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Highlights
Market value per share at December 31
Earnings (millions)
Earnings per share of common stock – Basic:
Earnings per share of common stock – Diluted:
$
$
$
$
Average shares outstanding (millions)
Basic
Diluted
2010
25.71
290.3
2.51
2.50
115.6
116.1
$
$
$
$
2009
27.60
229.1
2.03
2.01
112.9
114.2
$
$
$
$
2008
22.84
244.5
2.22
2.12
110.2
115.4
Net cash provided by operating activities (millions)
Long term debt including current portion (millions)
$
464.2
$ 1,324.1
$
524.7
$ 1,324.1
$
361.2
$ 1,551.8
Interest expense (millions)
Construction additions (millions)
Dividends paid per share
System peak load – MW (calendar year)
Average retail price per kWh (calendar year) (cents/kWh)
$
$
$
70.6
151
1.21
2,909
10.04
$
$
$
83.0
145
1.14
2,909
9.01
$
$
$
90.7
228
1.10
3,027
8.13
DPL Generating Units
Corporate Profi le
M I C H I G AN
Detroit
Toledo
E
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E
E
K
A
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Cleveland
Montpelier
D P & L
S E R V I C E A R E A
O H I O
Indianapolis
A
N
A
I
D
N
I
Tait
Hutchings
Dayton
Columbus
Conesville
O hio Riv er
A
I
N
A
V
L
Y
S
N
N
E
P
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g
r
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DPL was named one of Forbes’ “100 Most Trustworthy
Companies” for the second consecutive year in 2010.
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
3,800 megawatts of generation capacity, of which 2,800
megawatts are low cost coal-fi red units and 1,000
megawatts are natural gas and diesel peaking units.
Further information can be found at www.dplinc.com.
Miami Fort
East Bend
Cincinnati
Beckjord
Zimmer
Stuart
Killen
Louisville
Frankfort
About the Cover Artist
Charleston
Dayton artist James Pate created the cover for this year’s annual
report. After reading the company’s history and reviewing hundreds
K E NT U C K Y
W E S T V IR G I NI A
Natural Gas Peaking Generation Units
● Wholly & Commonly Owned Coal-Fired Generating Plants
of photographs, he began to create the collage
that highlights important points in the history of
Dayton Power and Light.
A native of Cincinnati, Pate attended the
School for the Creative and Performing Arts in
Cincinnati, and earned a scholarship to the Art
Academy of Cincinnati. He has resided in Dayton since 1997.
To encourage students to stay in school, Pate serves as an
educational art consultant to the Dayton Public Schools. His art
has been exhibited in galleries throughout the U.S., including the
Museum of Science and Industry in Chicago and the National
Civil Rights Museum in Memphis. Earlier this year, he was part of a
group show called, “Made in America: An African-American Fine Art
Perspective” in Sacramento.
Chairman’s Letter
Powering the Miami Valley for 100 Years
In 2011 we’re celebrating a century of service to our
customers in the Miami Valley. The company has
a long legacy of being dedicated to the betterment of
the communities it serves. In this report you can
read about those who preceded us in building the
company for 100 years into what it is today. It is a story
of forethought and hard work, as well as a focus on per-
formance and customer service.Today, we work every
day to live up to that legacy.
In the 1923 DP&L Annual Report, then-president
Frank Tait said, “The Dayton Power and Light Company
is an Ohio institution operating through-
out the southwestern part of Ohio, and
the greater part of its outstanding capital
stock is owned by Ohio people. Our
company, rather than being owned by
a few individuals, is owned by 2,565
shareholders, of which number only
42 own more than 100 shares each.”
Today, there are 19,875 shareholders of DPL Inc.
throughout the world. Approximately one half are
large, institutional shareholders and the other half are
individual investors.
Strong Performance and Profi le
The region’s economy began to show signs of recovery
in 2010 and our earnings per share also increased
during the year. In 2010 our diluted earnings were
$2.50 per share, compared to $2.01 per share for the
same period in 2009. Earlier this year we reaffi rmed our
2011 earnings guidance of $2.30 to $2.55 per share.
During the latter part of 2010, DPL’s board of
directors approved two measures to return value to our
shareholders. In October, we announced a new three-
year, $200 million stock repurchase plan. Under this
plan, DPL may repurchase its common stock
from time to time in the open market through private
transactions or otherwise, on such terms and conditions
as the company deems appropriate. Although the plan
will run through the end of 2013, it may be modifi ed
or terminated at any time without notice. To date,
approximately 2 million shares have been repurchased
for $52 million, or an average price of $25.75 per share.
In December, we announced a 10% dividend rate
increase to an annualized rate of $1.33 per share.
This marks the sixth consecutive year that the company
has increased the dividend rate. Going forward, the
board of directors will continue to evaluate the dividend
annually, or more frequently.
Our decisions on the share
repurchase plan and the
dividend rate increase were a
result of the company’s strong
fi nancial profi le, solid
liquidity position, investment
grade debt ratings across
each of the major rating agen-
cies, as well as the board’s
confi dence in the company’s
future outlook.
Glenn E. Harder
External Recognition of DPL
I am pleased to report that DPL again received
investment-grade credit ratings from the major rating
services (ratings current at time of printing).
• Fitch Ratings: A-, stable outlook as of October 2010
• Moody’s Investors Service: Baa1, stable outlook as of June 2010
• Standard & Poor’s Corp.: BBB+, stable outlook as of April 2010
In August 2010, DPL was again named one of
Forbes’ “100 Most Trustworthy Companies” for
the second consecutive year. The company’s values,
integrity and trustworthiness are refl ected in our
placement on the list. The company’s core values serve
as the foundation for its long-term success.
Public Utilities Fortnightly ranked DPL Inc. as the
best energy company in the country in 2010 for the
second year in a row. The Fortnightly annual survey
evaluates the fi nancial results of the past four years for
84 energy companies.
As we look toward the next 100 years and work to
live up to the DPL legacy, I see a demanding future with
a changing regulatory environment, new technology
and a recovering economy. I have confi dence in the
company’s employees and executive team to deliver as
they have in our recent challenging times.
Your board of directors is very proud to be
associated with DPL and to be a small part of its next
100 years. We sincerely appreciate your continued
support and investment in DPL.
Glenn E. Harder
Chairman
March 1, 2011
1
BB
President & CEO’s Letter
2010: A Solid Year for DPL
to support business growth in Preble
2011: 100 Years of DP&L
County. The facility is strategically
located near Silfex, Inc. to ensure
As we begin to celebrate our 100 year
a constant fl ow of power, which is
anniversary as a company, the last
critical to their operations. This facility
few years have made us think back
in Eaton, Ohio is the largest silicon
to those who navigated the company
growing facility in the world. And,
through the decades before us. In our
all of our customers in Preble County
industry, there are some “timeless”
will benefi t from the new substation
fundamentals that were as important
when it begins operation in the fi rst
to our region and our company in the
quarter of 2011. Additionally, the $2
1930s as they are today. In 2011 and
million Caesar Creek substation was
beyond, these fundamental elements
also built in 2010, serving Caesar
will continue to be areas of focus
Creek, Clarksville and the rural parts of
and help support the future economic
Clinton and Warren counties, providing
growth of the Miami Valley:
enhanced reliability while supporting
• Safety
• Reliable Service
future growth.
A very important economic
• Generation Performance
engine for the Dayton region and Ohio
Continued Investment in
Our Business and Our Communities
is Wright-Patterson Air Force Base
(WPAFB). We have been supporting
the base from its beginnings. Back in
1915, DP&L made a large investment
DPL continues to invest in the Miami
in building the Millers Ford power
Valley with our eyes on the future. For
plant to support growth in the region.
example, to pave the way for growth,
This $7.7 million investment began
DP&L began building two new substa-
to pay dividends for the region at
tions in 2010. Substation technology
the conclusion of World War I, when
has evolved considerably over the past
institutions began to consider the
100 years. New controls and monitor-
Dayton area as a possible location to
ing equipment provide information on
build or to relocate.
equipment health (temperatures,
One such organization was the
voltages, status of breakers), ensure
U.S. Army Air Corps whose leaders
voltage stability and enable faster
believed Dayton was an ideal location
service restoration. The evolution from
for an airbase, in part due to the
electromechanical relays to digital
existing facilities at McCook Field,
relays provides additional system
which were located north of Dayton.
protection, control and, ultimately,
A decisive factor in the military’s
improved reliability.
decision was DP&L’s assurance that it
DP&L recently invested $3.5
million dollars in a new electric
substation to increase reliability and
Paul M. Barbas
2
would be able to supply the base
Reliable Customer Service
Addressing Ohio’s Energy Goals
with the needed electrical power.
McCook was later relocated to Wright
Customer service, safety and reliabil-
DPL is actively working to comply
Field, which eventually became the
ity are the three primary concerns of
with Ohio’s energy legislation, which
Wright-Patterson Air Force Base we
DP&L’s Service Operations team.
requires that 12.5% of Ohio’s energy
know today.
In 2010, DP&L’s operational perform-
needs be generated by renewable
WPAFB is now the state’s largest,
ance once again exceeded all
resources by 2025. To be able to meet
single-site employer. During 2009
Public Utilities Commission of Ohio
this aggressive goal, we are evaluat-
we entered into a contract to own,
reliability standards.
ing the viability of solar resources
operate and maintain the assets for
Also last year, DP&L launched a
and alternative fuel sources, such as
the distribution and transmission of
new Business Call Center dedicated
biomass. For example, at our Killen
electricity at WPAFB. After a one-
solely to addressing the complex
Station we have been testing technolo-
year transition, in March 2011, DP&L
needs of its business customers.
gies for co-fi ring biomass with coal.
assumed ownership of the electrical
A select number of experienced
Additionally, during the fi rst
assets at the base and now operates,
representatives received additional
quarter of 2010, we completed
maintains and repairs the equipment.
training to provide enhanced support
construction of our Yankee Solar
We will be working alongside WPAFB
for this service. The company also
Array, which came online at the end of
to understand their growth plans and
purchased an online energy reference
March. It was the fi rst solar installation
system requirements to be able to
library for business customers
built by a utility in the state. The 1.1
support the base in fulfi lling its many
that provides detailed information
megawatt array consists of 9,120 solar
critical missions.
on how to reduce energy costs for
panels covering 7 acres in southern
In the interest of strengthening the
a variety of industries. The Business
Montgomery County. The array
level of service to the communities we
Savings Library is available on
features a visitor’s learning kiosk that is
serve, we revitalized and expanded
www.dpandl.com.
open daily for self-guided visits.
our Community Ambassador program
As a refl ection of our continuing
Another important component of
last year. We now have 33 employee
focus upon customer service, DP&L’s
Ohio’s energy legislation calls for the
ambassadors in the program,
customer satisfaction scores, as meas-
reduction of electricity consumption
covering 37 local governments.
ured by J.D. Power and Associates,
by 22% by the end of 2025. Starting
These employees formally represent
increased across our customer base.
in 2009 and throughout 2010, DP&L
DP&L in the municipality in which
For business customers, the score
launched energy effi ciency programs
they live. The program provides the
rose nearly 30 points. In the residential
for business and residential customers
communities with a single point of
customer satisfaction study, DP&L was
to help meet this goal. Our initial
contact with DP&L and enhances our
one of 15 “most improved brands” in
calculations show that these programs
relationships with local governments.
the U.S. in 2010.
The ambassadors attend council
meetings, meet with government and
community leaders on a regular basis
and often serve on community boards.
The employees have an inherent
interest in helping the communities to
be successful, as it is where they live
and raise their families.
have saved enough energy to power
24,000 homes for a year. The energy
effi ciency initiatives include lighting
discounts, appliance recycling,
HVAC rebates and cooling tune-
ups, as well as unique business and
government rebates.
continued
3
Planning for Evolving Technology
throughout the country to further our
Many locations organized gift
understanding of the system impacts.
collections for different charities during
Through our 100 years, DPL has
The goal of the company’s plug-in
the holidays, and held a number of
constantly sought improvement
electric vehicle research that began
fundraising events throughout the year
through the use of technology. In the
in 2009 is to ensure that customers’
for local non-profi t organizations.
1920s, DP&L’s fl eet helped make
electrical service from DP&L will
Our partnerships with
automotive history by serving as a
support their charging needs as
organizations like the United Way
proving ground for the development
electric vehicles become available
strengthen our communities. As DPL
of “anti-knock” Ethyl gasoline. DP&L
in our region.
played an important role in helping
employees have done for 100 years,
we’re working to provide a brighter
General Motors Research Labs
Lighting the Way for 100 Years
future for our next generation.
experiment with the new fuel. DP&L’s
I’d like to thank our employees,
operating and maintenance costs for
Since its earliest days, DPL and its
the executive team and our board of
its transportation fl eet were signifi cantly
employees have been integral to
directors for contributing to DPL’s
reduced with the introduction of the
helping improve and maintain the
solid year in 2010. I’m proud that we
new anti-knock gasoline.
quality of life in the communities
are continuing the performance
Later in the 1970s and early
we serve. And in our challenging
and community involvement that has
1980s, DP&L’s Transportation team,
economic climate, DPL employees
been the company’s standard for
led by Jack Hounshell who is now
stepped up their support in the
the past 100 years.
in his 42nd year with the company,
areas where they live and work. In
purchased six electric cars (Ford
2010, employees pledged more
and Dodge) and converted 20 other
than $250,000 to the United Way.
vehicles to compressed natural
Combined with $200,000 provided
gas for the fl eet.
by the DP&L Foundation, DPL’s
Paul M. Barbas
The company continues to look
total yearly United Way contribution
President & Chief Executive Offi cer
to the future and at our customers’
was more than $450,000.
March 1, 2011
evolving needs. History repeated itself
In addition to the more than
in 2010, as DP&L took delivery of an
$1 million the DPL Foundation
all-electric car to study its charging
provides to a variety of civic, cultural
characteristics and to prepare
and youth organizations, hundreds
for the use of electric vehicles in our
of DPL employees volunteer their time
service territory in the near future.
and effort to a variety of important
DP&L has additional electric vehicles
causes. From serving on school
and charging stations on order. The
boards to coaching youth sports and
company is also participating in the
mentoring at-risk children and teens,
testing of a variety of electric vehicles
the company strongly supports and
encourages employee volunteer
efforts throughout our region.
The entire company participated
in the annual Food for Friends
campaign, donating nearly 7,000
pounds of food at the end of 2010.
4
Lighting the Way
for 100 Years
The Origins of
Dayton Power and Light
The Hills and Dales
Railway Company became
The Dayton Power and
Light Company in the
spring of 1911, but the
roots of DP&L date back
to 1848 when the Dayton Gas Light
and Coke Company was chartered,
primarily to illuminate city streets to
keep citizens safe.
Dayton Gas Light generated gas
from the combustion of hog grease
obtained from nearby slaughter houses.
The vapor was pumped through
distribution lines to street lights, busi-
nesses and eventually to homes. In
1851 coal was substituted for grease.
Thomas Edison’s
First Incandescent Lamp
In the 1880s, after
Thomas Edison
demonstrated the
fi rst incandescent
lamp in 1879,
electricity came
to Dayton via the
Brush Electric
Light and Motor
Company.
In a tiny
building near
what was East First and Madison
Streets, where Delco Building No. 20
was later erected, the Brush company
installed a 23-lamp Fuller-Wood arc
machine. This same building was also
the fi rst cash register factory.
In 1883 Brush became the Dayton
Electric Light Company and Dayton
was one of the fi rst cities in Ohio to light
its streets with electricity.
Electric service fi rst comes to Dayton with a power
plant and electric street lighting operated by the
Dayton Electric Light Company
Frank M. Tait Provides Direction
for the Next 53 Years
An apprentice of
Thomas Edison,
Frank Tait made his
start in the utility
industry in 1893 at
19 years old.
Edison’s
technology was
rapidly accepted
in the U.S. and
demand for electricity skyrocketed with
the develop ment of effi cient motors and
labor-saving devices for the home, store
and factory. Many factories abandoned
their own electric plants and instead
purchased service provided by
DP&L. At the turn of the century the
Dayton Electric Light Company’s profi ts
were $32,600.
Meanwhile, Tait became a success
in his home town of Catasauqua,
Pennsylvania as a manager at the local
gas and electric company. As a result,
the New York electrical fi rm of Brady
and Young hired Tait as an engineer.
In 1904, Tait’s fi rst assignment was
to come to Dayton to study the city’s
electric light and power industry. His
evaluation led his employer to purchase
the Dayton Electric Light company.
A “heavy line” construction crew, with its 1910
one-ton electric truck, extending lines on
Cincinnati Pike. Driver is Harry Irwin; on the truck:
Bob Matheny, Harry Thompson, Bill Dunigan,
and Jimmy (last name unknown). Standing: Glen
Leiberger, Roy Johnston and Frank Newman.
Following the acquisition and
consolidation of several companies,
Frank Tait was elected to the offi ce
of president of DP&L on October 2,
1911, an offi ce he held until he became
chairman of the board in 1945. DP&L
was now a regional utility, extending
electric service to West Carrollton,
Drexel, Trotwood, Ft. McKinley, Osborn,
New Carlisle, Fairfi eld (now Fairborn)
and Shiloh.
1913 Great Miami Valley Flood
Demonstrates Resourcefulness
of DP&L
April 3, 1913
Dayton Daily News front page
Headline:
Power and Light Reconstruction Fast
The Dayton Power and Light Company
has shown by their work at the present
time to be very resourceful…
Both of the company’s power plants on
Third and Fourth Streets were off line
for three days while crews removed 14
inches of mud from the fl oor and from
the generating equipment. The water-
logged equipment had to be dried out
and carefully cleaned before operations
could be restored.
Electrical experts, along with
mechanical and steam engineers from
nearby cities and states rushed into
Dayton to assist. Partial service was
restored in a remarkably short period
of time considering nearly all overhead
transmission and distribution lines
were destroyed.
With $100 million in damage and
361 dead, Dayton was determined
that a disaster of this magnitude would
not bring the city to its knees again.
Two individuals were instrumental in
organizing a fl ood control program.
Adam Schantz, vice president and
a member of the DP&L board of
directors, along with John Patterson of
NCR established a campaign to raise
$2 million for the prevention of future
fl oods. Schantz made the fi rst donation
of $160,000.
DP&L also played a large part
in the Miami Conservancy Flood
Control project by furnishing electric
power for large excavating machines,
gravel washers, concrete mixers, air
compressors, locomotives, derricks,
drills and shop equipment.
continued
5
New Millers Ford Station Consolidates
and Centralizes Power Production
In 1915, DP&L purchased 28 acres
south of the city of Dayton, along
the bank of the Great Miami River
for $23,616. The following year
construction began on land that is just
west of I-75 between the exits of Edwin
C. Moses Boulevard and Springboro
Pike. Many in the city believed it was
an overly ambitious undertaking.
When completed, Millers Ford cost the
company nearly $7.7 million.
When Millers Ford came online in
1918, the company’s Third and Fourth
Street stations were used for standby
purposes and also served to produce
steam, as demand for steam service
had grown in the area.
June 1940. Front Row: A.R. Smith, manager,
Turbine Engineering, General Electric;
O.H. Hutchings, VP DP&L; J.J. Kerr, VP Babock &
Wilcox; C.H. Spiehler, mechanical engineer,
DP&L. Second row: R.D. Gillespie, manager,
Power Production, DP&L; Arthur Parker, mechanical
engineer, Columbia Engineering Management; P.E.
Murray, engineer, General Electric; E.R. Kirkpatrick,
Turbine sales engineer, General Electric.
DP&L’s investment in Millers Ford paid
off when at the conclusion of World War
I in 1918, companies began to consider
the Dayton area as a possible location
to build or to relocate.
Roaring 1920s Bring Prosperity
The roaring 1920s were healthy and
prosperous for DP&L. The company
practiced Frank Tait’s “public-be-
pleased” policy, serving customers
from a variety of locations in downtown
Dayton. DP&L began building a
“service building” on the northeast
corner of Monument and Foundry
Streets in 1922. DP&L’s current service
building is now located at 1900 Dryden
Road. Then, as now, it is the operational
“nerve center” of the company.
6
Kenneth C. Long, who had been
vice president and associate general
manager since 1936, was elected to
the offi ce of president and general
manager, succeeding Frank Tait. He
had begun his career at DP&L in 1914
as a meter reader.
Long was a graduate of Steele
High School in Dayton, class of 1910.
He studied electrical engineering
at Purdue University. He served his
country in World War I as a commander
and returned to his job at DP&L, where
he had been converting industrial
power plants to DP&L’s service.
Long left the employ of the
company for four years, until he was
convinced to return as a power
engineer in 1929. He rose in the ranks
due to his personal charm and native
abilities. Long was admired by his
associates and superiors.
Said about Kenneth C. Long: “His ability to get at
the heart of problems is based on certain personal
characteristics. Being
born with an intense
curiosity, he has
always shown a deep
interest in people
of all races and
creeds. This dominant
characteristic
has led to a keen
understanding and
tolerance of men and
women in all walks of life and forms the basis
for his ability to handle situations with sound and
prophetic judgment.”
In 1946, the board of directors
deemed it “fi tting and proper” to name
its current plant and future electric
generating station after the two men
who had spent their lifetimes pioneering
and developing the electrical system
that had become Dayton Power
and Light. Millers Ford was renamed
Frank M. Tait Station.
The Millers Ford Power Plant was renamed
Frank M. Tait Station on December 20, 1946.
DP&L’s “general offi ce” at 20 South Jefferson Street
circa 1920s. On the side of the building a billboard
reads: “Daylight Your Kitchen. 30 Days Free Trial.”
The service building was completed in
1923 and was home to the company’s
motor fl eet. Also in the 1920s the
company looked into new ways to meet
the future needs of its customers, such
as interconnection with other utilities
and “power pools” of reserve power. In
1923 DP&L created a power pool
with Cincinnati Gas and Electric. This
was the fi rst joint venture of its kind
for either company.
Consumption of Electric
Power Declines Dramatically
During Depression Era
The prosperity of the 1920s ended on
October 29, 1929 with the beginning
of a 10-year depression that caused a
dramatic decline in the use of electricity
by factories and all industries.
However, the demand for electricity
by households remained high and
buffered DP&L from the impact of
the “Great Crash.” In what was the
darkest year of the depression, 1931,
the company began to promote rural
electrifi cation, despite the high cost
of constructing transmission lines.
Once again, the company was investing
for the future of the region. By 1943
DP&L had constructed a total of 3,097
miles of rural lines, serving nearly
18,000 customers.
1940s Bring New Leader and Ultra-
Modern Electric Generating Station
DP&L, like all U.S. companies, devoted
its energy to the war effort. Acquisitions
and plant expansions were put on hold
until the company’s war emergency
priorities ended with peace in Europe
and the Pacifi c.
With the end of World War II, Frank
Tait sensed a managerial change
was necessary. He relinquished his
position and moved up to the position
of chairman of the board. In 1946,
Inside Tait Station circa 1940s
(left) and Willie Davis.
A Tait Station turbine being repaired by Ted Wilks
On February 7, 1958 Frank Tait
relinquished his position as chairman
of the board and accepted the title of
“chairman emeritus.” Kenneth Long
then became chairman and J.M. Stuart
became president.
The power plant that would bear
this new president’s name began
construction in 1966 along the Ohio
River near Aberdeen, Ohio. At the time
of its dedication in 1970, Stuart Station
was the largest coal-fi red facility in
the world and cost over $390 million
to build. The plant was built and is
operated by DP&L. It is co-owned by
the successor companies of Cincinnati
Gas and Electric and Columbus and
Southern Ohio Electric Company. DP&L
built a 345,000 volt network to handle
this new source of power, along with 11
new substations.
A new plant was to be called the
O.H. Hutchings Station in honor of Tait’s
associate who had been vice president
for 26 years, and played a vital role in
the development of the company as
an employee for over 50 years:
Orie H. Hutchings.
The location for Hutchings station
was carefully chosen with consideration
for accessibility to railroads, paved
highways and river fl ow. The site
selected was 12 miles south of Dayton
on the west side of the Great Miami
River on Chautauqua Road.
Construction began in 1946. In 1948,
before Hutchings died on July 30, he
personally opened the throttle of the
fi rst 60,000 kilowatt turbo-generator
on July 12. He is remembered for his
fi ne spirit of loyalty, fairness and high
ideals of service.
At the time, Hutchings Station was
one of the fi nest steam electric stations
in the Eastern United States, and many
engineers came to study its layout.
By 1953 the sixth and last generator
installed at Hutchings was placed
into operation and the total cost of the
station tallied up to $47 million.
The Dayton Power and Light motto:
To know what to do is wisdom;
To know how to do it is skill;
To do a thing as it should be done is service.
Growth, Expansion and Additional
Generating Capacity
In 1953, DP&L’s total generating
capacity was now 580,000 kilowatts
and the company employed 2,300, of
which 430 were women. On the payroll
at the time were over 300 employees
who had 25 years or more of service.
That tradition continues today, as many
of the company’s employees choose to
stay with DP&L for a long career.
Decades of Change End in Renewed
Commitment to Customers
During the late 1960s and the
infl ationary 1970s the company installed
a variety of pollution devices at all its
plants. In 1971 the company was the
fi rst in the nation to install dust collection
devices at its power plants.
Starting with the energy crisis of
1973, the mid-1970s were a diffi cult
time for DP&L. Between 1973 and 1975
the price of coal doubled, fi nancing
rose 35%, environmental expenditures
amounted to $28 million, construction
costs spiraled from $163 per kilowatt to
$238 per kilowatt and taxes rose from
$26 to $42 million.
Also in the mid-1970s the Miami
Valley endured another signifi cant,
natural disaster.
The Xenia tornado that struck on
April 3, 1974 was a massive F-5 that
killed over 30 people, leveled half
the town and left 10,000 homeless.
It remains among one of the most
destructive tornadoes in U.S. history.
Three high-voltage transmission lines
were knocked out by the storm. In all,
DP&L suffered $1.7 million in repair and
replacement costs of its equipment,
but electricity was restored by April 5
and gas service by April 8.
By 1975 DP&L had 403,000
customers. Construction began on
Killen Station in 1976, along the Ohio
River, near Manchester, Ohio. It was
completed in 1982 at a cost of $588
million. The plant is named after Robert
B. Killen, who guided the company
as president during the early 1970s
and then became chairman. He was a
University of Cincinnati graduate and
worked his way up the corporate ladder
from cadet engineer.
In the mid 1970s and into the
1980s the company became more
focused on customer service. In
response to rising energy costs and
infl ation, the company created “budget
billing,” worked with social service
agencies and created payment
plans for those having diffi culty paying
their bills.
continued
7
In 1985 DPL Inc. was formed as a
holding company to provide a fl exible
fi nancial organization for capital
investment and managerial control.
In the late 1980s, demolition of
the 70-year-old Tait Station began.
During the 1990s DP&L offered
the “Way to Go®” energy effi ciency
programs, featuring Lucky the Dog,
that helped customers save money
and energy. DP&L was the fi rst
Ohio utility to offer a program of this
type to customers.
“Think Hot! Stay Safe!” presenters Allison Marshall,
substation electrician, and Rick Vance, meterman,
are demonstrating that trees can conduct
electricity. View a video about the presentation
on the DP&L Website.
The company also created an
educational safety demonstration
dubbed “Think Hot! Stay Safe!” that
is entertaining for kids of all ages,
but also dramatically shows the
dangers of electricity. One main
point of the presentation is to stay far
away from fallen power lines. DP&L
employees are available to bring the
presentation to schools and special
events all over the Miami Valley.
Presentations are also available to
train police and fi re professionals who
may encounter dangerous electrical
situations. Call 937-259-7925 or e-mail
ThinkHotStaySafe@DPLINC.com at
least two weeks in advance of the date
requested to schedule a presentation.
On August 8, 2007 DP&L
experienced an all-time record for the
demand of electricity: 3,270 megawatts
(net peak load).
Testing New Technology and
Reducing Energy Consumption in
the Miami Valley
In 2009 DP&L began using and
evaluating a hybrid bucket truck that
offers reduced noise and increased
fuel effi ciency. The hybrid’s battery is
recharged overnight and also through
regenerative braking. When at a job
8
DP&L began construction in late 2009 of a
1.1 megawatt solar array near its Yankee
substation in Washington Township,
Montgomery County, Ohio. The state’s
energy legislation calls for 25% of all
energy consumed by Ohioans to be from
alternative energy by 2025. Of that, 0.5%
must be solar energy. DP&L’s Yankee
solar array consists of 9,120 solar panels
constructed over 7 acres, and generates
enough electricity to power the equivalent
of 150 homes a year. The array cost
approximately $5 million to build and was
completed in the spring of 2010.
With DP&L – Tomorrow Starts Today
Today, DP&L
provides electrical
service to over
500,000 customers
in 24 counties,
spanning 6,000
square miles. In
2010, the company’s
customer service
representatives
fi elded over 2.3
million phone calls.
Then, as Now, Teamwork is the Key
In 1953 Frank Tait, chairman of the board
at the time, addressed the Newcomen
Society on DP&L’s contributions to Ohio.
What he said to the audience 58 years
ago still holds true today:
“I suggest you bear in mind that not I,
nor any individual entirely is responsible
for what success our company has
obtained and hopes greatly to augment
in the future. Rather, let me remind all of
you it is the overall determination and
performance of all those men and
women, who, each in his own capacity,
has performed and intends to carry
on in the future all the many duties and
responsibilities which, considered
as a whole, constitutes the ‘teamwork’
that is the only means to ensure
continuing success.“
For more about DP&L and its employees visit
www.dpandl.com.
site, the truck’s battery can power the
climate control system as well as the
boom (or arm) that is used to reach
power lines. This not only means
fuel and emissions savings, but also
eliminates noise that would otherwise
come from the diesel engine. That
noise reduction means customers
aren’t disturbed during the night while
our crews are hard at work repairing
service.
Also in 2009, DP&L began offering
new energy effi ciency programs for
residential and business customers,
which include
discounts and
rebates on
improvements that
use less energy,
save money and
help protect the
environment.
Since the program
began, over 3.5
million compact fl uorescent light bulbs
discounted by DP&L have been sold in
the Miami Valley.
Initial calculations show that the
DP&L effi ciency programs have saved
enough energy to power 24,000 homes.
The programs for both residential and
business customers include lighting
discounts, appliance recycling, HVAC
rebates, cooling tune-ups and unique
business and government rebates.
DP&L’s Yankee solar facility was constructed in
partnership with a number of regional companies
led by Ameridian Specialty Services, Inc.
of Cincinnati.
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, 2010
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
No ✔
No ✔
Yes
Yes
Indicate by check mark whether each registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
DPL Inc.
The Dayton Power and Light Company
Yes ✔
Yes ✔
No
No
Indicate by check mark 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
2
DPL Inc.
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
No ✔
No ✔
Yes
Yes
The aggregate market value of DPL Inc.’s common stock held by non-affiliates of DPL Inc. as of June 30, 2010
was approximately $2.8 billion based on a closing sale price of $23.90 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 15, 2011, 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
116,931,350
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 2011 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, 2010
Glossary of Terms
Page No.
5
Business
Risk Factors
Unresolved Staff Comments
Properties
Legal Proceedings
Removed and Reserved
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
7
23
33
33
33
33
34
36
37
66
67
137
137
137
138
138
138
138
138
139
147
148
149
150
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.
Glossary of Terms
The following select abbreviations or acronyms are used in this Form 10-K:
Abbreviation or Acronym
Definition
AMI
AOCI
ARO
ASU
BTU
CFTC
CAA
CAIR
CSP
CO2
CCEM
CRES
DPL
DPLE
DPLER
DP&L
Advanced Metering Infrastructure
Accumulated Other Comprehensive Income
Asset Retirement Obligation
Accounting Standards Update
British Thermal Units
Commodity Futures Trading Commission
Clean Air Act
Clean Air Interstate Rule
Columbus Southern Power, a subsidiary of AEP
Carbon Dioxide
Customer Conservation and Energy Management
Competitive Retail Electric Service
DPL Inc., the parent company
DPL Energy, LLC, a wholly owned subsidiary of DPL which engages in the
operation of peaking generation facilities
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
Duke Energy
Duke Energy Ohio, Inc., formerly The Cincinnati Gas & Electric Company (CG&E)
EIR
EPS
Environmental Investment Rider
Earnings Per Share
ESP Stipulation
ESOP
ESP
FASB
FASC
FERC
FGD
FTRs
GAAP
GHG
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.
Employee Stock Ownership Plan
Electric Security Plans, filed with the PUCO, pursuant to Ohio law
Financial Accounting Standards Board
FASB Accounting Standards Codification
Federal Energy Regulatory Commission
Flue Gas Desulfurization
Financial Transmission Rights
Generally Accepted Accounting Principles in the United States
Greenhouse Gas
DPL Inc.
5
Continued from page 5
Abbreviation or Acronym
Definition
kWh
Kilowatt hours
LOC
MRO
MTM
MVIC
MWh
NERC
NOV
NOx
Letter of Credit
Market Rate Option
Mark to Market
Miami Valley Insurance Company, a wholly owned insurance subsidiary of
DPL that provides insurance services to DPL and its subsidiaries
Megawatt hours
North American Electric Reliability Corporation
Notice of Violation
Nitrogen Oxide
NYMEX
New York Mercantile Exchange
OAQDA
Ohio Air Quality Development Authority
OCC
ODT
Ohio Consumers’ Counsel
Ohio Department of Taxation
Ohio EPA
Ohio Environmental Protection Agency
OTC
Over-The-Counter
OVEC
PJM
PRP
Ohio Valley Electric Corporation, an electric generating company in which
DP&L holds a 4.9% equity interest
PJM Interconnection, LLC, a regional transmission organization
Potentially Responsible Party
PUCO
Public Utilities Commission of Ohio
RSU
RTO
RPM
SB 221
SCR
SEC
SECA
SFAS
SO2
SSO
Restricted Stock Units
Regional Transmission Organization
Reliability Pricing Model
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 ESP or MRO 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.
Selective Catalytic Reduction
Securities and Exchange Commission
Seams Elimination Charge Adjustment
Statement of Financial Accounting Standards
Sulfur Dioxide
Standard Service Offer which represents the regulated rates, authorized by
the PUCO, charged to retail customers within DP&L’s service territory.
TCRR
Transmission Cost Recovery Rider
USEPA
U.S. Environmental Protection Agency
USF
Universal Service Fund
VRDN
Variable Rate Demand Note
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 providing approximately 93% of DPL’s total
consolidated gross margin and approximately 91%
of DPL’s total consolidated asset base. Throughout
this report, the terms “we,” “us,” “our” and “ours” are
used to refer to both DPL and DP&L, respectively and
altogether, unless the context indicates otherwise.
Discussions or areas of this report that apply only to
DPL or DP&L will clearly be noted in the section.
Website Access To Reports
We 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 executive
officers and amendments to those reports filed or
furnished pursuant to the Securities Exchange Act of
1934, as amended, as soon as reasonably practicable
after we electronically file such material with, or furnish
it to, the SEC.
In addition, our public internet site includes
other items related to corporate governance matters,
including, among other things, our governance
guidelines, charters of various committees of the
Board of Directors and our code of business conduct
and ethics applicable to all employees, officers and
directors. You may obtain copies of these documents,
free of charge, by sending a request, in writing, to
DPL Investor Relations, 1065 Woodman Drive, Dayton,
Ohio 45432.
Forward-looking Statements: Certain statements
contained in this report are “forward-looking
statements” within the meaning of the Private Securities
Litigation Reform Act of 1995. Please see page 37 for
more information 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.
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.
During 2010, DPL, for the first time, met the GAAP
requirements for separate segment reporting. DPL’s
two segments are the Utility segment, comprised of its
DP&L subsidiary, and the Competitive Retail segment,
comprised of its DPLER subsidiary. Refer to Note 17 of
Notes to Consolidated Financial Statements for more
information relating to these reportable segments.
DP&L does not have any reportable segments.
DPLER sells competitive retail electric service,
under contract, primarily to commercial and industrial
customers. DPLER has approximately 9,000 customers
currently located throughout Ohio. All of DPLER’s
electric energy was purchased from DP&L to meet
these sales obligations. During 2010, we implemented
a new wholesale agreement between DP&L and
DPLER. Under this agreement, intercompany sales from
DP&L to DPLER were based on the market prices for
wholesale power. In 2009 and prior periods, DPLER’s
purchases from DP&L were transacted at prices that
approximated DPLER’s sales prices to its end-use retail
customers. The operations of DPLER are not subject to
rate regulation by federal or state regulators.
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 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 Inc.
7
DP&L’s electric transmission and distribution
businesses are subject to rate regulation by federal
and state regulators while its generation business is
deemed competitive under Ohio law. 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 1,494
persons as of January 31, 2011, of which 1,321
were full-time employees and 173 were part-time
employees. At that date, 1,298 of these full-time
employees and substantially all of the part-time
employees were employed by DP&L. Approximately
54% of the employees are under a collective
bargaining agreement.
Significant Developments
Borrowing Activities
On April 20, 2010, DP&L entered into a $200 million
unsecured revolving credit agreement with a syndicated
bank group. This agreement is for a three year term
expiring on April 20, 2013 and provides DP&L with the
ability to increase the size of the facility by an additional
$50 million. The facility contains one financial covenant:
DP&L’s total debt to total capitalization ratio is not to
exceed 0.65 to 1.00. This facility also contains a $50
million letter of credit sublimit.
On December 1, 2010, DP&L renewed two $50
million LOC agreements with JPMorgan Chase Bank,
N.A. These agreements are for three years, expiring
December 9, 2013. The irrevocable LOC’s continue to
back the payment of principal and interest relating to
the $100 million State of Ohio Collateralized Air Quality
Development Revenue Refunding Bonds, 2008 Series
A and B which are due in November 2040.
Stock Repurchase Plan
On October 27, 2010, the DPL Board of Directors
approved a new stock repurchase plan to acquire up
to $200 million of DPL common stock. Under this plan,
DPL may repurchase its common stock from time to
time in the open market, through private transactions
or otherwise, on such terms and conditions as the
company deems appropriate. The company expects to
subject the purchases to restrictions relating to volume,
price and timing in an effort to minimize the impact of
the purchases upon the market for its common stock.
DPL intends to fund purchases from cash on hand,
available borrowings, cash flow from operations and
proceeds from potential debt or other capital market
transactions. The plan will run through December 31,
2013, but may be modified or terminated at any time
without prior notice. Through December 31, 2010,
DPL repurchased approximately 2.04 million shares of
common stock under this stock repurchase plan at an
average price per share of $25.75.
Construction of Yankee Solar Facility
On April 23, 2010, DP&L’s Yankee solar station, a
certified Ohio Renewable Energy Resource Generating
Facility, was placed into service. The Yankee facility
is comprised of 9,120 solar panels constructed over
approximately 7 acres of land located in the Dayton,
Ohio area. The facility is expected to generate
approximately 1,390 MWh of electric energy per
year which is sufficient to power the equivalent of
approximately 150 homes a year.
Customer Switching
During 2010, there were 4 additional unaffiliated
marketers that registered as CRES providers in DP&L’s
service territory. We have experienced increased
competition to provide transmission and generation
services to our retail customers. DPLER, a CRES
provider that is also a subsidiary of DPL, accounted for
approximately 97% of the total retail energy supplied
by CRES providers within DP&L’s service territory
in 2010. During 2010, 847 customers with an energy
usage of 145 million kWh were supplied by other CRES
providers within DP&L’s service territory, compared to
44 customers that had an energy usage of 16 million
kWh during 2009. For the year ended December 31,
2010, the reduction in DPL’s and DP&L’s gross margin
as a result of customers switching to DPLER and other
CRES providers is estimated to be approximately $17
million and $53 million, respectively.
Increase in Dividends on DPL’s Common Stock
On December 8, 2010, DPL’s Board of Directors
authorized a quarterly dividend rate increase of
approximately 10%, increasing the quarterly dividend
per DPL common share from $.3025 to $.3325. If this
dividend rate is maintained, the annualized dividend
would increase from $1.21 per share to $1.33 per share.
Electric Operations and Fuel Supply
2010 Summer Generating Capacity
(Amounts in MWs)
Coal Fired
Peaking Units
Total
DPL
DP&L
2,830
2,830
988
431
3,818
3,261
8
DPL Inc.
DPL’s present summer generating capacity, including peaking units, is approximately 3,818 MW. Of this capacity,
approximately 2,830 MW, or 74%, is derived from coal-fired steam generating stations and the balance of
approximately 988 MW, or 26%, consists of solar, combustion turbine and diesel peaking units.
