Company Quick10K Filing
Quick10K
DPL
10-K 2018-12-31 Annual: 2018-12-31
10-Q 2018-09-30 Quarter: 2018-09-30
10-Q 2018-06-30 Quarter: 2018-06-30
10-Q 2018-03-31 Quarter: 2018-03-31
10-K 2017-12-31 Annual: 2017-12-31
10-Q 2017-09-30 Quarter: 2017-09-30
10-Q 2017-06-30 Quarter: 2017-06-30
10-Q 2017-03-31 Quarter: 2017-03-31
10-K 2016-12-31 Annual: 2016-12-31
10-Q 2016-09-30 Quarter: 2016-09-30
10-Q 2016-06-30 Quarter: 2016-06-30
10-Q 2016-03-31 Quarter: 2016-03-31
10-K 2015-12-31 Annual: 2015-12-31
10-Q 2015-09-30 Quarter: 2015-09-30
10-Q 2015-06-30 Quarter: 2015-06-30
10-Q 2015-03-31 Quarter: 2015-03-31
10-K 2014-12-31 Annual: 2014-12-31
10-Q 2014-09-30 Quarter: 2014-09-30
10-Q 2014-06-30 Quarter: 2014-06-30
10-Q 2014-03-31 Quarter: 2014-03-31
10-K 2013-12-31 Annual: 2013-12-31
8-K 2019-02-15 Other Events
8-K 2019-01-23 Regulation FD, Exhibits
8-K 2018-12-06 Other Events
8-K 2018-09-26 Regulation FD
8-K 2018-06-18 Regulation FD
8-K 2018-05-31 Regulation FD, Exhibits
8-K 2018-03-27 M&A, Exhibits
8-K 2018-02-05 Other Events
8-K 2018-01-03 Enter Agreement, Exhibits
CRCW Crypto 0
LEVL Level One Bancorp 0
HTH Hilltop Holdings 0
YTFD Yacht Finders 0
MRNS Marinus Pharmaceuticals 0
ACXM Acxiom 0
OSIS OSI Systems 0
WMG Warner Music Group 0
AEI22 AEI Income & Growth Fund XXII 0
VNUE VNUE 0
DPL 2018-12-31
Part I
Item 1 - Business
Item 1A - Risk Factors
Item 1B - Unresolved Staff Comments
Item 2 - Properties
Item 3 - Legal Proceedings
Item 4 - Mine Safety Disclosures
Part II
Item 5 - Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
Item 6 - Selected Financial Data
Item 7 - Management's Discussion and Analysis of Financial Condition and Results of Operations
Item 7A - Quantitative and Qualitative Disclosures About Market Risk
Item 8 - Financial Statements and Supplementary Data
Note 1 - Overview and Summary of Significant Accounting Policies
Note 2 - Supplemental Financial Information
Note 3 - Regulatory Matters
Note 4 - Property, Plant and Equipment
Note 5 - Fair Value
Note 6 - Derivative Instruments and Hedging Activities
Note 7 - Long-Term Debt
Note 8 - Income Taxes
Note 9 - Benefit Plans
Note 10 - Equity
Note 11 - Contractual Obligations, Commercial Commitments and Contingencies
Note 12 - Related Party Transactions
Note 13 - Business Segments
Note 14 - Revenue
Note 16 - Dispositions
Note 17 - Fixed-Asset Impairments
Note 1 - Overview and Summary of Significant Accounting Policies
Note 2 - Supplemental Financial Information
Note 3 - Regulatory Matters
Note 4 - Property, Plant and Equipment
Note 5 - Fair Value
Note 6 - Derivative Instruments and Hedging Activities
Note 7 - Long-Term Debt
Note 8 - Income Taxes
Note 9 - Benefit Plans
Note 10 - Equity
Note 11 - Contractual Obligations, Commercial Commitments and Contingencies
Note 12 - Related Party Transactions
Note 13 - Revenue
Note 14 - Generation Separation
Note 15 - Dispositions
Item 9 - Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
Item 9A - Controls and Procedures
Item 9B - Other Information
Part III
Item 10 - Directors, Executive Officers and Corporate Governance
Item 11 - Executive Compensation
Item 12 - Security Ownership of Certain Beneficial Owners and Management and Related Shareholder Matters
Item 13 - Certain Relationships and Related Transactions, and Director Independence
Item 14 - Principal Accountant Fees and Services
Part IV
Item 15 - Exhibits, Financial Statements and Financial Statement Schedules
Item 16 - Form 10-K Summary
EX-31.A dpl20181231ex31a.htm
EX-31.B dpl20181231ex31b.htm
EX-31.C dpl20181231ex31c.htm
EX-31.D dpl20181231ex31d.htm
EX-32.A dpl20181231ex32a.htm
EX-32.B dpl20181231ex32b.htm
EX-32.C dpl20181231ex32c.htm
EX-32.D dpl20181231ex32d.htm

DPL Earnings 2018-12-31

DPL 10K Annual Report

Balance SheetIncome StatementCash Flow

10-K 1 dpl10k12312018q4.htm 10-K Document
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, 2018

OR

( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934

dplinclogo.jpg
 
dpandllogo.jpg
DPL INC.
(an Ohio corporation)
 
THE DAYTON POWER AND LIGHT COMPANY
(an Ohio corporation)
Commission file number 1-9052
 
Commission file number 1-2385
 
 
 
1065 Woodman Drive
Dayton, Ohio 45432
 
1065 Woodman Drive
Dayton, Ohio 45432
937-259-7215
 
937-259-7215
 
 
 
I.R.S. Employer Identification No. 31-1163136
 
I.R.S. Employer Identification No. 31-0258470

Securities registered pursuant to Section 12(b) of the Act: 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.
Yes o
No x
The Dayton Power and Light Company
Yes o
No x

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.
Yes x
No o
The Dayton Power and Light Company
Yes x
No o

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.
Yes o
No x
The Dayton Power and Light Company
Yes o
No x

1



DPL Inc. and The Dayton Power and Light Company are voluntary filers that have filed all applicable reports under Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months.

Indicate by check mark whether each registrant has submitted electronically every Interactive Data File required to be submitted 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 such files).

DPL Inc.
Yes x
No o
The Dayton Power and Light Company
Yes x
No o

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.
x
The Dayton Power and Light Company
x

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer”, “smaller reporting company” and "emerging growth company" in Rule 12b-2 of the Exchange Act.
 
Large
accelerated
filer
Accelerated
filer
Non-
accelerated
filer
(Do not check if a smaller reporting company)
Smaller
reporting
company
Emerging growth company
DPL Inc.
o
o
x
o
o
The Dayton Power and Light Company
o
o
x
o
o

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
DPL Inc.
o
The Dayton Power and Light Company
o

Indicate by check mark whether each registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

DPL Inc.
Yes o
No x
The Dayton Power and Light Company
Yes o
No x

All of the outstanding common stock of DPL Inc. is indirectly owned by The AES Corporation. All of the common stock of The Dayton Power and Light Company is owned by DPL Inc.


2


At December 31, 2018, each registrant had the following shares of common stock outstanding:

Registrant
 
Description
 
Shares Outstanding
 
 
 
 
 
DPL Inc.
 
Common Stock, no par value
 
1
 
 
 
 
 
The Dayton Power and Light Company
 
Common Stock, $0.01 par value
 
41,172,173

Documents incorporated by reference: None

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.

THE REGISTRANTS MEET THE CONDITIONS SET FORTH IN GENERAL INSTRUCTION I(1)(a) AND (b) OF FORM 10-K AND ARE THEREFORE FILING THIS FORM WITH THE REDUCED DISCLOSURE FORMAT.

3


DPL Inc. and The Dayton Power and Light Company - Annual Report on Form 10-K
Year Ended December 31, 2018
Table of Contents
Page No.
Glossary of Terms
Part I
 
Item 1 – Business
Item 1A – Risk Factors
Item 1B – Unresolved Staff Comments
Item 2 – Properties
Item 3 – Legal Proceedings
Item 4 – Mine Safety Disclosures
Part II
 
Item 5 – Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
Item 6 – Selected Financial Data
Item 7 – Management’s Discussion and Analysis of Financial Condition and Results of Operations
Item 7A – Quantitative and Qualitative Disclosures about Market Risk
Item 8 – Financial Statements and Supplementary Data
Consolidated Statements of Operations
Consolidated Statements of Comprehensive Income / (Loss)
Consolidated Balance Sheets
Consolidated Statements of Cash Flows
Consolidated Statements of Shareholder's Equity
Notes to Consolidated Financial Statements
Note 1 – Overview and Summary of Significant Accounting Policies
Note 2 – Supplemental Financial Information
Note 3 – Regulatory Matters
Note 4 – Property, Plant and Equipment
Note 5 – Fair Value
Note 6 – Derivative Instruments and Hedging Activities
Note 7 – Long-term debt
Note 8 – Income Taxes
Note 9 – Benefit Plans
Note 10 – Equity
Note 11 – Contractual Obligations, Commercial Commitments and Contingencies
Note 12 – Related Party Transactions
Note 13 – Business Segments
Note 14 – Revenue
Note 15 – Discontinued Operations
Note 16 – Dispositions
Note 17 – Fixed-asset impairments
Statements of Operations
Statements of Comprehensive Income / (Loss)
Balance Sheets
Statements of Cash Flows
Statements of Shareholder's Equity
Notes to Financial Statements
Note 1 – Overview and Summary of Significant Accounting Policies
Note 2 – Supplemental Financial Information
Note 3 – Regulatory Matters
Note 4 – Property, Plant and Equipment
Note 5 – Fair Value
Note 6 – Derivative Instruments and Hedging Activities
Note 7 – Long-term debt
Note 8 – Income Taxes
Note 9 – Benefit Plans
Note 10 – Equity
Note 11 – Contractual Obligations, Commercial Commitments and Contingencies
Note 12 – Related Party Transactions
Note 13 – Revenue
Note 14 – Generation Separation
Note 15 – Dispositions
Item 9 – Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
Item 9A – Controls and Procedures
Item 9B – Other Information
Part III
 
Item 10 – Directors, Executive Officers and Corporate Governance
Item 11 – Executive Compensation
Item 12 – Security Ownership of Certain Beneficial Owners and Management and Related Shareholder Matters
Item 13 – Certain Relationships and Related Transactions, and Director Independence
Item 14 – Principal Accountant Fees and Services
Part IV
 
Item 15 – Exhibits and Financial Statement Schedules
Item 16 – Form 10-K Summary
Signatures
Schedule II – Valuation and Qualifying Accounts

4


GLOSSARY OF TERMS

The following select terms, abbreviations or acronyms are used in this Form 10-K:
Term
Definition
2017 ESP
DP&L's ESP, approved October 20, 2017, effective November 1, 2017
AEP Generation
AEP Generation Resources Inc., a subsidiary of American Electric Power Company, Inc. (“AEP”). Columbus Southern Power Company merged into the Ohio Power Company, another subsidiary of AEP, effective December 31, 2011. The Ohio Power generating assets (including jointly-owned units) were transferred into AEP Generation.
AES
The AES Corporation, a global power company, the ultimate parent company of DPL
AES Ohio Generation
AES Ohio Generation, LLC, a wholly-owned subsidiary of DPL that owns and operates a generation facility from which it makes wholesale sales
AFUDC
Allowance for Funds Used During Construction
AMI
Advanced Metering Infrastructure
AOCI
Accumulated Other Comprehensive Income
ARO
Asset Retirement Obligation
ASU
Accounting Standards Update
CAA
U.S. Clean Air Act
Capacity Market
The purpose of the capacity market is to enable PJM to obtain sufficient resources to reliably meet the needs of electric customers within the PJM footprint. PJM procures capacity, through a multi-auction structure, on behalf of the load serving entities to satisfy the load obligations. There are four auctions held for each Delivery Year (running from June 1 through May 31). The Base Residual Auction is held three years in advance of the Delivery Year and there is one Incremental Auction held in each of the subsequent three years. AES Ohio Generation's capacity is in the “rest of” RTO area of PJM.
CCR
Coal Combustion Residuals, which consists of bottom ash, fly ash, and air pollution
Conesville
AES Ohio Generation's interest in Unit 4 at the Conesville EGU which is operated by AEP
CPP
The Clean Power Plan, the USEPA's final carbon dioxide emission rules for existing power plants under Clean Air Act Section 111(d)
CRES
Competitive Retail Electric Service
CSAPR
Cross-State Air Pollution Rule
CWA
U.S. Clean Water Act
Dark spread
A common metric used to estimate returns over fuel costs of coal-fired EGUs
DOE
U.S. Department of Energy
DMR
Distribution modernization rider - designed to allow DP&L to modernize and/or maintain its transmission and distribution infrastructure.
DPL
DPL Inc.
DPLER
DPL Energy Resources, Inc., formerly a wholly-owned subsidiary of DPL which sold competitive electric energy and other energy services. DPLER was sold on January 1, 2016 pursuant to an agreement dated December 28, 2015.
DP&L
The Dayton Power and Light Company, the principal subsidiary of DPL and a public utility which sells, transmits and distributes electricity to residential, commercial, industrial and governmental customers in a 6,000 square mile area of West Central Ohio. DP&L is wholly-owned by DPL
DRO
Distribution Rate Order, the order issued by the PUCO on September 26, 2018 establishing new base distribution rates for DP&L, which became effective October 1, 2018
Dths
Decatherms, unit of heat energy equal to 10 therms. One therm is equal to 100,000 British Thermal Units
Duke Energy
Affiliates of Duke Energy with which DP&L co-owns transmission lines in Ohio (Duke Energy Ohio, Inc.)
Dynegy
Dynegy, Inc., the parent of various subsidiaries that, along with AEP Generation and AES Ohio Generation, co-owns coal-fired EGUs in Ohio
EBIT
Earnings before interest and taxes
EBITDA
Earnings before interest, taxes, depreciation and amortization
EGU
Electric Generating Unit
ELG
Steam Electric Power Effluent Limitations Guidelines
ERISA
The Employee Retirement Income Security Act of 1974
ESP
The Electric Security Plan is a cost-based plan that a utility may file with the PUCO to establish SSO rates pursuant to Ohio law
FASB
Financial Accounting Standards Board
FASC
FASB Accounting Standards Codification
FERC
Federal Energy Regulatory Commission
First and Refunding Mortgage
DP&L’s First and Refunding Mortgage, dated October 1, 1935, as amended, with the Bank of New York Mellon as Trustee
FTR
Financial Transmission Rights
GAAP
Generally Accepted Accounting Principles in the United States of America

