** **

** **

**UNITEDSTATESSECURITIES 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, 2008** |
| ** **                                                | ** **                                                                                               |
| **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                                                                 |       |                                              |

 

Indicateby check mark whether each registrant (1) has filed all reports requiredto be filed by Section 13 or 15(d) of the Securities Exchange Act of1934 during the preceding 12 months (or for such shorter period that the registrantwas required to file such reports), and (2) has been subject to suchfiling requirements for the past 90 days.

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

 

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

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

 

Indicate by check mark whether eachregistrant is a shell company (as defined in Rule 12b-2 of the ExchangeAct).

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

 

As of April 21, 2008, each registrant had thefollowing shares of common stock outstanding:

 
| **Registrant**                          | ** ** | **Description**                   | ** ** | **Shares Outstanding** |
|-----------------------------------------|------------|-----------------------------------|------------|------------------------|
|                                    |       |                              |       |                   |
| **DPL Inc.**                            | ** ** | **Common Stock, $0.01 par value** |       | 113,609,122            |
| ** **                              | ** ** | ** **                        | ** ** | ** **             |
| **The Dayton Power and Light  Company** | ** ** | **Common Stock**                  |       | 41,172,173             |

 

This combined Form 10-Q is separately filed by DPLInc. and The Dayton Power and Light Company. Information contained herein relating to any individual registrant isfiled by such registrant on its own behalf. Each registrant makes no representation as to information relating to aregistrant other than itself.

 

 

----

** **

**DPL Inc. and The DaytonPower and Light Company**

 

**Index**

 

**Part I  Financial Information**

 
|   |   |                                                                                        | **Page No.** |
|--------|--------|---------------------------------------------------------------------------------------------|-------------------|
|   | Item 1 | Financial Statements  — **DPL** and **DP&L**                                       | ** **        |
|   |   |                                                                                        |              |
|   |   | Condensed  Consolidated Statements of Results of Operations — **DPL**                  | 4                 |
|   |   |                                                                                        |              |
|   |   | Condensed  Consolidated Statements of Cash Flows — **DPL**                             | 5                 |
|   |   |                                                                                        |              |
|   |   | Condensed  Consolidated Balance Sheet — **DPL**                                        | 6                 |
|   |   |                                                                                        |              |
|   |   | Condensed  Consolidated Statements of Results of Operations — **DP&L**             | 8                 |
|   |   |                                                                                        |              |
|   |   | Condensed  Consolidated Statements of Cash Flows — **DP&L**                        | 9                 |
|   |   |                                                                                        |              |
|   |   | Condensed  Consolidated Balance Sheet — **DP&L**                                   | 10                |
|   |   |                                                                                        |              |
|   |   | Notes to  Condensed Consolidated Financial Statements                                       | 12                |
|   |   |                                                                                        |              |
|   | Item 2 | Management’s  Discussion and Analysis of Financial Condition and Results of Operations | 25                |
|   |   |                                                                                        |              |
|   |   | Electric Sales and  Revenues                                                                | 43                |
|   |   |                                                                                        |              |
|   | Item 3 | Quantitative  and Qualitative Disclosures about Market Risk                                 | 44                |
|   |   |                                                                                        |              |
|   | Item 4 | Controls and  Procedures                                                                    | 44                |

## ** **

 

## **Part II  Other Information**

 
|   | Item 1  | Legal Proceedings                                            | 44     |
|--------|---------|--------------------------------------------------------------|--------|
|   |    |                                                         |   |
|   | Item 1A | Risk Factors                                                 | 45     |
|   |    |                                                         |   |
|   | Item 2  | Unregistered  Sales of Equity Securities and Use of Proceeds | 45     |
|   |    |                                                         |   |
|   | Item 3  | Defaults  Upon Senior Securities                             | 45     |
|   |    |                                                         |   |
|   | Item 4  | Submission  of Matters to a Vote of Security Holders         | 45     |
|   |    |                                                         |   |
|   | Item 5  | Other Information                                            | 45     |
|   |    |                                                         |   |
|   | Item 6  | Exhibits                                                     | 46     |

 

 

**Other**

 
| ** ** | Signatures     | 47     |
|------------|----------------|--------|
|       |           |   |   |
|       | Certifications | 48     |
|            |                |        |  |

 

2

----

 

**DPL Inc.** and **The Dayton Power and Light Company** filecurrent, annual and quarterly reports, proxy statements (**DPL Inc.**only),and other information required by the Securities Exchange Act of 1934, asamended, with the Securities and Exchange Commission (SEC).  You may read and copy any document we file atthe SEC’s public reference room located at 100 F Street N.E., Washington, D.C.20549, USA.  Please call the SEC at (800)SEC-0330 for further information on the public reference room.  Our SEC filings are also available to thepublic from the SEC’s web site at http://www.sec.gov.

 

Ourpublic internet site is http://www.dplinc.com. We make available, free of charge, through our internet site, our annualreports on Form 10-K, quarterly reports on Form 10-Q, current reportson Form 8-K, and Forms 3, 4 and 5 filed on behalf of our directors andexecutive officers, and amendments to those reports filed or furnished pursuantto the Securities Exchange Act of 1934, as amended, as soon as reasonablypracticable after we electronically file such material with, or furnish it to,the SEC.

 

In addition, our public internet site includes otheritems related to corporate governance matters, including, among other things,our governance guidelines, charters of various committees of the Board ofDirectors and our code of business conduct and ethics applicable to allemployees, officers and directors.  Youmay obtain copies of these documents, free of charge, by sending a request, inwriting, to DPL Investor Relations, 1065 Woodman Drive, Dayton, Ohio 45432.

 

 

**Part 1 — FinancialInformation**

 

Thisreport includes the combined filing of DPL Inc.**(DPL)**and The Dayton Power and Light Company **(DP&L).  DP&L**is the principalsubsidiary of **DPL**providing approximately 99% of**DPL’s**total consolidated revenue andapproximately 90% 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.

 

3

----

**Item 1 –Financial Statements**

 

**DPL INC.**

**CONDENSED CONSOLIDATED STATEMENTS OF RESULTS OFOPERATIONS**

 
| ** **                                                  | ** ** | **Three Months Ended** | ** ** |
|-------------------------------------------------------------|------------|------------------------|------------|
| ** **                                                  | ** ** | **March 31,**          | ** ** |
| **$ in millions except per share  amounts**            | ** ** | **2008**               | ** ** | **2007** | ** ** |
|                                                        |       |                   |       |   |   |
| **Revenues**                                                | ** ** | **$**                  | **416.1**  |   | $ | 379.7 |   |
|                                                        |       |                   |       |   |   |
| **Cost of revenues:**                                       | ** ** | ** **             | ** ** | ** ** | ** ** |
| Fuel                                                        | ** ** | **61.9**               |       | 90.3 |   |
| Purchased power                                             | ** ** | **83.0**               |       | 52.2 |   |
| Total cost of revenues                                      | ** ** | **144.9**              |       | 142.5 |   |
|                                                        |       |                   |       |   |   |
| **Gross margin**                                            | ** ** | **271.2**              |       | 237.2 |   |
|                                                        |       |                   |       |   |   |
| **Operating expenses:**                                     | ** ** | ** **             | ** ** | ** ** | ** ** |
| Operation and maintenance                                   | ** ** | **62.4**               |       | 69.3 |   |
| Depreciation and amortization                               | ** ** | **33.2**               |       | 33.5 |   |
| General taxes                                               | ** ** | **29.8**               |       | 28.0 |   |
| Amortization of regulatory assets                           | ** ** | **3.1**                |       | 2.9 |   |
| Total operating expenses                                    | ** ** | **128.5**              |       | 133.7 |   |
|                                                        |       |                   |       |   |   |
| **Operating income**                                        | ** ** | **142.7**              |       | 103.5 |   |
|                                                        |       |                   |       |   |   |
| Investment income                                           | ** ** | **1.7**                |       | 3.0 |   |
| Interest expense                                            | ** ** | **(21.0**              | **)**      | (23.1 | ) |
| Other income (deductions)                                   | ** ** | **(0.7**               | **)**      | 0.8 |   |
| **Earnings from continuing  operations before income tax**  | ** ** | **122.7**              |       | 84.2 |   |
|                                                        |       |                   |       |   |   |
| Income tax expense                                          | ** ** | **45.4**               |       | 33.0 |   |
| **Earnings from continuing  operations**                    | ** ** | **77.3**               |       | 51.2 |   |
| **Earnings from discontinued  operations, net of tax**      | ** ** | **—**             |       | 4.9 |   |
| **Net Income**                                              | ** ** | **$**                  | **77.3**   |   | $ | 56.1 |   |
|                                                        |       |                   |       |   |   |
| **Average number of common shares  outstanding (millions)** | ** ** | ** **             | ** ** | ** ** | ** ** |
| Basic                                                       | ** ** | **109.3**              |       | 107.5 |   |
| Diluted                                                     | ** ** | **116.4**              |       | 119.4 |   |
|                                                        |       |                   |       |   |   |
| **Earnings per share of common  stock**                     | ** ** | ** **             | ** ** | ** ** | ** ** |
| Basic:                                                      |       |                   |       |   |   |
| Earnings from continuing operations                         | ** ** | **$**                  | **0.71**   |   | $ | 0.48 |   |
| Earnings from discontinued operations                       | ** ** | **—**             |       | 0.04 |   |
| Total Basic                                                 | ** ** | **$**                  | **0.71**   |   | $ | 0.52 |   |
|                                                        |       |                   |       |   |   |
| Diluted:                                                    |       |                   |       |   |   |
| Earnings from continuing operations                         | ** ** | **$**                  | **0.66**   |   | $ | 0.43 |   |
| Earnings from discontinued operations                       | ** ** | **—**             |       | 0.04 |   |
| Total Diluted                                               | ** ** | **$**                  | **0.66**   |   | $ | 0.47 |   |
|                                                        |       |                   |       |   |   |
| **Dividends paid per share of  common stock**               | ** ** | **$**                  | **0.275**  |   | $ | 0.260 |   |

 

*See Notes to CondensedConsolidated Financial Statements.*

*These interim statements areunaudited.*

 

4

----

 

**DPL INC.**

**CONDENSEDCONSOLIDATED STATEMENTS OF CASH FLOWS**

 
| ** **                                                                         | ** ** | **Three Months Ended** | ** ** |
|------------------------------------------------------------------------------------|------------|------------------------|------------|
| ** **                                                                         | ** ** | **March 31,**          | ** ** |
| **$ in millions**                                                             | ** ** | **2008**               | ** ** | **2007** | ** ** |
|                                                                               |       |                   |       |   |   |
| **Cash flows from operating  activities:**                                         | ** ** | ** **             | ** ** | ** ** | ** ** |
| Net income                                                                         | ** ** | **$**                  | **77.3**   |   | $ | 56.1 |   |
| Less: Income from  discontinued operations                                         | ** ** | **—**             |       | (4.9 | ) |
| Income from continuing operations                                                  | ** ** | **77.3**               |       | 51.2 |   |
|                                                                               |       |                   |       |   |   |
| Adjustments to reconcile  net income to net cash provided by operating activities: |       |                   |       |   |   |
| Depreciation and amortization                                                      | ** ** | **33.2**               |       | 33.5 |   |
| Amortization of regulatory assets                                                  | ** ** | **3.1**                |       | 2.9 |   |
| Deferred income taxes                                                              | ** ** | **4.8**                |       | (1.7 | ) |
| Captive insurance provision                                                        | ** ** | **0.9**                |       | 1.3 |   |
| Changes in certain assets  and liabilities:                                        |       |                   |       |   |   |
| Accounts receivable                                                                | ** ** | **1.7**                |       | (23.3 | ) |
| Accounts payable                                                                   | ** ** | **5.6**                |       | 26.8 |   |
| Accrued taxes payable                                                              | ** ** | **17.0**               |       | 6.0 |   |
| Accrued interest payable                                                           | ** ** | **(4.8**               | **)**      | (14.5 | ) |
| Prepayments                                                                        | ** ** | **1.3**                |       | (1.1 | ) |
| Inventories                                                                        | ** ** | **11.2**               |       | (0.2 | ) |
| Deferred compensation assets                                                       | ** ** | **3.0**                |       | 7.7 |   |
| Deferred compensation obligations                                                  | ** ** | **(6.6**               | **)**      | 1.6 |   |
| Other                                                                              | ** ** | **2.0**                |       | 17.4 |   |
| **Net cash provided by operating activities**                                      | ** ** | **149.7**              |       | 107.6 |   |
|                                                                               |       |                   |       |   |   |
| **Cash flows from investing  activities:**                                         | ** ** | ** **             | ** ** | ** ** | ** ** |
| Capital expenditures                                                               | ** ** | **(65.3**              | **)**      | (91.0 | ) |
| **Net cash used for investing activities**                                         | ** ** | **(65.3**              | **)**      | (91.0 | ) |
|                                                                               |       |                   |       |   |   |
| **Cash flows from financing  activities:**                                         | ** ** | ** **             | ** ** | ** ** | ** ** |
| Exercise of stock options                                                          | ** ** | **1.1**                |       | 3.9 |   |
| Tax impact related to  exercise of stock options                                   | ** ** | **0.1**                |       | 1.4 |   |
| Retirement of long-term  debt                                                      | ** ** | **—**             |       | (225.0 | ) |
| Withdrawal of restricted  funds held in trust, net                                 | ** ** | **6.6**                |       | 10.1 |   |
| Dividends paid on common  stock                                                    | ** ** | **(29.9**              | **)**      | (27.8 | ) |
| Issuance of short-term  debt, net                                                  | ** ** | **—**             |       | 65.0 |   |
| **Net cash used for financing activities**                                         | ** ** | **(22.1**              | **)**      | (172.4 | ) |
|                                                                               |       |                   |       |   |   |
| **Cash and cash equivalents:**                                                     | ** ** | ** **             | ** ** | ** ** | ** ** |
| Net change                                                                         | ** ** | **62.3**               |       | (155.8 | ) |
| Balance at beginning of period                                                     | ** ** | **134.9**              |       | 262.2 |   |
| **Cash and cash equivalents at end of period**                                     | ** ** | **$**                  | **197.2**  |   | $ | 106.4 |   |
|                                                                               |       |                   |       |   |   |
| **Supplemental cash flow  information:**                                           | ** ** | ** **             | ** ** | ** ** | ** ** |
| Interest paid, net of  amounts capitalized                                         | ** ** | **$**                  | **24.7**   |   | $ | 36.4 |   |
| Income taxes paid, net                                                             | ** ** | **$**                  | **10.2**   |   | $ | 15.4 |   |
| Non-cash financing & investing  activities:                                    |       |                   |       |   |   |
| Restricted funds held in trust                                                     | ** ** | **$**                  | **30.3**   |   | $ | — |   |
| Accruals for capital expenditures                                                  | ** ** | **$**                  | **28.1**   |   | $ | 33.0 |   |

 

*See Notes to Condensed Consolidated FinancialStatements.*

*These interim statements are unaudited.*

 

 

5

----

 

**DPL INC.**

**CONDENSEDCONSOLIDATED BALANCE SHEETS**

** **

 
| ** **                                                                                     | ** ** | **At**        | ** **  | **At**           | ** ** |
|------------------------------------------------------------------------------------------------|------------|---------------|-------------|------------------|------------|
| ** **                                                                                     | ** ** | **March 31,** | ** **  | **December 31,** | ** ** |
| **$ in millions**                                                                         | ** ** | **2008**      | ** **  | **2007**         | ** ** |
|                                                                                           |       |          |        |             |       |
| **ASSETS**                                                                                     | ** ** | ** **    | ** **  | ** **       | ** ** |
|                                                                                           |       |          |        |             |       |
| **Current assets:**                                                                            | ** ** | ** **    | ** **  | ** **       | ** ** |
| Cash and cash equivalents                                                                      | ** ** | **$**         | **197.2**   |             | $          | 134.9 |   |
| Restricted funds held in trust                                                                 | ** ** | **30.3**      |        | 37.0             |       |
| Accounts receivable, less provision for uncollectible accounts of  $1.4 and $1.5, respectively |       | **239.5**     |        | 241.2            |       |
| Inventories, at average cost                                                                   | ** ** | **93.7**      |        | 105.0            |       |
| Taxes applicable to subsequent years                                                           | ** ** | **36.1**      |        | 48.0             |       |
| Other current assets                                                                           | ** ** | **13.7**      |        | 11.8             |       |
| Total current assets                                                                           | ** ** | **610.5**     |        | 577.9            |       |
|                                                                                           |       |          |        |             |       |
| **Property:**                                                                                  | ** ** | ** **    | ** **  | ** **       | ** ** |
| **Held and used:**                                                                             | ** ** | ** **    | ** **  | ** **       | ** ** |
| Property, plant and equipment                                                                  | ** ** | **5,057.2**   |        | 5,011.6          |       |
| Less: Accumulated depreciation and amortization                                                | ** ** | **(2,264.2**  | **)**       | (2,234.6         | )          |
| Total net property held and used                                                               | ** ** | **2,793.0**   |        | 2,777.0          |       |
|                                                                                           |       |          |        |             |       |
| **Other noncurrent assets:**                                                                   | ** ** | ** **    | ** **  | ** **       | ** ** |
| Regulatory assets                                                                              | ** ** | **162.2**     |        | 165.2            |       |
| Other deferred assets                                                                          | ** ** | **43.8**      |        | 46.5             |       |
| Total other noncurrent assets                                                                  | ** ** | **206.0**     |        | 211.7            |       |
|                                                                                           |       |          |        |             |       |
| **Total Assets**                                                                               | ** ** | **$**         | **3,609.5** | ** **       | **$**      | **3,566.6** | ** ** |

 

*See Notes to CondensedConsolidated Financial Statements.*

*These interim statements areunaudited.*

 

6

----

** **

**DPL INC.**

**CONDENSED CONSOLIDATED BALANCESHEETS**

** **

 
| ** **                                                      | ** ** | **At**        | ** **  | **At**           | ** ** |
|-----------------------------------------------------------------|------------|---------------|-------------|------------------|------------|
| ** **                                                      | ** ** | **March 31,** | ** **  | **December 31,** | ** ** |
| **$ in millions**                                          | ** ** | **2008**      | ** **  | **2007**         | ** ** |
|                                                            |       |          |        |             |       |
| **LIABILITIES AND SHAREHOLDERS'  EQUITY**                       |       |          |        |             |       |
|                                                            |       |          |        |             |       |
| **Current liabilities:**                                        | ** ** | ** **    | ** **  | ** **       | ** ** |
| Current portion - long-term debt                                |       | **$**         | **365.7**   |             | $          | 100.7 |   |
| Accounts payable                                                |       | **152.0**     |        | 163.1            |       |
| Accrued taxes                                                   |       | **115.9**     |        | 110.8            |       |
| Accrued interest                                                |       | **21.1**      |        | 25.8             |       |
| Other current liabilities                                       |       | **29.9**      |        | 27.2             |       |
| Total current liabilities                                       |       | **684.6**     |        | 427.6            |       |
|                                                            |       |          |        |             |       |
| **Noncurrent liabilities:**                                     | ** ** | ** **    | ** **  | ** **       | ** ** |
| Long-term debt                                                  |       | **1,276.5**   |        | 1,541.5          |       |
| Deferred taxes                                                  |       | **379.7**     |        | 374.9            |       |
| Unamortized investment tax credit                               |       | **40.0**      |        | 40.7             |       |
| Insurance and claims costs                                      |       | **20.9**      |        | 20.0             |       |
| Other deferred credits                                          |       | **264.4**     |        | 266.3            |       |
| Total noncurrent liabilites                                     |       | **1,981.5**   |        | 2,243.4          |       |
|                                                            |       |          |        |             |       |
| Cumulative preferred stock  not subject to mandatory redemption |       | **22.9**      |        | 22.9             |       |
|                                                            |       |          |        |             |       |
| Commitments and  contingencies (Note 9)                         |       |          |        |             |       |
|                                                            |       |          |        |             |       |
| **Common shareholders' equity:**                                | ** ** | ** **    | ** **  | ** **       | ** ** |
| Common stock, at par value of $0.01 per share:                  |       |          |        |             |       |
|                                                            |       | March  2008   |        | December  2007   |       |   |   |   |   |   |
| Shares authorized                                               |       | 250,000,000   |        | 250,000,000      |       |   |   |   |   |   |
| Shares issued                                                   |       | 163,724,211   |        | 163,724,211      |       |   |   |   |   |   |
| Shares outstanding                                              |       | 113,609,122   |        | 113,558,444      |       | ** ** | **1.1** |   | 1.1 |   |
| Warrants                                                        |       | **50.0**      |        | 50.0             |       |
| Common stock held by employee plans                             |       | **(36.5**     | **)**       | (39.7            | )          |
| Accumulated other comprehensive loss                            |       | **(11.2**     | **)**       | (9.2             | )          |
| Retained earnings                                               |       | **917.1**     |        | 870.5            |       |
| Total common shareholders' equity                               |       | **920.5**     |        | 872.7            |       |
|                                                            |       |          |        |             |       |
| **Total Liabilities and  Shareholders' Equity**                 |       | **$**         | **3,609.5** |             | $          | 3,566.6 |   |

