UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(x)☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 20192020
OR
( )☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
DPL Inc.
(an Ohio corporation)
Commission File Number 1-9052
1065 Woodman Drive
Dayton, Ohio 45432
937-259-7215
IRS Employer Identification No. 31-1163136
THE DAYTON POWER AND LIGHT COMPANY
(an Ohio corporation)
Commission File Number 1-2385
1065 Woodman Drive
Dayton, Ohio 45432
937-259-7215
IRS Employer Identification No. 31-0258470
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DPL INC.
(an Ohio corporation)
| | THE DAYTON POWER AND LIGHT COMPANY
(an Ohio corporation)
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Commission file number 1-9052 | | Commission file number 1-2385 |
1065 Woodman Drive
Dayton, Ohio 45432
| | 1065 Woodman Drive
Dayton, Ohio 45432 |
937-259-7215 | | 937-259-7215 |
I.R.S. Employer Identification No. 31-1163136 | | I.R.S. Employer Identification No. 31-0258470 |
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| Securities registered pursuant to Section 12(b) of the Act: | | |
| Title of Each Class | Trading Symbol(s) | Name of Each Exchange on Which Registered |
| N/A | N/A | N/A |
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Indicate by check mark whether each registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
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| DPL Inc. | Yeso | ☑ | Nox | ☐ |
| The Dayton Power and Light Company | Yeso | ☑ | Nox | ☐ |
Each of DPL Inc. and The Dayton Power and Light Company is awere voluntary filer that hasfilers until their March 6, 2020 Registration Statements on Form S-4/A filed with the Securities and Exchange Commission were declared effective on March 12, 2020. DPL Inc. and The Dayton Power and Light Company have filed all applicable reports under Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months.
Indicate by check mark whether each registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
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| DPL Inc. | Yesx | ☑ | Noo | ☐ |
| The Dayton Power and Light Company | Yesx | ☑ | Noo | ☐ |
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer”, “smaller reporting company” and "emerging growth company" in Rule 12b-2 of the Exchange Act.
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| Large
accelerated
filer
Filer | Accelerated filer
Filer | Non-
accelerated
filer
(Do not check if a smaller reporting company)
Non-accelerated Filer | Smaller
reporting
company
| Emerging growth company |
| DPL Inc. | o☐ | o☐ | x☑ | o☐ | o☐ |
| Large
accelerated
Filer | Accelerated
Filer | Non-accelerated Filer | Smaller
reporting
company | Emerging growth company |
| The Dayton Power and Light Company | o☐ | o☐ | x☑ | o☐ | o☐ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
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| DPL Inc. | o |
| The Dayton Power and Light Company | o |
Indicate by check mark whether each registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
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| DPL Inc. | Yeso | ☐ | Nox | ☑ |
| The Dayton Power and Light Company | Yeso | ☐ | Nox | ☑ |
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 August 5, 2019,2020, each registrant had the following shares of common stock outstanding:
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| Registrant | | Description | | Shares Outstanding |
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Registrant | | Description | | Shares Outstanding |
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| DPL Inc. | | Common Stock, no par value | | 1 |
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| The Dayton Power and Light Company | | Common Stock, $0.01 par value | | 41,172,173 |
This combined Form 10-Q is separately filed by DPL Inc. and The Dayton Power and Light Company. Information contained herein relating to any individual registrant is filed by such registrant on its own behalf. Each registrant makes no representation as to information relating to a registrant other than itself.
DPL Inc. and The Dayton Power and Light Company
QuarterQuarter Ended June 30, 2019
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| Table of Contents | Page No. |
| Glossary of Terms | | |
| Forward-Looking Statements | | |
| Part I Financial Information | | |
| Item 1 | Financial Statements – DPL Inc. and The Dayton Power and Light Company (Unaudited) | |
| DPL Inc. | |
| Condensed Consolidated Statements of Operations | |
| Condensed Consolidated Statements of Comprehensive Income / (Loss) | |
| Condensed Consolidated Balance Sheets | |
| Condensed Consolidated Statements of Cash Flows | |
| Condensed Consolidated Statements of Shareholder's EquityDeficit | |
| Notes to Condensed Consolidated Financial Statements | |
| Note 1 – Overview and Summary of Significant Accounting Policies | |
| Note 2 – Supplemental Financial Information | |
| Note 3 – Regulatory Matters | |
| Note 4 – Fair Value | |
| Note 5 – Derivative Instruments and Hedging Activities | |
| Note 6 – Long-term Debt | |
| Note 7 – Income Taxes | |
| Note 8 – Benefit Plans | |
| Note 9 – Shareholder's EquityDeficit | |
| Note 10 – Contractual Obligations, Commercial Commitments and Contingencies | |
| Note 11 – Business Segments | |
| Note 12 – Revenue | |
| Note 13 – DispositionsDiscontinued Operations | |
| Note 14 – Discontinued OperationsRisks and Uncertainties | |
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| The Dayton Power and Light Company | |
| Condensed Statements of Operations | |
| Condensed Statements of Comprehensive Income | |
| Condensed Balance Sheets | |
| Condensed Statements of Cash Flows | |
| Condensed Statements of Shareholder's Equity | |
| Notes to Condensed Financial Statements | |
| Note 1 – Overview and Summary of Significant Accounting Policies | |
| Note 2 – Supplemental Financial Information | |
| Note 3 – Regulatory Matters | |
| Note 4 – Fair Value | |
| Note 5 – Derivative Instruments and Hedging Activities | |
| Note 6 – Long-term Debt | |
| Note 7 – Income Taxes | |
| Note 8 – Benefit Plans | |
| Note 9 – Shareholder's Equity | |
| Note 10 – Contractual Obligations, Commercial Commitments and Contingencies | |
| Note 11 – Revenue | |
| Note 12 – DispositionsRisks and Uncertainties | |
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| Item 2 | Management's Discussion and Analysis of Financial Condition and Results of Operations | |
| Item 3 | Quantitative and Qualitative Disclosures about Market Risk | |
| Item 4 | Controls and Procedures | |
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| Part II Other Information | | |
| Item 1 | Legal Proceedings | |
| Item 1A | Risk Factors | |
| Item 2 | Unregistered Sales of Equity Securities and Use of Proceeds | |
| Item 3 | Defaults Upon Senior Securities | |
| Item 4 | Mine Safety Disclosures | |
| Item 5 | Other Information | |
| Item 6 | Exhibits | |
| Signatures | |
GLOSSARY OF TERMS
The following terms are used in this Form 10-Q:
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| Term | Definition |
| 2017 ESP | DP&L's ESP - approved October 20, 2017, effective November 1, 2017 |
| AES | The AES Corporation - a global power company and the ultimate parent company of DPL |
| AES Ohio Generation | AES Ohio Generation, LLC - a wholly-owned subsidiary of DPL, that owns an interest in a coal-fired EGU from which it makespreviously operated EGUs and made wholesale sales and previously operated other EGUs |
| AOCI | Accumulated Other Comprehensive Income |
AROAOCL | Accumulated Other Comprehensive Loss |
| ARO | Asset Retirement Obligation |
| ASU | Accounting Standards Update |
| CAA | U.S. Clean Air Act - the congressional act that directs the USEPA’s regulation of stationary and mobile sources of air pollution to protect air quality and stratospheric ozone |
ConesvilleCCR | Coal Combustion Residuals |
| Conesville | AES Ohio Generation's interest in Unit 4 at the Conesville EGUEGU. This was sold on June 5, 2020. |
CPPCOVID-19 | The Clean Power Plan,disease caused by the USEPA's final carbon dioxide emission rules for existing power plants under Clean Air Act Section 111(d)novel coronavirus that resulted in a global pandemic in 2020. |
| CSAPR | Cross-State Air Pollution Rule - the USEPA's rule to address interstate air pollution transport to decrease emissions to downwind states |
DIRDistribution Modernization Plan | Distribution Investment Rider - established in the ESP and authorized in the DRO to recover certain distribution capital investments placed in service beginning October 1, 2015 |
DMP | Distribution Modernization Plan - on December 21, 2018, DP&L filed a comprehensive grid modernization plan pursuant to the PUCO Order in the ESP |
| DMR | Distribution Modernization Rider - established in the ESP as a non-bypassable rider to collect $105.0 million in revenue per year for the first three years of the ESP term |
| DPL | DPL Inc. |
| DP&L | The Dayton Power and Light Company - the principal subsidiary of DPL and a public utility that delivers electricity to residential, commercial, industrial and governmental customers in a 6,000-square mile area of West Central Ohio |
| DRO | Distribution Rate Order - the order issued by the PUCO on September 26, 2018 establishing new base distribution rates for DP&L, which became effective October 1, 2018 |
| EBITDA | Earnings before interest, taxes, depreciation and amortization. EBITDA also excludes the Fixed-asset impairment |
| EGU | Electric Generating Unit |
ELGERISA | Steam Electric Power Effluent Limitations Guidelines |
ERISA | The Employee Retirement Income Security Act of 1974 |
| ESP | The Electric Security Plan is- a plan that a utility must file with the PUCO to establish SSO rates pursuant to Ohio law |
FASBESP 1 | ESP originally approved by PUCO order dated June 24, 2009. After DP&L withdrew its 2017 ESP Application, the PUCO approved DP&L's request to revert to rates based on its ESP 1 rate plan effective December 19, 2019. DP&L is currently operating under this ESP 1 plan. |
| FASB | Financial Accounting Standards Board |
| FASC | FASB Accounting Standards Codification |
| FERC | Federal Energy Regulatory Commission |
| Form 10-K | DPL’s and DP&L’s combined Annual Report on Form 10-K for the fiscal year ended December 31, 2018,2019, which was filed on February 26, 201927, 2020 |
| First and Refunding Mortgage | DP&L’s First and Refunding Mortgage, dated October 1, 1935, as amended, with the Bank of New York Mellon as Trustee |
| GAAP | Generally Accepted Accounting Principles in the United States of America |
| Generation Separation | The transfer on October 1, 2017 to AES Ohio Generation of the DP&L-owned generating facilities and related liabilities pursuant to an asset contribution agreement with a subsidiary that was then merged into AES Ohio Generation |
| kV | Kilovolt, 1,000 volts |
| kWh | Kilowatt-hours - a measure of electrical energy equivalent to a power consumption of 1,000 watts for 1 hour |
| LIBOR | London Inter-Bank Offering Rate |
| Master Trust | DP&L established a Master Trust to hold assets that could be used for the benefit of employees participating in employee benefit plans |
| MATS | Mercury and Air Toxics Standards - the USEPA’s rules for existing and new power plants under Section 112 of the CAA |
| Merger | The merger of DPL and Dolphin Sub, Inc., a wholly-owned subsidiary of AES. On November 28, 2011, DPL became a wholly-owned subsidiary of AES. |
| Miami Valley Lighting | Miami Valley Lighting, LLC is a wholly-owned subsidiary of DPL established in 1985 to provide street and outdoor lighting services to customers in the Dayton region. Miami Valley Lighting serves businesses, communities and neighborhoods in West Central Ohio with over 70,000 lighting solutions for more than 190 businesses and 180 local governments. |
MVICMRO | Market Rate Option - a market-based plan that a utility may file with PUCO to establish SSO rates pursuant to Ohio law |
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| GLOSSARY OF TERMS (cont.) | |
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| Term | Definition |
| MVIC | Miami Valley Insurance Company is a wholly-owned insurance subsidiary of DPL that provides insurance services to DPL and its subsidiaries and, in some cases, insurance services to partner companies related to the jointly-owned facility operated by AES Ohio Generation |
| MW | Megawatt, a unit of power equal to one million watts |
| NAAQS | National Ambient Air Quality Standards - the USEPA’s health and environmental based standards for six specified pollutants, as found in the ambient air |
| NERC | North American Electric Reliability Corporation is- 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 |
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GLOSSARY OF TERMS (cont.) |
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Term | Definition |
| Ohio EPA | Ohio Environmental Protection Agency |
| OVEC | Ohio Valley Electric Corporation - an electric generating company in which DP&L holds a 4.9% equity interest |
| Peaker assets | The generation and related assets for the 586.0 MW Tait combustion turbine and diesel generation facility, the 236.0 MW Montpelier combustion turbine generation facility, the 101.5 MW Yankee combustion turbine generation and solar facility, the 25.0 MW Hutchings combustion turbine generation facility, the 12.0 MW Monument diesel generation facility, and the 12.0 MW Sidney diesel generation facility that were sold on March 27, 2018 |
| PJM | PJM Interconnection, LLC, an RTO |
| PUCO | Public Utilities Commission of Ohio |
RTORSC | The Rate Stabilization Charge is a non-bypassable rider intended to compensate DP&L for providing stabilized rates to customers. |
| RTO | Regional Transmission Organization - an entity that is independent from all generation and power marketing interests and has exclusive responsibility for grid operations, short-term reliability, and transmission service within a region |
| SEC | U.S. Securities and Exchange Commission |
| SERP | Supplemental Executive Retirement Plan |
| Service Company | AES US Services, LLC - the shared services affiliate providing accounting, finance, and other support services to AES’ U.S. SBU businesses |
| SSO | Standard Service Offer represents the regulated rates, authorized by the PUCO, charged to DP&L retail customers that take retail generation service from DP&L within DP&L’s service territory |
TCJAT&D | Transmission and distribution |
| TCJA | The Tax Cuts and Jobs Act of 2017, signed on December 22, 2017 |
TCRRU.S. | The Transmission Cost Recovery Rider is a rider designed to recover transmission-related costs imposed on or charged to DP&L by FERC or PJM |
U.S. | United States of America |
| USEPA | U.S. Environmental Protection Agency |
| USF | The Universal Service Fund is a statewide program which provides qualified low-income customers in Ohio with income-based bills and energy efficiency education programs |
| U.S. SBU | U.S. and Utilities Strategic Business Unit, AES’ reporting unit covering the businesses in the United States, including DPL |
| Utility segment | DPL's Utility segment is made up of DP&L’s electric transmission and distribution businesses, which distribute electricity to residential, commercial, industrial and governmental customers |
FORWARD-LOOKING STATEMENTS
Certain statements contained in this report are “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. Matters discussed in this report that relate to events or developments that are expected to occur in the future, including management’s expectations, strategic objectives, business prospects, anticipated economic performance and financial condition and other similar matters constitute forward-looking statements. Forward-looking statements are based on management’s beliefs, assumptions and expectations of future economic performance, considering the information currently available to management. These statements are not statements of historical fact and are typically identified by terms and phrases such as “anticipate,” “believe,” “intend,” “estimate,” “expect,” “continue,” “should,” “could,” “may,” “plan,” “project,” “predict,” “will” and similar expressions. Such forward-looking statements are subject to risks and uncertainties and investors are cautioned that outcomes and results may vary materially from those projected due to various factors beyond our control, including but not limited to:
•growth in our service territory and changes in demand and demographic patterns;
•weather-related damage to our electrical system;
•performance of our suppliers;
•transmission and distribution system reliability and capacity;
•regulatory actions and outcomes, including, but not limited to, the review and approval of our rates and charges by the PUCO;
•federal and state legislation and regulations;
•changes in our credit ratings or the credit ratings of AES;
•fluctuations in the value of pension plan assets, fluctuations in pension plan expenses and our ability to fund defined benefit pension plans;
•changes in financial or regulatory accounting policies;
•environmental matters, including costs of compliance with, and liabilities related to, current and future environmental laws and requirements;
•interest rates and the use of interest rate hedges, inflation rates and other costs of capital;
•the availability of capital;
•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 suchof the above factors are difficult to predict, contain uncertainties that may materially affect actual results, and many are beyond our control. See Item 1A - Risk Factors to Part I in our Annual Report on Form 10-K for the fiscal year ended December 31, 20182019 and the “Management’s Discussion and Analysis of Financial Condition and Results of Operations” section in such report and in our Quarterly Report on Form 10-Q for the quarter ended March 31, 20192020 and this Quarterly Report on Form 10-Q for a more detailed discussion of the foregoing and certain other factors that could cause actual results to differ materially from those reflected in such forward-looking statements and that should be considered in evaluating our outlook. These risks may also be specifically described in our Quarterly Reports on Form 10-Q in Part II - Item 1A, Current Reports on Form 8-K and other documents that we may file from time to time with the SEC.
Our SEC filings are available to the public from the SEC’s website at www.sec.gov.
COMPANY WEBSITES
DP&L’s public internet site is www.dpandl.com. The information on this website is not incorporated by reference into this report.
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| Part I – Financial Information |
This report includes the combined filing of DPL and DP&L. Throughout this report, the terms “we,” “us,” “our” and “ours” are used to refer to both DPL and DP&L, respectively and altogether, unless the context indicates otherwise. Discussions or areas of this report that apply only to DPL or DP&L will be clearly noted in the applicable section.
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| Item 1 – Financial Statements |
FINANCIAL STATEMENTS
DPL INC.
7
| | | DPL INC. | DPL INC. | DPL INC. | |
| Condensed Consolidated Statements of Operations | Condensed Consolidated Statements of Operations | Condensed Consolidated Statements of Operations | |
| (Unaudited) | (Unaudited) | (Unaudited) | |
| | | Three months ended | | Six months ended | | Three months ended | | | Six months ended | |
| | | June 30, | | June 30, | | June 30, | | | June 30, | |
| $ in millions | | 2019 | | 2018 | | 2019 | | 2018 | $ in millions | | 2020 | | 2019 | | 2020 | | 2019 |
| Revenues | | $ | 184.2 |
| | $ | 178.1 |
| | $ | 393.2 |
| | $ | 383.8 |
| Revenues | | $ | 155.1 | | | $ | 179.6 | | | $ | 326.3 | | | $ | 383.6 | |
| | | | | | | | | | |
| Operating costs and expenses | | | | | | | | | Operating costs and expenses | |
| Net fuel cost | | 4.3 |
| | 3.6 |
| | 7.8 |
| | 8.1 |
| Net fuel cost | | 0.3 | | | 0.5 | | | 0.9 | | | 1.4 | |
| Net purchased power cost | | 54.3 |
| | 69.3 |
| | 128.5 |
| | 155.3 |
| Net purchased power cost | | 49.2 | | | 54.2 | | | 112.0 | | | 127.9 | |
| | Operation and maintenance | | 47.1 |
| | 45.0 |
| | 98.1 |
| | 81.0 |
| Operation and maintenance | | 43.7 | | | 45.8 | | | 90.8 | | | 94.4 | |
| Depreciation and amortization | | 18.0 |
| | 20.3 |
| | 36.4 |
| | 39.1 |
| Depreciation and amortization | | 18.5 | | | 17.9 | | | 36.2 | | | 36.3 | |
| Taxes other than income taxes | | 18.1 |
| | 16.1 |
| | 37.6 |
| | 35.5 |
| Taxes other than income taxes | | 21.0 | | | 18.0 | | | 41.9 | | | 37.5 | |
| Other, net (Note 2) | | — |
| | 1.2 |
| | 0.9 |
| | 13.0 |
| |
| | Other, net | | Other, net | | 0.1 | | | — | | | — | | | — | |
| | Total operating costs and expenses | | 141.8 |
| | 155.5 |
| | 309.3 |
| | 332.0 |
| Total operating costs and expenses | | 132.8 | | | 136.4 | | | 281.8 | | | 297.5 | |
| | | | | | | | | | | | | | | | | |
| Operating income | | 42.4 |
| | 22.6 |
| | 83.9 |
| | 51.8 |
| Operating income | | 22.3 | | | 43.2 | | | 44.5 | | | 86.1 | |
| | | | | | | | | | | | | | | | | |
| Other income / (expense), net: | | | | | | | | | Other income / (expense), net: | |
| Interest expense | | (21.7 | ) | | (24.0 | ) | | (45.4 | ) | | (51.8 | ) | Interest expense | | (19.4) | | | (21.7) | | | (38.3) | | | (45.4) | |
| Loss on early extinguishment of debt | | (44.9 | ) | | (5.7 | ) | | (44.9 | ) | | (6.4 | ) | Loss on early extinguishment of debt | | — | | | (44.9) | | | — | | | (44.9) | |
| Other income | | 1.5 |
| | 0.2 |
| | 2.9 |
| | 0.3 |
| |
| Other income / (expense) | | Other income / (expense) | | 0.8 | | | 1.3 | | | (0.1) | | | 2.8 | |
| Total other expense, net | | (65.1 | ) | | (29.5 | ) | | (87.4 | ) | | (57.9 | ) | Total other expense, net | | (18.6) | | | (65.3) | | | (38.4) | | | (87.5) | |
| | | | | | | | | | | | | | | | | |
| Loss from continuing operations before income tax | | (22.7 | ) | | (6.9 | ) | | (3.5 | ) | | (6.1 | ) | |
| Income / (loss) from continuing operations before income tax | | Income / (loss) from continuing operations before income tax | | 3.7 | | | (22.1) | | | 6.1 | | | (1.4) | |
| | | | | | | | | | |
| Income tax benefit from continuing operations | | (5.9 | ) | | (1.5 | ) | | (3.2 | ) | | (1.6 | ) | |
| Income tax expense / (benefit) from continuing operations | | Income tax expense / (benefit) from continuing operations | | 2.8 | | | (3.6) | | | 2.7 | | | (2.7) | |
| | | | | | | | | | | | | | | | | |
| Net loss from continuing operations | | (16.8 | ) | | (5.4 | ) | | (0.3 | ) | | (4.5 | ) | |
| Net income / (loss) from continuing operations | | Net income / (loss) from continuing operations | | 0.9 | | | (18.5) | | | 3.4 | | | 1.3 | |
| | | | | | | | | | | | | | | | | |
| Discontinued operations (Note 14): | | | | | | | | | |
| Income from discontinued operations before income tax | | 3.4 |
| | 10.0 |
| | 33.2 |
| | 31.7 |
| |
| Gain / (loss) from disposal of discontinued operations | | — |
| | — |
| | 0.1 |
| | (1.9 | ) | |
| Discontinued operations (Note 13): | | Discontinued operations (Note 13): | |
| Income / (loss) from discontinued operations before income tax | | Income / (loss) from discontinued operations before income tax | | (1.2) | | | 2.8 | | | (2.0) | | | 31.1 | |
| Gain from disposal of discontinued operations | | Gain from disposal of discontinued operations | | 4.5 | | | — | | | 4.5 | | | 0.1 | |
| Income tax expense from discontinued operations | | 2.7 |
| | 1.1 |
| | 7.0 |
| | 4.9 |
| Income tax expense from discontinued operations | | 0.7 | | | 0.4 | | | 0.5 | | | 6.5 | |
| Net income from discontinued operations | | 0.7 |
| | 8.9 |
| | 26.3 |
| | 24.9 |
| Net income from discontinued operations | | 2.6 | | | 2.4 | | | 2.0 | | | 24.7 | |
| | | | | | | | | | | | | | | | | |
| Net income / (loss) | | $ | (16.1 | ) | | $ | 3.5 |
| | $ | 26.0 |
| | $ | 20.4 |
| Net income / (loss) | | $ | 3.5 | | | $ | (16.1) | | | $ | 5.4 | | | $ | 26.0 | |
See Notes to Condensed Consolidated Financial Statements.
| | | DPL INC. | DPL INC. | DPL INC. | |
| Condensed Consolidated Statements of Comprehensive Income / (Loss) | Condensed Consolidated Statements of Comprehensive Income / (Loss) | Condensed Consolidated Statements of Comprehensive Income / (Loss) | |
| (Unaudited) | (Unaudited) | (Unaudited) | |
| | | Three months ended June 30, | | Six months ended June 30, | |
| | | | Three months ended | | | Six months ended | |
| | | June 30, | | | June 30, | |
| $ in millions | | 2019 | | 2018 | | 2019 | | 2018 | $ in millions | | 2020 | | 2019 | | 2020 | | 2019 |
| Net income / (loss) | | $ | (16.1 | ) | | $ | 3.5 |
| | $ | 26.0 |
| | $ | 20.4 |
| Net income / (loss) | | $ | 3.5 | | | $ | (16.1) | | | $ | 5.4 | | | $ | 26.0 | |
| Derivative activity: | | | | | | | | | Derivative activity: | | | | | | | | |
| Change in derivative fair value, net of income tax (expense) / benefit of $0.1, $(0.9), $0.2 and $(0.2) for each respective period | | (0.5 | ) | | (0.6 | ) | | (0.8 | ) | | 0.3 |
| |
| Reclassification to earnings, net of income tax expense of $0.0, $0.3, $0.1 and $0.2 for each respective period | | (0.3 | ) | | — |
| | (0.5 | ) | | (0.4 | ) | |
| Reclassification of earnings related to discontinued operations, net of income tax benefit of $0.0, $(0.1), $0.0 and $(1.5) for each respective period | | — |
| | 0.1 |
| | — |
| | 2.8 |
| |
| Total change in fair value of derivatives | | (0.8 | ) | | (0.5 | ) | | (1.3 | ) | | 2.7 |
| |
| Change in derivative fair value, net of income tax benefit of $0.0, $0.1, $0.0 and $0.2 for each respective period | | Change in derivative fair value, net of income tax benefit of $0.0, $0.1, $0.0 and $0.2 for each respective period | | 0.2 | | | (0.5) | | | (0.1) | | | (0.8) | |
| Reclassification to earnings, net of income tax expense of $0.0, $0.0, $0.1 and $0.1 for each respective period | | Reclassification to earnings, net of income tax expense of $0.0, $0.0, $0.1 and $0.1 for each respective period | | (0.2) | | | (0.3) | | | (0.5) | | | (0.5) | |
| | Total derivative activity | | Total derivative activity | | — | | | (0.8) | | | (0.6) | | | (1.3) | |
| Pension and postretirement activity: | | | | | | | | | Pension and postretirement activity: | | | | | | | | |
| Reclassification to earnings, net of income tax benefit of $0.0, $0.0, $0.0 and $(0.1) for each respective period | | — |
| | 0.2 |
| | 0.1 |
| | 0.3 |
| |
| Reclassification to earnings, net of income tax benefit of $(0.1), $0.0, $(0.1) and $0.0 for each respective period | | Reclassification to earnings, net of income tax benefit of $(0.1), $0.0, $(0.1) and $0.0 for each respective period | | 0.2 | | | — | | | 0.5 | | | 0.1 | |
| Total change in unfunded pension and postretirement obligations | | — |
| | 0.2 |
| | 0.1 |
| | 0.3 |
| Total change in unfunded pension and postretirement obligations | | 0.2 | | | — | | | 0.5 | | | 0.1 | |
| | | | | | | | | | | | | | | | | |
| Other comprehensive income / (loss) | | (0.8 | ) | | (0.3 | ) | | (1.2 | ) | | 3.0 |
| Other comprehensive income / (loss) | | 0.2 | | | (0.8) | | | (0.1) | | | (1.2) | |
| | | | | | | | | | | | | | | | | |
| Net comprehensive income / (loss) | | $ | (16.9 | ) | | $ | 3.2 |
| | $ | 24.8 |
| | $ | 23.4 |
| Net comprehensive income / (loss) | | $ | 3.7 | | | $ | (16.9) | | | $ | 5.3 | | | $ | 24.8 | |
See Notes to Condensed Consolidated Financial Statements.
9
| | | DPL INC. | DPL INC. | DPL INC. | |
| Condensed Consolidated Balance Sheets | Condensed Consolidated Balance Sheets | Condensed Consolidated Balance Sheets | |
| (Unaudited) | (Unaudited) | (Unaudited) | |
| $ in millions | | June 30, 2019 | | December 31, 2018 | $ in millions | | June 30, 2020 | | December 31, 2019 |
| ASSETS | | | | | ASSETS | | | | |
| Current assets: | | | | | Current assets: | | | | |
| Cash and cash equivalents | | $ | 31.1 |
| | $ | 90.5 |
| Cash and cash equivalents | | $ | 412.2 | | | $ | 36.5 | |
| Restricted cash | | 11.5 |
| | 21.2 |
| Restricted cash | | 0.1 | | | 10.5 | |
| Accounts receivable, net (Note 2) | | 67.5 |
| | 90.5 |
| |
| Accounts receivable, net of allowance for credit losses of $3.0 and $0.4, respectively (Note 2) | | Accounts receivable, net of allowance for credit losses of $3.0 and $0.4, respectively (Note 2) | | 61.8 | | | 67.9 | |
| Inventories (Note 2) | | 14.7 |
| | 10.7 |
| Inventories (Note 2) | | 9.1 | | | 10.4 | |
| Taxes applicable to subsequent years | | 36.3 |
| | 72.6 |
| Taxes applicable to subsequent years | | 40.9 | | | 77.5 | |
| Regulatory assets, current | | 43.5 |
| | 41.1 |
| Regulatory assets, current | | 21.7 | | | 19.7 | |
| Taxes receivable | | Taxes receivable | | 5.7 | | | 23.6 | |
| Prepayments and other current assets | | 14.7 |
| | 12.9 |
| Prepayments and other current assets | | 5.9 | | | 7.6 | |
| Current assets of discontinued operations and held-for-sale businesses | | 4.2 |
| | 8.7 |
| Current assets of discontinued operations and held-for-sale businesses | | — | | | 22.3 | |
| Total current assets | | 223.5 |
| | 348.2 |
| Total current assets | | 557.4 | | | 276.0 | |
| | | | | | | | | |
| Property, plant & equipment: | | | | | Property, plant & equipment: | | | | |
| Property, plant & equipment | | 1,651.4 |
| | 1,615.6 |
| Property, plant & equipment | | 1,774.2 | | | 1,701.9 | |
| Less: Accumulated depreciation and amortization | | (337.4 | ) | | (310.8 | ) | Less: Accumulated depreciation and amortization | | (385.0) | | | (362.6) | |
| | | 1,314.0 |
| | 1,304.8 |
| | | 1,389.2 | | | 1,339.3 | |
| Construction work in process | | 75.5 |
| | 32.2 |
| Construction work in process | | 96.5 | | | 106.3 | |
| Total net property, plant & equipment | | 1,389.5 |
| | 1,337.0 |
| Total net property, plant & equipment | | 1,485.7 | | | 1,445.6 | |
| | | | | | | | | |
| Other non-current assets: | | | | | Other non-current assets: | | | | |
| Regulatory assets, non-current | | 158.0 |
| | 152.6 |
| Regulatory assets, non-current | | 176.9 | | | 173.8 | |
| Intangible assets, net of amortization | | 20.4 |
| | 18.4 |
| Intangible assets, net of amortization | | 18.2 | | | 19.3 | |
| Other non-current assets | | 21.1 |
| | 21.6 |
| Other non-current assets | | 19.2 | | | 20.0 | |
| Non-current assets of discontinued operations and held-for-sale businesses | | 5.2 |
| | 5.3 |
| Non-current assets of discontinued operations and held-for-sale businesses | | — | | | 1.1 | |
| Total other non-current assets | | 204.7 |
| | 197.9 |
| Total other non-current assets | | 214.3 | | | 214.2 | |
| | | | | | | | | |
| Total assets | | $ | 1,817.7 |
| | $ | 1,883.1 |
| Total assets | | $ | 2,257.4 | | | $ | 1,935.8 | |
| | | | | | | | | |
| LIABILITIES AND SHAREHOLDER'S DEFICIT | | | | | LIABILITIES AND SHAREHOLDER'S DEFICIT | |
| Current liabilities: | | | | | Current liabilities: | |
| Short-term and current portion of long-term debt (Note 6) | | $ | 63.2 |
| | $ | 103.6 |
| Short-term and current portion of long-term debt (Note 6) | | $ | 379.2 | | | $ | 283.8 | |
| Accounts payable | | 84.5 |
| | 58.1 |
| Accounts payable | | 62.9 | | | 72.6 | |
| Accrued taxes | | 74.2 |
| | 76.7 |
| Accrued taxes | | 87.1 | | | 79.3 | |
| Accrued interest | | 11.9 |
| | 14.3 |
| Accrued interest | | 11.7 | | | 11.4 | |
| Customer deposits | | 22.0 |
| | 21.3 |
| Customer deposits | | 19.3 | | | 20.7 | |
| Regulatory liabilities, current | | 36.1 |
| | 34.9 |
| Regulatory liabilities, current | | 17.3 | | | 27.9 | |
| | Accrued and other current liabilities | | 18.1 |
| | 22.0 |
| Accrued and other current liabilities | | 22.6 | | | 21.2 | |
| Current liabilities of discontinued operations and held-for-sale businesses | | 10.6 |
| | 12.2 |
| Current liabilities of discontinued operations and held-for-sale businesses | | — | | | 9.0 | |
| Total current liabilities | | 320.6 |
| | 343.1 |
| Total current liabilities | | 600.1 | | | 525.9 | |
| | | | | | | | | |
| Non-current liabilities: | | | | | Non-current liabilities: | |
| Long-term debt (Note 6) | | 1,363.9 |
| | 1,372.3 |
| Long-term debt (Note 6) | | 1,392.8 | | | 1,223.3 | |
| Deferred income taxes | | 114.6 |
| | 116.1 |
| Deferred income taxes | | 172.9 | | | 133.7 | |
| Taxes payable | | 40.0 |
| | 76.1 |
| Taxes payable | | 43.1 | | | 81.1 | |
| Regulatory liabilities, non-current | | 281.7 |
| | 278.3 |
| Regulatory liabilities, non-current | | 227.5 | | | 243.6 | |
| Accrued pension and other post-retirement benefits | | 74.5 |
| | 82.3 |
| Accrued pension and other post-retirement benefits | | 70.5 | | | 79.9 | |
| Asset retirement obligations | | 9.5 |
| | 9.4 |
| |
| | Other non-current liabilities | | 7.0 |
| | 8.0 |
| Other non-current liabilities | | 19.1 | | | 11.8 | |
| Non-current liabilities of discontinued operations and held-for-sale businesses | | 52.7 |
| | 69.2 |
| Non-current liabilities of discontinued operations and held-for-sale businesses | | — | | | 8.4 | |
| Total non-current liabilities | | 1,943.9 |
| | 2,011.7 |
| Total non-current liabilities | | 1,925.9 | | | 1,781.8 | |
| | | | | | | | | |
| Commitments and contingencies (Note 10) | |
| |
| Commitments and contingencies (Note 10) | |
| | | | | | |
| Common shareholder's deficit | | | | | Common shareholder's deficit | |
| Common stock: | | | | | Common stock: | |
| 1,500 shares authorized; 1 share issued and outstanding at June 30, 2019 and December 31, 2018 | | — |
| | — |
| |
| 1,500 shares authorized; 1 share issued and outstanding | | 1,500 shares authorized; 1 share issued and outstanding | | — | | | — | |
| Other paid-in capital | | 2,370.6 |
| | 2,370.5 |
| Other paid-in capital | | 2,468.7 | | | 2,370.7 | |
| Accumulated other comprehensive income | | 1.0 |
| | 2.2 |
| |
| Accumulated other comprehensive loss | | Accumulated other comprehensive loss | | (3.7) | | | (3.6) | |
| Accumulated deficit | | (2,818.4 | ) | | (2,844.4 | ) | Accumulated deficit | | (2,733.6) | | | (2,739.0) | |
| Total common shareholder's deficit | | (446.8 | ) | | (471.7 | ) | Total common shareholder's deficit | | (268.6) | | | (371.9) | |
| | | | | | | | | |
| Total liabilities and shareholder's deficit | | $ | 1,817.7 |
| | $ | 1,883.1 |
| Total liabilities and shareholder's deficit | | $ | 2,257.4 | | | $ | 1,935.8 | |
See Notes to Condensed Consolidated Financial Statements.
| | | | | | | | | | | | | | |
| DPL INC. | | | | |
| Condensed Consolidated Statements of Cash Flows | | | | |
| (Unaudited) | | | | |
| | Six months ended June 30, | | |
| $ in millions | | 2020 | | 2019 |
| Cash flows from operating activities: | | | | |
| Net income | | $ | 5.4 | | | $ | 26.0 | |
| Adjustments to reconcile net income to net cash from operating activities: | | | | |
| Depreciation and amortization | | 36.4 | | | 13.9 | |
| | | | |
| Loss on early extinguishment of debt | | — | | | 44.9 | |
| Deferred income taxes | | 33.5 | | | 8.6 | |
| | | | |
| Gain on disposal and sale of business, net | | (4.5) | | | (0.1) | |
| Loss on asset disposal, net | | 0.2 | | | 0.9 | |
| Changes in certain assets and liabilities: | | | | |
| Accounts receivable, net | | 19.1 | | | 24.7 | |
| Inventories | | 4.7 | | | (4.0) | |
| | | | |
| Taxes applicable to subsequent years | | 36.8 | | | 37.5 | |
| Deferred regulatory costs, net | | (19.5) | | | (6.7) | |
| Accounts payable | | (10.1) | | | 7.8 | |
| Accrued taxes payable / receivable | | (13.0) | | | (41.7) | |
| Accrued interest | | 0.3 | | | (2.4) | |
| | | | |
| | | | |
| Accrued pension and other post-retirement benefits | | (9.3) | | | (8.7) | |
| Other | | 2.8 | | | (1.7) | |
| Net cash provided by operating activities | | 82.8 | | | 99.0 | |
| Cash flows from investing activities: | | | | |
| Capital expenditures | | (84.0) | | | (63.4) | |
| | | | |
| Payments on disposal and sale of business | | (0.6) | | | — | |
Proceeds from sale of assets (a) | | 5.1 | | | — | |
| | | | |
| | | | |
| | | | |
| Other investing activities, net | | (0.8) | | | (3.2) | |
| Net cash used in investing activities | | (80.3) | | | (66.6) | |
| Cash flows from financing activities: | | | | |
| Payments of deferred financing costs | | (6.1) | | | (8.1) | |
| Issuance of long-term debt, net of discount | | 415.0 | | | 821.7 | |
| Retirement of long-term debt, including early payment premium | | — | | | (978.0) | |
| Borrowings from revolving credit facilities | | 75.0 | | | 73.0 | |
| Repayment of borrowings from revolving credit facilities | | (219.0) | | | (10.0) | |
| Equity contribution from parent | | 98.0 | | | — | |
| Other financing activities, net | | (0.1) | | | (0.1) | |
| Net cash provided by / (used in) financing activities | | 362.8 | | | (101.5) | |
| | | | |
| Cash, cash equivalents, and restricted cash: | | | | |
| Net change | | 365.3 | | | (69.1) | |
| Balance at beginning of period | | 47.0 | | | 111.7 | |
| Cash, cash equivalents, and restricted cash at end of period | | $ | 412.3 | | | $ | 42.6 | |
| Supplemental cash flow information: | | | | |
| Interest paid, net of amounts capitalized | | $ | 41.1 | | | $ | 45.3 | |
| Income taxes paid / (refunded), net | | $ | (52.0) | | | $ | 0.9 | |
| Non-cash financing and investing activities: | | | | |
| Accruals for capital expenditures | | $ | 10.1 | | | $ | 20.5 | |
| Accruals from sale of business | | $ | 3.4 | | | $ | — | |
| | | | |
|
| | | | | | | | |
| DPL INC. |
| Condensed Consolidated Statements of Cash Flows |
| (Unaudited) |
| | | Six months ended June 30, |
| $ in millions | | 2019 | | 2018 |
| Cash flows from operating activities: | | | | |
| Net income | | $ | 26.0 |
| | $ | 20.4 |
|
| Adjustments to reconcile net income to net cash from operating activities: | | | | |
| Depreciation and amortization | | 13.9 |
| | 41.6 |
|
| Loss on early extinguishment of debt | | 44.9 |
| | 6.4 |
|
| Deferred income taxes | | 8.6 |
| | (20.0 | ) |
| Fixed-asset impairment | | — |
| | 1.2 |
|
| Loss / (gain) on disposal and sale of business, net | | (0.1 | ) | | 13.5 |
|
| Loss on asset disposal, net | | 0.9 |
| | 1.1 |
|
| Changes in certain assets and liabilities: | | | | |
| Accounts receivable, net | | 24.7 |
| | 20.9 |
|
| Inventories | | (4.0 | ) | | 13.5 |
|
| Taxes applicable to subsequent years | | 37.5 |
| | 39.3 |
|
| Deferred regulatory costs, net | | (6.7 | ) | | (6.7 | ) |
| Accounts payable | | 7.8 |
| | (11.1 | ) |
| Accrued taxes | | (41.7 | ) | | (19.9 | ) |
| Accrued interest | | (2.4 | ) | | (1.7 | ) |
| Accrued pension and other post-retirement benefits | | (8.7 | ) | | (5.3 | ) |
| Other | | (1.7 | ) | | 4.5 |
|
| Net cash provided by operating activities | | 99.0 |
| | 97.7 |
|
| Cash flows from investing activities: | | | | |
| Capital expenditures | | (63.4 | ) | | (50.7 | ) |
| Proceeds from disposal and sale of business | | — |
| | 234.9 |
|
| Payments on disposal and sale of business | | — |
| | (14.5 | ) |
| Proceeds from sale of property | | — |
| | 10.6 |
|
| Insurance proceeds | | — |
| | 2.8 |
|
| Other investing activities, net | | (3.2 | ) | | (0.5 | ) |
| Net cash provided by / (used in) investing activities | | (66.6 | ) | | 182.6 |
|
| Cash flows from financing activities: | | | | |
| Payments of deferred financing costs | | (8.1 | ) | | — |
|
| Issuance of long-term debt, net of discount | | 821.7 |
| | — |
|
| Retirement of long-term debt, including early payment premium | | (978.0 | ) | | (238.3 | ) |
| Borrowings from revolving credit facilities | | 73.0 |
| | 30.0 |
|
| Repayment of borrowings from revolving credit facilities | | (10.0 | ) | | (30.0 | ) |
| Other financing activities, net | | (0.1 | ) | | — |
|
| Net cash used in financing activities | | (101.5 | ) | | (238.3 | ) |
| Decrease in cash and restricted cash of discontinued operations and held-for-sale businesses | | — |
| | 1.5 |
|
| Cash, cash equivalents, and restricted cash: | | | | |
| Net change | | (69.1 | ) | | 43.5 |
|
| Balance at beginning of period | | 111.7 |
| | 24.9 |
|
| Cash, cash equivalents, and restricted cash at end of period | | $ | 42.6 |
| | $ | 68.4 |
|
| Supplemental cash flow information: | | | | |
| Interest paid, net of amounts capitalized | | $ | 45.3 |
| | $ | 49.2 |
|
| Income taxes paid / (refunded), net | | $ | 0.9 |
| | $ | (2.0 | ) |
| Non-cash financing and investing activities: | | | | |
| Accruals for capital expenditures | | $ | 20.5 |
| | $ | 7.2 |
|
| Non-cash proceeds from sale of business | | $ | — |
| | $ | 4.1 |
|
| Non-cash capital contribution (Note 9) | | $ | — |
| | $ | 26.7 |
|
See Notes to Condensed Consolidated Financial Statements.
11
DPL INC.
Condensed Consolidated Statements of Shareholder's EquityDeficit
(Unaudited)
|
| | | | | | | | | | | | | | | | | | | | | | | |
| | | Common Stock (a) | | | | | | | | |
| $ in millions | | Outstanding Shares | | Amount | | Other
Paid-in
Capital | | Accumulated Other Comprehensive Income | | Accumulated Deficit | | Total |
| Balance, January 1, 2018 | | 1 |
| | $ | — |
| | $ | 2,330.4 |
| | $ | 0.8 |
| | $ | (2,915.5 | ) | | $ | (584.3 | ) |
| Net comprehensive income | | | | | | | | 3.3 |
| | 16.9 |
| | 20.2 |
|
Capital contributions (b) | | | | | | 44.6 |
| | | | | | 44.6 |
|
Other (c) | | | | | |
|
| | (1.0 | ) | | 1.0 |
| | — |
|
| Balance, March 31, 2018 | | 1 |
| | — |
| | 2,375.0 |
| | 3.1 |
| | (2,897.6 | ) | | (519.5 | ) |
| Net comprehensive income | | | | | | | | (0.3 | ) | | 3.5 |
| | 3.2 |
|
Capital contributions (b) | | | | | | (17.9 | ) | | | | | | (17.9 | ) |
| Other | | | | | | 0.1 |
| | | |
|
| | 0.1 |
|
| Balance, June 30, 2018 | | 1 |
| | $ | — |
| | $ | 2,357.2 |
| | $ | 2.8 |
| | $ | (2,894.1 | ) | | $ | (534.1 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Common Stock (a) | | | | | | | | | | |
| $ in millions | | Outstanding Shares | | Amount | | Other
Paid-in
Capital | | Accumulated Other Comprehensive Loss | | Accumulated Deficit | | Total |
| Balance, January 1, 2020 | | 1 | | | $ | — | | | $ | 2,370.7 | | | $ | (3.6) | | | $ | (2,739.0) | | | $ | (371.9) | |
| Net comprehensive income | | | | | | | | (0.3) | | | 1.9 | | | 1.6 | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| Balance, March 31, 2020 | | 1 | | | — | | | 2,370.7 | | | (3.9) | | | (2,737.1) | | | (370.3) | |
| Net comprehensive income | | | | | | | | 0.2 | | | 3.5 | | | 3.7 | |
| Capital contributions from parent | | | | | | 98.0 | | | | | | | 98.0 | |
| | | | | | | | | | | | |
| Balance, June 30, 2020 | | 1 | | | $ | — | | | $ | 2,468.7 | | | $ | (3.7) | | | $ | (2,733.6) | | | $ | (268.6) | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| |
(a) | 1,500 shares authorized. |
| |
(b) | Represents the conversion of a tax sharing payable to AES to contributed capital, as DP&L's 2017 ESP restricts tax sharing payments to AES during the term of the ESP. See Note 9 – Shareholder's Equity.
|
| |
(c) | ASU 2016-01 “Recognition and Measurement of Financial Assets and Financial Liabilities” was effective as of January 1, 2018. This ASU requires the change in the fair value of equity instruments to be recorded in income rather than in Other Comprehensive Income. Equity Instruments were defined to include all mutual funds, regardless of the underlying investments. Therefore, as of January 1, 2018, AOCI of $1.6 million ($1.0 million net of tax) was reversed to Accumulated deficit. |
(a) 1,500 shares authorized. |
| | | | | | | | | | | | | | | | | | | | | | | |
| | | Common Stock (a) | | | | | | | | |
| $ in millions | | Outstanding Shares | | Amount | | Other
Paid-in
Capital | | Accumulated Other Comprehensive Income | | Accumulated Deficit | | Total |
| Balance, January 1, 2019 | | 1 |
| | $ | — |
| | $ | 2,370.5 |
| | $ | 2.2 |
| | $ | (2,844.4 | ) | | $ | (471.7 | ) |
| Net comprehensive income | | | | | | | | (0.4 | ) | | 42.1 |
| | 41.7 |
|
Capital contributions (b) | | | | | | 1.5 |
| | | | | | 1.5 |
|
| Other | | | | | | 0.1 |
| | | | | | 0.1 |
|
| Balance, March 31, 2019 | | 1 |
| | — |
| | 2,372.1 |
| | 1.8 |
| | (2,802.3 | ) | | (428.4 | ) |
| Net comprehensive loss | | | | | | | | (0.8 | ) | | (16.1 | ) | | (16.9 | ) |
Capital contributions (b) | | | | | | (1.5 | ) | | | | | | (1.5 | ) |
| Balance, June 30, 2019 | | 1 |
| | $ | — |
| | $ | 2,370.6 |
| | $ | 1.0 |
| | $ | (2,818.4 | ) | | $ | (446.8 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Common Stock (a) | | | | | | | | | | |
| $ in millions | | Outstanding Shares | | Amount | | Other
Paid-in
Capital | | Accumulated Other Comprehensive Income | | Accumulated Deficit | | Total |
| Balance, January 1, 2019 | | 1 | | | $ | — | | | $ | 2,370.5 | | | $ | 2.2 | | | $ | (2,844.4) | | | $ | (471.7) | |
| Net comprehensive income | | | | | | | | (0.4) | | | 42.1 | | | 41.7 | |
Capital contributions (b) | | | | | | 1.5 | | | | | | | 1.5 | |
| Other | | | | | | 0.1 | | | | | | | 0.1 | |
| Balance, March 31, 2019 | | 1 | | | — | | | 2,372.1 | | | 1.8 | | | (2,802.3) | | | (428.4) | |
| Net comprehensive loss | | | | | | | | (0.8) | | | (16.1) | | | (16.9) | |
Capital contributions (b) | | | | | | (1.5) | | | | | | | (1.5) | |
| | | | | | | | | | | | |
| Balance, June 30, 2019 | | 1 | | | $ | — | | | $ | 2,370.6 | | | $ | 1.0 | | | $ | (2,818.4) | | | $ | (446.8) | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
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(a) | 1,500 shares authorized. |
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(b) | Represents the conversion of a tax sharing payable to AES to contributed capital, as DP&L's 2017 ESP restricts tax sharing payments to AES during the term of the ESP. See Note 9 – Shareholder's Equity.
|
(a)1,500 shares authorized.