5


GLOSSARY OF TERMS (cont.)
Term
Definition
Generation Separation
The transfer on October 1, 2017, to AES Ohio Generation of the DP&L-owned generating facilities and related liabilities, excluding those of the Beckjord Facility and Hutchings EGU, pursuant to an asset contribution agreement with a subsidiary that was then merged into AES Ohio Generation
GHG
Greenhouse gas
kV
Kilovolts, 1,000 volts
kWh
Kilowatt hour
LIBOR
London Inter-Bank Offering Rate
Master Trust
DP&L established a Master Trust to hold assets that could be used for the benefit of employees participating in employee benefit plans
MATS
Mercury and Air Toxics Standards
Merger
The merger of DPL and Dolphin Sub, Inc., a wholly-owned subsidiary of AES. On November 28, 2011, DPL became a wholly-owned subsidiary of AES.
Miami Valley Lighting
Miami Valley Lighting, LLC is a wholly-owned subsidiary of DPL established in 1985 to provide street and outdoor lighting services to customers in the Dayton region. Miami Valley Lighting serves businesses, communities and neighborhoods in West Central Ohio with over 70,000 lighting solutions for more than 190 businesses and 180 local governments.
MRO
Market Rate Option, a market-based plan that a utility may file with PUCO to establish SSO rates pursuant to Ohio law
MTM
Mark to Market
MVIC
Miami Valley Insurance Company, a wholly-owned insurance subsidiary of DPL that provides insurance services to DPL and its subsidiaries
MW
Megawatt
MWh
Megawatt hour
NAAQS
National Ambient Air Quality Standards
NAV
Net asset value
NERC
North American Electric Reliability Corporation
Non-bypassable
Charges that are assessed to all customers regardless of whom the customer selects as their retail electric generation supplier
NOV
Notice of Violation
NOX
Nitrogen Oxide
NPDES
National Pollutant Discharge Elimination System
NSR
New Source Review: a preconstruction permitting program regulating new or significantly modified sources of air pollution
OCI
Other Comprehensive Income
Ohio EPA
Ohio Environmental Protection Agency
OTC
Over the counter
OVEC
Ohio Valley Electric Corporation, an electric generating company in which DP&L has a 4.9% interest
Peaker assets
The generation and related assets for the 586.0 MW Tait combustion turbine and diesel generation facility, the 236.0 MW Montpelier combustion turbine generation facility, the 101.5 MW Yankee combustion turbine generation and solar facility, the 25.0 MW Hutchings combustion turbine generation facility, the 12.0 MW Monument diesel generation facility, and the 12.0 MW Sidney diesel generation facility
PJM
PJM Interconnection, LLC, an RTO
PRP
Potentially Responsible Party
PUCO
Public Utilities Commission of Ohio
RTO
Regional Transmission Organization
SB 221
Ohio Senate Bill 221 is an Ohio electric energy bill that requires all Ohio distribution utilities to file either an ESP or MRO. The law also contains, among other things, annual targets relating to advanced energy portfolio standards, renewable energy, demand reduction and energy efficiency standards.
SEC
Securities and Exchange Commission
SEET
Significantly Excessive Earnings Test
Service Company
AES US Services, LLC, the shared services affiliate providing accounting, finance, and other support services to AES’ U.S. SBU businesses
SIP
A State Implementation Plan is a plan for complying with the federal CAA, administered by the USEPA. The SIP consists of narrative, rules, technical documentation and agreements that an individual state will use to clean up polluted areas.
SO2
Sulfur Dioxide
SSO
Standard Service Offer represents the retail transmission, distribution and generation services offered by a utility through regulated rates, authorized by the PUCO
TCJA
The Tax Cuts and Jobs Act of 2017 signed on December 22, 2017
U.S.
United States of America
USD
U.S. dollar
USEPA
U. S. Environmental Protection Agency
USF
The Universal Service Fund (USF) is a statewide program which provides qualified low-income customers in Ohio with income-based bills and energy efficiency education programs
U.S. SBU
U. S. Strategic Business Unit, AES’ reporting unit covering the businesses in the United States, including DPL

6


PART I

This report includes the combined filing of DPL and DP&L. DPL is a wholly-owned subsidiary of AES, a global power company. 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.

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. 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, considering 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:

growth in our service territory and changes in demand and demographic patterns;
weather-related damage to our electrical system;
performance of our suppliers;
transmission and distribution system reliability and capacity;
regulatory actions and outcomes, including, but not limited to, the review and approval of our rates and charges by the PUCO;
federal and state legislation and regulations;
changes in our credit ratings or the credit ratings of AES;
fluctuations in the value of pension plan assets, fluctuations in pension plan expenses and our ability to fund defined benefit pension plans;
changes in financial or regulatory accounting policies;
environmental matters, including costs of compliance with, and liabilities related to, current and future environmental laws and requirements;
interest rates and the use of interest rate hedges, inflation rates and other costs of capital;
the availability of capital;
the ability of subsidiaries to pay dividends or distributions to DPL;
level of creditworthiness of counterparties to contracts and transactions;
labor strikes or other workforce factors, including the ability to attract and retain key personnel;
facility or equipment maintenance, repairs and capital expenditures;
significant delays or unanticipated cost increases associated with construction projects;
the availability and cost of funds to finance working capital and capital needs, particularly during periods when the time lag between incurring costs and recovery is long and the costs are material;
local economic conditions;
costs and effects of legal and administrative proceedings, audits, settlements, investigations and claims and the ultimate disposition of litigation;
industry restructuring, deregulation and competition;
issues related to our participation in PJM, including the cost associated with membership, allocation of costs, costs associated with transmission expansion, the recovery of costs incurred, and the risk of default of other PJM participants;
changes in tax laws and the effects of our strategies to reduce tax payments;
product development, technology changes, and changes in prices of products and technologies;
cyberattacks and information security breaches;
the use of derivative contracts;
catastrophic events such as fires, explosions, terrorist acts, acts of war, pandemic events, or natural disasters such as floods, earthquakes, tornadoes, severe winds, ice or snow storms, droughts, or other similar occurrences; and
the risks and other factors discussed in this report and other DPL and DP&L filings with the SEC.

7



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. If we do update one or more forward-looking statements, no inference should be made that we will make additional updates with respect to those or other forward-looking statements.

Item 1 – Business
OVERVIEW

DPL is a regional energy company incorporated in 1985 under the laws of Ohio. All of DPL’s stock is owned by an AES subsidiary.

DPL has three primary subsidiaries, DP&L, MVIC and AES Ohio Generation. DP&L is a public utility providing electric transmission and distribution services in West Central Ohio. AES Ohio Generation owns an undivided interest in a coal-fired generating facility and sells all of its energy and capacity into the wholesale market. MVIC is our captive insurance company that provides insurance services to DPL and our other subsidiaries. For additional information, see Note 1 – Overview and Summary of Significant Accounting Policies of Notes to DPL's Consolidated Financial Statements and Note 1 – Overview and Summary of Significant Accounting Policies of Notes to DP&L's Financial Statements. All of DPL's subsidiaries are wholly-owned.

As an electric public utility in Ohio, DP&L provides regulated transmission and distribution services to its customers as well as retail SSO electric service. DP&L's sales reflect the general economic conditions, seasonal weather patterns and the growth of energy efficiency initiatives; however, our distribution revenues have been decoupled from weather and energy efficiency variations beginning January 1, 2019 as a result of the decoupling rider approved in the DRO. See Note 3 – Regulatory Matters of Notes to DPL's Consolidated Financial Statements and Note 3 – Regulatory Matters of Notes to DP&L's Financial Statements for further information.

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 does not have any subsidiaries.

DP&L’s electric transmission and distribution businesses are subject to rate regulation by federal and state regulators. 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 or overcollections of riders.

GENERATING CAPACITY

DPL, through AES Ohio Generation, owns an undivided interest in Conesville. AES Ohio Generation's share of this EGU's capacity is 129 MW. AES Ohio Generation sells all of its energy and capacity into the wholesale market.

DP&L also has a 4.9% interest in OVEC, an electric generating company. OVEC has two electric generating stations located in Cheshire, Ohio and Madison, Indiana with a combined generation capacity of 2,109 MW. DP&L’s share of this generation capacity is 103 MW.

SEGMENTS

DPL manages its business through one reportable operating segment, the Utility segment. See Note 13 – Business Segments of the Notes to DPL's Consolidated Financial Statements for additional information regarding DPL’s reportable segment.


8


EMPLOYEES

DPL and its subsidiaries employed 659 people at January 31, 2019, of which 647 were employed by DP&L. Approximately 57% of all DPL employees are under a collective bargaining agreement.

SERVICE COMPANY

The Service Company provides services including accounting, legal, human resources, information technology and other services of a similar nature on behalf of companies that are part of the U.S. SBU, including, among other companies, DPL and DP&L. The Service Company allocates the costs for these services based on cost drivers designed to result in fair and equitable allocations. This includes ensuring that the regulated businesses served, including DP&L, are not subsidizing costs incurred for the benefit of other businesses. See Note 12 – Related Party Transactions of Notes to DPL's Consolidated Financial Statements and Note 12 – Related Party Transactions of Notes to DP&L's Financial Statements.

SEASONALITY

The power delivery business is seasonal, and weather patterns have a material effect on energy demand. 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 compared to other times of the year. DP&L's sales typically reflect the seasonal weather patterns and the growth of energy efficiency initiatives, however, after the approval of the distribution rate order in 2018, our distribution revenues have been decoupled from weather and energy efficiency variations. Because of the impact of the new decoupling rider (effective January 1, 2019) and because DPL's generation has greatly decreased in recent years due to plant sales and closures, we expect that weather and other factors influencing demand will have minimal impact on our net operating results going forward.

Storm activity can also have an adverse effect on our operating performance. Severe storms often damage transmission and distribution equipment, thereby causing power outages, which increase repair costs. Partially mitigating this impact is DP&L’s ability to recover certain repair costs related to severe storms.

MARKET STRUCTURE

Retail rate regulation
DP&L's delivery service to all retail customers as well as the provisions of its SSO service are regulated by the PUCO. In addition, certain costs are considered to be non-bypassable and are therefore assessed to all DP&L retail customers, under the regulatory authority of the PUCO, regardless of the customer’s retail electric supplier. DP&L's transmission rates are subject to regulation by the FERC under the Federal Power Act.

Ohio law establishes the process for determining SSO and non-bypassable rates charged by public utilities. Regulation of retail rates encompasses the timing of applications, the effective date of rate changes, the cost basis upon which the rates are set and other service-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 of both DPL and DP&L. See Note 3 – Regulatory Matters of Notes to DPL's Consolidated Financial Statements and Note 3 – Regulatory Matters of Notes to DP&L's Financial Statements.

COMPETITION AND REGULATION

Ohio Retail Rates
DP&L filed an amended stipulation to its 2017 ESP case on March 13, 2017. The PUCO issued a final decision on October 20, 2017, modifying and adopting the amended stipulation and recommendation. The six-year 2017 ESP establishes DP&L's framework for providing retail service on a going-forward basis including rate structures, non-bypassable charges and other specific rate recovery true-up rider mechanisms.

9



On September 26, 2018 the PUCO issued the DRO establishing new base distribution rates for DP&L, which became effective October 1, 2018. The DRO approved, without modification, a stipulation and recommendation previously filed by DP&L, along with various intervening parties and the PUCO staff. The DRO established a revenue requirement of $248.0 million for DP&L's electric service base distribution rates which reflects an increase to distribution revenues of approximately $29.8 million per year. In addition to the increase in base distribution rates, among other matters, the DRO also provides for a return on equity of 9.999% and a cost of long-term debt of 4.8%.

For more information regarding DP&L's ESP and DRO, see Note 3 – Regulatory Matters of Notes to DPL's Consolidated Financial Statements and Note 3 – Regulatory Matters of Notes to DP&L's Financial Statements.

In December 2018, DP&L filed a Distribution Modernization Plan (“DMP”) with the PUCO proposing to invest $576.0 million in capital projects over the next 10 years. There are eight principal components of DP&L’s DMP: 1) Smart Meters, 2) Self-Healing Grid, 3) Customer Engagement, 4) Enhancing Sustainability and Embracing Innovation. 5) Telecommunications, 6) Physical and Cyber Security, 7) Governance and Analytics, and 8) Grid Modernization R&D.

These initiatives will also allow DP&L to be ready to leverage and integrate Distributed Energy Resources into its grid, including demonstrations of community solar, energy storage, microgrids, as well as Electric Vehicle charging infrastructure. If approved, DP&L will implement a comprehensive grid modernization project that will deliver benefits to customers, society as a whole and to the Company.

On January 22, 2019, DP&L filed a request with the PUCO for a two-year extension of its DMR through October 2022, in the proposed amount of $199.0 million for each of the two additional years. The request was made pursuant to the PUCO’s October 20, 2017 ESP order, which approved the DMR and had the option for DP&L to file for a two-year extension. The extension request was set at a level expected to reduce debt obligations at both DP&L and DPL and to position DP&L to make capital expenditures to maintain and modernize its electric grid. To that end, DP&L’s DMP investments are contingent upon the PUCO approving the two-year extension of its DMR.

