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GLOSSARY OF TERMS

The following select abbreviations or acronyms are used in this Form 10-K:

Available Information3

The Dayton Power and Light Company (DP&L or the Company) files current, annual and quarterly reports and other information required by the Securities Exchange ActTable of 1934, as amended, with the Securities and Exchange Commission (SEC).  You may read and copy any document the Company files at the SEC’s public reference room located at 450 Fifth Street, NW, Washington, D.C.  20549, USA.  Please call the SEC at (800) SEC-0330 for further information on the public reference rooms.  The Company’s SEC filings are also available to the public from the SEC’s web site at http://www.sec.gov.Contents

The Company’sGLOSSARY OF TERMS (cont.)

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GLOSSARY OF TERMS (cont.)

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PART I

Item 1 — Business

This report includes the combined filing of DPL and DP&L.On November 28, 2011, DPL became 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, taking into account the information currently available to management.  These statements are not statements of historical fact and are typically identified by terms and phrases such as “anticipate,” “believe,” “intend,” “estimate,” “expect,” “continue,” “should,” “could,” “may,” “plan,” “project,” “predict,” “will” and similar expressions.  Such forward-looking statements are subject to risks and uncertainties and investors are cautioned that outcomes and results may vary materially from those projected due to various factors beyond our control, including but not limited to: abnormal or severe weather and catastrophic weather-related damage; unusual maintenance or repair requirements; changes in fuel costs and purchased power, coal, environmental emissions, natural gas and other commodity prices; volatility and changes in markets for electricity and other energy-related commodities; performance of our suppliers; increased competition and deregulation in the electric utility industry; increased competition in the retail generation market; changes in interest rates; state, federal and foreign legislative and regulatory initiatives that affect cost and investment recovery, emission levels, rate structures or tax laws; changes in environmental laws and regulations to which DPL and its subsidiaries are subject; the development and operation of RTOs, including PJM to which DPL’s operating subsidiary (DP&L) has given control of its transmission functions; changes in our purchasing processes, pricing, delays, contractor and supplier performance and availability; significant delays associated with large construction projects; growth in our service territory and changes in demand and demographic patterns; changes in accounting rules and the effect of accounting pronouncements issued periodically by accounting standard-setting bodies; financial market conditions; the outcomes of litigation and regulatory investigations, proceedings or inquiries; general economic conditions; costs related to the Merger and the effects of any disruption from the Merger that may make it more difficult to maintain relationships with employees, customers, other business partners or government entities; and the risks and other factors discussed in this report and other DPL and DP&L filings with the SEC.

Forward-looking statements speak only as of the date of the document in which they are made.  We disclaim any obligation or undertaking to provide any updates or revisions to any forward-looking statement to reflect any change in our expectations or any change in events, conditions or circumstances on which the forward-looking statement is based. 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.

COMPANY WEBSITES

DPL’s public internet site is http://www.dplinc.com.  The Company makes available through its internet site, its annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and amendments to those reports filed or furnished pursuant to the Securities Exchange Act of 1934, as amended, as soon as reasonably practicable after it electronically files such material with, or furnishes it to, the SEC.

In addition, the Company’sDP&L’s public internet site includes other items related to corporate governance matters, including, among other things,is http://www.dpandl.com.  The information on these websites is not incorporated by reference into this report.

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ORGANIZATION

DPL is a regional energy company organized in 1985 under the Company’s governance guidelines, charterslaws of various committees of the Board of Directors and the Company’s code of business conduct and ethics applicable to all employees, officers and directors.  You may obtain copies of these documents, free of charge, by sending a request, in writing, to DP&L Investor Relations,Ohio.  Our executive offices are located at 1065 Woodman Drive, Dayton, Ohio 45432.45432 — telephone (937) 224-6000.  DPL was acquired by The AES Corporation on November 28, 2011 and is a wholly-owned, indirect subsidiary of AES.

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Table of the outstanding shares of common stock of the Company are held by DPL, which became the Company’s corporate parent, effective April 21, 1986.

The Company’s principal executive and business office is located at 1065 Woodman Drive, Dayton, Ohio 45432 - telephone (937) 224-6000.

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SIGNIFICANT DEVELOPMENTSELECTRIC OPERATIONS AND FUEL SUPPLY

GovernmentalDPL’s present summer generating capacity, including peaking units, is approximately 3,818 MW.  Of this capacity, approximately 2,830 MW, or 74%, is derived from coal-fired steam generating stations and Regulatory Inquiriesthe balance of approximately 988 MW, or 26%, consists of solar, combustion turbine and diesel peaking units.

DP&L’s present summer generating capacity, including peaking units, is approximately 3,262 MW.  Of this capacity, approximately 2,830 MW, or 87%, is derived from coal-fired steam generating stations and the balance of approximately 432 MW, or 13%, consists of solar, combustion turbine and diesel peaking units.

On April 7, 2004, the Company received notice that the staff

Our all-time net peak load was 3,270 MW, occurring August 8, 2007.

Approximately 87% of the Public Utilities Commissionexisting steam generating capacity is provided by certain generating units owned as tenants in common with Duke Energy and CSP.  As tenants in common, each company owns a specified share of Ohio (PUCO)each of these units, is conducting an investigation intoentitled to its share of capacity and energy output and has a capital and operating cost responsibility proportionate to its ownership share.  DP&L’s remaining steam generating capacity (approximately 365 MW) is derived from a generating station owned solely by DP&L.  Additionally, DP&L, Duke Energy and CSP own, as tenants in common, 880 circuit miles of 345,000-volt transmission lines.  DP&L has several interconnections with other companies for the financial conditionpurchase, sale and interchange of DP&L as a result of previously disclosed matters raised by a Company employee during the 2003 year-end financial closing process (the Thobe Memorandum).  On May 27, 2004, the PUCO ordered DP&L to file a plan of utility financial integrity that outlines the actions the Company has taken or will take to insulate DP&L utility operations and customers from its unregulated activities.  The Company was required to file this plan by March 2, 2005.  On February 4, 2005, DP&L filed its protection plan with the PUCO and will continue to cooperate with the PUCO to resolve any outstanding issues in this investigation.electricity.

On or about June 24, 2004, the SEC commenced a formal investigation into the issues raised by the Thobe Memorandum.  The CompanyIn 2011, we generated 98.3% of our electric output from coal-fired units and DPL are cooperating with the investigation.1.7% from solar, oil and natural gas-fired units.

On May 28, 2004, the U.S. Attorney’s Office for the Southern District of Ohio, assisted by the Federal Bureau of Investigation, notified the Company and DPL that it had initiated an inquiry involving the subject matters covered by the Company’s and DPL’s internal investigation.  The Company and DPL are cooperating with this investigation.

