10-K

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, 2009

OR

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

For the transition period from                          to                         

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

Each of the following classes or series of securities registered pursuant to Section 12 (b) of the Act is registered on the New York Stock Exchange:

Registrant	Description
DPL  Inc.	Common Stock, $0.01 par value and Preferred Share Purchase Rights
The Dayton Power and Light Company	None

Securities registered pursuant to Section 12(g) of the Act:  None

Indicate by check mark if each registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.

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

Indicate by check mark if each registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Exchange Act.

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

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

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

Indicate by check mark whether each registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

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

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 each 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.

DPL Inc.	o
The Dayton Power and Light Company	o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer.  See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act.

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

Indicate by check mark whether each registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

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

The aggregate market value of DPL Inc.’s common stock held by non-affiliates of DPL Inc. as of June 30, 2009 was approximately $2.7 billion based on a closing sale price of $23.17 on that date as reported on the New York Stock Exchange.  All of the common stock of The Dayton Power and Light Company is owned by DPL Inc.  As of February 10, 2010, each registrant had the following shares of common stock outstanding:

Registrant	Description	Shares Outstanding
DPL  Inc.	Common Stock, $0.01 par value and Preferred Share Purchase Rights	119,083,640
The Dayton Power and Light Company	Common Stock, $0.01 par value	41,172,173

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

DOCUMENTS INCORPORATED BY REFERENCE

Portions of DPL’s definitive proxy statement for its 2010 Annual Meeting of Shareholders are incorporated by reference in Part III of this Form 10-K.

DPL Inc. and The Dayton Power and Light Company

Index to Annual Report on Form 10-K

Fiscal Year Ended December 31, 2009

		Page No.
Glossary of Terms		3
	Part I
Item 1	Business	5
Item 1A	Risk Factors	22
Item 1B	Unresolved Staff Comments	31
Item 2	Properties	31
Item 3	Legal Proceedings	31
Item 4	Submission of Matters to a Vote of Security Holders	31
	Part II
Item 5	Market for Registrant’s Common Equity, Related Shareholder Matters and Issuer Purchases of Equity Securities	32
Item 6	Selected Financial Data	35
Item 7	Management’s Discussion and Analysis of Financial Condition and Results of Operations	36
Item 7A	Quantitative and Qualitative Disclosures about Market Risk	66
Item 8	Financial Statements and Supplementary Data	66
Item 9	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure	138
Item 9A	Controls and Procedures	138
Item 9B	Other Information	138
	Part III
Item 10	Directors and Executive Officers of the Registrant	139
Item 11	Executive Compensation	139
Item 12	Security Ownership of Certain Beneficial Owners and Management and Related Shareholder Matters	139
Item 13	Certain Relationships and Related Transactions	139
Item 14	Principal Accountant Fees and Services	139
	Part IV
Item 15	Exhibits and Financial Statement Schedules	140
	Other
	Signatures	149
	Schedule II Valuation and Qualifying Accounts	151
	Subsidiaries of DPL Inc. and The Dayton Power and Light Company
	Consent of Independent Registered Public Accounting Firm

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GLOSSARY OF TERMS

The following select abbreviations or acronyms are used in this Form 10-K:

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

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

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PART I

Item 1 — Business

This report includes the combined filing of DPL and DP&L.  DP&L is the principal subsidiary of DPL providing approximately 98% of DPL’s total consolidated revenue and approximately 95% of DPL’s total consolidated asset base.  Throughout this report, the terms “we,” us,” “our” and “ours” are used to refer to both DPL and DP&L, respectively and altogether, unless the context indicates otherwise.  Discussions or areas of this report that apply only to DPL or DP&L will clearly be noted in the section.

WEBSITE ACCESS TO REPORTS

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

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

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

Forward-looking Statements:  Certain statements contained in this report are “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995.  Please see page 38 for more information about forward-looking statements contained in this report.

ORGANIZATION

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

DPL’s principal subsidiary is DP&L.  DP&L is a public utility incorporated in 1911 under the laws of Ohio.  DP&L sells electricity to residential, commercial, industrial and governmental customers in a 6,000 square mile area of West Central Ohio.  Electricity for DP&L’s 24 county service area is primarily generated at eight coal-fired power plants and is distributed to more than 500,000 retail customers.  Principal industries served include automotive, food processing, paper, plastic, manufacturing and defense.  DP&L’s sales reflect the general economic conditions and seasonal weather patterns of the area.  DP&L sells any excess energy and capacity into the wholesale market.  DP&L also sells electricity to DPLER, an affiliate, to satisfy the electric requirements of its retail customers.

DPL’s other significant subsidiaries (all of which are wholly-owned) include: DPLE, which engages in the operation of peaking generating facilities and sells power in wholesale markets; DPLER, which sells retail electric energy under contract to major industrial and commercial customers in West Central Ohio; and MVIC, which is our captive insurance company that provides insurance to us and our subsidiaries.

DPL also has a wholly-owned business trust, DPL Capital Trust II, formed for the purpose of issuing trust capital securities to investors.

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DPL and DP&L conduct their principal business in one business segment — Electric.  DP&L’s electric transmission and distribution businesses are subject to rate regulation by federal and state regulators while its generation business is not subject to such regulation.  Accordingly, DP&L applies the accounting standards for regulated operations to its electric transmission and distribution businesses and records regulatory assets when incurred costs are expected to be recovered in future customer rates, and regulatory liabilities when current recoveries in customer rates relate to expected future costs.

DPL and its subsidiaries employed 1,581 persons as of January 31, 2010, of which 1,403 were full-time employees and 178 were part-time employees.  At that date, 1,396 of these full-time employees and all of the part-time employees were employed by DP&L.  Approximately 55% of the employees are under a collective bargaining agreement.

SIGNIFICANT DEVELOPMENTS

Credit Ratings

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

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

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

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

Long-Term Debt Redemption

On March 31, 2009, DPL paid $175 million of the 8.00% Senior Notes when the notes became due.  In addition, on December 21, 2009, DPL paid down $52.4 million of the $195 million 8.125% Note to DPL Capital Trust II which is due 2031.

New Revolving Credit Facility

On April 21, 2009, DP&L entered into a $100 million unsecured revolving credit agreement with a syndicated bank group.  The agreement is for a 364-day term expiring on April 20, 2010.  The facility contains one financial covenant: DP&L’s total debt to total capitalization ratio is not to exceed 0.65 to 1.00.  As of December 31, 2009, this covenant is met with a ratio of 0.40 to 1.00.  As of December 31, 2009, there were no borrowings outstanding under this facility.

Warrants Repurchased and Exercised

During the year ended December 31, 2009, DPL repurchased a total of 8.6 million of its warrants at an average price of $2.94 each.  The repurchased warrants were cancelled by DPL on the dates they were repurchased.  Also during this period, warrant holders exercised a total of 9.2 million warrants, of which 5.5 million were exercised under cashless transactions and 3.7 million were exercised for cash.  As a result of these warrant exercise transactions, DPL issued a total of 5.0 million shares of common stock from treasury stock and in turn received total cash proceeds of $77.7 million.

Stock Repurchase Program

On October 28, 2009, the DPL Board of Directors approved a Stock Repurchase Program under which DPL may use proceeds from the exercise of warrants (discussed above) to repurchase common stock and warrants from time to time in the open market, through private transactions or otherwise. The Stock Repurchase Program will run through June 30, 2012, which is approximately three months after the end of the warrant exercise period.  Through December 31, 2009, DPL repurchased approximately 2.4 million shares of common stock under the Stock Repurchase Program at an average price per share of $26.96.

Approval of Stipulation

In compliance with SB 221, DP&L filed its ESP at the PUCO on October 10, 2008. Subsequently on February 24, 2009, DP&L filed the Stipulation signed by the Staff of the PUCO, the Office of the OCC and various intervening parties.  On June 24, 2009, the PUCO issued an order granting approval of the Stipulation.

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Transmission, Ancillary and Other PJM-related Costs

On February 19, 2009, the PUCO approved DP&L’s request to defer costs related to transmission, capacity, ancillary service and other costs incurred since July 31, 2008 consistent with the provisions of SB 221.  Subsequently, the PUCO approved two separate riders in November 2009, one for the recovery of RPM capacity costs and another rider for the recovery of transmission, ancillary and other PJM-related costs (TCRR).  Accordingly, during the period ended December 31, 2009, DP&L deferred net RTO and other costs in the amount of $25.5 million.  Of this amount, approximately $9.8 million relates to the period August 1, 2008 through December 31, 2008, and $15.7 million relates to the twelve month period ended December 31, 2009.  The deferral of these costs resulted in a favorable impact to our results of operations.

Increase in Dividends on DPL’s Common Stock

On December 9, 2009, DPL’s Board of Directors authorized a quarterly dividend rate increase of approximately 6%, increasing the quarterly dividend per DPL common share from $.2850 to $.3025.  If this dividend rate is maintained, the annualized dividend would increase from $1.14 per share to $1.21 per share.

ELECTRIC SALES AND REVENUES

	DPL						DP&L (a)
	2009		2008		2007		2009		2008		2007
Electric sales (millions of kWh)
Residential	5,120		5,533		5,535		5,120		5,533		5,535
Commercial	3,678		3,959		3,990		3,678		3,959		3,990
Industrial	3,353		3,986		4,241		3,353		3,986		4,241
Other retail	1,386		1,454		1,468		1,386		1,454		1,468
Total retail	13,537		14,932		15,234		13,537		14,932		15,234
Wholesale	3,130		2,240		3,364		3,053		2,173		3,364
Total	16,667		17,172		18,598		16,590		17,105		18,598
Operating revenues ($ in thousands)
Residential	$	560,223	$	544,561	$	532,956	$	560,223	$	544,561	$	532,956
Commercial	332,808		332,010		321,051		329,006		308,934		301,455
Industrial	228,458		240,041		244,260		186,293		133,832		132,359
Other retail	98,781		97,592		94,568		82,749		78,905		77,184
Other miscellaneous revenues	8,766		9,042		13,340		8,966		9,046		13,387
Total retail	1,229,036		1,223,246		1,206,175		1,167,237		1,075,278		1,057,341
Wholesale	122,519		149,874		180,254		181,871		293,500		331,722
RTO revenues	225,677		217,357		118,389		201,254		204,074		118,389
Other revenues	11,689		11,080		10,911		—		—		—
Total	$	1,588,921	$	1,601,557	$	1,515,729	$	1,550,362	$	1,572,852	$	1,507,452
Electric customers at end of period
Residential	456,144		456,770		456,989		456,144		456,770		456,989
Commercial	50,141		50,190		49,875		50,141		50,190		49,875
Industrial	1,773		1,797		1,818		1,773		1,797		1,818
Other	6,577		6,517		6,443		6,577		6,517		6,443
Total	514,635		515,274		515,125		514,635		515,274		515,125

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

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ELECTRIC OPERATIONS AND FUEL SUPPLY

	2009 Summer Generating Capacity
(Amounts in MWs)	Coal Fired	Peaking Units	Total
DPL	2,827	967	3,794
DP&L	2,827	422	3,249

DPL’s present summer generating capacity, including peaking units, is approximately 3,794 MW.  Of this capacity, approximately 2,827 MW, or 75%, is derived from coal-fired steam generating stations and the balance of approximately 967 MW, or 25%, consists of combustion turbine and diesel peaking units.

DP&L’s present summer generating capacity, including peaking units, is approximately 3,249 MW.  Of this capacity, approximately 2,827 MW, or 87%, is derived from coal-fired steam generating stations and the balance of approximately 422 MW, or 13%, consists of combustion turbine and diesel peaking units.

Our all-time net peak load was 3,270 MW, occurring August 8, 2007.

Approximately 87% of the existing steam generating capacity is provided by certain generating units owned as tenants in common with Duke Energy-Ohio (or its subsidiaries The Cincinnati Gas & Electric Company [CG&E], or Union Heat, Light & Power) and AEP (or its subsidiary Columbus Southern Power [CSP]).  As tenants in common, each company owns a specified share of each of these units, is entitled to its share of capacity and energy output, and has a capital and operating cost responsibility proportionate to its ownership share.  DP&L’s remaining steam generating capacity (approximately 365 MW) is derived from a generating station owned solely by DP&L.  Additionally, DP&L, CG&E and CSP own, as tenants in common, 884 circuit miles of 345,000-volt transmission lines.  DP&L has several interconnections with other companies for the purchase, sale and interchange of electricity.

In 2009, we generated 99.5% of our electric output from coal-fired units and 0.5% from oil and natural gas-fired units.

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The following table sets forth DP&L’s and DPLE’s generating stations and, where indicated, those stations which DP&L owns as tenants in common.

				Approximate Summer
				MW Rating
Station	Ownership*	Operating Company	Location	DPL Portion	Total
Coal Units
Hutchings	W	DP&L	Miamisburg, OH	365	365
Killen	C	DP&L	Wrightsville, OH	402	600
Stuart	C	DP&L	Aberdeen, OH	808	2,308
Conesville-Unit 4	C	CSP	Conesville, OH	126	765
Beckjord-Unit 6	C	CG&E	New Richmond, OH	207	414
Miami Fort-Units 7 & 8	C	CG&E	North Bend, OH	368	1,020
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	23	23
Yankee Street	W	DP&L	Centerville, OH	94	94
Monument	W	DP&L	Dayton, OH	12	12
Tait Diesels	W	DP&L	Dayton, OH	10	10
Sidney	W	DP&L	Sidney, OH	12	12
Tait Units 1-3	W	DP&L	Moraine, OH	256	256
Killen	C	DP&L	Wrightsville, OH	12	18
Stuart	C	DP&L	Aberdeen, OH	3	10
Montpelier Units 1-4	W	DPLE	Poneto, IN	238	238
Tait Units 4-7	W	DPLE	Moraine, OH	307	307
Total approximate summer generating capacity				3,794	8,352

*W = Wholly-Owned

  C = Commonly-Owned

In addition to the above, DP&L also owns a 4.9% equity ownership interest in OVEC, an electric generating company.  OVEC has two plants in Cheshire, Ohio and Madison, Indiana with a combined generation capacity of approximately 2,265 MW.  DP&L’s share of this generation capacity is approximately 111 MW.

DPL has substantially all of the total expected coal volume needed to meet its retail and firm wholesale sales requirements for 2010 under contract.  The majority of the contracted coal is purchased at fixed prices.  Some contracts provide for periodic adjustments and some are priced based on market indices.  Fuel costs are impacted by changes in volume and price and are driven by a number of variables including weather, the wholesale market price of power, certain provisions in coal contracts related to government imposed costs, counterparty performance and credit, scheduled outages and generation plant mix.  Our emission allowance consumption was reduced in 2008 and 2009 due to the installation of FGD equipment (scrubbers) at our jointly-owned electric generating stations.  Due to the installation of this emission control equipment and barring any changes in the regulatory environment in which we operate, we expect to have emission allowance inventory in excess of our needs, which we plan to sell during 2010 and in future periods.  We were a net seller of SO2 allowances and NOx allowances in 2009, and we expect to be a net seller in 2010.

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The gross average cost of fuel consumed per kWh was as follows:

	Average Cost of Fuel
	Consumed (¢/kWh)
	2009	2008	2007
DPL	2.39	2.28	1.97
DP&L	2.36	2.22	1.91

SEASONALITY

The power generation and delivery business is seasonal and weather patterns have a material impact on operating performance.  In the region we serve, demand for electricity is generally greater in the summer months associated with cooling and in the winter months associated with heating as compared to other times of the year.  Unusually mild summers and winters could have an adverse effect on our results of operations, financial condition and cash flows.

RATE REGULATION AND GOVERNMENT LEGISLATION

DP&L’s sales to retail customers are subject to rate regulation by the PUCO.  Beginning January 1, 2010, DP&L has a fuel rider in place for the collection of our prudently incurred fuel, purchased power, emission and other related costs.  DP&L’s transmission rates and wholesale electric rates to municipal corporations, rural electric co-operatives and other distributors of electric energy are subject to regulation by the FERC under the Federal Power Act.

Ohio law establishes the process for determining retail rates charged by public utilities.  Regulation of retail rates encompasses the timing of applications, the effective date of rate increases, the recoverable costs basis upon which the rates are based and other related matters.  Ohio law also established the Office of the OCC, which has the authority to represent residential consumers in state and federal judicial and administrative rate proceedings.

Ohio legislation extends the jurisdiction of the PUCO to the records and accounts of certain public utility holding company systems, including DPL.  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 such matters relate to the costs associated with the provision of public utility service.  Based on existing PUCO and FERC authorization, regulatory assets and liabilities are recorded on the balance sheets.  See Note 3 of Notes to Consolidated Financial Statements.

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COMPETITION AND REGULATION

Ohio Matters

Ohio Retail Rates

Since January 2001, DP&L’s electric customers have been permitted to choose their retail electric generation supplier.  DP&L continues to have the exclusive right to provide delivery service in its state certified territory and the obligation to supply retail generation service to customers that do not choose an alternative supplier.  The PUCO maintains jurisdiction over DP&L’s delivery of electricity, standard service offer and other retail electric services.

On May 1, 2008, substitute SB 221, an Ohio electric energy bill, was signed by the Governor and went into effect July 31, 2008.  This law required that all Ohio distribution utilities file either an electric security plan or a market rate option that was to be in effect on January 1, 2009.  Under the market rate option, a periodic competitive bid process will set the retail generation price after the utility demonstrates that it can meet certain market criteria and bid requirements set out in the bill.  Also, under this option, utilities that still own generation in the state are required to phase in the market rate option over a period of not less than five years.  An electric security plan may allow for adjustments to the standard service offer for costs associated with environmental compliance; fuel and purchased power; construction of new or investment in specified generating facilities; and the provision of standby and default service, operating, maintenance, or other costs including taxes.  As part of its electric security plan, a utility is permitted to file an infrastructure improvement plan that will specify the initiatives the utility will take to rebuild, upgrade, or replace its electric distribution system, including cost recovery mechanisms.  Both the market rate option and electric security plan option involve a “substantially excessive earnings” test based on the earnings of comparable companies with similar business and financial risks.  The PUCO issued three sets of rules related to implementation of the law.  These rules address topics such as the information that must be included in an electric security plan as well as a market rate option, the significantly excessive earnings test requirements, corporate separation revisions, rules relating to the recovery of transmission related costs, electric service and safety standards dealing with the statewide line extension policy, and rules relating to advanced energy portfolio standards, renewable energy, demand reduction and energy efficiency standards.

In compliance with SB 221, DP&L filed its ESP at the PUCO on October 10, 2008.  This plan contained three parts: 1) a standard offer plan; 2) a CCEM plan; and 3) an alternative energy plan.  The standard offer plan stated that DP&L intends to maintain its current rate plan through December 31, 2010, and addressed compliance issues related to the PUCO rules.

SB 221 and the implementation rules contain targets relating to advanced energy portfolio standards, renewable energy, demand reduction and energy efficiency standards.  After several revisions, rulings on rehearing and reissuance that occurred throughout 2009, the rules relating to renewable energy, energy efficiency, demand reduction and integrated resource plans were made effective on December 10, 2009.  The standards require that, by the year 2025, 25% of the total number of kWh of electricity sold by the utility to retail electric consumers must come from alternative energy resources, which include “advanced energy resources” such as distributed generation, clean coal, advanced nuclear, energy efficiency and fuel cell technology; and “renewable energy resources” such as solar, hydro, wind, geothermal and biomass. At least half of the 25% must be generated from renewable energy resources, including 0.5% from solar energy.  The renewable energy portfolio, energy efficiency and demand reduction standards began in 2009 with increases in required percentages each year.  The annual targets for energy efficiency are expected to save 22.3% by 2025 and peak demand reductions are expected to reach 7.75% by 2018 compared to baseline energy usage.  If any targets are not met, compliance penalties will apply unless the PUCO makes certain findings that would excuse performance.  In December 2009, DP&L and DPLER made several filings relating to their renewable energy and energy efficiency compliance plans.  DP&L and DPLER were able to obtain Renewable Energy Certificates sufficient to meet their overall renewable energy targets, but DP&L and DPLER together obtained only 36% of the separate requirement for 2009 Ohio-based solar power.  The companies asked for a waiver of any unmet 2009 Ohio solar requirements on grounds of force majeure because there are insufficient solar renewable energy credits available from Ohio resources.  In two separate filings, DP&L requested the PUCO’s consent that DP&L had met the requirements for energy efficiency and for demand reduction based on DP&L’s interpretation of how those requirements should be applied.  These filings also requested that if the PUCO disagreed with DP&L’s interpretation, the PUCO grant alternative relief and find that DP&L was unable to meet the targets due to reasons beyond its reasonable control, i.e. uncertainty throughout 2009 caused by delays in finalizing the rules and the lack of timely PUCO action on several of DP&L’s special contracts relating to demand response efforts which remain pending before the PUCO. 

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In addition, the rules that became effective December 10, 2009 required that on January 1, 2010, DP&L file an extensive energy efficiency portfolio plan, outlining how DP&L plans to comply with the energy efficiency and demand reduction benchmarks.  DP&L filed a separate request for a finding that it had already complied with this requirement in the form of DP&L’s portfolio plan that had been filed in 2008 as part of its electric security plan, which had been approved by the PUCO and is being implemented.  We are unable to predict at this time how the PUCO will respond to these filings, but believe that the outcome will not be material to our financial condition.  However, as the targets get increasingly larger over time, the costs of complying with the SB 221 targets and the PUCO’s implementing rules could have a material impact on our financial condition.

On February 24, 2009, DP&L filed the Stipulation with the PUCO which was signed by the Staff of the PUCO, the Office of the OCC and various intervening parties.  The material terms agreed to under the Stipulation include the following:

·DP&L’s current rate plan will be extended through 2012.

·DP&L will be permitted to implement a fuel and purchased power recovery mechanism beginning January 1, 2010 which will track and adjust fuel and purchased power costs on a quarterly basis.

·The rate stabilization surcharge remains a non-bypassable provider of last resort charge at its current rate amount, but may be bypassable by customers served by a government aggregator beginning 2011. If a government aggregator elects to avoid this surcharge in 2011 and 2012, its customers can only return to DP&L at a market-based rate.

·The last phase of the EIR increase will occur in 2010 as previously approved by the PUCO and thereafter will remain at that level through 2012.

·DP&L’s base distribution and generation rates will be frozen through 2012.

·DP&L may seek recovery of certain cost increases such as storm damage expenses, regulatory or tax changes, costs associated with new climate change or carbon regulations, certain costs associated with the operation of the Hutchings station, costs associated with TCRR and Regional Transmission Organization costs not covered by the TCRR.

·The significantly excessive earnings test will not apply to DP&L until 2012.

·DP&L will be permitted to begin its energy efficiency and demand response programs immediately with recovery scheduled to begin in 2009, with a two-year reconciliation.  DP&L’s smart grid deployment initiative will be revised and resubmitted to the PUCO for approval by September 2009 with the anticipation that the plans and recovery will begin January 1, 2010 also with a two year reconciliation.

·DP&L’s proposed alternative energy plans will be approved and recovery of these costs will begin in 2009 with an annual reconciliation.

·Mercantile (large use) customers can obtain exemption from the energy efficiency rider if self-directed energy and demand programs generate reductions equal to or greater than DP&L’s energy and demand reduction benchmarks.

On June 24, 2009, the PUCO issued an order granting approval of the Stipulation as filed and authorized DP&L to implement rates associated with alternative energy and energy efficiency compliance costs, which DP&L implemented beginning on July 1, 2009.

Consistent with the Stipulation, DP&L filed its smart grid and advanced metering infrastructure business cases with the PUCO on August 4, 2009 seeking recovery of costs associated with a three-year plan to deploy smart meter; and a ten-year plan for distribution and substation automation, core telecommunications, supporting software and in-home technologies.  On August 5, 2009, DP&L submitted an application for American Recovery and Reinvestment Act (ARRA) funding under the Integrated and/or Crosscutting Systems topic area for the Smart Grid Investment Grant Program, seeking $145.1 million of matching funds.  On October 27, 2009, we were notified by the United States Department of Energy (DOE) that we will not receive funding under the ARRA.  A technical conference was held at the PUCO in October 2009 for the smart grid case, and a subsequent PUCO entry established a comment and reply comment period.  The PUCO Staff along with other interested parties provided comments and reply comments on DP&L’s plans.  A hearing is not yet scheduled for this case.

The Stipulation provided for the establishment of a fuel and purchased power recovery rider beginning January 1, 2010.  DP&L filed its proposed fuel rider on October 30, 2009.  On December 16, 2009 the PUCO issued an order stating the rate was consistent with the Stipulation provisions, that it does not appear to be unjust or unreasonable, and approved the rate to be implemented on January 1, 2010. The fuel rider will fluctuate based on actual costs and recoveries and will be modified at the start of each seasonal quarter:  March 1, June 1, September 1, and December 1 each year. Consistent with the Stipulation, an annual review and audit is scheduled to take place in the first quarter of 2011 for calendar year 2010.

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As a member of PJM, DP&L incurs costs and receives revenues from the RTO related to its transmission and generation assets, as well as its load obligations for retail customers.  SB 221 included a provision that allows Ohio electric utilities to seek and obtain a reconcilable rider to recover RTO-related costs and credits.  In early 2009, the PUCO approved DP&L’s request to defer costs associated with its transmission, capacity, ancillary service and other PJM-related charges incurred as a member of PJM consistent with the provisions of SB 221.  DP&L subsequently filed to establish the TCRR that would incorporate all charges and credits from the RTO as well as the amounts approved for deferral.  The TCRR was approved by the PUCO and on June 1, 2009 DP&L began recovery of these costs.  In June 2009, an application for rehearing was filed claiming the PUCO’s order allowing for recovery of RPM costs through this rider was unlawful.   On September 9, the PUCO granted rehearing, and issued an entry ordering DP&L to remove the RPM costs from the TCRR and refile its tariffs.  On September 23, 2009, the Company filed two separate riders, a TCRR without RPM costs, and an RPM recovery rider, which were both subsequently approved per PUCO Finding and Order issued on November 18, 2009, and implemented December 1, 2009.  There was no change to the level of recovery due to the rehearing process.

On September 9, 2009, the PUCO issued an entry establishing a significantly excessive earnings test (SEET) proceeding.  A workshop was held at the PUCO offices on October 5, 2009 to allow interested parties to present concerns and discuss issues related to the methodology for determining whether an electric utility has significantly excessive earnings pursuant to the provisions contained in SB 221.  On November 18, 2009, the PUCO Staff issued its recommendations to the PUCO.  DP&L filed its comments and reply comments along with other interested parties.  Although DP&L’s Stipulation provides that the SEET does not apply to it until 2013 based on 2012 earnings results, DP&L is actively participating in this proceeding.

On August 28, 2009, DP&L filed its application to establish reliability targets consistent with the most recent PUCO Electric Service and Safety Standards (ESSS).  The PUCO issued a procedural schedule and held a technical conference on November 10, 2009.  Comments and reply comments were filed.  We expect this case will be set for hearing.  According to the ESSS rules, DP&L will be subject to financial penalties if the established targets are not met for two consecutive years.

While the overall financial impact of SB 221 will not be known for some time, implementation of the bill and compliance with its requirements could have a material impact on our financial condition.

Ohio Competitive Considerations and Proceedings

As of December 31, 2009, six unaffiliated marketers were registered as CRES providers in DP&L’s service territory.  While there has been some customer switching associated with unaffiliated marketers, it represented less than 0.11% of sales in 2009.  DPLER, an affiliated company, is also a registered CRES provider and accounted for 99% of the total kWh supplied by CRES providers within DP&L’s service territory in 2009.  During the first quarter of 2010, DPLER will begin providing CRES services to business customers who are currently not in DP&L’s service territory.  At this time, we do not expect these incremental costs and revenues to have a material impact on our results of operations, financial position or cash flows.  In 2003-2004, several communities in DP&L’s service area passed ordinances allowing the communities to become government aggregators for the purpose of offering alternative electric generation supplies to their citizens.  To date, none of these communities have aggregated their generation load.

Federal Matters

Like other electric utilities and energy marketers, DP&L and DPLE may sell or purchase electric products on the wholesale market.  DP&L and DPLE compete with other generators, power marketers, privately and municipally-owned electric utilities and rural electric cooperatives when selling electricity.  The ability of DP&L and DPLE to sell this electricity will depend on how DP&L’s and DPLE’s price, terms and conditions compare to those of other suppliers.

As part of Ohio’s electric deregulation law, all of the state’s investor-owned utilities are required to join a RTO.  In October 2004, DP&L successfully integrated its 1,000 miles of high-voltage transmission into the PJM RTO.  The role of the RTO is to administer a competitive wholesale market for electricity and ensure reliability of the transmission grid.  PJM ensures the reliability of the high-voltage electric power system serving 51 million people in all or parts of Delaware, Illinois, Indiana, Kentucky, Maryland, Michigan, New Jersey, North Carolina, Ohio, Pennsylvania, Tennessee, Virginia, West Virginia and the District of Columbia.  PJM coordinates and directs the operation of the region’s transmission grid, administers the world’s largest competitive wholesale electricity market and plans regional transmission expansion improvements to maintain grid reliability and relieve congestion.

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The PJM RPM base residual auction for the 2012/13 period cleared at a per megawatt price of $16/day for our RTO area.  Prior to this auction, the per megawatt price for the 2011/2012 period was $110/day.  Future RPM auction results will be dependent not only on the overall supply and demand of generation and load, but may also be impacted by congestion as well as PJM’s business rules relating to bidding for Demand Response and Energy Efficiency resources in the RPM auctions.  We cannot predict the outcome of future auctions but if the current auction price is sustained, our future results of operations, financial condition and cash flows could be adversely impacted.

As a member of PJM, DP&L is also subject to charges and costs associated with PJM operations as approved by the FERC.  FERC Orders issued in 2007 regarding the allocation of costs of large transmission facilities within PJM, could result in additional costs being allocated to DP&L of approximately $12 million or more annually by 2012.  DP&L filed a notice of appeal to the U.S. Court of Appeals, D.C. Circuit on March 18, 2008 challenging the allocation method.  The appeal was consolidated with other appeals taken by other interested parties of the same FERC Orders and the consolidated cases were assigned to the 7th Circuit.  On August 6, 2009, the 7th Circuit ruled that the FERC had failed to provide a reasoned basis for the allocation method it had approved.  Rehearings were filed by other interested litigants and denied by the Court, which then remanded the matter to the FERC for further proceedings.   On January 21, 2010, the FERC issued a procedural order on remand establishing a paper hearing process under which PJM will make an informational filing in late February.  Subsequently PJM and other parties, including DP&L, will be able to file initial comments, testimony, and recommendations and reply comments.  Absent future changes to the procedural schedule that may occur for a number of reasons including if settlement discussions are held, the paper hearing process should be complete and the case ready for FERC consideration in 2010.  FERC did not establish a deadline for its issuance of a substantive order.  DP&L cannot predict the timing or the likely outcome of the proceeding.  Until such time as FERC may act to approve a change in methodology, PJM will continue to apply the allocation methodology that had been approved by FERC in 2007.  Although we continue to maintain that these costs should be borne by the beneficiaries of these projects and that DP&L is not one of these beneficiaries, any new credits or additional costs resulting from the ultimate outcome of this proceeding will be reflected in DP&L’s TCRR rider which is already in place to pass through RTO-related costs and credits.

DP&L provides transmission and wholesale electric service to twelve municipal customers in its service territory, which in turn distribute electricity principally within their incorporated limits.  DP&L also maintains an interconnection agreement with one municipality that has the capability to generate a portion of its own energy requirements.  Approximately one percent of total electricity sales in 2009 represented sales to these municipalities.

In June 2009, the NERC, a FERC-certified electric reliability organization responsible for developing and enforcing mandatory reliability standards, commenced a routine audit of DP&L’s operations.  The audit, which was for the period June 18, 2007 to June 25, 2009, evaluated DP&L’s compliance with 42 requirements in 18 NERC-reliability standards.  DP&L is currently subject to a compliance audit at a minimum of once every three years as provided by the NERC Rules of Procedure. This audit was concluded in June 2009 and its findings revealed that DP&L had some Possible Alleged Violations (PAVs) associated with five NERC Reliability Standards.  In response to the report, DP&L filed mitigation plans with NERC to address the PAVs.  These mitigation plans have been accepted and DP&L is currently awaiting a proposal for settlement from NERC.  While we are currently unable to determine the extent of penalties, if any, that may be imposed on DP&L, we do not believe such penalties will have a material impact on our results of operations.

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ENVIRONMENTAL CONSIDERATIONS

DPL and DP&L’s facilities and operations are subject to a wide range of environmental regulations and laws by federal, state and local authorities.  The environmental issues that may impact us include:

·The Federal CAA and state laws and regulations (including State Implementation Plans) which require compliance, obtaining permits and reporting as to air emissions.

·Litigation with federal and certain state governments and certain special interest groups regarding whether modifications to or maintenance of certain coal-fired generating plants require additional permitting or pollution control technology, or whether emissions from coal-fired generating plants cause or contribute to global climate changes.

·Rules issued by the USEPA and Ohio EPA that require substantial reductions in SO2, particulates, mercury and NOx emissions.  DPL has installed emission control technology and is taking other measures to comply with required and anticipated reductions.

·Rules issued by the USEPA and Ohio EPA that require reporting and future reductions of GHGs.

·Rules issued by the USEPA associated with the Federal Clean Water Act (FCWA), which prohibits the discharge of pollutants into waters of the United States except pursuant to appropriate permits.

·Solid and hazardous waste laws and regulations, which govern the management and disposal of certain waste. The majority of solid waste created from the combustion of coal and fossil fuels is fly ash and other coal combustion by-products.  The EPA has previously determined that fly ash and other coal combustion by-products are not hazardous waste subject to the Resource Conservation and Recovery Act (RCRA), but the EPA is reportedly reconsidering that determination.  A change in determination could significantly increase the costs of disposing of such by-products.

As well as imposing continuing compliance obligations, these laws and regulations authorize the imposition of substantial penalties for noncompliance, including fines, injunctive relief and other sanctions.  In the normal course of business, we have investigatory and remedial activities underway at these facilities to comply, or to determine compliance, with such regulations.  We record liabilities for probable estimated loss in accordance with the provisions of GAAP relating to the accounting for contingencies.  DPL, through its wholly-owned captive insurance subsidiary MVIC, has an actuarially calculated reserve of $1.2 million for environmental matters.  We evaluate the potential liability related to probable losses quarterly and may revise our estimates.  Such revisions in the estimates of the potential liabilities could have a material effect on our results of operations, financial position or cash flows.

Environmental Regulation and Litigation Related to Air Quality

Air Quality

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

On October 27, 2003, the USEPA published final rules regarding the equipment replacement provision (ERP) of the routine maintenance, repair and replacement (RMRR) exclusion of the CAA.  Activities at power plants that fall within the scope of the RMRR exclusion do not trigger new source review requirements, including the imposition of stricter emission limits.  On December 24, 2003, the United States Court of Appeals for the D.C. Circuit stayed the effective date of the rule pending its decision on the merits of the lawsuits filed by numerous states and environmental organizations challenging the final rules.  On June 6, 2005, the USEPA issued its final response on the reconsideration of the ERP exclusion.  The USEPA clarified its position, but did not change any aspect of the 2003 final rules.  This decision was appealed and the D.C. Circuit vacated the final rules on March 17, 2006.  The scope of the RMRR exclusion remains uncertain due to this action by the D.C Circuit, as well as multiple litigations not directly involving us where courts are defining the scope of the exception with respect to the specific facts and circumstances of the particular power plants and activities before the courts.  While we believe that we have not engaged in any activities with respect to our existing power plants that would trigger the new source review requirements, if new source review requirements were imposed on any of DP&L’s existing power plants, the results could be materially adverse to us.

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The USEPA issued a proposed rule on October 20, 2005 concerning the test for measuring whether modifications to electric generating units should trigger application of New Source Review (NSR) standards under the CAA.  A supplemental rule was also proposed on May 8, 2007 to include additional options for determining if there is an emissions increase when an existing electric generating unit makes a physical or operational change.  The rule was challenged by environmental organizations and has not been finalized.  While we cannot at this time predict the outcome of this rulemaking, any finalized rules could materially affect our operations.

On December 17, 2003, the USEPA proposed the Interstate Air Quality Rule (IAQR) designed to reduce and permanently cap SO2 and NOx emissions from electric utilities.  The proposed IAQR focused on states, including Ohio, whose power plant emissions are believed to be significantly contributing to fine particle and ozone pollution in other downwind states in the eastern United States.  On June 10, 2004, the USEPA issued a supplemental proposal to the IAQR, now renamed the CAIR.  The final rules were signed on March 10, 2005 and were published on May 12, 2005.  CAIR created an interstate trading program for annual NOx emission allowances and made modifications to an existing trading program for SO2.  On August 24, 2005, the USEPA proposed additional revisions to the CAIR.  On July 11, 2008, the U.S. Court of Appeals for the District of Columbia Circuit issued a decision to vacate the USEPA’s CAIR and its associated Federal Implementation Plan and remanded to the USEPA with instructions to issue new regulations that conformed to the procedural and substantive requirements of the CAA.  The Court’s decision, in part, invalidated the new NOx annual emission allowance trading program and the modifications to the SO2 emission trading program established by the March 10, 2005 rules, and created uncertainty regarding future NOx and SO2 emission reduction requirements and their timing.  The USEPA and a group representing utilities filed a request on September 24, 2008 for a rehearing before the entire Court.  On December 23, 2008, the U.S. Court of Appeals issued an order on reconsideration that permits CAIR to remain in effect until the USEPA issues new regulations that would conform to the CAA requirements and the Court’s July 11, 2008 decision.  In January 2010, the Court ordered the USEPA to file a response to request for a USEPA decision filed by parties in the original case who are now seeking a Court order to require the USEPA to issue new regulations by March 1, 2010.  We are currently unable to predict the outcome of this request or the timing or impact of any new regulations relating to CAIR.  CAIR has and will continue to have a material effect on our operations.

