarized RSU activity was as follows:
RSUs:
Outstanding at beginning of year
Granted
Dividends
Exercised
Forfeited
Outstanding at period end
Exercisable at period end
Twelve months ended December 31,
2008
2007
2006
22,976
–
–
(11,253)
(1,603)
10,120
–
1,334,339
–
11,656
(20,097)
(1,302,922)
22,976
–
1,319,399
–
46,434
(22,516)
(8,978)
1,334,339
–
Compensation expense is recognized each quarter based on the change in the market price of DPL
common shares.
As of December 31, 2008, 2007 and 2006, liabilities recorded for outstanding RSUs were $0.2 million,
$0.6 million and $36.9 million, respectively, which are included in “Other deferred credits” on the consolidated
balance sheets. The decrease in the liability between 2006 and 2007 is due to the executive litigation
settlement and the forfeiture of 1.3 million RSUs. See Note 15 of Notes to Consolidated Financial Statements.
The following table shows the assumptions used in the Black-Scholes-Merton model to calculate the fair
value of the non-vested RSUs during the respective periods:
Expected volatility
Weighted-average expected volatility
Expected life (years)
Expected dividends
Weighted-average expected dividends
Risk-free interest rate
Performance Shares
Twelve months ended December 31,
2008
2007
2006
24.8% - 28.1%
26.0%
1.0 - 2.0
4.5%
4.5%
0.2% - 0.4%
6.1% - 15.3%
13.0%
1.0 - 3.0
3.8%
3.8%
3.0% - 3.3%
9.5% - 17.3%
14.6%
1.0 - 4.0
3.7%
3.7%
4.7% - 4.9%
Under the EPIP, the Board adopted a Long-Term Incentive Plan (LTIP) under which DPL will grant a targeted
number of performance shares of common stock to executives. Grants under the LTIP will be awarded based
on a Total Shareholder Return Relative to Peers performance. No performance shares will be earned in a
performance period if the three-year Total Shareholder Return Relative to Peers is below the threshold of the
40th percentile. Further, the LTIP awards will be capped at 200% of the target number of performance shares,
if the Total Shareholder Return Relative to Peers is at or above the threshold of the 90th percentile. The Total
Shareholder Return Relative to Peers is considered a market condition under FAS 123R. There is a three year
requisite service period for each portion of the performance shares.
The schedule of non-vested performance share activity for the twelve months ended December 31, 2008 follows:
$ in millions
Non-vested at January 1, 2008
Granted in 2008
Vested in 2008
Forfeited in 2008
Non-vested at December 31, 2008
Number of
Performance Shares
Weighted-Average
Grant Date Fair Value
104,682
93,298
(36,445)
(41,680)
119,855
$ 3.1
$ 2.2
$ (0.8)
$ (1.2)
$ 3.3
88 DPL Inc.
Performance shares:
Outstanding at beginning of year
Granted
Exercised
Expired
Forfeited
Outstanding at period end
Exercisable at period end
Twelve months ended December 31,
2008
2007
2006
142,108
93,298
–
(37,426)
(41,680)
156,300
36,445
154,768
78,559
(22,462)
(21,583)
(47,174)
142,108
37,426
–
244,423
–
–
(89,655)
154,768
44,045
The following table reflects information about performance share activity during the period:
$ in millions
Twelve months ended December 31,
2008
2007
2006
Weighted-average grant date fair value of performance shares
granted during the period
Intrinsic value of performance shares exercised during the period
Proceeds from performance shares exercised during the period
Excess tax benefits from proceeds of performance shares exercised
Fair value of performance shares that vested during the period
Unrecognized compensation expense
Weighted average period to recognize compensation expense (in years)
$ 2.2
–
$
–
$
–
$
$ 0.8
$ 1.6
1.6
$ 2.6
$ 0.6
–
$
–
$
$ 0.8
$ 1.9
1.7
$ 6.3
–
$
–
$
–
$
$ 1.3
$ 1.5
1.6
The following table shows the assumptions used in the Monte Carlo Simulation to calculate the fair value
of the performance shares granted during the period:
Expected volatility
Weighted-average expected volatility
Expected life (years)
Expected dividends
Weighted-average expected dividends
Risk-free interest rate
Restricted Shares
Twelve months ended December 31,
2008
2007
2006
15.0% - 15.7%
15.1%
3.0
3.5% - 4.1%
4.1%
2.2% - 3.2%
15.8% - 17.3%
16.6%
3.0
3.3% - 3.9%
3.4%
4.5% - 4.9%
17.9% - 20.3%
20.1%
3.0
3.7%
3.7%
4.6% - 4.7%
Under the EPIP, the Board granted shares of DPL Restricted Shares to various executives. The Restricted
Shares are registered in the executive’s name, carry full voting privileges, receive dividends as declared and
paid on all DPL common stock and vest after a specified service period.
On July 23, 2008, the Board of Directors granted compensation awards to a select group of management
employees. A total of 10,347 restricted shares was granted. The management restricted stock awards have
a three-year requisite service period from July 23, 2008 to July 23, 2011, carry full voting privileges and receive
dividends as declared and paid on all DPL common stock. The management restricted stock can only be
awarded in DPL common shares.
$ in millions
Non-vested at January 1, 2008
Granted in 2008
Vested in 2008
Forfeited in 2008
Non-vested at December 31, 2008
Number of
Restricted Shares
Weighted-Average
Grant Date Fair Value
42,200
39,347
(1,000)
(11,400)
69,147
$ 1.2
$ 1.1
$
–
$ (0.4)
$ 1.9
DPL Inc.
89
Restricted Shares:
Outstanding at beginning of year
Granted
Exercised
Forfeited
Outstanding at period end
Exercisable at period end
Twelve months ended December 31,
2008
2007
2006
42,200
39,347
(1,000)
(11,400)
69,147
–
19,000
23,200
–
–
42,200
–
–
19,000
–
–
19,000
–
The following table reflects information about restricted share activity during the period:
$ in millions
Weighted-average grant date fair value of restricted shares granted
during the period
Intrinsic value of restricted shares exercised during the period
Proceeds from restricted shares exercised during the period
Excess tax benefits from proceeds of restricted shares exercised
Fair value of restricted shares that vested during the period
Unrecognized compensation expense
Weighted average period to recognize compensation expense (in years)
Twelve months ended December 31,
2008
2007
2006
$ 1.1
–
$
–
$
–
$
$
–
$ 1.3
2.7
$ 0.7
–
$
–
$
–
$
$
–
$ 0.9
2.8
$ 0.5
–
$
–
$
–
$
$
–
$ 0.5
4.1
Non-Employee Director Restricted Stock Units
Under the EPIP, as part of their annual compensation for service to DPL and DP&L, each non-employee Director
receives a $54,000 retainer in RSUs on the date of the annual meeting. The RSUs will become non-forfeitable
on April 15 of the following year. All of the RSUs become non-forfeitable in the event of death, disability, or
change in control but if the Director resigns or retires prior to the April 15 vesting date, the vested shares will be
distributed on a pro rata basis. The RSUs accrue quarterly dividends in the form of additional RSUs. Upon vesting,
the RSUs will become exercisable and will be distributed in DPL common shares, unless the Director chooses
to defer receipt of the shares until a later date. The RSUs are valued at the closing stock price on the day prior
to the grant and the compensation expense is recognized evenly over the vesting period.
$ in millions
Non-vested at January 1, 2008*
Granted in 2008
Dividends accrued in 2008
Vested in 2008
Forfeited in 2008
Non-vested at December 31, 2008
Number of
Director RSUs
Weighted-Average
Grant Date Fair Value
13,573
17,022
931
(14,831)
(1,149)
15,546
$ 0.4
$ 0.5
$
–
(0.5)
$
–
$
$ 0.4
* 2007 incorrectly stated vested shares as (10,238) when it should have been (142). The non-vested at 1/1/2008 reflects this correction.
Twelve months ended December 31,
2008
2007
2006*
13,573
17,022
931
(7,910)
(6,921)
(1,149)
15,546
–
–
14,920
348
(142)
–
(1,553)
13,573
–
–
–
–
–
–
–
–
–
Restricted stock units:
Outstanding at beginning of year
Granted
Dividends accrued
Exercised and issued
Exercised and deferred
Forfeited
Outstanding at period end
Exercisable at period end
* Director RSUs were not issued in 2006.
90 DPL Inc.
The following table reflects information about non-employee director RSU activity during the period:
$ in millions
Twelve months ended December 31,
2008
2007
2006*
Weighted-average grant date fair value of non-employee director RSUs
granted during the period
$ 0.5
$ 0.4
Intrinsic value of non-employee director RSUs exercised during the period
–
$
Proceeds from non-employee director RSUs exercised during the period
Excess tax benefits from proceeds of non-employee director RSUs exercised $
–
$ 0.5
Fair value of non-employee director RSUs that vested during the period
$ 0.1
Unrecognized compensation expense
Weighted average period to recognize compensation expense (in years)
0.3
$
$
$
$
$
$
0.5
–
–
–
0.3
0.1
0.3
$
$
$
$
$
$
–
–
–
–
–
–
–
* Director RSUs were not issued in 2006.
Management Performance Shares
On May 28, 2008, the Board of Directors granted compensation awards for select management employees.
A total of 39,144 management performance shares were granted. The grants have a three year requisite service
period from January 1, 2008 to December 31, 2010 and certain performance conditions during the performance
period. The management performance shares can only be awarded in DPL common shares.
$ in millions
Non-vested at January 1, 2008
Granted in 2008
Vested in 2008
Forfeited in 2008
Non-vested at December 31, 2008
Management Performance Shares:
Outstanding at beginning of year
Granted
Exercised
Forfeited
Outstanding at period end
Exercisable at period end
Number of Management
Performance Shares
Weighted-Average
Grant Date Fair Value
–
39,144
–
–
39,144
$
–
$ 1.1
–
$
–
$
$ 1.1
Twelve months ended December 31,
2008
2007*
2006*
–
39,144
–
–
39,144
–
–
–
–
–
–
–
* Management performance shares were not issued in 2007 or 2006.
The following table shows the assumptions used in the Monte Carlo Simulation to calculate the fair value
of the management performance shares granted during the period:
Twelve months ended December 31,
Expected volatility
Weighted-average expected volatility
Expected life (years)
Expected dividends
Weighted-average expected dividends
Risk-free interest rate
* Management performance shares were not issued in 2007 or 2006.
2008
14.9%
14.9%
3.0
3.9%
3.9%
2.9%
2007*
0.0%
0.0%
–
0.0%
0.0%
0.0%
–
–
–
–
–
–
2006*
0.0%
0.0%
–
0.0%
0.0%
0.0%
DPL Inc.
91
The following table reflects information about management performance share activity during the period:
$ in millions
Weighted-average grant date fair value of management
performance shares granted during the period
Intrinsic value of management performance shares exercised
during the period
Proceeds from management performance shares exercised
during the period
Excess tax benefits from proceeds of management performance
shares exercised
Fair value of management performance shares that vested
during the period
Unrecognized compensation expense
Weighted average period to recognize compensation expense (in years)
* Management performance shares were not issued in 2007 or 2006.
Twelve months ended December 31,
2008
2007*
2006*
$ 1.1
$
$
$
–
–
–
$
–
$ 0.8
2.0
$
–
$
–
$
–
$
–
$
$
–
–
–
$
–
$
–
$
–
$
–
$
$
–
–
–
As a result of the May 21, 2007 settlement of the litigation with three former executives (see Note 15 of Notes
to Consolidated Financial Statements), the three former executives relinquished all of their rights to certain
deferred compensation, RSUs, MVE incentives, stock options and reimbursement of legal fees. A portion
of this settlement included the forfeitures and cancellations of Restricted Stock Units (RSUs) and stock options
of 1.3 million and 3.6 million, respectively.
