Annual Report (Form 10-K), fiscal year 1994

Item 1 - BUSINESS* DPL INC.
DPL Inc. was organized in 1985 under the laws of the State of Ohio to engage in the acquisition and holding of securities of corporations for investment purposes. The executive offices of DPL Inc. are located at Courthouse Plaza Southwest, Dayton, Ohio 45402 - telephone (513) 224-6000.
DPL Inc.'s principal subsidiary is The Dayton Power and Light Company ("DP&L"). DP&L is a public utility incorporated under the laws of Ohio in 1911. Located in West Central Ohio, it furnishes electric service to 470,000 retail customers in a 24 county service area of approximately 6,000 square miles and furnishes natural gas service to 290,000 customers in 16 counties. In addition, DP&L provides steam heating service in downtown Dayton, Ohio. DP&L serves an estimated population of 1.2 million. Principal industries served include electrical machinery, automotive and other transportation equipment, non-electrical machinery, agriculture, paper, rubber and plastic products. DP&L's sales reflect the general economic conditions and seasonal weather patterns of the area. In 1994, electric revenues increased 5% with a 2% growth in retail sales reflecting the continued strength of the West Central Ohio economy. Gas revenues decreased 3% in 1994. An overall sales increase of 1% reflected strong sales to transportation gas customers despite mild temperatures in late 1994. During 1994, cooling degree days were 5% above the twenty year average and 1% above 1993. Heating degree days in 1994 were 2% below the thirty year average and 5% below 1993. Sales patterns will change in future years as weather and the economy fluctuate.
Subsidiaries of DP&L include MacGregor Park Inc., an owner and developer of real estate; and DP&L Community Urban Redevelopment Corporation, the owner of a downtown Dayton office building.
Other subsidiaries of DPL Inc. include Miami Valley CTC, Inc., which provides transportation services to DP&L and another unaffiliated Dayton-based company; Miami Valley Leasing, which leases vehicles, communications equipment and other miscellaneous equipment, owns real estate and has, for financial investment purposes, acquired limited partnership interests in natural gas storage facilities. Miami Valley Resources, Inc. ("MVR"), a natural gas supply management company; Miami Valley Lighting, Inc., a street lighting business; Miami Valley Insurance Company, an insurance company for DPL Inc. and its subsidiaries; and Miami Valley Development Company, which is engaged in the business of technology research and development.
* Unless otherwise indicated, the information given in "Item 1 - BUSINESS" is current as of March 24, 1995. No representation is made that there have not been subsequent changes to such information.
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DPL Inc. and its subsidiaries are exempt from registration with the Securities and Exchange Commission under the Public Utility Holding Company Act of 1935 because its utility business operates solely in the State of Ohio.
DPL Inc. and its subsidiaries employed 3,078 persons as of December 31, 1994, of which 2,578 are full-time employees and 500 are part-time employees.
Information relating to industry segments is contained in Note 12 of Notes to Consolidated Financial Statements on page 26 of the registrant's 1994 Annual Report to Shareholders ("1994 Annual Report"), which Note is incorporated herein by reference.
COMPETITION
DPL Inc. competes through its principal subsidiary, DP&L, with privately and municipally owned electric utilities and rural electric cooperatives, natural gas suppliers and other alternate fuel suppliers. DP&L competes on the basis of price and service.
Like other utilities, DP&L from time to time may have electric generating capacity available for sale to other utilities. DP&L competes with other utilities to sell electricity provided by such capacity. The ability of DP&L to sell this electricity will depend on how DP&L's price, terms and conditions compare to those of other utilities. In addition, from time to time, DP&L also makes power purchases from neighboring utilities.
In an increasingly competitive energy environment, cogenerated power may be used by customers to meet their own power needs. Cogeneration is the dual use of a form of energy, typically steam, for an industrial process and for the generation of electricity. The Public Utilities Regulatory Policies Act of 1978 ("PURPA") provides regulations that govern the purchases of excess electric energy from cogeneration and small power production facilities that have obtained qualifying status under PURPA.
The National Energy Policy Act of 1992 which reformed the Public Utilities Holding Company Act of 1935, allows the federal government to mandate access by others to a utility's electric transmission system and may accelerate competition in the supply of electricity.
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MVR, established in 1986 as a subsidiary of DPL Inc., acts as a broker in arranging and managing natural gas supplies for business and industry. Deliveries of natural gas to MVR customers can be made through DP&L's transportation system, or another transportation system, on the same basis as deliveries to customers of other gas brokerage firms. Customers with alternate fuel capability can continue to choose between natural gas and their alternate fuel based upon overall economics.
DP&L provides transmission and wholesale electric to 12 municipal customers which distribute electricity within their corporate limits. In 1994, 11 of these municipal customers signed new 20-year service agreements, which have been filed with the Federal Energy Regulatory Commission (the "FERC"), with approval expected in 1995. The twelfth municipal customer signed a 20-year agreement, approved by the FERC on February 13, 1995, that allows DP&L to supply 97% of its power requirements. In addition to these municipal customers, DP&L maintains an interconnection agreement with one municipality which has the capability to generate all or a portion of its energy requirements. Sales to municipalities represented 1.3% of total electricity sales in 1994.
General deregulation of the natural gas industry has continued to prompt the influence of market competition as the driving force behind natural gas procurement. The maturation of the natural gas spot market in combination with open access interstate transportation provided by pipelines has provided DP&L, as well as its end-use customers, with an array of procurement options. Customers with alternate fuel capability can continue to choose between natural gas and their alternate fuel based upon overall economics. Therefore, demand for natural gas purchased from DP&L or purchased elsewhere transported to the end-use customer by DP&L could fluctuate based on the economics of each in comparison with changes in alternate fuel prices. For DP&L, price competition and reliability among both natural gas suppliers and interstate pipeline sources are major factors affecting procurement decisions.
