UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(x)☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 20192020
OR
( )☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
DPL Inc.
(an Ohio corporation)
Commission File Number 1-9052
1065 Woodman Drive
Dayton, Ohio 45432
937-259-7215
IRS Employer Identification No. 31-1163136
THE DAYTON POWER AND LIGHT COMPANY
(an Ohio corporation)
Commission File Number 1-2385
1065 Woodman Drive
Dayton, Ohio 45432
937-259-7215
IRS Employer Identification No. 31-0258470
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DPL INC.
(an Ohio corporation)
| | THE DAYTON POWER AND LIGHT COMPANY
(an Ohio corporation)
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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 |
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| Securities registered pursuant to Section 12(b) of the Act: |
| Title of Each Class | Trading Symbol(s) | Name of Each Exchange on Which Registered |
| N/A | N/A | N/A |
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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.
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| DPL Inc. | Yeso | ☑ | No | ☐x |
| The Dayton Power and Light Company | Yeso | ☑ | No | ☐x |
Each of DPL Inc. and The Dayton Power and Light Company is awere voluntary filer that hasfilers until their March 6, 2020 Registration Statements on Form S-4/A filed with the Securities and Exchange Commission were declared effective on March 12, 2020. DPL Inc. and The Dayton Power and Light Company 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).
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| DPL Inc. | Yesx | ☑ | No | o☐ |
| The Dayton Power and Light Company | Yesx | ☑ | No | o☐ |
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.
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| Large
accelerated
filer
Filer | Accelerated filer
Filer | Non-
accelerated
filer
(Do not check if a smaller reporting company)
Non-accelerated Filer | Smaller
reporting
company
| Emerging growth company |
| DPL Inc. | o☐ | o☐ | x☑ | o☐ | o☐ |
| Large
accelerated
Filer | Accelerated
Filer | Non-accelerated Filer | Smaller
reporting
company | Emerging growth company |
| 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.
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| 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).
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| DPL Inc. | Yeso | ☐ | No | ☑x |
| The Dayton Power and Light Company | Yeso | ☐ | No | ☑x |
All of the outstanding common stock of DPL Inc. is indirectly owned by The AES Corporation. All of the outstanding common stock of The Dayton Power and Light Company is owned by DPL Inc.
As of November 5, 2019,2020, each registrant had the following shares of common stock outstanding:
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| Registrant | | Description | | Shares Outstanding |
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Registrant | | Description | | Shares Outstanding |
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| DPL Inc. | | Common Stock, no par value | | 1 |
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| The Dayton Power and Light Company | | Common Stock, $0.01 par value | | 41,172,173 |
This combined Form 10-Q 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.
DPL Inc. and The Dayton Power and Light Company
QuarterQuarter Ended September 30, 2019
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| Table of Contents | Page No. |
| Glossary of Terms | |
| Forward-Looking Statements | |
| Part I Financial Information | |
| Item 1 | Financial Statements – DPL Inc. and The Dayton Power and Light Company (Unaudited) | |
| DPL Inc. | |
| Condensed Consolidated Statements of Operations | |
| Condensed Consolidated Statements of Comprehensive Income / (Loss) | |
| Condensed Consolidated Balance Sheets | |
| Condensed Consolidated Statements of Cash Flows | |
| Condensed Consolidated Statements of Shareholder's Deficit | |
| Notes to Condensed Consolidated Financial Statements | |
| Note 1 – Overview and Summary of Significant Accounting Policies | |
| Note 2 – Supplemental Financial Information | |
| Note 3 – Regulatory Matters | |
| Note 4 – Fair Value | |
| Note 5 – Derivative Instruments and Hedging Activities | |
| Note 6 – Long-term Debt | |
| Note 7 – Income Taxes | |
| Note 8 – Benefit Plans | |
| Note 9 – Shareholder's Deficit | |
| Note 10 – Contractual Obligations, Commercial Commitments and Contingencies | |
| Note 11 – Business Segments | |
| Note 12 – Revenue | |
| Note 13 – DispositionsDiscontinued Operations | |
| Note 14 – Discontinued OperationsRisks and Uncertainties | |
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| The Dayton Power and Light Company | |
| Condensed Statements of Operations | |
| Condensed Statements of Comprehensive Income | |
| Condensed Balance Sheets | |
| Condensed Statements of Cash Flows | |
| Condensed Statements of Shareholder's Equity | |
| Notes to Condensed Financial Statements | |
| Note 1 – Overview and Summary of Significant Accounting Policies | |
| Note 2 – Supplemental Financial Information | |
| Note 3 – Regulatory Matters | |
| Note 4 – Fair Value | |
| Note 5 – Derivative Instruments and Hedging Activities | |
| Note 6 – Long-term Debt | |
| Note 7 – Income Taxes | |
| Note 8 – Benefit Plans | |
| Note 9 – Shareholder's Equity | |
| Note 10 – Contractual Obligations, Commercial Commitments and Contingencies | |
| Note 11 – Revenue | |
| Note 12 – DispositionsRisks and Uncertainties | |
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| Item 2 | Management's Discussion and Analysis of Financial Condition and Results of Operations | |
| Item 3 | Quantitative and Qualitative Disclosures about Market Risk | |
| Item 4 | Controls and Procedures | |
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| Part II Other Information | |
| Item 1 | Legal Proceedings | |
| Item 1A | Risk Factors | |
| Item 2 | Unregistered Sales of Equity Securities and Use of Proceeds | |
| Item 3 | Defaults Upon Senior Securities | |
| Item 4 | Mine Safety Disclosures | |
| Item 5 | Other Information | |
| Item 6 | Exhibits | |
| Signatures | |
GLOSSARY OF TERMS
The following terms are used in this Form 10-Q:
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| Term | Definition |
| 2017 ESP | DP&L's ESP - approved October 20, 2017, effective November 1, 2017 |
| AES | The AES Corporation - a global power company and the ultimate parent company of DPL |
| AES Ohio Generation | AES Ohio Generation, LLC - a wholly-owned subsidiary of DPL, that owns an interest in a coal-fired EGU from which it makespreviously operated EGUs and made wholesale sales and previously operated other EGUs |
| AOCI | Accumulated Other Comprehensive Income |
AROAOCL | Accumulated Other Comprehensive Loss |
| ARO | Asset Retirement Obligation |
| ASU | Accounting Standards Update |
| CAA | U.S. Clean Air Act - the congressional act that directs the USEPA’s regulation of stationary and mobile sources of air pollution to protect air quality and stratospheric ozone |
| CCR | Coal Combustion Residuals |
| Conesville | AES Ohio Generation's interest in Unit 4 at the Conesville EGUEGU. This was sold on June 5, 2020. |
CSAPRCOVID-19 | The disease caused by the novel coronavirus that resulted in a global pandemic in 2020. |
| CSAPR | Cross-State Air Pollution Rule - the USEPA's rule to address interstate air pollution transport to decrease emissions to downwind states |
D.C. Circuit CourtDMR | United States Court of Appeals for the District of Columbia Circuit |
DIR | Distribution Investment Rider - established in the ESP and authorized in the DRO to recover certain distribution capital investments placed in service beginning October 1, 2015 |
DMP | Distribution Modernization Plan - on December 21, 2018, DP&L filed a comprehensive grid modernization plan pursuant to the PUCO Order in the ESP |
DMR | Distribution Modernization Rider - established in the ESP as a non-bypassable rider to collect $105.0 million in revenue per year for the first three years of the ESP term |
| DPL | DPL Inc. |
| DP&L | The Dayton Power and Light Company - the principal subsidiary of DPL and a public utility that delivers electricity to residential, commercial, industrial and governmental customers in a 6,000-square mile area of West Central Ohio |
| 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 |
| EBITDA | Earnings before interest, taxes, depreciation and amortization. EBITDA also excludes the Fixed-asset impairment |
| EGU | Electric Generating Unit |
ERACERISA | Environmental Review Appeals Commission - a commission appointed by the Governor of Ohio to resolve appeals related various Ohio agencies including Ohio EPA, Ohio Department of Agriculture and others |
ERISA | The Employee Retirement Income Security Act of 1974 |
| ESP | The Electric Security Plan - a plan that a utility must file with the PUCO to establish SSO rates pursuant to Ohio law |
FASBESP 1 | ESP originally approved by PUCO order dated June 24, 2009. After DP&L withdrew its 2017 ESP Application, the PUCO approved DP&L's request to revert to rates based on its ESP 1 rate plan effective December 19, 2019. DP&L is currently operating under this ESP 1 plan. |
| FASB | Financial Accounting Standards Board |
| FASC | FASB Accounting Standards Codification |
| FERC | Federal Energy Regulatory Commission |
| Form 10-K | DPL’s and DP&L’s combined Annual Report on Form 10-K for the fiscal year ended December 31, 2018,2019, which was filed on February 26, 201927, 2020 |
| 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 |
| GAAP | Generally Accepted Accounting Principles in the United States of America |
| Generation Separation | The transfer on October 1, 2017 to AES Ohio Generation of the DP&L-owned generating facilities and related liabilities pursuant to an asset contribution agreement with a subsidiary that was then merged into AES Ohio Generation |
kV | Kilovolt, 1,000 volts |
| kWh | Kilowatt-hours - a measure of electrical energy equivalent to a power consumption of 1,000 watts for 1 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 - the USEPA’s rules for existing and new power plants under Section 112 of the CAA |
| 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. |
MVICMRO | Market Rate Option - a market-based plan that a utility may file with PUCO to establish SSO rates pursuant to Ohio law |
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| GLOSSARY OF TERMS (cont.) |
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| Term | Definition |
| MVIC | Miami Valley Insurance Company is a wholly-owned insurance subsidiary of DPL that provides insurance services to DPL and its subsidiaries and, in some cases, insurance services to partner companies related to the jointly-owned facility operated by AES Ohio Generation |
| MW | Megawatt, a unit of power equal to one million watts |
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| NAAQS | |
GLOSSARY OF TERMS (cont.) |
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Term | Definition |
NAAQS | National Ambient Air Quality Standards - the USEPA’s health and environmental based standards for six specified pollutants, as found in the ambient air |
| NERC | North American Electric Reliability Corporation - a not-for-profit international regulatory authority whose mission is to assure the effective and efficient reduction of risks to the reliability and security of the electric grid |
| Ohio EPA | Ohio Environmental Protection Agency |
| OVEC | Ohio Valley Electric Corporation - an electric generating company in which DP&L holds a 4.9% equity 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 that were sold on March 27, 2018 |
| PJM | PJM Interconnection, LLC, an RTO |
PRPPUCO | Potentially Responsible Party |
PUCO | Public Utilities Commission of Ohio |
RTORSC | The Rate Stabilization Charge is a non-bypassable rider intended to compensate DP&L for providing stabilized rates to customers. |
| RTO | Regional Transmission Organization - an entity that is independent from all generation and power marketing interests and has exclusive responsibility for grid operations, short-term reliability, and transmission service within a region |
| SEC | U.S. Securities and Exchange Commission |
| SERP | Supplemental Executive Retirement Plan |
| Service Company | AES US Services, LLC - the shared services affiliate providing accounting, finance, and other support services to AES’ U.S. SBU businesses |
| SSO | Standard Service Offer represents the regulated rates, authorized by the PUCO, charged to DP&L retail customers that take retail generation service from DP&L within DP&L’s service territory |
TCJAT&D | Transmission and distribution |
| TCJA | The Tax Cuts and Jobs Act of 2017, signed on December 22, 2017 |
TCRRU.S. | The Transmission Cost Recovery Rider is a rider designed to recover transmission-related costs imposed on or charged to DP&L by FERC or PJM |
U.S. | United States of America |
| USEPA | U.S. Environmental Protection Agency |
| USF | The Universal Service Fund 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. and Utilities Strategic Business Unit, AES’ reporting unit covering the businesses in the United States, including DPL |
| Utility segment | DPL's Utility segment is made up of DP&L’s electric transmission and distribution businesses, which distribute electricity to residential, commercial, industrial and governmental customers |
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;
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• | •the ability of subsidiaries to pay dividends or distributions to DPL; •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 tax strategies;
•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, including the outbreak of COVID-19, or natural disasters such as floods, earthquakes, tornadoes, severe winds, ice or snowstorms, droughts or other similar occurrences; and
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• | •the risks and other factors discussed in this report and other DPL and DP&L filings with the SEC.
DPL and DP&L filings with the SEC.
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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.
All suchof the above factors are difficult to predict, contain uncertainties that may materially affect actual results, and many are beyond our control. See Item 1A - Risk Factors to Part I in our Annual Report on Form 10-K for the fiscal year ended December 31, 20182019 and the “Management’s Discussion and Analysis of Financial Condition and Results of Operations” section in such report and in our Quarterly Reports on Form 10-Q for the quarters ended March 31, and June 30, 20192020 and this Quarterly Report on Form 10-Q for a more detailed discussion of the foregoing and certain other factors that could cause actual results to differ materially from those reflected in such forward-looking statements and that should be considered in evaluating our outlook. These risks may also be specifically described in our Quarterly Reports on Form 10-Q in Part II - Item 1A, Current Reports on Form 8-K and other documents that we may file from time to time with the SEC.
Our SEC filings are available to the public from the SEC’s website at www.sec.gov.
COMPANY WEBSITES
DP&L’s public internet site is www.dpandl.com. The information on this website is not incorporated by reference into this report.
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| Part I – Financial Information |
This report includes the combined filing of DPL and DP&L. 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 be clearly noted in the applicable section.
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| Item 1 – Financial Statements |
FINANCIAL STATEMENTS
DPL INC.
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| DPL INC. |
| Condensed Consolidated Statements of Operations |
| (Unaudited) |
| | | Three months ended | | Nine months ended |
| | | September 30, | | September 30, |
| $ in millions | | 2019 | | 2018 | | 2019 | | 2018 |
| Revenues | | $ | 199.0 |
| | $ | 207.7 |
| | $ | 592.2 |
| | $ | 591.5 |
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| | | | | | | | | |
| Operating costs and expenses | | | | | | | | |
| Net fuel cost | | 5.2 |
| | 4.6 |
| | 13.0 |
| | 12.7 |
|
| Net purchased power cost | | 66.5 |
| | 83.6 |
| | 195.0 |
| | 238.9 |
|
| Operation and maintenance | | 44.2 |
| | 37.3 |
| | 142.3 |
| | 118.3 |
|
| Depreciation and amortization | | 17.7 |
| | 19.7 |
| | 54.1 |
| | 58.8 |
|
| Taxes other than income taxes | | 20.9 |
| | 19.0 |
| | 58.5 |
| | 54.5 |
|
| Other, net (Note 2) | | — |
| | 1.6 |
| | 0.9 |
| | 14.6 |
|
| Total operating costs and expenses | | 154.5 |
| | 165.8 |
| | 463.8 |
| | 497.8 |
|
| | | | | | | | | |
| Operating income | | 44.5 |
| | 41.9 |
| | 128.4 |
| | 93.7 |
|
| | | | | | | | | |
| Other income / (expense), net: | | | | | | | | |
| Interest expense | | (18.3 | ) | | (22.6 | ) | | (63.7 | ) | | (74.4 | ) |
| Loss on early extinguishment of debt | | — |
| | — |
| | (44.9 | ) | | (6.4 | ) |
| Other income | | 0.3 |
| | 0.5 |
| | 3.2 |
| | 0.8 |
|
| Total other expense, net | | (18.0 | ) | | (22.1 | ) | | (105.4 | ) | | (80.0 | ) |
| | | | | | | | | |
| Income from continuing operations before income tax | | 26.5 |
| | 19.8 |
| | 23.0 |
| | 13.7 |
|
| | | | | | | | | |
| Income tax expense / (benefit) from continuing operations | | (9.4 | ) | | 3.1 |
| | (12.6 | ) | | 1.5 |
|
| | | | | | | | | |
| Net income from continuing operations | | 35.9 |
| | 16.7 |
| | 35.6 |
| | 12.2 |
|
| | | | | | | | | |
| Discontinued operations (Note 14): | | | | | | | | |
| Income / (loss) from discontinued operations before income tax | | (0.4 | ) | | 5.0 |
| | 32.8 |
| | 36.7 |
|
| Gain / (loss) from disposal of discontinued operations | | — |
| | 0.3 |
| | 0.1 |
| | (1.6 | ) |
| Income tax expense from discontinued operations | | 0.1 |
| | 1.0 |
| | 7.1 |
| | 5.9 |
|
| Net income / (loss) from discontinued operations | | (0.5 | ) | | 4.3 |
| | 25.8 |
| | 29.2 |
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| | | | | | | | | |
| Net income | | $ | 35.4 |
| | $ | 21.0 |
| | $ | 61.4 |
| | $ | 41.4 |
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| DPL INC. |
| Condensed Consolidated Statements of Operations |
| (Unaudited) |
| | Three months ended | | Nine months ended |
| | September 30, | | September 30, |
| $ in millions | | 2020 | | 2019 | | 2020 | | 2019 |
| Revenues | | $ | 178.8 | | | $ | 192.9 | | | $ | 505.1 | | | $ | 576.5 | |
| | | | | | | | |
| Operating costs and expenses | | | | | | | | |
| Net fuel cost | | 0.4 | | | 0.6 | | | 1.3 | | | 2.0 | |
| Net purchased power cost | | 66.0 | | | 66.3 | | | 178.0 | | | 194.2 | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| Operation and maintenance | | 47.9 | | | 42.5 | | | 138.7 | | | 136.9 | |
| Depreciation and amortization | | 18.6 | | | 17.7 | | | 54.8 | | | 54.0 | |
| Taxes other than income taxes | | 17.7 | | | 20.8 | | | 59.6 | | | 58.3 | |
| | | | | | | | |
| | | | | | | | |
| Other, net | | 0.1 | | | 0 | | | 0.1 | | | 0 | |
| | | | | | | | |
| Total operating costs and expenses | | 150.7 | | | 147.9 | | | 432.5 | | | 445.4 | |
| | | | | | | | |
| Operating income | | 28.1 | | | 45.0 | | | 72.6 | | | 131.1 | |
| | | | | | | | |
| Other income / (expense), net: | | | | | | | | |
| Interest expense | | (17.1) | | | (18.3) | | | (55.4) | | | (63.7) | |
| Loss on early extinguishment of debt | | (31.7) | | | 0 | | | (31.7) | | | (44.9) | |
| Other income | | 1.0 | | | 0.4 | | | 0.9 | | | 3.2 | |
| Total other expense, net | | (47.8) | | | (17.9) | | | (86.2) | | | (105.4) | |
| | | | | | | | |
| Income / (loss) from continuing operations before income tax | | (19.7) | | | 27.1 | | | (13.6) | | | 25.7 | |
| | | | | | | | |
| Income tax benefit from continuing operations | | (10.4) | | | (9.1) | | | (7.7) | | | (11.8) | |
| | | | | | | | |
| Net income / (loss) from continuing operations | | (9.3) | | | 36.2 | | | (5.9) | | | 37.5 | |
| | | | | | | | |
| Discontinued operations (Note 13): | | | | | | | | |
| Income / (loss) from discontinued operations before income tax | | 1.4 | | | (1.0) | | | (0.6) | | | 30.1 | |
| Gain from disposal of discontinued operations | | 0 | | | 0 | | | 4.5 | | | 0.1 | |
| Income tax expense / (benefit) from discontinued operations | | 0.3 | | | (0.2) | | | 0.8 | | | 6.3 | |
| Net income / (loss) from discontinued operations | | 1.1 | | | (0.8) | | | 3.1 | | | 23.9 | |
| | | | | | | | |
| Net income / (loss) | | $ | (8.2) | | | $ | 35.4 | | | $ | (2.8) | | | $ | 61.4 | |
See Notes to Condensed Consolidated Financial Statements.
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| DPL INC. |
| Condensed Consolidated Statements of Comprehensive Income |
| (Unaudited) |
| | | Three months ended | | Nine months ended |
| | | September 30, | | September 30, |
| $ in millions | | 2019 | | 2018 | | 2019 | | 2018 |
| Net income | | $ | 35.4 |
| | $ | 21.0 |
| | $ | 61.4 |
| | $ | 41.4 |
|
| Derivative activity: | | | | | | | | |
| Change in derivative fair value, net of income tax (expense) / benefit of $(0.1), $0.0, $0.1 and $(0.2) for each respective period | | (0.2 | ) | | 0.1 |
| | (1.0 | ) | | 0.4 |
|
| Reclassification to earnings, net of income tax (benefit) / expense of $(0.1), $0.1, $0.0 and $0.3 for each respective period | | (0.4 | ) | | (0.2 | ) | | (0.9 | ) | | (0.6 | ) |
| Reclassification of earnings related to discontinued operations, net of income tax benefit of $(0.4), $0.0, $(0.4) and $(1.5) for each respective period | | (0.4 | ) | | — |
| | (0.4 | ) | | 2.8 |
|
| Total change in fair value of derivatives | | (1.0 | ) | | (0.1 | ) | | (2.3 | ) | | 2.6 |
|
| Pension and postretirement activity: | | | | | | | | |
| Reclassification to earnings, net of income tax benefit of $(0.1), $(0.1), $(0.1) and $(0.1) for each respective period | | — |
| | 0.1 |
| | 0.1 |
| | 0.4 |
|
| Total change in unfunded pension and postretirement obligations | | — |
| | 0.1 |
| | 0.1 |
| | 0.4 |
|
| | | | | | | | | |
| Other comprehensive income / (loss) | | (1.0 | ) | | — |
| | (2.2 | ) | | 3.0 |
|
| | | | | | | | | |
| Net comprehensive income | | $ | 34.4 |
| | $ | 21.0 |
| | $ | 59.2 |
| | $ | 44.4 |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| DPL INC. |
| Condensed Consolidated Statements of Comprehensive Income / (Loss) |
| (Unaudited) |
| | | | |
| | | | |
| | | | |
| | | | |
| | | | |
| | | | |
| | | | |
| | | | |
| | | | |
| | | | |
| | | | |
| | | | |
| | | | |
| | | | |
| | | | |
| | | | |
| | | | | | | | |
| | Three months ended | | Nine months ended |
| | September 30, | | September 30, |
| $ in millions | | 2020 | | 2019 | | 2020 | | 2019 |
| Net income / (loss) | | $ | (8.2) | | | $ | 35.4 | | | $ | (2.8) | | | $ | 61.4 | |
| Derivative activity: | | | | | | | | |
| Change in derivative fair value, net of income tax (expense) / benefit of $0.0, $(0.1), $0.0 and $0.1 for each respective period | | 0.1 | | | (0.2) | | | 0 | | | (1.0) | |
| Reclassification to earnings, net of income tax (benefit) / expense of $0.0, $(0.1), $0.1 and $0.0 for each respective period | | (0.3) | | | (0.4) | | | (0.8) | | | (0.9) | |
| Reclassification of earnings related to discontinued operations, net of income tax benefit of $0.0, $(0.4), $0.0 and $(0.4) for each respective period | | 0 | | | (0.4) | | | 0 | | | (0.4) | |
| Total derivative activity | | (0.2) | | | (1.0) | | | (0.8) | | | (2.3) | |
| Pension and postretirement activity: | | | | | | | | |
| Reclassification to earnings, net of income tax benefit of $0.0, $(0.1), $(0.1) and $(0.1) for each respective period | | 0.3 | | | 0 | | | 0.8 | | | 0.1 | |
| Total change in unfunded pension and postretirement obligations | | 0.3 | | | 0 | | | 0.8 | | | 0.1 | |
| | | | | | | | |
| Other comprehensive income / (loss) | | 0.1 | | | (1.0) | | | 0 | | | (2.2) | |
| | | | | | | | |
| Net comprehensive income / (loss) | | $ | (8.1) | | | $ | 34.4 | | | $ | (2.8) | | | $ | 59.2 | |
See Notes to Condensed Consolidated Financial Statements.
|
| | | | | | | | |
| DPL INC. |
| Condensed Consolidated Balance Sheets |
| (Unaudited) |
| $ in millions | | September 30, 2019 | | December 31, 2018 |
| ASSETS | | | | |
| Current assets: | | | | |
| Cash and cash equivalents | | $ | 36.8 |
| | $ | 90.5 |
|
| Restricted cash | | 17.6 |
| | 21.2 |
|
| Accounts receivable, net (Note 2) | | 69.8 |
| | 90.5 |
|
| Inventories (Note 2) | | 13.0 |
| | 10.7 |
|
| Taxes applicable to subsequent years | | 18.2 |
| | 72.6 |
|
| Regulatory assets, current | | 40.2 |
| | 41.1 |
|
| Prepayments and other current assets | | 9.3 |
| | 12.9 |
|
| Current assets of discontinued operations and held-for-sale businesses | | 8.3 |
| | 8.7 |
|
| Total current assets | | 213.2 |
| | 348.2 |
|
| | | | | |
| Property, plant & equipment: | | | | |
| Property, plant & equipment | | 1,664.2 |
| | 1,615.6 |
|
| Less: Accumulated depreciation and amortization | | (350.3 | ) | | (310.8 | ) |
| | | 1,313.9 |
| | 1,304.8 |
|
| Construction work in process | | 94.5 |
| | 32.2 |
|
| Total net property, plant & equipment | | 1,408.4 |
| | 1,337.0 |
|
| | | | | |
| Other non-current assets: | | | | |
| Regulatory assets, non-current | | 154.7 |
| | 152.6 |
|
| Intangible assets, net of amortization | | 19.3 |
| | 18.4 |
|
| Other non-current assets | | 20.5 |
| | 21.6 |
|
| Non-current assets of discontinued operations and held-for-sale businesses | | 0.2 |
| | 5.3 |
|
| Total other non-current assets | | 194.7 |
| | 197.9 |
|
| | | | | |
| Total assets | | $ | 1,816.3 |
| | $ | 1,883.1 |
|
| | | | | |
| LIABILITIES AND SHAREHOLDER'S DEFICIT | | | | |
| Current liabilities: | | | | |
| Short-term and current portion of long-term debt (Note 6) | | $ | 237.6 |
| | $ | 103.6 |
|
| Accounts payable | | 52.9 |
| | 58.1 |
|
| Accrued taxes | | 78.5 |
| | 76.7 |
|
| Accrued interest | | 27.2 |
| | 14.3 |
|
| Customer deposits | | 20.3 |
| | 21.3 |
|
| Regulatory liabilities, current | | 36.5 |
| | 34.9 |
|
| Accrued and other current liabilities | | 21.4 |
| | 22.0 |
|
| Current liabilities of discontinued operations and held-for-sale businesses | | 9.9 |
| | 12.2 |
|
| Total current liabilities | | 484.3 |
| | 343.1 |
|
| | | | | |
| Non-current liabilities: | | | | |
| Long-term debt (Note 6) | | 1,223.3 |
| | 1,372.3 |
|
| Deferred income taxes | | 119.0 |
| | 116.1 |
|
| Taxes payable | | 3.7 |
| | 76.1 |
|
| Regulatory liabilities, non-current | | 252.3 |
| | 278.3 |
|
| Accrued pension and other post-retirement benefits | | 73.9 |
| | 82.3 |
|
| Asset retirement obligations | | 9.5 |
| | 9.4 |
|
| Other non-current liabilities | | 7.5 |
| | 8.0 |
|
| Non-current liabilities of discontinued operations and held-for-sale businesses | | 52.4 |
| | 69.2 |
|
| Total non-current liabilities | | 1,741.6 |
| | 2,011.7 |
|
| | | | | |
| Commitments and contingencies (Note 10) | |
| |
|
| | | | | |
| Common shareholder's deficit | | | | |
| Common stock: | | | | |
| 1,500 shares authorized; 1 share issued and outstanding at September 30, 2019 and December 31, 2018 | | — |
| | — |
|
| Other paid-in capital | | 2,373.4 |
| | 2,370.5 |
|
| Accumulated other comprehensive income | | — |
| | 2.2 |
|
| Accumulated deficit | | (2,783.0 | ) | | (2,844.4 | ) |
| Total common shareholder's deficit | | (409.6 | ) | | (471.7 | ) |
| | | | | |
| Total liabilities and shareholder's deficit | | $ | 1,816.3 |
| | $ | 1,883.1 |
|
| | | | | | | | | | | | | | |
| DPL INC. |
| Condensed Consolidated Balance Sheets |
| (Unaudited) |
| $ in millions | | September 30, 2020 | | December 31, 2019 |
| ASSETS | | | | |
| Current assets: | | | | |
| Cash and cash equivalents | | $ | 43.5 | | | $ | 36.5 | |
| Restricted cash | | 0.1 | | | 10.5 | |
| Accounts receivable, net of allowance for credit losses of $3.2 and $0.4, respectively (Note 2) | | 68.2 | | | 67.9 | |
| Inventories (Note 2) | | 8.2 | | | 10.4 | |
| Taxes applicable to subsequent years | | 20.0 | | | 77.5 | |
| Regulatory assets, current | | 20.9 | | | 19.7 | |
| Taxes receivable | | 11.6 | | | 23.6 | |
| Prepayments and other current assets | | 5.4 | | | 7.6 | |
| Current assets of discontinued operations and held-for-sale businesses | | 0 | | | 22.3 | |
| Total current assets | | 177.9 | | | 276.0 | |
| | | | |
| Property, plant & equipment: | | | | |
| Property, plant & equipment | | 1,805.9 | | | 1,701.9 | |
| Less: Accumulated depreciation and amortization | | (402.8) | | | (362.6) | |
| | | 1,403.1 | | | 1,339.3 | |
| Construction work in process | | 112.0 | | | 106.3 | |
| Total net property, plant & equipment | | 1,515.1 | | | 1,445.6 | |
| | | | |
| Other non-current assets: | | | | |
| Regulatory assets, non-current | | 177.0 | | | 173.8 | |
| Intangible assets, net of amortization | | 17.8 | | | 19.3 | |
| Other non-current assets | | 19.7 | | | 20.0 | |
| Non-current assets of discontinued operations and held-for-sale businesses | | 0 | | | 1.1 | |
| Total other non-current assets | | 214.5 | | | 214.2 | |
| | | | |
| Total assets | | $ | 1,907.5 | | | $ | 1,935.8 | |
| | | | |
| LIABILITIES AND SHAREHOLDER'S DEFICIT | | | | |
| Current liabilities: | | | | |
| Short-term and current portion of long-term debt (Note 6) | | $ | 90.2 | | | $ | 283.8 | |
| Accounts payable | | 54.8 | | | 72.6 | |
| Accrued taxes | | 83.3 | | | 79.3 | |
| Accrued interest | | 18.8 | | | 11.4 | |
| Customer deposits | | 18.7 | | | 20.7 | |
| Regulatory liabilities, current | | 19.8 | | | 27.9 | |
| | | | |
| Accrued and other current liabilities | | 21.6 | | | 21.2 | |
| Current liabilities of discontinued operations and held-for-sale businesses | | 0 | | | 9.0 | |
| Total current liabilities | | 307.2 | | | 525.9 | |
| | | | |
| Non-current liabilities: | | | | |
| Long-term debt (Note 6) | | 1,392.9 | | | 1,223.3 | |
| Deferred income taxes | | 173.4 | | | 133.7 | |
| Taxes payable | | 2.9 | | | 81.1 | |
| Regulatory liabilities, non-current | | 220.5 | | | 243.6 | |
| Accrued pension and other post-retirement benefits | | 69.0 | | | 79.9 | |
| | | | |
| Other non-current liabilities | | 18.2 | | | 11.8 | |
| Non-current liabilities of discontinued operations and held-for-sale businesses | | 0 | | | 8.4 | |
| Total non-current liabilities | | 1,876.9 | | | 1,781.8 | |
| | | | |
| Commitments and contingencies (Note 10) | | | | |
| | | | |
| Common shareholder's deficit | | | | |
| Common stock: | | | | |
| 1,500 shares authorized; 1 share issued and outstanding | | 0 | | | 0 | |
| Other paid-in capital | | 2,468.8 | | | 2,370.7 | |
| Accumulated other comprehensive loss | | (3.6) | | | (3.6) | |
| Accumulated deficit | | (2,741.8) | | | (2,739.0) | |
| Total common shareholder's deficit | | (276.6) | | | (371.9) | |
| | | | |
| Total liabilities and shareholder's deficit | | $ | 1,907.5 | | | $ | 1,935.8 | |
See Notes to Condensed Consolidated Financial Statements.
|
| | | | | | | | |
| DPL INC. |
| Condensed Consolidated Statements of Cash Flows |
| (Unaudited) |
| | | Nine months ended September 30, |
| $ in millions | | 2019 | | 2018 |
| Cash flows from operating activities: | | | | |
| Net income | | $ | 61.4 |
| | $ | 41.4 |
|
| Adjustments to reconcile net income to net cash from operating activities: | | | | |
| Depreciation and amortization | | 34.2 |
| | 62.4 |
|
| Amortization of deferred financing costs | | 4.3 |
| | 4.4 |
|
| Loss on early extinguishment of debt | | 44.9 |
| | 6.4 |
|
| Deferred income taxes | | (8.7 | ) | | (17.8 | ) |
| Fixed-asset impairment | | — |
| | 2.8 |
|
| Loss / (gain) on disposal and sale of business, net | | (0.1 | ) | | 13.2 |
|
| Loss / (gain) on asset disposal, net | | 0.9 |
| | (0.6 | ) |
| Changes in certain assets and liabilities: | | | | |
| Accounts receivable, net | | 18.0 |
| | 34.4 |
|
| Inventories | | (3.2 | ) | | 14.7 |
|
| Taxes applicable to subsequent years | | 56.2 |
| | 57.7 |
|
| Deferred regulatory costs, net | | 2.9 |
| | (4.1 | ) |
| Accounts payable | | (5.1 | ) | | (17.4 | ) |
| Accrued taxes | | (71.0 | ) | | (47.1 | ) |
| Accrued interest | | 12.9 |
| | 13.4 |
|
| Accrued pension and other post-retirement benefits | | (9.3 | ) | | (4.0 | ) |
| Other | | (2.0 | ) | | (6.9 | ) |
| Net cash provided by operating activities | | 136.3 |
| | 152.9 |
|
| Cash flows from investing activities: | | | | |
| Capital expenditures | | (122.4 | ) | | (75.8 | ) |
| Proceeds from disposal and sale of business | | — |
| | 234.9 |
|
| Payments on disposal and sale of business | | — |
| | (14.5 | ) |
| Proceeds from sale of property | | — |
| | 10.6 |
|
| Insurance proceeds | | — |
| | 2.8 |
|
| Purchase of renewable energy credits | | (3.6 | ) | | — |
|
| Other investing activities, net | | 0.1 |
| | (0.5 | ) |
| Net cash provided by / (used in) investing activities | | (125.9 | ) | | 157.5 |
|
| Cash flows from financing activities: | | | | |
| Payments of deferred financing costs | | (9.2 | ) | | — |
|
| Issuance of long-term debt, net of discount | | 821.7 |
| | — |
|
| Retirement of long-term debt, including early payment premium | | (978.0 | ) | | (239.4 | ) |
| Borrowings from revolving credit facilities | | 133.0 |
| | 30.0 |
|
| Repayment of borrowings from revolving credit facilities | | (35.0 | ) | | (40.0 | ) |
| Other financing activities, net | | (0.2 | ) | | — |
|
| Net cash used in financing activities | | (67.7 | ) | | (249.4 | ) |
| Decrease in cash and restricted cash of discontinued operations and held-for-sale businesses | | — |
| | 1.5 |
|
| Cash, cash equivalents, and restricted cash: | | | | |
| Net change | | (57.3 | ) | | 62.5 |
|
| Balance at beginning of period | | 111.7 |
| | 24.9 |
|
| Cash, cash equivalents, and restricted cash at end of period | | $ | 54.4 |
| | $ | 87.4 |
|
| Supplemental cash flow information: | | | | |
| Interest paid, net of amounts capitalized | | $ | 47.1 |
| | $ | 55.2 |
|
| Income taxes paid / (refunded), net | | $ | 1.3 |
| | $ | (2.0 | ) |
| Non-cash financing and investing activities: | | | | |
| Accruals for capital expenditures | | $ | 2.3 |
| | $ | 7.6 |
|
| Non-cash proceeds from sale of business | | $ | — |
| | $ | 4.1 |
|
| Non-cash capital contribution (Note 9) | | $ | 2.7 |
| | $ | 30.2 |
|
| | | | | | | | | | | | | | |
| DPL INC. |
| Condensed Consolidated Statements of Cash Flows |
| (Unaudited) |
| | Nine months ended September 30, |
| $ in millions | | 2020 | | 2019 |
| Cash flows from operating activities: | | | | |
| Net income / (loss) | | $ | (2.8) | | | $ | 61.4 | |
| Adjustments to reconcile net income / (loss) to net cash from operating activities: | | | | |
| Depreciation and amortization | | 55.1 | | | 34.2 | |
| Amortization of deferred financing costs and debt discounts | | 4.4 | | | 4.3 | |
| Loss on early extinguishment of debt | | 31.7 | | | 44.9 | |
| Deferred income taxes | | 32.3 | | | (8.7) | |
| | | | |
| Gain on disposal and sale of business, net | | (4.5) | | | (0.1) | |
| | | | |
| Changes in certain assets and liabilities: | | | | |
| Accounts receivable, net | | 12.7 | | | 18.0 | |
| Inventories | | 5.5 | | | (3.2) | |
| | | | |
| Taxes applicable to subsequent years | | 57.8 | | | 56.2 | |
| Deferred regulatory costs, net | | (17.1) | | | 2.9 | |
| Accounts payable | | (24.6) | | | (5.1) | |
| Accrued taxes payable / receivable | | (63.0) | | | (71.0) | |
| Accrued interest | | 7.4 | | | 12.9 | |
| | | | |
| | | | |
| Accrued pension and other post-retirement benefits | | (10.8) | | | (9.3) | |
| Other | | (2.4) | | | (1.1) | |
| Net cash provided by operating activities | | 81.7 | | | 136.3 | |
| Cash flows from investing activities: | | | | |
| Capital expenditures | | (128.7) | | | (122.4) | |
| | | | |
| Payments on disposal and sale of business | | (1.0) | | | 0 | |
Proceeds from sale of assets (a) | | 5.1 | | | 0 | |
| | | | |
| | | | |
| | | | |
| Other investing activities, net | | (0.8) | | | (3.5) | |
| Net cash used in investing activities | | (125.4) | | | (125.9) | |
| Cash flows from financing activities: | | | | |
| Payments of deferred financing costs | | (7.8) | | | (9.2) | |
| Issuance of long-term debt, net of discount | | 555.0 | | | 821.7 | |
| Retirement of long-term debt, including early payment premium | | (550.8) | | | (978.0) | |
| Borrowings from revolving credit facilities | | 165.0 | | | 133.0 | |
| Repayment of borrowings from revolving credit facilities | | (219.0) | | | (35.0) | |
| Equity contribution from parent | | 98.0 | | | 0 | |
| Other financing activities, net | | (0.1) | | | (0.2) | |
| Net cash provided by / (used in) financing activities | | 40.3 | | | (67.7) | |
| | | | |
| Cash, cash equivalents, and restricted cash: | | | | |
| Net change | | (3.4) | | | (57.3) | |
| Balance at beginning of period | | 47.0 | | | 111.7 | |
| Cash, cash equivalents, and restricted cash at end of period | | $ | 43.6 | | | $ | 54.4 | |
| Supplemental cash flow information: | | | | |
| Interest paid, net of amounts capitalized | | $ | 49.7 | | | $ | 47.1 | |
| Income taxes paid / (refunded), net | | $ | (51.9) | | | $ | 1.3 | |
| Non-cash financing and investing activities: | | | | |
| Accruals for capital expenditures | | $ | 16.5 | | | $ | 2.3 | |
| Accruals from sale of business | | $ | 3.0 | | | $ | 0 | |
| Non-cash capital contribution (Note 9) | | $ | 0 | | | $ | 2.7 | |
(a) Proceeds from sale of assets include $5.1 million of proceeds received from AES during the nine months ended September 30, 2020 related to the 2019 sale of software previously recorded on AES Ohio Generation. There was no gain or loss recorded on the transaction.
See Notes to Condensed Consolidated Financial Statements.
DPL INC.
Condensed Consolidated Statements of Shareholder's Deficit
(Unaudited)
|
| | | | | | | | | | | | | | | | | | | | | | | |
| | | Common Stock (a) | | | | | | | | |
| $ in millions | | Outstanding Shares | | Amount | | Other
Paid-in
Capital | | Accumulated Other Comprehensive Income | | Accumulated Deficit | | Total |
| Balance, January 1, 2018 | | 1 |
| | $ | — |
| | $ | 2,330.4 |
| | $ | 0.8 |
| | $ | (2,915.5 | ) | | $ | (584.3 | ) |
| Net comprehensive income | | | | | | | | 3.3 |
| | 16.9 |
| | 20.2 |
|
Capital contributions (b) | | | | | | 44.6 |
| | | | | | 44.6 |
|
Other (c) | | | | | |
|
| | (1.0 | ) | | 1.0 |
| | — |
|
| Balance, March 31, 2018 | | 1 |
| | — |
| | 2,375.0 |
| | 3.1 |
| | (2,897.6 | ) | | (519.5 | ) |
| Net comprehensive income | | | | | | | | (0.3 | ) | | 3.5 |
| | 3.2 |
|
Capital contributions (b) | | | | | | (17.9 | ) | | | | | | (17.9 | ) |
| Other | | | | | | 0.1 |
| | | |
|
| | 0.1 |
|
| Balance, June 30, 2018 | | 1 |
| | — |
| | 2,357.2 |
| | 2.8 |
| | (2,894.1 | ) | | (534.1 | ) |
| Net comprehensive income | | | | | | | | — |
| | 21.0 |
| | 21.0 |
|
Capital contributions (b) | | | | | | 3.5 |
| | | | | | 3.5 |
|
| Other | | | | | | 0.1 |
| | | | | | 0.1 |
|
| Balance, September 30, 2018 | | 1 |
| | $ | — |
| | $ | 2,360.8 |
| | $ | 2.8 |
| | $ | (2,873.1 | ) | | $ | (509.5 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Common Stock (a) | | | | | | | | |
| $ in millions | | Outstanding Shares | | Amount | | Other
Paid-in
Capital | | Accumulated Other Comprehensive Loss | | Accumulated Deficit | | Total |
| Balance, January 1, 2020 | | 1 | | | $ | 0 | | | $ | 2,370.7 | | | $ | (3.6) | | | $ | (2,739.0) | | | $ | (371.9) | |
| Net comprehensive income | | | | | | | | (0.3) | | | 1.9 | | | 1.6 | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| Balance, March 31, 2020 | | 1 | | | 0 | | | 2,370.7 | | | (3.9) | | | (2,737.1) | | | (370.3) | |
| Net comprehensive income | | | | | | | | 0.2 | | | 3.5 | | | 3.7 | |
| Capital contributions from parent | | | | | | 98.0 | | | | | | | 98.0 | |
| | | | | | | | | | | | |
| Balance, June 30, 2020 | | 1 | | | 0 | | | 2,468.7 | | | (3.7) | | | (2,733.6) | | | (268.6) | |
| Net comprehensive loss | | | | | | | | 0.1 | | | (8.2) | | | (8.1) | |
| | | | | | | | | | | | |
| Other | | | | | | 0.1 | | | | | | | 0.1 | |
| Balance, September 30, 2020 | | 1 | | | $ | 0 | | | $ | 2,468.8 | | | $ | (3.6) | | | $ | (2,741.8) | | | $ | (276.6) | |
| |
(a) | 1,500 shares authorized. |
| |
(b) | Represents the conversion of a tax sharing payable to AES to contributed capital, as DP&L's 2017 ESP restricts tax sharing payments to AES during the term of the ESP. See Note 9 – Shareholder's Deficit.
|
| |
(c) | ASU 2016-01 “Recognition and Measurement of Financial Assets and Financial Liabilities” was effective as of January 1, 2018. This ASU requires the change in the fair value of equity instruments to be recorded in income rather than in Other Comprehensive Income. Equity Instruments were defined to include all mutual funds, regardless of the underlying investments. Therefore, as of January 1, 2018, AOCI of $1.6 million ($1.0 million net of tax) was reversed to Accumulated deficit. |
(a) 1,500 shares authorized. |
| | | | | | | | | | | | | | | | | | | | | | | |
| | | Common Stock (a) | | | | | | | | |
| $ in millions | | Outstanding Shares | | Amount | | Other
Paid-in
Capital | | Accumulated Other Comprehensive Income / (Loss) | | Accumulated Deficit | | Total |
| Balance, January 1, 2019 | | 1 |
| | $ | — |
| | $ | 2,370.5 |
| | $ | 2.2 |
| | $ | (2,844.4 | ) | | $ | (471.7 | ) |
| Net comprehensive income | | | | | | | | (0.4 | ) | | 42.1 |
| | 41.7 |
|
Capital contributions (b) | | | | | | 1.5 |
| | | | | | 1.5 |
|
| Other | | | | | | 0.1 |
| | | | | | 0.1 |
|
| Balance, March 31, 2019 | | 1 |
| | — |
| | 2,372.1 |
| | 1.8 |
| | (2,802.3 | ) | | (428.4 | ) |
| Net comprehensive loss | | | | | | | | (0.8 | ) | | (16.1 | ) | | (16.9 | ) |
Capital contributions (b) | | | | | | (1.5 | ) | | | | | | (1.5 | ) |
| Balance, June 30, 2019 | | 1 |
| | — |
| | 2,370.6 |
| | 1.0 |
| | (2,818.4 | ) | | (446.8 | ) |
| Net comprehensive income | | | | | | | | (1.0 | ) | | 35.4 |
| | 34.4 |
|
Capital contributions (b) | | | | | | 2.7 |
| | | | | | 2.7 |
|
| Other | | | | | | 0.1 |
| | | | | | 0.1 |
|
| Balance, September 30, 2019 | | 1 |
| | $ | — |
| | $ | 2,373.4 |
| | $ | — |
| | $ | (2,783.0 | ) | | $ | (409.6 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Common Stock (a) | | | | | | | | |
| $ in millions | | Outstanding Shares | | Amount | | Other
Paid-in
Capital | | Accumulated Other Comprehensive Income / (Loss) | | Accumulated Deficit | | Total |
| Balance, January 1, 2019 | | 1 | | | $ | 0 | | | $ | 2,370.5 | | | $ | 2.2 | | | $ | (2,844.4) | | | $ | (471.7) | |
| Net comprehensive income | | | | | | | | (0.4) | | | 42.1 | | | 41.7 | |
Capital contributions (b) | | | | | | 1.5 | | | | | | | 1.5 | |
| Other | | | | | | 0.1 | | | | | | | 0.1 | |
| Balance, March 31, 2019 | | 1 | | | 0 | | | 2,372.1 | | | 1.8 | | | (2,802.3) | | | (428.4) | |
| Net comprehensive loss | | | | | | | | (0.8) | | | (16.1) | | | (16.9) | |
Capital contributions (b) | | | | | | (1.5) | | | | | | | (1.5) | |
| | | | | | | | | | | | |
| Balance, June 30, 2019 | | 1 | | | 0 | | | 2,370.6 | | | 1.0 | | | (2,818.4) | | | (446.8) | |
| Net comprehensive income | | | | | | | | (1.0) | | | 35.4 | | | 34.4 | |
Capital contributions (b) | | | | | | 2.7 | | | | | | | 2.7 | |
| Other | | | | | | 0.1 | | | | | | | 0.1 | |
| Balance, September 30, 2019 | | 1 | | | $ | 0 | | | $ | 2,373.4 | | | $ | 0 | | | $ | (2,783.0) | | | $ | (409.6) | |
| |
(a) | 1,500 shares authorized. |
| |
(b) | (a)1,500 shares authorized. (b)Represents the conversion of a tax sharing payable to AES to contributed capital, as DP&L's 2017 ESP restricted tax sharing payments to AES during the term of the ESP. See Note 9 – Shareholder's Deficit.