 

*See Notes to CondensedConsolidated Financial Statements.*

*These interim statements are unaudited.*

 

7

----

 

**THE DAYTON POWER AND LIGHTCOMPANY**

**CONDENSEDCONSOLIDATED STATEMENTS OF RESULTS OF OPERATIONS**

 
| ** **                        | ** ** | **Three Months Ended** | ** ** |
|-----------------------------------|------------|------------------------|------------|
| ** **                        | ** ** | **March 31,**          | ** ** |
| **$ in millions**            | ** ** | **2008**               | ** ** | **2007** | ** ** |
|                              |       |                   |       |   |   |
| **Revenues**                      | ** ** | **$**                  | **413.9**  |   | $ | 377.5 |   |
|                              |       |                   |       |   |   |
| **Cost of revenues:**             | ** ** | ** **             | ** ** | ** ** | ** ** |
| Fuel                              | ** ** | **60.7**               |       | 89.5 |   |
| Purchased power                   | ** ** | **83.9**               |       | 52.7 |   |
| Total cost of revenues            | ** ** | **144.6**              |       | 142.2 |   |
|                              |       |                   |       |   |   |
| **Gross margin**                  | ** ** | **269.3**              |       | 235.3 |   |
|                              |       |                   |       |   |   |
| **Operating expenses:**           | ** ** | ** **             | ** ** | ** ** | ** ** |
| Operation and maintenance         | ** ** | **59.6**               |       | 59.4 |   |
| Depreciation and amortization     | ** ** | **30.7**               |       | 30.7 |   |
| General taxes                     | ** ** | **29.5**               |       | 27.6 |   |
| Amortization of regulatory assets | ** ** | **3.1**                |       | 2.9 |   |
| Total operating expenses          | ** ** | **122.9**              |       | 120.6 |   |
|                              |       |                   |       |   |   |
| **Operating income**              | ** ** | **146.4**              |       | 114.7 |   |
|                              |       |                   |       |   |   |
| Investment income                 | ** ** | **1.5**                |       | 1.5 |   |
| Interest expense                  | ** ** | **(6.6**               | **)**      | (5.4 | ) |
| Other income (deductions)         | ** ** | **(0.7**               | **)**      | 0.8 |   |
| **Earnings before income tax**    | ** ** | **140.6**              |       | 111.6 |   |
|                              |       |                   |       |   |   |
| Income tax expense                | ** ** | **51.6**               |       | 41.8 |   |
| **Net income**                    | ** ** | **$**                  | **89.0**   |   | $ | 69.8 |   |
|                              |       |                   |       |   |   |
| Preferred dividends               | ** ** | **0.2**                |       | 0.2 |   |
|                              |       |                   |       |   |   |
| **Earnings on common stock**      | ** ** | **$**                  | **88.8**   |   | $ | 69.6 |   |

 

*See Notes to CondensedConsolidated Financial Statements.*

*These interim statements areunaudited.*

 

8

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**THE DAYTONPOWER AND LIGHT COMPANY**

**CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS**

 
| ** **                                           | ** ** | **Three Months Ended** | ** ** |
|------------------------------------------------------|------------|------------------------|------------|
| ** **                                           | ** ** | **March 31,**     | ** ** |
| **$ in millions**                               | ** ** | **2008**               | ** ** | **2007** | ** ** |
|                                                 |       |                   |       |   |   |
| **Cash flows from operating  activities:**           | ** ** | ** **             | ** ** | ** ** | ** ** |
| Net income                                           | ** ** | **$**                  | **89.0**   |   | $ | 69.8 |   |
| Adjustments:                                         |       |                   |       |   |   |
| Depreciation and amortization                        | ** ** | **30.7**               |       | 30.7 |   |
| Amortization of regulatory assets                    | ** ** | **3.1**                |       | 2.9 |   |
| Deferred income taxes                                | ** ** | **4.3**                |       | (4.7 | ) |
| Changes in certain assets  and liabilities:          |       |                   |       |   |   |
| Accounts receivable                                  | ** ** | **(0.3**               | **)**      | (23.8 | ) |
| Accounts payable                                     | ** ** | **6.1**                |       | 25.7 |   |
| Accrued taxes payable                                | ** ** | **23.7**               |       | 20.5 |   |
| Accrued interest payable                             | ** ** | **2.7**                |       | 2.8 |   |
| Prepayments                                          | ** ** | **2.1**                |       | 0.1 |   |
| Inventories                                          | ** ** | **11.2**               |       | (0.2 | ) |
| Deferred compensation assets                         | ** ** | **4.9**                |       | 7.9 |   |
| Deferred compensation obligations                    | ** ** | **(6.6**               | **)**      | 1.6 |   |
| Other                                                | ** ** | **(3.0**               | **)**      | 14.2 |   |
| **Net cash provided by operating activities**        | ** ** | **167.9**              |       | 147.5 |   |
|                                                 |       |                   |       |   |   |
| **Cash flows from investing  activities:**           | ** ** | ** **             | ** ** | ** ** | ** ** |
| Capital expenditures                                 | ** ** | **(65.0**              | **)**      | (90.1 | ) |
| **Net cash used for investing activities**           | ** ** | **(65.0**              | **)**      | (90.1 | ) |
|                                                 |       |                   |       |   |   |
| **Cash flows from financing  activities:**           | ** ** | ** **             | ** ** | ** ** | ** ** |
| Issuance of short-term  debt, net                    | ** ** | **—**             |       | 65.0 |   |
| Withdrawal of restricted  funds held in trust, net   | ** ** | **6.6**                |       | 10.1 |   |
| Dividends paid on  preferred stock                   | ** ** | **(0.2**               | **)**      | (0.2 | ) |
| Payment of short-term debt                           | ** ** | **(20.0**              | **)**      | — |   |
| Dividends paid on common  stock to parent            | ** ** | **(80.0**              | **)**      | (125.0 | ) |
| **Net cash used for financing activities**           | ** ** | **(93.6**              | **)**      | (50.1 | ) |
|                                                 |       |                   |       |   |   |
| **Cash and cash equivalents:**                       | ** ** | ** **             | ** ** | ** ** | ** ** |
| Net change                                           | ** ** | **9.3**                |       | 7.3 |   |
| Balance at beginning of  period                      | ** ** | **13.2**               |       | 46.1 |   |
| **Cash and cash equivalents at end of period**       | ** ** | **$**                  | **22.5**   |   | $ | 53.4 |   |
|                                                 |       |                   |       |   |   |
| **Supplemental cash flow  information:**             | ** ** | ** **             | ** ** | ** ** | ** ** |
| Interest paid, net of amounts  capitalized           | ** ** | **$**                  | **3.1**    |   | $ | 1.8 |   |
| Income taxes paid, net                               | ** ** | **$**                  | **9.9**    |   | $ | 14.1 |   |
| Non-cash  financing & investing activities: |       |                   |       |   |   |
| Restricted funds held in trust                       | ** ** | **$**                  | **30.3**   |   | $ | — |   |
| Accruals for capital expenditures                    | ** ** | **$**                  | **28.1**   |   | $ | 33.0 |   |

 

*See Notes to Condensed ConsolidatedFinancial Statements.*

*These interim statements areunaudited.*

 

9

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**THE DAYTONPOWER AND LIGHT COMPANY**

**CONDENSEDCONSOLIDATED BALANCE SHEETS**

 
| ** **                                                                                     | ** ** | **At**             | ** **  | **At**                | ** ** |
|------------------------------------------------------------------------------------------------|------------|--------------------|-------------|-----------------------|------------|
| ** **                                                                                     | ** ** | **March 31,** | ** **  | **December 31,** | ** ** |
| **$ in millions**                                                                         | ** ** | **2008**           | ** **  | **2007**              | ** ** |
|                                                                                           |       |               |        |                  |       |
| **ASSETS**                                                                                     | ** ** | ** **         | ** **  | ** **            | ** ** |
|                                                                                           |       |               |        |                  |       |
| **Current assets:**                                                                            | ** ** | ** **         | ** **  | ** **            | ** ** |
| Cash and cash equivalents                                                                      | ** ** | **$**              | **22.5**    |                  | $          | 13.2 |   |
| Restricted funds held in trust                                                                 | ** ** | **30.3**           |        | 37.0                  |       |
| Accounts receivable, less provision for uncollectible accounts of  $1.4 and $1.5, respectively |       | **222.3**          |        | 221.8                 |       |
| Inventories, at average cost                                                                   | ** ** | **92.3**           |        | 103.6                 |       |
| Taxes applicable to subsequent years                                                           | ** ** | **36.0**           |        | 48.0                  |       |
| Other current assets                                                                           | ** ** | **14.5**           |        | 13.4                  |       |
| Total current assets                                                                           | ** ** | **417.9**          |        | 437.0                 |       |
|                                                                                           |       |               |        |                  |       |
| **Property:**                                                                                  | ** ** | ** **         | ** **  | ** **            | ** ** |
| Property, plant and equipment                                                                  | ** ** | **4,802.5**        |        | 4,757.0               |       |
| Less: Accumulated depreciation and amortization                                                | ** ** | **(2,186.4**       | **)**       | (2,159.1              | )          |
| Net property                                                                                   | ** ** | **2,616.1**        |        | 2,597.9               |       |
|                                                                                           |       |               |        |                  |       |
| **Other noncurrent assets:**                                                                   | ** ** | ** **         | ** **  | ** **            | ** ** |
| Regulatory assets                                                                              | ** ** | **162.2**          |        | 165.2                 |       |
| Other deferred assets                                                                          | ** ** | **64.3**           |        | 76.6                  |       |
| Total other noncurrent assets                                                                  | ** ** | **226.5**          |        | 241.8                 |       |
|                                                                                           |       |               |        |                  |       |
| **Total Assets**                                                                               | ** ** | **$**              | **3,260.5** |                  | $          | 3,276.7 |   |

 

*See Notesto Condensed Consolidated Financial Statements.*

*Theseinterim statements are unaudited.*

 

10

----

 

** **

**THE DAYTONPOWER AND LIGHT COMPANY**

**CONDENSEDCONSOLIDATED BALANCE SHEETS**

 
| ** **                                                      | ** ** | **At**             | ** **  | **At**                | ** ** |
|-----------------------------------------------------------------|------------|--------------------|-------------|-----------------------|------------|
| ** **                                                      | ** ** | **March 31,** | ** **  | **December 31,** | ** ** |
| **$ in millions**                                          | ** ** | **2008**           | ** **  | **2007**              | ** ** |
|                                                            |       |               |        |                  |       |
| **LIABILITIES AND SHAREHOLDER’S  EQUITY**                  |       |               |        |                  |       |
|                                                            |       |               |        |                  |       |
| **Current liabilities:**                                        | ** ** | ** **         | ** **  | ** **            | ** ** |
| Current portion - long-term debt                                | ** ** | **$**              | **90.7**    |                  | $          | 0.7 |   |
| Accounts payable                                                | ** ** | **151.4**          |        | 161.9                 |       |
| Accrued taxes                                                   | ** ** | **124.1**          |        | 112.7                 |       |
| Accrued interest                                                | ** ** | **15.8**           |        | 12.9                  |       |
| Short-term debt owed to parent                                  | ** ** | **—**         |        | 20.9                  |       |
| Other current liabilities                                       | ** ** | **29.6**           |        | 26.9                  |       |
| Total current liabilities                                       | ** ** | **411.6**          |        | 336.0                 |       |
|                                                            |       |               |        |                  |       |
| **Noncurrent liabilities:**                                     | ** ** | ** **         | ** **  | ** **            | ** ** |
| Long-term debt                                                  | ** ** | **784.5**          |        | 874.6                 |       |
| Deferred taxes                                                  | ** ** | **367.9**          |        | 367.0                 |       |
| Unamortized investment tax credit                               | ** ** | **40.0**           |        | 40.7                  |       |
| Other deferred credits                                          | ** ** | **264.3**          |        | 266.2                 |       |
| Total noncurrent liabilities                                    | ** ** | **1,456.7**        |        | 1,548.5               |       |
|                                                            |       |               |        |                  |       |
| Cumulative preferred stock  not subject to mandatory redemption | ** ** | **22.9**           |        | 22.9                  |       |
|                                                            |       |               |        |                  |       |
| Commitments and contingencies  (Note 9)                         |       |               |        |                  |       |
|                                                            |       |               |        |                  |       |
| **Common shareholder’s equity:**                           | ** ** | ** **         | ** **  | ** **            | ** ** |
| Common stock, at par value of $0.01 per share:                  | ** ** | **0.4**            |        | 0.4                   |       |
| Other paid-in capital                                           | ** ** | **782.5**          |        | 784.8                 |       |
| Accumulated other comprehensive income                          | ** ** | **(0.1**           | **)**       | 6.5                   |       |
| Retained earnings                                               | ** ** | **586.5**          |        | 577.6                 |       |
| Total common shareholder’s equity                          | ** ** | **1,369.3**        |        | 1,369.3               |       |
|                                                            |       |               |        |                  |       |
| **Total Liabilities and  Shareholder’s Equity**            | ** ** | **$**              | **3,260.5** |                  | $          | 3,276.7 |   |

 

*See Notesto Condensed Consolidated Financial Statements.*

*Theseinterim statements are unaudited.*

 

11

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**Notes toCondensed Consolidated Financial Statements**

 

**1.     Basisof Presentation**

 

**Description of Business**

**DPL**is a diversifiedregional energy company organized in 1985 under the laws of Ohio.  Our executive offices are located at 1065Woodman Drive, Dayton, Ohio 45432 — telephone (937) 224-6000.

 

**DPL’s** principal subsidiary isThe Dayton Power and Light Company**(DP&L)**.  **DP&L**is a public utility incorporated in 1911 under the laws of Ohio.  **DP&L**sells electricity to residential, commercial, industrial, and governmentalcustomers in 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 515,000 retailcustomers.  **DP&L** also purchases retail peak load requirements from DPLEnergy LLC (DPLE), one of **DPL’s** whollyowned subsidiaries.  Principal industriesserved include automotive, food processing, paper, plastic manufacturing, anddefense.

 

**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** significant subsidiaries (all of which arewholly owned) include DPLE, which engages in the operation of peakinggenerating facilities; DPL Energy Resources, Inc. (DPLER), which sellsretail electric energy under contract to major industrial and commercialcustomers in West Central Ohio; and Miami Valley Insurance Company (MVIC), ourcaptive insurance company that provides insurance sources to us and oursubsidiaries.  ** DP&L**has onesignificant subsidiary, DPL Finance Company, Inc., which is wholly ownedand provides financing to **DPL**, **DP&L,** and other affiliated companies.

 

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

 

**Financial Statement Presentation**

We prepare consolidated financial statements inaccordance with Generally Accepted Accounting Principles (GAAP) in the UnitedStates of America.  The condensedconsolidated financial statements include the accounts of **DPL** and **DP&L**and their majority-owned subsidiaries. Investments that are not majority owned are accounted for using theequity method when our investment allows us the ability to exert significantinfluence, as defined by GAAP.  Undividedinterests in jointly owned generation facilities are consolidated on a pro ratabasis.  All material intercompanyaccounts and transactions are eliminated in consolidation.  Interim results for the three months ended March 31,2008 may not be indicative of our results that will be realized for the fullyear ending December 31, 2008.

 

Pursuantto the Securities and Exchange Commission (SEC) rules, certain information andfootnote disclosures normally included in the annual financial statementsprepared in accordance with GAAP have been omitted from interim reports.Therefore, these financial statements should be read along with the annualfinancial statements included in our Annual Report of Form 10-K for thefiscal year ended December 31, 2007. In the opinion of our management, the condensed consolidated financialstatements contain all adjustments necessary to fairly state our financialcondition as of March 31, 2008; our results of operations for the threemonths ended March 31, 2008; and our cash flows for the three months endedMarch 31, 2008 in accordance with GAAP. Certain amounts from prior periods have been reclassified to conform tothe current reporting presentation.

 

**Estimates and Judgments**

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 at the date ofthe financial statements, and the revenue and expenses of the period reported. We record liabilities for probable estimated losses in accordance withStatement of Financial Accounting Standards No. 5 (SFAS 5), “Accountingfor Contingencies.”  To the extent a probable loss can only be estimatedby reference to a range of equally probable outcomes and no amount within therange appears to be a better estimate than any other amount, we accrue for thelow end of the range.  Because of uncertainties related to these matters,accruals are based on the best information available at the time.  Weevaluate the potential liability related to probable losses quarterly and mayrevise our estimates.  Judgments and uncertainties affecting theapplication of these estimates may result in materially different amounts beingreported under different conditions or circumstances that may affect ourfinancial position and results of operations.  Significant items subjectto such estimates and 

 

12

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judgmentsinclude: the carrying value of property, plant and equipment; unbilledrevenues; the valuation of derivative instruments; the valuation of insuranceand claims costs; the valuation of allowances for receivables and deferredincome taxes; regulatory assets and liabilities; reserves recorded for incometax exposures; litigation; contingencies; and assets and liabilities related toemployee benefits.

 

**Reclassifications**

During thequarter ended December 31, 2007, we identified immaterial changes incertain accounts payable balances that had not been correctly presented in ourprior period cash flow statements.  Changes in accounts payable balancesrepresenting capital expenditures had previously been classified with cashflows from operating activities and should have been classified with capitalexpenditures as part of investing activities.  Accordingly, the CondensedConsolidated Statements of Cash Flows for all periods presented have beenreclassified to conform to the current presentation.  As a result of thesereclassifications, cash provided by operating activities for **DPL** increased by $10.5 million from $97.1million to $107.6 million for the three months ended March 31, 2007. Thissame adjustment also increased cash used for capital expenditures frominvesting activities to $91.0 million from $80.5 million for the three monthsended March 31, 2007.  Cash provided by operating activities for **DP&L** increased by $10.5 million from$137.0 million to $147.5 million for the three months ended March 31,2007. This same adjustment also increased cash used for capital expendituresfrom investing activities to $90.1 million from $79.6 million for the threemonths ended March 31, 2007.  Thereclassifications did not impact operating income or net income, workingcapital, any earnings per share measures or net change in cash, and cashequivalents as previously reported.

 

**TaxesCollected from Customers****and Remitted to****GovernmentalAuthorities**

**DP&L** collectscertain excise taxes levied by state or local governmentsfrom its customers. **DP&L’S**excise taxes are accounted for on a gross basis and recorded as revenues in theaccompanying Condensed Consolidated Statements of Results of Operations for thethree months ended March 31, 2008 andMarch 31, 2007 as follows:

 
| ** **             | ** ** | **Three Months  Ended** | ** ** | **Three Months  Ended** | ** ** |
|------------------------|------------|------------------------------|------------|------------------------------|------------|
| **$ in millions** | ** ** | **March 31. 2008** | ** ** | **March 31, 2007** | ** ** |
|                   |       | $                            | 14.4       |                         | $          | 14.2 |   |
|                        |            |                              |            |                              |            |  |  |

 

**Recently Adopted Accounting Standards**

 

**Accountingfor Fair Value Measurements**

Weadopted Statement of Financial Accounting Standards No. 157, “Fair ValueMeasurements” (SFAS 157), on January 1, 2008.  SFAS 157 applies whenever other standardsrequire (or permit) assets or liabilities to be measured at fair value.  SFAS 157 clarifies the principle that fairvalue should be based on the assumptions market participants would use whenpricing the asset or liability.  Insupport of this principle, SFAS 157 establishes a fair value hierarchy thatprioritizes the information used to develop those standards.  The fair value hierarchy gives the highestpriority to quoted prices in active markets and the lowest priority tounobservable data, for example, the reporting entity’s own data.  Under SFAS 157, fair value measurements wouldbe separately disclosed by level within the fair value hierarchy.  SFAS 157 does not expand the use of fairvalue in any new circumstances.  SFAS 157did not have a material effect on our overall results of operations, financialposition, or cash flows.  See Note 7 ofNotes to Condensed Consolidated Financial Statements.