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CONSTRUCTION AND FINANCING PROGRAM OF DPL INC.
1995-1999 Construction Program ------------------------------
The estimated construction additions for the years 1995-1999 are set forth below: Estimated 1995 1996 1997 1998 1999 1995-1999 ---- ---- ---- ---- ---- --------- millions Electric generation and transmission commonly owned with neighboring utilities................ $ 18 $ 26 $ 36 $ 32 $ 36 $148 Other electric generation and transmission facilities.. 31 36 32 32 32 163 Electric distribution...... 23 40 37 35 35 170 General.................... 2 2 2 2 2 10 Gas, steam and other facilities............... 15 15 15 15 16 76 ---- ---- ---- ---- ---- ---- Total construction..... $ 89 $119 $122 $116 $121 $567
Estimated construction costs over the next five years average $113 million annually which is less than the projected depreciation expense over the same period.
The construction program includes plans for the construction of a series of 75 MW combustion turbine generating units, the first of which is scheduled for completion in Summer 1995.
Construction plans are subject to continuing review and are expected to be revised in light of changes in financial and economic conditions, load forecasts, legislative and regulatory developments and changing environmental standards, among other factors. DP&L's ability to complete its capital projects and the reliability of future service will be affected by its financial condition, the availability of external funds at reasonable cost and adequate and timely rate increases.
See ENVIRONMENTAL CONSIDERATIONS for a description of environmental control projects and regulatory proceedings which may change the level of future construction additions. The potential impact of these events on DP&L's operations cannot be estimated at this time.
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1995-1999 Financing Program --------------------------- DP&L will require a total of $76 million during the next five years for bond maturities and sinking funds in addition to any funds needed for the construction program. DPL Inc. will require an additional $9 million for mandatory redemptions.
At year-end 1994, DPL Inc. had a cash and temporary investment balance of $96 million. Proceeds from temporary cash investments, together with internally generated cash and future outside financings, will provide for the funding of the construction program, sinking funds and general corporate requirements.
In March 1994, DPL Inc. issued 3,200,000 shares of common stock through a public offering. Proceeds from the sale were used in connection with the redemption of all outstanding shares of DP&L's Preferred Stock Series D, E, F, H and I.
During late 1992 and early 1993, DP&L took advantage of favorable market conditions to reduce its cost of debt and extend first mortgage bond maturities through early refundings. Overall, five new series of First Mortgage Bonds were issued, aggregating approximately $766 million with an average interest rate of 7.9%. The proceeds were used to redeem a similar principal amount of debt securities with an average interest rate of 8.7% The amounts and timings of future financings will depend upon market and other conditions, rate increases, levels of sales and construction plans.
In November 1989, DPL Inc. entered into a revolving credit agreement ("the Credit Agreement") with a consortium of banks renewable through 1998 which allows total borrowings by DPL Inc. and its subsidiaries of $200 million. DP&L has authority from the Public Utilities Commission of Ohio (the "PUCO") to issue short term debt up to $200 million with a maximum debt limit of $300 million including loans from DPL Inc. under the terms of the Credit Agreement. At December 31, 1994, DPL Inc. had no outstanding borrowings under this Credit Agreement. DP&L also has $97 million available in short term informal lines of credit At year-end, DP&L had no borrowings outstanding from these lines of credit and no commercial paper outstanding.
Under DP&L's First and Refunding Mortgage, First Mortgage Bonds may be issued on the basis of (i) 60% of unfunded property additions, subject to net earnings, as defined, being at least two times interest on all First Mortgage Bonds
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outstanding and to be outstanding, and (ii) 100% of retired First Mortgage Bonds. DP&L anticipates that, during 1995-99, it will be able to issue sufficient First Mortgage Bonds to satisfy its long-term debt requirements in connection with the financing of its construction and refunding programs discussed above.
The maximum amount of First Mortgage Bonds which may be issued in the future will fluctuate depending upon interest rates, the amounts of bondable property additions, earnings and retired First Mortgage Bonds. There are no coverage tests for the issuance of preferred stock under DP&L's Amended Articles of Incorporation.
ELECTRIC OPERATIONS AND FUEL SUPPLY
DP&L's present winter generating capability is 3,053,000 KW. Of this capability, 2,843,000 KW (approximately 93%) is derived from coal-fired steam generating stations and the balance consists of combustion turbine and diesel-powered peaking units. Approximately 87% (2,472,000 KW) of the existing steam generating capability is provided by certain units owned as tenants in common with the Cincinnati Gas & Electric Company ("CG&E") or with CG&E and Columbus Southern Power Company ("CSP"). Under the agreements among the companies, each company owns a specified undivided share of each facility, is entitled to its share of capacity and energy output, and has a capital and operating cost responsibility proportionate to its ownership share.
A merger agreement between CG&E and PSI Resources, Inc. to form CINergy Corp. was pending from late 1992 to October 1994. The merger was approved by the FERC on October 3, 1994 and by the SEC on October 21, 1994. A settlement agreement between DP&L, CG&E, PSI Resources and CINergy Corp. resolved DP&L's concerns regarding the impact of the merger on the operations of its commonly owned generating units.
The remaining steam generating capability (371,000 KW) is derived from a generating station owned solely by DP&L. DP&L's all time net peak load was 2,824,000 KW, which occurred in June 1994. The present summer generating capability is 3,017,000 KW.
