UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended JuneQuarterly Period Ended September 30, 2022
OR-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(Exact name of registrant as specified in its charter)
Dayton, Ohio 45432
| | | | | |
| Ohio |
937-259-7215
IRS Employer Identification No. 31-1163136
|
| (State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) |
| 1065 Woodman Drive | |
| Dayton, Ohio | 45432 |
| (Address of principal executive offices) | (Zip Code) |
| Registrant's telephone number, including area code: | (937) 259-7215 |
Commission File Number 1-2385
THE DAYTON POWER AND LIGHT COMPANY
(Exact name of registrant as specified in its charter)
d/b/a AES Ohio
(an Ohio corporation)
| | | | | |
| Ohio |
Commission File Number 1-2385
1065 Woodman Drive
Dayton, Ohio 45432
937-259-7215
IRS Employer Identification No. 31-0258470
|
| (State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) |
| 1065 Woodman Drive | |
| Dayton, Ohio | 45432 |
| (Address of principal executive offices) | (Zip Code) |
| Registrant's telephone number, including area code: | (937) 259-7215 |
| | | | | | | | |
| 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 |
| | |
Indicate by check mark whether each registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
| | | | | | | | | | | | | | |
| DPL Inc. | Yes | ☐ | No | ☑☒ |
| The Dayton Power and Light Company | Yes | ☐ | No | ☑☒ |
DPL Inc. and The Dayton Power and Light Company are voluntary filers. DPL Inc. and The Dayton Power and Light Company have filed all applicable reports under Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months.
Indicate by check mark whether each registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
| | | | | | | | | | | | | | |
| DPL Inc. | Yes | ☑☒ | No | ☐ |
| The Dayton Power and Light Company | Yes | ☑☒ | No | ☐ |
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer”, “smaller reporting company” and "emerging growth company" in Rule 12b-2 of the Exchange Act.
| | | | | | | | | | | | | | | | | |
| Large
accelerated
Filer | Accelerated
Filer | Non-accelerated Filer | Smaller
reporting
company | Emerging growth company |
| DPL Inc. | ☐ | ☐ | ☑☒ | ☐ | ☐ |
| Large
accelerated
Filer | Accelerated
Filer | Non-accelerated Filer | Smaller
reporting
company | Emerging growth company |
| The Dayton Power and Light Company | ☐ | ☐ | ☑☒ | ☐ | ☐ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
| | | | | |
| DPL Inc. | ☐ |
| The Dayton Power and Light Company | ☐ |
Indicate by check mark whether each registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
| | | | | | | | | | | | | | |
| DPL Inc. | Yes | ☐ | No | ☑☒ |
| The Dayton Power and Light Company | Yes | ☐ | No | ☑☒ |
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 4,November 3, 2022, each registrant had the following shares of common stock outstanding:
| | | | | | | | | | | | | | |
| Registrant | | Description | | Shares Outstanding |
| | | | |
| DPL Inc. | | Common Stock, no par value | | 1 |
| | | | |
| The Dayton Power and Light Company | | Common Stock, $0.01 par value | | 41,172,173 |
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 AES Ohio
Quarter Ended JuneSeptember 30, 2022
| | | | | | | | |
| Table of Contents | Page No. |
| Glossary of Terms | |
| Forward-Looking Statements | |
| Part I Financial Information | |
| Item 1 | Financial Statements – DPL Inc. and AES Ohio (Unaudited) | |
| DPL Inc. | |
| Condensed Consolidated Statements of Operations | |
| Condensed Consolidated Statements of Comprehensive Income / (Loss) | |
| Condensed Consolidated Balance Sheets | |
| Condensed Consolidated Statements of Cash Flows | |
| Condensed Consolidated Statements of Shareholder's Deficit | |
| Notes to Unaudited Condensed Consolidated Financial Statements | |
| Note 1 – Overview and Summary of Significant Accounting PoliciesOVERVIEW AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES | |
| Note 2 – Regulatory MattersREGULATORY MATTERS | |
| Note 3 – Fair ValueFAIR VALUE | |
| Note 4 – Derivative Instruments and Hedging ActivitiesDERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES | |
| Note 5 – DebtDEBT | |
| Note 6 – Income TaxesINCOME TAXES | |
| Note 7 – Benefit PlansBENEFIT PLANS | |
| Note 8 – Commitments and ContingenciesCOMMITMENTS AND CONTINGENCIES | |
| Note 9 – Business SegmentsBUSINESS SEGMENTS | |
| Note 10 – RevenueREVENUE | |
| Note 11 – Discontinued OperationsDISCONTINUED OPERATIONS | |
| Note 12 – Risks and UncertaintiesRISKS AND UNCERTAINTIES | |
| | |
| | |
| AES Ohio | |
| Condensed Statements of Operations | |
| Condensed Statements of Comprehensive Income / (Loss) | |
| Condensed Balance Sheets | |
| Condensed Statements of Cash Flows | |
| Condensed Statements of Shareholder's Equity | |
| Notes to Unaudited Condensed Financial Statements | |
| Note 1 – Overview and Summary of Significant Accounting PoliciesOVERVIEW AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES | |
| Note 2 – Regulatory MattersREGULATORY MATTERS | |
| Note 3 – Fair ValueFAIR VALUE | |
| Note 4 – DebtDEBT | |
| Note 5 – Income TaxesINCOME TAXES | |
| Note 6 – Benefit PlansBENEFIT PLANS | |
| Note 7 – Commitments and ContingenciesCOMMITMENTS AND CONTINGENCIES | |
| Note 8 – RevenueREVENUE | |
| Note 9 – Risks and UncertaintiesRISKS AND UNCERTAINTIES | |
| | |
| | |
| 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 | |
| | |
| 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:
| | | | | |
| 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 | The Dayton Power and Light Company, which does business as AES Ohio |
| AES Ohio Credit Agreement | $175.0 million AES Ohio Amended and Restated Credit Agreement, dated as of June 19, 2019 |
| AES Ohio Generation | AES Ohio Generation, LLC - a wholly-owned subsidiary of DPL, which previously operated EGUs and made wholesale sales |
| |
| AOCL | Accumulated Other Comprehensive Loss |
| ASU | Accounting Standards Update |
| BIL | Bipartisan Infrastructure Law (Infrastructure Investment and Jobs Act) - the congressional act passed in November 2021 |
| CAA | U.S. Clean Air Act - the congressional act that directs the EPA’s regulation of stationary and mobile sources of air pollution to protect air quality and stratospheric ozone |
| CCR | Coal Combustion Residuals |
| Conesville | AES Ohio Generation's interest in Unit 4 at the Conesville EGU. This was sold on June 5, 2020. |
| COVID-19 | The disease caused by the novel coronavirus that resulted in a global pandemic beginning in 2020. |
| |
| DPL | DPL Inc. and its consolidated subsidiaries |
| DPL Credit Agreement | $90.085.0 million DPL Inc. Amended and Restated Credit Agreement, dated as of June 19, 2019 |
| 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. DP&L does business as AES Ohio. |
| EBITDA | Earnings before interest, taxes, depreciation and amortization |
| |
| EPA | U.S. Environmental Protection Agency |
| ERISA | The Employee Retirement Income Security Act of 1974 |
| ESP | The Electric Security Plan - a plan that a utility must file with the PUCO to establish SSO rates pursuant to Ohio law |
| ESP 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 |
| |
| 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, 2021, which was filed on February 28, 2022 |
| 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 |
| |
| kWh | Kilowatt-hours - a measure of electrical energy equivalent to a power consumption of 1,000 watts for 1 hour |
| LIBOR | London Inter-Bank Offered 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 EPA’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. |
| MVIC | Miami Valley Insurance Company is a wholly-owned insurance subsidiary of DPL that provides insurance services to DPL and its subsidiaries |
MW | Megawatt, a unit of power equal to one million watts |
| NAAQS | National Ambient Air Quality Standards - the EPA’s health and environmental based standards for six specified pollutants, as found in the ambient air |
| NERC | North American Electric Reliability Corporation - a not-for-profit international regulatory authority whose mission is to assure the effective and efficient reduction of risks to the reliability and security of the electric grid |
| NOx | Nitrogen Oxide - an air pollutant regulated by the NAAQS under the CAA |
| | | | | |
GLOSSARY OF TERMS (cont.) |
| |
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 |
| Pension Plans | The Dayton Power and Light Company Retirement Income Plan and The Dayton Power and Light Company Supplemental Executive Retirement Plan |
| PJM | PJM Interconnection, LLC, an RTO |
| PUCO | Public Utilities Commission of Ohio |
| | | | | |
| GLOSSARY OF TERMS (cont.) |
| |
| Term | Definition |
| |
| 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 |
| T&D | Transmission and distribution |
| U.S. | United States of America |
| USD | U.S. dollar |
| 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:
•impacts of weather on retail sales;
•growth in our service territory and changes in demand and demographic patterns;
•weather-related damage to our electrical system;
•performance of our suppliers;
•transmission and distribution system reliability and capacity;
•regulatory actions and outcomes, including, but not limited to, the review and approval of our rates and charges by the PUCO;
•federal and state legislation and regulations;
•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;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 or other 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; cyberattacks and information security breaches;
•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;
•the use of derivative contracts;
•product development, technology changes and changes in prices of products and technologies;
•catastrophic events such as fires, explosions, terrorist acts, acts of war, pandemic events, including the outbreak of COVID-19, or natural disasters such as floods, earthquakes, tornadoes, severe winds, ice or snowstorms, droughts or other similar occurrences; and
•the risks and other factors discussed in this report and other DPL and DP&L filings with the SEC.
Forward-looking statements speak only as of the date of the document in which they are made. We disclaim any obligation or undertaking to provide any updates or revisions to any forward-looking statement to reflect any change in our expectations or any change in events, conditions or circumstances on which the forward-looking statement is based. If we do update one or more forward-looking statements, no inference should be made that we will make additional updates with respect to those or other forward-looking statements.
All of the above factors are difficult to predict, contain uncertainties that may materially affect actual results, and many are beyond our control. See Item 1A - Risk Factors to Part I in our Annual Report on Form 10-K and Item 1A - Risk Factors to Part II of this quarterly report and the “Management's Discussion and Analysis of Financial Condition and Results of Operations” section in our Form 10-K and in our Quarterly ReportReports on Form 10-Q for the quarterquarters ended March 31, and June 30, 2022 and this Quarterly Report on Form 10-Q for a more detailed discussion of the foregoing and certain other factors that could cause actual results to differ materially from those reflected in such forward-looking statements and that should be considered in evaluating our outlook. These risks may also be specifically described in our Quarterly Reports on Form 10-Q in Part II - Item 1A, Current Reports on Form 8-K and other documents that we may file from time to time with the SEC.
Our SEC filings are available to the public from the SEC’s website at www.sec.gov.
COMPANY WEBSITE
DP&L’s public internet site is www.aes-ohio.com. The information on this website is not incorporated by reference into this report.
| | |
| Part I – Financial Information |
This report includes the combined filing of DPL and DP&L. Throughout this report, the terms “we,” “us,” “our” and “ours” are used to refer to both DPL and DP&L,, respectively and altogether, unless the context indicates otherwise. Discussions or areas of this report that apply only to DPL or DP&L will be clearly noted in the applicable section.
| | |
| Item 1 – Financial Statements |
FINANCIAL STATEMENTS
DPL INC.
| | 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 | | Nine months ended |
| | June 30, | | June 30, | | September 30, | | September 30, |
| $ in millions | $ in millions | | 2022 | | 2021 | | 2022 | | 2021 | $ in millions | | 2022 | | 2021 | | 2022 | | 2021 |
| Revenues | Revenues | | $ | 190.9 | | | $ | 148.1 | | | $ | 390.2 | | | $ | 323.3 | | Revenues | | $ | 262.1 | | | $ | 188.2 | | | $ | 652.3 | | | $ | 511.5 | |
| | Operating costs and expenses | Operating costs and expenses | | Operating costs and expenses | |
| Net fuel cost | Net fuel cost | | — | | | 0.1 | | | — | | | 0.5 | | Net fuel cost | | — | | | — | | | — | | | 0.5 | |
| Net purchased power cost | Net purchased power cost | | 90.6 | | | 53.9 | | | 181.4 | | | 125.4 | | Net purchased power cost | | 180.2 | | | 83.9 | | | 361.6 | | | 209.3 | |
| | Operation and maintenance | Operation and maintenance | | 43.1 | | | 38.0 | | | 83.9 | | | 72.8 | | Operation and maintenance | | 48.8 | | | 40.1 | | | 132.7 | | | 112.9 | |
| Depreciation and amortization | Depreciation and amortization | | 20.1 | | | 18.9 | | | 39.6 | | | 38.0 | | Depreciation and amortization | | 20.0 | | | 18.9 | | | 59.6 | | | 56.9 | |
| Taxes other than income taxes | Taxes other than income taxes | | 21.2 | | | 20.7 | | | 43.2 | | | 41.1 | | Taxes other than income taxes | | 20.4 | | | 21.0 | | | 63.6 | | | 62.1 | |
| | Gain on disposal of business | Gain on disposal of business | | — | | | — | | | (0.6) | | | — | | Gain on disposal of business | | — | | | — | | | (0.6) | | | — | |
| | Total operating costs and expenses | Total operating costs and expenses | | 175.0 | | | 131.6 | | | 347.5 | | | 277.8 | | Total operating costs and expenses | | 269.4 | | | 163.9 | | | 616.9 | | | 441.7 | |
| | Operating income | | 15.9 | | | 16.5 | | | 42.7 | | | 45.5 | | |
| Operating income / (loss) | | Operating income / (loss) | | (7.3) | | | 24.3 | | | 35.4 | | | 69.8 | |
| | Other expense, net: | Other expense, net: | | Other expense, net: | |
| Interest expense | Interest expense | | (16.5) | | | (15.6) | | | (32.0) | | | (31.2) | | Interest expense | | (18.1) | | | (15.8) | | | (50.1) | | | (47.0) | |
| | Other income | | — | | | 0.6 | | | 0.4 | | | 1.1 | | |
| Other income / (expense) | | Other income / (expense) | | 1.6 | | | (0.8) | | | 2.0 | | | 0.3 | |
| Total other expense, net | Total other expense, net | | (16.5) | | | (15.0) | | | (31.6) | | | (30.1) | | Total other expense, net | | (16.5) | | | (16.6) | | | (48.1) | | | (46.7) | |
| | Income / (loss) from continuing operations before income tax | Income / (loss) from continuing operations before income tax | | (0.6) | | | 1.5 | | | 11.1 | | | 15.4 | | Income / (loss) from continuing operations before income tax | | (23.8) | | | 7.7 | | | (12.7) | | | 23.1 | |
| | Income tax expense / (benefit) from continuing operations | | (0.8) | | | 0.9 | | | (4.5) | | | 0.6 | | |
| Income tax benefit from continuing operations | | Income tax benefit from continuing operations | | (4.1) | | | (0.8) | | | (8.6) | | | (0.2) | |
| | Net income from continuing operations | | 0.2 | | | 0.6 | | | 15.6 | | | 14.8 | | |
| Net income / (loss) from continuing operations | | Net income / (loss) from continuing operations | | (19.7) | | | 8.5 | | | (4.1) | | | 23.3 | |
| | Discontinued operations (Note 11): | Discontinued operations (Note 11): | | Discontinued operations (Note 11): | |
| Loss from discontinued operations before income tax | Loss from discontinued operations before income tax | | — | | | (0.2) | | | — | | | (1.0) | | Loss from discontinued operations before income tax | | — | | | — | | | — | | | (1.0) | |
| | Income tax benefit from discontinued operations | Income tax benefit from discontinued operations | | — | | | — | | | — | | | (0.2) | | Income tax benefit from discontinued operations | | — | | | — | | | — | | | (0.2) | |
| Net loss from discontinued operations | Net loss from discontinued operations | | — | | | (0.2) | | | — | | | (0.8) | | Net loss from discontinued operations | | — | | | — | | | — | | | (0.8) | |
| | Net income | | $ | 0.2 | | | $ | 0.4 | | | $ | 15.6 | | | $ | 14.0 | | |
| Net income / (loss) | | Net income / (loss) | | $ | (19.7) | | | $ | 8.5 | | | $ | (4.1) | | | $ | 22.5 | |
See Notes to Condensed Consolidated Financial Statements.
| | DPL Inc. | DPL Inc. | DPL Inc. |
| Condensed Consolidated Statements of Comprehensive Income | |
| Condensed Consolidated Statements of Comprehensive Income / (Loss) | | Condensed Consolidated Statements of Comprehensive Income / (Loss) |
| (Unaudited) | (Unaudited) | (Unaudited) |
| | Three months ended | | Six months ended | | Three months ended | | Nine months ended |
| | June 30, | | June 30, | | September 30, | | September 30, |
| $ in millions | $ in millions | | 2022 | | 2021 | | 2022 | | 2021 | $ in millions | | 2022 | | 2021 | | 2022 | | 2021 |
| Net income | | $ | 0.2 | | | $ | 0.4 | | | $ | 15.6 | | | $ | 14.0 | | |
| Net income / (loss) | | Net income / (loss) | | $ | (19.7) | | | $ | 8.5 | | | $ | (4.1) | | | $ | 22.5 | |
| Derivative activity: | Derivative activity: | | | | | | | | | Derivative activity: | | | | | | | | |
| | Reclassification to earnings, net of income tax effect of $0.0, $0.1, $0.1 and $0.1 for each respective period | | (0.3) | | | (0.2) | | | (0.4) | | | (0.4) | | |
| Reclassification to earnings, net of income tax effect of $0.1, $0.0, $0.2 and $0.1 for each respective period | | Reclassification to earnings, net of income tax effect of $0.1, $0.0, $0.2 and $0.1 for each respective period | | (0.1) | | | (0.2) | | | (0.5) | | | (0.6) | |
| Total derivative activity | Total derivative activity | | (0.3) | | | (0.2) | | | (0.4) | | | (0.4) | | Total derivative activity | | (0.1) | | | (0.2) | | | (0.5) | | | (0.6) | |
| Pension and postretirement activity: | Pension and postretirement activity: | | | | | | | | | Pension and postretirement activity: | | | | | | | | |
| Reclassification to earnings, net of income tax effect of $0.0, $(0.2), $(0.1) and $(0.3) for each respective period | | 0.3 | | | 0.5 | | | 0.5 | | | 1.0 | | |
| Reclassification to earnings, net of income tax effect of $(0.1), $(0.1), $(0.2) and $(0.4) for each respective period | | Reclassification to earnings, net of income tax effect of $(0.1), $(0.1), $(0.2) and $(0.4) for each respective period | | 0.2 | | | 0.5 | | | 0.7 | | | 1.5 | |
| Total change in unfunded pension and postretirement obligations | Total change in unfunded pension and postretirement obligations | | 0.3 | | | 0.5 | | | 0.5 | | | 1.0 | | Total change in unfunded pension and postretirement obligations | | 0.2 | | | 0.5 | | | 0.7 | | | 1.5 | |
| | Other comprehensive income | Other comprehensive income | | — | | | 0.3 | | | 0.1 | | | 0.6 | | Other comprehensive income | | 0.1 | | | 0.3 | | | 0.2 | | | 0.9 | |
| | Net comprehensive income | | $ | 0.2 | | | $ | 0.7 | | | $ | 15.7 | | | $ | 14.6 | | |
| Comprehensive income / (loss) | | Comprehensive income / (loss) | | $ | (19.6) | | | $ | 8.8 | | | $ | (3.9) | | | $ | 23.4 | |
See Notes to Condensed Consolidated Financial Statements.
| | DPL Inc. | DPL Inc. | DPL Inc. |
| Condensed Consolidated Balance Sheets | Condensed Consolidated Balance Sheets | Condensed Consolidated Balance Sheets |
| (Unaudited) | (Unaudited) | (Unaudited) |
| $ in millions | $ in millions | | June 30, 2022 | | December 31, 2021 | $ in millions | | September 30, 2022 | | December 31, 2021 |
| ASSETS | ASSETS | | | | | ASSETS | | | | |
| Current assets: | Current assets: | | Current assets: | |
| Cash and cash equivalents | Cash and cash equivalents | | $ | 60.3 | | | $ | 26.6 | | Cash and cash equivalents | | $ | 44.3 | | | $ | 26.6 | |
| | Accounts receivable, net of allowance for credit losses of $0.3 and $0.3, respectively (Note 1) | | 85.1 | | | 71.5 | | |
| Accounts receivable, net of allowance for credit losses of $0.4 and $0.3, respectively (Note 1) | | Accounts receivable, net of allowance for credit losses of $0.4 and $0.3, respectively (Note 1) | | 89.6 | | | 71.5 | |
| Inventories | Inventories | | 17.9 | | | 14.4 | | Inventories | | 20.9 | | | 14.4 | |
| Taxes applicable to subsequent years | Taxes applicable to subsequent years | | 40.5 | | | 83.1 | | Taxes applicable to subsequent years | | 20.3 | | | 83.1 | |
| Regulatory assets, current | Regulatory assets, current | | 37.2 | | | 24.5 | | Regulatory assets, current | | 27.2 | | | 24.5 | |
| Taxes receivable | Taxes receivable | | 6.1 | | | 2.7 | | Taxes receivable | | 3.6 | | | 2.7 | |
| Prepayments and other current assets | Prepayments and other current assets | | 9.9 | | | 7.6 | | Prepayments and other current assets | | 11.4 | | | 7.6 | |
| | Total current assets | Total current assets | | 257.0 | | | 230.4 | | Total current assets | | 217.3 | | | 230.4 | |
| | Property, plant & equipment: | Property, plant & equipment: | | | | | Property, plant & equipment: | | | | |
| Property, plant & equipment | Property, plant & equipment | | 2,103.9 | | | 1,990.4 | | Property, plant & equipment | | 2,120.9 | | | 1,990.4 | |
| Less: Accumulated depreciation and amortization | Less: Accumulated depreciation and amortization | | (489.4) | | | (464.0) | | Less: Accumulated depreciation and amortization | | (483.5) | | | (464.0) | |
| | | | 1,614.5 | | | 1,526.4 | | | | 1,637.4 | | | 1,526.4 | |
| Construction work in process | Construction work in process | | 165.9 | | | 174.4 | | Construction work in process | | 183.5 | | | 174.4 | |
| Total net property, plant & equipment | Total net property, plant & equipment | | 1,780.4 | | | 1,700.8 | | Total net property, plant & equipment | | 1,820.9 | | | 1,700.8 | |
| | Other non-current assets: | Other non-current assets: | | | | | Other non-current assets: | | | | |
| Regulatory assets, non-current | Regulatory assets, non-current | | 166.8 | | | 176.8 | | Regulatory assets, non-current | | 134.9 | | | 176.8 | |
| Intangible assets, net of amortization | Intangible assets, net of amortization | | 43.1 | | | 33.7 | | Intangible assets, net of amortization | | 50.1 | | | 33.7 | |
| Other non-current assets | Other non-current assets | | 28.1 | | | 30.1 | | Other non-current assets | | 29.8 | | | 30.1 | |
| | Total other non-current assets | Total other non-current assets | | 238.0 | | | 240.6 | | Total other non-current assets | | 214.8 | | | 240.6 | |
| | Total assets | Total assets | | $ | 2,275.4 | | | $ | 2,171.8 | | Total assets | | $ | 2,253.0 | | | $ | 2,171.8 | |
| | LIABILITIES AND SHAREHOLDER'S DEFICIT | LIABILITIES AND SHAREHOLDER'S DEFICIT | | LIABILITIES AND SHAREHOLDER'S DEFICIT | |
| Current liabilities: | Current liabilities: | | Current liabilities: | |
| Short-term and current portion of long-term debt (Note 5) | Short-term and current portion of long-term debt (Note 5) | | $ | 50.2 | | | $ | 65.2 | | Short-term and current portion of long-term debt (Note 5) | | $ | 100.2 | | | $ | 65.2 | |
| Accounts payable | Accounts payable | | 98.1 | | | 111.0 | | Accounts payable | | 94.2 | | | 111.0 | |
| Accrued taxes | Accrued taxes | | 85.1 | | | 85.1 | | Accrued taxes | | 91.4 | | | 85.1 | |
| Accrued interest | Accrued interest | | 15.9 | | | 15.3 | | Accrued interest | | 20.4 | | | 15.3 | |
| Customer and supplier deposits | Customer and supplier deposits | | 29.6 | | | 15.0 | | Customer and supplier deposits | | 15.5 | | | 15.0 | |
| Regulatory liabilities, current | Regulatory liabilities, current | | 31.0 | | | 14.6 | | Regulatory liabilities, current | | 38.1 | | | 14.6 | |
| | Accrued and other current liabilities | Accrued and other current liabilities | | 15.3 | | | 17.1 | | Accrued and other current liabilities | | 17.0 | | | 17.1 | |
| | Total current liabilities | Total current liabilities | | 325.2 | | | 323.3 | | Total current liabilities | | 376.8 | | | 323.3 | |
| | Non-current liabilities: | Non-current liabilities: | | Non-current liabilities: | |
| Long-term debt (Note 5) | Long-term debt (Note 5) | | 1,534.8 | | | 1,395.3 | | Long-term debt (Note 5) | | 1,535.4 | | | 1,395.3 | |
| Deferred income taxes | Deferred income taxes | | 191.0 | | | 187.9 | | Deferred income taxes | | 184.1 | | | 187.9 | |
| Taxes payable | Taxes payable | | 40.9 | | | 83.6 | | Taxes payable | | 0.4 | | | 83.6 | |
| Regulatory liabilities, non-current | Regulatory liabilities, non-current | | 224.7 | | | 229.3 | | Regulatory liabilities, non-current | | 217.9 | | | 229.3 | |
| Accrued pension and other post-retirement benefits | Accrued pension and other post-retirement benefits | | 53.7 | | | 62.3 | | Accrued pension and other post-retirement benefits | | 53.1 | | | 62.3 | |
| | Other non-current liabilities | Other non-current liabilities | | 10.8 | | | 11.5 | | Other non-current liabilities | | 10.6 | | | 11.5 | |
| | Total non-current liabilities | Total non-current liabilities | | 2,055.9 | | | 1,969.9 | | Total non-current liabilities | | 2,001.5 | | | 1,969.9 | |
| | Commitments and contingencies (Note 8) | Commitments and contingencies (Note 8) | | 0 | | 0 | Commitments and contingencies (Note 8) | |
| | Common shareholder's deficit: | Common shareholder's deficit: | | Common shareholder's deficit: | |
| | Common stock: | Common stock: | | Common stock: | |
| 1,500 shares authorized; 1 share issued and outstanding | 1,500 shares authorized; 1 share issued and outstanding | | — | | | — | | 1,500 shares authorized; 1 share issued and outstanding | | — | | | — | |
| Other paid-in capital | Other paid-in capital | | 2,601.3 | | | 2,601.3 | | Other paid-in capital | | 2,601.3 | | | 2,601.3 | |
| Accumulated other comprehensive loss | Accumulated other comprehensive loss | | (4.7) | | | (4.8) | | Accumulated other comprehensive loss | | (4.6) | | | (4.8) | |
| Accumulated deficit | Accumulated deficit | | (2,702.3) | | | (2,717.9) | | Accumulated deficit | | (2,722.0) | | | (2,717.9) | |
| Total common shareholder's deficit | Total common shareholder's deficit | | (105.7) | | | (121.4) | | Total common shareholder's deficit | | (125.3) | | | (121.4) | |
| | Total liabilities and shareholder's deficit | Total liabilities and shareholder's deficit | | $ | 2,275.4 | | | $ | 2,171.8 | | Total liabilities and shareholder's deficit | | $ | 2,253.0 | | | $ | 2,171.8 | |
See Notes to Condensed Consolidated Financial Statements.
| | DPL Inc. | DPL Inc. | DPL Inc. |
| Condensed Consolidated Statements of Cash Flows | Condensed Consolidated Statements of Cash Flows | Condensed Consolidated Statements of Cash Flows |
| (Unaudited) | (Unaudited) | (Unaudited) |
| | Six months ended June 30, | | Nine months ended September 30, |
| $ in millions | $ in millions | | 2022 | | 2021 | $ in millions | | 2022 | | 2021 |
| Cash flows from operating activities: | Cash flows from operating activities: | | | | | Cash flows from operating activities: | | | | |
| Net income | | $ | 15.6 | | | $ | 14.0 | | |
| Adjustments to reconcile net income to net cash from operating activities: | | |
| Net income / (loss) | | Net income / (loss) | | $ | (4.1) | | | $ | 22.5 | |
| Adjustments to reconcile net income / (loss) to net cash from operating activities: | | Adjustments to reconcile net income / (loss) to net cash from operating activities: | |
| Depreciation and amortization | Depreciation and amortization | | 39.6 | | | 38.0 | | Depreciation and amortization | | 59.6 | | | 56.9 | |
| | Deferred income taxes | Deferred income taxes | | (1.1) | | | 4.6 | | Deferred income taxes | | (10.7) | | | 2.3 | |
| | Gain on disposal of business | Gain on disposal of business | | (0.6) | | | — | | Gain on disposal of business | | (0.6) | | | — | |
| | Changes in certain assets and liabilities: | Changes in certain assets and liabilities: | | Changes in certain assets and liabilities: | |
| Accounts receivable, net | Accounts receivable, net | | (13.6) | | | 4.4 | | Accounts receivable, net | | (18.0) | | | 1.5 | |
| Inventories | Inventories | | (3.5) | | | (0.6) | | Inventories | | (6.5) | | | (3.6) | |
| | Taxes applicable to subsequent years | Taxes applicable to subsequent years | | 42.7 | | | 39.2 | | Taxes applicable to subsequent years | | 62.9 | | | 58.6 | |
| Deferred regulatory costs, net | Deferred regulatory costs, net | | 9.1 | | | (9.8) | | Deferred regulatory costs, net | | 55.4 | | | 5.1 | |
| Prepayments and other current assets | Prepayments and other current assets | | (2.3) | | | (5.7) | | Prepayments and other current assets | | (3.9) | | | (4.4) | |
| | Other non-current assets | | Other non-current assets | | 5.9 | | | (4.8) | |
| Accounts payable | Accounts payable | | 3.1 | | | 4.1 | | Accounts payable | | (5.7) | | | 7.1 | |
| Accrued taxes payable / receivable | Accrued taxes payable / receivable | | (46.0) | | | (57.5) | | Accrued taxes payable / receivable | | (77.8) | | | (75.5) | |
| Accrued interest | Accrued interest | | 0.6 | | | (0.4) | | Accrued interest | | 5.1 | | | 2.4 | |
| | Accrued and other current liabilities | Accrued and other current liabilities | | 12.9 | | | (3.7) | | Accrued and other current liabilities | | 0.6 | | | (1.6) | |
| Accrued pension and other post-retirement benefits | Accrued pension and other post-retirement benefits | | (8.5) | | | (11.4) | | Accrued pension and other post-retirement benefits | | (9.2) | | | (12.2) | |
| Other | Other | | 3.9 | | | 1.5 | | Other | | (1.0) | | | 2.2 | |
| Net cash provided by operating activities | Net cash provided by operating activities | | 51.9 | | | 16.7 | | Net cash provided by operating activities | | 52.0 | | | 56.5 | |
| Cash flows from investing activities: | Cash flows from investing activities: | | | | | Cash flows from investing activities: | | | | |
| Capital expenditures | Capital expenditures | | (133.9) | | | (94.9) | | Capital expenditures | | (193.0) | | | (144.5) | |
| Cost of removal payments | Cost of removal payments | | (8.1) | | | (9.2) | | Cost of removal payments | | (14.7) | | | (13.8) | |
| | Payments on disposal and sale of business interests | | Payments on disposal and sale of business interests | | — | | | (1.2) | |
| | Other investing activities, net | Other investing activities, net | | (0.2) | | | (0.9) | | Other investing activities, net | | (0.1) | | | (0.7) | |
| Net cash used in investing activities | Net cash used in investing activities | | (142.2) | | | (105.0) | | Net cash used in investing activities | | (207.8) | | | (160.2) | |
| Cash flows from financing activities: | Cash flows from financing activities: | | | | | Cash flows from financing activities: | | | | |
| Payments of deferred financing costs | Payments of deferred financing costs | | (1.0) | | | (0.4) | | Payments of deferred financing costs | | (1.5) | | | (0.2) | |
| Issuance of long-term debt | Issuance of long-term debt | | 140.0 | | | — | | Issuance of long-term debt | | 140.0 | | | — | |
| | Borrowings from revolving credit facilities | Borrowings from revolving credit facilities | | 130.0 | | | 80.0 | | Borrowings from revolving credit facilities | | 185.0 | | | 120.0 | |
| Repayment of borrowings from revolving credit facilities | Repayment of borrowings from revolving credit facilities | | (145.0) | | | — | | Repayment of borrowings from revolving credit facilities | | (150.0) | | | — | |
| | Net cash provided by financing activities | Net cash provided by financing activities | | 124.0 | | | 79.6 | | Net cash provided by financing activities | | 173.5 | | | 119.8 | |
| Cash, cash equivalents, and restricted cash: | Cash, cash equivalents, and restricted cash: | | | | | Cash, cash equivalents, and restricted cash: | | | | |
| Net change | Net change | | 33.7 | | | (8.7) | | Net change | | 17.7 | | | 16.1 | |
| Balance at beginning of period | Balance at beginning of period | | 26.7 | | | 25.5 | | Balance at beginning of period | | 26.7 | | | 25.5 | |
| Cash, cash equivalents, and restricted cash at end of period | Cash, cash equivalents, and restricted cash at end of period | | $ | 60.4 | | | $ | 16.8 | | Cash, cash equivalents, and restricted cash at end of period | | $ | 44.4 | | | $ | 41.6 | |
| Supplemental cash flow information: | Supplemental cash flow information: | | | | | Supplemental cash flow information: | | | | |
| Interest paid, net of amounts capitalized | Interest paid, net of amounts capitalized | | $ | 28.7 | | | $ | 29.6 | | Interest paid, net of amounts capitalized | | $ | 41.3 | | | $ | 41.5 | |
| | Non-cash investing activities: | Non-cash investing activities: | | Non-cash investing activities: | |
| Accruals for capital expenditures | Accruals for capital expenditures | | $ | 26.6 | | | $ | 15.8 | | Accruals for capital expenditures | | $ | 31.4 | | | $ | 15.1 | |
|
See Notes to Condensed Consolidated Financial Statements.