12 Preferred Stock
DP&L
$25 par value, 4,000,000 shares authorized, no shares outstanding; and $100 par value, 4,000,000 shares
authorized, 228,508 shares without mandatory redemption provisions outstanding.
DP&L Series A
DP&L Series B
DP&L Series C
Total
Preferred
Stock Rate
3.75%
3.75%
3.90%
Current
Redemption
Price
$ 102.50
$ 103.00
$ 101.00
Current Shares
Outstanding at
December 31, 2008
Par Value at
December 31, 2008
($ in millions)
Par Value at
December 31, 2007
($ in millions)
93,280
69,398
65,830
228,508
9.3
7.0
6.6
9.3
7.0
6.6
$ 22.9
$ 22.9
(a) DPL purchased all of its outstanding Series B shares during 2005.
The DP&L preferred stock may be redeemed at DPL’s option at the per-share prices indicated, plus
cumulative accrued dividends.
As long as any DP&L preferred stock is outstanding, DP&L’s Amended Articles of Incorporation contain
provisions restricting the payment of cash dividends on any of its Common Stock if, after giving effect to such
dividend, the aggregate of all such dividends distributed subsequent to December 31, 1946 exceeds the
net income of DP&L available for dividends on its Common Stock subsequent to December 31, 1946, plus
$1.2 million. As of year-end, all earnings reinvested in the business of DP&L were available for Common
Stock dividends. DPL records dividends on preferred stock of DP&L as part of interest expense. We expect
all 2008 earnings reinvested in the business of DP&L to be available for DP&L common stock dividends,
payable to DPL.
92 DPL Inc.
13 Common Shareholder’s Equity
DPL has 250,000,000 authorized common shares,
of which 115,961,880 are outstanding at December
31, 2008. DPL had 902,490 authorized but unissued
shares reserved for its dividend reinvestment plan
at December 31, 2008. The plan provides that either
original issue shares or shares purchased on the open
market may be used to satisfy plan requirements.
On July 27, 2005, DPL’s Board authorized the
repurchase of up to $400.0 million of common stock
from time to time in the open market or through private
transactions. DPL completed this share repurchase
program on August 21, 2006. In total, 14.9 million
shares were repurchased at a cost of $400.0 mil-
lion. These Board-authorized repurchase transactions
resulted in an 11.7% reduction of the outstanding stock
of December 31, 2005 at an average price of $26.91
per share. These shares are currently held as treasury
shares. There were no other repurchases during
2008, 2007 and 2006.
Pursuant to the warrant agreement, DPL has
reserved authorized common shares sufficient to pro-
vide for the exercise in full of all outstanding warrants.
On September 18, 2008, Lehman Brothers, Inc.
(Lehman) exercised 12.0 million warrants under a
cashless exercise transaction resulting in the issuance
by DPL of 2.3 million shares of common stock. Such
shares were issued from treasury stock. Lehman no
longer holds any DPL warrants.
During October 1992, our Board of Directors
approved the formation of a Company-sponsored
Employee Stock Ownership Plan (ESOP) to fund
matching contributions to DP&L’s 401(k) retirement
savings plan and certain other payments to eligible full-
time employees. This leveraged ESOP is funded by
an exempt loan, which is secured by the ESOP shares.
As debt service payments are made on the loan,
shares are released on a pro rata basis. ESOP shares
used to fund matching contributions to DP&L’s 401(k)
vest after three years of service; other compensation
shares awarded vest immediately.
In September 2001, DPL’s Board of Directors
In general, participants are eligible for lump sum
renewed its Shareholder Rights Plan, attaching one
right to each common share outstanding at the close of
business on December 13, 2001. The rights separate
from the common shares and become exercisable at
the exercise price of $130 per right in the event of cer-
tain attempted business combinations. The renewed
plan expires on December 31, 2011.
In February 2000, DPL entered into a series of
recapitalization transactions including the issuance of
$550 million of a combination of voting preferred and
trust preferred securities and warrants to an affiliate
of investment company Kohlberg Kravis Roberts & Co.
(KKR). As part of this recapitalization transaction, 31.6
million warrants were issued. These warrants were
sold for an aggregate purchase price of $50 million.
The warrants are exercisable, in whole or in part, for
common shares at any time during the twelve-year
period commencing on March 13, 2000. Each warrant
is exercisable for one common share, subject to anti-
dilution adjustments (i.e., stock split, stock dividend).
The exercise price of the warrants is $21.00 per
common share, subject to anti-dilution adjustments.
In addition, in the event of a declaration, issuance
or consummation of any dividend, spin-off or other
distribution or similar transaction by DPL of the capital
stock of any of its subsidiaries, additional warrants of
such subsidiary will be issued to the warrant holder
so that after the transaction, the warrant holder will
have the same interest in the fully diluted number of
common shares of such subsidiary the warrant holder
had in DPL immediately prior to such transaction.
payments upon termination of their employment
and the submission and subsequent approval of an
application for benefits. Earlier distributions can
occur for Qualified Domestic Relations Order and for
death. Otherwise, distribution must occur within 60
days after the plan year in which the later of one of
the following events occur: 65th birthday, 10th anni-
versary of participation, or termination of employment.
Participants are allowed to take distributions during
employment if older than 59½ and/or for a hardship as
defined in the Plan document. Distributions are made
in cash unless the participant requests the distribution
be made in stock. A repurchase obligation exists for
vested shares held by the ESOP if they cannot be sold
in the open market. The fair value of shares subject
to the repurchase obligation at December 31, 2008
and 2007 was approximately $42.4 million and $52.5
million, respectively.
In 1992, the Plan entered into a $90 million loan
agreement with DPL in order to purchase shares of
DPL common stock in the open market. The term loan
agreement provided for principal and interest on the
loan to be paid prior to October 9, 2007, with the right
to extend the loan for an additional ten years. In 2007,
the maturity date was extended to October 7, 2017.
The loan bears interest at a fixed rate of 7.625%,
payable annually. Dividends received by the ESOP for
unallocated shares are used to repay the principal and
interest on the ESOP loan to DPL. Dividends on the
allocated shares are charged to retained earnings.
The ESOP used the full amount of the loan to pur-
DPL Inc.
93
chase 4.7 million shares of our common stock in the open market. As a result of the 1997 stock split, the ESOP
held 7.1 million shares of our common stock. The cost of shares held by the ESOP and not yet released is
reported as a reduction of shareholders’ equity. At December 31, 2008, common shareholders’ equity reflects the
cost of 3.1 million unreleased shares held in suspense by the trust. The fair value of the 3.1 million ESOP shares
held in suspense at December 31, 2008 was $70.2 million. When shares are committed to be released from
the ESOP, compensation expense is recorded based on the fair value of the shares committed to be released,
with a corresponding credit to our equity. Compensation expense associated with the ESOP, which is based
on the fair value of the shares committed to be released for allocation, amounted to $1.5 million in 2008, $9.0
million in 2007 and $4.1 million in 2006.
For purposes of earnings per share (EPS) computations and in accordance with SOP 93-6, we treat ESOP
shares as outstanding if they have been allocated to participants, released or committed to be released. As of
December 31, 2008, the ESOP has 3.9 million shares allocated to participants with an additional 0.1 million
shares which have been released but unallocated to participants. ESOP cumulative shares outstanding for the
calculation of earnings per share were 4.0 million in 2008, 3.9 million in 2007 and 3.4 million in 2006.
In April 2006, DPL’s shareholders approved The DPL Inc. Equity and Performance Incentive Plan (the EPIP)
which became immediately effective and will remain in effect for a term of ten years, unless sooner terminated in
accordance with its terms. The Compensation Committee of the Board of Directors will designate the employees
and directors eligible to participate in the EPIP and the times and types of awards to be granted. Under the
EPIP, the Compensation Committee may grant equity-based compensation in the form of stock options, stock
appreciation rights, restricted stock, restricted stock units, performance shares and units, and other stock-based
awards. Awards may be subject to the achievement of certain management objectives. In addition, the EPIP
provides, upon recommendation of the Chief Executive Officer and Chairman of the Board, for a grant of a special
equity award to recognize outstanding performance. A total of 4,500,000 shares of the Company’s common
stock were reserved for issuance under the EPIP.
14 Earnings per Share
Basic earnings per share (EPS) are based on the weighted-average number of DPL common shares outstanding
during the year. Diluted EPS are based on the weighted-average number of DPL common and common equivalent
shares outstanding during the year, except in periods where the inclusion of such common equivalent shares is
anti-dilutive. Excluded from outstanding shares for this weighted-average computation are shares held by DP&L’s
Master Trust Plan for deferred compensation and unreleased shares held in ESOP.
The following table represents common equivalent shares excluded from the calculation of diluted EPS
because they were anti-dilutive. These shares may be dilutive in the future.
$ in millions
Common equivalent shares
2008
0.3
2007
0.1
2006
0.4
The following illustrates the reconciliation of the numerators and denominators of the basic and diluted EPS
computations for income after discontinued operations and cumulative effect of accounting change:
$ and shares in millions
except per share amounts
2008
Income Shares Per Share
2007
Income(a) Shares Per Share
2006
Income(a)
Shares Per Share
Basic EPS
$ 244.5
110.2
$ 2.22
$ 221.8
107.9
$ 2.06
$ 139.6
112.3
$ 1.24
Effect of Dilutive Securities:
Stock Incentive Units
Warrants (b)
Stock options, performance
and restricted shares
–
5.0
0.2
0.5
8.6
0.8
1.3
7.1
1.2
Diluted EPS
$ 244.5
115.4
$ 2.12
$ 221.8
117.8
$ 1.88
$ 139.6
121.9
$ 1.15
(a) Income after discontinued operations.
(b) On September 18, 2008, Lehman Brothers Inc. exercised 12 million warrants under a cashless exercise transaction resulting in the
issuance by DPL of 2.3 million shares of common stock. See Note 13 of Notes to Consolidated Financial Statements.
94 DPL Inc.
15 Executive Litigation
16 Insurance Recovery
On May 21, 2007, we settled the litigation with three
former executives. As part of this settlement, the three
former executives relinquished and dismissed all
their claims including those related to certain deferred
compensation, RSUs, MVE incentives, stock options
and legal fees. The RSUs and stock options relin-
quished and forfeited were 1.3 million and 3.6 million,
respectively. Prior to the settlement date, we had
accrued obligations of $64.2 million. Included in these
amounts was $3.1 million associated with the forfeiture
of stock options. In exchange for our payment of
$25 million and the relinquishment by the former exec-
utives of certain contested compensation discussed
above, all of these claims by all parties were settled
and released.
DPL
As a result of this settlement, during 2007, DPL real-
ized a net pre-tax gain in continuing and discontinued
operations of approximately $31.0 million and $8.2
million, respectively. The net gain is comprised of the
reversal of the $64.2 million of accrued obligations
less the $25 million settlement. The obligations related
to the discontinued operations were associated with
the management of DPL’s financial asset portfolio,
which was conducted in our MVE subsidiary. The MVE
operations were discontinued in 2005 with the sale of
the financial asset portfolio. The $25 million settlement
expense was allocated between continuing and
discontinued operations based on the proportionate
share of continuing and discontinued obligations.