Ohio law and the PUCO rules contain targets relating to renewable energy, peak 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. DP&L is in full compliance with energy efficiency, peak demand reduction and renewable energy targets. DP&L is required to file an energy efficiency portfolio plan to demonstrate how it plans to meet the standards. On June 15, 2017, DP&L filed an energy efficiency portfolio plan for programs in years 2018 through 2020, which was settled and approved by the PUCO on December 20, 2017. DP&L recovers the costs of its compliance with Ohio energy efficiency and renewable energy standards through separate riders which are reviewed and audited by the PUCO.

The costs associated with providing high voltage transmission service and wholesale electric sales and ancillary services are subject to FERC jurisdiction. While DPL has market-based rate authority for wholesale electric sales, DPL would be required to file an application at FERC under section 101 of Title 18 of the Code of Federal Regulations to change any of its cost-based transmission or ancillary service rates.

As a member of PJM, DP&L receives revenues from the RTO related to DP&L’s transmission assets and incurs costs associated with its load obligations for retail customers. Ohio law includes a provision that would allow Ohio electric utilities to seek and obtain a reconcilable rider to recover RTO-related costs and credits. DP&L continues to recover non-market-based transmission and ancillary costs through its transmission rider.

DP&L and AES Ohio Generation filed an application before the FERC to adjust their rates with respect to reactive power provided to PJM from their generation units. On March 3, 2017, DP&L, AES Ohio Generation, and certain intervening parties filed an Offer of Settlement that was approved by the FERC on May 16, 2017. The changes from current reactive power rates were not material. Additionally, the FERC has referred to the FERC’s Office of Enforcement for investigation, an issue regarding reactive power charges under the previously effective rates in light of changes in DP&L’s generation portfolio. Prior to 2017, DP&L's reactive power rates had been last reset in 1998. As of the date of this report, DP&L is unable to predict the ultimate outcome of the investigation. Several other utilities within PJM are also being investigated by FERC’s Office of Enforcement with respect to the same issue of changes in the generation portfolio that occurred in between rate proceedings. In connection with transactions and other matters discussed above, there have been subsequent reactive power filings made, including filings to reflect: the transfer of generation from DP&L to AES Ohio Generation; the sale of interests in the

10


Miami Fort and Zimmer stations to subsidiaries of Dynegy; the retirement of Stuart and Killen; and the sale of interests in the Peaker assets to subsidiaries of Kimura Power, LLC.

DP&L is subject to a SEET threshold and is required to apply general rules for calculating earnings and comparing them to a comparable group to determine whether there were significantly excessive earnings during a given calendar year. In future years, the SEET could have a material effect on results of operations, financial condition and cash flows. See Note 3 – Regulatory Matters of Notes to DPL's Consolidated Financial Statements and Note 3 – Regulatory Matters of Notes to DP&L's Financial Statements.

Ohio Competition
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 procure and provide electricity to SSO 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.

As part of Ohio’s electric deregulation law, all of the state’s investor-owned utilities were required to join an RTO. DP&L is a member of 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 more than 50 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.

Like other electric utilities and energy marketers, AES Ohio Generation may sell or purchase electric products in the wholesale market. AES Ohio Generation competes with other generators, power marketers, privately and municipally-owned electric utilities and rural electric cooperatives when selling electricity. The ability of AES Ohio Generation to sell this electricity will depend not only on the performance of its generating unit, but also on how AES Ohio Generation’s prices, terms and conditions compare to those of other suppliers.

ENVIRONMENTAL MATTERS

DPL’s and DP&L's facilities and operations are subject to a wide range of federal, state and local environmental laws, rules and regulations. The environmental issues that may affect us include the following. However, as described further below, as a result of DPL’s retirement of its Stuart and Killen generating stations, the sale of its ownership interest in the Miami Fort and Zimmer generating stations, the planned 2020 retirement of Conesville and our exiting of our generation business, certain of these environmental regulations and laws are now not expected to have a material impact on DPL with respect to these generating stations.

The federal CAA and state laws and regulations (including SIPs) 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 stations require additional permitting or pollution control technology, or whether emissions from coal-fired generating stations cause or contribute to global climate changes;
Rules and future rules issued by the USEPA, the Ohio EPA or other authorities that require or will require substantial reductions in SO2, particulates, mercury, acid gases, NOx, and other air emissions.
Rules and future rules issued by the USEPA, the Ohio EPA or other authorities that require or will require reporting and reductions of GHGs;
Rules and future rules issued by the USEPA, the Ohio EPA or other authorities associated with the federal Clean Water Act, which prohibits the discharge of pollutants into waters of the United States except pursuant to appropriate permits; and
Solid and hazardous waste laws and regulations, which govern the management and disposal of certain waste.
In addition to imposing continuing compliance obligations, these laws, rules 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 our facilities to

11


comply, or to determine compliance, with such laws, rules and 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 immaterial accruals for loss contingencies for environmental matters. We also have a number of environmental matters for which we have not accrued loss contingencies because the risk of loss is not probable, or a loss cannot be reasonably estimated. We evaluate the potential liability related to environmental matters quarterly and may revise our estimates. Such revisions in the estimates of the potential liabilities could have a material adverse effect on our results of operations, financial condition or cash flows. See Note 11 – Contractual Obligations, Commercial Commitments and Contingencies – "Environmental Matters” of Notes to DPL's Consolidated Financial Statements and Note 11 – Contractual Obligations, Commercial Commitments and Contingencies – "Environmental Matters" of Notes to DP&L's Financial Statements for more information regarding environmental risks, laws and regulations and legal proceedings to which we are and may be subject to in the future.
In response to Executive Orders from the U.S. President, the USEPA is currently evaluating various existing regulations to be considered for repeal, replacement, or modification. We cannot predict at this time the likely outcome of the USEPA’s review of these or other existing regulations or what impact it may have on our business.
We have several pending environmental matters associated with our current and previously owned and operated coal-fired generation units. Some of these matters could have material adverse impacts on our results of operations, financial condition or cash flows.
Environmental Matters Related to Air Quality
As a result of DPL’s decision to retire its Stuart and Killen generating stations, the sale of its ownership interest in the Miami Fort and Zimmer generating stations and the planned 2020 retirement of Conesville, the following environmental matters, regulations and requirements are now not expected to have a material impact on DPL:
The CAA and the following regulations
CSAPR and associated updates;
MATS and any associated regulatory or judicial processes;
NAAQS; and
CPP or a potential replacement rule.
Litigation Involving Co-Owned Stations
As a result of a 2008 consent decree entered into with the Sierra Club and approved by the U.S. District Court for the Southern District of Ohio, DPL and the other owners of the Stuart generating station are subject to certain specified emission targets related to NOX, SO2 and particulate matter. The consent decree also includes commitments for energy efficiency and renewable energy activities. An amendment to the consent decree was entered into and approved in 2010 to clarify how emissions would be computed during startups. Given that all of the commitments have been met and with the retirement of the Stuart generating station, DPL and the other owners plan to submit a request for termination of the consent decree.
Notices of Violation Involving Co-Owned Units
In June 2000, the USEPA issued an NOV to the then DP&L-operated Stuart generating station (co-owned by AES Ohio Generation, Dynegy and AEP Generation) for alleged violations of the CAA. The NOV contained allegations consistent with NOVs and complaints that the USEPA had 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. DPL cannot predict the outcome of this matter.
In January 2015, DP&L received NOVs from the USEPA alleging violations in opacity at the Stuart and Killen generating stations in 2014. On February 15, 2017, the USEPA issued an NOV alleging violations in opacity at the Stuart generation station in 2016. Operations at both Stuart and Killen have ceased. However, we are currently unable to predict the outcome of these matters.
Notices of Violation Involving Wholly-Owned Stations
On November 18, 2009, the USEPA issued an NOV to DP&L for alleged NSR violations of the CAA at the Hutchings EGU, which was closed in 2013, relating to capital projects performed in 2001 involving Unit 3 and

12


Unit 6. We do not believe that the two projects described in the NOV were modifications subject to NSR. We cannot predict the outcome of this matter.
Environmental Matters Related to Water Quality, Waste Disposal and Ash Ponds
As a result of DPL’s decision to retire its Stuart and Killen generating stations, the sale of its ownership interest in the Miami Fort and Zimmer generating stations and the planned 2020 retirement of Conesville; the following environmental matters, regulations and requirements are now not expected to have a material impact on DPL with respect to these generating stations (although certain other requirements related to water quality, waste disposal and ash ponds are discussed further below):
water intake regulations, including those finalized by the USEPA on May 19, 2014;
the appeal of the NPDES permit governing the discharge of water from the Stuart Station; and
revised technology-based regulations governing water discharges from steam electric generating facilities, finalized by the USEPA on November 3, 2015 and commonly referred to as the ELG rules.
Clean Water Act – Regulation of Water Discharge
On January 7, 2013, the Ohio EPA issued a final NPDES permit to the Stuart Station which included a compliance schedule for performing a study to justify an alternate thermal limitation or take undefined measures to meet certain temperature limits. On February 1, 2013, DP&L appealed various aspects of the final permit to the Environmental Review Appeals Commission. As a result of DPL’s decision to retire the Stuart Station we do not expect this to have a material impact on us.
Clean Water Act rules for Selenium
On July 13, 2016, the USEPA published the final updated chronic aquatic life criterion for the pollutant selenium in freshwater per section 304(a) of the CWA. The rule will be implemented after state rulemaking occurs, and requirements will be incorporated into NPDES permits with compliance schedules in some cases. It is too early in the rulemaking process to determine the impact, if any, on our operations, financial position or results of operations.
Regulation of Waste Disposal
In 2002, DP&L and other parties received a special notice that the USEPA considered DP&L to be a PRP for the clean-up of hazardous substances at a third-party landfill known as the South Dayton Dump (“Landfill”). Several of the parties voluntarily accepted some of the responsibility for contamination at the Landfill and, in May 2010, three of those parties, Hobart Corporation, Kelsey-Hayes Company, and NCR Corporation (“PRP Group”), filed a civil complaint in Ohio federal court (the “District Court”) against DP&L and numerous other defendants, alleging that the defendants contributed to the contamination at the landfill and were liable for contribution to the PRP group for costs associated with the investigation and remediation of the site.
While DP&L was able to get the initial case dismissed, the PRP Group subsequently, in 2013, entered into an additional Administrative Settlement Agreement and Order on Consent (“ASAOC”) with the USEPA relating to vapor intrusion and again filed suit against DP&L and other defendants. Trial for that issue was scheduled to be held in 2019, but the District Court recently vacated that trial date and it is unknown when it will be rescheduled. Plaintiffs also attempted to add an additional ASAOC they entered into in 2016 pertaining to the investigation and remediation of all hazardous substances present in the Landfill - potentially including undefined areas outside the original dump footprint - to the vapor intrusion trial proceeding. The District Court allowed the claim to be added to the litigation but ruled that the 2016 ASAOC could not be adjudicated until after completion of the remedial investigation feasibility study, which is expected to be complete years after the vapor intrusion trial. 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 our business, financial condition or results of operations.
Regulation of CCR
On October 19, 2015, a USEPA rule regulating CCR under the Resource Conservation and Recovery Act as nonhazardous solid waste became effective. The rule established nationally applicable minimum criteria for the disposal of CCR in new and currently operating landfills and surface impoundments, including location restrictions, design and operating criteria, groundwater monitoring, corrective action and closure requirements and post-closure care. The primary enforcement mechanisms under this regulation would be actions commenced by the states and private lawsuits. On December 16, 2016, President Obama signed into law the Water Infrastructure Improvements for the Nation Act ("WIN Act"), which includes provisions to implement the

13


CCR rule through a state permitting program, or if the state chooses not to participate, a possible federal permit program. EPA has indicated that they will implement a phased approach to amending the CCR Rule.
On September 13, 2017, the USEPA indicated that it would reconsider certain provisions of the CCR rule in response to two petitions it received to reconsider the final rule. It is too early to determine whether the CCR rule or any reconsideration of the rule may have a material impact on our business, financial condition or results of operations.
Notice of Violation Involving Co-Owned Units
On September 9, 2011, DP&L received an NOV from the USEPA with respect to its co-owned Stuart generating station based on a compliance evaluation inspection conducted by the USEPA and the Ohio EPA in 2009. The notice alleged non-compliance by DP&L with certain provisions of the RCRA, the CWA NPDES permit program and the station’s storm water pollution prevention plan. The notice requested that DP&L respond with the actions it has subsequently taken or plans to take to remedy the USEPA’s findings and ensure that further violations will not occur. Based on its review of the findings, although there can be no assurance, we believe that the notice will not result in any material effect on DPL’s results of operations, financial condition or cash flows.
HOW TO CONTACT DPL AND DP&L
DPL is a regional energy company incorporated in 1985 under the laws of Ohio. Our executive offices are located at 1065 Woodman Drive, Dayton, Ohio 45432 - telephone 937-259-7215. DPL’s public internet site is http://www.dplinc.com. DP&L’s public internet site is http://www.dpandl.com. The information on these websites is not incorporated by reference into this report.

Item 1A – Risk Factors
Investors should consider carefully the following risk factors that could cause our business, operating results and financial condition to be materially adversely affected. New risks may emerge at any time, and we cannot predict those risks or estimate the extent to which they may affect our business or financial performance. These risk factors should be read in conjunction with the other detailed information concerning DPL set forth in the Notes to DPL's Consolidated Financial Statements and concerning DP&L set forth in the Notes to DP&L's Financial Statements in Part II – Item 8 – Financial Statements and Supplementary Data and additional information in Part II – Item 7 – Management’s Discussion and Analysis of Financial Condition and Results of Operations herein. The risks and uncertainties described below are not the only ones that we face. In light of executing on our plan to exit generation, our generation business and the risks associated with that business have significantly lessened, such as risks associated with operations of generation plants and with greenhouse gas emission requirements.

