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**UNITED STATES SECURITIES AND EXCHANGE COMMISSION**

**WASHINGTON,D.C. 20549**

 

**FORM 10-Q**

 

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

** **

**For the quarterly period ended****March 31, 2010**

** **

**OR**

 

| **o** | **TRANSITION REPORT PURSUANT TO  SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934** |
|-------|---------------------------------------------------------------------------------------------------------|

 

**For the transition period from             to            **

 
| **Commission********File Number** | ** ** | **Registrant, State of Incorporation,********Address and Telephone Number** | ** ** | **I.R.S.  Employer********Identification  No.** |
|----------------------------------------|------------|-----------------------------------------------------------------------------------------------------------|------------|-------------------------------------------------|
|                                   |       |                                                                                                      |       |                                            |
| **1-9052**                             | ** ** | **DPL INC.**                                                                                              | ** ** | **31-1163136**                                  |
|                                   |       | **(An Ohio Corporation)**                                                                                 |       |                                            |
| ** **                             | ** ** | **1065 Woodman Drive********Dayton, Ohio 45432**                                                          | ** ** | ** **                                      |
|                                   |       | **937-224-6000**                                                                                          |       |                                            |
|                                   |       | ** **                                                                                                |       |                                            |
| **1-2385**                             |       | **THE DAYTON POWER AND LIGHT COMPANY**                                           |       | **31-0258470**                                  |
| ** **                             | ** ** | **(An Ohio Corporation)**                                                                                 | ** ** | ** **                                      |
| ** **                             | ** ** | **1065 Woodman Drive********Dayton, Ohio 45432**                                                          | ** ** | ** **                                      |
| ** **                             | ** ** | **937-224-6000**                                                                                          | ** ** | ** **                                      |

 

Indicate by check markwhether each registrant (1) has filed all reports required to be filed by Section 13or 15(d) of the Securities Exchange Act of 1934 during the preceding 12months (or for such shorter period that the registrant was required to filesuch reports), and (2) has been subject to such filing requirements forthe past 90 days.

 
| DPL Inc.                            | Yes x  No o |
|-------------------------------------|---------------------------------|
| The Dayton Power and  Light Company | Yes x  No o |

 

Indicate by check markwhether each registrant has submitted electronically and posted on itscorporate Web site, if any, every Interactive Data File required to besubmitted and posted pursuant to Rule 405 of Regulation S-T during the preceding12 months (or for such shorter period that the registrant was required tosubmit and post such files).

 
| DPL Inc.                            | Yes o  No o |
|-------------------------------------|---------------------------------|
| The Dayton Power and  Light Company | Yes o  No o |

 

Indicate by checkmark whether the registrant is a large accelerated filer, an accelerated filer,a non-accelerated filer or a smaller reporting company.  See the definitions of “large acceleratedfiler,” “accelerated filer,” and “smaller reporting company” in Rule 12b-2of the Exchange Act.

 
| ** **                         | ** ** | **Large**       | ** ** | ** **      | ** ** | ** **          | ** ** | **Smaller**   | ** ** |
|------------------------------------|------------|-----------------|------------|-----------------|------------|---------------------|------------|---------------|------------|
| ** **                         | ** ** | **accelerated** | ** ** | **Accelerated** | ** ** | **Non-accelerated** | ** ** | **reporting** | ** ** |
| ** **                         | ** ** | **filer**       | ** ** | **filer**       | ** ** | **filer**           | ** ** | **company**   | ** ** |
| DPL Inc.                           |       | x               |       | o               |       | o                   |       | o             |       |
| The Dayton Power and Light Company |       | o               |       | o               |       | x                   |       | o             |       |

 

Indicate by check markwhether each registrant is a shell company (as defined in Rule 12b-2 ofthe Exchange Act).

 
| DPL Inc.                            | Yes o  No x |
|-------------------------------------|---------------------------------|
| The Dayton Power and  Light Company | Yes o  No x |

 

Asof April 26, 2010, each registrant had the following shares of commonstock outstanding:

 
| **Registrant**                          | ** ** | **Description**                    | ** ** | **Shares Outstanding** |
|-----------------------------------------|------------|------------------------------------|------------|------------------------|
|                                    |       |                               |       |                   |
| **DPL  Inc.**                           | ** ** | **Common  Stock, $0.01 par value** |       | 118,942,223            |
| ** **                              | ** ** | ** **                         |       |                   |
| **The  Dayton Power and Light Company** | ** ** | **Common  Stock, $0.01 par value** |       | 41,172,173             |

 

Thiscombined Form 10-Q is separately filed by DPL Inc. and The Dayton Powerand Light Company.  Information containedherein relating to any individual registrant is filed by such registrant on itsown behalf.  Each registrant makes norepresentation as to information relating to a registrant other than itself.

 

 

 

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**DPL Inc. and The Dayton Power and Light Company**

 

**Index**

 
| ** **                                | ** **                                                                                  | **Page No.** |
|-------------------------------------------|---------------------------------------------------------------------------------------------|-------------------|
|                                      |                                                                                        |              |
| **Glossary of Terms**                     |                                                                                        | 3                 |
|                                      |                                                                                        |              |
| **Part I Financial Information**     |                                                                                        |              |
|                                      |                                                                                        |              |   |
| Item 1                                    | Financial Statements — **DPL** and **DP&L**                                        |              |   |
|                                      |                                                                                        |              |   |
|                                      | Condensed Consolidated Statements of Results of  Operations — **DPL**                  |              | 6 |
|                                      |                                                                                        |              |   |
|                                      | Condensed Consolidated Statements of Cash Flows — **DPL**                              |              | 7 |
|                                      |                                                                                        |              |   |
|                                      | Condensed Consolidated Balance Sheets — **DPL**                                        |              | 8 |
|                                      |                                                                                        |              |   |
|                                      | Condensed Statements of Results of Operations — **DP&L**                           |              | 10 |
|                                      |                                                                                        |              |   |
|                                      | Condensed Statements of Cash Flows — **DP&L**                                      |              | 11 |
|                                      |                                                                                        |              |   |
|                                      | Condensed  Balance Sheets — **DP&L**                                               |              | 12 |
|                                      |                                                                                        |              |   |
|                                      | Notes to Condensed Consolidated Financial Statements                                        |              | 14 |
|                                      |                                                                                        |              |   |
| Item 2                                    | Management’s  Discussion and Analysis of Financial Condition and Results of Operations |              | 46 |
|                                      |                                                                                        |              |   |
|                                      | Electric  Sales and Revenues                                                                |              | 69 |
|                                      |                                                                                        |              |   |
| Item 3                                    | Quantitative  and Qualitative Disclosures about Market Risk                                 |              | 70 |
|                                      |                                                                                        |              |   |
| Item 4                                    | Controls and Procedures                                                                     |              | 70 |
|                                      |                                                                                        |              |   |
| **Part II   Other Information** |                                                                                        |              |
|                                      |                                                                                        |              |   |
| Item 1                                    | Legal Proceedings                                                                           |              | 70 |
|                                      |                                                                                        |              |   |
| Item 1A                                   | Risk Factors                                                                                |              | 71 |
|                                      |                                                                                        |              |   |
| Item 2                                    | Unregistered  Sales of Equity Securities and Use of Proceeds                                |              | 71 |
|                                      |                                                                                        |              |   |
| Item 3                                    | Defaults Upon  Senior Securities                                                            |              | 71 |
|                                      |                                                                                        |              |   |
| Item 4                                    | Removed and Reserved                                                                        |              | 71 |
|                                      |                                                                                        |              |   |
| Item 5                                    | Other Information                                                                           |              | 71 |
|                                      |                                                                                        |              |   |
| Item 6                                    | Exhibits                                                                                    |              | 72 |
|                                      |                                                                                        |              |   |
| **Other**                                 |                                                                                        |              |
|                                      |                                                                                        |              |
| Signatures                                |                                                                                        | 73                |
|                                      |                                                                                        |              |
| Certifications                            |                                                                                        | 74                |
|                                           |                                                                                             |                   |  |  |

 

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**GLOSSARYOF TERMS**

 

The following select abbreviations or acronyms areused in this Form 10-Q:

 
| **Abbreviation  or Acronym** | ** ** | **Definition**                                                                                                                                                                                                                        |
|------------------------------|------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| AOCI                         |       | Accumulated Other  Comprehensive Income                                                                                                                                                                                               |
| ARO                          |       | Asset Retirement  Obligation                                                                                                                                                                                                          |
| ASU                          |       | Accounting Standards  Update                                                                                                                                                                                                          |
| BTU                          |       | British Thermal Units                                                                                                                                                                                                                 |
| CAA                          |       | Clean Air Act                                                                                                                                                                                                                         |
| CAIR                         |       | Clean Air Interstate  Rule                                                                                                                                                                                                            |
| CO2                          |       | Carbon Dioxide                                                                                                                                                                                                                        |
| CCEM                         |       | Customer Conservation  and Energy Management                                                                                                                                                                                          |
| CRES                         |       | Competitive Retail  Electric Service                                                                                                                                                                                                  |
| DPL                          |       | DPL Inc., the parent  company                                                                                                                                                                                                         |
| DPLE                         |       | DPL Energy, LLC, a  wholly owned subsidiary of DPL that owns and operates peaking generation  facilities from which it makes wholesale sales                                                                                          |
| DPLER                        |       | DPL Energy Resources, Inc.,  a wholly owned subsidiary of DPL that sells retail electric energy and other  energy services                                                                                                       |
| DP&L                     |       | The Dayton Power and  Light Company, the principal subsidiary of DPL and a public utility that  sells electricity to residential, commercial, industrial and governmental  customers in a 6,000 square mile area of West Central Ohio |
| DSM                          |       | Demand-Side Management,  a program under which customers typically receive a discount, rebate or other  form of incentive in return for agreeing to reduce their electricity consumption  upon request by the utility                 |
| Dth                          |       | Decatherm, the unit of  measure for natural gas (1,000,000 BTU)                                                                                                                                                                       |
| EIR                          |       | Environmental  Investment Rider                                                                                                                                                                                                       |
| EPS                          |       | Earnings Per Share                                                                                                                                                                                                                    |
| ESOP                         |       | Employee Stock  Ownership Plan                                                                                                                                                                                                        |
| ESP                          |       | Electric Security  Plans, filed with the PUCO pursuant to Ohio law                                                                                                                                                                    |
| FASB                         |       | Financial Accounting  Standards Board                                                                                                                                                                                                 |
| FASC                         |       | FASB Accounting  Standards Codification                                                                                                                                                                                               |
| FERC                         |       | Federal Energy  Regulatory Commission                                                                                                                                                                                                 |
| FGD                          |       | Flue Gas  Desulfurization                                                                                                                                                                                                             |
| GAAP                         |       | Generally Accepted  Accounting Principles in the United States                                                                                                                                                                        |
| GHG                          |       | Greenhouse Gas                                                                                                                                                                                                                        |
| kWh                          |       | Kilowatt hours                                                                                                                                                                                                                        |
| MTM                          |       | Mark to Market                                                                                                                                                                                                                        |
| MVIC                         |       | Miami Valley Insurance  Company, a wholly owned insurance subsidiary of DPL that provides insurance  services to DPL and its subsidiaries                                                                                             |
| MWh                          |       | Megawatt hours                                                                                                                                                                                                                        |
| NERC                         |       | North American Electric  Reliability Corporation                                                                                                                                                                                      |
| NOV                          |       | Notice of Violation                                                                                                                                                                                                                   |
| NOx                          |       | Nitrogen Oxide                                                                                                                                                                                                                        |
| NYMEX                        |       | New York Mercantile  Exchange                                                                                                                                                                                                         |
| OAQDA                        |       | Ohio Air Quality  Development Authority                                                                                                                                                                                               |

 

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| **Abbreviation  or Acronym** | ** ** | **Definition**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |
|------------------------------|------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| Ohio EPA                     |       | Ohio Environmental  Protection Agency                                                                                                                                                                                                                                                                                                                                                                                                                                                          |
| OTC                          |       | Over-The-Counter                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |
| OVEC                         |       | Ohio Valley Electric  Corporation, an electric generating company in which **DP&L**  holds a 4.9% equity interest                                                                                                                                                                                                                                                                                                                                                                          |
| PJM                          |       | PJM Interconnection,  L.L.C., a regional transmission organization                                                                                                                                                                                                                                                                                                                                                                                                                             |
| PRP                          |       | Potentially Responsible  Party                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |
| PUCO                         |       | Public Utilities  Commission of Ohio                                                                                                                                                                                                                                                                                                                                                                                                                                                           |
| RSU                          |       | Restricted Stock Units                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |
| RTO                          |       | Regional Transmission  Organization                                                                                                                                                                                                                                                                                                                                                                                                                                                            |
| RPM                          |       | Reliability Pricing  Model                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |
| SB 221                       |       | Ohio Senate Bill 221,  an Ohio electric energy bill that was signed by the Governor on May 1,  2008 and went into effect July 31, 2008. This law required all Ohio  distribution utilities to file either an electric security plan or a market  rate option to be in effect January 1, 2009. The law also contains,  among other things, annual targets relating to advanced energy portfolio  standards, renewable energy, demand reduction and energy efficiency  standards. |
| SCR                          |       | Selective Catalytic  Reduction                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |
| SEC                          |       | Securities and Exchange  Commission                                                                                                                                                                                                                                                                                                                                                                                                                                                            |
| SECA                         |       | Seams Elimination  Charge Adjustment                                                                                                                                                                                                                                                                                                                                                                                                                                                           |
| SFAS                         |       | Statement of Financial  Accounting Standards                                                                                                                                                                                                                                                                                                                                                                                                                                                   |
| SO2                          |       | Sulfur Dioxide                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |
| Stipulation                  |       | A Stipulation and  Recommendation filed by **DP&L** with  the PUCO on February 24, 2009 regarding **DP&L’s**  ESP filing pursuant to SB 221. The Stipulation was signed by the Staff of the  PUCO, the Office of the Ohio Consumers’ Counsel and various intervening  parties. The PUCO approved the Stipulation on June 24, 2009.                                                                                                                                 |
| TCRR                         |       | Transmission Cost  Recovery Rider                                                                                                                                                                                                                                                                                                                                                                                                                                                              |
| USEPA                        |       | U.S. Environmental  Protection Agency                                                                                                                                                                                                                                                                                                                                                                                                                                                          |
| USF                          |       | Universal Service Fund                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |
| VRDN                         |       | Variable Rate Demand  Note                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |

 

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**DPL** and **DP&L**file current, annual and quarterly reports, proxy statements (**DPL** only) and other information required by the SecuritiesExchange Act of 1934, as amended, with the SEC. You may read and copy any document we file at the SEC’s public referenceroom located at 100 F Street N.E., Washington, D.C. 20549, USA.  Please call the SEC at (800) SEC-0330 forfurther information on the public reference room.  Our SEC filings are also available to thepublic from the SEC’s website at http://www.sec.gov.

 

Our public internet siteis http://www.dplinc.com.  We makeavailable, free of charge, through our internet site, our annual reports on Form 10-K,quarterly reports on Form 10-Q, current reports on Form 8-K, andForms 3, 4 and 5 filed on behalf of our directors and executive officers andamendments to those reports filed or furnished pursuant to the SecuritiesExchange Act of 1934, as amended, as soon as reasonably practicable after weelectronically file such material with, or furnish it to, the SEC.

 

Inaddition, our public internet site includes other items related to corporategovernance matters, including, among other things, our governance guidelines,charters of various committees of the Board of Directors and our code ofbusiness conduct and ethics applicable to all employees, officers anddirectors.  You may obtain copies ofthese documents, free of charge, by sending a request, in writing, to DPLInvestor Relations, 1065 Woodman Drive, Dayton, Ohio 45432.

 

Forward-lookingStatements:  Certain statements contained in this reportare “forward-looking statements” within the meaning of the Private SecuritiesLitigation Reform Act of 1995.  Pleasesee page 46 for more information about forward-looking statementscontained in this report.

 

**Part 1 — Financial Information**

 

This report includes thecombined filing of **DPL** and **DP&L.  DP&L**isthe principal subsidiary of **DPL**providingapproximately 97% of **DPL’s**totalconsolidated revenue and approximately 94% of **DPL’s**totalconsolidated asset base.  Throughout thisreport, 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 thatapply only to **DPL** or **DP&L**will clearly be noted in the section.

 

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**Item 1 —Financial Statements**

 

**DPL INC.**

**CONDENSEDCONSOLIDATED STATEMENTS OF RESULTS OF OPERATIONS**

 
| ** **                                                               | ** ** | **Three Months Ended  March 31,** | ** ** |
|--------------------------------------------------------------------------|------------|--------------------------------------------------|------------|
| **$ in millions except per share amounts** | ** ** | **2010**                                         | ** ** | **2009** | ** ** |
|                                                                     | ** ** | ** **                                       |       |   |   |
| **Revenues**                                                             | ** ** | **$**                                            | **451.2**  |   | $ | 415.0 |   |
|                                                                     | ** ** | ** **                                       |       |   |   |
| **Cost of revenues:**                                                    | ** ** | ** **                                       |       |   |   |
| Fuel                                                                     | ** ** | **101.9**                                        |       | 81.4 |   |
| Purchased power                                                          | ** ** | **72.8**                                         |       | 59.7 |   |
| Total cost of revenues                                                   | ** ** | **174.7**                                        |       | 141.1 |   |
|                                                                     | ** ** | ** **                                       |       |   |   |
| **Gross margin**                                                         | ** ** | **276.5**                                        |       | 273.9 |   |
|                                                                     | ** ** | ** **                                       |       |   |   |
| **Operating  expenses:**                                                 | ** ** | ** **                                       |       |   |   |
| Operation and maintenance                                                | ** ** | **80.6**                                         |       | 78.9 |   |
| Depreciation and amortization                                            | ** ** | **37.4**                                         |       | 35.9 |   |
| General taxes                                                            | ** ** | **32.5**                                         |       | 32.1 |   |
| Total operating expenses                                                 | ** ** | **150.5**                                        |       | 146.9 |   |
|                                                                     | ** ** | ** **                                       |       |   |   |
| **Operating income**                                                     | ** ** | **126.0**                                        |       | 127.0 |   |
|                                                                     | ** ** | ** **                                       |       |   |   |
| **Other income /  (expense), net:**                                      | ** ** | ** **                                       |       |   |   |
| Investment income                                                        | ** ** | **0.1**                                          |       | 0.5 |   |
| Interest expense                                                         | ** ** | **(17.9**                                        | **)**      | (21.7 | ) |
| Other income (deductions)                                                | ** ** | **(0.8**                                         | **)**      | (0.2 | ) |
| Total other income / (expense),  net                                     | ** ** | **(18.6**                                        | **)**      | (21.4 | ) |
|                                                                     | ** ** | ** **                                       |       |   |   |
| **Earnings before  income tax**                                          | ** ** | **107.4**                                        |       | 105.6 |   |
|                                                                     | ** ** | ** **                                       |       |   |   |
| Income tax expense                                                       | ** ** | **36.4**                                         |       | 36.4 |   |
| **Net income**                                                           | ** ** | **$**                                            | **71.0**   |   | $ | 69.2 |   |
|                                                                     | ** ** | ** **                                       |       |   |   |
| **Average number of  common shares outstanding (millions):**             | ** ** | ** **                                       |       |   |   |
| Basic                                                                    | ** ** | **115.6**                                        |       | 112.1 |   |
| Diluted                                                                  | ** ** | **116.2**                                        |       | 112.7 |   |
|                                                                     | ** ** | ** **                                       |       |   |   |
| **Earnings per  share of common stock:**                                 | ** ** | ** **                                       |       |   |   |
| Basic                                                                    | ** ** | **$**                                            | **0.61**   |   | $ | 0.62 |   |
| Diluted                                                                  | ** ** | **$**                                            | **0.61**   |   | $ | 0.61 |   |
|                                                                     | ** ** | ** **                                       |       |   |   |
| **Dividends paid  per share of common stock**                            | ** ** | **$**                                            | **0.3025** |   | $ | 0.2850 |   |

 

See Notes to Condensed ConsolidatedFinancial Statements.

These interim statements areunaudited.

 

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**DPL INC.**

**CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS**

 
| ** **                                                                         | ** ** | **Three Months Ended  March 31,** | ** ** |
|------------------------------------------------------------------------------------|------------|--------------------------------------------------|------------|
| **$ in millions**                                                        | ** ** | **2010**                                         | ** ** | **2009** | ** ** |
| **Cash flows from operating activities:**                                          |       |                                             |       |   |   |
| Net income                                                                         | ** ** | **$**                                            | **71.0**   |   | $ | 69.2 |   |
| Adjustments to reconcile Net income to Net cash provided  by operating activities: |       |                                             |       |   |   |
| Depreciation and amortization                                                      | ** ** | **37.4**                                         |       | 35.9 |   |
| Deferred income taxes                                                              | ** ** | **10.5**                                         |       | 3.6 |   |
| Unamortized investment tax credit                                                  | ** ** | **(0.7**                                         | **)**      | (0.7 | ) |
| Changes in certain assets and liabilities:                                         |       |                                             |       |   |   |
| Accounts receivable                                                                | ** ** | **(3.1**                                         | **)**      | 35.6 |   |
| Inventories                                                                        | ** ** | **3.0**                                          |       | (11.7 | ) |
| Taxes applicable to subsequent years                                               | ** ** | **14.9**                                         |       | 14.5 |   |
| Deferred regulatory costs, net                                                     | ** ** | **(2.5**                                         | **)**      | (22.4 | ) |
| Accounts payable                                                                   | ** ** | **6.4**                                          |       | (44.8 | ) |
| Accrued taxes payable                                                              | ** ** | **(0.8**                                         | **)**      | (3.1 | ) |
| Accrued interest payable                                                           | ** ** | **(5.6**                                         | **)**      | (6.7 | ) |
| Pension, retiree and other benefits                                                | ** ** | **(21.1**                                        | **)**      | 2.1 |   |
| Insurance and claims costs                                                         | ** ** | **—**                                       |       | 0.8 |   |
| Other                                                                              | ** ** | **13.2**                                         |       | 1.0 |   |
| **Net cash provided by operating activities**                                      | ** ** | **122.6**                                        |       | 73.3 |   |
|                                                                               |       |                                             |       |   |   |
| **Cash flows from investing activities:**                                          |       |                                             |       |   |   |
| Capital expenditures                                                               | ** ** | **(39.8**                                        | **)**      | (50.2 | ) |
| Purchases of short-term investments and securities                                 | ** ** | **(33.7**                                        | **)**      | (5.1 | ) |
| Sales of short-term investments and securities                                     | ** ** | **—**                                       |       | 10.1 |   |
| Other                                                                              | ** ** | **2.2**                                          |       | 2.3 |   |
| **Net cash used for investing activities**                                         | ** ** | **(71.3**                                        | **)**      | (42.9 | ) |
|                                                                               |       |                                             |       |   |   |
| **Cash flows from financing activities:**                                          |       |                                             |       |   |   |
| Dividends paid on common stock                                                     | ** ** | **(35.0**                                        | **)**      | (32.1 | ) |
| Repurchase of warrants                                                             | ** ** | **—**                                       |       | (15.9 | ) |
| Retirement of long-term debt                                                       | ** ** | **—**                                       |       | (175.0 | ) |
| Withdrawal of restricted funds held in trust, net                                  | ** ** | **—**                                       |       | 6.7 |   |
| Withdrawals from revolving credit facilities                                       | ** ** | **—**                                       |       | 150.0 |   |
| Repurchase of **DPL**common  stock                                                 | ** ** | **(3.9**                                         | **)**      | — |   |
| Exercise of stock options                                                          | ** ** | **1.4**                                          |       | — |   |
| Tax impact related to exercise of stock options                                    | ** ** | **0.2**                                          |       | — |   |
| **Net cash used for financing activities**                                         | ** ** | **(37.3**                                        | **)**      | (66.3 | ) |
|                                                                               |       |                                             |       |   |   |
| **Cash and cash equivalents:**                                                     |       |                                             |       |   |   |
| Net change                                                                         | ** ** | **14.0**                                         |       | (35.9 | ) |
| Balance at beginning of period                                                     | ** ** | **74.9**                                         |       | 62.5 |   |
| **Cash and cash equivalents at end of  period**                                    | ** ** | **$**                                            | **88.9**   |   | $ | 26.6 |   |
|                                                                               |       |                                             |       |   |   |
| **Supplemental cash flow information:**                                            |       |                                             |       |   |   |
| Interest paid, net of amounts capitalized                                          | ** ** | **$**                                            | **23.7**   |   | $ | 28.4 |   |
| Income taxes refunded, net                                                         | ** ** | **$**                                            | **5.1**    |   | $ | 5.0 |   |
| Non-cash financing and investing activities:                                       |       |                                             |       |   |   |
| Accruals for capital expenditures                                                  | ** ** | **$**                                            | **13.3**   |   | $ | 15.9 |   |

 

See Notes to Condensed ConsolidatedFinancial Statements.

These interim statements areunaudited

 

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**DPL INC.**

**CONDENSED CONSOLIDATED BALANCE SHEETS**

 
| **$ in millions**                      | ** ** | **At  March 31,  2010** | ** **  | **At  December 31,  2009** | ** ** |
|--------------------------------------------------|------------|------------------------------|-------------|---------------------------------|------------|
|                                             |       |                         |        |                            |       |
| **ASSETS**                                       |       |                         |        |                            |       |
|                                             |       |                         |        |                            |       |
| **Current assets:**                              |       |                         |        |                            |       |
| Cash and cash equivalents                        | ** ** | **$**                        | **88.9**    |                            | $          | 74.9 |   |
| Short-term investments                           | ** ** | **33.7**                     |        | —                          |       |
| Accounts receivable, net (Note 2)                | ** ** | **221.3**                    |        | 212.8                           |       |
| Inventories (Note 2)                             | ** ** | **122.7**                    |        | 125.7                           |       |
| Taxes applicable to subsequent  years            | ** ** | **44.6**                     |        | 59.5                            |       |
| Other prepayments and current  assets            | ** ** | **30.8**                     |        | 24.1                            |       |
| Total current assets                             | ** ** | **542.0**                    |        | 497.0                           |       |
|                                             |       |                         |        |                            |       |
| **Property, plant  and equipment:**              |       |                         |        |                            |       |
| Property, plant and equipment                    | ** ** | **5,289.8**                  |        | 5,269.2                         |       |
| Less: Accumulated depreciation and  amortization | ** ** | **(2,483.5**                 | **)**       | (2,466.0                        | )          |
|                                             | ** ** | **2,806.3**                  |        | 2,803.2                         |       |
|                                             |       |                         |        |                            |       |
| Construction work in process                     | ** ** | **85.7**                     |        | 89.0                            |       |
| Total net property, plant and  equipment         | ** ** | **2,892.0**                  |        | 2,892.2                         |       |
|                                             |       |                         |        |                            |       |
| **Other noncurrent  assets:**                    |       |                         |        |                            |       |
| Regulatory assets (Note 3)                       | ** ** | **215.2**                    |        | 214.2                           |       |
| Other deferred assets                            | ** ** | **33.8**                     |        | 38.3                            |       |
| Total other noncurrent assets                    | ** ** | **249.0**                    |        | 252.5                           |       |
|                                             |       |                         |        |                            |       |
| **Total Assets**                                 | ** ** | **$**                        | **3,683.0** |                            | $          | 3,641.7 |   |

 

See Notes to Condensed ConsolidatedFinancial Statements.

These interim statements areunaudited.

 

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**DPL INC.**

**CONDENSED CONSOLIDATED BALANCE SHEETS**

 
| **$ in millions**                               | ** ** | **At  March 31,  2010** | ** **  | **At  December 31,  2009** | ** ** |
|------------------------------------------------------|------------|------------------------------|-------------|---------------------------------|------------|
|                                                 |       |                         |        |                            |       |
| **LIABILITIES AND  SHAREHOLDERS’ EQUITY**       |       |                         |        |                            |       |
|                                                 |       |                         |        |                            |       |
| **Current  liabilities:**                            |       |                         |        |                            |       |
| Current portion - long-term debt                     |       | **$**                        | **100.4**   |                            | $          | 100.6 |   |
| Accounts payable                                     |       | **81.5**                     |        | 77.2                            |       |
| Accrued taxes                                        |       | **69.6**                     |        | 70.2                            |       |
| Accrued interest                                     |       | **18.0**                     |        | 23.5                            |       |
| Customer security deposits                           |       | **19.0**                     |        | 19.4                            |       |
| Other current liabilities                            |       | **26.2**                     |        | 24.0                            |       |
| Total current liabilities                            |       | **314.7**                    |        | 314.9                           |       |
|                                                 |       |                         |        |                            |       |
| **Noncurrent  liabilities:**                         |       |                         |        |                            |       |
| Long-term debt                                       |       | **1,223.6**                  |        | 1,223.5                         |       |
| Deferred taxes                                       |       | **582.0**                    |        | 569.1                           |       |
| Regulatory liabilities (Note 3)                      |       | **127.9**                    |        | 125.4                           |       |
| Pension, retiree and other  benefits                 |       | **89.0**                     |        | 111.7                           |       |
| Unamortized investment tax credit                    |       | **34.5**                     |        | 35.2                            |       |
| Insurance and claims costs                           |       | **16.2**                     |        | 16.2                            |       |
| Other deferred credits                               |       | **129.3**                    |        | 122.9                           |       |
| Total noncurrent liabilities                         |       | **2,202.5**                  |        | 2,204.0                         |       |
|                                                 |       |                         |        |                            |       |
| **Redeemable  preferred stock of subsidiary**        |       | **22.9**                     |        | 22.9                            |       |
|                                                 |       |                         |        |                            |       |
| Commitments and contingencies  (Note 14)             |       |                         |        |                            |       |
|                                                 |       |                         |        |                            |       |
| **Common  shareholders’ equity:**               |       |                         |        |                            |       |
| Common stock, at par value of  $0.01 per share:      |       |                         |        |                            |       |
| ** **                                           | ** ** | **March 2010**          | ** **  | **December 2009**          | ** ** | ** ** | ** ** | ** ** | ** ** |
| Shares authorized                                    |       | 250,000,000                  |        | 250,000,000                     |       |   |   |   |   |
| Shares issued                                        |       | 163,724,211                  |        | 163,724,211                     |       |   |   |   |   |
| Shares outstanding                                   |       | 118,942,223                  |        | 118,966,767                     | ** ** | **1.2** |   | 1.2 |   |
| Warrants                                             |       | **2.9**                      |        | 2.9                             |       |
| Common stock held by employee  plans                 |       | **(18.4**                    | **)**       | (19.3                           | )          |
| Accumulated other comprehensive  loss                |       | **(22.7**                    | **)**       | (29.0                           | )          |
| Retained earnings                                    |       | **1,179.9**                  |        | 1,144.1                         |       |
| Total common shareholders’ equity               |       | **1,142.9**                  |        | 1,099.9                         |       |
|                                                 |       |                         |        |                            |       |
| **Total Liabilities  and Shareholders’ Equity** |       | **$**                        | **3,683.0** |                            | $          | 3,641.7 |   |

 

See Notes to Condensed ConsolidatedFinancial Statements.

These interim statements areunaudited.

 

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**THE DAYTON POWER AND LIGHT COMPANY**

**CONDENSEDSTATEMENTS OF RESULTS OF OPERATIONS**

 
| ** **                           | ** ** | **Three Months Ended  March 31,** | ** ** |
|--------------------------------------|------------|--------------------------------------------------|------------|
| **$ in millions**          | ** ** | **2010**                                         | ** ** | **2009** | ** ** |
|                                 | ** ** | ** **                                       |       |   |   |
| **Revenues**                         | ** ** | **$**                                            | **438.0**  |   | $ | 403.6 |   |
|                                 | ** ** | ** **                                       |       |   |   |
| **Cost of revenues:**                | ** ** | ** **                                       |       |   |   |
| Fuel                                 | ** ** | **100.6**                                        |       | 78.8 |   |
| Purchased power                      | ** ** | **72.6**                                         |       | 59.1 |   |
| Total cost of revenues               | ** ** | **173.2**                                        |       | 137.9 |   |
|                                 | ** ** | ** **                                       |       |   |   |
| **Gross margin**                     | ** ** | **264.8**                                        |       | 265.7 |   |
|                                 | ** ** | ** **                                       |       |   |   |
| **Operating  expenses:**             | ** ** | ** **                                       |       |   |   |
| Operation and maintenance            | ** ** | **79.3**                                         |       | 75.6 |   |
| Depreciation and amortization        | ** ** | **34.8**                                         |       | 33.4 |   |
| General taxes                        | ** ** | **32.3**                                         |       | 31.9 |   |
| Total operating expenses             | ** ** | **146.4**                                        |       | 140.9 |   |
|                                 | ** ** | ** **                                       |       |   |   |
| **Operating income**                 | ** ** | **118.4**                                        |       | 124.8 |   |
|                                 | ** ** | ** **                                       |       |   |   |
| **Other income /  (expense), net:**  | ** ** | ** **                                       |       |   |   |
| Investment income                    | ** ** | **0.5**                                          |       | 1.5 |   |
| Interest expense                     | ** ** | **(9.4**                                         | **)**      | (8.7 | ) |
| Other income (deductions)            | ** ** | **(0.6**                                         | **)**      | (0.2 | ) |
| Total other income / (expense),  net | ** ** | **(9.5**                                         | **)**      | (7.4 | ) |
|                                 |       |                                             |       |   |   |
| **Earnings before  income tax**      | ** ** | **108.9**                                        |       | 117.4 |   |
|                                 | ** ** | ** **                                       |       |   |   |
| Income tax expense                   | ** ** | **36.8**                                         |       | 40.4 |   |
| ** **                           | ** ** | ** **                                       |       |   |   |
| **Net income**                       | ** ** | **72.1**                                         |       | 77.0 |   |
|                                 | ** ** | ** **                                       |       |   |   |
| Dividends on preferred stock         | ** ** | **0.2**                                          |       | 0.2 |   |
|                                 | ** ** | ** **                                       |       |   |   |
| **Earnings on  common stock**        | ** ** | **$**                                            | **71.9**   |   | $ | 76.8 |   |

 

See Notes to Condensed ConsolidatedFinancial Statements.

These interim statements areunaudited.

