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Dayton Power & Light

Filed: 5 May 21, 8:00pm

UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q

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

For the quarterly period ended March 31, 2021

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


dpl-20210331_g1.jpg

THE DAYTON POWER AND LIGHT COMPANY
d/b/a AES Ohio
(an Ohio corporation)

Commission File Number 1-2385

1065 Woodman Drive
Dayton, Ohio 45432

937-259-7215

IRS Employer Identification No. 31-0258470
Securities registered pursuant to Section 12(b) of the Act:
Title of Each ClassTrading Symbol(s)Name of Each Exchange on Which Registered
N/AN/AN/A

1


Indicate by check mark whether each registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
DPL Inc.YesNo
The Dayton Power and Light CompanyYesNo

The Dayton Power and Light Company is a voluntary filer. DPL Inc. was a voluntary filer until its Registration Statement on Form S-4 filed with the Securities and Exchange Commission on March 15, 2021 was declared effective on March 31, 2021.  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).
DPL Inc.YesNo
The Dayton Power and Light CompanyYesNo

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer”, “smaller reporting company” and "emerging growth company" in Rule 12b-2 of the Exchange Act.
Large
accelerated
Filer
Accelerated
Filer
Non-accelerated FilerSmaller
reporting
company
Emerging growth company
DPL Inc.
Large
accelerated
Filer
Accelerated
Filer
Non-accelerated FilerSmaller
reporting
company
Emerging growth company
The Dayton Power and Light Company

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

Indicate by check mark whether each registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
DPL Inc.YesNo
The Dayton Power and Light CompanyYesNo

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 May 5, 2021, each registrant had the following shares of common stock outstanding:
RegistrantDescriptionShares Outstanding
DPL Inc.Common Stock, no par value1
The Dayton Power and Light CompanyCommon Stock, $0.01 par value41,172,173

2


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.

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DPL Inc. and AES Ohio
Quarter Ended March 31, 2021
Table of ContentsPage No.
Glossary of Terms
Forward-Looking Statements
Part I Financial Information
Item 1Financial Statements – DPL Inc. and The Dayton Power and Light Company (Unaudited)
DPL Inc.
Condensed Consolidated Statements of Operations
Condensed Consolidated Statements of Comprehensive Income
Condensed Consolidated Balance Sheets
Condensed Consolidated Statements of Cash Flows
Condensed Consolidated Statements of Shareholder's Deficit
Notes to Unaudited 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 – Contractual Obligations, Commercial Commitments and Contingencies
Note 10 – Business Segments
Note 11 – Revenue
Note 12 – Discontinued Operations
Note 13 – Risks and Uncertainties
AES Ohio
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 Unaudited 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 – Risks and Uncertainties
Item 2Management's Discussion and Analysis of Financial Condition and Results of Operations
Item 3Quantitative and Qualitative Disclosures about Market Risk
Item 4Controls and Procedures
Part II Other Information
Item 1Legal Proceedings
Item 1ARisk Factors
Item 2Unregistered Sales of Equity Securities and Use of Proceeds
Item 3Defaults Upon Senior Securities 
Item 4Mine Safety Disclosures
Item 5Other Information
Item 6Exhibits
Signatures

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GLOSSARY OF TERMS 

The following terms are used in this Form 10-Q:
TermDefinition
2017 ESPDP&L's ESP - approved October 20, 2017, effective November 1, 2017
AESThe AES Corporation - a global power company and the ultimate parent company of DPL
AES OhioThe Dayton Power and Light Company, which does business as AES Ohio
AES Ohio GenerationAES Ohio Generation, LLC - a wholly-owned subsidiary of DPL, which previously operated EGUs and made wholesale sales
AOCIAccumulated Other Comprehensive Income
AOCLAccumulated Other Comprehensive Loss
AROAsset Retirement Obligation
ASUAccounting Standards Update
CAAU.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
CCRCoal Combustion Residuals
ConesvilleAES Ohio Generation's interest in Unit 4 at the Conesville EGU. This was sold on June 5, 2020.
COVID-19The disease caused by the novel coronavirus that resulted in a global pandemic in 2020.
CSAPRCross-State Air Pollution Rule - the USEPA's rule to address interstate air pollution transport to decrease emissions to downwind states
DMRDistribution 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
DPLDPL Inc.
DP&LThe 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. DP&L does business as AES Ohio.
DRODistribution 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
EBITDAEarnings before interest, taxes, depreciation and amortization. EBITDA also excludes the Fixed-asset impairment
EGUElectric Generating Unit
ERISAThe Employee Retirement Income Security Act of 1974
ESPThe Electric Security Plan - a plan that a utility must file with the PUCO to establish SSO rates pursuant to Ohio law
ESP 1ESP 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.
FASBFinancial Accounting Standards Board
FASCFASB Accounting Standards Codification
FERCFederal Energy Regulatory Commission
Form 10-KDPL’s and DP&L’s combined Annual Report on Form 10-K for the fiscal year ended December 31, 2020, which was filed on February 24, 2021
First and Refunding MortgageDP&L’s First and Refunding Mortgage, dated October 1, 1935, as amended, with the Bank of New York Mellon as Trustee
GAAPGenerally Accepted Accounting Principles in the United States of America
kWhKilowatt-hours - a measure of electrical energy equivalent to a power consumption of 1,000 watts for 1 hour
LIBORLondon Inter-Bank Offering Rate
Master TrustDP&L established a Master Trust to hold assets that could be used for the benefit of employees participating in employee benefit plans
MATSMercury and Air Toxics Standards - the USEPA’s rules for existing and new power plants under Section 112 of the CAA
MergerThe 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 LightingMiami 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.
MROMarket 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.)
TermDefinition
MVICMiami Valley Insurance Company is a wholly-owned insurance subsidiary of DPL that provides insurance services to DPL and its subsidiaries
MWMegawatt, a unit of power equal to one million watts
NAAQSNational Ambient Air Quality Standards - the USEPA’s health and environmental based standards for six specified pollutants, as found in the ambient air
NERCNorth 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
NOxNitrogen Oxide - an air pollutant regulated by the NAAQS under the CAA
Ohio EPAOhio Environmental Protection Agency
OVECOhio Valley Electric Corporation - an electric generating company in which DP&L holds a 4.9% equity interest
Peaker assetsThe 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
PJMPJM Interconnection, LLC, an RTO
PUCOPublic Utilities Commission of Ohio
RSCThe Rate Stabilization Charge is a non-bypassable rider intended to compensate DP&L for providing stabilized rates to customers.
RTORegional 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
SECU.S. Securities and Exchange Commission
SERPSupplemental Executive Retirement Plan
Service CompanyAES US Services, LLC - the shared services affiliate providing accounting, finance, and other support services to AES’ U.S. SBU businesses
SSOStandard 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
T&DTransmission and distribution
TCJAThe Tax Cuts and Jobs Act of 2017, signed on December 22, 2017
U.S.United States of America
USEPAU.S. Environmental Protection Agency
USFThe 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. SBUU.S. and Utilities Strategic Business Unit, AES’ reporting unit covering the businesses in the United States, including DPL
Utility segmentDPL'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:

impacts of weather on retail sales;
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;
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changes in our credit ratings or the credit ratings of AES;
fluctuations in the value of pension plan assets, fluctuations in pension plan expenses and our ability to fund defined benefit pension plans;
changes in financial or regulatory accounting policies;
environmental matters, including costs of compliance with, and liabilities related to, current and future environmental laws and requirements;
interest rates and the use of interest rate hedges, inflation rates and other costs of capital;
the availability of capital;
the ability of subsidiaries to pay dividends or distributions to DPL;
level of creditworthiness of counterparties to contracts and transactions;
labor strikes or other workforce factors, including the ability to attract and retain key personnel;
facility or equipment maintenance, repairs and capital expenditures;
significant delays or unanticipated cost increases associated with construction projects;
the availability and cost of funds to finance working capital and capital needs, particularly during periods when the time lag between incurring costs and recovery is long and the costs are material;
local economic conditions;
costs and effects of legal and administrative proceedings, audits, settlements, investigations and claims and the ultimate disposition of litigation;
industry restructuring, deregulation and competition;
issues related to our participation in PJM, including the cost associated with membership, allocation of costs, costs associated with transmission expansion, the recovery of costs incurred and the risk of default of other PJM participants;
changes in tax laws and the effects of our 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
the risks and other factors discussed in this report and other DPL and DP&L filings with the SEC.

Forward-looking statements speak only as of the date of the document in which they are made. We disclaim any obligation or undertaking to provide any updates or revisions to any forward-looking statement to reflect any change in our expectations or any change in events, conditions or circumstances on which the forward-looking statement is based. If we do update one or more forward-looking statements, no inference should be made that we will make additional updates with respect to those or other forward-looking statements.

All of 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, 2020 and the “Management's Discussion and Analysis of Financial Condition and Results of Operations” section in such report 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 WEBSITE

DP&L’s public internet site is www.aes-ohio.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.

Item 1 – Financial Statements
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FINANCIAL STATEMENTS

DPL INC.

9

DPL INC.
Condensed Consolidated Statements of Operations
(Unaudited)
Three months ended
March 31,
$ in millions20212020
Revenues$175.2 $171.2 
Operating costs and expenses
Net fuel cost0.4 0.6 
Net purchased power cost71.5 62.8 
Operation and maintenance34.9 47.1 
Depreciation and amortization19.1 17.7 
Taxes other than income taxes20.4 20.9 
Other, net(0.1)(0.1)
Total operating costs and expenses146.2 149.0 
Operating income29.0 22.2 
Other income / (expense), net:
Interest expense(15.6)(18.9)
Other income / (expense)0.5 (0.9)
Total other expense, net(15.1)(19.8)
Income from continuing operations before income tax13.9 2.4 
Income tax benefit from continuing operations(0.3)(0.1)
Net income from continuing operations14.2 2.5 
Discontinued operations (Note 12):
Loss from discontinued operations before income tax(0.8)(0.7)
Income tax benefit from discontinued operations(0.2)(0.1)
Net loss from discontinued operations(0.6)(0.6)
Net income$13.6 $1.9 
See Notes to Condensed Consolidated Financial Statements.
10

DPL INC.
Condensed Consolidated Statements of Comprehensive Income
(Unaudited)
Three months ended
March 31,
$ in millions20212020
Net income$13.6 $1.9 
Derivative activity:
Change in derivative fair value, net of income tax expense of $0.0 and $0.0 for each respective period0 (0.3)
Reclassification to earnings, net of income tax expense of $0.0 and $0.1 for each respective period(0.2)(0.3)
Total derivative activity(0.2)(0.6)
Pension and postretirement activity:
Reclassification to earnings, net of income tax benefit of $(0.1) and $0.0 for each respective period0.5 0.3 
Total change in unfunded pension and postretirement obligations0.5 0.3 
Other comprehensive income / (loss)0.3 (0.3)
Net comprehensive income$13.9 $1.6 
See Notes to Condensed Consolidated Financial Statements.