| | DPL Inc. | DPL Inc. | DPL Inc. |
Condensed Consolidated Statements of Shareholder's Deficit | | (Unaudited) | (Unaudited) | (Unaudited) |
| | Common Stock (a) | | | Common Stock (a) | |
| $ in millions | $ in millions | | Outstanding Shares | | Amount | | Other
Paid-in
Capital | | Accumulated Other Comprehensive Loss | | Accumulated Deficit | | Total | $ in millions | | Outstanding Shares | | Amount | | Other
Paid-in
Capital | | Accumulated Other Comprehensive Loss | | Accumulated Deficit | | Total |
| Balance, January 1, 2022 | Balance, January 1, 2022 | | 1 | | | $ | — | | | $ | 2,601.3 | | | $ | (4.8) | | | $ | (2,717.9) | | | $ | (121.4) | | Balance, January 1, 2022 | | 1 | | | $ | — | | | $ | 2,601.3 | | | $ | (4.8) | | | $ | (2,717.9) | | | $ | (121.4) | |
| Net comprehensive income | Net comprehensive income | | 0.1 | | | 15.4 | | | 15.5 | | Net comprehensive income | | 0.1 | | | 15.4 | | | 15.5 | |
| | Balance, March 31, 2022 | Balance, March 31, 2022 | | 1 | | | — | | | 2,601.3 | | | (4.7) | | | (2,702.5) | | | (105.9) | | Balance, March 31, 2022 | | 1 | | | — | | | 2,601.3 | | | (4.7) | | | (2,702.5) | | | (105.9) | |
| Net comprehensive income | Net comprehensive income | | — | | | 0.2 | | | 0.2 | | Net comprehensive income | | — | | | 0.2 | | | 0.2 | |
| | Balance, June 30, 2022 | Balance, June 30, 2022 | | 1 | | | $ | — | | | $ | 2,601.3 | | | $ | (4.7) | | | $ | (2,702.3) | | | $ | (105.7) | | Balance, June 30, 2022 | | 1 | | | — | | | 2,601.3 | | | (4.7) | | | (2,702.3) | | | (105.7) | |
| Net comprehensive loss | | Net comprehensive loss | | 0.1 | | | (19.7) | | | (19.6) | |
| | Balance, September 30, 2022 | | Balance, September 30, 2022 | | 1 | | | $ | — | | | $ | 2,601.3 | | | $ | (4.6) | | | $ | (2,722.0) | | | $ | (125.3) | |
|
| | | Common Stock (a) | | | Common Stock (a) | |
| $ in millions | $ in millions | | Outstanding Shares | | Amount | | Other
Paid-in
Capital | | Accumulated Other Comprehensive Loss | | Accumulated Deficit | | Total | $ in millions | | Outstanding Shares | | Amount | | Other
Paid-in
Capital | | Accumulated Other Comprehensive Loss | | Accumulated Deficit | | Total |
| Balance, January 1, 2021 | Balance, January 1, 2021 | | 1 | | | $ | — | | | $ | 2,468.8 | | | $ | (12.3) | | | $ | (2,740.0) | | | $ | (283.5) | | Balance, January 1, 2021 | | 1 | | | $ | — | | | $ | 2,468.8 | | | $ | (12.3) | | | $ | (2,740.0) | | | $ | (283.5) | |
| Net comprehensive income | Net comprehensive income | | 0.3 | | | 13.6 | | | 13.9 | | Net comprehensive income | | 0.3 | | | 13.6 | | | 13.9 | |
| | Balance, March 31, 2021 | Balance, March 31, 2021 | | 1 | | | — | | | 2,468.8 | | | (12.0) | | | (2,726.4) | | | (269.6) | | Balance, March 31, 2021 | | 1 | | | — | | | 2,468.8 | | | (12.0) | | | (2,726.4) | | | (269.6) | |
| Net comprehensive income | Net comprehensive income | | 0.3 | | | 0.4 | | | 0.7 | | Net comprehensive income | | 0.3 | | | 0.4 | | | 0.7 | |
| | Balance, June 30, 2021 | Balance, June 30, 2021 | | 1 | | | $ | — | | | $ | 2,468.8 | | | $ | (11.7) | | | $ | (2,726.0) | | | $ | (268.9) | | Balance, June 30, 2021 | | 1 | | | — | | | 2,468.8 | | | (11.7) | | | (2,726.0) | | | (268.9) | |
| Net comprehensive income | | Net comprehensive income | | 0.3 | | | 8.5 | | | 8.8 | |
| | Balance, September 30, 2021 | | Balance, September 30, 2021 | | 1 | | | $ | — | | | $ | 2,468.8 | | | $ | (11.4) | | | $ | (2,717.5) | | | $ | (260.1) | |
(a)1,500 shares authorized.
See Notes to Condensed Consolidated Financial Statements.
DPL Inc.
Notes to Unaudited Condensed Consolidated Financial Statements
For the three and sixnine months ended JuneSeptember 30, 2022 and 2021
1. Overview and Summary of Significant Accounting PoliciesOVERVIEW AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
DPL is a regional energy company organized in 1985 under the laws of Ohio. DPL has 1one reportable segment, the Utility segment. See Note 9 – Business SegmentsBUSINESS SEGMENTS for more information relating to this reportable segment. The terms “we,” “us,” “our” and “ours” are used to refer to DPL and its subsidiaries.
DPL is an indirectly wholly-owned subsidiary of AES.
DP&L,, a wholly-owned subsidiary of DPL that does business as AES Ohio,, is a public utility incorporated in 1911 under the laws of Ohio. Beginning in 2001, Ohio law gave Ohio consumers the right to choose the electric generation supplier from whom they purchase retail generation service; however, retail transmission and distribution services are still regulated. AES Ohio has the exclusive right to provide such transmission and distribution services to approximately 535,000 customers located in West Central Ohio. Additionally, AES Ohio provides retail SSO electric service to residential, commercial, industrial and governmental customers in a 6,000-square mile area of West Central Ohio. AES Ohio sources all of the generation for its SSO customers through a competitive bid process. Principal industries located in AES Ohio’s service territory include automotive, food processing, paper, plastic, manufacturing and defense. AES Ohio's sales reflect the general economic conditions, seasonal weather patterns of the area, the market price of electricity and customer energy efficiency initiatives. AES Ohio owns numerous transmission facilities. AES Ohio sells its proportional share of energy and capacity from its investment in OVEC into the wholesale market.
DPL’s other primary subsidiaries are MVIC and Miami Valley Lighting. MVIC is our captive insurance company that provides insurance services to AES Ohio and our other subsidiaries, and Miami Valley Lighting provides street and outdoor lighting services to customers in the Dayton region. In prior periods, AES Ohio Generation was also a primary subsidiary and sold all of its energy and capacity into the wholesale market. AES Ohio Generation retired its only remaining operating asset in May 2020 and sold it in June 2020. See Note 11 – Discontinued OperationsDISCONTINUED OPERATIONS for more information. DPL's subsidiaries are all wholly-owned. DPL also has a wholly-owned business trust, DPL Capital Trust II, formed for the purpose of issuing trust capital securities to investors.
AES Ohio’s electric transmission and distribution businesses are subject to rate regulation by federal and state regulators. Accordingly, AES Ohio applies the accounting standards for regulated operations to its electric transmission and distribution businesses and records regulatory assets when incurred costs are expected to be recovered in future customer rates and regulatory liabilities when current cost recoveries in customer rates relate to expected future costs or overcollections of riders.
Consolidation
DPL’s Condensed Consolidated Financial Statements include the accounts of DPL and its wholly-owned subsidiaries except for DPL Capital Trust II, which is not consolidated, consistent with the provisions of GAAP.
Certain immaterial amounts from prior periods have been reclassified to conform to the current period presentation. All material intercompany accounts and transactions are eliminated in consolidation.
Interim Financial Presentation
The accompanying unaudited condensed consolidated financial statements and footnotes have been prepared in accordance with GAAP, as contained in the FASB ASC, for interim financial information and Article 10 of Regulation S-X issued by the SEC. Accordingly, they do not include all the information and footnotes required by GAAP for annual fiscal reporting periods. In the opinion of management, the interim financial information includes all adjustments of a normal recurring nature necessary for a fair presentation of the results of operations, financial position, comprehensive income, changes in common shareholder's deficit, and cash flows. The results of operations for the three and sixnine months ended JuneSeptember 30, 2022 are not necessarily indicative of expected results for the year ending December 31, 2022. The accompanying condensed consolidated financial statements are unaudited and should be read in conjunction with the 2021 audited consolidated financial statements and notes thereto, which are included in our Form 10-K.
Use of Management Estimates
The preparation of financial statements in conformity with GAAP requires us to make estimates and assumptions 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 and assumptions.
Significant items subject to such estimates and assumptions include: recognition of revenue including unbilled revenues; the carrying value of property, plant and equipment; the valuation of insurance and claims liabilities; the valuation of allowances for credit losses and deferred income taxes; regulatory assets and liabilities; liabilities recorded for income tax exposures; litigation; contingencies; and assets and liabilities related to employee benefits.
Cash, Cash Equivalents and Restricted Cash
The following table summarizes cash, cash equivalents, and restricted cash amounts reported on the Condensed Consolidated Balance Sheets that reconcile to the total of such amounts as shown on the Condensed Consolidated Statements of Cash Flows:
| | $ in millions | $ in millions | | June 30, 2022 | | December 31, 2021 | $ in millions | | September 30, 2022 | | December 31, 2021 |
| Cash and cash equivalents | Cash and cash equivalents | | $ | 60.3 | | | $ | 26.6 | | Cash and cash equivalents | | $ | 44.3 | | | $ | 26.6 | |
| Restricted cash (included in Prepayments and other current assets) | Restricted cash (included in Prepayments and other current assets) | | 0.1 | | | 0.1 | | Restricted cash (included in Prepayments and other current assets) | | 0.1 | | | 0.1 | |
| Cash, Cash Equivalents, and Restricted Cash, End of Period | Cash, Cash Equivalents, and Restricted Cash, End of Period | | $ | 60.4 | | | $ | 26.7 | | Cash, Cash Equivalents, and Restricted Cash, End of Period | | $ | 44.4 | | | $ | 26.7 | |
Accounts Receivable and Allowance for Credit Losses
The following table summarizes accounts receivable as of JuneSeptember 30, 2022 and December 31, 2021:
| | | June 30, | | December 31, | | | September 30, | | December 31, | |
| $ in millions | $ in millions | | 2022 | | 2021 | | $ in millions | | 2022 | | 2021 | |
| Accounts receivable, net: | Accounts receivable, net: | | | | | | Accounts receivable, net: | | | | | |
| Customer receivables | Customer receivables | | $ | 56.9 | | | $ | 42.3 | | | Customer receivables | | $ | 66.0 | | | $ | 42.3 | | |
| Unbilled revenue | Unbilled revenue | | 18.8 | | | 19.2 | | | Unbilled revenue | | 15.0 | | | 19.2 | | |
| Amounts due from affiliates | Amounts due from affiliates | | 4.5 | | | 3.1 | | | Amounts due from affiliates | | 4.6 | | | 3.1 | | |
| Due from PJM transmission enhancement settlement | Due from PJM transmission enhancement settlement | | 1.7 | | | 1.7 | | | Due from PJM transmission enhancement settlement | | 1.7 | | | 1.7 | | |
| Other | Other | | 3.5 | | | 5.5 | | | Other | | 2.7 | | | 5.5 | | |
| Allowance for credit losses | Allowance for credit losses | | (0.3) | | | (0.3) | | | Allowance for credit losses | | (0.4) | | | (0.3) | | |
| Total accounts receivable, net | Total accounts receivable, net | | $ | 85.1 | | | $ | 71.5 | | | Total accounts receivable, net | | $ | 89.6 | | | $ | 71.5 | | |
|
The following table is a roll forward of our allowance for credit losses related to the accounts receivable balances for the sixnine months ended JuneSeptember 30, 2022 and 2021:
| | $ in millions | $ in millions | | Beginning Allowance Balance | | Current Period Provision | | Write-offs Charged Against Allowances | | Recoveries Collected | | Ending Allowance Balance | $ in millions | | Beginning Allowance Balance | | Current Period Provision | | Write-offs Charged Against Allowances | | Recoveries Collected | | Ending Allowance Balance |
| 2022 | 2022 | | $ | 0.3 | | | $ | 0.7 | | | $ | (1.1) | | | $ | 0.4 | | | $ | 0.3 | | 2022 | | $ | 0.3 | | | $ | 1.4 | | | $ | (2.1) | | | $ | 0.8 | | | $ | 0.4 | |
| 2021 | 2021 | | $ | 2.8 | | | $ | (0.2) | | | $ | (1.6) | | | $ | 0.7 | | | $ | 1.7 | | 2021 | | $ | 2.8 | | | $ | (0.4) | | | $ | (2.6) | | | $ | 1.1 | | | $ | 0.9 | |
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, 2022.collectability. Amounts are written off when reasonable collections efforts have been exhausted. During 2021, the current period provision and allowance for credit losses decreased due to lower past due customer receivable balances.
Inventories
Inventories consist of materials and supplies as of JuneSeptember 30, 2022 and December 31, 2021.
0
Accumulated other comprehensive loss
The amounts reclassified out of Accumulated other comprehensive lossAOCL by component during the three and sixnine months ended JuneSeptember 30, 2022 and 2021 are as follows:
| | Details about Accumulated Other Comprehensive Loss components | | Affected line item in the Condensed Consolidated Statements of Operations | | Three months ended | | Six months ended | |
| Details about AOCL components | | Details about AOCL components | | Affected line item in the Condensed Consolidated Statements of Operations | | Three months ended | | Nine months ended |
| | | | | June 30, | | June 30, | | | September 30, | | September 30, |
| $ in millions | $ in millions | | | | 2022 | | 2021 | | 2022 | | 2021 | $ in millions | | | | 2022 | | 2021 | | 2022 | | 2021 |
| Net gains on cash flow hedges (Note 4): | Net gains on cash flow hedges (Note 4): | | | | | | | | | Net gains on cash flow hedges (Note 4): | | | | | | | | |
| | Interest expense | | $ | (0.3) | | | $ | (0.3) | | | $ | (0.5) | | | $ | (0.5) | | | Interest expense | | $ | (0.2) | | | $ | (0.2) | | | $ | (0.7) | | | $ | (0.7) | |
| | Income tax effect | | — | | | 0.1 | | | 0.1 | | | 0.1 | | | Income tax effect | | 0.1 | | | — | | | 0.2 | | | 0.1 | |
| | Net of income taxes | | (0.3) | | | (0.2) | | | (0.4) | | | (0.4) | | | Net of income taxes | | (0.1) | | | (0.2) | | | (0.5) | | | (0.6) | |
| | | Amortization of defined benefit pension items (Note 7): | Amortization of defined benefit pension items (Note 7): | | Amortization of defined benefit pension items (Note 7): | |
| | Other expense | | 0.3 | | | 0.7 | | | 0.6 | | | 1.3 | | | Other expense | | 0.3 | | | 0.6 | | | 0.9 | | | 1.9 | |
| | Income tax effect | | — | | | (0.2) | | | (0.1) | | | (0.3) | | | Income tax effect | | (0.1) | | | (0.1) | | | (0.2) | | | (0.4) | |
| | Net of income taxes | | 0.3 | | | 0.5 | | | 0.5 | | | 1.0 | | | Net of income taxes | | 0.2 | | | 0.5 | | | 0.7 | | | 1.5 | |
| | Total reclassifications for the period, net of income taxes | Total reclassifications for the period, net of income taxes | | $ | — | | | $ | 0.3 | | | $ | 0.1 | | | $ | 0.6 | | Total reclassifications for the period, net of income taxes | | $ | 0.1 | | | $ | 0.3 | | | $ | 0.2 | | | $ | 0.9 | |
|
The changes in the components of Accumulated other comprehensive lossAOCL during the sixnine months ended JuneSeptember 30, 2022 are as follows:
| | $ in millions | $ in millions | | Change in cash flow hedges | | Change in unfunded pension and postretirement benefit obligations | | Total | $ in millions | | Change in cash flow hedges | | Change in unfunded pension and postretirement benefit obligations | | Total |
| Balance as of January 1, 2022 | Balance as of January 1, 2022 | | $ | 12.8 | | | $ | (17.6) | | | $ | (4.8) | | Balance as of January 1, 2022 | | $ | 12.8 | | | $ | (17.6) | | | $ | (4.8) | |
| | | Amounts reclassified from AOCL to earnings | Amounts reclassified from AOCL to earnings | | (0.4) | | | 0.5 | | | 0.1 | | Amounts reclassified from AOCL to earnings | | (0.5) | | | 0.7 | | | 0.2 | |
| | | Balance as of June 30, 2022 | | $ | 12.4 | | | $ | (17.1) | | | $ | (4.7) | | |
| Balance as of September 30, 2022 | | Balance as of September 30, 2022 | | $ | 12.3 | | | $ | (16.9) | | | $ | (4.6) | |
Accounting for Taxes Collected from Customers and Remitted to Governmental Authorities
AES Ohio collects certain excise taxes levied by state or local governments from its customers. These taxes are accounted for on a net basis and not included in revenue. The amounts of such taxes collected for the three and sixnine months ended JuneSeptember 30, 2022 and 2021 were as follows:
| | | Three months ended | | Six months ended | | Three months ended | | Nine months ended |
| | June 30, | | June 30, | | September 30, | | September 30, |
| $ in millions | $ in millions | | 2022 | | 2021 | | 2022 | | 2021 | $ in millions | | 2022 | | 2021 | | 2022 | | 2021 |
| Excise taxes collected | Excise taxes collected | | $ | 11.5 | | | $ | 11.3 | | | $ | 24.6 | | | $ | 24.2 | | Excise taxes collected | | $ | 13.0 | | | $ | 13.5 | | | $ | 37.6 | | | $ | 37.7 | |
New Accounting Pronouncements Adopted in 2022
The following table provides a brief description of recent 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 the Company’s financial statements.
| | | | | | | | | | | |
| ASU Number and Name | Description | Date of Adoption | Effect on the financial statements upon adoption |
| 2020-04 and 2021-01, Reference Rate Form (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting | The amendments in these updates provide optional expedients and exceptions for applying GAAP to contracts, hedging relationships and other transactions that reference to LIBOR or another reference rate expected to be discontinued by reference rate reform, and clarify that certain optional expedients and exceptions in Topic 848 for contract modifications and hedge accounting apply to derivatives that are affected by the discounting transition. These amendments are effective for a limited period of time (March 12, 2020 - December 31, 2022). | Effective for all entities as of March 12, 2020 through December 31, 2022 | We are implementing the reference rate reform and do not expect these amendments to have a material impact on our consolidated financial statements. See Implementation for further details. |
New Accounting Pronouncements Issued But Not Yet Effective
We have assessed and determined that the new accounting pronouncements issued but not yet effective are not expected to have a material impact on our consolidated financial statements.
2. Regulatory MattersREGULATORY MATTERS
Distribution Rate Case
On November 30, 2020, AES Ohio filed a new distribution rate case with the PUCO. This rate case proposes a revenue increase of $120.8 million per year and incorporates the DIR investments that were planned and approved in the last rate case but not yet included in distribution rates, other distribution investments since September 2015 and investments necessitated by the tornados that occurred on Memorial Day in 2019. The rate case also includes a proposal for increased tree-trimming expenses and certain customer demand-side management programs and recovery of prior-approved regulatory assets for tree trimming, uncollectible expenses and rate case expense. A hearing on this case was held in January 2022, and the case is pending a commission order. Certain parties that have intervened in the distribution rate case have argued that ESP 1 incorporates a distribution rate freeze. Oral arguments regarding the potential rate freeze were held in May 2022. We are unable to predict the outcome of the distribution rate case, but if the PUCO were to impose a rate freeze that precludes AES Ohio’s ability to implement a distribution rate increase during ESP 1, it could have a material adverse effect on our results of operations, financial condition and cash flows.
Electric Security Plan
AES Ohio is currently operating pursuant to ESP 1. On September 26, 2022, AES Ohio filed its latest ESP (ESP 4) with the PUCO. ESP 4 is a comprehensive plan to enhance and upgrade its network and improve service reliability, provide greater safeguards for price stability and continue investments in local economic development. As part of this plan, AES Ohio intends to increase investments in the distribution infrastructure and deploy a proactive vegetation management program. The plan also includes proposals for new customer programs, including renewable options, electric vehicle programs and energy efficiency programs for residential and low-income customers. ESP 4 also seeks to recover outstanding regulatory assets not currently in rates. AES Ohio did not propose that the Rate Stabilization Charge would continue as part of ESP 4. The plan requires PUCO approval.
Regulatory Assets and Liabilities
AES Ohio had recorded a $0.9 million regulatory asset as of December 31, 2021 relating to certain cost and revenue impacts offset by related savings of the COVID-19 pandemic, in accordance with AES Ohio’s application approved by the PUCO. During the third quarter of 2022, AES Ohio decided it will not seek recovery in a future rate proceeding and, thus, wrote off this $0.9 million deferral.
Additionally, during the third quarter of 2022, AES Ohio recorded a $28.9 million reduction in regulatory assets as a charge to "Net purchased power cost" in the Condensed Consolidated Statements of Operations in accordance with the provisions of ASC 980 "Regulated Operations."
3. Fair ValueFAIR VALUE
The fair value of current financial assets and liabilities and other deposits approximate their reported carrying amounts. The estimated fair values of ourthe Company's assets and liabilities have been determined using available market information. Because these amounts are 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 4—Fair Value in Item 8.—Financial Statements and Supplementary Data of our Form 10-K.
Financial Assets
AES Ohio established a Master Trust to hold assets that could be used for the benefit of employees participating in employee benefit plans and these assets are not used for general operating purposes. These assets are primarily comprised of open-ended mutual funds, which are valued using the net asset value per unit. These investments are recorded at fair value within Other non-current assets on the Condensed Consolidated Balance Sheets and classified as equity investments. We recorded net unrealized gains / (losses) of $(0.9)$(0.4) million and $0.3$(0.1) million during the three months ended JuneSeptember 30, 2022 and 2021, respectively, and $(1.6)$(2.0) million and $0.5$0.4 million during the sixnine months ended JuneSeptember 30, 2022 and 2021, respectively. These amounts are included in "Other income"income / (expense)" in our Condensed Consolidated Statements of Operations.
Recurring Fair Value Measurements
The following table presents the fair value, carrying value and cost of our non-derivative instruments as of JuneSeptember 30, 2022 and December 31, 2021.
| | | June 30, 2022 | | December 31, 2021 | | September 30, 2022 | | December 31, 2021 |
| $ in millions | $ in millions | | Cost | | Fair Value | | Cost | | Fair Value | $ in millions | | Cost | | Fair Value | | Cost | | Fair Value |
| Assets | Assets | | | | | | | | | Assets | | | | | | | | |
| Money market funds | Money market funds | | $ | 0.4 | | | $ | 0.4 | | | $ | 0.4 | | | $ | 0.4 | | Money market funds | | $ | 0.4 | | | $ | 0.4 | | | $ | 0.4 | | | $ | 0.4 | |
| Equity securities | Equity securities | | 1.8 | | | 3.8 | | | 1.9 | | | 5.1 | | Equity securities | | 1.8 | | | 3.6 | | | 1.9 | | | 5.1 | |
| Debt securities | Debt securities | | 3.7 | | | 3.3 | | | 3.8 | | | 3.9 | | Debt securities | | 3.7 | | | 3.2 | | | 3.8 | | | 3.9 | |
| | Total | Total | | $ | 5.9 | | | $ | 7.5 | | | $ | 6.1 | | | $ | 9.4 | | Total | | $ | 5.9 | | | $ | 7.2 | | | $ | 6.1 | | | $ | 9.4 | |
These financial instruments are not subject to master netting agreements or collateral requirements and, as such, are presented in the Condensed Consolidated Balance Sheets at their gross fair 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 sixnine months ended JuneSeptember 30, 2022 or 2021.
The fair value of assets and liabilities as of JuneSeptember 30, 2022 and December 31, 2021 measured on a recurring basis and the respective category within the fair value hierarchy for DPL is as follows:
| | $ in millions | $ in millions | | Fair value as of June 30, 2022 | | Fair value as of December 31, 2021 | $ in millions | | Fair value as of September 30, 2022 | | Fair value as of December 31, 2021 |
| | | Level 1 | | Level 2 | | Level 3 | | Total | | Level 1 | | Level 2 | | Level 3 | | Total | | | Level 1 | | Level 2 | | Level 3 | | Total | | Level 1 | | Level 2 | | Level 3 | | Total |
| Assets | Assets | | | | | | | | | | | | | | | | | Assets | | | | | | | | | | | | | | | | |
| Master Trust assets | Master Trust assets | | Master Trust assets | |
| Money market funds | Money market funds | | $ | 0.4 | | | $ | — | | | $ | — | | | $ | 0.4 | | | $ | 0.4 | | | $ | — | | | $ | — | | | $ | 0.4 | | Money market funds | | $ | 0.4 | | | $ | — | | | $ | — | | | $ | 0.4 | | | $ | 0.4 | | | $ | — | | | $ | — | | | $ | 0.4 | |
| Equity securities | Equity securities | | — | | | 3.8 | | | — | | | 3.8 | | | — | | | 5.1 | | | — | | | 5.1 | | Equity securities | | — | | | 3.6 | | | — | | | 3.6 | | | — | | | 5.1 | | | — | | | 5.1 | |
| Debt securities | Debt securities | | — | | | 3.3 | | | — | | | 3.3 | | | — | | | 3.9 | | | — | | | 3.9 | | Debt securities | | — | | | 3.2 | | | — | | | 3.2 | | | — | | | 3.9 | | | — | | | 3.9 | |
| | Total assets | Total assets | | $ | 0.4 | | | $ | 7.1 | | | $ | — | | | $ | 7.5 | | | $ | 0.4 | | | $ | 9.0 | | | $ | — | | | $ | 9.4 | | Total assets | | $ | 0.4 | | | $ | 6.8 | | | $ | — | | | $ | 7.2 | | | $ | 0.4 | | | $ | 9.0 | | | $ | — | | | $ | 9.4 | |
Financial Instruments not Measured at Fair Value in the Condensed Consolidated Balance Sheets
The fair value of long-term debt is based on current public market prices for disclosure purposes only. 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. Unrealized gains or losses are not recognized in the financial statements as long-term debt is presented at carrying value, net of unamortized premium or discount and unamortized deferred financing costs in the financial statements. The long-term debt amounts include the current portion payable in the next twelve months and have maturities that range from 2025 to 2061.
The following table presents the carrying amount, fair value, and fair value hierarchy of our financial liabilities that are not measured at fair value in the Condensed Consolidated Balance Sheets as of the periods indicated, but for which fair value is disclosed:
| | | | Carrying Amount | | Fair value as of June 30, 2022 | | Carrying Amount | | Fair value as of December 31, 2021 | | Carrying Amount | | Fair value as of September 30, 2022 | | Carrying Amount | | Fair value as of December 31, 2021 |
| $ in millions | $ in millions | | Level 1 | | Level 2 | | Level 3 | | Total | | Level 1 | | Level 2 | | Level 3 | | Total | $ in millions | | Level 1 | | Level 2 | | Level 3 | | Total | | Level 1 | | Level 2 | | Level 3 | | Total |
| Liabilities | Liabilities | | | | | | | | | | | | | | | | | | | | | Liabilities | | | | | | | | | | | | | | | | | | | | |
| Long-term debt | Long-term debt | | $ | 1,535.0 | | | $ | — | | | $ | 1,399.6 | | | $ | 17.1 | | | $ | 1,416.7 | | | $ | 1,395.5 | | | $ | — | | | $ | 1,502.5 | | | $ | 17.2 | | | $ | 1,519.7 | | Long-term debt | | $ | 1,535.6 | | | $ | — | | | $ | 1,346.0 | | | $ | 17.1 | | | $ | 1,363.1 | | | $ | 1,395.5 | | | $ | — | | | $ | 1,502.5 | | | $ | 17.2 | | | $ | 1,519.7 | |
4. Derivative Instruments and Hedging ActivitiesDERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES
For further information on our derivative and hedge accounting policies, see Note 1 – Overview and Summary of Significant Accounting Policies – Financial Derivatives and Note 5 - Derivative Instruments and Hedging Activities of Item 8 – Financial Statements and Supplementary Data in our Form 10-K.
Cash Flow Hedges
We previously entered into interest rate derivative contracts to manage interest rate exposure related to anticipated borrowings of fixed-rate debt. These interest rate derivative contracts were settled in 2013, and we continue to amortize amounts out of AOCL into interest expense.