DP&L
As a result of this settlement during 2007, DP&L
realized a net pre-tax gain in continuing operations
of $35.3 million. Accrued obligations associated with
the former executives’ litigation were recorded by
DP&L since the obligations were associated with our
non-qualified benefit plans. DP&L had no ownership
of DPL’s discontinued financial asset portfolio
business, therefore these liabilities were reversed
and DP&L’s net pre-tax gain was recorded within
continuing operations.
The $25 million settlement was funded from the sale
of financial assets held in DP&L’s Master Trust Plan for
deferred compensation. As part of this transaction,
during the second quarter ended June 30, 2007, DPL
and DP&L recorded a $3.2 million realized gain which
was reflected in investment income.
On April 30, 2007, DP&L executed a settlement
agreement for $14.5 million with one of our insurers,
Associated Electric & Gas Insurance Services (AEGIS),
under a fiduciary liability policy to recoup a portion of
legal fees associated with our litigation against three
former executives. This was recorded as a reduction to
operation and maintenance expense during 2007.
On May 16, 2007, DPL filed an insurance claim
with Energy Insurance Mutual (EIM) to recoup legal
expenses associated with our litigation against three of
our former executives. The litigation against the former
executives was settled on May 21, 2007. Mediation
with EIM on this claim occurred on May 29, 2008, at
which time the parties did not reach agreement. DPL
and EIM are currently engaged in an arbitration pro-
cess regarding this insurance claim.
17 Contractual Obligations, Commercial
Commitments and Contingencies
DPL Inc. – Guarantees
In the normal course of business, DPL enters into
various agreements with its wholly-owned generating
subsidiary DPLE providing financial or performance
assurance to third parties. These agreements are
entered into primarily to support or enhance the cred-
itworthiness otherwise attributed to DPLE on a stand-
alone basis, thereby facilitating the extension of suffi-
cient credit to accomplish DPLE’s intended commercial
purposes. Such agreements fall outside the scope of
FASB Interpretation No. 45, “Guarantor’s Accounting
and Disclosure Requirements for Guarantees, Including
Indirect Guarantees of Indebtedness of Others.”
At December 31, 2008, DPL had $35.3 million of
guarantees to third parties for future financial or perfor-
mance assurance under such agreements, on behalf
of DPLE. The guarantee arrangements entered into
by DPL with these third parties cover all present and
future obligations of DPLE to such beneficiaries and
are terminable at any time by DPL upon written notice
to the beneficiaries. The carrying amount of obligations
for commercial transactions covered by these guaran-
tees and recorded in our consolidated balance sheets
was $1.6 million at December 31, 2008.
In two separate transactions in November and
December 2006, DPL also agreed to be a guarantor
of the obligations of DPLE regarding the sale, in April
DPL Inc.
95
2007, of the Darby Electric Peaking Station to American Electric Power and the sale of the Greenville Electric
Peaking Station to Buckeye Electric Power, Inc. In both cases, DPL agreed to guarantee the obligations of
DPLE over a multiple year period as follows:
$ in millions
Darby
Greenville
2008
$ 23.0
$ 11.1
2009
$ 15.3
$ 7.4
2010
$ 7.7
$ 3.7
In 2008, neither DPL nor DP&L incurred any losses related to the guarantees of DPLE’s obligations and we
believe it is unlikely that either DPL or DP&L would be required to perform or incur any losses in the future
associated with any of the above guarantees of DPLE’s obligations.
DP&L – Equity Ownership Interest
DP&L owns a 4.9% equity ownership interest in an electric generation company. As of December 31, 2008,
DP&L could be responsible for the repayment of 4.9%, or $51.2 million, of a $1,045 million debt obligation that
matures in 2026. This would only happen if this electric generation company defaulted on its debt payments.
Other than the guarantees discussed above, DPL and DP&L do not have any other off-balance
sheet arrangements that have or are reasonably likely to have a current or future material effect on our financial
condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources.
Contractual Obligations and Commercial Commitments
We enter into various contractual obligations and other commercial commitments that may affect the liquidity
of our operations. At December 31, 2008, these include:
$ in millions
Total
2009
2010-2011
2012-2013
Thereafter
Payment Year
DPL
Long-term debt
Interest payments
Pension and postretirement payments
Capital leases
Operating leases
Coal contracts (a)
Limestone contracts
Reserve for uncertain tax positions
Other contractual obligations
Total contractual obligations
DP&L
Long-term debt
Interest payments
Pension and postretirement payments
Capital leases
Operating leases
Coal contracts (a)
Limestone contracts
Reserve for uncertain tax positions
Other contractual obligations
Total contractual obligations
(a) Total at DP&L-operated units
$ 1,551.8
937.1
244.9
1.3
0.8
1,675.1
52.2
1.9
97.3
$ 4,562.4
$ 884.4
519.9
244.9
1.3
0.8
1,675.1
52.2
1.9
99.5
$ 3,480.0
$ 175.0
79.7
22.8
0.7
0.4
321.5
4.7
–
40.5
$ 838.0
$
–
40.0
22.8
0.7
0.4
514.2
4.7
–
41.6
$ 624.4
$ 297.4
145.7
46.7
0.6
0.3
539.8
10.8
1.9
46.9
$ 1,090.1
$
–
79.9
46.7
0.6
0.3
539.8
10.8
1.9
48.0
$ 728.0
$ 470.0
105.6
48.6
–
0.1
168.4
11.5
–
8.5
$ 812.7
$ 470.0
73.9
48.6
–
0.1
168.4
11.5
–
8.5
$ 781.0
$ 609.4
606.1
126.8
–
–
452.7
25.2
–
1.4
$ 1,821.6
$ 414.4
326.1
126.8
–
–
452.7
25.2
–
1.4
$ 1,346.6
96 DPL Inc.
Long-term debt:
Reserve for uncertain tax positions:
DPL’s long-term debt as of December 31, 2008,
consists of DP&L’s first mortgage bonds, tax-exempt
pollution control bonds and DPL unsecured senior
notes. These long-term debt figures include current
maturities and unamortized debt discounts. During
2008, the OAQDA issued $100 million of tax-exempt
pollution control bonds which mature in 2040. In turn,
DP&L borrowed the proceeds of the bonds and issued
$100 million of its First Mortgage Bonds to secure its
payment obligations.
DP&L’s long-term debt as of December 31, 2008,
consists of first mortgage bonds and tax-exempt
pollution control bonds. These long-term debt figures
include current maturities and unamortized debt dis-
counts. During 2008, the OAQDA issued $100 million
of tax-exempt pollution control bonds which mature
in 2040. In turn, DP&L borrowed the proceeds of the
bonds and issued $100 million of its First Mortgage
Bonds to secure its payment obligations.
See Note 7 of Notes to Consolidated Financial
Statements.
Interest payments:
On January 1, 2007, we adopted Financial Accounting
Standards Board (FASB) Interpretation No. 48,
“Accounting for Uncertainty in Income Taxes” (FIN 48).
As of December 31, 2008, our total reserve for uncer-
tain tax positions is $1.9 million. See Note 1 of Notes to
Consolidated Financial Statements.
Other contractual obligations:
As of December 31, 2008, DPL and DP&L had various
other contractual obligations including non-cancelable
contracts to purchase goods and services with various
terms and expiration dates.
At December 31, 2008, the commercial commitments
that may affect the liquidity of our operations include:
Credit facilities:
In November 2006, DP&L replaced its previous $100
million revolving credit agreement with a $220 million
five year facility that expires on November 21, 2011.
At December 31, 2008, there were no borrowings
outstanding under this credit agreement. DP&L
has the ability to increase the size of the facility by
an additional $50 million at any time.
Interest payments associated with the long-term
debt described above.
Contingencies
Pension and postretirement payments:
As of December 31, 2008, DP&L had estimated future
benefit payments as outlined in Note 9 of Notes to
Consolidated Financial Statements. These estimated
future benefit payments are projected through 2018.
Capital leases:
As of December 31, 2008, DP&L had one capital lease
that expires in September 2010.
Operating leases:
As of December 31, 2008, DPL and DP&L had several
operating leases with various terms and expiration
dates.
Coal contracts:
DP&L has entered into various long-term coal con-
tracts to supply the coal requirements for the generat-
ing plants it operates. Contract prices are subject to
periodic adjustment and have features that limit price
escalation in any given year.
Limestone contracts:
DP&L has entered into various limestone contracts
to supply limestone for its generating facilities.
In the normal course of business, we are subject to
various lawsuits, actions, proceedings, claims and
other matters asserted under laws and regulations.
We believe the amounts provided in our consolidated
financial statements, as prescribed by GAAP, are
adequate in light of the probable and estimable contin-
gencies. See Note 1 of Notes to Consolidated Financial
Statements. However, there can be no assurances
that the actual amounts required to satisfy alleged
liabilities from various legal proceedings, claims, tax
examinations and other matters discussed below, and
to comply with applicable laws and regulations, will
not exceed the amounts reflected in our consolidated
financial statements. As such, costs, if any, that may
be incurred in excess of those amounts provided as of
December 31, 2008, cannot be reasonably determined.
Environmental Matters
DPL, DP&L and our subsidiaries’ facilities and opera-
tions are subject to a wide range of environmental
regulations and law. In the normal course of business,
we have investigatory and remedial activities underway
at these facilities to comply, or to determine compli-
ance, with such regulations. We have been identified,
either by a government agency or by a private party
DPL Inc.
97
seeking contribution to site clean-up costs, as a poten-
tially responsible party (PRP) at two sites pursuant to
state and federal laws. We record liabilities for prob-
able estimated loss in accordance with Statement
of Financial Accounting Standards No. 5 (SFAS 5),
“Accounting for Contingencies” as discussed in Note 1
of Notes to Consolidated Financial Statements.
We evaluate the potential liability related to probable
losses quarterly and may revise our estimates. Such
revisions in the estimates of the potential liabilities
could have a material effect on our results of opera-
tions and financial position.
18 Legal Matters
State Income Tax Audit
On February 13, 2006, we received correspondence
from the Ohio Department of Taxation (ODT) notify-
ing us that ODT has completed their examination and
review of our Ohio Corporation Franchise Tax Returns
for tax years 2002 through 2004 and that the final
proposed audit adjustments result in a balance due
of $90.8 million before interest and penalties. On June
27, 2008, we entered into a $42.0 million settlement
agreement with the Ohio Department of Taxation (ODT)
resolving all outstanding audit issues and appeals,
including uncertain tax positions for tax years 1998
through 2006. The $42.0 million payment was made
to the ODT in July 2008.
We are also under audit review by various state
agencies for tax years 2002 through 2006. Depending
upon the outcome of these audits and the appeal,
we may be required to increase our tax provision if
actual amounts ultimately determined exceed recorded
reserves. We believe we have adequate reserves in
each tax jurisdiction but cannot predict the outcome
of these audits.
Sierra Club
In September 2004, the Sierra Club filed a lawsuit
against DP&L and the other owners of the Stuart gen-
erating station in the United States District Court for the
Southern District of Ohio for alleged violations of the
Clean Air Act (CAA) and the station’s operating permit.
On August 7, 2008, a consent decree was filed in the
United States District Court in full settlement of these
CAA claims. Under the terms of the consent decree,
the co-owners of the Stuart generating station agreed
to: (i) certain emission targets related to nitrogen oxides
(NOx), sulfur dioxide (SO2) and particulate matter; (ii)
make energy efficiency and renewable energy commit-
ments that are conditioned on receiving Public Utilities
Commission of Ohio approval for the recovery of costs;
(iii) forfeit 5,500 sulfur dioxide allowances; and (iv) pro-
vide funding to a third party non-profit organization to
establish a solar water heater rebate program. DP&L
and the other owners of the station also entered into an
attorney fee agreement to pay a portion of the Sierra
Club’s attorney and expert witness fees. On October
23, 2008, the United States District Court approved the
consent decree with funding for the third party non-
profit organization set at $300,000. We have accrued
for our share of the $300,000 at December 31, 2008.