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GENERATING FACILITIES ---------------------
MW Rating -------------- Owner- Operating DP&L Station ship* Company Location Portion Total ----------- ----- --------- --------------- ------- ----- Coal Units ---------- Hutchings W DP&L Miamisburg, OH 371 371 Killen C DP&L Wrightsville, OH 402 600 Stuart C DP&L Aberdeen, OH 820 2,340 Conesville-Unit 4 C CSP Conesville, OH 129 780 Beckjord-Unit 6 C CG&E New Richmond, OH 210 420 Miami Fort- Units 7&8 C CG&E North Bend, OH 360 1,000 East Bend-Unit 2 C CG&E Rabbit Hash, KY 186 600 Zimmer C CG&E Moscow, OH 365 1,300
Combustion Turbines or Diesel ----------------------------- Hutchings W DP&L Miamisburg, OH 32 32 Yankee Street W DP&L Centerville, OH 144 144 Monument W DP&L Dayton, OH 12 12 Tait W DP&L Dayton, OH 10 10 Sidney W DP&L Sidney, OH 12 12
* W = Wholly Owned; C = Commonly Owned
In order to transmit energy to their respective systems from their commonly-owned generating units, the companies have constructed and own, as tenants in common, 847 circuit miles of 345,000-volt transmission lines. DP&L has several interconnections with other companies for the purchase, sale and interchange of electricity.
DP&L derived over 99% of its electric output from coal-fired units in 1994. The remainder was derived from units burning oil or natural gas which were used to meet peak demands.
DP&L estimates that approximately 65-85% of its coal requirements for the period 1995-1999 will be obtained through long-term contracts, with the balance to be obtained by spot market purchases. DP&L has been informed by CG&E and CSP through the procurement plans for the commonly owned units operated by them that sufficient coal supplies will be available during the same planning horizon.
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The prices to be paid by DP&L under its long-term coal contracts are subject to adjustment in accordance with various indices. Each contract has features that will limit price escalations in any given year.
The total average price per million British Thermal Units ("MMBTU") of coal received was $1.39/MMBTU in 1994 and $1.46/MMBTU in 1993 and 1992.
The average fuel cost per kWh generated of all fuel burned for electric generation (coal, gas and oil) for the year was 1.42 cents which represents a decrease from 1.43 cents in 1993 and 1.48 cents in 1992. Through the operation of a fuel cost adjustment clause applicable to electric sales, the increases and decreases in fuel costs are reflected in customer rates on a timely basis. See RATE REGULATION AND GOVERNMENT LEGISLATION and ENVIRONMENTAL CONSIDERATIONS.
GAS OPERATIONS AND GAS SUPPLY
DP&L has long-term firm pipeline transportation agreements with ANR Gas Pipeline Company ("ANR"), Texas Gas Transmission Corporation ("Texas Gas"), Panhandle Eastern Pipe Line Company ("Panhandle"), Columbia Gas Transmission Corporation ("Columbia") and Columbia Gulf Transmission Corporation for varying terms up to late 2004. Along with firm transportation services, DP&L has approximately 16 billion cubic feet of firm storage service with various pipelines. DP&L also maintains and operates four propane-air plants with a daily rated capacity of approximately 70,000 thousand cubic feet ("MCF") of natural gas.
In addition, DP&L is interconnected with CNG Transmission Corporation and Texas Eastern Transmission Corporation. These interconnections with various interstate pipelines provide DP&L the opportunity to purchase competitively-priced natural gas supplies and pipeline services. DP&L purchases its natural gas supplies using a portfolio approach that minimizes price risks and ensures sufficient firm supplies, at peak demand times. The portfolio consists of long-term, short-term and spot supply agreements. In 1994, firm agreements provided approximately 95% of total supply, with the remaining supplies purchased on a spot/short-term basis.
In April 1992, the FERC issued Order No. 636 ("Order 636") amending its regulations governing the service obligations, rate design and cost recovery of interstate pipelines. DP&L's interstate pipeline suppliers have received approval from FERC to implement their restructuring plans to comply with the regulations.
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In January 1994, DP&L, the Staff of the PUCO and the Office of the Ohio Consumers' Counsel submitted to the PUCO an agreement which resolved issues relating to the recovery of Order 636 "transition costs" to be billed to DP&L by FERC natural gas interstate pipeline companies. The agreement, which was approved by the PUCO on July 14, 1994, provides for the full recovery of these transition costs from DP&L's customers. The interstate pipelines will file with the FERC for authority to recover these transition costs, the exact magnitude of which has not been established.
In 1994, DP&L purchased natural gas at an estimated average price of $3.34 per MCF, compared to $3.65 per MCF in 1993 and $3.31 per MCF in 1992. Through the operation of a natural gas cost adjustment clause applicable to gas sales, increases and decreases in DP&L's natural gas costs are reflected in customer rates on a timely basis. SEE RATE REGULATION AND GOVERNMENT LEGISLATION.
The PUCO supports open access, nondiscriminatory transportation of natural gas by the state's local distribution companies for end-use customers. The PUCO has guidelines to provide a standardized structure for end-use transportation programs which requires a tariff providing the prices, terms and conditions for such service. DP&L has an approved tariff which provides transportation service to 300 end-use customers, delivering a total quantity of 15,146,664 MCF.