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

In the fourth quarter of 2007, DP&L began a program for selling excess emission allowances, including annual NOxemission allowances and SO2 emission allowances that were the subject of CAIR trading programs.  In subsequent quarters, DP&L recognized gains from the sale of excess emission allowances to third parties.  The court’s CAIR decision affected the trading market for excess allowances and impacted DP&L’s program for selling additional excess allowances in 2008.  Although in January 2009 we resumed selling excess allowances due to the revival of the trading market, the long-term impact of the court’s decision and of the actions the USEPA or others will take in response to this decision, is not fully known at this time and could have an adverse effect on us.

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

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

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

In response to a U.S. Supreme Court decision that the USEPA has the authority to regulate CO2 emissions from motor vehicles, the USEPA made a finding that CO2 and certain other gases are pollutants under the CAA.  The USEPA has not yet identified the specifics of how these newly designated pollutants will be regulated.  In April 2009, the USEPA issued a proposed endangerment finding under the CAA.  The proposed finding determined that CO2 and other GHGs from motor vehicles threaten the health and welfare of future generations by contributing to climate change.  If the proposed finding is finalized, it could lead to the regulation of CO2 and other GHGs from sources other than motor vehicles, including coal-fired plants that we own and operate.  Recently, several bills have been introduced at the federal level to regulate GHG emissions.  In June 2009, the U.S. House of Representatives passed H.R. 2454, the American Clean Energy and Security Act (ACES).  This proposed legislation targets a reduction in the emission of GHGs from large sources by 80% in 2050 through an economy-wide cap and trade program.  ACES also includes energy efficiency and renewable energy initiatives.  Approximately 99% of the energy we produce is generated by coal.  DP&L’s share of CO2 emissions at generating stations we own and co-own is approximately 16 million tons annually.  Proposed GHG legislation finalized at a future date could have a significant effect on DP&L’s operations and costs, which could adversely affect our net income, cash flows and financial position.  However, due to the uncertainty associated with such legislation, we are currently unable to predict the final outcome or the financial impact that this legislation will have on us.  On September 22, 2009, the USEPA issued a final rule for mandatory reporting of GHGs from large sources that emit 25,000 metric tons per year or more of CO2,  including electric generating units.  The first report is due in March 2011 for 2010 emissions.  This reporting rule will guide development of policies and programs to reduce emissions.  DP&L does not anticipate that this reporting rule will result in any significant cost or other impact on current operations.

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

The USEPA proposed revisions to its primary NAAQS for SO2 on November 16, 2009.  This would replace the current 24-hour standard and current annual standard.  This regulation is expected to be finalized in 2010.  At this time, DP&L cannot determine the effect of this potential change, if any, on its operations.

On September 16, 2009, the USEPA announced that it would reconsider the 2008 national ground level ozone standard.  A more stringent ambient ozone standard may lead to stricter NOx emission standards in the future.  At this point, DP&L cannot determine the effect of this potential change, if any, on its operations.

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Air Quality — Litigation Involving Co-Owned Plants

In March 2000, as amended in June 2004, the U.S. Department of Justice filed a complaint in the United States District Court, Southern District of Indiana, Indianapolis Division against Cinergy Corp. (now part of Duke Energy) and two Cinergy subsidiaries for alleged violations of the CAA at various generation units operated by PSI Energy, Inc. and CG&E, including generation units co-owned by DP&L (Beckjord Unit 6 and Miami Fort Unit 7).  A retrial has been held in which the second jury found for Duke Energy on some allegations, but for plaintiffs with respect to units at another one of Duke Energy’s wholly-owned facilities.  In a separate phase II remedies trial with respect to violations found in the first trial, Duke Energy was ordered to close down three of its wholly-owned generating units by September 2009, surrender some emission allowances and pay a fine.  None of the violations found or remedies ordered relate to generating units owned in part by DP&L.

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

On September 21, 2004, the Sierra Club filed a lawsuit against DP&L and the other owners of the Stuart generating station in the U.S. District Court for the Southern District of Ohio for alleged violations of the CAA and the station’s operating permit.  On August 7, 2008, a consent decree was filed in the U.S. District Court in full settlement of these CAA claims.  Under the terms of the consent decree, DP&L and the other owners of the Stuart generating station agreed to: (i) certain emission targets related to NOx, SO2 and particulate matter; (ii) make energy efficiency and renewable energy commitments that are conditioned on receiving PUCO approval for the recovery of costs; (iii) forfeit 5,500 SO2 allowances; and (iv) provide funding to a third party non-profit organization to establish a solar water heater rebate program.  DP&L and the other owners of the station also entered into an attorneys’ fee agreement to pay a portion of the Sierra Club’s attorney and expert witness fees.  The parties to the lawsuit filed a joint motion on October 22, 2008, seeking an order by the U.S. District Court approving the consent decree with funding for the third party non-profit organization set at $300,000.  On October 23, 2008, the U.S. District Court approved the consent decree.  On October 21, 2009, the Sierra Club filed with the U.S. District Court a motion for enforcement of the consent decree based on the Sierra Club’s interpretation of the consent decree that would require certain NOx emissions that DP&L has been excluding from its computations to be included for purposes of complying with the emission targets and reporting requirements of the consent decree.  DP&L believes that it is properly computing and reporting NOx emissions under the consent decree and has opposed the Sierra Club’s motion.  A decision on the motion is expected before the end of the first quarter 2010.  Because Stuart Station’s NOx emissions are well below the 2009 and 2010 limits in the consent decree under either method of calculation, an adverse decision would have no effect in 2010 on operations or costs.  An adverse decision could affect compliance costs in future years when the NOx limits are further reduced under the consent decree.

Air Quality — Notices of Violation Involving Co-Owned Plants

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

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In June 2000, the USEPA issued a NOV to the DP&L-operated Stuart generating station (co-owned by DP&L, CG&E and CSP) for alleged violations of the CAA.  The NOV contained allegations consistent with NOVs and complaints that the USEPA had recently brought against numerous other coal-fired utilities in the Midwest.  The NOV indicated the USEPA may: (1) issue an order requiring compliance with the requirements of the Ohio SIP; or (2) bring a civil action seeking injunctive relief and civil penalties of up to $27,500 per day for each violation.  To date, neither action has been taken.  At this time, DP&L cannot predict the outcome of this matter.

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

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

Air Quality — Other Issues Involving Co-Owned Plants

In 2006, DP&L detected a malfunction with its emission monitoring system at the DP&L-operated Killen generating station (co-owned by DP&L and CG&E) and ultimately determined its SO2 and NOx emissions data was under reported.  DP&L has petitioned the USEPA to accept an alternative methodology for calculating actual emissions for 2005 and the first quarter 2006.  DP&L has sufficient allowances in its general account to cover the understatement and is working with the USEPA to resolve the matter.  Management does not believe the ultimate resolution of this matter will have a material impact on results of operations, financial position or cash flows.

Air Quality — Notices of Violation Involving Wholly-Owned Plants

In 2007, the Ohio EPA and the USEPA issued NOVs to DP&L for alleged violations of the CAA at the O.H. Hutchings Station.  The NOVs alleged deficiencies relate to stack opacity and particulate emissions.  Discussions are under way with the USEPA, the U.S. Department of Justice and Ohio EPA.  DP&L has provided data to those agencies regarding its maintenance expenses and operating results.  On December 15, 2008, DP&L received a request from the USEPA for additional documentation with respect to those issues and other CAA issues including issues relating to capital expenses and any changes in capacity or output of the units at the O.H. Hutchings station.  During 2009, DP&L has continued to submit various other operational and performance data to the USEPA in compliance with its request.  DP&L is currently unable to determine the timing, costs, or method by which the issues may be resolved and continues to work with the USEPA on this issue.

On November 18, 2009, the USEPA issued a NOV to DP&L for alleged New Source Review (NSR) violations of the CAA at the O.H. Hutchings Station relating to capital projects performed in 2001 involving Unit 3 and Unit 6.  DP&L does not believe that the two projects described in the NOV were modifications subject to NSR.  DP&L is unable to determine the timing, costs or method by which these issues may be resolved and continues to work with the USEPA on this issue.

Water Quality

On July 9, 2004, the USEPA issued final rules pursuant to the Clean Water Act governing existing facilities that have cooling water intake structures.  The rules require an assessment of impingement or entrainment of organisms as a result of cooling water withdrawal.  A number of parties appealed the rules to the Federal Court of Appeals for the Second Circuit in New York and the Court issued an opinion on January 25, 2007 remanding several aspects of the rule to the USEPA for reconsideration.  Several parties petitioned the U.S. Supreme Court for review of the lower court decision.  On April 14, 2008, the Supreme Court elected to review the lower court decision on the issue of whether the USEPA can compare costs with benefits in determining the best technology available for minimizing adverse environmental impact at cooling water intake structures.  Briefs were submitted to the Court in the summer of 2008 and oral arguments were held in December 2008.  In April 2009, the U.S. Supreme Court ruled that the USEPA did have the authority to compare costs with benefits in determining best technology available.  The USEPA is developing proposed regulations which it hopes to issue for public comment by mid-2010.

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

In September 2009, the USEPA announced that it will be revising technology-based regulations governing water discharges from steam electric generating facilities such as J.M. Stuart, Killen and O.H. Hutchings Stations.  The rulemaking will include the collection of information via an industry-wide questionnaire as well as targeted water sampling efforts at selected facilities.  Subsequent to the information collection effort, it is anticipated that the USEPA will release a proposed rule in 2011 with final regulations issued in late 2012 or early 2013.  At present, DP&L is unable to predict the impact this rulemaking will have on its operations.

Land Use and Solid Waste Disposal

In September 2002, DP&L and other parties received a special notice that the USEPA considers us to be a PRP for the clean-up of hazardous substances at the South Dayton Dump landfill site.  In August 2005, DP&L and other parties received a general notice regarding the performance of a Remedial Investigation and Feasibility Study (RI/FS) under a Superfund Alternative Approach.  In October 2005, DP&L received a special notice letter inviting it to enter into negotiations with the USEPA to conduct the RI/FS.  No recent activity has occurred with respect to that notice or PRP status.  More recently, DP&L has received requests by the USEPA and the existing PRP group to allow access to be given to DP&L’s service center building site, which is across a street from the landfill site.  The USEPA requested access to drill monitoring and test wells to determine the extent of the landfill site’s contamination as well as to assess whether certain chemicals used at the service center building site might have migrated through groundwater to the landfill site.  Pursuant to an Administrative Order issued by the USEPA requiring access to DP&L’s service center building site, DP&L has granted such access and drilling of soil borings and installation of monitoring wells occurred in the fall of 2009.  DP&L believes the chemicals used at its service center building site were appropriately disposed of and have not contributed to the contamination at the South Dayton Dump landfill site.  While DP&L is unable at this time to predict the outcome of this matter, if DP&L were required to contribute to the clean-up of the site, it could have a material adverse effect on us.  DP&L is also unable at this time to predict whether the monitoring and test wells may lead to any actions relating to the service center building site independent of the South Dayton Dump clean-up.

In December 2003, DP&L and other parties received a special notice that the USEPA considers us to be a PRP for the clean-up of hazardous substances at the Tremont City landfill site.  Information available to DP&L does not demonstrate that it contributed hazardous substances to the site.  While DP&L is unable at this time to predict the outcome of this matter, if DP&L were required to contribute to the clean-up of the site, it could have a material adverse effect on us.

In November 2007, a PRP group contacted DP&L seeking our financial participation in a settlement that the group had reached with the federal government with respect to the clean-up of an industrial site once owned by Carolina Transformer, Inc.  DP&L’s business records clearly show we did not conduct business with Carolina Transformer that would require our participation in any clean-up of the site.  DP&L has declined to participate in the clean-up of this site.  While DP&L is unable at this time to predict the outcome of this matter, if DP&L were required to contribute to the clean-up of the site, it could have a material adverse effect on us.

During 2008, a major spill occurred at an ash pond owned by the Tennessee Valley Authority (TVA) as a result of a dike failure.  The spill generated a significant amount of national news coverage, and support for tighter regulations for the storage and handling of coal combustion products.  DP&L has ash ponds at the Killen, O.H. Hutchings and J.M. Stuart stations which it operates, and also at generating stations operated by others but in which DP&L has an ownership interest.  We frequently inspect our ash ponds and do not anticipate any similar failures.  It is widely expected that the federal government will propose new regulations covering ash generated

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from the combustion of coal including additional monitoring, testing, or construction standards with respect to ash ponds and ash landfills.  During March 2009, the USEPA, through a formal Information Collection Request, collected information on ash pond facilities across the country, including those at Killen and J.M. Stuart stations.  Subsequently the USEPA collected similar information for O.H. Hutchings Station.  In addition, during August and October 2009, representatives of the USEPA visited J.M. Stuart Station to collect information on plant operations relative to the production and handling of by-products.  The USEPA’s contractor has issued a draft report on their October 2009 visit to J.M. Stuart Station.  DP&L has provided comments on this document and additional related information to the agency.  Due to the wide range of possible outcomes, DP&L is unable at this time to predict the timing or the financial impact of any future governmental initiative that may occur.

In addition, as a result of the TVA ash pond spill, there has been increasing advocacy to regulate coal combustion byproducts as hazardous waste under the Resource Conservation Recovery Act, Subtitle C.  On October 15, 2009, the USEPA provided a draft rule to the Office of Management and Budget for interagency review.  The draft rule proposed to regulate coal ash as a hazardous waste, with limited beneficial reuse.  DP&L is unable at this time to predict the financial impact of this regulation, but if coal combustion byproducts are regulated as hazardous waste, it is expected to have a material adverse impact on operations.

Legal and Other Matters

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

On May 16, 2007, DPL filed a claim with Energy Insurance Mutual (EIM) to recoup legal expenses associated with our litigation against certain former executives.  Arbitration on that claim occurred on May 13, 2009.  The arbitration panel issued a ruling in Phase 1 of the arbitration on September 25, 2009, finding that most of the claims involving the former executives were covered.  The matter is pending.

As a member of PJM, DP&L is also subject to charges and costs associated with PJM operations as approved by the FERC.  FERC Orders issued in 2007 regarding the allocation of costs of large transmission facilities within PJM, could result in additional costs being allocated to DP&L of approximately $12 million or more annually by 2012.  DP&L filed a notice of appeal to the U.S. Court of Appeals, D.C. Circuit on March 18, 2008 challenging the allocation method.  The appeal was consolidated with other appeals taken by other interested parties of the same FERC Orders and the consolidated cases were assigned to the 7th Circuit.  On August 6, 2009, the 7th Circuit ruled that the FERC had failed to provide a reasoned basis for the allocation method it had approved.  Rehearings were filed by other interested litigants and denied by the Court, which then remanded the matter to the FERC for further proceedings.  On January 21, 2010, the FERC issued a procedural order on remand establishing a paper hearing process under which PJM will make an informational filing in late February.  Subsequently PJM and other parties, including DP&L, will be able to file initial comments, testimony, and recommendations and reply comments.  Absent future changes to the procedural schedule that may occur for a number of reasons including if settlement discussions are held, the paper hearing process should be complete and the case ready for FERC consideration in 2010.  FERC did not establish a deadline for its issuance of a substantive order.  DP&L cannot predict the timing or the likely outcome of the proceeding.  Until such time as FERC may act to approve a change in methodology, PJM will continue to apply the allocation methodology that had been approved by FERC in 2007.  Although we continue to maintain that these costs should be borne by the beneficiaries of these projects and that DP&L is not one of these beneficiaries, any new credits or additional costs resulting from the ultimate outcome of this proceeding will be reflected in DP&L’s TCRR rider which is already in place to pass through RTO-related costs and credits.

In June 2009, the NERC, a FERC-certified electric reliability organization responsible for developing and enforcing mandatory reliability standards, commenced a routine audit of DP&L’s operations.  The audit, which was for the period June 18, 2007 to June 25, 2009, evaluated DP&L’s compliance with 42 requirements in 18 NERC-reliability standards.  DP&L is currently subject to a compliance audit at a minimum of once every three years as provided by the NERC Rules of Procedure. This audit was concluded in June 2009 and its findings revealed that DP&L had some Possible Alleged Violations (PAVs) associated with five NERC Reliability Standards.  In response to the report, DP&L filed mitigation plans with NERC to address the PAVs.  These mitigation plans have been accepted and DP&L is currently awaiting a proposal for settlement from NERC.  While we are currently unable to determine the extent of penalties, if any, that may be imposed on DP&L, we do not believe such penalties will have a material impact on our results of operations.

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Capital Expenditures for Environmental Matters

Test operations of the FGD equipment on our jointly-owned Conesville Unit 4 were completed in November 2009.  The equipment is currently in service.

DPL’s construction additions were approximately $145 million, $228 million and $347 million in 2009, 2008 and 2007, respectively, and are expected to approximate $210 million in 2010.  Planned construction additions for 2010 relate primarily to new investments in and upgrades to DP&L’s power plant equipment and transmission and distribution system.

DP&L’s construction additions were $144 million, $225 million and $344 million in 2009, 2008 and 2007, respectively, and are expected to approximate $200 million in 2010.  Planned construction additions for 2010 relate primarily to new investments in and upgrades to DP&L’s power plant equipment and transmission and distribution system.

All environmental additions made during the past three years pertain to DP&L and approximate $21 million, $90 million and $209 million in 2009, 2008 and 2007, respectively.

Item 1A — Risk Factors

This annual report and other documents that we file with the SEC and other regulatory agencies, as well as other written or oral statements we may make from time to time, contain information based on management’s beliefs and include forward-looking statements (within the meaning of the Private Securities Litigation Reform Act of 1995) that involve a number of known and unknown risks, uncertainties and assumptions. These forward-looking statements are not guarantees of future performance and there are a number of factors including, but not limited to, those listed below, which could cause actual outcomes and results to differ materially from the results contemplated by such forward-looking statements. We do not undertake any obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. These forward-looking statements are generally identified by terms and phrases such as “anticipate,” “believe,” “intend,” “estimate,” “expect,” “continue,” “should,” “could,” “may,” “plan,” “project,” “predict,” “will” and similar expressions.

Future operating results are subject to fluctuations based on a variety of factors, including but not limited to: unusual weather conditions; catastrophic weather-related damage; unscheduled generation outages; changes in wholesale power sales prices; unusual maintenance or repairs; changes in fuel and purchased power costs, emissions allowance costs, or availability constraints; environmental compliance; and electric transmission system constraints.

The following is a listing of specific risk factors that DPL and DP&L consider to be the most significant to your decision to invest in our securities.  If any of these events occur or are continuing, our business, results of operations, financial condition and cash flows could be materially affected.

Regulation and Litigation

We are subject to extensive laws and regulation by federal, state and local authorities, such as the PUCO, the USEPA, the Ohio EPA, the FERC, the SEC and the Internal Revenue Service, among others. Regulations affect almost every aspect of our business, including in the areas of the environment, health and safety, cost recovery and rate making, securities, corporate governance, public disclosure and reporting and taxation. New laws and regulations, and new interpretations of existing laws and regulations, are ongoing and we generally cannot predict the future course of changes in this regulatory environment or the ultimate effect that this changing regulatory environment will have on our business.  Complying with this regulatory environment requires us to expend a significant amount of funds and resources.  The failure to comply with this regulatory environment could subject us to substantial financial costs and penalties and changes, either forced or voluntary, in the way we operate our business.  Additional detail about the effect of this regulatory environment on our operations is included in the risk factors set forth below.In the normal course of business, we are also subject to various lawsuits, actions, proceedings, claims and other matters asserted under this regulatory environment, which require us to expend significant funds to address, the outcomes of which are uncertain and the adverse resolutions of which could have a material adverse effect on our results of operations, financial condition and cash flows.

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Cost Recovery and Rates

The costs we can recover and the return on capital we are permitted to earn for certain aspects of our business are regulated and governed by the laws of Ohio and the rules, policies and procedures of the PUCO.  On May 1, 2008, SB 221, an Ohio electric energy bill, was signed by the Governor of Ohio and became effective July 31, 2008.  This law, among other things, required all Ohio distribution utilities to file either an electric security plan or a market rate option that was to be in effect on January 1, 2009, and established a significantly excessive earnings test for Ohio public utilities based on the earnings of other companies with similar business and financial risks.  The PUCO approved DP&L’s filed electric security plan on June 24, 2009.  DP&L’s electric security plan provides, among other things, that DP&L’s existing rate plan structure will continue through 2012; that DP&L may seek recovery for adjustments to its existing rate plan structure for costs associated with storm damage, regulatory and tax changes, new climate change or carbon regulations, fuel and purchased power and certain other costs; and that SB 221’s significantly excessive earnings test will not apply to DP&L until 2012.  DP&L’s electric security plan, and certain filings made by us in connection with this plan, are further discussed under “Ohio Retail Rates” in Item 1 — COMPETITION AND REGULATION.

While rate regulation is premised on full recovery of prudently incurred costs and a reasonable rate of return on invested capital, there can be no assurance that the PUCO will agree that all of our costs have been prudently incurred or are recoverable or that the regulatory process in which rates are determined will always result in rates that will produce a full or timely recovery of our costs and permitted rates of return.  Certain of our cost recovery riders are also by-passable by some of our customers.  Accordingly, the rates DP&L is allowed to charge may or may not match its expenses at any given time.  Therefore, DP&L could be subject to prevailing market prices for electricity and would not necessarily be able to charge rates that produce timely or full recovery of its expenses.  Changes in, or reinterpretations of, the laws, rules, policies and procedures that set electric rates and permitted rates of return; changes in DP&L’s ability to recover expenditures for environmental compliance, reliability initiatives, purchased power and fuel (which account for a substantial portion of our operating costs), capital expenditures and investments and other costs on a fully or timely basis through rates; and changes to the frequency and timing of rate increases could have a material adverse effect on our results of operations, financial condition and cash flows.

Advanced Energy and Energy Efficiency Requirements

SB 221 contains targets relating to advanced energy, renewable energy, peak demand reduction and energy efficiency standards.  The standards require that, by the year 2025 and each thereafter, 25% of the total number of kWh of electricity sold by the utility to retail electric consumers must come from alternative energy resources, which include “advanced energy resources” such as distributed generation, clean coal, advanced nuclear, energy efficiency and fuel cell technology; and “renewable energy resources” such as solar, hydro, wind, geothermal and biomass. At least half of the 25% must be generated from renewable energy resources, including 0.5% from solar energy, and the remainder must be generated from advanced energy sources.  Annual renewable energy standards began in 2009 with increases in required percentages each year through 2024. The advanced energy standard must be met by 2025 and each year thereafter.  Annual targets for energy efficiency began in 2009 and require increasing energy reductions each year compared to a baseline energy usage, up to 22.3% by 2025. Peak demand reduction targets began in 2009 with increases in required percentages each year, up to 7.75% by 2018.  The advanced energy and renewable energy standards are expected to increase (and could increase materially) our power supply costs.  Pursuant to DP&L’s approved electric security plan, DP&L is entitled to recover costs associated with its alternative energy plans, as well as its energy efficiency and demand response programs, and DP&L began recovering these costs in 2009.  If in the future we are unable to timely or fully recover these costs, it could have a material adverse effect on our results of operations, financial condition and cash flows.  In addition, if we were found not to be in compliance with these standards, monetary penalties could apply.  These penalties are not permitted to be recovered from customers and significant penalties could have a material adverse effect on our results of operations, financial condition and cash flows.  The demand reduction and energy efficiency standards by design result in reduced energy and demand that could adversely affect our results of operations, financial condition and cash flows.

Availability and Cost of Fuel

We purchase coal, natural gas and other fuel from a number of suppliers.  The coal market in particular has experienced significant price volatility in the last several years.  We are now in a global market for coal in which our domestic price is increasingly affected by international supply disruptions and demand balance.  Coal exports from the U.S. have increased significantly in recent years.  In addition, domestic issues like government-imposed direct costs and permitting issues that affect mining costs and supply availability, the variable demand of retail customer load and the variable performance of our generation fleet have an impact on our fuel procurement operations.  Our approach is to hedge the fuel costs for our anticipated electric sales.  However, we may not be able to hedge the entire exposure of our operations from fuel price volatility.  As of the date of this report, we have hedged our coal requirements with coal mine operators and financial institutions to meet our committed burn through December 31, 2010.  Historically, some of our suppliers and buyers of fuel have not performed on their contracts and have failed to deliver or accept fuel as specified under their contracts. 

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To the extent our suppliers and buyers do not meet their contractual commitments, we cannot secure adequate fuel or sell excess fuel in a timely or cost-effective manner or we are not hedged against price volatility, our results of operations, financial condition and cash flows could be materially adversely affected.  In addition, DP&L is a co-owner of certain generation facilities where it is a non-operating partner.  DP&L does not procure or have control over the fuel for these facilities, but is responsible for its proportionate share of the cost of fuel procured at these facilities.  Co-owner operated facilities do not always have realized fuel costs that are equal to our co-owners’ projections, and we are responsible for our proportionate share of any increase in actual fuel costs.  Pursuant to its electric security plan, DP&L implemented a fuel and purchased power recovery mechanism beginning on January 1, 2010, which will track and adjust fuel costs on a seasonal quarterly basis.  If in the future we are unable to timely or fully recover our fuel costs, it could have a material adverse effect on our results of operations, financial condition and cash flows.

Commodity Trading

We trade coal, power and other commodities to hedge our positions in these commodities.  These trades are impacted by a range of factors, including variations in power demand, fluctuations in market prices, market prices for alternative commodities and optimization opportunities.  We have attempted to manage our commodities trading risk exposure by establishing and enforcing risk limits and risk management policies.  Despite our efforts, however, these risk limits and management policies may not work as planned and fluctuating prices and other events could adversely affect our results of operations, financial condition and cash flows.  As part of our risk management, we use a variety of non-derivative and derivative instruments, such as swaps, futures and forwards, to manage our market risks.  In the absence of actively quoted market prices and pricing information from external sources, the valuation of some of these derivative instruments involves management’s judgment or use of estimates.  As a result, changes in the underlying assumptions or use of alternative valuation methods could affect the reported fair value of some of these contracts.  We could also recognize financial losses as a result of volatility in the market values of these contracts or if a counterparty fails to perform, which could result in a material adverse effect on our results of operations, financial condition and cash flows.

Environmental Compliance

Our operations and facilities (both wholly-owned and co-owned with others) are subject to numerous and extensive federal, state and local environmental laws and regulations relating to air quality (such as reducing NOx, SO2, SO3 (sulfur trioxide) and mercury emissions and potential future control of GHG emissions as discussed in more detail in the next risk factor), water quality, wastewater discharge, solid waste (such as the potential  future regulation of ash generated from coal-based generating stations), hazardous waste and health and safety.  With respect to our largest generation station, the J.M. Stuart Station, we are also subject to continuing compliance requirements related to NOx, SO2 and particulate matter emissions under DP&L’s consent decree with the Sierra Club.  Compliance with these laws, regulations and other requirements requires us to expend significant funds and resources.  These expenditures have been significant in the past and we expect that they will increase in the future. Complying with these numerous requirements could at some point become prohibitively expensive and result in our shutting down (temporarily or permanently) or altering the operation of our facilities.  Environmental laws and regulations also generally require us to obtain and comply with a wide variety of environmental licenses, permits, inspections and other approvals.  If we are not able to timely obtain, maintain or comply with all licenses, permits, inspections and approvals required to operate our business, then our operations could be prevented, delayed or subject to additional costs.  Failure to comply with environmental laws, regulations and other requirements may result in the imposition of fines and penalties and the imposition of stricter environmental standards and controls and other injunctive measures affecting operating assets.  In addition, any alleged violation of these laws, regulations and other requirements may require us to expend significant resources to defend against any such alleged violations.  We own a non-controlling interest in several generating stations operated by our co-owners.  As a non-controlling owner in these generating stations, we are responsible for our pro rata share of expenditures for complying with environmental laws, regulations and other requirements, but have limited control over the compliance measures taken by our co-owners.  DP&L has an EIR in place as part of its existing rate plan structure, the last increase of which occurs in 2010 and remains at that level through 2012.  In addition, DP&L’s electric security plan permits it to seek recovery for costs associated with new climate change or carbon regulations.  While we expect to recover certain environmental costs and expenditures from customers, if in the future we are unable to fully recover our costs in a timely manner it could have a material adverse effect on our results of operations, financial condition and cash flows.  In addition, if we were found not to be in compliance with these environmental laws, regulations or requirements, any penalties that would apply would likely not be recoverable from customers and could have a material adverse effect on our results of operations, financial condition and cash flows.

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Regulation of GHGs

There is a growing concern nationally and internationally among regulators, investors and others concerning global climate change and the contribution of emissions of GHG, including most significantly, CO2.  This concern has led to increased interest in legislation and action at the federal and state levels, as well as litigation, relating to GHG emissions, including a recent declaration by the USEPA that GHGs pose a danger to the public health that may allow the USEPA to directly regulate greenhouse emissions.  There have been various GHG legislative proposals introduced in Congress (with one bill passed by the House of Representatives in 2009) and there is growing consensus that some form of legislation of GHG emissions will be approved at the federal level that could result in substantial additional costs in the form of taxes or emission allowances.  Approximately 99% of the energy we produce is generated by coal.  If legislation or regulations are passed at the federal or state levels imposing mandatory reductions of CO2 and other GHGs on generation facilities, we could be required to make large additional capital investments.  Legislation and regulations could also impair the value of our generation stations or make some of these stations uneconomical to maintain or operate and it could raise uncertainty about the future viability of fossil fuels, particularly coal, as an energy source for new and existing generation stations.  Although DP&L is permitted under its current electric security plan to seek recovery of costs associated with new climate change or carbon regulations, our inability to fully or timely recover such costs could have a material adverse effect on our results of operations, financial condition and cash flows.

Sales of Excess Emission Allowances

DP&L has a program for selling excess emission allowances.  During 2009 and 2008, DP&L sold excess emission allowances to various counterparties realizing total net gains of $5.0 million and $34.8 million, respectively.  Sales of excess emission allowances are impacted by a range of factors, such as general economic conditions, fluctuations in market demand, availability of excess inventory available for sale and changes to the regulatory environment, including the status of the USEPA’s CAIR.  These factors could cause the amount of excess emission allowances we sell to fluctuate, which could cause a material adverse effect on our results or operations, financial condition and cash flows for any particular period.

On July 11, 2008, the United States Court of Appeals for the District of Columbia Circuit issued a decision that vacated the CAIR and its associated Federal Implementation Plan. This decision remanded these issues back to the USEPA.  The USEPA issued CAIR on March 10, 2005 to regulate certain upwind states with respect to fine particulate matter and ozone.  CAIR created interstate trading programs for annual NOx emission allowances and made modifications to an existing trading program for SO2 that were to take effect in 2010.  The district court’s decision, in part, invalidated the new NOxannual emission allowance trading program and the modifications to the SO2 emission trading program and created uncertainty regarding future NOx and SO2 emission reduction requirements and their timing.  On December 23, 2008, the court reversed part of its decision that vacated CAIR.  Thus, CAIR currently remains in effect, but the USEPA remains subject to the district court’s order to revise the program.  In January 2010, the Court ordered the USEPA to file a response to request for a USEPA decision filed by parties in the original case who are now seeking a Court order to require the USEPA to issue new regulations by March 1, 2010.  We cannot at this time predict the timing or the outcome of any new regulations relating to CAIR.

DP&L’s program for selling excess emission allowances includes sales of annual NOx emission allowances and SO2emission allowances that were the subject of CAIR trading programs.  Although we continue selling emission allowances, the district court’s CAIR decision has affected the emission allowance trading market and DP&L’s program for selling additional excess allowances.  The long-term impact of the district court’s decision, and of the actions the USEPA or others will take in response to this decision, on DPL and DP&L is not fully known at this time, but could affect the amount of excess emission allowances we sell and thus have an adverse effect on us.

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Customer Switching

Customers can elect to take generation service from a CRES provider offering services to customers in DP&L’s service territory.  Although retail generation service has been a competitive service since January 1, 2001, the competitive generation market has not developed to date in DP&L’s service territory to any significant degree.  As of December 31, 2009, six unaffiliated CRES providers have been certified by the PUCO to provide generation service to DP&L customers.  DPLER, a wholly-owned subsidiary of DPL, is also a certified CRES provider and accounted for 99% of the total kWh consumed by customers served by CRES providers in DP&L’s service territory in 2009.  Increased competition by CRES providers in our service territory for retail generation service could result in the loss of existing customers and increased costs to retain or attract customers, which could have a material adverse effect on our results of operations, financial condition and cash flows.  The following are a few of the factors that could result in increased switching by customers to CRES providers in the future:

·Low wholesale price levels could lead to existing CRES providers becoming more active in our service territory, and new CRES providers entering our territory.

·We could also experience customer switching through “governmental aggregation,” where a municipality may contract with a CRES provider to provide generation service to the customers located within the municipal boundaries.  Several communities in DP&L’s service territory passed ordinances during 2003-2004 allowing them to become government aggregators.  To date, no aggregation program has been implemented.

·Increased customer switching in other Ohio utility service territories could lead to new market entrants and more aggressive measures to secure customers by CRES providers.

Operation and Performance of Facilities

The operation and performance of our generation, transmission and distribution facilities and equipment is subject to various events and risks, such as the potential breakdown or failure of equipment, processes or facilities, fuel supply or transportation disruptions, the loss of cost-effective disposal options for solid waste generated by our facilities (such as gypsum), accidents, injuries, labor disputes or work stoppages by employees, operator error, acts of terrorism or sabotage, construction delays or cost overruns, shortages of or delays in obtaining equipment, material and labor, operational restrictions resulting from environmental limitations and governmental interventions, performance below expected levels, weather-related and other natural disruptions, vandalism, events occurring on the systems of third parties that interconnect to and affect our system and the increased costs and enhanced risks associated with our aging generation units.  Our results of operations, financial condition and cash flows could be adversely affected due to the happening or continuation of these events.

Operation of our owned and co-owned generating stations below expected capacity levels, or unplanned outages at these stations, could cause reduced energy output and efficiency levels and likely result in lost revenues and increased expenses that could have a material adverse effect on our results of operations, financial condition and cash flows.  In particular, since over 50% of our base-load generation is derived from co-owned generation stations operated by our co-owners, poor operational performance by our co-owners, misalignment of co-owners’ interests or lack of control over costs (such as fuel costs) incurred at these stations could have an adverse effect on us.  We have constructed and placed into service FGD facilities at most of our base-load generating stations.  If there is significant operational failure of the FGD equipment at the generating stations, we may not be able to meet emission requirements at some of our generating stations or, at other stations, it may require us to burn more expensive cleaner coal or utilize emission allowances.  These events could result in a substantial increase in our operating costs.  Depending on the degree, nature, extent, or willfulness of any failure to comply with environmental requirements, including those imposed by the Consent Decree, such non-compliance could result in the imposition of penalties or the shutting down of the affected generating stations, which could have a material adverse effect on our results of operations, financial condition and cash flows.

Asbestos and other regulated substances are, and may continue to be, present at our facilities where suitable alternative materials are not available.  Although we believe that any asbestos at our facilities is contained and suitable, we have been named as a defendant in pending asbestos litigation, which at this time is not material to us.  The continued presence of asbestos and other regulated substances at these facilities could result in additional litigation being brought against us, which could have a material adverse effect on our results of operations, financial condition and cash flows.

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Reliability Standards

As an owner and operator of a bulk power transmission system, DP&L is subject to mandatory reliability standards promulgated by the NERC and enforced by the FERC.  The standards are based on the functions that need to be performed to ensure the bulk power system operates reliably and is guided by reliability and market interface principles.  In addition, DP&L is subject to new Ohio reliability standards and targets.  Compliance with reliability standards subjects us to higher operating costs or increased capital expenditures.  While we expect to recover costs and expenditures from customers through regulated rates, there can be no assurance that the PUCO will approve full recovery in a timely manner.  If we were found not to be in compliance with the mandatory reliability standards, we could be subject to sanctions, including substantial monetary penalties, which likely would not be recoverable from customers through regulated rates and could have a material adverse effect on our results of operations, financial condition and cash flows.

Weather Conditions

Weather conditions significantly affect the demand for electric power.  In our Ohio service territory, demand for electricity is generally greater in the summer months associated with cooling and in the winter months associated with heating as compared to other times of the year.  Unusually mild summers and winters could therefore have an adverse effect on our results of operations, financial condition and cash flows.  In addition, severe or unusual weather, such as hurricanes and ice or snow storms, may cause outages and property damage that may require us to incur additional costs that may not be insured or recoverable from customers.  While DP&L is permitted to seek recovery of storm damage costs under its electric security plan, if DP&L is unable to fully recover such costs in a timely manner, it could have a material adverse effect on our results of operations, financial condition and cash flows.