We may not always be able to recover our costs to deliver electricity to our retail customers. 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.
In Ohio, retail generation rates are not subject to cost-based regulation, while the transmission and distribution businesses are still regulated. Even though 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. On May 1, 2008, SB 221, an Ohio electric energy bill, was adopted that requires all Ohio distribution utilities to file either an ESP or an MRO and established a significantly excessive earnings test for Ohio public utilities that measures a utility’s earnings to determine whether there have been significantly excessive earnings during a given calendar year. There can be no assurance 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 or permitted rates of return. Accordingly, the revenue DP&L receives may or may not match its expenses at any given time.

Changes in or reinterpretations of, or the unexpected application of the laws, rules, policies and procedures that set or govern electric rates, permitted rates of return, rate structures, operation of a competitive bid structure to supply retail generation service to SSO customers, reliability initiatives, capital expenditures and investments and the recovery of these and other costs on a full or timely basis through rates, power market prices, and the frequency and timing of rate increases, could have a material adverse effect on our results of operations, financial condition and cash flows.


14


Our increased costs due to renewable energy and energy efficiency requirements may not be fully recoverable in the future.
Ohio law contains annual targets for energy efficiency which began in 2009 and require increasing energy reductions each year compared to a baseline energy usage, up to 22.3% by 2027. Peak demand reduction targets began in 2009 with increases in required percentages each year, up to 7.75% by 2020. The renewable energy standards have increased our costs and are expected to continue to increase (and could materially increase) these costs. DP&L is entitled to recover costs associated with its renewable energy compliance costs, as well as its energy efficiency and demand response programs. 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 have a material adverse effect on our results of operations, financial condition and cash flows.

We may be negatively affected by a lack of growth or a decline in the number of customers.
Customer growth is affected by a number of factors outside our control, such as population changes, job and income growth, housing starts, new business formation and the overall level of economic activity. A lack of growth, or a decline, in the number of customers in our service territory could have a material adverse effect on our results of operations, financial condition and cash flows and may cause us to fail to fully realize anticipated benefits from investments and expenditures.

We are subject to numerous environmental laws, rules and regulations that require capital expenditures, increase our cost of operations, and may expose us to environmental liabilities.
We are subject to various federal, state, regional and local environmental protection and health and safety laws and regulations governing, among other things, the remediation of retired generation and other facilities, storage, handling, use, storage, disposal and transportation of coal combustion residuals and other materials, some of which may be defined as hazardous materials, the emission and discharge of hazardous and other materials into the environment; and the health and safety of our employees. Such laws, rules and regulations tend to become stricter over time, and we could also become subject to additional environmental laws, rules and regulations and other requirements in the future. Environmental laws, rules and regulations also require us to comply with inspections and obtain and comply with a wide variety of environmental licenses, permits, inspections and other governmental authorizations. These laws, rules and regulations often require a lengthy and complex process of obtaining and renewing licenses, permits and other governmental authorizations from federal, state and local agencies. If we are not able to timely comply with inspections and obtain, maintain or comply with all environmental laws, rules and regulations, and all licenses, permits and other government authorizations required to operate our business, then our operations could be prevented, delayed or subject to additional costs. A violation of environmental laws, rules, regulations, licenses, permits or other requirements can result in substantial fines, penalties, other sanctions, permit revocation, facility shutdowns, the imposition of stricter environmental standards and controls or other injunctive measures affecting operating assets. In addition, any actual or alleged violation of these laws, rules or regulations and other requirements may require us to expend significant resources to defend against any such actual or alleged violations. DPL owns an undivided interest in one generating station operated by our co-owner. As a non-controlling owner in this generating station, DPL is responsible for its pro rata share of expenditures for complying with environmental laws, rules, regulations, licenses, permits and other requirements, but has limited control over the compliance measures taken by our co-owner. Under certain environmental laws, we could also be held strictly, jointly and severally responsible for costs relating to contamination at our past or present facilities and at third-party waste disposal sites. We could also be held liable for human exposure to such hazardous substances or for other environmental damage.

In particular, we are subject to potentially significant remediation expenses, enforcement initiatives, private-party lawsuits and reputational risk associated with CCR. CCR, which consists of bottom ash, fly ash and air pollution control wastes generated at our current and former coal-fired generation plant sites, is currently handled and/or has been handled in the past in the following ways: placement in onsite CCR ponds; disposal and beneficial use in onsite and offsite permitted, engineered landfills; use in various beneficial use applications, including encapsulated uses and structural fill; and used in permitted offsite mine reclamation. CCR currently remains onsite at several of our facilities, including in CCR ponds. The USEPA's final CCR rule, which became effective in October 2015 and is currently subject to litigation and undergoing revisions by the USEPA, regulates CCR as nonhazardous solid waste and establishes national minimum criteria for existing and new CCR landfills, impoundments and ponds, including location restrictions, design and operating criteria, groundwater monitoring, corrective action and closure

15


requirements and post-closure care. On December 16, 2016, President Obama signed the Water Infrastructure Improvements for the Nation (WIIN) Act into law, which includes provisions to implement the CCR rule through a state permitting program, or if the state chooses not to participate, a possible federal permit program. The primary enforcement mechanisms for the CCR rule could be actions commenced by the USEPA, states and private lawsuits. Compliance with the CCR rule, amendments to the federal CCR rule, or other federal, state, or foreign rules or programs addressing CCR may require us to incur substantial costs. In addition, CCR, particularly with respect to its beneficial use and regulation as nonhazardous solid waste, has been the subject of interest from environmental non-governmental organizations and the media. Any of the foregoing could have a material adverse effect on our results of operations, financial condition and cash flows.

From time to time we are subject to enforcement and litigation actions for claims of noncompliance with environmental laws, rules and regulations or other environmental requirements. DPL cannot assure that it will be successful in defending against any claim of noncompliance. Any actual or alleged violation of these laws, rules, regulations and other requirements may require us to expend significant resources to defend against any such actual or alleged violations and expose us to unexpected costs. Our costs and liabilities relating to environmental matters could have a material adverse effect on our results of operations, financial condition and cash flows. See Item 1 - Business - Environmental Matters for a more comprehensive discussion of these and other environmental matters impacting us.

We are reliant upon the performance of a co-owner who operates our remaining co-owned operational EGU.
We co-own an EGU operated by one of our co-owners. Poor operational performance by our co-owner, misalignment of co-owners’ interests with our own or lack of control over costs (such as fuel costs) incurred at this station could have an adverse effect on us. In addition, any sale of this co-owned EGU by the co-owner to a third party could enhance the risk of a misalignment of interests, lack of cost control and other operational failures.

The use of non-derivative and derivative instruments in the normal course of business could result in losses that could negatively impact our results of operations, financial position and cash flows.
From time to time, we use non-derivative and derivative instruments, such as swaps, options, futures and forwards, to manage financial risks. These trades are affected by a range of factors, including fluctuations in interest rates and optimization opportunities. We have attempted to manage our 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. In the absence of actively quoted market prices and pricing information from external sources, the valuation of these instruments can involve management’s judgment or the 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, a counterparty failing to perform or the underlying transactions which the instruments are intended to hedge failing to materialize, 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 (the Dodd-Frank Act) was signed into law. The Dodd-Frank Act 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. We are considered an end-user under the Dodd-Frank Act and therefore are exempt from most of the collateral and margining requirements. We are required to report our bilateral derivative contracts, unless our counterparty is a major swap participant or has elected to report on our behalf. Even though we 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 or be unable to enter into certain transactions with us. The occurrence of any of these events could have a material adverse effect on our results of operations, financial condition and cash flows.

Our business is sensitive to weather and seasonal variations.
Weather conditions significantly affect the demand for electric power and, accordingly, our business is affected by variations in general weather conditions and unusually severe weather. As a result of these factors, our operating revenues and associated operating expenses are not generated evenly by month during the year. We forecast electric sales on the basis of normal weather, which represents a long-term historical average. In addition, severe or unusual weather, such as hurricanes and ice or snow storms, may cause outages and property damage that may

16


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, 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 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. Various proposals and proceedings before the FERC may cause transmission rates to change from time to time. In addition, PJM developed and continues to refine 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 effect 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 recovery of RTO-related charges. Therefore, non-market-based costs are being recovered from all retail customers through the transmission rider. If in the future, however, we are unable to recover all of these costs in a timely manner this could have a material adverse effect on our results of operations, financial condition and cash flows.

As members of PJM, DP&L and AES Ohio Generation are also subject to certain additional risks including those associated with the allocation of losses caused by unreimbursed defaults of other participants in PJM markets among PJM members and those associated with complaint cases filed against PJM that may seek refunds of revenues previously earned by PJM members including DP&L and AES Ohio Generation. 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. Over the last several years, however, some of the costs of constructing new large transmission facilities have been “socialized” across PJM without a direct relationship between the costs assigned to and benefits received by particular PJM members. To date, the additional costs charged to DP&L for new large transmission approved projects have not been material. Over time, as more new transmission projects are constructed and if the allocation method is not changed, the annual costs could become material. DP&L is recovering the Ohio retail jurisdictional share of these allocated costs from its retail customers through the transmission rider. To the extent that any costs in the future are material and we are unable to recover them from our customers, such costs 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.
As an owner 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 may subject us to higher operating costs or increased capital expenditures. Although 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 could have a material adverse effect on our results of operations, financial condition and cash flows.


17


We rely on access to the financial markets. General economic conditions and disruptions in the financial markets could adversely affect our ability to raise capital on favorable terms, or at all, and cause increases in our interest expense.
From time to time we rely on access to the capital and credit markets as a source of liquidity for capital requirements not satisfied by operating cash flows. These capital and credit markets experience volatility and disruption from time to time and the ability of corporations to raise capital can be negatively affected. Disruptions in the capital and credit markets make it harder and more expensive to raise capital. It is possible that our ability to raise capital on favorable terms, or at all, could be adversely affected by future market conditions, and we may be unable to access adequate funding to refinance our debt as it becomes due or finance capital expenditures. The extent of any impact will depend on several factors, including our operating cash flows, financial condition and prospects, the overall supply and demand in the credit markets, our credit ratings, credit capacity, the cost of financing, the financial condition, performance and prospects of other companies in our industry or with similar financial circumstances and other general economic and business conditions. It may also depend on the performance of credit counterparties and financial institutions with which we do business. Access to funds under our existing financing arrangements is also dependent on the ability of our counterparties to meet their financing commitments. Our inability to obtain financing on reasonable terms, or at all, with creditworthy counterparties could adversely affect our results of operations, financial condition and cash flows. If our available funding is limited or we are forced to fund our operations at a higher cost, these conditions may require us to curtail our business activities and increase our cost of funding, both of which could reduce our profitability. See Note 7 – Long-term debt of Notes to DPL's Consolidated Financial Statements and Note 7 – Long-term debt of Notes to DP&L's Financial Statements for information regarding indebtedness. See also Item 7A - Quantitative and Qualitative Disclosure about Market Risk for information related to market risks.

Our transmission and distribution system is subject to operational, reliability and capacity risks.
The ongoing reliable performance of our transmission and distribution system is subject to risks due to, among other things, weather damage, intentional or unintentional damage, equipment or process failure, catastrophic events, such as fires and/or explosions, facility outages, labor disputes, accidents or injuries, operator error or inoperability of key infrastructure internal or external to us and events occurring on third party systems that interconnect to and affect our system. The failure of our transmission and distribution system to fully operate and deliver the energy demanded by customers could have a material adverse effect on our results of operations, financial condition and cash flows, and if such failures occur frequently and/or for extended periods of time, could result in adverse regulatory action. In addition, the advent and quick adoption of new products and services that require increased levels of electrical energy cannot be predicted and could result in insufficient transmission and distribution system capacity. Also, as a result of the above risks and other potential risks and hazards associated with transmission and distribution operations, we may from time to time become exposed to significant liabilities for which we may not have adequate insurance coverage. We maintain an amount of insurance protection that we believe is adequate, but there can be no assurance that our insurance will be sufficient or effective under all circumstances and against all hazards or liabilities to which we may be subject. Further, any increased costs or adverse changes in the insurance markets may cause delays or inability in maintaining insurance coverage on terms similar to those presently available to us or at all. A successful claim for which we are not fully insured could have a material adverse effect on our results of operations, financial condition and cash flows.

Current and future conditions in the economy may adversely affect our customers, suppliers and other counterparties, which may adversely affect our results of operations, financial condition and cash flows.
Our business, results of operations, financial condition and cash flows have been and will continue to be affected by general economic conditions. Slowing economic growth, credit market conditions, fluctuating consumer and business confidence, fluctuating commodity prices, and other challenges currently affecting the general economy, have caused and may continue to cause some of our customers to experience deterioration of their businesses, cash flow shortages, and difficulty obtaining financing. As a result, existing customers may reduce their electricity consumption and may not be able to fulfill their payment obligations to us in a normal, timely fashion. In addition, some existing commercial and industrial customers may discontinue their operations. 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. For example, 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. Furthermore, projects which may result in potential new customers may be delayed until economic conditions improve. Some of our suppliers, customers, other counterparties and others with whom we transact business may also experience financial difficulties, which may impact their ability to fulfill their obligations to us or result in their declaring bankruptcy or similar insolvency-type proceedings. For example, our counterparties on

18


forward purchase contracts and financial institutions involved in our credit facility may become unable to fulfill their contractual obligations. We may not be able to enter into replacement agreements on terms as favorable as our existing agreements. 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. In particular, the projected economic growth and total employment in DP&L’s service territory are important to the realization of our forecasts for annual energy sales.