Commencing on or about June 24, 2004, the Internal Revenue Service (IRS) has issued a series of data requests to the Company and DPL regarding issues raised in the Thobe Memorandum.  The staff of the IRS has requested that the Company and DPL provide certain documents, including but not limited to, matters concerning executive/director deferred compensation plans, management stock incentive plans and MVE, Inc. (MVE) financial statements.  MVE is a wholly-owned subsidiary of DPL which is primarily responsible for the management of DPL’s financial asset portfolio.  The Company and DPL are cooperating with these requests.

On March 3, 2005, DP&L received a notice that the FERC had instituted an operational audit of DP&L regarding its compliance with its Code of Conduct within the transmission and generation areas.  The FERC has provided DP&L with a data request and DP&L is cooperating in the furnishing of requested information.  DP&L cannot predict the outcome of this operational audit.

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PJM Integration

As partThe following table sets forth DP&L’s and DPLE’s generating stations and, where indicated, those stations which DP&L owns as tenants in common.

*W = Wholly-Owned

C = Commonly-Owned

In addition to the above, DP&L also owns a 4.9% equity ownership interest in OVEC, an electric generating company.  OVEC has two plants located in Cheshire, Ohio and Madison, Indiana with a combined generation capacity of Ohio’s electric deregulation law,approximately 2,265 MW.  DP&L’s share of this generation capacity is approximately 111 MW.

We have substantially all of the state’s investor-owned utilitiestotal expected coal volume needed to meet our retail and firm wholesale sales requirements for 2012 under contract.  The majority of the contracted coal is purchased at fixed prices.  Some contracts provide for periodic adjustments and some are requiredpriced based on market indices.  Fuel costs are affected by changes in volume and price and are driven by a number of variables including weather, the wholesale market price of power, certain provisions in coal contracts related to joingovernment imposed costs, counterparty performance and credit, scheduled outages and generation plant mix.  Due to the installation of emission controls equipment at certain commonly owned units and barring any changes in the regulatory environment in which we operate, we expect to have a Regional Transmission Organization (RTO).  In October 2004, the Company successfully integrated its 1,000 milesbalanced SO2 and NOx position for 2012.

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Table of high-voltage transmission into the PJM Interconnection, L.L.C. (PJM) RTO.Contents

The rolegross average cost of fuel consumed per kWh was as follows:

SEASONALITY

The power generation and delivery business is seasonal and weather patterns have a material effect on operating performance.  In the region we serve, demand for electricity is generally greater in the summer months associated with cooling and in the winter months associated with heating as compared to other times of the RTO isyear.  Unusually mild summers and winters could have an adverse effect on our results of operations, financial condition and cash flows.

RATE REGULATION AND GOVERNMENT LEGISLATION

DP&L’s sales to administer anSSO retail customers are subject to rate regulation by the PUCO.  DP&L’s transmission rates and wholesale electric marketplacerates to municipal corporations, rural electric co-operatives and insure reliability.  PJM ensuresother distributors of electric energy are subject to regulation by the reliabilityFERC under the Federal Power Act.

Ohio law establishes the process for determining SSO retail rates charged by public utilities.  Regulation of retail rates encompasses the timing of applications, the effective date of rate increases, the recoverable cost basis upon which the rates are set and other related matters.  Ohio law also established the Office of the high-voltage electric power system serving 44 million peopleOCC, which has the authority to represent residential consumers in all or parts of Delaware, Indiana, Illinois, Kentucky, Maryland, Michigan, New Jersey, state and federal judicial and administrative rate proceedings.

Ohio Pennsylvania, Tennessee, Virginia, West Virginia andlegislation extends the District of Columbia.  PJM coordinates and directs the operationjurisdiction of the region’s transmission grid; administersPUCO to the records and accounts of certain public utility holding company systems, including DPL.  The legislation extends the PUCO’s supervisory powers to a competitive wholesale electricity market,holding company system’s general condition and capitalization, among other matters, to the world’s largest;extent that such matters relate to the costs associated with the provision of public utility service.  Based on existing PUCO and plans regional transmission expansion improvementsFERC authorization, regulatory assets and liabilities are recorded on the balance sheets.  See Note 4 of Notes to maintain grid reliabilityDPL’s Consolidated Financial Statements and relieve congestion.Note 4 of Notes to DP&L’s Financial Statements.

COMPETITION AND REGULATION

Ohio Matters

Ohio Retail Rates

The PUCO maintains jurisdiction over DP&L’s delivery of electricity, SSO and other retail electric services.

On May 1, 2008, substitute SB 221, an Ohio electric energy bill, was signed by the Governor and went into effect July 31, 2008.  This law required that all Ohio distribution utilities file either an ESP or MRO to establish rates for SSO service.  Under the MRO, a periodic competitive bid process will set the retail generation price after the utility demonstrates that it can meet certain market criteria and bid requirements.  Also, under this option, utilities that still own generation in the state are required to phase-in the MRO over a period of not less than five years.  An ESP may allow for cost-based adjustments to the SSO for costs associated with environmental compliance; fuel and purchased power; construction of new or investment in specified generating facilities; and the provision of standby and default service, operating, maintenance, or other costs including taxes.  As part of its ESP, a utility is permitted to file an infrastructure improvement plan that will specify the initiatives the utility will take to rebuild, upgrade, or replace its electric distribution system, including cost recovery mechanisms.  Both the MRO and ESP option involve a “significantly excessive earnings test” based on the earnings of comparable companies with similar business and financial risks.  DP&L’s current SSO rates were established under an ESP that ends December 31, 2012.  DP&L has historically operated is in a rate-regulated environment providing electric generationthe process of developing an SSO filing that will be the basis for rates effective January 1, 2013 using either an ESP or MRO case.  This case is scheduled to be filed on March 30, 2012.

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SB 221 and the implementation rules contain targets relating to advanced energy portfolio standards, renewable energy, demand reduction and energy delivery, consisting of transmissionefficiency standards.  If any targets are not met, compliance penalties will apply unless the PUCO makes certain findings that would excuse performance.  DP&L is currently meeting its renewable requirements and distribution services,expects to remain in compliance.  The PUCO found that both DP&L and DPLER met the renewable targets in 2009, and the PUCO Staff recommended that the Commission find that they both met the renewable targets for 2010.

On May 19, 2010 the Commission approved in part and denied in part DP&L’s request that the PUCO find that it met the 2009 energy efficiency portfolio requirements and directed DP&L to file a measurement and verification plan as well as a single productmarket potential study.  We made this filing and settled the case through a stipulation that was approved in April 2011.  The next energy efficiency portfolio plan is due to its retail customers.  Prior to the legislation discussed below, DP&L did not have retail competitorsbe filed in its service territory.April 2013.