DP&L’s present summer generating capacity, including peaking units, is approximately 3,261 MW. Of this
capacity, approximately 2,830 MW, or 87%, is derived from coal-fired steam generating stations and the balance of
approximately 431 MW, or 13%, consists of solar, 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 and 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, Duke Energy 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 2010, we generated 98.9% of our electric output from coal-fired units and 1.1% from solar, 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
Solar, Combustion Turbines
or Diesel
Hutchings
Yankee Street
Yankee Solar
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
W
C
C
W
W
DP&L
DP&L
DP&L
CSP
Duke Energy
Duke Energy
Duke Energy
Duke Energy
Miamisburg, OH
Wrightsville, OH
Aberdeen, OH
Conesville, OH
New Richmond, OH
North Bend, OH
Rabbit Hash, KY
Moscow, OH
DP&L
DP&L
DP&L
DP&L
DP&L
DP&L
DP&L
DP&L
DP&L
DPLE
DPLE
Miamisburg, OH
Centerville, OH
Centerville, OH
Dayton, OH
Dayton, OH
Sidney, OH
Moraine, OH
Wrightsville, OH
Aberdeen, OH
Poneto, IN
Moraine, OH
365
402
808
129
207
368
186
365
25
101
1
12
10
12
256
12
3
236
320
365
600
2,308
780
414
1,020
600
1,300
25
101
1
12
10
12
256
18
10
236
320
Total approximate summer generating capacity
3,818
8,388
* 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.
We have substantially all of the total expected coal volume needed to meet our retail and firm wholesale sales
requirements for 2011 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 affected
by changes in volume and price and are driven by a number of variables including weather, the wholesale market
DPL Inc.
9
price of power, certain provisions in coal contracts
related to government imposed costs, counterparty
performance and credit, scheduled outages and
generation plant mix. Due to the installation of emission
controls equipment at certain jointly owned units and
barring any changes in the regulatory environment in
which we operate, we expect to have a balanced SO2
and NOx position for 2011.
The gross average cost of fuel consumed per kWh
was as follows:
Average Cost of Fuel Consumed (¢/kWh)
2010
2.42
2.37
2009
2.39
2.36
2008
2.28
2.22
DPL
DP&L
Seasonality
The power generation and delivery business is
seasonal and weather patterns have a material effect
on operating performance. In the region we serve,
demand for electricity is generally greater in the
summer 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
operations, financial condition and cash flows.
Rate Regulation and Government Legislation
DP&L’s sales to SSO retail customers are subject to
rate regulation by the PUCO. DP&L’s transmission
rates and wholesale electric rates to municipal
corporations, rural electric co-operatives and other
distributors of electric energy are subject to regulation
by the FERC under the Federal Power Act.
Ohio law establishes the process for determining
SSO retail rates charged by public utilities. Regulation
of retail rates encompasses the timing of applications,
the effective date of rate increases, the recoverable
cost basis upon which the rates are set 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
administrative rate proceedings.
Ohio legislation extends the jurisdiction of the
PUCO to the records and accounts of certain public
utility holding company systems, including DPL. The
legislation extends the PUCO’s supervisory powers to
a holding company system’s general condition and
capitalization, among other matters, to the extent that
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.
Competition and Regulation
Ohio Matters
Ohio Retail Rates
The PUCO maintains jurisdiction over DP&L’s delivery
of electricity, SSO and other retail electric services.
On May 1, 2008, substitute SB 221, an Ohio electric
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 ESP or MRO. Under
the MRO, a periodic competitive bid process will set
the retail generation price after the utility demonstrates
that it can meet certain market criteria and bid
requirements. Also, under this option, utilities that still
own generation in the state are required to phase-in
the MRO over a period of not less than five years. An
ESP may allow for adjustments to the SSO for costs
associated with environmental compliance; fuel and
purchased power; construction of new or investment
in specified generating facilities; and the provision of
standby and default service, operating, maintenance,
or other costs including taxes. As part of its ESP, 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
MRO and ESP option involve a “significantly 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 ESP
as well as a MRO, 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
energy, demand reduction and energy efficiency
standards.
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. After discussions with
Commission Staff, the Ohio Consumers’ Counsel and
other interested parties, an ESP Stipulation was agreed
to and filed on February 24, 2009. The ESP Stipulation,
among other things, extended the Company’s rate
plan through 2012, provided for recovery of the Ohio
10 DPL Inc.
retail customers’ portion of fuel and purchased power
costs beginning January 2010, provided for recovery
of certain SB 221 compliance costs, and required
DP&L to re-file its Smart Grid and advanced metering
infrastructure (AMI) business cases, which were part
of the CCEM plan, by September 1, 2009. On June 24,
2009, the PUCO issued an order granting approval
of the ESP 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 ESP Stipulation, DP&L re-
filed its Smart Grid and AMI business cases with the
PUCO on August 4, 2009 seeking recovery of costs
associated with a three-year plan to deploy AMI;
and a ten-year plan for distribution and substation
automation, core telecommunications, supporting
software and in-home technologies. In August 2009,
DP&L submitted an application for American Recovery
and Reinvestment Act (ARRA) funding for the Smart
Grid Investment Grant Program, seeking $145.1 million
of matching funds but was notified in October 2009,
that we would not receive funding under the ARRA.
On October 19, 2010, DP&L elected to withdraw the
re-filed case pertaining to the Smart Grid and AMI
programs. The PUCO accepted the withdrawal in
an order issued on January 5, 2011. The PUCO also
indicated that it expects DP&L to continue to monitor
other utilities’ Smart Grid and AMI programs and to
explore the potential benefits of investing in Smart
Grid and AMI programs and that DP&L will, when
appropriate, file new Smart Grid and/or AMI business
cases in the future.
SB 221 and the implementation rules contain
targets relating to advanced energy portfolio standards,
renewable energy, demand reduction and energy
efficiency standards. 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 made several filings
relating to its renewable energy and energy efficiency
compliance plans. DP&L was able to obtain Renewable
Energy Credits sufficient to meet its non-solar
renewable energy targets, but obtained only 36% of
the 2009 Ohio-based solar resources. DP&L requested
a waiver of any unmet 2009 Ohio solar requirements
on grounds of force majeure because there were
insufficient solar renewable energy credits available
from Ohio resources. In March 2010, the PUCO ruled
that DP&L’s 2009 Ohio solar target would be reduced
to the amount that it had procured, but that any
unmet requirement must be added to the 2010 target.
DP&L has been able to acquire sufficient renewable
resources in 2010 to meet its 2010 requirements plus
that portion of the 2009 Ohio solar requirement that was
added by the PUCO order.
On April 15, 2010, DP&L made its first annual
required filing related to compliance with renewable
and advanced energy targets contained in SB 221.
Pursuant to PUCO rules, each April 15, DP&L and
DPLER who are electric services companies pursuant
to Ohio Revised Code, are required to provide a
status report on whether or not they met the renewable
benchmarks of the previous year, as well as a ten-
year plan outlining their plans to meet future annual
renewable targets. In addition, on April 15 of each
year, each utility that owns an electric generating
facility in Ohio must report to the PUCO regarding
its greenhouse gas emissions, and plans to reduce
those emissions (environmental control plan) as well
as a long-term forecast report which includes a plan
to provide sufficient resources to meet customer load
obligations (resource plan). DP&L’s long-term forecast
filing was set for hearing. A settlement was reached in
early 2011 under which the need for solar facilities was
established. This settlement was filed with the PUCO for
their approval.
In two separate filings, DP&L requested the
PUCO’s consent that DP&L had met the 2009
requirements for energy efficiency 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 reasonable 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. Since
this is a new process, it is unclear if a final order will be
issued in these proceedings.
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 reduction benchmarks.
DP&L filed a separate request for a finding that it had
already complied with this requirement in the form of
DP&L’s portfolio plan that had been filed in 2008 as
part of its CCEM plan, which had been approved by
the PUCO and is being implemented. On May 19, 2010
the Commission approved in part and denied in part
DP&L’s request that the Commission find that it met
DPL Inc.
11
the 2009 energy efficiency portfolio requirements and
directed DP&L to file a measurement and verification
plan as well as a market potential study within 60 days
of the date of the order. We made this filing on July 15,
2010. Although this case was set for hearing settlement
talks are on-going.
We are unable to predict how the PUCO will
respond to many of the filings discussed above, but
believe that the outcome will not be material to our
financial condition. However, as the energy efficiency
and alternative energy targets get increasingly larger
over time, the costs of complying with SB 221 and
the PUCO’s implementing rules could have a material
impact on our financial condition.
The ESP Stipulation also provided for the
establishment of a fuel and purchased power
recovery rider beginning January 1, 2010. The fuel
rider fluctuates based on actual costs and recoveries
and is modified at the start of each seasonal quarter:
March 1, June 1, September 1 and December 1 each
year. DP&L is currently undergoing an audit of its fuel
rider which is conducted by an independent third party
in accordance with the PUCO standards. As a result
there is some uncertainty as to the costs that will be
approved for recovery. DP&L anticipates that some of
this uncertainty will be resolved during the summer of
2011 after completion of the fuel audit. Based on the
results of the audit, DP&L may record a favorable or
unfavorable adjustment to earnings. It is too early to
determine if any such adjustment would be material
to our results of operations, financial condition and
cash flows.
As a member of PJM, DP&L receives revenues
from the RTO related to its transmission and generation
assets and incurs costs associated with its load
obligations for retail customers. SB 221 included a
provision that would allow Ohio electric utilities to seek
and obtain a reconcilable rider to recover RTO-related
costs and credits. DP&L’s TCRR and PJM RPM riders
were initially approved in November 2009 to recover
these costs. Both the TCRR and the RPM riders assign
costs and revenues from PJM monthly bills to retail
ratepayers based on the percentage of SSO retail
customers’ load and sales volumes to total retail load
and total retail and wholesale volumes. Customer
switching to CRES providers decreases DP&L’s SSO
retail customers’ load and sales volumes. Therefore,
increases in customer switching cause more of the
RPM capacity costs and revenues to be excluded
from the RPM rider calculation. RPM capacity costs
and revenues are discussed further under “Regional
Transmission Organizational Risks” in Item 1A – Risk
Factors. DP&L’s annual true-up of these two riders was
approved by the PUCO by an order dated April 28,
2010. On October 15, 2010 DP&L made an interim
adjustment to both the TCRR and the RPM riders that
had no material change to the rate recovery amounts.
On September 9, 2009, the PUCO issued an order
establishing a significantly excessive earnings test
(SEET) proceeding pursuant to provisions contained
in SB 221. A question and answer session was held
before the Commission on April 1, 2010 to allow the
Commission to gain a better understanding of the
issues. The PUCO issued an order on June 30, 2010 to
establish general rules for calculating the earnings and
comparing them to a comparable group to determine
whether there were significantly excessive earnings.
The other three Ohio utilities were required to make
their SEET determinations in 2010 based on 2009
results. Pursuant to the ESP Stipulation, DP&L becomes
subject to the SEET in 2013 based on 2012 earnings
results and the SEET may have a material impact on
operations.
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 in November 2009.
Comments and reply comments were filed. On March
29, 2010 DP&L entered into a settlement establishing
the new reliability targets. This settlement was
approved on July 29, 2010. According to the ESSS
rules, DP&L will be subject to financial penalties if the
established targets are not met for two consecutive
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
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, SSO and other retail electric services.
Overall power market prices, as well as
government aggregation initiatives within DP&L’s
service territory, have led or may lead to the entrance
of additional competitors in our service territory. During
the year ended December 31, 2010, there were four
12 DPL Inc.
additional unaffiliated marketers that registered as
CRES providers in DP&L’s service territory, bringing
the total number of CRES providers in DP&L’s service
territory to eleven. DPLER, an affiliated company
and one of the eleven registered CRES providers,
has been marketing transmission and generation
services to DP&L customers. During 2010, DPLER
accounted for approximately 4,417 million kWh of the
total 4,562 million kWh supplied by CRES providers
within DP&L’s service territory. Also during 2010,
847 customers with an annual energy usage of 145
million kWh were supplied by other CRES providers
within DP&L’s service territory, compared to 44
customers that had an annual energy usage of 16
million kWh during 2009. The volume supplied by
DPLER represents approximately 31% of DP&L’s total
distribution sales volume during 2010. The reduction
to gross margin in 2010 as a result of customers
switching to DPLER and other CRES providers was
approximately $17 million and $53 million, for DPL and
DP&L, respectively. We currently cannot determine the
extent to which customer switching to CRES providers
will occur in the future and the impact this will have
on our operations, but any additional switching could
have a significant adverse effect on our future results of
operations, financial condition and cash flows.
Several communities in DP&L’s service area
have passed ordinances allowing the communities to
become government aggregators for the purpose of
offering alternative electric generation supplies to their
citizens. To date, none of these communities have
aggregated their generation load.
In 2010, DPLER began providing CRES services
to business customers in Ohio who are not in DP&L’s
service territory. The incremental costs and revenues
have not had a material impact on our results of
operations, financial condition or cash flows.
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 not
only on the performance of our generating units, but
also 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 competitive
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 largest competitive
wholesale electricity market and plans regional
transmission expansion improvements to maintain grid
reliability and relieve congestion.
The PJM RPM capacity base residual auction for
the 2013/2014 period cleared at a per megawatt price
of $28/day for our RTO area. The per megawatt prices
for the periods 2012/2013, 2011/2012 and 2010/2011
were $16/day, $110/day and $174/day, respectively,
based on previous auctions. 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 capacity
auctions. Increases in customer switching causes
more of the RPM capacity costs and revenues to be
excluded from the RPM rider calculation. We cannot
predict the outcome of future auctions or customer
switching but if the current auction price is sustained,
our future results of operations, financial condition and
cash flows could have a material adverse impact.
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 and thereafter regarding the allocation of costs
of large transmission facilities within PJM, would result
in additional costs being allocated to DP&L that, over
time and depending on final costs and how quickly the
facilities are constructed, could become material. DP&L
filed a notice of appeal to the U.S. Court of Appeals,
D.C. Circuit which 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
DPL Inc. 13
an informational filing in late February. Subsequently
PJM and other parties, including DP&L, filed initial
comments, testimony, and recommendations and reply
comments. FERC did not establish a deadline for its
issuance of a substantive order and the matter is still
pending. 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 already includes these costs.
NERC is a FERC-certified electric reliability
organization responsible for developing and enforcing
mandatory reliability standards, including Critical
Infrastructure Protection (CIP) reliability standards,
across eight reliability regions. In June 2009,
Reliability First Corporation (RFC), with responsibilities
assigned to it by NERC over the reliability region
that includes DP&L, 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
requirements of various Standards. In response to
the report, DP&L filed mitigation plans with RFC/
NERC to address the PAVs. These mitigation plans
were accepted by RFC/NERC. In July 2010, DP&L
negotiated a settlement with NERC wherein DP&L
agreed to pay an immaterial amount in exchange for
a resolution of all issues and obligations relating to the
aforementioned PAVs. The settlement was approved on
January 21, 2011 by the FERC.
Environmental Considerations
DPL’s 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
environmental issues that may impact us include:
■ The Federal CAA and state laws and regulations
(including State Implementation Plans) which require
compliance, obtaining permits and reporting as to air
emissions.
■ 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.
■ Rules and future rules issued by the USEPA and
Ohio EPA that require substantial reductions in SO2,
particulates, mercury and NOx emissions. DP&L has
installed emission control technology and is taking
other measures to comply with required and anticipated
reductions.
■ Rules issued by the USEPA and Ohio EPA that require
reporting and future rules that may require reductions
of GHGs.
■ Rules and future 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.
■ 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 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, 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 loss contingencies related
to environmental matters when a loss is probable
of occurring and can be reasonably estimated in
accordance with the provisions of GAAP. Accordingly,
we have estimated accruals for loss contingencies
of approximately $4.0 million for environmental
matters. We also have a number of unrecognized loss
contingencies related to environmental matters that
are disclosed in the paragraphs below. We evaluate
the potential liability related to environmental matters
quarterly and may revise our estimates. Such revisions
14 DPL Inc.
in the estimates of the potential liabilities could have
a material effect on our results of operations, financial
condition or cash flows.
In July 2010, the USEPA proposed new rules
to limit the interstate transport of emissions of NOx
and SO2 that would, if finalized, have a significant
industry-wide impact on the operation of coal-fired
generation units. We also have several other pending
environmental matters associated with our coal-fired
generation units and these pending matters, along with
the new rules proposed by the USEPA, could result in
significant capital and operations and maintenance
expenditures for our coal-fired generation plants, and
could result in the early retirement of our generation
units that do not have SCR and FGD equipment
installed. Currently, our coal-fired generation units at
Hutchings and Beckjord do not have this emission-
control equipment installed and their early retirement
could occur as early as 2015. DP&L owns 100% of the
Hutchings plant and has a 50% interest in Beckjord Unit
6. In addition to environmental matters, the operation of
our coal-fired generation plants could be impacted by a
multitude of other factors, including forecasted power,
capacity and commodity prices, competition and the
levels of customer switching, current and forecasted
customer demand, cost of capital, and regulatory and
legislative developments, any of which could pose
a potential triggering event for an impairment of our
investments in the Hutchings and Beckjord units.
Regulation Matters Related to Air Quality
Clean Air Act Compliance
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
replacement (RMRR) exclusion of the CAA. Activities
at power plants that fall within the scope of the RMRR
exclusion do not trigger new source review (NSR)
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 clarified 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 multiple 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 trigger the NSR requirements, if NSR
requirements were imposed on any of DP&L’s existing
power plants, the results could have a material adverse
impact 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 NSR standards under the CAA.
A supplemental rule was also proposed 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 environmental
organizations and has not been finalized. While we
cannot predict the outcome of this rulemaking, any
finalized rules could materially affect our operations.
Interstate Air Quality Rule
On December 17, 2003, the USEPA proposed the
Interstate Air Quality Rule (IAQR) designed to reduce
and permanently cap SO2 and NOx emissions from
electric utilities. The proposed IAQR focused on
states, including Ohio, whose power plant emissions
are believed to be significantly contributing to fine
particle and ozone pollution in other downwind states
in the eastern United States. On June 10, 2004, the
USEPA issued a supplemental proposal to the IAQR,
now renamed the Clean Air Interstate Rule (CAIR).
The final rules were signed on March 10, 2005 and
were published on May 12, 2005. CAIR created an
interstate trading program for annual NOx emission
allowances and made modifications to an existing
trading program for SO2. On August 24, 2005, the
USEPA proposed additional revisions to the CAIR.
On July 11, 2008, the U.S. Court of Appeals for the
District of Columbia Circuit issued a decision to
vacate the USEPA’s CAIR and its associated Federal
DPL Inc. 15
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.
On July 6, 2010, the USEPA proposed the Clean
Air Transport Rule (CATR) which may replace CAIR in
2012. We have reviewed this proposal and submitted
comments to the USEPA on September 30, 2010. We
are unable to determine the overall financial impact that
these rules could have on our operations in the future.
In 2007, the Ohio EPA revised their State
Implementation Plan (SIP) to incorporate a CAIR
program 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.
Mercury and Other Hazardous Air Pollutants
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 pollutants.
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 propose
Maximum Achievable Control Technology (MACT)
standards for coal- and oil-fired electric generating
units during the quarter ending March 31, 2011 and
finalize them during the quarter ending December 31,
2011. 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. DP&L is unable to determine the
impact of the promulgation of new MACT standards on
its financial condition or results of operations; however,
a MACT standard could have a material adverse effect
on our operations. We cannot predict the final costs we
may incur to comply with proposed new regulations to
control mercury or other hazardous air pollutants.
On April 29, 2010, the USEPA issued a proposed
rule that would reduce emissions of toxic air pollutants
from new and existing industrial, commercial and
institutional boilers, and process heaters at major and
area source facilities. This regulation may affect five
auxiliary boilers used for start-up purposes at DP&L’s
generation facilities. The proposed regulations contain
emissions limitations, operating limitations and other
requirements. The compliance schedule will be three
years from the date when these rules, if finalized,
become effective. We currently cannot determine
whether or not these rules will be finalized nor can
we predict the effect of compliance costs, if any, on
DP&L’s operations. Such costs, however, are not
expected to be material.
On May 3, 2010, the USEPA finalized the “National
Emissions Standards for Hazardous Air Pollutants”
(NESHAP) for compression ignition (CI) reciprocating
internal combustion engines (RICE). The units affected
at DP&L are 18 diesel electric generating engines and
eight emergency “black start” engines. The existing
CI RICE units must comply by May 3, 2013. The
regulations contain emissions limitations, operating
limitations and other requirements. Compliance costs
on DP&L’s operations are not expected to be material.
16 DPL Inc.
National Ambient Air Quality Standards
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 creating 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 reconsideration. 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 designations
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 during
the first quarter of 2011 as part of its routine five-year
rule review cycle. We cannot predict the impact the
revisions to the PM 2.5 standard will have on DP&L’s
financial condition 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, providing
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.
On September 16, 2009, the USEPA announced
that it would reconsider the 2008 national ground
level ozone standard. A more stringent ambient ozone
standard may lead to stricter NOx emission standards
in the future. DP&L cannot determine the effect of this
potential change, if any, on its operations.
Effective April 12, 2010, the USEPA implemented
revisions to its primary NAAQS for nitrogen dioxide.
This change may affect certain emission sources
in heavy traffic areas like the I-75 corridor between
Cincinnati and Dayton after 2016. Several of our
facilities or co-owned facilities are within this area.
DP&L cannot determine the effect of this potential
change, if any, on its operations.
Effective August 23, 2010, the USEPA implemented
revisions to its primary NAAQS for SO2 replacing the
current 24-hour standard and annual standard with a
one hour standard. DP&L cannot determine the effect
of this potential change, if any, on its operations.
Climate Change
In response to a U.S. Supreme Court decision that the
USEPA has the authority to regulate CO2 emissions
from motor vehicles, the USEPA made a finding that
CO2 and certain other GHGs are pollutants under the
CAA. Subsequently, under the CAA, USEPA determined
that CO2 and other GHGs from motor vehicles threaten
the health and welfare of future generations by
contributing to climate change. This finding became
effective in January 2010. Numerous affected parties
have petitioned the USEPA Administrator to reconsider
this decision. On April 1, 2010, USEPA signed the
“Light-Duty Vehicle Greenhouse Gas Emission
Standards and Corporate Average Fuel Economy
Standards” rule. Under USEPA’s view, this is the final
action that renders carbon dioxide and other GHGs
“regulated air pollutants” under the CAA. As a result of
this action, it is expected that in 2011 various permitting
programs will apply to other combustion sources, such
as coal-fired power plants. We cannot predict the effect
of this change, if any, on DP&L’s operations.
Legislation proposed in 2009 to target a reduction
in the emission of GHGs from large sources was
not enacted. 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 operations and costs,
which could adversely affect our net income, cash flows
and financial condition. However, due to the uncertainty
associated with such legislation, we cannot predict the
final outcome or the financial impact that this legislation
will have on DP&L.
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.
DPL Inc.
17
Litigation, Notices of Violation and Other
Matters Related to Air Quality
Litigation Involving Co-Owned Plants
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 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 remanded
the lawsuits back to the Federal District Court for further
proceedings. In response to a petition by the company
defendants, the U.S. Supreme Court on December 6,
2010 granted a hearing on the matter. 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 outcomes of these
lawsuits could also encourage these or other plaintiffs
to file similar lawsuits against other electric power
companies, including DP&L. We are unable to predict
the impact that these lawsuits might have on DP&L.
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 renewable 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 attorney and expert
witness fees. The parties to the lawsuit filed a joint
motion on October 22, 2008, seeking an order by the
U.S. District Court approving the consent decree with
funding for the third party non-profit organization set at
$300,000. On October 23, 2008, the U.S. District Court
approved the consent decree. 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 emissions that DP&L has
been excluding from its computations to be included
for purposes of complying with the emission targets
and reporting requirements of the consent decree.
DP&L believed that it was properly computing and
reporting NOx emissions under the consent decree, but
participated in settlement discussions with the Sierra
Club. A proposed settlement was agreed to by both
parties, approved by the court and then filed into the
official record on July 13, 2010. The settlement amends
the Consent Decree and sets forth a more detailed
and clearer methodology to compute NOx emissions
during start-up and shut-down periods. There were
no cash payments under the terms of this settlement.
The revision is not expected to have a material effect
on DP&L’s results of operations, financial condition or
cash flows in the future.
Notices of Violation Involving Co-Owned Plants
In November 1999, the USEPA filed civil complaints
and NOVs against operators and owners of certain
generation facilities for alleged violations of the CAA.
Generation units operated by Duke Energy (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 indicated
that they will be joining the USEPA’s action against
Duke Energy 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 June 2000, the USEPA issued a NOV to the
DP&L-operated J.M. Stuart generating station (co-
owned by DP&L, Duke Energy, 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
18 DPL Inc.
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. DP&L cannot predict
the outcome of this matter or the financial impact this
matter will have on DP&L.
In December 2007, the Ohio EPA issued a NOV to
the DP&L-operated Killen generating station (co-owned
by DP&L and Duke Energy) for alleged violations of the
CAA. The NOVs alleged deficiencies in the continuous
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.
On March 13, 2008, Duke Energy, the operator of
the Zimmer generating station, received a NOV and
a Finding of Violation (FOV) 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. A
second NOV and FOV with similar allegations was
issued on November 4, 2010. DP&L is a co-owner of
the Zimmer generating station and could be affected by
the eventual resolution of these matters. Duke Energy
is expected to act on behalf of itself and the co-owners
with respect to these matters. DP&L is unable to
predict the outcome of these matters or the financial
impact that these matters will have on DP&L.
Other Issues Involving Co-Owned Plants
In 2006, DP&L detected a malfunction with its
emission monitoring system at the DP&L-operated
Killen generating station (co-owned by DP&L and
Duke Energy) 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 of 2006. DP&L has sufficient
allowances in its general account to cover the
understatement. Management does not believe the
ultimate resolution of this matter will have a material
impact on results of operations, financial condition or
cash flows.
Notices of Violation Involving Wholly-Owned Plants
In 2007, the Ohio EPA and the USEPA issued NOVs
to DP&L for alleged violations of the CAA at the O.H.
Hutchings Station. The NOVs’ alleged deficiencies
relate to stack opacity and particulate emissions.
Discussions are under way with the USEPA, the
U.S. Department of Justice and Ohio EPA. DP&L
has provided data to those agencies regarding its
maintenance 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 capital expenses and any changes in
capacity or output of the units at the O.H. Hutchings
Station. During 2009, DP&L continued to submit various
other operational 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 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.
Regulation Matters Related to Water Quality
Clean Water Act – Regulation of Water Intake
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 structures.
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 and
anticipates proposing requirements by March 2011
with final rules in place by mid-2012. We are unable to
predict the impact this will have on our operations.
DPL Inc. 19
Clean Water Act – Regulation of Water Discharge
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 the 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 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.
In September 2010, the USEPA formally objected to a
revised permit provided by Ohio EPA due to questions
regarding the basis for the alternate thermal limitation.
In December 2010, DP&L requested a public hearing
on the objection, which USEPA has agreed to conduct.
If a public hearing is held, it is anticipated that it
would be scheduled in the first half of 2011. We are
attempting to resolve this issue with both the USEPA
and Ohio EPA. The timing for issuance of a final permit
is uncertain. DP&L is unable to predict the impact this
will have on its operations.
In September 2009, the USEPA announced that it
will be revising technology-based regulations governing
water discharges from steam electric generating
facilities. The rulemaking included the collection of
information via an industry-wide questionnaire as well
as targeted water sampling efforts at selected facilities.
Subsequent to the information collection effort, it is
anticipated that the USEPA will release a proposed
rule by mid-2012 with a final regulation in place by
early 2014. DP&L is unable to predict the impact this
rulemaking will have on its operations.
Regulation Matters Related to Land Use and
Solid Waste Disposal
Regulation of 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 regarding
the performance of a Remedial Investigation and
Feasibility Study (RI/FS) under a Superfund Alternative
Approach. In October 2005, DP&L received a special
notice letter inviting it to enter into negotiations with
the USEPA to conduct the RI/FS. No recent activity
has occurred with respect to that notice or PRP status.
However, on August 25, 2009, the USEPA issued
an Administrative Order requiring that access to
DP&L’s service center building site, which is across
the street from the landfill site, be given to the USEPA
and the existing PRP group to help 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. DP&L has granted
such access and drilling of soil borings and installation
of monitoring wells occurred in late 2009 and early
2010. DP&L believes the chemicals used at its service
center building site were appropriately disposed of
and have not contributed to the contamination at the
South Dayton Dump landfill site. On May 24, 2010,
three members of the existing PRP group, Hobart
Corporation, Kelsey-Hayes Company and NCR
Corporation, filed a civil complaint in the United States
District Court for the Southern District of Ohio against
DP&L and numerous other defendants alleging that
DP&L and the other defendants contributed to the
contamination at the South Dayton Dump landfill site
and seeking reimbursement of the PRP group’s costs
associated with the investigation and remediation of
the site. DP&L filed a motion to dismiss the complaint
and intends to vigorously defend against any claim
that it has any financial responsibility to remediate
conditions at the landfill site. On February 10, 2011, the
Court dismissed claims against DP&L that related to
allegations that chemicals used by DP&L at its service
center contributed to the landfill site’s contamination.
The Court, however, did not dismiss claims alleging
financial responsibility for remediation costs based on
hazardous substances from DPL that were allegedly
directly delivered by truck to the landfill. While DP&L is
unable to predict the outcome of these matters, if DP&L
were required to contribute to the clean-up of the site, it
could have a material adverse effect on us.
20 DPL Inc.
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
hazardous substances to the site. While DP&L is
unable 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.
On April 7, 2010, the USEPA published an Advance
Notice of Proposed Rulemaking (ANPRM) announcing
that it is reassessing existing regulations governing the
use and distribution in commerce of polychlorinated
biphenyls (PCB). While this reassessment is in the early
stages and the USEPA is seeking information from
potentially affected parties on how it should proceed,
the outcome may have a material effect on DP&L. At
present, DP&L is unable to predict the impact this
initiative will have on its operations.
Regulation of Ash Ponds
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 interest.
During March 2009, the USEPA, through a formal
Information Collection Request, collected information on
ash pond facilities across the country, including those
at Killen and J.M. Stuart Stations. Subsequently, the
USEPA collected similar information for O.H. Hutchings
Station. In October 2009, the USEPA conducted an
inspection of the J.M. Stuart Station ash ponds. In
March 2010, the USEPA issued a final report from the
inspection including recommendations relative to the
J.M. Stuart Station ash ponds. In May 2010, DP&L
responded to the USEPA final inspection report with our
plans to address the recommendations.
Similarly, in August 2010, the USEPA conducted an
inspection of the O.H. Hutchings Station ash ponds. The
draft report relating to the inspection was received in
November 2010 and DP&L provided comments on the
draft report in December 2010. DP&L is unable to predict
the outcome this inspection will have on its operations.
In addition, as a result of the TVA ash pond spill, there
has been increasing advocacy to regulate coal combustion
byproducts under the Resource Conservation Recovery
Act (RCRA). On June 21, 2010, the USEPA published a
proposed rule seeking comments on two options under
consideration for the regulation of coal combustion
products including regulating the material as a hazardous
waste under RCRA Subtitle C or as a solid waste under
RCRA Subtitle D. DP&L is unable 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.
Other Legal Matters
In February 2007, DP&L filed a lawsuit against a coal
supplier seeking damages incurred due to the supplier’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 in which DP&L is
participating as an unsecured creditor. DP&L is unable
to determine the ultimate resolution of this matter.
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 costs
associated with our litigation against certain former
executives. On February 15, 2010, after having
engaged in both mediation and arbitration, DPL and
EIM entered into a settlement agreement resolving
all coverage issues and finalizing all obligations in
connection with the claim, under which DPL received
$3.4 million (net of associated expenses).
In connection with DP&L and other utilities
joining PJM, in 2006 the FERC ordered utilities to
eliminate certain charges to implement transitional
payments, known as SECA, effective December 1,
2004 through March 31, 2006, subject to refund.
Through this proceeding, DP&L was obligated to pay
SECA charges to other utilities, but received a net
benefit from these transitional payments. A hearing
was held and an initial decision was issued in August
2006. A final FERC order on this issue was issued
on May 21, 2010 that substantially supports DP&L’s
and other utilities’ position that SECA obligations
should be paid by parties that used the transmission
system during the timeframe stated above. DP&L,
along with other transmission owners in PJM and the
Midwest Independent System Operator (MISO) made
a compliance filing at FERC on August 19, 2010 that
fully demonstrated all payment obligations to and from
all parties within PJM and the MISO. The FERC has
made no ruling regarding the compliance filing and
some parties have requested rehearing by FERC of its
May 21, 2010 order. It is expected that any order on the
compliance filing and any order regarding the rehearing
DPL Inc. 21
request will be appealed for Court review. Prior to this final order being issued, DP&L entered into a significant
number of bilateral settlement agreements with certain parties to resolve the matter, which by design will be
unaffected by the final decision. Further, in October 2010, DP&L entered into another settlement agreement to settle
a portion of SECA amounts still owed to DP&L. With respect to unsettled claims, DP&L management believes it has
deferred as a regulatory liability the appropriate amounts that are subject to refund (see SECA net revenue subject
to refund within Note 3 of Notes to Consolidated Financial Statements) and therefore the results of this proceeding
are not expected to have a material adverse effect on DP&L’s 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 $151 million, $145 million and $228 million in 2010, 2009
and 2008, respectively, and are expected to approximate $310 million in 2011. Planned construction additions for
2011 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 $148 million, $144 million and $225 million in 2010, 2009 and 2008,
respectively, and are expected to approximate $300 million in 2011. Planned construction additions for 2011
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 approximated $12 million,
$21 million and $90 million in 2010, 2009 and 2008, respectively.
Electric Sales and Revenues
The following table sets forth DPL’s, DP&L’s and DPLER’s electric sales and revenues for the years ended
December 31, 2010, 2009 and 2008, respectively.
DPL
DP&L (a)
DPLER (b)
2010
2009
2008
2010
2009
2008
2010
2009
2008
Electric sales (millions of kWh)
Residential
Commercial
Industrial
Other retail
5,522
3,842
3,605
1,437
Total retail
Wholesale
Total
14,406
2,831
17,237
5,120
3,678
3,353
1,386
13,537
3,130
16,667
5,533
3,959
3,986
1,454
14,932
2,240
17,172
5,522
3,741
3,582
1,432
14,277
2,806
17,083
5,120
3,678
3,353
1,386
13,537
3,053
16,590
5,533
3,959
3,986
1,454
14,932
2,173
17,105
1
1,194
2,476
875
4,546
–
–
68
983
413
1,464
–
4,546
1,464
–
421
2,322
469
3,212
–
3,212
Operating revenues
($ in thousands)
$
Residential
Commercial
Industrial
Other retail
Other miscellaneous
revenues
Total retail
Wholesale
RTO revenues
Other revenues
Total
687,932 $
384,385
260,763
113,550
560,223 $
332,808
228,458
98,781
544,561
332,010
240,041
97,592
$
687,891 $
304,078
118,517
64,240
560,223 $
329,006
186,293
82,749
544,561
308,934
133,832
78,905
$
41 $
– $
80,307
142,246
52,811
3,802
42,165
18,871
–
23,076
106,209
21,338
9,814
8,766
9,042
10,723
8,966
9,046
57
–
64
1,456,444
1,229,036
1,223,246
1,185,449
1,167,237
1,075,278
275,462
64,838
150,687
142,312
272,832
11,534
149,874
217,357
11,080
$ 1,883,122 $ 1,588,921 $ 1,601,557
122,519
225,677
11,689
365,798
239,274
–
293,500
204,074
–
$ 1,790,521 $ 1,550,362 $ 1,572,852
181,871
201,254
–
–
1,503
27
–
31
88
$ 276,992 $ 65,548 $ 150,806
–
615
95
Electric customers at
end of period
Residential
Commercial
Industrial
Other
Total
455,572
50,764
1,800
6,742
514,878
456,144
50,141
1,773
6,577
514,635
456,770
50,190
1,797
6,517
515,274
455,572
50,155
1,769
6,739
514,235
456,144
50,141
1,773
6,577
514,635
456,770
50,190
1,797
6,517
515,274
33
7,205
564
1,200
9,002
–
223
44
123
390
–
432
184
126
742
(a) DP&L sold 4,417 million kWh, 1,464 million kWh and 3,212 million kWh of power to DPLER (a subsidiary of DPL) during the years ended
December 31, 2010, 2009 and 2008, respectively, which are not included in DP&L wholesale sales volumes in the chart above. These kWh sales also
relate to DP&L retail customers within the DP&L service territory for distribution services and their inclusion in wholesale sales would result in a double
counting of kWh volume. The dollars of operating revenues associated with these sales are classified as wholesale revenues on DP&L’s Financial
Statements and retail revenues on DPL’s Consolidated Financial Statements.
(b) This chart includes all sales of DPLER, both within and outside of the DP&L service territory.
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 including, 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 statements, 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.
Our customers have recently begun to select
alternative electric generation service providers,
as permitted by Ohio legislation.
Customers can elect to buy transmission and
generation service from a PUCO-certified CRES
provider offering services to customers in DP&L’s
service territory. DPLER, a wholly-owned subsidiary
of DPL, is one of the PUCO-certified CRES providers
and accounted for approximately 97% of the total retail
energy supplied by CRES providers within DP&L’s
service territory in 2010. Unaffiliated CRES providers
also have been certified to provide energy in DP&L’s
service territory and during 2010, approximately
800 DP&L customers switched their generation
service to these providers. Customer switching from
DP&L to DPLER reduces DPL’s revenues since the
generation rates charged by DPLER are less than
the rates charged by DP&L. Increased competition
by unaffiliated CRES providers in our service territory
for retail generation service could result in the loss
of existing customers and reduced revenues and
increased costs to retain or attract customers.
Decreased revenues and increased costs due to
continued customer switching and customer loss
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 PUCO-certified
CRES providers in the future:
■ Low wholesale price levels may lead to existing CRES
providers becoming more active in our service territory,
and additional CRES providers entering our territory.
■ We could also experience customer switching
through “governmental aggregation,” where a
municipality may contract with a CRES provider to
provide generation service to the customers located
within the municipal boundaries.
We are subject to extensive laws and local, state and
federal regulation, as well as related litigation, that
could affect our operations and costs.
We are subject to extensive laws and regulation by
federal, state and local authorities, such as the PUCO,
the CFTC, the USEPA, the Ohio EPA, the FERC, the
SEC, the Department of Labor and the Internal Revenue
Service, among others. Regulations affect almost every
aspect of our business, including in the areas of the
environment, health and safety, cost recovery and
rate making, securities, corporate governance, public
disclosure and reporting and taxation. 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 regulatory environment
could subject us to substantial financial costs and
penalties and changes, either forced or voluntary, 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,
DPL Inc. 23
claims and other matters asserted under this regulatory
environment or otherwise, which require us to expend
significant funds to address, the outcomes of which
are uncertain and the adverse resolutions of which
could have a material adverse effect on our results of
operations, financial condition and cash flows.
The costs we can recover and the return on capital we
are permitted to earn for certain aspects of our business
are regulated and governed by the laws of Ohio and the
rules, policies and procedure of the PUCO.
The costs we can recover and the return on capital
we are permitted to earn for certain aspects of our
business 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 ESP or MRO, and established a significantly
excessive earnings test for Ohio public utilities that
compares the utility’s earnings to the earnings of other
companies with similar business and financial risks.
The PUCO approved DP&L’s filed ESP on June 24,
2009. DP&L’s ESP 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 apply in 2013 based upon DP&L’s 2012
earnings. DP&L’s ESP and certain filings made by
us in connection with this plan are further discussed
under “Ohio Retail Rates” in Item 1 – Competition
and Regulation. In addition, as the local distribution
utility, DP&L has an obligation to serve customers
within its certified territory and under the terms of
its ESP Stipulation, it is the provider of last resort
(POLR) for standard offer service. DP&L’s current
rate structure provides for a nonbypassable charge to
compensate DP&L for this POLR obligation. The PUCO
may decrease or discontinue this POLR rate charge at
some time in the future.
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-passable
by some of our customers who switched to a CRES
provider. Accordingly, the revenue DP&L receives
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 produce timely or full recovery of its
expenses. Changes in, or reinterpretations of, the laws,
rules, policies and procedures that set electric rates,
permitted rates of return and POLR service; changes in
DP&L’s rate structure and its ability to recover amounts
for environmental compliance, POLR obligations,
reliability initiatives, fuel and purchased power (which
account for a substantial portion of our operating
costs), customer switching, capital expenditures and
investments and other costs on a full 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.
Our increased costs due to advanced energy and
energy efficiency requirements may not be fully
recoverable in the future.
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 year 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 solar energy. 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 have increased our power
supply costs and are expected to continue to increase
(and could materially increase) these costs. Pursuant
to DP&L’s approved ESP, DP&L is entitled to recover
costs associated with its alternative energy plans, as
well as its energy efficiency and demand response
programs. DP&L began recovering these costs in
24 DPL Inc.
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 standards, 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 efficiency standards by
design result in reduced energy and demand that could
adversely affect our results of operations, financial
condition and cash flows.
The availability and cost of fuel has experienced and
could continue to experience significant volatility and
we may not be able to hedge the entire exposure of our
operations from fuel availability and price volatility.