The level of our indebtedness, and the security provided for this indebtedness, could adversely affect our financial flexibility, and a material change in market interest rates could adversely affect our results of operations, financial condition and cash flows.
As of December 31, 2018, the carrying value of DPL's debt was $1,475.9 million and the carrying value of DP&L's debt was $586.1 million. Of DP&L's indebtedness, there was $576.1 million of First Mortgage Bonds, tax-exempt bonds and a term loan outstanding as of December 31, 2018, which are each secured by the pledge of substantially all of the assets of DP&L under the terms of DP&L’s First & Refunding Mortgage. This level of indebtedness and related security could have important consequences, including:

increasing our vulnerability to general adverse economic and industry conditions;
requiring us to dedicate a substantial portion of our cash flow from operations to make payments on our indebtedness, thereby reducing the availability of our cash flow to fund other corporate purposes;
limiting our flexibility in planning for, or reacting to, changes in our business and the industry in which we operate; and
limiting, along with the financial and other restrictive covenants in our indebtedness, our ability to borrow additional funds, as needed.

If DP&L issues additional debt in the future, we will be subject to the terms of such debt agreements and be required to obtain regulatory approvals. To the extent we increase our leverage, the risks described above would also increase. Further, actual cash requirements in the future may be greater than expected. Accordingly, our cash flows from operations may not be sufficient to repay all of the outstanding debt as it becomes due and, in that event, we may not be able to borrow money, sell assets or otherwise raise funds on acceptable terms, or at all, to refinance our debt as it becomes due. For a further discussion of our outstanding debt obligations, see Item 7 - Management’s Discussion and Analysis of Financial Condition and Results of Operations - Financial Condition, Liquidity and Capital Requirements and Note 7 – Long-term debt of Notes to DPL's Consolidated Financial Statements and Note 7 – Long-term debt of Notes to DP&L's Financial Statements.

DP&L has variable rate debt that bears interest based on a prevailing rate that is reset based on a market index that can be affected by market demand, supply, market interest rates and other market conditions. We also maintain both cash on deposit and investments in cash equivalents from time to time that could be impacted by interest rate fluctuations. As such, any event which impacts market interest rates could have a material effect on our results of operations, financial condition and cash flows. In addition, rating agencies issue ratings on our credit and our debt that affect our borrowing costs under our financial arrangements and affect our potential pool of investors and funding sources. Credit ratings also govern the collateral provisions of certain of our contracts. If the rating agencies were to downgrade our credit ratings further, our borrowing costs would likely further increase, our potential pool of investors and funding resources could be reduced, and we could be required to post additional collateral under select 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.

Economic conditions relating to the asset performance and interest rates of our pension and postemployment benefit plans could materially and adversely impact our results of operations, financial condition and cash flows.
Pension costs are based upon a number of actuarial assumptions, including an expected long-term rate of return on pension plan assets, level of employer contributions, the expected life span of pension plan beneficiaries and the discount rate used to determine the present value of future pension obligations. Any of these assumptions could prove to be wrong, resulting in a shortfall of our pension and postemployment benefit plan assets compared to obligations under our pension and postemployment benefit plans. Further, 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 postemployment 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 postemployment benefit plan assets will increase the funding requirements under our pension and postemployment benefit plans if the actual asset returns do not recover these declines in value in the foreseeable future. Future pension funding

19


requirements, and the timing of funding payments, may also be subject to changes in legislation. We are responsible for funding any shortfall of our pension and postemployment benefit plans’ assets compared to obligations under the pension and postemployment benefit plans, and a significant increase in our pension liabilities could materially and adversely impact our results of operations, financial condition, and cash flows. We are subject to the Pension Protection Act of 2006, which 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 postemployment benefit plan liabilities are sensitive to changes in interest rates. When interest rates decrease, the discounted liabilities increase 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 postemployment 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.

Counterparties providing materials or services may fail to perform their obligations, which could harm our results of operations, financial condition and cash flows.
We enter into transactions with and rely on many counterparties in connection with our business, including for purchased power, 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. Although our agreements are designed to mitigate the consequences of a potential default by the counterparty, our actual exposure may be greater than relief provided by these mitigation provisions. Any of the foregoing could result in regulatory actions, cost overruns, delays or other losses, any of which (or a combination of which) could have a material adverse effect on our results of operations, financial condition and cash flows.

Further, from time to time our construction program may call for extensive expenditures for capital improvements and additions, including the installation of upgrades, improvements to transmission and distribution facilities, as well as other initiatives. As a result, we may engage contractors and enter into agreements to acquire necessary materials and/or obtain required construction related services. In addition, some contracts may provide for us to assume the risk of price escalation and availability of certain metals and key components. This could force us to enter into alternative arrangements at then-current market prices that may exceed our contractual prices and cause construction delays. It could also subject us to enforcement action by regulatory authorities to the extent that such a contractor failure resulted in a failure by DP&L to comply with requirements or expectations, particularly with regard to the cost of the project. If these events were to occur, we might incur losses or delays in completing construction.

Accidental improprieties and undetected errors in our internal controls and information reporting could result in the disallowance of cost recovery, noncompliant disclosure 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 also implemented corporate governance, internal control and accounting policies and procedures in connection with the Sarbanes-Oxley Act of 2002. Our internal controls and policies have been and continue to be closely monitored by management and our Board of Directors. 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 affect how we report our results of operations, financial condition and cash flows.
DPL's Consolidated Financial Statements and DP&L's 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

20


difficult to predict and could materially affect 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 Financial Statements, management is required to make estimates and assumptions. Actual results could differ significantly from those estimates.

We are subject to extensive laws and local, state and federal regulation, as well as litigation and other proceedings that could affect our operations and costs.
As an electric utility, DP&L is subject to extensive regulation at both the federal and state level. For example, at the federal level, DP&L is regulated by the FERC and the NERC and, at the state level, by the PUCO. The regulatory power of the PUCO over DP&L is both comprehensive and typical of the traditional form of regulation generally imposed by state public utility commissions. We face the risk of unexpected or adverse regulatory action. Regulatory discretion is reasonably broad in Ohio. DP&L is subject to regulation by the PUCO as to our services and facilities, the valuation of property, the construction, purchase, or lease of electric facilities, the classification of accounts, rates of depreciation, the increase or decrease in retail rates and charges, the issuance of securities and incurrence of debt, the acquisition and sale of some public utility properties or securities and certain other matters. As a result of the Energy Policy Act of 2005 and subsequent legislation affecting the electric utility industry, we have been required to comply with rules and regulations in areas including mandatory reliability standards, cybersecurity, transmission expansion and energy efficiency. Complying with the regulatory environment to which we are subject 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 that could have a material adverse effect on our results of operations, financial condition and cash flows.

We may be subject to material litigation, regulatory proceedings, administrative proceedings, audits, settlements, investigations and claims from time to time which may require us to expend significant funds to address. There can be no assurance that the outcome of these matters will not have a material adverse effect on our business, results of operations, financial condition and cash flows. Asbestos and other regulated substances are, and may continue to be, present at our facilities, and we have been named as a defendant in asbestos litigation. 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. See Item 1 - Business - Competition and Regulation, Item 1 - Business - Environmental Matters, and Item 3 - Legal Proceedings for a summary of significant regulatory matters and legal proceedings involving us.

Tax legislation initiatives or challenges to our tax positions could adversely affect our operations and financial condition.
We are subject to the tax laws and regulations of the U.S. federal, state and local governments. From time to time, legislative measures may be enacted that could adversely affect our overall tax positions regarding income or other taxes. There can be no assurance that our effective tax rate or tax payments will not be adversely affected by these legislative measures.

For example, the United States federal government recently enacted tax reform that, among other things, reduces U.S. federal corporate income tax rates, imposes limits on tax deductions for interest expense and changes the rules related to capital expenditure cost recovery. There are a number of uncertainties and ambiguities as to the interpretation and application of many of the provisions of the newly enacted tax reform measure. Given the unpredictability of these possible changes and their potential interdependency, it remains difficult to assess the overall effect such tax changes will have on our earnings and cash flow, and the extent to which such changes could adversely impact our results of operations. As the impacts of the new law are determined, and as yet-to-be-released regulations and other guidance interpreting the new law are issued and finalized, our financial results could be materially impacted.

In addition, U.S. federal, state and local tax laws and regulations are extremely complex and subject to varying interpretations. There can be no assurance that our tax positions will be sustained if challenged by relevant tax authorities and if not sustained, there could be a material adverse effect on our results of operations, financial condition and cash flows.

If we are unable to maintain a qualified and properly motivated workforce, it could have a material adverse effect on our results of operations, financial condition and cash flows.
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 resignations, terminations or retirements. This undertaking could

21


require us to make additional financial commitments and incur increased costs. If we are unable to successfully attract and retain an appropriately qualified workforce, it could have a material adverse effect on our results of operations, financial condition and cash flows. In addition, we have employee compensation plans that reward the performance of our employees. We seek to ensure that our compensation plans encourage acceptable levels for risk and high performance through pay mix, performance metrics and timing. We may not be able to successfully train new personnel as current workers with significant knowledge and expertise retire. We also may be unable to staff our business with qualified personnel in the event of significant absenteeism related to a pandemic illness. Excessive risk-taking by our employees to achieve performance targets, through mitigated by policies and procedures, could result in events that have a material adverse effect on our results of operations, financial condition and cash flows.

We are subject to collective bargaining agreements that could adversely affect our business, results of operations, financial condition and cash flows.
We are subject to collective bargaining agreements with employees who are members of a union. Over half of our employees are represented by a collective bargaining agreement that expires on October 31, 2020. 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 collective 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 or other workforce issues could have a material adverse effect on our results of operations, financial condition and cash flows.

Potential security breaches (including cybersecurity breaches) and terrorism risks could adversely affect our businesses.
We operate in a highly regulated industry that requires the continued operation of sophisticated systems and network infrastructure at our generation stations, fuel storage facilities and transmission and distribution facilities. We also use various financial, accounting and other systems in our businesses. These systems and facilities are vulnerable to unauthorized access due to hacking, viruses, other cybersecurity attacks and other causes. In particular, given the importance of energy and the electric grid, there is the possibility that our systems and facilities could be targets of terrorism or acts of war. We have implemented measures to help prevent unauthorized access to our systems and facilities, including network and system monitoring, identification and deployment of secure technologies, and certain other measures to comply with mandatory regulatory reliability standards. Pursuant to NERC requirements, we have a robust cybersecurity plan in place and are subject to regular audits by an independent auditor approved by the NERC. We routinely test our systems and facilities against these regulatory requirements in order to measure compliance, assess potential security risks, and identify areas for improvement. In addition, we provide cybersecurity training for our employees and perform exercises designed to raise employee awareness of cyber risks on a regular basis. To date, cyber-attacks on our business and operations have not had a material impact on our operations or financial results. Despite these efforts, if our systems or facilities were to be breached or disabled, we may be unable to recover them in a timely manner to fulfill critical business functions, including the supply of electric services to our customers, and we could experience decreases in revenues and increases in costs that could have a material adverse effect on our results of operations, financial condition and cash flows.

In the course of our business, we also store and use customer, employee, and other personal information and other confidential and sensitive information, including personally identifiable information and personal financial information. If our or our third-party vendors’ systems were to be breached or disabled, 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.

To help mitigate these risks, we maintain insurance coverage against some, but not all, potential losses, including coverage for illegal acts against us. However, insurance may not be adequate to protect us against all costs and liabilities associated with these risks.

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 with no material assets other than the ownership of its subsidiaries, and accordingly all cash is generated by the operating activities of its subsidiaries, principally DP&L. As such, DPL’s cash flow is largely dependent on the operating cash flows of DP&L and its ability to pay cash to DPL. See Item 7 - Management’s Discussion and Analysis of Financial Condition and Results of Operations - Capital Resources and Liquidity for a discussion of these restrictions. See Note 7 – Long-term debt of Notes to DPL's Consolidated

22


Financial Statements and Note 7 – Long-term debt of Notes to DP&L's Financial Statements for information regarding indebtedness. In addition, DP&L is regulated by the PUCO, which possesses broad oversight powers to ensure that the needs of utility customers are being met. The PUCO could impose additional restrictions on the ability of DP&L to distribute, loan or advance cash to DPL pursuant to these broad powers. See Note 3 – Regulatory Matters of Notes to DPL's Consolidated Financial Statements and Note 3 – Regulatory Matters of Notes to DP&L's Financial Statements for more information the regulatory environment. As part of the PUCO’s approval of the Merger, DP&L agreed to maintain certain capital structure levels. See Note 10 – Equity of Notes to DPL's Consolidated Financial Statements and Note 10 – Equity of Notes to DP&L's Financial Statements for information related to these capital structure levels and restrictions on DP&L's equity and its ability to declare and pay dividends to DPL. While we do not expect any of the foregoing to significantly affect DP&L’s ability to pay funds to DPL in the near future, a significant limitation on DP&L’s ability to pay dividends or loan or advance funds to DPL could have a material adverse effect on DPL’s results of operations, financial condition and cash flows. In addition, as a result of any non-compliance with PUCO requirements, the PUCO could impose additional restrictions on DP&L operations that could have a material adverse effect on our results of operations, financial condition and cash flows.

Our ownership by AES subjects us to potential risks that are beyond our control.
All of DP&L’s common stock is owned by DPL, and DPL is an indirectly wholly owned subsidiary of AES. Due to our relationship with AES, any adverse developments and announcements concerning AES may impair our ability to access the capital markets and to otherwise conduct business. In particular, downgrades in AES’s credit ratings could result in DPL’s or DP&L’s credit ratings being downgraded.