In October 1999, legislation became effective in OhioWe are unable to predict how the PUCO will respond to many of the filings discussed above, but believe that gave electric utility customersthe outcome for the non-ESP/MRO filings will not be material to our financial condition or results of operations.  However, as the energy efficiency and alternative energy targets get increasingly larger over time, the costs of complying with SB 221 and the PUCO’s implementing rules or the results of our ESP/MRO filing on March 30, 2012 could have a choicematerial effect on our financial condition or results of energy providersoperations.

The ESP Stipulation also provided for the establishment of a fuel and purchased power recovery rider beginning on January 1, 2001.  Under this legislation, electric generation, power marketing,2010.  The fuel rider fluctuates based on actual costs and power brokerage services supplied to retail customers in Ohio are deemed to be competitiverecoveries and are not subject to supervisionis modified at the start of each seasonal quarter: March 1, June 1, September 1 and regulation by the PUCO.

December 1 each year.  As required by this legislation, DP&L filed its transition plan (Electric Transition Plan) with the PUCO on December 20, 1999.  DP&L receivedpart of the PUCO approval of its plan on September 21, 2000.

The Electric Transition Plan providedprocess, an outside auditor was hired in 2011 to review fuel costs and the fuel procurement process for a three-year transition period, which began on January 1, 20012010.  DP&L and ended on December 31, 2003.  The plan also provided for a 5% residential rate reduction on the generation componentall of the rates, which reduced annual revenue by approximately $14 million; rate certainty for the three-year period for customers that continued to purchase power from DP&L; guaranteed rates for a six-year period for transmission and delivery services; and recovery by DP&L of transition costs of approximately $600 million.

On October 28, 2002, DP&L filed with the PUCO a request for an extension of its market development period from December 31, 2003 to December 31, 2005 that, if granted, would continue DP&L’s current rate structure and provide its retail customers with rate stability.  On May 28, 2003, DP&L filed with the PUCOactive participants in this proceeding reached a Stipulation and Recommendation entered into with five other parties (Ohio Consumers’ Counsel (the OCC), Industrial Energy Users-Ohio,which was approved by the PUCO Staff, Partners for Affordable Energy, and Community Action Partnershipon November 9, 2011.  In November 2011, DP&L recorded a $25 million pretax ($16 million net of tax) adjustment as a result of the Greater Dayton Area).  approval of the fuel settlement agreement by the PUCO.  The adjustment was due to the reversal of a provision recorded in accordance with the regulatory accounting rules.  An audit of 2011 fuel costs is currently ongoing.  The outcome of that audit is uncertain.

As a member of PJM, DP&L receives revenues from the RTO related to its transmission and generation assets and incurs costs associated with its load obligations for retail customers.  SB 221 included a provision that would allow Ohio electric utilities to seek and obtain a reconcilable rider to recover RTO-related costs and credits.  DP&L’s TCRR and PJM RPM riders were initially approved in November 2009 to recover these costs.  Both the TCRR and the RPM riders assign costs and revenues from PJM monthly bills to retail ratepayers based on the percentage of SSO retail customers’ load and sales volumes to total retail load and total retail and wholesale volumes.  Customer switching to CRES providers decreases DP&L’s SSO retail customers’ load and sales volumes.  Therefore, increases in customer switching cause more of the RPM capacity costs and revenues to be excluded from the RPM rider calculation.  RPM capacity costs and revenues are discussed further under “Regional Transmission Organizational Risks” in Item 1A — Risk Factors.  DP&L’s annual true-up of these two riders was approved by the PUCO by an order dated April 27, 2011 and its 2012 filing is still pending.

On September 2, 2003,9, 2009, the PUCO issued an Opinionorder establishing a significantly excessive earnings test (SEET) proceeding pursuant to provisions contained in SB 221.  A question and Order adoptinganswer session was held before the Commission on April 1, 2010 to allow the Commission to gain a better understanding of the issues.  The PUCO issued an order on June 30, 2010 to establish general rules for calculating the earnings and comparing them to a comparable group to determine whether there were significantly excessive earnings.  The other three Ohio utilities were required to make their SEET determinations in 2011 and 2010.  Pursuant to the ESP Stipulation, with modifications (the Stipulation). The Stipulation providesDP&L becomes subject to the following:  DP&L’s market development period will continue through December 31, 2005; retail generation rates will remain frozen at present levels;SEET in 2013 based on 2012 earnings results and the SEET may have a credit issued to customers who elect competitive retail generation service will increase over two years; and a rate stabilization period from January 1, 2006 through December 31, 2008, during which DP&L’s retail generation rates inmaterial effect on January 1, 2004 will serve as market-based rates.  The Stipulation also provides that beginning January 1, 2006, rates may be modified by upoperations.

On August 28, 2009, DP&L filed its application to 11% of generation rates to reflect increased costs associatedestablish reliability targets consistent with fuel, environmental compliance, taxes, regulatory changes,the most recent PUCO Electric Service and security measures.  Further,Safety Standards (ESSS).  On March 29, 2010, DP&L entered into a settlement establishing the PUCO may approve an increasenew reliability targets.  This settlement was approved on July 29, 2010.  According to the residential generation discount commencing January 1, 2006.  The PUCO denied applicationsESSS rules, all Ohio utilities are subject to financial penalties if the established targets are not met for rehearing on October 22, 2003.  The PUCO’s decisiontwo consecutive years.

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was appealed to the Ohio Supreme Court on December 19, 2003.  That appeal was argued before the Ohio Supreme Court on October 12, 2004.  On December 17, 2004, the Ohio Supreme Court affirmed the PUCO’s Order approving the Stipulation.Table of Contents

As a part of the Stipulation, Ohio Competitive Considerations and Proceedings

Since January 2001, DP&L agreed to implement a Voluntary Enrollment Process that would provide&L’s electric customers with an optionhave been permitted to choose a competitive suppliertheir retail electric generation supplier.DP&L continues to have the exclusive right to provide theirdelivery service in its state certified territory and the obligation to supply retail generation service should switchingto customers that do not reach 20%choose an alternative supplier.  The PUCO maintains jurisdiction over DP&L’s delivery of electricity, SSO and other retail electric services.

Market prices for power, as well as government aggregation initiatives within DP&L’s service territory, have led and may continue to lead to the entrance of additional competitors in each customer class by October 2004.  Customers that volunteered for the program were bid out to Competitive Retail Electric Service (CRES) providers who are registered in DP&L’sour service territory.  On March 8, 2005, DP&L learned that no bids were received and re-bidding will occur within 60 days.  The magnitude of any customer switching and the financial impact of this program are not expected to be material to DP&L’s results of operations, cash flows or financial position in 2005.  Future period effects cannot be determined at this time.