DP&L's 2017 ESP restricts tax sharing payments to AES during the term of the ESP. See Note 9 – Shareholder's Deficit.
|
See Notes to Condensed Consolidated Financial Statements.
DPL Inc.
Notes to Condensed Consolidated Financial Statements (Unaudited)
Note 1 – Overview and Summary of Significant Accounting Policies
Description of Business
DPL is a regional energy company organized in 1985 under the laws of Ohio. DPL has 1 reportable segment: the Utility segment. See Note 11 – Business Segments for more information relating to this reportable segment. The terms “we,” “us,” “our” and “ours” are used to refer to DPL and its subsidiaries.
DPL is an indirectly wholly-owned subsidiary of AES.
DP&L, a wholly-owned subsidiary of DPL, is a public utility incorporated in 1911 under the laws of Ohio. Beginning in 2001, Ohio law gave Ohio consumers the right to choose the electric generation supplier from whom they purchase retail generation service; however, retail transmission and distribution services are still regulated. DP&L has the exclusive right to provide such transmission and distribution services to approximately 524,000530,000 customers located in West Central Ohio. Additionally, DP&L provides retail SSO electric service to residential, commercial, industrial and governmental customers in a 6,000-square mile area of West Central Ohio. Principal industries located in DP&L’s service territory include automotive, food processing, paper, plastic, health care, data management, manufacturing and defense. FollowingDP&L's sales typically reflect the issuance of the DRO in September 2018seasonal weather patterns and the resultinggrowth of energy efficiency initiatives. However, the impacts of weather, energy efficiency programs and economic changes to the decoupling rider effectivein customer demand were largely offset in 2019 by DP&L’s Decoupling Rider, which was in place from January 1, 2019 DP&L'suntil December 18, 2019. distribution sales are primarily impacted by customer growth within our service territory.See Note 3 – Regulatory Matters for more information. DP&L sells its proportional share of energy and capacity from its investment in OVEC into the wholesale market.
DPL’s other primary subsidiaries include MVIC and AES Ohio Generation.subsidiary is MVIC. MVIC is our captive insurance company that provides insurance services to DPLDP&L and our other subsidiaries. In prior periods, AES Ohio Generation was also a primary subsidiary. In 2020, AES Ohio Generation's only operating asset iswas an undivided interest in Conesville. AES Ohio Generation sells all of its energy and capacity into the wholesale market.Conesville, which was sold in June 2020. See Note 13 – Discontinued Operations for more information. DPL's subsidiaries are all wholly-owned.
DPL also has a wholly-owned business trust, DPL Capital Trust II, formed for the purpose of issuing trust capital securities to investors.
DP&L’s electric transmission and distribution businesses are subject to rate regulation by federal and state regulators. 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.
DPL and its subsidiaries employed 653631 people as of September 30, 2019,2020, of which 642630 were employed by DP&L. Approximately 57%59% of all DPL employees are under a collective bargaining agreement, which expiresexpired October 31, 2020. On October 29, 2020, DP&L reached a tentative agreement with the union. The ratification vote is set for November 9, 2020. The parties currently plan to work under the terms of the expired agreement until a new agreement is ratified.
Financial Statement Presentation
DPL’s Condensed Consolidated Financial Statements include the accounts of DPL and its wholly-owned subsidiaries except for DPL Capital Trust II, which is not consolidated, consistent with the provisions of GAAP. As of September 30, 2019, AES Ohio Generation has an undivided ownership interest in 1 coal-fired generating facility, which is included in the financial statements at a carrying value of 0 as it has been fully impaired. Operating revenues and expenses of this facility are included on a pro rata basis in the corresponding lines in the Condensed Consolidated Statements of Operations.
Certain immaterial amounts from prior periods have been reclassified to conform to the current period presentation.
All material intercompany accounts and transactions are eliminated in consolidation. We have evaluated subsequent events through the date this report is issued.
These financial statements have been prepared in accordance with GAAP for interim financial statements, the instructions of Form 10-Q and Regulation S-X. Accordingly, certain information and footnote disclosures normally included in the annual financial statements prepared in accordance with GAAP have been omitted from this interim
report. Therefore, our interim financial statements in this report should be read along with the annual financial statements included in our Form 10-K for the fiscal year ended December 31, 2018.2019.
In the opinion of our management, the Condensed Consolidated Financial Statements presented in this report contain all adjustments necessary to fairly state our financial position as of September 30, 2019;2020; our results of operations for the three and nine months ended September 30, 20192020 and 2018,2019, our cash flows for the nine months ended September 30, 20192020 and 20182019 and the changes in our equity for the three and nine months ended September 30, 20192020 and 2018.2019. Unless otherwise noted, all adjustments are normal and recurring in nature. Due to various factors, interim results for the three and nine months ended September 30, 20192020 may not be indicative of our results that will be realized for the full year ending December 31, 2019.2020.
The preparation of financial statements in conformity with GAAP requires us to make estimates and judgments that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities, and the revenues and expenses of the periods reported. Actual results could differ from these estimates. Significant items subject to such estimates and judgments include: recognition of revenue including unbilled revenues, the carrying value of property, plant and equipment; the valuation of derivative instruments; the valuation of insurance and claims liabilities; the valuation of allowances for receivablescredit losses and deferred income taxes; regulatory assets and liabilities; liabilities recorded for income tax exposures; litigation; contingencies; the valuation of AROs; and assets and liabilities related to employee benefits.
Cash, Cash Equivalents, and Restricted Cash
The following table provides a summary of cash, cash equivalents, and restricted cash amounts reported on the Condensed Consolidated Balance SheetSheets that reconcile to the total of such amounts as shown on the Condensed Consolidated Statements of Cash Flows:
| | | | | | | | | | | | | | |
| $ in millions | | September 30, 2020 | | December 31, 2019 |
| Cash and cash equivalents | | $ | 43.5 | | | $ | 36.5 | |
| Restricted cash | | 0.1 | | | 10.5 | |
| Cash, Cash Equivalents, and Restricted Cash, End of Period | | $ | 43.6 | | | $ | 47.0 | |
|
| | | | | | | | |
| $ in millions | | September 30, 2019 | | December 31, 2018 |
| Cash and cash equivalents | | $ | 36.8 |
| | $ | 90.5 |
|
| Restricted cash | | 17.6 |
| | 21.2 |
|
| Cash, Cash Equivalents, and Restricted Cash, End of Period | | $ | 54.4 |
| | $ | 111.7 |
|
Accounting for Taxes Collected from Customers and Remitted to Governmental Authorities
DP&L collects certain excise taxes levied by state or local governments from its customers. These taxes are accounted for on a net basis and not included in revenue. The amounts of such taxes collected for the three months ended September 30, 2020 and 2019 and 2018 were $13.0$13.4 million and $13.8$13.0 million, respectively. The amounts of such taxes collected for the nine months ended September 30, 2020 and 2019 and 2018 were $37.3$36.7 million and $39.2$37.3 million, respectively.
New accounting pronouncements adopted in 20192020 – The following table provides a brief description of recently adopted accounting pronouncements that had an impact on our consolidated financial statements. Accounting pronouncements not listed below were assessed and determined to be either not applicable or did not have a material impact on our consolidated financial statements.
|
| | | | | | | | | | |
| ASU Number and Name | Description | Date of Adoption | Effect on the financial statements upon adoption |
2018-02, Income Statement — Reporting Comprehensive Income2016-13, 2018-19, 2019-04, 2019-05, 2019-10, 2019-11, 2020-02, 2020-03 Financial Instruments - Credit Losses (Topic 220), Reclassification326): Measurement of Certain Tax Effects from AOCICredit Losses on Financial Instruments | This amendment allows a reclassificationSee discussion of the stranded tax effects resulting from the implementation of the Tax Cuts and Jobs Act from AOCI to retained earnings at the election of the filer. Because this amendment only relates to the reclassification of the income tax effects of the Tax Cuts and Jobs Act, the underlying guidance that requires that the effect of a change in tax laws or rates be included in income from continuing operations is not affected.ASU below. | January 1, 20192020 | We have not elected to reclassify any amounts to retained earnings. Our accounting policy for releasing the income tax effects from AOCI occurs on a portfolio basis. |
|
| | | |
ASU Number and Name | Description | Date of Adoption | Effect on the financial statements upon adoption |
2017-12, Derivatives and Hedging (Topic 815): Targeted improvements to Accounting for Hedging Activities | The standard updates the hedge accounting model to expand the ability to hedge nonfinancial and financial risk components, reduce complexity, and ease certain documentation and assessment requirements. When facts and circumstances are the same as at the previous quantitative test, a subsequent quantitative effectiveness test is not required. The standard also eliminates the requirement to separately measure and report hedge ineffectiveness. For cash flow hedges, this means that the entire change in the fair value of a hedging instrument will be recorded in other comprehensive income and amounts deferred will be reclassified to earnings in the same income statement line as the hedged item.
Transition method: modified retrospective with the cumulative effect adjustment recorded to the opening balance of retained earnings as of the initial application date. Prospective for presentation and disclosures. | January 1, 2019 | The adoption of this standard had no material impact on our condensed consolidated financial statements. |
2016-02, 2018-01, 2018-10, 2018-11 Leases (Topic 842) | See "Adoption of FASC Topic 842, Leases" below.
| January 1, 2019 | See impact upon adoption of the standard below. |
Adoption of FASC Topic 842, "Leases"
On January 1, 2019,2020, we adopted ASU 2016-02ASC 326 LeasesFinancial Instruments - Credit Losses and its subsequent corresponding updates (“FASC 842”("ASC 326"). Under thisThe new standard lesseesupdates the impairment model for financial assets measured at amortized cost, known as the Current Expected Credit Loss ("CECL") model. For trade and other receivables, held-to-maturity debt securities, loans and other instruments, entities are required to recognize assets and liabilitiesuse a new forward-looking "expected loss" model that generally results in the earlier recognition of an allowance for most leases and recognize expenses in a manner similar to the current accounting method.credit losses. For lessors, the guidance modifies the lease classification criteria and the accounting for sales-type and direct financing leases. The guidance eliminates current real estate-specific provisions.
Under FASC 842,available-for-sale debt securities with unrealized losses, entities measure credit losses as it is expectedwas done under previous GAAP, except that fewer contracts will contain a lease. However,unrealized losses due to credit-related factors are now recognized as an allowance on the elimination of the real estate-specific guidance and changesbalance sheet with a corresponding adjustment to certain lessor classification criteria, more leases will qualify as sales-type leases and direct financing leases. Under these two models, a lessor will derecognize the asset and will recognize a net investment in a lease. According to FASC 842, the net investmentearnings in the lease includes the fair valueincome statement.
During the course of adopting FASC 842, we applied various practical expedients including:
The package of practical expedients (applied to all leases) that allowed lessees and lessors not to reassess:
| |
a. | whether any expired or existing contracts are or contain leases, |
| |
b. | lease classification for any expired or existing leases, and |
| |
c. | whether initial direct costs for any expired or existing leases qualify for capitalization under FASC 842. |
The transition practical expedient related to land easements, allowing us to carry forward our accounting treatment for land easements on existing agreements, and
The transition practical expedient for lessees that allowed businesses to not separate lease and non-lease components. We applied the practical expedient to all classes of underlying assets when valuing right-of-use assets and lease liabilities. Contracts where we are the lessor were separated between the lease and non-lease components.
We applied the modified retrospective method of adoption and elected to continue to apply the guidance in FASC 840 Leases to the comparative periods presented in the year of adoption.for ASC 326. Under this transition method, we applied the transition provisions starting at the date of adoption.
The new current expected credit loss model primarily impacts the calculation of expected credit losses on our trade accounts receivable. The adoption of FASC 842ASC 326 and application of CECL on our trade accounts receivable did not have a material impact on our Condensed Consolidated Financial Statements.condensed consolidated financial statements.
New Accounting Pronouncements Issued But Not Yet Effective – The following table provides a brief description of recent accounting pronouncements that could have a material impact on our consolidated financial statements. Accounting pronouncements not listed below were assessed and determined to be either not applicable or are expected to have no material impact on our consolidated financial statements.
|
| | | | | | | | | | |
| ASU Number and Name | Description | Date of Adoption | Effect on the financial statements upon adoption |
2016-13, 2019-04, 2019-05, Financial Instruments — Credit Losses2020-04, Reference Rate Form (Topic 326)848): MeasurementFacilitation of Credit Lossesthe Effects of Reference Rate Reform on Financial InstrumentsReporting | See discussionThe standard provides optional expedients and exceptions for applying GAAP to contracts, hedging relationships and other transactions that reference to LIBOR or another reference rate expected to be discontinued by reference rate reform. This standard is effective for a limited period of time (March 12, 2020 - December 21, 2022). | Effective for all entities March 12, 2020 - December 31, 2022 | We are currently evaluating the ASU below. | January 1, 2020 | We will adoptimpact of adopting the standard on January 1, 2020; see below for the evaluation of the impact of the adoption on theour condensed consolidated financial statements. |
ASU 2016-13 and its subsequent corresponding updates will update the impairment model for financial assets measured at amortized cost. For trade and other receivables, held-to-maturity debt securities, loans and other instruments, entities will be required to use a new forward-looking "expected loss" model that generally will result in the earlier recognition of allowance for losses. For available-for-sale debt securities with unrealized losses, entities will measure credit losses as it is done today, except that the losses will be recognized as an allowance rather than a reduction in the amortized cost of the securities. There are various transition methods available upon adoption.
We are currently evaluating the impact of adopting the standard on our condensed consolidated financial statements; however, it is expected that the new current expected credit loss model will primarily impact the calculation of expected credit losses on $70.2 million in gross trade accounts receivable.
Note 2 – Supplemental Financial Information
Accounts receivable and Inventories are as follows at September 30, 20192020 and December 31, 2018:2019:
| | | | | | | | | | | | | | | | |
| | September 30, | | December 31, | | |
| $ in millions | | 2020 | | 2019 | | |
| Accounts receivable, net: | | | | | | |
| Customer receivables | | $ | 52.2 | | | $ | 45.7 | | | |
| Unbilled revenue | | 15.1 | | | 19.4 | | | |
| Amounts due from affiliates | | 0.2 | | | 0.3 | | | |
| Due from PJM transmission enhancement settlement | | 1.8 | | | 1.8 | | | |
| Other | | 2.1 | | | 1.1 | | | |
| Allowance for credit losses | | (3.2) | | | (0.4) | | | |
| Total accounts receivable, net | | $ | 68.2 | | | $ | 67.9 | | | |
|
| | | | | | | | |
| | | September 30, | | December 31, |
| $ in millions | | 2019 | | 2018 |
| Accounts receivable, net: | | | | |
| Customer receivables | | $ | 51.1 |
| | $ | 55.8 |
|
| Unbilled revenue | | 15.2 |
| | 16.8 |
|
| Amounts due from affiliates | | 0.2 |
| | — |
|
| Due from PJM transmission enhancement settlement | | 2.4 |
| | 16.5 |
|
| Other | | 1.3 |
| | 2.3 |
|
| Provision for uncollectible accounts | | (0.4 | ) | | (0.9 | ) |
| Total accounts receivable, net | | $ | 69.8 |
| | $ | 90.5 |
|
| | | | | |
| Inventories, at average cost: | | | | |
| Fuel and limestone | | $ | 3.0 |
| | $ | 1.9 |
|
| Materials and supplies | | 10.0 |
| | 8.3 |
|
| Other | | — |
| | 0.5 |
|
| Total inventories, at average cost | | $ | 13.0 |
| | $ | 10.7 |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| $ in millions | | Beginning Allowance Balance at January 1, 2020 | | Current Period Provision | | Write-offs Charged Against Allowances | | Recoveries Collected | | Ending Allowance Balance at September 30, 2020 |
| Allowance for credit losses | | $ | 0.4 | | | $ | 2.7 | | | $ | (3.5) | | | $ | 3.6 | | | $ | 3.2 | |
The allowance for credit losses primarily relates to utility customer receivables, including unbilled amounts. Expected credit loss estimates are developed by disaggregating customers into those with similar credit risk characteristics and using historical credit loss experience. In addition, we also consider how current and future economic conditions are expected to impact collectability, as applicable, including the economic impacts of the COVID-19 pandemic on our receivable balance as of September 30, 2020. Amounts are written off when reasonable collections efforts have been exhausted. On March 12, 2020, the PUCO issued an emergency order prohibiting electric utilities, including us, from discontinuing electric utility service to customers through September 1, 2020 due to the economic impacts of COVID-19. This order along with the economic impacts of COVID-19 has resulted in an increase in past due customer receivable balances, and thus the current period provision and the allowance for credit losses have increased during 2020. See Note 14 – Risks and Uncertainties for additional discussion of the COVID-19 pandemic.
Inventories consist of materials and supplies at September 30, 2020 and December 31, 2019.
Accumulated Other Comprehensive Income / (Loss)other comprehensive loss
The amounts reclassified out of Accumulated Other Comprehensive Income / (Loss)Loss by component during the three and nine months ended September 30, 20192020 and 20182019 are as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Details about Accumulated Other Comprehensive Loss components | | Affected line item in the Condensed Consolidated Statements of Operations | | Three months ended | | Nine months ended |
| | | | September 30, | | September 30, |
| $ in millions | | | | 2020 | | 2019 | | 2020 | | 2019 |
| Gains and losses on cash flow hedges (Note 5): | | | | | | | | |
| | Interest expense | | $ | (0.3) | | | $ | (0.3) | | | $ | (0.9) | | | $ | (0.9) | |
| | Income tax expense / (benefit) | | 0 | | | (0.1) | | | 0.1 | | | 0 | |
| | Net of income taxes | | (0.3) | | | (0.4) | | | (0.8) | | | (0.9) | |
| | | | | | | | | | |
| | | | | | | | | | |
| | Income tax benefit from discontinued operations | | 0 | | | (0.4) | | | 0 | | | (0.4) | |
| | | | | | | | | | |
| | | | | | | | | | |
| Amortization of defined benefit pension items (Note 8): | | | | | | | | |
| | Other expense | | 0.3 | | | 0.1 | | | 0.9 | | | 0.2 | |
| | Income tax benefit | | 0 | | | (0.1) | | | (0.1) | | | (0.1) | |
| | Net of income taxes | | 0.3 | | | 0 | | | 0.8 | | | 0.1 | |
| | | | | | | | | | |
| Total reclassifications for the period, net of income taxes | | $ | 0 | | | $ | (0.8) | | | $ | 0 | | | $ | (1.2) | |
| | | | | | | | | | |
| | | | | | | | | | |
|
| | | | | | | | | | | | | | | | | | |
| Details about Accumulated Other Comprehensive Income / (Loss) components | | Affected line item in the Condensed Consolidated Statements of Operations | | Three months ended | | Nine months ended |
| | | | | September 30, | | September 30, |
| $ in millions | | | | 2019 | | 2018 | | 2019 | | 2018 |
| Gains and losses on cash flow hedges (Note 5): | | | | | | | | |
| | | Interest expense | | $ | (0.3 | ) | | $ | (0.3 | ) | | $ | (0.9 | ) | | $ | (0.9 | ) |
| | | Income tax benefit / (expense) | | (0.1 | ) | | 0.1 |
| | — |
| | 0.3 |
|
| | | Net of income taxes | | (0.4 | ) | | (0.2 | ) | | (0.9 | ) | | (0.6 | ) |
| | | | | | | | | | | |
| | | Loss from discontinued operations | | — |
| | — |
| | — |
| | 4.3 |
|
| | | Income tax benefit from discontinued operations | | (0.4 | ) | | — |
| | (0.4 | ) | | (1.5 | ) |
| | | Net of income taxes | | (0.4 | ) | | — |
| | (0.4 | ) | | 2.8 |
|
| | | | | | | | | | | |
| Amortization of defined benefit pension items (Note 8): | | | | | | | | |
| | | Other expense | | 0.1 |
| | 0.2 |
| | 0.2 |
| | 0.5 |
|
| | | Income tax benefit | | (0.1 | ) | | (0.1 | ) | | (0.1 | ) | | (0.1 | ) |
| | | Net of income taxes | | — |
| | 0.1 |
| | 0.1 |
| | 0.4 |
|
| | | | | | | | | | | |
| Total reclassifications for the period, net of income taxes | | $ | (0.8 | ) | | $ | (0.1 | ) | | $ | (1.2 | ) | | $ | 2.6 |
|
The changes in the components of Accumulated Other Comprehensive Income / (Loss)Loss during the nine months ended September 30, 20192020 are as follows:
| | | | | | | | | | | | | | | | | | | | |
| $ in millions | | Gains / (losses) on cash flow hedges | | Change in unfunded pension and postretirement benefit obligations | | Total |
| Balance at January 1, 2020 | | $ | 14.5 | | | $ | (18.1) | | | $ | (3.6) | |
| | | | | | |
| Other comprehensive income / (loss) before reclassifications | | 0 | | | 0 | | | 0 | |
| Amounts reclassified from AOCL to earnings | | (0.8) | | | 0.8 | | | 0 | |
| Net current period other comprehensive income / (loss) | | (0.8) | | | 0.8 | | | 0 | |
| | | | | | |
| Balance at September 30, 2020 | | $ | 13.7 | | | $ | (17.3) | | | $ | (3.6) | |
|
| | | | | | | | | | | | |
| $ in millions | | Gains / (losses) on cash flow hedges | | Change in unfunded pension and postretirement benefit obligation | | Total |
| Balance at January 1, 2019 | | $ | 17.0 |
| | $ | (14.8 | ) | | $ | 2.2 |
|
| | | | | | | |
| Other comprehensive loss before reclassifications | | (1.0 | ) | | — |
| | (1.0 | ) |
| Amounts reclassified from AOCI to earnings | | (1.3 | ) | | 0.1 |
| | (1.2 | ) |
| Net current period other comprehensive income / (loss) | | (2.3 | ) | | 0.1 |
| | (2.2 | ) |
| | | | | | | |
| Balance at September 30, 2019 | | $ | 14.7 |
| | $ | (14.7 | ) | | $ | — |
|
Operating expenses - other
Operating expenses - other generally includes gains or losses on asset sales or dispositions, insurance recoveries, gains or losses on the sale of businesses and other expense or income from miscellaneous transactions. The components of Operating expenses - other are summarized as follows:
|
| | | | | | | | | | | | | | | | |
| | | Three months ended | | Nine months ended |
| | | September 30, | | September 30, |
| $ in millions | | 2019 | | 2018 | | 2019 | | 2018 |
| Loss on disposal and sale of businesses | | $ | — |
| | $ | — |
| | $ | — |
| | $ | 11.7 |
|
| Fixed-asset impairment | | — |
| | 1.6 |
| | — |
| | 2.8 |
|
| Other | | — |
| | — |
| | 0.9 |
| | 0.1 |
|
| Net other expense / (income) | | $ | — |
| | $ | 1.6 |
| | $ | 0.9 |
| | $ | 14.6 |
|
Note 3 – Regulatory Matters
DMRESP v. MRO and SEET Proceedings
OnOhio law requires utilities to file either an ESP or MRO plan to establish SSO rates. From November 1, 2017 through December 18, 2019, DP&L operated pursuant to an approved ESP plan, which was initially approved on October 20, 2017 (ESP 3). On November 21, 2019, the PUCO approved DP&L’s 2017 ESP. On January 7, 2019, the Ohio Consumers' Counsel appealed to the Supreme Court of Ohio the 2017issued a supplemental order modifying ESP with respect to the bypassability of the Reconciliation Rider3, and the exclusion of the DMR from the SEET. That proceeding has been stayed pending an appeal inas a related case involving another utility.
Pursuant to the 2017 ESP, on January 22, 2019,result DP&L filed a request with the PUCO for a two-year extensionNotice of Withdrawal of its DMR through October 2022,ESP 3 Application and requested to revert to the ESP rates that were in the proposed amounteffect prior to ESP 3. The Notice of $199.0 million for each of the two additional years. 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. DP&L’s DMP investments are contingent upon the PUCO approving the two-year extension of its DMR.
A rehearing process in DP&L's 2017 ESP case, including the DMR, remains pending. On August 1, 2019, DP&L filed a supplemental brief with the PUCO focused on the applicability of a recent court decision involving another Ohio utility’s DMR which is similar to, but not identical to, DP&L’s DMR.
Ohio House Bill 6
On July 23, 2019, the Governor of Ohio signed Ohio House Bill 6, which, among other things, does the following:
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• | beginning January 1, 2020, replaces DP&L’s non-bypassable Reconciliation Rider, permitting DP&L to defer, recover or credit the net proceeds from selling energy and capacity received as part of DP&L’s interest in OVEC and its OVEC-related costs through 2023, with a non-bypassable recovery mechanism for recovery of prudently incurred OVEC costs through 2030;
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eliminates the annual energy efficiency targets for Ohio utilities after 2020; and
allows Ohio utilities to construct customer-sited renewable generation for mercantile customers or groups of mercantile customers, the costs of which may only be recovered from those customers.
Regulatory impact of tax reform
On January 10, 2018, the PUCO initiated a proceeding to consider the impacts of the TCJA to determine the appropriate course of action to pass benefits resulting from the legislation on to ratepayers. The PUCO also directed Ohio utilities to record deferred liabilities for the estimated reduction in federal income tax resulting from the TCJA beginning January 1, 2018. Beginning October 1, 2018, the new distribution rates approved in the DRO include the impacts of the decrease in current federal income taxes as a result of the TCJA. Under the terms of the stipulation approved in the DRO, DP&L agreed to file an application at the PUCO to refund eligible excess accumulated deferred income taxes and any related regulatory liability over a ten-year period. DP&L made such a filing on March 1, 2019. DP&L negotiated a unanimous stipulation with the parties in the proceeding, agreeing to return a total of $65.1 million, $83.2 million when including taxes associated with the refunds. This stipulationWithdrawal was approved by the PUCO on September 26,December 18, 2019. See Note 7 – Income TaxesThe PUCO order required, among other things, DP&L to conduct both an ESP v. MRO Test to validate that the ESP is expected to be more favorable in the aggregate than what would be experienced under an MRO, and a prospective SEET, which were filed with the PUCO on April 1, 2020. DP&L is also subject to an annual retrospective SEET.
On October 23, 2020, DP&L entered into a Stipulation and Recommendation (settlement) with the staff of the PUCO and various customers, and organizations representing customers of DP&L and certain other parties with respect to, among other matters, DP&L’s applications pending at the PUCO for additional information. In connection(i) approval of DP&L’s plan to modernize its distribution grid (the Smart Grid Plan), (ii) findings that DP&L passed the SEET for 2018 and 2019, and (iii) findings that DP&L’s current ESP 1 satisfies the SEET and the more favorable in the aggregate (MFA) regulatory test. The settlement is subject to, and conditioned upon, approval by the PUCO. A hearing has been set for January 11, 2021 for consideration of this settlement. The settlement would provide, among other items, for the following:
•Approval of the Smart Grid Plan outlined in the Smart Grid Plan application filed by DP&L with this stipulation, we reduced our long-termthe PUCO, as modified by the terms of the settlement, including, subject to offsetting operational benefits and certain
other conditions, a return on and recovery of up to $249.0 million of Smart Grid Plan Phase 1 capital investments and recovery of operational and maintenance expenses through DP&L’s existing Infrastructure Investment Rider for a term of four years, under an aggregate cap of $267.6 million on the amount of such investments and expenses that is recoverable, and an acknowledgement that DP&L may file a subsequent application with the PUCO within three years seeking approvals for Phase 2 of the Smart Grid Plan;
•A commitment by DP&L to invest in a customer information system and supporting technologies during Phase 1 of the Smart Grid Plan, with DP&L recovering a return on and of prudently incurred capital investments and operational and maintenance expenses, including deferred operational and maintenance expense amounts, in a future rate case;
•A determination that DP&L’s ESP 1 satisfies the prospective SEET and the MFA regulatory liabilitytest;
•A recommendation by parties to the settlement that the PUCO also finds that DP&L satisfies the retrospective SEET for 2018 and 2019;
•A commitment by DP&L to file an application with the PUCO no later than October 1, 2023 for a new electric security plan that does not seek to implement certain non-bypassable charges, including those related to provider of last resort risks, stability, or financial integrity; and
•DP&L shareholder funding, in an aggregate amount of approximately $30.0 million over four years, for certain economic development discounts, incentives, and grants to certain commercial and industrial customers, including hospitals and manufacturers, assistance for low-income customers as well as the residents and businesses of the City of Dayton, and promotion of solar and resiliency development within DP&L’s service territory.
Certain parties which intervened in the ESP proceedings have filed petitions for rehearing of the recent PUCO ESP orders; some of which seek to eliminate DP&L’s RSC from the ESP 1 rates that are currently in place and others seek to re-implement the 2017 ESP, but without the DMR. We are unable to predict the outcomes of these petitions, but if these result in terms that are more adverse than DP&L's current ESP rate plan, it could have a material adverse effect on our results of operations, financial condition and cash flows. The parties signing the above-referenced settlement have agreed to withdraw their respective petitions if the settlement is approved by the PUCO without material modification.
Decoupling
On January 23, 2020 DP&L filed with the PUCO requesting approval to defer its decoupling costs consistent with the methodology approved in its Distribution Rate Case. If approved, deferral would be effective December 18, 2019 and going forward would reduce impacts of weather, energy efficiency programs and economic changes in customer demand.
COVID-19
In response to the PUCO’s COVID-19 emergency orders, DP&L filed an Application on March 23, 2020, requesting waivers of certain rule and tariff requirements and deferral of certain costs and revenues including those related to deposits and reconnection fees, late payment fees, credit card fees; and waived or uncollected amounts associated with putting customers on payment plans. On May 20, 2020, the PUCO approved the application and required DP&L to file a plan outlining the timing and steps it plans to take in an effort to return to normal operations. The authorized deferral of those certain costs and revenues must be offset by COVID-19 related savings. DP&L filed its plan on July 15, 2020 and was approved by the PUCO on August 12, 2020. As a result, DP&L has recorded a
$0.8 million regulatory asset as of September 30, 2020. Recovery of these deferrals will be addressed in a future
rate proceeding.
FERC Proceedings
On November 15, 2018 the FERC issued a Notice of Proposed Rulemaking (NOPR) to address amortization of excess accumulated deferred income taxes resulting from the TCJA and their impact on transmission rates. Such notice requires all public utility transmission providers with stated transmission rates under an Open Access Transmission Tariff (OATT) to determine the amount of excess deferred income taxes caused by $23.4 million.the TCJA. On March 3, 2020, DP&L filed an application before the FERC to change its transmission rate from a stated rate to a formula rate, which was accepted by the FERC and made effective as of May 3, 2020, subject to further proceeding and potential refunds. The formula rate includes adjustments to flow back over time the excess deferred income taxes caused by the TCJA. The NOPR, therefore, no longer applies to DP&L. The rate changes will increase revenues by approximately $4.1 million through the end of 2020 as of the effective date, subject to refund based on final approved rates.
Note 4 – Fair Value
The fair value of current financial assets and liabilities, debt service reserves and other deposits approximate their reported carrying amounts. The estimated fair values of our assets and liabilities have been determined using available market information. By virtue of these amounts being estimates and based on hypothetical transactions to sell assets or transfer liabilities, the use of different market assumptions and/or estimation methodologies may have a material effect on the estimated fair value amounts. For further information on our valuation techniques and policies, see Note 5—Fair Value in Item 8.—Financial Statements and Supplementary Data of our Form 10-K.
The following table presents the fair value, carrying value and cost of our non-derivative instruments at September 30, 20192020 and December 31, 2018.2019. Further information about the fair value of our derivative instruments can be found in Note 5 – Derivative Instruments and Hedging Activities.
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | September 30, 2020 | | December 31, 2019 |
| $ in millions | | Cost | | Fair Value | | Cost | | Fair Value |
| Assets | | | | | | | | |
| Money market funds | | $ | 0.2 | | | $ | 0.2 | | | $ | 0.3 | | | $ | 0.3 | |
| Equity securities | | 2.1 | | | 3.9 | | | 2.3 | | | 4.2 | |
| Debt securities | | 4.0 | | | 4.1 | | | 4.0 | | | 4.1 | |
| Hedge funds | | 0 | | | 0 | | | 0.1 | | | 0.1 | |
| | | | | | | | |
| Tangible assets | | 0 | | | 0 | | | 0.1 | | | 0.1 | |
| Total Assets | | $ | 6.3 | | | $ | 8.2 | | | $ | 6.8 | | | $ | 8.8 | |
| | | | | | | | |
| | Carrying Value | | Fair Value | | Carrying Value | | Fair Value |
| Liabilities | | | | | | | | |
| Long-term debt | | $ | 1,393.1 | | | $ | 1,499.4 | | | $ | 1,363.1 | | | $ | 1,404.0 | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
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| | | | | | | | | | | | | | | | |
| | | September 30, 2019 | | December 31, 2018 |
| $ in millions | | Cost | | Fair Value | | Cost | | Fair Value |
| Assets | | | | | | | | |
| Money market funds | | $ | 0.2 |
| | $ | 0.2 |
| | $ | 0.4 |
| | $ | 0.4 |
|
| Equity securities | | 2.3 |
| | 3.9 |
| | 2.4 |
| | 3.5 |
|
| Debt securities | | 4.1 |
| | 4.1 |
| | 4.1 |
| | 4.0 |
|
| Hedge funds | | 0.1 |
| | 0.1 |
| | 0.1 |
| | 0.1 |
|
| Tangible assets | | 0.1 |
| | 0.1 |
| | 0.1 |
| | 0.1 |
|
| Total Assets | | $ | 6.8 |
| | $ | 8.4 |
| | $ | 7.1 |
| | $ | 8.1 |
|
| | | | | | | | | |
| | | Carrying Value | | Fair Value | | Carrying Value | | Fair Value |
| Liabilities | | | | | | | | |
| Long-term debt | | $ | 1,362.9 |
| | $ | 1,451.3 |
| | $ | 1,475.9 |
| | $ | 1,519.6 |
|
These financial instruments are not subject to master netting agreements or collateral requirements and as such are presented in the Condensed Consolidated Balance Sheet at their gross fair value, except for Long-term debt, which is presented at amortized carrying value.
We did not have any transfers of the fair values of our financial instruments between Level 1, Level 2 or Level 3 of the fair value hierarchy during the nine months ended September 30, 20192020 or 2018.2019.
Master Trust Assets
DP&L established a Master Trust to hold assets that could be used for the benefit of employees participating in employee benefit plans and these assets are not used for general operating purposes. On January 1, 2018, AOCI of $1.6 million ($1.0 million net of tax) was reversed to Accumulated Deficit and all future changes to fair value on the Master Trust Assets will be included in income in the period that the changes occur. Changes to fair value were not material for the nine months ended September 30, 2019 or 2018. These assets are primarily comprised of open-ended mutual funds, which are valued using the net asset value per unit. These investments are recorded at fair value within Other deferred assets on the Condensed Consolidated Balance Sheets and classified as available for sale.equity investments. We recorded net unrealized gains / (losses) of $0.3 million and $(0.1) million during the three months ended September 30, 2020 and 2019, respectively, and $0.0 million and $0.6 million during the during the nine months ended September 30, 2020 and 2019, respectively. These amounts are included in "Other income" in our Condensed Consolidated Statements of Operations.
Long-term debt
The fair value of debt is based on current public market prices for disclosure purposes only. Unrealized gains or losses are not recognized in the financial statements as long-term debt is presented at carrying value, net of unamortized premium or discount and unamortized deferred financing costs in the financial statements. The long-term debt amounts include the current portion payable in the next twelve months and have maturities that range from 2020 to 2061.
The fair value of assets and liabilities at September 30, 20192020 and December 31, 20182019 and the respective category within the fair value hierarchy for DPL is as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| $ in millions | | Fair value at September 30, 2020 (a) | | Fair value at December 31, 2019 (a) |
| | Level 1 | | Level 2 | | Level 3 | | Total | | Level 1 | | Level 2 | | Level 3 | | Total |
| Assets | | | | | | | | | | | | | | | | |
| Master Trust assets | | | | | | | | | | | | | | | | |
| Money market funds | | $ | 0.2 | | | $ | 0 | | | $ | 0 | | | $ | 0.2 | | | $ | 0.3 | | | $ | 0 | | | $ | 0 | | | $ | 0.3 | |
| Equity securities | | 0 | | | 3.9 | | | 0 | | | 3.9 | | | 0 | | | 4.2 | | | 0 | | | 4.2 | |
| Debt securities | | 0 | | | 4.1 | | | 0 | | | 4.1 | | | 0 | | | 4.1 | | | 0 | | | 4.1 | |
| Hedge funds | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 0.1 | | | 0 | | | 0.1 | |
| | | | | | | | | | | | | | | | |
| Tangible assets | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 0.1 | | | 0 | | | 0.1 | |
| Total Master Trust assets | | 0.2 | | | 8.0 | | | 0 | | | 8.2 | | | 0.3 | | | 8.5 | | | 0 | | | 8.8 | |
| Derivative assets | | | | | | | | | | | | | | | | |
| Interest rate hedges | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 0.1 | | | 0 | | | 0.1 | |
| Total Derivative assets | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 0.1 | | | 0 | | | 0.1 | |
| | | | | | | | | | | | | | | | |
| Total Assets | | $ | 0.2 | | | $ | 8.0 | | | $ | 0 | | | $ | 8.2 | | | $ | 0.3 | | | $ | 8.6 | | | $ | 0 | | | $ | 8.9 | |
| | | | | | | | | | | | | | | | |
| Liabilities | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
| Long-term debt | | $ | 0 | | | $ | 1,482.0 | | | $ | 17.4 | | | $ | 1,499.4 | | | $ | 0 | | | $ | 1,386.5 | | | $ | 17.5 | | | $ | 1,404.0 | |
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
| Total Liabilities | | $ | 0 | | | $ | 1,482.0 | | | $ | 17.4 | | | $ | 1,499.4 | | | $ | 0 | | | $ | 1,386.5 | | | $ | 17.5 | | | $ | 1,404.0 | |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| $ in millions | | Fair value at September 30, 2019 (a) | | Fair value at December 31, 2018 (a) |
| | | Level 1 | | Level 2 | | Level 3 | | Total | | Level 1 | | Level 2 | | Level 3 | | Total |
| Assets | | | | | | | | | | | | | | | | |
| Master Trust assets | | | | | | | | | | | | | | | | |
| Money market funds | | $ | 0.2 |
| | $ | — |
| | $ | — |
| | $ | 0.2 |
| | $ | 0.4 |
| | $ | — |
| | $ | — |
| | $ | 0.4 |
|
| Equity securities | | — |
| | 3.9 |
| | — |
| | 3.9 |
| | — |
| | 3.5 |
| | — |
| | 3.5 |
|
| Debt securities | | — |
| | 4.1 |
| | — |
| | 4.1 |
| | — |
| | 4.0 |
| | — |
| | 4.0 |
|
| Hedge funds | | — |
| | 0.1 |
| | — |
| | 0.1 |
| | — |
| | 0.1 |
| | — |
| | 0.1 |
|
| Tangible assets | | — |
| | 0.1 |
| | — |
| | 0.1 |
| | — |
| | 0.1 |
| | — |
| | 0.1 |
|
| Total Master Trust assets | | 0.2 |
| | 8.2 |
| | — |
| | 8.4 |
| | 0.4 |
| | 7.7 |
| | — |
| | 8.1 |
|
| Derivative assets | | | | | | | | | | | | | | | | |
| Interest rate hedges | | — |
| | 0.2 |
| | — |
| | 0.2 |
| | — |
| | 1.5 |
| | — |
| | 1.5 |
|
| Total Derivative assets | | — |
| | 0.2 |
| | — |
| | 0.2 |
| | — |
| | 1.5 |
| | — |
| | 1.5 |
|
| | | | | | | | | | | | | | | | | |
| Total Assets | | $ | 0.2 |
| | $ | 8.4 |
| | $ | — |
| | $ | 8.6 |
| | $ | 0.4 |
| | $ | 9.2 |
| | $ | — |
| | $ | 9.6 |
|
| | | | | | | | | | | | | | | | | |
| Liabilities | | | | | | | | | | | | | | | | |
| Long-term debt | | $ | — |
| | $ | 1,433.7 |
| | $ | 17.6 |
| | $ | 1,451.3 |
| | $ | — |
| | $ | 1,501.9 |
| | $ | 17.7 |
| | $ | 1,519.6 |
|
| | | | | | | | |
|
| | | | | | | |
|
|
| Total Liabilities | | $ | — |
| | $ | 1,433.7 |
| | $ | 17.6 |
| | $ | 1,451.3 |
| | $ | — |
| | $ | 1,501.9 |
| | $ | 17.7 |
| | $ | 1,519.6 |
|
| |
(a) | (a) Includes credit valuation adjustment |
Our financial instruments are valued using the market approach in the following categories:
Level 1 inputs are used for money market accounts that are considered cash equivalents. The fair value is determined by reference to quoted market prices and other relevant information generated by market transactions.
Level 2 inputs are used to value derivatives such as interest rate hedge contracts which are valued using a benchmark interest rate. Other Level 2 assets include open-ended mutual funds in the Master Trust, which are valued using the end of day NAV per unit.
Level 3 inputs such as certain debt balances are considered a Level 3 input because the notes are not publicly traded. Our long-term debt is fair valued for disclosure purposes only.
All of the inputs to the fair value of our derivative instruments are from quoted market prices.
Our long-term debt is fair valued for disclosure purposes only and most of the fair values are determined using quoted market prices in inactive markets. These fair value inputs are considered Level 2 in the fair value hierarchy. As the Wright-Patterson Air Force Base note is not publicly traded, fair value is assumed to equal carrying value. Thesethe fair value inputs are considered Level 3 in the fair value hierarchy as there are no observable inputs. Additional Level 3 disclosures are not presented since our long-term debt is not recorded at fair value.
Note 5 – Derivative Instruments and Hedging Activities
For further information on our derivative and hedge accounting policies, See Note 1 – Overview and Summary of Significant Accounting Policies – Financial Derivatives and Note 6 - Derivative Instruments and Hedging Activities
In the normal course of business,
DPL enters into interest rate hedges to manage the interest rate risk of our variable rate debt. All of our derivative instruments are used for risk management purposes and are designated as cash flow hedges if they qualify under FASC 815 for accounting purposes. In prior periods, we have used commodity derivatives principally to manage the risk of changes in market prices for commodities.
Cash Flow Hedges
As part of our risk management processes, we identify
In August 2020, the relationships between hedging instruments and hedged items, as well as the risk management objective and strategy for undertaking various hedge transactions. The fair values of cash flow hedges determined by current public market prices will continue to fluctuate with changes in market prices up to contract expiration. With the adoption of ASU 2017-12, Derivatives and Hedging (Topic 815): Targeted improvements to Accounting for Hedging Activities effective January 1, 2019, we will no longer be required to calculate effectiveness and thus the entire change in the fair value of a hedging instrument will be recorded in other comprehensive income and amounts deferred will be reclassified to earnings in the same income statement line as the hedged item in the period in which it settles.
As of September 30, 2019, we have 2 interest rate swaps to hedge the variable interest on ourthe $140.0 million variable interest rate tax-exempt First Mortgage Bonds.Bonds expired, as the associated debt reached maturity. The interest rate swaps havehad a combined notional amount of $140.0 million and settlesettled monthly based on a one-month LIBOR. On March 29, 2018, we settled $60.0 million of these interest rate swaps due to the partial repayment of the underlying debt and a gain of $0.8 million was recorded as a reduction to interest expense. Since the swap was partially settled, the remaining swaps were de-designated and then re-designated with a new hypothetical derivative. The AOCIAOCL associated with the remaining swaps will bewas amortized out of AOCIAOCL into interest expense over the remaining life of the underlying debt.
We had previously entered into interest rate derivative contracts to manage interest rate exposure related to anticipated borrowings of fixed-rate debt. These interest rate derivative contracts were settled in 2013 and we continue to amortize amounts out of AOCIAOCL into interest expense.
