2009 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
$
$
$
$
$
$
$
$
2009
27.60
229.1
2.03
–
2.03
2.01
–
2.01
112.9
114.2
$
$
$
$
$
$
$
$
2008
22.84
244.5
2.22
–
2.22
2.12
–
2.12
110.2
115.4
$
$
$
$
$
$
$
$
2007
29.65
221.8
1.97
0.09
2.06
1.80
0.08
1.88
107.9
117.8
Net cash provided by operating activities (millions)
Long term debt including current portion (millions)
Interest expense (millions)
Construction additions (millions)
Dividends paid per share
526.1
$
$ 1,324.1
83.0
$
145
$
1.14
$
System peak load – MW (calendar year)
Average retail price per kWh (calendar year) (cents/kWh)
2,909
9.01
363.2
$
$ 1,551.8
90.7
$
228
$
1.10
$
3,027
8.13
318.1
$
$ 1,642.2
81.0
$
347
$
1.04
$
3,270
7.83
Corporate Profile
DPL Generating Units
DPL Inc. (NYSE: DPL) is a regional energy company.
DPL was named one of Forbes’ “100 Most Trustworthy
Companies” in 2009. DPL’s principal subsidiaries
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 500,000 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, owns approximately 3,700 megawatts of
Indianapolis
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.
On the Cover
In 2009 DPL began to enhance local environments by converting
some turf areas at the company’s property to prairie meadows.
These new natural landscape elements at DP&L facilities will
provide an aesthetic natural buffer between DP&L’s equipment
and adjacent properties.
M I C H I G A N
Detroit
Toledo
E
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K
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Cleveland
Montpelier
D P & L
S E R V I C E A R E A
A
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Tait
Hutchings
Dayton
Miami Fort
East Bend
Cincinnati
Beckjord
Zimmer
Stuart
Killen
O H I O
Columbus
Conesville
O hio Riv er
Charleston
A
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A
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Y
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N
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P
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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
It certainly was a tough year economically for our
region. We expect that the challenges our service area
experienced in 2009, will continue in 2010.
DPL Matches Challenges with Toughness
When things are tough, performance becomes even more
important in the vital areas we measure:
• Safety
• Service
• Reliability
• Operating Performance
As Paul Barbas discusses in his report, we tracked very
well in all these performance measures in 2009.
From the Board of Directors’ viewpoint, we are very proud
of the way our employees have responded to the
challenges we have faced. As a football coach of mine
many years ago was fond of saying, “when the going gets
tough, the tough get going.” Well, DPL’s employees
fulfilled this old adage to the highest degree during 2009.
DPL Innovates
There is another important benchmark that applies in
tough times, and that is the ability to innovate.
You may find it surprising to think of an electric utility
as a source of innovation. Conventional wisdom has it that
small entrepreneurs are the only source of innovation.
But we think otherwise.
Following Paul Barbas’ leadership, DPL has innovated
in a number of areas:
Innovative partnerships, like the new relationship
with the Wright-Patterson Air Force Base to privatize its
electrical distribution and transmission system.
Innovative environmental performance, like the industry-
leading installation of scrubbers that remove sulfur dioxide
and our selective catalytic reduction equipment that
reduces nitrogen oxide emissions from our coal-fired plants.
Over the years, the company has invested millions to help
protect the environment and comply with regulations.
In 2009, we started converting some turf areas on our
property to prairie meadows. These natural landscapes
reduce noise and emissions by eliminating mowing.
It also provides an aesthetic, natural buffer between our
equipment and adjacent properties. And in the northeastern
part of our service area, we’re actually restoring what had
been prairie prior to the settlement of Ohio.
Glenn E. Harder
building late in the year that will
be a first step toward a more
diversified energy portfolio.
Innovation is something DPL
believes in and embraces
every day. After all, the Dayton
area has been known for its
innovative spirit for over a century.
Would you expect anything less from its electric utility?
DPL Performance Gets Noticed in 2009
At DPL, we are dedicated to meeting the highest standards
of corporate governance and operational excellence. In
April 2009, DPL was named one of the 100 Most Trustworthy
Companies by Forbes Magazine. The list highlights those
companies that “have consistently shown transparent and
conservative accounting practices and solid corporate
governance and management.” We are extremely proud
of this recognition as it underscores our ongoing efforts to
ensure that DPL is a fundamentally sound company
worthy of your investment consideration.
Additionally, with our improved risk profile, Standard &
Poor’s, Moody’s Investors Service and Fitch Ratings
all upgraded the credit ratings of both DPL and DP&L.
The bottom line is that our strengthened operations,
improved cash flows, and consistent earnings growth
translated into additional value for our shareholders.
In December 2009, we increased our dividend rate by
six percent, our fifth consecutive annual increase.
Coupled with a substantial increase in stock price, our
total return to shareholders for the year was impressive
under any circumstances.
Toughness and Determination will Continue in 2010
Congratulations to the DPL team for outstanding
performance during 2009. The future will demand nothing
less than continuing excellence, because the electric utility
industry, this country and our customers face continued
challenges and opportunities.
Your Board is confident that challenging times will do
nothing less than call out the determination and toughness
of our employees to meet those challenges. Thank you
for your confidence in DPL. The DPL Board of Directors
sincerely appreciates your continued support.
Innovative technology, like our future vision for a smarter
electrical grid that provides customers with a greater
degree of reliability and choice, and therefore customer
service. And the 1.1 MW solar power facility we began
Glenn E. Harder
Chairman
March 1, 2010
1
President & CEO’s Letter
In 2009, we were challenged once again with deep
recessionary economic conditions regionally and
nationally. In spite of the downturn, DPL maintained its
focus on operational excellence, cost control,
our regulatory negotiations and on identifying new
ways to grow our business.
Certainty in Uncertain Times
Paul M. Barbas
we offer discounted compact
fluorescent light bulbs,
appliance recycling, heating
and cooling system rebates
and business rebates.
Adoption of these programs
exceeded our estimates
as customers focused on reducing their energy-related
Our Electric Security Plan agreement, completed in
2009 and extending through 2012, provides stability for
both DP&L and its customers. It limits rate increases
costs during these difficult times.
Continued Operational Excellence
over the next three years, includes an equitable fuel
Providing safe and reliable electric service to our
recovery mechanism and ensures our ability to recover
customers is always at the core of our business.
transmission-related expenses.
We continued to exceed the Public Utilities Commission
As we have discussed in previous annual reports,
of Ohio targets for reliability, and experienced one
our employees continue to explore new opportunities
of the best years of the last decade in terms of safety.
to serve our customers. In 2009, DP&L was awarded a
We also operated our generating plants at the
50-year contract to privatize the assets for the
lowest forced outage level in over a decade, increasing
distribution and transmission of electricity at Wright-
the overall output from our fleet by seven percent
Patterson Air Force Base. Wright-Patterson is a growing
economic engine for the Dayton region and Ohio,
and we’re pleased to support the base and its mission.
Additionally, DP&L played an important role in
the successful region-wide effort to attract Caterpillar’s
second-largest distribution center to Clayton, Ohio,
which is in the northern part of our service territory.
We also introduced several energy efficiency initiatives
to help our residential and commercial customers better
manage their energy expenses. Under these programs,
DPL creates a more stable
environment for the company and
for our customers as an active
participant in strengthening the
economy in the Miami Valley.
DPL maintained its focus on
operational excellence, cost control,
regulatory compliance and
on identifying new ways to grow
our business.
over 2008. This is a testament to the professionalism
and dedication of our more than 1,500 employees.
Actions to increase outreach to emergency
management agencies in our service territory,
strengthen mutual aid networks with the addition of
the Southeastern Electric Exchange, and enhance
telecommunications capabilities all paid off during
severe wind events in February and December.
These efforts also improve the day-to-day reliability
of our system, which better prepares us to handle
future weather events.
Our focus on execution has translated into a stronger
financial position as we look to 2010. We re-purchased
$227 million of long term debt, driven by our positive
cash flows. Additionally, we reduced the number of
Continued
2
2
President & CEO’s Letter Continued
outstanding common stock warrants from 19.6 million
to 1.8 million. As a result of our operational, regulatory
and financial efforts, all three rating agencies upgraded
the credit ratings of both DPL and DP&L during 2009.
My leadership team recognizes
that it is the people who work for
DPL that make all of our
accomplishments possible.
Strong Teamwork and Communication
FERC cyber-security requirements and a host of other
demands that have been placed upon our industry
over the last two to three years, it is imperative that
we continue to invest heavily in our workforce.
Although simple in concept, I truly believe that we
can grow as a company only if employees throughout
our business continue to expand their knowledge
and capabilities. I am pleased to say that the Board,
leadership team and all of our employees enjoy
the challenges of being part of this learning culture.
I am looking forward to the challenges and
opportunities 2010 will present to DPL.
We are committed to maintaining a sharp focus
on operational excellence, strong financial
performance and a solid reputation among our
investors, customers, regulators and the communities
we serve. DPL is well positioned to succeed
today and into the future and we thank you for
your investment in our company.
Paul M. Barbas
President & Chief Executive Officer
March 1, 2010
One of the company’s strengths is the ability to work
together to accomplish goals – no matter how small or
large – necessary to ensure DPL’s success.
A collaborative effort on the part of our commercial
operations, generation and maintenance and material
handling areas allowed us to complete a transition to
burning lower cost coal at our Killen and Stuart plants.
Providing safe and reliable
electric service to our customers
is always at the core of our business.
The flue gas desulfurization units – which remove
nearly all of the sulfur dioxide from our plant emissions –
combined with the ingenuity of our workforce made
this possible. Due to our prudent investments in
environmental technology, we have greater flexibility
in the types of coal we can burn, which ultimately
results in lower fuel costs for our customers.
We are also making strides in adding renewable
energy sources to our fuel mix and have begun the
testing of both biofuels and engineered fuels at
our power generation stations. Additionally, we have
commenced the construction of the largest solar
array in southwestern Ohio and continue to explore
additional opportunities with a variety of partners
as we work to meet the requirements of Ohio’s
legislation on alternative energy.
Investing in Our Employees and the Future
Since 2007, we have more than doubled the investment
we make in our employees through additional
training. As we look at meeting renewable energy
targets, expanding our efficiency programs, upgrading
our substations and distribution facilities, meeting
Continued
3
3v
Cost-Competitive Generation
DP&L-Operated, Co-Owned Units’ 2009 Coal Usage
DP&L has increased its use of lower-cost high-sulfur coal
over the past 3 years. In 2006 both plants used >99.9% low-sulfur
Central Appalachian Coal.
Killen*
Stuart**
67%
33%
45%
55%
Low sulfur (Central Appalachian [CAPP] coal)
High sulfur (Illinois Basin [ILB] and Northern Appalachian [NAPP] coal)
* Ownership:
DP&L 67%,
Duke Energy Ohio 33%
** Ownership:
DP&L 35%,
Duke Energy Ohio 39%,
AEP 26%
Low sulfur
(Central Appalachian [CAPP] coal)
High sulfur
(Illinois [ILB] and Northern Appalachian [NAPP] coal)
Cost-Competitive Generation Continued
Fuel Flexibility Reduces Costs
The successful operation of the selective catalytic
reduction equipment and flue gas desulfurization units
(scrubbers) at our Killen and Stuart power plants
allows DPL to have more flexibility in the coal we burn.
And the greater flexibility we have in our choice of
coal, the lower fuel costs we can realize. In 2009,
DPL used a blend of Central Appalachian coal and
higher-sulfur Illinois Basin coal, which is less
expensive for the company to buy.
Exploring Alternative Energy Sources
DPL has been conducting research and development
activities in renewable energy. Specifically, we’ve
explored biofuel testing and in December began the
installation of a solar array in our service territory.
The first biofuel tested was a pellet composed of
scrap wood and switch grass. We blended the pellets
with coal and conducted EPA-approved test burns
in the Killen boiler.
The solar array converts solar energy from the sun
into electrical current, and DPL’s array will have
the ability to power nearly 150 homes. A visitor center
to educate the public about solar power is also
planned as part of the installation.
Sulfur Dioxide (SO2)
Emissions* (tons)
104,521
90,344
43,876
39,277
2006 2007 2008 2009
* Based on DPL’s ownership share
Kara Jump, residential program manager for
DP&L’s customer conservation and energy management program,
distributed free compact fluorescent lightbulbs (CFLs)
to Home Depot customers who purchased eligible CFLs at
an energy efficiency promotional event last summer.
66
Outage Frequency per customer per year
2005
2006
2007
2008
2009
0.97
0.90
0.95
0.91
0.70
PUCO Target
0.99
Outage Duration in minutes
0
0
.
2005
0
2
.
93.5
0
4
.
0
6
.
0
8
.
1
0
.
2006
95.0
2007
88.5
2008
2009
91.6
91.6
PUCO Target 98.4
In 2009, DP&L’s operational performance once again
exceeded all Public Utilities Commission of Ohio (PUCO)
Reliably Serving
Over 500,000 Customers
Customer service, safety, and reliability – these are the three
primary concerns of DPL’s service operations. In 2009,
DPL made several changes to improve performance in each
of these areas.
Stepping Up Service
To better serve our customers every day, we increased the
telecommunications capacity in our Customer Solutions
Call Center. This allows us to receive and answer more calls,
and more quickly respond to our customers’ needs.
In addition, we’ve begun to take customer inquiries via e-mail,
so customers can get answers even when it’s not
convenient for them to call.
DPL also enhanced its communication with groups that can
help our employees and our customers during storm recovery.
We reached out to county administrators and emergency
management agencies and initiated processes to better
coordinate our restoration efforts with theirs – such as assistance
in clearing roadways to provide linemen access to our
facilities – during adverse weather conditions.
Ensuring Safety and Reliability
Another addition to our contingency planning is our new
membership in the Southeast Electric Exchange (SEE), a
mutual aid cooperative that coordinates the flow of resources,
people, and equipment to member utilities in times of need.
8
0
reliability standards.*
1
0
0
* Calculations contain certain PUCO-approved exclusions.
target col
Customer service, safety, and reliability –
these are the three primary concerns of
DPL’s service operations.
As a long-time member of a similar organization – the Great
Lakes Mutual Assistance Group – we have helped utilities in
other states when they have faced natural disasters, and we
have benefited from their reciprocal efforts. In early 2009, for
example, we sent DP&L workers to Kentucky to help restore
power after an ice storm there. By joining the SEE, we increase
the number of resources we can call upon when we need them.
Updated personal protective equipment and enhanced
training on best practices in the field has enabled
DP&L employees to work more safely. As a result, lost-time
accidents have decreased from 8 in 2008 to only 1 in 2009.
Helping Our Customers Conserve
Working to meet the requirements of Ohio energy legislation,
DPL implemented a series of energy efficiency programs
designed to help our residential and business customers
reduce their electricity usage and save money. These
initiatives – such as compact fluorescent lightbulb (CFL)
discounts, refrigerator recycling and business rebates –
have been very well received by customers. In fact, more
than one million DP&L-discounted CFLs were sold in 2009!
7
Our Community
Now more than ever, the strength
of a business relies on the strength of
its customers and communities.
In addition to economic development
initiatives, DPL also continued its
tradition of helping the individuals and
organizations in our service territory
and the areas surrounding our
generation facilities.
In 2009, DPL employees participated
in many projects that directly
affected our neighbors. For example,
the company sponsored three
houses that were rehabbed as a part
of the Rebuilding Together Dayton
initiative, and provided about 20
employee volunteers who worked on
National Rebuilding Day.
DPL and the DP&L Foundation
continue to provide vital
support to the communities
we serve.
Employees at the power plants along
the Ohio River coordinated multiple
drives to collect clothing, gifts, and
funds for numerous local charities,
including Hospice of Hope, March of
Dimes and St. Vincent De Paul.
ABC’s hit TV show “Extreme Makeover:
Home Edition” filmed at a residence in
our service territory this summer.
More than 100 DPL employees signed
up to volunteer to help with the
custom renovation. Our company
also assisted in making sure the work
site had power for the multi-day,
around-the-clock operation.
DPL and the DP&L Foundation continue
to provide vital support to the
communities we serve by contributing
more than $1 million annually to
a variety of civic, cultural, and youth
organizations.
A team of DPL employees rehabbed a Dayton
home as part of National Rebuilding Day through
Rebuilding Together Dayton.
8
8
DPL Inc. and The Dayton Power and Light Company
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, 2009
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
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 _____
2
DPL Inc.
Indicate by check mark whether each registrant has submitted electronically and posted on its corporate Web site, if any,
every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding
12 months (or for such shorter period that the registrant was required to submit and post such files).
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, 2009
was approximately $2.7 billion based on a closing sale price of $23.17 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 10, 2010, 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
119,083,640
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 2010 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 10-K
Fiscal Year Ended December 31, 2009
Glossary of Terms
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
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.
Page No.
5
7
23
32
32
32
32
33
35
36
61
62
123
123
123
124
124
124
124
124
125
132
133
134
135
Glossary Of Terms
The following select abbreviations or acronyms are used in this Form 10-K:
Abbreviation or Acronym
Definition
AOCI
Accumulated Other Comprehensive Income
ARO
Asset Retirement Obligation
ASU
Accounting Standards Update
CAA
Clean Air Act
CAIR
Clean Air Interstate Rule
CO2
Carbon Dioxide
CCEM
Customer Conservation and Energy Management
CRES
Competitive Retail Electric Service
DPL
DPL Inc., the parent company
DPLE
DPL Energy, LLC, a wholly owned subsidiary of DPL which engages in the
operation of peaking generation facilities
DPLER
DP&L
DPL Energy Resources, Inc., a wholly owned subsidiary of DPL which sells
retail electric energy and other energy services
The Dayton Power and Light Company, the principal subsidiary of DPL and
a public utility which sells electricity to residential, commercial, industrial and
governmental customers in a 6,000 square mile area of West Central Ohio
DSM
Demand-Side Management, a program under which customers typically
receive a discount, rebate or other form of incentive in return for agreeing to
reduce their electricity consumption upon request by the utility.
EIR
Environmental Investment Rider
EITF
EPS
Emerging Issues Task Force
Earnings Per Share
ESOP
Employee Stock Ownership Plan
ESP
Electric Security Plans, filed with the PUCO, pursuant to Ohio law
FASB
Financial Accounting Standards Board
FASC
FASB Accounting Standards Codification
FERC
Federal Energy Regulatory Commission
FGD
Flue Gas Desulfurization
GAAP
Generally Accepted Accounting Principles in the United States
GHG
Greenhouse Gas
kWh
Kilowatt hours
MTM
Mark to Market
MVIC
Miami Valley Insurance Company, a wholly owned insurance subsidiary
of DPL that provides insurance services to DPL and its subsidiaries
mWh
Megawatt hours
NERC
North American Electric Reliability Corporation
NOV
Notice of Violation
Continues on page 6
DPL Inc.
5
Continued from page 5
Abbreviation or Acronym
Definition
NOx
Nitrogen Oxide
NYMEX
New York Mercantile Exchange
OAQDA
Ohio Air Quality Development Authority
OCC
Ohio Consumers’ Counsel
ODT
Ohio Department of Taxation
Ohio EPA
Ohio Environmental Protection Agency
OTC
Over-The-Counter
OVEC
Ohio Valley Electric Corporation, an electric generating company in
which DP&L owns a 4.9% equity interest
PJM
PJM Interconnection, L.L.C., a regional transmission organization
PRP
Potentially Responsible Party
PUCO
Public Utilities Commission of Ohio
RSU
Restricted Stock Units
RTO
Regional Transmission Organization
RPM
Reliability Pricing Model
SB 221
Ohio Senate Bill 221, an Ohio electric energy bill that was signed by the
Governor on May 1, 2008 and went into effect July 31, 2008. This law
required all Ohio distribution utilities to file either an electric security plan
or a market rate option to be in effect January 1, 2009. The law also
contains, among other things, annual targets relating to advanced energy
portfolio standards, renewable energy, demand reduction and energy
efficiency standards.
SCR
Selective Catalytic Reduction
SEC
Securities and Exchange Commission
SECA
Seams Elimination Charge Adjustment
SFAS
Statement of Financial Accounting Standards
SO2
Sulfur Dioxide
Stipulation
A Stipulation and Recommendation filed by DP&L with the PUCO on
February 24, 2009 regarding DP&L’s ESP filing pursuant to SB 221. The
Stipulation was signed by the Staff of the PUCO, the Office of the Ohio
Consumers’ Counsel and various intervening parties. The PUCO approved
the Stipulation on June 24, 2009. The material terms of this Stipulation
are discussed further in this report.
TCRR
Transmission Cost Recovery Rider
USEPA
U.S. Environmental Protection Agency
USF
Universal Service Fund
6
DPL Inc.
Part I
Item 1 Business
This report includes the combined filing of DPL and
DP&L. DP&L is the principal subsidiary of DPL provid-
ing approximately 98% of DPL’s total consolidated rev-
enue and approximately 95% of DPL’s total consolidat-
ed 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 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 execu-
tive 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 guide-
lines, 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.
Forward-looking Statements: Certain statements con-
tained in this report are “forward-looking statements”
within the meaning of the Private Securities Litigation
Reform Act of 1995. Please see page 38 for more infor-
mation about forward-looking statements contained in
this report.
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 500,000 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 DPLER, an affiliate, to satisfy the
electric requirements of its retail customers.
DPL’s other significant subsidiaries (all of which
are wholly-owned) include: 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 MVIC, which is our captive insurance company
that provides insurance to us and our subsidiaries.
DPL also has a wholly-owned business trust, DPL
Capital Trust II, formed for the purpose of issuing trust
capital securities to investors.
DPL and DP&L conduct their principal business
in one business segment – Electric. DP&L’s electric
transmission and distribution businesses are subject to
rate regulation by federal and state regulators while its
generation business is not subject to such regulation.
Accordingly, DP&L applies the accounting standards
for regulated operations to its electric transmission and
distribution businesses and records regulatory assets
when incurred costs are expected to be recovered in
future customer rates, and regulatory liabilities when
current recoveries in customer rates relate to expected
future costs.
DPL and its subsidiaries employed 1,581 persons
as of January 31, 2010, of which 1,403 were full-time
employees and 178 were part-time employees. At
that date, 1,396 of these full-time employees and all
of the part-time employees were employed by DP&L.
Approximately 55% of the employees are under a
collective bargaining agreement.
DPL Inc.
7
Significant Developments
Credit Ratings
The following table outlines the debt credit ratings and outlook of each company, along with the effective
dates of each rating and outlook for DPL and DP&L.
Fitch Ratings
Moody’s Investors Service
Standard & Poor’s Corp.
DPL (a)
A-
Baa1
BBB+
DP&L (b)
Outlook
Effective
AA-
Aa3
A
Stable
Stable
Stable
November 2009
August 2009
April 2009
(a) Credit rating relates to DPL’s Senior Unsecured debt.
(b) Credit rating relates to DP&L’s Senior Secured debt.
Long-Term Debt Redemption
On March 31, 2009, DPL paid $175 million of the 8.00% Senior Notes when the notes became due. In addition,
on December 21, 2009, DPL paid down $52.4 million of the $195 million 8.125% Note to DPL Capital Trust II
which is due 2031.
New Revolving Credit Facility
On April 21, 2009, DP&L entered into a $100 million unsecured revolving credit agreement with a syndicated
bank group. The agreement is for a 364-day term expiring on April 20, 2010. The facility contains one financial
covenant: DP&L’s total debt to total capitalization ratio is not to exceed 0.65 to 1.00. As of December 31, 2009,
this covenant is met with a ratio of 0.40 to 1.00. As of December 31, 2009, there were no borrowings outstanding
under this facility.
Warrants Repurchased and Exercised
During the year ended December 31, 2009, DPL repurchased a total of 8.6 million of its warrants at an average
price of $2.94 each. The repurchased warrants were cancelled by DPL on the dates they were repurchased.
Also during this period, warrant holders exercised a total of 9.2 million warrants, of which 5.5 million were exercised
under cashless transactions and 3.7 million were exercised for cash. As a result of these warrant exercise
transactions, DPL issued a total of 5.0 million shares of common stock from treasury stock and in turn received
total cash proceeds of $77.7 million.
Stock Repurchase Program
On October 28, 2009, the DPL Board of Directors approved a Stock Repurchase Program under which DPL may
use proceeds from the exercise of warrants (discussed above) to repurchase common stock and warrants from
time to time in the open market, through private transactions or otherwise. The Stock Repurchase Program
will run through June 30, 2012, which is approximately three months after the end of the warrant exercise period.
Through December 31, 2009, DPL repurchased approximately 2.4 million shares of common stock under the
Stock Repurchase Program at an average price per share of $26.96.
Approval of Stipulation
In compliance with SB 221, DP&L filed its ESP at the PUCO on October 10, 2008. Subsequently on February 24,
2009, DP&L filed the Stipulation signed by the Staff of the PUCO, the Office of the OCC and various intervening
parties. On June 24, 2009, the PUCO issued an order granting approval of the Stipulation.
Transmission, Ancillary and Other PJM-related Costs
On February 19, 2009, the PUCO approved DP&L’s request to defer costs related to transmission, capacity,
ancillary service and other costs incurred since July 31, 2008 consistent with the provisions of SB 221.
Subsequently, the PUCO approved two separate riders in November 2009, one for the recovery of RPM capacity
costs and another rider for the recovery of transmission, ancillary and other PJM-related costs (TCRR). Accordingly,
during the period ended December 31, 2009, DP&L deferred net RTO and other costs in the amount of $25.5
million. Of this amount, approximately $9.8 million relates to the period August 1, 2008 through December 31, 2008,
and $15.7 million relates to the twelve month period ended December 31, 2009. The deferral of these costs
resulted in a favorable impact to our results of operations.
8
DPL Inc.
Increase in Dividends on DPL’s Common Stock
On December 9, 2009, DPL’s Board of Directors authorized a quarterly dividend rate increase of approximately
6%, increasing the quarterly dividend per DPL common share from $.2850 to $.3025. If this dividend rate is
maintained, the annualized dividend would increase from $1.14 per share to $1.21 per share.
Electric Sales and Revenues
Electric sales (millions of kWh)
Residential
Commercial
Industrial
Other retail
Total retail
Wholesale
Total
Operating revenues ($ in thousands)
Residential
Commercial
Industrial
Other retail
Other miscellaneous revenues
Total retail
Wholesale
RTO revenues
Other revenues
Total
2009
5,120
3,678
3,353
1,386
13,537
3,130
16,667
DPL
2008
5,533
3,959
3,986
1,454
14,932
2,240
17,172
2007
2009
2008
2007
DP&L (a)
5,535
3,990
4,241
1,468
15,234
3,364
18,598
5,120
3,678
3,353
1,386
13,537
3,053
16,590
5,533
3,959
3,986
1,454
14,932
2,173
17,105
5,535
3,990
4,241
1,468
15,234
3,364
18,598
$ 560,223 $ 544,561 $ 532,956
321,051
332,010
332,808
244,260
240,041
228,458
94,568
97,592
98,781
13,340
9,042
8,766
$ 560,223 $ 544,561 $ 532,956
301,455
308,934
329,006
132,359
133,832
186,293
77,184
78,905
82,749
13,387
9,046
8,966
$ 1,229,036 $ 1,223,246 $ 1,206,175
$ 1,167,237 $ 1,075,278 $ 1,057,341
122,519
225,677
11,689
149,874
217,357
11,080
180,254
118,389
10,911
181,871
201,254
–
293,500
204,074
–
331,722
118,386
–
$ 1,588,921 $ 1,601,557 $ 1,515,729
$ 1,550,362 $ 1,572,852 $ 1,507,452
Electric customers at end of period
Residential
Commercial
Industrial
Other
Total
456,144
50,141
1,773
6,577
456,770
50,190
1,797
6,517
456,989
49,875
1,818
6,443
456,144
50,141
1,773
6,577
456,770
50,190
1,797
6,517
456,989
49,875
1,818
6,443
514,635
515,274
515,125
514,635
515,274
515,125
(a) DP&L sells power to DPLER (a subsidiary of DPL). The revenues associated with these sales are classified as wholesale sales on
DP&L’s financial statements 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 from DP&L to avoid duplicate reporting.
Electric Operations and Fuel Supply
2009 Summer Generating Capacity
Amounts in MWs
DPL
DP&L
Coal Fired
2,827
2,827
Peaking
Units
967
422
Total
3,794
3,249
DPL’s present summer generating capacity, including peaking units, is approximately 3,794 MW. Of this
capacity, approximately 2,827 MW, or 75%, is derived from coal-fired steam generating stations and the balance
of approximately 967 MW, or 25%, consists of combustion turbine and diesel peaking units.
DP&L’s present summer generating capacity, including peaking units, is approximately 3,249 MW. Of this
capacity, approximately 2,827 MW, or 87%, is derived from coal-fired steam generating stations and the balance
of approximately 422 MW, or 13%, consists of combustion turbine and diesel peaking units.
Our all-time net peak load was 3,270 MW, occurring August 8, 2007.
Approximately 87% 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],
DPL Inc.
9
or Union Heat, Light & Power) and AEP (or its subsidiary Columbus Southern Power [CSP]). As tenants in
common, each company owns a specified 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 365 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 2009, we generated 99.5% of our electric output from coal-fired units and 0.5% 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
Poneto, IN
Moraine, OH
365
402
808
126
207
368
186
365
23
94
12
10
12
256
12
3
238
307
365
600
2,308
765
414
1,020
600
1,300
23
94
12
10
12
256
18
10
238
307
Total approximate summer generating capacity
3,794
8,352
* W = Wholly-Owned
C = Commonly-Owned
In addition to the above, DP&L also owns a 4.9% equity ownership interest in 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 wholesale sales
requirements for 2010 under contract. The majority of the contracted coal is purchased at fixed prices. Some
contracts provide for periodic adjustments and some are priced based on market indices. 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 contracts related to government imposed costs, counterparty
performance and credit, scheduled outages and generation plant mix. Our emission allowance consumption
was reduced in 2008 and 2009 due to the installation of FGD equipment (scrubbers) at our jointly-owned electric
generating 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 2010 and in future periods. We were a net seller of SO2 allowances and
NOx allowances in 2009, and we expect to be a net seller in 2010.
10 DPL Inc.
The gross average cost of fuel consumed per kWh
was as follows:
Average Cost of Fuel Consumed (¢ / kWh)
Competition and Regulation
Ohio Matters
Ohio Retail Rates
2009
2.39
2.36
2008
2.28
2.22
2007
1.97
1.91
DPL
DP&L
Seasonality
The power generation and delivery business is sea-
sonal 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. Unusually mild summers and winters
could have an adverse effect on our results of opera-
tions, financial condition and cash flows.
Rate Regulation and Government Legislation
DP&L’s sales to retail customers are subject to rate
regulation by the PUCO. Beginning January 1, 2010,
DP&L has a fuel rider in place for the collection of our
prudently incurred fuel, purchased power, emission
and other related costs. DP&L’s transtmission rates
and wholesale electric rates to municipal corporations,
rural electric co-operatives and other distributors of
electric energy are subject to regulation by the 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
OCC, which has the authority to represent residential
consumers in state and federal judicial and administra-
tive 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 capi-
talization, among other matters, to the extent that such
matters relate to the costs associated with the provision
of public utility service. Based on existing PUCO and
FERC authorization, regulatory assets and liabilities are
recorded on the balance sheets. See Note 3 of Notes
to Consolidated Financial Statements.
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 SB 221, an Ohio elec-
tric energy bill, was signed by the Governor and went
into effect July 31, 2008. This law required that all Ohio
distribution utilities file either an electric security plan or
a market rate option that was to be in effect on 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 cer-
tain market criteria and bid requirements set out in the
bill. Also, under this option, utilities that still own gen-
eration 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 service offer for costs associated with
environmental compliance; fuel and purchased power;
construction of new or investment in specified generat-
ing facilities; and the provision of standby and default
service, operating, maintenance, or other costs includ-
ing taxes. As part of its electric security plan, a utility
is permitted to file an infrastructure improvement plan
that will specify the initiatives the utility will take to
rebuild, upgrade, or replace its electric distribution
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 comparable companies with similar
business and financial risks. The PUCO issued three
sets of rules related to implementation of the 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 excessive earnings
test requirements, corporate separation revisions, rules
relating to the recovery of transmission related costs,
electric service and safety standards dealing with the
statewide line extension policy, and rules relating to
advanced energy portfolio standards, renewable ener-
gy, demand reduction and energy efficiency standards.
DPL Inc.
11
In compliance with SB 221, DP&L filed its ESP at
the PUCO on October 10, 2008. This plan contained
three parts: 1) a standard offer plan; 2) a CCEM plan;
and 3) an alternative energy plan. The standard offer
plan stated that DP&L intends to maintain its current
rate plan through December 31, 2010, and addressed
compliance issues related to the PUCO rules.
SB 221 and the implementation rules contain tar-
gets relating to advanced energy portfolio standards,
renewable energy, demand reduction and energy
efficiency standards. After several revisions, rulings
on rehearing and reissuance that occurred throughout
2009, the rules relating to renewable energy, energy
efficiency, demand reduction and integrated resource
plans were made effective on December 10, 2009. The
standards require that, by the year 2025, 25% of the
total number of kWh of electricity sold by the utility to
retail electric consumers must come from alternative
energy resources, which include “advanced energy
resources” such as distributed generation, clean coal,
advanced nuclear, energy efficiency and fuel cell tech-
nology; and “renewable energy resources” such as
solar, hydro, wind, geothermal and biomass. At least
half of the 25% must be generated from renewable
energy resources, including 0.5% from solar energy.
The renewable energy portfolio, energy efficiency
and demand reduction standards began in 2009 with
increases in required percentages each year. The
annual targets for energy efficiency are expected to
save 22.3% by 2025 and peak demand reductions
are expected to reach 7.75% by 2018 compared to
baseline energy usage. If any targets are not met,
compliance penalties will apply unless the PUCO
makes certain findings that would excuse performance.
In December 2009, DP&L and DPLER made several
filings relating to their renewable energy and energy
efficiency compliance plans. DP&L and DPLER were
able to obtain Renewable Energy Certificates suf-
ficient to meet their overall renewable energy targets,
but DP&L and DPLER together obtained only 36% of
the separate requirement for 2009 Ohio-based solar
power. The companies asked for a waiver of any unmet
2009 Ohio solar requirements on grounds of force
majeure because there are insufficient solar renewable
energy credits available from Ohio resources. In two
separate filings, DP&L requested the PUCO’s consent
that DP&L had met the requirements for energy effi-
ciency and for demand reduction based on DP&L’s
interpretation of how those requirements should be
applied. These filings also requested that if the PUCO
disagreed with DP&L’s interpretation, the PUCO grant
alternative relief and find that DP&L was unable to
meet the targets due to reasons beyond its reason-
able control, i.e. uncertainty throughout 2009 caused
by delays in finalizing the rules and the lack of timely
PUCO action on several of DP&L’s special contracts
relating to demand response efforts which remain
pending before the PUCO. In addition, the rules that
became effective December 10, 2009 required that
on January 1, 2010, DP&L file an extensive energy
efficiency portfolio plan, outlining how DP&L plans to
comply with the energy efficiency and demand reduc-
tion benchmarks. DP&L filed a separate request for a
finding that it had already complied with this require-
ment in the form of DP&L’s portfolio plan that had been
filed in 2008 as part of its electric security plan, which
had been approved by the PUCO and is being imple-
mented. We are unable to predict at this time how the
PUCO will respond to these filings, but believe that the
outcome will not be material to our financial condition.
However, as the targets get increasingly larger over
time, the costs of complying with the SB 221 targets
and the PUCO’s implementing rules could have a
material impact on our financial condition.
On February 24, 2009, DP&L filed the Stipulation
with the PUCO which was signed by the Staff of
the PUCO, the Office of the OCC and various interven-
ing 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.
If a government aggregator elects to avoid this
surcharge in 2011 and 2012, its customers can only
return to DP&L at a market-based rate.
n The last phase of the EIR increase will occur in
2010 as previously approved by the PUCO and there-
after 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
12 DPL Inc.
changes, costs associated with new climate change
or carbon regulations, certain costs associated with the
operation of the Hutchings station, costs associated
with 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 exemp-
tion from the energy efficiency rider if self-directed
energy and demand programs generate reductions
equal to or greater than DP&L’s energy and demand
reduction benchmarks.
On June 24, 2009, the PUCO issued an order grant-
ing approval of the Stipulation as filed and authorized
DP&L to implement rates associated with alternative
energy and energy efficiency compliance costs, which
DP&L implemented beginning on July 1, 2009.
Consistent with the Stipulation, DP&L filed its
smart grid and advanced metering infrastructure busi-
ness cases with the PUCO on August 4, 2009 seeking
recovery of costs associated with a three-year plan to
deploy smart meter; and a ten-year plan for distribu-
tion and substation automation, core telecommunica-
tions, supporting software and in-home technologies.
On August 5, 2009, DP&L submitted an application
for American Recovery and Reinvestment Act (ARRA)
funding under the Integrated and/or Crosscutting
Systems topic area for the Smart Grid Investment Grant
Program, seeking $145.1 million of matching funds.
On October 27, 2009, we were notified by the United
States Department of Energy (DOE) that we will not
receive funding under the ARRA. A technical confer-
ence was held at the PUCO in October 2009 for
the smart grid case, and a subsequent PUCO entry
established a comment and reply comment period.
The PUCO Staff along with other interested parties
provided comments and reply comments on DP&L’s
plans. A hearing is not yet scheduled for this case.
The Stipulation provided for the establishment of
a fuel and purchased power recovery rider beginning
January 1, 2010. DP&L filed its proposed fuel rider on
October 30, 2009. On December 16, 2009 the PUCO
issued an order stating the rate was consistent with
the Stipulation provisions, that it does not appear to
be unjust or unreasonable, and approved the rate to
be implemented on January 1, 2010. The fuel rider will
fluctuate based on actual costs and recoveries and
will be modified at the start of each seasonal quarter:
March 1, June 1, September 1, and December 1 each
year. Consistent with the Stipulation, an annual review
and audit is scheduled to take place in the first quarter
of 2011 for calendar year 2010.
As a member of PJM, DP&L incurs costs and
receives revenues from the RTO related to its transmis-
sion and generation assets, as well as its load obliga-
tions for retail customers. SB 221 included a provision
that allows Ohio electric utilities to seek and obtain a
reconcilable rider to recover RTO-related costs and
credits. In early 2009, the PUCO approved DP&L’s
request to defer costs associated with its transmis-
sion, capacity, ancillary service and other PJM-related
charges incurred as a member of PJM consistent with
the provisions of SB 221. DP&L subsequently filed to
establish the TCRR that would incorporate all charges
and credits from the RTO as well as the amounts
approved for deferral. The TCRR was approved by the
PUCO and on June 1, 2009 DP&L began recovery of
these costs. In June 2009, an application for rehearing
was filed claiming the PUCO’s order allowing for recov-
ery of RPM costs through this rider was unlawful. On
September 9, the PUCO granted rehearing, and issued
an entry ordering DP&L to remove the RPM costs from
the TCRR and refile its tariffs. On September 23, 2009,
the Company filed two separate riders, a TCRR without
RPM costs, and an RPM recovery rider, which were
both subsequently approved per PUCO Finding and
Order issued on November 18, 2009, and implemented
December 1, 2009. There was no change to the level
of recovery due to the rehearing process.
On September 9, 2009, the PUCO issued an entry
establishing a significantly excessive earnings test
(SEET) proceeding. A workshop was held at the PUCO
offices on October 5, 2009 to allow interested parties
to present concerns and discuss issues related to the
methodology for determining whether an electric util-
ity has significantly excessive earnings pursuant to
the provisions contained in SB 221. On November 18,
2009, the PUCO Staff issued its recommendations to
the PUCO. DP&L filed its comments and reply com-
DPL Inc.
13
ments along with other interested parties. Although
DP&L’s Stipulation provides that the SEET does not
apply to it until 2013 based on 2012 earnings results,
DP&L is actively participating in this proceeding.
On August 28, 2009, DP&L filed its application
to establish reliability targets consistent with the most
recent PUCO Electric Service and Safety Standards
(ESSS). The PUCO issued a procedural schedule and
held a technical conference on November 10, 2009.
Comments and reply comments were filed. We expect
this case will be set for hearing. According to the
ESSS rules, DP&L will be subject to financial penalties
if the established targets are not met for two consecu-
tive years.
While the overall financial impact of SB 221 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.
Ohio Competitive Considerations and Proceedings
As of December 31, 2009, six unaffiliated marketers
were registered as CRES providers in DP&L’s service
territory. While there has been some customer switch-
ing associated with unaffiliated marketers, it repre-
sented less than 0.11% of sales in 2009. DPLER, an
affiliated company, is also a registered CRES provider
and accounted for 99% of the total kWh supplied by
CRES providers within DP&L’s service territory in 2009.
During the first quarter of 2010, DPLER will begin pro-
viding CRES services to business customers who are
currently not in DP&L’s service territory. At this time, we
do not expect these incremental costs and revenues
to have a material impact on our results of operations,
financial position or cash flows. In 2003-2004, several
communities in DP&L’s service area passed ordinanc-
es 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
RTO. In October 2004, DP&L successfully integrated
its 1,000 miles of high-voltage transmission into the
PJM RTO. The role of the RTO is to administer a com-
petitive wholesale market for electricity 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 larg-
est competitive wholesale electricity market and plans
regional transmission expansion improvements to main-
tain grid reliability and relieve congestion.
The PJM RPM base residual auction for the
2012/13 period cleared at a per megawatt price of
$16/day for our RTO area. Prior to this auction, the per
megawatt price for the 2011/2012 period was $110/
day. Future RPM auction results will be dependent not
only on the overall supply and demand of generation
and load, but may also be impacted by congestion
as well as PJM’s business rules relating to bidding for
Demand Response and Energy Efficiency resources in
the RPM auctions. We cannot predict the outcome of
future auctions but if the current auction price is sus-
tained, our future results of operations, financial condi-
tion and cash flows could be adversely impacted.
As a member of PJM, DP&L is also 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 mil-
lion 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 challenging the allocation method.
The appeal was consolidated with other appeals taken
by other interested parties of the same FERC Orders
and the consolidated cases were assigned to the 7th
Circuit. On August 6, 2009, the 7th Circuit ruled that the
FERC had failed to provide a reasoned basis for the
allocation method it had approved. Rehearings were
filed by other interested litigants and denied by the
Court, which then remanded the matter to the FERC
for further proceedings. On January 21, 2010, the
FERC issued a procedural order on remand estab-
lishing a paper hearing process under which PJM
will make an informational filing in late February.
Subsequently PJM and other parties, including DP&L,
will be able to file initial comments, testimony, and
recommendations and reply comments. Absent future
14 DPL Inc.
changes to the procedural schedule that may occur
for a number of reasons including if settlement discus-
sions are held, the paper hearing process should be
complete and the case ready for FERC consideration
in 2010. FERC did not establish a deadline for its issu-
ance of a substantive order. DP&L cannot predict the
timing or the likely outcome of the proceeding. Until
such time as FERC may act to approve a change in
methodology, PJM will continue to apply the alloca-
tion methodology that had been approved by FERC
in 2007. Although we continue to maintain that these
costs should be borne by the beneficiaries of these
projects and that DP&L is not one of these beneficia-
ries, any new credits or additional costs resulting from
the ultimate outcome of this proceeding will be reflect-
ed in DP&L’s TCRR rider which is already in place to
pass through RTO-related costs and credits.
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 2009 represented sales to
these municipalities.