The following tables provide information concerning gains recognized in AOCL for the cash flow hedges for the three and sixnine months ended JuneSeptember 30, 2022 and 2021:
| | | Three months ended | | Six months ended | | Three months ended | | Nine months ended |
| | June 30, 2022 | | June 30, 2021 | | June 30, 2022 | | June 30, 2021 | | September 30, 2022 | | September 30, 2021 | | September 30, 2022 | | September 30, 2021 |
| | Interest | | Interest | | Interest | | Interest | | Interest | | Interest | | Interest | | Interest |
| $ in millions (net of tax) | $ in millions (net of tax) | | Rate Hedge | | Rate Hedge | | Rate Hedge | | Rate Hedge | $ in millions (net of tax) | | Rate Hedge | | Rate Hedge | | Rate Hedge | | Rate Hedge |
| Beginning accumulated derivative gains in AOCL | Beginning accumulated derivative gains in AOCL | | $ | 12.7 | | | $ | 13.4 | | | $ | 12.8 | | | $ | 13.6 | | Beginning accumulated derivative gains in AOCL | | $ | 12.4 | | | $ | 13.2 | | | $ | 12.8 | | | $ | 13.6 | |
| | Net gains reclassified to earnings | Net gains reclassified to earnings | | | | | | | Net gains reclassified to earnings | |
| Interest expense | Interest expense | | (0.3) | | | (0.2) | | | (0.4) | | | (0.4) | | Interest expense | | (0.1) | | | (0.2) | | | (0.5) | | | (0.6) | |
| | Ending accumulated derivative gains in AOCL | Ending accumulated derivative gains in AOCL | | $ | 12.4 | | | $ | 13.2 | | | $ | 12.4 | | | $ | 13.2 | | Ending accumulated derivative gains in AOCL | | $ | 12.3 | | | $ | 13.0 | | | $ | 12.3 | | | $ | 13.0 | |
| | Portion expected to be reclassified to earnings in the next twelve months | Portion expected to be reclassified to earnings in the next twelve months | | $ | (0.8) | | | Portion expected to be reclassified to earnings in the next twelve months | | $ | (0.8) | | |
|
5. DebtDEBT
Long-term debt is as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Interest | | | | June 30, | | December 31, |
| $ in millions | | Rate | | Due | | 2022 | | 2021 |
| First Mortgage Bonds | | 3.95% | | 2049 | | $ | 425.0 | | | $ | 425.0 | |
| First Mortgage Bonds | | 3.20% | | 2040 | | 140.0 | | | 140.0 | |
Tax-exempt First Mortgage Bonds (a) | | 4.25% | | 2027 | | 100.0 | | | — | |
Tax-exempt First Mortgage Bonds (b) | | 4.00% | | 2027 | | 40.0 | | | — | |
| U.S. Government note | | 4.20% | | 2061 | | 17.1 | | | 17.2 | |
| Unamortized deferred financing costs | | | | | | (6.8) | | | (5.4) | |
| Unamortized debt discounts, net | | | | | | (2.5) | | | (2.5) | |
Total long-term debt at AES Ohio | | | | | | 712.8 | | | 574.3 | |
| | | | | | | | |
| Senior unsecured bonds | | 4.125% | | 2025 | | 415.0 | | | 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 | | | | | | (7.6) | | | (8.6) | |
| Unamortized debt discounts, net | | | | | | (0.8) | | | (0.8) | |
| Total long-term debt | | | | | | 1,535.0 | | | 1,395.5 | |
| Less: current portion | | | | | | (0.2) | | | (0.2) | |
| Long-term debt, net of current portion | | | | | | $ | 1,534.8 | | | $ | 1,395.3 | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Interest | | | | September 30, | | December 31, |
| $ in millions | | Rate | | Due | | 2022 | | 2021 |
| AES Ohio debt | | | | | | | | |
| First Mortgage Bonds | | 3.95% | | 2049 | | $ | 425.0 | | | $ | 425.0 | |
| First Mortgage Bonds | | 3.20% | | 2040 | | 140.0 | | | 140.0 | |
Tax-exempt First Mortgage Bonds (a) | | 4.25% | | 2027 | | 100.0 | | | — | |
Tax-exempt First Mortgage Bonds (b) | | 4.00% | | 2027 | | 40.0 | | | — | |
| U.S. Government note | | 4.20% | | 2061 | | 17.1 | | | 17.2 | |
| Unamortized deferred financing costs | | | | | | (6.8) | | | (5.4) | |
| Unamortized debt discounts, net | | | | | | (2.4) | | | (2.5) | |
| Total long-term debt at AES Ohio | | | | | | 712.9 | | | 574.3 | |
| DPL Inc. debt | | | | | | | | |
| Senior unsecured bonds | | 4.125% | | 2025 | | 415.0 | | | 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 | | | | | | (7.1) | | | (8.6) | |
| Unamortized debt discounts, net | | | | | | (0.8) | | | (0.8) | |
| Total DPL consolidated long-term debt | | | | | | 1,535.6 | | | 1,395.5 | |
| Less: current portion | | | | | | (0.2) | | | (0.2) | |
| DPL consolidated long-term debt, net of current portion | | | | | | $ | 1,535.4 | | | $ | 1,395.3 | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
(a)First mortgage bonds issued to the Ohio Air Quality Development Authority, to secure the loan of proceeds from tax-exempt bonds issued by the Ohio Air Quality Development Authority. The bonds have a final maturity date of November 1, 2040 but are subject to a mandatory put in June 2027.
(b)First mortgage bonds issued to the Ohio Air Quality Development Authority, to secure the loan of proceeds from tax-exempt bonds issued by the Ohio Air Quality Development Authority. The bonds have a final maturity date of January 1, 2034 but are subject to a mandatory put in June 2027.
(c)Note payable to related party.
Lines of credit
As of JuneSeptember 30, 2022 and December 31, 2021, the DPL Credit Agreement had outstanding borrowings of $50.0$45.0 million and $65.0 million, respectively. As of JuneSeptember 30, 2022 and December 31, 2021, the AES Ohio Credit Agreement had outstanding borrowings of $0.0$55.0 million and $0.0 million, respectively.
Significant transactions
On June 1, 2022, AES Ohio re-issued $140.0 million of tax-exempt Ohio Air Quality Development Authority (OAQDA) Collateralized Pollution Revenue Refunding Bonds that had been held in trust, Series 2015A&B. AES Ohio re-issued $140.0 million aggregate principal amount of first mortgage bonds to the OAQDA in two series: $100.0 million Series 2015A bonds at an interest rate of 4.25% and $40.0 million Series 2015B at an interest rate of
4.00% to secure the loan of proceeds from these bonds issued by the OAQDA. These bonds are subject to a mandatory put date of June 1, 2027.
DPL agreed to register the 2025 DPL Inc. Senior Unsecured Bonds under the Securities Act by filing an exchange offer registration statement or, under specified circumstances, a shelf registration statement with the SEC pursuant to a Registration Rights Agreement dated June 19, 2020. DPL filed a registration statement on Form S-4 with respect to the 2025 DPL Inc. Senior Unsecured Bonds with the SEC on March 15, 2021, and this registration statement was declared effective on March 31, 2021. The exchange offer closed on May 5, 2021.
Long-term debt covenants and restrictions
The DPL Credit Agreement has 2two financial covenants. The first financial covenant, a minimum EBITDA, calculated at the end of each fiscal quarter for the four prior fiscal quarters of $125.0$130.0 million is required, stepping up to $130.0 million on September 30, 2022 and $150.0 million on December 31, 2022. As of JuneSeptember 30, 2022, DPL was in compliance with this financial covenant.
The second financial covenant is an EBITDA to Interest Expense ratio that is calculated, at the end of each fiscal quarter, by dividing EBITDA for the 4four prior fiscal quarters by the consolidated interest charges for the same period. The ratio, per the agreement, is to be not less than 1.701.75 to 1.00, and steps up to 1.75 to 1.00 on September
30, 2022 and 2.00 to 1.00 as of December 31, 2022. As of JuneSeptember 30, 2022, DPL was in compliance with this financial covenant.
The DPL Credit Agreement also restricts dividend payments from DPLDPL to AES, such that DPLDPL cannot make dividend payments unless at the time of, and/or as a result of the distribution, (i) DPL’sDPL’s leverage ratio does not exceed 0.67 to 1.00 and DPL’sDPL’s interest coverage ratio is not less than 2.50 to 1.00 or, if such ratios are not within the parameters, (ii) DPL’sDPL’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 JuneSeptember 30, 2022, DPL was prohibited from making a distribution to its shareholder or making a loan to any of its affiliates (other than its subsidiaries).
Starting with the quarter ended September 30, 2021, the borrowing limit on the DPL Credit Agreement will be reduced by $5.0 million per quarter should the Total Debt to EBITDA ratio for the period of four consecutive quarters exceed 7.00 to 1.00. As of JuneSeptember 30, 2022, DPL exceeded this ratio and the borrowing limit was reduced from $95.0$90.0 million to $90.0$85.0 million.
The AES Ohio Credit Agreement and Bond Purchase Agreement (financing document entered into in connection with the issuance of AES Ohio's First Mortgage Bonds, on July 31, 2020) has one financial covenant. The covenant measures Total Debt to Total Capitalization and is calculated, at the end of each fiscal quarter, by dividing total debt at the end of the quarter by total capitalization at the end of the quarter. AES Ohio’s Total Debt to Total Capitalization ratio shall not be greater than 0.67 to 1.00. As of JuneSeptember 30, 2022, AES Ohio was in compliance with this financial covenant.
As of JuneSeptember 30, 2022, DPL and AES Ohio were in compliance with all debt covenants, including the financial covenants described above.
AES Ohio does not have any meaningful restrictions in its debt financing documents prohibiting dividends and return of capital payments to its parent, DPL.DPL.
Substantially all property, plant & equipment of AES Ohio is subject to the lien of the mortgage securing AES Ohio’s First and Refunding Mortgage.
6. Income TaxesINCOME TAXES
DPL’s provision for income taxes is based on the estimated annual effective tax rate, plus discrete items. The effective combined state and federal income tax rates were 133.3%17.2% and (40.5)%67.7% for the three and sixnine months ended JuneSeptember 30, 2022, respectively, as compared to 69.2%(10.4)% and 2.8%(1.8)% for the three and sixnine months ended JuneSeptember 30, 2021, respectively. The year-to-date rate is different from the combined federal and state statutory rate of 22.1% primarily due to the flowthrough of the net tax benefit related to the reversal of excess deferred taxes of AES Ohio as a percentage of pre-tax book income.income or loss.
DPL's income tax expense for the sixnine months ended JuneSeptember 30, 2022 was calculated using the estimated annual effective income tax rate for 2022 of (43.8)%69.8% on ordinary income. Management estimates the annual effective tax rate based on its forecast of annual pre-tax income or loss.
AES files federal and state income tax returns, which consolidate DPL and its subsidiaries. Under a tax sharing agreement with AES, DPL is responsible for the income taxes associated with its own taxable income and records the provision for income taxes using a separate return method.
7. Benefit Plans
AES Ohio sponsors a defined benefit pension plan for the majority of its employees.BENEFIT PLANS
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 and $9.8 million in employer contributions during the six months ended June 30, 2022 and 2021, respectively.
The amounts presented in the following tables for pension include both of the collective bargaining plan formula, the traditional management plan formula, the cash balance plan formula and the SERP, in the aggregate.Pension Plans. The pension costs below have not been adjusted for amounts billed to the Service Company for former AES Ohio employees
who are now employed by the Service Company or other AES affiliates that are still participants in the AES Ohio plan. The components of net periodic benefit costs other than service costs are included in "Other income" in the Condensed Consolidated Statements of Operations.
The following table presents the net periodic benefit cost of the pension benefit plansPension Plans for the three and sixnine months ended JuneSeptember 30, 2022 and 2021 was:
| | | Three months ended | | Six months ended | | Three months ended | | Nine months ended |
| | June 30, | | June 30, | | September 30, | | September 30, |
| $ in millions | $ in millions | | 2022 | | 2021 | | 2022 | | 2021 | $ in millions | | 2022 | | 2021 | | 2022 | | 2021 |
| Service cost | Service cost | | $ | 1.2 | | | $ | 1.1 | | | $ | 2.5 | | | $ | 2.2 | | Service cost | | $ | 1.2 | | | $ | 1.2 | | | $ | 3.7 | | | $ | 3.4 | |
| Interest cost | Interest cost | | 2.4 | | | 2.0 | | | 4.8 | | | 4.0 | | Interest cost | | 2.4 | | | 2.1 | | | 7.2 | | | 6.1 | |
| Expected return on plan assets | Expected return on plan assets | | (3.9) | | | (3.7) | | | (7.9) | | | (7.4) | | Expected return on plan assets | | (4.0) | | | (3.8) | | | (11.9) | | | (11.2) | |
| Amortization of unrecognized: | Amortization of unrecognized: | | Amortization of unrecognized: | |
| Prior service cost | Prior service cost | | 0.3 | | | 0.2 | | | 0.5 | | | 0.4 | | Prior service cost | | 0.3 | | | 0.2 | | | 0.8 | | | 0.6 | |
| Actuarial loss | Actuarial loss | | 1.3 | | | 2.3 | | | 2.7 | | | 4.6 | | Actuarial loss | | 1.4 | | | 2.2 | | | 4.1 | | | 6.8 | |
| Net periodic benefit cost | Net periodic benefit cost | | $ | 1.3 | | | $ | 1.9 | | | $ | 2.6 | | | $ | 3.8 | | Net periodic benefit cost | | $ | 1.3 | | | $ | 1.9 | | | $ | 3.9 | | | $ | 5.7 | |
The components of net periodic (benefit) / cost other than service cost are included in "Other income"income / (expense)" in the Condensed Consolidated Statements of Operations.
There were $7.5 million and $9.8 million in employer contributions during the nine months ended September 30, 2022 and 2021, respectively.
In addition, AES Ohio provides postretirement health care and life insurance benefits to certain retired employees, their spouses and eligible dependents. We have funded a portion of the union-eligible benefits using a Voluntary Employee Beneficiary Association Trust. These postretirement health care benefits and the related unfunded obligation of $8.7$8.4 million and $8.9 million as of JuneSeptember 30, 2022 and December 31, 2021, respectively, were not material to the financial statements in the periods covered by this report.
8. Commitments and Contingencies
Equity Ownership Interest
AES Ohio has a 4.9% equity ownership interest in OVEC, which is recorded using the cost method of accounting under GAAP. AES Ohio, along with several non-affiliated energy companies party to an OVEC arrangement, receive and pay for OVEC capacity and energy and are responsible for OVEC debt obligations and other fixed costs in proportion to their power participation ratios under the arrangement, which, for AES Ohio, is the same as its equity ownership interest. As of June 30, 2022, AES Ohio could be responsible for the repayment of 4.9%, or $53.9 million, of $1,099.9 million OVEC debt obligations if they came due, comprised of both fixed and variable rate securities with maturities from 2022 to 2040. OVEC could also seek additional contributions from AES Ohio to avoid a default in the event that other OVEC members defaulted on their respective OVEC obligations.COMMITMENTS AND CONTINGENCIES
Contingencies
Legal Matters
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 JuneSeptember 30, 2022, cannot be reasonably determined.
Environmental Matters
DPL’s and AES Ohio’s current and previously-owned facilities and operationsWe are subject to a wide range ofvarious federal, state, regional and local environmental regulationsprotection and laws. The environmental issues that may affect us include:
•The federal CAAhealth and statesafety laws and regulations (including State Implementation Plans) which require compliance, obtaining permitsgoverning, among other things, the generation, storage, handling, use, disposal and reporting as to air emissions;
•Litigation with federaltransportation of regulated materials, including ash; the use and certain state governmentsdischarge of water used in generation boilers and certain special interest groups regarding whether modifications to or maintenancefor cooling purposes; the emission and discharge of certain coal-fired generating stations require additional permitting or pollution control technology, or whether emissions from coal-fired generating stations cause or contribute to global climate changes;hazardous and other materials, including GHGs, into the environment;
•Rulesclimate change; and future rules issued by the EPA, the Ohio EPA or other authorities that require or will require substantial reductions in SO2, particulates, mercury, acid gases, NOxhealth and other air emissions;
•Rules and future rules issued by the EPA, the Ohio EPA or other authorities that require or will require reporting and reductionssafety of GHGs;
•Rules and future rules issued by the EPA, 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 wasteour employees. These laws and regulations which govern the managementoften require a lengthy and disposalcomplex process of certain waste. Most of the solid waste created from the combustion of coalobtaining and fossil fuels is fly ashrenewing permits and other coal combustion by-products.
In addition to imposing continuing compliance obligations,governmental authorizations from federal, state and local environmentalagencies. Violation of these laws, and regulations authorize the imposition ofor permits can result in substantial penalties for noncompliance, including fines, injunctive relief and other sanctions. In the normal course of business,sanctions, permit revocation and/or facility shutdowns. We cannot assure that we have investigatory and remedial activities underwaybeen or will be at our facilities to comply, or to determineall times in full compliance with such regulations. laws, regulations and permits.
Where no accrued liability has been recognized, it is reasonably possible that some matters could be decided unfavorably to the us and could require us to pay damages or make expenditures in amounts that could be material but could not be estimated as of September 30, 2022.
We record liabilities for loss contingencies relatedhave taken steps to limit our exposure to environmental matters when a loss is probable of occurringclaims that could be raised with respect to our previously-owned and canoperated coal-fired generation units, but we cannot predict whether any such claims will be reasonably estimated in accordance withraised and, if they are, the provisions of GAAP. Accordingly, we have immaterial accruals for loss contingencies for environmental matters. We also have several environmental matters forextent to 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 andthey 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 haveEquity Ownership Interest
AES Ohio has a 4.9% equity ownership interest in OVEC, which is recorded using the cost method of accounting under GAAP. AES Ohio, along with several pending environmental matters associatednon-affiliated energy companies party to an OVEC arrangement, receive and pay for OVEC capacity and energy and are responsible for OVEC debt obligations and other fixed costs in proportion to their power participation ratios under the arrangement, which, for AES Ohio, is the same as its equity ownership interest. As of September 30, 2022, AES Ohio could be responsible for the repayment of 4.9%, or $53.9 million, of $1,099.9 million OVEC debt obligations if they came due, comprised of both fixed and variable rate securities with our previously-owned and operated coal-fired generation units. Some of these mattersmaturities from 2026 to 2040. OVEC could havealso seek additional contributions from AES Ohio to avoid a material adverse effectdefault in the event that other OVEC members defaulted on our results of operations, financial condition and cash flows.their respective OVEC obligations.
9. Business SegmentsBUSINESS SEGMENTS
DPL manages its business through 1one reportable operating segment, the Utility segment. The primary segment performance measure is income / (loss) from continuing operations before income tax as management has concluded that this measure best reflects the underlying business performance of DPL and is the most relevant measure considered in DPL’s internal evaluation of the financial performance of its segment. The Utility segment is discussed further below.
Utility Segment
The Utility segment is comprised of AES Ohio’sOhio, a public electric transmission and distribution businesses, which distribute electricity to residential, commercial, industrial and governmental customers. AES Ohio distributes electricity to approximately 535,000 retail customers located in a 6,000-square mile area of West Central Ohio. AES Ohio’s electric transmission and distribution businesses are subject to rate regulation by federal and state regulators. Accordingly, AES Ohio applies the accounting standards for regulated operations to its electric transmission and distribution businesses recording regulatory assets when incurred costs are expected to be recovered in future customer rates and regulatory liabilities when current cost recoveries in customer rates relate to expected future costs. The Utility segment includes revenues and costs associatedutility, with our investment in OVEC.
Included within the “Other” column areall other businesses that do not meet the GAAP requirements for disclosure as reportable segments as well as certain corporate costs, which include interest expense on DPL's long-term debt as well as adjustments related to purchase accounting from the Merger. The accounting policies of the reportable segment are the same as those described innonutility business activities aggregated separately. See Note 1 – Overview and Summary of Significant Accounting Policies for further information on AES Ohio. The “Other” nonutility category primarily includes interest expense, cash and other immaterial balances. The accounting policies of our 10-K. Intersegment sales, coststhe identified segment are consistent with those policies and procedures described in the summary of sales and expenses are eliminated in consolidation. Certain shared and corporate costs are allocated between "Other" and the Utility reporting segment.significant accounting policies.
The following tables present financial information for DPL’s Utility reportable business segment: | | $ in millions | $ in millions | | Utility | | | Other | | Adjustments and Eliminations | | DPL Consolidated | $ in millions | | Utility | | | Other | | Adjustments and Eliminations | | DPL Consolidated |
| Three months ended June 30, 2022 | |
| Three months ended September 30, 2022 | | Three months ended September 30, 2022 |
| Revenues from external customers | | Revenues from external customers | | $ | 259.7 | | | | $ | 2.4 | | | $ | — | | | $ | 262.1 | |
| Intersegment revenues | | Intersegment revenues | | 0.2 | | | | 0.8 | | | (1.0) | | | — | |
| Total revenues | | Total revenues | | $ | 259.9 | | | | $ | 3.2 | | | $ | (1.0) | | | $ | 262.1 | |
| | Depreciation and amortization | | Depreciation and amortization | | $ | 19.8 | | | | $ | 0.2 | | | $ | — | | | $ | 20.0 | |
| | Interest expense | | Interest expense | | $ | 8.4 | | | | $ | 9.7 | | | $ | — | | | $ | 18.1 | |
| | Loss from continuing operations before income tax | | Loss from continuing operations before income tax | | $ | (15.6) | | | | $ | (8.2) | | | $ | — | | | $ | (23.8) | |
| | $ in millions | | $ in millions | | Utility | | | Other | | Adjustments and Eliminations | | DPL Consolidated |
| Three Months Ended September 30, 2021 | | Three Months Ended September 30, 2021 |
| Revenues from external customers | Revenues from external customers | | $ | 188.5 | | | | $ | 2.4 | | | $ | — | | | $ | 190.9 | | Revenues from external customers | | $ | 185.9 | | | | $ | 2.3 | | | $ | — | | | $ | 188.2 | |
| Intersegment revenues | Intersegment revenues | | 0.2 | | | | 0.9 | | | (1.1) | | | — | | Intersegment revenues | | 0.2 | | | | 0.8 | | | (1.0) | | | — | |
| Total revenues | Total revenues | | $ | 188.7 | | | | $ | 3.3 | | | $ | (1.1) | | | $ | 190.9 | | Total revenues | | $ | 186.1 | | | | $ | 3.1 | | | $ | (1.0) | | | $ | 188.2 | |
| | Depreciation and amortization | Depreciation and amortization | | $ | 19.7 | | | | $ | 0.4 | | | $ | — | | | $ | 20.1 | | Depreciation and amortization | | $ | 18.6 | | | | $ | 0.3 | | | $ | — | | | $ | 18.9 | |
| | Interest expense | Interest expense | | $ | 6.8 | | | | $ | 9.7 | | | $ | — | | | $ | 16.5 | | Interest expense | | $ | 6.1 | | | | $ | 9.7 | | | $ | — | | | $ | 15.8 | |
| | Income / (loss) from continuing operations before income tax | Income / (loss) from continuing operations before income tax | | $ | 7.3 | | | | $ | (7.9) | | | $ | — | | | $ | (0.6) | | Income / (loss) from continuing operations before income tax | | $ | 16.1 | | | | $ | (8.4) | | | $ | — | | | $ | 7.7 | |
| | $ in millions | $ in millions | | Utility | | | Other | | Adjustments and Eliminations | | DPL Consolidated | $ in millions | | Utility | | | Other | | Adjustments and Eliminations | | DPL Consolidated |
| Three Months Ended June 30, 2021 | |
| Revenues from external customers | | $ | 145.7 | | | | $ | 2.4 | | | $ | — | | | $ | 148.1 | | |
| Intersegment revenues | | 0.2 | | | | 0.9 | | | (1.1) | | | — | | |
| Total revenues | | $ | 145.9 | | | | $ | 3.3 | | | $ | (1.1) | | | $ | 148.1 | | |
| | Depreciation and amortization | | $ | 18.5 | | | | $ | 0.4 | | | $ | — | | | $ | 18.9 | | |
| | Interest expense | | $ | 6.0 | | | | $ | 9.6 | | | $ | — | | | $ | 15.6 | | |
| | Income / (loss) from continuing operations before income tax | | $ | 9.1 | | | | $ | (7.6) | | | $ | — | | | $ | 1.5 | | |
| | $ in millions | | Utility | | | Other | | Adjustments and Eliminations | | DPL Consolidated | |
| Six months ended June 30, 2022 | |
| Nine months ended September 30, 2022 | | Nine months ended September 30, 2022 |
| Revenues from external customers | Revenues from external customers | | $ | 385.3 | | | | $ | 4.9 | | | $ | — | | | $ | 390.2 | | Revenues from external customers | | $ | 645.0 | | | | $ | 7.3 | | | $ | — | | | $ | 652.3 | |
| Intersegment revenues | Intersegment revenues | | 0.4 | | | | 1.8 | | | (2.2) | | | — | | Intersegment revenues | | 0.6 | | | | 2.6 | | | (3.2) | | | — | |
| Total revenues | Total revenues | | $ | 385.7 | | | | $ | 6.7 | | | $ | (2.2) | | | $ | 390.2 | | Total revenues | | $ | 645.6 | | | | $ | 9.9 | | | $ | (3.2) | | | $ | 652.3 | |
| | Depreciation and amortization | Depreciation and amortization | | $ | 38.9 | | | | $ | 0.7 | | | $ | — | | | $ | 39.6 | | Depreciation and amortization | | $ | 58.7 | | | | $ | 0.9 | | | $ | — | | | $ | 59.6 | |
| | Interest expense | Interest expense | | $ | 12.7 | | | | $ | 19.3 | | | $ | — | | | $ | 32.0 | | Interest expense | | $ | 21.1 | | | | $ | 29.0 | | | $ | — | | | $ | 50.1 | |
| | Income / (loss) from continuing operations before income tax | Income / (loss) from continuing operations before income tax | | $ | 26.9 | | | | $ | (15.8) | | | $ | — | | | $ | 11.1 | | Income / (loss) from continuing operations before income tax | | $ | 11.3 | | | | $ | (24.0) | | | $ | — | | | $ | (12.7) | |
| | $ in millions | $ in millions | | Utility | | | Other | | Adjustments and Eliminations | | DPL Consolidated | $ in millions | | Utility | | | Other | | Adjustments and Eliminations | | DPL Consolidated |
| Six months ended June 30, 2021 | |
| Nine months ended September 30, 2021 | | Nine months ended September 30, 2021 |
| Revenues from external customers | Revenues from external customers | | $ | 318.3 | | | | $ | 5.0 | | | $ | — | | | $ | 323.3 | | Revenues from external customers | | $ | 504.2 | | | | $ | 7.3 | | | $ | — | | | $ | 511.5 | |
| Intersegment revenues | Intersegment revenues | | 0.4 | | | | 1.8 | | | (2.2) | | | — | | Intersegment revenues | | 0.6 | | | | 2.6 | | | (3.2) | | | — | |
| Total revenues | Total revenues | | $ | 318.7 | | | | $ | 6.8 | | | $ | (2.2) | | | $ | 323.3 | | Total revenues | | $ | 504.8 | | | | $ | 9.9 | | | $ | (3.2) | | | $ | 511.5 | |
| | Depreciation and amortization | Depreciation and amortization | | $ | 37.2 | | | | $ | 0.8 | | | $ | — | | | $ | 38.0 | | Depreciation and amortization | | $ | 55.8 | | | | $ | 1.1 | | | $ | — | | | $ | 56.9 | |
| | Interest expense | Interest expense | | $ | 12.0 | | | | $ | 19.2 | | | $ | — | | | $ | 31.2 | | Interest expense | | $ | 18.1 | | | | $ | 28.9 | | | $ | — | | | $ | 47.0 | |
| | Income / (loss) from continuing operations before income tax | Income / (loss) from continuing operations before income tax | | $ | 30.6 | | | | $ | (15.2) | | | $ | — | | | $ | 15.4 | | Income / (loss) from continuing operations before income tax | | $ | 46.7 | | | | $ | (23.6) | | | $ | — | | | $ | 23.1 | |
| | Total Assets | Total Assets | | June 30, 2022 | | December 31, 2021 | Total Assets | | September 30, 2022 | | December 31, 2021 |
| Utility | Utility | | $ | 2,259.3 | | | $ | 2,162.6 | | Utility | | $ | 2,234.7 | | | $ | 2,162.6 | |
All Other (a) | All Other (a) | | 16.1 | | | 9.2 | | All Other (a) | | 18.3 | | | 9.2 | |
| DPL Consolidated | DPL Consolidated | | $ | 2,275.4 | | | $ | 2,171.8 | | DPL Consolidated | | $ | 2,253.0 | | | $ | 2,171.8 | |
(a) "All Other" includes Eliminations for all periods presented.
10. RevenueREVENUE
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.
DPL's revenue from contracts with customers was $188.3$259.6 million and $147.4$187.5 million for the three months ended JuneSeptember 30, 2022 and 2021, respectively, and $386.0$645.6 million and $319.5$507.0 million for the sixnine months ended JuneSeptember 30, 2022 and 2021, respectively.