On July 31, 1991, Columbia Gas System Inc. and Columbia, one of DP&L's major pipeline suppliers, filed separate Chapter 11 petitions in U.S. Bankruptcy Court. The bankruptcy court permitted Columbia to break approximately 4,500 long-term natural gas contracts with upstream suppliers. The Court also granted approval of an agreement between the customers and Columbia which assures the continuation of all firm service agreements (including storage) through the winter of 1993, with year-to-year continuation unless adequate notice is provided. After extensive litigation, the U.S. Supreme Court denied an appeal by the Unsecured Creditors Committee from the third Circuit Court of Appeals decision to treat take-or-pay refunds as being outside of the Columbia estate, and thus refundable to customers. DP&L has received all post petition take-or-pay refunds ordered by the Third Circuit. Pre-petition take-or-pay refunds will remain in the estate until a plan of reorganization is approved.
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On June 24, 1994, the U.S. Court of Appeals for the District of Columbia Circuit decided in favor of Columbia's customers by holding that a 1985 settlement between the parties should have prohibited Columbia from collecting pre-1987 upstream take-or-pay costs from its customers. FERC has been ordered by the Court of Appeals to determine the actual amount of the refund due to DP&L and other customers. Such refunds will remain in the bankruptcy estate until a plan of reorganization is approved.
The parties to the bankruptcy are currently evaluating Columbia's proposed plan of reorganization. Based upon a July 1993 FERC order disallowing the recovery of natural gas producer contracts rejected in the bankruptcy case, DP&L does not expect the bankruptcy proceedings to have a material adverse effect on its earnings or competitive position.
On October 6, 1994, the PUCO authorized DP&L's plan to use pipeline supplier refunds to partially offset transition cost billings to natural gas customers. This approval will help stabilize gas costs while continuing to ensure DP&L's full recovery of transition costs.
RATE REGULATION AND GOVERNMENT LEGISLATION
DP&L's sales of electricity, natural gas and steam to retail customers are subject to rate regulation by the PUCO and various municipalities. DP&L's wholesale electric rates to municipal corporations and other distributors of electric energy are subject to regulation by FERC under the Federal Power Act.
Ohio law establishes the process for determining rates charged by public utilities. Regulation of rates encompasses the timing of applications, the effective date of rate increases, the cost basis upon which the rates are based and other related matters. Ohio law also establishes the Office of the Ohio Consumers' Counsel (the "OCC"), which has the authority to represent residential consumers in state and federal judicial and administrative rate proceedings.
DP&L's electric and natural gas rate schedules contain certain recovery and adjustment clauses subject to periodic audits by, and proceedings before, the PUCO. Electric fuel and gas costs are expensed as recovered through rates.
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Ohio legislation extends the jurisdiction of the PUCO to the records and accounts of certain public utility holding company systems, including DPL Inc. The legislation extends the PUCO's supervisory powers to a holding company system's general condition and capitalization, among other matters, to the extent that they relate to the costs associated with the provision of public utility service. Additionally, the legislation requires PUCO approval of (i) certain transactions and transfers of assets between public utilities and entities within the same holding company system, and (ii) prohibits investments by a holding company in subsidiaries which are not public utilities in an amount in excess of 15% of the aggregate capitalization of the holding company on a consolidated basis at the time such investments are made.
In April 1991, DP&L filed an application with the PUCO to increase its electric rates to recover costs associated with the construction of the William H. Zimmer Generating Station ("Zimmer"), earn a return on DP&L's investment and recover the current costs of providing electric service to its customers. In November 1991, DP&L entered into a settlement agreement with various consumer groups resolving all issues in the case. The PUCO approved the agreement on January 22, 1992. Pursuant to that agreement, new electric rates took effect February 1, 1992, January 2, 1993 and January 3, 1994. The agreement also established a baseline return on equity of 13% (subject to upward adjustment) until DP&L's next electric rate case. In the event that the DP&L's return exceeds the allowed return by between one and two percent, then one half of the excess return will be used to reduce the unrecovered cost of demand-side management ("DSM") programs. Any return that exceeds the allowed return by more than two percent will be entirely credited to these programs. Amounts deferred during the phase-in period, including carrying charges, will be capitalized and recovered over seven years commencing in 1994. Deferrals were $58 million in 1992 and $28 million in 1993. The recovery in 1994, net of additional carrying cost deferrals, was $10 million. The phase-in plan meets the requirements of the Financial Accounting Standards Board ("FASB") Statement No. 92.
In addition, DP&L agreed to undertake cost-effective demand-side management ("DSM") programs with an average annual cost of $15 million for four years commencing in 1992. The amount recoverable through rates was $4.6 million in 1992, and $7.8 million in subsequent years. The difference between expenditures and amounts recovered through rates is deferred and is eligible for recovery in future rates in accordance with existing PUCO rulings.
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In March 1991, the PUCO granted DP&L the authority to defer interest charges, net of income tax, on its 28.1% ownership investment in Zimmer from the March 30, 1991, commercial in-service date through January 31, 1992. Deferred interest charges on the investment in Zimmer have been adjusted to a before tax basis in 1993 as a result of FASB Statement No. 109. Amounts deferred are being amortized over the life of the plant.
Regulatory deferrals on the balance sheet were:
Dec. 31 Dec. 31 1994 1993 ------- ------- --millions--
Phase-in $ 75.9 $ 85.8 DSM 31.9 20.3 Deferred interest - Zimmer 61.0 63.7 ------ ------ Total $168.8 $169.8 ====== ======
In 1989 the PUCO approved rules for the implementation of a comprehensive Integrated Resource Planning ("IRP") program for all investor-owned electric utilities in Ohio. Under this program, each utility is required to file an IRP as part of its Long Term Forecast Report ("LTFR"). The IRP requires each utility to evaluate available demand-side resource options in addition to supply-side options to determine the most cost-effective means for satisfying customer requirements. The rules currently allow a utility to apply for deferred recovery of DSM program expenditures and lost revenues between LTFR proceedings. Ultimate recovery of expenditures is contingent on review and approval of such programs as cost-effective and consistent with the most recent IRP proceeding. The rules also allow utilities to submit alternative proposals for the recovery of DSM programs and related costs.