11

DPL INC.
Condensed Consolidated Balance Sheets
(Unaudited)
$ in millionsMarch 31, 2021December 31, 2020
ASSETS  
Current assets:
Cash and cash equivalents$34.1 $25.4 
Restricted cash0.1 0.1 
Accounts receivable, net of allowance for credit losses of $2.3 and $2.8, respectively (Note 2)63.7 69.7 
Inventories9.1 8.8 
Taxes applicable to subsequent years58.0 78.0 
Regulatory assets, current35.1 27.5 
Taxes receivable20.1 17.9 
Prepayments and other current assets7.3 5.8 
Total current assets227.5 233.2 
Property, plant & equipment:  
Property, plant & equipment1,873.8 1,839.3 
Less: Accumulated depreciation and amortization(429.5)(415.7)
 1,444.3 1,423.6 
Construction work in process145.5 141.7 
Total net property, plant & equipment1,589.8 1,565.3 
Other non-current assets:  
Regulatory assets, non-current191.9 193.6 
Intangible assets, net of amortization17.4 19.3 
Other non-current assets26.9 24.6 
Total other non-current assets236.2 237.5 
Total assets$2,053.5 $2,036.0 
LIABILITIES AND SHAREHOLDER'S DEFICIT
Current liabilities:
Short-term and current portion of long-term debt (Note 6)$160.2 $100.2 
Accounts payable67.5 84.5 
Accrued taxes84.2 83.0 
Accrued interest18.4 16.0 
Customer deposits24.4 19.4 
Regulatory liabilities, current21.6 18.0 
Accrued and other current liabilities18.3 21.0 
Total current liabilities394.6 342.1 
Non-current liabilities:
Long-term debt (Note 6)1,393.8 1,393.4 
Deferred income taxes182.8 177.2 
Taxes payable41.1 80.4 
Regulatory liabilities, non-current214.4 218.3 
Accrued pension and other post-retirement benefits83.4 93.9 
Other non-current liabilities13.0 14.2 
Total non-current liabilities1,928.5 1,977.4 
Commitments and contingencies (Note 9)00
Common shareholder's deficit
Common stock:
1,500 shares authorized; 1 share issued and outstanding0 
Other paid-in capital2,468.8 2,468.8 
Accumulated other comprehensive loss(12.0)(12.3)
Accumulated deficit(2,726.4)(2,740.0)
Total common shareholder's deficit(269.6)(283.5)
Total liabilities and shareholder's deficit$2,053.5 $2,036.0 
See Notes to Condensed Consolidated Financial Statements.
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DPL INC.
Condensed Consolidated Statements of Cash Flows
(Unaudited)
Three months ended March 31,
$ in millions20212020
Cash flows from operating activities:
Net income$13.6 $1.9 
Adjustments to reconcile net income to net cash from operating activities:
Depreciation and amortization19.1 17.8 
Deferred income taxes3.5 3.4 
Changes in certain assets and liabilities:
Accounts receivable, net6.0 14.2 
Inventories(0.3)3.4 
Taxes applicable to subsequent years20.0 17.0 
Deferred regulatory costs, net(4.8)(5.0)
Accounts payable(1.6)(7.6)
Accrued taxes payable / receivable(40.2)(39.2)
Accrued interest2.4 15.1 
Accrued pension and other post-retirement benefits(10.5)(8.2)
Other(1.7)(0.4)
Net cash provided by operating activities5.5 12.4 
Cash flows from investing activities:
Capital expenditures(51.9)(40.2)
Cost of removal payments(4.5)(4.4)
Payments on disposal and sale of business interests(0.4)
Proceeds from sale of property (a)
0 5.1 
Other investing activities, net0 (0.7)
Net cash used in investing activities(56.8)(40.2)
Cash flows from financing activities:
Borrowings from revolving credit facilities60.0 45.0 
Repayment of borrowings from revolving credit facilities0 (10.0)
Net cash provided by financing activities60.0 35.0 
Cash, cash equivalents, and restricted cash:
Net change8.7 7.2 
Balance at beginning of period25.5 47.0 
Cash, cash equivalents, and restricted cash at end of period$34.2 $54.2 
Supplemental cash flow information:
Interest paid, net of amounts capitalized$12.9 $2.3 
Non-cash financing and investing activities:
Accruals for capital expenditures$16.3 $5.0 

(a)    Proceeds from sale of property include $5.1 million of proceeds received from AES during the three months ended March 31, 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.

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DPL INC.
Condensed Consolidated Statements of Shareholder's Deficit
(Unaudited)

Common Stock (a)
$ in millionsOutstanding SharesAmountOther
Paid-in
Capital
Accumulated Other Comprehensive LossAccumulated DeficitTotal
Balance, January 1, 20211 $0 $2,468.8 $(12.3)$(2,740.0)$(283.5)
Net comprehensive income0.3 13.6 13.9 
Balance, March 31, 20211 $0 $2,468.8 $(12.0)$(2,726.4)$(269.6)

(a)    1,500 shares authorized.

Common Stock (a)
$ in millionsOutstanding SharesAmountOther
Paid-in
Capital
Accumulated Other Comprehensive LossAccumulated DeficitTotal
Balance, January 1, 20201 $0 $2,370.7 $(3.6)$(2,739.0)$(371.9)
Net comprehensive income(0.3)1.9 1.6 
Balance, March 31, 20201 $0 $2,370.7 $(3.9)$(2,737.1)$(370.3)

(a)1,500 shares authorized.

See Notes to Condensed Consolidated Financial Statements.

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DPL Inc.
Notes to Unaudited Condensed Consolidated Financial Statements

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 10 – 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 that does business as AES Ohio, 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. AES Ohio has the exclusive right to provide such transmission and distribution services to approximately 532,000 customers located in West Central Ohio. Additionally, AES Ohio provides retail SSO electric service to residential, commercial, industrial and governmental customers in a 6,000-square mile area of West Central Ohio. AES Ohio sources all of the generation for its SSO customers through a competitive bid process. Principal industries located in AES Ohio’s service territory include automotive, food processing, paper, plastic, manufacturing and defense. AES Ohio's sales reflect the general economic conditions, seasonal weather patterns of the area and the market price of electricity. AES Ohio owned interests in the retired Hutchings Coal Station until its transfer in 2020, and currently owns numerous transmission facilities. AES Ohio sells its proportional share of energy and capacity from its investment in OVEC into the wholesale market.

DPL’s other primary subsidiaries are MVIC and Miami Valley Lighting. MVIC is our captive insurance company that provides insurance services to AES Ohio and our other subsidiaries, and Miami Valley Lighting provides street and outdoor lighting services to customers in the Dayton region. In prior periods, AES Ohio Generation was also a primary subsidiary and sold all of its energy and capacity into the wholesale market. In 2020, AES Ohio Generation's only operating asset was an undivided interest in Conesville, which closed in May 2020 and was sold in June 2020. See Note 12 – 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.

AES Ohio’s electric transmission and distribution businesses are subject to rate regulation by federal and state regulators. Accordingly, AES Ohio applies the accounting standards for regulated operations to its electric transmission and distribution businesses and records regulatory assets when incurred costs are expected to be recovered in future customer rates and regulatory liabilities when current cost recoveries in customer rates relate to expected future costs or overcollections of riders.

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.

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, as contained in the FASB ASC, for interim financial statements and Article 10 of Regulation S-X issued by the SEC. Accordingly, they do not include all the information and footnotes required by GAAP for annual fiscal reporting periods. 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, 2020.

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 March 31, 2021; our results of operations
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for the three months ended March 31, 2021 and 2020, our cash flows for the three months ended March 31, 2021 and 2020 and the changes in our equity for the three months ended March 31, 2021 and 2020. Unless otherwise noted, all adjustments are normal and recurring in nature. Due to various factors, interim results for the three months ended March 31, 2021 may not be indicative of our results that will be realized for the full year ending December 31, 2021.

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 insurance and claims liabilities; the valuation of allowances for credit losses and deferred income taxes; regulatory assets and liabilities; liabilities recorded for income tax exposures; litigation; contingencies; 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 Sheets that reconcile to the total of such amounts as shown on the Condensed Consolidated Statements of Cash Flows:
$ in millionsMarch 31, 2021December 31, 2020
Cash and cash equivalents$34.1 $25.4 
Restricted cash0.1 0.1 
Cash, Cash Equivalents, and Restricted Cash, End of Period$34.2 $25.5 

Inventories
Inventories consist of materials and supplies at March 31, 2021 and December 31, 2020.

Accounting for Taxes Collected from Customers and Remitted to Governmental Authorities
AES Ohio 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 March 31, 2021 and 2020 were $12.9 million and $12.4 million, respectively.

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 NameDescriptionDate of AdoptionEffect on the financial statements upon adoption
2020-04, Reference Rate Form (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial ReportingThe 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, 2022We are currently evaluating the impact of adopting the standard on our condensed consolidated financial statements.

Note 2 – Supplemental Financial Information

Accounts receivable are as follows at March 31, 2021 and December 31, 2020:
March 31,December 31,
$ in millions20212020
Accounts receivable, net:
Customer receivables$45.7 $48.5 
Unbilled revenue15.5 21.6 
Amounts due from affiliates0.5 0.2 
Due from PJM transmission enhancement settlement1.7 1.7 
Other2.6 0.5 
Allowance for credit losses(2.3)(2.8)
Total accounts receivable, net$63.7 $69.7 

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The following table is a rollforward of our allowance for credit losses related to the accounts receivable balances for the three months ended March 31, 2021 and 2020 :
$ in millionsBeginning Allowance BalanceCurrent Period ProvisionWrite-offs Charged Against AllowancesRecoveries CollectedEnding Allowance Balance
2021$2.8 $0 $(0.7)$0.2 $2.3 
2020$0.4 $0.4 $(0.4)$0.3 $0.7 

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 March 31, 2021. Amounts are written off when reasonable collections efforts have been exhausted. During 2021, the current period provision and allowance for credit losses have decreased due to lower past due customer receivable balances. See Note 13 – Risks and Uncertainties for additional discussion of the COVID-19 pandemic.

Accumulated other comprehensive loss
The amounts reclassified out of Accumulated other comprehensive loss by component during the three months ended March 31, 2021 and 2020 are as follows:
Details about Accumulated Other Comprehensive Loss componentsAffected line item in the Condensed Consolidated Statements of OperationsThree months ended
March 31,
$ in millions20212020
Gains and losses on cash flow hedges (Note 5):
Interest expense$(0.2)$(0.4)
Income tax expense0 0.1 
Net of income taxes(0.2)(0.3)
Amortization of defined benefit pension items (Note 8):
Other expense0.6 0.3 
Income tax benefit(0.1)
Net of income taxes0.5 0.3 
Total reclassifications for the period, net of income taxes$0.3 $

The changes in the components of Accumulated other comprehensive loss during the three months ended March 31, 2021 are as follows:
$ in millionsGains / (losses) on cash flow hedgesChange in unfunded pension and postretirement benefit obligationsTotal
Balance at January 1, 2021$13.6 $(25.9)$(12.3)
Amounts reclassified from AOCL to earnings(0.2)0.5 0.3 
Net current period other comprehensive income / (loss)(0.2)0.5 0.3 
Balance at March 31, 2021$13.4 $(25.4)$(12.0)

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Note 3 – Regulatory Matters

ESP and SEET Proceedings
On October 23, 2020, AES Ohio entered into a Stipulation and Recommendation (settlement) with the staff of the PUCO and various customers, and organizations representing customers of AES Ohio and certain other parties with respect to, among other matters, AES Ohio's applications pending at the PUCO for (i) approval of AES Ohio's plan to modernize its distribution grid (the Smart Grid Plan), (ii) findings that AES Ohio passed the SEET for 2018 and 2019, and (iii) findings that AES Ohio'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 was held in January 2021 for consideration of this settlement; a commission order is pending.

Decoupling
On January 23, 2020 AES Ohio 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. An evidentiary hearing was held on this matter on May 4, 2021.

Distribution Rate Case
On November 30, 2020, AES Ohio filed a new Distribution Rate Case with the PUCO. This rate case proposes a revenue increase of $120.8 million per year and incorporates the DIR investments that were planned and approved in the last rate case but not yet included in distribution rates, other distribution investments since September 2015 and investments necessitated by the tornados that occurred on Memorial Day in 2019. The rate case also includes a proposal for increased tree-trimming expenses and certain customer demand-side management programs and recovery of prior-approved regulatory assets for tree trimming, uncollectible expenses and rate case expense. This case is pending a commission order.

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 the TCJA. On March 3, 2020, AES Ohio 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. An uncontested settlement was filed December 10, 2020, which would increase the rates that were in effect prior to the filing but are a reduction from the rate that became effective subject to refund on May 3, 2020. Among other things, the settlement establishes new depreciation rates for our transmission assets and an authorized return on equity (ROE) of 9.85%, which would rise to 9.99% if the FERC were to approve in a separate ongoing proceeding a return on equity “adder” to recognize our continued membership in PJM. The 9.85% ROE (base) and 9.99% ROE (base + incentive) levels are subject to a four-year moratorium on other proposed ROE changes. Proposals to raise or lower the ROE could be filed with an effective date after the moratorium expires on April 14, 2025. The required flowback of excess deferred taxes under the NOPR was also addressed and resolved as part of this formula transmission rate settlement. On April 15, 2021, the FERC approved the transmission rate settlement.

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.