The following table presents our revenue from contracts with customers and other revenue by segment for the three and sixnine months ended JuneSeptember 30, 2022 and 2021:
| | $ in millions | $ in millions | | Utility | | Other | | Adjustments and Eliminations | | Total | $ in millions | | Utility | | Other | | Adjustments and Eliminations | | Total |
| | | Three Months Ended June 30, 2022 | | | Three Months Ended September 30, 2022 |
| Retail revenue | Retail revenue | | | Retail revenue | | |
| Retail revenue from contracts with customers | Retail revenue from contracts with customers | | Retail revenue from contracts with customers | |
| Residential revenue | Residential revenue | | $ | 93.7 | | | $ | — | | | $ | — | | | $ | 93.7 | | Residential revenue | | $ | 147.0 | | | $ | — | | | $ | — | | | $ | 147.0 | |
| Commercial revenue | Commercial revenue | | 38.0 | | | — | | | — | | | 38.0 | | Commercial revenue | | 50.5 | | | — | | | — | | | 50.5 | |
| Industrial revenue | Industrial revenue | | 17.9 | | | — | | | — | | | 17.9 | | Industrial revenue | | 20.6 | | | — | | | — | | | 20.6 | |
| Governmental revenue | Governmental revenue | | 5.9 | | | — | | | — | | | 5.9 | | Governmental revenue | | 6.2 | | | — | | | — | | | 6.2 | |
Other (a) | Other (a) | | 3.2 | | | — | | | — | | | 3.2 | | Other (a) | | 3.0 | | | — | | | — | | | 3.0 | |
| Total retail revenue from contracts with customers | Total retail revenue from contracts with customers | | 158.7 | | | — | | | — | | | 158.7 | | Total retail revenue from contracts with customers | | 227.3 | | | — | | | — | | | 227.3 | |
| | Wholesale revenue | Wholesale revenue | | Wholesale revenue | |
| Wholesale revenue from contracts with customers | Wholesale revenue from contracts with customers | | 11.0 | | | — | | | (0.2) | | | 10.8 | | Wholesale revenue from contracts with customers | | 13.4 | | | — | | | (0.2) | | | 13.2 | |
| RTO ancillary revenue | RTO ancillary revenue | | 14.9 | | | 0.1 | | | — | | | 15.0 | | RTO ancillary revenue | | 16.2 | | | — | | | — | | | 16.2 | |
| Capacity revenue | Capacity revenue | | 1.5 | | | — | | | — | | | 1.5 | | Capacity revenue | | 0.5 | | | — | | | — | | | 0.5 | |
| Miscellaneous revenue | Miscellaneous revenue | | Miscellaneous revenue | |
Miscellaneous revenue from contracts with customers (b) | Miscellaneous revenue from contracts with customers (b) | | — | | | 2.3 | | | — | | | 2.3 | | Miscellaneous revenue from contracts with customers (b) | | — | | | 2.4 | | | — | | | 2.4 | |
| Other miscellaneous revenue | Other miscellaneous revenue | | 2.6 | | | 0.9 | | | (0.9) | | | 2.6 | | Other miscellaneous revenue | | 2.5 | | | 0.8 | | | (0.8) | | | 2.5 | |
| Total revenues | Total revenues | | $ | 188.7 | | | $ | 3.3 | | | $ | (1.1) | | | $ | 190.9 | | Total revenues | | $ | 259.9 | | | $ | 3.2 | | | $ | (1.0) | | | $ | 262.1 | |
| | | | Three Months Ended June 30, 2021 | | Three Months Ended September 30, 2021 |
| Retail revenue | Retail revenue | | | Retail revenue | | |
| Retail revenue from contracts with customers | Retail revenue from contracts with customers | | Retail revenue from contracts with customers | |
| Residential revenue | Residential revenue | | $ | 77.7 | | | $ | — | | | $ | — | | | $ | 77.7 | | Residential revenue | | $ | 103.3 | | | $ | — | | | $ | — | | | $ | 103.3 | |
| Commercial revenue | Commercial revenue | | 28.2 | | | — | | | — | | | 28.2 | | Commercial revenue | | 35.0 | | | — | | | — | | | 35.0 | |
| Industrial revenue | Industrial revenue | | 14.1 | | | — | | | — | | | 14.1 | | Industrial revenue | | 16.0 | | | — | | | — | | | 16.0 | |
| Governmental revenue | Governmental revenue | | 5.5 | | | — | | | — | | | 5.5 | | Governmental revenue | | 7.0 | | | — | | | — | | | 7.0 | |
Other (a) | Other (a) | | 2.8 | | | — | | | — | | | 2.8 | | Other (a) | | 2.9 | | | — | | | — | | | 2.9 | |
| Total retail revenue from contracts with customers | Total retail revenue from contracts with customers | | 128.3 | | | — | | | — | | | 128.3 | | Total retail revenue from contracts with customers | | 164.2 | | | — | | | — | | | 164.2 | |
| | Wholesale revenue | Wholesale revenue | | Wholesale revenue | |
| Wholesale revenue from contracts with customers | Wholesale revenue from contracts with customers | | 3.6 | | | — | | | (0.2) | | | 3.4 | | Wholesale revenue from contracts with customers | | 6.8 | | | — | | | (0.2) | | | 6.6 | |
| RTO ancillary revenue | RTO ancillary revenue | | 12.1 | | | — | | | — | | | 12.1 | | RTO ancillary revenue | | 12.5 | | | — | | | — | | | 12.5 | |
| Capacity revenue | Capacity revenue | | 1.3 | | | — | | | — | | | 1.3 | | Capacity revenue | | 1.8 | | | — | | | — | | | 1.8 | |
| Miscellaneous revenue | Miscellaneous revenue | | Miscellaneous revenue | |
Miscellaneous revenue from contracts with customers (b) | Miscellaneous revenue from contracts with customers (b) | | — | | | 2.3 | | | — | | | 2.3 | | Miscellaneous revenue from contracts with customers (b) | | — | | | 2.4 | | | — | | | 2.4 | |
| Other miscellaneous revenue | Other miscellaneous revenue | | 0.6 | | | 1.0 | | | (0.9) | | | 0.7 | | Other miscellaneous revenue | | 0.8 | | | 0.7 | | | (0.8) | | | 0.7 | |
| Total revenues | Total revenues | | $ | 145.9 | | | $ | 3.3 | | | $ | (1.1) | | | $ | 148.1 | | Total revenues | | $ | 186.1 | | | $ | 3.1 | | | $ | (1.0) | | | $ | 188.2 | |
|
| | $ in millions | $ in millions | | Utility | | Other | | Adjustments and Eliminations | | Total | $ in millions | | Utility | | Other | | Adjustments and Eliminations | | Total |
| | Six months ended June 30, 2022 | | Nine months ended September 30, 2022 |
| Retail revenue | Retail revenue | | | Retail revenue | | |
| Retail revenue from contracts with customers | Retail revenue from contracts with customers | | Retail revenue from contracts with customers | |
| Residential revenue | Residential revenue | | $ | 203.6 | | | $ | — | | | $ | — | | | $ | 203.6 | | Residential revenue | | $ | 350.6 | | | $ | — | | | $ | — | | | $ | 350.6 | |
| Commercial revenue | Commercial revenue | | 73.0 | | | — | | | — | | | 73.0 | | Commercial revenue | | 123.5 | | | — | | | — | | | 123.5 | |
| Industrial revenue | Industrial revenue | | 34.8 | | | — | | | — | | | 34.8 | | Industrial revenue | | 55.4 | | | — | | | — | | | 55.4 | |
| Governmental revenue | Governmental revenue | | 12.0 | | | — | | | — | | | 12.0 | | Governmental revenue | | 18.2 | | | — | | | — | | | 18.2 | |
Other (a) | Other (a) | | 6.1 | | | — | | | — | | | 6.1 | | Other (a) | | 9.1 | | | — | | | — | | | 9.1 | |
| Total retail revenue from contracts with customers | Total retail revenue from contracts with customers | | 329.5 | | | — | | | — | | | 329.5 | | Total retail revenue from contracts with customers | | 556.8 | | | — | | | — | | | 556.8 | |
| | Wholesale revenue | Wholesale revenue | | Wholesale revenue | |
| Wholesale revenue from contracts with customers | Wholesale revenue from contracts with customers | | 18.7 | | | — | | | (0.4) | | | 18.3 | | Wholesale revenue from contracts with customers | | 32.1 | | | — | | | (0.6) | | | 31.5 | |
| RTO ancillary revenue | RTO ancillary revenue | | 30.0 | | | 0.1 | | | — | | | 30.1 | | RTO ancillary revenue | | 46.2 | | | 0.1 | | | — | | | 46.3 | |
| Capacity revenue | Capacity revenue | | 3.3 | | | — | | | — | | | 3.3 | | Capacity revenue | | 3.8 | | | — | | | — | | | 3.8 | |
| Miscellaneous revenue | Miscellaneous revenue | | Miscellaneous revenue | |
Miscellaneous revenue from contracts with customers (b) | Miscellaneous revenue from contracts with customers (b) | | — | | | 4.8 | | | — | | | 4.8 | | Miscellaneous revenue from contracts with customers (b) | | — | | | 7.2 | | | — | | | 7.2 | |
| Other miscellaneous revenue | Other miscellaneous revenue | | 4.2 | | | 1.8 | | | (1.8) | | | 4.2 | | Other miscellaneous revenue | | 6.7 | | | 2.6 | | | (2.6) | | | 6.7 | |
| Total revenues | Total revenues | | $ | 385.7 | | | $ | 6.7 | | | $ | (2.2) | | | $ | 390.2 | | Total revenues | | $ | 645.6 | | | $ | 9.9 | | | $ | (3.2) | | | $ | 652.3 | |
| | | | Six months ended June 30, 2021 | | Nine months ended September 30, 2021 |
| Retail revenue | Retail revenue | | | Retail revenue | | |
| Retail revenue from contracts with customers | Retail revenue from contracts with customers | | Retail revenue from contracts with customers | |
| Residential revenue | Residential revenue | | $ | 176.0 | | | $ | — | | | $ | — | | | $ | 176.0 | | Residential revenue | | $ | 279.3 | | | $ | — | | | $ | — | | | $ | 279.3 | |
| Commercial revenue | Commercial revenue | | 55.5 | | | — | | | — | | | 55.5 | | Commercial revenue | | 90.5 | | | — | | | — | | | 90.5 | |
| Industrial revenue | Industrial revenue | | 26.4 | | | — | | | — | | | 26.4 | | Industrial revenue | | 42.4 | | | — | | | — | | | 42.4 | |
| Governmental revenue | Governmental revenue | | 12.9 | | | — | | | — | | | 12.9 | | Governmental revenue | | 19.9 | | | — | | | — | | | 19.9 | |
Other (a) | Other (a) | | 6.5 | | | — | | | — | | | 6.5 | | Other (a) | | 9.4 | | | — | | | — | | | 9.4 | |
| Total retail revenue from contracts with customers | Total retail revenue from contracts with customers | | 277.3 | | | — | | | — | | | 277.3 | | Total retail revenue from contracts with customers | | 441.5 | | | — | | | — | | | 441.5 | |
| | Wholesale revenue | Wholesale revenue | | Wholesale revenue | |
| Wholesale revenue from contracts with customers | Wholesale revenue from contracts with customers | | 8.6 | | | — | | | (0.4) | | | 8.2 | | Wholesale revenue from contracts with customers | | 15.4 | | | — | | | (0.6) | | | 14.8 | |
| RTO ancillary revenue | RTO ancillary revenue | | 26.9 | | | 0.1 | | | — | | | 27.0 | | RTO ancillary revenue | | 39.4 | | | 0.1 | | | — | | | 39.5 | |
| Capacity revenue | Capacity revenue | | 2.2 | | | — | | | — | | | 2.2 | | Capacity revenue | | 4.0 | | | — | | | — | | | 4.0 | |
| Miscellaneous revenue | Miscellaneous revenue | | Miscellaneous revenue | |
Miscellaneous revenue from contracts with customers (b) | Miscellaneous revenue from contracts with customers (b) | | — | | | 4.8 | | | — | | | 4.8 | | Miscellaneous revenue from contracts with customers (b) | | — | | | 7.2 | | | — | | | 7.2 | |
| Other miscellaneous revenue | Other miscellaneous revenue | | 3.7 | | | 1.9 | | | (1.8) | | | 3.8 | | Other miscellaneous revenue | | 4.5 | | | 2.6 | | | (2.6) | | | 4.5 | |
| Total revenues | Total revenues | | $ | 318.7 | | | $ | 6.8 | | | $ | (2.2) | | | $ | 323.3 | | Total revenues | | $ | 504.8 | | | $ | 9.9 | | | $ | (3.2) | | | $ | 511.5 | |
|
(a) "Other" primarily includes Wright-Patterson Air Force Baseoperation and maintenance service revenues, billing service fees from CRES providers and other miscellaneous retail revenues from contracts with customers.
(b) 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 $75.7$81.0 million and $61.5 million as of JuneSeptember 30, 2022 and December 31, 2021, respectively. Payment terms for all receivables from contracts with customers are typically within 30 days, though, asunless a result of COVID-19, AES Ohio began offering expandedcustomer qualifies for payment arrangements for customers.extension.
11. Discontinued OperationsDISCONTINUED OPERATIONS
Conesville - In May 2020, AEP, the operator of the formerly co-owned Conesville EGU, retired Conesville Unit 4 as planned. On June 5, 2020, DPL and AES Ohio Generation, together with AEP, completed the transfer of their interests in the retired Unit 4, including the associated environmental liabilities, to an unaffiliated third-party purchaser. For the transaction, DPL made quarterly cash expenditures, totaling $4.0 million, through June 2022. The transfer of Conesville Unit 4 was the last step in DPL's plan to exit its AES Ohio Generation business operations.
DPL determined that the transfer of Conesville and the previous transfers and sales of other AES Ohio Generation assets 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 qualified to be presented as
discontinued operations. Therefore, the results of operations of this group of components have been reported as such in the Condensed Consolidated Statements of Operations for the period indicated below.
The following table summarizes the revenues, operating costs, other expenses and income tax of discontinued operations for the period indicated:
| | | Three months ended | | Six months ended | | Three months ended | | Nine months ended |
| | June 30, | | June 30, | | September 30, | | September 30, |
| $ in millions | $ in millions | | 2021 | | 2021 | $ in millions | | 2021 | | 2021 |
| Revenues | Revenues | | $ | 0.5 | | | $ | 1.4 | | Revenues | | $ | — | | | $ | 1.4 | |
| | Operating costs and other expenses | Operating costs and other expenses | | (0.7) | | | (2.4) | | Operating costs and other expenses | | — | | | (2.4) | |
| | Loss from discontinued operations before income tax | Loss from discontinued operations before income tax | | (0.2) | | | (1.0) | | Loss from discontinued operations before income tax | | — | | | (1.0) | |
| | Income tax benefit from discontinued operations | Income tax benefit from discontinued operations | | — | | | (0.2) | | Income tax benefit from discontinued operations | | — | | | (0.2) | |
| Net loss from discontinued operations | Net loss from discontinued operations | | $ | (0.2) | | | $ | (0.8) | | Net loss from discontinued operations | | $ | — | | | $ | (0.8) | |
Cash flows related to discontinued operations are included in our Condensed Consolidated Statements of Cash Flows. For the three and sixnine months ended JuneSeptember 30, 2021, cash flows from operating activities for discontinued operations were $0.2$0.4 million and $0.0$0.4 million, respectively. For the three and sixnine months ended JuneSeptember 30, 2021, cash flows from investing activities for discontinued operations were $(0.4) million and $(0.8)$(1.2) million, respectively.
12. Risks and UncertaintiesRISKS AND UNCERTAINTIES
COVID-19 Pandemic
The COVID-19 pandemic has impacted global economic activity, including electricity and energy consumption, and caused significant volatility in financial markets. Social distancing measures designed to slow the spread of the virus, such as business closures and operations limitations, impact energy demand within our service territory. We continue to take 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. The magnitude and duration of the COVID-19 pandemic is unknown at this time and may have material and adverse effects on our results of operations, financial condition and cash flows in future periods.
FINANCIAL STATEMENTS
AES Ohio
| | AES Ohio | AES Ohio | AES Ohio |
| Condensed Statements of Operations | Condensed Statements of Operations | Condensed Statements of Operations |
| (Unaudited) | (Unaudited) | (Unaudited) |
| | Three months ended | | Six months ended | | Three months ended | | Nine months ended |
| | June 30, | | June 30, | | September 30, | | September 30, |
| $ in millions | $ in millions | | 2022 | | 2021 | | 2022 | | 2021 | $ in millions | | 2022 | | 2021 | | 2022 | | 2021 |
| Revenues | Revenues | | $ | 188.7 | | | $ | 145.9 | | | $ | 385.7 | | | $ | 318.7 | | Revenues | | $ | 259.9 | | | $ | 186.1 | | | $ | 645.6 | | | $ | 504.8 | |
| | Operating costs and expenses | Operating costs and expenses | | Operating costs and expenses | |
| Net fuel cost | Net fuel cost | | — | | | 0.1 | | | — | | | 0.5 | | Net fuel cost | | — | | | — | | | — | | | 0.5 | |
| Net purchased power cost | Net purchased power cost | | 90.3 | | | 53.6 | | | 180.8 | | | 124.8 | | Net purchased power cost | | 179.8 | | | 83.7 | | | 360.6 | | | 208.5 | |
| | Operation and maintenance | Operation and maintenance | | 42.9 | | | 37.7 | | | 83.1 | | | 72.3 | | Operation and maintenance | | 48.2 | | | 39.3 | | | 131.3 | | | 111.6 | |
| Depreciation and amortization | Depreciation and amortization | | 19.7 | | | 18.5 | | | 38.9 | | | 37.2 | | Depreciation and amortization | | 19.8 | | | 18.6 | | | 58.7 | | | 55.8 | |
| Taxes other than income taxes | Taxes other than income taxes | | 21.1 | | | 20.7 | | | 43.0 | | | 41.0 | | Taxes other than income taxes | | 20.4 | | | 21.0 | | | 63.4 | | | 62.0 | |
| | Gain on disposal of business | Gain on disposal of business | | — | | | — | | | (0.6) | | | — | | Gain on disposal of business | | — | | | — | | | (0.6) | | | — | |
| | Total operating costs and expenses | Total operating costs and expenses | | 174.0 | | | 130.6 | | | 345.2 | | | 275.8 | | Total operating costs and expenses | | 268.2 | | | 162.6 | | | 613.4 | | | 438.4 | |
| | Operating income | | 14.7 | | | 15.3 | | | 40.5 | | | 42.9 | | |
| Operating income / (loss) | | Operating income / (loss) | | (8.3) | | | 23.5 | | | 32.2 | | | 66.4 | |
| | Other expense, net: | Other expense, net: | | Other expense, net: | |
| Interest expense | Interest expense | | (6.8) | | | (6.0) | | | (12.7) | | | (12.0) | | Interest expense | | (8.4) | | | (6.1) | | | (21.1) | | | (18.1) | |
| | Other expense | | (0.6) | | | (0.2) | | | (0.9) | | | (0.3) | | |
| Other income / (expense) | | Other income / (expense) | | 1.1 | | | (1.3) | | | 0.2 | | | (1.6) | |
| Total other expense, net | Total other expense, net | | (7.4) | | | (6.2) | | | (13.6) | | | (12.3) | | Total other expense, net | | (7.3) | | | (7.4) | | | (20.9) | | | (19.7) | |
| | Income before income tax | | 7.3 | | | 9.1 | | | 26.9 | | | 30.6 | | |
| Income / (loss) before income tax | | Income / (loss) before income tax | | (15.6) | | | 16.1 | | | 11.3 | | | 46.7 | |
| | Income tax expense | | — | | | 0.5 | | | 2.7 | | | 3.7 | | |
| Income tax expense / (benefit) | | Income tax expense / (benefit) | | (5.5) | | | 2.7 | | | (2.8) | | | 6.4 | |
| | | Net income | | $ | 7.3 | | | $ | 8.6 | | | $ | 24.2 | | | $ | 26.9 | | |
| Net income / (loss) | | Net income / (loss) | | $ | (10.1) | | | $ | 13.4 | | | $ | 14.1 | | | $ | 40.3 | |
See Notes to Condensed Financial Statements.
| | AES Ohio | AES Ohio | AES Ohio |
| Condensed Statements of Comprehensive Income | |
| Condensed Statements of Comprehensive Income / (Loss) | | Condensed Statements of Comprehensive Income / (Loss) |
| (Unaudited) | (Unaudited) | (Unaudited) |
| | Three months ended | | Six months ended | | Three months ended | | Nine months ended |
| | June 30, | | June 30, | | September 30, | | September 30, |
| $ in millions | $ in millions | | 2022 | | 2021 | | 2022 | | 2021 | $ in millions | | 2022 | | 2021 | | 2022 | | 2021 |
| Net income | | $ | 7.3 | | | $ | 8.6 | | | $ | 24.2 | | | $ | 26.9 | | |
| Net income / (loss) | | Net income / (loss) | | $ | (10.1) | | | $ | 13.4 | | | $ | 14.1 | | | $ | 40.3 | |
| | Pension and postretirement activity: | Pension and postretirement activity: | | | | | | | | | Pension and postretirement activity: | | | | | | | | |
| Reclassification to earnings, net of income tax effect of $(0.2), $(0.3), $(0.4) and $(0.6) for each respective period | | 0.7 | | | 0.9 | | | 1.4 | | | 1.9 | | |
| Reclassification to earnings, net of income tax effect of $(0.2), $(0.3), $(0.6) and $(0.9) for each respective period | | Reclassification to earnings, net of income tax effect of $(0.2), $(0.3), $(0.6) and $(0.9) for each respective period | | 0.6 | | | 1.0 | | | 2.0 | | | 2.9 | |
| Total change in unfunded pension and postretirement obligations | Total change in unfunded pension and postretirement obligations | | 0.7 | | | 0.9 | | | 1.4 | | | 1.9 | | Total change in unfunded pension and postretirement obligations | | 0.6 | | | 1.0 | | | 2.0 | | | 2.9 | |
| | Other comprehensive income | Other comprehensive income | | 0.7 | | | 0.9 | | | 1.4 | | | 1.9 | | Other comprehensive income | | 0.6 | | | 1.0 | | | 2.0 | | | 2.9 | |
| | Net comprehensive income | | $ | 8.0 | | | $ | 9.5 | | | $ | 25.6 | | | $ | 28.8 | | |
| Comprehensive income / (loss) | | Comprehensive income / (loss) | | $ | (9.5) | | | $ | 14.4 | | | $ | 16.1 | | | $ | 43.2 | |
See Notes to Condensed Financial Statements.
| | AES Ohio | AES Ohio | AES Ohio |
| Condensed Balance Sheets | Condensed Balance Sheets | Condensed Balance Sheets |
| (Unaudited) | (Unaudited) | (Unaudited) |
| $ in millions | $ in millions | | June 30, 2022 | | December 31, 2021 | $ in millions | | September 30, 2022 | | December 31, 2021 |
| ASSETS | ASSETS | | | | | ASSETS | | | | |
| Current assets: | Current assets: | | | | | Current assets: | | | | |
| Cash and cash equivalents | Cash and cash equivalents | | $ | 44.9 | | | $ | 14.4 | | Cash and cash equivalents | | $ | 27.6 | | | $ | 14.4 | |
| | Accounts receivable, net of allowance for credit losses of $0.3 and $0.3, respectively (Note 1) | | 84.8 | | | 71.9 | | |
| Accounts receivable, net of allowance for credit losses of $0.4 and $0.3, respectively (Note 1) | | Accounts receivable, net of allowance for credit losses of $0.4 and $0.3, respectively (Note 1) | | 89.6 | | | 71.9 | |
| Inventories | Inventories | | 17.9 | | | 14.4 | | Inventories | | 20.9 | | | 14.4 | |
| Taxes applicable to subsequent years | Taxes applicable to subsequent years | | 40.4 | | | 83.0 | | Taxes applicable to subsequent years | | 20.2 | | | 83.0 | |
| Regulatory assets, current | Regulatory assets, current | | 37.2 | | | 24.5 | | Regulatory assets, current | | 27.2 | | | 24.5 | |
| Taxes receivable | Taxes receivable | | 27.2 | | | 28.1 | | Taxes receivable | | 24.9 | | | 28.1 | |
| Prepayments and other current assets | Prepayments and other current assets | | 11.2 | | | 8.0 | | Prepayments and other current assets | | 12.6 | | | 8.0 | |
| | Total current assets | Total current assets | | 263.6 | | | 244.3 | | Total current assets | | 223.0 | | | 244.3 | |
| | Property, plant & equipment: | Property, plant & equipment: | | | | | Property, plant & equipment: | | | | |
| Property, plant & equipment | Property, plant & equipment | | 2,663.5 | | | 2,571.3 | | Property, plant & equipment | | 2,685.9 | | | 2,571.3 | |
| Less: Accumulated depreciation and amortization | Less: Accumulated depreciation and amortization | | (1,066.5) | | | (1,062.6) | | Less: Accumulated depreciation and amortization | | (1,068.3) | | | (1,062.6) | |
| | | | 1,597.0 | | | 1,508.7 | | | | 1,617.6 | | | 1,508.7 | |
| Construction work in process | Construction work in process | | 161.7 | | | 170.5 | | Construction work in process | | 180.3 | | | 170.5 | |
| Total net property, plant & equipment | Total net property, plant & equipment | | 1,758.7 | | | 1,679.2 | | Total net property, plant & equipment | | 1,797.9 | | | 1,679.2 | |
| | Other non-current assets: | Other non-current assets: | | | | | Other non-current assets: | | | | |
| Regulatory assets, non-current | Regulatory assets, non-current | | 166.8 | | | 176.8 | | Regulatory assets, non-current | | 134.9 | | | 176.8 | |
| Intangible assets, net of amortization | Intangible assets, net of amortization | | 41.8 | | | 32.4 | | Intangible assets, net of amortization | | 48.8 | | | 32.4 | |
| Other non-current assets | Other non-current assets | | 28.4 | | | 29.9 | | Other non-current assets | | 30.1 | | | 29.9 | |
| Total other non-current assets | Total other non-current assets | | 237.0 | | | 239.1 | | Total other non-current assets | | 213.8 | | | 239.1 | |
| Total assets | Total assets | | $ | 2,259.3 | | | $ | 2,162.6 | | Total assets | | $ | 2,234.7 | | | $ | 2,162.6 | |
| | LIABILITIES AND SHAREHOLDER'S EQUITY | LIABILITIES AND SHAREHOLDER'S EQUITY | | | | | LIABILITIES AND SHAREHOLDER'S EQUITY | | | | |
| Current liabilities: | Current liabilities: | | | | | Current liabilities: | | | | |
| Short-term and current portion of long-term debt (Note 4) | Short-term and current portion of long-term debt (Note 4) | | $ | 0.2 | | | $ | 0.2 | | Short-term and current portion of long-term debt (Note 4) | | $ | 55.2 | | | $ | 0.2 | |
| Accounts payable | Accounts payable | | 97.9 | | | 111.5 | | Accounts payable | | 93.4 | | | 111.5 | |
| Accrued taxes | Accrued taxes | | 85.1 | | | 85.1 | | Accrued taxes | | 89.1 | | | 85.1 | |
| Accrued interest | Accrued interest | | 3.3 | | | 2.6 | | Accrued interest | | 7.9 | | | 2.6 | |
| Customer and supplier deposits | Customer and supplier deposits | | 29.4 | | | 14.9 | | Customer and supplier deposits | | 15.1 | | | 14.9 | |
| Regulatory liabilities, current | Regulatory liabilities, current | | 31.0 | | | 14.6 | | Regulatory liabilities, current | | 38.1 | | | 14.6 | |
| Accrued and other current liabilities | Accrued and other current liabilities | | 12.0 | | | 13.0 | | Accrued and other current liabilities | | 13.7 | | | 13.0 | |
| | Total current liabilities | Total current liabilities | | 258.9 | | | 241.9 | | Total current liabilities | | 312.5 | | | 241.9 | |
| | Non-current liabilities: | Non-current liabilities: | | | | | Non-current liabilities: | | | | |
| Long-term debt (Note 4) | Long-term debt (Note 4) | | 712.6 | | | 574.1 | | Long-term debt (Note 4) | | 712.7 | | | 574.1 | |
| Deferred income taxes | Deferred income taxes | | 189.8 | | | 183.4 | | Deferred income taxes | | 183.9 | | | 183.4 | |
| Taxes payable | Taxes payable | | 40.8 | | | 83.5 | | Taxes payable | | 0.4 | | | 83.5 | |
| Regulatory liabilities, non-current | Regulatory liabilities, non-current | | 224.7 | | | 229.3 | | Regulatory liabilities, non-current | | 217.9 | | | 229.3 | |
| Accrued pension and other post-retirement benefits | Accrued pension and other post-retirement benefits | | 53.7 | | | 62.3 | | Accrued pension and other post-retirement benefits | | 53.1 | | | 62.3 | |
| | Other non-current liabilities | Other non-current liabilities | | 5.3 | | | 5.9 | | Other non-current liabilities | | 5.2 | | | 5.9 | |
| Total non-current liabilities | Total non-current liabilities | | 1,226.9 | | | 1,138.5 | | Total non-current liabilities | | 1,173.2 | | | 1,138.5 | |
| | Commitments and contingencies (Note 7) | Commitments and contingencies (Note 7) | | 0 | | 0 | Commitments and contingencies (Note 7) | |
| | Common shareholder's equity: | Common shareholder's equity: | | | | | Common shareholder's equity: | | | | |
| | Common stock, at par value of $0.01 per share | 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 | | 50,000,000 shares authorized, 41,172,173 shares issued and outstanding | |
| Other paid-in capital | Other paid-in capital | | 803.5 | | | 822.5 | | Other paid-in capital | | 788.6 | | | 822.5 | |
| Accumulated other comprehensive loss | Accumulated other comprehensive loss | | (30.4) | | | (31.8) | | Accumulated other comprehensive loss | | (29.8) | | | (31.8) | |
| Accumulated deficit | Accumulated deficit | | — | | | (8.9) | | Accumulated deficit | | (10.2) | | | (8.9) | |
| Total common shareholder's equity | Total common shareholder's equity | | 773.5 | | | 782.2 | | Total common shareholder's equity | | 749.0 | | | 782.2 | |
| Total liabilities and shareholder's equity | Total liabilities and shareholder's equity | | $ | 2,259.3 | | | $ | 2,162.6 | | Total liabilities and shareholder's equity | | $ | 2,234.7 | | | $ | 2,162.6 | |
See Notes to Condensed Financial Statements.
| | AES Ohio | AES Ohio | AES Ohio |
| Condensed Statements of Cash Flows | Condensed Statements of Cash Flows | Condensed Statements of Cash Flows |
| (Unaudited) | (Unaudited) | (Unaudited) |
| | Six months ended June 30, | | Nine months ended September 30, |
| $ in millions | $ in millions | | 2022 | | 2021 | $ in millions | | 2022 | | 2021 |
| Cash flows from operating activities: | Cash flows from operating activities: | | | | | Cash flows from operating activities: | | | | |
| Net income | Net income | | $ | 24.2 | | | $ | 26.9 | | Net income | | $ | 14.1 | | | $ | 40.3 | |
| Adjustments to reconcile net income to net cash from operating activities: | 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 | Depreciation and amortization | | 38.9 | | | 37.2 | | Depreciation and amortization | | 58.7 | | | 55.8 | |
| | Deferred income taxes | Deferred income taxes | | 1.9 | | | 3.7 | | Deferred income taxes | | (6.9) | | | 6.4 | |
| Gain on disposal of business | Gain on disposal of business | | (0.6) | | | — | | Gain on disposal of business | | (0.6) | | | — | |
| | Changes in certain assets and liabilities: | Changes in certain assets and liabilities: | | Changes in certain assets and liabilities: | |
| Accounts receivable, net | Accounts receivable, net | | (13.0) | | | 5.3 | | Accounts receivable, net | | (17.7) | | | 1.6 | |
| Inventories | Inventories | | (3.5) | | | (0.6) | | Inventories | | (6.5) | | | (3.6) | |
| | Taxes applicable to subsequent years | Taxes applicable to subsequent years | | 42.6 | | | 38.9 | | Taxes applicable to subsequent years | | 62.8 | | | 58.3 | |
| Deferred regulatory costs, net | Deferred regulatory costs, net | | 9.1 | | | (9.8) | | Deferred regulatory costs, net | | 55.4 | | | 5.1 | |
| Prepayments and other current assets | Prepayments and other current assets | | (3.0) | | | (6.7) | | Prepayments and other current assets | | (4.5) | | | (5.2) | |
| | Other non-current assets | | Other non-current assets | | 5.7 | | | (5.7) | |
| Accounts payable | Accounts payable | | 2.5 | | | 2.6 | | Accounts payable | | (6.8) | | | 6.0 | |
| Accrued taxes payable / receivable | Accrued taxes payable / receivable | | (41.9) | | | (52.0) | | Accrued taxes payable / receivable | | (75.9) | | | (71.0) | |
| Accrued interest | Accrued interest | | 0.6 | | | 0.3 | | Accrued interest | | 5.3 | | | 3.3 | |
| | Accrued and other current liabilities | Accrued and other current liabilities | | 12.7 | | | (3.8) | | Accrued and other current liabilities | | 0.2 | | | (1.5) | |
| Accrued pension and other post-retirement benefits | Accrued pension and other post-retirement benefits | | (8.5) | | | (11.4) | | Accrued pension and other post-retirement benefits | | (9.2) | | | (12.2) | |
| Other | Other | | 4.5 | | | 2.0 | | Other | | (0.8) | | | 3.7 | |
| Net cash provided by operating activities | Net cash provided by operating activities | | 66.5 | | | 32.6 | | Net cash provided by operating activities | | 73.3 | | | 81.3 | |
| Cash flows from investing activities: | Cash flows from investing activities: | | | | | Cash flows from investing activities: | | | | |
| Capital expenditures | Capital expenditures | | (133.5) | | | (94.0) | | Capital expenditures | | (191.0) | | | (143.3) | |
| Cost of removal payments | Cost of removal payments | | (8.0) | | | (9.2) | | Cost of removal payments | | (14.5) | | | (13.8) | |
| | | Other investing activities, net | Other investing activities, net | | 0.5 | | | 0.9 | | Other investing activities, net | | 0.4 | | | 0.9 | |
| Net cash used in investing activities | Net cash used in investing activities | | (141.0) | | | (102.3) | | Net cash used in investing activities | | (205.1) | | | (156.2) | |
| Cash flows from financing activities: | Cash flows from financing activities: | | | | | Cash flows from financing activities: | | | | |
| Dividends and returns of capital paid to parent | | Dividends and returns of capital paid to parent | | (49.0) | | | (27.0) | |
| | Issuance of long-term debt | | Issuance of long-term debt | | 140.0 | | | — | |
| Payments of deferred financing costs | Payments of deferred financing costs | | (1.0) | | | (0.2) | | Payments of deferred financing costs | | (1.0) | | | — | |
| | Distributions to parent | | (34.0) | | | (17.0) | | |
| | Borrowings from revolving credit facilities | Borrowings from revolving credit facilities | | 130.0 | | | 80.0 | | Borrowings from revolving credit facilities | | 185.0 | | | 120.0 | |
| Repayment of borrowings from revolving credit facilities | Repayment of borrowings from revolving credit facilities | | (130.0) | | | — | | Repayment of borrowings from revolving credit facilities | | (130.0) | | | — | |
| Issuance of long-term debt | | 140.0 | | | — | | |
| | Net cash provided by financing activities | Net cash provided by financing activities | | 105.0 | | | 62.8 | | Net cash provided by financing activities | | 145.0 | | | 93.0 | |
| Cash, cash equivalents, and restricted cash: | Cash, cash equivalents, and restricted cash: | | | | | Cash, cash equivalents, and restricted cash: | | | | |
| Net change | Net change | | 30.5 | | | (6.9) | | Net change | | 13.2 | | | 18.1 | |
| Balance at beginning of period | Balance at beginning of period | | 14.5 | | | 11.8 | | Balance at beginning of period | | 14.5 | | | 11.8 | |
| Cash, cash equivalents, and restricted cash at end of period | Cash, cash equivalents, and restricted cash at end of period | | $ | 45.0 | | | $ | 4.9 | | Cash, cash equivalents, and restricted cash at end of period | | $ | 27.7 | | | $ | 29.9 | |
| Supplemental cash flow information: | Supplemental cash flow information: | | | | | Supplemental cash flow information: | | | | |
| Interest paid, net of amounts capitalized | Interest paid, net of amounts capitalized | | $ | 10.0 | | | $ | 10.2 | | Interest paid, net of amounts capitalized | | $ | 12.9 | | | $ | 12.6 | |
| | Non-cash investing activities: | Non-cash investing activities: | | Non-cash investing activities: | |
| Accruals for capital expenditures | Accruals for capital expenditures | | $ | 26.6 | | | $ | 15.7 | | Accruals for capital expenditures | | $ | 31.2 | | | $ | 15.1 | |
See Notes to Condensed Financial Statements.
| | AES Ohio | AES Ohio | AES Ohio |
Condensed Statements of Shareholder's Equity | | (Unaudited) | (Unaudited) | (Unaudited) |
| | Common Stock (a) | | | Common Stock (a) | |
| $ in millions | $ in millions | | Outstanding Shares | | Amount | | Other Paid-in Capital | | Accumulated Other Comprehensive Loss | | Retained Earnings / (Accumulated Deficit) | | Total | $ in millions | | Outstanding Shares | | Amount | | Other Paid-in Capital | | Accumulated Other Comprehensive Loss | | Retained Earnings / (Accumulated Deficit) | | Total |
| Balance, January 1, 2022 | Balance, January 1, 2022 | | 41,172,173 | | | $ | 0.4 | | | $ | 822.5 | | | $ | (31.8) | | | $ | (8.9) | | | $ | 782.2 | | Balance, January 1, 2022 | | 41,172,173 | | | $ | 0.4 | | | $ | 822.5 | | | $ | (31.8) | | | $ | (8.9) | | | $ | 782.2 | |
| Net comprehensive income | Net comprehensive income | | 0.7 | | | 16.9 | | | 17.6 | | Net comprehensive income | | 0.7 | | | 16.9 | | | 17.6 | |
| Distributions to parent | Distributions to parent | | (9.0) | | | (9.0) | | Distributions to parent | | (9.0) | | | (9.0) | |
| Other | Other | | (0.3) | | | (0.3) | | Other | | (0.3) | | | (0.3) | |
| Balance, March 31, 2022 | Balance, March 31, 2022 | | 41,172,173 | | | 0.4 | | | 813.5 | | | (31.1) | | | 7.7 | | | $ | 790.5 | | Balance, March 31, 2022 | | 41,172,173 | | | 0.4 | | | 813.5 | | | (31.1) | | | 7.7 | | | $ | 790.5 | |
| Net comprehensive income | Net comprehensive income | | 0.7 | | | 7.3 | | | 8.0 | | Net comprehensive income | | 0.7 | | | 7.3 | | | 8.0 | |
| Distributions to parent | Distributions to parent | | (10.0) | | | (15.0) | | | (25.0) | | Distributions to parent | | (10.0) | | | (15.0) | | | (25.0) | |
| | Balance, June 30, 2022 | Balance, June 30, 2022 | | 41,172,173 | | | $ | 0.4 | | | $ | 803.5 | | | $ | (30.4) | | | $ | — | | | $ | 773.5 | | Balance, June 30, 2022 | | 41,172,173 | | | 0.4 | | | 803.5 | | | (30.4) | | | — | | | 773.5 | |
| Net comprehensive loss | | Net comprehensive loss | | 0.6 | | | (10.1) | | | (9.5) | |
| Distributions to parent | | Distributions to parent | | (15.0) | | | (15.0) | |
| | Other | | Other | | 0.1 | | | (0.1) | | | — | |
| Balance, September 30, 2022 | | Balance, September 30, 2022 | | 41,172,173 | | | $ | 0.4 | | | $ | 788.6 | | | $ | (29.8) | | | $ | (10.2) | | | $ | 749.0 | |
| | | Common Stock (a) | | | Common Stock (a) | |
| $ in millions | $ in millions | | Outstanding Shares | | Amount | | Other Paid-in Capital | | Accumulated Other Comprehensive Loss | | Accumulated Deficit | | Total | $ in millions | | Outstanding Shares | | Amount | | Other Paid-in Capital | | Accumulated Other Comprehensive Loss | | Accumulated Deficit | | Total |
| Balance, January 1, 2021 | Balance, January 1, 2021 | | 41,172,173 | | | $ | 0.4 | | | $ | 714.4 | | | $ | (42.1) | | | $ | (56.0) | | | $ | 616.7 | | Balance, January 1, 2021 | | 41,172,173 | | | $ | 0.4 | | | $ | 714.4 | | | $ | (42.1) | | | $ | (56.0) | | | $ | 616.7 | |
| Net comprehensive income | Net comprehensive income | | 1.0 | | | 18.3 | | | 19.3 | | Net comprehensive income | | 1.0 | | | 18.3 | | | 19.3 | |
| | Balance, March 31, 2021 | Balance, March 31, 2021 | | 41,172,173 | | | 0.4 | | | 714.4 | | | (41.1) | | | (37.7) | | | 636.0 | | Balance, March 31, 2021 | | 41,172,173 | | | 0.4 | | | 714.4 | | | (41.1) | | | (37.7) | | | 636.0 | |
| Net comprehensive income | Net comprehensive income | | 0.9 | | | 8.6 | | | 9.5 | | Net comprehensive income | | 0.9 | | | 8.6 | | | 9.5 | |
| Distributions to parent | Distributions to parent | | (7.0) | | | (7.0) | | Distributions to parent | | (7.0) | | | (7.0) | |
| | Balance, June 30, 2021 | Balance, June 30, 2021 | | 41,172,173 | | | $ | 0.4 | | | $ | 707.4 | | | $ | (40.2) | | | $ | (29.1) | | | $ | 638.5 | | Balance, June 30, 2021 | | 41,172,173 | | | 0.4 | | | 707.4 | | | (40.2) | | | (29.1) | | | 638.5 | |
| Net comprehensive income | | Net comprehensive income | | 1.0 | | | 13.4 | | | 14.4 | |
| | Distributions to parent | | Distributions to parent | | (10.0) | | | (10.0) | |
| Other | | Other | | 0.1 | | | 0.1 | |
| Balance, September 30, 2021 | | Balance, September 30, 2021 | | 41,172,173 | | | $ | 0.4 | | | $ | 697.5 | | | $ | (39.2) | | | $ | (15.7) | | | $ | 643.0 | |
(a)$0.01 par value, 50,000,000 shares authorized.