On February 20, 2003, the PUCO issued an Entry requesting comments from interested stakeholders on the proposed rules for the conduct of a competitive bidding process that will take place at the end of the market development period.  DP&L submitted comments and reply comments on March 7 and March 21, 2003, respectively. The PUCO issued final rules on December 23, 2003.  Under DP&L’s Stipulation discussed above, these rules will not affect DP&L until January 1, 2009.

On March 20, 2003, the PUCO issued an Entry initiating a PUCO investigation regarding the desirability, feasibility and timing of declaring that retail ancillary metering, billing and/or collection services are competitive retail electric services that consumers may obtain from any supplier.  The initiation of this investigation was based on a requirement in the 1999 Ohio deregulation legislation.  The PUCO asked interested stakeholders to file comments by June 6, 2003 and reply comments by July 7, 2003.  DP&L filed comments and will actively participate in this case and evaluate the potential outcome of this proceeding.

As ofAt December 31, 2004, three unaffiliated marketers2011, there were registered asfourteen CRES providers in the Company’sDP&L’s service territory; to date, there has been no significant activity from these suppliers.  DPL Energy Resources, Inc. (DPLER),territory.  DPLER, an affiliated company is also aand one of the fourteen registered CRES provider andproviders, has been marketing supply services to DP&L customers.  During 2011, DPLER accounted for nearly all load servedapproximately 5,731 million kWh of the total 6,593 million kWh supplied by CRES providers within DP&L’s service territoryterritory.  Also during 2011, 27,812 customers with an annual energy usage of 862 million kWh were supplied by other CRES providers within DP&L’s service territory.  The volume supplied by DPLER represents approximately 41% of DP&L’s total distribution sales volume during 2011.  The reduction to gross margin in 2004.  In addition, several2011 as a result of customers switching to DPLER and other CRES providers was approximately $58 million and $104 million, for DPL and DP&L, respectively.  We currently cannot determine the extent to which customer switching to CRES providers will occur in the future and the effect this will have on our operations, but any additional switching could have a significant adverse effect on our future results of operations, financial condition and cash flows.

Several communities in the Company’sDP&L’s service area have passed ordinances allowing the communities to become government aggregators for the purpose of offering alternative electric generation supplies to their citizens.  To date, none ofnine organizations have filed with the PUCO to initiate aggregation programs.  If these communitiesnine organizations move forward with aggregation, it could have aggregated.a material effect on our earnings.  See Item 1A — Risk Factors for more information.

ThereIn 2010, DPLER began providing CRES services to business customers in Ohio who are not in DP&L’s service territory.  The incremental costs and revenues have not had a material effect on our results of operations, financial condition or cash flows.

DP&L entered into an economic development arrangement with its single largest electricity consumer.  This arrangement was a complaint filed on January 21, 2004 atapproved by the PUCO concerning the pricingon June 8, 2011 and became effective in July 2011.  Under Ohio law, DP&L is permitted to seek recovery of DP&L’s billing services.  Additionally, on December 16, 2003, a complaint was filed atcosts associated with economic development programs including foregone revenues from all customers.  On October 26, 2011, the PUCO alleging that the Company has established improper barriers to competition.  On October 13, 2004, the parties reached a settlement on the pricing of DP&L’s billing services that the Company will charge CRES providers.  Additionally, on October 19, 2004, DP&L entered into a settlement with Dominion Retail, Green Mountain Energy, and the Staff of the PUCO that resolves all matters in the competition barrier complaint.  This settlement provides that the Company will modify the manner inapproved our Economic Development Rider, as filed, which customer partial payments are applied to billing charges and the Company will no longer offer to purchase the receivables of CRES providers who operate in DP&L’s certified territory.  On February 2, 2005, the PUCO issued an Order approving both settlements with minor modifications.  On March 4, 2005, the OCC filed a Motion for Rehearing with the PUCO.  That motion is pending.

On March 1, 2005, DP&L filed a pre-filing notice at the PUCO announcing its intent to request a rate stablization surcharge effective January 1, 2006.  The request for a rate surcharge is expected to be filed on or about April 4, 2005 and is pursuant to the Stipulation discussed above.  The proposed rate surcharge request is expected to exceed  $100 million and is designed to partially reimburse DP&L for certain increases in itsrecover costs of providing electric service related to fuel, environmental compliance, taxes, regulatory changesassociated with this and security measures.  Pursuant to the stipulation discussed above, the surcharge is capped at 11% of the generation portion of DP&L’s rates.  The surcharge, if approved, would produce approximately $76 million in additional revenue in 2006.other economic development contracts and programs.

Federal Matters

Like other electric utilities and energy marketers, DP&L and DPLE may sell or purchase electric products on the wholesale market.  DP&L and DPLE compete with other generators, power marketers, privately and municipally ownedmunicipally-owned electric utilities and rural electric cooperatives when selling electricity.  The ability of DP&L and DPLE to sell this electricity will depend not only on the performance of our generating units, but also on how DP&L’s and DPLE’s price,prices, terms and conditions compare to those of other suppliers.

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costs and revenues to be excluded from the RPM rider calculation.  We cannot predict the outcome of future auctions or customer switching but if the current auction price is not sustained, our future results of operations, financial condition and cash flows could be materially adversely impacted.

As a member of PJM, DP&L is also subject to charges and costs associated with PJM operations as approved by the FERC.  FERC orders issued in 2007 and thereafter regarding the allocation of costs of large transmission facilities within PJM which would result in additional costs being allocated to DP&L that, over time and depending on final costs and how quickly the facilities are constructed, could become material.  DP&L filed a notice of appeal to the U.S. Court of Appeals, D.C. Circuit, which was consolidated with other taken by other interested parties of the same FERC orders and the consolidated cases were assigned to the 7th Circuit.  On August 6, 2009, the 7th Circuit ruled that the FERC had failed to provide a reasoned basis for the allocation method it had approved.  Rehearings were filed by other interested litigants and denied by the Court, which then remanded the matter to the FERC for further proceedings.  On January 21, 2010, the FERC issued a procedural order on remand establishing a paper hearing process under which PJM will make an informational filing.  Subsequently, PJM and other parties, including DP&L, filed initial comments, testimony and recommendations and reply comments.  FERC did not establish a deadline for its issuance of a substantive order and the matter is still pending.  DP&L cannot predict the timing or the likely outcome of the proceeding.  Until such time as FERC may act to approve a change in methodology, PJM will continue to apply the allocation methodology that had been approved by FERC in 2007.  Although we continue to maintain that these costs should be borne by the beneficiaries of these projects and that DP&L is not one of these beneficiaries, any new credits or additional costs resulting from the ultimate outcome of this proceeding will be reflected in DP&L’s TCRR rider which already includes these costs.