(b)Represents the conversion of a tax sharing payable to AES to contributed capital, as DP&L's 2017 ESP restricted tax sharing payments to AES during the term of the ESP. See Note 9 – Shareholder's Deficit.
See Notes to Condensed Consolidated Financial Statements.
12
DPL Inc.
Notes to Condensed Consolidated Financial Statements (Unaudited)
Note 1 – Overview and Summary of Significant Accounting Policies
Description of Business
DPL is a regional energy company organized in 1985 under the laws of Ohio. DPL has one1 reportable segment: the Utility segment. See Note 11 – Business Segments for more information relating to this reportable segment. The terms “we,” “us,” “our” and “ours” are used to refer to DPL and its subsidiaries.
DPL is an indirectly wholly-owned subsidiary of AES.
DP&L, a wholly-owned subsidiary of DPL, is a public utility incorporated in 1911 under the laws of Ohio. Beginning in 2001, Ohio law gave Ohio consumers the right to choose the electric generation supplier from whom they purchase retail generation service; however, retail transmission and distribution services are still regulated. DP&L has the exclusive right to provide such transmission and distribution services to approximately 525,000528,000 customers located in West Central Ohio. Additionally, DP&L provides retail SSO electric service to residential, commercial, industrial and governmental customers in a 6,000-square mile area of West Central Ohio. Principal industries located in DP&L’s service territory include automotive, food processing, paper, plastic, health care, data management, manufacturing and defense. FollowingDP&L's sales typically reflect the issuance of the DRO in September 2018seasonal weather patterns and the resultinggrowth of energy efficiency initiatives. However, the impacts of weather, energy efficiency programs and economic changes to the decoupling rider effectivein customer demand were largely offset in 2019 by DP&L’s Decoupling Rider, which was in place from January 1, 2019 DP&L's distribution sales will primarily be impacted by customer growth within our service territory.until December 18, 2019.See Note 3 – Regulatory Matters for more information. DP&L sells its proportional share of energy and capacity from its investment in OVEC into the wholesale market.
DPL’s other primary subsidiaries include MVIC and AES Ohio Generation.subsidiary is MVIC. MVIC is our captive insurance company that provides insurance services to DPLDP&L and our other subsidiaries. In prior periods, AES Ohio Generation was also a primary subsidiary. In 2020, AES Ohio Generation's only operating asset iswas an undivided interest in Conesville. AES Ohio Generation sells all of its energy and capacity into the wholesale market. Conesville, which was sold in June 2020. See Note 13 – Discontinued Operations for more information. DPL's subsidiaries are all wholly-owned.
DPL also has a wholly-owned business trust, DPL Capital Trust II, formed for the purpose of issuing trust capital securities to investors.
DP&L’s electric transmission and distribution businesses are subject to rate regulation by federal and state regulators. Accordingly, DP&L applies the accounting standards for regulated operations to its electric transmission and distribution businesses and records regulatory assets when incurred costs are expected to be recovered in future customer rates, and regulatory liabilities when current cost recoveries in customer rates relate to expected future costs.
DPL and its subsidiaries employed 661644 people as of June 30, 2019,2020, of which 649643 were employed by DP&L. Approximately 56%58% of all DPL employees are under a collective bargaining agreement, which expires October 31, 2020.
Financial Statement Presentation
DPL’s Condensed Consolidated Financial Statements include the accounts of DPL and its wholly-owned subsidiaries except for DPL Capital Trust II, which is not consolidated, consistent with the provisions of GAAP. As of June 30, 2019, AES Ohio Generation has an undivided ownership interest in one coal-fired generating facility, which is included in the financial statements at a carrying value of zero as it has been fully impaired. Operating revenues and expenses of this facility are included on a pro rata basis in the corresponding lines in the Condensed Consolidated Statements of Operations.
Certain immaterial amounts from prior periods have been reclassified to conform to the current period presentation.
All material intercompany accounts and transactions are eliminated in consolidation. We have evaluated subsequent events through the date this report is issued.
These financial statements have been prepared in accordance with GAAP for interim financial statements, the instructions of Form 10-Q and Regulation S-X. Accordingly, certain information and footnote disclosures normally included in the annual financial statements prepared in accordance with GAAP have been omitted from this interim
report. Therefore, our interim financial statements in this report should be read along with the annual financial statements included in our Form 10-K for the fiscal year ended December 31, 2018.2019.
In the opinion of our management, the Condensed Consolidated Financial Statements presented in this report contain all adjustments necessary to fairly state our financial position as of June 30, 2019;2020; our results of operations for the three and six months ended June 30, 20192020 and 2018,2019, our cash flows for the six months ended June 30, 20192020 and 20182019 and the changes in our equity for the three and six months ended June 30, 20192020 and 2018.2019. Unless otherwise noted, all adjustments are normal and recurring in nature. Due to various factors, interim results for the three and six months ended June 30, 20192020 may not be indicative of our results that will be realized for the full year ending December 31, 2019.2020.
The preparation of financial statements in conformity with GAAP requires us to make estimates and judgments that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities, and the revenues and expenses of the periods reported. Actual results could differ from these estimates. Significant items subject to such estimates and judgments include: recognition of revenue including unbilled revenues, the carrying value of property, plant and equipment; the valuation of derivative instruments; the valuation of insurance and claims liabilities; the valuation of allowances for receivablescredit losses and deferred income taxes; regulatory assets and liabilities; liabilities recorded for income tax exposures; litigation; contingencies; the valuation of AROs; and assets and liabilities related to employee benefits.
Cash, Cash Equivalents, and Restricted Cash
The following table provides a summary of cash, cash equivalents, and restricted cash amounts reported on the Condensed Consolidated Balance SheetSheets that reconcile to the total of such amounts as shown on the Condensed Consolidated Statements of Cash Flows:
| | | | | | | | | | | | | | |
| $ in millions | | June 30, 2020 | | December 31, 2019 |
| Cash and cash equivalents | | $ | 412.2 | | | $ | 36.5 | |
| Restricted cash | | 0.1 | | | 10.5 | |
| Cash, Cash Equivalents, and Restricted Cash, End of Period | | $ | 412.3 | | | $ | 47.0 | |
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| | | | | | | | |
| $ in millions | | June 30, 2019 | | December 31, 2018 |
| Cash and cash equivalents | | $ | 31.1 |
| | $ | 90.5 |
|
| Restricted cash | | 11.5 |
| | 21.2 |
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| Cash, Cash Equivalents, and Restricted Cash, End of Period | | $ | 42.6 |
| | $ | 111.7 |
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Accounting for Taxes Collected from Customers and Remitted to Governmental Authorities
DP&L collects certain excise taxes levied by state or local governments from its customers. These taxes are accounted for on a net basis and not included in revenue. The amounts of such taxes collected for the three months ended June 30, 2020 and 2019 were $10.9 and 2018 were $10.4 million and $12.3 million, respectively. The amounts of such taxes collected for the six months ended June 30, 2020 and 2019 were $23.3 million and 2018 were $24.3 million, and $25.4 million, respectively.
New accounting pronouncements adopted in 20192020 – The following table provides a brief description of recently adopted accounting pronouncements that had an impact on our consolidated financial statements. Accounting pronouncements not listed below were assessed and determined to be either not applicable or did not have a material impact on our consolidated financial statements.
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| | | | | | | | | | |
| ASU Number and Name | Description | Date of Adoption | Effect on the financial statements upon adoption |
2018-02, Income Statement — Reporting Comprehensive Income2016-13, 2018-19, 2019-04, 2019-05, 2019-10, 2019-11, 2020-02, 2020-03 Financial Instruments - Credit Losses (Topic 220), Reclassification326): Measurement of Certain Tax Effects from AOCICredit Losses on Financial Instruments | This amendment allows a reclassificationSee discussion of the stranded tax effects resulting from the implementation of the Tax Cuts and Jobs Act from AOCI to retained earnings at the election of the filer. Because this amendment only relates to the reclassification of the income tax effects of the Tax Cuts and Jobs Act, the underlying guidance that requires that the effect of a change in tax laws or rates be included in income from continuing operations is not affected.ASU below. | January 1, 20192020 | The adoption of this standard had no material impact on our condensed consolidated financial statements. |
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| | | |
ASU Number and Name | Description | Date of Adoption | Effect on the financial statements upon adoption |
2017-12, Derivatives and Hedging (Topic 815): Targeted improvements to Accounting for Hedging Activities | The standard updates the hedge accounting model to expand the ability to hedge nonfinancial and financial risk components, reduce complexity, and ease certain documentation and assessment requirements. When facts and circumstances are the same as at the previous quantitative test, a subsequent quantitative effectiveness test is not required. The standard also eliminates the requirement to separately measure and report hedge ineffectiveness. For cash flow hedges, this means that the entire change in the fair value of a hedging instrument will be recorded in other comprehensive income and amounts deferred will be reclassified to earnings in the same income statement line as the hedged item.
Transition method: modified retrospective with the cumulative effect adjustment recorded to the opening balance of retained earnings as of the initial application date. Prospective for presentation and disclosures. | January 1, 2019 | The adoption of this standard had no material impact on our condensed consolidated financial statements. |
2016-02, 2018-01, 2018-10, 2018-11 Leases (Topic 842) | See "Adoption of FASC Topic 842, Leases" below.
| January 1, 2019 | See impact upon adoption of the standard below. |
Adoption of FASC Topic 842, "Leases"
On January 1, 2019,2020, we adopted ASU 2016-02 LeasesASC 326 Financial Instruments - Credit Losses and its subsequent corresponding updates (“FASC 842”("ASC 326"). Under thisThe new standard lesseesupdates the impairment model for financial assets measured at amortized cost, known as the Current Expected Credit Loss ("CECL") model. For trade and other receivables, held-to-maturity debt securities, loans and other instruments, entities are required to recognize assets and liabilitiesuse a new forward-looking "expected loss" model that generally results in the earlier recognition of an allowance for most leases and recognize expenses in a manner similar to the current accounting method.credit losses. For lessors, the guidance modifies the lease classification criteria and the accounting for sales-type and direct financing leases. The guidance eliminates current real estate-specific provisions.
Under FASC 842,available-for-sale debt securities with unrealized losses, entities measure credit losses as it is expectedwas done under previous GAAP, except that fewer contracts will contain a lease. However,unrealized losses due to credit-related factors are now recognized as an allowance on the elimination of the real estate-specific guidance and changesbalance sheet with a corresponding adjustment to certain lessor classification criteria, more leases will qualify as sales-type leases and direct financing leases. Under these two models, a lessor will derecognize the asset and will recognize a net investment in a lease. According to FASC 842, the net investmentearnings in the lease includes the fair value of the plant after the contract period but does not include variable payments such as margin on the sale of energy. Therefore, the net investment in the lease could be significantly different than the carrying amount of the underlying asset at lease commencement. In such circumstances, the difference between the initially recognized net investment in the lease and the carrying amount of the underlying asset is recognized as a gain/loss at lease commencement.income statement.
During the course of adopting FASC 842, we applied various practical expedients including:
The package of practical expedients (applied to all leases) that allowed lessees and lessors not to reassess:
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a. | whether any expired or existing contracts are or contain leases, |
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b. | lease classification for any expired or existing leases, and |
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c. | whether initial direct costs for any expired or existing leases qualify for capitalization under FASC 842. |
The transition practical expedient related to land easements, allowing us to carry forward our accounting treatment for land easements on existing agreements, and
The transition practical expedient for lessees that allowed businesses to not separate lease and non-lease components. We applied the practical expedient to all classes of underlying assets when valuing right-of-use assets and lease liabilities. Contracts where we are the lessor were separated between the lease and non-lease components.
We applied the modified retrospective method of adoption and elected to continue to apply the guidance in FASC 840 Leases to the comparative periods presented in the year of adoption.for ASC 326. Under this transition method, we applied the transition provisions starting at the date of adoption.
The new current expected credit loss model primarily impacts the calculation of expected credit losses on our trade accounts receivable. The adoption of FASC 842ASC 326 and application
of CECL on our trade accounts receivable did not have a material impact on our Condensed Consolidated Financial Statements.condensed consolidated financial statements.
New Accounting Pronouncements Issued But Not Yet Effective – The following table provides a brief description of recent accounting pronouncements that could have a material impact on our consolidated financial statements. Accounting pronouncements not listed below were assessed and determined to be either not applicable or are expected to have no material impact on our consolidated financial statements.
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| ASU Number and Name | Description | Date of Adoption | Effect on the financial statements upon adoption |
2016-13, 2019-04, 2019-05, Financial Instruments — Credit Losses2020-04, Reference Rate Form (Topic 326)848): MeasurementFacilitation of Credit Lossesthe Effects of Reference Rate Reform on Financial InstrumentsReporting | The standard updates the impairment modelprovides optional expedients and exceptions for financial assets measured at amortized cost. For tradeapplying GAAP to contracts, hedging relationships and other receivables, held-to-maturity debt securities, loans and other instruments,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 will be required to use a new forward-looking "expected loss" model that generally will result in the earlier recognition of allowance for losses. For available-for-sale debt securities with unrealized losses, entities will measure credit losses as it is done today, except that the losses will be recognized as an allowance rather than a reduction in the amortized cost of the securities.
Transition method: various.March 12, 2020 - December 31, 2022 | January 1, 2020 | We are currently evaluating the impact of adopting the standard on our Condensed Consolidated Financial Statements.condensed consolidated financial statements. |
| 2019-12, Income Taxes (Topic 740): Simplifying the Accounting For Income Taxes | The standard removes certain exceptions for recognizing deferred taxes for investments, performing intraperiod allocation and calculating income taxes in interim periods. It also adds guidance to reduce complexity in certain areas, including recognizing deferred taxes for tax goodwill and allocating taxes to members of a consolidated group.
Transition method: various | January 1, 2021. Early adoption is permitted. | We are currently evaluating the impact of adopting the standard on our condensed consolidated financial statements. |
Note 2 – Supplemental Financial Information
Accounts receivable and Inventories are as follows at June 30, 20192020 and December 31, 2018:2019:
| | | | | | | | | | | | | | | | |
| | June 30, | | December 31, | | |
| $ in millions | | 2020 | | 2019 | | |
| Accounts receivable, net: | | | | | | |
| Customer receivables | | $ | 41.4 | | | $ | 45.7 | | | |
| Unbilled revenue | | 19.9 | | | 19.4 | | | |
| Amounts due from affiliates | | 0.2 | | | 0.3 | | | |
| Due from PJM transmission enhancement settlement | | 1.8 | | | 1.8 | | | |
| Other | | 1.5 | | | 1.1 | | | |
| Allowance for credit losses | | (3.0) | | | (0.4) | | | |
| Total accounts receivable, net | | $ | 61.8 | | | $ | 67.9 | | | |
The following table is a rollforward of our allowance for credit losses related to the accounts receivable balances for the six months ended June 30, 2020:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| $ in millions | | Beginning Allowance Balance at January 1, 2020 | | Current Period Provision | | Write-offs Charged Against Allowances | | Recoveries Collected | | Ending Allowance Balance at June 30, 2020 |
| Allowance for credit losses | | $ | 0.4 | | | $ | 2.6 | | | $ | (2.9) | | | $ | 2.9 | | | $ | 3.0 | |
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 June 30, 2020. Amounts are written off when reasonable collections efforts have been exhausted. On March 12, 2020, the PUCO issued an emergency order prohibiting electric utilities, including us, from discontinuing electric utility service to customers. This order along with the economic impacts of COVID-19 has resulted in an increase in past due customer receivable balances, and thus the current period provision and the allowance for credit losses have increased during the second quarter of 2020. See Note 14 – Risks and Uncertainties for additional discussion of the COVID-19 pandemic.
Inventories consist of materials and supplies at June 30, 2020 and December 31, 2019.
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| | | | | | | | |
| | | June 30, | | December 31, |
| $ in millions | | 2019 | | 2018 |
| Accounts receivable, net: | | | | |
| Customer receivables | | $ | 47.2 |
| | $ | 55.8 |
|
| Unbilled revenue | | 16.3 |
| | 16.8 |
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| Amounts due from affiliates | | 0.2 |
| | — |
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| Due from PJM transmission enhancement settlement | | 3.0 |
| | 16.5 |
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| Other | | 1.2 |
| | 2.3 |
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| Provision for uncollectible accounts | | (0.4 | ) | | (0.9 | ) |
| Total accounts receivable, net | | $ | 67.5 |
| | $ | 90.5 |
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| | | | | |
| Inventories, at average cost: | | | | |
| Fuel and limestone | | $ | 2.8 |
| | $ | 1.9 |
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| Materials and supplies | | 11.9 |
| | 8.3 |
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| Other | | — |
| | 0.5 |
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| Total inventories, at average cost | | $ | 14.7 |
| | $ | 10.7 |
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Accumulated Other Comprehensive Income / (Loss)other comprehensive loss
The amounts reclassified out of Accumulated Other Comprehensive Income / (Loss) by component during the three and six months ended June 30, 20192020 and 20182019 are as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Details about Accumulated Other Comprehensive Income / (Loss) components | | Affected line item in the Condensed Consolidated Statements of Operations | | Three months ended | | | | Six months ended | | |
| | | | June 30, | | | | June 30, | | |
| $ in millions | | | | 2020 | | 2019 | | 2020 | | 2019 |
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| | | | | | | | | | |
| | | | | | | | | | |
| Gains and losses on cash flow hedges (Note 5): | | | | | | | | | | |
| | Interest expense | | $ | (0.2) | | | $ | (0.3) | | | $ | (0.6) | | | $ | (0.6) | |
| | Income tax expense | | — | | | — | | | 0.1 | | | 0.1 | |
| | Net of income taxes | | (0.2) | | | (0.3) | | | (0.5) | | | (0.5) | |
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| | | | | | | | | | |
| | | | | | | | | | |
| Amortization of defined benefit pension items (Note 8): | | | | | | | | | | |
| | Other expense | | 0.3 | | | — | | | 0.6 | | | 0.1 | |
| | Income tax benefit | | (0.1) | | | — | | | (0.1) | | | — | |
| | Net of income taxes | | 0.2 | | | — | | | 0.5 | | | 0.1 | |
| | | | | | | | | | |
| Total reclassifications for the period, net of income taxes | | | | $ | — | | | $ | (0.3) | | | $ | — | | | $ | (0.4) | |
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| Details about Accumulated Other Comprehensive Income / (Loss) components | | Affected line item in the Condensed Consolidated Statements of Operations | | Three months ended June 30, | | Six months ended June 30, |
| $ in millions | | | | 2019 | | 2018 | | 2019 | | 2018 |
| Gains and losses on cash flow hedges (Note 5): | | | | | | | | |
| | | Interest expense | | $ | (0.3 | ) | | $ | (0.3 | ) | | $ | (0.6 | ) | | $ | (0.6 | ) |
| | | Income tax expense | | — |
| | 0.3 |
| | 0.1 |
| | 0.2 |
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| | | Net of income taxes | | (0.3 | ) | | — |
| | (0.5 | ) | | (0.4 | ) |
| | | | | | | | | | | |
| | | Loss from discontinued operations | | — |
| | 0.2 |
| | — |
| | 4.3 |
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| | | Income tax benefit from discontinued operations | | — |
| | (0.1 | ) | | — |
| | (1.5 | ) |
| | | Net of income taxes | | — |
| | 0.1 |
| | — |
| | 2.8 |
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| | | | | | | | | | | |
| Amortization of defined benefit pension items (Note 8): | | | | | | | | |
| | | Other expense | | — |
| | 0.2 |
| | 0.1 |
| | 0.4 |
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| | | Income tax benefit | | — |
| | — |
| | — |
| | (0.1 | ) |
| | | Net of income taxes | | — |
| | 0.2 |
| | 0.1 |
| | 0.3 |
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| Total reclassifications for the period, net of income taxes | | $ | (0.3 | ) | | $ | 0.3 |
| | $ | (0.4 | ) | | $ | 2.7 |
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The changes in the components of Accumulated Other Comprehensive Income / (Loss)Loss during the six months ended June 30, 20192020 are as follows:
| | | | | | | | | | | | | | | | | | | | | | |
| $ in millions | | | | Gains / (losses) on cash flow hedges | | Change in unfunded pension and postretirement benefit obligations | | Total |
| Balance at January 1, 2020 | | | | $ | 14.5 | | | $ | (18.1) | | | $ | (3.6) | |
| | | | | | | | |
| Other comprehensive loss before reclassifications | | | | (0.1) | | | — | | | (0.1) | |
| Amounts reclassified from AOCI to earnings | | | | (0.5) | | | 0.5 | | | — | |
| | | | | | | | |
| Net current period other comprehensive income / (loss) | | | | (0.6) | | | 0.5 | | | (0.1) | |
| | | | | | | | |
| Balance at June 30, 2020 | | | | $ | 13.9 | | | $ | (17.6) | | | $ | (3.7) | |
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| $ in millions | | Gains / (losses) on cash flow hedges | | Change in unfunded pension and postretirement benefit obligation | | Total |
| Balance at January 1, 2019 | | $ | 17.0 |
| | $ | (14.8 | ) | | $ | 2.2 |
|
| | | | | | | |
| Other comprehensive loss before reclassifications | | (0.8 | ) | | — |
| | (0.8 | ) |
| Amounts reclassified from AOCI to earnings | | (0.5 | ) | | 0.1 |
| | (0.4 | ) |
| Net current period other comprehensive income / (loss) | | (1.3 | ) | | 0.1 |
| | (1.2 | ) |
| | | | | | | |
| Balance at June 30, 2019 | | $ | 15.7 |
| | $ | (14.7 | ) | | $ | 1.0 |
|
Operating expenses - other
Operating expenses - other generally includes gains or losses on asset sales or dispositions, insurance recoveries, gains or losses on the sale of businesses and other expense or income from miscellaneous transactions. The components of Operating expenses - other are summarized as follows:
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| | | | | | | | | | | | | | | | |
| | | Three months ended June 30, | | Six months ended June 30, |
| $ in millions | | 2019 | | 2018 | | 2019 | | 2018 |
| Loss on disposal and sale of businesses | | $ | — |
| | $ | — |
| | $ | — |
| | $ | 11.7 |
|
| Fixed-asset impairment | | — |
| | 1.2 |
| | — |
| | 1.2 |
|
| Other | | — |
| | — |
| | 0.9 |
| | 0.1 |
|
| Net other expense / (income) | | $ | — |
| | $ | 1.2 |
| | $ | 0.9 |
| | $ | 13.0 |
|
Note 3 – Regulatory Matters
DMRDP&L ESP Orders
OnOhio law requires utilities to file either an ESP or MRO plan to establish SSO rates. From November 1, 2017 through December 18, 2019, DP&L operated pursuant to an approved ESP plan, which was initially approved on October 20, 2017 (ESP 3). On November 21, 2019, the PUCO issued a supplemental order modifying ESP 3, and as a result DP&L filed a Notice of Withdrawal of its ESP 3 Application and requested to revert to the ESP rates that were in effect prior to ESP 3. The Notice of Withdrawal was approved by the PUCO on December 18, 2019. The PUCO order required, among other things, DP&L to conduct both an ESP v. MRO Test to validate that the ESP is expected to be more favorable in the aggregate than what would be experienced under an MRO, and a prospective SEET, which were filed with the PUCO on April 1, 2020. A comment period was set for July 2020 and an evidentiary hearing regarding this matter is scheduled for October 2020 (if needed) with a final ruling expected in early 2021. DP&L is also subject to an annual retrospective SEET. The ultimate outcome of the ESP v. MRO and SEET proceedings could have a material adverse effect on DP&L’s results of operations, financial condition and cash flows.
Certain parties which intervened in the ESP proceedings have filed petitions for rehearing of the recent PUCO ESP orders; some of which seek to eliminate DP&L’s RSC from the ESP 1 rates that are currently in place and others seek to re-implement the 2017 ESP, but without the DMR. We are unable to predict the outcomes of these petitions, but if these result in terms that are more adverse than DP&L's current ESP rate plan, it could have a material adverse effect on our results of operations, financial condition and cash flows.
On January 23, 2020 DP&L filed with the PUCO requesting approval to defer its decoupling costs consistent with the methodology approved in its Distribution Rate Case. If approved, deferral would be effective December 18, 2019 and going forward would reduce impacts of weather, energy efficiency programs and economic changes in customer demand.
In response to the PUCO’s COVID-19 emergency orders, DP&L filed an Application on March 23, 2020, requesting waivers of certain rule and tariff requirements and deferral of certain costs and revenues including those related to deposits and reconnection fees, late payment fees, credit card fees; and waived or uncollected amounts associated with putting customers on payment plans. On May 20, 2020, the PUCO approved DP&L’s 2017 ESP. On January 7, 2019, the Ohio Consumers' Counsel appealedapplication and required DP&L to file a plan outlining the Supreme Courttiming and steps it plans to take in an effort to return to normal operations. The authorized deferral of Ohiothose certain costs and revenues must be offset by COVID-19 related savings. DP&L filed its plan on July 15, 2020 and is awaiting approval by the 2017 ESP with respect to the bypassabilityPUCO. Recovery of the Reconciliation Rider and the exclusion of the DMR from the SEET. That appeal remains pending.these deferrals will be addressed in a future rate proceeding.
Pursuant to the 2017 ESP, on January 22, 2019, DP&L filed a request with the PUCO for a two-year extension of its DMR through October 2022, in the proposed amount of $199.0 million for each of the two additional years. The extension request was set at a level expected to reduce debt obligations at both DP&L and DPL and to position DP&L to make capital expenditures to maintain and modernize its electric grid. DP&L’s DMP investments are contingent upon the PUCO approving the two-year extension of its DMR.
On August 1, 2019, DP&L filed a supplemental brief with the PUCO focused on the applicability of a recent court decision involving another Ohio utility’s DMR which is similar to, but not identical to, DP&L’s DMR.
Ohio House Bill 6FERC Proceedings
On July 23, 2019, the Governor of Ohio signed Ohio House Bill 6, which, among other things, does the following:
beginning January 1, 2020, replaces DP&L’s non-bypassable Reconciliation Rider, permitting DP&L to defer, recover or credit the net proceeds from selling energy and capacity received as part of DP&L’s interest in OVEC and its OVEC-related costs through 2023, with a non-bypassable recovery mechanism for recovery of prudently incurred OVEC costs through 2030;
eliminates the annual energy efficiency targets for Ohio utilities after 2020;
allows Ohio utilities to construct customer-sited renewable generation for mercantile customers or groups of mercantile customers, the costs of which may only be recovered from those customers.
Impact of tax reform
On January 10,November 15, 2018 the PUCO initiatedFERC issued a proceedingNotice of Proposed Rulemaking (NOPR) to consider the impactsaddress amortization of the TCJA to determine the appropriate course of action to pass benefits resulting from the legislation on to ratepayers. The PUCO also directed Ohio utilities to record deferred liabilities for the estimated reduction in federal income tax resulting from the TCJA beginning January 1, 2018. Beginning October 1, 2018, the new distribution rates approved in the DRO include the impacts of the decrease in current federal income taxes as a result of the TCJA. Under the terms of the stipulation approved in the DRO, DP&L agreed to file an application at the PUCO to refund eligible excess accumulated deferred income taxes ("ADIT")resulting from the TCJA and any related regulatory liabilitytheir 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, DP&L filed an application before the FERC to change its transmission rate from a stated rate to a formula rate, which was accepted by the FERC and made effective as of May 3, 2020, subject to further proceeding and potential refunds. The formula rate includes adjustments to flow back over a 10-year period. time the excess deferred income taxes caused by the TCJA. The NOPR, therefore, no longer applies to DP&L made such a filing&L. The rate changes will increase revenues by approximately $4.1 million through the end of 2020 as of the effective date, subject to refund based on March 1, 2019 and proposed to return a total of $65.1 million to customers. The timing and final approved rates.
amount to be returned to customers is unknown at this time. Excess ADIT related to depreciation life and method differences will be returned to customers in accordance with federal tax law and related regulations.
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 June 30, 20192020 and December 31, 2018.2019. Further information about the fair value of our derivative instruments can be found in Note 5 – Derivative Instruments and Hedging Activities.
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | June 30, 2020 | | | | December 31, 2019 | | |
| $ in millions | | Cost | | Fair Value | | Cost | | Fair Value |
| Assets | | | | | | | | |
| Money market funds | | $ | 0.1 | | | $ | 0.1 | | | $ | 0.3 | | | $ | 0.3 | |
| Equity securities | | 2.1 | | | 3.7 | | | 2.3 | | | 4.2 | |
| Debt securities | | 4.1 | | | 4.1 | | | 4.0 | | | 4.1 | |
| Hedge funds | | — | | | — | | | 0.1 | | | 0.1 | |
| | | | | | | | |
| Tangible assets | | — | | | — | | | 0.1 | | | 0.1 | |
| Total Assets | | $ | 6.3 | | | $ | 7.9 | | | $ | 6.8 | | | $ | 8.8 | |
| | | | | | | | |
| | Carrying Value | | Fair Value | | Carrying Value | | Fair Value |
| Liabilities | | | | | | | | |
| Long-term debt | | $ | 1,772.0 | | | $ | 1,844.5 | | | $ | 1,363.1 | | | $ | 1,404.0 | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
|
| | | | | | | | | | | | | | | | |
| | | June 30, 2019 | | December 31, 2018 |
| $ in millions | | Cost | | Fair Value | | Cost | | Fair Value |
| Assets | | | | | | | | |
| Money market funds | | $ | 0.2 |
| | $ | 0.2 |
| | $ | 0.4 |
| | $ | 0.4 |
|
| Equity securities | | 2.3 |
| | 3.9 |
| | 2.4 |
| | 3.5 |
|
| Debt securities | | 4.1 |
| | 4.1 |
| | 4.1 |
| | 4.0 |
|
| Hedge funds | | 0.1 |
| | 0.1 |
| | 0.1 |
| | 0.1 |
|
| Tangible assets | | 0.1 |
| | 0.1 |
| | 0.1 |
| | 0.1 |
|
| Total Assets | | $ | 6.8 |
| | $ | 8.4 |
| | $ | 7.1 |
| | $ | 8.1 |
|
| | | | | | | | | |
| | | Carrying Value | | Fair Value | | Carrying Value | | Fair Value |
| Liabilities | | | | | | | | |
| Long-term debt | | $ | 1,364.1 |
| | $ | 1,432.1 |
| | $ | 1,475.9 |
| | $ | 1,519.6 |
|
These financial instruments are not subject to master netting agreements or collateral requirements and as such are presented in the Condensed Consolidated Balance Sheet at their gross fair value, except for Long-term debt, which is presented at amortized carrying value.
We did not have any transfers of the fair values of our financial instruments between Level 1, Level 2 or Level 3 of the fair value hierarchy during the six months ended June 30, 20192020 or 2018.2019.
Master Trust Assets
DP&L established a Master Trust to hold assets that could be used for the benefit of employees participating in employee benefit plans and these assets are not used for general operating purposes. On January 1, 2018, AOCI of $1.6 million ($1.0 million net of tax) was reversed to Accumulated Deficit and all future changes to fair value on the Master Trust Assets will be included in income in the period that the changes occur. Changes to fair value were not material for the six months ended June 30, 2019 or 2018. These assets are primarily
comprised of open-ended mutual funds, which are valued using the net asset value per unit. These investments are recorded at fair value within Other deferred assets on the Condensed Consolidated Balance Sheets and classified as available for sale.equity investments. We recorded net unrealized gains / (losses) of $0.8 million and $0.2 million during the three months ended June 30, 2020 and 2019, respectively, and $(0.3) million and $0.7 million during the during the six months ended June 30, 2020 and 2019, respectively.
Long-term debt
The fair value of debt is based on current public market prices for disclosure purposes only. Unrealized gains or losses are not recognized in the financial statements as long-term debt is presented at carrying value, net of unamortized premium or discount and unamortized deferred financing costs in the financial statements. The long-term debt amounts include the current portion payable in the next twelve months and have maturities that range from 2020 to 2061.
The fair value of assets and liabilities at June 30, 20192020 and December 31, 20182019 and the respective category within the fair value hierarchy for DPL is as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| $ in millions | | Fair value at June 30, 2020 (a) | | | | | | | | Fair value at December 31, 2019 (a) | | | | | | |
| | Level 1 | | Level 2 | | Level 3 | | Total | | Level 1 | | Level 2 | | Level 3 | | Total |
| Assets | | | | | | | | | | | | | | | | |
| Master Trust assets | | | | | | | | | | | | | | | | |
| Money market funds | | $ | 0.1 | | | $ | — | | | $ | — | | | $ | 0.1 | | | $ | 0.3 | | | $ | — | | | $ | — | | | $ | 0.3 | |
| Equity securities | | — | | | 3.7 | | | — | | | 3.7 | | | — | | | 4.2 | | | — | | | 4.2 | |
| Debt securities | | — | | | 4.1 | | | — | | | 4.1 | | | — | | | 4.1 | | | — | | | 4.1 | |
| Hedge funds | | — | | | — | | | — | | | — | | | — | | | 0.1 | | | — | | | 0.1 | |
| | | | | | | | | | | | | | | | |
| Tangible assets | | — | | | — | | | — | | | — | | | — | | | 0.1 | | | — | | | 0.1 | |
| Total Master Trust assets | | 0.1 | | | 7.8 | | | — | | | 7.9 | | | 0.3 | | | 8.5 | | | — | | | 8.8 | |
| Derivative assets | | | | | | | | | | | | | | | | |
| Interest rate hedges | | — | | | — | | | — | | | — | | | — | | | 0.1 | | | — | | | 0.1 | |
| Total Derivative assets | | — | | | — | | | — | | | — | | | — | | | 0.1 | | | — | | | 0.1 | |
| | | | | | | | | | | | | | | | |
| Total Assets | | $ | 0.1 | | | $ | 7.8 | | | $ | — | | | $ | 7.9 | | | $ | 0.3 | | | $ | 8.6 | | | $ | — | | | $ | 8.9 | |
| | | | | | | | | | | | | | | | |
| Liabilities | | | | | | | | | | | | | | | | |
| Derivative liabilities | | | | | | | | | | | | | | | | |
| Interest rate hedges | | $ | — | | | $ | 0.1 | | | $ | — | | | $ | 0.1 | | | $ | — | | | $ | — | | | $ | — | | | $ | — | |
| Long-term debt | | — | | | 1,827.1 | | | 17.4 | | | 1,844.5 | | | — | | | 1,386.5 | | | 17.5 | | | 1,404.0 | |
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
| Total Liabilities | | $ | — | | | $ | 1,827.2 | | | $ | 17.4 | | | $ | 1,844.6 | | | $ | — | | | $ | 1,386.5 | | | $ | 17.5 | | | $ | 1,404.0 | |
(a) Includes credit valuation adjustment
Our financial instruments are valued using the market approach in the following categories:
•Level 1 inputs are used for money market accounts that are considered cash equivalents. The fair value is determined by reference to quoted market prices and other relevant information generated by market transactions.
•Level 2 inputs are used to value derivatives such as interest rate hedge contracts which are valued using a benchmark interest rate. Other Level 2 assets include open-ended mutual funds in the Master Trust, which are valued using the end of day NAV per unit.
•Level 3 inputs such as certain debt balances are considered a Level 3 input because the notes are not publicly traded. Our long-term debt is fair valued for disclosure purposes only.
All of the inputs to the fair value of our derivative instruments are from quoted market prices.
Our long-term debt is fair valued for disclosure purposes only and most of the fair values are determined using quoted market prices in inactive markets. These fair value inputs are considered Level 2 in the fair value hierarchy. As the Wright-Patterson Air Force Base note is not publicly traded, the fair value inputs are considered Level 3 in the fair value hierarchy as there are no observable inputs. Additional Level 3 disclosures are not presented since our long-term debt is not recorded at fair value.
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| $ in millions | | Fair value at June 30, 2019 (a) | | Fair value at December 31, 2018 (a) |
| | | Level 1 | | Level 2 | | Level 3 | | Total | | Level 1 | | Level 2 | | Level 3 | | Total |
| Assets | | | | | | | | | | | | | | | | |
| Master Trust assets | | | | | | | | | | | | | | | | |
| Money market funds | | $ | 0.2 |
| | $ | — |
| | $ | — |
| | $ | 0.2 |
| | $ | 0.4 |
| | $ | — |
| | $ | — |
| | $ | 0.4 |
|
| Equity securities | | — |
| | 3.9 |
| | — |
| | 3.9 |
| | — |
| | 3.5 |
| | — |
| | 3.5 |
|
| Debt securities | | — |
| | 4.1 |
| | — |
| | 4.1 |
| | — |
| | 4.0 |
| | — |
| | 4.0 |
|
| Hedge funds | | — |
| | 0.1 |
| | — |
| | 0.1 |
| | — |
| | 0.1 |
| | — |
| | 0.1 |
|
| Tangible assets | | — |
| | 0.1 |
| | — |
| | 0.1 |
| | — |
| | 0.1 |
| | — |
| | 0.1 |
|
| Total Master Trust assets | | 0.2 |
| | 8.2 |
| | — |
| | 8.4 |
| | 0.4 |
| | 7.7 |
| | — |
| | 8.1 |
|
| Derivative assets | | | | | | | | | | | | | | | | |
| Interest rate hedges | | — |
| | 0.4 |
| | — |
| | 0.4 |
| | — |
| | 1.5 |
| | — |
| | 1.5 |
|
| Total Derivative assets | | — |
| | 0.4 |
| | — |
| | 0.4 |
| | — |
| | 1.5 |
| | — |
| | 1.5 |
|
| | | | | | | | | | | | | | | | | |
| Total Assets | | $ | 0.2 |
| | $ | 8.6 |
| | $ | — |
| | $ | 8.8 |
| | $ | 0.4 |
| | $ | 9.2 |
| | $ | — |
| | $ | 9.6 |
|
| | | | | | | | | | | | | | | | | |
| Liabilities | | | | | | | | | | | | | | | | |
| Long-term debt | | $ | — |
| | $ | 1,414.5 |
| | $ | 17.6 |
| | $ | 1,432.1 |
| | $ | — |
| | $ | 1,501.9 |
| | $ | 17.7 |
| | $ | 1,519.6 |
|
| | | | | | | | |
|
| | | | | | | |
|
|
| Total Liabilities | | $ | — |
| | $ | 1,414.5 |
| | $ | 17.6 |
| | $ | 1,432.1 |
| | $ | — |
| | $ | 1,501.9 |
| | $ | 17.7 |
| | $ | 1,519.6 |
|
| |
(a) | Includes credit valuation adjustment |
Note 5 – Derivative Instruments and Hedging Activities
In the normal course of business, DPL enters into interest rate hedgesvarious financial instruments, including derivative financial instruments. We use derivatives principally to manage the interest rate risk associated with our long-term debt. The derivatives that we use to economically hedge these risks are governed by our risk management policies for forward and futures contracts. Our net positions are continually assessed within our structured hedging programs to determine whether new or offsetting transactions are required. We monitor and value derivative positions monthly as part of our variable rate debt.risk management processes. We use published sources for pricing, when possible, to mark positions to market. All of our derivative instruments are used for risk management purposes and are designated as cash flow hedges if they qualify under FASC 815 for accounting purposes. In prior periods, we have used commodity derivatives principally to manage the risk of changes in market prices for commodities.
Cash Flow Hedges
As part of our risk management processes, we identify the relationships between hedging instruments and hedged items, as well as the risk management objective and strategy for undertaking various hedge transactions. The fair values of cash flow hedges determined by current public market prices will continue to fluctuate with changes in market prices up to contract expiration. With the adoption of ASU 2017-12, Derivatives and Hedging (Topic 815): Targeted improvements to Accounting for Hedging Activities effective January 1, 2019, we willare no longer be required to calculate effectiveness and thus the entire change in the fair value of a hedging instrument will beis recorded in other comprehensive income and amounts deferred will be reclassified to earnings in the same income statement line as the hedged item in the period in which it settles.
As of June 30, 2019,2020, we have two2 interest rate swaps to hedge the variable interest on our $140.0 million variable interest rate tax-exempt First Mortgage Bonds. The interest rate swaps have a combined notional amount of $140.0 million and settle monthly based on a one-month LIBOR. On March 29, 2018, we settled $60.0 million of these interest rate swaps due to the partial repayment of the underlying debt and a gain of $0.8 million was recorded as a reduction to interest expense. Since the swap was partially settled, the remaining swaps were de-designated and then re-designated with a new hypothetical derivative. The AOCIAOCL associated with the remaining swaps will be amortized out of AOCIAOCL into interest expense over the remaining life of the underlying debt.
We had previously entered into interest rate derivative contracts to manage interest rate exposure related to anticipated borrowings of fixed-rate debt. These interest rate derivative contracts were settled in 2013 and we continue to amortize amounts out of AOCI into interest expense.
The following tables provide information concerning gains or losses recognized in AOCIAOCL for the cash flow hedges for the three and six months ended June 30, 20192020 and 2018:2019:
| | | | | | | | | | | | | | | | | | | | |
| | Three months ended | | | | |
| | June 30, 2020 | | June 30, 2019 | | |
| | Interest | | Interest | | |
| $ in millions (net of tax) | | Rate Hedge | | Rate Hedge | | Power |
| Beginning accumulated derivative gains in AOCL | | $ | 13.9 | | | $ | 16.1 | | | $ | 0.4 | |
| Net gains / (losses) associated with current period hedging transactions | | 0.2 | | | (0.5) | | | — | |
| Net gains reclassified to earnings | | | | | | |
| Interest expense | | (0.2) | | | (0.3) | | | — | |
| | | | | | |
| Ending accumulated derivative gains in AOCL | | $ | 13.9 | | | $ | 15.3 | | | $ | 0.4 | |
| | | | | | |
| | | | | | |
| | Six months ended | | | | |
| | June 30, 2020 | | June 30, 2019 | | |
| | Interest | | Interest | | |
| $ in millions (net of tax) | | Rate Hedge | | Rate Hedge | | Power |
| Beginning accumulated derivative gains in AOCL | | $ | 14.5 | | | $ | 16.6 | | | $ | 0.4 | |
| Net losses associated with current period hedging transactions | | (0.1) | | | (0.8) | | | — | |
| Net gains reclassified to earnings | | | | | | |
| Interest expense | | (0.5) | | | (0.5) | | | — | |
| | | | | | |
| Ending accumulated derivative gains in AOCL | | $ | 13.9 | | | $ | 15.3 | | | $ | 0.4 | |
| | | | | | |
| Portion expected to be reclassified to earnings in the next twelve months | | $ | (1.1) | | | | | |
| Maximum length of time that we are hedging our exposure to variability in future cash flows related to forecasted transactions (in months) | | 2 | | | | |
| | | | | | |
|
| | | | | | | | | | | | | | | | |
| | | Three months ended | | Three months ended |
| | | June 30, 2019 | | June 30, 2018 |
| | | | | Interest | | | | Interest |
| $ in millions (net of tax) | | Power | | Rate Hedge | | Power | | Rate Hedge |
| Beginning accumulated derivative gains / (losses) in AOCI | | $ | 0.4 |
| | $ | 16.1 |
| | $ | (0.1 | ) | | $ | 18.0 |
|
| Net losses associated with current period hedging transactions | | — |
| | (0.5 | ) | | — |
| | (0.6 | ) |
| Net (gains) / losses reclassified to earnings | | | | | | | | |
| Interest expense | | — |
| | (0.3 | ) | | — |
| | — |
|
| Loss from discontinued operations | | — |
| | — |
| | 0.1 |
| | — |
|
| Ending accumulated derivative gains in AOCI | | $ | 0.4 |
| | $ | 15.3 |
| | $ | — |
| | $ | 17.4 |
|
| | | | | | | | | |
| | | | | | | | | |
| | | Six months ended | | Six months ended |
| | | June 30, 2019 | | June 30, 2018 |
| | | | | Interest | | | | Interest |
| $ in millions (net of tax) | | Power | | Rate Hedge | | Power | | Rate Hedge |
| Beginning accumulated derivative gains / (losses) in AOCI | | $ | 0.4 |
| | $ | 16.6 |
| | $ | (2.8 | ) | | $ | 17.5 |
|
| Net gains / (losses) associated with current period hedging transactions | | — |
| | (0.8 | ) | | — |
| | 0.3 |
|
| Net (gains) / losses reclassified to earnings | | | | | | | | |
| Interest expense | | — |
| | (0.5 | ) | | — |
| | (0.4 | ) |
| Loss from discontinued operations | | — |
| | — |
| | 2.8 |
| | — |
|
| Ending accumulated derivative gains in AOCI | | $ | 0.4 |
| | $ | 15.3 |
| | $ | — |
| | $ | 17.4 |
|
| | | | | | | | | |
| Portion expected to be reclassified to earnings in the next twelve months | |
|
| | $ | (0.8 | ) | | | | |
| Maximum length of time that we are hedging our exposure to variability in future cash flows related to forecasted transactions (in months) | |
|
| | 14 |
| | | | |
Net gains or losses associated with the ineffective portion of the hedging transactions were immaterial in the prior year period presented.