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The following table presents the fair value, carrying value and cost of our non-derivative instruments at March 31, 2021 and December 31, 2020. Further information about the fair value of our derivative instruments can be found in Note 5 – Derivative Instruments and Hedging Activities.
March 31, 2021December 31, 2020
$ in millionsCostFair ValueCostFair Value
Assets
Money market funds$0.2 $0.2 $0.3 $0.3 
Equity securities2.0 4.7 2.1 4.5 
Debt securities3.8 3.8 4.0 4.1 
Total Assets$6.0 $8.7 $6.4 $8.9 
Carrying ValueFair ValueCarrying ValueFair Value
Liabilities
Long-term debt$1,394.0 $1,487.0 $1,393.6 $1,571.6 

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 three months ended March 31, 2021 or 2020.

Master Trust Assets
AES Ohio 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. 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 non-current assets on the Condensed Consolidated Balance Sheets and classified as equity investments. We recorded net unrealized gains / (losses) of $0.2 million and $(1.1) million during the during the three months ended March 31, 2021 and 2020, respectively. These amounts are included in "Other income / (expense)" 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 2025 to 2061.

The fair value of assets and liabilities at March 31, 2021 and December 31, 2020 and the respective category within the fair value hierarchy for DPL is as follows:
$ in millionsFair value at March 31, 2021 (a)Fair value at December 31, 2020 (a)
Level 1Level 2Level 3TotalLevel 1Level 2Level 3Total
Assets
Master Trust assets
Money market funds$0.2 $0 $0 $0.2 $0.3 $$$0.3 
Equity securities0 4.7 0 4.7 4.5 4.5 
Debt securities0 3.8 0 3.8 4.1 4.1 
Total Master Trust assets0.2 8.5 0 8.7 0.3 8.6 8.9 
Total Assets$0.2 $8.5 $0 $8.7 $0.3 $8.6 $$8.9 
Liabilities
Long-term debt$0 $1,469.7 $17.3 $1,487.0 $$1,554.2 $17.4 $1,571.6 
Total Liabilities$0 $1,469.7 $17.3 $1,487.0 $$1,554.2 $17.4 $1,571.6 

(a)    Includes credit valuation adjustment

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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, the fair value inputs are considered Level 3 in the fair value hierarchy as there are no observable inputs.

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 of Item 8 – Financial Statements and Supplementary Data in our Form 10-K.

Cash Flow Hedges
In August 2020, the 2 interest rate swaps to hedge the variable interest on the $140.0 million variable interest rate tax-exempt First Mortgage Bonds expired, as the associated debt reached maturity. The interest rate swaps had a combined notional amount of $140.0 million and settled monthly based on a one-month LIBOR. The AOCL associated with the swaps was amortized out of AOCL into interest expense over the life of the underlying debt.

We also 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 AOCL into interest expense.

The following tables provide information concerning gains or losses recognized in AOCL for the cash flow hedges for the three months ended March 31, 2021 and 2020:
Three months ended
March 31, 2021March 31, 2020
InterestInterest
$ in millions (net of tax)Rate HedgeRate Hedge
Beginning accumulated derivative gains in AOCL$13.6 $14.5 
Net losses associated with current period hedging transactions0 (0.3)
Net gains reclassified to earnings
Interest expense(0.2)(0.3)
Ending accumulated derivative gains in AOCL$13.4 $13.9 
Portion expected to be reclassified to earnings in the next twelve months$(0.8)

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Note 6 – Long-term Debt

The following table summarizes DPL's long-term debt.
InterestMarch 31,December 31,
$ in millionsRateMaturity20212020
First Mortgage Bonds3.95%2049$425.0 $425.0 
First Mortgage Bonds3.20%2040140.0 140.0 
U.S. Government note4.20%206117.3 17.4 
Unamortized deferred financing costs(5.5)(5.7)
Unamortized debt discounts, net(2.6)(2.6)
Total long-term debt at AES Ohio
574.2 574.1 
Senior unsecured bonds4.125%2025415.0 415.0 
Senior unsecured bonds4.35%2029400.0 400.0 
Note to DPL Capital Trust II (a)8.125%203115.6 15.6 
Unamortized deferred financing costs(9.9)(10.2)
Unamortized debt discounts, net(0.9)(0.9)
Total long-term debt1,394.0 1,393.6 
Less: current portion(0.2)(0.2)
Long-term debt, net of current portion$1,393.8 $1,393.4 

(a)Note payable to related party.

Lines of credit
At March 31, 2021 and December 31, 2020, the DPL revolving credit facility had outstanding borrowings of $80.0 million and $80.0 million, respectively. At March 31, 2021 and December 31, 2020, the AES Ohio revolving credit facility had outstanding borrowings of $80.0 million and $20.0 million, respectively.

DPL’s Senior Unsecured Bonds
DPL agreed to register the 2025 DPL Senior Unsecured Bonds under the Securities Act by filing an exchange offer registration statement or, under specified circumstances, a shelf registration statement with the SEC pursuant to a Registration Rights Agreement dated June 19, 2020. DPL filed a registration statement on Form S-4 with respect to the 2025 DPL Senior Unsecured Bonds with the SEC on March 15, 2021, and this registration statement was declared effective on March 31, 2021. The exchange offer was closed on May 5, 2021.

Long-term debt covenants and restrictions
DPL’s revolving credit agreement has 2 financial covenants. The first financial covenant, a minimum EBITDA, calculated at the end of each fiscal quarter for the four prior fiscal quarters, of $125.0 million is required, stepping up to $130.0 million on September 30, 2022 and $150.0 million on December 31, 2022. As of March 31, 2021, DPL was in compliance with this financial covenant.

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 1.70 to 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 March 31, 2021, DPL was in compliance with this financial covenant.

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 March 31, 2021, DPL was prohibited from making a distribution to its shareholder or making a loan to any of its affiliates (other than its subsidiaries).

AES Ohio's unsecured revolving credit facility and Bond Purchase Agreement (financing document entered into in connection with the issuance of AES Ohio's First Mortgage Bonds, on 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. AES Ohio’s Total Debt to
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Total Capitalization ratio shall not be greater than 0.67 to 1.00. As of March 31, 2021, AES Ohio was in compliance with this financial covenant.

As of March 31, 2021, DPL and AES Ohio were in compliance with all debt covenants, including the financial covenants described above.

AES Ohio does not have any meaningful restrictions in its debt financing documents prohibiting dividends to its parent, DPL.

Substantially all property, plant & equipment of AES Ohio is subject to the lien of the mortgage securing AES Ohio’s First and Refunding Mortgage.

Note 7 – Income Taxes

The following table details the effective tax rates for the three months ended March 31, 2021 and 2020.
Three months ended
March 31,
20212020
DPL(3.8)%(11.8)%

DPL’s effective combined state and federal income tax rate for all operations was (3.8)% for the three months ended March 31, 2021. This rate is different from the combined federal and state statutory rate of 22.5% primarily due to the flowthrough of the net tax benefit related to the reversal of excess deferred taxes of AES Ohio as a percentage of pre-tax book income.

DPL's income tax expense for the three months ended March 31, 2021 was calculated using the estimated annual effective income tax rates for 2021 of (3.8)%. Management estimates the annual effective tax rate based on its forecast of annual pre-tax income or loss.

AES files federal and 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.

Note 8 – Benefit Plans

AES Ohio 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 $9.8 million and $7.5 million in employer contributions during the three months ended March 31, 2021 and 2020, respectively.

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 AES Ohio employees who are now employed by the Service Company that are still participants in the AES Ohio plan.

The net periodic benefit cost of the pension benefit plans for the three months ended March 31, 2021 and 2020 was:
Three months ended
March 31,
$ in millions20212020
Service cost$1.1 $0.9 
Interest cost2.0 3.0 
Expected return on plan assets(3.7)(4.7)
Amortization of unrecognized:
Prior service cost0.2 0.3 
Actuarial loss2.3 1.5 
Net periodic benefit cost$1.9 $1.0 
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In addition, AES Ohio 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 $8.8 million at March 31, 2021 and $9.0 million at December 31, 2020 were not material to the financial statements in the periods covered by this report.

Note 9 – Contractual Obligations, Commercial Commitments and Contingencies

Guarantees
Previously, DPL entered into various agreements with its wholly-owned subsidiary, AES Ohio Generation, providing financial or performance assurance to third parties. These agreements were entered into primarily to support or enhance the creditworthiness otherwise attributed to the subsidiary on a stand-alone basis, thereby facilitating the extension of sufficient credit to accomplish this subsidiary's intended commercial purposes. With the completion of our plan to exit generation, AES Ohio Generation currently does not require such assurances to third parties, and existing guarantees will expire in June 2021. During the three months ended March 31, 2021, DPL did not incur any losses related to the guarantees of these 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. At March 31, 2021, DPL had $1.9 million of such guarantees on behalf of AES Ohio Generation. There were no outstanding balances for commercial transactions covered by these guarantees at March 31, 2021 or December 31, 2020.

Equity Ownership Interest
AES Ohio has a 4.9% equity ownership interest in OVEC, which is recorded using the cost method of accounting under GAAP. AES Ohio, 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 AES Ohio, is the same as its equity ownership interest. At March 31, 2021, AES Ohio could be responsible for the repayment of 4.9%, or $62.0 million, of $1,264.5 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 AES Ohio to avoid a default in the event that other OVEC members defaulted on their respective OVEC obligations.

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 March 31, 2021, cannot be reasonably determined.

Environmental Matters
DPL’s and AES Ohio’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 regarding whether modifications to or maintenance of certain coal-fired generating stations require additional permitting or pollution control technology, or whether emissions from coal-fired generating stations cause or contribute to global climate changes;
Rules and future rules issued by the USEPA, the Ohio EPA or other authorities that require or will require substantial reductions in SO2, particulates, mercury, acid gases, NOx and other air emissions;
Rules and future rules issued by the USEPA, the Ohio EPA or other authorities that require or will require reporting and reductions of GHGs;
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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 previously-owned and operated 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 10 – Business Segments

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 AES Ohio’s electric transmission and distribution businesses, which distribute electricity to residential, commercial, industrial and governmental customers. AES Ohio distributes electricity to approximately 532,000 retail customers located in a 6,000-square mile area of West Central Ohio. AES Ohio’s electric transmission and distribution businesses are subject to rate regulation by federal and state regulators. Accordingly, AES Ohio 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 AES Ohio’s Hutchings Coal Station, which was closed in 2013 and transferred to a third party in the fourth quarter of 2020.

Included within the “Other” column are other businesses that do not meet the GAAP requirements for disclosure as reportable segments as well as certain corporate costs, which include interest expense on DPL's long-term debt as well as adjustments related to purchase accounting from the Merger. 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.

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The following tables present financial information for DPL’s Utility reportable business segment:
$ in millionsUtilityOtherAdjustments and EliminationsDPL Consolidated
Three months ended March 31, 2021
Revenues from external customers$172.6 $2.6 $0 $175.2 
Intersegment revenues0.2 0.9 (1.1)0 
Total revenues$172.8 $3.5 $(1.1)$175.2 
Depreciation and amortization$18.7 $0.4 $0 $19.1 
Interest expense$6.0 $9.6 $0 $15.6 
Income / (loss) from continuing operations before income tax$21.5 $(7.6)$0 $13.9 
Capital expenditures$51.6 $0.3 $0 $51.9 
$ in millionsUtilityOtherAdjustments and EliminationsDPL Consolidated
Three months ended March 31, 2020
Revenues from external customers$168.7 $2.5 $$171.2 
Intersegment revenues0.3 0.8 (1.1)
Total revenues$169.0 $3.3 $(1.1)$171.2 
Depreciation and amortization$17.3 $0.4 $$17.7 
Interest expense$6.2 $12.7 $$18.9 
Income / (loss) from continuing operations before income tax$12.9 $(10.5)$$2.4 
Capital expenditures$39.3 $0.9 $$40.2 
Total AssetsMarch 31, 2021December 31, 2020
Utility$2,026.8 $2,014.7 
All Other (a)
26.7 21.3 
DPL Consolidated$2,053.5 $2,036.0 

(a)    "All Other" includes Eliminations for all periods presented.

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 14 — Revenue in Item 8.—Financial Statements and Supplementary Data of our Form 10-K.