NERC is a FERC-certified electric reliability organization responsible for developing and enforcing mandatory reliability standards, including Critical Infrastructure Protection (CIP) reliability standards, across eight reliability regions. In June 2009, Reliability First Corporation (RFC), with responsibilities assigned to it by NERC over the reliability region that includes DP&L, commenced a routine audit of DP&L’s operations.  The audit, which was for the period June 18, 2007 to June 25, 2009, evaluated DP&L’s compliance with 42 requirements in 18 NERC-reliability standards.  DP&L is currently subject to a compliance audit at a minimum of once every three years as provided by the NERC Rules of Procedure.  This audit was concluded in June 2009 and its findings revealed that DP&L had some Possible Alleged Violations (PAVs) associated with five NERC reliability requirements of various Standards.  In response to the report, DP&L filed mitigation plans with RFC/NERC to address the PAVs.  These mitigation plans were accepted by RFC/NERC.  In July 2010, DP&L negotiated a settlement with NERC under which DP&L agreed to pay an immaterial amount in exchange for a resolution of all issues and obligations relating to the aforementioned PAVs.  The settlement was approved on January 21, 2011 by the FERC.

ENVIRONMENTAL CONSIDERATIONS

DPL’s and DP&L’s facilities and operations are subject to a wide range of federal, state and local environmental regulations and laws.  The environmental issues that may effect us include:

·The Federal CAA and state laws and regulations (including State Implementation Plans) which require compliance, obtaining permits and reporting as to air emissions.

·Litigation with federal and certain state governments and certain special interest groups regarding whether modifications to or maintenance of certain coal-fired generating plants require additional permitting or pollution control technology, or whether emissions from coal-fired generating plants cause or contribute to global climate changes.

·Rules and future rules issued by the USEPA and Ohio EPA that require substantial reductions in SO2, particulates, mercury, acid gases, NOx, and other air emissions.  DP&L has installed emission control technology and is taking other measures to comply with required and anticipated reductions.

·Rules and future rules issued by the USEPA and Ohio EPA that require reporting and may require reductions of GHGs.

·Rules and future rules issued by the USEPA associated with the federal Clean Water Act, which prohibits the discharge of pollutants into waters of the United States except pursuant to appropriate permits.

·Solid and hazardous waste laws and regulations, which govern the management and disposal of certain waste. The majority of solid waste created from the combustion of coal and fossil fuels is fly ash and other coal combustion by-products.  The EPA has previously determined that fly ash and other coal

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combustion byproducts are not hazardous waste subject to the Resource Conservation and Recovery Act (RCRA), but the EPA is reconsidering that determination.  A change in determination or other additional regulation of fly ash or other coal combustion byproducts could significantly increase the costs of disposing of such ash byproducts.

As well as imposing continuing compliance obligations, these laws and regulations authorize the imposition of substantial penalties for noncompliance, including fines, injunctive relief and other sanctions.  In the normal course of business, we have investigatory and remedial activities underway at these facilities to comply, or to determine compliance, with such regulations.  We record liabilities for loss contingencies related to environmental matters when a loss is probable of occurring and can be reasonably estimated in accordance with the provisions of GAAP.  Accordingly, we have estimated accruals for loss contingencies of approximately $3.4 million for environmental matters.  We also have a number of unrecognized loss contingencies related to environmental matters that are disclosed in the paragraphs below.  We evaluate the potential liability related to environmental matters quarterly and may revise our estimates.  Such revisions in the estimates of the potential liabilities could have a material adverse effect on our results of operations, financial condition or cash flows.

We have several other pending environmental matters associated with our coal-fired generation units.  Together, these could result in significant capital and operations and maintenance expenditures for our coal-fired generation plants, and could result in the early retirement of our generation units that do not have SCR and FGD equipment installed.  Currently, our coal-fired generation units at Hutchings and Beckjord do not have this emission-control equipment installed.  DP&L owns 100% of the Hutchings plant and has a 50% interest in Beckjord Unit 6.  In addition to environmental matters, the operation of our coal-fired generation plants could be affected by a multitude of other factors, including forecasted power, capacity and commodity prices, competition and the levels of customer switching, current and forecasted customer demand, cost of capital and regulatory and legislative developments, any of which could pose a potential triggering event for an impairment of our investments in the Hutchings and Beckjord units.  On July 31, 2002,15, 2011, Duke Energy, a co-owner at the FERC grantedBeckjord Unit 6 facility, filed their Long-term Forecast Report with the Company conditional approvalPUCO.  The plan indicated that Duke Energy plans to join PJM.  In June 2003, DP&L turned over certain transmission functionscease production at the Beckjord Station, including our commonly owned Unit 6, in December 2014.  This was followed by a notification by Duke Energy to PJM, dated February 1, 2012, of a planned April 1, 2015 deactivation of this unit.  We are depreciating Unit 6 through December 2014 and do not believe that any additional accruals or impairment charges are needed as a result of this decision.  We are considering options for PJM to operate including management of certain information systems, scheduling, market monitoring and security coordination.  On July 30, 2004, the CompanyHutchings Station, but have not yet made a filingfinal decision.  We do not believe that any accruals or impairment charges are needed related to the Hutchings Station.

Environmental Matters Related to Air Quality

Clean Air Act Compliance

In 1990, the federal government amended the CAA to further regulate air pollution.  Under the CAA, the USEPA sets limits on how much of a pollutant can be in the ambient air anywhere in the United States.  The CAA allows individual states to have stronger pollution controls than those set under the CAA, but states are not allowed to have weaker pollution controls than those set for the whole country.  The CAA has a material effect on our operations and such effects are detailed below with respect to certain programs under the CAA.

Cross-State Air Pollution Rule

The Clean Air Interstate Rule (CAIR) final rules were published on May 12, 2005.  CAIR created an interstate trading program for annual NOx emission allowances and made modifications to an existing trading program for SO2.  Litigation brought by entities not including DP&L resulted in a decision by the U.S. Court of Appeals for the District of Columbia Circuit on July 11, 2008 to vacate CAIR and its associated Federal Implementation Plan.  On December 23, 2008, the U.S. Court of Appeals issued an order on reconsideration that permits CAIR to remain in effect until the USEPA issues new regulations that would conform to the CAA requirements and the Court’s July 2008 decision.