 

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**THE DAYTON POWER AND LIGHT COMPANY**

**CONDENSEDSTATEMENTS OF CASH FLOWS**

 
| ** **                                                                         | ** ** | **Three Months Ended  March 31,** | ** ** |
|------------------------------------------------------------------------------------|------------|----------------------------------------|------------|
| **$ in millions**                                                             | ** ** | **2010**                               | ** ** | **2009** | ** ** |
| **Cash flows from  operating activities:**                                         |       |                                   |       |   |   |
| Net income                                                                         | ** ** | **$**                                  | **72.1**   |   | $ | 77.0 |   |
| Adjustments to reconcile Net  income to Net cash provided by operating activities: |       |                                   |       |   |   |
| Depreciation and amortization                                                      | ** ** | **34.8**                               |       | 33.4 |   |
| Deferred income taxes                                                              | ** ** | **9.9**                                |       | 3.3 |   |
| Unamortized investment tax credit                                                  | ** ** | **(0.7**                               | **)**      | (0.7 | ) |
| Changes in certain assets and  liabilities:                                        |       |                                   |       |   |   |
| Accounts receivable                                                                | ** ** | **4.7**                                |       | 13.0 |   |
| Net receivable due from parent                                                     | ** ** | **—**                             |       | (10.0 | ) |
| Inventories                                                                        | ** ** | **2.7**                                |       | (11.7 | ) |
| Taxes applicable to subsequent  years                                              | ** ** | **14.8**                               |       | 14.5 |   |
| Deferred regulatory costs, net                                                     | ** ** | **(2.5**                               | **)**      | (22.4 | ) |
| Accounts payable                                                                   | ** ** | **6.0**                                |       | (45.2 | ) |
| Accrued taxes payable                                                              | ** ** | **0.5**                                |       | 12.0 |   |
| Accrued interest payable                                                           | ** ** | **2.2**                                |       | 2.4 |   |
| Pension, retiree and other  benefits                                               | ** ** | **(21.1**                              | **)**      | 2.1 |   |
| Other                                                                              | ** ** | **11.4**                               |       | (3.4 | ) |
| **Net cash provided  by operating activities**                                     | ** ** | **134.8**                              |       | 64.3 |   |
|                                                                               |       |                                   |       |   |   |
| **Cash flows from  investing activities:**                                         |       |                                   |       |   |   |
| Capital expenditures                                                               | ** ** | **(39.4**                              | **)**      | (48.9 | ) |
| Other                                                                              | ** ** | **2.2**                                |       | 2.2 |   |
| **Net cash used for  investing activities**                                        | ** ** | **(37.2**                              | **)**      | (46.7 | ) |
|                                                                               |       |                                   |       |   |   |
| **Cash flows from  financing activities:**                                         |       |                                   |       |   |   |
| Dividends paid on common stock to  parent                                          | ** ** | **(90.0**                              | **)**      | (175.0 | ) |
| Dividends paid on preferred stock                                                  | ** ** | **(0.2**                               | **)**      | (0.2 | ) |
| Withdrawal of restricted funds  held in trust, net                                 | ** ** | **—**                             |       | 6.7 |   |
| Withdrawals from revolving credit  facilities                                      | ** ** | **—**                             |       | 150.0 |   |
| **Net cash used for  financing activities**                                        | ** ** | **(90.2**                              | **)**      | (18.5 | ) |
|                                                                               |       |                                   |       |   |   |
| **Cash and cash  equivalents:**                                                    |       |                                   |       |   |   |
| Net change                                                                         | ** ** | **7.4**                                |       | (0.9 | ) |
| Balance at beginning of period                                                     | ** ** | **57.1**                               |       | 20.8 |   |
| **Cash and cash  equivalents at end of period**                                    | ** ** | **$**                                  | **64.5**   |   | $ | 19.9 |   |
|                                                                               |       |                                   |       |   |   |
| **Supplemental cash  flow information:**                                           |       |                                   |       |   |   |
| Interest paid, net of amounts  capitalized                                         | ** ** | **$**                                  | **7.6**    |   | $ | 6.8 |   |
| Income taxes refunded, net                                                         | ** ** | **$**                                  | **5.1**    |   | $ | 5.1 |   |
| Non-cash financing and investing  activities:                                      |       |                                   |       |   |   |
| Accruals for capital expenditures                                                  | ** ** | **$**                                  | **13.3**   |   | $ | 15.9 |   |

 

See Notes to Condensed ConsolidatedFinancial Statements.

These interim statements areunaudited.

 

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**THE DAYTON POWER AND LIGHTCOMPANY**

**CONDENSED BALANCE SHEETS**

 
| **$ in millions**                      | ** ** | **At  March 31,  2010** | ** **  | **At  December 31,  2009** | ** ** |
|--------------------------------------------------|------------|------------------------------|-------------|---------------------------------|------------|
|                                             |       |                         |        |                            |       |
| **ASSETS**                                       |       |                         |        |                            |       |
|                                             |       |                         |        |                            |       |
| **Current assets:**                              |       |                         |        |                            |       |
| Cash  and cash equivalents                       | ** ** | **$**                        | **64.5**    |                            | $          | 57.1 |   |
| Accounts  receivable, net (Note 2)               | ** ** | **192.6**                    |        | 192.0                           |       |
| Inventories  (Note 2)                            | ** ** | **121.6**                    |        | 124.3                           |       |
| Taxes  applicable to subsequent years            | ** ** | **44.4**                     |        | 59.2                            |       |
| Other  prepayments and current assets            | ** ** | **32.0**                     |        | 26.0                            |       |
| Total  current assets                            | ** ** | **455.1**                    |        | 458.6                           |       |
|                                             |       |                         |        |                            |       |
| **Property, plant and equipment:**               |       |                         |        |                            |       |
| Property,  plant and equipment                   | ** ** | **5,030.9**                  |        | 5,011.0                         |       |
| Less:  Accumulated depreciation and amortization | ** ** | **(2,386.1**                 | **)**       | (2,370.7                        | )          |
|                                             | ** ** | **2,644.8**                  |        | 2,640.3                         |       |
|                                             |       |                         |        |                            |       |
| Construction  work in process                    | ** ** | **85.3**                     |        | 87.9                            |       |
| Total  net property, plant and equipment         | ** ** | **2,730.1**                  |        | 2,728.2                         |       |
|                                             |       |                         |        |                            |       |
| **Other noncurrent assets:**                     |       |                         |        |                            |       |
| Regulatory  assets (Note 3)                      | ** ** | **215.2**                    |        | 214.2                           |       |
| Other  deferred assets                           | ** ** | **50.8**                     |        | 56.4                            |       |
| Total  other noncurrent assets                   | ** ** | **266.0**                    |        | 270.6                           |       |
|                                             |       |                         |        |                            |       |
| **Total Assets**                                 | ** ** | **$**                        | **3,451.2** |                            | $          | 3,457.4 |   |

 

See Notes to Condensed Consolidated FinancialStatements.

These interim statements are unaudited.

 

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**THE DAYTON POWER AND LIGHTCOMPANY**

**CONDENSED BALANCE SHEETS**

 
| **$ in millions**                    | ** ** | **At  March 31,  2010** | ** **  | **At  December 31,  2009** | ** ** |
|------------------------------------------------|------------|------------------------------|-------------|---------------------------------|------------|
|                                           |       |                         |        |                            |       |
| **LIABILITIES AND SHAREHOLDER'S EQUITY**       |       |                         |        |                            |       |
|                                           |       |                         |        |                            |       |
| **Current liabilities:**                       |       |                         |        |                            |       |
| Current  portion - long-term debt              | ** ** | **$**                        | **100.4**   |                            | $          | 100.6 |   |
| Accounts  payable                              | ** ** | **79.1**                     |        | 75.1                            |       |
| Accrued  taxes                                 | ** ** | **69.0**                     |        | 68.6                            |       |
| Accrued  interest                              | ** ** | **15.4**                     |        | 13.1                            |       |
| Customer  security deposits                    | ** ** | **18.9**                     |        | 19.4                            |       |
| Other  current liabilities                     | ** ** | **25.6**                     |        | 23.2                            |       |
| Total  current liabilities                     | ** ** | **308.4**                    |        | 300.0                           |       |
|                                           |       |                         |        |                            |       |
| **Noncurrent liabilities:**                    |       |                         |        |                            |       |
| Long-term  debt                                | ** ** | **783.7**                    |        | 783.7                           |       |
| Deferred  taxes                                | ** ** | **565.1**                    |        | 553.0                           |       |
| Regulatory  liabilities (Note 3)               | ** ** | **127.9**                    |        | 125.4                           |       |
| Pension,  retiree and other benefits           | ** ** | **89.0**                     |        | 111.7                           |       |
| Unamortized  investment tax credit             | ** ** | **34.5**                     |        | 35.2                            |       |
| Other  deferred credits                        | ** ** | **129.3**                    |        | 122.9                           |       |
| Total  noncurrent liabilities                  | ** ** | **1,729.5**                  |        | 1,731.9                         |       |
|                                           |       |                         |        |                            |       |
| **Redeemable preferred stock**                 | ** ** | **22.9**                     |        | 22.9                            |       |
|                                           |       |                         |        |                            |       |
| Commitments  and contingencies (Note 14)       |       |                         |        |                            |       |
|                                           |       |                         |        |                            |       |
| **Common shareholder's equity:**               | ** ** | ** **                   | ** **  | ** **                      | ** ** |
| Common  stock, at par value of $0.01 per share | ** ** | **0.4**                      |        | 0.4                             |       |
| Other  paid-in capital                         | ** ** | **781.8**                    |        | 781.6                           |       |
| Accumulated  other comprehensive loss          | ** ** | **(13.9**                    | **)**       | (19.7                           | )          |
| Retained  earnings                             | ** ** | **622.1**                    |        | 640.3                           |       |
| Total  common shareholder's equity             | ** ** | **1,390.4**                  |        | 1,402.6                         |       |
|                                           |       |                         |        |                            |       |
| **Total Liabilities and Shareholder's Equity** | ** ** | **$**                        | **3,451.2** |                            | $          | 3,457.4 |   |

 

See Notes to Condensed Consolidated FinancialStatements.

These interim statements are unaudited.

 

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**Notes to Condensed ConsolidatedFinancial Statements (Unaudited)**

** **

This report includes the combined filing of **DPL**and **DP&L. DP&L**is the principal subsidiary of **DPL**providingapproximately 97% of **DPL’s**totalconsolidated revenue and approximately 94% of **DPL’s**totalconsolidated asset base.  Throughout thisreport, 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 thatapply only to **DPL** or **DP&L**will clearly be noted in the section.

 

Some of the Notes presented in this report are onlyapplicable to **DPL** or **DP&L** as indicated.  The other Notes apply to both registrants andthe financial information presented is segregated by registrant.

** **

**1.     Overview and Summary of SignificantAccounting Policies**

** **

**Descriptionof Business**

**DPL**isa diversified regional energy company organized in 1985 under the laws ofOhio.  **DPL’s**principal subsidiary is **DP&L**.  **DP&L**is a public utility incorporated in 1911 under the laws of Ohio.  **DP&L**is engaged in generation, transmission, distribution and the sale ofelectricity to residential, commercial, industrial and governmental customersin a 6,000 square mile area of West Central Ohio.  Electricity for **DP&L's** 24 county service area is primarily generated ateight coal-fired power plants and is distributed to more than 500,000 retailcustomers.  Principal industries servedinclude automotive, food processing, paper, plastic manufacturing and defense.

 

**DP&L's**sales reflect the general economic conditions and seasonal weather patterns ofthe area.  **DP&L** sells any excess energy and capacity into thewholesale market.

 

**DPL’s** other significant subsidiaries include DPLE, whichowns and operates peaking generating facilities from which it makes wholesalesales of electricity; DPLER, which is a CRES provider selling retail electricenergy and other energy services; and MVIC, our captive insurance company thatprovides insurance services to us and our subsidiaries.  All of **DPL’s**subsidiaries are wholly-owned.

 

**DPL**also has a wholly-owned business trust, DPL CapitalTrust II, formed for the purpose of issuing trust capital securities toinvestors.

 

**DPL** and **DP&L**conduct their principal business in one business segment – Electric.

 

**DP&L’s** electric transmission and distribution businesses aresubject to rate regulation by federal and state regulators while its generationbusiness is not subject to such regulation. Accordingly, **DP&L**applies the accounting standards for regulated operations to its electrictransmission and distribution businesses and records regulatory assets whenincurred costs are expected to be recovered in future customer rates, andregulatory liabilities when current cost recoveries in customer rates relate toexpected future costs.

 

**DPL** and its subsidiaries employed 1,586 persons as ofMarch 31, 2010, of which 1,579 employees were employed by **DP&L**.  Approximately 55% of the employees are undera collective bargaining agreement which expires in October 2011.

 

**FinancialStatement Presentation**

We prepare Consolidated FinancialStatements for **DPL**.  **DPL’s** CondensedConsolidated Financial Statements include the accounts of **DPL** and its wholly-owned subsidiariesexcept for DPL Capital Trust II which is not consolidated, consistent with theprovisions of GAAP relating to variable interest entities.

 

**DP&L** has an undivided ownership interest in seven electricgenerating facilities and numerous transmission facilities.  These undivided interests in jointly ownedfacilities are accounted for on a pro rata basis in **DP&L’s**Financial Statements.

 

Certain immaterial amounts from prior periods havebeen reclassified to conform to the current reporting presentation.

 

All material intercompany accounts and transactionsare eliminated in consolidation.

 

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Thesefinancial statements have been prepared in accordance with GAAP for interimfinancial statements and with the instructions of Form 10-Q and RegulationS-X.  Accordingly, certain informationand footnote disclosures normally included in the annual financial statementsprepared in accordance with GAAP have been omitted from this interimreport.  Therefore, our interim financialstatements in this report should be read along with the annual financialstatements included in our Annual Report on Form 10-K for the fiscal year endedDecember 31, 2009.

 

In theopinion of our management, the financial statements presented in this reportcontain all adjustments necessary to fairly state our financial condition as ofMarch 31, 2010; our results of operations for the three months ended March 31,2010; and our cash flows for the three months ended March 31, 2010.  Unless otherwise noted, all adjustments arenormal and recurring in nature.  Due tovarious factors, including but not limited to, seasonal weather variations, thetiming of outages of electric generating units, changes in economic conditionsinvolving commodity prices and competition, and other factors, interim resultsfor the three months ended March 31, 2010 may not be indicative of our resultsthat will be realized for the full year ending December 31, 2010.

 

Thepreparation of financial statements in conformity with GAAP requires us to makeestimates and judgments that affect the reported amounts of assets andliabilities, the disclosure of contingent assets and liabilities, and therevenue and expenses of the periods reported. Actual results could differ from those estimates.  Significant items subject to such estimatesand judgments include: the carrying value of property, plant and equipment;unbilled revenues; the valuation of derivative instruments; the valuation ofinsurance and claims liabilities; the valuation of allowances for receivablesand deferred income taxes; regulatory assets and liabilities; reserves recordedfor income tax exposures; litigation; contingencies; the valuation of AROs; andassets and liabilities related to employee benefits.

 

**Property,Plant and Equipment**

We record our ownershipshare of our undivided interest in jointly-held plants as an asset in property,plant and equipment.  Property, plant andequipment are stated at cost.  Forregulated transmission and distribution property, cost includes direct laborand material, allocable overhead expenses and an allowance for funds usedduring construction (AFUDC).  AFUDCrepresents the cost of borrowed funds and equity used to finance regulatedconstruction projects.  Capitalization ofAFUDC ceases at either project completion or at the date specified byregulators.  AFUDC capitalized during thethree-month periods ended March 31, 2010 and 2009 was not material.

 

For unregulated generation property, cost includesdirect labor and material, allocable overhead expenses and interest capitalizedduring construction using the provisions of GAAP relating to the accounting forcapitalized interest.

 

For substantially all depreciable property, when aunit of property is retired, the original cost of that property less anysalvage value is charged to Accumulated depreciation and amortization.

 

Propertyis evaluated for impairment when events or changes in circumstances indicatethat its carrying amount may not be recoverable.

 

AtMarch 31, 2010, neither **DPL** nor **DP&L** had any material plant acquisition adjustments orother plant-related adjustments.

 

**Short-Term Investments**

**DPL** has short-term investmentsconsisting of VRDNs.  TheseVRDNs are of high credit quality and are securedby irrevocable letters of credit from major financial institutions.  Theseinvestments have variable rates tied to short-term interest rates. Interest rates are reset every seven days and these VRDNs can be tendered forsale upon notice (every seven days) back to the financial institution. Although **DPL’s** VRDNs have original maturitiesover one year, they are frequently re-priced and trade on a par-in par-outbasis.  Weaccount for these VRDNs asavailable-for-sale securities and record them asshort-term investments as they are highly liquid and are readily available to support **DPL’s**currentoperating needs.

 

**Accounting for Taxes Collected from Customers andRemitted to Governmental Authorities**

**DP&L** collects certain excise taxes levied by state orlocal governments from its customers. **DP&L’s**excise taxes are accounted for on a gross basis and recorded as revenues andgeneral taxes in the accompanying Statements of Results of Operations asfollows:

 

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| ** **                  | ** ** | **Three Months Ended** | ** ** |
|-----------------------------|------------|----------------------------------|------------|
| ** **                  | ** ** | **March 31,**               | ** ** |
| **$ in millions** | ** ** | **2010**                         | ** ** | **2009** | ** ** |
| State/Local  excise taxes   | ** ** | **$**                            | **14.2**   |   | $ | 14.0 |   |
|                             |            |                                  |            |  |  |  |  |

 

**RelatedParty Transactions**

In the normal course ofbusiness, **DP&L** enters into transactions withother subsidiaries of **DPL**.  All material intercompany accounts andtransactions are eliminated in **DPL’s** CondensedConsolidated Financial Statements. The following table provides a summary ofthese transactions:

 
| ** **                                         | ** ** | **Three Months Ended  March 31,** | ** ** |
|----------------------------------------------------|------------|--------------------------------------------------|------------|
| **$ in millions**                        | ** ** | **2010**                                         | ** ** | **2009** | ** ** |
|                                               |       |                                             |       |   |   |
| **DP&L** Revenues:                             |       |                                             |       |   |   |
| Sales  to DPLER (a)                                | ** ** | **$**                                            | **37.3**   |   | $ | 12.9 |   |
|                                               |       |                                             |       |   |   |
| **DP&L** Operation & Maintenance Expenses: |       |                                             |       |   |   |
| Insurance  services provided by MVIC (b)           | ** ** | **$**                                            | **(0.9**   | **)** | $ | (0.9 | ) |

 

----

*(a)**      ****DP&L****sells power to DPLER to satisfythe electric requirements of its retail customers.  The revenues associated with sales to DPLERare recorded as wholesale sales in **DP&L’s**Financial Statements.  The increase in **DP&L’s** sales to DPLER during the three months endedMarch 31, 2010 compared to the similar period in 2009 is primarily due tocustomers electing to switch their generation service from **DP&L**to DPLER.*

*(b)**      **MVIC, a wholly-owned captive insurance subsidiaryof **DPL,** provides insurance coverage to **DP&L** and other **DPL**subsidiariesfor workers’ compensation, general liability, property damages and directors’and officers’ liability.  These amountsrepresent insurance premiums paid by **DP&L** toMVIC.*

 

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**RecentlyAdopted Accounting Standards**

** **

**Variable Interest Entities**

We adopted ASU 2009-02 “Omnibus Update” (formerly SFAS No. 167, arevision to FASB Interpretation No. 46(R), “**Consolidation of Variable InterestEntities”) (ASU 2009-02), on January 1, 2010**.  This standard updates FASC 810,“Consolidation.”  ASU 2009-02 changes howa company determines when an entity that is insufficiently capitalized or isnot controlled through voting (or similar rights) should be consolidated.  The determination of whether a company isrequired to consolidate an entity is based on, among other things, an entity’spurpose and design and a company’s ability to direct the activities of theentity that most significantly impact the entity’s economic performance.  ASU 2009-02 did not have a material impact onour overall results of operations, financial position or cash flows.

 

**Fair Value Disclosures**

We adopted ASU 2010-06 “Fair Value Measurements and Disclosures” (ASU2010-06) effective for annual reporting periods beginning after December 15,2009.  This standard updates FASC 820,“Fair Value Measurements.”  ASU 2010-06requires additional disclosures about fair value measurements includingtransfers in and out of Levels 1 and 2 and a higher level of disaggregation forthe different types of financial instruments. For the reconciliation of Level 3 fair value measurements, informationabout purchases, sales, issuances and settlements are presented separately.  ASU 2010-06 did not have a material impact onour overall results of operations, financial position or cash flows.  See Note 8 of Notes to Condensed ConsolidatedFinancial Statements.

 

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**2.     Supplemental Financial Information andComprehensive Income**

 

**DPL Inc.**

 
| **$ in millions**                        | ** ** | **At  March 31,  2010** | ** ** | **At  December 31,  2009** | ** ** |
|----------------------------------------------------|------------|------------------------------|------------|---------------------------------|------------|
|                                               |       |                         |       |                            |       |
| **Accounts receivable, net:**                      |       |                         |       |                            |       |
| Unbilled  revenue                                  | ** ** | **$**                        | **59.0**   |                            | $          | 74.9 |   |
| Customer  receivables                              | ** ** | **125.6**                    |       | 99.4                            |       |
| Amounts  due from partners in jointly-owned plants | ** ** | **20.3**                     |       | 12.6                            |       |
| Coal  sales                                        | ** ** | **6.0**                      |       | 10.6                            |       |
| Other                                              | ** ** | **11.4**                     |       | 16.4                            |       |
| Provision  for uncollectible accounts              | ** ** | **(1.0**                     | **)**      | (1.1                            | )          |
| **Total accounts receivable, net**                 | ** ** | **$**                        | **221.3**  |                            | $          | 212.8 |   |
|                                               |       |                         |       |                            |       |
| **Inventories, at average cost:**                  |       |                         |       |                            |       |
| Fuel,  limestone and emission allowances           | ** ** | **$**                        | **81.4**   |                            | $          | 85.8 |   |
| Plant  materials and supplies                      | ** ** | **38.4**                     |       | 38.5                            |       |
| Other                                              | ** ** | **2.9**                      |       | 1.4                             |       |
| **Total inventories, at average cost**             | ** ** | **$**                        | **122.7**  |                            | $          | 125.7 |   |

 

**DP&L**

 
| **$ in millions**                             | ** ** | **At  March 31,  2010** | ** ** | **At  December 31,  2009** | ** ** |
|----------------------------------------------------|------------|-------------------------|------------|----------------------------|------------|
|                                               |       |                    |       |                       |       |
| **Accounts receivable, net:**                      |       |                    |       |                       |       |
| Unbilled  revenue                                  | ** ** | **$**                   | **48.3**   |                       | $          | 71.0 |   |
| Customer  receivables                              | ** ** | **114.3**               |       | 94.4                       |       |
| Amounts  due from partners in jointly-owned plants | ** ** | **20.3**                |       | 12.6                       |       |
| Coal  sales                                        | ** ** | **6.0**                 |       | 10.6                       |       |
| Other                                              | ** ** | **4.7**                 |       | 4.5                        |       |
| Provision  for uncollectible accounts              | ** ** | **(1.0**                | **)**      | (1.1                       | )          |
| **Total accounts receivable, net**                 | ** ** | **$**                   | **192.6**  |                       | $          | 192.0 |   |
|                                               |       |                    |       |                       |       |
| **Inventories, at average cost:**                  |       |                    |       |                       |       |
| Fuel,  limestone and emission allowances           | ** ** | **$**                   | **81.4**   |                       | $          | 85.8 |   |
| Plant  materials and supplies                      | ** ** | **37.2**                |       | 37.1                       |       |
| Other                                              | ** ** | **3.0**                 |       | 1.4                        |       |
| **Total inventories, at average cost**             | ** ** | **$**                   | **121.6**  |                       | $          | 124.3 |   |

 

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**SupplementalFinancial Information and Comprehensive Income (continued)**

 

**DPL Inc.**

 
| ** **                                                                                                                                                                        | ** ** | **Three Months Ended March 31,** | ** ** |
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|------------------------------------------------------|------------|
| ** **                                                                                                                                                                        | ** ** | **2010**                                             | ** ** | **2009** | ** ** |
| **Comprehensive income:**                                                                                                                                                         |       |                                                 |       |   |   |
| Net  income                                                                                                                                                                       | ** ** | **$**                                                | **71.0**   |   | $ | 69.2 |   |
| Net  change in unrealized gains (losses) on financial instruments, net of income  tax expense of $0.1 million and $0.1 million, respectively                                      | ** ** | **0.2**                                              |       | (0.1 | ) |
| Net  change in deferred gains (losses) on cash flow hedges, net of income tax  expenses of $2.7 million and $0.5 million, respectively                                            | ** ** | **4.3**                                              |       | (0.1 | ) |
| Net  change in unrealized gains (losses) on pension and postretirement benefits,  net of income tax benefit of $0.6 million and income tax expense of $0.1  million, respectively | ** ** | **1.8**                                              |       | 0.6 |   |
| **Comprehensive income**                                                                                                                                                          | ** ** | **$**                                                | **77.3**   |   | $ | 69.6 |   |

 

**DP&L**

 
| ** **                                                                                                                                                                        | ** ** | **Three Months Ended March 31,** | ** ** |
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|------------------------------------------------------|------------|
| ** **                                                                                                                                                                        | ** ** | **2010**                                             | ** ** | **2009** | ** ** |
| **Comprehensive income:**                                                                                                                                                         |       |                                                 |       |   |   |
| Net  income                                                                                                                                                                       | ** ** | **$**                                                | **72.1**   |   | $ | 77.0 |   |
| Net  change in unrealized gains (losses) on financial instruments, net of income  tax benefits of $0.2 million and $0.5 million, respectively                                     | ** ** | **(0.3**                                             | **)**      | (1.3 | ) |
| Net  change in deferred gains (losses) on cash flow hedges, net of income tax  expenses of $2.7 million and $0.5 million, respectively                                            | ** ** | **4.3**                                              |       | (0.1 | ) |
| Net  change in unrealized gains (losses) on pension and postretirement benefits,  net of income tax benefit of $0.6 million and income tax expense of $0.1  million, respectively | ** ** | **1.8**                                              |       | 0.6 |   |
| **Comprehensive income**                                                                                                                                                          | ** ** | **$**                                                | **77.9**   |   | $ | 76.2 |   |

 

**3.  Regulatory Matters**

 

In accordance with GAAP, regulatory assets andliabilities are recorded in the condensed consolidated balance sheets for ourregulated electric transmission and distribution businesses.  Regulatory assets are the deferral of costsexpected to be recovered in future customer rates and regulatory liabilitiesrepresent current recovery of expected future costs or gains probable of beingreflected in future rates.

 

We evaluate our regulatory assets each period andbelieve recovery of these assets is probable. We have received or requested a return on certain regulatory assets forwhich we are currently recovering or seeking recovery through rates.  We record a return after it has beenauthorized in an order by a regulator.

 

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Regulatory assets and liabilities on the condensedconsolidated balance sheets include:

 
| **$ in millions**                                 | ** ** | **Type of  Recovery (a)** | ** ** | **Amortization  Through** | ** ** | **At  March 31,  2010** | ** ** | **At  December 31,  2009** | ** ** |
|-------------------------------------------------------------|------------|-------------------------------------|------------|---------------------------|------------|------------------------------|------------|---------------------------------|------------|
| **Regulatory Assets:**                                      | ** ** | ** **                          | ** ** |                      |       |                         |       |                            |       |
| Deferred  recoverable income taxes                          |       | C/B                                 |       | Ongoing                   | ** ** | **$**                        | **37.1**   |                            | $          | 36.8 |   |
| Pension  benefits                                           |       | C                                   |       | Ongoing                   | ** ** | **83.6**                     |       | 85.2                            |       |
| Unamortized  loss on reacquired debt                        |       | C                                   |       | Ongoing                   | ** ** | **15.3**                     |       | 15.6                            |       |
| Electric  Choice systems costs                              |       | F                                   |       | 2011                      | ** ** | **3.1**                      |       | 4.0                             |       |
| Regional  transmission organization costs                   |       | D                                   |       | 2014                      | ** ** | **6.6**                      |       | 7.0                             |       |
| TCRR,  transmission, ancillary and other PJM-related costs  |       | F                                   |       | 2011                      | ** ** | **12.0**                     |       | 5.5                             |       |
| RPM  capacity costs                                         |       | F                                   |       | 2011                      | ** ** | **16.3**                     |       | 20.0                            |       |
| Deferred  storm costs - 2008                                |       | D                                   |       |                      | ** ** | **16.2**                     |       | 16.0                            |       |
| Power  plant emission fees                                  |       | C                                   |       | Ongoing                   | ** ** | **6.2**                      |       | 6.3                             |       |
| CCEM  smart grid and advanced metering infrastructure costs |       | D                                   |       |                      | ** ** | **6.6**                      |       | 6.5                             |       |
| CCEM  energy efficiency program costs                       |       | F                                   |       | Ongoing                   | ** ** | **1.4**                      |       | 3.6                             |       |
| Other  costs                                                |       |                                |       |                      | ** ** | **10.8**                     |       | 7.7                             |       |
| **Total regulatory assets**                                 | ** ** | ** **                          | ** ** | ** **                | ** ** | **$**                        | **215.2**  |                            | $          | 214.2 |   |
|                                                        |       |                                |       |                      |       |                         |       |                            |       |
| **Regulatory Liabilities:**                                 | ** ** | ** **                          | ** ** |                      |       |                         |       |                            |       |
| Estimated  costs of removal - regulated property            |       |                                |       |                      | ** ** | **$**                        | **103.5**  |                            | $          | 99.1 |   |
| SECA  net revenue subject to refund                         |       |                                |       |                      | ** ** | **20.1**                     |       | 20.1                            |       |
| Postretirement  benefits                                    |       |                                |       |                      | ** ** | **4.3**                      |       | 5.1                             |       |
| Other  costs                                                |       |                                |       |                      | ** ** | **—**                   |       | 1.1                             |       |
| **Total regulatory liabilities**                            | ** ** | ** **                          | ** ** | ** **                | ** ** | **$**                        | **127.9**  |                            | $          | 125.4 |   |

 

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*(a)**      **F – Recovery of incurred costs plus rate of return.*

*C –Recovery of incurred costs only.*

*B –Balance has an offsetting liability resulting in no impact on rate base.*

*D – Recoverynot yet determined, but is probable of occurring in future rate proceedings.*

 

**RegulatoryAssets**

 

Deferred recoverableincome taxesrepresent deferred income tax assets recognized from the normalization offlow-through items as the result of amounts previously provided tocustomers.  This is the cumulativeflow-through benefit given to regulated customers that will be collected fromthem in future years.  Since currentlyexisting temporary differences between the financial statements and the relatedtax basis of assets will reverse in subsequent periods, these deferredrecoverable income taxes are amortized.

 

Pension benefits represent the qualifying FASC 715,“Compensation – Retirement Benefits” costs of our regulated operations that forratemaking purposes are deferred for future recovery.  We recognize an asset for a plan’s overfundedstatus or a liability for a plan’s underfunded status, and recognize, as acomponent of other comprehensive income (OCI), the changes in the funded statusof the plan that arise during the year that are not recognized as a componentof net periodic benefit cost.  Thisregulatory asset represents the regulated portion that would otherwise becharged as a loss to OCI.

 

Unamortized loss onreacquired debtrepresents losses on long-term debt reacquired or redeemed in priorperiods.  These costs are being amortizedover the life of the original issues in accordance with FERC rules.

 

Electric Choice systems costs represent costs incurred to modify thecustomer billing system for unbundled customer rates and electric choiceutility bills relative to other generation suppliers and information reportsprovided to the state administrator of the low-income payment program.  In March 2006, the PUCO issued an order thatapproved our tariff as filed.  We begancollecting this rider immediately and expect to recover all costs over fiveyears.

 

Regional transmissionorganization costsrepresent costs incurred to join a RTO. The recovery of these costs will be requested in a future FERC rate case.  In accordance with FERC precedence, we areamortizing these costs over a 10-year period beginning in 2004 when we joinedthe PJM RTO.

 

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TCRR, transmission,ancillary and other PJM-related costs represent the costs related to transmission,ancillary service and other PJM-related charges that have been incurred as amember of PJM.  We review retail ratesand are required to make true-up adjustments on an annual basis.

 

On February 19, 2009, the PUCO approved **DP&L’s** request to defer transmission, capacity,ancillary and other costs incurred since July 31, 2008 consistent with theprovisions of SB 221.  In June 2009, **DP&L** began recovery of these costs.  In a subsequent rehearing process, **DP&L** was ordered to separate the costs into two separateriders (a TCRR and a PJM RPM rider) which were approved in November 2009.  The sum of the rate collected through thecurrent TCRR rider and the new RTO RPM rider equals the rate collected throughthe original TCRR rider.  The deferral ofthese costs, net of recoveries, resulted in a favorable impact to our resultsof operations in 2009.

 

RPM capacity costs represent the PJM-related costs from thecalculations of the PJM Reliability Pricing Model that allocates capacity amongthe users of the PJM System.  Asdiscussed above, **DP&L** is recovering these coststhrough a PUCO-approved RTO RPM rider. The sum of the rate collected through the current TCRR rider and the newRTO RPM rider equals the rate collected through the original TCRR rider.  We review this rate and are able to maketrue-up adjustments to the rate on an annual basis.

 

Deferred storm costs - 2008 relate to costs incurred to repair thedamage caused by hurricane force winds in September 2008, as well as othermajor 2008 storms.  On January 14, 2009,the PUCO granted **DP&L** the authority to deferthese costs with a return until such time that **DP&L**seeks recovery in a future rate proceeding.

 

Power plant emission fees represent costs paid to the State ofOhio since 2002.  An application ispending before the PUCO to amend an approved rate rider that had been in effectto collect fees that were paid and deferred in years prior to 2002.  The deferred costs incurred prior to 2002have been fully recovered.  As thepreviously approved rate rider continues to be in effect, we believe thesecosts are probable of future rate recovery.

 

CCEM smart grid and advanced metering infrastructurecosts representcosts incurred as a result of studying and developing distribution systemupgrades and implementation of advanced metering infrastructure.  Consistent with the Stipulation, **DP&L** re-filed its smart grid and advanced meteringinfrastructure business cases with the PUCO on August 4, 2009 seeking recoveryof costs associated with a 10-year plan to deploy smart meters, distributionand substation automation, core telecommunications, supporting software andin-home technologies.  A technical conference in this case was held at thePUCO in October 2009 for the smart grid case, and a subsequent PUCO entryestablished a comment and reply comment period. A hearing is not yet scheduled for this case.  We are discussing a possible settlement of thiscase with the PUCO staff and interveners. Based on past PUCO precedent and the Ohio legislature’s intent behind SB221, we believe these costs are probable of future recovery in rates.

 

CCEM energy efficiency program costs represent costs incurred to develop andimplement various new customer programs addressing energy efficiency.  A portion of these costs is being recoveredover three years as part of the Stipulation beginning July 1, 2009; theremaining costs are subject to a two-year true-up process for their over/underrecovery.

 

Other costs primarily include consumer educationadvertising costs regarding electric deregulation, settlement system costs,other PJM and rate case costs, derivative activity related to fuel costs thatwill be recovered over various periods and alternative energy costs that are orwill be recovered over various periods.

 

**Regulatory Liabilities**

Estimated costs ofremoval – regulated property reflect an estimate of amounts collected in customerrates that are expected to be incurred to remove existing transmission anddistribution property from service upon retirement.

 

SECA net revenue subjectto refundrepresents our deferral of revenues and costs that were billed to PJMtransmission customers and paid to transmission owners during 2005 and 2006,but which remain subject to litigation before the FERC and potentialreversal.  DP&L is both a transmission customer and a transmissionowner.  SECA revenue and expenses represent FERC-ordered transitionalpayments for the use of transmission lines within PJM.  An initialdecision by an Administrative Law Judge was issued in 2006, and was appealed bymany parties to the FERC, which has not yet issued a ruling on appeal.  Webegan receiving and paying these transitional payments in May 2005.