DPL's revenue from contracts with customers was $172.1 million and $167.0 million for the three months ended March 31, 2021 and 2020, respectively.

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The following table presents our revenue from contracts with customers and other revenue by segment for the three months ended March 31, 2021 and 2020:
$ in millionsUtilityOtherAdjustments and EliminationsTotal
Three months ended March 31, 2021
Retail revenue
Retail revenue from contracts with customers
Residential revenue$98.3 $0 $0 $98.3 
Commercial revenue27.3 0 0 27.3 
Industrial revenue12.3 0 0 12.3 
Governmental revenue7.4 0 0 7.4 
Other (a)
3.7 0 0 3.7 
Total retail revenue from contracts with customers149.0 0 0 149.0 
Other retail revenue (b)
0 0 0 0 
Wholesale revenue
Wholesale revenue from contracts with customers5.0 0 (0.2)4.8 
RTO ancillary revenue14.8 0.1 0 14.9 
Capacity revenue0.9 0 0 0.9 
Miscellaneous revenue
Miscellaneous revenue from contracts with customers (c)
0 2.5 0 2.5 
Other miscellaneous revenue3.1 0.9 (0.9)3.1 
Total revenues$172.8 $3.5 $(1.1)$175.2 
Three months ended March 31, 2020
Retail revenue
Retail revenue from contracts with customers
Residential revenue$96.9 $$$96.9 
Commercial revenue28.9 28.9 
Industrial revenue11.8 11.8 
Governmental revenue9.3 9.3 
Other (a)
3.3 3.3 
Total retail revenue from contracts with customers150.2 150.2 
Other retail revenue (b)
3.3 3.3 
Wholesale revenue
Wholesale revenue from contracts with customers2.7 (0.2)2.5 
RTO ancillary revenue10.7 10.7 
Capacity revenue1.2 1.2 
Miscellaneous revenue
Miscellaneous revenue from contracts with customers (c)
2.4 2.4 
Other miscellaneous revenue0.9 0.9 (0.9)0.9 
Total revenues$169.0 $3.3 $(1.1)$171.2 

(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.
(b)    Other retail revenue primarily includes alternative revenue programs not accounted for under FASC 606.
(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 $61.2 million and $70.1 million as of March 31, 2021 and December 31, 2020, respectively. Payment terms for all receivables from contracts with customers are typically within 30 days.

Note 12 – Discontinued Operations

Conesville - In May 2020, AEP, the operator of the formerly co-owned Conesville EGU, retired Conesville Unit 4 as planned. On June 5, 2020, DPL and AES Ohio Generation, together with AEP, completed the transfer of their interests in the retired Unit 4, including the associated environmental liabilities, to an unaffiliated third-party purchaser. For the transaction, DPL will make quarterly cash expenditures, totaling $4.0 million, through July 2022,
26

of which $2.2 million has been paid through March 31, 2021. The transfer of Conesville Unit 4 was the last step in DPL's plan to exit its AES Ohio Generation business operations.

DPL determined that the transfer of Conesville along with the transfers of Stuart and Killen in 2019 and 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 qualifies to be presented as discontinued operations. Therefore, the results of operations of this group of components were reported as such in the Condensed Consolidated Statements of Operations for all periods presented.

The following table summarizes the revenues, operating costs, other expenses and income tax of discontinued operations for the periods indicated:
Three months ended
March 31,
$ in millions20212020
Revenues$0.9 $13.6 
Operating costs and other expenses(1.7)(14.3)
Loss from discontinued operations before income tax(0.8)(0.7)
Income tax benefit from discontinued operations(0.2)(0.1)
Net loss from discontinued operations$(0.6)$(0.6)

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 $(0.2) million and $6.2 million for the three months ended March 31, 2021 and 2020, respectively. Cash flows from investing activities for discontinued operations were $(0.4) million and $5.1 million for the three months ended March 31, 2021 and 2020, respectively.

Note – 13 Risks and Uncertainties

COVID-19 Pandemic

The COVID-19 pandemic has 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 U.S., have reacted by instituting quarantines, mandating business and school closures and social distancing measures as well as restricting travel. Responses to the COVID-19 pandemic by the State of Ohio and its residents and businesses, in particular, continue to evolve, including with respect to business and school closures and limitations and other social distancing measures and the effectiveness and timing of vaccine availability and distribution efforts. Social distancing measures designed to slow the spread of the virus, such as business closures and operations limitations, impact energy demand within our service territory. 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, including those that relate to events outside of our control. 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.
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FINANCIAL STATEMENTS

AES Ohio

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AES Ohio
Condensed Statements of Operations
(Unaudited)
Three months ended
March 31,
$ in millions20212020
Revenues$172.8 $169.0 
Operating costs and expenses
Net fuel cost0.4 0.6 
Net purchased power cost71.2 62.4 
Operation and maintenance34.7 47.1 
Depreciation and amortization18.7 17.3 
Taxes other than income taxes20.3 20.8 
Other, net(0.1)(0.1)
Total operating costs and expenses145.2 148.1 
Operating income27.6 20.9 
Other income / (expense), net:
Interest expense(6.0)(6.2)
Other expense, net(0.1)(1.8)
Total other expense, net(6.1)(8.0)
Income before income tax21.5 12.9 
Income tax expense3.2 1.2 
Net income$18.3 $11.7 
See Notes to Condensed Financial Statements.
29

AES Ohio
Condensed Statements of Comprehensive Income
(Unaudited)
Three months ended
March 31,
$ in millions20212020
Net income$18.3 $11.7 
Derivative activity:
Change in derivative fair value, net of income tax expense of $0.0 and $0.0 for each respective period0 (0.3)
Reclassification to earnings, net of income tax benefit of $0.0 and $0.0 for each respective period0 (0.1)
Total derivative activity0 (0.4)
Pension and postretirement activity:
Reclassification to earnings, net of income tax benefit of $(0.3) and $(0.2) for each respective period1.0 0.8 
Total change in unfunded pension and postretirement obligations1.0 0.8 
Other comprehensive income1.0 0.4 
Net comprehensive income$19.3 $12.1 
See Notes to Condensed Financial Statements.
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AES Ohio
Condensed Balance Sheets
(Unaudited)
$ in millionsMarch 31, 2021December 31, 2020
ASSETS  
Current assets:  
Cash and cash equivalents$16.8 $11.7 
Restricted cash0.1 0.1 
Accounts receivable, net of allowance for credit losses of $2.3 and $2.8, respectively (Note 2)64.2 70.2 
Inventories9.1 8.8 
Taxes applicable to subsequent years57.9 77.6 
Regulatory assets, current35.1 27.5 
Taxes receivable30.7 32.5 
Prepayments and other current assets9.6 6.4 
Total current assets223.5 234.8 
Property, plant & equipment:  
Property, plant & equipment2,468.0 2,437.3 
Less: Accumulated depreciation and amortization(1,041.7)(1,032.1)
 1,426.3 1,405.2 
Construction work in process142.2 138.8 
Total net property, plant & equipment1,568.5 1,544.0 
Other non-current assets:  
Regulatory assets, non-current191.9 193.6 
Intangible assets, net of amortization16.4 18.3 
Other non-current assets26.5 24.0 
Total other non-current assets234.8 235.9 
Total assets$2,026.8 $2,014.7 
LIABILITIES AND SHAREHOLDER'S EQUITY  
Current liabilities:  
Short-term and current portion of long-term debt (Note 6)$80.2 $20.2 
Accounts payable65.5 85.5 
Accrued taxes84.6 82.7 
Accrued interest5.9 2.6 
Customer deposits24.2 19.1 
Regulatory liabilities, current21.6 18.0 
Accrued and other current liabilities12.2 25.0 
Total current liabilities294.2 253.1 
Non-current liabilities:  
Long-term debt (Note 6)574.0 573.9 
Deferred income taxes177.7 172.1 
Taxes payable41.0 80.3 
Regulatory liabilities, non-current214.4 218.3 
Accrued pension and other post-retirement benefits83.4 93.9 
Other non-current liabilities6.1 6.4 
Total non-current liabilities1,096.6 1,144.9 
Commitments and contingencies (Note 9)00
Common shareholder's equity:  
Common stock, at par value of $0.01 per share0.4 0.4 
50,000,000 shares authorized, 41,172,173 shares issued and outstanding
Other paid-in capital714.4 714.4 
Accumulated other comprehensive loss(41.1)(42.1)
Accumulated deficit(37.7)(56.0)
Total common shareholder's equity636.0 616.7 
Total liabilities and shareholder's equity$2,026.8 $2,014.7 
See Notes to Condensed Financial Statements.
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AES Ohio
Condensed Statements of Cash Flows
(Unaudited)
Three months ended March 31,
$ in millions20212020
Cash flows from operating activities:
Net income$18.3 $11.7 
Adjustments to reconcile net income to net cash from operating activities:
Depreciation and amortization18.7 17.3 
Deferred income taxes3.2 3.0 
Changes in certain assets and liabilities:
Accounts receivable, net5.9 2.8 
Inventories(0.3)1.3 
Taxes applicable to subsequent years19.7 17.0 
Deferred regulatory costs, net(4.8)(5.0)
Accounts payable(4.3)(8.6)
Accrued taxes payable / receivable(38.8)(36.7)
Accrued interest3.2 4.1 
Accrued pension and other post-retirement benefits(10.5)(8.2)
Other1.0 1.3 
Net cash provided by operating activities11.3 
Cash flows from investing activities:
Capital expenditures(51.6)(39.3)
Cost of removal payments(4.5)(4.4)
Other investing activities, net(0.1)(0.7)
Net cash used in investing activities(56.2)(44.4)
Cash flows from financing activities:
Dividends and returns of capital paid to parent(10.0)
Borrowings from revolving credit facilities60.0 45.0 
Net cash provided by financing activities50.0 45.0 
Cash, cash equivalents, and restricted cash:
Net change5.1 0.6 
Balance at beginning of period11.8 21.3 
Cash, cash equivalents, and restricted cash at end of period$16.9 $21.9 
Supplemental cash flow information:
Interest paid, net of amounts capitalized$2.7 $0.7 
Non-cash financing and investing activities:
Accruals for capital expenditures$16.0 $4.8 
See Notes to Condensed Financial Statements.
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AES Ohio
Condensed Statements of Shareholder's Equity
(Unaudited)

Common Stock (a)
$ in millionsOutstanding SharesAmountOther Paid-in CapitalAccumulated Other Comprehensive LossAccumulated DeficitTotal
Balance, January 1, 202141,172,173 $0.4 $714.4 $(42.1)$(56.0)$616.7 
Net comprehensive income1.0 18.3 19.3 
Balance, March 31, 202141,172,173 $0.4 $714.4 $(41.1)$(37.7)$636.0 

(a)    $0.01 par value, 50,000,000 shares authorized.

Common Stock (a)
$ in millionsOutstanding SharesAmountOther Paid-in CapitalAccumulated Other Comprehensive LossAccumulated DeficitTotal
Balance, January 1, 202041,172,173 $0.4 $617.0 $(36.9)$(107.1)$473.4 
Net comprehensive income0.4 11.7 12.1 
Balance, March 31, 202041,172,173 $0.4 $617.0 $(36.5)$(95.4)$485.5 

(a)$0.01 par value, 50,000,000 shares authorized.

See Notes to Condensed Financial Statements.

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AES Ohio
Notes to Unaudited Condensed Financial Statements

Note 1 – Overview and Summary of Significant Accounting Policies

Description of Business
DP&L, which does business as AES Ohio, 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. AES Ohio has the exclusive right to provide such transmission and distribution services to approximately 532,000 customers located in West Central Ohio. Additionally, AES Ohio provides retail SSO electric service to residential, commercial, industrial and governmental customers in a 6,000-square mile area of West Central Ohio. AES Ohio sources all of the generation for its SSO customers through a competitive bid process. Principal industries located in AES Ohio’s service territory include automotive, food processing, paper, plastic, manufacturing and defense. AES Ohio's sales reflect the general economic conditions, seasonal weather patterns of the area and the market price of electricity. AES Ohio owned interests in the retired Hutchings Coal Station until its transfer in 2020, and currently owns numerous transmission facilities. AES Ohio sells its proportional share of energy and capacity from its investment in OVEC into the wholesale market. AES Ohio has 1 reportable segment, the Utility segment. In addition to AES Ohio's electric transmission and distribution businesses, the Utility segment includes revenues and costs associated with AES Ohio's investment in OVEC and the historical results of AES Ohio’s Hutchings Coal Station. AES Ohio is a subsidiary of DPL. The terms “we,” “us,” “our” and “ours” are used to refer to AES Ohio.