In June 2009, the NERC, a FERC-certified electric
reliability organization responsible for developing and
enforcing mandatory reliability standards, commenced
a routine audit of DP&L’s operations. The audit, which
was for the period June 18, 2007 to June 25, 2009,
evaluated DP&L’s compliance with 42 requirements
in 18 NERC-reliability standards. DP&L is currently
subject to a compliance audit at a minimum of once
every three years as provided by the NERC Rules of
Procedure. This audit was concluded in June 2009 and
its findings revealed that DP&L had some Possible
Alleged Violations (PAVs) associated with five NERC
Reliability Standards. In response to the report, DP&L
filed mitigation plans with NERC to address the PAVs.
These mitigation plans have been accepted and DP&L
is currently awaiting a proposal for settlement from
NERC. While we are currently unable to determine the
extent of penalties, if any, that may be imposed on
DP&L, we do not believe such penalties will have a
material impact on our results of operations.
Environmental Considerations
DPL and DP&L’s facilities and operations are subject
to a wide range of environmental regulations and laws
by federal, state and local authorities. The environmen-
tal issues that may impact us include:
n The Federal 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, or whether emissions from
coal-fired generating plants cause or contribute to
global climate changes.
n Rules issued by the USEPA and Ohio EPA that
require substantial reductions in SO2, particulates,
mercury and NOx emissions. DPL has installed emis-
sion control technology and is taking other measures
to comply with required and anticipated reductions.
n Rules issued by the USEPA and Ohio EPA that
require reporting and future reductions of GHGs.
n Rules issued by the USEPA associated with the
Federal Clean Water Act (FCWA), which prohibits the
discharge of pollutants into waters of the United
States except pursuant to appropriate permits.
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. The EPA has previously
determined that fly ash and other coal combustion
by-products are not hazardous waste subject to the
Resource Conservation and Recovery Act (RCRA), but
the EPA is reportedly reconsidering that determination.
A change in determination could significantly increase
the costs of disposing of such by-products.
As well as imposing continuing compliance obligations,
these laws and regulations authorize the imposition
of substantial penalties for noncompliance, includ-
ing fines, injunctive relief and other sanctions. In the
normal course of business, we have investigatory and
remedial activities underway at these facilities to com-
ply, or to determine compliance, with such regulations.
We record liabilities for probable estimated loss in
accordance with the provisions of GAAP relating to the
accounting for contingencies. DPL, through its wholly-
owned captive insurance subsidiary MVIC, has an
actuarially calculated reserve of $1.2 million for envi-
ronmental matters. We evaluate the potential liability
related to probable losses quarterly and may revise our
estimates. Such revisions in the estimates of the poten-
tial liabilities could have a material effect on our results
of operations, financial position or cash flows.
DPL Inc.
15
Environmental Regulation and Litigation
Related to Air Quality
Air Quality
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 individ-
ual 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. Activities at power
plants that fall within the scope of the RMRR exclu-
sion do not trigger new source review requirements,
including the imposition of stricter emission limits.
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
lawsuits filed by numerous states and environmental
organizations challenging the final rules. On June
6, 2005, the USEPA issued its final response on the
reconsideration of the ERP exclusion. The USEPA clari-
fied its position, but did not change any aspect of the
2003 final rules. This decision was appealed and the
D.C. Circuit vacated the final rules on March 17, 2006.
The scope of the RMRR exclusion remains uncertain
due to this action by the D.C. Circuit, as well as mul-
tiple litigations not directly involving us where courts
are defining the scope of the exception with respect to
the specific facts and circumstances of the particular
power plants and activities before the courts. While we
believe that we have not engaged in any activities with
respect to our existing power plants that would trig-
ger the new source review requirements, if new source
review requirements were imposed on any of DP&L’s
existing power plants, the results could be materially
adverse to us.
The USEPA issued a proposed rule on October 20,
2005 concerning the test for measuring whether modifi-
cations to electric generating units should trigger
application of New Source Review (NSR) standards
under the CAA. A supplemental rule was also pro-
posed on May 8, 2007 to include additional options for
determining if there is an emissions increase when an
existing electric generating unit makes a physical or
operational change. The rule was challenged by envi-
ronmental organizations and has not been finalized.
While we cannot at this time predict the outcome of
this rulemaking, any finalized rules could materially
affect our operations.
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 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
to the procedural and substantive requirements of
the CAA. 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 on September 24, 2008 for a rehearing before
the entire Court. 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 CAA
requirements and the Court’s July 11, 2008 decision.
In January 2010, the Court ordered the USEPA to file a
response to request for a USEPA decision filed by par-
ties in the original case who are now seeking a Court
order to require the USEPA to issue new regulations by
March 1, 2010. We are currently unable to predict the
outcome of this request or the timing or impact 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 pro-
gram consistent with the IAQR. The Ohio EPA had
received partial approval from the USEPA and had
been awaiting full program 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
16 DPL Inc.
order, the Ohio EPA proposed revised rules on May
11, 2009, which were finalized on July 15, 2009. On
September 25, 2009, the USEPA issued a full SIP
approval for the Ohio CAIR program. We do not expect
that full SIP approval of the Ohio CAIR program will
have a significant impact on operations.
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 affected the
trading market for excess allowances and impacted
DP&L’s program for selling additional excess allow-
ances in 2008. Although in January 2009 we resumed
selling excess allowances due to the revival of the trad-
ing market, the long-term impact of the court’s deci-
sion and of the actions the USEPA or others will take in
response to this decision, is not fully known at this time
and could have an adverse effect on us.
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 the USEPA,
opposing the cap-and-trade regulatory approach
taken by the USEPA. In 2007, the Ohio EPA adopted
rules implementing the CAMR program. On February
8, 2008, the U.S. Court of Appeals for the District of
Columbia Circuit struck down the USEPA regulations,
finding that the USEPA had not complied with statutory
requirements applicable to “de-listing” a hazardous
air pollutant and that a cap-and-trade approach was
not authorized by law for “listed” hazardous air pollut-
ants. A request for rehearing before the entire Court of
Appeals was denied and a petition for review before
the U.S. Supreme Court was filed on October 17, 2008.
On February 23, 2009, the U.S. Supreme Court denied
the petition. The USEPA is expected to move forward
on setting Maximum Available Control Technology
(MACT) standards for coal- and oil-fired electric gen-
erating units. Upon publication in the federal register
following finalization, affected electric generating units
(EGUs) will have three years to come into compli-
ance with the new requirements. 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; however, a MACT standard could have a
material adverse effect on our operations, in particular,
our unscrubbed units. We cannot at this time project
the final costs we may incur to comply with any result-
ing mercury restriction regulations.
On January 5, 2005, the USEPA published its final
non-attainment designations for the National Ambient
Air Quality Standard (NAAQS) for Fine Particulate
Matter 2.5 (PM 2.5). These designations included
counties and partial counties in which DP&L oper-
ates or owns generating 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 creat-
ing these designations. On November 30, 2005, the
court ordered the USEPA to decide on all petitions for
reconsideration by January 20, 2006. On January 20,
2006, the USEPA denied the petitions for reconsidera-
tion. On July 7, 2009, the D.C. Circuit Court of Appeals
upheld the USEPA non-attainment designations for the
areas impacting DP&L’s generation plants, however,
on October 8, 2009, the USEPA issued new designa-
tions based on 2008 monitoring data that showed all
areas in attainment to the standard with the exception
of several counties in northeastern Ohio. The USEPA is
expected to propose revisions to the PM 2.5 standard
in late 2010 as part of its routine five-year rule review
cycle. At this time, DP&L is unable to determine the
impact the revisions to the PM 2.5 standard will have
on its financial position or results of 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, the 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.
In response to a U.S. Supreme Court decision that
the USEPA has the authority to regulate CO2 emis-
sions from motor vehicles, the USEPA made a finding
that CO2 and certain other gases are pollutants under
the CAA. The USEPA has not yet identified the specif-
ics of how these newly designated pollutants will be
regulated. In April 2009, the USEPA issued a proposed
endangerment finding under the CAA. The proposed
DPL Inc.
17
finding determined that CO2 and other GHGs from
motor vehicles threaten the health and welfare of
future generations by contributing to climate change.
If the proposed finding is finalized, it could lead to the
regulation of CO2 and other GHGs from sources other
than motor vehicles, including coal-fired plants that
we own and operate. Recently, several bills have been
introduced at the federal level to regulate GHG emis-
sions. In June 2009, the U.S. House of Representatives
passed H.R. 2454, the American Clean Energy and
Security Act (ACES). This proposed legislation tar-
gets a reduction in the emission of GHGs from large
sources by 80% in 2050 through an economy-wide cap
and trade program. ACES also includes energy effi-
ciency and renewable energy initiatives. Approximately
99% of the energy we produce is generated by coal.
DP&L’s share of CO2 emissions at generating stations
we own and co-own is approximately 16 million tons
annually. Proposed GHG legislation finalized at a future
date could have a significant effect on DP&L’s opera-
tions and costs, which could adversely affect our net
income, cash flows and financial position. However,
due to the uncertainty associated with such legislation,
we are currently unable to predict the final outcome or
the financial impact that this legislation will have on us.
On September 22, 2009, the USEPA issued a final rule
for mandatory reporting of GHGs from large sources
that emit 25,000 metric tons per year or more of CO2,
including electric generating units. The first report is
due in March 2011 for 2010 emissions. This reporting
rule will guide development of policies and programs
to reduce emissions. DP&L does not anticipate that
this reporting rule will result in any significant cost or
other impact on current operations.
On July 15, 2009, the USEPA proposed revisions
to its primary NAAQS for nitrogen dioxide. This change
could affect certain emission sources in heavy traffic
areas like the I-75 corridor between Cincinnati and
Dayton. At this point, DP&L cannot determine the
effect of this potential change, if any, on its operations.
The USEPA proposed revisions to its primary
NAAQS for SO2 on November 16, 2009. This would
replace the current 24-hour standard and current annu-
al standard. This regulation is expected to be finalized
in 2010. At this time, DP&L cannot determine the effect
of this potential change, if any, on its operations.
On September 16, 2009, the USEPA announced
that it would reconsider the 2008 national ground level
ozone standard. A more stringent ambient ozone stan-
dard may lead to stricter NOx emission standards in
the future. At this point, DP&L cannot determine the
effect of this potential change, if any, on its operations.
Air Quality – Litigation Involving Co-Owned Plants
In March 2000, as amended in June 2004, the U.S.
Department of Justice filed a complaint in the United
States District Court, Southern District of Indiana,
Indianapolis Division 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, includ-
ing generation units co-owned by DP&L (Beckjord Unit
6 and Miami Fort Unit 7). A retrial has been held in
which the second jury found for Duke Energy on some
allegations, but for plaintiffs with respect to units at
another one of Duke Energy’s wholly-owned facilities. In
a separate phase II remedies trial with respect to viola-
tions found in the first trial, Duke Energy was ordered
to close down three of its wholly-owned generating
units by September 2009, surrender some emission
allowances and pay a fine. None of the violations found
or remedies ordered relate to generating units owned
in part by DP&L.
In 2004, eight states and the City of New York
filed a lawsuit in Federal District Court for the Southern
District of New York against American Electric
Power Company, Inc. (AEP), one of AEP’s subsid-
iaries, Cinergy Corp. (a subsidiary of Duke Energy
Corporation (Duke Energy)) and four other electric
power companies. A similar lawsuit was filed against
these companies in the same court by Open Space
Institute, Inc., Open Space Conservancy, Inc. and The
Audubon Society of New Hampshire. The lawsuits
allege that the companies’ emissions of CO2 contribute
to global warming and constitute a public or private
nuisance. The lawsuits seek injunctive relief in the
form of specific emission reduction commitments. In
2005, the Federal District Court dismissed the lawsuits,
holding that the lawsuits raised political questions that
should not be decided by the courts. The plaintiffs
appealed. Finding that the plaintiffs have standing
to sue and can assert federal common law nuisance
claims, the United States Court of Appeals for the
Second Circuit on September 21, 2009 vacated
the dismissal of the Federal District Court and remand-
ed the lawsuits back to the Federal District Court for
further proceedings. Although we are not named
as a party to these lawsuits, DP&L is a co-owner of
coal-fired plants with Duke Energy and AEP (or their
subsidiaries) that could be affected by the outcome
of these lawsuits. The Second Circuit Court’s decision
could also encourage these or other plaintiffs to file
similar lawsuits against other electric power compa-
nies, including us. We are unable at this time to predict
with certainty the impact that these lawsuits might
have on us.
18 DPL Inc.
On September 21, 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 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 par-
ticulate matter; (ii) make energy efficiency and renew-
able energy commitments that are conditioned on
receiving PUCO approval for the recovery of costs; (iii)
forfeit 5,500 SO2 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 attor-
ney 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 orga-
nization set at $300,000. On October 23, 2008, the
U.S. District Court approved the consent decree. On
October 21, 2009, the Sierra Club filed with the U.S.
District Court a motion for enforcement of the consent
decree based on the Sierra Club’s interpretation of the
consent decree that would require certain NOx emis-
sions that DP&L has been excluding from its computa-
tions to be included for purposes of complying with
the emission targets and reporting requirements of the
consent decree. DP&L believes that it is properly com-
puting and reporting NOx emissions under the consent
decree and has opposed the Sierra Club’s motion. A
decision on the motion is expected before the end of
the first quarter 2010. Because Stuart Station’s NOx
emissions are well below the 2009 and 2010 limits in
the consent decree under either method of calculation,
an adverse decision would have no effect in 2010 on
operations or costs. An adverse decision could affect
compliance costs in future years when the NOx limits
are further reduced under the consent decree.
Air Quality – Notices of Violation Involving
Co-Owned Plants
On March 13, 2008, Duke Energy Ohio Inc., the opera-
tor of the Zimmer generating station, received a 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.
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. At this time, DP&L cannot predict the
outcome of this matter.
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. Although DP&L was not identified in
the NOVs, civil complaints or state actions, the results
of such proceedings could materially affect DP&L’s
co-owned plants.
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 continu-
ous monitoring of opacity. We submitted a compliance
plan to the Ohio EPA on December 19, 2007. To date,
no further actions have been taken by the Ohio EPA.
Air Quality – 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
was 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
position or cash flows.
DPL Inc.
19
Air Quality – 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 CAA issues including issues relating to capi-
tal expenses and any changes in capacity or output of
the units at the O.H. Hutchings station. During 2009,
DP&L has continued to submit various other operation-
al and performance data to the USEPA in compliance
with its request. DP&L is currently unable to determine
the timing, costs, or method by which the issues may
be resolved and continues to work with the USEPA
on this issue.
On November 18, 2009, the USEPA issued a NOV
to DP&L for alleged New Source Review (NSR) viola-
tions of the CAA at the O.H. Hutchings Station relating
to capital projects performed in 2001 involving Unit 3
and Unit 6. DP&L does not believe that the two proj-
ects described in the NOV were modifications subject
to NSR. DP&L is unable to determine the timing, costs
or method by which these issues may be resolved and
continues to work with the USEPA on this issue.
Water Quality
On July 9, 2004, the USEPA issued final rules pursu-
ant to the Clean Water Act governing existing facilities
that have cooling water intake structures. The rules
require an assessment of impingement 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 the 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 the
USEPA can compare costs with benefits in determining
the best technology available for minimizing adverse
environmental impact at cooling water intake struc-
tures. Briefs were submitted to the Court in the summer
of 2008 and oral arguments were held in December
2008. In April 2009, the U.S. Supreme Court ruled that
the USEPA did have the authority to compare costs
with benefits in determining best technology available.
The USEPA is developing proposed regulations which
it hopes to issue for public comment by mid-2010.
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. Subsequently, representatives
from DP&L and the Ohio EPA have agreed to allow
DP&L to restrict public access to the water discharge
area as an alternative to installing one of the diffuser
options. Ohio EPA issued a revised draft permit that
was received on November 12, 2008. In December
2008, the USEPA requested that the Ohio EPA provide
additional information regarding the thermal discharge
in the draft permit. In June 2009, DP&L provided
information to the USEPA in response to their request to
the Ohio EPA. The timing for issuance of a final permit
is uncertain.
In September 2009, the USEPA announced that it
will be revising technology-based regulations govern-
ing water discharges from steam electric generating
facilities such as J.M. Stuart, Killen and O.H. Hutchings
Stations. The rulemaking will include the collection of
information via an industry-wide questionnaire as well
as targeted water sampling efforts at selected facili-
ties. Subsequent to the information collection effort, it
is anticipated that the USEPA will release a proposed
rule in 2011 with final regulations issued in late 2012 or
early 2013. At present, DP&L is unable to predict the
impact this rulemaking will have on its operations.
Land Use and Solid Waste Disposal
In September 2002, DP&L and other parties received
a special notice that the USEPA considers us to be a
PRP 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 regard-
20 DPL Inc.
ing 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 negotiations with
the USEPA to conduct the RI/FS. No recent activity
has occurred with respect to that notice or PRP status.
More recently, DP&L has received requests by the
USEPA and the existing PRP group to allow access to
be given to DP&L’s service center building site, which
is across a street from the landfill site. The USEPA
requested access to drill monitoring and test wells to
determine the extent of the landfill site’s contamination
as well as to assess whether certain chemicals used
at the service center building site might have migrated
through groundwater to the landfill site. Pursuant to an
Administrative Order issued by the USEPA requiring
access to DP&L’s service center building site, DP&L
has granted such access and drilling of soil borings
and installation of monitoring wells occurred in the fall
of 2009. DP&L believes the chemicals used at its ser-
vice center building site were appropriately disposed
of and have not contributed to the contamination at the
South Dayton Dump landfill site. While DP&L is unable
at this time to predict the outcome of this matter, if
DP&L were required to contribute to the clean-up of
the site, it could have a material adverse effect on us.
DP&L is also unable at this time to predict whether
the monitoring and test wells may lead to any actions
relating to the service center building site independent
of the South Dayton Dump clean-up.
In December 2003, DP&L and other parties
received a special notice that the USEPA considers us
to be a PRP 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. While DP&L is unable at
this time to predict the outcome of this matter, if DP&L
were required to contribute to the clean-up of the site,
it could have a material adverse effect on us.
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. While DP&L
is unable at this time to predict the outcome of this
matter, if DP&L were required to contribute to the
clean-up of the site, it could have a material adverse
effect on us.
During 2008, a major spill occurred at an ash pond
owned by the Tennessee Valley Authority (TVA) as a
result of a dike failure. The spill generated a significant
amount of national news coverage, and support for
tighter regulations for the storage and handling of coal
combustion products. DP&L has ash ponds at the
Killen, O.H. Hutchings and J.M. Stuart stations which
it operates, and also at generating stations operated
by others but in which DP&L has an ownership inter-
est. We frequently inspect our ash ponds and do not
anticipate any similar failures. It is widely expected
that the federal government will propose new regula-
tions covering ash generated from the combustion
of coal including additional monitoring, testing, or
construction standards with respect to ash ponds and
ash landfills. During March 2009, the USEPA, through
a formal Information Collection Request, collected
information on ash pond facilities across the coun-
try, including those at Killen and J.M. Stuart stations.
Subsequently the USEPA collected similar information
for O.H. Hutchings Station. In addition, during August
and October 2009, representatives of the USEPA vis-
ited J.M. Stuart Station to collect information on plant
operations relative to the production and handling of
by-products. The USEPA’s contractor has issued a draft
report on their October 2009 visit to J.M. Stuart Station.
DP&L has provided comments on this document and
additional related information to the agency. Due to the
wide range of possible outcomes, DP&L is unable at
this time to predict the timing or the financial impact of
any future governmental initiative that may occur.
In addition, as a result of the TVA ash pond spill,
there has been increasing advocacy to regulate coal
combustion byproducts as hazardous waste under the
Resource Conservation Recovery Act, Subtitle C. On
October 15, 2009, the USEPA provided a draft rule to
the Office of Management and Budget for interagency
review. The draft rule proposed to regulate coal ash as
a hazardous waste, with limited beneficial reuse. DP&L
is unable at this time to predict the financial impact of
this regulation, but if coal combustion byproducts are
regulated as hazardous waste, it is expected to have a
material adverse impact on operations.
Legal and Other Matters
In February 2007, DP&L filed a lawsuit against a coal
supplier seeking damages incurred due to the sup-
plier’s failure to supply approximately 1.5 million tons
of coal to two jointly owned plants under a coal supply
agreement, of which approximately 570 thousand tons
was DP&L’s share. DP&L obtained replacement coal
to meet its needs. The supplier has denied liability, and
DPL Inc.
21
is currently in federal bankruptcy proceedings. DP&L
is unable to determine the ultimate resolution of this
matter at this time. In accordance with GAAP, DP&L
has not recorded any assets relating to this lawsuit.
On May 16, 2007, DPL filed a claim with Energy
Insurance Mutual (EIM) to recoup legal expenses
associated with our litigation against certain former
executives. Arbitration on that claim occurred on May
13, 2009. The arbitration panel issued a ruling in Phase
1 of the arbitration on September 25, 2009, finding
that most of the claims involving the former executives
were covered. The matter is pending.
As a member of PJM, DP&L is also 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 mil-
lion 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 challenging the allocation method.
The appeal was consolidated with other appeals taken
by other interested parties of the same FERC Orders
and the consolidated cases were assigned to the 7th
Circuit. On August 6, 2009, the 7th Circuit ruled that the
FERC had failed to provide a reasoned basis for the
allocation method it had approved. Rehearings were
filed by other interested litigants and denied by the
Court, which then remanded the matter to the FERC for
further proceedings. On January 21, 2010, the FERC
issued a procedural order on remand establishing
a paper hearing process under which PJM will make
an informational filing in late February. Subsequently
PJM and other parties, including DP&L, will be able
to file initial comments, testimony, and recommenda-
tions and reply comments. Absent future changes to
the procedural schedule that may occur for a number
of reasons including if settlement discussions are held,
the paper hearing process should be complete and
the case ready for FERC consideration in 2010. FERC
did not establish a deadline for its issuance of a sub-
stantive order. DP&L cannot predict the timing or the
likely outcome of the proceeding. Until such time
as FERC may act to approve a change in methodology,
PJM will continue to apply the allocation methodology
that had been approved by FERC in 2007. Although we
continue to maintain that these costs should be borne
by the beneficiaries of these projects and that DP&L
is not one of these beneficiaries, any new credits or
additional costs resulting from the ultimate outcome of
this proceeding will be reflected in DP&L’s TCRR rider
which is already in place to pass through RTO-related
costs and credits.
In June 2009, the NERC, a FERC-certified electric
reliability organization responsible for developing and
enforcing mandatory reliability standards, commenced
a routine audit of DP&L’s operations. The audit, which
was for the period June 18, 2007 to June 25, 2009,
evaluated DP&L’s compliance with 42 requirements
in 18 NERC-reliability standards. DP&L is currently
subject to a compliance audit at a minimum of once
every three years as provided by the NERC Rules of
Procedure. This audit was concluded in June 2009 and
its findings revealed that DP&L had some Possible
Alleged Violations (PAVs) associated with five NERC
Reliability Standards. In response to the report, DP&L
filed mitigation plans with NERC to address the PAVs.
These mitigation plans have been accepted and DP&L
is currently awaiting a proposal for settlement from
NERC. While we are currently unable to determine the
extent of penalties, if any, that may be imposed on
DP&L, we do not believe such penalties will have a
material impact on our results of operations.
Capital Expenditures for Environmental Matters
Test operations of the FGD equipment on our jointly-
owned Conesville Unit 4 were completed in November
2009. The equipment is currently in service.
DPL’s construction additions were approximately
$145 million, $228 million and $347 million in 2009,
2008 and 2007, respectively, and are expected to
approximate $210 million in 2010. Planned construction
additions for 2010 relate primarily to new investments
in and upgrades to DP&L’s power plant equipment and
transmission and distribution system.
DP&L’s construction additions were $144 million,
$225 million and $344 million in 2009, 2008 and 2007,
respectively, and are expected to approximate $200
million in 2010. Planned construction additions for 2010
relate primarily to new investments in and upgrades to
DP&L’s power plant equipment and transmission and
distribution system.
All environmental additions made during the past
three years pertain to DP&L and approximate $21
million, $90 million and $209 million in 2009, 2008 and
2007, respectively.
22 DPL Inc.
Item 1A Risk Factors
This annual report and other documents that we file
with the SEC and other regulatory agencies, as well as
other written or oral 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 statements
are generally 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;
changes in wholesale power sales prices; unusual
maintenance or repairs; changes in fuel and purchased
power costs, emissions allowance costs, or availability
constraints; environmental compliance; and electric
transmission system constraints.
The following is a listing of specific risk factors that
DPL and DP&L consider to be the most significant to
your decision to invest in our securities. If any of these
events occur or are continuing, our business, results
of operations, financial condition and cash flows could
be materially affected.
Regulation and Litigation
We are subject to extensive laws and regulation by
federal, state and local authorities, such as the PUCO,
the USEPA, the Ohio EPA, the FERC, the SEC and the
Internal Revenue Service, among others. Regulations
affect almost every aspect of our business, includ-
ing in the areas of the environment, health and safety,
cost recovery and rate making, securities, corporate
governance, public disclosure and reporting and taxa-
tion. New laws and regulations, and new interpretations
of existing laws and regulations, are ongoing and we
generally cannot predict the future course of changes
in this regulatory environment or the ultimate effect that
this changing regulatory environment will have on our
business. Complying with this regulatory environment
requires us to expend a significant amount of funds
and resources. The failure to comply with this regulato-
ry environment could subject us to substantial financial
costs and penalties and changes, either forced or vol-
untary, in the way we operate our business. Additional
detail about the effect of this regulatory environment
on our operations is included in the risk factors set
forth below. In the normal course of business, we are
also subject to various lawsuits, actions, proceedings,
claims and other matters asserted under this regulatory
environment, which require us to expend significant
funds to address, the outcomes of which are uncer-
tain and the adverse resolutions of which could have
a material adverse effect on our results of operations,
financial condition and cash flows.
Cost Recovery and Rates
The costs we can recover and the return on capital we
are permitted to earn for certain aspects of our busi-
ness are regulated and governed by the laws of Ohio
and the rules, policies and procedures of the PUCO.
On May 1, 2008, SB 221, an Ohio electric energy bill,
was signed by the Governor of Ohio and became
effective July 31, 2008. This law, among other things,
required all Ohio distribution utilities to file either an
electric security plan or a market rate option that was
to be in effect on January 1, 2009, and established a
significantly excessive earnings test for Ohio public
utilities based on the earnings of other companies
with similar business and financial risks. The PUCO
approved DP&L’s filed electric security plan on June
24, 2009. DP&L’s electric security plan provides,
among other things, that DP&L’s existing rate plan
structure will continue through 2012; that DP&L may
seek recovery for adjustments to its existing rate plan
structure for costs associated with storm damage,
regulatory and tax changes, new climate change or
carbon regulations, fuel and purchased power and
certain other costs; and that SB 221’s significantly
excessive earnings test will not apply to DP&L until
2012. DP&L’s electric security plan, and certain
filings made by us in connection with this plan, are
DPL Inc.
23
further discussed under “Ohio Retail Rates” in Item 1 –
Competition and Regulation.
While rate regulation is premised on full recovery
of prudently incurred costs and a reasonable rate of
return on invested capital, there can be no assurance
that the PUCO will agree that all of our costs have
been prudently incurred or are recoverable or that the
regulatory process in which rates are determined will
always result in rates that will produce a full or timely
recovery of our costs and permitted rates of return.
Certain of our cost recovery riders are also by-pass-
able by some of our customers. Accordingly, the rates
DP&L is allowed to charge may or may not match its
expenses at any given time. Therefore, DP&L could be
subject to prevailing market prices for electricity and
would not necessarily be able to charge rates that pro-
duce timely or full recovery of its expenses. Changes
in, or reinterpretations of, the laws, rules, policies
and procedures that set electric rates and permitted
rates of return; changes in DP&L’s ability to recover
expenditures for environmental compliance, reliability
initiatives, purchased power and fuel (which account
for a substantial portion of our operating costs), capital
expenditures and investments and other costs on a
fully or timely basis through rates; and changes to the
frequency and timing of rate increases could have a
material adverse effect on our results of operations,
financial condition and cash flows.
Advanced Energy and Energy Efficiency Requirements
SB 221 contains targets relating to advanced energy,
renewable energy, peak demand reduction and energy
efficiency standards. The standards require that, by
the year 2025 and each thereafter, 25% of the total
number of kWh of electricity sold by the utility to retail
electric consumers must come from alternative energy
resources, which include “advanced energy resources”
such as distributed generation, clean coal, advanced
nuclear, energy efficiency and fuel cell technology;
and “renewable energy resources” such as solar,
hydro, wind, geothermal and biomass. At least half of
the 25% must be generated from renewable energy
resources, including 0.5% from solar energy, and the
remainder must be generated from advanced energy
sources. Annual renewable energy standards began
in 2009 with increases in required percentages each
year through 2024. The advanced energy standard
must be met by 2025 and each year thereafter. Annual
targets for energy efficiency began in 2009 and require
increasing energy reductions each year compared
to a baseline energy usage, up to 22.3% by 2025.
Peak demand reduction targets began in 2009 with
increases in required percentages each year, up to
7.75% by 2018. The advanced energy and renewable
energy standards are expected to increase (and could
increase materially) our power supply costs. Pursuant
to DP&L’s approved electric security plan, DP&L is
entitled to recover costs associated with its alterna-
tive energy plans, as well as its energy efficiency and
demand response programs, and DP&L began recov-
ering these costs in 2009. If in the future we are unable
to timely or fully recover these costs, it could have a
material adverse effect on our results of operations,
financial condition and cash flows. In addition, if we
were found not to be in compliance with these stan-
dards, monetary penalties could apply. These penalties
are not permitted to be recovered from customers and
significant penalties could have a material adverse
effect on our results of operations, financial condition
and cash flows. The demand reduction and energy effi-
ciency standards by design result in reduced energy
and demand that could adversely affect our results of
operations, financial condition and cash flows.
Availability and Cost of Fuel
We purchase coal, natural gas and other fuel from a
number of suppliers. The coal market in particular has
experienced significant price volatility in the last sev-
eral years. 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
that affect mining costs and supply availability, the vari-
able demand of retail customer load and the variable
performance of our generation fleet have an impact on
our fuel procurement operations. Our approach is to
hedge the fuel costs for our anticipated electric sales.
However, we may not be able to hedge the entire expo-
sure of our operations from fuel price volatility. As of the
date of this report, we have hedged our coal require-
ments with coal mine operators and financial institu-
tions to meet our committed burn through December
31, 2010. Historically, some of our suppliers and buy-
ers of fuel have not performed on their contracts and
have failed to deliver or accept fuel as specified under
their contracts. To the extent our suppliers and buyers
do not meet their contractual commitments, we cannot
secure adequate fuel or sell excess fuel in a timely
or cost-effective manner or we are not hedged against
price volatility, our results of operations, financial con-
dition and cash flows could be materially adversely
affected. In addition, DP&L is a co-owner of certain
generation facilities where it is a non-operating partner.
DP&L does not procure or have control over the fuel
24 DPL Inc.
for these facilities, but is responsible for its proportion-
ate share of the cost of fuel procured at these facilities.
Co-owner operated facilities do not always have real-
ized fuel costs that are equal to our co-owners’ projec-
tions, and we are responsible for our proportionate
share of any increase in actual fuel costs. Pursuant to
its electric security plan, DP&L implemented a fuel and
purchased power recovery mechanism beginning on
January 1, 2010, which will track and adjust fuel costs
on a seasonal quarterly basis. If in the future we are
unable to timely or fully recover our fuel costs, it could
have a material adverse effect on our results of opera-
tions, financial condition and cash flows.
Commodity Trading
We trade coal, power and other commodities to hedge
our positions in these commodities. These trades are
impacted by a range of factors, including variations in
power demand, fluctuations in market prices, market
prices for alternative commodities and optimization
opportunities. We have attempted to manage our com-
modities trading risk exposure by establishing and
enforcing risk limits and risk management policies.
Despite our efforts, however, these risk limits and man-
agement policies may not work as planned and fluc-
tuating prices and other events could adversely affect
our results of operations, financial condition and cash
flows. As part of our risk management, we use a variety
of non-derivative and derivative instruments, such as
swaps, futures and forwards, to manage our market
risks. In the absence of actively quoted market prices
and pricing information from external sources, the valu-
ation of some of these derivative instruments involves
management’s judgment or use of estimates. As a
result, changes in the underlying assumptions or use of
alternative valuation methods could affect the reported
fair value of some of these contracts. We could also
recognize financial losses as a result of volatility in
the market values of these contracts or if a counter-
party fails to perform, which could result in a material
adverse effect on our results of operations, financial
condition and cash flows.
Environmental Compliance
Our operations and facilities (both wholly-owned and
co-owned with others) are subject to numerous and
extensive federal, state and local environmental laws
and regulations relating to air quality (such as reduc-
ing NOx, SO2, SO3 (sulfur trioxide) and mercury emis-
sions and potential future control of GHG emissions as
discussed in more detail in the next risk factor), water
quality, wastewater discharge, solid waste (such as
the potential future regulation of ash generated from
coal-based generating stations), hazardous waste and
health and safety. With respect to our largest genera-
tion station, the J.M. Stuart Station, we are also subject
to continuing compliance requirements related to NOx,
SO2 and particulate matter emissions under DP&L’s
consent decree with the Sierra Club. Compliance with
these laws, regulations and other requirements requires
us to expend significant funds and resources. These
expenditures have been significant in the past and we
expect that they will increase in the future. Complying
with these numerous requirements could at some point
become prohibitively expensive and result in our shut-
ting down (temporarily or permanently) or altering the
operation of our facilities. Environmental laws and regu-
lations also generally require us to obtain and comply
with a wide variety of environmental licenses, permits,
inspections and other approvals. If we are not able
to timely obtain, maintain or comply with all licenses,
permits, inspections and approvals required to operate
our business, then our operations could be prevented,
delayed or subject to additional costs. Failure to com-
ply with environmental laws, regulations and other
requirements may result in the imposition of fines and
penalties and the imposition of stricter environmental
standards and controls and other injunctive measures
affecting operating assets. In addition, any alleged
violation of these laws, regulations and other require-
ments may require us to expend significant resources
to defend against any such alleged violations. We own
a non-controlling interest in several generating sta-
tions operated by our co-owners. As a non-controlling
owner in these generating stations, we are responsible
for our pro rata share of expenditures for complying
with environmental laws, regulations and other require-
ments, but have limited control over the compliance
measures taken by our co-owners. DP&L has an EIR in
place as part of its existing rate plan structure, the last
increase of which occurs in 2010 and remains at that
level through 2012. In addition, DP&L’s electric security
plan permits it to seek recovery for costs associated
with new climate change or carbon regulations. While
we expect to recover certain environmental costs and
expenditures from customers, if in the future we are
unable to fully recover our costs in a timely manner
it could have a material adverse effect on our results
of operations, financial condition and cash flows. In
addition, if we were found not to be in compliance with
these environmental laws, regulations or requirements,
any penalties that would apply would likely not be
recoverable from customers and could have a material
adverse effect on our results of operations, financial
condition and cash flows.
DPL Inc.
25
Regulation of GHGs
There is a growing concern nationally and internation-
ally among regulators, investors and others concerning
global climate change and the contribution of emis-
sions of GHG, including most significantly, CO2. This
concern has led to increased interest in legislation and
action at the federal and state levels, as well as litiga-
tion, relating to GHG emissions, including a recent
declaration by the USEPA that GHGs pose a danger to
the public health that may allow the USEPA to directly
regulate greenhouse emissions. There have been vari-
ous GHG legislative proposals introduced in Congress
(with one bill passed by the House of Representatives
in 2009) and there is growing consensus that some
form of legislation of GHG emissions will be approved
at the federal level that could result in substantial
additional costs in the form of taxes or emission allow-
ances. Approximately 99% of the energy we produce
is generated by coal. If legislation or regulations are
passed at the federal or state levels imposing manda-
tory reductions of CO2 and other GHGs on generation
facilities, we could be required to make large additional
capital investments. Legislation and regulations could
also impair the value of our generation stations or
make some of these stations uneconomical to maintain
or operate and it could raise uncertainty about the
future viability of fossil fuels, particularly coal, as an
energy source for new and existing generation stations.
Although DP&L is permitted under its current electric
security plan to seek recovery of costs associated
with new climate change or carbon regulations, our
inability to fully or timely recover such costs could have
a material adverse effect on our results of operations,
financial condition and cash flows.
Sales of Excess Emission Allowances
DP&L has a program for selling excess emission allow-
ances. During 2009 and 2008, DP&L sold excess
emission allowances to various counterparties realizing
total net gains of $5.0 million and $34.8 million, respec-
tively. Sales of excess emission allowances are impact-
ed by a range of factors, such as general economic
conditions, fluctuations in market demand, availability
of excess inventory available for sale and changes to
the regulatory environment, including the status of the
USEPA’s CAIR. These factors could cause the amount
of excess emission allowances we sell to fluctuate,
which could cause a material adverse effect on our
results or operations, financial condition and cash flows
for any particular period.
On July 11, 2008, the United States Court of
Appeals for the District of Columbia Circuit issued a
decision that vacated the 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 modifica-
tions to an existing trading program for SO2 that were
to take effect in 2010. The district court’s decision, in
part, invalidated the new NOx annual emission allow-
ance 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 district court’s order to
revise the program. In January 2010, the Court ordered
the USEPA to file a response to request for a USEPA
decision filed by parties in the original case who are
now seeking a Court order to require the USEPA to
issue new regulations by March 1, 2010. We cannot at
this time predict the timing or the outcome of any new
regulations relating to CAIR.
DP&L’s program for selling excess emission allow-
ances includes sales of annual NOx emission allow-
ances and SO2 emission allowances that were the sub-
ject of CAIR trading programs. Although we continue
selling emission allowances, the district court’s CAIR
decision has affected the emission allowance trad-
ing market and DP&L’s program for selling additional
excess allowances. The long-term impact of the district
court’s decision, and of the actions the USEPA or oth-
ers will take in response to this decision, on DPL and
DP&L is not fully known at this time, but could affect
the amount of excess emission allowances we sell and
thus have an adverse effect on us.
Customer Switching
Customers can elect to take generation service from
a CRES provider offering services to customers in
DP&L’s service territory. Although retail generation
service has been a competitive service since January
1, 2001, the competitive generation market has not
developed to date in DP&L’s service territory to any
significant degree. As of December 31, 2009, six unaf-
filiated CRES providers have been certified by the
PUCO to provide generation service to DP&L custom-
ers. DPLER, a wholly-owned subsidiary of DPL, is also
a certified CRES provider and accounted for 99% of
the total kWh consumed by customers served by CRES
providers in DP&L’s service territory in 2009. Increased
competition by CRES providers in our service territory
26 DPL Inc.
for retail generation service could result in the loss of
existing customers and increased costs to retain or
attract customers, which could have a material adverse
effect on our results of operations, financial condition
and cash flows. The following are a few of the factors
that could result in increased switching by customers
to CRES providers in the future:
n Low wholesale price levels could lead to existing
CRES providers becoming more active in our service
territory, and new CRES providers entering our territory.
n We could also experience customer switching
through “governmental aggregation,” where a munici-
pality 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 passed ordinances during 2003-2004
allowing them to become government aggregators. To
date, no aggregation program has been implemented.
n Increased customer switching in other Ohio utility
service territories could lead to new market entrants
and more aggressive measures to secure customers
by CRES providers.
Operation and Performance of Facilities
The operation and performance of our generation,
transmission and distribution facilities and equipment
is subject to various events and risks, such as the
potential breakdown or failure of equipment, processes
or facilities, fuel supply or transportation disruptions,
the loss of cost-effective disposal options for solid
waste generated by our facilities (such as gypsum),
accidents, injuries, labor disputes or work stoppages
by employees, operator error, acts of terrorism or
sabotage, construction delays or cost overruns, short-
ages of or delays in obtaining equipment, material
and labor, operational restrictions resulting from envi-
ronmental limitations and governmental interventions,
performance below expected levels, weather-related
and other natural disruptions, vandalism, events occur-
ring on the systems of third parties that interconnect
to and affect our system and the increased costs and
enhanced risks associated with our aging generation
units. Our results of operations, financial condition and
cash flows could be adversely affected due to the hap-
pening or continuation of these events.
Operation of our owned and co-owned generating
stations below expected capacity levels, or unplanned
outages at these stations, could cause reduced energy
output and efficiency levels and likely result in lost
revenues and increased expenses that could have a
material adverse effect on our results of operations,
financial condition and cash flows. In particular, since
over 50% of our base-load generation is derived
from co-owned generation stations operated by our
co-owners, poor operational performance by our co-
owners, misalignment of co-owners’ interests or lack
of control over costs (such as fuel costs) incurred at
these stations could have an adverse effect on us. We
have constructed and placed into service FGD facili-
ties at most of our base-load generating stations. If
there is significant operational failure of the FGD equip-
ment at the generating stations, we may not be able to
meet emission requirements at some of our generat-
ing stations or, at other stations, it may require us to
burn more expensive cleaner coal or utilize emission
allowances. These events could result in a substantial
increase in our operating costs. Depending on the
degree, nature, extent, or willfulness of any failure
to comply with environmental requirements, including
those imposed by the Consent Decree, such non-
compliance could result in the imposition of penalties
or the shutting down of the affected generating
stations, which could have a material adverse effect
on our results of operations, financial condition and
cash flows.
Asbestos and other regulated substances are,
and may continue to be, present at our facilities where
suitable alternative materials are not available.
Although we believe that any asbestos at our facili-
ties is contained and suitable, we have been named
as a defendant in pending asbestos litigation, which
at this time is not material to us. The continued pres-
ence of asbestos and other regulated substances
at these facilities could result in additional litigation
being brought against us, which could have a material
adverse effect on our results of operations, financial
condition and cash flows.
Reliability Standards
As an owner and operator of a bulk power transmission
system, DP&L is subject to mandatory reliability stan-
dards promulgated by the NERC and enforced by the
FERC. The standards are based on the functions that
need to be performed to ensure the bulk power system
operates reliably and is guided by reliability and mar-
ket interface principles. In addition, DP&L is subject to
new Ohio reliability standards and targets. Compliance
with reliability standards subjects us to higher operat-
ing costs or increased capital expenditures. While
we expect to recover costs and expenditures from
customers through regulated rates, there can be no
assurance that the PUCO will approve full recovery in
a timely manner. If we were found not to be in compli-
ance with the mandatory reliability standards, we could
DPL Inc.
27
be subject to sanctions, including substantial monetary
penalties, which likely would not be recoverable from
customers through regulated rates and could have
a material adverse effect on our results of operations,
financial condition and cash flows.
Weather Conditions
Weather conditions significantly affect the demand for
electric power. In our Ohio service territory, demand for
electricity is generally greater in the summer months
associated with cooling and in the winter months asso-
ciated with heating as compared to other times of the
year. Unusually mild summers and winters could there-
fore have an adverse effect on our results of opera-
tions, financial condition and cash flows. In addition,
severe or unusual weather, such as hurricanes and
ice or snow storms, may cause outages and property
damage that may require us to incur additional costs
that may not be insured or recoverable from custom-
ers. While DP&L is permitted to seek recovery of storm
damage costs under its electric security plan, if DP&L
is unable to fully recover such costs in a timely manner,
it could have a material adverse effect on our results
of operations, financial condition and cash flows.