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
several 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
at times in recent years. In addition, domestic issues
like government-imposed direct costs and permitting
issues that affect mining costs and supply availability,
the variable demand of retail customer load and the
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
exposure of our operations from fuel price volatility. As
of the date of this report, DPL has substantially all of
the total expected coal volume needed to meet its retail
and firm wholesale sales requirements for 2011 under
contract. Historically, some of our suppliers and buyers
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 and, as a
result of such failure or otherwise, we cannot secure
adequate fuel or sell excess fuel in a timely or cost-
effective manner or we are not hedged against price
volatility, we could have a material adverse impact
on our results of operations, financial condition and
cash flows. In addition, DP&L is a co-owner of certain
generation facilities where it is a non-operating owner.
DP&L does not procure or have control over the fuel for
these facilities, but is responsible for its proportionate
share of the cost of fuel procured at these facilities. Co-
owner operated facilities do not always have realized
fuel costs that are equal to our co-owners’ projections,
and we are responsible for our proportionate share of
any increase in actual fuel costs. Pursuant to its ESP for
SSO retail customers, DP&L implemented a fuel and
purchased power recovery mechanism beginning on
January 1, 2010, which subjects our recovery of fuel
and purchased power costs to tracking and adjustment
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
operations, financial condition and cash flows.
Our use of derivative and nonderivative contracts
may not fully hedge our generation assets, customer
supply activities, or other market positions against
changes in commodity prices, and our hedging
procedures may not work as planned.
We transact 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 commodities price risk exposure
by establishing and enforcing risk limits and risk
management policies. Despite our efforts, however,
these risk limits and management policies may not
work as planned and fluctuating 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. We also use
interest rate derivative instruments to hedge against
interest rate fluctuations related to our debt. In the
absence of actively quoted market prices and pricing
information from external sources, the valuation 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 counterparty fails to
perform, which could result in a material adverse effect
on our results of operations, financial condition and
cash flows.
The Dodd-Frank Act contains significant requirements
related to derivatives that, among other things,
could reduce the cost effectiveness of entering into
derivative transactions.
In July 2010, The Dodd-Frank Wall Street Reform and
Consumer Protection Act (Dodd-Frank Act) was signed
into law. The Dodd-Frank Act contains significant
DPL Inc. 25
requirements relating to derivatives, including, among
others, a requirement that certain transactions be
cleared on exchanges that would necessitate the
posting of cash collateral for these transactions.
The Dodd-Frank Act provides a potential exception
from these clearing and cash collateral requirements
for commercial end-users. The Dodd-Frank Act
requires the CFTC to establish rules to implement
the Dodd-Frank Act’s requirements and exceptions.
Requirements to post collateral could reduce the cost
effectiveness of entering into derivative transactions to
reduce commodity price and interest rate volatility or
could increase the demands on our liquidity or require
us to increase our levels of debt to enter into such
derivative transactions. Even if we were to qualify for an
exception from these requirements, our counterparties
that do not qualify for the exception may pass along
any increased costs incurred by them through higher
prices and reductions in unsecured credit limits. The
occurrence of any of these events could have an
adverse effect on our results of operations, financial
condition and cash flows.
We are subject to numerous environmental laws
and regulations that require capital expenditures,
increase our cost of operations and may expose us
to environmental liabilities.
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
reductions in NOx, SO2 and particulate emissions),
water quality, wastewater discharge, solid waste and
hazardous waste. We could also become subject
to additional environmental laws and regulations
in the future (such as reductions in mercury and
other hazardous air pollutants, SO3 (sulfur trioxide),
regulation of ash generated from coal-based
generating stations and reductions in greenhouse
gas emissions as discussed in more detail in the next
risk factor). With respect to our largest generation
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 could also be significant in the future.
Complying with these numerous requirements could at
some point become prohibitively expensive and result
in our shutting down (temporarily or permanently) or
altering the operation of our facilities. Environmental
laws and regulations 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 comply 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 requirements may require us to expend
significant resources to defend against any such
alleged violations. We own a non-controlling interest
in several generating stations 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 requirements, 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
occurred in 2010 and remains at that level through
2012. In addition, DP&L’s ESP 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 or the SSO retail riders are
by-passable or additional customer switching occurs,
we could have a material adverse impact to 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.
If legislation or regulations are passed at the federal
or state levels imposing mandatory reductions of
Greenhouse Gasses on generation facilities, we could
be required to make large additional capital investments.
There is an on-going concern nationally and
internationally among regulators, investors and others
concerning global climate change and the contribution
of emissions of GHGs, including most significantly
CO2. This concern has led to increased interest in
legislation and action at the federal and state levels
and litigation, including a declaration by the USEPA
that GHGs pose a danger to the public health that
26 DPL Inc.
the USEPA believes allows it to directly regulate
greenhouse emissions. There have been various GHG
legislative proposals introduced in Congress 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 allowances. Approximately
99% of the energy we produce is generated by coal.
If legislation or regulations are passed at the federal
or state levels imposing mandatory 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
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 ESP 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.
Fluctuations in our sales of coal and excess emission
allowances could cause a material adverse effect on
our results of operations, financial condition and cash
flows for any particular period.
DP&L sells coal to other parties from time to time
for reasons that include maintaining an appropriate
balance between projected supply and projected use
and as part of a coal optimization program where coal
under contract may be resold and replaced with other
coal or power available in the market with a favorable
price spread, adjusted for any quality differentials.
During 2010 and 2009, DP&L realized net gains from
these sales. Sales of coal are impacted by a range of
factors, including price volatility among the different
coal basins and qualities of coal, variations in power
demand and the market price of power compared to
the cost to produce power. These factors could cause
the amount and price of coal we sell to fluctuate.
DP&L may sell its excess emission allowances,
including NOx and SO2 emission allowances, from
time to time. Sales of any excess emission allowances
are impacted 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 and price of excess emission allowances
we sell to fluctuate, which could cause a material
adverse effect on our results of operations, financial
condition and cash flows for any particular period.
There has been overall reduced trading activity in
the annual NOx and SO2 emission allowance trading
markets in recent years. This impact on the emission
allowance trading market was due, in large part, to
a court order calling into question the USEPA’s CAIR
annual NOx and SO2 emission allowance trading
programs and requiring the USEPA to issue new
regulations to address the court order. The adoption
of new regulations that could regulate emissions
or establish or modify emission allowance trading
programs, like the USEPA’s proposed Clean Air
Transport Rule to replace CAIR, could impact the
emission allowance trading markets and have a
material effect on DP&L’s emission allowance sales.
The operation and performance of our facilities
are subject to various events and risks that could
negatively impact our business.
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
coal ash and gypsum), accidents, injuries, labor
disputes or work stoppages by employees, operator
error, acts of terrorism or sabotage, construction
delays or cost overruns, shortages of or delays in
obtaining equipment, material and labor, operational
restrictions resulting from environmental limitations
and governmental interventions, performance below
expected or required levels, weather-related and other
natural disruptions, vandalism, events occurring on
the systems of third parties that interconnect to and
affect our system and the increased maintenance
requirements, costs and risks associated with our aging
generation units. Our results of operations, financial
condition and cash flows could have a material adverse
impact due to the occurrence or continuation of
these events.
Diminished availability or performance of our
transmission and distribution facilities could result in
reduced customer satisfaction and regulatory inquiries
and fines, which could have a material adverse effect
on our results of operations, financial condition and
cash flows. 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
DPL Inc. 27
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 facilities
at most of our base-load generating stations. If there
is significant operational failure of the FGD equipment
at the generating stations, we may not be able to meet
emission requirements at some of our generating
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 facilities
is contained and suitable, we have been named as a
defendant in asbestos litigation, which at this time is
not material to us. The continued presence 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.
If we were found not to be in compliance with
the mandatory reliability standards, we could 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.
As an owner and operator of a bulk power transmission
system, DP&L is subject to mandatory reliability
standards 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
market interface principles. In addition, DP&L is subject
to Ohio reliability standards and targets. Compliance
with reliability standards subjects us to higher operating
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 compliance
with the mandatory reliability standards, we could 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.
Our financial results may fluctuate on a seasonal and
quarterly basis or as a result of severe weather.
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 associated with heating as compared to
other times of the year. Unusually mild summers and
winters could therefore have an adverse effect on our
results of operations, 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 customers. While DP&L is permitted to seek
recovery of storm damage costs under its ESP, 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.
Our membership in a regional transmission
organization presents risks that could have a material
adverse effect on our results of operations, financial
condition and cash flows.
On October 1, 2004, in compliance with Ohio law,
DP&L turned over control of its transmission functions
and fully integrated into PJM, a regional transmission
organization. The price at which we can sell our
generation capacity and energy is now dependent on
a number of factors, which include the overall supply
and demand of generation and load, other state
legislation or regulation, transmission congestion, and
PJM’s business rules. 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
electricity into the power markets on a contractual
basis, we are not guaranteed any rate of return on
our capital investments through mandated rates. The
PJM RPM base residual auction for the 2013/2014 and
2012/2013 periods cleared at a per megawatt price of
$28/day and $16/day, respectively, for our RTO area.
Prior to these auctions, the per megawatt prices for
28 DPL Inc.
the 2011/2012 and 2010/2011 periods were $110/day
and $174/day, respectively. The results of the PJM
RPM base residual auction are impacted by the supply
and demand of generation and load and also may
be impacted by congestion and PJM rules relating to
bidding for Demand Response and Energy Efficiency
resources. Auction prices could fluctuate substantially
over relatively short periods of time and adversely
affect our results of operations, financial condition and
cash flows. We cannot predict the outcome of future
auctions, but if the auction prices are sustained at low
levels, our results of operations, financial condition and
cash flows could have a material adverse impact.
The rules governing the various regional power
markets may also change from time to time which could
affect our costs and revenues and have a material
adverse effect on our results of operations, financial
condition and cash flows. We may be required to
expand our transmission system according to decisions
made by PJM rather than our internal planning process.
While PJM 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, PJM has
been developing rules associated with the allocation
and methodology of assigning costs associated with
improved transmission reliability, reduced transmission
congestion and firm transmission rights that may have a
financial impact on us. We also incur fees and costs to
participate in PJM.
SB 221 includes a provision that allows electric
utilities to seek and obtain deferral and recovery of RTO
related charges. Therefore, most if not all of the above
costs are currently being recovered through our SSO
retail rates. If in the future, however, we are unable to
defer or recover all of these cost in a timely manner,
or the SSO retail riders are by-passable or additional
customer switching occurs, our results of operations,
financial condition and cash flows could have a material
adverse impact.
As members of PJM, DP&L and DPLE are also
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 revenues 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.
Costs associated with new transmission projects
could have a material adverse effect on our results of
operations, financial condition and cash flows.
Annually, PJM performs a review of the capital
additions required to provide reliable electric
transmission services throughout its territory. PJM
traditionally allocated the costs of constructing these
facilities to those entities that benefited directly
from the additions. FERC orders issued in 2007 and
thereafter modified the traditional method of allocating
costs associated with new high voltage planned
transmission facilities. FERC ordered that the cost
of new high-voltage facilities be socialized across
the PJM region. Various parties, including DP&L,
challenged this allocation method and in 2009, the
U.S. Court of Appeals, Seventh Circuit ruled that the
FERC had failed to provide a reasoned basis for the
allocation method 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. The overall impact of
FERC’s allocation methodology cannot be definitively
assessed because not all new planned construction
is likely to happen. The additional costs charged to
DP&L for new large transmission approved projects
were immaterial in 2010 and are not expected to be
material in 2011. Over time, as more new transmission
projects are constructed and if the allocation method is
not changed, the annual costs could become material.
Although we continue to maintain that the costs of these
projects should be borne by the direct beneficiaries
of the projects and that DP&L is not one of these
beneficiaries, DP&L can, and currently is recovering
these allocated costs from its SSO retail customers
through the TCRR rider.
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.
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 issuance 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
DPL Inc. 29
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 activities and
increase our cost of funding, both of which could
reduce our profitability. DP&L has variable rate debt
that 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
equivalents 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, we would likely
be required to pay a higher interest rate under certain
existing and future financings and our potential pool of
investors and funding 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.
Poor investment performance of our benefit plan
assets and other factors impacting benefit plan costs
could unfavorably impact our liquidity and results
of operations.
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 postretirement
benefit plans. These assets are subject to market
fluctuations and will yield uncertain returns, which may
fall below our projected return rates. A decline in the
market value of the pension and postretirement benefit
plan assets will increase the funding requirements
under our pension and postretirement benefit plans
if the actual asset returns do not recover these
declines in value in the foreseeable future. Future
pension funding requirements, and the timing of
funding payments, may also be subject to changes
in legislation. The Pension Protection Act, enacted in
August 2006, requires underfunded pension plans to
improve their funding ratios within prescribed intervals
based on the level of their underfunding. As a result,
our required contributions to these plans at times have
increased and 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 discounted liabilities increase,
potentially increasing benefit expense and funding
requirements. Further, changes in demographics,
including increased numbers of retirements or changes
in life expectancy assumptions, may also increase
the funding requirements for the obligations related
to the pension 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.
Our businesses depend on counterparties performing
in accordance with their agreements. If they fail to
perform, we could incur substantial expense, which
could adversely affect our liquidity, cash flows and
results of operations.
We enter into transactions with and rely on many
counterparties in connection with our business,
including for the purchase and delivery of inventory,
including 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 unavailable, 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 contractual prices
and cause delays. These events could cause our
results of operations, financial condition and cash flows
to have a material adverse impact.
Our stock price may fluctuate on account of a number
of factors, many of which are beyond our control.
The market price of DPL’s common stock has
fluctuated over a relatively wide range. Over the past
three years, the market price of our common stock has
fluctuated with a low of $19.16 and a high of $30.18.
Our common stock in recent years has experienced
significant price and volume variations that have often
been unrelated to our operating performance. Over the
previous year, the global markets have increasingly
been characterized by substantially increased volatility
in companies in a number of industries and in the
broader markets. The market price of our common
stock may continue to significantly fluctuate in the
future and may be affected adversely by factors such
as actual or anticipated change in our operating results,
30 DPL Inc.
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.
Our consolidated results of operations may be
negatively affected by overall market, economic and
other conditions that are beyond our control.
Economic pressures, as well as changing market
conditions 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 commercial customers and our suppliers. The
direction and relative strength of the 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, high 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 downturns,
recessions or a sluggish economy generally affect the
markets in which we operate and negatively influence
our energy operations. A contracting, slow or sluggish
economy could reduce the demand for energy 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 customers’ 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 electric 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.
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 earnings per share and adversely
affecting our financial condition and cash flows.
DPL’s warrant holders can exercise their warrants
to purchase shares of DPL common stock at their
discretion until March 12, 2012. As of the date of
this report, the number of outstanding warrants is
1.7 million. As a result, DPL could be required to issue
up to 1.7 million common shares in exchange for the
receipt of the exercise price of $21.00 per share or
pursuant to a cashless exercise process. The exercise
of warrants would increase the number of common
shares outstanding and increase our common share
dividend payments.
Accidental improprieties and undetected errors
in our internal controls and information reporting
could result in the disallowance of cost recovery,
noncompliant disclosure and reporting or incorrect
payment processing.
Our internal controls, accounting policies and practices
and internal information systems are designed to enable
us to capture and process transactions and information
in a timely and accurate manner in compliance 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 information in
connection with the recovery of our costs and with our
reporting requirements under federal securities, 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 policies have been and
continue to be closely monitored by management and
our Board of Directors to ensure continued compliance
with Section 404 of the Act. While we believe these
controls, policies, practices and systems are adequate
to verify data integrity, unanticipated and unauthorized
actions of employees, temporary lapses in internal
controls due to shortfalls in oversight or resource
constraints could lead to improprieties and undetected
errors that could 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.
New accounting standards or changes to existing
accounting standards could materially impact how we
report our results of operations, financial condition
and cash flows.
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
interpretations of existing accounting standards that
may require us to change our accounting policies.
These changes are beyond our control, can be difficult
DPL Inc. 31
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 condition. 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 that
could result in significant changes to our accounting
and reporting, such as in the treatment of regulatory
assets and liabilities and property. Under the SEC’s
proposed roadmap, we could be required to prepare
financial statements in accordance with IFRS in 2015.
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
development of the potential implementation of IFRS.
If we are unable to maintain a qualified and properly
motivated workforce, our results of operations,
financial condition and cash flows could have a
material adverse effect.
One of the challenges we face is to retain a skilled,
efficient 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 have a material adverse impact. In addition, we
have employee compensation plans that reward the
performance 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.
We are subject to collective bargaining agreements
and other employee workforce factors that could
affect our businesses.
Over half of our employees are represented by a
collective 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 collective 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.
Potential security breaches and terrorism could
adversely affect our business.
Man-made problems, such as human error, computer
viruses, terrorism, theft and sabotage, may disrupt our
operations and harm our operating results. We operate
in a highly regulated industry that requires the continued
operation of sophisticated information technology
systems and network infrastructure. In the course of
our business, we also store and use certain of our
customers’, employees’ and others’ personal information
and other confidential and sensitive information. 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 them in a timely way, we could be
unable to fulfill critical business functions and sensitive
and confidential information and other data could be
compromised, which could result in negative publicity,
remediation costs and potential litigation, damages,
consent orders, injunctions, fines and other relief.
These events could have a material adverse effect on
our results of operations, financial condition and cash
flows. Our third party service providers that provide
critical business functions or have access to sensitive
and confidential information and other data may also be
vulnerable to security breaches and other man-made
problems that could have an adverse effect on us. In
addition, our generation plants, fuel storage facilities,
transmission and distribution facilities may be targets of
terrorist activities that could disrupt our business. Any
such disruption could result in a material decrease in
revenues and significant additional costs to repair and
insure our assets, which could have a material adverse
effect on our results of operations, financial condition
and cash flows. The continued threat of terrorism and
heightened security and military action in response to
this threat, or any future acts of terrorism, may cause
further disruptions to the economies of the United States
and other countries and create further uncertainties
or otherwise materially harm our results of operations,
financial condition and cash flows.
32 DPL Inc.
DPL is a holding company and parent of DP&L and
other subsidiaries. DPL’s cash flow is dependent
on the operating cash flows of DP&L and its other
subsidiaries and their ability to pay cash to DPL.
DPL is a holding company and its investments in
its subsidiaries are its primary assets. A significant
portion of DPL’s business is conducted by its DP&L
subsidiary. As such, DPL’s cash flow is dependent on
the operating 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 have a material adverse
impact on DPL’s results of operations, financial
condition and cash flows.
Item 1B Unresolved Staff Comments
None
Item 2 Properties
Information relating to our properties is contained
in Item 1 – Electric Operations and Fuel Supply and
Note 4 of Notes to Consolidated Financial Statements.
Substantially all property and plants of DP&L are
subject to the lien of the mortgage securing DP&L’s
First and Refunding Mortgage, dated as of October 1,
1935 with the Bank of New York, as Trustee (Mortgage).
Item 3 Legal Proceedings
In the normal course of business, we are subject to
various lawsuits, actions, proceedings, claims and
other matters asserted under laws and regulations. We
are also from time to time involved in other reviews,
investigations and proceedings by governmental and
regulatory agencies regarding our business, certain of
which may result in adverse judgments, settlements,
fines, penalties, injunctions or other relief. We believe
the amounts provided in our Consolidated Financial
Statements, as prescribed by GAAP, for these matters
are adequate in light of the probable and estimable
contingencies. However, there can be no assurances
that the actual amounts required to satisfy alleged
liabilities from various legal proceedings, claims and
other matters (including those matters noted below)
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, 2010, cannot be reasonably determined.
As we have previously disclosed, on or about
June 24, 2004, the SEC commenced a formal
investigation into the issues raised by a memorandum
that had been sent on March 10, 2004, by DPL’s
and DP&L’s Corporate Controller at the time to
the Chairman of the Audit Committee of our Board
of Directors expressing the Corporate Controller’s
“concerns, perspectives and viewpoints” regarding
financial reporting and governance issues within DPL
and DP&L. On May 7, 2010, DPL received confirmation
from the SEC’s Division of Enforcement that it had
completed its investigation as to DPL and did not
intend to recommend any action at this time.
The following additional information is incorporated
by reference into this Item: (i) information about the
legal and other proceedings contained in Item 1 –
Competition and Regulation of Part 1 of this Annual
Report on Form 10-K under the subheading “Ohio
Retail Rates” and (ii) information about the legal
proceedings contained in Item 8 – Note 16 of Notes
to Consolidated Financial Statements of Part II of this
Annual Report on Form 10-K under the subheadings
“Litigation Involving Co-Owned Plants”, “Notices of
Violation Involving Co-Owned Plants” and “Notices
of Violation Involving Wholly-Owned Plants” of the
section entitled Litigation, Notices of Violation and
Other Matters Related to Air Quality and under the
subheading “Regulation of Waste Disposal” under the
sections entitled Regulation Matters Related to “Land
Use and Solid Waste Disposal.”
Item 4 Removed and Reserved
DPL Inc. 33
Part II
Item 5 Market for Registrant’s Common Equity, Related Stockholder Matters and
Issuer Purchases of Equity Securities
As of February 15, 2011, there were 19,792 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 2010 and 2009:
First Quarter
Second Quarter
Third Quarter
Fourth Quarter
2010
2009
High
Low
High
Low
$ 28.47
$ 28.18
$ 26.65
$ 27.51
$ 26.51
$ 23.80
$ 23.95
$ 25.33
$ 23.28
$ 23.46
$ 26.53
$ 28.68
$ 19.27
$ 21.18
$ 22.79
$ 25.16
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, 2010,
DP&L’s retained earnings of $616.9 million were all available for DP&L common stock dividends payable to DPL.
DPL paid regular quarterly cash dividends of $0.3025 and $0.2850 per share on our common stock during 2010
and 2009, respectively. The annualized dividend rate was $1.21 per share in 2010 and $1.14 per share in 2009.
On December 8, 2010, DPL’s Board of Directors authorized a quarterly dividend rate increase of approximately
10%, increasing the quarterly dividend per DPL common share from $0.3025 to $0.3325, effective with the next
dividend declaration. If this dividend rate were maintained, the annualized dividend would increase from $1.21 per
share to $1.33 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, 2010 is disclosed in
Item 12 – Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters,
which incorporates such information by reference from DPL’s proxy statement for the 2011 Annual Meeting
of Shareholders.
The following table details the repurchase by DPL of its common shares during the fourth quarter of 2010:
Month (1)
October
November
December
(1) Based on a calendar month.
Number of
shares
purchased (2)
Average
price paid
per share (3)
–
1,094,995
945,335
2,040,330
$
–
$ 25.94
$ 25.60
Number of
shares purchased
as part of the
Stock Repurchase
Program (4)
–
1,094,995
941,841
2,036,836
Approximate dollar
value of shares
that could still be
purchased under
the program (4)
$ 200,000,000
$ 171,595,830
$ 147,484,700
(2) Comprises shares purchased as part of DPL’s 2010 repurchase program and shares surrendered to DPL by employees to satisfy individual tax
withholding obligations upon vesting of equity awards that are settled in DPL common stock. Shares totaling 3,494 were surrendered during the fourth
quarter of 2010 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 equity awards.
(4) On October 27, 2010, the DPL Board of Directors approved a Stock Repurchase Program under which DPL may repurchase up to $200 million of
its common stock from time to time in the open market, through private transactions or otherwise. During the fourth quarter of 2010, DPL repurchased
approximately 2.04 million shares of its common stock at an average price per share of $25.75. This Stock Repurchase Program will run through
December 31, 2013 but may be modified or terminated at any time without notice.
34 DPL Inc.
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, 2005 to December 31, 2010.
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
$1,600
$1,400
$1,200
$1,000
$800
$600
$400
$200
$0
12/05
12/06
12/07
12/08
12/09
12/10
* $1000 invested on 12/31/05 in stock or index, including reinvestment of dividends.
Fiscal year ending December 31.
Copyright ©2011 S&P, a division of The McGraw-Hill Companies Inc. All rights reserved.
Copyright ©2011 Dow Jones & Co. All rights reserved.
12/05
12/06
12/07
12/08
12/09
12/10
DPL Inc.
Dow Jones US Industrial Average
S&P Electric Utilities
S&P Utilities
$ 1,000.00 $ 1,108.68 $ 1,226.29 $ 987.60 $ 1,252.18 $ 1,220.96
$ 1,000.00 $ 1,190.47 $ 1,296.24 $ 882.34 $ 1,082.48 $ 1,234.72
$ 1,000.00 $ 1,232.11 $ 1,516.95 $ 1,125.05 $ 1,163.05 $ 1,202.99
$ 1,000.00 $ 1,209.90 $ 1,444.37 $ 1,025.78 $ 1,147.94 $ 1,210.62
The stock price performance included in this graph is not necessarily indicative of
future stock price performance.
DPL Inc. 35
Item 6 Selected Financial Data
($ in millions except per share amounts or as indicated)
2010
2009
2008
2007
2006
For the years ended December 31,
DPL
Basic earnings per share of common stock:
Continuing operations (a)
Discontinued operations (b) (c)
Total basic earnings per common share
Diluted earnings per share of common stock:
Continuing operations (a)
Discontinued operations (b) (c)
Total dilutive earnings per common share
Dividends declared per share
Dividend payout ratio
Total electric sales (millions of kWh)
Results of operations:
$
$
$
$
$
$
$
2.51
–
2.51
2.50
–
2.50
1.21
48.2%
17,237
$
$
$
$
$
$
$
2.03
–
2.03
2.01
–
2.01
1.14
56.2%
16,667
$
$
$
$
$
$
$
2.22
–
2.22
2.12
–
2.12
1.10
49.5%
17,172
$
$
$
$
$
$
$
1.97
0.09
2.06
1.80
0.08
1.88
1.04
50.5%
18,598
$
$
$
$
$
$
$
1.12
0.12
1.24
1.03
0.12
1.15
1.00
80.7%
18,418
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
$ 1,883.1
290.3
$
–
$
$
–
290.3
$
$ 1,588.9
229.1
$
–
$
$
–
229.1
$
$ 1,601.6
244.5
$
–
$
$
–
244.5
$
$ 1,515.7
211.8
$
10.0
$
$
–
221.8
$
$ 1,393.5
125.6
$
14.0
$
–
$
139.6
$
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
Number of shareholders - common stock
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
Senior secured debt ratings at December 31:
Fitch Ratings
Moody’s Investors Service
Standard & Poor’s Corporation
Number of shareholders - preferred stock
$ 3,813.3
$ 1,026.6
151.4
$
22.9
$
$ 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
$
A-
Baa1
BBB+
19,877
A-
Baa1
BBB+
BBB+
Baa2
BBB-
BBB+
Baa2
BBB-
BBB
Baa3
BB
20,888
21,628
22,771
24,434
17,083
16,590
17,105
18,598
18,418
$ 1,790.5
276.8
$
$ 1,550.4
258.0
$
$ 1,572.9
284.9
$
$ 1,507.4
270.7
$
$ 1,385.2
241.6
$
$ 3,475.4
884.0
$
22.9
$
$ 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
$
AA-
Aa3
A
234
AA-
Aa3
A
242
A+
A2
A-
256
A+
A2
BBB+
281
A
A3
BBB
290
(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. $7.9 million ($4.9 million
after tax) and $18.9 million ($12.1 million after tax) of these previously deferred gains were recognized in 2007 and 2006, respectively.
(c) On May 21, 2007 DPL settled litigation with three former executives, the three former executives relinquished all of their rights to certain deferred
compensation, restricted stock units, MVE incentives, stock options and reimbursement of legal fees. The reversal of accruals related to the
performance of the financial asset portfolio was recorded in discontinued operations. 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.
(d) Excludes current maturities of long-term debt.
36 DPL Inc.
Item 7 Management’s Discussion and
Analysis of Financial Condition and
Results of Operations
This report includes the combined filing of DPL
and DP&L. DP&L is the principal subsidiary of
DPL providing approximately 93% of DPL’s total
consolidated gross margin and approximately 91%
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.
Certain statements contained in this discussion
are “forward-looking statements” within the meaning
of the Private Securities Litigation Reform Act of
1995. Matters discussed in this report that relate to
events or developments that are expected to occur
in the future, including management’s expectations,
strategic objectives, business prospects, anticipated
economic performance and financial condition and
other similar matters constitute forward-looking
statements. Forward-looking statements are based on
management’s beliefs, assumptions and expectations
of future economic 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 uncertainties, 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
maintenance 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 generation market; changes in interest rates;
state, federal and foreign legislative and regulatory
initiatives that affect cost and investment recovery,
emission levels, rate structures or tax laws; changes
in federal or state environmental laws and regulations
to which DPL and its subsidiaries are subject; the
development and operation of RTOs, including PJM to
which DPL’s operating subsidiary (DP&L) has given
control of its transmission functions; changes in our
purchasing processes, pricing, 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 accounting 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 statement
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
conjunction 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.
During 2010, DPL, for the first time, met the GAAP
requirements for separate segment reporting. DPL’s
two segments are the Utility segment, comprised of its
DP&L subsidiary, and the Competitive Retail segment,
comprised of its DPLER subsidiary. Refer to Note 17 of
Notes to Consolidated Financial Statements for more
information relating to these reportable segments.
DP&L does not have any reportable segments.
DP&L is primarily engaged in the generation,
transmission and distribution of electricity in West
Central Ohio. DPL and DP&L strive to achieve
disciplined growth in energy margins while limiting
volatility in both cash flows and earnings and to achieve
stable, long-term growth through efficient operations
and strong customer and regulatory relations. More
specifically, DPL’s 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.
DPL Inc. 37
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, PJM
capacity price risk, regulatory risk, environmental risk,
fuel supply and price risk, customer switching risk and
the risk associated with power plant performance. 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 maintaining
their availability.
We operate and manage transmission and
distribution 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.
Additional information relating to our risks is
contained in Item 1A – Risk Factors.
We have identified certain issues that we believe
may have a significant impact on our results of
operations and financial condition in the future. The
following issues mentioned below are not meant to be
exhaustive but to provide insight on matters that are
likely to have an effect on our results of operations and
financial condition in the future:
Regulatory Environment
■ Carbon Emissions – Climate Change Legislation
There is an on-going concern nationally and
internationally about global climate change and the
contribution of emissions of GHGs, including most
significantly, CO2. This concern has led to interest
in legislation 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 on
December 15, 2009. 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. In December 2009,
USEPA finalized this endangerment finding with a
regulatory effective date of January 2010. Numerous
affected parties have asked the USEPA Administrator
to reconsider this decision. This endangerment finding,
if not changed, is expected to lead to the regulation of
CO2 and other GHGs from electric generating units and
other stationary sources of these emissions. Increased
pressure for CO2 emissions reduction is also coming
from investor organizations and the international
community. Environmental advocacy groups are also
focusing considerable attention on CO2 emissions from
power generation facilities and their potential role in
climate change. Legislation proposed in 2009 to target
a reduction in the emission of GHGs from large sources
was not enacted. 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. 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.
■ SB 221 Requirements
SB 221 and the implementation rules contain targets
relating to advanced energy portfolio standards,
renewable energy, demand reduction and energy
efficiency standards. The standards require that, by
the year 2025, 25% of the total number of 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. The renewable
energy portfolio, energy efficiency and demand
reduction standards began in 2009 with increased
percentage requirements each year thereafter. The
annual targets for energy efficiency and peak demand
reductions began in 2009 with annual increases.
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
order establishing a significantly excessive earnings
test (SEET) proceeding. After receiving comments from
interested parties including DP&L, the PUCO issued
an order on June 30, 2010 to establish general rules
38 DPL Inc.
for calculating the earnings and comparing them to a
comparable group to determine whether there were
significantly excessive earnings. Pursuant to the ESP
Stipulation, DP&L becomes subject to the SEET in
2013 based on 2012 earnings results and the SEET
may have a material impact on operations. DP&L
faces regulatory uncertainty from its next ESP or MRO
filing which is scheduled to be filed in the first quarter
of 2012 to be effective January 1, 2013. The filing
may result in changes to the current rate structure
and riders.
■ NOx and SO2 Emissions – CAIR
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. 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 court’s decision, in part,
invalidated the new NOx annual emission allowance
trading program and the modifications to the SO2
emission trading program, and created uncertainty
regarding future NOx and SO2 emission reduction
requirements and their timing. On December 23,
2008, the court reversed part of its decision that
vacated CAIR. Thus, CAIR currently remains in effect,
but the USEPA remains subject to the court’s order
to revise the program. On July 6, 2010, the USEPA
proposed the Clean Air Transport Rule (CATR) which
will effectively replace CAIR. We have reviewed this
proposal and submitted comments to the USEPA on
September 30, 2010. At this time, we are unable to
determine the overall financial impact that these rules
could have on our operations in the future.
■ Dodd-Frank Financial Reform Bill
In July 2010, the President signed The Dodd-
Frank Wall Street Reform and Consumer Protection
Act (Dodd-Frank Act) into law. The Dodd-Frank
Act contains significant requirements relating to
derivatives, including, among others, a requirement
that certain transactions be cleared on exchanges
and a requirement to post cash collateral for these
transactions. The Dodd-Frank Act provides a potential
exception from these clearing and cash collateral
requirements for commercial end-users. The Dodd-
Frank Act requires the CFTC to establish rules to
implement the Act’s requirements and exceptions.
Requirements to post collateral could reduce the cost
effectiveness of us entering into derivative transactions
to reduce commodity price and interest rate volatility or
could increase the demands on our liquidity or require
us to increase our levels of debt to enter into such
derivative transactions. Even if we were to qualify for an
exception from these requirements, our counterparties
that do not qualify for the exception may pass along
any increased costs incurred by them through higher
prices and reductions in unsecured credit limits. The
occurrence of any of these events could have an
adverse effect on our results of operations, financial
condition and cash flows.
Competition and PJM Pricing
■ RPM Capacity Auction Price
The PJM RPM capacity base residual auction for the
2013/2014 period cleared at a per megawatt price of
$28/day for our RTO area. The per megawatt prices for
the periods 2012/2013, 2011/2012 and 2010/2011 were
$16/day, $110/day and $174/day, respectively, based
on previous auctions. 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 capacity auctions. The SSO
retail costs and revenues are included in the RPM rider
therefore increases in customer switching causes more
of the RPM capacity costs and revenues to be excluded
from the RPM rider calculation. We cannot predict the
outcome of future auctions or customer switching but
based on actual results attained in 2010, we estimate
that a hypothetical increase or decrease of $10 in
the capacity auction price would result in an annual
impact to net income of approximately $4.4 million and
$3.1 million for DPL and DP&L, respectively. These
estimates do not, however, take into consideration the
other factors that may affect the impact of capacity
revenues and costs on net income such as the levels
of customer switching, our generation capacity, the
levels of wholesale revenues and our retail customer
load. These estimates are discussed further within
Commodity Pricing Risk under the Market Risk section
of this Management Discussion & Analysis.
DPL Inc. 39
■ Ohio Competitive Considerations and Proceedings
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, SSO and other retail electric services.
Overall power market prices, as well as government
aggregation initiatives within DP&L’s service territory,
have led or may lead to the entrance of additional
competitors in our service territory. During the year
ended December 31, 2010, there were four additional
unaffiliated marketers that registered as CRES
providers in DP&L’s service territory, bringing the
total number of CRES providers in DP&L’s service
territory to eleven. DPLER, an affiliated company and
one of the eleven registered CRES providers, has been
marketing transmission and generation services to
DP&L customers. During 2010, DPLER accounted for
approximately 4,417 million kWh of the total 4,562 million
kWh supplied by CRES providers within DP&L’s service
territory. During 2010, 847 customers with an annual
energy usage of 145 million kWh were supplied by
other CRES providers within DP&L’s service territory,
compared to 44 customers that had an annual energy
usage of 16 million kWh during 2009. The volume
supplied by DPLER represents approximately 31% of
DP&L’s total distribution sales volume during 2010.
The reduction to gross margin in 2010 as a result of
customers switching to DPLER and other CRES providers
was approximately $17 million and $53 million, for DPL
and DP&L, respectively. We currently cannot determine
the extent to which customer switching to CRES providers
will occur in the future and the impact this will have
on our operations, but any additional switching could
have a significant adverse effect on our future results of
operations, financial condition and cash flows.
Fuel and Related Costs
■ Fuel and Commodity Prices
The coal market is a global market in which domestic
prices are affected by international supply disruptions
and demand balance. In addition, domestic issues like
government-imposed direct costs and permitting issues
are affecting mining costs and supply availability. Our
approach is to hedge the fuel costs for our anticipated
electric sales. For the year ending December 31, 2011,
we have hedged substantially all 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. If our suppliers do not meet
their contractual commitments or we are not hedged
against price volatility and we are unable to recover
costs through the fuel and purchased power recovery
rider, our results of operations, financial condition or
cash flows could be materially affected.
Effective January 2010, the SSO retail
customers’ portion of fuel price changes, including
coal requirements and purchased power costs,
was reflected in the implementation of the fuel and
purchased power recovery rider, subject to PUCO
review. DP&L is currently undergoing an audit of its
fuel and purchased power recovery rider and as a
result there is some uncertainty as to the costs that
will be approved for recovery. Independent third
parties conduct the fuel audit in accordance with the
PUCO standards. DP&L anticipates that some of this
uncertainty will be resolved during the summer of 2011
after completion of the fuel audit. Based on the results of
the audit, DP&L may record a favorable or unfavorable
adjustment to earnings. It is too early to determine if
any such adjustment would be material to our results of
operations, financial condition and cash flows.
■ Sales of Coal and Excess Emission Allowances
During the year ended December 31, 2010, DP&L
sold coal and excess emission allowances to various
counterparties realizing total net gains of $4.1 million
and $0.8 million, respectively, compared to total net
gains of $56.3 million and $5.0 million, respectively,
realized over the same period in 2009. For 2010, these
gains are recorded as a component of DP&L’s fuel
costs and are reflected in operating income. Coal sales
are impacted by a range of factors but can be largely
attributed to the following: price volatility among the
different coal basins or the quality of coal based on
market conditions (coal optimization), variation in power
demand, and the market price of power compared to
the cost to produce power. 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
environment in which we operate. The combined
impact of these factors on our ability to sell coal and
emission allowances in 2011 and beyond is not fully
known at this time and could materially impact the
amount of gains that will be recognized in the future.
Effective January 2010, as part of the operation of the
fuel and purchased power recovery rider, the SSO retail
customers’ share of the emission gains and a portion of
the SSO retail customers’ share of the coal gains were
used to reduce the overall rate charged to customers.
40 DPL Inc.
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 discussed in more detail following this
financial overview.
For the year ended December 31, 2010, Net
income for DPL was $290.3 million, or $2.50 per share,
compared to Net income of $229.1 million, or $2.01 per
share, for the same period in 2009. All EPS amounts
are on a diluted share basis. The increase in net
income compared to the prior year was primarily due
to the following:
Results of Operations – DPL Inc.
DPL’s results of operations include the results of
its subsidiaries, including the consolidated results
of its principal subsidiary DP&L. DP&L provides
approximately 93% of DPL’s total consolidated gross
margin. All material intercompany accounts and
transactions have been eliminated in consolidation. A
separate specific discussion of the results of operations
for DP&L is presented elsewhere in this report.
Income Statement Highlights – DPL
$ in millions
For the years ended December 31,
2010
2009
2008
■ an increase in retail rates primarily as a result of an
increase in the EIR, TCRR and RPM riders combined
with the implementation of the fuel and energy
efficiency riders,
■ an increase in sales volumes due to favorable
weather and improved economic conditions,
■ a decrease in the volume of fuel consumed due to
decreased generation by our power plants,
■ a net reduction in interest costs primarily as a result of
certain redemptions of outstanding debt, and
■ an increase in wholesale market prices.
Partially offsetting these items were:
■ an increase in purchased power prices,
Revenues:
Retail
Wholesale
RTO revenues
RTO capacity revenues
Other revenues
Total revenues
Cost of revenues:
Fuel costs
Gains from sale of
$ 1,456.5 $ 1,229.0 $ 1,223.3
149.9
110.4
106.9
11.1
$ 1,883.1 $ 1,588.9 $ 1,601.6
142.3
86.6
186.2
11.5
122.5
89.4
136.3
11.7
$
388.8 $
391.7 $
361.2
coal
(4.1)
(56.3)
(83.4)
Gains from sale of
emission allowances
Net fuel
Purchased power
RTO charges
RTO capacity charges
Net purchased power
(0.8)
383.9
82.1
113.4
191.9
387.4
(5.0)
330.4
46.9
100.9
112.4
260.2
(34.8)
243.0
148.7
127.8
100.9
377.4
■ a decrease in retail revenue due to pricing associated
with competitively supplied customers,
Total cost of revenues
$
771.3 $
590.6 $
620.4
Gross margins (a)
$ 1,111.8 $
998.3 $
981.2
■ an increase in RTO capacity and other charges, net
of RTO revenues, which includes the net impact of the
deferral and recovery of costs under the TCRR and
RPM riders,
■ an overall decline in generating plant performance
which resulted in a decrease in wholesale sales
volume,
■ a decrease in gains recognized from the sales of coal
and excess emission allowances, and
■ an increase in long-term disability and other operation
and maintenance expenses.