 

**Amendmentof FASB Interpretation No. 39 “Offsetting of Amounts Related to CertainContracts”**

Weadopted Staff Position FIN 39-1, “Amendment of FASB Interpretation 39” (FSP FIN39-1), on January 1, 2008.  FSP FIN39-1 amends paragraph 10 of FIN 39 to “permit a reporting entity to offset fairvalue amounts recognized for the right to reclaim cash collateral (areceivable) or the obligation to return cash collateral (a payable) againstfair value amounts recognized for derivative instruments executed with the samecounterparty under the same master netting arrangement that have been offset inaccordance with that paragraph.”  We donot have receivables or payables in relation to cash collateral.  All collateral either posted or received isin the form of a letter of credit or parental guarantee.  FSP FIN 39-1 did not have a material effecton our overall results of operations, financial position, or cash flows.

 

**Accountingfor Income Tax Benefits of Dividends on Share-Based Payment Awards**

Weadopted EITF Issue No. 06-11, “Accounting for Income Tax Benefits ofDividends on Share-Based Payment Awards” (EITF 06-11), on January 1,2008.  The FASB ratified the EITFconsensus that a realized income tax benefit from dividends that are charged toretained earnings, and are paid to employees for equity classified non-vestedequity shares, should be recognized as an increase in additionalpaid-in-capital and should be included in the pool of excess tax benefitsavailable to absorb potential future tax deficiencies on share-based paymentawards.  EITF 06-11 did not have amaterial effect on our overall results of operations, financial position, orcash flows.

 

13

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**Recently Issued Accounting Standards**

 

**BusinessCombinations**

InDecember 2007, the FASB issued Statement of Financial Accounting StandardsNo. 141R, “Business Combinations” (SFAS 141R), effective for fiscal yearsbeginning after December 15, 2008. Under SFAS 141R, an acquiring entity in a business combination isrequired to recognize all assets acquired and liabilities assumed in the transaction.  The revised standard also establishes theacquisition-date fair value as the measurement objective for all assetsacquired and liabilities assumed.  The rule requiresan acquirer to disclose all of the information users may need to evaluate andunderstand the nature and financial effect of the business combination.  We are currently evaluating SFAS 141R and donot expect these new rules to have a material impact on our overallresults of operations, financial position, or cash flows.

 

**Non-controllingInterests in Consolidated Financial Statements**

InDecember 2007, the FASB issued Statement of Financial Accounting StandardsNo. 160, “Non-controlling Interests in Consolidated Financial Statements —an amendment of ARB No. 51” (SFAS 160), effective for fiscal yearsbeginning after December 15, 2008. SFAS 160 requires all entities to report non-controlling (minority)interests in subsidiaries as equity in the consolidated financialstatements.  Its intention is to eliminatethe diversity in practice regarding the accounting for transactions between anentity and non-controlling interests.  Weare currently evaluating the impact of SFAS 160 and do not expect these new rules tohave a material impact on our overall results of operations, financial positionor cash flows.

 

**Disclosuresabout Derivative Instruments and Hedging Activities**

InMarch 2008, the FASB issued Statement of Financial Accounting Standards No. 161,“Disclosures about Derivative Instruments and Hedging Activities-an amendmentto FASB Statement No. 133” (SFAS 161), effective for fiscal yearsbeginning after November 15, 2008. SFAS 161 requires an entity to provide enhanced disclosures about (a) howand why an entity uses derivative instruments, (b) how derivativeinstruments and related hedged items are accounted for under SFAS 133 and itsrelated interpretations, and (c) how derivative instruments and relatedhedged items affect an entity’s financial position, financial performance, andcash flows.  We are currently evaluatingSFAS 161 and do not expect these new rules to have a material impact onour overall results of operations, financial position, or cash flows.

 

14

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**2.     SupplementalFinancial Information**

** **
| **DPL Inc.**                                       | ** **            | **At**             | ** **  | **At**                | ** ** |
|----------------------------------------------------|-----------------------|--------------------|-------------|-----------------------|------------|
| ** **                                         | ** **            | **March 31,** | ** **  | **December 31,** | ** ** |
| **$**                                              | ** in millions** | ** **         | **2008**    | ** **            | **2007**   | ** ** |
|                                               |                  |               |        |                  |       |
| **Accounts receivable, net:**                      | ** **            | ** **         | ** **  | ** **            | ** ** |
| Retail customers                                   | ** **            | **$**              | **82.0**    |                  |       | $ | 71.7 |   |
| Unbilled revenue                                   | ** **            | ** **         | **64.4**    |                  |       | 68.4 |   |
| Partners in commonly-owned plants                  | ** **            | **48.1**           |        | 56.7                  |       |
| PJM including financial transmission rights        | ** **            | **23.0**           |        | 23.2                  |       |
| Wholesale customers                                | ** **            | **12.1**           |        | 12.7                  |       |
| Refundable franchise tax                           | ** **            | **5.2**            |        | 5.2                   |       |
| Other                                              | ** **            | **6.1**            |        | 4.8                   |       |
| Provision for uncollectible accounts               | ** **            | **(1.4**           | **)**       | (1.5                  | )          |
| **Total accounts receivable, net**                 | ** **            | **$**              | **239.5**   |                  | $          | 241.2 |   |
|                                               |                  |               |        |                  |       |
| **Inventories, at average cost:**                  | ** **            | ** **         | ** **  | ** **            | ** ** |
| Fuel and emission allowances                       | ** **            | **$**              | **59.0**    |                  | $          | 70.5 |   |
| Plant materials and supplies                       | ** **            | **34.2**           |        | 34.1                  |       |
| Other                                              | ** **            | **0.5**            |        | 0.4                   |       |
| **Total inventories, at average cost**             | ** **            | **$**              | **93.7**    |                  | $          | 105.0 |   |
|                                               |                  |               |        |                  |       |
| **Other current assets:**                          | ** **            | ** **         | ** **  | ** **            | ** ** |
| Prepayments                                        | ** **            | **$**              | **5.5**     |                  | $          | 5.9 |   |
| Current deferred income taxes                      | ** **            | **3.0**            |        | 2.1                   |       |
| Deposits and other advances                        | ** **            | **1.2**            |        | 1.1                   |       |
| Other                                              | ** **            | **4.0**            |        | 2.7                   |       |
| **Total other current assets**                     | ** **            | **$**              | **13.7**    |                  | $          | 11.8 |   |
| ** **                                         | ** **            | ** **         | ** **  | ** **            | ** ** |
| **Property, plant and equipment:**                 | ** **            | ** **         | ** **  | ** **            | ** ** |
| Construction work in process                       | ** **            | **$**              | **322.3**   |                  | $          | 364.5 |   |
| Property, plant and equipment                      | ** **            | **4,734.9**        |        | 4,647.1               |       |
| **Total property, plant and equipment**            | ** **            | **$**              | **5,057.2** |                  | $          | 5,011.6 |   |
| ** **                                         | ** **            | ** **         | ** **  | ** **            | ** ** |
| **Other deferred assets:**                         | ** **            | ** **         | ** **  | ** **            | ** ** |
| Prepaid pension                                    | ** **            | **$**              | **11.1**    |                  | $          | 9.9 |   |
| Unamortized debt expense                           | ** **            | **10.6**           |        | 10.9                  |       |
| Investments                                        | ** **            | **8.5**            |        | 8.8                   |       |
| Commercial activities tax benefit                  | ** **            | **6.8**            |        | 6.8                   |       |
| Master Trust assets                                | ** **            | **6.4**            |        | 9.6                   |       |
| Other                                              | ** **            | **0.4**            |        | 0.5                   |       |
| **Total other deferred assets**                    | ** **            | **$**              | **43.8**    |                  | $          | 46.5 |   |
|                                               |                  |               |        |                  |       |
| **Accounts payable:**                              | ** **            | ** **         | ** **  | ** **            | ** ** |
| Trade payables                                     | ** **            | **$**              | **67.1**    |                  | $          | 65.6 |   |
| Fuel accruals                                      | ** **            | **39.6**           |        | 34.4                  |       |
| Other                                              | ** **            | **45.3**           |        | 63.1                  |       |
| **Total accounts payable**                         | ** **            | **$**              | **152.0**   |                  | $          | 163.1 |   |
|                                               |                  |               |        |                  |       |
| **Other current liabilities:**                     | ** **            | ** **         | ** **  | ** **            | ** ** |
| Customer security deposits                         | ** **            | **$**              | **19.5**    |                  | $          | 19.2 |   |
| Low income service plan                            | ** **            | **2.9**            |        | 2.2                   |       |
| Pension and retiree benefits payable               | ** **            | **0.8**            |        | 0.8                   |       |
| Other                                              | ** **            | **6.7**            |        | 5.0                   |       |
| **Total other current liabilities**                | ** **            | **$**              | **29.9**    |                  | $          | 27.2 |   |
|                                               |                  |               |        |                  |       |
| **Other deferred credits:**                        | ** **            | ** **         | ** **  | ** **            | ** ** |
| Asset retirement obligations - regulated property  | ** **            | **$**              | **92.7**    |                  | $          | 91.5 |   |
| Taxes payable                                      | ** **            | **66.4**           |        | 65.3                  |       |
| Pension and retiree benefits                       | ** **            | **39.9**           |        | 40.6                  |       |
| SECA net revenue subject to refund                 | ** **            | **20.1**           |        | 20.1                  |       |
| Deferred compensation obligations                  | ** **            | **16.2**           |        | 20.4                  |       |
| Asset retirement obligations - generation property | ** **            | **12.5**           |        | 12.5                  |       |
| Litigation and claims reserve                      | ** **            | **5.1**            |        | 4.3                   |       |
| Employee benefit reserves                          | ** **            | **4.3**            |        | 4.3                   |       |
| Customer advances in aid of construction           | ** **            | **3.4**            |        | 3.5                   |       |
| Other                                              | ** **            | **3.8**            |        | 3.8                   |       |
| **Total other deferred credits**                   | ** **            | **$**              | **264.4**   |                  | $          | 266.3 |   |
|                                                    |                       |                    |             |                       |            |  |  |  |  |  |  |

 

15

----

 
| **DP&L**                                       | ** ** | **At**             | ** **  | **At**                | ** ** |
|----------------------------------------------------|------------|--------------------|-------------|-----------------------|------------|
| ** **                                         | ** ** | **March 31,** | ** **  | **December 31,** | ** ** |
| **$ in millions**                             | ** ** | **2008**           | ** **  | **2007**              | ** ** |
|                                               |       |               |        |                  |       |
| **Accounts receivable, net:**                      | ** ** | ** **         | ** **  | ** **            | ** ** |
| Retail customers                                   | ** ** | **$**              | **82.0**    |                  | $          | 71.8 |   |
| Unbilled revenue                                   | ** ** | **57.3**           |        | 60.5                  |       |
| Partners in commonly-owned plants                  | ** ** | **48.1**           |        | 56.7                  |       |
| PJM including financial transmission rights        | ** ** | **23.0**           |        | 23.1                  |       |
| Wholesale customers                                | ** ** | **4.1**            |        | 3.5                   |       |
| Refundable franchise tax                           | ** ** | **3.1**            |        | 3.1                   |       |
| Other                                              | ** ** | **6.1**            |        | 4.6                   |       |
| Provision for uncollectible accounts               | ** ** | **(1.4**           | **)**       | (1.5                  | )          |
| **Total accounts receivable, net**                 | ** ** | **$**              | **222.3**   |                  | $          | 221.8 |   |
|                                               |       |               |        |                  |       |
| **Inventories, at average cost:**                  | ** ** | ** **         | ** **  | ** **            | ** ** |
| Fuel and emission allowances                       | ** ** | **$**              | **59.0**    |                  | $          | 70.5 |   |
| Plant materials and supplies                       | ** ** | **32.8**           |        | 32.7                  |       |
| Other                                              | ** ** | **0.5**            |        | 0.4                   |       |
| **Total inventories, at average cost**             | ** ** | **$**              | **92.3**    |                  | $          | 103.6 |   |
|                                               |       |               |        |                  |       |
| **Other current assets:**                          | ** ** | ** **         | ** **  | ** **            | ** ** |
| Prepayments                                        | ** ** | **$**              | **6.3**     |                  | $          | 7.5 |   |
| Current deferred income taxes                      | ** ** | **3.0**            |        | 2.1                   |       |
| Deposits and other advances                        | ** ** | **0.9**            |        | 0.9                   |       |
| Other                                              | ** ** | **4.3**            |        | 2.9                   |       |
| **Total other current assets**                     | ** ** | **$**              | **14.5**    |                  | $          | 13.4 |   |
| ** **                                         | ** ** | ** **         | ** **  | ** **            | ** ** |
| **Property, plant and equipment:**                 | ** ** | ** **         | ** **  | ** **            | ** ** |
| Construction work in process                       | ** ** | **$**              | **322.1**   |                  | $          | 363.8 |   |
| Property, plant and equipment                      | ** ** | **4,480.4**        |        | 4,393.2               |       |
| **Total property, plant and equipment**            | ** ** | **$**              | **4,802.5** |                  | $          | 4,757.0 |   |
| ** **                                         | ** ** | ** **         | ** **  | ** **            | ** ** |
| **Other deferred assets:**                         | ** ** | ** **         | ** **  | ** **            | ** ** |
| Master Trust assets                                | ** ** | **$**              | **42.9**    |                  | $          | 56.0 |   |
| Prepaid pension                                    | ** ** | **11.0**           |        | 9.9                   |       |
| Unamortized debt expense                           | ** ** | **9.5**            |        | 9.6                   |       |
| Other                                              | ** ** | **0.9**            |        | 1.1                   |       |
| **Total other deferred assets**                    | ** ** | **$**              | **64.3**    |                  | $          | 76.6 |   |
|                                               |       |               |        |                  |       |
| **Accounts payable:**                              | ** ** | ** **         | ** **  | ** **            | ** ** |
| Trade payables                                     | ** ** | **$**              | **67.0**    |                  | $          | 64.8 |   |
| Fuel accruals                                      | ** ** | **39.1**           |        | 34.1                  |       |
| Other                                              | ** ** | **45.3**           |        | 63.0                  |       |
| **Total accounts payable**                         | ** ** | **$**              | **151.4**   |                  | $          | 161.9 |   |
|                                               |       |               |        |                  |       |
| **Other current liabilities:**                     | ** ** | ** **         | ** **  | ** **            | ** ** |
| Customer security deposits                         | ** ** | **$**              | **19.5**    |                  | $          | 19.2 |   |
| Low income service plan                            | ** ** | **2.9**            |        | 2.2                   |       |
| Pension and retiree benefits payable               | ** ** | **0.8**            |        | 0.8                   |       |
| Other                                              | ** ** | **6.4**            |        | 4.7                   |       |
| **Total other current liabilities**                | ** ** | **$**              | **29.6**    |                  | $          | 26.9 |   |
|                                               |       |               |        |                  |       |
| **Other deferred credits:**                        | ** ** | ** **         | ** **  | ** **            | ** ** |
| Asset retirement obligations - regulated property  | ** ** | **$**              | **92.7**    |                  | $          | 91.5 |   |
| Taxes payable                                      | ** ** | **66.4**           |        | 65.3                  |       |
| Pension and retiree benefits                       | ** ** | **39.8**           |        | 40.5                  |       |
| SECA net revenue subject to refund                 | ** ** | **20.1**           |        | 20.1                  |       |
| Deferred compensation obligations                  | ** ** | **16.2**           |        | 20.4                  |       |
| Asset retirement obligations - generation property | ** ** | **12.5**           |        | 12.5                  |       |
| Litigation and claims reserve                      | ** ** | **5.1**            |        | 4.3                   |       |
| Employee benefit reserves                          | ** ** | **4.3**            |        | 4.3                   |       |
| Customer advances in aid of construction           | ** ** | **3.4**            |        | 3.5                   |       |
| Other                                              | ** ** | **3.8**            |        | 3.8                   |       |
| **Total other deferred credits**                   | ** ** | **$**              | **264.3**   |                  | $          | 266.2 |   |

 

16

----

 

**DPL Inc.**

 
| ** **                                                       | ** ** | **Three Months Ended March 31,** | ** ** |
|------------------------------------------------------------------|------------|---------------------------------------|------------|
| **$ in millions**                                           | ** ** | **2008**                              | ** ** | **2007** | ** ** |
| **Cash flows - other:**                                          | ** ** | ** **                            | ** ** | ** ** | ** ** |
| Deposits and other advances                                      | ** ** | **$**                                 | **0.2**    |   | $ | 16.1 |   |
| Other                                                            | ** ** | **1.8**                               |       | 1.3 |   |
| **Total cash flows - other**                                     | ** ** | **$**                                 | **2.0**    |   | $ | 17.4 |   |
|                                                             |       |                                  |       |   |   |
| **Comprehensive income:**                                        | ** ** | ** **                            | ** ** | ** ** | ** ** |
| Net income                                                       | ** ** | **$**                                 | **77.3**   |   | $ | 56.1 |   |
| Net change in unrealized gains (losses) on financial instruments |       | **(0.2**                              | **)**      | 0.4 |   |
| Net change in deferred gains (losses) on cash flow hedges        | ** ** | **(3.4**                              | **)**      | (3.6 | ) |
| Minimum pension liability                                        | ** ** | **0.5**                               |       | 0.6 |   |
| Deferred income taxes related to unrealized gains and (losses)   | ** ** | **1.1**                               |       | 1.1 |   |
| **Comprehensive income**                                         | ** ** | **$**                                 | **75.3**   |   | $ | 54.6 |   |

 

**DP&L**

 
| ** **                                                       | ** ** | **Three Months Ended March 31,** | ** ** |
|------------------------------------------------------------------|------------|---------------------------------------|------------|
| **$ in millions**                                           | ** ** | **2008**                              | ** ** | **2007** | ** ** |
|                                                             |       |                                  |       |   |   |
| **Cash flows - other:**                                          | ** ** | ** **                            | ** ** | ** ** | ** ** |
| Deposits and other advances                                      | ** ** | **$**                                 | **0.3**    |   | $ | 15.5 |   |
| Other                                                            | ** ** | **(3.3**                              | **)**      | (1.3 | ) |
| **Total cash flows - other**                                     | ** ** | **$**                                 | **(3.0**   | **)** | $ | 14.2 |   |
|                                                             |       |                                  |       |   |   |
| **Comprehensive income:**                                        | ** ** | ** **                            | ** ** | ** ** | ** ** |
| Net income                                                       | ** ** | **$**                                 | **89.0**   |   | $ | 69.8 |   |
| Net change in unrealized gains (losses) on financial instruments |       | **(8.2**                              | **)**      | 8.4 |   |
| Net change in deferred gains (losses) on cash flow hedges        | ** ** | **(3.4**                              | **)**      | (3.6 | ) |
| Minimum pension liability                                        | ** ** | **0.5**                               |       | 0.6 |   |
| Deferred income taxes related to unrealized gains and (losses)   | ** ** | **4.5**                               |       | (1.4 | ) |
| **Comprehensive income**                                         | ** ** | **$**                                 | **82.4**   |   | $ | 73.8 |   |

 

**3.     DiscontinuedOperations**

 

On February 13, 2005, **DPL’s**subsidiaries, MVE, Inc. (MVE) and MVIC, entered into an agreement to selltheir respective interests in forty-six private equity funds toAlpInvest/Lexington 2005, LLC, a joint venture of AlpInvest Partners andLexington Partners, Inc.  During2005, MVE and MVIC completed the sale of their interests in forty-three and aportion of another of those private equity funds. During 2005, MVE entered intoalternative closing arrangements with AlpInvest/Lexington 2005, LLC for fundswhere legal title to said funds could not be transferred until a later time.  Pursuant to these arrangements, MVEtransferred the economic aspects of the remaining private equity funds,consisting of two funds and a portion of one fund, to AlpInvest/Lexington 2005,LLC without a change in ownership of the interests.  The ownership interest in these funds wastransferred in 2006 and 2007, at which time **DPL**recognized previously deferred gains. During the  three months ended March 31,2007, $7.9 million ($4.9 million after tax) of deferred gains were recorded indiscontinued operations.   There were nodiscontinued operations recorded during the three months ended March 31,2008.