AES Ohio’s electric transmission and distribution businesses are subject to rate regulation by federal and state regulators. Accordingly, AES Ohio applies the accounting standards for regulated operations to its electric transmission and distribution businesses and records regulatory assets when incurred costs are expected to be recovered in future customer rates and regulatory liabilities when current cost recoveries in customer rates relate to expected future costs or overcollections of riders.

Financial Statement Presentation
AES Ohio 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, as contained in the FASB ASC, for interim financial statements and Article 10 of Regulation S-X issued by the SEC. Accordingly, they do not include all the information and footnotes required by GAAP for annual fiscal reporting periods. 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, 2020.

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 March 31, 2021; our results of operations for the three months ended March 31, 2021 and 2020, our cash flows for the three months ended March 31, 2021 and 2020 and the changes in our equity for the three months ended March 31, 2021 and 2020. Unless otherwise noted, all adjustments are normal and recurring in nature. Due to various factors, interim results for the three months ended March 31, 2021 may not be indicative of our results that will be realized for the full year ending December 31, 2021.

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 insurance and claims liabilities; the valuation of allowances for credit losses and deferred income taxes; regulatory assets and liabilities; liabilities recorded for income tax exposures; litigation; contingencies; and assets and liabilities related to employee benefits.

34

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 Sheets that reconcile to the total of such amounts as shown on the Condensed Statements of Cash Flows:
$ in millionsMarch 31, 2021December 31, 2020
Cash and cash equivalents$16.8 $11.7 
Restricted cash0.1 0.1 
Cash, Cash Equivalents, and Restricted Cash, End of Period$16.9 $11.8 

Inventories
Inventories consist of materials and supplies at March 31, 2021 and December 31, 2020.

Accounting for Taxes Collected from Customers and Remitted to Governmental Authorities
AES Ohio 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 March 31, 2021 and 2020 were $12.9 million and $12.4 million, respectively.

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.
ASU Number and NameDescriptionDate of AdoptionEffect on the financial statements upon adoption
2020-04, Reference Rate Form (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial ReportingThe 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, 2022We are currently evaluating the impact of adopting the standard on our condensed financial statements.

Note 2 – Supplemental Financial Information

Accounts receivable are as follows at March 31, 2021 and December 31, 2020:
March 31,December 31,
$ in millions20212020
Accounts receivable, net:
Customer receivables$44.6 $47.6 
Unbilled revenue15.5 21.6 
Amounts due from affiliates2.1 1.9 
Due from PJM transmission enhancement settlement1.7 1.7 
Other2.6 0.2 
Allowance for credit losses(2.3)(2.8)
Total accounts receivable, net$64.2 $70.2 

The following table is a rollforward of our allowance for credit losses related to the accounts receivable balances for the three months ended March 31, 2021 and 2020:
$ in millionsBeginning Allowance BalanceCurrent Period ProvisionWrite-offs Charged Against AllowancesRecoveries CollectedEnding Allowance Balance
2021$2.8 $0 $(0.7)$0.2 $2.3 
2020$0.4 $0.4 $(0.4)$0.3 $0.7 

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 March 31, 2021. Amounts are written off when reasonable collections efforts have been exhausted. During 2021, the current period provision and allowance for credit losses
35

have decreased due to lower past due customer receivable balances. See Note 12 – Risks and Uncertainties for additional discussion of the COVID-19 pandemic.

Accumulated Other Comprehensive Loss
The amounts reclassified out of Accumulated Other Comprehensive Loss by component during the three months ended March 31, 2021 and 2020 are as follows:
Details about Accumulated Other Comprehensive Loss componentsAffected line item in the Condensed Statements of OperationsThree months ended
March 31,
$ in millions20212020
Gains and losses on cash flow hedges (Note 5):
Interest expense$0 $(0.1)
Income tax benefit0 
Net of income taxes0 (0.1)
Amortization of defined benefit pension items (Note 8):
Other expense1.3 1.0 
Income tax benefit(0.3)(0.2)
Net of income taxes1.0 0.8 
Total reclassifications for the period, net of income taxes$1.0 $0.7 

The changes in the components of Accumulated other comprehensive loss during the three months ended March 31, 2021 are as follows:
$ in millionsChange in Accumulated other comprehensive loss
Balance at January 1, 2021$(42.1)
Amounts reclassified from AOCL to earnings1.0 
Net current period other comprehensive income1.0 
Balance at March 31, 2021$(41.1)

Note 3 – Regulatory Matters

ESP and SEET Proceedings
On October 23, 2020, AES Ohio entered into a Stipulation and Recommendation (settlement) with the staff of the PUCO and various customers, and organizations representing customers of AES Ohio and certain other parties with respect to, among other matters, AES Ohio's applications pending at the PUCO for (i) approval of AES Ohio's plan to modernize its distribution grid (the Smart Grid Plan), (ii) findings that AES Ohio passed the SEET for 2018 and 2019, and (iii) findings that AES Ohio'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 was held in January 2021 for consideration of this settlement; a commission order is pending.

Decoupling
On January 23, 2020 AES Ohio 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. An evidentiary hearing was held on this matter on May 4, 2021.

Distribution Rate Case
On November 30, 2020, AES Ohio filed a new Distribution Rate Case with the PUCO. This rate case proposes a revenue increase of $120.8 million per year and incorporates the DIR investments that were planned and approved in the last rate case but not yet included in distribution rates, other distribution investments since September 2015 and investments necessitated by the tornados that occurred on Memorial Day in 2019. The rate case also includes a proposal for increased tree-trimming expenses and certain customer demand-side management programs and
36

recovery of prior-approved regulatory assets for tree trimming, uncollectible expenses and rate case expense. This case is pending a commission order.

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 the TCJA. On March 3, 2020, AES Ohio 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. An uncontested settlement was filed December 10, 2020, which would increase the rates that were in effect prior to the filing but are a reduction from the rate that became effective subject to refund on May 3, 2020. Among other things, the settlement establishes new depreciation rates for our transmission assets and an authorized return on equity (ROE) of 9.85%, which would rise to 9.99% if the FERC were to approve in a separate ongoing proceeding a return on equity “adder” to recognize our continued membership in PJM. The 9.85% ROE (base) and 9.99% ROE (base + incentive) levels are subject to a four-year moratorium on other proposed ROE changes. Proposals to raise or lower the ROE could be filed with an effective date after the moratorium expires on April 14, 2025. The required flowback of excess deferred taxes under the NOPR was also addressed and resolved as part of this formula transmission rate settlement. On April 15, 2021, the FERC approved the transmission rate settlement.

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 March 31, 2021 and December 31, 2020. Further information about the fair value of our derivative instruments can be found in Note 5 – Derivative Instruments and Hedging Activities.
March 31, 2021December 31, 2020
$ in millionsCostFair ValueCostFair Value
Assets
Money market funds$0.2 $0.2 $0.3 $0.3 
Equity securities2.0 4.7 2.1 4.5 
Debt securities3.8 3.8 4.0 4.1 
Total assets$6.0 $8.7 $6.4 $8.9 
Carrying ValueFair ValueCarrying ValueFair Value
Liabilities
Long-term debt$574.2 $599.7 $574.1 $656.0 

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 three months ended March 31, 2021 or 2020.

Master Trust Assets
AES Ohio 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. 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 non-current assets on the Condensed Balance Sheets and classified as equity
37

investments. We recorded net unrealized gains / (losses) of $0.2 million and $(1.1) million during the during the three months ended March 31, 2021 and 2020, respectively. These amounts are included in "Other expense, net" 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 2040 to 2061.

The fair value of assets and liabilities at March 31, 2021 and December 31, 2020 and the respective category within the fair value hierarchy for AES Ohio is as follows:
$ in millionsFair value at March 31, 2021 (a)Fair value at December 31, 2020 (a)
Level 1Level 2Level 3TotalLevel 1Level 2Level 3Total
Assets
Master Trust assets
Money market funds$0.2 $0 $0 $0.2 $0.3 $$$0.3 
Equity securities0 4.7 0 4.7 4.5 4.5 
Debt securities0 3.8 0 3.8 4.1 4.1 
Total assets$0.2 $8.5 $0 $8.7 $0.3 $8.6 $$8.9 
Liabilities
Long-term debt$0 $582.4 $17.3 $599.7 $$638.6 $17.4 $656.0 
Total liabilities$0 $582.4 $17.3 $599.7 $$638.6 $17.4 $656.0 

(a)    Includes credit valuation adjustment

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, the fair value inputs are considered Level 3 in the fair value hierarchy as there are no observable inputs.

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 of Item 8 – Financial Statements and Supplementary Data in our Form 10-K.

Cash Flow Hedges
In August 2020, the two interest rate swaps to hedge the variable interest on the $140.0 million variable interest rate tax-exempt First Mortgage Bonds expired, as the associated debt reached maturity. The interest rate swaps had a combined notional amount of $140.0 million and settled monthly based on a one-month LIBOR. The AOCL associated with the swaps was amortized out of AOCL into interest expense over the life of the underlying debt.

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The following tables provide information concerning gains or losses recognized in AOCL for the cash flow hedges for the three months ended March 31, 2020:
Three months ended
March 31, 2020
Interest
$ in millions (net of tax)Rate Hedge
Beginning accumulated derivative losses in AOCL$(0.4)
Net losses associated with current period hedging transactions(0.3)
Net gains reclassified to earnings
Interest expense(0.1)
Ending accumulated derivative losses in AOCL$(0.8)

Note 6 – Long-term Debt

The following table summarizes AES Ohio's long-term debt.
InterestMarch 31,December 31,
$ in millionsRateMaturity20212020
First Mortgage Bonds3.95 %2049$425.0 $425.0 
First Mortgage Bonds3.20 %2040140.0 140.0 
U.S. Government note4.20 %206117.3 17.4 
Unamortized deferred financing costs(5.5)(5.7)
Unamortized debt discounts, net(2.6)(2.6)
Total long-term debt574.2 574.1 
Less: current portion(0.2)(0.2)
Long-term debt, net of current portion$574.0 $573.9 

Line of credit
At March 31, 2021 and December 31, 2020, AES Ohio had outstanding borrowings on its line of credit of $80.0 million and $20.0 million, respectively.

Long-term debt covenants and restrictions
AES Ohio's unsecured revolving credit facility and Bond Purchase Agreement (financing document entered into in connection with the issuance of AES Ohio's First Mortgage Bonds, on 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. AES Ohio’s Total Debt to Total Capitalization ratio shall not be greater than 0.67 to 1.00. As of March 31, 2021, AES Ohio was in compliance with this financial covenant.

As of March 31, 2021, AES Ohio was in compliance with all debt covenants, including the financial covenants described above.

AES Ohio does not have any meaningful restrictions in its debt financing documents prohibiting dividends to its parent, DPL.

Substantially all property, plant & equipment of AES Ohio is subject to the lien of the mortgage securing AES Ohio’s First and Refunding Mortgage.

Note 7 – Income Taxes

The following table details the effective tax rates for the three months ended March 31, 2021 and 2020.
Three months ended
March 31,
20212020
AES Ohio14.9%9.3%

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AES Ohio’s effective combined state and federal income tax rate was 14.9% for the three months ended March 31, 2021. This is different from the combined federal and state statutory rate of 22.5% primarily due to the net tax benefit related to the reversal of excess deferred taxes.

Note 8 – Benefit Plans

AES Ohio 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 $9.8 million and $7.5 million in employer contributions during the three months ended March 31, 2021 and 2020, respectively.

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 AES Ohio 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 AES Ohio plan.

The net periodic benefit cost of the pension benefit plans for the three months ended March 31, 2021 and 2020 was:
Three months ended
March 31,
$ in millions20212020
Service cost$1.1 $0.9 
Interest cost2.0 3.0 
Expected return on plan assets(3.7)(4.7)
Amortization of unrecognized:
Prior service cost0.3 0.3 
Actuarial loss2.8 2.2 
Net periodic benefit cost$2.5 $1.7 

In addition, AES Ohio 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 $8.8 million at March 31, 2021 and $9.0 million at December 31, 2020 were not material to the financial statements in the periods covered by this report.