Regional Transmission Organizational Risks

On October 1, 2004, in compliance with Ohio law, DP&L turned over control of its transmission functions and fully integrated into PJM.  The price at which we can sell our generation capacity and energy is now determined through supply and demand and the behavior of market participants.  While we can continue to make bilateral transactions to sell our generation through a willing-buyer and willing-seller relationship, any transactions that are not pre-arranged are subject to market conditions at PJM.  To the extent we sell electricity into the power markets on a contractual basis, we are not guaranteed any rate of return on our capital investments through mandated rates.  These sales are dependent upon prevailing market prices, which could fluctuate substantially over relatively short periods of time and adversely affect our results of operations, financial condition and cash flows.  The rules governing the various regional power markets also change from time to time which could affect our costs and revenues.  We incur fees and costs to participate in the RTO.  We may be limited with respect to the price at which power may be sold from certain generating units and we may be required to expand our transmission system according to decisions made by the RTO rather than our internal planning process.  While RTO transmission rates were initially designed to be revenue neutral, various proposals and proceedings currently taking place at FERC may cause transmission rates to change from time to time.  In addition, developing rules associated with the allocation and methodology of assigning costs associated with improved transmission reliability, reduced transmission congestion and firm transmission rights may have a financial impact on us.  While the impact of the capacity market and other RTO developments on us at any given time will depend on a variety of factors, including the market behavior of various participants, our results of operations, financial condition and cash flows could be materially adversely affected.  Future capacity auction results will be dependent not only on the overall supply and demand of generation and load, but also by congestion and PJM’s business rules relating to bidding for Demand Response and Energy Efficiency resources in the auctions.  The PJM RPM base residual auction for the 2012/2013 period cleared at a per megawatt price of $16/day for our RTO area.  Prior to this auction, the per megawatt price for the 2011/2012 period was $110/day.  We cannot predict the outcome of future auctions, but if the current auction price is sustained or there is continued volatility in the auction market, our results of operations, financial condition and cash flows could be materially adversely affected.

SB 221 includes a provision that allows electric utilities to seek and obtain deferral and recovery of RTO related charges.  If in the future, however, we are unable to defer or recover all of these cost in a timely manner, it could have a material adverse effect on our results of operations, financial condition and cash flows.

As members of PJM, DP&L and DPLE are subject to certain additional risks including those associated with the allocation among PJM members of losses caused by unreimbursed defaults of other participants in PJM markets and those associated with complaint cases filed against PJM that may seek refunds of revenues previously earned by PJM members including DP&L and DPLE.  These amounts could be significant and have a material adverse effect on our results of operations, financial condition and cash flows.

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PJM Infrastructure Risks

Annually, PJM performs a review of the capital additions required to provide reliable electric transmission services throughout its territory.  PJM traditionally allocated the costs of constructing these facilities to those entities that benefited directly from the additions.  On April 19, 2007, the FERC issued an order that modified the traditional method of allocating costs associated with new high voltage planned transmission facilities.  FERC ordered that the cost of new high-voltage facilities be socialized across the PJM region.  The costs of the new facilities at lower voltages will continue to be assigned to the load centers that benefit from the new facilities.  With respect to the socialization of new high voltage facilities, DP&L filed a notice of appeal to the U.S. Court of Appeals, D.C. Circuit on March 18, 2008 challenging the allocation method.  The appeal was consolidated with other appeals taken by other petitioners of the same FERC Orders and the consolidated cases were assigned to the 7th Circuit.  On August 6, 2009, the 7th Circuit ruled that the FERC had failed to provide a reasoned basis for the allocation method for new high voltage facilities that it had approved.  Subsequently, the 7th Circuit denied other petitioners’ rehearing requests and remanded the case to the FERC for further proceedings.  Until such time as FERC may act to approve a change in methodology, PJM will continue to apply the allocation methodology that had been approved by FERC in 2007. At this time, DP&L is unable to predict the outcome of this matter.  The overall impact of FERC’s allocation methodology cannot be definitively assessed at this time because not all new planned construction is likely to happen.  The additional costs allocated to DP&L for new large transmission approved projects were immaterial in 2009 and are not expected to be material in 2010, but could rise to approximately $12 million or more annually by 2012.  DP&L sought and obtained PUCO authority to defer and recover costs associated with these new high-voltage transmission projects through retail rates. However, if in the future we are unable to defer or recover these costs, it could have a material adverse effect on our results of operations, financial condition and cash flows.

Credit and Capital Markets

From time to time we rely on access to the credit and capital markets to fund certain of our operational and capital costs.  These capital and credit markets have experienced extreme volatility and disruption and the ability of corporations to obtain funds through the issuance of debt or equity has been negatively impacted.  Disruptions in the credit and capital markets make it harder and more expensive to obtain funding for our business.  Access to funds under our existing financing arrangements is also dependent on the ability of our counterparties to meet their financing commitments.  Our inability to obtain financing on reasonable terms, or at all, with creditworthy counterparties could adversely affect our results of operations, financial condition and cash flows.  If our available funding is limited or we are forced to fund our operations at a higher cost, these conditions may require us to curtail our business activities and increase our cost of funding, both of which could reduce our profitability.  DP&L’s variable rate debt bears interest based on a prevailing rate that is reset weekly based on a market index that can be affected by market demand, supply, market interest rates and other market conditions.  We also currently maintain both cash on deposit and investments in cash equivalents that could be adversely affected by interest rate fluctuations.  In addition, select debt of DPL and DP&L is currently rated investment grade by various rating agencies.  If the rating agencies were to rate DPL and DP&L below investment grade, our borrowing costs would increase, we would likely be required to pay a higher interest rate under certain existing and future financings and our potential pool of investors and funding sources would likely decrease.  Our credit ratings also govern the collateral provisions of certain of our contracts, and a below investment grade credit rating by one of the rating agencies could require us to post cash collateral under these contracts.  These events would likely reduce our liquidity and profitability and could have a material adverse effect on our results of operations, financial condition and cash flows.

Value and Funding of Benefit Plan Assets

The performance of the capital markets affects the values of the assets that are held in trust to satisfy future obligations under our pension and postretirement benefit plans.  These assets are subject to market fluctuations and will yield uncertain returns, which may fall below our projected return rates.  A decline in the market value of the pension and postretirement benefit plan assets will increase the funding requirements under our pension and postretirement benefit plans if the actual asset returns do not recover these declines in value in the foreseeable future.  Future pension funding requirements, and the timing of funding payments, may also be subject to changes in legislation.  The Pension Protection Act, enacted in August 2006, requires underfunded pension plans to improve their funding ratios within prescribed intervals based on the level of their underfunding.  As a result, our required contributions to these plans may increase in the future.  In addition, our pension and postretirement benefit plan liabilities are sensitive to changes in interest rates.  As interest rates decrease, the liabilities increase, potentially increasing benefit expense and funding requirements.  Further, changes in demographics, including increased numbers of retirements or changes in life expectancy assumptions, may also increase the funding requirements of the obligations related to the pension and other postretirement benefit plans.  Declines in market values and increased funding requirements could have a material adverse effect on our results of operations, financial condition and cash flows.

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Reliance on Third Parties

We enter into transactions with and rely on many counterparties in connection with our business, including for the purchase and delivery of inventory, which includes fuel and equipment components (such as limestone for our FGD equipment), for our capital improvements and additions and to provide professional services, such as actuarial calculations, payroll processing and various consulting services.  If any of these counterparties fails to perform its obligations to us or becomes unavailable, our business plans may be materially disrupted, we may be forced to discontinue certain operations if a cost-effective alternative is not readily available or we may be forced to enter into alternative arrangements at then-current market prices that may exceed our contractual prices and cause delays.  These events could cause our results of operations, financial condition and cash flows to be materially adversely affected.

Our Stock Price May Fluctuate

The market price of DPL’s common stock has fluctuated over a relatively wide range.  Over the past three years, the market price of our common stock has fluctuated with a low of $19.16 and a high of $31.91.  Our common stock in recent years has experienced significant price and volume variations that have often been unrelated to our operating performance.  Over the previous year, the global markets have increasingly been characterized by substantially increased volatility in companies in a number of industries and in the broader markets.  The market price of our common stock may continue to significantly fluctuate in the future and may be affected adversely by factors such as actual or anticipated change in our operating results, acquisition activity, changes in financial estimates by securities analysts, general market conditions, rumors and other factors, which factors may increase price volatility and be exacerbated by continued disruption in the global markets at large.

Economic Conditions and Markets

Economic pressures, as well as changing market conditions and other factors related to physical energy and financial trading activities, which include price, credit, liquidity, volatility, capacity, transmission and interest rates, can have a significant effect on our operations and the operations of our retail, industrial and commercial customers and our suppliers.  The direction and relative strength of the global economy has been increasingly uncertain due to softness in the real estate and mortgage markets, volatility in fuel and other energy costs, difficulties in the financial services sector and credit markets, increased unemployment and other factors.  Many of these factors have disproportionately impacted our Ohio service territory.

Our results of operations, financial condition and cash flows may be negatively affected by sustained downturns or a sluggish economy.  Sustained downturns, recession or a sluggish economy generally affect the markets in which we operate and negatively influence our energy operations.  A contracting, slow or sluggish economy could reduce the demand for energy in areas in which we are doing business.  During economic downturns, our commercial and industrial customers may see a decrease in demand for their products, which in turn may lead to a decrease in the amount of energy they require.  In addition, our customers’ ability to pay us could also be impaired, which could result in an increase in receivables and write-offs of uncollectible accounts.  Our suppliers could also be affected by the economic downturn resulting in supply delays or unavailability.  Reduced demand for our electric services, failure by our customers to timely remit full payment owed to us and supply delays or unavailability could have a material adverse effect on our results of operations, financial condition and cash flows.

Warrant Exercise

DPL’s warrant holders can exercise their warrants to purchase shares of DPL common stock at their discretion until March 12, 2012.  As of the date of this report, the number of outstanding warrants is 1.8 million.  As a result, DPL could be required to issue up to 1.8 million common shares in exchange for the receipt of the exercise price of $21.00 per share or pursuant to a cashless exercise process.  The exercise of warrants would increase the number of common shares outstanding and increase our common share dividend costs, thus affecting any existing guidance on EPS and adversely affecting our financial condition and cash flows.

Internal Controls and Information Reporting

Our internal controls, accounting policies and practices and internal information systems are designed to enable us to capture and process transactions and information in a timely and accurate manner in compliance with GAAP in the United States of America, laws and regulations, taxation requirements and federal securities laws and regulations in order to, among other things, disclose and report financial and other information in connection with the recovery of our costs and with our reporting requirements under federal securities, tax and other laws and regulations and to properly process payments.  We have implemented corporate governance, internal control and accounting policies and procedures in connection with the Sarbanes-Oxley Act of 2002 (the “Act”).  Our internal controls and policies have been and continue to be closely monitored by management and our Board of Directors to ensure continued compliance with Section 404 of the Act. 

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While we believe these controls, policies, practices and systems are adequate to verify data integrity, unanticipated and unauthorized actions of employees, temporary lapses in internal controls due to shortfalls in oversight or resource constraints could lead to improprieties and undetected errors that could result in the disallowance of cost recovery, noncompliant disclosure and reporting or incorrect payment processing.  The consequences of these events could have a material adverse effect on our results of operations, financial condition and cash flows.

Accounting Standards

Our Consolidated Financial Statements are prepared in accordance with accounting principles generally accepted in the United States of America.  The SEC, FASB or other authoritative bodies or governmental entities may issue new pronouncements or new interpretations of existing accounting standards that may require us to change our accounting policies.  These changes are beyond our control, can be difficult to predict and could materially impact how we report our results of operations, financial condition and cash flows.  We could be required to apply a new or revised standard retroactively, which could adversely affect our financial position.  In addition, in preparing our Consolidated Financial Statements, management is required to make estimates and assumptions.  Actual results could differ significantly from those estimates.

The SEC has issued a roadmap for the transition by U.S. public companies to the use of International Financial Reporting Standards (IFRS) promulgated by the International Accounting Standards Board. Under the SEC’s proposed roadmap, we could be required to prepare financial statements in accordance with IFRS in 2014.  The SEC expects to make a determination in 2011 regarding the mandatory adoption of IFRS.  We are currently assessing the impact that this potential change would have on our Consolidated Financial Statements and we will continue to monitor the development of the potential implementation of IFRS.

Qualified and Properly Motivated Workforce

One of the challenges we face is to retain a skilled, efficient and cost-effective workforce while recruiting new talent to replace losses in knowledge and skills due to retirements.  This undertaking could require us to make additional financial commitments and incur increased costs.  If we are unable to successfully attract and retain an appropriately qualified workforce, our results of operations, financial condition and cash flows could be materially adversely affected.  In addition, we have employee compensation plans that reward the performance of our employees.  While we seek to ensure that our compensation plans encourage acceptable levels for risk and high performance through pay mix, performance metrics and timing, and although we have policies and procedures in place to mitigate excessive risk-taking by employees, excessive risk-taking by our employees to achieve performance targets could result in events that could have a material adverse effect on our results of operations, financial condition and cash flows.

Collective Bargaining Agreements and Employee Relations

Over half of our employees are represented by a collective bargaining agreement that is in effect until October 31, 2011.  While we believe that we maintain a satisfactory relationship with our employees, it is possible that labor disruptions affecting some or all of our operations could occur during the period of the bargaining agreement or at the expiration of the collective bargaining agreement before a new agreement is negotiated.  Work stoppages by, or poor relations or ineffective negotiations with, our employees could have a material adverse effect on our results of operations, financial condition and cash flows.

Cyber Security and Terrorism

Man-made problems such as computer viruses, terrorism, theft and sabotage, may disrupt our operations and harm our operating results.  We operate in a highly regulated industry that requires the continued operation of sophisticated information technology systems and network infrastructure.  Despite our implementation of security measures, all of our technology systems are vulnerable to disability, failures or unauthorized access due to hacking, viruses, acts of war or terrorism and other causes.  If our technology systems were to fail or be breached and we were unable to recover in a timely way, we would be unable to fulfill critical business functions and sensitive confidential and other data could be compromised, which could have a material adverse effect on our results of operations, financial condition and cash flows.  In addition, our generation plants, fuel storage facilities, transmission and distribution facilities may be targets of terrorist activities that could disrupt our ability to produce or distribute some portion of our energy products.  Any such disruption could result in a material decrease in revenues and significant additional costs to repair and insure our assets, which could have a material adverse effect on our results of operations, financial condition and cash flows.  The continued threat of terrorism and heightened security and military action in response to this threat, or any future acts of terrorism, may cause further disruptions to the economies of the United States and other countries and create further uncertainties or otherwise materially harm our results of operations, financial condition and cash flows.

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DPL as Holding Company

DPL is a holding company and its investments in its subsidiaries are its primary assets.  Substantially all of DPL’s business is conducted by its DP&L subsidiary.  As such, DPL’s cash flow is dependent on the operating cash flows of DP&L and its ability to pay cash to DPL.  DP&L’s governing documents contain certain limitations on the ability to declare and pay dividends to DPL while preferred stock is outstanding.  Certain of DP&L’s debt agreements also contain limits with respect to the ability of DP&L to loan or advance funds to DPL.  In addition, DP&L is regulated by the PUCO that possesses broad oversight powers to ensure that the needs of utility customers are being met.  While we are not currently aware of any plans to do so, the PUCO could attempt to impose restrictions on the ability of DP&L to pay cash to DPL pursuant to these broad powers.  While we do not expect any foregoing restrictions to significantly affect DP&L’s ability to pay funds to DPL in the future, a significant limitation on DP&L’s ability to pay dividends or loan or advance funds to DPL would materially adversely affect DPL’s results of operations, financial condition and cash flows.

Item 1B – Unresolved Staff Comments

None

Item 2 – Properties

Information relating to our properties is contained in Item 1 – ELECTRIC OPERATIONS AND FUEL SUPPLY and Note 4 of Notes to Consolidated Financial Statements.

Substantially all property and plants of DP&L are subject to the lien of the mortgage securing DP&L’s First and Refunding Mortgage, dated as of October 1, 1935 with the Bank of New York, as Trustee (Mortgage).

Item 3 - Legal Proceedings

In the normal course of business, we are subject to various lawsuits, actions, proceedings, claims and other matters asserted under laws and regulations.  We are also from time to time involved in other reviews, investigations and proceedings by governmental and regulatory agencies regarding our business, certain of which may result in adverse judgments, settlements, fines, penalties, injunctions or other relief.  We believe the amounts provided in our Consolidated Financial Statements, as prescribed by GAAP, for these matters are adequate in light of the probable and estimable contingencies.  However, there can be no assurances that the actual amounts required to satisfy alleged liabilities from various legal proceedings, claims and other matters (including those matters noted below) and to comply with applicable laws and regulations will not exceed the amounts reflected in our Consolidated Financial Statements.  As such, costs, if any, that may be incurred in excess of those amounts provided as of December 31, 2009, cannot be reasonably determined.

The information about the legal and other proceedings contained in Item 1 – COMPETITION AND REGULATION under the heading “Ohio Retail Rates” and in Item 8 – Note 19 of Notes to Consolidated Financial Statements of this report under the headings “Governmental and Regulatory Inquiries”, “Air Quality – Litigation Involving Co-Owned Plants”, “Air Quality – Notices of Violation Involving Co-Owned Plants”, “Air Quality – Notices of Violation Involving Wholly-Owned Plants”, “Land Use and Solid Waste Disposal” and “Legal and Other Matters” is incorporated by reference into this Item.

Item 4 - Submission of Matters to a Vote of Security Holders

NONE

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PART II

Item 5 – Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

As of February 10, 2010, there were 20,798 holders of record of DPL common equity, excluding individual participants in security position listings.  The following table presents the high and low per share sales prices for DPL common stock as reported by the New York Stock Exchange for each quarter of 2009 and 2008:

	2009				2008
	High		Low		High		Low
First Quarter	$	23.28	$	19.27	$	30.18	$	24.58
Second Quarter	$	23.46	$	21.18	$	28.70	$	26.10
Third Quarter	$	26.53	$	22.79	$	26.76	$	23.00
Fourth Quarter	$	28.68	$	25.16	$	24.59	$	19.16

DP&L’s common stock is held solely by DPL and, as a result, is not listed for trading on any stock exchange.

As long as DP&L 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 $1.2 million.  This dividend restriction has historically not impacted DP&L’s ability to pay cash dividends and, as of December 31, 2009, DP&L’s retained earnings of $640.3 million were all available for DP&L common stock dividends payable to DPL.

DPL paid regular quarterly cash dividends of $0.285 and $0.275 per share on our common stock during 2009 and 2008, respectively.  The annualized dividend rate was $1.14 per share in 2009 and $1.10 per share in 2008.

On December 9, 2009, DPL’s Board of Directors authorized a quarterly dividend rate increase of approximately 6%, increasing the quarterly dividend per DPL common share from $0.2850 to $0.3025, effective with the next dividend declaration.  If this dividend rate were maintained, the annualized dividend would increase from $1.14 per share to $1.21 per share.  Additional information concerning dividends paid on DPL common stock is set forth under Selected Quarterly Information in Item 8 — Financial Statements and Supplementary Data.

Information regarding DPL’s equity compensation plans as of December 31, 2009 is disclosed in Item 12 — Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters, which incorporates such information by reference from DPL’s proxy statement for the 2010 Annual Meeting of Shareholders.

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The following table details the repurchase by DPL of its common shares during 2009:

				Number of	Approximate dollar
				shares purchased	value of shares
	Number of	Average		as part of the	that could still be
	shares	price paid		Stock Repurchase	purchased under
Month (1)	purchased (2)	per share (3)		Program (4)	the program (4)
February	351	$	21.55	—	$	—
November	2,387,991	$	26.96	2,387,991	$	3,911,494
December	3,557	$	27.55	400	$	3,900,658
	2,391,899			2,388,391

(1) Based on a calendar month.

(2) Comprises shares purchased as part of DPL’s current repurchase program and shares surrendered to DPL by employees to satisfy individual tax withholding obligations upon vesting of previously issued shares of restricted common stock.  Shares totaling 3,508 were surrendered during 2009 to satisfy these individual tax withholding obligations.

(3) Average price paid per share reflects the individual trade price of repurchases under DPL’s current repurchase program as well as the closing price of DPL common stock on the vesting dates of the restricted shares.

(4) On October 28, 2009, the DPL Board of Directors approved, and DPL publicly announced, a Stock Repurchase Program under which DPL may use proceeds from the exercise of warrants to repurchase warrants or DPL common stock from time to time in the open market, through private transactions or otherwise.  Through December 31, 2009, the amount of such proceeds available to be used under the Stock Repurchase Program approximated $68.3 million, of which $64.4 million was used during the quarter ended December 31, 2009 to purchase approximately 2.4 million shares at an average per share price of $26.96.  At December 31, 2009, the amount still available that could be used to repurchase stock under the Stock Repurchase Program is approximately $3.9 million but could be higher if additional warrants are exercised for cash in the future.  The Stock Repurchase Program will run through June 30, 2012, which is approximately three months after the end of the warrant exercise period.

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The graph below matches DPL’s cumulative 5-year total shareholder return on common stock with the cumulative total returns of the Dow Jones US Industrial Average index, the S&P Utilities index and the S&P Electric Utilities index. The graph tracks the performance of a $1,000 investment in our common stock and in each index (with the reinvestment of all dividends) from December 31, 2004 to December 31, 2009.

*$1000 invested on 12/31/04 in stock or index, including reinvestment of dividends.

Fiscal year ending December 31.

Copyright© 2010 S&P, a division of The McGraw - -Hill Companies Inc. All rights reserved.

Copyright© 2010 Dow Jones & Co. All rights reserved.

	12/04		12/05		12/06		12/07		12/08		12/09
DPL Inc.	$	1,000.00	$	1,074.53	$	1,191.30	$	1,317.68	$	1,061.20	$	1,345.50
Dow Jones US Industrial Average	$	1,000.00	$	1,017.22	$	1,210.97	$	1,318.56	$	897.54	$	1,101.13
S&P Electric Utilities	$	1,000.00	$	1,176.57	$	1,449.66	$	1,784.80	$	1,323.70	$	1,368.40
S&P Utilities	$	1,000.00	$	1,168.41	$	1,413.66	$	1,687.61	$	1,198.53	$	1,341.26

The stock price performance included in this graph is not necessarily indicative of future stock price performance.

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Item 6 - Selected Financial Data

	For the years ended December 31,
($ in millions except per share amounts or as indicated)	2009			2008			2007			2006			2005
DPL
Basic earnings (loss) per share of common stock:
Continuing operations (a)	$	2.03		$	2.22		$	1.97		$	1.12		$	1.03
Discontinued operations (b)	$	—		$	—		$	0.09		$	0.12		$	0.44
Cumulative effect of accounting change (c)	$	—		$	—		$	—		$	—		$	(0.03	)
Total basic earnings per common share	$	2.03		$	2.22		$	2.06		$	1.24		$	1.44
Diluted earnings (loss) per share of common stock:
Continuing operations (a)	$	2.01		$	2.12		$	1.80		$	1.03		$	0.97
Discontinued operations (b)	$	—		$	—		$	0.08		$	0.12		$	0.41
Cumulative effect of accounting change (c)	$	—		$	—		$	—		$	—		$	(0.03	)
Total dilutive earnings per common share	$	2.01		$	2.12		$	1.88		$	1.15		$	1.35
Dividends declared per share	$	1.14		$	1.10		$	1.04		$	1.00		$	0.96
Dividend payout ratio	56.2		%	49.5		%	50.5		%	80.7		%	66.7		%
Total electric sales (millions of kWh)	16,667			17,172			18,598			18,418			17,906
Results of operations:
Revenues	$	1,588.9		$	1,601.6		$	1,515.7		$	1,393.5		$	1,284.9
Earnings from continuing operations, net of tax (a)	$	229.1		$	244.5		$	211.8		$	125.6		$	124.7
Earnings from discontinued operations, net of tax	$	—		$	—		$	10.0		$	14.0		$	52.9
Cumulative effect of accounting change, net of tax	$	—		$	—		$	—		$	—		$	(3.2	)
Net income	$	229.1		$	244.5		$	221.8		$	139.6		$	174.4
Financial position items at December 31:
Total assets	$	3,641.7		$	3,637.0		$	3,566.6		$	3,612.2		$	3,791.7
Long-term debt (d)	$	1,223.5		$	1,376.1		$	1,541.5		$	1,551.8		$	1,677.1
Total construction additions	$	145.3		$	227.8		$	346.7		$	351.6		$	179.7
Redeemable preferred stock of subsidiary	$	22.9		$	22.9		$	22.9		$	22.9		$	22.9
Senior unsecured debt ratings at December 31:
Fitch Ratings	A-			BBB+			BBB+			BBB			BBB-
Moody’s Investors Service	Baa1			Baa2			Baa2			Baa3			Ba1
Standard & Poor’s Corporation	BBB+			BBB-			BBB-			BB			BB-
Number of shareholders - common stock	20,888			21,628			22,771			24,434			26,601
DP&L
Total electric sales (millions of kWh)	16,590			17,105			18,598			18,418			17,906
Results of operations:
Revenues	$	1,550.4		$	1,572.9		$	1,507.4		$	1,385.2		$	1,276.9
Earnings on common stock (a)	$	258.0		$	284.9		$	270.7		$	241.6		$	210.9
Financial position items at December 31:
Total assets	$	3,457.4		$	3,397.7		$	3,276.7		$	3,090.3		$	2,738.6
Long-term debt (d)	$	783.7		$	884.0		$	874.6		$	785.2		$	685.9
Redeemable preferred stock of subsidiary	$	22.9		$	22.9		$	22.9		$	22.9		$	22.9
Senior secured debt ratings at December 31:
Fitch Ratings	AA-			A+			A+			A			A-
Moody’s Investors Service	Aa3			A2			A2			A3			Baa1
Standard & Poor’s Corporation	A			A-			BBB+			BBB			BBB-
Number of shareholders - preferred stock	242			256			281			290			329

(a)In the fourth quarter of 2006, DPL entered into agreements to sell two of its peaking facilities resulting in a $44.2 million ($71 million pre-tax) impairment charge.  The sale was finalized in April 2007.  During 2006, DPL recorded a $37.3 million ($61.2 million pre-tax) charge for early redemption of debt.  DP&L recorded a $2.5 million ($4.1 million pre-tax) charge for early redemption of debt in 2006.  In May 2007, DPL settled the litigation with former executives resulting in a $19.7 million ($31 million pre-tax) gain.  In April 2007, DPL also recouped legal costs associated with the litigation with the former executives from one of its insurers resulting in a $9.2 million ($14.5 million pre-tax) gain.  In 2008, DPL sold coal and excess emission allowances to various counterparties, realizing net gains of $58.2 million ($83.4 million pre-tax) and $24.3 million ($34.8 million pre-tax), respectively.  Also, in June 2008, DPL entered into a $42 million tax settlement with ODT resulting in a recorded income tax benefit of $8.5 million.

(b)On February 13, 2005, DPL’s subsidiaries, MVE, Inc. (MVE) and MVIC, entered into an agreement to sell their respective interest in forty-six private equity funds. MVE and MVIC completed the sale of forty-three funds and a portion of another during 2005. The ownership interests to the remaining two funds and a portion of the third fund were transferred in 2006 and 2007, at which time DPL recognized previously deferred gains.  See Note 6 of the Notes to Consolidated Financial Statements.

(c)In 2005, we recorded a cumulative effect of an accounting change related to an additional obligation in response to the provisions of GAAP relating to the accounting for AROs.

(d)Excludes current maturities of long-term debt.

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Item 7 - Management’s Discussion and Analysis of Financial Condition and Results of Operations

This report includes the combined filing of DPL Inc. (DPL) and The Dayton Power and Light Company (DP&L).  DP&L is the principal subsidiary of DPL providing approximately 98% of DPL’s total consolidated revenue and approximately 95% of DPL’s total consolidated asset base.  Throughout this report, the terms “we,” “us,” “our” and “ours” are used to refer to both DPL and DP&L, respectively and altogether, unless the context indicates otherwise.  Discussions or areas of this report that apply only to DPL or DP&L will clearly be noted in the section.

Certain statements contained in this discussion are “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995.  Matters discussed in this report that relate to events or developments that are expected to occur in the future, including management’s expectations, strategic objectives, business prospects, anticipated economic performance and financial condition and other similar matters constitute forward-looking statements.  Forward-looking statements are based on management’s beliefs, assumptions and expectations of future economic performance, taking into account the information currently available to management.  These statements are not statements of historical fact and are typically identified by terms and phrases such as “anticipate,” “believe,” “intend,” “estimate,” “expect,” “continue,” “should,” “could,” “may,” “plan,” “project,” “predict,” “will” and similar expressions.  Such forward-looking statements are subject to risks and uncertainties, and investors are cautioned that outcomes and results may vary materially from those projected due to various factors beyond our control, including but not limited to: abnormal or severe weather and catastrophic weather-related damage; unusual maintenance or repair requirements; changes in fuel costs and purchased power, coal, environmental emissions, natural gas and other commodity prices; volatility and changes in markets for electricity and other energy-related commodities; performance of our suppliers; increased competition and deregulation in the electric utility industry; increased competition in the retail generation market; changes in interest rates; state, federal and foreign legislative and regulatory initiatives that affect cost and investment recovery, emission levels, rate structures or tax laws; changes in federal or state environmental laws and regulations to which DPL and its subsidiaries are subject; the development and operation of RTOs, including PJM to which DPL’s operating subsidiary (DP&L) has given control of its transmission functions; changes in our purchasing processes, pricing, delays, contractor and supplier performance and availability; significant delays associated with large construction projects; growth in our service territory and changes in demand and demographic patterns; changes in accounting rules and the effect of accounting pronouncements issued periodically by accounting standard-setting bodies; financial market conditions; the outcomes of litigation and regulatory investigations, proceedings or inquiries; general economic conditions; and the risks and other factors discussed in this report and other DPL and DP&L filings with the SEC.

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

The following discussion should be read in conjunction with the accompanying Consolidated Financial Statements and related footnotes included in Item 8 – Financial Statements and Supplementary Data.

BUSINESS OVERVIEW

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

We operate and manage generation assets and are exposed to a number of risks.  These risks include but are not limited to electricity wholesale price risk, fuel supply and price risk and power plant performance.  We attempt to manage these risks through various means.  For instance, we operate a portfolio of wholly-owned and jointly-owned generation assets that is diversified as to coal source, cost structure and operating characteristics.  We are focused on the operating efficiency of these power plants and maintaining their availability.

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We operate and manage transmission and distribution assets in a rate-regulated environment.  Accordingly, this subjects us to regulatory risk in terms of the costs that we may recover and the investment returns that we may collect in customer rates.  We are focused on delivering electricity and maintaining high standards of customer service and reliability in a cost-effective manner.

As we look forward, there are a number of issues that we believe may have a significant impact on our business and operations described above.  The following issues mentioned below are not meant to be exhaustive but to provide insight to matters that have or are likely to have an effect on our industry and business:

REGULATORY ENVIRONMENT

·Emissions – Climate Change Legislation

There is a growing concern nationally and internationally about global climate change and the contribution of emissions of GHGs, including most significantly, CO2.  This concern has led to increased interest in legislation at the federal level, actions at the state level as well as litigation relating to GHG emissions.  In 2007, a U.S. Supreme Court decision upheld that the USEPA has the authority to regulate CO2 emissions from motor vehicles under the CAA.  In April 2009, the USEPA issued a proposed endangerment finding under the CAA, which was finalized and published December 15, 2009.  The proposed finding determined that CO2 and other GHGs from motor vehicles threaten the health and welfare of future generations by contributing to climate change.  It is anticipated that this ruling will lead to the regulation of CO2 and other GHGs from electric generating units and other stationary sources of these emissions.  In June 2009, the U.S. House of Representatives passed H.R. 2454, the American Clean Energy and Security Act (ACES).  This proposed legislation targets a reduction in the emission of GHGs from large sources by 80% in 2050 through an economy-wide cap and trade program.  ACES also includes energy efficiency and renewable energy initiatives.  Increased pressure for CO2 emissions reduction is also coming from investor organizations and the international community.  Environmental advocacy groups are also focusing considerable attention on CO2 emissions from power generation facilities and their potential role in climate change.  Approximately 99% of the energy we produce is generated by coal.  DP&L’s share of CO2 emissions at generating stations we own and co-own is approximately 16 million tons annually.  If legislation or regulations are passed at the federal or state levels that impose mandatory reductions of CO2 and other GHGs on generation facilities, the cost to DPL and DP&L of such reductions could be material.

·SB 221 Requirements

SB 221 and the implementation rules contain targets relating to advanced energy portfolio standards, renewable energy, demand reduction and energy efficiency standards.  The standards require that, by the year 2025, 25% of the total number of kWh of electricity sold by the utility to retail electric consumers must come from alternative energy resources, which include “advanced energy resources” such as distributed generation, clean coal, advanced nuclear, energy efficiency and fuel cell technology; and “renewable energy resources” such as solar, hydro, wind, geothermal and biomass.  At least half of the 25% must be generated from renewable energy resources, including 0.5% from solar energy.  The renewable energy portfolio, energy efficiency and demand reduction standards began in 2009 with increases in required percentages each year.  The annual targets for energy efficiency and peak demand reductions began in 2009 with annual increases.  Energy efficiency programs are to save 22.3% by 2025 and peak demand reductions are expected to reach 7.75% by 2018 compared to a baseline energy usage.  If any targets are not met, compliance penalties will apply, unless the PUCO makes certain findings that would excuse performance.

SB 221 also contains provisions for determining whether an electric utility has significantly excessive earnings.  On September 9, 2009, the PUCO issued an entry establishing a significantly excessive earnings test (SEET) proceeding.  A workshop was held at the Commission offices on October 5, 2009 to allow interested parties to present concerns and discuss issues related to the methodology.  On November 18, 2009 the PUCO Staff issued its recommendations to the Commission.  Staff recommendations provided that off-system or wholesale sales should be included in the calculation, and that some threshold should be established based on a group of comparable companies that would determine if the utility had significantly excessive earnings in a given year.  DP&L filed its comments and reply comments along with other interested parties.  Although DP&L’s Stipulation provides that the SEET does not apply to DP&L until 2013 based on 2012 earnings results, DP&L is actively participating in this proceeding.

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

On July 11, 2008, the United States Court of Appeals for the District of Columbia Circuit issued a decision that vacated the USEPA CAIR and its associated Federal Implementation Plan. This decision remanded these issues back to the USEPA.  The USEPA issued CAIR on March 10, 2005 to regulate certain upwind states with respect to fine particulate matter and ozone.  CAIR created interstate trading programs for annual NOx emission allowances and made modifications to an existing trading program for SO2 that were to take effect in 2010. 

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The court’s decision, in part, invalidated the new NOx annual emission allowance trading program and the modifications to the SO2 emission trading program, and created uncertainty regarding future NOx and SO2 emission reduction requirements and their timing.  On December 23, 2008, the court reversed part of its decision that vacated CAIR.  Thus, CAIR currently remains in effect, but the USEPA remains subject to the court’s order to revise the program.  In January 2010, the Court ordered the USEPA to file a response to a Petition for Mandamus filed by parties in the original case who are now seeking a Court order to require the USEPA to issue new regulations by March 1, 2010.  We cannot at this time predict the timing or the outcome of any new regulations in relation to CAIR.  CAIR has and will continue to have a material effect on our operations.

In the fourth quarter of 2007, DP&L began a program for selling excess emission allowances, including annual NOx emission allowances and SO2 emission allowances that were the subject of CAIR trading programs.  In subsequent quarters, DP&L recognized gains from the sale of excess emission allowances to third parties.  The court’s CAIR decision has affected the trading market for excess allowances and impacted DP&L’s program for selling additional excess allowances.  The overall impact of the court’s decision, and of the actions the USEPA or others will take in response to this decision, on DPL and DP&L is not fully known at this time and could have an adverse effect on us.  In January 2009, we resumed selling excess emission allowances due to the revival of the trading market.

COMPETITION AND PJM PRICING

·RPM Capacity Auction Price

The PJM RPM base residual auction for the 2012/2013 period cleared at a per megawatt price of $16/day for our RTO area.  Prior to this auction, the per megawatt price for the 2011/2012 period was $110/day.  Future RPM auction results will be dependent not only on the overall supply and demand of generation and load, but may also be impacted by congestion as well as PJM’s business rules relating to bidding for Demand Response and Energy Efficiency resources in the RPM auctions.  We cannot predict the outcome of future auctions but if the current auction price is sustained, our future results of operations, financial condition and cash flows could be adversely impacted.

·Ohio Competitive Considerations and Proceedings

Overall power market prices, as well as government aggregation initiatives, could lead to the entrance of competitors in our marketplace, affecting our results of operations, financial condition or cash flows.  During the year ended December 31, 2009, two additional unaffiliated marketers registered as CRES providers in DP&L’s service territory, bringing to six the total number of unaffiliated CRES providers in DP&L’s service territory.  While there has been some customer switching associated with unaffiliated marketers, it represented less than 0.11% of sales in 2009.  DPLER, an affiliated company, is also a registered CRES provider and accounted for 99% of the total kWh supplied by CRES providers within DP&L’s service territory in 2009.  During the first quarter of 2010, DPLER will begin providing CRES services to business customers in Ohio who are not in DP&L’s service territory.  At this time, we do not expect the incremental costs and revenues to have a material impact on our results of operations, financial position or cash flows.  We currently cannot determine the extent to which customer switching to unaffiliated CRES providers will occur in the future and the impact this will have on our operations.  In 2003-2004, several communities in DP&L’s service area passed ordinances allowing the communities to become government aggregators for the purpose of offering alternative electric generation supplies to their citizens.  To date, none of these communities have aggregated their generation load.