Regional Transmission Organizational Risks
On October 1, 2004, in compliance with Ohio law,
DP&L turned over control of its transmission func-
tions and fully integrated into PJM. The price at which
we can sell our generation capacity and energy is
now determined through supply and demand and the
behavior of market participants. While we can continue
to make bilateral transactions to sell our generation
through a willing-buyer and willing-seller relationship,
any transactions that are not pre-arranged are subject
to market conditions at PJM. To the extent we sell elec-
tricity into the power markets on a contractual basis,
we are not guaranteed any rate of return on our capital
investments through mandated rates. These sales are
dependent upon prevailing market prices, which could
fluctuate substantially over relatively short periods of
time and adversely affect our results of operations,
financial condition and cash flows. The rules governing
the various regional power markets also change from
time to time which could affect our costs and revenues.
We incur 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 transmission
rights may have a financial impact on us. While the
impact of the capacity market and other RTO develop-
ments on us at any given time will depend on a variety
of factors, including the market behavior of various par-
ticipants, our results of operations, financial condition
and cash flows could be materially adversely affected.
Future capacity auction results will be dependent not
only on the overall supply and demand of generation
and load, but also by congestion and PJM’s business
rules relating to bidding for Demand Response and
Energy Efficiency resources in the auctions. The PJM
RPM base residual auction for the 2012/2013 period
cleared at a per megawatt price of $16/day for our
RTO area. Prior to this auction, the per megawatt price
for the 2011/2012 period was $110/day. We cannot
predict the outcome of future auctions, but if the cur-
rent auction price is sustained or there is continued
volatility in the auction market, our results of operations,
financial condition and cash flows could be materially
adversely affected.
SB 221 includes a provision that allows electric
utilities to seek and obtain deferral and recovery of
RTO related charges. If in the future, however, we are
unable to defer or recover all of these cost in a timely
manner, it could have a material adverse effect
on our results of operations, financial condition and
cash flows.
As members 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. These amounts could be significant
and have a material adverse effect on our results of
operations, financial condition and cash flows.
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
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
28 DPL Inc.
assigned to the load centers that benefit from the new
facilities. With respect to the socialization of new high
voltage facilities, DP&L filed a notice of appeal to the
U.S. Court of Appeals, D.C. Circuit on March 18, 2008
challenging the allocation method. The appeal was
consolidated with other appeals taken by other peti-
tioners of the same FERC Orders and the consolidated
cases were assigned to the 7th Circuit. On August 6,
2009, the 7th Circuit ruled that the FERC had failed
to provide a reasoned basis for the allocation method
for new high voltage facilities that it had approved.
Subsequently, the 7th Circuit denied other petition-
ers’ rehearing requests and remanded the case to the
FERC for further proceedings. Until such time as FERC
may act to approve a change in methodology, PJM will
continue to apply the allocation methodology that had
been approved by FERC in 2007. At this time, DP&L
is unable to predict the outcome of this matter. The
overall impact of FERC’s allocation methodology can-
not 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 trans-
mission approved projects were immaterial in 2009
and are not expected to be material in 2010, but could
rise to approximately $12 million or more annually by
2012. DP&L sought and obtained PUCO authority to
defer and recover costs associated with these new
high-voltage transmission projects through retail rates.
However, if in the future we are unable to defer or
recover these costs, it could have a material adverse
effect on our results of operations, financial condition
and cash flows.
Credit and Capital Markets
From time to time we rely on access to the credit and
capital markets to fund certain of our operational and
capital costs. These capital and credit markets have
experienced extreme volatility and disruption and the
ability of corporations to obtain funds through the issu-
ance of debt or equity has been negatively impacted.
Disruptions in the credit and capital markets make
it harder and more expensive to obtain funding for our
business. Access to funds under our existing financing
arrangements is also dependent on the ability of our
counterparties to meet their financing commitments.
Our inability to obtain financing on reasonable terms, or
at all, with creditworthy counterparties could adversely
affect our results of operations, financial condition and
cash flows. 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 activi-
ties and increase our cost of funding, both of which
could reduce our profitability. DP&L’s variable rate debt
bears interest based on a prevailing rate that is reset
weekly based on a market index that can be affected
by market demand, supply, market interest rates and
other market conditions. We also currently maintain
both cash on deposit and investments in cash equiva-
lents that could be adversely affected by interest rate
fluctuations. In addition, select debt of DPL and DP&L
is currently rated investment grade by various rating
agencies. If the rating agencies were to rate DPL and
DP&L below investment grade, our borrowing costs
would increase, we would likely be required to pay a
higher interest rate under certain existing and future
financings and our potential pool of investors and fund-
ing sources would likely decrease. Our credit ratings
also govern the collateral provisions of certain of our
contracts, and a below investment grade credit rating
by one of the rating agencies could require us to post
cash collateral under these contracts. These events
would likely reduce our liquidity and profitability and
could have a material adverse effect on our results of
operations, financial condition and cash flows.
Value and Funding of Benefit Plan Assets
The performance of the capital markets affects the
values of the assets that are held in trust to satisfy
future obligations under our pension and postretire-
ment 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 ben-
efit plan assets 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 pay-
ments, 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
contributions 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, poten-
tially increasing benefit expense and funding require-
ments. Further, changes in demographics, including
increased numbers of retirements or changes in life
expectancy assumptions, may also increase the fund-
ing requirements of the obligations related to the pen-
sion and other postretirement benefit plans. Declines
in market values and increased funding requirements
could have a material adverse effect on our results of
operations, financial condition and cash flows.
DPL Inc.
29
Reliance on Third Parties
We enter into transactions with and rely on many coun-
terparties in connection with our business, including for
the purchase and delivery of inventory, which includes
fuel and equipment components (such as limestone for
our FGD equipment), for our capital improvements and
additions and to provide professional services, such as
actuarial calculations, payroll processing and various
consulting services. If any of these counterparties fails
to perform its obligations to us or becomes unavail-
able, our business plans may be materially disrupted,
we may be forced to discontinue certain operations if a
cost-effective alternative is not readily available or we
may be forced to enter into alternative arrangements at
then-current market prices that may exceed our con-
tractual prices and cause delays. These events could
cause our results of operations, financial condition and
cash flows to be materially adversely affected.
Our Stock Price May Fluctuate
The market price of DPL’s common stock has fluctu-
ated over a relatively wide range. Over the past three
years, the market price of our common stock has fluc-
tuated with a low of $19.16 and a high of $31.91. Our
common stock in recent years has experienced signifi-
cant price and volume variations that have often been
unrelated to our operating performance. Over the pre-
vious year, the global markets have increasingly been
characterized by substantially increased volatility in
companies in a number of industries and in the broad-
er 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 and Markets
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 and our suppliers. The direction
and relative strength of the global economy has been
increasingly uncertain due to softness in the real estate
and mortgage markets, volatility in fuel and other
energy costs, difficulties in the financial services sector
and credit markets, increased unemployment and other
factors. Many of these factors have disproportionately
impacted our Ohio service territory.
Our results of operations, financial condition and
cash flows may be negatively affected by sustained
downturns or a sluggish economy. Sustained down-
turns, recession or a sluggish economy generally affect
the markets in which we operate and negatively influ-
ence our energy operations. A contracting, slow or
sluggish economy could reduce the demand for ener-
gy in areas in which we are doing business. During
economic downturns, our commercial and industrial
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. In addition, our custom-
ers’ ability to pay us could also be impaired, which
could result in an increase in receivables and write-offs
of uncollectible accounts. Our suppliers could also be
affected by the economic downturn resulting in supply
delays or unavailability. Reduced demand for our elec-
tric services, failure by our customers to timely remit full
payment owed to us and supply delays or unavailability
could have a material adverse effect on our results of
operations, financial condition and cash flows.
Warrant Exercise
DPL’s warrant holders can exercise their warrants to
purchase shares of DPL common stock at their discre-
tion until March 12, 2012. As of the date of this report,
the number of outstanding warrants is 1.8 million. As a
result, DPL could be required to issue up to 1.8 million
common shares in exchange for the receipt of the exer-
cise price of $21.00 per share or pursuant to a cash-
less exercise process. The exercise of warrants would
increase the number of common shares outstanding
and increase our common share dividend costs, thus
affecting any existing guidance on EPS and adversely
affecting our financial condition and cash flows.
Internal Controls and Information Reporting
Our internal controls, accounting policies and prac-
tices and internal information systems are designed
to enable us to capture and process transactions and
information in a timely and accurate manner in compli-
ance with GAAP in the United States of America, laws
and regulations, taxation requirements and federal
securities laws and regulations in order to, among other
things, disclose and report financial and other informa-
tion in connection with the recovery of our costs and
with our reporting requirements under federal securi-
ties, tax and other laws and regulations and to properly
process payments. We have implemented corporate
governance, internal control and accounting policies
and procedures in connection with the Sarbanes-Oxley
Act of 2002 (the “Act”). Our internal controls and poli-
30 DPL Inc.
cies 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 impro-
prieties and undetected errors that could result in the
disallowance of cost recovery, noncompliant disclosure
and reporting or incorrect payment processing. The
consequences of these events could have a material
adverse effect on our results of operations, financial
condition and cash flows.
Accounting Standards
Our Consolidated Financial Statements are prepared
in accordance with accounting principles generally
accepted in the United States of America. The SEC,
FASB or other authoritative bodies or governmental
entities may issue new pronouncements or new inter-
pretations of existing accounting standards that may
require us to change our accounting policies. These
changes are beyond our control, can be difficult to
predict and could materially impact how we report
our results of operations, financial condition and cash
flows. We could be required to apply a new or revised
standard retroactively, which could adversely affect
our financial position. In addition, in preparing our
Consolidated Financial Statements, management is
required to make estimates and assumptions. Actual
results could differ significantly from those estimates.
The SEC has issued a roadmap for the transition
by U.S. public companies to the use of International
Financial Reporting Standards (IFRS) promulgated by
the International Accounting Standards Board. Under
the SEC’s proposed roadmap, we could be required to
prepare financial statements in accordance with IFRS
in 2014. The SEC expects to make a determination in
2011 regarding the mandatory adoption of IFRS. We
are currently assessing the impact that this potential
change would have on our Consolidated Financial
Statements and we will continue to monitor the devel-
opment of the potential implementation of IFRS.
Qualified and Properly Motivated Workforce
One of the challenges we face is to retain a skilled, effi-
cient and cost-effective workforce while recruiting new
talent to replace losses in knowledge and skills due to
retirements. This undertaking could require us to make
additional financial commitments and incur increased
costs. If we are unable to successfully attract and
retain an appropriately qualified workforce, our results
of operations, financial condition and cash flows could
be materially adversely affected. In addition, we have
employee compensation plans that reward the per-
formance of our employees. While we seek to ensure
that our compensation plans encourage acceptable
levels for risk and high performance through pay mix,
performance metrics and timing, and although we have
policies and procedures in place to mitigate excessive
risk-taking by employees, excessive risk-taking by
our employees to achieve performance targets could
result in events that could have a material adverse
effect on our results of operations, financial condition
and cash flows.
Collective Bargaining Agreements and
Employee Relations
Over half of our employees are represented by a col-
lective bargaining agreement that is in effect until
October 31, 2011. While we believe that we maintain
a satisfactory relationship with our employees, 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 the col-
lective bargaining agreement before a new agreement
is negotiated. Work stoppages by, or poor relations or
ineffective negotiations with, our employees could have
a material adverse effect on our results of operations,
financial condition and cash flows.
Cyber Security and Terrorism
Man-made problems such as computer viruses, ter-
rorism, theft and sabotage, may disrupt our operations
and harm our operating results. We operate in a highly
regulated industry that requires the continued opera-
tion of sophisticated information technology systems
and network infrastructure. Despite our implementation
of security measures, all of our technology systems are
vulnerable to disability, failures or unauthorized access
due to hacking, viruses, acts of war or terrorism and
other causes. If our technology systems were to fail or
be breached and we were unable to recover in a timely
way, we would be unable to fulfill critical business func-
tions and sensitive confidential and other data could
be compromised, which could have a material adverse
effect on our results of operations, financial condition
and cash flows. In addition, our generation plants, fuel
storage facilities, transmission and distribution facilities
may be targets of terrorist activities that could disrupt
our ability to produce or distribute some portion of our
energy products. Any such disruption could result in a
material decrease in revenues and significant addition-
al costs to repair and insure our assets, which could
have a material adverse effect on our results of opera-
tions, financial condition and cash flows. The continued
threat of terrorism and heightened security and military
DPL Inc.
31
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 uncertainties or otherwise materially
harm our results of operations, financial condition
and cash flows.
DPL as Holding Company
DPL is a holding company and its investments in its
subsidiaries are its primary assets. Substantially all of
DPL’s business is conducted by its DP&L subsidiary.
As such, DPL’s cash flow is dependent on the operat-
ing cash flows of DP&L and its ability to pay cash to
DPL. DP&L’s governing documents contain certain
limitations on the ability to declare and pay dividends
to DPL while preferred stock is outstanding. Certain
of DP&L’s debt agreements also contain limits with
respect to the ability of DP&L to loan or advance funds
to DPL. In addition, DP&L is regulated by the PUCO
that possesses broad oversight powers to ensure that
the needs of utility customers are being met. While
we are not currently aware of any plans to do so, the
PUCO could attempt to impose restrictions on the
ability of DP&L to pay cash to DPL pursuant to these
broad powers. While we do not expect any foregoing
restrictions to significantly affect DP&L’s ability to
pay funds to DPL in the future, a significant limitation
on DP&L’s ability to pay dividends or loan or advance
funds to DPL would materially adversely affect
DPL’s results of operations, financial condition and
cash flows.
Item 1B Unresolved Staff Comments
None.
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)
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, 2009, cannot be reasonably determined.
The information about the legal and other proceed-
ings contained in Item 1 – Competition and Regulation
under the heading “Ohio Retail Rates” and in Item 8 –
Note 19 of Notes to Consolidated Financial Statements
of this report under the headings “Governmental and
Regulatory Inquiries”, “Air Quality – Litigation Involving
Co-Owned Plants”, “Air Quality – Notices of Violation
Involving Co-Owned Plants”, “Air Quality – Notices
of Violation Involving Wholly-Owned Plants”, “Land
Use and Solid Waste Disposal” and “Legal and Other
Matters” is incorporated by reference into this Item.
Item 4 Submission of Matters to a
Vote of Security Holders
Item 2 Properties
None.
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).
32 DPL Inc.
Part II
Item 5 Market for Registrant’s Common Equity, Related Stockholder Matters and
Issuer Purchases of Equity Securities
As of February 10, 2010, there were 20,798 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 2009 and 2008:
First Quarter
Second Quarter
Third Quarter
Fourth Quarter
2009
2008
High
$ 23.28
$ 23.46
$ 26.53
$ 28.68
Low
$ 19.27
$ 21.18
$ 22.79
$ 25.16
High
$ 30.18
$ 28.70
$ 26.76
$ 24.59
Low
$ 24.58
$ 26.10
$ 23.00
$ 19.16
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. This dividend
restriction has historically not impacted DP&L’s ability to pay cash dividends and, as of December 31, 2009,
DP&L’s retained earnings of $640.3 million were all available for DP&L common stock dividends payable to DPL.
DPL paid regular quarterly cash dividends of $0.285 and $0.275 per share on our common stock during 2009
and 2008, respectively. The annualized dividend rate was $1.14 per share in 2009 and $1.10 per share in 2008.
On December 9, 2009, DPL’s Board of Directors authorized a quarterly dividend rate increase of approximately
6%, increasing the quarterly dividend per DPL common share from $0.2850 to $0.3025, effective with the next
dividend declaration. If this dividend rate were maintained, the annualized dividend would increase from $1.14
per share to $1.21 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, 2009 is disclosed in Item 12 –
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters, which incor-
porates such information by reference from DPL’s proxy statement for the 2010 Annual Meeting of Shareholders.
The following table details the repurchase by DPL of its common shares during 2009:
Month (1)
February
November
December
(1) Based on a calendar month.
Number of
shares
purchased (2)
351
2,387,991
3,557
2,391,899
Average
price paid
per share (3)
$ 21.55
$ 26.96
$ 27.55
shares purchased
as part of the
Stock Repurchase
Program (4)
Number of Approximate dollar
value of shares
that could still be
purchased under
the program (4)
–
2,387,991
400
2,388,391
$
–
$ 3,911,494
$ 3,900,658
(2) Comprises shares purchased as part of DPL’s current repurchase program and shares surrendered to DPL by employees to satisfy
individual tax withholding obligations upon vesting of previously issued shares of restricted common stock. Shares totaling 3,508 were
surrendered during 2009 to satisfy these individual tax withholding obligations.
(3) Average price paid per share reflects the individual trade price of repurchases under DPL’s current repurchase program as well as
the closing price of DPL common stock on the vesting dates of the restricted shares.
(4) On October 28, 2009, the DPL Board of Directors approved, and DPL publicly announced, a Stock Repurchase Program under which
DPL may use proceeds from the exercise of warrants to repurchase warrants or DPL common stock from time to time in the open market,
through private transactions or otherwise. Through December 31, 2009, the amount of such proceeds available to be used under the
Stock Repurchase Program approximated $68.3 million, of which $64.4 million was used during the quarter ended December 31, 2009 to
purchase approximately 2.4 million shares at an average per share price of $26.96. At December 31, 2009, the amount still available that
could be used to repurchase stock under the Stock Repurchase Program is approximately $3.9 million but could be higher if additional
warrants are exercised for cash in the future. The Stock Repurchase Program will run through June 30, 2012, which is approximately three
months after the end of the warrant exercise period.
DPL Inc.
33
The graph below matches DPL’s cumulative 5-year total shareholder return on common stock with the
cumulative total returns of the Dow Jones US Industrial Average index, the S&P Utilities index and the S&P
Electric Utilities index. The graph tracks the performance of a $1,000 investment in our common stock and
in each index (with the reinvestment of all dividends) from December 31, 2004 to December 31, 2009.
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
$ 2,000
1,500
1,000
500
12/2004
12/2005
12/2006
12/2007
12/2008
12/2009
* $1000 invested on 12/31/04 in stock or index, including reinvestment of dividends.
Fiscal year ending December 31.
Copyright ©2010 S&P, a division of The McGraw-Hill Companies Inc. All rights reserved.
Copyright ©2010 Dow Jones & Co. All rights reserved.
12/04
12/05
12/06
12/07
12/08
12/09
DPL Inc.
1,000.00
Dow Jones US Industrial Average 1,000.00
1,000.00
S&P Electric Utilities
1,000.00
S&P Utilities
1,074.53 1,191.30 1,317.68 1,061.20 1,345.50
1,017.22 1,210.97 1,318.56
897.54 1,101.13
1,176.57 1,449.66 1,784.80 1,323.70 1,368.40
1,168.41 1,413.66 1,687.61 1,198.53 1,341.26
The stock price performance included in this graph is not necessarily indicative of
future stock price performance.
34 DPL Inc.
Item 6 Selected Financial Data
$ in millions except per share amounts or as indicated
2009
2008
2007
2006
2005
For years ended December 31,
DPL
Basic earnings (loss) per share of common stock:
Continuing operations (a)
Discontinued operations (b)
Cumulative effect of accounting change (c)
Total basic earnings per common share
Diluted earnings (loss) per share of common stock:
Continuing operations (a)
Discontinued operations (b)
Cumulative effect of accounting change (c)
Total dilutive earnings per common share
$
$
$
$
$
$
$
$
2.03
–
–
2.03
2.01
–
–
2.01
$
$
$
$
$
$
$
$
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
Dividends declared per share
Dividend payout ratio
$
1.14
56.2%
$
1.10
49.5%
$
1.04
50.5%
$
1.00
80.7%
$
0.96
66.7%
Total electric sales (millions of kWh)
16,667
17,172
18,598
18,418
17,906
Results of operations:
Revenues
Earnings from continuing operations, net of tax (a)
Earnings 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 (d)
Total construction additions
Redeemable preferred stock of subsidiary
Senior unsecured debt ratings at December 31:
Fitch Ratings
Moody’s Investors Service
Standard & Poor’s Corporation
$ 1,588.9
$ 229.1
–
$
–
$
$ 1,601.6
$ 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)
$
$ 229.1
$ 244.5
$ 221.8
$ 139.6
$ 174.4
$ 3,641.7
$ 1,223.5
$ 145.3
22.9
$
$ 3,637.0
$ 1,376.1
$ 227.8
22.9
$
$ 3,566.6
$ 1,541.5
$ 346.7
22.9
$
$ 3,612.2
$ 1,551.8
$ 351.6
22.9
$
$ 3,791.7
$ 1,677.1
$ 179.7
22.9
$
A-
Baa1
BBB+
BBB+
Baa2
BBB-
BBB+
Baa2
BBB-
BBB
Baa3
BB
BBB-
Ba1
BB-
Number of shareholders – common stock
20,888
21,628
22,771
24,434
26,601
DP&L
Total electric sales (millions of kWh)
Results of operations:
Revenues
Earnings on common stock (a)
Financial position items at December 31:
Total assets
Long-term debt (d)
Redeemable preferred stock of subsidiary
Senior secured debt ratings at December 31:
Fitch Ratings
Moody’s Investors Service
Standard & Poor’s Corporation
Number of shareholders – preferred stock
16,590
17,105
18,598
18,418
17,906
$ 1,550.4
$ 258.0
$ 1,572.9
$ 284.9
$ 1,507.4
$ 270.7
$ 1,385.2
$ 241.6
$ 1,276.9
$ 210.9
$ 3,457.4
$ 783.7
22.9
$
$ 3,397.7
$ 884.0
22.9
$
$ 3,276.7
$ 874.6
22.9
$
$ 3,090.3
$ 785.2
22.9
$
$ 2,738.6
$ 685.9
22.9
$
AA-
Aa3
A
242
A+
A2
A-
256
A+
A2
BBB+
281
A
A3
BBB
290
A-
Baa1
BBB-
329
(a) 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 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 ODT resulting in a recorded income
tax benefit of $8.5 million.
(b) On February 13, 2005, DPL’s subsidiaries, MVE, Inc. (MVE) and MVIC, entered into an agreement to sell their respective interest in forty-six
private equity funds. MVE and MVIC completed the sale of forty-three funds and a portion of another during 2005. The ownership interests to
the remaining two funds and a portion of the third fund were transferred in 2006 and 2007, at which time DPL recognized previously deferred gains.
See Note 6 of the Notes to Consolidated Financial Statements.
(c) In 2005, we recorded a cumulative effect of an accounting change related to an additional obligation in response to the provisions of
GAAP relating to the accounting for AROs.
(d) Excludes current maturities of long-term debt.
DPL Inc.
35
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 95% of DPL’s total consoli-
dated 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 mean-
ing 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 objectives, business prospects, anticipated
economic performance and financial condition and
other similar matters constitute forward-looking state-
ments. Forward-looking statements are based on man-
agement’s beliefs, assumptions and expectations of
future economic performance, 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 uncer-
tainties, and investors are cautioned that outcomes
and results may vary materially from those projected
due to various factors beyond our control, including
but not limited to: abnormal or severe weather and
catastrophic weather-related damage; unusual main-
tenance or repair requirements; changes in fuel costs
and purchased power, coal, environmental emissions,
natural gas and other commodity prices; volatility and
changes in markets for electricity and other energy-
related commodities; performance of our suppliers;
increased competition and deregulation in the electric
utility industry; increased competition in the retail gen-
eration 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 or state
environmental laws and regulations to which DPL and
its subsidiaries are subject; the development and oper-
ation of RTOs, including 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 SEC.
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 Consolidated Financial
Statements 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 effi-
cient operations and strong customer and regulatory
relations. More specifically, DPL and DP&L’s strategy is
to match energy supply with load or customer 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
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-
36 DPL Inc.
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:
Regulatory Environment
n Emissions – Climate Change Legislation
There is a growing concern nationally and internation-
ally about global climate change and the contribution
of emissions of GHGs, including most significantly,
CO2. This concern has led to increased interest in leg-
islation at the federal level, actions at the state level as
well as litigation relating to GHG emissions. In 2007, a
U.S. Supreme Court decision upheld that the USEPA
has the authority to regulate CO2 emissions from motor
vehicles under the CAA. In April 2009, the USEPA
issued a proposed endangerment finding under the
CAA, which was finalized and published December
15, 2009. The proposed finding determined that CO2
and other GHGs from motor vehicles threaten the
health and welfare of future generations by contribut-
ing to climate change. It is anticipated that this ruling
will lead to the regulation of CO2 and other GHGs from
electric generating units and other stationary sources
of these emissions. In June 2009, the U.S. House of
Representatives passed H.R. 2454, the American
Clean Energy and Security Act (ACES). This proposed
legislation targets a reduction in the emission of GHGs
from large sources by 80% in 2050 through an econo-
my-wide cap and trade program. ACES also includes
energy efficiency and renewable energy initiatives.
Increased pressure for CO2 emissions reduction is also
coming from investor organizations and the interna-
tional community. Environmental advocacy groups are
also focusing considerable attention on CO2 emissions
from power generation facilities and their potential role
in climate change. Approximately 99% of the energy
we produce is generated by coal share of CO2 emis-
sions at generating stations we own and co-own is
approximately 16 million tons annually. If legislation or
regulations are passed at the federal or state levels
that impose mandatory reductions of CO2 and
other GHGs on generation facilities, the cost to DPL
and DP&L of such reductions could be material.
n SB 221 Requirements
SB 221 and the implementation rules contain targets
relating to advanced energy portfolio standards,
renewable energy, demand reduction and energy effi-
ciency standards. The standards require that, by the
year 2025, 25% of the total number of kWh of electric-
ity sold by the utility to retail electric consumers must
come from alternative energy resources, which include
“advanced energy resources” such as distributed gen-
eration, clean coal, advanced nuclear, energy efficien-
cy and fuel cell technology; and “renewable energy
resources” such as solar, hydro, wind, geothermal and
biomass. At least half of the 25% must be generated
from renewable energy resources, including 0.5% from
solar energy. The renewable energy portfolio, energy
efficiency and demand reduction standards began
in 2009 with increases in required percentages each
year. The annual targets for energy efficiency and peak
demand reductions began in 2009 with annual increas-
es. Energy efficiency programs are to save 22.3% by
2025 and peak demand reductions are expected to
reach 7.75% by 2018 compared to a baseline energy
usage. If any targets are not met, compliance penalties
will apply, unless the PUCO makes certain findings that
would excuse performance.
SB 221 also contains provisions for determining
whether an electric utility has significantly excessive
earnings. On September 9, 2009, the PUCO issued
an entry establishing a significantly excessive earn-
ings test (SEET) proceeding. A workshop was held at
the Commission offices on October 5, 2009 to allow
interested parties to present concerns and discuss
issues related to the methodology. On November 18,
2009 the PUCO Staff issued its recommendations to
the Commission. Staff recommendations provided that
off-system or wholesale sales should be included in
the calculation, and that some threshold should be
established based on a group of comparable compa-
nies that would determine if the utility had significantly
excessive earnings in a given year. DP&L filed its com-
ments and reply comments along with other interested
parties. Although DP&L’s Stipulation provides that the
SEET does not apply to DP&L until 2013 based on
2012 earnings results, DP&L is actively participating
in this proceeding.
DPL Inc.
37
n 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 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
NOx emission allowances and made modifications to
an existing trading program for 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 cur-
rently remains in effect, but the USEPA remains subject
to the court’s order to revise the program. In January
2010, the Court ordered the USEPA to file a response
to a Petition for Mandamus filed by parties in the origi-
nal case who are now seeking a Court order to require
the USEPA to issue new regulations by March 1, 2010.
We cannot at this time predict the timing or the out-
come of any new regulations in relation to CAIR. CAIR
has and will continue to have a material effect on our
operations.
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 emission
allowances due to the revival of the trading market.
Competition and PJM Pricing
n RPM Capacity Auction Price
The PJM RPM base residual auction for the 2012/2013
period cleared at a per megawatt price of $16/day for
our RTO area. Prior to this auction, the per megawatt
price for the 2011/2012 period was $110/day. Future
RPM auction results will be dependent not only on the
overall supply and demand of generation and load,
but may also be impacted by congestion as well as
PJM’s business rules relating to bidding for Demand
Response and Energy Efficiency resources in the RPM
auctions. We cannot predict the outcome of future
auctions but if the current auction price is sustained,
our future results of operations, financial condition and
cash flows could be adversely impacted.
n Ohio Competitive Considerations and Proceedings
Overall power market prices, as well as government
aggregation initiatives, could lead to the entrance of
competitors in our marketplace, affecting our results
of operations, financial condition or cash flows. During
the year ended December 31, 2009, two additional
unaffiliated marketers registered as CRES providers in
DP&L’s service territory, bringing to six the total num-
ber of unaffiliated CRES providers in DP&L’s service
territory. While there has been some customer switch-
ing associated with unaffiliated marketers, it repre-
sented less than 0.11% of sales in 2009. DPLER, an
affiliated company, is also a registered CRES provider
and accounted for 99% of the total kWh supplied by
CRES providers within DP&L’s service territory in 2009.
During the first quarter of 2010, DPLER will begin pro-
viding CRES services to business customers in Ohio
who are not in DP&L’s service territory. At this time,
we do not expect the incremental costs and revenues
to have a material impact on our results of operations,
financial position or cash flows. We currently cannot
determine the extent to which customer switching to
unaffiliated CRES providers will occur in the future
and the impact this will have on our operations. In
2003-2004, several communities in DP&L’s service
area 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.
Fuel and Related Costs
n Fuel and Commodity Prices
During 2009 and 2008, the coal market experienced
significant price volatility. We are now in a global
market for coal in which our domestic price is increas-
ingly 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 government-imposed direct costs
and permitting issues are affecting mining costs and
38 DPL Inc.
supply availability. Our approach is to hedge the fuel
costs for our anticipated electric sales. For the year
ending December 31, 2010, we have hedged our coal
requirements to meet our committed sales. We may not
be able to hedge the entire exposure of our operations
from commodity price volatility. To the extent our sup-
pliers 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. Beginning in January 2010, the
Ohio retail jurisdictional share of fuel price changes will
be reflected in the operation of the fuel rider, subject to
PUCO review.
n Sales of Coal and Excess Emission Allowances
During 2009, DP&L sold coal and excess emission
allowances to various counterparties realizing total net
gains of $56.3 million and $5.0 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 2010 and beyond is not fully known at
this time and could materially impact the amount of
gains that will be recognized in the future. In addition,
beginning in January 2010 as part of the operation of
the fuel rider, the Ohio retail jurisdictional share of the
emission gains and a portion of the Ohio jurisdictional
share of the coal gains will be used to reduce the over-
all rate charged to customers.
Financial Overview
The following financial overview relates to DPL, which
includes its principal subsidiary DP&L. The results of
operations for both DPL and DP&L are separately dis-
cussed in more detail following this financial overview.
For the year ended December 31, 2009, Net
income for DPL was $229.1 million, or $2.01 per share,
compared to Net income of $244.5 million, or $2.12 per
share, for the same period in 2008. All EPS amounts
are on a diluted share basis. The decrease in net
income compared to the prior year was primarily due
to the following:
n a decrease in retail sales volume due to the impacts
of the economic slowdown and milder weather through-
out the year,
n a decrease in wholesale power sales prices,
n a decrease in gains recognized from the sale of coal,
n a decrease in gains recognized from the sale of
excess emission allowances,
n an increase in the cost of fuel due to the increased
volume of generation by our power plants and higher
average fuel costs, particularly for coal, and
n an increase in pension and employee benefit
related costs.
Partially offsetting these items were:
n an increase in retail rates primarily as a result of
an increase in the EIR and the implementation of the
TCRR, RPM and Energy Efficiency riders,
n an improvement in generating plant performance
which resulted in an increase in wholesale sales
volume and a decrease in purchased power volumes,
n a decrease in power purchase prices and
n a net reduction in interest costs primarily as a result
of certain outstanding debt redemptions.
DPL Inc.
39
Results of Operations – DPL Inc.
DPL – Revenues
DPL’s results of operations include the results of its
subsidiaries, including the consolidated results of its
principal subsidiary DP&L. DP&L provides approxi-
mately 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
For the years ended December 31,
$ in millions
2009
2008
2007
Revenues:
$ 1,229.0 $ 1,223.3 $ 1,206.2
Retail
180.3
149.9
122.5
Wholesale
87.4
110.4
RTO revenues
89.4
30.9
106.9
RTO capacity revenues 136.3
10.9
11.1
11.7
Other revenues
Total revenues
$ 1,588.9 $ 1,601.6 $ 1,515.7
Cost of revenues:
Fuel costs
Gains from sale
of coal
Gains from sale of
$ 391.7 $ 361.2 $ 330.0
(56.3)
(83.4)
(0.6)
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 may
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
hour of the year include wholesale market prices;
DPL’s retail demand; retail demand elsewhere through-
out the entire wholesale market area; 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 genera-
tion facilities not being utilized to meet its retail demand
or when margin opportunities exist between the whole-
sale sales and power purchase prices.
emission allowances
(5.0)
(34.8)
(1.2)
The following table provides a summary of chang-
Net fuel
330.4
243.0
328.2
es in revenues from prior periods:
46.9
Purchased power
RTO charges
105.0
RTO capacity charges 131.8
Recovery / (Deferral) of RTO
148.7
127.8
100.9
156.9
101.9
28.4
related charges, net
(23.5)
–
–
Net purchased power
260.2
377.4
287.2
Total cost of revenues
$ 590.6 $ 620.4 $ 615.4
Gross margins (a)
$ 998.3 $ 981.2 $ 900.3
Gross margin as a
percentage of revenues 62.8%
61.3%
59.4%
Operating income
$ 428.2 $ 435.5 $ 370.1
Basic earnings per share:
Continuing operations $
Discontinued operations
2.03 $
–
2.22 $
–
Total basic
$
2.03 $
2.22 $
Diluted earnings per share:
Continuing operations $
Discontinued operations
2.01 $
–
2.12 $
–
Total diluted
$
2.01 $
2.12 $
1.97
0.09
2.06
1.80
0.08
1.88
(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.
$ in millions
2009 vs. 2008
2008 vs. 2007
Retail
Rate
Volume
Other
Total retail change
Wholesale
Rate
Volume
Total wholesale change
RTO capacity and other
RTO capacity and
other revenues
Total revenues change
$ 119.6
(113.5)
(0.4)
$
5.7
$ (87.0)
59.6
$ (27.4)
$ 45.1
(23.7)
(4.3)
$ 17.1
$ 29.8
(60.2)
$ (30.4)
$
9.0
$ (12.7)
$ 99.2
$ 85.9
For the year ended December 31, 2009, Revenues
decreased $12.7 million, or 1%, to $1,588.9 million
from $1,601.6 million in the prior year. This decrease
was primarily the result of lower retail sales volume
as well as decreased wholesale average prices, par-
tially offset by higher average retail rates, increased
wholesale sales volume and an increase in RTO
capacity and other revenues. The revenue components
for the year ended December 31, 2009 are further
discussed below:
n Retail revenues increased $5.7 million resulting
primarily from an 11% increase in average retail rates
40 DPL Inc.
due largely to the incremental effect of the recovery
of costs under the third phase of the EIR combined
with the implementation of the TCRR, RPM, Energy
Efficiency and Alternative Energy riders, partially offset
by a 9% decrease in sales volume driven largely by the
effects of the economic recession and milder weather
conditions. The milder weather conditions saw heating
and cooling degree days decrease by 4% and 14%
to 5,561 days and 734 days, respectively. As a result,
retail revenues had a favorable $119.6 million price
variance and an unfavorable $113.5 million sales
volume variance.
n Wholesale revenues decreased $27.4 million primar-
ily as a result of a 42% decrease in wholesale average
prices partially offset by a 40% increase in sales
volume, resulting in an unfavorable $87.0 million whole-
sale price variance and a favorable $59.6 million sales
volume variance.
n RTO capacity and other revenues, consisting pri-
marily of compensation for use of DPL’s transmission
assets, regulation services, reactive supply and operat-
ing reserves as well as capacity payments under the
RPM construct, increased $9.0 million compared to
the same period in the prior year. This increase was
primarily the result of additional revenue of $29.4 mil-
lion that was realized from the PJM capacity auction,
partially offset by a decrease in PJM transmission and
congestion revenues of $21.0 million. Beginning June
1, 2009 when the TCRR and RPM rate riders became
effective, the Ohio retail jurisdiction share of this
change had no impact on net income.
For the year ended December 31, 2008, Revenues
increased $85.9 million, or 6%, to $1,601.6 million from
$1,515.7 million in the prior year. This increase was
primarily the result of higher average rates for retail and
wholesale sales as well as an increase in RTO capacity
and other revenues, partially offset by lower retail and
wholesale sales volumes. The revenue components
for the year ended December 31, 2008 are further dis-
cussed below:
n Retail revenues increased $17.1 million resulting
primarily from a 4% increase in average retail rates
due largely to the second phase of the EIR, par-
tially offset by a 2% decrease in sales volume. The
decrease in retail sales volume was primarily a result
of milder weather which caused cooling degree days
to decrease by 26% to 853 days, combined with a 6%
decrease in the volume of sales to industrial custom-
ers. The lower sales volumes to industrial customers
were driven largely by the downturn in the economy
which severely affected the automotive and other relat-
ed industries in the region resulting in plant closures
and reduced production. These decreases were par-
tially offset by a 9% increase in heating degree days.
n Wholesale revenues decreased $30.4 million primar-
ily as a result of a 33% decrease in sales volume due
largely to unplanned outages, partially offset by a 25%
increase in wholesale average rates, resulting in an
unfavorable $60.2 million sales volume variance and a
favorable $29.8 million wholesale price variance.
n RTO capacity and other revenues, consisting pri-
marily of compensation for use of DPL’s transmission
assets, regulation services, reactive supply and operat-
ing reserves as well as capacity payments under
the RPM construct, increased $99.2 million compared
to the prior year. This increase primarily resulted from
additional income realized from the PJM capacity
auction and increased PJM transmission and conges-
tion revenues.
DPL – Cost of Revenues
For the year ended December 31, 2009:
n Fuel costs, which include coal (net of gains on
sales), gas, oil and emission allowances (net of gains
on sales), increased $87.4 million, or 36%, compared
to 2008, primarily due to the impact of lower gains
realized from the sales of coal and excess emission
allowances combined with a 7% increase in the usage
of fuel due mainly to the improved performance of our
generating facilities. In 2009, DP&L realized $56.3
million and $5.0 million in gains from the sales of coal
and excess emission allowances, respectively, com-
pared to $83.4 million and $34.8 million, respectively,
during 2008. Also contributing to the increase in fuel
costs was a 2% increase in the average cost of fuel
consumed per kilowatt-hour largely resulting from
higher market prices of coal combined with outages
at lower-cost units.
n Purchased power decreased $117.2 million com-
pared to 2008. The net decrease in purchased power
was due in part to lower volumes of purchased power
and lower average market rates of $72.3 million and
$29.5 million, respectively. The improved performance
of our generating facilities, as mentioned in the preced-
ing paragraph, resulted in increased generation output
and a reduced demand for higher-cost purchased
power. Also contributing to the decrease in purchased
power were lower costs relating to other RTO charges
as well as the net deferral during 2009 of costs relat-
ing to DP&L’s transmission, capacity and other PJM-
related charges which were incurred as a member of
PJM. This deferral is discussed in greater detail in
Note 3 of Notes to Consolidated Financial Statements.
DPL Inc.
41
These decreases were partially offset by increased
RTO capacity charges. We purchase power to satisfy
retail sales volume when generating facilities are not
available due to planned and unanticipated outages,
or when market prices are below the marginal costs
associated with our generating facilities.
For the year ended December 31, 2008:
n Fuel costs, which include coal (net of gains on
sales), gas, oil, and emission allowances (net of gains
on sales), decreased $85.2 million, or 26%, compared
to 2007, primarily due to increases in net gains of
$33.6 million from the sale of DP&L’s excess emis-
sion 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 genera-
tion 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 J.M. 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 $90.2 million, or
31%, compared to 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 generat-
ing facilities.
DPL – Operation and Maintenance
$ in millions
2009 vs. 2008
Pension
Low-income payment program (1)
Energy efficiency programs (1)
Deferred compensation
ESOP
Group insurance
Deferred 2004/2005 storm costs and
PJM administrative fees
Generating facilities operating and
maintenance expenses
Other, net
$ 6.2
6.1
5.9
4.1
3.3
3.2
(4.0)
(1.4)
0.6
Total operation and maintenance expense
$ 24.0
(1) There is a corresponding increase in revenues associated
with these programs resulting in no impact to net income.
During the year ended December 31, 2009, Operation
and maintenance expense increased $24.0 million,
or 8%, compared to 2008. This variance was primarily
the result of:
n higher pension costs due largely to a decline in the
values of pension plan assets from 2008 and increased
benefit costs,
n increases in assistance for low-income retail custom-
ers which is funded by the USF revenue rate rider,
n expenses related to new energy efficiency programs
put in place for our customers during 2009,
n increased deferred compensation costs,
n increases in employee benefit expense funded by
the ESOP and
n increased health insurance costs that were partially
related to higher disability reserves.
These increases were partially offset by:
n lower amortization of regulatory assets related to the
2004/2005 deferred storm costs and PJM administra-
tive fees in 2009 as these deferred costs were fully
recovered through rates during 2008 and in the first
quarter of 2009, respectively, and
n decreases in expenses for generating facilities
largely due to unplanned outages in 2008 at lower-cost
production units resulting in higher costs in that year.
These decreases were partially offset by increased
maintenance expenses associated with unplanned out-
ages at jointly-owned production units during 2009.
$ in millions
2008 vs. 2007
Legal costs
Deferred compensation
ESOP
Pension
Insurance settlement
Generating facilities operating expenses
Gain on sale of corporate aircraft
Turbine maintenance costs
Boiler maintenance costs
Other, net
$ (17.6)
(8.1)
(7.1)
(2.4)
14.5
11.1
6.0
4.1
1.0
(2.6)
Total operation and maintenance expense $
(1.1)
During the year ended December 31, 2008, Operation
and maintenance expense decreased $1.1 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,
42 DPL Inc.
n a decrease in deferred compensation costs associ-
ated to a large degree with deferred compensation
liabilities for the three 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,
n an increase in operating expenses largely due to
the operation of FGD and 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.
DPL – Depreciation and Amortization
During the year ended December 31, 2009,
Depreciation and amortization expense increased $7.8
million, or 6%, compared to 2008 primarily as a result
of higher asset balances at the generating stations.
These higher balances were due largely to the comple-
tion of the FGD projects during 2008.
During the year ended December 31, 2008,
Depreciation and amortization expense increased $2.9
million, or 2%, as compared to 2007. This increase was
primarily a result of higher plant balances due largely
to the installation of the FGD equipment, partially offset
by the impact of lower depreciation rates for generation
property which were put into effect on August 1, 2007.
DPL – General Taxes
During the year ended December 31, 2009, General
taxes decreased $7.4 million, or 6%, compared to 2008
primarily due to lower property tax accruals in 2009
compared to 2008 and lower kWh excise taxes result-
ing from lower retail sales volumes.
led to higher assessed property values, combined with
increased tax rates.
DPL – Investment Income (Loss)
During the year ended December 31, 2009, Investment
income (loss) decreased $4.2 million, or 117%, as
compared to 2008 primarily as a result of lower cash
and short-term investment balances combined with
overall lower market yields on investments in 2009.
In addition, we also recorded a $1.4 million expense
during 2009 relating to a loss incurred by DPL Capital
Trust II, a nonconsolidated wholly-owned subsidiary.
During the year ended December 31, 2008,
Investment income (loss) decreased $7.7 million, or
68%, as compared to 2007. This decrease was primar-
ily 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
settlement payment to three former executives and
n lower cash and short-term investment balances
combined with overall lower market yields on invest-
ments in 2008 compared to 2007.
DPL – 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, 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 17
of Notes to Consolidated Financial Statements.