We have determined that the terms of the consent
decree will not have a material impact on our overall
results of operations, financial position or cash flows.
Governmental and Regulatory Inquiries
On March 10, 2004, DPL’s and DP&L’s Corporate
Controller sent a memorandum (the Memorandum) to
the Chairman of the Audit Committee of our Board of
Directors. The Memorandum expressed the Corporate
Controller’s “concerns, perspectives and viewpoints”
regarding financial reporting and governance issues
within DPL and DP&L. In response, the Board initiated
an internal investigation whose findings and recommen-
dations led to corrective action taken regarding internal
controls, process issues and the tone at the top.
On May 28, 2004, the U.S. Attorney’s Office for
the Southern District of Ohio, assisted by the Federal
Bureau of Investigation, notified DPL and DP&L that it
had initiated an inquiry involving matters connected to
our internal investigation. This inquiry remains pending.
On or about June 24, 2004, the SEC commenced
a formal investigation into the issues raised by the
Memorandum. This investigation remains pending.
98 DPL Inc.
Report of Independent Registered Public Accounting Firm
The Board of Directors and Shareholders of
DPL Inc.:
We have audited the accompanying consolidated balance sheets of DPL Inc. and subsidiaries (the Company) as
of December 31, 2008 and 2007, and the related consolidated statements of results of operations, consolidated
statements of shareholders’ equity and consolidated statements of cash flows for each of the years in the three-year
period ended December 31, 2008. In connection with our audits of the consolidated financial statements, we have
audited the consolidated financial statement schedule, “Schedule II – Valuation and Qualifying Accounts.” We
also have audited the Company’s internal control over financial reporting as of December 31, 2008, based on criteria
established in Internal Control – Integrated Framework issued by the Committee of Sponsoring Organizations
of the Treadway Commission (COSO). The Company’s management is responsible for these consolidated
financial statements, for maintaining effective internal control over financial reporting, and for its assessment of the
effectiveness of internal control over financial reporting, included in the accompanying Management’s Report on
Internal Control Over Financial Reporting. Our responsibility is to express an opinion on these consolidated financial
statements and an opinion on the Company’s internal control over financial reporting based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight
Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance
about whether the financial statements are free of material misstatement and whether effective internal control over
financial reporting was maintained in all material respects. Our audits of the consolidated financial statements
included examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements,
assessing the accounting principles used and significant estimates made by management, and evaluating the
overall financial statement presentation. Our audit of internal control over financial reporting included obtaining an
understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and
testing and evaluating the design and operating effectiveness of internal control based on the assessed risk.
Our audits also included performing such other procedures as we considered necessary in the circumstances.
We believe that our audits provide a reasonable basis for our opinions.
A company’s internal control over financial reporting is a process designed to provide reasonable assurance
regarding the reliability of financial reporting and the preparation of financial statements for external purposes
in accordance with generally accepted accounting principles. A company’s internal control over financial reporting
includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail,
accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable
assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance
with generally accepted accounting principles, and that receipts and expenditures of the company are being
made only in accordance with authorizations of management and directors of the company; and (3) provide
reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of
the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstate-
ments. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls
may become inadequate because of changes in conditions, or that the degree of compliance with the policies or
procedures may deteriorate.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects,
the financial position of the Company as of December 31, 2008 and 2007, and the results of their operations and
their cash flows for each of the years in the three-year period ended December 31, 2008, in conformity with account-
ing principles generally accepted in the United States of America. Also in our opinion, the Company maintained,
in all material respects, effective internal control over financial reporting as of December 31, 2008, based on criteria
established in Internal Control – Integrated Framework issued by the Committee of Sponsoring Organizations of
the Treadway Commission (COSO) and the related financial statement schedule when considered in relation
to the basic consolidated financial statements taken as a whole, present fairly in all material respects, the information
set forth therein.
/s/ KPMG LLP
KPMG LLP
Philadelphia, Pennsylvania
February 26, 2009
DPL Inc.
99
Report of Independent Registered Public Accounting Firm
The Board of Directors and Shareholder of
The Dayton Power and Light Company:
We have audited the accompanying consolidated balance sheets of The Dayton Power and Light Company
(DP&L) as of December 31, 2008 and 2007, and the related consolidated statements of results of operations,
consolidated statements of shareholder’s equity and consolidated statements of cash flows for each of the years in
the three-year period ended December 31, 2008. In connection with our audits of the consolidated financial
statements, we have audited the consolidated financial statement schedule, “Schedule II – Valuation and Qualifying
Accounts”. We also have audited DP&L’s internal control over financial reporting as of December 31, 2008,
based on criteria established in Internal Control – Integrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission (COSO). DP&L’s management is responsible for these consolidated
financial statements, for maintaining effective internal control over financial reporting, and for its assessment
of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Report
on Internal Control Over Financial Reporting. Our responsibility is to express an opinion on these consolidated
financial statements and an opinion on DP&L’s internal control over financial reporting based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight
Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance
about whether the financial statements are free of material misstatement and whether effective internal control over
financial reporting was maintained in all material respects. Our audits of the consolidated financial statements
included examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements,
assessing the accounting principles used and significant estimates made by management, and evaluating the
overall financial statement presentation. Our audit of internal control over financial reporting included obtaining an
understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and
testing and evaluating the design and operating effectiveness of internal control based on the assessed risk.
Our audits also included performing such other procedures as we considered necessary in the circumstances.
We believe that our audits provide a reasonable basis for our opinions.
A company’s internal control over financial reporting is a process designed to provide reasonable assurance
regarding the reliability of financial reporting and the preparation of financial statements for external purposes
in accordance with generally accepted accounting principles. A company’s internal control over financial reporting
includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail,
accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable
assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance
with generally accepted accounting principles, and that receipts and expenditures of the company are being
made only in accordance with authorizations of management and directors of the company; and (3) provide
reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of
the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstate-
ments. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls
may become inadequate because of changes in conditions, or that the degree of compliance with the policies or
procedures may deteriorate.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects,
the financial position of DP&L as of December 31, 2008 and 2007, and the results of their operations and their
cash flows for each of the years in the three-year period ended December 31, 2008, in conformity with accounting
principles generally accepted in the United States of America. Also in our opinion, DP&L maintained, in all
material respects, effective internal control over financial reporting as of December 31, 2008, based on criteria
established in Internal Control – Integrated Framework issued by the Committee of Sponsoring Organizations of
the Treadway Commission (COSO) and the related financial statement schedule when considered in relation to the
basic consolidated financial statements taken as a whole, present fairly in all material respects, the information
set forth therein.
/s/ KPMG LLP
KPMG LLP
Philadelphia, Pennsylvania
February 26, 2009
100 DPL Inc.
DPL Inc. – Selected Quarterly Information (Unaudited)
$ in millions
Revenues
Operating Income
Earnings from
continuing operations
Earnings from discontinued
operations, net of taxes
Net income
Basic earnings per share of
common stock:
Continuing operations
Discontinued operations
Total basic earnings per
common share
Diluted earnings per share of
common stock:
Continuing operations
Discontinued operations
Total diluted earnings per
common share
For the three months ended
March 31,
June 30,
September 30,
2008
2007
2008
2007
2008
2007
December 31,
2008
2007
$ 416.1 $ 379.7
103.5
142.7
$ 378.8
85.8
$ 343.1
69.4
$ 414.5
96.2
$ 422.0
110.8
$ 392.2
110.8
$ 370.9
86.4
77.3
51.2
47.6
53.6
48.0
60.7
71.6
46.3
–
4.9
$ 77.3 $ 56.1
–
$ 47.6
5.1
$ 58.7
–
$ 48.0
–
$ 60.7
–
$ 71.6
–
$ 46.3
$ 0.71 $ 0.48
0.04
–
$ 0.43
–
$ 0.50
0.04
$ 0.44
–
$ 0.56
–
$ 0.64
–
$ 0.43
–
$ 0.71 $ 0.52
$ 0.43
$ 0.54
$ 0.44
$ 0.56
$ 0.64
$ 0.43
$ 0.66 $ 0.43
0.04
–
$ 0.41
–
$ 0.45
0.04
$ 0.42
–
$ 0.53
–
$ 0.63
–
$ 0.40
–
$ 0.66 $ 0.47
$ 0.41
$ 0.49
$ 0.42
$ 0.53
$ 0.63
$ 0.40
Dividends paid per share
$ 0.275 $ 0.260
$ 0.275
$ 0.260
$ 0.275
$ 0.260
$ 0.275
$ 0.260
Common stock market price
- High
- Low
$ 30.18 $ 31.44
$ 24.58 $ 27.56
$ 28.70
$ 26.10
$ 31.91
$ 28.08
$ 26.76
$ 23.00
$ 29.36
$ 26.04
$ 24.59
$ 19.16
$ 30.83
$ 26.05
DP&L – Selected Quarterly Information (Unaudited)
March 31,
June 30,
September 30,
December 31,
For the three months ended
$ in millions
2008
2007
2008
2007
2008
2007
2008
2007
Revenues
Operating Income
Income before income taxes
Net Income
Earnings on common stock
Cash dividends paid
$ 413.9
146.4
140.6
89.0
88.8
$ 80.0
$ 377.5
114.7
111.6
69.8
69.6
$ 125.0
$ 376.4
90.5
83.6
63.3
63.1
$
–
$ 342.1
59.7
94.7
59.1
58.9
–
$
$ 401.5
93.5
84.8
54.8
54.6
$
–
$ 419.6
113.2
112.7
70.6
70.4
–
$
$ 381.1
106.2
97.0
78.7
78.4
$ 75.0
$ 368.2
87.5
95.7
72.1
71.8
–
$
DPL Inc. 101
Item 9 Changes in and Disagreements
with Accountants on Accounting and
Financial Disclosure
None.
Item 9a Controls and Procedures
Disclosure Controls and Procedures
Our Chief Executive Officer (CEO) and Chief Financial
Officer (CFO) are responsible for establishing and
maintaining our disclosure controls and procedures.
These controls and procedures were designed to
ensure that material information relating to us and our
subsidiaries are communicated to the CEO and CFO.
We evaluated these disclosure controls and proce-
dures as of the end of the period covered by this report
with the participation of our CEO and CFO. Based
on this evaluation, our CEO and CFO concluded that
our disclosure controls and procedures are effective:
(i) to ensure that information required to be disclosed
by us in the reports that we file or submit under the
Exchange Act is recorded, processed, summarized
and reported, within the time periods specified in
the SEC’s rules and forms; and (ii) to ensure that infor-
mation required to be disclosed by us in the reports
that we submit under the Exchange Act is accumulated
and communicated to our management, including our
principal executive and principal financial officers,
or persons performing similar functions, as appropriate,
to allow timely decisions regarding required disclosure.
financial reporting during the most recently completed
fiscal period that has materially affected, or is
reasonably likely to materially affect, internal control
over reporting.
The following report is our report on internal control
over financial reporting as of December 31, 2008.
Management’s Report on Internal Control
over Financial Reporting
We are responsible for establishing and maintaining
adequate internal control over financial reporting, as
such term is defined in Exchange Act Rule 13a-15(f).