Financial Statement Effect
DPL has elected not to offset derivative assets and liabilities and not to offset net derivative positions against the right to reclaim cash collateral pledged (an asset) or the obligation to return cash collateral received (a liability) under derivative agreements. The fair value derivative position of DPL's interest rate swaps are as follows:
|
| | | | | | | | | | | | | | | | | | |
| Fair Values of Derivative Instruments |
| at June 30, 2019 |
| | | | | | | Gross Amounts Not Offset in the Condensed Consolidated Balance Sheets | | |
| $ in millions | | Hedging Designation | | Gross Fair Value as presented in the Condensed Consolidated Balance Sheets (a) | | Financial Instruments with Same Counterparty in Offsetting Position | | Cash Collateral | | Net Fair Value |
| Assets | | | | | | | | | | |
| Short-term derivative positions (presented in Prepayments and other current assets) |
| Interest rate swap | | Designated | | $ | 0.3 |
| | $ | — |
| | $ | — |
| | $ | 0.3 |
|
| | | | | | | | | | | |
| Long-term derivative positions (presented in Other non-current assets) |
| Interest rate swap | | Designated | | 0.1 |
| | — |
| | — |
| | 0.1 |
|
| Total assets | | | | $ | 0.4 |
| | $ | — |
| | $ | — |
| | $ | 0.4 |
|
| | | | | | | | | | | | | | | | | | | | | | | |
(a)$ in millions (net of tax) | Includes credit valuation adjustment.Hedging Designation | | Balance sheet classification | | June 30, 2020 | | December 31, 2019 |
|
| | | | | | | | | | | | | | | | | | |
| Fair Values of Derivative Instruments |
| at December 31, 2018 |
| | | | | | | Gross Amounts Not Offset in the Condensed Consolidated Balance Sheets | | |
| $ in millions | | Hedging Designation | | Gross Fair Value as presented in the Condensed Consolidated Balance Sheets (a) | | Financial Instruments with Same Counterparty in Offsetting Position | | Cash Collateral | | Net Fair Value |
| Assets | | | | | | | | | | |
| Short-term derivative positions (presented in Prepayments and other current assets) |
| Interest rate swaps | | Designated | | $ | 0.9 |
| | $ | — |
| | $ | — |
| | $ | 0.9 |
|
| | | | | | | | | | | |
| Long-term derivative positions (presented in Other non-current assets) |
| Interest rate swaps | | Designated | | 0.6 |
| | — |
| | — |
| | 0.6 |
|
| Total assets | | | | $ | 1.5 |
| | $ | — |
| | $ | — |
| | $ | 1.5 |
|
| Interest rate swap | Cash Flow Hedge | | Prepayments and other current assets | | $ | — | | | $ | 0.1 | |
| | | | | | | |
(a)Interest rate swap | Includes credit valuation adjustment.Cash Flow Hedge | | Accrued and other current liabilities | | $ | 0.1 | | | $ | — | |
Any prior year ineffectiveness on the interest rate hedges and the monthly settlement of the interest rate hedges is recorded in interest expense within the Condensed Consolidated Statements of Operations.
Note 6 – Long-term Debt
The following table summarizes DPL's long-term debt.
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Interest | | | | June 30, | | December 31, |
| $ in millions | | Rate | | Maturity | | 2020 | | 2019 |
| First Mortgage Bonds | | 3.95% | | 2049 | | $ | 425.0 | | | $ | 425.0 | |
| Tax-exempt First Mortgage Bonds - rates from 2.40% - 2.93% (a) and 1.15% - 2.47% (b) | | | | 2020 | | 140.0 | | | 140.0 | |
| U.S. Government note | | 4.20% | | 2061 | | 17.4 | | | 17.5 | |
| Unamortized deferred financing costs | | | | | | (5.5) | | | (5.4) | |
| Unamortized debt discounts and premiums, net | | | | | | (2.6) | | | (2.7) | |
Total long-term debt at DP&L | | | | | | 574.3 | | | 574.4 | |
| | | | | | | | |
| Senior unsecured bonds | | 7.25% | | 2021 | | 380.0 | | | 380.0 | |
| Senior unsecured bonds | | 4.13% | | 2025 | | 415.0 | | | — | |
| Senior unsecured bonds | | 4.35% | | 2029 | | 400.0 | | | 400.0 | |
| Note to DPL Capital Trust II (c) | | 8.125% | | 2031 | | 15.6 | | | 15.6 | |
| Unamortized deferred financing costs | | | | | | (11.9) | | | (5.9) | |
| Unamortized debt discounts and premiums, net | | | | | | (1.0) | | | (1.0) | |
| Total long-term debt | | | | | | 1,772.0 | | | 1,363.1 | |
| Less: current portion | | | | | | (379.2) | | | (139.8) | |
| Long-term debt, net of current portion | | | | | | $ | 1,392.8 | | | $ | 1,223.3 | |
|
| | | | | | | | | | | | |
| | | Interest | | | | June 30, | | December 31, |
| $ in millions | | Rate | | Maturity | | 2019 | | 2018 |
| Term loan - rates from 4.50% - 4.53% (a) and 4.01% - 4.60% (b) | | | | 2022 | | $ | — |
| | $ | 436.1 |
|
| First Mortgage Bonds | | 3.95% | | 2049 | | 425.0 |
| | — |
|
| Tax-exempt First Mortgage Bonds - rates from 3.00% - 3.07% (a) and 1.52% - 1.92% (b) | | | | 2020 | | 140.0 |
| | 140.0 |
|
| U.S. Government note | | 4.20% | | 2061 | | 17.6 |
| | 17.7 |
|
| Unamortized deferred financing costs | | | | | | (4.5 | ) | | (6.3 | ) |
| Unamortized debt discounts and premiums, net | | | | | | (2.7 | ) | | (1.4 | ) |
Total long-term debt at DP&L | | | | | | 575.4 |
| | 586.1 |
|
| | | | | | | | | |
| Senior unsecured bonds | | 6.75% | | 2019 | | — |
| | 99.0 |
|
| Senior unsecured bonds | | 7.25% | | 2021 | | 380.0 |
| | 780.0 |
|
| Senior unsecured notes | | 4.35% | | 2029 | | 400.0 |
| | — |
|
| Note to DPL Capital Trust II (c) | | 8.125% | | 2031 | | 15.6 |
| | 15.6 |
|
| Unamortized deferred financing costs | | | | | | (5.9 | ) | | (4.3 | ) |
| Unamortized debt discounts and premiums, net | | | | | | (1.0 | ) | | (0.5 | ) |
| Total long-term debt | | | | | | 1,364.1 |
| | 1,475.9 |
|
| Less: current portion | | | | | | (0.2 | ) | | (103.6 | ) |
| Long-term debt, net of current portion | | | | | | $ | 1,363.9 |
| | $ | 1,372.3 |
|
| |
(a) | Range of interest rates for the six months ended June 30, 2019. |
| |
(b) | Range of interest rates for the year ended December 31, 2018. |
| |
(c) | Note payable to related party. |
(a)Range of interest rates for the six months ended June 30, 2020.
Deferred financing costs are amortized over(b)Range of interest rates for the remaining life of the debt using the effective interest method. Premiums or discounts on long-term debt are amortized over the remaining life of the debt using the effective interest method.year ended December 31, 2019.
(c)Note payable to related party.
Line
Lines of credit
At June 30, 20192020 and December 31, 2018, 2019, DPL had outstanding borrowings on its line of credit of $63.0$0.0 million and $0.0$104.0 million, respectively. At June 30, 20192020 and December 31, 2018, 2019, DP&L had no outstanding borrowings on its line of credit.credit of $0.0 million and $40.0 million, respectively.
Significant transactions
On June 19, 2019, July 31, 2020 DP&L amended and restated its unsecured revolving credit facility. The revolving credit facility has a $175.0 issued $140.0 million borrowing limit, with a $75.0 million letter of credit sublimit, a feature that provides DP&L the
ability to increase the size of the facility by an additional $100.0 million, a maturity date of June 2024, and a provision that provides DP&L the option to request up to two one-year extensions of the maturity date.
On June 6, 2019, DP&L closed on a $425.0 million issuance oftaxable First Mortgage Bonds due 2049. Theseand on August 3, 2020 used the proceeds to purchase at par value the $140.0 million of outstanding tax-exempt Ohio Air Quality Development Authority Collateralized Pollution Control Revenue Refunding Bonds that had been issued in 2015. The new bondstaxable First Mortgage Bonds carry an interest rate of 3.95%. The proceeds3.20% and mature on July 31, 2040. As a result of this issuance were used to repay in fullrefinancing, the outstanding principal$140.0 million tax-exempt First Mortgage Bonds are presented as long-term debt as of $435.0 million of DP&L's variable rate Term Loan B credit agreement.June 30, 2020.
On June 19, 2019, 2020 DPL amended and restated its secured revolving credit facility. The revolving credit facility has a $125.0 million borrowing limit, with a $75.0 million letter of credit sublimit, a feature that provides DPL the ability to increase the size of the facility by an additional $50.0 million, and a maturity date of June 2023.
On April 17, 2019, DPL closed a $400.0$415.0 million issuance of senior unsecured notes. These notes carry an interest rate of 4.35%4.125% and mature on April 15, 2029.July 1, 2025. Proceeds from the issuance and cash on hand were used to settle a partial redemption for $400.0 million of DPL's 7.25% senior unsecured notes maturing October 15, 2021, as discussed below. Afterredeem in-full the redemption, the DPL 7.25% senior notes due in 2021 have an outstandingremaining balance of $380.0 million.
On April 8, 2019, DPL issued a Notice of Partial Redemption to the Trustee (Wells Fargo Bank N.A.) on the DPL 7.25% Senior Notes due 2021. DPL notified the trustee that it was calling $400.0 million of the $780.0 million outstanding principal amount of these notes. The redemption date was May 7, 2019. These bonds were redeemed at par plus accrued interest and a make-whole premium of $41.4 million.
On March 4, 2019, DPL issued a Notice of Full Redemption to the Trustee (U.S. Bank) on the DPL 6.75% Senior Notes due 2019. DPL notified the trustee that it was calling the remaining $99.0 million outstanding principal amount of these notes. The redemption date was April 4, 2019. These bonds were redeemed at par plus accrued interest and a make-whole premium of $1.5 million with cash on hand.
On March 30, 2018, DPL issued a Notice of Partial Redemption to the Trustee (U.S. Bank) on the DPL 6.75% Senior Notes due 2019. DPL notified the trustee that it was calling $101.0 million of the $200.0 million outstanding principal amount of theseDPL's 7.25% senior unsecured notes. These bonds were redeemed at par plus accrued interest and a make-whole premium of $5.1$30.8 million on AprilJuly 20, 2020.
On June 1, 2020 DPL amended its secured revolving credit facility. As a result of the amendment, the borrowing limit was reduced from $125.0 million to $110.0 million, the Total Debt to EBITDA covenant was eliminated, the EBITDA to Interest Expense covenant was reduced from 2.25 to 1.00 to 1.70 to 1.00, increasing to 1.75 to 1.00 as
of September 30, 20182022 and 2.00 to 1.00 as of December 31, 2022, and a trailing-twelve months minimum EBITDA covenant of $125.0 million was added, increasing to $130.0 million as of September 30, 2022 and $150.0 million as of December 31, 2022. Starting with cash on hand.the quarter ended September 30, 2021, the borrowing limit will be reduced by $5.0 million per quarter should DPL’s Total Debt to EBITDA ratio calculated for the period of four consecutive quarters exceed 7.00 to 1.00.
On March 30, 2018, DP&L commenced a redemption of $60.0 million of outstanding tax exempt First Mortgage Bonds due 2020 at par value (plus accrued and unpaid interest). These bonds were redeemed at par plus accrued interest on April 30, 2018 with cash on hand.
On March 27, 2018, DPL made a $70.0 million prepayment to eliminate the outstanding balance of its bank term loan in full. As of March 31, 2018, the term loan was fully paid off.
Long-term debt covenants and restrictions
DPL’s revolving credit agreement has two2 financial covenants. The first financial covenant, a Total Debt tominimum EBITDA, ratio, is calculated at the end of each fiscal quarter by dividing total debt at the end of the current quarter by consolidated EBITDA for the four prior fiscal quarters. The ratio in the agreementquarters, of $125.0 million is notrequired, stepping up to exceed 7.00 to 1.00.$130.0 million on September 30, 2022 and $150.0 million on December 31, 2022. As of June 30, 2019,2020, this financial covenant was met with a ratio of 5.41 to 1.00.in compliance.
The second financial covenant is an EBITDA to Interest Expense ratio that is calculated, at the end of each fiscal quarter, by dividing EBITDA for the four4 prior fiscal quarters by the consolidated interest charges for the same period. The ratio, per the agreement, is to be not less than 2.251.70 to 1.00.1.00, and steps up to 1.75 to 1.00 on September 30, 2022 and 2.00 to 1.00 as of December 31, 2022. As of June 30, 2019,2020, this financial covenant was met with a ratio of 2.922.75 to 1.00.
DPL’s secured revolving credit agreement also restricts dividend payments from DPL to AES, such that DPL cannot make dividend payments unless at the time of, and/or as a result of the distribution, (i) DPL’s leverage ratio does not exceed 0.67 to 1.00 and DPL’s interest coverage ratio is not less than 2.50 to 1.00 or, if such ratios are not within the parameters, (ii) DPL’s senior long-term debt rating from two of the three major credit rating agencies is at least investment grade. As a result, as of June 30, 2020, DPLis also restricted was prohibited from making dividenda distribution to its shareholder or making a loan to any of its affiliates (other than its subsidiaries).
DP&L's unsecured revolving credit facility and tax sharing payments from DPL to AES per its 2017 ESP. This order restricts dividend payments from DPL to AES during the term of the 2017 ESP and restricts tax sharing payments from DPL to AES during the term of the DMR.
DP&L’s Bond Purchase and Covenants Agreement (financing document entered into in connection with the saleissuance of $200.0 million of variable rate tax-exemptDP&L's First Mortgage Bonds, dated as of August 1, 2015) has two financial covenants. The first measures Total Debt to Total Capitalization and is calculated, at the end of each fiscal quarter, by dividing total debt at the end of the quarter by total capitalization at the end of the quarter. DP&L’s Total Debt to Total Capitalization ratio shall not be greater than 0.65 to 1.00. Except that, after Generation Separation and the twelve-month period following (October 1, 2017 to September 30, 2018) the ratio shall be a) increased to 0.75 to 1.00 or b) suspended if DP&L’s long-term indebtedness is less than or equal to $750.0 million. Additionally, this covenant shall be suspended any time after separation during which DP&L maintains a rating of BBB- (or in the case of Moody’s Investors Service, Inc. Baa3) or higher with a stable outlook from at least one of Fitch Investors Service Inc., Standard & Poor’s Ratings Services or Moody’s Investors Service, Inc. The Total Debt to Capitalization covenant is calculated as the sum of DP&L’s current and long-term portion of debt, divided by the total of DP&L’s net worth and total debt. As of June 30, 2019, DP&L's ratings meet those requirements and this covenant is suspended for the quarter ended June 30, 2019.
The second financial covenant measures EBITDA to Interest Expense. The TotalConsolidated EBITDA to Consolidated Interest Charges ratio is calculated, at the end of each fiscal quarter, by dividing consolidated EBITDA for the four prior fiscal quarters by the consolidated interest charges for the same period. The ratio, per the agreement, is to be not less than 2.50 to 1.00. This financial covenant was met with a ratio of 9.53 to 1.00 as of June 30, 2019.
DP&L's unsecured revolving credit facilityon July 31, 2020) has one financial covenant. The covenant measures Total Debt to Total Capitalization and is calculated, at the end of each fiscal quarter, by dividing total debt at the end of the quarter by total capitalization at the end of the quarter. DP&L’s Total Debt to Total Capitalization ratio shall not be greater than 0.67 to 1.00. This financial covenant was met with a ratio of 0.570.48 to 1.00 as of June 30, 2019.2020.
As of June 30, 2019, 2020, DPL and DP&L were in compliance with all debt covenants, including the financial covenants described above.
DP&L does not have any meaningful restrictions in its debt financing documents prohibiting dividends to its parent, DPL.
Substantially all property, plant & equipment of DP&L is subject to the lien of the mortgage securing DP&L’s First and Refunding Mortgage.
Note 7 – Income Taxes
The following table details the effective tax rates for the three and six months ended June 30, 20192020 and 2018.2019.
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three months ended | | | | Six months ended | | |
| | June 30, | | | | June 30, | | |
| | 2020 | | 2019 | | 2020 | | 2019 |
| DPL | | 50.0% | | 16.6% | | 37.2% | | 12.8% |
|
| | | | | | | | |
| | | Three months ended | | Six months ended |
| | | June 30, | | June 30, |
| | | 2019 | | 2018 | | 2019 | | 2018 |
| DPL | | 16.6% | | (12.9)% | | 12.8% | | 13.9% |
Income tax expense for the six months ended June 30, 20192020 and 20182019 was calculated using the estimated annual effective income tax rates for 2020 and 2019 of 71.1% and 2018 of 12.3% and 16.5%, respectively. Management estimates the annual effective tax rate based on its forecast of annual pre-tax income. To the extent that actual pre-tax results for the year differ from the forecasts applied to the most recent interim period, the estimated rates could be materially different from the actual effective tax rates. DPL’s effective combined state and federal income tax rate for all operations was 16.6%50.0% and 12.8%37.2% for the three and six months ended June 30, 2019,2020, respectively. These rates are lowerThis rate is higher than the combined federal and state statutory rate of 21.6%22.3% primarily due to the flowthrough of the net tax benefit related to the reversal of excess deferred taxes of DP&L relative and the reversal of an uncertain tax position; these were partially offset by an adjustment to pre-tax book losses.our deferred tax balances.
For the six months ended June 30, 2019, 2020, DPL’s current period effective tax rate for all operations was not materially different than the estimated annual effective rate.rate when applied to DPL's Income before income tax due to the impact of discrete items mentioned above as well as the pre-tax income recorded on the sale of Conesville.
PerAES 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 termsincome taxes associated with its own taxable income and records the provision for income taxes using a separate return method. Effective with the approval of DP&L's2017 ESP, through November 21, 2019, DPL will not make any tax-sharingwas restricted from making tax sharing payments to AES and AES will forgo collection of the payments duringthroughout the term of the DMR. As such, duringDMR and amounts that would otherwise have been tax sharing liabilities were converted to deemed capital contributions. With the November 21, 2019 order from the PUCO that removed the DMR, this requirement was eliminated. During the six months ended June 30, 2018, 2020, DPL converted $26.7 received a payment from AES of $52.0 million against its tax receivable balance as part of accrued tax sharing liabilities with AES toa $150.0 million payment from AES. See Note 9 – Shareholder's Deficit for additional equity investment in DPL. Throughinformation.
the six months ended June 30, 2019, DPL has a current tax benefit. Consequently, there was no conversion of current tax liabilities in 2019.
Note 8 – Benefit Plans
DP&L sponsors a defined benefit pension plan for the majority of its employees.
We generally fund pension plan benefits as accrued in accordance with the minimum funding requirements of ERISA and, in addition, make voluntary contributions from time to time. There were $7.5 million in employer contributions during each of the six monthssix-month periods ended June 30, 20192020 and 2018.2019.
The amounts presented in the following tables for pension include the collective bargaining plan formula, the traditional management plan formula, the cash balance plan formula and the SERP, in the aggregate. The pension costs below have not been adjusted for amounts billed to the Service Company for former DP&L employees who are now employed by the Service Company that are still participants in the DP&L plan.
The net periodic benefit cost of the pension benefit plans for the three and six months ended June 30, 20192020 and 20182019 was:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three months ended | | | | Six months ended | | |
| | June 30, | | | | June 30, | | |
| $ in millions | | 2020 | | 2019 | | 2020 | | 2019 |
| Service cost | | $ | 1.0 | | | $ | 0.9 | | | $ | 1.9 | | | $ | 1.8 | |
| Interest cost | | 2.9 | | | 3.8 | | | 5.9 | | | 7.5 | |
| Expected return on plan assets | | (4.7) | | | (5.0) | | | (9.4) | | | (10.0) | |
| Amortization of unrecognized: | | | | | | | | |
| Prior service cost | | 0.2 | | | 0.3 | | | 0.5 | | | 0.6 | |
| Actuarial loss | | 1.6 | | | 1.0 | | | 3.1 | | | 2.1 | |
| Net periodic benefit cost | | $ | 1.0 | | | $ | 1.0 | | | $ | 2.0 | | | $ | 2.0 | |
|
| | | | | | | | | | | | | | | | |
| | | Three months ended | | Six months ended |
| | | June 30, | | June 30, |
| $ in millions | | 2019 | | 2018 | | 2019 | | 2018 |
| Service cost | | $ | 0.9 |
| | $ | 1.5 |
| | $ | 1.8 |
| | $ | 3.0 |
|
| Interest cost | | 3.8 |
| | 3.5 |
| | 7.5 |
| | 6.9 |
|
| Expected return on plan assets | | (5.0 | ) | | (5.4 | ) | | (10.0 | ) | | (10.6 | ) |
| Amortization of unrecognized: | | | | | | | | |
| Prior service cost | | 0.3 |
| | 0.3 |
| | 0.6 |
| | 0.5 |
|
| Actuarial loss | | 1.0 |
| | 1.6 |
| | 2.1 |
| | 3.2 |
|
| Net periodic benefit cost | | $ | 1.0 |
| | $ | 1.5 |
| | $ | 2.0 |
| | $ | 3.0 |
|
In addition, DP&L provides postretirement health care and life insurance benefits to certain retired employees, their spouses and eligible dependents. We have funded a portion of the union-eligible benefits using a Voluntary Employee Beneficiary Association Trust. These postretirement health care benefits and the related unfunded obligation of $9.0$9.6 million at June 30, 20192020 and $9.2$9.6 million at December 31, 20182019 were not material to the financial statements in the periods covered by this report.
Note 9 – Shareholder's Deficit
Capital Contributions from AES
In DP&L's six-year 2017 ESP, the PUCO imposed restrictions on DPL making dividend payments to its parent company, AES, during the term of the ESP, as well as on making tax-sharing payments to AES during the term of the DMR. The PUCO also required that existing tax payments owed by DPL to AES, and similar tax payments that accrue during the term of the DMR, be converted into equity investments in DPL. With the November 21, 2019 order from the PUCO that removed the DMR and the subsequent approval of DP&L's ESP 1 rate plan, these requirements were eliminated. See Note 3 – Regulatory Matters in Item 8. — Financial Statements and Supplementary Data of our Form 10-K for additional information on changes to DP&L's ESP and the removal of the DMR.
For the six months ended June 30, 2019, DPL had a current tax benefit. Consequently, there was no conversion of current tax liabilities to AES capital contributions for the six months ended June 30, 2019.
During the six months ended June 30, 2020, DPL received $150.0 million in a cash contribution from AES, which DPL then used to make a $150.0 million capital contribution to DP&L. The contribution at DPL represented an equity capital contribution of $98.0 million and a payment of $52.0 million against its tax receivable. The proceeds from the capital contribution at DP&L will primarily be used for funding needs to support DP&L's capital expenditure program, mainly new investments in and upgrades to DP&L’s transmission and distribution system.
Note 9 – Shareholder's Equity
Capital Contributions from AES
DP&L's approved six-year 2017 ESP restricts DPL from making dividend payments to its parent company, AES, during the term of the ESP, as well as from making tax-sharing payments to AES during the term of the DMR. The 2017 ESP also requires that existing tax payments owed by DPL to AES, and similar tax payments that accrue during the term of the DMR, be converted into equity investments in DPL.
For the six months ended June 30, 2018, AES made capital contributions of $26.7 million by converting the amount owed to it by DPL related to tax-sharing payments for current tax liabilities. Through the six months ended June 30, 2019, DPL has a current tax benefit. Consequently, there was no conversion of current tax liabilities in 2019.
Note 10 – Contractual Obligations, Commercial Commitments and Contingencies
Guarantees
In the normal course of business, DPL enters into various agreements with its wholly-owned subsidiary, AES Ohio Generation, providing financial or performance assurance to third parties. These agreements are entered into primarily to support or enhance the creditworthiness otherwise attributed to this subsidiary on a stand-alone basis, thereby facilitating the extension of sufficient credit to accomplish this subsidiary's intended commercial purposes.
At June 30, 2019, 2020, DPL had $21.6$11.9 million of guarantees on behalf of AES Ohio Generation to third parties for future financial or performance assurance under such agreements. The guarantee arrangements entered into by DPL with these third parties cover select present and future obligations of AES Ohio Generation to such beneficiaries and are terminable by DPL upon written notice to the beneficiaries within a certain time. At June 30, 20192020 and December 31, 2018,2019, we had no outstanding balance of obligations covered by these guarantees.
To date, DPL has not incurred any losses related to the guarantees of AES Ohio Generation’s obligations and we believe it is unlikely that DPL would be required to perform or incur any losses in the future associated with any of the above guarantees.
Equity Ownership Interest
DP&L has a 4.9% equity ownership interest in OVEC, which is recorded using the cost method of accounting under GAAP. DP&L, along with several non-affiliated energy companies party to an OVEC arrangement, receive and pay for OVEC capacity and energy and are responsible for OVEC debt obligations and other fixed costs in proportion to their power participation ratios under the arrangement which, for DP&L, is the same as its equity ownership interest. At June 30, 2019, 2020, DP&L could be responsible for the repayment of 4.9%, or $67.2$64.0 million, of $1,372.4$1,306.0 million OVEC debt obligations if they came due, comprised of both fixed and variable rate securities with maturities from 20192022 to 2040. OVEC could also seek additional contributions from DP&L to avoid a default in the event that other OVEC members defaulted on their respective OVEC obligations. One of the other OVEC members with a 4.85% interest in OVEC,had filed for bankruptcy protection and the bankruptcy court had approved that member's rejection of the OVEC arrangement and its related obligations on July 31, 2018. We do not expect these eventsobligations. Subsequent to have a material impact on our financial condition, results of operations or cash flows.that decision, another entity has assumed that member's ownership interest and all related liabilities.
Contingencies
In the normal course of business, we are subject to various lawsuits, actions, proceedings, claims and other matters asserted under various laws and regulations. We believe the amounts provided in our Condensed Consolidated Financial Statements, as prescribed by GAAP, are adequate considering the probable and estimable contingencies. However, there can be no assurances that the actual amounts required to satisfy alleged liabilities from various legal proceedings, claims, tax examinations and other matters discussed below, and to comply with applicable laws and regulations, will not exceed the amounts reflected in our Condensed Consolidated Financial Statements. As such, costs, if any, that may be incurred in excess of those amounts provided as of June 30, 2019,2020, cannot be reasonably determined.
Environmental Matters
DPL’s and DP&L’s current and previously-owned facilities and operations are subject to a wide range of federal, state and local environmental regulations and laws. The environmental issues that may affect us include:
•The federal CAA and state laws and regulations (including State Implementation Plans) which require compliance, obtaining permits and reporting as to air emissions;
•Litigation with federal and certain state governments and certain special interest groups;
•Rules and future rules issued by the USEPA, the Ohio EPA or other authorities associated with the federal Clean Water Act, which prohibits the discharge of pollutants into waters of the United States except pursuant to appropriate permits; and
•Solid and hazardous waste laws and regulations, which govern the management and disposal of certain waste. The majority of solid waste created from the combustion of coal and fossil fuels consists of fly ash and other coal combustion by-products.
In addition to imposing continuing compliance obligations, these laws and regulations authorize the imposition of substantial penalties for noncompliance, including fines, injunctive relief and other sanctions. In the normal course of business, we have investigatory and remedial activities underway at our facilities to comply, or to determine compliance, with such regulations. We record liabilities for loss contingencies related to environmental matters when a loss is probable of occurring and can be reasonably estimated in accordance with the provisions of GAAP. Accordingly, we have immaterial accruals for loss contingencies for environmental matters. We also have several environmental matters for which we have not accrued loss contingencies because the risk of loss is not probable, or a loss cannot be reasonably estimated. We evaluate the potential liability related to environmental matters quarterly and may revise our estimates. Such revisions in the estimates of the potential liabilities could have a material adverse effect on our results of operations, financial condition and cash flows.
We have several pending environmental matters associated with our current and previously ownedpreviously-owned coal-fired generation units. Some of these matters could have a material adverse effect on our results of operations, financial condition and cash flows.
Note 11 – Business Segments
DPL has presented the results of operations of Miami Fort Station, Zimmer Station, the Peaker Assets, Stuart Station, and Killen Station as discontinued operations as a group of components for all periods presented. For more information, see Note 14 – Discontinued Operations of Notes to DPL's Condensed Consolidated Financial Statements. As such, AES Ohio Generation only has operating activity coming from its undivided ownership interest in Conesville, which does not meet the thresholds to be a separate reportable operating segment. DPL manages its business through one1 reportable operating segment, the Utility segment. The primary segment performance measure is income / (loss) from continuing operations before income tax as management has concluded that this measure best reflects the underlying business performance of DPL and is the most relevant measure considered in DPL’s internal evaluation of the financial performance of its segment. The Utility segment is discussed further below.
Utility Segment
The Utility segment is comprised of DP&L’s electric transmission and distribution businesses, which distribute electricity to residential, commercial, industrial and governmental customers. DP&L distributes electricity to more than 525,000528,000 retail customers located in a 6,000-square mile area of West Central Ohio. DP&L’s electric transmission and distribution businesses are subject to rate regulation by federal and state regulators. Accordingly, DP&L applies the accounting standards for regulated operations to its electric transmission and distribution businesses recording regulatory assets when incurred costs are expected to be recovered in future customer rates and regulatory liabilities when current cost recoveries in customer rates relate to expected future costs. The Utility segment includes revenues and costs associated with our investment in OVEC and the historical results of DP&L’s Beckjord Facility, which was closed in 2014 and transferred to a third party in the first quarter of 2018, and Hutchings Coal generating facility, which was closed in 2013. These assetsThis facility did not transfer to AES Ohio Generation as part of DP&L's Generation Separation on October 1, 2017. Thus, they areit is grouped within the Utility segment for segment reporting purposes. In addition, regulatory deferrals and collections, which include collections and amortization of fuel deferrals infrom historical periods, are included in the Utility segment.
Included within the “Other” column are other businesses that do not meet the GAAP requirements for disclosure as reportable segments as well as certain corporate costs, which include interest expense and loss on early extinguishment of debt on DPL's long-term debt as well as adjustments related to purchase accounting from the Merger.DPL's undivided interest in Conesville is now included within the "Other" column as it no longer meets the requirement for disclosure as a reportable operating segment, since the results of operations of the other EGUs are now presented as discontinued operations. The accounting policies of the reportable segment are the same as those described in Note 1 – Overview and Summary of Significant Accounting Policies of our 10-K. Intersegment sales, costs of sales and expenses are eliminated in consolidation. Certain shared and corporate costs are allocated between "Other" and the Utility reporting segment.
The following tables present financial information for DPL’s Utility reportable business segment:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| $ in millions | | Utility | | | | Other | | Adjustments and Eliminations | | DPL Consolidated |
| Three months ended June 30, 2020 | | | | | | | | | | |
| Revenues from external customers | | $ | 152.8 | | | | | $ | 2.3 | | | $ | — | | | $ | 155.1 | |
| Intersegment revenues | | 0.3 | | | | | 0.9 | | | (1.2) | | | — | |
| Total revenues | | $ | 153.1 | | | | | $ | 3.2 | | | $ | (1.2) | | | $ | 155.1 | |
| | | | | | | | | | |
| Depreciation and amortization | | $ | 18.2 | | | | | $ | 0.3 | | | $ | — | | | $ | 18.5 | |
| | | | | | | | | | |
| Interest expense | | $ | 6.4 | | | | | $ | 13.0 | | | | | $ | 19.4 | |
| | | | | | | | | | |
| Income / (loss) from continuing operations before income tax | | $ | 15.5 | | | | | $ | (11.8) | | | $ | — | | | $ | 3.7 | |
| | | | | | | | | | |
| Capital expenditures | | $ | 36.8 | | | | | $ | 2.6 | | | $ | — | | | $ | 39.4 | |
| | | | | | | | | | |
| $ in millions | | Utility | | | | Other (a) | | Adjustments and Eliminations | | DPL Consolidated |
| Three Months Ended June 30, 2019 | | | | | | | | | | |
| Revenues from external customers | | $ | 177.4 | | | | | $ | 2.2 | | | $ | — | | | $ | 179.6 | |
| Intersegment revenues | | 0.3 | | | | | 0.8 | | | (1.1) | | | — | |
| Total revenues | | $ | 177.7 | | | | | $ | 3.0 | | | $ | (1.1) | | | $ | 179.6 | |
| | | | | | | | | | |
| Depreciation and amortization | | $ | 17.5 | | | | | $ | 0.4 | | | $ | — | | | $ | 17.9 | |
| | | | | | | | | | |
| Interest expense | | $ | 6.7 | | | | | $ | 15.0 | | | $ | — | | | $ | 21.7 | |
| Loss on early extinguishment of debt | | $ | — | | | | | $ | 44.9 | | | $ | — | | | $ | 44.9 | |
| Income / (loss) from continuing operations before income tax | | $ | 36.0 | | | | | $ | (58.1) | | | $ | — | | | $ | (22.1) | |
| | | | | | | | | | |
| Capital expenditures | | $ | 28.5 | | | | | $ | 0.6 | | | $ | — | | | $ | 29.1 | |
| | | | | | | | | | |
| $ in millions | | Utility | | | | Other | | Adjustments and Eliminations | | DPL Consolidated |
| Six months ended June 30, 2020 | | | | | | | | | | |
| Revenues from external customers | | $ | 321.6 | | | | | $ | 4.7 | | | $ | — | | | $ | 326.3 | |
| Intersegment revenues | | 0.5 | | | | | 1.7 | | | (2.2) | | | — | |
| Total revenues | | $ | 322.1 | | | | | $ | 6.4 | | | $ | (2.2) | | | $ | 326.3 | |
| | | | | | | | | | |
| Depreciation and amortization | | $ | 35.5 | | | | | $ | 0.7 | | | $ | — | | | $ | 36.2 | |
| | | | | | | | | | |
| Interest expense | | $ | 12.6 | | | | | $ | 25.7 | | | | | $ | 38.3 | |
| | | | | | | | | | |
| Income / (loss) from continuing operations before income tax | | $ | 28.4 | | | | | $ | (22.3) | | | $ | — | | | $ | 6.1 | |
| | | | | | | | | | |
| Capital expenditures | | $ | 80.5 | | | | | $ | 3.5 | | | $ | — | | | $ | 84.0 | |
| | | | | | | | | | |
| $ in millions | | Utility | | | | Other | | Adjustments and Eliminations | | DPL Consolidated |
| Six months ended June 30, 2019 | | | | | | | | | | |
| Revenues from external customers | | $ | 378.5 | | | | | $ | 5.1 | | | $ | — | | | $ | 383.6 | |
| Intersegment revenues | | 0.6 | | | | | 1.6 | | | (2.2) | | | — | |
| Total revenues | | $ | 379.1 | | | | | $ | 6.7 | | | $ | (2.2) | | | $ | 383.6 | |
| | | | | | | | | | |
| Depreciation and amortization | | $ | 35.5 | | | | | $ | 0.8 | | | $ | — | | | $ | 36.3 | |
| | | | | | | | | | |
| Interest expense | | $ | 13.8 | | | | | $ | 31.6 | | | $ | — | | | $ | 45.4 | |
| Loss on early extinguishment of debt | | $ | — | | | | | $ | 44.9 | | | $ | — | | | $ | 44.9 | |
| Income / (loss) from continuing operations before income tax | | $ | 71.1 | | | | | $ | (72.5) | | | $ | — | | | $ | (1.4) | |
| | | | | | | | | | |
| Capital expenditures | | $ | 62.2 | | | | | $ | 1.2 | | | $ | — | | | $ | 63.4 | |
|
| | | | | | | | | | | | | | | | |
| $ in millions | | Utility | | Other | | Adjustments and Eliminations | | DPL Consolidated |
| Three months ended June 30, 2019 |
| Revenues from external customers | | $ | 177.4 |
| | $ | 6.8 |
| | $ | — |
| | $ | 184.2 |
|
| Intersegment revenues | | 0.3 |
| | 0.8 |
| | (1.1 | ) | | — |
|
| Total revenues | | $ | 177.7 |
| | $ | 7.6 |
| | $ | (1.1 | ) | | $ | 184.2 |
|
| | | | | | | | | |
| Depreciation and amortization | | $ | 17.5 |
| | $ | 0.5 |
| | $ | — |
| | $ | 18.0 |
|
| Interest expense | | $ | 6.7 |
| | $ | 15.0 |
| | $ | — |
| | $ | 21.7 |
|
| Loss on early extinguishment of debt | | $ | — |
| | $ | 44.9 |
| | $ | — |
| | $ | 44.9 |
|
| Income / (loss) from continuing operations before income tax | | $ | 36.0 |
| | $ | (58.7 | ) | | $ | — |
| | $ | (22.7 | ) |
| | | | | | | | | |
| Cash capital expenditures | | $ | 28.5 |
| | $ | 0.6 |
| | $ | — |
| | $ | 29.1 |
|
| | | | | | | | | |
| $ in millions | | Utility | | Other (a) | | Adjustments and Eliminations | | DPL Consolidated |
| Three Months Ended June 30, 2018 |
| Revenues from external customers | | $ | 168.6 |
| | $ | 9.5 |
| | $ | — |
| | $ | 178.1 |
|
| Intersegment revenues | | 0.2 |
| | 0.8 |
| | (1.0 | ) | | — |
|
| Total revenues | | $ | 168.8 |
| | $ | 10.3 |
| | $ | (1.0 | ) | | $ | 178.1 |
|
| | | | | | | | | |
| Depreciation and amortization | | $ | 18.8 |
| | $ | 1.5 |
| | $ | — |
| | $ | 20.3 |
|
| Interest expense | | $ | 6.5 |
| | $ | 17.5 |
| | $ | — |
| | $ | 24.0 |
|
| Income / (loss) from continuing operations before income tax | | $ | 17.1 |
| | $ | (24.0 | ) | | $ | — |
| | $ | (6.9 | ) |
| | | | | | | | | |
| Cash capital expenditures | | $ | 19.9 |
| | $ | 3.5 |
| | $ | — |
| | $ | 23.4 |
|
| | | | | | | | | |
| $ in millions | | Utility | | Other | | Adjustments and Eliminations | | DPL Consolidated |
| Six months ended June 30, 2019 |
| Revenues from external customers | | $ | 378.5 |
| | $ | 14.7 |
| | $ | — |
| | $ | 393.2 |
|
| Intersegment revenues | | 0.6 |
| | 1.6 |
| | (2.2 | ) | | — |
|
| Total revenues | | $ | 379.1 |
| | $ | 16.3 |
| | $ | (2.2 | ) | | $ | 393.2 |
|
| | | | | | | | | |
| Depreciation and amortization | | $ | 35.5 |
| | $ | 0.9 |
| | $ | — |
| | $ | 36.4 |
|
| Interest expense | | $ | 13.8 |
| | $ | 31.6 |
| | $ | — |
| | $ | 45.4 |
|
| Loss on early extinguishment of debt | | $ | — |
| | $ | 44.9 |
| | $ | — |
| | $ | 44.9 |
|
| Income / (loss) from continuing operations before income tax | | $ | 71.1 |
| | $ | (74.6 | ) | | $ | — |
| | $ | (3.5 | ) |
| | | | | | | | | |
| Cash capital expenditures | | $ | 62.2 |
| | $ | 1.2 |
| | $ | — |
| | $ | 63.4 |
|
| | | | | | | | | |
| $ in millions | | Utility | | Other (a) | | Adjustments and Eliminations | | DPL Consolidated |
| Six months ended June 30, 2018 |
| Revenues from external customers | | $ | 364.4 |
| | $ | 19.4 |
| | $ | — |
| | $ | 383.8 |
|
| Intersegment revenues | | 0.4 |
| | 1.4 |
| | (1.8 | ) | | — |
|
| Total revenues | | $ | 364.8 |
| | $ | 20.8 |
| | $ | (1.8 | ) | | $ | 383.8 |
|
| | | | | | | | | |
| Depreciation and amortization | | $ | 37.4 |
| | $ | 1.7 |
| | $ | — |
| | $ | 39.1 |
|
| Interest expense | | $ | 14.7 |
| | $ | 37.1 |
| | $ | — |
| | $ | 51.8 |
|
| Income / (loss) from continuing operations before income tax | | $ | 36.4 |
| | $ | (42.5 | ) | | $ | — |
| | $ | (6.1 | ) |
| | | | | | | | | |
| Cash capital expenditures | | $ | 44.5 |
| | $ | 6.2 |
| | $ | — |
| | $ | 50.7 |
|
| |
(a) | "Other" includes Cash capital expenditures related to assets of discontinued operations and held-for-sale businesses for the three and six months ended June 30, 2018. |
| | | | | | | | | | | | | | |
| Total Assets | | June 30, 2020 | | December 31, 2019 |
| Utility | | $ | 1,933.1 | | | $ | 1,883.2 | |
All Other (a) | | 324.3 | | | 52.6 | |
| DPL Consolidated | | $ | 2,257.4 | | | $ | 1,935.8 | |
(a) "All Other" includes Total assets related to the assets of discontinued operations and held-for-sale businesses and Eliminations for all periods presented. "All Other" Total assets at June 30, 2020 is primarily cash on hand from debt issuances. |
| | | | | | | | |
| Total Assets | | June 30, 2019 | | December 31, 2018 |
| Utility | | $ | 1,775.1 |
| | $ | 1,819.6 |
|
All Other (a) | | 42.6 |
| | 63.5 |
|
| DPL Consolidated | | $ | 1,817.7 |
| | $ | 1,883.1 |
|
| |
(a) | "All Other" includes Total assets related to the assets of discontinued operations and held-for-sale businesses and Eliminations for all periods presented. |
Note 12 – Revenue
Revenue is primarily earned from retail and wholesale electricity sales and electricity transmission and distribution delivery services. Revenue is recognized upon transfer of control to customers in an amount that reflects the consideration to which we expect to be entitled in exchange for those goods or services. Revenue is recorded net of any taxes assessed on and collected from customers, which are remitted to the governmental authorities. For further discussion of our Retail, Wholesale, RTO ancillary, and Capacity revenues, see Note 14 — Revenue in Item 8.—Financial Statements and Supplementary Data of our Form 10-K.
DPL's revenue from contracts with customers was $173.2$148.3 million and $168.5$168.6 million for the three months ended June 30, 20192020 and 2018,2019, respectively, and $381.5$315.3 million and $365.0$371.9 million for the six months ended June 30, 2020 and 2019, and 2018, respectively.
