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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(X) ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1997
OR
( ) 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 1-9052
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DPL INC.
(Exact name of registrant as specified in its charter)
OHIO 31-1163136
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
Courthouse Plaza Southwest, Dayton, Ohio 45402
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: 937-224-6000
Securities registered pursuant to Section 12(b) of the Act:
Outstanding at Name of each exchange on
Title of each class February 27, 1998 which registered
----------------------- ----------------- ------------------------
Common Stock, $0.01 par 160,202,949 New York Stock Exchange
and Preferred Share
Purchase Rights
Securities registered pursuant to Section 12(g) of the Act: NONE
Indicate by check mark if disclosure of delinquent filers
pursuant to Item 405 of Regulation S-K is not contained herein,
and will not be contained, to the best of registrant's knowledge,
in definitive proxy or information statements incorporated by
reference in Part III of this Form 10-K or any amendment to this
Form 10-K. X
---
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the registrant was required to
file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
YES X NO
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The aggregate market value of the voting stock held by
nonaffiliates of the registrant as of February 27, 1998 was
$2,933,716,504 closing price of $18-5/16 on such date.
DOCUMENTS INCORPORATED BY REFERENCE
Parts I and II incorporate by reference the registrant's 1997
Annual Report to Shareholders.
Portions of the definitive Proxy Statement dated March 1, 1998,
relating to the 1998 Annual Meeting of Shareholders of the
registrant, are incorporated by reference into Part III.
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PART I
Item 1 - Business*
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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 (937) 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 485,000 retail customers in a
24 county service area of approximately 6,000 square miles and
furnishes natural gas service to 301,000 customers in
16 counties. DP&L serves an estimated population of 1.3 million.
Principal industries served include electrical machinery,
automotive and other transportation equipment, non-electrical
machinery, agriculture, paper, and rubber and plastic products.
DP&L's sales reflect the general economic conditions and seasonal
weather patterns of the area. In 1997, a 3% decline in electric
residential sales resulted in slightly lower revenue, which
offset a 3% increase in sales to business customers and higher
sales to other public utilities. Gas utility revenues increased
2% in 1997. Sales increases of 3% from higher deliveries to
business customers offset the effects of milder weather. During
1997, cooling degree days were 23% below the twenty year average
and 15% below 1996. Heating degree days in 1997 were 3% above
the thirty year average and 4% below 1996. 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 Miami Valley Equipment, Inc., which
owns retail sales and transportation equipment and provides support
services to DPL Inc. and its subsidiaries.
* Unless otherwise indicated, the information given in "Item 1 -
BUSINESS" is current as of March 27, 1998. No representation
is made that there have not been subsequent changes to such
information.
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Other subsidiaries of DPL Inc. include Miami Valley
CTC, Inc., which provides transportation services; Miami Valley
Leasing, which leases communications equipment and other
miscellaneous equipment, owns real estate and has, for financial
investment purposes, acquired limited partnership interests in
wholesale electric generation; 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; Miami Valley Development Company, which has
acquired real estate for DP&L and is engaged in the business of
technology research and development; and DPL Energy, Inc., which
has been granted authority to engage in the business of brokering
wholesale electric energy.
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 2,592 persons as of
December 31, 1997, of which 2,164 are full-time employees and 428
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 1997 Annual Report to Shareholders ("1997
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 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.
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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.
DP&L provides transmission and wholesale electric service 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 were approved by the
Federal Energy Regulatory Commission ("FERC"), in June 1995. The
twelfth municipal customer signed a 20-year agreement, approved
by FERC in February 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 1.2% of
total electricity sales in 1997.
In October 1994, the Public Utilities Commission of Ohio
("PUCO") initiated roundtable discussions on the introduction of
competition in the electric industry. The "Electric Competition
Series" is a result of the Ohio Energy Strategy issued in April
1994. To date, roundtable discussions have focused largely on
short-term initiatives that are possible under the current
regulatory framework. On February 15, 1996, the PUCO issued
guidelines for interruptible service, including services that
accommodate the attainment and delivery of replacement
electricity during periods when the utility faces constraints on
its own resources. On April 11, 1996, the PUCO issued an Entry
on Rehearing ordering utilities to file interruptible electric
service tariffs. On June 14, 1996, DP&L filed for approval of a
non-firm electric service rate schedule and replacement power
rate riders. DP&L's interruptible electric service tariffs were
approved on May 1, 1997, and tariffs conforming to this order
were subsequently filed with the PUCO on May 15, 1997.
On February 27, 1997, after rehearing its earlier order on
the subject, the PUCO issued guidelines for the implementation of
conjunctive electric service. These guidelines require all
electric utilities to file tariffs under which different service
locations are aggregated for cost-of-service, rate design, rate
negotiation and billing purposes.
In January 1997, plans were announced to create a 12 member
Joint Committee of the Ohio Senate and House of Representatives
to explore and possibly draft retail wheeling legislation. The
Committee has conducted hearings to gather information from
energy companies, regulators, customers and industry experts.
The Committee co-chairs issued a draft report on January 6, 1998
recommending opening the electric...
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...generation market, in the future, to competition for all Ohio
consumers. As a part of this restructuring effort in 1998 and
beyond, legislators are also studying related complex tax issues
that must be resolved. Other legislative proposals at the federal
level are pending concerning electric wholesale and retail wheeling
which are designed to increase competition.
On April 24, 1996, FERC issued orders requiring all electric
utilities that own or control transmission facilities to file
open-access transmission service tariffs. Open-access
transmission tariffs provide third parties with non-
discriminatory transmission service comparable to what the
utility provides itself. In its orders, FERC further stated that
FERC-jurisdictional stranded costs reasonably incurred and costs
of complying with the rules will be recoverable by electric
utilities. In August 1997, DP&L refiled its open-access
transmission tariff in compliance with FERC orders. In December
1997, DP&L reached an agreement in principle with intervenors in
a pending tariff case and filed a subsequent tariff case based on
an updated test year.
On September 30, 1996, FERC conditionally accepted DP&L's
market-based sales tariff which will allow DP&L to sell wholesale
generation supply at prices that reflect current market prices.
At the same time, FERC approved the application and authorization
of DPL Energy Inc., a wholly-owned subsidiary of DPL Inc., to
sell and broker wholesale electric power and also charge market-
based prices for such power.
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 evolution of
an efficient natural gas spot market in combination with open-
access interstate transportation 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 performance and economics. Therefore, demand for natural
gas purchased from DP&L or purchased elsewhere and 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.
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 performance and
economics.
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CONSTRUCTION AND FINANCING PROGRAM OF DPL INC.
Construction Program
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Construction additions were $111 million, $116 million, and
$87 million in 1997, 1996 and 1995, respectively. The capital
program for 1998 consists of construction costs of approximately
$100 million, which includes an 82 MW combustion turbine
generating unit.
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 recovery.
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.
Financing Program
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DPL Inc. and its subsidiaries will require a total of
$27 million during the next five years for sinking fund payments
in addition to any funds needed for the construction program.
At year-end 1997, DPL Inc. had a cash and temporary
investment balance of $26 million, and debt and equity financial
assets were $384 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 December 1997, DP&L redeemed a series of first mortgage
bonds in the principal amount of $40 million with an interest
rate of 8.0%. The bonds had been scheduled to mature in 2003.
Another series of first mortgage bonds in the principal amount of
$40 million matured in 1997. In December 1996, DP&L
redeemed a series of first mortgage bonds in the principal amount
of $25 million with an interest rate of 6.75%. The bonds had
been scheduled to mature in 1998.
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In September 1995, a new series of Air Quality Development
Revenue Refunding Bonds was issued in principal amount of
$110 million with an interest rate of 6.1%. Proceeds from the
financing were used to redeem a similar principal amount of DP&L
First Mortgage Bonds with an interest rate of 9.5%.
In November 1989, DPL Inc. entered into a revolving credit
agreement ("the Credit Agreement") with a consortium of banks
renewable through 2001 which allows total borrowings by DPL Inc.
and its subsidiaries of $200 million. DP&L has authority from
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 year-end 1997,
DPL Inc. had $36 million outstanding under this Credit Agreement.
DP&L also has $97 million available in short-term lines of
credit. At year-end 1997, DP&L had $10 million outstanding from
these lines of credit and $70 million in 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 outstanding and to
be outstanding, and (ii) 100% of retired First Mortgage Bonds.
DP&L anticipates that 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.
A three-for-two common stock split effected in the form of a
stock dividend was paid on January 12, 1998 to stockholders of
record on December 16, 1997.
ELECTRIC OPERATIONS AND FUEL SUPPLY
DP&L's present winter generating capability is 3,264,000 KW.
Of this capability, 2,843,000 KW (approximately 87%) is derived
from coal-fired steam generating stations and the balance
consists of combustion turbine and diesel-powered peaking units.
Approximately 88% (2,491,000 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.
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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 2,961,000 KW, which occurred in August
1995. The present summer generating capability is 3,194,000 KW.
GENERATING FACILITIES
MW Rating
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Operating DP&L
Station Ownership* Company Location Portion Total
- ------- ---------- --------- -------- ------- -----
Coal Units
- ----------
Hutchings W DP&L Miamisburg, OH 371 371
Killen C DP&L Wrightsville, OH 418 624
Stuart C DP&L Aberdeen, OH 823 2,350
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
Tait Gas Turbine 1 W DP&L Moraine, OH 95 95
Tait Gas Turbine 2 W DP&L Moraine, OH 97 97
* 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 1997. The remainder was derived from units burning oil
or natural gas which were used to meet peak demands.
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DP&L estimates that approximately 65-85% of its coal
requirements for the period 1998-2002 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.
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 average fuel cost per kWh generated of fuel burned for
electric generation (coal, gas and oil) for the year was 1.31 cents
which represents an increase from 1.29 cents in 1996 and a decrease
from 1.36 cents in 1995. 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 REGULATIONAND 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. Interconnections with 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 1997, firm agreements provided approximately 50%
of total supply, with the remaining supplies purchased on a
spot/short-term basis.
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In 1997, DP&L purchased natural gas at an average price of
$3.45 per MCF, compared to $3.45 per MCF in 1996 and $2.79 per
MCF in 1995. 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 and
provides transportation service to approximately 300 end-use
customers, delivering a total quantity of nearly 17,000,000 MCF
per year.
RATE REGULATION AND GOVERNMENT LEGISLATION
DP&L's sales of electricity and natural gas 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.
On June 18, 1996, Governor Voinovich signed into law House
Bill 476 which allows for alternate natural gas rate plans and
exemption from PUCO jurisdiction for some gas services, and
establishes a code of conduct for local natural gas distribution
companies. Final rules were issued on March 12, 1997.
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
(i) requires PUCO approval of certain transactions and transfers
of assets between...
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...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.
Regulatory assets recorded during the phase-in of electric
rates are being amortized and recovered in current rates. In
addition, deferred interest charges on the William H. Zimmer
Generating Station are being amortized at $2.8 million per year
over the projected life of the asset.
A 1992 PUCO-approved settlement agreement and a subsequent
stipulation in 1995 allowed accelerated recovery of demand-side
management ("DSM") costs and, thereafter, production plant costs
to the extent that DP&L's return on equity exceeds a baseline 13%
(subject to upward adjustment). If the return exceeds the
baseline return by one to two percent, one-half of the excess is
used to accelerate recovery of these costs. If the return is
greater than two percent over the baseline, the entire excess is
used for such purpose.
Regulatory deferrals on the balance sheet were:
Dec. 31 Dec. 31
1997 1996
------- -------
--millions--
Phase-in $ 30.6 $ 46.7
DSM 33.6 35.3
Deferred interest - Zimmer 52.5 55.3
Income taxes recoverable
through future revenues 208.2 222.4
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Total $324.9 $359.7
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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.
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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.
DP&L initiated a competitive bidding process in January 1993
for the construction 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.
On June 1, 1997 and September 15, 1997, respectively, DP&L
filed its natural gas and electric LTFR with the PUCO. An IRP
filed as part of the electric LTFR included plans for the
construction of a series of 82 MW combustion turbine generating
units. The first combustion turbine began operation on June 1,
1995, a second unit began operation on December 23, 1996 and a
third unit is currently under construction.
On January 25, 1996, Governor Voinovich reappointed Chairman
Craig A. Glazer to the PUCO for a five year term which commenced
on April 11, 1996 and will extend until April 10, 2001.
On February 7, 1997, Governor Voinovich appointed Judith A.
Jones, a Toledo City Councilwoman, to the PUCO replacing Richard
Fanelly. Her five year term commenced April 11, 1997 and will
extend until April 10, 2002.
On October 15, 1997 PUCO Commissioner David Johnson
announced his resignation effective November 30, 1997.
Commissioner Johnson was serving a term that would have expired
in April 1998. On January 27, 1998, Governor Voinovich appointed
Donald L. Mason, a senior management official with the Ohio
Department of Natural Resources, to replace Commissioner Johnson.
His five year term will expire on April 10, 2003.