FUEL AND RELATED COSTS

·Fuel and Commodity Prices

During 2009 and 2008, the coal market experienced significant price volatility.  We are now in a global market for coal in which our domestic price is increasingly affected by international supply disruptions and demand balance.  Coal exports from the U.S. have increased significantly in recent years.  In addition, domestic issues like government-imposed direct costs and permitting issues are affecting mining costs and supply availability.  Our approach is to hedge the fuel costs for our anticipated electric sales.  For the year ending December 31, 2010, we have hedged our coal requirements to meet our committed sales.  We may not be able to hedge the entire exposure of our operations from commodity price volatility.  To the extent our suppliers do not meet their contractual commitments or we are not hedged against price volatility, our results of operations, financial position or cash flows could be materially affected.  Beginning in January 2010, the Ohio retail jurisdictional share of fuel price changes will be reflected in the operation of the fuel rider, subject to PUCO review.

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·Sales of Coal and Excess Emission Allowances

During 2009, DP&L sold coal and excess emission allowances to various counterparties realizing total net gains of $56.3 million and $5.0 million, respectively.  These gains are recorded as a component of DP&L’s fuel costs and reflected in operating income.  Coal sales are impacted by a range of factors but can be largely attributed to the following: variation in power demand, the market price of power compared to the cost to produce power, as well as optimization opportunities in the coal market.  Sales of excess emission allowances are impacted, among other factors, by: general economic conditions; fluctuations in market demand and pricing; availability of excess inventory available for sale; and changes to the regulatory environment in which we operate.  The combined impact of these factors on our ability to sell coal and emission allowances in 2010 and beyond is not fully known at this time and could materially impact the amount of gains that will be recognized in the future.  In addition, beginning in January 2010 as part of the operation of the fuel rider, the Ohio retail jurisdictional share of the emission gains and a portion of the Ohio jurisdictional share of the coal gains will be used to reduce the overall rate charged to customers.

FINANCIAL OVERVIEW

The following financial overview relates to DPL, which includes its principal subsidiary DP&L.  The results of operations for both DPL and DP&L are separately discussed in more detail following this financial overview.

For the year ended December 31, 2009, Net income for DPL was $229.1 million, or $2.01 per share, compared to Net income of $244.5 million, or $2.12 per share, for the same period in 2008.  All EPS amounts are on a diluted share basis.  The decrease in net income compared to the prior year was primarily due to the following:

·a decrease in retail sales volume due to the impacts of the economic slowdown and milder weather throughout the year,

·a decrease in wholesale power sales prices,

·a decrease in gains recognized from the sale of coal,

·a decrease in gains recognized from the sale of excess emission allowances,

·an increase in the cost of fuel due to the increased volume of generation by our power plants and higher average fuel costs, particularly for coal, and

·an increase in pension and employee benefit related costs.

Partially offsetting these items were:

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

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

·a decrease in power purchase prices and

·a net reduction in interest costs primarily as a result of certain outstanding debt redemptions.

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RESULTS OF OPERATIONS – DPL Inc.

DPL’s results of operations include the results of its subsidiaries, including the consolidated results of its principal subsidiary DP&L.  DP&L provides approximately 98% of the total revenues of DPL.  All material intercompany accounts and transactions have been eliminated in consolidation.  A separate specific discussion of the results of operations for DP&L is presented elsewhere in this report.

Income Statement Highlights – DPL

	For the years ended December 31,
$ in millions	2009			2008			2007
Revenues:
Retail	$	1,229.0		$	1,223.3		$	1,206.2
Wholesale	122.5			149.9			180.3
RTO revenues	89.4			110.4			87.4
RTO capacity revenues	136.3			106.9			30.9
Other revenues	11.7			11.1			10.9
Total revenues	$	1,588.9		$	1,601.6		$	1,515.7
Cost of revenues:
Fuel costs	$	391.7		$	361.2		$	330.0
Gains from sale of coal	(56.3		)	(83.4		)	(0.6		)
Gains from sale of emission allowances	(5.0		)	(34.8		)	(1.2		)
Net fuel	330.4			243.0			328.2
Purchased power	46.9			148.7			156.9
RTO charges	105.0			127.8			101.9
RTO capacity charges	131.8			100.9			28.4
Recovery / (Deferral) of RTO related charges, net	(23.5		)	—			—
Net purchased power	260.2			377.4			287.2
Total cost of revenues	$	590.6		$	620.4		$	615.4
Gross margins (a)	$	998.3		$	981.2		$	900.3
Gross margin as a percentage of revenues	62.8		%	61.3		%	59.4		%
Operating income	$	428.2		$	435.5		$	370.1
Basic earnings per share:
Continuing operations	$	2.03		$	2.22		$	1.97
Discontinued operations	—			—			0.09
Total basic	$	2.03		$	2.22		$	2.06
Diluted earnings per share:
Continuing operations	$	2.01		$	2.12		$	1.80
Discontinued operations	—			—			0.08
Total diluted	$	2.01		$	2.12		$	1.88

(a)For purposes of discussing operating results, we present and discuss gross margins. This format is useful to investors because it allows analysis and comparability of operating trends and includes the same information that is used by management to make decisions regarding our financial performance.

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DPL – Revenues

Retail customers, especially residential and commercial customers, consume more electricity on warmer and colder days.  Therefore, DPL’s retail sales volume is impacted by the number of heating and cooling degree days occurring during a year.  Since DPL plans to utilize its internal generating capacity to supply its retail customers’ needs first, increases in retail demand may decrease the volume of internal generation available to be sold in the wholesale market and vice versa.

The wholesale market covers a multi-state area and settles on an hourly basis throughout the year.  Factors impacting DPL’s wholesale sales volume each hour of the year include wholesale market prices; DPL’s retail demand; retail demand elsewhere throughout the entire wholesale market area; DPL and non-DPL plants’ availability to sell into the wholesale market and weather conditions across the multi-state region. DPL’s plan is to make wholesale sales when market prices allow for the economic operation of its generation facilities not being utilized to meet its retail demand or when margin opportunities exist between the wholesale sales and power purchase prices.

The following table provides a summary of changes in revenues from prior periods:

$ in millions	2009 vs. 2008			2008 vs. 2007
Retail
Rate	$	119.6		$	45.1
Volume	(113.5		)	(23.7		)
Other	(0.4		)	(4.3		)
Total retail change	$	5.7		$	17.1
Wholesale
Rate	$	(87.0	)	$	29.8
Volume	59.6			(60.2		)
Total wholesale change	$	(27.4	)	$	(30.4	)
RTO capacity and other
RTO capacity and other revenues	$	9.0		$	99.2
Total revenues change	$	(12.7	)	$	85.9

For the year ended December 31, 2009, Revenues decreased $12.7 million, or 1%, to $1,588.9 million from $1,601.6 million in the prior year.  This decrease was primarily the result of lower retail sales volume as well as decreased wholesale average prices, partially offset by higher average retail rates, increased wholesale sales volume and an increase in RTO capacity and other revenues.  The revenue components for the year ended December 31, 2009 are further discussed below:

·Retail revenues increased $5.7 million resulting primarily from an 11% increase in average retail rates due largely to the incremental effect of the recovery of costs under the third phase of the EIR combined with the implementation of the TCRR, RPM, Energy Efficiency and Alternative Energy riders, partially offset by a 9% decrease in sales volume driven largely by the effects of the economic recession and milder weather conditions.  The milder weather conditions saw heating and cooling degree days decrease by 4% and 14% to 5,561 days and 734 days, respectively.  As a result, retail revenues had a favorable $119.6 million price variance and an unfavorable $113.5 million sales volume variance.

·Wholesale revenues decreased $27.4 million primarily as a result of a 42% decrease in wholesale average prices partially offset by a 40% increase in sales volume, resulting in an unfavorable $87.0 million wholesale price variance and a favorable $59.6 million sales volume variance.

·RTO capacity and other revenues, consisting primarily of compensation for use of DPL’s transmission assets, regulation services, reactive supply and operating reserves as well as capacity payments under the RPM construct, increased $9.0 million compared to the same period in the prior year.  This increase was primarily the result of additional revenue of $29.4 million that was realized from the PJM capacity auction, partially offset by a decrease in PJM transmission and congestion revenues of $21.0 million.  Beginning June 1, 2009 when the TCRR and RPM rate riders became effective, the Ohio retail jurisdiction share of this change had no impact on net income.

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For the year ended December 31, 2008, Revenues increased $85.9 million, or 6%, to $1,601.6 million from $1,515.7 million in the prior year.  This increase was primarily the result of higher average rates for retail and wholesale sales as well as an increase in RTO capacity and other revenues, partially offset by lower retail and wholesale sales volumes.  The revenue components for the year ended December 31, 2008 are further discussed below:

·Retail revenues increased $17.1 million resulting primarily from a 4% increase in average retail rates due largely to the second phase of the EIR, partially offset by a 2% decrease in sales volume.  The decrease in retail sales volume was primarily a result of milder weather which caused cooling degree days to decrease by 26% to 853 days, combined with a 6% decrease in the volume of sales to industrial customers.  The lower sales volumes to industrial customers were driven largely by the downturn in the economy which severely affected the automotive and other related industries in the region resulting in plant closures and reduced production.  These decreases were partially offset by a 9% increase in heating degree days.

·Wholesale revenues decreased $30.4 million primarily as a result of a 33% decrease in sales volume due largely to unplanned outages, partially offset by a 25% increase in wholesale average rates, resulting in an unfavorable $60.2 million sales volume variance and a favorable $29.8 million wholesale price variance.

·RTO capacity and other revenues, consisting primarily of compensation for use of DPL’s transmission assets, regulation services, reactive supply and operating reserves as well as capacity payments under the RPM construct, increased $99.2 million compared to the prior year.  This increase primarily resulted from additional income realized from the PJM capacity auction and increased PJM transmission and congestion revenues.

DPL – Cost of Revenues

For the year ended December 31, 2009:

·Fuel costs, which include coal (net of gains on sales), gas, oil and emission allowances (net of gains on sales), increased $87.4 million, or 36%, compared to 2008, primarily due to the impact of lower gains realized from the sales of coal and excess emission allowances combined with a 7% increase in the usage of fuel due mainly to the improved performance of our generating facilities.  In 2009, DP&L realized $56.3 million and $5.0 million in gains from the sales of coal and excess emission allowances, respectively, compared to $83.4 million and $34.8 million, respectively, during 2008.  Also contributing to the increase in fuel costs was a 2% increase in the average cost of fuel consumed per kilowatt-hour largely resulting from higher market prices of coal combined with outages at lower-cost units.

·Purchased power decreased $117.2 million compared to 2008.  The net decrease in purchased power was due in part to lower volumes of purchased power and lower average market rates of $72.3 million and $29.5 million, respectively.  The improved performance of our generating facilities, as mentioned in the preceding paragraph, resulted in increased generation output and a reduced demand for higher-cost purchased power.  Also contributing to the decrease in purchased power were lower costs relating to other RTO charges as well as the net deferral during 2009 of costs relating to DP&L’s transmission, capacity and other PJM-related charges which were incurred as a member of PJM.  This deferral is discussed in greater detail in Note 3 of Notes to Consolidated Financial Statements.  These decreases were partially offset by increased RTO capacity charges.  We purchase power to satisfy retail sales volume when generating facilities are not available due to planned and unanticipated outages, or when market prices are below the marginal costs associated with our generating facilities.

For the year ended December 31, 2008:

·Fuel costs, which include coal (net of gains on sales), gas, oil, and emission allowances (net of gains on sales), decreased $85.2 million, or 26%, compared to 2007, primarily due to increases in net gains of $33.6 million from the sale of DP&L’s excess emission allowances and $82.8 million realized from the sale of DP&L’s coal combined with a decrease in the usage of fuel due mainly to a 6% decrease in generation output largely attributable to unplanned outages.  These decreases were partially offset by increased fuel prices.  The successful installation of FGD equipment at Miami Fort, Killen and J.M. Stuart stations has allowed us the ability to burn coal with a wide range of sulfur content and, accordingly, we purchase and sell coal as we seek to achieve optimum levels of production efficiency.  Gains or losses from sales of coal and emission allowances are recorded as components of fuel costs.

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·Purchased power costs increased $90.2 million, or 31%, compared to 2007.  The increase in purchased power primarily results from a $15.3 million increase relating to higher average market rates and a $98.4 million increase in RTO capacity and other RTO charges, partially offset by a $23.5 million decrease relating to lower volumes of purchased power.  We purchase power to satisfy retail sales volume when generating facilities are not available due to planned and unplanned outages, or when market prices are below the marginal costs associated with our generating facilities.

DPL - Operation and Maintenance

$ in millions	2009 vs. 2008
Pension	$	6.2
Low-income payment program (1)	6.1
Energy efficiency programs (1)	5.9
Deferred compensation	4.1
ESOP	3.3
Group insurance	3.2
Deferred 2004/2005 storm costs and PJM administrative fees	(4.0		)
Generating facilities operating and maintenance expenses	(1.4		)
Other, net	0.6
Total operation and maintenance expense	$	24.0

(1) There is a corresponding increase in revenues associated with these programs resulting in no impact to net income.

During the year ended December 31, 2009, Operation and maintenance expense increased $24.0 million, or 8%, compared to 2008.  This variance was primarily the result of:

·higher pension costs due largely to a decline in the values of pension plan assets from 2008 and increased benefit costs,

·increases in assistance for low-income retail customers which is funded by the USF revenue rate rider,

·expenses related to new energy efficiency programs put in place for our customers during 2009,

·increased deferred compensation costs,

·increases in employee benefit expense funded by the ESOP and

·increased health insurance costs that were partially related to higher disability reserves.

These increases were partially offset by:

·lower amortization of regulatory assets related to the 2004/2005 deferred storm costs and PJM administrative fees in 2009 as these deferred costs were fully recovered through rates during 2008 and in the first quarter of 2009, respectively, and

·decreases in expenses for generating facilities largely due to unplanned outages in 2008 at lower-cost production units resulting in higher costs in that year.  These decreases were partially offset by increased maintenance expenses associated with unplanned outages at jointly-owned production units during 2009.

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$ in millions	2008 vs. 2007
Legal costs	$	(17.6	)
Deferred compensation	(8.1		)
ESOP	(7.1		)
Pension	(2.4		)
Insurance settlement	14.5
Generating facilities operating expenses	11.1
Gain on sale of corporate aircraft	6.0
Turbine maintenance costs	4.1
Boiler maintenance costs	1.0
Other, net	(2.6		)
Total operation and maintenance expense	$	(1.1	)

During the year ended December 31, 2008, Operation and maintenance expense decreased $1.1 million, or less than 1%, as compared to 2007.  This variance was primarily due to:

·a decrease in legal costs due largely to the litigation settlement with three of our former executives in May 2007,

·a decrease in deferred compensation costs associated to a large degree with deferred compensation liabilities for the three former executives,

·a decrease in employee compensation expense associated with the ESOP due mainly to the additional shares that were released from the ESOP in 2007 and

·lower pension costs primarily due to the plan funding made in November 2007.

These decreases were partially offset by:

·the 2007 insurance settlement which reimbursed us for legal fees relating to the litigation with three former executives,

·an increase in operating expenses largely due to the operation of FGD and SCR equipment and related gypsum disposal,

·the gain on sale of the corporate aircraft realized in 2007 and

·an increase in turbine maintenance costs incurred due to an unplanned outage at a jointly-owned production unit.

DPL – Depreciation and Amortization

During the year ended December 31, 2009, Depreciation and amortization expense increased $7.8 million, or 6%, compared to 2008 primarily as a result of higher asset balances at the generating stations.  These higher balances were due largely to the completion of the FGD projects during 2008.

During the year ended December 31, 2008, Depreciation and amortization expense increased $2.9 million, or 2%, as compared to 2007.  This increase was primarily a result of higher plant balances due largely to the installation of the FGD equipment, partially offset by the impact of lower depreciation rates for generation property which were put into effect on August 1, 2007.

DPL – General Taxes

During the year ended December 31, 2009, General taxes decreased $7.4 million, or 6%, compared to 2008 primarily due to lower property tax accruals in 2009 compared to 2008 and lower kWh excise taxes resulting from lower retail sales volumes.

During the year ended December 31, 2008, General taxes increased $13.7 million, or 12%, as compared to 2007, primarily as a result of higher property taxes due mainly to capital improvements which have led to higher assessed property values, combined with increased tax rates.

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DPL – Investment Income (Loss)

During the year ended December 31, 2009, Investment income (loss) decreased $4.2 million, or 117%, as compared to 2008 primarily as a result of lower cash and short-term investment balances combined with overall lower market yields on investments in 2009.  In addition, we also recorded a $1.4 million expense during 2009 relating to a loss incurred by DPL Capital Trust II, a nonconsolidated wholly-owned subsidiary.

During the year ended December 31, 2008, Investment income (loss) decreased $7.7 million, or 68%, as compared to 2007.  This decrease was primarily the result of:

·$3.2 million of gains realized in 2007 from the sale of financial assets held in DP&L’s Master Trust Plan for deferred compensation which were used for the settlement payment to three former executives and

·lower cash and short-term investment balances combined with overall lower market yields on investments in 2008 compared to 2007.

DPL – Net Gain on Settlement of Executive Litigation

On May 21, 2007, we settled litigation with three former executives.  In exchange for our payment of $25 million, the three former executives relinquished and dismissed all of their claims, including those related to deferred compensation, RSUs, MVE incentives, stock options and legal fees.  As a result of this settlement, during 2007, DPL realized a net pre-tax gain in continuing operations of approximately $31.0 million.  See Note 17 of Notes to Consolidated Financial Statements.

DPL – Interest Expense

During the year ended December 31, 2009, Interest expense decreased $7.7 million, or 8%, compared to 2008 primarily due to:

·a $12.8 million reduction in Interest expense due to the redemption of DPL’s $175 million 8.00% Senior Notes and the $100 million 6.25% Senior Notes in March 2009 and May 2008, respectively,

·a $1.6 million write-off in 2008 of unamortized debt issuance costs relating to DP&L’s $90 million variable rate pollution control bonds following their repurchase from the bondholders in April 2008 and

·$2.0 million of deferred interest carrying costs on regulatory assets primarily associated with the 2008 incremental storm costs and the riders for RPM and TCRR.  These regulatory assets are further discussed in Note 3 of Notes to Consolidated Financial Statements.

The above decreases were partially offset by $6.4 million of lower capitalized interest in 2009 compared to 2008, due largely to the completion of the FGD projects at our DP&L and partner-operated generating stations, as well as a $3.7 million premium paid on the early redemption of a portion of DPL’s Note to DPL Capital Trust II which is due 2031.  In December 2009, DPL redeemed $52.4 million of this $195 million 8.125% note.  This redemption is further discussed in Note 7 of Notes to Consolidated Financial Statements.

During the year ended December 31, 2008, Interest expense increased $9.7 million, or 12%, as compared to 2007 primarily due to:

·$12.9 million of lower capitalized interest due to the completion of the FGD projects at Miami Fort, Killen and J.M. Stuart stations,

·the write-off of unamortized debt issuance costs amounting to $1.6 million relating to pollution control bonds following their repurchase from the bondholders in April 2008 and

·$0.9 million of additional interest expense associated with DP&L’s $90 million variable rate pollution control bonds issued November 15, 2007 and repurchased in April 2008.

These increases were partially offset by a $7.0 million interest expense reduction due to the redemption of the $225 million 8.25% Senior Notes in March 2007 and the $100 million 6.25% Senior Notes in May 2008.

DPL – Other Income (Deductions)

During the year ended December 31, 2009, there were no material fluctuations in the balances of Other income (deductions).

During the year ended December 31, 2008, other deductions of $1.0 million changed from other income of $2.9 million recorded in 2007.  The change from other income to other deductions primarily resulted from the recognition in 2007 of a $2.1 million deferred credit related to a litigation settlement (which was not part of the executive litigation settlement).

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DPL – Income Tax Expense

For the year ended December 31, 2009, Income tax expense increased $9.6 million, or 9%, compared to 2008, due to estimate to actual adjustments of 2008 taxes related to the Internal Revenue Code Section 199 deduction, adjustments to deferred tax liabilities and a 2008 settlement relating to the Ohio Franchise Tax.  These increases were partially offset by a decrease in pre-tax book earnings, estimate to actual adjustments of 2008 state tax liabilities, adjustments to our current tax receivables and the phase-out of the Ohio Franchise Tax.

During 2008, Income tax expense decreased $19.6 million, or 16%, as compared to 2007, primarily due to a decrease in the effective tax rate reflecting the phase-out of the Ohio Franchise Tax and the 2008 settlement of the Ohio Franchise Tax issue which resulted in a recorded tax benefit of $8.5 million.

RESULTS OF OPERATIONS – The Dayton Power and Light Company (DP&L)

Income Statement Highlights – DP&L

	For the years ended December 31,
$ in millions	2009			2008			2007
Revenues:
Retail	$	1,167.2		$	1,075.3		$	1,057.4
Wholesale	181.9			293.5			331.7
RTO revenues	86.1			108.3			87.4
RTO capacity revenues	115.2			95.8			30.9
Total revenues	$	1,550.4		$	1,572.9		$	1,507.4
Cost of revenues:
Fuel costs	$	384.9		$	349.6		$	317.2
Gains from sale of coal	(56.3		)	(83.4		)	(0.6		)
Gains from sale of emission allowances	(5.0		)	(34.8		)	(1.2		)
Net fuel	323.6			231.4			315.4
Purchased power	46.9			152.4			170.0
RTO charges	104.1			126.6			101.9
RTO capacity charges	131.7			100.9			28.4
Recovery / (Deferral) of RTO related charges, net	(23.5		)	—			—
Net purchased power	259.2			379.9			300.3
Total cost of revenues	$	582.8		$	611.3		$	615.7
Gross margins (a)	$	967.6		$	961.6		$	891.7
Gross margin as a percentage of revenues	62.4		%	61.1		%	59.2		%
Operating income	$	421.9		$	436.6		$	375.1

(a)For purposes of discussing operating results, we present and discuss gross margins. This format is useful to investors because it allows analysis and comparability of operating trends and includes the same information that is used by management to make decisions regarding our financial performance.

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DP&L – Revenues

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

The wholesale market covers a multi-state area and settles on an hourly basis throughout the year.  Factors impacting DP&L’s wholesale sales volume each hour of the year include wholesale market prices; DP&L’s retail demand, retail demand elsewhere throughout the entire wholesale market area; DP&L and non-DP&L plants’ availability to sell into the wholesale market and weather conditions across the multi-state region.  DP&L’s plan is to make wholesale sales when market prices allow for the economic operation of its generation facilities that are not being utilized to meet its retail demand or when margin opportunities exist between the wholesale sales and power purchase prices.

The following table provides a summary of changes in Revenues from prior periods:

$ in millions	2009 vs. 2008			2008 vs. 2007
Retail
Rate	$	191.7		$	43.0
Volume	(99.7		)	(20.8		)
Other	(0.1		)	(4.3		)
Total retail change	$	91.9		$	17.9
Wholesale
Rate	$	(230.5	)	$	79.2
Volume	118.9			(117.4		)
Total wholesale change	$	(111.6	)	$	(38.2	)
RTO capacity and other
RTO capacity and other revenues	$	(2.8	)	$	85.8
Total revenues change	$	(22.5	)	$	65.5

For the year ended December 31, 2009, Revenues decreased $22.5 million, or 1%, to $1,550.4 million from $1,572.9 million in the prior year.  This decrease was primarily the result of lower wholesale average prices and lower retail sales volume, partially offset by higher average retail rates and increased wholesale sales volume.  The revenue components for the year ended December 31, 2009 are further discussed below:

·Retail revenues increased $91.9 million resulting primarily from a 20% increase in average retail rates due largely to the incremental effect of the third phase of the EIR and the implementation of the TCRR, RPM, Energy Efficiency and Alternative Energy rate riders, partially offset by a 9% decrease in retail sales volume driven largely by the effects of the economic recession and milder weather conditions.  The milder weather conditions saw heating and cooling degree days decrease by 4% and 14% to 5,561 days and 734 days, respectively.  As a result, retail revenues had a favorable $191.7 million price variance and an unfavorable $99.7 million sales volume variance.

·Wholesale revenues decreased $111.6 million primarily as a result of a 56% decrease in wholesale average prices, partially offset by a 41% increase in sales volume, resulting in an unfavorable $230.5 million wholesale price variance and a favorable $118.9 million sales volume variance.

·RTO capacity and other revenues, consisting primarily of compensation for use of DP&L’s transmission assets, regulation services, reactive supply and operating reserves, as well as capacity payments under the RPM construct, decreased $2.8 million compared to the prior year.  This decrease primarily resulted from $22.2 million of lower transmission and congestion revenues, partially offset by additional revenue of $19.4 million that was realized from the PJM capacity auction.  Beginning June 1, 2009 when the TCRR and RPM rate deferral riders became effective, the Ohio retail jurisdiction share of this change had no impact on Net income.

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For the year ended December 31, 2008, Revenues increased $65.5 million, or 4%, to $1,572.9 million from $1,507.4 million in the same period of the prior year.  This increase was primarily the result of higher average rates for retail and wholesale sales, as well as an increase in RTO capacity and other revenues, partially offset by lower retail and wholesale sales volumes.  The revenue components for the year ended December 31, 2008 are further discussed below:

·Retail revenues increased $17.9 million resulting primarily from a 4% increase in average retail rates due largely to the second phase of the EIR, partially offset by a 2% decrease in sales volume.  The decrease in retail sales volume was primarily a result of milder weather which caused cooling degree days to decrease by 26% to 853 days, combined with a 6% decrease in the volume of sales to industrial customers.  The lower sales volumes to industrial customers were driven largely by the downturn in the economy which has severely affected the automotive and other related industries in the region resulting in plant closures and reduced production.  These decreases were partially offset by a 9% increase in heating degree days.

·Wholesales revenues decreased $38.2 million primarily as a result of a 35% decrease in sales volume due largely to unplanned outages, partially offset by a 37% increase in wholesale average rates, resulting in an unfavorable $117.4 million sales volume variance and a favorable $79.2 million wholesale price variance.

·RTO capacity and other revenues, consisting primarily of compensation for use of DP&L’s transmission assets, regulation services, reactive supply and operating reserves, as well as capacity payments under the RPM construct, increased $85.8 million compared to the prior year.  This increase primarily resulted from additional income realized from the PJM capacity auction and increased PJM transmission and congestion revenues.

DP&L – Cost of Revenues

For the year ended December 31, 2009:

·Fuel costs, which include coal (net of gains on sales), gas, oil and emission allowances (net of gains on sales), increased $92.2 million, or 40%, compared to 2008, primarily due to the impact of lower gains realized from the sales of coal and excess emission allowances combined with a 7% increase in the usage of fuel due mainly to the improved performance of our generating facilities.  In 2009, DP&L realized $56.3 million and $5.0 million in gains from the sales of coal and excess emission allowances, respectively, compared to $83.4 million and $34.8 million, respectively, during 2008.  Also contributing to the increase in fuel costs was a 3% increase in the average cost of fuel consumed per kilowatt-hour largely resulting from higher market prices of coal combined with outages at lower-cost units.

·Purchased power decreased $120.7 million compared to 2008.  The net decrease in purchased power was due in part to lower volumes of purchased power and lower average market rates of $74.8 million and $30.8 million, respectively.  The improved performance of our generating facilities, as mentioned in the preceding paragraph, resulted in increased generation output and a reduced demand for higher-cost purchased power.  Also contributing to the decrease in purchased power were lower costs relating to other RTO charges as well as the net deferral during 2009 of costs relating to DP&L’s transmission, capacity and other PJM-related charges which were incurred as a member of PJM.  This deferral is discussed in greater detail in Note 3 of Notes to Consolidated Financial Statements.  These decreases were partially offset by increased RTO capacity charges.  We purchase power to satisfy retail sales volume when generating facilities are not available due to planned and unanticipated outages, or when market prices are below the marginal costs associated with our generating facilities.

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For the year ended December 31, 2008:

·Fuel costs, which include coal (net of gains on sales), gas, oil and emission allowances (net of gains on sales), decreased $84.0 million, or 27%, compared to 2007, primarily due to increases in net gains of $33.6 million from the sale of DP&L’s excess emission allowances and $82.8 million realized from the sale of DP&L’s coal combined with a decrease in the usage of fuel due mainly to a 6% decrease in generation output largely attributable to unplanned outages.  These decreases were partially offset by increased fuel prices.  The successful installation of FGD equipment at Miami Fort, Killen and J.M. Stuart stations has allowed us the ability to burn coal with a wide range of sulfur content and, accordingly, we purchase and sell coal as we seek to achieve optimum levels of production efficiency.  Gains or losses from sales of coal and emission allowances are recorded as components of fuel costs.

·Purchased power costs increased $79.6 million, or 27%, compared to 2007.  The increase in purchased power primarily results from an $11.8 million increase relating to higher average market rates and a $97.2 million increase in RTO capacity and other RTO charges, partially offset by a $29.3 million decrease relating to lower volumes of purchased power.  We purchase power to satisfy retail sales volume when generating facilities are not available due to planned and unplanned outages, or when market prices are below the marginal costs associated with our generating facilities.

DP&L – Operation and Maintenance

$ in millions	2009 vs. 2008
Pension	$	6.1
Low-income payment program (1)	6.1
Energy efficiency programs (1)	5.9
ESOP	3.3
Group insurance	3.2
Deferred 2004/2005 storm costs and PJM administrative fees	(4.0		)
Generating facilities operating and maintenance expenses	(1.4		)
Other, net	1.2
Total operation and maintenance expense	$	20.4

(1)   There is a corresponding increase in Revenues associated with these programs resulting in no impact to Net income.

During the year ended December 31, 2009, Operation and maintenance expense increased $20.4 million, or 7%, compared to 2008.  This variance was primarily the result of:

·higher pension costs due largely to a decline in the values of pension plan assets from 2008 and increased benefit costs,

·increases in assistance for low-income retail customers which is funded by the USF revenue rate rider,

·expenses related to new energy efficiency programs put in place for our customers during 2009,

·increases in employee benefit expense funded by the ESOP and

·increased health insurance costs that were partially related to higher disability reserves.

These increases are partially offset by:

·lower amortization of regulatory assets related to the 2004/2005 deferred storm costs and PJM administrative fees in 2009 as these deferred costs were fully recovered through rates during 2008 and in the first quarter of 2009, respectively, and

·decreases in expenses for generating facilities largely due to unplanned outages in 2008 at lower-cost production units resulting in higher costs in that year.  These decreases were partially offset by increased maintenance expenses associated with unplanned outages at jointly-owned production units during 2009.

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$ in millions	2008 vs. 2007
ESOP	$	(7.0	)
Deferred compensation	(5.8		)
Legal costs	(3.9		)
Pension	(2.4		)
Generating facilities operating expenses	11.1
Turbine maintenance costs	4.1
Boiler maintenance costs	1.0
Other, net	(5.9		)
Total operation and maintenance expense	$	(8.8	)

During the year ended December 31, 2008, Operation and maintenance expense decreased $8.8 million, or 3%, as compared to 2007.  This variance was primarily due to:

·a decrease in employee compensation expense associated with the ESOP due mainly to the additional shares that were released from the ESOP in 2007,

·a decrease in deferred compensation costs associated to a large degree with deferred compensation liabilities for three former executives,

·a decrease in legal fees and

·lower pension costs primarily due to the plan funding made in November 2007.

These decreases were partially offset by:

·an increase in operating expenses at our generating facilities largely due to the operation of the FGD and SCR equipment and related gypsum disposal,

·an increase in turbine maintenance costs incurred due to an unplanned outage at a jointly-owned production unit and

·an increase in boiler maintenance expenses in 2008.

DP&L – Depreciation and Amortization

During the year ended December 31, 2009, Depreciation and amortization expense increased $7.7 million, or 6%, as compared to 2008 primarily as a result of higher asset balances at the generating stations.  These higher balances were due largely to the completion of the FGD projects during 2008.

During the year ended December 31, 2008, Depreciation and amortization expense increased $3.3 million, or 3%, as compared to 2007.  This increase was primarily a result of higher plant balances due largely to the installation of FGD equipment, partially offset by the impact of lower depreciation rates for generation property which were put into effect on August 1, 2007.

DP&L – General Taxes

During the year ended December 31, 2009, General taxes decreased $7.4 million, or 6%, compared to 2008 primarily due to lower property tax accruals in 2009 compared to 2008 and lower kWh excise taxes resulting from lower retail sales volumes.

During the year ended December 31, 2008, General taxes increased $13.9 million, or 13%, as compared to 2007, primarily as a result of higher property taxes due mainly to capital improvements which have led to higher assessed property values, combined with increased tax rates.

DP&L – Investment Income

During the year ended December 31, 2009, Investment income (loss) decreased $4.2 million, or 60%, as compared to 2008 primarily as a result of lower gains realized from the sale of DPL common stock from DP&L’s Master Trust Plan used for deferred compensation distributions as well as lower cash and short-term investment balances combined with overall lower market yields on investments in 2009.

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During the year ended December 31, 2008, Investment income (loss) decreased $16.7 million, or 70%, as compared to 2007.  This decrease was primarily the result of:

·$14.8 million of gains realized in 2007 on the transfer of DPL common stock to the DP&L Retirement Income Plan Trust (Pension) and

·$3.2 million of gains realized in 2007 from the sale of financial assets held in DP&L’s Master Trust Plan for deferred compensation which were used for the settlement payment to three former executives.

DP&L – Net Gain on Settlement of Executive Litigation

On May 21, 2007, we settled litigation with three former executives.  In exchange for our payment of $25 million, the three former executives relinquished and dismissed all of their claims, including those related to deferred compensation, RSUs, MVE incentives, stock options and legal fees.  As a result of this settlement, in 2007, DP&L realized a net pre-tax gain in continuing operations of approximately $35.3 million.  See Note 17 of Notes to Consolidated Financial Statements.

DP&L – Interest Expense

During the year ended December 31, 2009, Interest expense increased $2.0 million, or 5%, as compared to 2008 primarily as a result of $6.4 million of lower capitalized interest due largely to the completion of the FGD projects at our own and partner-operated generating stations.  This increase was partially offset by:

·a $1.6 million write-off in 2008 of unamortized debt issuance costs relating to DP&L’s $90 million variable rate pollution control bonds following their repurchase from the bondholders in April 2008 and

·$2.0 million of deferred interest carrying costs on regulatory assets primarily associated with the 2008 incremental storm costs and the riders for RPM and TCRR.  These Regulatory assets are further discussed in Note 3 of Notes to Consolidated Financial Statements.

During the year ended December 31, 2008, Interest expense increased $14.2 million, or 64%, as compared to 2007 primarily as a result of:

·$12.9 million of lower capitalized interest due to the completion of the FGD projects at Miami Fort, Killen, and J.M. Stuart stations,

·the write-off of unamortized debt issuance costs amounting to $1.6 million relating to DP&L’s $90 million variable rate pollution control bonds following their repurchase from the bondholders in April 2008 and

·$0.9 million of additional Interest expense associated with DP&L’s $90 million variable rate pollution control bonds issued in November 2007 and repurchased in April 2008.

DP&L – Other Income (Deductions)

During the year ended December 31, 2009, there were no material fluctuations in the balances of Other income (deductions).

During the year ended December 31, 2008, Other deductions of $1.1 million changed from Other income of $2.9 million recorded in 2007.  The change from Other income to Other deductions primarily resulted from the recognition in 2007 of a $2.1 million deferred credit related to a litigation settlement (which was not part of the executive litigation settlement).

DP&L –Income Tax Expense

For the year ended December 31, 2009, Income tax expense increased $4.3 million, or 4%, compared to 2008, due to estimate to actual adjustments of 2008 income taxes related to the Internal Revenue Code Section 199 deduction, adjustments to deferred tax liabilities and a 2008 settlement relating to the Ohio Franchise Tax.  These increases were partially offset by a decrease in pre-tax book earnings, estimate to actual adjustments of 2008 state tax liabilities, adjustments to our current tax receivables and the phase-out of the Ohio Franchise Tax.

During 2008, Income tax expense decreased $22.9 million, or 16%, as compared to 2007, primarily due to a decrease in the effective tax rate reflecting the phase-out of the Ohio Franchise Tax and the 2008 settlement of the Ohio Franchise Tax issue which resulted in a recorded tax benefit of $8.5 million.