Under the supervision and with the participation of
management, including the CEO and CFO,
we conducted an evaluation of the effectiveness of
our internal control over financial reporting based
on the framework in Internal Control – Integrated
Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission. Based on
an evaluation under the framework in Internal Control –
Integrated Framework, we concluded that our
internal control over financial reporting was effective
as of December 31, 2008.
Our internal control over financial reporting as of
December 31, 2008, has been audited by KPMG LLP,
the independent registered public accounting firm that
audited the financial statements contained herein, as
stated in their report which is included herein.
Item 9b Other Information
There was no change in our internal control over
None.
102 DPL Inc.
Part III
Item 10 Directors and Executive Officers
of DPL Inc.
Item 13 Certain Relationships and
Related Transactions
The information required to be furnished pursuant to
this item with respect to Directors of DPL Inc. will be
set forth under captioned “Election of Directors” in DPL
Inc.’s proxy statement (the Proxy Statement) to be fur-
nished to shareholders in connection with the solicita-
tion of proxies by our Board of Directors for use at the
2009 Annual Meeting of Shareholders to be held on
April 29, 2009 and is incorporated herein by reference.
The information required to be furnished pursuant
to this item for DPL Inc. with respect to the identifica-
tion of the Audit Committee, the Audit Committee
financial expert and the registrant’s code of ethics will
be set forth under the caption “Corporate Governance”
in the Proxy Statement and is incorporated herein
by reference.
Item 11 Executive Compensation
The information required to be furnished pursuant to
this item for DPL Inc. will be set forth under the caption
“Executive Compensation” in the Proxy Statement and
is incorporated herein by reference.
Item 12 Security Ownership of Certain
Beneficial Owners and Management and
Related Shareholder Matters
The information required to be furnished pursuant
to this item for DPL Inc. will be set forth under the
captions “Security Ownership of Certain Beneficial
Owners,” “Security Ownership of Management” and
“Equity Compensation Plan Information” in the Proxy
Statement and is incorporated herein by reference.
The information required to be furnished pursuant to
this item for DPL Inc. will be set forth under the caption
“Certain Relationships and Related Transactions”
in the Proxy Statement and is incorporated herein
by reference.
Item 14 Principal Accountant Fees
and Services
The information required to be furnished pursuant to
this item for DPL Inc. will be set forth under the caption
“Audit and Non-Audit Fees” in the Proxy Statement
and is incorporated herein by reference.
DP&L Accountant Fees and Services
The following table presents the aggregate fees billed
for professional services rendered to us by KPMG LLP
for 2008 and 2007. Other than as set forth below,
no professional services were rendered or fees billed
by KPMG LLP during 2008 and 2007.
KPMG LLP
Fees Invoiced 2008 Fees Invoiced 2007 (3)
Audit Fees (1)
Audit-Related Fees (2)
Tax Fees
All Other Fees
Total
$ 1,409,800
84,800
–
–
$ 1,494,600
$ 1,502,087
147,679
–
–
$ 1,649,766
(1) Audit fees relate to professional services rendered for the audit
of our annual financial statements and the reviews of our quarterly
financial statements.
(2) Audit-related fees relate to services rendered to us for assurance
and related services.
(3) Includes $341,390 of audit and related fees invoiced by, and
paid to KPMG LLP in 2008 for services rendered in connection with
the audit of our 2007 financial statements..
DPL Inc. 103
Part IV
Item 15 Exhibits and Financial Statement Schedules
(a) The following documents are filed as part of this report:
1. Financial Statements
Page No.
DPL Inc. – Consolidated Statements of Results of Operations
for each of the three years in the period ended December 31, 2008
DPL Inc. – Consolidated Statements of Cash Flows
for each of the three years in the period ended December 31, 2008
DPL Inc. – Consolidated Balance Sheets at December 31, 2008 and 2007
DPL Inc. – Consolidated Statements of Shareholders’ Equity
for each of the three years in the period ended December 31, 2008
DP&L – Consolidated Statements of Results of Operations
for each of the three years in the period ended December 31, 2008
DP&L – Consolidated Statements of Cash Flows
for each of the three years in the period ended December 31, 2008
DP&L – Consolidated Balance Sheets at December 31, 2008 and 2007
DP&L – Consolidated Statements of Shareholders’ Equity
for each of the three years in the period ended December 31, 2008
Notes to Consolidated Financial Statements
DPL Inc. – Report of Independent Registered Public Accounting Firm
DP&L – Report of Independent Registered Public Accounting Firm
2. Financial Statement Schedule
For each of the three years in the period ended December 31, 2008:
Schedule II – Valuation and Qualifying Accounts
The information required to be submitted in Schedules I, III, IV and V is omitted as not
applicable or not required under rules of Regulation S-X.
53
54
55
56
57
58
59
60
61
99
100
113
104 DPL Inc.
3. Exhibits
DPL and DP&L exhibits are incorporated by reference as described unless otherwise filed as set forth herein.
The exhibits filed as part of DPL’s and DP&L’s Annual Report on Form 10-K, respectively, are:
DPL Inc. DP&L Number
Exhibit
Exhibit
✔
✔
2(a)
Asset Purchase Agreement, dated
December 14, 1999, between The Dayton Power
and Light Company, Indiana Energy, Inc., and
Number-3CHK, Inc.
✔
3(a)
Amended Articles of Incorporation of DPL Inc.,
as of September 25, 2001
✔
3(b)
Amended Regulations of DPL Inc., as of
April 27, 2007
✔
3(c)
Amended Articles of Incorporation of
The Dayton Power and Light Company,
as of January 4, 1991
✔
3(d)
Regulations of The Dayton Power and Light Company,
as of April 9, 1981
Location (1)
Exhibit 2 to Report on
Form 10-Q for the quarter
ended September 30, 2000
(File No. 1-9052)
Exhibit 3 to Report on
Form 10-K/A for the year
ended December 31, 2001
(File No. 1-9052)
Exhibit 3(b) to Report on
Form 10-K for the year
ended December 31, 2007
(File No. 1-9052)
Exhibit 3(b) to Report on
Form 10-K/A for the year
ended December 31, 1991
(File No. 1-2385)
Exhibit 3(a) to Report on
Form 8-K filed on
May 3, 2004 (File No. 1-2385)
✔
✔
4(a)
Composite Indenture dated as of October 1, 1935,
between The Dayton Power and Light Company and
Irving Trust Company, Trustee with all amendments
through the Twenty-Ninth Supplemental Indenture
Exhibit 4(a) to Report on
Form 10-K for the year
ended December 31, 1985
(File No. 1-2385)
✔
✔
4(b)
Forty-First Supplemental Indenture dated as of
February 1, 1999, between The Dayton Power and
Light Company and The Bank of New York, Trustee
✔
✔
4(c)
Forty-Second Supplemental Indenture dated as of
September 1, 2003, between The Dayton Power and
Light Company and The Bank of New York, Trustee
✔
✔
4(d)
Forty-Third Supplemental Indenture dated as of
August 1, 2005, between The Dayton Power and
Light Company and The Bank of New York, Trustee
✔
✔
4(e)
Rights Agreement dated September 25, 2001 between
DPL Inc. and Equiserve Trust Company, N.A.
Exhibit 4(m) to Report on
Form 10-K for the year
ended December 31, 1998
(File No. 1-2385)
Exhibit 4(r) to Report on
Form 10-K for the year
ended December 31, 2003
(File No. 1-9052)
Exhibit 4.4 to Report on
Form 8-K filed
August 24, 2005
(File No. 1-2385)
Exhibit 4 to Report on
Form 8-K filed
September 28, 2001
(File No. 1-9052)
✔
4(f)
Securities Purchase Agreement dated
as of February 1, 2000 by and among DPL Inc.,
DPL Capital Trust I, Dayton Ventures LLC and
Dayton Ventures, Inc. and certain exhibits thereto
Exhibit 99(b) to
Schedule TO-I filed
February 4, 2000
(File No. 1-9052)
DPL Inc. 105
DPL Inc. DP&L Number
Exhibit
Exhibit
✔
4(g)
Amendment to Securities Purchase Agreement dated
as of February 24, 2000 among DPL Inc., DPL Capital
Trust I, Dayton Ventures LLC and Dayton Ventures, Inc.
✔
4(h)
Form of Warrant to Purchase Common Shares
of DPL Inc.
✔
4(i)
✔
4(j)
✔
4(k)
✔
4(l)
Securityholders and Registration Rights Agreement
dated as of March 13, 2000 among DPL Inc.,
DPL Capital Trust I, Dayton Ventures LLC and
Dayton Ventures, Inc.
Amendment to Securityholders and Registration
Rights Agreement, dated August 24, 2001 among
DPL Inc., DPL Capital Trust I, Dayton Ventures LLC
and Dayton Ventures, Inc.
Amendment to Securityholders and Registration
Rights Agreement, dated December 6, 2004 among
DPL Inc., DPL Capital Trust I, Dayton Ventures LLC
and Dayton Ventures, Inc.
Amendment to Securityholders and Registration
Rights Agreement, dated as of January 12, 2005
among DPL Inc., DPL Capital Trust I, Dayton
Ventures LLC and Dayton Ventures, Inc.
Location (1)
Exhibit 4(g) to Report on
Form 10-K for the year
ended December 31, 2005
(File No. 1-9052)
Exhibit 4(h) to Report on
Form 10-K for the year
ended December 31, 2005
(File No. 1-9052)
Exhibit 4(i) to Report on
Form 10-K for the year
ended December 31, 2005
(File No. 1-9052)
Exhibit 4(j) to Report on
Form 10-K for the year
ended December 31, 2005
(File No. 1-9052)
Exhibit 4(k) to Report on
Form 10-K for the year
ended December 31, 2005
(File No. 1-9052)
Exhibit 4(l) to Report on
Form 10-K for the year
ended December 31, 2005
(File No. 1-9052)
✔
4(m)
Officer’s Certificate of DPL Inc. establishing $175 million Exhibit 4.1 to Form 8-K,
Senior Notes due 2009, dated March 25, 2004
filed March 30, 2004
(File No. 1-9052)
✔
4(n)
Exchange and Registration Rights Agreement
dated as of March 25, 2004 between DPL Inc.
and certain purchasers
Exhibit 4.2 to Form 8-K,
filed March 30, 2004
(File No. 1-9052)
4(o)
4(p)
4(q)
4(r)
4(s)
Indenture dated as of March 1, 2000 between DPL Inc.
and Bank One Trust Company, National Association
Exhibit 4(b) to Registration
Statement No. 333-37972
Officer’s Certificate of DPL Inc. establishing exchange
notes, dated March 1, 2000
Exhibit 4(c) to Registration
Statement No. 333-37972
Exchange and Registration Rights Agreement
dated as of August 24, 2001 between DPL Inc.,
Morgan Stanley & Co. Incorporated, Bank One
Capital Markets, Inc., Fleet Securities, Inc. and
NatCity Investments, Inc.