In 1991 the PUCO issued a Finding and Order which encourages electric utilities to undertake the competitive bidding of new supply-side energy projects. The policy also encourages utilities to provide transmission grid access to those supply-side energy providers awarded bids by utilities. Electric utilities are permitted to bid on their own proposals. The PUCO has issued for comment proposed rules for competitive bidding but has not issued final rules at this time.
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DP&L has in place a percentage of income payment plan ("PIPP") for eligible low-income households as required by the PUCO. This plan prohibits disconnections for nonpayment of customer bills if eligible low-income households pay a specified percentage of their household income toward their utility bill. The PUCO has approved a surcharge by way of a temporary base rate tariff rider which allows companies to recover arrearages accumulated under PIPP. In 1993 DP&L reached a settlement with the PUCO staff, the Office of the Ohio Consumers' Counsel and the Legal Aid Society to provide new and expanded programs for PIPP eligible customers. The expanded programs include greater arrears crediting, lower monthly payments, educational programs and information reports. In exchange, DP&L may accelerate recovery of PIPP and pre-PIPP arrearages and recover program costs. The settlement also established a four year moratorium on changes to the program. The PUCO approved the settlement on December 2, 1993. Pursuant to the terms of the settlement, DP&L filed an application on January 21, 1994 to lower its PIPP rate. The application was approved by the PUCO on March 24, 1994.
DP&L initiated a competitive bidding process in January 1993 for the construction of up to 140 MW of electric peaking capacity and energy by 1997. Through an Ohio Power Siting Board ("OPSB") investigative process, DP&L's self-built option was evaluated to be the least cost option. On March 7, 1994, the OPSB approved DP&L's applications for up to three combustion turbines and two natural gas supply lines for the proposed site.
The OPSB issued rules on March 22, 1993 to provide electric and magnetic field information in applications for construction of major generating and transmission facilities. DP&L has addressed the topics covered by the new rules in all recent projects. One utility requested a rehearing on the rules which was denied by the OPSB on May 24, 1993. At this time DP&L cannot predict the ultimate impact on timing and costs associated with the siting of new transmission lines.
In March 1994, Governor Voinovich appointed Commissioner Jolynn Barry-Butler to a second five-year term as PUCO commissioner, which began April 12, 1994. Also, on February 7, 1995 Governor Voinovich appointed Ronda H. Fergus, currently director of the PUCO's Telecommunications Division, to the PUCO for a five year term commencing April 11, 1995, pending approval by the Senate of the State of Ohio.
On February 22, 1994 a bill was introduced in the State of Ohio House of Representatives which, if approved, would give electric consumers the opportunity to obtain "retail" and "wholesale at retail" services from electric suppliers other than their current supplier. The bill was not reported out of Committee.
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On June 1, 1994, DP&L filed its natural gas LTFR with the PUCO. DP&L filed its electric LTFR with the PUCO on June 15, 1994. An IRP filed as part of the electric LTFR included plans for the construction of a series of 75 MW combustion turbine generating units, the first of which is scheduled for completion in June 1995, and also the implementation of DSM programs.
ENVIRONMENTAL CONSIDERATIONS
The operations of DP&L, including the commonly owned facilities operated by DP&L, CG&E and CSP, are subject to federal, state, and local regulation as to air and water quality, disposal of solid waste and other environmental matters, including the location, construction and initial operation of new electric generating facilities and most electric transmission lines. DP&L expended $9 million for environmental control facilities during 1994. The possibility exists that current environmental regulations could be revised which could change the level of estimated 1995-1999 construction expenditures. See CONSTRUCTION AND FINANCING PROGRAM OF DPL INC.
Air Quality -----------
Changing environmental regulations continue to increase the cost of providing service in the utility industry. The Clean Air Act Amendments of 1990 (the "Act") will limit sulfur dioxide and nitrogen oxide emissions nationwide. The Act will restrict emissions in two phases with Phase I compliance completed by 1995 and Phase II completed by 2000. Final regulations were issued by the U.S. EPA on January 11, 1993. These regulations are consistent with earlier Act restrictions and do not change the expected costs of compliance of DP&L.
DP&L's environmental compliance plan ("ECP") was approved by the PUCO on May 6, 1993. Phase I requirements are met by switching to lower sulfur coal at several commonly owned electric generating facilities and increasing existing scrubber removal efficiency. Cost estimates to comply with Phase I of the Act are approximately $10 million in capital expenditures. Phase II requirements can be met primarily by switching to lower sulfur coal at all non-scrubbed coal-fired electric generating units. Overall compliance is projected to have a minimal 1% to 2% approximate price impact. DP&L anticipates that costs to comply with the Act will be eligible for recovery in future fuel hearings and other regulatory proceedings. The PUCO is expected
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to initiate a hearing in 1995 to review DP&L's Phase I compliance plans. DP&L is currently in the process of updating its ECP and anticipates submitting it to the PUCO in the second half of 1995.
In December 1988, the United States Environmental Protection Agency ("U.S. EPA") notified the State of Ohio that the portion of its State Implementation Plan ("SIP") dealing with sulfur dioxide emission limitations for Hamilton County (in southwestern Ohio) was deficient and required the Ohio Environmental Protection Agency ("Ohio EPA") to develop a new SIP within 18 months. The notice affected industrial and utility sources and could have required significant reductions in sulfur dioxide emission limitations at CG&E's Miami Fort Units 7 and 8 which are jointly owned with DP&L.