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FINANCIAL CONDITION, LIQUIDITY AND CAPITAL REQUIREMENTS

DPL’s financial condition, liquidity and capital requirements include the consolidated results of its principal subsidiary DP&L.  All material intercompany accounts and transactions have been eliminated in consolidation.  The following table provides a summary of the cash flows for DPL and DP&L:

DPL

	For the years ended December 31,
$ in millions	2009			2008			2007
Net cash provided by operating activities	$	526.1		$	363.2		$	318.1
Net cash used for investing activities	(166.1		)	(248.5		)	(187.8		)
Net cash used for financing activities	(347.6		)	(187.1		)	(257.6		)
Net change	$	12.4		$	(72.4	)	$	(127.3	)
Cash and cash equivalents at beginning of period	62.5			134.9			262.2
Cash and cash equivalents at end of period	$	74.9		$	62.5		$	134.9

DP&L

	For the years ended December 31,
$ in millions	2009			2008			2007
Net cash provided by operating activities	$	515.1		$	394.6		$	353.0
Net cash used for investing activities	(167.4		)	(242.0		)	(343.2		)
Net cash used for financing activities	(311.4		)	(145.0		)	(42.7		)
Net change	$	36.3		$	7.6		$	(32.9	)
Cash and cash equivalents at beginning of period	20.8			13.2			46.1
Cash and cash equivalents at end of period	$	57.1		$	20.8		$	13.2

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

Net Cash Provided by Operating Activities

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

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DPL – Net Cash provided by Operating Activities

DPL’s Net cash provided by operating activities for the years ended December 31, 2009, 2008 and 2007 can be summarized as follows:

$ in millions	2009			2008			2007
Earnings from continuing operations	$	229.1		$	244.5		$	211.8
Depreciation and amortization	145.5			137.7			134.8
Deferred income taxes	201.6			43.1			3.1
Income tax settlement	—			(42.0		)	—
Regulatory expenditures under TCRR/RPM and 2008 storms	(15.7		)	(13.1		)	—
Net gain on settlement of executive litigation	—			—			(31.0		)
Other	(34.4		)	(7.0		)	(0.6		)
Net cash provided by operating activities	$	526.1		$	363.2		$	318.1

For the year ended December 31, 2009, Net cash provided by operating activities was primarily a result of Earnings from continuing operations adjusted for noncash depreciation and amortization, combined with the following significant transactions:

·      the $201.6 million increase to Deferred income taxes primarily results from the recognition of certain tax benefits for 2008 and 2009 relating to a change in the tax accounting method for deductions pertaining to repairs, depreciation and mixed service costs.  Primarily due to the recognition of these benefits during 2009, DPL received a net cash refund of state and federal income taxes totaling $94.6 million and, in addition, was able to offset $69.0 million of these benefits against income tax liabilities accrued in 2009;

·      the $15.7 million of cash used to pay for transmission, capacity and other PJM-related costs incurred during 2009, net of recoveries.  These costs were recorded as a Regulatory asset in accordance with the provisions of GAAP relating to regulatory accounting (see Note 3 of Notes to Consolidated Financial Statements) and are expected to be collected from customers during future years.

·      Other represents items that had a current period cash flow impact and includes changes in working capital and other future rights or obligations to receive or to pay cash.  These items are primarily impacted by, among other factors, the timing of when cash payments are made for fuel, purchased power, operating costs, interest and taxes, and when cash is received from our utility customers and from the sales of coal and excess emission allowances.

For the year ended December 31, 2008, Net cash provided by operating activities was primarily a result of Earnings from continuing operations adjusted for noncash depreciation and amortization, combined with the following significant transactions:

·      Deferred income taxes increased by $43.1 million as a result of the acceleration of the deduction of newly installed FGD and SCR equipment for tax purposes, which had the effect of reducing current period income tax payments and increasing cash on hand,

·      the $42 million cash payment made in 2008 to the ODT following a tax settlement agreement and

·      the $13.1 million of cash used to restore damage of a non-capital nature caused by the hurricane-force winds of September 2008 and other major 2008 storms.  These costs were recorded as a Regulatory asset in accordance with the provisions of GAAP relating to regulatory accounting (see Note 3 of Notes to Consolidated Financial Statements) and are expected to be collected from customers during future years.

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

For the year ended December 31, 2007, Net cash provided by operating activities was primarily a result of Earnings from continuing operations adjusted for noncash depreciation and amortization and the noncash impact of the net gain realized on settlement of the executive litigation.  Other represents items that had a current period cash flow impact and includes changes in working capital and other future rights or obligations to receive or to pay cash, such as regulatory assets and liabilities.

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DP&L – Net Cash provided by Operating Activities

DP&L’s Net cash provided by operating activities for the years ended December 31, 2009, 2008 and 2007 can be summarized as follows:

$ in millions	2009			2008			2007
Net income	$	258.9		$	285.8		$	271.6
Depreciation and amortization	135.5			127.8			124.5
Deferred income taxes	200.1			40.9			(0.2		)
Income tax settlement	—			(42.0		)	—
Regulatory expenditures under TCRR/RPMand 2008 storms	(15.7		)	(13.1		)	—
Net gain on settlement of executive litigation	—			—			(35.3		)
Other	(63.7		)	(4.8		)	(7.6		)
Net cash provided by operating activities	$	515.1		$	394.6		$	353.0

For the years ended December 31, 2009, 2008 and 2007, the significant components of DP&L’s Net cash provided by operating activities are similar to those discussed under DPL’s Net cash provided by operating activities above.

DPL and DP&L – Net Cash used for Investing Activities

DPL and DP&L’s Net cash used for investing activities for the years ended December 31, 2009, 2008 and 2007 can be summarized as follows:

$ in millions	2009			2008			2007
DP&L environmental-related capital expenditures	$	(21.2	)	$	(90.2	)	$	(208.8	)
DP&L capital upgrades due to 2008 storms	—			(18.6		)	—
DP&L other plant-related asset acquisitions	(146.2		)	(133.2		)	(134.4		)
DP&L’s net cash used for investing activities	$	(167.4	)	$	(242.0	)	$	(343.2	)
Proceeds from sales of DPL assets	—			—			158.4
Other	1.3			(6.5		)	(3.0		)
DPL’s net cash used for investing activities	$	(166.1	)	$	(248.5	)	$	(187.8	)

For all years, the environmental-related capital expenditures relate to cash outflows incurred during the installation and upgrades of FGD and SCR equipment.  Other plant-related asset acquisitions relate to investments in other generation, transmission and distribution equipment.

For the year ended December 31, 2009, DP&L continued to see reductions in its environmental-related capital expenditures due to the completion of FGD and SCR projects.  The expenditures in 2009 relate to the construction of FGD and SCR equipment at the Conesville generation station which was substantially completed and placed into service during the fourth quarter of 2009.  DP&L also continued to make upgrades and other investments in other generation, transmission and distribution equipment.

For the year ended December 31, 2008, DP&L saw reduced cash outflows associated with environmental-related expenditures compared to 2007 due to projects relating to the installation of FGD and SCR equipment that had either been completed or were nearing completion.  In addition, DP&L was forced to replace a portion of its distribution lines and equipment following the damage caused by the hurricane-force winds of September 2008 and other 2008 storms.

For the year ended December 31, 2007, the proceeds received from asset sales relate to the sale of two DPLE peaker units and an aircraft previously owned by a DPL subsidiary.

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DPL – Net Cash used for Financing Activities

DPL’s Net cash used for financing activities for the years ended December 31, 2009, 2008 and 2007 can be summarized as follows:

$ in millions	2009			2008			2007
Retirement of long-term debt	$	(227.4	)	$	(100.0	)	$	(225.0	)
Dividends paid on common stock	(128.8		)	(120.5		)	(111.7		)
Repurchase of DPL common stock	(64.4		)	—			—
Repurchase of warrants	(25.2		)	—			—
Proceeds from exercise of warrants	77.7			—			—
Cash withdrawn from restricted funds	14.5			32.5			63.2
Proceeds from exercise of stock options	9.0			2.2			14.6
Other	(3.0		)	(1.3		)	1.3
Net cash used for financing activities	$	(347.6	)	$	(187.1	)	$	(257.6	)

For the year ended December 31, 2009, DPL redeemed long-term debt totaling $227.4 million and paid common stock dividends of $128.8 million.  Under a stock repurchase program approved by the Board of Directors in October 2009 (see Note 14 of Notes to Consolidated Financial Statements), DPL repurchased approximately 2.4 million DPL common shares for $64.4 million.  In addition, DPL repurchased 8.6 million warrants for $25.2 million.  DPL’s cash inflows during the period include $77.7 million received from the cash exercise of 3.7 million warrants and the withdrawal of the remaining balance of restricted funds of $14.5 million which was used primarily to fund the construction of FGD equipment at the Conesville generation station.  DPL also received $9.0 million from option holders who exercised stock options due, in part, to the increase in our average stock price compared to 2008.

For the year ended December 31, 2008, DPL paid common stock dividends of $120.5 million, retired $100 million of long-term debt and withdrew $32.5 million from restricted funds held in trust to pay for environmental-related capital expenditures.  In comparison to 2007, the lower cash withdrawals from restricted funds in 2008 were primarily due to the timing of costs incurred relating to the installation of FGD and SCR equipment.  In addition, the reduced cash proceeds in 2008 from the exercise of stock options were a direct result of fewer options exercised.

For the year ended December 31, 2007, DPL retired $225 million of long-term debt, paid common stock dividends of $111.7 million, withdrew $63.2 million from restricted funds to pay for environmental-related capital expenditures and received $14.6 million from the exercise of stock options.

DP&L – Net Cash used for Financing Activities

DP&L’s Net cash used for financing activities for the years ended December 31, 2009, 2008 and 2007 can be summarized as follows:

$ in millions	2009			2008			2007
Dividends paid on common stock to parent	$	(325.0	)	$	(155.0	)	$	(125.0	)
Net loan (paid to) / received from parent	—			(20.0		)	20.0
Cash withdrawn from restricted funds	14.5			32.5			63.2
Other	(0.9		)	(2.5		)	(0.9		)
Net cash used for financing activities	$	(311.4	)	$	(145.0	)	$	(42.7	)

For the year ended December 31, 2009, DP&L paid $325 million in dividends to DPL and withdrew the remaining balance of $14.5 million from restricted funds to pay for the Conesville FGD and SCR projects.

For the year ended December 31, 2008, DP&L paid $155 million in dividends to DPL, withdrew $32.5 million from restricted funds held in trust and repaid the net $20 million short-term loan from DPL.

For the year ended December 31, 2007, DP&L paid $125 million in dividends to DPL, withdrew $63.2 million from restricted funds held in trust and received a net $20 million short-term loan from DPL.

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Liquidity

We expect our existing sources of liquidity to remain sufficient to meet our anticipated obligations.  Our business is capital intensive, requiring significant resources to fund operating expenses, construction expenditures, scheduled debt maturities, and interest and dividend payments.  For 2010 and in subsequent years, we expect to satisfy these requirements with a combination of cash from operations and funds from the capital markets as our internal liquidity needs and market conditions warrant.  We also expect that the borrowing capacity under credit facilities will continue to be available to manage working capital requirements during those periods.

We have access to $320 million of short-term financing under two revolving credit facilities.  The first facility for $220 million expires November 2011 and has three participating banks; the lead bank has a total commitment of 36% while the other two have commitments of 32% each.  The second facility is a 364-day $100 million facility that matures April 2010.  A total of six banks participate in this facility, with no bank having more than 26% of the total commitment.  The two bank groups have no common members.  We are currently evaluating the impact the maturity of the $100 million facility will have on our future liquidity and would expect to be able to renew or replace this facility as needed.

					Amounts
					available as of
$ in millions	Type	Maturity	Commitment		December 31, 2009
DP&L	Revolving	11/21/2011	$	220.0	$	220.0
DP&L	Revolving	04/20/2010	$	100.0	$	100.0
			$	320.0	$	320.0

The $220 million revolver has a $50 million Letter of Credit (LOC) sublimit.  As of December 31, 2009, there were no outstanding LOCs.

Cash and cash equivalents for DPL and DP&L amounted to $74.9 million and $57.1 million, respectively, at December 31, 2009.

Capital Requirements

CONSTRUCTION ADDITIONS

	Actual						Projected
$ in millions	2009		2008		2007		2010		2011		2012
DPL	$	145	$	228	$	347	$	210	$	200	$	180
DP&L	$	144	$	225	$	344	$	200	$	190	$	175

Capital projects are subject to continuing review and are revised in light of changes in financial and economic conditions, load forecasts, legislative and regulatory developments and changing environmental standards, among other factors.  DPL is projecting to spend an estimated $590 million in capital projects for the period 2010 through 2012, mostly through its subsidiary DP&L.

Planned construction additions for 2010 relate primarily to new investments in and upgrades to DP&L’s power plant equipment and transmission and distribution systems.  In addition to our capital requirements above, on August 4, 2009, DP&L re-filed its smart grid and advanced metering infrastructure (AMI) business cases with the PUCO under which it would spend approximately $270 million on capital projects during the period 2010 through 2012.  Approval from the PUCO of these cases is still pending.  The re-filing at the PUCO is further discussed in Note 3 of Notes to Consolidated Financial Statements.

Our ability to complete capital projects and the reliability of future service will be affected by our financial condition, the availability of internal funds and the reasonable cost of external funds.  We expect to finance our construction additions with a combination of cash on hand, short-term financing, long-term debt and cash flows from operations.

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Credit Ratings

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

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

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

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

Off-Balance Sheet Arrangements

DPL – Guarantees

In the normal course of business, DPL enters into various agreements with its wholly-owned subsidiaries, DPLE and DPLER, providing financial or performance assurance to third parties.  These agreements are entered into primarily to support or enhance the creditworthiness otherwise attributed to DPLE and DPLER on a stand-alone basis, thereby facilitating the extension of sufficient credit to accomplish DPLE’s and DPLER’s intended commercial purposes.

At December 31, 2009, DPL had $51 million of guarantees to third parties for future financial or performance assurance under such agreements, on behalf of DPLE and DPLER.  The guarantee arrangements entered into by DPL with these third parties cover all present and future obligations of DPLE and DPLER to such beneficiaries and are terminable at any time by DPL upon written notice to the beneficiaries.  The carrying amount of obligations for commercial transactions covered by these guarantees and recorded in our Consolidated Balance Sheets was $0.6 million at December 31, 2009 and $1.6 million at December 31, 2008.

In two separate transactions in November and December 2006, DPL also agreed to be a guarantor of the obligations of DPLE regarding the sale in April 2007 of the Darby Electric Peaking Station to American Electric Power and the sale of the Greenville Electric Peaking Station to Buckeye Electric Power, Inc.  In both cases, DPL agreed to guarantee the obligations of DPLE over a multiple-year period as follows:

$ in millions	2008		2009		2010
Darby	$	23.0	$	15.3	$	7.7
Greenville	$	11.1	$	7.4	$	3.7

In 2009, neither DPL nor DP&L incurred any losses related to the guarantees of DPLE’s obligations and we believe it is remote that either DPL or DP&L would be required to perform or incur any losses in the future associated with any of the above guarantees of DPLE’s obligations.

DP&L – Equity Ownership Interest

DP&L owns a 4.9% equity ownership interest in OVEC, an electric generation company.  As of December 31, 2009, DP&L could be responsible for the repayment of 4.9%, or $54.4 million, of a $1,110 million debt obligation that matures in 2026.  This would only happen if OVEC defaulted on its debt payments.  As of December 31, 2009, we have no knowledge of such a default.

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Contractual Obligations and Commercial Commitments

We enter into various contractual obligations and other commercial commitments that may affect the liquidity of our operations.  At December 31, 2009, these include:

			Payment Year
$ in millions	Total		2010		2011-2012		2013-2014		Thereafter
DPL
Long-term debt	$	1,324.4	$	100.0	$	297.4	$	470.0	$	457.0
Interest payments	740.0		71.5		115.1		71.4		482.0
Pension and postretirement payments	253.8		23.8		48.9		51.1		130.0
Capital leases	0.6		0.6		—		—		—
Operating leases	0.5		0.3		0.2		—		—
Coal contracts (a)	1,694.3		498.1		577.2		184.4		434.6
Limestone contracts (a)	48.4		5.5		11.4		12.0		19.5
Purchase orders and other contractual obligations	162.6		56.9		84.9		14.6		6.2
Total contractual obligations	$	4,224.6	$	756.7	$	1,135.1	$	803.5	$	1,529.3
DP&L
Long-term debt	$	884.4	$	100.0	$	—	$	470.0	$	314.4
Interest payments	454.8		39.4		78.3		48.2		288.9
Pension and postretirement payments	253.8		23.8		48.9		51.1		130.0
Capital leases	0.6		0.6		—		—		—
Operating leases	0.5		0.3		0.2		—		—
Coal contracts (a)	1,694.3		498.1		577.2		184.4		434.6
Limestone contracts (a)	48.4		5.5		11.4		12.0		19.5
Purchase orders and other contractual obligations	164.8		58.0		86.0		14.6		6.2
Total contractual obligations	$	3,501.6	$	725.7	$	802.0	$	780.3	$	1,193.6

(a)   Total at DP&L-operated units

Long-term debt:

DPL’s Long-term debt as of December 31, 2009, consists of DP&L’s first mortgage bonds and tax-exempt pollution control bonds and DPL’s unsecured senior notes.  These long-term debt amounts include current maturities but exclude unamortized debt discounts.

DP&L’s long-term debt as of December 31, 2009 consists of its first mortgage bonds and tax-exempt pollution control bonds.  These long-term debt amounts include current maturities but exclude unamortized debt discounts.

See Note 7 of Notes to Consolidated Financial Statements.

Interest payments:

Interest payments associated with the long-term debt described above.  The interest payments relating to variable-rate debt are projected using the interest rate prevailing at December 31, 2009.

Pension and postretirement payments:

As of December 31, 2009, DPL, through its principal subsidiary DP&L, had estimated future benefit payments as outlined in Note 9 of Notes to Consolidated Financial Statements.  These estimated future benefit payments are projected through 2019.

Capital leases:

As of December 31, 2009, DPL, through its principal subsidiary DP&L, had one immaterial capital lease that expires in September 2010.

Operating leases:

As of December 31, 2009, DPL, through its principal subsidiary DP&L, had several immaterial operating leases with various terms and expiration dates.

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Coal contracts:

DPL, through its principal subsidiary DP&L, has entered into various long-term coal contracts to supply the coal requirements for the generating plants it operates.  Some contract prices are subject to periodic adjustment and have features that limit price escalation in any given year.

Limestone contracts:

DPL, through its principal subsidiary DP&L, has entered into various limestone contracts to supply limestone used in the operation of FGD equipment at its generating facilities.

Purchase orders and other contractual obligations:

As of December 31, 2009, DPL and DP&L had various other contractual obligations including non-cancelable contracts to purchase goods and services with various terms and expiration dates.

Reserve for uncertain tax positions:

Due to the uncertainty regarding the timing of future cash outflows associated with our unrecognized tax benefits of $19.3 million, we are unable to make a reliable estimate of the periods of cash settlement with the respective tax authorities and have not included such amounts in the contractual obligations table above.

MARKET RISK

We are subject to certain market risks including, but not limited to, changes in commodity prices for electricity, coal, environmental emissions and gas and fluctuations in interest rates.  We use various market risk sensitive instruments, including derivative contracts, primarily to limit our exposure to fluctuations in commodity pricing.  Our Commodity Risk Management Committee (CRMC), comprising of members of senior management, is responsible for establishing risk management policies and the monitoring and reporting of risk exposures relating to our DP&L-operated generation units. The CRMC meets on a regular basis with the objective of identifying, assessing and quantifying material risk issues and developing strategies to manage these risks.

Commodity Pricing Risk

Commodity pricing risk exposure includes the impacts of weather, market demand, increased competition and other economic conditions.  To manage the volatility relating to these exposures at our DP&L-operated generation units, we use a variety of non-derivative and derivative instruments including forward contracts and futures contracts.  These derivative instruments are used principally for economic hedging purposes and none are held for trading purposes.  The majority of our commodity contracts are not considered derivative instruments under GAAP and are therefore excluded from MTM accounting.  Derivatives that fall within the scope of derivative accounting under GAAP must be recorded at their fair value and marked to market unless they qualify for hedge accounting.  MTM gains and losses on derivative instruments that qualify for hedge accounting are deferred in AOCI until the forecasted transactions occurs.  We adjust the derivative instruments that do not qualify for cash flow hedging to fair value on a monthly basis and where applicable, we recognize a corresponding Regulatory asset for above-market costs or a regulatory liability for below-market costs in accordance with Regulatory accounting under GAAP.

During 2008 and 2009, the coal market has experienced unprecedented price volatility.  The coal market has increasingly been influenced by both international and domestic supply and consumption and, while we have all of the total expected coal volume needed to meet our retail and firm wholesale sales requirements for 2010 under contract, sales requirements may change, particularly for retail load.  To the extent we are not able to hedge against price volatility or recover increases through our fuel rider that began in January 2010, our results of operations, financial position or cash flows could be materially affected.

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The following table provides a reconciliation of the MTM positions of the commodity derivative contracts included on our balance sheets at December 31, 2009:

$ in millions	2009
Fair Value of Commodity Derivative Contracts:
Outstanding net asset / (liability) at January 1, 2009	$	(6.6	)
Gains / (losses) on settled contracts	(3.2		)
Changes in fair value on contracts still held	11.2
Outstanding net asset / (liability) at December 31, 2009	$	1.4

The impact of the change in the fair values of the commodity derivative contracts between January 1, 2009 and December 31, 2009 is detailed in the table below:

	Year ended
$ in millions	December 31,  2009
Effect on the statements of results of operations:	$	1.8
Effect on the balance sheets:
Accumulated other comprehensive income	$	3.4
Regulatory liability (net)	1.0
Partner payable	1.8
Total net change on balance sheets	$	6.2
Total net change	$	8.0

The net asset/liability of the MTM positions above are expected to mature within the next three years.

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

Approximately 16% of DPL’s and 19% of DP&L’s electric revenues for the year ended December 31, 2009 were from sales of excess energy and capacity in the wholesale market.  Energy in excess of the needs of existing retail customers is sold in the wholesale market when we can identify opportunities with positive margins.

The table below provides the effect on annual Net income as of December 31, 2009, of a hypothetical increase or decrease of 10% in the price per megawatt hour of wholesale power, including the impact of a corresponding 10% change in the portion of purchased power used as part of the sale (note the share of the internal generation used to meet the wholesale sale would not be affected by the 10% change in wholesale prices):

$ in millions	DPL		DP&L
Effect of 10% change in price per mWh	$	7.9	$	12.0

DPL’s fuel (including coal, gas, oil and emission allowances) and purchased power costs as a percentage of total operating costs in the years ended December 31, 2009 and 2008 were 33% and 33%, respectively.  DP&L’s fuel (including coal, gas, oil and emission allowances) and purchased power costs as a percentage of total operating costs were 33% and 34% for the years ended December 31, 2009 and 2008, respectively.  We have substantially all of the total expected coal volume needed to meet our retail and firm wholesale sales requirements for 2010 under contract.  The majority of our contracted coal is purchased at fixed prices although some contracts provide for periodic pricing adjustments.  We do not expect to purchase SO2 allowances for 2010; however, the exact consumption of SO2 allowances will depend on market prices for power, availability of our generation units and the actual sulfur content of the coal burned.  We do not plan to purchase NOx allowances for 2010.  Fuel costs are impacted by changes in volume and price and are driven by a number of variables including weather, reliability of coal deliveries, scheduled outages and generation plant mix.

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Purchased power costs depend, in part, upon the timing and extent of planned and unplanned outages of our generating capacity.  We will purchase power on a discretionary basis when wholesale market conditions provide opportunities to obtain power at a cost below our internal generation costs.

Effective January 1, 2010, DP&L is allowed to recover its Ohio retail jurisdictional share of fuel and purchased power costs, of approximately 80%, as part of the fuel rider approved by the PUCO. The table below provides the effect on annual net income as of December 31, 2009, of a hypothetical increase or decrease of 10% adjusted for the approximate 80% recovery in the prices of fuel and purchased power:

$ in millions	DPL		DP&L
Effect of 10% change in fuel and purchased power	$	6.3	$	5.8

Interest Rate Risk

As a result of our normal investing and borrowing activities, our financial results are exposed to fluctuations in interest rates, which we manage through our regular financing activities.  We maintain both cash on deposit and investments in cash equivalents that may be affected by adverse interest rate fluctuations.  DPL has fixed-rate long-term debt and DP&L has both fixed and variable-rate long-term debt.  DP&L’s variable-rate debt is comprised of publicly held pollution control bonds.  The variable-rate bonds bear interest based on a prevailing rate that is reset weekly based on a comparable market index.  Market indexes can be affected by market demand, supply, market interest rates and other economic conditions.

The carrying value of DPL’s debt was $1,324.1 million at December 31, 2009, consisting of DP&L’s first mortgage bonds, DP&L’s tax-exempt pollution control bonds, DP&L’s revolving credit facilities, DPL’s unsecured notes and DP&L’s capital lease.  The fair value of this debt was $1,317.6 million, based on current market prices or discounted cash flows using current rates for similar issues with similar terms and remaining maturities.  The following table provides information about DPL’s debt obligations that are sensitive to interest rate changes:

Principal Payments and Interest Rate Detail by Contractual Maturity Date

DPL

																	Carrying value at			Fair value at
																	December 31,			December 31,
$ in millions	2010			2011			2012		2013			2014		Thereafter			2009 (a)			2009 (a)
Long-term debt
Variable-rate debt	$	100.0		$	—		$	—	$	—		$	—	$	—		$	100.0		$	100.0
Average interest rate	0.3		%	N/A			N/A		N/A			N/A		N/A			0.3		%
Fixed-rate debt	$	0.6		$	297.4		$	—	$	470.0		$	—	$	456.1		$	1,224.1		$	1,217.6
Average interest rate	1.8		%	6.9		%	N/A		5.1		%	N/A		5.8		%	5.8		%
Total																	$	1,324.1		$	1,317.6

(a)  Fixed rate debt totals include unamortized debt discounts.

The carrying value of DP&L’s debt was $884.3 million at December 31, 2009, consisting of its first mortgage bonds, tax-exempt pollution control bonds, revolving credit facilities and a capital lease.  The fair value of this debt was $844.5 million, based on current market prices or discounted cash flows using current rates for similar issues with similar terms and remaining maturities.  The following table provides information about DP&L’s debt obligations that are sensitive to interest rate changes:

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Principal Payments and Interest Rate Detail by Contractual Maturity Date

DP&L

																Carrying value at			Fair value at
																December 31,			December 31,
$ in millions	2010			2011		2012		2013			2014		Thereafter			2009 (a)			2009 (a)
Long-term debt
Variable-rate debt	$	100.0		$	—	$	—	$	—		$	—	$	—		$	100.0		$	100.0
Average interest rate	0.3		%	N/A		N/A		N/A			N/A		N/A			0.3		%
Fixed-rate debt	$	0.6		$	—	$	—	$	470.0		$	—	$	313.7		$	784.3		$	744.5
Average interest rate	1.8		%	N/A		N/A		5.1		%	N/A		4.8		%	5.0		%
Total																$	884.3		$	844.5

(a) Fixed rate debt totals include unamortized debt discounts.

Debt maturities occurring in 2010 are discussed under FINANCIAL CONDITION, LIQUIDITY AND CAPITAL REQUIREMENTS.

Long-term Debt Interest Rate Risk Sensitivity Analysis

Our estimate of market risk exposure is presented for our fixed-rate and variable-rate debt at December 31, 2009 and 2008 for which an immediate adverse market movement causes a potential material impact on our financial position, results of operations, or the fair value of the debt.  We believe that the adverse market movement represents the hypothetical loss to future earnings and does not represent the maximum possible loss nor any expected actual loss, even under adverse conditions, because actual adverse fluctuations would likely differ.  As of December 31, 2009 and 2008, we did not hold any market risk sensitive instruments which were entered into for trading purposes.

DPL

	Carrying value at		Fair value at		One Percent		Carrying value at		Fair value at		One Percent
	December 31,		December 31,		Interest Rate		December 31,		December 31,		Interest Rate
$ in millions	2009		2009		Risk		2008		2008		Risk
Long-term debt
Variable-rate debt	$	100.0	$	100.0	$	1.0	$	100.0	$	100.0	$	1.0
Fixed-rate debt	1,224.1		1,217.6		12.2		1,451.8		1,370.5		13.7
Total	$	1,324.1	$	1,317.6	$	13.2	$	1,551.8	$	1,470.5	$	14.7

DP&L

	Carrying value at		Fair value at		One Percent		Carrying value at		Fair value at		One Percent
	December 31,		December 31,		Interest Rate		December 31,		December 31,		Interest Rate
$ in millions	2009		2009		Risk		2008		2008		Risk
Long-term debt
Variable-rate debt	$	100.0	$	100.0	$	1.0	$	100.0	$	100.0	$	1.0
Fixed-rate debt	784.3		744.5		7.5		784.7		715.7		7.2
Total	$	884.3	$	844.5	$	8.5	$	884.7	$	815.7	$	8.2

DPL’s debt is comprised of both fixed-rate debt and variable-rate debt.  In regard to fixed rate debt, the interest rate risk with respect to DPL’s long-term debt, excluding capital lease obligations, primarily relates to the potential impact a decrease of one percentage point in interest rates has on the fair value of DPL $1,224.1 million of fixed-rate debt and not on DPL’s financial position or results of operations.  On the variable-rate debt, the interest rate risk with respect to DPL’s long-term debt represents the potential impact an increase of one percentage point in the interest rate has on DPL’s results of operations related to DP&L’s $100 million variable-rate long-term debt outstanding as of December 31, 2009.

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DP&L’s interest rate risk with respect to DP&L’s long-term debt primarily relates to the potential impact a decrease in interest rates of one percentage point has on the fair value of DP&L’s $784.3 million of fixed-rate debt and not on DP&L’s financial position or DP&L’s results of operations.  On the variable-rate debt, the interest rate risk with respect to DP&L’s long-term debt represents the potential impact an increase of one percentage point in the interest rate has on DP&L’s results of operations related to DP&L’s $100 million variable-rate long-term debt outstanding as of December 31, 2009.

Equity Price Risk

As of December 31, 2009, approximately 35.0% of the defined benefit pension plan assets were comprised of investments in equity securities and 65.0% related to investments in fixed income securities, cash and cash equivalents, and alternative investments.  The equity securities are carried at their market value of approximately $85.1 million at December 31, 2009.  A hypothetical 10% decrease in prices quoted by stock exchanges would result in an $8.5 million reduction in fair value as of December 31, 2009 and approximately a $0.5 million increase to the 2010 pension expense.

Credit Risk

Credit risk is the risk of an obligor’s failure to meet the terms of any investment contract, loan agreement or otherwise perform as agreed. Credit risk arises from all activities in which success depends on issuer, borrower or counterparty performance, whether reflected on or off the balance sheet.  We limit our credit risk by assessing the creditworthiness of potential counterparties before entering into transactions with them and continue to evaluate their creditworthiness after transactions have been originated.  We use the three leading corporate credit rating agencies and other current market-based qualitative and quantitative data to assess the financial strength of counterparties on an ongoing basis.   We may require various forms of credit assurance from counterparties in order to mitigate credit risk.

CRITICAL ACCOUNTING ESTIMATES

DPL’s and DP&L’s Consolidated Financial Statements are prepared in accordance with U.S. GAAP.  In connection with the preparation of these financial statements, our management is required to make assumptions, estimates and judgments that affect the reported amounts of assets, liabilities, revenues, expenses and the related disclosure of contingent liabilities.  These assumptions, estimates and judgments are based on our historical experience and assumptions that we believed to be reasonable at the time.  However, because future events and their effects cannot be determined with certainty, the determination of estimates requires the exercise of judgment.  Our critical accounting estimates are those which require assumptions to be made about matters that are highly uncertain.

Different estimates could have a material effect on our financial results.  Judgments and uncertainties affecting the application of these policies and estimates may result in materially different amounts being reported under different conditions or circumstances.  Historically, however, recorded estimates have not differed materially from actual results.  Significant items subject to such judgments include: the carrying value of property, plant and equipment; unbilled revenues; the valuation of derivative instruments; the valuation of insurance and claims liabilities; the valuation of allowances for receivables and deferred income taxes; regulatory assets and liabilities; reserves recorded for income tax exposures; litigation; contingencies; the valuation of AROs; and assets and liabilities related to employee benefits.

Impairments and Assets Held for Sale:  In accordance with the provisions of GAAP relating to the accounting for impairments, long-lived assets to be held and used are reviewed for impairment whenever events or circumstances indicate that the carrying amount may not be recoverable.  When required, impairment losses on assets to be held and used are recognized based on the fair value of the asset.  We determine the fair value of these assets based upon estimates of future cash flows, market value of similar assets, if available or independent appraisals, if required.  In analyzing the fair value and recoverability using future cash flows, we make projections based on a number of assumptions and estimates of growth rates, future economic conditions, assignment of discount rates and estimates of terminal values.  An impairment loss is recognized if the carrying amount of the long-lived asset is not recoverable from its undiscounted cash flows.  The measurement of impairment loss is the difference between the carrying amount and fair value of the asset.  Long-lived assets to be disposed of or held for sale are reported at the lower of carrying amount or fair value less cost to sell.  We determine the fair value of these assets in the same manner as described for assets held and used.

63

Revenue Recognition (including Unbilled Revenue):  We consider revenue realized, or realizable, and earned when persuasive evidence of an arrangement exists, the products or services have been provided to the customer, the sales price is fixed or determinable, and collection is reasonably assured.  The determination of the energy sales to customers is based on the reading of their meters, which occurs on a systematic basis throughout the month.  We recognize revenues using an accrual method for retail and other energy sales that have not yet been billed, but where electricity has been consumed.  This is termed “unbilled revenues” and is a widely recognized and accepted practice for utilities.  At the end of each month, unbilled revenues are determined by the estimation of unbilled energy provided to customers since the date of the last meter reading, projected line losses, the assignment of unbilled energy provided to customer classes and the average rate per customer class.  Given our estimation method and the fact that customers are billed monthly, we believe it is unlikely that materially different results will occur in future periods when these amounts are subsequently billed.

Income Taxes:  Judgment and the use of estimates are required in developing the provision for income taxes and reporting of tax-related assets and liabilities.  The interpretation of tax laws involves uncertainty, since taxing authorities may interpret them differently. Ultimate resolution of income tax matters may result in favorable or unfavorable impacts to Net income and cash flows and adjustments to tax-related assets and liabilities could be material.  We have adopted the provisions of GAAP relating to the accounting for uncertainty in income taxes.  Taking into consideration the uncertainty and judgment involved in the determination and filing of income taxes, these GAAP provisions establish standards for recognition and measurement in financial statements of positions taken, or expected to be taken, by an entity on its income tax returns.  Positions taken by an entity on its income tax returns that are recognized in the financial statements must satisfy a more-likely-than-not recognition threshold, assuming that the position will be examined by taxing authorities with full knowledge of all relevant information.

Deferred income tax assets and liabilities represent future effects on income taxes for temporary differences between the bases of assets and liabilities for financial reporting and tax purposes.  We evaluate quarterly the probability of realizing deferred tax assets by reviewing a forecast of future taxable income and the availability of tax planning strategies that can be implemented, if necessary, to realize deferred tax assets.  Failure to achieve forecasted taxable income or successfully implement tax planning strategies may affect the realization of deferred tax assets.

Regulatory Assets and Liabilities:Application of the provisions of GAAP relating to regulatory accounting requires us to reflect the effect of rate regulation in our Consolidated Financial Statements.  For regulated businesses subject to federal or state cost-of-service rate regulation, regulatory practices that assign costs to accounting periods may differ from accounting methods generally applied by nonregulated companies.  When it is probable that regulators will permit the recovery of current costs through future rates charged to customers, we defer these costs as Regulatory assets that otherwise would be expensed by nonregulated companies.  Likewise, we recognize Regulatory liabilities when it is probable that regulators will require customer refunds through future rates and when revenue is collected from customers for expenses that are not yet incurred.  Regulatory assets are amortized into expense and Regulatory liabilities are amortized into income over the recovery period authorized by the regulator.

We evaluate whether or not recovery of our Regulatory assets through future rates is probable and make various assumptions in our analyses.  The expectations of future recovery are generally based on orders issued by regulatory commissions or historical experience, as well as discussions with applicable regulatory authorities.  If recovery of a regulatory asset is determined to be less than probable, it will be written off in the period the assessment is made.  We currently believe the recovery of our Regulatory assets is probable.  See Note 3 of Notes to Consolidated Financial Statements.

AROs:  In accordance with the provisions of GAAP relating to the accounting for AROs, legal obligations associated with the retirement of long-lived assets are required to be recognized at their fair value at the time those obligations are incurred.  Upon initial recognition of a legal liability, costs are capitalized as part of the related long-lived asset and allocated to expense over the useful life of the asset.  These GAAP provisions also require that components of previously recorded depreciation related to the cost of removal of assets upon retirement, whether legal AROs or not, must be removed from a company’s accumulated depreciation reserve.  We make assumptions, estimates and judgments that affect the reported amounts of assets, liabilities and expenses as they relate to AROs.  These assumptions and estimates are based on historical experience and assumptions that we believe to be reasonable at the time.

64

Insurance and Claims Costs:  In addition to insurance obtained from third-party providers, MVIC, a wholly-owned captive subsidiary of DPL, provides insurance coverage solely to us, our subsidiaries and, in some cases, our partners in commonly-owned facilities we operate, for workers’ compensation, general liability, property damage, and directors’ and officers’ liability.  Insurance and Claims Costs on the Consolidated Balance Sheets of DPL include insurance reserves of approximately $16.2 million and $17.6 million for 2009 and 2008, respectively.  Furthermore, DP&L is responsible for claim costs below certain coverage thresholds of MVIC for the insurance coverage noted above.  In addition, DP&L has medical, life and disability reserves for claims costs below certain coverage thresholds of third-party providers.  DPL and DP&L record these additional insurance and claims costs of approximately $11.3 million and $9.8 million for 2009 and 2008, respectively, within Other current liabilities and Other deferred credits on the balance sheets.  The MVIC reserves at DPL and the workers’ compensation, medical, life and disability reserves at DP&L are actuarially determined based on a reasonable estimation of insured events occurring.  There is uncertainty associated with the loss estimates and actual results may differ from the estimates.  Modification of these loss estimates based on experience and changed circumstances is reflected in the period in which the estimate is re-evaluated.

Pension and Postretirement Benefits:  We account for and disclose pension and postretirement benefits in accordance with the provisions of GAAP relating to the accounting for pension and other postretirement plans.  These GAAP provisions require the use of assumptions, such as the discount rate and long-term rate of return on assets, in determining the obligations, annual cost, and funding requirements of the plans.