 

17

----

 

**4.             Long-termDebt**

 
| ** **                                                            | ** ** | **At**             | ** **  | **At**                | ** ** |
|-----------------------------------------------------------------------|------------|--------------------|-------------|-----------------------|------------|
| **DPL Inc.**                                                          | ** ** | **March 31,** | ** **  | **December 31,** | ** ** |
| **$ in millions**                                                | ** ** | **2008**           | ** **  | **2007**              | ** ** |
| DP&L - First mortgage bonds maturing 2013 - 5.125%                |       | **$**              | **470.0**   |                  | $          | 470.0 |   |
| DP&L - Pollution control series maturing 2036 - 4.80%             |       | **100.0**          |        | 100.0                 |       |
| DP&L - Pollution control series maturing 2040 - variable rate     |       | **—**         |        | 90.0                  |       |
| DP&L - Pollution control series maturing through 2034 - 4.78% (a) |       | **214.4**          |        | 214.4                 |       |
| ** **                                                            |       | **784.4**          |        | 874.4                 |       |
|                                                                  |       |               |        |                  |       |
| DPL Inc. - Note to Capital  Trust II 8.125% due 2031                  | ** ** | **195.0**          |        | 195.0                 |       |
| DPL Inc. - Senior Notes  6.875% Series due 2011                  | ** ** | **297.4**          |        | 297.4                 |       |
| DPL Inc. - Senior Notes  8.00% Series due 2009                   | ** ** | **—**         |        | 175.0                 |       |
| DP&L - Obligations for  capital leases                            | ** ** | **1.1**            |        | 1.3                   |       |
| Unamortized debt discount                                             |       | **(1.4**           | **)**       | (1.6                  | )          |
| Total                                                                 |       | **$**              | **1,276.5** |                  | $          | 1,541.5 |   |

----

*(a)   Weightedaverage interest rate for quarters ended March 31, 2008 and 2007.*

 
| ** **                                                            | ** ** | **At**             | ** ** | **At**                | ** ** |
|-----------------------------------------------------------------------|------------|--------------------|------------|-----------------------|------------|
| **DP&L**                                                          | ** ** | **March 31,** | ** ** | **December 31,** | ** ** |
| **$ in millions**                                                | ** ** | **2008**           | ** ** | **2007**              | ** ** |
| DP&L - First mortgage bonds maturing 2013 - 5.125%                |       | **$**              | **470.0**  |                  | $          | 470.0 |   |
| DP&L - Pollution control series maturing 2036 - 4.80%             |       | **100.0**          |       | 100.0                 |       |
| DP&L - Pollution control series maturing 2040 - variable rate     |       | **—**         |       | 90.0                  |       |
| DP&L - Pollution control series maturing through 2034 - 4.78% (a) |       | **214.4**          |       | 214.4                 |       |
| ** **                                                            |       | **784.4**          |       | 874.4                 |       |
|                                                                  |       |               |       |                  |       |
| DP&L - Obligations for  capital leases                            | ** ** | **1.1**            |       | 1.3                   |       |
| Unamortized debt discount                                             |       | **(1.0**           | **)**      | (1.1                  | )          |
| Total                                                                 |       | **$**              | **784.5**  |                  | $          | 874.6 |   |

----

*(a)   Weightedaverage interest rate for quarters ended March 31, 2008 and 2007.*

 

At March 31, 2008, **DPL’s** scheduled maturities of long-termdebt, including capital lease obligations, over the next five years are $365.7million through March 31, 2009; $0.7 million from April 1, 2009through March 31, 2010; $0.4 million from April 1, 2010 through March 31,2011; $297.4 million from April 1, 2011 through March 31, 2012; andnone from April 1, 2012 through March 31, 2013.

 

At March 31, 2008, **DP&L’s** scheduled maturities oflong-term debt, including capital lease obligations, over the next five yearsare $90.7 million through March 31, 2009; $0.7 million from April 1,2009 through March 31, 2010; $0.4 million from April 1, 2010 through March 31,2011; and none from April 1, 2011 through March 31, 2013.  Substantially all property of **DP&L** is subject to the mortgage liensecuring the first mortgage bonds.

 

AtMarch 31, 2008, the Senior Notes 8.0% due March 31, 2009, are reflected withinthe current portion of long-term debt in **DPL’s**CondensedConsolidated Balance Sheet.

 

OnMarch 1, 2007, pursuant to our strategy of reducing long-term debt, **DPL** redeemed the $225 million 8.25% Senior Notes when theybecame due.

 

18

----

 

Duringthe three months ended March 31, 2006, the Ohio Department of Development(ODOD) awarded **DP&L** the ability to issue,over the next three years, up to $200 million of qualified tax-exempt financingfrom the ODOD’s 2005 volume cap carryforward. The financing is to be used to partially fund ongoing flue gasdesulfurization (FGD) capital projects. The Public Utilities Commission of Ohio (PUCO) approved **DP&L’s** application for this additional financing on July 26,2006.

 

OnSeptember 13, 2006, the Ohio Air Quality Development Authority (OAQDA) issued$100 million of 4.80% fixed interest rate OAQDA Revenue Bonds 2006 Series Adue September 1, 2036.  In turn, **DP&L** borrowed these funds from the OAQDA.  The payment of principal and interest on theBonds, when due, is insured by an insurance policy issued by Financial GuarantyInsurance Company.  **DP&L**is using the proceeds from these borrowings to assist in financing its portionof the costs of acquiring, constructing, and installing certain solid wastedisposal and air quality facilities at Miami Fort, Killen, and Stuartgenerating stations.

 

OnNovember 15, 2007, the OAQDA issued $90 million of insured,collateralized, variable rate OAQDA Revenue bonds due November 1,2040.  In turn, **DP&L**borrowed these funds from the OAQDA.  Thevariable interest rate on these bonds had been determined via a Dutch-auctionthat was reset every 35 days.  During thethree months ended March 31, 2008, there has been significant turmoil inthe auction rate securities (ARS) market, numerous auction failures, andsignificant increases in interest rates. On April 4, 2008, these OAQDA Revenue bonds were converted from35-day ARS to 7-day variable rate demand notes (VRDN).  At that time, the trustee, on behalf of **DP&L,** purchased all of the issued and outstanding bondsfrom the bondholders at par value and placed them in a custody account.  These bonds have not been legally cancelledand can be re-issued at the discretion of **DP&L** at anytime.  These VRDNs were purchased usingfunds provided by **DP&L’s**revolving line of credit at a borrowing rate of LIBOR plus 0.27% and will beheld in trust while we continue to evaluate market conditions and exploresuitable long-term financing alternatives. Accordingly, at March 31, 2008, the $90 million variable rate OAQDARevenue bonds are reflected within the current portion of long-term debt in thecondensed consolidated balancesheets for both **DPL**and**DP&L**.  See Note 10 of the Notes to CondensedConsolidated Financial Statements.

 

OnNovember 21, 2006, **DP&L**entered into a new $220 million unsecured revolving credit agreement replacingits $100 million facility.  This newagreement has a five-year term that expires November 21, 2011 and provides**DP&L** with the ability to increasethe size of the facility by an additional $50 million at any time.  The facility contains one financialcovenant:  **DP&L’s**total debt to total capitalization ratio is not to exceed 0.65 to 1.00.  This covenant is currently met.  As of March 31, 2008,**DP&L**had no outstanding borrowings under this creditfacility.  Fees associated with thiscredit facility are approximately $0.2 million per year.  Changes in credit ratings, however, mayaffect fees and the applicable interest rate. This revolving credit agreement also contains a $50 million letter ofcredit sub-limit.  **DP&L**has certain contractual agreements for the sale and purchase of power, fuel,and related energy services that contain credit rating related clauses allowingthe counter parties to seek additional surety under certain conditions.  As of March 31, 2008, **DP&L** had no outstanding letters of credit against thefacility.  As reviewed in the precedingparagraph, on April 4, 2008, $90 million was drawn on this facility topurchase the VRDNs.

 

Duringthe second quarter ended June 30, 2007, **DPL**entered into a short-term loan to **DP&L** for$105 million.  **DP&L**paiddown $15 million of this loan during the third quarter ended September 30,2007, an additional $70 million during the fourth quarter ended December 31,2007, and the final $20 million during the first quarter ended March 31,2008.  This short-term loan did notviolate any covenants in our other debt instruments.  There are no other intercompany debtcollateralizations or debt guarantees between **DPL**,**DP&L,**and their affiliates.  None of the debt obligations of **DPL** or **DP&L** areguaranteed or secured by affiliates and no cross-collateralization existsbetween any subsidiaries.

 

**5.     Pensionand Postretirement Benefits**

 

Wesponsor a defined benefit plan for substantially all employees.  For collective bargaining employees, thedefined benefits are based on a specific dollar amount per year ofservice.  For all other employees, thedefined benefit plan is based primarily on compensation and years of service.We fund 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.  We****alsohave unfunded liabilities related to retirement benefits for certain active,terminated, and retired key executives. These liabilities totaled approximately $1.0 million at March 31,2008.

 

19

----

 

Qualifiedemployees who retired prior to 1987 and their dependents are eligible forhealth care and life insurance benefits, while qualified employees who retiredafter 1987 are eligible for life insurance benefits.  We have funded the union-eligible healthbenefit using a Voluntary Employee Beneficiary Association Trust.

 

Thenet periodic benefit cost of the pension and postretirement benefit plans forthe three months ended March 31, 2008 and 2007 was:

 

**Net periodic benefit cost**

 
| **$ in millions**         | ** ** | **Pension** | ** ** | **Postretirement** | ** ** |
|--------------------------------|------------|-------------|------------|--------------------|------------|
| ** **                     | ** ** | **2008**    | ** ** | **2007**           | ** ** | **2008** | ** ** | **2007** | ** ** |
| Service cost                   | ** ** | **$**       | **0.8**    |               | $          | 1.1 | ** ** | **$** | **—** |   | $ | — |   |
| Interest cost                  | ** ** | **4.1**     |       | 4.1                | ** ** | **0.4** |   | 0.4 |   |
| Expected return on assets  (a) | ** ** | **(6.0**    | **)**      | (5.5               | )          | **(0.1** | **)** | (0.1 | ) |
|                           |       |        |       |               |       |   |   |   |   |
| Amortization of  unrecognized: |       |        |       |               |       |   |   |   |   |
| Actuarial (gain) loss          | ** ** | **0.7**     |       | 0.9                | ** ** | **(0.2** | **)** | (0.2 | ) |
| Prior service cost             | ** ** | **0.6**     |       | 0.6                | ** ** | **—** |   | — |   |
| Net periodic benefit cost      | ** ** | **$**       | **0.2**    |               | $          | 1.2 | ** ** | **$** | **0.1** |   | $ | 0.1 |   |

----

*(a)**                              **Themarket-related value of assets is equal to the fair value of assets atimplementation with subsequent asset gains and losses recognized in themarket-value systematically over a three-year period.*

 

Thefollowing estimated benefit payments, which reflect future service, areexpected to be paid as follows:

 

**Estimated Future Benefit Payments:**

 
| **$ in millions** | ** ** | **Pension** | ** ** | **Postretirement** | ** ** |
|------------------------|------------|-------------|------------|--------------------|------------|
| 2008                   |       | $           | 14.8       |               | $          | 2.0 |   |
| 2009                   |       | $           | 20.0       |               | $          | 2.6 |   |
| 2010                   |       | $           | 20.3       |               | $          | 2.6 |   |
| 2011                   |       | $           | 20.5       |               | $          | 2.5 |   |
| 2012                   |       | $           | 21.0       |               | $          | 2.4 |   |
| 2013 — 2017       |       | $           | 110.6      |               | $          | 9.8 |   |

 

**6.     Share-BasedCompensation**

 

Thefollowing table summarizes share-based compensation expense:

 
| ** **                                                              | ** ** | **Three Months Ended** | ** ** |
|-------------------------------------------------------------------------|------------|------------------------|------------|
| ** **                                                              | ** ** | **March 31,**     | ** ** |
| **$ in millions**                                                  | ** ** | **2008**               | ** ** | **2007** | ** ** |
| Stock options                                                           | ** ** | **$**                  | **—** |   | $ | — |   |
| Restricted stock units                                                  | ** ** | **(0.1**               | **)**      | 4.7 |   |
| Performance shares                                                      | ** ** | **0.1**                |       | 0.4 |   |
| Restricted shares                                                       | ** ** | **0.1**                |       | — |   |
| Non-employee directors’  RSUs                                      | ** ** | **0.1**                |       | — |   |
| Share-based compensation included in operations and maintenance expense |       | **$**                  | **0.2**    |   | $ | 5.1 |   |
| Income tax benefit                                                      | ** ** | **(0.1**               | **)**      | (1.8 | ) |
| Total share-based compensation, net of tax                              | ** ** | **$**                  | **0.1**    |   | $ | 3.3 |   |

 

Totalcompensation expense for the period ended March 31, 2008 decreased by $3.2million (net of income tax) over the same period of the prior year due to theforfeiture of restricted stock units and stock options by three of our formerexecutives.

 

20

----

 

Share-basedawards issued in **DPL’s**common stock will bedistributed from treasury stock.  **DPL** believes it has sufficient treasury stock to satisfy alloutstanding share-based awards.

 

Summarizedshare-based compensation activity for the quarters ended March 31, 2008and 2007 was as follows:

 
| ** **                        | ** ** | **Options** | ** ** | **RSUs**  | ** ** | **Performance Shares** | ** ** |
|-----------------------------------|------------|-------------|------------|-----------|------------|------------------------|------------|
| ** **                        | ** ** | **2008**    | ** ** | **2007**  | ** ** | **2008**               | ** ** | **2007** | ** ** | **2008** | ** ** | **2007** | ** ** |
| Outstanding at beginning  of year | ** ** | **946,500** |       | 5,091,500 | ** ** | **22,976**             |       | 1,345,995 | ** ** | **142,108** |   | 154,768 |   |
| Granted                           | ** ** | **—**  |       | —    | ** ** | **—**             |       | — | ** ** | **93,298** |   | 69,184 |   |
| Dividends                         | ** ** | **—**  |       | —    | ** ** | **—**             |       | — | ** ** | **—** |   | — |   |
| Exercised                         | ** ** | **(50,000** | **)**      | (150,000  | )          | **—**             |       | — | ** ** | **—** |   | (22,462 | ) |
| Expired                           | ** ** | **—**  |       | —    | ** ** | **—**             |       | — | ** ** | **(37,426** | **)** | (21,583 | ) |
| Forfeited                         | ** ** | **—**  |       | —    | ** ** | **(1,603**             | **)**      | — | ** ** | **(7,253** | **)** | (14,172 | ) |
| Outstanding at period end         | ** ** | **896,500** |       | 4,941,500 | ** ** | **21,373**             |       | 1,345,995 | ** ** | **190,727** |   | 165,735 |   |
| Exercisable at period end         | ** ** | **896,500** |       | 4,931,500 | ** ** | **—**             |       | 1,295,977 | ** ** | **—** |   | — |   |

 
| ** **                        | ** ** | **Restricted Shares** | ** ** | **Director RSUs** | ** ** |
|-----------------------------------|------------|-----------------------|------------|-------------------|------------|
|                              | ** ** | **2008**              | ** ** | **2007**          | ** ** | **2008** | ** ** | **2007** | ** ** |
| Outstanding at beginning  of year | ** ** | **42,200**            |       | 19,000            | ** ** | **13,573** |   | — |   |
| Granted                           | ** ** | **—**            |       | 5,000             | ** ** | **—** |   | — |   |
| Dividends                         | ** ** | **—**            |       | —            | ** ** | **148** |   | — |   |
| Exercised                         | ** ** | **(1,000**            | **)**      | —            | ** ** | **—** |   | — |   |
| Expired                           | ** ** | **—**            |       | —            | ** ** | **—** |   | — |   |
| Forfeited                         | ** ** | **—**            |       | —            | ** ** | **—** |   | — |   |
| Outstanding at period end         | ** ** | **41,200**            |       | 24,000            | ** ** | **13,721** |   | — |   |
| Exercisable at period end         | ** ** | **—**            |       | —            | ** ** | **—** |   | — |   |

 

**7.     Fair Value Measurements**

 

EffectiveJanuary 1, 2008, we adopted Statement of Financial Accounting StandardsNo.157, “Fair Value Measurements” (SFAS 157), which provides a framework formeasuring fair value under GAAP.  SFAS157 requires that the impact of this change in accounting for fair valuedassets and liabilities be recorded as an adjustment to beginning retainedearnings in the period of adoption.  Wedid not have any adjustments to beginning retained earnings in the period of adoption.

 

FSPSFAS 157-2 allows for a deferral from the SFAS 157 disclosures fornon-financial assets or liabilities until fiscal years beginning after November 15,2008.  We did not have any non-financialassets or liabilities accounted for on a fair value basis in the period ending March 31,2008.

 

SFAS157 defines fair value as the exchange price that would be received for anasset or paid to transfer a liability (an exit price) in the principal or mostadvantageous market for the asset or liability in an orderly transactionbetween market participants on the measurement date.  SFAS 157 also establishes a fair valuehierarchy that requires an entity to maximize the use of observable inputs andminimize the use of unobservable inputs when measuring fair value.  The standard describes three levels of inputsthat may be used to measure fair value:

 

**Level 1**

 

Level 1 inputs are defined as quoted prices in active markets foridentical assets or liabilities.  OurLevel 1 assets and liabilities include equity securities held in variousdeferred compensation trusts, forward contracts, and futures contracts that aretraded in an active exchange market.

 

**Level 2**

 

Level 2 inputs are observable inputs other than Level 1 prices such asquoted prices for similar assets or liabilities, quoted prices in markets thatare not active, or other inputs that are observable or can be corroborated byobservable market data for substantially the full term of the assets orliabilities.  Our Level 2 assets andliabilities include open-ended investment funds and forward contracts withquoted prices from over-the-counter (OTC) markets or direct broker quotes thatare traded less frequently than exchange-traded instruments.

 

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**Level 3**

 

Level 3 inputs are unobservable inputs that are supported by little orno market activity and that are significant to the fair value of the assets orliabilities.  We currently do not haveany Level 3 assets or liabilities.

 

Valuationsof assets and liabilities reflect the value of the instrument including thevalues associated with counterparty risk. With the issuance of SFAS 157, the accounting industry clarified thatthese values must also take into account the Company’s own creditstanding.  We incorporate credit riskinto valuations by requiring or posting margin as requested by/ofcounterparties.

 

The fair value of assets measured on a recurring basis was determinedas follows:

 
| ** **             | ** ** | **Assets and Liabilities Measured at Fair Value on a Recurring Basis** | ** ** |
|------------------------|------------|------------------------------------------------------------------------|------------|
| ** **             | ** ** | ** **                                                             | ** ** | ** ** | ** ** | **Level 1** | ** ** | **Level 2** | ** ** | **Level 3** | ** ** |
| ** **             | ** ** | ** **                                                             | ** ** | ** ** | ** ** | **Based on Quoted** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| ** **             | ** ** | **Fair Value at**                                                      | ** ** | **Prices in Active** | ** ** | **Other Observable** | ** ** | **Unobservable** | ** ** |
| ** **             | ** ** | **March 31, 2008**                                                | ** ** | **Market** | ** ** | **Inputs** | ** ** | **Inputs** | ** ** |
| **$ in millions** | ** ** | **DPL**                                                                | ** ** | **DP&L (a)** | ** ** | **DPL** | ** ** | **DP&L (a)** | ** ** | **DPL** | ** ** | **DP&L** | ** ** | **DPL** | ** ** | **DP&L** | ** ** |
| **Assets**             | ** ** | ** **                                                             | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| Master Trust Assets    |       | $                                                                      | 6.3        |   | $ | 42.7 |   | $ | — |   | $ | 36.4 |   | $ | 6.3 |   | $ | 6.3 |   | $ | — |   | $ | — |   |
| Derivative Assets      |       | —                                                                 |       | — |   | — |   | — |   | — |   | — |   | — |   | — |   |
| Total                  |       | $                                                                      | 6.3        |   | $ | 42.7 |   | $ | — |   | $ | 36.4 |   | $ | 6.3 |   | $ | 6.3 |   | $ | — |   | $ | — |   |
|                   |       |                                                                   |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| **Liabilities**        | ** ** | ** **                                                             | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| Derivative Liabilities |       | $                                                                      | 4.5        |   | $ | 4.5 |   | $ | — |   | $ | — |   | $ | 4.5 |   | $ | 4.5 |   | $ | — |   | $ | — |   |
| Total                  |       | $                                                                      | 4.5        |   | $ | 4.5 |   | $ | — |   | $ | — |   | $ | 4.5 |   | $ | 4.5 |   | $ | — |   | $ | — |   |

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    *(a)  **DP&L**holds **DPL** stock in the Master Trust that iseliminated in consolidation.*

 

Generally,for all financial assets held by the Master Trust, fair value is determined byreference to quoted market prices and other relevant information generated bymarket transactions.  Level 2 inputs areused to value derivatives such as financial transmission rights and capacityswap contracts where the quoted prices are from a relatively inactive market;forward power contracts which are valued using prices on the New YorkMercantile Exchange (NYMEX) for similar contracts on the OTC market; andopen-ended funds that are valued using the end of day Net Asset Value (NAV).