DPL – Interest Expense
During the year ended December 31, 2009, Interest
expense decreased $7.7 million, or 8%, compared to
2008 primarily due to:
n a $12.8 million reduction in Interest expense due
to the redemption of DPL’s $175 million 8.00% Senior
Notes and the $100 million 6.25% Senior Notes in
March 2009 and May 2008, respectively,
During the year ended December 31, 2008,
General taxes increased $13.7 million, or 12%, as com-
pared to 2007, primarily as a result of higher property
taxes due mainly to capital improvements which have
n a $1.6 million write-off in 2008 of unamortized debt
issuance costs relating to DP&L’s $90 million variable
rate pollution control bonds following their repurchase
from the bondholders in April 2008 and
DPL Inc.
43
n $2.0 million of deferred interest carrying costs on
regulatory assets primarily associated with the 2008
incremental storm costs and the riders for RPM and
TCRR. These regulatory assets are further discussed in
Note 3 of Notes to Consolidated Financial Statements.
The above decreases were partially offset by $6.4 mil-
lion of lower capitalized interest in 2009 compared to
2008, due largely to the completion of the FGD projects
at our DP&L and partner-operated generating stations,
as well as a $3.7 million premium paid on the early
redemption of a portion of DPL’s Note to DPL Capital
Trust II which is due 2031. In December 2009, DPL
redeemed $52.4 million of this $195 million 8.125%
note. This redemption is further discussed in Note 7
of Notes to Consolidated Financial Statements.
During the year ended December 31, 2008,
Interest expense increased $9.7 million, or 12%, as
compared to 2007 primarily due to:
n $12.9 million of lower capitalized interest due to the
completion of the FGD projects at Miami Fort, Killen
and J.M. 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
in April 2008 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
in April 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.
DPL – Other Income (Deductions)
During the year ended December 31, 2009, there
were no material fluctuations in the balances of Other
income (deductions).
During the year ended December 31, 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 litigation settlement).
DPL Inc. – Income Tax Expense
For the year ended December 31, 2009, Income tax
expense increased $9.6 million, or 9%, compared to
44 DPL Inc.
2008, due to estimate to actual adjustments of 2008
taxes related to the Internal Revenue Code Section 199
deduction, adjustments to deferred tax liabilities and
a 2008 settlement relating to the Ohio Franchise Tax.
These increases were partially offset by a decrease
in pre-tax book earnings, estimate to actual adjust-
ments of 2008 state tax liabilities, adjustments to our
current tax receivables and the phase-out of the Ohio
Franchise Tax.
During 2008, Income tax expense decreased
$19.6 million, or 16%, as compared to 2007, primarily
due to a decrease in the effective tax rate reflecting
the phase-out of the Ohio Franchise Tax and the
2008 settlement of the Ohio Franchise Tax issue which
resulted in a recorded tax benefit of $8.5 million.
Results of Operations –
The Dayton Power and Light Company (DP&L)
Income Statement Highlights – DP&L
$ in millions
2009
2008
2007
For the years ended December 31,
Revenues:
Retail
Wholesale
RTO revenues
RTO capacity revenues
$ 1,167.2 $ 1,075.3 $ 1,057.4
331.7
293.5
87.4
108.3
30.9
95.8
181.9
86.1
115.2
Total revenues
$ 1,550.4 $ 1,572.9 $ 1,507.4
Cost of revenues:
Fuel costs
Gains from sale
of coal
Gains from sale of
$ 384.9 $ 349.6 $ 317.2
(56.3)
(83.4)
(0.6)
emission allowances
(5.0)
(34.8)
(1.2)
Net fuel
323.6
231.4
315.4
Purchased power
RTO charges
Capacity charges
Recovery / (Deferral) of RTO
related charges, net
46.9
104.1
131.7
(23.5)
152.4
126.6
100.9
170.0
101.9
28.4
–
–
Net purchased power 259.2
379.9
300.3
Total cost of revenues
$ 582.8 $ 611.3 $ 615.7
Gross margins (a)
$ 967.6 $ 961.6 $ 891.7
Gross margin as a
percentage of revenues 62.4%
61.1%
59.2%
Operating Income
$ 421.9 $ 436.6 $ 375.1
(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 may
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
wholesale 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 of its generation facilities that are not being
utilized to meet its retail demand or when margin
opportunities exist between the wholesale sales and
power purchase prices.
The following table provides a summary of
changes in Revenues from prior periods:
$ in millions
2009 vs. 2008
2008 vs. 2007
Retail
Rate
Volume
Other
Total retail change
Wholesale
Rate
Volume
Total wholesale change
RTO capacity and other
RTO capacity and other
revenues
Total revenues change
$ 191.7
(99.7)
(0.1)
$ 91.9
$ (230.5)
118.9
$ (111.6)
$ 43.0
(20.8)
(4.3)
$ 17.9
$ 79.2
(117.4)
$ (38.2)
$
$
(2.8)
(22.5)
$ 85.8
$ 65.5
For the year ended December 31, 2009, Revenues
decreased $22.5 million, or 1%, to $1,550.4 million from
$1,572.9 million in the prior year. This decrease was
primarily the result of lower wholesale average prices
and lower retail sales volume, partially offset by higher
average retail rates and increased wholesale sales
volume. The revenue components for the year ended
December 31, 2009 are further discussed below:
n Retail revenues increased $91.9 million resulting
primarily from a 20% increase in average retail rates
due largely to the incremental effect of the third phase
of the EIR and the implementation of the TCRR, RPM,
Energy Efficiency and Alternative Energy rate riders,
partially offset by a 9% decrease in retail sales volume
driven largely by the effects of the economic recession
and milder weather conditions. The milder weather
conditions saw heating and cooling degree days
decrease by 4% and 14% to 5,561 days and 734 days,
respectively. As a result, retail revenues had a favor-
able $191.7 million price variance and an unfavorable
$99.7 million sales volume variance.
n Wholesale revenues decreased $111.6 million
primarily as a result of a 56% decrease in wholesale
average prices, partially offset by a 41% increase in
sales volume, resulting in an unfavorable $230.5 million
wholesale price variance and a favorable $118.9
million sales volume variance.
n RTO capacity and other revenues, consisting primar-
ily of compensation for use of DP&L’s transmission
assets, regulation services, reactive supply and operat-
ing reserves, as well as capacity payments under
the RPM construct, decreased $2.8 million compared
to the prior year. This decrease primarily resulted
from $22.2 million of lower transmission and congestion
revenues, partially offset by additional revenue of
$19.4 million that was realized from the PJM capacity
auction. Beginning June 1, 2009 when the TCRR and
RPM rate deferral riders became effective, the Ohio
retail jurisdiction share of this change had no impact
on Net income.
For the year ended December 31, 2008, Revenues
increased $65.5 million, or 4%, to $1,572.9 million from
$1,507.4 million in the same period of the prior year.
This increase was primarily the result of higher aver-
age rates for retail and wholesale sales, as well as an
increase in RTO capacity and other revenues, partially
offset by lower retail and wholesale sales volumes. The
revenue components for the year ended December 31,
2008 are further discussed below:
n Retail revenues increased $17.9 million resulting
primarily from a 4% increase in average retail rates
due largely to the second phase of the EIR, par-
tially offset by a 2% decrease in sales volume. The
decrease in retail sales volume was primarily a result
of milder weather which caused cooling degree days
to decrease by 26% to 853 days, combined with a 6%
decrease in the volume of sales to industrial custom-
ers. The lower sales volumes to industrial customers
were driven largely by 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
DPL Inc.
45
were partially offset by a 9% increase in heating
degree days.
n Wholesales revenues decreased $38.2 million primar-
ily as a result of a 35% decrease in sales volume due
largely to unplanned outages, partially offset by a 37%
increase in wholesale average rates, resulting in an
unfavorable $117.4 million sales volume variance and a
favorable $79.2 million wholesale price variance.
n RTO capacity and other revenues, consisting primar-
ily of compensation for use of DP&L’s transmission
assets, regulation services, reactive supply and operat-
ing reserves, as well as capacity payments under
the RPM construct, increased $85.8 million compared
to the prior year. This increase primarily resulted
from additional income realized from the PJM capacity
auction and increased PJM transmission and conges-
tion revenues.
DP&L – Cost of Revenues
For the year ended December 31, 2009:
n Fuel costs, which include coal (net of gains on
sales), gas, oil and emission allowances (net of gains
on sales), increased $92.2 million, or 40%, compared
to 2008, primarily due to the impact of lower gains
realized from the sales of coal and excess emission
allowances combined with a 7% increase in the usage
of fuel due mainly to the improved performance of our
generating facilities. In 2009, DP&L realized $56.3 mil-
lion and $5.0 million in gains from the sales of coal and
excess emission allowances, respectively, compared
to $83.4 million and $34.8 million, respectively, during
2008. Also contributing to the increase in fuel costs
was a 3% increase in the average cost of fuel con-
sumed per kilowatt-hour largely resulting from higher
market prices of coal combined with outages at
lower-cost units.
n Purchased power decreased $120.7 million com-
pared to 2008. The net decrease in purchased power
was due in part to lower volumes of purchased power
and lower average market rates of $74.8 million and
$30.8 million, respectively. The improved performance
of our generating facilities, as mentioned in the preced-
ing paragraph, resulted in increased generation output
and a reduced demand for higher-cost purchased
power. Also contributing to the decrease in purchased
power were lower costs relating to other RTO charges
as well as the net deferral during 2009 of costs relat-
ing to DP&L’s transmission, capacity and other PJM-
related charges which were incurred as a member of
PJM. This deferral is discussed in greater detail in
Note 3 of Notes to Consolidated Financial Statements.
These decreases were partially offset by increased
RTO capacity charges. We purchase power to satisfy
retail sales volume when generating facilities are not
available due to planned and unanticipated outages,
or when market prices are below the marginal costs
associated with our generating facilities.
For the year ended December 31, 2008:
n Fuel costs, which include coal (net of gains on
sales), gas, oil and emission allowances (net of gains
on sales), decreased $84.0 million, or 27%, compared
to 2007, primarily due to increases in net gains of
$33.6 million from the sale of DP&L’s excess emis-
sion 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 genera-
tion 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 J.M. 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 2007. The increase in purchased
power primarily results from an $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 generat-
ing facilities.
DP&L – Operation and Maintenance
$ in millions
2009 vs. 2008
Pension
Low-income payment program (1)
Energy efficiency programs (1)
ESOP
Group insurance
Deferred 2004/2005 storm costs and
PJM administrative fees
Generating facilities operating and
maintenance expenses
Other, net
$ 6.1
6.1
5.9
3.3
3.2
(4.0)
(1.4)
1.2
Total operation and maintenance expense
$ 20.4
(1) There is a corresponding increase in Revenues associated
with these programs resulting in no impact to Net Income.
46 DPL Inc.
During the year ended December 31, 2009, Operation
and maintenance expense increased $20.4 million,
or 7%, compared to 2008. This variance was primarily
the result of:
n higher pension costs due largely to a decline in the
values of pension plan assets from 2008 and increased
benefit costs,
n increases in assistance for low-income retail custom-
ers which is funded by the USF revenue rate rider,
n expenses related to new energy efficiency programs
put in place for our customers during 2009,
n increases in employee benefit expense funded by
the ESOP and
n increased health insurance costs that were partially
related to higher disability reserves.
These increases are partially offset by:
n lower amortization of regulatory assets related to the
2004/2005 deferred storm costs and PJM administra-
tive fees in 2009 as these deferred costs were fully
recovered through rates during 2008 and in the first
quarter of 2009, respectively, and
n decreases in expenses for generating facilities
largely due to unplanned outages in 2008 at lower-cost
production units resulting in higher costs in that year.
These decreases were partially offset by increased
maintenance expenses associated with unplanned out-
ages at jointly-owned production units during 2009.
$ in millions
2008 vs. 2007
ESOP
Deferred compensation
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
(5.9)
Total operation and maintenance expense
$ (8.8)
During the year ended December 31, 2008, Operation
and maintenance expense decreased $8.8 million, or
3%, as compared to 2007. This variance was primarily
due to:
n a decrease in deferred compensation costs
associated to a large degree with deferred compen-
sation liabilities for three 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,
n an increase in turbine maintenance costs incurred
due to an unplanned outage at a jointly-owned
production unit and
n an increase in boiler maintenance expenses in 2008.
DP&L – Depreciation and Amortization
During the year ended December 31, 2009,
Depreciation and amortization expense increased $7.7
million, or 6%, as compared to 2008 primarily as a
result of higher asset balances at the generating sta-
tions. These higher balances were due largely to the
completion of the FGD projects during 2008.
During the year ended December 31, 2008,
Depreciation and amortization expense increased $3.3
million, or 3%, as compared to 2007. This increase was
primarily a result of higher plant balances due largely
to the installation of FGD equipment, partially offset by
the impact of lower depreciation rates for generation
property which were put into effect on August 1, 2007.
DP&L – General Taxes
During the year ended December 31, 2009, General
taxes decreased $7.4 million, or 6%, compared to 2008
primarily due to lower property tax accruals in 2009
compared to 2008 and lower kWh excise taxes result-
ing from lower retail sales volumes.
During the year ended December 31, 2008,
General taxes increased $13.9 million, or 13%, as com-
pared 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.
DP&L – Investment Income
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,
During the year ended December 31, 2009, Investment
income (loss) decreased $4.2 million, or 60%, as
compared to 2008 primarily as a result of lower gains
DPL Inc.
47
realized from the sale of DPL common stock from
DP&L’s Master Trust Plan used for deferred compensa-
tion distributions as well as lower cash and short-term
investment balances combined with overall lower
market yields on investments in 2009.
During the year ended December 31, 2008,
Investment income (loss) decreased $16.7 million,
or 70%, 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 settle-
ment payment to three former executives.
DP&L – 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, RSUs, MVE incentives, stock options
and legal fees. As a result of this settlement, in 2007,
DP&L realized a net pre-tax gain in continuing
operations of approximately $35.3 million. See Note 17
of Notes to Consolidated Financial Statements.
DP&L – Interest Expense
During the year ended December 31, 2009, Interest
expense increased $2.0 million, or 5%, as compared
to 2008 primarily as a result of $6.4 million of lower
capitalized interest due largely to the completion of the
FGD projects at our own and partner-operated generat-
ing stations. This increase was partially offset by:
n a $1.6 million write-off in 2008 of unamortized debt
issuance costs relating to DP&L’s $90 million variable
rate pollution control bonds following their repurchase
from the bondholders in April 2008 and
n $2.0 million of deferred interest carrying costs on reg-
ulatory assets primarily associated with the 2008 incre-
mental storm costs and the riders for RPM and TCRR.
These Regulatory assets are further discussed in Note
3 of Notes to Consolidated Financial Statements.
During the year ended December 31, 2008, Interest
expense increased $14.2 million, or 64%, 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 J.M. Stuart stations,
n the write-off of unamortized debt issuance costs
amounting to $1.6 million relating to DP&L’s $90 mil-
lion variable rate pollution control bonds following their
repurchase from the bondholders in April 2008 and
n $0.9 million of additional Interest expense associated
with DP&L’s $90 million variable rate pollution control
bonds issued in November 2007 and repurchased in
April 2008.
DP&L – Other Income (Deductions)
During the year ended December 31, 2009, there
were no material fluctuations in the balances of Other
income (deductions).
During the year ended December 31, 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).
DP&L – Income Tax Expense
For the year ended December 31, 2009, Income tax
expense increased $4.3 million, or 4%, compared
to 2008, due to estimate to actual adjustments of 2008
income taxes related to the Internal Revenue Code
Section 199 deduction, adjustments to deferred tax
liabilities and a 2008 settlement relating to the Ohio
Franchise Tax. These increases were partially offset by
a decrease in pre-tax book earnings, estimate to actual
adjustments of 2008 state tax liabilities, adjustments
to our current tax receivables and the phase-out of the
Ohio Franchise Tax.
During 2008, Income tax expense decreased
$22.9 million, or 16%, as compared to 2007, primarily
due to a decrease in the effective tax rate reflecting the
phase-out of the Ohio Franchise Tax and the 2008 set-
tlement of the Ohio Franchise Tax issue which resulted
in a recorded tax benefit of $8.5 million.
48 DPL Inc.
Financial Condition, Liquidity and Capital Requirements
DPL’s financial condition, liquidity and capital requirements include the consolidated results of its principal
subsidiary DP&L. All material intercompany accounts and transactions have been eliminated in consolidation.
The following table provides a summary of the cash flows for DPL and DP&L:
DPL
$ in millions
Net cash provided by operating activities
Net cash used for investing activities
Net cash used for financing activities
Net change
Cash and cash equivalents at beginning of period
Cash and cash equivalents at end of period
DP&L
$ in millions
Net cash provided by operating activities
Net cash used for investing activities
Net cash used for financing activities
Net change
Cash and cash equivalents at beginning of period
Cash and cash equivalents at end of period
For the years ended December 31,
2009
2008
2007
$ 526.1
(166.1)
(347.6)
$
$
12.4
62.5
74.9
$ 363.2
(248.5)
(187.1)
(72.4)
$
134.9
$
62.5
$ 318.1
(187.8)
(257.6)
$ (127.3)
262.2
$ 134.9
For the years ended December 31,
2009
2008
2007
$ 515.1
(167.4)
(311.4)
$
$
36.3
20.8
57.1
$ 394.6
(242.0)
(145.0)
$
$
7.6
13.2
20.8
$ 353.0
(343.2)
(42.7)
$
(32.9)
46.1
$
13.2
The significant items that have impacted the cash flows for DPL and DP&L are further discussed in greater
detail below:
Net Cash Provided by Operating Activities
The tariff-based revenue from our energy business continues to be the principal source of cash from operating
activities while our primary uses of cash include payments for fuel, purchased power, operation and maintenance
expenses, interest and taxes. Management believes that the diversified retail customer mix of residential,
commercial and industrial classes coupled with rate relief approved by the PUCO provides us with a reasonably
predictable gross cash flow from operations.
DPL – Net Cash provided by Operating Activities
DPL’s Net cash provided by operating activities for the years ended December 31, 2009, 2008 and 2007
can be summarized as follows:
$ in millions
2009
2008
2007
Earnings from continuing operations
Depreciation and amortization
Deferred income taxes
Income tax settlement
Regulatory expenditures under TCRR /RPM and 2008 storms
Net gain on settlement of executive litigation
Other
Net cash provided by operating activities
$ 229.1
145.5
201.6
–
(15.7)
–
(34.4)
$ 526.1
$ 244.5
137.7
43.1
(42.0)
(13.1)
–
(7.0)
$ 363.2
$ 211.8
134.8
3.1
–
–
(31.0)
(0.6)
$ 318.1
For the year ended December 31, 2009, Net cash provided by operating activities was primarily a result of
Earnings from continuing operations adjusted for noncash depreciation and amortization, combined with the
following significant transactions:
n the $201.6 million increase to Deferred income taxes primarily results from the recognition of certain tax
benefits for 2008 and 2009 relating to a change in the tax accounting method for deductions pertaining to repairs,
depreciation and mixed service costs. Primarily due to the recognition of these benefits during 2009, DPL
received a net cash refund of state and federal income taxes totaling $94.6 million and, in addition, was able to
offset $69.0 million of these benefits against income tax liabilities accrued in 2009;
DPL Inc.
49
n the $15.7 million of cash used to pay for transmission, capacity and other PJM-related costs incurred during
2009, net of recoveries. These costs were recorded as a Regulatory asset in accordance with the provisions
of GAAP relating to regulatory accounting (see Note 3 of Notes to Consolidated Financial Statements) and are
expected to be collected from customers during future years.
n Other represents items that had a current period cash flow impact and includes changes in working capital and
other future rights or obligations to receive or to pay cash. These items are primarily impacted by, among other
factors, the timing of when cash payments are made for fuel, purchased power, operating costs, interest and taxes,
and when cash is received from our utility customers and from the sales of coal and excess emission allowances.
For the year ended December 31, 2008, Net cash provided by operating activities was primarily a result of
Earnings from continuing operations adjusted for noncash depreciation and amortization, combined with the
following significant transactions:
n Deferred income taxes increased by $43.1 million as a result of the acceleration of the deduction of newly
installed FGD and SCR equipment for tax purposes, which had the effect of reducing current period income
tax payments and increasing cash on hand,
n the $42 million cash payment made in 2008 to the ODT following a tax settlement agreement and
n the $13.1 million of cash used to restore damage of a non-capital nature caused by the hurricane-force winds
of September 2008 and other major 2008 storms. These costs were recorded as a Regulatory asset in accordance
with the provisions of GAAP relating to regulatory accounting (see Note 3 of Notes to Consolidated Financial
Statements) and are expected to be collected from customers during future years.
n Other represents items that had a current period cash flow impact and includes changes in working capital
and other future rights or obligations to receive or to pay cash, such as regulatory assets and liabilities.
For the year ended December 31, 2007, Net cash provided by operating activities was primarily a result of
Earnings from continuing operations adjusted for noncash depreciation and amortization and the noncash impact
of the net gain realized on settlement of the executive litigation. Other represents items that had a current period
cash flow impact and includes changes in working capital and other future rights or obligations to receive or
to pay cash, such as regulatory assets and liabilities.
DPL – Net Cash provided by Operating Activities
DP&L’s Net cash provided by operating activities for the years ended December 31, 2009, 2008 and 2007
can be summarized as follows:
$ in millions
Net income
Depreciation and amortization
Deferred income taxes
Income tax settlement
Regulatory expenditures under TCRR /RPM and 2008 storms
Net gain on settlement of executive litigation
Other
Net cash provided by operating activities
2009
$ 258.9
135.5
200.1
–
(15.7)
–
(63.7)
$ 515.1
2008
2007
$ 285.8
127.8
40.9
(42.0)
(13.1)
–
(4.8)
$ 394.6
$ 271.6
124.5
(0.2)
–
–
(35.3)
(7.6)
$ 353.0
For the years ended December 31, 2009, 2008 and 2007, the significant components of DP&L’s Net cash provided
by operating activities are similar to those discussed under DPL’s Net cash provided by operating activities above.
50 DPL Inc.
DPL and DP&L – Net Cash used for Investing Activities
DPL and DP&L’s Net cash used for investing activities for the years ended December 31, 2009, 2008 and
2007 can be summarized as follows:
$ in millions
2009
2008
DP&L environmental-related capital expenditures
DP&L capital upgrades due to 2008 storms
DP&L other plant-related asset acquisitions
DP&L‘s net cash used for investing activities
Proceeds from sales of DPL assets
Other
$
(21.2)
–
(146.2)
$ (167.4)
–
1.3
$
(90.2)
(18.6)
(133.2)
$ (242.0)
–
(6.5)
DPL’s net cash used for investing activities
$ (166.1)
$ (248.5)
2007
$ (208.8)
–
(134.4)
$ (343.2)
158.4
(3.0)
$ (187.8)
For all years, the environmental-related capital expenditures relate to cash outflows incurred during the installation
and upgrades of FGD and SCR equipment. Other plant-related asset acquisitions relate to investments in other
generation, transmission and distribution equipment.
For the year ended December 31, 2009, DP&L continued to see reductions in its environmental-related capital
expenditures due to the completion of FGD and SCR projects. The expenditures in 2009 relate to the construction
of FGD and SCR equipment at the Conesville generation station which was substantially completed and placed
into service during the fourth quarter of 2009. DP&L also continued to make upgrades and other investments in
other generation, transmission and distribution equipment.
For the year ended December 31, 2008, DP&L saw reduced cash outflows associated with environmental-related
expenditures compared to 2007 due to projects relating to the installation of FGD and SCR equipment that
had either been completed or were nearing completion. In addition, DP&L was forced to replace a portion of its
distribution lines and equipment following the damage caused by the hurricane-force winds of September 2008
and other 2008 storms.
For the year ended December 31, 2007, the proceeds received from asset sales relate to the sale of two
DPLE peaker units and an aircraft previously owned by a DPL subsidiary.
DPL – Net Cash used for Financing Activities
DPL’s Net cash used for financing activities for the years ended December 31, 2009, 2008 and 2007
can be summarized as follows:
$ in millions
2009
2008
Retirement of long-term debt
Dividends paid on common stock
Repurchase of DPL common stock
Repurchase of warrants
Proceeds from exercise of warrants
Cash withdrawn from restricted funds
Proceeds from exercise of stock options
Other
Net cash used for financing activities
$ (227.4)
(128.8)
(64.4)
(25.2)
77.7
14.5
9.0
(3.0)
$ (347.6)
$ (100.0)
(120.5)
–
–
–
32.5
2.2
(1.3)
$ (187.1)
2007
$ (225.0)
(111.7)
–
–
–
63.2
14.6
1.3
$ (257.6)
For the year ended December 31, 2009, DPL redeemed long-term debt totaling $227.4 million and paid
common stock dividends of $128.8 million. Under a stock repurchase program approved by the Board of Directors
in October 2009 (see Note 14 of Notes to Consolidated Financial Statements), DPL repurchased approximately 2.4
million DPL common shares for $64.4 million. In addition, DPL repurchased 8.6 million warrants for $25.2 million.
DPL’s cash inflows during the period include $77.7 million received from the cash exercise of 3.7 million warrants
and the withdrawal of the remaining balance of restricted funds of $14.5 million which was used primarily to fund
the construction of FGD equipment at the Conesville generation station. DPL also received $9.0 million from option
holders who exercised stock options due, in part, to the increase in our average stock price compared to 2008.
DPL Inc.
51
For the year ended December 31, 2008, DPL paid common stock dividends of $120.5 million, retired $100
million of long-term debt and withdrew $32.5 million from restricted funds held in trust to pay for environmental-
related capital expenditures. In comparison to 2007, the lower cash withdrawals from restricted funds in
2008 were primarily due to the timing of costs incurred relating to the installation of FGD and SCR equipment.
In addition, the reduced cash proceeds in 2008 from the exercise of stock options were a direct result of fewer
options exercised.
For the year ended December 31, 2007, DPL retired $225 million of long-term debt, paid common stock
dividends of $111.7 million, withdrew $63.2 million from restricted funds to pay for environmental-related capital
expenditures and received $14.6 million from the exercise of stock options.
DP&L – Net Cash used for Financing Activities
DP&L’s Net cash used for financing activities for the years ended December 31, 2009, 2008 and 2007
can be summarized as follows:
$ in millions
2009
2008
Dividends paid on common stock to parent
Net loan (paid to) / received from parent
Cash withdrawn from restricted funds
Other
Net cash used for financing activities
$ (325.0)
–
14.5
(0.9)
$ (311.4)
$ (155.0)
(20.0)
32.5
(2.5)
$ (145.0)
2007
$ (125.0)
20.0
63.2
(0.9)
$
(42.7)
For the year ended December 31, 2009, DP&L paid $325 million in dividends to DPL and withdrew
the remaining balance of $14.5 million from restricted funds to pay for the Conesville FGD and SCR projects.
For the year ended December 31, 2008, DP&L paid $155 million in dividends to DPL, withdrew
$32.5 million from restricted funds held in trust and repaid the net $20 million short-term loan from DPL.
For the year ended December 31, 2007, DP&L paid $125 million in dividends to DPL, withdrew
$63.2 million from restricted funds held in trust and received a net $20 million short-term loan from DPL.
Liquidity
We expect our existing sources of liquidity to remain sufficient to meet our anticipated obligations. Our business is
capital intensive, requiring significant resources to fund operating expenses, construction expenditures, scheduled
debt maturities, and interest and dividend payments. For 2010 and in subsequent years, we expect to satisfy
these requirements with a combination of cash from operations and funds from the capital markets as our internal
liquidity needs and market conditions warrant. We also expect that the borrowing capacity under credit facilities
will continue to be available to manage working capital requirements during those periods.
We have access to $320 million of short-term financing under two revolving credit facilities. The first facility
for $220 million expires November 2011 and has three participating banks; the lead bank has a total commitment
of 36% while the other two have commitments of 32% each. The second facility is a 364-day $100 million facility
that matures April 2010. A total of six banks participate in this facility, with no bank having more than 26% of
the total commitment. The two bank groups have no common members. We are currently evaluating the impact
the maturity of the $100 million facility will have on our future liquidity and would expect to be able to renew or
replace this facility as needed.
$ in millions
DP&L
DP&L
Type
Maturity
Commitment
Revolving
Revolving
11/21/2011
04/20/2010
$ 220.0
100.0
$ 320.0
Amounts
available as of
December 31, 2009
$ 220.0
100.0
$ 320.0
The $220 million revolver has a $50 million Letter of Credit (LOC) sublimit. As of December 31, 2009,
there were no outstanding LOCs.
Cash and cash equivalents for DPL and DP&L amounted to $74.9 million and $57.1 million, respectively,
at December 31, 2009.
52 DPL Inc.
Capital Requirements
Construction Additions
$ in millions
DPL
DP&L
2009
$ 145
$ 144
Actual
2008
$ 228
$ 225
2007
$ 347
$ 344
2010
$ 210
$ 200
Projected
2011
$ 200
$ 190
2012
$ 180
$ 175
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 is projecting to spend an estimated $590 million in capital projects for the period 2010
through 2012, mostly through its subsidiary DP&L.
Planned construction additions for 2010 relate primarily to new investments in and upgrades to DP&L’s power
plant equipment and transmission and distribution systems. In addition to our capital requirements above, on
August 4, 2009, DP&L re-filed its smart grid and advanced metering infrastructure (AMI) business cases with the
PUCO under which it would spend approximately $270 million on capital projects during the period 2010 through
2012. Approval from the PUCO of these cases is still pending. The re-filing at the PUCO is further discussed in
Note 3 of Notes to Consolidated Financial Statements.
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.
Credit Ratings
The following table outlines the debt credit ratings and outlook of each company, along with the effective dates
of each rating and outlook for DPL and DP&L.
Fitch Ratings
Moody’s Investors Service
Standard & Poor’s Corp.
DPL (a)
A-
Baa1
BBB+
DP&L (b)
Outlook
Effective
AA-
Aa3
A
Stable
Stable
Stable
November 2009
August 2009
April 2009
(a) Credit rating relates to DPL’s Senior Unsecured debt.
(b) Credit rating relates to DP&L’s Senior Secured debt.
Off-Balance Sheet Arrangements
DPL - Guarantees
In the normal course of business, DPL enters into various agreements with its wholly-owned subsidiaries,
DPLE and DPLER, providing financial or performance assurance to third parties. These agreements are entered
into primarily to support or enhance the creditworthiness otherwise attributed to DPLE and DPLER on a stand-
alone basis, thereby facilitating the extension of sufficient credit to accomplish DPLE’s and DPLER’s intended
commercial purposes.
At December 31, 2009, DPL had $51 million of guarantees to third parties for future financial or performance
assurance under such agreements, on behalf of DPLE and DPLER. The guarantee arrangements entered into
by DPL with these third parties cover all present and future obligations of DPLE and DPLER 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 guarantees and recorded in our Consolidated Balance Sheets
was $0.6 million at December 31, 2009 and $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 2007 of the Darby Electric Peaking Station to American Electric
DPL Inc.
53
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 2009, neither DPL nor DP&L incurred any losses related to the guarantees of DPLE’s obligations and we
believe it is remote 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 OVEC, an electric generation company. As of December 31, 2009,
DP&L could be responsible for the repayment of 4.9%, or $54.4 million, of a $1,110 million debt obligation that
matures in 2026. This would only happen if OVEC defaulted on its debt payments. As of December 31, 2009, we
have no knowledge of such a default.
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, 2009, these include:
Payment Year
$ in millions
Total
2010
2011-2012
2013-2014
Thereafter
DPL
Long-term debt
Interest payments
Pension and postretirement payments
Capital leases
Operating leases
Coal contracts (a)
Limestone contracts (a)
Purchase orders and other
contractual obligations
$ 1,324.4
740.0
253.8
0.6
0.5
1,694.3
48.4
$ 100.0
71.5
23.8
0.6
0.3
498.1
5.5
$ 297.4
115.1
48.9
–
0.2
577.2
11.4
$ 470.0
71.4
51.1
–
–
184.4
12.0
$ 457.0
482.0
130.0
–
–
434.6
19.5
162.6
56.9
84.9
14.6
6.2
Total contractual obligations
$ 4,224.6
$ 756.7
$ 1,135.1
$ 803.5
$ 1,529.3
DP&L
Long-term debt
Interest payments
Pension and postretirement payments
Capital leases
Operating leases
Coal contracts (a)
Limestone contracts (a)
Purchase orders and other
contractual obligations
$ 884.4
454.8
253.8
0.6
0.5
1,694.3
48.4
$ 100.0
39.4
23.8
0.6
0.3
498.1
5.5
164.8
58.0
$
–
78.3
48.9
–
0.2
577.2
11.4
86.0
$ 470.0
48.2
51.1
–
–
184.4
12.0
$ 314.4
288.9
130.0
–
–
434.6
19.5
14.6
6.2
Total contractual obligations
$ 3,501.6
$ 725.7
$ 802.0
$ 780.3
$ 1,193.6
(a) Total at DP&L-operated units
Long-term debt:
DPL’s long-term debt as of December 31, 2009, consists of DP&L’s first mortgage bonds and tax-exempt
pollution control bonds and DPL’s unsecured senior notes. These long-term debt amounts include current
maturities but exclude unamortized debt discounts.
DP&L’s long-term debt as of December 31, 2009 consists of its first mortgage bonds and tax-exempt
pollution control bonds. These long-term debt amounts include current maturities but exclude unamortized
debt discounts.
See Note 7 of Notes to Consolidated Financial Statements.
54 DPL Inc.
Interest payments:
Interest payments associated with the long-term debt
described above. The interest payments relating to
variable-rate debt are projected using the interest rate
prevailing at December 31, 2009.
Pension and postretirement payments:
As of December 31, 2009, DPL, through its principal
subsidiary 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 2019.
Capital leases:
As of December 31, 2009, DPL, through its principal
subsidiary DP&L, had one immaterial capital lease
that expires in September 2010.
Operating leases:
As of December 31, 2009, DPL, through its principal
subsidiary DP&L, had several immaterial 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. Some 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 used in the operation of FGD equipment
at its generating facilities.
Purchase orders and other contractual obligations:
As of December 31, 2009, DPL and DP&L had various
other contractual obligations including non-cancelable
contracts to purchase goods and services with various
terms and expiration dates.
Reserve for uncertain tax positions:
Due to the uncertainty regarding the timing of future
cash outflows associated with our unrecognized
tax benefits of $19.3 million, we are unable to make
a reliable estimate of the periods of cash settlement
with the respective tax authorities and have not
included such amounts in the contractual obligations
table above.
Market Risk
We are subject to certain market risks including, but
not limited to, changes in commodity prices for elec-
tricity, coal, environmental emissions and gas and
fluctuations in interest rates. We use various market
risk sensitive instruments, including derivative con-
tracts, primarily to limit our exposure to fluctuations in
commodity pricing. Our Commodity Risk Management
Committee (CRMC), comprising of members of senior
management, is responsible for establishing risk man-
agement policies and the monitoring and reporting of
risk exposures relating to our DP&L-operated genera-
tion units. The CRMC meets on a regular basis with
the objective of identifying, assessing and quantifying
material risk issues and developing strategies to
manage these risks.
Commodity Pricing Risk
Commodity pricing risk exposure includes the impacts
of weather, market demand, increased competition
and other economic conditions. To manage the volatil-
ity relating to these exposures at our DP&L-operated
generation units, we use a variety of non-derivative
and derivative instruments including forward contracts
and futures contracts. These derivative instruments
are used principally for economic hedging purposes
and none are held for trading purposes. The major-
ity of our commodity contracts are not considered
derivative instruments under GAAP and are therefore
excluded from MTM accounting. Derivatives that fall
within the scope of derivative accounting under GAAP
must be recorded at their fair value and marked to
market unless they qualify for hedge accounting. MTM
gains and losses on derivative instruments that qualify
for hedge accounting are deferred in AOCI until the
forecasted transactions occur. We adjust the derivative
instruments that do not qualify for cash flow hedging
to fair value on a monthly basis and where applicable,
we recognize a corresponding Regulatory asset for
above-market costs or a regulatory liability for below-
market costs in accordance with Regulatory account-
ing under GAAP.
During 2008 and 2009, the coal market has expe-
rienced unprecedented price volatility. The coal market
has increasingly been influenced by both international
and domestic supply and consumption and, while we
have all of the total expected coal volume needed to
meet our retail and firm wholesale sales requirements
DPL Inc.
55
for 2010 under contract, sales requirements may
change, particularly for retail load. To the extent we
are not able to hedge against price volatility or recover
increases through our fuel rider that began in January
2010, our results of operations, financial position or
cash flows could be materially affected.
The following table provides a reconciliation of the
MTM positions of the commodity derivative contracts
included on our balance sheets at December 31, 2009:
corresponding 10% change in the portion of purchased
power used as part of the sale (note the share of
the internal generation used to meet the wholesale
sale would not be affected by the 10% change in
wholesale prices):
$ in millions
DPL
DP&L
Effect of 10% change in
price per mWh
$ 7.9
$ 12.0
$ in millions
2009
Fair Value of Commodity
Derivative Contracts:
Outstanding net asset / (liability)
at January 1, 2009
Gains / (losses) on settled contracts
Changes in fair value on contracts still held
Outstanding net asset / (liability)
at December 31, 2009
$
(6.6)
(3.2)
11.2
$
1.4
The impact of the change in the fair values of the com-
modity derivative contracts between January 1, 2009
and December 31, 2009 is detailed in the table below:
$ in millions
Year ended December 31, 2009
Effect on the statements of results
of operations:
Effect on the balance sheets:
Accumulated other comprehensive income
Regulatory liability (net)
Partner payable
Total net change on balance sheets
Total net change
$
1.8
$
$
$
3.4
1.0
1.8
6.2
8.0
The net asset/liability of the MTM positions above are
expected to mature within the next three years.
For purposes of potential risk analysis, we use a
sensitivity analysis to quantify potential impacts of mar-
ket rate changes on the statements of results of opera-
tions. The sensitivity analysis represents hypothetical
changes in market values that may or may not occur
in the future.
Approximately 16% of DPL’s and 19% of DP&L’s
electric revenues for the year ended December 31,
2009 were from sales of excess energy and capacity
in the wholesale market. Energy in excess of the
needs of existing retail customers is sold in the
wholesale market when we can identify opportunities
with positive margins.
The table below provides the effect on annual Net
income as of December 31, 2009, of a hypothetical
increase or decrease of 10% in the price per megawatt
hour of wholesale power, including the impact of a
DPL’s fuel (including coal, gas, oil and emission allow-
ances) and purchased power costs as a percentage
of total operating costs in the years ended December
31, 2009 and 2008 were 33% and 33%, respectively.
DP&L’s fuel (including coal, gas, oil and emission
allowances) and purchased power costs as a percent-
age of total operating costs were 33% and 34% for the
years ended December 31, 2009 and 2008, respec-
tively. We have substantially all of the total expected
coal volume needed to meet our retail and firm whole-
sale sales requirements for 2010 under contract. The
majority of our contracted coal is purchased at fixed
prices although some contracts provide for periodic
pricing adjustments. We do not expect to purchase
SO2 allowances for 2010; however, the exact consump-
tion of SO2 allowances will depend on market prices
for power, availability of our generation units and the
actual sulfur content of the coal burned. We do not
plan to purchase NOx allowances for 2010. Fuel costs
are impacted by changes in volume and price and are
driven by a number of variables including weather, reli-
ability of coal deliveries, scheduled outages and gen-
eration plant mix.
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 generation costs.
Effective January 1, 2010, DP&L is allowed to
recover its Ohio retail jurisdictional share of fuel and
purchased power costs, of approximately 80%, as
part of the fuel rider approved by the PUCO. The table
below provides the effect on annual net income as
of December 31, 2009, of a hypothetical increase or
decrease of 10% adjusted for the approximate 80%
recovery in the prices of fuel and purchased power:
$ in millions
DPL
DP&L
Effect of 10% change in
fuel and purchased power
$ 6.3
$
5.8
56 DPL Inc.
Interest Rate Risk
As a result of our normal investing and borrowing activities, our financial results are exposed to fluctuations 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 comparable market index. Market indexes can be affected by market demand, supply,
market interest rates and other economic conditions.
The carrying value of DPL’s debt was $1,324.1 million at December 31, 2009, consisting of DP&L’s first
mortgage bonds, DP&L’s tax-exempt pollution control bonds, DP&L’s revolving credit facilities, DPL’s unsecured
notes and DP&L’s capital lease. The fair value of this debt was $1,317.6 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
$ in millions
Long-term debt
Variable-rate debt
Average interest rate
Fixed-rate debt
Average interest rate
Total
2010
2011
2012
2013
2014
Carrying
value at
Fair
value at
December 31, December 31,
2009 (a)
2009 (a)
Thereafter
$ 100.0
0.3%
0.6
$
1.8%
– $
$
N/A
$ 297.4 $
6.9%
–
N/A
–
N/A
$
–
N/A
$ 470.0
5.1%
$
–
N/A
–
$
N/A
$
–
N/A
$ 456.1
5.8%
$ 100.0
0.3%
$ 1,224.1
5.8%
$ 100.0
$ 1,217.6
$ 1,324.1
$ 1,317.6
(a) Fixed rate debt totals include unamortized debt discounts.
The carrying value of DP&L’s debt was $884.3 million at December 31, 2009, consisting of its first mortgage
bonds, tax-exempt pollution control bonds, revolving credit facilities and a capital lease. The fair value of this debt
was $844.5 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 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
2010
2011
2012
2013
2014
Carrying
value at
Fair
value at
December 31, December 31,
2009 (a)
2009 (a)
Thereafter
$ 100.0
0.3%
$
0.6
1.8%
– $
– $
$
N/A
$
N/A
–
N/A
–
N/A
$
–
N/A
$ 470.0
5.1%
$
–
N/A
$
–
N/A
$
–
N/A
$ 313.7
4.8%
$ 100.0
0.3%
$ 784.3
5.0%
$ 100.0
$ 744.5
$ 884.3
$ 844.5
(a) Fixed rate debt totals include unamortized debt discounts.
Debt maturities occurring in 2010 are discussed under Financial Condition, Liquidity and Capital Requirements.
Long-term Debt Interest Rate Risk Sensitivity Analysis
Our estimate of market risk exposure is presented for our fixed-rate and variable-rate debt at December 31, 2009
and 2008 for which an immediate adverse market movement causes a potential material impact on our financial
position, results of operations, or the fair value of the debt. We believe that the adverse market movement
represents the hypothetical loss to future earnings and does not represent the maximum possible loss nor any
expected actual loss, even under adverse conditions, because actual adverse fluctuations would likely differ.
DPL Inc.
57
As of December 31, 2009 and 2008, we did not hold any market risk sensitive instruments which were
entered into for trading purposes.