For 2010, we are maintaining our long-term rate of return assumptions of 8.50% for pension and 6.00% for other postemployment benefit plan assets representing our long-term assumptions based on our current portfolio mix.  We have decreased our assumed discount rate to 5.75% for pension and 5.35% for postretirement benefits expense to reflect current duration-based yield curve discount rates.  A one percent change in the rate of return assumption for pension would result in an increase or decrease to the 2010 pension expense of approximately $2.5 million.  A one percent change in the discount rate for pension would result in an increase or decrease to the 2010 pension expense of approximately $2.0 million.  We do not anticipate any special adjustments to expense in 2010.

In future periods, differences in the actual return on pension and other post-employment benefit plan assets and assumed return, or changes in the discount rate, will affect the timing of contributions to the plans, if any.  We provide postretirement health care benefits to employees who retired prior to 1987.  A one percentage point change in the assumed health care cost trend rate would affect postretirement benefit costs by approximately $0.1 million.

Contingent and Other Obligations:  During the conduct of our business, we are subject to a number of federal and state laws and regulations, as well as other factors and conditions that potentially subject us to environmental, litigation, insurance and other risks.  We periodically evaluate our exposure to such risks and record reserves for those matters where a loss is considered probable and reasonably estimable in accordance with GAAP.  In recording such reserves, we may make assumptions, estimates and judgments that affect the reported amounts of assets, liabilities and expenses as they relate to contingent and other obligations.  These assumptions and estimates are based on historical experience and assumptions and may be subject to change.  We, however, believe such estimates and assumptions are reasonable.

65

LEGAL AND OTHER MATTERS

A discussion of LEGAL AND OTHER MATTERS is described in Note 19 of Notes to Consolidated Financial Statements and in Item 3 — LEGAL PROCEEDINGS.  A discussion of environmental matters and competition and regulation matters affecting both DPL and DP&L is described in Item 1 — ENVIRONMENTAL CONSIDERATIONS and Item 1 — COMPETITION AND REGULATION.  Such discussions are incorporated by reference in this Management’s Discussion and Analysis of Financial Condition and Results of Operations and made a part hereof.

Recently Issued Accounting Pronouncements

A discussion of recently issued accounting pronouncements is described in Note 1 of Notes to Consolidated Financial Statements and such discussion is incorporated by reference in this Management’s Discussion and Analysis of Financial Condition and Results of Operations and made a part hereof.

Item 7A — Quantitative and Qualitative Disclosures about Market Risk

The information required by this item of Form 10-K is set forth in the MARKET RISK section under Item 7 — Management’s Discussion and Analysis of Financial Condition and Results of Operations.

Item 8 — Financial Statements and Supplementary Data

This report includes the combined filing of DPL and DP&L.  DP&L is the principal subsidiary of DPL providing approximately 98% of DPL’s total consolidated revenue and approximately 95% of DPL’s total consolidated asset base.  Throughout this report, the terms “we,” “us,” “our” and “ours” are used to refer to both DPL and DP&L, respectively and altogether, unless the context indicates otherwise.  Discussions or areas of this report that apply only to DPL or DP&L will clearly be noted in the section.

66

DPL INC.

CONSOLIDATED STATEMENTS OF RESULTS OF OPERATIONS

	For the years ended December 31,
$ in millions except per share amounts	2009			2008			2007
Revenues	$	1,588.9		$	1,601.6		$	1,515.7
Cost of revenues:
Fuel	330.4			243.0			328.2
Purchased power	260.2			377.4			287.2
Total cost of revenues	590.6			620.4			615.4
Gross margin	998.3			981.2			900.3
Operating expenses:
Operation and maintenance	306.5			282.5			283.6
Depreciation and amortization	145.5			137.7			134.8
General taxes	118.1			125.5			111.8
Total operating expenses	570.1			545.7			530.2
Operating income	428.2			435.5			370.1
Other income / (expense), net
Investment income (loss)	(0.6		)	3.6			11.3
Net gain on settlement of executive litigation	—			—			31.0
Interest expense	(83.0		)	(90.7		)	(81.0		)
Other income (deductions)	(3.0		)	(1.0		)	2.9
Total other income / (expense), net	(86.6		)	(88.1		)	(35.8		)
Earnings from continuing operations before income tax	341.6			347.4			334.3
Income tax expense	112.5			102.9			122.5
Earnings from continuing operations	229.1			244.5			211.8
Earnings from discontinued operations, net of tax	—			—			10.0
Net income	$	229.1		$	244.5		$	221.8
Average number of common shares outstanding (millions)
Basic	112.9			110.2			107.9
Diluted	114.2			115.4			117.8
Earnings per share of common stock
Basic:
Earnings from continuing operations	$	2.03		$	2.22		$	1.97
Earnings from discontinued operations, net of tax	—			—			0.09
Total Basic	$	2.03		$	2.22		$	2.06
Diluted:
Earnings from continuing operations	$	2.01		$	2.12		$	1.80
Earnings from discontinued operations, net of tax	—			—			0.08
Total Diluted	$	2.01		$	2.12		$	1.88

See Notes to Consolidated Financial Statements.

67

DPL INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

	For the years ended December 31,
$ in millions	2009			2008			2007
Cash flows from operating activities:
Net income	$	229.1		$	244.5		$	221.8
Less: Earnings from discontinued operations, net of tax	—			—			(10.0		)
Earnings from continuing operations	229.1			244.5			211.8
Adjustments to reconcile Net income to Net cash provided by operating activities:
Depreciation and amortization	145.5			137.7			134.8
Deferred income taxes	201.6			43.1			3.1
Net gain on settlement of executive litigation	—			—			(31.0		)
Net gain on sale of property	—			—			(6.0		)
Changes in certain assets and liabilities:
Accounts receivable	39.3			(18.7		)	(18.9		)
Inventories	(20.6		)	(0.2		)	(19.6		)
Taxes applicable to subsequent years	(1.5		)	(10.0		)	(0.1		)
Deferred regulatory costs, net	(24.6		)	(12.9		)	9.4
Accounts payable	(65.0		)	27.0			(0.5		)
Accrued taxes payable	(2.4		)	(46.1		)	19.9
Accrued interest payable	(1.5		)	(0.8		)	(9.4		)
Pension, retiree and other benefits	15.2			31.2			26.7
Unamortized investment tax credit	(2.8		)	(2.8		)	(2.8		)
Insurance and claims costs	(1.4		)	(2.4		)	(1.9		)
Other	15.2			(26.4		)	2.6
Net cash provided by operating activities	526.1			363.2			318.1
Cash flows from investing activities:
Capital expenditures	(172.3		)	(243.6		)	(346.2		)
Net proceeds from sale of property - peakers	—			—			151.0
Proceeds from sale of property - aircraft	—			—			7.4
Proceeds from sale of property - other	1.2			—			—
Purchases of short-term investments and securities	—			(4.9		)	—
Sales of short-term investments and securities	5.0			—			—
Net cash used for investing activities	(166.1		)	(248.5		)	(187.8		)
Cash flows from financing activities:
Dividends paid on common stock	(128.8		)	(120.5		)	(111.7		)
Repurchase of DPL common stock	(64.4		)	—			—
Repurchase of warrants	(25.2		)	—			—
Proceeds from exercise of warrants	77.7			—			—
Retirement of long-term debt	(175.0		)	(100.0		)	(225.0		)
Early redemption of Capital Trust II notes	(52.4		)	—			—
Premium paid for early redemption of debt	(3.7		)	—			—
Issuance of pollution control bonds, net	—			98.4			90.0
Retirement of pollution control bonds	—			(90.0		)	—
Pollution control bond proceeds held in trust	—			(10.0		)	(90.0		)
Withdrawal of restricted funds held in trust, net	14.5			32.5			63.2
Withdrawals from revolving credit facilities	260.0			115.0			95.0
Repayment of borrowings from revolving credit facilities	(260.0		)	(115.0		)	(95.0		)
Exercise of stock options	9.0			2.2			14.6
Tax impact related to exercise of stock options	0.7			0.3			1.3
Net cash used for financing activities	(347.6		)	(187.1		)	(257.6		)
Cash and cash equivalents:
Net change	12.4			(72.4		)	(127.3		)
Balance at beginning of period	62.5			134.9			262.2
Cash and cash equivalents at end of period	$	74.9		$	62.5		$	134.9
Supplemental cash flow information:
Interest paid, net of amounts capitalized	$	84.3		$	86.8		$	87.8
Income taxes (refunded) / paid, net	$	(94.6	)	$	127.3		$	115.6
Non-cash financing and investing activities:
Accruals for capital expenditures	$	20.8		$	34.1		$	45.6

See Notes to Consolidated Financial Statements.

68

DPL INC.

CONSOLIDATED BALANCE SHEETS

	At December 31,
$ in millions	2009			2008
ASSETS
Current assets:
Cash and cash equivalents	$	74.9		$	62.5
Restricted funds held in trust	—			14.5
Accounts receivable, net (Note 2)	212.8			259.9
Inventories (Note 2)	125.7			105.1
Taxes applicable to subsequent years	59.5			58.0
Other prepayments and current assets	24.1			26.7
Total current assets	497.0			526.7
Property, plant and equipment:
Property, plant and equipment	5,269.2			5,073.4
Less: Accumulated depreciation and amortization	(2,466.0		)	(2,350.6		)
	2,803.2			2,722.8
Construction work in process	89.0			153.6
Total net property, plant and equipment	2,892.2			2,876.4
Other noncurrent assets:
Regulatory assets (Note 3)	214.2			195.6
Other deferred assets	38.3			38.3
Total other noncurrent assets	252.5			233.9
Total Assets	$	3,641.7		$	3,637.0

See Notes to Consolidated Financial Statements.

69

DPL INC.

CONSOLIDATED BALANCE SHEETS

			At December 31,
$ in millions			2009			2008
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
Current portion - long-term debt			$	100.6		$	175.7
Accounts payable			77.2			178.3
Accrued taxes			70.2			72.9
Accrued interest			23.5			25.0
Customer security deposits			19.4			19.8
Other current liabilities			24.0			14.7
Total current liabilities			314.9			486.4
Noncurrent liabilities:
Long-term debt			1,223.5			1,376.1
Deferred taxes			569.1			374.1
Regulatory liabilities (Note 3)			125.4			121.9
Pension, retiree and other benefits			111.7			94.7
Unamortized investment tax credit			35.2			38.0
Insurance and claims costs			16.2			17.6
Other deferred credits			122.9			108.2
Total noncurrent liabilities			2,204.0			2,130.6
Redeemable preferred stock of subsidiary			22.9			22.9
Commitments and contingencies (Note 19)
Common shareholders’ equity:
Common stock, at par value of $0.01 per share:
	December 2009	December 2008
Shares authorized	250,000,000	250,000,000
Shares issued	163,724,211	163,724,211
Shares outstanding	118,966,767	115,961,880	1.2			1.2
Warrants			2.9			31.0
Common stock held by employee plans			(19.3		)	(27.6		)
Accumulated other comprehensive loss			(29.0		)	(23.1		)
Retained earnings			1,144.1			1,015.6
Total common shareholders’ equity			1,099.9			997.1
Total Liabilities and Shareholders’ Equity			$	3,641.7		$	3,637.0

See Notes to Consolidated Financial Statements.

70

DPL INC.

CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY

								Common
								Stock			Accumulated
	Common Stock (a)							Held by			Other
	Outstanding							Employee			Comprehensive			Retained
in millions (except Outstanding Shares)	Shares		Amount		Warrants			Plans			Income / (Loss)			Earnings			Total
Beginning balance	113,018,972		$	1.1	$	50.0		$	(69.0	)	$	4.8		$	736.5		$	723.4
2007:
Net income														221.8
Change in unrealized gains (losses) on financial instruments, net of tax											(0.9		)
Change in deferred gains (losses) on cash flow hedges, net of tax											(5.5		)
Change in unrealized gains (losses) on pension and postretirement benefits, net of tax											2.2
Total comprehensive income																	217.6
Common stock dividends (a)														(111.7		)	(111.7		)
Treasury stock reissued	539,472													16.0			16.0
Tax effects to equity														1.3			1.3
Employee / Director stock plans								29.2						6.5			35.7
Other								0.1						0.1			0.2
Ending balance	113,558,444		$	1.1	$	50.0		$	(39.7	)	$	0.6		$	870.5		$	882.5
2008:
Net income														244.5
Change in unrealized gains (losses) on financial instruments, net of tax											(0.5		)
Change in deferred gains (losses) on cash flow hedges, net of tax											(1.7		)
Change in unrealized gains (losses) on pension and postretirement benefits, net of tax											(21.5		)
Total comprehensive income																	220.8
Common stock dividends (a)														(120.5		)	(120.5		)
Treasury stock reissued	2,403,436		0.1		(19.0		)							21.2			2.3
Tax effects to equity														0.3			0.3
Employee / Director stock plans								12.1						(0.3		)	11.8
Other														(0.1		)	(0.1		)
Ending balance	115,961,880		$	1.2	$	31.0		$	(27.6	)	$	(23.1	)	$	1,015.6		$	997.1
2009:
Net income														229.1
Change in unrealized gains (losses) on financial instruments, net of tax											0.5
Change in deferred gains (losses) on cash flow hedges, net of tax											(3.7		)
Change in unrealized gains (losses) on pension and postretirement benefits, net of tax											(2.7		)
Total comprehensive income																	223.2
Common stock dividends (a)														(128.8		)	(128.8		)
Repurchase of warrants					(13.6		)							(11.6		)	(25.2		)
Exercise of warrants	4,973,629				(14.5		)							92.2			77.7
Treasury stock purchased	(2,388,391	)												(64.4		)	(64.4		)
Treasury stock reissued	419,649													10.1			10.1
Tax effects to equity														0.8			0.8
Employee / Director stock plans								8.3						0.5			8.8
Other														0.6			0.6
Ending balance	118,966,767		$	1.2	$	2.9		$	(19.3	)	$	(29.0	)	$	1,144.1		$	1,099.9

(a)   Common stock dividends per share were $1.04 in 2007, $1.10 in 2008 and $1.14 in 2009.

See Notes to Consolidated Financial Statements.

71

THE DAYTON POWER AND LIGHT COMPANY

STATEMENTS OF RESULTS OF OPERATIONS

	For the years ended December 31,
$ in millions	2009			2008			2007
Revenues	$	1,550.4		$	1,572.9		$	1,507.4
Cost of revenues:
Fuel	323.6			231.4			315.4
Purchased power	259.2			379.9			300.3
Total cost of revenues	582.8			611.3			615.7
Gross margin	967.6			961.6			891.7
Operating expenses:
Operation and maintenance	293.4			273.0			281.8
Depreciation and amortization	135.5			127.8			124.5
General taxes	116.8			124.2			110.3
Total operating expenses	545.7			525.0			516.6
Operating income	421.9			436.6			375.1
Other income / (expense), net:
Investment income	2.8			7.0			23.7
Net gain on settlement of executive litigation	—			—			35.3
Interest expense	(38.5		)	(36.5		)	(22.3		)
Other income (deductions)	(2.8		)	(1.1		)	2.9
Total other income / (expense), net	(38.5		)	(30.6		)	39.6
Earnings before income tax	383.4			406.0			414.7
Income tax expense	124.5			120.2			143.1
Net income	258.9			285.8			271.6
Dividends on preferred stock	0.9			0.9			0.9
Earnings on common stock	$	258.0		$	284.9		$	270.7

See Notes to Consolidated Financial Statements.

72

THE DAYTON POWER AND LIGHT COMPANY

STATEMENTS OF CASH FLOWS

	For the years ended December 31,
$ in millions	2009			2008			2007
Cash flows from operating activities:
Net income	$	258.9		$	285.8		$	271.6
Adjustments to reconcile Net income to Net cash provided by operating activities:
Depreciation and amortization	135.5			127.8			124.5
Deferred income taxes	200.1			40.9			(0.2		)
Gain on transfer of assets to pension plan	—			—			(14.8		)
Net gain on settlement of executive litigation	—			—			(35.3		)
Changes in certain assets and liabilities:
Accounts receivable	25.7			(3.5		)	(19.0		)
Inventories	(20.5		)	(0.2		)	(20.6		)
Taxes applicable to subsequent years	(1.3		)	(9.9		)	(0.1		)
Deferred regulatory costs, net	(24.6		)	(12.9		)	9.4
Accounts payable	(65.9		)	26.9			1.9
Accrued taxes payable	(0.9		)	(50.0		)	18.4
Accrued interest payable	0.2			—			0.3
Pension, retiree and other benefits	15.2			31.3			26.6
Unamortized investment tax credit	(2.8		)	(2.8		)	(2.8		)
Other	(4.5		)	(38.8		)	(6.9		)
Net cash provided by operating activities	515.1			394.6			353.0
Cash flows from investing activities:
Capital expenditures	(167.4		)	(242.0		)	(343.2		)
Net cash used for investing activities	(167.4		)	(242.0		)	(343.2		)
Cash flows from financing activities:
Dividends paid on common stock to parent	(325.0		)	(155.0		)	(125.0		)
Dividends paid on preferred stock	(0.9		)	(0.9		)	(0.9		)
Issuance of pollution control bonds, net	—			98.4			90.0
Retirement of pollution control bonds	—			(90.0		)	—
Pollution control bond proceeds held in trust	—			(10.0		)	(90.0		)
Withdrawal of restricted funds held in trust, net	14.5			32.5			63.2
Withdrawals from revolving credit facilities	260.0			115.0			—
Repayment of borrowings from revolving credit facilities	(260.0		)	(115.0		)	—
Payment of short-term debt held by parent	—			(20.0		)	(85.0		)
Issuance of short-term debt to parent	—			—			105.0
Net cash used for financing activities	(311.4		)	(145.0		)	(42.7		)
Cash and cash equivalents:
Net change	36.3			7.6			(32.9		)
Balance at beginning of period	20.8			13.2			46.1
Cash and cash equivalents at end of period	$	57.1		$	20.8		$	13.2
Supplemental cash flow information:
Interest paid, net of amounts capitalized	$	39.5		$	33.4		$	18.5
Income taxes (refunded) / paid, net	$	(94.7	)	$	127.0		$	114.7
Non-cash financing and investing activities:
Accruals for capital expenditures	$	20.8		$	34.1		$	45.6

See Notes to Consolidated Financial Statements.

73

THE DAYTON POWER AND LIGHT COMPANY

BALANCE SHEETS

	At December 31,
$ in millions	2009			2008
ASSETS
Current assets:
Cash and cash equivalents	$	57.1		$	20.8
Restricted funds held in trust	—			14.5
Accounts receivable, net (Note 2)	192.0			225.4
Inventories (Note 2)	124.3			103.8
Taxes applicable to subsequent years	59.2			57.9
Other prepayments and current assets	26.0			23.9
Total current assets	458.6			446.3
Property, plant and equipment:
Property, plant and equipment	5,011.0			4,817.9
Less: Accumulated depreciation and amortization	(2,370.7		)	(2,265.5		)
	2,640.3			2,552.4
Construction work in process	87.9			153.0
Total net property, plant and equipment	2,728.2			2,705.4
Other noncurrent assets:
Regulatory assets (Note 3)	214.2			195.6
Other assets	56.4			50.4
Total other noncurrent assets	270.6			246.0
Total Assets	$	3,457.4		$	3,397.7

See Notes to Consolidated Financial Statements.

74

THE DAYTON POWER AND LIGHT COMPANY

BALANCE SHEETS

	At December 31,
$ in millions	2009			2008
LIABILITIES AND SHAREHOLDER’S EQUITY
Current liabilities:
Current portion - long-term debt	$	100.6		$	0.7
Accounts payable	75.1			176.6
Accrued taxes	68.6			70.5
Accrued interest	13.1			12.9
Customers security deposits	19.4			19.8
Other current liabilities	23.2			14.2
Total current liabilities	300.0			294.7
Noncurrent liabilities:
Long-term debt	783.7			884.0
Deferred taxes	553.0			358.3
Regulatory liabilities (Note 3)	125.4			121.9
Pension, retiree and other benefits	111.7			94.7
Unamortized investment tax credit	35.2			38.0
Other deferred credits	122.9			108.3
Total noncurrent liabilities	1,731.9			1,605.2
Redeemable preferred stock	22.9			22.9
Commitments and contingencies (Note 19)
Common shareholder’s equity:
Common stock, at par value of $0.01 per share	0.4			0.4
Other paid-in capital	781.6			783.1
Accumulated other comprehensive loss	(19.7		)	(16.1		)
Retained earnings	640.3			707.5
Total common shareholder’s equity	1,402.6			1,474.9
Total Liabilities and Shareholder’s Equity	$	3,457.4		$	3,397.7

See Notes to Consolidated Financial Statements.

75

THE DAYTON POWER AND LIGHT COMPANY

STATEMENTS OF SHAREHOLDER’S EQUITY

							Accumulated
	Common Stock (a)			Other			Other
	Outstanding			Paid-in			Comprehensive			Retained
in millions (except Outstanding Shares)	Shares	Amount		Capital			Income / (Loss)			Earnings			Total
Beginning balance	41,172,173	$	0.4	$	783.7		$	28.1		$	432.0		$	1,244.2
2007:
Net income										271.6
Change in unrealized gains (losses) on financial instruments, net of tax							(7.7		)
Change in deferred gains (losses) on cash flow hedges, net of tax							(5.5		)
Change in unrealized gains (losses) on pension and postretirement benefits, net of tax							2.2
Total comprehensive income													260.6
Common stock dividends										(125.0		)	(125.0		)
Preferred stock dividends										(0.9		)	(0.9		)
Tax effects to equity				1.3									1.3
Employee / Director stock plans				(0.3		)							(0.3		)
Other				0.1			—			(0.1		)	—
Ending balance	41,172,173	$	0.4	$	784.8		$	17.1		$	577.6		$	1,379.9
2008:
Net income										285.8
Change in unrealized gains (losses) on financial instruments, net of tax							(9.8		)
Change in deferred gains (losses) on cash flow hedges, net of tax							(1.7		)
Change in unrealized gains (losses) on pension and postretirement benefits, net of tax							(21.7		)
Total comprehensive income													252.6
Common stock dividends										(155.0		)	(155.0		)
Preferred stock dividends										(0.9		)	(0.9		)
Tax effects to equity				0.3									0.3
Employee / Director stock plans				(2.0		)							(2.0		)
Ending balance	41,172,173	$	0.4	$	783.1		$	(16.1	)	$	707.5		$	1,474.9
2009:
Net income										258.9
Change in unrealized gains (losses) on financial instruments, net of tax							2.7
Change in deferred gains (losses) on cash flow hedges, net of tax							(3.7		)
Change in unrealized gains (losses) on pension and postretirement benefits, net of tax							(2.7		)
Total comprehensive income													255.2
Common stock dividends										(325.0		)	(325.0		)
Preferred stock dividends										(0.9		)	(0.9		)
Tax effects to equity				0.8									0.8
Employee / Director stock plans				(2.5		)							(2.5		)
Other				0.2			0.1			(0.2		)	0.1
Ending balance	41,172,173	$	0.4	$	781.6		$	(19.7	)	$	640.3		$	1,402.6

(a)  50,000,000 shares authorized.

See Notes to Consolidated Financial Statements.

76

Notes to Consolidated Financial Statements

This report includes the combined filing of DPL and DP&L.  DP&L is the principal subsidiary of DPL providing approximately 98% of DPL’s total consolidated revenue and approximately 95% of DPL’s total consolidated asset base.  Throughout this report, the terms “we,” “us,” “our” and “ours” are used to refer to both DPL and DP&L, respectively and altogether, unless the context indicates otherwise.  Discussions or areas of this report that apply only to DPL or DP&L will clearly be noted in the section.

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

1.     Overview and Summary of Significant Accounting Policies

Description of Business

DPL is a diversified regional energy company organized in 1985 under the laws of Ohio.  DPL’s principal subsidiary is DP&L.  DP&L is a public utility incorporated in 1911 under the laws of Ohio.  DP&L is engaged in generation, transmission, distribution and the sale of electricity 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 primarily generated at eight coal-fired power plants and is distributed to more than 500,000 retail customers.  Principal industries served include automotive, food processing, paper, plastic manufacturing and defense.

DP&L’s sales reflect the general economic conditions and seasonal weather patterns of the area.  DP&L sells any excess energy and capacity into the wholesale market.

DPL’s other significant subsidiaries include DPLE, which engages in the operation of peaking generating facilities; DPLER, which is a CRES provider selling retail electric energy and other energy services; and MVIC, our captive insurance company that provides insurance services to us and our subsidiaries.  All of DPL’s subsidiaries are wholly-owned.

DPL also has a wholly-owned business trust, DPL Capital Trust II, formed for the purpose of issuing trust capital securities to investors.

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

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

Financial Statement Presentation

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

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

All material intercompany accounts and transactions are eliminated in consolidation.

We have evaluated all subsequent events through February 11, 2010 which is the date these financial statements were filed with the SEC.

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

77

Revisions

During the preparation of our annual report on Form 10-K for the year ended December 31, 2009, we identified certain immaterial items that had not been correctly presented in our prior period balance sheets.  Accordingly, we have made the following adjustments to our prior period balance sheets to conform to the current period presentation. These adjustments did not have any impact on our gross margin, operating income, net income, earnings per share or cash flows as previously reported.

Property Taxes

Certain accrued taxes representing property tax liabilities had been previously classified as a current liability and should have been classified as a noncurrent liability.  As a result of this reclassification, accrued taxes decreased at DPL by $57.5 million from $130.4 million to $72.9 million and also by the same $57.5 million at DP&L from $128.0 million to $70.5 million as of December 31, 2008.  This same reclassification also increased other deferred credits at DPL by $57.5 million from $50.7 million to $108.2 million and at DP&L by $57.5 million from $50.8 million to $108.3 million as of December 31, 2008.

Deferred Taxes

Certain deferred taxes that related to amounts recorded in accumulated other comprehensive income/(loss) for pension-related costs had been previously classified within deferred taxes and should have been classified within accumulated other comprehensive income/(loss).  In addition, certain deferred taxes that related to amounts recoverable from customers in future rates had also been incorrectly presented.  As a result of these two deferred tax items, deferred taxes decreased at DPL by $59.6 million from $433.7 million to $374.1 million and at DP&L by $59.5 million from $417.8 million to $358.3 million as of December 31, 2008.  These same reclassifications also decreased accumulated other comprehensive loss at DPL by $21.5 million from $44.6 million to $23.1 million and at DP&L by $21.4 million from $37.5 million to $16.1 million and decreased regulatory assets at both DPL and DP&L by $38.1 million from $233.7 million to $195.6 million as of December 31, 2008.  These reclassifications also resulted in an increase in accumulated other comprehensive income at DPL by $9.8 million from a loss of $9.2 million to income of $0.6 million and at DP&L by $10.6 million from $6.5 million to $17.1 million as of December 31, 2007 and an increase in accumulated other comprehensive income at DPL by $11.3 million from a loss of $6.5 million to income of $4.8 million and at DP&L by $13.0 million from $15.1 million to $28.1 million as of December 31, 2006.

Revenue Recognition

Revenues are recognized from retail and wholesale electricity sales and electricity transmission and distribution delivery services.  We consider revenue realized, or realizable, and earned when persuasive evidence of an arrangement exists, the products or services have been provided to the customer, the sales price is fixed or determinable, and collection is reasonably assured.  The determination of energy sales to customers is based on the reading of their meters and this occurs on a systematic basis throughout the month.  We recognize the revenues on our statements of results of operations using an accrual method for retail and other energy sales that have not yet been billed, but where electricity has been consumed.  This is termed “unbilled revenues” and is a widely recognized and accepted practice for utilities.  At the end of each month, unbilled revenues are determined by the estimation of unbilled energy provided to customers since the date of the last meter reading, projected line losses, the assignment of unbilled energy provided to customer classes and the average rate per customer class.

All of the power produced at the generation plants is sold to an RTO and we in turn purchase it back from the RTO to supply our customers.  These power sales and purchases are reported on a net hourly basis as revenues or purchased power on our statements of results of operations.  We record expenses when purchased electricity is received and when expenses are incurred, with the exception of the ineffective portion of certain power purchase contracts that are derivatives and qualify for hedge accounting, as well as certain derivative contracts that do not qualify for hedge accounting, causing gains or losses to be recorded prior to the receipt of electricity.

Allowance for Uncollectible Accounts

We establish provisions for uncollectible accounts by using both historical average loss percentages to project future losses and by establishing specific provisions for known credit issues.

78

Property, Plant and Equipment

We record our ownership share of our undivided interest in jointly-held plants as an asset in property, plant and equipment.  Property, plant and equipment are stated at cost.  For regulated transmission and distribution property, cost includes direct labor and material, allocable overhead expenses and an allowance for funds used during construction (AFUDC).  AFUDC represents the cost of borrowed funds and equity used to finance regulated construction projects.  Capitalization of AFUDC ceases at either project completion or at the date specified by regulators.  AFUDC capitalized in 2009, 2008 and 2007 was not material.

For unregulated generation property, cost includes direct labor and material, allocable overhead expenses and interest capitalized during construction using the provisions of GAAP relating to the accounting for capitalized interest.  Capitalized interest was $2.4 million in 2009, $8.9 million in 2008 and $21.8 million in 2007.

For substantially all depreciable property, when a unit of property is retired, the original cost of that property less any salvage value is charged to Accumulated depreciation and amortization.

Property is evaluated for impairment when events or changes in circumstances indicate that its carrying amount may not be recoverable.

Repairs and Maintenance

Costs associated with maintenance activities, primarily power plant outages, are recognized at the time the work is performed.  These costs, which include labor, materials and supplies, and outside services required to maintain equipment and facilities, are capitalized or expensed based on FERC-defined units of property.

Depreciation

Depreciation expense is calculated using the straight-line method, which allocates the cost of property over its estimated useful life.  For DPL’s generation, transmission, and distribution assets, straight-line depreciation is applied on an average annual composite basis using group rates that approximated 2.7% in 2009, 2.7% in 2008 and 2.9% in 2007.  In July 2007, DPL completed a depreciation rate study for non-regulated generation property based on its property, plant and equipment balances during 2007.  The results of the depreciation study concluded that DPL’s depreciation rates should be reduced due to projected asset lives beyond previously estimated useful lives.  DPL adjusted the depreciation rates for its non-regulated generation property, effective August 1, 2007.  For the period from August 1, 2007 to December 31, 2007, the reduction in depreciation expense increased income from continuing operations by approximately $9.5 million, increased net income by approximately $6.0 million, and increased basic EPS by approximately $0.06 per share.

The following is a summary of DPL’s Property, plant and equipment with corresponding composite depreciation rates at December 31, 2009 and 2008:

DPL

			Composite				Composite
$ in millions	2009		Rate		2008		Rate
Regulated:
Transmission	$	355.3	2.4	%	$	350.2	2.4	%
Distribution	1,206.7		3.7	%	1,146.1		3.7	%
General	76.8		3.1	%	66.7		7.2	%
Non-depreciable	57.8		N/A		56.9		N/A
Total regulated	$	1,696.6			$	1,619.9
Unregulated:
Production / Generation	$	3,519.2	2.5	%	$	3,403.0	2.4	%
Other	35.0		3.7	%	31.8		3.5	%
Non-depreciable	18.4		N/A		18.7		N/A
Total unregulated	$	3,572.6			$	3,453.5
Total property, plant and equipment in service	$	5,269.2	2.7	%	$	5,073.4	2.7	%

79

For DP&L’s generation, transmission, and distribution assets, straight-line depreciation is applied on an average annual composite basis using group rates that approximated 2.7% in 2009, 2.6% in 2008 and 2.8% in 2007.

The following is a summary of DP&L’s Property, plant and equipment with corresponding composite depreciation rates at December 31, 2009 and 2008:

DP&L

			Composite				Composite
$ in millions	2009		Rate		2008		Rate
Regulated:
Transmission	$	355.3	2.4	%	$	350.2	2.4	%
Distribution	1,206.7		3.7	%	1,146.2		3.7	%
General	76.8		3.1	%	66.7		7.2	%
Non-depreciable	57.8		N/A		56.9		N/A
Total regulated	$	1,696.6			$	1,620.0
Unregulated:
Production	$	3,299.1	2.4	%	$	3,182.6	2.3	%
Non-depreciable	15.3		N/A		15.3		N/A
Total unregulated	$	3,314.4			$	3,197.9
Total property, plant and equipment in service	$	5,011.0	2.7	%	$	4,817.9	2.6	%

AROs

We recognize AROs in accordance with GAAP.  GAAP requires legal obligations associated with the retirement of long-lived assets to be recognized at their fair value at the time those obligations are incurred.  Upon initial recognition of a legal liability, costs are capitalized as part of the related long-lived asset and depreciated over the useful life of the related asset.  Our legal obligations associated with the retirement of our long-lived assets consisted primarily of river intake and discharge structures, coal unloading facilities, loading docks, ice breakers and ash disposal facilities.  Our generation AROs are recorded within other deferred credits on the balance sheets.

Estimating the amount and timing of future expenditures of this type requires significant judgment.  Management routinely updates these estimates as additional information becomes available.

Changes in the Liability for Generation AROs

$ in millions	2009			2008
Balance at January 1	$	13.2		$	12.5
Accretion expense	0.8			0.7
Additions	2.1			—
Settlements	(0.5		)	(1.0		)
Estimated cash flow revisions	0.6			1.0
Balance at December 31	$	16.2		$	13.2

Asset Removal Costs

We continue to record cost of removal for our regulated transmission and distribution assets through our depreciation rates and recover those amounts in rates charged to our customers.  There are no known legal AROs associated with these assets.  We have recorded $99.1 million and $96.0 million in estimated costs of removal at December 31, 2009 and 2008, respectively, as regulatory liabilities for our transmission and distribution property.  These amounts represent the excess of the cumulative removal costs recorded through depreciation rates versus the cumulative removal costs actually incurred.  See Note 3 of Notes to Consolidated Financial Statements.

80

Changes in the Liability for Transmission and Distribution Asset Removal Costs

$ in millions	2009			2008
Balance at January 1	$	96.0		$	91.5
Additions	6.5			8.3
Settlements	(3.4		)	(3.8		)
Balance at December 31	$	99.1		$	96.0

Regulatory Accounting

In accordance with GAAP, regulatory assets and liabilities are recorded in the balance sheets for our regulated transmission and distribution businesses.  Regulatory assets are the deferral of costs expected to be recovered in future customer rates and Regulatory liabilities represent current recovery of expected future costs.

We evaluate our Regulatory assets each period and believe recovery of these assets is probable.  We have received or requested a return on certain regulatory assets for which we are currently recovering or seeking recovery through rates.  We record a return after it has been authorized in an order by a regulator.  If we were required to terminate application of these GAAP provisions for all of our regulated operations, we would have to write off the amounts of all regulatory assets and liabilities to the statements of results of operations at that time.  See Note 3 of Notes to Consolidated Financial Statements.

Inventories

Inventories are carried at average cost and include coal, limestone, oil and gas used for electric generation, and materials and supplies used for utility operations.

We account for our emission allowances as inventory and record emission allowance inventory at weighted average cost.  We calculate the weighted average cost by each vintage (year) for which emission allowances can be used and charge to fuel costs the weighted average cost of emission allowances used each month.  Net gains or losses on the sale of excess emission allowances, representing the difference between the sales proceeds and the weighted average cost of emission allowances, are recorded as a component of our fuel costs and are reflected in Operating income when realized.  During the periods ended December 31, 2009, 2008 and 2007, we recognized gains from the sale of emission allowances in the amounts of $5.0 million, $34.8 million and $1.2 million, respectively.  Beginning in January 2010, most of the gains on emission allowances will be used to reduce the overall fuel rider charged to the Ohio retail jurisdiction.

At December 31, 2009, we had substantially placed into service FGD equipment at most of our DP&L and partner-operated facilities.

Income Taxes

GAAP requires an asset and liability approach for financial accounting and reporting of income taxes with tax effects of differences, based on currently enacted income tax rates, between the financial reporting and tax basis of accounting reported as deferred tax assets or liabilities in the balance sheets.  Deferred tax assets are recognized for deductible temporary differences.  Valuation allowances are provided against deferred tax assets unless it is more likely than not that the asset will be realized.

Investment tax credits, which have been used to reduce federal income taxes payable, have been deferred for financial reporting purposes.  These deferred investment tax credits are amortized over the useful lives of the property to which they are related.  For rate-regulated operations, additional deferred income taxes and offsetting regulatory assets or liabilities are recorded to recognize that income taxes will be recoverable or refundable through future revenues.

DPL files a consolidated U.S. federal income tax return in conjunction with its subsidiaries.  The consolidated tax liability is allocated to each subsidiary based on the separate return method which is specified in our tax allocation agreement and which provides a consistent, systematic and rational approach.  See Note 8 of Notes to Consolidated Financial Statements.

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Accounting for Taxes Collected from Customers and Remitted to Governmental Authorities

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

	For the years ended
	December 31,
$ in millions	2009		2008		2007
State/Local excise taxes	$	49.5	$	52.3	$	53.2

Stock-Based Compensation

We measure the cost of employee services received and paid with equity instruments based on the fair-value of such equity on the grant date.  This cost is recognized in results of operations over the period that employees are required to provide service.  Liability awards are initially recorded based on the fair-value of equity instruments and are to be re-measured for the change in stock price at each subsequent reporting date until the liability is ultimately settled.  The fair-value for employee share options and other similar instruments at the grant date are estimated using option-pricing models and any excess tax benefits are recognized as an addition to paid-in capital.  The reduction in income taxes payable from the excess tax benefits is presented in the statements of cash flows within Cash flows from financing activities.  See Note 12 of Notes to Consolidated Financial Statements.