The following table presents our revenue from contracts with customers and other revenue by segment for the three and six months ended June 30, 20192020 and 2018:2019:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| $ in millions | | Utility | | Other | | Adjustments and Eliminations | | Total |
| | Three Months Ended June 30, 2020 | | | | | | |
| Retail revenue | | | | | | | | |
| Retail revenue from contracts with customers | | | | | | | | |
| Residential revenue | | $ | 83.7 | | | $ | — | | | $ | — | | | $ | 83.7 | |
| Commercial revenue | | 26.5 | | | — | | | — | | | 26.5 | |
| Industrial revenue | | 11.9 | | | — | | | — | | | 11.9 | |
| Governmental revenue | | 8.6 | | | — | | | — | | | 8.6 | |
Other (a) | | 2.6 | | | — | | | — | | | 2.6 | |
| Total retail revenue from contracts with customers | | 133.3 | | | — | | | — | | | 133.3 | |
Other retail revenue (b) | | 5.4 | | | — | | | — | | | 5.4 | |
| Wholesale revenue | | | | | | | | |
| Wholesale revenue from contracts with customers | | 1.8 | | | — | | | (0.3) | | | 1.5 | |
| RTO ancillary revenue | | 10.1 | | | 0.1 | | | — | | | 10.2 | |
| Capacity revenue | | 1.1 | | | — | | | — | | | 1.1 | |
| Miscellaneous revenue | | | | | | | | |
Miscellaneous revenue from contracts with customers (c) | | — | | | 2.2 | | | — | | | 2.2 | |
| Other miscellaneous revenue | | 1.4 | | | 0.9 | | | (0.9) | | | 1.4 | |
| Total revenues | | $ | 153.1 | | | $ | 3.2 | | | $ | (1.2) | | | $ | 155.1 | |
| | | | | | | | |
| | | $ in millions | | Utility | | Other | | Adjustments and Eliminations | | Total | $ in millions | | Utility | | Other | | Adjustments and Eliminations | | Total |
| | | Three Months Ended June 30, 2019 | | | | | | | | |
| | | Three Months Ended June 30, 2019 | |
| Retail revenue | | | | | | | | | Retail revenue | | |
| Retail revenue from contracts with customers | | $ | 150.6 |
| | $ | — |
| | $ | 0.3 |
| | $ | 150.9 |
| Retail revenue from contracts with customers | | | | | | | | |
Other retail revenue (a) | | 10.4 |
| | — |
| | — |
| | 10.4 |
| |
| Residential revenue | | Residential revenue | | $ | 87.4 | | | $ | — | | | $ | — | | | $ | 87.4 | |
| Commercial revenue | | Commercial revenue | | 33.8 | | | — | | | — | | | 33.8 | |
| Industrial revenue | | Industrial revenue | | 15.4 | | | — | | | — | | | 15.4 | |
| Governmental revenue | | Governmental revenue | | 10.9 | | | — | | | 0.3 | | | 11.2 | |
Other (a) | | Other (a) | | 3.1 | | | — | | | — | | | 3.1 | |
| Total retail revenue from contracts with customers | | Total retail revenue from contracts with customers | | 150.6 | | | — | | | 0.3 | | | 150.9 | |
Other retail revenue (b) | | Other retail revenue (b) | | 10.4 | | | — | | | — | | | 10.4 | |
| Wholesale revenue | | | | | | | | | Wholesale revenue | |
| Wholesale revenue from contracts with customers | | 3.4 |
| | 3.0 |
| | (0.6 | ) | | 5.8 |
| Wholesale revenue from contracts with customers | | 3.4 | | | — | | | (0.6) | | | 2.8 | |
| RTO ancillary revenue | | 10.9 |
| | 0.1 |
| | — |
| | 11.0 |
| RTO ancillary revenue | | 10.9 | | | — | | | — | | | 10.9 | |
| Capacity revenue | | 1.8 |
| | 1.5 |
| | — |
| | 3.3 |
| Capacity revenue | | 1.8 | | | — | | | — | | | 1.8 | |
Miscellaneous revenue from contracts with customers (b) | | — |
| | 2.2 |
| | — |
| | 2.2 |
| |
| Miscellaneous revenue | | 0.6 |
| | 0.8 |
| | (0.8 | ) | | 0.6 |
| Miscellaneous revenue | |
Miscellaneous revenue from contracts with customers (c) | | Miscellaneous revenue from contracts with customers (c) | | — | | | 2.2 | | | — | | | 2.2 | |
| Other miscellaneous revenue | | Other miscellaneous revenue | | 0.6 | | | 0.8 | | | (0.8) | | | 0.6 | |
| Total revenues | | $ | 177.7 |
| | $ | 7.6 |
| | $ | (1.1 | ) | | $ | 184.2 |
| Total revenues | | $ | 177.7 | | | $ | 3.0 | | | $ | (1.1) | | | $ | 179.6 | |
| | | | | | | | | | | | | | | | | | |
| | | Three Months Ended June 30, 2018 | | Six months ended June 30, 2020 | |
| Retail revenue | | | | | | | | | Retail revenue | | |
| Retail revenue from contracts with customers | | $ | 139.7 |
| | $ | — |
| | $ | (0.2 | ) | | $ | 139.5 |
| Retail revenue from contracts with customers | | | | | | | | |
Other retail revenue (a) | | 9.6 |
| | — |
| | — |
| | 9.6 |
| |
| Residential revenue | | Residential revenue | | $ | 180.6 | | | $ | — | | | $ | — | | | $ | 180.6 | |
| Commercial revenue | | Commercial revenue | | 55.4 | | | — | | | — | | | 55.4 | |
| Industrial revenue | | Industrial revenue | | 23.7 | | | — | | | — | | | 23.7 | |
| Governmental revenue | | Governmental revenue | | 17.8 | | | — | | | — | | | 17.8 | |
Other (a) | | Other (a) | | 6.0 | | | — | | | — | | | 6.0 | |
| Total retail revenue from contracts with customers | | Total retail revenue from contracts with customers | | 283.5 | | | — | | | — | | | 283.5 | |
Other retail revenue (b) | | Other retail revenue (b) | | 8.7 | | | — | | | — | | | 8.7 | |
| Wholesale revenue | | | | | | | | | Wholesale revenue | |
| Wholesale revenue from contracts with customers | | 7.1 |
| | 4.6 |
| | — |
| | 11.7 |
| Wholesale revenue from contracts with customers | | 4.5 | | | — | | | (0.5) | | | 4.0 | |
| RTO ancillary revenue | | 10.5 |
| | 0.1 |
| | — |
| | 10.6 |
| RTO ancillary revenue | | 20.8 | | | 0.1 | | | — | | | 20.9 | |
| Capacity revenue | | 1.9 |
| | 2.1 |
| | — |
| | 4.0 |
| Capacity revenue | | 2.3 | | | — | | | — | | | 2.3 | |
Miscellaneous revenue from contracts with customers (b) | | — |
| | 2.7 |
| | — |
| | 2.7 |
| |
| Miscellaneous revenue | | — |
| | 0.8 |
| | (0.8 | ) | | — |
| Miscellaneous revenue | |
Miscellaneous revenue from contracts with customers (c) | | Miscellaneous revenue from contracts with customers (c) | | — | | | 4.6 | | | — | | | 4.6 | |
| Other miscellaneous revenue | | Other miscellaneous revenue | | 2.3 | | | 1.7 | | | (1.7) | | | 2.3 | |
| Total revenues | | $ | 168.8 |
| | $ | 10.3 |
| | $ | (1.0 | ) | | $ | 178.1 |
| Total revenues | | $ | 322.1 | | | $ | 6.4 | | | $ | (2.2) | | | $ | 326.3 | |
| | | | | | | | | | | | | | | | | | |
| | | Six months ended June 30, 2019 | | Six months ended June 30, 2019 | |
| Retail revenue | | | | | | | | | Retail revenue | | |
| Retail revenue from contracts with customers | | $ | 333.3 |
| | $ | — |
| | $ | — |
| | $ | 333.3 |
| Retail revenue from contracts with customers | | | | | | | | |
Other retail revenue (a) | | 11.1 |
| | — |
| | — |
| | 11.1 |
| |
| Residential revenue | | Residential revenue | | $ | 206.4 | | | $ | — | | | $ | — | | | $ | 206.4 | |
| Commercial revenue | | Commercial revenue | | 68.9 | | | — | | | — | | | 68.9 | |
| Industrial revenue | | Industrial revenue | | 29.8 | | | — | | | — | | | 29.8 | |
| Governmental revenue | | Governmental revenue | | 21.9 | | | — | | | — | | | 21.9 | |
Other (a) | | Other (a) | | 6.3 | | | — | | | — | | | 6.3 | |
| Total retail revenue from contracts with customers | | Total retail revenue from contracts with customers | | 333.3 | | | — | | | — | | | 333.3 | |
Other retail revenue (b) | | Other retail revenue (b) | | 11.1 | | | — | | | — | | | 11.1 | |
| Wholesale revenue | | | | | | | | | Wholesale revenue | |
| Wholesale revenue from contracts with customers | | 8.4 |
| | 6.4 |
| | (0.6 | ) | | 14.2 |
| Wholesale revenue from contracts with customers | | 8.4 | | | — | | | (0.6) | | | 7.8 | |
| RTO ancillary revenue | | 21.8 |
| | 0.1 |
| | — |
| | 21.9 |
| RTO ancillary revenue | | 21.8 | | | — | | | — | | | 21.8 | |
| Capacity revenue | | 3.9 |
| | 3.1 |
| | — |
| | 7.0 |
| Capacity revenue | | 3.9 | | | — | | | — | | | 3.9 | |
Miscellaneous revenue from contracts with customers (b) | | — |
| | 5.1 |
| | — |
| | 5.1 |
| |
| Miscellaneous revenue | | 0.6 |
| | 1.6 |
| | (1.6 | ) | | 0.6 |
| Miscellaneous revenue | |
Miscellaneous revenue from contracts with customers (c) | | Miscellaneous revenue from contracts with customers (c) | | — | | | 5.1 | | | — | | | 5.1 | |
| Other miscellaneous revenue | | Other miscellaneous revenue | | 0.6 | | | 1.6 | | | (1.6) | | | 0.6 | |
| Total revenues | | $ | 379.1 |
| | $ | 16.3 |
| | $ | (2.2 | ) | | $ | 393.2 |
| Total revenues | | $ | 379.1 | | | $ | 6.7 | | | $ | (2.2) | | | $ | 383.6 | |
| | | | | | | | | | |
| | | Six months ended June 30, 2018 | |
| Retail revenue | | | | | | | | | |
| Retail revenue from contracts with customers | | $ | 300.9 |
| | $ | — |
| | $ | (0.4 | ) | | $ | 300.5 |
| |
Other retail revenue (a) | | 18.8 |
| | — |
| | — |
| | 18.8 |
| |
| Wholesale revenue | | | | | | | | | |
| Wholesale revenue from contracts with customers | | 19.7 |
| | 11.1 |
| | — |
| | 30.8 |
| |
| RTO ancillary revenue | | 21.6 |
| | 0.2 |
| | — |
| | 21.8 |
| |
| Capacity revenue | | 3.8 |
| | 3.0 |
| | — |
| | 6.8 |
| |
Miscellaneous revenue from contracts with customers (b) | | — |
| | 5.1 |
| | — |
| | 5.1 |
| |
| Miscellaneous revenue | | — |
| | 1.4 |
| | (1.4 | ) | | — |
| |
| Total revenues | | $ | 364.8 |
| | $ | 20.8 |
| | $ | (1.8 | ) | | $ | 383.8 |
| |
28
| |
(a) | Other retail revenue primarily includes alternative revenue programs not accounted for under FASC 606. |
| |
(b) | Miscellaneous revenue from contracts with customers primarily includes revenues for various services provided by Miami Valley Lighting. |
(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 $63.5$61.3 million and $72.6$65.1 million as of June 30, 20192020 and December 31, 2018,2019, respectively. Payment terms for all receivables from contracts with customers are typically within 30 days.
Note 13 – Dispositions
Beckjord Facility – On February 26, 2018, DP&L and its co-owners of the retired Beckjord Facility agreed to transfer their interests in the retired Facility to a third party, including their obligations to remediate the Facility and its site,
and the transfer occurred on that same date. As a result, DPL recognized a loss on the transfer of $11.7 million and made cash expenditures of $14.5 million, inclusive of cash expenditures for the transfer charges. The Beckjord Facility was retired in 2014, and, as such, the income / (loss) from continuing operations before income tax related to the Beckjord Facility was immaterial for the three and six months ended June 30, 2018, excluding the loss on transfer noted above. Prior to the transfer, the Beckjord Facility was included in the Utility segment.
Note 1413 – Discontinued Operations
Conesville - In May 2020, AEP, the operator of the formerly co-owned Conesville EGU, retired Conesville Unit 4 as planned. On December 8, 2017, June 5, 2020, DPLand AES Ohio Generation, together with AEP, completed the saletransfer of their entire undivided interestinterests in the Miami Fort Stationretired Unit 4, including the associated environmental liabilities, to an unaffiliated third-party purchaser. As a result, DPL made cash expenditures of $0.6 million and recognized a gain on the Zimmer Station. On March 27, 2018, DPL and AES Ohio Generation completed the saletransfer of the Peaker assets to Kimura Power, LLC, and this transaction resulted in a loss on sale of $1.9$4.5 million for the three and six months ended June 30, 2018. Further, on2020. For the transaction, DPL will make additional quarterly cash expenditures, totaling $3.4 million, through July 2022. The transfer of Conesville Unit 4 was the last step in DPL's plan to exit its AES Ohio Generation business operations.
Stuart and Killen - On May 31, 2018, DPL and AES Ohio Generation retired the Stuart Station coal-fired and diesel-fired generating units and the Killen Station coal-fired generating unit and combustion turbine, as planned. On December 20, 2019, DPL and AES Ohio Generation, together with AES Ohio Generation's joint owners in the retired Stuart and Killen generating facilities, completed the transfer of the retired generating facilities, including the associated environmental liabilities, to an unaffiliated third-party purchaser.
Consequently, weDPL determined that the transfers of Conesville, Stuart and Killen along with the sales of the Peaker Assets in 2018 and Miami Fort and Zimmer in 2017 constitute the disposal of a group of components, which, as a whole, represent a strategic shift to exit its AES Ohio Generation business. As such, the disposal of this group of components as a whole, represents a strategic shift by us to exit generation, and, as such, qualifies to be presented as discontinued operations. Therefore, the results of operations, assets and liabilities of this group of components were reported as such in the Condensed Consolidated Statements of Operations and Condensed Consolidated Balance Sheets for all periods presented.
The following table summarizes the major categories of assets and liabilities at the datesdate indicated:
|
| | | | | | | | |
| $ in millions | | June 30, 2019 | | December 31, 2018 |
| Accounts receivable, net | | $ | 2.4 |
| | $ | 4.0 |
|
| Taxes applicable to subsequent years | | 1.2 |
| | 2.3 |
|
| Prepayments and other current assets | | 0.6 |
| | 2.4 |
|
| Intangible assets, net of amortization | | 5.2 |
| | 5.3 |
|
| Total assets of the disposal group classified as assets of discontinued operations and held-for-sale businesses in the balance sheets | | $ | 9.4 |
| | $ | 14.0 |
|
| | | | | |
| Accounts payable | | $ | 5.7 |
| | $ | 3.9 |
|
| Accrued taxes | | 1.2 |
| | 3.1 |
|
| Accrued and other current liabilities | | 3.7 |
| | 5.2 |
|
Deferred income taxes (a) | | (33.9 | ) | | (39.8 | ) |
| Taxes payable | | 1.2 |
| | 2.3 |
|
| Accrued pension and other post-retirement benefits | | — |
| | 9.7 |
|
| Asset retirement obligations | | 69.7 |
| | 90.4 |
|
| Other non-current liabilities | | 15.7 |
| | 6.6 |
|
| Total liabilities of the disposal group classified as liabilities of discontinued operations and held-for-sale businesses in the balance sheets | | $ | 63.3 |
| | $ | 81.4 |
|
| | | | | | | | | | |
(a)$ in millions | | | | December 31, 2019 |
| Accounts receivable, net | | | | $ | 18.0 | |
| | | | |
| | | | |
| Inventories | | | | 3.7 | |
| Taxes applicable to subsequent years | | | | 0.3 | |
| Prepayments and other current assets | | | | 0.3 | |
| | | | |
| | | | |
| | | | |
| Intangible assets, net of amortization | | | | 0.1 | |
| Other non-current assets | | | | 1.0 | |
| Total assets of the disposal group classified as assets of discontinued operations and held-for-sale businesses in the balance sheets | | | | $ | 23.4 | |
| | | | |
| Accounts payable | | | | $ | 5.6 | |
| | | | |
| Accrued taxes | | | | 0.3 | |
| Accrued and other current liabilities | | | | 3.1 | |
| | | | |
Deferred income taxes represent the tax asset position(a) | | | | (6.5) | |
| Taxes payable | | | | 0.3 | |
| | | | |
| Asset retirement obligations | | | | 8.3 | |
| Other non-current liabilities | | | | 6.3 | |
Total liabilities of the disposal group classified as liabilities of discontinued group of components, which were netted with liabilities on DPL prior to classification as discontinued operations.operations and held-for-sale businesses in the balance sheets | | | | $ | 17.4 | |
(a) Deferred income taxes represent the tax asset position of the discontinued group of components, which were netted with liabilities on DPL prior to classification as discontinued operations.
The following table summarizes the revenues, operating costs, other expenses and income tax of discontinued operations for the periods indicated:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three months ended | | | | Six months ended | | |
| | June 30, | | | | June 30, | | |
| $ in millions | | 2020 | | 2019 | | 2020 | | 2019 |
| Revenues | | $ | 8.8 | | | $ | 19.1 | | | $ | 22.4 | | | $ | 40.5 | |
| | | | | | | | |
| Operating costs and other expenses | | (10.0) | | | (16.3) | | | (24.4) | | | (9.4) | |
| | | | | | | | |
| Income from discontinued operations | | (1.2) | | | 2.8 | | | (2.0) | | | 31.1 | |
| Gain from disposal of discontinued operations | | 4.5 | | | — | | | 4.5 | | | 0.1 | |
| Income tax expense from discontinued operations | | 0.7 | | | 0.4 | | | 0.5 | | | 6.5 | |
| Net income from discontinued operations | | $ | 2.6 | | | $ | 2.4 | | | $ | 2.0 | | | $ | 24.7 | |
|
| | | | | | | | | | | | | | | | |
| | | Three months ended | | Six months ended |
| | | June 30, | | June 30, |
| $ in millions | | 2019 | | 2018 | | 2019 | | 2018 |
| Revenues | | $ | 14.6 |
| | $ | 38.7 |
| | $ | 30.9 |
| | $ | 126.2 |
|
| Operating costs and other expenses | | (11.2 | ) | | (28.7 | ) | | 2.3 |
| | (94.5 | ) |
| Income from discontinued operations | | 3.4 |
| | 10.0 |
| | 33.2 |
| | 31.7 |
|
| Gain / (loss) from disposal of discontinued operations | | — |
| | — |
| | 0.1 |
| | (1.9 | ) |
| Income tax expense from discontinued operations | | 2.7 |
| | 1.1 |
| | 7.0 |
| | 4.9 |
|
| Net income from discontinued operations | | $ | 0.7 |
| | $ | 8.9 |
| | $ | 26.3 |
| | $ | 24.9 |
|
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 $4.8$(2.7) million and $33.9$6.8 million for the three months ended June 30, 20192020 and 2018,2019, respectively, and $12.9$3.6 million and $44.4$11.6 million for the six months ended June 30, 20192020 and 2018,2019, respectively. Cash flows from investing activities for discontinued operations were
$(2.0) $(0.6) million and $233.8$4.4 million, respectively, for the three and six months ended June 30, 2018.2020. There were no material cash flows from investing activities for the three and six months ended June 30, 2019.
AROs of Discontinued Operations
DPL's Prior to the transfer of the retired Stuart and Killen generating facilities, continue to carrythe facilities carried ARO liabilities consisting primarily of river intake and discharge structures, coal unloading facilities, landfills and ash disposal facilities. In the first quarter of 2019, DPL reduced the ARO liability related to the Stuart and Killen ash ponds and landfills by a combined $22.5 million based on updated internal analyses that reduced estimated closure costs associated with these ash ponds and landfills. The remaining ARO liability related to Stuart and Killen is included in the Asset retirement obligations balance in the total liabilities of the disposal group classified as liabilities of discontinued operations and held-for-sale businesses in the balance sheets as of June 30, 2019 above. As these plants arewere no longer in service, the reduction to the ARO liability was also recorded as a credit to depreciation and amortization expense in the same amount. The credit to depreciation and amortization expense is included in operating costs and other expenses of discontinued operations for the six months ended June 30, 2019 in the table above.
Note – 14 Risks and Uncertainties
COVID-19 Pandemic
The COVID-19 pandemic has severely impacted global economic activity, including electricity and energy consumption, and caused significant volatility and negative pressure in financial markets. The global impact of the outbreak has been rapidly evolving and many countries, including the United States, have reacted by instituting quarantines, mandating business and school closures, and restricting travel. The State of Ohio has implemented, among other things, stay-at-home and other social distancing measures to slow the spread of the virus, which has resulted in decreased energy demand within our service territory, though these stay-at-home restrictions have now been lifted in our service territory. On March 12, 2020, the PUCO also issued an emergency order prohibiting electric utilities, including us, from discontinuing electric utility service to customers. This prohibition is currently scheduled to end for DP&L on September 1, 2020, pending approval by the PUCO. 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 reduced revenues and lower margins resulting from decreased energy demand within our service territory, we also have incurred and expect to continue to incur expenses relating to COVID-19, and such expenses may include those that relate to events outside of our control.
For the three and six months ended June 30, 2020, the COVID-19 pandemic primarily impacted our retail sales demand, as the economic impact of the pandemic started to materialize in Ohio in the second half of March 2020 and more so in the second quarter of 2020. For commercial and industrial customers, weather-normalized volumes of kWh sold decreased by 11.0% and 19.9%, respectively, for the three months ended June 30, 2020 as compared to the same period in the prior year. For residential customers, weather-normalized volumes of kWh sold increased by 8.5% for the three months ended June 30, 2020 as compared to the same period in the prior year. We also have incurred, and expect to continue to incur, expenses relating to COVID-19; however, see Note 3 – Regulatory Matters for a discussion of regulatory measures, which partially mitigate the impact of these expenses. The magnitude and duration of the COVID-19 pandemic is unknown at this time and may have material and adverse effects on our results of operations, financial condition and cash flows in future periods.
31
FINANCIAL STATEMENTS
The Dayton Power and Light Company
32
| | | THE DAYTON POWER AND LIGHT COMPANY | THE DAYTON POWER AND LIGHT COMPANY | THE DAYTON POWER AND LIGHT COMPANY | |
| Condensed Statements of Operations | Condensed Statements of Operations | Condensed Statements of Operations | |
| (Unaudited) | (Unaudited) | (Unaudited) | |
| | | Three months ended | | Six months ended | | Three months ended | | | Six months ended | |
| | | June 30, | | June 30, | | June 30, | | | June 30, | |
| $ in millions | | 2019 | | 2018 | | 2019 | | 2018 | $ in millions | | 2020 | | 2019 | | 2020 | | 2019 |
| Revenues | | $ | 177.7 |
| | $ | 168.8 |
| | $ | 379.1 |
| | $ | 364.8 |
| Revenues | | $ | 153.1 | | | $ | 177.7 | | | $ | 322.1 | | | $ | 379.1 | |
| | | | | | | | | | |
| Operating costs and expenses | | | | | | | | | Operating costs and expenses | |
| Net fuel cost | | 0.5 |
| | 0.7 |
| | 1.4 |
| | 1.6 |
| Net fuel cost | | 0.3 | | | 0.5 | | | 0.9 | | | 1.4 | |
| Net purchased power cost | | 54.1 |
| | 68.9 |
| | 127.4 |
| | 152.7 |
| Net purchased power cost | | 49.0 | | | 54.1 | | | 111.4 | | | 127.4 | |
| | Operation and maintenance | | 44.8 |
| | 39.9 |
| | 93.0 |
| | 72.1 |
| Operation and maintenance | | 42.8 | | | 44.8 | | | 89.9 | | | 93.0 | |
| Depreciation and amortization | | 17.5 |
| | 18.8 |
| | 35.5 |
| | 37.4 |
| Depreciation and amortization | | 18.2 | | | 17.5 | | | 35.5 | | | 35.5 | |
| Taxes other than income taxes | | 18.0 |
| | 16.0 |
| | 37.4 |
| | 35.3 |
| Taxes other than income taxes | | 21.0 | | | 18.0 | | | 41.8 | | | 37.4 | |
| Loss on asset disposal | | 0.1 |
| | 0.1 |
| | 0.1 |
| | 0.1 |
| |
| Loss on disposal of business (Note 12) | | — |
| | — |
| | — |
| | 12.4 |
| |
| | Other, net | | Other, net | | 0.1 | | | 0.1 | | | — | | | 0.1 | |
| | Total operating costs and expenses | | 135.0 |
| | 144.4 |
| | 294.8 |
| | 311.6 |
| Total operating costs and expenses | | 131.4 | | | 135.0 | | | 279.5 | | | 294.8 | |
| | | | | | | | | | | | | | | | | |
| Operating income | | 42.7 |
| | 24.4 |
| | 84.3 |
| | 53.2 |
| Operating income | | 21.7 | | | 42.7 | | | 42.6 | | | 84.3 | |
| | | | | | | | | | | | | | | | | |
| Other income / (expense), net: | | | | | | | | | Other income / (expense), net: | |
| Interest expense | | (6.7 | ) | | (6.5 | ) | | (13.8 | ) | | (14.7 | ) | Interest expense | | (6.4) | | | (6.7) | | | (12.6) | | | (13.8) | |
| Loss on early extinguishment of debt | | — |
| | (0.1 | ) | | — |
| | (0.6 | ) | |
| | Other income / (expense) | | — |
| | (0.7 | ) | | 0.6 |
| | (1.5 | ) | Other income / (expense) | | 0.2 | | | — | | | (1.6) | | | 0.6 | |
| Total other expense, net | | (6.7 | ) | | (7.3 | ) | | (13.2 | ) | | (16.8 | ) | Total other expense, net | | (6.2) | | | (6.7) | | | (14.2) | | | (13.2) | |
| | | | | | | | | | | | | | | | | |
| Income before income tax | | 36.0 |
| | 17.1 |
| | 71.1 |
| | 36.4 |
| Income before income tax | | 15.5 | | | 36.0 | | | 28.4 | | | 71.1 | |
| | | | | | | | | | |
| Income tax expense | | 6.2 |
| | 2.1 |
| | 12.3 |
| | 5.7 |
| |
| Income tax expense / (benefit) | | Income tax expense / (benefit) | | (2.3) | | | 6.2 | | | (1.1) | | | 12.3 | |
| | | | | | | | | | | | |
| Net income | | $ | 29.8 |
| | $ | 15.0 |
| | $ | 58.8 |
| | $ | 30.7 |
| Net income | | $ | 17.8 | | | $ | 29.8 | | | $ | 29.5 | | | $ | 58.8 | |
See Notes to Condensed Financial Statements.
33
| | | THE DAYTON POWER AND LIGHT COMPANY | THE DAYTON POWER AND LIGHT COMPANY | THE DAYTON POWER AND LIGHT COMPANY | |
| Condensed Statements of Comprehensive Income | Condensed Statements of Comprehensive Income | Condensed Statements of Comprehensive Income | |
| (Unaudited) | (Unaudited) | (Unaudited) | |
| | | Three months ended June 30, | | Six months ended June 30, | |
| | | | Three months ended | | | Six months ended | |
| | | June 30, | | | June 30, | |
| $ in millions | | 2019 | | 2018 | | 2019 | | 2018 | $ in millions | | 2020 | | 2019 | | 2020 | | 2019 |
| Net income | | $ | 29.8 |
| | $ | 15.0 |
| | $ | 58.8 |
| | $ | 30.7 |
| Net income | | $ | 17.8 | | | $ | 29.8 | | | $ | 29.5 | | | $ | 58.8 | |
| Derivative activity: | | | | | | | | | Derivative activity: | | | | | | | | |
| Change in derivative fair value, net of income tax (expense) / benefit of $0.1, $(0.1), $0.2 and $0.3 for each respective period | | (0.6 | ) | | 0.2 |
| | (0.8 | ) | | 0.7 |
| |
| Reclassification to earnings, net of income tax expense of $0.0, $0.1, $0.0 and $0.3 for each respective period | | — |
| | (0.2 | ) | | (0.1 | ) | | (0.5 | ) | |
| Total change in fair value of derivatives | | (0.6 | ) | | — |
| | (0.9 | ) | | 0.2 |
| |
| Change in derivative fair value, net of income tax benefit of $0.0, $0.1, $0.0 and $0.2 for each respective period | | Change in derivative fair value, net of income tax benefit of $0.0, $0.1, $0.0 and $0.2 for each respective period | | 0.2 | | | (0.6) | | | (0.1) | | | (0.8) | |
| Reclassification to earnings, net of income tax benefit of $0.0, $0.0, $0.0 and $0.0 for each respective period | | Reclassification to earnings, net of income tax benefit of $0.0, $0.0, $0.0 and $0.0 for each respective period | | (0.1) | | | — | | | (0.2) | | | (0.1) | |
| | Total derivative activity | | Total derivative activity | | 0.1 | | | (0.6) | | | (0.3) | | | (0.9) | |
| | | | | | | | | | | | | | | | | |
| Pension and postretirement activity: | | | | | | | | | Pension and postretirement activity: | |
| Reclassification to earnings, net of income tax benefit of $(1.2), $(0.2), $(1.4) and $(0.4) for each respective period | | (0.3 | ) | | 0.8 |
| | 0.4 |
| | 1.7 |
| |
| Reclassification to earnings, net of income tax benefit of $(0.2), $(1.2), $(0.4) and $(1.4) for each respective period | | Reclassification to earnings, net of income tax benefit of $(0.2), $(1.2), $(0.4) and $(1.4) for each respective period | | 0.8 | | | (0.3) | | | 1.6 | | | 0.4 | |
| Total change in unfunded pension and postretirement obligations | | (0.3 | ) | | 0.8 |
| | 0.4 |
| | 1.7 |
| Total change in unfunded pension and postretirement obligations | | 0.8 | | | (0.3) | | | 1.6 | | | 0.4 | |
| | | | | | | | | | | | | | | | | |
| Other comprehensive income / (loss) | | (0.9 | ) | | 0.8 |
| | (0.5 | ) | | 1.9 |
| Other comprehensive income / (loss) | | 0.9 | | | (0.9) | | | 1.3 | | | (0.5) | |
| | | | | | | | | | | | | | | | | |
| Net comprehensive income | | $ | 28.9 |
| | $ | 15.8 |
| | $ | 58.3 |
| | $ | 32.6 |
| Net comprehensive income | | $ | 18.7 | | | $ | 28.9 | | | $ | 30.8 | | | $ | 58.3 | |
See Notes to Condensed Financial Statements.
| | | THE DAYTON POWER AND LIGHT COMPANY | THE DAYTON POWER AND LIGHT COMPANY | THE DAYTON POWER AND LIGHT COMPANY | |
| Condensed Balance Sheets | Condensed Balance Sheets | Condensed Balance Sheets | |
| (Unaudited) | (Unaudited) | (Unaudited) | |
| $ in millions | | June 30, 2019 | | December 31, 2018 | $ in millions | | June 30, 2020 | | December 31, 2019 |
| ASSETS | | | | | ASSETS | | | | |
| Current assets: | | | | | Current assets: | | | | |
| Cash and cash equivalents | | $ | 5.6 |
| | $ | 45.0 |
| Cash and cash equivalents | | $ | 74.1 | | | $ | 10.8 | |
| Restricted cash | | 11.5 |
| | 21.2 |
| Restricted cash | | 0.1 | | | 10.5 | |
| Accounts receivable, net (Note 2) | | 71.6 |
| | 90.4 |
| |
| Accounts receivable, net of allowance for credit losses of $3.0 and $0.4, respectively (Note 2) | | Accounts receivable, net of allowance for credit losses of $3.0 and $0.4, respectively (Note 2) | | 66.0 | | | 70.9 | |
| Inventories (Note 2) | | 11.2 |
| | 7.7 |
| Inventories (Note 2) | | 9.1 | | | 10.4 | |
| Taxes applicable to subsequent years | | 36.2 |
| | 72.4 |
| Taxes applicable to subsequent years | | 40.6 | | | 77.4 | |
| Regulatory assets, current | | 43.5 |
| | 41.1 |
| Regulatory assets, current | | 21.7 | | | 19.7 | |
| Taxes receivable | | 16.8 |
| | 19.6 |
| Taxes receivable | | 37.8 | | | 35.7 | |
| Prepayments and other current assets | | 11.0 |
| | 13.3 |
| Prepayments and other current assets | | 7.4 | | | 10.8 | |
| | Total current assets | | 207.4 |
| | 310.7 |
| Total current assets | | 256.8 | | | 246.2 | |
| | | | | | | | | | |
| Property, plant & equipment: | | | | | Property, plant & equipment: | | | | |
| Property, plant & equipment | | 2,305.7 |
| | 2,274.4 |
| Property, plant & equipment | | 2,384.7 | | | 2,333.6 | |
| Less: Accumulated depreciation and amortization | | (1,009.8 | ) | | (988.0 | ) | Less: Accumulated depreciation and amortization | | (1,014.6) | | | (1,012.7) | |
| | | 1,295.9 |
| | 1,286.4 |
| | | 1,370.1 | | | 1,320.9 | |
| Construction work in process | | 74.2 |
| | 31.7 |
| Construction work in process | | 94.0 | | | 104.5 | |
| Total net property, plant & equipment | | 1,370.1 |
| | 1,318.1 |
| Total net property, plant & equipment | | 1,464.1 | | | 1,425.4 | |
| | | | | | | | | |
| Other non-current assets: | | | | | Other non-current assets: | | | | |
| Regulatory assets, non-current | | 158.0 |
| | 152.6 |
| Regulatory assets, non-current | | 176.9 | | | 173.8 | |
| Intangible assets, net of amortization | | 19.3 |
| | 17.2 |
| Intangible assets, net of amortization | | 17.2 | | | 18.2 | |
| Other non-current assets | | 20.3 |
| | 21.0 |
| Other non-current assets | | 18.1 | | | 19.6 | |
| Total other non-current assets | | 197.6 |
| | 190.8 |
| Total other non-current assets | | 212.2 | | | 211.6 | |
| Total assets | | $ | 1,775.1 |
| | $ | 1,819.6 |
| Total assets | | $ | 1,933.1 | | | $ | 1,883.2 | |
| | | | | �� | | | | |
| LIABILITIES AND SHAREHOLDER'S EQUITY | | | | | LIABILITIES AND SHAREHOLDER'S EQUITY | | | | |
| Current liabilities: | | | | | Current liabilities: | | | | |
| Short-term and current portion of long-term debt (Note 6) | | $ | 0.2 |
| | $ | 4.6 |
| Short-term and current portion of long-term debt (Note 6) | | $ | 0.2 | | | $ | 179.8 | |
| Accounts payable | | 82.2 |
| | 55.8 |
| Accounts payable | | 59.1 | | | 74.4 | |
| Accrued taxes | | 76.0 |
| | 75.7 |
| Accrued taxes | | 84.8 | | | 79.4 | |
| Accrued interest | | 2.0 |
| | 0.4 |
| Accrued interest | | 1.3 | | | 1.4 | |
| Customer deposits | | 22.0 |
| | 21.3 |
| Customer deposits | | 19.0 | | | 20.6 | |
| Regulatory liabilities, current | | 36.1 |
| | 34.9 |
| Regulatory liabilities, current | | 17.3 | | | 27.9 | |
| Accrued and other current liabilities | | 13.2 |
| | 17.5 |
| Accrued and other current liabilities | | 14.1 | | | 16.3 | |
| | Total current liabilities | | 231.7 |
| | 210.2 |
| Total current liabilities | | 195.8 | | | 399.8 | |
| | | | | | | | | |
| Non-current liabilities: | | | | | Non-current liabilities: | | | | |
| Long-term debt (Note 6) | | 575.2 |
| | 581.5 |
| Long-term debt (Note 6) | | 574.2 | | | 434.6 | |
| Deferred income taxes | | 125.5 |
| | 131.7 |
| Deferred income taxes | | 171.6 | | | 158.1 | |
| Taxes payable | | 41.1 |
| | 77.1 |
| Taxes payable | | 42.8 | | | 82.3 | |
| Regulatory liabilities, non-current | | 281.7 |
| | 278.3 |
| Regulatory liabilities, non-current | | 227.5 | | | 243.6 | |
| Accrued pension and other post-retirement benefits | | 74.5 |
| | 83.2 |
| Accrued pension and other post-retirement benefits | | 70.5 | | | 79.9 | |
| Asset retirement obligations | | 4.7 |
| | 4.7 |
| |
| | Other non-current liabilities | | 7.4 |
| | 7.6 |
| Other non-current liabilities | | 10.6 | | | 11.5 | |
| Total non-current liabilities | | 1,110.1 |
| | 1,164.1 |
| Total non-current liabilities | | 1,097.2 | | | 1,010.0 | |
| | | | | | | | | |
| Commitments and contingencies (Note 10) | |
| |
| |
| Commitments and contingencies (Note 9) | | Commitments and contingencies (Note 9) | |
| | | | | | |
| Common shareholder's equity: | | | | | Common shareholder's equity: | | | | |
| Common stock, at par value of $0.01 per share | | 0.4 |
| | 0.4 |
| Common stock, at par value of $0.01 per share | | 0.4 | | | 0.4 | |
| 50,000,000 shares authorized, 41,172,173 shares issued and outstanding | | | | | 50,000,000 shares authorized, 41,172,173 shares issued and outstanding | |
| Other paid-in capital | | 641.8 |
| | 711.8 |
| Other paid-in capital | | 752.9 | | | 617.0 | |
| Accumulated other comprehensive loss | | (35.8 | ) | | (35.3 | ) | Accumulated other comprehensive loss | | (35.6) | | | (36.9) | |
| Accumulated deficit | | (173.1 | ) | | (231.6 | ) | Accumulated deficit | | (77.6) | | | (107.1) | |
| Total common shareholder's equity | | 433.3 |
| | 445.3 |
| Total common shareholder's equity | | 640.1 | | | 473.4 | |
| Total liabilities and shareholder's equity | | $ | 1,775.1 |
| | $ | 1,819.6 |
| Total liabilities and shareholder's equity | | $ | 1,933.1 | | | $ | 1,883.2 | |
See Notes to Condensed Financial Statements.
| | | THE DAYTON POWER AND LIGHT COMPANY | THE DAYTON POWER AND LIGHT COMPANY | THE DAYTON POWER AND LIGHT COMPANY | |
| Condensed Statements of Cash Flows | Condensed Statements of Cash Flows | Condensed Statements of Cash Flows | |
| (Unaudited) | (Unaudited) | (Unaudited) | |
| | | Six months ended June 30, | | Six months ended June 30, | |
| $ in millions | | 2019 | | 2018 | $ in millions | | 2020 | | 2019 |
| Cash flows from operating activities: | | | | | Cash flows from operating activities: | | | | |
| Net income | | $ | 58.8 |
| | $ | 30.7 |
| Net income | | $ | 29.5 | | | $ | 58.8 | |
| Adjustments to reconcile net income to net cash from operating activities: | | | | | Adjustments to reconcile net income to net cash from operating activities: | |
| Depreciation and amortization | | 35.5 |
| | 37.4 |
| Depreciation and amortization | | 35.5 | | | 35.5 | |
| Loss on early extinguishment of debt | | — |
| | 0.6 |
| |
| | Deferred income taxes | | (3.5 | ) | | (6.7 | ) | Deferred income taxes | | 1.2 | | | (3.5) | |
| Loss on disposal of business | | — |
| | 12.4 |
| |
| | Changes in certain assets and liabilities: | | | | | Changes in certain assets and liabilities: | |
| Accounts receivable, net | | 18.9 |
| | 10.9 |
| Accounts receivable, net | | 4.9 | | | 18.9 | |
| Inventories | | (3.5 | ) | | (0.3 | ) | Inventories | | 1.3 | | | (3.5) | |
| | Taxes applicable to subsequent years | | 36.2 |
| | 36.4 |
| Taxes applicable to subsequent years | | 36.8 | | | 36.2 | |
| Deferred regulatory costs, net | | (6.7 | ) | | (6.7 | ) | Deferred regulatory costs, net | | (19.5) | | | (6.7) | |
| Accounts payable | | 6.0 |
| | (5.6 | ) | Accounts payable | | (8.7) | | | 6.0 | |
| Accrued taxes payable / receivable | | (33.0 | ) | | (31.7 | ) | Accrued taxes payable / receivable | | (36.1) | | | (33.0) | |
| Accrued interest | | 1.5 |
| | — |
| Accrued interest | | (0.1) | | | 1.5 | |
| | Accrued pension and other post-retirement benefits | | (8.6 | ) | | (4.4 | ) | Accrued pension and other post-retirement benefits | | (9.3) | | | (8.6) | |
| Other | | 2.4 |
| | 6.1 |
| Other | | 3.2 | | | 2.4 | |
| Net cash provided by operating activities | | 104.0 |
| | 79.1 |
| Net cash provided by operating activities | | 38.7 | | | 104.0 | |
| Cash flows from investing activities: | | | | | Cash flows from investing activities: | | | | |
| Capital expenditures | | (62.2 | ) | | (44.5 | ) | Capital expenditures | | (80.5) | | | (62.2) | |
| Payments on disposal of business | | — |
| | (14.5 | ) | |
| Proceeds from sale of property | | — |
| | 10.6 |
| |
| | Other investing activities, net | | (3.2 | ) | | (0.1 | ) | Other investing activities, net | | (0.7) | | | (3.2) | |
| Net cash used in investing activities | | (65.4 | ) | | (48.5 | ) | Net cash used in investing activities | | (81.2) | | | (65.4) | |
| Cash flows from financing activities: | | | | | Cash flows from financing activities: | | | | |
| Payments of deferred financing costs | | (3.8 | ) | | — |
| Payments of deferred financing costs | | (0.3) | | | (3.8) | |
| Returns of capital paid to parent | | (70.0 | ) | | (23.8 | ) | Returns of capital paid to parent | | (14.2) | | | (70.0) | |
| Capital contributions from parent | | — |
| | 80.0 |
| Capital contributions from parent | | 150.0 | | | — | |
| Borrowings from revolving credit facilities | | — |
| | 30.0 |
| Borrowings from revolving credit facilities | | 75.0 | | | — | |
| Repayment of borrowings from revolving credit facilities | | — |
| | (30.0 | ) | Repayment of borrowings from revolving credit facilities | | (115.0) | | | — | |
| Issuance of long-term debt, net of discount | | 422.3 |
| | — |
| Issuance of long-term debt, net of discount | | — | | | 422.3 | |
| Retirement of long-term debt, including early payment premium | | (436.1 | ) | | (62.2 | ) | Retirement of long-term debt, including early payment premium | | — | | | (436.1) | |
| | Other financing activities, net | | (0.1 | ) | | — |
| Other financing activities, net | | (0.1) | | | (0.1) | |
| Net cash used in financing activities | | (87.7 | ) | | (6.0 | ) | |
| Net cash provided by / (used in) financing activities | | Net cash provided by / (used in) financing activities | | 95.4 | | | (87.7) | |
| | Cash, cash equivalents, and restricted cash: | | | | | Cash, cash equivalents, and restricted cash: | |
| Net change | | (49.1 | ) | | 24.6 |
| Net change | | 52.9 | | | (49.1) | |
| Balance at beginning of period | | 66.2 |
| | 5.6 |
| Balance at beginning of period | | 21.3 | | | 66.2 | |
| Cash, cash equivalents, and restricted cash at end of period | | $ | 17.1 |
| | $ | 30.2 |
| Cash, cash equivalents, and restricted cash at end of period | | $ | 74.2 | | | $ | 17.1 | |
| Supplemental cash flow information: | | | | | Supplemental cash flow information: | | | | |
| Interest paid, net of amounts capitalized | | $ | 10.3 |
| | $ | 11.5 |
| Interest paid, net of amounts capitalized | | $ | 10.2 | | | $ | 10.3 | |
| Income taxes paid, net | | $ | 12.0 |
| | $ | 2.7 |
| Income taxes paid, net | | $ | — | | | $ | 12.0 | |
| Non-cash financing and investing activities: | | | | | Non-cash financing and investing activities: | |
| Accruals for capital expenditures | | $ | 20.4 |
| | $ | 5.6 |
| Accruals for capital expenditures | | $ | 10.0 | | | $ | 20.4 | |
See Notes to Condensed Financial Statements.
THE DAYTON POWER AND LIGHT COMPANY
Condensed Statements of Shareholder's Equity
(Unaudited)
|
| | | | | | | | | | | | | | | | | | | | | | | |
| | | Common Stock (a) | | | | | | | | |
| $ in millions | | Outstanding Shares | | Amount | | Other Paid-in Capital | | Accumulated Other Comprehensive Loss | | Accumulated Deficit | | Total |
| Balance, January 1, 2018 | | 41,172,173 |
| | $ | 0.4 |
| | $ | 685.8 |
| | $ | (36.2 | ) | | $ | (319.3 | ) | | $ | 330.7 |
|
| Net comprehensive income | | | | | | | | 1.1 |
| | 15.7 |
| | 16.8 |
|
| Return of capital | | | | | | (23.8 | ) | | | |
|
| | (23.8 | ) |
| Capital contributions from parent | | | | | | 80.0 |
| | | | | | 80.0 |
|
Other (b) | | | | | | (0.3 | ) | | (1.1 | ) | | 1.0 |
| | (0.4 | ) |
| Balance, March 31, 2018 | | 41,172,173 |
| | 0.4 |
| | 741.7 |
| | (36.2 | ) | | (302.6 | ) | | 403.3 |
|
| Net comprehensive income | | | | | | | | 0.8 |
| | 15.0 |
| | 15.8 |
|
| Balance, June 30, 2018 | | 41,172,173 |
| | $ | 0.4 |
| | $ | 741.7 |
| | $ | (35.4 | ) | | $ | (287.6 | ) | | $ | 419.1 |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Common Stock (a) | | | | | | | | | | |
| $ in millions | | Outstanding Shares | | Amount | | Other Paid-in Capital | | Accumulated Other Comprehensive Loss | | Accumulated Deficit | | Total |
| Balance, January 1, 2020 | | 41,172,173 | | | $ | 0.4 | | | $ | 617.0 | | | $ | (36.9) | | | $ | (107.1) | | | $ | 473.4 | |
| Net comprehensive income | | | | | | | | 0.4 | | | 11.7 | | | 12.1 | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| Balance, March 31, 2020 | | 41,172,173 | | | 0.4 | | | 617.0 | | | (36.5) | | | (95.4) | | | 485.5 | |
| Net comprehensive income | | | | | | | | 0.9 | | | 17.8 | | | 18.7 | |
| Return of capital | | | | | | (14.2) | | | | | | | (14.2) | |
| Capital contribution from parent | | | | | | 150.0 | | | | | | 150.0 | |
| Other | | | | | | 0.1 | | | | | | 0.1 | |
| Balance, June 30, 2020 | | 41,172,173 | | | $ | 0.4 | | | $ | 752.9 | | | $ | (35.6) | | | $ | (77.6) | | | $ | 640.1 | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| |
(a) | $0.01 par value, 50,000,000 shares authorized. |
| |
(b) | ASU 2016-01 “Recognition and Measurement of Financial Assets and Financial Liabilities” was effective as of January 1, 2018. This ASU requires the change in the fair value of equity instruments to be recorded in income rather than in Other Comprehensive Income. Equity Instruments were defined to include all mutual funds, regardless of the underlying investments. Therefore, as of January 1, 2018, AOCI of $1.7 million ($1.1 million net of tax) was reversed to Accumulated deficit. |
(a) $0.01 par value, 50,000,000 shares authorized. |
| | | | | | | | | | | | | | | | | | | | | | | |
| | | Common Stock (a) | | | | | | | | |
| $ in millions | | Outstanding Shares | | Amount | | Other Paid-in Capital | | Accumulated Other Comprehensive Loss | | Accumulated Deficit | | Total |
| Balance, January 1, 2019 | | 41,172,173 |
| | $ | 0.4 |
| | $ | 711.8 |
| | $ | (35.3 | ) | | $ | (231.6 | ) | | $ | 445.3 |
|
| Net comprehensive income | | | | | | | | 0.4 |
| | 29.0 |
| | 29.4 |
|
| Other | | | | | |
| | | | (0.3 | ) | | (0.3 | ) |
| Balance, March 31, 2019 | | 41,172,173 |
| | 0.4 |
| | 711.8 |
| | (34.9 | ) | | (202.9 | ) | | 474.4 |
|
| Net comprehensive income | | | | | | | | (0.9 | ) | | 29.8 |
| | 28.9 |
|
| Return of capital | | | | | | (70.0 | ) | | | | | | (70.0 | ) |
| Balance, June 30, 2019 | | 41,172,173 |
| | $ | 0.4 |
| | $ | 641.8 |
| | $ | (35.8 | ) | | $ | (173.1 | ) | | $ | 433.3 |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Common Stock (a) | | | | | | | | | | |
| $ in millions | | Outstanding Shares | | Amount | | Other Paid-in Capital | | Accumulated Other Comprehensive Loss | | Accumulated Deficit | | Total |
| Balance, January 1, 2019 | | 41,172,173 | | | $ | 0.4 | | | $ | 711.8 | | | $ | (35.3) | | | $ | (231.6) | | | $ | 445.3 | |
| Net comprehensive income | | | | | | | | 0.4 | | | 29.0 | | | 29.4 | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| Other | | | | | | | | | | (0.3) | | | (0.3) | |
| Balance, March 31, 2019 | | 41,172,173 | | | 0.4 | | | 711.8 | | | (34.9) | | | (202.9) | | | 474.4 | |
| Net comprehensive income | | | | | | | | (0.9) | | | 29.8 | | | 28.9 | |
| Return of capital | | | | | | (70.0) | | | | | | | (70.0) | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| Balance, June 30, 2019 | | 41,172,173 | | | $ | 0.4 | | | $ | 641.8 | | | $ | (35.8) | | | $ | (173.1) | | | $ | 433.3 | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| |
(a) | $0.01 par value, 50,000,000 shares authorized. |
(a)$0.01 par value, 50,000,000 shares authorized.