The following tables provide information concerning gains or losses recognized in AOCIAOCL for the cash flow hedges for the three and nine months ended September 30, 20192020 and 2018:2019:
| | | | | | | | | | | | | | | | | | | | |
| | Three months ended |
| | September 30, 2020 | | September 30, 2019 |
| | Interest | | Interest | | |
| $ in millions (net of tax) | | Rate Hedge | | Rate Hedge | | Power |
| Beginning accumulated derivative gains in AOCL | | $ | 13.9 | | | $ | 15.3 | | | $ | 0.4 | |
| Net gains / (losses) associated with current period hedging transactions | | 0.1 | | | (0.2) | | | 0 | |
| Net gains reclassified to earnings | | | | | | |
| Interest expense | | (0.3) | | | (0.4) | | | 0 | |
| Income from discontinued operations | | 0 | | | 0 | | | (0.4) | |
| Ending accumulated derivative gains in AOCL | | $ | 13.7 | | | $ | 14.7 | | | $ | 0 | |
| | | | | | |
| | | | | | |
| | Nine months ended |
| | September 30, 2020 | | September 30, 2019 |
| | Interest | | Interest | | |
| $ in millions (net of tax) | | Rate Hedge | | Rate Hedge | | Power |
| Beginning accumulated derivative gains in AOCL | | $ | 14.5 | | | $ | 16.6 | | | $ | 0.4 | |
| Net losses associated with current period hedging transactions | | 0 | | | (1.0) | | | 0 | |
| Net gains reclassified to earnings | | | | | | |
| Interest expense | | (0.8) | | | (0.9) | | | 0 | |
| Income from discontinued operations | | 0 | | | 0 | | | (0.4) | |
| Ending accumulated derivative gains in AOCL | | $ | 13.7 | | | $ | 14.7 | | | $ | 0 | |
| | | | | | |
| Portion expected to be reclassified to earnings in the next twelve months | | $ | (0.1) | | | | | |
| Maximum length of time that we are hedging our exposure to variability in future cash flows related to forecasted transactions (in months) | | 0 | | | | |
| | | | | | |
|
| | | | | | | | | | | | | | | | |
| | | Three months ended | | Three months ended |
| | | September 30, 2019 | | September 30, 2018 |
| | | | | Interest | | | | Interest |
| $ in millions (net of tax) | | Power | | Rate Hedge | | Power | | Rate Hedge |
| Beginning accumulated derivative gains in AOCI | | $ | 0.4 |
| | $ | 15.3 |
| | $ | — |
| | $ | 17.4 |
|
| Net gains / (losses) associated with current period hedging transactions | | — |
| | (0.2 | ) | | — |
| | 0.1 |
|
| Net gains reclassified to earnings | | | | | | | | |
| Interest expense | | — |
| | (0.4 | ) | | — |
| | (0.2 | ) |
| (Income) / loss from discontinued operations | | (0.4 | ) | | — |
| | — |
| | — |
|
| Ending accumulated derivative gains in AOCI | | $ | — |
| | $ | 14.7 |
| | $ | — |
| | $ | 17.3 |
|
| | | | | | | | | |
| | | | | | | | | |
| | | Nine months ended | | Nine months ended |
| | | September 30, 2019 | | September 30, 2018 |
| | | | | Interest | | | | Interest |
| $ in millions (net of tax) | | Power | | Rate Hedge | | Power | | Rate Hedge |
| Beginning accumulated derivative gains / (losses) in AOCI | | $ | 0.4 |
| | $ | 16.6 |
| | $ | (2.8 | ) | | $ | 17.5 |
|
| Net gains / (losses) associated with current period hedging transactions | | — |
| | (1.0 | ) | | — |
| | 0.4 |
|
| Net (gains) / losses reclassified to earnings | | | | | | | | |
| Interest expense | | — |
| | (0.9 | ) | | — |
| | (0.6 | ) |
| (Income) / loss from discontinued operations | | (0.4 | ) | | — |
| | 2.8 |
| | — |
|
| Ending accumulated derivative gains in AOCI | | $ | — |
| | $ | 14.7 |
| | $ | — |
| | $ | 17.3 |
|
| | | | | | | | | |
| Portion expected to be reclassified to earnings in the next twelve months | |
|
| | $ | (1.2 | ) | | | | |
| Maximum length of time that we are hedging our exposure to variability in future cash flows related to forecasted transactions (in months) | |
|
| | 11 |
| | | | |
Net gains or losses associated with the ineffective portion of the hedging transactions were immaterial in the prior year period presented.
Financial Statement Effect
DPL has elected not to offset derivative assets and liabilities and not to offset net derivative positions against the right to reclaim cash collateral pledged (an asset) or the obligation to return cash collateral received (a liability) under derivative agreements. The fair value derivative position of DPL's interest rate swaps are as follows:
| | | | | | | | | | | | | | | | | | | | | | | |
| $ in millions (net of tax) | Hedging Designation | | Balance sheet classification | | September 30, 2020 | | December 31, 2019 |
| Interest rate swap | Cash Flow Hedge | | Prepayments and other current assets | | $ | 0 | | | $ | 0.1 | |
| | | | | | | |
| | | | | | | |
|
| | | | | | | | | | | | | | | | | | |
| Fair Values of Derivative Instruments |
| at September 30, 2019 |
| | | | | | | Gross Amounts Not Offset in the Condensed Consolidated Balance Sheets | | |
| $ in millions | | Hedging Designation | | Gross Fair Value as presented in the Condensed Consolidated Balance Sheets (a) | | Financial Instruments with Same Counterparty in Offsetting Position | | Cash Collateral | | Net Fair Value |
| Assets | | | | | | | | | | |
| Short-term derivative positions (presented in Prepayments and other current assets) |
| Interest rate swap | | Designated | | $ | 0.2 |
| | $ | — |
| | $ | — |
| | $ | 0.2 |
|
| Total assets | | | | $ | 0.2 |
| | $ | — |
| | $ | — |
| | $ | 0.2 |
|
(a) Includes credit valuation adjustment.
|
| | | | | | | | | | | | | | | | | | |
| Fair Values of Derivative Instruments |
| at December 31, 2018 |
| | | | | | | Gross Amounts Not Offset in the Condensed Consolidated Balance Sheets | | |
| $ in millions | | Hedging Designation | | Gross Fair Value as presented in the Condensed Consolidated Balance Sheets (a) | | Financial Instruments with Same Counterparty in Offsetting Position | | Cash Collateral | | Net Fair Value |
| Assets | | | | | | | | | | |
| Short-term derivative positions (presented in Prepayments and other current assets) |
| Interest rate swaps | | Designated | | $ | 0.9 |
| | $ | — |
| | $ | — |
| | $ | 0.9 |
|
| | | | | | | | | | | |
| Long-term derivative positions (presented in Other non-current assets) |
| Interest rate swaps | | Designated | | 0.6 |
| | — |
| | — |
| | 0.6 |
|
| Total assets | | | | $ | 1.5 |
| | $ | — |
| | $ | — |
| | $ | 1.5 |
|
(a) Includes credit valuation adjustment.
Any prior year ineffectiveness on the interest rate hedges and the monthly settlement of the interest rate hedges is recorded in interest expense within the Condensed Consolidated Statements of Operations.
Note 6 – Long-term Debt
The following table summarizes DPL's long-term debt.
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Interest | | | | September 30, | | December 31, |
| $ in millions | | Rate | | Maturity | | 2020 | | 2019 |
| First Mortgage Bonds | | 3.95% | | 2049 | | $ | 425.0 | | | $ | 425.0 | |
| First Mortgage Bonds | | 3.20% | | 2040 | | 140.0 | | | — | |
| Tax-exempt First Mortgage Bonds - rates from 2.40% - 2.93% (a) and 1.15% - 2.47% (b) | | | | 2020 | | — | | | 140.0 | |
| U.S. Government note | | 4.20% | | 2061 | | 17.4 | | | 17.5 | |
| Unamortized deferred financing costs | | | | | | (5.7) | | | (5.4) | |
| Unamortized debt discounts and premiums, net | | | | | | (2.6) | | | (2.7) | |
Total long-term debt at DP&L | | | | | | 574.1 | | | 574.4 | |
| | | | | | | | |
| Senior unsecured bonds | | 7.25% | | 2021 | | — | | | 380.0 | |
| Senior unsecured bonds | | 4.125% | | 2025 | | 415.0 | | | — | |
| Senior unsecured bonds | | 4.35% | | 2029 | | 400.0 | | | 400.0 | |
| Note to DPL Capital Trust II (c) | | 8.125% | | 2031 | | 15.6 | | | 15.6 | |
| Unamortized deferred financing costs | | | | | | (10.6) | | | (5.9) | |
| Unamortized debt discounts and premiums, net | | | | | | (1.0) | | | (1.0) | |
| Total long-term debt | | | | | | 1,393.1 | | | 1,363.1 | |
| Less: current portion | | | | | | (0.2) | | | (139.8) | |
| Long-term debt, net of current portion | | | | | | $ | 1,392.9 | | | $ | 1,223.3 | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
|
| | | | | | | | | | | | |
| | | Interest | | | | September 30, | | December 31, |
| $ in millions | | Rate | | Maturity | | 2019 | | 2018 |
| Term loan - rates from 4.50% - 4.53% (a) and 4.01% - 4.60% (b) | | | | 2022 | | $ | — |
| | $ | 436.1 |
|
| First Mortgage Bonds | | 3.95% | | 2049 | | 425.0 |
| | — |
|
| Tax-exempt First Mortgage Bonds - rates from 2.97% - 3.07% (a) and 1.52% - 1.92% (b) | | | | 2020 | | 140.0 |
| | 140.0 |
|
| U.S. Government note | | 4.20% | | 2061 | | 17.6 |
| | 17.7 |
|
| Unamortized deferred financing costs | | | | | | (5.7 | ) | | (6.3 | ) |
| Unamortized debt discounts and premiums, net | | | | | | (2.7 | ) | | (1.4 | ) |
Total long-term debt at DP&L | | | | | | 574.2 |
| | 586.1 |
|
| | | | | | | | | |
| Senior unsecured bonds | | 6.75% | | 2019 | | — |
| | 99.0 |
|
| Senior unsecured bonds | | 7.25% | | 2021 | | 380.0 |
| | 780.0 |
|
| Senior unsecured notes | | 4.35% | | 2029 | | 400.0 |
| | — |
|
| Note to DPL Capital Trust II (c) | | 8.125% | | 2031 | | 15.6 |
| | 15.6 |
|
| Unamortized deferred financing costs | | | | | | (5.8 | ) | | (4.3 | ) |
| Unamortized debt discounts and premiums, net | | | | | | (1.1 | ) | | (0.5 | ) |
| Total long-term debt | | | | | | 1,362.9 |
| | 1,475.9 |
|
| Less: current portion | | | | | | (139.6 | ) | | (103.6 | ) |
| Long-term debt, net of current portion | | | | | | $ | 1,223.3 |
| | $ | 1,372.3 |
|
| |
(a) | Range of interest rates for the nine months ended September 30, 2019. |
| |
(b) | Range of interest rates for the year ended December 31, 2018. |
| |
(c) | Note payable to related party. |
Deferred financing costs are amortized over(b)Range of interest rates for the remaining life of the debt using the effective interest method. Premiums or discounts on long-term debt are amortized over the remaining life of the debt using the effective interest method.year ended December 31, 2019.
Line
Lines of credit
At September 30, 20192020 and December 31, 2018,2019, DPL had outstanding borrowings on its line of credit of $38.0$90.0 million and $0.0$104.0 million, respectively. At September 30, 20192020 and December 31, 2018,2019, DP&L had outstanding borrowings on its line of credit of $60.0$0.0 million and $0.0$40.0 million, respectively.
Significant transactions
On June 19, 2019,July 31, 2020, DP&L amended and restated its unsecured revolving credit facility. The revolving credit facility has a $175.0issued $140.0 million borrowing limit, with a $75.0 million letter of credit sublimit, a feature that provides DP&L the
ability to increase the size of the facility by an additional $100.0 million, a maturity date of June 2024, and a provision that provides DP&L the option to request up to two one-year extensions of the maturity date.
On June 6, 2019, DP&L closed on a $425.0 million issuance oftaxable First Mortgage Bonds due 2049. Theseand on August 3, 2020 used the proceeds to purchase at par value the $140.0 million of outstanding tax-exempt Ohio Air Quality Development Authority (OAQDA) Collateralized Pollution Control Revenue Refunding Bonds that had been issued in 2015. The new bondstaxable First Mortgage Bonds carry an interest rate of 3.95%.3.20% and mature on July 31, 2040. The proceeds of this issuance were used to repay in fullOAQDA Revenue bonds have not been legally cancelled and can be re-issued at the outstanding principal of $435.0 milliondiscretion of DP&L's&L at any time. These bonds will be held in trust while we continue to evaluate market conditions and explore suitable long-term financing alternatives. Accordingly, at September 30, 2020, the $140.0 million variable rate Term Loan B credit agreement.OAQDA Revenue bonds are not treated as being outstanding in the Condensed Consolidated Balance Sheet.
On June 19, 2019, DPL amended and restated its secured revolving credit facility. The revolving credit facility has a $125.0 million borrowing limit, with a $75.0 million letter of credit sublimit, a feature that provides DPL the ability to increase the size of the facility by an additional $50.0 million, and a maturity date of June 2023.
On April 17, 2019,2020 DPL closed a $400.0$415.0 million issuance of senior unsecured notes. These notes carry an interest rate of 4.35%4.125% and mature on April 15, 2029.July 1, 2025. Proceeds from the issuance and cash on hand were used to settle a partial redemption for $400.0redeem in-full the remaining balance of $380.0 million of DPL's 7.25% senior unsecured notes maturing October 15, 2021, as discussed below. After the redemption, the DPL 7.25% senior notes due in 2021 have an outstanding balance of $380.0 million.
On April 8, 2019, DPL issued a Notice of Partial Redemption to the Trustee (Wells Fargo Bank N.A.) on the DPL 7.25% Senior Notes due 2021. DPL redeemed $400.0 million of the $780.0 million outstanding principal amount of these notes on May 7, 2019.notes. These bonds were redeemed at par plus accrued interest and a make-whole premium of $41.4 million.$30.8 million on July 20, 2020.
On March 4, 2019,June 1, 2020 DPL issuedamended its secured revolving credit facility. As a Noticeresult of Full Redemptionthe amendment, the borrowing limit was reduced from $125.0 million to $110.0 million, the Trustee (U.S. Bank) onTotal Debt to EBITDA covenant was eliminated, the DPL 6.75% Senior Notes due 2019. DPL redeemed the remaining $99.0 million outstanding principal amountEBITDA to Interest Expense covenant was reduced from 2.25 to 1.00 to 1.70 to 1.00, increasing to 1.75 to 1.00 as of these notes on April 4, 2019. These bonds were redeemed at par plus accrued interestSeptember 30, 2022 and 2.00 to 1.00 as of December 31, 2022, and a make-whole premiumtrailing-twelve months minimum EBITDA covenant of $1.5$125.0 million was added, increasing to $130.0 million as of September 30, 2022 and $150.0 million as of December 31, 2022. Starting with cash on hand.the quarter ended September 30, 2021, the borrowing limit will be reduced by $5.0 million per quarter should DPL’s Total Debt to EBITDA ratio calculated for the period of four consecutive quarters exceed 7.00 to 1.00.
On March 30, 2018, DPL issued a Notice of Partial Redemption to the Trustee (U.S. Bank) on the DPL 6.75% Senior Notes due 2019. DPL redeemed $101.0 million of the $200.0 million outstanding principal amount of these notes at par plus accrued interest and a make-whole premium of $5.1 million on April 30, 2018 with cash on hand.
On March 30, 2018, DP&L commenced a redemption of $60.0 million of outstanding tax exempt First Mortgage Bonds due 2020 at par value (plus accrued and unpaid interest). These bonds were redeemed at par plus accrued interest on April 30, 2018 with cash on hand.
On March 27, 2018, DPL made a $70.0 million prepayment to eliminate the outstanding balance of its bank term loan in full. As of March 31, 2018, the term loan was fully paid off.
Long-term debt covenants and restrictions
DPL’s revolving credit agreement has 2 financial covenants. The first financial covenant, a Total Debt tominimum EBITDA, ratio, is calculated at the end of each fiscal quarter by dividing total debt at the end of the current quarter by consolidated EBITDA for the 4four prior fiscal quarters. The ratio in the agreementquarters, of $125.0 million is not required, stepping up
to exceed 7.00 to 1.00.$130.0 million on September 30, 2022 and $150.0 million on December 31, 2022. As of September 30, 2019,2020, this financial covenant was met with a ratio of 5.68 to 1.00.in compliance.
The second financial covenant is an EBITDA to Interest Expense ratio that is calculated, at the end of each fiscal quarter, by dividing EBITDA for the 4 prior fiscal quarters by the consolidated interest charges for the same period. The ratio, per the agreement, is to be not less than 2.251.70 to 1.00.1.00, and steps up to 1.75 to 1.00 on September 30, 2022 and 2.00 to 1.00 as of December 31, 2022. As of September 30, 2019,2020, this financial covenant was met with a ratio of 2.992.72 to 1.00.
DPL’s secured revolving credit agreement also restricts dividend payments from DPL to AES, such that DPL cannot make dividend payments unless at the time of, and/or as a result of the distribution, (i) DPL’s leverage ratio does not exceed 0.67 to 1.00 and DPL’s interest coverage ratio is not less than 2.50 to 1.00 or, if such ratios are not within the parameters, (ii) DPL’s senior long-term debt rating from two of the three major credit rating agencies is at least investment grade. As a result, as of September 30, 2020, DPLis also restricted was prohibited from making dividend and tax sharing payments from DPL a distribution to AES per its 2017 ESP. This order restricts dividend payments from DPL shareholder or making a loan to AES during the termany of the 2017 ESP and restricts tax sharing payments from DPL to AES during the term of the DMR.its affiliates (other than its subsidiaries).
DP&L’s &L's unsecured revolving credit facility and Bond Purchase and Covenants Agreement (financing document entered into in connection with the saleissuance of $200.0 million of variable rate tax-exemptDP&L's First Mortgage Bonds, dated as of August 1, 2015) has 2 financial
covenants. The first measures Total Debt to Total Capitalization and is calculated, at the end of each fiscal quarter, by dividing total debt at the end of the quarter by total capitalization at the end of the quarter. DP&L’s Total Debt to Total Capitalization ratio shall not be greater than 0.65 to 1.00. Except that, after Generation Separation and the twelve-month period following (October 1, 2017 to September 30, 2018) the ratio shall be a) increased to 0.75 to 1.00 or b) suspended if DP&L’s long-term indebtedness is less than or equal to $750.0 million. Additionally, this covenant shall be suspended any time after separation during which DP&L maintains a rating of BBB- (or in the case of Moody’s Investors Service, Inc. Baa3) or higher with a stable outlook from at least one of Fitch Investors Service Inc., Standard & Poor’s Ratings Services or Moody’s Investors Service, Inc. The Total Debt to Capitalization covenant is calculated as the sum of DP&L’s current and long-term portion of debt, divided by the total of DP&L’s net worth and total debt. As of September 30, 2019, DP&L's ratings meet those requirements and this covenant is suspended for the quarter ended September 30, 2019.
The second financial covenant measures EBITDA to Interest Expense. The TotalConsolidated EBITDA to Consolidated Interest Charges ratio is calculated, at the end of each fiscal quarter, by dividing consolidated EBITDA for the 4 prior fiscal quarters by the consolidated interest charges for the same period. The ratio, per the agreement, is to be not less than 2.50 to 1.00. This financial covenant was met with a ratio of 9.36 to 1.00 as of September 30, 2019.
DP&L's unsecured revolving credit facilityon July 31, 2020) has one financial covenant. The covenant measures Total Debt to Total Capitalization and is calculated, at the end of each fiscal quarter, by dividing total debt at the end of the quarter by total capitalization at the end of the quarter. DP&L’s Total Debt to Total Capitalization ratio shall not be greater than 0.67 to 1.00. This financial covenant was met with a ratio of 0.580.48 to 1.00 as of September 30, 2019.2020.
As of September 30, 2019,2020, DPL and DP&L were in compliance with all debt covenants, including the financial covenants described above.
DP&L does not have any meaningful restrictions in its debt financing documents prohibiting dividends to its parent, DPL.
Substantially all property, plant & equipment of DP&L is subject to the lien of the mortgage securing DP&L’s First and Refunding Mortgage.
Note 7 – Income Taxes
The following table details the effective tax rates for the three and nine months ended September 30, 20192020 and 2018.2019.
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three months ended | | Nine months ended |
| | September 30, | | September 30, |
| | 2020 | | 2019 | | 2020 | | 2019 |
| DPL | | 55.2% | | (35.6)% | | 71.1% | | (9.8)% |
|
| | | | | | | | |
| | | Three months ended | | Nine months ended |
| | | September 30, | | September 30, |
| | | 2019 | | 2018 | | 2019 | | 2018 |
| DPL | | (35.6)% | | 16.3% | | (9.8)% | | 15.2% |
Income tax expense for the nine months ended September 30, 2019 and 2018 was calculated using the estimated annual effective income tax rates for 2019 and 2018 of (10.1)% and 16.8%, respectively. Management estimates the annual effective tax rate based on its forecast of annual pre-tax income. To the extent that actual pre-tax results for the year differ from the forecasts applied to the most recent interim period, the estimated rates could be materially different from the actual effective tax rates. DPL’s effective combined state and federal income tax rate for all operations was (35.6)%55.2% and (9.8)%71.1% for the three and nine months ended September 30, 2019,2020, respectively. These rates are lowerThis rate is higher than the combined federal and state statutory rate of 21.6%22.3% primarily due to the flowthrough of the net tax benefit related to the reversal of excess deferred taxes of DP&L and the impactreversal of an uncertain tax position; these benefits were partially offset by an adjustment to the September 26, 2019PUCO order which finalized the amount of excess deferred tax balances allocable to DP&L’s utility customers.
balances. For the nine months ended September 30, 2019,2020, DPL’scurrent period effective tax rate for all operationsbenefit was not materially different thancalculated using the estimated annual effective rate.
Per the terms oflimitations prescribed in ASC 740-270-30-28 as DP&L'sDPL's 2017 ESP, DPL will not make any tax-sharing payments to AES and AES will forgo collectionyear-to-date pre-tax loss exceeded the amount of the payments during the term of the DMR. As such, duringanticipated full-year pre-tax loss.
DPL's income tax expense for the nine months ended September 30, 2019 was calculated using the estimated annual effective income tax rates for 2019 of (10.1)%. Management estimates the annual effective tax rate based on its forecast of annual pre-tax income.
AES files federal and 2018,state income tax returns which consolidate DPL and its subsidiaries. Under a tax sharing agreement with AES, DPL is responsible for the income taxes associated with its own taxable income and records the provision for income taxes using a separate return method. Effective with the approval of DP&L's 2017 ESP, through November 21, 2019, DPL was restricted from making tax sharing payments to AES throughout the term of the DMR and amounts that would otherwise have been tax sharing liabilities were converted to deemed capital
contributions. With the November 21, 2019 order from the PUCO that removed the DMR, this requirement was eliminated.
During the nine months ended September 30, 2020, DPL converted $2.7received a payment from AES of $52.0 million and $30.2against its tax receivable balance as part of a $150.0 million respectively, of accrued tax sharing liabilities with AES topayment from AES. See Note 9 – Shareholder's Deficit for additional equity investment in DPL.information.
Note 8 – Benefit Plans
DP&L sponsors a defined benefit pension plan for the majority of its employees.
We generally fund pension plan benefits as accrued in accordance with the minimum funding requirements of ERISA and, in addition, make voluntary contributions from time to time. There were $7.5 million in employer contributions during each of the nine monthsnine-month periods ended September 30, 20192020 and 2018.2019.
The amounts presented in the following tables for pension include the collective bargaining plan formula, the traditional management plan formula, the cash balance plan formula and the SERP, in the aggregate. The pension costs below have not been adjusted for amounts billed to the Service Company for former DP&L employees who are now employed by the Service Company that are still participants in the DP&L plan.
The net periodic benefit cost of the pension benefit plans for the three and nine months ended September 30, 20192020 and 20182019 was:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three months ended | | Nine months ended |
| | September 30, | | September 30, |
| $ in millions | | 2020 | | 2019 | | 2020 | | 2019 |
| Service cost | | $ | 0.9 | | | $ | 0.9 | | | $ | 2.8 | | | $ | 2.7 | |
| Interest cost | | 2.9 | | | 3.7 | | | 8.8 | | | 11.2 | |
| Expected return on plan assets | | (4.6) | | | (5.0) | | | (14.0) | | | (15.0) | |
| Amortization of unrecognized: | | | | | | | | |
| Prior service cost | | 0.3 | | | 0.3 | | | 0.8 | | | 0.9 | |
| Actuarial loss | | 1.5 | | | 1.1 | | | 4.6 | | | 3.2 | |
| Net periodic benefit cost | | $ | 1.0 | | | $ | 1.0 | | | $ | 3.0 | | | $ | 3.0 | |
|
| | | | | | | | | | | | | | | | |
| | | Three months ended | | Nine months ended |
| | | September 30, | | September 30, |
| $ in millions | | 2019 | | 2018 | | 2019 | | 2018 |
| Service cost | | $ | 0.9 |
| | $ | 1.5 |
| | $ | 2.7 |
| | $ | 4.5 |
|
| Interest cost | | 3.7 |
| | 3.4 |
| | 11.2 |
| | 10.3 |
|
| Expected return on plan assets | | (5.0 | ) | | (5.3 | ) | | (15.0 | ) | | (15.9 | ) |
| Amortization of unrecognized: | | | | | | | | |
| Prior service cost | | 0.3 |
| | 0.3 |
| | 0.9 |
| | 0.8 |
|
| Actuarial loss | | 1.1 |
| | 1.6 |
| | 3.2 |
| | 4.8 |
|
| Net periodic benefit cost | | $ | 1.0 |
| | $ | 1.5 |
| | $ | 3.0 |
| | $ | 4.5 |
|
In addition, DP&L provides postretirement health care and life insurance benefits to certain retired employees, their spouses and eligible dependents. We have funded a portion of the union-eligible benefits using a Voluntary Employee Beneficiary Association Trust. These postretirement health care benefits and the related unfunded obligation of $9.0$9.1 million at September 30, 20192020 and $9.2$9.6 million at December 31, 20182019 were not material to the financial statements in the periods covered by this report.
Note 9 – Shareholder's Deficit
Capital Contributions from AES
In DP&L's approved six-year 2017 ESP, restrictsthe PUCO imposed restrictions on DPL from making dividend payments to its parent company, AES, during the term of the ESP, as well as fromon making tax-sharing payments to AES during the term of the DMR. The 2017 ESPPUCO also requiresrequired that existing tax payments owed by DPL to AES, and similar tax payments that accrue during the term of the DMR, be converted into equity investments in DPL. With the November 21, 2019 order from the PUCO that removed the DMR and the subsequent approval of DP&L's ESP 1 rate plan, these requirements were eliminated. See Note 3 – Regulatory Matters in Item 8. — Financial Statements and Supplementary Data of our Form 10-K for additional information on changes to DP&L's ESP and the removal of the DMR.
For the nine months ended September 30, 2019, and 2018, AES made a capital contributionscontribution of $2.7 million and $30.2 million, respectively, by converting the amount owed to it by DPLrelated to tax-sharing payments for current tax liabilities.
During the nine months ended September 30, 2020, DPL received $150.0 million in a cash contribution from AES, which DPL then used to make a $150.0 million capital contribution to DP&L. The contribution at DPL represented an equity capital contribution of $98.0 million and a payment of $52.0 million against its tax receivable. The proceeds from the capital contribution at DP&L will primarily be used for funding needs to support DP&L's capital expenditure program, mainly new investments in and upgrades to DP&L’s transmission and distribution system.
Note 10 – Contractual Obligations, Commercial Commitments and Contingencies
Guarantees
In the normal course of business, DPL enters into various agreements with its wholly-owned subsidiary, AES Ohio Generation, providing financial or performance assurance to third parties. These agreements are entered into primarily to support or enhance the creditworthiness otherwise attributed to this subsidiary on a stand-alone basis, thereby facilitating the extension of sufficient credit to accomplish this subsidiary's intended commercial purposes.
At September 30, 2019,2020, DPL had $21.0$1.9 million of guarantees on behalf of AES Ohio Generation to third parties for future financial or performance assurance under such agreements. The guarantee arrangements entered into by DPL with these third parties cover select present and future obligations of AES Ohio Generation to such beneficiaries and are terminable by DPL upon written notice to the beneficiaries within a certain time. At
September 30, 20192020 and December 31, 2018,2019, we had no outstanding balance of obligations covered by these guarantees.
To date, DPL has not incurred any losses related to the guarantees of AES Ohio Generation’s obligations and we believe it is unlikely that DPL would be required to perform or incur any losses in the future associated with any of the above guarantees.
Equity Ownership Interest
DP&L has a 4.9% equity ownership interest in OVEC, which is recorded using the cost method of accounting under GAAP. DP&L, along with several non-affiliated energy companies party to an OVEC arrangement, receive and pay for OVEC capacity and energy and are responsible for OVEC debt obligations and other fixed costs in proportion to their power participation ratios under the arrangement which, for DP&L, is the same as its equity ownership interest. At September 30, 2019,2020, DP&L could be responsible for the repayment of 4.9%, or $67.2$63.4 million, of $1,371.3$1,294.3 million OVEC debt obligations if they came due, comprised of both fixed and variable rate securities with maturities from 2022 to 2040. OVEC could also seek additional contributions from DP&L to avoid a default in the event that other OVEC members defaulted on their respective OVEC obligations. One of the other OVEC members with a 4.85% interest in OVEC,had filed for bankruptcy protection and the bankruptcy court had approved that member's rejection of the OVEC arrangement and its related obligations on July 31, 2018. We do not expect these eventsobligations. Subsequent to have a material impact on our financial condition, results of operations or cash flows.that decision, another entity has assumed that member's ownership interest and all related liabilities.
Contingencies
In the normal course of business, we are subject to various lawsuits, actions, proceedings, claims and other matters asserted under various laws and regulations. We believe the amounts provided in our Condensed Consolidated Financial Statements, as prescribed by GAAP, are adequate considering the probable and estimable contingencies. However, there can be no assurances that the actual amounts required to satisfy alleged liabilities from various legal proceedings, claims, tax examinations and other matters discussed below, and to comply with applicable laws and regulations, will not exceed the amounts reflected in our Condensed Consolidated Financial Statements. As such, costs, if any, that may be incurred in excess of those amounts provided as of September 30, 2019,2020, cannot be reasonably determined.
Environmental Matters
DPL’s and DP&L’s current and previously-owned facilities and operations are subject to a wide range of federal, state and local environmental regulations and laws. The environmental issues that may affect 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;
•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. The majority of solid waste created from the combustion of coal and fossil fuels consists of fly ash and other coal combustion by-products.
In addition to 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 our 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 immaterial accruals for loss contingencies for environmental matters. We also have several 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 and cash flows.
We have several pending environmental matters associated with our current and previously ownedpreviously-owned coal-fired generation units. Some of these matters could have a material adverse effect on our results of operations, financial condition and cash flows.
Note 11 – Business Segments
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 14 – Discontinued Operations of Notes to DPL's Condensed Consolidated Financial Statements. As such, AES Ohio Generation only has operating activity coming from its undivided ownership interest in Conesville, which does not meet the thresholds to be a separate reportable operating segment. Therefore, DPL manages its business through 1 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 segment. The Utility segment is discussed further below.
Utility Segment
The Utility segment is comprised 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 524,000approximately 530,000 retail customers 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 recording 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 Hutchings Coal generating facility, which was closed in 2013. These assetsThis facility did not transfer to AES Ohio Generation as part of DP&L's Generation Separation on October 1, 2017. Thus, they areit is grouped within the Utility segment for segment reporting purposes. In addition, regulatory deferrals and collections, which include collections and amortization of fuel deferrals infrom 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 and loss on early extinguishment of debt on DPL's long-term debt as well as adjustments related to purchase accounting from the Merger. DPL's undivided interest in Conesville is included within the "Other" column as it does not meet the requirement for disclosure as a reportable operating segment, since the results of operations of the other EGUs are presented as discontinued operations. The accounting policies of the reportable segment are the same as those described in Note 1 – Overview and Summary of Significant Accounting Policies of our 10-K. Intersegment sales, costs of sales and expenses are eliminated in consolidation. Certain shared and corporate costs are allocated between "Other" and the Utility reporting segment.
The following tables present financial information for DPL’s Utility reportable business segment:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| $ in millions | | Utility | | | | Other | | Adjustments and Eliminations | | DPL Consolidated |
| Three months ended September 30, 2020 |
| Revenues from external customers | | $ | 176.8 | | | | | $ | 2.0 | | | $ | 0 | | | $ | 178.8 | |
| Intersegment revenues | | 0.2 | | | | | 1.0 | | | (1.2) | | | 0 | |
| Total revenues | | $ | 177.0 | | | | | $ | 3.0 | | | $ | (1.2) | | | $ | 178.8 | |
| | | | | | | | | | |
| Depreciation and amortization | | $ | 18.2 | | | | | $ | 0.4 | | | $ | 0 | | | $ | 18.6 | |
| | | | | | | | | | |
| Interest expense | | $ | 5.9 | | | | | $ | 11.2 | | | $ | 0 | | | $ | 17.1 | |
| Loss on early extinguishment of debt | | $ | 0 | | | | | $ | 31.7 | | | $ | 0 | | | $ | 31.7 | |
| Income / (loss) from continuing operations before income tax | | $ | 21.3 | | | | | $ | (41.0) | | | $ | 0 | | | $ | (19.7) | |
| | | | | | | | | | |
| Capital expenditures | | $ | 44.6 | | | | | $ | 0.1 | | | $ | 0 | | | $ | 44.7 | |
| | | | | | | | | | |
| $ in millions | | Utility | | | | Other | | Adjustments and Eliminations | | DPL Consolidated |
| Three Months Ended September 30, 2019 |
| Revenues from external customers | | $ | 190.9 | | | | | $ | 2.0 | | | $ | 0 | | | $ | 192.9 | |
| Intersegment revenues | | 0.2 | | | | | 0.8 | | | (1.0) | | | 0 | |
| Total revenues | | $ | 191.1 | | | | | $ | 2.8 | | | $ | (1.0) | | | $ | 192.9 | |
| | | | | | | | | | |
| Depreciation and amortization | | $ | 17.4 | | | | | $ | 0.3 | | | $ | 0 | | | $ | 17.7 | |
| | | | | | | | | | |
| Interest expense | | $ | 6.1 | | | | | $ | 12.2 | | | $ | 0 | | | $ | 18.3 | |
| | | | | | | | | | |
| Income / (loss) from continuing operations before income tax | | $ | 37.7 | | | | | $ | (10.6) | | | $ | 0 | | | $ | 27.1 | |
| | | | | | | | | | |
| Capital expenditures | | $ | 58.9 | | | | | $ | 0.1 | | | $ | 0 | | | $ | 59.0 | |
| | | | | | | | | | |
| $ in millions | | Utility | | | | Other | | Adjustments and Eliminations | | DPL Consolidated |
| Nine months ended September 30, 2020 |
| Revenues from external customers | | $ | 498.4 | | | | | $ | 6.7 | | | $ | 0 | | | $ | 505.1 | |
| Intersegment revenues | | 0.7 | | | | | 2.7 | | | (3.4) | | | 0 | |
| Total revenues | | $ | 499.1 | | | | | $ | 9.4 | | | $ | (3.4) | | | $ | 505.1 | |
| | | | | | | | | | |
| Depreciation and amortization | | $ | 53.7 | | | | | $ | 1.1 | | | $ | 0 | | | $ | 54.8 | |
| | | | | | | | | | |
| Interest expense | | $ | 18.5 | | | | | $ | 36.9 | | | $ | 0 | | | $ | 55.4 | |
| Loss on early extinguishment of debt | | $ | 0 | | | | | $ | 31.7 | | | $ | 0 | | | $ | 31.7 | |
| Income / (loss) from continuing operations before income tax | | $ | 49.7 | | | | | $ | (63.3) | | | $ | 0 | | | $ | (13.6) | |
| | | | | | | | | | |
| Capital expenditures | | $ | 125.1 | | | | | $ | 3.6 | | | $ | 0 | | | $ | 128.7 | |
| | | | | | | | | | |
| $ in millions | | Utility | | | | Other | | Adjustments and Eliminations | | DPL Consolidated |
| Nine months ended September 30, 2019 |
| Revenues from external customers | | $ | 569.4 | | | | | $ | 7.1 | | | $ | 0 | | | $ | 576.5 | |
| Intersegment revenues | | 0.8 | | | | | 2.4 | | | (3.2) | | | 0 | |
| Total revenues | | $ | 570.2 | | | | | $ | 9.5 | | | $ | (3.2) | | | $ | 576.5 | |
| | | | | | | | | | |
| Depreciation and amortization | | $ | 52.9 | | | | | $ | 1.1 | | | $ | 0 | | | $ | 54.0 | |
| | | | | | | | | | |
| Interest expense | | $ | 19.9 | | | | | $ | 43.8 | | | $ | 0 | | | $ | 63.7 | |
| Loss on early extinguishment of debt | | $ | 0 | | | | | $ | 44.9 | | | $ | 0 | | | $ | 44.9 | |
| Income / (loss) from continuing operations before income tax | | $ | 108.8 | | | | | $ | (83.1) | | | $ | 0 | | | $ | 25.7 | |
| | | | | | | | | | |
| Capital expenditures | | $ | 121.1 | | | | | $ | 1.3 | | | $ | 0 | | | $ | 122.4 | |
|
| | | | | | | | | | | | | | | | |
| $ in millions | | Utility | | Other | | Adjustments and Eliminations | | DPL Consolidated |
| Three months ended September 30, 2019 |
| Revenues from external customers | | $ | 190.9 |
| | $ | 8.1 |
| | $ | — |
| | $ | 199.0 |
|
| Intersegment revenues | | 0.2 |
| | 0.8 |
| | (1.0 | ) | | — |
|
| Total revenues | | $ | 191.1 |
| | $ | 8.9 |
| | $ | (1.0 | ) | | $ | 199.0 |
|
| | | | | | | | | |
| Depreciation and amortization | | $ | 17.4 |
| | $ | 0.3 |
| | $ | — |
| | $ | 17.7 |
|
| Interest expense | | $ | 6.1 |
| | $ | 12.2 |
| | $ | — |
| | $ | 18.3 |
|
| Income / (loss) from continuing operations before income tax | | $ | 37.7 |
| | $ | (11.2 | ) | | $ | — |
| | $ | 26.5 |
|
| | | | | | | | | |
| Cash capital expenditures | | $ | 58.9 |
| | $ | 0.1 |
| | $ | — |
| | $ | 59.0 |
|
| | | | | | | | | |
| $ in millions | | Utility | | Other (a) | | Adjustments and Eliminations | | DPL Consolidated |
| Three Months Ended September 30, 2018 |
| Revenues from external customers | | $ | 198.5 |
| | $ | 9.2 |
| | $ | — |
| | $ | 207.7 |
|
| Intersegment revenues | | 0.2 |
| | 0.7 |
| | (0.9 | ) | | — |
|
| Total revenues | | $ | 198.7 |
| | $ | 9.9 |
| | $ | (0.9 | ) | | $ | 207.7 |
|
| | | | | | | | | |
| Depreciation and amortization | | $ | 19.1 |
| | $ | 0.6 |
| | $ | — |
| | $ | 19.7 |
|
| Interest expense | | $ | 5.8 |
| | $ | 16.8 |
| | $ | — |
| | $ | 22.6 |
|
| Income / (loss) from continuing operations before income tax | | $ | 37.5 |
| | $ | (17.7 | ) | | $ | — |
| | $ | 19.8 |
|
| | | | | | | | | |
| Cash capital expenditures | | $ | 20.5 |
| | $ | 4.6 |
| | $ | — |
| | $ | 25.1 |
|
| | | | | | | | | |
| $ in millions | | Utility | | Other | | Adjustments and Eliminations | | DPL Consolidated |
| Nine months ended September 30, 2019 |
| Revenues from external customers | | $ | 569.4 |
| | $ | 22.8 |
| | $ | — |
| | $ | 592.2 |
|
| Intersegment revenues | | 0.8 |
| | 2.4 |
| | (3.2 | ) | | — |
|
| Total revenues | | $ | 570.2 |
| | $ | 25.2 |
| | $ | (3.2 | ) | | $ | 592.2 |
|
| | | | | | | | | |
| Depreciation and amortization | | $ | 52.9 |
| | $ | 1.2 |
| | $ | — |
| | $ | 54.1 |
|
| Interest expense | | $ | 19.9 |
| | $ | 43.8 |
| | $ | — |
| | $ | 63.7 |
|
| Loss on early extinguishment of debt | | $ | — |
| | $ | 44.9 |
| | $ | — |
| | $ | 44.9 |
|
| Income / (loss) from continuing operations before income tax | | $ | 108.8 |
| | $ | (85.8 | ) | | $ | — |
| | $ | 23.0 |
|
| | | | | | | | | |
| Cash capital expenditures | | $ | 121.1 |
| | $ | 1.3 |
| | $ | — |
| | $ | 122.4 |
|
| | | | | | | | | |
| $ in millions | | Utility | | Other (a) | | Adjustments and Eliminations | | DPL Consolidated |
| Nine months ended September 30, 2018 |
| Revenues from external customers | | $ | 562.9 |
| | $ | 28.6 |
| | $ | — |
| | $ | 591.5 |
|
| Intersegment revenues | | 0.6 |
| | 2.1 |
| | (2.7 | ) | | — |
|
| Total revenues | | $ | 563.5 |
| | $ | 30.7 |
| | $ | (2.7 | ) | | $ | 591.5 |
|
| | | | | | | | | |
| Depreciation and amortization | | $ | 56.5 |
| | $ | 2.3 |
| | $ | — |
| | $ | 58.8 |
|
| Interest expense | | $ | 20.5 |
| | $ | 53.9 |
| | $ | — |
| | $ | 74.4 |
|
| Income / (loss) from continuing operations before income tax | | $ | 73.9 |
| | $ | (60.2 | ) | | $ | — |
| | $ | 13.7 |
|
| | | | | | | | | |
| Cash capital expenditures | | $ | 65.0 |
| | $ | 10.8 |
| | $ | — |
| | $ | 75.8 |
|
| |
(a) | "Other" includes Cash capital expenditures related to assets of discontinued operations and held-for-sale businesses for the three and nine months ended September 30, 2018. |
|
| | | | | | | | |
| Total Assets | | September 30, 2019 | | December 31, 2018 |
| Utility | | $ | 1,779.4 |
| | $ | 1,819.6 |
|
All Other (a) | | 36.9 |
| | 63.5 |
|
| DPL Consolidated | | $ | 1,816.3 |
| | $ | 1,883.1 |
|
| |
(a) | "All Other" includes Total assets related to the assets of discontinued operations and held-for-sale businesses and Eliminations for all periods presented. |
| | | | | | | | | | | | | | |
| Total Assets | | September 30, 2020 | | December 31, 2019 |
| Utility | | $ | 1,890.5 | | | $ | 1,883.2 | |
All Other (a) | | 17.0 | | | 52.6 | |
| DPL Consolidated | | $ | 1,907.5 | | | $ | 1,935.8 | |
(a) "All Other" includes Total assets related to the assets of discontinued operations and held-for-sale businesses and Eliminations for all periods presented. "All Other" Total assets at June 30, 2020 is primarily cash on hand from debt issuances.
Note 12 – Revenue
Revenue is primarily earned from retail and wholesale electricity sales and electricity transmission and distribution delivery services. Revenue is recognized upon transfer of control to customers in an amount that reflects the consideration to which we expect to be entitled in exchange for those goods or services. Revenue is recorded net of any taxes assessed on and collected from customers, which are remitted to the governmental authorities. For further discussion of our Retail, Wholesale, RTO ancillary, and Capacity revenues, see Note 14 — Revenue in Item 8.—Financial Statements and Supplementary Data of our Form 10-K.
DPL's revenue from contracts with customers was $195.0$177.0 million and $195.1$188.9 million for the three months ended September 30, 20192020 and 2018,2019, respectively, and $576.5$492.3 million and $560.1$560.8 million for the nine months ended September 30, 20192020 and 2018,2019, respectively.