 

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Postretirement benefits represent the qualifying FASC 715, “Compensation —Retirement Benefits” gains related to our regulated operations that, forratemaking purposes, are probable of being reflected in future rates.  We recognize an asset for a plan’s overfundedstatus or a liability for a plan’s underfunded status, and recognize, as acomponent of OCI, the changes in the funded status of the plan that arise duringthe year that are not recognized as a component of net periodic benefitcost.  This regulatory liabilityrepresents the regulated portion that would otherwise be reflected as a gain toOCI.

 

Other costs primarily include derivative activity related to fuelcosts that will be settled over various periods.

 

**4.  Ownership of Coal-fired Facilities**

 

**DP&L** with certain other Ohio utilities hasundivided ownership interests in seven coal-fired electric generatingfacilities and numerous transmission facilities.  Certain expenses, primarily fuel costs for thegenerating units, are allocated to the owners based on their energy usage.  The remaining expenses, investments in fuelinventory, plant materials and operating supplies, and capital additions areallocated to the owners in accordance with their respective ownershipinterests.  As of March 31, 2010, we had $45 million of constructionwork in process at such facilities.  **DP&L’s** share of the operating cost ofsuch facilities is included within the corresponding line in the CondensedStatements of Results of Operations and **DP&L’s**share of the investment in the facilities is included within Total netproperty, plant and equipment in the Condensed Balance Sheets.

 

**DP&L’s** undivided ownership interest in suchfacilities as well as our wholly-owned coal fired Hutchings plant at March 31,2010, is as follows.

 
| ** **                            | ** ** | **DP&L****Share** | ** ** | **DP&L****Investment** | ** ** |
|---------------------------------------|------------|-----------------------|------------|----------------------------|------------|
| ** **                            | ** ** | ** **            | ** ** | ** **                 | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | **SCR and FGD** | ** ** |
| ** **                            | ** ** | ** **            | ** ** | ** **                 | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | **Equipment** | ** ** |
| ** **                            | ** ** | ** **            | ** ** | ** **                 | ** ** | ** ** | ** ** | ** ** | ** ** | **Construction** | ** ** | **Installed** | ** ** |
| ** **                            | ** ** | ** **            | ** ** | **Production**             | ** ** | **Gross Plant** | ** ** | **Accumulated** | ** ** | **Work in** | ** ** | **and In** | ** ** |
| ** **                            | ** ** | **Ownership**         | ** ** | **Capacity**               | ** ** | **In Service** | ** ** | **Depreciation** | ** ** | **Process** | ** ** | **Service** | ** ** |
| ** **                            | ** ** | **(%)**               | ** ** | **(MW)**                   | ** ** | **($ in millions)** | ** ** | **($ in millions)** | ** ** | **($ in millions)** | ** ** | **(Yes/No)** | ** ** |
| Production Units:                     |       |                  |       |                       |       |   |   |   |   |   |   |   |   |
| Beckjord Unit 6                       |       | 50.0                  |       | 210                        |       | $ | 76 |   | $ | 54 |   | $ | 1 |   | No |   |
| Conesville Unit 4                     |       | 16.5                  |       | 129                        |       | 118 |   | 24 |   | 3 |   | Yes |   |
| East Bend Station                     |       | 31.0                  |       | 186                        |       | 200 |   | 130 |   | 1 |   | Yes |   |
| Killen Station                        |       | 67.0                  |       | 402                        |       | 605 |   | 280 |   | 5 |   | Yes |   |
| Miami Fort Units 7 and 8              |       | 36.0                  |       | 368                        |       | 345 |   | 125 |   | 10 |   | Yes |   |
| Stuart Station                        |       | 35.0                  |       | 820                        |       | 688 |   | 254 |   | 18 |   | Yes |   |
| Zimmer Station                        |       | 28.1                  |       | 365                        |       | 1,057 |   | 600 |   | 7 |   | Yes |   |
| Transmission (at varying percentages) |       |                  |       |                       |       | 90 |   | 52 |   | — |   |   |   |
| Total                                 |       |                  |       | 2,480                      |       | $ | 3,179 |   | $ | 1,519 |   | $ | 45 |   |   |   |
|                                  |       |                  |       |                       |       |   |   |   |   |   |   |   |   |
| Wholly-owned production unit:         |       |                  |       |                       |       |   |   |   |   |   |   |   |   |
| Hutchings Station                     |       | 100.0                 |       | 388                        |       | $ | 122 |   | $ | 109 |   | $ | — |   | No |   |

 

**DP&L’s** share of operating costs associated with thejointly-owned generating facilities are included within the corresponding linein the condensed statements of results of operations.

 

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** **

**5.   DebtObligations**

 

**Long-term Debt**

 
| ** **                                     | ** ** | **At**             | ** **  | **At**                | ** ** |
|------------------------------------------------|------------|--------------------|-------------|-----------------------|------------|
| ** **                                     | ** ** | **March 31,** | ** **  | **December 31,** | ** ** |
| **$ in millions**                         | ** ** | **2010**           | ** **  | **2009**              | ** ** |
| **DP&L**                                   |       |               |        |                  |       |
| First mortgage bonds maturing 2013 - 5.125%    | ** ** | **$**              | **470.0**   |                  | $          | 470.0 |   |
| Pollution control series maturing 2028 - 4.70% | ** ** | **35.3**           |        | 35.3                  |       |
| Pollution control series maturing 2034 - 4.80% | ** ** | **179.1**          |        | 179.1                 |       |
| Pollution control series maturing 2036 - 4.80% | ** ** | **100.0**          |        | 100.0                 |       |
|                                           |       | **784.4**          |        | 784.4                 |       |
|                                           |       |               |        |                  |       |
| Obligation for capital lease                   | ** ** | **—**         |        | —                |       |
| Unamortized debt discount                      | ** ** | **(0.7**           | **)**       | (0.7                  | )          |
| Total long-term debt - **DP&L**            | ** ** | **$**              | **783.7**   |                  | $          | 783.7 |   |
|                                           |       |               |        |                  |       |
| **DPL Inc.**                                   |       |               |        |                  |       |
| Senior notes 6.875% series due 2011            | ** ** | **297.4**          |        | 297.4                 |       |
| Note to DPL Capital Trust II 8.125% due 2031   | ** ** | **142.6**          |        | 142.6                 |       |
| Unamortized debt discount                      | ** ** | **(0.1**           | **)**       | (0.2                  | )          |
| Total long-term debt - **DPL**                 | ** ** | **$**              | **1,223.6** |                  | $          | 1,223.5 |   |

 

**Current portion - Long-term Debt**

 
| ** **                                                                                             | ** ** | **At**             | ** ** | **At**                | ** ** |
|--------------------------------------------------------------------------------------------------------|------------|--------------------|------------|-----------------------|------------|
| ** **                                                                                             | ** ** | **March 31,** | ** ** | **December 31,** | ** ** |
| **$ in millions**                                                                                 | ** ** | **2010**           | ** ** | **2009**              | ** ** |
| **DP&L**                                                                                           |       |               |       |                  |       |
| Pollution control series maturing 2040 - variable rates:  0.16% - 0.35% and 0.24% - 0.85% (a) (b) |       | **$**              | **100.0**  |                  | $          | 100.0 |   |
| Obligation for capital lease                                                                           | ** ** | **0.4**            |       | 0.6                   |       |
| Total current portion - long-term debt - **DP&L**and**DPL**                                        | ** ** | **$**              | **100.4**  |                  | $          | 100.6 |   |

 

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*(a)  Rangeof interest rates for the three months ended March 31, 2010 and the twelvemonths ended December 31, 2009, respectively.*

*(b)  Shownas current since LOC facility will expire in December 2010, at which pointthe bondholders could put the bonds to **DP&L**.Management continues to monitor and evaluate market conditions and intends toseek a renewal of this standby LOC.*

 

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At March 31, 2010,maturities of long-term debt, including capital lease obligations, aresummarized as follows:

 
| **$ in millions** | ** ** | **DPL** | ** ** | **DP&L** | ** ** |
|------------------------|------------|---------|------------|--------------|------------|
| 3/31/2011 (a)          |       | $       | 100.4      |         | $          | 100.4 |   |
| 3/31/2012              |       | 297.4   |       | —       |       |
| 3/31/2013              |       | —  |       | —       |       |
| 3/31/2014              |       | 470.0   |       | 470.0        |       |
| 3/31/2015              |       | —  |       | —       |       |
| Thereafter             |       | 457.0   |       | 314.4        |       |
|                   |       | $       | 1,324.8    |         | $          | 884.8 |   |

 

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*(a)**      **$100 million variable rate pollutioncontrol series note maturing 2040 shown as current since LOC facility willexpire in December 2010, at which point the bondholders could put thebonds to DP&L.  Management continues tomonitor and evaluate market conditions and intends to seek a renewal of thisstandby LOC.*

 

**Debt and Debt Covenants**

OnNovember 21, 2006, **DP&L**entered into a $220 million unsecured revolving credit agreement.  This agreement has a five-year term thatexpires on November 21, 2011 and provides**DP&L**with the ability to increase the size of the facility by an additional $50million at any time.  The facilitycontains one financial covenant:  **DP&L’s** total debt to total capitalization ratio is notto exceed 0.65 to 1.00.  As of March 31,2010, this covenant is met with a ratio of 0.4 to 1.00.  **DP&L**had nooutstanding borrowings under this credit facility at March 31, 2010.  Fees associated with this credit facilitywere approximately $0.2 million during the three months ended March 31,2010.  Changes in **DP&L’s**credit ratings may affect fees and the applicable interest.  This revolving credit agreement contains a$50 million letter of credit sublimit. As of March 31, 2010, **DP&L** had nooutstanding letters of credit against the facility.

 

On December 4, 2008,the OAQDA issued $100 million of collateralized, variable rate RevenueRefunding Bonds Series A and B due November 1, 2040.  In turn, **DP&L**borrowed these funds from the OAQDA.  Thepayment of principal and interest on the bonds when due is backed by a standbyletter of credit (LOC) issued by a syndicated bank group.  This LOC facility, which was for an initialtwo-year period expiring in December 2010, is irrevocable, has nosubjective acceleration clauses and also contains a provision that alloutstanding amounts drawn on the facility are due upon the LOC’s expirationdate.  Since this LOC facility willexpire in December 2010, at which point the bondholders could put thebonds to **DP&L**, we have reflected theseoutstanding bonds as a current liability. Management will continue to monitor and evaluate market conditions overthe next several months and intends to make a determination to either seek arenewal of this standby letter of credit or to explore alternative financingarrangements.  **DP&L**used $10 million of the proceeds from this bond issuance to finance its portionof the costs for acquiring, constructing and installing certain solid wastedisposal and air quality facilities at the Conesville generation station.  The remaining $90 million was used to redeem the2007 Series A Bonds.

 

On March 31, 2009, **DPL**paid the $175 million 8.00% Senior notes when the notes became due.

 

On December 21,2009, **DPL** purchased $52.4 million principalamount of DPL Capital Trust II 8.125% capital securities in a privatelynegotiated transaction.  As part of thistransaction, **DPL** paid a $3.7 million, or 7%,premium which was recorded within Interest expense on the CondensedConsolidated Statements of Results of Operations during the fourth quarter of2009.

 

On April 21, 2009, **DP&L** entered into a $100 million unsecured revolvingcredit agreement with a syndicated bank group. The agreement was for a 364-day term and expired on April 20,2010.  The facility contained onefinancial covenant: **DP&L’s**total debt to total capitalization ratio was not to exceed 0.65 to 1.00.  As of March 31, 2010, this covenant wasmet with a ratio of 0.4 to 1.00.  As of March 31,2010, there were no borrowings outstanding under this facility.  Fees associated with this credit facilitywere less than $0.1 million during the three months ended March 31, 2010.

 

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On April 20, 2010, **DP&L** entered into a $200 million unsecured revolvingcredit agreement with a syndicated bank group. This agreement is for a three year term expiring on April 20, 2013 andprovides **DP&L** with the abilityto increase the size of the facility by an additional $50 million. The facility contains one financialcovenant:

 

**DP&L’s** total debt to total capitalization ratio is not toexceed 0.65 to 1.00.  This facility alsocontains a $50 million letter of credit sublimit.

 

Substantially allproperty, plant and equipment of **DP&L** issubject to the lien of the mortgage securing **DP&L’s**First and Refunding Mortgage, dated as of October 1, 1935, with the Bankof New York as Trustee.

 

**6.     Income Taxes**

 

The following tabledetails the effective tax rates for the three months ended March 31, 2010and 2009.

 
| ** **   | ** ** | **Three Months  Ended** | ** ** |
|--------------|------------|-------------------------|------------|
| ** **   | ** ** | **March 31,**      | ** ** |
| ** **   | ** ** | **2010**                | ** ** | **2009** | ** ** |
|         | ** ** | ** **              |       |   |   |
| **DPL**      | ** ** | **33.9**                | **%**      | 34.5 | % |
|         | ** ** | ** **              |       |   |   |
| **DP&L** | ** ** | **33.8**                | **%**      | 34.4 | % |

 

Income tax expenses forthe three months ended March 31, 2010 and 2009 reflect estimated annualeffective income tax rates of 33.0% and 34.2%, respectively.  Management estimates the annual effective taxrate based upon its forecast of annual pre-tax income.  To the extent that actual pre-tax results forthe year differ from the forecasts applied to the most recent interim period,the rates estimated could be materially different from the actual effective taxrates recognized.

 

Income tax expenses forthe three months ended March 31, 2010 and 2009 were calculated using theestimated annual effective income tax rates for 2010 and 2009, respectively.

 

For the threemonths ended March 31, 2010, the decrease in **DPL’s**effective tax rate compared to the same period in 2009 primarily reflects theincreased benefits from the Section 199 Domestic ProductionDeduction.  The decrease in **DP&L’s** effective tax rate primarily reflects theincreased benefits from the Section 199 Domestic Production Deduction.

 

Deferred tax liabilitiesfor both **DPL** and **DP&L**increased by approximately $12.9 million and $12.1 million, respectively,during the three months ended March 31, 2010.  These increases were related to a $7.0 milliontemporary difference due to a pension contribution and other temporarydifferences arising from routine changes in balance sheet accounts giving riseto deferred taxes.

 

We have been advised bythe Internal Revenue Service that our 2008 Federal income tax return will beexamined.  At this time, we do not expectthe results of this examination to have a material impact on our financialstatements.

 

**7.     Pension andPostretirement Benefits**

 

**DP&L** sponsors a defined benefit plan forsubstantially all employees.  Forcollective bargaining employees, the defined benefits are based on a specificdollar amount per year of service.  Forall other employees, the defined benefit plan is based primarily oncompensation and years of service.  Wefund pension plan benefits as accrued in accordance with the minimum fundingrequirements of the Employee Retirement Income Security Act of 1974(ERISA).  In addition, we have aSupplemental Executive Retirement Plan (SERP) for certain active and retiredkey executives.  Benefits under this SERPhave been frozen and no additional benefits can be earned.  We****also haveunfunded liabilities related to retirement benefits for certain active,terminated and retired key executives.

 

Qualified employees whoretired prior to 1987 and their dependents are eligible for health care andlife insurance benefits, while qualified employees who retired after 1987 areeligible for life insurance benefits only. We have funded a portion of the union-eligible benefits using aVoluntary Employee Beneficiary Association Trust.

 

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The amounts presented inthe following tables for pension include both the defined benefit pension planand the SERP in the aggregate, and the amounts presented for postretirementinclude both health and life insurance.

 

The net periodic benefitcost (income) of the pension and postretirement benefit plans for the threemonths ended March 31, 2010 and 2009 was:

 

**Net Periodic Benefit Cost / (Income)**

 
| ** **                                              | ** ** | **Pension** | ** ** | **Postretirement** | ** ** |
|---------------------------------------------------------|------------|-------------|------------|--------------------|------------|
| **$ in millions**                                  | ** ** | **2010**    | ** ** | **2009**           | ** ** | **2010** | ** ** | **2009** | ** ** |
| Service cost                                            | ** ** | **$**       | **1.1**    |               | $          | 0.9 | ** ** | **$** | **—** |   | $ | — |   |
| Interest cost                                           | ** ** | **4.5**     |       | 4.4                | ** ** | **0.4** |   | 0.4 |   |
| Expected return on assets (a)                           | ** ** | **(5.6**    | **)**      | (5.6               | )          | **(0.1** | **)** | (0.1 | ) |
| Amortization of unrecognized:                           | ** ** | ** **  |       |               | ** ** | ** ** |   |   |   |
| Actuarial (gain) / loss                                 | ** ** | **1.8**     |       | 1.1                | ** ** | **(0.3** | **)** | (0.2 | ) |
| Prior service cost                                      | ** ** | **1.0**     |       | 0.8                | ** ** | **0.1** |   | — |   |
| Net periodic benefit cost / (income) before adjustments | ** ** | **$**       | **2.8**    |               | $          | 1.6 | ** ** | **$** | **0.1** |   | $ | 0.1 |   |

 

----

(a)          For purposes of calculatingthe expected return on pension plan assets, under GAAP, the market-relatedvalue of assets (MRVA) is used.  GAAP requires that the difference betweenactual plan asset returns and estimated plan asset returns be included in theMRVA equally over a period not to exceed five years.  We use a methodologyunder which we include the difference between actual and estimated assetreturns in the MRVA equally over a three year period.  The MRVA used inthe 2009 calculation of expected return on pension plan assets wasapproximately $275 million.

 

In February 2010, **DP&L**contributed $20.0 million to the defined benefitplan.

 

**Estimated Future Benefit Payments**

 
| **$ in millions** | ** ** | **Pension** | ** ** | **Postretirement** | ** ** |
|------------------------|------------|-------------|------------|--------------------|------------|
|                   |       |        |       |               |       |
| 2010                   |       | $           | 15.9       |               | $          | 1.9 |   |
| 2011                   |       | $           | 21.6       |               | $          | 2.5 |   |
| 2012                   |       | $           | 22.4       |               | $          | 2.4 |   |
| 2013                   |       | $           | 23.1       |               | $          | 2.3 |   |
| 2014                   |       | $           | 23.6       |               | $          | 2.1 |   |
| 2015 - 2019            |       | $           | 121.6      |               | $          | 8.4 |   |

 

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** **

**8.  Fair Value Measurements**

 

The fair values of our financial instruments are based on publishedsources for pricing when possible.  Werely on valuation models only when no other methods exist.  The fair value of our financial instrumentsrepresents estimates of possible value that may not be realized in thefuture.  The table below presents thefair value and cost of our non-derivative instruments at March 31, 2010and December 31, 2009.  See alsoNote 9 of Notes to Condensed Consolidated Financial Statements for the fairvalues of our derivative instruments.

 
| ** **                     | ** ** | **At March 31,** | ** ** | **At December 31,** | ** ** |
|--------------------------------|------------|-----------------------|------------|--------------------------|------------|
| ** **                     | ** ** | **2010**              | ** ** | **2009**                 | ** ** |
| **$ in millions**    | ** ** | **Cost**              | ** ** | **Fair Value**      | ** ** | **Cost** | ** ** | **Fair Value** | ** ** |
| **DPL**                        |       |                  |       |                     |       |   |   |   |   |
| **Assets**                     |       |                  |       |                     |       |   |   |   |   |
| Money Market Funds             |       | $                     | 1.6        |                     | $          | 1.6 |   | $ | 4.1 |   | $ | 4.1 |   |
| Equity Securities              |       | 2.9                   |       | 3.2                      |       | 2.6 |   | 2.8 |   |
| Debt Securities                |       | 5.3                   |       | 5.5                      |       | 5.3 |   | 5.4 |   |
| Multi-Strategy Fund            |       | 0.3                   |       | 0.2                      |       | 0.3 |   | 0.3 |   |
| Total Master Trust Assets      |       | $                     | 10.1       |                     | $          | 10.5 |   | $ | 12.3 |   | $ | 12.6 |   |
|                           |       |                  |       |                     |       |   |   |   |   |
| Short-term investments - VRDNs |       | $                     | 33.7       |                     | $          | 33.7 |   | $ | — |   | $ | — |   |
|                           |       |                  |       |                     |       |   |   |   |   |
| Total Assets                   |       | $                     | 43.8       |                     | $          | 44.2 |   | $ | 12.3 |   | $ | 12.6 |   |
|                           |       |                  |       |                     |       |   |   |   |   |
| **Liabilities**                |       |                  |       |                     |       |   |   |   |   |
| Debt                           |       | $                     | 1,324.0    |                     | $          | 1,314.8 |   | $ | 1,324.1 |   | $ | 1,317.6 |   |
|                           |       |                  |       |                     |       |   |   |   |   |
| **DP&L**                   |       |                  |       |                     |       |   |   |   |   |
| **Assets**                     |       |                  |       |                     |       |   |   |   |   |
| Money Market Funds             |       | $                     | 1.6        |                     | $          | 1.6 |   | $ | 4.1 |   | $ | 4.1 |   |
| Equity Securities (a)          |       | 16.7                  |       | 30.5                     |       | 16.7 |   | 31.1 |   |
| Debt Securities                |       | 5.3                   |       | 5.5                      |       | 5.3 |   | 5.4 |   |
| Multi-Strategy Fund            |       | 0.3                   |       | 0.2                      |       | 0.3 |   | 0.3 |   |
| Total Master Trust Assets      |       | $                     | 23.9       |                     | $          | 37.8 |   | $ | 26.4 |   | $ | 40.9 |   |
|                           |       |                  |       |                     |       |   |   |   |   |
| **Liabilities**                |       |                  |       |                     |       |   |   |   |   |
| Debt                           |       | $                     | 884.1      |                     | $          | 854.5 |   | $ | 884.3 |   | $ | 844.5 |   |

 

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(a) **DP&L**holds **DPL** stock in the MasterTrust that is eliminated in consolidation.

 

***Debt***

Debtis fair valued based on current public market prices for disclosure purposesonly.  Unrealized gains or losses are notrecognized in the financial statements as debt is presented at amortized costin the financial statements.  The debtamounts include the current portion payable in the next twelve months and havematurities that range from 2011 to 2040.

 

***Master TrustAssets***

**DP&L** established aMaster Trust to hold assets for the benefit of employees participating inemployee benefit plans and these assets are not used for general operatingpurposes.  These assets are primarilycomprised of open-ended mutual funds and **DPL** commonstock.  The **DPL**common stock held by the **DP&L** MasterTrust is eliminated in consolidation and is not reflected in **DPL’s** Condensed Consolidated Balance Sheets.  The **DPL** commonstock is valued using current public market prices, while the open-ended mutualfunds are valued using the net asset value per unit.  Any unrealized gains or losses are recognizedin AOCI until the securities are sold.

 

**DPL**had $0.5million ($0.3 million after tax) in unrealized gains and no unrealized losseson the Master Trust assets in AOCI at March 31, 2010 and $0.3 million($0.2 million after tax) in unrealized gains and no unrealized losses in AOCIat December 31, 2009.

 

**DP&L** has $14.1million ($9.2 million after tax) in unrealized gains and no unrealized losseson the Master Trust assets in AOCI at March 31, 2010 and $14.5 million($9.5 million after tax) in unrealized gains and no unrealized losses in AOCIat December 31, 2009.

 

Nounrealized gains or losses are expected to be transferred to earnings in thenext twelve months.

 

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**Short-Term Investments**

**DPL** has short-term investments consisting ofvariable rate demand notes (VRDNs).  **DPL’s** VRDNs areof high credit quality and secured by irrevocable letters of credit from majorfinancial institutions.  These investments have variable rates tied toshort-term interest rates.  Interest rates are reset every seven days andthese VRDNs can be tendered for sale upon notice (every seven days) back to thefinancial institution.  Although **DPL’s** VRDNshave original maturities over one year, they are frequently re-priced and tradedon a par-in par-out basis.  The VRDNs are considered available-for-salesecurities and classified as short-term investments as they are highly liquidand readily available to support the Company’s current operating needs.

 

**Net Asset Value (NAV) per Unit**

The following tablediscloses the fair value and redemption frequency for those assets whose fairvalue is estimated using the NAV per unit as of March 31, 2010.  These assets are part of the Master Trust andexclude **DPL**common stock which is valued usingquoted market prices and not the NAV. Fair values estimated using the NAV per unit are considered Level 2inputs within the fair value hierarchy, unless they cannot be redeemed at theNAV on the reporting date.  Investmentsthat have restrictions on the redemption of the investments are Level 3inputs.  As of March 31, 2010, **DPL** did not have any investments for sale at a pricedifferent than the NAV.

 

**FairValue Estimated using Net Asset Value per Unit**

 
| **$ in millions**  | ** ** | **Fair  Value at   March 31, 2010** | ** ** | **Unfunded    Commitments** | ** ** | **Redemption    Frequency** | ** ** | **Redemption    Notice Period** | ** ** |
|-------------------------|------------|------------------------------------------|------------|-----------------------------|------------|-----------------------------|------------|---------------------------------|------------|
| Money Market Fund (a)   |       | $                                        | 1.6        |                        | $          | —                      |       | Immediate                       |       | None |   |
|                    |       |                                     |       |                        |       |                        |       |                            |       |
| Equity Securities (b)   |       | 3.2                                      |       | —                      |       | Immediate                   |       | None                            |       |
|                    |       |                                     |       |                        |       |                        |       |                            |       |
| Debt Securities (c)     |       | 5.5                                      |       | —                      |       | Immediate                   |       | None                            |       |
|                    |       |                                     |       |                        |       |                        |       |                            |       |
| Multi-Strategy Fund (d) |       | 0.2                                      |       | —                      |       | Immediate                   |       | None                            |       |
|                    |       |                                     |       |                        |       |                        |       |                            |       |
| Total                   |       | $                                        | 10.5       |                        | $          | —                      |       |                            |       |   |   |

 

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*(a)**      **Thiscategory includes investments in high-quality, short-term securities.Investments in this category can be redeemed immediately at the current netasset value per unit.*

* *

*(b)**      **Thiscategory includes investments in hedge funds representing an S&P 500 indexand the Morgan Stanley Capital International (MSCI) U.S. Small Cap 1750 Index.Investments in this category can be redeemed immediately at the current netasset value per unit.*

* *

*(c)**       **Thiscategory includes investments in U.S. Treasury obligations and U.S. investmentgrade bonds. Investments in this category can be redeemed immediately at the currentnet asset value per unit.*

* *

*(d)**      **Thiscategory includes investments in stocks, bonds and short-term investments in amix of actively managed funds. Investments in this category can be redeemedimmediately at the current net asset value per unit.*

 

**FairValue Hierarchy**

Fair value is defined asthe exchange price that would be received for an asset or paid to transfer aliability (an exit price) in the principal or most advantageous market for theasset or liability in an orderly transaction between market participants on themeasurement date.  The fair valuehierarchy requires an entity to maximize the use of observable inputs andminimize the use of unobservable inputs when measuring fair value.  These inputs are then categorized as Level 1(quoted prices in active markets for identical assets or liabilities); Level 2(observable inputs such as quoted prices for similar assets or liabilities orquoted prices in markets that are not active); or Level 3 (unobservableinputs).

 

Valuations of assets andliabilities reflect the value of the instrument including the values associatedwith counterparty risk.  We include ourown credit risk and our counterparty’s credit risk in our calculation of fairvalue using the Global Corporate Cumulative Average Default Rates.

 

We did not have anytransfers of the fair values of our financial instruments between Level 1 andLevel 2 of the fair value hierarchy.

 

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The fair value ofassets and liabilities at March 31, 2010 and December 31, 2009measured on a recurring basis and the respective category within the fair valuehierarchy for **DPL** was determined as follows:

 

**DPL**

 
| ** **                     | ** ** | **Assets and Liabilities  Measured at Fair Value on a Recurring Basis** | ** ** |
|--------------------------------|------------|-------------------------------------------------------------------------|------------|
| ** **                     | ** ** | ** **                                                              | ** ** | **Level 1** | ** ** | **Level 2** | ** ** | **Level 3** | ** ** | ** ** | ** ** | ** ** | ** ** |
| **$ in millions**    | ** ** | **Fair Value at  March 31,   2010**                 | ** ** | **Based on Quoted  Prices in Active  Markets** | ** ** | **Other   Observable   Inputs** | ** ** | **Unobservable   Inputs** | ** ** | **Collateral and   Counterparty   Netting*** | ** ** | **Fair Value on   Balance Sheet at  March 31, 2010** | ** ** |
| **Assets**                     |       |                                                                    |       |   |   |   |   |   |   |   |   |   |   |
| Money Market Funds             |       | $                                                                       | 1.6        |   | $ | — |   | $ | 1.6 |   | $ | — |   | $ | — |   | $ | 1.6 |   |
| Equity Securities              |       | 3.2                                                                     |       | — |   | 3.2 |   | — |   | — |   | 3.2 |   |
| Debt Securities                |       | 5.5                                                                     |       | — |   | 5.5 |   | — |   | — |   | 5.5 |   |
| Mutli-Strategy Fund            |       | 0.2                                                                     |       | — |   | 0.2 |   | — |   | — |   | 0.2 |   |
| Total Master Trust Assets      |       | $                                                                       | 10.5       |   | $ | — |   | $ | 10.5 |   | $ | — |   | $ | — |   | $ | 10.5 |   |
|                           |       |                                                                    |       |   |   |   |   |   |   |   |   |   |   |
| Derivative Assets              |       |                                                                    |       |   |   |   |   |   |   |   |   |   |   |
| FTRs                           |       | $                                                                       | 0.4        |   | $ | — |   | $ | 0.4 |   | $ | — |   | $ | — |   | $ | 0.4 |   |
| Forward NYMEX Coal Contracts   |       | 3.7                                                                     |       | — |   | 3.7 |   | — |   | (1.6 | ) | 2.1 |   |
| Forward Power Contracts        |       | 8.8                                                                     |       | — |   | 8.8 |   | — |   | (1.4 | ) | 7.4 |   |
| Total Derivative Assets        |       | $                                                                       | 12.9       |   | $ | — |   | $ | 12.9 |   | $ | — |   | $ | (3.0 | ) | $ | 9.9 |   |
|                           |       |                                                                    |       |   |   |   |   |   |   |   |   |   |   |
| Short-term investments - VRDNs |       | $                                                                       | 33.7       |   | $ | — |   | $ | 33.7 |   | $ | — |   | $ | — |   | $ | 33.7 |   |
|                           |       |                                                                    |       |   |   |   |   |   |   |   |   |   |   |
| Total Assets                   |       | $                                                                       | 57.1       |   | $ | — |   | $ | 57.1 |   | $ | — |   | $ | (3.0 | ) | $ | 54.1 |   |
|                           |       |                                                                    |       |   |   |   |   |   |   |   |   |   |   |
| **Liabilities**                |       |                                                                    |       |   |   |   |   |   |   |   |   |   |   |
| Derivative Liabilities         |       |                                                                    |       |   |   |   |   |   |   |   |   |   |   |
| Heating Oil Futures            |       | $                                                                       | 0.4        |   | $ | 0.4 |   | $ | — |   | $ | — |   | $ | (0.4 | ) | $ | — |   |
| Natural Gas Futures            |       | 1.0                                                                     |       | 1.0 |   | — |   | — |   | (1.0 | ) | — |   |
| Forward Power Contracts        |       | 2.4                                                                     |       | — |   | 2.4 |   | — |   | (0.5 | ) | 1.9 |   |
| Forward NYMEX Coal Contracts   |       | 11.0                                                                    |       | — |   | 11.0 |   | — |   | (5.1 | ) | 5.9 |   |
| Total Derivative Liabilities   |       | $                                                                       | 14.8       |   | $ | 1.4 |   | $ | 13.4 |   | $ | — |   | $ | (7.0 | ) | $ | 7.8 |   |
|                           |       |                                                                    |       |   |   |   |   |   |   |   |   |   |   |
| Total Liabilities              |       | $                                                                       | 14.8       |   | $ | 1.4 |   | $ | 13.4 |   | $ | — |   | $ | (7.0 | ) | $ | 7.8 |   |

 

----

*Includes credit valuation adjustments for counterpartyrisk.

 

**DPL**

 
| ** **                    | ** ** | **Assets and Liabilities Measured at Fair Value on a  Recurring Basis** | ** ** |
|-------------------------------|------------|-------------------------------------------------------------------------|------------|
| ** **                    | ** ** | ** **                                                              | ** ** | **Level 1** | ** ** | **Level 2** | ** ** | **Level 3** | ** ** | ** ** | ** ** | **Fair Value on ** | ** ** |
| **$ in millions**   | ** ** | **Fair Value at   December 31,   2009**        | ** ** | **Based on Quoted   Prices in Active   Markets** | ** ** | **Other   Observable   Inputs** | ** ** | **Unobservable   Inputs** | ** ** | **Collateral and   Counterparty   Netting*** | ** ** | **Balance Sheet at   December 31,   2009** | ** ** |
| **Assets**                    |       |                                                                    |       |   |   |   |   |   |   |   |   |   |   |
| Money  Market Funds           |       | $                                                                       | 4.1        |   | $ | — |   | $ | 4.1 |   | $ | — |   | $ | — |   | $ | 4.1 |   |
| Equity  Securities            |       | 2.8                                                                     |       | — |   | 2.8 |   | — |   | — |   | 2.8 |   |
| Debt  Securities              |       | 5.4                                                                     |       | — |   | 5.4 |   | — |   | — |   | 5.4 |   |
| Mutli-Strategy  Fund          |       | 0.3                                                                     |       | — |   | 0.3 |   | — |   | — |   | 0.3 |   |
| Total  Master Trust Assets    |       | $                                                                       | 12.6       |   | $ | — |   | $ | 12.6 |   | $ | — |   | $ | — |   | $ | 12.6 |   |
|                          |       |                                                                    |       |   |   |   |   |   |   |   |   |   |   |
| Derivative  Assets            |       |                                                                    |       |   |   |   |   |   |   |   |   |   |   |
| FTRs                          |       | $                                                                       | 0.8        |   | $ | — |   | $ | 0.8 |   | $ | — |   | $ | — |   | $ | 0.8 |   |
| Forward  NYMEX Coal Contracts |       | 5.5                                                                     |       | — |   | 5.5 |   | — |   | (1.4 | ) | 4.1 |   |
| Forward  Power Contracts      |       | 0.7                                                                     |       | — |   | 0.7 |   | — |   | (0.7 | ) | — |   |
| Total  Derivative Assets      |       | $                                                                       | 7.0        |   | $ | — |   | $ | 7.0 |   | $ | — |   | $ | (2.1 | ) | $ | 4.9 |   |
|                          |       |                                                                    |       |   |   |   |   |   |   |   |   |   |   |
| Total  Assets                 |       | $                                                                       | 19.6       |   | $ | — |   | $ | 19.6 |   | $ | — |   | $ | (2.1 | ) | $ | 17.5 |   |
|                          |       |                                                                    |       |   |   |   |   |   |   |   |   |   |   |
| **Liabilities**               |       |                                                                    |       |   |   |   |   |   |   |   |   |   |   |
| Derivative  Liabilities       |       |                                                                    |       |   |   |   |   |   |   |   |   |   |   |
| Heating  Oil Futures          |       | $                                                                       | 1.2        |   | $ | 1.2 |   | $ | — |   | $ | — |   | $ | (1.2 | ) | $ | — |   |
| Forward  Power Contracts      |       | 3.0                                                                     |       | — |   | 3.0 |   | — |   | (0.7 | ) | 2.3 |   |
| Forward  NYMEX Coal Contracts |       | 1.2                                                                     |       | — |   | 1.2 |   | — |   | — |   | 1.2 |   |
| Total  Derivative Liabilities |       | $                                                                       | 5.4        |   | $ | 1.2 |   | $ | 4.2 |   | $ | — |   | $ | (1.9 | ) | $ | 3.5 |   |
|                          |       |                                                                    |       |   |   |   |   |   |   |   |   |   |   |
| Total  Liabilities            |       | $                                                                       | 5.4        |   | $ | 1.2 |   | $ | 4.2 |   | $ | — |   | $ | (1.9 | ) | $ | 3.5 |   |

 

----

*Includes creditvaluation adjustments for counterparty risk.