See Notes to Condensed Financial Statements.
37
The Dayton Power and Light Company
Notes to Condensed Financial Statements (Unaudited)
Note 1 – Overview and Summary of Significant Accounting Policies
Description of Business
DP&L is a public utility incorporated in 1911 under the laws of Ohio. Beginning in 2001, Ohio law gave Ohio consumers the right to choose the electric generation supplier from whom they purchase retail generation service; however, retail transmission and distribution services are still regulated. DP&L has the exclusive right to provide such transmission and distribution services to approximately 525,000528,000 customers located in West Central Ohio. Additionally, DP&L provides retail SSO electric service to residential, commercial, industrial and governmental customers in a 6,000-square mile area of West Central Ohio. As a result of Generation Separation, DP&L now only has one1 reportable segment, the Utility segment. In addition to DP&L's electric transmission and distribution businesses, the Utility segment includes revenues and costs associated with DP&L's investment in OVEC and the historical results of DP&L’s Beckjord and Hutchings Coal generating facilities,facility, which have either been closed or sold.is now closed. Principal industries located in DP&L’s service territory include automotive, food processing, paper, plastic, health care, data management, manufacturing and defense. FollowingDP&L's sales typically reflect the issuance of the DRO in September 2018seasonal weather patterns and the resultinggrowth of energy efficiency initiatives. However, the impacts of weather, energy efficiency programs and economic changes to the decoupling rider effectivein customer demand were largely offset in 2019 by DP&L’s Decoupling Rider, which was in place from January 1, 2019 DP&L's distribution sales will primarily be impacted by customer growth within our service territory.until December 18, 2019.See Note 3 – Regulatory Matters for more information. DP&L sells its proportional share of energy and capacity from its investment in OVEC into the wholesale market.DP&L is a subsidiary of DPL. The terms “we,” “us,” “our” and “ours” are used to refer to DP&L.
DP&L’s electric transmission and distribution businesses are subject to rate regulation by federal and state regulators. Accordingly, DP&L applies the accounting standards for regulated operations to its electric transmission and distribution businesses and records regulatory assets when incurred costs are expected to be recovered in future customer rates, and regulatory liabilities when current cost recoveries in customer rates relate to expected future costs.
DP&L employed 649643 people as of June 30, 2019.2020. Approximately 57%58% of DP&L employees are under a collective bargaining agreement, which expires October 31, 2020.
Financial Statement Presentation
DP&L does not have any subsidiaries.
We have evaluated subsequent events through the date this report is issued.
Certain immaterial amounts from prior periods have been reclassified to conform to the current period presentation.
These financial statements have been prepared in accordance with GAAP for interim financial statements, the instructions of Form 10-Q and Regulation S-X. Accordingly, certain information and footnote disclosures normally included in the annual financial statements prepared in accordance with GAAP have been omitted from this interim report. Therefore, our interim financial statements in this report should be read along with the annual financial statements included in our Form 10-K for the fiscal year ended December 31, 2018.2019.
In the opinion of our management, the Condensed Financial Statements presented in this report contain all adjustments necessary to fairly state our financial position as of June 30, 2019;2020; our results of operations for the three and six months ended June 30, 20192020 and 2018,2019, our cash flows for the six months ended June 30, 20192020 and 20182019 and the changes in our equity for the three and six months ended June 30, 20192020 and 2018.2019. Unless otherwise noted, all adjustments are normal and recurring in nature. Due to various factors, interim results for the three and six months ended June 30, 20192020 may not be indicative of our results that will be realized for the full year ending December 31, 2019.2020.
The preparation of financial statements in conformity with GAAP requires us to make estimates and judgments that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities, and the revenues and expenses of the periods reported. Actual results could differ from these estimates. Significant items subject to such estimates and judgments include: recognition of revenue including unbilled revenues, the carrying value of property, plant and equipment; the valuation of derivative instruments; the valuation of insurance and claims liabilities; the valuation of allowances for receivablescredit losses and deferred income taxes; regulatory assets and
liabilities; liabilities recorded for income tax exposures; litigation; contingencies; the valuation of AROs; and assets and liabilities related to employee benefits.
Cash, Cash Equivalents, and Restricted Cash
The following table provides a summary of cash, cash equivalents, and restricted cash amounts reported on the Condensed Balance SheetSheets that reconcile to the total of such amounts as shown on the Condensed Statements of Cash Flows:
| | | | | | | | | | | | | | |
| $ in millions | | June 30, 2020 | | December 31, 2019 |
| Cash and cash equivalents | | $ | 74.1 | | | $ | 10.8 | |
| Restricted cash | | 0.1 | | | 10.5 | |
| Cash, Cash Equivalents, and Restricted Cash, End of Period | | $ | 74.2 | | | $ | 21.3 | |
|
| | | | | | | | |
| $ in millions | | June 30, 2019 | | December 31, 2018 |
| Cash and cash equivalents | | $ | 5.6 |
| | $ | 45.0 |
|
| Restricted cash | | 11.5 |
| | 21.2 |
|
| Cash, Cash Equivalents, and Restricted Cash, End of Period | | $ | 17.1 |
| | $ | 66.2 |
|
Accounting for Taxes Collected from Customers and Remitted to Governmental Authorities
DP&L collects certain excise taxes levied by state or local governments from its customers. These taxes are accounted for on a net basis and not included in revenue. The amounts of such taxes collected for the three months ended June 30, 2020 and 2019 and 2018 were $10.4$10.9 million and $12.3$10.4 million, respectively. The amounts of such taxes collected for the six months ended June 30, 2020 and 2019 were $23.3 million and 2018 were $24.3 million, and $25.4 million, respectively.
New accounting pronouncements adopted in 20192020 – The following table provides a brief description of recently adopted accounting pronouncements that had an impact on our financial statements. Accounting pronouncements not listed below were assessed and determined to be either not applicable or did not have a material impact on our financial statements.
|
| | | | | | | | | | |
| ASU Number and Name | Description | Date of Adoption | Effect on the financial statements upon adoption |
2018-02, Income Statement — Reporting Comprehensive Income2016-13, 2018-19, 2019-04, 2019-05, 2019-10, 2019-11, 2020-02, 2020-03 Financial Instruments - Credit Losses (Topic 220), Reclassification326): Measurement of Certain Tax Effects from AOCICredit Losses on Financial Instruments | This amendment allows a reclassificationSee discussion of the stranded tax effects resulting from the implementation of the Tax Cuts and Jobs Act from AOCI to retained earnings at the election of the filer. Because this amendment only relates to the reclassification of the income tax effects of the Tax Cuts and Jobs Act, the underlying guidance that requires that the effect of a change in tax laws or rates be included in income from continuing operations is not affected.ASU below. | January 1, 20192020 | The adoption of this standard had no material impact on our condensed financial statements. |
2017-12, Derivatives and Hedging (Topic 815): Targeted improvements to Accounting for Hedging Activities | The standard updates the hedge accounting model to expand the ability to hedge nonfinancial and financial risk components, reduce complexity, and ease certain documentation and assessment requirements. When facts and circumstances are the same as at the previous quantitative test, a subsequent quantitative effectiveness test is not required. The standard also eliminates the requirement to separately measure and report hedge ineffectiveness. For cash flow hedges, this means that the entire change in the fair value of a hedging instrument will be recorded in other comprehensive income and amounts deferred will be reclassified to earnings in the same income statement line as the hedged item.
Transition method: modified retrospective with the cumulative effect adjustment recorded to the opening balance of retained earnings as of the initial application date. Prospective for presentation and disclosures. | January 1, 2019 | The adoption of this standard had no material impact on our condensed financial statements. |
2016-02, 2018-01, 2018-10, 2018-11 Leases (Topic 842) | See "Adoption of FASC Topic 842, Leases" below.
| January 1, 2019 | See impact upon adoption of the standard below. |
Adoption of FASC Topic 842, "Leases"
On January 1, 2019,2020, we adopted ASU 2016-02 LeasesASC 326 Financial Instruments - Credit Losses and its subsequent corresponding updates (“FASC 842”("ASC 326"). Under thisThe new standard lesseesupdates the impairment model for financial assets measured at amortized cost, known as the Current Expected Credit Loss ("CECL") model. For trade and other receivables, held-to-maturity debt securities, loans and other instruments, entities are required to recognize assets and liabilitiesuse a new forward-looking "expected loss" model that generally results in the earlier recognition of an allowance for most leases and recognize expenses in a manner similar to the current accounting method.credit losses. For lessors, the guidance modifies the lease classification criteria and the accounting for sales-type and direct financing leases. The guidance eliminates current real estate-specific provisions.
Under FASC 842,available-for-sale debt securities with unrealized losses, entities measure credit losses as it is expectedwas done under previous GAAP, except that fewer contracts will contain a lease. However,unrealized losses due to credit-related factors are now recognized as an allowance on the elimination of the real estate-specific guidance and changesbalance sheet with a corresponding adjustment to certain lessor classification criteria, more leases will qualify as sales-type leases and direct financing leases. Under these two models, a lessor will derecognize the asset and will recognize a net investment in a lease. According to FASC 842, the net investmentearnings in the lease includes the fair value of the plant after the contract period but does not include variable payments such as margin on the sale of energy.income statement.
Therefore, the net investment in the lease could be significantly different than the carrying amount of the underlying asset at lease commencement. In such circumstances, the difference between the initially recognized net investment in the lease and the carrying amount of the underlying asset is recognized as a gain/loss at lease commencement.
During the course of adopting FASC 842, we applied various practical expedients including:
The package of practical expedients (applied to all leases) that allowed lessees and lessors not to reassess:
| |
a. | whether any expired or existing contracts are or contain leases, |
| |
b. | lease classification for any expired or existing leases, and |
| |
c. | whether initial direct costs for any expired or existing leases qualify for capitalization under FASC 842. |
The transition practical expedient related to land easements, allowing us to carry forward our accounting treatment for land easements on existing agreements, and
The transition practical expedient for lessees that allowed businesses to not separate lease and non-lease components. We applied the practical expedient to all classes of underlying assets when valuing right-of-use assets and lease liabilities. Contracts where we are the lessor were separated between the lease and non-lease components.
We applied the modified retrospective method of adoption and elected to continue to apply the guidance in FASC 840 Leases to the comparative periods presented in the year of adoption.for ASC 326. Under this transition method, we applied the transition provisions starting at the date of adoption.
The new current expected credit loss model primarily impacts the calculation of expected credit losses on our trade accounts receivable. The adoption of FASC 842ASC 326 and application of CECL on our trade accounts receivable did not have a material impact on our Condensed Financial Statements.condensed financial statements.
New Accounting Pronouncements Issued But Not Yet Effective – The following table provides a brief description of recent accounting pronouncements that could have a material impact on our financial statements. Accounting pronouncements not listed below were assessed and determined to be either not applicable or are expected to have no material impact on our financial statements.
|
| | | | | | | | | | |
| ASU Number and Name | Description | Date of Adoption | Effect on the financial statements upon adoption |
2016-13, 2019-04, 2019-05, Financial Instruments — Credit Losses2020-04, Reference Rate Form (Topic 326)848): MeasurementFacilitation of Credit Lossesthe Effects of Reference Rate Reform on Financial InstrumentsReporting | The standard updates the impairment modelprovides optional expedients and exceptions for financial assets measured at amortized cost. For tradeapplying GAAP to contracts, hedging relationships and other receivables, held-to-maturity debt securities, loans and other instruments,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 will be required to use a new forward-looking "expected loss" model that generally will result in the earlier recognition of allowance for losses. For available-for-sale debt securities with unrealized losses, entities will measure credit losses as it is done today, except that the losses will be recognized as an allowance rather than a reduction in the amortized cost of the securities.
Transition method: various.March 12, 2020 - December 31, 2022 | January 1, 2020 | We are currently evaluating the impact of adopting the standard on our Condensed Financial Statements.condensed financial statements. |
| | | | | | | | | | | |
| ASU Number and Name | Description | Date of Adoption | Effect on the financial statements upon adoption |
| 2019-12, Income Taxes (Topic 740): Simplifying the Accounting For Income Taxes | The standard removes certain exceptions for recognizing deferred taxes for investments, performing intraperiod allocation and calculating income taxes in interim periods. It also adds guidance to reduce complexity in certain areas, including recognizing deferred taxes for tax goodwill and allocating taxes to members of a consolidated group.
Transition method: various | January 1, 2021. Early adoption is permitted. | We are currently evaluating the impact of adopting the standard on our condensed financial statements. |
Note 2 – Supplemental Financial Information
Accounts receivable and Inventories are as follows at June 30, 20192020 and December 31, 2018:2019:
| | | | | | | | | | | | | | |
| | June 30, | | December 31, |
| $ in millions | | 2020 | | 2019 |
| Accounts receivable, net: | | | | |
| Customer receivables | | $ | 40.0 | | | $ | 45.0 | |
| Unbilled revenue | | 19.9 | | | 19.4 | |
| Amounts due from affiliates | | 5.8 | | | 3.9 | |
| Due from PJM transmission enhancement settlement | | 1.8 | | | 1.8 | |
| Other | | 1.5 | | | 1.2 | |
| Allowance for credit losses | | (3.0) | | | (0.4) | |
| Total accounts receivable, net | | $ | 66.0 | | | $ | 70.9 | |
The following table is a rollforward of our allowance for credit losses related to the accounts receivable balances for the six months ended June 30, 2020:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| $ in millions | | Beginning Allowance Balance at January 1, 2020 | | Current Period Provision | | Write-offs Charged Against Allowances | | Recoveries Collected | | Ending Allowance Balance at June 30, 2020 |
| Allowance for credit losses | | $ | 0.4 | | | $ | 2.6 | | | $ | (2.9) | | | $ | 2.9 | | | $ | 3.0 | |
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 June 30, 2020. Amounts are written off when reasonable collections efforts have been exhausted. On March 12, 2020, the PUCO issued an emergency order prohibiting electric utilities, including us, from discontinuing electric utility service to customers. This order along with the economic impacts of COVID-19 has resulted in an increase in past due customer receivable balances, and thus the current period provision and the allowance for credit losses have increased during the second quarter of 2020. See Note 12 – Risks and Uncertainties for additional discussion of the COVID-19 pandemic.
Inventories consist of materials and supplies at June 30, 2020 and December 31, 2019.
|
| | | | | | | | |
| | | June 30, | | December 31, |
| $ in millions | | 2019 | | 2018 |
| Accounts receivable, net: | | | | |
| Customer receivables | | $ | 44.4 |
| | $ | 53.3 |
|
| Unbilled revenue | | 16.3 |
| | 16.8 |
|
| Amounts due from affiliates | | 7.1 |
| | 2.3 |
|
| Due from PJM transmission enhancement settlement | | 3.0 |
| | 16.5 |
|
| Other | | 1.2 |
| | 2.4 |
|
| Provision for uncollectible accounts | | (0.4 | ) | | (0.9 | ) |
| Total accounts receivable, net | | $ | 71.6 |
| | $ | 90.4 |
|
| | | | | |
| Inventories, at average cost: | | | | |
| Materials and supplies | | $ | 11.2 |
| | $ | 7.1 |
|
| Other | | — |
| | 0.6 |
|
| Total inventories, at average cost | | $ | 11.2 |
| | $ | 7.7 |
|
Accumulated Other Comprehensive Income / (Loss)Loss
The amounts reclassified out of Accumulated Other Comprehensive Income / (Loss)Loss by component during the three and six months ended June 30, 20192020 and 20182019 are as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Details about Accumulated Other Comprehensive Income / (Loss) components | | Affected line item in the Condensed Statements of Operations | | Three months ended | | | | Six months ended | | |
| | | | June 30, | | | | June 30, | | |
| $ in millions | | | | 2020 | | 2019 | | 2020 | | 2019 |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
| Gains and losses on cash flow hedges (Note 5): | | | | | | | | | | |
| | Interest expense | | $ | (0.1) | | | $ | — | | | $ | (0.2) | | | $ | (0.1) | |
| | Income tax expense | | — | | | — | | | — | | | — | |
| | Net of income taxes | | (0.1) | | | — | | | (0.2) | | | (0.1) | |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
| Amortization of defined benefit pension items (Note 8): | | | | | | | | | | |
| | Other expense | | 1.0 | | | 0.9 | | | 2.0 | | | 1.8 | |
| | Income tax expense / (benefit) | | (0.2) | | | (1.2) | | | (0.4) | | | (1.4) | |
| | Net of income taxes | | 0.8 | | | (0.3) | | | 1.6 | | | 0.4 | |
| | | | | | | | | | |
| Total reclassifications for the period, net of income taxes | | | | $ | 0.7 | | | $ | (0.3) | | | $ | 1.4 | | | $ | 0.3 | |
|
| | | | | | | | | | | | | | | | | | |
| Details about Accumulated Other Comprehensive Income / (Loss) components | | Affected line item in the Condensed Statements of Operations | | Three months ended June 30, | | Six months ended June 30, |
| $ in millions | | | | 2019 | | 2018 | | 2019 | | 2018 |
| Gains and losses on cash flow hedges (Note 5): | | | | | | | | |
| | | Interest expense | | $ | — |
| | $ | (0.3 | ) | | $ | (0.1 | ) | | $ | (0.8 | ) |
| | | Income tax expense | | — |
| | 0.1 |
| | — |
| | 0.3 |
|
| | | Net of income taxes | | — |
| | (0.2 | ) | | (0.1 | ) | | (0.5 | ) |
| | | | | | | | | | | |
| Amortization of defined benefit pension items (Note 8): | | | | | | | | |
| | | Other expense | | 0.9 |
| | 1.0 |
| | 1.8 |
| | 2.1 |
|
| | | Income tax benefit | | (1.2 | ) | | (0.2 | ) | | (1.4 | ) | | (0.4 | ) |
| | | Net of income taxes | | (0.3 | ) | | 0.8 |
| | 0.4 |
| | 1.7 |
|
| | | | | | | | | | | |
| Total reclassifications for the period, net of income taxes | | $ | (0.3 | ) | | $ | 0.6 |
| | $ | 0.3 |
| | $ | 1.2 |
|
The changes in the components of Accumulated Other Comprehensive Income / (Loss)Loss during the six months ended June 30, 20192020 are as follows:
| | | | | | | | | | | | | | | | | | | | | | |
| $ in millions | | | | Gains / (losses) on cash flow hedges | | Change in unfunded pension and postretirement benefit obligations | | Total |
| Balance at January 1, 2020 | | | | $ | (0.4) | | | $ | (36.5) | | | $ | (36.9) | |
| | | | | | | | |
| Other comprehensive loss before reclassifications | | | | (0.1) | | | — | | | (0.1) | |
| Amounts reclassified from AOCI to earnings | | | | (0.2) | | | 1.6 | | | 1.4 | |
| | | | | | | | |
| Net current period other comprehensive income / (loss) | | | | (0.3) | | | 1.6 | | | 1.3 | |
| | | | | | | | |
| Balance at June 30, 2020 | | | | $ | (0.7) | | | $ | (34.9) | | | $ | (35.6) | |
|
| | | | | | | | | | | | |
| $ in millions | | Gains / (losses) on cash flow hedges | | Change in unfunded pension and postretirement benefit obligation | | Total |
| Balance at January 1, 2019 | | $ | 0.6 |
| | $ | (35.9 | ) | | $ | (35.3 | ) |
| | | | | | | |
| Other comprehensive loss before reclassifications | | (0.8 | ) | | — |
| | (0.8 | ) |
| Amounts reclassified from AOCI to earnings | | (0.1 | ) | | 0.4 |
| | 0.3 |
|
| Net current period other comprehensive income / (loss) | | (0.9 | ) | | 0.4 |
| | (0.5 | ) |
| | | | | | | |
| Balance at June 30, 2019 | | $ | (0.3 | ) | | $ | (35.5 | ) | | $ | (35.8 | ) |
Note 3 – Regulatory Matters
DMRDP&L ESP Orders
OnOhio law requires utilities to file either an ESP or MRO plan to establish SSO rates. From November 1, 2017 through December 18, 2019, DP&L operated pursuant to an approved ESP plan, which was initially approved on October 20, 2017 (ESP 3). On November 21, 2019, the PUCO approved issued a supplemental order modifying ESP 3, and as a result DP&L’s 2017 ESP. On January 7, 2019, the Ohio Consumers' Counsel appealed&L filed a Notice of Withdrawal of its ESP 3 Application and requested to revert to the Supreme CourtESP rates that were in effect prior to ESP 3. The Notice of OhioWithdrawal was approved by the PUCO on December 18, 2019. The PUCO order required, among other things, DP&L to conduct both an ESP v. MRO Test to validate that the ESP is expected to be more favorable in the aggregate than what would be experienced under an MRO, and a prospective SEET, which were filed with the PUCO on April 1, 2020. A comment period was set for July 2020 and an evidentiary hearing regarding this matter is scheduled for October 2020 (if needed) with a final ruling expected in early 2021. DP&L is also subject to an annual retrospective SEET. The ultimate outcome of the ESP v. MRO and SEET proceedings could have a material adverse effect on DP&L’s results of operations, financial condition and cash flows.
Certain parties which intervened in the ESP proceedings have filed petitions for rehearing of the recent PUCO ESP orders; some of which seek to eliminate DP&L’s RSC from the ESP 1 rates that are currently in place and others seek to re-implement the 2017 ESP, with respectbut without the DMR. We are unable to predict the bypassabilityoutcomes of the Reconciliation Riderthese petitions, but if these result in terms that are more adverse than DP&L's current ESP rate plan, it could have a material adverse effect on our results of operations, financial condition and the exclusion of the DMR from the SEET. That appeal remains pending.cash flows.
Pursuant to the 2017 ESP, onOn January 22, 2019, 23, 2020 DP&L filed a request with the PUCO for a two-year extensionrequesting 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 its DMR through October 2022,weather, energy efficiency programs and economic changes in the proposed amount of $199.0 million for each of the two additional years. The extension request was set at a level expected to reduce debt obligations at both DP&L and DPL and to position
customer demand.
In response to the PUCO’s COVID-19 emergency orders, DP&L filed an Application on March 23, 2020, requesting waivers of certain rule and tariff requirements and deferral of certain costs and revenues including those related to make capital expenditures to maintaindeposits and modernize its electric grid. DP&L’s DMP investments are contingent uponreconnection fees, late payment fees, credit card fees; and waived or uncollected amounts associated with putting customers on payment plans. On May 20, 2020, the PUCO approvingapproved the two-year extensionapplication and required DP&L to file a plan outlining the timing and steps it plans to take in an effort to return to normal operations. The authorized deferral of those certain costs and revenues must be offset by COVID-19 related savings. DP&L filed its DMR.plan on July 15, 2020 and is awaiting approval by the PUCO. Recovery of these deferrals will be addressed in a future rate proceeding.
On August 1, 2019, DP&L filed a supplemental brief with the PUCO focused on the applicability of a recent court decision involving another Ohio utility’s DMR which is similar to, but not identical to, DP&L’s DMR.
Ohio House Bill 6FERC Proceedings
On July 23, 2019, the Governor of Ohio signed Ohio House Bill 6, which, among other things, does the following:
beginning January 1, 2020, replaces DP&L’s non-bypassable Reconciliation Rider, permitting DP&L to defer, recover or credit the net proceeds from selling energy and capacity received as part of DP&L’s interest in OVEC and its OVEC-related costs through 2023, with a non-bypassable recovery mechanism for recovery of prudently incurred OVEC costs through 2030;
eliminates the annual energy efficiency targets for Ohio utilities after 2020;
allows Ohio utilities to construct customer-sited renewable generation for mercantile customers or groups of mercantile customers, the costs of which may only be recovered from those customers.
Impact of tax reform
On January 10,November 15, 2018 the PUCO initiatedFERC issued a proceedingNotice of Proposed Rulemaking (NOPR) to consider the impactsaddress amortization of the TCJA to determine the appropriate course of action to pass benefits resulting from the legislation on to ratepayers. The PUCO also directed Ohio utilities to record deferred liabilities for the estimated reduction in federal income tax resulting from the TCJA beginning January 1, 2018. Beginning October 1, 2018, the new distribution rates approved in the DRO include the impacts of the decrease in current federal income taxes as a result of the TCJA. Under the terms of the stipulation approved in the DRO, DP&L agreed to file an application at the PUCO to refund eligible excess accumulated deferred income taxes ("ADIT")resulting from the TCJA and any related regulatory liabilitytheir 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, DP&L filed an application before the FERC to change its transmission rate from a stated rate to a formula rate, which was accepted by the FERC and made effective as of May 3, 2020, subject to further proceeding and potential refunds. The formula rate includes adjustments to flow back over a 10-year period. time the excess deferred income taxes caused by the TCJA. The NOPR, therefore, no longer applies to DP&L made such a filing&L. The rate changes will increase revenues by approximately $4.1 million through the end of 2020 as of the effective date, subject to refund based on March 1, 2019 and proposed to return a total of $65.1 million to customers. The timing and final amount to be returned to customers is unknown at this time. Excess ADIT related to depreciation life and method differences will be returned to customers in accordance with federal tax law and related regulations.approved rates.
Note 4 – Fair Value
The fair value of current financial assets and liabilities, debt service reserves and other deposits approximate their reported carrying amounts. The estimated fair values of our assets and liabilities have been determined using available market information. By virtue of these amounts being estimates and based on hypothetical transactions to sell assets or transfer liabilities, the use of different market assumptions and/or estimation methodologies may have a material effect on the estimated fair value amounts. For further information on our valuation techniques and policies, see Note 5—Fair Value in Item 8.—Financial Statements and Supplementary Data of our Form 10-K.
The following table presents the fair value, carrying value and cost of our non-derivative instruments at June 30, 20192020 and December 31, 2018.2019. Further information about the fair value of our derivative instruments can be found in Note 5 – Derivative Instruments and Hedging Activities.
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | June 30, 2020 | | | | December 31, 2019 | | |
| $ in millions | | Cost | | Fair Value | | Cost | | Fair Value |
| Assets | | | | | | | | |
| Money market funds | | $ | 0.1 | | | $ | 0.1 | | | $ | 0.3 | | | $ | 0.3 | |
| Equity securities | | 2.1 | | | 3.7 | | | 2.3 | | | 4.2 | |
| Debt securities | | 4.1 | | | 4.1 | | | 4.0 | | | 4.1 | |
| Hedge funds | | — | | | — | | | 0.1 | | | 0.1 | |
| | | | | | | | |
| Tangible assets | | — | | | — | | | 0.1 | | | 0.1 | |
| Total assets | | $ | 6.3 | | | $ | 7.9 | | | $ | 6.8 | | | $ | 8.8 | |
| | | | | | | | |
| | Carrying Value | | Fair Value | | Carrying Value | | Fair Value |
| Liabilities | | | | | | | | |
| Long-term debt | | $ | 574.3 | | | $ | 600.4 | | | $ | 574.4 | | | $ | 600.5 | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
|
| | | | | | | | | | | | | | | | |
| | | June 30, 2019 | | December 31, 2018 |
| $ in millions | | Cost | | Fair Value | | Cost | | Fair Value |
| Assets | | | | | | | | |
| Money market funds | | $ | 0.2 |
| | $ | 0.2 |
| | $ | 0.4 |
| | $ | 0.4 |
|
| Equity securities | | 2.3 |
| | 3.9 |
| | 2.4 |
| | 3.5 |
|
| Debt securities | | 4.1 |
| | 4.1 |
| | 4.1 |
| | 4.0 |
|
| Hedge funds | | 0.1 |
| | 0.1 |
| | 0.1 |
| | 0.1 |
|
| Tangible assets | | 0.1 |
| | 0.1 |
| | 0.1 |
| | 0.1 |
|
| Total assets | | $ | 6.8 |
| | $ | 8.4 |
| | $ | 7.1 |
| | $ | 8.1 |
|
| | | | | | | | | |
| | | Carrying Value | | Fair Value | | Carrying Value | | Fair Value |
| Liabilities | | | | | | | | |
| Long-term debt | | $ | 575.4 |
| | $ | 599.9 |
| | $ | 586.1 |
| | $ | 593.8 |
|
These financial instruments are not subject to master netting agreements or collateral requirements and as such are presented in the Condensed Balance Sheet at their gross fair value, except for Long-term debt, which is presented at amortized carrying value.
We did not have any transfers of the fair values of our financial instruments between Level 1, Level 2 or Level 3 of the fair value hierarchy during the six months ended June 30, 20192020 or 2018.2019.
Master Trust Assets
DP&L established a Master Trust to hold assets that could be used for the benefit of employees participating in employee benefit plans and these assets are not used for general operating purposes. On January 1, 2018, AOCI of $1.7 million ($1.1 million net of tax) was reversed to Accumulated Deficit and all future changes to fair value on the Master Trust Assets will be included in income in the period that the changes occur. Changes to fair value were not material for the six months ended June 30, 2019 or 2018. These assets are primarily
comprised of open-ended mutual funds, which are valued using the net asset value per unit. These investments are recorded at fair value within Other deferred assets on the Condensed Balance Sheets and classified as available for sale.equity investments. We recorded net unrealized gains / (losses) of $0.8 million and $0.2 million during the three months ended June 30, 2020 and 2019, respectively, and $(0.3) million and $0.7 million during the during the six months ended June 30, 2020 and 2019, respectively.
Long-term debt
The fair value of debt is based on current public market prices for disclosure purposes only. Unrealized gains or losses are not recognized in the financial statements as long-term debt is presented at carrying value, net of unamortized premium or discount and unamortized deferred financing costs in the financial statements. The long-term debt amounts include the current portion payable in the next twelve months and have maturities that range from 2020 to 2061.
The fair value of assets and liabilities at June 30, 20192020 and December 31, 20182019 and the respective category within the fair value hierarchy for DP&L is as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| $ in millions | | Fair value at June 30, 2020 (a) | | | | | | | | Fair value at December 31, 2019 (a) | | | | | | |
| | Level 1 | | Level 2 | | Level 3 | | Total | | Level 1 | | Level 2 | | Level 3 | | Total |
| Assets | | | | | | | | | | | | | | | | |
| Master Trust assets | | | | | | | | | | | | | | | | |
| Money market funds | | $ | 0.1 | | | $ | — | | | $ | — | | | $ | 0.1 | | | $ | 0.3 | | | $ | — | | | $ | — | | | $ | 0.3 | |
| Equity securities | | — | | | 3.7 | | | — | | | 3.7 | | | — | | | 4.2 | | | — | | | 4.2 | |
| Debt securities | | — | | | 4.1 | | | — | | | 4.1 | | | — | | | 4.1 | | | — | | | 4.1 | |
| Hedge funds | | — | | | — | | | — | | | — | | | — | | | 0.1 | | | — | | | 0.1 | |
| | | | | | | | | | | | | | | | |
| Tangible assets | | — | | | — | | | — | | | — | | | — | | | 0.1 | | | — | | | 0.1 | |
| Total Master Trust assets | | 0.1 | | | 7.8 | | | — | | | 7.9 | | | 0.3 | | | 8.5 | | | — | | | 8.8 | |
| Derivative assets | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
| Interest rate hedges | | — | | | — | | | — | | | — | | | — | | | 0.1 | | | — | | | 0.1 | |
| | | | | | | | | | | | | | | | |
| Total derivative assets | | — | | | — | | | — | | | — | | | — | | | 0.1 | | | — | | | 0.1 | |
| | | | | | | | | | | | | | | | |
| Total assets | | $ | 0.1 | | | $ | 7.8 | | | $ | — | | | $ | 7.9 | | | $ | 0.3 | | | $ | 8.6 | | | $ | — | | | $ | 8.9 | |
| | | | | | | | | | | | | | | | |
| Liabilities | | | | | | | | | | | | | | | | |
| Derivative liabilities | | | | | | | | | | | | | | | | |
| Interest rate hedges | | $ | — | | | $ | 0.1 | | | $ | — | | | $ | 0.1 | | | $ | — | | | $ | — | | | $ | — | | | $ | — | |
| Long-term debt | | — | | | 583.0 | | | 17.4 | | | 600.4 | | | — | | | 583.0 | | | 17.5 | | | 600.5 | |
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
| Total liabilities | | $ | — | | | $ | 583.1 | | | $ | 17.4 | | | $ | 600.5 | | | $ | — | | | $ | 583.0 | | | $ | 17.5 | | | $ | 600.5 | |
(a) Includes credit valuation adjustment
Our financial instruments are valued using the market approach in the following categories:
•Level 1 inputs are used for money market accounts that are considered cash equivalents. The fair value is determined by reference to quoted market prices and other relevant information generated by market transactions.
•Level 2 inputs are used to value derivatives such as interest rate hedge contracts which are valued using a benchmark interest rate. Other Level 2 assets include open-ended mutual funds in the Master Trust, which are valued using the end of day NAV per unit.
•Level 3 inputs such as certain debt balances are considered a Level 3 input because the notes are not publicly traded. Our long-term debt is fair valued for disclosure purposes only.
All of the inputs to the fair value of our derivative instruments are from quoted market prices.
Our long-term debt is fair valued for disclosure purposes only and most of the fair values are determined using quoted market prices in inactive markets. These fair value inputs are considered Level 2 in the fair value hierarchy. As the Wright-Patterson Air Force Base note is not publicly traded, the fair value inputs are considered Level 3 in
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| $ in millions | | Fair value at June 30, 2019 (a) | | Fair value at December 31, 2018 (a) |
| | | Level 1 | | Level 2 | | Level 3 | | Total | | Level 1 | | Level 2 | | Level 3 | | Total |
| Assets | | | | | | | | | | | | | | | | |
| Master Trust assets | | | | | | | | | | | | | | | | |
| Money market funds | | $ | 0.2 |
| | $ | — |
| | $ | — |
| | $ | 0.2 |
| | $ | 0.4 |
| | $ | — |
| | $ | — |
| | $ | 0.4 |
|
| Equity securities | | — |
| | 3.9 |
| | — |
| | 3.9 |
| | — |
| | 3.5 |
| | — |
| | 3.5 |
|
| Debt securities | | — |
| | 4.1 |
| | — |
| | 4.1 |
| | — |
| | 4.0 |
| | — |
| | 4.0 |
|
| Hedge funds | | — |
| | 0.1 |
| | — |
| | 0.1 |
| | — |
| | 0.1 |
| | — |
| | 0.1 |
|
| Tangible assets | | — |
| | 0.1 |
| | — |
| | 0.1 |
| | — |
| | 0.1 |
| | — |
| | 0.1 |
|
| Total Master Trust assets | | 0.2 |
| | 8.2 |
| | — |
| | 8.4 |
| | 0.4 |
| | 7.7 |
| | — |
| | 8.1 |
|
| Derivative assets | | | | | | | | | | | | | | | | |
| Interest rate hedges | | — |
| | 0.4 |
| | — |
| | 0.4 |
| | — |
| | 1.5 |
| | — |
| | 1.5 |
|
| Total derivative assets | | — |
| | 0.4 |
| | — |
| | 0.4 |
| | — |
| | 1.5 |
| | — |
| | 1.5 |
|
| | | | | | | | | | | | | | | | | |
| Total assets | | $ | 0.2 |
| | $ | 8.6 |
| | $ | — |
| | $ | 8.8 |
| | $ | 0.4 |
| | $ | 9.2 |
| | $ | — |
| | $ | 9.6 |
|
| | | | | | | | | | | | | | | | | |
| Liabilities | | | | | | | | | | | | | | | | |
| Long-term debt | | $ | — |
| | $ | 582.3 |
| | $ | 17.6 |
| | 599.9 |
| | $ | — |
| | $ | 576.1 |
| | $ | 17.7 |
| | $ | 593.8 |
|
| | | | | | | | |
|
| | | | | | | |
|
|
| Total liabilities | | $ | — |
| | $ | 582.3 |
| | $ | 17.6 |
| | $ | 599.9 |
| | $ | — |
| | $ | 576.1 |
| | $ | 17.7 |
| | $ | 593.8 |
|
| |
(a) | Includes credit valuation adjustment |
Note 5 – Derivative Instruments and Hedging Activities
In the normal course of business, DP&L enters into interest rate hedgesvarious financial instruments, including derivative financial instruments. We use derivatives principally to manage the interest rate risk associated with our long-term debt. The derivatives that we use to economically hedge these risks are governed by our risk management policies for forward and futures contracts. Our net positions are continually assessed within our structured hedging programs to determine whether new or offsetting transactions are required. We monitor and value derivative positions monthly as part of our variable rate debt.risk management processes. We use published sources for pricing, when possible, to mark positions to market. All of our derivative instruments are used for risk management purposes and are designated as cash flow hedges if they qualify under FASC 815 for accounting purposes. In prior periods, we have used commodity derivatives principally to manage the risk of changes in market prices for commodities.
Cash Flow Hedges
As part of our risk management processes, we identify the relationships between hedging instruments and hedged items, as well as the risk management objective and strategy for undertaking various hedge transactions. The fair values of cash flow hedges determined by current public market prices will continue to fluctuate with changes in market prices up to contract expiration. With the adoption of ASU 2017-12, Derivatives and Hedging (Topic 815): Targeted improvements to Accounting for Hedging Activities effective January 1, 2019, we willare no longer be required to calculate effectiveness and thus the entire change in the fair value of a hedging instrument will beis recorded in other comprehensive income and amounts deferred will be reclassified to earnings in the same income statement line as the hedged item in the period in which it settles.
As of June 30, 2019,2020, we have two2 interest rate swaps to hedge the variable interest on our $140.0 million variable interest rate tax-exempt First Mortgage Bonds. The interest rate swaps have a combined notional amount of $140.0 million and settle monthly based on a one-month LIBOR. On March 29, 2018, we settled $60.0 million of these interest rate swaps due to the partial repayment of the underlying debt and a gain of $0.8 million was recorded as a reduction to interest expense. Since the swap was partially settled, the remaining swaps were de-designated and then re-designated with a new hypothetical derivative. The AOCIAOCL associated with the remaining swaps will be amortized out of AOCIAOCL into interest expense over the remaining life of the underlying debt.
We had previously entered into interest rate derivative contracts to manage interest rate exposure related to anticipated borrowings of fixed-rate debt. These interest rate derivative contracts were settled in 2013 and we continue to amortize amounts out of AOCI into interest expense.
The following tables provide information concerning gains or losses recognized in AOCIAOCL for the cash flow hedges for the three and six months ended June 30, 20192020 and 2018:2019:
| | | | | | | | | | | | | | |
| | Three months ended | | |
| | June 30, 2020 | | June 30, 2019 |
| | Interest | | Interest |
| $ in millions (net of tax) | | Rate Hedge | | Rate Hedge |
| Beginning accumulated derivative gains / (losses) in AOCL | | $ | (0.8) | | | $ | 0.3 | |
| Net gains / (losses) associated with current period hedging transactions | | 0.2 | | | (0.6) | |
| Net gains reclassified to earnings | | | | |
| Interest expense | | (0.1) | | | — | |
| | | | |
| | | | |
| Ending accumulated derivative losses in AOCL | | $ | (0.7) | | | $ | (0.3) | |
| | | | |
| | Six months ended | | |
| | June 30, 2020 | | June 30, 2019 |
| | Interest | | Interest |
| $ in millions (net of tax) | | Rate Hedge | | Rate Hedge |
| Beginning accumulated derivative gains / (losses) in AOCL | | $ | (0.4) | | | $ | 0.6 | |
| Net losses associated with current period hedging transactions | | (0.1) | | | (0.8) | |
| Net gains reclassified to earnings | | | | |
| Interest expense | | (0.2) | | | (0.1) | |
| | | | |
| | | | |
| Ending accumulated derivative losses in AOCL | | $ | (0.7) | | | $ | (0.3) | |
| | | | |
| Portion expected to be reclassified to earnings in the next twelve months | | $ | (0.1) | | | |
| Maximum length of time that we are hedging our exposure to variability in future cash flows related to forecasted transactions (in months) | | 2 | | |
|
| | | | | | | | |
| | | Three months ended |
| | | June 30, 2019 | | June 30, 2018 |
| | | Interest | | Interest |
| $ in millions (net of tax) | | Rate Hedge | | Rate Hedge |
| Beginning accumulated derivative gains in AOCI | | $ | 0.3 |
| | $ | 1.6 |
|
| Net gains / (losses) associated with current period hedging transactions | | (0.6 | ) | | 0.2 |
|
| Net gains reclassified to earnings | | | | |
| Interest expense | | — |
| | (0.2 | ) |
| Ending accumulated derivative gains / (losses) in AOCI | | $ | (0.3 | ) | | $ | 1.6 |
|
| | | | | |
| | | Six months ended |
| | | June 30, 2019 | | June 30, 2018 |
| | | Interest | | Interest |
| $ in millions (net of tax) | | Rate Hedge | | Rate Hedge |
| Beginning accumulated derivative gains in AOCI | | $ | 0.6 |
| | $ | 1.4 |
|
| Net gains / (losses) associated with current period hedging transactions | | (0.8 | ) | | 0.7 |
|
| Net gains reclassified to earnings | | | | |
| Interest expense | | (0.1 | ) | | (0.5 | ) |
| Ending accumulated derivative gains / (losses) in AOCI | | $ | (0.3 | ) | | $ | 1.6 |
|
| | | | | |
| Portion expected to be reclassified to earnings in the next twelve months | | $ | (0.8 | ) | | |
| Maximum length of time that we are hedging our exposure to variability in future cash flows related to forecasted transactions (in months) | | 14 |
| | |
Net gains or losses associated with the ineffective portion of the hedging transactions were immaterial in the prior year period presented.
Financial Statement Effect
DP&L has elected not to offset derivative assets and liabilities and not to offset net derivative positions against the right to reclaim cash collateral pledged (an asset) or the obligation to return cash collateral received (a liability) under derivative agreements. The fair value derivative position of DP&L's interest rate swaps are as follows:
|
| | | | | | | | | | | | | | | | | | |
| Fair Values of Derivative Instruments |
| at June 30, 2019 |
| | | | | | | Gross Amounts Not Offset in the Condensed Balance Sheets | | |
| $ in millions | | Hedging Designation | | Gross Fair Value as presented in the Condensed Balance Sheets (a) | | Financial Instruments with Same Counterparty in Offsetting Position | | Cash Collateral | | Net Fair Value |
| Assets | | | | | | | | | | |
| Short-term derivative positions (presented in Prepayments and other current assets) |
| Interest rate swap | | Designated | | $ | 0.3 |
| | $ | — |
| | $ | — |
| | $ | 0.3 |
|
| | | | | | | | | | | |
| Long-term derivative positions (presented in Other non-current assets) |
| Interest rate swap | | Designated | | 0.1 |
| | — |
| | — |
| | 0.1 |
|
| Total assets | | | | $ | 0.4 |
| | $ | — |
| | $ | — |
| | $ | 0.4 |
|
| | | | | | | | | | | | | | | | | | | | | | | |
(a)$ in millions (net of tax) | Includes credit valuation adjustment.Hedging Designation | | Balance sheet classification | | June 30, 2020 | | December 31, 2019 |
|
| | | | | | | | | | | | | | | | | | |
| Fair Values of Derivative Instruments |
| at December 31, 2018 |
| | | | | | | Gross Amounts Not Offset in the Condensed Balance Sheets | | |
| $ in millions | | Hedging Designation | | Gross Fair Value as presented in the Condensed Balance Sheets (a) | | Financial Instruments with Same Counterparty in Offsetting Position | | Cash Collateral | | Net Fair Value |
| Assets | | | | | | | | | | |
| Short-term derivative positions (presented in Prepayments and other current assets) |
| Interest rate swaps | | Designated | | $ | 0.9 |
| | $ | — |
| | $ | — |
| | $ | 0.9 |
|
| | | | | | | | | | | |
| Long-term derivative positions (presented in Other non-current assets) |
| Interest rate swaps | | Designated | | 0.6 |
| | — |
| | — |
| | 0.6 |
|
| Total assets | | | | $ | 1.5 |
| | $ | — |
| | $ | — |
| | $ | 1.5 |
|
| Interest rate swap | Cash Flow Hedge | | Prepayments and other current assets | | $ | — | | | $ | 0.1 | |
| | | | | | | |
(a)Interest rate swap | Includes credit valuation adjustment.Cash Flow Hedge | | Accrued and other current liabilities | | $ | 0.1 | | | $ | — | |
Any prior year ineffectiveness on the interest rate hedges and the monthly settlement of the interest rate hedges is recorded in interest expense within the Condensed Statements of Operations.
Note 6 – Long-term Debt
The following table summarizes DP&L's long-term debt.