Gross margin as a
percentage of revenues
59.0%
62.8%
61.3%
Operating income
$
504.4 $
428.2 $
435.5
Earnings per share of
common stock:
Basic EPS from
operations
Diluted EPS from
operations
$
2.51 $
2.03 $
2.22
2.50
2.01
2.12
(a) For purposes of discussing operating results, we present and discuss
gross margins. This format is useful to investors because it allows
analysis and comparability of operating trends and includes the same
information that is used by management to make decisions regarding
our financial performance.
DPL Inc.
41
Revenues
Retail customers, especially residential and commercial
customers, consume more electricity on warmer and
colder days. Therefore, our retail sales volume is
impacted by the number of heating and cooling degree
days occurring during a year. Cooling degree days
typically have a more significant impact than heating
degree days since some residential customers do not
use electricity to heat their homes.
Number of days
For the years ended December 31,
2010
2009
2008
Heating degree days (a)
Cooling degree days (a)
5,636
1,245
5,561
734
5,811
853
(a) Heating and cooling degree days are a measure of the relative heating
or cooling required for a home or business. The heating degrees in a day
are calculated as the difference of the average actual daily temperature
below 65 degrees Fahrenheit. If the average temperature on March
20th was 40 degrees Fahrenheit, the heating degrees for that day would
be the 25 degree difference between 65 degrees and 40 degrees. In
a similar manner, cooling degrees in a day are the difference of the
average actual daily temperature in excess of 65 degrees Fahrenheit.
Since we plan to utilize our internal generating capacity
to supply our 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 our wholesale sales volume
each hour of the year include: wholesale market prices;
our retail demand; retail demand elsewhere throughout
the entire wholesale market area; our plants’ and
other utility plants’ availability to sell into the wholesale
market and weather conditions across the multi-state
region. Our plan is to make wholesale sales when
market prices allow for the economic operation of our
generation facilities not being utilized to meet our 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
2010 vs. 2009
2009 vs. 2008
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
$ 148.0
78.4
1.1
$ 227.5
$ 31.5
(11.7)
$ 19.8
$ 119.6
(113.5)
(0.4)
5.7
$
$ (87.0)
59.6
$ (27.4)
$ 46.9
$ 294.2
$
9.0
$ (12.7)
For the year ended December 31, 2010, Revenues
increased $294.2 million, or 19%, to $1,883.1 million
from $1,588.9 million in the same period of the prior
year. This increase was primarily the result of higher
average retail and wholesale rates, higher retail sales
volume, and increased RTO capacity and other
revenues, partially offset by lower wholesale sales
volume. The revenue components for the year ended
December 31, 2010 are further discussed below:
■ Retail revenues increased $227.5 million resulting
primarily from an 11% increase in average retail rates
due largely to the implementation of the fuel and
energy efficiency riders, an increase in the TCRR and
RPM riders, combined with the incremental effect of
the recovery of costs under the EIR. This increase
in the average retail rates was partially offset by the
effect of lower rates due to customer switching which
has resulted from increased levels of competition
to provide transmission and generation services in
our service territory. Retail sales volume had a 6%
increase compared to those in the prior year period
largely due to more favorable weather and improved
economic conditions. The favorable weather conditions
resulted in a 70% increase in the number of cooling
degree days to 1,245 days from 734 days in 2009.
The above resulted in a favorable $148.0 million retail
price variance and a favorable $78.4 million retail sales
volume variance.
■ Wholesale revenues increased $19.8 million
primarily as a result of a 28% increase in wholesale
average prices, partially offset by a 10% decrease in
wholesale sales volume which was largely a result of
lower generation by our power plants and increased
retail sales volume. This resulted in a favorable
$31.5 million wholesale price variance partially offset
by an unfavorable wholesale sales volume variance of
$11.7 million.
■ RTO capacity and other revenues, consisting
primarily of compensation for use of DP&L’s
transmission assets, regulation services, reactive
supply and operating reserves, and capacity payments
under the RPM construct, increased $46.9 million
compared to the same period in 2009. This increase
in RTO capacity and other revenues was primarily the
result of a $49.9 million increase in revenues realized
from the PJM capacity auction, partially offset by a
$3.0 million decrease in transmission, congestion and
other revenues.
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
42 DPL Inc.
was primarily the result of lower retail sales volume
as well as decreased wholesale average prices,
partially 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:
■ Retail revenues increased $5.7 million resulting
primarily from an 11% increase in average retail rates
due largely to the incremental effect of the recovery of
costs under 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.
■ Wholesale revenues decreased $27.4 million
primarily 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
wholesale price variance and a favorable $59.6 million
sales volume variance.
■ RTO capacity and other revenues, consisting
primarily of compensation for use of DP&L’s
transmission assets, regulation services, reactive
supply and operating 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 million that was realized from the PJM
capacity auction, partially offset by a decrease in PJM
transmission and congestion revenues of $21.0 million.
DPL – Cost of Revenues
For the year ended December 31, 2010:
■ Net fuel costs, which include coal, gas, oil and
emission allowance costs, increased $53.5 million, or
16%, compared to 2009, primarily due to the impact of
lower gains realized from the sale of DP&L’s coal and
excess emission allowances. During the year ended
December 31, 2010, DP&L realized $4.1 million and
$0.8 million in gains from the sale of coal and excess
emission allowances, respectively, compared to $56.3
million and $5.0 million, respectively, realized during the
same period in 2009. The effect of these lower gains
was partially offset by the impact of a 2% decrease in
the volume of generation by our plants.
■ Net purchased power increased $127.2 million,
or 49%, compared to the same period in 2009 due
largely to an increase of $92.0 million in RTO capacity
and other charges which were incurred as a member
of PJM, including costs associated with DP&L’s load
obligations for retail customers. This increase included
the net impact of the deferral and recovery of DP&L’s
transmission, capacity and other PJM-related charges.
Also contributing to the increase in net purchased
power was a $37.7 million increase related to higher
average market prices for purchased power, partially
offset by a $2.5 million decrease associated with lower
purchased power volumes. We purchase power to
satisfy retail sales volume when generating facilities are
not available due to planned and unplanned outages
or when market prices are below the marginal costs
associated with our generating facilities.
For the year ended December 31, 2009:
■ Net fuel costs, which include coal, gas, oil and
emission allowances costs, 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, compared 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.
■ Net purchased power decreased $117.2 million
compared 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 preceding 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
relating to DP&L’s transmission, capacity and other PJM-
related charges which were incurred as a member of
PJM. 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.
DPL Inc. 43
DPL – Operation and Maintenance
$ in millions
2010 vs. 2009
Energy efficiency programs (1)
Health insurance / long-term disability
Low-income payment program (1)
Pension
Generating facilities operating and
maintenance expenses
Insurance settlement, net
Other, net
Total operation and maintenance expense
$ 11.1
8.9
5.2
4.0
3.8
(3.4)
4.5
$ 34.1
(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, 2010, Operation
and maintenance expense increased $34.1 million,
or 11%, compared to the same period in 2009. This
variance was primarily the result of:
■ higher expenses relating to energy efficiency
programs that were put in place for our customers
during 2009 and 2010,
■ increased health insurance and disability costs
primarily due to a number of employees going on long-
term disability,
■ increased assistance for low-income retail customers
which is funded by the USF revenue rate rider,
■ increased pension costs due largely to a decline in
the values of pension plan assets during 2008 and
increased benefit costs, and
■ increased expenses for generating facilities
largely due to unplanned outages at jointly-owned
production units.
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:
■ higher pension costs due largely to a decline in the
values of pension plan assets from 2008 and increased
benefit costs,
■ increases in assistance for low-income retail
customers which is funded by the USF revenue
rate rider,
■ expenses related to new energy efficiency programs
put in place for our customers during 2009,
■ increased deferred compensation costs,
■ increases in employee benefit expense funded by the
ESOP, and
■ increased health insurance costs that were partially
related to higher disability costs.
These increases were partially offset by:
■ lower amortization of regulatory assets related
to the 2004/2005 deferred storm costs and PJM
administrative fees in 2009 as these deferred costs
were fully recovered through rates during 2008 and in
the first quarter of 2009, respectively, and
■ 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
outages at jointly-owned production units during 2009.
These increases were partially offset by:
DPL – Depreciation and Amortization
During the year ended December 31, 2010,
Depreciation and amortization expense decreased
$6.1 million, or 4%, as compared to 2009. The
decrease primarily reflects the impact of a depreciation
study which resulted in lower depreciation rates on
generation property which were implemented on July 1,
2010, reducing the expense by approximately $4.8
million during the year ended December 31, 2010.
During the year ended December 31, 2009,
Depreciation and amortization expense increased
$7.8 million, or 6%, as compared to 2008 primarily as
a result of higher asset balances at the generating
stations. These higher balances were due largely to the
completion of the FGD projects during 2008.
■ an insurance settlement that reimbursed us for legal
costs associated with our litigation against certain
former executives.
$ in millions
2009 vs. 2008
Pension
Low-income payment program (1)
Energy efficiency programs (1)
Deferred compensation
ESOP
Health insurance
Deferred 2004/2005 storm costs and
PJM administrative fees
Generating facilities operating and
maintenance expenses
Other, net
Total operation and maintenance expense
$ 6.2
6.1
5.9
4.1
3.3
3.2
(4.0)
(1.4)
0.6
$ 24.0
(1) There is a corresponding increase in Revenues associated with these
programs resulting in no impact to Net income.
44 DPL Inc.
DPL – General Taxes
During the year ended December 31, 2010, General
taxes increased $9.3 million, or 8%, as compared to
2009. These increases were primarily the result of
higher property tax accruals in 2010 compared to 2009,
increased state excise taxes due to increased revenue
and an adjustment to future credits against state gross
receipt taxes.
During the year ended December 31, 2009,
General taxes decreased $7.4 million, or 6%, as
compared to 2008 primarily due to lower property tax
accruals in 2009 compared to 2008 and lower kWh
excise taxes resulting from lower retail sales volumes.
DPL – Investment Income (Loss)
During the year ended December 31, 2010, Investment
income (loss) increased $2.4 million as compared to
2009 primarily as a result of the $1.4 million expense
incurred in 2009 related to the early redemption of debt
(see subsequent paragraph below). In addition, DPL
had higher cash and short-term investment balances
in 2010 compared to 2009 which resulted in higher
investment income.
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 related to a loss
incurred upon the early redemption of a debt obligation.
DPL – Interest Expense
During the year ended December 31, 2010, Interest
expense decreased $12.4 million, or 15%, as
compared to 2009 primarily due to the early redemption
in December 2009 of $52.4 million of the $195 million
8.125% Note to DPL Capital Trust II and the redemption
of DPL’s $175 million 8.00% Senior Notes in March
2009. A premium of $3.7 million was incurred as an
expense in 2009 upon the early debt redemption of
$52.4 million referred to above.
During the year ended December 31, 2009, Interest
expense decreased $7.7 million, or 8%, compared to
2008 primarily due to:
■ 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,
■ 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
■ $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.
The above decreases were partially offset by $6.4
million 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 upon the early
redemption of $52.4 million of DPL’s Note to DPL
Capital Trust II.
DPL – Income Tax Expense
During the year ended December 31, 2010, Income tax
expense increased $30.5 million, or 27%, as compared
to 2009 primarily due to increases in pre-tax income.
During the year ended December 31, 2009,
Income tax expense increased $9.6 million, or 9%,
as compared to 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 adjustments of 2008 state tax liabilities,
adjustments to our current tax receivables and the
phase-out of the Ohio Franchise Tax.
Results of Operations by Segment – DPL Inc.
During 2010, DPL, for the first time, met the GAAP
requirements for separate segment reporting. DPL’s
two segments are the Utility segment, comprised of its
DP&L subsidiary, and the Competitive Retail segment,
comprised of its DPLER subsidiary. These segments
are discussed further below:
Utility Segment
The Utility segment is comprised of DP&L’s electric
generation, transmission and distribution businesses
which generate and sell electricity to residential,
commercial, industrial and governmental customers.
Electricity for the segment’s 24-county service area is
primarily generated at eight coal-fired power plants and
is distributed to more than 500,000 retail customers
who are located in a 6,000 square mile area of West
Central Ohio. DP&L also sells electricity to DPLER
and any excess energy and capacity is sold into the
wholesale market. DP&L’s transmission and distribution
businesses are subject to rate regulation by federal and
state regulators while rates for its generation business
are deemed competitive under Ohio law.
DPL Inc. 45
Competitive Retail Segment
The Competitive Retail segment is comprised of DPLER’s competitive retail electric service business which sells
retail electric energy under contract primarily to commercial and industrial customers who have selected DPLER as
their alternative electric supplier. The Competitive Retail segment sells electricity to approximately 9,000 customers
currently located throughout Ohio. Due to increased competition in Ohio, during 2010 we increased the number of
employees and resources assigned to manage DPLER and increased its marketing to customers. The Competitive
Retail segment’s electric energy used to meet its sales obligations was purchased from DP&L. During 2010, we
implemented a new wholesale agreement between DP&L and DPLER. Under this agreement, intercompany sales
from DP&L to DPLER were based on the market prices for wholesale power. In periods prior to 2010, DPLER’s
purchases from DP&L were transacted at prices that approximated DPLER’s sales prices to its end-use retail
customers. The Competitive Retail segment has no transmission or generation assets. The operations of DPLER are
not subject to rate regulation by federal or state regulators.
Other
Included within Other are other businesses that do not meet the GAAP requirements for separate disclosure as
reportable segments as well as certain corporate costs which include interest expense on DPL’s debt.
Management evaluates segment performance based on gross margin. In the discussions which follow, we have
not provided extensive discussions of the results of operations related to 2009 and 2008 for the Competitive Retail
segment because we believe that financial information is not comparable to the 2010 financial information. We have,
however, included brief descriptions of the Competitive Retail segment’s financial results for 2009 and 2008 for
informational purposes as required by GAAP following the Income Statement Highlights table below.
See Note 17 of Notes to Consolidated Financial Statements for further discussion of DPL’s reportable segments.
The following table presents DPL’s gross margin by business segment:
$ in millions
Utility
Competitive Retail
Other
Adjustments and Eliminations
Total consolidated
For the years ended December 31,
Increase (Decrease)
2010
2009
2008
2010 vs 2009
2009 vs 2008
$ 1,035.1
38.5
42.7
(4.5)
$ 967.6
0.7
33.7
(3.7)
$ 961.6
0.2
23.1
(3.7)
$
67.5
37.8
9.0
(0.8)
$
6.0
0.5
10.6
–
$ 1,111.8
$ 998.3
$ 981.2
$ 113.5
$ 17.1
The financial condition, results of operations and cash flows of the Utility segment are identical in all material
respects and for all periods presented, to those of DP&L which are included in this Form 10-K. We do not believe
that additional discussions of the financial condition and results of operations of the Utility segment would enhance
an understanding of this business since these discussions are already included under the DP&L discussions below.
46 DPL Inc.
Income Statement Highlights – Competitive Retail Segment
$ in millions
Revenues:
Retail
RTO and other
Cost of revenues:
Purchased power
Gross margins (a)
Operation and maintenance expense
Other expenses (income), net
Total expenses, net
Earnings (Loss) from continuing operations
before income tax
Income tax expense (benefit)
Net income (Loss)
Gross margin as a percentage of revenues
For the years ended December 31,
Increase (Decrease)
2010
2009
2008
2010 vs 2009
2009 vs 2008
$ 275.5
1.5
277.0
$ 64.8
0.7
65.5
$ 150.7
0.1
150.8
$ 210.7
0.8
211.5
238.5
38.5
7.8
1.4
9.2
64.8
0.7
2.7
1.5
4.2
150.6
0.2
0.9
(3.2)
(2.3)
$
$
29.3
10.5
18.8
13.9%
$ (3.5)
(0.8)
$ (2.7)
1.1%
$
$
2.5
0.6
1.9
0.1%
173.7
37.8
5.1
(0.1)
5.0
$
32.8
11.3
$
21.5
$ (85.9)
0.6
(85.3)
(85.8)
0.5
1.8
4.7
6.5
$ (6.0)
(1.4)
$ (4.6)
(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.
Competitive Retail Segment – Revenue
For the year ended December 31, 2010, the segment’s retail revenues increased $210.7 million, or 325%, as
compared to 2009. The increase was primarily driven by increased levels of competition in the competitive retail
electric service business in the state of Ohio which in turn has resulted in a significant number of DP&L’s retail
customers switching their retail electric service to DPLER. Primarily as a result of the customer switching discussed
above, the Competitive Retail segment sold approximately 4,546 million kWh of power to 9,002 customers during
2010 compared to 1,464 million kWh to 390 customers during 2009.
For the year ended December 31, 2009, the segment’s retail revenues decreased $85.9 million, or 57%, as
compared to 2008. This decrease primarily reflected customers switching their retail electric service from DPLER
back to DP&L due to the expiration of a significant number of customers’ service contracts at the end of 2008. As a
result, the Competitive Retail segment sold approximately 1,464 million kWh of power to 390 customers during 2009
compared to 3,212 million kWh to 742 customers during 2008.
Competitive Retail Segment – Purchased Power
During the year ended December 31, 2010, the Competitive Retail segment purchased power increased $173.7
million, or 268%, as compared to 2009 primarily due to higher purchased power volumes required to satisfy an
increase in customer base resulting from customer switching. The Competitive Retail segment’s electric energy
used to meet its sales obligations was purchased from DP&L. During 2010, we implemented a new wholesale
agreement between DP&L and DPLER. Under this agreement, intercompany sales from DP&L to DPLER were
based on the market prices for wholesale power. In periods prior to 2010, DPLER’s purchases from DP&L were
transacted at prices that approximated DPLER’s sales prices to its end-use retail customers. This increase was
partially offset by lower average prices paid for purchased power in 2010.
During the year ended December 31, 2009, purchased power decreased $85.8 million, or 57%, as compared
to 2008. This decrease was primarily associated with lower 2009 retail volumes due to the expiration of some
customers’ service contracts in 2008 as discussed under Competitive Retail Segment – Revenue above.
Competitive Retail Segment – Operation and Maintenance
DPLER’s operation and maintenance expenses include employee-related expenses, accounting, information
technology, payroll, legal and other administration expenses. The higher operation and maintenance expense
in 2010 as compared to 2009 and 2008 is reflective of increased marketing and customer maintenance costs
associated with the increased sales volume and number of customers.
DPL Inc. 47
Results of Operations –
The Dayton Power and Light Company (DP&L)
Income Statement Highlights – DP&L
DP&L – Revenues
The following table provides a summary of changes in
DP&L’s Revenues from prior periods:
For the years ended December 31,
$ in millions
2010 vs. 2009
2009 vs. 2008
$ in millions
2010
2009
2008
Revenues:
Retail
Wholesale
RTO revenues
RTO capacity
revenues
Total revenues
Cost of revenues:
Fuel costs
Gains from sale
of coal
Gains from sale of
emission allowances
Net fuel
Purchased power
RTO charges
RTO capacity
charges
Net purchased
$ 1,185.4
365.8
81.7
$ 1,167.2
181.9
86.1
$ 1,075.3
293.5
108.3
157.6
$ 1,790.5
115.2
$ 1,550.4
95.8
$ 1,572.9
$ 376.8
$ 384.9
$ 349.6
(4.1)
(56.3)
(83.4)
(0.8)
371.9
82.0
109.7
(5.0)
323.6
46.9
99.9
(34.8)
231.4
152.4
126.6
191.8
112.4
100.9
power
383.5
259.2
379.9
Total cost of revenues
$ 755.4
$ 582.8
$ 611.3
Gross margins (a)
$ 1,035.1
$ 967.6
$ 961.6
Gross margin as a
percentage of
revenues
57.8%
62.4%
61.1%
Operating income
$ 450.2
$ 421.9
$ 436.6
(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.
48 DPL Inc.
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
$ (46.9)
63.4
1.7
18.2
$
$ 191.7
(99.7)
(0.1)
91.9
$
$
75.0
108.9
$ 183.9
$ (230.5)
118.9
$ (111.6)
38.0
$
$ 240.1
$
$
(2.8)
(22.5)
For the year ended December 31, 2010, Revenues
increased $240.1 million, or 15%, to $1,790.5 million
from $1,550.4 million in the prior year. This increase
was primarily the result of higher retail and wholesale
sales volumes, higher average wholesale prices as
well as increased RTO capacity and other revenues,
partially offset by lower average retail rates. The
revenue components for the year ended December 31,
2010 are further discussed below:
■ Retail revenues increased $18.2 million primarily
as a result of a 6% increase in retail sales volumes
compared to those in the prior year period largely due
to more favorable weather and improved economic
conditions. The favorable weather conditions resulted
in a 70% increase in the number of cooling degree
days to 1,245 days from 734 days in 2009. Although
DP&L had a number of customers that switched their
retail electric service from DP&L to DPLER, an affiliated
CRES provider, DP&L continued to provide distribution
services to those customers within its service territory.
The average retail rates decreased 4% overall primarily
as a result of customers switching from DP&L to
DPLER. The remaining distribution services provided
by DP&L were billed at a lower rate resulting in a
reduction of total average retail rates. The decrease in
average retail rates resulting from customers switching
was partially offset by the implementation of the fuel
and energy efficiency riders, increased TCRR and RPM
riders, and the incremental effect of the recovery of
costs under the EIR. The above resulted in a favorable
$63.4 million retail sales volume variance and an
unfavorable $46.9 million retail price variance.
■ Wholesale revenues increased $183.9 million
primarily as a result of a 26% increase in average
wholesale prices combined with a 60% increase in
wholesale sales volume due in large part to the effect
of customer switching discussed in the immediately
preceding paragraph. DP&L records wholesale
revenues from its sale of transmission and generation
services to DPLER associated with these switched
customers. This resulted in a favorable $108.9 million
wholesale sales volume variance and a favorable
wholesale price variance of $75.0 million.
■ RTO capacity and other revenues, consisting
primarily of compensation for use of DP&L’s
transmission assets, regulation services, reactive
supply and operating reserves, and capacity payments
under the RPM construct, increased $38.0 million
compared to the same period in 2009. This increase
in RTO capacity and other revenues was primarily
the result of a $42.4 million increase in revenues
realized from the PJM capacity auction partially offset
by a decrease of $4.4 million in transmission and
congestion revenues.
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:
■ Retail revenues increased $91.9 million resulting
primarily from a 20% increase in average retail rates
due largely to the incremental effect of the EIR and the
implementation of the TCRR, RPM, energy efficiency
and alternative energy 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 favorable $191.7 million price
variance and an unfavorable $99.7 million sales
volume variance.
■ 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.
■ RTO capacity and other revenues, consisting
primarily of compensation for use of DP&L’s
transmission assets, regulation services, reactive
supply and operating 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.
DP&L – Cost of Revenues
For the year ended December 31, 2010:
■ Net fuel costs, which include coal, gas, oil, and
emission allowance costs, increased $48.3 million, or
15%, compared to 2009, primarily due to the impact of
lower gains realized from the sale of DP&L’s coal and
excess emission allowances. During the year ended
December 31, 2010, DP&L realized $4.1 million and
$0.8 million in gains from the sale of coal and excess
emission allowances, respectively, compared to $56.3
million and $5.0 million, respectively, during 2009. The
effect of these lower gains was partially offset by the
impact of a 3% decrease in the volume of generation by
our plants.
■ Net purchased power increased $124.3 million, or
48%, compared to 2009, due largely to an increase
of $89.2 million in RTO capacity and other charges
which were incurred as a member of PJM, including
costs associated with DP&L’s load obligations for retail
customers. This increase included the net impact of the
deferral and recovery of DP&L’s transmission, capacity
and other PJM-related charges. Also contributing to the
increase in net purchased power was a $37.6 million
increase related to higher average market prices for
purchased power, partially offset by a $2.5 million
decrease associated with lower purchased power
volumes. We purchase power to satisfy retail sales
volume when generating facilities are not available due
to planned and unplanned outages or when market
prices are below the marginal costs associated with our
generating facilities.
For the year ended December 31, 2009:
■ Net fuel costs, which include coal, gas, oil and
emission allowance costs, 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
DPL Inc. 49
realized $56.3 million 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 consumed per kilowatt-hour largely
resulting from higher market prices of coal combined
with outages at lower-cost units.
■ Net purchased power decreased $120.7 million
compared 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 preceding 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 relating 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.
DP&L – Operation and Maintenance
$ in millions
2010 vs. 2009
Energy efficiency programs (1)
Health insurance / long-term disability
Low-income payment program (1)
Pension
Generating facilities operating and
maintenance expenses
Other, net
Total operation and
maintenance expense
$ 11.1
8.9
5.1
4.0
3.6
4.0
$ 36.7
(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, 2010, Operation
and maintenance expense increased $36.7 million, or
13%, compared to 2009. This variance was primarily
the result of:
■ higher expenses relating to energy efficiency
programs that were put in place for our customers
during 2009 and 2010,
■ increased health insurance and disability costs
primarily due to a number of employees going on long-
term disability,
■ increased assistance for low-income retail customers
which is funded by the USF revenue rate rider,
■ increased pension costs due largely to a decline in
the values of pension plan assets during 2008 and
increased benefit costs, and
■ increased expenses for generating facilities
largely due to unplanned outages at jointly-owned
production units.
$ in millions
2009 vs. 2008
Pension
Low-income payment program (1)
Energy efficiency programs (1)
ESOP
Health 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.
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:
■ higher pension costs due largely to a decline in the
values of pension plan assets from 2008 and increased
benefit costs,
■ increases in assistance for low-income retail
customers which is funded by the USF revenue
rate rider,
■ expenses related to new energy efficiency programs
put in place for our customers during 2009,
■ increases in employee benefit expense funded by the
ESOP, and
■ increased health insurance costs that were partially
related to higher disability costs.
These increases are partially offset by:
■ lower amortization of regulatory assets related
to the 2004/2005 deferred storm costs and PJM
administrative fees in 2009 as these deferred costs
were fully recovered through rates during 2008 and in
the first quarter of 2009, respectively, and
50 DPL Inc.
■ 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
outages at jointly-owned production units during 2009.
DP&L – Depreciation and Amortization
During the year ended December 31, 2010,
Depreciation and amortization expense decreased $4.8
million as compared to 2009. The decrease primarily
reflected the impact of a depreciation study which
resulted in lower depreciation rates on generation
property which were implemented on July 1, 2010,
reducing the expense by $3.4 million during the year
ended December 31, 2010.
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
stations. These higher balances were due largely to the
completion of the FGD projects during 2008.
DP&L – General Taxes
During the year ended December 31, 2010, General
taxes increased $7.3 million to $124.1 million compared
to 2009. These increases were primarily the result of
higher property tax accruals in 2010 compared to 2009,
increased state excise taxes due to increased revenue
and an adjustment to future credits against state gross
receipt 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
resulting from lower retail sales volumes.
DP&L – Investment Income
Investment income realized during 2010 did not
fluctuate significantly from that realized during 2009.
During the year ended December 31, 2009,
Investment income decreased $4.2 million, or 60%,
as compared to 2008 primarily as a result of lower
gains realized from the sale of DPL common stock
from DP&L’s Master Trust Plan used for deferred
compensation distributions as well as lower cash and
short-term investment balances combined with overall
lower market yields on investments in 2009.
DP&L – Interest Expense
Interest expense recorded during 2010 did not fluctuate
significantly from that recorded in 2009.
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
generating stations. This increase was partially
offset by:
■ 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
■ $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.
DP&L – Income Tax Expense
During the year ended December 31, 2010, Income
tax expense increased $10.7 million compared to 2009
primarily due to increases in pre-tax income.
During 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.
DPL Inc.
51
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,
2010
2009
2008
$ 464.2
(220.6)
(194.5)
$ 49.1
74.9
$ 124.0
$ 524.7
(164.7)
(347.6)
$ 12.4
62.5
$ 74.9
$ 361.2
(252.9)
(180.7)
$ (72.4)
134.9
$
62.5
For the years ended December 31,
2010
2009
2008
$ 446.4
(148.6)
(300.9)
$
(3.1)
57.1
$ 54.0
$ 513.7
(166.0)
(311.4)
$ 36.3
20.8
$ 57.1
$ 392.7
(240.1)
(145.0)
$
$
7.6
13.2
20.8
The significant items that have impacted the cash flows for DPL and DP&L are discussed in greater detail below:
Net Cash Provided by Operating Activities
The 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, 2010, 2009 and 2008 can be
summarized as follows:
$ in millions
Earnings from continuing operations
Depreciation and amortization
Deferred income taxes
Income tax settlement
Contribution to pension plan
Deferred regulatory costs, net
Other
Net cash provided by operating activities
2010
2009
2008
$ 290.3
139.4
59.9
–
(40.0)
16.0
(1.4)
$ 464.2
$ 229.1
145.5
201.6
–
–
(24.6)
(26.9)
$ 244.5
137.7
43.1
(42.0)
–
(12.9)
(9.2)
$ 524.7
$ 361.2
For the year ended December 31, 2010, 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:
■ The $59.9 million increase to Deferred income taxes primarily results from changes related to pension
contributions, depreciation expense and repair expense.
52 DPL Inc.
■ DP&L contributed $40.0 million to the defined benefit pension plan in 2010.
■ $16.0 million of cash collected to pay for fuel, purchased power and other fuel related costs and transmission,
capacity and other PJM-related costs incurred during 2010, in excess of cash expenditures. These costs reduced
the 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 reduce the amount to be collected from customers
in future periods.
■ 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, 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:
■ 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.
■ $24.6 million of cash used primarily 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.
■ 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:
■ 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.
■ The $42 million cash payment made in 2008 to the ODT following a tax settlement agreement.
■ $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.
■ 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.
DPL Inc. 53
DP&L – Net Cash provided by Operating Activities
DP&L’s Net cash provided by operating activities for the years ended December 31, 2010, 2009 and 2008 can
be summarized as follows:
$ in millions
Net income
Depreciation and amortization
Deferred income taxes
Income tax settlement
Contribution to pension plan
Deferred regulatory costs, net
Other
Net cash provided by operating activities
2010
2009
2008
$ 277.7
130.7
54.3
–
(40.0)
16.0
7.7
$ 446.4
$ 258.9
135.5
200.1
–
–
(24.6)
(56.2)
$ 513.7
$ 285.8
127.8
40.9
(42.0)
–
(12.9)
(6.9)
$ 392.7
For the years ended December 31, 2010, 2009 and 2008, 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.
DPL and DP&L – Net Cash used for Investing Activities
DPL’s and DP&L’s Net cash used for investing activities for the years ended December 31, 2010, 2009 and 2008
can be summarized as follows:
$ in millions
2010
2009
2008
DP&L
Environmental and renewable energy capital expenditures
Capital upgrades due to 2008 storms
Other plant-related asset acquisitions
Other
DP&L’s net cash used for investing activities
Proceeds from sale of short-term investments
Purchases of short-term investments
Other
DPL’s net cash used for investing activities
$ (11.9)
–
(138.1)
1.4
$ (148.6)
17.1
(86.4)
(2.7)
$ (220.6)
$ (21.2)
–
(146.2)
1.4
$ (166.0)
25.7
(20.7)
(3.7)
$ (164.7)
$ (90.2)
(18.6)
(133.2)
1.9
$ (240.1)
34.2
(39.1)
(7.9)
$ (252.9)
For the year ended December 31, 2010, DP&L continued to see reductions in its environmental capital expenditures
due to the completion of FGD and SCR projects including the FGD and SCR equipment completed and placed
into service at Conesville during the fourth quarter of 2009. Approximately $4.2 million of the environmental capital
expenditures incurred during 2010 relate to the construction of a solar energy facility at Yankee station. DP&L also
continued to make upgrades and other investments in other generation, transmission and distribution equipment.
Additionally, DPL purchased $54.2 million of VRDN securities, net of redemptions from various institutional securities
brokers as well as $15.1 million of investment-grade fixed income corporate bonds. The VRDN securities are
backed by irrevocable letters of credit. These securities have variable coupon rates that are typically re-set weekly
relative to various short-term rate indices. DPL can tender these VRDN securities for sale upon notice to the broker
and receive payment for the tendered securities within seven days.
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.
54 DPL Inc.
DPL – Net Cash used for Financing Activities
DPL’s Net cash used for financing activities for the years ended December 31, 2010, 2009 and 2008 can
be summarized as follows:
$ in millions
Dividends paid on common stock
Repurchase of DPL common stock
Retirement of long-term debt
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
2010
2009
2008
$ (139.7)
(56.4)
–
–
–
–
1.4
0.2
$ (194.5)
$ (128.8)
(64.4)
(227.4)
(25.2)
77.7
14.5
9.0
(3.0)
$ (347.6)
$ (120.5)
–
(100.0)
–
–
32.5
2.2
5.1
$ (180.7)
For the year ended December 31, 2010, DPL paid common stock dividends of $139.7 million. In addition, under the
stock repurchase programs approved by the Board of Directors in October 2009 and October 2010 (see Note 12 of
Notes to Consolidated Financial Statements), DPL repurchased approximately 2.18 million DPL common shares for
$56.4 million.
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 12 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.
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.
DP&L – Net Cash used for Financing Activities
DP&L’s Net cash used for financing activities for the years ended December 31, 2010, 2009 and 2008 can be
summarized as follows:
$ in millions
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
2010
2009
2008
$ (300.0)
–
–
(0.9)
$ (300.9)
$ (325.0)
–
14.5
(0.9)
$ (311.4)
$ (155.0)
(20.0)
32.5
(2.5)
$ (145.0)
For the year ended December 31, 2010, DP&L’s Net cash used for financing activities primarily relates to
$300 million in dividends.
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.
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, taxes, interest and dividend payments. For 2011 and subsequent years, we expect to satisfy these
DPL Inc. 55
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.
At the filing date of this annual report on Form 10-K, DP&L has access to $420 million of short-term financing
under two revolving credit facilities. The first facility for $220 million expires in 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, established in April 2010, is for $200 million and expires in April 2013. A total of five banks
participate in this facility, with no bank having more than 35% of the total commitment.
$ in millions
DP&L
DP&L
Type
Maturity
Commitment
Revolving
Revolving
November 2011
April 2013
$ 220.0
200.0
$ 420.0
Amounts
available at
December 31, 2010
$ 220.0
200.0
$ 420.0
Each revolving credit facility has a $50 million LOC sublimit. As of December 31, 2010 and through the date of filing
this annual report on Form 10-K, there were no outstanding LOCs on either facility.
DPL’s $297.4 million 6.875% senior notes due September 2011 have been reflected as a current liability.
Management will continue to monitor and evaluate market conditions over the next several months and make a
determination to either seek to refinance the senior notes or explore alternative financing arrangements.
Cash and cash equivalents for DPL and DP&L amounted to $124.0 million and $54.0 million, respectively, at
December 31, 2010. At that date, DPL also had short-term investments amounting to $69.3 million.
On January 26, 2011, DPL signed an agreement with a third party to acquire $122.1 million of outstanding
DPL Capital Trust II 8.125% trust preferred securities. The sale to DPL is contingent upon the third party’s ability to
acquire the trust preferred securities.
In the event the third party is successful in acquiring the trust preferred securities, it has agreed to sell the trust
preferred securities to DPL for a price of $134.3 million, plus any interest accrued through the date of closing. The
closing is expected to occur on or before February 25, 2011. If this transaction closes, DPL expects to record a net
loss on the reacquisition of the securities in the amount of approximately $15.3 million ($10.2 million net of tax) in
the first quarter of 2011. Interest savings from the redemption of these securities are expected to be approximately
$8.4 million ($5.6 million net of tax) for the remainder of 2011. DPL expects to finance this transaction using a
combination of cash on hand and proceeds from the intended sale of some of its short-term investments.
In the event the third party is not able to acquire these securities, DPL will have no obligation to purchase these
securities and will continue to carry these trust preferred securities as a long-term obligation on its Consolidated
Balance Sheets.
Capital Requirements
Construction Additions
$ in millions
DPL
DP&L
2010
$ 151
$ 148
Actual
2009
$ 145
$ 144
2008
$ 228
$ 225
2011
$ 310
$ 300
Projected
2012
$ 260
$ 255
2013
$ 200
$ 195
Planned construction additions for 2011 relate primarily to new investments in and upgrades to DP&L’s power
plant equipment, and transmission and distribution system. Capital projects are subject to continuing review and
are revised in light of changes in financial and economic conditions, load forecasts, legislative and regulatory
developments and changing environmental standards, among other factors.
56 DPL Inc.
DPL, through its subsidiary DP&L, is projecting to spend an estimated $770 million in capital projects for
the period 2011 through 2013. Approximately $20 million of this projected amount is to enable DP&L to meet the
recently revised reliability standards of NERC. DP&L is subject to the mandatory reliability standards of NERC, and
Reliability First Corporation (RFC), one of the eight NERC regions, of which DP&L is a member. NERC has recently
changed the definition of the Bulk Electric System (BES) to include 100 kV and above facilities, thus expanding
the facilities to which the reliability standards apply. DP&L’s 138 kV facilities were previously not subject to these
reliability standards. Accordingly, DP&L anticipates spending approximately $100 million within the next 5 years
to reinforce its 138 kV system to comply with these new NERC standards. Our ability to complete capital projects
and the reliability of future service will be affected by our financial condition, the availability of internal funds and the
reasonable cost of external funds. We expect to finance our construction additions with a combination of cash on
hand, short-term financing, long-term debt and cash flows from operations.
Debt Covenants
As mentioned above, DP&L has access to $420 million of short-term financing under its two revolving credit facilities.
The following financial covenant is contained in each revolving credit facility: DP&L’s total debt to total capitalization
ratio is not to exceed 0.65 to 1.00. As of December 31, 2010, this covenant was met with a ratio of 0.40 to 1.00.
The above ratio is calculated as the sum of DP&L’s current and long-term portion of debt, including its guaranty
obligations, divided by the total of DP&L’s shareholders’ equity and total debt including guaranty obligations.
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.
DPL (a)
A-
Baa1
BBB+
DP&L (b)
Outlook
Effective
AA-
Aa3
A
Stable
Stable
Stable
October 2010
June 2010
April 2010
Fitch Ratings
Moody’s Investors Service
Standard & Poor’s Corp.
(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.
During the year ended December 31, 2010, DPL did not incur any losses related to the guarantees of DPLE’s and
DPLER’s obligations and we believe it is unlikely that DPL would be required to perform or incur any losses in the
future associated with any of the above guarantees of DPLE’s and DPLER’s obligations.
At December 31, 2010, DPL had $57.8 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
$1.7 million at December 31, 2010 and $0.6 million at December 31, 2009.
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, 2010, DP&L could be responsible for the repayment
of 4.9%, or $62.3 million, of a $1,272.2 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, 2010, we have no knowledge of
such a default.
DPL Inc. 57
Commercial Commitments and Contractual Obligations
We enter into various contractual obligations and other commercial commitments that may affect the liquidity of our
operations. At December 31, 2010, these include:
$ in millions
Total
2011
2012-2013
2014-2015
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
$ 1,324.4
677.9
258.5
0.2
0.9
1,409.0
42.9
$ 297.4
64.7
23.8
0.1
0.4
415.2
5.6
141.5
71.1
$
470.0
96.1
51.0
0.1
0.3
501.3
11.7
56.0
Total contractual obligations
$ 3,855.3
$ 878.3
$ 1,186.5
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
424.8
258.5
0.2
0.9
1,409.0
42.9
142.7
$
–
39.5
23.8
0.1
0.4
415.2
5.6
72.2
$
470.0
72.9
51.0
0.1
0.3
501.3
11.7
56.1
$
$
$
–
53.9
52.0
–
0.2
177.6
12.4
11.7
307.8
–
30.7
52.0
–
0.2
177.6
12.4
11.7
$
557.0
463.2
131.7
–
–
314.9
13.2
2.7
$ 1,482.7
$
414.4
281.7
131.7
–
–
314.9
13.2
2.7
Total contractual obligations
$ 3,163.4
$ 556.8
$ 1,163.4
$
284.6
$ 1,158.6
(a) Total at DP&L-operated units
Long-term debt:
DPL’s Long-term debt as of December 31, 2010, 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, 2010, 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 5 of Notes to Consolidated Financial Statements.
Interest payments:
Interest payments are 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, 2010.
Pension and postretirement payments:
As of December 31, 2010, DPL, through its principal subsidiary DP&L, had estimated future benefit payments as
outlined in Note 7 of Notes to Consolidated Financial Statements. These estimated future benefit payments are
projected through 2020.
Capital leases:
As of December 31, 2010, DPL, through its principal subsidiary DP&L, had one immaterial capital lease that expires
in 2013.
58 DPL Inc.
Operating leases:
As of December 31, 2010, 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, 2010, 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 $19.4 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 electricity,
coal, environmental emissions and gas, changes in
capacity prices and fluctuations in interest rates. We
use various market risk sensitive instruments, including
derivative contracts, 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 management policies and the
monitoring and reporting of risk exposures relating to
our DP&L-operated generation 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 volatility
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 instruments are used
principally for economic hedging purposes and none
are held for trading purposes. 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 cash flow hedge accounting.
MTM gains and losses on derivative instruments that
qualify for cash flow 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
accounting under GAAP.