Exhibit 4(a) to Registration
Statement No. 333-74568
Officer’s Certificate of DPL Inc. establishing exchange
notes, dated August 31, 2001
Exhibit 4(c) to Registration
Statement No. 333-74568
Indenture dated as of August 31, 2001 between
DPL Inc. and The Bank of New York, Trustee
Exhibit 4(a) to Registration
Statement No. 333-74630
✔
✔
✔
✔
✔
106 DPL Inc.
DPL Inc. DP&L Number
Exhibit
Exhibit
✔
4(t)
First Supplemental Indenture dated as of
August 31, 2001 between DPL Inc. and
The Bank of New York, as Trustee
✔
4(u)
Amended and Restated Trust Agreement dated
as of August 31, 2001 among DPL Inc., The Bank of
New York, The Bank of New York (Delaware), the
administrative trustees named therein, and several
Holders as defined therein
Location (1)
Exhibit 4(b) to Registration
Statement No. 333-74630
Exhibit 4(c) to Registration
Statement No. 333-74630
✔
4(v)
Forty-Fourth Supplemental Indenture dated as of
September 1, 2006 between the Bank of New York,
Trustee and The Dayton Power and Light Company
Exhibit 4.2 to Form 8-K
filed on September 19, 2006
(File No. 1-2385)
✔
4(w)
Exchange and Registration Rights Agreement dated
as of August 24, 2001 among DPL Inc., DPL Capital
Trust II and Morgan Stanley & Co. Incorporated
Exhibit 4(d) to Registration
Statement No. 333-74630
✔
✔
4(x)
✔
✔
10(a)*
Forty-Sixth Supplemental Indenture dated as of
December 1, 2008 between The Bank of New York
Mellon, Trustee and The Dayton Power and
Light Company
The Dayton Power and Light Company Directors’
Deferred Stock Compensation Plan, as amended
through December 31, 2000
✔
✔
10(b)*
The Dayton Power and Light Company 1991
Amended Directors’ Deferred Compensation Plan, as
amended and restated through December 31, 2007
✔
✔
10(c)*
The Dayton Power and Light Company Management
Stock Incentive Plan as amended and restated through
December 31, 2007
✔
✔
10(d)*
The Dayton Power and Light Company Key
Employees Deferred Compensation Plan, as
amended through December 31, 2000
✔
✔
10(e)*
Amendment No. 1 to The Dayton Power and Light
Company Key Employees Deferred Compensation
Plan, as amended through December 31, 2000,
dated as of December 7, 2004
✔
✔
10(f)*
The Dayton Power and Light Company
Supplemental Executive Retirement Plan, as
amended February 1, 2000
✔
✔
10(g)*
Amendment No. 1 to The Dayton Power and Light
Company Supplemental Executive Retirement Plan,
as amended through February 1, 2000 and dated
as of December 7, 2004
Filed herewith as
Exhibit 4(x)
Exhibit 10(a) to Report on
Form 10-K for the year
ended December 31, 2000
(File No. 1-9052)
Exhibit 10(b) to Report on
Form 10-K for the year
ended December 31, 2007
(File No. 1-9052)
Exhibit 10(c) to Report on
Form 10-K for the year
ended December 31, 2007
(File No. 1-9052)
Exhibit 10(d) to Report on
Form 10-K for the year
ended December 31, 2000
(File No. 1-9052)
Exhibit 10(g) to Report on
Form 10-K for the year
ended December 31, 2005
(File No. 1-9052)
Exhibit 10(e) to Report on
Form 10-K for the year
ended December 31, 2003
(File No. 1-9052)
Exhibit 10(i) to Report on
Form 10-K for the year
ended December 31, 2005
(File No. 1-9052)
DPL Inc. 107
DPL Inc. DP&L Number
Exhibit
Exhibit
✔
10(h)*
DPL Inc. Stock Option Plan
✔
10(i)*
2003 Long-Term Incentive Plan of DPL Inc.
✔
✔
10(j)*
Summary of Executive Medical Insurance Plan
✔
10(k)*
DPL Inc. Executive Incentive Compensation Plan,
as amended and restated through December 31, 2007
✔
10(l)*
DPL Inc. 2006 Equity and Performance Incentive Plan
as amended and restated through December 31, 2007
✔
10(m)*
Form of DPL Inc. Amended and Restated
Long-Term Incentive Plan – Performance
Shares Agreement
✔
10(n)*
DPL Inc. Severance Pay and Change of Control Plan,
as amended and restated through December 31, 2007
✔
10(o)*
DPL Inc. Supplemental Executive Defined
Contribution Retirement Plan, as amended and
restated through December 31, 2007
✔
10(p)*
DPL Inc. 2006 Deferred Compensation Plan
For Executives, as amended and restated
through December 31, 2007
✔
10(q)*
DPL Inc. Pension Restoration Plan, as amended
and restated through December 31, 2007
✔
✔
10(r)*
Participation Agreement dated August 2, 2007
among DPL Inc., The Dayton Power and Light
Company and Teresa F. Marrinan
✔
✔
10(s)*
Participation Agreement dated March 27, 2007
among DPL Inc., The Dayton Power and Light
Company and Scott J. Kelly
Location (1)
Exhibit 10(f) to Report on
Form 10-K for the year
ended December 31, 2000
(File No. 1-9052)
Exhibit 10(aa) to Report on
Form 10-K for the year
ended December 31, 2003
(File No. 1-9052)
Exhibit 10(m) to Report on
Form 10-K for the year
ended December 31, 2005
(File No. 1-9052)
Exhibit 10(l) to Report on
Form 10-K for the year
ended December 31, 2007
(File No. 1-9052)
Exhibit 10(m) to Report on
Form 10-K for the year
ended December 31, 2007
(File No. 1-9052)
Exhibit 10(n) to Report on
Form 10-K for the year
ended December 31, 2007
(File No. 1-9052)
Exhibit 10(o) to Report on
Form 10-K for the year
ended December 31, 2007
(File No. 1-9052)
Exhibit 10(p) to Report on
Form 10-K for the year
ended December 31, 2007
(File No. 1-9052)
Exhibit 10(q) to Report on
Form 10-K for the year
ended December 31, 2007
(File No. 1-9052)
Exhibit 10(r) to Report on
Form 10-K for the year
ended December 31, 2007
(File No. 1-9052)
Exhibit 10(s) to Report on
Form 10-K for the year
ended December 31, 2007
(File No. 1-9052)
Exhibit 10(t) to Report on
Form 10-K for the year
ended December 31, 2007
(File No. 1-9052)
108 DPL Inc.
DPL Inc. DP&L Number
Exhibit
Exhibit
✔
✔
10(t)*
Participation Agreement and Waiver dated
February 27, 2006 among DPL Inc.,
The Dayton Power and Light Company and
Gary G. Stephenson
✔
✔
10(u)*
Participation Agreement and Waiver dated
February 23, 2006 among DPL Inc., The Dayton
Power and Light Company and Miggie E. Cramblit
✔
✔
10(v)*
Participation Agreement and Waiver dated
February 24, 2006 among DPL Inc., The Dayton
Power and Light Company and Joseph R. Boni III
✔
✔
10(w)*
Participation Agreement dated January 13, 2007
among DPL Inc., The Dayton Power and Light
Company and Daniel J. McCabe
✔
10(x)*
Management Stock Option Agreement dated
as of December 29, 2004 between DPL Inc. and
John J. Gillen
✔
✔
10(y)*
✔
✔
10(z)*
Participation Agreement and Waiver dated
June 29, 2006 among DPL Inc., The Dayton
Power and Light Company and John J. Gillen
Participation Agreement and Waiver dated
February 24, 2006 among DPL Inc., The Dayton
Power and Light Company and W. Steven Wolff
✔
✔
10(aa)* Change of Control Agreement dated as of July 1, 2004
between DPL Inc., The Dayton Power and Light
Company and Patricia K. Swanke and Management
Stock Option Agreement dated as of January 1, 2001
between DPL Inc. and Patricia K. Swanke
✔
✔
10(bb)* Participation Agreement and Waiver dated
February 28, 2006 among DPL Inc., The Dayton
Power and Light Company and Patricia K. Swanke
✔
10(cc)* Management Stock Option Agreement dated
as of January 1, 2001 between DPL Inc.
and Arthur G. Meyer
✔
✔
10(dd)* Participation Agreement and Waiver dated
March 6, 2006 among DPL Inc., The Dayton Power
and Light Company and Arthur G. Meyer,
dated March 6, 2006
✔
✔
10(ee)* Participation Agreement dated September 8, 2006
among DPL Inc., The Dayton Power and Light
Company and Paul M. Barbas
Location (1)
Exhibit 10(u) to Report on
Form 10-K for the year
ended December 31, 2007
(File No. 1-9052)
Exhibit 10(v) to Report on
Form 10-K for the year
ended December 31, 2007
(File No. 1-9052)
Exhibit 10(w) to Report on
Form 10-K for the year
ended December 31, 2007
(File No. 1-9052)
Exhibit 10(x) to Report on
Form 10-K for the year
ended December 31, 2007
(File No. 1-9052)
Exhibit 10(u) to Report on
Form 10-K for the year
ended December 31, 2005
(File No. 1-9052)
Exhibit 10.2 to Form 8-K
filed on July 3, 2006
(File No. 1-9052)
Exhibit 10.7 to Form 8-K
filed March 2, 2006
(File No. 1-9052)
Exhibit 10(s) to Report on
Form 10-K for the year
ended December 31, 2004
(File No. 1-9052)
Exhibit 10.6 to Form 8-K
filed on March 2, 2006
(File No. 1-9052)
Exhibit 10(cc) to Report on
Form 10-K for the year
ended December 31, 2005
(File No. 1-9052)
Exhibit 10.2 to Form 8-K
filed March 10, 2006
(File No. 1-9052)
Exhibit 10.2 to Form 8-K
filed September 8, 2006
(File No. 1-9052)
DPL Inc. 109
DPL Inc. DP&L Number
Exhibit
Exhibit
✔
✔
10(ff)*
Participation Agreement dated June 30, 2006
among DPL Inc., The Dayton Power and Light
Company and Frederick J. Boyle
✔
10(gg)* Letter Agreement between DPL Inc. and
Glenn E. Harder, dated June 20, 2006
Location (1)
Exhibit 10.1 to Form 8-K
filed July 3, 2006
(File No. 1-9052)
Exhibit 10.1 to Form 8-K
filed June 21, 2006
(File No. 1-9052)
✔
10(hh)
Purchase and Sale Agreement dated as of
February 13, 2005 between MVE, Inc., and Miami Valley
Insurance Company and AlpInvest/Lexington 2005, LLC
Exhibit 10.1 to Form 8-K
filed on February 18, 2005
(File No. 1-9052)
✔
10(ii)
Asset Purchase Agreement dated
December 21, 2006 between DPL Energy, LLC
and Buckeye Power, Inc.