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 $5 million for environmental control
facilities during 1997. The possibility exists that current
environmental regulations could be revised which could change the
level of estimated construction expenditures. See CONSTRUCTION
AND FINANCING PROGRAM OF DPL INC.
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Air Quality
- -----------
The Clean Air Act Amendments of 1990 (the "Act") have
limited sulfur dioxide and nitrogen oxide emissions nationwide.
The Act restricts emissions in two phases. Phase I compliance
requirements became effective on January 1, 1995 and Phase II
requirements will become effective on January 1, 2000.
Compliance by DP&L has not caused any material changes in DP&L's
costs or operations.
DP&L's environmental compliance plan ("ECP") was approved by
the PUCO on May 6, 1993. Phase I requirements are being met by
switching to lower sulfur coal at several commonly owned electric
generating facilities and increasing existing scrubber removal
efficiency. Total capital expenditures to comply with Phase I of
the Act were approximately $5.5 million. Present 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. Costs to comply with the Act are
eligible for recovery in fuel hearings and other regulatory
proceedings.
Land Use
- --------
DP&L and numerous other parties have been notified by the
United States Environmental Protection Agency ("U.S. EPA") or the
Ohio Environmental Protection Agency ("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.
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 initial Record of Decision issued by the U.S. EPA estimating
clean-up costs at $27.1 million was later amended to reflect an
estimate of clean-up costs at $32 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 participated in the sponsorship of a study
to evaluate...
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...alternatives to the U.S. EPA's clean-up plan. The U.S. EPA
recently approved a proposal for a less expensive clean-up method
for the entire site. This new clean-up is anticipated to have a
total cost of $5.2 million. 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 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%. In late January
1998, the U.S. EPA approved a settlement that included DP&L.
Through the settlement, DP&L resolved its potential liability
with no resulting material impact.
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.
I-13
<PAGE>
THE DAYTON POWER AND LIGHT COMPANY
OPERATING STATISTICS
ELECTRIC OPERATIONS
Years Ended December 31,
------------------------------
1997 1996 1995
---- ---- ----
Electric Output (millions of kWh)
General -
Coal-fired units 16,246 16,142 15,679
Other units 52 21 29
Power purchases 1,239 1,098 2,115
Exchanged and transmitted power - (1) 1
Company use and line losses (928) (946) (1,010)
---------- ---------- ----------
Total 16,609 16,314 16,814
========== ========== ==========
Electric Sales (millions of kWh)
Residential 4,788 4,924 4,871
Commercial 3,408 3,407 3,425
Industrial 4,749 4,540 4,401
Public authorities and railroads 1,330 1,392 1,378
Private utilities and wholesale 2,334 2,051 2,739
---------- ---------- ----------
Total 16,609 16,314 16,814
========== ========== ==========
Electric Customers at End of Period
Residential 433,563 428,973 425,347
Commercial 43,923 43,381 42,582
Industrial 1,881 1,858 2,017
Public authorities and railroads 5,736 5,651 5,573
Other 42 29 17
---------- ---------- ----------
Total 485,145 479,892 475,536
========== ========== ==========
Operating Revenues (thousands)
Residential $ 409,857 $ 422,876 $ 422,153
Commercial 234,206 236,598 237,799
Industrial 225,775 222,941 224,135
Public authorities and railroads 74,018 78,140 78,225
Private utilities and wholesale 53,598 43,730 57,799
Other 12,523 12,115 9,807
---------- ---------- ----------
Total $1,009,977 $1,016,400 $1,029,918
========== ========== ==========
Residential Statistics
(per customer-average)
Sales - kWh 11,120 11,537 11,518
Revenue $ 951.90 $ 990.89 $ 998.27
Rate per kWh (Month of December)
(cents) 8.10 7.91 8.01
I-14
<PAGE>
THE DAYTON POWER AND LIGHT COMPANY
OPERATING STATISTICS
GAS OPERATIONS
Years Ended December 31,
------------------------------
1997 1996 1995
---- ---- ----
Gas Output (thousands of MCF)
Direct market purchases 43,808 46,696 44,376
Liquefied petroleum gas 66 90 18
Company use and unaccounted for (1,016) (676) (1,594)
Transportation gas received 19,182 17,587 16,870
-------- -------- --------
Total 62,040 63,697 59,670
======== ======== ========
Gas Sales (thousands of MCF)
Residential 29,277 31,087 29,397
Commercial 9,567 9,424 8,307
Industrial 2,520 3,404 2,584
Public authorities 2,153 2,829 3,006
Transportation gas delivered 18,523 16,953 16,376
-------- -------- --------
Total 62,040 63,697 59,670
======== ======== ========
Gas Customers at End of Period
Residential 276,189 272,616 269,694
Commercial 22,298 22,085 21,451
Industrial 1,396 1,331 1,574
Public authorities 1,475 1,463 1,423
-------- -------- --------
Total 301,358 297,495 294,142
======== ======== ========
Operating Revenues (thousands)
Residential $160,279 $156,709 $149,006
Commercial 48,302 44,092 39,047
Industrial 11,867 14,110 11,447
Public authorities 10,311 12,013 12,589
Other 12,948 11,660 9,950
-------- -------- --------
Total $243,707 $238,584 $222,039
======== ======== ========
Residential Statistics
(per customer-average)
Sales - MCF 107.0 114.8 109.8
Revenue $ 585.63 $ 578.68 $ 556.72
Rate per MCF (month of December) $ 5.20 $ 5.13 $ 4.44
I-15
<PAGE>
EXECUTIVE OFFICERS OF THE REGISTRANT
(As of March 1, 1998)
Business Experience,
Last Five Years
(Positions with Registrant
Name Age Unless Otherwise Indicated) Dates
- ------------------------------------------------------------------------------
Peter H. Forster 55 Chairman 1/01/97 - 3/01/98
Chairman and Chief 9/26/95 - 1/01/97
Executive Officer
Chairman, President and 4/05/88 - 9/26/95
Chief Executive Officer
Chairman, DP&L 4/06/92 - 3/01/98
Allen M. Hill 52 President and Chief 1/01/97 - 3/01/98
Executive Officer
President and Chief 9/26/95 - 1/01/97
Operating Officer
President and Chief 4/06/92 - 3/01/98
Executive Officer, DP&L
Paul R. Anderson 55 Controller, DP&L 4/12/81 - 3/01/98
Stephen P. Bramlage 51 Assistant Vice President, 1/01/94 - 3/01/98
DP&L
Director, Service 10/29/89 - 1/01/94
Operations, DP&L
Jeanne S. Holihan 41 Assistant Vice President, 3/17/93 - 3/01/98
DP&L
Treasurer, DP&L 11/06/90 - 3/17/93
Thomas M. Jenkins 46 Group Vice President 5/14/96 - 3/01/98
and Treasurer, DPL Inc.
and DP&L
Group Vice President 6/27/95 - 5/14/96
and Treasurer
Group Vice President, DP&L
Group Vice President 5/09/94 - 6/27/95
and Treasurer, DPL Inc.
and DP&L
Group Vice President 11/06/90 - 5/09/94
and Treasurer
Group Vice President, DP&L
I-16
<PAGE>
EXECUTIVE OFFICERS OF THE REGISTRANT
(As of March 1, 1998)
Business Experience,
Last Five Years
(Positions with Registrant
Name Age Unless Otherwise Indicated) Dates
- ------------------------------------------------------------------------------
Stephen F. Koziar Jr. 53 Group Vice President 1/31/95 - 3/01/98
and Secretary, DPL Inc.
and DP&L
Group Vice President, 12/10/87 - 1/31/95
DPL Inc. and DP&L
Judy W. Lansaw 46 Group Vice President, 1/31/95 - 3/01/98
DPL Inc. and DP&L
Group Vice President 12/07/93 - 1/31/95
and Secretary, DPL Inc.
and DP&L
Vice President and 8/01/89 - 12/07/93
Secretary, DPL Inc.
and DP&L
Arthur G. Meyer 48 Vice President, Legal and 11/21/97 - 3/01/98
Corporate Affairs, DP&L
Director, Corporate 5/14/96 - 11/21/97
Relations, DP&L
Treasurer, DP&L 6/27/95 - 5/14/96
Director, Financial 5/09/94 - 6/27/95
Activities
Manager, Service Operations 1/31/94 - 5/09/94
Associate General Counsel 7/13/92 - 1/31/94
Bryce W. Nickel 41 Assistant Vice President 1/01/94 - 3/01/98
DP&L
Director, Service 10/29/89 - 1/01/94
Operations, DP&L
H. Ted Santo 47 Group Vice President, 12/08/92 - 3/01/98
DP&L
I-17
<PAGE>
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-5 and 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 1997 Annual
Report, which pages are incorporated herein by reference.
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 and I-9), which pages are
incorporated herein by reference.
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 - 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-4), ELECTRIC OPERATIONS AND FUEL
SUPPLY (pages I-6 through I-8), GAS OPERATIONS AND GAS SUPPLY
(pages I-8 and I-9), RATE REGULATION AND GOVERNMENT LEGISLATION
(pages I-9 through I-11) and ENVIRONMENTAL CONSIDERATIONS (pages
I-11 through I-13) and - Note 2 of Notes of Consolidated
Financial Statements on page 21 of the registrant's 1997 Annual
Report, which pages are incorporated herein by reference.
Item 4 - Submission Of Matters To A Vote Of Security Holders
- ------------------------------------------------------------------------------
DPL Inc.'s Annual Meeting of Shareholders was held on
April 15, 1997. Three directors of DPL Inc. were elected at the
Annual Meeting, each of whom will serve a three year term
expiring in 2000. The nominees were elected as follows: Ernie
Green, 92,556,140 shares FOR, 1,405,730 shares WITHHELD; David R.
Holmes, 92,614,002 shares FOR, 1,347,868 shares WITHHELD; Burnell
R. Roberts, 92,559,470 shares FOR, 1,402,400 shares WITHHELD.
I-18
<PAGE>
PART II
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 1997 Annual
Report, which pages are incorporated herein by reference. As of
December 31, 1997, there were 43,689 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 - Selected Financial Data
- ------------------------------------------------------------------------------
The information required by this item of Form 10-K is
set forth on page 14 of the registrant's 1997 Annual Report,
which page is incorporated herein by reference.
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 1997
Annual Report, which pages are incorporated herein by reference.
Subsequent to the completion of the 1997 Annual Report,
DP&L was notified that the U.S. EPA approved a settlement at one
of the superfund sites. The total cost estimate for all of the
Potentially Responsible Parties for all of the sites has changed
from $34 million to $13 million.
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 1997 Annual Report, which pages are incorporated
herein by reference.
II-1
<PAGE>
Report of Independent Accountants
on Financial Statement Schedule
---------------------------------
To the Board of Directors of DPL Inc.
Our audits of the consolidated financial statements referred to
in our report dated January 21, 1998 appearing on page 27 of the
1997 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 Schedule listed in Item 14(a) of this Form 10-
K. In our opinion, this Financial Statement Schedule presents
fairly, in all material respects, the information set forth
therein when read in conjunction with the related consolidated
financial statements.
/s/Price Waterhouse LLP
Price Waterhouse LLP
Dayton, Ohio
January 21, 1998
II-2
<PAGE>
Item 9 - Changes In And Disagreements With Accountants On Accounting
And Financial Disclosure
- ------------------------------------------------------------------------------
None.
PART III
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 2, 1998, relating to the 1998 Annual
Meeting of Shareholders ("1998 Proxy Statement"), which pages are
incorporated herein by reference, and on pages I-16 and I-17 of
this Form 10-K.
Item 11 - Executive Compensation
- ------------------------------------------------------------------------------
The information required by this item of Form 10-K is
set forth on pages 9 through 15 of the 1998 Proxy Statement,
which pages are incorporated herein by reference.
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 page 15 of the 1998 Proxy
Statement, which pages are incorporated herein by reference.
Item 13 - Certain Relationships And Related Transactions
- ------------------------------------------------------------------------------
None.
III-1
<PAGE>
PART IV
Item 14 - Exhibits, Financial Statement Schedule And Reports On Form 8-K
- ------------------------------------------------------------------------------
Pages of 1997 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 1997 Annual Report
-------------------- Incorporated by Reference
---------------------------
Consolidated Statement of Results of Operations
For the three years in the period ended
December 31, 1997 17
Consolidated Statement of Cash Flows for the
three years in the period ended December 31, 1997 18
Consolidated Balance Sheet as of December 31, 1997
and 1996 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, 1997:
Page No.
--------
Schedule II - Valuation and qualifying accounts IV-7
The information required to be submitted in schedules
I, III, IV and V is omitted as not applicable or not required
under rules of Regulation S-X.