 

**8.     Earningsper Share**

 

Basicearnings per share (EPS) is based on the weighted-average number of **DPL** common shares outstanding during theyear.  Diluted EPS is based on theweighted-average number of **DPL**common and common- equivalent shares outstanding during the year, except inperiods where the inclusion of such common-equivalent shares isanti-dilutive.  Excluded from outstandingshares for this weighted-average computation are shares held by **DP&L’s** Master Trust Plan for deferredcompensation and unreleased shares held by **DP&L’s**Employee Stock Ownership Plan (ESOP).

 

Thefollowing table represents common-equivalent shares excluded from thecalculation of diluted EPS because they were anti-dilutive.  These shares may be dilutive in the future.

 
| ** **               | ** ** | **Three Months Ended March 31,** | ** ** |
|--------------------------|------------|---------------------------------------|------------|
| **In millions**          | ** ** | **2008**                              | ** ** | **2007** | ** ** |
|                     |       |                                  |       |   |   |
| Common equivalent shares | ** ** | **0.3**                               |       | — |   |

 

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Thefollowing illustrates the reconciliation of the numerators and denominators ofthe basic and diluted earnings per share computations for income afterdiscontinued operations and cumulative effect of accounting change:

 

| ** **                                        | ** ** | **Three Months Ended March 31,** | ** ** |
|---------------------------------------------------|------------|---------------------------------------|------------|
| ** **                                        | ** ** | **2008**                              | ** ** | **2007** | ** ** |
| ** **                                        | ** ** | **Net**                               | ** ** | ** ** | ** ** | **Per** | ** ** | **Net** | ** ** | ** ** | ** ** | **Per** | ** ** |
| **$ in millions except per share  amounts**  | ** ** | **Income**                            | ** ** | **Shares** | ** ** | **Share** | ** ** | **Income** | ** ** | **Shares** | ** ** | **Share** | ** ** |
| **Basic EPS**                                     | ** ** | **$**                                 | **77.3**   | ** ** | **109.3** | ** ** | **$** | **0.71** |   | $ | 56.1 |   | 107.5 |   | $ | 0.52 |   |
|                                              |       |                                  |       |   |   |   |   |   |   |   |   |   |   |
| **Effect of Dilutive Securities:**                | ** ** | ** **                            | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| Stock Incentive Units                             | ** ** | ** **                            | ** ** | **—** | ** ** | ** ** |   |   |   | 1.3 |   |   |   |
| Warrants                                          | ** ** | ** **                            | ** ** | **6.9** | ** ** | ** ** |   |   |   | 9.1 |   |   |   |
| Stock options, performance  and restricted shares |       |                                  | ** ** | **0.2** | ** ** | ** ** |   |   |   | 1.5 |   |   |   |
|                                              |       |                                  |       |   |   |   |   |   |   |   |   |   |   |
| **Diluted EPS**                                   | ** ** | **$**                                 | **77.3**   | ** ** | **116.4** | ** ** | **$** | **0.66** |   | $ | 56.1 |   | 119.4 |   | $ | 0.47 |   |

 

**9.     Commitmentsand Contingencies**

 

**ContractualObligations**

There have been no material changes, outside theordinary course of business, to the information disclosed in the contractualobligations table in our Annual Report of Form 10-K for the fiscal yearended December 31, 2007 except that relating to the purchase, on April 4,2008, of the $90 million variable rate OAQDA Revenue bonds.  This is discussed in Notes 4 and 10 of Notesto Condensed Consolidated Financial Statements.

 

**Commercial Commitments**

There have been no material changes, outside theordinary course of business, to our commercial commitments as disclosed in ourAnnual Report of Form 10-K for the fiscal year ended December 31,2007 except that relating to the purchase, on April 4, 2008, of the $90million variable rate OAQDA Revenue bonds. These bonds were purchased using **DP&L’s**revolving credit line.  This is discussedin Notes 4 and 10 of Notes to Condensed Consolidated Financial Statements.

 

**Contingencies**

Inthe normal course of business, we are subject to various lawsuits, actions,proceedings, claims and other matters asserted under laws and regulations.  We believe the amounts provided in ourCondensed Consolidated Financial Statements, as prescribed by GAAP, areadequate in light of the probable and estimable contingencies.  However, there can be no assurances that the actualamounts required to satisfy alleged liabilities from various legal proceedings,claims, tax examinations and other matters discussed below, and to comply withapplicable laws and regulations, will not exceed the amounts reflected in ourCondensed Consolidated Financial Statements. As such, costs, if any, that may be incurred in excess of those amountsprovided as of March 31, 2008, cannot be reasonably determined.

 

**Environmental Matters**

**DPL**, **DP&L** and our subsidiaries’ facilities and operations aresubject to a wide range of environmental regulations and laws.  In the normal course of business, we have investigatory and remedialactivities underway at these facilities to comply, or to determine compliance,with such regulations.  We have been identified, either by agovernment agency or by a private party seeking contribution to site clean-upcosts, as a potentially responsible party (PRP) at two sites pursuant to stateand federal laws.  We record liabilities for probableestimated loss in accordance with SFAS 5 as discussed in Note 1 of Notes toCondensed Consolidated Financial Statements. We evaluate the potentialliability related to probable losses quarterly and may revise ourestimates.  Such revisions in theestimates of the potential liabilities could have a material effect on our resultsof operations and financial position.

 

 

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**Sierra Club**

InSeptember 2004, the Sierra Club filed a lawsuit against **DP&L**and the other owners of the Stuart generatingstation in the United States District Court for the Southern District of Ohiofor alleged violations of the Clean Air Act (CAA) and the station’s operatingpermit.  **DP&L**,on behalf of all co-owners, is leading the defense of this matter.  A sizable amount of discovery has takenplace, including depositions, and most expert reports have been submitted.  In order to allow the parties additional timeto attempt to negotiate a settlement, the proceeding is currently subject to astay, at least until a pre-hearing conference scheduled for May 15, 2008,with the judge.  Settlement negotiationsare ongoing.

 

**Notices of Violation InvolvingWholly-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 and Ohio EPA, and **DP&L** has provided data to those agencies regarding itsmaintenance expenses and operating results and recommendations that hadpreviously been made by consultants to **DP&L**.  Additional information was provided to theU.S. Department of Justice in response to a request made on January 28,2008, for additional information regarding **DP&L’s**actions taken in response to the recommendations in the consultants’ reportsthat **DP&L** had provided to USEPA and OhioEPA.  **DP&L**is unable to determine whether any additional actions will take place withrespect to this matter.

 

**Notices of Violation InvolvingCo-Owned Plants**

On March 13, 2008,Duke Energy Ohio, the operator of the Zimmer generating station, received a NOVand a Finding of Violation from the USEPA alleging violations of the CAA, theOhio State Implementation Program (SIP) and permits for the Station in areasincluding 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 is expected to act on behalf of itself and the co-owners with respect tothis matter.  **DP&L**is unable to determine whether any additional actions will take place withrespect to this matter.

 

**Environmental Regulation andLitigation Related to Air Quality**

On February 8, 2008,a three-judge panel of the Court of Appeals, D.C. Circuit, struck down theUSEPA regulations that were designed to establish a trading program for mercuryemissions, finding that the USEPA had not complied with statutory requirementsapplicable to “de-listing” mercury as a hazardous air pollutant and that acap-and-trade approach was not authorized by law for “listed” hazardous airpollutants.  The USEPA and a grouprepresenting utilities have filed a request for rehearing en banc (i.e., arehearing before all the D.C. Circuit judges). Irrespective of whether that request is granted or denied, the finalorder will be subject to appeal in the U.S. Supreme Court, which has adiscretionary power to decide whether or not to hear an appeal.  Due to the ongoing uncertainties associatedwith an appeal that may be taken by the D.C. Circuit or the U.S. Supreme Courtand the USEPA regulatory process, if the three-judge panel’s ruling is notreversed, we cannot project the final costs we may incur to comply with anyresulting mercury restriction regulations.

 

**Updates to EnvironmentalRegulation and Litigation Related to Water Quality**

On July 9, 2004, theUSEPA issued final rules pursuant to the CAA governing existing facilitiesthat have cooling water intake structures. The rules require an assessment of impingement and/or entrainmentof organisms as a result of cooling water withdrawal.  A number of parties appealed the rules tothe Federal Court of Appeals for the Second Circuit in New York and the courtissued an opinion, on January 25, 2007, remanding several aspects of the rule toUSEPA for reconsideration.  Severalparties have petitioned the U.S. Supreme Court for review of the lower courtdecision.  On April 14, 2008, theSupreme Court elected to review the lower court decision on the issue ofwhether USEPA can compare costs with benefits in determining the besttechnology available for minimizing adverse environmental impact at coolingwater intake structures.  The timing ofthe conclusion of this review is still uncertain at this time.

 

On February 5, 2008,we received a letter from Ohio EPA indicating that they intend to impose acompliance schedule, as part of the final National Pollutant DischargeElimination System (NPDES) Permit, that requires us to implement one of twodiffuser options for the discharge of water from the Stuart station into theOhio River as identified in the thermal discharge study conducted pursuant torequirements contained in a previous permit. The two diffuser options identified by Ohio EPA could cost approximately$33 million based on preliminary cost estimates, of which our pro-rata sharewould be approximately $11.5 million.  OnMarch 6, 2008, representatives from **DP&L** metwith Ohio EPA to discuss the issue and reiterate the Company’s position thatdiffusers were not cost-effective.  Weagreed to explore other potential solutions and share findings with Ohio EPA.

 

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**10.Subsequent Events**

 

OnNovember 15, 2007, the OAQDA issued $90 million of insured,collateralized, variable rate OAQDA Revenue bonds due November 1, 2040.  In turn, **DP&L**borrowed these funds from the OAQDA.  Thevariable interest rate on these bonds had been determined via a Dutch-auctionthat was reset every 35 days.  During thethree months ended March 31, 2008, there has been significant turmoil inthe auction rate securities (ARS) market, numerous auction failures, andsignificant increases in interest rates. On April 4, 2008, these OAQDA Revenue bonds were converted from35-day ARS to 7-day variable rate demand notes (VRDN).  At that time, the trustee, on behalf of **DP&L,** purchased all of the issued and outstanding bondsfrom the bondholders at par value and placed them in a custody account.  These bonds have not been legally cancelledand can be re-issued at the discretion of **DP&L** at anytime.  These VRDNs were purchased usingfunds provided by **DP&L’s**revolving line of credit at a borrowing rate of LIBOR plus 0.27% and will beheld in trust while we continue to evaluate market conditions and exploresuitable long-term financing alternatives. Accordingly, at March 31, 2008, the $90 million variable rate OAQDARevenue bonds are reflected within the current portion of long-term debt in thecondensed consolidated balance sheets.

 

**Item 2.  Management’s Discussion and Analysis ofFinancial Condition and Results of Operations**

 

Thisreport includes the combined filing of DPL Inc.**(DPL)**and The Dayton Power and Light Company **(DP&L).  DP&L**is the principalsubsidiary of **DPL**providing approximately 99% of**DPL’s**total consolidated revenue andapproximately 90% 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 this 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 of historicalfact and are typically identified by terms and phrases such as “anticipate,” “believe,”“intend,” “estimate,” “expect,” “continue,” “should,” “could,” “may,” “plan,” “project,”“predict,” “will,” and similar expressions. Such forward-looking statements are subject to risks and uncertainties,and investors are cautioned that outcomes and results may vary materially fromthose projected due to various factors beyond our control, including but notlimited to: abnormal or severe weather and catastrophic weather-related damage;unusual maintenance or repair requirements; changes in fuel costs and purchasedpower, coal, environmental emissions, natural gas and other commodity prices;volatility and changes in markets for electricity and other energy-relatedcommodities; performance of our suppliers; increased competition andderegulation in the electric utility industry; increased competition in theretail generation market; changes in interest rates; state, federal and foreignlegislative and regulatory initiatives that affect cost and investmentrecovery, emission levels, rate structures or tax laws; changes in federaland/or state environmental laws and regulations to which **DPL**and its subsidiaries are subject; the development of Regional Transmission Organizations(RTOs), including PJM Interconnection, L.L.C. (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 and availability;significant delays associated with large construction projects; growth in ourservice territory and changes in demand and demographic patterns; changes inaccounting rules and the effect of accounting pronouncements issuedperiodically 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 **DPL’s** and **DP&L’s**filings with the Securities and ExchangeCommission.

 

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.

 

Thefollowing discussion should be read in conjunction with the accompanyingfinancials and related footnotes included in Part 1 — FinancialInformation.

 

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**BUSINESS OVERVIEW**

 

**DPL**is a diversifiedregional energy company organized in 1985 under the laws of Ohio.  Our executive offices are located at 1065Woodman Drive, Dayton, Ohio 45432 — telephone (937) 224-6000.

 

**DPL’s** principal subsidiary is**DP&L**.  **DP&L**is a public utility incorporated in 1911 under the laws of Ohio.  **DP&L**sells electricity to residential, commercial, industrial and governmentalcustomers in 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 515,000 retailcustomers.  **DP&L** also purchases retail peak load requirements from DPLEnergy LLC (DPLE), one of **DPL’s** whollyowned subsidiaries.  Principal industriesserved include automotive, food processing, paper, plastic manufacturing, anddefense.

 

**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** significant subsidiaries (all of which arewholly owned) include DPLE, which engages in the operation of peakinggenerating facilities; DPL Energy Resources, Inc. (DPLER), which sellsretail electric energy under contract to major industrial and commercialcustomers in West Central Ohio; and Miami Valley Insurance Company (MVIC), ourcaptive insurance company that provides insurance sources to us and oursubsidiaries.  ** DP&L**has one significantsubsidiary, DPL Finance Company, Inc., which is wholly owned and providesfinancing to **DPL**, **DP&L** and other affiliated companies.

 

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

 

Aswe look forward, there are a number of issues that we believe may have asignificant impact on our business and operations described above.  The following issues mentioned below are notmeant to be exhaustive but to provide insight to matters that have or arelikely to have an effect on our industry and business:

 

·                  **Ohio Energy Legislation**

On September 25, 2007, Senate Bill 221 was introduced in the OhioLegislature.  The bill codified, in draft form, the governor’s proposedenergy policy.  The bill was passed by the Senate on October 31,2007.  On April 22, 2008, the OhioHouse of Representatives passed an amended bill that was confirmed by the Senateon April 23, 2008. Management is continuing to evaluate the pending legislationand its impacts to **DPL**.

 

·                  **Greenhouse Gases**

The rules issued by the United States Environmental ProtectionAgency (USEPA) and Ohio Environmental Protection Agency (Ohio EPA) that requiresubstantial reductions in sulfur dioxide (SO2), nitrogenoxides (NOX), and mercury emissions may impact our business andoperations.  We are installing (and have installed) emission controltechnology and are taking other measures to comply with required reductions.

 

In addition to the requirements related to emissions of SO2, NOX andmercury noted above, there is a growing concern nationally and internationallyabout global climate change and the contribution of emissions of greenhousegases, including most significantly, carbon dioxide (CO2).  This concern has led to increased interest inlegislation at the federal level and actions at the state level as well aslitigation relating to greenhouse gas emissions, including a recent U.S.Supreme Court decision holding that the USEPA has the authority to regulate CO2emissions from motor vehicles under the Clean Air Act (CAA).  Increased pressure for carbon dioxideemissions reduction is also coming from investor organizations and theinternational community.  If legislationor regulations are passed at the federal or state levels imposing mandatoryreductions of CO2 and other greenhouse gases on generation facilities, the costto DPL and DP&L of such reductions could be material.

 

·                  **Fuel Prices**

Recently,the coal market has experienced significant price increases.  We are now in a global market for coal inwhich our domestic price is increasingly affected by international supplydisruptions and demand balance.  Exportsfrom the U.S. have increased significantly in recent years.  In addition, domestic issues likegovernment-imposed direct costs and permitting issues are affecting miningcosts and supply availability.  Ourapproach is to hedge the fuel for our anticipated electric sales.  We have entered into contracts to hedge ourexposure to fuel requirements and other energy-related commodities.  We may not be able to hedge the entireexposure of our operations from commodity price volatility.  To the extent we are not hedged against pricevolatility, our results of operations, financial position or cash flows couldbe materially affected.

 

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·                  **Credit Market**

The current global credit crisis may adverselyaffect our business and financial results. During 2007, higher interest rates, falling property prices, and asignificant increase in the number of sub-prime mortgages originated in 2005and 2006 contributed to dramatic increases in mortgage delinquencies anddefaults in 2007 and the first quarter ended March 31, 2008.  The anticipated future delinquencies amonghigh-risk, or sub-prime, borrowers in the United States is expected to continuein the foreseeable future.  Thewidespread dispersion of credit risk related to mortgage delinquencies anddefaults through the securitization of mortgage-backed securities (MBS), salesof collateralized debt obligations (CDOs) and the creation of structuredinvestment vehicles (SIVs), as well as the unclear impact on large banks ofMBS, CDOs, and SIVs, caused banks to reduce their loans to each other or makethem at higher interest rates. Similarly, the ability of corporations to obtain funds through theissuance of debt was negatively impacted. We issue debt to cover the costs of certain of our operations andexpenditures and the inability to issue such debt on reasonable terms, or atall, could negatively affect our business and financial results.  See Notes 4 and 10 of Notes to CondensedConsolidated Financial Statements which discusses recent actions taken by theCompany associated with its auction rate securities.

 

**UPDATES / OTHER MATTERS**

 

**Competition and Regulation Updates**

 

**Ohio Matters Updates**

 

***Ohio RetailRates***

OnApril 22, 2008, the Ohio House of Representatives passed and on April 23, 2008,the Ohio Senate concurred on the provisions contained in substitute Senate Bill221, an Ohio electric energy bill. The bill will be submitted to the Governor,who is expected to sign it into law.  Inits current form, the bill states that all Ohio distribution utilities mustfile either an electric security plan or a market rate option to be in effect January 1,2009.  Under the market rate option, theretail generation price will be set by a periodic competitive bid process afterthe utility demonstrates that it can meet certain market criteria and bidrequirements set out in the bill.  Utilities that still own generation inthe state are required to phase in the market rate option over a period of notless than five years.  Under the electricsecurity plan option, the Public Utilities Commission of Ohio (PUCO) willestablish rules for filing an electric security plan which may allow foradjustments to the standard offer for costs associated with environmentalcompliance; fuel and purchased power; construction of new or investment inspecified generating facilities; the provision of standby and default service,operating, maintenance, or other costs including taxes.  As part of itselectric security plan, the utility is permitted to file an infrastructure improvementplan that will specify the initiatives the utility will take to rebuild,upgrade, or replace its electric distribution system, including cost recoverymechanisms.

 

Thepending legislation contains annual targets relating to advanced energy portfoliostandards, renewable energy, and energy efficiency standards.  The proposed standards require that, by 2025,12.5% of the generation used to supply standard offer generation service by theutility must come from advanced energy resources, which may include distributedgeneration, cogeneration, clean coal technology, nuclear technology, or energyefficiency.  Another 12.5% of thegeneration used to supply standard offer generation service by the utility mustcome from renewable energy resources, of which 0.5% must come from solar energyresources.  In addition, the proposedbill requires annual energy efficiency reductions that reach 22.3% by 2025 andpeak demand reduction requirements that reach 7.75% by 2018.  The advanced energy portfolio and energyefficiency standards begin in 2009, with increases in requirement percentageseach year.  If any targets are not met,compliance penalties will apply, unless compliance is outside the utility’scontrol.  Management is continuing toevaluate the pending legislation and its impacts to **DPL**.

 

**FederalMatters Updates**

 

Asa member of PJM, **DP&L** is subject to charges andcosts associated with PJM operations as approved by the Federal EnergyRegulatory Commission (FERC).  FERCOrders issued in 2007, regarding the allocation of costs of large transmissionfacilities within PJM, could result in additional costs being allocated to theCompany of approximately $12 million or more annually by 2012.  **DP&L** fileda notice of appeal to the U.S. Court of Appeals, D.C. Circuit on March 18,2008.  The appeal has been consolidatedwith other appeals taken by other interested parties of the same FERC Ordersand the consolidated cases have been assigned to the 7thCircuit.  No briefing schedule has beenestablished and the Company cannot predict the outcome or timing of a decisionin the appeals.