In October 1991, the Ohio EPA adopted new SO2 regulations for Hamilton County. These regulations did not change the preexisting requirements for Miami Fort Units 7 and 8. These regulations became effective September 22, 1994.
Land Use --------
DP&L and numerous other parties have been notified by the U.S. EPA or Ohio EPA that it considers them Potentially Responsible Parties ("PRPs") for clean-up at four superfund sites in Ohio: the Sanitary Landfill Site on Cardington Road in Montgomery County, Ohio, the United Scrap Lead Site in Miami County, Ohio, the Powell Road Landfill in Huber Heights, Montgomery County, Ohio, and the North Sanitary (a.k.a. Valleycrest) Landfill in Dayton, Montgomery County, Ohio.
DP&L received notification from the U.S. EPA in July 1987, for the Cardington Road site. DP&L has not joined the PRP group formed at that site because of the absence of any known evidence that DP&L contributed hazardous substances to this site. The Record of Decision issued by the U.S. EPA identifies the chosen clean-up alternative at a cost estimate of $8.1 million. The final resolution will not have a material effect on DP&L's financial position, earnings or cashflow.
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DP&L received notification from the U.S. EPA in September 1987, for the United Scrap Lead Site. DP&L has joined a PRP group for this site, which is actively conferring with the U.S. EPA. The Record of Decision issued by the U.S. EPA estimates clean-up costs at $27.1 million. DP&L is one of over 200 parties to this site, and its estimated contribution to the site is less than .01%. Nearly 60 PRPs are actively working to settle the case. DP&L is participating in the sponsorship of a study to evaluate alternatives to the U.S. EPA's clean-up plan. The final resolution of these investigations will not have a material effect on DP&L's financial position, earnings or cashflow.
DP&L and numerous other parties received notification from the U.S. EPA on May 21, 1993 that it considers them PRPs for clean-up of hazardous substances at the Powell Road Landfill Site in Huber Heights, Ohio. DP&L has joined the PRP group for the site. On October 1, 1993, the U.S. EPA issued its Record of Decision identifying a cost estimate of $20.5 million for the chosen remedy. DP&L is one of over 200 PRPs to this site, and its estimated contribution is less than 1%. The final resolution will not have a material effect on DP&L's financial position, earnings or cashflow.
DP&L and numerous other parties received notification from the Ohio EPA on July 27, 1994 that it considers them PRPs for clean-up of hazardous substances at the North Sanitary Landfill site in Dayton, Ohio. DP&L has not joined the PRP group formed for the site because the available information does not demonstrate that DP&L contributed wastes to the site. The final resolution will not have a material effect on DP&L's financial position, earnings or cashflow.
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Item 2



Item 2 - PROPERTIES
Electric -------- Information relating to DP&L's electric properties is contained in Item 1 - BUSINESS, DPL INC. (pages I-1 and I-2), CONSTRUCTION AND FINANCING PROGRAM OF DPL INC. (pages I-4 through I-6) and ELECTRIC OPERATIONS AND FUEL SUPPLY (pages I-6 through I-8) - Notes 2 and 5 of Notes to Consolidated Financial Statements on pages 21 and 23, respectively, of the registrant's 1994 Annual Report, which pages are incorporated herein by reference.
Natural Gas ----------- Information relating to DP&L's gas properties is contained in Item 1 - BUSINESS, DPL INC. (pages I-1 and I-2) and GAS OPERATIONS AND GAS SUPPLY (pages I-8 through I-10), which pages are incorporated herein by reference.
Steam ----- DP&L owns two steam generating plants and the steam distribution facility serving downtown Dayton, Ohio.
Other ----- DP&L owns a number of area service buildings located in various operating centers.
Substantially all property and plant of DP&L is subject to the lien of the Mortgage securing DP&L's First Mortgage Bonds.
Item 3

Item 3 - LEGAL PROCEEDINGS
Information relating to legal proceedings involving DP&L is contained in Item 1 - BUSINESS, DPL INC. (pages I-1 and I-2), COMPETITION (pages I-2 through I-3), ELECTRIC OPERATIONS AND FUEL SUPPLY (pages I-6 through I-8), GAS OPERATIONS AND GAS SUPPLY (pages I-8 through I-10), RATE REGULATION AND GOVERNMENT LEGISLATION (pages I-10 through I-14) and ENVIRONMENTAL CONSIDERATIONS (pages I-14 through I-16) and - Note 2 of Notes of Consolidated Financial Statements on page 21 of the registrant's 1994 Annual Report, which pages are incorporated herein by reference.
Item 4

Item 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
DPL Inc.'s Annual Meeting of Shareholders ("Annual Meeting") was held on April 19, 1994. Three directors of DPL Inc. were elected at the Annual Meeting, each of whom will serve a three year term expiring in 1997. The nominees were elected as follows: Ernie Green, 90,918,169 shares FOR, 989,620 shares WITHHELD; David R. Holmes, 90,677,633 shares FOR, 1,230,156 shares WITHHELD; and Burnell R. Roberts, 90,959,663 shares FOR, 948,126 shares WITHHELD.
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PART II ------- Item 5

Item 5 - MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The information required by this item of Form 10-K is set forth on pages 14, 27 and 28 of the registrant's 1994 Annual Report, which pages are incorporated herein by reference. As of December 31, 1994, there were 51,270 holders of record of DPL Inc. common equity, excluding individual participants in security position listings.