 

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The fair value ofassets and liabilities at March 31, 2010 and December 31, 2009measured on a recurring basis and the respective category within the fair valuehierarchy for **DP&L** was determined asfollows:

 

**DP&L**

 
| ** **                   | ** ** | **Assets and  Liabilities Measured at Fair Value on a Recurring Basis** | ** ** |
|------------------------------|------------|-------------------------------------------------------------------------|------------|
| ** **                   | ** ** | ** **                                                              | ** ** | **Level 1** | ** ** | **Level 2** | ** ** | **Level 3** | ** ** | ** ** | ** ** | ** ** | ** ** |
| **$ in millions**  | ** ** | **Fair Value at   March 31,   2010**           | ** ** | **Based on Quoted   Prices in Active   Market** | ** ** | **Other   Observable   Inputs** | ** ** | **Unobservable   Inputs** | ** ** | **Collateral and   Counterparty   Netting*** | ** ** | **Fair Value on  Balance Sheet at  March 31, 2010** | ** ** |
| **Assets**                   |       |                                                                    |       |   |   |   |   |   |   |   |   |   |   |
| Money Market Funds           |       | $                                                                       | 1.6        |   | $ | — |   | $ | 1.6 |   | $ | — |   | $ | — |   | $ | 1.6 |   |
| Equity Securities (a)        |       | 30.5                                                                    |       | 27.3 |   | 3.2 |   | — |   | — |   | 30.5 |   |
| Debt Securities              |       | 5.5                                                                     |       | — |   | 5.5 |   | — |   | — |   | 5.5 |   |
| Mutli-Strategy Fund          |       | 0.2                                                                     |       | — |   | 0.2 |   | — |   | — |   | 0.2 |   |
| Total Master Trust Assets    |       | $                                                                       | 37.8       |   | $ | 27.3 |   | $ | 10.5 |   | $ | — |   | $ | — |   | $ | 37.8 |   |
|                         |       |                                                                    |       |   |   |   |   |   |   |   |   |   |   |
| Derivative Assets            |       |                                                                    |       |   |   |   |   |   |   |   |   |   |   |
| FTRs                         |       | $                                                                       | 0.4        |   | $ | — |   | $ | 0.4 |   | $ | — |   | $ | — |   | $ | 0.4 |   |
| Forward NYMEX Coal Contracts |       | 3.7                                                                     |       | — |   | 3.7 |   | — |   | (1.6 | ) | 2.1 |   |
| Forward Power Contracts      |       | 8.8                                                                     |       | — |   | 8.8 |   | — |   | (1.4 | ) | 7.4 |   |
| Total Derivative Assets      |       | $                                                                       | 12.9       |   | $ | — |   | $ | 12.9 |   | $ | — |   | $ | (3.0 | ) | $ | 9.9 |   |
|                         |       |                                                                    |       |   |   |   |   |   |   |   |   |   |   |
| Total Assets                 |       | $                                                                       | 50.7       |   | $ | 27.3 |   | $ | 23.4 |   | $ | — |   | $ | (3.0 | ) | $ | 47.7 |   |
|                         |       |                                                                    |       |   |   |   |   |   |   |   |   |   |   |
| **Liabilities**              |       |                                                                    |       |   |   |   |   |   |   |   |   |   |   |
| Derivative Liabilities       |       |                                                                    |       |   |   |   |   |   |   |   |   |   |   |
| Heating Oil Futures          |       | $                                                                       | 0.4        |   | $ | 0.4 |   | $ | — |   | $ | — |   | $ | (0.4 | ) | $ | — |   |
| Natural Gas Futures          |       | 1.0                                                                     |       | 1.0 |   | — |   | — |   | (1.0 | ) | — |   |
| Forward Power Contracts      |       | 2.4                                                                     |       | — |   | 2.4 |   | — |   | (0.5 | ) | 1.9 |   |
| Forward NYMEX Coal Contracts |       | 11.0                                                                    |       | — |   | 11.0 |   | — |   | (5.1 | ) | 5.9 |   |
| Total Derivative Liabilities |       | $                                                                       | 14.8       |   | $ | 1.4 |   | $ | 13.4 |   | $ | — |   | $ | (7.0 | ) | $ | 7.8 |   |
|                         |       |                                                                    |       |   |   |   |   |   |   |   |   |   |   |
| Total Liabilities            |       | $                                                                       | 14.8       |   | $ | 1.4 |   | $ | 13.4 |   | $ | — |   | $ | (7.0 | ) | $ | 7.8 |   |

 

----

*Includes credit valuation adjustments for counterpartyrisk.

 

(a)  **DP&L**holds **DPL**stock in the MasterTrust that is eliminated in consolidation.

 

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** **

**DP&L**

** **
| ** **                   | ** ** | **Assets and  Liabilities Measured at Fair Value on a Recurring Basis** | ** ** |
|------------------------------|------------|-------------------------------------------------------------------------|------------|
| ** **                   | ** ** | ** **                                                              | ** ** | **Level 1** | ** ** | **Level 2** | ** ** | **Level 3** | ** ** | ** ** | ** ** | **Fair Value on** | ** ** |
| **$ in millions**  | ** ** | **Fair Value at   December 31,   2009**        | ** ** | **Based on Quoted   Prices in Active   Market** | ** ** | **Other   Observable   Inputs** | ** ** | **Unobservable   Inputs** | ** ** | **Collateral and   Counterparty   Netting*** | ** ** | **Balance Sheet at   December 31,   2009** | ** ** |
| **Assets**                   |       |                                                                    |       |   |   |   |   |   |   |   |   |   |   |
| Money Market Funds           |       | $                                                                       | 4.1        |   | $ | — |   | $ | 4.1 |   | $ | — |   | $ | — |   | $ | 4.1 |   |
| Equity Securities (a)        |       | 31.1                                                                    |       | 28.3 |   | 2.8 |   | — |   | — |   | 31.1 |   |
| Debt Securities              |       | 5.4                                                                     |       | — |   | 5.4 |   | — |   | — |   | 5.4 |   |
| Mutli-Strategy Fund          |       | 0.3                                                                     |       | — |   | 0.3 |   | — |   | — |   | 0.3 |   |
| Total Master Trust Assets    |       | $                                                                       | 40.9       |   | $ | 28.3 |   | $ | 12.6 |   | $ | — |   | $ | — |   | $ | 40.9 |   |
|                         |       |                                                                    |       |   |   |   |   |   |   |   |   |   |   |
| Derivative Assets            |       |                                                                    |       |   |   |   |   |   |   |   |   |   |   |
| FTRs                         |       | $                                                                       | 0.8        |   | $ | — |   | $ | 0.8 |   | $ | — |   | $ | — |   | $ | 0.8 |   |
| Forward NYMEX Coal Contracts |       | 5.5                                                                     |       | — |   | 5.5 |   | — |   | (1.4 | ) | 4.1 |   |
| Forward Power Contracts      |       | 0.7                                                                     |       | — |   | 0.7 |   | — |   | (0.7 | ) | — |   |
| Total Derivative Assets      |       | $                                                                       | 7.0        |   | $ | — |   | $ | 7.0 |   | $ | — |   | $ | (2.1 | ) | $ | 4.9 |   |
|                         |       |                                                                    |       |   |   |   |   |   |   |   |   |   |   |
| Total Assets                 |       | $                                                                       | 47.9       |   | $ | 28.3 |   | $ | 19.6 |   | $ | — |   | $ | (2.1 | ) | $ | 45.8 |   |
|                         |       |                                                                    |       |   |   |   |   |   |   |   |   |   |   |
| **Liabilities**              |       |                                                                    |       |   |   |   |   |   |   |   |   |   |   |
| Derivative Liabilities       |       |                                                                    |       |   |   |   |   |   |   |   |   |   |   |
| Heating Oil Futures          |       | $                                                                       | 1.2        |   | $ | 1.2 |   | $ | — |   | $ | — |   | $ | (1.2 | ) | $ | — |   |
| Forward Power Contracts      |       | 3.0                                                                     |       | — |   | 3.0 |   | — |   | (0.7 | ) | 2.3 |   |
| Forward NYMEX Coal Contracts |       | 1.2                                                                     |       | — |   | 1.2 |   | — |   | — |   | 1.2 |   |
| Total Derivative Liabilities |       | $                                                                       | 5.4        |   | $ | 1.2 |   | $ | 4.2 |   | $ | — |   | $ | (1.9 | ) | $ | 3.5 |   |
|                         |       |                                                                    |       |   |   |   |   |   |   |   |   |   |   |
| Total Liabilities            |       | $                                                                       | 5.4        |   | $ | 1.2 |   | $ | 4.2 |   | $ | — |   | $ | (1.9 | ) | $ | 3.5 |   |

 

----

*Includes credit valuation adjustments for counterpartyrisk.

 

(a)  **DP&L**holds **DPL**stock in the MasterTrust that is eliminated in consolidation.

 

We use the marketapproach to value our financial instruments. Level 1 inputs are used for **DPL** commonstock held by the Master Trust and for derivative contracts such as heating oilfutures and natural gas futures.  Thefair value is determined by reference to quoted market prices and other relevantinformation generated by market transactions. Level 2 inputs are used to value derivatives such as financialtransmission rights where the quoted prices are from a relatively inactivemarket; forward power contracts and forward NYMEX-quality coal contracts whichare traded on the OTC market but which are valued using prices on the NYMEX forsimilar contracts on the OTC market; VRDNs which are priced using recenttransactions for similar assets; and open-ended mutual funds that are in theMaster Trust valued using the end of day NAV.

 

Approximately 95% of theinputs to the fair value of our derivative instruments are from quoted marketprices.

 

**Non-recurring fair valuemeasurements**

We use the cost approachto determine the fair value of our AROs which are estimated by discountingexpected cash outflows to their present value at the initial recording of theliability.  Cash outflows are based onthe approximate future disposal cost as determined by market information,historical information or other management estimates.  These inputs to the fair value of the AROswould be considered Level 3 inputs under the fair value hierarchy.  We added additional layers to our existinglandfill AROs in the amount of $0.5 million during the three months ended March 31,2010.

 

**DPL** had $12.3 million and $45.3 million inmoney market funds classified as cash and cash equivalents in its CondensedConsolidated Balance Sheets at March 31, 2010 and December 31, 2009,respectively.  The money market fundshave quoted prices that are generally equivalent to par.

 

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** **

**9.  Derivative Instruments and Hedging Activities**

 

In the normalcourse of business, **DPL** and **DP&L** enter into various financial instruments, includingderivative financial instruments.  We usederivatives principally to manage the risk of changes in market prices forcommodities.  The derivatives that we useto economically hedge these risks are governed by our risk management policiesfor forward and futures contracts. Our net positions are continually assessedwithin our structured hedging programs to determine whether new or offsettingtransactions are required.  The objectiveof the hedging program is generally to mitigate financial risks while ensuringthat we have adequate resources to meet our requirements.  We monitor and value derivative positionsmonthly as part of our risk management processes.  We use published sources for pricing whenpossible to mark positions to market. All of our derivative instruments are used for risk management purposesand are designated as a cash flow hedge or marked to market each reportingperiod.

 

At March 31, 2010, **DP&L** had the following outstanding derivativeinstruments:

 
| ** **                    | ** ** | **Accounting**   | ** ** | ** ** | ** ** | **Purchases**      | ** ** | **Sales**          | ** ** | **Net Purchase/  (Sale)** | ** ** |
|-------------------------------|------------|------------------|------------|------------|------------|--------------------|------------|--------------------|------------|---------------------------|------------|
| **Commodity**                 | ** ** | **Treatment**    | ** ** | **Unit**   | ** ** | **(in thousands)** | ** ** | **(in thousands)** | ** ** | **(in thousands)**        | ** ** |
| FTRs                          |       | Mark to  Market  |       | MWH        |       | 3.7                |       | —             |       | 3.7                       |       |
| Heating Oil Futures           |       | Mark to  Market  |       | Gallons    |       | 2,478.0            |       | —             |       | 2,478.0                   |       |
| Natural Gas Futures           |       | Mark to  Market  |       | Dth        |       | 1,290.0            |       | —             |       | 1,290.0                   |       |
| Forward Power Contracts       |       | Cash Flow  Hedge |       | MWH        |       | 434.4              |       | (1,586.6           | )          | (1,152.2                  | )          |
| Forward Power Contracts       |       | Mark to  Market  |       | MWH        |       | —             |       | (172.8             | )          | (172.8                    | )          |
| NYMEX-quality Coal Contracts* |       | Mark to  Market  |       | Tons       |       | 3,782.0            |       | (961.0             | )          | 2,821.0                   |       |

 

----

*Includes our partner’s share for the jointly-owned plantsthat **DP&L**operates.

 

***CashFlow Hedges***

As part of our riskmanagement processes, we identify the relationships between hedging instrumentsand hedged items, as well as the risk management objective and strategy forundertaking various hedge transactions. The MTM value of cash flow hedges asdetermined by current public market prices will continue to fluctuate withchanges in market prices up to contract expiration.  The effective portion of the hedgingtransaction is recognized in AOCI and transferred to earnings using specificidentification of each contract when the hedged forecasted transaction takesplace or when the hedged forecasted transaction is probable of notoccurring.  The ineffective portion ofthe cash flow hedge is recognized in earnings in the current period.  All risk components were taken into accountto determine the hedge effectiveness of the cash flow hedges.

 

We currently use cashflow hedging with certain forward power contracts and in 2003 we entered into aninterest rate swap which was settled that same year.  Approximately $7.4 million ($4.8 million netof tax) of accumulated gains in AOCI related to the above mentioned powerhedges are expected to be reclassified to earnings over the next twelvemonths.  The balance of the remainingdeferred gain from the interest rate swap in AOCI is being amortized intoearnings over the life of the related bonds. Approximately $2.5 million ($1.6 million net of tax) of accumulatedgains in AOCI related to the above referenced interest rate hedge are expectedto be reclassified to earnings over the next twelve months.  As of March 31, 2010, themaximum length of time that we are hedging our exposure to variability infuture cash flows related to forecasted transactions is 33 months and 101months for the forward power positions and the interest rate hedge,respectively.

 

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The following tableprovides information concerning gains or losses recognized in AOCI for the cashflow hedges:

 
| ** **                                                                               | ** ** | **March 31,** | ** ** | **March 31,** | ** ** |
|------------------------------------------------------------------------------------------|------------|--------------------|------------|--------------------|------------|
| ** **                                                                               | ** ** | **2010**           | ** ** | **2009**           | ** ** |
| ** **                                                                               | ** ** | ** **         | ** ** | **Interest**       | ** ** | ** ** | ** ** | **Interest** | ** ** |
| **$ in millions (net of tax)**                                                      | ** ** | **Power**          | ** ** | **Rate Hedge**     | ** ** | **Power** | ** ** | **Rate Hedge** | ** ** |
|                                                                                     |       |               |       |               |       |   |   |   |   |
| Beginning accumulated derivative gain / (loss) in AOCI                                   |       | $                  | (1.4       | )                  | $          | 14.7 |   | $ | (0.2 | ) | $ | 17.2 |   |
|                                                                                     |       |               |       |               |       |   |   |   |   |
| Net gains / (losses) associated with current period  hedging transactions                |       | 5.2                |       | —             |       | 1.1 |   | — |   |
|                                                                                     |       |               |       |               |       |   |   |   |   |
| Net gains reclassified to earnings                                                       |       |               |       |               |       |   |   |   |   |
| Interest expense                                                                         |       | —             |       | (0.6               | )          | — |   | (0.6 | ) |
| Revenues                                                                                 |       | (0.2               | )          | —             |       | (0.4 | ) | — |   |
|                                                                                     |       |               |       |               |       |   |   |   |   |
| Ending accumulated derivative gain / (loss) in AOCI                                      |       | $                  | 3.6        |               | $          | 14.1 |   | $ | 0.5 |   | $ | 16.6 |   |
|                                                                                     |       |               |       |               |       |   |   |   |   |
| Net gains / (losses) associated with the ineffective  portion of the hedging transaction |       |               |       |               |       |   |   |   |   |
| Interest expense                                                                         |       | —             |       | —             |       | — |   | — |   |
| Revenues                                                                                 |       | —             |       | —             |       | — |   | — |   |

 

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The following tables showthe fair value and balance sheet classification of **DP&L’s**derivative instruments designated as hedging instruments for the three monthsended March 31, 2010 and year ended December 31, 2009.

 

Fair Values of DerivativeInstruments Designated as Hedging Instruments

AtMarch 31, 2010

 
| ** **                                       | ** ** | ** **     | ** ** | ** **   | ** ** | ** **                 | ** ** | **Fair Value on**                     | ** ** |
|--------------------------------------------------|------------|----------------|------------|--------------|------------|----------------------------|------------|---------------------------------------|------------|
| **$ in millions**                           | ** ** | **Fair Value** | ** ** | **Netting*** | ** ** | **Balance Sheet Location** | ** ** | **Balance Sheet**                     | ** ** |
| **Short-Term  Derivative Positions**             |       |           |       |         |       |                       |       |                                  |       |
| Forward Power Contracts in an  Asset position    |       | $              | 7.9        |         | $          | (0.5                       | )          | Other prepayments and current  assets |       | $ | 7.4 |   |
| Forward Power Contracts in a  Liability position |       | (0.5           | )          | 0.5          |       | Other current liabilities  |       | —                                |       |
| **Total Short-Term  Cash Flow Hedges**           |       | $              | 7.4        |         | $          | —                     |       |                                  |       | $ | 7.4 |   |
| ** **                                       |       |           |       |         |       |                       |       |                                  |       |
| **Long-Term  Derivative Positions**              |       |           |       |         |       |                       |       |                                  |       |
| Forward Power Contracts in a  Liability position |       | (1.9           | )          | —       |       | Other deferred credits     |       | (1.9                                  | )          |
| **Total Long-Term  Cash Flow Hedges**            |       | $              | (1.9       | )            | $          | —                     |       |                                  |       | $ | (1.9 | ) |
| **Total Cash Flow  Hedges**                      |       | $              | 5.5        |         | $          | —                     |       |                                  |       | $ | 5.5 |   |

 

----

*Includes counterparty andcollateral netting.

** **

Fair Valuesof Derivative Instruments Designated as Hedging Instruments

AtDecember 31, 2009

 
| ** **                                       | ** ** | ** **     | ** ** | ** **   | ** ** | ** **                 | ** ** | **Fair Value on**                     | ** ** |
|--------------------------------------------------|------------|----------------|------------|--------------|------------|----------------------------|------------|---------------------------------------|------------|
| **$ in millions**                           | ** ** | **Fair Value** | ** ** | **Netting*** | ** ** | **Balance Sheet Location** | ** ** | **Balance Sheet**                     | ** ** |
| **Short-Term  Derivative Positions**             | ** ** | ** **     | ** ** | ** **   | ** ** | ** **                 | ** ** | ** **                            | ** ** |
| Forward Power Contracts in an  Asset position    |       | $              | 0.7        |         | $          | (0.7                       | )          | Other prepayments and current  assets |       | $ | — |   |
| Forward Power Contracts in a  Liability position |       | (2.8           | )          | 0.7          |       | Other current liabilities  |       | (2.1                                  | )          |
| **Total Cash Flow  Hedges**                      |       | $              | (2.1       | )            | $          | —                     |       |                                  |       | $ | (2.1 | ) |

 

----

*Includes counterparty andcollateral netting.

*** ***

***Markto Market***

Certain derivativecontracts are entered into on a regular basis as part of our risk managementprogram but do not qualify for hedge accounting or the normal purchase andsales exceptions under FASC 815. Accordingly, such contracts are recorded at fair value with changes inthe fair value charged or credited to the statements of results of operationsin the period in which the change occurred. This is commonly referred to as “MTM accounting.”  Contracts we enter into as part of our riskmanagement program may be settled financially, by physical delivery or netsettled with the counterparty.  Wecurrently mark to market Financial Transmission Rights (FTRs), heating oilfutures, forward NYMEX-quality coal contracts, natural gas futures and certainforward power contracts.

 

Certain qualifyingderivative instruments have been designated as normal purchases or normal salescontracts, as provided in FASC 815. Derivative contracts that have been designated as normal purchases ornormal sales under FASC 815 are not subject to MTM accounting treatment and arerecognized in the statements of results of operations on an accrual basis.

 

***RegulatoryAssets and Liabilities***

UnderFASC 980, “Regulated Operations,” if a cost is probable of recovery in futurerates, it should be deferred as a regulatory asset.  If a gain is probable of being returned tocustomers, it should be deferred as a regulatory liability.  Portions of the derivative contracts that aremarked to market each reporting period and are related to the retail portion of**DP&L’s** load requirements areincluded as part of the fuel rider approved by the PUCO which began January 1,2010.  Therefore, the Ohio jurisdictionalretail portion of the heating oil futures and the NYMEX-quality coal contractsare deferred as a regulatory asset or liability until the contractssettle.  If these unrealized gains andlosses are no longer deemed to be probable of recovery through our rates, theywill be reclassified into earnings in the period such determination is made.

 

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The following tables show the amount and classificationwithin the Condensed Statements of Results of Operations or Condensed Balance Sheetsof gains and losses on **DP&L’s**derivatives not designated as hedging instruments for the three months ended March 31,2010 and 2009.

 

**For the three months ended March 31,2010**

 
| **$ in millions**                      | ** ** | **NYMEX   Coal*** | ** ** | **Heating   Oil** | ** ** | **FTRs** | ** ** | **Power** | ** ** | **Natural   Gas** | ** ** | **Total** | ** ** |
|--------------------------------------------------|------------|------------------------|------------|------------------------|------------|----------|------------|-----------|------------|------------------------|------------|-----------|------------|
| Change in unrealized gain / (loss)               |       | $                      | (11.5      | )                      | $          | 0.8      |       | $         | (0.4       | )                      | $          | 1.1       |       | $ | (1.0 | ) | $ | (11.0 | ) |
| Realized gain / (loss)                           |       | (0.7                   | )          | (0.5                   | )          | (0.7     | )          | (0.1      | )          | —                 |       | (2.0      | )          |
| Total                                            |       | $                      | (12.2      | )                      | $          | 0.3      |       | $         | (1.1       | )                      | $          | 1.0       |       | $ | (1.0 | ) | $ | (13.0 | ) |
| **Recorded on Balance Sheet:**                   |       |                   |       |                   |       |     |       |      |       |                   |       |      |       |
| Partner’s share of gain / (loss)            |       | $                      | (6.0       | )                      | $          | —   |       | $         | —     |                   | $          | —    |       | $ | — |   | $ | (6.0 | ) |
| Regulatory (asset) / liability                   |       | (3.7                   | )          | 0.3                    |       | —   |       | —    |       | —                 |       | (3.4      | )          |
|                                             |       |                   |       |                   |       |     |       |      |       |                   |       |      |       |
| **Recorded in Income Statement: gain /  (loss)** |       |                   |       |                   |       |     |       |      |       |                   |       |      |       |
| Wholesale revenue                                |       | $                      | —     |                   | $          | —   |       | $         | —     |                   | $          | 1.0       |       | $ | — |   | $ | 1.0 |   |
| Purchased power                                  |       | —                 |       | —                 |       | (1.1     | )          | —    |       | —                 |       | (1.1      | )          |
| Fuel                                             |       | (2.5                   | )          | (0.2                   | )          | —   |       | —    |       | (1.0                   | )          | (3.7      | )          |
| O&M                                          |       | —                 |       | 0.2                    |       | —   |       | —    |       | —                 |       | 0.2       |       |
| Total                                            |       | $                      | (12.2      | )                      | $          | 0.3      |       | $         | (1.1       | )                      | $          | 1.0       |       | $ | (1.0 | ) | $ | (13.0 | ) |

 

----

*Includesgains and losses on financially settled derivative contracts and cost to marketadjustments on physically settled derivative contracts.

** **

**For the three months ended March 31,2009**

 
| **$ in millions**                           | ** ** | **NYMEX   Coal*** | ** ** | **Heating   Oil** | ** ** | **FTRs** | ** ** | **Total** | ** ** |
|--------------------------------------------------|------------|-------------------|------------|-------------------|------------|----------|------------|-----------|------------|
| Change in unrealized gain / (loss)               |       | $                 | (1.2       | )                 | $          | —   |       | $         | —     |   | $ | (1.2 | ) |
| Realized gain / (loss)                           |       | 1.0               |       | (1.1              | )          | (0.1     | )          | (0.2      | )          |
| Total                                            |       | $                 | (0.2       | )                 | $          | (1.1     | )          | $         | (0.1       | ) | $ | (1.4 | ) |
| **Recorded on Balance Sheet:**                   |       |              |       |              |       |     |       |      |       |
| Partner’s share of gain / (loss)            |       | $                 | (0.7       | )                 | $          | —   |       | $         | —     |   | $ | (0.7 | ) |
| Regulatory (asset) / liability                   |       | 1.2               |       | (2.0              | )          | —   |       | (0.8      | )          |
|                                             |       |              |       |              |       |     |       |      |       |
| **Recorded in Income Statement: gain /  (loss)** |       |              |       |              |       |     |       |      |       |
| Purchased power                                  |       | $                 | —     |              | $          | —   |       | $         | (0.1       | ) | $ | (0.1 | ) |
| Fuel                                             |       | (0.7              | )          | 1.1               |       | —   |       | 0.4       |       |
| O&M                                          |       | —            |       | (0.2              | )          | —   |       | (0.2      | )          |
| Total                                            |       | $                 | (0.2       | )                 | $          | (1.1     | )          | $         | (0.1       | ) | $ | (1.4 | ) |

 

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*Includes gains and losses on financially settled derivativecontracts and cost to market adjustments on physically settled derivativecontracts.

 

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The following tables showthe fair value and balance sheet classification of **DP&L’s**derivative instruments not designated as hedging instruments at March 31,2010 and December 31, 2009.

 

Fair Values of DerivativeInstruments Not Designated as Hedging Instruments

At March 31, 2010

 
| ** **                                           | ** ** | ** **     | ** ** | ** **   | ** ** | ** **                            | ** ** | **Fair Value on**                     | ** ** |
|------------------------------------------------------|------------|----------------|------------|--------------|------------|---------------------------------------|------------|---------------------------------------|------------|
| **$ in millions**                               | ** ** | **Fair Value** | ** ** | **Netting*** | ** ** | **Balance Sheet Location**            | ** ** | **Balance Sheet**                     | ** ** |
| **Short-term  Derivative Positions**                 |       |           |       |         |       |                                  |       |                                  |       |
| FTRs in an Asset position                            |       | $              | 0.4        |         | $          | —                                |       | Other prepayments and current  assets |       | $ | 0.4 |   |
| Forward Power Contracts in an Asset  position        |       | 0.9            |       | (0.9         | )          | Other prepayments and current  assets |       | —                                |       |
| NYMEX-Quality Coal Forwards in an  Asset position    |       | 2.8            |       | (0.7         | )          | Other prepayments and current  assets |       | 2.1                                   |       |
| NYMEX-Quality Coal Forwards in a  Liability position |       | (2.7           | )          | 1.6          |       | Other current liabilities             |       | (1.1                                  | )          |
| Heating Oil Futures in a Liability  position         |       | (0.4           | )          | 0.4          |       | Other current liabllities             |       | —                                |       |
| Natural Gas Futures in a Liability  position         |       | (1.0           | )          | 1.0          |       | Other current liabilities             |       | —                                |       |
| **Total short-term  derivative MTM positions**       |       | $              | —     |         | $          | 1.4                                   |       |                                  |       | $ | 1.4 |   |
|                                                 |       |           |       |         |       |                                  |       |                                  |       |
| **Long-term  Derivative Positions**                  |       |           |       |         |       |                                  |       |                                  |       |
| NYMEX-Quality Coal Forwards in an  Asset position    |       | $              | 0.9        |         | $          | (0.9                                  | )          | Other deferred assets                 |       | $ | — |   |
| NYMEX-Quality Coal Forwards in a  Liability position |       | (8.3           | )          | 3.5          |       | Other deferred credits                |       | (4.8                                  | )          |
| **Total long-term  derivative MTM positions**        |       | $              | (7.4       | )            | $          | 2.6                                   |       |                                  |       | $ | (4.8 | ) |
|                                                 |       |           |       |         |       |                                  |       |                                  |       |
| **Total MTM  Position**                              |       | $              | (7.4       | )            | $          | 4.0                                   |       |                                  |       | $ | (3.4 | ) |

 

----

*Includes counterparty andcollateral netting.

 

Fair Valuesof Derivative Instruments Not Designated as Hedging InstrumentsAt December 31, 2009

 
| ** **                                           | ** ** | ** **     | ** ** | ** **   | ** ** | ** **                            | ** ** | **Fair Value on**                     | ** ** |
|------------------------------------------------------|------------|----------------|------------|--------------|------------|---------------------------------------|------------|---------------------------------------|------------|
| **$ in millions**                               | ** ** | **Fair Value** | ** ** | **Netting*** | ** ** | **Balance Sheet Location**            | ** ** | **Balance Sheet**                     | ** ** |
| **Short-term  Derivative Positions**                 |       |           |       |         |       |                                  |       |                                  |       |
| FTRs in an Asset position                            |       | $              | 0.8        |         | $          | —                                |       | Other prepayments and current  assets |       | $ | 0.8 |   |
| NYMEX-Quality Coal Forwards in an  Asset position    |       | 2.6            |       | (0.2         | )          | Other prepayments and current  assets |       | 2.4                                   |       |
| NYMEX-Quality Coal Forwards in a  Liability position |       | (1.2           | )          | —       |       | Other current liabilities             |       | (1.2                                  | )          |
| Heating Oil Futures in a Liability  position         |       | (1.2           | )          | 1.2          |       | Other current liabllities             |       | —                                |       |
| Forward Power Contracts in a  Liability position     |       | (0.2           | )          | —       |       | Other current liabilities             |       | (0.2                                  | )          |
| **Total short-term  derivative MTM positions**       |       | $              | 0.8        |         | $          | 1.0                                   |       |                                  |       | $ | 1.8 |   |
|                                                 |       |           |       |         |       |                                  |       |                                  |       |
| **Long-term  Derivative Positions**                  |       |           |       |         |       |                                  |       |                                  |       |
| NYMEX-Quality Coal Forwards in an  Asset position    |       | $              | 2.9        |         | $          | (1.2                                  | )          | Other deferred assets                 |       | $ | 1.7 |   |
| **Total long-term  derivative MTM positions**        |       | $              | 2.9        |         | $          | (1.2                                  | )          |                                  |       | $ | 1.7 |   |
|                                                 |       |           |       |         |       |                                  |       |                                  |       |
| **Total MTM  Position**                              |       | $              | 3.7        |         | $          | (0.2                                  | )          |                                  |       | $ | 3.5 |   |

 

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*Includes counterparty andcollateral netting.

 

Certain of our OTC commodity derivative contracts areunder master netting agreements that contain provisions that require our debtto maintain an investment grade credit rating from credit rating agencies.  If our debt were to fall below investmentgrade, we would be in violation of these provisions, and the counterparties tothe derivative instruments could request immediate payment or demand immediateand ongoing full overnight collateralization of the MTM loss.  The aggregate fair value of all derivativeinstruments that are in a MTM loss position at March 31, 2010 is $14.9million.  This amount is offset by $5.1million in a broker margin account which offsets our loss positions on theNYMEX Clearport traded heating oil, coal, and natural gas contracts.  This liability position is further offset bythe asset position of counterparties with master netting agreements of $3.3million.  If our debt were to fall belowinvestment grade, we would have to post collateral for the remaining $6.5million.

 

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**10.  Share-BasedCompensation**

 

Share-based compensationexpense was not significant for the three months ended March 31, 2010 and2009.

 

Share-based awards issuedin **DPL’s**common stock will be distributedfrom treasury stock.  **DPL** has sufficient treasury stock to satisfy all outstandingshare-based awards.