Note 9 – Shareholder's Equity

Returns of Capital
During the three months ended March 31, 2021, AES Ohio made return of capital payments of $10.0 million to DPL. AES Ohio did not make any return of capital payments to DPL for the three months ended March 31, 2020.

Note 10 – Contractual Obligations, Commercial Commitments and Contingencies

Equity Ownership Interest
AES Ohio has a 4.9% equity ownership interest in OVEC, which is recorded using the cost method of accounting under GAAP. AES Ohio, 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 AES Ohio, is the same as its equity ownership interest. At March 31, 2021, AES Ohio could be responsible for the repayment of 4.9%, or $62.0 million, of $1,264.5 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 AES Ohio to avoid a default in the event that other OVEC members defaulted on their respective OVEC obligations.

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
40

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 March 31, 2021, cannot be reasonably determined.

Environmental Matters
AES Ohio’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 regarding whether modifications to or maintenance of certain coal-fired generating stations require additional permitting or pollution control technology, or whether emissions from coal-fired generating stations cause or contribute to global climate changes;
Rules and future rules issued by the USEPA, the Ohio EPA or other authorities that require or will require substantial reductions in SO2, particulates, mercury, acid gases, NOx and other air emissions;
Rules and future rules issued by the USEPA, the Ohio EPA or other authorities that require or will require reporting and reductions of GHGs;
Rules and future rules issued by the USEPA, the Ohio EPA or other authorities associated with the federal Clean Water Act, which prohibits the discharge of pollutants into waters of the United States except pursuant to appropriate permits; and
Solid and hazardous waste laws and regulations, which govern the management and disposal of certain waste.

In addition to imposing continuing compliance obligations, these laws 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.

AES Ohio's revenue from contracts with customers was $169.7 million and $164.8 million for the three months ended March 31, 2021 and 2020, respectively.
41


The following table presents our revenue from contracts with customers and other revenue for the three months ended March 31, 2021 and 2020:
Three months ended
March 31,
$ in millions20212020
Retail revenue
Retail revenue from contracts with customers
Residential revenue$98.3 $96.9 
Commercial revenue27.3 28.9 
Industrial revenue12.3 11.8 
Governmental revenue7.4 9.3 
Other (a)
3.7 3.3 
Total retail revenue from contracts with customers149.0 150.2 
Other retail revenue (b)
0 3.3 
Wholesale revenue
Wholesale revenue from contracts with customers5.0 2.7 
RTO ancillary revenue14.8 10.7 
Capacity revenue0.9 1.2 
Miscellaneous revenue3.1 0.9 
Total revenues$172.8 $169.0 

(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.
(b)    Other retail revenue primarily includes alternative revenue programs not accounted for under FASC 606.

The balances of receivables from contracts with customers were $60.1 million and $69.2 million as of March 31, 2021 and December 31, 2020, respectively. Payment terms for all receivables from contracts with customers are typically within 30 days.

Note – 12 Risks and Uncertainties

COVID-19 Pandemic

The COVID-19 pandemic has 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 U.S., have reacted by instituting quarantines, mandating business and school closures and social distancing measures as well as restricting travel. Responses to the COVID-19 pandemic by the State of Ohio and its residents and businesses, in particular, continue to evolve, including with respect to business and school closures and limitations and other social distancing measures and the effectiveness and timing of vaccine availability and distribution efforts. Social distancing measures designed to slow the spread of the virus, such as business closures and operations limitations, impact energy demand within our service territory. 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, including those that relate to events outside of our control. 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.

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Item 2 – Management's Discussion and Analysis of Financial Condition and Results of Operations

This report includes the combined filing of DPL and AES Ohio. AES Ohio 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 AES Ohio, respectively and together, unless the context indicates otherwise. Discussions or areas of this report that apply only to DPL or AES Ohio 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 AES Ohio 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, 2020, 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.

DP&L, a wholly-owned subsidiary of DPL that does business as AES Ohio, 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. AES Ohio has the exclusive right to provide such transmission and distribution services to approximately 532,000 customers located in West Central Ohio. Additionally, AES Ohio provides retail SSO electric service to residential, commercial, industrial and governmental customers in a 6,000-square mile area of West Central Ohio.

DPL’s other primary subsidiaries are MVIC and Miami Valley Lighting. MVIC is our captive insurance company that provides insurance services to AES Ohio and our other subsidiaries, and Miami Valley Lighting provides street and outdoor lighting services to customers in the Dayton region. 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, AES Ohio provides regulated transmission and distribution services to its customers as well as retail SSO electric service. AES Ohio'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 higher by $11.5 million, or 479% for the three months ended March 31, 2021, primarily due to factors including, but not limited to:
Three months ended
March 31,
$ in millions2021 vs. 2020
Net increase in the volume of retail kWh sold primarily driven by favorable weather, partially offset by the purchased power volume variance$3.7 
Higher RTO ancillary revenues due to increase in transmission rates4.2 
Increase due to lower interest expense from debt refinancings in the prior year3.3 
Other0.3 
Net change in income from continuing operations before income tax$11.5 

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AES Ohio
Compared with the prior year, AES Ohio's net income from continuing operations before income taxes was higher by $8.6 million, or 67% for the three months ended March 31, 2021, primarily due to factors including, but not limited to:
Three months ended
March 31,
$ in millions2021 vs. 2020
Net increase in the volume of retail kWh sold primarily driven by favorable weather, partially offset by the purchased power volume variance$3.7 
Higher RTO ancillary revenues due to increase in transmission rates4.2 
Other0.7 
Net change in income before income tax$8.6 
44

RESULTS OF OPERATIONS HIGHLIGHTS – DPL

DPL’s results of operations include the results of its subsidiaries, including its principal subsidiary AES Ohio. All material intercompany accounts and transactions have been eliminated in consolidation. A separate discussion of the results of operations for AES Ohio is presented elsewhere in this report.
Three months ended
March 31,
$ in millions20212020$ change% change
Revenues:
Retail$149.0 $153.5 $(4.5)(3)%
Wholesale4.8 2.5 2.3 92%
RTO ancillary14.9 10.7 4.2 39%
Capacity revenues0.9 1.2 (0.3)(25)%
Miscellaneous revenues5.6 3.3 2.3 70%
Total revenues175.2 171.2 4.0 2%
Operating costs and expenses
Net fuel cost0.4 0.6 (0.2)(33)%
Purchased power:
Purchased power61.0 57.4 3.6 6%
RTO charges10.5 5.4 5.1 94%
Net purchased power cost71.5 62.8 8.7 14%
Operation and maintenance34.9 47.1 (12.2)(26)%
Depreciation and amortization19.1 17.7 1.4 8%
Taxes other than income taxes20.4 20.9 (0.5)(2)%
Other, net(0.1)(0.1)— —%
Total operating costs and expenses146.2 149.0 (2.8)(2)%
Operating income29.0 22.2 6.8 31%
Other income / (expense), net:
Interest expense(15.6)(18.9)3.3 (17)%
Other income / (expense)0.5 (0.9)1.4 (156)%
Total other expense, net(15.1)(19.8)4.7 (24)%
Income from continuing operations before income tax (a)$13.9 $2.4 $11.5 479%

(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.

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DPL – Revenues
Retail customers, especially residential and commercial customers, consume more electricity on warmer and colder days. Therefore, our retail sales demand is affected by the number of heating and cooling degree-days occurring during a year. Cooling degree-days typically have a more significant effect than heating degree-days since some residential customers do not use electricity to heat their homes. 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.
HEATING AND COOLING DEGREE-DAYS (a)
Three months ended
March 31,
20212020change% change
Actual
Heating degree-days2,677 2,337 340 15 %
Cooling degree-days — — — %
30-year average (b)
Heating degree-days2,833 2,833 
Cooling degree-days2 

(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 and AES Ohio's electric sales and billed customers were as follows:
ELECTRIC SALES AND CUSTOMERS (a)
Three months ended
March 31,
20212020change% change
Retail electric sales (b)
Residential1,530 1,398 132 %
Commercial834 855 (21)(2)%
Industrial866 894 (28)(3)%
Governmental279 291 (12)(4)%
Other5 — — %
Total retail electric sales3,514 3,443 71 %
Wholesale electric sales (c)
146 119 27 23 %
Total electric sales3,660 3,562 98 %
Billed electric customers (end of period)531,669 527,058 4,611 %

(a)Electric sales are presented in millions of kWh.
(b)DPL and AES Ohio retail electric sales represent the total transmission and distribution retail sales for the periods presented. SSO sales were 1,070 kWh and 1,015 kWh for the three months ended March 31, 2021 and 2020, respectively.
(c)Wholesale electric sales are AES Ohio's 4.9% share of the generation output of OVEC.
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The following graph shows the percentage changes in weather-normalized and actual retail electric sales volumes by customer class for the three months ended March 31, 2021 as compared to the same period in the prior year:
dpl-20210331_g2.jpg


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During the three months ended March 31, 2021, Revenues increased $4.0 million to $175.2 million compared to $171.2 million in the same period of the prior year. This change was primarily the result of changes in the components of revenue shown below:
Three months ended
March 31,
$ in millions2021 vs. 2020
Retail 
Rate
Decrease in Energy Efficiency and USF Revenue Rate Riders$(10.5)
Decrease in Competitive Bid Revenue Rate Rider (Standard Offer Rate)(5.5)
Decrease due to deferred storm charges(2.1)
Increase due to the TCRR Rider5.1 
Other0.6 
Net change in retail rate(12.4)
Volume
Net increase in the volume of kWh sold primarily due to favorable weather compared to the same period in the prior year, partially offset by a decrease in demand due to the impacts of the COVID-19 pandemic7.6 
Other miscellaneous0.3 
Total retail change(4.5)
 
Wholesale
Increase due to higher wholesale prices and higher volumes at OVEC2.3 
 
RTO ancillary and capacity revenues 
Increase primarily due to higher transmission rates as a result of changing from a stated rate to a formula rate in May 20203.9 
 
Miscellaneous revenues 
Increase due to collections on Legacy Generation Rider2.3 
 
Net change in revenues$4.0 

DPL – Net Purchased Power
During the three months ended March 31, 2021, Net purchased power increased $8.7 million to $71.5 million compared to $62.8 million in the same period of the prior year. This change was primarily the result of changes in the cost of purchased power shown below.
Three months ended
March 31,
$ in millions2021 vs. 2020
Net purchased power
Purchased power
Rate
Decrease due to pricing in the competitive bid process$(0.3)
Volume
Increase due to higher retail load served primarily driven by weather3.9 
Total purchased power change3.6 
RTO charges
Increase primarily due to higher TCRR rates5.1 
Net change in purchased power$8.7 

48

DPL – Operation and Maintenance
During the three months ended March 31, 2021, Operation and maintenance expense decreased $12.2 million compared to the same period in the prior year. The main drivers of this change are as follows:
Three months ended
March 31,
$ in millions2021 vs. 2020
Decrease in uncollectible expenses for the low-income payment program, which is funded by the USF Revenue Rate Rider (a)
$(4.3)
Decrease in Alternative Energy and Energy Efficiency programs (a)
(4.0)
Decrease in deferred storm costs (a)
(2.0)
Other, net(1.9)
Net change in operation and maintenance expense$(12.2)

(a)    There is a corresponding offset in Revenues associated with these programs.

DPL – Depreciation and Amortization
During the three months ended March 31, 2021, Depreciation and amortization increased $1.4 million compared to the same period in the prior year. The increase was primarily the result of higher depreciable property, plant and equipment balances in the current year.

DPL – Interest Expense
During the three months ended March 31, 2021, Interest expense decreased $3.3 million compared to the same period in the prior year. The decrease was primarily the result of the refinancing of debt at DPL in 2020.

DPL – Other Income / (Expense)
During the three months ended March 31, 2021, Other income / (expense) increased $1.4 million compared to the same period in the prior year. The increase was primarily the result of unrealized losses on AES Ohio's Master Trust assets in the prior year due to decreased fair value of investments.