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Interest | | | | June 30, | | December 31, |
| $ in millions | | Rate | | Maturity | | 2020 | | 2019 |
| First Mortgage Bonds | | 3.95 | % | | 2049 | | $ | 425.0 | | | $ | 425.0 | |
| Tax-exempt First Mortgage Bonds - rates from 2.40% - 2.93% (a) and 1.15% - 2.47% (b) | | | | 2020 | | 140.0 | | | 140.0 | |
| U.S. Government note | | 4.20 | % | | 2061 | | 17.4 | | | 17.5 | |
| Unamortized deferred financing costs | | | | | | (5.5) | | | (5.4) | |
| Unamortized debt discounts and premiums, net | | | | | | (2.6) | | | (2.7) | |
| Total long-term debt | | | | | | 574.3 | | | 574.4 | |
| Less: current portion | | | | | | (0.1) | | | (139.8) | |
| Long-term debt, net of current portion | | | | | | $ | 574.2 | | | $ | 434.6 | |
|
| | | | | | | | | | | | |
| | | Interest | | | | June 30, | | December 31, |
| $ in millions | | Rate | | Maturity | | 2019 | | 2018 |
| Term loan - rates from 4.50% - 4.53% (a) and 4.01% - 4.60% (b) | | | | 2022 | | $ | — |
| | $ | 436.1 |
|
| First Mortgage Bonds | | 3.95% | | 2049 | | 425.0 |
| | — |
|
| Tax-exempt First Mortgage Bonds - rates from 3.00% - 3.07% (a) and 1.52% - 1.92% (b) | | | | 2020 | | 140.0 |
| | 140.0 |
|
| U.S. Government note | | 4.20% | | 2061 | | 17.6 |
| | 17.7 |
|
| Unamortized deferred financing costs | | | | | | (4.5 | ) | | (6.3 | ) |
| Unamortized debt discounts and premiums, net | | | | | | (2.7 | ) | | (1.4 | ) |
| Total long-term debt | | | | | | 575.4 |
| | 586.1 |
|
| Less: current portion | | | | | | (0.2 | ) | | (4.6 | ) |
| Long-term debt, net of current portion | | | | | | $ | 575.2 |
| | $ | 581.5 |
|
| |
(a) | Range of interest rates for the six months ended June 30, 2019. |
| |
(b) | Range of interest rates for the year ended December 31, 2018. |
(a)Range of interest rates for the six months ended June 30, 2020.
Deferred financing costs are amortized over(b)Range of interest rates for the remaining life of the debt using the effective interest method. Premiums or discounts on long-term debt are amortized over the remaining life of the debt using the effective interest method.year ended December 31, 2019.
Line of credit
At June 30, 20192020 and December 31, 2018, 2019, DP&L had no outstanding borrowings on its line of credit.credit of $0.0 million and $40.0 million, respectively.
Significant transactions
On June 19, 2019, July 31, 2020 DP&L amended and restated its unsecured revolving credit facility. The revolving credit facility has a $175.0 issued $140.0 million borrowing limit, with a $75.0 million letter of credit sublimit, a feature that provides DP&L the ability to increase the size of the facility by an additional $100.0 million, a maturity date of June 2024, and a provision that provides DP&L the option to request up to two one-year extensions of the maturity date.
On June 6, 2019, DP&L closed on a $425.0 million issuance oftaxable First Mortgage Bonds due 2049. Theseand on August 3, 2020 used the proceeds to purchase at par value the $140.0 million of outstanding tax-exempt Ohio Air Quality Development Authority Collateralized Pollution Control Revenue Refunding Bonds that had been issued in 2015. The new bondstaxable First Mortgage Bonds carry an interest rate of 3.95%. The proceeds3.20% and mature on July 31, 2040. As a result of this issuance were used to repay in fullrefinancing, the outstanding principal of $435.0$140.0 million of DP&L's variable rate Term Loan B credit agreement.
On March 30, 2018, DP&L commenced a redemption of $60.0 million of outstanding tax exempttax-exempt First Mortgage Bonds due 2020 at par value (plus accrued and unpaid interest). These bonds were redeemed at par plus accrued interest on Aprilare presented as long-term debt as of June 30, 2018 with cash on hand.2020.
Long-term debt covenants and restrictions
DP&L’s &L's unsecured revolving credit facility and Bond Purchase and Covenants Agreement (financing document entered into in connection with the saleissuance of $200.0 million of variable rate tax-exemptDP&L's First Mortgage Bonds, dated as of August 1, 2015) has two financial covenants. The first measures Total Debt to Total Capitalization and is calculated, at the end of each fiscal quarter, by dividing total debt at the end of the quarter by total capitalization at the end of the quarter. DP&L’s Total Debt to Total Capitalization ratio shall not be greater than 0.65 to 1.00. Except that, after Generation Separation and the twelve-month period following (October 1, 2017 to September 30, 2018) the ratio shall be a) increased to 0.75 to 1.00 or b) suspended if DP&L’s long-term indebtedness is less than or equal to $750.0 million. Additionally, this covenant shall be suspended any time after separation during which DP&L maintains a rating of BBB- (or in the case of Moody’s Investors Service, Inc. Baa3) or higher with a stable outlook from at least one of Fitch Investors Service Inc., Standard & Poor’s Ratings Services or Moody’s Investors Service, Inc. The Total Debt to Capitalization covenant is calculated as the sum of DP&L’s current and long-term portion of debt, divided by the total of DP&L’s net worth and total debt. As of June 30, 2019, DP&L's ratings meet those requirements and this covenant is suspended for the quarter ended June 30, 2019.
The second financial covenant measures EBITDA to Interest Expense. The TotalEBITDA to Interest Charges ratio is calculated, at the end of each fiscal quarter, by dividing EBITDA for the four prior fiscal quarters by the interest charges for the same period. The ratio, per the agreement, is to be not less than 2.50 to 1.00. This financial covenant was met with a ratio of 9.53 to 1.00 as of June 30, 2019.
DP&L's unsecured revolving credit facilityon July 31, 2020) has one financial covenant. The covenant measures Total Debt to Total Capitalization and is calculated, at the end of each fiscal quarter, by dividing total debt at the end of the quarter by total capitalization at the end of the quarter. DP&L’s Total Debt to Total Capitalization ratio shall not be greater than 0.67 to 1.00. This financial covenant was met with a ratio of 0.570.48 to 1.00 as of June 30, 2019.2020.
As of June 30, 2019, 2020, DP&L was in compliance with all debt covenants, including the financial covenants described above.
DP&L does not have any meaningful restrictions in its debt financing documents prohibiting dividends to its parent, DPL.
Substantially all property, plant & equipment of DP&L is subject to the lien of the mortgage securing DP&L’s First and Refunding Mortgage.
Note 7 – Income Taxes
The following table details the effective tax rates for the three and six months ended June 30, 20192020 and 2018.2019.
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three months ended | | | | Six months ended | | |
| | June 30, | | | | June 30, | | |
| | 2020 | | 2019 | | 2020 | | 2019 |
| DP&L | | (14.8)% | | 17.2% | | (3.9)% | | 17.3% |
|
| | | | | | | | |
| | | Three months ended | | Six months ended |
| | | June 30, | | June 30, |
| | | 2019 | | 2018 | | 2019 | | 2018 |
| DP&L | | 17.2% | | 12.3% | | 17.3% | | 15.7% |
Income tax expense for the six months ended June 30, 2019 and 2018 was calculated using the estimated annual effective income tax rates for 2019 and 2018 of 17.1% and 17.2%, respectively. Management estimates the annual effective tax rate based on its forecast of annual pre-tax income. To the extent that actual pre-tax results for the year differ from the forecasts applied to the most recent interim period, the estimated rates could be materially different from the actual effective tax rates. DP&L’s effective combined state and federal income tax rate was 17.2%(14.8)% and 17.3%(3.9)% for the three and six months ended June 30, 2019,2020, respectively. This is lower thandifferent from the combined federal and state statutory rate of 21.6%22.3% primarily due to the net tax benefit related to the reversal of excess deferred taxes.taxes and the reversal of an uncertain tax position, which were partially offset by an adjustment to the deferred tax balances.
Note 8 – Benefit Plans
DP&L sponsors a defined benefit pension plan for the majority of its employees.
We generally fund pension plan benefits as accrued in accordance with the minimum funding requirements of ERISA and, in addition, make voluntary contributions from time to time. There were $7.5 million in employer contributions during each of the six monthssix-month periods ended June 30, 20192020 and 2018.2019.
The amounts presented in the following tables for pension include the collective bargaining plan formula, the traditional management plan formula, the cash balance plan formula and the SERP, in the aggregate. The pension costs below have not been adjusted for amounts billed to the Service Company for former DP&L employees who are now employed by the Service Company or for amounts billed to AES Ohio Generation for former employees that were employed by AES Ohio Generation that are still participants in the DP&L plan.
The net periodic benefit cost of the pension benefit plans for the three and six months ended June 30, 20192020 and 20182019 was:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three months ended | | | | Six months ended | | |
| | June 30, | | | | June 30, | | |
| $ in millions | | 2020 | | 2019 | | 2020 | | 2019 |
| Service cost | | $ | 1.0 | | | $ | 0.9 | | | $ | 1.9 | | | $ | 1.8 | |
| Interest cost | | 2.9 | | | 3.8 | | | 5.9 | | | 7.5 | |
| Expected return on plan assets | | (4.7) | | | (5.0) | | | (9.4) | | | (10.0) | |
| Amortization of unrecognized: | | | | | | | | |
| Prior service cost | | 0.4 | | | 0.4 | | | 0.7 | | | 0.9 | |
| Actuarial loss | | 2.1 | | | 1.8 | | | 4.3 | | | 3.5 | |
| Net periodic benefit cost | | $ | 1.7 | | | $ | 1.9 | | | $ | 3.4 | | | $ | 3.7 | |
|
| | | | | | | | | | | | | | | | |
| | | Three months ended | | Six months ended |
| | | June 30, | | June 30, |
| $ in millions | | 2019 | | 2018 | | 2019 | | 2018 |
| Service cost | | $ | 0.9 |
| | $ | 1.5 |
| | $ | 1.8 |
| | $ | 3.0 |
|
| Interest cost | | 3.8 |
| | 3.5 |
| | 7.5 |
| | 6.9 |
|
| Expected return on plan assets | | (5.0 | ) | | (5.4 | ) | | (10.0 | ) | | (10.6 | ) |
| Amortization of unrecognized: | | | | | | | | |
| Prior service cost | | 0.4 |
| | 0.3 |
| | 0.9 |
| | 0.7 |
|
| Actuarial loss | | 1.8 |
| | 2.4 |
| | 3.5 |
| | 4.7 |
|
| Net periodic benefit cost | | $ | 1.9 |
| | $ | 2.3 |
| | $ | 3.7 |
| | $ | 4.7 |
|
In addition, DP&L provides postretirement health care and life insurance benefits to certain retired employees, their spouses and eligible dependents. We have funded a portion of the union-eligible benefits using a Voluntary Employee Beneficiary Association Trust. These postretirement health care benefits and the related unfunded obligation of $9.0$9.6 million at June 30, 20192020 and $9.2$9.6 million at December 31, 20182019 were not material to the financial statements in the periods covered by this report.
Note 9 – Shareholder's Equity
Capital Contribution and Returns of Capital
During the six months ended June 30, 2020, DPL made a capital contribution of $150.0 million to DP&L. The proceeds will primarily be used for funding needs to support DP&L's capital expenditure program, mainly new investments in and upgrades to DP&L’s transmission and distribution system. Additionally, DP&L made returns of capital payments of $14.2 million to DPL.
During the six months ended June 30, 2019, DP&L made returns of capital payments of $70.0 million to DPL.
During the six months ended June 30, 2018, DP&L received an $80.0 million capital contribution from its parent, DPL. In addition, DP&L made returns
Note 10 – Contractual Obligations, Commercial Commitments and Contingencies
Equity Ownership Interest
DP&L has a 4.9% equity ownership interest in OVEC, which is recorded using the cost method of accounting under GAAP. DP&L, along with several non-affiliated energy companies party to an OVEC arrangement, receive and pay for OVEC capacity and energy and are responsible for OVEC debt obligations and other fixed costs in proportion to their power participation ratios under the arrangement which, for DP&L, is the same as its equity ownership interest. At June 30, 2019, 2020, DP&L could be responsible for the repayment of 4.9%, or $67.2$64.0 million, of $1,372.4$1,306.0 million OVEC debt obligations if they came due, comprised of both fixed and variable rate securities with maturities from 20192022 to 2040. OVEC could also seek additional contributions from DP&L to avoid a default in the event that other OVEC members defaulted on their respective OVEC obligations. One of the other OVEC members with a 4.85% interest in OVEC,had filed for bankruptcy protection and the bankruptcy court had approved that member's rejection of the OVEC arrangement and its related obligations on July 31, 2018. We do not expect these eventsobligations. Subsequent to have a material impact on our financial condition, results of operations or cash flows.that decision, another entity has assumed that member's ownership interest and all related liabilities.
Contingencies
In the normal course of business, we are subject to various lawsuits, actions, proceedings, claims and other matters asserted under various laws and regulations. We believe the amounts provided in our Condensed Financial Statements, as prescribed by GAAP, are adequate considering the probable and estimable contingencies. However, there can be no assurances that the actual amounts required to satisfy alleged liabilities from various legal proceedings, claims, tax examinations and other matters discussed below, and to comply with applicable laws and regulations, will not exceed the amounts reflected in our Condensed Financial Statements. As such, costs, if any, that may be incurred in excess of those amounts provided as of June 30, 2019,2020, cannot be reasonably determined.
Environmental Matters
DP&L’s current and previously-owned facilities and operations are subject to a wide range of federal, state and local environmental regulations and laws. The environmental issues that may affect us include:
•The federal CAA and state laws and regulations (including State Implementation Plans) which require compliance, obtaining permits and reporting as to air emissions;
•Litigation with federal and certain state governments and certain special interest groups;
•Rules and future rules issued by the USEPA, the Ohio EPA or other authorities associated with the federal Clean Water Act, which prohibits the discharge of pollutants into waters of the United States except pursuant to appropriate permits; and
•Solid and hazardous waste laws and regulations, which govern the management and disposal of certain waste.
In addition to imposing continuing compliance obligations, these laws and regulations authorize the imposition of substantial penalties for noncompliance, including fines, injunctive relief and other sanctions. In the normal course of business, we have investigatory and remedial activities underway at our facilities to comply, or to determine compliance, with such regulations. We record liabilities for loss contingencies related to environmental matters when a loss is probable of occurring and can be reasonably estimated in accordance with the provisions of GAAP. Accordingly, we have immaterial accruals for loss contingencies for environmental matters. We also have several environmental matters for which we have not accrued loss contingencies because the risk of loss is not probable, or a loss cannot be reasonably estimated. We evaluate the potential liability related to environmental matters quarterly and may revise our estimates. Such revisions in the estimates of the potential liabilities could have a material adverse effect on our results of operations, financial condition and cash flows.
Note 11 – Revenue
Revenue is primarily earned from retail and wholesale electricity sales and electricity transmission and distribution delivery services. Revenue is recognized upon transfer of control to customers in an amount that reflects the consideration to which we expect to be entitled in exchange for those goods or services. Revenue is recorded net of any taxes assessed on and collected from customers, which are remitted to the governmental authorities. For further discussion of our Retail, Wholesale, RTO ancillary, and Capacity revenues, see Note 13 — Revenue in Item 8.—Financial Statements and Supplementary Data of our Form 10-K.
DP&L's revenue from contracts with customers was $166.7$146.3 million and $159.2$166.7 million for the three months ended June 30, 20192020 and 2018,2019, respectively, and $367.4$311.1 million and $346.0$367.4 million for the six months ended June 30, 2020 and 2019, and 2018, respectively.
The following table presents our revenue from contracts with customers and other revenue for the three and six months ended June 30, 20192020 and 2018:2019:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three months ended | | | | Six months ended | | |
| | June 30, | | | | June 30, | | |
| $ in millions | | 2020 | | 2019 | | 2020 | | 2019 |
| Retail revenue | | | | | | | | |
| Retail revenue from contracts with customers | | | | | | | | |
| Residential revenue | | $ | 83.7 | | | $ | 87.4 | | | $ | 180.6 | | | $ | 206.4 | |
| Commercial revenue | | 26.5 | | | 33.8 | | | 55.4 | | | 68.9 | |
| Industrial revenue | | 11.9 | | | 15.4 | | | 23.7 | | | 29.8 | |
| Governmental revenue | | 8.6 | | | 10.9 | | | 17.8 | | | 21.9 | |
Other (a) | | 2.6 | | | 3.1 | | | 6.0 | | | 6.3 | |
| Total retail revenue from contracts with customers | | 133.3 | | | 150.6 | | | 283.5 | | | 333.3 | |
Other retail revenue (b) | | 5.4 | | | 10.4 | | | 8.7 | | | 11.1 | |
| Wholesale revenue | | | | | | | | |
| Wholesale revenue from contracts with customers | | 1.8 | | | 3.4 | | | 4.5 | | | 8.4 | |
| RTO ancillary revenue | | 10.1 | | | 10.9 | | | 20.8 | | | 21.8 | |
| Capacity revenue | | 1.1 | | | 1.8 | | | 2.3 | | | 3.9 | |
| | | | | | | | |
| Miscellaneous revenue | | 1.4 | | | 0.6 | | | 2.3 | | | 0.6 | |
| Total revenues | | $ | 153.1 | | | $ | 177.7 | | | $ | 322.1 | | | $ | 379.1 | |
| | | | | | | | |
|
| | | | | | | | | | | | | | | | |
| | | Three months ended | | Six months ended |
| $ in millions | | June 30, 2019 | | June 30, 2018 | | June 30, 2019 | | June 30, 2018 |
| Retail revenue | | | | | | | | |
| Retail revenue from contracts with customers | | $ | 150.6 |
| | $ | 139.7 |
| | $ | 333.3 |
| | $ | 300.9 |
|
Other retail revenue (a) | | 10.4 |
| | 9.6 |
| | 11.1 |
| | 18.8 |
|
| Wholesale revenue | | | | | | | | |
| Wholesale revenue from contracts with customers | | 3.4 |
| | 7.1 |
| | 8.4 |
| | 19.7 |
|
| RTO ancillary revenue | | 10.9 |
| | 10.5 |
| | 21.8 |
| | 21.6 |
|
| Capacity revenue | | 1.8 |
| | 1.9 |
| | 3.9 |
| | 3.8 |
|
| Miscellaneous revenue | | 0.6 |
| | — |
| | 0.6 |
| | — |
|
| Total revenues | | $ | 177.7 |
| | $ | 168.8 |
| | $ | 379.1 |
| | $ | 364.8 |
|
(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.
| |
(a) | Other retail revenue primarily includes alternative revenue programs not accounted for under FASC 606. |
(b) Other retail revenue primarily includes alternative revenue programs not accounted for under FASC 606.
The balances of receivables from contracts with customers were $60.7$59.9 million and $70.1$64.4 million as of June 30, 20192020 and December 31, 2018,2019, respectively. Payment terms for all receivables from contracts with customers are typically within 30 days.
Note – 12 – DispositionsRisks and Uncertainties
COVID-19 Pandemic
Beckjord Facility – On February 26, 2018, DP<he COVID-19 pandemic has severely impacted global economic activity, including electricity and its co-ownersenergy consumption, and caused significant volatility and negative pressure in financial markets. The global impact of the retired Beckjord Facility agreedoutbreak has been rapidly evolving and many countries, including the United States, have reacted by instituting quarantines, mandating business and school closures, and restricting travel. The State of Ohio has implemented, among other things, stay-at-home and other social distancing measures to transfer their interestsslow the spread of the virus, which has resulted in decreased energy demand within our service territory, though these stay-at-home restrictions have now been lifted in our service territory. On March 12, 2020, the retired FacilityPUCO also issued an emergency order prohibiting electric utilities, including us, from discontinuing electric utility service to customers. This prohibition is currently scheduled to end for DP&L on September 1, 2020, pending approval by the PUCO. We are taking a third party, including their obligations to remediate the Facility and its site, and the transfer occurred on that same date. As a result, DP&L recognized a loss on the transfervariety of $12.4 million and made cash expenditures of $14.5 million, inclusive of cash expenditures for the transfer charges. The Beckjord Facility was retiredmeasures in 2014, and, as such, the income / (loss) from continuing operations before income tax relatedresponse to the Beckjord Facility was immaterial forspread 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 reduced revenues and lower margins resulting from decreased energy demand within our service territory, we also have incurred and expect to continue to incur expenses relating to COVID-19, and such expenses may include those that relate to events outside of our control.
For the three and six months ended June 30, 2018, excluding2020, the loss on transfer noted above.
COVID-19 pandemic primarily impacted our retail sales demand, as the economic impact of the pandemic started to materialize in Ohio in the second half of March 2020 and more so in the second quarter of 2020. For commercial and industrial customers, weather-normalized volumes of kWh sold decreased by 11.0% and 19.9%, respectively, for the three months ended June 30, 2020 as compared to the same period in the prior year. For residential customers, weather-normalized volumes of kWh sold increased by 8.5% for the three months ended June 30, 2020 as compared to the same period in the prior year. We also have incurred, and expect to continue to incur, expenses relating to COVID-19; however, see Note 3 – Regulatory
Matters for a discussion of regulatory measures, which partially mitigate the impact of these expenses. The magnitude and duration of the COVID-19 pandemic is unknown at this time and may have material and adverse effects on our results of operations, financial condition and cash flows in future periods.
Item 2 – Management's Discussion and Analysis of Financial Condition and Results of Operations
This report includes the combined filing of DPL and DP&L. DP&L is a wholly-owned subsidiary of DPL and is a public utility incorporated in 1911 under the laws of Ohio. On November 28, 2011, DPL became an indirectly wholly-owned subsidiary of AES, a global power company. Throughout this report, the terms “we,” “us,” “our” and “ours” are used to refer to both DPL and DP&L, respectively and together, unless the context indicates otherwise. Discussions or areas of this report that apply only to DPL or DP&L will clearly be noted in the section.
FORWARD-LOOKING INFORMATION
The following discussion contains forward-looking statements and should be read in conjunction with the accompanying Condensed Consolidated Financial Statements and related footnotes of DPL and the Condensed Financial Statements and related footnotes of DP&L included in Part I – Financial Information,, the risk factors in Item 1A to Part I of our Form 10-K for the fiscal year ended December 31, 20182019, in Part II, Item 1A of this Form 10-Q and our “Forward-Looking Statements” section of this Form 10-Q. For a list of certain abbreviations or acronyms in this discussion, see the Glossary at the beginning of this Form 10-Q.
OVERVIEW OF OUR BUSINESS
DPL is an indirectly wholly-owned subsidiary of AES.
DPL has threetwo primary subsidiaries, DP&L, AES Ohio Generation and MVIC. DP&L is a public utility providing electric transmission and distribution services in West Central Ohio. AES Ohio Generation owns an undivided interest in a coal-fired generating facility and sells all of its energy and capacity into the wholesale market. AES Ohio Generation also owns two retired coal-fired facilities. MVIC is our captive insurance company that provides insurance services to DP&L and our other subsidiaries. For additional information, see Item 1 – Business of our Form 10-K. All of DPL's subsidiaries are wholly-owned.
As an electric public utility in Ohio, DP&L provides regulated transmission and distribution services to its customers as well as retail SSO electric service. DP&L's sales reflect the general economic conditions, seasonal weather patterns and the growth of energy efficiency initiatives.
EXECUTIVE SUMMARY
DPL
Compared with the prior year, DPL's loss net income from continuing operations before income taxtaxes was higher by $25.8 million, or 117% for the three months ended June 30, 2019 increased2020 and higher by $15.8$7.5 million, from a pre-tax loss of $6.9 million for the three months ended June 30, 2018 to a pre-tax loss of $22.7 million for the three months ended June 30, 2019, and its loss from continuing operations before income taxor 536% for the six months ended June 30, 2019 improved by $2.6 million, from a pre-tax loss of $6.1 million for the six months ended June 30, 2018 to a pre-tax loss of $3.5 million for the six months ended June 30, 2019,2020, primarily due to factors including, but not limited to:
| | | | | | | | | | | | | | |
| | Three months ended | | Six months ended |
| | June 30, | | June 30, |
| $ in millions | | 2020 vs. 2019 | | 2020 vs. 2019 |
| Increase due to loss on early extinguishment of debt in 2019, primarily due to the make-whole premium on the partial prepayment of the 7.25% Senior Notes due 2021 | | $ | 44.9 | | | $ | 44.9 | |
| Increase due to lower interest expense from debt refinancings in 2019 | | 2.3 | | | 7.1 | |
Impact of changes to DP&L's ESP in December 2019, primarily removal of the DMR, DIR, and Decoupling Rider and reinstatement of the RSC Rider | | (21.5) | | | (32.5) | |
| Net increase / (decrease) in the volume of retail kWh sold primarily driven by weather impacts, partially offset by the purchased power volume variance | | 1.2 | | | (8.2) | |
| Other | | (1.1) | | | (3.8) | |
| Net change in income / (loss) from continuing operations before income tax | | $ | 25.8 | | | $ | 7.5 | |
| | | | |
| | | | |
| | | | |
| | | | |
| | | | |
|
| | | | | | | | |
| | | Three months ended | | Six months ended |
| | | June 30, | | June 30, |
| $ in millions | | 2019 vs. 2018 | | 2019 vs. 2018 |
| Decrease due to a higher loss on early extinguishment of debt in 2019, primarily due to the make-whole premium on the partial prepayment of the 7.25% Senior Notes due 2021 | | $ | (39.2 | ) | | $ | (38.5 | ) |
| Higher rates due to the distribution rate order, including the decoupling rider | | 12.7 |
| | 18.3 |
|
| Increase due to the loss on transfer of the Beckjord facility in the first quarter of 2018 | | — |
| | 11.7 |
|
| Increase due to lower interest expense from debt refinancings and payments made in 2018 and 2019 | | 2.3 |
| | 6.4 |
|
| Increase due to prior year write-off of previously deferred rate case costs | | 5.3 |
| | 5.3 |
|
| Increase due to prior year fixed asset impairment charge | | 1.2 |
| | 1.2 |
|
| Other | | 1.9 |
| | (1.8 | ) |
| Net change in loss from continuing operations before income tax | | $ | (15.8 | ) | | $ | 2.6 |
|
DP&L
Compared with the prior year, DP&L's net income from continuing operations before income taxtaxes was lower by $20.5 million, or 57% for the three months ended June 30, 2019 increased2020 and lower by $18.9$42.7 million, from pre-tax income of $17.1 million for the three months ended June 30, 2018 to pre-tax income of $36.0 million for the three months ended June 30, 2019, and its income before income taxor 60% for the six months ended June 30, 2019 increased by $34.7 million, from pre-tax income of $36.4 million for the six months ended June 30, 2018 to pre-tax income of $71.1 million for the six months ended June 30, 2019,2020, primarily due to factors including, but not limited to:
| | | | | | | | | | | | | | |
| | Three months ended | | Six months ended |
| | June 30, | | June 30, |
| $ in millions | | 2020 vs. 2019 | | 2020 vs. 2019 |
Impact of changes to DP&L's ESP in December 2019, primarily removal of the DMR, DIR, and Decoupling Rider and reinstatement of the RSC Rider | | $ | (21.5) | | | $ | (32.5) | |
| Net increase / (decrease) in the volume of retail kWh sold primarily driven by weather impacts, partially offset by the purchased power volume variance | | 1.2 | | | (8.2) | |
| Other | | (0.2) | | | (2.0) | |
| Net change in income before income tax | | $ | (20.5) | | | $ | (42.7) | |
| | | | |
| | | | |
| | | | |
| | | | |
| | | | |
|
| | | | | | | | |
| | | Three months ended | | Six months ended |
| | | June 30, | | June 30, |
| $ in millions | | 2019 vs. 2018 | | 2019 vs. 2018 |
| Higher rates due to the distribution rate order, including the decoupling rider | | 12.7 |
| | $ | 18.3 |
|
| Increase due to the loss on transfer of the Beckjord facility in the first quarter of 2018 | | — |
| | 11.7 |
|
| Increase due to prior year write-off of previously deferred rate case costs | | 5.3 |
| | 5.3 |
|
| Other | | 0.9 |
| | (0.6 | ) |
| Net change in income before income tax | | $ | 18.9 |
| | $ | 34.7 |
|
RESULTS OF OPERATIONS HIGHLIGHTS – DPL
DPL’s results of operations include the results of its subsidiaries, including its principal subsidiary DP&L. All material intercompany accounts and transactions have been eliminated in consolidation. A separate discussion of the results of operations for DP&L is presented elsewhere in this report.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three months ended | | | | | | | | Six months ended | | | | | | |
| | June 30, | | | | | | | | June 30, | | | | | | |
| $ in millions | | 2020 | | 2019 | | $ change | | % change | | 2020 | | 2019 | | $ change | | % change |
| Revenues: | | | | | | | | | | | | | | | | |
| Retail | | $ | 138.7 | | | $ | 161.3 | | | $ | (22.6) | | | (14)% | | $ | 292.2 | | | $ | 344.4 | | | $ | (52.2) | | | (15)% |
| Wholesale | | 1.5 | | | 2.8 | | | (1.3) | | | (46)% | | 4.0 | | | 7.8 | | | (3.8) | | | (49)% |
| RTO ancillary | | 10.2 | | | 10.9 | | | (0.7) | | | (6)% | | 20.9 | | | 21.8 | | | (0.9) | | | (4)% |
| Capacity revenues | | 1.1 | | | 1.8 | | | (0.7) | | | (39)% | | 2.3 | | | 3.9 | | | (1.6) | | | (41)% |
| Miscellaneous revenues | | 3.6 | | | 2.8 | | | 0.8 | | | 29% | | 6.9 | | | 5.7 | | | 1.2 | | | 21% |
| | | | | | | | | | | | | | | | |
| Total revenues | | 155.1 | | | 179.6 | | | (24.5) | | | (14)% | | 326.3 | | | 383.6 | | | (57.3) | | | (15)% |
| | | | | | | | | | | | | | | | |
| Operating costs and expenses | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
| Net fuel cost | | 0.3 | | | 0.5 | | | (0.2) | | | (40)% | | 0.9 | | | 1.4 | | | (0.5) | | | (36)% |
| Purchased power: | | | | | | | | | | | | | | | | |
| Purchased power | | 43.2 | | | 49.0 | | | (5.8) | | | (12)% | | 100.6 | | | 115.5 | | | (14.9) | | | (13)% |
| RTO charges | | 6.0 | | | 5.2 | | | 0.8 | | | 15% | | 11.4 | | | 12.4 | | | (1.0) | | | (8)% |
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
| Net purchased power cost | | 49.2 | | | 54.2 | | | (5.0) | | | (9)% | | 112.0 | | | 127.9 | | | (15.9) | | | (12)% |
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
| Operation and maintenance | | 43.7 | | | 45.8 | | | (2.1) | | | (5)% | | 90.8 | | | 94.4 | | | (3.6) | | | (4)% |
| Depreciation and amortization | | 18.5 | | | 17.9 | | | 0.6 | | | 3% | | 36.2 | | | 36.3 | | | (0.1) | | | —% |
| Taxes other than income taxes | | 21.0 | | | 18.0 | | | 3.0 | | | 17% | | 41.9 | | | 37.5 | | | 4.4 | | | 12% |
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
| Other, net | | 0.1 | | | — | | | 0.1 | | | —% | | — | | | — | | | — | | | —% |
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
| Total operating costs and expenses | | 132.8 | | | 136.4 | | | (3.6) | | | (3)% | | 281.8 | | | 297.5 | | | (15.7) | | | (5)% |
| | | | | | | | | | | | | | | | |
| Operating income | | 22.3 | | | 43.2 | | | (20.9) | | | (48)% | | 44.5 | | | 86.1 | | | (41.6) | | | (48)% |
| | | | | | | | | | | | | | | | |
| Other income / (expense), net: | | | | | | | | | | | | | | | | |
| Interest expense | | (19.4) | | | (21.7) | | | 2.3 | | | (11)% | | (38.3) | | | (45.4) | | | 7.1 | | | (16)% |
| Loss on early extinguishment of debt | | — | | | (44.9) | | | 44.9 | | | (100)% | | — | | | (44.9) | | | 44.9 | | | (100)% |
| Other income / (expense) | | 0.8 | | | 1.3 | | | (0.5) | | | (38)% | | (0.1) | | | 2.8 | | | (2.9) | | | (104)% |
| Total other expense, net | | (18.6) | | | (65.3) | | | 46.7 | | | (72)% | | (38.4) | | | (87.5) | | | 49.1 | | | (56)% |
| | | | | | | | | | | | | | | | |
| Income / (loss) from continuing operations before income tax (a) | | $ | 3.7 | | | $ | (22.1) | | | $ | 25.8 | | | (117)% | | $ | 6.1 | | | $ | (1.4) | | | $ | 7.5 | | | (536)% |
|
| | | | | | | | | | | | | | | | |
| | | Three months ended | | Six months ended |
| | | June 30, | | June 30, |
| $ in millions | | 2019 | | 2018 | | 2019 | | 2018 |
| Revenues: | | | | | | | | |
| Retail | | $ | 161.3 |
| | $ | 149.1 |
| | $ | 344.4 |
| | $ | 319.3 |
|
| Wholesale | | 5.8 |
| | 11.7 |
| | 14.2 |
| | 30.8 |
|
| RTO ancillary | | 11.0 |
| | 10.6 |
| | 21.9 |
| | 21.8 |
|
| Capacity revenues | | 3.3 |
| | 4.0 |
| | 7.0 |
| | 6.8 |
|
| Miscellaneous revenues | | 2.8 |
| | 2.7 |
| | 5.7 |
| | 5.1 |
|
| Total revenues | | 184.2 |
| | 178.1 |
| | 393.2 |
| | 383.8 |
|
| | | | | | | | | |
| Operating costs and expenses | | | | | | | | |
| Net fuel cost | | 4.3 |
| | 3.6 |
| | 7.8 |
| | 8.1 |
|
| Purchased power: | | | | | | | | |
| Purchased power | | 49.0 |
| | 53.9 |
| | 115.5 |
| | 119.7 |
|
| RTO charges | | 5.3 |
| | 14.5 |
| | 12.6 |
| | 33.4 |
|
| RTO capacity charges | | — |
| | 0.9 |
| | 0.4 |
| | 2.2 |
|
| Net purchased power cost | | 54.3 |
| | 69.3 |
| | 128.5 |
| | 155.3 |
|
| Operation and maintenance | | 47.1 |
| | 45.0 |
| | 98.1 |
| | 81.0 |
|
| Depreciation and amortization | | 18.0 |
| | 20.3 |
| | 36.4 |
| | 39.1 |
|
| Taxes other than income taxes | | 18.1 |
| | 16.1 |
| | 37.6 |
| | 35.5 |
|
| Other, net | | — |
| | 1.2 |
| | 0.9 |
| | 13.0 |
|
| Total operating costs and expenses | | 141.8 |
| | 155.5 |
| | 309.3 |
| | 332.0 |
|
| | | | | | | | | |
| Operating income | | 42.4 |
| | 22.6 |
| | 83.9 |
| | 51.8 |
|
| | | | | | | | | |
| Other income / (expense), net: | | | | | | | | |
| Interest expense | | (21.7 | ) | | (24.0 | ) | | (45.4 | ) | | (51.8 | ) |
| Loss on early extinguishment of debt | | (44.9 | ) | | (5.7 | ) | | (44.9 | ) | | (6.4 | ) |
| Other income | | 1.5 |
| | 0.2 |
| | 2.9 |
| | 0.3 |
|
| Total other expense, net | | (65.1 | ) | | (29.5 | ) | | (87.4 | ) | | (57.9 | ) |
| | | | | | | | | |
| Loss from continuing operations before income tax (a) | | $ | (22.7 | ) | | $ | (6.9 | ) | | $ | (3.5 | ) | | $ | (6.1 | ) |
(a)For purposes of discussing operating results, we present and discuss Income / (loss) from continuing operations before income tax. This format is useful to investors because it allows analysis and comparability of operating trends and includes the same information that is used by management to make decisions regarding our financial performance.
| |
(a) | For purposes of discussing operating results, we present and discuss Loss from continuing operations before income tax. This format is useful to investors because it allows analysis and comparability of operating trends and includes the same information that is used by management to make decisions regarding our financial performance. |
DPL – Revenues
Retail customers, especially residential and commercial customers, consume more electricity duringon warmer and colder weather than they do during mild temperatures.days. Therefore,our retail sales volumedemand is impactedaffected by the number of heating and cooling degree-days occurring during a year. Cooling degree-days typically have a more significant impacteffect than heating degree-days since some residential customers do not use electricity to heat their homes. Because of the impact of the decoupling riderDecoupling Rider (effective January 1, 2019 through December 18, 2019) and because DPL's generation has greatly decreased in recent years due to plant sales and closures,, weather hashad a minimal impact on our 2019 net operating results. Additionally, our retail revenues are affected by regulated rates and riders including the changes to our ESP described in Note 3 - Regulatory Matters of our Form 10-K and Note 3 – Regulatory Matters of Notes to DPL's Condensed Consolidated Financial Statements.
|
| | | | | | | | | | | | |
| | | Three months ended June 30, | | Six months ended June 30, |
| | | 2019 | | 2018 | | 2019 | | 2018 |
Heating degree-days (a) | | 514 |
| | 593 |
| | 3,206 |
| | 3,451 |
|
Cooling degree-days (a) | | 257 |
| | 448 |
| | 257 |
| | 451 |
|
| |
(a) | Heating and cooling degree-days are a measure of the relative heating or cooling required for a home or business. The heating degrees in a day are calculated as the degrees that the average actual daily temperature is below 65 degrees Fahrenheit. For example, if the average temperature on March 20th was 40 degrees Fahrenheit, the heating degrees for that day would be the 25-degree difference between 65 degrees and 40 degrees. Similarly, cooling degrees in a day are calculated as the degrees that the average actual daily temperature is above 65 degrees Fahrenheit. |
DPL's electric sales and billed customers were as follows:
|
| | | | | | | | | | | | |
ELECTRIC SALES AND CUSTOMERS (a) |
| | | Three months ended | | Six months ended |
| | | June 30, | | June 30, |
| | | 2019 | | 2018 | | 2019 | | 2018 |
Retail electric sales (b) | | 3,203 |
| | 3,477 |
| | 6,873 |
| | 7,085 |
|
Wholesale electric sales (c) | | 178 |
| | 282 |
| | 439 |
| | 679 |
|
| Total electric sales | | 3,381 |
| | 3,759 |
| | 7,312 |
| | 7,764 |
|
| | | | | | | | | |
| Billed electric customers (end of period) | | | | | | 525,176 |
| | 523,040 |
|
| |
(a) | Electric sales are presented in millions of KWh. |
| |
(b) | DPLretail electric sales represent the total transmission and distribution retail sales for the periods presented. SSO sales were 826 KWh and 1,935 KWh for the three and six months ended June 30, 2019, respectively, and 900 KWh and 1,939 KWh for the three and six months ended June 30, 2018, respectively.
|
| |
(c) | Included within DPLwholesale electric sales are DP&L's 4.9% share of the generation output of OVEC and the generation output of Conesville.
|
We sell our share of the generation from Conesville and OVEC into the wholesale market which covers a multi-state area and settles on an hourly basis throughout the year. Factors impacting ouraffecting DPL's wholesale sales volume each hour of the year include wholesale market prices; retail demand throughout the entire wholesale market area; unit availability of our generating plant and non-affiliated generating plants to sell into the wholesale market; contracted wholesaleand weather conditions.
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HEATING AND COOLING DEGREE-DAYS (a) | | | | | | | | | | | | | | | | |
| | Three months ended | | | | | | | | Six months ended | | | | | | |
| | June 30, | | | | | | | | June 30, | | | | | | |
| | 2020 | | 2019 | | change | | % change | | 2020 | | 2019 | | change | | % change |
| Actual | | | | | | | | | | | | | | | | |
| Heating degree-days | | 642 | | | 417 | | | 225 | | | 54 | % | | 2,979 | | | 3,206 | | | (227) | | | (7) | % |
| Cooling degree-days | | 355 | | | 386 | | | (31) | | | (8) | % | | 355 | | | 386 | | | (31) | | | (8) | % |
| | | | | | | | | | | | | | | | |
30-year average (b) | | | | | | | | | | | | | | | | |
| Heating degree-days | | 552 | | | 552 | | | — | | | — | % | | 3,385 | | | 3,381 | | | 4 | | | — | % |
| Cooling degree-days | | 303 | | | 300 | | | 3 | | | 1 | % | | 305 | | | 302 | | | 3 | | | 1 | % |
(a)Heating and cooling degree-days are a measure of the relative heating or cooling required for a home or business. The heating degrees in a day are calculated as the degrees that the average actual daily temperature is below 65 degrees Fahrenheit. For example, if the average temperature on March 20th was 40 degrees Fahrenheit, the heating degrees for that day would be the 25-degree difference between 65 degrees and 40 degrees. Similarly, cooling degrees in a day are calculated as the degrees that the average actual daily temperature is above 65 degrees Fahrenheit.
(b)30-year average is computed from observed degree-days in the Dayton area on a trailing 30-year basis.
DPL's electric sales and our variablebilled customers were as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
ELECTRIC SALES AND CUSTOMERS (a) | | | | | | | | |
| | Three months ended | | | | Six months ended | | |
| | June 30, | | | | June 30, | | |
| | 2020 | | 2019 | | 2020 | | 2019 |
Retail electric sales (b) | | | | | | | | |
| Residential | | 1,208 | | | 1,070 | | | 2,606 | | | 2,620 | |
| Commercial and other | | 788 | | | 873 | | | 1,643 | | | 1,776 | |
| Industrial | | 763 | | | 952 | | | 1,656 | | | 1,859 | |
| Governmental | | 262 | | | 305 | | | 553 | | | 610 | |
| Other | | 3 | | | 3 | | | 9 | | | 8 | |
| Total retail electric sales | | 3,024 | | | 3,203 | | | 6,467 | | | 6,873 | |
Wholesale electric sales (c) | | 81 | | | 110 | | | 200 | | | 270 | |
| Total electric sales | | 3,105 | | | 3,313 | | | 6,667 | | | 7,143 | |
| | | | | | | | |
| Billed electric customers (end of period) | | | | | | 528,350 | | | 525,176 | |
(a)Electric sales are presented in millions of kWh.
(b)DPL retail electric sales represent the total transmission and distribution retail sales for the periods presented. SSO sales were 865 kWh and 1880 kWh for the three and six months ended June 30, 2020, respectively, and 832 kWh and 1941 kWh for the three and six months ended June 30, 2019, respectively.
(c)Wholesale electric sales are DP&L's 4.9% share of the generation costs. Our goal is to make wholesale sales when it is profitable to do so.output of OVEC.