 

Summarized share-basedcompensation activity for the three months ended March 31, 2010 and 2009was as follows:

 
| ** **                       | ** ** | **Options** | ** ** | **RSUs** | ** ** | **Performance  Shares** | ** ** |
|----------------------------------|------------|-------------|------------|----------|------------|-------------------------|------------|
| ** **                       | ** ** | **2010**    | ** ** | **2009** | ** ** | **2010**                | ** ** | **2009** | ** ** | **2010** | ** ** | **2009** | ** ** |
| Outstanding at beginning of year | ** ** | **417,500** |       | 836,500  | ** ** | **3,311**               |       | 10,120 | ** ** | **237,704** |   | 156,300 |   |
| Granted                          | ** ** | **—**  |       | —   | ** ** | **—**              |       | — | ** ** | **117,636** |   | 115,357 |   |
| Dividends                        | ** ** | **—**  |       | —   | ** ** | **—**              |       | — | ** ** | **—** |   | — |   |
| Exercised                        | ** ** | **(66,000** | **)**      | —   | ** ** | **—**              |       | — | ** ** | **(47,355** | **)** | — |   |
| Expired                          | ** ** | **—**  |       | —   | ** ** | **—**              |       | — | ** ** | **—** |   | (36,445 | ) |
| Forfeited                        | ** ** | **—**  |       | —   | ** ** | **—**              |       | — | ** ** | **—** |   | — |   |
| Outstanding at period end        | ** ** | **351,500** |       | 836,500  | ** ** | **3,311**               |       | 10,120 | ** ** | **307,985** |   | 235,212 |   |
| Exercisable at period end        | ** ** | **351,500** |       | 836,500  | ** ** | **—**              |       | — | ** ** | **—** |   | — |   |

 
| ** **                       | ** ** | ** **                 | ** ** | **Management Performance** | ** ** | ** **  | ** ** | ** ** | ** ** |
|----------------------------------|------------|----------------------------|------------|---------------------------------|------------|-------------|------------|------------|------------|
| ** **                       | ** ** | **Restricted Shares** | ** ** | **Shares**                      | ** ** | ** **  | ** ** | ** ** | ** ** |
| ** **                       | ** ** | **2010**                   | ** ** | **2009**                        | ** ** | **2010**    | ** ** | **2009**   | ** ** | ** ** | ** ** | ** ** | ** ** |
| Outstanding at beginning of year | ** ** | **218,197**                |       | 69,147                          | ** ** | **84,241**  |       | 39,144     |       |   |   |   |   |
| Granted                          | ** ** | **10,588**                 |       | —                          | ** ** | **37,480**  |       | 48,719     |       |   |   |   |   |
| Dividends                        | ** ** | **—**                 |       | —                          | ** ** | **—**  |       | —     |       |   |   |   |   |
| Exercised                        | ** ** | **(9,003**                 | **)**      | (1,000                          | )          | **—**  |       | —     |       |   |   |   |   |
| Expired                          | ** ** | **—**                 |       | —                          | ** ** | **—**  |       | —     |       |   |   |   |   |
| Forfeited                        | ** ** | **—**                 |       | —                          | ** ** | **(11,015** | **)**      | —     |       |   |   |   |   |
| Outstanding at period end        | ** ** | **219,782**                |       | 68,147                          | ** ** | **110,706** |       | 87,863     |       |   |   |   |   |
| Exercisable at period end        | ** ** | **—**                 |       | —                          | ** ** | **—**  |       | —     |       |   |   |   |   |

 
| ** **                       | ** ** | **Director RSUs** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
|----------------------------------|------------|------------------------|------------|------------|------------|------------|------------|------------|------------|------------|------------|
| ** **                       | ** ** | **2010**               | ** ** | **2009**   | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| Outstanding at beginning of year | ** ** | **20,712**             |       | 15,546     |       |       |       |       | ** ** |       |       |   |   |
| Granted                          | ** ** | **—**             |       | —     |       |       |       |       | ** ** |       |       |   |   |
| Dividends accrued                | ** ** | **471**                |       | 316        |       |       |       |       | ** ** |       |       |   |   |
| Exercised and issued             | ** ** | **—**             |       | —     |       |       |       |       | ** ** |       |       |   |   |
| Exercised and deferred           | ** ** | **(239**               | **)**      | (95        | )          |       |       |       | ** ** |       |       |   |   |
| Forfeited                        | ** ** | **—**             |       | —     |       |       |       |       | ** ** |       |       |   |   |
| Outstanding at period end        | ** ** | **20,944**             |       | 15,767     |       |       |       |       | ** ** |       |       |   |   |
| Exercisable at period end        | ** ** | **—**             |       | —     |       |       |       |       | ** ** |       |       |   |   |

 

**11.  Common Shareholders’ Equity**

 

On October 28, 2009,the **DPL** Board of directors approved a StockRepurchase Program under which **DPL** may useproceeds from the exercise of warrants to repurchase warrants or its commonstock from time to time in the open market, through private transactions orotherwise.  The Stock Repurchase Programwill run through June 30, 2012, which is three months after the end of thewarrant exercise period.  Under the StockRepurchase Program, **DPL** repurchaseda total of 145,915 shares during the three months ended March 31, 2010 atan average per share price of $26.71, effectively utilizing the entire $3.9million that was available to repurchase stock at December 31, 2009.  However, additional funds could be availableto repurchase stock if the 1.8 million warrants outstanding at March 31,2010 are exercised for cash in the future.

 

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**12.  EPS**

 

Basic EPS is based on theweighted-average number of **DPL**common shares outstanding during the year. Diluted EPS is based on the weighted-average number of **DPL** common and common-equivalent sharesoutstanding during the year, except in periods where the inclusion of suchcommon-equivalent shares is anti-dilutive. Excluded from outstanding shares for these weighted-average computationsare shares held by **DP&L’s**Master Trust Plan for deferred compensation and unreleased shares held by **DPL’s** ESOP.

 

The common-equivalentshares excluded from the calculation of diluted EPS, because they wereanti-dilutive, were not material for the three months ended March 31, 2010and 2009.  These shares may be dilutivein the future.

 

The following illustratesthe reconciliation of the numerators and denominators of the basic and dilutedEPS computations:

 
| ** **                                       | ** ** | **Three Months  Ended March 31,** | ** ** |
|--------------------------------------------------|------------|----------------------------------------|------------|
| ** **                                       | ** ** | **2010**                               | ** ** | **2009** | ** ** |
| **$ and shares in millions except**         | ** ** | ** **                             | ** ** | ** ** | ** ** | **Per** | ** ** | ** ** | ** ** | ** ** | ** ** | **Per** | ** ** |
| **per share amounts**                            | ** ** | **Income**                             | ** ** | **Shares** | ** ** | **Share** | ** ** | **Income** | ** ** | **Shares** | ** ** | **Share** | ** ** |
| **Basic EPS**                                    | ** ** | **$**                                  | **71.0**   | ** ** | **115.6** | ** ** | **$** | **0.61** |   | $ | 69.2 |   | 112.1 |   | $ | 0.62 |   |
| ** **                                       | ** ** | ** **                             |       |   |   |   |   |   |   |   |   |   |   |
| **Effect of Dilutive Securities:**               | ** ** | ** **                             | ** ** | ** ** |   |   |   |   |   |   |   |   |   |
| Warrants                                         | ** ** | ** **                             | ** ** | **0.4** |   |   |   |   |   | 0.5 |   |   |   |
| Stock options, performance and restricted shares | ** ** | ** **                             | ** ** | **0.2** |   |   |   |   |   | 0.1 |   |   |   |
| ** **                                       | ** ** | ** **                             |       |   |   |   |   |   |   |   |   |   |   |
| **Diluted EPS**                                  | ** ** | **$**                                  | **71.0**   | ** ** | **116.2** | ** ** | **$** | **0.61** |   | $ | 69.2 |   | 112.7 |   | $ | 0.61 |   |

 

**13.  Insurance Recovery**

 

On May 16, 2007, **DPL** filed a claim with Energy InsuranceMutual (EIM) to recoup legal costs associated with our litigation againstcertain former executives.  On February 15, 2010, after havingengaged in both mediation and arbitration, **DPL** and EIMentered into a settlement agreement resolving all coverage issues andfinalizing all obligations in connection with the claim.  The proceeds from the settlement amounted to$3.4 million, net of associated expenses, and were recorded as a reduction tooperation and maintenance expense during the three months ended March 31,2010.

 

**14.  ContractualObligations, Commercial Commitments and Contingencies**

 

**DPL Inc. — Guarantees**

In the normal course ofbusiness, **DPL**enters into various agreements with itswholly-owned generating subsidiaries, DPLE and DPLER providing financial orperformance assurance to third parties. These agreements are entered into primarily to support or enhancethe creditworthiness otherwise attributed to DPLE and DPLER on a stand-alonebasis, thereby facilitating theextension of sufficient credit to accomplish DPLE’s and DPLER’s intendedcommercial purposes.  There have been no material changes toour guarantees as disclosed in our Annual Report on Form 10-K for thefiscal year ended December 31, 2009. Through March 31, 2010, neither **DPL**nor **DP&L** have incurred any lossesrelated to the guarantees of DPLE’s and DPLER’s obligations and we believe itis unlikely that either **DPL** or **DP&L** would be required to perform orincur any losses in the future associated with any of the above guarantees ofDPLE’s and DPLER’s obligations.

 

**DP&L — Equity Ownership Interest**

**DP&L** owns a 4.9% equity ownership interest inan electric generation company which is recorded using the cost method ofaccounting under GAAP.  As of March 31,2010, **DP&L** could beresponsible for the repayment of 4.9%, or $54.0 million, of a $1,103 milliondebt obligation that matures in 2026. This would only happen if this electric generation company defaulted onits debt payments.  As of March 31,2010, we have no knowledge of such a default.

 

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Other than the guarantees discussed in our AnnualReport on Form 10-K and the guarantees discussed above, **DPL** and **DP&L**do not have any other off-balance sheet arrangements that have or arereasonably likely to have a current or future material effect on our financialcondition, revenues or expenses, results of operations, liquidity, capitalexpenditures or capital resources.

 

**CommercialCommitments and Contractual Obligations**

Therehave been no material changes, outside the ordinary course of business, to ourcommercial commitments and to the information disclosed in the contractualobligations table in our Annual Report on Form 10-K for the fiscal yearended December 31, 2009.

 

**Contingencies**

In the normal course ofbusiness, we are subject to various lawsuits, actions, proceedings, claims andother matters asserted under laws and regulations.  We believe the amounts provided in ourCondensed Consolidated Financial Statements, as prescribed by GAAP, are adequatein light of the probable and estimable contingencies.  However, there can be no assurances that theactual amounts required to satisfy alleged liabilities from various legalproceedings, claims, tax examinations and other matters discussed below, and tocomply with applicable laws and regulations, will not exceed the amountsreflected in our Condensed Consolidated Financial Statements.  As such, costs, if any, that may be incurredin excess of those amounts provided as of March 31, 2010, cannot be reasonablydetermined.

 

**EnvironmentalMatters**

**DPL**,**DP&L** and our subsidiaries’ facilities and operations are subjectto a wide range of environmental regulations and laws by federal, state andlocal authorities.  As well as imposingcontinuing compliance obligations, these laws and regulations authorize theimposition of substantial penalties for noncompliance, including fines,injunctive relief and other sanctions. In the normal course of business, wehave investigatory and remedial activities underway at these facilities tocomply, or to determine compliance, with such regulations.  We recordliabilities for losses that are probable of occurring and can be reasonablyestimated.** **As of March 31,2010, **DPL,** through itswholly owned captive insurance subsidiary MVIC, has an actuarially calculatedreserve of $1.2 million for environmental matters.  We evaluate the potential liability relatedto probable losses quarterly and may revise our estimates.  Suchrevisions in the estimates of the potential liabilities could have a materialeffect on our results of operations, financial position or cash flows.

 

Air Quality

In 1990, the federalgovernment amended the CAA to further regulate air pollution.  Under the law, the USEPA sets limits on howmuch of a pollutant can be in the air anywhere in the United States.  The CAA allows individual states to havestronger pollution controls, but states are not allowed to have weakerpollution controls than those set for the whole country.  The CAA has a material effect on our operationsand such effects are detailed below with respect to certain programs under theCAA.

 

On October 27, 2003,the USEPA published final rules regarding the equipment replacementprovision (ERP) of the routine maintenance, repair and replacement (RMRR) exclusionof the CAA.  Activities at power plants that fall within the scope of theRMRR exclusion do not trigger new source review (NSR) requirements, includingthe imposition of stricter emission limits. On December 24, 2003, the United States Court of Appeals for theD.C. Circuit stayed the effective date of the rule pending its decision onthe merits of the lawsuits filed by numerous states and environmentalorganizations challenging the final rules. On June 6, 2005, the USEPA issued its final response on thereconsideration of the ERP exclusion. The USEPA clarified its position, but did not change any aspect of the2003 final rules.  This decision wasappealed and the D.C. Circuit vacated the final rules on March 17,2006.  The scope of the RMRR exclusionremains uncertain due to this action by the D.C. Circuit, as well as multiplelitigations not directly involving us where courts are defining the scope ofthe exception with respect to the specific facts and circumstances of theparticular power plants and activities before the courts.  While we believe that we have not engaged inany activities with respect to our existing power plants that would trigger theNSR requirements, if NSR requirements were imposed on any of **DP&L’s** existing power plants, the results could bematerially adverse to us.

 

The USEPA issued aproposed rule on October 20, 2005 concerning the test for measuringwhether modifications to electric generating units should trigger applicationof NSR standards under the CAA.  Asupplemental rule was also proposed on May 8, 2007 to includeadditional options for determining if there is an emissions increase when anexisting electric generating unit makes a physical or operational change.  The rule was challenged by environmentalorganizations and has not been finalized. While we cannot at this time predict the outcome of this rulemaking, anyfinalized rules could materially affect our operations.

 

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On December 17,2003, the USEPA proposed the Interstate Air Quality Rule (IAQR) designedto reduce and permanently cap SO2 and NOx emissions from electricutilities.  The proposed IAQR focused onstates, including Ohio, whose power plant emissions are believed to besignificantly contributing to fine particle and ozone pollution in otherdownwind states in the eastern United States. On June 10, 2004, the USEPA issued a supplemental proposal to theIAQR, now renamed the CAIR.  The final rules weresigned on March 10, 2005 and were published on May 12, 2005.  CAIR created an interstate trading programfor annual NOx emission allowances and made modifications to an existingtrading program for SO2. On August 24, 2005, the USEPA proposed additional revisions to theCAIR.  On July 11, 2008, the U.S.Court of Appeals for the District of Columbia Circuit issued a decision tovacate the USEPA’s CAIR and its associated Federal Implementation Plan andremanded to the USEPA with instructions to issue new regulations that conformedwith the procedural and substantive requirements of the CAA.  The Court’s decision, in part, invalidatedthe new NOx annual emission allowance trading program and the modifications tothe SO2 emission trading program established by the March 10,2005 rules, and created uncertainty regarding future NOx and SO2 emissionreduction requirements and their timing. The USEPA and a group representing utilities filed a request on September 24,2008 for a rehearing before the entireCourt.  On December 23, 2008, the U.S. Court of Appeals issuedan order on reconsideration that permits CAIR to remain in effect until theUSEPA issues new regulations that would conform to the CAA requirements and theCourt’s July 11, 2008 decision. We are currently unable to predict theoutcome of this Petition or the timing or impact of any new regulationsrelating to CAIR.  CAIR has and willcontinue to have a material effect on our operations.

 

In 2007, the Ohio EPArevised their State Implementation Plan (SIP) to incorporate a CAIR programconsistent with the IAQR.  The Ohio EPAhad received partial approval from the USEPA and had been awaiting full programapproval from the USEPA when the U.S. Court of Appeals issued its July 11,2008 decision.  As a result of the December 23,2008 order, the Ohio EPA proposed revised rules on May 11, 2009,which were finalized on July 15, 2009. On September 25, 2009, theUSEPA issued a full SIP approval for the Ohio CAIR program.  We do not expect that full SIP approval ofthe Ohio CAIR program will have a significant impact on operations.

 

Inthe fourth quarter of 2007, **DP&L** begana program for selling excess emission allowances, including annual NOxemission allowances andSO2 emissionallowances that were the subject of CAIR trading programs.  In subsequent quarters, **DP&L**recognized gains from the sale of excess emission allowances to thirdparties.  The court’s CAIR decisionaffected the trading market for excess allowances and impacted **DP&L’s** program for selling additional excess allowancesin 2008.  Although in January 2009we resumed selling excess allowances due to the revival of the trading market,the long-term impact of the court’s decision, and of the actions the USEPA orothers will take in response to this decision,****isnot fully known at this time and could have an adverse effect on us.

 

On January 30, 2004,the USEPA published its proposal to restrict mercury and other air toxins fromcoal-fired and oil-fired utility plants.  The USEPA “de-listed” mercury as a hazardousair pollutant from coal-fired and oil-fired utility plants and, instead,proposed a cap-and-trade approach to regulate the total amount of mercuryemissions allowed from such sources.  Thefinal Clean Air Mercury Rule (CAMR) was signed March 15, 2005 and waspublished on May 18, 2005.  On March 29,2005, nine states sued the USEPA, opposing the cap-and-trade regulatoryapproach taken by the USEPA.  In 2007,the Ohio EPA adopted rules implementing the CAMR program.  On February 8, 2008, the U.S. Court ofAppeals for the District of Columbia Circuit struck down the USEPA regulations,finding that the USEPA had not complied with statutory requirements applicableto “de-listing” a hazardous air pollutant and that a cap-and-trade approach wasnot authorized by law for “listed” hazardous air pollutants.  A request for rehearing before the entireCourt of Appeals was denied and a petition for review before the U.S. SupremeCourt was filed on October 17, 2008. On February 23, 2009, the U.S. Supreme Court denied thepetition.  The USEPA is expected to moveforward on setting Maximum Available Control Technology (MACT) standards forcoal- and oil-fired electric generating units. Upon publication in the federal register following finalization,affected exempt generating units (EGUs) will have three years to come intocompliance with the new requirements.  Atthis time, **DP&L** is unable to determinethe impact of the promulgation of new MACT standards on its financial position orresults of operations; however, a MACT standard could have a material adverseeffect on our operations, in particular, our unscrubbed units.  We cannot at this time project the finalcosts we may incur to comply with any resulting mercury restriction regulations.

 

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On January 5, 2005,the USEPA published its final non-attainment designations for the National AmbientAir Quality Standard (NAAQS) for Fine Particulate Matter 2.5 (PM 2.5). These designations included counties and partial counties in which **DP&L** operates and/or owns generating facilities. On March 4, 2005, **DP&L** andother Ohio electric utilities and electric generators filed a petition forreview in the D.C. Circuit Court of Appeals, challenging the final rule creatingthese designations.  On November 30, 2005, the court ordered theUSEPA to decide on all petitions for reconsideration by January 20, 2006.  On January 20, 2006, the USEPA deniedthe petitions for reconsideration.  On July 7,2009, the D.C. Circuit Court of Appeals upheld the USEPA non-attainmentdesignations for the areas impacting **DP&L’s**generation plants, however, on October 8, 2009, the USEPA issued newdesignations based on 2008 monitoring data that showed all areas in attainmentto the standard with the exception of several counties in northeasternOhio.  The USEPA is expected to proposerevisions to the PM 2.5 standard in late 2010 as part of its routine five-year rule reviewcycle.  At this time, **DP&L** is unable to determine the impact the revisions tothe PM 2.5 standard will have on its financial position or results ofoperations.

 

On May 5, 2004, theUSEPA issued its proposed regional haze rule, which addresses how states shoulddetermine the Best Available Retrofit Technology (BART) for sources coveredunder the regional haze rule.  Final rules were published July 6,2005, providing states with several options for determining whether sources inthe state should be subject to BART.  In the final rule, the USEPA madethe determination that CAIR achieves greater progress than BART and may be usedby states as a BART substitute.  Numerous units owned and operated by uswill be impacted by BART.  We cannot determine the extent of the impactuntil Ohio determines how BART will be implemented.

 

In response to a U.S.Supreme Court decision that the USEPA has the authority to regulate CO2emissions from motor vehicles, the USEPA made a finding that CO2 and certainother GHGs are pollutants under the CAA.  Subsequently, under the CAA,USEPA determined that CO2 and other GHGs from motor vehicles threaten thehealth and welfare of future generations by contributing to climatechange.  This finding became effective in January 2010. Numerous affected parties have petitioned the USEPA Administrator to reconsiderthis decision.  On April 1, 2010 USEPA signed the “Light-Duty VehicleGreenhouse Gas Emission Standards and Corporate Average Fuel Economy Standards”rule.  Under USEPA’s view, this is the final action that renders carbondioxide and other GHGs “regulated air pollutants” under the CAA.  As aresult of this action, it is expected that in 2011 various permitting programswill apply to other combustion sources, such as coal-fired power plants. At this point, **DP&L** cannot determine theeffect of this change, if any, on its operations.

 

Several bills have beenintroduced at the federal level to regulate GHG emissions.  In June 2009, the U.S. House ofRepresentatives passed H.R. 2454, the American Clean Energy and Security Act(ACES).  This proposed legislationtargets a reduction in the emission of GHGs from large sources by 80% in 2050through an economy wide cap and trade program. ACES also includes energy efficiency and renewable energyinitiatives.  Approximately 99% of theenergy we produce is generated by coal.  **DP&L’s** share of CO2 emissions at generating stations we own and co-own is approximately 16million tons annually.  Proposed GHGlegislation finalized at a future date could have a significant effect on **DP&L’**s operations and costs, which could adverselyaffect our net income, cash flows and financial position.  However, due to the uncertainty associatedwith such legislation, we are currently unable to predict the final outcome orthe financial impact that this legislation will have on us.

 

On September 22,2009, the USEPA issued a final rule for mandatory reporting of GHGs fromlarge sources that emit 25,000 metric tons per year or more of CO2,  includingelectric generating units.  The firstreport is due in March 2011 for 2010 emissions.  This reporting rule will guidedevelopment of policies and programs to reduce emissions.  **DP&L** doesnot anticipate that this reporting rule will result in any significantcost or other impact on current operations.

 

On July 15, 2009,the USEPA proposed revisions to its primary National Ambient Air QualityStandard (NAAQS) for nitrogen dioxide. This change could affect certain emission sources in heavy traffic areaslike the I-75 corridor between Cincinnati and Dayton.  At this point, **DP&L**cannot determine the effect of this potential change, if any, on itsoperations.

 

The USEPA proposedrevisions to its primary NAAQS for SO2 on November 16, 2009.  This would replace the current 24-hourstandard and current annual standard.  Atthis time, **DP&L** cannot determine theeffect of this potential change, if any, on its operations.

 

On September 16,2009, the USEPA announced that it would reconsider the 2008 national groundlevel ozone standard.  A more stringentambient ozone standard may lead to stricter NOx emission standards in thefuture.  At this point, **DP&L** cannot determine the effect of this potentialchange, if any, on its operations.

 

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*AirQuality — Litigation Involving Co-Owned Plants*

In March 2000, asamended in June 2004, the U.S. Department of Justice filed a complaint inthe United States District Court, Southern District of Indiana, IndianapolisDivision against Cinergy Corp. (now part of Duke Energy) and two Cinergysubsidiaries for alleged violations of the CAA at various generation unitsoperated by PSI Energy, Inc. and CG&E, including generation unitsco-owned by  **DP&L** (Beckjord Unit 6 and Miami Fort Unit 7). A retrial has been held in which the second jury found for Duke Energy on someallegations, but for plaintiffs with respect to units at another one of DukeEnergy’s wholly-owned facilities.  In aseparate phase II remedies trial with respect to violations found in the firsttrial, Duke Energy was ordered to close down three of its wholly-ownedgenerating units by September 2009, surrender some emission allowances andpay a fine.  None of the violations foundor remedies ordered relate to generating units owned in part by **DP&L**.

 

In 2004, eight states andthe City of New York filed a lawsuit in Federal District Court for the SouthernDistrict of New York against American Electric Power Company, Inc. (AEP),one of AEP’s subsidiaries, Cinergy Corp. (a subsidiary of Duke EnergyCorporation (Duke Energy)) and four other electric power companies.  A similar lawsuit was filed against thesecompanies in the same court by Open Space Institute, Inc., Open SpaceConservancy, Inc. and The Audubon Society of New Hampshire.  The lawsuits allege that the companies’emissions of CO2 contribute to global warming and constitute apublic or private nuisance.  The lawsuitsseek injunctive relief in the form of specific emission reductioncommitments.  In 2005, the FederalDistrict Court dismissed the lawsuits, holding that the lawsuits raisedpolitical questions that should not be decided by the courts.  The plaintiffs appealed.  Finding that the plaintiffs have standing tosue and can assert federal common law nuisance claims, the United States Courtof Appeals for the Second Circuit on September 21, 2009 vacated thedismissal of the Federal District Court and remanded the lawsuits back to theFederal District Court for further proceedings. Although we are not named as a party to these lawsuits, **DP&L** is a co-owner of coal-fired plants with Duke Energyand AEP (or their subsidiaries) that could be affected by the outcome of theselawsuits.  The Second Circuit Court’sdecision could also encourage these or other plaintiffs to file similarlawsuits against other electric power companies, including us.  We are unable at this time to predict withcertainty the impact that these lawsuits might have on us.

 

On September 21,2004, the Sierra Club filed a lawsuit against **DP&L**andthe other owners of the J.M. Stuart generating station in the U.S. DistrictCourt for the Southern District of Ohio for alleged violations of the CAA andthe station’s operating permit.  On August 7,2008, a consent decree was filed in the U.S. District Court in full settlementof these CAA claims.  Under the terms of the consent decree, **DP&L** and the other owners of the J.M. Stuart generatingstation agreed to: (i) certain emission targets related to NOx, SO2 and particulatematter; (ii) make energy efficiency and renewable energy commitments thatare conditioned on receiving PUCO approval for the recovery of costs; (iii) forfeit5,500 SO2 allowances; and (iv) provide funding to athird party non-profit organization to establish a solar water heater rebateprogram.  **DP&L**and the other owners of the station also entered into an attorneys’ feeagreement to pay a portion of the Sierra Club’s attorney and expert witnessfees.  The parties to the lawsuit filed a joint motion on October 22,2008, seeking an order by the U.S. District Court approving the consent decreewith funding for the third party non-profit organization set at $300,000.  On October 23, 2008, the U.S. DistrictCourt approved the consent decree.  On October 21,2009, the Sierra Club filed with the U.S. District Court a motion forenforcement of the consent decree based on the Sierra Club’s interpretation ofthe consent decree that would require certain NOx emissions that **DP&L** has been excluding from its computations to beincluded for purposes of complying with the emission targets and reportingrequirements of the consent decree.  **DP&L**believes that it has been properly computing and reporting NOx emissions underthe consent decree, but has agreed to participate in settlement discussionswith the Sierra Club.  A proposed settlement has been tentatively agreedupon by both parties.  If finalized, an amendment to the Consent Decreewill incorporate the terms of the settlement agreement which are notexpected to have a material effect on **DP&L’s**results of operations, financial position or cash flows in the future.

 

*Air Quality — Notices ofViolation Involving Co-Owned Plants*

 On March 13, 2008, Duke Energy Ohio Inc., the operator of theZimmer generating station, received a NOV and a Finding of Violation from theUSEPA alleging violations of the CAA, the Ohio State Implementation Program(SIP) and permits for the Station in areas including SO2, opacity and increased heat input.  **DP&L** is aco-owner of the Zimmer generating station and could be affected by the eventualresolution of this matter.  Duke EnergyOhio Inc. is expected to act on behalf of itself and the co-owners with respectto this matter.  At this time, **DP&L** is unable to predict the outcome of this matter.

 

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In June 2000, theUSEPA issued a NOV to the **DP&L**-operatedJ.M. Stuart generating station (co-owned by **DP&L**,CG&E, and CSP) for alleged violations of the CAA.  The NOV contained allegations consistent withNOVs and complaints that the USEPA had recently brought against numerous othercoal-fired utilities in the Midwest.  TheNOV indicated the USEPA may: (1) issue an order requiring compliance withthe requirements of the Ohio SIP; or (2) bring a civil action seekinginjunctive relief and civil penalties of up to $27,500 per day for eachviolation.  To date, neither action hasbeen taken.  At this time, **DP&L** cannot predict the outcome of this matter.

 

In November 1999,the USEPA filed civil complaints and NOVs against operators and owners ofcertain generation facilities for alleged violations of the CAA.  Generation units operated by CG&E(Beckjord Unit 6) and CSP (Conesville Unit 4) and co-owned by **DP&L** were referenced in theseactions.  Numerous northeast states havefiled complaints or have indicated that they will be joining the USEPA’s actionagainst CG&E and CSP.  Although **DP&L** was not identified in the NOVs,civil complaints or state actions, the results of such proceedings couldmaterially affect **DP&L’s**co-owned plants.

 

 In December 2007, the Ohio EPA issued a NOV to the **DP&L**-operated Killen generating station (co-owned by **DP&L** and CG&E) for alleged violations of theCAA.  The NOVs alleged deficiencies inthe continuous monitoring of opacity.  Wesubmitted a compliance plan to the Ohio EPA on December 19, 2007.  To date, no further actions have been takenby the Ohio EPA.

 

*Air Quality — Other IssuesInvolving Co-Owned Plants*

In 2006, **DP&L** detected a malfunction with its emission monitoringsystem at the **DP&L**-operated Killengenerating station (co-owned by **DP&L** andCG&E) and ultimately determined its SO2 and NOx emissions data were underreported.  **DP&L**has petitioned the USEPA to accept an alternative methodology for calculatingactual emissions for 2005 and the first quarter 2006.  **DP&L**hassufficient allowances in its general account to cover the understatement and isworking with the USEPA to resolve the matter. Management does not believe the ultimate resolution of this matter willhave a material impact on results of operations, financial position or cashflows.

 

*Air Quality — Notices ofViolation Involving Wholly-Owned Plants*

In 2007, the Ohio EPA andthe USEPA issued NOVs to **DP&L** foralleged violations of the CAA at the O.H. Hutchings Station.  The NOVs alleged deficiencies relate to stackopacity and particulate emissions. Discussions are under way with the USEPA, the U.S. Department of Justiceand Ohio EPA.  **DP&L**has provided data to those agencies regarding its maintenance expenses andoperating results.  On December 15,2008, **DP&L** received a request from theUSEPA for additional documentation with respect to those issues and other CAAissues including issues relating to capital expenses and any changes incapacity or output of the units at the O.H. Hutchings station.  During2009, **DP&L** continued to submitvarious other operational and performance data to the USEPA in compliancewith its request.  **DP&L**iscurrently unable to determine the timing, costs or method by which the issuesmay be resolved and continues to work with the USEPA on this issue.

 

On November 18,2009, the USEPA issued a NOV to **DP&L** foralleged NSR violations of the CAA at the O.H. Hutchings Station relating tocapital projects performed in 2001 involving Unit 3 and Unit 6.  **DP&L** doesnot believe that that the two projects described in the NOV were modificationssubject to NSR.  **DP&L**is unable to determine the timing, costs or method by which these issues may beresolved and continues to work with the USEPA on this issue.

 

Water Quality

On July 9, 2004, theUSEPA issued final rules pursuant to the Clean Water Act governingexisting facilities that have cooling water intake structures.  The rules requirean assessment of impingement and/or entrainment of organisms as a result ofcooling water withdrawal.  A number ofparties appealed the rules to the Federal Court of Appeals for the SecondCircuit in New York and the Court issued an opinion on January 25, 2007remanding several aspects of the rule to the USEPA forreconsideration.  Several parties petitioned the U.S. Supreme Court forreview of the lower court decision.  On April 14,2008, the Supreme Court elected to review the lower court decision on the issueof whether the USEPA can compare costs with benefits in determining the besttechnology available for minimizing adverse environmental impact at coolingwater intake structures.  Briefs weresubmitted to the Court in the summer of 2008 and oral arguments were held in December 2008.  In April 2009, the U.S. Supreme Courtruled that the USEPA did have the authority to compare costs with benefits indetermining best technology available. The USEPA is developing proposed regulations.

 

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On May 4, 2004, theOhio EPA issued a final National Pollutant Discharge Elimination System permit(the Permit) for J.M. Stuart Station that continued our authority to dischargewater from the station into the Ohio River. During the three-year term of the Permit, we conducted a thermal discharge study to evaluate the technicalfeasibility and economic reasonableness of water cooling methods other thancooling towers.  In December 2006,we submitted an application for the renewal of the Permit that was due toexpire on June 30, 2007.  In July 2007,we received a draft permit proposing to continue our authority to dischargewater from the station into the Ohio River. On February 5, 2008, we received a letter from the Ohio EPAindicating that they intended to impose a compliance schedule as part of thefinal Permit, that requires us to implement one of two diffuser options for thedischarge of water from the station into the Ohio River as identified in thethermal discharge study.  Subsequently,representatives from **DP&L** andthe Ohio EPA have agreed to allow **DP&L** torestrict public access to the water discharge area as an alternative toinstalling one of the diffuser options. Ohio EPA issued a revised draft permit that was received on November 12,2008.  In December 2008, the USEPArequested that the Ohio EPA provide additional information regarding thethermal discharge in the draft permit. In June 2009, **DP&L**provided information to the USEPA in response to their request to the OhioEPA.  The timing for issuance of a finalpermit is uncertain.

 

In September 2009,the USEPA announced that it will be revising technology-based regulationsgoverning water discharges from steam electric generating facilities.  The rulemaking will include the collection ofinformation via an industry-wide questionnaire as well as targeted watersampling efforts at selected facilities. Subsequent to the information collection effort, it is anticipated thatthe USEPA will release a proposed rule in 2011 with final regulationsissued in late 2012 or early 2013.  Atpresent, **DP&L** is unable to predict theimpact this rulemaking will have on its operations.

 

LandUse and Solid Waste Disposal

In September 2002,**DP&L** and other partiesreceived a special notice that the USEPA considers us to be a PRP for theclean-up of hazardous substances at the South Dayton Dump landfill site.  In August 2005, **DP&L** and other parties received ageneral notice regarding the performance of a Remedial Investigation andFeasibility Study (RI/FS) under a Superfund Alternative Approach.  In October 2005, **DP&L** received a special notice letterinviting it to enter into negotiations with the USEPA to conduct theRI/FS.  No recent activity has occurredwith respect to that notice or PRP status. More recently, **DP&L** hasreceived requests by the USEPA and the existing PRP group to allow access to begiven to **DP&L’s** service center buildingsite, which is across the street from the landfill site.  The USEPA requested access to drillmonitoring and test wells to determine the extent of the landfill site’scontamination as well as to assess whether certain chemicals used at theservice center building site might have migrated through groundwater to thelandfill site.  Pursuant to anAdministrative Order issued by the USEPA requiring access to **DP&L’s** service center building site, **DP&L** has granted such access and drilling of soilborings and installation of monitoring wells occurred in the fall of 2009.  **DP&L**believesthe chemicals used at its service center building site were appropriatelydisposed of and have not contributed to the contamination at the South DaytonDump landfill site.  While **DP&L** is unable at this time to predict the outcome ofthis matter, if **DP&L** were required tocontribute to the clean-up of the site, it could have a material adverse effecton us.  **DP&L**is also unable at this time to predict whether the monitoring and test wellsmay lead to any actions relating to the service center building siteindependent of the South Dayton Dump clean-up.

 

In December 2003, **DP&L**and other parties received a special notice thatthe USEPA considers us to be a PRP for the clean-up of hazardous substances atthe Tremont City landfill site. Information available to **DP&L**doesnot demonstrate that it contributed hazardous substances to the site.  While **DP&L** isunable at this time to predict the outcome of this matter, if **DP&L** were required to contribute to the clean-up of thesite, it could have a material adverse effect on us.

 

In November 2007, aPRP group contacted **DP&L**seeking our financial participation in a settlement that the group had reachedwith the federal government with respect to the clean-up of an industrial siteonce owned by Carolina Transformer, Inc. **DP&L**’s business records clearlyshow we did not conduct business with Carolina Transformer that would requireour participation in any clean-up of the site. **DP&L**has declined to participate inthe clean-up of this site.  While **DP&L** is unable at this time to predict the outcome ofthis matter, if **DP&L** were required tocontribute to the clean-up of the site, it could have a material adverse effecton us.

 

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During 2008, a majorspill occurred at an ash pond owned by the Tennessee Valley Authority (TVA) asa result of a dike failure.  The spillgenerated a significant amount of national news coverage, and support fortighter regulations for the storage and handling of coal combustionproducts.  **DP&L**has ash ponds at the Killen, O.H. Hutchings and J.M. Stuart stations which itoperates, and also at generating stations operated by others but in which **DP&L** has an ownership interest.  We frequently inspect our ash ponds and donot anticipate any similar failures.  Itis widely expected that the federal government will propose new regulationscovering ash generated from the combustion of coal and including additionalmonitoring, testing, or construction standards with respect to ash ponds andash landfills.  Due to the wide range ofpossible outcomes, **DP&L** isunable at this time to predict the timing or the financial impact of any futuregovernmental initiatives to more stringently regulate ash ponds or the ultimatedisposal of coal combustion products.