 

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As a member of PJM, the value of **DP&L’s**generation capacity is affected by changes in and the clearing results of thePJM capacity construct.  The construct utilizes a Reliability PricingModel (RPM) that changes the way generation capacity is priced and planned forby PJM.  PJM held its first RPM auction during April 2007 forthe 2007/2008 planning year and held subsequent auctions during July and October 2007and January 2008.  The results ofthese auctions have not had a material impact on our results of operations,financial position or cash flows.  TheFERC decisions establishing RPM have been appealed by various entities to aFederal appeals court.  RPM remains ineffect pending the outcome of the appeal. **DP&L** has intervened and supportsthe FERC decisions.  On March 19,2008, a large coalition of consumers filed a motion to request a FERC TechnicalConference to evaluate whether the RPM construct is performing as expected, andproposed that the RPM market should be modified or replaced.  PJM has responded to the group’s claims butthe outcome of this proceeding is unknown at this time.

 

OnSeptember 28, 2007, the Internal Revenue Service (IRS) published proposedregulations which would change the treatment of transactions involving theprovision of insurance between members of a consolidated tax group.  If adopted, these regulations would affectthe tax position previously held by Miami Valley Insurance Company (MVIC), ourcaptive insurance company, that provides insurance to us and oursubsidiaries.  The IRS requested commentsby December 27, 2007.  MVIC filedcomments as part of a coalition formed for this purpose which included captiveinsurance companies and parent companies, captive insurance industryassociations and insurance departments of numerous states which have captiveinsurance regulations.  These entitiesall opposed the IRS’ proposed regulations. After review of all comments received, on February 20, 2008, theIRS withdrew the part of its proposed regulation that would have eliminated thecurrent taxation structure of single-parent captive insurance companies filinga consolidated tax return with their parent. Therefore, there has been no adverse impact on **DPL**,**DP&L**, or MVIC.

 

InApril 2008, **DPL** was notified that the IRSwould audit its 2005 federal income tax return.

 

**Environmental Updates**

 

**DPL**,**DP&L**and our subsidiaries’ facilities and operations are subject to a wide range ofenvironmental regulations and laws by federal, state and local authorities.

 

Aswell as imposing continuing compliance obligations, these laws and regulationsauthorize the imposition of substantial penalties for noncompliance, includingfines, injunctive relief and other sanctions. In the normal course of business,we have 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 Statement ofFinancial Accounting Standards No. 5 “Accounting for Contingencies” (SFAS5), as discussed in Note 1 of Notes to Condensed Consolidated FinancialStatements. **  DPL,** through its wholly ownedcaptive insurance subsidiary MVIC, has an actuarially calculated reserve forenvironmental matters.  We evaluate thepotential liability related to probable losses quarterly and mayrevise our estimates.  Such revisions in the estimates of thepotential liabilities could have a material effect on our results ofoperations, financial position or cash flows.

 

***Sierra Club Litigation Update***

InSeptember 2004, the Sierra Club filed a lawsuit against **DP&L**and the other owners of the Stuart generatingstation in the United States District Court for the Southern District of Ohiofor alleged violations of the Clean Air Act (CAA) and the station’s operatingpermit.  **DP&L**,on behalf of all co-owners, is leading the defense of this matter.  A sizable amount of discovery has takenplace, including depositions, and most expert reports have been submitted.  In order to allow the parties additional timeto attempt to negotiate a settlement, the proceeding is currently subject to astay, at least until a pre-hearing conference scheduled for May 15, 2008,with the judge.  Settlement negotiationsare ongoing.

 

***Noticesof Violation 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 and Ohio EPA, and **DP&L** has provided data to those agencies regarding itsmaintenance expenses and operating results and recommendations that hadpreviously been made by consultants to **DP&L**.  Additional information was provided to theU.S. Department of Justice in response to a request made on January 28,2008, for additional information regarding **DP&L’s**actions taken in response to the recommendations in the consultants’ reportsthat **DP&L** had provided to USEPA and OhioEPA.  **DP&L**is unable to determine whether any additional actions will take place withrespect to this matter.

 

28

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***Noticesof Violation Involving Co-Owned Plants***

On March 13, 2008,Duke Energy Ohio, the operator of the Zimmer generating station, received a NOVand a Finding of Violation from the USEPA alleging violations of the CAA, theOhio State Implementation Program (SIP) and permits for the Station in areasincluding 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 is expected to act on behalf of itself and the co-owners with respect tothis matter.  **DP&L**is unable to determine whether any additional actions will take place withrespect to this matter.

 

***EnvironmentalRegulation and Litigation Related to Air Quality***

OnFebruary 8, 2008, a three-judge panel of the Court of Appeals, D.C.Circuit, struck down the USEPA regulations that were designed to establish atrading program for mercury emissions, finding that the USEPA had not compliedwith statutory requirements applicable to “de-listing” mercury as a hazardousair pollutant and that a cap-and-trade approach was not authorized by law for “listed”hazardous air pollutants.  The USEPA anda group representing utilities have filed a request for rehearing en banc(i.e., a rehearing before all the D.C. Circuit judges).  Irrespective of whether that request isgranted or denied, the final order will be subject to appeal in the U.S.Supreme Court, which has a discretionary power to decide whether or not to hearan appeal.  Due to the ongoinguncertainties associated with an appeal that may be taken by the D.C. Circuitor the U.S. Supreme Court and the USEPA regulatory process, if the three-judgepanel’s ruling is not reversed, we cannot project the final costs we may incurto comply with any resulting mercury restriction regulations.

 

***Updates to Environmental Regulation and LitigationRelated to 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 USEPA for reconsideration. Several parties have petitioned the U.S. Supreme Court for review of the lowercourt decision.  On April 14, 2008,the Supreme Court elected to review the lower court decision on the issue ofwhether USEPA can compare costs with benefits in determining the besttechnology available for minimizing adverse environmental impact at coolingwater intake structures.  The timing ofthe conclusion of this review is still uncertain at this time.

 

On February 5, 2008,we received a letter from Ohio EPA indicating that they intend to impose acompliance schedule, as part of the final National Pollutant DischargeElimination System (NPDES) Permit, that requires us to implement one of twodiffuser options for the discharge of water from the Stuart station into theOhio River as identified in the thermal discharge study conducted pursuant torequirements contained in a previous permit. The two diffuser options identified by Ohio EPA could cost approximately$33 million based on preliminary cost estimates, of which our pro-rata share wouldbe approximately $11.5 million.  On March 6,2008, representatives from **DP&L** metwith Ohio EPA to discuss the issue and reiterate our position that diffuserswere not cost-effective.  We agreed toexplore other potential solutions and share findings with Ohio EPA.

 

***FGDProject Implementation***

Installation of flue gasdesulfurization (FGD) equipment on Stuart station units 3 and 4 wassuccessfully completed during the three months ended March 31, 2008.  The remaining two Stuart units are scheduledto be commissioned prior to June 2008.

 

 

**FINANCIAL OVERVIEW**

 

As more fullydiscussed in later sections of this Form 10-Q, the following weresignificant themes and events for the three months ended March 31, 2008:

 
| · | During the three months ended March 31, 2008, **DP&L** sold excess emission allowances to various  counterparties for a total of $26.7 million. Costs associated with such sales  amounted to $0.2 million, resulting in total net gains of $26.5 million. In  the fourth quarter of 2007, **DP&L**  began planning for and managing its excess allowances as part of its  operations. Accordingly, such gains are recorded as a component of **DP&L’s** fuel costs and reflected in operating income. |
|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |
| · | **DPL’s** revenues for the three months ended March 31,  2008 increased 10% over the same period in 2007 mainly due to colder weather  and the effect of the environmental investment and other regulated asset  recovery riders.  For the three months ended March 31, 2008, **DPL’s** fuel costs, excluding the gains from the sale of  emission allowances discussed above, decreased slightly while purchased power  costs increased over                                                       |

 

29

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|   | the same period in 2007. Operation and maintenance  expense decreased 10% from the same period in 2007.                                                                                                                                                                                                                                                                                                                                                                                                   |
|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |
| · | **DP&L’s** revenues for the three months ended March 31,  2008 increased 10% over the same period in 2007 mainly due to colder weather  and the effect of the environmental investment and other regulated asset  recovery riders.  For the three months ended March 31, 2008, **DP&L’s** fuel costs, excluding the gains from the sale  of emission allowances discussed above, decreased slightly while purchased  power costs increased over the same period in 2007. |

 

30

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**RESULTS OFOPERATIONS — DPL Inc.**

 

**DPL’s**results of operations includethe results of its subsidiaries, including the consolidated results of **DP&L** and all of **DP&L’s**consolidated subsidiaries.  **DP&L**provides approximately 99% of the total revenues of**DPL. **Allmaterial intercompany accounts and transactions have been eliminated inconsolidation.  A separate specificdiscussion of the results of operations for **DP&L**is presented elsewhere in this report.

 

**Income Statement Highlights****—****DPL**

** **
| ** **                                 | ** ** | **Three Months Ended** | ** ** |
|--------------------------------------------|------------|------------------------|------------|
| ** **                                 | ** ** | **March 31,**     | ** ** |
| **$ in millions**                     | ** ** | **2008**               | ** ** | **2007** | ** ** |
|                                       |       |                   |       |   |   |
| **Revenues:**                              | ** ** | ** **             | ** ** | ** ** | ** ** |
| Retail                                     | ** ** | **$**                  | **318.1**  |   | $ | 304.5 |   |
| Wholesale                                  | ** ** | **57.1**               |       | 56.7 |   |
| RTO services                               | ** ** | **24.9**               |       | 15.7 |   |
| Capacity revenues                          | ** ** | **13.2**               |       | — |   |
| Other revenues                             | ** ** | **2.8**                |       | 2.8 |   |
| Total revenues                             | ** ** | **$**                  | **416.1**  |   | $ | 379.7 |   |
|                                       |       |                   |       |   |   |
| **Cost of revenues:**                      | ** ** | ** **             | ** ** | ** ** | ** ** |
| Fuel                                       | ** ** | **$**                  | **88.4**   |   | $ | 90.3 |   |
| Gains from sale of emission allowances (c) | ** ** | **(26.5**              | **)**      | — |   |
| Purchased power                            | ** ** | **59.0**               |       | 39.8 |   |
| RTO ancillary charges (b)                  | ** ** | **11.9**               |       | 12.4 |   |
| Capacity charges (b)                       | ** ** | **12.1**               |       | — |   |
| Gross margins (a)                          | ** ** | **$**                  | **271.2**  |   | $ | 237.2 |   |
|                                       |       |                   |       |   |   |
| Gross margin as a  percentage of revenues  | ** ** | **65.2**               | **%**      | 62.5 | % |
|                                       |       |                   |       |   |   |
| **Operating income**                       | ** ** | **$**                  | **142.7**  |   | $ | 103.5 |   |
|                                       |       |                   |       |   |   |
| **Earnings per share:**                    | ** ** | ** **             | ** ** | ** ** | ** ** |
| Continuing operations                      | ** ** | **$**                  | **0.71**   |   | $ | 0.48 |   |
| Discontinued operations                    | ** ** | **$**                  | **—** |   | $ | 0.04 |   |
| Net income                                 | ** ** | **$**                  | **0.71**   |   | $ | 0.52 |   |

 

----

| *(a)* | *For purposes of discussing operating results, we  present and discuss gross margins. This format is useful to investors because  it allows analysis and comparability of operating trends and includes the  same information that is used by management to make decisions regarding our  financial performance.* |
|-------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| *(b)* | *RTO ancillary and capacity charges are included in  total purchased power in the Condensed Consolidated Statements of Results of  Operations.*                                                                                                                                                                   |
| *(c)* | *Gains from the sale of emission allowances are  included in fuel costs in the Condensed Consolidated Statements of Results of  Operations.*                                                                                                                                                                      |

 

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**DPL Inc. —Revenues**

Retail customers, especiallyresidential and commercial customers, consume more electricity on warmer andcolder days. Therefore,**DPL’s**retail sales volume is impacted by the number of heating and cooling degreedays occurring during a year.  Since**DPL**plans to utilize its internal generating capacity to supply its retailcustomers’ needs first, increases in retail demand will decrease the volume ofinternal generation available to be sold in the wholesale market and viceversa.

 

Thewholesale market covers a multi-state area and settles on an hourly basisthroughout the year. Factors impacting**DPL’s**wholesale sales volume each hour of the year include wholesale market prices;**DPL’s** retail demand; retail demandelsewhere throughout the entire wholesale market area;**DPL** and non-**DPL** plants’ availability to sell into the wholesale market andweather conditions across the multi-state region.**DPL’s** plan is to make wholesale sales when market pricesallow for the economic operation of its generation facilities not beingutilized to meet its retail demand.

 

Thefollowing table provides a summary of changes in revenues from the priorperiod:

 
| ** **                         | ** ** | **Three Months Ended** | ** ** |
|------------------------------------|------------|------------------------|------------|
| ** **                         | ** ** | **March 31,**     | ** ** |
| **$ in millions**             | ** ** | **2008 vs. 2007**      | ** ** |
|                               |       |                   |       |
| **Retail**                         | ** ** | ** **             | ** ** |
| Rate                               |       | $                      | 8.5        |   |
| Volume                             |       | 5.4                    |       |
| Other                              |       | (0.3                   | )          |
| **Total retail change**            | ** ** | **$**                  | **13.6**   | ** ** |
|                               |       |                   |       |
| **Wholesale**                      | ** ** | ** **             | ** ** |
| Rate                               |       | $                      | 11.6       |   |
| Volume                             |       | (11.2                  | )          |
| **Total wholesale change**         | ** ** | **$**                  | **0.4**    | ** ** |
|                               |       |                   |       |
| **RTO ancillary & other** | ** ** | ** **             | ** ** |
| RTO services                       |       | **$**                  | **22.4**   |   |
| ** **                         | ** ** | ** **             | ** ** |
| **Total revenues**                 | ** ** | **$**                  | **36.4**   | ** ** |

 

 

Forthe three months ended March 31, 2008, revenues increased $36.4 million,or 10%, to $416.1 million from $379.7 million for the same period in the prioryear.  This increase was primarily the result of higher average rates forretail and wholesale sales, higher retail sales volume, and an increase in RTOancillary revenue.  Retail revenues increased $13.6 million resultingprimarily from a 3% increase in average retail rates due largely to the secondphase of the environmental investment rider (EIR) combined with a 2% increase inweather-driven sales volume.  Theseincreases resulted in a favorable $8.5 million price variance and a $5.4million sales volume variance for retail revenues.  Wholesale revenues increased$0.4 million for the three months ended March 31, 2008 primarily as aresult of a 25% increase in wholesale average rates, partially offset by a 20%decrease in sales volume.  This resultedin a favorable $11.6 million wholesale price variance and an unfavorable $11.2million volume variance.  For the threemonths ended March 31, 2008, RTO ancillary and other revenues, consistingprimarily of compensation for use of **DP&L’s**transmission assets, regulation services, reactive supply and operatingreserves, and capacity payments under the RPM construct, increased $22.4million compared to the same period in the prior year. This increase primarilyresulted from $13.2 million realized from the PJM capacity auction and $9.2million of PJM transmission and congestion revenues. RTO ancillary revenues fromthe PJM capacity auction are substantially offset by RTO ancillary charges forPJM capacity charges included in purchased power.  Other RTO ancillary revenues are offset byother RTO ancillary charges in purchased power.

 

## **DPLInc. — Margins, Fuel and Purchased Power**

Forthe three months ended March 31, 2008, gross margin of $271.2 millionincreased $34.0 million, or 14%, from $237.2 million in the same period of theprior year.  As a percentage of totalrevenues, gross margin increased to 65.2% in 2008 compared to 62.5% in2007.  This result primarily reflects thefavorable impact of the gains realized from the sale of excess emissionallowances, which are recorded as a component of fuel costs, as well as theimpact of retail revenues discussed above, partially offset by increasedpurchased power 

 

32

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costs.  Fuel costs, which include coal, gas, oil, andemission allowance costs, decreased $28.4 million, or 31%, in the three monthsended March 31, 2008 compared to the same period in 2007, primarily due tonet gains of $26.5 million realized from the sale of **DP&L’s**excess emission allowances.  During the quarterended December 31, 2007, **DP&L** beganplanning for and managing the excess allowances as part of its operations and,during 2008, began recording gains or losses resulting from their sale as acomponent of fuel costs.  Purchased powerincreased $30.8 million in the three months ended March 31, 2008 comparedto the same period in 2007.  The increasein purchased power primarily results from a $22.6 million increase relating tohigher average market rates, partially offset by a $3.4 million decreaserelating to lower volumes of purchased power. Also included in purchased power is a $12.1 million increase related toRTO ancillary charges for PJM capacity charges. We purchase power to satisfyincreasing retail sales volume when generating facilities are not available dueto planned and unanticipated outages, or when market prices are below themarginal costs associated with our higher cost generating facilities.  The RTO ancillary charges for PJM capacityare substantially offset by RTO ancillary revenues for PJM capacity resultingin minimal impact to gross margin.

 

**DPL Inc.**—**Operation and Maintenance**

** **
| ** **                                          | ** ** | **Three Months Ended** | ** ** |
|-----------------------------------------------------|------------|------------------------|------------|
| ** **                                          | ** ** | **March 31,**     | ** ** |
| **$ in millions**                              | ** ** | **2008 vs. 2007**      | ** ** |
| Boiler maintenance costs                            |       | $                      | 4.1        |   |
| Generating facilities  operating expenses           |       | 2.0                    |       |
| Turbine maintenance costs                           |       | 1.2                    |       |
| Legal costs                                         |       | (7.1                   | )          |
| Deferred compensation  (mark-to-market adjustments) |       | (5.8                   | )          |
| Other, net                                          |       | (1.3                   | )          |
| **Total operation and maintenance expense**         |       | $                      | (6.9       | ) |

 

For the threemonths ended March 31, 2008, operation and maintenance expense decreased$6.9 million, or 10%, compared to the same period in 2007.  This variance was primarily the result of a$7.1 million decrease in legal costs due largely to the litigation settlementwith three of our former executives in May 2007, and a $5.8 milliondecrease in deferred compensation costs (mark-to-market adjustments) primarilyassociated with deferred compensation liabilities for the three formerexecutives.  These decreases werepartially offset by increased boiler maintenance costs of $4.1 million, a $2.0million increase related to operating expenses for the generating facilities,and a $1.2 million increase related to turbine maintenance costs.

 

## **DPLInc. — Investment Income**

Forthe three months ended March 31, 2008, investment income decreased $1.3million to $1.7 million compared to the same period in 2007.  This decrease was primarily the result oflower cash and short-term investment balances in 2008 compared to 2007.

 

**DPL Inc**. —**Interest Expense**

Interest expense for the three months ended March 31, 2008 decreased $2.1 million, or 9%, compared tothe same period in 2007 resulting primarily from the redemption of **DPL** debt ($225 million 8.25% Senior Notes) and partiallyoffset by the additional interest expense associated with **DP&L’s**$90million variable rate pollution control bonds issued November 15, 2007.

 

## **DPLInc. — Other Income (Deductions)**

Forthe three months ended March 31, 2008, other deductions of $0.7 millionchanged from other income of $0.8 million recorded for the same period of theprior year.  This change from otherincome to other deductions primarily resulted from $0.4 million of charitabledonations in the three months ended March 31, 2008 and $0.7 million ofgains realized from the sale of NOx allowances for the same periodin 2007.  During the quarter ended December 31,2007, **DP&L** began planning for andmanaging its excess allowances as part of its operations.  Accordingly, such gains that were recorded inother income and deductions are now recorded as a component of **DP&L’s** fuel costs and reflected in operating income.

 

## **DPLInc. — Income Tax Expense**

Forthe three months ended March 31, 2008, income taxes from continuingoperations increased $12.4 million, or 38%, compared to the same period in2007, primarily reflecting an increase in pre-tax book income, partially offsetby a decrease in the effective tax rate resulting from the phase-out of theOhio Franchise Tax.