The coal market has increasingly been influenced
by both international and domestic supply and
consumption, making the price of coal more volatile
than in the past, and while we have substantially all
of the total expected coal volume needed to meet
our retail and firm wholesale sales requirements
for 2011 under contract, sales requirements may
change, particularly for retail load. 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
affected 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. To the extent we
are not able to hedge against price volatility or recover
increases through our fuel and purchased power
recovery rider that began in January 2010; our results
of operations, financial condition or cash flows could be
materially affected.
DPL Inc. 59
In addition, the Dodd-Frank Wall Street Reform and
A 10% increase or decrease in the market price
Consumer Protection Act (Dodd-Frank Act), signed
into law in July 2010, contains significant requirements
relating to derivatives, including, among others, a
requirement that certain transactions be cleared on
exchanges that would necessitate the posting of cash
collateral for these transactions. The Dodd-Frank Act
provides a potential exception from these clearing and
cash collateral requirements for commercial end-users.
The Dodd-Frank Act requires the Commodity Futures
Trading Commission to establish rules to implement
the Dodd-Frank Act’s requirements and exceptions.
Requirements to post collateral could reduce the cost
effectiveness of entering into derivative transactions to
reduce commodity price and interest rate volatility or
could increase the demands on our liquidity or require
us to increase our levels of debt to enter into such
derivative transactions. Even if we were to qualify for an
exception from these requirements, our counterparties
that do not qualify for the exception may pass along
any increased costs incurred by them through higher
prices and reductions in unsecured credit limits.
For purposes of potential risk analysis, we use
a sensitivity analysis to quantify potential impacts
of market rate changes on the statements of results
of operations. The sensitivity analysis represents
hypothetical changes in market values that may or may
not occur in the future.
Commodity Derivatives
To minimize the risk of fluctuations in the market price
of commodities, such as coal, power, and heating
oil, we may enter into commodity-forward and futures
contracts to effectively hedge the cost/revenues of
the commodity. Maturity dates of the contracts are
scheduled to coincide with market purchases/sales of
the commodity. Cash proceeds or payments between
us and the counter-party at maturity of the contracts
are recognized as an adjustment to the cost of the
commodity purchased or sold. We generally do not
enter into forward contracts beyond thirty-six months.
of our wholesale power forward contracts and heating
oil forwards at December 31, 2010 would not have a
significant effect on Net income.
The following table provides information regarding
the volume and average market price of our NYMEX
coal forward derivative contracts at December 31, 2010
and the effect to Net income if the market price were to
increase or decrease by 10%:
Contract
Volume
(in millions
of Tons)
1.0
2.9
0.1
Weighted
Average
Market
Price
(per Ton)
$ 80.30
$ 83.53
$ 86.08
Increase /
Decrease in
Net Income
(in millions) (a)
$ 1.4
$ 4.8
$ 0.5
NYMEX Coal Forwards
2011-Purchase
2012-Purchase
2013-Purchase
(a) The Net Income effect of a 10% change in the market price of NYMEX
Coal has been partially off-set by our partners’ share of the gain or loss
associated with the jointly-owned power plants and also by the retail
customers’ share of the gain or loss which is deferred on the balance
sheet in conjunction with the fuel and purchased power recovery rider.
Wholesale Revenues
Approximately 17% of DPL’s and 16% of DP&L’s
electric revenues for the year ended December 31,
2010 were from sales of excess energy and capacity
in the wholesale market (DP&L’s electric revenues
in the wholesale market are reduced for sales to
DPLER). Energy in excess of the needs of existing retail
customers is sold in the wholesale market when we can
identify opportunities with positive margins.
Approximately 16% of DPL’s and 15% 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.
60 DPL Inc.
The table below provides the effect on annual Net income as of December 31, 2010, of a hypothetical increase
or decrease of 10% in the price per megawatt hour of wholesale power (DP&L’s electric revenues in the wholesale
market are reduced for sales to DPLER), including the impact of a 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 DPLER
wholesale sale would not be affected by the 10% change in wholesale prices):
$ in millions
Effect of 10% change in price per mWh
RPM Capacity Revenues and Costs
DPL
$ 10.1
DP&L
$ 8.6
As a member of PJM, DP&L receives revenues from the RTO related to its transmission and generation assets and
incurs costs associated with its load obligations for retail customers. PJM, which has a delivery year which runs from
June 1 to May 31, has conducted auctions for capacity through the 2013/14 delivery year. The clearing prices for
capacity during the PJM delivery periods from 2008/9 through 2013/14 are as follows:
Capacity clearing price ($/MW-day)
112
102
174
110
16
28
2008/9
2009/10
2010/11
2011/12
2012/13
2013/14
PJM Delivery Year
Our computed average capacity prices by calendar year are reflected in the table below:
Computed average capacity price ($/MW-day)
Calendar Year
2009
106
2010
144
2011
137
2012
55
2013
23
Future RPM auction results are dependent on a number of factors, which include the overall supply and demand of
generation and load, other state legislation or regulation, transmission congestion, and PJM’s RPM business rules.
The volatility in the RPM capacity auction pricing has had and will continue to have a significant impact on DPL’s
capacity revenues and costs. Although DP&L currently has an approved RPM rider in place to recover or repay
any excess capacity costs or revenues, the RPM rider only applies to customers supplied under our SSO. Customer
switching reduces the number of customers supplied under our SSO, causing more of the RPM capacity costs and
revenues to be excluded from the RPM rider calculation.
The table below provides estimates of the effect on annual net income as of December 31, 2010, of a
hypothetical increase or decrease of $10 in the RPM auction price. The table shows the impact resulting from
capacity revenue changes. We did not include the impact of a change in the RPM capacity costs since these costs
will either be recovered through the RPM rider for SSO retail customers or recovered through the development of
our overall energy pricing for customers who do not fall under the SSO. These estimates include the impact of the
RPM rider and are based on the 2010 levels of customer switching. As of December 31, 2010, approximately 60%
of DP&L’s RPM capacity revenues and costs were recoverable from SSO retail customers through the RPM rider.
$ in millions
Effect of a $10 change in capacity auction pricing
DPL
$ 4.4
DP&L
$ 3.1
Capacity revenues and costs are also impacted by, among other factors, the levels of customer switching, our
generation capacity, the levels of wholesale revenues and our retail customer load. In determining the capacity
price sensitivity above, we did not consider the impact that may arise from the variability of these other factors.
Fuel and Purchased Power Costs
DPL’s and DP&L’s fuel (including coal, gas, oil and emission allowances) and purchased power costs as a
percentage of total operating costs in the years ended December 31, 2010 and 2009 were 34% and 33%,
respectively. We have substantially all of the total expected coal volume needed to meet our retail and firm
wholesale sales requirements for 2011 under contract. The majority of our contracted coal is purchased at fixed
prices although some contracts provide for periodic pricing adjustments. We may purchase SO2 allowances for
2011; however, the exact consumption 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 may purchase some NOx allowances for 2011
depending on NOx emissions. Fuel costs are affected by changes in volume and price and are driven by a number
of variables including weather, reliability of coal deliveries, scheduled outages and generation plant mix.
DPL Inc. 61
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 conditions provide
opportunities to obtain power at a cost below our internal generation costs.
Effective January 1, 2010, DP&L was allowed to recover its SSO retail customers’ share of fuel and purchased
power costs, of approximately 60% of retail sales, as part of the fuel rider approved by the PUCO. The table below
provides the effect on annual net income as of December 31, 2010, of a hypothetical increase or decrease of 10%
in the prices of fuel and purchased power, adjusted for the approximate 60% recovery:
$ in millions
Effect of 10% change in fuel and purchased power
DPL
$ 13.0
DP&L
$ 12.6
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.
We partially hedge against interest rate fluctuations by entering into interest rate swap agreements to limit
the interest rate exposure on the underlying financing. As of December 31, 2010, we have entered into interest
rate hedging relationships with an aggregate notional amount of $200 million and $160 million related to planned
future borrowing activities in calendar year 2011 and calendar year 2013, respectively. The average interest rate
associated with the $200 million and $160 million aggregate notional amount interest rate hedging relationships
is 4.1% and 3.8%, respectively. During the first quarter of 2011, we entered into additional interest rate hedging
relationships with an aggregate notional amount of $75 million related to planned future borrowing activities in
calendar year 2011. The average interest rate associated with the additional $75 million aggregate notional amount
interest rate hedging relationships is 4.0%. We are limiting our exposure to changes in interest rates since we
believe the market interest rates at which we will be able to borrow in the future may increase.
The carrying value of DPL’s debt was $1,324.1 million at December 31, 2010, consisting of DP&L’s first
mortgage bonds, DP&L’s tax-exempt pollution control bonds, DPL’s unsecured notes and DP&L’s capital lease.
The fair value of this debt was $1,307.5 million, based on current market prices or discounted cash flows using
current rates for similar issues with similar terms and remaining maturities. The following table provides information
about DPL’s debt obligations that are sensitive to interest rate changes:
Principal Payments and Interest Rate Detail by Contractual Maturity Date
DPL
$ in millions
Long-term debt
Variable-rate debt
Average interest rate
Fixed-rate debt
Average interest rate
Total
2011
2012
2013
2014
2015
Thereafter
$
–
0.0%
$ 297.5
6.9%
$
–
0.0%
$ 0.1(b)
0.0%
$
–
0.0%
$ 470.0
5.1%
$
$
–
0.0%
–
0.0%
$
$
–
0.0%
–
0.0%
$ 100.0
0.3%
$ 456.5
5.8%
Carrying
value at
December 31,
2010 (a)
Fair
value at
December 31,
2010 (a)
$
100.0
0.3%
$ 1,224.1
5.8%
$ 1,324.1
$
100.0
$ 1,207.5
$ 1,307.5
(a) Fixed rate debt totals include unamortized debt discounts.
(b) Amount represents a capital lease obligation.
62 DPL Inc.
The carrying value of DP&L’s debt was $884.1 million at December 31, 2010, consisting of its first mortgage bonds,
tax-exempt pollution control bonds and a capital lease. The fair value of this debt was $850.6 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 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
2011
2012
2013
2014
2015
Thereafter
$
$
–
0.0%
0.1(b)
0.0%
$
$
–
0.0%
0.1(b)
0.0%
$
–
0.0%
$ 470.0
5.1%
$
$
–
0.0%
–
0.0%
$
$
–
0.0%
–
0.0%
$ 100.0
0.3%
$ 313.9
4.8%
Carrying
value at
December 31,
2010 (a)
Fair
value at
December 31,
2010 (a)
$ 100.0
0.3%
$ 784.1
5.0%
$ 884.1
$ 100.0
$ 750.6
$ 850.6
(a) Fixed rate debt totals include unamortized debt discounts.
(b) Amount represents a capital lease obligation.
Debt maturities occurring in 2011 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, 2010
and 2009 for which an immediate adverse market movement causes a potential material impact on our financial
condition, 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. As
of December 31, 2010 and 2009, 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,
2010
Fair value at
December 31,
2010
One Percent
Interest Rate
Risk
Carrying value at
December 31,
2009
Fair value at
December 31,
2009
One Percent
Interest Rate
Risk
$
100.0
1,224.1
$ 1,324.1
$
100.0
1,207.5
$ 1,307.5
$ 1.0
12.1
$ 13.1
$
100.0
1,224.1
$ 1,324.1
$
100.0
1,217.6
$ 1,317.6
$ 1.0
12.2
$ 13.2
Carrying value at
December 31,
2010
Fair value at
December 31,
2010
One Percent
Interest Rate
Risk
Carrying value at
December 31,
2009
Fair value at
December 31,
2009
One Percent
Interest Rate
Risk
$
$
100.0
784.1
884.1
$
$
100.0
750.6
850.6
$ 1.0
7.5
$ 8.5
$
$
100.0
784.3
884.3
$
$
100.0
744.5
844.5
$ 1.0
7.5
$ 8.5
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 primarily relates to the potential impact a decrease of one percentage
point in interest rates has on the fair value of DPL’s $1,224.1 million of fixed-rate debt and not on DPL’s financial
condition 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, 2010.
DPL Inc. 63
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 $784.1 million of
fixed-rate debt and not on DP&L’s financial condition
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 $100.0
million variable-rate long-term debt outstanding as of
December 31, 2010.
Equity Price Risk
As of December 31, 2010, approximately 41% of the
defined benefit pension plan assets were comprised
of investments in equity securities and 59% 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 $119.9 million at December 31, 2010. A
hypothetical 10% decrease in prices quoted by stock
exchanges would result in an $12.0 million reduction in
fair value as of December 31, 2010 and approximately
a $1.0 million increase to the 2011 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.
Critical Accounting Estimates
DPL’s and DP&L’s Consolidated Financial Statements
are prepared in accordance with U.S. GAAP. In
connection with the preparation of these financial
statements, our management is required to make
assumptions, estimates and judgments that affect
the reported amounts of assets, liabilities, revenues,
expenses and the related disclosure of contingent
liabilities. These assumptions, estimates and judgments
are based on our historical experience and assumptions
that we believe 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 estimates
may result in materially different amounts being
reported under different conditions or circumstances.
Historically, however, recorded estimates have not
differed 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
allowances 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 accounting 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 conditions,
assignment of discount rates and estimates of terminal
values. An impairment loss is recognized if the carrying
amount of the long-lived asset is not recoverable from
its undiscounted cash flows. The measurement of
impairment loss is the difference between the carrying
amount and fair value of the asset.
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
64 DPL Inc.
energy sales that have not yet been billed, but where
electricity has been consumed. This is termed “unbilled
revenues” and is a widely recognized and accepted
practice for utilities. At the end of each month, unbilled
revenues are determined by the estimation of unbilled
energy provided to customers since the date of the last
meter reading, projected line losses, the assignment of
unbilled energy provided to customer classes and the
average rate per customer class. Given our estimation
method and the fact that customers are billed monthly,
we believe it is unlikely that materially different results
will occur in future periods when these amounts are
subsequently billed.
Income Taxes: Judgment and the use of estimates
are required in developing the provision for income
taxes and reporting of tax-related assets and liabilities.
The interpretation of tax laws involves uncertainty,
since taxing authorities may interpret them differently.
Ultimate resolution of income tax matters may result
in favorable or unfavorable impacts to Net income
and cash flows and adjustments to tax-related assets
and liabilities could be material. 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 filing 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 by an entity on its income tax
returns that are recognized 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 represent
future effects on income taxes for temporary differences
between the bases of assets and liabilities for financial
reporting and tax purposes. We evaluate quarterly the
probability of realizing deferred tax assets by reviewing
a forecast of future taxable income and the availability
of tax planning strategies that can be implemented,
if necessary, to realize deferred tax assets. Failure to
achieve 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
companies. When it is probable that regulators will
permit the recovery of current costs through future
rates charged to customers, we defer these costs as
Regulatory assets that otherwise would be expensed
by nonregulated companies. Likewise, we recognize
Regulatory liabilities when it is probable that regulators
will require customer refunds through future rates
and when revenue is collected from customers for
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 our Regulatory assets to determine
whether or not they are probable of recovery through
future rates and make various assumptions in our
analyses. The expectations of future recovery are
generally based on orders issued by regulatory
commissions or historical experience, as well as
discussions with applicable regulatory 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 depreciation
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
reasonable 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’ liability.
Insurance and Claims Costs on the Consolidated
Balance Sheets of DPL include insurance reserves
of approximately $10.1 million and $16.2 million for
DPL Inc. 65
2010 and 2009, 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 $19.0 million and
$11.3 million for 2010 and 2009, 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 the
loss estimates and actual results may differ from the
estimates. Modification of these loss estimates based
on experience and changed circumstances is reflected
in the period in which the estimate is re-evaluated.
Pension and Postretirement Benefits: We account
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 assumptions,
such as the discount rate for liabilities and long-term
rate of return on assets, in determining the obligations,
annual cost, and funding requirements of the plans.
For 2011, we have decreased our long-term rate
of return assumption from 8.50% to 8.00% for pension
plan assets. We are maintaining our long-term rate of
return assumption of 6.00% for other postemployment
benefit plan assets. These rates of return represent our
long-term assumptions based on our current portfolio
mixes. We have decreased our assumed discount rate to
5.31% from 5.75% for pension and to 4.96% from 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 2011
pension expense of approximately $2.9 million. A one
percent change in the discount rate for pension would
result in an increase or decrease to the 2011 pension
expense of approximately $2.5 million. We do not
anticipate any special adjustments to expense in 2011.
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 percentage
point change in the assumed health care cost trend
rate would affect postretirement benefit costs by less
than $1.0 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 environmental, litigation, insurance and other risks.
We periodically 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 16 of Notes to Consolidated Financial Statements
and in Item 3 – Legal Proceedings. A discussion 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
pronouncements is described in Note 1 of Notes to
Consolidated Financial Statements and such discussion
is incorporated by reference in this Management’s
Discussion and Analysis of Financial Condition and
Results of Operations and made a part hereof.
Item 7A Quantitative and Qualitative
Disclosures about Market Risk
The information required by this item of Form 10-K
is set forth in the Market Risk section under Item 7 –
Management’s Discussion and Analysis of Financial
Condition and Results of Operations.
66 DPL Inc.
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 93% of DPL’s total consolidated gross margin and approximately 91% 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
2010
2009
2008
For the years ended December 31,
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)
Interest expense
Other income / (deductions)
Total other income / (expense), net
Earnings from continuing operations before income tax
Income tax expense
Net income
Average number of common shares outstanding (millions):
Basic
Diluted
Earnings per share of common stock:
Basic
Diluted
Dividends paid per share of common stock
See Notes to Consolidated Financial Statements.
$ 1,883.1
$ 1,588.9
$ 1,601.6
383.9
387.4
771.3
1,111.8
340.6
139.4
127.4
607.4
504.4
1.8
(70.6)
(2.3)
(71.1)
433.3
143.0
290.3
115.6
116.1
2.51
2.50
1.21
$
$
$
$
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
112.9
114.2
2.03
2.01
1.14
$
$
$
$
243.0
377.4
620.4
981.2
282.5
137.7
125.5
545.7
435.5
3.6
(90.7)
(1.0)
(88.1)
347.4
102.9
244.5
110.2
115.4
2.22
2.12
1.10
$
$
$
$
DPL Inc. 67
DPL Inc.
Consolidated Statements of Cash Flows
$ in millions
Cash flows from operating activities:
Net income
Adjustments to reconcile Net income to Net cash provided by
operating activities:
Depreciation and amortization
Deferred income taxes
Changes in certain assets and liabilities:
Accounts receivable
Inventories
Prepaid taxes
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 claims costs
Other
Net cash provided by operating activities
Cash flows from investing activities:
Capital expenditures
Proceeds from sale of property - other
Purchases of short-term investments and securities
Sales of short-term investments and securities
Other investing activities, net
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
Reissuance of treasury stock
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, net
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.
68 DPL Inc.
For the years ended December 31,
2010
2009
2008
$ 290.3
$ 229.1
$ 244.5
139.4
59.9
(1.5)
10.4
(9.0)
(4.1)
16.0
17.8
1.2
(5.1)
(58.2)
(2.8)
(6.1)
16.0
464.2
(152.7)
–
(86.4)
17.1
1.4
(220.6)
(139.7)
(56.4)
–
–
–
–
–
–
–
–
–
–
–
–
1.4
0.2
(194.5)
49.1
74.9
$ 124.0
$
$
$
77.1
87.1
23.2
$
$
$
$
145.5
201.6
39.3
(20.6)
–
(1.5)
(24.6)
(65.0)
(2.4)
(1.5)
15.2
(2.8)
(1.4)
13.8
524.7
(172.3)
1.2
(20.7)
25.7
1.4
(164.7)
(128.8)
(64.4)
(25.2)
77.7
–
(175.0)
(52.4)
(3.7)
–
–
–
14.5
260.0
(260.0)
9.0
0.7
(347.6)
12.4
62.5
74.9
84.3
(94.6)
137.7
43.1
(18.7)
(0.2)
–
(10.0)
(12.9)
27.0
(46.1)
(0.8)
31.2
(2.8)
(2.4)
(28.4)
361.2
(243.6)
–
(39.1)
34.2
(4.4)
(252.9)
(120.5)
–
–
–
6.4
(100.0)
–
–
98.4
(90.0)
(10.0)
32.5
115.0
(115.0)
2.2
0.3
(180.7)
(72.4)
134.9
$
62.5
$
86.8
$ 127.3
20.8
$
34.1
DPL Inc.
Consolidated Balance Sheets
$ in millions
Assets
Current assets:
Cash and cash equivalents
Short-term investments
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 process
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 (Note 5)
Accounts payable
Accrued taxes
Accrued interest
Customer security deposits
Other current liabilities
Total current liabilities
Noncurrent liabilities:
Long-term debt (Note 5)
Deferred taxes (Note 6)
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 16)
Common shareholders’ equity:
Common stock, at par value of $0.01 per share:
Shares authorized
Shares issued
Shares outstanding
December 2010
December 2009
250,000,000
163,724,211
116,924,844
250,000,000
163,724,211
118,966,767
Warrants
Common stock held by employee plans
Accumulated other comprehensive loss
Retained earnings
Total common shareholders’ equity
At December 31,
2010
2009
$
124.0
69.3
215.5
115.3
63.7
40.6
628.4
5,353.6
(2,555.2)
2,798.4
119.7
2,918.1
189.0
77.8
266.8
$
74.9
–
212.8
125.7
59.5
24.1
497.0
5,269.2
(2,466.0)
2,803.2
89.0
2,892.2
214.2
38.3
252.5
$ 3,813.3
$ 3,641.7
$
297.5
98.7
68.1
18.4
18.7
40.9
542.3
1,026.6
625.4
139.4
64.9
32.4
10.1
130.8
2,029.6
22.9
$
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
22.9
1.2
2.7
(12.5)
(18.9)
1,246.0
1,218.5
1.2
2.9
(19.3)
(29.0)
1,144.1
1,099.9
Total Liabilities and Shareholders’ Equity
$ 3,813.3
$ 3,641.7
See Notes to Consolidated Financial Statements.
DPL Inc. 69
DPL Inc.
Consolidated Statements of Shareholders’ Equity
in millions (except Outstanding Shares)
Common Stock (b)
Outstanding
Shares
Amount
Warrants
Common
Stock Held
by Employee
Plans
Accumulated
Other
Comprehensive
Income / (Loss)
Retained
Earnings
Total
Beginning 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
2,403,436
0.1
(19.0)
12.1
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)
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 purchased
Treasury stock reissued
Tax effects to equity
Employee / Director stock plans
Other
(13.6)
(14.5)
4,973,629
(2,388,391)
419,649
8.3
0.5
(3.7)
(2.7)
229.1
(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
2010:
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 purchased
Treasury stock reissued
Tax effects to equity
Employee / Director stock plans
18,288
(2,182,751)
122,540
(0.2)
–
6.8
290.3
0.4
6.4
3.3
(139.7)
(56.4)
2.4
0.2
5.1
300.4
(139.7)
(0.2)
–
(56.4)
2.4
0.2
11.9
Ending balance
116,924,844
$ 1.2
$
2.7
$ (12.5)
$ (18.9) $ 1,246.0
$ 1,218.5
(a) Common stock dividends per share were $1.10 in 2008, $1.14 in 2009 and $1.21 per share in 2010.
(b) $0.01 par value, 250,000,000 shares authorized.
See Notes to Consolidated Financial Statements.
70 DPL Inc.
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
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,
2010
2009
2008
$ 1,790.5
$ 1,550.4
$ 1,572.9
371.9
383.5
755.4
1,035.1
330.1
130.7
124.1
584.9
450.2
1.7
(37.1)
(1.9)
(37.3)
412.9
135.2
277.7
0.9
323.6
259.2
582.8
967.6
293.4
135.5
116.8
545.7
421.9
2.8
(38.5)
(2.8)
(38.5)
383.4
124.5
258.9
0.9
231.4
379.9
611.3
961.6
273.0
127.8
124.2
525.0
436.6
7.0
(36.5)
(1.1)
(30.6)
406.0
120.2
285.8
0.9
$
276.8
$
258.0
$
284.9
DPL Inc. 71
For the years ended December 31,
2010
2009
2008
$ 277.7
$ 258.9
$ 285.8
130.7
54.3
15.2
10.1
(8.9)
(3.6)
16.0
16.9
1.7
(5.4)
(58.2)
(2.8)
2.7
446.4
(150.0)
1.4
(148.6)
(300.0)
(0.9)
–
–
–
–
–
–
–
(300.9)
(3.1)
57.1
54.0
45.1
87.0
23.2
$
$
$
$
135.5
200.1
25.7
(20.5)
–
(1.3)
(24.6)
(65.9)
(0.9)
0.2
15.2
(2.8)
(5.9)
513.7
(167.4)
1.4
(166.0)
(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)
(40.7)
392.7
(242.0)
1.9
(240.1)
(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
20.8
$
34.1
$
$
$
$
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
Changes in certain assets and liabilities:
Accounts receivable
Inventories
Prepaid taxes
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
Purchases of short-term investments and securities
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
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.
72 DPL Inc.
The Dayton Power and Light Company
Balance Sheets
$ in millions
Assets
Current assets:
Cash and cash equivalents
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 process
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 (Note 5)
Accounts payable
Accrued taxes
Accrued interest
Customers security deposits
Other current liabilities
Total current liabilities
Noncurrent liabilities:
Long-term debt (Note 5)
Deferred taxes (Note 6)
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 16)
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.
At December 31,
2010
2009
$
54.0
178.0
114.2
62.8
42.7
451.7
5,093.7
(2,453.1)
2,640.6
119.6
2,760.2
189.0
74.5
263.5
$
57.1
192.0
124.3
59.2
26.0
458.6
5,011.0
(2,370.7)
2,640.3
87.9
2,728.2
214.2
56.4
270.6
$ 3,475.4
$ 3,457.4
$
0.1
95.7
66.6
7.7
18.7
33.6
222.4
884.0
598.0
139.4
64.9
32.4
131.9
1,850.6
22.9
0.4
782.4
(20.2)
616.9
$
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
1,731.9
22.9
0.4
781.6
(19.7)
640.3
1,379.5
$ 3,475.4
1,402.6
$ 3,457.4
DPL Inc. 73
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
$ 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
Ending balance
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
Ending balance
2010:
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
Ending balance
(a) $0.01 par value, 50,000,000 shares authorized.
See Notes to Consolidated Financial Statements.
(9.8)
(1.7)
(21.7)
285.8
(155.0)
(0.9)
252.6
(155.0)
(0.9)
0.3
(2.0)
0.3
(2.0)
41,172,173
$ 0.4
$ 783.1
$ (16.1)
$ 707.5
$ 1,474.9
2.7
(3.7)
(2.7)
258.9
(325.0)
(0.9)
0.8
(2.5)
0.2
0.1
(0.2)
255.2
(325.0)
(0.9)
0.8
(2.5)
0.1
41,172,173
$ 0.4
$ 781.6
$ (19.7)
$ 640.3
$ 1,402.6
277.7
(1.0)
(2.8)
3.3
0.2
0.4
0.2
(300.0)
(0.9)
(0.2)
277.2
(300.0)
(0.9)
0.2
0.4
–
41,172,173
$ 0.4
$ 782.4
$ (20.2)
$ 616.9
$ 1,379.5
74 DPL Inc.
Notes to Consolidated Financial Statements
This report includes the combined filing of DPL
and DP&L. DP&L is the principal subsidiary of
DPL providing approximately 93% of DPL’s total
consolidated gross margin and approximately 91%
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.
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
information presented is segregated by registrant.
1 Overview and Summary of Significant
Accounting Policies
Description of Business
DPL is a diversified regional energy company
organized in 1985 under the laws of Ohio. During 2010,
DPL, for the first time, met the GAAP requirements for
separate segment reporting. DPL’s two segments are
the Utility segment, comprised of its DP&L subsidiary,
and the Competitive Retail segment, comprised of
its DPLER subsidiary. Refer to Note 17 of Notes to
Consolidated Financial Statements for more information
relating to these reportable segments.
DP&L is a public utility incorporated 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 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.
DPLER sells competitive retail electric service,
under contract, primarily to commercial and industrial
customers. DPLER has approximately 9,000 customers
currently located throughout Ohio. All of DPLER’s
electric energy was purchased from DP&L to meet
these sales obligations.
DPL’s other significant subsidiaries include DPLE,
which owns and operates peaking generating facilities
from which it makes wholesale sales of electricity 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.
DP&L’s electric transmission and distribution
businesses are subject to rate regulation by federal
and state regulators while its generation business is
deemed competitive under Ohio law. 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
subsidiaries except for DPL Capital Trust II which is not
consolidated, consistent with the provisions of GAAP.
DP&L has undivided ownership interests in seven
electric generating facilities and numerous transmission
facilities. These undivided interests in jointly-owned
facilities are accounted for on a pro rata basis in
DP&L’s Financial Statements.
Certain immaterial amounts from prior periods have
been reclassified to conform to the current reporting
presentation.
All material intercompany accounts and
transactions are eliminated in consolidation.
The preparation of financial statements in
conformity 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 revenues and expenses
of the periods reported. Actual results could differ
from these estimates. 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 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.
DPL Inc. 75
Revenue Recognition
Revenues are recognized from retail and wholesale
electricity sales and electricity transmission and
distribution 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. Energy sales to customers
are based on the reading of their meters that occurs
on a systematic basis throughout the month. We
recognize 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, estimated 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
purchased electricity is received and when expenses
are incurred, with the exception of the ineffective
portion of certain power purchase contracts that are
derivatives and qualify for hedge accounting. We also
have certain derivative contracts that do not qualify for
hedge accounting, and their unrealized gains or losses
are 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
provisions for known credit issues.
Property, Plant and Equipment
We record our ownership share of our undivided
interest in jointly-held plants as an asset in property,
plant and equipment. Property, plant and equipment
are stated at cost. For regulated transmission and
distribution property, cost includes direct labor
and material, allocable overhead expenses and an
allowance for funds used during construction (AFUDC).
AFUDC represents the cost of borrowed funds and
equity used to finance regulated construction projects.
Capitalization of AFUDC ceases at either project
completion or at the date specified by regulators.
AFUDC capitalized in 2010, 2009 and 2008 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
capitalized interest. Capitalized interest was $1.5 million,
$2.4 million and $8.9 million in 2010, 2009 and 2008,
respectively.
For substantially all depreciable property, when
a unit of property is retired, the original cost of
that property less any salvage value is charged to
Accumulated depreciation and amortization consistent
with the composite method of depreciation.
Property is evaluated for impairment when events
or changes in circumstances indicate that its carrying
amount may not be recoverable.
At December 31, 2010, neither DPL nor DP&L
had any material plant acquisition adjustments or other
plant-related adjustments.
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 defined units of property.
Depreciation Study – Change in Estimate
Depreciation expense is calculated using the straight-
line method, which allocates the cost of property over its
estimated useful life. For DPL’s generation, transmission
and distribution assets, straight-line depreciation
is applied monthly on an average composite basis
using group rates. In July 2010, DPL completed a
depreciation rate study for non-regulated generation
property based on its property, plant and equipment
balances at December 31, 2009, with certain adjustments
for subsequent property additions. The results of the
depreciation study concluded that many of DPL’s
composite depreciation rates should be reduced due to
projected useful asset lives which are longer than those
previously estimated. DPL adjusted the depreciation
rates for its non-regulated generation property effective
July 1, 2010, resulting in a net reduction of depreciation
expense. For the year ended December 31, 2010, the
net reduction in depreciation expense amounted to
$4.8 million ($3.2 million net of tax) and increased diluted
EPS by approximately $0.03 per share. On an annualized
basis, the net reduction in depreciation expense is
projected to be approximately $9.6 million ($6.4 million
net of tax) or approximately $0.06 per diluted share.
76 DPL Inc.
For DPL’s generation, transmission, and distribution assets, straight-line depreciation is applied on an average
annual composite basis using group rates that approximated 2.6% in 2010, 2.7% in 2009 and 2.7% in 2008.
The following is a summary of DPL’s Property, plant and equipment with corresponding composite depreciation
rates at December 31, 2010 and 2009:
DPL
$ in millions
Regulated:
Transmission
Distribution
General
Non-depreciable
Total regulated
Unregulated:
Production / Generation
Other
Non-depreciable
Total unregulated
Total property, plant and equipment
in service
2010
Composite Rate
2009
Composite Rate
$
360.6
1,256.5
79.6
58.6
$ 1,755.3
$ 3,543.6
36.1
18.6
$ 3,598.3
2.5%
3.4%
3.7%
N/A
2.3%
3.6%
N/A
$
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
$ 5,353.6
2.6%
$ 5,269.2
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 2.6% in 2010, 2.7% in 2009 and 2.6% in 2008.
The following is a summary of DP&L’s Property, plant and equipment with corresponding composite
depreciation rates at December 31, 2010 and 2009:
DP&L
$ in millions
Regulated:
Transmission
Distribution
General
Non-depreciable
Total regulated
Unregulated:
Production / Generation
Non-depreciable
Total unregulated
Total property, plant and equipment
in service
AROs
2010
Composite Rate
2009
Composite Rate
$
360.6
1,256.5
79.5
58.7
$ 1,755.3
$ 3,323.0
15.4
$ 3,338.4
2.5%
3.4%
3.7%
N/A
2.3%
N/A
$
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
$ 5,093.7
2.6%
$ 5,011.0
2.7%
We recognize AROs in accordance with GAAP which requires legal obligations associated with the retirement
of long-lived assets to be recognized at their fair value at the time those obligations are incurred. Upon initial
recognition of a legal liability, costs are capitalized as part of the related long-lived asset and depreciated over the
useful life of the related asset. 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 expenditures of this type requires significant judgment. Management
routinely updates these estimates as additional information becomes available.
DPL Inc. 77
Changes in the Liability for Generation AROs
Inventories
$ in millions
Balance at January 1
Accretion expense
Additions
Settlements
Estimated cash flow revisions
2010
2009
$
16.2
0.2
0.8
(0.3)
0.6
$
13.2
0.8
2.1
(0.5)
0.6
Balance at December 31
$
17.5
$
16.2
Asset Removal Costs
We continue to record cost of removal for our regulated
transmission and distribution assets through our
depreciation rates and recover those amounts in
rates charged to our customers. There are no known
legal AROs associated with these assets. We have
recorded $107.9 million and $99.1 million in estimated
costs of removal at December 31, 2010 and 2009,
respectively, as regulatory liabilities for our transmission
and distribution property. These amounts represent
the excess of the cumulative removal costs recorded
through depreciation rates versus the cumulative
removal 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
2010
$ 99.1
11.2
(2.4)
$ 107.9
$
2009
96.0
6.5
(3.4)
$
99.1
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 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. 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 regulatory assets and liabilities to the
statements of results of operations at that time. See Note 3
of Notes to Consolidated Financial Statements.
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
inventory and record emission allowance inventory at
weighted average cost. We calculate the weighted
average cost by each vintage (year) for which emission
allowances can be used and charge to fuel costs the
weighted average cost of emission allowances used
each 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 component of our fuel costs and are reflected in
Operating income when realized. During the periods
ended December 31, 2010, 2009 and 2008, we
recognized gains from the sale of emission allowances
in the amounts of $0.8 million, $5.0 million and $34.8
million, respectively. Beginning in January 2010, a
portion of the gains on emission allowances was used
to reduce the overall fuel rider charged to our SSO
retail customers.
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, are deferred for
financial reporting purposes and are amortized over
the useful lives of the property to which they relate. For
rate-regulated operations, additional deferred income
taxes and offsetting regulatory assets or liabilities
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
consolidated 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 consistent, systematic and rational approach. See
Note 6 of Notes to Consolidated Financial Statements.
78 DPL Inc.
Financial Instruments
We classify our investments in debt and equity financial
instruments of publicly traded entities into different
categories: held-to-maturity and available-for-sale.
Available-for-sale securities are carried at fair value and
unrealized gains and losses on those securities, net of
deferred income taxes, are presented as a separate
component of shareholders’ equity. Other-than-
temporary declines in value are recognized currently
in earnings. Financial instruments classified as held-to-
maturity are carried at amortized cost. The cost basis
for public equity security and fixed maturity investments
is average cost and amortized cost, respectively.
Short-Term Investments
DPL utilizes VRDNs as part of its short-term investment
strategy. The VRDNs are of high credit quality and
are secured by irrevocable letters of credit from major
financial institutions. VRDN investments have variable
rates tied to short-term interest rates. Interest rates
are reset every seven days and these VRDNs can
be tendered for sale back to the financial institution
upon notice. Although DPL’s VRDN investments have
original maturities over one year, they are frequently
re-priced and trade at par. We account for these VRDNs
as available-for-sale securities and record them as
short-term investments at fair value, which approximates
cost, since they are highly liquid and are readily
available to support DPL’s current operating needs.
DPL also holds investment-grade fixed income
corporate securities in its short-term investment
portfolio. These securities are accounted for as held-to-
maturity investments.
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,
$ in millions
2010
2009
2008
State/Local excise taxes
$ 51.7
$ 49.5
$ 52.3
Share-Based Compensation
We measure the cost of employee services received
and paid with equity instruments based on the fair-
value of such equity instrument 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 for employee share options and other similar
instruments at the grant date are estimated using
option-pricing models and any excess tax benefits
are recognized as an addition to paid-in capital. 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 10
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 Derivatives
All derivatives are recognized as either assets or
liabilities in the balance sheets and are measured at
fair value. Changes in the fair value are recorded in
earnings unless they are designated as a cash flow
hedge of a forecasted transaction or qualify for the
normal purchases and sales exception.
We use forward contracts to reduce our exposure
to changes in energy and commodity prices and as
a hedge against the risk of changes in cash flows
associated with expected electricity purchases.
These purchases are used to hedge our full load
requirements. 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 or a portion of
the hedge is deemed to be highly effective and MTM
accounting when the hedge or a portion of the hedge
is not effective. See Note 9 of Notes to Consolidated
Financial Statements.
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
$10.1 million and $16.2 million for 2010 and 2009,
DPL Inc. 79
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. We record these additional insurance and claims costs
of approximately $19.0 million and $11.3 million for 2010 and 2009, 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 holds mandatorily redeemable trust capital securities. The investment in the Trust, which
amounts to $3.6 million and $3.8 million at December 31, 2010 and 2009, 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 at
December 31, 2010 and 2009 that was established upon the Trust’s deconsolidation in 2003. See Note 5 of Notes to
Consolidated Financial Statements.
In addition to the obligations under the note payable mentioned above, DPL also agreed to a security obligation
which represents a full and unconditional guarantee of payments to the capital security holders of the Trust.
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 amounts transacted by DP&L with its related parties:
$ in millions
DP&L Revenues:
Sales to DPLER (a)
DP&L Operation & Maintenance Expenses:
For the years ended December 31,
2010
2009
2008
$ 238.5
$ 64.8
$ 150.6
Premiums paid for insurance services provided by MVIC (b)
Expense recoveries for services provided to DPLER (c)
$
$
(3.3)
5.8
$ (3.4)
$ 1.5
$
$
(3.5)
0.9
(a) DP&L sells power to DPLER to satisfy the electric requirements of DPLER’s retail customers. The revenue dollars associated with sales to DPLER are
recorded as wholesale revenues by DP&L. The increase in DP&L’s sales to DPLER during the year ended December 31, 2010 compared to the same
period in 2009 is primarily due to customers electing to switch their generation service from DP&L to DPLER.
(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.
(c) In the normal course of business DP&L incurs and records expenses on behalf of DPLER. Such expenses include but are not limited to employee-
related expenses, accounting, information technology, payroll, legal and other administration expenses. DP&L subsequently charges these expenses to
DPLER at DP&L’s cost and credits the expense in which they were initially recorded.
Recently Adopted Accounting Standards
Variable Interest Entities
We adopted 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), on January 1, 2010. This standard updates FASC Topic 810
“Consolidation.” ASU 2009-02 changes how a company determines when an entity that is insufficiently capitalized or
is not controlled through voting (or similar) rights should be consolidated. The determination 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. ASU 2009-
02 did not have a material impact on our overall results of operations, financial condition or cash flows.
80 DPL Inc.
Fair Value Disclosures
We adopted ASU 2010-06 “Fair Value Measurements and Disclosures” (ASU 2010-06) on January 1, 2010. This
standard updates FASC Topic 820 “Fair Value Measurements and Disclosures.” 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 are presented separately.
ASU 2010-06 did not have a material impact on our overall results of operations, financial condition or cash flows.
See Note 8 of Notes to Consolidated Financial Statements.
Recently Issued Accounting Standards
There were no recently issued accounting standards that could potentially have a significant impact on our
financial statements.