 

During March 2009,the USEPA, through a formal Information Collection Request, collectedinformation on ash pond facilities across the country, including those atKillen and J.M. Stuart stations. Subsequently the USEPA collected similar information for O.H. HutchingsStation.  In October 2009, USEPAconducted an inspection of the J.M. Stuart Station ash ponds.  In March 2010, USEPA issued a finalreport from the inspection including recommendations relative to the J.M.Stuart Station ash ponds and has requested a response.  **DP&L** isreviewing the report and will be providing a reply to the agency.  At this time, **DP&L**is not able to predict the cost to address any of the report’s recommendations.

 

In addition, as a resultof the TVA ash pond spill, there has been increasing advocacy to regulate coalcombustion byproducts as hazardous waste under the Resource ConservationRecovery Act, Subtitle C.  On October 15,2009, the USEPA provided a draft rule to the Office of Management andBudget for interagency review.  The draftrule proposed to regulate coal ash as a hazardous waste, with limitedbeneficial reuse.  **DP&L**is unable at this time to predict the financial impact of this regulation, butif coal combustion byproducts are regulated as hazardous waste, it is expectedto have a material adverse impact on operations.

 

**Legal and Other Matters**

In February 2007, **DP&L** filed a lawsuit against a coal supplier seekingdamages incurred due to the supplier’s failure to supply approximately 1.5million tons of coal to two jointly owned plants under a coal supply agreement,of which approximately 570 thousand tons was **DP&L’s**share.  **DP&L** obtained replacement coalto meet its needs.  The supplier hasdenied liability, and is currently in federal bankruptcy proceedings.  **DP&L** isunable to determine the ultimate resolution of this matter at this time.  **DP&L** has not recorded any assets relating to possiblerecovery of costs in this lawsuit.

 

On May 16, 2007, **DPL** filed a claim with Energy InsuranceMutual (EIM) to recoup legal costs associated with our litigation againstcertain former executives.   On February 15,2010, after having engaged in both mediation and arbitration, **DPL** and EIM entered into a settlement agreement resolvingall coverage issues and finalizing all obligations in connection with theclaim, under which **DPL** received$3.4 million (net of associated expenses).

 

As a member ofPJM, **DP&L** is also subject tocharges and costs associated with PJM operations as approved by the FERC. FERC Orders issued in 2007 regarding the allocation of costs of largetransmission facilities within PJM, could result in additional costs beingallocated to **DP&L**ofapproximately $12 million or more annually by 2012.  **DP&L** filed a notice of appeal to theU.S. Court of Appeals, D.C. Circuit on March 18, 2008 challenging theallocation method.  The appeal was consolidated with other appeals takenby other interested parties of the same FERC Orders and the consolidated caseswere assigned to the 7th Circuit.  On August 6, 2009, the 7th Circuit ruled that theFERC had failed to provide a reasoned basis for the allocation method it hadapproved.  Rehearing requests were filedby other interested litigants and denied by the Court, which then remanded thematter to the FERC for further proceedings. On January 21, 2010, the FERC issued a procedural order on remand establishinga paper hearing process.  PJM made aninformational filing on April 13, 2010 that quantified the differences inthe levels of allocated costs among PJM member transmission owners depending onthe allocation methodology used.  Subsequently PJM and other parties,including **DP&L**, will be able to file initialcomments, testimony, and recommendations and reply comments.  Absentfuture changes to the procedural schedule that may occur for a number ofreasons including if settlement discussions are held, the paper hearing processshould be complete and the case ready for FERC consideration in 2010. FERC did not establish a deadline for its issuance of a substantiveorder.  **DP&L** cannot predict the timingor the likely outcome of the proceeding. Until such time as FERC may act to approve a change in methodology, PJMwill continue to apply the allocation methodology that had been approved byFERC in 2007.  Although we continue tomaintain that these costs should be borne by the beneficiaries of these projectsand that **DP&L** is not one of thesebeneficiaries, new credits or additional costs resulting from the ultimateoutcome of this proceeding should be recoverable through **DP&L’s**TCRR rider which is already in place to pass through RTO-related costs and credits.

 

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In June 2009, theNERC, a FERC-certified electric reliability organization responsible fordeveloping and enforcing mandatory reliability standards, commenced a routineaudit of **DP&L’s** operations.  The audit, which was for the period June 18,2007 to June 25, 2009, evaluated **DP&L’s**compliance with 42 requirements in 18 NERC-reliability standards.  **DP&L** is currentlysubject to a compliance audit at a minimum of once every three years asprovided by the NERC Rules of Procedure. This audit was concluded in June 2009and its findings revealed that **DP&L** hadsome Possible Alleged Violations (PAVs) associated with five NERC ReliabilityStandards.  In response to thereport, **DP&L** filed mitigation plans withNERC to address the PAVs.  Thesemitigation plans have been accepted and **DP&L** iscurrently awaiting a proposal for settlement from NERC.  While we are currently unable to determinethe extent of penalties, if any, that may be imposed on **DP&L**,we do not believe such penalties will have a material impact on our results ofoperations.

 

**Item 2. Management’s Discussion and Analysis of Financial Condition and Resultsof Operations**

 

This report includes thecombined filing of **DPL Inc. (DPL)**and **The Dayton Power and Light Company****(DP&L).  DP&L**isthe principal subsidiary of **DPL**providingapproximately 97% of **DPL’s**totalconsolidated revenue and approximately 94% of **DPL’s**totalconsolidated asset base.  Throughout thisreport, 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 thatapply only to **DPL** or **DP&L**will clearly be noted in the section.

 

Certainstatements contained in this discussion are “forward-looking statements” withinthe meaning of the Private Securities Litigation Reform Act of 1995.  Matters discussed in this report that relateto events or developments that are expected to occur in the future, includingmanagement’s expectations, strategic objectives, business prospects,anticipated economic performance and financial condition and other similarmatters constitute forward-looking statements. Forward-looking statements are based on management’s beliefs,assumptions and expectations of future economic performance, taking intoaccount the information currently available to management.  These statements are not statements ofhistorical 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 subjectto risks and uncertainties, and investors are cautioned that outcomes andresults may vary materially from those projected due to various factors beyondour control, including but not limited to: abnormal or severe weather andcatastrophic weather-related damage; unusual maintenance or repairrequirements; changes in fuel costs and purchased power, coal, environmentalemissions, natural gas and other commodity prices; volatility and changes inmarkets for electricity and other energy-related commodities; performance ofour suppliers; increased competition and deregulation in the electric utilityindustry; increased competition in the retail generation market; changes ininterest rates; state, federal and foreign legislative and regulatory initiativesthat affect cost and investment recovery, emission levels, rate structures ortax laws; changes in federal or state environmental laws and regulations towhich **DPL** and its subsidiaries are subject;the development and operation of RTOs, including PJM to which **DPL’s** operating subsidiary (**DP&L**)has given control of its transmission functions; changes in our purchasingprocesses, pricing, delays, contractor and supplier performance andavailability; significant delays associated with large construction projects;growth in our service territory and changes in demand and demographic patterns;changes in accounting rules and the effect of accounting pronouncementsissued periodically by accounting standard-setting bodies; financial marketconditions; the outcomes of litigation and regulatory investigations,proceedings or inquiries; general economic conditions; and the risks and otherfactors discussed in this report and other **DPL** and **DP&L**filings with the SEC.

 

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

 

The following discussionshould be read in conjunction with the accompanying Condensed ConsolidatedFinancial Statements and related footnotes included in **Part I —Financial Information**.

 

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**BUSINESS OVERVIEW**

 

**DPL** is a regional electric energy andutility company and through its principal subsidiary **DP&L,**is primarily engaged in the generation, transmission and distribution ofelectricity in West Central Ohio.  **DPL**and **DP&L** striveto achieve disciplined growth in energy margins while limiting volatility inboth cash flows and earnings and to achieve stable, long-term growth throughefficient operations and strong customer and regulatory relations.  More specifically, **DPL**and**DP&L’s**strategy is to match energy supply with load orcustomer demand, maximizing profits while effectively managing exposure tomovements in energy and fuel prices and utilizing the transmission anddistribution assets that transfer electricity at the most efficient cost whilemaintaining the highest level of customer service and reliability.

 

We operate and managegeneration assets and are exposed to a number of risks.  These risks include but are not limited toelectricity wholesale price risk, fuel supply and price risk and power plantperformance.  We attempt to manage theserisks through various means.  Forinstance, we operate a portfolio of wholly-owned and jointly-owned generationassets that is diversified as to coal source, cost structure and operatingcharacteristics.  We are focused on theoperating efficiency of these power plants and maintaining their availability.

 

We****operateand manage****transmission and distribution assetsin a rate-regulated environment. Accordingly, this subjects us to regulatory risk in terms of the coststhat we may recover and the investment returns that we may collect in customerrates.  We are focused on delivering electricityand maintaining high standards of customer service and reliability in acost-effective manner.

 

We have identifiedcertain issues that we believe may have a significant impact on our results ofoperations and financial condition in the future.  The following issues mentioned below are notmeant to be exhaustive but to provide insight on matters that are likely tohave an effect on our results of operations and financial condition in thefuture:

 

**REGULATORY ENVIRONMENT**

 

·                  **Emissions — Climate ChangeLegislation**

There is a growingconcern nationally and internationally about global climate change and thecontribution of emissions of GHGs, including most significantly, CO2.  This concern has led to increasedinterest in legislation at the federal level, actions at the state level aswell as litigation relating to GHG emissions.  In 2007, a U.S.Supreme Court decision upheld that the USEPA has the authority to regulate CO2 emissions frommotor vehicles under the CAA.  In April 2009, the USEPA issued aproposed endangerment finding under the CAA, which was finalized and publishedon December 15, 2009.  The proposedfinding determined that CO2 and other GHGs from motor vehicles threatenthe health and welfare of future generations by contributing to climatechange.  In December 2009, USEPAfinalized this endangerment finding with a regulatory effective date of January 2010.  Numerous affected parties have asked theUSEPA Administrator to reconsider this decision.  This endangerment finding, if not changed, isexpected to lead to the regulation of CO2 and other GHGs from electric generating unitsand other stationary sources of these emissions.  In June 2009, the U.S. House ofRepresentatives passed H.R. 2454, the American Clean Energy and Security Act(ACES).  This proposed legislationtargets a reduction in the emission of GHGs from large sources by 80% in 2050through an economy-wide cap and trade program. ACES also includes energy efficiency and renewable energyinitiatives.  Increased pressure for CO2 emissionsreduction is also coming from investor organizations and the internationalcommunity.  Environmental advocacy groupsare also focusing considerable attention on CO2 emissions from power generation facilities andtheir potential role in climate change. Approximately 99% of the energy we produce is generated by coal.  **DP&L’s**share of CO2 emissions at generating stations we ownand co-own is approximately 16 million tons annually.  If legislation or regulations are passed atthe federal or state levels that impose mandatory reductions of CO2 and other GHGson generation facilities, the cost to**DPL**and**DP&L** of such reductionscould be material.

 

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·      **SB 221 Requirements**

SB221 and the implementation rules contain targets relating to advancedenergy portfolio standards, renewable energy, demand reduction and energyefficiency standards.  The standardsrequire that, by the year 2025, 25% of the total number of kWh of electricitysold by the utility to retail electric consumers must come from alternativeenergy resources, which include “advanced energy resources” such as distributedgeneration, clean coal, advanced nuclear, energy efficiency and fuel celltechnology; and “renewable energy resources” such as solar, hydro, wind,geothermal and biomass.  At least half ofthe 25% must be generated from renewable energy resources, including 0.5% fromsolar energy.  The renewable energyportfolio, energy efficiency and demand reduction standards began in 2009 withincreases in required percentages each year. The annual targets for energy efficiency and peak demand reductionsbegan in 2009 with annual increases. Energy efficiency programs are to save 22.3% by 2025 and peak demandreductions are expected to reach 7.75% by 2018 compared to a baseline energyusage.  If any targets are not met,compliance penalties will apply, unless the PUCO makes certain findings thatwould excuse performance.

 

SB221 also contains provisions for determining whether an electric utility hassignificantly excessive earnings.  On September 9,2009, the PUCO issued an entry establishing a significantly excessive earningstest (SEET) proceeding.  A workshop washeld at the Commission offices on October 5, 2009 to allow interestedparties to present concerns and discuss issues related to the methodology.  On November 18, 2009 the PUCO Staffissued its recommendations to the Commission. **DP&L** filed its commentsand reply comments along with other interested parties.  A question and answer session was held before theCommission on April 1, 2010 to allow the Commission to gain a betterunderstanding of the issues.  **DP&L’s**Stipulationprovides that the SEET does not apply to **DP&L**until 2013 based on 2012 earnings results.

 

·                  **CAIR decision by the U.S. Courtof Appeals for the District of Columbia Circuit**

On July 11, 2008,the United States Court of Appeals for the District of Columbia Circuit issueda decision that vacated the USEPA CAIR and its associated Federal ImplementationPlan. This decision remanded these issues back to the USEPA.  The USEPA issued CAIR on March 10, 2005to regulate certain upwind states with respect to fine particulate matter andozone.  CAIR created interstate tradingprograms for annual NOx emission allowances and made modifications to anexisting trading program for SO2 that were to take effect in 2010.  The court’s decision, in part, invalidatedthe new NOx annual emission allowance trading program and the modifications tothe SO2 emission trading program, and createduncertainty regarding future NOx and SO2 emission reduction requirements and theirtiming.  On December 23, 2008, thecourt reversed part of its decision that vacated CAIR.  Thus, CAIR currently remains in effect, butthe USEPA remains subject to the court’s order to revise the program.  We cannot at this time predict the timing orthe outcome of any new regulations in relation to CAIR.  CAIR has and will continue to have a materialeffect on our operations.

 

The court’s CAIR decisionhas affected the trading market for excess allowances and impacted **DP&L’s** program for selling additional excessallowances.  The overall impact of thecourt’s decision, and of the actions the USEPA or others will take in responseto this decision, on **DPL** and **DP&L** is not fully known at this time and could have anadverse effect on us.  In January 2009,we resumed selling excess emission allowances due to the revival of the tradingmarket.

 

**COMPETITIONAND PJM PRICING**

 

·                  **RPM Capacity Auction Price**

The PJM RPM base residualauction for the 2012/2013 period cleared at a per megawatt price of $16/day forour RTO area.  Prior to this auction, the per megawatt price for the2011/2012 period was $110/day.  FutureRPM auction results will be dependent not only on the overall supply and demandof generation and load, but may also be impacted by congestion as well as PJM’sbusiness rules relating to bidding for Demand Response and EnergyEfficiency resources in the RPM auctions. We cannot predict the outcome of future auctions but if the currentauction price is sustained, our future results of operations, financialcondition and cash flows could be adversely impacted.

 

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·                  **Ohio Competitive Considerationsand Proceedings**

Overall power marketprices, as well as government aggregation initiatives, could lead to theentrance of competitors in our marketplace, affecting our results ofoperations, financial condition or cash flows. During the quarter ended March 31, 2010, one additionalunaffiliated marketer registered as a CRES provider in **DP&L’s** service territory, bringing thetotal number of unaffiliated CRES providers in **DP&L’s**service territory to seven.  There hasbeen a slight increase in customer switching associated with unaffiliatedmarketers representing less than 0.1% of sales during the quarter ended March 31,2010.  DPLER, an affiliated company, is also a registered CRES providerand accounted for approximately 720 million kWh of the total 723 million kWhsupplied by CRES providers within **DP&L’s**service territory in the quarter ended March 31, 2010.

 

We currently cannotdetermine the extent to which customer switching to unaffiliated CRES providerswill occur in the future and the impact this will have on our operations.  In 2003-2004, several communities in **DP&L’s** service area passed ordinancesallowing the communities to become government aggregators for the purpose ofoffering alternative electric generation supplies to their citizens.  To date, none of these communities haveaggregated their generation load.

 

In addition, during thequarter ended March 31, 2010, DPLER began providing CRES services tobusiness customers in Ohio who are not in **DP&L’s**service territory.  At this time, we donot expect the incremental costs and revenues to have a material impact on ourresults of operations, financial position or cash flows.

 

**FUEL AND RELATED COSTS**

 

·                  **Fuel and Commodity Prices**

During 2009 and 2008, thecoal market experienced significant price volatility.  We are now in a global market for coal inwhich our domestic price is increasingly affected by international supplydisruptions and demand balance.  Inaddition, domestic issues like government-imposed direct costs and permittingissues are affecting mining costs and supply availability.  Our approach is to hedge the fuel costs forour anticipated electric sales.  For theyear ending December 31, 2010, we have fully hedged our coal requirementsto meet our committed sales.  We may notbe able to hedge the entire exposure of our operations from commodity pricevolatility.  To the extent our suppliersdo not meet their contractual commitments or we are not hedged against pricevolatility, our results of operations, financial position or cash flows couldbe materially affected.  Effective January 2010,the Ohio retail jurisdictional share of fuel price changes is reflected in theoperation of the fuel rider, subject to PUCO review.

 

·                  **Sales of Coal and Excess EmissionAllowances**

During the three monthsended March 31, 2010, **DP&L** soldcoal and excess emission allowances to various counterparties realizing totalnet gains of $0.2 million and $0.2 million, respectively, compared to total netgains of $20.7 million and $2.2 million, respectively, realized over the sameperiod in 2009.  These gains are recordedas a component of **DP&L’s** fuelcosts and reflected in operating income. Coal sales are impacted by a range of factors but can be largelyattributed to the following: price volatility within the different grades ofcoal based on market conditions, variation in power demand, the market price ofpower compared to the cost to produce power, as well as optimizationopportunities in the coal market.  Salesof excess emission allowances are impacted, among other factors, by: generaleconomic conditions; fluctuations in market demand and pricing; availability ofexcess inventory available for sale; and changes to the regulatory environmentin which we operate.  The combined impactof these factors on our ability to sell coal and emission allowances in 2010and beyond is not fully known at this time and could materially impact theamount of gains that will be recognized in the future.  Effective January 2010 as part of theoperation of the fuel rider, the Ohio retail jurisdictional share of theemission gains and a portion of the Ohio jurisdictional share of the coal gainsare used to reduce the overall rate charged to customers.

 

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**OHIO REGULATORY MATTERS**

 

***Ohio Retail Rates***

In compliance with SB221, **DP&L**filed its electric securityplan at the PUCO on October 10, 2008. On February 24, 2009, **DP&L** filedthe Stipulation that, among other things, extended the Company’s rate planthrough 2012, provided for recovery of the Ohio jurisdictional retail portionof fuel and purchased power costs beginning January 2010, provided forrecovery of certain SB 221 compliance costs, and required **DP&L**to refile its Smart Grid and Advanced Metering Infrastructure (AMI) businesscases by September 1, 2009.  Thematerial terms of the Stipulation were discussed in greater detail in ourAnnual Report on Form 10-K for the fiscal year ended December 31,2009.  The Smart Grid and AMI portion ofthe case is still pending before the PUCO.

 

On October 30, 2009,**DP&L** filed its application for theestablishment of a fuel and purchased power recovery rider for the collectionof prudently incurred fuel, purchased power, emission and other related costsbeginning January 1, 2010.  On December 16,2009 the PUCO issued an order stating the rider was consistent with theStipulation provisions, that it does not appear to be unjust or unreasonable,and approved the rider to be effective January 1, 2010. The fuel riderfluctuates based on actual costs and recoveries and is modified at the start ofeach seasonal quarter.  **DP&L** implemented the fuel rider on January 1, 2010.

 

As a member of PJM, **DP&L** incurs costs and receives revenues from the RTOrelated to its transmission and generation assets, as well as its loadobligations for retail customers.  SB 221included a provision that would allow Ohio electric utilities to seek andobtain a reconcilable rider to recover RTO-related costs and credits.  On February 19, 2009, the PUCO approved **DP&L’s** request to defer costs associated with itstransmission, capacity, ancillary service and other PJM-related chargesincurred as a member of PJM.  In June 2009,**DP&L** began recovery of thesecosts.  In a subsequent rehearingprocess, **DP&L** was ordered to separate thecosts into two separate riders (a TCRR and a PJM RPM rider) which were approvedin November 2009.  On February 16,2010, **DP&L** filed its annual true up ofthese two riders.

 

On August 28, 2009, **DP&L** filed its application to establish reliabilitytargets consistent with the most recent PUCO Electric Service and SafetyStandards (ESSS).  The PUCO issued a procedural schedule and held atechnical conference on November 10, 2009.  Comments and replycomments were filed.  On March 29, 2010 **DP&L**entered into a settlement establishing the new reliability targets.  This settlement is pending PUCOapproval.  According to the ESSS rules,DP&L will be subject to financial penalties if the established targets arenot met for two consecutive years.

 

***SB 221 Compliance***

InDecember 2009, **DP&L** andDPLER made several filings relating to their renewable energy and energy efficiencycompliance plans.   **DP&L** and DPLER were able to obtainRenewable Energy Credits sufficient to meet their overall renewable energytargets, but **DP&L** and DPLERtogether obtained only 36% of the separate requirement for 2009 Ohio-basedsolar resources.  The companies asked for a waiver of any unmet 2009 Ohiosolar requirements on grounds of force majeure because there are insufficientsolar renewable energy credits available from Ohio resources.  In March 2010,the PUCO ruled that DP&L’s 2009 Ohio solar target would be reduced to theamount that it had procured, but that any unmet requirement must be added tothe 2010 target.  The Commission has notyet ruled on DPLER’s filing.

 

On April 15, 2010, **DP&L** made its first of annual required filings relatedto compliance with renewable and advanced energy targets contained in SB221.  Pursuant to PUCO rules, each April 15,electric utilities are required to provide a status report on how the utilitymet the renewable benchmarks of the previous year, as well as a ten-year planoutlining the utility’s plans to meet future annual renewable targets. DPLER, an electric services company pursuant to Ohio Revised Code, is alsorequired to meet SB 221 renewable benchmarks and therefore filed its firstreports on that same day.  In addition, on April 15 of each year,each utility that owns an electric generating facility in Ohio must report tothe PUCO regarding its greenhouse gas emissions, and plans to reduce thoseemissions (environmental control plan) as well as a long-term forecast reportwhich includes a plan to provide sufficient resources to meet customer loadobligations (resource plan).  These plans were filed timely.

 

Intwo separate filings, **DP&L**requested the PUCO’s consent that DP&L had met the requirements for energyefficiency and for demand reduction based on DP&L’s interpretation of howthose requirements should be applied.  These filings also requested thatif the PUCO disagreed with **DP&L’s**interpretation, the PUCO grant alternative relief and find that **DP&L** was unable to meet the targets dueto reasons beyond its reasonable control, i.e. uncertainty throughout 2009caused by delays in finalizing the rules and the lack of timely PUCO actionon several of **DP&L’s** specialcontracts relating to demand response efforts which remain pending before thePUCO.

 

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Inaddition, the rules that became effective December 10, 2009 requiredthat on January 1, 2010, **DP&L**file an extensive energy efficiency portfolio plan, outlining how DP&Lplans to comply with the energy efficiency and demand reductionbenchmarks.  **DP&L** filed aseparate request for a finding that it had already complied with thisrequirement in the form of **DP&L’s**portfolio plan that had been filed in 2008 as part of its electric securityplan, which had been approved by the PUCO and is being implemented.  We are unable to predict at this time how thePUCO will respond to these filings, but believe that the outcome will not bematerial to our financial condition.  However, as the targets getincreasingly larger over time, the costs of complying with the SB 221 targetsand the PUCO’s implementing rules could have a material impact on ourfinancial condition.

 

**ENVIRONMENTALMATTERS**

 

**DPL**,**DP&L** and our subsidiaries’ facilities and operations are subjectto a wide range of environmental regulations and laws by federal, state andlocal authorities.

 

As well as imposingcontinuing compliance obligations, these laws and regulations authorize theimposition of substantial penalties for noncompliance, including fines,injunctive relief and other sanctions. In the normal course of business, wehave investigatory and remedial activities underway at these facilities tocomply, or to determine compliance, with such regulations.  We recordliabilities for probable estimated loss in accordance with the provisions ofGAAP relating to the accounting for contingencies.**  DPL,** through its whollyowned captive insurance subsidiary MVIC, has an actuarially calculated reserveof $1.2 million for environmental matters. We evaluate the potential liability related to probable losses quarterlyand may revise our estimates.  Such revisions in the estimates of thepotential liabilities could have a material effect on our results ofoperations, financial position or cash flows.

 

***Air Quality***

In response to a U.S.Supreme Court decision that the USEPA has the authority to regulate CO2emissions from motor vehicles, the USEPA made a finding that CO2 and certainother GHGs are pollutants under the CAA.  Subsequently, under the CAA,USEPA determined that CO2 and other GHGs from motor vehicles threaten thehealth and welfare of future generations by contributing to climatechange.  This finding became effective in January 2010. Numerous affected parties have petitioned the USEPA Administrator to reconsiderthis decision.  On April 1, 2010 USEPA signed the “Light-Duty VehicleGreenhouse Gas Emission Standards and Corporate Average Fuel Economy Standards”rule.  Under USEPA’s view, this is the final action that renders carbondioxide and other GHGs “regulated air pollutants” under the CAA.  As aresult of this action, it is expected that in 2011 various permitting programswill apply to other combustion sources, such as coal-fired power plants. At this point, **DP&L** cannot determine theeffect of this change, if any, on its operations.

 

***Land Use andSolid Waste Disposal***

During 2008, a majorspill occurred at an ash pond owned by the Tennessee Valley Authority (TVA) asa result of a dike failure.  The spillgenerated a significant amount of national news coverage, and support fortighter regulations for the storage and handling of coal combustionproducts.  **DP&L**has ash ponds at the Killen, O.H. Hutchings and J.M. Stuart stations which itoperates, and also at generating stations operated by others but in which **DP&L** has an ownership interest.  We frequently inspect our ash ponds and donot anticipate any similar failures.  Itis widely expected that the federal government will propose new regulationscovering ash generated from the combustion of coal and including additionalmonitoring, testing, or construction standards with respect to ash ponds andash landfills.  Due to the wide range ofpossible outcomes, **DP&L** isunable at this time to predict the timing or the financial impact of any futuregovernmental initiatives to more stringently regulate ash ponds or the ultimatedisposal of coal combustion products.

 

During March 2009,the USEPA, through a formal Information Collection Request, collectedinformation on ash pond facilities across the country, including those atKillen and J.M. Stuart stations. Subsequently the USEPA collected similar information for O.H. HutchingsStation.  In October 2009, USEPAconducted an inspection of the J.M. Stuart Station ash ponds.  In March 2010, USEPA issued a finalreport from the inspection including recommendations relative to the J.M.Stuart Station ash ponds and has requested a response.  **DP&L** isreviewing the report and will be providing a reply to the agency.  At this time, **DP&L**is not able to predict the cost to address any of the report’s recommendations.

 

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**FINANCIALOVERVIEW**

 

The followingfinancial overview relates to **DPL**, whichincludes its principal subsidiary **DP&L**.  The results of operations for both **DPL** and **DP&L** areseparately discussed in more detail following this financial overview.

 

For the three months ended March 31, 2010, Net income for **DPL** was $71.0 million, or $0.61 per share, compared to Netincome of $69.2 million, or $0.61 per share, for the same period in 2009.  All EPS amounts are on a diluted share basis. The significant highlights during thethree-month period ended March 31, 2010 compared to the similar period ofthe prior year comprise the following:

 

·                  anincrease in retail rates primarily as a result of an increase in the EIR andthe implementation of the Fuel, TCRR, RPM and Energy Efficiency riders,

 

·                  animprovement in generating plant performance which resulted in an increase inwholesale sales volume and a decrease in purchased power volumes,

 

·                  a netreduction in interest costs primarily as a result of certain outstanding debtredemptions, and

 

·                  adecrease in the average cost of fuel due primarily to lower coal prices.

 

Partially offsetting these items were:

 

·                  anincrease in purchased power prices,

 

·                  adecrease in wholesale power sales prices,

 

·                  adecrease in gains recognized from the sale of coal,

 

·                  adecrease in gains recognized from the sale of excess emission allowances, and

 

·                  an increase in thevolume of fuel consumed due to increased generation by our power plants.

 

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**RESULTS OF OPERATIONS — DPL**

 

**DPL’s**results ofoperations include the results of its subsidiaries, including the results ofits principal subsidiary **DP&L**.  **DP&L**providesapproximately 97% of the total revenues of **DPL. **All material intercompany accountsand transactions have been eliminated in consolidation.  A separate specific discussion of the resultsof operations for **DP&L** ispresented elsewhere in this report.

 

**IncomeStatement Highlights — DPL**

 
| ** **                                  | ** ** | **Three  Months Ended** | ** ** |
|---------------------------------------------|------------|-------------------------|------------|
| ** **                                  | ** ** | **March 31,**      | ** ** |
| **$ in millions**                      | ** ** | **2010**                | ** ** | **2009** | ** ** |
|                                        | ** ** | ** **              |       |   |   |
| **Revenues:**                               | ** ** | ** **              |       |   |   |
| Retail                                      | ** ** | **$**                   | **354.6**  |   | $ | 320.3 |   |
| Wholesale                                   | ** ** | **40.2**                |       | 30.9 |   |
| RTO  revenues                               | ** ** | **21.1**                |       | 25.5 |   |
| RTO  capacity revenues                      | ** ** | **32.3**                |       | 35.4 |   |
| Other  revenues                             | ** ** | **3.0**                 |       | 2.9 |   |
| Total  revenues                             | ** ** | **$**                   | **451.2**  |   | $ | 415.0 |   |
|                                        | ** ** | ** **              |       |   |   |
| **Cost of revenues:**                       | ** ** | ** **              |       |   |   |
| Fuel  costs                                 | ** ** | **$**                   | **102.3**  |   | $ | 104.3 |   |
| Gains  from sale of coal                    | ** ** | **(0.2**                | **)**      | (20.7 | ) |
| Gains  from sale of emission allowances     | ** ** | **(0.2**                | **)**      | (2.2 | ) |
| Net  fuel                                   | ** ** | **101.9**               |       | 81.4 |   |
|                                        | ** ** | ** **              |       |   |   |
| Purchased  power                            | ** ** | **13.7**                |       | 15.7 |   |
| RTO  charges                                | ** ** | **30.6**                |       | 30.6 |   |
| RTO  capacity charges                       | ** ** | **30.7**                |       | 36.4 |   |
| Recovery  / (Deferral) of RTO expenses, net | ** ** | **(2.2**                | **)**      | (23.0 | ) |
| Net  purchased power                        | ** ** | **72.8**                |       | 59.7 |   |
|                                        | ** ** | ** **              |       |   |   |
| Total  cost of revenues                     | ** ** | **$**                   | **174.7**  |   | $ | 141.1 |   |
|                                        |       |                    |       |   |   |
| **Gross margins** (a)                       | ** ** | **$**                   | **276.5**  |   | $ | 273.9 |   |
|                                        |       |                    |       |   |   |
| Gross  margin as a percentage of revenues   | ** ** | **61.3**                | **%**      | 66.0 | % |
|                                        | ** ** | ** **              |       |   |   |
| **Operating income**                        | ** ** | **$**                   | **126.0**  |   | $ | 127.0 |   |
|                                        | ** ** | ** **              |       |   |   |
| **Earnings per share of common stock:**     | ** ** | ** **              |       |   |   |
| Basic  EPS from operations                  | ** ** | **$**                   | **0.61**   |   | $ | 0.62 |   |
| Diluted  EPS from operations                | ** ** | **0.61**                |       | 0.61 |   |

 

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*(a)**    **For purposes of discussingoperating results, we present and discuss gross margins. This format is usefulto investors because it allows analysis and comparability of operating trendsand includes the same information that is used by management to make decisionsregarding our financial performance.*

 

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** **

**DPL— Revenues**

Retailcustomers, especially residential and commercial customers, consume moreelectricity on warmer and colder days. Therefore,**DPL’s** retailsales volume is impacted by the number of heating and cooling degree daysoccurring during a year.  Since**DPL**plans to utilize its internal generating capacity to supply its retailcustomers’ needs first, increases in retail demand may decrease the volume ofinternal generation available to be sold in the wholesale market and viceversa.

 

The wholesale marketcovers a multi-state area and settles on an hourly basis throughout theyear.  Factors impacting**DPL’s** wholesale sales volume each hour ofthe year include wholesale market prices;**DPL’s**retail demand; retail demand elsewhere throughout the entire wholesale marketarea;**DPL** and non-**DPL** plants’ availability to sell into thewholesale market and weather conditions across the multi-state region.**DPL’s** plan is to make wholesale sales whenmarket prices allow for the economic operation of its generation facilities notbeing utilized to meet its retail demand or when margin opportunities existbetween the wholesale sales and power purchase prices.

 

The following tableprovides a summary of changes in revenues from the prior period:

 
| ** **                        | ** ** | **Three Months  Ended** | ** ** |
|-----------------------------------|------------|-------------------------|------------|
| ** **                        | ** ** | **March 31,**      | ** ** |
| **$ in millions**            | ** ** | **2010 vs. 2009**       | ** ** |
|                              |       |                    |       |
| **Retail**                        |       |                    |       |
| Rate                              |       | $                       | 34.5       |   |
| Volume                            |       | 0.3                     |       |
| Other miscellaneous               |       | (0.5                    | )          |
| **Total retail change**           | ** ** | **$**                   | **34.3**   | ** ** |
|                              |       |                    |       |
| **Wholesale**                     |       |                    |       |
| Rate                              |       | $                       | (0.9       | ) |
| Volume                            |       | 10.2                    |       |
| **Total wholesale change**        | ** ** | **$**                   | **9.3**    | ** ** |
|                              |       |                    |       |
| **RTO capacity & other** |       |                    |       |
| RTO capacity and other revenues   | ** ** | **$**                   | **(7.4**   | **)** |
| ** **                        |       |                    |       |
| **Total revenues change**         | ** ** | **$**                   | **36.2**   | ** ** |

 

For the three monthsended March 31, 2010, Revenues increased $36.2 million to $451.2 millionfrom $415.0 million in the same period of the prior year.  This increasewas primarily the result of higher average retail rates and higher wholesalesales volume, partially offset by a decrease in RTO capacity and other RTOrevenues.

 

·                  Retail revenues increased $34.3 millionresulting primarily from a 11% increase in average retail rates due largely tothe implementation of the fuel, TCRR, RPM and Energy Efficiency riders,combined with the incremental effect of the recovery of costs under theEIR.  Retail volumes saw a slightdecrease compared to those in the prior year period.  The above resultedin a favorable $34.5 million retail price variance and a favorable $0.3 millionretail sales volume variance.

 

·                  Wholesale revenues increased $9.3 millionfor the three months ended March 31, 2010 primarily as a result of a 33%increase in wholesale sales volumes, partially offset by a 2% decrease inwholesale average prices.  This resultedin a favorable $10.2 million wholesale volume variance and an unfavorablewholesale price variance of $0.9 million.