During the three months ended June 30, 2019,2020, revenue increased $6.1decreased $24.5 million to $184.2$155.1 million compared to $178.1$179.6 million in the same period of the prior year, and, during the six months ended June 30, 2019,2020, revenue increased $9.4decreased $57.3 million to $393.2$326.3 million compared to $383.8$383.6 million in the same period of the prior year. These changes were primarily the result of changes in the components of revenue shown below:
| | | | | | | | | | | | | | |
| | Three months ended | | Six months ended |
| | June 30, | | June 30, |
| $ in millions | | 2020 vs. 2019 | | 2020 vs. 2019 |
| Retail | | | | |
| Rate | | | | |
| Decrease due to removal of DMR | | $ | (24.4) | | | $ | (51.2) | |
| Decrease due to removal of DIR | | (4.9) | | | (11.1) | |
| Decrease in energy efficiency revenue rate rider | | (2.9) | | | (5.7) | |
| Decrease due to removal of decoupling rider | | (9.6) | | | (5.1) | |
| Increase due to reinstatement of RSC rider | | 17.4 | | | 34.9 | |
| | | | |
| | | | |
| Other | | (1.2) | | | (3.7) | |
| Net change in retail rate | | (25.6) | | | (41.9) | |
| | | | |
| Volume | | | | |
| | | | |
| | | | |
| | | | |
| Net increase / (decrease) in the volume of kWh sold primarily due to favorable / (unfavorable) weather as compared to the same periods in the prior year and, to a lesser extent, the unfavorable demand impacts of COVID-19 in the second quarter of 2020, which resulted in lower demand for commercial and industrial customers, partially offset by higher residential demand | | 3.7 | | | (10.1) | |
| | | | |
| Other miscellaneous | | (0.7) | | | (0.2) | |
| Total retail change | | (22.6) | | | (52.2) | |
| | | | | |
| Wholesale | | | | |
| | | | |
| | | | |
| | | | |
| Decrease due to lower wholesale prices and lower volumes at OVEC | | (1.3) | | | (3.8) | |
| | | | | |
| RTO ancillary and capacity revenues | | | | |
| RTO ancillary and capacity revenues | | (1.4) | | | (2.5) | |
| | | | | |
| Other | | | | |
| Miscellaneous revenues | | 0.8 | | | 1.2 | |
| | | | | |
| Net change in revenues | | $ | (24.5) | | | $ | (57.3) | |
| | | | |
| | | | |
| | | | |
| | | | |
|
| | | | | | | | |
| | Three months ended | | Six months ended |
| | June 30, | | June 30, |
| $ in millions | | 2019 vs. 2018 | | 2019 vs. 2018 |
| Retail | |
| | |
| Rate | | | | |
| Increase in energy efficiency and USF revenue rate riders | | $ | 9.0 |
| | $ | 20.4 |
|
| Increase in base distribution rates due to the DRO | | 6.7 |
| | 14.7 |
|
| Increase due to the DIR, which was effective with the DRO | | 4.9 |
| | 11.1 |
|
Decrease in the TCRR as DP&L passes back the benefits of the PJM Transmission Enhancement Settlement to customers | | (7.1 | ) | | (15.0 | ) |
| Other | | 0.5 |
| | 0.9 |
|
| Net change in retail rate | | 14.0 |
| | 32.1 |
|
| | | | | |
| Volume | | | | |
Decrease in volume is primarily due to demand in the prior year. The decoupling rider approved in the DRO became effective January 1, 2019 and is designed to eliminate the impacts of weather and demand on DP&L's residential and commercial customers resulting in less of a demand impact in the current year. | | (2.0 | ) | | (7.4 | ) |
| | | | | |
| Other miscellaneous | | 0.2 |
| | 0.4 |
|
| Total retail change | | 12.2 |
| | 25.1 |
|
| | |
| | |
| Wholesale | | | | |
Decrease due to lower volumes attributable to internal generation decreases at Conesville of 31% and 25% for the three and six months ended June 30, 2019, respectively, and DP&L no longer serving the load of certain other parties through their competitive bid process, as well as lower wholesale prices | | (5.9 | ) | | (16.6 | ) |
| | |
| | |
| RTO ancillary and capacity revenues | | | | |
| RTO ancillary and capacity revenues | | (0.3 | ) | | 0.3 |
|
| | |
| | |
| Other | | | | |
| Miscellaneous revenues | | 0.1 |
| | 0.6 |
|
| | |
| | |
| Net change in revenues | | $ | 6.1 |
| | $ | 9.4 |
|
DPL – Net Purchased Power
During the three months ended June 30, 2019, net2020, Net purchased power decreased $15.0$5.0 million to $54.3$49.2 million compared to $69.3$54.2 million in the same period of the prior year, and, during the six months ended June 30, 2019, net2020, Net purchased power decreased $26.8$15.9 million to $128.5$112.0 million compared to $155.3$127.9 million in the same period of the prior year. These changes were primarily the result of changes in the cost of purchased power shown below.
| | | | | | | | | | | | | | |
| | Three months ended | | Six months ended |
| | June 30, | | June 30, |
| $ in millions | | 2020 vs. 2019 | | 2020 vs. 2019 |
| Net purchased power | | | | |
| Purchased power | | | | |
| Rate | | | | |
| Decrease due to pricing in the competitive bid process | | (8.3) | | | (13.0) | |
| Volume | | | | |
| Increase / (decrease) due to higher / (lower) retail load served primarily driven by weather and, to a lesser extent, COVID-19 demand impacts | | 2.5 | | | (1.9) | |
| Total purchased power change | | (5.8) | | | (14.9) | |
| | | | |
| RTO charges | | 0.8 | | | (1.0) | |
| | | | |
| | | | |
| | | | |
| | | | |
| Net change in purchased power | | $ | (5.0) | | | $ | (15.9) | |
| | | | |
| | | | |
| | | | |
| | | | |
|
| | | | | | | | |
| | | Three months ended | | Six months ended |
| | | June 30, | | June 30, |
| $ in millions | | 2019 vs. 2018 | | 2019 vs. 2018 |
| Net purchased power | | | | |
| Purchased power | | | | |
| Rate | | | | |
| Increase / (decrease) due to pricing in the competitive bid process | | (3.5 | ) | | 2.7 |
|
| Volume | | | | |
Decrease due to lower purchases as DP&L is no longer serving the load of certain other parties through their competitive bid process | | (1.4 | ) | | (6.9 | ) |
| Total purchased power change | | (4.9 | ) | | (4.2 | ) |
| RTO charges | | | | |
Decrease due to lower transmission and congestion charges, including a decrease due to benefits of the PJM Transmission Enhancement Settlement. RTO charges are incurred by DP&L as a member of PJM and primarily include transmission charges within our network, which are incurred and charged to customers in the transmission rider | | (9.2 | ) | | (20.8 | ) |
| RTO capacity charges | | | | |
| Decrease due to lower capacity costs at OVEC | | (0.9 | ) | | (1.8 | ) |
| Net change in purchased power | | $ | (15.0 | ) | | $ | (26.8 | ) |
DPL – Operation and Maintenance
During the three and six months ended June 30, 2019,2020, Operation and Maintenancemaintenance expense increaseddecreased $2.1 million and $17.1$3.6 million, respectively, compared to the same periods in the prior year. The main drivers of these changes are as follows: | | | | Three months ended | | Six months ended |
| | | June 30, | | June 30, |
| $ in millions | | $ in millions | | 2020 vs. 2019 | | 2020 vs. 2019 |
Decrease in alternative energy and energy efficiency programs (a) | | Decrease in alternative energy and energy efficiency programs (a) | | $ | (3.3) | | | $ | (6.1) | |
Increase in uncollectible expenses for the low-income payment program, which is funded by the USF revenue rate rider (a) | | Increase in uncollectible expenses for the low-income payment program, which is funded by the USF revenue rate rider (a) | | 2.1 | | | 3.6 | |
| | Other, net | | Other, net | | (0.9) | | | (1.1) | |
| Net change in operation and maintenance expense | | Net change in operation and maintenance expense | | $ | (2.1) | | | $ | (3.6) | |
| |
|
| Three months ended | | Six months ended | |
|
| June 30, | | June 30, | |
| $ in millions |
| 2019 vs. 2018 | | 2019 vs. 2018 | |
Increase in alternative energy and energy efficiency programs (a) |
| $ | 6.5 |
| | $ | 13.0 |
| |
Increase in uncollectible expenses for the low-income payment program, which is funded by the USF revenue rate rider (a) | | 1.9 |
| | 6.2 |
| |
| Increase in retirement benefits costs | | 1.0 |
| | 1.5 |
| |
| Increase / (decrease) in maintenance of overhead transmission and distribution lines | | (1.4 | ) | | 1.3 |
| |
| Decrease due to prior year write-off of previously deferred rate case costs | | (5.3 | ) | | (5.3 | ) | |
| Other, net |
| (0.6 | ) | | 0.4 |
| |
| Net change in operation and maintenance expense |
| $ | 2.1 |
| | $ | 17.1 |
| |
| |
(a) | There is a corresponding offset in Revenues associated with these programs. |
(a) There is a corresponding offset in Revenues associated with these programs.
DPL – Depreciation and Amortization
During the three and six months ended June 30, 2019, Depreciation and amortization decreased $2.3 million and $2.7 million, respectively, compared to the same periods in the prior year. The decrease was primarily due to lower software amortization and lower depreciation expense recorded at Conesville in 2019.
DPL –- Taxes Other Than Income Taxes
During the three and six months ended June 30, 2019,2020, Taxes other than income taxes increased $2.0$3.0 million and $2.1$4.4 million, respectively, compared to the same periods in the prior year. The increase was primarily the result of a favorable adjustment recorded in the second quarter of 2018 related to 2017 Ohiofrom higher property taxes to reflect actual payments made in 2018.
DPL – Operating Expenses - Other
During the three months ended June 30, 2018, DPL recorded other operating expenses of $1.2 million primarily due to a $1.2 million fixed-asset impairment charge recorded on Conesville.an increase in assessed values for Ohio properties for 2020.
During the six months ended June 30, 2018, DPL recorded other operating expenses of $13.0 million primarily due to the loss on the transfer of business interests in the Beckjord facility of $11.7 million and a $1.2 million fixed-asset impairment charge recorded on Conesville.
DPL – Interest Expense
During the three and six months ended June 30, 2019,2020, Interest expense decreased $2.3 million and $6.4$7.1 million, respectively, compared to the same periods in the prior year. The decrease was primarily the result of the reduction and refinancing of debt at DPL and DP&L in 2018 and 2019.
DPL – Loss on Early Extinguishment of Debt
During the three and six months ended June 30, 2019, DPL recorded Loss on early extinguishment of debt increased $39.2of $44.9 million and $38.5 million, respectively, compared to the same periods in the prior year. The increase was primarily due to the make-whole premium payment of $41.4 million related to the $400.0 million partial redemption of the $780.0 million 7.25% Notes due 2021 in the second quarter of 2019, partially offset by2019.
DPL – Other Income / (Expense)
During the make-whole premium payment of $5.1three and six months ended June 30, 2020, Other income / (expense) decreased $0.5 million relatedand $2.9 million, respectively, compared to the $101.0 million partial redemption of the 6.75% Senior Notes due 2019same periods in the second quarterprior year. The decrease for the six months ended June 30, 2020 was primarily the result of 2018.unrealized losses on DP&L's Master Trust assets due to decreased fair value of investments, as compared to unrealized gains in the prior year.
DPL – Income Tax BenefitExpense / (Benefit) From Continuing Operations
Income tax benefit of $1.5$3.6 million during the three months ended June 30, 2018 increased2019 changed to an Incomeincome tax benefitexpense of $5.9$2.8 million during the three months ended June 30, 2019.2020. The increase of $4.4$6.4 million of expense was primarily due to an increasepre-tax income in pre-taxthe current year as compared to a loss in the prior year, as well as a higher effective tax rate in the current year versus the prior year.
Income tax benefit of $1.6$2.7 million during the six months ended June 30, 2018 increased2019 changed to $3.2an income tax expense of $2.7 million during the six months ended June 30, 2019.2020. The increase of $1.6$5.4 million of expense was primarily due to pre-tax income in the impact of discrete itemscurrent year as compared to a loss in 2018 that had the effect of lowering theprior year, as well as a higher effective tax rate in thatthe current year versus the prior year. In 2019, there were no discrete items.
See Note 7 – Income Taxes in the Notes to DPL's Condensed Consolidated Financial Statements for further discussion.
DPL– Discontinued Operations
Net income from discontinued operations was $0.7$2.6 million and $26.3$2.0 million for the three and six months ended June 30, 2020, respectively, compared to $2.4 million and $24.7 million for the three and six months ended June 30, 2019, respectively, compared to $8.9 million and $24.9 million for the three and six months ended June 30, 2018, respectively. This income relates to the generation components of Miami Fort, Zimmer, Stuart Killen and the Peaker assets,Killen, which were disposed of either by sale or retirementretired in recent years.2018 and sold in 2019, and Conesville, which was retired in May 2020 and sold in June 2020. See Part I, Item 1, Note 1413 – Discontinued Operations in the Notes to DPL's Condensed Consolidated Financial Statements for further discussion.
RESULTS OF OPERATIONS BY SEGMENT - DPL
DPL has presented the results of operations of Miami Fort Station, Zimmer Station, the Peaker Assets, Stuart Station, and Killen Station as discontinued operations as a group of components for all periods presented. For more information, see Part I, Item 1, Note 14 – Discontinued Operations of Notes to DPL's Condensed Consolidated Financial Statements. As such, AES Ohio Generation only has operating activity coming from its undivided ownership interest in Conesville, which does not meet the thresholds to be a separate reportable operating segment. DPL manages its business through one reportable operating segment, the Utility segment. The primary segment performance measure is income / (loss) from continuing operations before income tax as management has concluded that this measure best reflects the underlying business performance of DPL and is the most relevant measure considered in DPL’s internal evaluation of the financial performance of its segment. The Utility segment is discussed further below.
Utility Segment
The Utility segment is comprised of DP&L’s electric transmission and distribution businesses, which distribute electricity to residential, commercial, industrial and governmental customers. DP&L distributes electricity to more than 525,000528,000 retail customers located in a 6,000-square mile area of West Central Ohio. DP&L’s electric transmission and distribution businesses are subject to rate regulation by federal and state regulators. Accordingly, DP&L applies the accounting standards for regulated operations to its electric transmission and distribution businesses recording regulatory assets when incurred costs are expected to be recovered in future customer rates and regulatory liabilities when current cost recoveries in customer rates relate to expected future costs. The Utility segment includes revenues and costs associated with our investment in OVEC and the historical results of DP&L’s Beckjord Facility, which was closed in 2014 and transferred to a third party in the first quarter of 2018, and Hutchings Coal generating facility, which was closed in 2013. These assetsThis facility did not transfer to AES Ohio Generation as part of DP&L's Generation Separation on October 1, 2017. Thus, they areit is grouped within the Utility segment for
segment reporting purposes. In addition, regulatory deferrals and collections, which include collections and amortization of fuel deferrals infrom historical periods, are included in the Utility segment.
Included within the “Other” column are other businesses that do not meet the GAAP requirements for disclosure as reportable segments as well as certain corporate costs, which include interest expense and loss on early extinguishment of debt on DPL's long-term debt as well as adjustments related to purchase accounting from the Merger.DPL's undivided interest in Conesville is now included within the "Other" column as it no longer meets the requirement for disclosure as a reportable operating segment, since the results of operations of the other EGUs are now presented as discontinued operations. The accounting policies of the reportable segment are the same as those described in Note 1 – Overview and Summary of Significant Accounting Policies of our 10-K. Intersegment sales, costs of sales and expenses are eliminated in consolidation. Certain shared and corporate costs are allocated between "Other" and the Utility reporting segment.
See Part I, Item 1, Note 11 – Business Segments of Notes to DPL's Condensed Consolidated Financial Statements for additional information regarding DPL’s reportable segment.
The following table presents DPL’s Income / (loss) from continuing operations before income tax by business segment:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three months ended | | | | Six months ended | | |
| | June 30, | | | | June 30, | | |
| $ in millions | | 2020 | | 2019 | | 2020 | | 2019 |
| Utility | | $ | 15.5 | | | $ | 36.0 | | | $ | 28.4 | | | $ | 71.1 | |
| | | | | | | | |
| Other | | (11.8) | | | (58.1) | | | (22.3) | | | (72.5) | |
| Income / (loss) from continuing operations before income tax (a) | | $ | 3.7 | | | $ | (22.1) | | | $ | 6.1 | | | $ | (1.4) | |
(a)For purposes of discussing operating results, we present and discuss Income / (loss) from continuing operations before income tax. This format is useful to investors because it allows analysis and comparability of operating trends and includes the same information that is used by management to make decisions regarding our financial performance.
|
| | | | | | | | | | | | | | | | |
| | | Three months ended | | Six months ended |
| | | June 30, | | June 30, |
| $ in millions | | 2019 | | 2018 | | 2019 | | 2018 |
| Utility | | $ | 36.0 |
| | $ | 17.1 |
| | $ | 71.1 |
| | $ | 36.4 |
|
| Other | | (58.7 | ) | | (24.0 | ) | | (74.6 | ) | | (42.5 | ) |
| Loss from continuing operations before income tax (a) | | $ | (22.7 | ) | | $ | (6.9 | ) | | $ | (3.5 | ) | | $ | (6.1 | ) |
| |
(a) | For purposes of discussing operating results, we present and discuss Loss from continuing operations before income tax. This format is useful to investors because it allows analysis and comparability of operating trends and includes the same information that is used by management to make decisions regarding our financial performance. |
RESULTS OF OPERATIONS HIGHLIGHTS – DPL – Utility Segment
The results of operations of the Utility segment for DPL are identical in all material respects and for all periods presented to those of DP&L, which are included in Part I, Item 2, Management's Discussion and Analysis of Financial Condition and Results of Operations (RESULTS OF OPERATIONS HIGHLIGHTS – DP&L) of this Form 10-Q.
56
RESULTS OF OPERATIONS HIGHLIGHTS – DP&L
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three months ended | | | | | | | | Six months ended | | | | | | |
| | June 30, | | | | | | | | June 30, | | | | | | |
| $ in millions | | 2020 | | 2019 | | $ change | | % change | | 2020 | | 2019 | | $ change | | % change |
| Revenues: | | | | | | | | | | | | | | | | |
| Retail | | $ | 138.7 | | | $ | 161.0 | | | $ | (22.3) | | | (14) | % | | $ | 292.2 | | | $ | 344.4 | | | $ | (52.2) | | | (15) | % |
| Wholesale | | 1.8 | | | 3.4 | | | (1.6) | | | (47) | % | | 4.5 | | | 8.4 | | | (3.9) | | | (46) | % |
| RTO ancillary | | 10.1 | | | 10.9 | | | (0.8) | | | (7) | % | | 20.8 | | | 21.8 | | | (1.0) | | | (5) | % |
| Capacity revenues | | 1.1 | | | 1.8 | | | (0.7) | | | (39) | % | | 2.3 | | | 3.9 | | | (1.6) | | | (41) | % |
| Miscellaneous revenues | | 1.4 | | | 0.6 | | | 0.8 | | | 133 | % | | 2.3 | | | 0.6 | | | 1.7 | | | 283 | % |
| Total revenues | | 153.1 | | | 177.7 | | | (24.6) | | | (14) | % | | 322.1 | | | 379.1 | | | (57.0) | | | (15) | % |
| | | | | | | | | | | | | | | | |
| Operating costs and expenses | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
| Net fuel cost | | 0.3 | | | 0.5 | | | (0.2) | | | (40) | % | | 0.9 | | | 1.4 | | | (0.5) | | | (36) | % |
| Purchased power: | | | | | | | | | | | | | | | | |
| Purchased power | | 43.3 | | | 49.2 | | | (5.9) | | | (12) | % | | 100.6 | | | 115.3 | | | (14.7) | | | (13) | % |
| RTO charges | | 5.7 | | | 4.9 | | | 0.8 | | | 16 | % | | 10.8 | | | 12.1 | | | (1.3) | | | (11) | % |
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
| Net purchased power cost | | 49.0 | | | 54.1 | | | (5.1) | | | (9) | % | | 111.4 | | | 127.4 | | | (16.0) | | | (13) | % |
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
| Operation and maintenance | | 42.8 | | | 44.8 | | | (2.0) | | | (4) | % | | 89.9 | | | 93.0 | | | (3.1) | | | (3) | % |
| Depreciation and amortization | | 18.2 | | | 17.5 | | | 0.7 | | | 4 | % | | 35.5 | | | 35.5 | | | — | | | — | % |
| Taxes other than income taxes | | 21.0 | | | 18.0 | | | 3.0 | | | 17 | % | | 41.8 | | | 37.4 | | | 4.4 | | | 12 | % |
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
| Other, net | | 0.1 | | | 0.1 | | | — | | | — | % | | — | | | 0.1 | | | (0.1) | | | (100) | % |
| | | | | | | | | | | | | | | | |
| Total operating costs and expenses | | 131.4 | | | 135.0 | | | (3.6) | | | (3) | % | | 279.5 | | | 294.8 | | | (15.3) | | | (5) | % |
| | | | | | | | | | | | | | | | |
| Operating income | | 21.7 | | | 42.7 | | | (21.0) | | | (49) | % | | 42.6 | | | 84.3 | | | (41.7) | | | (49) | % |
| | | | | | | | | | | | | | | | |
| Other income / (expense), net: | | | | | | | | | | | | | | | | |
| Interest expense | | (6.4) | | | (6.7) | | | 0.3 | | | (4) | % | | (12.6) | | | (13.8) | | | 1.2 | | | (9) | % |
| | | | | | | | | | | | | | | | |
| Other income / (expense) | | 0.2 | | | — | | | 0.2 | | | — | % | | (1.6) | | | 0.6 | | | (2.2) | | | (367) | % |
| Total other expense, net | | (6.2) | | | (6.7) | | | 0.5 | | | (7) | % | | (14.2) | | | (13.2) | | | (1.0) | | | 8 | % |
| | | | | | | | | | | | | | | | |
| Income before income tax (a) | | $ | 15.5 | | | $ | 36.0 | | | $ | (20.5) | | | (57) | % | | $ | 28.4 | | | $ | 71.1 | | | $ | (42.7) | | | (60) | % |
|
| | | | | | | | | | | | | | | | |
| | | Three months ended | | Six months ended |
| | | June 30, | | June 30, |
| $ in millions | | 2019 | | 2018 | | 2019 | | 2018 |
| Revenues: | | | | | | | | |
| Retail | | $ | 161.0 |
| | $ | 149.3 |
| | $ | 344.4 |
| | $ | 319.7 |
|
| Wholesale | | 3.4 |
| | 7.1 |
| | 8.4 |
| | 19.7 |
|
| RTO ancillary | | 10.9 |
| | 10.5 |
| | 21.8 |
| | 21.6 |
|
| Capacity revenues | | 1.8 |
| | 1.9 |
| | 3.9 |
| | 3.8 |
|
| Miscellaneous revenues | | 0.6 |
| | — |
| | 0.6 |
| | — |
|
| Total revenues | | 177.7 |
| | 168.8 |
| | 379.1 |
| | 364.8 |
|
| | | | | | | | | |
| Operating costs and expenses | | | | | | | | |
| Net fuel cost | | 0.5 |
| | 0.7 |
| | 1.4 |
| | 1.6 |
|
| Purchased power: | | | | | | | | |
| Purchased power | | 49.2 |
| | 53.5 |
| | 115.3 |
| | 119.0 |
|
| RTO charges | | 4.9 |
| | 14.5 |
| | 12.1 |
| | 31.5 |
|
| RTO capacity charges | | — |
| | 0.9 |
| | — |
| | 2.2 |
|
| Net purchased power cost | | 54.1 |
| | 68.9 |
| | 127.4 |
| | 152.7 |
|
| Operation and maintenance | | 44.8 |
| | 39.9 |
| | 93.0 |
| | 72.1 |
|
| Depreciation and amortization | | 17.5 |
| | 18.8 |
| | 35.5 |
| | 37.4 |
|
| Taxes other than income taxes | | 18.0 |
| | 16.0 |
| | 37.4 |
| | 35.3 |
|
| Loss on asset disposal | | 0.1 |
| | 0.1 |
| | 0.1 |
| | 0.1 |
|
| Loss on disposal of business | | — |
| | — |
| | — |
| | 12.4 |
|
| Total operating costs and expenses | | 135.0 |
| | 144.4 |
| | 294.8 |
| | 311.6 |
|
| | | | | | | | | |
| Operating income | | 42.7 |
| | 24.4 |
| | 84.3 |
| | 53.2 |
|
| | | | | | | | | |
| Other income / (expense), net: | | | | | | | | |
| Interest expense | | (6.7 | ) | | (6.5 | ) | | (13.8 | ) | | (14.7 | ) |
| Loss on early extinguishment of debt | | — |
| | (0.1 | ) | | — |
| | (0.6 | ) |
| Other income / (expense) | | — |
| | (0.7 | ) | | 0.6 |
| | (1.5 | ) |
| Total other expense, net | | (6.7 | ) | | (7.3 | ) | | (13.2 | ) | | (16.8 | ) |
| | | | | | | | | |
| Income before income tax (a) | | $ | 36.0 |
| | $ | 17.1 |
| | $ | 71.1 |
| | $ | 36.4 |
|
(a)For purposes of discussing operating results, we present and discuss Income before income tax. This format is useful to investors because it allows analysis and comparability of operating trends and includes the same information used by management to make decisions regarding our financial performance.
| |
(a) | For purposes of discussing operating results, we present and discuss Income before income tax. This format is useful to investors because it allows analysis and comparability of operating trends and includes the same information used by management to make decisions regarding our financial performance. |
DP&L – Revenues
Retail customers, especially residential and commercial customers, consume more electricity duringon warmer and colder weather than they do during mild temperatures.days. Therefore,our retail sales volumedemand is impactedaffected by the number of heating and cooling degree-days occurring during a year. Cooling degree-days typically have a more significant impacteffect than heating degree-days since some residential customers do not use electricity to heat their homes. Because of the impact of the decoupling riderDecoupling Rider (effective January 1, 2019 through December 18, 2019), weather hashad a minimal impact on our 2019 net operating results. Additionally, our retail revenues are affected by regulated rates and riders including the changes to our ESP described in Note 3 - Regulatory Matters of our Form 10-K and Note 3 – Regulatory Matters of Notes to DP&L's Condensed Financial Statements.
We sell our share of the generation from OVEC into the wholesale market which covers a multi-state area and settles on an hourly basis throughout the year. Factors impacting our wholesale sales volume each hour of the year include wholesale market prices; retail demand throughout the entire wholesale market area; and availability of OVEC generating plants to sell into the wholesale market.
DP&L's&L's electric sales and billed customers were as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
ELECTRIC SALES AND CUSTOMERS (a) | | | | | | | | |
| | Three months ended | | | | Six months ended | | |
| | June 30, | | | | June 30, | | |
| | 2020 | | 2019 | | 2020 | | 2019 |
Retail electric sales (b) | | | | | | | | |
| Residential | | 1,208 | | | 1,070 | | | 2,606 | | | 2,620 | |
| Commercial and other | | 788 | | | 873 | | | 1,643 | | | 1,776 | |
| Industrial | | 763 | | | 952 | | | 1,656 | | | 1,859 | |
| Governmental | | 262 | | | 305 | | | 553 | | | 610 | |
| Other | | 3 | | | 3 | | | 9 | | | 8 | |
| Total retail electric sales | | 3,024 | | | 3,203 | | | 6,467 | | | 6,873 | |
Wholesale electric sales (c) | | 81 | | | 110 | | | 200 | | | 270 | |
| Total electric sales | | 3,105 | | | 3,313 | | | 6,667 | | | 7,143 | |
| | | | | | | | |
| Billed electric customers (end of period) | | | | | | 528,350 | | | 525,176 | |
|
| | | | | | | | | | | | |
ELECTRIC SALES AND CUSTOMERS (a) |
| | | Three months ended | | Six months ended |
| | | June 30, | | June 30, |
| | | 2019 | | 2018 | | 2019 | | 2018 |
Retail electric sales (b) | | 3,203 |
| | 3,477 |
| | 6,873 |
| | 7,085 |
|
Wholesale electric sales (c) | | 110 |
| | 181 |
| | 270 |
| | 452 |
|
| Total electric sales | | 3,313 |
| | 3,658 |
| | 7,143 |
| | 7,537 |
|
| | | | | | | | | |
| Billed electric customers (end of period) | | | | | | 525,176 |
| | 523,040 |
|
(a)Electric sales are presented in millions of kWh.
| |
(a) | Electric sales are presented in millions of KWh. |
| |
(b) | DP&Lretail electric sales represent the total transmission and distribution retail sales for the periods presented. SSO sales were 826 KWh and 1,935 KWh for the three and six months ended June 30, 2019, respectively, and 900 KWh and 1,939 KWh for the three and six months ended June 30, 2018, respectively.
|
| |
(c) | Included within DP&Lwholesale electric sales are DP&L's 4.9% share of the generation output of OVEC.
|
(b)DP&L retail electric sales represent the total transmission and distribution retail sales for the periods presented. SSO sales were 865 kWh and 1880 kWh for the three and six months ended June 30, 2020, respectively, and 832 kWh and 1941 kWh for the three and six months ended June 30, 2019, respectively.
(c)Wholesale electric sales are DP&L's 4.9% share of the generation output of OVEC..
During the three months ended June 30, 2019,2020, revenue increased $8.9decreased $24.6 million to $177.7$153.1 million compared to $168.8$177.7 million in the same period of the prior year, and, during the six months ended June 30, 2019,2020, revenue increased $14.3decreased $57.0 million to $379.1$322.1 million compared to $364.8$379.1 million in the same period of the prior year. These changes were primarily the result of changes in the components of revenue shown below:
| | | | | | | | | | | | | | |
| | Three months ended | | Six months ended |
| | June 30, | | June 30, |
| $ in millions | | 2020 vs. 2019 | | 2020 vs. 2019 |
| Retail | | | | |
| Rate | | | | |
| Decrease due to removal of DMR | | $ | (24.4) | | | $ | (51.2) | |
| Decrease due to removal of DIR | | (4.9) | | | (11.1) | |
| Decrease in energy efficiency revenue rate rider | | (2.9) | | | (5.7) | |
| Decrease due to removal of decoupling rider | | (9.6) | | | (5.1) | |
| Increase due to reinstatement of RSC rider | | 17.4 | | | 34.9 | |
| Other | | (1.2) | | | (3.7) | |
| Net change in retail rate | | (25.6) | | | (41.9) | |
| | | | |
| Volume | | | | |
| | | | |
| | | | |
| | | | |
| Net increase / (decrease) in the volume of kWh sold primarily due to favorable / (unfavorable) weather as compared to the same periods in the prior year and, to a lesser extent, the unfavorable demand impacts of COVID-19 in the second quarter of 2020, which resulted in lower demand for commercial and industrial customers, partially offset by higher residential demand | | 3.7 | | | (10.1) | |
| | | | |
| Other miscellaneous | | (0.4) | | | (0.2) | |
| Total retail change | | (22.3) | | | (52.2) | |
| | | | |
| Wholesale | | | | |
| | | | |
| | | | |
| | | | |
| Decrease due to lower wholesale prices and lower volumes at OVEC | | (1.6) | | | (3.9) | |
| | | | |
| RTO ancillary and capacity revenues | | | | |
| RTO ancillary and capacity revenues | | (1.5) | | | (2.6) | |
| | | | |
| Other | | | | |
| Miscellaneous revenues | | 0.8 | | | 1.7 | |
| | | | |
| Net change in revenues | | $ | (24.6) | | | $ | (57.0) | |
| | | | |
| | | | |
| | | | |
| | | | |
|
| | | | | | | | |
| | Three months ended | | Six months ended |
| | June 30, | | June 30, |
| $ in millions | | 2019 vs. 2018 | | 2019 vs. 2018 |
| Retail | |
| |
|
| Rate | | | | |
| Increase in energy efficiency and USF revenue rate riders | | $ | 9.0 |
| | $ | 20.4 |
|
| Increase in base distribution rates due to the DRO | | 6.7 |
| | 14.7 |
|
| Increase due to the DIR, which was effective with the DRO | | 4.9 |
| | 11.1 |
|
Decrease in the TCRR as DP&L passes back the benefits of the PJM Transmission Enhancement Settlement to customers | | (7.1 | ) | | (15.0 | ) |
| Other | | 0.5 |
| | 0.9 |
|
| Net change in retail rate | | 14.0 |
| | 32.1 |
|
| | | | | |
| Volume | | | | |
Decrease in volume is primarily due to demand in the prior year. The decoupling rider approved in the DRO became effective January 1, 2019 and is designed to eliminate the impacts of weather and demand on DP&L's residential and commercial customers resulting in less of a demand impact in the current year. | | (2.0 | ) | | (7.4 | ) |
| | | | | |
| Other miscellaneous | | (0.3 | ) | | — |
|
| Total retail change | | 11.7 |
| | 24.7 |
|
| |
| |
|
| Wholesale | |
| |
|
| Decrease in volumes due to no longer serving the load of certain other parties through their competitive bid process and lower wholesale prices | | (3.7 | ) | | (11.3 | ) |
| |
| |
|
| RTO ancillary and capacity revenues | |
| |
|
| RTO ancillary and capacity revenues | | 0.3 |
| | 0.3 |
|
| | | | | |
| Other | | | | |
| Miscellaneous revenues | | 0.6 |
| | 0.6 |
|
| |
| |
|
| Net change in revenues | | $ | 8.9 |
| | $ | 14.3 |
|
DP&L – Net Purchased Power
During the three months ended June 30, 2019,2020, net purchased power decreased $14.8$5.1 million to $54.1$49.0 million compared to $68.9$54.1 million in the same period of the prior year, and, during the six months ended June 30, 2019,2020, net purchased power decreased $25.3$16.0 million to $127.4$111.4 million compared to $152.7$127.4 million in the same period of the prior year. These changes were primarily the result of changes in the cost of purchased power shown below.
| | | | | | | | | | | | | | |
| | Three months ended | | Six months ended |
| | June 30, | | June 30, |
| $ in millions | | 2020 vs. 2019 | | 2020 vs. 2019 |
| Net purchased power | | | | |
| Purchased power | | | | |
| Rate | | | | |
| Decrease due to pricing in the competitive bid process | | $ | (8.4) | | | $ | (12.8) | |
| Volume | | | | |
| Increase / (decrease) due to higher / (lower) retail load served primarily driven by weather and, to a lesser extent, COVID-19 demand impacts | | 2.5 | | | (1.9) | |
| Total purchased power change | | (5.9) | | | (14.7) | |
| | | | |
| RTO charges | | 0.8 | | | (1.3) | |
| | | | |
| | | | |
| | | | |
| | | | |
| Net change in purchased power | | $ | (5.1) | | | $ | (16.0) | |
| | | | |
| | | | |
| | | | |
| | | | |
|
| | | | | | | | |
| | | Three months ended | | Six months ended |
| | | June 30, | | June 30, |
| $ in millions | | 2019 vs. 2018 | | 2019 vs. 2018 |
| Net purchased power | | | | |
| Purchased power | | | | |
| Rate | | | | |
| Increase / (decrease) due to pricing in the competitive bid process | | (2.9 | ) | | $ | 3.1 |
|
| Volume | | | | |
Decrease due to lower purchases as DP&L is no longer serving the load of certain other parties through their competitive bid process | | (1.4 | ) | | (6.8 | ) |
| Total purchased power change | | (4.3 | ) | | (3.7 | ) |
| RTO charges | | | | |
Decrease due to lower transmission and congestion charges, including a decrease due to benefits of the PJM Transmission Enhancement Settlement. RTO charges are incurred by DP&L as a member of PJM and primarily include transmission charges within our network, which are incurred and charged to customers in the transmission rider | | (9.6 | ) | | (19.4 | ) |
| RTO capacity charges | | | | |
| Decrease due to lower capacity costs at OVEC | | (0.9 | ) | | (2.2 | ) |
| Net change in purchased power | | $ | (14.8 | ) | | $ | (25.3 | ) |
DP&L – Operation and Maintenance
During the three and six months ended June 30, 2019,2020, Operation and Maintenance expense increased $4.9decreased $2.0 million and $20.9$3.1 million, respectively, compared to the same periods in the prior year. The main drivers of these changes are as follows:
| | | | | | | | | | | | | | |
| | Three months ended | | Six months ended |
| | June 30, | | June 30, |
| $ in millions | | 2020 vs. 2019 | | 2020 vs. 2019 |
Decrease in alternative energy and energy efficiency programs (a) | | $ | (3.3) | | | $ | (6.1) | |
| | | | |
Increase in uncollectible expenses for the low-income payment program, which is funded by the USF revenue rate rider (a) | | 2.1 | | | 3.6 | |
| | | | |
| | | | |
| | | | |
| | | | |
| | | | |
| | | | |
| | | | |
| | | | |
| | | | |
| Other, net | | (0.8) | | | (0.6) | |
| Net change in operation and maintenance expense | | $ | (2.0) | | | $ | (3.1) | |
| | | | |
| | | | |
| | | | |
| | | | |
|
| | | | | | | | |
| | | Three months ended | | Six months ended |
| | | June 30, | | June 30, |
| $ in millions | | 2019 vs. 2018 | | 2019 vs. 2018 |
Increase in alternative energy and energy efficiency programs (a) | | $ | 6.5 |
| | $ | 13.0 |
|
Increase in uncollectible expenses for the low-income payment program, which is funded by the USF revenue rate rider (a) | | 1.9 |
| | 6.2 |
|
| Increase in costs charged from the Service Company for services provided | | 2.6 |
| | 2.4 |
|
| Increase in retirement benefits costs | | 1.0 |
| | 1.5 |
|
| Increase / (decrease) in maintenance of overhead transmission and distribution lines | | (1.4 | ) | | 1.3 |
|
| Decrease due to prior year write-off of previously deferred rate case costs | | (5.3 | ) | | (5.3 | ) |
| Other, net | | (0.4 | ) | | 1.8 |
|
| Net change in operation and maintenance expense | | $ | 4.9 |
| | $ | 20.9 |
|
(a) There is a corresponding offset in Revenues associated with these programs.
| |
(a) | There is a corresponding offset in Revenues associated with these programs. |
DP&L – Depreciation and Amortization
During the three and six months ended June 30, 2019, Depreciation and amortization decreased $1.3 million and $1.9 million, respectively, compared to the same periods in the prior year. The decrease was primarily due to lower software amortization in 2019.
DP&L –- Taxes Other Than Income Taxes
During the three and six months ended June 30, 2019,2020, Taxes other than income taxes increased $2.0$3.0 million and $2.1$4.4 million, respectively, compared to the same periods in the prior year. The increase was primarily the result of a favorable adjustment for 2017 Ohiofrom higher property taxes due to reflect actual payments madean increase in 2018.assessed values for Ohio properties for 2020.
DP&L – Loss on DisposalIncome Tax Expense / (Benefit)
Income tax expense of Business$6.2 million during the three months ended June 30, 2019 changed to an income tax benefit of $2.3 million during the three months ended June 30, 2020. The decrease of $8.5 million of expense was primarily due to the net tax benefit related to the reversal of excess deferred taxes and the reversal of an uncertain tax position, which were partially offset by an adjustment to the deferred tax balances.
During
Income tax expense of $12.3 million during the six months ended June 30, 2018, DP&L recorded a loss on disposal2019 changed to an income tax benefit of business of $12.4$1.1 million due toduring the loss on the transfer of business interests in the Beckjord facility.
DP&L – Income Tax Expense
During the three and six months ended June 30, 2019, Income tax2020. The decrease of $13.4 million of expense increased $4.1 million and $6.6 million, respectively, compared to the same periods in the prior yearwas primarily due to higher pre-tax income in the current year versusnet tax benefit related to the prior year.reversal of excess deferred taxes and the reversal of an uncertain tax position, which were partially offset by an adjustment to the deferred tax balances.
See Note 7 – Income Taxes of Notes to DP&L's Condensed Financial Statements for further discussion.
60
KEY TRENDS AND UNCERTAINTIES
Following the issuance of the DRO in September 2018 and the resulting changes to the decoupling rider, we expect thatDecoupling Rider effective January 1, 2019, our financial results will be lesswere not driven by retail demand and weather but will bewere impacted by customer growth within our service territory. However, the Decoupling Rider was removed with the approved withdrawal of the 2017 ESP and reversion to DP&L's ESP 1 rate plan in December 2019. As such, our results are again primarily impacted by retail demand and weather. In addition, DPL's and DP&L's financial results are likely to be driven by other factors including, but not limited to:
•regulatory outcomes;
•the passage of new legislation, implementation of regulations or other changes in regulation; and
•the timely recovery of transmission and distribution expenditures;expenditures.
COVID-19 Pandemic
In December 2019, a novel strain of coronavirus (COVID-19) was reported to have surfaced in Wuhan, China. COVID-19 has since spread to over 180 countries, including every state in the United States. On March 11, 2020 the World Health Organization declared COVID-19 a pandemic, and
on March 13, 2020 the United States declared a national emergency with respect to DPLCOVID-19. On March 12, 2020, the PUCO issued an emergency order prohibiting electric utilities, including us, from discontinuing electric utility service to customers. This prohibition is currently scheduled to end for DP&L on September 1, 2020, pending approval by the PUCO.
The outbreak of COVID-19 has severely impacted global economic activity, caused significant volatility and negative pressure in financial markets and reduced the demand for energy in our service territory. The global impact of the outbreak has been rapidly evolving and many countries, including the United States, have reacted by instituting quarantines, mandating business and school closures and restricting travel.
In addition to reduced revenues and lower margins resulting from decreased energy 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 expect to continue to experience impacts for the remainder of 2020, and any such impacts during the third quarter or in other future periods could have a material adverse effect on our results of operations, financial condition and cash flows. The following discussion highlights our assessment of the impacts of the pandemic on our current financial and operating status, and our financial and operational outlook based on information known as of this filing. Also see Part II, Item 1A-Risk Factors of this Form 10-Q.
Business Continuity - As the COVID-19 pandemic progresses, we are taking a variety of measures to ensure our ability to transmit, distribute and sell electric energy, to ensure the health and safety of our employees, contractors, customers and communities and to provide essential services to the communities in which we operate. We continue to respond to this global crisis through comprehensive measures to protect our employees and others while fulfilling our vital role in providing our customers with electric energy. While there have been stay-at-home restrictions in place in Ohio, our operations are considered essential and have not been significantly disrupted. Stay-at-home restrictions have been lifted in our service territory and non-essential employees are beginning to return to work at our locations in stages. Most of our management and administrative personnel are able to work remotely, and we have not experienced significant issues affecting our operations or ability to maintain effective internal controls and produce reliable financial information.
Demand - The economic impact of the pandemic started to materialize in Ohio in the second half of March and more so in the second quarter of 2020. For the three and six months ended June 30, 2020, the COVID-19 pandemic primarily impacted our retail sales demand. For commercial and industrial customers, weather-normalized volumes of kWh sold decreased by 11.0% and 19.9%, exiting generation assets currently ownedrespectively, for the three months ended June 30, 2020 compared to the same period in the prior year. For residential customers, weather-normalized volumes of kWh sold increased by AES Ohio Generation.8.5% for the three months ended June 30, 2020 compared to the same period in the prior year. See Note 12 – Revenue of Notes to DPL's Condensed Consolidated Financial Statements and Note 11 – Revenue of Notes to DP&L's Condensed Financial Statements for a disaggregation of retail revenues by customer class. The declines for commercial and industrial customers were more severe in April and May, and partially recovered in June as stay-at-home orders were lifted, while the increase for residential stayed consistent. While we cannot predict the length and magnitude of the pandemic or how it could ultimately impact global or local economic conditions, continuous and/or further declines in future demand would adversely impact our financial results for 2020 and beyond.
Liquidity - We anticipate having sufficient liquidity to make all required payments, including payments for salaries and wages owed to our employees, during the pandemic. We do not foresee a significant impact to our access to capital or our liquidity position as a result of the pandemic. On June 19, 2020 DPL closed a $415.0 million issuance of senior unsecured notes, and the proceeds from this issuance together with cash on hand were used to redeem in-full the remaining balance of $380.0 million of DPL's 7.25% senior unsecured notes. These bonds were redeemed at par plus accrued interest and a make-whole premium of $30.8 million on July 20, 2020. Additionally, on July 31, 2020 DP&L issued $140.0 million of taxable First Mortgage Bonds and used the proceeds to purchase at par value the $140.0 million of outstanding tax-exempt Ohio Air Quality Development Authority Collateralized Pollution Control Revenue Refunding Bonds that had been issued in 2015. For further discussion of our financial condition, liquidity, and capital requirements, see Part I, Item 2-Management’s Discussion and Analysis of Financial Condition and Results of Operations - Capital Resources and Liquidity of this Form 10-Q.
Credit Exposures - We continue to monitor and manage our credit exposures in a prudent manner. During the three months ended June 30, 2020, we experienced credit-related impacts from utility customers due to the prohibition of electric utilities, including us, from discontinuing electric utility service to customers and due to the economic impacts of the COVID-19 pandemic. This has resulted in an increase in past due customer receivable balances, and our allowance for credit losses has increased $2.3 million for both DPL and DP&L during the second quarter of 2020. We expect significant economic disruptions from the COVID-19 pandemic potentially for the remainder of 2020 and beyond. If these disruptions occur, further deterioration in our credit exposures and customer collections could result. However, as discussed in Note 3 – Regulatory Matters of Notes to DPL's Condensed Consolidated Financial Statements and Note 3 – Regulatory Matters of Notes to DP&L's Condensed Financial Statements in Item 8. - Financial Statements and Supplementary Data of our Form 10-K, DP&L’s uncollectible expense is deferred for future collection. The prohibition from discontinuing electric utility service is currently scheduled to end for DP&L on September 1, 2020, pending approval by the PUCO.
Supply Chain - Our supply chain management has remained robust during this challenging time and we continue to closely manage and monitor developments.
Capital Projects - During the COVID-19 pandemic, our construction projects are proceeding without material delays. For further discussion of our capital requirements, see Part I, Item 2 – Management’s Discussion and Analysis of Financial Condition and Results of Operations – Capital Resources and Liquidity of this Form 10-Q.
CARES Act - The Coronavirus Aid, Relief, and Economic Security (CARES) Act was passed by the U.S. Congress and signed into law on March 27, 2020. While we currently expect a limited impact from this legislation on our business, certain elements, primarily the deferral of payroll taxes, may provide some cash benefits in the near term.
Income Taxes - The demands placed on the U.S. Government to respond to the pandemic may cause delays to the expected issuance of regulations pursuant to the TCJA enacted in 2017. Our interpretation of the TCJA may change as the U.S. Treasury and the Internal Revenue Service issue additional guidance. Such changes may be material.
See Note 14 – Risks and Uncertainties of Notes to DPL's Condensed Consolidated Financial Statements and Note 12 – Risks and Uncertainties of Notes to DP&L's Condensed Financial Statements for more information and Part II, Item 1a - Risk Factors of this Form 10-Q for more information.
Regulatory Environment
DPL’s, DP&L’s and our other subsidiaries’ facilities and operations are subject to a wide range of regulations and laws by federal, state and local authorities. As well as imposing continuing compliance obligations, these laws and regulations authorize the imposition of substantial penalties for noncompliance, including fines, injunctive relief and other sanctions. In the normal course of business, we have investigatory and remedial activities underway at these facilities and operations in an effort to comply, or to determine compliance, with such regulations. We record liabilities for losses that are probable and can be reasonably estimated. In addition to matters discussed or updated herein, our 20182019 Form 10-K and Form 10-Q previously filed with the SEC during 20192020 describe other regulatory matters which have not materially changed since those filings. See Part I, Item 1, Note 3 – Regulatory Matters of Notes to DPL's Condensed Consolidated Financial Statements and Part I, Item 1, Note 3 – Regulatory Matters of Notes to DP&L's Condensed Financial Statements for further information regarding regulatory matters.
Ohio Regulatory ProceedingsU.S. Executive Order Regarding Power Equipment - On May 1, 2020, President Trump issued an executive order banning transactions involving the acquisition, importation, transfer, or installation of certain equipment to be used in
On October 20, 2017,connection with the PUCO approved DP&L’s 2017 ESP. On January 7, 2019,operation of the Ohio Consumers' Counsel appealedU.S. interconnected transmission network and electric generation facilities needed to maintain transmission reliability. The ban would apply if such equipment is designed, manufactured or supplied by any company that is subject to, or controlled by, the jurisdiction of a country considered by the United States to be a foreign adversary and such transaction would pose an unacceptable risk to the Supreme Court of Ohio the 2017 ESP with respect to the bypassabilitynational security of the Reconciliation RiderUnited States (Executive Order). We are reviewing the Executive Order and will consider the exclusionrules and regulations to be issued pursuant to this Executive Order when they become available, including rules and regulations that may define foreign adversaries, such as China, under the Executive Order or identify equipment or vendors that are exempt from any restrictions under the Executive Order. At this time, the impact of the DMR from the SEET. That appeal remains pending.this Executive Order on our business is uncertain.
Pursuant to the 2017 ESP, on January 22, 2019, DP&L filed a request with the PUCO for a two-year extension of its DMR through October 2022, in the proposed amount of $199.0 million for each of the two additional years. The extension request was set at a level expected to reduce debt obligations at both DP&L and DPL and to position DP&L to make capital expenditures to maintain and modernize its electric grid. DP&L’s DMP investments are contingent upon the PUCO approving the two-year extension of its DMR.
On August 1, 2019, DP&L filed a supplemental brief with the PUCO focused on the applicability of a recent court decision involving another Ohio utility’s DMR which is similar to, but not identical to, DP&L’s DMR.
Ohio House Bill 6
On - In late July 23, 2019,2020, Senate Bill 346 and House Bill 738 were introduced in the Governor of Ohio signedGeneral Assembly seeking to repeal Ohio House Bill 6. Ohio House Bill 6, which, among other things, does the following:
beginning January 1, 2020, replaces DP&L’s non-bypassable Reconciliation Rider, permitting permitted DP&L to defer, recover or credit the net proceeds from selling energy and capacity received as part of DP&L’s&L's interest in OVEC and its OVEC-related costs through 2023, with a non-bypassable recovery mechanism for recovery of prudently incurred OVEC costs through 2030;
eliminates the annual energy efficiency targets for Ohio utilities after 2020;
and allows Ohio utilities to construct customer-sited renewable generation for mercantile customers or groups of mercantile customers, the costs of which may only be recovered from those customers. If Ohio House Bill 6 is repealed without a replacement with comparable provisions, it could have a material adverse effect on our results of operations, financial condition and cash flows.