✔
10(jj)
Asset Purchase Agreement dated November 28, 2006
between DPL Energy, LLC and Columbus Southern
Power Company
✔
✔
10(kk)
✔
10(ll)*
Credit Agreement, dated as of November 21, 2006
among The Dayton Power and Light Company,
KeyBank National Association and certain lending
institutions
Form of DPL Inc. Amended and Restated
Non-Employee Director Restricted Stock Units
Agreement
✔
10(mm)* DPL Inc. 2006 Deferred Compensation Plan for
Non-Employee Directors, as amended and restated
through December 31, 2007
✔
✔
10(nn)* Participation Agreement dated January 3, 2008
among DPL Inc., The Dayton Power and Light
Company and Douglas C. Taylor
✔
10(oo)* Restricted Stock Agreement dated May 6, 2008
by and between DPL Inc. and Paul M. Barbas
✔
✔
10(pp)* Separation Agreement dated as of
November 30, 2008, between DPL Inc. and
The Dayton Power and Light Company and
John J. Gillen
Exhibit 10(ww) to Report on
Form 10-K for the year
ended December 31, 2006
(File No. 1-9052)
Exhibit 10(xx) to Report on
Form 10-K for the year
ended December 31, 2006
(File No. 1-9052)
Exhibit 10.1 to Form 8-K
filed on November 28, 2006
(File No. 1-2385)
Exhibit 10(uu) to Report on
Form 10-K for the year
ended December 31, 2007
(File No. 1-9052)
Exhibit 10(v v) to Report on
Form 10-K for the year
ended December 31, 2007
(File No. 1-9052)
Exhibit 10(a) to Form 10-Q
for the quarter ended
March 31, 2008
(File No. 1-9052)
Exhibit 99.1 to Form 8-K
filed May 8, 2008
(File No. 1-9052)
Filed herewith as
Exhibit 10(pp)
✔
✔
21
List of Subsidiaries of DPL Inc. and The Dayton
Power and Light Company
Filed herewith as Exhibit 21
✔
23(a)
Consent of KPMG LLP
Filed herewith as
Exhibit 23(a)
110 DPL Inc.
DPL Inc. DP&L Number
Exhibit
Exhibit
✔
✔
✔
✔
31(a)
31(b)
Certification of Chief Executive Officer pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002
Certification of Chief Financial Officer pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002
✔
31(c)
Certification of Chief Executive Officer pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002
✔
31(d)
Certification of Chief Financial Officer pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002
32(a)
32(b)
Certification of Chief Executive Officer pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002
Certification of Chief Financial Officer pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002
✔
32(c)
Certification of Chief Executive Officer pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002
✔
32(d)
Certification of Chief Financial Officer pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002
✔
✔
99(b)
Supplement to the April 26, 2004 Report of
Taft, Stettinius & Hollister LLP, dated May 15, 2004
✔
✔
99(c)
Complaint filed in Montgomery County Court of
Common Pleas, Montgomery County, Ohio –
DPL Inc., The Dayton Power and Light Company and
MVE, Inc. v. Peter H. Forster, Caroline E. Muhlenkamp
and Stephen F. Koziar, Jr.
Location (1)
Filed herewith as
Exhibit 31(a)
Filed herewith as
Exhibit 31(b)
Filed herewith as
Exhibit 31(c)
Filed herewith as
Exhibit 31(d)
Filed herewith as
Exhibit 32(a)
Filed herewith as
Exhibit 32(b)
Filed herewith as
Exhibit 32(c)
Filed herewith as
Exhibit 32(d)
Exhibit 99(b) to Report on
Form 10-K for the year
ended December 31, 2003
(File No. 1-9052)
Exhibit 99(d) to Report on
Form 10-K for the year
ended December 31, 2003
(File No. 1-9052)
*Management contract or compensatory plan
(1) Exhibits referencing File No. 1-9052 have been filed by DPL Inc. and those referencing File No. 1-2385 have been
filed by The Dayton Power and Light Company
Pursuant to paragraph (b) (4) (iii) (A) of Item 601 of Regulation S-K, we have not filed as an exhibit to
this Form 10-K certain instruments with respect to long-term debt if the total amount of securities authorized
thereunder does not exceed 10% of the total assets of us and our subsidiaries on a consolidated basis,
but we hereby agree to furnish to the SEC on request any such instruments.
DPL Inc. 111
Signatures
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934,
DPL Inc. and The Dayton Power and Light Company has duly caused this report to be signed
on their behalf by the undersigned, thereunto duly authorized.
February 26, 2009
By:
/s/ Paul M. Barbas
DPL Inc.
Paul M. Barbas
President and Chief Executive Officer
(principal executive officer)
The Dayton Power and Light Company
February 26, 2009
By:
/s/ Paul M. Barbas
Paul M. Barbas
President and Chief Executive Officer
(principal executive officer)
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed
below by the following persons on behalf of DPL Inc. and The Dayton Power and Light Company and
in the capacities and on the dates indicated.
/s/ P. M. Barbas
(P. M. Barbas)
/s/ R. D. Biggs
(R. D. Biggs)
/s/ P. R. Bishop
(P. R. Bishop)
/s/ F. F. Gallaher
(F. F. Gallaher)
/s/ B. S. Graham
(B. S. Graham)
/s/ G. E. Harder
(G. E. Harder)
/s/ L. L. Lyles
(L. L. Lyles)
/s/ P. B. Morris
(L. L. Lyles)
/s/ N. J. Sifferlen
(N. J. Sifferlen)
/s/ F. J. Boyle
(F. J. Boyle)
112 DPL Inc.
Director, President and Chief Executive Officer
February 25, 2009
(principal executive officer)
Director
February 25, 2009
Director and Vice-Chairman
February 25, 2009
Director
Director
February 25, 2009
February 25, 2009
Director and Chairman
February 25, 2009
Director
Director
Director
February 25, 2009
February 25, 2009
February 25, 2009
Senior Vice President, Chief Financial Officer
February 25, 2009
(principal financial and principal accounting officer),
Treasurer and Controller
Schedule II Valuation and Qualifying Accounts
DPL Inc.
For the years ended December 31, 2006- 2008
$ in thousands
Description
2008:
Deducted from accounts receivable –
Provision for uncollectible accounts
Deducted from deferred tax assets –
Allowance for deferred tax assets
2007:
Deducted from accounts receivable –
Provision for uncollectible accounts
Deducted from deferred tax assets –
Allowance for deferred tax assets
2006:
Deducted from accounts receivable –
Provision for uncollectible accounts
Deducted from deferred tax assets –
Allowance for deferred tax assets
Balance at
Beginning of Period
Additions
Deductions (1)
Balance at
End of Period
$ 1,518
$ 4,277
$ 4,711
$ 1,084
$ 12,429
$ 1,482
$ 3,226
$ 10,685
$ 1,430
$ 5,678
$ 5,590
$ 1,518
$ 10,132
$ 2,676
$
379
$ 12,429
$ 1,044
$ 4,835
$ 4,449
$ 1,430
$ 6,776
$ 3,356
$
–
$ 10,132
(1) Amounts written off, net of recoveries of accounts previously written off.
The Dayton Power and Light Company
For the years ended December 31, 2006- 2008
$ in thousands
Description
2008:
Deducted from accounts receivable –
Provision for uncollectible accounts
Deducted from deferred tax assets –
Allowance for deferred tax assets
2007:
Deducted from accounts receivable –
Provision for uncollectible accounts
Deducted from deferred tax assets –
Allowance for deferred tax assets
2006:
Deducted from accounts receivable –
Provision for uncollectible accounts
Deducted from deferred tax assets –
Allowance for deferred tax assets
Balance at
Beginning of Period
Additions
Deductions (1)
Balance at
End of Period
$ 1,518
$ 4,277
$ 4,711
$ 1,084
$
348
$
–
$
348
$
–
$ 1,430
$ 5,678
$ 5,590
$ 1,518
$
277
$
71
$
–
$
348
$ 1,044
$ 4,835
$ 4,449
$ 1,430
$
–
$
277
$
–
$
277
(1) Amounts written off, net of recoveries of accounts previously written off.
DPL Inc. 113
Exhibit 21 Subsidiaries of DPL Inc.
DPL Inc. had the following subsidiaries at December 31, 2008:
The Dayton Power and Light Company
Miami Valley Insurance Company
DPL Energy, LLC
DPL Energy Resources, Inc.
State of Incorporation
Ohio
Vermont
Ohio
Ohio
Subsidiaries of The Dayton Power and Light Company
The Dayton Power and Light Company did not have any subsidiaries at December 31, 2008.
114 DPL Inc.
Exhibit 23a Consent of Independent Registered Public Accounting Firm
The Board of Directors and Shareholders of
DPL Inc.:
We consent to the incorporation by reference in the registration statements No. 333-44370 on Form S-3
and No. 333-39982 and No. 333-139348 on Forms S-8 of DPL Inc. of our report dated February 26, 2009,
with respect to the consolidated balance sheets of DPL Inc. and subsidiaries as of December 31, 2008
and 2007, and the related consolidated statements of results of operations, consolidated statements
of shareholders’ equity and consolidated statements of cash flows for each of the years in the three-year
period ended December 31, 2008, and the related financial statement schedule, and the effectiveness
of internal control over financial reporting as of December 31, 2008, which report appears in the
December 31, 2008 annual report on Form 10-K of DPL Inc.
/s/ KPMG LLP
KPMG LLP
Philadelphia, Pennsylvania
February 26, 2009
DPL Inc. 115
Exhibit 31a Certifications
I, Paul M. Barbas, certify that:
1. I have reviewed this annual report on Form 10-K of DPL Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to
state a material fact necessary to make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report,
fairly present in all material respects the financial condition, results of operations and cash flows of the registrant
as of, and for, the periods presented in this report;
4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure
controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over
financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to
be designed under our supervision, to ensure that material information relating to the registrant, including
its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period
in which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial
reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of
financial reporting and the preparation of financial statements for external purposes in accordance with
generally accepted accounting principles;
(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this
report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the
period covered by this report based on such evaluation; and
(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred
during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an
annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal
control over financial reporting; and
5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of
internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s
board of directors (or persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over
financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process,
summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant
role in the registrant’s internal control over financial reporting.
Date: February 26, 2009
/s/ Paul M. Barbas
Paul M. Barbas
President and Chief Executive Officer
116 DPL Inc.
Exhibit 31b Certifications
I, Frederick J. Boyle, certify that:
1. I have reviewed this annual report on Form 10-K of DPL Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to
state a material fact necessary to make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report,
fairly present in all material respects the financial condition, results of operations and cash flows of the registrant
as of, and for, the periods presented in this report;
4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure
controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over
financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to
be designed under our supervision, to ensure that material information relating to the registrant, including
its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period
in which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial
reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of
financial reporting and the preparation of financial statements for external purposes in accordance with
generally accepted accounting principles;
(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this
report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the
period covered by this report based on such evaluation; and
(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred
during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an
annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal
control over financial reporting; and
5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of
internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s
board of directors (or persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over
financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process,
summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant
role in the registrant’s internal control over financial reporting.
Date: February 26, 2009
/s/ Frederick J. Boyle
Frederick J. Boyle
Senior Vice President, Chief Financial Officer,
Treasurer and Controller
DPL Inc. 117
Exhibit 31c Certifications
I, Paul M. Barbas, certify that:
1. I have reviewed this annual report on Form 10-K of The Dayton Power and Light Company;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to
state a material fact necessary to make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report,
fairly present in all material respects the financial condition, results of operations and cash flows of the registrant
as of, and for, the periods presented in this report;
4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure
controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over
financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to
be designed under our supervision, to ensure that material information relating to the registrant, including
its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period
in which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial
reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of
financial reporting and the preparation of financial statements for external purposes in accordance with
generally accepted accounting principles;
(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this
report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the
period covered by this report based on such evaluation; and
(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred
during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an
annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal
control over financial reporting; and
5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of
internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s
board of directors (or persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over
financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process,
summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant
role in the registrant’s internal control over financial reporting.
Date: February 26, 2009
/s/ Paul M. Barbas
Paul M. Barbas
President and Chief Executive Officer
118 DPL Inc.
Exhibit 31d Certifications
I, Frederick J. Boyle, certify that:
1. I have reviewed this annual report on Form 10-K of The Dayton Power and Light Company;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to
state a material fact necessary to make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report,
fairly present in all material respects the financial condition, results of operations and cash flows of the registrant
as of, and for, the periods presented in this report;
4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure
controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over
financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to
be designed under our supervision, to ensure that material information relating to the registrant, including
its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period
in which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial
reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of
financial reporting and the preparation of financial statements for external purposes in accordance with
generally accepted accounting principles;
(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this
report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the
period covered by this report based on such evaluation; and
(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred
during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an
annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal
control over financial reporting; and
5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of
internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s
board of directors (or persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over
financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process,
summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant
role in the registrant’s internal control over financial reporting.