DPL
$ in millions
Long-term debt
Variable-rate debt
Fixed-rate debt
Total
DP&L
$ in millions
Long-term debt
Variable-rate debt
Fixed-rate debt
Total
Carrying value at
December 31,
2009
Fair value at
December 31,
2009
One Percent
Interest Rate
Risk
Carrying value at
December 31,
2008
Fair value at One Percent
Interest Rate
Risk
December 31,
2008
$
100.0
1,224.1
$
100.0
1,217.6
$ 1,324.1
$ 1,317.6
$ 1.0
12.2
$ 13.2
$ 100.0
1,451.8
$ 100.0
1,370.5
$ 1,551.8
$ 1,470.5
$
$
1.0
13.7
14.7
Carrying value at
December 31,
2009
Fair value at
December 31,
2009
One Percent
Interest Rate
Risk
Carrying value at
December 31,
2008
Fair value at One Percent
Interest Rate
Risk
December 31,
2008
$
100.0
784.3
$
100.0
744.5
$
884.3
$
844.5
$ 1.0
7.5
$ 8.5
$ 100.0
784.7
$ 100.0
715.7
$ 884.7
$ 815.7
$
$
1.0
7.2
8.2
DPL’s debt is comprised of both fixed-rate debt and variable-rate debt. In regard to fixed rate debt, the interest
rate risk with respect to DPL’s long-term debt, excluding capital lease obligations, primarily relates to the potential
impact a decrease of one percentage point in interest rates has on the fair value of DPL $1,224.1 million of
fixed-rate debt and not on DPL’s financial position or results of operations. On the variable-rate debt, the interest
rate risk with respect to DPL’s long-term debt represents the potential impact an increase of one percentage point
in the interest rate has on DPL’s results of operations related to DP&L’s $100 million variable-rate long-term debt
outstanding as of December 31, 2009.
DP&L’s interest rate risk with respect to DP&L’s long-term debt primarily relates to the potential impact a
decrease in interest rates of one percentage point has on the fair value of DP&L’s $784.3 million of fixed-rate debt
and not on DP&L’s financial position or DP&L’s results of operations. On the variable-rate debt, the interest rate
risk with respect to DP&L’s long-term debt represents the potential impact an increase of one percentage point in
the interest rate has on DP&L’s results of operations related to DP&L’s $100 million variable-rate long-term debt
outstanding as of December 31, 2009.
Equity Price Risk
As of December 31, 2009, approximately 35.0% of the defined benefit pension plan assets were comprised of
investments in equity securities and 65.0% related to investments in fixed income securities, cash and cash
equivalents, and alternative investments. The equity securities are carried at their market value of approximately
$85.1 million at December 31, 2009. A hypothetical 10% decrease in prices quoted by stock exchanges
would result in an $8.5 million reduction in fair value as of December 31, 2009 and approximately a $0.5 million
increase to the 2010 pension expense.
Credit Risk
Credit risk is the risk of an obligor’s failure to meet the terms of any investment contract, loan agreement or
otherwise perform as agreed. Credit risk arises from all activities in which success depends on issuer, borrower
or counterparty performance, whether reflected on or off the balance sheet. We limit our credit risk by assessing
the creditworthiness of potential counterparties before entering into transactions with them and continue to
evaluate their creditworthiness after transactions have been originated. We use the three leading corporate credit
rating agencies and other current market-based qualitative and quantitative data to assess the financial strength
of counterparties on an ongoing basis. We may require various forms of credit assurance from counterparties in
order to mitigate credit risk.
58 DPL Inc.
Critical Accounting Estimates
DPL’s and DP&L’s Consolidated Financial Statements
are prepared in accordance with U.S. GAAP. In con-
nection with the preparation of these financial state-
ments, our management is required to make assump-
tions, 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 assump-
tions 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; unbilled revenues;
the valuation of derivative instruments; the valuation of
insurance and claims liabilities; the valuation of allow-
ances for receivables and deferred income taxes;
regulatory assets and liabilities; reserves recorded for
income tax exposures; litigation; contingencies; the
valuation of AROs; and assets and liabilities related to
employee benefits.
Impairments and Assets Held for Sale: In accordance
with the provisions of GAAP relating to the account-
ing for impairments, long-lived assets to be held and
used are reviewed for impairment whenever events or
circumstances indicate that the carrying 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 recoverability using future cash flows, we
make projections based on a number of assumptions
and estimates of growth rates, future economic condi-
tions, 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 recover-
able from its undiscounted cash flows. The measure-
ment of impairment loss is the difference between the
carrying amount and fair value of the asset. Long-lived
assets to be disposed of 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 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 deter-
mined by the estimation of unbilled energy provided
to customers since the date of the last meter reading,
projected line losses, the assignment of unbilled ener-
gy 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 tax-
ing 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. We have adopted the provisions
of GAAP relating to the accounting for uncertainty in
income taxes. Taking into consideration the uncertainty
and judgment involved in the determination and fil-
ing of income taxes, these GAAP provisions establish
standards for recognition and measurement in financial
statements of positions taken, or expected to be taken,
by an entity on its income tax returns. Positions taken
DPL Inc.
59
by an entity on its income tax returns that are recog-
nized in the financial statements must satisfy 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 repre-
sent future effects on income taxes for temporary dif-
ferences 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 forecasted taxable income
or successfully implement tax planning strategies may
affect the realization of deferred tax assets.
Regulatory Assets and Liabilities: Application of the
provisions of GAAP relating to regulatory accounting
requires us to reflect the effect of rate regulation in
our Consolidated Financial Statements. For regulated
businesses subject to federal or state cost-of-service
rate regulation, regulatory practices that assign costs
to accounting periods may differ from accounting
methods generally applied by nonregulated compa-
nies. 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 nonregu-
lated companies. Likewise, we recognize Regulatory
liabilities when it is probable that regulators will require
customer refunds through future rates and when rev-
enue is collected from customers for expenses 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
Regulatory 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 histori-
cal experience, as well as discussions with applicable
regulatory authorities. 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.
AROs: In accordance with the provisions of GAAP
relating to the accounting for AROs, legal obligations
associated with the retirement of long-lived assets are
required 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 allocated to expense over
the useful life of the asset. These GAAP provisions
also require that components of previously recorded
depreciation related to the cost of removal of assets
upon retirement, whether legal AROs or not, must be
removed from a company’s accumulated deprecia-
tion reserve. We make assumptions, estimates and
judgments that affect the reported amounts of assets,
liabilities and expenses as they relate to AROs. These
assumptions and estimates are based on historical
experience and assumptions that we believe to be rea-
sonable at the time.
Insurance and Claims Costs: In addition to insurance
obtained from third-party providers, MVIC, a wholly-
owned captive subsidiary of DPL, provides insurance
coverage solely to us, our subsidiaries and, in some
cases, our partners in commonly-owned facilities we
operate, for workers’ compensation, general liability,
property damage, and directors’ and officers’ liabil-
ity. Insurance and Claims Costs on the Consolidated
Balance Sheets of DPL include insurance reserves
of approximately $16.2 million and $17.6 million for
2009 and 2008, respectively. Furthermore, DP&L is
responsible for claim costs below certain coverage
thresholds of MVIC for the insurance coverage noted
above. In addition, DP&L has medical, life and dis-
ability reserves for claims costs below certain coverage
thresholds of third-party providers. DPL and DP&L
record these additional insurance and claims costs of
approximately $11.3 million and $9.8 million for 2009
and 2008, respectively, within Other current liabilities
and Other deferred credits on the balance sheets. The
60 DPL Inc.
MVIC reserves at DPL and the workers’ compensation,
medical, life and disability reserves at DP&L are actu-
arially determined based on a reasonable estimation of
insured events occurring. There is uncertainty associ-
ated with the loss estimates and actual results may
differ from the estimates. Modification of these loss
estimates based on experience and changed circum-
stances is reflected in the period in which the estimate
is re-evaluated.
Pension and Postretirement Benefits: We account for
and disclose pension and postretirement benefits in
accordance with the provisions of GAAP relating to the
accounting for pension and other postretirement plans.
These GAAP provisions require the use of assump-
tions, 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 2010, we are maintaining our long-term rate of
return assumptions of 8.50% for pension and 6.00% for
other postemployment benefit plan assets representing
our long-term assumptions based on our current port-
folio mix. We have decreased our assumed discount
rate to 5.75% for pension and 5.35% for postretirement
benefits expense to reflect current duration-based yield
curve discount rates. A one percent change in the
rate of return assumption for pension would result in
an increase or decrease to the 2010 pension expense
of approximately $2.5 million. A one percent change
in the discount rate for pension would result in an
increase or decrease to the 2010 pension expense of
approximately $2.0 million. We do not anticipate any
special adjustments to expense in 2010.
In future periods, differences in the actual return
on pension and other post-employment benefit plan
assets and assumed return, or changes in the discount
rate, will affect the timing of contributions to the plans,
if any. We provide postretirement health care benefits
to employees who retired prior to 1987. A one percent-
age point change in the assumed health care cost
trend rate would affect postretirement 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 GAAP. 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 19 of Notes to Consolidated Financial
Statements and in Item 3 – Legal Proceedings. A dis-
cussion of environmental matters and competition and
regulation matters affecting both DPL and DP&L is
described in Item 1 – Environmental Considerations
and Item 1 – Competition and Regulation. Such
discussions are incorporated 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 pronounce-
ments is described in Note 1 of Notes to Consolidated
Financial Statements and such discussion is incorpo-
rated 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.
DPL Inc.
61
Item 8 Financial Statements and Supplementary Data
This report includes the combined filing of DPL and DP&L. DP&L is the principal subsidiary of DPL providing
approximately 98% of DPL’s total consolidated revenue and approximately 95% 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
2009
2008
2007
For the years ended December 31,
$ 1,588.9
$ 1,601.6
$ 1,515.7
Revenues
Cost of revenues:
Fuel
Purchased power
Total cost of revenues
Gross margin
Operating expenses:
Operation and maintenance
Depreciation and amortization
General taxes
Total operating expenses
Operating income
Other income /(expense), net
Investment income (loss)
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
330.4
260.2
590.6
998.3
306.5
145.5
118.1
570.1
428.2
(0.6)
–
(83.0)
(3.0)
(86.6)
341.6
112.5
229.1
–
243.0
377.4
620.4
981.2
282.5
137.7
125.5
545.7
328.2
287.2
615.4
900.3
283.6
134.8
111.8
530.2
435.5
370.1
3.6
–
(90.7)
(1.0)
(88.1)
347.4
102.9
244.5
–
11.3
31.0
(81.0)
2.9
(35.8)
334.3
122.5
211.8
10.0
$ 221.8
Net income
$ 229.1
$ 244.5
Average number of common shares outstanding (millions)
Basic
Diluted
112.9
114.2
110.2
115.4
107.9
117.8
Earnings per share of common stock
Basic:
Earnings from continuing operations
Earnings from discontinued operations, net of tax
Total Basic
Diluted:
Earnings from continuing operations
Earnings from discontinued operations, net of tax
Total Diluted
See Notes to Consolidated Financial Statements.
62 DPL Inc.
$
2.03
–
$
2.03
$
2.01
–
$
2.01
$
2.22
–
$
2.22
$
2.12
–
$
2.12
$
1.97
0.09
$
2.06
$
1.80
0.08
$
1.88
DPL Inc.
Consolidated Statements of Cash Flows
$ in millions
Cash flows from operating activities:
Net income
Less: Earnings from discontinued operations, net of tax
Earnings from continuing operations
Adjustments to reconcile Net income to Net cash provided by
operating activities:
Depreciation and amortization
Deferred income taxes
Net gain on settlement of executive litigation
Net gain on sale of property
Changes in certain assets and liabilities:
Accounts receivable
Inventories
Taxes applicable to subsequent years
Deferred regulatory costs, net
Accounts payable
Accrued taxes payable
Accrued interest payable
Pension, retiree and other benefits
Unamortized investment tax credit
Insurance and other claim costs
Other
Net cash provided by operating activities
Cash flows from investing activities:
Capital expenditures
Net proceeds from sale of property – peakers
Proceeds from sale of property – aircraft
Proceeds from sale of property – other
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:
Dividends paid on common stock
Repurchase of DPL common stock
Repurchase of warrants
Proceeds from exercise of warrants
Retirement of long-term debt
Early redemption of Capital Trust II notes
Premium paid for early redemption of debt
Issuance of pollution control bonds, net
Retirement of pollution control bonds
Pollution control bond proceeds held in trust
Withdrawal of restricted funds held in trust
Withdrawals from revolving credit facilities
Repayment of borrowings from revolving credit facilities
Exercise of stock options
Tax impact related to exercise of stock options
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 (refunded) / paid, net
Non-cash financing and investing activities:
Accruals for capital expenditures
See Notes to Consolidated Financial Statements.
For the years ended December 31,
2009
2008
2007
$ 229.1
–
229.1
$ 244.5
–
244.5
$ 221.8
(10.0)
211.8
145.5
201.6
–
–
39.3
(20.6)
(1.5)
(24.6)
(65.0)
(2.4)
(1.5)
15.2
(2.8)
(1.4)
15.2
526.1
(172.3)
–
–
1.2
–
5.0
(166.1)
(128.8)
(64.5)
(25.2)
77.7
(175.0)
(52.4)
(3.7)
–
–
–
14.5
260.0
(260.0)
9.0
0.7
(347.6)
137.7
43.1
–
–
(18.7)
(0.2)
(10.0)
(12.9)
27.0
(46.1)
(0.8)
31.2
(2.8)
(2.4)
(26.4)
363.2
(243.6)
–
–
–
(4.9)
–
(248.5)
(120.5)
–
–
–
(100.0)
–
–
98.4
(90.0)
(10.0)
32.5
115.0
(115.0)
2.2
0.3
(187.1)
12.4
62.5
$ 74.9
(72.4)
134.9
$ 62.5
$ 84.3
$ (94.6)
$ 86.8
$ 127.3
134.8
3.1
(31.0)
(6.0)
(18.9)
(19.6)
(0.1)
9.4
(0.5)
19.9
(9.4)
26.7
(2.8)
(1.9)
2.6
318.1
(346.2)
151.0
7.4
–
–
–
(187.8)
(111.7)
–
–
–
(225.0)
–
–
90.0
–
(90.0)
63.2
95.0
(95.0)
14.6
1.3
(257.6)
(127.3)
262.2
$ 134.9
$ 87.8
$ 115.6
$ 20.8
$ 34.1
$ 45.6
DPL Inc.
63
DPL Inc.
Consolidated Balance Sheets
$ in millions
Assets
Current assets:
Cash and cash equivalents
Restricted funds held in trust
Accounts receivable, net (Note 2)
Inventories (Note 2)
Taxes applicable to subsequent years
Other prepayments and current assets
Total current assets
Property, plant and equipment:
Property, plant and equipment
Less: Accumulated depreciation and amortization
Construction work in progress
Total net property, plant and equipment
Other noncurrent assets:
Regulatory assets (Note 3)
Other deferred assets
Total other noncurrent assets
Total Assets
Liabilities and Shareholders’ Equity
Current liabilities:
Current portion – long-term debt
Accounts payable
Accrued taxes
Accrued interest
Customer security deposits
Other current liabilities
Total current liabilities
Noncurrent liabilities:
Long-term debt
Deferred taxes
Regulatory liabilities (Note 3)
Pension, retiree and other benefits
Unamortized investment tax credit
Insurance and claims costs
Other deferred credits
Total noncurrent liabilities
Redeemable preferred stock of subsidiary
Commitments and contingencies (Note 19)
Common shareholders’ equity:
Common stock, at par value of $0.01 per share:
December 2009 December 2008
Shares authorized
Shares issued
Shares outstanding
250,000,000
163,724,211
118,966,767
250,000,000
163,724,211
115,961,880
Warrants
Common stock held by employee plans
Accumulated other comprehensive loss
Retained earnings
Total common shareholders’ equity
At December 31,
2009
2008
$
74.9
–
212.8
125.7
59.5
24.1
497.0
$
62.5
14.5
259.9
105.1
58.0
26.7
526.7
5,269.2
(2,466.0)
2,803.2
5,073.4
(2,350.6)
2,722.8
89.0
2,892.2
214.2
38.3
252.5
153.6
2,876.4
195.6
38.3
233.9
$ 3,641.7
$ 3,637.0
$
100.6
77.2
70.2
23.5
19.4
24.0
314.9
1,223.5
569.1
125.4
111.7
35.2
16.2
122.9
2,204.0
$
175.7
178.3
72.9
25.0
19.8
14.7
486.4
1,376.1
374.1
121.9
94.7
38.0
17.6
108.2
2,130.6
22.9
22.9
1.2
2.9
(19.3)
(29.0)
1,144.1
1,099.9
1.2
31.0
(27.6)
(23.1)
1,015.6
997.1
Total Liabilities and Shareholders’ Equity
$ 3,641.7
$ 3,637.0
See Notes to Consolidated Financial Statements.
64 DPL Inc.
DPL Inc.
Consolidated Statements of Shareholders’ Equity
in millions (except Outstanding Shares)
Shares Amount
Warrants
Common Stock
(a)
Outstanding
Common
Stock Held
by Employee
Plans
Accumulated
Other
Comprehensive
Income / (Loss)
Retained
Earnings
Total
Beginning balance
113,018,972
$ 1.1
$ 50.0
$ (69.0)
$
4.8
$ 736.5
$ 723.4
2007:
Net income
Change in unrealized gains (losses) on
financial instruments, net of tax
Change in deferred gains (losses) on
cash flow hedges, net of tax
Change in unrealized gains (losses) on
pension and postretirement benefits,
net of tax
Total comprehensive income
Common stock dividends (a)
Treasury stock reissued
Tax effects to equity
Employee / Director stock plans
Other
539,472
29.2
0.1
221.8
(0.9)
(5.5)
2.2
(111.7)
16.0
1.3
6.5
0.1
217.6
(111.7)
16.0
1.3
35.7
0.2
Ending balance
113,558,444
$ 1.1
$ 50.0
$ (39.7)
$
0.6
$ 870.5
$ 882.5
2008:
Net income
Change in unrealized gains (losses) on
financial instruments, net of tax
Change in deferred gains (losses) on
cash flow hedges, net of tax
Change in unrealized gains (losses) on
pension and postretirement benefits,
net of tax
Total comprehensive income
Common stock dividends (a)
Treasury stock reissued
Tax effects to equity
Employee / Director stock plans
Other
244.5
(0.5)
(1.7)
(21.5)
(120.5)
21.2
0.3
(0.3)
(0.1)
220.8
(120.5)
2.3
0.3
11.8
(0.1)
2,403,436
0.1
(19.0)
12.1
Ending balance
115,961,880
$ 1.2
$ 31.0
$ (27.6)
$ (23.1) $ 1,015.6
$ 997.1
2009:
Net income
Change in unrealized gains (losses) on
financial instruments, net of tax
Change in deferred gains (losses) on
cash flow hedges, net of tax
Change in unrealized gains (losses) on
pension and postretirement benefits,
net of tax
Total comprehensive income
Common stock dividends (a)
Repurchase of warrants
Exercise of warrants
Treasury stock puchased
Treasury stock reissued
Tax effects to equity
Employee / Director stock plans
Other
4,973,629
(2,388,391)
419,649
(13.6)
(14.5)
8.3
229.1
0.5
(3.7)
(2.7)
(128.8)
(11.6)
92.2
(64.4)
10.1
0.8
0.5
0.6
223.2
(128.8)
(25.2)
77.7
(64.4)
10.1
0.8
8.8
0.6
Ending balance
118,966,767
$ 1.2
$ 2.9
$ (19.3)
$ (29.0) $ 1,144.1
$ 1,099.9
(a) Common stock dividends per share were $1.04 in 2007, $1.10 in 2008 and $1.14 in 2009.
See Notes to Consolidated Financial Statements.
DPL Inc.
65
The Dayton Power and Light Company
Statements of Results of Operations
$ in millions
Revenues
Cost of revenues:
Fuel
Purchased power
Total cost of revenues
Gross margin
Operating expenses:
Operation and maintenance
Depreciation and amortization
General taxes
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
Dividends on preferred stock
Earnings on common stock
See Notes to Consolidated Financial Statements.
For the years ended December 31,
2009
2008
2007
$ 1,550.4
$ 1,572.9
$ 1,507.4
323.6
259.2
582.8
231.4
379.9
611.3
315.4
300.3
615.7
967.6
961.6
891.7
293.4
135.5
116.8
545.7
273.0
127.8
124.2
525.0
281.8
124.5
110.3
516.6
421.9
436.6
375.1
2.8
–
(38.5)
(2.8)
(38.5)
383.4
124.5
258.9
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
0.9
0.9
0.9
$ 258.0
$ 284.9
$ 270.7
66 DPL Inc.
The Dayton Power and Light Company
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
Deferred income taxes
Gain on transfer of assets to pension plan
Net gain on settlement of executive litigation
Changes in certain assets and liabilities:
Accounts receivable
Inventories
Taxes applicable to subsequent years
Deferred regulatory costs, net
Accounts payable
Accrued taxes payable
Accrued interest payable
Pension, retiree and other benefits
Unamortized investment tax credit
Other
Net cash provided by operating activities
Cash flows from investing activities:
Capital expenditures
Net cash used for investing activities
Cash flows from financing activities:
Dividends paid on common stock to parent
Dividends paid on preferred stock
Issuance of pollution control bonds, net
Retirement of pollution control bonds
Pollution control bond proceeds held in trust
Withdrawal of restricted funds held in trust, net
Withdrawals from revolving credit facilities
Repayment of borrowings from revolving credit facilities
Payment of short-term debt held by parent
Issuance of short-term debt to parent
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 (refunded) / paid, net
Non-cash financing and investing activities:
Accruals for capital expenditures
See Notes to Consolidated Financial Statements.
For the years ended December 31,
2009
2008
2007
$ 258.9
$ 285.8
$ 271.6
135.5
200.1
–
–
25.7
(20.5)
(1.3)
(24.6)
(65.9)
(0.9)
0.2
15.2
(2.8)
(4.5)
515.1
(167.4)
(167.4)
(325.0)
(0.9)
–
–
–
14.5
260.0
(260.0)
–
–
(311.4)
36.3
20.8
$ 57.1
$ 39.5
$ (94.7)
127.8
40.9
–
–
(3.5)
(0.2)
(9.9)
(12.9)
26.9
(50.0)
–
31.3
(2.8)
(38.8)
394.6
(242.0)
(242.0)
(155.0)
(0.9)
98.4
(90.0)
(10.0)
32.5
115.0
(115.0)
(20.0)
–
(145.0)
7.6
13.2
$ 20.8
$ 33.4
$ 127.0
124.5
(0.2)
(14.8)
(35.3)
(19.0)
(20.6)
(0.1)
9.4
1.9
18.4
0.3
26.6
(2.8)
(6.9)
353.0
(343.2)
(343.2)
(125.0)
(0.9)
90.0
–
(90.0)
63.2
–
–
(85.0)
105.0
(42.7)
(32.9)
46.1
$ 13.2
$ 18.5
$ 114.7
$ 20.8
$ 34.1
$ 45.6
DPL Inc.
67
The Dayton Power and Light Company
Balance Sheets
$ in millions
Assets
Current assets:
Cash and cash equivalents
Restricted funds held in trust
Accounts receivable, net (Note 2)
Inventories (Note 2)
Taxes applicable to subsequent years
Other prepayments and current assets
Total current assets
Property, plant and equipment:
Property, plant and equipment
Less: Accumulated depreciation and amortization
Construction work in progress
Total net property, plant and equipment
Other noncurrent assets:
Regulatory assets (Note 3)
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
Customers security deposits
Other current liabilities
Total current liabilities
Noncurrent liabilities:
Long-term debt
Deferred taxes
Regulatory liabilities (Note 3)
Pension, retiree and other benefits
Unamortized investment tax credit
Other deferred credits
Total noncurrent liabilities
Redeemable preferred stock
Commitments and contingencies (Note 19)
Common shareholder’s equity:
Common stock, at par value of $0.01 per share
Other paid-in capital
Accumulated other comprehensive loss
Retained earnings
Total common shareholder’s equity
Total Liabilities and Shareholder’s Equity
See Notes to Consolidated Financial Statements.
68 DPL Inc.
At December 31,
2009
2008
$
57.1
–
192.0
124.3
59.2
26.0
458.6
$
20.8
14.5
225.4
103.8
57.9
23.9
446.3
5,011.0
(2,370.7)
2,640.3
4,817.9
(2,265.5)
2,552.4
87.9
2,728.2
214.2
56.4
270.6
153.0
2,705.4
195.6
50.4
246.0
$ 3,457.4
$ 3,397.7
$
100.6
75.1
68.6
13.1
19.4
23.2
300.0
783.7
553.0
125.4
111.7
35.2
122.9
$
0.7
176.6
70.5
12.9
19.8
14.2
294.7
884.0
358.3
121.9
94.7
38.0
108.3
1,731.9
1,605.2
22.9
22.9
0.4
781.6
(19.7)
640.3
0.4
783.1
(16.1)
707.5
1,402.6
1,474.9
$ 3,457.4
$ 3,397.7
The Dayton Power and Light Company
Statements of Shareholder’s Equity
$ in millions (except Outstanding Shares)
Common Stock (a)
Outstanding
Shares
Amount
Other
Paid-in
Capital
Accumulated
Other
Comprehensive
Income / (Loss)
Retained
Earnings
Total
Beginning balance
41,172,173
$ 0.4
$ 783.7
$ 28.1
$ 432.0
$ 1,244.2
2007:
Net income
Change in unrealized gains (losses) on
financial instruments, net of tax
Change in deferred gains (losses) on
cash flow hedges, net of tax
Change in unrealized gains (losses) on
pension and postretirement benefits,
net of tax
Total comprehensive income
Common stock dividends
Preferred stock dividends
Tax effects to equity
Employee / Director stock plans
Other
271.6
(7.7)
(5.5)
2.2
1.3
(0.3)
0.1
(125.0)
(0.9)
(0.1)
260.6
(125.0)
(0.9)
1.3
(0.3)
–
Ending balance
41,172,173
$ 0.4
$ 784.8
$ 17.1
$ 577.6
$ 1,379.9
2008:
Net income
Change in unrealized gains (losses) on
financial instruments, net of tax
Change in deferred gains (losses) on
cash flow hedges, net of tax
Change in unrealized gains (losses) on
pension and postretirement benefits,
net of tax
Total comprehensive income
Common stock dividends
Preferred stock dividends
Tax effects to equity
Employee / Director stock plans
285.8
(9.8)
(1.7)
(21.7)
0.3
(2.0)
(155.0)
(0.9)
252.6
(155.0)
(0.9)
0.3
(2.0)
Ending balance
41,172,173
$ 0.4
$ 783.1
$ (16.1)
$ 707.5
$ 1,474.9
2009:
Net income
Change in unrealized gains (losses) on
financial instruments, net of tax
Change in deferred gains (losses) on
cash flow hedges, net of tax
Change in unrealized gains (losses) on
pension and postretirement benefits,
net of tax
Total comprehensive income
Common stock dividends
Preferred stock dividends
Tax effects to equity
Employee / Director stock plans
Other
258.9
2.7
(3.7)
(2.7)
(325.0)
(0.9)
0.1
(0.2)
255.2
(325.0)
(0.9)
0.8
(2.5)
0.1
0.8
(2.5)
0.2
Ending balance
41,172,173
$ 0.4
$ 781.6
$ (19.7)
$ 640.3
$ 1,402.6
(a) 50,000,000 shares authorized.
See Notes to Consolidated Financial Statements.
DPL Inc.
69
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 95% of DPL’s total consoli-
dated 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.
Some of the Notes presented in this report are only
applicable to DPL or DP&L as indicated. The other
Notes apply to both registrants and the financial infor-
mation presented is segregated by registrant.
1 Overview and Summary of Significant
Accounting Policies
Description of Business
DPL is a diversified regional energy company orga-
nized in 1985 under the laws of Ohio. DPL’s principal
subsidiary is DP&L. DP&L is a public utility incorporat-
ed in 1911 under the laws of Ohio. DP&L is engaged
in generation, transmission, distribution and the sale
of 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 500,000
retail customers. Principal industries served include
automotive, food processing, paper, plastic manufac-
turing and defense.
DP&L’s sales reflect the general economic condi-
tions and seasonal weather patterns of the area. DP&L
sells any excess energy and capacity into the whole-
sale market.
DPL’s other significant subsidiaries include DPLE,
which engages in the operation of peaking generat-
ing facilities; DPLER, which is a CRES provider selling
retail electric energy and other energy services; and
MVIC, our captive insurance company that provides
insurance services to us and our subsidiaries. All of
DPL’s subsidiaries are wholly-owned.
DPL also has a wholly-owned business trust,
DPL Capital Trust II, formed for the purpose of issuing
trust capital securities to investors.
DPL and DP&L conduct their principal business
in one business segment – Electric.
DP&L’s electric transmission and distribution busi-
nesses are subject to rate regulation by federal and
state regulators while its generation business is not
subject to such regulation. Accordingly, DP&L applies
the accounting standards for regulated operations to
its electric transmission and distribution businesses
and records regulatory assets when incurred costs are
expected to be recovered in future customer rates, and
regulatory liabilities when current cost recoveries in
customer rates relate to expected future costs.
Financial Statement Presentation
We prepare Consolidated Financial Statements for
DPL. DPL’s Consolidated Financial Statements include
the accounts of DPL and its wholly-owned subsidiar-
ies. DPL Capital Trust II is not consolidated, consistent
with the provisions of GAAP relating to variable interest
entities.
DP&L has an undivided ownership interest in
seven electric generating facilities and numerous trans-
mission facilities. These undivided interests in jointly
owned facilities are accounted for on a pro rata basis
in DP&L’s Financial Statements.
All material intercompany accounts and transac-
tions are eliminated in consolidation.
We have evaluated all subsequent events through
February 11, 2010 which is the date these financial
statements were filed with the SEC.
The preparation of financial statements in con-
formity with GAAP requires us to make estimates and
judgments that affect the reported amounts of assets
and liabilities, the disclosure of contingent assets and
liabilities, and the revenue and expenses of the periods
reported. Actual results could differ from those esti-
mates. Significant items subject to such estimates and
judgments include: the carrying value of property, plant
and equipment; unbilled revenues; the valuation of
derivative instruments; the valuation of insurance and
claims liabilities; the valuation of allowances for receiv-
ables and deferred income taxes; regulatory assets
and liabilities; reserves recorded for income tax expo-
sures; litigation; contingencies; the valuation of AROs;
and assets and liabilities related to employee benefits.
Revisions
During the preparation of our annual report on Form
10-K for the year ended December 31, 2009, we identi-
fied certain immaterial items that had not been cor-
rectly presented in our prior period balance sheets.
Accordingly, we have made the following adjustments
to our prior period balance sheets to conform to the
current period presentation. These adjustments did
not have any impact on our gross margin, operating
income, net income, earnings per share or cash flows
as previously reported.
Property Taxes
Certain accrued taxes representing property tax
liabilities had been previously classified as a current
liability and should have been classified as a noncur-
70 DPL Inc.
rent liability. As a result of this reclassification, accrued
taxes decreased at DPL by $57.5 million from $130.4
million to $72.9 million and also by the same $57.5 mil-
lion at DP&L from $128.0 million to $70.5 million as of
December 31, 2008. This same reclassification also
increased other deferred credits at DPL by $57.5 mil-
lion from $50.7 million to $108.2 million and at DP&L
by $57.5 million from $50.8 million to $108.3 million as
of December 31, 2008.
Deferred Taxes
Certain deferred taxes that related to amounts record-
ed in accumulated other comprehensive income/(loss)
for pension-related costs had been previously classi-
fied within deferred taxes and should have been classi-
fied within accumulated other comprehensive income/
(loss). In addition, certain deferred taxes that related
to amounts recoverable from customers in future rates
had also been incorrectly presented. As a result of
these two deferred tax items, deferred taxes decreased
at DPL by $59.6 million from $433.7 million to $374.1
million and at DP&L by $59.5 million from $417.8 mil-
lion to $358.3 million as of December 31, 2008. These
same reclassifications also decreased accumulated
other comprehensive loss at DPL by $21.5 million
from $44.6 million to $23.1 million and at DP&L by
$21.4 million from $37.5 million to $16.1 million and
decreased regulatory assets at both DPL and DP&L
by $38.1 million from $233.7 million to $195.6 million
as of December 31, 2008. These reclassifications also
resulted in an increase in accumulated other compre-
hensive income at DPL by $9.8 million from a loss of
$9.2 million to income of $0.6 million and at DP&L by
$10.6 million from $6.5 million to $17.1 million as of
December 31, 2007 and an increase in accumulated
other comprehensive income at DPL by $11.3 million
from a loss of $6.5 million to income of $4.8 million and
at DP&L by $13.0 million from $15.1 million to $28.1
million as of December 31, 2006.
Revenue Recognition
Revenues are recognized from retail and wholesale
electricity sales and electricity transmission and distri-
bution delivery services. 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 energy sales to customers is
based on the reading of their meters and this occurs
on a systematic basis throughout the month. We rec-
ognize the revenues on our statements of results of
operations 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.
All of the power produced at the generation plants
is sold to an RTO and we in turn purchase it back from
the RTO to supply our customers. These power sales
and purchases are reported on a net hourly basis as
revenues or purchased power on our statements of
results of operations. We record expenses when pur-
chased electricity is received and when expenses are
incurred, with the exception of the ineffective portion
of certain power purchase contracts that are deriva-
tives and qualify for hedge accounting, as well as cer-
tain derivative contracts that do not qualify for hedge
accounting, causing gains or losses to be recorded
prior to the receipt of electricity.
Allowance for Uncollectible Accounts
We establish provisions for uncollectible accounts
by using both historical average loss percentages to
project future losses and by establishing specific provi-
sions for known credit issues.
Property, Plant and Equipment
We record our ownership share of our undivided inter-
est in jointly-held plants as an asset in property, plant
and equipment. Property, plant and equipment are
stated at cost. For regulated transmission and distribu-
tion property, cost includes direct labor and material,
allocable overhead expenses and an allowance for
funds used during construction (AFUDC). AFUDC rep-
resents 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
2009, 2008 and 2007 was not material.
For unregulated generation property, cost includes
direct labor and material, allocable overhead expenses
and interest capitalized during construction using the
provisions of GAAP relating to the accounting for capi-
talized interest. Capitalized interest was $2.4 million in
2009, $8.9 million in 2008 and $21.8 million in 2007.
For substantially all depreciable property, when a
unit of property is retired, the original cost of that prop-
erty 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.
DPL Inc.
71
Repairs and Maintenance
Costs associated with maintenance 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 capitalized or expensed based on FERC-defined units of property.
Depreciation
Depreciation expense is calculated using the straight-line method, which allocates the cost of property over its esti-
mated 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 2009, 2.7% in 2008 and 2.9%
in 2007. 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 continu-
ing operations by approximately $9.5 million, increased net income by approximately $6.0 million, and increased
basic EPS by approximately $0.06 per share.
The following is a summary of DPL’s Property, plant and equipment with corresponding composite depreciation
rates at December 31, 2009 and 2008:
DPL
$ in millions
Regulated:
Transmission
Distribution
General
Non-depreciable
Total regulated
Unregulated:
Production / Generation
Other
Non-depreciable
Total unregulated
2009
Composite Rate
2008
Composite Rate
$ 355.3
1,206.7
76.8
57.8
$ 1,696.6
$ 3,519.2
35.0
18.4
$ 3,572.6
2.4%
3.7%
3.1%
N/A
2.5%
3.7%
N/A
$ 350.2
1,146.1
66.7
56.9
$ 1,619.9
$ 3,403.0
31.8
18.7
$ 3,453.5
2.4%
3.7%
7.2%
N/A
2.4%
3.5%
N/A
Total Property, plant and equipment
in service
$ 5,269.2
2.7%
$ 5,073.4
2.7%
For DP&L’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 2009, 2.6% in 2008 and 2.8% in 2007.
The following is a summary of DP&L’s Property, plant and equipment with corresponding composite deprecia-
tion rates at December 31, 2009 and 2008:
DP&L
$ in millions
Regulated:
Transmission
Distribution
General
Non-depreciable
Total regulated
Unregulated:
Production
Non-depreciable
Total unregulated
2009
Composite Rate
2008
Composite Rate
$ 355.3
1,206.7
76.8
57.8
$ 1,696.6
$ 3,299.1
15.3
$ 3,314.4
2.4%
3.7%
3.1%
N/A
2.4%
N/A
$ 350.2
1,146.2
66.7
56.9
$ 1,620.0
$ 3,182.6
15.3
$ 3,197.9
2.4%
3.7%
7.2%
N/A
2.3%
N/A
Total Property, plant and equipment
in service
$ 5,011.0
2.7%
$ 4,817.9
2.6%
72 DPL Inc.
AROs
We recognize AROs in accordance with GAAP. GAAP
requires legal obligations associated with the retire-
ment 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 capital-
ized as part of the related long-lived asset and depre-
ciated over the useful life of the related asset. 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. Our
generation AROs are recorded within other deferred
credits on the balance sheets.
Estimating the amount and timing of future expen-
ditures of this type requires significant judgment.
Management routinely updates these estimates as
additional information becomes available.
Changes in the Liability for Generation AROs
$ in millions
Balance at January 1
Accretion expense
Additions
Settlements
Estimated cash flow revisions
2009
2008
$ 13.2
0.8
2.1
(0.5)
0.6
$ 12.5
0.7
–
(1.0)
1.0
Balance at December 31
$ 16.2
$ 13.2
Asset Removal Costs
We continue to record cost of removal for our regu-
lated transmission and distribution assets through our
depreciation rates and recover those amounts in rates
charged to our customers. There are no known legal
AROs associated with these assets. We have recorded
$99.1 million and $96.0 million in estimated costs of
removal at December 31, 2009 and 2008, respectively,
as regulatory liabilities for our transmission and distri-
bution property. These amounts represent the excess
of the cumulative removal costs recorded through
depreciation rates versus the cumulative removal costs
actually incurred. See Note 3 of Notes to Consolidated
Financial Statements.
Changes in the Liability for Transmission and
Distribution Asset Removal Costs
$ in millions
Balance at January 1
Additions
Settlements
Balance at December 31
2009
2008
$ 96.0
6.5
(3.4)
$ 91.5
8.3
(3.8)
$ 99.1
$ 96.0
Regulatory Accounting
In accordance with GAAP, regulatory assets and
liabilities are recorded in the balance sheets for our
regulated transmission and distribution businesses.
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. We record a return
after it has been authorized in an order by a regulator.
If we were required to terminate application of these
GAAP provisions for all of our regulated operations,
we would have to write off the amounts of all regula-
tory assets and liabilities to the statements of results
of operations at that time. See Note 3 of Notes to
Consolidated Financial Statements.
Inventories
Inventories are carried at average cost and include
coal, limestone, oil and gas used for electric
generation, and materials and supplies used for utility
operations.
We account for our emission allowances as inven-
tory 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 month. Net gains or losses on the sale of excess
emission allowances, representing the difference
between the sales proceeds and the weighted average
cost of emission allowances, are recorded as a com-
ponent of our fuel costs and are reflected in Operating
income when realized. During the periods ended
December 31, 2009, 2008 and 2007, we recognized
gains from the sale of emission allowances in
the amounts of $5.0 million, $34.8 million and $1.2
million, respectively. Beginning in January 2010, most
of the gains on emission allowances will be used
to reduce the overall fuel rider charged to the Ohio
retail jurisdiction.
At December 31, 2009, we had substantially
placed into service FGD equipment at most of our
DP&L and partner-operated facilities.
DPL Inc.
73
Income Taxes
GAAP 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 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 liabili-
ties are recorded to recognize that income taxes will be
recoverable or refundable through future revenues.
DPL files a consolidated U.S. federal income tax
return in conjunction with its subsidiaries. The consoli-
dated tax liability is allocated to each subsidiary based
on the separate return method which is specified in our
tax allocation agreement and which provides a consis-
tent, systematic and rational approach. See Note 8 of
Notes to Consolidated Financial Statements.
Accounting for Taxes Collected from Customers
and Remitted to Governmental Authorities
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
Statements of Results of Operations as follows:
For the years ended December 31,
for employee share options and other similar instru-
ments at the grant date are estimated using option-
pricing models and any excess tax benefits are recog-
nized as an addition to paid-in capital. The reduction in
income taxes payable from the excess tax benefits is
presented in the statements of cash flows within Cash
flows from financing activities. See Note 12 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.
Financial Instruments
We classify our investments in debt and equity finan-
cial instruments of publicly traded entities into differ-
ent categories: held-to-maturity and available-for-sale.
Available-for-sale securities are carried at fair value
and unrealized gains and losses on those securi-
ties, net of deferred income taxes, are presented as
a separate component of shareholders’ equity. Other-
than-temporary declines in value are recognized cur-
rently in earnings. Financial instruments classified as
held-to-maturity are carried at amortized cost. The
cost basis for public equity security and fixed matu-
rity investments is average cost and amortized cost,
respectively.
Financial Derivatives
All derivatives are recognized as either assets or liabili-
ties in the balance sheets and are measured at fair
value. Changes in the fair value are recorded in earn-
ings unless they are designated as a cash flow hedge
of a forecasted transaction or qualify for the normal
purchases and sales exception.
$ in millions
2009
2008
2007
We use forward contracts and options to reduce
State/ Local excise taxes
$ 49.5
$ 52.3
$ 53.2
Stock-Based Compensation
We measure the cost of employee services received
and paid with equity instruments based on the fair-
value of such equity on the grant date. This cost is
recognized in results of operations over the period that
employees are required to provide service. Liability
awards are initially recorded based on the fair-value of
equity instruments and are to be re-measured for the
change in stock price at each subsequent reporting
date until the liability is ultimately settled. The fair-value
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 generation
facility availability. We use cash flow hedge accounting
when the hedge is deemed to be effective and MTM
accounting when the hedge is not effective. See Note
11 of Notes to Consolidated Financial Statements.
74 DPL Inc.
Insurance and Claims Costs
In addition to insurance obtained from third-party providers, MVIC, a wholly-owned captive subsidiary of DPL,
provides insurance coverage to us, our subsidiaries and, in some cases, our partners in commonly owned
facilities we operate, for workers’ compensation, general liability, property damage, and directors’ and officers’
liability. Insurance and claims costs on the Consolidated Balance Sheets of DPL include insurance reserves of
approximately $16.2 million and $17.6 million for 2009 and 2008, respectively. Furthermore, DP&L is responsible
for claim costs below certain coverage thresholds of MVIC for the insurance coverage noted above. In addition,
DP&L has medical, life, and disability reserves for claims costs below certain coverage thresholds of third-party
providers. DPL and DP&L record these additional insurance and claims costs of approximately $11.3 million
and $9.8 million for 2009 and 2008, respectively, within Other current liabilities and Other deferred credits on the
balance sheets. The MVIC reserves at DPL and the workers’ compensation, medical, life, and disability reserves
at DP&L are actuarially determined based on a reasonable estimation of insured events occurring. There is
uncertainty associated with these 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.
DPL Capital Trust II
DPL has a wholly-owned business trust, DPL Capital Trust II (the Trust), formed for the purpose of issuing trust
capital securities to third-party investors. Effective 2003, DPL deconsolidated the Trust upon adoption of
the accounting standards related to variable interest entities and currently treats the Trust as a nonconsolidated
subsidiary. The Trust, which holds mandatorily redeemable trust capital securities, is reported as two components
on DPL’s consolidated balance sheet. The investment in the Trust, which amounts to $3.8 million and $5.5 million
at December 31, 2009 and 2008, respectively, is included in Other deferred assets within Other noncurrent
assets. DPL also has a note payable to the Trust amounting to $142.6 million and $195.0 million at December 31,
2009 and 2008, respectively, that was established upon the Trust’s deconsolidation in 2003. See Note 7 of Notes
to Consolidated Financial Statements.
In addition to the obligations under the note payable mentioned above, DPL also agreed to a security obliga-
tion which represents a full and unconditional guarantee of payments to the capital security holders of the Trust.
Pension and Postretirement Benefits
We recognize the funded status of our 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 obligations
as of the date of our fiscal year-end; and disclose in Notes to Consolidated Financial Statements additional infor-
mation 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. See Note 9 of Notes to
Consolidated Financial Statements.