IV-1
<PAGE>
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 1986 Proxy
DPL Inc., Holding Sub Inc. and DP&L Statement (File No. 1-2385)
dated January 6, 1986
3(a) Copy of Amended Articles of Incorporation Exhibit 3 to Report on
of DPL Inc. dated January 4, 1991, and Form 10-K for the year
amendment dated December 3, 1991 ended December 31, 1991
(File No. 1-9052)
3(b) Copy of Amendment dated April 20, 1993 Exhibit 3(b) to Report on
to DPL Inc.'s Amended Articles of Form 10-K for the year
Incorporation ended December 31, 1993
(File No. 1-9052)
4(a) Copy of Composite Indenture dated as of Exhibit 4(a) to Report on
October 1, 1935, between DP&L and The Form 10-K for the year
Bank of New York, Trustee with all ended December 31, 1985
amendments through the Twenty-Ninth (File No. 1-2385)
Supplemental Indenture
4(b) Copy of the Thirtieth Supplemental Exhibit 4(h) to Registration
Indenture dated as of March 1, 1982, Statement No. 33-53906
between DP&L and The Bank of New York,
Trustee
4(c) Copy of the Thirty-First Supplemental Exhibit 4(h) to Registration
Indenture dated as of November 1, 1982, Statement No. 33-56162
between DP&L and The Bank of New York,
Trustee
4(d) Copy of the Thirty-Second Supplemental Exhibit 4(i) to Registration
Indenture dated as of November 1, 1982, Statement No. 33-56162
between DP&L and The Bank of New York,
Trustee
4(e) Copy of the Thirty-Third Supplemental Exhibit 4(e) to Report on
Indenture dated as of December 1, 1985, Form 10-K for the year
between DP&L and The Bank of New York, ended December 31, 1985
Trustee (File No. 1-2385)
4(f) Copy of the Thirty-Fourth Supplemental Exhibit 4 to Report on
Indenture dated as of April 1, 1986, Form 10-Q for the quarter
between DP&L and The Bank of New York, ended June 30, 1986
Trustee (File No. 1-2385)
IV-2
<PAGE>
4(g) Copy of the Thirty-Fifth Supplemental Exhibit 4(h) to Report on
Indenture dated as of December 1, 1986, Form 10-K for the year
between DP&L and The Bank of New York, ended December 31, 1986
Trustee (File No. 1-9052)
4(h) Copy of the Thirty-Sixth Supplemental Exhibit 4(i) to Registration
Indenture dated as of August 15, 1992, Statement No. 33-53906
between DP&L and The Bank of New York,
Trustee
4(i) Copy of the Thirty-Seventh Supplemental Exhibit 4(j) to Registration
Indenture dated as of November 15, Statement No. 33-56162
1992, between DP&L and The Bank of New
York, Trustee
4(j) Copy of the Thirty-Eighth Supplemental Exhibit 4(k) to Registration
Indenture dated as of November 15, Statement No. 33-56162
1992, between DP&L and The Bank of New
York, Trustee
4(k) Copy of the Thirty-Ninth Supplemental Exhibit 4(k) to Registration
Indenture dated as of January 15, 1993, Statement No. 33-57928
between DP&L and The Bank of New York,
Trustee
4(l) Copy of the Fortieth Supplemental Exhibit 4(m) to Report on
Indenture dated as of February 15, Form 10-K for the year
1993, between DP&L and The Bank of New ended December 31, 1992
York, Trustee (File No. 1-2385)
4(m) Copy of the Credit Agreement dated as Exhibit 4(k) to DPL Inc.'s
of November 2, 1989 between DPL Inc., Registration Statement
the Bank of New York, as agent, and the on Form S-3
banks named therein (File No. 33-32348)
4(n) Copy of Shareholder Rights Agreement Exhibit 4 to Report on
between DPL Inc. and The First National Form 8-K dated
Bank of Boston December 13, 1991
(File No. 1-9052)
10(a) Description of Management Incentive Exhibit 10(c) to Report on
Compensation Program for Certain Form 10-K for the year
Executive Officers ended December 31, 1986
(File No. 1-9052)
10(b) Copy of Severance Pay Agreement with Exhibit 10(f) to Report on
Certain Executive Officers Form 10-K for the year
ended December 31, 1987
(File No. 1-9052)
IV-3
<PAGE>
10(c) Copy of Supplemental Executive Exhibit 10(e) to Report on
Retirement Plan amended August 6, 1991 Form 10-K for the year
ended December 31, 1991
(File No. 1-9052)
10(d) Amended description of Directors' Exhibit 10(d) to Report on
Deferred Stock Compensation Plan Form 10-K for the year
effective January 1, 1993 ended December 31, 1993
(File No. 1-9052)
10(e) Amended description of Deferred Exhibit 10(e) to Report on
Compensation Plan for Non-Employee Form 10-K for the year
Directors effective January 1, 1993 ended December 31, 1993
(File No. 1-9052)
10(f) Copy of Management Stock Incentive Plan Exhibit 10(f) to Report on
amended January 1, 1993 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 LLP ended December 31, 1987
(File No. 1-9052)
The following exhibits are filed herewith:
Page No.
--------
13 Copy of DPL Inc.'s 1997 Annual Report to Shareholders
21 Copy of List of Subsidiaries of DPL Inc.
23 Consent of Price Waterhouse LLP
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
<PAGE>
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, thereun
to duly authorized.
DPL Inc.
Registrant
March 30, 1998 /s/Allen M. Hill
-------------------------------------
Allen M. Hill
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
- --------------------
(T. J. Danis)
Director
- --------------------
(J. F. Dicke, II)
/s/Peter H. Forster Director and Chairman March 30, 1998
- --------------------
(P. H. Forster)
/s/Ernie Green Director March 30, 1998
- --------------------
(E. Green)
/s/Jane G. Haley Director March 30, 1998
- --------------------
(J. G. Haley)
/s/Allen M. Hill Director, President and March 30, 1998
- -------------------- Chief Executive Officer
(A. M. Hill)
IV-5
<PAGE>
Director
- --------------------
(W A. Hillenbrand)
/s/David R. Holmes Director March 30, 1998
- --------------------
(D. R. Holmes)
/s/Thomas M. Jenkins Group Vice President and March 30, 1998
- -------------------- Treasurer (principal
(T. M. Jenkins) financial and accounting
officer)
Director
- --------------------
(B. R. Roberts)
IV-6
<PAGE>
Schedule II
DPL Inc.
VALUATION AND QUALIFYING ACCOUNTS
For the years ended December 31, 1997, 1996 and 1995
- ------------------------------------------------------------------------------
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E
- ------------------------------------------------------------------------------
Additions
----------------
Balance at Charged Balance
Beginning to Deductions at End
Description of Period Income Other (1) Period
- ------------------------------------------------------------------------------
----------------------thousands---------------------
1997:
Deducted from accounts
receivable--
Provisions for
uncollectible accounts $ 5,083 $ 5,865 $ - $ 5,941 $ 5,007
1996:
Deducted from accounts
receivable--
Provisions for
uncollectible accounts $ 6,481 $ 4,056 $ - $ 5,454 $ 5,083
1995:
Deducted from accounts
receivable--
Provision for
uncollectible accounts $ 7,801 $ 1,096 $ - $ 2,416 $ 6,481
(1) Amounts written off, net of recoveries of accounts previously written off.
IV-7
<PAGE>
1997 Annual Report
Focused and Prepared
(see appendix for photograph description)
(see appendix for logo description)
[cover]
<PAGE>
CORPORATE PROFILE
DPL Inc. was formed in 1986 as a holding company. Its principal
subsidiary is The Dayton Power and Light Company ("DP&L"). DP&L
sells electricity and natural gas to residential, commercial,
industrial and governmental customers in a 6,000 square mile area
of West Central Ohio. Electricity for DP&L's 24 county service
area is generated at eight power plants and is distributed to
485,000 retail customers. Natural gas is provided to 301,000
customers in 16 counties. The corporate offices of DPL Inc. are
located at:
Courthouse Plaza Southwest, Dayton, Ohio 45402
(937) 224-6000
ABOUT THE COVERS
Focused and Prepared
Our efforts and attention at DPL Inc. remain focused on our core
electric and natural gas businesses. Top of the industry
operating and financial performance and ongoing programs that
further improve our competitive position have built a foundation
of preparedness for future success. Featured on our 1997 Annual
Report is The Dayton Power and Light Energy Resource Center,
where unique solutions are designed to meet the energy needs of
homes and businesses. Programs include workshops demonstrating
new energy products and home energy efficiency improvements,
along with state-of-the-art technologies for improved energy
control and reliability for industry. These programs and
solutions demonstrate DP&L's overall total customer focus and
ability to tailor energy services to the individual needs of our
customers.
STRATEGIC OBJECTIVES
Our key strategic objectives have made us successful today and
prepared DPL for the more competitive environment of tomorrow.
Superior Operations - Corporate wide focus on providing industry-
leading levels of operating performance.
Customer Focus - Provide competitive prices, ensure high levels
of reliability and retain customer satisfaction.
Management - Focus on improving competitive position and
maximizing opportunities for growth.
Cost Control - Maintain and improve industry leading cost control
programs.
Financial - Develop and maintain financial strength and
flexibility.
[inside front cover]
<PAGE>
FINANCIAL & OPERATING HIGHLIGHTS
1997 1996 % change
- ------------------------------------------------------------------------------
Financial Performance:
- ----------------------
Earnings per share of common stock $ 1.20 1.15 4
Dividends paid per share $ 0.91 0.87 5
Return on shareholders' equity % 14.6 14.7
Return on total capital % 11.8 11.7
Market value per share at December 31 $ 19-3/16 16-3/16 19
Book value per share at December 31 $ 8.45 7.97 6
Total electric and natural gas utility
revenues (millions) $ 1,251.5 1,252.7 ---
Taxes per share $ 1.58 1.55 2
Number of common shareholders 43,689 46,532 (6)
Cash provided by operating activities
(millions) $ 339.9 338.1 1
First Mortgage Bond Ratings:
- ----------------------------
Duff & Phelps, Inc. AA AA
Standard & Poor's Corporation AA- AA-
Moody's Investor Service Aa3 Aa3
Capital Investment Performance:
- -------------------------------
Construction additions (millions) $ 110.6 115.5 (4)
Construction expenditures paid from
internal funds % 100 100
DP&L Operating Performance:
- ---------------------------
Electric--
Average price per kWh--retail and wholesale
customers (calendar year) (cents) 6.01 6.16 (2)
Fuel efficiency--
Heat rate - Btu per kWh 9,931 9830 1
Industry average 10,359 10,365 ---
Fuel savings (millions) $ 9.2 11.5 (20)
System peak load - MW (calendar year) 2,848 2,886 (1)
Gas--
Average price per MCF - total
(calendar year) $ 3.93 3.75 5
DPL 1997 Annual Report 1
<PAGE>
Dear Shareholder:
Two issues were successfully dealt with in 1997. They were
continued focus on excellent current performance and preparation
for the future electric sales market.
Earnings for the year rose to $1.20 per share, up more than 4%
and better than twice the industry average; dividends were
increased to $0.907 per share in February 1997 and again in
February 1998 to $0.94 per share; the stock price hit an all-time
high of $28.75 and we declared a three-for-two stock split to be
effective January 12, 1998. Our total return in 1997 was over
25%. These are all reflections of our strong financial
performance and capable management team.
We are proud of these accomplishments when compared against the
backdrop of the energy industry, which is quite different from
our own performance. In 1997, many energy companies did not
increase dividends, lost money in related and unrelated new
business ventures, and continuously changed their "vision". Our
vision occurred more than fifteen years ago, when we began
preparing for a competitive energy environment. Namely, that we
sell a commodity and a commodity sells on price.
In 1997, the Ohio government began the initial steps toward
opening the regulated electricity environment. The issues are
tough. They include tax restructuring, reliability of electric
service, recovery of invested capital and determining the time
frame for deregulation to occur.
We believe that many new attributes are necessary to be
competitive and that size alone will not determine profitability.
Rather, the ability to quickly take advantage of opportunities in
the market place and those presented by governmental rules are
keys to success.
We have been preparing for a change in the market and the rules
under which we do business for well over a decade. Our
management team has focused on flexibility, both operationally
and financially. We experienced first hand in the natural gas
business how government can completely change a market. We
learned that the ability to adapt quickly to....
EARNINGS PER SHARE
Dollars
(see appendix for bar graph description)
Caption to photograph:
Board of Directors
Thomas J. Danis, James F. Dicke, II, Peter H. Forster, Ernie
Green
(see appendix for photograph description)
DPL 1997 Annual Report 2
<PAGE>
....change is critical. Streamlined management and operations can
become the critical factor in profiting from change.
Our productivity and efficiency has historically been among the
ten best in the country. Our balance sheet is strong and we have
the financial means necessary to move into a new era. We are
also a combination electric and natural gas company. This means
we provide a complete and competitively priced energy package for
any customer. When combined with natural gas and coal costs for
electric generation that are near the lowest in the Midwest
region, our competitive advantage is really enhanced. We view
the coming changes as opportunities.
The electricity sales market will be confused for quite some time
to come. Basically, the business will be like most others. Each
state will have its own rules, making management focus on
fundamentals and overall flexibility paramount to success. To
remain profitable, you need competitive production costs, a solid
distribution base and a positive customer service team. We have
these tools. We have the will to change, again and again as the
market progresses and the agility to do it quickly.