In an attempt to conform to the Court’s decision, on July 6, 2010, the USEPA proposed the Clean Air Transport Rule (CATR).  These rules were finalized as the Cross-State Air Pollution Rule (CSAPR) on July 6, 2011, but subsequent litigation has resulted in their implementation being delayed indefinitely.  CSAPR creates four separate trading programs:  two SO2 areas (Group 1 and Group 2); and two NOx reduction requirements (annual and ozone season).  Group 1 states (16 states including Ohio) will have to meet a 2012 cap and additional reductions in 2014.  Group 2 states (7 states) will only have to meet the 2012 cap.  We do not believe the rule will have a material effect on our operations in 2012.  The Ohio EPA has a State Implementation Plan (SIP) that incorporates the CAIR program requirements, which remain in effect pending judicial review of CSAPR.  If CSAPR becomes effective, it is expected to institute a federal implementation plan (FIP) in lieu of state SIPs and allow for the states to develop SIPs for approval as early as 2013.  DP&L is

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unable to estimate the impact of the new requirements; however, CSAPR could have a material effect on our operations.

Mercury and Other Hazardous Air Pollutants

On May 3, 2011, the USEPA published proposed Maximum Achievable Control Technology (MACT) standards for coal- and oil-fired electric generating units.  The standards include new requirements for emissions of mercury and a number of other heavy metals.  The USEPA Administrator signed the final rule, now called MATS (Mercury and Air Toxics Standards), on December 16, 2011, and the rule was published in the Federal Register on February 16, 2012.  Affected electric generating units (EGUs) will have to come into compliance with the FERCnew requirements by April 16, 2015, but may be granted an additional year contingent on Ohio EPA approval.  DP&L is evaluating the costs that may be incurred to withdrawcomply with the new requirement; however, MATS could have a material adverse effect on our results of operations and result in material compliance costs.

On April 29, 2010, the USEPA issued a proposed rule that would reduce emissions of toxic air pollutants from new and existing industrial, commercial and institutional boilers and process heaters at major and area source facilities.  The final rule was published in the Federal Register on March 21, 2011.  This regulation affects seven auxiliary boilers used for start-up purposes at DP&L’s generation facilities.  The regulations contain emissions limitations, operating limitations and other requirements.  In December 2011, the USEPA proposed additional changes to this rule and solicited comments.  Compliance costs are not expected to be material to DP&L’s operations.

On May 3, 2010, the National Emissions Standards for Hazardous Air Pollutants for compression ignition (CI) reciprocating internal combustion engines (RICE) became effective.  The units affected at DP&L are 18 diesel electric generating engines and eight emergency “black start” engines.  The existing CI RICE units must comply by May 3, 2013.  The regulations contain emissions limitations, operating limitations and other requirements.  Compliance costs for DP&L’s operations are not expected to be material.

National Ambient Air Quality Standards

On January 5, 2005, the USEPA published its transmission tarifffinal non-attainment designations for the National Ambient Air Quality Standard (NAAQS) for Fine Particulate Matter 2.5 (PM 2.5).  These designations included counties and to become fully integrated into PJM’s tariff effective October 1, 2004.  The Company was fully integrated into PJM on October 1, 2004.partial counties in which DP&L operates and/or owns generating facilities.  As of December 31, 2004, 2011, DP&L had invested&L’s Stuart, Killen and Hutchings Stations were located in non-attainment areas for the annual PM 2.5 standard.  There is a totalpossibilitythat these areas will be re-designated as “attainment” for PM 2.5 within the next few calendar quarters and that the NAAQS for PM 2.5 will become more stringent.  We cannot predict the effect the revisions to the PM 2.5 standard will have on DP&L’s financial condition or results of approximately $18.0 million in its efforts to join a RTO.operations.

On September 16, 2009, the USEPA announced that it would reconsider the 2008 national ground level ozone standard.  On September 2, 2011, the USEPA decided to postpone their revisiting of this standard until 2013.  DP&L cannot determine the effect of this potential change, if any, on its operations.

Effective October 1, 2004, PJM beganApril 12, 2010, the USEPA implemented revisions to assessits primary NAAQS for nitrogen dioxide.  This change may affect certain emission sources in heavy traffic areas like the I-75 corridor between Cincinnati and Dayton after 2016.  Several of our facilities or co-owned facilities are within this area.  DP&L cannot determine the effect of this potential change, if any, on its operations.

Effective August 23, 2010, the USEPA implemented revisions to its primary NAAQS for SO2 replacing the current 24-hour standard and annual standard with a FERC-approved administrative feeone hour standard.  DP&L cannot determine the effect of this potential change, if any, on every megawatt consumed by DP&L customers.  its operations.

On October 26,May 5, 2004, the Company filed an applicationUSEPA issued its proposed regional haze rule, which addresses how states should determine the Best Available Retrofit Technology (BART) for sources covered under the regional haze rule.  Final rules were published July 6, 2005, providing states with several options for determining whether sources in the PUCO for authoritystate should be subject to modify its accounting proceduresBART.  In the final rule, the USEPA made the determination that CAIR achieves greater progress than BART and may be used by states as a BART substitute and USEPA subsequently determined that if CSAPR becomes effective, it may be used to defer collectioncomply with BART requirements.  Numerous units owned and operated by us will be affected by BART.  We cannot determine the extent of this PJM administrative fee, effective October 1, 2004, plus carrying charges,the impact until such time as DP&LOhio determines how BART will be implemented.

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Carbon Emissions and Other Greenhouse Gases

In response to a U.S. Supreme Court decision that the USEPA has obtained the authority to adjust its rates (i.e.regulate CO2 emissions from motor vehicles, the USEPA made a finding that CO2 and certain other GHGs are pollutants under the CAA.  Subsequently, under the CAA, USEPA determined that CO2 and other GHGs from motor vehicles threaten the health and welfare of future generations by contributing to climate change.  This finding became effective in January 2010.  Numerous affected parties have petitioned the USEPA Administrator to reconsider this decision.  On April 1, 2010, USEPA signed the “Light-Duty Vehicle Greenhouse Gas Emission Standards and Corporate Average Fuel Economy Standards” rule.  Under USEPA’s view, this is the final action that renders carbon dioxide and other GHGs “regulated air pollutants” under the CAA.

Under USEPA regulations finalized in May 2010 (referred to as the “Tailoring Rule”), afterthe USEPA began regulating GHG emissions from certain stationary sources in January 1, 2006)2011.  The Tailoring Rule sets forth criteria for determining which facilities are required to obtain permits for their GHG emissions pursuant to the Company’s approved StipulationCAA Prevention of Significant Deterioration and Recommendation.  WhileTitle V operating permit programs.  Under the Tailoring Rule, permitting requirements are being phased in through successive steps that may expand the scope of covered sources over time.  The USEPA has issued guidance on what the Best Available Control Technology entails for the control of GHGs and individual states are required to determine what controls are required for facilities on a case-by-case basis.  The ultimate impact of the Tailoring Rule to DP&L cannot be determined at this application is pending, DP&L is expensing these administrative fees.time, but the cost of compliance could be material.