Date: February 26, 2009
/s/ Frederick J. Boyle
Frederick J. Boyle
Senior Vice President, Chief Financial Officer,
Treasurer and Controller
DPL Inc. 119
Exhibit 32a Certification Pursuant to 18 U.S.C. Section 1350 as Adopted
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
DPL Inc.
The undersigned officer of DPL Inc. (the “Issuer”) hereby certifies pursuant to 18 U.S.C. Section 1350, as
adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that the Issuer’s Annual Report on Form 10-K
for the period ended December 31, 2008, which this certificate accompanies, fully complies with the requirements
of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 and that the information contained therein fairly
presents, in all material respects, the financial condition and results of operations of the Issuer as of the dates and
for the periods expressed therein.
A signed original of this written statement required by Section 906 of the Sarbanes-Oxley Act of 2002, or
other document authenticating, acknowledging, or otherwise adopting the signature that appears in typed form
within the electronic version of this statement required by Section 906 of the Sarbanes-Oxley Act of 2002,
has been provided to the Issuer and will be retained by the Issuer and furnished to the Securities and Exchange
Commission or its staff upon request.
Signed:
/s/ Paul M. Barbas
Paul M. Barbas
President and Chief Executive Officer
Date: February 26, 2009
The foregoing certificate is being furnished solely pursuant to 18 U.S.C. Section 1350 and is not being filed
as part of the Issuer’s Annual Report or as a separate disclosure document.
120 DPL Inc.
Exhibit 32b Certification Pursuant to 18 U.S.C. Section 1350 as Adopted
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
DPL Inc.
The undersigned officer of DPL Inc. (the “Issuer”) hereby certifies pursuant to 18 U.S.C. Section 1350, as
adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that the Issuer’s Annual Report on Form 10-K
for the period ended December 31, 2008, which this certificate accompanies, fully complies with the requirements
of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 and that the information contained therein fairly
presents, in all material respects, the financial condition and results of operations of the Issuer as of the dates and
for the periods expressed therein.
A signed original of this written statement required by Section 906 of the Sarbanes-Oxley Act of 2002, or
other document authenticating, acknowledging, or otherwise adopting the signature that appears in typed form
within the electronic version of this statement required by Section 906 of the Sarbanes-Oxley Act of 2002,
has been provided to the Issuer and will be retained by the Issuer and furnished to the Securities and Exchange
Commission or its staff upon request.
Signed:
/s/ Frederick J. Boyle
Frederick J. Boyle
Senior Vice President, Chief Financial Officer,
Treasurer and Controller
Date: February 26, 2009
The foregoing certificate is being furnished solely pursuant to 18 U.S.C. Section 1350 and is not being filed
as part of the Issuer’s Annual Report or as a separate disclosure document.
DPL Inc. 121
Exhibit 32c Certification Pursuant to 18 U.S.C. Section 1350 as Adopted
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
The Dayton Power and Light Company
The undersigned officer of The Dayton Power and Light Company (the “Issuer”) hereby certifies pursuant to
18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that the Issuer’s
Annual Report on Form 10-K for the period ended December 31, 2008, which this certificate accompanies,
fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 and that
the information contained therein fairly presents, in all material respects, the financial condition and results of
operations of the Issuer as of the dates and for the periods expressed therein.
A signed original of this written statement required by Section 906 of the Sarbanes-Oxley Act of 2002, or
other document authenticating, acknowledging, or otherwise adopting the signature that appears in typed form
within the electronic version of this statement required by Section 906 of the Sarbanes-Oxley Act of 2002,
has been provided to the Issuer and will be retained by the Issuer and furnished to the Securities and Exchange
Commission or its staff upon request.
Signed:
/s/ Paul M. Barbas
Paul M. Barbas
President and Chief Executive Officer
Date: February 26, 2009
The foregoing certificate is being furnished solely pursuant to 18 U.S.C. Section 1350 and is not being filed
as part of the Issuer’s Annual Report or as a separate disclosure document.
122 DPL Inc.
Exhibit 32d Certification Pursuant to 18 U.S.C. Section 1350 as Adopted
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
The Dayton Power and Light Company
The undersigned officer of The Dayton Power and Light Company (the “Issuer”) hereby certifies pursuant to
18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that the Issuer’s
Annual Report on Form 10-K for the period ended December 31, 2008, which this certificate accompanies,
fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 and that
the information contained therein fairly presents, in all material respects, the financial condition and results of
operations of the Issuer as of the dates and for the periods expressed therein.
A signed original of this written statement required by Section 906 of the Sarbanes-Oxley Act of 2002, or
other document authenticating, acknowledging, or otherwise adopting the signature that appears in typed form
within the electronic version of this statement required by Section 906 of the Sarbanes-Oxley Act of 2002,
has been provided to the Issuer and will be retained by the Issuer and furnished to the Securities and Exchange
Commission or its staff upon request.
Signed:
/s/ Frederick J. Boyle
Frederick J. Boyle
Senior Vice President, Chief Financial Officer,
Treasurer and Controller
Date: February 26, 2009
The foregoing certificate is being furnished solely pursuant to 18 U.S.C. Section 1350 and is not being filed
as part of the Issuer’s Annual Report or as a separate disclosure document.
DPL Inc. 123
Corporate Information
Shareholder Information – www.dplinc.com
Shareholder information is available at www.dplinc.com, including
access to financial conference calls and presentations, Securities
and Exchange Commission (SEC) filings, and historical stock
and dividend data. Interested parties may also receive automated
e-mail alerts to DPL news releases and SEC filings.
Online Shareholder Account Management –
www.computershare.com/investor
Shareholders may manage their DPL Inc. common stock account
online at www.computershare.com/investor. Computershare
is the transfer agent for DPL common stock. Services available
online include reinvesting dividends, enrolling in electronic
dividend deposit, changing an address, selling shares, and
downloading forms.
Transfer Agent Contact Information
By Mail:
Computershare
P.O. Box 43078
Providence, Rl 02940-3078
By Overnight Delivery:
Computershare
250 Royall Street
Canton, MA 02021
Phone: 800-736-3001
781-575-3605
Fax:
E-mail: shareholders@computershare.com
www.computershare.com/investor
Trustee
DP&L First Mortgage Bonds
The Bank of New York
Corporate Trust Administration
101 Barclay Street
New York, New York 10286
Also interest paying agent
Securities Listing
The New York Stock Exchange is the only national
securities exchange on which DPL Inc. common stock
is listed. The trading symbol is DPL.
2008 Dividends
Ex-Dividend Date
2/12/08
5/13/08
8/13/08
11/13/08
Record Date
2/14/08
5/15/08
8/15/08
11/15/08
Payable Date
3/1/08
6/1/08
9/1/08
12/1/08
Amount
$ 0.275
$ 0.275
$ 0.275
$ 0.275
$ 1.10
Federal Income Tax Status of 2008 Dividend Payments
Dividends paid in 2008 on common and preferred stock are
fully taxable as dividend income.
Certifications
DPL Inc. has filed as exhibits to its annual report on Form 10-K
for the fiscal year ended December 31, 2008, the certifications
of its president and chief executive officer and its senior vice
president and chief financial officer required by Rule 13a-14(a)/
15d-14(a) of the Securities Exchange Act of 1934. DPL submitted
to the New York Stock Exchange during 2008 the annual CEO
certification required by Section 303A.12 of the New York Stock
Exchange listed company manual.
Stock Purchase and Dividend Reinvestment Plan
On March 1, 2009, DPL introduced a new direct stock pur-
chase and dividend reinvestment plan. The new plan is offered
and administered by Computershare Trust Company, N.A.,
(Computershare) and not by DPL. This Computershare Invest-
ment Plan (CIP) provides an alternative to traditional retail
brokerage methods of purchasing, holding and selling DPL
shares. Both registered shareholders and new investors are
able to purchase shares through this program.
The CIP offers a full array of features that include the ability to:
o Purchase shares weekly
o Purchase initial shares through the CIP, as a new investor,
for $250.00 in one payment or ten consecutive monthly
payments of $25.00
o Purchase additional shares by investing as little as $25.00
o Authorize recurring monthly purchases through the
automatic investment feature
o Purchase shares over the Internet at
www.computershare.com/investor or by check
o Reinvest dividends or receive cash dividends electronically
or by check
o Convert your stock certificates into book-entry shares for
safekeeping purposes at no cost
o Transfer shares to another person by opening a CIP
account for the recipient
o Sell shares daily
To participate in the CIP, you can enroll over the Internet
at https://www.computershare.com/investor or call
Computershare for the brochure and form at 800-736-3001
or call DPL Shareholder Services at 800-322-9244.
Dividend Direct Deposit
Shareholders who are not reinvesting their dividends in
DPL may choose to have their dividend payments deposited
directly into a savings or checking account. This free service
ensures that payments will be available on the payment
date, eliminating potential for mail delays and lost checks.
To enroll, contact Computershare at 800-736-3001, visit
www.computershare.com/investor, or call DPL Shareholder
Services at 800-322-9244.
Annual Meeting
The Annual Meeting of Shareholders will be held at
the Dayton Convention Center Theater, 22 East Fifth Street,
Dayton, Ohio 45402, on Wednesday, April 29, 2009 at
10:00 a.m. Eastern time.
Form 10-K Report
DPL Inc. reports details concerning its operations and other
matters annually to the Securities and Exchange Commission
on Form 10-K, which is available at www.dplinc.com
and will be supplied upon request. Please direct inquiries to
DPL Shareholder Services.
DPL Inc.
1065 Woodman Drive
Dayton, Ohio 45432
937-224-6000
www.dplinc.com
DPL Shareholder Services
937-259-7150
800-322-9244
Officers
Board of Directors
Paul M. Barbas
President and
Chief Executive Officer
Frederick J. Boyle
Senior Vice President
Chief Financial Officer
Treasurer and Controller
Scott J. Kelly
Senior Vice President
Service Operations
Teresa F. Marrinan
Vice President
Commercial Operations
Daniel J. McCabe
Senior Vice President and
Chief Administrative Officer
Arthur G. Meyer
Senior Vice President
Corporate and Regulatory Affairs
Timothy G. Rice
Vice President
Assistant General Counsel and
Corporate Secretary
Gary G. Stephenson
Senior Vice President
Generation and Marketing
Douglas C. Taylor
Senior Vice President
General Counsel and
Corporate Development
Glenn E. Harder
Chairman
DPL Inc. and DP&L
President, GEH Advisory Services, LLC
Former Executive Vice President and
Chief Financial Officer
Carolina Power and Light
Raleigh, North Carolina
Barbara S. Graham
Partner
Graham & Company
Former Senior Vice President
Pepco Holdings, Inc.
Washington, D.C.
Paul M. Barbas
President and Chief Executive Officer
DPL Inc. and DP&L
Dayton, Ohio
Lester L. Lyles
Independent Consultant
Retired General, U.S. Air Force
Former Commander of the
Air Force Materiel Command
Dayton, Ohio
Robert D. Biggs
Former Executive Chairman,
DPL Inc. and DP&L
Retired Managing Partner
PricewaterhouseCoopers, LLP
Pamela B. Morris
President and Chief Executive Officer
CareSource
Dayton, Ohio
Paul R. Bishop
Chairman and Chief Executive Officer
H-P Products, Inc.
Louisville, Ohio
Dr. Ned J. Sifferlen
President Emeritus
Sinclair Community College
Dayton, Ohio
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Frank F. Gallaher
Managing Member
Gallaher & Associates, LLC
Former President
Fossil Operations and Transmission
Entergy Corporation
New Orleans, Louisiana