Related Party Transactions
In the normal course of business, DP&L enters into transactions with other subsidiaries of DPL. All material
intercompany accounts and transactions are eliminated in DPL’s Consolidated Financial Statements. The following
table provides a summary of these transactions:
$ in millions
DP&L Revenues:
Sales to DPLER (a)
DP&L Operation & Maintenance Expenses:
Insurance services provided by MVIC (b)
2009
2008
2007
$ 64.8
$ 150.6
$ 151.5
$ (3.4)
$
(3.5)
$
(4.9)
(a) DP&L sells power to DPLER to satisfy the electric requirements of its retail customers. The revenues associated with sales to DPLER
are recorded as wholesale sales in DP&L’s Financial Statements.
(b) MVIC, a wholly-owned captive insurance subsidiary of DPL, provides insurance coverage to DP&L and other DPL subsidiaries
for workers’ compensation, general liability, property damages and directors’ and officers’ liability. These amounts represent insurance
premiums paid by DP&L to MVIC.
DPL Inc.
75
Recently Adopted Accounting Standards
FASB Codification
We adopted FASC 105, “Generally Accepted
Accounting Principles” (formerly SFAS No. 168, “The
FASB Accounting Standards Codification and the
Hierarchy of Generally Accepted Accounting Principles
– a replacement of FASB Statement No. 162”), on
September 30, 2009. The objective of this Statement
is to replace Statement No. 162 and to establish the
FASC as the source of authoritative accounting prin-
ciples recognized by the FASB to be applied by non-
governmental entities in the preparation of financial
statements in conformity with GAAP. Rules and inter-
pretive releases of the SEC under authority of federal
securities laws are also sources of authoritative
GAAP for SEC registrants. This update did not have
a material impact on our overall results of operations,
financial position or cash flows.
Disclosures about Derivative Instruments and
Hedging Activities
We adopted an update to FASC 815, “Derivatives and
Hedging” (formerly SFAS No. 161, “Disclosures about
Derivative Instruments and Hedging Activities – an
amendment to FASB Statement No. 133”), on January
1, 2009. This update requires an entity to provide
enhanced disclosures about: (a) how and why an entity
uses derivative instruments; (b) how derivative instru-
ments and related hedged items are accounted for
under FASC 815 and its related interpretations; and
(c) how derivative instruments and related hedged
items affect an entity’s financial position, financial per-
formance and cash flows. This update did not have
a material impact on our overall results of operations,
financial position or cash flows. See Note 11 of Notes
to Consolidated Financial Statements.
Participating Securities and EPS
We adopted an update to FASC 260, “Earnings
per Share” (formerly Staff Position EITF 03-6-1,
“Determining Whether Instruments Granted in Share-
Based Payment Transactions Are Participating
Securities”) on January 1, 2009. This update 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. This update did
not have a material impact on our overall results of
operations, financial position or cash flows.
Meaning of “Indexed to a Company’s Own Stock”
We adopted an update to FASC 815, “Derivatives and
Hedging” (formerly EITF Issue No. 07-5, “Determining
Whether an Instrument (or Embedded Feature) is
Indexed to an Entity’s Own Stock”), on January 1, 2009.
This update gives guidance on when a financial instru-
ment is considered to be indexed to a company’s own
stock to meet the criteria for FASC 815-10-15-74(a)
(formerly paragraph 11(a) of FASB Statement No. 133,
“Accounting for Derivative Financial Instruments.”) This
update did not have a material impact on our overall
results of operations, financial position or cash flows.
Interim Disclosures about Fair Value of
Financial Instruments
We adopted an update of FASC 825, “Financial
Instruments” (formerly Staff Position SFAS 107-1 and
APB 28-1, “Interim Disclosures about Fair Value of
Financial Instruments”), on June 30, 2009. This update
requires disclosure about the fair value of financial
instruments for interim reporting periods of publicly
traded companies as well as in annual financial state-
ments. This update did not have a material impact
on our overall results of operations, financial position
or cash flows. See Note 10 of Notes to Consolidated
Financial Statements.
Subsequent Events
We adopted FASC 855, “Subsequent Events” (for-
merly SFAS 165), on June 30, 2009. FASC 855 incor-
porates the guidance in the American Institute of
Certified Public Accountants’ Auditing Standard 560
– Subsequent Events, into the accounting guidance.
This new standard does not change current accounting
practices. FASC 855 did not have a material impact
on our overall results of operations, financial position
or cash flows.
Disclosures about Pensions and Other
Postretirement Benefits
We adopted an update to FASC 715, “Compensation –
Retirement Plans” (formerly Staff Position SFAS 132(R)-
1, “Employers’ Disclosures about Postretirement Benefit
Plan Assets”), on December 31, 2009. This update
76 DPL Inc.
Recently Issued Accounting Standards
Variable Interest Entities
In June 2009, the FASB issued ASU 2009-02 “Omnibus
Update” (formerly SFAS No. 167, a revision to FASB
Interpretation No. 46(R), “Consolidation of Variable
Interest Entities,”) (ASU 2009-02) that is effective
for annual reporting periods beginning after November
15, 2009. We expect to adopt this ASU in the first
quarter of 2010. This standard updates FASC 810,
“Consolidation.” ASU 2009-02 changes how a com-
pany determines when an entity that is insufficiently
capitalized or is not controlled through voting (or
similar rights) should be consolidated. The determina-
tion of whether a company is required to consolidate
an entity is based on, among other things, an entity’s
purpose and design and a company’s ability to
direct the activities of the entity that most significantly
impact the entity’s economic performance. We do
not expect these new rules to have a material impact
on our overall results of operations, financial position
or cash flows.
Fair Value Disclosures
In January 2010, the FASB issued ASU 2010-06 “Fair
Value Measurements and Disclosures” (ASU 2010-06)
effective for annual reporting periods beginning after
December 15, 2009. We expect to adopt this ASU
on January 1, 2010. This standard updates FASC 820,
“Fair Value Measurements.” ASU 2010-06 requires
additional disclosures about fair value measurements
including transfers in and out of Levels 1 and 2 and
a higher level of disaggregation for the different types
of financial instruments. For the reconciliation of Level 3
fair value measurements, information about purchases,
sales, issuances and settlements should be presented
separately. We do not expect these new rules to have
a material impact on our overall results of operations,
financial position or cash flows.
requires disclosures about benefit plan assets similar
to the disclosure required in FASC 820, “Fair Value
Measurements and Disclosures.” It also requires
discussions on investment allocation decisions, major
categories of plan assets and significant concentra-
tions of risk in plan assets for the period. This update
did not have a material impact on our overall results
of operations, financial position or cash flows. See
Note 9 of Notes to Consolidated Financial Statements.
Redeemable Equity Instruments
We adopted ASU 2009-04, “Accounting for
Redeemable Equity Instruments, an amendment to
Section 480-10-S99,” (ASU 2009-04) on October 1,
2009. ASU 2009-04 clarifies that SEC Accounting
Series Release 268 pertains to preferred stocks and
other redeemable securities including common
stock, derivative instruments, non-controlling interest,
securities held by an ESOP and share-based payment
arrangements with employees. This update did
not have a material impact on our overall results of
operations, financial position or cash flows.
Measuring Liabilities at Fair Value
We adopted ASU 2009-05, “Measuring Liabilities at
Fair Value,” (ASU 2009-05) on October 1, 2009. ASU
2009-05 provides additional guidance clarifying the
measurement of liabilities at fair value. This update
did not have a material impact on our overall results
of operations, financial position or cash flows.
Investments in Certain Entities that Calculate
Net Asset Value per Share
We adopted ASU 2009-12, “Fair Value Measurements
and Disclosures,” (ASU 2009-12) on December 31,
2009. ASU 2009-12 updates FASC 820-10, “Fair Value
Measurements and Disclosures – Overall” and allows,
as a practical expedient, a reporting entity to measure
the fair value of an investment that is within the scope
of these amendments on the basis of the net asset
value per share of the investment if the net asset value
of the investment is calculated in a manner consis-
tent with the measurement principles of FASC 946,
“Financial Services – Investment Companies.” This
update did not have a material impact on our overall
results of operations, financial position or cash flows.
DPL Inc.
77
2 Supplemental Financial Information
DPL Inc.
$ in millions
Accounts receivable, net:
Unbilled revenue
Customer receivables
Amounts due from partners in jointly-owned plants
Coal sales
Other
Provision for uncollectible accounts
Total accounts receivable, net
Inventories, at average cost:
Fuel, limestone and emission allowances
Plant materials and supplies
Other
Total inventories, at average cost
DP&L
$ in millions
Accounts receivable, net:
Unbilled revenue
Customer receivables
Amounts due from partners in jointly-owned plants
Coal sales
Other
Provision for uncollectible accounts
Total accounts receivable, net
Inventories, at average cost:
Fuel, limestone and emission allowances
Plant materials and supplies
Other
Total inventories, at average cost
At December 31,
2009
2008
$ 74.9
99.4
12.6
10.6
16.4
(1.1)
$ 212.8
$ 85.8
38.5
1.4
$ 125.7
$ 82.5
107.5
28.0
25.6
17.4
(1.1)
$ 259.9
$ 68.7
36.3
0.1
$ 105.1
At December 31,
2009
2008
$ 71.0
94.4
12.6
10.6
4.5
(1.1)
$ 192.0
$ 85.8
37.1
1.4
$ 124.3
$ 74.7
96.7
28.0
25.6
1.5
(1.1)
$ 225.4
$ 68.7
35.0
0.1
$ 103.8
78 DPL Inc.
3 Regulatory Matters
In accordance with GAAP, regulatory assets and liabilities are recorded in the balance sheets for our regulated
electric transmission and distribution businesses. 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
or gains probable of recovery in future rates.
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. We record a return after it has been authorized in an order by a regulator.
Regulatory assets and liabilities on the balance sheets include:
Type of
Recovery (a)
Amortization
Through
At December 31,
2009
2008
$ in millions
Regulatory Assets:
Deferred recoverable income taxes
Pension benefits
Unamortized loss on reacquired debt
Electric Choice systems costs
Regional transmission organization costs
TCRR, transmission ancillary and other PJM-related costs
RPM capacity costs
Deferred storm costs - 2008
Power plant emission fees
CCEM smart grid and advanced metering infrastructure costs
CCEM energy efficiency program costs
Other costs
Total regulatory assets
Regulatory Liabilities:
Estimated costs of removal – regulated property
SECA net revenue subject to refund
Postretirement benefits
Other costs
Total regulatory liabilities
C/ B
C
C
F
D
F
F
D
C
D
F
Ongoing
Ongoing
Ongoing
2011
2014
2011
2011
Ongoing
Ongoing
$ 36.8
85.2
15.6
4.0
7.0
5.5
20.0
16.0
6.3
6.5
3.6
7.7
$ 214.2
$ 99.1
20.1
5.1
1.1
$ 125.4
$ 43.1
83.3
17.2
7.1
8.5
–
–
13.1
6.3
6.4
1.9
8.7
$ 195.6
$ 96.0
20.1
5.8
–
$ 121.9
(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, but is probable of occurring in future rate proceedings.
Regulatory Assets
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. This is the cumulative flow-through
benefit given to regulated customers that will be collected from them in future years. Since currently existing
temporary differences between the financial statements and the related tax basis of assets will reverse in subse-
quent periods, these deferred recoverable income taxes are amortized.
Pension benefits represent the qualifying FASC 715, “Compensation – Retirement Benefits” costs of our regulated
operations that for ratemaking purposes are deferred for future recovery. We recognize an asset for a plan’s
overfunded status or a liability for a plan’s underfunded status, and recognize, as a component of other compre-
hensive income (OCI), the changes in the funded status of the plan that arise during the year that are not
recognized as a component of net periodic benefit cost. This regulatory asset represents the regulated portion that
would otherwise be charged as a loss to OCI.
Unamortized loss on reacquired debt represents losses on long-term debt reacquired or redeemed in prior periods.
These costs are being amortized over the life of the original issues in accordance with FERC rules.
Electric Choice systems costs represent costs incurred to modify the customer billing system for unbundled
customer rates and electric choice utility bills relative to other generation suppliers and information reports provid-
ed to the state administrator of the low-income payment program. In March 2006, the PUCO issued an order that
DPL Inc.
79
approved our tariff as filed. We began collecting
this rider immediately and expect to recover all costs
over five years.
Regional transmission organization costs represent
costs incurred to join a RTO. The recovery of these
costs will be requested in a future FERC rate case. In
accordance with FERC precedence, we are amortizing
these costs over a 10-year period beginning in 2004
when we joined the PJM RTO.
TCRR, transmission, ancillary and other PJM-related
costs represent the costs related to transmission,
ancillary service and other PJM-related charges that
have been incurred as a member of PJM. We review
retail rates and are able to make true-up adjustments
on an annual basis.
On February 19, 2009, the PUCO approved
DP&L’s request to defer transmission, capacity, ancil-
lary and other costs incurred since July 31, 2008
consistent with the provisions of SB 221. In May 2009,
the PUCO granted DP&L authority to recover these
costs through retail rates beginning June 1, 2009.
Subsequently, an application for rehearing was filed
claiming the PUCO’s order allowing for recovery of
RPM capacity costs through a TCRR was unlawful.
The PUCO issued an order granting rehearing and, on
September 9, 2009, issued an order directing DP&L to
remove the deferred and current RPM capacity costs
from the TCRR rider but also indicating that these RPM
capacity costs may be recoverable under a separate
rider. DP&L made a compliance filing on September
23, 2009, where it removed such costs from the TCRR
rider and proposed a new RTO RPM rider for the
recovery of such costs. The PUCO approved the two
separate riders in November 2009. The sum of the
rate collected through the current TCRR rider and the
new RTO RPM rider equals the rate collected through
the original TCRR rider. Accordingly, during the period
ended December 31, 2009, DP&L deferred total net
RTO costs in the amount of $23.5 million. In addition,
DP&L also deferred $1.1 million relating to Regional
Transmission Expansion Plan (RTEP) costs and $0.9
million relating to interest and operation and mainte-
nance expenses. Of the total deferred costs amount-
ing to $25.5 million, $9.8 million relates to the period
August 1, 2008 through December 31, 2008, and
$15.7 million relates to the year ended December 31,
2009. The deferral of these costs resulted in a favor-
able impact to our results of operations.
RPM capacity costs represent the PJM-related costs
from the calculations of the PJM Reliability Pricing
Model that allocates capacity among the users of the
PJM System. As discussed above, DP&L is recovering
these costs through a PUCO-approved RTO RPM rider.
The sum of the rate collected through the current
TCRR rider and the new RTO RPM rider equals the rate
collected through the original TCRR rider. We review
this rate and are able to make true-up adjustments to it
on an annual basis.
Deferred storm costs – 2008 relate to costs incurred
to repair the 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.
Power plant emission fees represent costs paid to the
State of Ohio since 2002 for environmental monitoring.
An application is pending before the PUCO to amend
an approved rate rider that had been in effect to collect
fees that were paid and deferred in years prior to 2002.
The deferred costs incurred prior to 2002 have been
fully recovered. As the previously approved rate rider
continues to be in effect, we believe these costs are
probable of future rate recovery.
CCEM smart grid and advanced metering infrastructure
costs represent costs incurred as a result of study-
ing and developing distribution system upgrades and
implementation of advanced metering infrastructure.
Consistent with the Stipulation, DP&L re-filed its smart
grid and advanced metering infrastructure business
cases with the PUCO on August 4, 2009 seeking
recovery of costs associated with a 10-year plan to
deploy smart meters, distribution and substation auto-
mation, core telecommunications, supporting software
and in-home technologies. On August 5, 2009, DP&L
submitted an application for American Recovery and
Reinvestment Act (ARRA) funding under the Integrated
and/or Crosscutting Systems topic area for the Smart
Grid Investment Grant Program. On October 27, 2009,
we were notified by the United States Department
of Energy (DOE) that we will not receive funding under
the ARRA. A technical conference in this case was
held at the PUCO in October 2009 for the smart grid
case, and a subsequent PUCO entry established a
comment and reply comment period. A hearing is not
yet scheduled for this case. Based on past PUCO
precedent and the Ohio legislature’s intent behind
SB221, we believe these costs are probable of future
recovery in rates.
CCEM energy efficiency program costs represent
costs incurred to develop and implement various new
customer programs addressing energy efficiency. A
portion of these costs is being recovered over three
years as part of the Stipulation beginning July 1, 2009;
80 DPL Inc.
the remaining costs are subject to a two-year true-up process for any over/under recovery of costs.
Other costs primarily include consumer education advertising costs regarding electric deregulation, settlement
system costs, other PJM and rate case costs, and alternative energy costs that are or will be recovered over
various periods.
Regulatory Liabilities
Estimated costs of removal – regulated property reflect an estimate of amounts collected in customer rates that are
expected to be incurred to remove existing transmission and distribution property from service upon retirement.
SECA net revenue subject to refund represents our deferral of amounts collected in customer rates during 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,
however, no ruling has been issued. We began receiving and paying these transitional payments in May 2005.
Postretirement benefits represent the qualifying FASC 715, “Compensation – Retirement Benefits” gains related
to our regulated operations that, for ratemaking purposes, are probable of being reflected in future rates. We
recognize an asset for a plan’s overfunded status or a liability for a plan’s underfunded status, and recognize, as a
component of OCI, the changes in the funded status of the plan that arise during the year that are not recognized
as a component of net periodic benefit cost. This regulatory liability represents the regulated portion that would
otherwise be reflected as a gain to OCI.
Other costs primarily include derivative activity related to fuel costs that will be settled over various periods.
4 Ownership of Coal-fired Facilities
DP&L and other Ohio utilities have undivided ownership interests in seven coal-fired 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, investments in fuel inventory, plant materi-
als and operating supplies, and capital additions are allocated to the owners in accordance with their respective
ownership interests. As of December 31, 2009, we had $42 million of construction work in process at such facilities.
DP&L’s share of the operating cost of such facilities is included within the corresponding line in the Statements
of Results of Operations and DP&L’s share of the investment in the facilities is included in the Balance Sheets.
DP&L’s undivided ownership interest in such facilities as well as our wholly-owned coal fired Hutchings
plant at December 31, 2009, is as follows.
DP&L Share
DP&L Investment
Production
Ownership (%) Capacity (MW)
Gross Plant
In Service
($ in millions)
Accumulated
Depreciation
($ in millions)
Construction
Work in
Progress
SCR and FGD
Equipment
Installed and in
($ in millions) Service (Yes / No)
Production Units:
Beckjord Unit 6
Conesville Unit 4
East Bend Station
Killen Station
Miami Fort Units 7 and 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
$
78
124
200
605
345
683
1,056
91
$
56
29
129
276
123
248
597
54
$
–
3
–
2
9
21
7
–
No
Yes
Yes
Yes
Yes
Yes
Yes
Total
2,480
$ 3,182
$ 1,512
$
42
Wholly-owned production unit:
Hutchings Station
100.0
388
$
122
$ 108
$
1
No
DP&L’s share of operating costs associated with the jointly-owned generating facilities are included within
the corresponding line in the statements of results of operations.
DPL Inc.
81
5 Assets Sales
Peaker Sales
During 2006, in connection with DPLE’s (a 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 impair-
ment 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. (an indirect,
wholly-owned subsidiary of DPL), sold its corporate
aircraft and associated inventory and parts for $7.4 mil-
lion. The net book value of the assets sold was approx-
imately $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 approxi-
mately $6.0 million during the second quarter ending
June 30, 2007, which was 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 ven-
ture 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 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 trans-
ferred 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 owner-
ship interest in these funds was transferred in 2006
and 2007, at which time DPL recognized previously
deferred gains. DPL recognized $18.9 million ($12.1
million after tax) 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 17 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 per-
formance 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 2009 or 2008.
82 DPL Inc.
7 Debt Obligations
Long-term Debt
$ in millions
DP&L
First mortgage bonds maturing 2013 – 5.125%
Pollution control series maturing 2028 – 4.70%
Pollution control series maturing 2034 – 4.80%
Pollution control series maturing 2036 – 4.80%
Pollution control series maturing 2040 –
variable rates: 0.24% - 0.85% and 0.80% - 1.25% (a)
Obligation for capital lease
Unamortized debt discount
Total long-term debt – DP&L
DPL Inc.
Senior notes 6.875% series due 2011
Note to DPL Capital Trust II 8.125% due 2031
Unamortized debt discount
Total long-term debt – DPL
Current portion – Long-term Debt
$ in millions
DP&L
Pollution control series maturing 2040 –
variable rates: 0.24% - 0.85% and 0.80% - 1.25% (a) (b)
Obligation for capital lease
Total current portion – long-term debt – DP&L
DPL Inc.
Senior notes 8.00% series due 2009
Total current portion – long-term debt – DPL
At December 31,
2009
2008
$ 470.0
35.3
179.1
100.0
–
784.4
–
(0.7)
$ 470.0
35.3
179.1
100.0
100.0
884.4
0.6
(1.0)
$ 783.7
$ 884.0
$ 297.4
142.6
(0.2)
$ 1,223.5
$ 297.4
195.0
(0.3)
$ 1,376.1
At December 31,
2009
2008
$ 100.0
0.6
$ 100.6
$
–
$ 100.6
$
$
–
0.7
0.7
$ 175.0
$ 175.7
(a) Range of interest rates for the year ended December 31, 2009 and the one month ended December 31, 2008, respectively.
These pollution control bonds were issued on December 4, 2008.
(b) Shown as current since bondholders could call bonds. See further discussion below.
At December 31, 2009, maturities of long-term debt, including capital lease obligations, are summarized as follows:
$ in millions
2010
2011
2012
2013
2014
Thereafter
DPL
$ 100.6
297.4
–
470.0
–
457.0
$ 1,325.0
DP&L
$ 100.6
–
–
470.0
–
314.4
$ 885.0
Debt and Debt Covenants
On December 21, 2009, DPL purchased $52.4 million principal amount of DPL Capital Trust II 8.125% capital
securities in a privately negotiated transaction. As part of this transaction, DPL paid a $3.7 million, or 7%, premium
which was recognized as an expense in the fourth quarter of 2009 and recorded within interest expense on the
Consolidated Statements of Results of Operations.
On April 21, 2009, DP&L entered into a $100 million unsecured revolving credit agreement with a syndicated
bank group. The agreement is for a 364-day term expiring on April 20, 2010. The facility contains one financial
covenant: DP&L’s total debt to total capitalization ratio is not to exceed 0.65 to 1.00. As of December 31, 2009,
DPL Inc.
83
this covenant is met with a ratio of 0.40 to 1.00. As of
December 31, 2009, there were no borrowings out-
standing under this facility. Fees associated with this
credit facility were approximately $0.7 million in 2009.
On March 31, 2009, DPL paid $175 million of the
8.00% Senior notes when the notes became due.
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
(LOC) issued by a syndicated bank group. This LOC
facility, which was for an initial two-year period expiring
in December 2010, is irrevocable, has no subjective
acceleration clauses and also contains a provision that
all outstanding amounts drawn on the facility are due
upon the LOC’s expiration date. Since this LOC facility
will expire in December 2010, at which point the bond-
holders could call the bonds, we have reflected these
outstanding bonds as a current liability. Management
will continue to monitor and evaluate market conditions
over the next several months and make a determina-
tion to either seek a renewal of this standby letter of
credit or to explore alternative financing arrangements.
DP&L used $10 million of the proceeds from this bond
issuance to finance its portion of the costs for acquir-
ing, constructing and installing certain solid waste
disposal and air quality facilities at the Conesville gen-
eration station. The remaining $90 million was used to
redeem the 2007 Series A Bonds as discussed in the
next paragraph.
On November 15, 2007, the 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 auc-
tions 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 repurchased 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.
On November 21, 2006, DP&L entered into
a $220 million unsecured revolving credit agreement.
This agreement has a five-year term that expires on
November 21, 2011 and 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. As of December 31,
2009, this covenant is met with a ratio of 0.40 to 1.00.
DP&L had no outstanding borrowings under this credit
facility at December 31, 2009. Fees associated with
this credit facility were approximately $0.9 million
in 2009 compared to $0.3 million in 2008. Changes
in credit ratings, however, may affect fees and the
applicable interest. This revolving credit agreement
contains a $50 million letter of credit sublimit. As of
December 31, 2009, DP&L had no outstanding letters
of credit against the facility. DP&L has certain contrac-
tual 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.
During the first quarter of 2006, the Ohio
Department of Development (ODOD) awarded DP&L
the ability to issue, through 2008, up to $200 million
of qualified tax-exempt financing from the ODOD’s
2005 volume cap carryforward. The PUCO approved
DP&L’s application for this additional financing on
July 26, 2006. The entire $200 million financing was
used to partially fund the FGD capital projects.
Substantially all property, plant and equipment
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.
84 DPL Inc.
8 Income Taxes
For the years ended December 31, 2009, 2008 and 2007, DPL’s components of income tax
expense were as follows:
DPL
$ 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
Section 199 – domestic production deduction
Accrual (settlement) for open tax years (c)
Other, net (d)
Total tax expense (e)
Components of Tax Expense
Federal – Current
State and Local – Current
Total Current
Federal – Deferred
State and Local – Deferred
Total Deferred
Total tax expense
Components of Deferred Tax Assets and Liabilities
$ in millions
Net Noncurrent Assets / (Liabilities)
Depreciation / property basis
Income taxes recoverable
Regulatory assets
Investment tax credit
Investment loss
Compensation and employee benefits
Insurance
Other (f)
Net noncurrent (liabilities)
Net Current Assets (g)
Other
Net current assets
For the years ended December 31,
2009
2008
2007
$ 119.9
$ 121.9
$ 117.3
0.9
(2.0)
(2.8)
(4.6)
(1.4)
2.5
4.1
(4.3)
(2.8)
(4.2)
(7.2)
(4.6)
11.6
(4.8)
(2.8)
(2.0)
2.7
0.5
$ 112.5
$ 102.9
$ 122.5
$
(84.4)
(1.8)
$
(86.2)
$ 196.0
2.7
$ 198.7
$ 60.9
1.8
$ 62.7
$ 37.9
2.3
$ 40.2
$
94.2
6.6
$ 100.8
$
$
16.7
5.0
21.7
$ 112.5
$ 102.9
$ 122.5
At December 31,
2009
2008
$ (583.5)
(12.9)
(16.5)
12.3
0.1
35.8
0.8
(5.2)
$ (569.1)
$ (391.9)
(15.1)
(7.7)
13.3
0.1
34.2
0.8
(7.8)
$ (374.1)
$
$
3.7
3.7
$
$
2.2
2.2
(a) The statutory tax rate of 35% was applied to pre-tax earnings from continuing operations before preferred dividends.
(b) We have recorded a benefit of $0.2 million and an expense of $0.2 million and $0.5 million in 2009, 2008 and 2007, respectively, for
state tax credits available related to the consumption of coal mined in Ohio. In addition, an expense of less than $0.1 million in 2009, a
benefit of $0.5 million in 2008 and an expense of $0.9 million in 2007 were recorded as a result of the phase-out of the Ohio Franchise Tax.
(c) We have recorded benefits of $2.9 million and $40.7 million and an expense of $2.7 million in 2009, 2008 and 2007, 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 below.
(d) Includes an expense of $2.0 million, benefit of $3.8 million and expense of $5.0 million in 2009, 2008 and 2007, respectively, of
income tax related to adjustments from prior years.
(e) Excludes $6.0 million in 2007 of income taxes reported as discontinued operations.
(f) The Other noncurrent liabilities caption includes deferred tax assets of $12.0 million in 2009 and $10.7 million in 2008 related to state
and local tax net operating loss carryforwards, net of related valuation allowances of $12.0 million in 2009 and $10.7 million in 2008.
As of December 31, 2009 and 2008, all deferred tax assets related to net operating losses were valued at zero. These net operating loss
carryforwards expire from 2017 to 2024.
(g) Amounts are included within Other prepayments and current assets on the Consolidated Balance Sheets of DPL.
DPL Inc.
85
DPL has recorded $0.7 million, $0.3 million and $1.3 million in 2009, 2008 and 2007, respectively, for tax
benefits related to stock-based compensation that were credited to Retained earnings. We have recorded $1.7
million, $11.5 million and $0.9 million in 2009, 2008 and 2007, respectively, for tax benefits related to pensions,
postretirement benefits, cash flow hedges and financial instruments that were credited to Accumulated other
comprehensive loss.
For the years ended December 31, 2009, 2008 and 2007, 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)
Total tax expense
Components of Tax Expense
Federal – Current
State and Local – Current
Total Current
Federal – Deferred
State and Local – Deferred
Total Deferred
Total tax expense
Components of Deferred Tax Assets and Liabilities
$ in millions
Net Noncurrent Assets (Liabilities)
Depreciation / property basis
Income taxes recoverable
Regulatory assets
Investment tax credit
Compensation and employee benefits
Other
Net noncurrent (liabilities)
Net Current Assets (e)
Other
Net current assets
For the years ended December 31,
2009
2008
2007
$ 134.2
$ 142.1
$ 145.1
0.4
(2.0)
(2.8)
–
(4.6)
(1.4)
0.7
2.6
(4.3)
(2.8)
–
(4.2)
(7.2)
(6.0)
9.6
(4.7)
(2.8)
–
(2.0)
2.7
(4.8)
$ 124.5
$ 120.2
$ 143.1
$
(70.3)
(2.5)
$
(72.8)
$ 194.4
2.9
$ 197.3
$ 81.2
0.9
$ 82.1
$ 36.4
1.7
$ 38.1
$ 117.1
7.6
$ 124.7
$
$
16.3
2.1
18.4
$ 124.5
$ 120.2
$ 143.1
At December 31,
2009
2008
$ (563.7)
(12.9)
(16.5)
12.3
35.8
(8.0)
$ (553.0)
$ (373.8)
(15.1)
(13.3)
13.3
34.1
(3.5)
$ (358.3)
$
$
3.7
3.7
$
$
2.3
2.3
(a) The statutory tax rate of 35% was applied to pre-tax earnings before preferred dividends.
(b) We have recorded a benefit of $0.2 million and expenses of $0.2 million and $0.5 million in 2009, 2008 and 2007, respectively, for
state tax credits available related to the consumption of coal mined in Ohio. In addition, an expense of less than $0.1 million in 2009, a
benefit of $0.5 million in 2008 and an expense of $0.9 million in 2007 were recorded as a result of the phase-out of the Ohio Franchise Tax.
(c) We have recorded benefits of $2.9 million and $40.7 million and expense of $2.7 million in 2009, 2008 and 2007, 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 below.
(d) Includes an expense of $0.8 million, benefit of $3.5 million and expense of $5.0 million in 2009, 2008 and 2007, respectively, of
income tax related to adjustments from prior years.
(e) Amounts are included within Other prepayments and current assets on the Balance Sheets of DP&L.
86 DPL Inc.
DP&L has recorded $0.7 million, $0.3 million and $1.3 million in 2009, 2008 and 2007, respectively, for tax
benefits related to stock-based compensation that were credited to Other paid-in capital. We have recorded
$0.5 million, $16.5 million and $4.6 million in 2009, 2008 and 2007, respectively, for tax benefits related to
pensions, postretirement benefits, cash flow hedges and financial instruments that were credited to Accumulated
other comprehensive loss.
Accounting for Uncertainty in Income Taxes
We apply the provisions of GAAP relating to the accounting for uncertainty in income taxes. A reconciliation of
the beginning and ending amount of unrecognized tax benefits for DPL and DP&L is as follows:
$ in millions
Balance as of beginning of year
Tax positions taken during prior periods
Tax positions taken during current period
Settlement with taxing authorities
Lapse of applicable statute of limitations
Balance as of end of year
$
2009
1.9
–
20.6
(3.2)
–
$
2008
56.3
–
1.9
(56.3)
–
$
19.3
$
1.9
Of the December 31, 2009 balance of unrecognized tax benefits, $21.6 million is due to uncertainty in the timing
of deductibility offset by $2.3 million of unrecognized tax liabilities that would affect the effective tax rate.
We recognize interest and penalties related to unrecognized tax benefits in income taxes. The amount of
interest and penalties accrued was a benefit of $0.1 million as of December 31, 2009 and an expense of less than
$0.1 million as of December 31, 2008. The amount of interest and penalties recorded in the statements of results
of operations for 2009 and 2008 was a benefit of $0.1 million and $9.0 million, respectively, and an expense of
$4.1 million for 2007.
Following is a summary of the tax years open to examination by major tax jurisdiction:
U.S. Federal – 2007 and forward
State and Local – 2005 and forward
None of the unrecognized tax benefits are expected to significantly increase or decrease within the next
twelve months.
On February 13, 2006, we received correspondence from the ODT notifying us that the ODT had 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 resulted 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 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.
DPL Inc.
87
9 Pension and Postretirement Benefits
DP&L sponsors 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 com-
pensation 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 liabili-
ties related to retirement benefits for certain active,
terminated and retired key executives.
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 SERP that was terminated as to new par-
ticipants in 2000. The Compensation Committee of the
Board of Directors designates the eligible employees.
Pursuant to the SEDCRP, we provide a supplemen-
tal retirement benefit to participants by crediting an
account established for each participant in accordance
with the Plan requirements. We designate as hypotheti-
cal 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 partic-
ipant 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 com-
pletion 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 partici-
pant becoming 100% vested in his or her account, the
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
only. We have funded a portion of the union-eligible
health benefits using a Voluntary Employee Beneficiary
Association Trust.
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 and for the changes in the funded
status of the plan that arise during the year that are
not recognized as a component of net periodic benefit
cost. These regulatory assets and liabilities represent
the regulated portion that would otherwise be charged
or credited to AOCI. 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.
88 DPL Inc.
The following tables set forth our pension and postretirement benefit plans’ obligations and assets recorded
on the balance sheets as of December 31, 2009 and 2008. 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, 2009 and 2008. The amounts
presented for postretirement include both health and life insurance benefits and use a measurement date
of December 31, 2009 and 2008.
$ in millions
2009
2008
2009
2008
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 / (loss) on plan assets
Contributions to plan assets
Benefits paid
Medicare reimbursements
Fair value of plan assets at December 31
$ 294.6
3.6
18.1
7.2
20.3
(19.9)
$ 323.9
$ 225.4
37.5
0.4
(19.9)
–
$ 243.4
$ 285.0
3.3
16.7
6.9
2.0
(19.3)
$ 294.6
$ 291.0
(46.7)
0.4
(19.3)
–
$ 225.4
$ 25.2
–
1.5
1.1
0.3
(1.9)
$ 26.2
$
6.2
0.4
0.3
(2.3)
0.4
$ 26.4
–
1.4
–
(0.1)
(2.5)
$ 25.2
$
6.5
0.2
2.1
(2.7)
0.1
$
5.0
$
6.2
Funded Status of Plan
$ (80.5)
$
(69.2)
$ (21.2)
$ (19.0)
Amounts Recognized in the
Balance Sheets at December 31
Current liabilities
Noncurrent liabilities
Net asset / (liability) at December 31
Amounts Recognized in Accumulated Other
Comprehensive Income, Regulatory Assets and
Regulatory Liabilities, pre-tax
Components:
Prior service cost / (credit)
Net actuarial loss / (gain)
$
(0.4)
(80.1)
$ (80.5)
$
(0.4)
(68.8)
$
(69.2)
$
(0.4)
(20.8)
$ (21.2)
$
(0.4)
(18.6)
$ (19.0)
$ 20.4
130.9
$ 16.7
129.9
$
1.1
(6.9)
$
–
(7.8)
Accumulated other comprehensive income,
Regulatory assets and Regulatory liabilities, pre-tax $ 151.3
$ 146.6
$
(5.8)
$
(7.8)
Recorded as:
Regulatory asset
Regulatory liability
Accumulated other comprehensive income
$ 84.6
–
66.7
$ 83.3
–
63.3
$
0.6
(5.1)
(1.3)
$
–
(5.8)
(2.0)
Accumulated other comprehensive income,
Regulatory assets and Regulatory liabilities, pre-tax $ 151.3
$ 146.6
$
(5.8)
$
(7.8)
The accumulated benefit obligation for our defined benefit pension plans was $314.0 million and $283.3 million
at December 31, 2009 and 2008, respectively.
DPL Inc.
89
The net periodic benefit cost (income) of the pension and postretirement benefit plans at December 31 were:
Net Periodic Benefit Cost / (Income)
Pension
Postretirement
$ in millions
2009
2008
2007
2009
2008
Service cost
Interest cost
Expected return on assets (a)
Amortization of unrecognized:
Actuarial (gain) / loss
Prior service cost
Transition obligation
Net periodic benefit cost / (income)
before adjustments
$
3.6
18.1
(22.5)
$
3.2
16.7
(24.1)
$
3.2
16.2
(22.0)
–
$
1.5
(0.4)
$
4.4
3.4
–
2.6
2.4
–
3.4
2.4
–
(0.7)
0.1
–
–
1.4
(0.4)
(0.9)
–
–
$
2007
–
1.5
(0.5)
(0.9)
–
0.2
$
7.0
$
0.8
$
3.2
$ 0.5
$ 0.1
$
0.3
(a) For purposes of calculating the expected return on pension plan assets, under GAAP, the market-related value of assets (MRVA) is used.
GAAP requires that the difference between actual plan asset returns and estimated plan asset returns be admitted into the MRVA equally
over a period not to exceed five years. We use a methodology under which we admit the difference between actual and estimated asset returns
in the MRVA equally over a three year period. The MRVA used in the 2009 calculation of expected return on pension plan assets was
approximately $275 million.
Other Changes in Plan Assets and Benefit Obligation Recognized in
Accumulated Other Comprehensive Income, Regulatory Assets and Regulatory Liabilities
$ in millions
2009
2008
2009
2008
Pension
Postretirement
Net actuarial (gain) / loss
Prior service cost / (credit)
Reversal of amortization item:
Net actuarial (gain) / loss
Prior service cost / (credit)
Transition (asset) / obligation
Total recognized in Accumulated other comprehensive
income, Regulatory assets and Regulatory liabilities
Total recognized in net periodic benefit cost
and Accumulated other comprehensive income,
$
5.3
7.2
$ 72.8
6.9
$ 0.3
1.1
$
(4.4)
(3.4)
–
(2.6)
(2.4)
–
0.7
(0.1)
–
0.2
–
0.9
–
–
$
4.7
$ 74.7
$ 2.0
$
1.1
Regulatory assets and Regulatory liabilities
$ 11.7
$ 75.5
$ 2.5
$
1.2
Estimated amounts that will be amortized from Accumulated other comprehensive income, Regulatory assets
and Regulatory liabilities into net periodic benefit costs during 2010 are:
$ in millions
Net actuarial (gain) / loss
Prior service cost / (credit)
Transition (asset) / obligation
Pension
$
7.4
3.6
–
Postretirement
$
(0.5)
0.1
–
On November 26, 2007, DP&L contributed $27.4 million in DPL common stock from its Master Trust assets
to the Retirement Income Plan.
Our expected return on plan asset assumptions, used to determine benefit obligations, are based on
historical long-term rates of return on investments, 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
reasonableness 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 primarily on historical
returns and portfolio investment allocation. There can be no assurance of our ability to generate those rates
of return in the future.
90 DPL Inc.
Our overall discount rate was evaluated in relation to the December 31, 2009 Hewitt Top Quartile Yield Curve
which represents a portfolio of top-quartile AA-rated bonds used to settle pension obligations and the Citigroup
Pension Discount Curve. 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,
2009 and 2008 were:
Benefit Obligation Assumptions
Discount rate for obligations
Rate of compensation increases
Pension
Postretirement
2009
2008
5.75%
4.44%
6.25%
5.44%
2009
5.35%
N/A
2008
6.25%
N/A
The weighted-average assumptions used to determine net periodic benefit cost (income) for the years
ended December 31, 2009, 2008 and 2007 were:
Net Periodic Benefit Cost / (Income) Assumptions
Discount rate
Expected rate of return on plan assets
Rate of compensation increases
2009
6.25%
8.50%
5.44%
Pension
2008
6.00%
8.50%
5.44%
Postretirement
2007
2009
2008
5.75%
8.50%
5.44%
6.25%
6.00%
N/A
6.00%
6.00%
N/A
2007
5.75%
6.75%
N/A
The assumed health care cost trend rates at December 31, 2009 and 2008 are as follows:
Health Care Cost Assumptions
Pre – age 65
Current health care cost trend rate
Year trend reaches ultimate
Post – age 65
Current health care cost trend rate
Year trend reaches ultimate
Ultimate health care cost trend rate
Expense
2009
2008
Benefit Obligations
2009
2008
9.50%
2014
10.00%
2013
9.50%
2015
9.50%
2014
9.00%
2013
5.00%
10.00%
2013
5.00%
9.00%
2014
5.00%
9.00%
2013
5.00%
The assumed health care cost trend rates have an 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
One-percent increase
One-percent decrease
$
$
0.1
1.2
$ (0.1)
$ (1.1)
The following benefit payments, which reflect future service, are expected to be paid as follows:
Estimated Future Benefit Payments
$ in millions
2010
2011
2012
2013
2014
2015 – 2019
Pension
$ 21.2
$ 21.6
$ 22.4
$ 23.1
$ 23.6
$ 121.6
Postretirement
$
$
$
$
$
$
2.6
2.5
2.4
2.3
2.1
8.4
We expect to contribute $10.4 million to our pension plans and $2.6 million to our other postretirement
benefit plans in 2010.
DPL Inc.
91
The Pension Protection Act (the Act) of 2006
contained new requirements for our single employer
defined benefit pension plan. 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 is 80% in 2010, 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. For the 2009 plan year, the
funded status of our defined benefit pension plan as
calculated under the requirements of the Act was
101.7% and is estimated to be 91.7% until the 2010
status is certified in September 2010 for the 2010
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.
Plan Assets
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 consider-
ation 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.
Plan assets are managed in a balanced portfolio
comprised of two major components: an equity portion
and a fixed income portion. The expected role of
Plan equity investments is to maximize the long-term
real growth of Plan assets, while the role of fixed
income investments is to generate current income,
provide for more stable periodic returns and provide
some protection against a prolonged decline in the
market value of Plan equity investments.
Long-term strategic asset allocation guidelines are
determined by management and take into account
the Plan’s long-term objectives as well as its short-term
constraints. The target allocations for plan assets are
30-80% for equity securities, 30-65% for fixed income
securities, 0-10% for cash and 0-25% for alternative
investments. Equity securities include U.S. and inter-
national equity, while fixed income securities include
long-duration and high-yield bond funds and emerging
market debt funds. Other types of investments include
investments in hedge funds and private equity funds
that follow several different strategies.
92 DPL Inc.
The fair values of our pension plan assets at December 31, 2009 by asset category are as follows:
Fair Value Measurements for Pension Plan Assets at December 31, 2009
Asset Category
$ in millions
Equity Securities (a)
Small / Mid Cap Equity
Large Cap Equity
DPL Inc. Common Stock
International Equity
Total Equity Securities
Debt Securities (b)
Emerging Markets Debt
High Yield Bond
Long Duration Fund
Total Debt Securities
Cash and Cash Equivalents (c)
Cash
Other Investments (d)
Limited Partnership Interest
Common Collective Fund
Total Other Investments
Total Pension Plan Assets
Market Value
at 12/31/09
Quoted Prices in
Active Markets for
Identical Assets
Significant
Observable
Inputs
Significant
Unobservable
Inputs
(Level 1)
(Level 2)
(Level 3)
$
4.5
35.9
25.5
19.2
$ 85.1
$ 12.9
13.8
77.4
$ 104.1
$
–
–
25.5
–
$ 25.5
$
$
–
–
–
–
$
0.5
$
0.5
$
3.1
50.6
$ 53.7
$ 243.4
$
$
–
–
–
$ 26.0
$ 163.7
$
4.5
35.9
–
19.2
$ 59.6
$ 12.9
13.8
77.4
$ 104.1
$
$
$
–
–
–
–
$
$
$
$
–
–
–
–
–
–
–
–
–
$
–
$ 3.1
50.6
$ 53.7
$ 53.7
(a) This category includes investments in equity securities of large, small and medium sized companies and equity securities of foreign
companies including those in developing countries. The funds are valued using the net asset value method in which an average of the market
prices for the underlying investments is used to value the fund except for the DPL common stock which is valued using the closing price on
the New York Stock Exchange.