 

33

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**RESULTS OFOPERATIONS — The Dayton Power and Light Company (DP&L)**

 

**IncomeStatement Highlights — DP&L**

** **
| ** **                                 | ** ** | **Three Months Ended** | ** ** |
|--------------------------------------------|------------|------------------------|------------|
| ** **                                 | ** ** | **March 31,**     | ** ** |
| **$ in millions**                     | ** ** | **2008**               | ** ** | **2007** | ** ** |
|                                       |       |                   |       |   |   |
| **Revenues:**                              | ** ** | ** **             | ** ** | ** ** | ** ** |
| Retail                                     | ** ** | **$**                  | **282.8**  |   | $ | 271.8 |   |
| Wholesale                                  | ** ** | **93.0**               |       | 90.0 |   |
| RTO services                               | ** ** | **24.9**               |       | 15.7 |   |
| Capacity revenues                          | ** ** | **13.2**               |       | — |   |
| Total revenues                             | ** ** | **$**                  | **413.9**  |   | $ | 377.5 |   |
|                                       |       |                   |       |   |   |
| **Cost of revenues:**                      | ** ** | ** **             | ** ** | ** ** | ** ** |
| Fuel                                       | ** ** | **$**                  | **87.2**   |   | $ | 89.5 |   |
| Gains from sale of emission allowances (c) | ** ** | **(26.5**              | **)**      | **—** | ** ** |
| Purchased power                            | ** ** | **59.9**               |       | 40.3 |   |
| RTO ancillary charges (b)                  | ** ** | **11.9**               |       | 12.4 |   |
| Capacity charges (b)                       | ** ** | **12.1**               |       | — |   |
| Gross margins (a)                          | ** ** | **$**                  | **269.3**  |   | $ | 235.3 |   |
|                                       |       |                   |       |   |   |
| Gross margin as a  percentage of revenues  | ** ** | **65.1**               | **%**      | 62.3 | % |
|                                       |       |                   |       |   |   |
| **Operating Income**                       | ** ** | **$**                  | **146.4**  |   | $ | 114.7 |   |

 

----

| *(a)* | *For purposes of discussing  operating results, we present and discuss gross margins. This format is  useful to investors because it allows analysis and comparability of operating  trends and includes the same information that is used by management to make  decisions regarding our financial performance.* |
|-------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| *(b)* | *RTO ancillary and capacity  charges are included in total purchased power in the Condensed Consolidated  Statements of Results of Operations.*                                                                                                                                                                   |
| *(c)* | *Gains from the sale of emission allowances are included in  fuel costs in the Condensed Consolidated Statements of Results of Operations.*                                                                                                                                                                       |

 

 

**DP&L —Revenues**

Retailcustomers, especially residential and commercial customers, consume moreelectricity on warmer and colder days. Therefore,**DP&L’s** retail sales volume is impacted by the number ofheating and cooling degree days occurring during a year.  Since**DP&L** plans to utilize its internalgenerating capacity to supply its retail customers’ needs first, increases inretail demand will decrease the volume of internal generation available to besold in the wholesale market and vice 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.

 

34

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Thefollowing table provides a summary of changes in revenues from the priorperiod:

 
| ** **                 | ** ** | **Three Months Ended** | ** ** |
|----------------------------|------------|------------------------|------------|
| ** **                 | ** ** | **March 31,**     | ** ** |
| **$ in millions**     | ** ** | **2008 vs. 2007**      | ** ** |
|                       |       |                   |       |
| **Retail**                 | ** ** | ** **             | ** ** |
| Rate                       |       | $                      | 6.5        |   |
| Volume                     |       | 4.8                    |       |
| Other miscellaneous        |       | (0.3                   | )          |
| **Total retail change**    | ** ** | **$**                  | **11.0**   | ** ** |
|                       |       |                   |       |
| **Wholesale**              | ** ** | ** **             | ** ** |
| Rate                       |       | $                      | 20.8       |   |
| Volume                     |       | (17.8                  | )          |
| **Total wholesale change** | ** ** | **$**                  | **3.0**    | ** ** |
|                       |       |                   |       |
| **RTO ancillary**          | ** ** | ** **             | ** ** |
| RTO services               | ** ** | **$**                  | **22.4**   | ** ** |
| ** **                 | ** ** | ** **             | ** ** |
| **Total revenues**         | ** ** | **$**                  | **36.4**   | ** ** |

 

Forthe three months ended March 31, 2008, revenues increased $36.4 million,or 10%, to $413.9 million from $377.5 million in the same period of the prioryear.  This increase was primarily the result of higher average rates forretail and wholesale sales, higher retail sales volume, and an increase in RTOancillary revenue.  Retail revenues increased $11.0 million resultingprimarily from a 2% increase in average retail rates due largely to the secondphase of the EIR, combined with a 2% increase in weather-driven sales volume.  These increases resulted in a favorable $6.5million price variance and a $4.8 million sales volume variance for retailrevenues.  Wholesale revenues increased$3.0 million, for the three months ended March 31, 2008, primarily as aresult of a 29% increase in wholesale average rates, partially offset by a 20%decrease in sales volume.  This resultedin a favorable $20.8 million wholesale price variance and an unfavorable $17.8million volume variance.  For the threemonths ended March 31, 2008, RTO ancillary and other revenues, consistingprimarily of compensation for use of **DP&L’s**transmission assets, regulation services, reactive supply and operatingreserves, and capacity payments under the RPM construct, increased $22.4million compared to the same period in the prior year.  This increase primarily resulted from $13.2million realized from the PJM capacity auction and $9.2 million of PJMtransmission and congestion revenues. RTO ancillary revenues from the PJM capacity auction are substantiallyoffset by RTO ancillary charges for PJM capacity charges included in purchasedpower.  Other RTO ancillary revenues areoffset by other RTO ancillary charges in purchased power.

 

## **DP&L— Margins, Fuel and Purchased Power**

Forthe three months ended March 31, 2008, gross margin of $269.3 millionincreased $34.0 million, or 14%, from $235.3 million in the same period of theprior year.  As a percentage of totalrevenues, gross margin increased to 65.1% in 2008 compared to 62.3% in2007.  This result primarily reflects thefavorable impact of the gains realized from the sale of excess emissionallowances, which are recorded as a component of fuel costs, as well as theimpact of both retail and wholesale revenues discussed above partially offsetby increased purchased power costs.  Fuelcosts, which include coal, gas, oil, and emission allowance costs, decreased$28.8 million, or 32%, in the three months ended March 31, 2008, comparedto the same period in 2007, primarily due to net gains of $26.5 millionrealized from the sale of **DP&L’s**excess emission allowances.  During the quarterended December 31, 2007, **DP&L** beganplanning for and managing the excess allowances as part of its operations and,during 2008, began recording the gains or losses resulting from their sale as acomponent of fuel costs.  Purchased powerincreased $31.2 million in the three months ended March 31, 2008 comparedto the same period in 2007.  The increasein purchased power primarily results from a $23.3 million increase relating tohigher average market rates, partially offset by a $3.7 million decreaserelating to lower volumes of purchased power. Also included in purchased power is a $12.1 million increase related toRTO ancillary charges for PJM capacity charges. We purchase power to satisfyincreasing retail sales volume when generating facilities are not available dueto planned and unanticipated outages or when market prices are below themarginal costs associated with our higher cost generating facilities. The RTO ancillary charges for PJM capacity are substantially offset byRTO ancillary revenues for PJM capacity resulting in minimal impact to grossmargin.

 

35

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

** **
| ** **                                          | ** ** | **Three Months Ended** | ** ** |
|-----------------------------------------------------|------------|------------------------|------------|
| ** **                                          | ** ** | **March 31,**     | ** ** |
| **$ in millions**                              | ** ** | **2008 vs. 2007**      | ** ** |
| Boiler maintenance costs                            |       | $                      | 4.1        |   |
| Generating facilities  operating expenses           |       | 2.0                    |       |
| Turbine maintenance costs                           |       | 1.2                    |       |
| Deferred compensation  (mark-to-market adjustments) |       | (5.8                   | )          |
| Other, net                                          |       | (1.3                   | )          |
| **Total operation and maintenance expense**         |       | $                      | 0.2        |   |

 

For the three months ended March 31,2008, operation and maintenance expense increased $0.2 million compared to thesame period in 2007.  This variance wasprimarily the result of increased boiler maintenance costs of $4.1 million, a$2.0 million increase related to operating expenses for the generatingfacilities, and a $1.2 million increase related to turbine maintenancecosts.  These increases were partiallyoffset by a $5.8 million decrease in deferred compensation costs(mark-to-market adjustments) primarily associated with deferred compensationliabilities for three of our former executives.

 

**DP&L**—**Interest Expense**

Interestexpense for the three months ended March 31, 2008 increased $1.2 million,or 22%, compared to the same period of the prior year primarily as a result ofthe additional interest expense associated with **DP&L’s**$90million variable rate pollution control bonds issued November 15, 2007.

 

## **DP&L— Other Income (Deductions)**

Forthe three months ended March 31, 2008, other deductions of $0.7 millionchanged from other income of $0.8 million for the same period in the prioryear.  This change from other income toother deductions primarily resulted from $0.4 million of charitable donationsfor the three months ended March 31, 2008, and $0.7 million of gainsrealized from the sale of NOx allowances for the sameperiod in 2007.  During the three monthsended December 31, 2007, **DP&L** beganplanning for and managing its excess allowances as part of its operations.  Accordingly, such gains that were recorded inother income and deductions are now recorded as a component of **DP&L’s** fuel costs and reflected in operating income.

 

## **DP&L— Income Tax Expense**

Forthe three months ended March 31, 2008, income taxes increased $9.8million, or 23%, compared to the same period in the prior year, primarilyreflecting an increase in pre-tax book income, partially offset by a decreasein the effective tax rate resulting from the phase-out of the Ohio FranchiseTax.

 

 

**FINANCIALCONDITION, LIQUIDITY AND CAPITAL REQUIREMENTS**

 

**DPL’s**financial condition,liquidity and capital requirements, includes the consolidated results of **DP&L** and all of **DP&L’s** consolidated subsidiaries.  All material intercompany accounts andtransactions have been eliminated in consolidation.

 

Duringthe fourth quarter ended December 31, 2007, we identified immaterial changes incertain accounts payable balances that had not been correctly presented in ourprior period cash flow statements.  Changes in accounts payable balancesrepresenting capital expenditures had previously been classified with cashflows from operating activities and should have been classified with capitalexpenditures as part of investing activities.  Accordingly, the CondensedConsolidated Statements of Cash Flows for all periods presented have beenreclassified to conform to the current presentation.  See Note 1 of Notes to Condensed ConsolidatedFinancial Statements.

 

36

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**DPL’sCash Position**

**DPL’s** cash and cash equivalents totaled $197.2 million atMarch 31, 2008, compared to $134.9 million at December 31, 2007, anincrease of $62.3 million.  The increasein cash and cash equivalents was primarily attributed to cash generated fromoperating activities of $149.7 million and $6.6 million restricted funds drawnto fund pollution control capital expenditures, partially offset by $65.3million in capital expenditures and $29.9 million in dividends paid on commonstock.  At March 31, 2008, **DPL** had $30.3 million in restricted funds held in trustrelating to the 2007 issuance of $90.0 million in pollution control bonds.  On April 4, 2008, **DP&L**repurchased the bonds from bondholders, and will hold them in trust while itcontinues to evaluate market conditions and explore suitable long-termfinancing alternatives (see Notes 4 and 10 of Notes to Condensed ConsolidatedFinancial Statements).  The restrictedfunds will continue to be held in trust until we make a decision either toreissue the bonds or to cancel them.

 

**DP&L’sCash Position**

**DP&L’s** cash and cash equivalents totaled $22.5 million at March 31,2008, compared to $13.2 million at December 31, 2007, an increase of $9.3million.  The increase in cash and cashequivalents was primarily attributed to $167.9 million in cash generated fromoperating activities, and $6.6 million restricted funds drawn to fund pollutioncontrol capital expenditures, partially offset by $65.0 million in capitalexpenditures, $80.0 million in dividends paid on common stock to our parent **DPL,** and a $20.0 million short-term loan repayment to **DPL**.  At March 31,2008, **DP&L** had $30.3 million inrestricted funds held in trust relating to the 2007 issuance of $90.0 millionin pollution control bonds.  On April 4,2008, **DP&L** repurchased the bonds frombondholders, and will hold them in trust while it continues to evaluate marketconditions and explore suitable long-term financing alternatives (see Notes 4and 10 of Notes to Condensed Consolidated Financial Statements).  The restricted funds will continue to be heldin trust until we make a decision either to reissue the bonds or to cancelthem.

 

**Operating Activities**

 

Forthe three months ended March 31, 2008 and 2007, cash flows from operationswere as follows:

 
| **Net Cash provided by Operating Activities** | ** ** |
|-----------------------------------------------|------------|
| ** **                                    | ** ** | ** ** | ** ** |
| ** **                                    | ** ** | **Three Months Ended** | ** ** |
| ** **                                    | ** ** | **March 31,** | ** ** |
| **$ in millions**                        | ** ** | **2008** | ** ** | **2007** | ** ** |
|                                          |       |   |   |   |   |
| **DPL**                                       | ** ** | **$** | **149.7** |   | $ | 107.6 |   |
| ** **                                    | ** ** | ** ** | ** ** | ** ** | ** ** |
| **DP&L**                                  | ** ** | **$** | **167.9** |   | $ | 147.5 |   |

 

Thetariff-based revenue from our energy business continues to be the principalsource of cash from operating activities. Management believes that the diversified retail customer mix ofresidential, commercial, and industrial classes coupled with the rate reliefapproved by the PUCO for 2006 and beyond provides us with a reasonablypredictable gross cash flow from operations.

 

**DPL’s Cash provided by Operating Activities**

**DPL** generated net cash from operating activitiesof $149.7 million and $107.6 million in the three month periods ended March 31,2008 and 2007, respectively.  The netcash provided by operating activities for 2008 and 2007 was primarily theresult of cash received from utility customers, partially offset by cash usedfor fuel, purchased power, operating expenditures, interest, and taxes.  The fluctuations in working capital resultfrom the timing of payments made and cash receipts from our utility customers.

 

**DP&L’s Cash provided by Operating Activities**

**DP&L** generated net cash fromoperating activities of $167.9 million and $147.5 million in the three monthperiods ended March 31, 2008 and 2007, respectively.  The net cash provided by operating activitiesfor 2008 and 2007 was primarily the result of cash received from utilitycustomers, partially offset by cash used for fuel, purchased power, operatingexpenditures, interest and taxes.  Thefluctuations in working capital result from the timing of payments made andcash receipts from our utility customers.

 

37

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**Investing Activities**

 

Forthe three months ended March 31, 2008 and 2007, cash flows from investingactivities were as follows:

 
| **Net  Cash used for Investing Activities** | ** ** |
|---------------------------------------------|------------|
| ** **                                  | ** ** | ** ** | ** ** | ** ** | ** ** |
| ** **                                  | ** ** | **Three Months Ended** | ** ** |
| ** **                                  | ** ** | **March 31,** | ** ** |
| **$ in millions**                      | ** ** | **2008** | ** ** | **2007** | ** ** |
|                                        |       |   |   |   |   |
| **DPL**                                     | ** ** | **$** | **(65.3** | **)** | $ | (91.0 | ) |
| ** **                                  | ** ** | ** ** | ** ** | ** ** | ** ** |
| **DP&L**                                | ** ** | **$** | **(65.0** | **)** | $ | (90.1 | ) |
|                                             |            |  |  |  |  |  |  |  |

 

**DPL’s Cash used for Investing Activities**

**DPL’s**net cash used forinvesting activities was $65.3 million and $91.0 million in the three monthperiods ended March 31, 2008 and 2007, respectively.  Net cash flows used for investing activitiesduring both of these periods were related to capital expenditures.

 

**DP&L’s Cash used for Investing Activities**

**DP&L’s** net cash used for investingactivities were $65.0 million and $90.1 million in the three month periodsended March 31, 2008 and 2007, respectively.  Net cash flows used for investing activitiesduring both these periods were related to capital expenditures.

 

**Financing Activities**

 

Forthe three months ended March 31, 2008 and 2007, cash flows from financingactivities were as follows:

 
| **Net  Cash used for Financing Activities** | ** ** |
|---------------------------------------------|------------|
| ** **                                  | ** ** | ** ** | ** ** | ** ** | ** ** |
| ** **                                  | ** ** | **Three Months Ended** | ** ** |
| ** **                                  | ** ** | **March 31,** | ** ** |
| **$ in millions**                      | ** ** | **2008** | ** ** | **2007** | ** ** |
|                                        |       |   |   |   |   |
| **DPL**                                     | ** ** | **$** | **(22.1** | **)** | $ | (172.4 | ) |
| ** **                                  | ** ** | ** ** | ** ** | ** ** | ** ** |
| **DP&L**                                | ** ** | **$** | **(93.6** | **)** | $ | (50.1 | ) |
|                                             |            |  |  |  |  |  |  |  |  |  |

 

**DPL’s Cash used for Financing Activities**

**DPL’s**net cash used forfinancing activities in the three months ended March 31, 2008 were $22.1 million compared to $172.4 million during the same periodof the prior year.  Net cash flows usedfor financing activities in the three months ended March 31, 2008 wereprimarily the result of cash used to pay dividends of $29.9 million tostockholders, partially offset by withdrawals of $6.6 million from therestricted funds held in trust.  Net cashflows used for financing activities in the three months ended March 31,2007 were the result of cash used to redeem the $225 million 8.25% Senior Noteson March 1, 2007 and to pay dividends of $27.8 million to stockholders,partially offset by a $65.0 million draw on our revolving credit facility andwithdrawing $10.1 million from the restricted funds held in trust.

 

**DP&L’s Cash used for Financing Activities**

**DP&L’s** net cash used for financingactivities in the three months ended March 31, 2008 were $93.6 millioncompared to $50.1 million during the same period of the prior year.  Net cash flows used for financing activitiesin the three months ended March 31, 2008 were primarily the result of cashused to pay common stock dividends of $80.0 million to our parent **DPL** and a short-term repayment to **DPL**of $20.0 million, partially offset by withdrawals of $6.6 million fromrestricted funds held in trust.  Net cashflows used for financing activities for the three months ended March 31,2007 were primarily the result of cash used to pay common stock dividends of$125.0 million to our parent **DPL,** partiallyoffset by a $65.0 million draw on our revolving credit facility and $10.1million of withdrawals from restricted funds held in trust.

 

38

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**DPL** and **DP&L** haveobligations to make future payments for capital expenditures, debt agreements,lease agreements and other long-term purchase obligations, and have certaincontingent commitments such as guarantees. We believe our cash flows from operations, the credit facilities(existing or future arrangements), the senior notes and other short- andlong-term debt financing, will be sufficient to satisfy our future workingcapital, capital expenditures and other financing requirements for the foreseeablefuture.  Our ability to generate positivecash flows is dependent on general economic conditions, competitive pressuresand other business and risk factors described in Item 1a of our Annual Reportof Form 10-K for the fiscal year ended December 31, 2007.  If we are unable to generate sufficient cashflows, or otherwise comply with the terms of our credit facilities, the seniornotes and other long-term debt, we may be required to refinance all or aportion of our existing debt or seek additional financing alternatives.  A discussion of each of our criticalliquidity commitments is outlined below.

 

**Capital Requirements**

**DPL’s**construction additions were $46.4 million and $78.9 million during thethree month periods ended March 31, 2008 and 2007, respectively.  **DPL** is expectedto spend approximately $225 million in 2008.

 

**DP&L’s**construction additions were $46.1 million and $78.0 million during thethree month periods ended March 31, 2008 and 2007, respectively.  **DP&L**is****expected to spend approximately $223 million in 2008.  Planned construction additions for 2008relate to **DP&L’s** environmentalcompliance program, power plant equipment, and its transmission anddistribution system.

 

Capital projects aresubject to continuing review and are revised in light of changes in financialand economic conditions, load forecasts, legislative and regulatorydevelopments and changing environmental standards, among other factors.  Over the next three years, **DPL,** through its subsidiary **DP&L,**is projecting to spend an estimated $510 millionin capital projects.   In our AnnualReport of Form 10-K for the fiscal year ended December 31, 2007, wereported our estimated capital spending to be approximately $490 million.  This change is primarily due to expected costincreases relating to the ongoing flue gas desulfurization project at Stuartstation.  Our ability to complete capitalprojects and the reliability of future service will be affected by ourfinancial condition, the availability of internal funds, and the reasonablecost of external funds.  We expect tofinance our construction additions in 2008 with a combination of cash on hand,short-term financing, long-term debt, and cash flows from operations.