The FERC’s July 31, 2002 Order also addressedUSEPA plans to propose GHG standards for new and modified electric generating units (EGUs) under CAA subsection 111(b) — and propose and promulgate guidelines for states to address GHG standards for existing EGUs under CAA subsection 111(d) during 2012.  These rules may focus on energy efficiency improvements at power plants.  We cannot predict the justness and reasonablenesseffect of these standards, if any, on DP&L’s operations.

Approximately 99% of the PJMenergy we produce is generated by coal.  DP&L’s share of CO2 emissions at generating stations we own and Midwest Independent Transmission System Operator (MISO) ratesco-own is approximately 16 million tons annually.  Further GHG legislation or regulation finalized at a future date could have a significant effect on DP&L’s operations and costs, which could adversely affect our net income, cash flows and financial condition.  However, due to the uncertainty associated with such legislation or regulation, we cannot predict the final outcome or the financial effect that such legislation or regulation may have on DP&L.

On September 22, 2009, the USEPA issued a final rule for mandatory reporting of GHGs from large sources that emit 25,000 metric tons per year or more of CO2, including electric generating units.  DP&L’s first report to the USEPA was submitted prior to the September 30, 2011 due date for 2010 emissions.  This reporting rule will guide development of policies and programs to reduce emissions.  DP&L does not anticipate that this reporting rule will result in any significant cost or other effect on current operations.

Litigation, Notices of Violation and Other Matters Related to Air Quality

Litigation Involving Co-Owned Plants

On June 20, 2011, the U.S.Supreme Court ruled that the USEPA’s regulation of GHGs under the CAA displaced any right that plaintiffs may have had to seek similar regulation through federal common law litigation in the court system.  Although we are not named as a party to these lawsuits, DP&L is a co-owner of coal-fired plants with Duke Energy and AEP (or their subsidiaries) that could have been affected by the outcome of these lawsuits or similar suits that may have been filed against other electric power companies, including DP&L.  Because the issue was not squarely before it, the U.S. Supreme Court did not rule against the portion of plaintiffs’ original suits that sought relief under state law.

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, DP&L and the other owners of the J.M. Stuart generating station are subject to certain specified emission targets related revenue distribution protocols.  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 malfunctions.  Continued compliance with the consent decree, as amended, is not expected to have a material effect on DP&L’s results of operations, financial condition or cash flows in the future.

Notices of Violation Involving Co-Owned Plants

In November 1999, the USEPA filed civil complaints and NOVs against operators and owners of certain generation facilities for alleged violations of the CAA.  Generation units operated by Duke Energy (Beckjord Unit 6) and CSP (Conesville Unit 4) and co-owned by DP&L were referenced in these actions.  Although DP&L was not identified in the NOVs, civil complaints or state actions, the results of such proceedings could materially affect DP&L’s co-owned plants.

In June 2000, the USEPA issued a NOV to the DP&L-operated J.M. Stuart generating station (co-owned by DP&L, Duke Energy and CSP) for alleged violations of the CAA.  The NOV contained allegations consistent with NOVs and complaints that the USEPA had brought against numerous other coal-fired utilities in the Midwest.  The NOV indicated the USEPA may: (1) issue an order requiring compliance with the requirements of the Ohio SIP; or (2) bring a civil action seeking injunctive relief and civil penalties of up to $27,500 per day for each violation.  To date, neither action has been taken.  DP&L cannot predict the outcome of this matter.

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In December 2007, the Ohio EPA issued a NOV to the DP&L-operated Killen generating station (co-owned by DP&L and Duke Energy) for alleged violations of the CAA.  The NOV alleged deficiencies in the continuous monitoring of opacity.  We submitted a compliance plan to the Ohio EPA on December 19, 2007.  To date, no further actions have been taken by the Ohio EPA.

On March 31, 2003, an Initial Decision13, 2008, Duke Energy, the operator of the Zimmer generating station, received a NOV and a Finding of Violation (FOV) from the USEPA alleging violations of the CAA, the Ohio State Implementation Program (SIP) and permits for the Station in areas including SO2, opacity and increased heat input. A second NOV and FOV with similar allegations was issued findingon November 4, 2010.  Also in 2010, USEPA issued an NOV to Zimmer for excess emissions.  DP&L is a co-owner of the Zimmer generating station and could be affected by the eventual resolution of these matters.  Duke Energy is expected to act on behalf of itself and the co-owners with respect to these matters.  DP&L is unable to predict the outcome of these matters.

Notices of Violation Involving Wholly-Owned Plants

In 2007, the Ohio EPA and the USEPA issued NOVs to DP&L for alleged violations of the CAA at the O.H. Hutchings Station.  The NOVs’ alleged deficiencies relate to stack opacity and particulate emissions.  Discussions are under way with the USEPA, the U.S. Department of Justice and Ohio EPA.  On November 18, 2009, the USEPA issued an NOV to DP&L for alleged NSR violations of the CAA at the O.H. Hutchings Station relating to capital projects performed in 2001 involving Unit 3 and Unit 6.  DP&L does not believe that the PJM/MISO’s rates had not been showntwo projects described in the NOV were modifications subject to NSR.  DP&L is engaged in discussions with the USEPA and Justice Department to resolve these matters, but DP&L is unable to determine the timing, costs or method by which these issues may be resolved.  The Ohio EPA is kept apprised of these discussions.

Environmental Matters Related to Water Quality, Waste Disposal and Ash Ponds

Clean Water Act — Regulation of Water Intake

On July 9, 2004, the USEPA issued final rules pursuant to the Clean Water Act governing existing facilities that have cooling water intake structures.  The rules require an assessment of impingement and/or entrainment of organisms as a result of cooling water withdrawal.  A number of parties appealed the rules.  In April 2009, the U.S. Supreme Court ruled that the USEPA did have the authority to compare costs with benefits in determining best technology available.  The USEPA released new proposed regulations on March 28, 2011, which were published in the Federal Register on April 20, 2011.  We submitted comments to the proposed regulations on August 17, 2011.  The final rules are expected to be unjustin place by mid-2012.  We do not yet know the impact these proposed rules will have on our operations.