Impairment of long-lived assets would negatively affect our consolidated results of operations and net worth.
Long-lived assets are amortized or depreciated over their estimated useful lives. Long-lived assets are evaluated for impairment only when impairment indicators are present. The recoverability assessment of long-lived assets requires making estimates and assumptions to determine fair value, as described above. See Note 17 – Fixed-asset impairments or Notes to DPL's Consolidated Financial Statements for more information on the impairment of fixed assets.

Item 1B – Unresolved Staff Comments
None.

Item 2 – Properties
Information relating to our properties is contained in Note 4 – Property, Plant and Equipment of Notes to DPL's Consolidated Financial Statements and Note 4 – Property, Plant and Equipment of Notes to DP&L's Financial Statements.

Our executive offices are located at 1065 Woodman Drive, Dayton, Ohio. This facility and the remainder of our material properties are owned directly by DP&L or AES Ohio Generation. These properties include our distribution service center in Dayton, Ohio, various substations and other transmission and distribution equipment and property.

Substantially all property, plant & equipment of DP&L is subject to the lien of the mortgage securing DP&L’s First and Refunding Mortgage. All generation assets were released from the lien of DP&L's first and refunding mortgage in connection with the completion of Generation Separation on October 1, 2017. See Note 14 – Generation Separation of Notes to DP&L's Financial Statements.

Item 3 – Legal Proceedings

DPL and DP&L are involved in certain claims, suits and legal proceedings in the normal course of business. DPL and DP&L have accrued for litigation and claims where it is probable that a liability has been incurred and the amount of loss can be reasonably estimated. DPL and DP&L believe, based upon information they currently possess and considering established reserves for estimated liabilities and insurance coverage, that the ultimate

23


outcome of these proceedings and actions is unlikely to have a material adverse effect on their financial statements. It is reasonably possible, however, that some matters could be decided unfavorably and could require DPL or DP&L to pay damages or make expenditures in amounts that could be material but cannot be estimated as of December 31, 2018.

The following additional information is incorporated by reference into this Item: information about the legal proceedings contained in Item 1 - Business - Competition and Regulation and Item 1 - Business - Environmental Matters.

Item 4 – Mine Safety Disclosures
Not applicable.


24


PART II
Item 5 – Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
All of the outstanding common stock of DPL is owned indirectly by AES and directly by a wholly-owned subsidiary of AES. As a result, DPL’s stock is not listed for trading on any stock exchange. DP&L’s common stock is held solely by DPL and, as a result, is not listed for trading on any stock exchange.

Dividends and return of capital
During the years ended December 31, 2018, 2017 and 2016, DPL paid no dividends to AES. DP&L declares and pays dividends on its common shares to its parent DPL from time to time as declared by the DP&L board. Return of capital payments and dividends on common shares in the amounts of $43.8 million, $39.0 million and $70.0 million were declared and paid in the years ended December 31, 2018, 2017 and 2016, respectively. DP&L declared and paid dividends on preferred shares of $0.7 million in the year ended December 31, 2016.

DPL’s Amended Articles of Incorporation contain restrictions on DPL’s ability to make dividends, distributions and affiliate loans (other than to its subsidiaries), including restrictions on making such dividends, distributions and loans if certain financial ratios exceed specified levels and DPL’s senior long-term debt rating from a rating agency is below investment grade. As of December 31, 2018, DPL’s leverage ratio was at 1.47 to 1.00 and DPL’s senior long-term debt rating from a major credit rating agency was below investment grade. As a result, as of December 31, 2018, DPL was prohibited under its Articles of Incorporation from making a distribution to its shareholder or making a loan to any of its affiliates (other than its subsidiaries).

DP&L's 2017 ESP also contains restrictions on dividend or tax sharing payments from DPL to AES. See Note 10 – Equity for more information and Note 8 – Income Taxes for more information about the tax sharing payment restrictions.

On October 13, 2016 (the "Redemption Date"), DPL's subsidiary, DP&L redeemed all of its issued and outstanding preferred stock. See Note 10 – Equity of Notes to DPL's Consolidated Financial Statements for more information and Note 10 – Equity of Notes to DP&L's Financial Statements.


25


Item 6 – Selected Financial Data
The following table presents our selected financial data which should be read in conjunction with DPL's audited Consolidated Financial Statements and the related Notes thereto, DP&L's audited Financial Statements and the related Notes thereto and Item 7 – Management’s Discussion and Analysis of Financial Condition and Results of Operations. The “Results of Operations” discussion in Item 7 – Management’s Discussion and Analysis of Financial Condition and Results of Operations addresses significant fluctuations in operating data. DPL’s common stock is wholly-owned by an indirect subsidiary of AES and therefore DPL does not report earnings or dividends on a per-share basis. Other information that management believes is important in understanding trends in our business is also included in this table. The total electric sales and Statements of Operations Data for DPL for 2014 and 2015 and the Balance Sheet Data for DPL for 2014 - 2016 are not comparable to the total electric sales and Statements of Operations Data for 2016 - 2018 and the Balance Sheet Data for 2017 and 2018, respectively, as these periods have not been adjusted to reflect the reclassification of the generation business, excluding Conesville, as a discontinued operation. The Statements of Operations Data for DP&L for 2014 and the total electric sales and Balance Sheet Data for DP&L for 2014 - 2015 are not comparable to the Statements of Operations Data for 2015 - 2018 and the total electric sales and Balance Sheet Data for 2016 - 2018, respectively, as these periods have not been adjusted to reflect the Generation Separation and its reclassification as a discontinued operation.
DPL
 
 
Years ended December 31,
$ in millions except per share amounts or as indicated
 
2018
 
2017
 
2016
 
2015
 
2014
Total electric sales (millions of kWh)
 
15,728

 
14,679

 
15,406

 
20,756

 
19,060

Statements of Operations Data
 
 
 
 
 
 
 
 
 
 
Revenues
 
$
775.9

 
$
743.9

 
$
834.2

 
$
1,612.8

 
$
1,716.5

Goodwill impairment (a)
 
$

 
$

 
$

 
$
317.0

 
$

Fixed-asset impairment (b)
 
$
2.8

 
$

 
$
23.9

 
$

 
$
11.5

Operating income / (loss)
 
$
135.5

 
$
105.2

 
$
119.0

 
$
(109.9
)
 
$
230.7

Income / (loss) from continuing operations
 
$
31.2

 
$
(1.5
)
 
$
14.8

 
$
(251.4
)
 
$
57.2

Income / (loss) from discontinued operations, net of tax
 
$
38.9

 
$
(93.1
)
 
$
(500.0
)
 
$
12.4

 
$
(131.8
)
Net income / (loss)
 
$
70.1

 
$
(94.6
)
 
$
(485.2
)
 
$
(239.0
)
 
$
(74.6
)
Capital expenditures
 
$
103.6

 
$
121.5

 
$
148.5

 
$
137.2

 
$
118.1

 
 
 
 
 
 
 
 
 
 
 
Balance Sheet Data (end of period):
 
 
 
 
 
 
 
 
 
 
Total assets
 
$
1,883.1

 
$
2,049.2

 
$
2,419.2

 
$
3,324.7

 
$
3,559.1

Long-term debt (c)
 
$
1,372.3

 
$
1,700.2

 
$
1,828.7

 
$
1,420.5

 
$
2,120.9

Redeemable preferred stock of subsidiary
 
$

 
$

 
$

 
$
18.4

 
$
18.4

Total common shareholder's equity / (deficit)
 
$
(471.7
)
 
$
(584.3
)
 
$
(587.6
)
 
$
(80.6
)
 
$
148.2


(a)
The goodwill impairment of $135.8 million in 2014 related to DPLER has been reclassified to discontinued operations.
(b)
Fixed-asset impairments of $175.8 million and $835.2 million in 2017 and 2016, respectively, have been reclassified to discontinued operations.
(c)
Excluded from this line are the current maturities of long-term debt.
DP&L
 
 
Years ended December 31,
$ in millions except per share amounts or as indicated
 
2018
 
2017
 
2016
 
2015
 
2014
Total electric sales (millions of kWh)
 
15,194

 
14,401

 
15,008

 
26,394

 
28,634

Statements of Operations Data
 
 
 
 
 
 
 
 
 
 
Revenues
 
$
738.7

 
$
720.0

 
$
808.0

 
$
857.0

 
$
1,668.3

Fixed-asset impairment (a)
 
$

 
$

 
$

 
$

 
$

Operating income
 
$
135.1

 
$
122.1

 
$
169.0

 
$
222.2

 
$
188.8

Income from continuing operations
 
$
86.7

 
$
57.4

 
$
97.6

 
$
130.0

 
$
114.1

Loss from discontinued operations, net of tax
 
$

 
$
(40.4
)
 
$
(870.3
)
 
$
(23.6
)
 
$

Net income / (loss) attributable to common stock
 
$
86.7

 
$
17.0

 
$
(773.4
)
 
$
105.5

 
$
114.1

Capital expenditures
 
$
93.1

 
$
101.7

 
$
128.3

 
$
127.0

 
$
114.2

 
 
 
 
 
 
 
 
 
 
 
Balance Sheet Data (end of period):
 
 
 
 
 
 
 
 
 
 
Total assets
 
$
1,819.6

 
$
1,695.9

 
$
2,035.1

 
$
3,359.6

 
$
3,328.8

Long-term debt (b)
 
$
581.5

 
$
642.0

 
$
731.5

 
$
313.6

 
$
868.2

Redeemable preferred stock
 
$

 
$

 
$

 
$
22.9

 
$
22.9

Total common shareholder's equity
 
$
445.3

 
$
330.7

 
$
362.3

 
$
1,212.7

 
$
1,143.4

 
 
 
 
 
 
 
 
 
 
 
Number of shareholders - preferred stock
 

 

 

 
180

 
186


(a)
Fixed-asset impairment of $1,353.5 million in 2016 has been reclassified to discontinued operations.
(b)
Excluded from this line are the current maturities of long-term debt.

26



Item 7 – Management's Discussion and Analysis of Financial Condition and Results of Operations

The following discussion and analysis should be read in conjunction with DPL’s audited Consolidated Financial Statements and the related Notes thereto and DP&L’s audited Financial Statements and the related Notes thereto included in Item 8 – Financial Statements and Supplementary Data of this Form 10-K. The following discussion contains forward-looking statements. Our actual results may differ materially from the results suggested by these forward-looking statements. See “Forward-Looking Statements” at the beginning of this Form 10-K and Item 1A – Risk Factors. For a list of certain abbreviations or acronyms in this discussion, see Glossary of Terms at the beginning of this Form 10-K.

EXECUTIVE SUMMARY

DPL

DPL's income / (loss) from continuing operations before income tax for the year ended December 31, 2018 improved by $38.4 million, or 591%, from a pre-tax loss of $6.5 million for the year ended December 31, 2017 to pre-tax income of $31.9 million for the year ended December 31, 2018, primarily due to factors including, but not limited to:
$ in millions
 
2018 vs. 2017
Favorable impact of DMR rider following 2017 ESP
 
$
28.0

Higher rates from DRO
 
9.9

Higher retail revenue volumes driven by favorable weather
 
31.9

Lower interest expense due to debt payments made in 2017 and 2018
 
12.0

Decrease due to higher purchased power volumes, driven by higher retail demand
 
(25.7
)
Loss on transfer of Beckjord facility
 
(11.7
)
Other
 
(6.0
)
Net change in income / (loss) from continuing operations before income tax
 
$
38.4


DPL's income / (loss) from continuing operations before income tax for the year ended December 31, 2017 declined by $18.9 million, or 152%, from pre-tax income of $12.4 million for the year ended December 31, 2016 to a pre-tax loss of $6.5 million for the year ended December 31, 2017, primarily due to factors including, but not limited to:
$ in millions
 
2017 vs. 2016
Decrease from reverting to ESP 1 rates in September 2016, partially offset by the implementation of the DMR in November 2017
 
$
(22.0
)
Lower retail revenue volumes driven by unfavorable weather
 
(28.4
)
Increase due to lower purchased power volumes, driven by lower retail demand
 
6.7

Fixed asset impairment recorded in 2016 on Conesville facility
 
23.9

Other
 
0.9

Net change in income / (loss) from continuing operations before income tax
 
$
(18.9
)

DP&L

DP&L's income from continuing operations before income tax for the year ended December 31, 2018 improved by $15.9 million, or 18%, from pre-tax income of $88.5 million for the year ended December 31, 2017 to pre-tax income of $104.4 million for the year ended December 31, 2018, primarily due to factors including, but not limited to:
$ in millions
 
2018 vs. 2017
Favorable impact of DMR rider following 2017 ESP
 
$
28.0

Higher rates from DRO
 
9.9

Higher retail revenue volumes driven by favorable weather
 
31.7

Decrease due to higher purchased power volumes, driven by higher retail demand
 
(24.6
)
Loss on transfer of Beckjord facility
 
(12.4
)
Increase in legal and other consulting costs, including write-off of previously deferred rate case costs no longer deemed probable for recovery
 
(8.1
)
Increase in insurance and claims costs
 
(4.0
)
Other
 
(4.6
)
Net change in income from continuing operations before income tax
 
$
15.9


27



DP&L's income from continuing operations before income tax for the year ended December 31, 2017 declined $55.1 million, or 38%, from pre-tax income of $143.6 million for the year ended December 31, 2016 to a pre-tax income of $88.5 million for the year ended December 31, 2017 primarily due to factors including, but not limited to:
$ in millions
 
2017 vs. 2016
Decrease from reverting to ESP 1 rates in September 2016, partially offset by the implementation of the DMR in November 2017
 
$
(22.0
)
Lower retail revenue volumes driven by unfavorable weather
 
(28.5
)
Increase in General taxes driven by higher property taxes
 
(8.3
)
Lower purchased power volumes, driven by lower retail demand
 
7.9

Other
 
(4.2
)
Net change in income from continuing operations before income tax
 
$
(55.1
)

RESULTS OF OPERATIONS – DPL

DPL’s results of operations include the results of its subsidiaries, including the consolidated results of its principal subsidiary DP&L. 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.