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,
2010
2009
$
84.5
113.9
7.0
4.0
7.0
(0.9)
$ 215.5
$
73.2
38.8
3.3
$ 115.3
$
74.9
99.4
12.6
10.6
16.4
(1.1)
$ 212.8
$
85.8
38.5
1.4
$ 125.7
At December 31,
2010
2009
$
64.3
95.6
7.0
4.0
7.9
(0.8)
$ 178.0
$
73.2
37.7
3.3
$ 114.2
$
71.0
94.4
12.6
10.6
4.5
(1.1)
$ 192.0
$
85.8
37.1
1.4
$ 124.3
DPL Inc. 81
3 Regulatory Matters
In accordance with GAAP, regulatory assets and liabilities are recorded in the consolidated 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 being reflected 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 consolidated balance sheets of DPL and DP&L include:
$ 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
Fuel and purchased power recovery costs
Other costs
Total regulatory liabilities
Type of
Recovery (a)
Amortization
Through
At December 31,
2010
2009
B/C
C
C
F
D
F
F
D
C
D
F
Ongoing
Ongoing
Ongoing
2011
2014
2011
2011
Ongoing
Ongoing
C
Ongoing
$
29.9
81.1
14.3
0.9
5.5
11.8
2.7
16.9
6.6
6.6
4.8
7.9
$ 189.0
$ 107.9
15.4
6.1
10.0
–
$ 139.4
$
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
(a) B – Balance has an offsetting liability resulting in no impact on rate base.
C – Recovery of incurred costs without a rate of return.
D – Recovery not yet determined, but is probable of occurring in future rate proceedings.
F – Recovery of incurred costs plus rate of return.
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 subsequent periods,
these deferred recoverable income taxes will decrease over time.
Pension benefits represent the qualifying FASC Topic 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
comprehensive 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 lives of the original issues in accordance with FERC and PUCO rules.
82 DPL Inc.
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
provided to the state administrator of the low-income
payment program. In March 2006, the PUCO issued
an order that approved our tariff as filed. We began
collecting this rider immediately and expect to recover
all costs over five years.
Regional transmission organization costs represent
costs incurred to join an 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 that began 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 required to make true-up
adjustments on an annual basis.
RPM capacity costs represent the costs related to
PJM RPM assigned to DP&L that have not yet been
recovered through the RPM rider. We review this rate
and make true-up adjustments 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. 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 AMI costs represent costs
incurred as a result of studying and developing
distribution system upgrades and implementation of
AMI. Consistent with the ESP Stipulation, DP&L re-filed
its smart grid and AMI 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 automation, core telecommunications,
supporting software and in-home technologies. On
October 19, 2010, DP&L elected to withdraw the re-filed
case pertaining to the Smart Grid and AMI programs.
The PUCO accepted the withdrawal in an order issued
on January 5, 2011. The PUCO also indicated that it
expects DP&L to continue to monitor other utilities’ Smart
Grid and AMI programs and to explore the potential
benefits of investing in Smart Grid and AMI programs
and that DP&L will, when appropriate, file new Smart
Grid and/or AMI business cases in the future. We plan to
file to recover these deferred costs in a future regulatory
rate proceeding. Based on past PUCO precedent, 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. These
costs are being recovered through an energy efficiency
rider that began July 1, 2009 and is subject to a two-year
true-up 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 for
costs that are expected to be incurred in the future to
remove existing transmission and distribution property
from service when the property is retired.
SECA net revenue subject to refund represents our
deferral of revenues and costs that were billed to
PJM transmission customers and paid to transmission
owners during 2005 and 2006, but which remain
subject to litigation before the FERC and potential
reversal. DP&L is both a transmission customer and
a transmission owner. SECA revenue and expenses
represent FERC-ordered transitional payments for
the use of transmission lines within PJM. We began
receiving and paying these transitional payments
in May 2005, subject to refund. Since 2005, a large
number of settlements have been entered into among
various market participants including DP&L. A final
FERC order on this issue was issued on May 21,
2010 that substantially supports DP&L’s and other
utilities’ position that SECA obligations should be
paid by parties that used the transmission system
during the timeframe stated above. DP&L, along with
DPL Inc. 83
other transmission owners in PJM and the Midwest
Independent System Operator (MISO) made a
compliance filing at FERC on August 19, 2010 that
fully demonstrated all payment obligations to and from
all parties within PJM and the MISO. The FERC has
made no ruling regarding the compliance filing and
some parties have requested rehearing by FERC of
its May 21, 2010 order. It is expected that any order
on the compliance filing and any order regarding the
rehearing request will be appealed for Court review. In
October 2010, DP&L entered into another settlement
agreement to settle a portion of SECA amounts still
owed to DP&L. With respect to unsettled claims, DP&L
management believes it has deferred as a regulatory
liability the appropriate amounts that are subject
to refund. The eventual outcome of this litigation is
uncertain.
Postretirement benefits represent the qualifying FASC
Topic 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.
Fuel and purchased power recovery costs represent
prudently incurred fuel, purchased power, derivative,
emission and other related costs which will be
recovered from or returned to customers in the future
through the operation of the fuel and purchased
power recovery rider. The fuel and purchased power
recovery rider fluctuates based on actual costs and
recoveries and is modified at the start of each seasonal
quarter. DP&L implemented the fuel and purchased
power recovery rider on January 1, 2010. DP&L is
currently undergoing an audit of its fuel and purchased
power recovery rider and, as a result, there is some
uncertainty as to the costs that will be approved for
recovery. Independent third parties conduct the
fuel audit in accordance with the PUCO standards.
DP&L anticipates that some of this uncertainty will be
resolved during the summer of 2011 after completion
of the fuel audit. As a result of the fuel audit, DP&L
may record a favorable or unfavorable adjustment to
earnings. Based on past PUCO precedent, we believe
these deferred costs are probable of future recovery or
repayment in the case of over recovery.
84 DPL Inc.
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 materials and
operating supplies, and capital additions are allocated to the owners in accordance with their respective ownership
interests. As of December 31, 2010, we had $56 million of construction work in process at such facilities. DP&L’s share
of the operating cost of such facilities is included within the corresponding line in the Statements of Results of Operations
and DP&L’s share of the investment in the facilities is included in the Balance Sheets.
DP&L’s undivided ownership interest in such facilities as well as our wholly-owned coal fired Hutchings plant at
December 31, 2010, is as follows:
Production Units:
Beckjord Unit 6
Conesville Unit 4
East Bend Station
Killen Station
Miami Fort Units 7 and 8
Stuart Station
Zimmer Station
Transmission
(at varying percentages)
Total
DP&L Share
DP&L Investment
Ownership
(%)
Production
Capacity
(MW)
Gross Plant
In Service
($ in millions)
Accumulated
Depreciation
($ in millions)
Construction
Work in
Process
($ in millions)
SCR and FGD
Equipment
Installed and In
Service (Yes/No)
50.0
16.5
31.0
67.0
36.0
35.0
28.1
210
129
186
402
368
820
365
$
75
118
200
611
347
697
1,059
91
$
52
27
131
288
130
266
612
56
2,480
$ 3,198
$ 1,562
$ 2
5
1
3
7
25
12
–
$ 55
No
Yes
Yes
Yes
Yes
Yes
Yes
Wholly-owned production unit:
Hutchings Station
100.0
388
$
123
$
111
$ 1
No
DP&L’s share of operating costs associated with the jointly-owned generating facilities is included within the
corresponding line in the Statements of Results of Operations.
DPL Inc. 85
5 Debt Obligations
Long-term Debt
$ in millions
DP&L
First mortgage bonds maturing in October 2013 - 5.125%
Pollution control series maturing in January 2028 - 4.70%
Pollution control series maturing in January 2034 - 4.80%
Pollution control series maturing in September 2036 - 4.80%
Pollution control series maturing in November 2040 -
variable rates: 0.16% - 0.35% and 0.24% - 0.85% (a)
Obligation for capital lease
Unamortized debt discount
Total long-term debt – DP&L
DPL
Senior notes maturing in September 2011 - 6.875%
Note to DPL Capital Trust II maturing in September 2031 - 8.125%
Unamortized debt discount
Total long-term debt – DPL
Current portion - Long-term Debt
$ in millions
DP&L
Pollution control series maturing in November 2040 -
variable rates: 0.16% - 0.35% and 0.24% - 0.85% (a)
Obligation for capital lease
Total current portion - long-term debt – DP&L
DPL
Senior notes maturing in September 2011 - 6.875%
Total current portion - long-term debt – DPL
At December 31,
2010
470.0
35.3
179.1
100.0
100.0
884.4
0.1
(0.5)
884.0
$
$
–
142.6
–
$ 1,026.6
2009
$ 470.0
35.3
179.1
100.0
–
784.4
–
(0.7)
$ 783.7
297.4
142.6
(0.2)
$ 1,223.5
At December 31,
2010
2009
$
$
$
–
0.1
0.1
297.4
297.5
$ 100.0
0.6
$ 100.6
–
$ 100.6
(a) Range of interest rates for the twelve months ended December 31, 2010 and December 31, 2009, respectively.
At December 31, 2010, maturities of long-term debt, including capital lease obligations, are summarized as follows:
$
DPL
297.5
0.1
470.0
–
–
557.0
$ 1,324.6
$
DP&L
0.1
0.1
470.0
–
–
414.4
$ 884.6
$ in millions
Due within one year
Due within two years
Due within three years
Due within four years
Due within five years
Thereafter
86 DPL Inc.
Debt
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. DP&L had no outstanding borrowings
under this credit facility at December 31, 2010. Fees
associated with this credit facility were approximately
$1.2 million and $0.9 million during the years ended
December 31, 2010 and 2009, respectively. Changes in
DP&L’s credit ratings may affect fees and the applicable
interest rate. This revolving credit agreement contains a
$50 million letter of credit sublimit. As of December 31,
2010, DP&L had no outstanding letters of credit against
the facility.
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 and issued corresponding First Mortgage
Bonds to support repayment of the funds. The payment
of principal and interest on each series of the bonds
when due is backed by a standby LOC issued by
JPMorgan Chase Bank, N.A. This LOC facility, which
expires in December 2013, is irrevocable and has
no subjective acceleration clauses. The bonds were
classified within the current portion of long term debt
at December 31, 2009 as the standby LOC backing
the bonds was set to expire during the fourth quarter of
2010. During the fourth quarter of 2010, DP&L renewed
the standby LOC to back the payment of principal and
interest on each series of the bonds when due. The
new LOC facility expires in December 2013 therefore
the bonds have been reclassified to Long-term debt on
the balance sheets of DPL and DP&L.
On March 31, 2009, DPL paid its $175 million
8.00% Senior notes when the notes became due.
On April 21, 2009, DP&L entered into a $100
million unsecured revolving credit agreement with
a syndicated bank group. The agreement was for a
364-day term and expired on April 20, 2010.
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 recorded within Interest
expense on the Consolidated Statements of Results
of Operations.
On April 20, 2010, DP&L entered into a $200
million unsecured revolving credit agreement with a
syndicated bank group. This agreement is for a three
year term expiring on April 20, 2013 and provides
DP&L with the ability to increase the size of the
facility by an additional $50 million. DP&L had no
outstanding borrowings under this credit facility at
December 31, 2010. Fees associated with this credit
facility were approximately $0.5 million during the
period between April 20, 2010 and December 31,
2010. This facility also contains a $50 million letter of
credit sublimit. As of December 31, 2010, DP&L had no
outstanding letters of credit against the facility.
Substantially all property, plant and equipment of
DP&L is subject to the lien of the mortgage securing
DP&L’s First and Refunding Mortgage, dated
October 1, 1935, with the Bank of New York Mellon
as Trustee.
See Note 18 of Notes to Consolidated Financial
Statements for additional discussion relating to DPL’s
8.125% Note to DPL – Capital Trust II.
DPL Inc. 87
6 Income Taxes
For the years ended December 31, 2010, 2009 and 2008, 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
Depreciation of AFUDC - Equity
Investment tax credit amortized
Section 199 - domestic production deduction
Accrual (settlement) for open tax years (b)
Other, net (c)
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
Investment loss
Compensation and employee benefits
Insurance
Other (d)
Net noncurrent (liabilities)
Net Current Assets (e)
Other
Net current assets
For the years ended December 31,
2010
2009
2008
$
151.7
$
119.9
$
121.9
2.4
(2.2)
(2.8)
(9.1)
0.2
2.8
143.0
84.8
1.1
85.9
55.9
1.2
57.1
143.0
$
$
$
$
$
$
0.9
(2.0)
(2.8)
(4.6)
(1.4)
2.5
112.5
(84.4)
(1.8)
(86.2)
196.0
2.7
198.7
112.5
$
$
$
$
$
$
4.1
(4.3)
(2.8)
(4.2)
(7.2)
(4.6)
102.9
60.9
1.8
62.7
37.9
2.3
40.2
102.9
$
$
$
$
$
$
At December 31,
2010
2009
$ (618.6)
(10.3)
(12.4)
11.3
(0.5)
21.0
(1.5)
(14.4)
$ (625.4)
$ (583.5)
(12.9)
(16.5)
12.3
0.1
35.8
0.8
(5.2)
$ (569.1)
$
$
1.1
1.1
$
$
3.7
3.7
(a) The statutory tax rate of 35% was applied to pre-tax earnings from continuing operations.
(b) DPL has recorded an expense of $0.2 million, benefits of $2.9 million and $40.7 million in 2010, 2009 and 2008, respectively, 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 further below in Note 6 of Notes to Consolidated Financial Statements.
(c) Includes a benefit of $0.3 million, an expense of $2.0 million, a benefit of $3.8 million in 2010, 2009 and 2008, respectively, of income tax related to
adjustments from prior years.
(d) The Other noncurrent liabilities caption includes deferred tax assets of $13.1 million in 2010 and $12.0 million in 2009 related to state and local tax net
operating loss carryforwards, net of related valuation allowances of $13.1 million in 2010 and $12.0 million in 2009. As of December 31, 2010 and 2009, all
deferred tax assets related to net operating losses were valued at zero. These net operating loss carryforwards expire from 2017 to 2025.
(e) Amounts are included within Other prepayments and current assets on the Consolidated Balance Sheets of DPL.
88 DPL Inc.
DPL has recorded $0.2 million, $0.7 million and $0.3 million in 2010, 2009 and 2008, respectively, for tax benefits
related to stock-based compensation that were credited to Retained earnings. DPL has recorded $5.8 million of tax
expense in 2010 and $1.7 million and $11.5 million of tax benefits in 2009 and 2008, 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, 2010, 2009 and 2008, 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
Depreciation of AFUDC - Equity
Investment tax credit amortized
Section 199 - domestic production deduction
Accrual (settlement) for open tax years (b)
Other, net (c)
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 (d)
Other
Net current assets
For the years ended December 31,
2010
2009
2008
$
144.2
$
134.2
$
142.1
1.9
(2.2)
(2.8)
(9.1)
0.2
3.0
135.2
83.1
0.8
83.9
50.1
1.2
51.3
135.2
$
$
$
$
$
$
0.4
(2.0)
(2.8)
(4.6)
(1.4)
0.7
124.5
(70.3)
(2.5)
(72.8)
194.4
2.9
197.3
124.5
$
$
$
$
$
$
2.6
(4.3)
(2.8)
(4.2)
(7.2)
(6.0)
120.2
81.2
0.9
82.1
36.4
1.7
38.1
120.2
$
$
$
$
$
$
At December 31,
2010
2009
$ (595.6)
(10.3)
(12.4)
11.3
21.0
(12.0)
$ (598.0)
$ (563.7)
(12.9)
(16.5)
12.3
35.8
(8.0)
$ (553.0)
$
$
1.2
1.2
$
$
3.7
3.7
(a) The statutory tax rate of 35% was applied to pre-tax earnings.
(b) DP&L has recorded an expense of $0.2 million and benefits of $2.9 million and $40.7 million in 2010, 2009 and 2008, 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 further below in Note 6 of Notes to Consolidated
Financial Statements.
(c) Includes a benefit of $0.3 million, an expense of $0.8 million, and a benefit of $3.5 million in 2010, 2009 and 2008, respectively, of income tax related to
adjustments from prior years.
(d) Amounts are included within Other prepayments and current assets on the Balance Sheets of DP&L.
DPL Inc. 89
DP&L has recorded $0.2 million, $0.7 million and
$0.3 million in 2010, 2009 and 2008, respectively,
for tax benefits related to stock-based compensation
that were credited to Other paid-in capital. DP&L has
recorded $0.1 million of tax expense in 2010 and $0.5
million and $16.5 million of tax benefits in 2009 and
2008, 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 at 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 at end of year
2010
2009
$ 19.3
$ 1.9
(0.4)
–
0.3
–
20.6
(3.2)
0.2
$ 19.4
–
$ 19.3
Of the December 31, 2010 balance of unrecognized tax
benefits, $20.6 million is due to uncertainty in the timing
of deductibility offset by $1.1 million of unrecognized
tax liabilities that would affect the effective tax rate.
We recognize interest and penalties related to
unrecognized tax benefits in Income tax expense.
The amount of interest and penalties accrued was an
expense of $0.3 million as of December 31, 2010, 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 2010, 2009
and 2008 was an expense of $0.2 million, and benefits of
$0.1 million and $9.0 million, respectively.
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.
The Internal Revenue Service began an
examination of our 2008 Federal income tax return
during the second quarter of 2010. The examination is
still ongoing and we do not expect the results of this
examination to have a material impact on our financial
condition, results of operations and cash flows.
On December 17, 2010, the Federal Tax Relief,
Unemployment Insurance Reauthorization, and Job
Creation Act of 2010 was enacted. This legislation
amends, creates and extends various Federal tax
statutes. Among the various statutes is the extension
and expansion of capital expensing provisions,
commonly referred to as bonus depreciation, for
2010, 2011 and 2012. While these provisions are not
expected to have a material impact on our results of
operations, we anticipate they will result in positive cash
flow contributions over the next few years.
On June 21, 2010, Ohio Senate Bill 232 was
enacted. This legislation eliminates Ohio’s tangible
personal property tax and real property taxes on
generation for renewable and advanced energy
project facilities that begin construction before
January 1, 2012, produce energy by 2013 (or 2017 for
nuclear, clean coal and cogeneration projects) and
create Ohio jobs. Rules containing implementation
provisions were proposed on September 29, 2010. We
do not anticipate this law and the related rules will have
a material impact on either DPL’s or DP&L’s financial
condition, results of operations and cash flows.
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.
7 Pension and Postretirement Benefits
DP&L sponsors a defined benefit pension 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 (management employees), the
90 DPL Inc.
defined benefit pension plan is based primarily
on compensation and years of service. As of
December 31, 2010, this pension plan was closed to
new management employees. A participant is 100%
vested in all amounts credited to his or her account
upon the completion of five vesting years, as defined
in The Dayton Power and Light Company Retirement
Income Plan, or upon a change of control or the
participant’s death or disability. If a participant’s
employment is terminated, other than by death or
disability, prior to such participant becoming 100%
vested in his or her account, the account shall be
forfeited as of the date of termination.
Management employees beginning employment
on or after January 1, 2011 will be enrolled in a cash
balance plan. Similar to the defined benefit pension
plan for management employees, the cash balance
benefits are based on compensation and years of
service. A participant shall become 100% vested in
all amounts credited to his or her account upon the
completion of three vesting years, as defined in The
Dayton Power and Light Company Retirement Income
Plan or upon a change of control or the participant’s
death or disability. If a participant’s employment is
terminated, other than by death or disability, prior to
such participant becoming 100% vested in his or her
account, the account shall be forfeited as of the date of
termination. Vested benefits in the cash balance plan
are fully portable upon termination of employment.
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. The
SERP was replaced by the DPL Inc. Supplemental
Executive Defined Contribution Retirement Plan
(SEDCRP). The Compensation Committee of the
Board of Directors designates the eligible employees.
Pursuant to the SEDCRP, we provide a supplemental
retirement benefit to participants by crediting an
account established for each participant in accordance
with the Plan requirements. We designate as
hypothetical investment funds under the SEDCRP
one or more of the investment funds provided under
The Dayton Power and Light Company Employee
Savings Plan. Each participant may change his or her
hypothetical investment fund selection at specified
times. If a participant does not elect a hypothetical
investment fund(s), then we select the hypothetical
investment fund(s) for such participant. We also
have an unfunded liability related to agreements for
retirement benefits of certain terminated and retired
key executives. The unfunded liabilities for these
agreements and the SEDCRP were $ 1.8 million
and $1.4 million at December 31, 2010 and 2009,
respectively.
We generally fund pension plan benefits as
accrued in accordance with the minimum funding
requirements of the Employee Retirement Income
Security Act of 1974 (ERISA) and, in addition, make
voluntary contributions from time to time. In February
2010, DP&L contributed $20.0 million to the defined
benefit plan. In September 2010, DP&L contributed an
additional $20.0 million to the defined benefit plan for a
total contribution of $40.0 million in 2010.
Qualified employees who retired prior to 1987
and their dependents are eligible for health care and
life insurance benefits until their death, while qualified
employees who retired after 1987 are eligible for life
insurance benefits and partially subsidized health care.
The partially subsidized health care is at the election
of the employee, who pays the majority of the cost,
and is available only from their retirement until they are
covered by Medicare at age 65. We have funded a
portion of the union-eligible 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.
The following tables set forth our pension and
postretirement benefit plans’ obligations and assets
recorded on the balance sheets as of December 31,
2010 and 2009. The amounts presented in the following
tables for pension include both the defined benefit
pension plan and the SERP in the aggregate, and use
a measurement date of December 31, 2010 and 2009.
The amounts presented for postretirement include
both health and life insurance benefits and use a
measurement date of December 31, 2010 and 2009.
DPL Inc. 91
$ in millions
Change in Benefit Obligation During Year
Benefit obligation at January 1
Service cost
Interest cost
Plan amendments
Actuarial (gain) / loss
Benefits paid
Medicare Part D Reimbursement
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
Pension
Postretirement
2010
2009
2010
2009
$ 323.9
4.8
17.7
–
8.0
(20.6)
–
$ 333.8
$ 243.4
28.6
40.4
(20.6)
–
$ 291.8
$ 294.6
3.6
18.1
7.2
20.3
(19.9)
–
$ 323.9
$ 225.4
37.5
0.4
(19.9)
–
$ 243.4
$ 26.2
0.1
1.2
–
(2.0)
(2.0)
0.2
$ 23.7
$
$
5.0
0.3
1.5
(2.0)
–
4.8
$ 25.2
–
1.5
1.1
0.3
(1.9)
–
$ 26.2
$
$
6.2
0.4
0.3
(2.3)
0.4
5.0
Funded Status of Plan
$ (42.0)
$ (80.5)
$ (18.9)
$ (21.2)
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)
Accumulated other comprehensive income, regulatory
$
(0.4)
(41.6)
$ (42.0)
$
(0.4)
(80.1)
$ (80.5)
$ (0.6)
(18.3)
$ (18.9)
$ (0.4)
(20.8)
$ (21.2)
$
16.8
125.4
$
20.4
130.9
$
0.9
(7.6)
$
1.1
(6.9)
assets and regulatory liabilities, pre-tax
$ 142.2
$ 151.3
$ (6.7)
$ (5.8)
Recorded as:
Regulatory asset
Regulatory liability
Accumulated other comprehensive income
Accumulated other comprehensive income, regulatory
$
80.0
–
62.2
$
84.6
–
66.7
$
0.5
(6.1)
(1.1)
$
0.6
(5.1)
(1.3)
assets and regulatory liabilities, pre-tax
$ 142.2
$ 151.3
$ (6.7)
$ (5.8)
The accumulated benefit obligation for our defined benefit pension plans was $320.9 million and $314.0 million at
December 31, 2010 and 2009, respectively.
92 DPL Inc.
The net periodic benefit cost (income) of the pension and postretirement benefit plans at December 31 were:
Net Periodic Benefit Cost / (Income)
$ in millions
Service cost
Interest cost
Expected return on assets (a)
Amortization of unrecognized:
Actuarial (gain) loss
Prior service cost
Net periodic benefit cost / (income)
$
2010
4.8
17.7
(22.4)
$
Pension
2009
3.6
18.1
(22.5)
$
2008
3.2
16.7
(24.1)
7.2
3.7
4.4
3.4
2.6
2.4
$
2010
0.1
1.2
(0.3)
(1.1)
0.1
Postretirement
$
2009
–
1.5
(0.4)
(0.7)
0.1
$
2008
–
1.4
(0.4)
(0.9)
–
before adjustments
$
11.0
$
7.0
$
0.8
$
–
$
0.5
$
0.1
(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 amortized into the MRVA equally over a period not to exceed five
years. We use a methodology under which we include the difference between actual and estimated asset returns in the MRVA equally over a three year
period. The MRVA used in the calculation of expected return on pension plan assets was approximately $274 million in 2010, $275 million in 2009 and
$293 million in 2008.
Other Changes in Plan Assets and Benefit Obligation Recognized in
Accumulated Other Comprehensive Income, Regulatory Assets and Regulatory Liabilities
$ in millions
Net actuarial (gain) / loss
Prior service cost / (credit)
Reversal of amortization item:
Net actuarial (gain) / loss
Prior service cost / (credit)
Transition (asset) / obligation
Total recognized in Accumulated other comprehensive
income, Regulatory assets and Regulatory liabilities
Total recognized in net periodic benefit cost and
Accumulated other comprehensive income,
Regulatory assets and Regulatory liabilities
Pension
Postretirement
$
2010
1.9
–
(7.2)
(3.7)
–
$
2009
5.3
7.2
2010
$ (1.9)
–
(4.4)
(3.4)
–
1.1
(0.1)
–
$
(9.0)
$
4.7
$ (0.9)
$
2.0
$ 11.7
$ (0.9)
2009
0.3
1.1
0.7
(0.1)
–
2.0
2.5
$
$
$
Estimated amounts that will be amortized from Accumulated other comprehensive income, Regulatory assets and
Regulatory liabilities into net periodic benefit costs during 2011 are:
$ in millions
Net actuarial (gain) / loss
Prior service cost / (credit)
Pension
$
9.1
2.2
Postretirement
$
0.1
(0.9)
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.
For 2011, we have decreased our expected long-term rate of return on assets assumption from 8.50% to
8.00% for pension plan assets. We are maintaining our expected long-term rate of return on assets assumption at
approximately 6.00% for postretirement benefit plan assets. These expected returns are based primarily on portfolio
investment allocation. There can be no assurance of our ability to generate these rates of return in the future.
DPL Inc. 93
Our overall discount rate was evaluated in relation to the December 31, 2010 Hewitt Top Quartile Yield Curve which
represents a portfolio of top-quartile AA-rated bonds used to settle pension obligations. Peer data and historical
returns were also reviewed to verify the reasonableness and appropriateness of our discount rate used in the
calculation of benefit obligations and expense.
The weighted average assumptions used to determine benefit obligations for the years ended December 31,
2010 and 2009 were:
Benefit Obligation Assumptions
Discount rate for obligations
Rate of compensation increases
Pension
Postretirement
2010
5.31%
3.94%
2009
5.75%
4.44%
2010
4.96%
N/A
2009
5.35%
N/A
The weighted-average assumptions used to determine net periodic benefit cost (income) for the years ended
December 31, 2010, 2009 and 2008 were:
Net Periodic Benefit Cost / (Income) Assumptions
Discount rate
Expected rate of return on plan assets
Rate of compensation increases
2010
5.75%
8.50%
4.44%
Pension
2009
6.25%
8.50%
5.44%
2008
6.00%
8.50%
5.44%
2010
5.35%
6.00%
N/A
Postretirement
2009
6.25%
6.00%
N/A
2008
6.00%
6.00%
N/A
The assumed health care cost trend rates at December 31, 2010 and 2009 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
Benefit Obligations
2010
2009
2010
2009
9.50%
2015
9.00%
2014
5.00%
9.50%
2014
9.00%
2013
5.00%
8.50%
2018
8.00%
2017
5.00%
9.50%
2015
9.00%
2014
5.00%
94 DPL Inc.
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
One-percent
increase
One-percent
decrease
Service cost plus interest cost
Benefit obligation
$
–
$ 0.9
$
–
$ (0.8)
The following benefit payments, which reflect future
service, are expected to be paid as follows:
Estimated Future Benefit Payments and
Medicare Part D Reimbursements
$ in millions
2011
2012
2013
2014
2015
2016 - 2020
Pension
Postretirement
21.3
$
23.1
$
23.1
$
23.6
$
$
24.0
$ 122.9
$ 2.5
$ 2.4
$ 2.4
$ 2.3
$ 2.1
$ 8.8
We expect to make contributions of $0.4 million to our
SERP in 2011 to cover benefit payments. Additionally,
we are considering making discretionary contributions
of up to $40.0 million to our defined benefit pension
plan during 2011. We also expect to contribute
$2.5 million to our other postretirement benefit plans in
2011 to cover benefit payments.
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 of 80%, lump-sum payments to new retirees are
limited to 50% of amounts that otherwise would have
been paid and new benefit improvements may not go
into effect. For the 2010 plan year, the funded status
of our defined benefit pension plan as calculated
under the requirements of the Act was 99.4% and is
estimated to be 99.4% until the 2011 status is certified
in September 2011 for the 2011 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
consideration of plan liabilities, the plan’s funded status
and our financial condition. Investment performance
and asset allocation are measured and monitored on
an ongoing basis.
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 international 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.
DPL Inc. 95
The fair values of our pension plan assets at December 31, 2010 by asset category are as follows:
Fair Value Measurements for Pension Plan Assets at December 31, 2010
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
Fixed Income
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
Market Value
at 12/31/10
Quoted Prices in
Active Markets for
Identical Assets
Significant
Observable
Inputs
Significant
Unobservable
Inputs
(Level 1)
(Level 2)
(Level 3)
$
15.2
49.4
23.8
31.5
$ 119.9
$
5.2
39.0
8.2
58.9
$ 111.3
$
–
–
23.8
–
$ 23.8
$
$
–
–
–
–
–
$
$
$
0.4
$
0.4
2.8
57.4
60.2
$
$
–
–
–
$
$
15.2
49.4
–
31.5
96.1
$
5.2
39.0
8.2
58.9
$ 111.3
$
$
$
–
–
–
–
$
$
$
$
$
–
–
–
–
–
–
–
–
–
–
$ 2.8
57.4
$ 60.2
$ 60.2
Total Pension Plan Assets
$ 291.8
$ 24.2
$ 207.4
(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.
96 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
$
$
–
–
–
$
$
4.5
35.9
–
19.2
59.6
$
12.9
13.8
77.4
$ 104.1
$
$
$
–
–
–
–
$ 243.4
$ 26.0
$ 163.7
$
$
$
$
$
–
–
–
–
–
–
–
–
–
–
$ 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.
DPL Inc. 97
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
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, 2010
Limited
Partnership Interest
Common
Collective Fund
$ 3.1
$ 33.1
0.1
–
(0.1)
–
1.3
–
16.2
–
$ 3.1
$ 50.6
$ 0.1
–
(0.4)
–
$ 2.8
$ 0.8
–
6.0
–
$ 57.4
The fair values of our other postretirement benefit plan assets at December 31, 2010 by asset category are
as follows:
Fair Value Measurements for Postretirement Plan Assets at December 31, 2010
Asset Category
$ in millions
Market Value
at 12/31/10
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)
$ 4.8
$ –
$ 4.8
$ –
(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.
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.
98 DPL Inc.
8 Fair Value Measurements
The fair values of our financial instruments are based on published sources for pricing when possible. We rely on
valuation models only when no other method is available to us. The fair value of our financial instruments represents
estimates of possible value that may or may not be realized in the future. The table below presents the fair value and
cost of our non-derivative instruments at December 31, 2010 and 2009. See also Note 9 of Notes to Consolidated
Financial Statements for the fair values of our derivative instruments.
$ in millions
DPL
Assets
Money Market Funds
Equity Securities
Debt Securities
Multi-Strategy Fund
Total Master Trust Assets
Short-term Investments - VRDNs
Short-term Investments - Bonds
Total Short-term Investments
Total Assets
Liabilities
Debt
DP&L
Assets
Money Market Funds
Equity Securities (a)
Debt Securities
Multi-Strategy Fund
Total Master Trust Assets
Liabilities
Debt
At December 31, 2010
At December 31, 2009
Cost
Fair Value
Cost
Fair Value
$
$
$
$
$
1.6
3.8
5.2
0.3
10.9
54.2
15.1
69.3
80.2
$
$
$
$
$
1.6
4.4
5.5
0.3
11.8
54.2
15.1
69.3
81.1
$
$
$
$
$
4.1
2.6
5.3
0.3
12.3
–
–
–
12.3
$
$
$
$
$
4.1
2.8
5.5
0.2
12.6
–
–
–
12.6
$ 1,324.1
$ 1,307.5
$ 1,324.1
$ 1,317.6
$
$
$
1.6
17.5
5.2
0.3
24.6
884.1
$
$
$
1.6
30.2
5.5
0.3
37.6
850.6
$
$
$
4.1
16.7
5.3
0.3
26.4
$
$
4.1
31.1
5.5
0.2
40.9
884.3
$ 844.5
(a) DPL stock held in the DP&L Master Trust is eliminated in consolidation.
Debt
The fair value of debt is 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 2011 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 recorded at fair value within Other assets on the balance sheets and classified as available
for sale. Any unrealized gains or losses are recorded in AOCI until the securities are sold.
DPL had $0.9 million ($0.6 million after tax) in unrealized gains and immaterial unrealized losses on the
Master Trust assets in AOCI at December 31, 2010 and $0.3 million ($0.2 million after tax) in unrealized gains and
immaterial unrealized losses in AOCI at December 31, 2009.
DPL Inc. 99
DP&L had $13.0 million ($8.5 million after tax) in unrealized gains and immaterial unrealized losses on the
Master Trust assets in AOCI at December 31, 2010 and $14.5 million ($9.5 million after tax) in unrealized gains and
immaterial unrealized losses in AOCI at December 31, 2009.
Approximately $1.0 million in unrealized gains are expected to be transferred to earnings in the next twelve
months.
Short-term Investments
DPL utilizes VRDNs as part of its short-term investment strategy. The VRDNs are of high credit quality and are
secured by irrevocable letters of credit from major financial institutions. VRDN investments have variable rates tied
to short-term interest rates. Interest rates are reset every seven days and these VRDNs can be tendered for sale
upon notice back to the financial institution. Although DPL’s VRDN investments have original maturities over one
year, they are frequently re-priced and trade at par. We account for these VRDNs as available-for-sale securities
and record them as short-term investments at fair value, which approximates cost, since they are highly liquid and
are readily available to support DPL’s current operating needs.
DPL also holds investment-grade fixed income corporate bonds that are classified as held-to-maturity. Held-
to-maturity securities are those securities that we have the intent and ability to hold until maturity. The held-to-
maturity securities are carried at amortized cost which is determined based on specific identification. The bonds are
classified as short-term since they will mature within the next twelve months.
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, 2010. These assets are part of the Master Trust and exclude DPL
common stock which is valued using quoted market prices and not the NAV per unit. Fair values estimated using
the NAV per unit are considered Level 2 inputs within the fair value hierarchy, unless they cannot be redeemed at
the NAV per unit on the reporting date. Investments that have restrictions on the redemption of the investments are
Level 3 inputs. As of December 31, 2010, DPL did not have any investments for sale at a price different from the
NAV per unit.
Fair Value Estimated Using Net Asset Value per Unit
$ in millions
Money Market Fund (a)
Equity Securities (b)
Debt Securities (c)
Multi-Strategy Fund (d)
Total
Fair Value
at December 31,
2010
Unfunded
Commitments
Redemption
Frequency
Redemption
Notice Period
$ 1.6
4.4
5.5
0.3
$ 11.8
$ –
–
–
–
$ –
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.
100 DPL Inc.
Fair Value Estimated Using Net Asset Value per Unit
$ in millions
Money Market Fund (a)
Equity Securities (b)
Debt Securities (c)
Multi-Strategy Fund (d)
Total
Fair Value
at December 31,
2009
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 global average default rates based on an annual study conducted by a large rating agency.
DPL Inc. 101
We did not have any transfers of the fair values of our financial instruments between Level 1 and Level 2 of the
fair value hierarchy during the twelve months ended December 31, 2010 and 2009. The fair value of assets and
liabilities at December 31, 2010 and 2009 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
Level 1
Level 2
Level 3
Fair Value
at December 31,
2010*
Based on
Quoted Prices in
Active Markets
Other
Observable
Inputs
Unobservable
Inputs
Collateral and
Counterparty
Netting
Fair Value on
Balance Sheet at
December 31, 2010
Master Trust Assets
Money Market Funds
Equity Securities
Debt Securities
Multi-Strategy Fund
$
1.6
4.4
5.5
0.3
Total Master Trust Assets
$
11.8
Derivative Assets
FTRs
Heating Oil Futures
Interest Rate Hedge
Forward NYMEX Coal
Contracts
Forward Power
Contracts
Total Derivative Assets
Short-term Investments -
VRDNs
Short-term Investments -
Bonds
Total Short-term
investments
Total Assets
Liabilities
Derivative Liabilities
Interest Rate Hedge
Forward Power
Contracts
Total Derivative Liabilities
Total Liabilities
$
$
$
0.3
1.6
20.7
37.5
0.2
60.3
54.2
15.1
$
69.3
$ 141.4
$
6.6
3.1
9.7
9.7
$
$
* Includes credit valuation adjustments for counterparty risk.
$
$
$
–
–
–
–
–
–
1.6
–
–
–
$ 1.6
$
$
–
–
–
$
1.6
4.4
5.5
0.3
$
11.8
$
$
$
0.3
–
20.7
37.5
0.2
58.7
54.2
15.1
$
69.3
$ 1.6
$ 139.8
$
$
$
–
–
–
–
$
6.6
3.1
9.7
9.7
$
$
$ –
–
–
–
$ –
$ –
–
–
–
–
$
$
$
–
–
–
–
–
–
(1.6)
–
(21.9)
(0.2)
$ –
$ (23.7)
$ –
–
$ –
$ –
$ –
–
$ –
$ –
$
$
–
–
–
$ (23.7)
$
$
$
–
(1.1)
(1.1)
(1.1)
$
1.6
4.4
5.5
0.3
$
11.8
$
$
$
0.3
–
20.7
15.6
–
36.6
54.2
15.1
$
69.3
$ 117.7
$
6.6
2.0
8.6
8.6
$
$
102 DPL Inc.
Assets and Liabilities Measured at Fair Value on a Recurring Basis
DPL
$ in millions
Assets
Master Trust Assets
Money Market Funds
Equity Securities
Debt Securities
Multi-Strategy Fund
Total Master Trust Assets
Derivative Assets
FTRs
Forward NYMEX Coal
Contracts
Forward Power
Contracts
Total Derivative Assets
Total Assets
Liabilities
Derivative Liabilities
Heating Oil Futures
Forward Power
Contracts
Forward NYMEX Coal
Contracts
Total Derivative Liabilities
Total Liabilities
Level 1
Level 2
Level 3
Fair Value
at December 31,
2009*
Based on
Quoted Prices in
Active Markets
Other
Observable
Inputs
Unobservable
Inputs
Collateral and
Counterparty
Netting
Fair Value on
Balance Sheet at
December 31, 2009
$ 4.1
2.8
5.5
0.2
$ 12.6
$ 0.8
5.5
0.7
$ 7.0
$ 19.6
$
$
$
$
$
–
–
–
–
–
–
–
–
–
–
$ 4.1
2.8
5.5
0.2
$ 12.6
$ –
–
–
–
$ –
$ 0.8
$ –
5.5
0.7
$ 7.0
$ 19.6
–
–
$ –
$ –
$
$
$
–
–
–
–
–
–
(1.4)
(0.7)
$ (2.1)
$ (2.1)
$ 4.1
2.8
5.5
0.2
$ 12.6
$ 0.8
4.1
–
$ 4.9
$ 17.5
$ 1.2
$ 1.2
$
–
$ –
$ (1.2)
$
–
3.0
1.2
$ 5.4
$ 5.4
–
–
$ 1.2
$ 1.2
3.0
1.2
$ 4.2
$ 4.2
–
–
$ –
$ –
(0.7)
–
$ (1.9)
$ (1.9)
2.3
1.2
$ 3.5
$ 3.5
* Includes credit valuation adjustments for counterparty risk.
DPL Inc. 103
The fair value of assets and liabilities at December 31, 2010 and 2009 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
Assets
Master Trust Assets
Money Market Funds
Equity Securities (a)
Debt Securities
Multi-Strategy Fund
Total Master Trust Assets
Derivative Assets
FTRs
Heating Oil Futures
Forward NYMEX Coal
Contracts
Forward Power
Contracts
Total Derivative Assets
Total Assets
Liabilities
Derivative Liabilities
Heating Oil Futures
Forward Power
Contracts
Forward NYMEX Coal
Contracts
Total Derivative Liabilities
Total Liabilities
Level 1
Level 2
Level 3
Fair Value
at December 31,
2010*
Based on
Quoted Prices in
Active Markets
Other
Observable
Inputs
Unobservable
Inputs
Collateral and
Counterparty
Netting
Fair Value on
Balance Sheet at
December 31, 2010
$ 1.6
30.2
5.5
0.3
$ 37.6
$ 0.3
1.6
37.5
0.2
$ 39.6
$ 77.2
$
–
3.1
–
$ 3.1
$ 3.1
$
–
25.8
–
–
$ 25.8
$ 1.6
4.4
5.5
0.3
$ 11.8
$
–
1.6
$ 0.3
–
–
–
37.5
0.2
$ 1.6
$ 38.0
$ 27.4
$ 49.8
$ –
–
–
–
$ –
$ –
–
–
–
$ –
$ –
$
$
$
–
–
–
–
–
–
(1.6)
(21.9)
(0.2)
$ (23.7)
$ (23.7)
$ 1.6
30.2
5.5
0.3
$ 37.6
$ 0.3
–
15.6
–
$ 15.9
$ 53.5
$
$
$
–
–
–
–
–
$
–
$ –
$
–
$
–
3.1
–
$ 3.1
$ 3.1
–
–
$ –
$ –
(1.1)
–
$ (1.1)
$ (1.1)
2.0
–
$ 2.0
$ 2.0
*Includes credit valuation adjustments for counterparty risk.