The following table presents our revenue from contracts with customers and other revenue by segment for the three and nine months ended September 30, 20192020 and 2018:2019:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| $ in millions | | Utility | | Other | | Adjustments and Eliminations | | Total |
| | Three Months Ended September 30, 2020 |
| Retail revenue | | | | | | | | |
| Retail revenue from contracts with customers | | | | | | | | |
| Residential revenue | | $ | 99.3 | | | $ | 0 | | | $ | 0 | | | $ | 99.3 | |
| Commercial revenue | | 32.2 | | | 0 | | | 0 | | | 32.2 | |
| Industrial revenue | | 14.5 | | | 0 | | | 0 | | | 14.5 | |
| Governmental revenue | | 9.9 | | | 0 | | | 0 | | | 9.9 | |
Other (a) | | 3.7 | | | 0 | | | 0 | | | 3.7 | |
| Total retail revenue from contracts with customers | | 159.6 | | | 0 | | | 0 | | | 159.6 | |
Other retail revenue (b) | | 0.1 | | | 0 | | | 0 | | | 0.1 | |
| Wholesale revenue | | | | | | | | |
| Wholesale revenue from contracts with customers | | 3.2 | | | 0 | | | (0.2) | | | 3.0 | |
| RTO ancillary revenue | | 11.5 | | | (0.1) | | | 0 | | | 11.4 | |
| Capacity revenue | | 0.9 | | | 0 | | | 0 | | | 0.9 | |
| Miscellaneous revenue | | | | | | | | |
Miscellaneous revenue from contracts with customers (c) | | 0 | | | 2.1 | | | 0 | | | 2.1 | |
| Other miscellaneous revenue | | 1.7 | | | 1.0 | | | (1.0) | | | 1.7 | |
| Total revenues | | $ | 177.0 | | | $ | 3.0 | | | $ | (1.2) | | | $ | 178.8 | |
| | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| $ in millions | | Utility | | Other | | Adjustments and Eliminations | | Total |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| | Three Months Ended September 30, 2019 |
| Retail revenue | | | | | | | | |
| Retail revenue from contracts with customers | | | | | | | | |
| Residential revenue | | $ | 107.5 | | | $ | 0 | | | $ | 0 | | | $ | 107.5 | |
| Commercial revenue | | 34.8 | | | 0 | | | 0 | | | 34.8 | |
| Industrial revenue | | 13.7 | | | 0 | | | 0 | | | 13.7 | |
| Governmental revenue | | 11.4 | | | 0 | | | 0 | | | 11.4 | |
Other (a) | | 3.1 | | | 0 | | | 0 | | | 3.1 | |
| Total retail revenue from contracts with customers | | 170.5 | | | 0 | | | 0 | | | 170.5 | |
Other retail revenue (b) | | 3.8 | | | 0 | | | 0 | | | 3.8 | |
| Wholesale revenue | | | | | | | | |
| Wholesale revenue from contracts with customers | | 4.4 | | | 0 | | | (0.2) | | | 4.2 | |
| RTO ancillary revenue | | 11.0 | | | 0.1 | | | 0 | | | 11.1 | |
| Capacity revenue | | 1.1 | | | 0 | | | 0 | | | 1.1 | |
| Miscellaneous revenue | | | | | | | | |
Miscellaneous revenue from contracts with customers (c) | | 0 | | | 2.0 | | | 0 | | | 2.0 | |
| Other miscellaneous revenue | | 0.3 | | | 0.7 | | | (0.8) | | | 0.2 | |
| Total revenues | | $ | 191.1 | | | $ | 2.8 | | | $ | (1.0) | | | $ | 192.9 | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| | Nine months ended September 30, 2020 |
| Retail revenue | | | | | | | | |
| Retail revenue from contracts with customers | | | | | | | | |
| Residential revenue | | $ | 279.9 | | | $ | 0 | | | $ | 0 | | | $ | 279.9 | |
| Commercial revenue | | 87.6 | | | 0 | | | 0 | | | 87.6 | |
| Industrial revenue | | 38.2 | | | 0 | | | 0 | | | 38.2 | |
| Governmental revenue | | 27.7 | | | 0 | | | 0 | | | 27.7 | |
Other (a) | | 9.7 | | | 0 | | | 0 | | | 9.7 | |
| Total retail revenue from contracts with customers | | 443.1 | | | 0 | | | 0 | | | 443.1 | |
Other retail revenue (b) | | 8.8 | | | 0 | | | 0 | | | 8.8 | |
| Wholesale revenue | | | | | | | | |
| Wholesale revenue from contracts with customers | | 7.7 | | | 0 | | | (0.7) | | | 7.0 | |
| RTO ancillary revenue | | 32.3 | | | 0 | | | 0 | | | 32.3 | |
| Capacity revenue | | 3.2 | | | 0 | | | 0 | | | 3.2 | |
| Miscellaneous revenue | | | | | | | | |
Miscellaneous revenue from contracts with customers (c) | | 0 | | | 6.7 | | | 0 | | | 6.7 | |
| Other miscellaneous revenue | | 4.0 | | | 2.7 | | | (2.7) | | | 4.0 | |
| Total revenues | | $ | 499.1 | | | $ | 9.4 | | | $ | (3.4) | | | $ | 505.1 | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| | Nine months ended September 30, 2019 |
| Retail revenue | | | | | | | | |
| Retail revenue from contracts with customers | | | | | | | | |
| Residential revenue | | $ | 313.9 | | | $ | 0 | | | $ | 0 | | | $ | 313.9 | |
| Commercial revenue | | 103.7 | | | 0 | | | 0 | | | 103.7 | |
| Industrial revenue | | 43.5 | | | 0 | | | 0 | | | 43.5 | |
| Governmental revenue | | 33.3 | | | 0 | | | 0 | | | 33.3 | |
Other (a) | | 9.4 | | | 0 | | | 0 | | | 9.4 | |
| Total retail revenue from contracts with customers | | 503.8 | | | 0 | | | 0 | | | 503.8 | |
Other retail revenue (b) | | 14.9 | | | 0 | | | 0 | | | 14.9 | |
| Wholesale revenue | | | | | | | | |
| Wholesale revenue from contracts with customers | | 12.8 | | | 0 | | | (0.8) | | | 12.0 | |
| RTO ancillary revenue | | 32.8 | | | 0.1 | | | 0 | | | 32.9 | |
| Capacity revenue | | 5.0 | | | 0 | | | 0 | | | 5.0 | |
| Miscellaneous revenue | | | | | | | | |
Miscellaneous revenue from contracts with customers (c) | | 0 | | | 7.1 | | | 0 | | | 7.1 | |
| Other miscellaneous revenue | | 0.9 | | | 2.3 | | | (2.4) | | | 0.8 | |
| Total revenues | | $ | 570.2 | | | $ | 9.5 | | | $ | (3.2) | | | $ | 576.5 | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
(a) "Other" primarily includes Wright-Patterson Air Force Base revenues, billing service fees from CRES providers and other miscellaneous retail revenues from contracts with customers. |
| | | | | | | | | | | | | | | | |
| $ in millions | | Utility | | Other | | Adjustments and Eliminations | | Total |
| | | Three Months Ended September 30, 2019 |
| Retail revenue | | | | | | | | |
| Retail revenue from contracts with customers | | $ | 170.5 |
| | $ | — |
| | $ | — |
| | $ | 170.5 |
|
Other retail revenue (a) | | 3.8 |
| | — |
| | — |
| | 3.8 |
|
| Wholesale revenue | | | | | | | | |
| Wholesale revenue from contracts with customers | | 4.4 |
| | 5.0 |
| | (0.2 | ) | | 9.2 |
|
| RTO ancillary revenue | | 11.0 |
| | 0.1 |
| | — |
| | 11.1 |
|
| Capacity revenue | | 1.1 |
| | 1.1 |
| | — |
| | 2.2 |
|
Miscellaneous revenue from contracts with customers (b) | | — |
| | 2.0 |
| | — |
| | 2.0 |
|
| Miscellaneous revenue | | 0.3 |
| | 0.7 |
| | (0.8 | ) | | 0.2 |
|
| Total revenues | | $ | 191.1 |
| | $ | 8.9 |
| | $ | (1.0 | ) | | $ | 199.0 |
|
| | | | | | | | | |
| | | Three Months Ended September 30, 2018 |
| Retail revenue | | | | | | | | |
| Retail revenue from contracts with customers | | $ | 168.4 |
| | $ | — |
| | $ | (0.4 | ) | | $ | 168.0 |
|
Other retail revenue (a) | | 12.6 |
| | — |
| | — |
| | 12.6 |
|
| Wholesale revenue | | | | | | | | |
| Wholesale revenue from contracts with customers | | 4.9 |
| | 5.6 |
| | — |
| | 10.5 |
|
| RTO ancillary revenue | | 10.8 |
| | (0.1 | ) | | — |
| | 10.7 |
|
| Capacity revenue | | 2.0 |
| | 1.7 |
| | — |
| | 3.7 |
|
Miscellaneous revenue from contracts with customers (b) | | — |
| | 2.2 |
| | — |
| | 2.2 |
|
| Miscellaneous revenue | | — |
| | 0.5 |
| | (0.5 | ) | | — |
|
| Total revenues | | $ | 198.7 |
| | $ | 9.9 |
| | $ | (0.9 | ) | | $ | 207.7 |
|
| | | | | | | | | |
| | | Nine months ended September 30, 2019 |
| Retail revenue | | | | | | | | |
| Retail revenue from contracts with customers | | $ | 503.8 |
| | $ | — |
| | $ | — |
| | $ | 503.8 |
|
Other retail revenue (a) | | 14.9 |
| | — |
| | — |
| | 14.9 |
|
| Wholesale revenue | | | | | | | | |
| Wholesale revenue from contracts with customers | | 12.8 |
| | 11.4 |
| | (0.8 | ) | | 23.4 |
|
| RTO ancillary revenue | | 32.8 |
| | 0.2 |
| | — |
| | 33.0 |
|
| Capacity revenue | | 5.0 |
| | 4.2 |
| | — |
| | 9.2 |
|
Miscellaneous revenue from contracts with customers (b) | | — |
| | 7.1 |
| | — |
| | 7.1 |
|
| Miscellaneous revenue | | 0.9 |
| | 2.3 |
| | (2.4 | ) | | 0.8 |
|
| Total revenues | | $ | 570.2 |
| | $ | 25.2 |
| | $ | (3.2 | ) | | $ | 592.2 |
|
| | | | | | | | | |
| | | Nine months ended September 30, 2018 |
| Retail revenue | | | | | | | | |
| Retail revenue from contracts with customers | | $ | 469.3 |
| | $ | — |
| | $ | (0.8 | ) | | $ | 468.5 |
|
Other retail revenue (a) | | 31.4 |
| | — |
| | — |
| | 31.4 |
|
| Wholesale revenue | | | | | | | | |
| Wholesale revenue from contracts with customers | | 24.6 |
| | 16.7 |
| | — |
| | 41.3 |
|
| RTO ancillary revenue | | 32.4 |
| | 0.1 |
| | — |
| | 32.5 |
|
| Capacity revenue | | 5.8 |
| | 4.7 |
| | — |
| | 10.5 |
|
Miscellaneous revenue from contracts with customers (b) | | — |
| | 7.3 |
| | — |
| | 7.3 |
|
| Miscellaneous revenue | | — |
| | 1.9 |
| | (1.9 | ) | | — |
|
| Total revenues | | $ | 563.5 |
| | $ | 30.7 |
| | $ | (2.7 | ) | | $ | 591.5 |
|
| |
(a) | Other retail revenue primarily includes alternative revenue programs not accounted for under FASC 606. |
| |
(b) | (c) Miscellaneous revenue from contracts with customers primarily includes revenues for various services provided by Miami Valley Lighting. |
The balances of receivables from contracts with customers were $66.3$67.3 million and $72.6$65.1 million as of September 30, 20192020 and December 31, 2018,2019, respectively. Payment terms for all receivables from contracts with customers are typically within 30 days.
Note 13 – Dispositions
Beckjord Facility – On February 26, 2018,days, though during the third quarter of 2020 DP&L implemented and its co-ownersoffered extended payment plans to customers as a result of the retired Beckjord Facility agreed to transfer their interests in the retired Facility to a third party, including their obligations to remediate the Facility and its site,pandemic.
and the transfer occurred on that same date. As a result, DPL recognized a loss on the transfer of $11.7 million and made cash expenditures of $14.5 million, inclusive of cash expenditures for the transfer charges. The Beckjord Facility was retired in 2014, and, as such, the income / (loss) from continuing operations before income tax related to the Beckjord Facility was immaterial for the three and nine months ended September 30, 2018, excluding the loss on transfer noted above. Prior to the transfer, the Beckjord Facility was included in the Utility segment.
Note 1413 – Discontinued Operations
Conesville - In May 2020, AEP, the operator of the formerly co-owned Conesville EGU, retired Conesville Unit 4 as planned. On December 8, 2017, DPL and AES Ohio Generation completed the sale of their entire undivided interest in the Miami Fort Station and the Zimmer Station. On March 27, 2018,June 5, 2020, DPL and AES Ohio Generation, together with AEP, completed the saletransfer of their interests in the Peaker assetsretired Unit 4, including the associated environmental liabilities, to Kimura Power, LLC, and this transaction resulted inan unaffiliated third-party purchaser. As a lossresult, DPL recognized a gain on salethe transfer of $1.9$4.5 million for the nine months ended September 30, 2018. Further, on2020. For the transaction, DPL will make quarterly cash expenditures, totaling $4.0 million, through July 2022, of which $1.0 million has been paid through September 30, 2020. The transfer of Conesville Unit 4 was the last step in DPL's plan to exit its AES Ohio Generation business operations.
Stuart and Killen - On May 31, 2018, DPL and AES Ohio Generation retired the Stuart Station coal-fired and diesel-fired generating units and the Killen Station coal-fired generating unit and combustion turbine, as planned. On December 20, 2019, DPL and AES Ohio Generation, together with AES Ohio Generation's joint owners in the retired Stuart and Killen generating facilities, completed the transfer of the retired generating facilities, including the associated environmental liabilities, to an unaffiliated third-party purchaser.
Consequently, weDPL determined that the transfers of Conesville, Stuart and Killen along with the sales of the Peaker Assets in 2018 and Miami Fort and Zimmer in 2017 constitute the disposal of a group of components, which, as a whole, represent a strategic shift to exit its AES Ohio Generation business. As such, the disposal of this group of components as a whole, represents a strategic shift to exit generation, and, as such, qualifies to be presented as discontinued operations. Therefore, the results of operations, assets and liabilities of this group of components were reported as such in the Condensed Consolidated Statements of Operations and Condensed Consolidated Balance Sheets for all periods presented.
The following table summarizes the major categories of assets and liabilities at the datesdate indicated:
|
| | | | | | | | |
| $ in millions | | September 30, 2019 | | December 31, 2018 |
| Accounts receivable, net | | $ | 6.8 |
| | $ | 4.0 |
|
| Taxes applicable to subsequent years | | 0.6 |
| | 2.3 |
|
| Prepayments and other current assets | | 0.9 |
| | 2.4 |
|
| Intangible assets, net of amortization | | 0.2 |
| | 5.3 |
|
| Total assets of the disposal group classified as assets of discontinued operations and held-for-sale businesses in the balance sheets | | $ | 8.5 |
| | $ | 14.0 |
|
| | | | | |
| Accounts payable | | $ | 4.3 |
| | $ | 3.9 |
|
| Accrued taxes | | 2.4 |
| | 3.1 |
|
| Accrued and other current liabilities | | 3.2 |
| | 5.2 |
|
Deferred income taxes (a) | | (33.2 | ) | | (39.8 | ) |
| Taxes payable | | — |
| | 2.3 |
|
| Accrued pension and other post-retirement benefits | | — |
| | 9.7 |
|
| Asset retirement obligations | | 70.4 |
| | 90.4 |
|
| Other non-current liabilities | | 15.2 |
| | 6.6 |
|
| Total liabilities of the disposal group classified as liabilities of discontinued operations and held-for-sale businesses in the balance sheets | | $ | 62.3 |
| | $ | 81.4 |
|
| | | | | | | | | | |
(a)$ in millions | | | | December 31, 2019 |
| Accounts receivable, net | | | | $ | 18.0 | |
| | | | |
| | | | |
| Inventories | | | | 3.7 | |
| Taxes applicable to subsequent years | | | | 0.3 | |
| Prepayments and other current assets | | | | 0.3 | |
| | | | |
| | | | |
| | | | |
| Intangible assets, net of amortization | | | | 0.1 | |
| Other non-current assets | | | | 1.0 | |
| Total assets of the disposal group classified as assets of discontinued operations and held-for-sale businesses in the balance sheets | | | | $ | 23.4 | |
| | | | |
| Accounts payable | | | | $ | 5.6 | |
| | | | |
| Accrued taxes | | | | 0.3 | |
| Accrued and other current liabilities | | | | 3.1 | |
| | | | |
Deferred income taxes represent the tax asset position(a) | | | | (6.5) | |
| Taxes payable | | | | 0.3 | |
| | | | |
| Asset retirement obligations | | | | 8.3 | |
| Other non-current liabilities | | | | 6.3 | |
Total liabilities of the disposal group classified as liabilities of discontinued group of components, which were netted with liabilities on operations and held-for-sale businesses in the balance sheets | | | | DPL$ | prior to classification as discontinued operations.17.4 | |
(a) Deferred income taxes represent the tax asset position of the discontinued group of components, which were netted with liabilities on DPL prior to classification as discontinued operations.
The following table summarizes the revenues, operating costs, other expenses and income tax of discontinued operations for the periods indicated:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three months ended | | Nine months ended |
| | September 30, | | September 30, |
| $ in millions | | 2020 | | 2019 | | 2020 | | 2019 |
| Revenues | | $ | 0.9 | | | $ | 16.2 | | | $ | 23.3 | | | $ | 56.7 | |
| | | | | | | | |
| Operating costs and other expenses | | 0.5 | | | (17.2) | | | (23.9) | | | (26.6) | |
| | | | | | | | |
| Income from discontinued operations | | 1.4 | | | (1.0) | | | (0.6) | | | 30.1 | |
| Gain from disposal of discontinued operations | | 0 | | | 0 | | | 4.5 | | | 0.1 | |
| Income tax expense from discontinued operations | | 0.3 | | | (0.2) | | | 0.8 | | | 6.3 | |
| Net income from discontinued operations | | $ | 1.1 | | | $ | (0.8) | | | $ | 3.1 | | | $ | 23.9 | |
|
| | | | | | | | | | | | | | | | |
| | | Three months ended | | Nine months ended |
| | | September 30, | | September 30, |
| $ in millions | | 2019 | | 2018 | | 2019 | | 2018 |
| Revenues | | $ | 10.1 |
| | $ | 15.6 |
| | $ | 41.0 |
| | $ | 141.8 |
|
| Operating costs and other expenses | | (10.5 | ) | | (10.6 | ) | | (8.2 | ) | | (105.1 | ) |
| Income from discontinued operations | | (0.4 | ) | | 5.0 |
| | 32.8 |
| | 36.7 |
|
| Gain / (loss) from disposal of discontinued operations | | — |
| | 0.3 |
| | 0.1 |
| | (1.6 | ) |
| Income tax expense from discontinued operations | | 0.1 |
| | 1.0 |
| | 7.1 |
| | 5.9 |
|
| Net income from discontinued operations | | $ | (0.5 | ) | | $ | 4.3 |
| | $ | 25.8 |
| | $ | 29.2 |
|
Cash flows related to discontinued operations are included in our Condensed Consolidated Statements of Cash Flows. Cash flows from operating activities for discontinued operations were $(0.5)$1.5 million and $(7.2)$(1.7) million for the three months ended September 30, 20192020 and 2018,2019, respectively, and $12.4$5.1 million and $37.2$9.9 million for the nine months ended September 30, 20192020 and 2018,2019, respectively. Cash flows from investing activities for discontinued operations were $233.8$(0.4) million and $4.0 million, respectively, for the three and nine months ended September 30, 2018.2020. There were no material cash flows from
investing activities for the three and nine months ended September 30, 2019 or for the three months ended September 30, 2018.2019.
AROs of Discontinued Operations
DPL's Prior to the transfer of the retired Stuart and Killen generating facilities, continue to carrythe facilities carried ARO liabilities consisting primarily of river intake and discharge structures, coal unloading facilities, landfills and ash disposal facilities. In the first quarter of 2019, DPL reduced the ARO liability related to the Stuart and Killen ash ponds and landfills by a combined $22.5 million based on updated internal analyses that reduced estimated closure costs associated with these ash ponds and landfills. The remaining ARO liability related to Stuart and Killen is included in the Asset retirement obligations balance in the total liabilities of the disposal group classified as liabilities of discontinued operations and held-for-sale businesses in the balance sheets as of September 30, 2019 above. As these plants arewere no longer in service, the reduction to the ARO liability was also recorded as a credit to depreciation and amortization expense in the same amount. The credit to depreciation and amortization expense is included in operating costs and other expenses of discontinued operations for the nine months ended September 30, 2019 in the table above.
Note – 14 Risks and Uncertainties
COVID-19 Pandemic
The COVID-19 pandemic has severely impacted global economic activity, including electricity and energy consumption, and caused significant volatility and negative pressure in financial markets. The global impact of the outbreak has been rapidly evolving and many countries, including the United States, have reacted by instituting quarantines, mandating business and school closures and social distancing measures as well as restricting travel. The State of Ohio has implemented, among other things, stay-at-home and other social distancing measures to slow the spread of the virus, which has impacted energy demand within our service territory, though the stay-at-home restrictions have now been lifted in our service territory. On March 12, 2020, the PUCO also issued an emergency order prohibiting electric utilities, including us, from discontinuing electric utility service to customers. This prohibition ended for DP&L on September 1, 2020. We are taking a variety of measures in response to the spread of COVID-19 to ensure our ability to transmit, distribute and sell electric energy, ensure the health and safety of our employees, contractors, customers and communities and provide essential services to the communities in which we operate. In addition to the impacts to demand within our service territory, we also have incurred and expect to continue to incur expenses relating to COVID-19, and such expenses may include those that relate to events outside of our control.
As the economic impact of the COVID-19 pandemic started to materialize in Ohio in the second half of March and continued in the second and third quarters of 2020, the COVID-19 pandemic primarily impacted our retail sales demand as shown by the changes in weather-normalized volumes of kWh sold:
| | | | | | | | | | | | | | | | | | | | |
| Customer class | | For the three months ended September 30, 2020 compared to the same period in 2019 | | For the six months ended September 30, 2020 compared to the same period in 2019 (a) | | For the nine months ended September 30, 2020 compared to the same period in 2019 |
| Commercial | | (4.8)% | | (9.4)% | | (7.0)% |
| Industrial | | 0.9% | | (9.3)% | | (6.8)% |
| Residential | | 11.0% | | 9.8% | | 6.0% |
(a) This period most closely approximates the duration of the economic impact on our sales demand as a result of the COVID-19 pandemic.
We also have incurred, and expect to continue to incur, expenses relating to COVID-19; however, see Note 3 – Regulatory Matters for a discussion of regulatory measures, which partially mitigate the impact of these expenses. The magnitude and duration of the COVID-19 pandemic is unknown at this time and may have material and adverse effects on our results of operations, financial condition and cash flows in future periods.
FINANCIAL STATEMENTS
The Dayton Power and Light Company
|
| | | | | | | | | | | | | | | | |
| THE DAYTON POWER AND LIGHT COMPANY |
| Condensed Statements of Operations |
| (Unaudited) |
| | | Three months ended | | Nine months ended |
| | | September 30, | | September 30, |
| $ in millions | | 2019 | | 2018 | | 2019 | | 2018 |
| Revenues | | $ | 191.1 |
| | $ | 198.7 |
| | $ | 570.2 |
| | $ | 563.5 |
|
| | | | | | | | | |
| Operating costs and expenses | | | | | | | | |
| Net fuel cost | | 0.6 |
| | 0.1 |
| | 2.0 |
| | 1.7 |
|
| Net purchased power cost | | 65.9 |
| | 83.0 |
| | 193.3 |
| | 235.7 |
|
| Operation and maintenance | | 42.2 |
| | 33.8 |
| | 135.2 |
| | 105.9 |
|
| Depreciation and amortization | | 17.4 |
| | 19.1 |
| | 52.9 |
| | 56.5 |
|
| Taxes other than income taxes | | 20.8 |
| | 19.0 |
| | 58.2 |
| | 54.3 |
|
| Loss / (gain) on asset disposal | | (0.1 | ) | | — |
| | — |
| | 0.1 |
|
| Loss on disposal of business (Note 12) | | — |
| | — |
| | — |
| | 12.4 |
|
| Total operating costs and expenses | | 146.8 |
| | 155.0 |
| | 441.6 |
| | 466.6 |
|
| | | | | | | | | |
| Operating income | | 44.3 |
| | 43.7 |
| | 128.6 |
| | 96.9 |
|
| | | | | | | | | |
| Other income / (expense), net: | | | | | | | | |
| Interest expense | | (6.1 | ) | | (5.8 | ) | | (19.9 | ) | | (20.5 | ) |
| Loss on early extinguishment of debt | | — |
| | — |
| | — |
| | (0.6 | ) |
| Other income / (expense) | | (0.5 | ) | | (0.4 | ) | | 0.1 |
| | (1.9 | ) |
| Total other expense, net | | (6.6 | ) | | (6.2 | ) | | (19.8 | ) | | (23.0 | ) |
| | | | | | | | | |
| Income before income tax | | 37.7 |
| | 37.5 |
| | 108.8 |
| | 73.9 |
|
| | | | | | | | | |
| Income tax expense / (benefit) | | (7.2 | ) | | 6.3 |
| | 5.1 |
| | 12.0 |
|
| | | | | | | | | |
| Net income | | $ | 44.9 |
| | $ | 31.2 |
| | $ | 103.7 |
| | $ | 61.9 |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| THE DAYTON POWER AND LIGHT COMPANY |
| Condensed Statements of Operations |
| (Unaudited) |
| | Three months ended | | Nine months ended |
| | September 30, | | September 30, |
| $ in millions | | 2020 | | 2019 | | 2020 | | 2019 |
| Revenues | | $ | 177.0 | | | $ | 191.1 | | | $ | 499.1 | | | $ | 570.2 | |
| | | | | | | | |
| Operating costs and expenses | | | | | | | | |
| Net fuel cost | | 0.4 | | | 0.6 | | | 1.3 | | | 2.0 | |
| Net purchased power cost | | 65.7 | | | 65.9 | | | 177.1 | | | 193.3 | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| Operation and maintenance | | 47.8 | | | 42.2 | | | 137.7 | | | 135.2 | |
| Depreciation and amortization | | 18.2 | | | 17.4 | | | 53.7 | | | 52.9 | |
| Taxes other than income taxes | | 17.8 | | | 20.8 | | | 59.6 | | | 58.2 | |
| | | | | | | | |
| | | | | | | | |
| Other, net | | 0.1 | | | (0.1) | | | 0.1 | | | 0 | |
| | | | | | | | |
| Total operating costs and expenses | | 150.0 | | | 146.8 | | | 429.5 | | | 441.6 | |
| | | | | | | | |
| Operating income | | 27.0 | | | 44.3 | | | 69.6 | | | 128.6 | |
| | | | | | | | |
| Other income / (expense), net: | | | | | | | | |
| Interest expense | | (5.9) | | | (6.1) | | | (18.5) | | | (19.9) | |
| | | | | | | | |
| Other income / (expense) | | 0.2 | | | (0.5) | | | (1.4) | | | 0.1 | |
| Total other expense, net | | (5.7) | | | (6.6) | | | (19.9) | | | (19.8) | |
| | | | | | | | |
| Income before income tax | | 21.3 | | | 37.7 | | | 49.7 | | | 108.8 | |
| | | | | | | | |
| Income tax expense / (benefit) | | 3.5 | | | (7.2) | | | 2.4 | | | 5.1 | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| Net income | | $ | 17.8 | | | $ | 44.9 | | | $ | 47.3 | | | $ | 103.7 | |
See Notes to Condensed Financial Statements.
|
| | | | | | | | | | | | | | | | |
| THE DAYTON POWER AND LIGHT COMPANY |
| Condensed Statements of Comprehensive Income |
| (Unaudited) |
| | | Three months ended | | Nine months ended |
| | | September 30, | | September 30, |
| $ in millions | | 2019 | | 2018 | | 2019 | | 2018 |
| Net income | | $ | 44.9 |
| | $ | 31.2 |
| | $ | 103.7 |
| | $ | 61.9 |
|
| Derivative activity: | | | | | | | | |
| Change in derivative fair value, net of income tax (expense) / benefit of $0.0, $(0.1), $0.2 and $(0.1) for each respective period | | (0.1 | ) | | — |
| | (0.9 | ) | | 0.5 |
|
| Reclassification to earnings, net of income tax expense of $0.0, $0.1, $0.0 and $0.6 for each respective period | | — |
| | (0.2 | ) | | (0.1 | ) | | (0.5 | ) |
| Total change in fair value of derivatives | | (0.1 | ) | | (0.2 | ) | | (1.0 | ) | | — |
|
| | | | | | | | | |
| Pension and postretirement activity: | | | | | | | | |
| Reclassification to earnings, net of income tax (benefit) / expense of $0.9, $(0.2), $(0.5) and $(0.7) for each respective period | | 1.7 |
| | 0.8 |
| | 2.1 |
| | 2.5 |
|
| Total change in unfunded pension and postretirement obligations | | 1.7 |
| | 0.8 |
| | 2.1 |
| | 2.5 |
|
| | | | | | | | | |
| Other comprehensive income | | 1.6 |
| | 0.6 |
| | 1.1 |
| | 2.5 |
|
| | | | | | | | | |
| Net comprehensive income | | $ | 46.5 |
| | $ | 31.8 |
| | $ | 104.8 |
| | $ | 64.4 |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| THE DAYTON POWER AND LIGHT COMPANY |
| Condensed Statements of Comprehensive Income |
| (Unaudited) |
| | | | |
| | | | |
| | | | |
| | | | |
| | | | |
| | | | |
| | | | |
| | | | |
| | | | |
| | | | |
| | | | |
| | | | |
| | | | |
| | | | |
| | | | |
| | | | |
| | | | |
| | | | | | | | |
| | Three months ended | | Nine months ended |
| | September 30, | | September 30, |
| $ in millions | | 2020 | | 2019 | | 2020 | | 2019 |
| Net income | | $ | 17.8 | | | $ | 44.9 | | | $ | 47.3 | | | $ | 103.7 | |
| Derivative activity: | | | | | | | | |
| Change in derivative fair value, net of income tax benefit of $0.0, $0.0, $0.0 and $0.2 for each respective period | | 0.2 | | | (0.1) | | | 0.1 | | | (0.9) | |
| Reclassification to earnings, net of income tax benefit of $(0.1), $0.0, $(0.1) and $0.0 for each respective period | | (0.1) | | | 0 | | | (0.3) | | | (0.1) | |
| | | | | | | | |
| Total derivative activity | | 0.1 | | | (0.1) | | | (0.2) | | | (1.0) | |
| | | | | | | | |
| Pension and postretirement activity: | | | | | | | | |
| Reclassification to earnings, net of income tax (benefit) / expense of $(0.2), $0.9, $(0.6) and $(0.5) for each respective period | | 0.8 | | | 1.7 | | | 2.4 | | | 2.1 | |
| Total change in unfunded pension and postretirement obligations | | 0.8 | | | 1.7 | | | 2.4 | | | 2.1 | |
| | | | | | | | |
| Other comprehensive income | | 0.9 | | | 1.6 | | | 2.2 | | | 1.1 | |
| | | | | | | | |
| Net comprehensive income | | $ | 18.7 | | | $ | 46.5 | | | $ | 49.5 | | | $ | 104.8 | |
See Notes to Condensed Financial Statements.
|
| | | | | | | | |
| THE DAYTON POWER AND LIGHT COMPANY |
| Condensed Balance Sheets |
| (Unaudited) |
| $ in millions | | September 30, 2019 | | December 31, 2018 |
| ASSETS | | | | |
| Current assets: | | | | |
| Cash and cash equivalents | | $ | 14.4 |
| | $ | 45.0 |
|
| Restricted cash | | 17.6 |
| | 21.2 |
|
| Accounts receivable, net (Note 2) | | 71.7 |
| | 90.4 |
|
| Inventories (Note 2) | | 9.8 |
| | 7.7 |
|
| Taxes applicable to subsequent years | | 18.1 |
| | 72.4 |
|
| Regulatory assets, current | | 40.2 |
| | 41.1 |
|
| Taxes receivable | | 17.4 |
| | 19.6 |
|
| Prepayments and other current assets | | 8.6 |
| | 13.3 |
|
| Total current assets | | 197.8 |
| | 310.7 |
|
| | | | | |
| Property, plant & equipment: | | | | |
| Property, plant & equipment | | 2,306.5 |
| | 2,274.4 |
|
| Less: Accumulated depreciation and amortization | | (1,010.4 | ) | | (988.0 | ) |
| | | 1,296.1 |
| | 1,286.4 |
|
| Construction work in process | | 93.0 |
| | 31.7 |
|
| Total net property, plant & equipment | | 1,389.1 |
| | 1,318.1 |
|
| | | | | |
| Other non-current assets: | | | | |
| Regulatory assets, non-current | | 154.7 |
| | 152.6 |
|
| Intangible assets, net of amortization | | 18.1 |
| | 17.2 |
|
| Other non-current assets | | 19.7 |
| | 21.0 |
|
| Total other non-current assets | | 192.5 |
| | 190.8 |
|
| Total assets | | $ | 1,779.4 |
| | $ | 1,819.6 |
|
| | | | | |
| LIABILITIES AND SHAREHOLDER'S EQUITY | | | | |
| Current liabilities: | | | | |
| Short-term and current portion of long-term debt (Note 6) | | $ | 199.6 |
| | $ | 4.6 |
|
| Accounts payable | | 51.1 |
| | 55.8 |
|
| Accrued taxes | | 78.5 |
| | 75.7 |
|
| Accrued interest | | 6.5 |
| | 0.4 |
|
| Customer deposits | | 20.3 |
| | 21.3 |
|
| Regulatory liabilities, current | | 36.5 |
| | 34.9 |
|
| Accrued and other current liabilities | | 16.8 |
| | 17.5 |
|
| Total current liabilities | | 409.3 |
| | 210.2 |
|
| | | | | |
| Non-current liabilities: | | | | |
| Long-term debt (Note 6) | | 434.6 |
| | 581.5 |
|
| Deferred income taxes | | 132.5 |
| | 131.7 |
|
| Taxes payable | | 4.9 |
| | 77.1 |
|
| Regulatory liabilities, non-current | | 252.3 |
| | 278.3 |
|
| Accrued pension and other post-retirement benefits | | 73.9 |
| | 83.2 |
|
| Asset retirement obligations | | 4.7 |
| | 4.7 |
|
| Other non-current liabilities | | 7.4 |
| | 7.6 |
|
| Total non-current liabilities | | 910.3 |
| | 1,164.1 |
|
| | | | | |
| Commitments and contingencies (Note 10) | |
| |
|
| | | | | |
| Common shareholder's equity: | | | | |
| Common stock, at par value of $0.01 per share | | 0.4 |
| | 0.4 |
|
| 50,000,000 shares authorized, 41,172,173 shares issued and outstanding | | | | |
| Other paid-in capital | | 621.9 |
| | 711.8 |
|
| Accumulated other comprehensive loss | | (34.2 | ) | | (35.3 | ) |
| Accumulated deficit | | (128.3 | ) | | (231.6 | ) |
| Total common shareholder's equity | | 459.8 |
| | 445.3 |
|
| Total liabilities and shareholder's equity | | $ | 1,779.4 |
| | $ | 1,819.6 |
|
| | | | | | | | | | | | | | |
| THE DAYTON POWER AND LIGHT COMPANY |
| Condensed Balance Sheets |
| (Unaudited) |
| $ in millions | | September 30, 2020 | | December 31, 2019 |
| ASSETS | | | | |
| Current assets: | | | | |
| Cash and cash equivalents | | $ | 26.1 | | | $ | 10.8 | |
| Restricted cash | | 0.1 | | | 10.5 | |
| Accounts receivable, net of allowance for credit losses of $3.2 and $0.4, respectively (Note 2) | | 69.2 | | | 70.9 | |
| Inventories (Note 2) | | 8.2 | | | 10.4 | |
| Taxes applicable to subsequent years | | 19.7 | | | 77.4 | |
| Regulatory assets, current | | 20.9 | | | 19.7 | |
| Taxes receivable | | 32.8 | | | 35.7 | |
| Prepayments and other current assets | | 6.7 | | | 10.8 | |
| | | | |
| Total current assets | | 183.7 | | | 246.2 | |
| | | | |
| Property, plant & equipment: | | | | |
| Property, plant & equipment | | 2,409.5 | | | 2,333.6 | |
| Less: Accumulated depreciation and amortization | | (1,025.2) | | | (1,012.7) | |
| | | 1,384.3 | | | 1,320.9 | |
| Construction work in process | | 109.4 | | | 104.5 | |
| Total net property, plant & equipment | | 1,493.7 | | | 1,425.4 | |
| | | | |
| Other non-current assets: | | | | |
| Regulatory assets, non-current | | 177.0 | | | 173.8 | |
| Intangible assets, net of amortization | | 16.8 | | | 18.2 | |
| Other non-current assets | | 19.3 | | | 19.6 | |
| Total other non-current assets | | 213.1 | | | 211.6 | |
| Total assets | | $ | 1,890.5 | | | $ | 1,883.2 | |
| | | | |
| LIABILITIES AND SHAREHOLDER'S EQUITY | | | | |
| Current liabilities: | | | | |
| Short-term and current portion of long-term debt (Note 6) | | $ | 0.2 | | | $ | 179.8 | |
| Accounts payable | | 53.7 | | | 74.4 | |
| Accrued taxes | | 84.3 | | | 79.4 | |
| Accrued interest | | 6.0 | | | 1.4 | |
| Customer deposits | | 18.5 | | | 20.6 | |
| Regulatory liabilities, current | | 19.8 | | | 27.9 | |
| Accrued and other current liabilities | | 28.7 | | | 16.3 | |
| | | | |
| Total current liabilities | | 211.2 | | | 399.8 | |
| | | | |
| Non-current liabilities: | | | | |
| Long-term debt (Note 6) | | 573.9 | | | 434.6 | |
| Deferred income taxes | | 172.1 | | | 158.1 | |
| Taxes payable | | 2.8 | | | 82.3 | |
| Regulatory liabilities, non-current | | 220.5 | | | 243.6 | |
| Accrued pension and other post-retirement benefits | | 69.0 | | | 79.9 | |
| | | | |
| | | | |
| Other non-current liabilities | | 10.7 | | | 11.5 | |
| Total non-current liabilities | | 1,049.0 | | | 1,010.0 | |
| | | | |
| Commitments and contingencies (Note 9) | | | | |
| | | | |
| Common shareholder's equity: | | | | |
| Common stock, at par value of $0.01 per share | | 0.4 | | | 0.4 | |
| 50,000,000 shares authorized, 41,172,173 shares issued and outstanding | | | | |
| Other paid-in capital | | 724.4 | | | 617.0 | |
| Accumulated other comprehensive loss | | (34.7) | | | (36.9) | |
| Accumulated deficit | | (59.8) | | | (107.1) | |
| Total common shareholder's equity | | 630.3 | | | 473.4 | |
| Total liabilities and shareholder's equity | | $ | 1,890.5 | | | $ | 1,883.2 | |
See Notes to Condensed Financial Statements.
|
| | | | | | | | |
| THE DAYTON POWER AND LIGHT COMPANY |
| Condensed Statements of Cash Flows |
| (Unaudited) |
| | | Nine months ended September 30, |
| $ in millions | | 2019 | | 2018 |
| Cash flows from operating activities: | | | | |
| Net income | | $ | 103.7 |
| | $ | 61.9 |
|
| Adjustments to reconcile net income to net cash from operating activities: | | | | |
| Depreciation and amortization | | 52.9 |
| | 56.5 |
|
| Loss on early extinguishment of debt | | — |
| | 0.6 |
|
| Deferred income taxes | | (17.2 | ) | | (7.5 | ) |
| Loss on disposal of business | | — |
| | 12.4 |
|
| Changes in certain assets and liabilities: | | | | |
| Accounts receivable, net | | 18.9 |
| | (3.3 | ) |
| Inventories | | (2.1 | ) | | (0.2 | ) |
| Taxes applicable to subsequent years | | 54.3 |
| | 54.0 |
|
| Deferred regulatory costs, net | | 2.9 |
| | (4.1 | ) |
| Accounts payable | | (4.8 | ) | | (1.1 | ) |
| Accrued taxes payable / receivable | | (65.6 | ) | | (58.7 | ) |
| Accrued interest | | 6.0 |
| | (0.3 | ) |
| Accrued pension and other post-retirement benefits | | (9.3 | ) | | (3.1 | ) |
| Other | | (0.8 | ) | | 6.1 |
|
| Net cash provided by operating activities | | 138.9 |
| | 113.2 |
|
| Cash flows from investing activities: | | | | |
| Capital expenditures | | (121.1 | ) | | (65.0 | ) |
| Insurance proceeds | | — |
| | 0.1 |
|
| Payments on disposal of business | | — |
| | (14.5 | ) |
| Proceeds from sale of property | | — |
| | 10.6 |
|
| Other investing activities, net | | (3.5 | ) | | (0.2 | ) |
| Net cash used in investing activities | | (124.6 | ) | | (69.0 | ) |
| Cash flows from financing activities: | | | | |
| Payments of deferred financing costs | | (4.6 | ) | | — |
|
| Returns of capital paid to parent | | (90.0 | ) | | (43.8 | ) |
| Capital contributions from parent | | — |
| | 80.0 |
|
| Borrowings from revolving credit facilities | | 60.0 |
| | 30.0 |
|
| Repayment of borrowings from revolving credit facilities | | — |
| | (40.0 | ) |
| Issuance of long-term debt, net of discount | | 422.3 |
| | — |
|
| Retirement of long-term debt, including early payment premium | | (436.1 | ) | | (63.3 | ) |
| Other financing activities, net | | (0.1 | ) | | — |
|
| Net cash used in financing activities | | (48.5 | ) | | (37.1 | ) |
| Cash, cash equivalents, and restricted cash: | | | | |
| Net change | | (34.2 | ) | | 7.1 |
|
| Balance at beginning of period | | 66.2 |
| | 5.6 |
|
| Cash, cash equivalents, and restricted cash at end of period | | $ | 32.0 |
| | $ | 12.7 |
|
| Supplemental cash flow information: | | | | |
| Interest paid, net of amounts capitalized | | $ | 10.8 |
| | $ | 17.0 |
|
| Income taxes paid, net | | $ | 19.0 |
| | $ | 8.3 |
|
| Non-cash financing and investing activities: | | | | |
| Accruals for capital expenditures | | $ | 2.0 |
| | $ | 7.2 |
|
| | | | | | | | | | | | | | |
| THE DAYTON POWER AND LIGHT COMPANY |
| Condensed Statements of Cash Flows |
| (Unaudited) |
| | Nine months ended September 30, |
| $ in millions | | 2020 | | 2019 |
| Cash flows from operating activities: | | | | |
| Net income | | $ | 47.3 | | | $ | 103.7 | |
| Adjustments to reconcile net income to net cash from operating activities: | | | | |
| Depreciation and amortization | | 53.7 | | | 52.9 | |
| Amortization of deferred financing costs and debt discounts | | 2.9 | | | 2.8 | |
| | | | |
| Deferred income taxes | | (0.1) | | | (17.2) | |
| | | | |
| | | | |
| Changes in certain assets and liabilities: | | | | |
| Accounts receivable, net | | 1.7 | | | 18.9 | |
| Inventories | | 2.1 | | | (2.1) | |
| | | | |
| Taxes applicable to subsequent years | | 57.7 | | | 54.3 | |
| Deferred regulatory costs, net | | (17.1) | | | 2.9 | |
| Accounts payable | | (20.6) | | | (4.8) | |
| Accrued taxes payable / receivable | | (71.6) | | | (65.6) | |
| Accrued interest | | 4.6 | | | 6.0 | |
| | | | |
| Accrued pension and other post-retirement benefits | | (10.8) | | | (9.3) | |
| Other | | (0.1) | | | (3.6) | |
| Net cash provided by operating activities | | 49.7 | | | 138.9 | |
| Cash flows from investing activities: | | | | |
| Capital expenditures | | (125.1) | | | (121.1) | |
| | | | |
| | | | |
| | | | |
| | | | |
| Other investing activities, net | | (0.7) | | | (3.5) | |
| Net cash used in investing activities | | (125.8) | | | (124.6) | |
| Cash flows from financing activities: | | | | |
| Payments of deferred financing costs | | (1.2) | | | (4.6) | |
| Returns of capital paid to parent | | (27.7) | | | (90.0) | |
| Capital contributions from parent | | 150.0 | | | 0 | |
| Borrowings from revolving credit facilities | | 75.0 | | | 60.0 | |
| Repayment of borrowings from revolving credit facilities | | (115.0) | | | 0 | |
| Issuance of long-term debt, net of discount | | 140.0 | | | 422.3 | |
| Retirement of long-term debt, including early payment premium | | (140.0) | | | (436.1) | |
| | | | |
| | | | |
| | | | |
| Other financing activities, net | | (0.1) | | | (0.1) | |
| Net cash provided by / (used in) financing activities | | 81.0 | | | (48.5) | |
| | | | |
| Cash, cash equivalents, and restricted cash: | | | | |
| Net change | | 4.9 | | | (34.2) | |
| Balance at beginning of period | | 21.3 | | | 66.2 | |
| Cash, cash equivalents, and restricted cash at end of period | | $ | 26.2 | | | $ | 32.0 | |
| Supplemental cash flow information: | | | | |
| Interest paid, net of amounts capitalized | | $ | 10.5 | | | $ | 10.8 | |
| Income taxes paid, net | | $ | 0.1 | | | $ | 19.0 | |
| Non-cash financing and investing activities: | | | | |
| Accruals for capital expenditures | | $ | 16.4 | | | $ | 2.0 | |
See Notes to Condensed Financial Statements.