Cash and Cash Equivalents

Cash and cash equivalents are stated at cost, which approximates fair value.  All highly liquid short-term investments with original maturities of three months or less are considered cash equivalents.

Financial Instruments

We classify our investments in debt and equity financial instruments of publicly traded entities into different categories: held-to-maturity and available-for-sale.  Available-for-sale securities are carried at fair value and unrealized gains and losses on those securities, net of deferred income taxes, are presented as a separate component of shareholders’ equity.  Other-than-temporary declines in value are recognized currently in earnings.  Financial instruments classified as held-to-maturity are carried at amortized cost.  The cost basis for public equity security and fixed maturity investments is average cost and amortized cost, respectively.

Financial Derivatives

All derivatives are recognized as either assets or liabilities in the balance sheets and are measured at fair value.  Changes in the fair value are recorded in earnings unless they are designated as a cash flow hedge of a forecasted transaction or qualify for the normal purchases and sales exception.

We use forward contracts and options to reduce our exposure to changes in energy and commodity prices and as a hedge against the risk of changes in cash flows associated with expected electricity purchases.  These purchases are required to meet full load requirements during times of peak demand or during planned and unplanned generation facility outages.  We also hold forward sales contracts that hedge against the risk of changes in cash flows associated with power sales during periods of projected generation facility availability.  We use cash flow hedge accounting when the hedge is deemed to be effective and MTM accounting when the hedge is not effective.  See Note 11 of Notes to Consolidated Financial Statements.

Insurance and Claims Costs

In addition to insurance obtained from third-party providers, MVIC, a wholly-owned captive subsidiary of DPL, provides insurance coverage to us, our subsidiaries and, in some cases, our partners in commonly owned facilities we operate, for workers’ compensation, general liability, property damage, and directors’ and officers’ liability.  Insurance and claims costs on the Consolidated Balance Sheets of DPL include insurance reserves of approximately $16.2 million and $17.6 million for 2009 and 2008, respectively.  Furthermore, DP&L is responsible for claim costs below certain coverage thresholds of MVIC for the insurance coverage noted above.  In addition, DP&L has medical, life, and disability reserves for claims costs below certain coverage thresholds of third-party providers.  DPL and DP&L record these additional insurance and claims costs of approximately $11.3 million and $9.8 million for 2009 and 2008, respectively, within Other current liabilities and Other deferred credits on the balance sheets.  The MVIC reserves at DPL and the workers’ compensation, medical, life, and disability reserves at DP&L are actuarially determined based on a reasonable estimation of insured events occurring.  There is uncertainty associated with these loss estimates and actual results may differ from the estimates.  Modification of these loss estimates based on experience and changed circumstances is reflected in the period in which the estimate is re-evaluated.

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DPL Capital Trust II

DPL has a wholly-owned business trust, DPL Capital Trust II (the Trust), formed for the purpose of issuing trust capital securities to third-party investors.  Effective 2003, DPL deconsolidated the Trust upon adoption of the accounting standards related to variable interest entities and currently treats the Trust as a nonconsolidated subsidiary.  The Trust, which holds mandatorily redeemable trust capital securities, is reported as two components on DPL’s consolidated balance sheet.  The investment in the Trust, which amounts to $3.8 million and $5.5 million at December 31, 2009 and 2008, respectively, is included in Other deferred assets within Other noncurrent assets.  DPL also has a note payable to the Trust amounting to $142.6 million and $195.0 million at December 31, 2009 and 2008, respectively, that was established upon the Trust’s deconsolidation in 2003.  See Note 7 of Notes to Consolidated Financial Statements.

In addition to the obligations under the note payable mentioned above, DPL also agreed to a security obligation which represents a full and unconditional guarantee of payments to the capital security holders of the Trust.

Pension and Postretirement Benefits

We recognize the funded status of our benefit plan; recognize as a component of other comprehensive income (OCI), net of tax, the gains or losses and prior service costs or credits that arise during the period but are not recognized as components of net periodic benefit cost; measure defined benefit plan assets and obligations as of the date of our fiscal year-end; and disclose in Notes to Consolidated Financial Statements additional information about certain effects on net periodic benefit costs for the next fiscal year that arise from delayed recognition of the gains or losses, prior service costs or credits, and transition assets or obligations.  See Note 9 of Notes to Consolidated Financial Statements.

Related Party Transactions

In the normal course of business, DP&L enters into transactions with other subsidiaries of DPL.  All material intercompany accounts and transactions are eliminated in DPL’s Consolidated Financial Statements. The following table provides a summary of these transactions:

$ in millions	2009			2008			2007
DP&L Revenues:
Sales to DPLER (a)	$	64.8		$	150.6		$	151.5
DP&L Operation & Maintenance Expenses:
Insurance services provided by MVIC (b)	$	(3.4	)	$	(3.5	)	$	(4.9	)

(a)DP&L sells power to DPLER to satisfy the electric requirements of its retail customers.  The revenues associated with sales to DPLER are recorded as wholesale sales in DP&L’s Financial Statements.

(b)MVIC, a wholly-owned captive insurance subsidiary of DPL, provides insurance coverage to DP&L and other DPL subsidiaries for workers’ compensation, general liability, property damages and directors’ and officers’ liability.  These amounts represent insurance premiums paid by DP&L to MVIC.

Recently Adopted Accounting Standards

FASB Codification

We adopted FASC 105, “Generally Accepted Accounting Principles” (formerly SFAS No. 168, “The FASB Accounting Standards Codification and the Hierarchy of Generally Accepted Accounting Principles — a replacement of FASB Statement No. 162”), on September 30, 2009.  The objective of this Statement is to replace Statement No. 162 and to establish the FASC as the source of authoritative accounting principles recognized by the FASB to be applied by nongovernmental entities in the preparation of financial statements in conformity with GAAP.  Rules and interpretive releases of the SEC under authority of federal securities laws are also sources of authoritative GAAP for SEC registrants.  This update did not have a material impact on our overall results of operations, financial position or cash flows.

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Disclosures about Derivative Instruments and Hedging Activities

We adopted an update to FASC 815, “Derivatives and Hedging” (formerly SFAS No. 161, “Disclosures about Derivative Instruments and Hedging Activities — an amendment to FASB Statement No. 133”), on January 1, 2009.  This update requires an entity to provide enhanced disclosures about: (a) how and why an entity uses derivative instruments; (b) how derivative instruments and related hedged items are accounted for under FASC 815 and its related interpretations; and (c) how derivative instruments and related hedged items affect an entity’s financial position, financial performance and cash flows.  This update did not have a material impact on our overall results of operations, financial position or cash flows.  See Note 11 of Notes to Consolidated Financial Statements.

Participating Securities and EPS

We adopted an update to FASC 260, “Earnings per Share” (formerly Staff Position EITF 03-6-1, “Determining Whether Instruments Granted in Share-Based Payment Transactions Are Participating Securities”) on January 1, 2009.  This update clarifies that unvested share-based awards that contain non-forfeitable rights to dividends or dividend equivalents (whether paid or unpaid) are participating securities and must be included in the computation of EPS pursuant to the two-class method.  This update did not have a material impact on our overall results of operations, financial position or cash flows.

Meaning of “Indexed to a Company’s Own Stock”

We adopted an update to FASC 815, “Derivatives and Hedging” (formerly EITF Issue No. 07-5, “Determining Whether an Instrument (or Embedded Feature) is Indexed to an Entity’s Own Stock”), on January 1, 2009.  This update gives guidance on when a financial instrument is considered to be indexed to a company’s own stock to meet the criteria for FASC 815-10-15-74(a) (formerly paragraph 11(a) of FASB Statement No. 133, “Accounting for Derivative Financial Instruments.”)  This update did not have a material impact on our overall results of operations, financial position or cash flows.

Interim Disclosures about Fair Value of Financial Instruments

We adopted an update of FASC 825, “Financial Instruments” (formerly Staff Position SFAS 107-1 and APB 28-1, “Interim Disclosures about Fair Value of Financial Instruments”), on June 30, 2009.  This update requires disclosure about the fair value of financial instruments for interim reporting periods of publicly traded companies as well as in annual financial statements.  This update did not have a material impact on our overall results of operations, financial position or cash flows.  See Note 10 of Notes to Consolidated Financial Statements.

Subsequent Events

We adopted FASC 855, “Subsequent Events” (formerly SFAS 165), on June 30, 2009.  FASC 855 incorporates the guidance in the American Institute of Certified Public Accountants’ Auditing Standard 560 — Subsequent Events, into the accounting guidance.  This new standard does not change current accounting practices.  FASC 855 did not have a material impact on our overall results of operations, financial position or cash flows.

Disclosures about Pensions and Other Postretirement Benefits

We adopted an update to FASC 715, “Compensation — Retirement Plans” (formerly Staff Position SFAS 132(R)-1, “Employers’ Disclosures about Postretirement Benefit Plan Assets”), on December 31, 2009.  This update requires disclosures about benefit plan assets similar to the disclosure required in FASC 820, “Fair Value Measurements and Disclosures.”  It also requires discussions on investment allocation decisions, major categories of plan assets and significant concentrations of risk in plan assets for the period.  This update did not have a material impact on our overall results of operations, financial position or cash flows.  See Note 9 of Notes to Consolidated Financial Statements.

Redeemable Equity Instruments

We adopted ASU 2009-04, “Accounting for Redeemable Equity Instruments, an amendment to Section 480-10-S99,” (ASU 2009-04) on October 1, 2009.  ASU 2009-04 clarifies that SEC Accounting Series Release 268 pertains to preferred stocks and other redeemable securities including common stock, derivative instruments, non-controlling interest, securities held by an ESOP and share-based payment arrangements with employees.  This update did not have a material impact on our overall results of operations, financial position or cash flows.

Measuring Liabilities at Fair Value

We adopted ASU 2009-05, “Measuring Liabilities at Fair Value,” (ASU 2009-05) on October 1, 2009.  ASU 2009-05 provides additional guidance clarifying the measurement of liabilities at fair value.  This update did not have a material impact on our overall results of operations, financial position or cash flows.

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Investments in Certain Entities that Calculate Net Asset Value per Share

We adopted ASU 2009-12, “Fair Value Measurements and Disclosures,” (ASU 2009-12) on December 31, 2009.  ASU 2009-12 updates FASC 820-10, “Fair Value Measurements and Disclosures — Overall” and allows, as a practical expedient, a reporting entity to measure the fair value of an investment that is within the scope of these amendments on the basis of the net asset value per share of the investment if the net asset value of the investment is calculated in a manner consistent with the measurement principles of FASC 946, “Financial Services — Investment Companies.”  This update did not have a material impact on our overall results of operations, financial position or cash flows.

Recently Issued Accounting Standards

Variable Interest Entities

In June 2009, the FASB issued ASU 2009-02 “Omnibus Update” (formerly SFAS No. 167, a revision to FASB Interpretation No. 46(R), “Consolidation of Variable Interest Entities,”) (ASU 2009-02) that is effective for annual reporting periods beginning after November 15, 2009.  We expect to adopt this ASU in the first quarter of 2010.  This standard updates FASC 810, “Consolidation.”  ASU 2009-02 changes how a company determines when an entity that is insufficiently capitalized or is not controlled through voting (or similar rights) should be consolidated.  The determination of whether a company is required to consolidate an entity is based on, among other things, an entity’s purpose and design and a company’s ability to direct the activities of the entity that most significantly impact the entity’s economic performance.  We do not expect these new rules to have a material impact on our overall results of operations, financial position or cash flows.

Fair Value Disclosures

In January 2010, the FASB issued ASU 2010-06 “Fair Value Measurements and Disclosures” (ASU 2010-06) effective for annual reporting periods beginning after December 15, 2009.  We expect to adopt this ASU on January 1, 2010.  This standard updates FASC 820, “Fair Value Measurements.”  ASU 2010-06 requires additional disclosures about fair value measurements including transfers in and out of Levels 1 and 2 and a higher level of disaggregation for the different types of financial instruments.  For the reconciliation of Level 3 fair value measurements, information about purchases, sales, issuances and settlements should be presented separately.  We do not expect these new rules to have a material impact on our overall results of operations, financial position or cash flows.

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2.  Supplemental Financial Information

DPL Inc.

	At			At
	December 31,			December 31,
$ in millions	2009			2008
Accounts receivable, net:
Unbilled revenue	$	74.9		$	82.5
Customer receivables	99.4			107.5
Amounts due from partners in jointly-owned plants	12.6			28.0
Coal sales	10.6			25.6
Other	16.4			17.4
Provision for uncollectible accounts	(1.1		)	(1.1		)
Total accounts receivable, net	$	212.8		$	259.9
Inventories, at average cost:
Fuel, limestone and emission allowances	$	85.8		$	68.7
Plant materials and supplies	38.5			36.3
Other	1.4			0.1
Total inventories, at average cost	$	125.7		$	105.1

DP&L

	At			At
	December 31,			December 31,
$ in millions	2009			2008
Accounts receivable, net:
Unbilled revenue	$	71.0		$	74.7
Customer receivables	94.4			96.7
Amounts due from partners in jointly-owned plants	12.6			28.0
Coal sales	10.6			25.6
Other	4.5			1.5
Provision for uncollectible accounts	(1.1		)	(1.1		)
Total accounts receivable, net	$	192.0		$	225.4
Inventories, at average cost:
Fuel, limestone and emission allowances	$	85.8		$	68.7
Plant materials and supplies	37.1			35.0
Other	1.4			0.1
Total inventories, at average cost	$	124.3		$	103.8

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3.  Regulatory Matters

In accordance with GAAP, regulatory assets and liabilities are recorded in the balance sheets for our regulated electric transmission and distribution businesses.  Regulatory assets are the deferral of costs expected to be recovered in future customer rates and regulatory liabilities represent current recovery of expected future costs or gains probable of recovery in future rates.

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

Regulatory assets and liabilities on the balance sheets include:

			At		At
	Type of	Amortization	December 31,		December 31,
$ in millions	Recovery (a)	Through	2009		2008
Regulatory Assets:
Deferred recoverable income taxes	C/B	Ongoing	$	36.8	$	43.1
Pension benefits	C	Ongoing	85.2		83.3
Unamortized loss on reacquired debt	C	Ongoing	15.6		17.2
Electric Choice systems costs	F	2011	4.0		7.1
Regional transmission organization costs	D	2014	7.0		8.5
TCRR, transmission, ancillary and other PJM-related costs	F	2011	5.5		—
RPM capacity costs	F	2011	20.0		—
Deferred storm costs - 2008	D		16.0		13.1
Power plant emission fees	C	Ongoing	6.3		6.3
CCEM smart grid and advanced metering infrastructure costs	D		6.5		6.4
CCEM energy efficiency program costs	F	Ongoing	3.6		1.9
Other costs			7.7		8.7
Total regulatory assets			$	214.2	$	195.6
Regulatory Liabilities:
Estimated costs of removal - regulated property			$	99.1	$	96.0
SECA net revenue subject to refund			20.1		20.1
Postretirement benefits			5.1		5.8
Other costs			1.1		—
Total regulatory liabilities			$	125.4	$	121.9

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

C – Recovery of incurred costs only.

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

D – Recovery not yet determined, but is probable of occurring in future rate proceedings.

Regulatory Assets

Deferred recoverable income taxes represent deferred income tax assets recognized from the normalization of flow-through items as the result of amounts previously provided to customers.  This is the cumulative flow-through benefit given to regulated customers that will be collected from them in future years.  Since currently existing temporary differences between the financial statements and the related tax basis of assets will reverse in subsequent periods, these deferred recoverable income taxes are amortized.

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

Unamortized loss on reacquired debt represents losses on long-term debt reacquired or redeemed in prior periods.  These costs are being amortized over the life of the original issues in accordance with FERC rules.

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Electric Choice systems costs represent costs incurred to modify the customer billing system for unbundled customer rates and electric choice utility bills relative to other generation suppliers and information reports provided to the state administrator of the low-income payment program.  In March 2006, the PUCO issued an order that approved our tariff as filed.  We began collecting this rider immediately and expect to recover all costs over five years.

Regional transmission organization costs represent costs incurred to join a RTO.  The recovery of these costs will be requested in a future FERC rate case.  In accordance with FERC precedence, we are amortizing these costs over a 10-year period beginning in 2004 when we joined the PJM RTO.

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

On February 19, 2009, the PUCO approved DP&L’s request to defer transmission, capacity, ancillary and other costs incurred since July 31, 2008 consistent with the provisions of SB 221.  In May 2009, the PUCO granted DP&L authority to recover these costs through retail rates beginning June 1, 2009.  Subsequently, an application for rehearing was filed claiming the PUCO’s order allowing for recovery of RPM capacity costs through a TCRR was unlawful.  The PUCO issued an order granting rehearing and, on September 9, 2009, issued an order directing DP&L to remove the deferred and current RPM capacity costs from the TCRR rider but also indicating that these RPM capacity costs may be recoverable under a separate rider.  DP&L made a compliance filing on September 23, 2009, where it removed such costs from the TCRR rider and proposed a new RTO RPM rider for the recovery of such costs.  The PUCO approved the two separate riders in November 2009.  The sum of the rate collected through the current TCRR rider and the new RTO RPM rider equals the rate collected through the original TCRR rider.  Accordingly, during the period ended December 31, 2009, DP&L deferred total net RTO costs in the amount of $23.5 million.  In addition, DP&L also deferred $1.1 million relating to Regional Transmission Expansion Plan (RTEP) costs and $0.9 million relating to interest and operation and maintenance expenses.  Of the total deferred costs amounting to $25.5 million, $9.8 million relates to the period August 1, 2008 through December 31, 2008, and $15.7 million relates to the year ended December 31, 2009.  The deferral of these costs resulted in a favorable impact to our results of operations.

RPM capacity costs represent the PJM-related costs from the calculations of the PJM Reliability Pricing Model that allocates capacity among the users of the PJM System.  As discussed above, DP&L is recovering these costs through a PUCO-approved RTO RPM rider.  The sum of the rate collected through the current TCRR rider and the new RTO RPM rider equals the rate collected through the original TCRR rider.  We review this rate and are able to make true-up adjustments to it on an annual basis.

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

Power plant emission fees represent costs paid to the State of Ohio since 2002 for environmental monitoring.  An application is pending before the PUCO to amend an approved rate rider that had been in effect to collect fees that were paid and deferred in years prior to 2002.  The deferred costs incurred prior to 2002 have been fully recovered.  As the previously approved rate rider continues to be in effect, we believe these costs are probable of future rate recovery.

CCEM smart grid and advanced metering infrastructure costs represent costs incurred as a result of studying and developing distribution system upgrades and implementation of advanced metering infrastructure.  Consistent with the Stipulation, DP&L re-filed its smart grid and advanced metering infrastructure business cases with the PUCO on August 4, 2009 seeking recovery of costs associated with a 10-year plan to deploy smart meters, distribution and substation automation, core telecommunications, supporting software and in-home technologies.  On August 5, 2009, DP&L submitted an application for American Recovery and Reinvestment Act (ARRA) funding under the Integrated and/or Crosscutting Systems topic area for the Smart Grid Investment Grant Program.  On October 27, 2009, we were notified by the United States Department of Energy (DOE) that we will not receive funding under the ARRA.  A technical conference in this case was held at the PUCO in October 2009 for the smart grid case, and a subsequent PUCO entry established a comment and reply comment period.  A hearing is not yet scheduled for this case.  Based on past PUCO precedent and the Ohio legislature’s intent behind SB221, we believe these costs are probable of future recovery in rates.

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CCEM energy efficiency program costs represent costs incurred to develop and implement various new customer programs addressing energy efficiency.  A portion of these costs is being recovered over three years as part of the Stipulation beginning July 1, 2009; the remaining costs are subject to a two-year true-up process for any over/under recovery of costs.

Other costs primarily include consumer education advertising costs regarding electric deregulation, settlement system costs, other PJM and rate case costs, and alternative energy costs that are or will be recovered over various periods.

Regulatory Liabilities

Estimated costs of removal — regulated property reflect an estimate of amounts collected in customer rates that are expected to be incurred to remove existing transmission and distribution property from service upon retirement.

SECA net revenue subject to refund represents our deferral of amounts collected in customer rates during 2005 and 2006.  SECA revenue and expenses represent FERC-ordered transitional payments for the use of transmission lines within PJM.  A hearing was held in early 2006 to determine if these transitional payments are subject to refund, however, no ruling has been issued.  We began receiving and paying these transitional payments in May 2005.

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

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

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4.  Ownership of Coal-fired Facilities

DP&L and other Ohio utilities have undivided ownership interests in seven coal-fired electric generating facilities and numerous transmission facilities.  Certain expenses, primarily fuel costs for the generating units, are allocated to the owners based on their energy usage.  The remaining expenses, investments in fuel inventory, plant materials and operating supplies, and capital additions are allocated to the owners in accordance with their respective ownership interests.  As of December 31, 2009, we had $42 million of construction work in process at such facilities.  DP&L’s share of the operating cost of such facilities is included within the corresponding line in the Statements of Results of Operations and DP&L’s share of the investment in the facilities is included in the Balance Sheets.

DP&L’s undivided ownership interest in such facilities as well as our wholly-owned coal fired Hutchings plant at December 31, 2009, is as follows.

			DP&L Investment
									SCR and FGD
									Equipment
	DP&L Share						Construction		Installed
		Production	Gross Plant		Accumulated		Work in		and In
	Ownership	Capacity	In Service		Depreciation		Process		Service
	(%)	(MW)	($ in millions)		($ in millions)		($ in millions)		(Yes/No)
Production Units:
Beckjord Unit 6	50.0	210	$	78	$	56	$	—	No
Conesville Unit 4	16.5	129	124		29		3		Yes
East Bend Station	31.0	186	200		129		—		Yes
Killen Station	67.0	402	605		276		2		Yes
Miami Fort Units 7 and 8	36.0	368	345		123		9		Yes
Stuart Station	35.0	820	683		248		21		Yes
Zimmer Station	28.1	365	1,056		597		7		Yes
Transmission (at varying percentages)			91		54		—
Total		2,480	$	3,182	$	1,512	$	42
Wholly-owned production unit:
Hutchings Station	100.0	388	$	122	$	108	$	1	No

DP&L’s share of operating costs associated with the jointly-owned generating facilities are included within the corresponding line in the statements of results of operations.

5.  Assets Sales

Peaker Sales

During 2006, in connection with DPLE’s (a wholly-owned subsidiary of DPL) decision to sell the Greenville Station and Darby Station electric peaking generation facilities, DPL concluded that the related assets were impaired.  Greenville Station consisted of four natural gas peaking units with a net book value of approximately $66 million. Darby Station consisted of six natural gas peaking units with a net book value of approximately $156 million.  During the fourth quarter of 2006, DPL recorded a $71.0 million impairment charge to write-down the assets to their fair value.  The Greenville Station and Darby Station assets were sold by DPLE in April 2007 for $49.2 million and $102.0 million, respectively, in two separate transactions.

Aircraft Sale

On June 7, 2007, Miami Valley CTC, Inc. (an indirect, wholly-owned subsidiary of DPL), sold its corporate aircraft and associated inventory and parts for $7.4 million.  The net book value of the assets sold was approximately $1.0 million, and severance and other costs of approximately $0.4 million were accrued.  Miami Valley CTC, Inc. recorded a net gain on the sale of approximately $6.0 million during the second quarter ending June 30, 2007, which was included in DPL’s Operation and maintenance expense.

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6.  Discontinued Operations

On February 13, 2005, DPL’s subsidiaries, MVE, Inc. (MVE) and MVIC, entered into an agreement to sell their respective interests in forty-six private equity funds to AlpInvest/Lexington 2005, LLC, a joint venture of AlpInvest Partners and Lexington Partners, Inc.  During 2005, MVE and MVIC completed the sale of their interests in forty-three funds and a portion of another of those private equity funds.  During 2005, MVE entered into alternative closing arrangements with AlpInvest/Lexington 2005, LLC for funds where legal title to said funds could not be transferred until a later time.  Pursuant to these arrangements, MVE transferred the economic aspects of the remaining private equity funds, consisting of two funds and a portion of one fund, to AlpInvest/Lexington 2005, LLC without a change in ownership of the interests.  The ownership interest in these funds was transferred in 2006 and 2007, at which time DPL recognized previously deferred gains.  DPL recognized $18.9 million ($12.1 million after tax) of these previously deferred gains in 2006 and the remaining balance of these gains in the amount of $7.9 million, net of associated expenses ($4.9 million after tax), were recognized in 2007.  This transaction was recorded in discontinued operations for each period presented.

As a result of the May 21, 2007 settlement of the litigation with three former executives (see Note 17 of Notes to Consolidated Financial Statements), the three former executives relinquished all of their rights to certain deferred compensation, restricted stock units, MVE incentives, stock options and reimbursement of legal fees.  The reversal of accruals related to the performance of the financial asset portfolio was recorded in discontinued operations.  Additionally, a portion of the $25 million settlement expense was allocated to discontinued operations.  These transactions resulted in a net gain of $8.1 million, net of associated expenses ($5.1 million after tax), on the settlement of litigation being recorded in discontinued operations in 2007.

There were no discontinued operations recorded in 2009 or 2008.

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7.  Debt Obligations

Long-term Debt

	At			At
	December 31,			December 31,
$ in millions	2009			2008
DP&L -
First mortgage bonds maturing 2013 - 5.125%	$	470.0		$	470.0
Pollution control series maturing 2028 - 4.70%	35.3			35.3
Pollution control series maturing 2034 - 4.80%	179.1			179.1
Pollution control series maturing 2036 - 4.80%	100.0			100.0
Pollution control series maturing 2040 - variable rates: 0.24% - 0.85% and 0.80% - 1.25% (a)	—			100.0
	784.4			884.4
Obligation for capital lease	—			0.6
Unamortized debt discount	(0.7		)	(1.0		)
Total long-term debt - DP&L	$	783.7		$	884.0
DPL Inc. -
Senior notes 6.875% series due 2011	297.4			297.4
Note to DPL Capital Trust II 8.125% due 2031	142.6			195.0
Unamortized debt discount	(0.2		)	(0.3		)
Total long-term debt - DPL	$	1,223.5		$	1,376.1

Current portion - Long-term Debt

	At		At
	December 31,		December 31,
$ in millions	2009		2008
DP&L
Pollution control series maturing 2040 - variable rates: 0.24% - 0.85% and 0.80% - 1.25% (a) (b)	$	100.0	$	—
Obligation for capital lease	0.6		0.7
Total current portion - long-term debt - DP&L	$	100.6	$	0.7
DPL Inc.
Senior notes 8.00% series due 2009	—		175.0
Total current portion - long-term debt - DPL	$	100.6	$	175.7

(a)	Range of interest rates for the year ended December 31, 2009 and the one month ended December 31, 2008, respectively.
	These pollution control bonds were issued on December 4, 2008.
(b)	Shown as current since bondholders could call bonds. See further discussion below.

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At December 31, 2009, maturities of long-term debt, including capital lease obligations, are summarized as follows:

$ in millions	DPL		DP&L
2010	$	100.6	$	100.6
2011	297.4		—
2012	—		—
2013	470.0		470.0
2014	—		—
Thereafter	457.0		314.4
	$	1,325.0	$	885.0

Debt and Debt Covenants

On December 21, 2009, DPL purchased $52.4 million principal amount of DPL Capital Trust II 8.125% capital securities in a privately negotiated transaction.  As part of this transaction, DPL paid a $3.7 million, or 7%, premium which was recognized as an expense in the fourth quarter of 2009 and recorded within interest expense on the Consolidated Statements of Results of Operations.

On April 21, 2009, DP&L entered into a $100 million unsecured revolving credit agreement with a syndicated bank group.  The agreement is for a 364-day term expiring on April 20, 2010.  The facility contains one financial covenant: DP&L’s total debt to total capitalization ratio is not to exceed 0.65 to 1.00.  As of December 31, 2009, this covenant is met with a ratio of 0.40 to 1.00.  As of December 31, 2009, there were no borrowings outstanding under this facility.  Fees associated with this credit facility were approximately $0.7 million in 2009.

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

On December 4, 2008, the OAQDA issued $100 million of collateralized, variable rate Revenue Refunding Bonds Series A and B due November 1, 2040.  In turn, DP&L borrowed these funds from the OAQDA.  The payment of principal and interest on the bonds when due is backed by a standby letter of credit (LOC) issued by a syndicated bank group.  This LOC facility, which was for an initial two-year period expiring in December 2010, is irrevocable, has no subjective acceleration clauses and also contains a provision that all outstanding amounts drawn on the facility are due upon the LOC’s expiration date.  Since this LOC facility will expire in December 2010, at which point the bondholders could call the bonds, we have reflected these outstanding bonds as a current liability.  Management will continue to monitor and evaluate market conditions over the next several months and make a determination to either seek a renewal of this standby letter of credit or to explore alternative financing arrangements.  DP&L used $10 million of the proceeds from this bond issuance to finance its portion of the costs for acquiring, constructing and installing certain solid waste disposal and air quality facilities at the Conesville generation station.  The remaining $90 million was used to redeem the 2007 Series A Bonds as discussed in the next paragraph.

On November 15, 2007, the OAQDA issued $90 million of collateralized, variable rate OAQDA Revenue Bonds, 2007 Series A due November 1, 2040.  In turn, DP&L borrowed these funds from the OAQDA.  The payment of principal and interest on the bonds when due was insured by an insurance policy issued by Financial Guaranty Insurance Company (FGIC).  During the first quarter of 2008, all three credit rating agencies downgraded FGIC.  These downgrades, as well as the downgrades of our major bond insurers, resulted in auction rate security bonds carrying substantially higher interest rates in succeeding auctions and incurring failed auctions.  On April 4, 2008, DP&L converted the 2007 Series A Bonds from Auction Rate Securities to Variable Rate Demand Notes.  At that time, DP&L repurchased these notes out of the market and placed them with the Trustee to be held until the capital markets corrected.  These notes were redeemed in December 2008.

On November 21, 2006, DP&L entered into a $220 million unsecured revolving credit agreement.  This agreement has a five-year term that expires on November 21, 2011 and provides DP&L with the ability to increase the size of the facility by an additional $50 million at any time.  The facility contains one financial covenant:  DP&L’s total debt to total capitalization ratio is not to exceed 0.65 to 1.00.  As of December 31, 2009, this covenant is met with a ratio of 0.40 to 1.00.  DP&L had no outstanding borrowings under this credit facility at December 31, 2009.  Fees associated with this credit facility were approximately $0.9 million in 2009 compared to $0.3 million in 2008.  Changes in credit ratings, however, may affect fees and the applicable interest.  This revolving credit agreement contains a $50 million letter of credit sublimit.  As of December 31, 2009, DP&L had no outstanding letters of credit against the facility.  DP&L has certain contractual agreements for the sale and purchase of power, fuel and related energy services that contain credit rating related clauses allowing the counter parties to seek additional surety under certain conditions.

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During the first quarter of 2006, the Ohio Department of Development (ODOD) awarded DP&L the ability to issue, through 2008, up to $200 million of qualified tax-exempt financing from the ODOD’s 2005 volume cap carryforward.  The PUCO approved DP&L’s application for this additional financing on July 26, 2006.  The entire $200 million financing was used to partially fund the FGD capital projects.

Substantially all property, plant and equipment of DP&L are subject to the lien of the mortgage securing DP&L’s First and Refunding Mortgage, dated as of October 1, 1935, with the Bank of New York as Trustee.

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8.  Income Taxes

For the years ended December 31, 2009, 2008 and 2007, DPL’s components of income tax expense were as follows:

DPL

	For the years ended
	December 31,
$ in millions	2009			2008			2007
Computation of Tax Expense
Federal income tax (a)	$	119.9		$	121.9		$	117.3
Increases (decreases) in tax resulting from:
State income taxes, net of federal effect (b)	0.9			4.1			11.6
Depreciation	(2.0		)	(4.3		)	(4.8		)
Investment tax credit amortized	(2.8		)	(2.8		)	(2.8		)
Section 199 - domestic production deduction	(4.6		)	(4.2		)	(2.0		)
Accrual (settlement) for open tax years (c)	(1.4		)	(7.2		)	2.7
Other, net (d)	2.5			(4.6		)	0.5
Total tax expense (e)	$	112.5		$	102.9		$	122.5
Components of Tax Expense
Federal - Current	$	(84.4	)	$	60.9		$	94.2
State and Local - Current	(1.8		)	1.8			6.6
Total Current	$	(86.2	)	$	62.7		$	100.8
Federal - Deferred	$	196.0		$	37.9		$	16.7
State and Local - Deferred	2.7			2.3			5.0
Total Deferred	$	198.7		$	40.2		$	21.7
Total tax expense	$	112.5		$	102.9		$	122.5

Components of Deferred Tax Assets and Liabilities

	At December 31,
$ in millions	2009			2008
Net Noncurrent Assets / (Liabilities)
Depreciation / property basis	$	(583.5	)	$	(391.9	)
Income taxes recoverable	(12.9		)	(15.1		)
Regulatory assets	(16.5		)	(7.7		)
Investment tax credit	12.3			13.3
Investment loss	0.1			0.1
Compensation and employee benefits	35.8			34.2
Insurance	0.8			0.8
Other (f)	(5.2		)	(7.8		)
Net noncurrent (liabilities)	$	(569.1	)	$	(374.1	)
Net Current Assets (g)
Other	$	3.7		$	2.2
Net current assets	$	3.7		$	2.2

(a)	The statutory tax rate of 35% was applied to pre-tax earnings from continuing operations before preferred dividends.
(b)	We have recorded a benefit of $0.2 million and an expense of $0.2 million and $0.5 million in 2009, 2008 and 2007, respectively, for state tax credits available related to the consumption of coal mined in Ohio. In addition, an expense of less than $0.1 million in 2009, a benefit of $0.5 million in 2008 and an expense of $0.9 million in 2007 were recorded as a result of the phase-out of the Ohio Franchise Tax.
(c)	We have recorded benefits of $2.9 million and $40.7 million and an expense of $2.7 million in 2009, 2008 and 2007, respectively, of tax provisions for tax deduction or income positions taken in prior tax returns that we believe were properly treated on such tax returns but for which it is possible that these positions may be contested. The 2008 amount relates to the ODT settlement discussed below.
(d)	Includes an expense of $2.0 million, benefit of $3.8 million and expense of $5.0 million in 2009, 2008 and 2007, respectively, of income tax related to adjustments from prior years.
(e)	Excludes $6.0 million in 2007 of income taxes reported as discontinued operations.
(f)	The Other noncurrent liabilities caption includes deferred tax assets of $12.0 million in 2009 and $10.7 million in 2008 related to state and local tax net operating loss carryforwards, net of related valuation allowances of $12.0 million in 2009 and $10.7 million in 2008. As of December 31, 2009 and 2008, all deferred tax assets related to net operating losses were valued at zero. These net operating loss carryforwards expire from 2017 to 2024.
(g)	Amounts are included within Other prepayments and current assets on the Consolidated Balance Sheets of DPL.

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DPL has recorded $0.7 million, $0.3 million and $1.3 million in 2009, 2008 and 2007, respectively, for tax benefits related to stock-based compensation that were credited to Retained earnings.  We have recorded $1.7 million, $11.5 million and $0.9 million in 2009, 2008 and 2007, respectively, for tax benefits related to pensions, postretirement benefits, cash flow hedges and financial instruments that were credited to Accumulated other comprehensive loss.

For the years ended December 31, 2009, 2008 and 2007, DP&L’s components of income tax were as follows:

DP&L

	For the years ended
	December 31,
$ in millions	2009			2008			2007
Computation of Tax Expense
Federal income tax (a)	$	134.2		$	142.1		$	145.1
Increases (decreases) in tax resulting from:
State income taxes, net of federal effect (b)	0.4			2.6			9.6
Depreciation	(2.0		)	(4.3		)	(4.7		)
Investment tax credit amortized	(2.8		)	(2.8		)	(2.8		)
Non-deductible compensation	—			—			—
Section 199 - domestic production deduction	(4.6		)	(4.2		)	(2.0		)
Accrual (settlement) for open tax years (c)	(1.4		)	(7.2		)	2.7
Other, net (d)	0.7			(6.0		)	(4.8		)
Total tax expense	$	124.5		$	120.2		$	143.1
Components of Tax Expense
Federal - Current	$	(70.3	)	$	81.2		$	117.1
State and Local - Current	(2.5		)	0.9			7.6
Total Current	$	(72.8	)	$	82.1		$	124.7
Federal - Deferred	$	194.4		$	36.4		$	16.3
State and Local - Deferred	2.9			1.7			2.1
Total Deferred	$	197.3		$	38.1		$	18.4
Total tax expense	$	124.5		$	120.2		$	143.1

Components of Deferred Tax Assets and Liabilities

	At December 31,
$ in millions	2009			2008
Net Noncurrent Assets (Liabilities)
Depreciation/property basis	$	(563.7	)	$	(373.8	)
Income taxes recoverable	(12.9		)	(15.1		)
Regulatory assets	(16.5		)	(13.3		)
Investment tax credit	12.3			13.3
Compensation and employee benefits	35.8			34.1
Other	(8.0		)	(3.5		)
Net noncurrent (liabilities)	$	(553.0	)	$	(358.3	)
Net Current Assets (e)
Other	$	3.7		$	2.3
Net current assets	$	3.7		$	2.3

(a)	The statutory tax rate of 35% was applied to pre-tax earnings before preferred dividends.
(b)	We have recorded a benefit of $0.2 million and expenses of $0.2 million and $0.5 million in 2009, 2008 and 2007, respectively, for state tax credits available related to the consumption of coal mined in Ohio. In addition, an expense of less than $0.1 million in 2009, a benefit of $0.5 million in 2008 and an expense of $0.9 million in 2007 were recorded as a result of the phase-out of the Ohio Franchise Tax.
(c)	We have recorded benefits of $2.9 million and $40.7 million and expense of $2.7 million in 2009, 2008 and 2007, respectively, of tax provisions for tax deduction or income positions taken in prior tax returns that we believe were properly treated on such tax returns but for which it is possible that these positions may be contested. The 2008 amount relates to the ODT settlement discussed below.
(d)	Includes and expense of $0.8 million, benefit of $3.5 million and expense of $5.0 million in 2009, 2008 and 2007, respectively, of income tax related to adjustments from prior years.
(e)	Amounts are included within Other prepayments and current assets on the Balance Sheets of DP&L.