DPL – Income Tax Benefit From Continuing Operations
Income tax benefit was $0.3 million during the three months ended March 30, 2021 compared to a benefit of $0.1 during the three months ended March 31, 2020.

See Note 7 – Income Taxes in the Notes to DPL's Condensed Consolidated Financial Statements for further discussion.

DPL – Discontinued Operations
Net loss from discontinued operations was $(0.6) million for the three months ended March 31, 2021 and March 31, 2020. This loss relates to the generation components of Stuart and Killen, which were retired in 2018 and sold in 2019, and Conesville, which was retired in May 2020 and sold in June 2020. See Part I, Item 1, Note 12 – Discontinued Operations in the Notes to DPL's Condensed Consolidated Financial Statements for further discussion.

RESULTS OF OPERATIONS BY SEGMENT - DPL

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 AES Ohio’s electric transmission and distribution businesses, which distribute electricity to residential, commercial, industrial and governmental customers. AES Ohio distributes electricity to approximately 532,000 retail customers located in a 6,000-square mile area of West Central Ohio. AES Ohio’s electric transmission and distribution businesses are subject to rate regulation by federal and state regulators. Accordingly, AES Ohio 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
49

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 AES Ohio’s Hutchings Coal Station, which was closed in 2013 and transferred to a third party in the fourth quarter of 2020.

Included within the “Other” column are other businesses that do not meet the GAAP requirements for disclosure as reportable segments as well as certain corporate costs, which include interest expense on DPL's long-term debt as well as adjustments related to purchase accounting from the Merger. 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 10 – 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
March 31,
$ in millions20212020
Utility$21.5 $12.9 
Other(7.6)(10.5)
Income from continuing operations before income tax (a)$13.9 $2.4 

(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 AES Ohio, which are included in Part I, Item 2, Management's Discussion and Analysis of Financial Condition and Results of Operations (RESULTS OF OPERATIONS HIGHLIGHTS – AES Ohio) of this Form 10-Q.

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RESULTS OF OPERATIONS HIGHLIGHTS – AES Ohio
Three months ended
March 31,
$ in millions20212020$ change% change
Revenues:
Retail$149.0 $153.5 $(4.5)(3)%
Wholesale5.0 2.7 2.3 85 %
RTO ancillary14.8 10.7 4.1 38 %
Capacity revenues0.9 1.2 (0.3)(25)%
Miscellaneous revenues3.1 0.9 2.2 244 %
Total revenues172.8 169.0 3.8 %
Operating costs and expenses
Net fuel cost0.4 0.6 (0.2)(33)%
Purchased power:
Purchased power61.0 57.3 3.7 %
RTO charges10.2 5.1 5.1 100 %
Net purchased power cost71.2 62.4 8.8 14 %
Operation and maintenance34.7 47.1 (12.4)(26)%
Depreciation and amortization18.7 17.3 1.4 %
Taxes other than income taxes20.3 20.8 (0.5)(2)%
Other, net(0.1)(0.1)— — %
Total operating costs and expenses145.2 148.1 (2.9)(2)%
Operating income27.6 20.9 6.7 32 %
Other income / (expense), net:
Interest expense(6.0)(6.2)0.2 (3)%
Other expense, net(0.1)(1.8)1.7 (94)%
Total other expense, net(6.1)(8.0)1.9 (24)%
Income before income tax (a)$21.5 $12.9 $8.6 67 %

(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.

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

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During the three months ended March 31, 2021, Revenues increased $3.8 million to $172.8 million compared to $169.0 million in the same period of the prior year. This change was primarily the result of changes in the components of revenue shown below:
Three months ended
March 31,
$ in millions2021 vs. 2020
Retail
Rate
Decrease in Energy Efficiency and USF Revenue Rate Riders$(10.5)
Decrease in Competitive Bid Revenue Rate Rider (Standard Offer Rate)(5.5)
Decrease due to deferred storm charges(2.1)
Increase due to the TCRR Rider5.1 
Other0.6 
Net change in retail rate(12.4)
Volume
Net increase in the volume of kWh sold primarily due to favorable weather compared to the same period in the prior year, partially offset by a decrease in demand due to the impacts of the COVID-19 pandemic7.6 
Other miscellaneous0.3 
Total retail change(4.5)
Wholesale
Increase due to higher wholesale prices and higher volumes at OVEC2.3 
RTO ancillary and capacity revenues
Increase primarily due to higher transmission rates as a result of changing from a stated rate to a formula rate in May 20203.8 
Miscellaneous revenues
Increase due to collections on Legacy Generation Rider2.2 
Net change in revenues$3.8 

AES Ohio – Net Purchased Power
During the three months ended March 31, 2021, net purchased power increased $8.8 million to $71.2 million compared to $62.4 million in the same period of the prior year. This change was primarily the result of changes in the cost of purchased power shown below.
Three months ended
March 31,
$ in millions2021 vs. 2020
Net purchased power
Purchased power
Rate
Decrease due to pricing in the competitive bid process$(0.2)
Volume
Increase due to higher retail load served primarily driven by weather3.9 
Total purchased power change3.7 
RTO charges
Increase primarily due to higher TCRR rates5.1 
Net change in purchased power$8.8 

52

AES Ohio – Operation and Maintenance
During the three months ended March 31, 2021, Operation and Maintenance expense decreased $12.4 million compared to the same period in the prior year. The main drivers of this change are as follows:
Three months ended
March 31,
$ in millions2021 vs. 2020
Decrease in uncollectible expenses for the low-income payment program, which is funded by the USF Revenue Rate Rider (a)
$(4.3)
Decrease in Alternative Energy and Energy Efficiency programs (a)
(4.0)
Decrease in deferred storm costs (a)
(2.0)
Other, net(2.1)
Net change in operation and maintenance expense$(12.4)

(a)    There is a corresponding offset in Revenues associated with these programs.

AES Ohio – Depreciation and Amortization
During the three months ended March 31, 2021, Depreciation and amortization increased $1.4 million compared to the same period in the prior year. The increase was primarily the result of higher depreciable property, plant and equipment balances in the current year.

AES Ohio – Other expense, net
During the three months ended March 31, 2021, Other expense, net decreased $1.7 million compared to the same period in the prior year. The decrease was primarily the result of unrealized losses on AES Ohio's Master Trust assets in the prior year due to decreased fair value of investments.

AES Ohio – Income Tax Expense
Income tax expense was $3.2 million during the three months ended March 31, 2021 compared to $1.2 million during the three months ended March 31, 2020. The increase was primarily due to the higher pre-tax income during the three months ended March 31, 2021.

See Note 7 – Income Taxes of Notes to AES Ohio's Condensed Financial Statements for further discussion.
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KEY TRENDS AND UNCERTAINTIES

During the remainder of 2021 and beyond, we expect our results will be primarily impacted by retail demand and weather. As discussed in Note 3 – Regulatory Matters of Notes to DPL's Condensed Consolidated Financial Statements and Note 3 – Regulatory Matters of Notes to AES Ohio's Condensed Financial Statements in Part I, Item 1 of this report, AES Ohio has requested PUCO approval to defer its decoupling costs consistent with the methodology approved in its DRO. If approved, the deferral would be effective as of December 18, 2019 and going forward would reduce impacts of weather, energy efficiency programs and economic changes in customer demand. In addition, DPL's and AES Ohio'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.

COVID-19 Pandemic
The COVID-19 pandemic has impacted global economic activity, including electricity and energy consumption, and caused significant volatility and negative pressure in financial markets. Responses to the COVID-19 pandemic by the State of Ohio and its residents and businesses, in particular, continue to evolve, including with respect to business and school closures and limitations and other social distancing measures and the effectiveness and timing of vaccine availability and distribution efforts.

Social distancing measures designed to slow the spread of the virus, such as business closures and operations limitations, impact energy demand within our service industry. 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. We experienced impacts from the pandemic in 2020 and into 2021 and expect to continue to experience impacts for the remainder of 2021, and any such impacts during that time or in other future periods could have material and adverse effects on our results of operations, financial condition and cash flows. The following discussion highlights our assessment of the impacts of the COVID-19 pandemic on our current financial and operating status, and our financial and operational outlook based on information known as of this filing. Also see "Item 1A. Risk Factors" to our Form 10-K.

Business Continuity - During the COVID-19 pandemic, we are taking a variety of measures to ensure our ability to generate, 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 - As the economic impact of the COVID-19 pandemic started to materialize in Ohio in the second half of March 2020 and continued for the duration of 2020 and into 2021, the COVID-19 pandemic primarily impacted our retail sales demand, including for the quarter ended March 31, 2021, as shown by the changes in weather-normalized volumes of kWh sold by customer class as follows:

Customer classFor the three months ended March 31, 2021 compared to the same period in 2020
Residential(1.2)%
Commercial(2.8)%
Industrial(3.1)%
Government and Other(3.9)%

Liquidity - We anticipate continuing to have sufficient liquidity to make all required payments, including payments for salaries and wages owed to our employees, during the COVID-19 pandemic. We also continue to not foresee a significant impact to our access to capital or our liquidity position as a result of the COVID-19 pandemic. For further discussion of our financial condition, liquidity, and capital requirements, see Part I, Item 2 - Management's
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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 year ended December 31, 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, which began to improve in 2021. See Note 2 – Supplemental Financial Information of Notes to DPL's Condensed Consolidated Financial Statements and Note 2 – Supplemental Financial Information or Notes to AES Ohio's Condensed Financial Statements for further discussion of our allowance for credit losses. If these credit-related impacts from the COVID-19 pandemic continue into 2021 or beyond, further deterioration in our credit exposures and customer collections may 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 AES Ohio's Financial Statements in Item 8. - Financial Statements and Supplementary Data of our Form 10-K, AES Ohio’s uncollectible expense is deferred for future collection.

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, we have deferred the payment of federal payroll taxes in accordance with the provisions of this act. At March 31, 2021, the total deferral was approximately $2.1 million.

See Note 13 – Risks and Uncertainties of Notes to DPL's Condensed Consolidated Financial Statements and Note 12 – Risks and Uncertainties of Notes to AES Ohio's Condensed Financial Statements for more information and Part II, Item 1a - Risk Factors of this Form 10-Q for more information.

Regulatory Environment
DPL’s, AES Ohio’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 2020 Form 10-K previously filed with the SEC during 2021 describes other regulatory matters which have not materially changed since that filing. 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 AES Ohio's Condensed Financial Statements for further information regarding regulatory matters.

Distribution Rate Case - On November 30, 2020, AES Ohio filed a new distribution rate case with the PUCO. This rate case proposes a revenue increase of $120.8 million and is pending a commission order.

Stipulation and Recommendation - On October 23, 2020, AES Ohio 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. A hearing was held in January 2021 for consideration of this settlement; a commission order is pending. 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 AES Ohio's Condensed Financial Statements.

Ohio House Bill 6 – Legislation was passed, Ohio House Bill 128, that repeals Ohio House Bill 6 provisions related to a nuclear fund and decoupling, effective June 30, 2021. Other provisions from Ohio House Bill 6 currently remain in place, which include the following: beginning January 1, 2020, permitted Ohio utilities, such as AES Ohio, may defer, recover or credit the net proceeds from selling energy and capacity received as part of their interest in OVEC and their OVEC-related costs through a statewide non-bypassable recovery mechanism through 2030; eliminates the annual energy efficiency targets for Ohio utilities after 2020; and allows Ohio utilities to construct customer-sited
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renewable generation for mercantile customers or groups of mercantile customers, the costs of which may only be recovered from those customers. If these provisions from Ohio House Bill 6 are 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
As discussed in Item 7 - Management's Discussion and Analysis of Financial Condition and Results of Operations, of our Form 10-K, the UK Financial Conduct Authority announced that it intends to phase out LIBOR by the end of 2021. In the U.S., 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. On November 30, 2020, the ICE Benchmark Association ("IBA") announced it had begun consultation on its intention to cease publication of two specific LIBOR rates by December 31, 2021, while extending the timeline for the overnight, one-month, three-month, six-month, and 12-month USD LIBOR rates through June 30, 2023. On March 5, 2021, IBA published a feedback statement for the consultation, announcing its intention to cease the publication of these rates on the specified dates. We maintain financial instruments that use LIBOR as an interest rate benchmark. Although the full impact of the reform remains unknown, we have begun to engage with our counterparties to discuss specific action items to be undertaken in order to prepare for amendments when 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 2020 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.