THE DAYTON POWER AND LIGHT COMPANY
Condensed Statements of Shareholder's Equity
(Unaudited)
|
| | | | | | | | | | | | | | | | | | | | | | | |
| | | Common Stock (a) | | | | | | | | |
| $ in millions | | Outstanding Shares | | Amount | | Other Paid-in Capital | | Accumulated Other Comprehensive Loss | | Accumulated Deficit | | Total |
| Balance, January 1, 2018 | | 41,172,173 |
| | $ | 0.4 |
| | $ | 685.8 |
| | $ | (36.2 | ) | | $ | (319.3 | ) | | $ | 330.7 |
|
| Net comprehensive income | | | | | | | | 1.1 |
| | 15.7 |
| | 16.8 |
|
| Return of capital | | | | | | (23.8 | ) | | | |
|
| | (23.8 | ) |
| Capital contributions from parent | | | | | | 80.0 |
| | | | | | 80.0 |
|
Other (b) | | | | | | (0.3 | ) | | (1.1 | ) | | 1.0 |
| | (0.4 | ) |
| Balance, March 31, 2018 | | 41,172,173 |
| | 0.4 |
| | 741.7 |
| | (36.2 | ) | | (302.6 | ) | | 403.3 |
|
| Net comprehensive income | | | | | | | | 0.8 |
| | 15.0 |
| | 15.8 |
|
| Balance, June 30, 2018 | | 41,172,173 |
| | 0.4 |
| | 741.7 |
| | (35.4 | ) | | (287.6 | ) | | 419.1 |
|
| Net comprehensive income / (loss) | | | | | | | | 0.6 |
| | 31.2 |
| | 31.8 |
|
| Return of capital | | | | | | (20.0 | ) | | | | | | (20.0 | ) |
| Other | | | | | | 0.1 |
| | | | | | 0.1 |
|
| Balance, September 30, 2018 | | 41,172,173 |
| | $ | 0.4 |
| | $ | 721.8 |
| | $ | (34.8 | ) | | $ | (256.4 | ) | | $ | 431.0 |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Common Stock (a) | | | | | | | | |
| $ in millions | | Outstanding Shares | | Amount | | Other Paid-in Capital | | Accumulated Other Comprehensive Loss | | Accumulated Deficit | | Total |
| Balance, January 1, 2020 | | 41,172,173 | | | $ | 0.4 | | | $ | 617.0 | | | $ | (36.9) | | | $ | (107.1) | | | $ | 473.4 | |
| Net comprehensive income | | | | | | | | 0.4 | | | 11.7 | | | 12.1 | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| Balance, March 31, 2020 | | 41,172,173 | | | 0.4 | | | 617.0 | | | (36.5) | | | (95.4) | | | 485.5 | |
| Net comprehensive income | | | | | | | | 0.9 | | | 17.8 | | | 18.7 | |
| Return of capital | | | | | | (14.2) | | | | | | | (14.2) | |
| Capital contribution from parent | | | | | | 150.0 | | | | | | 150.0 | |
| Other | | | | | | 0.1 | | | | | | | 0.1 | |
| Balance, June 30, 2020 | | 41,172,173 | | | 0.4 | | | 752.9 | | | (35.6) | | | (77.6) | | | 640.1 | |
| Net comprehensive income | | | | | | | | 0.9 | | | 17.8 | | | 18.7 | |
| | | | | | | | | | | | |
| Return of capital | | | | | | (28.5) | | | | | | | (28.5) | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| Balance, September 30, 2020 | | 41,172,173 | | | $ | 0.4 | | | $ | 724.4 | | | $ | (34.7) | | | $ | (59.8) | | | $ | 630.3 | |
| |
(a) | $0.01 par value, 50,000,000 shares authorized. |
| |
(b) | ASU 2016-01 “Recognition and Measurement of Financial Assets and Financial Liabilities” was effective as of January 1, 2018. This ASU requires the change in the fair value of equity instruments to be recorded in income rather than in Other Comprehensive Income. Equity Instruments were defined to include all mutual funds, regardless of the underlying investments. Therefore, as of January 1, 2018, AOCI of $1.7 million ($1.1 million net of tax) was reversed to Accumulated deficit. |
(a) $0.01 par value, 50,000,000 shares authorized. |
| | | | | | | | | | | | | | | | | | | | | | | |
| | | Common Stock (a) | | | | | | | | |
| $ in millions | | Outstanding Shares | | Amount | | Other Paid-in Capital | | Accumulated Other Comprehensive Loss | | Accumulated Deficit | | Total |
| Balance, January 1, 2019 | | 41,172,173 |
| | $ | 0.4 |
| | $ | 711.8 |
| | $ | (35.3 | ) | | $ | (231.6 | ) | | $ | 445.3 |
|
| Net comprehensive income | | | | | | | | 0.4 |
| | 29.0 |
| | 29.4 |
|
| Other | | | | | |
| | | | (0.3 | ) | | (0.3 | ) |
| Balance, March 31, 2019 | | 41,172,173 |
| | 0.4 |
| | 711.8 |
| | (34.9 | ) | | (202.9 | ) | | 474.4 |
|
| Net comprehensive income | | | | | | | | (0.9 | ) | | 29.8 |
| | 28.9 |
|
| Return of capital | | | | | | (70.0 | ) | | | | | | (70.0 | ) |
| Balance, June 30, 2019 | | 41,172,173 |
| | 0.4 |
| | 641.8 |
| | (35.8 | ) | | (173.1 | ) | | 433.3 |
|
| Net comprehensive income / (loss) | | | | | | | | 1.6 |
| | 44.9 |
| | 46.5 |
|
| Return of capital | | | | | | (20.0 | ) | | | | | | (20.0 | ) |
| Other | | | | | | 0.1 |
| | | | (0.1 | ) | | — |
|
| Balance, September 30, 2019 | | 41,172,173 |
| | $ | 0.4 |
| | $ | 621.9 |
| | $ | (34.2 | ) | | $ | (128.3 | ) | | $ | 459.8 |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Common Stock (a) | | | | | | | | |
| $ in millions | | Outstanding Shares | | Amount | | Other Paid-in Capital | | Accumulated Other Comprehensive Loss | | Accumulated Deficit | | Total |
| Balance, January 1, 2019 | | 41,172,173 | | | $ | 0.4 | | | $ | 711.8 | | | $ | (35.3) | | | $ | (231.6) | | | $ | 445.3 | |
| Net comprehensive income | | | | | | | | 0.4 | | | 29.0 | | | 29.4 | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| Other | | | | | | | | | | (0.3) | | | (0.3) | |
| Balance, March 31, 2019 | | 41,172,173 | | | 0.4 | | | 711.8 | | | (34.9) | | | (202.9) | | | 474.4 | |
| Net comprehensive income | | | | | | | | (0.9) | | | 29.8 | | | 28.9 | |
| Return of capital | | | | | | (70.0) | | | | | | | (70.0) | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| Balance, June 30, 2019 | | 41,172,173 | | | 0.4 | | | 641.8 | | | (35.8) | | | (173.1) | | | 433.3 | |
| Net comprehensive income | | | | | | | | 1.6 | | | 44.9 | | | 46.5 | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| Return of capital | | | | | | (20.0) | | | | | | | (20.0) | |
| Other | | | | | | 0.1 | | | | | (0.1) | | | 0 | |
| Balance, September 30, 2019 | | 41,172,173 | | | $ | 0.4 | | | $ | 621.9 | | | $ | (34.2) | | | $ | (128.3) | | | $ | 459.8 | |
| |
(a) | $0.01 par value, 50,000,000 shares authorized. |
(a)$0.01 par value, 50,000,000 shares authorized.
See Notes to Condensed Financial Statements.
The Dayton Power and Light Company
Notes to Condensed Financial Statements (Unaudited)
Note 1 – Overview and Summary of Significant Accounting Policies
Description of Business
DP&L is a public utility incorporated in 1911 under the laws of Ohio. Beginning in 2001, Ohio law gave Ohio consumers the right to choose the electric generation supplier from whom they purchase retail generation service; however, retail transmission and distribution services are still regulated. DP&L has the exclusive right to provide such transmission and distribution services to approximately 524,000530,000 customers located in West Central Ohio. Additionally, DP&L provides retail SSO electric service to residential, commercial, industrial and governmental customers in a 6,000-square mile area of West Central Ohio. As a result of Generation Separation, DP&L now only has 1 reportable segment, the Utility segment. In addition to DP&L's electric transmission and distribution businesses, the Utility segment includes revenues and costs associated with DP&L's investment in OVEC and the historical results of DP&L’s Beckjord and Hutchings Coal generating facilities,facility, which have either been closed or sold.is now closed. Principal industries located in DP&L’s service territory include automotive, food processing, paper, plastic, health care, data management, manufacturing and defense. FollowingDP&L's sales typically reflect the issuance of the DRO in September 2018seasonal weather patterns and the resultinggrowth of energy efficiency initiatives. However, the impacts of weather, energy efficiency programs and economic changes to the decoupling rider effectivein customer demand were largely offset in 2019 by DP&L’s Decoupling Rider, which was in place from January 1, 2019 DP&L'suntil December 18, 2019. distribution sales are primarily impacted by customer growth within our service territory.See Note 3 – Regulatory Matters for more information. DP&L sells its proportional share of energy and capacity from its investment in OVEC into the wholesale market.DP&L is a subsidiary of DPL. The terms “we,” “us,” “our” and “ours” are used to refer to DP&L.
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.
DP&L employed 642630 people as of September 30, 2019.2020. Approximately 58%59% of DP&L employees are under a collective bargaining agreement, which expiresexpired October 31, 2020. On October 29, 2020, DP&L reached a tentative agreement with the union. The ratification vote is set for November 9, 2020. The parties currently plan to work under the terms of the expired agreement until a new agreement is ratified.
Financial Statement Presentation
DP&L does not have any subsidiaries.
We have evaluated subsequent events through the date this report is issued.
Certain immaterial amounts from prior periods have been reclassified to conform to the current period presentation.
These financial statements have been prepared in accordance with GAAP for interim financial statements, the instructions of Form 10-Q and Regulation S-X. Accordingly, certain information and footnote disclosures normally included in the annual financial statements prepared in accordance with GAAP have been omitted from this interim report. Therefore, our interim financial statements in this report should be read along with the annual financial statements included in our Form 10-K for the fiscal year ended December 31, 2018.2019.
In the opinion of our management, the Condensed Financial Statements presented in this report contain all adjustments necessary to fairly state our financial position as of September 30, 2019;2020; our results of operations for the three and nine months ended September 30, 20192020 and 2018,2019, our cash flows for the nine months ended September 30, 20192020 and 20182019 and the changes in our equity for the three and nine months ended September 30, 20192020 and 2018.2019. Unless otherwise noted, all adjustments are normal and recurring in nature. Due to various factors, interim results for the three and nine months ended September 30, 20192020 may not be indicative of our results that will be realized for the full year ending December 31, 2019.2020.
The preparation of financial statements in conformity with GAAP requires us to make estimates and judgments that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities, and the revenues and expenses of the periods reported. Actual results could differ from these estimates. Significant items subject to such estimates and judgments include: recognition of revenue including unbilled revenues, the carrying
value of property, plant and equipment; the valuation of derivative instruments; the valuation of insurance and claims liabilities; the valuation of allowances for receivablescredit losses and deferred income taxes; regulatory assets and
liabilities; liabilities recorded for income tax exposures; litigation; contingencies; the valuation of AROs; and assets and liabilities related to employee benefits.
Cash, Cash Equivalents, and Restricted Cash
The following table provides a summary of cash, cash equivalents, and restricted cash amounts reported on the Condensed Balance SheetSheets that reconcile to the total of such amounts as shown on the Condensed Statements of Cash Flows:
| | | | | | | | | | | | | | |
| $ in millions | | September 30, 2020 | | December 31, 2019 |
| Cash and cash equivalents | | $ | 26.1 | | | $ | 10.8 | |
| Restricted cash | | 0.1 | | | 10.5 | |
| Cash, Cash Equivalents, and Restricted Cash, End of Period | | $ | 26.2 | | | $ | 21.3 | |
|
| | | | | | | | |
| $ in millions | | September 30, 2019 | | December 31, 2018 |
| Cash and cash equivalents | | $ | 14.4 |
| | $ | 45.0 |
|
| Restricted cash | | 17.6 |
| | 21.2 |
|
| Cash, Cash Equivalents, and Restricted Cash, End of Period | | $ | 32.0 |
| | $ | 66.2 |
|
Accounting for Taxes Collected from Customers and Remitted to Governmental Authorities
DP&L collects certain excise taxes levied by state or local governments from its customers. These taxes are accounted for on a net basis and not included in revenue. The amounts of such taxes collected for the three months ended September 30, 2020 and 2019 and 2018 were $13.0$13.4 million and $13.8$13.0 million, respectively. The amounts of such taxes collected for the nine months ended September 30, 2020 and 2019 were $36.7 million and 2018 were $37.3 million, and $39.2 million, respectively.
New accounting pronouncements adopted in 20192020 – The following table provides a brief description of recently adopted accounting pronouncements that had an impact on our financial statements. Accounting pronouncements not listed below were assessed and determined to be either not applicable or did not have a material impact on our financial statements.
|
| | | | | | | | | | |
| ASU Number and Name | Description | Date of Adoption | Effect on the financial statements upon adoption |
2018-02, Income Statement — Reporting Comprehensive Income2016-13, 2018-19, 2019-04, 2019-05, 2019-10, 2019-11, 2020-02, 2020-03 Financial Instruments - Credit Losses (Topic 220), Reclassification326): Measurement of Certain Tax Effects from AOCICredit Losses on Financial Instruments | This amendment allows a reclassificationSee discussion of the stranded tax effects resulting from the implementation of the Tax Cuts and Jobs Act from AOCI to retained earnings at the election of the filer. Because this amendment only relates to the reclassification of the income tax effects of the Tax Cuts and Jobs Act, the underlying guidance that requires that the effect of a change in tax laws or rates be included in income from continuing operations is not affected.ASU below. | January 1, 20192020 | We have not elected to reclassify any amounts to retained earnings. Our accounting policy for releasing the income tax effects from AOCI occurs on a portfolio basis. |
2017-12, Derivatives and Hedging (Topic 815): Targeted improvements to Accounting for Hedging Activities | The standard updates the hedge accounting model to expand the ability to hedge nonfinancial and financial risk components, reduce complexity, and ease certain documentation and assessment requirements. When facts and circumstances are the same as at the previous quantitative test, a subsequent quantitative effectiveness test is not required. The standard also eliminates the requirement to separately measure and report hedge ineffectiveness. For cash flow hedges, this means that the entire change in the fair value of a hedging instrument will be recorded in other comprehensive income and amounts deferred will be reclassified to earnings in the same income statement line as the hedged item.
Transition method: modified retrospective with the cumulative effect adjustment recorded to the opening balance of retained earnings as of the initial application date. Prospective for presentation and disclosures. | January 1, 2019 | The adoption of this standard had no material impact on our condensed financial statements. |
2016-02, 2018-01, 2018-10, 2018-11 Leases (Topic 842) | See "Adoption of FASC Topic 842, Leases" below.
| January 1, 2019 | See impact upon adoption of the standard below. |
Adoption of FASC Topic 842, "Leases"
On January 1, 2019,2020, we adopted ASU 2016-02ASC 326 LeasesFinancial Instruments - Credit Losses and its subsequent corresponding updates (“FASC 842”("ASC 326"). Under thisThe new standard lesseesupdates the impairment model for financial assets measured at amortized cost, known as the Current Expected Credit Loss ("CECL") model. For trade and other receivables, held-to-maturity debt securities, loans and other instruments, entities are required to recognize assets and liabilitiesuse a new forward-looking "expected loss" model that generally results in the earlier recognition of an allowance for most leases and recognize expenses in a manner similar to the current accounting method.credit losses. For lessors, the guidance modifies the lease classification criteria and the accounting for sales-type and direct financing leases. The guidance eliminates current real estate-specific provisions.
Under FASC 842,available-for-sale debt securities with unrealized losses, entities measure credit losses as it is expectedwas done under previous GAAP, except that fewer contracts will contain a lease. However,unrealized losses due to credit-related factors are now recognized as an allowance on the elimination of the real estate-specific guidance and changesbalance sheet with a corresponding adjustment to certain lessor classification criteria, more leases will qualify as sales-type leases and direct financing leases. Under these two models, a lessor will derecognize the asset and will recognize a net investment in a lease. According to FASC 842, the net investmentearnings in the lease includes the fair value of the
plant after the contract period but does not include variable payments such as margin on the sale of energy. Therefore, the net investment in the lease could be significantly different than the carrying amount of the underlying asset at lease commencement. In such circumstances, the difference between the initially recognized net investment in the lease and the carrying amount of the underlying asset is recognized as a gain/loss at lease commencement.
During the course of adopting FASC 842, we applied various practical expedients including:
The package of practical expedients (applied to all leases) that allowed lessees and lessors not to reassess:
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a. | whether any expired or existing contracts are or contain leases, |
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b. | lease classification for any expired or existing leases, and |
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c. | whether initial direct costs for any expired or existing leases qualify for capitalization under FASC 842. |
The transition practical expedient related to land easements, allowing us to carry forward our accounting treatment for land easements on existing agreements, and
The transition practical expedient for lessees that allowed businesses to not separate lease and non-lease components. We applied the practical expedient to all classes of underlying assets when valuing right-of-use assets and lease liabilities. Contracts where we are the lessor were separated between the lease and non-lease components.
We applied the modified retrospective method of adoption and elected to continue to apply the guidance in FASC 840 Leases to the comparative periods presented in the year of adoption.for ASC 326. Under this transition method, we applied the transition provisions starting at the date of adoption.
The new current expected credit loss model primarily impacts the calculation of expected credit losses on our trade accounts receivable. The adoption of FASC 842ASC 326 and application of CECL on our trade accounts receivable did not have a material impact on our Condensed Financial Statements.condensed financial statements.
New Accounting Pronouncements Issued But Not Yet Effective – The following table provides a brief description of recent accounting pronouncements that could have a material impact on our financial statements. Accounting pronouncements not listed below were assessed and determined to be either not applicable or are expected to have no material impact on our financial statements.
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| | | | | | | | | | |
| ASU Number and Name | Description | Date of Adoption | Effect on the financial statements upon adoption |
2016-13, 2019-04, 2019-05, Financial Instruments — Credit Losses2020-04, Reference Rate Form (Topic 326)848): MeasurementFacilitation of Credit Lossesthe Effects of Reference Rate Reform on Financial InstrumentsReporting | See discussionThe standard provides optional expedients and exceptions for applying GAAP to contracts, hedging relationships and other transactions that reference to LIBOR or another reference rate expected to be discontinued by reference rate reform. This standard is effective for a limited period of time (March 12, 2020 - December 21, 2022). | Effective for all entities March 12, 2020 - December 31, 2022 | We are currently evaluating the ASU below. | January 1, 2020 | We will adoptimpact of adopting the standard on January 1, 2020; see below for the evaluation of the impact of the adoption on theour condensed financial statements. |
ASU 2016-13 and its subsequent corresponding updates will update the impairment model for financial assets measured at amortized cost. For trade and other receivables, held-to-maturity debt securities, loans and other instruments, entities will be required to use a new forward-looking "expected loss" model that generally will result in the earlier recognition of allowance for losses. For available-for-sale debt securities with unrealized losses, entities will measure credit losses as it is done today, except that the losses will be recognized as an allowance rather than a reduction in the amortized cost of the securities. There are various transition methods available upon adoption.
We are currently evaluating the impact of adopting the standard on our condensed financial statements; however, it is expected that the new current expected credit loss model will primarily impact the calculation of expected credit losses on $72.1 million in gross trade accounts receivable.
Note 2 – Supplemental Financial Information
Accounts receivable and Inventories are as follows at September 30, 20192020 and December 31, 2018:2019:
| | | | | | | | | | | | | | |
| | September 30, | | December 31, |
| $ in millions | | 2020 | | 2019 |
| Accounts receivable, net: | | | | |
| Customer receivables | | $ | 51.2 | | | $ | 45.0 | |
| Unbilled revenue | | 15.1 | | | 19.4 | |
| Amounts due from affiliates | | 2.0 | | | 3.9 | |
| Due from PJM transmission enhancement settlement | | 1.8 | | | 1.8 | |
| Other | | 2.3 | | | 1.2 | |
| Allowance for credit losses | | (3.2) | | | (0.4) | |
| Total accounts receivable, net | | $ | 69.2 | | | $ | 70.9 | |
|
| | | | | | | | |
| | | September 30, | | December 31, |
| $ in millions | | 2019 | | 2018 |
| Accounts receivable, net: | | | | |
| Customer receivables | | $ | 50.0 |
| | $ | 53.3 |
|
| Unbilled revenue | | 15.2 |
| | 16.8 |
|
| Amounts due from affiliates | | 3.2 |
| | 2.3 |
|
| Due from PJM transmission enhancement settlement | | 2.4 |
| | 16.5 |
|
| Other | | 1.3 |
| | 2.4 |
|
| Provision for uncollectible accounts | | (0.4 | ) | | (0.9 | ) |
| Total accounts receivable, net | | $ | 71.7 |
| | $ | 90.4 |
|
| | | | | |
| Inventories, at average cost: | | | | |
| Materials and supplies | | $ | 9.8 |
| | $ | 7.1 |
|
| Other | | — |
| | 0.6 |
|
| Total inventories, at average cost | | $ | 9.8 |
| | $ | 7.7 |
|
The following table is a rollforward of our allowance for credit losses related to the accounts receivable balances for the nine months ended September 30, 2020:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| $ in millions | | Beginning Allowance Balance at January 1, 2020 | | Current Period Provision | | Write-offs Charged Against Allowances | | Recoveries Collected | | Ending Allowance Balance at September 30, 2020 |
| Allowance for credit losses | | $ | 0.4 | | | $ | 2.7 | | | $ | (3.5) | | | $ | 3.6 | | | $ | 3.2 | |
The allowance for credit losses primarily relates to utility customer receivables, including unbilled amounts. Expected credit loss estimates are developed by disaggregating customers into those with similar credit risk characteristics and using historical credit loss experience. In addition, we also consider how current and future economic conditions are expected to impact collectability, as applicable, including the economic impacts of the COVID-19 pandemic on our receivable balance as of September 30, 2020. Amounts are written off when reasonable collections efforts have been exhausted. On March 12, 2020, the PUCO issued an emergency order prohibiting electric utilities, including us, from discontinuing electric utility service to customers through September 1, 2020 due to the economic impacts of COVID-19. This order along with the economic impacts of COVID-19 has resulted in an increase in past due customer receivable balances, and thus the current period provision and the allowance for credit losses have increased during 2020. See Note 12 – Risks and Uncertainties for additional discussion of the COVID-19 pandemic.
Inventories consist of materials and supplies at September 30, 2020 and December 31, 2019.
Accumulated Other Comprehensive Income / (Loss)Loss
The amounts reclassified out of Accumulated Other Comprehensive Income / (Loss)Loss by component during the three and nine months ended September 30, 20192020 and 20182019 are as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Details about Accumulated Other Comprehensive Loss components | | Affected line item in the Condensed Statements of Operations | | Three months ended | | Nine months ended |
| | | | September 30, | | September 30, |
| $ in millions | | | | 2020 | | 2019 | | 2020 | | 2019 |
| Gains and losses on cash flow hedges (Note 5): | | | | | | | | |
| | Interest expense | | $ | 0 | | | $ | 0 | | | $ | (0.2) | | | $ | (0.1) | |
| | Income tax benefit | | (0.1) | | | 0 | | | (0.1) | | | 0 | |
| | Net of income taxes | | (0.1) | | | 0 | | | (0.3) | | | (0.1) | |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
| Amortization of defined benefit pension items (Note 8): | | | | | | | | |
| | Other expense | | 1.0 | | | 0.8 | | | 3.0 | | | 2.6 | |
| | Income tax expense / (benefit) | | (0.2) | | | 0.9 | | | (0.6) | | | (0.5) | |
| | Net of income taxes | | 0.8 | | | 1.7 | | | 2.4 | | | 2.1 | |
| | | | | | | | | | |
| Total reclassifications for the period, net of income taxes | | $ | 0.7 | | | $ | 1.7 | | | $ | 2.1 | | | $ | 2.0 | |
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| | | | | | | | | | | | | | | | | | |
| Details about Accumulated Other Comprehensive Income / (Loss) components | | Affected line item in the Condensed Statements of Operations | | Three months ended | | Nine months ended |
| | | | | September 30, | | September 30, |
| $ in millions | | | | 2019 | | 2018 | | 2019 | | 2018 |
| Gains and losses on cash flow hedges (Note 5): | | | | | | | | |
| | | Interest expense | | $ | — |
| | $ | (0.3 | ) | | $ | (0.1 | ) | | $ | (1.1 | ) |
| | | Income tax expense | | — |
| | 0.1 |
| | — |
| | 0.6 |
|
| | | Net of income taxes | | — |
| | (0.2 | ) | | (0.1 | ) | | (0.5 | ) |
| | | | | | | | | | | |
| Amortization of defined benefit pension items (Note 8): | | | | | | | | |
| | | Other expense | | 0.8 |
| | 1.0 |
| | 2.6 |
| | 3.2 |
|
| | | Income tax expense / (benefit) | | 0.9 |
| | (0.2 | ) | | (0.5 | ) | | (0.7 | ) |
| | | Net of income taxes | | 1.7 |
| | 0.8 |
| | 2.1 |
| | 2.5 |
|
| | | | | | | | | | | |
| Total reclassifications for the period, net of income taxes | | $ | 1.7 |
| | $ | 0.6 |
| | $ | 2.0 |
| | $ | 2.0 |
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The changes in the components of Accumulated Other Comprehensive Income / (Loss)Loss during the nine months ended September 30, 20192020 are as follows:
| | | | | | | | | | | | | | | | | | | | |
| $ in millions | | Gains / (losses) on cash flow hedges | | Change in unfunded pension and postretirement benefit obligations | | Total |
| Balance at January 1, 2020 | | $ | (0.4) | | | $ | (36.5) | | | $ | (36.9) | |
| | | | | | |
| Other comprehensive income before reclassifications | | 0.1 | | | 0 | | | 0.1 | |
| Amounts reclassified from AOCL to earnings | | (0.3) | | | 2.4 | | | 2.1 | |
| Net current period other comprehensive income / (loss) | | (0.2) | | | 2.4 | | | 2.2 | |
| | | | | | |
| Balance at September 30, 2020 | | $ | (0.6) | | | $ | (34.1) | | | $ | (34.7) | |
|
| | | | | | | | | | | | |
| $ in millions | | Gains / (losses) on cash flow hedges | | Change in unfunded pension and postretirement benefit obligation | | Total |
| Balance at January 1, 2019 | | $ | 0.6 |
| | $ | (35.9 | ) | | $ | (35.3 | ) |
| | | | | | | |
| Other comprehensive loss before reclassifications | | (0.9 | ) | | — |
| | (0.9 | ) |
| Amounts reclassified from AOCI to earnings | | (0.1 | ) | | 2.1 |
| | 2.0 |
|
| Net current period other comprehensive income / (loss) | | (1.0 | ) | | 2.1 |
| | 1.1 |
|
| | | | | | | |
| Balance at September 30, 2019 | | $ | (0.4 | ) | | $ | (33.8 | ) | | $ | (34.2 | ) |
Note 3 – Regulatory Matters
DMRESP v. MRO and SEET Proceedings
OnOhio law requires utilities to file either an ESP or MRO plan to establish SSO rates. From November 1, 2017 through December 18, 2019, DP&L operated pursuant to an approved ESP plan, which was initially approved on October 20, 2017 (ESP 3). On November 21, 2019, the PUCO approved DP&L’s 2017 ESP. On January 7, 2019, the Ohio Consumers' Counsel appealed to the Supreme Court of Ohio the 2017issued a supplemental order modifying ESP with respect to the bypassability of the Reconciliation Rider3, and the exclusion of the DMR from the SEET. That proceeding has been stayed pending an appeal inas a related case involving another utility.
Pursuant to the 2017 ESP, on January 22, 2019,result DP&L filed a request with the PUCO for a two-year extensionNotice of Withdrawal of its DMR through October 2022,ESP 3 Application and requested to revert to the ESP rates that were in the proposed amounteffect prior to ESP 3. The Notice of $199.0 million for each of the two additional years. 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. DP&L’s DMP investments are contingent upon the PUCO approving the two-year extension of its DMR.
A rehearing process in DP&L's 2017 ESP case, including the DMR, remains pending. On August 1, 2019, DP&L filed a supplemental brief with the PUCO focused on the applicability of a recent court decision involving another Ohio utility’s DMR which is similar to, but not identical to, DP&L’s DMR.
Ohio House Bill 6
On July 23, 2019, the Governor of Ohio signed Ohio House Bill 6, which, among other things, does the following:
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• | beginning January 1, 2020, replaces DP&L’s non-bypassable Reconciliation Rider, permitting DP&L to defer, recover or credit the net proceeds from selling energy and capacity received as part of DP&L’s interest in OVEC and its OVEC-related costs through 2023, with a non-bypassable recovery mechanism for recovery of prudently incurred OVEC costs through 2030;
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eliminates the annual energy efficiency targets for Ohio utilities after 2020; and
allows Ohio utilities to construct customer-sited renewable generation for mercantile customers or groups of mercantile customers, the costs of which may only be recovered from those customers.
Regulatory impact of tax reform
On January 10, 2018, the PUCO initiated a proceeding to consider the impacts of the TCJA to determine the appropriate course of action to pass benefits resulting from the legislation on to ratepayers. The PUCO also directed Ohio utilities to record deferred liabilities for the estimated reduction in federal income tax resulting from the TCJA beginning January 1, 2018. Beginning October 1, 2018, the new distribution rates approved in the DRO include the impacts of the decrease in current federal income taxes as a result of the TCJA. Under the terms of the stipulation approved in the DRO, DP&L agreed to file an application at the PUCO to refund eligible excess accumulated deferred income taxes and any related regulatory liability over a ten-year period. DP&L made such a filing on March 1, 2019. DP&L negotiated a unanimous stipulation with the parties in the proceeding, agreeing to return a total of $65.1 million, $83.2 million when including taxes associated with the refunds. This stipulationWithdrawal was approved by the PUCO on September 26,December 18, 2019. See Note 7 – Income TaxesThe PUCO order required, among other things, DP&L to conduct both an ESP v. MRO Test to validate that the ESP is expected to be more favorable in the aggregate than what would be experienced under an MRO, and a prospective SEET, which were filed with the PUCO on April 1, 2020. DP&L is also subject to an annual retrospective SEET.
On October 23, 2020, DP&L entered into a Stipulation and Recommendation (settlement) with the staff of the PUCO and various customers, and organizations representing customers of DP&L and certain other parties with respect to, among other matters, DP&L’s applications pending at the PUCO for additional information. In connection(i) approval of DP&L’s plan to modernize its distribution grid (the Smart Grid Plan), (ii) findings that DP&L passed the SEET for 2018 and 2019, and (iii) findings that DP&L’s current ESP 1 satisfies the SEET and the more favorable in the aggregate (MFA) regulatory test. The settlement is subject to, and conditioned upon, approval by the PUCO. A hearing has been set for January 11, 2021 for consideration of this settlement. The settlement would provide, among other items, for the following:
•Approval of the Smart Grid Plan outlined in the Smart Grid Plan application filed by DP&L with this stipulation, we reduced our long-termthe PUCO, as modified by the terms of the settlement, including, subject to offsetting operational benefits and certain other conditions, a return on and recovery of up to $249.0 million of Smart Grid Plan Phase 1 capital investments and recovery of operational and maintenance expenses through DP&L’s existing Infrastructure Investment Rider for a term of four years, under an aggregate cap of $267.6 million on the amount of such
investments and expenses that is recoverable, and an acknowledgement that DP&L may file a subsequent application with the PUCO within three years seeking approvals for Phase 2 of the Smart Grid Plan;
•A commitment by DP&L to invest in a customer information system and supporting technologies during Phase 1 of the Smart Grid Plan, with DP&L recovering a return on and of prudently incurred capital investments and operational and maintenance expenses, including deferred operational and maintenance expense amounts, in a future rate case;
•A determination that DP&L’s ESP 1 satisfies the prospective SEET and the MFA regulatory liabilitytest;
•A recommendation by parties to the settlement that the PUCO also finds that DP&L satisfies the retrospective SEET for 2018 and 2019;
•A commitment by DP&L to file an application with the PUCO no later than October 1, 2023 for a new electric security plan that does not seek to implement certain non-bypassable charges, including those related to provider of last resort risks, stability, or financial integrity; and
•DP&L shareholder funding, in an aggregate amount of approximately $30.0 million over four years, for certain economic development discounts, incentives, and grants to certain commercial and industrial customers, including hospitals and manufacturers, assistance for low-income customers as well as the residents and businesses of the City of Dayton, and promotion of solar and resiliency development within DP&L’s service territory.
Certain parties which intervened in the ESP proceedings have filed petitions for rehearing of the recent PUCO ESP orders; some of which seek to eliminate DP&L’s RSC from the ESP 1 rates that are currently in place and others seek to re-implement the 2017 ESP, but without the DMR. We are unable to predict the outcomes of these petitions, but if these result in terms that are more adverse than DP&L's current ESP rate plan, it could have a material adverse effect on our results of operations, financial condition and cash flows. The parties signing the above-referenced settlement have agreed to withdraw their respective petitions if the settlement is approved by the PUCO without material modification.
Decoupling
On January 23, 2020 DP&L filed with the PUCO requesting approval to defer its decoupling costs consistent with the methodology approved in its Distribution Rate Case. If approved, deferral would be effective December 18, 2019 and going forward would reduce impacts of weather, energy efficiency programs and economic changes in customer demand.
COVID-19
In response to the PUCO’s COVID-19 emergency orders, DP&L filed an Application on March 23, 2020, requesting waivers of certain rule and tariff requirements and deferral of certain costs and revenues including those related to deposits and reconnection fees, late payment fees, credit card fees; and waived or uncollected amounts associated with putting customers on payment plans. On May 20, 2020, the PUCO approved the application and required DP&L to file a plan outlining the timing and steps it plans to take in an effort to return to normal operations. The authorized deferral of those certain costs and revenues must be offset by COVID-19 related savings. DP&L filed its plan on July 15, 2020 and was approved by the PUCO on August 12, 2020. As a result, DP&L has recorded a
$0.8 million regulatory asset as of September 30, 2020. Recovery of these deferrals will be addressed in a future
rate proceeding.
FERC Proceedings
On November 15, 2018 the FERC issued a Notice of Proposed Rulemaking (NOPR) to address amortization of excess accumulated deferred income taxes resulting from the TCJA and their impact on transmission rates. Such notice requires all public utility transmission providers with stated transmission rates under an Open Access Transmission Tariff (OATT) to determine the amount of excess deferred income taxes caused by $23.4 million.the TCJA. On March 3, 2020, DP&L filed an application before the FERC to change its transmission rate from a stated rate to a formula rate, which was accepted by the FERC and made effective as of May 3, 2020, subject to further proceeding and potential refunds. The formula rate includes adjustments to flow back over time the excess deferred income taxes caused by the TCJA. The NOPR, therefore, no longer applies to DP&L. The rate changes will increase revenues by approximately $4.1 million through the end of 2020 as of the effective date, subject to refund based on final approved rates.
Note 4 – Fair Value
The fair value of current financial assets and liabilities, debt service reserves and other deposits approximate their reported carrying amounts. The estimated fair values of our assets and liabilities have been determined using
available market information. By virtue of these amounts being estimates and based on hypothetical transactions to sell assets or transfer liabilities, the use of different market assumptions and/or estimation methodologies may have a material effect on the estimated fair value amounts. For further information on our valuation techniques and policies, see Note 5—Fair Value in Item 8.—Financial Statements and Supplementary Data of our Form 10-K.
The following table presents the fair value, carrying value and cost of our non-derivative instruments at September 30, 20192020 and December 31, 2018.2019. Further information about the fair value of our derivative instruments can be found in Note 5 – Derivative Instruments and Hedging Activities.
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| | September 30, 2020 | | December 31, 2019 |
| $ in millions | | Cost | | Fair Value | | Cost | | Fair Value |
| Assets | | | | | | | | |
| Money market funds | | $ | 0.2 | | | $ | 0.2 | | | $ | 0.3 | | | $ | 0.3 | |
| Equity securities | | 2.1 | | | 3.9 | | | 2.3 | | | 4.2 | |
| Debt securities | | 4.0 | | | 4.1 | | | 4.0 | | | 4.1 | |
| Hedge funds | | 0 | | | 0 | | | 0.1 | | | 0.1 | |
| | | | | | | | |
| Tangible assets | | 0 | | | 0 | | | 0.1 | | | 0.1 | |
| Total assets | | $ | 6.3 | | | $ | 8.2 | | | $ | 6.8 | | | $ | 8.8 | |
| | | | | | | | |
| | Carrying Value | | Fair Value | | Carrying Value | | Fair Value |
| Liabilities | | | | | | | | |
| Long-term debt | | $ | 574.1 | | | $ | 615.2 | | | $ | 574.4 | | | $ | 600.5 | |
| | | | | | | | |
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| | | | | | | | |
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| | | | | | | | | | | | | | | | |
| | | September 30, 2019 | | December 31, 2018 |
| $ in millions | | Cost | | Fair Value | | Cost | | Fair Value |
| Assets | | | | | | | | |
| Money market funds | | $ | 0.2 |
| | $ | 0.2 |
| | $ | 0.4 |
| | $ | 0.4 |
|
| Equity securities | | 2.3 |
| | 3.9 |
| | 2.4 |
| | 3.5 |
|
| Debt securities | | 4.1 |
| | 4.1 |
| | 4.1 |
| | 4.0 |
|
| Hedge funds | | 0.1 |
| | 0.1 |
| | 0.1 |
| | 0.1 |
|
| Tangible assets | | 0.1 |
| | 0.1 |
| | 0.1 |
| | 0.1 |
|
| Total assets | | $ | 6.8 |
| | $ | 8.4 |
| | $ | 7.1 |
| | $ | 8.1 |
|
| | | | | | | | | |
| | | Carrying Value | | Fair Value | | Carrying Value | | Fair Value |
| Liabilities | | | | | | | | |
| Long-term debt | | $ | 574.2 |
| | $ | 631.0 |
| | $ | 586.1 |
| | $ | 593.8 |
|
These financial instruments are not subject to master netting agreements or collateral requirements and as such are presented in the Condensed Balance Sheet at their gross fair value, except for Long-term debt, which is presented at amortized carrying value.
We did not have any transfers of the fair values of our financial instruments between Level 1, Level 2 or Level 3 of the fair value hierarchy during the nine months ended September 30, 20192020 or 2018.2019.
Master Trust Assets
DP&L established a Master Trust to hold assets that could be used for the benefit of employees participating in employee benefit plans and these assets are not used for general operating purposes. On January 1, 2018, AOCI of $1.7 million ($1.1 million net of tax) was reversed to Accumulated Deficit and all future changes to fair value on the Master Trust Assets will be included in income in the period that the changes occur. Changes to fair value were not material for the nine months ended September 30, 2019 or 2018. These assets are primarily comprised of open-ended mutual funds, which are valued using the net asset value per unit. These investments are recorded at fair value within Other deferred assets on the Condensed Balance Sheets and classified as available for sale.equity investments. We recorded net unrealized gains / (losses) of $0.3 million and $(0.1) million during the three months ended September 30, 2020 and 2019, respectively, and $0.0 million and $0.6 million during the during the nine months ended September 30, 2020 and 2019, respectively. These amounts are included in "Other income" in our Condensed Statements of Operations.
Long-term debt
The fair value of debt is based on current public market prices for disclosure purposes only. Unrealized gains or losses are not recognized in the financial statements as long-term debt is presented at carrying value, net of unamortized premium or discount and unamortized deferred financing costs in the financial statements. The long-term debt amounts include the current portion payable in the next twelve months and have maturities that range from 2020 to 2061.
The fair value of assets and liabilities at September 30, 20192020 and December 31, 20182019 and the respective category within the fair value hierarchy for DP&L is as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| $ in millions | | Fair value at September 30, 2020 (a) | | Fair value at December 31, 2019 (a) |
| | Level 1 | | Level 2 | | Level 3 | | Total | | Level 1 | | Level 2 | | Level 3 | | Total |
| Assets | | | | | | | | | | | | | | | | |
| Master Trust assets | | | | | | | | | | | | | | | | |
| Money market funds | | $ | 0.2 | | | $ | 0 | | | $ | 0 | | | $ | 0.2 | | | $ | 0.3 | | | $ | 0 | | | $ | 0 | | | $ | 0.3 | |
| Equity securities | | 0 | | | 3.9 | | | 0 | | | 3.9 | | | 0 | | | 4.2 | | | 0 | | | 4.2 | |
| Debt securities | | 0 | | | 4.1 | | | 0 | | | 4.1 | | | 0 | | | 4.1 | | | 0 | | | 4.1 | |
| Hedge funds | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 0.1 | | | 0 | | | 0.1 | |
| | | | | | | | | | | | | | | | |
| Tangible assets | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 0.1 | | | 0 | | | 0.1 | |
| Total Master Trust assets | | 0.2 | | | 8.0 | | | 0 | | | 8.2 | | | 0.3 | | | 8.5 | | | 0 | | | 8.8 | |
| Derivative assets | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
| Interest rate hedges | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 0.1 | | | 0 | | | 0.1 | |
| | | | | | | | | | | | | | | | |
| Total derivative assets | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 0.1 | | | 0 | | | 0.1 | |
| | | | | | | | | | | | | | | | |
| Total assets | | $ | 0.2 | | | $ | 8.0 | | | $ | 0 | | | $ | 8.2 | | | $ | 0.3 | | | $ | 8.6 | | | $ | 0 | | | $ | 8.9 | |
| | | | | | | | | | | | | | | | |
| Liabilities | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
| Long-term debt | | $ | 0 | | | $ | 597.8 | | | $ | 17.4 | | | $ | 615.2 | | | $ | 0 | | | $ | 583.0 | | | $ | 17.5 | | | $ | 600.5 | |
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
| Total liabilities | | $ | 0 | | | $ | 597.8 | | | $ | 17.4 | | | $ | 615.2 | | | $ | 0 | | | $ | 583.0 | | | $ | 17.5 | | | $ | 600.5 | |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| $ in millions | | Fair value at September 30, 2019 (a) | | Fair value at December 31, 2018 (a) |
| | | Level 1 | | Level 2 | | Level 3 | | Total | | Level 1 | | Level 2 | | Level 3 | | Total |
| Assets | | | | | | | | | | | | | | | | |
| Master Trust assets | | | | | | | | | | | | | | | | |
| Money market funds | | $ | 0.2 |
| | $ | — |
| | $ | — |
| | $ | 0.2 |
| | $ | 0.4 |
| | $ | — |
| | $ | — |
| | $ | 0.4 |
|
| Equity securities | | — |
| | 3.9 |
| | — |
| | 3.9 |
| | — |
| | 3.5 |
| | — |
| | 3.5 |
|
| Debt securities | | — |
| | 4.1 |
| | — |
| | 4.1 |
| | — |
| | 4.0 |
| | — |
| | 4.0 |
|
| Hedge funds | | — |
| | 0.1 |
| | — |
| | 0.1 |
| | — |
| | 0.1 |
| | — |
| | 0.1 |
|
| Tangible assets | | — |
| | 0.1 |
| | — |
| | 0.1 |
| | — |
| | 0.1 |
| | — |
| | 0.1 |
|
| Total Master Trust assets | | 0.2 |
| | 8.2 |
| | — |
| | 8.4 |
| | 0.4 |
| | 7.7 |
| | — |
| | 8.1 |
|
| Derivative assets | | | | | | | | | | | | | | | | |
| Interest rate hedges | | — |
| | 0.2 |
| | — |
| | 0.2 |
| | — |
| | 1.5 |
| | — |
| | 1.5 |
|
| Total derivative assets | | — |
| | 0.2 |
| | — |
| | 0.2 |
| | — |
| | 1.5 |
| | — |
| | 1.5 |
|
| | | | | | | | | | | | | | | | | |
| Total assets | | $ | 0.2 |
| | $ | 8.4 |
| | $ | — |
| | $ | 8.6 |
| | $ | 0.4 |
| | $ | 9.2 |
| | $ | — |
| | $ | 9.6 |
|
| | | | | | | | | | | | | | | | | |
| Liabilities | | | | | | | | | | | | | | | | |
| Long-term debt | | $ | — |
| | $ | 613.4 |
| | $ | 17.6 |
| | 631.0 |
| | $ | — |
| | $ | 576.1 |
| | $ | 17.7 |
| | $ | 593.8 |
|
| | | | | | | | |
|
| | | | | | | |
|
|
| Total liabilities | | $ | — |
| | $ | 613.4 |
| | $ | 17.6 |
| | $ | 631.0 |
| | $ | — |
| | $ | 576.1 |
| | $ | 17.7 |
| | $ | 593.8 |
|
| |
(a) | (a) Includes credit valuation adjustment |
Our financial instruments are valued using the market approach in the following categories:
Level 1 inputs are used for money market accounts that are considered cash equivalents. The fair value is determined by reference to quoted market prices and other relevant information generated by market transactions.
Level 2 inputs are used to value derivatives such as interest rate hedge contracts which are valued using a benchmark interest rate. Other Level 2 assets include open-ended mutual funds in the Master Trust, which are valued using the end of day NAV per unit.
Level 3 inputs such as certain debt balances are considered a Level 3 input because the notes are not publicly traded. Our long-term debt is fair valued for disclosure purposes only.
All of the inputs to the fair value of our derivative instruments are from quoted market prices.
Our long-term debt is fair valued for disclosure purposes only and most of the fair values are determined using quoted market prices in inactive markets. These fair value inputs are considered Level 2 in the fair value hierarchy. As the Wright-Patterson Air Force Base note is not publicly traded, fair value is assumed to equal carrying value. Thesethe fair value inputs are considered Level 3 in the fair value hierarchy as there are no observable inputs. Additional Level 3 disclosures are not presented since our long-term debt is not recorded at fair value.
Note 5 – Derivative Instruments and Hedging Activities
For further information on our derivative and hedge accounting policies, See Note 1 – Overview and Summary of Significant Accounting Policies – Financial Derivatives and Note 6 - Derivative Instruments and Hedging Activities
In the normal course of business,
DP&L enters into interest rate hedges to manage the interest rate risk of our variable rate debt. All of our derivative instruments are used for risk management purposes and are designated as cash flow hedges if they qualify under FASC 815 for accounting purposes. In prior periods, we have used commodity derivatives principally to manage the risk of changes in market prices for commodities.
Cash Flow Hedges
As part of our risk management processes, we identify
In August 2020, the relationships between hedging instruments and hedged items, as well as the risk management objective and strategy for undertaking various hedge transactions. The fair values of cash flow hedges determined by current public market prices will continue to fluctuate with changes in market prices up to contract expiration. With the adoption of ASU 2017-12, Derivatives and Hedging (Topic 815): Targeted improvements to Accounting for Hedging Activities effective January 1, 2019, we will no longer be required to calculate effectiveness and thus the entire change in the fair value of a hedging instrument will be recorded in other comprehensive income and amounts deferred will be reclassified to earnings in the same income statement line as the hedged item in the period in which it settles.
As of September 30, 2019, we have 2two interest rate swaps to hedge the variable interest on ourthe $140.0 million variable interest rate tax-exempt First Mortgage Bonds.Bonds expired, as the associated debt reached maturity. The interest rate swaps havehad a combined notional amount of $140.0 million and settlesettled monthly based on a one-month LIBOR. On March 29, 2018, we settled $60.0 million of these interest rate swaps due to the partial repayment of the underlying debt and a gain of $0.8 million was recorded as a reduction to interest expense. Since the swap was partially settled, the remaining swaps were de-designated and then re-designated with a new hypothetical derivative. The AOCIAOCL associated with the remaining swaps will bewas amortized out of AOCIAOCL into interest expense over the remaining life of the underlying debt.