 

·                  RTO capacity and other revenues, consisting primarilyof compensation for use of **DPL’s**transmission assets, regulation services, reactive supply and operatingreserves, and capacity payments under the RPM construct, decreased $7.4 millioncompared to the same period in 2009. This decrease to RTO capacity and other RTO revenues was primarily theresult of a $3.1 million decrease in revenues realized from the PJM capacityauction combined with a $4.4 million decrease in transmission and congestionrevenues.

 

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## **DPL— Cost of Revenues**

For the three monthsended March 31, 2010:

 

·                  Fuel costs, which include coal, gas, oiland emission allowance costs, increased $20.5 million, or 25%, compared to thesame period in 2009, primarily due to the impact of lower gains realized fromthe sale of **DP&L’s** coal and excessemission allowances.  During the firstthree months of 2010, **DP&L**realized $0.2 million and $0.2 million in gains from the sale of coal andexcess emission allowances, respectively, compared to $20.7 million and $2.2million, respectively, during the same period in 2009.  Also contributing to the increase in fuelcosts was the impact of a 4% increase in the volume of generation by ourplants.  The effect of these increaseswas partially offset by a 5% decrease in the average cost of fuel consumed perkilowatt-hour due largely to lower coal prices.

 

·                  Purchased power increased $13.1 million,or 22%, compared to the same period in 2009 primarily reflecting the impact ofthe deferral of **DP&L’s** transmission, capacityand other PJM-related charges which were incurred as a member of PJM.  During the first three months of 2010, **DP&L** deferred $2.2 million of such costs compared to$23.0 million during the same period in 2009. Also contributing to the higher purchased power costs was an increase of$4.2 million relating to higher average market prices.  The effects of these increases were partiallyoffset by the impact of higher generation at our plants that saw purchasedpower volumes decrease by an equivalent of $6.2 million, combined with a $5.7 milliondecrease in RTO capacity and other RTO charges over the same period in2009.  We purchase power to satisfy retail sales volume when generatingfacilities are not available due to planned and unplanned outages or whenmarket prices are below the marginal costs associated with our generatingfacilities.

 

**DPL****—****Operation andMaintenance**
| ** **                                                | ** ** | **Three Months Ended** | ** ** |
|-----------------------------------------------------------|------------|----------------------------------|------------|
| ** **                                                | ** ** | **March 31,**               | ** ** |
| **$ in millions**                               | ** ** | **2010 vs. 2009**      | ** ** |
| Energy efficiency  programs (1)                           |       | $                                | 4.2        |   |
| Pension                                                   |       | 1.2                              |       |
| Group insurance                                           |       | 1.0                              |       |
| Low-income payment  program (1)                           |       | 0.9                              |       |
| Insurance settlement,  net                                |       | (3.4                             | )          |
| Generating facilities  operating and maintenance expenses |       | (3.2                             | )          |
| Other, net                                                |       | 1.0                              |       |
| **Total  operation and maintenance expense**              |       | $                                | 1.7        |   |

 

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(1)  There is acorresponding increase to revenues associated with these programs resulting inno impact to net income.

 

During thethree months ended March 31, 2010, operation and maintenance expenseincreased $1.7 million, or 2%, compared to the same period in 2009.  This variance was primarily the result of:

 

·                  higher expenses relating to energyefficiency programs that were put in place for our customers during 2009,

 

·                  increased pension costs due largely to adecline in the values of pension plan assets from 2008 and increased benefitcosts,

 

·                  increased health insurance costs that werepartially due to higher disability reserves, and

 

·                  increased assistance for low-income retailcustomers which is funded by the USF revenue rate rider.

 

These increases were partially offset by

 

·                  an insurance settlement that reimbursed usfor legal costs associated with our litigation against certain formerexecutives and

 

·                  decreases in expenses for generatingfacilities largely due to lower maintenance activity at jointly-ownedproduction units.

 

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**DPL — Depreciation andAmortization**

For the three monthsended March 31, 2010, depreciation and amortization expense increased $1.5million compared to the same period in 2009 primarily as a result of higherasset balances at the generating stations. The higher asset balances are primarily due to continuing capitalexpenditures on FGD projects and other plant-related asset acquisitions.

 

**DPL**—**Interest Expense**

For the three monthsended March 31, 2010, interest expense decreased $3.8 million primarilydue to the redemption of **DPL’s** $175million 8.00% Senior Notes in March 2009 combined with the earlyredemption in December 2009 of $52.4 million of the $195 million 8.125%Note to DPL Capital Trust II.

 

## **DPL— Income Tax Expense**

For the three monthsended March 31, 2010, income taxes decreased less than $0.1 millioncompared to the same period in 2009, primarily reflecting a decrease in theestimated annual effective tax rate.  Thedecrease in the estimated annual effective tax rate is primarily due toincreased benefits from the Section 199 Domestic Production Deduction.

 

**RESULTS OF OPERATIONS — DP&L**

 

**Income Statement Highlights — DP&L**

 
| ** **                                 | ** ** | **Three Months  Ended** | ** ** |
|--------------------------------------------|------------|-------------------------|------------|
| ** **                                 | ** ** | **March 31,**      | ** ** |
| **$ in millions**                     | ** ** | **2010**                | ** ** | **2009** | ** ** |
|                                       | ** ** | ** **              |       |   |   |
| **Revenues:**                              | ** ** | ** **              |       |   |   |
| Retail                                     | ** ** | **$**                   | **314.1**  |   | $ | 308.1 |   |
| Wholesale                                  | ** ** | **76.3**                |       | 41.0 |   |
| RTO revenues                               | ** ** | **20.2**                |       | 24.5 |   |
| RTO capacity revenues                      | ** ** | **27.4**                |       | 30.0 |   |
| Total revenues                             | ** ** | **$**                   | **438.0**  |   | $ | 403.6 |   |
|                                       | ** ** | ** **              |       |   |   |
| **Cost of revenues:**                      | ** ** | ** **              |       |   |   |
| Fuel costs                                 | ** ** | **$**                   | **101.0**  |   | $ | 101.7 |   |
| Gains from sale of coal                    | ** ** | **(0.2**                | **)**      | (20.7 | ) |
| Gains from sale of emission allowances     | ** ** | **(0.2**                | **)**      | (2.2 | ) |
| Net fuel                                   | ** ** | **100.6**               |       | 78.8 |   |
|                                       | ** ** | ** **              |       |   |   |
| Purchased power                            | ** ** | **13.6**                |       | 15.6 |   |
| RTO charges                                | ** ** | **30.5**                |       | 30.1 |   |
| RTO capacity charges                       | ** ** | **30.7**                |       | 36.4 |   |
| Recovery / (Deferral) of RTO expenses, net | ** ** | **(2.2**                | **)**      | (23.0 | ) |
| Total purchased power                      | ** ** | **72.6**                |       | 59.1 |   |
|                                       | ** ** | ** **              |       |   |   |
| Total cost of revenues                     | ** ** | **173.2**               |       | 137.9 |   |
|                                       | ** ** | ** **              |       |   |   |
| Gross margins (a)                          | ** ** | **$**                   | **264.8**  |   | $ | 265.7 |   |
|                                       | ** ** | ** **              |       |   |   |
| Gross margin as a percentage of revenues   | ** ** | **60.5**                | **%**      | 65.8 | % |
|                                       | ** ** | ** **              |       |   |   |
| **Operating Income**                       | ** ** | **$**                   | **118.4**  |   | $ | 124.8 |   |

 

----

*(a)**    **For purposes of discussingoperating results, we present and discuss gross margins. This format is usefulto investors because it allows analysis and comparability of operating trendsand includes the same information that is used by management to make decisionsregarding our financial performance.*

 

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**DP&L — Revenues**

Retail customers,especially residential and commercial customers, consume more electricity onwarmer and colder days. Therefore,**DP&L’s**retail sales volume is impacted by the number of heating and cooling degreedays occurring during a year.  Since**DP&L** plans to utilize its internal generating capacity to supplyits retail customers’ needs first, increases in retail demand will decrease thevolume of internal generation available to be sold in the wholesale market andvice versa.

 

Thewholesale market covers a multi-state area and settles on an hourly basisthroughout the year. Factors impacting**DP&L’s** wholesale sales volume each hour of the year includewholesale market prices;**DP&L’s**retail demand, retail demand elsewhere throughout the entire wholesale marketarea;**DP&L** and non-**DP&L** plants’ availability to sell intothe wholesale market and weather conditions across the multi-state region.**  DP&L’s**plan is to make wholesale sales when market prices allow for the economicoperation of its generation facilities that are not being utilized to meet itsretail demand.

 

The following tableprovides a summary of changes in revenues from the prior period:

 
| ** **                          | ** ** | **Three Months  Ended** | ** ** |
|-------------------------------------|------------|-------------------------|------------|
| ** **                          | ** ** | **March 31,**      | ** ** |
| **$ in millions**              | ** ** | **2010 vs. 2009**       | ** ** |
|                                |       |                    |       |
| **Retail**                          |       |                    |       |
| Rate                                |       | $                       | 6.3        |   |
| Volume                              |       | —                  |       |
| Other miscellaneous                 |       | (0.3                    | )          |
| **Total retail change**             | ** ** | **$**                   | **6.0**    | ** ** |
|                                |       |                    |       |
| **Wholesale**                       |       |                    |       |
| Rate                                |       | $                       | 19.6       |   |
| Volume                              |       | 15.7                    |       |
| **Total wholesale change**          | ** ** | **$**                   | **35.3**   | ** ** |
|                                |       |                    |       |
| **RTO capacity and other**          |       |                    |       |
| RTO capacity and other RTO revenues | ** ** | **$**                   | **(6.9**   | **)** |
| ** **                          | ** ** | ** **              | ** ** |
| **Total revenues change**           | ** ** | **$**                   | **34.4**   | ** ** |

 

For the three monthsended March 31, 2010, revenues increased $34.4 million, or 9%, to $438.0million from $403.6 million in the same period of the prior year.  Thisincrease was primarily the result of higher wholesale sales volumes combinedwith higher average retail and wholesale prices, partially offset by a decreasein RTO capacity and other RTO revenues.

 

·                  Retail revenues increased $6.0 million,primarily as a result of a 2% increase in average retail rates due largely tothe implementation of the fuel, TCRR, RPM, and energy efficiency riderscombined with the incremental effect of the recovery of costs under theEIR.  The effects of these increases werepartially offset by the impact of customers switching their generation servicefrom **DP&L** to DPLER, an affiliated CRESprovider.  **DP&L**continues to provide distribution services to those customers within itsservice territory who have elected to switch their generation service to DPLER.

 

·                  Wholesale revenues increased $35.3million for the three months ended March 31, 2010 primarily as a result ofa 38% increase in wholesale sales volume combined with an increase in averagewholesale prices due in large part to the effect of the customer switchingdiscussed in the immediately preceding paragraph.  This resulted in a favorable $19.6 millionwholesale price variance as well as a favorable wholesale volume variance of$15.7 million.

 

·                  RTO capacity and other RTO revenues,consisting primarily of compensation for use of **DP&L’s**transmission assets, regulation services, reactive supply and operatingreserves, and capacity payments under the RPM construct, decreased $6.9 millioncompared to the same period in 2009. This decrease to RTO capacity and other RTO revenues was primarily theresult of a $2.6 million decrease in revenues realized from the PJM capacityauction combined with a $4.3 million decrease in transmission and congestionrevenues.

 

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## **DP&L— Cost of Revenues**

For the three monthsended March 31, 2010:

 

·                  Fuel costs, which include coal, gas, oil,and emission allowance costs, increased $21.8 million, or 28%, compared to thesame period in 2009, primarily due to the impact of lower gains realized fromthe sale of **DP&L’s** coal and excessemission allowances.  During the firstthree months of 2010, **DP&L**realized $0.2 million and $0.2 million in gains from the sale of coal andexcess emission allowances, respectively, compared to $20.7 million and $2.2million, respectively, during the same period in 2009.  Also contributing to the increase in fuelcosts was the impact of a 4% increase in the volume of generation by ourplants.  The effect of these increaseswas partially offset by a 5% decrease in the average cost of fuel consumed perkilowatt-hour due largely to lower coal prices.

 

·                  Purchased power increased $13.5 million,or 23%, compared to the same period in 2009, primarily reflecting the impact ofthe deferral of **DP&L’s** transmission, capacityand other PJM-related charges which were incurred as a member of PJM.  During the first three months of 2010, **DP&L** deferred $2.2 million of such costs compared to$23.0 million during the same period in 2009. Also contributing to the higher purchased power costs was an increase of$4.2 million relating to higher average market prices.  The effects of these increases were partiallyoffset by the impact of higher generation at our plants that saw purchasedpower volumes decrease by an equivalent of $6.2 million, and also a $5.3million decrease in RTO capacity and other RTO charges over the same period in2009.  We purchase power to satisfy retail sales volume when generatingfacilities are not available due to planned and unplanned outages or whenmarket prices are below the marginal costs associated with our generatingfacilities.

 

**DP&L**—**Operation and Maintenance**

 
| ** **                                                | ** ** | **Three  Months Ended** | ** ** |
|-----------------------------------------------------------|------------|-------------------------|------------|
| ** **                                                | ** ** | **March 31,**      | ** ** |
| **$ in millions**                                    | ** ** | **2010  vs. 2009**      | ** ** |
| Energy efficiency  programs (1)                           |       | $                       | 4.2        |   |
| Pension                                                   |       | 1.2                     |       |
| Group insurance                                           |       | 1.0                     |       |
| Low-income payment  program (1)                           |       | 0.9                     |       |
| Generating facilities  operating and maintenance expenses |       | (3.1                    | )          |
| Other, net                                                |       | (0.5                    | )          |
| **Total  operation and maintenance expense**              |       | $                       | 3.7        |   |

 

----

(1)  There is acorresponding increase to revenues associated with these programs resulting inno impact to net income.

 

For the three months ended March 31, 2010,operation and maintenance expense increased $3.7 million, or 5%, compared tothe same period in 2009.  This variancewas primarily the result of:

 

·                  higher expenses relating to energyefficiency programs that were put in place for our customers during 2009,

 

·                  increased pension costs due largely to adecline in the values of pension plan assets from 2008 and increased benefitcosts,

 

·                  increased health insurance costs that werepartially due to higher disability reserves, and

 

·                  increased assistance for low-income retailcustomers which is funded by the USF revenue rate rider.

 

These increases were partially offset bydecreases in expenses for generating facilities largely due to lowermaintenance activity at jointly-owned production units.

 

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**DP&L — Depreciation andAmortization**

For the three monthsended March 31, 2010, depreciation and amortization expense increased $1.4million compared to the same period in 2009 primarily as a result of higherasset balances at the generating stations. The higher asset balances are primarily due to plant-related assetacquisitions.

 

## **DP&L— Income Tax Expense**

For the three monthsended March 31, 2010, income tax expense decreased $3.6 million, or 9%,compared to the same period in 2009, primarily reflecting a decrease in pre-taxbook income combined with a decrease in the effective tax rate resulting fromthe phase-out of the Ohio Franchise Tax and the increased benefits from the Section 199Domestic Production Deduction.

 

**DP&L —Investment Income**

For the three monthsended March 31, 2010, investment income decreased $1.0 million primarilydue to lower gains realized from **DP&L’s**Master Trust Plan used for deferred compensation distributions.  The lower gains were largely a result ofoverall lower market yields on investments in 2010 compared to 2009.

 

**FINANCIAL CONDITION, LIQUIDITY ANDCAPITAL REQUIREMENTS**

 

**DPL’s**financialcondition, liquidity and capital requirements include the results of itsprincipal subsidiary **DP&L**.  All material intercompany accounts andtransactions have been eliminated in consolidation.  The following table provides a summary of thecash flows for **DPL** and **DP&L**:

 

**DPL**

 
| ** **                                        | ** ** | **For the three months** | ** ** |
|---------------------------------------------------|------------|--------------------------|------------|
| ** **                                        | ** ** | **ended March 31,** | ** ** |
| **$ in millions**                            | ** ** | **2010**                 | ** ** | **2009** | ** ** |
|                                              | ** ** | ** **               |       |   |   |
| Net cash  provided by operating activities        | ** ** | **$**                    | **122.6**  |   | $ | 73.3 |   |
| Net cash  used for investing activities           | ** ** | **(71.3**                | **)**      | (42.9 | ) |
| Net cash  used for financing activities           | ** ** | **(37.3**                | **)**      | (66.3 | ) |
|                                              | ** ** | ** **               |       |   |   |
| Net change                                        | ** ** | **$**                    | **14.0**   |   | $ | (35.9 | ) |
| Cash and  cash equivalents at beginning of period | ** ** | **74.9**                 |       | 62.5 |   |
| Cash and  cash equivalents at end of period       | ** ** | **$**                    | **88.9**   |   | $ | 26.6 |   |

 

**DP&L**

 
| ** **                                        | ** ** | **For the three months** | ** ** |
|---------------------------------------------------|------------|--------------------------|------------|
| ** **                                        | ** ** | **ended March 31,** | ** ** |
| **$ in millions**                            | ** ** | **2010**                 | ** ** | **2009** | ** ** |
|                                              | ** ** | ** **               |       |   |   |
| Net cash  provided by operating activities        | ** ** | **$**                    | **134.8**  |   | $ | 64.3 |   |
| Net cash  used for investing activities           | ** ** | **(37.2**                | **)**      | (46.7 | ) |
| Net cash  used for financing activities           | ** ** | **(90.2**                | **)**      | (18.5 | ) |
|                                              | ** ** | ** **               |       |   |   |
| Net change                                        | ** ** | **$**                    | **7.4**    |   | $ | (0.9 | ) |
| Cash and  cash equivalents at beginning of period | ** ** | **57.1**                 |       | 20.8 |   |
| Cash and  cash equivalents at end of period       | ** ** | **$**                    | **64.5**   |   | $ | 19.9 |   |

 

The significant itemsthat have impacted the cash flows for **DPL** and **DP&L** are discussed in greater detail below:

 

**Net CashProvided by Operating Activities**

The tariff-based revenuefrom our energy business continues to be the principal source of cash fromoperating activities while our primary uses of cash include payments for fuel,purchased power, operation and maintenance expenses, interest and taxes.  Management believes that the diversifiedretail customer mix of residential, commercial and industrial classes coupledwith rate relief approved by the PUCO provides us with a reasonably predictablegross cash flow from operations.

 

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**DPL — Net Cash provided by Operating Activities**

**DPL’s** Net cash provided by operatingactivities for the three months ended March 31, 2010 and 2009 can besummarized as follows:

 
| ** **                                | ** ** | **Three Months  Ended** | ** ** |
|-------------------------------------------|------------|-------------------------|------------|
| ** **                                | ** ** | **March 31,**      | ** ** |
| **$ in millions**                    | ** ** | **2010**                | ** ** | **2009** | ** ** |
|                                      |       |                    |       |   |   |
| Earnings from continuing operations       | ** ** | **$**                   | **71.0**   |   | $ | 69.2 |   |
| Depreciation and amortization             | ** ** | **37.4**                |       | 35.9 |   |
| Deferred income taxes                     | ** ** | **10.5**                |       | 3.6 |   |
| Contribution to pension plan              | ** ** | **(20.0**               | **)**      | — |   |
| Regulatory expenditures under TCRR/RPM    | ** ** | **(2.2**                | **)**      | (9.5 | ) |
| Other                                     | ** ** | **25.9**                |       | (25.9 | ) |
| Net cash provided by operating activities | ** ** | **$**                   | **122.6**  |   | $ | 73.3 |   |

 

For thethree months ended March 31, 2010, Net cash provided by operatingactivities was primarily a result of Earnings from continuing operationsadjusted for noncash depreciation and amortization, combined with the followingsignificant transactions:

 

·      The $10.5million increase to Deferred income taxes primarily results from a $7.0 milliontemporary difference due to a pension contribution and other temporarydifferences arising from routine changes in balance sheet accounts.

 

·      In February 2010,**DP&L** contributed $20.0 millionto the defined benefit plan.

 

·      The $2.2million of cash used to pay for transmission, capacity and other PJM-relatedcosts incurred during 2010, net of recoveries. These costs are recorded as a Regulatory asset in accordance with theprovisions of GAAP relating to regulatory accounting (see Note 3 of Notes toCondensed Consolidated Financial Statements) and are expected to be collectedfrom customers in future periods.

 

·      Otherrepresents items that had a current period cash flow impact and includeschanges in working capital and other future rights or obligations to receive orto pay cash.  These items are primarilyimpacted by, among other factors, the timing of when cash payments are made forfuel, purchased power, operating costs, interest and taxes, and when cash isreceived from our utility customers and from the sales of coal and excessemission allowances.

 

For thethree months ended March 31, 2009,****Netcash provided by operating activities was primarily a result of Earnings fromcontinuing operations adjusted for noncash depreciation and amortization anddeferred income taxes, combined with the following significant transactions:

 

·      The $9.5million of cash used to pay for transmission, capacity and other PJM-relatedcosts incurred during the three months ended March 31, 2009.  These costs were recorded as a Regulatoryasset in accordance with the provisions of GAAP relating to regulatoryaccounting (see Note 3 of Notes to Condensed Consolidated Financial Statements)and are expected to be collected from customers during future years.

 

·      Otherrepresents items that had a current period cash flow impact and includeschanges in working capital and other future rights or obligations to receive orto pay cash, such as regulatory assets and liabilities.

 

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**DP&L — Net Cash provided by Operating Activities**

**DP&L’s** Net cash provided by operatingactivities for the three months ended March 31, 2010 and 2009 can besummarized as follows:

 
| ** **                                | ** ** | **Three Months  Ended** | ** ** |
|-------------------------------------------|------------|-------------------------|------------|
| ** **                                | ** ** | **March 31,**      | ** ** |
| **$ in millions**                    | ** ** | **2010**                | ** ** | **2009** | ** ** |
|                                      |       |                    |       |   |   |
| Net income                                | ** ** | **$**                   | **72.1**   |   | $ | 77.0 |   |
| Depreciation and amortization             | ** ** | **34.8**                |       | 33.4 |   |
| Deferred income taxes                     | ** ** | **9.9**                 |       | 3.3 |   |
| Contribution to pension plan              | ** ** | **(20.0**               | **)**      | — |   |
| Regulatory expenditures under TCRR/RPM    | ** ** | **(2.2**                | **)**      | (9.5 | ) |
| Other                                     | ** ** | **40.2**                |       | (39.9 | ) |
| Net cash provided by operating activities | ** ** | **$**                   | **134.8**  |   | $ | 64.3 |   |

 

For thethree months ended March 31, 2010 and 2009, the significant components of **DP&L’s** Net cash provided by operatingactivities are similar to those discussed under **DPL’s** Net cash provided by operating activities above.

 

**DPL and DP&L — Net Cash used for Investing Activities**

**DPL**and**DP&L’s**Net cashused for investing activities for the three months ended March 31, 2010and 2009 can be summarized as follows:

 
| ** **                                                 | ** ** | **Three Months  Ended** | ** ** |
|------------------------------------------------------------|------------|-------------------------|------------|
| ** **                                                 | ** ** | **March 31,**      | ** ** |
| **$ in millions**                                     | ** ** | **2010**                | ** ** | **2009** | ** ** |
|                                                       |       |                    |       |   |   |
| Environmental and renewable energy capital expenditures    |       | **$**                   | **(3.9**   | **)** | $ | (9.3 | ) |
| Other plant-related asset acquisitions, net                | ** ** | **(35.5**               | **)**      | (39.6 | ) |
| Other                                                      | ** ** | **2.2**                 |       | 2.2 |   |
| **DP&L’s**Net  cash used for investing activities | ** ** | **$**                   | **(37.2**  | **)** | $ | (46.7 | ) |
|                                                       |       |                    |       |   |   |
| Proceeds from maturity of short-term investments           | ** ** | **—**              |       | 10.1 |   |
| Purchases of short-term investments                        | ** ** | **(33.7**               | **)**      | (5.1 | ) |
| Other                                                      | ** ** | **(0.4**                | **)**      | (1.2 | ) |
| **DPL’s** Net cash used for investing  activities     | ** ** | **$**                   | **(71.3**  | **)** | $ | (42.9 | ) |

 

For bothperiods, the environmental-related capital expenditures relate to cash outflowsincurred during the installation and upgrades of equipment relating to FGD, SCRand alternative energy initiatives. Other plant-related asset acquisitions relate to investments in othergeneration, transmission and distribution equipment.

 

For thethree months ended March 31, 2010,**DP&L**continued to see reductions in its environmental capitalexpenditures due to the completion of FGD and SCR projects.  The expenditures incurred during 2010 relateprimarily to the construction of a solar energy facility at Yankeestation.  **DP&L** also continued to make upgrades and other investmentsin other generation, transmission and distribution equipment.  During this period, **DPL** also paid $33.7 million to purchaseVRDN securities from various institutional securities brokers.  The VRDN securities are backed by irrevocableletters of credit.  These securities havevariable coupon rates that are typically re-set weekly relative to variousshort-term rate indices.  **DPL** can tender these VRDN securities forsale upon notice to the broker and receive payment for the tendered securitieswithin seven days.

 

For thethree months ended March 31, 2009,**DP&L’s** cash outflows associated with environmental-relatedexpenditures primarily relate to FGD and SCR equipment installation.  During this period, **DPL** paid $5.1 million to purchase VRDNsecurities from various institutional securities brokers.  In addition, **DPL** received $5.0 million from the maturity of itsheld-to-maturity bond investments and $5.1 million from the tender of theaforementioned purchased VRDN securities.

 

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**DPL — Net Cash used for Financing Activities**

**DPL’s** Net cash used for financingactivities for the three months ended March 31, 2010 and 2009 can besummarized as follows:

 
| ** **                                 | ** ** | **Three Months  Ended** | ** ** |
|--------------------------------------------|------------|-------------------------|------------|
| ** **                                 | ** ** | **March 31,**      | ** ** |
| **$ in millions**                     | ** ** | **2010**                | ** ** | **2009** | ** ** |
|                                       |       |                    |       |   |   |
| Dividends paid on common stock             | ** ** | **$**                   | **(35.0**  | **)** | $ | (32.1 | ) |
| Repurchase of DPL common stock             | ** ** | **(3.9**                | **)**      | — |   |
| Retirement of long-term debt               | ** ** | **—**              |       | (175.0 | ) |
| Repurchase of warrants                     | ** ** | **—**              |       | (15.9 | ) |
| Withdrawals from revolving credit facility | ** ** | **—**              |       | 150.0 |   |
| Cash withdrawn from restricted funds       | ** ** | **—**              |       | 6.7 |   |
| Other                                      | ** ** | **1.6**                 |       | — |   |
| Net cash used for financing activities     | ** ** | **$**                   | **(37.3**  | **)** | $ | (66.3 | ) |

 

For thethree months ended March 31, 2010,**DPL**paid common stock dividends of $35 million. In addition, under a stock repurchase program approved by the Board ofDirectors in October 2009 (see Note 11 of Notes to Condensed ConsolidatedFinancial Statements), **DPL**repurchased approximately 145,915 **DPL**common shares for $3.9 million.

 

For thethree months ended March 31, 2009, **DPL**retired $175 million of long-term debt, paid common stock dividends of $32.1million, and repurchased approximately 7.1 million warrants at a total cost of$15.9 million.  **DPL’s** cash inflows included withdrawals of$150 million from its revolving credit facility and $6.7 million fromrestricted funds held in trust to pay for environmental-related capitalexpenditures.

 

**DP&L — Net Cash used for Financing Activities**

**DP&L’s** Net cash used for financingactivities for the three months ended March 31, 2010 and 2009 can besummarized as follows:

 
| ** **                                 | ** ** | **Three Months  Ended** | ** ** |
|--------------------------------------------|------------|-------------------------|------------|
| ** **                                 | ** ** | **March 31,**      | ** ** |
| **$ in millions**                     | ** ** | **2010**                | ** ** | **2009** | ** ** |
|                                       |       |                    |       |   |   |
| Dividends paid on common stock to parent   | ** ** | **$**                   | **(90.0**  | **)** | $ | (175.0 | ) |
| Withdrawals from revolving credit facility | ** ** | **—**              |       | 150.0 |   |
| Cash withdrawn from restricted funds       | ** ** | **—**              |       | 6.7 |   |
| Other                                      | ** ** | **(0.2**                | **)**      | (0.2 | ) |
| Net cash used for financing activities     | ** ** | **$**                   | **(90.2**  | **)** | $ | (18.5 | ) |

 

For thethree months ended March 31, 2010,**DP&L’s** net cash used for financing activities primarily relatesto $90 million in dividends paid to **DPL**

 

For thethree months ended March 31, 2009,**DP&L** paid $175 million in dividends to **DPL** and made withdrawals of $150 millionfrom its revolving credit facility and $6.7 million from restricted funds heldin trust to pay for environmental-related capital expenditures.

 

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**Liquidity**

We expectour existing sources of liquidity to remain sufficient to meet our anticipatedobligations.  Our business is capitalintensive, requiring significant resources to fund operating expenses,construction expenditures, scheduled debt maturities, and interest and dividendpayments.  For 2010 and in subsequentyears, we expect to satisfy these requirements with a combination of cash fromoperations and funds from the capital markets as our internal liquidity needsand market conditions warrant.  We alsoexpect that the borrowing capacity under credit facilities will continue to beavailable to manage working capital requirements during those periods.

 

At thefiling date of this quarterly report on Form 10-Q, **DP&L** has access to $420 million ofshort-term financing under two revolving credit facilities.  The first facility for $220 million expiresin November 2011 and has three participating banks; the lead bank has atotal commitment of 36% while the other two have commitments of 32% each.  The second facility, established in April 2010,is for $200 million and expires in April 2013.  A total of five banks participate in thisfacility, with no bank having more than 35% of the total commitment.

 
| **$ in millions** | ** ** | **Type**  | ** ** | **Maturity**  | ** ** | **Commitment** | ** ** | **Amounts  available as of  April 29, 2010** | ** ** |
|------------------------|------------|-----------|------------|---------------|------------|----------------|------------|----------------------------------------------|------------|
| ** **             |       |      |       |          |       |           |       |                                         |       |   |   |
| **DP&L**           |       | Revolving |       | November 2011 |       | $              | 220.0      |                                         | $          | 220.0 |   |
|                   |       |      |       |          |       |           |       |                                         |       |
| **DP&L**           |       | Revolving |       | April 2013    |       | $              | 200.0      |                                         | $          | 200.0 |   |
|                   |       |      |       |          |       | $              | 420.0      |                                         | $          | 420.0 |   |

 

Eachrevolving credit facility has a $50 million Letter of Credit (LOC)sublimit.  As of March 31, 2010 andthrough the date of filing this quarterly report on Form 10-Q, there wereno outstanding LOCs on either facility.

 

Cash andcash equivalents for **DPL** and **DP&L** amounted to $88.9 million and$64.5 million, respectively, at March 31, 2010.  At that date, **DPL** also had short-term investments amounting to $33.7million.

 

**Capital Requirements**

**DPL’s** construction additions were $30.2million and $29.8 million during the three month periods ended March 31,2010 and 2009, respectively.  **DPL** is expected to spend approximately $210million in 2010 on construction additions. Planned construction additions for 2010 relate to **DP&L’s** environmental complianceprogram, power plant equipment, and its transmission and distribution system.

 

**DP&L’s** construction additions were $29.8million and $29.2 million during the three month periods ended March 31,2010 and 2009, respectively.  **DP&L**is****expected to spend approximately $198 million in 2010 onconstruction additions.  Plannedconstruction additions for 2010 relate to **DP&L’s**environmental compliance program, power plant equipment, and its transmissionand distribution system.

 

Capitalprojects are subject to continuing review and are revised in light of changesin financial and economic conditions, load forecasts, legislative andregulatory developments and changing environmental standards, among otherfactors.  **DPL**, throughits subsidiary **DP&L**,****isprojecting to spend an estimated $610 million in capital projects for theperiod of 2010 through 2012.  Our abilityto complete capital projects and the reliability of future service will beaffected by our financial condition, the availability of internal funds, andthe reasonable cost of external funds. We expect to finance our construction additions with a combination ofcash on hand, short-term financing, long-term debt, and cash flows from operations.

 

**Debt**

On March 31,2009, **DPL** paid the $175 million8.00% Senior Notes when the notes became due.

 

**Debt Covenants**

There havebeen no material changes to our debt covenants as disclosed in our AnnualReport on Form 10-K for the fiscal year ended December 31, 2009.  We are in compliance with all of our debtcovenants.

 

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**Credit Ratings**

Thefollowing table outlines the debt credit ratings and outlook of each company,along with the effective dates of each rating and outlook for **DPL**and **DP&L**.

 
| ** **                             | ** ** | **DPL********Inc****.****(a)** | ** ** | **DP&L****(b)** | ** ** | **Outlook** | ** ** | **Effective**      |
|----------------------------------------|------------|--------------------------------|------------|---------------------|------------|-------------|------------|--------------------|
|                                   |       |                           |       |                |       |        |       |               |
| Fitch  Ratings                         |       | A-                             |       | AA-                 |       | Stable      |       | November 2009 |
| Moody’s  Investors Service        |       | Baa1                           |       | Aa3                 |       | Stable      |       | August 2009   |
| Standard &  Poor’s Corp. |       | BBB+                           |       | A                   |       | Stable      |       | April 2009    |

 

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*(a)** **Credit rating relates to **DPL’s** Senior Unsecured debt.*

*(b)** **Credit rating relates to **DP&L’s** Senior Secured debt.*

 

**Off-Balance Sheet Arrangements**

 

**DPL Inc. - Guarantees**

In thenormal course of business, **DPL**entersinto various agreements with its wholly-owned generating subsidiaries, DPLE andDPLER providing financial or performance assurance to third parties.  These agreements are entered into primarilyto support or enhance the creditworthiness otherwise attributed to DPLE andDPLER on a stand-alone basis, thereby facilitating the extension of sufficientcredit to accomplish DPLE’s and DPLER’s intended commercial purposes.  There have been no material changes to ourguarantees as disclosed in our Annual Report on Form 10-K for the fiscalyear ended December 31, 2009. Through March 31, 2010, neither **DPL**nor **DP&L** have incurred anylosses related to the guarantees of DPLE’s and DPLER’s obligations and webelieve it is unlikely that either **DPL**or **DP&L** would be required toperform or incur any losses in the future associated with any of the aboveguarantees of DPLE’s and DPLER’s obligations.

 

**Commercial Commitments and Contractual Obligations**

There havebeen no material changes, outside the ordinary course of business, to ourcommercial commitments and to the information disclosed in the contractualobligations table in our Annual Report on Form 10-K for the fiscal yearended December 31, 2009.

 

See Note 14of Notes to Condensed Consolidated Financial Statements.

 

**MARKET RISK**

 

We aresubject to certain market risks including, but not limited to, changes incommodity prices for electricity, coal, environmental emissions and gas andfluctuations in interest rates.  We usevarious market risk sensitive instruments, including derivative contracts,primarily to limit our exposure to fluctuations in commodity pricing.  Our Commodity Risk Management Committee(CRMC), comprised of members of senior management, is responsible forestablishing risk management policies and the monitoring and reporting of riskexposures relating to our **DP&L**-operatedgeneration units. The CRMC meets on a regular basis with the objective ofidentifying, assessing and quantifying material risk issues and developingstrategies to manage these risks.