See Part I, Item 1, Note 3 – Regulatory Matters of Notes to DPL's Condensed Consolidated Financial Statements and Part I, Item 1, Note 3 – Regulatory Matters of Notes to DP&L's Condensed Financial Statements for further information regarding regulatory matters.
United States Tax LawReference Rate Reform
Considering the significant changes to the U.S. tax system enactedAs discussed in Item 7 - Management's Discussion and Analysis of Financial Condition and Results of Operations, of our Form 10-K, in July 2017, the U.K. Financial Conduct Authority announced that it intends to phase out LIBOR by the end of 2021. In the U.S. Treasury Department, the Alternative Reference Rate Committee at the Federal Reserve identified the Secured Overnight Financing Rate (SOFR) as its preferred alternative rate for LIBOR; alternative reference rates in other key markets are under development. We maintain financial instruments that use LIBOR as an interest rate benchmark and Internal Revenue Service have issued numerous regulations. While certain regulations are now final, there are many regulations that are proposed and still others anticipatedbegun to engage with our counterparties to discuss specific action items to be issuedundertaken in proposed form. The final version of any regulations may vary from the proposed form. When final, these regulations may materially impact our effective tax rate. Certain of the proposed regulations,order to prepare for amendments when final, may have retroactive effect to January 1, 2018 or January 1, 2019.they become due.
Environmental Matters
In addition to imposing continuing compliance obligations, these laws and regulations authorize the imposition of substantial penalties for noncompliance, including fines, injunctive relief and other sanctions. In the normal course of business, we have investigatory and remedial activities underway at our facilities to comply, or to determine compliance, with such regulations. We record liabilities for loss contingencies related to environmental matters when a loss is probable of occurring and can be reasonably estimated in accordance with the provisions of GAAP. Accordingly, we have immaterial accruals for loss contingencies for environmental matters. We also have several environmental matters for which we have not accrued loss contingencies because the risk of loss is not probable, or a loss cannot be reasonably estimated. We evaluate the potential liability related to environmental matters quarterly and may revise our estimates. Such revisions in the estimates of the potential liabilities could have a material adverse effect on our results of operations, financial condition and cash flows. We refer to the discussion in “Item 1. Business - Environmental Matters” in our 20182019 Form 10-K for a discussion of certain recent developments in environmental laws and regulations.
We have several pending environmental matters associated with our previously-owned stations. Some of these matters could have a material adverse effect on our results of operations, financial condition and cash flows.
BecauseAs a result of DPL’s decision to retire 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 planned 2020 retirement and subsequent sale of Conesville, the following environmental matters, regulations and requirements are now not expected to have a material impact on DPL:
The CAA and the following regulations:
•CSAPR and associated updates;
•MATS and any associated regulatory or judicial processes;
•NAAQS; and
•the Affordable Clean Energy Rule.
Additionally, becauseRegulation of CCR
On October 19, 2015, a USEPA rule regulating CCR under the Resource Conservation and Recovery Act as nonhazardous solid waste became effective. The rule established nationally applicable minimum criteria for the disposal of CCR in new and currently operating landfills and surface impoundments, including location restrictions,
design and operating criteria, groundwater monitoring, corrective action and closure requirements and post-closure care. The primary enforcement mechanisms under this regulation would be actions commenced by the states and private lawsuits. On December 16, 2016, President Obama signed into law the Water Infrastructure Improvements for the Nation Act (WIIN Act), which includes provisions to implement the CCR rule through a state permitting program, or if the state chooses not to participate, a possible federal permit program. The USEPA has indicated that they will implement a phased approach to amending the CCR Rule which is in process. On February 20, 2020, the US EPA published a proposed rule to establish a federal CCR permit program that would operate in states without approved CCR permit programs. On July 29, 2020, the USEPA released a pre-publication version of final amendments to the CCR rule titled “A Holistic Approach to Closure Part A: Deadline to Initiate Closure”. It is too early to determine whether the CCR rule or any revisions to or reconsideration of the retirement of Stuart and Killen noted above, the following environmental regulations and requirements are not expected torule may have a material impact on DPLour business, financial condition or results of operations.
Litigation Involving Previously Co-Owned Stations
As a result of a 2008 consent decree entered into with respect to eitherthe Sierra Club and approved by the U.S. District Court
for the Southern District of Ohio, DPL and the other previous owners of the twoStuart generating stations:station were subject to
water intake regulations finalizedcertain specified emission targets related to NOX, SO2 and particulate matter. The consent decree also includes
commitments for energy efficiency and renewable energy activities. An amendment to the consent decree was
entered into and approved in 2010 to clarify how emissions would be computed during startups. Given that all
of the commitments have been met and with the retirement of the Stuart generating station, DPL and the other previous owners submitted a request for termination of the consent decree to the U.S. District Court. On July 14, 2020, the U.S. District Court granted the request and terminated the Consent Decree.
Clean Water Act - Regulation of Water Discharge
DP&L and other utilities at times apply the Nationwide Permit 12 (NWP 12) issued by the USEPA on May 19, 2014;
the appealU.S. Army Corps of Engineers (Corps) in completing transmission and distribution projects that may involve waters of the NPDESU.S. NWP 12 is the nationwide permit governingfor Utility Line Activities, specifically those required for construction and maintenance, provided the dischargeactivity does not result in the loss of watergreater than 1/2-acre of waters of the U.S. for each single and complete project.
On April 15, 2020, in a proceeding involving the construction of the Keystone XL pipeline, the U.S. District Court for the District of Montana (Montana District Court) vacated NWP 12 and enjoined its application. On April 27, 2020, the Corps moved for the Montana District Court to stay pending appeal those portions of the April 15, 2020 order that vacate NWP 12 and enjoin its application. In the alternative, the Corps asked the Montana District Court to stay its vacatur and injunction as they relate to anything other than the Keystone XL pipeline. On May 11, 2020, following a request from the Stuart Station;Corps, the Montana District Court amended its order to vacate NWP 12 only for oil and gas pipeline construction projects, allowing electric utility T&D projects to continue. On May 13, the Corps appealed the Montana District Court decision with the Ninth Circuit Court and requested a stay. On May 28, 2020, the Ninth Circuit denied a motion to stay. On June 16, 2020, the U.S. Solicitor General, on behalf of the U.S. Army Corps of Engineers, filed an application with the U.S. Supreme Court asking the Court to stay the district court order that vacated and enjoined the Corps from issuing authorizations under NWP 12 as it relates to the construction of new oil and gas pipelines. On July 6, 2020, the U.S. Supreme Court stayed the district court order, allowing the use of NWP 12 for oil and gas pipeline projects except for Keystone XL. It is too early to determine whether future outcomes or decisions related to this matter could have a material adverse effect on our results of operations, financial condition and cash flows.
revised technology-based regulations governing water
On April 23, 2020, the U.S. Supreme Court issued a decision in the Hawaii Wildlife Fund v. County of Maui case related to whether a Clean Water Act permit is required when pollutants originate from a point source but are conveyed to navigable waters through a nonpoint source such as groundwater. The U.S. Supreme Court held that discharges to groundwater require a permit if the addition of the pollutants through groundwater is the functional equivalentof a direct discharge from steam electric generating facilities, finalized by the USEPApoint source into navigable waters. It is too early to determine whether this decision may have a material impact on November 3, 2015.our business, financial condition or results of operations.
CAPITAL RESOURCES AND LIQUIDITY
DPL and DP&L had unrestricted cash and cash equivalents of $31.1$412.2 million and $5.6$74.1 million, respectively, at June 30, 2019.2020. At that date, neither DPL nor DP&L had short-term investments. DPL and DP&L had aggregate principal amounts of long-term debt outstanding of $1,378.2$1,793.0 million and $582.6$582.4 million, respectively.
Approximately $0.2At June 30, 2020, approximately $380.2 million of DPL's long-term debt, including $0.2 million of DP&L's long-term debt, matures within twelve months of the balance sheet date. On June 19, 2020 DPL closed a $415.0 million
issuance of senior unsecured notes, and the proceeds from this issuance together with cash on hand were used to redeem in-full the remaining balance of $380.0 million of DPL's 7.25% senior unsecured notes on July 20, 2020. These bonds were redeemed at par plus accrued interest and a make-whole premium of $30.8 million.
In May 2020, DP&L receivedapproval to, among other things, issue up to $140.0 million in aggregate principal amount of long-term indebtedness for a term not to exceed 30 years. On July 31, 2020 DP&L issued $140.0 million of taxable First Mortgage Bonds and on August 3, 2020 used the proceeds to purchase at par value the $140.0 million of outstanding tax-exempt Ohio Air Quality Development Authority Collateralized Pollution Control Revenue Refunding Bonds that had been issued in 2015. The new taxable First Mortgage Bonds carry an interest rate of 3.20% and mature on July 31, 2040. As a result of this refinancing, the $140.0 million tax-exempt First Mortgage Bonds are presented as long-term debt as of June 30, 2020.
From time to time, we may elect to repurchase our outstanding debt through cash purchases, privately negotiated transactions or otherwise when management believes such repurchases are favorable to make. The amounts involved in any such repurchases may be material. See Part I, Item 1, Note 6 – Long-term Debt of Notes to DPL's Condensed Consolidated Financial Statements and Part I, Item 1, Note 6 – Long-term Debt of Notes to DP&L's Condensed Financial Statements.
We depend on timely and continued access to capital markets to manage our liquidity needs. The inability to raise capital on favorable terms, to refinance existing indebtedness or to fund operations and other commitments during times of political or economic uncertainty could have a material adverse effect on our results of operations, financial condition and cash flows. In addition, changes in the timing of tariff increases or delays in regulatory determinations could affect the cash flows and results of operations of our businesses.
Our discussion of DPL’s financial condition, liquidity and capital requirements include the results of its principal subsidiary DP&L.
CASH FLOWS
DPL’s financial condition, liquidity and capital requirements include the consolidated results of its principal subsidiary DP&L. All material intercompany accounts and transactions have been eliminated in consolidation.
Cash Flow Analysis - DPL
The following table summarizes the cash flows of DPL:
| | | | | | | | | | | | | | |
| DPL | | Six months ended June 30, | | |
| $ in millions | | 2020 | | 2019 |
| Net cash provided by operating activities | | $ | 82.8 | | | $ | 99.0 | |
| Net cash used in investing activities | | (80.3) | | | (66.6) | |
| Net cash provided by / (used in) financing activities | | 362.8 | | | (101.5) | |
| | | | |
| Net change | | 365.3 | | | (69.1) | |
| Balance at beginning of period | | 47.0 | | | 111.7 | |
| Cash, cash equivalents, and restricted cash at end of period | | $ | 412.3 | | | $ | 42.6 | |
|
| | | | | | | | |
| DPL | | Six months ended June 30, |
| $ in millions | | 2019 | | 2018 |
| Net cash provided by operating activities | | $ | 99.0 |
| | $ | 97.7 |
|
| Net cash provided by / (used in) investing activities | | (66.6 | ) | | 182.6 |
|
| Net cash used in financing activities | | (101.5 | ) | | (238.3 | ) |
| Decrease in cash and restricted cash of discontinued operations and held-for-sale businesses | | — |
| | 1.5 |
|
| Net change | | (69.1 | ) | | 43.5 |
|
| Balance at beginning of period | | 111.7 |
| | 24.9 |
|
| Cash, cash equivalents, and restricted cash at end of period | | $ | 42.6 |
| | $ | 68.4 |
|
DPL – Change in Net cash flows from operating activities
| | | | | | | | | | | | | | | | | | | | |
| | Six months ended June 30, | | | | $ change |
| $ in millions | | 2020 | | 2019 | | 2020 vs. 2019 |
| Net income | | $ | 5.4 | | | $ | 26.0 | | | $ | (20.6) | |
| Depreciation and amortization | | 36.4 | | | 13.9 | | | 22.5 | |
| Deferred income taxes | | 33.5 | | | 8.6 | | | 24.9 | |
| | | | | | |
| | | | | | |
| Net income, adjusted for non-cash items | | 71.0 | | | 94.2 | | | (23.2) | |
| Net change in operating assets and liabilities | | 11.8 | | | 4.8 | | | 7.0 | |
| Net cash provided by operating activities | | $ | 82.8 | | | $ | 99.0 | | | $ | (16.2) | |
|
| | | | | | | | | | | | |
| | | Six months ended June 30, | | $ change |
| $ in millions | | 2019 | | 2018 | | 2019 vs. 2018 |
| Net income | | $ | 26.0 |
| | $ | 20.4 |
| | $ | 5.6 |
|
| Depreciation and amortization | | 13.9 |
| | 41.6 |
| | (27.7 | ) |
| Deferred income taxes | | 8.6 |
| | (20.0 | ) | | 28.6 |
|
| Other adjustments to Net income | | 45.7 |
| | 21.0 |
| | 24.7 |
|
| Net income, adjusted for non-cash items | | 94.2 |
| | 64.2 |
| | 30.0 |
|
| Net change in operating assets and liabilities | | 4.8 |
| | 33.5 |
| | (28.7 | ) |
| Net cash provided by operating activities | | $ | 99.0 |
| | $ | 97.7 |
| | $ | 1.3 |
|
The net change in operating assets and liabilities during the six months ended June 30, 20192020 compared to the six months ended June 30, 20182019 was driven by the following:
| | | | | | | | |
| $ in millions | | $ Change |
| Increase from accrued taxes payable / receivable primarily due to tax payment of $52 million from AES, partially offset by an increase in the current tax benefit in the current year | | $ | 28.7 | |
| Decrease from accounts payable primarily due to timing of payments | | (17.9) | |
| Decrease from deferred regulatory costs, net primarily due to a decrease in regulatory liabilities as we return certain benefits to customers | | (12.8) | |
| Other | | 9.0 | |
| Net increase in cash from changes in operating assets and liabilities | | $ | 7.0 | |
| | |
|
| | | | |
| $ in millions | | $ Change |
| Decrease from accrued taxes primarily due to a larger current income tax expense in prior year compared to a current income tax benefit in the current year | | (21.8 | ) |
| Increase from accounts payable is primarily due to increased spending in 2019 related to tornado storm damage and timing of payments | | 18.9 |
|
| Decrease from inventory primarily due a significant decrease in inventory balances in 2018 due to the closure of the Stuart and Killen plants | | (17.5 | ) |
| Other | | (8.3 | ) |
| Net decrease in cash from changes in operating assets and liabilities | | $ | (28.7 | ) |
DPL – Cash flows Net cash from investing activities
Net cash provided by / (used in)used in investing activities was $(80.3) million for the six months ended June 30, 2020 compared to $(66.6) million for the six months ended June 30, 2019 compared2019. This $13.7 million increase in cash used primarily relates to $182.6a $20.6 million increase in capital expenditures due to an increase in cost of removal payments, partially offset by $5.1 million of proceeds received from the sale of software in the current year.
DPL – Net cash from financing activities
Net cash provided by / (used in) financing activities was $362.8 million for thesix months ended June 30, 2018. The six months ended June 30, 2019 investing activity primarily relates to capital expenditures of $63.4 million. The six months ended June 30, 2018 investing activity primarily relates to proceeds from the sale of business of $234.9 million due to the sale of the Peaker assets, and proceeds of $10.6 million related to the June transmission swap with Duke and AEP. This was partially offset by capital expenditures of $50.7 million and a payment on the disposal of Beckjord of $14.5 million.
DPL – Cash flows from financing activities
Net cash used in financing activities was $(101.5) million for thesix months ended June 30, 20192020 compared to $(238.3)$(101.5) million from financing activities for the six months ended June 30, 2018. The six months ended June 30, 2019 financing activity2019. This $464.3 million increase is primarily due to a $571.3 million increase in net issuances of long-term debt repayments, including early payment premium,($415.0 million issuance of $978.0senior unsecured notes in 2020 compared to net retirements on long-term debt of $156.3 million in 2019) and $8.1a $98.0 million of payments of deferred financing costs. This wascapital contribution in the current year, partially offset by debt issuances,increased net of discount, of $821.7 million, and netpayments on revolving credit facilityfacilities of $207.0 million in the current year (net payments of $144.0 million in 2020 compared to net borrowings of $63.0 million. The six months ended June 30, 2018 financing activity is primarily due to debt repayments of $238.3 million.million in 2019).
Cash Flow Analysis - DP&L
The following table summarizes the cash flows of DP&L:&L:
| | | | | | | | | | | | | | |
| DP&L | | Six months ended June 30, | | |
| $ in millions | | 2020 | | 2019 |
| Net cash provided by operating activities | | $ | 38.7 | | | $ | 104.0 | |
| Net cash used in investing activities | | (81.2) | | | (65.4) | |
| Net cash provided by / (used in) financing activities | | 95.4 | | | (87.7) | |
| | | | |
| Net change | | 52.9 | | | (49.1) | |
| Balance at beginning of period | | 21.3 | | | 66.2 | |
| Cash, cash equivalents, and restricted cash at end of period | | $ | 74.2 | | | $ | 17.1 | |
|
| | | | | | | | |
| DP&L | | Six months ended June 30, |
| $ in millions | | 2019 | | 2018 |
| Net cash provided by operating activities | | $ | 104.0 |
| | $ | 79.1 |
|
| Net cash used in investing activities | | (65.4 | ) | | (48.5 | ) |
| Net cash used in financing activities | | (87.7 | ) | | (6.0 | ) |
| Net change | | (49.1 | ) | | 24.6 |
|
| Balance at beginning of period | | 66.2 |
| | 5.6 |
|
| Cash, cash equivalents, and restricted cash at end of period | | $ | 17.1 |
| | $ | 30.2 |
|
DP&L – Change in Net cash flows from operating activities
| | | | | | | | | | | | | | | | | | | | |
| | Six months ended June 30, | | | | $ change |
| $ in millions | | 2020 | | 2019 | | 2020 vs. 2019 |
| Net income | | $ | 29.5 | | | $ | 26.0 | | | $ | 3.5 | |
| Depreciation and amortization | | 35.5 | | | 35.5 | | | — | |
| Deferred income taxes | | 1.2 | | | (3.5) | | | 4.7 | |
| Other adjustments to Net income | | — | | | 32.8 | | | (32.8) | |
| Net income, adjusted for non-cash items | | 66.2 | | | 90.8 | | | (24.6) | |
| Net change in operating assets and liabilities | | (27.5) | | | 13.2 | | | (40.7) | |
| Net cash provided by operating activities | | $ | 38.7 | | | $ | 104.0 | | | $ | (65.3) | |
|
| | | | | | | | | | | | |
| | | Six months ended June 30, | | $ change |
| $ in millions | | 2019 | | 2018 | | 2019 vs. 2018 |
| Net income | | $ | 58.8 |
| | $ | 30.7 |
| | $ | 28.1 |
|
| Depreciation and amortization | | 35.5 |
| | 37.4 |
| | (1.9 | ) |
| Other adjustments to Net income | | (3.5 | ) | | 6.3 |
| | (9.8 | ) |
| Net income, adjusted for non-cash items | | 90.8 |
| | 74.4 |
| | 16.4 |
|
| Net change in operating assets and liabilities | | 13.2 |
| | 4.7 |
| | 8.5 |
|
| Net cash provided by operating activities | | $ | 104.0 |
| | $ | 79.1 |
| | $ | 24.9 |
|
The net change in operating assets and liabilities during the six months ended June 30, 20192020 compared to the six months ended June 30, 20182019 was driven by the following:
| | | | | | | | |
| $ in millions | | $ Change |
| Decrease from accounts payable primarily due to timing of payments | | (14.7) | |
| Decrease from accounts receivable due to PJM transmission enhancement settlement collections in the prior year | | (14.0) | |
| Decrease from deferred regulatory costs, net, primarily due to a decrease in regulatory liabilities as we return certain benefits to customers | | (12.8) | |
| Other | | 0.8 | |
| Net decrease in cash from changes in operating assets and liabilities | | $ | (40.7) | |
| | |
| | |
| | |
|
| | | | |
| $ in millions | | $ Change |
| Increase from accounts payable is primarily due to increased spending in 2019 related to tornado storm damage and timing of payments | | $ | 11.6 |
|
| Other | | (3.1 | ) |
| Net increase in cash from changes in operating assets and liabilities | | $ | 8.5 |
|
DP&L – Cash flows Net cash from investing activities
Net cash used in investing activities was $(65.4)$(81.2) million for thesix months ended June 30, 20192020 compared to $(48.5)$(65.4) million for the six months ended June 30, 2018. The six months ended June 30, 2019 investing activity2019. This $15.8 million increase in cash used primarily representsrelates to an $18.3 million increase in capital expenditures due to an increase in cost of $62.2 million. The six months ended June 30, 2018 investing activity is primarily capital expenditures of $44.5 million and a payment onremoval payments in the disposal of Beckjord of $14.5 million. This was partially offset by proceeds of $10.6 million related to the June transmission swap with Duke and AEP.current year.
DP&L – Cash flows Net cash from financing activities
Net cash used inprovided by / (used in) financing activities was $(87.7)$95.4 million for the six months ended June 30, 20192020 compared to $(6.0)$(87.7) million from financing activities for the six months ended June 30, 2018. The six months ended June 30, 2019 financing activity is2019. This $183.1 million increase primarily relates to a $150.0 million increase due to returnsa capital contribution from DPL in the current year and a $55.8 million decrease in return of capital paidpayments compared to parent of $70.0 million, debt repayments, including early payment premium, of $436.1 million, and payments of deferred financing costs of $3.8 million. This wasthe prior year, partially offset by debt issuances,a $40.0 million increase in net of discount, of $422.3 million. The six months ended June 30, 2018 financing activity is primarily relates to $62.2 million of debt repayments and returns of capital paid to parent of $23.8 million. This was partially offset by an $80.0 million capital contribution from DPL.payments on revolving credit facilities in the current year.
LIQUIDITY
We expect our existing sources of liquidity to remain sufficient to meet our anticipated operating needs. Our business is capital intensive, requiring significant resources to fund operating expenses, construction expenditures, scheduled debt maturities debtand carrying costs, taxes and dividend payments. In 2019For 2020 and subsequent years, we expect to satisfy these requirements with a combination of cash from operations, and funds from debt financing and/or equity capital contributions as our internal liquidity needs and market conditions warrant. We also expect that the borrowing capacity under bank credit facilities will continue to be available to us to manage working capital requirements during thesethose periods. During the six months ended June 30, 2020, DPL received $150.0 million in a cash contribution from AES, which DPL then used to make a $150.0 million capital contribution to DP&L. The contribution at DPL represented an equity capital contribution of $98.0 million and a payment of $52.0 million against its tax receivable. The proceeds from the capital contribution at DP&L will primarily be used for funding needs to support DP&L's capital expenditure program, mainly new investments in and upgrades to DP&L’s transmission and distribution system.
At June 30, 2019, 2020, DP&L and DPL have access to the following revolving credit facilities:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| $ in millions | | Type | | Maturity | | Commitment | | Amounts available as of June 30, 2020 |
| DP&L | | Revolving | | June 2024 | | $ | 175.0 | | | $ | 173.9 | |
| DPL | | Revolving | | June 2023 | | 110.0 | | | 103.5 | |
| | | | | | $ | 285.0 | | | $ | 277.4 | |
|
| | | | | | | | | | | | |
| $ in millions | | Type | | Maturity | | Commitment | | Amounts available as of June 30, 2019 |
| DP&L | | Revolving | | July 2020 | | $ | 175.0 |
| | $ | 173.9 |
|
| DPL | | Revolving | | July 2020 | | 125.0 |
| | 49.7 |
|
| | | | | | | $ | 300.0 |
| | $ | 223.6 |
|
DP&L has an unsecured revolving credit agreement with a syndicated bank group with a borrowing limit of $175.0 million and a $75.0 million letter of credit sublimit, as well as a feature that provides DP&L the ability to increase the size of the facility by an additional $100.0 million. This facility expires in June 2024. At June 30, 2019,2020, there was one letter of credit in the amount of $1.1 million outstanding under this facility, and no$0.0 million in borrowings, with the remaining $173.9 million available to DP&L. Fees associated with this letter of credit facility were not material during the six months ended June 30, 20192020 or 2018.2019.
DPL has a revolving credit facility of $125.0$110.0 million, with a $75.0 million letter of credit sublimit and a feature that provides DPL the ability to increase the size of the facility by an additional $50.0 million. This facility is secured by a pledge of common stock that DPL owns in DP&L, limited to the amount permitted to be pledged under certain Indentures dated October 3, 2011 and April 17, 2019 between DPL and Wells Fargo Bank, NA and U.S. Bank National Association, respectively, as Trustee. The facility expires in June 2023. At June 30, 2019,2020, there were sixfive letters of credit in the aggregate amount of $12.3$6.5 million outstanding and $63.0$0.0 million in borrowings, with the remaining $49.7$103.5 million available to DPL. Fees associated with this facility were not material during the six months ended June 30, 20192020 or 2018.2019.
Capital Requirements
Planned construction additions for 20192020 relate primarily to new investments in and upgrades to DP&L’s transmission and distribution system. Capital projects are subject to continuing review and are revised considering changes in financial and economic conditions, load forecasts, legislative and regulatory developments and changing environmental requirements, among other factors.
DPL is projecting to spend an estimated $668.0$615.0 million in capital projects for the period 20192020 through 2021,2022, of which $661.0$608.0 million is projected to be spent by DP&L. These amounts includeDP&L's projection includes expected spending under DP&L'sDistribution Modernization Plan filed with the PUCO in December 2018. On January 22, 2019, 2018 as well as new transmission projects.
DP&Lfiled a request with the PUCO for a two-year extension of its DMR through October 2022, in the proposed amount of $199.0 million for each of the two additional years. The request was made pursuant to the PUCO’s October 20, 2017 ESP order, which approved the DMR and had the option for DP&L to file for a two-year extension. The extension request was set at a level expected to reduce debt obligations at both DP&L and DPL and to position DP&L to make capital expenditures to maintain and modernize its electric grid. To that end, DP&L’s DMP investments are contingent upon the PUCO approving the two-year extension of its DMR.
DP&L is subject to the mandatory reliability standards of NERC and Reliability FirstReliabilityFirst Corporation, (RFC), one of the eightsix NERC regions, of which DP&L is a member. DP&L anticipates spending approximately $221.0$73.0 million within the next five years to reinforce its 138-kVtransmission system to comply with mandatory NERC standards. Our ability to completeand FERC Form 715 planning requirements. These anticipated costs are included in the overall capital projects and the reliability of future service will be affected by our financial condition, the availability of internal funds and the reasonable cost of external funds. We expect to finance our construction additions with a combination of cash on hand, short-term financing, long-term debt and cash flows from operations.projections above.
Long-term debt covenants
For information regarding our long-term debt covenants, see Part I, Item 1, Note 6 – Long-term Debt of Notes to DPL's Condensed Consolidated Financial Statements and Part I, Item 1, Note 6 – Long-term Debt of Notes to DP&L's Condensed Financial Statements.
Debt and Credit Ratings
The following table presents, as of the filing of this report, the debt ratings and outlook for DPL and DP&L, along with the effective or affirmed date of each rating.
|
| | | | | | | | | | | | | | | | | | | | | | | | | |
| | DPL | | DP&L | | Outlook | | Effective or Affirmed |
| Fitch Ratings | | BBBBB+(a) / BBB-BB (b)
| | A-BBB+(c)
| | StableNegative | | October 2018April 2020 |
| Moody's Investors Service, Inc. | | Ba1 (b) | | A3 (c) | | StableNegative | | JuneDecember 2019 |
| Standard & Poor's Financial Services LLC | | BBB-BB (b)
| | BBB+ BBB (c)
| | Negative | | JuneNovember 2019 |
| |
(a) | Rating relates to DPL’s Senior secured debt.
|
| |
(b) | Rating relates to DPL's Senior unsecured debt.
|
| |
(c) | Rating relates to DP&L’s Senior secured debt.
|
(a)Rating relates to DPL’s Senior secured debt.
(b)Rating relates to DPL's Senior unsecured debt.
(c)Rating relates to DP&L’s Senior secured debt.
The following table presents, as of the filing of this report, the credit ratings (issuer/corporate rating) and outlook for DPL and DP&L, along with the effective or affirmed date of each rating.
|
| | | | | | | | | | | | | | | | | | | | | | | | | |
| | DPL | | DP&L | | Outlook | | Effective or Affirmed |
| Fitch Ratings | | BBB-BB | | BBBBBB- | | StableNegative | | October 2018April 2020 |
| Moody's Investors Service, Inc. | | Ba1 | | Baa2 | | StableNegative | | JuneDecember 2019 |
| Standard & Poor's Financial Services LLC | | BBB-BB | | BBB-BB | | Negative | | JuneNovember 2019 |
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 maycould have an adverse effect on our results of operations, financial condition and cash flows. In addition, any such reduction in our debt or credit ratings may adversely affect the trading price of our outstanding debt securities.
Off-Balance Sheet Arrangements
For information on guarantees, commercial commitments, and contractual obligations, see Part I, Item 1, Note 10 – Contractual Obligations, Commercial Commitments and Contingencies of Notes to DPL's Condensed Consolidated Financial Statements and Part I, Item 1, Note 10 – Contractual Obligations, Commercial Commitments and Contingencies of Notes to DP&L's Condensed Financial Statements.
MARKET RISK
We are subject to certain market risks including, but not limited to, changes in commodity prices for electricity and fluctuations in interest rates. Our Risk Management Committee (RMC), comprised of members of senior management, is responsible for establishing risk management policies and the monitoring and reporting of risk
exposures. The RMC meets on a regular basis with the objective of identifying, assessing and quantifying material risk issues and developing strategies to manage these risks.
The disclosures presented in this section are based upon a number of assumptions; actual effects may differ. The safe harbor provided in Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934 shall apply to the disclosures contained in this section. For further information regarding market risk, see Item 1A.—Risk Factors and Item 7A - Quantitative and Qualitative Disclosures about Market Risk of our Form 10-K. Our businesses may incur substantial costs and liabilities and be exposed to price volatility as a result of risks associated with the electricity markets, which could have a material adverse effect on our results of operations, financial condition and cash flows. In addition, we may not be adequately hedged against our exposure to changes in interest rates.
Interest Rate Risk
Because of our normal investing and borrowing activities, our financial results are exposed to fluctuations in interest rates which we manage through our regular financing activities. We maintain both cash on deposit and investments in cash equivalents that may be affected by adverse interest rate fluctuations. DPL has fixed-rate long-term debt. After the refinancing of the tax-exempt first mortgage bonds, DP&L only has both fixed-rate and variable-rate long-term debt. The variable-rate debt is comprised of bank held tax-exempt bonds. The variable-rate bonds bear interest based on an underlying interest rate index, typically LIBOR. Market indexes can be affected by market demand, supply, market interest rates and other economic conditions. As of June 30, 2019, the effect of a 100-basis-point change in interest rates would be approximately $1.2 million for DPL and $1.2 million for DP&L. See Part I, Item 1, Note 6 – Long-term Debt of Notes to DPL's Condensed
Consolidated Financial Statements and Part I, Item 1, Note 6 – Long-term Debt of Notes to DP&L's Condensed Financial Statements.
As of June 30, 2019,2020, we have two interest rate swaps to hedge the variable interest on our $140.0 million variable interest rate tax-exempt First Mortgage Bonds. The interest rate swaps have a combined notional amount of $140.0 million and settle monthly based on a one-month LIBOR. The
Long-term debt maturities and repayments occurring in the next twelve months are discussed under "CAPITAL RESOURCES AND LIQUIDITY".
Critical Accounting Estimates
DPL’s Condensed Consolidated Financial Statements and DP&L’s Condensed Financial Statements are prepared in accordance with GAAP. In connection with the preparation of these financial statements, our management is required to make assumptions, estimates and judgments that affect the reported amounts of assets, liabilities, revenues, expenses and the related disclosure of contingent liabilities. These assumptions, estimates and judgments are based on our historical experience and assumptions that we believe to be reasonable at the time. However, because future events and their effects cannot be determined with certainty, the determination of estimates requires the exercise of judgment. Our critical accounting estimates are those which require assumptions to be made about matters that are highly uncertain.
Different estimates could have a material effect on our financial results. Judgments and uncertainties affecting the application of these policies and estimates may result in materially different amounts being reported under different conditions or circumstances. Historically, however, recorded estimates have not differed materially from actual results. Significant items subject to such judgments include: the carrying value of property, plant and equipment; unbilled revenues; the valuation of derivative instruments; the valuation of insurance and claims liabilities; the valuation of allowances for receivablescredit losses and deferred income taxes; regulatory assets and liabilities; liabilities recorded for income tax exposures; litigation; contingencies; the valuation of AROs; assets and liabilities related to employee benefits and intangible assets. Refer to our Form 10-K for the year ended December 31, 20182019 for a complete listing of our critical accounting policies and estimates. We have reviewed and determined that these remain as critical accounting policies as of and for the six months ended June 30, 2019.2020.
Item 3 – Quantitative and Qualitative Disclosures about Market Risk
See the “MARKET RISK” section in Item 2 of this Part I, which is incorporated by reference into this item.
Item 4 – Controls and Procedures
Disclosure Controls and Procedures
DPL and DP&L, under the supervision and with the participation of its management, including our Chief Executive Officer (CEO) and Chief Financial Officer (CFO), evaluated the effectiveness of our “disclosure controls and procedures,” as such term is defined in Rule 13a-15(e) under the Securities Act of 1934, as amended (the “Exchange Act”), as of the end of the period covered by this Quarterly Report on Form 10-Q. Based on that evaluation, our CEO and CFO concluded that our disclosure controls and procedures were effective as of June 30, 2019,
2020, to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act, is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms, and include controls and procedures designed to ensure that information required to be disclosed by us in such reports is accumulated and communicated to our management, including our CEO and CFO, as appropriate, to allow timely decisions regarding required disclosures.
Changes in Internal Controls over Financial Reporting
We periodically review our internal controls over financial reporting as part of our efforts to ensure compliance with the requirements of Section 404 of the Sarbanes-Oxley Act of 2002. In addition, we routinely review our system of internal controls over financial reporting to identify potential changes to our processes and systems that may improve controls and increase efficiency, while ensuring that we maintain an effective internal controls environment. Changes may include such activities as implementing new, more efficient systems, migrating certain processes to our shared services organizations, formalizing policies and procedures, improving segregation of duties and increasing monitoring controls. During the quarter ended June 30, 2019, we implemented a new core enterprise resource planning (ERP) system, which we expect to enhance our system of internal controls over financial
reporting. We expect the initial implementation of the new core ERP system to involve changes to related processes that are part of our system of internal controls over financial reporting and to require testing for effectiveness and potential further changes. During the quarter ended June 30, 2019, we successfully completed the initial implementation of the new core ERP system. Other than the system and related process changes described above, there have been— There were no changes in our internal controls over financial reporting that occurred during the fiscal quarter covered by this reportQuarterly Report on Form 10-Q that have materially affected, or are reasonably likely to materially affect, our internal controlscontrol over financial reporting. We will continuehave not experienced any material impact to monitor theour internal control structurecontrols over financial reporting despite the fact that most of our employees are working remotely due to ensure that the COVID-19 pandemic. We are continually monitoring and assessing the COVID-19 situation on our internal controls to minimize the impact on their design is proper and operating effectively.effectiveness.
Part II – Other Information
Item 1 – Legal Proceedings
In the normal course of business, we are subject to various lawsuits, actions, claims, and other proceedings. We are also, from time to time, involved in other reviews, investigations and proceedings by governmental and regulatory agencies regarding our business, certain of which may result in adverse judgments, settlements, fines, penalties, injunctions or other relief. We have accrued in our Financial Statements for litigation and claims where it is probable that a liability has been incurred and the amount of loss can be reasonably estimated. We believe the amounts provided in our Financial Statements, as prescribed by GAAP, for these matters are adequate considering the probable and estimable contingencies. However, there can be no assurances that the actual amounts required to satisfy alleged liabilities from various legal proceedings, claims and other matters (including those matters noted below), and to comply with applicable laws and regulations will not exceed the amounts reflected in our Financial Statements. As such, costs, if any, that may be incurred in excess of those amounts provided for in our Financial Statements, cannot be reasonably determined, but could be material.
Our Form 10-K for the fiscal year ended December 31, 20182019 and Form 10-Q for the quarter ended March 31, 20192020 and the Notes to DPL’s Consolidated Financial Statements and DP&L’s Financial Statements included therein contain descriptions of certain legal proceedings in which we are or were involved. The information in or incorporated by reference into this Item 1 to Part II is limited to certain recent developments concerning our legal proceedings and new legal proceedings, since the filing of such Forms 10-K and 10-Q, and should be read in conjunction with such Forms 10-K and 10-Q.
The following information is incorporated by reference into this Item: information about the legal proceedings contained in Part I, Item 2 – Management's Discussion and Analysis of Financial Condition and Results of Operations and Part I, Item 1, Note 3 – Regulatory Matters of Notes to DPL's Condensed Consolidated Financial Statements and Part I, Item 1, Note 3 – Regulatory Matters of Notes to DP&L's Condensed Financial Statements of this Quarterly Report on Form 10-Q.
Item 1A – Risk Factors
A listing of the risk factors that we consider to be the most significant to a decision to invest in our securities is provided in our Form 10-K as supplemented in our Form 10-Q for the fiscal yearthree months ended December 31, 2018. As of June 30, 2019,March 32, 2020. Except as described below, there havehas been no material changes with respect to thechange in our risk factors as previously disclosed in our Form 10-K.10-K and 2020 first quarter Form 10-Q. If any of the events described in our risk factors occur, it could have a material adverse effect on our results of operations, financial condition and cash flows.
The risks and uncertainties described in our risk factors are not the only ones we face. In addition, new risks may emerge at any time, and we cannot predict those risks or estimate the extent to which they may affect our business or financial performance. Our risk factors should be read in conjunction with the other detailed information concerning DPL and DP&L set forth in the Notes to DPL’s and DP&L’s Financial Statements found in Part I, Item 1, and the “Management’s Discussion and Analysis of Financial Condition and Results of Operations” sections included in our filings.
As part of the filing of this Quarterly Report Form on Form 10-Q, we are further revising, clarifying and
supplementing our risk factors, including those contained in our Form 10-K. The risk factor below amends and supersedes the risk factor that we filed in connection with the 2020 first quarter Form 10-Q and should be considered together with the other risk factors described in our Form 10-K:
The current outbreak of the novel coronavirus, or COVID-19, has adversely affected, and it or the future outbreak of any other highly infectious or contagious diseases could materially and adversely affect, our generation facilities, transmission and distribution systems, results of operations, financial condition and cash flows. Further, the spread of the COVID-19 outbreak has caused severe disruptions in the U.S. and global economy and financial markets and could potentially create widespread business continuity issues of an as yet unknown magnitude and duration.
In December 2019, a novel strain of coronavirus (COVID-19) was reported to have surfaced in Wuhan, China. COVID-19 has since spread to over 180 countries, including every state in the United States. On March 11, 2020 the World Health Organization declared COVID-19 a pandemic, and on March 13, 2020 the United States declared a national emergency with respect to COVID-19. On March 12, 2020, the PUCO issued an emergency order prohibiting electric utilities, including us, from discontinuing electric utility service to customers, which prohibition is currently scheduled to end September 1, 2020 for DP&L pending PUCO approval.
The outbreak of COVID-19 has severely impacted global economic activity, caused significant volatility and negative pressure in financial markets and reduced the demand for energy in our service territory. In addition to reduced revenues and lower margins resulting from decreased energy demand within our service territory, we also will incur expenses relating to COVID-19, and such expenses may include those that relate to events outside of our control. The global impact of the outbreak has been rapidly evolving and many countries, including the United States, have reacted by instituting quarantines, mandating business and school closures and restricting travel. Many experts predict that the outbreak will trigger a period of global economic slowdown or a global recession. COVID-19 or another pandemic could have material and adverse effects on our results of operations, financial condition and cash flows due to, among other factors:
•further decline in customer demand as a result of general decline in business activity;
•further destabilization of the markets and decline in business activity negatively impacting our customer growth or the number of customers in our service territory as well as our customers’ ability to pay for our services when due (or at all);
•delay or inability in obtaining regulatory actions and outcomes that could be material to our business, including for recovery of COVID-19 related expenses and losses and the review and approval of our applications, rates and charges by the PUCO;
•difficulty accessing the capital and credit markets on favorable terms, or at all, and a severe disruption and instability in the global financial markets, or deteriorations in credit and financing conditions which could affect our access to capital necessary to fund business operations or address maturing liabilities on a timely basis;
•negative impacts on the health of our essential personnel, especially if a significant number of them are affected, and on our operations as a result of implementing stay-at-home, quarantine and other social distancing measures;
•a deterioration in our ability to ensure business continuity during a disruption, including increased cybersecurity attacks related to the work-from-home environment;
•delays or inability to access, transport and deliver materials to our facilities due to restrictions on business operations or other factors affecting us and our third-party suppliers;
•delays or inability to access equipment or the availability of personnel to perform planned and unplanned maintenance, which can, in turn, lead to disruption in operations;
•delays or inability in achieving our financial goals, growth strategy and digital transformation; and
•delays in the implementation of expected rules and regulations, including with respect to the TCJA.
We will continue to review and modify our plans as conditions change. Despite our efforts to manage and remedy these impacts to the Company, their ultimate impact also depends on factors beyond our knowledge or control, including the duration and severity of this outbreak as well as third-party actions taken to contain its spread and mitigate its public health effects.
The rapid development and fluidity of this situation precludes any prediction as to the ultimate adverse impact of COVID-19. Nevertheless, COVID-19 presents material uncertainty which could materially and adversely affect our transmission and distribution systems, results of operations, financial condition and cash flows.
To the extent COVID-19 adversely affects our business and financial results, it may also have the effect of heightening many of the other risks described in this ‘‘Risk Factors’’ section, such as those relating to our level of indebtedness, our need to generate sufficient cash flows to service our indebtedness and our ability to comply with the covenants contained in the agreements that govern our indebtedness.
Item 2 – Unregistered Sale of Equity Securities and Use of Proceeds
None
Item 3 – Defaults Upon Senior Securities
None
Item 4 – Mine Safety Disclosures
Not applicable.
Item 5 – Other Information
None
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Item 6 – Exhibits
|
| | | | | | | | | | | | | |
| DPL | DP&L | Exhibit Number | Exhibit | Location |
| X | | 4.1 | Indenture, dated April 17, 2019,June 19, 2020, by and between DPL Inc. and U.S. Bank National Association. | |
| X | | 4.2 | Registration Rights Agreement, dated as of April 17, 2019,June 19, 2020, by and between DPL Inc. and J.P. Morgan Securities LLC, and Morgan Stanley & Co. LLC, as representativesrepresentative of the initial purchasers. | |
| X | | 10.1 | Amendment to the Amended and Restated Credit Agreement, dated as of June 19, 2019,1, 2020, among DPL, Inc., each lender from time to time party thereto, U.S. Bank, National Association, as Administrative Agent, Collateral Agent, Swing Line Lenderadministrative agent, and an L/C Issuer, PNC Bank, National Association, as Syndication Agent and an L/C Issuer, and Fifth Third Bank, BMO Harris Bank, N.A., SunTrust Bank and The Huntington National Bank, as Documentation Agents.each of the lenders party thereto. | |
| X | | 10.231(a) | Amended and Restated Pledge Agreement, dated as of June 19, 2019, between DPL Inc. and U.S. Bank National Association, as Collateral Agent. | |
X | X | 10.3 | Amended and Restated Credit Agreement, dated as of June 19, 2019, among The Dayton Power and Light Company, each lender from time to time party thereto, PNC Bank, National Association, as Administrative Agent, Swing Line Lender and an L/C Issuer, U.S. Bank National Association, as Syndication Agent and an L/C Issuer, and Fifth Third Bank, BMO Harris Bank, N.A., SunTrust Bank and The Huntington National Bank, as Documentation Agents. | |
X | | 31(a) | Certification of Chief Executive Officer pursuant to Rule 13a-14(a)/Rule 15d-14(a) of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 | |
| X | | 31(b) | Certification of Chief Financial Officer pursuant to Rule 13a-14(a)/Rule 15d-14(a) of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 | |
| X | 31(c) | Certification of Chief Executive Officer pursuant to Rule 13a-14(a)/Rule 15d-14(a) of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 | |
| X | 31(d) | Certification of Chief Financial Officer pursuant to Rule 13a-14(a)/Rule 15d-14(a) of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 | |
| X | | 32(a) | Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 | |
| X | | 32(b) | Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 | |
| X | 32(c) | Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 | |
| X | 32(d) | Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 | |
| X | X | 101.INS | XBRL Instance | Filed herewith as Exhibit 101.INS |
| X | X | 101.SCH | XBRL Taxonomy Extension Schema | Filed herewith as Exhibit 101.SCH |
| X | X | 101.CAL | XBRL Taxonomy Extension Calculation Linkbase | Filed herewith as Exhibit 101.CAL |
| X | X | 101.DEF | XBRL Taxonomy Extension Definition Linkbase | Filed herewith as Exhibit 101.DEF |
| X | X | 101.LAB | XBRL Taxonomy Extension Label Linkbase | Filed herewith as Exhibit 101.LAB |
| X | X | 101.PRE | XBRL Taxonomy Extension Presentation Linkbase | Filed herewith as Exhibit 101.PRE |
Exhibits referencing File No. 1-9052 have been filed by DPL Inc. and those referencing File No. 1-2385 have been filed by The Dayton Power and Light Company.
70
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, DPL Inc. has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
| | | | | | | | |
| | DPL Inc. |
| | (Registrant) |
| | |
| Date: | | DPL Inc. |
| | (Registrant) |
| | |
Date: | August 5, 20192020 | /s/ Gustavo Garavaglia |
| | Gustavo Garavaglia |
| | Chief Financial Officer |
| | (principal financial officer) |
| | |
| August 5, 20192020 | /s/ Karin M. Nyhuis |
| | Karin M. Nyhuis |
| | Controller |
| | (principal accounting officer) |
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, The Dayton Power and Light Company has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
| | | | | | | | |
| | The Dayton Power and Light Company |
| | (Registrant) |
| | |
| Date: | | The Dayton Power and Light Company |
| | (Registrant) |
| | |
Date: | August 5, 20192020 | /s/ Gustavo Garavaglia |
| | Gustavo Garavaglia |
| | Vice President and Chief Financial Officer |
| | (principal financial officer) |
| | |
| August 5, 20192020 | /s/ Karin M. Nyhuis |
| | Karin M. Nyhuis |
| | Controller |
| | (principal accounting officer) |