The following tables provide information concerning gains or losses recognized in AOCIAOCL for the cash flow hedges for the three and nine months ended September 30, 20192020 and 2018:2019:
| | | | | | | | | | | | | | |
| | Three months ended |
| | September 30, 2020 | | September 30, 2019 |
| | Interest | | Interest |
| $ in millions (net of tax) | | Rate Hedge | | Rate Hedge |
| Beginning accumulated derivative losses in AOCL | | $ | (0.7) | | | $ | (0.3) | |
| Net gains / (losses) associated with current period hedging transactions | | 0.2 | | | (0.1) | |
| Net gains reclassified to earnings | | | | |
| Interest expense | | (0.1) | | | 0 | |
| | | | |
| | | | |
| Ending accumulated derivative losses in AOCL | | $ | (0.6) | | | $ | (0.4) | |
| | | | |
| | Nine months ended |
| | September 30, 2020 | | September 30, 2019 |
| | Interest | | Interest |
| $ in millions (net of tax) | | Rate Hedge | | Rate Hedge |
| Beginning accumulated derivative gains / (losses) in AOCL | | $ | (0.4) | | | $ | 0.6 | |
| Net gains / (losses) associated with current period hedging transactions | | 0.1 | | | (0.9) | |
| Net gains reclassified to earnings | | | | |
| Interest expense | | (0.3) | | | (0.1) | |
| | | | |
| | | | |
| Ending accumulated derivative losses in AOCL | | $ | (0.6) | | | $ | (0.4) | |
| | | | |
| Portion expected to be reclassified to earnings in the next twelve months | | $ | 0.6 | | | |
| Maximum length of time that we are hedging our exposure to variability in future cash flows related to forecasted transactions (in months) | | 0 | | |
|
| | | | | | | | |
| | | Three months ended |
| | | September 30, 2019 | | September 30, 2018 |
| | | Interest | | Interest |
| $ in millions (net of tax) | | Rate Hedge | | Rate Hedge |
| Beginning accumulated derivative gains / (losses) in AOCI | | $ | (0.3 | ) | | $ | 1.6 |
|
| Net losses associated with current period hedging transactions | | (0.1 | ) | | — |
|
| Net gains reclassified to earnings | | | | |
| Interest expense | | — |
| | (0.2 | ) |
| Ending accumulated derivative gains / (losses) in AOCI | | $ | (0.4 | ) | | $ | 1.4 |
|
| | | | | |
| | | Nine months ended |
| | | September 30, 2019 | | September 30, 2018 |
| | | Interest | | Interest |
| $ in millions (net of tax) | | Rate Hedge | | Rate Hedge |
| Beginning accumulated derivative gains in AOCI | | $ | 0.6 |
| | $ | 1.4 |
|
| Net gains / (losses) associated with current period hedging transactions | | (0.9 | ) | | 0.5 |
|
| Net gains reclassified to earnings | | | | |
| Interest expense | | (0.1 | ) | | (0.5 | ) |
| Ending accumulated derivative gains / (losses) in AOCI | | $ | (0.4 | ) | | $ | 1.4 |
|
| | | | | |
| Portion expected to be reclassified to earnings in the next twelve months | | $ | (0.2 | ) | | |
| Maximum length of time that we are hedging our exposure to variability in future cash flows related to forecasted transactions (in months) | | 11 |
| | |
Net gains or losses associated with the ineffective portion of the hedging transactions were immaterial in the prior year period presented.
Financial Statement Effect
DP&L has elected not to offset derivative assets and liabilities and not to offset net derivative positions against the right to reclaim cash collateral pledged (an asset) or the obligation to return cash collateral received (a liability) under derivative agreements. The fair value derivative position of DP&L's interest rate swaps are as follows:
|
| | | | | | | | | | | | | | | | | | |
| Fair Values of Derivative Instruments |
| at September 30, 2019 |
| | | | | | | Gross Amounts Not Offset in the Condensed Balance Sheets | | |
| $ in millions | | Hedging Designation | | Gross Fair Value as presented in the Condensed Balance Sheets (a) | | Financial Instruments with Same Counterparty in Offsetting Position | | Cash Collateral | | Net Fair Value |
| Assets | | | | | | | | | | |
| Short-term derivative positions (presented in Prepayments and other current assets) |
| Interest rate swap | | Designated | | $ | 0.2 |
| | $ | — |
| | $ | — |
| | $ | 0.2 |
|
| Total assets | | | | $ | 0.2 |
| | $ | — |
| | $ | — |
| | $ | 0.2 |
|
(a) Includes credit valuation adjustment.
|
| | | | | | | | | | | | | | | | | | |
| Fair Values of Derivative Instruments |
| at December 31, 2018 |
| | | | | | | Gross Amounts Not Offset in the Condensed Balance Sheets | | |
| $ in millions | | Hedging Designation | | Gross Fair Value as presented in the Condensed Balance Sheets (a) | | Financial Instruments with Same Counterparty in Offsetting Position | | Cash Collateral | | Net Fair Value |
| Assets | | | | | | | | | | |
| Short-term derivative positions (presented in Prepayments and other current assets) |
| Interest rate swaps | | Designated | | $ | 0.9 |
| | $ | — |
| | $ | — |
| | $ | 0.9 |
|
| | | | | | | | | | | |
| Long-term derivative positions (presented in Other non-current assets) |
| Interest rate swaps | | Designated | | 0.6 |
| | — |
| | — |
| | 0.6 |
|
| Total assets | | | | $ | 1.5 |
| | $ | — |
| | $ | — |
| | $ | 1.5 |
|
(a) Includes credit valuation adjustment.
Any prior year ineffectiveness on the interest rate hedges and the monthly settlement of the interest rate hedges is recorded in interest expense within the Condensed Statements of Operations.
| | | | | | | | | | | | | | | | | | | | | | | |
| $ in millions (net of tax) | Hedging Designation | | Balance sheet classification | | September 30, 2020 | | December 31, 2019 |
| Interest rate swap | Cash Flow Hedge | | Prepayments and other current assets | | $ | 0 | | | $ | 0.1 | |
| | | | | | | |
| | | | | | | |
Note 6 – Long-term Debt
The following table summarizes DP&L's long-term debt.
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Interest | | | | September 30, | | December 31, |
| $ in millions | | Rate | | Maturity | | 2020 | | 2019 |
| First Mortgage Bonds | | 3.95 | % | | 2049 | | $ | 425.0 | | | $ | 425.0 | |
| First Mortgage Bonds | | 3.20 | % | | 2040 | | 140.0 | | | — | |
| Tax-exempt First Mortgage Bonds - rates from 2.40% - 2.93% (a) and 1.15% - 2.47% (b) | | | | 2020 | | — | | | 140.0 | |
| U.S. Government note | | 4.20 | % | | 2061 | | 17.4 | | | 17.5 | |
| Unamortized deferred financing costs | | | | | | (5.7) | | | (5.4) | |
| Unamortized debt discounts and premiums, net | | | | | | (2.6) | | | (2.7) | |
| Total long-term debt | | | | | | 574.1 | | | 574.4 | |
| Less: current portion | | | | | | (0.2) | | | (139.8) | |
| Long-term debt, net of current portion | | | | | | $ | 573.9 | | | $ | 434.6 | |
|
| | | | | | | | | | | | |
| | | Interest | | | | September 30, | | December 31, |
| $ in millions | | Rate | | Maturity | | 2019 | | 2018 |
| Term loan - rates from 4.50% - 4.53% (a) and 4.01% - 4.60% (b) | | | | 2022 | | $ | — |
| | $ | 436.1 |
|
| First Mortgage Bonds | | 3.95% | | 2049 | | 425.0 |
| | — |
|
| Tax-exempt First Mortgage Bonds - rates from 2.97% - 3.07% (a) and 1.52% - 1.92% (b) | | | | 2020 | | 140.0 |
| | 140.0 |
|
| U.S. Government note | | 4.20% | | 2061 | | 17.6 |
| | 17.7 |
|
| Unamortized deferred financing costs | | | | | | (5.7 | ) | | (6.3 | ) |
| Unamortized debt discounts and premiums, net | | | | | | (2.7 | ) | | (1.4 | ) |
| Total long-term debt | | | | | | 574.2 |
| | 586.1 |
|
| Less: current portion | | | | | | (139.6 | ) | | (4.6 | ) |
| Long-term debt, net of current portion | | | | | | $ | 434.6 |
| | $ | 581.5 |
|
| |
(a) | Range of interest rates for the nine months ended September 30, 2019. |
| |
(b) | Range of interest rates for the year ended December 31, 2018. |
Deferred financing costs are amortized over(b)Range of interest rates for the remaining life of the debt using the effective interest method. Premiums or discounts on long-term debt are amortized over the remaining life of the debt using the effective interest method.year ended December 31, 2019.
Line of credit
At September 30, 20192020 and December 31, 2018,2019, DP&L had outstanding borrowings on its line of credit of $60.0$0.0 million and $0.0$40.0 million, respectively.
Significant transactions
On June 19, 2019,July 31, 2020, DP&L amended and restated its unsecured revolving credit facility. The revolving credit facility has a $175.0issued $140.0 million borrowing limit, with a $75.0 million letter of credit sublimit, a feature that provides DP&L the ability to increase the size of the facility by an additional $100.0 million, a maturity date of June 2024, and a provision that provides DP&L the option to request up to two one-year extensions of the maturity date.
On June 6, 2019, DP&L closed on a $425.0 million issuance oftaxable First Mortgage Bonds due 2049. Theseand on August 3, 2020 used the proceeds to purchase at par value the $140.0 million of outstanding tax-exempt Ohio Air Quality Development Authority (OAQDA) Collateralized Pollution Control Revenue Refunding Bonds that had been issued in 2015. The new bondstaxable First Mortgage Bonds carry an interest rate of 3.95%.3.20% and mature on July 31, 2040. The proceeds of this issuance were used to repay in fullOAQDA Revenue bonds have not been legally cancelled and can be re-issued at the outstanding principal of $435.0 milliondiscretion of DP&L's&L at any time. These bonds will be held in trust while we continue to evaluate market conditions and explore suitable long-term financing alternatives. Accordingly, at September 30, 2020, the $140.0 million variable rate Term Loan B credit agreement.OAQDA Revenue bonds are not treated as being outstanding in the Condensed Balance Sheet for DP&L.
On March 30, 2018, DP&L commenced a redemption of $60.0 million of outstanding tax exempt First Mortgage Bonds due 2020 at par value (plus accrued and unpaid interest). These bonds were redeemed at par plus accrued interest on April 30, 2018 with cash on hand.
Long-term debt covenants and restrictions
DP&L’s &L's unsecured revolving credit facility and Bond Purchase and Covenants Agreement (financing document entered into in connection with the saleissuance of $200.0 million of variable rate tax-exemptDP&L's First Mortgage Bonds, dated as of August 1, 2015) has 2 financial covenants. The first measures Total Debt to Total Capitalization and is calculated, at the end of each fiscal quarter, by dividing total debt at the end of the quarter by total capitalization at the end of the quarter. DP&L’s Total Debt to Total Capitalization ratio shall not be greater than 0.65 to 1.00. Except that, after Generation Separation and the twelve-month period following (October 1, 2017 to September 30, 2018) the ratio shall be a) increased to 0.75 to 1.00 or b) suspended if DP&L’s long-term indebtedness is less than or equal to $750.0 million. Additionally, this covenant shall be suspended any time after separation during which DP&L maintains a rating of BBB- (or in the case of Moody’s Investors Service, Inc. Baa3) or higher with a stable outlook from at least one of Fitch Investors Service Inc., Standard & Poor’s Ratings Services or Moody’s Investors Service, Inc. The Total Debt to Capitalization covenant is calculated as the sum of DP&L’s current and long-term portion of debt, divided by the total of DP&L’s net worth and total debt. As of September 30, 2019, DP&L's ratings meet those requirements and this covenant is suspended for the quarter ended September 30, 2019.
The second financial covenant measures EBITDA to Interest Expense. The TotalEBITDA to Interest Charges ratio is calculated, at the end of each fiscal quarter, by dividing EBITDA for the 4 prior fiscal quarters by the interest charges for the same period. The ratio, per the agreement, is to be not less than 2.50 to 1.00. This financial covenant was met with a ratio of 9.36 to 1.00 as of September 30, 2019.
DP&L's unsecured revolving credit facilityon July 31, 2020) has one financial covenant. The covenant measures Total Debt to Total Capitalization and is calculated, at the end of each fiscal quarter, by dividing total debt at the end of the quarter by total capitalization at the end of the quarter. DP&L’s Total Debt to Total Capitalization ratio shall not be greater than 0.67 to 1.00. This financial covenant was met with a ratio of 0.580.48 to 1.00 as of September 30, 2019.2020.
As of September 30, 2019,2020, DP&L was in compliance with all debt covenants, including the financial covenants described above.
DP&L does not have any meaningful restrictions in its debt financing documents prohibiting dividends to its parent, DPL.
Substantially all property, plant & equipment of DP&L is subject to the lien of the mortgage securing DP&L’s First and Refunding Mortgage.
Note 7 – Income Taxes
The following table details the effective tax rates for the three and nine months ended September 30, 20192020 and 2018.2019.
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three months ended | | Nine months ended |
| | September 30, | | September 30, |
| | 2020 | | 2019 | | 2020 | | 2019 |
| DP&L | | 16.4% | | (19.1)% | | 4.8% | | 4.7% |
|
| | | | | | | | |
| | | Three months ended | | Nine months ended |
| | | September 30, | | September 30, |
| | | 2019 | | 2018 | | 2019 | | 2018 |
| DP&L | | (19.1)% | | 16.8% | | 4.7% | | 16.2% |
Income tax expense for the nine months ended September 30, 2019 and 2018 was calculated using the estimated annual effective income tax rates for 2019 and 2018 of 4.5% and 17.1%, respectively. Management estimates the annual effective tax rate based on its forecast of annual pre-tax income. To the extent that actual pre-tax results for the year differ from the forecasts applied to the most recent interim period, the estimated rates could be materially different from the actual effective tax rates. DP&L’s effective combined state and federal income tax rate was (19.1)%16.4% and 4.7%4.8% for the three and nine months ended September 30, 2019,2020, respectively. This is lower thandifferent from the combined federal and state statutory rate of 21.6%22.3% primarily due to the net tax benefit related to the reversal of excess deferred taxes and the impactreversal of the September 26, 2019PUCO orderan uncertain tax position, which finalizedwere partially offset by an adjustment to the amount of excess deferred tax balances allocable to balances.
DP&L’s&L's utility customers.
Forincome tax expense for the nine months ended September 30, 2019 DP&L’s current period effective tax rate for all operations was not materially different thancalculated using the estimated annual effective rate.income tax rates for 2019 of 4.5%. Management estimates the annual effective tax rate based on its forecast of annual pre-tax income.
Note 8 – Benefit Plans
DP&L sponsors a defined benefit pension plan for the majority of its employees.
We generally fund pension plan benefits as accrued in accordance with the minimum funding requirements of ERISA and, in addition, make voluntary contributions from time to time. There were $7.5 million in employer contributions during each of the nine monthsnine-month periods ended September 30, 20192020 and 2018.2019.
The amounts presented in the following tables for pension include the collective bargaining plan formula, the traditional management plan formula, the cash balance plan formula and the SERP, in the aggregate. The pension costs below have not been adjusted for amounts billed to the Service Company for former DP&L employees who are now employed by the Service Company or for amounts billed to AES Ohio Generation for former employees that were employed by AES Ohio Generation that are still participants in the DP&L plan.
The net periodic benefit cost of the pension benefit plans for the three and nine months ended September 30, 20192020 and 20182019 was:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three months ended | | Nine months ended |
| | September 30, | | September 30, |
| $ in millions | | 2020 | | 2019 | | 2020 | | 2019 |
| Service cost | | $ | 0.9 | | | $ | 0.9 | | | $ | 2.8 | | | $ | 2.7 | |
| Interest cost | | 2.9 | | | 3.7 | | | 8.8 | | | 11.2 | |
| Expected return on plan assets | | (4.6) | | | (5.0) | | | (14.0) | | | (15.0) | |
| Amortization of unrecognized: | | | | | | | | |
| Prior service cost | | 0.3 | | | 0.4 | | | 1.0 | | | 1.3 | |
| Actuarial loss | | 2.2 | | | 1.8 | | | 6.5 | | | 5.3 | |
| Net periodic benefit cost | | $ | 1.7 | | | $ | 1.8 | | | $ | 5.1 | | | $ | 5.5 | |
|
| | | | | | | | | | | | | | | | |
| | | Three months ended | | Nine months ended |
| | | September 30, | | September 30, |
| $ in millions | | 2019 | | 2018 | | 2019 | | 2018 |
| Service cost | | $ | 0.9 |
| | $ | 1.5 |
| | $ | 2.7 |
| | $ | 4.5 |
|
| Interest cost | | 3.7 |
| | 3.4 |
| | 11.2 |
| | 10.3 |
|
| Expected return on plan assets | | (5.0 | ) | | (5.3 | ) | | (15.0 | ) | | (15.9 | ) |
| Amortization of unrecognized: | | | | | | | | |
| Prior service cost | | 0.4 |
| | 0.4 |
| | 1.3 |
| | 1.1 |
|
| Actuarial loss | | 1.8 |
| | 2.4 |
| | 5.3 |
| | 7.1 |
|
| Net periodic benefit cost | | $ | 1.8 |
| | $ | 2.4 |
| | $ | 5.5 |
| | $ | 7.1 |
|
In addition, DP&L provides postretirement health care and life insurance benefits to certain retired employees, their spouses and eligible dependents. We have funded a portion of the union-eligible benefits using a Voluntary Employee Beneficiary Association Trust. These postretirement health care benefits and the related unfunded obligation of $9.0$9.1 million at September 30, 20192020 and $9.2$9.6 million at December 31, 20182019 were not material to the financial statements in the periods covered by this report.
Note 9 – Shareholder's Equity
Capital Contribution and Returns of Capital
During the nine months ended September 30, 2020, DPL made a capital contribution of $150.0 million to DP&L. The proceeds will primarily be used for funding needs to support DP&L's capital expenditure program, mainly new investments in and upgrades to DP&L’s transmission and distribution system. Additionally, DP&L declared return of capital payments of $42.7 million to DPL, of which $27.7 million was paid during the period.
During the nine months ended September 30, 2019, DP&L made returns of capital payments of $90.0 million to DPL.
During the nine months ended September 30, 2018, DP&L received an $80.0 million capital contribution from its parent, DPL. In addition, DP&L made returns of capital payments of $43.8 million to DPL.
Note 10 – Contractual Obligations, Commercial Commitments and Contingencies
Equity Ownership Interest
DP&L has a 4.9% equity ownership interest in OVEC, which is recorded using the cost method of accounting under GAAP. DP&L, along with several non-affiliated energy companies party to an OVEC arrangement, receive and pay for OVEC capacity and energy and are responsible for OVEC debt obligations and other fixed costs in proportion to their power participation ratios under the arrangement which, for DP&L, is the same as its equity ownership interest. At September 30, 2019,2020, DP&L could be responsible for the repayment of 4.9%, or $67.2$63.4 million, of $1,371.3$1,294.3 million OVEC debt obligations if they came due, comprised of both fixed and variable rate securities with maturities from 2022 to 2040. OVEC could also seek additional contributions from DP&L to avoid a default in the event that other OVEC members defaulted on their respective OVEC obligations. One of the other OVEC members with a 4.85% interest in OVEC,had filed for bankruptcy protection and the bankruptcy court had approved that member's rejection of the OVEC arrangement and its related obligations on July 31, 2018. We do not expect these eventsobligations. Subsequent to have a material impact on our financial condition, results of operations or cash flows.that decision, another entity has assumed that member's ownership interest and all related liabilities.
Contingencies
In the normal course of business, we are subject to various lawsuits, actions, proceedings, claims and other matters asserted under various laws and regulations. We believe the amounts provided in our Condensed Financial Statements, as prescribed by GAAP, are adequate considering the probable and estimable contingencies. However, there can be no assurances that the actual amounts required to satisfy alleged liabilities from various legal proceedings, claims, tax examinations and other matters discussed below, and to comply with applicable laws and regulations, will not exceed the amounts reflected in our Condensed Financial Statements. As such, costs, if any, that may be incurred in excess of those amounts provided as of September 30, 2019,2020, cannot be reasonably determined.
Environmental Matters
DP&L’s current and previously-owned facilities and operations are subject to a wide range of federal, state and local environmental regulations and laws. The environmental issues that may affect 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;
•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 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 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 immaterial accruals for loss contingencies for environmental matters. We also have several 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 and cash flows.
Note 11 – Revenue
Revenue is primarily earned from retail and wholesale electricity sales and electricity transmission and distribution delivery services. Revenue is recognized upon transfer of control to customers in an amount that reflects the consideration to which we expect to be entitled in exchange for those goods or services. Revenue is recorded net of any taxes assessed on and collected from customers, which are remitted to the governmental authorities. For further discussion of our Retail, Wholesale, RTO ancillary, and Capacity revenues, see Note 13 — Revenue in Item 8.—Financial Statements and Supplementary Data of our Form 10-K.
DP&L's revenue from contracts with customers was $187.0$175.2 million and $186.1$187.0 million for the three months ended September 30, 20192020 and 2018,2019, respectively, and $554.4$486.3 million and $532.1$554.4 million for the nine months ended September 30, 2020 and 2019, and 2018, respectively.
The following table presents our revenue from contracts with customers and other revenue for the three and nine months ended September 30, 20192020 and 2018:2019:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three months ended | | Nine months ended |
| | September 30, | | September 30, |
| $ in millions | | 2020 | | 2019 | | 2020 | | 2019 |
| Retail revenue | | | | | | | | |
| Retail revenue from contracts with customers | | | | | | | | |
| Residential revenue | | $ | 99.3 | | | $ | 107.5 | | | $ | 279.9 | | | $ | 313.9 | |
| Commercial revenue | | 32.2 | | | 34.8 | | | 87.6 | | | 103.7 | |
| Industrial revenue | | 14.5 | | | 13.7 | | | 38.2 | | | 43.5 | |
| Governmental revenue | | 9.9 | | | 11.4 | | | 27.7 | | | 33.3 | |
Other (a) | | 3.7 | | | 3.1 | | | 9.7 | | | 9.4 | |
| Total retail revenue from contracts with customers | | 159.6 | | | 170.5 | | | 443.1 | | | 503.8 | |
Other retail revenue (b) | | 0.1 | | | 3.8 | | | 8.8 | | | 14.9 | |
| Wholesale revenue | | | | | | | | |
| Wholesale revenue from contracts with customers | | 3.2 | | | 4.4 | | | 7.7 | | | 12.8 | |
| RTO ancillary revenue | | 11.5 | | | 11.0 | | | 32.3 | | | 32.8 | |
| Capacity revenue | | 0.9 | | | 1.1 | | | 3.2 | | | 5.0 | |
| | | | | | | | |
| Miscellaneous revenue | | 1.7 | | | 0.3 | | | 4.0 | | | 0.9 | |
| Total revenues | | $ | 177.0 | | | $ | 191.1 | | | $ | 499.1 | | | $ | 570.2 | |
| | | | | | | | |
| | | | | | | | |
(a) "Other" primarily includes Wright-Patterson Air Force Base revenues, billing service fees from CRES providers and other miscellaneous retail revenues from contracts with customers. |
| | | | | | | | | | | | | | | | |
| | | Three months ended | | Nine months ended |
| | | September 30, | | September 30, |
| $ in millions | | 2019 | | 2018 | | 2019 | | 2018 |
| Retail revenue | | | | | | | | |
| Retail revenue from contracts with customers | | $ | 170.5 |
| | $ | 168.4 |
| | $ | 503.8 |
| | $ | 469.3 |
|
Other retail revenue (a) | | 3.8 |
| | 12.6 |
| | 14.9 |
| | 31.4 |
|
| Wholesale revenue | | | | | | | | |
| Wholesale revenue from contracts with customers | | 4.4 |
| | 4.9 |
| | 12.8 |
| | 24.6 |
|
| RTO ancillary revenue | | 11.0 |
| | 10.8 |
| | 32.8 |
| | 32.4 |
|
| Capacity revenue | | 1.1 |
| | 2.0 |
| | 5.0 |
| | 5.8 |
|
| Miscellaneous revenue | | 0.3 |
| | — |
| | 0.9 |
| | — |
|
| Total revenues | | $ | 191.1 |
| | $ | 198.7 |
| | $ | 570.2 |
| | $ | 563.5 |
|
| |
(a) | Other retail revenue primarily includes alternative revenue programs not accounted for under FASC 606. |
The balances of receivables from contracts with customers were $65.2$66.3 million and $70.1$64.4 million as of September 30, 20192020 and December 31, 2018,2019, respectively. Payment terms for all receivables from contracts with customers are typically within 30 days.
Note 12 – Dispositions
Beckjord Facility – On February 26, 2018,days, though during the third quarter of 2020 DP&L implemented and its co-ownersoffered extended payment plans to customers as a result of the retired Beckjord Facility agreedpandemic.
Note – 12 Risks and Uncertainties
COVID-19 Pandemic
The COVID-19 pandemic has severely impacted global economic activity, including electricity and energy consumption, and caused significant volatility and negative pressure in financial markets. The global impact of the outbreak has been rapidly evolving and many countries, including the United States, have reacted by instituting quarantines, mandating business and school closures and social distancing measures as well as restricting travel. The State of Ohio has implemented, among other things, stay-at-home and other social distancing measures to transfer their interestsslow the spread of the virus, which has impacted energy demand within our service territory, though the stay-at-home restrictions have now been lifted in our service territory. On March 12, 2020, the retired FacilityPUCO also issued an emergency order prohibiting electric utilities, including us, from discontinuing electric utility service to a third party, including their obligations to remediate the Facility and its site, and the transfer occurred on that same date. As a result,customers. This prohibition ended for DP&L recognizedon September 1, 2020. We are taking a loss on the transfervariety of $12.4 million and made cash expenditures of $14.5 million, inclusive of cash expenditures for the transfer charges. The Beckjord Facility was retiredmeasures in 2014, and, as such, the income / (loss) from continuing operations before income tax relatedresponse to the Beckjord Facility was immaterialspread of COVID-19 to ensure our ability to transmit, distribute and sell electric energy, ensure the health and safety of our employees, contractors, customers and communities and provide essential services to the communities in which we operate. In addition to the impacts to demand within our service territory, we also have incurred and expect to continue to incur expenses relating to COVID-19, and such expenses may include those that relate to events outside of our control.
As the economic impact of the COVID-19 pandemic started to materialize in Ohio in the second half of March and continued in the second and third quarters of 2020, the COVID-19 pandemic primarily impacted our retail sales demand as shown by the changes in weather-normalized volumes of kWh sold:
| | | | | | | | | | | | | | | | | | | | |
| Customer class | | For the three months ended September 30, 2020 compared to the same period in 2019 | | For the six months ended September 30, 2020 compared to the same period in 2019 (a) | | For the nine months ended September 30, 2020 compared to the same period in 2019 |
| Commercial | | (4.8)% | | (9.4)% | | (7.0)% |
| Industrial | | 0.9% | | (9.3)% | | (6.8)% |
| Residential | | 11.0% | | 9.8% | | 6.0% |
(a) This period most closely approximates the duration of the economic impact on our sales demand as a result of the COVID-19 pandemic.
We also have incurred, and expect to continue to incur, expenses relating to COVID-19; however, see Note 3 – Regulatory Matters for a discussion of regulatory measures, which partially mitigate the threeimpact of these expenses. The magnitude and nine months ended September 30, 2018, excludingduration of the lossCOVID-19 pandemic is unknown at this time and may have material and adverse effects on transfer noted above.our results of operations, financial condition and cash flows in future periods.
Item 2 – Management's Discussion and Analysis of Financial Condition and Results of Operations
This report includes the combined filing of DPL and DP&L. DP&L is a wholly-owned subsidiary of DPL and is a public utility incorporated in 1911 under the laws of Ohio. On November 28, 2011, DPL became an indirectly 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 together, 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 INFORMATION
The following discussion contains forward-looking statements and should be read in conjunction with the accompanying Condensed Consolidated Financial Statements and related footnotes of DPL and the Condensed Financial Statements and related footnotes of DP&L included in Part I – Financial Information,, the risk factors in Item 1A to Part I of our Form 10-K for the fiscal year ended December 31, 20182019, in Part II, Item 1A of this Form 10-Q and our “Forward-Looking Statements” section of this Form 10-Q. For a list of certain abbreviations or acronyms in this discussion, see the Glossary at the beginning of this Form 10-Q.
OVERVIEW OF OUR BUSINESS
DPL is an indirectly wholly-owned subsidiary of AES.
DPL has threetwo primary subsidiaries, DP&L, AES Ohio Generation and MVIC. 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. AES Ohio Generation also owns two retired coal-fired facilities. MVIC is our captive insurance company that provides insurance services to DP&L and our other subsidiaries. For additional information, see Item 1 – Business of our Form 10-K. 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.
EXECUTIVE SUMMARY
DPL
Compared with the prior year, DPL's net income from continuing operations before income taxes was higherlower by $6.7$46.8 million, or 34%,173% for the three months ended September 30, 20192020 and higherlower by $9.3$39.3 million, or 68%,153% for the nine months ended September 30, 2019,2020, primarily due to factors including, but not limited to:
| | | | | | | | | | | | | | |
| | Three months ended | | Nine months ended |
| | September 30, | | September 30, |
| $ in millions | | 2020 vs. 2019 | | 2020 vs. 2019 |
Increase (decrease) due to losses on early extinguishment of debt recorded in Q3 2020 and Q2 2019 (see Part I, Item 1, Note 6 - Long-term Debt in the Notes to DPL's Condensed Consolidated Financial Statements for further discussion) | | $ | (31.7) | | | $ | 13.2 | |
Impact of changes to DP&L's ESP in December 2019, primarily removal of the DMR, DIR, and Decoupling Rider and reinstatement of the RSC Rider | | (13.4) | | | (45.9) | |
| Net decrease in the volume of retail kWh sold primarily driven by unfavorable weather, partially offset by the purchased power volume variance | | (3.5) | | | (11.7) | |
| Increase due to lower interest expense from debt refinancings in 2019 and 2020 | | 1.2 | | | 8.3 | |
| Other | | 0.6 | | | (3.2) | |
| Net change in income / (loss) from continuing operations before income tax | | $ | (46.8) | | | $ | (39.3) | |
| | | | |
| | | | |
| | | | |
| | | | |
| | | | |
|
| | | | | | | | |
| | | Three months ended | | Nine months ended |
| | | September 30, | | September 30, |
| $ in millions | | 2019 vs. 2018 | | 2019 vs. 2018 |
| Decrease due to a higher loss on early extinguishment of debt in 2019, primarily due to the make-whole premium on the partial prepayment of the 7.25% Senior Notes due 2021 | | $ | — |
| | $ | (38.5 | ) |
| Impact of the distribution rate order, including higher distribution rates, the DIR, and the decoupling rider | | 4.1 |
| | 22.4 |
|
| Increase due to the loss on transfer of the Beckjord facility in the first quarter of 2018 | | — |
| | 11.7 |
|
| Increase due to lower interest expense from debt refinancings and payments made in 2018 and 2019 | | 4.3 |
| | 10.7 |
|
| Other | | (1.7 | ) | | 3.0 |
|
| Net change in income from continuing operations before income tax | | $ | 6.7 |
| | $ | 9.3 |
|
DP&L
Compared with the prior year, DP&L's net income from continuing operations before income taxes was higherlower by $0.2$16.4 million, or 1%,44% for the three months ended September 30, 20192020 and higherlower by $34.9$59.1 million, or 47%,54% for the nine months ended September 30, 2019,2020, primarily due to factors including, but not limited to:
| | | | | | | | | | | | | | |
| | Three months ended | | Nine months ended |
| | September 30, | | September 30, |
| $ in millions | | 2020 vs. 2019 | | 2020 vs. 2019 |
Impact of changes to DP&L's ESP in December 2019, primarily removal of the DMR, DIR, and Decoupling Rider and reinstatement of the RSC Rider | | $ | (13.4) | | | $ | (45.9) | |
| Net decrease in the volume of retail kWh sold primarily driven by unfavorable weather, partially offset by the purchased power volume variance | | (3.5) | | | (11.7) | |
| Other | | 0.5 | | | (1.5) | |
| Net change in income before income tax | | $ | (16.4) | | | $ | (59.1) | |
| | | | |
| | | | |
| | | | |
| | | | |
| | | | |
|
| | | | | | | | |
| | | Three months ended | | Nine months ended |
| | | September 30, | | September 30, |
| $ in millions | | 2019 vs. 2018 | | 2019 vs. 2018 |
| Impact of the distribution rate order, including higher distribution rates, the DIR, and the decoupling rider | | 4.1 |
| | $ | 22.4 |
|
| Increase due to the loss on transfer of the Beckjord facility in the first quarter of 2018 | | — |
| | 11.7 |
|
| Other | | (3.9 | ) | | 0.8 |
|
| Net change in income before income tax | | $ | 0.2 |
| | $ | 34.9 |
|
RESULTS OF OPERATIONS HIGHLIGHTS – DPL
DPL’s results of operations include the results of its subsidiaries, including its principal subsidiary DP&L. All material intercompany accounts and transactions have been eliminated in consolidation. A separate discussion of the results of operations for DP&L is presented elsewhere in this report.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three months ended | | Nine months ended |
| | September 30, | | September 30, |
| $ in millions | | 2020 | | 2019 | | $ change | | % change | | 2020 | | 2019 | | $ change | | % change |
| Revenues: | | | | | | | | | | | | | | | | |
| Retail | | $ | 159.7 | | | $ | 174.3 | | | $ | (14.6) | | | (8)% | | $ | 451.9 | | | $ | 518.7 | | | $ | (66.8) | | | (13)% |
| Wholesale | | 3.0 | | | 4.2 | | | (1.2) | | | (29)% | | 7.0 | | | 12.0 | | | (5.0) | | | (42)% |
| RTO ancillary | | 11.4 | | | 11.1 | | | 0.3 | | | 3% | | 32.3 | | | 32.9 | | | (0.6) | | | (2)% |
| Capacity revenues | | 0.9 | | | 1.1 | | | (0.2) | | | (18)% | | 3.2 | | | 5.0 | | | (1.8) | | | (36)% |
| Miscellaneous revenues | | 3.8 | | | 2.2 | | | 1.6 | | | 73% | | 10.7 | | | 7.9 | | | 2.8 | | | 35% |
| | | | | | | | | | | | | | | | |
| Total revenues | | 178.8 | | | 192.9 | | | (14.1) | | | (7)% | | 505.1 | | | 576.5 | | | (71.4) | | | (12)% |
| | | | | | | | | | | | | | | | |
| Operating costs and expenses | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
| Net fuel cost | | 0.4 | | | 0.6 | | | (0.2) | | | (33)% | | 1.3 | | | 2.0 | | | (0.7) | | | (35)% |
| Purchased power: | | | | | | | | | | | | | | | | |
| Purchased power | | 55.7 | | | 60.5 | | | (4.8) | | | (8)% | | 156.3 | | | 176.0 | | | (19.7) | | | (11)% |
| RTO charges | | 10.3 | | | 5.8 | | | 4.5 | | | 78% | | 21.7 | | | 18.2 | | | 3.5 | | | 19% |
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
| Net purchased power cost | | 66.0 | | | 66.3 | | | (0.3) | | | —% | | 178.0 | | | 194.2 | | | (16.2) | | | (8)% |
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
| Operation and maintenance | | 47.9 | | | 42.5 | | | 5.4 | | | 13% | | 138.7 | | | 136.9 | | | 1.8 | | | 1% |
| Depreciation and amortization | | 18.6 | | | 17.7 | | | 0.9 | | | 5% | | 54.8 | | | 54.0 | | | 0.8 | | | 1% |
| Taxes other than income taxes | | 17.7 | | | 20.8 | | | (3.1) | | | (15)% | | 59.6 | | | 58.3 | | | 1.3 | | | 2% |
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
| Other, net | | 0.1 | | | — | | | 0.1 | | | —% | | 0.1 | | | — | | | 0.1 | | | —% |
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
| Total operating costs and expenses | | 150.7 | | | 147.9 | | | 2.8 | | | 2% | | 432.5 | | | 445.4 | | | (12.9) | | | (3)% |
| | | | | | | | | | | | | | | | |
| Operating income | | 28.1 | | | 45.0 | | | (16.9) | | | (38)% | | 72.6 | | | 131.1 | | | (58.5) | | | (45)% |
| | | | | | | | | | | | | | | | |
| Other income / (expense), net: | | | | | | | | | | | | | | | | |
| Interest expense | | (17.1) | | | (18.3) | | | 1.2 | | | (7)% | | (55.4) | | | (63.7) | | | 8.3 | | | (13)% |
| Loss on early extinguishment of debt | | (31.7) | | | — | | | (31.7) | | | —% | | (31.7) | | | (44.9) | | | 13.2 | | | (29)% |
| Other income / (expense) | | 1.0 | | | 0.4 | | | 0.6 | | | 150% | | 0.9 | | | 3.2 | | | (2.3) | | | (72)% |
| Total other expense, net | | (47.8) | | | (17.9) | | | (29.9) | | | 167% | | (86.2) | | | (105.4) | | | 19.2 | | | (18)% |
| | | | | | | | | | | | | | | | |
| Income / (loss) from continuing operations before income tax (a) | | $ | (19.7) | | | $ | 27.1 | | | $ | (46.8) | | | (173)% | | $ | (13.6) | | | $ | 25.7 | | | $ | (39.3) | | | (153)% |
|
| | | | | | | | | | | | | | | | |
| | | Three months ended | | Nine months ended |
| | | September 30, | | September 30, |
| $ in millions | | 2019 | | 2018 | | 2019 | | 2018 |
| Revenues: | | | | | | | | |
| Retail | | $ | 174.3 |
| | $ | 180.6 |
| | $ | 518.7 |
| | $ | 499.9 |
|
| Wholesale | | 9.2 |
| | 10.5 |
| | 23.4 |
| | 41.3 |
|
| RTO ancillary | | 11.1 |
| | 10.7 |
| | 33.0 |
| | 32.5 |
|
| Capacity revenues | | 2.2 |
| | 3.7 |
| | 9.2 |
| | 10.5 |
|
| Miscellaneous revenues | | 2.2 |
| | 2.2 |
| | 7.9 |
| | 7.3 |
|
| Total revenues | | 199.0 |
| | 207.7 |
| | 592.2 |
| | 591.5 |
|
| | | | | | | | | |
| Operating costs and expenses | | | | | | | | |
| Net fuel cost | | 5.2 |
| | 4.6 |
| | 13.0 |
| | 12.7 |
|
| Purchased power: | | | | | | | | |
| Purchased power | | 60.5 |
| | 68.1 |
| | 176.0 |
| | 187.8 |
|
| RTO charges | | 5.7 |
| | 15.5 |
| | 18.3 |
| | 48.9 |
|
| RTO capacity charges | | 0.3 |
| | — |
| | 0.7 |
| | 2.2 |
|
| Net purchased power cost | | 66.5 |
| | 83.6 |
| | 195.0 |
| | 238.9 |
|
| Operation and maintenance | | 44.2 |
| | 37.3 |
| | 142.3 |
| | 118.3 |
|
| Depreciation and amortization | | 17.7 |
| | 19.7 |
| | 54.1 |
| | 58.8 |
|
| Taxes other than income taxes | | 20.9 |
| | 19.0 |
| | 58.5 |
| | 54.5 |
|
| Other, net | | — |
| | 1.6 |
| | 0.9 |
| | 14.6 |
|
| Total operating costs and expenses | | 154.5 |
| | 165.8 |
| | 463.8 |
| | 497.8 |
|
| | | | | | | | | |
| Operating income | | 44.5 |
| | 41.9 |
| | 128.4 |
| | 93.7 |
|
| | | | | | | | | |
| Other income / (expense), net: | | | | | | | | |
| Interest expense | | (18.3 | ) | | (22.6 | ) | | (63.7 | ) | | (74.4 | ) |
| Loss on early extinguishment of debt | | — |
| | — |
| | (44.9 | ) | | (6.4 | ) |
| Other income | | 0.3 |
| | 0.5 |
| | 3.2 |
| | 0.8 |
|
| Total other expense, net | | (18.0 | ) | | (22.1 | ) | | (105.4 | ) | | (80.0 | ) |
| | | | | | | | | |
| Income from continuing operations before income tax (a) | | $ | 26.5 |
| | $ | 19.8 |
| | $ | 23.0 |
| | $ | 13.7 |
|
(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.
| |
(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. |
DPL – Revenues
Retail customers, especially residential and commercial customers, consume more electricity duringon warmer and colder weather than they do during mild temperatures.days. Therefore,our retail sales volumedemand is impactedaffected by the number of heating and cooling degree-days occurring during a year. Cooling degree-days typically have a more significant impacteffect than heating degree-days since some residential customers do not use electricity to heat their homes. Because of the impact of the decoupling riderDecoupling Rider (effective January 1, 2019 through December 18, 2019) and because DPL's generation has greatly decreased in recent years due to plant sales and closures,, weather hashad a minimal impact on our 2019 net operating results. Additionally, our retail revenues are affected by regulated rates and riders including the changes to our ESP described in Note 3 - Regulatory Matters of our Form 10-K and Note 3 – Regulatory Matters of Notes to DPL's Condensed Consolidated Financial Statements.
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| | | | | | | | | | | | |
| | | Three months ended | | Nine months ended |
| | | September 30, | | September 30, |
| | | 2019 | | 2018 | | 2019 | | 2018 |
Heating degree-days (a) | | — |
| | 47 |
| | 3,206 |
| | 3,498 |
|
Cooling degree-days (a) | | 975 |
| | 811 |
| | 1,361 |
| | 1,262 |
|
| |
(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. |
DPLFactors affecting 'sDPL's electric sales and billed customers were as follows:
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| | | | | | | | | | | | |
ELECTRIC SALES AND CUSTOMERS (a) |
| | | Three months ended | | Nine months ended |
| | | September 30, | | September 30, |
| | | 2019 | | 2018 | | 2019 | | 2018 |
Retail electric sales (b) | | 3,858 |
| | 3,858 |
| | 10,731 |
| | 10,943 |
|
Wholesale electric sales (c) | | 369 |
| | 310 |
| | 808 |
| | 989 |
|
| Total electric sales | | 4,227 |
| | 4,168 |
| | 11,539 |
| | 11,932 |
|
| | | | | | | | | |
| Billed electric customers (end of period) | | | | | | 523,915 |
| | 523,535 |
|
| |
(a) | Electric sales are presented in millions of kWh. |
| |
(b) | DPLretail electric sales represent the total transmission and distribution retail sales for the periods presented. SSO sales were 1,037 kWh and 2,972 kWh for the three and nine months ended September 30, 2019, respectively, and 1,056 kWh and 2,995 kWh for the three and nine months ended September 30, 2018, respectively.
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| |
(c) | Included within DPLwholesale electric sales are DP&L's 4.9% share of the generation output of OVEC and the generation output of Conesville.
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We sell our share of the generation from Conesville and OVEC into the wholesale market which covers a multi-state area and settles on an hourly basis throughout the year. Factors impacting our wholesale sales volume each hour of the year include wholesale market prices; retail demand throughout the entire wholesale market area; unit availability of our generating plant and non-affiliated generating plants to sell into the wholesale market; contracted wholesaleand weather conditions.
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HEATING AND COOLING DEGREE-DAYS (a) | | | | |
| | Three months ended | | Nine months ended |
| | September 30, | | September 30, |
| | 2020 | | 2019 | | change | | % change | | 2020 | | 2019 | | change | | % change |
| Actual | | | | | | | | | | | | | | | | |
| Heating degree-days | | 61 | | | — | | | 61 | | | — | % | | 3,040 | | | 3,206 | | | (166) | | | (5) | % |
| Cooling degree-days | | 845 | | | 975 | | | (130) | | | (13) | % | | 1,200 | | | 1,361 | | | (161) | | | (12) | % |
| | | | | | | | | | | | | | | | |
30-year average (b) | | | | | | | | | | | | | | | | |
| Heating degree-days | | 79 | | | 80 | | | | | | | 3,464 | | | 3,461 | | | | | |
| Cooling degree-days | | 671 | | | 663 | | | | | | | 976 | | | 965 | | | | | |
(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.
(b)30-year average is computed from observed degree-days in the Dayton area on a trailing 30-year basis.
DPL's electric sales and our variablebilled customers were as follows:
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ELECTRIC SALES AND CUSTOMERS (a) |
| | Three months ended | | Nine months ended |
| | September 30, | | September 30, |
| | 2020 | | 2019 | | 2020 | | 2019 |
Retail electric sales (b) | | | | | | | | |
| Residential | | 1,461 | | | 1,461 | | | 4,067 | | | 4,081 | |
| Commercial and other | | 973 | | | 1,044 | | | 2,616 | | | 2,820 | |
| Industrial | | 987 | | | 995 | | | 2,643 | | | 2,854 | |
| Governmental | | 319 | | | 355 | | | 872 | | | 965 | |
| Other | | 4 | | | 4 | | | 13 | | | 12 | |
| Total retail electric sales | | 3,744 | | | 3,859 | | | 10,211 | | | 10,732 | |
Wholesale electric sales (c) | | 123 | | | 151 | | | 323 | | | 421 | |
| Total electric sales | | 3,867 | | | 4,010 | | | 10,534 | | | 11,153 | |
| | | | | | | | |
| Billed electric customers (end of period) | | | | | | 529,674 | | | 523,915 | |
(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 1,057 kWh and 2,937 kWh for the three and nine months ended September 30, 2020, respectively, and 1,041 kWh and 2,982 kWh for the three and nine months ended September 30, 2019, respectively.
(c)Wholesale electric sales are DP&L's 4.9% share of the generation costs. Our goal is to make wholesale sales when it is profitable to do so.output of OVEC.