DP&L's Mortgage restricts the payment of dividends on DP&L's Common Stock under certain conditions. In addition, so long as any Preferred Stock is outstanding, DP&L's Amended Articles of Incorporation contain provisions restricting the payment of cash dividends on any of its Common Stock if, after giving effect to such dividend, the aggregate of all such dividends distributed subsequent to December 31, 1946 exceeds the net income of DP&L available for dividends on its Common Stock subsequent to December 31, 1946, plus $1,200,000. As of year end, all earnings reinvested in the business of DP&L were available for Common Stock dividends.
The Credit Agreement requires that the aggregate assets of DP&L and its subsidiaries (if any) constitute not less than 60% of the total consolidated assets of DPL Inc., and that DP&L maintain common shareholder's equity (as defined in the Credit Agreement) at least equal to $550 million.
Item 6

Item 6 - SELECTED FINANCIAL DATA
The information required by this item of Form 10-K is set forth on page 14 of the registrant's 1994 Annual Report, which page is incorporated herein by reference.
Item 7

Item 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The information required by this item of Form 10-K is set forth in Note 2 of Notes to Consolidated Financial Statements on page 21 and on pages 1, 13, 15 and 16 of the registrant's 1994 Annual Report, which pages are incorporated herein by reference.
Item 8


Item 8 - FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The information required by this item of Form 10-K is set forth on page 14 and on pages 17 through 27 of the registrant's 1994 Annual Report, which pages are incorporated herein by reference.
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Report of Independent Accountants on Financial Statement Schedules --------------------------------
To The Board of Directors of DPL Inc.
Our audits of the consolidated financial statements referred to in our report dated January 18, 1995 appearing on page 27 of the 1994 Annual Report to Shareholders of DPL Inc. (which report and consolidated financial statements are incorporated by reference in this Annual Report on Form 10-K) also included an audit of the Financial Statement Schedules listed in Item 14(a) of this Form 10-K. In our opinion, these Financial Statement Schedules present fairly, in all material respects, the information set forth therein when read in conjunction with the related consolidated financial statements.
Price Waterhouse LLP
Price Waterhouse LLP Dayton, Ohio January 18, 1995
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Item 9

Item 9 - CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
PART III -------- Item 10



Item 10 - DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Directors of the Registrant --------------------------- The information required by this item of Form 10-K is set forth on pages 2 through 5 of DPL Inc.'s definitive Proxy Statement dated March 1, 1995, relating to the 1995 Annual Meeting of Shareholders ("1995 Proxy Statement"), which pages are incorporated herein by reference, and on pages I-19 and I-20 of this Form 10-K.
Item 11

Item 11 - EXECUTIVE COMPENSATION
The information required by this item of Form 10-K is set forth on pages 9 through 15 of the 1995 Proxy Statement, which pages are incorporated herein by reference.
Item 12

Item 12 - SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this item of Form 10-K is set forth on pages 3 through 6 and on pages 14 and 15 of the 1995 Proxy Statement, which pages are incorporated herein by reference.
Item 13

Item 13 - CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
None.
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PART IV ------- Item 14

Item 14 - EXHIBITS, FINANCIAL STATEMENT SCHEDULE AND REPORTS ON FORM 8-K
Pages of 1994 Form 10-K Incorporated by Reference ------------------ Report of Independent Accountants..................... II-2
(a) Documents filed as part of the Form 10-K
1. Financial Statements Pages of 1994 Annual -------------------- Report Incorporated by Reference -------------------- Consolidated Statement of Results of Operations for the three years in the period ended December 31, 1994..................................... 17
Consolidated Statement of Cash Flows for the three years in the period ended December 31, 1994..... 18
Consolidated Balance Sheet as of December 31, 1994 and 1993......................................... 19
Notes to Consolidated Financial Statements............ 20 - 26
Report of Independent Accountants..................... 27
2. Financial Statement Schedule ---------------------------- For the three years in the period ended December 31, 1994: Page No. -------------
Schedule II - Valuation and qualifying accounts IV-7
The information required to be submitted in schedules I, III and IV is omitted as not applicable or not required under rules of Regulation S-X.
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3. Exhibits -------- The following exhibits have been filed with the Securities and Exchange Commission and are incorporated herein by reference.
Incorporation by Reference ----------------- 2 Copy of the Agreement of Merger among Exhibit A to the DPL Inc., Holding Sub Inc. and DP&L 1986 Proxy Statement dated January 6, 1986.................. (File No. 1-2385)
3(a) Copy of Amended Articles of Exhibit 3 to Report on Incorporation of DPL Inc. dated Form 10-K for year ended January 4, 1991, and amendment dated December 31, 1991 December 3, 1991....................... (File No. 1-9052)
3(b) Copy of Amendment dated April 20, 1993 Exhibit 3(b) to Report to DPL Inc.'s Amended Articles of on Form 10-K for the Incorporation.......................... year ended December 31, 1993 (File No. 1-9052)
4(a) Copy of Composite Indenture dated as of Exhibit 4(a) to October 1, 1935, between DP&L and Report on Form 10-K The Bank of New York, Trustee with all for year ended amendments through the Twenty-Ninth December 31, 1985 Supplemental Indenture................. (File No. 1-2385)
4(b) Copy of the Thirtieth Supplemental Exhibit 4(h) to Indenture dated as of March 1, 1982, Registration Statement and The Bank of New York, Trustee...... No. 33-53906
4(c) Copy of the Thirty-First Supplemental Exhibit 4(h) to Indenture dated as of November 1, 1982, Registration Statement between DP&L and The Bank of New York, No. 33-56162 Trustee................................
4(d) Copy of the Thirty-Second Supplemental Exhibit 4(i) to Indenture dated as of November 1, 1982, Registration Statement between DP&L and The Bank of New York, No. 33-56162 Trustee................................