Your Board of Directors and the management team are dedicated to
bringing you excellent current returns while focusing on growing
into the future. The formula for success that we have and will
continue to work on, is financial strength, preparation and
focus.
Thank you for letting us work for you.
Best regards,
/s/ Peter H. Forster
Peter H. Forster
Chairman, DPL Inc.
/s/ Allen M. Hill
Allen M. Hill
President and Chief Executive
Officer, DPL Inc.
DIVIDENDS PER SHARE
Dollars
(see appendix for bar graph description)
Caption to photograph:
Board of Directors
Jane G. Haley, Allen M. Hill, W August Hillenbrand, David R.
Holmes, Burnell R. Roberts
(see appendix for photograph description)
DPL 1997 Annual Report 3
<PAGE>
THE DPL MISSION
As the energy industry moves through transition, our goal remains
unchanged. We will continue to provide quality gas and electric
service to our customers at competitive prices, and earn a fair
rate of return for our shareholders. By adhering to this long-
time corporate goal, we have established an industry leading
operating and financial position. One sign of DPL Inc.'s
industry leadership is the ability to deliver solid results. We
have the ability, motivation and attitude to make results happen,
not just plan for them. In an environment of increasing market
and price volatility it is team strength that ultimately
prevails. With each state embarking on its own path towards
competition, uncertainty and risk in the industry will increase.
With our historical focus on strong financial and operating
results, we are prepared for the changes in the utility industry.
KEY STRATEGIC OBJECTIVES
Our blueprint for success and continued improvement combines
several key elements. These include maintaining our strong
financial position, managing opportunities and risks, keeping a
strong customer focus, continuing industry leading operations and
controlling costs. Our successful completion of these objectives
will translate into solid shareholder returns.
The restructuring and changing regulatory environment of the
electric utility industry continues. Companies are implementing
very diverse strategies to deal with changing regulatory policy.
As in the past, there are several pending or proposed mergers
that seek to combine resources. In addition, several companies
have chosen to sell off assets in response to competition.
Clearly, the gas and electric markets are moving toward a
commodity-based industry. This action supports one of the
foundations of our operations that has been present for many
years. Specifically, that we are in the business of selling a
commodity, and a....
Total Energy Provider
- ---------------------
DP&L's ability to provide customers with both natural gas and
electricity is a distinct competitive advantage. With fuel and
natural gas costs that are among the lowest in the region, we
offer a total energy package that is competitively priced and
reliable.
INFLATION-ADJUSTED PRICE
(cents/kWh)
(see appendix for line graph description)
caption to photograph:
Since 1987, DP&L electric prices have declined 23%, adjusted for
inflation during that period. Pictured: Scott Kelly, Business
Development.
(see appendix for photograph description)
DPL 1997 Annual Report 4
<PAGE>
caption to photograph:
F & P America, located in Troy, Ohio, is a supplier of
suspension and structural components for the automotive industry.
Recent expansion at this facility was assisted by innovative
energy efficiency solutions provided by DP&L.
(see appendix for photograph description)
DPL 1997 Annual Report 5
<PAGE>
caption to photograph:
Miami Valley Research Park is the home for over forty primarily
high-tech companies. Numerous recent corporate additions have
resulted in impressive growth for the Park, and represent the
dynamic economic environment in West Central Ohio.
(see appendix for photograph description)
DPL 1997 Annual Report 6
<PAGE>
....commodity sells on price and customer service. With this in
mind, the following key factors will play a large part in our
future success.
SUPERIOR OPERATIONS
More than ever before, as we move towards a less regulated and
more volatile electricity environment, our ability to continue to
achieve top of the industry operational performance enhances our
competitive position. The electric generation part of our
business is likely to be the first to be changed by new
legislative rules. Customers may be provided the opportunity to
choose between electric producers. Price, service, and
reliability will be important factors in their choice. DP&L has
one of the best records in the industry in terms of providing
electricity efficiently and reliably. Measures of productivity,
such as equivalent forced outage rate and equivalent
availability, rank DP&L among the best in the nation and show
that our generating units are available to meet customer
requirements. Our production efficiency, how well we convert
coal to electricity, has always been at the top in the nation and
contributes to our low electric fuel costs. The combination of
productivity and efficiency, together with low costs, provides
for reliable, competitively priced electricity for our customers.
CUSTOMER FOCUS
Our goal is to exceed customer expectations with each
interaction. Our employees seek to understand the needs and
opinions of our customers as they relate to our energy service.
They monitor and improve customer satisfaction by meeting with
customers to get feedback regarding our level of service. Each
employee has incentive compensation tied to factors related to
the quality of customer service that they personally provide. We
have numerous customer service centers located throughout West
Central Ohio to ensure our customers....
Industry Leader
- ---------------
DP&L's long tradition of national leadership in productivity and
efficiency are a significant advantage in a competitive market.
Achieving top performance helps to reduce costs and ensure a
reliable supply of energy for our customers.
EQUIVALENT FORCED OUTAGE RATE
in percent
(see appendix for bar graph description)
caption to photograph:
Equivalent Forced Outage Rate, or "EFOR," measures the
availability of our generating units when they are needed most.
High availability, represented by a low EFOR, means that we avoid
costly power purchases at times of high demand. Pictured: Kevin
Crawford, Energy Production.
(see appendix for photograph description)
DPL 1997 Annual Report 7
<PAGE>
....receive reliable, quality service quickly and at all times.
Throughout the 1990's, our customers have consistently responded
in the mid-ninety percent satisfaction level regarding our
quality of service.
DP&L continues to provide energy solutions for customers through
the "Way To Go" programs. "Way To Go" is the umbrella name for
all of our gas and electric efficiency programs. We have been
able to reach a large segment of our customer base with these
programs, providing them with energy and money saving
initiatives. These programs are coordinated through our Energy
Resource Center which features the latest in energy technologies
and solutions for the customer's energy needs.
MANAGEMENT
Our management focus is on areas that improve our competitive
position and maximize opportunities to grow in the changing
legislative and regulatory environment. If future legislative
actions provide opportunities, DP&L will be in a position to
further enhance its competitive position. We have a history of
good working relationships with legislators and regulators, and
the ability to work towards solutions that are beneficial for
both customers and shareholders. Our experience will help us to
thoroughly analyze developing legislative issues and to work
together with governing officials to provide the benefits of
customer choice to customers, employees and shareholders.
Leadership will be essential for our future success. Our
management team is comprised of young, experienced and motivated
people. With an average age in the mid-40's and nearly twenty
years of experience in the industry, we are well positioned for
the future. Through the years we have kept our belief in keeping
management layers streamlined. Employing a limited number of
officers and possessing few layers of management ensures quick
responses and....
DP&L - The Way to Go - Personally
(see appendix for logo description)
caption to logo:
Way to Go Personally programs provide energy services tailored to
the individual needs of customers. One example is "Way to Go
Home Essentials", a service that offers energy saving and
convenience products for the home or office.
QUALITY OF SERVICE
percentage positive responses
(see appendix for bar graph description)
Caption to photograph:
Our customers consistently respond in the mid-ninety percent
level regarding their satisfaction with the quality of service
they receive from Dayton Power & Light. Photo: Judi Blair,
Service Operations.
(see appendix for photograph description)
DPL 1997 Annual Report 8
<PAGE>
Caption to photograph:
Crysteco Inc., headquartered in Wilmington, Ohio, manufactures
silicon wafers for semi-conductor device applications. Exacting
and accurate temperatures in the manufacturing process result in
the need for DP&L to meet unusually high reliability demands.
DP&L helped to develop a unique technology solution to meet these
requirements.
(see appendix for photograph description)
DPL 1997 Annual Report 9
<PAGE>
Caption to photograph:
Dayton is the 1996 to 1998 site of the National Folk Festival,
which attracts talented performers and thousands of attendees
from across the country. DP&L is one of the key sponsors of this
event, representing the Company's commitment to the quality of
life in West Central Ohio.
(see appendix for photograph description)
DPL 1997 Annual Report 10
<PAGE>
....flexibility in day-to-day operations. Importantly, each
employee is also a shareholder. This personal stake creates a
meaningful alignment of employee and shareholder interests.
COST CONTROL
DP&L is recognized in the industry as being one of the best in
terms of controlling costs. This comes from our company-wide
focus on knowing and predicting all types of cost. Fuel cost
continues to be a competitive advantage for DP&L. Generally,,
25% of the price of electricity is fuel cost. Our fuel costs are
among the lowest in the entire Midwestern region. Nearly all of
our large generating stations are located on the Ohio River, with
ready access to plentiful and varied types of Central Appalachian
coal. Coal can be brought to the plants by barge, truck, or
rail, which helps to manage transportation costs. Flexible and
predictable long-term coal contracts allow us to maintain low
costs into the future, and provide the ability to adapt to
changes in coal markets. This flexibility has also helped us in
meeting the provisions of the Clean Air Act, keeping compliance
costs low.
Natural gas costs make up about 60% of the price of gas to
customers. Our natural gas costs are among the lowest in Ohio
and our favorable location near a major natural gas pipeline hub
helps to ensure this position for the future. This combination
of low cost natural gas and electric fuel effectively positions
DP&L as a competitive total energy provider. The ability to
provide customers with both natural gas and electricity is a key
strategic advantage.
FINANCIAL
Earnings and dividends that exceed industry averages and a
balance sheet that is among the cleanest and strongest in the
nation establish a solid base for future financial stability. A
conservative capital structure and strong cash flow provide the
resources and flexibility for a....
DP&L - Way to Go - Partners in Business Plus
(see appendix for logo description)
caption to logo:
Partners in Business Plus is DP&L's newest and most comprehensive
business growth incentive program, offering energy credits to
business customers that add jobs or increase capital investment.
This program continues DP&L's long record of partnership with
area companies to further economic development.
CREDIT RATINGS
DP&L
Moody's Investors Service Average Electric Utility Credit Rating
(see appendix for line graph description)
caption to photograph:
A combination of strong financial performance, low costs and good
working relationships with area leaders has helped DP&L to manage
risk and maintain solid credit ratings. DP&L's credit ratings
were consistently upgraded by all three major rating agencies
from 1992-1995, during a time when ratings trended down for the
industry. Pictured: Kevin DeWine, Corporate Relations.
(see appendix for photograph description)
DPL 1997 Annual Report 11
<PAGE>
....sound competitive position. Our long-term debt has a 26-year
average maturity and a low 7.7% embedded cost. These attributes
have helped to earn the AA level credit ratings that we maintain
from all three major rating agencies. Overall, our financial
position reflects the preparation necessary to compete and to
deliver fair returns to our shareholders.
DPL's common stock reached an all-time high of $28.75 per share
in 1997. This strong performance, combined with our dividend,
resulted in a total return to shareholders of over 25%. Late in
the year, the Board of Directors authorized a three-for-two stock
split, our third stock split in the last seven years. The split
was effective January 12, 1998 to shareholders of record on
December 16, 1997. Typically, stock splits result in a broader
market and increased liquidity for your shares, and reflect
confidence in the financial performance of the Company.
In order to provide continued above average current returns for
you, the annual dividend rate was increased on February 3, 1998,
to $0.94 per share. This 3.7% increase is well above the
industry average of less than 2% over the past year, and is the
eleventh dividend increase in the last twelve years.
DPL has consistently been a strong financial performer. In 1997,
earnings were $1.20 per share, an increase of nearly five percent
over 1996 earnings. This performance is particularly remarkable
in light of the overall industry performance in 1997, with
earnings declining at an average of about 5%. Our long-term
record of earnings and dividend growth has resulted in a total
five year return to shareholders of over 91%.
Our strong performance over the past ten years reflects our
commitment to the achievement of specific measurable goals.
Regardless of the environment in which we operate, we remain
focused on our core business while maintaining the flexibility to
adapt to change. 1998 will be a year of continued change. We
will remain focused, dealing with the changes needed for the
future and working to provide you, our Shareholders, with a fair
rate of return.
Return
- ------
DPL's stock price reached an all-time high in 1997, contributing
to a total annual return of over 25%. Over the past ten years,
DPL has produced an average annual total return to shareholders
of 18%.
DPL 1997 Annual Report 12
<PAGE>
FINANCIAL REVIEW
ELECTRIC UTILITY REVENUES GAS UTILITY REVENUES TOTAL TAXES
$ in millions $ in millions $ in millions
(see appendix for bar (see appendix for bar (see appendix for bar
graph description) graph description) graph description)
ELECTRIC UTILITY SALES GAS UTILITY SALES OPERATING EXPENSES
Thousand of GWH Millions of MCF $ in millions
(see appendix for bar (see appendix for bar (see appendix for bar
graph description) graph description) graph description)
AVERAGE PRICE-ELECTRIC TOTAL AVERAGE PRICE-GAS CONSTRUCTION COSTS
CALENDAR YEAR CALENDAR YEAR $ in millions
cents/kWh $/MCF
(see appendix for bar (see appendix for bar (see appendix for bar
graph description) graph description) graph description)
DPL 1997 Annual Report 13
<PAGE>
<TABLE>
<CAPTION>
FINANCIAL AND STATISTICAL SUMMARY DPL Inc.