During the three months ended September 30, 2019,2020, revenue decreased $8.7$14.1 million to $199.0$178.8 million compared to $207.7$192.9 million in the same period of the prior year, and, during the nine months ended September 30, 2019,2020, revenue increased $0.7decreased $71.4 million to $592.2$505.1 million compared to $591.5$576.5 million in the same period of the prior year. These changes were primarily the result of changes in the components of revenue shown below:
| | | | | | | | | | | | | | |
| | Three months ended | | Nine months ended |
| | September 30, | | September 30, |
| $ in millions | | 2020 vs. 2019 | | 2020 vs. 2019 |
| Retail | | | | |
| Rate | | | | |
| Decrease due to removal of DMR | | $ | (28.2) | | | $ | (79.4) | |
| Decrease due to removal of DIR | | (5.6) | | | (16.7) | |
| Decrease in energy efficiency revenue rate rider | | (3.0) | | | (8.7) | |
| Increase / (decrease) due to removal of decoupling rider | | 0.4 | | | (4.7) | |
| Increase / (decrease) due to the TCRR rider | | 4.5 | | | (1.2) | |
| Increase due to reinstatement of RSC rider | | 20.0 | | | 54.9 | |
| | | | |
| | | | |
| Other | | 1.2 | | | 3.5 | |
| Net change in retail rate | | (10.7) | | | (52.3) | |
| | | | |
| Volume | | | | |
| | | | |
| | | | |
| | | | |
| Net decrease in the volume of kWh sold primarily due to unfavorable weather as compared to the same periods in the prior year and lower demand from commercial customers due to the impacts of COVID-19, partially offset by higher demand from residential customers due to the impacts of COVID-19 | | (4.5) | | | (14.6) | |
| | | | |
| Other miscellaneous | | 0.6 | | | 0.1 | |
| Total retail change | | (14.6) | | | (66.8) | |
| | | | | |
| Wholesale | | | | |
| | | | |
| | | | |
| | | | |
| Decrease due to lower wholesale prices and lower volumes at OVEC | | (1.2) | | | (5.0) | |
| | | | | |
| RTO ancillary and capacity revenues | | | | |
| RTO ancillary and capacity revenues | | 0.1 | | | (2.4) | |
| | | | | |
| Other | | | | |
| Miscellaneous revenues | | 1.6 | | | 2.8 | |
| | | | | |
| Net change in revenues | | $ | (14.1) | | | $ | (71.4) | |
| | | | |
| | | | |
| | | | |
| | | | |
|
| | | | | | | | |
| | Three months ended | | Nine months ended |
| | September 30, | | September 30, |
| $ in millions | | 2019 vs. 2018 | | 2019 vs. 2018 |
| Retail | |
| | |
| Rate | | | | |
| Increase in energy efficiency and USF revenue rate riders | | $ | 9.7 |
| | $ | 30.1 |
|
| Increase in base distribution rates due to the DRO | | 6.3 |
| | 21.0 |
|
| Increase due to the DIR, which was effective with the DRO | | 5.6 |
| | 16.7 |
|
Decrease in the TCRR due to lower transmission costs and the impact of DP&L passing back the benefits of the PJM Transmission Enhancement Settlement to customers | | (12.3 | ) | | (27.3 | ) |
| Decrease due to energy efficiency lost revenues recorded in the prior year | | (5.0 | ) | | (16.7 | ) |
| Other | | (2.1 | ) | | 10.3 |
|
| Net change in retail rate | | 2.2 |
| | 34.1 |
|
| | | | | |
| Volume | | | | |
Decrease in volume is primarily due to demand in the prior year. The decoupling rider approved in the DRO became effective January 1, 2019 and is designed to eliminate the impacts of weather and demand on DP&L's residential and commercial customers resulting in less of a demand impact in the current year. | | (8.2 | ) | | (15.6 | ) |
| | | | | |
| Other miscellaneous | | (0.3 | ) | | 0.3 |
|
| Total retail change | | (6.3 | ) | | 18.8 |
|
| | |
| | |
| Wholesale | | | | |
Decrease for the nine months ended September 30, 2019 is due to lower volumes as DP&L is no longer serving the load of certain other parties through their competitive bid process and lower wholesale prices | | (1.3 | ) | | (17.9 | ) |
| | |
| | |
| RTO ancillary and capacity revenues | | | | |
| RTO ancillary and capacity revenues | | (1.1 | ) | | (0.8 | ) |
| | |
| | |
| Other | | | | |
| Miscellaneous revenues | | — |
| | 0.6 |
|
| | |
| | |
| Net change in revenues | | $ | (8.7 | ) | | $ | 0.7 |
|
DPL – Net Purchased Power
During the three months ended September 30, 2019, net2020, Net purchased power decreased $17.1$0.3 million to $66.5$66.0 million compared to $83.6$66.3 million in the same period of the prior year, and, during the nine months ended September 30, 2019, net2020, Net purchased power decreased $43.9$16.2 million to $195.0$178.0 million compared to $238.9$194.2 million in the same period of the prior year. These changes were primarily the result of changes in the cost of purchased power shown below.
| | | | | | | | | | | | | | |
| | Three months ended | | Nine months ended |
| | September 30, | | September 30, |
| $ in millions | | 2020 vs. 2019 | | 2020 vs. 2019 |
| Net purchased power | | | | |
| Purchased power | | | | |
| Rate | | | | |
| Decrease due to pricing in the competitive bid process | | (3.8) | | | (16.8) | |
| Volume | | | | |
| Decrease due to lower retail load served primarily driven by weather, partially offset by COVID-19 demand impacts | | (1.0) | | | (2.9) | |
| Total purchased power change | | (4.8) | | | (19.7) | |
| | | | |
| RTO charges | | | | |
| Increase primarily due to higher rates in 2020 | | 4.5 | | | 3.5 | |
| | | | |
| | | | |
| | | | |
| | | | |
| Net change in purchased power | | $ | (0.3) | | | $ | (16.2) | |
| | | | |
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| | | | |
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| | | | | | | | |
| | | Three months ended | | Nine months ended |
| | | September 30, | | September 30, |
| $ in millions | | 2019 vs. 2018 | | 2019 vs. 2018 |
| Net purchased power | | | | |
| Purchased power | | | | |
| Rate | | | | |
| Increase / (decrease) due to pricing in the competitive bid process | | (1.4 | ) | | 1.3 |
|
| Volume | | | | |
Lower purchases in the nine months ended September 30, 2019 as DP&L stopped purchasing power to serve the load of certain other parties through their competitive bid process after May of 2018 | | (6.2 | ) | | (13.1 | ) |
| Total purchased power change | | (7.6 | ) | | (11.8 | ) |
| RTO charges | | | | |
Decrease due to lower transmission and congestion charges, including a decrease due to benefits of the PJM Transmission Enhancement Settlement. RTO charges are incurred by DP&L as a member of PJM and primarily include transmission charges within our network, which are incurred and charged to customers in the transmission rider | | (9.8 | ) | | (30.6 | ) |
| RTO capacity charges | | | |
|
|
| Increase / (decrease) due to capacity costs | | 0.3 |
| | (1.5 | ) |
| | | | | |
| Net change in purchased power | | $ | (17.1 | ) | | $ | (43.9 | ) |
DPL – Operation and Maintenance
During the three and nine months ended September 30, 2019,2020, Operation and Maintenancemaintenance expense increased $6.9$5.4 million and $24.0$1.8 million, respectively, compared to the same periods in the prior year. The main drivers of these changes are as follows: | | | | Three months ended | | Nine months ended |
| | | September 30, | | September 30, |
| $ in millions | | $ in millions | | 2020 vs. 2019 | | 2020 vs. 2019 |
Increase in uncollectible expenses for the low-income payment program, which is funded by the USF revenue rate rider (a) | | Increase in uncollectible expenses for the low-income payment program, which is funded by the USF revenue rate rider (a) | | 2.5 | | | 6.0 | |
Increase in deferred storm costs (a) | | Increase in deferred storm costs (a) | | 1.6 | | | 4.9 | |
Decrease in alternative energy and energy efficiency programs (a) | | Decrease in alternative energy and energy efficiency programs (a) | | $ | (3.0) | | | $ | (9.1) | |
| Increase / (decrease) in legal expenses, primarily due to an insurance reimbursement in September 2019 | | Increase / (decrease) in legal expenses, primarily due to an insurance reimbursement in September 2019 | | 2.0 | | | (0.8) | |
| Other, net | | Other, net | | 2.3 | | | 0.8 | |
| | Net change in operation and maintenance expense | | Net change in operation and maintenance expense | | $ | 5.4 | | | $ | 1.8 | |
| |
|
| Three months ended | | Nine months ended | |
|
| September 30, | | September 30, | |
| $ in millions |
| 2019 vs. 2018 | | 2019 vs. 2018 | |
Increase in alternative energy and energy efficiency programs (a) |
| $ | 7.4 |
| | $ | 20.0 |
| |
Increase in uncollectible expenses for the low-income payment program, which is funded by the USF revenue rate rider (a) | | 3.1 |
| | 9.3 |
| |
| Decrease due to prior year write-off of previously deferred rate case costs no longer deemed probable for recovery | | — |
| | (5.3 | ) | |
Decrease in amortization of previously deferred regulatory costs, including rate case costs, certain transmission costs, and various costs collected under the regulatory compliance rider (a) | | (2.0 | ) | | (1.7 | ) | |
| Other, net |
| (1.6 | ) | | 1.7 |
| |
| Net change in operation and maintenance expense |
| $ | 6.9 |
| | $ | 24.0 |
| |
(a) There is a corresponding offset in Revenues associated with these programs.
DPL – Depreciation and Amortization- Taxes Other Than Income Taxes
During the three and nine months ended September 30, 2019, Depreciation and amortization2020, Taxes other than income taxes decreased $2.0$3.1 million and $4.7 million respectively, compared to the same periodsperiod in the prior year. The decrease was primarily due to lower software amortization and lower depreciation expense recorded at Conesvillean updated Ohio property tax assessment in 2019.
DPL – Taxes Other Than Income Taxes
During the three and nine months ended September 30, 2019, Taxes other than income taxes increased $1.9 million and $4.0 million respectively, compared to the same periods2020, which resulted in the prior year. The increase for the nine months ended September 30, 2019 was primarily the result of a favorable adjustment recorded into property tax expense during the second quarter of 2018 related to 2017 Ohio property taxes to reflect actual payments made in 2018.
DPL – Operating Expenses - Otherquarter.
During the nine months ended September 30, 2018, DPL recorded2020, Taxes other operating expenses of $14.6than income taxes increased $1.3 million compared to the same period in the prior year. The increase was primarily from higher property taxes due to the loss on the transfer of business interestsan increase in the Beckjord facility of $11.7 million and a $2.8 million fixed-asset impairment charge recorded on Conesville.assessed values for Ohio properties for 2020.
DPL – Interest Expense
During the three and nine months ended September 30, 2019,2020, Interest expense decreased $4.3$1.2 million and $10.7$8.3 million, respectively, compared to the same periods in the prior year. The decrease was primarily the result of the reduction and refinancing of debt at DPL and DP&L in 20182020 and 2019.
DPL – Loss on Early Extinguishment of Debt
During the three and nine months ended September 30, 2020, DPL recorded Loss on early extinguishment of debt of $31.7 million primarily due to the make-whole premium payment of $30.8 million related to the redemption of the $380.0 million 7.25% Notes due 2021 in the third quarter of 2020.
During the nine months ended September 30, 2019, DPL recorded Loss on early extinguishment of debt increased $38.5of $44.9 million compared to the same period in the prior year. The increase was primarily due to the make-whole premium payment of $41.4 million related to the $400.0 million partial redemption of the $780.0 million 7.25% Notes due 2021 in the second quarter of 2019, partially offset by2019.
DPL – Other Income / (Expense)
During the make-whole premium payment of $5.1nine months ended September 30, 2020, Other income / (expense) decreased $2.3 million relatedcompared to the $101.0 million partial redemption of the 6.75% Senior Notes due 2019same period in the second quarterprior year. The decrease was primarily the result of 2018.
DPL – Income Tax Expense / (Benefit)Benefit From Continuing Operations
Income tax expensebenefit of $3.1$9.1 million during the three months ended September 30, 2018 changed2019 increased to an Income taxa benefit of $9.4$10.4 million during the three months ended September 30, 2019.2020. The change$1.3 million increase of $12.5 millionbenefit was primarily due to the tax effect of changes in pre-tax income offset by the impact of the benefit recorded in the prior year related to the September 26, 2019 PUCO order, which finalized the amount of excess deferred tax balances allocable to order.
DP&L’s utility customers.
Income tax expensebenefit of $1.5$11.8 million during the nine months ended September 30, 2018 changed2019 decreased to an income taxa benefit of $12.6$7.7 million during the nine months ended September 30, 2019.2020. The changedecrease of $14.1$4.1 million was primarily due to the tax impact of changes in pre-tax income offset by the benefit recorded in 2019 for the September 26, 2019 PUCO order, which finalizedorder.
See Note 7 – Income Taxes in the amount of excess deferred tax balances allocableNotes to DP&L’sDPL's utility customers.Condensed Consolidated Financial Statements for further discussion.
DPL– Discontinued Operations
Net income / (loss) from discontinued operations was $(0.5)$1.1 million and $25.8$3.1 million for the three and nine months ended September 30, 2020, respectively, compared to $(0.8) million and $23.9 million for the three and nine months ended September 30, 2019, respectively, compared to $4.3 million and $29.2 million for the three and nine months ended September 30, 2018, respectively. This income relates to the generation components of Miami Fort, Zimmer, Stuart Killen and the Peaker assets,Killen, which were disposed of either by sale or retirementretired in recent years.2018 and sold in 2019, and Conesville, which was retired in May 2020 and sold in June 2020. See Part I, Item 1, Note 1413 – Discontinued Operations in the Notes to DPL's Condensed Consolidated Financial Statements for further discussion.
RESULTS OF OPERATIONS BY SEGMENT - DPL
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 Part I, Item 1, Note 14 – Discontinued Operations of Notes to DPL's Condensed Consolidated Financial Statements. As such, AES Ohio Generation only has operating activity coming from its undivided ownership interest in Conesville, which does not meet the thresholds to be a separate reportable operating segment. Therefore, DPL manages its business through 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 segment. The Utility segment is discussed further below.
Utility Segment
The Utility segment is comprised 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 524,000approximately 530,000 retail customers 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 recording 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
Hutchings Coal generating facility, which was closed in 2013. These assetsThis facility did not transfer to AES Ohio Generation as part of DP&L's Generation Separation on October 1, 2017. Thus, they areit is grouped within the Utility segment for segment reporting purposes. In addition, regulatory deferrals and collections, which include collections and amortization of fuel deferrals infrom 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 and loss on early extinguishment of debt on DPL's long-term debt as well as adjustments related to purchase accounting from the Merger. DPL's undivided interest in Conesville is included within the "Other" column as it does not meet the requirement for disclosure as a reportable operating segment, since the results of operations of the other EGUs are presented as discontinued operations. The accounting policies of the reportable segment are the same as those described in Note 1 – Overview and Summary of Significant Accounting Policies of our 10-K. Intersegment sales, costs of sales and expenses are eliminated in consolidation. Certain shared and corporate costs are allocated between "Other" and the Utility reporting segment.
See Part I, Item 1, Note 11 – Business Segments of Notes to DPL's Condensed 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:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three months ended | | Nine months ended |
| | September 30, | | September 30, |
| $ in millions | | 2020 | | 2019 | | 2020 | | 2019 |
| Utility | | $ | 21.3 | | | $ | 37.7 | | | $ | 49.7 | | | $ | 108.8 | |
| | | | | | | | |
| Other | | (41.0) | | | (10.6) | | | (63.3) | | | (83.1) | |
| Income / (loss) from continuing operations before income tax (a) | | $ | (19.7) | | | $ | 27.1 | | | $ | (13.6) | | | $ | 25.7 | |
|
| | | | | | | | | | | | | | | | |
| | | Three months ended | | Nine months ended |
| | | September 30, | | September 30, |
| $ in millions | | 2019 | | 2018 | | 2019 | | 2018 |
| Utility | | $ | 37.7 |
| | $ | 37.5 |
| | $ | 108.8 |
| | $ | 73.9 |
|
| Other | | (11.2 | ) | | (17.7 | ) | | (85.8 | ) | | (60.2 | ) |
| Income from continuing operations before income tax (a) | | $ | 26.5 |
| | $ | 19.8 |
| | $ | 23.0 |
| | $ | 13.7 |
|
| |
(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. |
RESULTS 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 I, Item 2, Management's Discussion and Analysis of Financial Condition and Results of Operations (RESULTS OF OPERATIONS HIGHLIGHTS – DP&L) of this Form 10-Q.
RESULTS OF OPERATIONS HIGHLIGHTS – DP&L
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three months ended | | Nine months ended |
| | September 30, | | September 30, |
| $ in millions | | 2020 | | 2019 | | $ change | | % change | | 2020 | | 2019 | | $ change | | % change |
| Revenues: | | | | | | | | | | | | | | | | |
| Retail | | $ | 159.7 | | | $ | 174.3 | | | $ | (14.6) | | | (8) | % | | $ | 451.9 | | | $ | 518.7 | | | $ | (66.8) | | | (13) | % |
| Wholesale | | 3.2 | | | 4.4 | | | (1.2) | | | (27) | % | | 7.7 | | | 12.8 | | | (5.1) | | | (40) | % |
| RTO ancillary | | 11.5 | | | 11.0 | | | 0.5 | | | 5 | % | | 32.3 | | | 32.8 | | | (0.5) | | | (2) | % |
| Capacity revenues | | 0.9 | | | 1.1 | | | (0.2) | | | (18) | % | | 3.2 | | | 5.0 | | | (1.8) | | | (36) | % |
| Miscellaneous revenues | | 1.7 | | | 0.3 | | | 1.4 | | | 467 | % | | 4.0 | | | 0.9 | | | 3.1 | | | 344 | % |
| Total revenues | | 177.0 | | | 191.1 | | | (14.1) | | | (7) | % | | 499.1 | | | 570.2 | | | (71.1) | | | (12) | % |
| | | | | | | | | | | | | | | | |
| Operating costs and expenses | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
| Net fuel cost | | 0.4 | | | 0.6 | | | (0.2) | | | (33) | % | | 1.3 | | | 2.0 | | | (0.7) | | | (35) | % |
| Purchased power: | | | | | | | | | | | | | | | | |
| Purchased power | | 55.7 | | | 60.4 | | | (4.7) | | | (8) | % | | 156.3 | | | 175.7 | | | (19.4) | | | (11) | % |
| RTO charges | | 10.0 | | | 5.5 | | | 4.5 | | | 82 | % | | 20.8 | | | 17.6 | | | 3.2 | | | 18 | % |
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
| Net purchased power cost | | 65.7 | | | 65.9 | | | (0.2) | | | — | % | | 177.1 | | | 193.3 | | | (16.2) | | | (8) | % |
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
| Operation and maintenance | | 47.8 | | | 42.2 | | | 5.6 | | | 13 | % | | 137.7 | | | 135.2 | | | 2.5 | | | 2 | % |
| Depreciation and amortization | | 18.2 | | | 17.4 | | | 0.8 | | | 5 | % | | 53.7 | | | 52.9 | | | 0.8 | | | 2 | % |
| Taxes other than income taxes | | 17.8 | | | 20.8 | | | (3.0) | | | (14) | % | | 59.6 | | | 58.2 | | | 1.4 | | | 2 | % |
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
| Other, net | | 0.1 | | | (0.1) | | | 0.2 | | | (200) | % | | 0.1 | | | — | | | 0.1 | | | — | % |
| | | | | | | | | | | | | | | | |
| Total operating costs and expenses | | 150.0 | | | 146.8 | | | 3.2 | | | 2 | % | | 429.5 | | | 441.6 | | | (12.1) | | | (3) | % |
| | | | | | | | | | | | | | | | |
| Operating income | | 27.0 | | | 44.3 | | | (17.3) | | | (39) | % | | 69.6 | | | 128.6 | | | (59.0) | | | (46) | % |
| | | | | | | | | | | | | | | | |
| Other income / (expense), net: | | | | | | | | | | | | | | | | |
| Interest expense | | (5.9) | | | (6.1) | | | 0.2 | | | (3) | % | | (18.5) | | | (19.9) | | | 1.4 | | | (7) | % |
| | | | | | | | | | | | | | | | |
| Other income / (expense) | | 0.2 | | | (0.5) | | | 0.7 | | | (140) | % | | (1.4) | | | 0.1 | | | (1.5) | | | (1,500) | % |
| Total other expense, net | | (5.7) | | | (6.6) | | | 0.9 | | | (14) | % | | (19.9) | | | (19.8) | | | (0.1) | | | 1 | % |
| | | | | | | | | | | | | | | | |
| Income before income tax (a) | | $ | 21.3 | | | $ | 37.7 | | | $ | (16.4) | | | (44) | % | | $ | 49.7 | | | $ | 108.8 | | | $ | (59.1) | | | (54) | % |
|
| | | | | | | | | | | | | | | | |
| | | Three months ended | | Nine months ended |
| | | September 30, | | September 30, |
| $ in millions | | 2019 | | 2018 | | 2019 | | 2018 |
| Revenues: | | | | | | | | |
| Retail | | $ | 174.3 |
| | $ | 181.0 |
| | $ | 518.7 |
| | $ | 500.7 |
|
| Wholesale | | 4.4 |
| | 4.9 |
| | 12.8 |
| | 24.6 |
|
| RTO ancillary | | 11.0 |
| | 10.8 |
| | 32.8 |
| | 32.4 |
|
| Capacity revenues | | 1.1 |
| | 2.0 |
| | 5.0 |
| | 5.8 |
|
| Miscellaneous revenues | | 0.3 |
| | — |
| | 0.9 |
| | — |
|
| Total revenues | | 191.1 |
| | 198.7 |
| | 570.2 |
| | 563.5 |
|
| | | | | | | | | |
| Operating costs and expenses | | | | | | | | |
| Net fuel cost | | 0.6 |
| | 0.1 |
| | 2.0 |
| | 1.7 |
|
| Purchased power: | | | | | | | | |
| Purchased power | | 60.4 |
| | 67.7 |
| | 175.7 |
| | 186.7 |
|
| RTO charges | | 5.5 |
| | 15.3 |
| | 17.6 |
| | 46.8 |
|
| RTO capacity charges | | — |
| | — |
| | — |
| | 2.2 |
|
| Net purchased power cost | | 65.9 |
| | 83.0 |
| | 193.3 |
| | 235.7 |
|
| Operation and maintenance | | 42.2 |
| | 33.8 |
| | 135.2 |
| | 105.9 |
|
| Depreciation and amortization | | 17.4 |
| | 19.1 |
| | 52.9 |
| | 56.5 |
|
| Taxes other than income taxes | | 20.8 |
| | 19.0 |
| | 58.2 |
| | 54.3 |
|
| Loss / (gain) on asset disposal | | (0.1 | ) | | — |
| | — |
| | 0.1 |
|
| Loss on disposal of business | | — |
| | — |
| | — |
| | 12.4 |
|
| Total operating costs and expenses | | 146.8 |
| | 155.0 |
| | 441.6 |
| | 466.6 |
|
| | | | | | | | | |
| Operating income | | 44.3 |
| | 43.7 |
| | 128.6 |
| | 96.9 |
|
| | | | | | | | | |
| Other income / (expense), net: | | | | | | | | |
| Interest expense | | (6.1 | ) | | (5.8 | ) | | (19.9 | ) | | (20.5 | ) |
| Loss on early extinguishment of debt | | — |
| | — |
| | — |
| | (0.6 | ) |
| Other income / (expense) | | (0.5 | ) | | (0.4 | ) | | 0.1 |
| | (1.9 | ) |
| Total other expense, net | | (6.6 | ) | | (6.2 | ) | | (19.8 | ) | | (23.0 | ) |
| | | | | | | | | |
| Income before income tax (a) | | $ | 37.7 |
| | $ | 37.5 |
| | $ | 108.8 |
| | $ | 73.9 |
|
(a)For purposes of discussing operating results, we present and discuss Income before income tax. This format is useful to investors because it allows analysis and comparability of operating trends and includes the same information used by management to make decisions regarding our financial performance.
| |
(a) | For purposes of discussing operating results, we present and discuss Income before income tax. This format is useful to investors because it allows analysis and comparability of operating trends and includes the same information used by management to make decisions regarding our financial performance. |
DP&L – Revenues
Retail customers, especially residential and commercial customers, consume more electricity duringon warmer and colder weather than they do during mild temperatures.days. Therefore,our retail sales volumedemand is impactedaffected by the number of heating and cooling degree-days occurring during a year. Cooling degree-days typically have a more significant impacteffect than heating degree-days since some residential customers do not use electricity to heat their homes. Because of the impact of the decoupling riderDecoupling Rider (effective January 1, 2019 through December 18, 2019), weather hashad a minimal impact on our 2019 net operating results. Additionally, our retail revenues are affected by regulated rates and riders including the changes to our ESP described in Note 3 - Regulatory Matters of our Form 10-K and Note 3 – Regulatory Matters of Notes to DP&L's Condensed Financial Statements.
DP&L's&L's electric sales and billed customers were as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
ELECTRIC SALES AND CUSTOMERS (a) |
| | Three months ended | | Nine months ended |
| | September 30, | | September 30, |
| | 2020 | | 2019 | | 2020 | | 2019 |
Retail electric sales (b) | | | | | | | | |
| Residential | | 1,461 | | | 1,461 | | | 4,067 | | | 4,081 | |
| Commercial and other | | 973 | | | 1,044 | | | 2,616 | | | 2,820 | |
| Industrial | | 987 | | | 995 | | | 2,643 | | | 2,854 | |
| Governmental | | 319 | | | 355 | | | 872 | | | 965 | |
| Other | | 4 | | | 4 | | | 13 | | | 12 | |
| Total retail electric sales | | 3,744 | | | 3,859 | | | 10,211 | | | 10,732 | |
Wholesale electric sales (c) | | 123 | | | 151 | | | 323 | | | 421 | |
| Total electric sales | | 3,867 | | | 4,010 | | | 10,534 | | | 11,153 | |
| | | | | | | | |
| Billed electric customers (end of period) | | | | | | 529,674 | | | 523,915 | |
|
| | | | | | | | | | | | |
ELECTRIC SALES AND CUSTOMERS (a) |
| | | Three months ended | | Nine months ended |
| | | September 30, | | September 30, |
| | | 2019 | | 2018 | | 2019 | | 2018 |
Retail electric sales (b) | | 3,858 |
| | 3,858 |
| | 10,731 |
| | 10,943 |
|
Wholesale electric sales (c) | | 151 |
| | 156 |
| | 421 |
| | 608 |
|
| Total electric sales | | 4,009 |
| | 4,014 |
| | 11,152 |
| | 11,551 |
|
| | | | | | | | | |
| Billed electric customers (end of period) | | | | | | 523,915 |
| | 523,535 |
|
(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 1,057 kWh and 2,937 kWh for the three and nine months ended September 30, 2020, respectively, and 1,041 kWh and 2,982 kWh for the three and nine months ended September 30, 2019, respectively.
(c)Wholesale electric sales are DP&L's 4.9% share of the generation output of OVEC.
| |
(a) | Electric sales are presented in millions of kWh. |
| |
(b) | DP&Lretail electric sales represent the total transmission and distribution retail sales for the periods presented. SSO sales were 1,037 kWh and 2,972 kWh for the three and nine months ended September 30, 2019, respectively, and 1,056 kWh and 2,995 kWh for the three and nine months ended September 30, 2018, respectively.
|
| |
(c) | Included within DP&Lwholesale electric sales are DP&L's 4.9% share of the generation output of OVEC.
|
During the three months ended September 30, 2019,2020, revenue decreased $7.6$14.1 million to $191.1$177.0 million compared to $198.7$191.1 million in the same period of the prior year, and, during the nine months ended September 30, 2019,2020, revenue increased $6.7decreased $71.1 million to $570.2$499.1 million compared to $563.5$570.2 million in the same period of the prior year. These changes were primarily the result of changes in the components of revenue shown below:
| | | | | | | | | | | | | | |
| | Three months ended | | Nine months ended |
| | September 30, | | September 30, |
| $ in millions | | 2020 vs. 2019 | | 2020 vs. 2019 |
| Retail | | | | |
| Rate | | | | |
| Decrease due to removal of DMR | | $ | (28.2) | | | $ | (79.4) | |
| Decrease due to removal of DIR | | (5.6) | | | (16.7) | |
| Decrease in energy efficiency revenue rate rider | | (3.0) | | | (8.7) | |
| Increase / (decrease) due to removal of decoupling rider | | 0.4 | | | (4.7) | |
| Increase / (decrease) due to the TCRR rider | | 4.5 | | | (1.2) | |
| Increase due to reinstatement of RSC rider | | 20.0 | | | 54.9 | |
| Other | | 1.2 | | | 3.5 | |
| Net change in retail rate | | (10.7) | | | (52.3) | |
| | | | |
| Volume | | | | |
| | | | |
| | | | |
| | | | |
| Net decrease in the volume of kWh sold primarily due to unfavorable weather as compared to the same periods in the prior year and lower demand from commercial customers due to the impacts of COVID-19, partially offset by higher demand from residential customers due to the impacts of COVID-19 | | (4.5) | | | (14.6) | |
| | | | |
| Other miscellaneous | | 0.6 | | | 0.1 | |
| Total retail change | | (14.6) | | | (66.8) | |
| | | | |
| Wholesale | | | | |
| | | | |
| | | | |
| | | | |
| Decrease due to lower wholesale prices and lower volumes at OVEC | | (1.2) | | | (5.1) | |
| | | | |
| RTO ancillary and capacity revenues | | | | |
| RTO ancillary and capacity revenues | | 0.3 | | | (2.3) | |
| | | | |
| Other | | | | |
| Miscellaneous revenues | | 1.4 | | | 3.1 | |
| | | | |
| Net change in revenues | | $ | (14.1) | | | $ | (71.1) | |
| | | | |
| | | | |
| | | | |
| | | | |
|
| | | | | | | | |
| | Three months ended | | Nine months ended |
| | September 30, | | September 30, |
| $ in millions | | 2019 vs. 2018 | | 2019 vs. 2018 |
| Retail | |
| |
|
| Rate | | | | |
| Increase in energy efficiency and USF revenue rate riders | | $ | 9.7 |
| | $ | 30.1 |
|
| Increase in base distribution rates due to the DRO | | 6.3 |
| | 21.0 |
|
| Increase due to the DIR, which was effective with the DRO | | 5.6 |
| | 16.7 |
|
Decrease in the TCRR due to lower transmission costs and the impact of DP&L passing back the benefits of the PJM Transmission Enhancement Settlement to customers | | (12.3 | ) | | (27.3 | ) |
| Decrease due to energy efficiency lost revenues recorded in the prior year | | (5.0 | ) | | (16.7 | ) |
| Other | | (2.5 | ) | | 9.5 |
|
| Net change in retail rate | | 1.8 |
| | 33.3 |
|
| | | | | |
| Volume | | | | |
Decrease in volume is primarily due to demand in the prior year. The decoupling rider approved in the DRO became effective January 1, 2019 and is designed to eliminate the impacts of weather and demand on DP&L's residential and commercial customers resulting in less of a demand impact in the current year. | | (8.2 | ) | | (15.6 | ) |
| | | | | |
| Other miscellaneous | | (0.3 | ) | | 0.3 |
|
| Total retail change | | (6.7 | ) | | 18.0 |
|
| |
| |
|
| Wholesale | |
| |
|
| Decrease in volumes due to no longer serving the load of certain other parties through their competitive bid process and lower wholesale prices | | (0.5 | ) | | (11.8 | ) |
| |
| |
|
| RTO ancillary and capacity revenues | |
| |
|
| RTO ancillary and capacity revenues | | (0.7 | ) | | (0.4 | ) |
| | | | | |
| Other | | | | |
| Miscellaneous revenues | | 0.3 |
| | 0.9 |
|
| |
| |
|
| Net change in revenues | | $ | (7.6 | ) | | $ | 6.7 |
|
DP&L – Net Purchased Power
During the three months ended September 30, 2019,2020, net purchased power decreased $17.1$0.2 million to $65.9$65.7 million compared to $83.0$65.9 million in the same period of the prior year, and, during the nine months ended September 30, 2019,2020, net purchased power decreased $42.4$16.2 million to $193.3$177.1 million compared to $235.7$193.3 million in the same period of the prior year. These changes were primarily the result of changes in the cost of purchased power shown below.
| | | | | | | | | | | | | | |
| | Three months ended | | Nine months ended |
| | September 30, | | September 30, |
| $ in millions | | 2020 vs. 2019 | | 2020 vs. 2019 |
| Net purchased power | | | | |
| Purchased power | | | | |
| Rate | | | | |
| Decrease due to pricing in the competitive bid process | | $ | (3.7) | | | $ | (16.5) | |
| Volume | | | | |
| Decrease due to lower retail load served primarily driven by weather, partially offset by COVID-19 demand impacts | | (1.0) | | | (2.9) | |
| Total purchased power change | | (4.7) | | | (19.4) | |
| | | | |
| RTO charges | | | | |
| Increase primarily due to higher rates in 2020 | | 4.5 | | | 3.2 | |
| | | | |
| | | | |
| | | | |
| | | | |
| Net change in purchased power | | $ | (0.2) | | | $ | (16.2) | |
| | | | |
| | | | |
| | | | |
| | | | |
|
| | | | | | | | |
| | | Three months ended | | Nine months ended |
| | | September 30, | | September 30, |
| $ in millions | | 2019 vs. 2018 | | 2019 vs. 2018 |
| Net purchased power | | | | |
| Purchased power | | | | |
| Rate | | | | |
| Increase / (decrease) due to pricing in the competitive bid process | | $ | (1.1 | ) | | $ | 2.0 |
|
| Volume | | | | |
Lower purchases in the nine months ended September 30, 2019 as DP&L stopped purchasing power to serve the load of certain other parties through their competitive bid process after May of 2018 | | (6.2 | ) | | (13.0 | ) |
| Total purchased power change | | (7.3 | ) | | (11.0 | ) |
| RTO charges | | | | |
Decrease due to lower transmission and congestion charges, including a decrease due to benefits of the PJM Transmission Enhancement Settlement. RTO charges are incurred by DP&L as a member of PJM and primarily include transmission charges within our network, which are incurred and charged to customers in the transmission rider | | (9.8 | ) | | (29.2 | ) |
| RTO capacity charges | | | | |
| Decrease due to capacity costs at OVEC | | — |
| | (2.2 | ) |
| | | | | |
| Net change in purchased power | | $ | (17.1 | ) | | $ | (42.4 | ) |
DP&L – Operation and Maintenance
During the three and nine months ended September 30, 2019,2020, Operation and Maintenance expense increased $8.4$5.6 million and $29.3$2.5 million, respectively, compared to the same periods in the prior year. The main drivers of these changes are as follows:
| | | | | | | | | | | | | | |
| | Three months ended | | Nine months ended |
| | September 30, | | September 30, |
| $ in millions | | 2020 vs. 2019 | | 2020 vs. 2019 |
Increase in uncollectible expenses for the low-income payment program, which is funded by the USF revenue rate rider (a) | | 2.5 | | | 6.0 | |
| | | | |
Increase in deferred storm costs (a) | | 1.6 | | | 4.9 | |
| | | | |
| | | | |
| | | | |
| | | | |
| | | | |
| | | | |
| | | | |
| | | | |
| | | | |
Decrease in alternative energy and energy efficiency programs (a) | | (3.0) | | | (9.1) | |
| Increase / (decrease) in legal expenses, primarily due to an insurance reimbursement in September 2019 | | 2.0 | | | (0.8) | |
| Other, net | | 2.5 | | | 1.5 | |
| | | | |
| Net change in operation and maintenance expense | | $ | 5.6 | | | $ | 2.5 | |
| | | | |
| | | | |
| | | | |
| | | | |
|
| | | | | | | | |
| | | Three months ended | | Nine months ended |
| | | September 30, | | September 30, |
| $ in millions | | 2019 vs. 2018 | | 2019 vs. 2018 |
Increase in alternative energy and energy efficiency programs (a) | | $ | 7.4 |
| | $ | 20.0 |
|
Increase in uncollectible expenses for the low-income payment program, which is funded by the USF revenue rate rider (a) | | 3.1 |
| | 9.3 |
|
| Increase in costs charged from the Service Company for services provided | | 2.9 |
| | 5.3 |
|
| Decrease due to prior year write-off of previously deferred rate case costs | | — |
| | (5.3 | ) |
Decrease in amortization of previously deferred regulatory costs, including rate case costs, certain transmission costs, and various costs collected under the regulatory compliance rider (a) | | (2.0 | ) | | (1.7 | ) |
| Other, net | | (3.0 | ) | | 1.7 |
|
| Net change in operation and maintenance expense | | $ | 8.4 |
| | $ | 29.3 |
|
(a) There is a corresponding offset in Revenues associated with these programs.
DP&L – Depreciation and Amortization- Taxes Other Than Income Taxes
During the three and nine months ended September 30, 2019, Depreciation and amortization2020, Taxes other than income taxes decreased $1.7$3.0 million and $3.6 million, respectively, compared to the same periodsperiod in the prior year. The decrease was primarily due to lower software amortizationan updated Ohio property tax assessment in 2019.
DP&L – Taxes Other Than Income Taxes
During the three and nine months ended September 30, 2019, Taxes other than income taxes increased $1.8 million and $3.9 million, respectively, compared to the same periods2020, which resulted in the prior year. The increase for the nine months ended September 30, 2019 was primarily the result of a favorable adjustment made in 2018 for 2017 Ohioto property taxes to reflect actual payments.
DP&L – Loss on Disposal of Business
During the nine months ended September 30, 2018, DP&L recorded a loss on disposal of business of $12.42020, Taxes other than income taxes increased $1.4 million compared to the same period in the prior year. The increase was primarily from higher property taxes due to the loss on the transferan increase in assessed values for Ohio properties for 2020.
DP&L – Income Tax Expense / (Benefit)
Income tax expense of $6.3 million during the three months ended September 30, 2018 changed to a benefit of $7.2 million during the three months ended September 30, 2019 changed to an income tax expense of $3.5 million during the three months ended September 30, 2020. The change of $10.7 million was primarily due to the impact of the benefit recorded in the prior year related to the September 26, 2019 PUCO order which finalizedand the amountnet tax benefit related to the reversal of excess deferred taxes, which were partially offset by the reversal of an uncertain tax balances allocableposition and an adjustment to the deferred tax balances.
DP&L’s utility customers.
DuringIncome tax expense of $5.1 million during the nine months ended September 30, 2019 Incomechanged to an income tax expense decreased $6.9of $2.4 million compared toduring the same period in the prior yearnine months ended September 30, 2020. The decrease of $2.7 million of expense was primarily due to a decrease in pre-tax income offset by changes in the impactfull year forecasted rate.
See Note 7 – Income Taxes of the September 26, 2019 PUCO order, which finalized the amount of excess deferred tax balances allocableNotes to DP&L’s&L's utility customers, partially offset by higher pre-tax income in the current year as compared to the prior year.Condensed Financial Statements for further discussion.
KEY TRENDS AND UNCERTAINTIES
Following the issuance of the DRO in September 2018 and the resulting changes to the decoupling rider, we expect thatDecoupling Rider effective January 1, 2019, our financial results will be lesswere not driven by retail demand and weather but will bewere impacted by customer growth within our service territory. However, the Decoupling Rider was removed with the approved withdrawal of the 2017 ESP and reversion to DP&L's ESP 1 rate plan in December 2019. As such, our results are again primarily impacted by retail demand and weather. In addition, DPL's and DP&L's financial results are likely to be driven by other factors including, but not limited to:
•regulatory outcomes;
•the passage of new legislation, implementation of regulations or other changes in regulation; and
•the timely recovery of transmission and distribution expenditures;expenditures.
COVID-19 Pandemic
Since December 2019, the COVID-19 pandemic has impacted global economic activity, including electricity and energy consumption, and caused significant volatility and negative pressure in financial markets. In response to the COVID-19 pandemic, the PUCO issued an emergency order prohibiting electric utilities, including us, from discontinuing electric utility service to customers. This prohibition ended for DP&L on September 1, 2020.
| |
• | with respect
In addition to the impacts to demand within our service territory, we also have incurred and expect to continue to incur expenses relating to COVID-19, and such expenses may include those that relate to events outside of our control. For the quarter ending September 30, 2020, we continued to experience impacts from the pandemic and expect to continue to experience impacts for the remainder of 2020, and any such impacts during that time or in other future periods could have a material adverse effect on our results of operations, financial condition and cash flows. The following discussion highlights our assessment of the impacts of the pandemic on our current financial and operating status, and our financial and operational outlook based on information known as of this filing. Also see Part II, Item 1A-Risk Factors of this Form 10-Q.
Business Continuity - As the COVID-19 pandemic progresses, we are taking a variety of measures to ensure our ability to transmit, distribute and sell electric energy, to ensure the health and safety of our employees, contractors, customers and communities and to provide essential services to the communities in which we operate. We continue to respond to this global crisis through comprehensive measures to protect our employees and others while fulfilling our vital role in providing our customers with electric energy. While stay-at-home restrictions have been lifted in our service territory, most of our management and administrative personnel are able to work remotely, and we have not experienced significant issues affecting our operations or ability to maintain effective internal controls and produce reliable financial information.
Demand - The economic impact of the pandemic started to materialize in Ohio in the second half of March and more so in the second and third quarters of 2020. See Note 12 – Revenue and Note 14 – Risks and Uncertainties of Notes to DPL's Condensed Consolidated Financial Statements and Note 11 – Revenue and Note 12 – Risks and Uncertainties of Notes to DP&L's Condensed Financial Statements for further discussion of how the COVID-19 pandemic has impacted our sales demand and a disaggregation of retail revenues by customer class. The declines for commercial and industrial customers were more severe in April and May, and partially recovered starting in June and into the third quarter as stay-at-home orders were lifted. While we cannot predict the length and magnitude of the pandemic or how it could ultimately impact global or local economic conditions, continuous and/or further declines in future demand would adversely impact our financial results for 2020 and beyond.
Liquidity - We anticipate having sufficient liquidity to make all required payments, including payments for salaries and wages owed to our employees, during the pandemic. We do not foresee a significant impact to our access to capital or our liquidity position as a result of the pandemic. On June 19, 2020, DPL closed a $415.0 million issuance of senior unsecured notes, and the proceeds from this issuance together with cash on hand were used to redeem in-full the remaining balance of $380.0 million of DPL's 7.25% senior unsecured notes. These bonds were redeemed at par plus accrued interest and a make-whole premium of $30.8 million on July 20, 2020. Additionally, on July 31, 2020 DP&L issued $140.0 million of taxable First Mortgage Bonds and used the proceeds to purchase at par value the $140.0 million of outstanding tax-exempt Ohio Air Quality Development Authority Collateralized Pollution Control Revenue Refunding Bonds that had been issued in 2015. For further discussion of our financial condition, liquidity, and capital requirements, see Part I, Item 2-Management’s Discussion and Analysis of Financial Condition and Results of Operations - Capital Resources and Liquidity of this Form 10-Q.
Credit Exposures - We continue to monitor and manage our credit exposures in a prudent manner. During the three and nine months ended September 30, 2020, we experienced credit-related impacts from utility customers due to the prohibition of electric utilities, including us, from discontinuing electric utility service to customers through September 1, 2020 and due to the economic impacts of the COVID-19 pandemic. This has resulted in an increase in past due customer receivable balances, and our allowance for credit losses has increased $2.8 million for both DPL and DP&L during the nine months ended September 30, 2020. During the third quarter of 2020, DP&L implemented and offered extended payment plans to customers as a result of the pandemic. We expect significant economic disruptions from the COVID-19 pandemic potentially for the remainder of 2020 and beyond. If these disruptions occur, further deterioration in our credit exposures and customer collections could result. However, as discussed in 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 Item 8. - Financial Statements and Supplementary Data of our Form 10-K, DP&L’s uncollectible expense is deferred for future collection. The prohibition from discontinuing electric utility service ended for DP&L on September 1, 2020.
Supply Chain - Our supply chain management has remained robust during this challenging time and we continue to closely manage and monitor developments.
Capital Projects - During the COVID-19 pandemic, our construction projects are proceeding without material delays. For further discussion of our capital requirements, see Part I, Item 2 – Management’s Discussion and Analysis of Financial Condition and Results of Operations – Capital Resources and Liquidity of this Form 10-Q.
CARES Act - The Coronavirus Aid, Relief, and Economic Security (CARES) Act was passed by the U.S. Congress and signed into law on March 27, 2020. While we currently expect a limited impact from this legislation on our business, certain elements, primarily the deferral of payroll taxes, may provide some cash benefits in the near term.
See Note 14 – Risks and Uncertainties of Notes to DPL's Condensed Consolidated Financial Statements and Note 12 – Risks and Uncertainties of Notes to DP&L's Condensed Financial Statements for more information and Part II, Item 1a - Risk Factors of this Form 10-Q for more information.
DPL, exiting generation assets currently owned by AES Ohio Generation.
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Regulatory Environment
DPL’s, DP&L’s and our other subsidiaries’ facilities and operations are subject to a wide range of regulations and laws by federal, state and local authorities. As well as imposing continuing compliance obligations, these laws and regulations authorize the imposition of substantial penalties for noncompliance, including fines, injunctive relief and other sanctions. In the normal course of business, we have investigatory and remedial activities underway at these facilities and operations in an effort to comply, or to determine compliance, with such regulations. We record liabilities for losses that are probable and can be reasonably estimated. In addition to matters discussed or updated herein, our 20182019 Form 10-K and Forms 10-Q previously filed with the SEC during 20192020 describe other regulatory matters which have not materially changed since those filings.
Ohio Regulatory Proceedings
DMR
On October 20, 2017, the PUCO approved DP&L’s 2017 ESP. On January 7, 2019, the Ohio Consumers' Counsel appealed to the Supreme Court of Ohio the 2017 ESP with respect to the bypassability of the Reconciliation Rider and the exclusion of the DMR from the SEET. That proceeding has been stayed pending an appeal in a related case involving another utility.
Pursuant to the 2017 ESP, 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 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. DP&L’s DMP investments are contingent upon the PUCO approving the two-year extension of its DMR.
A rehearing process in DP&L's 2017 ESP case, including the DMR, remains pending. On August 1, 2019, DP&L filed a supplemental brief with the PUCO focused on the applicability of a recent court decision involving another Ohio utility’s DMR which is similar to, but not identical to, DP&L’s DMR.
Ohio House Bill 6
On July 23, 2019, the Governor of Ohio signed Ohio House Bill 6, which, among other things, does the following:
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• | beginning January 1, 2020, replaces DP&L’s non-bypassable Reconciliation Rider, permitting DP&L to defer, recover or credit the net proceeds from selling energy and capacity received as part of DP&L’s interest in OVEC and its OVEC-related costs through 2023, with a non-bypassable recovery mechanism for recovery of prudently incurred OVEC costs through 2030;
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eliminates the annual energy efficiency targets for Ohio utilities after 2020; and
allows Ohio utilities to construct customer-sited renewable generation for mercantile customers or groups of mercantile customers, the costs of which may only be recovered from those customers.
Regulatory impact of tax reform
On September 26, 2019 the PUCO approved a unanimous stipulation agreeing to return a total of $65.1 million, $83.2 million when including taxes associated with the refunds, to distribution customers.
See Part I, Item 1, Note 3 – Regulatory Matters of Notes to DPL's Condensed Consolidated Financial Statements and Part I, Item 1, Note 3 – Regulatory Matters of Notes to DP&L's Condensed Financial Statements for further information regarding regulatory matters.