See Notes to Condensed Financial Statements.
AES Ohio
Notes to Unaudited Condensed Financial Statements
For the three and sixnine months ended JuneSeptember 30, 2022 and 2021
1. Overview and Summary of Significant Accounting PoliciesOVERVIEW AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
DP&L,, which does business as AES Ohio,, is a public utility incorporated in 1911 under the laws of Ohio. Beginning in 2001, Ohio law gave Ohio consumers the right to choose the electric generation supplier from whom they purchase retail generation service; however, retail transmission and distribution services are still regulated. AES Ohio has the exclusive right to provide such transmission and distribution services to approximately 535,000 customers located in West Central Ohio. Additionally, AES Ohio provides retail SSO electric service to residential, commercial, industrial and governmental customers in a 6,000-square mile area of West Central Ohio. AES Ohio sources all of the generation for its SSO customers through a competitive bid process. Principal industries located in AES Ohio’s service territory include automotive, food processing, paper, plastic, manufacturing and defense. AES Ohio's sales reflect the general economic conditions, seasonal weather patterns of the area, the market price of electricity and customer energy efficiency initiatives. AES Ohio owns numerous transmission facilities. AES Ohio sells its proportional share of energy and capacity from its investment in OVEC into the wholesale market. AES Ohio has 1one reportable segment, the Utility segment. In addition to AES Ohio's electric transmission and distribution businesses, the Utility segment includes revenues and costs associated with AES Ohio's investment in OVEC. AES Ohio is a subsidiary of DPL. The terms “we,” “us,” “our” and “ours” are used to refer to AES Ohio.Ohio.
AES Ohio’s electric transmission and distribution businesses are subject to rate regulation by federal and state regulators. Accordingly, AES Ohio applies the accounting standards for regulated operations to its electric transmission and distribution businesses and records regulatory assets when incurred costs are expected to be recovered in future customer rates and regulatory liabilities when current cost recoveries in customer rates relate to expected future costs or overcollections of riders.
Financial Statement Presentation
AES Ohio does not have any subsidiaries. Certain immaterial amounts from prior periods have been reclassified to conform to the current period presentation.
Interim Financial Presentation
The accompanying unaudited condensed financial statements and footnotes have been prepared in accordance with GAAP, as contained in the FASB ASC, for interim financial information and Article 10 of Regulation S-X issued by the SEC. Accordingly, they do not include all the information and footnotes required by GAAP for annual fiscal reporting periods. In the opinion of management, the interim financial information includes all adjustments of a normal recurring nature necessary for a fair presentation of the results of operations, financial position, comprehensive income, changes in common shareholder's equity, and cash flows. The results of operations for the three and sixnine months ended JuneSeptember 30, 2022 are not necessarily indicative of expected results for the year ending December 31, 2022. The accompanying condensed consolidated financial statements are unaudited and should be read in conjunction with the 2021 audited consolidated financial statements and notes thereto, which are included in our Form 10-K.
Use of Management Estimates
The preparation of financial statements in conformity with GAAP requires us to make estimates and assumptions 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 and assumptions. Significant items subject to such estimates and assumptions include: recognition of revenue including unbilled revenues; the carrying value of property, plant and equipment; the valuation of insurance and claims liabilities; the valuation of allowances for credit losses and deferred income taxes; regulatory assets and liabilities; liabilities recorded for income tax exposures; litigation; contingencies; and assets and liabilities related to employee benefits.
Cash, Cash Equivalents and Restricted Cash
The following table summarizes cash, cash equivalents, and restricted cash amounts reported on the Condensed Balance Sheets that reconcile to the total of such amounts as shown on the Condensed Statements of Cash Flows:
| | $ in millions | $ in millions | | June 30, 2022 | | December 31, 2021 | $ in millions | | September 30, 2022 | | December 31, 2021 |
| Cash and cash equivalents | Cash and cash equivalents | | $ | 44.9 | | | $ | 14.4 | | Cash and cash equivalents | | $ | 27.6 | | | $ | 14.4 | |
| Restricted cash (included in Prepayments and other current assets) | Restricted cash (included in Prepayments and other current assets) | | 0.1 | | | 0.1 | | Restricted cash (included in Prepayments and other current assets) | | 0.1 | | | 0.1 | |
| Cash, Cash Equivalents, and Restricted Cash, End of Period | Cash, Cash Equivalents, and Restricted Cash, End of Period | | $ | 45.0 | | | $ | 14.5 | | Cash, Cash Equivalents, and Restricted Cash, End of Period | | $ | 27.7 | | | $ | 14.5 | |
Accounts Receivable and Allowance for Credit Losses
The following table summarizes accounts receivable as of JuneSeptember 30, 2022 and December 31, 2021:
| | | June 30, | | December 31, | | September 30, | | December 31, |
| $ in millions | $ in millions | | 2022 | | 2021 | $ in millions | | 2022 | | 2021 |
| Accounts receivable, net: | Accounts receivable, net: | | | | | Accounts receivable, net: | | | | |
| Customer receivables | Customer receivables | | 55.7 | | | $ | 41.6 | | Customer receivables | | 65.0 | | | $ | 41.6 | |
| Unbilled revenue | Unbilled revenue | | 18.8 | | | 19.2 | | Unbilled revenue | | 15.0 | | | 19.2 | |
| Amounts due from affiliates | Amounts due from affiliates | | 5.5 | | | 4.4 | | Amounts due from affiliates | | 5.7 | | | 4.4 | |
| Due from PJM transmission enhancement settlement | Due from PJM transmission enhancement settlement | | 1.7 | | | 1.7 | | Due from PJM transmission enhancement settlement | | 1.7 | | | 1.7 | |
| Other | Other | | 3.4 | | | 5.3 | | Other | | 2.6 | | | 5.3 | |
| Allowance for credit losses | Allowance for credit losses | | (0.3) | | | (0.3) | | Allowance for credit losses | | (0.4) | | | (0.3) | |
| Total accounts receivable, net | Total accounts receivable, net | | $ | 84.8 | | | $ | 71.9 | | Total accounts receivable, net | | $ | 89.6 | | | $ | 71.9 | |
|
The following table is a roll forward of our allowance for credit losses related to the accounts receivable balances for the sixnine months ended JuneSeptember 30, 2022 and 2021:
| | $ in millions | $ in millions | | Beginning Allowance Balance | | Current Period Provision | | Write-offs Charged Against Allowances | | Recoveries Collected | | Ending Allowance Balance | $ in millions | | Beginning Allowance Balance | | Current Period Provision | | Write-offs Charged Against Allowances | | Recoveries Collected | | Ending Allowance Balance |
| 2022 | 2022 | | $ | 0.3 | | | $ | 0.7 | | | $ | (1.1) | | | $ | 0.4 | | | $ | 0.3 | | 2022 | | $ | 0.3 | | | $ | 1.4 | | | $ | (2.1) | | | $ | 0.8 | | | $ | 0.4 | |
| 2021 | 2021 | | $ | 2.8 | | | $ | (0.2) | | | $ | (1.6) | | | $ | 0.7 | | | $ | 1.7 | | 2021 | | $ | 2.8 | | | $ | (0.4) | | | $ | (2.6) | | | $ | 1.1 | | | $ | 0.9 | |
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, 2022.collectability. Amounts are written off when reasonable collections efforts have been exhausted. During 2021, the current period provision and allowance for credit losses decreased due to lower past due customer receivable balances.
Inventories
Inventories consist of materials and supplies as of JuneSeptember 30, 2022 and December 31, 2021.
0AccumulatedAccumulated other comprehensive loss
The amounts reclassified out of Accumulated other comprehensive lossAOCL by component during the three and sixnine months ended JuneSeptember 30, 2022 and 2021 are as follows:
| | Details about Accumulated Other Comprehensive Loss components | | Affected line item in the Condensed Consolidated Statements of Operations | | Three months ended | | Six months ended | |
| Details about AOCL components | | Details about AOCL components | | Affected line item in the Condensed Consolidated Statements of Operations | | Three months ended | | Nine months ended |
| | | | | June 30, | | June 30, | | | | | September 30, | | September 30, |
| $ in millions | $ in millions | | | 2022 | | 2021 | | 2022 | | 2021 | $ in millions | | | 2022 | | 2021 | | 2022 | | 2021 |
| Amortization of defined benefit pension items (Note 6): | Amortization of defined benefit pension items (Note 6): | | | | | | | | | Amortization of defined benefit pension items (Note 6): | | | | | | | | |
| | Other expense | | 0.9 | | | 1.2 | | | 1.8 | | | 2.5 | | | Other expense | | 0.8 | | | 1.3 | | | 2.6 | | | 3.8 | |
| | Income tax effect | | (0.2) | | | (0.3) | | | (0.4) | | | (0.6) | | | Income tax effect | | (0.2) | | | (0.3) | | | (0.6) | | | (0.9) | |
| | Net of income taxes | | 0.7 | | | 0.9 | | | 1.4 | | | 1.9 | | | Net of income taxes | | 0.6 | | | 1.0 | | | 2.0 | | | 2.9 | |
| | Total reclassifications for the period, net of income taxes | Total reclassifications for the period, net of income taxes | | $ | 0.7 | | | $ | 0.9 | | | $ | 1.4 | | | $ | 1.9 | | Total reclassifications for the period, net of income taxes | | $ | 0.6 | | | $ | 1.0 | | | $ | 2.0 | | | $ | 2.9 | |
The changes in the components of Accumulated other comprehensive lossAOCL during the sixnine months ended JuneSeptember 30, 2022 are as follows:
| | | | | | | | | | | | |
| $ in millions | | | | | | Change in Accumulated other comprehensive loss |
| Balance as of January 1, 2022 | | | | | | $ | (31.8) | |
| | | | | | |
| | | | | | |
| Amounts reclassified from AOCL to earnings | | | | | | 1.42.0 | |
| | | | | | |
| | | | | | |
Balance as of JuneSeptember 30, 2022 | | | | | | $ | (30.4)(29.8) | |
Accounting for Taxes Collected from Customers and Remitted to Governmental Authorities
AES Ohio collects certain excise taxes levied by state or local governments from its customers. These taxes are accounted for on a net basis and not included in revenue. The amounts of such taxes collected for the three and sixnine months ended JuneSeptember 30, 2022 and 2021 were as follows:
| | | Three months ended | | Six months ended | | Three months ended | | Nine months ended |
| | June 30, | | June 30, | | September 30, | | September 30, |
| $ in millions | $ in millions | | 2022 | | 2021 | | 2022 | | 2021 | $ in millions | | 2022 | | 2021 | | 2022 | | 2021 |
| Excise taxes collected | Excise taxes collected | | $ | 11.5 | | | $ | 11.3 | | | $ | 24.6 | | | $ | 24.2 | | Excise taxes collected | | $ | 13.0 | | | $ | 13.5 | | | $ | 37.6 | | | $ | 37.7 | |
New Accounting Pronouncements Adopted in 2022
The following table provides a brief description of recent 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 the Company’s financial statements.
| | | | | | | | | | | |
| ASU Number and Name | Description | Date of Adoption | Effect on the financial statements upon adoption |
| 2020-04 and 2021-01, Reference Rate Form (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting | The amendments in these updates provide optional expedients and exceptions for applying GAAP to contracts, hedging relationships and other transactions that reference to LIBOR or another reference rate expected to be discontinued by reference rate reform, and clarify that certain optional expedients and exceptions in Topic 848 for contract modifications and hedge accounting apply to derivatives that are affected by the discounting transition. These amendments are effective for a limited period of time (March 12, 2020 - December 31, 2022). | Effective for all entities as of March 12, 2020 through December 31, 2022 | We are implementing the reference rate reform and do not expect these amendments to have a material impact on our financial statements. See Implementation for further details. |
New Accounting Pronouncements Issued But Not Yet Effective
We have assessed and determined that the new accounting pronouncements issued but not yet effective are not expected to have a material impact on our financial statements.
2. Regulatory MattersREGULATORY MATTERS
Distribution Rate Case
On November 30, 2020, AES Ohio filed a new distribution rate case with the PUCO. This rate case proposes a revenue increase of $120.8 million per year and incorporates the DIR investments that were planned and approved in the last rate case but not yet included in distribution rates, other distribution investments since September 2015 and investments necessitated by the tornados that occurred on Memorial Day in 2019. The rate case also includes a proposal for increased tree-trimming expenses and certain customer demand-side management programs and recovery of prior-approved regulatory assets for tree trimming, uncollectible expenses and rate case expense. A hearing on this case was held in January 2022, and the case is pending a commission order. Certain parties that have intervened in the distribution rate case have argued that ESP 1 incorporates a distribution rate freeze. Oral arguments regarding the potential rate freeze were held in May 2022. We are unable to predict the outcome of the distribution rate case, but if the PUCO were to impose a rate freeze that precludes AES Ohio’s ability to implement a distribution rate increase during ESP 1, it could have a material adverse effect on our results of operations, financial condition and cash flows.
Electric Security Plan
AES Ohio is currently operating pursuant to ESP 1. On September 26, 2022, AES Ohio filed its latest ESP (ESP 4) with the PUCO. ESP 4 is a comprehensive plan to enhance and upgrade its network and improve service reliability,
provide greater safeguards for price stability and continue investments in local economic development. As part of this plan, AES Ohio intends to increase investments in the distribution infrastructure and deploy a proactive vegetation management program. The plan also includes proposals for new customer programs, including renewable options, electric vehicle programs and energy efficiency programs for residential and low-income customers. ESP 4 also seeks to recover outstanding regulatory assets not currently in rates. AES Ohio did not propose that the Rate Stabilization Charge would continue as part of ESP 4. The plan requires PUCO approval.
Regulatory Assets and Liabilities
AES Ohio had recorded a $0.9 million regulatory asset as of December 31, 2021 relating to certain cost and revenue impacts offset by related savings of the COVID-19 pandemic, in accordance with AES Ohio’s application approved by the PUCO. During the third quarter of 2022, AES Ohio decided it will not seek recovery in a future rate proceeding and, thus, wrote off this $0.9 million deferral.
Additionally, during the third quarter of 2022, AES Ohio recorded a $28.9 million reduction in regulatory assets as a charge to "Net purchased power cost" in the Condensed Consolidated Statements of Operations in accordance with the provisions of ASC 980 "Regulated Operations."
3. Fair ValueFAIR VALUE
The fair value of current financial assets and liabilities and other deposits approximate their reported carrying amounts. The estimated fair values of ourthe Company's assets and liabilities have been determined using available market information. Because these amounts are 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 4—Fair Value in Item 8.—Financial Statements and Supplementary Data of our Form 10-K.
Financial Assets
AES Ohio established a Master Trust to hold assets that could be used for the benefit of employees participating in employee benefit plans and these assets are not used for general operating purposes. These assets are primarily comprised of open-ended mutual funds, which are valued using the net asset value per unit. These investments are recorded at fair value within Other non-current assets on the Condensed Balance Sheets and classified as equity investments. We recorded net unrealized gains / (losses) of $(0.9)$(0.4) million and $0.3$(0.1) million during the three months ended JuneSeptember 30, 2022 and 2021, respectively, and $(1.6)$(2.0) million and $0.5$0.4 million during the sixnine months ended JuneSeptember 30, 2022 and 2021, respectively. These amounts are included in "Other expense"income / (expense)" in our Condensed Statements of Operations.
Recurring Fair Value Measurements
The following table presents the fair value, carrying value and cost of our non-derivative instruments as of JuneSeptember 30, 2022 and December 31, 2021.
| | | June 30, 2022 | | December 31, 2021 | | September 30, 2022 | | December 31, 2021 |
| $ in millions | $ in millions | | Cost | | Fair Value | | Cost | | Fair Value | $ in millions | | Cost | | Fair Value | | Cost | | Fair Value |
| Assets | Assets | | | | | | | | | Assets | | | | | | | | |
| Money market funds | Money market funds | | $ | 0.4 | | | $ | 0.4 | | | $ | 0.4 | | | $ | 0.4 | | Money market funds | | $ | 0.4 | | | $ | 0.4 | | | $ | 0.4 | | | $ | 0.4 | |
| Equity securities | Equity securities | | 1.8 | | | 3.8 | | | 1.9 | | | 5.1 | | Equity securities | | 1.8 | | | 3.6 | | | 1.9 | | | 5.1 | |
| Debt securities | Debt securities | | 3.7 | | | 3.3 | | | 3.8 | | | 3.9 | | Debt securities | | 3.7 | | | 3.2 | | | 3.8 | | | 3.9 | |
| | Total | Total | | $ | 5.9 | | | $ | 7.5 | | | $ | 6.1 | | | $ | 9.4 | | Total | | $ | 5.9 | | | $ | 7.2 | | | $ | 6.1 | | | $ | 9.4 | |
|
These financial instruments are not subject to master netting agreements or collateral requirements and, as such, are presented in the Condensed Balance Sheets at their gross fair 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 sixnine months ended JuneSeptember 30, 2022 or 2021.
The fair value of assets and liabilities as of JuneSeptember 30, 2022 and December 31, 2021 measured on a recurring basis and the respective category within the fair value hierarchy for AES Ohio is as follows:
| | $ in millions | $ in millions | | Fair value as of June 30, 2022 | | Fair value as of December 31, 2021 | $ in millions | | Fair value as of September 30, 2022 | | Fair value as of December 31, 2021 |
| | | Level 1 | | Level 2 | | Level 3 | | Total | | Level 1 | | Level 2 | | Level 3 | | Total | | | Level 1 | | Level 2 | | Level 3 | | Total | | Level 1 | | Level 2 | | Level 3 | | Total |
| Assets | Assets | | | | | | | | | | | | | | | | | Assets | | | | | | | | | | | | | | | | |
| Master Trust assets | Master Trust assets | | Master Trust assets | |
| Money market funds | Money market funds | | $ | 0.4 | | | $ | — | | | $ | — | | | $ | 0.4 | | | $ | 0.4 | | | $ | — | | | $ | — | | | $ | 0.4 | | Money market funds | | $ | 0.4 | | | $ | — | | | $ | — | | | $ | 0.4 | | | $ | 0.4 | | | $ | — | | | $ | — | | | $ | 0.4 | |
| Equity securities | Equity securities | | — | | | 3.8 | | | — | | | 3.8 | | | — | | | 5.1 | | | — | | | 5.1 | | Equity securities | | — | | | 3.6 | | | — | | | 3.6 | | | — | | | 5.1 | | | — | | | 5.1 | |
| Debt securities | Debt securities | | — | | | 3.3 | | | — | | | 3.3 | | | — | | | 3.9 | | | — | | | 3.9 | | Debt securities | | — | | | 3.2 | | | — | | | 3.2 | | | — | | | 3.9 | | | — | | | 3.9 | |
| | Total assets | Total assets | | $ | 0.4 | | | $ | 7.1 | | | $ | — | | | $ | 7.5 | | | $ | 0.4 | | | $ | 9.0 | | | $ | — | | | $ | 9.4 | | Total assets | | $ | 0.4 | | | $ | 6.8 | | | $ | — | | | $ | 7.2 | | | $ | 0.4 | | | $ | 9.0 | | | $ | — | | | $ | 9.4 | |
Financial Instruments not Measured at Fair Value in the Condensed Balance Sheets
The fair value of long-term debt is based on current public market prices for disclosure purposes only. 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. Unrealized gains or losses are not recognized in the financial statements as long-term debt is presented at carrying value, net of unamortized premium or discount and unamortized deferred financing costs in the financial statements. The long-term debt amounts include the current portion payable in the next twelve months and have maturities that range from 2025 to 2061.
The following table presents the carrying amount, fair value, and fair value hierarchy of our financial liabilities that are not measured at fair value in the Condensed Balance Sheets as of the periods indicated, but for which fair value is disclosed:
| | | | Carrying Amount | | Fair value as of June 30, 2022 | | Carrying Amount | | Fair value as of December 31, 2021 | | Carrying Amount | | Fair value as of September 30, 2022 | | Carrying Amount | | Fair value as of December 31, 2021 |
| $ in millions | $ in millions | | Level 1 | | Level 2 | | Level 3 | | Total | | Level 1 | | Level 2 | | Level 3 | | Total | $ in millions | | Level 1 | | Level 2 | | Level 3 | | Total | | Level 1 | | Level 2 | | Level 3 | | Total |
| Liabilities | Liabilities | | | | | | | | | | | | | | | | | | | | | Liabilities | | | | | | | | | | | | | | | | | | | | |
| Long-term debt | Long-term debt | | $ | 712.8 | | | $ | — | | | $ | 647.2 | | | $ | 17.1 | | | $ | 664.3 | | | $ | 574.3 | | | $ | — | | | $ | 625.4 | | | $ | 17.2 | | | $ | 642.6 | | Long-term debt | | $ | 712.9 | | | $ | — | | | $ | 610.0 | | | 17.1 | | | $ | 627.1 | | | $ | 574.3 | | | $ | — | | | $ | 625.4 | | | $ | 17.2 | | | $ | 642.6 | |
4. DebtDEBT
Long-term debt is as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Interest | | | | June 30, | | December 31, |
| $ in millions | | Rate | | Due | | 2022 | | 2021 |
| First Mortgage Bonds | | 3.95 | % | | 2049 | | $ | 425.0 | | | $ | 425.0 | |
| First Mortgage Bonds | | 3.20 | % | | 2040 | | 140.0 | | | 140.0 | |
Tax-exempt First Mortgage Bonds (a) | | 4.25 | % | | 2027 | | 100.0 | | | — | |
Tax-exempt First Mortgage Bonds (b) | | 4.00 | % | | 2027 | | 40.0 | | | — | |
| U.S. Government note | | 4.20 | % | | 2061 | | 17.1 | | | 17.2 | |
| Unamortized deferred financing costs | | | | | | (6.8) | | | (5.4) | |
| Unamortized debt discounts, net | | | | | | (2.5) | | | (2.5) | |
| Total long-term debt | | | | | | 712.8 | | | 574.3 | |
| Less: current portion | | | | | | (0.2) | | | (0.2) | |
| Long-term debt, net of current portion | | | | | | $ | 712.6 | | | $ | 574.1 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Interest | | | | September 30, | | December 31, |
| $ in millions | | Rate | | Due | | 2022 | | 2021 |
| First Mortgage Bonds | | 3.95 | % | | 2049 | | $ | 425.0 | | | $ | 425.0 | |
| First Mortgage Bonds | | 3.20 | % | | 2040 | | 140.0 | | | 140.0 | |
Tax-exempt First Mortgage Bonds (a) | | 4.25 | % | | 2027 | | 100.0 | | | — | |
Tax-exempt First Mortgage Bonds (b) | | 4.00 | % | | 2027 | | 40.0 | | | — | |
| U.S. Government note | | 4.20 | % | | 2061 | | 17.1 | | | 17.2 | |
| Unamortized deferred financing costs | | | | | | (6.8) | | | (5.4) | |
| Unamortized debt discounts, net | | | | | | (2.4) | | | (2.5) | |
| Total long-term debt | | | | | | 712.9 | | | 574.3 | |
| Less: current portion | | | | | | (0.2) | | | (0.2) | |
| Long-term debt, net of current portion | | | | | | $ | 712.7 | | | $ | 574.1 | |
(a)First mortgage bonds issued to the Ohio Air Quality Development Authority, to secure the loan of proceeds from tax-exempt bonds issued by the Ohio Air Quality Development Authority. The bonds have a final maturity date of November 1, 2040 but are subject to a mandatory put in June 2027.
(b)First mortgage bonds issued to the Ohio Air Quality Development Authority, to secure the loan of proceeds from tax-exempt bonds issued by the Ohio Air Quality Development Authority. The bonds have a final maturity date of January 1, 2034 but are subject to a mandatory put in June 2027.
Line of credit
As of JuneSeptember 30, 2022 and December 31, 2021, the AES Ohio Credit Agreement had outstanding borrowings on its line of credit of $0.0$55.0 million and $0.0 million, respectively.
Significant transactions
On June 1, 2022, AES Ohio re-issued $140.0 million of tax-exempt Ohio Air Quality Development Authority (OAQDA) Collateralized Pollution Revenue Refunding Bonds that had been held in trust, Series 2015A&B. AES
Ohio re-issued $140.0 million aggregate principal amount of first mortgage bonds to the OAQDA in two series: $100.0 million Series 2015A bonds at an interest rate of 4.25% and $40.0 million Series 2015B at an interest rate of 4.00% to secure the loan of proceeds from these bonds issued by the OAQDA. These bonds are subject to a mandatory put date of June 1, 2027.
Long-term debt covenants and restrictions
The AES Ohio Credit Agreement and Bond Purchase Agreement (financing document entered into in connection with the issuance of AES Ohio's First Mortgage Bonds, on July 31, 2020) has one financial covenant. The covenant measures Total Debt to Total Capitalization and is calculated, at the end of each fiscal quarter, by dividing total debt at the end of the quarter by total capitalization at the end of the quarter. AES Ohio’s Total Debt to Total Capitalization ratio shall not be greater than 0.67 to 1.00. As of JuneSeptember 30, 2022, AES Ohio was in compliance with this financial covenant.
As of JuneSeptember 30, 2022, AES Ohio was in compliance with all debt covenants, including the financial covenants described above.
AES Ohio does not have any meaningful restrictions in its debt financing documents prohibiting dividends and return of capital payments to its parent, DPL.DPL.
Substantially all property, plant & equipment of AES Ohio is subject to the lien of the mortgage securing AES Ohio’s First and Refunding Mortgage.
5. INCOME TAXES
5. Income Taxes
AES Ohio's provision for income taxes is based on the estimated annual effective tax rate, plus discrete items. The effective combined state and federal income tax rates were 0.0%35.3% and 10.0%(24.8)% for the three and sixnine months ended JuneSeptember 30, 2022, respectively, as compared to 5.5%16.8% and 12.1%13.7% for the three and sixnine months ended JuneSeptember 30, 2021, respectively. The year-to-date rate is different from the combined federal and state statutory rate of 22.1% primarily due to the flowthrough of the net tax benefit related to the reversal of excess deferred taxes of AES Ohio as a percentage of pre-tax book income.income or loss.
AES files federal and state income tax returns which consolidates AES Ohio.Ohio. Under a tax sharing agreement with DPL,, AES Ohio is responsible for the income taxes associated with its own taxable income and records the provision for income taxes using a separate return method.
6. Benefit Plans
AES Ohio sponsors a defined benefit pension plan for the majority of its employees.BENEFIT PLANS.
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 and $9.8 million in employer contributions during the six months ended June 30, 2022 and 2021, respectively.
The amounts presented in the following tables for pension include both of the collective bargaining plan formula, the traditional management plan formula, the cash balance plan formula and the SERP, in the aggregate.Pension Plans. The pension costs below have not been adjusted for amounts billed to the Service Company for former AES Ohio employees who are now employed by the Service Company or other AES affiliates or for amounts billed to AES Ohio Generation for former employees that were employed by AES Ohio Generation that are still participants in the AES Ohio plan. The components of net periodic benefit costs other than service costs are included in "Other expense" in the Condensed Statements of Operations.
The following table presents the net periodic benefit cost of the pension benefit plansPension Plans for the three and sixnine months ended JuneSeptember 30, 2022 and 2021 was:
| | | Three months ended | | Six months ended | | Three months ended | | Nine months ended |
| | June 30, | | June 30, | | September 30, | | September 30, |
| $ in millions | $ in millions | | 2022 | | 2021 | | 2022 | | 2021 | $ in millions | | 2022 | | 2021 | | 2022 | | 2021 |
| Service cost | Service cost | | $ | 1.2 | | | $ | 1.1 | | | $ | 2.5 | | | $ | 2.2 | | Service cost | | $ | 1.2 | | | $ | 1.2 | | | $ | 3.7 | | | $ | 3.4 | |
| Interest cost | Interest cost | | 2.4 | | | 2.0 | | | 4.8 | | | 4.0 | | Interest cost | | 2.4 | | | 2.1 | | | 7.2 | | | 6.1 | |
| Expected return on plan assets | Expected return on plan assets | | (3.9) | | | (3.7) | | | (7.9) | | | (7.4) | | Expected return on plan assets | | (4.0) | | | (3.8) | | | (11.9) | | | (11.2) | |
| Amortization of unrecognized: | Amortization of unrecognized: | | Amortization of unrecognized: | |
| Prior service cost | Prior service cost | | 0.3 | | | 0.3 | | | 0.6 | | | 0.6 | | Prior service cost | | 0.3 | | | 0.2 | | | 0.9 | | | 0.8 | |
| Actuarial loss | Actuarial loss | | 1.9 | | | 2.8 | | | 3.8 | | | 5.6 | | Actuarial loss | | 2.0 | | | 2.9 | | | 5.8 | | | 8.5 | |
| Net periodic benefit cost | Net periodic benefit cost | | $ | 1.9 | | | $ | 2.5 | | | $ | 3.8 | | | $ | 5.0 | | Net periodic benefit cost | | $ | 1.9 | | | $ | 2.6 | | | $ | 5.7 | | | $ | 7.6 | |
.