(b) This category includes investments in investment-grade fixed-income instruments, U.S. dollar-denominated debt securities of emerging
market issuers and high yield fixed-income securities that are rated below investment grade. The funds are valued using the net asset value
method in which an average of the market prices for the underlying investments is used to value the fund.
(c) This category comprises cash held to pay beneficiaries. The fair value of cash equals its book value.
(d) This category represents a private equity fund that specializes in management buyouts and a hedge fund of funds made up of 30+
different hedge fund managers diversified over eight different hedge strategies. The fair value of the private equity fund is determined by the
General Partner based on the performance of the individual companies. The fair value of the hedge fund is valued using the net asset value
method in which an average of the market prices for the underlying investments is used to value the fund.
The change in the fair value for the pension assets valued using significant unobservable inputs (Level 3)
was due to the following:
Fair Value Measurements of Pension Assets Using Significant Unobservable Inputs (Level 3)
$ in millions
Beginning balance at December 31, 2008
Actual return on plan assets:
Relating to assets still held at the reporting date
Relating to assets sold during the period
Purchases, sales, and settlements
Transfers in and / or out of Level 3
Ending balance at December 31, 2009
Limited
Partnership Interest
Common
Collective Fund
$
3.1
$ 33.1
0.1
–
(0.1)
–
$
3.1
1.3
–
16.2
–
$ 50.6
DPL Inc.
93
The fair values of our other postretirement benefit plan assets at December 31, 2009 by asset category
are as follows:
Fair Value Measurements for Postretirement Plan Assets at December 31, 2009
Asset Category
$ in millions
Market Value
at 12/31/09
Quoted Prices in
Active Markets for
Identical Assets
Significant
Observable
Inputs
Significant
Unobservable
Inputs
(Level 1)
(Level 2)
(Level 3)
JP Morgan Core Bond Fund (a)
$
5.0
$
–
$
5.0
$
–
(a) This category includes investments in U.S. government obligations and mortgage-backed and asset-backed securities. The funds are
valued using the net asset value method in which an average of the market prices for the underlying investments is used to value the fund.
10 Fair Value Measurements
The fair values of our financial instruments are based on published sources for pricing when possible.
We rely on modelled valuations only when no other method exists. The fair value of our financial instruments
represents estimates of possible value that may not be realized in the future. The table below presents the
fair value and cost of our non-derivative instruments at December 31, 2009 and 2008.
$ in millions
DPL
Assets
Master Trust Assets
Liabilities
Debt
DP&L
Assets
Master Trust Assets
Liabilities
Debt
Debt
At December 31,
2009
2008
Cost
Fair Value
Cost
Fair Value
$
12.3
$
12.6
$
13.6
$
13.1
$ 1,324.1
$ 1,317.6
$ 1,551.8
$ 1,470.5
$
26.4
$
40.9
$
29.8
$
40.2
$ 884.3
$ 844.5
$ 884.7
$ 815.7
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 debt is presented at amortized cost in the financial
statements. The debt amounts include the current portion payable in the next twelve months and have
maturities that range from 2010 to 2040.
Master Trust Assets
DP&L established a Master Trust to hold assets for the benefit of employees participating in employee benefit
plans and these assets are not used for general operating purposes. These assets are primarily comprised
of open-ended mutual funds and DPL common stock. The DPL common stock held by the DP&L Master Trust is
eliminated in consolidation and is not reflected in DPL’s Consolidated Balance Sheets. The DPL common stock
is valued using current public market prices, while the open-ended mutual funds are valued using the net asset
value per unit. These investments are accounted for as available-for-sale securities and are recorded at fair
value. Any unrealized gains or losses are recognized in AOCI until the securities are sold.
DPL had $0.3 million ($0.2 million after tax) in unrealized gains and no unrealized losses on the Master
94 DPL Inc.
Trust assets in AOCI at December 31, 2009 and no unrealized gains and $0.5 million ($0.3 million after tax)
in unrealized losses in AOCI at December 31, 2008.
DP&L has $14.5 million ($9.5 million after tax) in unrealized gains and no unrealized losses on the Master
Trust assets in AOCI at December 31, 2009 and $10.9 million ($7.0 million after tax) in unrealized gains and
$0.5 million ($0.3 million after tax) in unrealized losses in AOCI at December 31, 2008.
No unrealized gains or losses are expected to be transferred to earnings in 2010.
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 common stock from the DP&L Master Trust to The Dayton Power and Light Company Retirement
Income Plan Trust (Pension). This transaction was completed on November 26, 2007, contributing shares of
DPL common stock with a fair value of $27.4 million to the pension plan.
Net Asset Value (NAV) per Unit
The following table discloses the fair value and redemption frequency for those assets whose fair value is
estimated using the NAV per unit as of December 31, 2009. These assets are part of the Master Trust and
exclude DPL common stock which is valued using quoted market prices and not the NAV. Fair values estimated
using the net asset value per unit are considered Level 2 inputs within the fair value hierarchy, unless they
cannot be redeemed at the NAV on the reporting date. Investments that have restrictions on the redemption of
the investments are Level 3 inputs. As of December 31, 2009, DPL did not have any investments for sale at a
price different than the NAV.
Fair Value Estimated using Net Asset Value per Unit
Investment
$ in millions
Money Market Mutual Fund (a)
Equity Securities (b)
Debt Securities (c)
Multi-Strategy Fund (d)
Total
Fair Value
Unfunded
Commitments
Redemption
Frequency
Redemption
Notice Period
$ 4.1
2.8
5.5
0.2
$ 12.6
$
$
–
–
–
–
–
Immediate
Immediate
Immediate
Immediate
None
None
None
None
(a) This category includes investments in high-quality, short-term securities. Investments in this category can be redeemed immediately
at the current net asset value per unit.
(b) This category includes investments in hedge funds representing an S&P 500 index and the Morgan Stanley Capital International (MSCI)
U.S. Small Cap 1750 Index. Investments in this category can be redeemed immediately at the current net asset value per unit.
(c) This category includes investments in U.S. Treasury obligations and U.S. investment grade bonds. Investments in this category can
be redeemed immediately at the current net asset value per unit.
(d) This category includes investments in stocks, bonds and short-term investments in a mix of actively managed funds. Investments in
this category can be redeemed immediately at the current net asset value per unit.
Fair Value Hierarchy
Fair value is defined 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. The fair value hierarchy requires an entity to maximize
the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. These
inputs are then categorized as Level 1 (quoted prices in active markets for identical assets or liabilities);
Level 2 (observable inputs such as quoted prices for similar assets or liabilities or quoted prices in markets that
are not active); or Level 3 (unobservable inputs).
Valuations of assets and liabilities reflect the value of the instrument including the values associated with
counterparty risk. We include our own credit risk and our counterparty’s credit risk in our calculation of fair value
using the Global Corporate Cumulative Average Default Rates.
DPL Inc.
95
The fair value of assets and liabilities measured on a recurring basis and the respective category within the
fair value hierarchy for DPL was determined as follows:
Assets and Liabilities Measured at Fair Value on a Recurring Basis
DPL
$ in millions
Assets
Master Trust Assets
Derivative Assets
Total
Liabilities
Derivative Liabilities
Total
Level 1
Level 2
Level 3
Fair Value
at December 31,
2009*
Based on
Quoted Prices in
Active Market
Other
Observable
Inputs
Collateral and
Counterparty
Fair Value on
Consolidated
Balance Sheet at
Netting December 31, 2009
Unobservable
Inputs
$ 12.6
6.3
$ 18.9
$ 4.7
$ 4.7
$
$
–
–
–
$ 1.2
$ 1.2
$ 12.6
6.3
$ 18.9
$ 3.5
$ 3.5
$
$
$
$
–
–
–
–
–
$
–
(1.4)
$
(1.4)
$
$
(1.2)
(1.2)
$ 12.6
4.9
$ 17.5
$
$
3.5
3.5
* Includes credit valuation adjustments for counterparty risk.
The fair value of assets and liabilities measured on a recurring basis and the respective category within the
fair value hierarchy for DP&L was determined as follows:
Assets and Liabilities Measured at Fair Value on a Recurring Basis
DP&L
$ in millions
Level 1
Level 2
Level 3
Fair Value
at December 31,
2009 *
Based on
Quoted Prices in
Active Market
Other
Observable
Inputs
Unobservable
Inputs
Collateral and
Counterparty
Fair Value on
Balance Sheet at
Netting December 31, 2009
Assets
Master Trust Assets (a)
Derivative Assets
Total
Liabilities
Derivative Liabilities
Total
$ 40.9
6.3
$ 47.2
$ 4.7
$ 4.7
$ 28.3
–
$ 28.3
$ 1.2
$ 1.2
$ 12.6
6.3
$ 18.9
$ 3.5
$ 3.5
$
$
$
$
–
–
–
–
–
$
–
(1.4)
$
(1.4)
$
$
(1.2)
(1.2)
$ 40.9
4.9
$ 45.8
$
$
3.5
3.5
* Includes credit valuation adjustments for counterparty risk.
(a) DP&L holds DPL stock in the Master Trust that is eliminated in consolidation.
Level 1 inputs are used for DPL common stock held by the Master Trust and for derivative contracts such as
heating oil futures. The 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 and forward NYMEX-
quality coal contracts which are traded on the OTC market but which are valued using prices on the NYMEX
for similar contracts on the OTC market; and open-ended mutual funds that are in the Master Trust valued using
the end of day NAV.
Non-recurring fair value measurements
The fair value of an ARO is estimated by discounting expected cash outflows to their present value at the initial
recording of the liability. Cash outflows are based on the approximate future disposal cost as determined by
market information, historical information or other management estimates. These inputs to the fair value of the
AROs would be considered Level 3 inputs under the fair value hierarchy. We added a new ARO for a landfill and
additional layers to our existing landfill and asbestos AROs in the amount of $2.7 million during 2009.
DPL had $45.3 million and $15.0 million in money market funds classified as cash and cash equivalents in
its Consolidated Balance Sheets at December 31, 2009 and 2008, respectively. The money market funds have
quoted prices that are generally equivalent to par.
96 DPL Inc.
11 Derivative Instruments and Hedging Activities
In the normal course of business, DPL and DP&L enter into various financial instruments, including derivative
financial instruments. We use derivatives principally to manage the risk of changes in market prices for
commodities. The derivatives that we use to economically hedge these risks are governed by our risk management
policies for forward and futures contracts. 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 we have adequate resources 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. All of our derivative instruments are used for
risk management purposes and are designated as a cash flow hedge or marked to market each reporting period.
At December 31, 2009, DP&L had the following outstanding derivative instruments:
Commodity
Accounting
Treatment
Unit
Purchases
(in thousands)
Sales
(in thousands)
Net Purchase /
(Sale)
(in thousands)
FTRs
Heating Oil Futures
Forward Power Contracts
NYMEX-quality Coal Contracts*
Mark to Market
Mark to Market
Cash Flow Hedge
Mark to Market
MWH
Gallons
MWH
Tons
9.3
3,822.0
84.6
3,844.0
–
–
(1,769.2)
(1,286.5)
9.3
3,822.0
(1,684.6)
2,557.5
* Includes our partner’s share for the jointly-owned plants that DP&L operates.
Cash Flow Hedges
As part of our risk management processes, we identify the relationships between hedging instruments and
hedged items, as well as the risk management objective and strategy for undertaking various hedge transactions.
The MTM 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 AOCI and transferred to earnings when the hedged forecasted transaction takes place or when the hedged
forecasted transaction is probable of not occurring. The ineffective portion of the cash flow hedge is recognized in
earnings in the current period. All risk components were taken into account to determine the hedge effectiveness
of the cash flow hedges.
We currently use cash flow hedging with forward power contracts and in 2003 we entered into an interest
rate swap which was settled that same year. Approximately $2.1 million ($1.4 million net of tax) of accumulated
losses in AOCI related to the above mentioned power hedges are expected to be reclassified to earnings over
the next twelve months. The balance of the remaining deferred gain from the interest rate swap in AOCI is being
amortized into earnings over the life of the related bonds. Approximately $2.5 million ($1.6 million net of tax) of
accumulated gains in AOCI related to the above referenced interest rate hedge are expected to be reclassified to
earnings over the next twelve months. As of December 31, 2009, the maximum length of time that we are hedging
our exposure to variability in future cash flows related to forecasted transactions is 23 months and 106 months
for the forward power positions and the interest rate hedge, respectively.
The following table provides information concerning gains or losses recognized in AOCI for the cash
flow hedges:
$ in millions (net of tax)
Beginning accumulated
derivative gain / (loss) in AOCI
Net gains / (losses) associated with
current period hedging transactions
Net gains reclassified to earnings
Ending accumulated
derivative gain / (loss) in AOCI
December 31, 2009
December 31, 2008
December 31, 2007
Interest
Power Rate Hedge
Power and
Interest
Capacity Rate Hedge
Power and
Capacity
Interest
Rate Hedge
$
(0.2)
$ 17.2
$
(1.0)
$ 19.7
$ 2.1
$ 22.1
2.2
(3.4)
–
(2.5)
4.8
(4.0)
–
(2.5)
(0.4)
(2.7)
–
(2.4)
$
(1.4)
$ 14.7
$
(0.2)
$ 17.2
$
(1.0)
$ 19.7
DPL Inc.
97
The following table shows the amount and income statement classification of the gains and losses incurred during
the period on DP&L’s derivatives designated as hedging instruments for the year ended December 31, 2009.
For the year ended December 31, 2009
$ in millions (net of tax)
Amount of Gains
Recognized in
AOCI on Derivative
(Effective Portion)
Location of Gain
or (Loss)
Reclassified from Reclassified from
AOCI into Income AOCI into Income
(Effective Portion)
(Effective Portion)
Amount of Gain
or (Loss) Gains Recognized
in Income
on Derivative
(Ineffective Portion)
Location of Amount of Gain or
(Loss) Recognized
in Income
on Derivative
(Ineffective Portion)
Derivatives Designated as
Hedging Instruments
Interest Rate Hedge
Forward Power Contracts
(Decrease) / Increase on the
Statements of Results
of Operations of DP&L for
Derivative Instruments
Designated as Hedging
$
–
2.2
Interest expense
Revenues
$
2.5
3.4
Interest expense
Revenues
$
–
–
Instruments
$ 2.2
$
5.9
$
–
The following table shows the fair value and balance sheet classification of DP&L’s derivative instruments
designated as hedging instruments.
Fair Values of Derivative Instruments Designated as Hedging Instruments
At December 31, 2009
$ in millions
Fair Value
Netting*
Short-Term Derivative Positions
Forward Power Contracts in an Asset position
$
0.7
$
(0.7)
Forward Power Contracts in a Liability position
(2.8)
0.7
Total Cash Flow Hedges
$ (2.1)
$
–
Balance Sheet
Location
Fair Value on
Balance Sheet
Other prepayments
and current assets
Other current
liabilities
$
–
(2.1)
$ (2.1)
* Includes counterparty netting.
Mark to Market
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 FASC 815. Accordingly, such
contracts are recorded at fair value with changes in the fair value charged or credited to the statements of results
of operations in the period in which the change occurred. This is commonly referred to as “MTM” accounting.
Contracts we enter into as part of our risk management program may be settled financially, by physical delivery or
net settled with the counterparty. We currently MTM Financial Transmission Rights (FTRs), heating oil futures and
forward NYMEX-quality coal contracts.
DP&L enters into coal contracts from time to time to supply its generating plants. We perform a quarterly
evaluation of the different coal markets to determine if these coal contracts are considered derivative instruments
under FASC 815. DP&L has concluded that NYMEX and NYMEX look-a-like coal contracts are considered
derivative instruments because they have been determined to be readily convertible to cash under FASC 815.
Certain qualifying derivative instruments have been designated as normal purchases or normal sales
contracts, as provided in FASC 815. Derivative contracts that have been designated as normal purchases or
normal sales under FASC 815 are not subject to MTM accounting treatment and are recognized in the statements
of results of operations on an accrual basis.
Regulatory Assets and Liabilities
Under FASC 980, “Regulated Operations,” if a cost is probable of recovery in future rates, it should be deferred
as a regulatory asset. If a gain is probable of being returned to customers, it should be deferred as a regulatory
liability. Portions of the derivative contracts that are marked to market each reporting period and are related to the
retail portion of DP&L’s load requirements are included as part of the fuel factor approved by the PUCO beginning
January 1, 2010. Therefore, the Ohio jurisdictional retail portion of the heating oil futures and the NYMEX-quality
98 DPL Inc.
coal contracts are deferred as a regulatory asset or liability until the contracts settle. If these unrealized
gains and losses are no longer deemed to be probable of recovery through our rates, they will be reclassified
into earnings in the period such determination is made.
The following table shows the amount and statement of results of operations or balance sheet
classification of the gains and losses on DP&L’s derivatives not designated as hedging instruments for the
period ended December 31, 2009.
For the year ended December 31, 2009
$ in millions
Change in unrealized gain / (loss)
Realized gain / (loss)
Total
Recorded on Balance Sheet:
Partner’s share of gain / (loss)
Regulatory (asset) / liability
Recorded in Income Statement: gain / (loss)
Purchased power
Fuel
O&M
Total
NYMEX
Coal*
$ 4.1
1.1
$ 5.2
Heating
Oil
$ 5.1
(3.1)
$ 2.0
$ 1.8
1.5
$
–
(0.5)
$
–
1.9
–
$ 5.2
$
–
2.3
0.2
$ 2.0
FTRs
Power
Total
$ 0.8
(0.4)
$ 0.4
$
–
–
$ 0.4
–
–
$ 0.4
$ (0.2)
–
$ (0.2)
$ 9.8
(2.4)
$ 7.4
$
–
–
$ 1.8
1.0
$ (0.2)
–
–
$ (0.2)
$ 0.2
4.2
0.2
$ 7.4
* Includes gains and losses on financially settled derivative contracts and cost to market adjustments on physically settled derivative contracts.
The following table shows the fair value and Balance Sheet classification of DP&L’s derivative instruments
not designated as hedging instruments.
Fair Values of Derivative Instruments Not Designated as Hedging Instruments
At December 31, 2009
$ in millions
Fair Value
Netting*
Short-Term Derivative Positions
FTRs in an Asset position
$ 0.8
$
–
Heating Oil Futures in a Liability position
(1.2)
1.2
Balance Sheet
Location
Fair Value on
Balance Sheet
Other prepayments
and current assets
Other
current liabllities
NYMEX-Quality Coal Forwards in an Asset position
2.6
NYMEX-Quality Coal Forwards in a Liability position
(1.2)
Forward Power Contracts in a Liability position
(0.2)
(0.2) Other prepayments
and current assets
–
–
Other
current liabilities
Other
current liabilities
Total short-term derivative MTM positions
$ 0.8
$ 1.0
Long-term Derivative Positions
NYMEX-Quality Coal Forwards in an Asset position
Total long-term derivative MTM positions
Total MTM Position
$ 2.9
$ 2.9
$ 3.7
$
$
$
(1.2)
(1.2)
(0.2)
Other assets
$ 0.8
–
2.4
(1.2)
(0.2)
$ 1.8
$ 1.7
$ 1.7
$ 3.5
* Includes counterparty and collateral netting.
Certain of our OTC commodity derivative contracts are under master netting agreements that contain provisions
that require our debt to maintain an investment grade credit rating from credit rating agencies. If our debt were
to fall below investment grade, we would be in violation of these provisions, and the counterparties to the derivative
instruments could request immediate payment or demand immediate and ongoing full overnight collateralization
of the MTM loss. The aggregate fair value of all derivative instruments that are in a MTM loss position at December
31, 2009, is $4.7 million. This amount is offset by $1.2 million in a broker margin account which offsets our loss
positions on the NYMEX Clearport traded heating oil and coal contracts. If our debt were to fall below investment
grade, we would have to post collateral for the remaining $3.5 million.
DPL Inc.
99
12 Stock-Based Compensation
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 terminated sooner 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 DPL common stock
were reserved for issuance under the EPIP.
The following table summarizes share-based compensation expense recorded at DPL and DP&L:
$ in millions
Stock options
Restricted stock units
Performance shares
Restricted shares
Non-employee directors’ RSUs
Management performance shares
Share-based compensation included in
Operation and maintenance expense
Income tax expense / (benefit)
Total share-based compensation, net of tax
For the years ended December 31,
2009
$
–
–
1.8
0.7
0.5
0.7
3.7
(1.3)
$ 2.4
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
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 common
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 corre-
sponding 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 common 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, 2009, there were no unvested stock options.
100 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
For the years ended December 31,
2009
2008
2007
836,500
–
(419,000)
–
417,500
417,500
$
$
$
$
$
$
24.64
–
21.53
–
27.16
27.16
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
(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, 2009:
Range of
Exercise Prices
$ 14.95 – $ 21.00
$ 21.01 – $ 29.63
Outstanding
141,000
276,500
Options Outstanding
Options Exercisable
Weighted-Average
Contractual Life Weighted-Average
Exercise Price
(in Years)
Weighted-Average
Exercisable
Exercise Price
0.7
1.0
$ 20.97
$ 29.42
141,000
276,500
$ 20.97
$ 29.42
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 benefit 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)
For the years ended December 31,
2009
–
2.2
9.0
0.7
–
–
–
2008
$
–
$ 1.0
$ 2.2
$ 0.3
–
$
–
$
–
2007
$
–
$ 2.3
$ 14.6
$ 1.3
–
$
–
$
–
No options were granted during 2007, 2008 or 2009.
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 (1.3 million) were forfeited by three former executives (see Note 17
of Notes to Consolidated Financial Statements). There were 3,311 RSUs outstanding as of December 31, 2009,
none of which has vested. The non-vested RSUs will be paid in cash upon vesting 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.
Summarized RSU activity was as follows:
$ in millions
Non-vested at January 1, 2009
Granted in 2009
Vested in 2009
Forfeited in 2009
Non-vested at December 31, 2009
Number of
RSUs
Weighted-Average
Grant Date Fair Value
10,120
–
(6,809)
–
3,311
$ 0.2
–
(0.1)
–
$ 0.1
DPL Inc. 101
Summarized RSU activity was as follows:
RSUs:
Outstanding at beginning of year
Granted
Dividends
Exercised
Forfeited
Outstanding at period end
Exercisable at period end
For the years ended December 31,
2009
2008
2007
10,120
–
–
(6,809)
–
3,311
–
22,976
–
–
(11,253)
(1,603)
10,120
–
1,334,339
–
11,656
(20,097)
(1,302,922)
22,976
–
Compensation expense is recognized each quarter based on the change in the market price of DPL
common stock.
As of December 31, 2009, 2008 and 2007, liabilities recorded for outstanding RSUs were $0.1 million,
$0.2 million and $0.6 million, respectively, which are included in Other deferred credits on the balance sheets.
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
2009
17.9%
17.9%
0.6
5.1%
5.1%
0.2%
For the years ended December 31,
2008
2007
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%
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 FASC 718. 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 year ended December 31, 2009 follows:
$ in millions
Non-vested at January 1, 2009
Granted in 2009
Vested in 2009
Forfeited in 2009
Non-vested at December 31, 2009
Performance shares:
Outstanding at beginning of year
Granted
Exercised
Expired
Forfeited
Outstanding at period end
Exercisable at period end
102 DPL Inc.
Number of
Performance Shares
Weighted-Average
Grant Date Fair Value
119,855
124,588
(47,355)
(6,739)
190,349
$ 3.3
2.8
(1.6)
(0.2)
$ 4.3
For the years ended December 31,
2009
2008
2007
156,300
124,588
–
(36,445)
(6,739)
237,704
47,355
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
The following table reflects information about performance share activity during the period:
$ in millions
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 benefit 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)
For the years ended December 31,
2009
2008
2007
$ 2.8
–
$
–
$
$
–
$ 1.6
$ 2.1
1.7
$ 2.2
–
$
–
$
$
–
$ 0.8
$ 1.6
1.6
$ 2.6
$ 0.6
–
$
$
–
$ 0.8
$ 1.9
1.7
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
For the years ended December 31,
2009
2008
2007
22.8% - 23.3%
22.8%
3.0
5.4% - 5.6%
5.6%
0.3% - 1.5%
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%
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.
In July 2008, the Board of Directors granted compensation awards to a select group of management
employees. The management restricted stock awards have a three-year requisite service period, carry full voting
privileges and receive dividends as declared and paid on all DPL common stock.
On September 17, 2009, the DPL Board of Directors approved a two-part equity compensation award
under DPL’s 2006 Equity and Performance Incentive Plan for certain of DPL’s executive officers. The first part is
a restricted share grant and the second part is a matching restricted share grant. A total of 90,036 restricted
shares were granted on September 17, 2009 as part of the restricted share grant. These restricted shares generally
vest after five years if the participant remains continuously employed with DPL or a subsidiary and if the year over
year average basic EPS has increased by at least 1% per year from 2009 - 2013. Under the matching restricted
share grant, participants will have a three-year period from the date of plan implementation during which they
may purchase DPL common stock equal in value to up to two times their base salary. DPL will match the shares
purchased with another grant of restricted stock (matching restricted share grant). The percentage match by
DPL is detailed in the table below. The matching restricted share grant will generally vest over a three year period
if the participant continues to hold the originally purchased shares and remains continuously employed with DPL
or a subsidiary. The restricted shares are registered in the executive’s name, carry full voting privileges and receive
dividends as declared and paid on all DPL common stock.
The matching criteria are:
Value (Cost Basis) of Shares Purchased
as a % of 2009 Base Salary
Company % Match of
Shares Purchased
<25%
25% to <50%
50% to <100%
100% to 200%
25%
50%
75%
125%
DPL Inc. 103
The matching percentage will be applied on a cumulative basis and adjusted at the end of each quarter.
Restricted stock can only be awarded in DPL common stock.
$ in millions
Non-vested at January 1, 2009
Granted in 2009
Vested in 2009
Forfeited in 2009
Non-vested at December 31, 2009
Restricted Shares:
Outstanding at beginning of year
Granted
Exercised
Forfeited
Outstanding at period end
Exercisable at period end
Number of
Restricted Shares
Weighted-Average
Grant Date Fair Value
69,147
159,050
(10,000)
–
218,197
$ 1.9
4.2
(0.3)
–
$ 5.8
For the years ended December 31,
2009
2008
2007
69,147
159,050
(10,000)
–
218,197
–
42,200
39,347
(1,000)
(11,400)
69,147
–
19,000
23,200
–
–
42,200
–
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 benefit 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)
For the years ended December 31,
2009
2008
2007
$ 4.2
$ 0.3
–
$
$
–
$ 0.3
$ 4.3
3.4
$ 1.1
–
$
–
$
–
$
$
–
$ 1.3
2.7
$ 0.7
–
$
–
$
–
$
$
–
$ 0.9
2.8
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 retainer in RSUs on the date of the annual meeting of shareholders. 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 stock, unless the
Director chooses to defer receipt of the shares until a later date. The RSUs are valued at the closing stock price
n the day prior to the grant and the compensation expense is recognized evenly over the vesting period.
$ in millions
Non-vested at January 1, 2009
Granted in 2009
Dividends accrued in 2009
Exercised and issued in 2009
Exercised and deferred in 2009
Forfeited in 2009
Non-vested at December 31, 2009
104 DPL Inc.
Number of
Director RSUs
Weighted-Average
Grant Date Fair Value
15,546
20,016
1,737
(2,066)
(14,521)
–
20,712
$ 0.4
0.5
–
(0.1)
(0.4)
–
$ 0.4
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
For the years ended December 31,
2009
2008
2007
15,546
20,016
1,737
(2,066)
(14,521)
–
20,712
–
13,573
17,022
931
(7,910)
(6,921)
(1,149)
15,546
–
–
14,920
348
(142)
–
(1,553)
13,573
–
The following table reflects information about non-employee director RSU activity during the period:
$ in millions
For the years ended December 31,
2009
2008
2007
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 benefit 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
0.4
–
–
0.5
0.1
0.3
$ 0.5
–
$
$
–
–
$
$ 0.3
$ 0.1
0.3
Management Performance Shares
On May 28, 2008, the Board of Directors granted compensation awards for select management employees.
The grants have a three year requisite service period and certain performance conditions during the performance
period. The management performance shares can only be awarded in DPL common stock.
$ in millions
Non-vested at January 1, 2009
Granted in 2009
Vested in 2009
Forfeited in 2009
Non-vested at December 31, 2009
Management Performance Shares:
Outstanding at beginning of year
Granted
Exercised
Forfeited
Outstanding at period end
Exercisable at period end
* Management performance shares were not issued in 2007.
Number of Management
Performance Shares
Weighted-Average
Grant Date Fair Value
39,144
48,719
–
(3,622)
84,241
$ 1.1
1.0
–
(0.1)
$ 2.0
For the years ended December 31,
2009
2008
2007*
39,144
48,719
–
(3,622)
84,241
–
–
39,144
–
–
39,144
–
–
–
–
–
–
–
DPL Inc. 105
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:
For the years 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.
2009
22.8%
22.8%
3.0
5.6%
5.6%
1.5%
2008
14.9%
14.9%
3.0
3.9%
3.9%
2.9%
2007*
0.0%
0.0%
–
0.0%
0.0%
0.0%
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.
For the years ended December 31,
2009
2008
2007*
$ 1.0
$ 1.1
$
$
$
–
–
–
$
–
$ 1.0
1.6
$
–
$
–
$
–
$
–
$ 0.8
2.0
$
–
$
–
$
–
$
–
$
$
–
–
–
13 Redeemable Preferred Stock
DP&L has $100 par value preferred stock, 4,000,000 shares authorized, of which 228,508 are outstanding
as of December 31, 2009. DP&L also has $25 par value preferred stock, 4,000,000 shares authorized, none
of which was outstanding as of December 31, 2009. The table below details the preferred shares outstanding
at December 31, 2009.
Preferred
Stock Rate
Redemption
Price at
December 31, 2009
Shares
Outstanding at
December 31, 2009
Par Value at
December 31, 2009
($ in millions)
Par Value at
December 31, 2008
($ in millions)
DP&L Series A
DP&L Series B
DP&L Series C
Total
3.75%
3.75%
3.90%
$ 102.50
$ 103.00
$ 101.00
93,280
69,398
65,830
228,508
$ 9.3
7.0
6.6
$ 22.9
$ 9.3
7.0
6.6
$ 22.9
The DP&L preferred stock may be redeemed at DP&L’s option as determined by its Board of Directors at the
per-share redemption prices indicated above, plus cumulative accrued dividends. In addition, DP&L’s Amended
Articles of Incorporation contain provisions that permit preferred stockholders to elect members of the Board
of Directors in the event that cumulative dividends on the preferred stock are in arrears in an aggregate amount
equivalent to at least four full quarterly dividends. Since this potential redemption-triggering event is not solely
within the control of DP&L, the preferred stock is presented on the Balance Sheets as “Redeemable Preferred
Stock” in a manner consistent with temporary equity.
106 DPL Inc.
As long as any DP&L preferred stock is outstand-
ing, DP&L’s Amended Articles of Incorporation also
contain provisions restricting the payment of cash divi-
dends 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. This dividend restriction has histori-
cally not impacted DP&L’s ability to pay cash divi-
dends and, as of December 31, 2009, DP&L’s retained
earnings of $640.3 million were all available for com-
mon stock dividends payable to DPL. We do not
expect this restriction to have an effect on the payment
of cash dividends in the future. DPL records dividends
on preferred stock of DP&L within Interest expense on
the Statements of Results of Operations.
14 Common Shareholders’ Equity
DPL has 250,000,000 authorized common
shares, of which 118,966,767 are outstanding at
December 31, 2009.
Dividend Reinvestment Plan
On March 1, 2009, DPL introduced a new direct stock
purchase and dividend reinvestment plan. The plan
provides both registered shareholders and new inves-
tors with the ability to purchase shares and also to
reinvest their dividends. This plan is administered by
Computershare Trust Company, N.A., and not by DPL.
Shareholder Rights Plan
In September 2001, DPL’s Board of Directors renewed
its Shareholder Rights Plan, attaching one right to
each common share outstanding at the close of busi-
ness 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 certain
attempted business combinations. The renewed plan
expires on December 31, 2011.
Warrants
In February 2000, DPL entered into a series of recapi-
talization transactions which included the issuance of
31.6 million warrants 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 (e.g., stock split,
stock dividend) at an exercise price of $21.00 per
common share.
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 com-
mon shares of such subsidiary the warrant holder had
in DPL immediately prior to such transaction.
Pursuant to the warrant agreement, DPL has
authorized common shares sufficient to provide for the
exercise in full of all outstanding warrants.
The table below details the net change during
2009 of DPL’s outstanding warrants:
in millions
Number of Warrants
Outstanding warrants at January 1, 2009
Warrants repurchased at an
average price of $2.94 each
Warrants exercised under cashless transactions
Warrants exercised for cash
Outstanding warrants at December 31, 2009
19.6
(8.6)
(5.5)
(3.7)
1.8
The warrants repurchased were cancelled by DPL on
the dates they were repurchased. As a result of the
warrants exercised under both cash and cashless
provisions, DPL issued a total of 5.0 million shares of
common stock from treasury stock and in turn received
total cash proceeds of $77.7 million. DPL used a por-
tion of the proceeds to repurchase warrants directly
from holders and the remaining proceeds were used
to repurchase shares under its Stock Repurchase
Program discussed below.
Stock Repurchase Program
On October 28, 2009, the DPL Board of Directors
approved a Stock Repurchase Program under which
DPL may use proceeds from the exercise of warrants
to repurchase warrants or its common stock from time
to time in the open market, through private transac-
tions or otherwise. The Stock Repurchase Program
will run through June 30, 2012, which is three months
after the end of the warrant exercise period. Under the
Stock Repurchase Program, DPL repurchased a total
of 2.4 million shares at an average per share price of
$26.96 during the quarter ended December 31, 2009.
At December 31, 2009, the amount still available that
DPL Inc. 107
could be used to repurchase stock under the Stock
Repurchase Program is approximately $3.9 million but
could be higher if additional warrants are exercised for
cash in the future.
ESOP
During October 1992, our Board of Directors approved
the formation of a Company-sponsored 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 general, participants are eligible for lump sum
payments upon termination of their employment and
the submission and subsequent approval of an appli-
cation for benefits. Earlier distributions can occur for
a Qualified Domestic Relations Order or 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 anniversary of par-
ticipation, 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. Additionally, participants may elect
on a quarterly basis to diversify their vested ESOP
shares into DP&L’s 401(k) retirement savings plan.
Distributions are made in cash unless the participant
requests the distribution be made in stock. A repur-
chase 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, 2009 and 2008 was approximately
$57.6 million and $42.4 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.
Effective January 1, 2009, the interest on the loan was
amended to a fixed rate of 2.06%, 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
purchase 4.7 million shares of DPL common stock in
the open market. As a result of the 1997 stock split,
the ESOP held 7.1 million shares of DPL common
stock. The cost of shares held by the ESOP and not
yet released is reported as a reduction of Common
shareholders’ equity. At December 31, 2009, Common
shareholders’ equity reflects the cost of 2.8 million
unreleased shares held in suspense by the DPL Inc.
Employee Stock Ownership Trust. The fair value of the
2.8 million ESOP shares held in suspense at December
31, 2009 was $77.5 million. When shares are com-
mitted 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 associ-
ated with the ESOP, which is based on the fair value
of the shares committed to be released for allocation,
amounted to $4.0 million in 2009, $1.5 million in 2008
and $9.0 million in 2007.
For purposes of EPS computations and in accor-
dance with GAAP, we treat ESOP shares as out-
standing if they have been allocated to participants,
released or have been committed to be released. As of
December 31, 2009, the ESOP has 4.2 million shares
allocated to participants with an additional 21 thousand
shares which have been released but unallocated to
participants. ESOP cumulative shares outstanding for
the calculation of EPS were 4.2 million in 2009, 4.0 mil-
lion in 2008 and 3.9 million in 2007.
108 DPL Inc.
15 Comprehensive Income (Loss)
Comprehensive income (loss) is defined as the change in equity (net assets) of a business entity during a period
from transactions and other events and circumstances from non-owner sources. It includes all changes in equity
during a period except those resulting from investments by owners and distributions to owners. Comprehensive
income (loss) has two components: Net income (loss) and Other comprehensive income (loss).
The following table provides the tax effects allocated to each component of Other comprehensive income
(loss) for the years ended December 31, 2009, 2008 and 2007:
DPL
Tax
(expense) /
benefit
Amount
before tax
Amount
after tax
Amount
before tax
DP&L
Tax
(expense) /
benefit
Amount
after tax
$ in millions
2007
Unrealized gains / (losses) on
financial instruments
$
(1.4)
$ 0.5
$
(0.9)
$ (11.9)
$ 4.2
$
(7.7)
Deferred gains / (losses) on
cash flow hedges
Unrealized gains / (losses) on
pension and postretirement benefits
(7.1)
1.6
(5.5)
(7.1)
1.6
3.4
(1.2)
2.2
3.4
(1.2)
(5.5)
2.2
Other comprehensive income (loss)
$
(5.1)
$ 0.9
$
(4.2)
$ (15.6)
$ 4.6
$ (11.0)
2008
Unrealized gains / (losses) on
financial instruments
$
(0.8)
$ 0.3
$
(0.5)
$ (15.0)
$ 5.2
$
(9.8)
(1.3)
(0.4)
(1.7)
(1.3)
(0.4)
(1.7)
Deferred gains / (losses) on
cash flow hedges
Unrealized gains / (losses) on
pension and postretirement benefits
Other comprehensive income (loss)
$ (35.2)
$ 11.5
$ (23.7)
(33.1)
11.6
(21.5)
(33.4)
$ (49.7)
11.7
$ 16.5
(21.7)
$ (33.2)
2009
Unrealized gains / (losses) on
financial instruments
Deferred gains / (losses) on
cash flow hedges
Unrealized gains / (losses) on
pension and postretirement benefits
$
0.8
$
(0.3)
$
0.5
$
4.2
$
(1.5)
$
2.7
(4.3)
0.6
(3.7)
(4.3)
0.6
(3.7)
(4.1)
1.4
(2.7)
(4.1)
1.4
(2.7)
Other comprehensive income (loss)
$
(7.6)
$ 1.7
$
(5.9)
$
(4.2)
$ 0.5
$
(3.7)
The following table provides the detail of each component of Other comprehensive income (loss) reclassified
to Net income during the years ended December 31, 2009, 2008 and 2007:
$ in millions
2009
2008
2007
DPL
Unrealized gains on financial instruments net of income
tax expense of $1.1 million in 2007. There were no unrealized
gains or losses on financial instruments in 2009 or 2008.
Deferred gains on cash flow hedges net of income tax
expenses of $1.8 million, $2.2 million and $1.5 million, respectively.
Unrealized losses on pension and postretirement benefits net of income
tax benefits of $1.1 million, $0.7 million and $0.8 million, respectively.
DP&L
Unrealized gains on financial instruments net of income tax
expenses of $0.4 million, $1.4 million and $6.3 million, respectively.
Deferred gains on cash flow hedges net of income tax expenses
of $1.8 million, $2.2 million and $1.5 million, respectively.
Unrealized losses on pension and postretirement benefits net of income
tax benefits of $1.1 million, $0.7 million and $0.8 million, respectively.
$
–
$
–
$
2.0
5.9
6.5
5.1
(2.1)
(1.3)
(1.5)
$
3.8
$ 5.2
$
5.6
$
0.7
$ 2.7
$ 11.6
5.9
6.5
5.1
(2.1)
(1.3)
(1.5)
$
4.5
$ 7.9
$ 15.2
DPL Inc. 109
Accumulated Other Comprehensive Income (Loss)
AOCI is included on our balance sheets within the Common shareholders’ equity sections. The following table
provides the components that constitute the balance sheet amounts in AOCI at December 31, 2009 and 2008:
$ in millions
2009
2008
DPL
Financial instruments, net of tax
Cash flow hedges, net of tax
Pension and postretirement benefits, net of tax
Total
DP&L
Financial instruments, net of tax
Cash flow hedges, net of tax
Pension and postretirement benefits, net of tax
Total
16 EPS
0.2
$
13.3
(42.5)
$ (29.0)
9.5
$
13.3
(42.5)
$ (19.7)
(0.3)
$
17.0
(39.8)
$ (23.1)
$
6.7
17.0
(39.8)
$ (16.1)
Basic EPS is based on the weighted-average number of DPL common shares outstanding during the year.
Diluted EPS is 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 these weighted-average computations are shares held
by DP&L’s Master Trust Plan for deferred compensation and unreleased shares held by DPL’s ESOP.
The common-equivalent shares excluded from the calculation of diluted EPS, because they were anti-
dilutive, were not material for all the periods ended December 31, 2009, 2008 and 2007. These shares may
be dilutive in the future.
The following illustrates the reconciliation of the numerators and denominators of the basic and diluted
EPS computations:
$ and shares in millions
except per share amounts
2009
2008
2007
Income Shares Per Share
Income Shares Per Share
Income(a)
Shares Per Share
Basic EPS
$ 229.1
112.9
$ 2.03
$ 244.5
110.2
$ 2.22
$ 221.8
107.9
$ 2.06
Effect of Dilutive Securities:
Stock Incentive Units
Warrants (b)
Stock options, performance
and restricted shares (c)
–
1.1
0.2
–
5.0
0.2
0.5
8.6
0.8
Diluted EPS
$ 229.1
114.2
$ 2.01
$ 244.5
115.4
$ 2.12
$ 221.8
117.8
$ 1.88
(a) Income after discontinued operations.
(b) For information relating to warrant activity, see Note 14 of Notes to Consolidated Financial Statements.
(c) Starting January 1, 2009, restricted shares are included in Basic Shares pursuant to the update to FASC 260, “Earnings per Share.”
See Note 1 of Notes to Consolidated Financial Statements.
110 DPL Inc.
17 Executive Litigation
18 Insurance Recovery
On May 21, 2007, we settled 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 com-
pensation, RSUs, MVE incentives, stock options and
legal fees. The RSUs and stock options relinquished
and forfeited were 1.3 million and 3.6 million, respec-
tively. 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 executives of cer-
tain 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 mil-
lion, 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 settle-
ment expense was allocated between continuing and
discontinued operations based on the proportionate
share of the obligations of each.
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 transac-
tion, 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 a claim with Energy
Insurance Mutual (EIM) to recoup legal expenses
associated with our litigation against certain former
executives. Arbitration on that claim occurred on May
13, 2009. The arbitration panel issued a ruling in Phase
1 of the arbitration on September 25, 2009, finding
that most of the claims involving the former execu-
tives were covered. In accordance with GAAP, DPL
recorded expenses totaling $7.5 million in 2008 but has
not recorded any assets for possible recovery of these
expenses. The matter is pending.
19 Contractual Obligations, Commercial
Commitments and Contingencies
DPL – Guarantees
In the normal course of business, DPL enters into vari-
ous agreements with its wholly-owned subsidiaries,
DPLE and DPLER, providing financial or performance
assurance to third parties. These agreements are
entered into primarily to support or enhance the credit-
worthiness otherwise attributed to DPLE and DPLER on
a stand-alone basis, thereby facilitating the extension
of sufficient credit to accomplish DPLE’s and DPLER’s
intended commercial purposes.