Statement of Operations Highlights – DPL
 
 
Years ended December 31,
$ in millions
 
2018
 
2017
 
2016
Revenues:
 
 
 
 
 
 
Retail
 
$
656.9

 
$
641.5

 
$
738.5

Wholesale
 
52.0

 
31.9

 
27.1

RTO revenue
 
43.2

 
47.4

 
46.5

RTO capacity revenues
 
14.4

 
12.1

 
11.0

Other revenues
 
9.4

 
11.0

 
11.1

Total revenues
 
775.9

 
743.9

 
834.2

Cost of revenues:
 
 
 
 
 
 
Net fuel cost
 
17.5

 
9.0

 
17.4

Purchased power:
 
 
 
 
 
 
Purchased power
 
244.9

 
231.4

 
258.1

RTO charges
 
57.8

 
57.5

 
59.7

RTO capacity charges
 
2.3

 
2.1

 
1.3

Net purchased power cost
 
305.0

 
291.0

 
319.1

 
 
 
 
 
 
 
Total cost of revenues
 
322.5

 
300.0

 
336.5

 
 
 
 
 
 
 
Gross margin
 
453.4

 
443.9

 
497.7

 
 
 
 
 
 
 
Operating expenses:
 
 
 
 
 
 
Operation and maintenance
 
156.8

 
186.1

 
213.5

Depreciation and amortization
 
73.1

 
76.1

 
73.6

General taxes
 
73.5

 
77.1

 
68.4

Fixed-asset impairment
 
2.8

 

 
23.9

Gain on asset disposal
 

 
(0.6
)
 
(0.7
)
Loss on disposal of business (Note 16)
 
11.7

 

 

Total operating expenses
 
317.9

 
338.7

 
378.7

 
 
 
 
 
 
 
Operating income
 
135.5

 
105.2

 
119.0

 
 
 
 
 
 
 
Other expense, net
 
 
 
 
 
 
Interest expense
 
(98.0
)
 
(110.0
)
 
(107.4
)
Charge for early redemption of debt
 
(6.5
)
 
(3.3
)
 
(3.1
)
Other income
 
0.9

 
1.6

 
3.9

Other expense, net
 
(103.6
)
 
(111.7
)
 
(106.6
)
 
 
 
 
 
 
 
Income / (loss) from continuing operations before income tax (a)
 
$
31.9

 
$
(6.5
)
 
$
12.4


(a)
For purposes of discussing operating results, we present and discuss Income / (loss) from continuing operations before income tax. 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.


28


DPL – Revenues
Retail customers, especially residential and commercial customers, consume more electricity on warmer and colder days. Therefore, our retail sales volume is affected by the number of heating and cooling degree-days occurring during a year. Cooling degree-days typically have a more significant effect than heating degree-days since some residential customers do not use electricity to heat their homes.

Degree-days
 
 
Years ended December 31,

 
2018
 
2017
 
2016
Heating degree-days (a)
 
5,547

 
4,805

 
5,034

Cooling degree-days (a)
 
1,341

 
890

 
1,213


(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 degrees that the average actual daily temperature is below 65 degrees Fahrenheit. For example, 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. Similarly, cooling degrees in a day are calculated as the degrees that the average actual daily temperature is above 65 degrees Fahrenheit.

DPL's electric sales and billed customers were as follows:
ELECTRIC SALES AND CUSTOMERS (a)
 
 
DPL
 
 
Years ended December 31,
 
 
2018
 
2017
 
2016
Retail electric sales (b)
 
14,439

 
13,863

 
14,499

Wholesale electric sales (c)
 
1,289

 
816

 
907

Total electric sales
 
15,728

 
14,679

 
15,406

 
 
 
 
 
 
 
Billed electric customers (end of period)
 
525,166

 
521,609

 
519,128


(a)
Electric sales are presented in millions of KWh.
(b)
DPL retail electric sales represent the total transmission and distribution retail sales for the periods presented. SSO sales were 3,977 KWh, 3,684 KWh and 3,856 KWh for the years ended December 31, 2018, 2017 and 2016, respectively.
(c)
Included within DPL wholesale electric sales are DP&L's 4.9% share of the generation output of OVEC and the generation output of Conesville.

During the year ended December 31, 2018, Revenues increased $32.0 million to $775.9 million from $743.9 million in the same period of the prior year. This increase was a result of:
$ in millions
 
2018 vs. 2017
Retail
 
 
Rate
 
 
Decrease in energy efficiency and USF revenue rate riders
 
$
(46.6
)
Decrease in competitive bid revenue rate rider
 
(12.5
)
Increase due to implementation of the DMR in November 2017
 
28.0

Increase due to DRO
 
9.9

Other
 
4.7

Net change in retail rate
 
(16.5
)
 
 
 
Volume
 
 
Increase due to favorable weather, as shown above by the 51% increase in cooling degree-days and 15% increase in heating degree-days
 
31.9

 
 
 
Total retail change
 
15.4

 
 
 
Wholesale
 
 
Increase due to increased volumes sold by Conesville of 93% and higher wholesale prices and increased volumes for DP&L's 4.9% share of the generation output of OVEC, which is sold into PJM at market prices

20.1

 
 
 
RTO revenues and RTO capacity revenues
 
 
RTO revenues and RTO capacity revenues
 
(1.9
)
 
 
 
Other
 
 
Other revenues
 
(1.6
)
 
 
 
Net change in Revenues
 
$
32.0


29



During the year ended December 31, 2017, Revenues decreased $90.3 million to $743.9 million from $834.2 million in the same period of the prior year. This decrease was a result of:
$ in millions
 
2017 vs. 2016
Retail
 
 
Rate
 
 
Decrease in energy efficiency and USF revenue rate riders
 
$
(29.6
)
Decrease in competitive bid revenue rate rider
 
(22.0
)
Decrease from reverting to ESP 1 rates in September 2016, offset by the implementation of the DMR in November 2017
 
(22.3
)
Other
 
4.7

Net change in retail rate
 
(69.2
)
 
 
 
Volume
 
 
Decrease due to unfavorable weather, as shown above by the 27% decrease in cooling degree-days and 5% decrease in heating degree-days
 
(28.4
)
 
 
 
Other miscellaneous
 
0.6

Total retail change
 
(97.0
)
 
 
 
Wholesale
 
 
Wholesale revenues
 
 
Increase due to higher wholesale prices for DP&L's 4.9% share of the generation output of OVEC, which is sold into PJM at market prices, and an increase in the load served of other parties through their competitive bid process, partially offset by decreased volumes sold by Conesville of 30% and decreased wholesale volumes for OVEC
 
4.8

 
 
 
RTO revenues and RTO capacity revenues
 
 
RTO revenues and RTO capacity revenues
 
2.0

 
 
 
Other
 
 
Other revenues
 
(0.1
)
 
 
 
Net change in Revenues
 
$
(90.3
)

DPL – Cost of Revenues
During the year ended December 31, 2018, Cost of revenues increased $22.5 million compared to the prior year. This increase was a result of:
$ in millions
 
2018 vs. 2017
Fuel
 
 
Net fuel costs
 
 
Increase due to higher internal generation at Conesville of 93%
 
$
8.5

 
 
 
Net purchased power
 
 
Purchased power
 
 
Rate
 
 
Decrease due to lower rates in the competitive bid process
 
(12.2
)
Volume
 
 
Increase due to higher competitive bid purchases due to increased DP&L retail demand
 
25.7

Total purchased power change
 
13.5


 
 
RTO charges
 
0.3

RTO capacity charges
 
0.2

Net change in purchased power
 
14.0

 
 
 
Net change in Cost of Revenues
 
$
22.5



30


During the year ended December 31, 2017, Cost of revenues decreased $36.5 million compared to the prior year. This decrease was a result of:
$ in millions
 
2017 vs. 2016
Fuel
 
 
Net fuel costs
 
 
Decrease due to fuel costs deferred in 2015 being collected in 2016, and decreased internal generation at Conesville of 30%
 
$
(8.4
)
 
 
 
Net purchased power
 
 
Purchased power
 
 
Rate
 
 
Decrease due to lower rates in the competitive bid process
 
(20.0
)
Volume
 
 
Decrease due to fewer competitive bid purchases due to decreased DP&L retail demand
 
(6.7
)
Total purchased power change
 
(26.7
)
RTO charges
 
 
Decrease due to lower transmission and congestion charges. RTO charges are incurred by DP&L as a member of PJM and primarily include transmission charges within DP&L's network, which are incurred and charged to customers in the transmission rider
 
(2.2
)
RTO capacity charges
 
0.8

Net change in purchased power
 
(28.1
)
 
 
 
Net change in Cost of Revenues
 
$
(36.5
)

DPL - Operation and Maintenance
During the year ended December 31, 2018, Operation and Maintenance expense decreased $29.3 million compared to the prior year. This decrease was a result of:
$ in millions
 
2018 vs. 2017
Decrease in alternative energy and energy efficiency programs (a)
 
$
(34.2
)
Decrease in uncollectible expenses for the low-income payment program, which is funded by the USF revenue rate rider (a)
 
(8.5
)
Decrease due to higher severance expense in the prior year mostly due to AES restructuring activities
 
(2.6
)
Decrease in group insurance expense associated with participation in the AES self-insurance plan
 
(2.2
)
Increase in amortization of previously deferred regulatory costs, including rate case costs, certain transmission costs, and various costs collected under the regulatory compliance rider (a)
 
10.8

Increase in legal and other consulting costs, including write-off of previously deferred rate case costs no longer deemed probable for recovery
 
7.3

Increase in maintenance of overhead transmission and distribution lines
 
2.6

Other, net
 
(2.5
)
Net change in Operations and Maintenance expense
 
$
(29.3
)

(a)
There is corresponding revenue associated with these program costs resulting in minimal impact to Net income.

During the year ended December 31, 2017, Operation and Maintenance expense decreased $27.4 million compared to the prior year. This decrease was a result of:
$ in millions
 
2017 vs. 2016
Decrease in uncollectible expenses for the low-income payment program, which is funded by the USF revenue rate rider (a)
 
$
(24.0
)
Decrease in alternative energy and energy efficiency programs (a)
 
(6.6
)
Increase in group insurance expense associated with participation in the AES self-insurance plan
 
3.3

Increase in legal and other consulting costs
 
2.9

Other, net
 
(3.0
)
Net change in Operation and Maintenance expense
 
$
(27.4
)

(a)
There is corresponding revenue associated with these program costs resulting in minimal impact to Net income.

DPL – Depreciation and Amortization
During the year ended December 31, 2018, Depreciation and amortization expense decreased $3.0 million compared to the prior year. The decrease was primarily due to a credit recorded in the fourth quarter of 2018 related to the reduction of ARO assets for Conesville. The ARO assets were previously fully impaired.

During the year ended December 31, 2017, Depreciation and amortization expense increased $2.5 million compared to the prior year. The increase was primarily due to additional investments in transmission and distribution fixed assets.


31


DPL – General Taxes
During the year ended December 31, 2018, General taxes decreased $3.6 million compared to the prior year. The decrease was primarily the result of a favorable adjustment for 2017 Ohio property taxes to reflect actual payments made in 2018 and the unfavorable true-up of $1.1 million in 2017 for the 2016 Ohio property taxes.

During the year ended December 31, 2017, General taxes increased $8.7 million compared to the prior year. The increase was primarily the result of an increase of $3.8 million in Ohio property tax expense driven by higher tax rates and higher property values, against lower expense in 2016 due to a $2.4 million favorable true-up of the 2015 Ohio property tax accrual to reflect actual payments made in 2016, an unfavorable true-up of $1.1 million in 2017 for the 2016 Ohio property tax accrual to reflect actual payments made in 2017 and a $1.4 million increase in other general taxes.

DPL – Fixed-asset Impairments
During the year ended December 31, 2018, DPL recorded an impairment of fixed assets of $2.8 million for Conesville, as it was determined that its carrying amount was not recoverable.

During the year ended December 31, 2016, DPL recorded an impairment of fixed assets of $23.9 million. In the fourth quarter of 2016, DPL performed a long-lived asset impairment analysis for Conesville and determined that its carrying amount was not recoverable.

DPL – Loss on Disposal of Business
During the year ended December 31, 2018, DPL recorded a loss on disposal of business of $11.7 million due to the loss on the transfer of business interests in the Beckjord facility.

DPL – Interest Expense
During the year ended December 31, 2018, Interest expense decreased $12.0 million compared to the prior year. The decrease was primarily the result of debt repayments at DPL and DP&L in 2017 and 2018.

During the year ended December 31, 2017, Interest expense increased $2.6 million compared to the prior year primarily due to higher interest rates. On August 24, 2016, DP&L refinanced its 1.875% First Mortgage Bonds Due 2016, with a variable rate Term Loan B of $445.0 million maturing on August 24, 2022. The variable rate on the loan is calculated based on LIBOR plus a spread of 3.25%, with a LIBOR floor of 0.75%.

DPL – Charge for Early Redemption of Debt
During the year ended December 31, 2018, DPL recorded a charge for early redemption of debt of $6.5 million primarily due to the make-whole premium payment of $5.1 million related to the $101.0 million partial redemption, in April 2018, of the DPL 6.75% Senior Notes due 2019.