1997 1996 1995 1994 1993
- -----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
For the years ended December 31,
DPL
Inc.: Earnings per share of common
stock (a) $ 1.20 1.15 1.09 1.03 0.95
Dividends paid per share (a) $ 0.91 0.87 0.83 0.79 0.75
Dividend payout ratio % 75.8 75.7 76.1 76.7 78.9
Net income (millions) $ 181.4 172.9 164.7 154.9 139.0
Utility service revenues
(millions) $1,252.2 1,256.1 1,255.1 1,187.9 1,151.3
Construction additions
(millions) $ 110.6 115.5 87.3 101.1 88.9
Market value per share at
December 31 (a) $19-3/16 16-3/16 16-1/2 13-11/16 13-3/4
DP&L: Electric sales (millions of kWh) --
Residential 4,788 4,924 4,871 4,465 4,558
Commercial 3,408 3,407 3,425 3,068 3,006
Industrial 4,749 4,540 4,401 4,388 4,089
Other 3,664 3,443 4,117 2,298 3,023
------ ------ ------ ------ ------
Total 16,609 16,314 16,814 14,219 14,676
Gas sales (thousands of MCF) --
Residential 29,277 31,087 29,397 27,911 28,786
Commercial 9,567 9,424 8,307 8,081 8,468
Industrial 2,520 3,404 2,584 3,150 3,056
Other 2,153 2,829 3,006 2,909 3,171
Transported gas 18,523 16,953 16,376 15,147 13,401
------ ------ ------ ------ ------
Total 62,040 63,697 59,670 57,198 56,882
At December 31,
DPL
Inc.: Book value per share (a) $ 8.45 7.97 7.69 7.45 7.01
Total assets (millions) $3,585.2 3,418.7 3,322.8 3,232.7 3,302.0
Long-term debt and preferred
stock with mandatory redemption
provisions (millions) $ 971.0 1,014.3 1,081.5 1,093.7 1,132.9
DP&L: First mortgage bond ratings --
Duff & Phelps, Inc. AA AA AA AA AA-
Standard & Poor's Corporation AA- AA- AA- AA- A
Moody's Investors Service Aa3 Aa3 Aa3 A1 A2
DPL Number of Shareholders
Inc.: Common 43,689 46,532 48,919 51,270 53,275
DP&L: Preferred 625 684 733 795 1,873
(a) Per share amounts have been restated to reflect the three-for-two
common stock split paid on January 12, 1998 to stockholders of record
on December 16, 1997.
</TABLE>
DPL 1997 Annual Report 14
<PAGE>
FINANCIAL REVIEW
Income Statement Highlights
- ---------------------------
$ in millions except per share amounts 1997 1996 1995
- -----------------------------------------------------------------
Electric Utility:
Revenues $1,008 $1,014 $1,028
Fuel and purchased power 227 234 256
------ ------ ------
Net revenues 781 780 772
Gas Utility:
Revenues 244 239 222
Gas purchased for resale 151 145 133
------ ------ ------
Net revenues 93 94 89
Other income 104 74 55
Operation and maintenance expense 256 266 272
Amortization of regulatory assets, net 17 15 15
Income taxes 105 104 102
Net income 181 173 165
Earnings per share of common stock 1.20 1.15 1.09
The 1997 earnings increased to $1.20 per share, compared to
earnings per share of $1.15 in 1996 and $1.09 in 1995.
In 1997, a 3% decline in electric residential sales resulted in
slightly lower revenue which offset a 3% increase in sales to
business customers and higher sales to other public utilities.
Fuel and purchased power expense decreased 3% primarily related
to lower fuel costs. In 1996, electric revenues decreased 1% as
a result of lower sales to public utilities.
Gas utility revenues increased 2% in 1997. Sales increases of 3%
from higher deliveries to business customers offset the effects
of milder weather. Gas purchased for resale by the utility
increased 4% primarily from higher natural gas costs. Gas
utility revenues increased 7% resulting in a 9% increase in gas
utility purchases in 1996.
Other income increased $29 million in 1997 due to higher
non-utility revenue and increased investment income. The
$19 million increase in 1996 resulted from higher non-utility
revenue.
Operation and maintenance expense decreased 4% in 1997 from 1996
due to cost containment efforts and lower actuarially-determined
benefit expense. Operation and maintenance expense decreased 2%
in 1996 from 1995 as a result of reduced electric production and
system maintenance, bond redemption costs, lower compensation and
benefit expense, offset by higher insurance and claims costs.
Regulatory assets recorded during the phase-in of electric rates
are being amortized and recovered in current rates. In addition,
deferred interest charges on the William H. Zimmer Generating
Station are being amortized at $3 million per year over the
projected life of the asset.
A 1992 Public Utilities Commission of Ohio ("PUCO")-approved
settlement agreement and a subsequent stipulation in 1995 allowed
accelerated recovery of demand-side management costs and,
thereafter, production plant costs to the extent that DP&L return
on equity exceeds a baseline 13% (subject to upward adjustment).
If the return exceeds the baseline return by one to two percent,
one-half of the excess is used to accelerate recovery of these
costs. If the return is greater than two percent over the
baseline, the entire excess is used for such purpose.
Depreciation and amortization expense increased $2 million as a
result of increased depreciable assets in 1997 and $7 million in
1996 primarily due to increased depreciable assets and rates.
General taxes increased 3% in 1997 and 4% in 1996 as a result of
higher property taxes from additional property.
Interest expense declined $3 million in 1997 primarily due to the
redemption of $25 million of first mortgage bonds late in 1996
and two series of first mortgage bonds totaling $80 million in
1997. Interest expense declined $5 million in 1996 primarily
from the September 1995 refinancing of $110 million of bonds at a
lower interest rate.
Certain risks of DPL Inc. and its subsidiaries are insured
through a wholly-owned captive insurance company. Increases in
insurance and claims cost resulted primarily from additional
insurance coverage.
Credit Ratings
- --------------
DP&L's senior debt credit ratings are as follows:
Duff & Phelps AA
Moody's Investors Service Aa3
Standard & Poor's AA-
Each rating has been affirmed by its respective rating agency in
1997. Moody's Investors Service upgraded DP&L's senior debt
credit rating three times from 1992-1995. Duff & Phelps and
Standard & Poor's both upgraded DP&L's senior debt credit ratings
in 1994. The credit ratings are the highest DP&L has achieved
since 1974, and they are all considered investment grade.
Construction Program and Financing
- ----------------------------------
Construction additions were $111 million, $116 million, and
$87 million in 1997, 1996 and 1995, respectively. The capital
program for 1998 consists of construction costs of approximately
$100 million, which includes an 82 MW combustion turbine
generating unit.
During 1997, total cash provided by operating activities was
$340 million. At year-end, cash and temporary cash investments
were $26 million, and debt and equity financial assets were
$384 million. Cash and financial assets are held with a view
towards investing in future opportunities in the industry.
In December 1997, DP&L redeemed a series of first mortgage bonds
in the principal amount of $40 million with an interest rate of
8.0%. The bonds had been scheduled to mature in 2003. Another
series of first mortgage bonds in the principal amount of
$40 million matured in 1997. In December 1996, DP&L redeemed a
series of first mortgage bonds in the principal amount of
$25 million with an interest....
DPL 1997 Annual Report 15
<PAGE>
....rate of 6.75%. The bonds had been scheduled to mature in
1998. Sinking fund payments for the five years ended 2002 are
$27 million.
In September 1995, a new series of Air Quality Development
Revenue Refunding Bonds was issued in the principal amount of
$110 million with an interest rate of 6.10%. Proceeds from the
financing were used to redeem a similar principal amount of first
mortgage bonds with an interest rate of 9.5%.
Issuance of additional amounts of first mortgage bonds by DP&L is
limited by provisions of its mortgage. The amounts and timing of
future financings will depend upon market and other conditions,
rate increases, levels of sales and construction plans. DPL Inc.
anticipates that it has sufficient capacity to issue DP&L first
mortgage bonds to satisfy its requirements in connection with its
capital program.
In addition, DPL Inc. has a revolving credit agreement, renewable
through 2001, which allows total borrowings by DPL Inc. and its
subsidiaries of $200 million. At year-end 1997, DPL Inc. had $36
million outstanding under this credit agreement.
DP&L also has $97 million available in short-term lines of
credit. At year-end, DP&L had $10 million outstanding from these
lines of credit and $70 million in commercial paper outstanding.
A three-for-two common stock split effected in the form of a
stock dividend was paid on January 12, 1998 to stockholders of
record on December 16, 1997.
Issues and Financial Risks
- --------------------------
This report contains certain forward-looking statements regarding
plans and expectations for the future. Investors are cautioned
that actual outcomes and results may vary materially from those
projected due to various factors beyond DP&L's control, including
abnormal weather, unusual maintenance or repair requirements,
changes in fuel costs, increased competition, regulatory changes
and decisions, changes in accounting rules and adverse economic
conditions.
Like many companies, DPL Inc. is currently evaluating its
computer systems to determine the extent to which modifications
are required to prevent problems in the year 2000. Based on this
on-going effort, the Company at this time does not anticipate
that the year 2000 matter will materially impact the Company's
financial position.
The Environmental Protection Agency ("EPA") has notified numerous
parties, including DP&L, that they are considered "Potentially
Responsible Parties" for clean up of four hazardous waste sites
in Ohio. The EPA has estimated total costs of $34 million for
its preferred clean-up plans at three of these sites and has not
established an estimated cost for the fourth site. The final
resolution of these investigations will not have a material
effect on DP&L's financial position, earnings or cash flow.
As a public utility, DP&L is subject to processes which determine
the rates it charges for energy services. Regulators determine
which costs are eligible for recovery in the rate setting process
and when the recovery will occur. They also establish the rate
of return on utility investments which are valued under Ohio law
based on historical costs.
The utility industry is subject to inflationary pressures similar
to those experienced by other capital-intensive industries.
Because rates for regulated services under existing rules are
based on historical costs, cash flows may not cover the total
future costs of providing services.
Restructuring of the electric utility industry continued to
evolve in 1997. Legislative proposals have been introduced in
Congress and in Ohio concerning electric wholesale and retail
wheeling which are designed to increase competition. These
factors increase the risk that the Company's production plant
and/or regulatory assets may not be fully recovered in rates.
Ohio continues to take a studied approach to utility industry
restructuring. In 1997, the Ohio legislative leadership
established a special Joint Committee to study the restructuring
issues. The Committee conducted hearings to gather information
from energy companies, regulators, customers and industry
experts. The Committee co-chairs issued a draft report in early
January 1998 recommending opening the electric generation market,
in the future, to competition for all Ohio consumers. As a part
of this restructuring effort in 1998 and beyond, legislators are
also studying related complex tax issues that must be resolved.
In 1996 and 1997, the Federal Energy Regulatory Commission
("FERC") issued orders creating a more competitive wholesale
electric power market. These orders required all electric
utilities that own or control transmission facilities to file
open-access transmission service tariffs. Open-access
transmission tariffs provide third parties non-discriminatory
transmission service comparable to what the utility provides
itself. In its orders, FERC further stated that FERC-
jurisdictional stranded costs reasonably incurred and costs of
complying with the rules will be recoverable by electric
utilities. In December, DP&L reached an agreement in principle
with intervenors in a pending tariff case and filed a subsequent
case based on an updated test year.
The PUCO is holding roundtable discussions on competition in the
electric industry focused on short-term initiatives under the
current regulatory framework. Pursuant to a PUCO order
implementing one such initiative, all Ohio electric utilities,
including DP&L, filed tariffs in 1996 for interruptible electric
service that accommodate replacement electricity during periods
when the utility faces resource constraints. DP&L's tariff was
approved in 1997.
As another roundtable initiative, in 1996, the PUCO issued
guidelines for conjunctive electric service which required all
utilities to file tariffs under which different service locations
are aggregated for cost-of-service, rate design, rate eligibility
and billing purposes. Although DP&L has appealed these guidelines
to the Ohio Supreme Court, DP&L filed its tariff in 1997.
Ohio legislation in 1996 and PUCO rules in 1997 addressed
regulatory reform for the local gas distribution companies. The
legislation provides that natural gas commodity services may be
exempted from PUCO regulation and that the PUCO may allow
alternative ratemaking methodologies in connection with other
regulated services.
DPL 1997 Annual Report 16
<PAGE>
CONSOLIDATED STATEMENT OF RESULTS OF OPERATIONS DPL Inc.