The components of net periodic (benefit) / cost other than service cost are included in "Other expense"income / (expense)" in the Condensed Statements of Operations.
There were $7.5 million and $9.8 million in employer contributions during the nine months ended September 30, 2022 and 2021, respectively.
In addition, AES Ohio provides postretirement health care and life insurance benefits to certain retired employees, their spouses and eligible dependents. We have funded a portion of the union-eligible benefits using a Voluntary Employee Beneficiary Association Trust. These postretirement health care benefits and the related unfunded obligation of $8.7$8.4 million and $8.9 million as of JuneSeptember 30, 2022 and December 31, 2021, respectively, were not material to the financial statements in the periods covered by this report.
7. Commitments and COMMITMENTS AND CONTINGENCIES
Contingencies
Equity Ownership Interest
AES Ohio has a 4.9% equity ownership interest in OVEC, which is recorded using the cost method of accounting under GAAP. AES Ohio, along with several non-affiliated energy companies party to an OVEC arrangement,
receive and pay for OVEC capacity and energy and are responsible for OVEC debt obligations and other fixed costs in proportion to their power participation ratios under the arrangement, which, for AES Ohio, is the same as its equity ownership interest. As of June 30, 2022, AES Ohio could be responsible for the repayment of 4.9%, or $53.9 million, of $1,099.9 million OVEC debt obligations if they came due, comprised of both fixed and variable rate securities with maturities from 2022 to 2040. OVEC could also seek additional contributions from AES Ohio to avoid a default in the event that other OVEC members defaulted on their respective OVEC obligations.
ContingenciesLegal Matters
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 JuneSeptember 30, 2022, cannot be reasonably determined.
Environmental Matters
AES Ohio’s current and previously-owned facilities and operationsWe are subject to various federal, state, regional and local environmental protection and health and safety laws and regulations governing, among other things, the generation, storage, handling, use, disposal and transportation of regulated materials, including ash; the use and discharge of water used in generation boilers and for cooling purposes; the emission and discharge of hazardous and other materials, including GHGs, into the environment; climate change; and the health and safety of our employees. These laws and regulations often require a wide rangelengthy and complex process of obtaining and renewing permits and other governmental authorizations from federal, state and local environmentalagencies. Violation of these laws, regulations or permits can result in substantial fines, other sanctions, permit revocation and/or facility shutdowns. We cannot assure that we have been or will be at all times in full compliance with such laws, regulations and laws. The environmental issues that may affect us include:permits.
•The federal CAAWhere no accrued liability has been recognized, it is reasonably possible that some matters could be decided unfavorably to the us and state laws and regulations (including State Implementation Plans) whichcould require compliance, obtaining permits and reportingus to pay damages or make expenditures in amounts that could be material but could not be estimated as to air emissions;
•Litigation with federal and certain state governments and certain special interest groups regarding whether modifications to or maintenance of certain coal-fired generating stations require additional permitting or pollution control technology, or whether emissions from coal-fired generating stations cause or contribute to global climate changes;
•Rules and future rules issued by the EPA, the Ohio EPA or other authorities that require or will require substantial reductions in SO2, particulates, mercury, acid gases, NOx and other air emissions;
•Rules and future rules issued by the EPA, the Ohio EPA or other authorities that require or will require reporting and reductions of GHGs;
•Rules and future rules issued by the EPA, 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.September 30, 2022.
In additionWe have taken steps to imposing continuing compliance obligations, federal, state and local environmental 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 atlimit our facilities to comply, or to determine compliance, with such regulations. We record liabilities for loss contingencies relatedexposure to environmental matters when a loss is probable of occurringclaims that could be raised with respect to our previously-owned and canoperated coal-fired generation units, but we cannot predict whether any such claims will be reasonably estimated in accordance withraised and, if they are, the provisions of GAAP. Accordingly, we have immaterial accruals for loss contingencies for environmental matters. We also have several environmental matters forextent to 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 andthey 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.
Equity Ownership Interest
8. RevenueAES Ohio has a 4.9% equity ownership interest in OVEC, which is recorded using the cost method of accounting under GAAP. AES Ohio, along with several non-affiliated energy companies party to an OVEC arrangement, receive and pay for OVEC capacity and energy and are responsible for OVEC debt obligations and other fixed costs in proportion to their power participation ratios under the arrangement, which, for AES Ohio, is the same as its equity ownership interest. As of September 30, 2022, AES Ohio could be responsible for the repayment of 4.9%, or $53.9 million, of $1,099.9 million OVEC debt obligations if they came due, comprised of both fixed and variable rate securities with maturities from 2026 to 2040. OVEC could also seek additional contributions from AES Ohio to avoid a default in the event that other OVEC members defaulted on their respective OVEC obligations.
8. 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 12 — Revenue in Item 8.—Financial Statements and Supplementary Data of our Form 10-K.
AES Ohio's revenue from contracts with customers was $186.1$257.4 million and $145.3$185.3 million for the three months ended JuneSeptember 30, 2022 and 2021, respectively, and $381.5$638.9 million and $315.0$500.3 million for the sixnine months ended JuneSeptember 30, 2022 and 2021, respectively.
The following table presents our revenue from contracts with customers and other revenue for the three and sixnine months ended JuneSeptember 30, 2022 and 2021:
| | | Three months ended | | Six months ended | | Three months ended | | Nine months ended |
| | June 30, | | June 30, | | September 30, | | September 30, |
| $ in millions | $ in millions | | 2022 | | 2021 | | 2022 | | 2021 | $ in millions | | 2022 | | 2021 | | 2022 | | 2021 |
| Retail revenue | Retail revenue | | | | | | | | | Retail revenue | | | | | | | | |
| Retail revenue from contracts with customers | Retail revenue from contracts with customers | | Retail revenue from contracts with customers | |
| Residential revenue | Residential revenue | | $ | 93.7 | | | $ | 77.7 | | | $ | 203.6 | | | $ | 176.0 | | Residential revenue | | $ | 147.0 | | | $ | 103.3 | | | $ | 350.6 | | | $ | 279.3 | |
| Commercial revenue | Commercial revenue | | 38.0 | | | 28.2 | | | 73.0 | | | 55.5 | | Commercial revenue | | 50.5 | | | 35.0 | | | 123.5 | | | 90.5 | |
| Industrial revenue | Industrial revenue | | 17.9 | | | 14.1 | | | 34.8 | | | 26.4 | | Industrial revenue | | 20.6 | | | 16.0 | | | 55.4 | | | 42.4 | |
| Governmental revenue | Governmental revenue | | 5.9 | | | 5.5 | | | 12.0 | | | 12.9 | | Governmental revenue | | 6.2 | | | 7.0 | | | 18.2 | | | 19.9 | |
Other (a) | Other (a) | | 3.2 | | | 2.8 | | | 6.1 | | | 6.5 | | Other (a) | | 3.0 | | | 2.9 | | | 9.1 | | | 9.4 | |
| Total retail revenue from contracts with customers | Total retail revenue from contracts with customers | | 158.7 | | | 128.3 | | | 329.5 | | | 277.3 | | Total retail revenue from contracts with customers | | 227.3 | | | 164.2 | | | 556.8 | | | 441.5 | |
| | Wholesale revenue | Wholesale revenue | | Wholesale revenue | |
| Wholesale revenue from contracts with customers | Wholesale revenue from contracts with customers | | 11.0 | | | 3.6 | | | 18.7 | | | 8.6 | | Wholesale revenue from contracts with customers | | 13.4 | | | 6.8 | | | 32.1 | | | 15.4 | |
| RTO ancillary revenue | RTO ancillary revenue | | 14.9 | | | 12.1 | | | 30.0 | | | 26.9 | | RTO ancillary revenue | | 16.2 | | | 12.5 | | | 46.2 | | | 39.4 | |
| Capacity revenue | Capacity revenue | | 1.5 | | | 1.3 | | | 3.3 | | | 2.2 | | Capacity revenue | | 0.5 | | | 1.8 | | | 3.8 | | | 4.0 | |
| | Miscellaneous revenue | Miscellaneous revenue | | 2.6 | | | 0.6 | | | 4.2 | | | 3.7 | | Miscellaneous revenue | | 2.5 | | | 0.8 | | | 6.7 | | | 4.5 | |
| Total revenues | Total revenues | | $ | 188.7 | | | $ | 145.9 | | | $ | 385.7 | | | $ | 318.7 | | Total revenues | | $ | 259.9 | | | $ | 186.1 | | | $ | 645.6 | | | $ | 504.8 | |
|
(a) "Other" primarily includes Wright-Patterson Air Force Baseoperation and maintenance service revenues, billing service fees from CRES providers and other miscellaneous retail revenues from contracts with customers.
The balances of receivables from contracts with customers were $74.5$80.0 million and $60.8 million as of JuneSeptember 30, 2022 and December 31, 2021, respectively. Payment terms for all receivables from contracts with customers are typically within 30 days, though, asunless a result of COVID-19, AES Ohio began offering expandedcustomer qualifies for payment arrangements for customers.extension.
9. Risks and UncertaintiesRISKS AND UNCERTAINTIES
COVID-19 Pandemic
The COVID-19 pandemic has impacted global economic activity, including electricity and energy consumption, and caused significant volatility in financial markets. Social distancing measures designed to slow the spread of the virus, such as business closures and operations limitations, impact energy demand within our service territory. We continue to take 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. 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 AES Ohio. AES Ohio is a wholly-owned subsidiary of DPL and is a public utility incorporated in 1911 under the laws of Ohio. On November 28, 2011, DPL became an indirectly wholly-owned subsidiary of AES, a global power company. Throughout this report, the terms “we,” “us,” “our” and “ours” are used to refer to both DPL and AES Ohio,, respectively and together, unless the context indicates otherwise. Discussions or areas of this report that apply only to DPL or AES Ohio will clearly be noted in the section.
The condensed consolidated financial statements included in Item 1.—Financial Statements of this Form 10-Q and the discussions contained herein should be read in conjunction with our Form 10-K.
FORWARD-LOOKING INFORMATION
The following discussion may contain forward-looking statements regarding us, our business, prospects and our results of operations, including our expectations regarding the impact of the COVID-19 pandemic on our business, that are subject to certain risks and uncertainties posed by many factors and events that could cause our actual business, prospects and results of operations to differ materially from those that may be anticipated by such forward-looking statements. These statements include, but are not limited to, statements regarding management’s intents, beliefs, and current expectations and typically contain, but are not limited to, the terms “anticipate,” “potential,” “expect,” “forecast,” “target,” “will,” “would,” “intend,” “believe,” “project,” “estimate,” “plan,” and similar words. Forward-looking statements are not intended to be a guarantee of future results, but instead constitute current expectations based on reasonable assumptions. Factors that could cause or contribute to such differences include, but are not limited to, those described in Item 1A of Part II of this quarterly report and Item 1A.—Risk Factors and Item 7.—Management’s Discussion and Analysis of Financial Condition and Results of Operations of our 2021 Form 10-K and subsequent filings with the SEC.
Readers are cautioned not to place undue reliance on these forward-looking statements which speak only as of the date of this report. We undertake no obligation to revise any forward-looking statements in order to reflect events or circumstances that may subsequently arise. If we do update one or more forward-looking statements, no inference should be drawn that we will make additional updates with respect to those or other forward-looking statements. Readers are urged to carefully review and consider the various disclosures made by us in this report and in our other reports filed with the SEC that advise of the risks and factors that may affect our business.
OVERVIEW OF OUR BUSINESS
DPL is a holding company incorporated under the laws of the state of Ohio. DPL is an indirectly wholly-owned subsidiary of AES.
DP&L, Our principal subsidiary is AES Ohio, a wholly-owned subsidiary of DPL that does business as AES Ohio, is a publicregulated electric utility incorporatedoperating in 1911 under the lawsstate of Ohio. DPL’s other primary subsidiariesSubstantially all of our business consists of the transmission, distribution and sale of electric energy conducted through AES Ohio. Our business segments are MVIC“utility” and Miami Valley Lighting. MVIC is our captive insurance company that provides insurance services to AES Ohio and our other subsidiaries, and Miami Valley Lighting provides street and outdoor lighting services to customers in the Dayton region. All of DPL's subsidiaries are wholly-owned.“all other.” For additional information regarding our business, see "Item 1.—Business Business” of our Form 10-K.10-K.
As an electric public utility in Ohio, AES Ohio provides regulated transmission and distribution services to its customers as well as retail SSO electric service. AES Ohio's sales reflect the general economic conditions, seasonal weather patterns of the area, the market price of electricity and customer energy efficiency initiatives.
EXECUTIVE SUMMARY
DPL
For the three months ended JuneSeptember 30, 2022, DPL's loss from continuing operations before income tax of $0.6$23.8 million was lower by $2.1$31.5 million, or 140%409%, compared to the prior period income from continuing operations before income tax of $1.5$7.7 million, and, for the sixnine months ended JuneSeptember 30, 2022, DPL's income loss from continuing operations before income tax of $11.1$12.7 million was lower by $4.3$35.8 million, or 28%155%, compared to the prior period income from continuing operations before income tax of $15.4$23.1 million, primarily due to factors including, but not limited to:
| | | | | | | | | | | | | | |
| | Three months ended | | Nine months ended |
| | September 30, | | September 30, |
| $ in millions | | 2022 vs. 2021 | | 2022 vs. 2021 |
| Decrease due to the recognition of previously deferred purchased power costs | | $ | (28.9) | | | $ | (28.9) | |
| Decrease due to higher operation and maintenance expenses | | (5.6) | | | (10.1) | |
| Decrease due to higher depreciation and amortization from additional assets placed in service | | (1.1) | | | (2.7) | |
| Increase due to higher transmission revenues driven by an increase in transmission rates | | 3.7 | | | 6.8 | |
| Other | | 0.4 | | | (0.9) | |
| Net change in income / (loss) from continuing operations before income tax | | $ | (31.5) | | | $ | (35.8) | |
| | | | |
| | | | |
| | | | |
| | | | |
| | | | |
| | | | | | | | | | | | | | |
| | Three months ended | | Six months ended |
| | June 30, | | June 30, |
| $ in millions | | 2022 vs. 2021 | | 2022 vs. 2021 |
| Decrease due to higher operation and maintenance expenses | | $ | (1.9) | | | $ | (4.6) | |
| | | | |
| Decrease due to higher taxes other than income taxes | | (0.5) | | | (2.1) | |
| Decrease due to higher depreciation and amortization from additional assets placed in service | | (1.2) | | | (1.6) | |
| Increase due to higher transmission revenues driven by an increase in transmission rates | | 2.9 | | | 3.1 | |
| Other | | (1.4) | | | 0.9 | |
| Net change in income / (loss) from continuing operations before income tax | | $ | (2.1) | | | $ | (4.3) | |
| | | | |
| | | | |
| | | | |
| | | | |
| | | | |
AES Ohio
For the three months ended JuneSeptember 30, 2022, AES Ohio's income loss before income tax of $7.3$15.6 million was lower by $1.8$31.7 million, or 20%197%, compared to the prior period income before income tax of $9.1$16.1 million, and, for the sixnine months ended JuneSeptember 30, 2022, AES Ohio's income before income tax of $26.9$11.3 million was lower by $3.7$35.4 million, or 12%76%, compared to the prior period income before income tax of $30.6$46.7 million, primarily due to factors including, but not limited to:
| | | Three months ended | | Six months ended | | Three months ended | | Nine months ended |
| | June 30, | | June 30, | | September 30, | | September 30, |
| $ in millions | $ in millions | | 2022 vs. 2021 | | 2022 vs. 2021 | $ in millions | | 2022 vs. 2021 | | 2022 vs. 2021 |
| Decrease due to the recognition of previously deferred purchased power costs | | Decrease due to the recognition of previously deferred purchased power costs | | $ | (28.9) | | | $ | (28.9) | |
| Decrease due to higher operation and maintenance expenses | Decrease due to higher operation and maintenance expenses | | $ | (2.0) | | | $ | (4.3) | | Decrease due to higher operation and maintenance expenses | | (5.8) | | | (10.0) | |
| Decrease due to higher taxes other than income taxes | | (0.4) | | | (2.0) | | |
| Decrease due to higher depreciation and amortization from additional assets placed in service | Decrease due to higher depreciation and amortization from additional assets placed in service | | (1.2) | | | (1.7) | | Decrease due to higher depreciation and amortization from additional assets placed in service | | (1.2) | | | (2.9) | |
| Increase due to higher transmission revenues driven by an increase in transmission rates | Increase due to higher transmission revenues driven by an increase in transmission rates | | 2.8 | | | 3.1 | | Increase due to higher transmission revenues driven by an increase in transmission rates | | 3.7 | | | 6.8 | |
| Other | Other | | (1.0) | | | 1.2 | | Other | | 0.5 | | | (0.4) | |
| Net change in income before income tax | | $ | (1.8) | | | $ | (3.7) | | |
| Net change in income / (loss) before income tax | | Net change in income / (loss) before income tax | | $ | (31.7) | | | $ | (35.4) | |
|
RESULTS OF OPERATIONS HIGHLIGHTS – DPL
DPL’s results of operations include the results of its subsidiaries, including its principal subsidiary AES Ohio. All material intercompany accounts and transactions have been eliminated in consolidation. A separate discussion of the results of operations for AES Ohio is presented elsewhere in this report.
| | | Three months ended | | Six months ended | | Three months ended | | Nine months ended |
| | June 30, | | June 30, | | September 30, | | September 30, |
| $ in millions | $ in millions | | 2022 | | 2021 | | $ change | | % change | | 2022 | | 2021 | | $ change | | % change | $ in millions | | 2022 | | 2021 | | $ change | | % change | | 2022 | | 2021 | | $ change | | % change |
| Revenues: | Revenues: | | | | | | | | | | | | | | | | | Revenues: | | | | | | | | | | | | | | | | |
| Retail | Retail | | $ | 158.7 | | | $ | 128.3 | | | $ | 30.4 | | | 23.7 | % | | $ | 329.5 | | | $ | 277.3 | | | $ | 52.2 | | | 18.8 | % | Retail | | $ | 227.3 | | | $ | 164.2 | | | $ | 63.1 | | | 38.4 | % | | $ | 556.8 | | | $ | 441.5 | | | $ | 115.3 | | | 26.1 | % |
| Wholesale | Wholesale | | 10.8 | | | 3.4 | | | 7.4 | | | 217.6 | % | | 18.3 | | | 8.2 | | | 10.1 | | | 123.2 | % | Wholesale | | 13.2 | | | 6.6 | | | 6.6 | | | 100.0 | % | | 31.5 | | | 14.8 | | | 16.7 | | | 112.8 | % |
| RTO ancillary | RTO ancillary | | 15.0 | | | 12.1 | | | 2.9 | | | 24.0 | % | | 30.1 | | | 27.0 | | | 3.1 | | | 11.5 | % | RTO ancillary | | 16.2 | | | 12.5 | | | 3.7 | | | 29.6 | % | | 46.3 | | | 39.5 | | | 6.8 | | | 17.2 | % |
| Capacity revenues | Capacity revenues | | 1.5 | | | 1.3 | | | 0.2 | | | 15.4 | % | | 3.3 | | | 2.2 | | | 1.1 | | | 50.0 | % | Capacity revenues | | 0.5 | | | 1.8 | | | (1.3) | | | (72.2) | % | | 3.8 | | | 4.0 | | | (0.2) | | | (5.0) | % |
| Miscellaneous revenues | Miscellaneous revenues | | 4.9 | | | 3.0 | | | 1.9 | | | 63.3 | % | | 9.0 | | | 8.6 | | | 0.4 | | | 4.7 | % | Miscellaneous revenues | | 4.9 | | | 3.1 | | | 1.8 | | | 58.1 | % | | 13.9 | | | 11.7 | | | 2.2 | | | 18.8 | % |
| | Total revenues | Total revenues | | 190.9 | | | 148.1 | | | 42.8 | | | 28.9 | % | | 390.2 | | | 323.3 | | | 66.9 | | | 20.7 | % | Total revenues | | 262.1 | | | 188.2 | | | 73.9 | | | 39.3 | % | | 652.3 | | | 511.5 | | | 140.8 | | | 27.5 | % |
| | Operating costs and expenses | Operating costs and expenses | | Operating costs and expenses | |
| | Net fuel cost | Net fuel cost | | — | | | 0.1 | | | (0.1) | | | (100.0) | % | | — | | | 0.5 | | | (0.5) | | | (100.0) | % | Net fuel cost | | — | | | — | | | — | | | — | % | | — | | | 0.5 | | | (0.5) | | | (100.0) | % |
| Purchased power: | Purchased power: | | | | | | | | | | | | | | Purchased power: | | | | | | | | | | | | | |
| Purchased power | Purchased power | | 71.6 | | | 41.6 | | | 30.0 | | | 72.1 | % | | 137.7 | | | 102.6 | | | 35.1 | | | 34.2 | % | Purchased power | | 161.8 | | | 59.4 | | | 102.4 | | | 172.4 | % | | 299.5 | | | 162.0 | | | 137.5 | | | 84.9 | % |
| RTO charges | RTO charges | | 19.0 | | | 12.3 | | | 6.7 | | | 54.5 | % | | 43.7 | | | 22.8 | | | 20.9 | | | 91.7 | % | RTO charges | | 18.4 | | | 24.5 | | | (6.1) | | | (24.9) | % | | 62.1 | | | 47.3 | | | 14.8 | | | 31.3 | % |
| | Net purchased power cost | Net purchased power cost | | 90.6 | | | 53.9 | | | 36.7 | | | 68.1 | % | | 181.4 | | | 125.4 | | | 56.0 | | | 44.7 | % | Net purchased power cost | | 180.2 | | | 83.9 | | | 96.3 | | | 114.8 | % | | 361.6 | | | 209.3 | | | 152.3 | | | 72.8 | % |
| | Operation and maintenance | Operation and maintenance | | 43.1 | | | 38.0 | | | 5.1 | | | 13.4 | % | | 83.9 | | | 72.8 | | | 11.1 | | | 15.2 | % | Operation and maintenance | | 48.8 | | | 40.1 | | | 8.7 | | | 21.7 | % | | 132.7 | | | 112.9 | | | 19.8 | | | 17.5 | % |
| Depreciation and amortization | Depreciation and amortization | | 20.1 | | | 18.9 | | | 1.2 | | | 6.3 | % | | 39.6 | | | 38.0 | | | 1.6 | | | 4.2 | % | Depreciation and amortization | | 20.0 | | | 18.9 | | | 1.1 | | | 5.8 | % | | 59.6 | | | 56.9 | | | 2.7 | | | 4.7 | % |
| Taxes other than income taxes | Taxes other than income taxes | | 21.2 | | | 20.7 | | | 0.5 | | | 2.4 | % | | 43.2 | | | 41.1 | | | 2.1 | | | 5.1 | % | Taxes other than income taxes | | 20.4 | | | 21.0 | | | (0.6) | | | (2.9) | % | | 63.6 | | | 62.1 | | | 1.5 | | | 2.4 | % |
| | Gain on disposal of business | Gain on disposal of business | | — | | | — | | | — | | | — | % | | (0.6) | | | — | | | (0.6) | | | — | % | Gain on disposal of business | | — | | | — | | | — | | | — | % | | (0.6) | | | — | | | (0.6) | | | — | % |
| | Total operating costs and expenses | Total operating costs and expenses | | 175.0 | | | 131.6 | | | 43.4 | | | 33.0 | % | | 347.5 | | | 277.8 | | | 69.7 | | | 25.1 | % | Total operating costs and expenses | | 269.4 | | | 163.9 | | | 105.5 | | | 64.4 | % | | 616.9 | | | 441.7 | | | 175.2 | | | 39.7 | % |
| | Operating income | | 15.9 | | | 16.5 | | | (0.6) | | | (3.6) | % | | 42.7 | | | 45.5 | | | (2.8) | | | (6.2) | % | |
| Operating income / (loss) | | Operating income / (loss) | | (7.3) | | | 24.3 | | | (31.6) | | | (130.0) | % | | 35.4 | | | 69.8 | | | (34.4) | | | (49.3) | % |
| | Other expense, net: | Other expense, net: | | Other expense, net: | |
| Interest expense | Interest expense | | (16.5) | | | (15.6) | | | (0.9) | | | 5.8 | % | | (32.0) | | | (31.2) | | | (0.8) | | | 2.6 | % | Interest expense | | (18.1) | | | (15.8) | | | (2.3) | | | 14.6 | % | | (50.1) | | | (47.0) | | | (3.1) | | | 6.6 | % |
| | Other income | Other income | | — | | | 0.6 | | | (0.6) | | | (100.0) | % | | 0.4 | | | 1.1 | | | (0.7) | | | (63.6) | % | Other income | | 1.6 | | | (0.8) | | | 2.4 | | | (300.0) | % | | 2.0 | | | 0.3 | | | 1.7 | | | 566.7 | % |
| Total other expense, net | Total other expense, net | | (16.5) | | | (15.0) | | | (1.5) | | | 10.0 | % | | (31.6) | | | (30.1) | | | (1.5) | | | 5.0 | % | Total other expense, net | | (16.5) | | | (16.6) | | | 0.1 | | | (0.6) | % | | (48.1) | | | (46.7) | | | (1.4) | | | 3.0 | % |
| | Income / (loss) from continuing operations before income tax (a) | Income / (loss) from continuing operations before income tax (a) | | $ | (0.6) | | | $ | 1.5 | | | $ | (2.1) | | | (140.0) | % | | $ | 11.1 | | | $ | 15.4 | | | $ | (4.3) | | | (27.9) | % | Income / (loss) from continuing operations before income tax (a) | | $ | (23.8) | | | $ | 7.7 | | | $ | (31.5) | | | (409.1) | % | | $ | (12.7) | | | $ | 23.1 | | | $ | (35.8) | | | (155.0) | % |
(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.
DPL – Revenues
Retail customers, especially residential and commercial customers, consume more electricity on warmer and colder days. Therefore, our retail sales demand is affected by the number of heating and cooling degree-days occurring during a year. Cooling degree-days typically have a more significant effect than heating degree-days since some residential customers do not use electricity to heat their homes. Additionally, our retail revenues are affected by
regulated rates and riders including the changes to our ESP described in Note 2 - Regulatory Matters of our Form 10-K and Note 2 – Regulatory MattersREGULATORY MATTERS of Notes to DPL's Condensed Consolidated Financial Statements.
| HEATING AND COOLING DEGREE-DAYS (a) | HEATING AND COOLING DEGREE-DAYS (a) | HEATING AND COOLING DEGREE-DAYS (a) |
| | Three months ended | | Six months ended | | Three months ended | | Nine months ended |
| | June 30, | | June 30, | | September 30, | | September 30, |
| | 2022 | | 2021 | | change | | % change | | 2022 | | 2021 | | change | | % change | | 2022 | | 2021 | | change | | % change | | 2022 | | 2021 | | change | | % change |
| Actual | Actual | | | | | | | | | | | | | | | | | Actual | | | | | | | | | | | | | | | | |
| Heating degree-days | Heating degree-days | | 517 | | | 577 | | | (60) | | | (10) | % | | 3,273 | | | 3,254 | | | 19 | | | 0.6 | % | Heating degree-days | | 66 | | | 25 | | | 41 | | | 164 | % | | 3,339 | | | 3,279 | | | 60 | | | 1.8 | % |
| Cooling degree-days | Cooling degree-days | | 382 | | | 381 | | | 1 | | | — | % | | 382 | | | 381 | | | 1 | | | 0.3 | % | Cooling degree-days | | 810 | | | 851 | | | (41) | | | (5) | % | | 1,192 | | | 1,232 | | | (40) | | | (3.2) | % |
| 30-year average (b) | 30-year average (b) | | 30-year average (b) | |
| Heating degree-days | Heating degree-days | | 554 | | | 559 | | | 3,390 | | | 3,392 | | | Heating degree-days | | 74 | | | 76 | | | 3,464 | | | 3,468 | | |
| Cooling degree-days | Cooling degree-days | | 307 | | | 300 | | | 309 | | | 302 | | | Cooling degree-days | | 684 | | | 674 | | | 993 | | | 976 | | |
(a)Heating and cooling degree-days are a measure of the relative heating or cooling required for a home or business. The heating degrees in a day are calculated as the degrees that the average actual daily temperature is below 65 degrees Fahrenheit. For example, if the average temperature on March 20th was 40 degrees Fahrenheit, the heating degrees for that day would be the 25-degree difference between 65 degrees and 40 degrees. Similarly, cooling degrees in a day are calculated as the degrees that the average actual daily temperature is above 65 degrees Fahrenheit.
(b)30-year average is computed from observed degree-days in the Dayton area on a trailing 30-year basis.
DPL's and AES Ohio's electric sales and billed customers were as follows:
| ELECTRIC SALES AND CUSTOMERS (a) | ELECTRIC SALES AND CUSTOMERS (a) | ELECTRIC SALES AND CUSTOMERS (a) |
| | Three months ended | | Six months ended | | Three months ended | | Nine months ended |
| | June 30, | | June 30, | | September 30, | | September 30, |
| | 2022 | | 2021 | | change | | % change | | 2022 | | 2021 | | change | | % change | | 2022 | | 2021 | | change | | % change | | 2022 | | 2021 | | change | | % change |
Retail electric sales (b) | Retail electric sales (b) | | | | | | | | | | | | | | | Retail electric sales (b) | | | | | | | | | | | | | | |
| Residential | Residential | | 1,193 | | | 1,159 | | | 34 | | | 2.9% | | 2,764 | | | 2,689 | | | 75 | | | 2.8% | Residential | | 1,397 | | | 1,459 | | | (62) | | | (4.2)% | | 4,161 | | | 4,148 | | | 13 | | | 0.3% |
| Commercial | Commercial | | 887 | | | 853 | | | 34 | | | 4.0% | | 1,754 | | | 1,687 | | | 67 | | | 4.0% | Commercial | | 998 | | | 1,011 | | | (13) | | | (1.3)% | | 2,752 | | | 2,698 | | | 54 | | | 2.0% |
| Industrial | Industrial | | 928 | | | 925 | | | 3 | | | 0.3% | | 1,822 | | | 1,791 | | | 31 | | | 1.7% | Industrial | | 946 | | | 992 | | | (46) | | | (4.6)% | | 2,768 | | | 2,783 | | | (15) | | | (0.5)% |
| Governmental | Governmental | | 292 | | | 290 | | | 2 | | | 0.7% | | 576 | | | 569 | | | 7 | | | 1.2% | Governmental | | 322 | | | 333 | | | (11) | | | (3.3)% | | 898 | | | 902 | | | (4) | | | (0.4)% |
| Other | Other | | 10 | | | 4 | | | 6 | | | 150.0% | | 15 | | | 9 | | | 6 | | | 66.7% | Other | | 11 | | | 6 | | | 5 | | | 83.3% | | 26 | | | 15 | | | 11 | | | 73.3% |
| Total retail electric sales | Total retail electric sales | | 3,310 | | | 3,231 | | | 79 | | | 2.4% | | 6,931 | | | 6,745 | | | 186 | | | 2.8% | Total retail electric sales | | 3,674 | | | 3,801 | | | (127) | | | (3.3)% | | 10,605 | | | 10,546 | | | 59 | | | 0.6% |
Wholesale electric sales (c) | Wholesale electric sales (c) | | 138 | | | 109 | | | 29 | | | 26.6% | | 277 | | | 255 | | | 22 | | | 8.6% | Wholesale electric sales (c) | | 144 | | | 158 | | | (14) | | | (8.9)% | | 421 | | | 413 | | | 8 | | | 1.9% |
| Total electric sales | Total electric sales | | 3,448 | | | 3,340 | | | 108 | | | 3.2% | | 7,208 | | | 7,000 | | | 208 | | | 3.0% | Total electric sales | | 3,818 | | | 3,959 | | | (141) | | | (3.6)% | | 11,026 | | | 10,959 | | | 67 | | | 0.6% |
| | Billed electric customers (end of period) | Billed electric customers (end of period) | | 535,247 | | | 532,152 | | | 3,095 | | | 0.6% | Billed electric customers (end of period) | | 535,355 | | | 532,810 | | | 2,545 | | | 0.5% |
(a)Electric sales are presented in millions of kWh.
(b)DPL and AES Ohio retail electric sales represent the total transmission and distribution retail sales for the periods presented. SSO sales were 9981,028 kWh and 2,2203,248 kWh and 799968 kWh and 1,8692,837 kWh for the three and sixnine months ended JuneSeptember 30, 2022 and 2021, respectively.
(c)Wholesale electric sales are AES Ohio's 4.9% share of the generation output of OVEC.