As a result of DPL’s retirement 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 retirement and subsequent sale of Conesville, the following environmental matters, regulations and requirements are now not expected to have a material impact on DPL:
MATS and any associated regulatory or judicial processes;
NAAQS; and
potential Clean Air Act Section 111(d) regulations for greenhouse gases from existing electric generating units.
Clean Air Act - Cross State Air Pollution Rule
CSAPR, which became effective in January 2015, addresses the "good neighbor" provision of the CAA, which prohibits sources within each state from emitting any air pollutant in an amount which will contribute significantly to any other state’s nonattainment, or interference with maintenance of, any NAAQS. The CSAPR is implemented, in part, through a market-based program under which compliance may be achievable through the acquisition and use of emissions allowances created by the USEPA. In October 2016, the USEPA published a final rule to update the CSAPR to address the 2008 ozone NAAQS (“CSAPR Update Rule”). The CSAPR Update Rule found that NOx ozone season emissions in 22 states (including Ohio) affect the ability of downwind states to attain and maintain the 2008 ozone NAAQS, and accordingly, the USEPA issued federal implementation plans that both generally provide updated CSAPR NOx ozone season emission budgets for electric generating units within these states and that implement these budgets through modifications to the CSAPR NOx ozone season allowance trading program. In December 2018, the USEPA determined that the 2016 CSAPR Update Rule fully satisfied 20 states (including Ohio) good neighbor obligations with respect to the 2008 Ozone NAAQS (“CSAPR Close-Out Rule”), obviating the need
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for the USEPA to promulgate Federal Implementation Plans (FIPs) in these states. In October 2019, the D.C. Circuit vacated and remanded the CSAPR Close-Out Rule. On July 28, 2020, the D.C. Circuit ordered the USEPA to issue FIPs addressing seven states’ (including Ohio) outstanding 2008 NAAQS “good neighbor” obligations by March 15, 2021. On April 30, 2021, the USEPA published a final rule to address the 2020 D.C. Circuit decision. The USEPA is issuing new or amended federal implementation plans for 12 states, including Ohio, with revised CSAPR NOx ozone season emission budgets for electric generating units within these states via a new CSAPR NOx Ozone Season Group 3 Trading Program. Implementation is to begin during the 2021 ozone season (May through September 2021) with an effective date 60 days following publication in the Federal Register of the final rule. Subject sources in these states will be required to surrender an equivalent number of previously allocated 2021-2024 Group 2 allowances by deadlines in 2021. This requirement applies inclusive of assets and allowances that have since been sold and/or retired. While DPL no longer operates electric generating units subject to the revised CSAPR Update Rule, prior AES Ohio Generation sources will be required to surrender an equivalent number of previously allocated 2021-2024 Group 2 allowances. We have accrued $0.9 million for the cost of purchasing allowances required under this rule. This accrual is included in Discontinued Operations on our Condensed Consolidated Statements of Operations.

CAPITAL RESOURCES AND LIQUIDITY

DPL and AES Ohio had unrestricted cash and cash equivalents of $34.1 million and $16.8 million, respectively, at March 31, 2021. At that date, neither DPL nor AES Ohio had short-term investments. DPL and AES Ohio had aggregate principal amounts of long-term debt outstanding of $1,412.9 million and $582.3 million, respectively.

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.

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 AES Ohio.

CASH FLOWS
DPL’s financial condition, liquidity and capital requirements include the consolidated results of its principal subsidiary AES Ohio. All material intercompany accounts and transactions have been eliminated in consolidation.

Cash Flow Analysis - DPL

The following table summarizes the cash flows of DPL:
Three months ended March 31,
$ in millions20212020
Net cash provided by operating activities$5.5 $12.4 
Net cash used in investing activities(56.8)(40.2)
Net cash provided by financing activities60.0 35.0 
Net change8.7 7.2 
Balance at beginning of period25.5 47.0 
Cash, cash equivalents, and restricted cash at end of period$34.2 $54.2 

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DPL – Net cash from operating activities
Three months ended March 31,$ change
$ in millions202120202021 vs. 2020
Net income$13.6 $1.9 $11.7 
Depreciation and amortization19.1 17.8 1.3 
Deferred income taxes3.5 3.4 0.1 
Net income, adjusted for non-cash items36.2 23.1 13.1 
Net change in operating assets and liabilities(30.7)(10.7)(20.0)
Net cash provided by operating activities$5.5 $12.4 $(6.9)

The net change in operating assets and liabilities during the three months ended March 31, 2021 compared to the three months ended March 31, 2020 was driven by the following:
$ in millions$ Change
Decrease from accrued interest primarily driven by an increase in interest payments in the current year due to timing with the refinancing of debt in the second quarter of 2020$(12.7)
Decrease from accounts receivable primarily due to higher collections on generation-related receivables in the prior year(8.2)
Increase from accounts payable primarily due to timing of payments6.0 
Other(5.1)
Net decrease in cash from changes in operating assets and liabilities$(20.0)

DPL – Net cash from investing activities
Net cash used in investing activities was $(56.8) million for the three months ended March 31, 2021 compared to $(40.2) million for the three months ended March 31, 2020. This $16.6 million increase in cash used primarily relates to an $11.7 million increase in capital expenditures due to increased spending on T&D projects in the current year and $5.1 million of proceeds received from the sale of software in the prior year.

DPL – Net cash from financing activities
Net cash provided by financing activities was $60.0 million for the three months ended March 31, 2021 compared to $35.0 million from financing activities for the three months ended March 31, 2020. This $25.0 million increase is due to a $25.0 million increase in net borrowings on revolving credit facilities in the current year.

Cash Flow Analysis - AES Ohio

The following table summarizes the cash flows of AES Ohio:
Three months ended March 31,
$ in millions20212020
Net cash provided by operating activities$11.3 $— 
Net cash used in investing activities(56.2)(44.4)
Net cash provided by financing activities50.0 45.0 
Net change5.1 0.6 
Balance at beginning of period11.8 21.3 
Cash, cash equivalents, and restricted cash at end of period$16.9 $21.9 

AES Ohio – Net cash from operating activities
Three months ended March 31,$ change
$ in millions202120202021 vs. 2020
Net income$18.3 $11.7 $6.6 
Depreciation and amortization18.7 17.3 1.4 
Deferred income taxes3.2 3.0 0.2 
Net income, adjusted for non-cash items40.2 32.0 8.2 
Net change in operating assets and liabilities(28.9)(32.0)3.1 
Net cash provided by operating activities$11.3 $— $11.3 

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The net change in operating assets and liabilities during the three months ended March 31, 2021 compared to the three months ended March 31, 2020 was driven by the following:
$ in millions$ Change
Increase from accounts payable primarily due to timing of payments$4.3 
Other(1.2)
Net increase in cash from changes in operating assets and liabilities$3.1 

AES Ohio – Net cash from investing activities
Net cash used in investing activities was $(56.2) million for the three months ended March 31, 2021 compared to $(44.4) million for the three months ended March 31, 2020. This $11.8 million increase in cash used primarily relates to a $12.3 million increase in capital expenditures due to increased spending on T&D projects in the current year.

AES Ohio – Net cash from financing activities
Net cash provided by financing activities was $50.0 million for the three months ended March 31, 2021 compared to $45.0 million from financing activities for the three months ended March 31, 2020. This $5.0 million increase relates to a $15.0 million increase in borrowings on revolving credit facilities in the current year, partially offset by $10.0 million in return of capital payments to DPL 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 and carrying costs, taxes and dividend payments. For 2021 and subsequent years, we expect to satisfy these requirements with cash from operations, 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 manage working capital requirements during those periods.

At March 31, 2021, AES Ohio and DPL have access to the following revolving credit facilities:
$ in millionsTypeMaturityCommitmentAmounts available as of March 31, 2021
AES OhioRevolvingJune 2024$175.0 $93.9 
DPLRevolvingJune 2023110.0 30.0 
$285.0 $123.9 

AES Ohio 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 AES Ohio the ability to increase the size of the facility by an additional $100.0 million. This facility expires in June 2024. At March 31, 2021, there was one letter of credit in the amount of $1.1 million outstanding under this facility, and $80.0 million in borrowings, with the remaining $93.9 million available to AES Ohio.

DPL has a revolving credit facility of $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 AES Ohio. The facility expires in June 2023. At March 31, 2021, there were no letter of credits outstanding and $80.0 million in borrowings, with the remaining $30.0 million available to DPL.

Capital Requirements
Planned construction additions for 2021 relate primarily to new investments in and upgrades to AES Ohio’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 $746.0 million in capital projects for the period 2021 through 2023, of which $736.0 million is projected to be spent by AES Ohio. AES Ohio's projection includes expected spending under its Smart Grid Plan included in the Stipulation and Recommendation entered into on October 23, 2020 as well as new transmission projects. See additional information in Note 3 – Regulatory Matters of Notes to DPL's Condensed
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Consolidated Financial Statements and Note 3 – Regulatory Matters of Notes to AES Ohio's Condensed Financial Statements.

AES Ohio is subject to the mandatory reliability standards of NERC and ReliabilityFirst Corporation, one of the six NERC regions, of which AES Ohio is a member. AES Ohio anticipates spending approximately $76.0 million within the next five years to reinforce its transmission system to comply with mandatory NERC and FERC Form 715 planning requirements. These anticipated costs are included in the overall capital 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 AES Ohio'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 AES Ohio, along with the effective or affirmed date of each rating.
DPLAES OhioOutlook
Fitch Ratings
BB (a)
BBB+(b)
Negative
Moody's Investors Service, Inc.
Ba1 (a)
A3 (b)
Negative
Standard & Poor's Financial Services LLC
BB+ (a)
BBB+ (b)
Developing

a.Rating relates to DPL's senior unsecured debt.
b.Rating relates to AES Ohio’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 AES Ohio, along with the effective or affirmed date of each rating.
DPLAES OhioOutlook
Fitch RatingsBBBBB-Negative
Moody's Investors Service, Inc.Ba1Baa2Negative
Standard & Poor's Financial Services LLCBB+BB+Developing

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 9 – 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 AES Ohio'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,
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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.

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 AES Ohio’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 credit 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, 2020 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 three months ended March 31, 2021.

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 AES Ohio, 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 March 31, 2021, 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 — There were no changes that occurred during the fiscal quarter covered by this Quarterly Report on Form 10-Q that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

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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, 2020 and the Notes to DPL’s Consolidated Financial Statements and AES Ohio’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 Form 10-K, and should be read in conjunction with such Form 10-K.

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 AES Ohio's Condensed Financial Statements of this Quarterly Report on Form 10-Q.

Item 1A – Risk Factors

There have been no material changes to the risk factors as previously disclosed in our Form 10-K.

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

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Item 6 – Exhibits
DPLDP&LExhibit NumberExhibitLocation
X31(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
X31(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
X31(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
X31(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
X32(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
X32(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
X32(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
X32(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
XX101.INSXBRL InstanceFiled herewith as Exhibit 101.INS    
XX101.SCHXBRL Taxonomy Extension SchemaFiled herewith as Exhibit 101.SCH    
XX101.CALXBRL Taxonomy Extension Calculation LinkbaseFiled herewith as Exhibit 101.CAL
XX101.DEFXBRL Taxonomy Extension Definition LinkbaseFiled herewith as Exhibit 101.DEF    
XX101.LABXBRL Taxonomy Extension Label LinkbaseFiled herewith as Exhibit 101.LAB    
XX101.PREXBRL Taxonomy Extension Presentation LinkbaseFiled 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.

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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:May 5, 2021/s/ Gustavo Garavaglia
Gustavo Garavaglia
Chief Financial Officer
(principal financial officer)
May 5, 2021/s/ Jon S. Byers
Jon S. Byers
Controller
(principal accounting officer)
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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:May 5, 2021/s/ Gustavo Garavaglia
Gustavo Garavaglia
Vice President and Chief Financial Officer
(principal financial officer)
May 5, 2021/s/ Jon S. Byers
Jon S. Byers
Controller
(principal accounting officer)
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