For the years ended December 31,
$ in millions except per share amounts 1997 1996 1995
- ------------------------------------------------------------------------------
Income
Utility service revenues $1,252.2 $1,256.1 $1,255.1
Other income 103.6 74.2 54.9
-------- -------- --------
Total income 1,355.8 1,330.3 1,310.0
-------- -------- --------
Expenses
Fuel and purchased power 227.9 234.9 257.5
Gas purchased for resale 219.5 193.0 158.4
Operation and maintenance (Note 1) 256.1 265.7 272.3
Depreciation and amortization (Note 1) 127.6 125.4 118.9
Amortization of regulatory assets, net (Note 2) 16.8 15.3 15.4
General taxes 133.8 129.7 125.2
Interest expense 87.3 89.9 95.2
-------- -------- --------
Total expenses 1,069.0 1,053.9 1,042.9
-------- -------- --------
Income Before Income Taxes 286.8 276.4 267.1
Income taxes (Note 1 and 3) 105.4 103.5 102.4
-------- -------- --------
Net Income $ 181.4 $ 172.9 $ 164.7
======== ======== ========
Average Number of Common Shares Outstanding
(millions) (Note 8) (a) 151.4 150.9 151.6
Earnings Per Share of Common Stock (a) $ 1.20 $ 1.15 $ 1.09
Dividends Paid Per Share of Common Stock (a) $ 0.91 $ 0.87 $ 0.83
(a) Shares and per share amounts have been restated to reflect
the three-for-two common stock split paid on January 12, 1998,
to shareholders of record on December 16, 1997. See Note 8.
See Notes to Consolidated Financial Statements.
DPL 1997 Annual Report 17
<PAGE>
CONSOLIDATED STATEMENT OF CASH FLOWS DPL Inc.
For the years ended December 31,
$ in millions 1997 1996 1995
- ------------------------------------------------------------------------------
Operating Activities
Cash received from utility customers $1,228.1 $1,228.9 $1,203.5
Other operating cash receipts 88.2 87.0 53.9
Cash paid for:
Fuel and purchased power (235.9) (207.6) (249.8)
Purchased gas (236.1) (211.6) (156.9)
Operation and maintenance labor (83.2) (87.4) (89.3)
Nonlabor operating expenditures (96.4) (149.3) (136.9)
Interest (85.2) (87.7) (91.9)
Income taxes (108.8) (108.1) (103.1)
Property, excise and payroll taxes (130.8) (126.1) (124.2)
-------- -------- --------
Net cash provided by operating
activities (Note 11) 339.9 338.1 305.3
-------- -------- --------
Investing Activities
Property expenditures (113.7) (108.8) (87.3)
Other activities (178.0) (144.4) (14.3)
-------- -------- --------
Net cash used for investing activities (291.7) (253.2) (101.6)
-------- -------- --------
Financing Activities
Dividends paid on common stock (137.2) (131.2) (124.9)
Issuance of short-term debt 105.7 10.0 -
Retirement of long-term debt (82.9) (25.5) (126.7)
Issuance of common stock 19.5 - -
Purchase of treasury stock - (15.8) (6.1)
Issuance of long-term debt - - 108.8
-------- -------- --------
Net cash used for financing activities (94.9) (162.5) (148.9)
-------- -------- --------
Cash and temporary cash investments--
Net change (46.7) (77.6) 54.8
Balance at beginning of year 72.8 150.4 95.6
-------- -------- --------
Balance at end of year $ 26.1 $ 72.8 $ 150.4
======== ======== ========
See Notes to Consolidated Financial Statements.
DPL 1997 Annual Report 18
<PAGE>
CONSOLIDATED BALANCE SHEET DPL Inc.
At December 31,
$ in millions 1997 1996
- ------------------------------------------------------------------------------
Assets
Property $3,642.8 $3,548.7
Accumulated depreciation and amortization (1,386.6) (1,279.8)
-------- --------
Net property 2,256.2 2,268.9
-------- --------
Current Assets
Cash and temporary cash investments 26.1 72.8
Accounts receivable, net 211.4 201.9
Inventories, at average cost 87.5 75.9
Taxes applicable to subsequent years 91.9 87.3
Other current assets 54.2 53.6
-------- --------
Total current assets 471.1 491.5
-------- --------
Other Assets
Financial assets 384.0 170.3
Income taxes recoverable through future
revenues (Note 1 and 2) 208.2 222.4
Regulatory assets (Note 2) 116.7 137.3
Other 149.0 128.3
Total other assets 857.9 658.3
-------- --------
Total Assets $3,585.2 $3,418.7
======== ========
Capitalization and Liabilities
Capitalization
Common shareholders' equity (Note 8)--
Common stock $ 1.6 $ 1.1
Other paid-in capital 777.3 756.8
Common stock held by employee plans (98.0) (102.1)
Earnings reinvested in the business 605.1 544.7
-------- --------
Total common shareholders' equity 1,286.0 1,200.5
Preferred stock (Note 9) 22.9 22.9
Long-term debt (Note 7) 971.0 1,014.3
-------- --------
Total capitalization 2,279.9 2,237.7
-------- --------
Current Liabilities
Accounts payable 129.8 114.4
Accrued taxes 158.5 137.7
Accrued interest 24.2 24.8
Current portion of long-term debt 3.4 42.4
Short-term debt (Note 6) 115.7 10.0
Other 46.3 57.0
-------- --------
Total current liabilities 477.9 386.3
-------- --------
Deferred Credits and Other
Deferred taxes (Note 3) 464.9 488.1
Unamortized investment tax credit 72.4 75.4
Insurance and claims costs 151.6 107.9
Other 138.5 123.3
Total deferred credits and other 827.4 794.7
-------- --------
Total Capitalization and Liabilities $3,585.2 $3,418.7
======== ========
See Notes to Consolidated Financial Statements.
DPL 1997 Annual Report 19
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DPL Inc.
1. Summary of Significant Accounting Policies
Principles of Consolidation and Nature of Operations
- ----------------------------------------------------
The accounts of DPL Inc. and its wholly-owned subsidiaries are
included in the accompanying consolidated financial statements.
The consolidated financial statements of DPL Inc. principally
reflect the results of operations and financial condition of DPL
Inc.'s public utility subsidiary, The Dayton Power and Light
Company ("DP&L"). DP&L is primarily engaged in the business of
selling electric energy and natural gas to residential,
commercial, industrial and governmental customers in a 6,000
square mile area of West Central Ohio. The majority of DPL
Inc.'s earnings come from electricity and natural gas sales.
Revenues and Fuel
- -----------------
Revenues include amounts charged to customers through fuel and
gas recovery clauses, which are adjusted periodically for changes
in such costs. Related costs that are recoverable or refundable
in future periods are deferred along with the related income tax
effects. Also included in revenues are amounts charged to
customers through a surcharge for recovery of arrearages from
certain eligible low-income households.
DP&L records revenue for services provided but not yet billed to
more closely match revenues with expenses. Accounts receivable
on the Consolidated Balance Sheet includes unbilled revenue of
(in millions) $78.3 in 1997 and $58.3 in 1996.
Operation and Maintenance
- -------------------------
Operation and maintenance expenses include $0.6 million in 1997
and $4.7 million in 1995 of redemption premiums and other costs
relating to the refinancing of bond issues.
Property, Maintenance and Depreciation
- --------------------------------------
Property is shown at its original cost. Cost includes direct
labor and material and allocable overhead costs.
When a unit of property is retired, the original cost of that
property plus the cost of removal less any salvage value is
charged to accumulated depreciation. Maintenance costs and
replacements of minor items of property are charged to expense.
Depreciation expense is calculated using the straight-line method,
which depreciates the cost of property over its estimated useful
life, at an average rate of 3.5% in 1997 and 1996 and 3.4% in 1995.
Income Taxes
- ------------
Deferred income taxes are provided for all temporary differences
between the financial statement basis and the tax basis of assets
and liabilities using the enacted tax rate. Additional deferred
income taxes and offsetting regulatory assets or liabilities are
recorded to recognize that the income taxes will be
recoverable/refundable through future revenues. Investment tax
credits, previously deferred, are being amortized over the lives
of the related properties.
Consolidated Statement of Cash Flows
- ------------------------------------
The temporary cash investments presented on this Statement
consist of liquid investments with an original maturity of three
months or less.
Reclassifications
- -----------------
Reclassifications have been made in certain prior years' amounts
to conform to the current reporting presentation.
Estimates
- ---------
The preparation of financial statements in conformity with
generally accepted accounting principles requires management to
make estimates and assumptions related to future events.
DPL 1997 Annual Report 20
<PAGE>
2. Regulatory Matters
DP&L applies the provisions of Statement of Financial Accounting
Standard (SFAS) No. 71, Accounting for the Effects of Certain
Types of Regulation. This accounting standard provides for the
deferral of costs authorized for future recovery by regulators.
These costs would be charged to expense without regulatory
authorization. Regulatory assets on the Consolidated Balance
Sheet include:
At December 31,
$ in millions 1997 1996
- -----------------------------------------
Phase-in (a) $ 30.6 $ 46.7
DSM (b) 33.6 35.3
Deferred interest (c) 52.5 55.3
Income taxes recoverable
through future revenues 208.2 222.4
------ ------
Total $324.9 $359.7
====== ======
(a) Amounts deferred during a 1992-1994 electric rate increase
phase-in (including carrying charges) are being recovered
in current rates.
(b) Demand-side management ("DSM") costs (including carrying charges)
from DP&L's cost-effective programs are deferred and are being
recovered at approximately $9 million per year.
The 1992 PUCO-approved agreement for the phase-in plan and DSM
programs, as updated in 1995, allows accelerated recovery of DSM
costs and, thereafter, production plant costs to the extent that
DP&L return on equity exceeds a baseline 13% (subject to upward
adjustment). If the return exceeds the baseline return by one to
two percent, one-half of the excess will be used to accelerate
recovery of these costs. If the return is greater than two
percent over the baseline, the entire excess will be used for
such purpose.
(c) Interest charges related to the William H. Zimmer Generating
Station which were previously deferred pursuant to PUCO approval
are being amortized at $2.8 million per year over the projected
life of the asset.
3. Income Taxes
For the years ended December 31,
$ in millions 1997 1996 1995
- -------------------------------------------------------------
Computation of Tax Expense
Federal income tax (a) $100.7 $ 97.0 $ 93.8
Increases (decreases) in
tax from -
Regulatory assets 3.6 3.3 3.3
Depreciation 11.4 10.7 10.8
Investment tax credit amortized (3.0) (3.0) (3.0)
Other, net (7.3) (4.5) (2.5)
------ ------ ------
Total tax expense $105.4 $103.5 $102.4
====== ====== ======
Components of Tax Expense
Taxes currently payable $121.8 $117.4 $ 93.0
Deferred taxes--
Regulatory assets (4.0) (3.5) (1.7)
Liberalized depreciation
and amortization 6.2 7.9 14.1
Fuel and gas costs 5.5 2.5 (3.1)
Insurance and claims costs (14.2) (11.1) 2.7
Other (6.9) (5.5) (0.8)
Deferred investment tax
credit, net (3.0) (4.2) (1.8)
------ ------ ------
Total tax expense $105.4 $103.5 $102.4
====== ====== ======
(a) The statutory rate of 35% applied to pre-tax income
before preferred dividends.
Components of Deferred Tax Assets and Liabilities
At December 31,
$ in millions 1997 1996
- ---------------------------------------------------
Non-Current Liabilities
Depreciation/property basis $(443.7) $(448.8)
Income taxes recoverable (72.4) (77.4)
Regulatory assets (38.6) (45.8)
Investment tax credit 25.3 26.3
Other 64.5 57.6
------- -------
Net non-current liability $(464.9) $(488.1)
------- -------
Net Current Asset (Liability) $ (2.7) $ 1.7
======= =======
DPL 1997 Annual Report 21
<PAGE>
4. Pensions and Postretirement Benefits
Pensions
- --------
Substantially all DP&L employees participate in pension plans
paid for by the Company. Employee benefits are based on their
years of service, age at retirement and, for salaried employees,
their compensation. The plans are funded in amounts actuarially
determined to provide for these benefits.
An interest rate of 6.25% was used in developing the amounts in
the following tables. Actual returns on plan assets for 1997,
1996 and 1995 were 11.2%, 12.7% and 25.6%, respectively.
Increases in compensation levels approximating 5% were used for
all years.
The following table presents the components of pension cost
(portions of which were capitalized):
$ in millions 1997 1996 1995
- ------------------------------------------------------
Service cost-benefits earned $ 6.3 $ 6.2 $ 6.2
Interest cost 15.2 15.0 14.4
Expected return on plan
assets of 7.5% in each year (19.6) (18.1) (17.8)
Net amortization (3.0) (1.1) (0.9)
----- ----- -----
Net pension cost $(1.1) $ 2.0 $ 1.9
===== ===== =====
The following table sets forth the plans' funded status and
amounts recorded in Other assets on the Consolidated Balance
Sheet at December 31:
$ in millions 1997 1996
- ------------------------------------------------------------
Plan assets at fair value (a) $330.2 $321.4
Actuarial present value of
projected benefit obligation 259.1 255.1
------ ------
Plan assets in excess of
projected benefit obligation 71.1 66.3
Unamortized transition obligation (11.3) (15.5)
Prior service cost 13.9 16.0
Changes in plan assumptions and
and actuarial gains and losses (28.3) (22.5)
------ ------
Net pension assets $ 45.4 $ 44.3
====== ======
Vested benefit obligation $203.8 $198.6
Accumulated benefit obligation without
projected wage increases $236.4 $237.4
(a) Invested in fixed income investments, equities and guaranteed
investment contracts. In 1996, equities included $26.5 million
of DPL Inc. common stock.