Clean Water Act — Regulation of Water Discharge

In December 2006, we submitted an application for the renewal of the Stuart Station NPDES Permit that was due to expire on June 30, 2007.  In July 2007, we received a draft permit proposing to continue our authority to discharge water from the station into the Ohio River.  On February 5, 2008, we received a letter from the Ohio EPA indicating that they intended to impose a compliance schedule as part of the final Permit, that requires us to implement one of two diffuser options for the discharge of water from the station into the Ohio River as identified in a thermal discharge study completed during the previous permit term.  Subsequently, DP&L and unreasonable.  On July 23, 2003, the FERCOhio EPA reached an agreement to allow DP&L to restrict public access to the water discharge area as an alternative to installing one of the diffuser options.  The Ohio EPA issued an Order rejecting in parta revised draft permit that was received on November 12, 2008.  In December 2008, the Initial Decision and foundUSEPA requested that the ratesOhio EPA provide additional information regarding the thermal discharge in the draft permit.  In June 2009, DP&L provided information to the USEPA in response to their request to the Ohio EPA.  In September 2010, the USEPA formally objected to a revised permit provided by Ohio EPA due to questions regarding the basis for transmission service throughthe alternate thermal limitation.  In December 2010, DP&L requested a public hearing on the objection, which was held on March 23, 2011.  We participated in and outpresented our position on the issue at the hearing and in written comments submitted on April 28, 2011.  In a letter to the Ohio EPA dated September 28, 2011, the USEPA reaffirmed its objection to the revised permit as previously drafted by the Ohio EPA.  This reaffirmation stipulated that if the Ohio EPA does not re-draft the permit to address the USEPA’s objection, then the authority for issuing the permit will pass to the USEPA.  The Ohio EPA issued another draft permit in December 2011 and a public hearing was held on February 2, 2012.  The draft permit would require DP&L, over the 54 months following issuance of a final permit, to take undefined actions to lower the temperature of its discharged water to a level unachievable by the station under its current design or alternatively make other significant modifications to the cooling water system.  DP&L submitted comments to the draft permit and is considering legal options.  Depending on the outcome of the service territoriesprocess, the effects could be material on DP&L’s operation.

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coal combustion byproducts are regulated as hazardous waste, it is expected to have a material adverse effect on DP&L’s operations.

Notice of Violation Involving Co-Owned Plants

On September 27, 2004,9, 2011, DP&L received a notice of violation from the FERC institutedUSEPA with respect to its co-owned J.M. Stuart generating station based on a proceeding under Federal Powercompliance evaluation inspection conducted by the USEPA and Ohio EPA in 2009.  The notice alleged non-compliance by DP&L with certain provisions of the RCRA, the Clean Water Act Section 206National Pollutant Discharge Elimination System 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 implement a new long-term transmission pricing structure intendedtake to eliminate seamsremedy 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 the PJMany material effect on DP&L’s results of operations, financial condition or cash flow.

Legal and MISO regions.  On October 1, 2004, Other Matters

In February 2007, DP&L along with approximately 60 other parties filed a long-term pricing planlawsuit against a coal supplier seeking damages incurred due to the supplier’s failure to supply approximately 1.5 million tons of coal to two commonly owned plants under a coal supply agreement, of which approximately 570 thousand tons was DP&L’s share.  DP&L obtained replacement coal to meet its needs.  The supplier has denied liability, and is currently in federal bankruptcy proceedings in which DP&L is participating as an unsecured creditor.  DP&L is unable to determine the ultimate resolution of this matter.  DP&L has not recorded any assets relating to possible recovery of costs in this lawsuit.

In connection with the FERC.  On November 18, 2004, the FERC approved this rate design.  In addition,DP&L and other utilities joining PJM, in 2006, the FERC ordered utilities to eliminate certain charges to implement transitional payments, known as SECA, effective December 1, 2004 through March 31, 2006, subject to refund. Through this proceeding, DP&L was obligated to pay SECA charges to other utilities, but received a net benefit from these transitional payments.  A hearing was held and an initial decision was issued in August 2006.  A final FERC order on this issue was issued on May 21, 2010 that substantially supports DP&L’s and other utilities’ position that SECA obligations should be paid by parties that used the transmission system during the timeframe stated above.  Prior to this final order being issued, DP&L entered into a significant number of bilateral settlement agreements with certain parties to resolve the matter, which by design will be unaffected by the final decision.  With respect to unsettled claims, DP&L management has deferred $17.8 million and $15.4 million as of December 31, 2011 and December 31, 2010, respectively, as Other deferred credits representing the amount of unearned income where the earnings process is not complete.  The amount at December 31, 2011 includes estimated earnings and interest of $5.2 million.  On February 10, 2005,September 30, 2011, the FERC issued two SECA-related orders that affirmed an earlier order issued in 2010 by denying the rehearing requests that reaffirmeda number of different parties, including DP&L, had filed.  These orders are now final, subject to possible appellate court review.  These orders do not affect prior settlements that had been reached with other parties that owed SECA revenues to DP&L or were recipients of amounts paid by DP&L.  For other parties that had not previously settled with DP&L, the pricing structure, butexact timing and amounts of any payments that would be made or received by DP&L under these orders is still uncertain.

6Also refer to Notes 2 and 18 of Notes to DPL’s Consolidated Financial Statements for additional information surrounding the merger and certain related legal matters.

Capital Expenditures for Environmental Matters

DP&L’s environmental capital expenditures are approximately $12 million, $12 million and $21 million in 2011, 2010 and 2009, respectively.  DP&L has budgeted $15 million in environmental related capital expenditures for 2012.

ELECTRIC SALES AND REVENUES

The following table sets forth DPL’s electric sales and revenues for the period November 28, 2011 (the Merger date) through December 31, 2011 (Successor), the period January 1, 2011 through November 27, 2011 and the years ended December 31, 2010 and 2009 (Predecessor), respectively.

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In the following table, we have included the combined Predecessor and Successor statistical information and results of operations.  Such combined presentation is considered to be a non-GAAP disclosure.  We have included such disclosure because we believe it facilitates the comparison of 2011 operating and financial performance to 2010 and 2009, and because the core operations of DPL have not changed as a result of the Merger.

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DPL is structured in two operating segments, DP&L and DPLER.  See Note 19 of Notes to DPL’s Consolidated Financial Statements for more information on DPL’s segments.  The following tables set forth DP&L’s and DPLER’s electric sales and revenues for the years ended December 31, 2011, 2010 and 2009, respectively.

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(a)   DP&L sold 5,731 million kWh, 4,417 million kWh and 1,464 million kWh of power to DPLER (a subsidiary of DPL) for the years ended December 31, 2011, December 31, 2010 and 2009, respectively, which are not included in DP&L wholesale sales volumes in the chart above.  These kWh sales also relate to DP&L retail customers within the DP&L service territory for distribution services and their inclusion in wholesale sales would result in a double counting of kWh volume.  The dollars of operating revenues associated with these sales are classified as wholesale revenues on DP&L’s Financial Statements and retail revenues on DPL’s Consolidated Financial Statements.

(b)   This chart includes all sales of DPLER, both within and outside of the DP&L service territory.

Item 1A — Risk Factors