At December 31, 2009, DPL had $51 million of
guarantees to third parties for future financial or
performance assurance under such agreements, on
behalf of DPLE and DPLER. The guarantee arrange-
ments entered into by DPL with these third parties
cover all present and future obligations of DPLE and
DPLER 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 guarantees and record-
ed in our Consolidated Balance Sheets was $0.6
million and $1.6 million at December 31, 2009 and
2008, respectively.
DPL Inc. 111
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
To date, neither DPL nor DP&L have incurred any losses related to the guarantees of DPLE’s obligations and
we believe it is remote 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 which is recorded using the
cost method of accounting under GAAP. As of December 31, 2009, DP&L could be responsible for the repayment
of 4.9%, or $54.4 million, of a $1,110 million debt obligation that matures in 2026. This would only happen if this
electric generation company defaulted on its debt payments. As of December 31, 2009, we have no knowledge
of such a default.
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, 2009, these include:
$ in millions
Total
2010
2011-2012
2013-2014
Thereafter
Payment Year
DPL
Long-term debt
Interest payments
Pension and postretirement payments
Capital leases
Operating leases
Coal contracts (a)
Limestone contracts (a)
Purchase orders and
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 (a)
Purchase orders and
other contractual obligations
Total contractual obligations
(a) Total at DP&L-operated units
$ 1,324.4
740.0
253.8
0.6
0.5
1,694.3
48.4
162.6
$ 4,224.6
$ 884.4
454.8
253.8
0.6
0.5
1,694.3
48.4
164.8
$ 3,501.6
$ 100.0
71.5
23.8
0.6
0.3
498.1
5.5
$ 297.4
115.1
48.9
–
0.2
577.2
11.4
$ 470.0
71.4
51.1
–
–
184.4
12.0
$ 457.0
482.0
130.0
–
–
434.6
19.5
56.9
84.9
14.6
6.2
$ 756.7
$ 1,135.1
$ 803.5
$ 1,529.3
$ 100.0
39.4
23.8
0.6
0.3
498.1
5.5
$
–
78.3
48.9
–
0.2
577.2
11.4
$ 470.0
48.2
51.1
–
–
184.4
12.0
$ 314.4
288.9
130.0
–
–
434.6
19.5
58.0
86.0
14.6
6.2
$ 725.7
$ 802.0
$ 780.3
$ 1,193.6
Long-term debt:
DPL’s long-term debt as of December 31, 2009, consists of DP&L’s first mortgage bonds and tax-exempt
pollution control bonds and DPL’s unsecured senior notes. These long-term debt amounts include current maturi-
ties but exclude unamortized debt discounts.
DP&L’s long-term debt as of December 31, 2009, consists of first mortgage bonds and tax-exempt pollution
control bonds. These long-term debt amounts include current maturities but exclude unamortized debt discounts.
See Note 7 of Notes to Consolidated Financial Statements.
112 DPL Inc.
Interest payments:
Interest payments associated with the long-term debt
described above. The interest payments relating to
variable-rate debt are projected using the interest rate
prevailing at December 31, 2009.
Pension and postretirement payments:
As of December 31, 2009, 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 2019.
Capital leases:
As of December 31, 2009, DPL, through its principal
subsidiary DP&L, had one immaterial capital lease
that expires in September 2010.
Operating leases:
As of December 31, 2009, DPL, through its principal
subsidiary DP&L, had several immaterial 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. Some 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 used in the operation of FGD equipment at
its generating facilities.
Purchase orders and other contractual obligations:
As of December 31, 2009, DPL and DP&L had various
other contractual obligations including non-cancelable
contracts to purchase goods and services with various
terms and expiration dates.
Reserve for uncertain tax positions:
Due to the uncertainty regarding the timing of future
cash outflows associated with our unrecognized
tax benefits of $19.3 million, we are unable to make
a reliable estimate of the periods of cash settlement
with the respective tax authorities and have not
included such amounts in the contractual obligations
table above.
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 con-
tingencies. However, there can be no assurances that
the actual amounts required to satisfy alleged liabilities
from various legal proceedings, claims, tax examina-
tions, and other matters, including the matters dis-
cussed 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, 2009, cannot be reason-
ably determined.
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 recom-
mendations 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.
Environmental Matters
DPL, DP&L and our subsidiaries’ facilities and
operations are subject to a wide range of environmen-
tal regulations and laws by federal, state and local
authorities. As well as imposing continuing compliance
obligations, these laws and regulations authorize
the imposition of substantial penalties for noncompli-
ance, 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 losses that
are probable of occurring and can be reasonably esti-
mated. DPL, through its wholly owned captive insur-
ance subsidiary MVIC, has an actuarially calculated
reserve of $1.2 million for environmental 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.
DPL Inc. 113
Air Quality
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. Activities at power
plants that fall within the scope of the RMRR exclu-
sion do not trigger new source review requirements,
including the imposition of stricter emission limits.
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
lawsuits filed by numerous states and environmental
organizations challenging the final rules. On June
6, 2005, the USEPA issued its final response on the
reconsideration of the ERP exclusion. The USEPA clari-
fied its position, but did not change any aspect of the
2003 final rules. This decision was appealed and the
D.C. Circuit vacated the final rules on March 17, 2006.
The scope of the RMRR exclusion remains uncertain
due to this action by the D.C. Circuit, as well as mul-
tiple litigations not directly involving us where courts
are defining the scope of the exception with respect to
the specific facts and circumstances of the particular
power plants and activities before the courts. While we
believe that we have not engaged in any activities with
respect to our existing power plants that would trig-
ger the new source review requirements, if new source
review requirements were imposed on any of DP&L’s
existing power plants, the results could be materially
adverse to us.
The USEPA issued a proposed rule on October
20, 2005 concerning the test for measuring whether
modifications to electric generating units should trigger
application of New Source Review (NSR) standards
under the CAA. A supplemental rule was also pro-
posed on May 8, 2007 to include additional options for
determining if there is an emissions increase when an
existing electric generating unit makes a physical or
operational change. The rule was challenged by envi-
ronmental organizations and has not been finalized.
While we cannot at this time predict the outcome of this
rulemaking, any finalized rules could materially affect
our operations.
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 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 CAA. 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 on September 24, 2008 for a rehearing before
the entire Court. 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 CAA
requirements and the Court’s July 11, 2008 decision.
In January 2010, the Court ordered the USEPA to file
a response to a Petition for Mandamus filed by par-
ties in the original case who are now seeking a Court
order to require the USEPA to issue new regulations by
March 1, 2010. We are currently unable to predict the
outcome of this Petition or the timing or impact 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 pro-
gram consistent with the IAQR. The Ohio EPA had
received partial approval from the USEPA and had
been awaiting full program 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 proposed revised rules on
May 11, 2009, which were finalized on July 15, 2009.
On September 25, 2009, the USEPA issued a full SIP
approval for the Ohio CAIR program. We do not
expect that full SIP approval of the Ohio CAIR program
will have a significant impact on operations.
114 DPL Inc.
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 affected the
trading market for excess allowances and impacted
DP&L’s program for selling additional excess allow-
ances in 2008. Although in January 2009 we resumed
selling excess allowances due to the revival of the trad-
ing market, the long-term impact of the court’s deci-
sion, and of the actions the USEPA or others will take in
response to this decision, is not fully known at this time
and could have an adverse effect on us.
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
the USEPA, opposing the cap-and-trade regulatory
approach taken by the USEPA. In 2007, the Ohio EPA
adopted rules implementing the CAMR program. On
February 8, 2008, the U.S. Court of Appeals for the
District of Columbia Circuit struck down the USEPA
regulations, finding that the USEPA had not complied
with statutory requirements applicable to “de-listing”
a hazardous air pollutant and that a cap-and-trade
approach was not authorized by law for “listed” haz-
ardous air pollutants. A request for rehearing before
the entire Court of Appeals was denied and a peti-
tion for review before the U.S. Supreme Court was
filed on October 17, 2008. On February 23, 2009, the
U.S. Supreme Court denied the petition. The USEPA
is expected to move forward on setting Maximum
Available Control Technology (MACT) standards for
coal- and oil-fired electric generating units. Upon
publication in the federal register following finalization,
affected electric generating units (EGUs) will have
three years to come into compliance with the new
requirements. At this time, DP&L is unable to deter-
mine the impact of the promulgation of new MACT
standards on its financial position or results of opera-
tions; however, a MACT standard could have a
material adverse effect on our operations, in particular,
our unscrubbed units. We cannot at this time project
the final costs we may incur to comply with any
resulting mercury restriction regulations.
On January 5, 2005, the USEPA published its final
non-attainment designations for the National Ambient
Air Quality Standard (NAAQS) for Fine Particulate
Matter 2.5 (PM 2.5). These designations included
counties and partial counties in which DP&L operates
and/or owns generating 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 creat-
ing these designations. On November 30, 2005, the
court ordered the USEPA to decide on all petitions for
reconsideration by January 20, 2006. On January 20,
2006, the USEPA denied the petitions for reconsidera-
tion. On July 7, 2009, the D.C. Circuit Court of Appeals
upheld the USEPA non-attainment designations for the
areas impacting DP&L’s generation plants, however,
on October 8, 2009, the USEPA issued new designa-
tions based on 2008 monitoring data that showed all
areas in attainment to the standard with the exception
of several counties in northeastern Ohio. The USEPA is
expected to propose revisions to the PM 2.5 standard
in late 2010 as part of its routine five-year rule review
cycle. At this time, DP&L is unable to determine the
impact the revisions to the PM 2.5 standard will have
on its financial position or results of 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, the 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.
In response to a U.S. Supreme Court decision that
the USEPA has the authority to regulate CO2 emis-
sions from motor vehicles, the USEPA made a finding
that CO2 and certain other gases are pollutants under
the CAA. The USEPA has not yet identified the specif-
ics of how these newly designated pollutants will be
regulated. In April 2009, the USEPA issued a proposed
endangerment finding under the CAA. The proposed
finding determined that CO2 and other GHGs from
motor vehicles threaten the health and welfare of
future generations by contributing to climate change.
If the proposed finding is finalized, it could lead to the
regulation of CO2 and other GHGs from sources other
than motor vehicles, including coal-fired plants that
we own and operate. Recently, several bills have been
introduced at the federal level to regulate GHG emis-
sions. In June 2009, the U.S. House of Representatives
DPL Inc. 115
passed H.R. 2454, the American Clean Energy and
Security Act (ACES). This proposed legislation tar-
gets a reduction in the emission of GHGs from large
sources by 80% in 2050 through an economy wide cap
and trade program. ACES also includes energy effi-
ciency and renewable energy initiatives. Approximately
99% of the energy we produce is generated by coal.
DP&L’s share of CO2 emissions at generating stations
we own and co-own is approximately 16 million tons
annually. Proposed GHG legislation finalized at a future
date could have a significant effect on DP&L’s opera-
tions and costs, which could adversely affect our net
income, cash flows and financial position. However,
due to the uncertainty associated with such legislation,
we are currently unable to predict the final outcome or
the financial impact that this legislation will have on us.
On September 22, 2009, the USEPA issued a final rule
for mandatory reporting of GHGs from large sources
that emit 25,000 metric tons per year or more of CO2,
including electric generating units. The first report is
due in March 2011 for 2010 emissions. This reporting
rule will guide development of policies and programs
to reduce emissions. DP&L does not anticipate that
this reporting rule will result in any significant cost or
other impact on current operations.
On July 15, 2009, the USEPA proposed revisions
to its primary National Ambient Air Quality Standard
(NAAQS) for nitrogen dioxide. This change could affect
certain emission sources in heavy traffic areas like the
I-75 corridor between Cincinnati and Dayton. At this
point, DP&L cannot determine the effect of this poten-
tial change, if any, on its operations.
The USEPA proposed revisions to its primary
NAAQS for SO2 on November 16, 2009. This would
replace the current 24-hour standard and current annu-
al standard. This regulation is expected to be finalized
in 2010. At this time, DP&L cannot determine the effect
of this potential change, if any, on its operations.
On September 16, 2009, the USEPA announced
that it would reconsider the 2008 national ground level
ozone standard. A more stringent ambient ozone stan-
dard may lead to stricter NOx emission standards in
the future. At this point, DP&L cannot determine the
effect of this potential change, if any, on its operations.
Air Quality – Litigation Involving Co-Owned Plants
In March 2000, as amended in June 2004, the U.S.
Department of Justice filed a complaint in the United
States District Court, Southern District of Indiana,
Indianapolis Division 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, includ-
ing generation units co-owned by DP&L (Beckjord Unit
6 and Miami Fort Unit 7). A retrial has been held in
which the second jury found for Duke Energy on some
allegations, but for plaintiffs with respect to units at
another one of Duke Energy’s wholly-owned facilities. In
a separate phase II remedies trial with respect to viola-
tions found in the first trial, Duke Energy was ordered
to close down three of its wholly-owned generating
units by September 2009, surrender some emission
allowances and pay a fine. None of the violations found
or remedies ordered relate to generating units owned
in part by DP&L.
In 2004, eight states and the City of New York
filed a lawsuit in Federal District Court for the Southern
District of New York against American Electric Power
Company, Inc. (AEP), one of AEP’s subsidiaries,
Cinergy Corp. (a subsidiary of Duke Energy Corporation
(Duke Energy)) and four other electric power compa-
nies. A similar lawsuit was filed against these compa-
nies in the same court by Open Space Institute, Inc.,
Open Space Conservancy, Inc. and The Audubon
Society of New Hampshire. The lawsuits allege that
the companies’ emissions of CO2 contribute to global
warming and constitute a public or private nuisance.
The lawsuits seek injunctive relief in the form of specific
emission reduction commitments. In 2005, the Federal
District Court dismissed the lawsuits, holding that the
lawsuits raised political questions that should not be
decided by the courts. The plaintiffs appealed. Finding
that the plaintiffs have standing to sue and can assert
federal common law nuisance claims, the United States
Court of Appeals for the Second Circuit on September
21, 2009 vacated the dismissal of the Federal District
Court and remanded the lawsuits back to the Federal
District Court for further proceedings. Although we are
not named as a party to these lawsuits, DP&L is a co-
owner of coal-fired plants with Duke Energy and AEP
(or their subsidiaries) that could be affected by the
outcome of these lawsuits. The Second Circuit Court’s
decision could also encourage these or other plain-
tiffs to file similar lawsuits against other electric power
companies, including us. We are unable at this time
to predict with certainty the impact that these lawsuits
might have on us.
On September 21, 2004, the Sierra Club filed a
lawsuit against DP&L and the other owners of the J.M.
Stuart generating station in the U.S. District Court for
the Southern District of Ohio for alleged violations of
the 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 J.M. Stuart generating station agreed
to: (i) certain emission targets related to NOx, SO2
and particulate matter; (ii) make energy efficiency and
116 DPL Inc.
renewable energy commitments that are conditioned
on receiving PUCO approval for the recovery of costs;
(iii) forfeit 5,500 SO2 allowances; and (iv) provide fund-
ing 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 attor-
ney 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 orga-
nization set at $300,000. On October 23, 2008, the
U.S. District Court approved the consent decree. On
October 21, 2009, the Sierra Club filed with the U.S.
District Court a motion for enforcement of the consent
decree based on the Sierra Club’s interpretation of the
consent decree that would require certain NOx emis-
sions that DP&L has been excluding from its computa-
tions to be included for purposes of complying with
the emission targets and reporting requirements of the
consent decree. DP&L believes that it is properly com-
puting and reporting NOx emissions under the consent
decree and has opposed the Sierra Club’s motion. A
decision on the motion is expected before the end of
the first quarter 2010. Because J.M. Stuart Station’s
NOx emissions are well below the 2009 and 2010 limits
in the consent decree under either method of calcula-
tion, an adverse decision would have no effect in 2010
on operations or costs. An adverse decision could
affect compliance costs in future years when the NOx
limits are further reduced under the consent decree.
Air Quality – Notices of Violation Involving
Co-Owned Plants
On March 13, 2008, Duke Energy Ohio Inc., the opera-
tor of the Zimmer generating station, received a 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 out-
come of this matter.
In June 2000, the USEPA issued a NOV to the
DP&L-operated J.M. Stuart generating station (co-
owned by DP&L, CG&E, and CSP) for alleged viola-
tions 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
requirements of the Ohio SIP; or (2) bring a civil action
seeking injunctive relief and civil penalties of up to
$27,500 per day for each violation. To date, neither
action has been taken. At this time, DP&L cannot pre-
dict the outcome of this matter.
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. Although DP&L was not identified in
the NOVs, civil complaints or state actions, the results
of such proceedings could materially affect DP&L’s
co-owned plants.
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 continu-
ous monitoring of opacity. We submitted a compliance
plan to the Ohio EPA on December 19, 2007. To date,
no further actions have been taken by the Ohio EPA.
Air Quality – 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
position or cash flows.
Air Quality – 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 CAA issues including issues relating to capi-
tal expenses and any changes in capacity or output
DPL Inc. 117
of the units at the O.H. Hutchings station. During 2009,
DP&L has continued to submit various other operation-
al and performance data to the USEPA in compliance
with its request. DP&L is currently unable to determine
the timing, costs or method by which the issues may
be resolved and continues to work with the USEPA
on this issue.
On November 18, 2009, the USEPA issued a
NOV to DP&L for alleged New Source Review (NSR)
violations of the CAA at the O.H. Hutchings Station
relating to capital projects performed in 2001 involving
Unit 3 and Unit 6. DP&L does not believe that the
two projects described in the NOV were modifications
subject to NSR. DP&L is unable to determine the
timing, costs or method by which these issues may
be resolved and continues to work with the USEPA
on this issue.
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 the 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 the
USEPA can compare costs with benefits in determining
the best technology available for minimizing adverse
environmental impact at cooling water intake struc-
tures. Briefs were submitted to the Court in the summer
of 2008 and oral arguments were held in December
2008. In April 2009, the U.S. Supreme Court ruled that
the USEPA did have the authority to compare costs
with benefits in determining best technology available.
The USEPA is developing proposed regulations which
it hopes to issue for public comment by mid-2010.
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. Subsequently, representatives
from DP&L and the Ohio EPA have agreed to allow
DP&L to restrict public access to the water discharge
area as an alternative to installing one of the diffuser
options. Ohio EPA issued a revised draft permit that
was received on November 12, 2008. In December
2008, the USEPA requested that the Ohio EPA provide
additional information regarding the thermal discharge
in the draft permit. In June 2009, DP&L provided
information to the USEPA in response to their request
to Ohio EPA. The timing for issuance of a final permit
is uncertain.
In September 2009, the USEPA announced that it
will be revising technology-based regulations govern-
ing water discharges from steam electric generating
facilities such as J.M. Stuart, Killen and O.H. Hutchings
Stations. The rulemaking will include the collection of
information via an industry-wide questionnaire as well
as targeted water sampling efforts at selected facili-
ties. Subsequent to the information collection effort, it
is anticipated that the USEPA will release a proposed
rule in 2011 with final regulations issued in late 2012 or
early 2013. At present, DP&L is unable to predict the
impact this rulemaking will have on its operations.
Land Use and Solid Waste Disposal
In September 2002, DP&L and other parties received
a special notice that the USEPA considers us to be a
PRP 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 regard-
ing 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 negotiations with
the USEPA to conduct the RI/FS. No recent activity
has occurred with respect to that notice or PRP status.
More recently, DP&L has received requests by the
USEPA and the existing PRP group to allow access to
be given to DP&L’s service center building site, which
is across the street from the landfill site. The USEPA
requested access to drill monitoring and test wells to
determine the extent of the landfill site’s contamination
as well as to assess whether certain chemicals used
at the service center building site might have migrated
through groundwater to the landfill site. Pursuant to an
Administrative Order issued by the USEPA requiring
access to DP&L’s service center building site, DP&L
118 DPL Inc.
has granted such access and drilling of soil borings
and installation of monitoring wells occurred in the fall
of 2009. DP&L believes the chemicals used at its ser-
vice center building site were appropriately disposed
of and have not contributed to the contamination at the
South Dayton Dump landfill site. While DP&L is unable
at this time to predict the outcome of this matter, if
DP&L were required to contribute to the clean-up of
the site, it could have a material adverse effect on us.
DP&L is also unable at this time to predict whether the
monitoring and test wells may lead to any actions relat-
ing to the service center building site independent of
the South Dayton Dump clean-up.
In December 2003, DP&L and other parties
received a special notice that the USEPA considers us
to be a PRP 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. While DP&L is unable at
this time to predict the outcome of this matter, if DP&L
were required to contribute to the clean-up of the site,
it could have a material adverse effect on us.
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 participa-
tion in any clean-up of the site. DP&L has declined
to participate in the clean-up of this site. While DP&L
is unable at this time to predict the outcome of this
matter, if DP&L were required to contribute to the
clean-up of the site, it could have a material adverse
effect on us.
During 2008, a major spill occurred at an ash pond
owned by the Tennessee Valley Authority (TVA) as a
result of a dike failure. The spill generated a significant
amount of national news coverage, and support for
tighter regulations for the storage and handling of coal
combustion products. DP&L has ash ponds at the
Killen, O.H. Hutchings and J.M. Stuart stations which
it operates, and also at generating stations operated
by others but in which DP&L has an ownership inter-
est. We frequently inspect our ash ponds and do not
anticipate any similar failures. It is widely expected
that the federal government will propose new regula-
tions covering ash generated from the combustion of
coal and including additional monitoring, testing, or
construction standards with respect to ash ponds and
ash landfills. During March 2009, the USEPA, through
a formal Information Collection Request, collected
information on ash pond facilities across the coun-
try, including those at Killen and J.M. Stuart stations.
Subsequently the USEPA collected similar information
for O.H. Hutchings Station. In addition, during August
and October 2009, representatives of the USEPA vis-
ited J.M. Stuart Station to collect information on plant
operations relative to the production and handling of
by-products. Due to the wide range of possible out-
comes, DP&L is unable at this time to predict the tim-
ing or the financial impact of any future governmental
initiative that may occur.
In addition, as a result of the TVA ash pond spill,
there has been increasing advocacy to regulate coal
combustion byproducts as hazardous waste under the
Resource Conservation Recovery Act, Subtitle C. On
October 15, 2009, the USEPA provided a draft rule to
the Office of Management and Budget for interagency
review. The draft rule proposed to regulate coal ash as
a hazardous waste, with limited beneficial reuse. DP&L
is unable at this time to predict the financial impact of
this regulation, but if coal combustion byproducts are
regulated as hazardous waste, it is expected to have a
material adverse impact on operations.
Legal and Other Matters
In February 2007, DP&L filed a lawsuit against a coal
supplier seeking damages incurred due to the sup-
plier’s failure to supply approximately 1.5 million tons
of coal to two jointly owned plants under a coal supply
agreement, of which approximately 570 thousand tons
was DP&L’s share. DP&L obtained replacement coal
to meet its needs. The supplier has denied liability, and
is currently in federal bankruptcy proceedings. DP&L
is unable to determine the ultimate resolution of this
matter at this time. DP&L has not recorded any assets
relating to possible recovery of costs in this lawsuit.
On May 16, 2007, DPL filed a claim with Energy
Insurance Mutual (EIM) to recoup legal expenses
associated with our litigation against certain former
executives. Arbitration on that claim occurred on May
13, 2009. The arbitration panel issued a ruling in Phase
1 of the arbitration on September 25, 2009, finding that
most of the claims involving the former executives were
covered. The matter is pending.
As a member of PJM, DP&L is also 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 mil-
lion 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 challenging the allocation method.
The appeal was consolidated with other appeals taken
by other interested parties of the same FERC Orders
and the consolidated cases were assigned to the 7th
DPL Inc. 119
Circuit. On August 6, 2009, the 7th Circuit ruled that the FERC had failed to provide a reasoned basis for the allo-
cation method it had approved. Rehearings were filed by other interested litigants and denied by the Court, which
then remanded the matter to the FERC for further proceedings. On January 21, 2010, the FERC issued a procedur-
al order on remand establishing a paper hearing process under which PJM will make an informational filing in late
February. Subsequently PJM and other parties, including DP&L, will be able to file initial comments, testimony, and
recommendations and reply comments. Absent future changes to the procedural schedule that may occur for a
number of reasons including if settlement discussions are held, the paper hearing process should be complete and
the case ready for FERC consideration in 2010. FERC did not establish a deadline for its issuance of a substantive
order. DP&L cannot predict the timing or the likely outcome of the proceeding. Until such time as FERC may act to
approve a change in methodology, PJM will continue to apply the allocation methodology that had been approved
by FERC in 2007. Although we continue to maintain that these costs should be borne by the beneficiaries of these
projects and that DP&L is not one of these beneficiaries, any new credits or additional costs resulting from the ulti-
mate outcome of this proceeding will be reflected in DP&L’s TCRR rider which is already in place to pass through
RTO-related costs and credits.
In June 2009, the NERC, a FERC-certified electric reliability organization responsible for developing and
enforcing mandatory reliability standards, commenced a routine audit of DP&L’s operations. The audit, which was
for the period June 18, 2007 to June 25, 2009, evaluated DP&L’s compliance with 42 requirements in 18 NERC-
reliability standards. DP&L is currently subject to a compliance audit at a minimum of once every three years as
provided by the NERC Rules of Procedure. This audit was concluded in June 2009 and its findings revealed that
DP&L had some Possible Alleged Violations (PAVs) associated with five NERC Reliability Standards. In response
to the report, DP&L filed mitigation plans with NERC to address the PAVs. These mitigation plans have been
accepted and DP&L is currently awaiting a proposal for settlement from NERC. While we are currently unable to
determine the extent of penalties, if any, that may be imposed on DP&L, we do not believe such penalties will have
a material impact on our results of operations.
20 Selected Quarterly Information (Unaudited)
DPL
$ in millions except per share amount
and common stock market price
March 31,
June 30,
September 30,
December 31,
2009
2008
2009
2008
2009
2008
2009
2008
Revenues
Operating Income
Net Income
$ 415.0 $ 416.1
142.7
127.0
$ 361.2
81.9
$ 378.8
85.6
$ 407.3
116.5
$ 414.5
96.2
$ 405.4
102.8
$ 392.2
110.0
$ 69.2 $ 77.3
$ 42.1
$ 47.6
$ 67.9
$ 48.0
$ 49.9
$ 71.6
For the three months ended
Earnings per share of common stock:
Basic
Diluted
Dividends declared and
paid per share
Common stock market price:
High
Low
$ 0.62 $ 0.71
$ 0.61 $ 0.66
$ 0.38
$ 0.37
$ 0.43
$ 0.41
$ 0.60
$ 0.59
$ 0.44
$ 0.42
$ 0.43
$ 0.43
$ 0.64
$ 0.63
$ 0.285 $ 0.275
$ 0.285
$ 0.275
$ 0.285
$ 0.275
$ 0.285
$ 0.275
$ 23.28 $ 30.18
$ 19.27 $ 24.58
$ 23.46
$ 21.18
$ 28.70
$ 26.10
$ 26.53
$ 22.79
$ 26.76
$ 23.00
$ 28.68
$ 25.16
$ 24.59
$ 19.16
DP&L
$ in millions
Revenues
Operating Income
Net Income
For the three months ended
March 31,
June 30,
September 30,
December 31,
2009
2008
2009
2008
2009
2008
2009
2008
$ 403.6
$ 413.9
$ 351.9
$ 376.4
$ 398.2
$ 401.5
$ 396.7
$ 381.1
$ 124.8
$ 146.4
$ 78.9
$ 90.5
$ 115.2
$ 93.5
$ 103.0
$ 106.2
$ 77.0
$ 89.0
$ 46.8
$ 63.3
$ 74.0
$ 54.8
$ 61.1
$ 78.7
Earnings on common stock
$ 76.8
$ 88.8
$ 46.6
$ 63.1
$ 73.8
$ 54.6
$ 60.8
$ 78.4
Dividends paid on
common stock to parent
$ 175.0
$ 80.0
$ 45.0
$
–
$ 50.0
$
–
$ 55.0
$ 75.0
120 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, 2009 and 2008, and the related Consolidated Statements of Results of Operations, Shareholders’
Equity and Cash Flows for each of the years in the three-year period ended December 31, 2009. 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, 2009, 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, 2009 and 2008, and the results of its operations and its
cash flows for each of the years in the three-year period ended December 31, 2009, in conformity with U.S.
generally accepted accounting principles. Also in our opinion, the Company maintained, in all material respects,
effective internal control over financial reporting as of December 31, 2009, based on criteria established in Internal
Control – Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission.
/s/ KPMG LLP
KPMG LLP
Philadelphia, Pennsylvania
February 11, 2010
DPL Inc. 121
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 Balance Sheets of The Dayton Power and Light Company (DP&L) as of December
31, 2009 and 2008, and the related Statements of Results of Operations, Shareholder’s Equity and Cash Flows for each
of the years in the three-year period ended December 31, 2009. In connection with our audits of the financial statements,
we have audited the 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, 2009, 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 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 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 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 accor-
dance 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 reportintg may not prevent or detect misstatements.
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 financial statements referred to above present fairly, in all material respects, the financial position
of DP&L as of December 31, 2009 and 2008, and the results of its operations and its cash flows for each of the years
in the three-year period ended December 31, 2009, in conformity with U.S. generally accepted accounting principles.
Also in our opinion, DP&L maintained, in all material respects, effective internal control over financial reporting as of
December 31, 2009, based on criteria established in Internal Control – Integrated Framework issued by the Committee
of Sponsoring Organizations of the Treadway Commission.
/s/ KPMG LLP
KPMG LLP
Philadelphia, Pennsylvania
February 11, 2010
122 DPL Inc.
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 procedures 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 information 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.
There was no change in our internal control over financial reporting during the most recently completed
fiscal period that has materially affected, or is reasonably likely to materially affect, internal control over
financial reporting.
The following report is our report on internal control over financial reporting as of December 31, 2009.
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 manage-
ment, 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 effec-
tive as of December 31, 2009.
Our internal control over financial reporting as of December 31, 2009, 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
None.
DPL Inc. 123
Part III
Item 10 Directors, Executive Officers and
Corporate Governance
Item 13 Certain Relationships and
Related Transactions, and Director
Independence
The information required to be furnished pursuant
to this item with respect to Directors and Executive
Officers of DPL will be set forth under the captions
“Election of Directors” and “Executive Officers” in DPL’s
proxy statement (the Proxy Statement) to be furnished
to shareholders in connection with the solicitation of
proxies by our Board of Directors for use at the 2010
Annual Meeting of Shareholders to be held on April 28,
2010 and is incorporated herein by reference.
The information required to be furnished pursu-
ant to this item for DPL with respect to Section 16(a)
Beneficial Ownership Reporting Compliance, the Audit
Committee, the Audit Committee financial expert and
the registrant’s code of ethics will be set forth under
in the “Corporate Governance” section 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 will be set forth under the captions
“Executive Compensation,” “Compensation Discussion
and Analysis (CD&A)” and “Compensation Committee
Report on 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 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 will be set forth under the caption
“Related Person Transactions” and “Independence”
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 will be set forth under the caption
“Audit and Non-Audit Fees” in the Proxy Statement
and is incorporated herein by reference.
Accountant Fees and Services
The following table presents the aggregate fees billed
for professional services rendered to DPL and DP&L
by KPMG LLP for 2009 and 2008. Other than as set
forth below, no professional services were rendered or
fees billed by KPMG LLP during 2009 and 2008.
KPMG LLP
2009 Fees Billed
2008 Fees Billed
Audit Fees (1)
Audit-Related Fees (2)
Tax Fees (3)
All Other Fees
Total
$ 1,394,680
46,000
7,870
–
$ 1,448,550
$ 1,409,800
84,800
–
–
$ 1,494,600
(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) Tax fees consisted principally of tax compliance services.
Tax compliance services are services rendered based upon facts
already in existence or transactions that have already occurred
to document, compute, and obtain government approval for
amounts to be included in tax filings.
124 DPL Inc.
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 – Consolidated Statements of Results of Operations
for each of the three years in the period ended December 31, 2009
DPL – Consolidated Statements of Cash Flows
for each of the three years in the period ended December 31, 2009
DPL – Consolidated Balance Sheets at December 31, 2009 and 2008
DPL – Consolidated Statements of Shareholders’ Equity
for each of the three years in the period ended December 31, 2009
DP&L – Consolidated Statements of Results of Operations
for each of the three years in the period ended December 31, 2009
DP&L – Consolidated Statements of Cash Flows
for each of the three years in the period ended December 31, 2009
DP&L – Consolidated Balance Sheets at December 31, 2009 and 2008
DP&L – Consolidated Statements of Shareholders’ Equity
for each of the three years in the period ended December 31, 2009
Notes to Consolidated Financial Statements
DPL – 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, 2009:
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.
62
63
64
65
66
67
68
69
70
121
122
133
DPL Inc. 125
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
✔
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 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., and
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)
✔
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.
Exhibit 4(g) to Report on
Form 10-K for the year
ended December 31, 2005
(File No. 1-9052)
126 DPL Inc.
DPL Inc. DP&L Number
Exhibit
Exhibit
✔
4(h)
Form of Warrant to Purchase Common Shares
of DPL Inc.
✔
4(i)
✔
4(j)
✔
4(k)
✔
4(l)
✔
✔
✔
✔
✔
4(m)
4(n)
4(o)
4(p)
4(q)
✔
4(r)
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(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(j) to Report on
Form 10-K for the year
ended December 31, 2005
(File No. 1-9052)
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
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
First Supplemental Indenture dated as of
August 31, 2001 between DPL Inc. and
The Bank of New York, as Trustee
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
Exhibit 4(b) to Registration
Statement No. 333-74630
Exhibit 4(c) to Registration
Statement No. 333-74630
✔
4(s)
Forty-Fourth Supplemental Indenture dated as of
September 1, 2006 between the Bank of New York,
Trustee and The Dayton Power and Light Company
Filed herewith as
Exhibit 4(s)
✔
4(t)
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
DPL Inc. 127
DPL Inc. DP&L Number
Exhibit
Exhibit
✔
✔
4(u)
✔
✔
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
Location (1)
Exhibit 4(x) to Report on
Form 10-K for the year
ended December 31, 2008
(File No. 1-2385)
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)
Filed herewith as Exhibit 10(f)
✔
✔
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
Exhibit 10(i) to Report on
Form 10-K for the year
ended December 31, 2005
(File No. 1-9052)
✔
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
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)
128 DPL Inc.
DPL Inc. DP&L Number
Exhibit
Exhibit
✔
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
✔
✔
10(t)*
✔
✔
10(u)*
Participation Agreement and Waiver dated
February 27, 2006 among DPL Inc.,
The Dayton Power and Light Company and
Gary G. Stephenson
Participation Agreement dated January 13, 2007
among DPL Inc., The Dayton Power and Light
Company and Daniel J. McCabe
✔
10(v)*
Management Stock Option Agreement dated
as of January 1, 2001 between DPL Inc.
and Arthur G. Meyer
✔
✔
10(w)*
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
Location (1)
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)
Exhibit 10(u) 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(cc) to Report on
Form 10-K for the year
ended December 31, 2005
(File No. 1-9052)
Filed herewith as
Exhibit 10(w)
DPL Inc. 129
DPL Inc. DP&L Number
Exhibit
Exhibit
Location (1)
✔
✔
10(x)*
Participation Agreement dated September 8, 2006
among DPL Inc., The Dayton Power and Light
Company and Paul M. Barbas
Exhibit 10.2 to Form 8-K
filed September 8, 2006
(File No. 1-9052)
✔
✔
10(y)*
Participation Agreement dated June 30, 2006
among DPL Inc., The Dayton Power and Light
Company and Frederick J. Boyle
✔
10(z)*
Letter Agreement between DPL Inc. and
Glenn E. Harder, dated June 20, 2006
✔
✔
10(aa)
Credit Agreement, dated as of November 21, 2006
among The Dayton Power and Light Company,
KeyBank National Association and certain lending
institutions, and Amendment No.1 to Credit Agreement,
dated as of April 9, 2009
✔
✔
10(bb) Credit Agreement, dated as of April 21, 2009
by and among The Dayton Power and Light Company
and the lenders party thereto and PNC Bank,
National Association
✔
10(cc)* Form of DPL Inc. Amended and Restated
Non-Employee Director Restricted Stock Units
Agreement
✔
10(dd)* DPL Inc. 2006 Deferred Compensation Plan for
Non-Employee Directors, as amended and restated
through December 31, 2007
✔
✔
10(ee)* Participation Agreement dated January 3, 2008
among DPL Inc., The Dayton Power and Light
Company and Douglas C. Taylor
✔
10(ff)*
Restricted Stock Agreement dated May 6, 2008
by and between DPL Inc. and Paul M. Barbas
✔
10(gg)* Form of DPL Inc. Restricted Stock Agreement
✔
10(hh)* Form of DPL Inc. 2009 Career Grant and
Matching Restricted Stock Agreement
✔
✔
10(ii)*
Participation Agreement dated May 18, 2009,
among DPL Inc., The Dayton Power and Light
Company and Joseph W. Mulpas
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)
Filed herewith as
Exhibit 10(aa)
Exhibit 10.1 to Form 8-K
filed October 8, 2009
(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)
Exhibit 10(d) to Report on
Form 10-Q for the quarter
ended June 30, 2009
(File No.1-9052)
Exhibit 10(b) to Report on
Form 10-Q for the quarter
ended September 30, 2009
(File No.1-9052)
Exhibit 10(c) to Report on
Form 10-Q for the quarter
ended June 30, 2009
(File No. 1-9052)
130 DPL Inc.
DPL Inc. DP&L Number
Exhibit
Exhibit
✔
✔
21
List of Subsidiaries of DPL Inc. and The Dayton
Power and Light Company
Location (1)
Filed herewith as Exhibit 21
✔
✔
✔
✔
✔
23(a)
Consent of KPMG LLP
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
Filed herewith as
Exhibit 23(a)
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)
* Management contract or compensatory plan
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. 131
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 11, 2010
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 11, 2010
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
(P. B. Morris)
/s/ N. J. Sifferlen
(N. J. Sifferlen)
/s/ F. J. Boyle
(F. J. Boyle)
/s/ J. W. Mulpas
(J. W. Mulpas)
132 DPL Inc.
Director, President and Chief Executive Officer
February 10, 2010
(principal executive officer)
Director
February 10, 2010
Director and Vice-Chairman
February 10, 2010
Director
Director
February 10, 2010
February 10, 2010
Director and Chairman
February 10, 2010
Director
Director
Director
February 10, 2010
February 10, 2010
February 10, 2010
Senior Vice President, Chief Financial Officer
February 10, 2010
and Treasurer (principal financial officer)
Vice President, Controller and Chief Accounting
February 10, 2010
Officer (principal accounting officer)
Schedule II Valuation and Qualifying Accounts
DPL Inc.
For the years ended December 31, 2007- 2009
$ in thousands
Description
Balance at
Beginning of Period
Additions
Deductions (1)
Balance at
End of Period
2009:
Deducted from accounts receivable –
Provision for uncollectible accounts
Deducted from deferred tax assets –
Valuation allowance for deferred tax assets
2008:
Deducted from accounts receivable –
Provision for uncollectible accounts
Deducted from deferred tax assets –
Valuation allowance for deferred tax assets
2007:
Deducted from accounts receivable –
Provision for uncollectible accounts
Deducted from deferred tax assets –
Valuation allowance for deferred tax assets
$ 1,084
$ 5,168
$ 5,151
$ 1,101
$ 10,685
$ 1,270
$
–
$ 11,955
$ 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) Amounts written off, net of recoveries of accounts previously written off.
The Dayton Power and Light Company
For the years ended December 31, 2007- 2009
$ in thousands
Description
Balance at
Beginning of Period
Additions
Deductions (1)
Balance at
End of Period
2009:
Deducted from accounts receivable –
Provision for uncollectible accounts
Deducted from deferred tax assets –
Valuation allowance for deferred tax assets
2008:
Deducted from accounts receivable –
Provision for uncollectible accounts
Deducted from deferred tax assets –
Valuation allowance for deferred tax assets
2007:
Deducted from accounts receivable –
Provision for uncollectible accounts
Deducted from deferred tax assets –
Valuation allowance for deferred tax assets
$ 1,084
$ 5,168
$ 5,151
$ 1,101
$
–
$
–
$
–
$
–
$ 1,518
$ 4,277
$ 4,711
$ 1,084
$
348
$
–
$
348
$
–
$ 1,430
$ 5,678
$ 5,590
$ 1,518
$
277
$
71
$
–
$
348
(1) Amounts written off, net of recoveries of accounts previously written off.
DPL Inc. 133
Exhibit 21
Subsidiaries of DPL Inc.
DPL Inc. had the following subsidiaries at December 31, 2009:
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, 2009.
134 DPL Inc.
Exhibit 23A Consent of Independent Registered Public Accounting Firm
The Board of Directors
DPL Inc.:
We consent to the incorporation by reference in the registration statements on Form S-3 (No.333 44370)
and on Form S-8 (Nos.333-39982 and 333-139348) of DPL Inc. of our report dated February 11, 2010, with
respect to the Consolidated Balance Sheets of DPL Inc. and subsidiaries as of December 31, 2009 and
2008, and the related Consolidated Statements of Results of Operations, Shareholders’ Equity and Cash Flows
for each of the years in the three-year period ended December 31, 2009, and the related financial statement
schedules, and the effectiveness of internal control over financial reporting as of December 31, 2009, which
report appears in the December 31, 2009 annual report on Form 10-K of DPL Inc.
/s/ KPMG LLP
KPMG LLP
Philadelphia, Pennsylvania
February 11, 2010
DPL Inc. 135
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 11, 2010
/s/ Paul M. Barbas
Paul M. Barbas
President and Chief Executive Officer
136 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 11, 2010
/s/ Frederick J. Boyle
Frederick J. Boyle
Senior Vice President, Chief Financial Officer
and Treasurer
DPL Inc. 137
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 11, 2010
/s/ Paul M. Barbas
Paul M. Barbas
President and Chief Executive Officer
138 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 11, 2010
/s/ Frederick J. Boyle
Frederick J. Boyle
Senior Vice President, Chief Financial Officer
and Treasurer
DPL Inc. 139
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, 2009, 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 11, 2010
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.
140 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, 2009, 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
and Treasurer
Date: February 11, 2010
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. 141
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, 2009, 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 11, 2010
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.
142 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, 2009, 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
and Treasurer
Date: February 11, 2010
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. 143
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.
2009 Dividends
Ex-Dividend Date
2/11/09
5/13/09
8/12/09
11/10/09
Record Date
2/13/09
5/15/09
8/14/09
11/13/09
Payable Date
3/1/09
6/1/09
9/1/09
12/1/09
Amount
$ 0.285
$ 0.285
$ 0.285
$ 0.285
$ 1.14
Federal Income Tax Status of 2009 Dividend Payments
Dividends paid in 2009 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, 2009, 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 2009 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 28, 2010 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
and Treasurer
Kevin W. Crawford
Vice President
Generation
Scott J. Kelly
Senior Vice President
DPLER
Teresa F. Marrinan
Senior Vice President
Commercial Operations
Daniel J. McCabe
Senior Vice President and
Chief Administrative Officer
Arthur G. Meyer
Senior Vice President
Corporate and Regulatory Affairs
Joseph W. Mulpas
Vice President
Controller and
Chief Accounting Officer
Bryce W. Nickel
Vice President
Service Operations
Timothy G. Rice
Vice President
Assistant General Counsel and
Corporate Secretary
Gary G. Stephenson
Executive Vice President
Operations
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
11
DPL Inc. 1065 Woodman Drive, Dayton, Ohio 45432 www.dplinc.com