(a) DPL stock in the Master Trust is eliminated in consolidation.
104 DPL Inc.
Assets and Liabilities Measured at Fair Value on a Recurring Basis
DP&L
$ in millions
Assets
Master Trust Assets
Money Market Funds
Equity Securities (a)
Debt Securities
Multi-Strategy Fund
Total Master Trust Assets
Derivative Assets
FTRs
Forward NYMEX Coal
Contracts
Forward Power
Contracts
Total Derivative Assets
Total Assets
Liabilities
Derivative Liabilities
Heating Oil Futures
Forward Power
Contracts
Forward NYMEX Coal
Contracts
Total Derivative Liabilities
Total Liabilities
Level 1
Level 2
Level 3
Fair Value
at December 31,
2009*
Based on
Quoted Prices in
Active Markets
Other
Observable
Inputs
Unobservable
Inputs
Collateral and
Counterparty
Netting
Fair Value on
Balance Sheet at
December 31, 2009
$ 4.1
31.1
5.5
0.2
$ 40.9
$ 0.8
5.5
0.7
$ 7.0
$ 47.9
$
–
28.3
–
–
$ 28.3
$
$
–
–
–
–
$ 4.1
2.8
5.5
0.2
$ 12.6
$ –
–
–
–
$ –
$ 0.8
$ –
5.5
0.7
$ 7.0
$ 28.3
$ 19.6
–
–
$ –
$ –
$
$
$
–
–
–
–
–
–
(1.4)
(0.7)
$ (2.1)
$ (2.1)
$ 1.2
$ 1.2
$
–
$ –
$ (1.2)
3.0
1.2
$ 5.4
$ 5.4
–
–
3.0
1.2
$ 1.2
$ 4.2
$ 1.2
$ 4.2
–
–
$ –
$ –
(0.7)
–
$ (1.9)
$ (1.9)
$
4.1
31.1
5.5
0.2
$
40.9
$
0.8
4.1
–
4.9
45.8
–
2.3
1.2
3.5
3.5
$
$
$
$
$
*Includes credit valuation adjustments for counterparty risk.
(a) DPL stock in the Master Trust is eliminated in consolidation.
We use the market approach to value our financial instruments. Level 1 inputs are used for DPL common stock held
by the Master Trust and for derivative contracts such as heating oil futures and natural gas 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).
VRDNs and bonds are considered Level 2 because they are priced using recent transactions for similar assets.
Other Level 2 assets include: open-ended mutual funds that are in the Master Trust, which are valued using the end
of day NAV per unit, and interest rate hedges, which use observable inputs to populate a pricing model.
Approximately 99% of the inputs to the fair value of our derivative instruments are from quoted market prices.
Non-recurring Fair Value Measurements
We use the cost approach to determine the fair value of our AROs which are 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. There were
$1.4 million and $2.7 million of gross additions to our existing landfill and asbestos AROs during the twelve months
ended December 31, 2010 and 2009. In addition, it was determined that a river structure would be retired earlier than
previously estimated. This resulted in a partial reduction to the ARO liability of $0.8 million in 2010.
DPL Inc. 105
Cash Equivalents
DPL had $29.9 million and $45.3 million in money market funds classified as cash and cash equivalents in its
Consolidated Balance Sheets at December 31, 2010 and 2009, respectively. The money market funds have quoted
prices that are generally equivalent to par.
9 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
and interest rate risk associated with our long-term debt. 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 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 cash flow hedges or
marked to market each reporting period.
At December 31, 2010, DPL and DP&L had the following outstanding derivative instruments:
Commodity
FTRs (1)
Heating Oil Futures (1)
Forward Power Contracts (1)
Forward Power Contracts (1)
NYMEX-quality Coal Contracts* (1)
Interest Rate Swaps (2)
Accounting
Treatment
Mark to Market
Mark to Market
Cash Flow Hedge
Mark to Market
Mark to Market
Cash Flow Hedge
Unit
MWh
Gallons
MWh
MWh
Tons
USD
Purchases
(in thousands)
Sales
(in thousands)
9.0
6,216.0
580.8
195.6
4,006.8
360,000.0
–
–
(572.9)
(108.5)
–
–
*Includes our partners’ share for the jointly-owned plants that DP&L operates.
(1) Reflected in both DPL’s and DP&L’s financial statements
(2) Reflected in only DPL’s financial statements
At December 31, 2009, both DPL and DP&L had the following outstanding derivative instruments:
Commodity
FTRs
Heating Oil Futures
Forward Power Contracts
NYMEX-quality Coal Contracts*
Accounting
Treatment
Mark to Market
Mark to Market
Cash Flow Hedge
Mark to Market
Unit
MWH
Gallons
MWH
Tons
Purchases
(in thousands)
Sales
(in thousands)
9.3
3,822.0
84.6
3,844.0
–
–
(1,769.2)
(1,286.5)
*Includes our partner’s share for the jointly-owned plants that DP&L operates.
Cash Flow Hedges
Net Purchases/
(Sales)
(in thousands)
9.0
6,216.0
7.9
87.1
4,006.8
360,000.0
Net Purchase/
(Sale)
(in thousands)
9.3
3,822.0
(1,684.6)
2,557.5
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 fair
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 using specific identification of each contract when the forecasted hedged transaction takes
place or when the forecasted hedged 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.
106 DPL Inc.
We enter into forward power contracts to manage commodity price risk exposure related to our generation of
electricity. We do not hedge all commodity price risk. We reclassify gains and losses on forward power contracts
from AOCI into earnings in those periods in which the contracts settle.
We also enter into interest rate derivative contracts to manage interest rate exposure related to anticipated
borrowings of fixed-rate debt. Our anticipated fixed-rate debt offerings have a high probability of occurrence as
the proceeds will be used to fund existing debt maturities and projected capital expenditures. We do not hedge
all interest rate exposure. As of December 31, 2010, we have entered into interest rate hedging relationships
with aggregate notional amounts of $200 million and $160 million related to planned future borrowing activities in
calendar years 2011 and 2013, respectively. We reclassify gains and losses on interest rate derivative hedges
related to our debt financings from AOCI into earnings in those periods in which hedged interest payments occur.
The following table provides information for DPL concerning gains or losses recognized in AOCI for the cash
flow hedges:
$ in millions (net of tax)
Beginning accumulated
December 31, 2010
December 31, 2009
December 31, 2008
Power
Interest
Rate Hedge
Power
Interest
Rate Hedge
Power and
Capacity
Interest
Rate Hedge
derivative gain / (loss) in AOCI
$ (1.4)
$ 14.7
$ (0.2)
$ 17.2
$ (1.0)
$ 19.7
Net gains / (losses) associated with
current period hedging transactions
Net gains reclassified to earnings
Interest Expense
Revenues
Ending accumulated
3.1
–
(3.5)
9.2
2.2
(2.5)
–
–
(3.4)
–
(2.5)
–
4.8
–
(4.0)
–
(2.5)
–
derivative gain / (loss) in AOCI
$ (1.8)
$ 21.4
$ (1.4)
$ 14.7
$ (0.2)
$ 17.2
Net gains / (losses) associated with the
ineffective portion of the hedging transaction:
Interest expense
Revenues
Portion expected to be reclassified
to earnings in the next twelve months*
Maximum length of time that we are hedging
our exposure to variability in future cash
flows related to forecasted transactions
(in months)
$
$
–
–
$ (2.8)
$
$
$
–
–
$
$
–
–
$
$
–
–
$
$
–
–
$
$
–
–
2.5
36
33
*The actual amounts that we reclassify from AOCI to earnings related to power can differ from the estimate above due to market price changes.
DPL Inc. 107
The following table provides information for DP&L 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
Interest Expense
Revenues
Ending accumulated
December 31, 2010
December 31, 2009
December 31, 2008
Power
Interest
Rate Hedge
Power
Interest
Rate Hedge
Power and
Capacity
Interest
Rate Hedge
$ (1.4)
$ 14.7
$ (0.2)
$ 17.2
$ (1.0)
$ 19.7
3.1
–
(3.5)
9.2
2.2
(2.5)
–
–
(3.4)
–
(2.5)
–
4.8
–
(4.0)
–
(2.5)
–
derivative gain / (loss) in AOCI
$ (1.8)
$ 12.2
$ (1.4)
$ 14.7
$ (0.2)
$ 17.2
Net gains / (losses) associated with the
ineffective portion of the hedging transaction:
Interest expense
Revenues
$
$
–
–
Portion expected to be reclassified
to earnings in the next twelve months*
Maximum length of time that we are hedging
our exposure to variability in future cash
flows related to forecasted transactions
(in months)
$ (2.8)
36
$
$
$
–
–
–
–
$
$
–
–
$
$
–
–
$
$
–
–
$
$
–
–
*The actual amounts that we reclassify from AOCI to earnings related to power can differ from the estimate above due to market price changes.
The following table shows the fair value and balance sheet classification of DPL’s derivative instruments designated
as hedging instruments at December 31, 2010.
Fair Values of Derivative Instruments Designated as Hedging Instruments
DPL
$ in millions
At December 31, 2010
Fair Value(1)
Netting(2)
Balance Sheet
Location
Fair Value on
Balance Sheet
Short-term Derivative Positions
Forward Power Contracts in a Liability Position
Interest Rate Hedges in a Liability Position
$ (2.8)
(6.6)
$ 1.0
–
Other current liabilities
Other current liabilities
Total short-term cash flow hedges
$ (9.4)
$ 1.0
Long-term Derivative Positions
Forward Power Contracts in an Asset Position
Forward Power Contracts in a Liability Position
Interest Rate Hedges in an Asset Position
Total long-term cash flow hedges
Total cash flow hedges
(1) Includes credit valuation adjustment.
(2) Includes counterparty and collateral netting.
$ 0.2
(0.2)
20.7
$ (0.2)
0.1
–
Other deferred assets
Other deferred credits
Other deferred credits
$ 20.7
$ (0.1)
$ 11.3
$ 0.9
$ (1.8)
(6.6)
$ (8.4)
$
–
(0.1)
20.7
$ 20.6
$ 12.2
108 DPL Inc.
The following table shows the fair value and balance sheet classification of DP&L’s derivative instruments
designated as hedging instruments at December 31, 2010.
Fair Values of Derivative Instruments Designated as Hedging Instruments
DPL
$ in millions
At December 31, 2010
Fair Value(1)
Netting(2)
Balance Sheet
Location
Fair Value on
Balance Sheet
Short-term Derivative Positions
Forward Power Contracts in a Liability Position
$ (2.8)
$ 1.0
Other current liabilities
Total short-term cash flow hedges
$ (2.8)
$ 1.0
Long-term Derivative Positions
Forward Power Contracts in an Asset Position
Forward Power Contracts in a Liability Position
Total long-term cash flow hedges
Total cash flow hedges
(1) Includes credit valuation adjustment.
(2) Includes counterparty and collateral netting.
$ 0.2
(0.2)
$ (0.2)
0.1
Other deferred assets
Other deferred credits
$
–
$ (0.1)
$ (2.8)
$ 0.9
$ (1.8)
$ (1.8)
$
–
(0.1)
$ (0.1)
$ (1.9)
The following table shows the fair value and balance sheet classification of DPL’s and DP&L’s derivative
instruments designated as hedging instruments at December 31, 2009.
Fair Values of Derivative Instruments Designated as Hedging Instruments
$ in millions
Short–term Derivative Positions
Forward Power Contracts in an Asset Position
At December 31, 2009
Fair Value(1)
Netting(2)
Balance Sheet
Location
Fair Value on
Balance Sheet
$ 0.7
$ (0.7)
Other prepayments
and current assets
$
–
(2.1)
$ (2.1)
Forward Power Contracts in a Liability Position
(2.8)
0.7
Other current liabilities
Total cash flow hedges
$ (2.1)
$
–
(1) Includes credit valuation adjustment
(2) Includes counterparty and collateral netting.
Mark to Market Accounting
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 purchases and sales exceptions under FASC Topic 815. Accordingly,
such contracts are recorded at fair value with changes in the fair value charged or credited to the consolidated
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 mark to market FTRs, heating oil futures, forward NYMEX-
quality coal contracts, natural gas futures and certain forward power contracts.
Certain qualifying derivative instruments have been designated as normal purchases or normal sales contracts,
as provided under GAAP. Derivative contracts that have been designated as normal purchases or normal sales
under GAAP are not subject to MTM accounting treatment and are recognized in the consolidated statements of
results of operations on an accrual basis.
DPL Inc. 109
Regulatory Assets and Liabilities
In accordance with regulatory accounting under GAAP, a cost that is probable of recovery in future rates should
be deferred as a regulatory asset and a gain that is probable of being returned to customers 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 and purchased power
recovery rider approved by the PUCO which began January 1, 2010. Therefore, the Ohio retail customers’ portion
of the heating oil futures and the NYMEX-quality 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 tables show the amount and classification within the consolidated statements of results of
operations or balance sheets of the gains and losses on DPL’s and DP&L’s derivatives not designated as hedging
instruments for the twelve months ended December 31, 2010 and 2009.
For the Twelve Months Ended December 31, 2010
FTRs
Power
Total
NYMEX
Coal
$ 33.5
3.2
$ 36.7
$ 20.1
4.6
$
–
12.0
–
$ 36.7
Heating
Oil
$ 2.8
(1.6)
$ 1.2
$
$
–
1.1
–
0.1
–
$ 1.2
$ (0.6)
(1.5)
$ (2.1)
$
–
–
$ (2.1)
–
–
$ (2.1)
$ 0.1
(0.1)
$
$
$
$
–
–
–
–
–
–
–
For the Twelve Months Ended December 31, 2009
NYMEX
Coal
$ 4.1
1.1
$ 5.2
Heating
Oil
$ 5.1
(3.1)
$ 2.0
FTRs
Power
$ 0.8
(0.4)
$ 0.4
$ (0.2)
–
$ (0.2)
$ 1.8
1.5
$
–
(0.5)
$
–
–
$
–
–
$
–
1.9
–
$
–
2.3
0.2
$ 5.2
$ 2.0
$ 0.4
–
–
$ 0.4
$ (0.2)
–
–
$ (0.2)
$ 35.8
–
$ 35.8
$ 20.1
5.7
$ (2.1)
12.1
–
$ 35.8
Total
9.8
(2.4)
7.4
1.8
1.0
0.2
4.2
0.2
7.4
$
$
$
$
$
$ in millions
Change in unrealized gain / (loss)
Realized gain / (loss)
Total
Recorded on Balance Sheet:
Partners’ share of gain / (loss)
Regulatory (asset) / liability
Recorded in Income Statement: gain / (loss)
Purchased power
Fuel
O&M
Total
$ in millions
Change in unrealized gain / (loss)
Realized gain / (loss)
Total
Recorded on Balance Sheet:
Partners’ share of gain / (loss)
Regulatory (asset) / liability
Recorded in Income Statement: gain / (loss)
Purchased power
Fuel
O&M
Total
110 DPL Inc.
The following tables show the fair value and balance sheet classification of DPL’s and DP&L’s derivative
instruments not designated as hedging instruments at December 31, 2010 and 2009.
Fair Values of Derivative Instruments Not Designated as Hedging Instruments
At December 31, 2010
Fair Value(1)
Netting(2)
Balance Sheet
Location
Fair Value on
Balance Sheet
$ in millions
Short-term Derivative Positions
FTRs in an Asset position
Forward Power Contracts in a Liability position
(0.1)
$
0.3
$
–
–
NYMEX-Quality Coal Forwards in an Asset position
14.0
(7.4)
Heating Oil Futures in an Asset position
0.5
(0.5)
Total short-term derivative MTM positions
Long-term Derivative Positions
NYMEX-Quality Coal Forwards in an Asset position
$
$
14.7
$
(7.9)
23.5
$ (14.5)
Heating Oil Futures in an Asset position
1.1
(1.1)
Total long-term derivative MTM positions
Total MTM Position
$ 24.6
$ (15.6)
$
39.3
$ (23.5)
(1) Includes credit valuation adjustment
(2) Includes counterparty and collateral netting.
Fair Values of Derivative Instruments Not Designated as Hedging Instruments
Other prepayments
and current assets
$ 0.3
Other
current liabilities
Other prepayments
and current assets
Other
current liabilities
Other
deferred assets
Other
deferred credits
(0.1)
6.6
–
$ 6.8
$ 9.0
–
$ 9.0
$ 15.8
$ in millions
Short-term Derivative Positions
FTRs in an Asset position
NYMEX-Quality Coal Forwards in an Asset position
NYMEX-Quality Coal Forwards in a Liability position
Heating Oil Futures in a Liability position
Forward Power Contracts in a Liability position
Total short-term derivative MTM positions
Long-term Derivative Positions
NYMEX-Quality Coal Forwards in an Asset position
Total long-term derivative MTM positions
Total MTM Position
(1) Includes credit valuation adjustment
(2) Includes counterparty and collateral netting.
At December 31, 2009
Fair Value(1)
Netting(2)
Balance Sheet
Location
Fair Value on
Balance Sheet
$
0.8
$
2.4
(1.2)
(1.2)
(0.2)
0.6
2.9
2.9
3.5
$
$
$
$
$
$
$
$
–
–
–
1.2
–
1.2
(1.2)
(1.2)
–
Other prepayments
and current assets
Other prepayments
and current assets
Other
current liabilities
Other
current liabilities
Other
current liabilities
Other
deferred assets
$ 0.8
2.4
(1.2)
–
(0.2)
$ 1.8
$ 1.7
$ 1.7
$ 3.5
DPL Inc. 111
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 commodity derivative instruments that are in a MTM loss position at
December 31, 2010 is $3.1 million. This amount is offset by $1.0 million in a broker margin account which offsets
our loss positions on the NYMEX Clearport traded forward power contracts. This liability position is further offset
by the asset position of counterparties with master netting agreements of $0.2 million. If our debt were to fall below
investment grade, we may have to post collateral for the remaining $1.9 million.
10 Share-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 or 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
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)
For the years ended December 31,
$
2010
–
2.1
1.7
0.4
0.5
4.7
(1.6)
$
2009
–
1.8
0.7
0.5
0.7
3.7
(1.3)
2008
$ (0.1)
0.9
0.3
0.5
0.3
1.9
(0.7)
Total share-based compensation, net of tax
$ 3.1
$ 2.4
$ 1.2
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 the grant date until the
exercise date 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
corresponding 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.
112 DPL Inc.
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.
With the approval of the EPIP in April 2006, 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, 2010, there were no unvested stock options.
Summarized stock option activity was as follows:
Options:
Outstanding at beginning of year
Granted
Exercised
Forfeited
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
* 251,000 of these stock options expired on January 1, 2011.
For the years ended December 31,
2010
2009
2008
417,500
–
(66,000)
–
351,500
351,500
$
$
$
$
$
$
27.16
–
21.00
–
28.04
28.04
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
The following table reflects information about stock options outstanding at December 31, 2010:
Range of
Exercise Prices
$14.95 – $21.00
$21.01 – $29.63
Options Outstanding
Options Exercisable
Outstanding
75,000
276,500
Weighted-Average
Contractual Life
(in Years)
Weighted-Average
Exercise Price
0.3
0.1
$ 20.97
$ 29.42
Exercisable
75,000
276,500
Weighted-Average
Exercise Price
$ 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)
No options were granted during 2010, 2009 or 2008.
For the years ended December 31,
2010
–
$
$ 0.5
$ 1.4
$ 0.1
–
$
–
$
–
2009
2008
–
$
$ 2.2
$ 9.0
$ 0.7
–
$
–
$
–
–
$
$ 1.0
$ 2.2
$ 0.3
–
$
–
$
–
DPL Inc. 113
Restricted Stock Units (RSUs)
RSUs were granted to certain key employees prior to 2001. As of December 31, 2010, there were no RSUs
outstanding.
$ in millions
Non-vested at January 1, 2010
Granted in 2010
Vested in 2010
Forfeited in 2010
Non-vested at December 31, 2010
Summarized RSU activity was as follows:
RSUs:
Outstanding at beginning of year
Granted
Dividends
Exercised
Forfeited
Outstanding at period end
Exercisable at period end
Number of
RSUs
Weighted-Avg.
Grant Date Fair Value
3,311
–
(3,311)
–
–
$ 0.1
–
(0.1)
–
$
–
For the years ended December 31,
2010
2009
2008
3,311
–
–
(3,311)
–
–
10,120
–
–
(6,809)
–
3,311
–
22,976
–
–
(11,253)
(1,603)
10,120
–
Compensation expense is recognized each quarter based on the change in the market price of DPL common stock.
As of December 31, 2010, 2009 and 2008, liabilities recorded for outstanding RSUs were zero, $0.1 million and
$0.2 million, respectively, which are included in Other deferred credits on the balance sheets.
Performance Shares
Under the EPIP, the Board of Directors 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 in accordance with the accounting guidance for share-
based compensation. 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, 2010 follows:
$ in millions
Non-vested at January 1, 2010
Granted in 2010
Vested in 2010
Forfeited in 2010
Non-vested at December 31, 2010
Number of
Performance Shares
Weighted-Avg.
Grant Date Fair Value
190,349
161,534
(110,734)
(29,651)
211,498
$ 4.3
2.9
(1.6)
(0.7)
$ 4.9
114 DPL Inc.
Performance shares:
Outstanding at beginning of year
Granted
Exercised
Expired
Forfeited
Outstanding at period end
Exercisable at period end
For the years ended December 31,
2010
2009
2008
237,704
161,534
(91,253)
–
(29,651)
278,334
66,836
156,300
124,588
–
(36,445)
(6,739)
237,704
47,355
142,108
93,298
–
(37,426)
(41,680)
156,300
36,445
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,
2010
2009
2008
$
$
$
$
$
$
2.9
2.5
–
–
1.6
2.4
1.7
$
$
$
$
$
$
2.8
–
–
–
1.6
2.1
1.7
$ 2.2
–
$
–
$
$
–
$ 0.8
$ 1.6
1.6
The following table shows the assumptions used in the Monte Carlo Simulation to calculate the fair value of the
performance shares granted during the period:
Expected volatility
Weighted-average expected volatility
Expected life (years)
Expected dividends
Weighted-average expected dividends
Risk-free interest rate
Restricted Shares
For the years ended December 31,
2009
2008
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%
2010
24.3%
24.3%
3.0
4.5%
4.5%
1.4%
Under the EPIP, the Board of Directors have 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 restricted stock 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 Board of Directors approved a two-part equity compensation award under the
EPIP 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. These restricted shares generally vest after five years if the participant remains
continuously employed with DPL or a DPL subsidiary and if the year over year average basic EPS has increased
by at least 1% per year over the five year vesting period. 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.
DPL Inc. 115
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%
The matching percentage is applied on a cumulative basis and the resulting restricted shares grant is adjusted at
the end of each quarter.
Restricted shares can only be awarded in DPL common stock.
$ in millions
Non-vested at January 1, 2010
Granted in 2010
Vested in 2010
Forfeited in 2010
Non-vested at December 31, 2010
Restricted shares:
Outstanding at beginning of year
Granted
Exercised
Forfeited
Outstanding at period end
Exercisable at period end
Number of
Restricted Shares
Weighted-Avg.
Grant Date Fair Value
218,197
42,977
(20,803)
(20,980)
219,391
$ 5.8
1.1
(0.6)
(0.6)
$ 5.7
For the years ended December 31,
2010
2009
2008
218,197
42,977
(20,803)
(20,980)
219,391
–
69,147
159,050
(10,000)
–
218,197
–
42,200
39,347
(1,000)
(11,400)
69,147
–
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,
2010
2009
2008
$
$
$
$
$
$
1.1
0.4
–
0.1
0.6
3.4
2.7
$ 4.2
$ 0.3
–
$
$
–
$ 0.3
$ 4.3
3.4
$ 1.1
–
$
–
$
–
$
$
–
$ 1.3
2.7
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 on the day prior to the grant and the
compensation expense is recognized evenly over the vesting period.
116 DPL Inc.
$ in millions
Non-vested at January 1, 2010
Granted in 2010
Dividends accrued in 2010
Vested, exercised and issued in 2010
Vested, exercised and deferred in 2010
Forfeited in 2010
Non-vested at December 31, 2010
Restricted stock units:
Outstanding at beginning of year
Granted
Dividends accrued
Vested, exercised and issued
Vested, exercised and deferred
Forfeited
Outstanding at period end
Exercisable at period end
Number of
Director RSUs
Weighted-Avg.
Grant Date Fair Value
20,712
15,752
2,484
(2,618)
(20,010)
–
16,320
$ 0.4
0.4
0.1
(0.1)
(0.4)
–
$ 0.4
For the years ended December 31,
2010
2009
2008
20,712
15,752
2,484
(2,618)
(20,010)
–
16,320
–
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
–
The following table reflects information about non-employee director RSU activity during the period:
$ in millions
Weighted-average grant date fair value of non-employee director
RSUs granted during the period
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
Fair value of non-employee director RSUs that vested during the period
Unrecognized compensation expense
Weighted average period to recognize compensation expense (in years)
For the years ended December 31,
2010
2009
2008
$ 0.5
$ 0.5
$
–
–
$
$ 0.6
$ 0.1
0.3
$ 0.5
$ 0.4
$
–
–
$
$ 0.5
$ 0.1
0.3
$ 0.5
$ 0.4
$
–
–
$
$ 0.5
$ 0.1
0.3
Management Performance Shares
Under the EPIP, 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, 2010
Granted in 2010
Vested in 2010
Forfeited in 2010
Non-vested at December 31, 2010
Number of Mgt.
Performance Shares
Weighted-Avg.
Grant Date Fair Value
84,241
37,480
(31,081)
(17,597)
73,043
$ 2.1
0.9
(0.9)
(0.4)
$ 1.7
DPL Inc. 117
Management Performance Shares:
Outstanding at beginning of year
Granted
Exercised
Forfeited
Outstanding at period end
Exercisable at period end
For the years ended December 31,
2010
2009
2008
84,241
37,480
–
(17,597)
104,124
31,081
39,144
48,719
–
(3,622)
84,241
–
–
39,144
–
–
39,144
–
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
2010
24.3%
24.3%
3.0
4.5%
4.5%
1.4%
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%
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 benefit 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)
For the years ended December 31,
2010
2009
2008
$ 0.9
–
$
–
$
$
–
$ 0.9
$ 0.9
1.7
$ 1.0
–
$
–
$
–
$
–
$
$ 1.0
1.6
$ 1.1
–
$
–
$
–
$
–
$
$ 0.8
2.0
11 Redeemable Preferred Stock
DP&L has $100 par value preferred stock, 4,000,000 shares authorized, of which 228,508 were outstanding
as of December 31, 2010. DP&L also has $25 par value preferred stock, 4,000,000 shares authorized, none of
which was outstanding as of December 31, 2010. The table below details the preferred shares outstanding at
December 31, 2010:
Preferred
Stock Rate
Redemption
Price at
December 31, 2010
Shares
Outstanding at
December 31, 2010
Par Value at
December 31, 2010
($ in millions)
Par Value at
December 31, 2009
($ 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
118 DPL Inc.
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.
As long as any DP&L preferred stock is
outstanding, DP&L’s Amended Articles of
Incorporation also 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, 2010,
DP&L’s retained earnings of $616.9 million were all
available for common 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.
12 Common Shareholders’ Equity
DPL has 250,000,000 authorized common
shares, of which 116,924,844 are outstanding at
December 31, 2010.
On October 27, 2010, the DPL Board of Directors
approved a new Stock Repurchase Program under
which DPL may repurchase up to $200 million of its
common stock from time to time in the open market,
through private transactions or otherwise. This 2010
Stock Repurchase Program is scheduled to run
through December 31, 2013 but may be modified
or terminated at any time without notice. Under this
2010 Stock Repurchase Program, DPL repurchased
2.04 million shares at an average per share price of
$25.75 during the fourth quarter of 2010. At December
31, 2010, the amount still available that could be
used to repurchase stock under this program is
approximately $147.5 million.
Warrants
On October 28, 2009, the DPL Board of Directors
approved a Stock Repurchase Program under which
DPL may use proceeds from the exercise of DPL
warrants by warrant holders to repurchase other
outstanding DPL warrants or its common stock from
time to time in the open market, through private
transactions or otherwise. This 2009 Stock Repurchase
Program is schedule to run through June 30, 2012,
which is three months after the end of the warrant
exercise period. Under this 2009 Stock Repurchase
Program, DPL repurchased a total of 145,915 shares
during the three months ended March 31, 2010 at an
average per share price of $26.71, effectively utilizing
the entire $3.9 million that was available to repurchase
stock at December 31, 2009. However, additional funds
could be available to repurchase stock if the 1.7 million
warrants outstanding at December 31, 2010 are
exercised for cash in the future.
In February 2000, DPL entered into a series
of recapitalization 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 common
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. At
December 31, 2010, DPL had 1.7 million outstanding
warrants which are exercisable in the future.
DPL Inc. 119
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
investors 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
business on December 13, 2001. The rights separate
from the common shares and become exercisable
at the exercise price of $130 per right in the event of
certain attempted business combinations. In October
2010, DPL’s Board of Directors voted to amend the
Shareholder Rights Plan to accelerate the expiration
date. DPL expects the Shareholder Rights Plan to
expire during the first quarter of 2011.
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; contributions after 2010 will vest
after two 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
application 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
participation, or termination of employment. Participants
are allowed to take distributions during employment if
older than 59½ and/or for a hardship as defined in the
Plan document. 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
repurchase obligation exists for vested shares held by
the ESOP if they cannot be sold in the open market. The
fair value of shares subject to the repurchase obligation
at December 31, 2010 and 2009 was approximately
$54.1 million and $57.6 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 are used to
repay the principal and interest on the ESOP loan to
DPL. Dividends on the allocated shares are charged
to retained earnings and the share value of these
dividends is allocated to participants.
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, 2010, Common
shareholders’ equity reflects the cost of 2.5 million
unreleased shares held in suspense by the DPL Inc.
Employee Stock Ownership Trust. The fair value
of the 2.5 million ESOP shares held in suspense
at December 31, 2010 was $65.3 million. When
shares are committed to be released from the ESOP,
compensation expense is recorded based on the fair
value of the shares committed to be released, with
a corresponding credit to our equity. Compensation
expense associated with the ESOP, which is based on
the fair value of the shares committed to be released for
allocation, amounted to $6.7 million in 2010, $4.0 million
in 2009 and $1.5 million in 2008.
For purposes of EPS computations and in
accordance with GAAP, we treat ESOP shares as
outstanding if they have been allocated to participants,
released or have been committed to be released. As of
December 31, 2010, the ESOP has 4.5 million shares
allocated to participants with an additional 0.1 million
shares which have been released or committed to
be released but unallocated to participants. ESOP
cumulative shares outstanding for the calculation of
EPS were 4.6 million in 2010, 4.2 million in 2009 and
4.0 million in 2008.
120 DPL Inc.
13 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, 2010, 2009 and 2008:
$ in millions
2008:
Unrealized gains / (losses) on
financial instruments
Deferred gains / (losses) on
cash flow hedges
Unrealized gains / (losses) on
DPL
Tax
(expense) /
benefit
Amount
before tax
Amount
after tax
Amount
before tax
DP&L
Tax
(expense) /
benefit
Amount
after tax
$ (0.8)
$ 0.3
$ (0.5)
$ (15.0)
$ 5.2
$
(9.8)
(1.3)
(0.4)
(1.7)
(1.3)
(0.4)
(1.7)
pension and postretirement benefits
Other comprehensive income (loss)
(33.1)
$ (35.2)
11.6
$ 11.5
(21.5)
$ (23.7)
(33.4)
$ (49.7)
11.7
$ 16.5
(21.7)
$ (33.2)
(3.7)
(2.7)
(3.7)
(2.8)
3.3
(0.5)
2009:
Unrealized gains / (losses) on
financial instruments
Deferred gains / (losses) on
cash flow hedges
Unrealized gains / (losses) on
2010:
Unrealized gains / (losses) on
financial instruments
Deferred gains / (losses) on
cash flow hedges
Unrealized gains / (losses) on
$
0.8
$ (0.3)
$
0.5
$
4.2
$ (1.5)
$
2.7
(4.3)
0.6
(3.7)
(4.3)
0.6
pension and postretirement benefits
Other comprehensive income (loss)
(4.1)
$ (7.6)
1.4
$ 1.7
(2.7)
$ (5.9)
(4.1)
$ (4.2)
1.4
$ 0.5
$
$
0.6
$ (0.2)
$
0.4
$ (1.6)
$ 0.6
$
(1.0)
11.0
(4.6)
6.4
(3.1)
0.3
pension and postretirement benefits
Other comprehensive income (loss)
4.3
$ 15.9
(1.0)
$ (5.8)
3.3
$ 10.1
4.3
$ (0.4)
(1.0)
$ (0.1)
$
The following table provides the detail of each component of Other comprehensive income (loss) reclassified to Net
income during the years ended December 31, 2010, 2009 and 2008:
$ in millions
DPL
No unrealized gains or losses on financial instruments were
transferred to income in 2010, 2009 or 2008.
Deferred gains/(losses) on cash flow hedges net of income tax
2010
2009
2008
$
–
$
–
$
–
(expenses)/benefits of $2.0 million, ($1.8) million and ($2.2) million, respectively.
(6.0)
5.9
Unrealized losses on pension and postretirement benefits net of income
tax benefits of $1.3 million, $1.1 million and $0.7 million, respectively.
(2.4)
$ (8.4)
(2.1)
$ 3.8
$
6.5
(1.3)
5.2
DP&L
Unrealized gains/(losses) on financial instruments net of income tax
(expenses)/benefits of zero, ($0.4) million and ($1.4) million, respectively.
$ (0.1)
$ 0.7
$
2.7
Deferred gains/(losses) on cash flow hedges net of income tax
(expenses)/benefits of $2.0 million, ($1.8) million and ($2.2) million, respectively.
(6.0)
5.9
Unrealized losses on pension and postretirement benefits net of income
tax benefits of $1.3 million, $1.1 million and $0.7 million, respectively.
(2.4)
$ (8.5)
(2.1)
$ 4.5
$
6.5
(1.3)
7.9
DPL Inc. 121
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, 2010 and 2009:
$ in millions
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
14 EPS
2010
2009
$
0.6
19.6
(39.1)
$ (18.9)
$
8.4
10.5
(39.1)
$ (20.2)
$
0.2
13.3
(42.5)
$ (29.0)
$
9.5
13.3
(42.5)
$ (19.7)
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, 2010, 2009 and 2008. 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
2010
2009
2008
Income
Shares Per Share
Income
Shares
Per Share
Income
Shares
Per Share
Basic EPS
$ 290.3
115.6
$ 2.51
$ 229.1
112.9
$ 2.03
$ 244.5
110.2
$ 2.22
Effect of Dilutive Securities:
Warrants
Stock options, performance
and restricted shares
0.3
0.2
1.1
0.2
5.0
0.2
Diluted EPS
$ 290.3
116.1
$ 2.50
$ 229.1
114.2
$ 2.01
$ 244.5
115.4
$ 2.12
15 Insurance Recovery
On May 16, 2007, DPL filed a claim with Energy Insurance Mutual (EIM) to recoup legal costs associated with
our litigation against certain former executives. On February 15, 2010, after having engaged in both mediation
and arbitration, DPL and EIM entered into a settlement agreement resolving all coverage issues and finalizing
all obligations in connection with the claim. The proceeds from the settlement amounted to $3.4 million, net of
associated expenses, and were recorded as a reduction to operation and maintenance expense during the year
ended December 31, 2010.
122 DPL Inc.
16 Contractual Obligations, Commercial Commitments and Contingencies
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, 2010, DPL had $57.8 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
$1.7 million and $0.6 million at December 31, 2010 and 2009, respectively.
To date, neither DPL nor DP&L have incurred any losses related to the guarantees of DPLE’s and DPLER’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 and DPLER’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, 2010, DP&L could be responsible for the repayment of
4.9%, or $62.3 million, of a $1,272.2 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, 2010, 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, 2010, these include:
$ in millions
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
Total
2011
2012-2013
2014-2015
Thereafter
Payment Year
$ 1,324.4
677.9
258.5
0.2
0.9
1,409.0
42.9
141.5
$ 3,855.3
$
884.4
424.8
258.5
0.2
0.9
1,409.0
42.9
$ 297.4
64.7
23.8
0.1
0.4
415.2
5.6
71.1
$ 878.3
$
–
39.5
23.8
0.1
0.4
415.2
5.6
$
470.0
96.1
51.0
0.1
0.3
501.3
11.7
$
–
53.9
52.0
–
0.2
177.6
12.4
$
557.0
463.2
131.7
–
–
314.9
13.2
56.0
$ 1,186.5
11.7
$ 307.8
2.7
$ 1,482.7
$
470.0
72.9
51.0
0.1
0.3
501.3
11.7
$
–
30.7
52.0
–
0.2
177.6
12.4
$
414.4
281.7
131.7
–
–
314.9
13.2
142.7
$ 3,163.4
72.2
$ 556.8
56.1
$ 1,163.4
11.7
$ 284.6
2.7
$ 1,158.6
DPL Inc. 123
Long-term debt:
DPL’s long-term debt as of December 31, 2010,
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, 2010,
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 5 and Note 18 of Notes to Consolidated
Financial Statements.
Interest payments:
Interest payments are 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, 2010.
Pension and postretirement payments:
As of December 31, 2010, DPL, through its
principal subsidiary DP&L, had estimated future
benefit payments as outlined in Note 7 of Notes to
Consolidated Financial Statements. These estimated
future benefit payments are projected through 2020.
Capital leases:
As of December 31, 2010, DPL, through its principal
subsidiary DP&L, had one immaterial capital lease that
expires in 2013.
Operating leases:
As of December 31, 2010, 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, 2010, 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 $19.4 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
contingencies. However, there can be no assurances
that the actual amounts required to satisfy alleged
liabilities from various legal proceedings, claims, tax
examinations, and other matters, including the matters
discussed below, and to comply with applicable laws
and regulations, will not exceed the amounts reflected
in our Consolidated Financial Statements. As such,
costs, if any, that may be incurred in excess of those
amounts provided as of December 31, 2010, cannot be
reasonably determined.
Environmental Matters
DPL, DP&L and our subsidiaries’ facilities and
operations are subject to a wide range of environmental
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 noncompliance,
including fines, injunctive relief and other sanctions. In
the normal course of business, we have investigatory
and remedial activities underway at these facilities
to comply, or to determine compliance, with such
regulations. We record liabilities for losses that
are probable of occurring and can be reasonably
estimated. We have reserves of approximately
$4.0 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
condition or cash flows.
We have several pending environmental matters
associated with our power plants. Some of these matters
could have material adverse impacts on the operation
of the power plants; especially the plants that do not
have SCR and FGD equipment installed to further control
certain emissions. Currently, Hutchings and Beckjord
are our only coal-fired power plants that do not have this
equipment installed. DP&L owns 100% of the Hutchings
plant and a 50% interest in Beckjord Unit 6.
124 DPL Inc.
Regulation Matters Related to Air Quality
Interstate Air Quality Rule
Clean Air Act Compliance
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
replacement (RMRR) exclusion of the CAA. Activities
at power plants that fall within the scope of the RMRR
exclusion do not trigger new source review (NSR)
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
clarified 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 multiple
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 trigger the NSR
requirements, if NSR requirements were imposed on
any of DP&L’s existing power plants, the results could
have a material adverse impact 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 NSR standards under the
CAA. A supplemental rule was also proposed 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 environmental
organizations and has not been finalized. While we
cannot 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 Clean Air Interstate Rule (CAIR). The
final rules were signed on March 10, 2005 and were
published on May 12, 2005. CAIR created an interstate
trading program for annual NOx emission allowances
and made modifications to an existing trading program
for SO2. On August 24, 2005, the USEPA proposed
additional revisions to the CAIR. On July 11, 2008, the
U.S. Court of Appeals for the District of Columbia Circuit
issued a decision to vacate the USEPA’s CAIR and its
associated Federal Implementation Plan and remanded
to the USEPA with instructions to issue new regulations
that conformed with the procedural and substantive
requirements of the 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 the fourth quarter of 2007, DP&L began a program
for selling excess emission allowances, including annual
NOx emission allowances and SO2 emission allowances
that were the subject of CAIR trading programs. In
subsequent quarters, DP&L recognized gains from the
sale of excess emission allowances to third parties. The
Court’s CAIR decision affected the trading market for
excess allowances and impacted DP&L’s program for
selling additional excess allowances in 2008. In January
2009, we resumed selling excess allowances due to
the revival of the emissions trading market. On July 6,
2010, the USEPA proposed the Clean Air Transport
Rule (CATR) which will effectively replace CAIR. We
have reviewed this proposal and submitted comments
to the USEPA on September 30, 2010. We are unable
to determine the overall financial impact that these rules
could have on our operations in the future.