The following chart shows the percentage changes in weather-normalized and actual retail electric sales volumes by customer class for the three months ended JuneSeptember 30, 2022 compared to the same period in the prior year:
The following chart shows the percentage changes in weather-normalized and actual retail electric sales volumes by customer class for the sixnine months ended JuneSeptember 30, 2022 compared to the same period in the prior year:
During the three months ended JuneSeptember 30, 2022, Revenues increased $42.8$73.9 million to $190.9$262.1 million compared to $148.1$188.2 million in the same period of the prior year, and, during the sixnine months ended JuneSeptember 30, 2022, Revenues increased $66.9$140.8 million to $390.2$652.3 million compared to $323.3$511.5 million in the same period of the prior year. These changes were primarily the result of changes in the components of revenue shown below:
| | | Three months ended | | Six months ended | | Three months ended | | Nine months ended |
| | June 30, | | June 30, | | September 30, | | September 30, |
| $ in millions | $ in millions | | 2022 vs. 2021 | | 2022 vs. 2021 | $ in millions | | 2022 vs. 2021 | | 2022 vs. 2021 |
| Retail | Retail | | | | | Retail | | | | |
| Rate | Rate | | Rate | |
| Increase due to the TCRR Rider | | $ | 6.9 | | | $ | 21.9 | | |
| Increase in Competitive Bid Revenue Rate Rider | Increase in Competitive Bid Revenue Rate Rider | | 16.9 | | | 18.7 | | Increase in Competitive Bid Revenue Rate Rider | | $ | 63.2 | | | $ | 82.0 | |
| | Increase / (decrease) due to the TCRR Rider | | Increase / (decrease) due to the TCRR Rider | | (7.7) | | | 14.2 | |
| | Other | Other | | (1.6) | | | (3.3) | | Other | | 3.4 | | | (0.1) | |
| Net change in retail rate | Net change in retail rate | | 22.2 | | | 37.3 | | Net change in retail rate | | 58.9 | | | 96.1 | |
| | Volume | Volume | | Volume | |
| Net increase in demand primarily due to favorable weather and higher weather-normalized demand | | 7.9 | | | 15.4 | | |
| Net increase in demand primarily due to higher SSO volumes from higher demand | | Net increase in demand primarily due to higher SSO volumes from higher demand | | 4.2 | | | 19.7 | |
| | Other miscellaneous | Other miscellaneous | | 0.3 | | | (0.5) | | Other miscellaneous | | — | | | (0.5) | |
| Total retail change | Total retail change | | 30.4 | | | 52.2 | | Total retail change | | 63.1 | | | 115.3 | |
| | | | | | | | | | | |
| Wholesale | Wholesale | | | | Wholesale | | | |
| | Increase primarily due to higher rates and volumes at OVEC | | 7.4 | | | 10.1 | | |
| Increase primarily due to higher rates on power sales at OVEC | | Increase primarily due to higher rates on power sales at OVEC | | 6.6 | | | 16.7 | |
| | | | | | | | | | | |
| RTO ancillary and capacity revenues | RTO ancillary and capacity revenues | | | | | RTO ancillary and capacity revenues | | | | |
| Increase primarily due to higher transmission formula rates in the current year | Increase primarily due to higher transmission formula rates in the current year | | 3.1 | | | 4.2 | | Increase primarily due to higher transmission formula rates in the current year | | 2.4 | | | 6.6 | |
| | | | | | | | | | | |
| Other | Other | | | | | Other | | | | |
| Miscellaneous revenues | Miscellaneous revenues | | 1.9 | | | 0.4 | | Miscellaneous revenues | | 1.8 | | | 2.2 | |
| Net change in Revenues | Net change in Revenues | | $ | 42.8 | | | $ | 66.9 | | Net change in Revenues | | $ | 73.9 | | | $ | 140.8 | |
|
DPL – Net Purchased Power
During the three months ended JuneSeptember 30, 2022, Net purchased power increased $36.7$96.3 million to $90.6$180.2 million compared to $53.9$83.9 million in the same period of the prior year, and, during the sixnine months ended JuneSeptember 30, 2022, Net purchased power increased $56.0$152.3 million to $181.4$361.6 million compared to $125.4$209.3 million in the same period of the prior year. These changes were primarily the result of changes in the cost of purchased power shown below.
| | | Three months ended | | Six months ended | | Three months ended | | Nine months ended |
| | June 30, | | June 30, | | September 30, | | September 30, |
| $ in millions | $ in millions | | 2022 vs. 2021 | | 2022 vs. 2021 | $ in millions | | 2022 vs. 2021 | | 2022 vs. 2021 |
| Net purchased power | Net purchased power | | | | | Net purchased power | | | | |
| Purchased power | Purchased power | | Purchased power | |
| Rate | Rate | | Rate | |
| Increase primarily due to pricing in the competitive bid process and higher OVEC rates | | $ | 21.3 | | | $ | 19.0 | | |
| Increase primarily due to pricing in the competitive bid auction and recognition of previously deferred costs | | Increase primarily due to pricing in the competitive bid auction and recognition of previously deferred costs | | $ | 100.4 | | | $ | 100.5 | |
| | Volume | Volume | | Volume | |
| Increase primarily due to higher retail load served primarily driven by weather | | 8.7 | | | 16.1 | | |
| Increase primarily due to higher retail SSO load served due to demand and increased SSO customers | | Increase primarily due to higher retail SSO load served due to demand and increased SSO customers | | 2.0 | | | 37.0 | |
| Total purchased power change | Total purchased power change | | 30.0 | | | 35.1 | | Total purchased power change | | 102.4 | | | 137.5 | |
| | RTO charges | RTO charges | | RTO charges | |
| Increase primarily due to higher TCRR rates | | 6.7 | | | 20.9 | | |
| Increase / (decrease) primarily due to changes in TCRR rates | | Increase / (decrease) primarily due to changes in TCRR rates | | (6.1) | | | 14.8 | |
| | Net change in purchased power | Net change in purchased power | | $ | 36.7 | | | $ | 56.0 | | Net change in purchased power | | $ | 96.3 | | | $ | 152.3 | |
|
DPL – Operation and Maintenance
During the three and sixnine months ended JuneSeptember 30, 2022, Operation and maintenance expense increased $5.1$8.7 million and $11.1$19.8 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 | | Three months ended | | Nine months ended |
| | June 30, | | June 30, | | September 30, | | September 30, |
| $ in millions | $ in millions | | 2022 vs. 2021 | | 2022 vs. 2021 | $ in millions | | 2022 vs. 2021 | | 2022 vs. 2021 |
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) | | $ | 1.4 | | | $ | 3.0 | | Increase in uncollectible expenses for the low-income payment program, which is funded by the USF Revenue Rate Rider (a) | | $ | 1.5 | | | $ | 4.5 | |
| Increase in charges from Service Company | Increase in charges from Service Company | | 1.2 | | | 1.8 | | Increase in charges from Service Company | | 2.0 | | | 3.7 | |
Increase in Smart Grid R&D amortization (a) | Increase in Smart Grid R&D amortization (a) | | 1.2 | | | 1.7 | | Increase in Smart Grid R&D amortization (a) | | 0.7 | | | 2.3 | |
Increase / (decrease) in TCRR costs (a) | Increase / (decrease) in TCRR costs (a) | | (0.1) | | | 1.1 | | Increase / (decrease) in TCRR costs (a) | | (1.1) | | | 0.2 | |
| Increase in Smart Grid stipulation amortization | Increase in Smart Grid stipulation amortization | | 0.4 | | | 0.9 | | Increase in Smart Grid stipulation amortization | | — | | | 1.0 | |
Increase in deferred storm costs (a) | Increase in deferred storm costs (a) | | 0.7 | | | 0.7 | | Increase in deferred storm costs (a) | | 2.0 | | | 2.7 | |
| Increase in salaries and wages expense | | Increase in salaries and wages expense | | 0.3 | | | 1.8 | |
| Other, net | Other, net | | 0.3 | | | 1.9 | | Other, net | | 3.3 | | | 3.6 | |
| Net change in operation and maintenance expense | Net change in operation and maintenance expense | | $ | 5.1 | | | $ | 11.1 | | Net change in operation and maintenance expense | | $ | 8.7 | | | $ | 19.8 | |
|
(a) There is a corresponding offset in Revenues associated with these costs.
DPL – Depreciation and Amortization
During the three and sixnine months ended JuneSeptember 30, 2022, Depreciation and amortization increased $1.2$1.1 million and $1.6$2.7 million, respectively, compared to the same periods in the prior year primarily due to additional assets placed in service.
DPL – Taxes Other Than Income TaxesInterest Expense
During the three and sixnine months ended JuneSeptember 30, 2022, Taxes other than income taxesInterest expense increased $0.5$2.3 million and $2.1$3.1 million, respectively, compared to the same periods in the prior year. The increases wereincrease was primarily the result of higher property taxes due to higher assessed valuesthe issuance of additional debt in the current year.second quarter of 2022.
DPL – Income Tax Expense / (Benefit)Benefit From Continuing Operations
Income tax benefit was $4.1 million during the three months ended September 30, 2022 compared to income tax benefit of $0.8 million during the three months ended June 30, 2022 compared to income tax expense of $0.9 million during the three months ended JuneSeptember 30, 2021. The change was primarily due to the change in effective tax rate as a lossresult of the reversal of excess deferred items, partially offset by the change in income from continuing operations before income tax in the current period as compared to income from continuing operations before income tax in the same period in the prior year.
Income tax benefit was $4.5$8.6 million during the sixnine months ended JuneSeptember 30, 2022 compared to income tax expensebenefit of $0.6$0.2 million during the sixnine months ended JuneSeptember 30, 2021. The change was primarily due to a lowerhigher estimated effective tax rate in the current year versus the prior year as a result of the reversal of excess deferred items as a percentage of pre-tax book income.
See Note 6 – Income TaxesINCOME TAXES in the Notes to DPL's Condensed Consolidated Financial Statements for further discussion.
RESULTS OF OPERATIONS BY SEGMENT - DPL
DPL manages its business through one reportable operating segment, the Utility segment. The primary segment performance measure is income / (loss) from continuing operations before income tax as management has concluded that this measure best reflects the underlying business performance of DPL and is the most relevant measure considered in DPL’s internal evaluation of the financial performance of its segment. The Utility segment is discussed further below.
Utility Segment
The Utility segment is comprised of AES Ohio’sOhio, a public electric transmission and distribution businesses, which distribute electricity to residential, commercial, industrial and governmental customers. AES Ohio distributes electricity to approximately 535,000 retail customers located in a 6,000-square mile area of West Central Ohio. AES Ohio’s electric transmission and distribution businesses are subject to rate regulation by federal and state regulators. Accordingly, AES Ohio applies the accounting standards for regulated operations to its electric transmission and distribution businesses recording regulatory assets when incurred costs are expected to be recovered in future
customer rates and regulatory liabilities when current cost recoveries in customer rates relate to expected future costs. The Utility segment includes revenues and costs associatedutility, with our investment in OVEC.
Included within the “Other” column areall other businesses that do not meet the GAAP requirements for disclosure as reportable segments as well as certain corporate costs, which include interest expense on DPL's long-term debt as well as adjustments related to purchase accounting from the Merger. The accounting policies of the reportable segment are the same as those described innonutility business activities aggregated separately. See Note 1 – Overview and Summary of Significant Accounting Policies for further information on AES Ohio. The “Other” nonutility category primarily includes interest expense, cash and other immaterial balances. The accounting policies of our 10-K. Intersegment sales, coststhe identified segment are consistent with those policies and procedures described in the summary of sales and expenses are eliminated in consolidation. Certain shared and corporate costs are allocated between "Other" and the Utility reporting segment.significant accounting policies.
See Part I, Item 1, Note 9 – Business SegmentsBUSINESS 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 | | Three months ended | | Nine months ended |
| | June 30, | | June 30, | | September 30, | | September 30, |
| $ in millions | $ in millions | | 2022 | | 2021 | | 2022 | | 2021 | $ in millions | | 2022 | | 2021 | | 2022 | | 2021 |
| Utility | Utility | | $ | 7.3 | | | $ | 9.1 | | | $ | 26.9 | | | $ | 30.6 | | Utility | | $ | (15.6) | | | $ | 16.1 | | | $ | 11.3 | | | $ | 46.7 | |
| | Other | Other | | (7.9) | | | (7.6) | | | (15.8) | | | (15.2) | | Other | | (8.2) | | | (8.4) | | | (24.0) | | | (23.6) | |
| Income / (loss) from continuing operations before income tax (a) | Income / (loss) from continuing operations before income tax (a) | | $ | (0.6) | | | $ | 1.5 | | | $ | 11.1 | | | $ | 15.4 | | Income / (loss) from continuing operations before income tax (a) | | $ | (23.8) | | | $ | 7.7 | | | $ | (12.7) | | | $ | 23.1 | |
(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.
RESULTS OF OPERATIONS HIGHLIGHTS – DPL – Utility Segment
The results of operations of the Utility segment for DPL are identical in all material respects and for all periods presented to those of AES Ohio, which are included in Part I, Item 2, Management's Discussion and Analysis of Financial Condition and Results of Operations (RESULTS OF OPERATIONS HIGHLIGHTS – AES Ohio) of this Form 10-Q.
RESULTS OF OPERATIONS HIGHLIGHTS – AES Ohio
| | | Three months ended | | Six months ended | | Three months ended | | Nine months ended |
| | June 30, | | June 30, | | September 30, | | September 30, |
| $ in millions | $ in millions | | 2022 | | 2021 | | $ change | | % change | | 2022 | | 2021 | | $ change | | % change | $ in millions | | 2022 | | 2021 | | $ change | | % change | | 2022 | | 2021 | | $ change | | % change |
| Revenues: | Revenues: | | | | | | | | | | | | | | | | | Revenues: | | | | | | | | | | | | | | | | |
| Retail | Retail | | $ | 158.7 | | | $ | 128.3 | | | $ | 30.4 | | | 23.7 | % | | $ | 329.5 | | | $ | 277.3 | | | $ | 52.2 | | | 18.8 | % | Retail | | $ | 227.3 | | | $ | 164.2 | | | $ | 63.1 | | | 38.4 | % | | $ | 556.8 | | | $ | 441.5 | | | $ | 115.3 | | | 26.1 | % |
| Wholesale | Wholesale | | 11.0 | | | 3.6 | | | 7.4 | | | 205.6 | % | | 18.7 | | | 8.6 | | | 10.1 | | | 117.4 | % | Wholesale | | 13.4 | | | 6.8 | | | 6.6 | | | 97.1 | % | | 32.1 | | | 15.4 | | | 16.7 | | | 108.4 | % |
| RTO ancillary | RTO ancillary | | 14.9 | | | 12.1 | | | 2.8 | | | 23.1 | % | | 30.0 | | | 26.9 | | | 3.1 | | | 11.5 | % | RTO ancillary | | 16.2 | | | 12.5 | | | 3.7 | | | 29.6 | % | | 46.2 | | | 39.4 | | | 6.8 | | | 17.3 | % |
| Capacity revenues | Capacity revenues | | 1.5 | | | 1.3 | | | 0.2 | | | 15.4 | % | | 3.3 | | | 2.2 | | | 1.1 | | | 50.0 | % | Capacity revenues | | 0.5 | | | 1.8 | | | (1.3) | | | (72.2) | % | | 3.8 | | | 4.0 | | | (0.2) | | | (5.0) | % |
| Miscellaneous revenues | Miscellaneous revenues | | 2.6 | | | 0.6 | | | 2.0 | | | 333.3 | % | | 4.2 | | | 3.7 | | | 0.5 | | | 13.5 | % | Miscellaneous revenues | | 2.5 | | | 0.8 | | | 1.7 | | | 212.5 | % | | 6.7 | | | 4.5 | | | 2.2 | | | 48.9 | % |
| Total revenues | Total revenues | | 188.7 | | | 145.9 | | | 42.8 | | | 29.3 | % | | 385.7 | | | 318.7 | | | 67.0 | | | 21.0 | % | Total revenues | | 259.9 | | | 186.1 | | | 73.8 | | | 39.7 | % | | 645.6 | | | 504.8 | | | 140.8 | | | 27.9 | % |
| | Operating costs and expenses | Operating costs and expenses | | Operating costs and expenses | |
| | Net fuel cost | Net fuel cost | | — | | | 0.1 | | | (0.1) | | | (100.0) | % | | — | | | 0.5 | | | (0.5) | | | (100.0) | % | Net fuel cost | | — | | | — | | | — | | | — | % | | — | | | 0.5 | | | (0.5) | | | (100.0) | % |
| Purchased power: | Purchased power: | | | | | | | | | | | | | | Purchased power: | | | | | | | | | | | | | |
| Purchased power | Purchased power | | 71.5 | | | 41.6 | | | 29.9 | | | 71.9 | % | | 137.6 | | | 102.6 | | | 35.0 | | | 34.1 | % | Purchased power | | 161.8 | | | 59.4 | | | 102.4 | | | 172.4 | % | | 299.4 | | | 162.0 | | | 137.4 | | | 84.8 | % |
| RTO charges | RTO charges | | 18.8 | | | 12.0 | | | 6.8 | | | 56.7 | % | | 43.2 | | | 22.2 | | | 21.0 | | | 94.6 | % | RTO charges | | 18.0 | | | 24.3 | | | (6.3) | | | (25.9) | % | | 61.2 | | | 46.5 | | | 14.7 | | | 31.6 | % |
| | Net purchased power cost | Net purchased power cost | | 90.3 | | | 53.6 | | | 36.7 | | | 68.5 | % | | 180.8 | | | 124.8 | | | 56.0 | | | 44.9 | % | Net purchased power cost | | 179.8 | | | 83.7 | | | 96.1 | | | 114.8 | % | | 360.6 | | | 208.5 | | | 152.1 | | | 72.9 | % |
| | Operation and maintenance | Operation and maintenance | | 42.9 | | | 37.7 | | | 5.2 | | | 13.8 | % | | 83.1 | | | 72.3 | | | 10.8 | | | 14.9 | % | Operation and maintenance | | 48.2 | | | 39.3 | | | 8.9 | | | 22.6 | % | | 131.3 | | | 111.6 | | | 19.7 | | | 17.7 | % |
| Depreciation and amortization | Depreciation and amortization | | 19.7 | | | 18.5 | | | 1.2 | | | 6.5 | % | | 38.9 | | | 37.2 | | | 1.7 | | | 4.6 | % | Depreciation and amortization | | 19.8 | | | 18.6 | | | 1.2 | | | 6.5 | % | | 58.7 | | | 55.8 | | | 2.9 | | | 5.2 | % |
| Taxes other than income taxes | Taxes other than income taxes | | 21.1 | | | 20.7 | | | 0.4 | | | 1.9 | % | | 43.0 | | | 41.0 | | | 2.0 | | | 4.9 | % | Taxes other than income taxes | | 20.4 | | | 21.0 | | | (0.6) | | | (2.9) | % | | 63.4 | | | 62.0 | | | 1.4 | | | 2.3 | % |
| | Gain on disposal of business | Gain on disposal of business | | — | | | — | | | — | | | — | % | | (0.6) | | | — | | | (0.6) | | | — | % | Gain on disposal of business | | — | | | — | | | — | | | — | % | | (0.6) | | | — | | | (0.6) | | | — | % |
| | Total operating costs and expenses | Total operating costs and expenses | | 174.0 | | | 130.6 | | | 43.4 | | | 33.2 | % | | 345.2 | | | 275.8 | | | 69.4 | | | 25.2 | % | Total operating costs and expenses | | 268.2 | | | 162.6 | | | 105.6 | | | 64.9 | % | | 613.4 | | | 438.4 | | | 175.0 | | | 39.9 | % |
| | Operating income | | 14.7 | | | 15.3 | | | (0.6) | | | (3.9) | % | | 40.5 | | | 42.9 | | | (2.4) | | | (5.6) | % | |
| Operating income / (loss) | | Operating income / (loss) | | (8.3) | | | 23.5 | | | (31.8) | | | (135.3) | % | | 32.2 | | | 66.4 | | | (34.2) | | | (51.5) | % |
| | Other expense, net: | Other expense, net: | | Other expense, net: | |
| Interest expense | Interest expense | | (6.8) | | | (6.0) | | | (0.8) | | | 13.3 | % | | (12.7) | | | (12.0) | | | (0.7) | | | 5.8 | % | Interest expense | | (8.4) | | | (6.1) | | | (2.3) | | | 37.7 | % | | (21.1) | | | (18.1) | | | (3.0) | | | 16.6 | % |
| | Other expense | | (0.6) | | | (0.2) | | | (0.4) | | | 200.0 | % | | (0.9) | | | (0.3) | | | (0.6) | | | 200.0 | % | |
| Other income / (expense) | | Other income / (expense) | | 1.1 | | | (1.3) | | | 2.4 | | | (184.6) | % | | 0.2 | | | (1.6) | | | 1.8 | | | (112.5) | % |
| Total other expense, net | Total other expense, net | | (7.4) | | | (6.2) | | | (1.2) | | | 19.4 | % | | (13.6) | | | (12.3) | | | (1.3) | | | 10.6 | % | Total other expense, net | | (7.3) | | | (7.4) | | | 0.1 | | | (1.4) | % | | (20.9) | | | (19.7) | | | (1.2) | | | 6.1 | % |
| | Income before income tax (a) | | $ | 7.3 | | | $ | 9.1 | | | $ | (1.8) | | | (19.8) | % | | $ | 26.9 | | | $ | 30.6 | | | $ | (3.7) | | | (12.1) | % | |
| Income / (loss) before income tax (a) | | Income / (loss) before income tax (a) | | $ | (15.6) | | | $ | 16.1 | | | $ | (31.7) | | | (196.9) | % | | $ | 11.3 | | | $ | 46.7 | | | $ | (35.4) | | | (75.8) | % |
(a)For purposes of discussing operating results, we present and discuss Income / (loss) before income tax. This format is useful to investors because it allows analysis and comparability of operating trends and includes the same information used by management to make decisions regarding our financial performance.
AES Ohio – Revenues
Retail customers, especially residential and commercial customers, consume more electricity on warmer and colder days. Therefore, our retail sales demand is affected by the number of heating and cooling degree-days occurring during a year. Cooling degree-days typically have a more significant effect than heating degree-days since some residential customers do not use electricity to heat their homes. Additionally, our retail revenues are affected by regulated rates and riders including the changes to our ESP described in Note 2 - Regulatory Matters of our Form 10-K and Note 2 – Regulatory MattersREGULATORY MATTERS of Notes to AES Ohio's Condensed Financial Statements.
During the three months ended JuneSeptember 30, 2022, Revenues increased $42.8$73.8 million to $188.7$259.9 million compared to $145.9$186.1 million in the same period of the prior year, and, during the sixnine months ended JuneSeptember 30, 2022, Revenues increased $67.0$140.8 million to $385.7$645.6 million compared to $318.7$504.8 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 | | Three months ended | | Nine months ended |
| | June 30, | | June 30, | | September 30, | | September 30, |
| $ in millions | $ in millions | | 2022 vs. 2021 | | 2022 vs. 2021 | $ in millions | | 2022 vs. 2021 | | 2022 vs. 2021 |
| Retail | Retail | | | | | Retail | | | | |
| Rate | Rate | | Rate | |
| Increase due to the TCRR Rider | | $ | 6.9 | | | $ | 21.9 | | |
| Increase in Competitive Bid Revenue Rate Rider | Increase in Competitive Bid Revenue Rate Rider | | 16.9 | | | 18.7 | | Increase in Competitive Bid Revenue Rate Rider | | $ | 63.2 | | | $ | 82.0 | |
| | Increase / (decrease) due to the TCRR Rider | | Increase / (decrease) due to the TCRR Rider | | (7.7) | | | 14.2 | |
| | Other | Other | | (1.6) | | | (3.3) | | Other | | 3.4 | | | (0.1) | |
| Net change in retail rate | Net change in retail rate | | 22.2 | | | 37.3 | | Net change in retail rate | | 58.9 | | | 96.1 | |
| | Volume | Volume | | Volume | |
| Net increase in demand primarily due to favorable weather and higher weather-normalized demand | | 7.9 | | | 15.4 | | |
| Net increase in demand primarily due to higher SSO volumes from higher demand | | Net increase in demand primarily due to higher SSO volumes from higher demand | | 4.2 | | | 19.7 | |
| | Other miscellaneous | Other miscellaneous | | 0.3 | | | (0.5) | | Other miscellaneous | | — | | | (0.5) | |
| Total retail change | Total retail change | | 30.4 | | | 52.2 | | Total retail change | | 63.1 | | | 115.3 | |
| | Wholesale | Wholesale | | Wholesale | |
| | Increase primarily due to higher rates and volumes at OVEC | | 7.4 | | | 10.1 | | |
| Increase primarily due to higher rates on power sales at OVEC | | Increase primarily due to higher rates on power sales at OVEC | | 6.6 | | | 16.7 | |
| | RTO ancillary and capacity revenues | RTO ancillary and capacity revenues | | RTO ancillary and capacity revenues | |
| Increase primarily due to higher transmission formula rates in the current year | Increase primarily due to higher transmission formula rates in the current year | | 3.0 | | | 4.2 | | Increase primarily due to higher transmission formula rates in the current year | | 2.4 | | | 6.6 | |
| | Other | Other | | Other | |
| Miscellaneous revenues | Miscellaneous revenues | | 2.0 | | | 0.5 | | Miscellaneous revenues | | 1.7 | | | 2.2 | |
| Net change in revenues | Net change in revenues | | $ | 42.8 | | | $ | 67.0 | | Net change in revenues | | $ | 73.8 | | | $ | 140.8 | |
|
AES Ohio – Net Purchased Power
During the three months ended JuneSeptember 30, 2022, net purchased power increased $36.7$96.1 million to $90.3$179.8 million compared to $53.6$83.7 million in the same period of the prior year, and, during the sixnine months ended JuneSeptember 30, 2022, net purchased power increased $56.0$152.1 million to $180.8$360.6 million compared to $124.8$208.5 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 | | Three months ended | | Nine months ended |
| | June 30, | | June 30, | | September 30, | | September 30, |
| $ in millions | $ in millions | | 2022 vs. 2021 | | 2022 vs. 2021 | $ in millions | | 2022 vs. 2021 | | 2022 vs. 2021 |
| Net purchased power | Net purchased power | | | | | Net purchased power | | | | |
| Purchased power | Purchased power | | Purchased power | |
| Rate | Rate | | Rate | |
| Increase primarily due to pricing in the competitive bid process and higher OVEC rates | | $ | 21.2 | | | $ | 18.9 | | |
| Increase primarily due to pricing in the competitive bid auction and recognition of previously deferred costs | | Increase primarily due to pricing in the competitive bid auction and recognition of previously deferred costs | | $ | 100.4 | | | $ | 100.4 | |
| | Volume | Volume | | Volume | |
| Increase primarily due to higher retail load served primarily driven by weather | | 8.7 | | | 16.1 | | |
| Increase primarily due to higher retail SSO load served due to demand and increased SSO customers | | Increase primarily due to higher retail SSO load served due to demand and increased SSO customers | | 2.0 | | | 37.0 | |
| Total purchased power change | Total purchased power change | | 29.9 | | | 35.0 | | Total purchased power change | | 102.4 | | | 137.4 | |
| | RTO charges | RTO charges | | RTO charges | |
| Increase primarily due to higher TCRR rates | | 6.8 | | | 21.0 | | |
| Increase / (decrease) primarily due to changes in TCRR rates | | Increase / (decrease) primarily due to changes in TCRR rates | | (6.3) | | | 14.7 | |
| | Net change in purchased power | Net change in purchased power | | $ | 36.7 | | | $ | 56.0 | | Net change in purchased power | | $ | 96.1 | | | $ | 152.1 | |
|
AES Ohio – Operation and Maintenance
During the three and sixnine months ended JuneSeptember 30, 2022, Operation and Maintenance expense increased $5.2$8.9 million and $10.8$19.7 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 | | Three months ended | | Nine months ended |
| | June 30, | | June 30, | | September 30, | | September 30, |
| $ in millions | $ in millions | | 2022 vs. 2021 | | 2022 vs. 2021 | $ in millions | | 2022 vs. 2021 | | 2022 vs. 2021 |
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) | | 1.4 | | | $ | 3.0 | | Increase in uncollectible expenses for the low-income payment program, which is funded by the USF Revenue Rate Rider (a) | | 1.5 | | | $ | 4.5 | |
| | Increase in charges from Service Company | Increase in charges from Service Company | | 1.2 | | | 1.8 | | Increase in charges from Service Company | | 2.0 | | | 3.9 | |
| Increase in Smart Grid R&D amortization (a) | Increase in Smart Grid R&D amortization (a) | | 1.2 | | | 1.7 | | Increase in Smart Grid R&D amortization (a) | | 0.7 | | | 2.3 | |
Increase / (decrease) in TCRR costs (a) | Increase / (decrease) in TCRR costs (a) | | (0.1) | | | 1.1 | | Increase / (decrease) in TCRR costs (a) | | (1.1) | | | 0.2 | |
| Increase in Smart Grid stipulation amortization | Increase in Smart Grid stipulation amortization | | 0.4 | | | 0.9 | | Increase in Smart Grid stipulation amortization | | — | | | 1.0 | |
Increase in deferred storm costs (a) | Increase in deferred storm costs (a) | | 0.7 | | | 0.7 | | Increase in deferred storm costs (a) | | 2.0 | | | 2.7 | |
| Increase in salaries and wages expense | | Increase in salaries and wages expense | | 0.4 | | | 1.9 | |
| Other, net | Other, net | | 0.4 | | | 1.6 | | Other, net | | 3.4 | | | 3.2 | |
| Net change in operation and maintenance expense | Net change in operation and maintenance expense | | $ | 5.2 | | | $ | 10.8 | | Net change in operation and maintenance expense | | $ | 8.9 | | | $ | 19.7 | |
|
(a) There is a corresponding offset in Revenues associated with these costs.
AES Ohio – Depreciation and Amortization
During the three and sixnine months ended JuneSeptember 30, 2022, Depreciation and amortization increased $1.2 million and $1.7$2.9 million, respectively, compared to the same periods in the prior year primarily due to additional assets placed in service.
AES Ohio – Taxes Other Than Income TaxesInterest Expense
During the three and sixnine months ended JuneSeptember 30, 2022, Taxes other than income taxesInterest expense increased $0.4$2.3 million and $2.0$3.0 million, respectively, compared to the same periods in the prior year. The increases wereincrease was primarily the result of higher property taxes due to higher assessed valuesthe issuance of additional debt in the current year.second quarter of 2022.
AES Ohio – Income Tax Expense / (Benefit)
During the three and sixnine months ended JuneSeptember 30, 2022, Income tax expense / (benefit) decreased $0.5$8.2 million and $1.0$9.2 million, respectively, compared to the same periods in the prior year primarily due to the change in income / (loss) before income tax and a decrease in the effective tax rate and lower income before income tax in the current year.rate.
See Note 5 – Income TaxesINCOME TAXES of Notes to AES Ohio's Condensed Financial Statements for further discussion.
KEY TRENDS AND UNCERTAINTIES
During 2022 and beyond, we expect our financial results will be primarily impacted by retail demand and weather. As discussed in Note 2 – Regulatory MattersREGULATORY MATTERS of Notes to DPL's Condensed Consolidated Financial Statements and Note 2 – Regulatory MattersREGULATORY MATTERS of Notes to AES Ohio's Condensed Financial Statements in Part I, Item 1 of this report, AES Ohio has requested PUCO approval to defer its decoupling costs consistent with the methodology approved in its distribution rate order. If approved, the deferral would be effective as of December 18, 2019 and going forward would reduce impacts of weather, energy efficiency programs and economic changes in customer demand until its pending distribution rates are in effect. In addition, DPL's and AES Ohio's financial results are likely to be driven by other factors including, but not limited to:
•regulatory outcomes;
•the passage of new legislation, implementation of regulations or other changes in regulation; and
•the timely recovery of transmission and distribution expenditures.
If favorable outcomes related to these factors do not occur, or if the challenges described below and elsewhere in this Quarterly Report impact us more significantly than we currently anticipate, then these factors, or other factors unknown to us, may impact our operating income, net income and cash flows. We continue to monitor our operations and address challenges as they arise. For a discussion of the risks related to our business, see “Item 1. Business” and “Item 1A. Risk Factors” as described in our Form 10-K and "Item 1A. Risk Factors" of this Form 10-Q
Operational
COVID-19 Pandemic - The COVID-19 pandemic has impacted global economic activity, including electricity and energy consumption, and caused significant volatility in financial markets. Throughout the COVID-19 pandemic we have conducted our essential operations without significant disruption. 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.
The COVID-19 pandemic primarily impacted our retail sales demand. Retail sales demand decreased in 2020 mostly from commercial and industrial customers but has recovered. While we have continued to experience some COVID-19 impacts into 2022, such impacts have not been material nor do we expect they will be material, particularly if reduced social distancing measures and improvements in energy demand continue. The magnitude and duration of the COVID-19 pandemic is unknown at this time, however, and could have material and adverse effects on our results of operations, financial condition and cash flows in future periods. Also see Item 1A.—Risk Factors of our Form 10-K.