Postretirement Benefits
- -----------------------
Qualified employees who retired prior to 1987 and their
dependents are eligible for health care and life insurance
benefits. The unamortized transition obligation associated with
these benefits is being amortized over the approximate average
remaining life expectancy of the retired employees. Active
employees are eligible for life insurance benefits, and this
unamortized transition obligation is being amortized over the
average remaining service period.
DP&L has funded the union-eligible health benefit using a
Voluntary Employee Beneficiary Association Trust. Actual returns
on plan assets were 6.0% and 6.7% in 1997 and 1996, respectively.
The following table presents the components of postretirement
benefit cost:
$ in millions 1997 1996 1995
- -----------------------------------------------------
Expected return on plan
assets of 5.7% $(0.8) $(0.6) $ -
Interest cost 2.2 2.5 3.6
Net amortization (1.1) 2.9 2.9
----- ----- -----
Postretirement benefit cost $ 0.3 $ 4.8 $ 6.5
===== ===== =====
The assumed health care cost trend rate used in measuring the
accumulated postretirement benefit obligation is 9% for 1997 and
decreases to 5% by 2005. A one percentage point increase in each
future year's assumed health care trend rate would increase
postretirement benefit cost by $0.1 million annually and would
increase the accumulated postretirement benefit obligation by
$2.3 million. The weighted average discount rate used in
determining the accumulated postretirement benefit obligation was
6.25%.
The following table sets forth the accumulated postretirement
benefit amounts recorded in Other Deferred Credits on the
Consolidated Balance Sheet at December 31:
$ in millions 1997 1996
- --------------------------------------------------
Accumulated postretirement benefit
obligation:
- retirees and dependents $35.4 $40.7
- active employees 1.1 1.1
----- -----
Total 36.5 41.8
Plan assets at fair value (a) 12.1 11.9
----- -----
Projected benefit obligation in
excess of plan assets 24.4 29.9
Unamortized transition obligation (15.9) (18.9)
Actuarial gains and losses 25.5 24.6
----- -----
Accrued postretirement benefit
liability $34.0 $35.6
===== =====
(a) Invested in fixed income government obligations and money
market securities.
DPL 1997 Annual Report 22
<PAGE>
5. Commonly Owned Facilities
DP&L owns certain electric generating and transmission facilities
as tenants in common with other Ohio utilities. Each utility is
obligated to pay its ownership share of construction and operation
costs of each facility. As of December 31, 1997, DP&L had $1.6
million of commonly owned facilities under construction. DP&L's
share of expenses is included in the Consolidated Statement of
Results of Operations.
The following table presents DP&L's share of the commonly owned
facilities at December 31, 1997:
DP&L
DP&L Share Investment
------------------ -----------
Prod. Gross Plant
Ownership Capacity in Service
(%) (MW) ($ in mil.)
- ------------------------------------------------------------
Production Units:
Beckjord Unit 6 50.0 210 55
Conesville Unit 4 16.5 129 30
East Bend Station 31.0 186 150
Killen Station 67.0 418 406
Miami Fort Units 7&8 36.0 360 119
Stuart Station 35.0 823 245
Zimmer Station 28.1 365 989
Transmission (at varying
percentages) 67
6. Notes Payable and Compensating Balances
DPL Inc. and its subsidiaries have $200 million available through
a revolving credit agreement. This agreement with a consortium
of banks is renewable through 2001. Commitment fees are
approximately $170,000 per year, depending upon the aggregate
unused balance of the loan. At December 31, 1997, DPL Inc. had
$36.0 million in borrowings outstanding under this credit
agreement.
DP&L also has $96.6 million available in short-term informal
lines of credit. To support these lines of credit, DP&L is
required to maintain average daily compensating balances of
approximately $400,000 and also pay $87,550 per year in fees. At
December 31, 1997, DP&L had $10.0 million in borrowings from
these lines of credit.
DP&L had $69.7 million and $10.0 million in commercial paper
outstanding at a weighted average interest rate of 6.0% and 6.75%
at December 31, 1997 and 1996, respectively.
7. Long-term Debt
At December 31,
$ in millions 1997 1996
- -------------------------------------------------------
First mortgage bonds maturing:
2003 8.00% $ - $ 40.0
2022-202 8.14% (a) 671.0 671.0
Pollution control series
maturing through
2027 - 6.43% (a) 107.2 107.6
------ --------
778.2 818.6
Guarantee of Air Quality
Development Obligations 6.10%
Series Due 2030 110.0 110.0
Notes maturing through 2007 - 7.83% 85.0 88.0
Unamortized debt discount and
premium (net) (2.2) (2.3)
------ --------
Total $971.0 $1,014.3
====== ========
(a) Weighted average interest rates for 1997 and 1996.
The amounts of maturities and mandatory redemptions for first
mortgage bonds and notes are (in millions) $3.4 in 1998, $4.4 in
1999, $5.4 in 2000, $6.4 in 2001 and $7.4 in 2002. Substantially
all property of DP&L is subject to the mortgage lien securing the
first mortgage bonds.
During 1997, a $40 million series of first mortgage bonds
matured, and another $40 million series scheduled to mature in
2003 was redeemed.
DPL 1997 Annual Report 23
<PAGE>
<TABLE>
<CAPTION>
8. Common Shareholders' Equity
Common
Common Stock (a) Stock Earnings
------------------- Other Held By Reinvested
Outstanding Paid-in Employee in the
$ in millions Shares Amount Capital Plans Business Total
- -----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
1995: Beginning balance 106,951,623 $1.1 $776.6 $(108.7) $459.3 $1,128.3
Net income 164.7 164.7
Common stock dividends (124.9) (124.9)
Treasury stock (254,700) - (6.1) (6.1)
Employee stock plans 0.7 1.5 2.2
Other 0.2 0.4 0.6
------------------------------------------------------------
Ending balance 106,696,923 1.1 771.4 (107.2) 499.5 1,164.8
1996: Net income 172.9 172.9
Common stock dividends (131.2) (131.2)
Treasury stock (687,000) - (15.8) (15.8)
Employee stock plans 1.0 5.1 6.1
Other 0.2 3.5 3.7
------------------------------------------------------------
Ending balance 106,009,923 1.1 756.8 (102.1) 544.7 1,200.5
1997: Net income 181.4 181.4
Common stock dividends (137.2) (137.2)
Three-for-two
stock-split 53,400,983 0.5 (0.5) -
Dividend reinvestment
plan 792,043 - 19.4 19.4
Employee stock plans 1.4 4.1 5.5
Other 0.2 16.2 16.4
------------------------------------------------------------
Ending balance 160,202,949 $1.6 $777.3 $ (98.0) $605.1 $1,286.0
============================================================
(a) $0.01 par value, 250,000,000 shares authorized.
</TABLE>
A three-for-two common stock split effected in the form of a
stock dividend was paid on January 12, 1998 to stockholders of
record on December 16, 1997.
DPL Inc. has a leveraged Employee Stock Ownership Plan ("ESOP")
to fund matching contributions to the Company's 401(k) retirement
savings plan and certain other payments to full-time employees.
Common shareholders' equity is reduced for the cost of 5,673,237
unallocated shares held by the trust and for 2,309,742 shares
related to another employee plan. These shares reduce the number
of common shares used in the calculation of earnings per share.
Dividends received by the ESOP are used to repay the loan to DPL
Inc. As debt service payments are made on the loan, shares are
released on a pro-rata basis. Dividends on the allocated shares
are charged to retained earnings, and dividends on the
unallocated shares reduce interest and principal on the loan.
Cumulative shares allocated to employees and outstanding for the
calculation of earnings per share were 1,386,588 in 1997 and
1,071,660 in 1996. Compensation expense, which is based on the
fair value of the shares allocated, amounted to $4.4 million in
1997, $4.1 million in 1996 and $4.2 million in 1995.
DPL Inc. had 1,972,290 authorized but unissued shares reserved
for the dividend reinvestment plan at December 31, 1997. The
plan provides that either original issue shares or shares
purchased on the open market may be used to satisfy plan
requirements.
DPL Inc. has a Shareholder Rights Plan pursuant to which four-
ninths of a Right is attached to and trades with each outstanding
DPL Inc. Common Share. The Rights would separate from the Common
Shares and become exercisable in the event of certain attempted
business combinations.
DPL 1997 Annual Report 24
<PAGE>
9. Preferred Stock
DPL Inc.: No par value, 8,000,000 shares authorized, no
shares outstanding.
DP&L: $25 par value, 4,000,000 shares authorized, no shares
outstanding; and $100 par value, 4,000,000 shares
authorized, 228,508 shares without mandatory redemption
provisions outstanding.
Current Current Par Value
Redemption Shares At December 31, 1997 and 1996
Series/Rate Price Outstanding ($ in millions)
- --------------------------------------------------------------------------
A 3.75% $102.50 93,280 $ 9.3
B 3.75% $103.00 69,398 7.0
C 3.90% $101.00 65,830 6.6
------- -----
Total 228,508 $22.9
======= =====
The shares may be redeemed at the option of DP&L at the per share
prices indicated, plus cumulative accrued dividends.
10. Fair Value of Financial Instruments
At December 31,
1997 1996
------------------ ------------------
$ in millions Fair Value Cost Fair Value Cost
- ------------------------------------------------------------------------------
$ $ $ $
Assets (a)
Available for sale securities 361.1 330.2 156.5 150.7
Held to maturity securities,
including temporary cash
investments of $14.2 in 1997
and $70.5 in 1996 72.2 71.2 119.5 119.2
Liabilities (b)
Debt 1,168.1 1,090.1 1,112.1 1,066.7
Capitalization
Unallocated stock in ESOP 108.7 72.3 96.8 76.3
(a) Maturities range from 1998 to 2010.
(b) Includes current maturities.
Financial assets with quoted market prices are carried at market;
the remaining financial assets are carried at cost.
11. Reconciliation of Net Income to Net Cash Provided by Operating Activities
For the years ended December 31,
$ in millions 1997 1996 1995
- ------------------------------------------------------------------------------
Net income $181.4 $172.9 $164.7
Adjustments:
Depreciation and amortization 127.6 125.4 118.9
Deferred income taxes (16.4) (13.8) 9.2
Amortization of regulatory assets, net 16.8 15.3 15.4
Operating expense provisions 17.8 30.6 19.3
Accounts receivable (9.5) (53.9) (44.6)
Accounts payable 17.2 14.7 21.8
Accrued taxes payable 20.8 18.3 (4.5)
Inventory (11.6) 6.8 1.9
Other (4.2) 21.8 3.2
------ ------ ------
Net cash provided by operating activities $339.9 $338.1 $305.3
====== ====== ======
DPL 1997 Annual Report 25
<PAGE>
12. Financial Information by Business Segments
For the years ended December 31,
$ in millions 1997 1996 1995
- ----------------------------------------------------------------------------
Utility service revenues
Electric $1,007.8 $1,014.1 $1,027.5
Gas 243.7 238.6 222.0
Other 0.7 3.4 5.6
-------- -------- --------
Total utility service revenues 1,252.2 1,256.1 1,255.1
Other income 103.6 74.2 54.9
-------- -------- --------
Total income $1,355.8 $1,330.3 $1,310.0
======== ======== ========
Operating profit before tax
Electric $ 327.0 $ 326.9 $ 335.8
Gas 24.9 23.7 18.9
Other 4.5 6.6 3.8
-------- -------- --------
Total operating profit before tax 356.4 357.2 358.5
Other income, net (a) 17.7 9.1 3.8
Interest expense (87.3) (89.9) (95.2)
-------- -------- --------
Income before income taxes $ 286.8 $ 276.4 $ 267.1
======== ======== ========
Depreciation and amortization
Electric $ 118.4 $ 112.8 $ 108.1
Gas 7.1 6.7 6.4
Other 2.1 5.9 4.4
-------- -------- --------
Total depreciation and amortization $ 127.6 $ 125.4 $ 118.9
======== ======== ========
Construction additions
Electric $ 92.8 $ 100.0 $ 66.6
Gas 16.3 14.1 11.7
Other 1.5 1.4 9.0
-------- -------- --------
Total construction additions $ 110.6 $ 115.5 $ 87.3
======== ======== ========
Assets
Electric $2,733.6 $2,754.3 $2,763.1
Gas 277.1 259.9 223.7
Other (b) 574.5 404.5 336.0
-------- -------- --------
Total assets at year-end $3,585.2 $3,418.7 $3,322.8
======== ======== ========
(a) Includes primarily investment income less bond redemption
costs in 1997 and 1995.
(b) Includes primarily temporary cash investments, debt and
equity financial assets and certain deferred items.
DPL 1997 Annual Report 26
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
(see appendix for logo description)
Price Waterhouse LLP
To the Board of Directors and Shareholders of DPL Inc.