4(e) Copy of the Thirty-Third Supplemental Exhibit 4(e) to Indenture dated as of December 1, 1985, Report on Form 10-K between DP&L and The Bank of New York, for year ended Trustee................................ December 31, 1985 (File No. 1-2385)
4(f) Copy of the Thirty-Fourth Supplemental Exhibit 4 to Report Indenture dated as of April 1, 1986, on Form 10-Q for between DP&L and The Bank of New York, quarter ended Trustee................................ June 30, 1986 (File No. 1-2385)
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4(g) Copy of the Thirty-Fifth Supplemental Exhibit 4(h) to Indenture dated as of December 1, 1986, report on Form 10-K between DP&L and The Bank of New York, for the year ended Trustee................................ December 31, 1986 (File No. 1-9052)
4(h) Copy of the Thirty-Sixth Supplemental Exhibit 4(i) to Indenture dated as of August 15, 1992, Registration Statement between DP&L and The Bank of New York, No. 33-53906 Trustee...............................
4(i) Copy of the Thirty-Seventh Supplemental Exhibit 4(j) to Indenture dated as of November 15, 1992, Registration Statement between DP&L and The Bank of New York, No. 33-56162 Trustee...............................
4(j) Copy of the Thirty-Eighth Supplemental Exhibit 4(k) to Indenture dated as of November 15, 1992, Registration Statement between DP&L and The Bank of New York, No. 33-56162 Trustee...............................
4(k) Copy of the Thirty-Ninth Supplemental Exhibit 4(k) to Indenture dated as of January 15, 1993, Registration Statement between DP&L and The Bank of New York, No. 33-57928 Trustee................................
4(l) Copy of the Fortieth Supplemental Exhibit 4(m) to Report Indenture dated as of February 15, 1993, on Form 10-K for the between DP&L and The Bank of New York, year ended December 31, Trustee................................ 1992 (File No. 1-2385)
4(m) Copy of the Credit Agreement dated as Exhibit 4(k) to DPL of November 2, 1989 between DPL Inc., Inc.'s Registration the Bank of New York, as agent, and Statement on Form S-3 the banks named therein................ (File No. 33-32348)
4(n) Copy of Shareholder Rights Agreement Exhibit 4 to Report between DPL Inc. and The First on Form 8-K dated National Bank of Boston................ December 13, 1991 (File No. 1-9052)
10(a) Description of Management Incentive Exhibit 10(c) to Compensation Program for Certain Report on Form 10-K Executive Officers..................... for the year ended December 31, 1986 (File No. 1-9052)
10(b) Copy of Severance Pay Agreement Exhibit 10(f) to Report with Certain Executive Officers........ on Form 10-K for the year ended December 31, 1987 (File No. 1-9052)
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10(c) Copy of Supplemental Executive Exhibit 10(e) to Report Retirement Plan amended August 6, on Form 10-K for the 1991................................... year ended December 31, 1991 (File No. 1-9052)
10(d) Amended description of Directors' Exhibit 10(d) to Report Deferred Stock Compensation Plan on Form 10-K for the effective January 1, 1993.............. year ended December 31, 1993 (File No. 1-9052)
10(e) Amended description of Deferred Exhibit 10(e) to Report Compensation Plan for Non-Employee on Form 10-K for the Directors effective January 1, 1993.... year ended December 31, 1993 (File No. 1-9052)
10(f) Copy of Management Stock Incentive Exhibit 10(f) to Report Plan amended January 1, 1993........... on Form 10-K for the year ended December 31, 1993 (File No. 1-9052)
18 Copy of preferability letter relating Exhibit 18 to Report on to change in accounting for unbilled Form 10-K for the year revenues from Price Waterhouse......... ended December 31, 1987 (File No. 1-9052)
21 Copy of List of Subsidiaries of Exhibit 21 to Report DPL Inc................................ on Form 10-K for the year ended December 31, 1993 (File No. 1-9052)
The following exhibits are filed herewith:
Page No. ----------------------
13 Copy of DPL Inc.'s 1994 Annual Report to Shareholders........................
23 Consent of Price Waterhouse............
Pursuant to paragraph (b)(4)(iii)(A) of Item 601 of Regulation S-K, DPL Inc. has not filed as an exhibit to this Form 10-K certain instruments with respect to long-term debt if the total amount of securities authorized thereunder does not exceed 10% of the total assets of DPL Inc. and its subsidiaries on a consolidated basis, but hereby agrees to furnish to the SEC on request any such instruments.
(b) Reports on Form 8-K -------------------
None
IV-4
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
DPL Inc.
Registrant
March 28, 1995 Peter H. Forster --------------------------------- Peter H. Forster Chairman, President and Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
Director March , 1995 ------------------------- (T. J. Danis)
Director March , 1995 ------------------------- (J. F. Dicke, II)
Peter H. Forster Director and Chairman March 28, 1995 ------------------------- (principal executive (P. H. Forster) officer)
Ernie Green Director March 29, 1995 ------------------------- (E. Green)
Director March , 1995 ------------------------- (J. G. Haley)
IV-5
Allen M. Hill Director March 30, 1995 ------------------------- (A. M. Hill)
Director March , 1995 ------------------------- (W A. Hillenbrand)
David R. Holmes Director March 30, 1995 ------------------------- (D. R. Holmes)
Thomas M. Jenkins Group Vice President March 30, 1995 ------------------------- and Treasurer (T. M. Jenkins) (principal financial and accounting officer)
Burnell R. Roberts Director March 30, 1995 ------------------------- (B. R. Roberts)
IV-6
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