 

**Debt**

Duringthe three months ended March 31, 2006, the Ohio Department of Development(ODOD) awarded **DP&L** the ability to issue,over the next three years, up to $200 million of qualified tax-exempt financingfrom the ODOD’s 2005 volume cap carryforward.  On September 13, 2006, theOhio Air Quality Development Authority (OAQDA) issued $100 million of 4.80%fixed interest rate OAQDA Revenue bonds 2006 Series A due September 1,2036.  In turn, **DP&L**borrowed these funds from the OAQDA. These funds were placed in escrow with a trustee and, as of April 3,2007, **DP&L** had drawn out the entirety ofthe funds.

 

OnNovember 15, 2007, the OAQDA issued $90 million of insured,collateralized, variable rate OAQDA Revenue bonds due November 1,2040.  In turn, **DP&L**borrowed these funds from the OAQDA.  **DP&L** subsequently repurchased these bonds from thebondholders on April 4, 2008.  Thistransaction is further discussed in Notes 4 and 10 of Notes to CondensedConsolidated Financial Statements.

 

**Debt Covenants**

Therehave been no changes to our debt covenants as disclosed in our Annual Report ofForm 10-K for the fiscal year ended December 31, 2007.  We are in compliance with all our debtcovenants.

 

**Credit Ratings**

Ourrating agencies upgraded our corporate credit and debt ratings.  The following table outlines the rating ofeach company and date of the upgrade:

 
|                                   |   | **DPL Inc.** | ** ** | **DP&L** | ** ** | **Outlook** | ** ** | **Effective**      |
|----------------------------------------|--------|--------------|------------|--------------|------------|-------------|------------|--------------------|
|                                   |   |         |       |         |       |        |       |               |
| Fitch Ratings                          |   | BBB+         |       | A+           |       | Positive    |       | April 2008    |
| Moody’s Investors  Service        |   | Baa2         |       | A2           |       | Stable      |       | November 2007 |
| Standard &  Poor’s Corp. |   | BBB-         |       | A-           |       | Positive    |       | April 2008    |

 

39

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**Off-BalanceSheet Arrangements**

 

**DPLInc. - Guarantees**

In the normal course ofbusiness, **DPL**enters into various agreements with ourwholly owned generating subsidiary DPLE providing financial or performanceassurance to third parties.  Theseagreements are entered into primarily to support or enhance thecreditworthiness otherwise attributed to DPLE on a stand-alone basis, thereby facilitating the extension ofsufficient credit to accomplish DPLE’s intended commercial purposes.  Suchagreements fall outside the scope of FASB Interpretation No. 45, “Guarantor’sAccounting and Disclosure Requirements for Guarantees, Including IndirectGuarantees of Indebtedness of Others.” There have been no material changes to our guarantees as disclosed inour Annual Report of Form 10-K for the fiscal year ended December 31,2007.

 

**Contractual Obligations**

Therehave been no material changes, outside the ordinary course of business, to theinformation disclosed in the contractual obligations table in our Annual Reportof Form 10-K for the fiscal year ended December 31, 2007 except thatrelating to the purchase, on April 4, 2008, of the $90 million variablerate OAQDA Revenue bonds.  This isdiscussed in Notes 4 and 10 of Notes to Condensed Consolidated FinancialStatements.

 

**Commercial Commitments**

Therehave been no material changes, outside the ordinary course of business, to ourcommercial commitments as disclosed in our Annual Report of Form 10-K forthe fiscal year ended December 31, 2007 except that relating to thepurchase, on April 4, 2008, of the $90 million variable rate OAQDA Revenuebonds.  These bonds were purchased using **DP&L’s** revolving credit line.  This is discussed in Notes 4 and 10 of Notesto Condensed Consolidated Financial Statements.

 

 

**MARKET RISK**

 

Inthe normal course of business, we are subject to certain market risksincluding, but not limited to, changes in commodity prices for electricity,coal, environmental emissions and gas, and fluctuations in interest rates.  Commodity pricing exposure includes theimpacts of weather, market demand, increased competition, and other economicconditions.  For purposes of potentialrisk analysis, we use sensitivity analysis to quantify potential impacts ofmarket rate changes on the results of operations. The sensitivity analysisrepresents hypothetical changes in market values that may or may not occur inthe future.

 

OurRisk Management Committee (RMC) is responsible for establishing risk managementpolicies and the monitoring and reporting of risk exposures. The RMC meets on aregular basis with the objective of identifying, assessing, and quantifyingmaterial risk issues and developing strategies to manage these risks.

 

**Commodity Pricing Risk**

Recently, the coal markethas experienced significant price increases. We are now in a global market for coal in which our domestic price isincreasingly affected by international supply disruptions and demandbalance.  Exports from the U.S. haveincreased significantly in recent years. In addition, domestic issues like government-imposed direct costs andpermitting issues are affecting mining costs and supply availability.  We have responded to increases in the priceof coal by entering into contracts to hedge our exposure to fuel requirementsand other energy-related commodities.  Wemay not be able to hedge the entire exposure of our operations from commodityprice volatility.  To the extent we arenot hedged against price volatility, our results of operations, financialposition, or cash flows could be materially affected.

 

Approximately14% of **DPL’s** and 22% of **DP&L’s**three months ended March 31, 2008 electric revenues were from sales of excessenergy and capacity in the wholesale market. Energy and capacity in excess of the needs of existing retail customersare sold in the wholesale market when we can identify opportunities withpositive margins. As of March 31, 2008, a hypothetical increase ordecrease of 10% in **DPL’s** annualwholesale revenues could result in approximately a $14 million increase ordecrease to net income, assuming no increases in fuel and purchased powercosts.  As of March 31, 2008, ahypothetical increase or decrease of 10% in **DP&L’s**annual wholesale revenues could result in approximately a $20 million increaseor decrease to net income, assuming no increases in fuel and purchased powercosts.

 

**DPL’s** fuel (including coal, gas, oil andemission allowances) and purchased power costs as a percent of total operatingcosts in the three months ended March 31, 2008 and 2007 were 53% and 52%,respectively.   **DP&L’s** fuel (including coal, gas, oiland emission allowances) and purchased power costs as a percent of total 

 

40

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operating costs were 54%for both the three month periods ending March 31, 2008 and 2007.  We have substantially all of the totalexpected coal volume needed to meet our retail and firm wholesale salesrequirements for 2008 under contract. The majority of our contracted coal is purchased at fixed prices.  Some contracts provide for periodicadjustment and some are priced based on market indices.  Substantially all contracts have featuresthat limit price escalations in any given year. Our consumption of SO2 allowances shoulddecline in 2008 due to planned emission control upgrades.  We do not expect to purchase SO2 allowances for 2008.  The exact consumption of SO2 allowances will depend on market pricesfor power, availability of our generation units, the timing of emission controlequipment upgrade completion, and the actual sulfur content of the coalburned.  **DP&L**does not plan to purchase NOX allowances for 2008. Fuel costs are impacted by changes in volume and price and are driven bya number of variables including weather, reliability of coal deliveries,scheduled outages and generation plant mix. Based on higher volume and price (and excluding the effect of emissionallowance sales), fuel costs are forecast to be 15% to 25% higher in 2008compared to 2007.

 

Purchased power costsdepend, in part, upon the timing and extent of planned and unplanned outages ofour generating capacity.  We willpurchase power on a discretionary basis when wholesale market conditionsprovide opportunities to obtain power at a cost below our internal productioncosts. As of March 31, 2008, a hypothetical increase or decrease of 10% in**DPL’s** annual fuel and purchasedpower costs could result in approximately a $37 million increase or decrease tonet income.  As of March 31, 2008, ahypothetical increase or decrease of 10% in **DP&L’s**annual fuel and purchased power costs could result in approximately a $32million increase or decrease to net income.

 

**InterestRate Risk**

As a result of ournormal investing and borrowing activities, our financial results are exposed tofluctuations in interest rates, which we manage through our regular financingactivities.  We maintain both cash ondeposit and investments in cash equivalents that may be affected by adverseinterest rate fluctuations.  At March 31,2008 we had both fixed and variable rate long-term debt; our variable rate debtwas comprised of publicly held secured notes. The variable rate bonds bear interest based on a prevailing ratedetermined via auction and which was applicable during each 35-day auctionperiod.  The auction rate was, among otherfactors, driven by market demand, supply, market interest rates and othereconomic conditions.  As discussed inNotes 4 and 10 of Notes to Condensed Consolidated Financial Statements, werepurchased $90 million of our OAQDA Revenue bonds, on April 4, 2008.  This repurchase reduces our exposure tofluctuations in interest rates.

 

The carrying value of **DPL’s** debt was $1,642.2 million at March 31, 2008,consisting of **DP&L’s** firstmortgage bonds, **DP&L’s**tax-exempt pollution control bonds, our unsecured notes and **DP&L’s** capital leases.  The fair value of this debt was $1,648.8million, based on current market prices or discounted cash flows using currentrates for similar issues with similar terms and remaining maturities.

 

The carrying value of **DP&L’s**debt was $875.2 million at March 31, 2008, consisting of our firstmortgage bonds, our tax-exempt pollution control bonds, and our capitalleases.  The fair value of this debt was$859.1 million, based on current market prices or discounted cash flows usingcurrent rates for similar issues with similar terms and remaining maturities.

 

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**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, recordedestimates 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 of Form 10-K  forthe fiscal year ended December 31, 2007 for a complete listing of ourcritical accounting policies and estimates. There have been no material changes to these critical accountingpolicies and estimates.

 

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**ELECTRIC SALES AND REVENUES**

** **

 
| ** **                                | ** ** | **DPL Inc.**           | ** **  | **DP&L (a)**       | ** ** |
|-------------------------------------------|------------|------------------------|-------------|------------------------|------------|
| ** **                                | ** ** | **Three Months Ended** | ** **  | **Three Months Ended** | ** ** |
| ** **                                | ** ** | **March 31,**     | ** **  | **March 31,**     | ** ** |
| ** **                                | ** ** | **2008**               | ** **  | **2007**               | ** ** | **2008** | ** ** | **2007** | ** ** |
| Electric sales (millions  in kWh)         |       |                   |        |                   |       |   |   |   |   |
| Residential                               | ** ** | **1,680**              |        | 1,638                  | ** ** | **1,680** |   | 1,638 |   |
| Commercial                                | ** ** | **959**                |        | 932                    | ** ** | **959** |   | 932 |   |
| Industrial                                | ** ** | **967**                |        | 977                    | ** ** | **967** |   | 977 |   |
| Other retail                              | ** ** | **347**                |        | 338                    | ** ** | **347** |   | 338 |   |
| Total retail                              | ** ** | **3,953**              |        | 3,885                  | ** ** | **3,953** |   | 3,885 |   |
|                                      |       |                   |        |                   |       |   |   |   |   |
| Wholesale                                 | ** ** | **899**                |        | 1,120                  | ** ** | **899** |   | 1,120 |   |
|                                      |       |                   |        |                   |       |   |   |   |   |
| Total                                     | ** ** | **4,852**              |        | 5,005                  | ** ** | **4,852** |   | 5,005 |   |
|                                      |       |                   |        |                   |       |   |   |   |   |
| Operating revenues ($ in  thousands) |       |                   |        |                   |       |   |   |   |   |
| Residential                               | ** ** | **$**                  | **155,669** |                   | $          | 147,977 | ** ** | **$** | **155,669** |   | $ | 147,977 |   |
| Commercial                                | ** ** | **78,904**             |        | 74,698                 | ** ** | **74,272** |   | 70,987 |   |
| Industrial                                | ** ** | **58,137**             |        | 57,496                 | ** ** | **31,386** |   | 31,619 |   |
| Other retail                              | ** ** | **22,831**             |        | 21,526                 | ** ** | **18,896** |   | 18,408 |   |
| Other miscellaneous revenues              | ** ** | **2,576**              |        | 2,850                  | ** ** | **2,559** |   | 2,864 |   |
| Total retail                              | ** ** | **$**                  | **318,117** |                   | $          | 304,547 | ** ** | **$** | **282,782** |   | $ | 271,855 |   |
|                                      |       |                   |        |                   |       |   |   |   |   |
| Wholesale                                 | ** ** | **57,071**             |        | 56,685                 | ** ** | **93,055** |   | 90,032 |   |
|                                      |       |                   |        |                   |       |   |   |   |   |
| RTO ancillary revenues                    | ** ** | **38,053**             |        | 15,662                 | ** ** | **38,054** |   | 15,662 |   |
|                                      |       |                   |        |                   |       |   |   |   |   |
| Other revenues, net of fuel costs         | ** ** | **2,857**              |        | 2,799                  | ** ** | **—** |   | — |   |
|                                      |       |                   |        |                   |       |   |   |   |   |
| Total                                     | ** ** | **$**                  | **416,098** |                   | $          | 379,693 | ** ** | **$** | **413,891** |   | $ | 377,549 |   |
|                                      |       |                   |        |                   |       |   |   |   |   |
| Electric customers at end  of period      |       |                   |        |                   |       |   |   |   |   |
| Residential                               | ** ** | **457,650**            |        | 457,754                | ** ** | **457,650** |   | 457,754 |   |
| Commercial                                | ** ** | **49,954**             |        | 49,373                 | ** ** | **49,954** |   | 49,373 |   |
| Industrial                                | ** ** | **1,812**              |        | 1,817                  | ** ** | **1,812** |   | 1,817 |   |
| Other                                     | ** ** | **6,471**              |        | 6,350                  | ** ** | **6,471** |   | 6,350 |   |
|                                      |       |                   |        |                   |       |   |   |   |   |
| Total                                     | ** ** | **515,887**            |        | 515,294                | ** ** | **515,887** |   | 515,294 |   |

 

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| *(a)* | *DP&L  sells power to DPLER (a subsidiary of DPL). These sales are classified as  wholesale on DP&L’s financial statements and retail sales for DPL. The  kWh volumes contain all volumes distributed on the DP&L system which  include the retail sales by DPLER. The sales for resale volumes are omitted  to avoid duplicate reporting.* |
|-------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

 

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**Item 3.  Quantitative and Qualitative Disclosuresabout Market Risk**

 

See the “MARKET RISK”section of Item 2.

 

**Item 4.  Controls and Procedures**

 

Our ChiefExecutive Officer (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 iscommunicated 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 formsand (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, 2008 that has materially affected, or is reasonably likelyto materially affect, internal control over reporting.

 

 

**PART II**

** **

**Item 1 - Legal Proceedings**

 

Inthe normal course of business, we are subject to various lawsuits, actions,proceedings, claims and other matters asserted under laws and regulations.  We believe the amounts provided in ourCondensed Consolidated Financial Statements, as prescribed by GAAP, for thesematters are adequate in 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, and other matters discussed below, and to comply withapplicable laws and regulations will not exceed the amounts reflected in ourCondensed Consolidated Financial Statements. As such, costs, if any, that may be incurred in excess of those amountsprovided as of March 31, 2008, cannot be reasonably determined.

 

Part I,Item 1 — ENVIRONMENTAL CONSIDERATIONS and Item 3 of our Annual Report of Form 10-Kfor the fiscal year ended December 31, 2007, and Note 18 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 and should be read in conjunction with ourAnnual Report of Form 10-K. Information concerning the legal proceedings discussed in Item 2 —UPDATES/OTHER MATTERS — Environmental Updates of Part I of this QuarterlyReport on Form 10-Q is incorporated by reference into this Item.

 

**StateIncome Tax Audit**

On February 13,2006, we received correspondence from the Ohio Department of Taxation (ODT)notifying us that ODT had completed its examination and review of our OhioCorporation Franchise Tax Returns for tax years 2002 through 2004 and that thefinal proposed audit adjustments resulted in a balance due of $90.8 millionbefore interest and penalties.  On March 29, 2006, we filed petitionsfor reassessment with the ODT to protest each assessment as well as request correctedassessments for each tax year.  On October 12, 2006, we signed aMemorandum of Understanding with the ODT that stated if the ODT’s positions areultimately sustained in judicial proceedings, the total additional taxliability that we would be subject to for tax years 2002 through 2004 would beno more than $50.7 million before interest as opposed to the $90.8 millionstated in the ODT’s correspondence of February 13, 2006.  We havereviewed the proposed audit adjustments and are contesting the ODT findings andnotice of assessment.  We have also begunsettlement discussions with the ODT which would include all issues for taxyears 1998 — 2006.  We believe we haverecorded adequate tax reserves related to the proposed adjustments; however, wecannot predict the outcome, which could be material to our results ofoperations and cash flows.

 

44

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We have alsofiled an appeal to the Ohio Board of Tax Appeals for tax years 1998 through2001.   The issues in this appealare included in the settlement discussions mentioned above. We believe we haverecorded adequate tax reserves related to the appeal; however, we cannotpredict the outcome, which could be material to our results of operations andcash flows.

 

We are alsoopen for audit review by various state agencies for tax years 2002 through2006.

 

Depending uponthe outcome of these audits and the appeal, we may be required to increase ourtax provision if actual amounts ultimately determined exceed recordedreserves.  We believe we have adequate reserves in each tax jurisdictionbut cannot predict the outcome of these audits.

 

**Sierra Club**

In September 2004, the Sierra Club filed a lawsuit against **DP&L** and the other owners of the Stuart generatingstation in the United States District Court for the Southern District of Ohiofor alleged violations of the Clean Air Act (CAA) and the station’s operatingpermit.  **DP&L,**on behalf of all co-owners, is leading the defense of this matter.  A sizable amount of discovery has takenplace, including depositions, and most expert reports have been submitted.  In order to allow the parties additional timeto attempt to negotiate a settlement, the proceeding is currently subject to astay, at least until a pre-hearing conference scheduled for May 15, 2008, withthe judge.  Settlement negotiations areongoing.

 

**InsuranceRecovery Claim**

On May 16,2007, **DPL** filed an insurance claim withEnergy Insurance Mutual (EIM) to recoup legal expenses associated with ourlitigation against three of our former executives.  Mediation with EIM on this claim is scheduledfor May 29, 2008.  The litigationagainst the former executives was settled on May 21, 2007.

 

 

**Item 1a — 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 of Form 10-K. The Form 10-K may be obtained as discussed on Page 4 of thisreport.  If any of these events occur,our business, financial position or results of operation could be materiallyaffected.

 

**Item 2 — Unregistered Sale of Equity Securities andUse of Proceeds**

 

None

 

**Item 3 — Defaults Upon Senior Securities**

 

None

 

**Item 4 — Submission of Matters to a Vote of SecurityHolders**

 

None

 

**Item 5 — Other Information**

 

None

 

45

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**Item 6 — Exhibits**

** **
| **DPL** | ** ** | **DP&L** | ** ** | **Exhibit  Number** | ** ** | **Exhibit**                                                                                                                    | ** ** | **Location**                          |
|---------|------------|--------------|------------|---------------------|------------|--------------------------------------------------------------------------------------------------------------------------------|------------|---------------------------------------|
| X       |       | X            |       | 10(a)               |       | Participation Agreement  dated January 3, 2008 among DPL Inc., The Dayton Power and Light  Company, and Douglas C. Taylor |       | Filed herewith as  Exhibit 10(a) |
|    |       |         |       |                |       |                                                                                                                           |       |                                  |
| 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) |

 

46

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**SIGNATURES**

 

 

Pursuantto the requirements of Section 13 or 15(d) of the Securities ExchangeAct of 1934, DPL Inc. and The Dayton Power and Light Company has duly causedthis report to be signed on their behalf by the undersigned, thereunto dulyauthorized.

 

 

 
|   |                | **DPL Inc.**                                                  |
|--------|---------------------|---------------------------------------------------------------|
|   |                | **The Dayton Power and Light Company**                        |
|   |                | (Registrants)                                                 |   |
|   |                |                                                          |   |
|   |                |                                                          |   |
|   |                |                                                          |   |
| Date:  | April 23, 2008 | /s/ Paul M. Barbas                                            |
|   |                | Paul M. Barbas                                                |
|   |                | President and Chief Executive Officer                         |
|   |                | (principal executive officer)                                 |
|   |                |                                                          |   |
|   |                |                                                          |   |
|   |                |                                                          |   |
|   | April 23, 2008 | /s/ John J. Gillen                                            |
|   |                | John J. Gillen                                                |
|   |                | Senior Vice President, Chief Financial Officer and  Treasurer |
|   |                | (principal financial officer)                                 |
|   |                |                                                          |   |
|   |                |                                                          |   |
|   |                |                                                          |   |
|   | April 23, 2008 | /s/ Frederick J. Boyle                                        |
|   |                | Frederick J. Boyle                                            |
|   |                | Vice President and Chief Accounting Officer                   |
|   |                | (principal accounting officer)                                |

 

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