In our opinion, the accompanying consolidated balance sheet and
the related consolidated statements of results of operations and
of cash flows present fairly, in all material respects, the
financial position of DPL Inc. and its subsidiaries at December
31, 1997 and 1996, and the results of their operations and their
cash flows for each of the three years in the period ended
December 31, 1997, in conformity with generally accepted
accounting principles. These financial statements are the
responsibility of the Company's management; our responsibility is
to express an opinion on these financial statements based on our
audits. We conducted our audits of these statements in
accordance with generally accepted auditing standards which
require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the
financial statements, assessing the accounting principles used
and significant estimates made by management, and evaluating the
overall financial statement presentation. We believe that our
audits provide a reasonable basis for the opinion expressed above.
/s/Price Waterhouse LLP
Dayton, Ohio
January 21, 1998
SELECTED QUARTERLY INFORMATION
<TABLE>
<CAPTION>
For the Three Months Ended
$ in millions March 31, June 30, September 30, December 31,
per share amount 1997 1996 1997 1996 1997 1996 1997 1996
- -----------------------------------------------------------------------------------------------
$ $ $ $ $ $ $ $
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Utility service
revenues 356.7 368.4 269.2 281.4 283.4 277.6 342.9 328.7
Income before income
taxes 101.4 103.5 55.4 57.1 73.1 68.2 56.9 47.6
Net income 66.3 63.8 35.0 34.8 44.9 41.8 35.2 32.5
Earnings per share
of common stock (a) 0.44 0.42 0.23 0.23 0.30 0.28 0.23 0.22
Dividends paid per
share (a) 0.227 0.217 0.227 0.217 0.227 0.217 0.227 0.217
Common stock market
price - High (a) 16-3/4 17-5/16 16-1/2 16-1/4 16-9/16 16-1/4 19-3/16 16-9/16
Low (a) 15-15/16 15-7/16 15-5/16 14-3/4 15-1/2 15-1/16 15-13/16 15-1/2
(a) Per share amounts have been restated to reflect the three-for-two
common stock split paid on January 12, 1998 to stockholders of record
on December 16, 1997.
</TABLE>
DPL 1997 Annual Report 27
<PAGE>
CORPORATE INFORMATION
Transfer Agent and Registrar - Common Stock and DP&L Preferred Stock
- --------------------------------------------------------------------
Securities Transfer & Shareholder Inquires:
- -------------------------------------------
The First National Bank of Boston
c/o Boston EquiServe
P.O. Box 8040
Boston, MA 02266-8040
(781) 575-3100
(800 736-3001
Dividend Reinvestment:
- ----------------------
The First National Bank of Boston
c/o Boston EquiServe
P.O. Box 8040
Boston, MA 02266-8040
Also dividend paying agent
(781) 575-3100
(800) 736-3001
Trustee - DP&L First Mortgage Bonds
- -----------------------------------
The Bank of New York Corporate Trust Administration
101 Barclay Street
New York, NY 10286
Also interest paying agent
Securities Listing
- ------------------
The New York Stock Exchange is the only national securities
exchange on which DPL Inc. Common Stock and DP&L First Mortgage
Bonds are listed. The trading symbol of the Common Stock is DPL.
Federal Income Tax Status of 1997 Dividend Payments
- ---------------------------------------------------
Dividends paid in 1997 on Common and Preferred Stock are fully
taxable as dividend income.
Annual Meeting
- --------------
The Annual Meeting of Shareholders will be held at 10:00 a.m.,
Tuesday, April 14, 1998, at Cedarville College, Cedarville, Ohio.
Communications
- --------------
DPL Inc. staffs an Investor Relations Department to meet the
information needs of shareholders and investors. Inquires are
welcomed. Communications relating to shareholder accounts should
be directed to the DPL Investor Relations Department (937) 259-
7150 or (800) 322-9244 or to Boston EquiServe (781) 575-3100 or
(800) 736-3001.
Form 10-K Report
- ----------------
DPL Inc. reports details concerning its operations and other
matters annually to the Securities and Exchange Commission on
Form 10-K, which will be supplied upon request. Please direct
inquires to the Investor Relations Department.
Officers--DPL INC. and DP&L
(Age/Years of Service)
- ---------------------------
Peter H. Forster (55/24)
Chairman--DPL Inc. and DP&L
Allen M. Hill (52/30)
President and Chief Executive Officer--DPL Inc. and DP&L
Paul R. Anderson (55/19)
Controller--DP&L
Stephen P. Bramlage (51/29)
Assistant Vice President--DP&L
Jeanne S. Holihan (41/17)
Assistant Vice President--DP&L
Thomas M. Jenkins (46/20)
Group Vice President and Treasurer--DPL Inc. and DP&L
Stephen F. Koziar, Jr. (53/30)
Group Vice President and Secretary--DPL Inc. and DP&L
Judy W. Lansaw (46/19)
Group Vice President--DPL Inc. and DP&L
Bryce W. Nickel (41/17)
Assistant Vice President--DP&L
H. Ted Santo (47/26)
Group Vice President--DP&L
Directors
- ---------
Burnell R. Roberts (2) (3)
Retired Chairman and Chief Executive Officer, The Mead
Corporation, Dayton, Ohio
David R. Holmes (1) (4)
Chairman, President and Chief Executive Officer, The Reynolds and
Reynolds Company, Dayton, Ohio
James F. Dicke, II (2) (3)
President, Crown Equipment Corporation, New Bremen, Ohio
Peter H. Forster (1) (3) (4)
Chairman, DPL Inc. and DP&L, Dayton, Ohio
W August Hillenbrand (2) (3)
President and Chief Executive Officer, Hillenbrand Industries,
Batesville, Indiana
Jane G. Haley (1) (4)
President and Chief Executive Officer, Gosiger, Inc., Dayton, Ohio
Allen M. Hill (1) (4)
President and Chief Executive Officer, DPL Inc. and DP&L, Dayton,
Ohio
Thomas J. Danis (1)
Chairman and Chief Executive Officer, The Danis Companies, Dayton,
Ohio
Ernie Green (1) (4)
President and Chief Executive Officer, Ernie Green Industries,
Dayton, Ohio
All Directors of DPL Inc. are also Directors of DP&L.
1997 Committee Assignments:
DPL Inc.--Finance and Audit Review (1)
Compensation and Management Review (2)
Executive (3)
DP&L--Community and External Relations (4)
DPL 1997 Annual Report 28
<PAGE>
DPL INC.
Courthouse Plaza Southwest
Dayton, Ohio 45402
(see appendix for photograph description)
[back cover]
<PAGE>
As required by Rule 304 of Regulation S-T, the following appendix
lists the graphic material contained in the
1997 Annual Report to Shareholders. This graphic material, which
appears in the paper copy of the report, was
omitted from the electronically filed copy of the report.
APPENDIX
PAGE ITEM DESCRIPTION
- ---- ---- -----------
Cover: Photograph: Depiction of a father and his daughter
located in the kitchen at the DP&L Energy
Resource Center preparing baked goods.
Artwork: Corporate logo - DPL Inc.
Page 2: Bar Graph: EARNINGS PER SHARE
Dollars
------------------
1995 1.09
1996 1.15
1997 1.20
Page 2: Photograph: Board of Directors
Members are individually pictured with their
names appearing below the photographs as follows:
Thomas J. Danis, James F. Dicke, II, Peter H.
Forster, Ernie Green
Page 3: Bar Graph: DIVIDENDS PER SHARE
Dollars
-------------------
1995 0.83
1996 0.87
1997 0.91
Photograph: Board of Directors
Members are individually pictured with their
names appearing below the photographs as follows:
Jane G. Haley, Allen M. Hill, W August Hillenbrand,
David R. Holmes, Burnell R. Roberts
Page 4: Line Graph: INFLATION-ADJUSTED PRICE
(cents/kWh)
------------------------
1987: 5.6
1992: 4.6
1997: 4.3
Photograph: DP&L employee, Scott Kelly, Business Development,
pictured in a work setting.
Page 5: Photograph: An employee of F&P America placing a spot weld
on a structural component of an automobile.
Page 6: Photograph: Aerial view of the campus at Miami Valley Research
Park which portrays several office buildings and
surrounding landscape.
Page 7: Bar Graph: EQUIVALENT FORCED OUTAGE RATE
in percent
-----------------------------
Industry Average DP&L
---------------- -----
1995: 6.7 5.8
1996: 5.9 4.1
1997: 8.4 5.8
Photograph: DP&L employee, Kevin Crawford, Energy Production,
pictured in a work setting.
Page 8: Artwork: "DP&L" corporate logo and "Way To Go" logo, the
umbrella name for energy conservation programs of
the Company. Logo contains the word, "Personally".
Bar Graph: QUALITY OF SERVICE
percent positive responses
--------------------------
1995: 97
1996: 96
1997: 96
Photograph: DP&L employee, Judi Blair, Service Operations,
pictured in a work setting.
Page 9: Photograph: An employee of Crysteco Inc. working on the
development of semi-conductor equipment.
Page 10: Photograph: An entertainer playing a guitar on stage during
the National Folk Festival.
Page 11: Artwork: "DP&L" corporate logo and "Way To Go" logo, the
umbrella name for energy conservation programs of
the Company. Logo contains the phrase, "Partners
in Business Plus".
Page 11: Line Graph: CREDIT RATINGS
Moody's Investor Service Average
DP&L Electric Utility Credit Rating
---- --------------------------------
1995: Aa3 A2
1996: Aa3 A2
1997: Aa3 A3
Page 11: Photograph: DP&L employee, Kevin DeWine, Corporate Relations,
pictured in a work setting.
Page 13: Bar Graphs: ELECTRIC UTILITY REVENUES
$ in millions
--------------------------------
1995 1996 1997
--------------------------------
Residential 422 423 410
Commercial 238 237 234
Industrial 224 223 226
Other 146 133 140
--------------------------------
Total 1,030 1,016 1,010
GAS UTILITY REVENUES
$ in millions
--------------------------------
1995 1996 1997
--------------------------------
Residential 149 157 160
Commercial 39 44 48
Industrial 11 14 12
Transportation
& Other 23 24 24
--------------------------------
Total 222 239 244
TOTAL TAXES
$ in millions
------------------
1995 1996 1997
------------------
228 233 239
ELECTRIC UTILITY SALES
Thousands of GWH
-------------------------------
1995 1996 1997
-------------------------------
Residential 4.9 4.9 4.8
Commercial 3.4 3.4 3.4
Industrial 4.4 4.5 4.7
Other 4.1 3.5 3.7
-------------------------------
Total 16.8 16.3 16.6
GAS UTILITY SALES
Millions of MCF
-------------------------------
1995 1996 1997
-------------------------------
Residential 29 31 29
Commercial 8 9 10
Industrial 3 4 3
Transportation
& Other 20 20 20
-------------------------------
Total 60 64 62
OPERATING EXPENSES
$ in millions
----------------------------------
1995 1996 1997
----------------------------------
Fuel & Purchased
Power 258 235 228
Gas Purchased
for Resale 158 193 220
Operating and
Maintenance 272 266 256
----------------------------------
Total 688 694 704
AVERAGE PRICE-ELECTRIC
CALENDAR YEAR
cents/kWh
-----------------------
1995 1996 1997
-----------------------
6.07 6.16 6.01
TOTAL AVERAGE PRICE-GAS
CALENDAR YEAR
$/MCF
-----------------------
1995 1996 1997
-----------------------
3.72 3.75 3.93
CONSTRUCTION COSTS
$ in millions
-----------------------
1995 1996 1997
-----------------------
87 116 111
Page 27: Artwork: Logo for Price Waterhouse LLP (Independent Auditors).
Back
Cover: Photograph: Depiction of a husband, wife, and their daughter
located in the kitchen at the DP&L Energy
Resource Center preparing baked goods.
Exhibit 21
SUBSIDIARIES OF DPL INC.
DPL Inc. had the following wholly owned subsidiaries on March 30, 1998:
Name State of Incorporation
- ---- ----------------------
The Dayton Power and Light Company Ohio
Miami Valley Insurance Company Vermont
Miami Valley Leasing, Inc. Ohio
Miami Valley Resources, Inc. Ohio
Miami Valley Lighting, Inc. Ohio
Miami Valley Development Company Ohio
Miami Valley CTC, Inc. Ohio
DPL Energy, Inc. Ohio
Exhibit 23
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the
Prospectuses constituting part of the Registration Statement
on Form S-3 (Registration No. 33-34316) of DPL Inc., with
respect to its Automatic Dividend Reinvestment and Stock
Purchase Plan, and Post-Effective Amendment No. 3 on Form S-8,
to DPL Inc.'s Registration Statement on Form S-4
(Registration No. 33-2551), with respect to The Dayton Power
and Light Company's Employees' Stock Plan, of our report
dated January 21, 1998, appearing on page 27 of the Annual
Report to Shareholders, which is incorporated in this Annual
Report on Form 10-K. We also consent to the incorporation
by reference of our report on the Financial Statement
Schedules, which appears on page II-2 of this Form 10-K.
/s/Price Waterhouse LLP
Price Waterhouse LLP
Dayton, Ohio
March 30, 1998
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