Stipulation and Recommendation - On October 23, 2020, DP&L entered into a Stipulation and Recommendation with the staff of the PUCO and various customers and other organizations, which is subject to PUCO approval. This Stipulation and Recommendation would provide resolution on several matters pending before the PUCO. See additional information in Note 3 – Regulatory Matters of Notes to DPL's Condensed Consolidated Financial Statements and Note 3 – Regulatory Matters of Notes to DP&L's Condensed Financial Statements.
United States Tax Law
Distribution Rate Case - On October 30, 2020 DP&L filed a Pre-filing Notice of Intent to file an application to increase rates for distribution service. The Distribution Rate Case Application will be filed on November 30, 2020.
Ohio House Bill 6 - Legislation, such as Senate Bill 346 and House Bill 738, has been introduced in the Ohio General Assembly seeking to repeal Ohio House Bill 6. Ohio House Bill 6, among other things, does the following: beginning January 1, 2020, permitted DP&L to defer, recover or credit the net proceeds from selling energy and capacity received as part of DP&L's interest in OVEC and its OVEC-related costs through a non-bypassable recovery mechanism for recovery of prudently incurred OVEC costs through 2030; eliminates the annual energy efficiency targets for Ohio utilities after 2020; and allows Ohio utilities to construct customer-sited renewable generation for mercantile customers or groups of mercantile customers, the costs of which may only be recovered
from those customers. If Ohio House Bill 6 is repealed without a replacement with comparable provisions, it could have a material adverse effect on our results of operations, financial condition and cash flows.
Reference Rate Reform
Considering the significant changes to the U.S. tax system enactedAs discussed in Item 7 - Management's Discussion and Analysis of Financial Condition and Results of Operations, of our Form 10-K, in July 2017, the U.K. Financial Conduct Authority announced that it intends to phase out LIBOR by the end of 2021. In the U.S. Treasury Department, the Alternative Reference Rate Committee at the Federal Reserve identified the Secured Overnight Financing Rate (SOFR) as its preferred alternative rate for LIBOR; alternative reference rates in other key markets are under development. We maintain financial instruments that use LIBOR as an interest rate benchmark and Internal Revenue Service have issued numerous regulations. While certain regulations are now final, there are many regulations that are proposed and still others anticipatedbegun to engage with our counterparties to discuss specific action items to be issuedundertaken in proposed form. The final version of any regulations may vary from the proposed form. When final, these regulations may materially impact our effective tax rate. Certain of the proposed regulations,order to prepare for amendments when final, may have retroactive effect to January 1, 2018 or January 1, 2019.they become due.
Environmental Matters
In addition to 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 our 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 immaterial accruals for loss contingencies for environmental matters. We also have several 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 and cash flows. We refer to the discussion in “Item 1. Business - Environmental Matters” in our 20182019 Form 10-K for a discussion of certain recent developments in environmental laws and regulations.
We have several pending environmental matters associated with our previously-owned stations. Some of these matters could have a material adverse effect on our results of operations, financial condition and cash flows.
BecauseAs a result of DPL’s decision to retireretirement and subsequent sale of 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 and subsequent sale 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
•the Affordable Clean Energy Rule.
Additionally, because of the retirement of Stuart and Killen noted above, the following environmental regulations and requirements are not expected to have a material impact on
DPL with respect to either of the two generating stations:
water intake regulations finalized by the USEPA on May 19, 2014 and
revised technology-based regulations governing water discharges from steam electric generating facilities, finalized by the USEPA on November 3, 2015.
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 ERAC. On August 8, 2019, the ERAC dismissed the appeal in response to a Joint Motion to Dismiss.
Notice of Potential Liability for Third Party Disposal Site
On October 16, 2019, DP&L received a special notice that USEPA considers DP&L, along with other parties, to be a PRP for the clean-up of hazardous substances at a third-party landfill known as the Tremont City Barrel Site, located near Dayton, Ohio. While DP&L is currently unable to predict the outcome of this matter, if DP&L were required to contribute to the clean-up of the site, it could have a material adverse effect on our business, financial condition or results of operations.
Regulation of Waste DisposalCCR
The USEPA's finalOn October 19, 2015, a USEPA rule regulating CCR rule became effective in October 2015. Generally,under the rule regulates CCRResource Conservation and Recovery Act as nonhazardous solid waste and establishes nationalbecame effective (CCR Rule). The CCR Rule established nationally applicable minimum criteria for existingthe disposal of CCR in new and new CCRcurrently operating landfills and existing and new CCR ash ponds,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 ("WIIN Act")(WIIN Act), which includes provisions to implement the CCR ruleRule through a state permitting program, or if the state chooses not to participate, a possible federal permit program. The USEPA has indicated that they will implement a phased approach to amending the CCR rule. In July 2018,Rule which is in process. On February 20, 2020, the US EPA published a proposed rule to establish a federal CCR permit program that would operate in states without approved CCR permit programs. On August 28, 2020, the USEPA published final CCR rule amendments (Phase One, Part One) in the Federal Register. In August 2018, the D.C. Circuit Court issued a decision in certain CCR litigation matters, which may result in additional revisions to the CCR rule. In October 2018, some environmental groups filed a petition for review challenging the USEPA's final CCR rule amendments (Phase One, Part One) which have since been remanded without vacatur to the USEPA. On August 14, 2019, the USEPA published amendments to the CCR rule relating to the CCR rule’s criteria for determining beneficial use and the regulation of CCR piles, among other revisions. On November 4, 2019, the USEPA signed additional amendments to the CCR Rule titled “A Holistic Approach Toto Closure Part A: Deadline Toto Initiate Closure.”Closure”, which amends certain regulatory provisions that govern CCR. On October 16, 2020, the USEPA released a pre-publication version of final amendments to the CCR rule titled “A Holistic Approach to Closure Part B”. The October 2015 CCR rule,Rule, current or proposed amendments to the October 2015 CCR rule,Rule, the results of groundwater monitoring data or the outcome of CCR-related litigation could have a material adverse effect on our results of operations, financial condition and cash flows.
Litigation Involving Previously 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 previous owners of the Stuart generating station were 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 previous owners submitted a request for termination of the consent decree to the U.S. District Court. On July 14, 2020, the U.S. District Court granted the request and terminated the Consent Decree.
Clean Water Act - Regulation of Water Discharge
DP&L and other utilities at times apply the Nationwide Permit 12 (NWP 12) issued by the U.S. Army Corps of Engineers (Corps) in completing transmission and distribution projects that may involve waters of the U.S. NWP 12 is the nationwide permit for Utility Line Activities, specifically those required for construction and maintenance, provided the activity does not result in the loss of greater than 1/2-acre of waters of the U.S. for each single and complete project.
On April 15, 2020, in a proceeding involving the construction of the Keystone XL pipeline, the U.S. District Court for the District of Montana (Montana District Court) vacated NWP 12 and enjoined its application. On April 27, 2020, the Corps moved for the Montana District Court to stay pending appeal those portions of the April 15, 2020 order that vacate NWP 12 and enjoin its application. In the alternative, the Corps asked the Montana District Court to stay its vacatur and injunction as they relate to anything other than the Keystone XL pipeline. On May 11, 2020, following a request from the Corps, the Montana District Court amended its order to vacate NWP 12 only for oil and gas pipeline construction projects, allowing electric utility T&D projects to continue. On May 13, the Corps appealed the Montana District Court decision with the Ninth Circuit Court and requested a stay. On May 28, 2020, the Ninth Circuit denied a motion to stay. On June 16, 2020, the U.S. Solicitor General, on behalf of the U.S. Army Corps of Engineers, filed an application with the U.S. Supreme Court asking the Court to stay the district court order that vacated and enjoined the Corps from issuing authorizations under NWP 12 as it relates to the construction of new oil and gas pipelines. On July 6, 2020, the U.S. Supreme Court stayed the district court order, allowing the use of NWP 12 for oil and gas pipeline projects except for Keystone XL. It is too early to determine whether future outcomes or decisions related to this matter could have a material adverse effect on our results of operations, financial condition and cash flows.
On April 23, 2020, the U.S. Supreme Court issued a decision in the Hawaii Wildlife Fund v. County of Maui case related to whether a Clean Water Act permit is required when pollutants originate from a point source but are conveyed to navigable waters through a nonpoint source such as groundwater. The U.S. Supreme Court held that discharges to groundwater require a permit if the addition of the pollutants through groundwater is the functional equivalentof a direct discharge from the point source into navigable waters. It is too early to determine whether this decision may have a material impact on our business, financial condition andor results of operations.
CAPITAL RESOURCES AND LIQUIDITY
DPL and DP&L had unrestricted cash and cash equivalents of $36.8$43.5 million and $14.4$26.1 million, respectively, at September 30, 2019.2020. At that date, neither DPL nor DP&L had short-term investments. DPL and DP&L had aggregate principal amounts of long-term debt outstanding of $1,378.2$1,413.0 million and $582.6$582.4 million, respectively.
Approximately $139.6At September 30, 2020, approximately $0.2 million of DPL's long-term debt, including $139.6$0.2 million of DP&L's long-term debt, matures within twelve months of the balance sheet date.
In May 2020, DP&L receivedapproval to, among other things, issue up to $140.0 million in aggregate principal amount of long-term indebtedness for a term not to exceed 30 years. On July 31, 2020, DP&L issued $140.0 million of taxable First Mortgage Bonds and on August 3, 2020 used the proceeds to purchase at par value the $140.0 million of outstanding tax-exempt Ohio Air Quality Development Authority (OAQDA) Collateralized Pollution Control Revenue Refunding Bonds that had been issued in 2015. The new taxable First Mortgage Bonds carry an interest rate of 3.20% and mature on July 31, 2040.
From time to time, we may elect to repurchase our outstanding debt through cash purchases, privately negotiated transactions or otherwise when management believes such repurchases are favorable to make. The amounts involved in any such repurchases may be material. See Part I, Item 1, Note 6 – Long-term Debt of Notes to DPL's Condensed Consolidated Financial Statements and Part I, Item 1, Note 6 – Long-term Debt of Notes to DP&L's Condensed Financial Statements.
We depend on timely and continued access to capital markets to manage our liquidity needs. The inability to raise capital on favorable terms, to refinance existing indebtedness or to fund operations and other commitments during
times of political or economic uncertainty could have a material adverse effect on our results of operations, financial condition and cash flows. In addition, changes in the timing of tariff increases or delays in regulatory determinations could affect the cash flows and results of operations of our businesses.
Our discussion of DPL’s financial condition, liquidity and capital requirements include the results of its principal subsidiary DP&L.
CASH FLOWS
DPL’s financial condition, liquidity and capital requirements include the consolidated results of its principal subsidiary DP&L. All material intercompany accounts and transactions have been eliminated in consolidation.
Cash Flow Analysis - DPL
The following table summarizes the cash flows of DPL:
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| | | | | | | | |
| DPL | | Nine months ended September 30, |
| $ in millions | | 2019 | | 2018 |
| Net cash provided by operating activities | | $ | 136.3 |
| | $ | 152.9 |
|
| Net cash provided by / (used in) investing activities | | (125.9 | ) | | 157.5 |
|
| Net cash used in financing activities | | (67.7 | ) | | (249.4 | ) |
| Decrease in cash and restricted cash of discontinued operations and held-for-sale businesses | | — |
| | 1.5 |
|
| Net change | | (57.3 | ) | | 62.5 |
|
| Balance at beginning of period | | 111.7 |
| | 24.9 |
|
| Cash, cash equivalents, and restricted cash at end of period | | $ | 54.4 |
| | $ | 87.4 |
|
| | | | | | | | | | | | | | |
| | Nine months ended September 30, |
| $ in millions | | 2020 | | 2019 |
| Net cash provided by operating activities | | $ | 81.7 | | | $ | 136.3 | |
| Net cash used in investing activities | | (125.4) | | | (125.9) | |
| Net cash provided by / (used in) financing activities | | 40.3 | | | (67.7) | |
| | | | |
| Net change | | (3.4) | | | (57.3) | |
| Balance at beginning of period | | 47.0 | | | 111.7 | |
| Cash, cash equivalents, and restricted cash at end of period | | $ | 43.6 | | | $ | 54.4 | |
DPL – Change in Net cash flows from operating activities
| | | | | | | | | | | | | | | | | | | | |
| | Nine months ended September 30, | | $ change |
| $ in millions | | 2020 | | 2019 | | 2020 vs. 2019 |
| Net income / (loss) | | $ | (2.8) | | | $ | 61.4 | | | $ | (64.2) | |
| Depreciation and amortization | | 55.1 | | | 34.2 | | | 20.9 | |
| Deferred income taxes | | 32.3 | | | (8.7) | | | 41.0 | |
| Loss on early extinguishment of debt | | 31.7 | | | 44.9 | | | (13.2) | |
| Other adjustments to Net income | | (0.1) | | | 4.2 | | | (4.3) | |
| | | | | | |
| | | | | | |
| Net income, adjusted for non-cash items | | 116.2 | | | 136.0 | | | (19.8) | |
| Net change in operating assets and liabilities | | (34.5) | | | 0.3 | | | (34.8) | |
| Net cash provided by operating activities | | $ | 81.7 | | | $ | 136.3 | | | $ | (54.6) | |
|
| | | | | | | | | | | | |
| | | Nine months ended September 30, | | $ change |
| $ in millions | | 2019 | | 2018 | | 2019 vs. 2018 |
| Net income | | $ | 61.4 |
| | $ | 41.4 |
| | $ | 20.0 |
|
| Depreciation and amortization | | 34.2 |
| | 62.4 |
| | (28.2 | ) |
| Deferred income taxes | | (8.7 | ) | | (17.8 | ) | | 9.1 |
|
| Loss on early extinguishment of debt | | 44.9 |
| | 6.4 |
| | 38.5 |
|
| Other adjustments to Net income | | 5.1 |
| | 19.8 |
| | (14.7 | ) |
| Net income, adjusted for non-cash items | | 136.9 |
| | 112.2 |
| | 24.7 |
|
| Net change in operating assets and liabilities | | (0.6 | ) | | 40.7 |
| | (41.3 | ) |
| Net cash provided by operating activities | | $ | 136.3 |
| | $ | 152.9 |
| | $ | (16.6 | ) |
The net change in operating assets and liabilities during the nine months ended September 30, 20192020 compared to the nine months ended September 30, 20182019 was driven by the following:
|
| | | | |
| $ in millions | | $ Change |
| Decrease from accrued taxes primarily due to higher current portion of income tax expense in prior year compared to the current year | | (23.9 | ) |
| Decrease from inventory primarily due a significant decrease in inventory balances in 2018 due to the closure of the Stuart and Killen plants | | (17.9 | ) |
| Decrease from accounts receivable is primarily due to prior year collections of the remaining amounts due from partners in jointly-owned stations | | (16.4 | ) |
| Increase from accounts payable is primarily due to timing of payments | | 12.3 |
|
| Other | | 4.6 |
|
| Net decrease in cash from changes in operating assets and liabilities | | $ | (41.3 | ) |
| | | | | | | | |
| $ in millions | | $ Change |
| Decrease from deferred regulatory costs, net primarily due to a decrease in regulatory liabilities as we return certain benefits to customers | | (20.0) | |
| Decrease from accounts payable primarily due to timing of payments | | (19.5) | |
| Increase from accrued taxes payable / receivable primarily due to tax payment of $52.0 million from AES, partially offset by an increase in the current tax benefit in the current year | | 8.0 | |
| Other | | (3.3) | |
| Net decrease in cash from changes in operating assets and liabilities | | $ | (34.8) | |
| | |
DPL – Cash flows Net cash from investing activities
Net cash provided by / (used in)used in investing activities was $(125.4) million for the nine months ended September 30, 2020 compared to $(125.9) million for the nine months ended September 30, 2019 compared to $157.52019. This $0.5 million for the nine months ended September 30, 2018. The investing activity for the nine months ended September 30, 2019decrease in cash used primarily relates to capital expenditures$5.1 million of $122.4 million, which increased from the prior year mainly due to significant storm restoration efforts in the third quarter of 2019. The investing activity for the nine months ended September 30, 2018 primarily relates to proceeds received from the sale of businesssoftware in the current year and a $2.9 million decrease in the purchase of $234.9 million due to the sale of the Peaker assets, and proceeds of $10.6 million related to the June transmission swap with Duke and AEP. This wasrenewable energy credits, partially offset by a $6.3 million increase in capital expenditures due to an increase in cost of $75.8 million and a payment on the disposal of Beckjord of $14.5 million.
DPL – Cash flows Net cash from financing activities
Net cash used inprovided by / (used in) financing activities was $(67.7)$40.3 million for the nine months ended September 30, 20192020 compared to $(249.4)$(67.7) million from financing activities for the nine months ended September 30, 2018. The financing activity for the nine months ended September 30, 20192019. This $108.0 million increase is primarily due to a $160.5 million increase in net issuances of long-term debt repayments, including early payment premiums,($4.2 million
net issuance of long-term debt in 2020 compared to net retirements on long-term debt of $156.3 million in 2019) and $9.2a $98.0 million of payments of deferred financing costs. This wascapital contribution in the current year, partially offset by debt issuances,increased net of discount, of $821.7 million, and netpayments on revolving credit facility borrowingsfacilities of $98.0 million. The financing activity for$152.0 million in the nine months ended September 30, 2018 is primarily due to debt repayments of $239.4 million.current year.
Cash Flow Analysis - DP&L
The following table summarizes the cash flows of DP&L:&L:
|
| | | | | | | | |
| DP&L | | Nine months ended September 30, |
| $ in millions | | 2019 | | 2018 |
| Net cash provided by operating activities | | $ | 138.9 |
| | $ | 113.2 |
|
| Net cash used in investing activities | | (124.6 | ) | | (69.0 | ) |
| Net cash used in financing activities | | (48.5 | ) | | (37.1 | ) |
| Net change | | (34.2 | ) | | 7.1 |
|
| Balance at beginning of period | | 66.2 |
| | 5.6 |
|
| Cash, cash equivalents, and restricted cash at end of period | | $ | 32.0 |
| | $ | 12.7 |
|
| | | | | | | | | | | | | | |
| | Nine months ended September 30, |
| $ in millions | | 2020 | | 2019 |
| Net cash provided by operating activities | | $ | 49.7 | | | $ | 138.9 | |
| Net cash used in investing activities | | (125.8) | | | (124.6) | |
| Net cash provided by / (used in) financing activities | | 81.0 | | | (48.5) | |
| | | | |
| Net change | | 4.9 | | | (34.2) | |
| Balance at beginning of period | | 21.3 | | | 66.2 | |
| Cash, cash equivalents, and restricted cash at end of period | | $ | 26.2 | | | $ | 32.0 | |
DP&L – Change in Net cash flows from operating activities
| | | | | | | | | | | | | | | | | | | | |
| | Nine months ended September 30, | | $ change |
| $ in millions | | 2020 | | 2019 | | 2020 vs. 2019 |
| Net income | | $ | 47.3 | | | $ | 103.7 | | | $ | (56.4) | |
| Depreciation and amortization | | 53.7 | | | 52.9 | | | 0.8 | |
| Deferred income taxes | | (0.1) | | | (17.2) | | | 17.1 | |
| Other adjustments to Net income | | 2.9 | | | 2.8 | | | 0.1 | |
| Net income, adjusted for non-cash items | | 103.8 | | | 142.2 | | | (38.4) | |
| Net change in operating assets and liabilities | | (54.1) | | | (3.3) | | | (50.8) | |
| Net cash provided by operating activities | | $ | 49.7 | | | $ | 138.9 | | | $ | (89.2) | |
|
| | | | | | | | | | | | |
| | | Nine months ended September 30, | | $ change |
| $ in millions | | 2019 | | 2018 | | 2019 vs. 2018 |
| Net income | | $ | 103.7 |
| | $ | 61.9 |
| | $ | 41.8 |
|
| Depreciation and amortization | | 52.9 |
| | 56.5 |
| | (3.6 | ) |
| Deferred income taxes | | (17.2 | ) | | (7.5 | ) | | (9.7 | ) |
| Other adjustments to Net income | | — |
| | 13.0 |
| | (13.0 | ) |
| Net income, adjusted for non-cash items | | 139.4 |
| | 123.9 |
| | 15.5 |
|
| Net change in operating assets and liabilities | | (0.5 | ) | | (10.7 | ) | | 10.2 |
|
| Net cash provided by operating activities | | $ | 138.9 |
| | $ | 113.2 |
| | $ | 25.7 |
|
The net change in operating assets and liabilities during the nine months ended September 30, 20192020 compared to the nine months ended September 30, 20182019 was driven by the following:
|
| | | | |
| $ in millions | | $ Change |
| Increase from accounts receivable primarily due to higher rates following the DRO | | $ | 22.2 |
|
| Decrease from accrued taxes primarily due to higher current portion of income tax expense in prior year compared to the current year | | (6.9 | ) |
| Other | | (5.1 | ) |
| Net increase in cash from changes in operating assets and liabilities | | $ | 10.2 |
|
| | | | | | | | |
| $ in millions | | $ Change |
| Decrease from deferred regulatory costs, net, primarily due to a decrease in regulatory liabilities as we return certain benefits to customers | | (20.0) | |
| Decrease from accounts receivable due to PJM transmission enhancement settlement collections in the prior year | | (17.2) | |
| | |
| Decrease from accounts payable primarily due to timing of payments | | (15.8) | |
| Other | | 2.2 | |
| Net decrease in cash from changes in operating assets and liabilities | | $ | (50.8) | |
| | |
| | |
| | |
DP&L – Cash flows Net cash from investing activities
Net cash used in investing activities was $(124.6)$(125.8) million for the nine months ended September 30, 20192020 compared to $(69.0)$(124.6) million for the nine months ended September 30, 2018. The investing activity for the nine months ended September 30, 20192019. This $1.2 million increase in cash used primarily representsrelates to a $4.0 million increase in capital expenditures of $121.1 million, which increased from the prior year mainly due to significant storm restoration effortsan increase in cost of removal payments in the third quarter of 2019. The investing activity for the nine months ended September 30, 2018 is primarily capital expenditures of $65.0 million and a payment on the disposal of Beckjord of $14.5 million. This wascurrent year, partially offset by proceedsa $2.9 million decrease in the purchase of $10.6 million related to the June transmission swap with Duke and AEP.renewable energy credits.
DP&L – Cash flows Net cash from financing activities
Net cash used inprovided by / (used in) financing activities was $(48.5)$81.0 million for the nine months ended September 30, 20192020 compared to $(37.1)$(48.5) million from financing activities for the nine months ended September 30, 2018. The financing activity for the nine months ended September 30, 2019 is2019. This $129.5 million increase primarily duerelates to returns of capital paid to parent of $90.0 million, debt repayments, including early payment premium, of $436.1 million, and payments of deferred financing costs of $4.6 million. This was partially offset by debt issuances, net of discount, of $422.3 million. The financing activity for the nine months ended September 30, 2018 is primarily related to $63.3 million of debt repayments and returns of capital paid to parent of $43.8 million. This was partially offset by an $80.0a $150.0 million capital contribution from DPL.DPL in the current year and a $62.3 million decrease in return of capital payments compared to the prior year, partially offset by a $100.0 million increase in net payments on revolving credit facilities in the current year.
LIQUIDITY
We expect our existing sources of liquidity to remain sufficient to meet our anticipated operating needs. Our business is capital intensive, requiring significant resources to fund operating expenses, construction expenditures, scheduled debt maturities debtand carrying costs, taxes and for DP&L, dividend payments to DPL. In 2019payments. For 2020 and subsequent years, we expect to satisfy these requirements with a combination of cash from operations, and funds from debt financing and/or equity capital contributions as our internal liquidity needs and market conditions warrant. We also expect that the borrowing
capacity under bank credit facilities will continue to be available to us to manage working capital requirements during thesethose periods. During the nine months ended September 30, 2020, DPL received $150.0 million in a cash contribution from AES, which DPL then used to make a $150.0 million capital contribution to DP&L. The contribution at DPL represented an equity capital contribution of $98.0 million and a payment of $52.0 million against its tax receivable. The proceeds from the capital contribution at DP&L will primarily be used for funding needs to support DP&L's capital expenditure program, mainly new investments in and upgrades to DP&L’s transmission and distribution system.
At September 30, 2019,2020, DP&L and DPL have access to the following revolving credit facilities:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| $ in millions | | Type | | Maturity | | Commitment | | Amounts available as of September 30, 2020 |
| DP&L | | Revolving | | June 2024 | | $ | 175.0 | | | $ | 173.9 | |
| DPL | | Revolving | | June 2023 | | 110.0 | | | 15.0 | |
| | | | | | $ | 285.0 | | | $ | 188.9 | |
|
| | | | | | | | | | | | |
| $ in millions | | Type | | Maturity | | Commitment | | Amounts available as of September 30, 2019 |
| DP&L | | Revolving | | June 2024 | | $ | 175.0 |
| | $ | 113.9 |
|
| DPL | | Revolving | | June 2023 | | 125.0 |
| | 75.9 |
|
| | | | | | | $ | 300.0 |
| | $ | 189.8 |
|
DP&L has an unsecured revolving credit agreement with a syndicated bank group with a borrowing limit of $175.0 million and a $75.0 million letter of credit sublimit, as well as a feature that provides DP&L the ability to increase the size of the facility by an additional $100.0 million. This facility expires in June 2024. At September 30, 2019,2020, there was one letter of credit in the amount of $1.1 million outstanding under this facility, and $60.0$0.0 million in borrowings,
with the remaining $113.9$173.9 million available to DP&L. Fees associated with this letter of credit facility were not material during the nine months ended September 30, 20192020 or 2018.2019.
DPL has a revolving credit facility of $125.0$110.0 million, with a $75.0 million letter of credit sublimit and a feature that provides DPL the ability to increase the size of the facility by an additional $50.0 million. This facility is secured by a pledge of common stock that DPL owns in DP&L, limited to the amount permitted to be pledged under certain Indentures dated October 3, 2011 and April 17, 2019 between DPL and Wells Fargo Bank, NA and U.S. Bank National Association, respectively, as Trustee. The facility expires in June 2023. At September 30, 2019,2020, there were sixwas one letters of credit in the aggregate amount of $11.1$5.0 million outstanding and $38.0$90.0 million in borrowings, with the remaining $75.9$15.0 million available to DPL. Fees associated with this facility were not material during the nine months ended September 30, 20192020 or 2018.2019.
Capital Requirements
Planned construction additions for 20192020 relate primarily to new investments in and upgrades to DP&L’s transmission and distribution system. Capital projects are subject to continuing review and are revised considering changes in financial and economic conditions, load forecasts, legislative and regulatory developments and changing environmental requirements, among other factors.
DPL is projecting to spend an estimated $657.0$615.0 million in capital projects for the period 20192020 through 2021,2022, of which $649.0$608.0 million is projected to be spent by DP&L. <hese amounts include. DP&L's projection includes expected spending under DP&L's Distribution ModernizationSmart Grid Plan filed with the PUCO in December 2018. On January 22, 2019, DP&L filed a request with the PUCO for a two-year extension of its DMR through October 2022,included in the proposed amountStipulation and Recommendation entered into on October 23, 2020 as well as new transmission projects. See additional information in Note 3 – Regulatory Matters of $199.0 million for eachNotes to DPL's Condensed Consolidated Financial Statements and Note 3 – Regulatory Matters of the two additional years. The request was made pursuantNotes to the PUCO’s October 20, 2017 ESP order, which approved the DMR and had the option for DP&L &L'sto 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. Condensed Financial Statements.
DP&L is subject to the mandatory reliability standards of NERC and Reliability FirstReliabilityFirst Corporation, (RFC), one of the eightsix NERC regions, of which DP&L is a member. DP&L anticipates spending approximately $221.0$73.0 million within the next five years to reinforce its 138-kVtransmission system to comply with mandatory NERC standards. Our ability to completeand FERC Form 715 planning requirements. These anticipated costs are included in the overall capital projects and the reliability of future service will be affected by our financial condition, the availability of internal funds and the reasonable cost of external funds. We expect to finance our construction additions with a combination of cash on hand, short-term financing, long-term debt and cash flows from operations.projections above.
Long-term debt covenants
For information regarding our long-term debt covenants, see Part I, Item 1, Note 6 – Long-term Debt of Notes to DPL's Condensed Consolidated Financial Statements and Part I, Item 1, Note 6 – Long-term Debt of Notes to DP&L's Condensed Financial Statements.
Debt and Credit Ratings
The following table presents, as of the filing of this report, the debt ratings and outlook for DPL and DP&L, along with the effective or affirmed date of each rating.
|
| | | | | | | | | | | | | | | | | | | | | | | | | |
| | DPL | | DP&L | | Outlook | | Effective or Affirmed |
| Fitch Ratings | | BBBBB+(a) / BBB-BB (b)
| | A-BBB+(c)
| | StableNegative | | October 2018April 2020 |
| Moody's Investors Service, Inc. | | Ba1 (b) | | A3 (c) | | StableNegative | | JuneDecember 2019 |
| Standard & Poor's Financial Services LLC | | BBB-BB+ (b)
| | BBB+ (c) | | NegativeDeveloping | | October 2019November 2020 |
| |
(a) | Rating relates to DPL’s Senior secured debt.
|
| |
(b) | Rating relates to DPL's Senior unsecured debt.
|
| |
(c) | Rating relates to DP&L’s Senior secured debt.
|
(a)Rating relates to DPL’s Senior secured debt.
(b)Rating relates to DPL's Senior unsecured debt.
(c)Rating relates to DP&L’s Senior secured debt.
The following table presents, as of the filing of this report, the credit ratings (issuer/corporate rating) and outlook for DPL and DP&L, along with the effective or affirmed date of each rating.
|
| | | | | | | | | | | | | | | | | | | | | | | | | |
| | DPL | | DP&L | | Outlook | | Effective or Affirmed |
| Fitch Ratings | | BBB-BB | | BBBBBB- | | StableNegative | | October 2018April 2020 |
| Moody's Investors Service, Inc. | | Ba1 | | Baa2 | | StableNegative | | JuneDecember 2019 |
| Standard & Poor's Financial Services LLC | | BBB-BB+ | | BBB-BB+ | | NegativeDeveloping | | October 2019November 2020 |
If the rating agencies were to reduce our debt or credit ratings, our borrowing costs may increase, our potential pool of investors and funding resources may be reduced, and we may be required to post additional collateral under selected contracts. These events could have an adverse effect on our results of operations, financial condition and cash flows. In addition, any such reduction in our debt or credit ratings may adversely affect the trading price of our outstanding debt securities.
Off-Balance Sheet Arrangements
For information on guarantees, commercial commitments, and contractual obligations, see Part I, Item 1, Note 10 – Contractual Obligations, Commercial Commitments and Contingencies of Notes to DPL's Condensed Consolidated Financial Statements and Part I, Item 1, Note 10 – Contractual Obligations, Commercial Commitments and Contingencies of Notes to DP&L's Condensed Financial Statements.
MARKET RISK
We are subject to certain market risks including, but not limited to, changes in commodity prices for electricity and fluctuations in interest rates. Our Risk Management Committee (RMC), comprised of members of senior management, is responsible for establishing risk management policies and the monitoring and reporting of risk exposures. The RMC meets on a regular basis with the objective of identifying, assessing and quantifying material risk issues and developing strategies to manage these risks.
The disclosures presented in this section are based upon a number of assumptions; actual effects may differ. The safe harbor provided in Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934 shall apply to the disclosures contained in this section. For further information regarding market risk, see Item 1A.—Risk Factors and Item 7A - Quantitative and Qualitative Disclosures about Market Risk of our Form 10-K. Our businesses may incur substantial costs and liabilities and be exposed to price volatility as a result of risks associated with the electricity markets, which could have a material adverse effect on our results of operations, financial condition and cash flows. In addition, we may not be adequately hedged against our exposure to changes in interest rates.
Interest Rate Risk
Because of our normal investing and borrowing activities, our financial results are exposed to fluctuations in interest rates which we manage through our regular financing activities. We maintain both cash on deposit and investments in cash equivalents that may be affected by adverse interest rate fluctuations. DPL has fixed-rate long-term debt. After the refinancing of the tax-exempt first mortgage bonds, DP&L only has both fixed-rate and variable-rate long-term debt. The variable-rate debt is comprised of bank held tax-exempt bonds. The variable-rate bonds bear interest based on an underlying interest rate index, typically LIBOR. Market indexes can be affected by market demand, supply, market interest rates and other economic conditions. As of September 30, 2019, the effect of a 100-basis-point change in interest rates would be approximately $1.2 million for DPL and $1.2 million for DP&L. See Part I, Item 1, Note 6 – Long-term Debt of Notes to DPL's Condensed Consolidated Financial Statements and Part I, Item 1, Note 6 – Long-term Debt of Notes to DP&L's Condensed Financial Statements.
As of September 30, 2019, we have two interest rate swaps to hedge the variable interest on our $140.0 million variable interest rate tax-exempt First Mortgage Bonds. The interest rate swaps have a combined notional amount of $140.0 million and settle monthly based on a one-month LIBOR.
Long-term debt maturities and repayments occurring in the next twelve months are discussed under "CAPITAL RESOURCES AND LIQUIDITY".
Critical Accounting Estimates
DPL’s Condensed Consolidated Financial Statements and DP&L’s Condensed Financial Statements are prepared in accordance with GAAP. In connection with the preparation of these financial statements, our management is required to make assumptions, estimates and judgments that affect the reported amounts of assets, liabilities, revenues, expenses and the related disclosure of contingent liabilities. These assumptions, estimates and judgments are based on our historical experience and assumptions that we believe to be reasonable at the time. However, because future events and their effects cannot be determined with certainty, the determination of estimates requires the exercise of judgment. Our critical accounting estimates are those which require assumptions to be made about matters that are highly uncertain.
Different estimates could have a material effect on our financial results. Judgments and uncertainties affecting the application of these policies and estimates may result in materially different amounts being reported under different conditions or circumstances. Historically, however, recorded estimates have not differed materially from actual results. Significant items subject to such judgments include: the carrying value of property, plant and equipment; unbilled revenues; the valuation of derivative instruments; the valuation of insurance and claims liabilities; the valuation of allowances for receivablescredit losses and deferred income taxes; regulatory assets and liabilities; liabilities recorded for income tax exposures; litigation; contingencies; the valuation of AROs; assets and liabilities related to employee benefits and intangible assets. Refer to our Form 10-K for the year ended December 31, 20182019 for a complete listing of our critical accounting policies and estimates. We have reviewed and determined that these remain as critical accounting policies as of and for the nine months ended September 30, 2019.2020.
Item 3 – Quantitative and Qualitative Disclosures about Market Risk
See the “MARKET RISK” section in Item 2 of this Part I, which is incorporated by reference into this item.
Item 4 – Controls and Procedures
Disclosure Controls and Procedures
DPL and DP&L, under the supervision and with the participation of its management, including our Chief Executive Officer (CEO) and Chief Financial Officer (CFO), evaluated the effectiveness of our “disclosure controls and procedures,” as such term is defined in Rule 13a-15(e) under the Securities Act of 1934, as amended (the “Exchange Act”), as of the end of the period covered by this Quarterly Report on Form 10-Q. Based on that evaluation, our CEO and CFO concluded that our disclosure controls and procedures were effective as of September 30, 2019,2020, to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act, is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms, and include controls and procedures designed to ensure that information required to be disclosed by us in such reports is accumulated and communicated to our management, including our CEO and CFO, as appropriate, to allow timely decisions regarding required disclosures.
Changes in Internal Controls over Financial Reporting
We periodically review our internal controls over financial reporting as part of our efforts to ensure compliance with the requirements of Section 404 of the Sarbanes-Oxley Act of 2002. In addition, we routinely review our system of internal controls over financial reporting to identify potential changes to our processes and systems that may improve controls and increase efficiency, while ensuring that we maintain an effective internal controls environment. Changes may include such activities as implementing new, more efficient systems, migrating certain processes to our shared services organizations, formalizing policies and procedures, improving segregation of duties and increasing monitoring controls. During the second quarter of 2019, we implemented a new core enterprise resource planning (ERP) system, which we expect to enhance our system of internal controls over financial reporting. As a result of this implementation, we modified certain existing internal controls as well as implemented new controls and procedures related to the new ERP. We continued to evaluate the design and operating effectiveness of these internal controls during the third quarter of 2019.
Except with respect to the implementation of the ERP, there— There were no changes in our internal controls over financial reporting that occurred induring the thirdfiscal quarter of 2019covered by this Quarterly Report on Form 10-Q that have materially affected, or are reasonably likely to materially affect, our internal controlscontrol over financial reporting. We will continuehave not experienced any material impact to monitor theour internal control structurecontrols over financial reporting despite the fact that most of our employees are working remotely due to ensure that the COVID-19 pandemic. We are continually monitoring and assessing the COVID-19 situation on our internal controls to minimize the impact on their design is proper and operating effectively.effectiveness.
Part II – Other Information
Item 1 – Legal Proceedings
In the normal course of business, we are subject to various lawsuits, actions, claims, and other proceedings. We are also, from time to time, involved in other reviews, investigations and proceedings by governmental and regulatory agencies regarding our business, certain of which may result in adverse judgments, settlements, fines, penalties, injunctions or other relief. We have accrued in our Financial Statements for litigation and claims where it is probable that a liability has been incurred and the amount of loss can be reasonably estimated. We believe the amounts provided in our Financial Statements, as prescribed by GAAP, for these matters are adequate considering the probable and estimable contingencies. However, there can be no assurances that the actual amounts required to
satisfy alleged liabilities from various legal proceedings, claims and other matters (including those matters noted below), and to comply with applicable laws and regulations will not exceed the amounts reflected in our Financial Statements. As such, costs, if any, that may be incurred in excess of those amounts provided for in our Financial Statements, cannot be reasonably determined, but could be material.
Our Form 10-K for the fiscal year ended December 31, 20182019 and Forms 10-Q for the quarters ended March 31, and June 30, 20192020 and the Notes to DPL’s Consolidated Financial Statements and DP&L’s Financial Statements included therein contain descriptions of certain legal proceedings in which we are or were involved. The information in or incorporated by reference into this Item 1 to Part II is limited to certain recent developments concerning our legal proceedings and new legal proceedings, since the filing of such Forms 10-K and 10-Q, and should be read in conjunction with such Forms 10-K and 10-Q.
The following information is incorporated by reference into this Item: information about the legal proceedings contained in Part I, Item 2 – Management's Discussion and Analysis of Financial Condition and Results of Operations and Part I, Item 1, Note 3 – Regulatory Matters of Notes to DPL's Condensed Consolidated Financial Statements and Part I, Item 1, Note 3 – Regulatory Matters of Notes to DP&L's Condensed Financial Statements of this Quarterly Report on Form 10-Q.
Item 1A – Risk Factors
A listing of the risk factors that we consider to be the most significant to a decision to invest in our securities is provided in our Form 10-K as supplemented in our Form 10-Q for each of the fiscal yearthree month periods ended DecemberMarch 31 2018. As of Septemberand June 30, 2019,2020. Except as described below, there havehas been no material changes with respect to thechange in our risk factors as previously disclosed in our Form 10-K. If any of the events described in our risk factors occur, it could have a material adverse effect on our results of operations, financial condition and cash flows.
The risks and uncertainties described in our risk factors are not the only ones we face. In addition, 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. Our risk factors should be read in conjunction with the other detailed information concerning DPL and DP&L set forth in the Notes to DPL’s and DP&L’s Financial Statements found in Part I, Item 1, and the “Management’s Discussion and Analysis of Financial Condition and Results of Operations” sections included in our filings.
As part of the filing of this Quarterly Report Form on Form 10-Q, we are further revising, clarifying and
supplementing our risk factors. The risk factor below amends and supersedes the risk factor that we filed in connection with our 2020 first and second quarter Form 10-Qs and should be considered together with the other risk factors described in our Form 10-K:
The current outbreak of the novel coronavirus, or COVID-19, has adversely affected, and it or the future outbreak of any other highly infectious or contagious diseases could materially and adversely affect, our generation facilities, transmission and distribution systems, results of operations, financial condition and cash flows. Further, the spread of the COVID-19 outbreak has caused severe disruptions in the U.S. and global economy and financial markets and could potentially create widespread business continuity issues of an as yet unknown magnitude and duration.
In December 2019, a novel strain of coronavirus (COVID-19) was reported to have surfaced in Wuhan, China. COVID-19 has since spread to over 180 countries, including every state in the United States. On March 11, 2020 the World Health Organization declared COVID-19 a pandemic, and on March 13, 2020 the United States declared a national emergency with respect to COVID-19.
The outbreak of COVID-19 has severely impacted global economic activity, caused significant volatility and negative pressure in financial markets and reduced the demand for energy in our service territory. In addition to reduced revenues and lower margins resulting from decreased energy demand within our service territory, we also will incur expenses relating to COVID-19, and such expenses may include those that relate to events outside of our control. The global impact of the outbreak has been rapidly evolving and many countries, including the United States, have reacted by instituting quarantines, mandating business and school closures as well as restricting travel. Many experts predict that the outbreak will trigger a period of global economic slowdown or a global recession. COVID-19 or another pandemic could have material and adverse effects on our results of operations, financial condition and cash flows due to, among other factors:
•further decline in customer demand as a result of general decline in business activity;
•further destabilization of the markets and decline in business activity negatively impacting our customer growth or the number of customers in our service territory as well as our customers’ ability to pay for our services when due (or at all);
•delay or inability in obtaining regulatory actions and outcomes that could be material to our business, including for recovery of COVID-19 related expenses and losses, such as uncollectible customer amounts, and the review and approval of our applications, rates and charges by the PUCO;
•difficulty accessing the capital and credit markets on favorable terms, or at all, and a severe disruption and instability in the global financial markets, or deteriorations in credit and financing conditions which could affect our access to capital necessary to fund business operations or address maturing liabilities on a timely basis;
•negative impacts on the health of our essential personnel, especially if a significant number of them are affected, and on our operations as a result of implementing stay-at-home, quarantine and other social distancing measures;
•a deterioration in our ability to ensure business continuity during a disruption, including increased cybersecurity attacks related to the work-from-home environment;
•delays or inability to access, transport and deliver materials to our facilities due to restrictions on business operations or other factors affecting us and our third-party suppliers;
•delays or inability to access equipment or the availability of personnel to perform planned and unplanned maintenance, which can, in turn, lead to disruption in operations;
•delays or inability in achieving our financial goals, growth strategy and digital transformation; and
•delays in the implementation of expected rules and regulations, including with respect to the TCJA.
We will continue to review and modify our plans as conditions change. Despite our efforts to manage and remedy these impacts to us, their ultimate impact also depends on factors beyond our knowledge or control, including the duration and severity of this outbreak as well as third-party actions taken to contain its spread and mitigate its public health effects.
The rapid development and fluidity of this situation precludes any prediction as to the ultimate adverse impact of COVID-19. Nevertheless, COVID-19 presents material uncertainty which could materially and adversely affect our transmission and distribution systems, results of operations, financial condition and cash flows.
To the extent COVID-19 adversely affects our business and financial results, it may also have the effect of heightening many of the other risks described in this ‘‘Risk Factors’’ section, such as those relating to our level of indebtedness, our need to generate sufficient cash flows to service our indebtedness and our ability to comply with the covenants contained in the agreements that govern our indebtedness.
Item 2 – Unregistered Sale of Equity Securities and Use of Proceeds
None
Item 3 – Defaults Upon Senior Securities
None
Item 4 – Mine Safety Disclosures
Not applicable.
Item 5 – Other Information
None
Item 6 – Exhibits
|
| | | | | | | | | | | | | |
| DPL | DP&L | Exhibit Number | Exhibit | Location |
| X | X | 31(a)4.1 | 53rd Supplemental Indenture, dated July 1, 2020, between The Dayton Power and Light Company and The Bank of New York Mellon. | |
| X | X | 10.1 | Stipulation and Recommendation dated October 23, 2020. | |
| X | | 31(a) | Certification of Chief Executive Officer pursuant to Rule 13a-14(a)/Rule 15d-14(a) of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 | |
| X | | 31(b) | Certification of Chief Financial Officer pursuant to Rule 13a-14(a)/Rule 15d-14(a) of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 | |
| X | 31(c) | Certification of Chief Executive Officer pursuant to Rule 13a-14(a)/Rule 15d-14(a) of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 | |
| X | 31(d) | Certification of Chief Financial Officer pursuant to Rule 13a-14(a)/Rule 15d-14(a) of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 | |
| X | | 32(a) | Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 | |
| X | | 32(b) | Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 | |
| X | 32(c) | Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 | |
| X | 32(d) | Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 | |
| X | X | 101.INS | XBRL Instance | Filed herewith as Exhibit 101.INS |
| X | X | 101.SCH | XBRL Taxonomy Extension Schema | Filed herewith as Exhibit 101.SCH |
| X | X | 101.CAL | XBRL Taxonomy Extension Calculation Linkbase | Filed herewith as Exhibit 101.CAL |
| X | X | 101.DEF | XBRL Taxonomy Extension Definition Linkbase | Filed herewith as Exhibit 101.DEF |
| X | X | 101.LAB | XBRL Taxonomy Extension Label Linkbase | Filed herewith as Exhibit 101.LAB |
| X | X | 101.PRE | XBRL Taxonomy Extension Presentation Linkbase | Filed herewith as Exhibit 101.PRE |
Exhibits referencing File No. 1-9052 have been filed by DPL Inc. and those referencing File No. 1-2385 have been filed by The Dayton Power and Light Company.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, DPL Inc. has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
| | | | | | | | |
| | DPL Inc. |
| | (Registrant) |
| | |
| Date: | | DPL Inc. |
| | (Registrant) |
| | |
Date: | November 5, 20192020 | /s/ Gustavo Garavaglia |
| | Gustavo Garavaglia |
| | Chief Financial Officer |
| | (principal financial officer) |
| | |
| November 5, 20192020 | /s/ Karin M. Nyhuis |
| | Karin M. Nyhuis |
| | Controller |
| | (principal accounting officer) |
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, The Dayton Power and Light Company has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
| | | | | | | | |
| | The Dayton Power and Light Company |
| | (Registrant) |
| | |
| Date: | | The Dayton Power and Light Company |
| | (Registrant) |
| | |
Date: | November 5, 20192020 | /s/ Gustavo Garavaglia |
| | Gustavo Garavaglia |
| | Vice President and Chief Financial Officer |
| | (principal financial officer) |
| | |
| November 5, 20192020 | /s/ Karin M. Nyhuis |
| | Karin M. Nyhuis |
| | Controller |
| | (principal accounting officer) |