We have not had nor do we expect to have a significant impact to our access to capital or our liquidity position as a result of the COVID-19 pandemic. We also have not experienced any material credit-related impacts due to the COVID-19 pandemic but continue to monitor and manage our credit exposures in a prudent manner.
Capital Projects - Our construction projects have experienced some indications of delays and price increases;increases due to supply chain disruptions; however, they are currently 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.
Macroeconomic and Political
Reference Rate Reform - As discussed in Item 7 - Management's Discussion and Analysis of Financial Condition and Results of Operations, of our Form 10-K, in July 2017, the UK Financial Conduct Authority announced that it intended to phase out LIBOR by the end of 2021. In the U.S., the Alternative Reference Rate Committee at the Federal Reserve identified the Secured Overnight Financing Rate ("SOFR") as its preferred alternative rate for LIBOR; alternative reference rates in other key markets are under development. The ICE Benchmark Association has determined that it will cease publication of the one-month, three-month, six-month, and 12-month USD LIBOR rates by June 30, 2023. We hold debt that references LIBOR as an interest rate benchmark. In order to facilitate an organized transition from LIBOR to alternative benchmark rate(s), we have established a process to measure and mitigate risks associated with the cessation of LIBOR. As part of this initiative, alternative benchmark rates have been, and continue to be, assessed, and implemented for newly executed agreements. Many of our existing agreements include provisions designed to facilitate an orderly transition from LIBOR. To the extent that the terms of the credit agreements do not align following the cessation of LIBOR rates, we will seek to negotiate contract amendments with counterparties.
U.S. Income Tax - The macroeconomic and political environments in the U.S. have changed during 2021 and 2022. This could result in significant impacts to tax law. For example, inOn August 16, 2022, the first quarterInflation Reduction Act of 2022 was signed into U.S. law. We are currently evaluating the Biden Administration released its fiscal year 2023 budget, which includes proposed U.S. corporate tax reform proposals that would increaseapplicability and effect of the U.S. corporate income tax rate. Additional details regarding these potential changes in law are expected to be made available later this year.new law.
Inflation - In the markets in which we operate, there have been higher rates of inflation in recent months. If inflation continues to increase in our markets,market, it may increase our expenses that we may not be able to pass through to customers. AES Ohio may have the ability to recover operations and maintenance costs through the regulatory process; however, timing impacts on recovery may vary. In addition, the standard service offer auction process has reflected current macroeconomic conditions in terms of pricing.
Bipartisan Infrastructure Law (Infrastructure Investment and Jobs Act) - In November 2021, President Biden signed into law the Infrastructure Investment and Jobs Act, which provides for approximately $1.2 trillion of federal spending over the next five years across the United States. The BIL’s energy-related provisions include new federal funding for power grid infrastructure and resiliency investments, new and existing energy efficiency and weatherization programs, electric vehicle infrastructure for public chargers and additional Low Income Home Energy Assistance Program funding. AES Ohio has identified potential opportunities associated with the BIL and is evaluating how they may align with its strategy going forward.
Regulatory
DPL’s,, AES Ohio’s and our other subsidiaries’ facilities and operations are subject to a wide range of regulations and laws by federal, state and local authorities. As well as imposing continuing compliance obligations, these laws and regulations authorize the imposition of substantial penalties for noncompliance, including fines, injunctive relief and other sanctions. In the normal course of business, we have investigatory and remedial activities underway at these facilities and operations in an effort to comply, or to determine compliance, with such regulations. We record liabilities for losses that are probable and can be reasonably estimated. In addition to matters discussed or updated herein, our 2021 Form 10-K and FormForms 10-Q previously filed with the SEC during 2022 describe other regulatory matters which have not materially changed since those filings. See Part I, Item 1, Note 2 – Regulatory Matters of Notes to DPL's Condensed Consolidated Financial Statements and Part I, Item 1, Note 2 – Regulatory Matters of Notes to AES Ohio's Condensed Financial Statements for further information regarding regulatory matters.
Distribution Rate Case - On November 30, 2020, AES Ohio filed a new distribution rate case with the PUCO. Certain parties that have intervened in the distribution rate case have argued that ESP 1 incorporates a distribution rate freeze. We are unable to predict the outcome of the distribution rate case, but if the PUCO were to impose a rate freeze that precludes AES Ohio’s ability to implement a distribution rate increase during ESP 1, it could have a material adverse effect on our results of operations, financial condition and cash flows.
Environmental
In addition to imposing continuing compliance obligations, federal, state and local environmental 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 accordanceElectric Security Plan - On September 26, 2022, AES Ohio filed its latest ESP (ESP 4) 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 2021 Form 10-K for a discussion of certain recent developments in environmental laws and regulations.PUCO.
See Part I, Item 1, Note 2 – REGULATORY MATTERS of Notes to DPL's Condensed Consolidated Financial Statements and Part I, Item 1, Note 2 – REGULATORY MATTERS of Notes to AES Ohio's Condensed Financial Statements for further information regarding regulatory matters.
Environmental
We have several pending environmental matters associated with our previously-owned stations. Some of these matters could have a material adverse effect on our results of operations, financial condition and cash flows.
As a result of DPL’s retirement and subsequent sale of its Stuart and Killen generating stations, the sale of its ownership interest in the Miami Fort and Zimmer generating stations and the retirement and subsequent sale of Conesville, the following environmental matters, regulations and requirements are now not expected to have a material impact on DPL:DPL:
•MATS and any associated regulatory or judicial processes;
•NAAQS; and
•potential Clean Air Act Section 111(d) regulations for greenhouse gases from existing electric generating units.
Regulation of CCR - On October 19, 2015, an EPA rule regulating CCR under the Resource Conservation and Recovery Act as nonhazardous solid waste became effective (CCR Rule). 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 2016 Water Infrastructure Improvements for the Nation Act ("WIIN Act"), 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 EPA has indicated that they will implement a phased approach to amending the CCR Rule. On February 20, 2020, the EPA published a proposed rule to establish a federal CCR permit program that would operate in states without approved CCR permit programs. The EPA has indicated that they will implement a phased approach to amending the CCR rule, which is ongoing. With the sale of our coal-fired generating stations, we expect that the impact of these regulations would be limited to our interest in OVEC. The CCR Rule, current or proposed amendments to the CCR Rule, the results of groundwater monitoring data or the outcome of CCR-related litigation could have a material adverse effect on our results of operations, financial condition and cash flows.
On August 28, 2020, the EPA published the CCR Part A Rule that, among other amendments, required certain CCR units to cease waste receipt and initiate closure by April 11, 2021. The CCR Part A Rule also allowed for extensions of the April 11, 2021 deadline if the EPA determines certain criteria are met. Facilities seeking such an extension were required to submit a demonstration to the EPA by November 30, 2020. On January 11, 2022, the EPA released pre-publication versionsits first in a series of proposed determinations regarding nine CCR Part A Rule demonstrations, including for OVEC’s Clifty Creek. On the same day, EPA issuedCreek, and four compliance-related letters notifying certain other facilities of their compliance obligations under the federal CCR regulations. The determinations and letters include interpretations regarding implementation of the CCR Rule. On April 8, 2022, petitions for review were filed challenging these
EPA actions. The petitions are consolidated in Electric Energy, Inc. v. EPA. On July 12, 2022, the EPA released prepublication determinations regarding two CCR Part A Rule demonstrations. It is too early to determine the direct or indirect impact of these letters or any determinations that may be made.
CAPITAL RESOURCES AND LIQUIDITY
OVERVIEW
DPL and AES Ohio had unrestricted cash and cash equivalents of $60.3$44.3 million and $44.9$27.6 million, respectively, as of JuneSeptember 30, 2022. At that date, neither DPL nor AES Ohio had short-term investments. DPL and AES Ohio had aggregate principal amounts of long-term debt outstanding of $1,552.7 million and $722.1 million, respectively.
From time to time, we may elect to repurchase our outstanding debt through cash purchases, privately negotiated transactions or otherwise when management believes such repurchases are favorable to make. The amounts involved in any such repurchases may be material.
We depend on timely and continued access to capital markets to manage our liquidity needs. The inability to raise capital on favorable terms, to refinance existing indebtedness or to fund operations and other commitments during times of political or economic uncertainty could have a material adverse effect on our results of operations, financial condition and cash flows. In addition, changes in the timing of tariff increases or delays in regulatory determinations could affect the cash flows and results of operations of our businesses.
On June 1, 2022, AES Ohio re-issued $140.0 million of tax-exempt Ohio Air Quality Development Authority (OAQDA) Collateralized Pollution Revenue Refunding Bonds that had been held in trust, Series 2015A&B. AES Ohio re-issued $140.0 million aggregate principal amount of first mortgage bonds to the OAQDA in two series: $100.0 million Series 2015A bonds at an interest rate of 4.25% and $40.0 million Series 2015B at an interest rate of 4.00% to secure the loan of proceeds from these bonds issued by the OAQDA. These bonds are subject to a mandatory put date of June 1, 2027.
CASH FLOWS
DPL’s financial condition, liquidity and capital requirements include the consolidated results of its principal subsidiary AES Ohio. All material intercompany accounts and transactions have been eliminated in consolidation.
Cash Flow Analysis - DPL
The following table summarizes the cash flows of DPL:DPL:
| | | Six months ended June 30, | | Nine months ended September 30, |
| $ in millions | $ in millions | | 2022 | | 2021 | $ in millions | | 2022 | | 2021 |
| Net cash provided by operating activities | Net cash provided by operating activities | | $ | 51.9 | | | $ | 16.7 | | Net cash provided by operating activities | | $ | 52.0 | | | $ | 56.5 | |
| Net cash used in investing activities | Net cash used in investing activities | | (142.2) | | | (105.0) | | Net cash used in investing activities | | (207.8) | | | (160.2) | |
| Net cash provided by financing activities | Net cash provided by financing activities | | 124.0 | | | 79.6 | | Net cash provided by financing activities | | 173.5 | | | 119.8 | |
| Net change | Net change | | 33.7 | | | (8.7) | | Net change | | 17.7 | | | 16.1 | |
| Balance at beginning of period | Balance at beginning of period | | 26.7 | | | 25.5 | | Balance at beginning of period | | 26.7 | | | 25.5 | |
| Cash, cash equivalents, and restricted cash at end of period | Cash, cash equivalents, and restricted cash at end of period | | $ | 60.4 | | | $ | 16.8 | | Cash, cash equivalents, and restricted cash at end of period | | $ | 44.4 | | | $ | 41.6 | |
DPL – Net cash from operating activities
| | | Six months ended June 30, | | $ change | | Nine months ended September 30, | | $ change |
| $ in millions | $ in millions | | 2022 | | 2021 | | 2022 vs. 2021 | $ in millions | | 2022 | | 2021 | | 2022 vs. 2021 |
| Net income | | $ | 15.6 | | | $ | 14.0 | | | $ | 1.6 | | |
| Net income / (loss) | | Net income / (loss) | | $ | (4.1) | | | $ | 22.5 | | | $ | (26.6) | |
| Depreciation and amortization | Depreciation and amortization | | 39.6 | | | 38.0 | | | 1.6 | | Depreciation and amortization | | 59.6 | | | 56.9 | | | 2.7 | |
| Deferred income taxes | Deferred income taxes | | (1.1) | | | 4.6 | | | (5.7) | | Deferred income taxes | | (10.7) | | | 2.3 | | | (13.0) | |
| | Gain on disposal of business | Gain on disposal of business | | (0.6) | | | — | | | (0.6) | | Gain on disposal of business | | (0.6) | | | — | | | (0.6) | |
| | Net income, adjusted for non-cash items | Net income, adjusted for non-cash items | | 53.5 | | | 56.6 | | | (3.1) | | Net income, adjusted for non-cash items | | 44.2 | | | 81.7 | | | (37.5) | |
| Net change in operating assets and liabilities | Net change in operating assets and liabilities | | (1.6) | | | (39.9) | | | 38.3 | | Net change in operating assets and liabilities | | 7.8 | | | (25.2) | | | 33.0 | |
| Net cash provided by (used in) operating activities | Net cash provided by (used in) operating activities | | $ | 51.9 | | | $ | 16.7 | | | $ | 35.2 | | Net cash provided by (used in) operating activities | | $ | 52.0 | | | $ | 56.5 | | | $ | (4.5) | |
The net change in operating assets and liabilities during the sixnine months ended JuneSeptember 30, 2022, compared to the sixnine months ended JuneSeptember 30, 2021 was driven by the following:
| | | | | | | | |
| $ in millions | | $ Change |
Increase from deferred regulatory costs, net primarily due to higher TCRR ratesovercollections on certain riders and a reduction in the current yearregulatory assets charged to net purchased power costs | | $ | 18.950.3 | |
Increase from accrued and other current liabilities primarily due to customer and supplier deposits | | 16.6 | |
Increase from accrued taxes payable / receivable primarily due to timing of property tax payments in the current year | | 11.5 | |
| Decrease from accounts receivable primarily due to timing of billings and collections | | (18.0)(19.5) | |
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| Other | | 9.32.2 | |
| Net increase in cash from changes in operating assets and liabilities | | $ | 38.333.0 | |
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DPL – Net cash from investing activities
Net cash used in investing activities increased $37.2$47.6 million during the sixnine months ended JuneSeptember 30, 2022, compared to the sixnine months ended JuneSeptember 30, 2021, primarily driven by the following:
| | | | | | | | |
| $ in millions | | $ Change |
| Higher capital expenditures due to increased spending on AES Ohio T&D projects | | $ | (39.0)(48.5) | |
Lower cost of removal payments | | 1.1 | |
| Other | | 0.70.9 | |
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| Net change in investing activities | | $ | (37.2)(47.6) | |
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DPL – Net cash from financing activities
Net cash provided by financing activities increased $44.4$53.7 million during the sixnine months ended JuneSeptember 30, 2022, compared to the sixnine months ended JuneSeptember 30, 2021, primarily driven by the following:
| | | | | | | | |
| $ in millions | | $ Change |
| Increase due to re-issuance of tax-exempt OAQDA bonds | | $ | 140.0 | |
Decrease due to lower net repayments of borrowings fromdraws on revolving credit facilities | | (95.0)(85.0) | |
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| Other | | (0.6)(1.3) | |
| Net change in financing activities | | $ | 44.453.7 | |
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Cash Flow Analysis - AES Ohio
The following table summarizes the cash flows of AES OhioAES Ohio::
| | | Six months ended June 30, | | Nine months ended September 30, |
| $ in millions | $ in millions | | 2022 | | 2021 | $ in millions | | 2022 | | 2021 |
| Net cash provided by operating activities | Net cash provided by operating activities | | $ | 66.5 | | | $ | 32.6 | | Net cash provided by operating activities | | $ | 73.3 | | | $ | 81.3 | |
| Net cash used in investing activities | Net cash used in investing activities | | (141.0) | | | (102.3) | | Net cash used in investing activities | | (205.1) | | | (156.2) | |
| Net cash provided by financing activities | Net cash provided by financing activities | | 105.0 | | | 62.8 | | Net cash provided by financing activities | | 145.0 | | | 93.0 | |
| Net change | Net change | | 30.5 | | | (6.9) | | Net change | | 13.2 | | | 18.1 | |
| Balance at beginning of period | Balance at beginning of period | | 14.5 | | | 11.8 | | Balance at beginning of period | | 14.5 | | | 11.8 | |
| Cash, cash equivalents, and restricted cash at end of period | Cash, cash equivalents, and restricted cash at end of period | | $ | 45.0 | | | $ | 4.9 | | Cash, cash equivalents, and restricted cash at end of period | | $ | 27.7 | | | $ | 29.9 | |
AES Ohio – Net cash from operating activities
| | | Six months ended June 30, | | $ change | | Nine months ended September 30, | | $ change |
| $ in millions | $ in millions | | 2022 | | 2021 | | 2022 vs. 2021 | $ in millions | | 2022 | | 2021 | | 2022 vs. 2021 |
| Net income | Net income | | $ | 24.2 | | | $ | 26.9 | | | $ | (2.7) | | Net income | | $ | 14.1 | | | $ | 40.3 | | | $ | (26.2) | |
| Depreciation and amortization | Depreciation and amortization | | 38.9 | | | 37.2 | | | 1.7 | | Depreciation and amortization | | 58.7 | | | 55.8 | | | 2.9 | |
| Deferred income taxes | Deferred income taxes | | 1.9 | | | 3.7 | | | (1.8) | | Deferred income taxes | | (6.9) | | | 6.4 | | | (13.3) | |
| Gain on disposal of business | Gain on disposal of business | | (0.6) | | | — | | | (0.6) | | Gain on disposal of business | | (0.6) | | | — | | | (0.6) | |
| Net income, adjusted for non-cash items | Net income, adjusted for non-cash items | | 64.4 | | | 67.8 | | | (3.4) | | Net income, adjusted for non-cash items | | 65.3 | | | 102.5 | | | (37.2) | |
| Net change in operating assets and liabilities | Net change in operating assets and liabilities | | 2.1 | | | (35.2) | | | 37.3 | | Net change in operating assets and liabilities | | 8.0 | | | (21.2) | | | 29.2 | |
| Net cash provided by operating activities | Net cash provided by operating activities | | $ | 66.5 | | | $ | 32.6 | | | $ | 33.9 | | Net cash provided by operating activities | | $ | 73.3 | | | $ | 81.3 | | | $ | (8.0) | |
The net change in operating assets and liabilities during the sixnine months ended JuneSeptember 30, 2022, compared to the sixnine months ended JuneSeptember 30, 2021, was driven by the following:
| | | | | | | | |
| $ in millions | | $ Change |
Increase from deferred regulatory costs, net primarily due to higher TCRR ratesovercollections on certain riders and a reduction in the current yearregulatory assets charged to net purchased power costs | | $ | 18.950.3 | |
Increase from accrued and other current liabilities primarily due to customer and supplier deposits | | 16.5 | |
Increase from accrued taxes payable / receivable primarily due to timing of property tax payments in the current year | | 10.1 | |
| Decrease from accounts receivable primarily due to timing of billings and collections | | (18.3)(19.3) | |
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| Other | | 10.1 (1.8) | |
| Net increase in cash from changes in operating assets and liabilities | | $ | 37.329.2 | |
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AES Ohio – Net cash from investing activities
Net cash used in investing activities increased $38.7$48.9 million during the sixnine months ended JuneSeptember 30, 2022, compared to the sixnine months ended JuneSeptember 30, 2021, primarily driven by the following:
| | | | | | | | |
| $ in millions | | $ Change |
| Higher capital expenditures due to increased spending on AES Ohio T&D projects | | $ | (39.5)(47.7) | |
Lower cost of removal payments | | 1.2 | |
| Other | | (0.4)(1.2) | |
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| Net change in investing activities | | $ | (38.7)(48.9) | |
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AES Ohio – Net cash from financing activities
Net cash provided by financing activities increased $42.2$52.0 million during the sixnine months ended JuneSeptember 30, 2022, compared to the sixnine months ended JuneSeptember 30, 2021, primarily driven by the following:
| | | | | | | | |
| $ in millions | | $ Change |
| Increase due to re-issuance of tax-exempt OAQDA bonds | | $ | 140.0 | |
Decrease due to lower net repayments of borrowings fromdraws on revolving credit facilities | | (80.0)(65.0) | |
Higher distributions to DPL | | (17.0)(22.0) | |
| Other | | $ | (0.8)(1.0) | |
| Net change in financing activities | | $ | 42.252.0 | |
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LIQUIDITY
We expect our existing sources of liquidity to remain sufficient to meet our anticipated operating needs. Our business is capital intensive, requiring significant resources to fund operating expenses, construction expenditures, scheduled debt maturities and carrying costs, taxes and dividend payments. For 2022 and subsequent years, we expect to satisfy these requirements with cash from operations, funds from debt financing and/or equity capital contributions as our internal liquidity needs and market conditions warrant. We also expect that the borrowing capacity under bank credit facilities will continue to be available to manage working capital requirements during those periods.
At JuneSeptember 30, 2022, AES Ohio and DPL have access to the following revolving credit facilities:
| | $ in millions | $ in millions | | Type | | Maturity | | Commitment | | Amounts available as of June 30, 2022 | $ in millions | | Type | | Maturity | | Commitment | | Amounts available as of September 30, 2022 |
| AES Ohio | AES Ohio | | Revolving | | June 2024 | | $ | 175.0 | | | $ | 175.0 | | AES Ohio | | Revolving | | June 2024 | | $ | 175.0 | | | $ | 120.0 | |
| DPL | DPL | | Revolving | | June 2023 | | 90.0 | | | 40.0 | | DPL | | Revolving | | June 2023 | | 85.0 | | | 40.0 | |
| | $ | 265.0 | | | $ | 215.0 | | | $ | 260.0 | | | $ | 160.0 | |
The AES Ohio Credit Agreement is an unsecured revolving credit facility with a syndicated bank group with a borrowing limit of $175.0 million and a $75.0 million letter of credit sublimit, as well as a feature that provides AES Ohio the ability to increase the size of the facility by an additional $100.0 million. This facility expires in June 2024. As of JuneSeptember 30, 2022, there were $0.0$55.0 million in borrowings under the facility, with the remaining $175.0$120.0 million available to AES Ohio.
The DPL Credit Agreement is a secured revolving credit facility with a syndicated bank group with a borrowing limit of $90.0$85.0 million, with a $75.0 million letter of credit sublimit and a feature that provides DPL the ability to increase the size of the facility by an additional $50.0 million. This facility is secured by a pledge of common stock that DPL owns in AES Ohio.Ohio. The facility expires in June 2023. As of JuneSeptember 30, 2022, there were no letterletters of creditscredit outstanding and $50.0$45.0 million in borrowings, with the remaining $40.0 million available to DPL.
DPL.
Capital RequirementsCAPITAL REQUIREMENTS
Our capital expenditure program, including development and permitting costs, for the three-year period from 2022 through 2024 is currently estimated to cost up to $767.0 million, and includes estimates as follows:
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| $ in millions | | 2022 | | 2023 | | 2024 | | For the three-year period from 2022 through 2024 |
Distribution-related additions, improvements and extensions (a) | | $ | 86.0 | | | $ | 107.0 | | | $ | 108.0 | | | $ | 301.0 | |
| Transmission-related additions and improvements | | 86.0 | | | 69.0 | | | 95.0 | | | 250.0 | |
| Smart Grid improvements and additions | | 54.0 | | | 69.0 | | | 54.0 | | | 177.0 | |
| Other | | 15.0 | | | 8.0 | | | 5.0 | | | 28.0 | |
| Total for AES Ohio | | 241.0 | | | 253.0 | | | 262.0 | | | 756.0 | |
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| Other subsidiaries | | 3.0 | | | 5.0 | | | 3.0 | | | 11.0 | |
| Total for DPL | | $ | 244.0 | | | $ | 258.0 | | | $ | 265.0 | | | $ | 767.0 | |
(a) AES Ohio's investments in distribution-related additions, improvements and extensions are dependent on favorable regulatory outcomes.
AES Ohio's projection includes expected spending under itsSmart Grid Plan included in the comprehensive settlement approved by the PUCO on June 16, 2021, as well as new transmission projects. See additional information in Note 2 – Regulatory MattersREGULATORY MATTERS of Notes to DPL's Condensed Consolidated Financial Statements and Note 2 – Regulatory MattersREGULATORY MATTERS of Notes to AES Ohio's Condensed Financial Statements.Statements.
AES Ohio is subject to the mandatory reliability standards of NERC and ReliabilityFirst Corporation, one of the six NERC regions, of which AES Ohio is a member. AES Ohio anticipates spending approximately $76.0 million within the next five years to reinforce its transmission system to comply with mandatory NERC and FERC Form 715 planning requirements. These anticipated costs are included in the overall capital projections above.
Long-term debt covenants
For information regarding our long-term debt covenants, see Part I, Item 1, Note 5 – DebtDEBT of Notes to DPL's Condensed Consolidated Financial Statements and Part I, Item 1, Note 4 – DebtDEBT of Notes to AES Ohio's Condensed Financial Statements.
Debt and Credit Ratings
The following table presents, as of the filing of this report, the debt ratings and outlook for DPL and AES Ohio.Ohio.
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| | DPL | | AES Ohio | | Outlook |
| Fitch Ratings | | BB (a) | | BBB+(b) | | Negative |
| Moody's Investors Service, Inc. | | Ba1 (a) | | A3 (b) | | StableNegative |
| Standard & Poor's Financial Services LLC | | BB+ (a) | | BBB+ (b) | | Negative |
(a) Rating relates to DPL's senior unsecured debt.
(b) Rating relates to AES Ohio’AES Ohio’ss senior secured debt.
The following table presents, as of the filing of this report, the credit ratings (issuer/corporate rating) and outlook for DPL and AES Ohio.Ohio.
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| | DPL | | AES Ohio | | Outlook |
| Fitch Ratings | | BB | | BBB- | | Negative |
| Moody's Investors Service, Inc. | | Ba1 | | Baa2 | | StableNegative |
| Standard & Poor's Financial Services LLC | | BB+ | | BB+ | | Negative |
If the rating agencies were to reduce our debt or credit ratings, our borrowing costs may increase, our potential pool of investors and funding resources may be reduced, and we may be required to post additional collateral under selected contracts. These events could have an adverse effect on our results of operations, financial condition and cash flows. In addition, any such reduction in our debt or credit ratings may adversely affect the trading price of our outstanding debt securities.
Off-Balance Sheet Arrangements
Off-Balance Sheet Arrangements
For information on guarantees, commercial commitments, and contractual obligations, see Part I, Item 1, Note 8 – Commitments and ContingenciesCOMMITMENTS AND CONTINGENCIES of Notes to DPL's Condensed Consolidated Financial Statements and Part I, Item 1, Note 7 – Commitments and ContingenciesCOMMITMENTS AND CONTINGENCIES of Notes to AES Ohio's Condensed Financial Statements.
Critical Accounting Policies and Estimates
DPL’s Condensed Consolidated Financial Statements and AES Ohio’s Condensed Financial Statements are prepared in accordance with GAAP. In connection with the preparation of these financial statements, our management is required to make assumptions, estimates and judgments that affect the reported amounts of assets, liabilities, revenues, expenses and the related disclosure of contingent liabilities. These assumptions, estimates and judgments are based on our historical experience and assumptions that we believe to be reasonable at the time. However, because future events and their effects cannot be determined with certainty, the determination of estimates requires the exercise of judgment. Our critical accounting estimates are those which require assumptions to be made about matters that are highly uncertain.
Different estimates could have a material effect on our financial results. Judgments and uncertainties affecting the application of these policies and estimates may result in materially different amounts being reported under different conditions or circumstances. Historically, however, recorded estimates have not differed materially from actual results. Significant items subject to such judgments include: the carrying value of property, plant and equipment; unbilled revenues; the valuation of insurance and claims liabilities; the valuation of allowances for credit losses and deferred income taxes; regulatory assets and liabilities; liabilities recorded for income tax exposures; litigation; contingencies; assets and liabilities related to employee benefits and intangible assets. Refer to our Form 10-K for the year ended December 31, 2021 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 sixnine months ended JuneSeptember 30, 2022.
Item 3 – Quantitative and Qualitative Disclosures about Market Risk
There have been no material changes to our quantitative and qualitative disclosure about market risk as previously disclosed in our Form 10-K.
Item 4 – Controls and Procedures
Disclosure Controls and Procedures
DPL and AES Ohio,, under the supervision and with the participation of its management, including our Chief Executive Officer (CEO) and Chief Financial Officer (CFO), evaluated the effectiveness of our “disclosure controls and procedures,” as such term is defined in Rule 13a-15(e) under the Securities Act of 1934, as amended (the “Exchange Act”), as of the end of the period covered by this Quarterly Report on Form 10-Q. Based on that evaluation, our CEO and CFO concluded that our disclosure controls and procedures were effective as of JuneSeptember 30, 2022, to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act, is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms, and include controls and procedures designed to ensure that information required to be disclosed by us in such reports is accumulated and communicated to our management, including our CEO and CFO, as appropriate, to allow timely decisions regarding required disclosures.
Changes in Internal Controls over Financial Reporting—
There were no changes that occurred during the fiscal quarter covered by this Quarterly Report on Form 10-Q that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
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, 2021 and FormForms 10-Q for the quarterquarters ended March 31, and June 30, 2022, and the Notes to DPL’s Consolidated Financial Statements and AES Ohio’s Financial Statements included therein, contain descriptions of certain legal proceedings in which we are or were involved. The information in or incorporated by reference into this Item 1 to Part II is limited to certain recent developments concerning our legal proceedings and new legal proceedings, since the filing of such 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 2 – Regulatory MattersREGULATORY MATTERS and Note 8 – COMMITMENTS AND CONTINGENCIES of Notes to DPL's Condensed Consolidated Financial Statements and Part I, Item 1, Note 2 – Regulatory MattersREGULATORY MATTERS and Note 7 – COMMITMENTS AND CONTINGENCIES of Notes to AES Ohio'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. Except as described below, there has been no material change in our risk factors as previously disclosed in our Form 10-K. If any of the events described in our risk factors occur, it could have a material adverse effect on our results of operations, financial condition and cash flows.
The risks and uncertainties described in our risk factors are not the only ones we face. In addition, new risks may emerge at any time, and we cannot predict those risks or estimate the extent to which they may affect our business or financial performance. Our risk factors should be read in conjunction with the other detailed information concerning DPL and AES Ohio set forth in the Notes to DPL’s and AES Ohio’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 on Form 10-Q, we are further revising, clarifying and
supplementing a risk factor from our Form 10-K. The risk factor below should be considered together with the other risk factors described in our Form 10-K:
Potential security breaches (including cybersecurity breaches) and terrorism risks could materially and adversely affect our businesses.
We operate in a highly regulated industry that requires the continued operation of sophisticated systems and network infrastructure at our transmission, distribution and other facilities. We also use various financial, accounting and other systems in our businesses. These systems and facilities are vulnerable to unauthorized access due to hacking, viruses, other cybersecurity attacks and other causes. In particular, given the importance of energy and the electric grid, there is the possibility that our systems and facilities could be targets of terrorism or acts of war, and there has been an increased focus on the U.S. energy grid that is believed to be related to the Russia/Ukraine conflict. We have implemented measures to help prevent unauthorized access to our systems and facilities,
including network and system monitoring, identification and deployment of secure technologies and certain other
measures to comply with mandatory regulatory reliability standards. Pursuant to NERC requirements, we have a robust cybersecurity plan in place and are subject to regular audits by an independent auditor approved by the NERC. We routinely test our systems and facilities against these regulatory requirements in order to measure compliance, assess potential security risks and identify areas for improvement. In addition, we provide cybersecurity training for our employees and perform exercises designed to raise employee awareness of cyber risks on a regular basis. To date, cyber-attacks on our business and operations have not had a material impact on our operations or financial results. Despite these efforts, if our systems or facilities were to be breached or disabled, we may be unable to recover them in a timely manner to fulfill critical business functions, including the supply of electric services to our customers, and we could experience decreases in revenues and increases in costs that could materially and adversely affect our results of operations, financial condition and cash flows
In the course of our business, we also store and use customer, employee and other personal information and other confidential and sensitive information, including personally identifiable information and personal financial information. If our or our third-party vendors’ systems were to be breached or disabled, sensitive and confidential information and other data could be compromised, which could result in negative publicity, remediation costs and potential litigation, damages, consent orders, injunctions, fines and other relief.
To help mitigate these risks, we maintain insurance coverage against some, but not all, potential losses, including coverage for illegal acts against us. However, insurance may not be adequate to protect us against all costs and liabilities associated with these risks.
Item 2 – Unregistered Sale of Equity Securities and Use of Proceeds
None
Item 3 – Defaults Upon Senior Securities
None
Item 4 – Mine Safety Disclosures
Not applicable.
Item 5 – Other Information
None
Item 6 – Exhibits
| | | | | | | | | | | | | | |
| DPL | DP&L | Exhibit Number | Exhibit | Location |
| X | | 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.Company.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, DPL Inc. has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
| | | | | | | | |
| | DPL Inc. |
| | (Registrant) |
| | |
| Date: | August 4,November 3, 2022 | /s/ Ahmed Pasha |
| | Ahmed Pasha |
| | Vice President and Chief Financial Officer |
| | (principal financial officer) |
| | |
| August 4,November 3, 2022 | /s/ Jon S. Byers |
| | Jon S. Byers |
| | 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: | August 4,November 3, 2022 | /s/ Ahmed Pasha |
| | Ahmed Pasha |
| | Vice President and Chief Financial Officer |
| | (principal financial officer) |
| | |
| August 4,November 3, 2022 | /s/ Jon S. Byers |
| | Jon S. Byers |
| | Controller |
| | (principal accounting officer) |