During the year ended December 31, 2017, DPL recorded a charge for early redemption of debt of
$3.3 million primarily due to the early redemption of the 4.8% Tax-exempt First Mortgage Bonds due 2036.

During the year ended December 31, 2016, DPL recorded a charge for early redemption of debt of $3.1 million primarily due to the February 2016 make-whole premium of $2.4 million associated with the early retirement of $73.0 million of the 6.5% Senior Notes due in 2016.

DPL – Income Tax Expense
Income tax benefit of $5.0 million in 2017 changed to expense of $0.7 million in 2018. This change was primarily driven by the increase in Income / (loss) from continuing operations before income tax in the current year, partially offset by the decrease in federal tax rate from 35% to 21% and tax benefits associated with the amortization of the impact of the lower income tax rate resulting from the TCJA on our deferred tax balances.

Income tax benefit increased $2.6 million from $2.4 million in 2016 to $5.0 million in 2017. This increase was primarily due to a pre-tax loss in 2017 compared to pre-tax income in 2016 and the one-time re-measurement of deferred tax expense related to the recent enactment of the TCJA.

DPL - Discontinued Operations
During the years ended December 31, 2018, 2017 and 2016, DPL recorded income / (loss) from discontinued operations (net of tax) of $38.9 million, $(93.1) million and $(500.0) million, respectively. This income / (loss) relates to the generation components of Stuart, Killen, Miami Fort, Zimmer, and the Peaker assets, which were disposed of

32


either by sale or retirement within the last year. See Note 15 – Discontinued Operations in the Notes to DPL's Consolidated Financial Statements.


RESULTS OF OPERATIONS BY SEGMENT DPL Inc.

Beginning with the second quarter of 2018, DPL has presented the results of operations of Miami Fort Station, Zimmer Station, the Peaker Assets, Stuart Station and Killen Station as discontinued operations as a group of components for all periods presented. For more information, see Note 15 – Discontinued Operations of Notes to DPL's Consolidated Financial Statements. AES Ohio Generation now only has operating activity coming from its undivided ownership interest in Conesville, which does not meet the threshold to be a separate reportable operating segment. Because of this, DPL now manages its business through only one reportable operating segment, the Utility segment. The primary segment performance measure is income / (loss) from continuing operations before income tax as management has concluded that this measure best reflects the underlying business performance of DPL and is the most relevant measure considered in DPL’s internal evaluation of the financial performance of its segments. The Utility segment is discussed further below:

Utility Segment
The Utility segment is comprised primarily of DP&L’s electric transmission and distribution businesses, which distribute electricity to residential, commercial, industrial and governmental customers. DP&L distributes electricity to more than 525,000 retail customers who are located in a 6,000 square mile area of West Central Ohio. DP&L’s electric transmission and distribution businesses are subject to rate regulation by federal and state regulators. 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. The Utility segment includes revenues and costs associated with our investment in OVEC and the historical results of DP&L’s Beckjord Facility, which was closed in 2014 and transferred to a third party in the first quarter of 2018, and the Hutchings EGU, which was closed in 2013. These assets did not transfer to AES Ohio Generation as part of DP&L's Generation Separation on October 1, 2017. Thus, they are grouped within the Utility segment for segment reporting purposes. In addition, regulatory deferrals and collections, which include fuel deferrals in historical periods, are included in the Utility segment.

Included within the “Other” column 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 long-term debt and adjustments related to purchase accounting from the Merger. DPL's undivided interest in Conesville is now included within the "Other" column as it no longer meets the requirement for disclosure as a reportable operating segment, since the results of operations of the other generation plants are now presented as discontinued operations. 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. Certain shared and corporate costs are allocated among reporting segments.

See Note 13 – Business Segments of Notes to DPL's Consolidated Financial Statements for additional information regarding DPL’s reportable segment.

The following table presents DPL’s Income / (loss) from continuing operations before income tax by business segment:
 
 
Years ended December 31,
$ in millions
 
2018
 
2017
 
2016
Utility
 
$
104.4

 
$
88.5

 
$
143.0

Other
 
(72.5
)
 
(95.0
)
 
(130.6
)
Income / (loss) from continuing operations before income tax
 
$
31.9

 
$
(6.5
)
 
$
12.4


Statement of Operations Highlights - DPL Utility Segment

The results of operations of the Utility segment for DPL are identical in all material respects and for all periods presented to those of DP&L, which are included in Part II - Item 7 – Management's Discussion and Analysis of Financial Condition and Results of Operations (Statement of Operations Highlights - DP&L) of this Form 10-K.


33


RESULTS OF OPERATIONS – DP&L

Statement of Operations Highlights – DP&L
 
 
Years ended December 31,
$ in millions
 
2018
 
2017
 
2016
Revenues:
 
 
 
 
 
 
Retail
 
$
657.9

 
$
642.6

 
$
739.8

Wholesale
 
29.9

 
23.6

 
16.1

RTO revenue
 
43.1

 
47.2

 
45.7

RTO capacity revenues
 
7.8

 
6.6

 
6.4

Total revenues
 
738.7

 
720.0

 
808.0

Cost of revenues:
 
 
 
 
 
 
Net fuel cost
 
2.4

 
0.5

 
5.3

Purchased power:
 
 
 
 
 
 
Purchased power
 
243.5

 
230.6

 
258.3

RTO charges
 
55.6

 
57.2

 
58.6

RTO capacity charges
 
2.2

 
2.0

 
(0.2
)
Net purchased power cost
 
301.3

 
289.8

 
316.7

Total cost of revenues
 
303.7

 
290.3

 
322.0

 
 
 
 
 
 
 
Gross margin
 
435.0

 
429.7

 
486.0

 
 
 
 
 
 
 
Operating expenses:
 
 
 
 
 
 
Operation and maintenance
 
139.7

 
156.5

 
178.4

Depreciation and amortization
 
74.5

 
75.3

 
71.0

General taxes
 
73.1

 
76.3

 
68.0

Loss / (gain) on asset disposal
 
0.2

 
(0.5
)
 
(0.4
)
Loss on disposal of business (Note 15)
 
12.4

 

 

Total operating expenses
 
299.9

 
307.6

 
317.0

 
 
 
 
 
 
 
Operating income
 
135.1

 
122.1

 
169.0

 
 
 
 
 
 
 
Other expense, net
 
 
 
 
 
 
Interest expense
 
(27.3
)
 
(30.5
)
 
(24.7
)
Charge for early redemption of debt
 
(0.6
)
 
(1.1
)
 
(0.5
)
Other income
 
(2.8
)
 
(2.0
)
 
(0.2
)
Total other expense, net
 
(30.7
)
 
(33.6
)
 
(25.4
)
 
 
 
 
 
 
 
Income from continuing operations before income tax (a)
 
$
104.4

 
$
88.5

 
$
143.6


(a)
For purposes of discussing operating results, we present and discuss Income from continuing operations before income tax. This format is useful to investors because it allows analysis and comparability of operating trends and includes the same information that is used by management to make decisions regarding our financial performance.

DP&L's electric sales and billed customers were as follows:
ELECTRIC SALES AND CUSTOMERS (a)
 
 
DP&L
 
 
Years ended December 31,
 
 
2018
 
2017
 
2016
Retail electric sales (b)
 
14,439

 
13,863

 
14,499

Wholesale electric sales (c)
 
755

 
538

 
509

Total electric sales
 
15,194

 
14,401

 
15,008

 
 
 
 
 
 
 
Billed electric customers (end of period)
 
525,166

 
521,609

 
519,128


(a)
Electric sales are presented in millions of KWh.
(b)
DP&L retail electric sales represent the total transmission and distribution retail sales for the periods presented. SSO sales were 3,977 KWh, 3,684 KWh and 3,856 KWh for the years ended December 31, 2018, 2017 and 2016, respectively.
(c)
Included within wholesale electric sales is DP&L's 4.9% share of the generation output of OVEC.


34


DP&L – Revenues
During the year ended December 31, 2018, Revenues increased $18.7 million to $738.7 million from $720.0 million in the same period of the prior year. This increase was a result of:
$ in millions
 
2018 vs. 2017
Retail
 
 
Rate
 


Decrease in energy efficiency and USF revenue rate riders
 
$
(46.6
)
Decrease in competitive bid revenue rate rider
 
(12.5
)
Increase due to implementation of the DMR in November 2017
 
28.0

Increase due to DRO
 
9.9

Other
 
4.7

Net change in retail rate
 
(16.5
)
 
 
 
Volume
 
 
Increase due to favorable weather, as shown by the 51% increase in cooling degree-days and 15% increase in heating degree-days
 
31.7

 
 
 
Other miscellaneous
 
0.1

Total retail change
 
15.3

 
 
 
Wholesale
 
 
Wholesale revenues
 
 
Increase due to higher wholesale prices and increased volumes for DP&L's 4.9% share of the generation output of OVEC, which is sold into PJM at market prices
 
6.3

 
 
 
RTO revenues and RTO capacity revenues
 
 
RTO revenues and RTO capacity revenues
 
(2.9
)
 
 
 
Net change in Revenues
 
$
18.7


During the year ended December 31, 2017, Revenues decreased $88.0 million to $720.0 million from $808.0 million in the same period of the prior year. This decrease was a result of:
$ in millions
 
2017 vs. 2016
Retail
 
 
Rate
 


Decrease in energy efficiency and USF revenue rate riders
 
$
(29.6
)
Decrease in competitive bid revenue rate rider
 
(22.0
)
Decrease from reverting to ESP 1 rates in September 2016, offset by the implementation of the DMR in November 2017
 
(22.3
)
Other
 
4.6

Net change in retail rate
 
(69.3
)
 
 
 
Volume
 
 
Decrease due to unfavorable weather, as shown by the 27% decrease in cooling degree-days and 5% decrease in heating degree-days
 
(28.5
)
 
 
 
Other miscellaneous
 
0.6

Total retail change
 
(97.2
)
 
 
 
Wholesale
 

Wholesale revenues
 
 
Increase due to higher wholesale prices for DP&L's 4.9% share of the generation output of OVEC, which is sold into PJM at market prices, and an increase in the load served of other parties through their competitive bid process, partially offset by decreased wholesale volumes for OVEC
 
7.5

 
 
 
RTO revenues and RTO capacity revenues
 
 
RTO revenues and RTO capacity revenues
 
1.7

 
 
 
Net change in Revenues
 
$
(88.0
)


35


DP&L – Cost of Revenues
During the year ended December 31, 2018, Cost of revenues increased $13.4 million compared to the prior year. This increase was a result of:
$ in millions
 
2018 vs. 2017
Fuel
 
 
Net fuel costs
 
$
1.9

 
 
 
Net purchased power
 
 
Purchased power
 
 
Rate
 
 
Decrease due to lower rates in the competitive bid process
 
(11.7
)
Volume
 
 
Increase due to higher competitive bid purchases due to increased DP&L retail demand
 
24.6

Total purchased power change
 
12.9

 
 
 
RTO charges
 
(1.6
)
RTO capacity charges
 
0.2

Net change in purchased power
 
11.5

 
 
 
Net change in Cost of Revenues
 
$
13.4


During the year ended December 31, 2017, Cost of revenues decreased $31.7 million compared to the prior year. This decrease was a result of:
$ in millions
 
2017 vs. 2016
Fuel
 
 
Net fuel costs
 
 
Decrease due to fuel costs deferred in 2015, being collected in 2016
 
$
(4.8
)
 
 
 
Net purchased power
 
 
Purchased power
 
 
Rate
 
 
Decrease due to lower rates in the competitive bid process
 
(19.8
)
Volume
 
 
Decrease due to fewer competitive bid purchases due to decreased DP&L retail demand
 
(7.9
)
Total purchased power change
 
(27.7
)
RTO charges
 
 
Decrease due to lower transmission and congestion charges. RTO charges are incurred by DP&L as a member of PJM and primarily include transmission charges within DP&L's network, which are incurred and charged to customers in the transmission rider
 
(1.4
)
RTO capacity charges
 
2.2

Net change in purchased power
 
(26.9
)
 
 
 
Net change in Cost of Revenues
 
$
(31.7
)

DP&L - Operation and Maintenance
During the year ended December 31, 2018, Operation and Maintenance expense decreased $16.8 million compared to the prior year. This decrease was a result of:
$ in millions
 
2018 vs. 2017
Decrease in alternative energy and energy efficiency programs (a)
 
$
(34.2
)
Decrease in uncollectible expenses for the low-income payment program, which is funded by the USF revenue rate rider (a)
 
(8.5
)
Decrease due to higher severance expense in the prior year mostly due to AES restructuring activities
 
(2.6
)
Increase in amortization of previously deferred regulatory costs, including rate case costs, certain transmission costs, and various costs collected under the regulatory compliance rider (a)
 
10.8

Increase in legal and other consulting costs, including write-off of previously deferred rate case costs no longer deemed probable for recovery
 
8.1

Increase in insurance and claims costs
 
4.0

Increase in maintenance of overhead transmission and distribution lines
 
2.6

Other, net
 
3.0

Net change in Operations and Maintenance expense
 
$
(16.8
)

(a)
There is corresponding revenue associated with these program costs resulting in minimal impact to Net income.


36


During the year ended December 31, 2017, Operation and Maintenance expense decreased $21.9 million compared to the prior year. This decrease was a result of:
$ in millions
 
2017 vs. 2016
Decrease in uncollectible expenses for the low-income payment program, which is funded by the USF revenue rate rider (a)
 
$
(24.0
)
Decrease in alternative energy and energy efficiency programs (a)
 
(6.6
)
Increase in legal and other consulting costs
 
4.5

Increase in group insurance expense associated with participation in the AES self-insurance plan
 
4.0

Other, net
 
0.2

Net change in Operation and Maintenance expense
 
$
(21.9
)