 

**Commodity Pricing Risk**

 

Commoditypricing risk exposure includes the impacts of weather, market demand, increasedcompetition and other economic conditions. To manage the volatility relating to these exposures at our **DP&L**-operated generation units, we usea variety of non-derivative and derivative instruments including forwardcontracts and futures contracts.  Thesederivative instruments are used principally for economic hedging purposes andnone are held for trading purposes.  Themajority of our commodity contracts are not considered derivative instrumentsunder GAAP and are therefore excluded from MTM accounting.  Derivatives that fall within the scope ofderivative accounting under GAAP must be recorded at their fair value andmarked to market unless they qualify for hedge accounting.  MTM gains and losses on derivativeinstruments that qualify for hedge accounting are deferred in AOCI until theforecasted transaction occurs.  We adjustthe derivative instruments that do not qualify for cash flow hedging to fairvalue on a monthly basis and where applicable, we recognize a correspondingRegulatory asset for above-market costs or a Regulatory liability forbelow-market costs in accordance with Regulatory accounting under GAAP.

 

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The coal market hasincreasingly been influenced by both international and domestic supply andconsumption, making the price of coal more volatile than in the past, and whilewe have all of the total expected coal volume needed to meet our retail andfirm wholesale sales requirements for 2010 under contract, sales requirementsmay change, particularly for retail load. To the extent we are not able to hedge against price volatility orrecover increases through our fuel rider that began in January 2010; ourresults of operations, financial position or cash flows could be materiallyaffected.

 

Thefollowing table provides a reconciliation of the changes in the balance of ourcommodity derivatives included on our balance sheets at March 31, 2010:

 
| **$ in millions**                                       | ** ** | **2010** | ** ** |
|--------------------------------------------------------------|------------|----------|------------|
|                                                         |       |     |       |
| **Fair Value of Commodity Derivative  Contracts:**           |       |     |       |
| Outstanding net asset / (liability) at January 1,  2010 |       | $        | 1.4        |   |
| Gains / (losses) on settled contracts                        |       | 0.8      |       |
| Changes in fair value on contracts still held                |       | (4.3     | )          |
| Outstanding net asset / (liability) at March 31, 2010   |       | $        | (2.1       | ) |

 

The impactof the change in the fair values of the commodity derivative contracts between January 1,2010 and March 31, 2010 is detailed in the table below:

 
| ** **                                         | ** ** | **Three Months**        | ** ** |
|----------------------------------------------------|------------|------------------------------|------------|
| ** **                                         | ** ** | **Ended**                    | ** ** |
| **$ in millions**                        | ** ** | **March 31, 2010** | ** ** |
|                                               |       |                         |       |
| Effect on the statements of results of operations: |       | $                            | (2.1       | ) |
|                                               |       |                         |       |
| Effect on the balance sheets:                      |       |                         |       |
| Accumulated other comprehensive income             |       | $                            | 8.0        |   |
| Regulatory liability (net)                         |       | (6.0                         | )          |
| Partner payable                                    |       | (3.4                         | )          |
| Total net change on balance sheets                 |       | $                            | (1.4       | ) |
|                                               |       |                         |       |
| Total net change                                   |       | $                            | (3.5       | ) |

 

The netasset/liability of the MTM positions above is expected to mature within thenext three years.

 

For purposesof potential risk analysis, we use a sensitivity analysis to quantify potentialimpacts of market rate changes on the statements of results of operations.  The sensitivity analysis represents hypotheticalchanges in market values that may or may not occur in the future.

 

Approximately16% of **DPL’s** and 24% of **DP&L’s** electric revenues for the threemonths ended March 31, 2010 were from sales of excess energy and capacityin the wholesale market.  Energy inexcess of the needs of existing retail customers is sold in the wholesalemarket when we can identify opportunities with positive margins.

 

The tablebelow provides the effect on annual Net income as of March 31, 2010, of ahypothetical increase or decrease of 10% in the price per megawatt hour ofwholesale power:

 
| **$ in millions**                | ** ** | **DPL**    | ** ** | **DP&L** | ** ** |
|---------------------------------------|------------|------------|------------|--------------|------------|
| ** **                            | ** ** | ** ** | ** ** | ** **   | ** ** |
| Effect of 10% change in price per mWh |       | $          | 8.9        |         | $          | 15.0 |   |
|                                       |            |            |            |              |            |  |  |

 

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**DPL’s** fuel (including coal, gas, oil andemission allowances) and purchased power costs as a percentage of totaloperating costs in the three months ended March 31, 2010 and 2009 were 35%and 34%, respectively.  **DP&L’s** fuel (including coal, gas, oiland emission allowances) and purchased power costs as a percentage of totaloperating costs were 36% and 34% for the three months ended March 31,2010  and 2009, respectively.  We have substantially all of the totalexpected coal volume needed to meet our retail and firm wholesale salesrequirements for 2010 under contract. The majority of our contracted coal is purchased at fixed pricesalthough some contracts provide for periodic pricing adjustments.  We do not expect to purchase SO2 allowancesfor 2010; however, the exact consumption of SO2 allowanceswill depend on market prices for power, availability of our generation unitsand the actual sulfur content of the coal burned.  We do not plan to purchase NOx allowances for2010.  Fuel costs are impacted by changesin volume and price and are driven by a number of variables including weather,reliability of coal deliveries, scheduled outages and generation plant mix.

 

Purchasedpower costs depend, in part, upon the timing and extent of planned andunplanned outages of our generating capacity. We will purchase power on a discretionary basis when wholesale marketconditions provide opportunities to obtain power at a cost below our internalgeneration costs.

 

Effective January 1,2010, **DP&L** is allowed torecover its Ohio retail jurisdictional share of fuel and purchased power costs,of approximately 75%, as part of the fuel rider approved by the PUCO.  The table below provides the effect on annualNet income as of March 31, 2010, of a hypothetical increase or decrease of10% adjusted for the approximate 75% recovery in the prices of fuel andpurchased power:

 
| **$ in millions**                           | ** ** | **DPL**    | ** ** | **DP&L** | ** ** |
|--------------------------------------------------|------------|------------|------------|--------------|------------|
| ** **                                       | ** ** | ** ** | ** ** | ** **   | ** ** |
| Effect of 10% change in fuel and purchased power |       | $          | 7.6        |         | $          | 7.4 |   |
|                                                  |            |            |            |              |            |  |  |

 

**Interest Rate Risk**

As a resultof our normal investing and borrowing activities, our financial results areexposed to fluctuations in interest rates, which we manage through our regularfinancing activities.  We maintain bothcash on deposit and investments in cash equivalents that may be affected byinterest rate fluctuations.  **DPL** has fixed-rate long-term debt and **DP&L** has both fixed and variable-ratelong-term debt.  **DP&L’s** variable-rate debt is comprisedof publicly held pollution control bonds. The variable-rate bonds bear interest based on a prevailing rate that isreset weekly based on a comparable market index.  Market indices can be affected by marketdemand, supply, market interest rates and other economic conditions.

 

The carryingvalue of **DPL’s** debt was $1,324.0million at March 31, 2010, consisting of **DP&L’s**first mortgage bonds, **DP&L’s**tax-exempt pollution control bonds, **DP&L’s**revolving credit facilities, **DPL’s**unsecured notes and **DP&L’s**capital lease.  The fair value of thisdebt was $1,314.8 million, based on current market prices or discounted cashflows using current rates for similar issues with similar terms and remainingmaturities.  The following table providesinformation about **DPL’s** debtobligations that are sensitive to interest rate changes:

 

**Principal Payments and Interest Rate Detail by Contractual Maturity Date**

 

**DPL**

 
| ** **                  | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** **     | ** ** | **Carrying value at** | ** ** | **Fair value at** | ** ** |
|-----------------------------|------------|------------|------------|------------|------------|------------|------------|------------|------------|------------|------------|----------------|------------|---------------------------------|------------|-----------------------------|------------|
| ** **                  | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** **     | ** ** | **March 31,**              | ** ** | **March 31,**          | ** ** |
| **$ in millions** | ** ** | **2010**   | ** ** | **2011**   | ** ** | **2012**   | ** ** | **2013**   | ** ** | **2014**   | ** ** | **Thereafter** | ** ** | **2010 (a)**               | ** ** | **2010 (a)**           | ** ** |
| **Long-term debt**          |       |       |       |       |       |       |       |       |       |       |       |           |       |                            |       |                        |       |
|                        |       |       |       |       |       |       |       |       |       |       |       |           |       |                            |       |                        |       |
| Variable-rate debt          |       | $          | 100.0      |       | $          | —     |       | $          | —     |       | $          | —         |       | $                               | —     |                        | $          | — |   | $ | 100.0 | (b) | $ | 100.0 |   |
| Average interest rate       |       | 0.3        | %          | N/A        |       | N/A        |       | N/A        |       | N/A        |       | N/A            |       | 0.3                             | %          |                        |       |
|                        |       |       |       |       |       |       |       |       |       |       |       |           |       |                            |       |                        |       |
| Fixed-rate debt             |       | $          | 0.4        |       | $          | 297.4      |       | $          | —     |       | $          | 470.0          |       | $                               | —     |                        | $          | 456.2 |   | $ | 1,224.0 |   | $ | 1,214.8 |   |
| Average interest rate       |       | 1.8        | %          | 6.9        | %          | N/A        |       | 5.1        | %          | N/A        |       | 5.8            | %          | 5.8                             | %          |                        |       |
|                        |       |       |       |       |       |       |       |       |       |       |       |           |       |                            |       |                        |       |
| Total                       |       |       |       |       |       |       |       |       |       |       |       |           |       | $                               | 1,324.0    |                        | $          | 1,314.8 |   |

 

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| *(a)* | * * | *Fixed rate debt totals include  unamortized debt discounts.*                                                                                                                                                                                                     |
|-------|----------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| *(b)* | * * | *Shown as current since LOC facility will  expire in December 2010, at which point the bondholders could put the  bonds to **DP&L.**Management  continues to monitor and evaluate market conditions and intends to seek a  renewal of this standby LOC.* |

 

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The carryingvalue of **DP&L’s** debt was$884.1 million at March 31, 2010, consisting of its first mortgage bonds,tax-exempt pollution control bonds, revolving credit facilities and a capitallease.  The fair value of this debt was$854.5 million, based on current market prices or discounted cash flows usingcurrent rates for similar issues with similar terms and remainingmaturities.  The following table providesinformation about **DP&L’s** debtobligations that are sensitive to interest rate changes:

 

**Principal Payments and Interest Rate Detail by Contractual Maturity Date**

 

**DP&L**

 
| ** **             | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** **     | ** ** | **Carrying value at** | ** ** | **Fair value at**  | ** ** |
|------------------------|------------|------------|------------|------------|------------|------------|------------|------------|------------|------------|------------|----------------|------------|-----------------------|------------|--------------------|------------|
| ** **             | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** **     | ** ** | **March 31,**    | ** ** | **March 31,** | ** ** |
| **$ in millions** | ** ** | **2010**   | ** ** | **2011**   | ** ** | **2012**   | ** ** | **2013**   | ** ** | **2014**   | ** ** | **Thereafter** | ** ** | **2010 (a)**          | ** ** | **2010 (a)**       | ** ** |
| **Long-term debt**     |       |       |       |       |       |       |       |       |       |       |       |           |       |                  |       |               |       |
|                   |       |       |       |       |       |       |       |       |       |       |       |           |       |                  |       |               |       |
| Variable-rate debt     |       | $          | 100.0      |       | $          | —     |       | $          | —     |       | $          | —         |       | $                     | —     |               | $          | — |   | $ | 100.0 | (b) | $ | 100.0 |   |
| Average interest rate  |       | 0.3        | %          | N/A        |       | N/A        |       | N/A        |       | N/A        |       | N/A            |       | 0.3                   | %          |               |       |
|                   |       |       |       |       |       |       |       |       |       |       |       |           |       |                  |       |               |       |
| Fixed-rate debt        |       | $          | 0.4        |       | $          | —     |       | $          | —     |       | $          | 470.0          |       | $                     | —     |               | $          | 313.7 |   | $ | 784.1 |   | $ | 754.5 |   |
| Average interest rate  |       | 1.8        | %          | N/A        |       | N/A        |       | 5.1        | %          | N/A        |       | 4.8            | %          | 5.0                   | %          |               |       |
|                   |       |       |       |       |       |       |       |       |       |       |       |           |       |                  |       |               |       |
| Total                  |       |       |       |       |       |       |       |       |       |       |       |           |       | $                     | 884.1      |               | $          | 854.5 |   |

 

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| *(a)* | * * | *Fixed rate debt totals include  unamortized debt discounts.*                                                                                                                                                                                                     |
|-------|----------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| *(b)* | * * | *Shown as current since LOC facility will  expire in December 2010, at which point the bondholders could put the  bonds to **DP&L.**Management  continues to monitor and evaluate market conditions and intends to seek a  renewal of this standby LOC.* |

 

Debtmaturities occurring in 2010 are discussed under FINANCIAL CONDITION, LIQUIDITYAND CAPITAL REQUIREMENTS.

 

**Long-term Debt Interest Rate Risk Sensitivity Analysis**

Our estimateof market risk exposure is presented for our fixed-rate and variable-rate debtat March 31, 2010 and December 31, 2009 for which an immediateadverse market movement causes a potential material impact on our financialposition, results of operations, or the fair value of the debt.  We believe that the adverse market movementrepresents the hypothetical loss to future earnings and does not represent themaximum possible loss nor any expected actual loss, even under adverseconditions, because actual adverse fluctuations would likely differ.  As of March 31, 2010 and December 31,2009, we did not hold any market risk sensitive instruments which were enteredinto for trading purposes.

 

**DPL**

 
| ** **                  | ** ** | **Carrying value at** | ** ** | **Fair value at** | ** ** | **One Percent**   | ** ** | **Carrying value at** | ** ** | **Fair value at** | ** ** | **One Percent**   | ** ** |
|-----------------------------|------------|---------------------------------|------------|-----------------------------|------------|------------------------|------------|---------------------------------|------------|-----------------------------|------------|------------------------|------------|
| ** **                  | ** ** | **March 31,**              | ** ** | **March 31,**          | ** ** | **Interest Rate** | ** ** | **December 31,**           | ** ** | **December 31,**       | ** ** | **Interest Rate** | ** ** |
| **$ in millions** | ** ** | **2010**                        | ** ** | **2010**                    | ** ** | **Risk**               | ** ** | **2009**                        | ** ** | **2009**                    | ** ** | **Risk**               | ** ** |
| **Long-term debt**          |       |                            |       |                        |       |                   |       |                            |       |                        |       |                   |       |
|                        |       |                            |       |                        |       |                   |       |                            |       |                        |       |                   |       |
| Variable-rate debt          |       | $                               | 100.0      | (a)                         | $          | 100.0                  |       | $                               | 1.0        |                        | $          | 100.0                  |       | $ | 100.0 |   | $ | 1.0 |   |
|                        |       |                            |       |                        |       |                   |       |                            |       |                        |       |                   |       |
| Fixed-rate debt             |       | 1,224.0                         |       | 1,214.8                     |       | 12.1                   |       | 1,276.7                         |       | 1,214.3                     |       | 12.1                   |       |
|                        |       |                            |       |                        |       |                   |       |                            |       |                        |       |                   |       |
| Total                       |       | $                               | 1,324.0    |                        | $          | 1,314.8                |       | $                               | 13.1       |                        | $          | 1,376.7                |       | $ | 1,314.3 |   | $ | 13.1 |   |

 

**DP&L**

 
| ** **                  | ** ** | **Carrying value at** | ** ** | **Fair value at** | ** ** | **One Percent**   | ** ** | **Carrying value at** | ** ** | **Fair value at** | ** ** | **One Percent**   | ** ** |
|-----------------------------|------------|---------------------------------|------------|-----------------------------|------------|------------------------|------------|---------------------------------|------------|-----------------------------|------------|------------------------|------------|
| ** **                  | ** ** | **March 31,**              | ** ** | **March 31,**          | ** ** | **Interest Rate** | ** ** | **December 31,**           | ** ** | **December 31,**       | ** ** | **Interest Rate** | ** ** |
| **$ in millions** | ** ** | **2010**                        | ** ** | **2010**                    | ** ** | **Risk**               | ** ** | **2009**                        | ** ** | **2009**                    | ** ** | **Risk**               | ** ** |
| **Long-term debt**          |       |                            |       |                        |       |                   |       |                            |       |                        |       |                   |       |
|                        |       |                            |       |                        |       |                   |       |                            |       |                        |       |                   |       |
| Variable-rate debt          |       | $                               | 100.0      | (a)                         | $          | 100.0                  |       | $                               | 1.0        |                        | $          | 100.0                  |       | $ | 100.0 |   | $ | 1.0 |   |
|                        |       |                            |       |                        |       |                   |       |                            |       |                        |       |                   |       |
| Fixed-rate debt             |       | 784.1                           |       | 754.5                       |       | 7.5                    |       | 784.6                           |       | 733.5                       |       | 7.3                    |       |
|                        |       |                            |       |                        |       |                   |       |                            |       |                        |       |                   |       |
| Total                       |       | $                               | 884.1      |                        | $          | 854.5                  |       | $                               | 8.5        |                        | $          | 884.6                  |       | $ | 833.5 |   | $ | 8.3 |   |

 

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| *(a)* | * * | *Shown as current since LOC facility will  expire in December 2010, at which point the bondholders could put the  bonds to **DP&L.**Management  continues to monitor and evaluate market conditions and intends to seek a  renewal of this standby LOC.* |
|-------|----------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

 

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**DPL’s** debt is comprised of both fixed-ratedebt and variable-rate debt.  In regardto fixed rate debt, the interest rate risk with respect to **DPL’s**long-term debt, excluding capital lease obligations, primarily relates to thepotential impact a decrease of one percentage point in interest rates has onthe fair value of **DPL’s**$1,224.0million of fixed-rate debt and not on **DPL’s** financialposition or results of operations.  Onthe variable-rate debt, the interest rate risk with respect to **DPL’s** long-term debt represents the potential impact anincrease of one percentage point in the interest rate has on **DPL’s** results of operations related to **DP&L’s**$100 million variable-rate long-term debt outstanding as of March 31,2010.

 

**DP&L’s** interest rate risk with respect to **DP&L’s** long-term debt primarily relates to the potentialimpact a decrease in interest rates of one percentage point has on the fairvalue of **DP&L’s** $784.1 million of fixed-ratedebt and not on **DP&L’s** financial position or **DP&L’s**results of operations.  On the variable-rate debt, the interest raterisk with respect to **DP&L’s**long-term debt represents the potential impact an increase of one percentagepoint in the interest rate has on **DP&L’s**results of operations related to **DP&L’s**$100million variable-rate long-term debt outstanding as of March 31, 2010.

 

**CreditRisk**

Creditrisk is the risk of an obligor’s failure to meet the terms of any investmentcontract, loan agreement or otherwise perform as agreed. Credit risk arisesfrom all activities in which success depends on issuer, borrower orcounterparty performance, whether reflected on or off the balance sheet.  We limit our credit risk by assessing thecreditworthiness of potential counterparties before entering into transactionswith them and continue to evaluate their creditworthiness after transactionshave been originated.  We use the three leading corporate creditrating agencies and other current market-based qualitative and quantitativedata to assess the financial strength of counterparties on an ongoingbasis.   We may require various forms of credit assurance fromcounterparties in order to mitigate credit risk.

 

**CRITICAL ACCOUNTING ESTIMATES**

 

**DPL’s** and **DP&L’s**condensed consolidated financial statements are prepared in accordance withGAAP.  In connection with the preparationof 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 contingentliabilities.  These assumptions,estimates and judgments are based on our historical experience and assumptionsthat we believed to be reasonable at the time. However, because future events and their effects cannot be determinedwith certainty, the determination of estimates requires the exercise ofjudgment.  Our critical accountingestimates are those which require assumptions to be made about matters that arehighly uncertain.

 

Different estimates couldhave a material effect on our financial results. Judgments and uncertaintiesaffecting the application of these policies and estimates may result inmaterially different amounts being reported under different conditions orcircumstances.  Historically, however,recorded estimates have not differed materially from actual results.  Significant items subject to such judgmentsinclude: the carrying value of property, plant and equipment; unbilledrevenues; income taxes; valuation of regulatory assets and liabilities; thevaluation of insurance and claims costs; the valuation of assets andliabilities related to employee benefits; and the valuation of contingent andother obligations.  Actual results maydiffer from those estimates.  Refer toour Annual Report on Form 10-K for the fiscal year ended December 31,2009 for a complete listing of our critical accounting policies andestimates.  There have been no materialchanges to these critical accounting policies and estimates.

 

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**ELECTRICSALES AND REVENUES**

 
| ** **                               | ** ** | **DPL**                | ** **  | **DP&L (a)**       | ** ** |
|------------------------------------------|------------|------------------------|-------------|------------------------|------------|
| ** **                               | ** ** | **Three Months Ended** | ** **  | **Three Months Ended** | ** ** |
| ** **                               | ** ** | **March 31,**     | ** **  | **March 31,**     | ** ** |
| ** **                               | ** ** | **2010**               | ** **  | **2009**               | ** ** | **2010** | ** ** | **2009** | ** ** |
| Electric sales (millions of kWh)         |       |                   |        |                   |       |   |   |   |   |
| Residential                              | ** ** | **1,595**              |        | 1,601                  | ** ** | **1,595** |   | 1,601 |   |
| Commercial                               | ** ** | **886**                |        | 916                    | ** ** | **883** |   | 916 |   |
| Industrial                               | ** ** | **801**                |        | 760                    | ** ** | **800** |   | 760 |   |
| Other retail                             | ** ** | **337**                |        | 338                    | ** ** | **337** |   | 338 |   |
| Total retail                             | ** ** | **3,619**              |        | 3,615                  | ** ** | **3,615** |   | 3,615 |   |
|                                     |       |                   |        |                   |       |   |   |   |   |
| Wholesale                                | ** ** | **759**                |        | 571                    | ** ** | **746** |   | 540 |   |
|                                     |       |                   |        |                   |       |   |   |   |   |
| Total                                    | ** ** | **4,378**              |        | 4,186                  | ** ** | **4,361** |   | 4,155 |   |
|                                     |       |                   |        |                   |       |   |   |   |   |
| Operating revenues ($ in thousands) |       |                   |        |                   |       |   |   |   |   |
| Residential                              | ** ** | **$**                  | **180,086** |                   | $          | 160,251 | ** ** | **$** | **180,081** |   | $ | 160,251 |   |
| Commercial                               | ** ** | **89,000**             |        | 80,555                 | ** ** | **79,335** |   | 80,623 |   |
| Industrial                               | ** ** | **57,601**             |        | 53,841                 | ** ** | **37,240** |   | 45,086 |   |
| Other retail                             | ** ** | **26,427**             |        | 23,720                 | ** ** | **15,801** |   | 20,165 |   |
| Other miscellaneous revenues             | ** ** | **1,486**              |        | 1,975                  | ** ** | **1,683** |   | 1,992 |   |
| Total retail                             | ** ** | **354,600**            |        | 320,342                | ** ** | **314,140** |   | 308,117 |   |
|                                     |       |                   |        |                   |       |   |   |   |   |
| Wholesale                                | ** ** | **40,233**             |        | 30,904                 | ** ** | **76,342** |   | 41,078 |   |
|                                     |       |                   |        |                   |       |   |   |   |   |
| RTO revenues                             | ** ** | **53,428**             |        | 60,912                 | ** ** | **47,489** |   | 54,413 |   |
|                                     |       |                   |        |                   |       |   |   |   |   |
| Other revenues                           | ** ** | **2,937**              |        | 2,862                  | ** ** | **—** |   | — |   |
|                                     |       |                   |        |                   |       |   |   |   |   |
| Total                                    | ** ** | **$**                  | **451,198** |                   | $          | 415,020 | ** ** | **$** | **437,971** |   | $ | 403,608 |   |
|                                     |       |                   |        |                   |       |   |   |   |   |
| Electric customers at end of period      |       |                   |        |                   |       |   |   |   |   |
| Residential                              | ** ** | **456,813**            |        | 457,328                | ** ** | **456,813** |   | 457,328 |   |
| Commercial                               | ** ** | **50,417**             |        | 50,181                 | ** ** | **50,203** |   | 50,181 |   |
| Industrial                               | ** ** | **1,794**              |        | 1,798                  | ** ** | **1,773** |   | 1,798 |   |
| Other                                    | ** ** | **6,595**              |        | 6,520                  | ** ** | **6,595** |   | 6,520 |   |
|                                     |       |                   |        |                   |       |   |   |   |   |
| Total                                    | ** ** | **515,619**            |        | 515,827                | ** ** | **515,384** |   | 515,827 |   |

 

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*(a)*       ***DP&L****sells power to DPLER (a subsidiary of **DPL**). The revenues associated with these sales are classified as wholesalesales on **DP&L’s** financialstatements and retail sales for **DPL**.  The kWh volumes contain all volumesdistributed on the **DP&L**systemwhich include the retail sales by DPLER. The sales for resale volumes are omitted from **DP&L** to avoid duplicate reporting.*

 

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**Item 3. Quantitative and Qualitative Disclosures about Market Risk**

 

See the “MARKET RISK” section in Item 2 of this Part I.

 

**Item 4. Controls and Procedures**

 

Our Chief ExecutiveOfficer (CEO) and Chief Financial Officer (CFO) are responsible forestablishing and maintaining our disclosure controls and procedures.  These controls and procedures were designedto ensure that material information relating to us and our subsidiaries arecommunicated to the CEO and CFO.  Weevaluated these disclosure controls and procedures as of the end of the periodcovered by this report with the participation of our CEO and CFO.  Based on this evaluation, our CEO and CFOconcluded that our disclosure controls and procedures are effective: (i) toensure that information required to be disclosed by us in the reports that wefile or submit under the Exchange Act is recorded, processed, summarized andreported, within the time periods specified in the SEC’s rules and forms;and (ii) to ensure that information required to be disclosed by us in thereports that we submit under the Exchange Act is accumulated and communicatedto our management, including our principal executive and principal financialofficers, or persons performing similar functions, as appropriate, to allowtimely decisions regarding required disclosure.

 

There was nochange in our internal control over financial reporting during the three monthsended March 31, 2010 that has materially affected, or is reasonably likelyto materially affect, internal control over reporting.

 

**PART II**

 

**Item1 - Legal Proceedings**

 

In the normal course ofbusiness, we are subject to various lawsuits, actions, proceedings, claims andother matters asserted under laws and regulations.  We are also from time to time involved inother reviews, investigations and proceedings by governmental and regulatoryagencies regarding our business, certain of which may result in adversejudgments, settlements, fines, penalties, injunctions or other relief.  We believe the amounts provided in our ConsolidatedFinancial Statements, as prescribed by GAAP, for these matters are adequate inlight of the probable and estimable contingencies.  However, there can be no assurances that theactual amounts required to satisfy alleged liabilities from various legalproceedings, claims and other matters (including those matters noted below) andto comply with applicable laws and regulations will not exceed the amountsreflected in our Consolidated Financial Statements.  As such, costs, if any, that may be incurred inexcess of those amounts provided as of March 31, 2010, cannot bereasonably determined.

 

Our Annual Report on Form 10-Kfor the fiscal year ended December 31, 2009, and the Notes to theConsolidated Financial Statements included therein, contain descriptions ofcertain legal proceedings in which we are or were involved.  The information in this Item 1 of ourQuarterly Report on Form 10-Q is limited to certain recent developmentsconcerning our legal proceedings, as well as certain new legal proceedingssince the filing of such Annual Report on Form 10-K, and should be read inconjunction with our Annual Report on Form 10-K.  Information concerning the legal proceedingsdiscussed in Item 2 – UPDATES/OTHER MATTERS of Part I of this QuarterlyReport on Form 10-Q is incorporated by reference into this Item.

 

On May 16, 2007, **DPL** filed a claim with Energy InsuranceMutual (EIM) to recoup legal costs associated with our litigation againstcertain former executives.   On February 15,2010, after having engaged in both mediation and arbitration, **DPL** and EIM entered into a settlement agreement resolvingall coverage issues and finalizing all obligations in connection with theclaim, under which **DPL** received$3.4 million (net of associated expenses).

 

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**Item1a – Risk Factors**

 

Acomprehensive listing of risk factors that we consider to be the mostsignificant to your decision to invest in our stock is provided in our mostrecent Annual Report on Form 10-K. The Form 10-K may be obtained as discussed on Page 5 of thisreport.  If any of these events occur,our business, financial position or results of operation could be materiallyaffected.

 

**Item2 – Unregistered Sale of Equity Securities and Use of Proceeds**

 

The following tabledetails the repurchase by **DPL**of itscommon shares during the three months ended March 31, 2010:

 
| ** **       | ** ** | ** **           | ** ** | ** **           | ** ** | **Number of**        | ** ** | **Approximate  dollar**  | ** ** |
|------------------|------------|----------------------|------------|----------------------|------------|----------------------|------------|--------------------------|------------|
| ** **       | ** ** | ** **           | ** ** | ** **           | ** ** | **shares purchased** | ** ** | **value of shares**      | ** ** |
| ** **       | ** ** | **Number of**        | ** ** | **Average**          | ** ** | **as part of the**   | ** ** | **that could still  be** | ** ** |
| ** **       | ** ** | **shares**           | ** ** | **price paid**       | ** ** | **Stock Repurchase** | ** ** | **purchased under**      | ** ** |
| **Month****(1)** | ** ** | **purchased****(2)** | ** ** | **per share****(3)** | ** ** | **Program****(4)**   | ** ** | **the program****(4)**   | ** ** |
| ** **       | ** ** | ** **           | ** ** | ** **           |       |                 |       |                     |       |
| January          |       | 39,898               |       | $                    | 27.37      |                 | —     |                     | $          | 3,900,658 |   |
| February         |       | 149,069              |       | $                    | 26.71      |                 | 145,915    |                     | $          | — |   |
| March            |       | 702                  |       | $                    | 27.23      |                 | —     |                     | $          | — |   |
|             |       | 189,669              |       |                 |       | 145,915              |       |                     |       |

 

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*(1) Basedon a calendar month.*

 

*(2) Comprises shares purchased as part of **DPL**’**s** current repurchase program and shares surrendered to **DPL** by employees to satisfy individual tax withholdingobligations upon vesting of equity awards that are settled in **DPL** common stock. Shares totaling 43,754 were surrendered during the three months ended March 31,2010 to satisfy these individual tax withholding obligations.*

 

*(3) Average price paid per share reflects the individual tradeprice of repurchases under **DPL’s** currentrepurchase program as well as the closing price of **DPL**common stock on the vesting dates of the equity awards.*

 

*(4) On October 28, 2009, the **DPL**Board of Directors approved, and **DPL**publiclyannounced, a Stock Repurchase Program under which **DPL**mayuse proceeds from the exercise of warrants to repurchase warrants or **DPL**common stock from time to time in the open market,through private transactions or otherwise. At December 31, 2009, the amount available to be used under theStock Repurchase Program approximated $3.9 million.  This amount was effectively utilized duringthe three months ended March 31, 2010 to repurchase 145,915 shares of DPLcommon stock.  However, additional fundscould become available under the program to repurchase stock to the extent thatany of the 1.8 million warrants outstanding at March 31, 2010 areexercised for cash in the future.  TheStock Repurchase Program will run through June 30, 2012, which is approximatelythree months after the end of the warrant exercise period.*

 

**Item3 – Defaults Upon Senior Securities**

 

None

 

**Item4 – Removed and Reserved**

 

 

**Item5 – Other Information**

 

None

 

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**Item6 – Exhibits**

** **
| ** **   | ** ** | ** **   | ** ** | **Exhibit** | ** ** | ** **                                                                                                | ** ** | ** **                            |
|--------------|------------|--------------|------------|-------------|------------|-----------------------------------------------------------------------------------------------------------|------------|---------------------------------------|
| **DPL Inc.** | ** ** | **DP&L** | ** ** | **Number**  | ** ** | **Exhibit**                                                                                               | ** ** | **Location**                          |
| X            |       |         |       | 31(a)       |       | Certification  of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley  Act of 2002 |       | Filed  herewith as Exhibit 31(a) |
|         |       |         |       |        |       |                                                                                                      |       |                                  |
| X            |       |         |       | 31(b)       |       | Certification  of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley  Act of 2002 |       | Filed  herewith as Exhibit 31(b) |
|         |       |         |       |        |       |                                                                                                      |       |                                  |
|         |       | X            |       | 31(c)       |       | Certification  of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley  Act of 2002 |       | Filed  herewith as Exhibit 31(c) |
|         |       |         |       |        |       |                                                                                                      |       |                                  |
|         |       | X            |       | 31(d)       |       | Certification  of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley  Act of 2002 |       | Filed  herewith as Exhibit 31(d) |
|         |       |         |       |        |       |                                                                                                      |       |                                  |
| X            |       |         |       | 32(a)       |       | Certification  of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley  Act of 2002 |       | Filed  herewith as Exhibit 32(a) |
|         |       |         |       |        |       |                                                                                                      |       |                                  |
| X            |       |         |       | 32(b)       |       | Certification  of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley  Act of 2002 |       | Filed  herewith as Exhibit 32(b) |
|         |       |         |       |        |       |                                                                                                      |       |                                  |
|         |       | X            |       | 32(c)       |       | Certification  of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley  Act of 2002 |       | Filed  herewith as Exhibit 32(c) |
|         |       |         |       |        |       |                                                                                                      |       |                                  |
|         |       | X            |       | 32(d)       |       | Certification  of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley  Act of 2002 |       | Filed  herewith as Exhibit 32(d) |

 

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**SIGNATURES**

 

Pursuantto the requirements of the Securities Exchange Act of 1934, DPL Inc. and TheDayton Power and Light Company have duly caused this report to be signed ontheir behalf by the undersigned, thereunto duly authorized.

 
| ** ** | ** **          | **DPL Inc.**                            |
|------------|---------------------|-----------------------------------------|
| ** ** | ** **          | **The Dayton Power and Light  Company** |
|       |                | (Registrants)                           |
|       |                |                                    |
|       |                |                                    |
| Date:      | April 29, 2010 |                                    | /s/ Paul M. Barbas |
|       |                |                                    | Paul M. Barbas |
|       |                |                                    | President and Chief  Executive Officer |
|       |                |                                    | (principal executive  officer) |
|       |                |                                    |   |
|       |                |                                    |   |
|       | April 29, 2010 |                                    | /s/ Frederick J. Boyle |
|       |                |                                    | Frederick J. Boyle |
|       |                |                                    | Senior Vice President,  Chief Financial Officer, and Treasurer |
|       |                |                                    | (principal financial  officer) |
|       |                |                                    |   |
|       |                |                                    |   |
|       | April 29, 2010 |                                    | /s/ Joseph W. Mulpas |
|       |                |                                    | Joseph W. Mulpas |
|       |                |                                    | Vice President,  Controller and Chief Accounting Officer |
|       |                |                                    | (principal accounting  officer) |

 

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