DPL Inc. 125
In 2007, the Ohio EPA revised their State
Implementation Plan (SIP) to incorporate a CAIR
program 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.
Mercury and Other Hazardous Air Pollutants
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 pollutants. 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 propose Maximum
Achievable Control Technology (MACT) standards for
coal- and oil-fired electric generating units during the
quarter ending March 31, 2011 and finalize during the
quarter ending December 31, 2011. 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. DP&L is
unable to determine the impact of the promulgation of
new MACT standards on its financial condition or results
of operations; however, a MACT standard could have
a material adverse effect on our operations. We cannot
predict the final costs we may incur to comply with
proposed new regulations to control mercury or other
hazardous air pollutants.
On April 29, 2010, the USEPA issued a proposed
rule that would reduce emissions of toxic air pollutants
from new and existing industrial, commercial and
institutional boilers, and process heaters at major and
area source facilities. This regulation may affect five
auxiliary boilers used for start-up purposes at DP&L’s
generation facilities. The proposed regulations contain
emissions limitations, operating limitations and other
requirements. The compliance schedule will be three
years from the date when these rules, if finalized,
become effective. We currently cannot determine
whether or not these rules will be finalized nor can
we predict the effect of compliance costs, if any, on
DP&L’s operations. Such costs, however, are not
expected to be material.
On May 3, 2010, the USEPA finalized the “National
Emissions Standards for Hazardous Air Pollutants”
(NESHAP) for compression ignition (CI) reciprocating
internal combustion engines (RICE). The units affected
at DP&L are 18 diesel electric generating engines and
eight emergency “black start” engines. The existing
CI RICE units must comply by May 3, 2013. The
regulations contain emissions limitations, operating
limitations and other requirements. Compliance costs
on DP&L’s operations are not expected to be material.
National Ambient Air Quality Standards
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 creating 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 reconsideration. 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 designations
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 during
the first quarter of 2011 as part of its routine five-year
rule review cycle. We cannot predict the impact the
revisions to the PM 2.5 standard will have on DP&L’s
financial condition or results of operations.
126 DPL Inc.
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, providing
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.
On September 16, 2009, the USEPA announced
that it would reconsider the 2008 national ground
level ozone standard. A more stringent ambient ozone
standard may lead to stricter NOx emission standards
in the future. DP&L cannot determine the effect of this
potential change, if any, on its operations.
Effective April 12, 2010, the USEPA implemented
revisions to its primary NAAQS for nitrogen dioxide.
This change may affect certain emission sources
in heavy traffic areas like the I-75 corridor between
Cincinnati and Dayton after 2016. Several of our
facilities or co-owned facilities are within this area.
DP&L cannot determine the effect of this potential
change, if any, on its operations.
Effective August 23, 2010, the USEPA implemented
revisions to its primary NAAQS for SO2 replacing the
current 24-hour standard and annual standard with a
one hour standard. DP&L cannot determine the effect
of this potential change, if any, on its operations. No
effects are anticipated before 2014.
Climate Change
In response to a U.S. Supreme Court decision
that the USEPA has the authority to regulate CO2
emissions from motor vehicles, the USEPA made
a finding that CO2 and certain other GHGs are
pollutants under the CAA. Subsequently, under the
CAA, USEPA determined that CO2 and other GHGs
from motor vehicles threaten the health and welfare
of future generations by contributing to climate
change. This finding became effective in January
2010. Numerous affected parties have petitioned
the USEPA Administrator to reconsider this decision.
On April 1, 2010, USEPA signed the “Light-Duty
Vehicle Greenhouse Gas Emission Standards and
Corporate Average Fuel Economy Standards” rule.
Under USEPA’s view, this is the final action that
renders carbon dioxide and other GHGs “regulated air
pollutants” under the CAA. As a result of this action, it
is expected that in 2011 various permitting programs
will apply to other combustion sources, such as coal-
fired power plants. We cannot predict the effect of this
change, if any, on DP&L’s operations.
Legislation proposed in 2009 to target a reduction
in the emission of GHGs from large sources was
not enacted. 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 operations and costs,
which could adversely affect our net income, cash flows
and financial condition. However, due to the uncertainty
associated with such legislation, we cannot predict the
final outcome or the financial impact that this legislation
will have on DP&L.
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.
Litigation, Notices of Violation and Other Matters
Related to Air Quality
Litigation Involving Co-Owned Plants
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 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 remanded
DPL Inc. 127
the lawsuits back to the Federal District Court for further
proceedings. In response to a petition by the company
defendants, the U.S. Supreme Court on December 6,
2010 granted a hearing on the matter. 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 outcome of these
lawsuits could also encourage these or other plaintiffs
to file similar lawsuits against other electric power
companies, including DP&L. We are unable to predict
the impact that these lawsuits might have on DP&L.
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 renewable 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 attorney and expert
witness fees. The parties to the lawsuit filed a joint
motion on October 22, 2008, seeking an order by the
U.S. District Court approving the consent decree with
funding for the third party non-profit organization set at
$300,000. On October 23, 2008, the U.S. District Court
approved the consent decree. 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 emissions that DP&L has
been excluding from its computations to be included
for purposes of complying with the emission targets
and reporting requirements of the consent decree.
DP&L believed that it was properly computing and
reporting NOx emissions under the consent decree, but
participated in settlement discussions with the Sierra
Club. A proposed settlement was agreed to by both
parties, approved by the Judge and then filed into the
official record on July 13, 2010. The settlement amends
the Consent Decree and sets forth a more detailed
and clear methodology to compute NOx emissions
during start-up and shut-down periods. There were
no cash payments under the terms of this settlement.
The revision is not expected to have a material effect
on DP&L’s results of operations, financial condition or
cash flows in the future.
Notices of Violation Involving Co-Owned Plants
In November 1999, the USEPA filed civil complaints
and NOVs against operators and owners of certain
generation facilities for alleged violations of the CAA.
Generation units operated by Duke Energy (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 indicated
that they will be joining the USEPA’s action against
Duke Energy 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 June 2000, the USEPA issued a NOV to the
DP&L-operated J.M. Stuart generating station (co-
owned by DP&L, Duke Energy, 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 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. DP&L cannot predict the
outcome of this matter.
In December 2007, the Ohio EPA issued a NOV to
the DP&L-operated Killen generating station (co-owned
by DP&L and Duke Energy) for alleged violations of the
CAA. The NOVs alleged deficiencies in the continuous
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.
On March 13, 2008, Duke Energy, the operator of
the Zimmer generating station, received a NOV and
a Finding of Violation (FOV) 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. A
second NOV and FOV with similar allegations was
issued on November 4, 2010. DP&L is a co-owner of
the Zimmer generating station and could be affected by
the eventual resolution of these matters. Duke Energy
Ohio Inc. is expected to act on behalf of itself and
the co-owners with respect to these matters. DP&L is
unable to predict the outcome of these matters.
128 DPL Inc.
Other Issues Involving Co-Owned Plants
In 2006, DP&L detected a malfunction with its
emission monitoring system at the DP&L-operated
Killen generating station (co-owned by DP&L and
Duke Energy) 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 of 2006. DP&L has sufficient
allowances in its general account to cover the
understatement. Management does not believe the
ultimate resolution of this matter will have a material
impact on results of operations, financial condition or
cash flows.
Notices of Violation Involving Wholly-Owned Plants
In 2007, the Ohio EPA and the USEPA issued NOVs
to DP&L for alleged violations of the CAA at the O.H.
Hutchings Station. The NOVs’ alleged deficiencies
relate to stack opacity and particulate emissions.
Discussions are under way with the USEPA, the
U.S. Department of Justice and Ohio EPA. DP&L
has provided data to those agencies regarding its
maintenance 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 capital expenses and any changes in
capacity or output of the units at the O.H. Hutchings
Station. During 2009, DP&L continued to submit various
other operational 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 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.
Regulation Matters Related to Water Quality
Clean Water Act – Regulation of Water Intake
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 structures.
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 and
anticipates proposing requirements by March 2011 with
final rules in place by mid-2012.
Clean Water Act – Regulation of Water Discharge
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 the 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 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.
In September 2010, the USEPA formally objected to a
revised Permit provided by Ohio EPA due to questions
regarding the basis for the alternate thermal limitation.
DPL Inc. 129
In December 2010, DP&L requested a public hearing
on the objection, which USEPA has agreed to conduct.
If a public hearing is held, it is anticipated that it would
be scheduled in the second half of 2011. We are
attempting to resolve this issue with both the USEPA
and 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 governing
water discharges from steam electric generating
facilities. The rulemaking included the collection of
information via an industry-wide questionnaire as well
as targeted water sampling efforts at selected facilities.
Subsequent to the information collection effort, it is
anticipated that the USEPA will release a proposed rule
by mid-2012 with a final regulation in place by early
2014. At present, DP&L is unable to predict the impact
this rulemaking will have on its operations.
Regulation Matters Related to Land Use and
Solid Waste Disposal
Regulation of 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 regarding
the performance of a Remedial Investigation and
Feasibility Study (RI/FS) under a Superfund Alternative
Approach. In October 2005, DP&L received a special
notice letter inviting it to enter into negotiations with
the USEPA to conduct the RI/FS. No recent activity
has occurred with respect to that notice or PRP status.
However, on August 25, 2009, the USEPA issued an
Administrative Order requiring that access to DP&L’s
service center building site, which is across the street
from the landfill site, be given to the USEPA and the
existing PRP group to help 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. DP&L has granted such access and
drilling of soil borings and installation of monitoring wells
occurred in late 2009 and early 2010. DP&L believes the
chemicals used at its service center building site were
appropriately disposed of and have not contributed to
the contamination at the South Dayton Dump landfill site.
On May 24, 2010, three members of the existing PRP
group, Hobart Corporation, Kelsey-Hayes Company and
NCR Corporation, filed a civil complaint in the United
States District Court for the Southern District of Ohio
against DP&L and numerous other defendants alleging
that DP&L and the other defendants contributed to the
contamination at the South Dayton Dump landfill site
and seeking reimbursement of the PRP group’s costs
associated with the investigation and remediation of
the site. DP&L filed a motion to dismiss the complaint
and intends to vigorously defend against any claim
that it has any financial responsibility to remediate
conditions at the landfill site. On February 10, 2011, the
Court dismissed claims against DP&L that related to
allegations that chemicals used by DP&L at its service
center contributed to the landfill site’s contamination. The
Court, however, did not dismiss claims alleging financial
responsibility for remediation costs based on hazardous
substances from DP&L that were allegedly directly
delivered by truck to the landfill. While DP&L is unable
to predict the outcome of these matters, if DP&L were
required to contribute to the clean-up of the site, it could
have a material adverse effect on us.
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
hazardous substances to the site. While DP&L is
unable 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.
On April 7, 2010, the USEPA published an Advance
Notice of Proposed Rulemaking (ANPRM) announcing
that it is reassessing existing regulations governing the
use and distribution in commerce of polychlorinated
biphenyls (PCB). While this reassessment is in the early
stages and the USEPA is seeking information from
potentially affected parties on how it should proceed,
the outcome may have a material effect on DP&L. At
present, DP&L is unable to predict the impact this
initiative will have on its operations.
Regulation of Ash Ponds
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 interest.
During March 2009, the USEPA, through a formal
Information Collection Request, collected information on
ash pond facilities across the country, including those
at Killen and J.M. Stuart Stations. Subsequently, the
130 DPL Inc.
USEPA collected similar information for O.H. Hutchings
Station. In October 2009, the USEPA conducted an
inspection of the J.M. Stuart Station ash ponds. In
March 2010, the USEPA issued a final report from the
inspection including recommendations relative to the
J.M. Stuart Station ash ponds. In May 2010, DP&L
responded to the USEPA final inspection report with our
plans to address the recommendations.
Similarly, in August 2010, the USEPA conducted
an inspection of the O.H. Hutchings Station ash ponds.
The draft report relating to the inspection was received
in November 2010 and DP&L provided comments on
the draft report in December 2010. DP&L is unable
to predict the outcome this inspection will have on
its operations.
In addition, as a result of the TVA ash pond spill,
there has been increasing advocacy to regulate
coal combustion byproducts under the Resource
Conservation Recovery Act (RCRA). On June 21,
2010, the USEPA published a proposed rule seeking
comments on two options under consideration for
the regulation of coal combustion products including
regulating the material as a hazardous waste under
RCRA Subtitle C or as a solid waste under RCRA
Subtitle D. DP&L is unable 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
supplier’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 in which DP&L is participating as an
unsecured creditor. DP&L is unable to determine
the ultimate resolution of this matter. 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 costs
associated with our litigation against certain former
executives. On February 15, 2010, after having
engaged in both mediation and arbitration, DPL and
EIM entered into a settlement agreement resolving
all coverage issues and finalizing all obligations in
connection with the claim, under which DPL received
$3.4 million (net of associated expenses).
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 and thereafter regarding the allocation of costs
of large transmission facilities within PJM, could
result in additional costs being allocated to DP&L of
approximately $12 million or more annually by 2012.
DP&L filed a notice of appeal to the U.S. Court of
Appeals, D.C. Circuit which 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, filed initial
comments, testimony, and recommendations and reply
comments. FERC did not establish a deadline for its
issuance of a substantive order and the matter is still
pending. 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 already includes these costs.
In connection with DP&L and other utilities
joining PJM, in 2006 the FERC ordered utilities to
eliminate certain charges to implement transitional
payments, known as SECA, effective December 1,
2004 through March 31, 2006, subject to refund.
Through this proceeding, DP&L was obligated to pay
SECA charges to other utilities, but received a net
benefit from these transitional payments. A hearing
was held and an initial decision was issued in August
2006. A final FERC order on this issue was issued
on May 21, 2010 that substantially supports DP&L’s
and other utilities’ position that SECA obligations
should be paid by parties that used the transmission
system during the timeframe stated above. DP&L,
along with other transmission owners in PJM and the
Midwest Independent System Operator (MISO) made
DPL Inc. 131
a compliance filing at FERC on August 19, 2010 that
fully demonstrated all payment obligations to and from
all parties within PJM and the MISO. The FERC has
made no ruling regarding the compliance filing and
some parties have requested rehearing by FERC of
its May 21, 2010 order. It is expected that any order
on the compliance filing and any order regarding the
rehearing request will be appealed for Court review.
Prior to this final order being issued, DP&L entered into
a significant number of bi-lateral settlement agreements
with certain parties to resolve the matter, which by
design will be unaffected by the final decision. Further,
in October 2010, DP&L entered into another settlement
agreement to settle a portion of SECA amounts still
owed to DP&L. With respect to unsettled claims, DP&L
management believes it has deferred as a regulatory
liability the appropriate amounts that are subject to
refund (see SECA net revenue subject to refund within
Note 3 of Notes to Consolidated Financial Statements)
and therefore the results of this proceeding are not
expected to have a material adverse effect on DP&L’s
results of operations.
NERC is a FERC-certified electric reliability
organization responsible for developing and enforcing
mandatory reliability standards including Critical
Infrastructure Protection (CIP) reliability standards,
across eight reliability regions. In June 2009,
ReliabilityFirst Corporation (RFC), with responsibilities
assigned to it by NERC over the reliability region
that includes DP&L, 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
requirements of various Standards. In response to
the report, DP&L filed mitigation plans with RFC/
NERC to address the PAVs. These mitigation plans
were accepted by RFC/NERC. In July 2010, DP&L
negotiated a settlement with NERC wherein DP&L
agreed to pay an immaterial amount in exchange for
a resolution of all issues and obligations relating to the
aforementioned PAVs. The settlement was approved on
January 21, 2011 by the FERC.
17 Business Segments
During 2010, DPL began operating through two
segments consisting of the operations of two of its
wholly-owned subsidiaries, DP&L (Utility segment) and
DPLER (Competitive Retail segment). Initiatives taken
by state legislative bodies combined with changes
in the market price of electricity have significantly
impacted the manner in which electric utilities in
certain parts of the United States, including Ohio, have
traditionally conducted business. This has resulted
in, among other things, a more competitive electricity
marketplace. Accordingly, DPL increased its resources
to participate in the more competitive retail electric
service market. DPL believes that these reportable
segments are consistent with how our management
views its business and makes decisions on how to
allocate resources and evaluate performance. Segment
financial information for the periods 2009 and 2008 has
been presented to conform to the 2010 disclosures, as
required by GAAP.
The Utility segment is comprised of DP&L’s electric
generation, transmission and distribution businesses
which generate and sell electricity to residential,
commercial, industrial and governmental customers.
Electricity for the segment’s 24-county service area is
primarily generated at eight coal-fired power plants and
is distributed to more than 500,000 retail customers
who are located in a 6,000 square mile area of West
Central Ohio. DP&L also sells electricity to DPLER
and any excess energy and capacity is sold into the
wholesale market. DP&L’s transmission and distribution
businesses are subject to rate regulation by federal and
state regulators while rates for its generation business
are deemed competitive under Ohio law.
The Competitive Retail segment is comprised of
DPLER’s competitive retail electric service business
which sells retail electric energy under contract
primarily to commercial and industrial customers who
have selected DPLER as their alternative electric
supplier. The Competitive Retail segment sells
electricity to approximately 9,000 customers currently
located throughout Ohio. Due to increased competition
in Ohio, during 2010 we increased the number of
employees and resources assigned to manage
DPLER and increased its marketing to customers. The
Competitive Retail segment’s electric energy used
to meet its sales obligations was purchased from
DP&L. During 2010, we implemented a new wholesale
agreement between DP&L and DPLER. Under this
agreement, intercompany sales from DP&L to DPLER
were based on the market prices for wholesale power.
132 DPL Inc.
In periods prior to 2010, DPLER’s purchases from DP&L were transacted at prices that approximated DPLER’s sales
prices to its end-use retail customers. The Competitive Retail segment has no transmission or generation assets.
Included within Other are other businesses that do not meet the GAAP requirements for disclosure as reportable
segments as well as certain corporate costs which include interest expense on DPL’s debt.
Management evaluates segment performance based on gross margin. The accounting policies of the reportable
segments are the same as those described in Note 1 – Overview and Summary of Significant Accounting Policies.
Intersegment sales and profits are eliminated in consolidation.
The following table presents financial information for each of DPL’s reportable business segments:
$ in millions
Year Ended December 31, 2010
Revenues from external customers
Intersegment revenues
Total revenues
Purchased power
Gross margin
Depreciation and amortization
Interest expense
Income tax expense (benefit)
Net income (loss)
Total assets
Capital expenditures
Year Ended December 31, 2009
Revenues from external customers
Intersegment revenues
Total revenues
Purchased power
Gross margin
Depreciation and amortization
Interest expense
Income tax expense (benefit)
Net income (loss)
Total assets
Capital expenditures
Year Ended December 31, 2008
Revenues from external customers
Intersegment revenues
Total revenues
Purchased power
Gross margin
Depreciation and amortization
Interest expense
Income tax expense (benefit)
Net income (loss)
Total assets
Capital expenditures
Utility
Competitive
Retail
Adjustments
and
Eliminations
DPL
Consolidated
$ 277.0
–
$ 277.0
238.5
$
–
(243.0)
$ (243.0)
(238.5)
$
$
$
$
$
$
$
$
Other
54.1
4.5
58.6
3.9
42.7
8.5
33.5
(2.7)
(3.5)
302.2
3.2
37.8
3.8
41.6
1.0
33.7
9.9
44.5
(11.2)
(21.4)
177.7
1.3
28.5
6.4
34.9
0.1
23.1
9.7
54.2
(17.9)
(37.6)
225.8
2.4
38.5
0.2
–
10.5
18.8
35.7
–
65.5
–
65.5
64.8
0.7
0.1
–
(0.8)
(2.7)
6.6
–
$ 150.8
–
$ 150.8
150.6
0.2
0.2
–
0.6
1.9
13.5
–
$ 1,485.6
64.8
$ 1,550.4
$
$
$ 1,552.0
238.5
$ 1,790.5
383.5
1,035.1
130.7
37.1
135.2
277.7
3,475.4
148.2
259.2
967.6
135.5
38.5
124.5
258.9
3,457.4
144.0
$ 1,422.3
150.6
$ 1,572.9
379.9
961.6
127.8
36.5
120.2
285.8
3,397.7
225.4
$
$
(4.5)
–
–
–
(2.7)
–
–
–
(68.6)
(68.6)
(64.8)
(3.7)
–
–
–
(5.7)
–
–
$
–
(157.0)
$ (157.0)
(153.3)
(3.7)
–
–
–
(5.6)
–
–
1,883.1
–
1,883.1
387.4
1,111.8
139.4
70.6
143.0
290.3
3,813.3
151.4
$
$
1,588.9
–
1,588.9
260.2
998.3
145.5
83.0
112.5
229.1
3,641.7
145.3
$
$
1,601.6
–
1,601.6
377.3
981.2
137.7
90.7
102.9
244.5
3,637.0
227.8
DPL Inc. 133
18 Subsequent Events
Contingent Redemption of DPL-Capital Trust II Securities
On January 26, 2011, DPL signed an agreement with a third party to acquire $122.1 million of outstanding DPL
Capital Trust II 8.125% trust preferred securities. The sale to DPL is contingent upon the third party’s ability to
acquire the trust preferred securities.
In the event the third party is successful in acquiring the trust preferred securities, it has agreed to sell the trust
preferred securities to DPL for a price of $134.3 million, plus any interest accrued through the date of closing. The
closing is expected to occur on or before February 25, 2011. If this transaction closes, DPL expects to record a net
loss on the reacquisition of the securities in the amount of approximately $15.3 million ($10.2 million net of tax) in
the first quarter of 2011. Interest savings from the redemption of these securities are expected to be approximately
$8.4 million ($5.6 million net of tax) for the remainder of 2011. DPL expects to finance this transaction using a
combination of cash on hand and proceeds from the intended sale of some of its short-term investments.
In the event the third party is not able to acquire these securities, DPL will have no obligation to purchase these
securities and will continue to carry these trust preferred securities as a long-term obligation on its Consolidated
Balance Sheets.
19 Selected Quarterly Information (Unaudited)
DPL
$ in millions except per share amount
and common stock market price
March 31,
June 30,
September 30,
December 31,
2010
2009
2010
2009
2010
2009
2010
2009
Revenues
Operating income
Net income
$ 451.2 $ 415.0 $ 445.5 $ 361.2 $ 516.9 $ 407.3 $ 469.5 $ 405.4
81.9 $ 144.6 $ 116.5 $ 124.5 $ 102.8
$ 126.0 $ 127.0 $ 109.3 $
$
71.0 $
69.2 $
61.4 $
42.1 $
86.4 $
67.9 $
71.5 $
49.9
For the three months ended
Earnings per share of common stock:
Basic
Diluted
$
$
0.61 $
0.61 $
0.62 $
0.61 $
0.53 $
0.53 $
0.38 $
0.37 $
0.75 $
0.74 $
0.60 $
0.59 $
0.62 $
0.62 $
0.43
0.43
$ 0.3025 $ 0.2850 $ 0.3025 $ 0.2850 $ 0.3025 $ 0.2850 $ 0.3025 $ 0.2850
$ 28.47 $ 23.28 $ 28.18 $ 23.46 $ 26.65 $ 26.53 $ 27.51 $ 28.68
$ 26.51 $ 19.27 $ 23.80 $ 21.18 $ 23.95 $ 22.79 $ 25.33 $ 25.16
For the three months ended
March 31,
June 30,
September 30,
December 31,
2010
2009
2010
2009
2010
2009
2010
2009
$ 438.0 $ 403.6 $ 423.9 $ 351.9 $ 487.0 $ 398.2 $ 441.6 $ 396.7
78.9 $ 131.9 $ 115.2 $ 102.9 $ 103.0
$ 118.4 $ 124.8 $
46.8 $
77.0 $
$
61.1
46.6 $
76.8 $
97.0 $
59.4 $
59.2 $
74.0 $
73.8 $
83.2 $
83.0 $
63.0 $
62.7 $
72.1 $
71.9 $
60.8
$
$
90.0 $ 175.0 $
60.0 $
45.0 $
– $
50.0 $ 150.0 $
55.0
Dividends declared and
paid per share
Common stock market price
- High
- Low
DP&L
$ in millions
Revenues
Operating income
Net income
Earnings on common stock
Dividends paid on
common stock to parent
134 DPL Inc.
Report of Independent Registered Public Accounting Firm
The Board of Directors and Stockholders
DPL Inc.:
We have audited the accompanying Consolidated Balance Sheets of DPL Inc. and subsidiaries (the Company) as
of December 31, 2010 and 2009, 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, 2010. 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, 2010, 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, the financial statement schedule, 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, the financial statement schedule,
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
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 consolidated financial statements referred to above present fairly, in all material respects,
the financial position of the Company as of December 31, 2010 and 2009, and the results of its operations and
its cash flows for each of the years in the three-year period ended December 31, 2010, in conformity with U.S.
generally accepted accounting principles, and the related financial statement schedule, when considered in relation
to the basic financial statements taken as a whole, presents fairly, in all material respects, the information set forth
therein. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial
reporting as of December 31, 2010, based on criteria established in Internal Control – Integrated Framework issued
by the Committee of Sponsoring Organizations of the Treadway Commission.
/s/ KPMG LLP
Philadelphia, Pennsylvania
February 17, 2011
DPL Inc. 135
Report of Independent Registered Public Accounting Firm
The Board of Directors and Stockholder
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, 2010 and 2009, 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, 2010. In connection with our audits of the
financial statements, we also have audited the financial statement schedule, “Schedule II – Valuation and Qualifying
Accounts.” These financial statements and the financial statement schedule are the responsibility of DP&L’s
management. Our responsibility is to express an opinion on these financial statements and the financial statement
schedule 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. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing
the accounting principles used and significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a reasonable basis for our opinions.
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, 2010 and 2009, and the results of its operations and its cash flows for each of
the years in the three-year period ended December 31, 2010, in conformity with U.S. generally accepted accounting
principles. Also in our opinion, the related financial statement schedule, when considered in relation to the basic
financial statements taken as a whole, presents fairly, in all material respects, the information set forth therein.
/s/ KPMG LLP
Philadelphia, Pennsylvania
February 17, 2011
136 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, 2010.
Management’s Report on Internal Control over Financial Reporting
We are responsible for establishing and maintaining adequate internal control over financial reporting, as such
term is defined in Exchange Act Rule 13a-15(f). Under the supervision and with the participation of management,
including the CEO and CFO, we conducted an evaluation of the effectiveness of our internal control over
financial reporting based on the framework in Internal Control - Integrated Framework issued by the Committee of
Sponsoring Organizations of the Treadway Commission. Based on an evaluation under the framework in Internal
Control - Integrated Framework, we concluded that our internal control over financial reporting was effective as of
December 31, 2010.
Our internal control over financial reporting as of December 31, 2010, 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. 137
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 2011 Annual Meeting of Shareholders to be
held on April 27, 2011 and is incorporated herein by
reference.
The information required to be furnished pursuant
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 2010 and 2009. Other than as set
forth below, no professional services were rendered or
fees billed by KPMG LLP during 2010 and 2009.
KPMG LLP
2010 Fees Billed
2009 Fees Billed
Audit Fees (1)
Audit-Related Fees (2)
Tax Fees (3)
All Other Fees (4)
Total
$ 1,269,200
40,000
930
15,000
$ 1,325,130
$ 1,394,680
46,000
7,870
–
$ 1,448,550
(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.
(4) Other fees relate to services rendered under an agreed upon
procedure engagement related to environmental studies.
138 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, 2010
DPL – Consolidated Statements of Cash Flows
for each of the three years in the period ended December 31, 2010
DPL – Consolidated Balance Sheets at December 31, 2010 and 2009
DPL – Consolidated Statement of Shareholders’ Equity
for each of the three years in the period ended December 31, 2010
DP&L – Consolidated Statements of Results of Operations
for each of the three years in the period ended December 31, 2010
DP&L – Consolidated Statements of Cash Flows
for each of the three years in the period ended December 31, 2010
DP&L – Consolidated Balance Sheets at December 31, 2010 and 2009
DP&L – Consolidated Statement of Shareholder’s Equity
for each of the three years in the period ended December 31, 2010
Notes to Consolidated Financial Statements
DPL – Report of Independent Registered Public Accounting Firm
DP&L – Report of Independent Registered Public Accounting Firm
2. Financial Statements Schedule
For each of the three years in the period ended December 31, 2010:
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.
67
68
69
70
71
72
73
74
75
135
136
148
DPL Inc. 139
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
✔
✔
Exhibit
Number
3(a)
Exhibit
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)
4(g)
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)
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)
140 DPL Inc.
✔
✔
✔
✔
✔
✔
✔
✔
✔
✔
✔
4(i)
4(j)
4(k)
4(l)
4(m)
4(n)
4(o)
4(p)
4(q)
4(r)
✔ 4(s)
DPL Inc. DP&L
Exhibit
Number
4(h)
Exhibit
Form of Warrant to Purchase Common Shares
of DPL Inc.
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
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
Forty-Fourth Supplemental Indenture dated as of
September 1, 2006 between the Bank of New York,
Trustee and The Dayton Power and Light Company
✔
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(a) to Registration
Statement No. 333-74630
Exhibit 4(b) to Registration
Statement No. 333-74630
Exhibit 4(c) to Registration
Statement No. 333-74630
Exhibit 4(s) to Report on
Form 10-K for the year
ended December 31, 2009
(File No. 1-2385)
Exhibit 4(d) to Registration
Statement No. 333-74630
DPL Inc. 141
DPL Inc. DP&L
Exhibit
Number
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)*
✔
✔ 10(f)*
✔
✔ 10(g)*
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
The Dayton Power and Light Company
Supplemental Executive Retirement Plan, as
amended February 1, 2000
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
✔
✔
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
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)
Exhibit 10(f) to Report on
Form 10-K for the year
ended December 31, 2009
(File No. 1-9052)
Exhibit 10(i) to Report on
Form 10-K for the year
ended December 31, 2005
(File No. 1-9052)
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)
142 DPL Inc.
DPL Inc. DP&L
✔
✔
✔
✔
✔
✔
Exhibit
Number
10(l)*
Exhibit
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)*
10(o)*
10(p)*
DPL Inc. Severance Pay and Change of
Control Plan, as amended and restated through
December 31, 2007
DPL Inc. Supplemental Executive Defined
Contribution Retirement Plan, as amended and
restated through December 31, 2007
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)
Exhibit 10(w) to Report
on Form 10-K for the year
ended December 31, 2009
(File No. 1-9052)
DPL Inc. 143
DPL Inc. DP&L
Exhibit
Number
Exhibit
✔ 10(x)*
✔ 10(y)*
Participation Agreement dated September 8, 2006
among DPL Inc., The Dayton Power and Light
Company and Paul M. Barbas
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
✔
✔
✔
✔
Location (1)
Exhibit 10.2 to Form 8-K
filed September 8, 2006
(File No. 1-9052)
Exhibit 10.1 to Form 8-K
filed July 3, 2006
(File No. 1-9052)
Exhibit 10.1 to Form 8-K
filed June 21, 2006
(File No. 1-9052)
✔ 10(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
Exhibit 10(aa) to Report
on Form 10-K for the year
ended December 31, 2009
(File No. 1-2385)
✔
✔ 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)*
Separation Agreement dated as of
September 17, 2010, by and between DPL Inc. and
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 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(vv) 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
September 30, 2010
(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)
144 DPL Inc.
DPL Inc. DP&L
Exhibit
Number
Exhibit
✔
✔ 10(jj)*
✔
✔ 10(kk)*
Credit Agreement, dated as of April 20, 2010,
among the Dayton Power and Light Company,
Bank of America, N.A., as Administrative Agent and an
L/C Issuer, PNC Capital Markets, LLC and U.S. Bank,
National Association, as Co-Syndication Agents, and
the other lenders party to the Credit Agreement
Participation Agreement dated May 14, 2010,
among DPL Inc., The Dayton Power and
Light Company and Bryce W. Nickel
✔
✔ 10(ll)*
Participation Agreement dated May 14, 2010,
among DPL Inc., The Dayton Power and
Light Company and Kevin W. Crawford
Location (1)
Exhibit 10.1 to Form 8-K
filed April 22, 2010
(File No. 1-2385)
Exhibit 10(b) to Report on
Form 10-Q for the quarter
ended June 30, 2010
(File No. 1-9052)
Exhibit 10(c) to Report on
Form 10-Q for the quarter
ended June 30, 2010
(File No. 1-9052)
Filed herewith as
Exhibit 10(mm)
✔
✔
✔
✔
✔
✔
✔
✔
✔
✔
✔ 10(mm)* Participation Agreement dated February 3, 2011,
among DPL Inc., The Dayton Power and
Light Company and Craig L. Jackson
✔ 21
List of Subsidiaries of DPL Inc. and The Dayton
Power and Light Company
Filed herewith as Exhibit 21
23(a)
Consent of KPMG LLP
31(a)
31(b)
✔ 31(c)
✔ 31(d)
32(a)
32(b)
✔ 32(c)
✔ 32(d)
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
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
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
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
✔
✔
✔
101.INS XBRL Instance
101.SCH XBRL Taxonomy Extension Schema
101.CAL XBRL Taxonomy Extension Calculation Linkbase
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)
Furnished herewith as
Exhibit 101.INS
Furnished herewith as
Exhibit 101.SCH
Furnished herewith as
Exhibit 101.CAL
DPL Inc. 145
DPL Inc. DP&L
Exhibit
Number
Exhibit
✔
✔
✔
✔
✔
✔
101.DEF XBRL Taxonomy Extension Definition Linkbase
101.LAB XBRL Taxonomy Extension Label Linkbase
101.PRE XBRL Taxonomy Extension Presentation Linkbase
Location (1)
Furnished herewith as
Exhibit 101.DEF
Furnished herewith as
Exhibit 101.LAB
Furnished herewith as
Exhibit 101.PRE
*
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.
146 DPL Inc.
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 17, 2011
By:
February 17, 2011
By:
DPL Inc.
/s/ Paul M. Barbas
Paul M. Barbas
President and Chief Executive Officer
(principal executive officer)
The Dayton Power and Light Company
/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/ 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)
Director, President and Chief Executive Officer
(principal executive officer)
February 16, 2011
Director
February 16, 2011
Director and Vice-Chairman
February 16, 2011
Director
Director
February 16, 2011
February 16, 2011
Director and Chairman
February 16, 2011
Director
Director
February 16, 2011
February 16, 2011
Senior Vice President and Chief Financial Officer
(principal financial officer)
February 16, 2011
Vice President, Controller and Chief Accounting
Officer (principal accounting officer)
February 16, 2011
DPL Inc. 147
Schedule II Valuation and Qualifying Accounts
DPL Inc.
For the years ended December 31, 2008 - 2010
$ in thousands
Description
2010:
Deducted from accounts receivable –
Provision for uncollectible accounts
Deducted from deferred tax assets –
Balance at
Beginning of Period
Additions
Deductions(1)
Balance at
End of Period
$ 1,101
$ 4,148
$ 4,378
$
871
Valuation allowance for deferred tax assets
$ 11,955
$ 1,124
$
–
$ 13,079
2009:
Deducted from accounts receivable –
Provision for uncollectible accounts
Deducted from deferred tax assets –
$ 1,084
$ 5,168
$ 5,151
$ 1,101
Valuation allowance for deferred tax assets
$ 10,685
$ 1,270
$
–
$ 11,955
2008:
Deducted from accounts receivable –
Provision for uncollectible accounts
Deducted from deferred tax assets –
$ 1,518
$ 4,277
$ 4,711
$ 1,084
Valuation allowance for deferred tax assets
$ 12,429
$ 1,482
$ 3,226
$ 10,685
(1) Amounts written off, net of recoveries of accounts previously written off.
The Dayton Power and Light Company
For the years ended December 31, 2008 - 2010
$ in thousands
Description
2010:
Deducted from accounts receivable –
Provision for uncollectible accounts
Deducted from deferred tax assets –
Balance at
Beginning of Period
Additions
Deductions(1)
Balance at
End of Period
Valuation allowance for deferred tax assets
$
–
$
–
$
–
$ 1,101
$ 4,100
$ 4,369
$
$
832
–
2009:
Deducted from accounts receivable –
Provision for uncollectible accounts
Deducted from deferred tax assets –
$ 1,084
$ 5,168
$ 5,151
$ 1,101
Valuation allowance for deferred tax assets
$
–
$
–
$
–
$
–
2008:
Deducted from accounts receivable –
Provision for uncollectible accounts
Deducted from deferred tax assets –
$ 1,518
$ 4,277
$ 4,711
$ 1,084
Valuation allowance for deferred tax assets
$
348
$
–
$
348
$
–
(1) Amounts written off, net of recoveries of accounts previously written off.
148 DPL Inc.
Exhibit 21
Subsidiaries of DPL Inc.
DPL Inc. had the following subsidiaries at December 31, 2010:
The Dayton Power and Light Company
Miami Valley Insurance Company
DPL Energy, LLC
DPL Energy Resources, Inc.
Subsidiaries of The Dayton Power and Light Company
The Dayton Power and Light Company did not have any subsidiaries at December 31, 2010.
State of Incorporation
Ohio
Vermont
Ohio
Ohio
DPL Inc. 149
Exhibit 23(a) 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 17, 2011, with respect to the
Consolidated Balance Sheets of DPL Inc. and subsidiaries as of December 31, 2010 and 2009, 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, 2010, and the related financial statement schedule, and the effectiveness of
internal control over financial reporting as of December 31, 2010, which report appears in the December 31, 2010
annual report on Form 10-K of DPL Inc.
/s/ KPMG LLP
Philadelphia, Pennsylvania
February 17, 2011
150 DPL Inc.
Exhibit 31(a) 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 17, 2011
/s/ Paul M. Barbas
Paul M. Barbas
President and Chief Executive Officer
DPL Inc. 151
Exhibit 31(b) 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 17, 2011
/s/ Frederick J. Boyle
Frederick J. Boyle
Senior Vice President and Chief Financial Officer
152 DPL Inc.
Exhibit 31(c) 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 17, 2011
/s/ Paul M. Barbas
Paul M. Barbas
President and Chief Executive Officer
DPL Inc. 153
Exhibit 31(d) 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 17, 2011
/s/ Frederick J. Boyle
Frederick J. Boyle
Senior Vice President and Chief Financial Officer
154 DPL Inc.
Exhibit 32(a) 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, 2010, 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 17, 2011
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. 155
Exhibit 32(b) 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, 2010, 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 and Chief Financial Officer
Date: February 17, 2011
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.
156 DPL Inc.
Exhibit 32(c) 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, 2010, 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 17, 2011
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. 157
Exhibit 32(d) 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, 2010, 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 and Chief Financial Officer
Date: February 17, 2011
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.
158 DPL Inc.
Intentionally left blank
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
Fax: 781-575-3605
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.
2010 Dividends
Ex-Dividend Date
Record Date
Payable Date
Amount
2/11/10
5/12/10
8/12/10
2/16/10
5/14/10
8/16/10
3/1/10
6/1/10
9/1/10
$ 0.3025
$ 0.3025
$ 0.3025
11/10/10
11/15/10
12/1/10
$ 0.3025
$ 1.21
Federal Income Tax Status of 2010 Dividend Payments
Dividends paid in 2010 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, 2010, 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 2010
the annual CEO certification required by Section 303A.12 of
the New York Stock Exchange listed company manual.
Stock Purchase and Dividend Reinvestment Plan
In 2009, DPL introduced a new direct stock purchase 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:
Purchase shares weekly
Purchase initial shares through the CIP, as a new investor,
for $250.00 in one payment or ten consecutive monthly
payments of $25.00
Purchase additional shares by investing as little as $25.00
Authorize recurring monthly purchases through the
automatic investment feature
Purchase shares over the Internet at www.computershare.com/
investor or by check
Reinvest dividends or receive cash dividends electronically
or by check
Convert your stock certificates into book-entry shares for
safekeeping purposes at no cost
Transfer shares to another person by opening a CIP account
for the recipient
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
Boonshoft Museum of Discovery, 2600 DeWeese Parkway,
Dayton, Ohio 45414, on Wednesday, April 27, 2011 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 and
Chief Financial Officer
Kevin W. Crawford
Vice President
Generation
Craig L. Jackson
Vice President and Treasurer
Scott J. Kelly
Senior Vice President
Retail Operations / DPLER
Teresa F. Marrinan
Senior Vice President
Business Planning and
Development
Daniel J. McCabe
Senior Vice President and
Chief Administrative Officer
Arthur G. Meyer
Senior Vice President
Corporate and Regulatory Affairs
and General Counsel
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
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
DPL Inc.
1065 Woodman Drive
Dayton, Ohio 45432
www.dplinc.com