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DP&L has recorded $0.7 million, $0.3 million and $1.3 million in 2009, 2008 and 2007, respectively, for tax benefits related to stock-based compensation that were credited to Other paid-in capital.  We have recorded $0.5 million, $16.5 million and $4.6 million in 2009, 2008 and 2007, respectively, for tax benefits related to pensions, postretirement benefits, cash flow hedges and financial instruments that were credited to Accumulated other comprehensive loss.

Accounting for Uncertainty in Income Taxes

We apply the provisions of GAAP relating to the accounting for uncertainty in income taxes.  A reconciliation of the beginning and ending amount of unrecognized tax benefits for DPL and DP&L is as follows:

$ in millions	2009			2008
Balance as of beginning of year	$	1.9		$	56.3
Tax positions taken during prior periods	—			—
Tax positions taken during current period	20.6			1.9
Settlement with taxing authorities	(3.2		)	(56.3		)
Lapse of applicable statute of limitations	—			—
Balance as of end of year	$	19.3		$	1.9

Of the December 31, 2009 balance of unrecognized tax benefits, $21.6 million is due to uncertainty in the timing of deductibility offset by $2.3 million of unrecognized tax liabilities that would affect the effective tax rate.

We recognize interest and penalties related to unrecognized tax benefits in income taxes.  The amount of interest and penalties accrued was a benefit of $0.1 million as of December 31, 2009 and an expense of less than $0.1 million as of December 31, 2008.  The amount of interest and penalties recorded in the statements of results of operations for 2009 and 2008 was a benefit of $0.1 million and $9.0 million, respectively, and an expense of $4.1 million for 2007.

Following is a summary of the tax years open to examination by major tax jurisdiction:

U.S. Federal – 2007 and forward

State and Local – 2005 and forward

None of the unrecognized tax benefits are expected to significantly increase or decrease within the next twelve months.

On February 13, 2006, we received correspondence from the ODT notifying us that the ODT had completed their examination and review of our Ohio Corporation Franchise Tax Returns for tax years 2002 through 2004 and that the final proposed audit adjustments resulted in a balance due of $90.8 million before interest and penalties.  On June 27, 2008, we entered into a $42.0 million settlement agreement with the ODT resolving all outstanding audit issues and appeals, including uncertain tax positions for tax years 1998 through 2006.  The $42 million payment was made to the ODT in July 2008.  Due to this settlement agreement, the balance of our unrecognized state tax liabilities recorded at December 31, 2007, in the amount of $56.3 million, was reversed resulting in a recorded income tax benefit of $8.5 million, net of federal tax impact, in 2008.

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9.  Pension and Postretirement Benefits

DP&L sponsors a defined benefit plan for substantially all employees.  For collective bargaining employees, the defined benefits are based on a specific dollar amount per year of service.  For all other employees, the defined benefit plan is based primarily on compensation and years of service.  We fund pension plan benefits as accrued in accordance with the minimum funding requirements of the Employee Retirement Income Security Act of 1974 (ERISA).  In addition, we have a Supplemental Executive Retirement Plan (SERP) for certain active and retired key executives.  Benefits under this SERP have been frozen and no additional benefits can be earned.  We also have unfunded liabilities related to retirement benefits for certain active, terminated and retired key executives.

On February 23, 2006, DPL’s Board of Directors approved a new compensation and benefits program that includes The DPL Inc. Supplemental Executive Defined Contribution Retirement Plan (SEDCRP) which replaces our SERP that was terminated as to new participants in 2000.  The Compensation Committee of the Board of Directors designates the eligible employees.  Pursuant to the SEDCRP, we provide a supplemental retirement benefit to participants by crediting an account established for each participant in accordance with the Plan requirements.  We designate as hypothetical investment funds under the SEDCRP one or more of the investment funds provided under The Dayton Power and Light Company Employee Savings Plan.  Each participant may change his or her hypothetical investment fund selection at specified times.  If a participant does not elect a hypothetical investment fund(s), then we select the hypothetical investment fund(s) for such participant.

A participant shall become 100% vested in all amounts credited to his or her account upon the completion of five vesting years, as defined in The Dayton Power and Light Company Retirement Income Plan, or upon a change of control or the participant’s death or disability.  If a participant’s employment is terminated, other than by death or disability, prior to such participant becoming 100% vested in his or her account, the account shall be forfeited as of the date of termination.

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

Regulatory assets and liabilities are recorded for the portion of the under- or over-funded obligations related to the transmission and distribution areas of our electric business and for the changes in the funded status of the plan that arise during the year that are not recognized as a component of net periodic benefit cost.  These regulatory assets and liabilities represent the regulated portion that would otherwise be charged or credited to AOCI.  We have historically recorded these costs on the accrual basis and this is how these costs have been historically recovered.  This factor, combined with the historical precedents from the PUCO and FERC, make these costs probable of future rate recovery.

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The following tables set forth our pension and postretirement benefit plans’ obligations and assets recorded on the balance sheets as of December 31, 2009 and 2008.  The amounts presented in the following tables for pension include both the defined benefit pension plan and the Supplemental Executive Retirement Plan in the aggregate, and use a measurement date of December 31, 2009 and 2008.  The amounts presented for postretirement include both health and life insurance benefits and use a measurement date of December 31, 2009 and 2008.

	Pension						Postretirement
$ in millions	2009			2008			2009			2008
Change in Benefit Obligation During Year
Benefit obligation at January 1	$	294.6		$	285.0		$	25.2		$	26.4
Service cost	3.6			3.3			—			—
Interest cost	18.1			16.7			1.5			1.4
Plan amendments	7.2			6.9			1.1			—
Actuarial (gain) / loss	20.3			2.0			0.3			(0.1		)
Benefits paid	(19.9		)	(19.3		)	(1.9		)	(2.5		)
Benefit obligation at December 31	$	323.9		$	294.6		$	26.2		$	25.2
Change in Plan Assets During Year
Fair value of plan assets at January 1	$	225.4		$	291.0		$	6.2		$	6.5
Actual return / (loss) on plan assets	37.5			(46.7		)	0.4			0.2
Contributions to plan assets	0.4			0.4			0.3			2.1
Benefits paid	(19.9		)	(19.3		)	(2.3		)	(2.7		)
Medicare reimbursements	—			—			0.4			0.1
Fair value of plan assets at December 31	$	243.4		$	225.4		$	5.0		$	6.2
Funded Status of Plan	$	(80.5	)	$	(69.2	)	$	(21.2	)	$	(19.0	)
Amounts Recognized in the Balance Sheets at December 31
Current liabilities	$	(0.4	)	$	(0.4	)	$	(0.4	)	$	(0.4	)
Noncurrent liabilities	(80.1		)	(68.8		)	(20.8		)	(18.6		)
Net asset / (liability) at December 31	$	(80.5	)	$	(69.2	)	$	(21.2	)	$	(19.0	)
Amounts Recognized in Accumulated Other Comprehensive Income, Regulatory Assets and Regulatory Liabilities, pre-tax
Components:
Prior service cost / (credit)	$	20.4		$	16.7		$	1.1		$	—
Net actuarial loss / (gain)	130.9			129.9			(6.9		)	(7.8		)
Accumulated other comprehensive income, regulatory assets and regulatory liabilities, pre-tax	$	151.3		$	146.6		$	(5.8	)	$	(7.8	)
Recorded as:
Regulatory asset	$	84.6		$	83.3		$	0.6		$	—
Regulatory liability	—			—			(5.1		)	(5.8		)
Accumulated other comprehensive income	66.7			63.3			(1.3		)	(2.0		)
Accumulated other comprehensive income, regulatoryassets and regulatory liabilities, pre-tax	$	151.3		$	146.6		$	(5.8	)	$	(7.8	)

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The accumulated benefit obligation for our defined benefit pension plans was $314.0 million and $283.3 million at December 31, 2009 and 2008, respectively.

The net periodic benefit cost (income) of the pension and postretirement benefit plans at December 31 were:

Net Periodic Benefit Cost / (Income)	Pension									Postretirement
$ in millions	2009			2008			2007			2009			2008			2007
Service cost	$	3.6		$	3.2		$	3.2		$	—		$	—		$	—
Interest cost	18.1			16.7			16.2			1.5			1.4			1.5
Expected return on assets (a)	(22.5		)	(24.1		)	(22.0		)	(0.4		)	(0.4		)	(0.5		)
Amortization of unrecognized:
Actuarial (gain) / loss	4.4			2.6			3.4			(0.7		)	(0.9		)	(0.9		)
Prior service cost	3.4			2.4			2.4			0.1			—			—
Transition obligation	—			—			—			—			—			0.2
Net periodic benefit cost / (income) before adjustments	$	7.0		$	0.8		$	3.2		$	0.5		$	0.1		$	0.3

(a)For purposes of calculating the expected return on pension plan assets, under GAAP, the market-related value of assets (MRVA) is used.  GAAP requires that the difference between actual plan asset returns and estimated plan asset returns be admitted into the MRVA equally over a period not to exceed five years.  We use a methodology under which we admit the difference between actual and estimated asset returns in the MRVA equally over a three year period.  The MRVA used in the 2009 calculation of expected return on pension plan assets was approximately $275 million.

Other Changes in Plan Assets and Benefit Obligation Recognized in Accumulated Other Comprehensive Income, Regulatory Assets and Regulatory Liabilities

	Pension						Postretirement
$ in millions	2009			2008			2009			2008
Net actuarial (gain) / loss	$	5.3		$	72.8		$	0.3		$	0.2
Prior service cost / (credit)	7.2			6.9			1.1			—
Reversal of amortization item:
Net actuarial (gain) / loss	(4.4		)	(2.6		)	0.7			0.9
Prior service cost / (credit)	(3.4		)	(2.4		)	(0.1		)	—
Transition (asset) / obligation	—			—			—			—
Total recognized in Accumulated other comprehensive income, Regulatory assets and Regulatory liabilities	$	4.7		$	74.7		$	2.0		$	1.1
Total recognized in net periodic benefit cost and Accumulated other comprehensive income, Regulatory assets and Regulatory liabilities	$	11.7		$	75.5		$	2.5		$	1.2

Estimated amounts that will be amortized from Accumulated other comprehensive income, Regulatory assets and Regulatory liabilities into net periodic benefit costs during 2010 are:

$ in millions	Pension		Postretirement
Net actuarial (gain) / loss	$	7.4	$	(0.5	)
Prior service cost / (credit)	3.6		0.1
Transition (asset) / obligation	—		—

On November 26, 2007, DP&L contributed $27.4 million in DPL common stock from its Master Trust assets to the Retirement Income Plan.

Our expected return on plan asset assumptions, used to determine benefit obligations, are based on historical long-term rates of return on investments, which use the widely accepted capital market principle that assets with higher volatility generate a greater return over the long run.  Current market factors, such as inflation and interest rates, as well as asset diversification and portfolio rebalancing, are evaluated when long-term capital market assumptions are determined.  Peer data and historical returns are reviewed to verify reasonableness and appropriateness.

Our overall expected long-term rate of return on assets is approximately 8.50% for pension plan assets and approximately 6.00% for retiree benefit plan assets.  This expected return is based primarily on historical returns and portfolio investment allocation.  There can be no assurance of our ability to generate those rates of return in the future.

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Our overall discount rate was evaluated in relation to the December 31, 2009 Hewitt Top Quartile Yield Curve which represents a portfolio of top-quartile AA-rated bonds used to settle pension obligations and the Citigroup Pension Discount Curve.  Peer data and historical returns were also reviewed to verify the reasonableness and appropriateness of our discount rate used in the calculation of benefit obligations and expense.

The weighted average assumptions used to determine benefit obligations for the years ended December 31, 2009 and 2008 were:

	Pension				Postretirement
Benefit Obligation Assumptions	2009		2008		2009		2008
Discount rate for obligations	5.75	%	6.25	%	5.35	%	6.25	%
Rate of compensation increases	4.44	%	5.44	%	N/A		N/A

The weighted-average assumptions used to determine net periodic benefit cost (income) for the years ended December 31, 2009, 2008 and 2007 were:

Net Periodic Benefit	Pension						Postretirement
Cost / (Income) Assumptions	2009		2008		2007		2009		2008		2007
Discount rate	6.25	%	6.00	%	5.75	%	6.25	%	6.00	%	5.75	%
Expected rate of return on plan assets	8.50	%	8.50	%	8.50	%	6.00	%	6.00	%	6.75	%
Rate of compensation increases	5.44	%	5.44	%	5.44	%	N/A		N/A		N/A

The assumed health care cost trend rates at December 31, 2009 and 2008 are as follows:

	Expense				Benefit Obligations
Health Care Cost Assumptions	2009		2008		2009		2008
Pre - age 65
Current health care cost trend rate	9.50	%	10.00	%	9.50	%	9.50	%
Year trend reaches ultimate	2014		2013		2015		2014
Post - age 65
Current health care cost trend rate	9.00	%	10.00	%	9.00	%	9.00	%
Year trend reaches ultimate	2013		2013		2014		2013
Ultimate health care cost trend rate	5.00	%	5.00	%	5.00	%	5.00	%

The assumed health care cost trend rates have an effect on the amounts reported for the health care plans.  A one-percentage point change in assumed health care cost trend rates would have the following effects on the net periodic postretirement benefit cost and the accumulated postretirement benefit obligation:

Effect of Change in Health Care Cost Trend Rate	One-percent		One-percent
$ in millions	increase		decrease
Service cost plus interest cost	$	0.1	$	(0.1	)
Benefit obligation	$	1.2	$	(1.1	)

The following benefit payments, which reflect future service, are expected to be paid as follows:

Estimated Future Benefit Payments
$ in millions	Pension		Postretirement
2010	$	21.2	$	2.6
2011	$	21.6	$	2.5
2012	$	22.4	$	2.4
2013	$	23.1	$	2.3
2014	$	23.6	$	2.1
2015 - 2019	$	121.6	$	8.4

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We expect to contribute $10.4 million to our pension plans and $2.6 million to our other postretirement benefit plans in 2010.

The Pension Protection Act (the Act) of 2006 contained new requirements for our single employer defined benefit pension plan.  In addition to establishing a 100% funding target for plan years beginning after December 31, 2008, the Act also limits some benefits if the funded status of pension plans drops below certain thresholds.  Among other restrictions under the Act, if the funded status of a plan falls below a predetermined ratio which is 80% in 2010, lump-sum payments to new retirees are limited to 50% of amounts that otherwise would have been paid and new benefit improvements may not go into effect.  For the 2009 plan year, the funded status of our defined benefit pension plan as calculated under the requirements of the Act was 101.7% and is estimated to be 91.7% until the 2010 status is certified in September 2010 for the 2010 plan year.  The Worker, Retiree, and Employer Recovery Act of 2008 (WRERA), which was signed into law on December 23, 2008, grants plan sponsors certain relief from funding requirements and benefit restrictions of the Act.

Plan Assets

Plan assets are invested using a total return investment approach whereby a mix of equity securities, debt securities and other investments are used to preserve asset values, diversify risk and achieve our target investment return benchmark.  Investment strategies and asset allocations are based on careful consideration of plan liabilities, the plan’s funded status and our financial condition.  Investment performance and asset allocation are measured and monitored on an ongoing basis.

Plan assets are managed in a balanced portfolio comprised of two major components:  an equity portion and a fixed income portion.  The expected role of Plan equity investments is to maximize the long-term real growth of Plan assets, while the role of fixed income investments is to generate current income, provide for more stable periodic returns and provide some protection against a prolonged decline in the market value of Plan equity investments.

Long-term strategic asset allocation guidelines are determined by management and take into account the Plan’s long-term objectives as well as its short-term constraints.  The target allocations for plan assets are 30-80% for equity securities, 30-65% for fixed income securities, 0-10% for cash and 0-25% for alternative investments.  Equity securities include U.S. and international equity, while fixed income securities include long-duration and high-yield bond funds and emerging market debt funds.  Other types of investments include investments in hedge funds and private equity funds that follow several different strategies.

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The fair values of our pension plan assets at December 31, 2009 by asset category are as follows:

Fair Value Measurements for Pension Plan Assets at December 31, 2009

Asset Category $ in millions	Market Value at 12/31/09		Quoted Prices in Active Markets for Identical Assets		Significant Observable Inputs		Significant Unobservable Inputs
			(Level 1)		(Level 2)		(Level 3)
Equity Securities (a)
Small/Mid Cap Equity	$	4.5	$	—	$	4.5	$	—
Large Cap Equity	35.9		—		35.9		—
DPL Inc. Common Stock	25.5		25.5		—		—
International Equity	19.2		—		19.2		—
Total Equity Securities	$	85.1	$	25.5	$	59.6	$	—
Debt Securities (b)
Emerging Markets Debt	$	12.9	$	—	$	12.9	$	—
High Yield Bond	13.8		—		13.8		—
Long Duration Fund	77.4		—		77.4		—
Total Debt Securities	$	104.1	$	—	$	104.1	$	—
Cash and Cash Equivalents (c)
Cash	$	0.5	$	0.5	$	—	$	—
Other Investments (d)
Limited Partnership Interest	$	3.1	$	—	$	—	$	3.1
Common Collective Fund	50.6		—		—		50.6
Total Other Investments	$	53.7	$	—	$	—	$	53.7
Total Pension Plan Assets	$	243.4	$	26.0	$	163.7	$	53.7

(a)This category includes investments in equity securities of large, small and medium sized companies and equity securities of foreign companies including those in developing countries. The funds are valued using the net asset value method in which an average of the market prices for the underlying investments is used to value the fund except for the DPL common stock which is valued using the closing price on the New York Stock Exchange.

(b)This category includes investments in investment-grade fixed-income instruments, U.S. dollar-denominated debt securities of emerging market issuers and high yield fixed-income securities that are rated below investment grade. The funds are valued using the net asset value method in which an average of the market prices for the underlying investments is used to value the fund.

(c)This category comprises cash held to pay beneficiaries.  The fair value of cash equals its book value.

(d)This category represents a private equity fund that specializes in management buyouts and a hedge fund of funds made up of 30+ different hedge fund managers diversified over eight different hedge strategies.  The fair value of the private equity fund is determined by the General Partner based on the performance of the individual companies.  The fair value of the hedge fund is valued using the net asset value method in which an average of the market prices for the underlying investments is used to value the fund.

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The change in the fair value for the pension assets valued using significant unobservable inputs (Level 3) was due to the following:

Fair Value Measurements of Pension Assets Using Significant Unobservable Inputs

(Level 3)

$ in millions	Limited Partnership Interest			Common Collective Fund
Beginning balance at December 31, 2008	$	3.1		$	33.1
Actual return on plan assets:
Relating to assets still held at the reporting date	0.1			1.3
Relating to assets sold during the period	—			—
Purchases, sales, and settlements	(0.1		)	16.2
Transfers in and / or out of Level 3	—			—
Ending balance at December 31, 2009	$	3.1		$	50.6

The fair values of our other postretirement benefit plan assets at December 31, 2009 by asset category are as follows:

Fair Value Measurements for Postretirement Plan Assets at December 31, 2009

Asset Category $ in millions	Market Value at 12/31/09		Quoted Prices in Active Markets for Identical Assets		Significant Observable Inputs		Significant Unobservable Inputs
			(Level 1)		(Level 2)		(Level 3)
JP Morgan Core Bond Fund (a)	$	5.0	$	—	$	5.0	$	—

(a)This category includes investments in U.S. government obligations and mortgage-backed and asset-backed securities.  The funds are valued using the net asset value method in which an average of the market prices for the underlying investments is used to value the fund.

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10.  Fair Value Measurements

The fair values of our financial instruments are based on published sources for pricing when possible.  We rely on modelled valuations only when no other method exists.  The fair value of our financial instruments represents estimates of possible value that may not be realized in the future.  The table below presents the fair value and cost of our non-derivative instruments at December 31, 2009 and 2008.

	At December 31,
	2009				2008
$ in millions	Cost		Fair Value		Cost		Fair Value
DPL
Assets
Master Trust Assets	$	12.3	$	12.6	$	13.6	$	13.1
Liabilities
Debt	$	1,324.1	$	1,317.6	$	1,551.8	$	1,470.5
DP&L
Assets
Master Trust Assets	$	26.4	$	40.9	$	29.8	$	40.2
Liabilities
Debt	$	884.3	$	844.5	$	884.7	$	815.7

Debt

Debt is fair valued based on current public market prices for disclosure purposes only.  Unrealized gains or losses are not recognized in the financial statements as debt is presented at amortized cost in the financial statements.  The debt amounts include the current portion payable in the next twelve months and have maturities that range from 2010 to 2040.

Master Trust Assets

DP&L established a Master Trust to hold assets for the benefit of employees participating in employee benefit plans and these assets are not used for general operating purposes.  These assets are primarily comprised of open-ended mutual funds and DPL common stock.  The DPL common stock held by the DP&L Master Trust is eliminated in consolidation and is not reflected in DPL’s Consolidated Balance Sheets.  The DPL common stock is valued using current public market prices, while the open-ended mutual funds are valued using the net asset value per unit.  These investments are accounted for as available-for-sale securities and are recorded at fair value.  Any unrealized gains or losses are recognized in AOCI until the securities are sold.

DPL had $0.3 million ($0.2 million after tax) in unrealized gains and no unrealized losses on the Master Trust assets in AOCI at December 31, 2009 and no unrealized gains and $0.5 million ($0.3 million after tax) in unrealized losses in AOCI at December 31, 2008.

DP&L has $14.5 million ($9.5 million after tax) in unrealized gains and no unrealized losses on the Master Trust assets in AOCI at December 31, 2009 and $10.9 million ($7.0 million after tax) in unrealized gains and $0.5 million ($0.3 million after tax) in unrealized losses in AOCI at December 31, 2008.

No unrealized gains or losses are expected to be transferred to earnings in 2010.

Transfer of Master Trust Assets to Pension

On October 26, 2007, the Board of Directors approved a resolution permitting the transfer of 925,000 shares of DPL common stock from the DP&L Master Trust to The Dayton Power and Light Company Retirement Income Plan Trust (Pension).  This transaction was completed on November 26, 2007, contributing shares of DPL common stock with a fair value of $27.4 million to the pension plan.

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Net Asset Value (NAV) per Unit

The following table discloses the fair value and redemption frequency for those assets whose fair value is estimated using the NAV per unit as of December 31, 2009.  These assets are part of the Master Trust and exclude DPL common stock which is valued using quoted market prices and not the NAV.  Fair values estimated using the net asset value per unit are considered Level 2 inputs within the fair value hierarchy, unless they cannot be redeemed at the NAV on the reporting date.  Investments that have restrictions on the redemption of the investments are Level 3 inputs.  As of December 31, 2009, DPL did not have any investments for sale at a price different than the NAV.

Fair Value Estimated using Net Asset Value per Unit

Investment			Unfunded		Redemption	Redemption
$ in millions	Fair Value		Commitments		Frequency	Notice Period
Money Market Mutual Fund (a)	$	4.1	$	—	Immediate	None
Equity Securities (b)	2.8		—		Immediate	None
Debt Securities (c)	5.5		—		Immediate	None
Multi-Strategy Fund (d)	0.2		—		Immediate	None
Total	$	12.6	$	—

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

(b)This category includes investments in hedge funds representing an S&P 500 index and the Morgan Stanley Capital International (MCSI) U.S. Small Cap 1750 Index.  Investments in this category can be redeemed immediately at the current net asset value per unit.

(c)This category includes investments in U.S. Treasury obligations and U.S. investment grade bonds.  Investments in this category can be redeemed immediately at the current net asset value per unit.

(d)This category includes investments in stocks, bonds and short-term investments in a mix of actively managed funds.  Investments in this category can be redeemed immediately at the current net asset value per unit.

Fair Value Hierarchy

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

Valuations of assets and liabilities reflect the value of the instrument including the values associated with counterparty risk.  We include our own credit risk and our counterparty’s credit risk in our calculation of fair value using the Global Corporate Cumulative Average Default Rates.

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The fair value of assets and liabilities measured on a recurring basis and the respective category within the fair value hierarchy for DPL was determined as follows:

DPL

	Assets and Liabilities Measured at Fair Value on a Recurring Basis
			Level 1		Level 2		Level 3					Fair Value on Consolidated
$ in millions	Fair Value at December 31, 2009*		Based on Quoted Prices in Active Market		Other Observable Inputs		Unobservable Inputs		Collateral and Counterparty Netting			Balance Sheet at December 31, 2009
Assets
Master Trust Assets	$	12.6	$	—	$	12.6	$	—	$	—		$	12.6
Derivative Assets	6.3		—		6.3		—		(1.4		)	4.9
Total	$	18.9	$	—	$	18.9	$	—	$	(1.4	)	$	17.5
Liabilities
Derivative Liabilities	$	4.7	$	1.2	$	3.5	$	—	$	(1.2	)	$	3.5
Total	$	4.7	$	1.2	$	3.5	$	—	$	(1.2	)	$	3.5

*Includes credit valuation adjustments for counterparty risk.

The fair value of assets and liabilities measured on a recurring basis and the respective category within the fair value hierarchy for DP&L was determined as follows:

DP&L

	Assets and Liabilities Measured at Fair Value on a Recurring Basis
			Level 1		Level 2		Level 3					Fair Value on
$ in millions	Fair Value at December 31, 2009*		Based on Quoted Prices in Active Market		Other Observable Inputs		Unobservable Inputs		Collateral and Counterparty Netting			Balance Sheet at December 31, 2009
Assets
Master Trust Assets (a)	$	40.9	$	28.3	$	12.6	$	—	$	—		$	40.9
Derivative Assets	6.3		—		6.3		—		(1.4		)	4.9
Total	$	47.2	$	28.3	$	18.9	$	—	$	(1.4	)	$	45.8
Liabilities
Derivative Liabilities	$	4.7	$	1.2	$	3.5	$	—	$	(1.2	)	$	3.5
Total	$	4.7	$	1.2	$	3.5	$	—	$	(1.2	)	$	3.5

*Includes credit valuation adjustments for counterparty risk.

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

Level 1 inputs are used for DPL common stock held by the Master Trust and for derivative contracts such as heating oil futures.  The fair value is determined by reference to quoted market prices and other relevant information generated by market transactions.  Level 2 inputs are used to value derivatives such as financial transmission rights where the quoted prices are from a relatively inactive market; forward power contracts and forward NYMEX-quality coal contracts which are traded on the OTC market but which are valued using prices on the NYMEX for similar contracts on the OTC market; and open-ended mutual funds that are in the Master Trust valued using the end of day NAV.

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Non-recurring fair value measurements

The fair value of an ARO is estimated by discounting expected cash outflows to their present value at the initial recording of the liability.  Cash outflows are based on the approximate future disposal cost as determined by market information, historical information or other management estimates.  These inputs to the fair value of the AROs would be considered Level 3 inputs under the fair value hierarchy.  We added a new ARO for a landfill and additional layers to our existing landfill and asbestos AROs in the amount of $2.7 million during 2009.

DPL had $45.3 million and $15.0 million in money market funds classified as cash and cash equivalents in its Consolidated Balance Sheets at December 31, 2009 and 2008, respectively.  The money market funds have quoted prices that are generally equivalent to par.

11.  Derivative Instruments and Hedging Activities

In the normal course of business, DPL and DP&L enter into various financial instruments, including derivative financial instruments.  We use derivatives principally to manage the risk of changes in market prices for commodities.  The derivatives that we use to economically hedge these risks are governed by our risk management policies for forward and futures contracts. Our net positions are continually assessed within our structured hedging programs to determine whether new or offsetting transactions are required.  The objective of the hedging program is generally to mitigate financial risks while ensuring that we have adequate resources to meet our requirements.  We monitor and value derivative positions monthly as part of our risk management processes.  We use published sources for pricing when possible to mark positions to market.  All of our derivative instruments are used for risk management purposes and are designated as a cash flow hedge or marked to market each reporting period.

At December 31, 2009, DP&L had the following outstanding derivative instruments:

	Accounting		Purchases	Sales		Net Purchase/ (Sale)
Commodity	Treatment	Unit	(in thousands)	(in thousands)		(in thousands)
FTRs	Mark to Market	MWH	9.3	—		9.3
Heating Oil Futures	Mark to Market	Gallons	3,822.0	—		3,822.0
Forward Power Contracts	Cash Flow Hedge	MWH	84.6	(1,769.2	)	(1,684.6	)
NYMEX-quality Coal Contracts*	Mark to Market	Tons	3,844.0	(1,286.5	)	2,557.5

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

Cash Flow Hedges

As part of our risk management processes, we identify the relationships between hedging instruments and hedged items, as well as the risk management objective and strategy for undertaking various hedge transactions. The MTM value of cash flow hedges as determined by current public market prices will continue to fluctuate with changes in market prices up to contract expiration.  The effective portion of the hedging transaction is recognized in AOCI and transferred to earnings when the hedged forecasted transaction takes place or when the hedged forecasted transaction is probable of not occurring.  The ineffective portion of the cash flow hedge is recognized in earnings in the current period.  All risk components were taken into account to determine the hedge effectiveness of the cash flow hedges.

We currently use cash flow hedging with forward power contracts and in 2003 we entered into an interest rate swap which was settled that same year.  Approximately $2.1 million ($1.4 million net of tax) of accumulated losses in AOCI related to the above mentioned power hedges are expected to be reclassified to earnings over the next twelve months.  The balance of the remaining deferred gain from the interest rate swap in AOCI is being amortized into earnings over the life of the related bonds.  Approximately $2.5 million ($1.6 million net of tax) of accumulated gains in AOCI related to the above referenced interest rate hedge are expected to be reclassified to earnings over the next twelve months.  As of December 31, 2009, the maximum length of time that we are hedging our exposure to variability in future cash flows related to forecasted transactions is 23 months and 106 months for the forward power positions and the interest rate hedge, respectively.

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The following table provides information concerning gains or losses recognized in AOCI for the cash flow hedges:

	December 31,						December 31,						December 31,
	2009						2008						2007
				Interest			Power and			Interest			Power and			Interest
$ in millions (net of tax)	Power			Rate Hedge			Capacity			Rate Hedge			Capacity			Rate Hedge
Beginning accumulated derivative gain / (loss) in AOCI	$	(0.2	)	$	17.2		$	(1.0	)	$	19.7		$	2.1		$	22.1
Net gains / (losses) associated with current period hedging transactions	2.2			—			4.8			—			(0.4		)	—
Net gains reclassified to earnings	(3.4		)	(2.5		)	(4.0		)	(2.5		)	(2.7		)	(2.4		)
Ending accumulated derivative gain / (loss) in AOCI	$	(1.4	)	$	14.7		$	(0.2	)	$	17.2		$	(1.0	)	$	19.7

The following table shows the amount and income statement classification of the gains and losses incurred during the period on DP&L’s derivatives designated as hedging instruments for the year ended December 31, 2009.

For the year ended December 31, 2009

$ in millions (net of tax)	Amount of Gains Recognized in AOCI on Derivative (Effective Portion)		Location of Gain or (Loss) Reclassified from AOCI into Income (Effective Portion)	Amount of Gain or (Loss) Reclassified from AOCI into Income (Effective Portion)		Location of Gains Recognized in Income on Derivative (Ineffective Portion)	Amount of Gain or (Loss) Recognized in Income on Derivative (Ineffective Portion)
Derivatives Designated as Hedging Instruments
Interest Rate Hedge	$	—	Interest expense	$	2.5	Interest expense	$	—
Forward Power Contracts	2.2		Revenues	3.4		Revenues	—
(Decrease) / Increase on the Statements of Results of Operations of DP&L for Derivative Instruments Designated as Hedging Instruments	$	2.2		$	5.9		$	—

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The following table shows the fair value and balance sheet classification of DP&L’s derivative instruments designated as hedging instruments.

Fair Values of Derivative Instruments Designated as Hedging Instruments

At December 31, 2009

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

*Includes counterparty netting.

Mark to Market

Certain derivative contracts are entered into on a regular basis as part of our risk management program but do not qualify for hedge accounting or the normal purchase and sales exceptions under FASC 815.  Accordingly, such contracts are recorded at fair value with changes in the fair value charged or credited to the statements of results of operations in the period in which the change occurred.  This is commonly referred to as “MTM” accounting.  Contracts we enter into as part of our risk management program may be settled financially, by physical delivery or net settled with the counterparty.  We currently MTM Financial Transmission Rights (FTRs), heating oil futures and forward NYMEX-quality coal contracts.

DP&L enters into coal contracts from time to time to supply its generating plants.  We perform a quarterly evaluation of the different coal markets to determine if these coal contracts are considered derivative instruments under FASC 815.  DP&L has concluded that NYMEX and NYMEX look-a-like coal contracts are considered derivative instruments because they have been determined to be readily convertible to cash under FASC 815.

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

Regulatory Assets and Liabilities

Under FASC 980, “Regulated Operations,” if a cost is probable of recovery in future rates, it should be deferred as a regulatory asset.  If a gain is probable of being returned to customers, it should be deferred as a regulatory liability.  Portions of the derivative contracts that are marked to market each reporting period and are related to the retail portion of DP&L’s load requirements are included as part of the fuel factor approved by the PUCO beginning January 1, 2010.  Therefore, the Ohio jurisdictional retail portion of the heating oil futures and the NYMEX-quality coal contracts are deferred as a regulatory asset or liability until the contracts settle.  If these unrealized gains and losses are no longer deemed to be probable of recovery through our rates, they will be reclassified into earnings in the period such determination is made.

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The following table shows the amount and statement of results of operations or balance sheet classification of the gains and losses on DP&L’s derivatives not designated as hedging instruments for the period ended December 31, 2009.

For the year ended December 31, 2009

$ in millions	NYMEX Coal*		Heating Oil			FTRs			Power			Total
Change in unrealized gain / (loss)	$	4.1	$	5.1		$	0.8		$	(0.2	)	$	9.8
Realized gain / (loss)	1.1		(3.1		)	(0.4		)	—			(2.4		)
Total	$	5.2	$	2.0		$	0.4		$	(0.2	)	$	7.4
Recorded on Balance Sheet:
Partner’s share of gain / (loss)	$	1.8	$	—		$	—		$	—		$	1.8
Regulatory (asset) / liability	1.5		(0.5		)	—			—			1.0
Recorded in Income Statement: gain / (loss)
Purchased power	$	—	$	—		$	0.4		$	(0.2	)	$	0.2
Fuel	1.9		2.3			—			—			4.2
O&M	—		0.2			—			—			0.2
Total	$	5.2	$	2.0		$	0.4		$	(0.2	)	$	7.4

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

The following table shows the fair value and Balance Sheet classification of DP&L’s derivative instruments not designated as hedging instruments.

Fair Values of Derivative Instruments Not Designated as Hedging Instruments

At December 31, 2009

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

*Includes counterparty and collateral netting.

Certain of our OTC commodity derivative contracts are under master netting agreements that contain provisions that require our debt to maintain an investment grade credit rating from credit rating agencies.  If our debt were to fall below investment grade, we would be in violation of these provisions, and the counterparties to the derivative instruments could request immediate payment or demand immediate and ongoing full overnight collateralization of the MTM loss.  The aggregate fair value of all derivative instruments that are in a MTM loss position at December 31, 2009, is $4.7 million.  This amount is offset by $1.2 million in a broker margin account which offsets our loss positions on the NYMEX Clearport traded heating oil and coal contracts.  If our debt were to fall below investment grade, we would have to post collateral for the remaining $3.5 million.

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12.  Stock-Based Compensation

In April 2006, DPL’s shareholders approved The DPL Inc. Equity and Performance Incentive Plan (the EPIP) which became immediately effective and will remain in effect for a term of ten years, unless terminated sooner in accordance with its terms.  The Compensation Committee of the Board of Directors will designate the employees and directors eligible to participate in the EPIP and the times and types of awards to be granted.  Under the EPIP, the Compensation Committee may grant equity-based compensation in the form of stock options, stock appreciation rights, restricted stock, restricted stock units, performance shares and units, and other stock-based awards.  Awards may be subject to the achievement of certain management objectives.  In addition, the EPIP provides, upon recommendation of the Chief Executive Officer and Chairman of the Board, for a grant of a special equity award to recognize outstanding performance.  A total of 4,500,000 shares of DPL common stock were reserved for issuance under the EPIP.

The following table summarizes share-based compensation expense recorded at DPL and DP&L:

	For the years ended
	December 31,
$ in millions	2009			2008			2007
Stock options	$	—		$	—		$	—
Restricted stock units	—			(0.1		)	—
Performance shares	1.8			0.9			1.5
Restricted shares	0.7			0.3			0.3
Non-employee directors’ RSUs	0.5			0.5			0.3
Management performance shares	0.7			0.3			—
Share-based compensation included in Operation and maintenance expense	3.7			1.9			2.1
Income tax expense / (benefit)	(1.3		)	(0.7		)	(0.7		)
Total share-based compensation, net of tax	$	2.4		$	1.2		$	1.4

Share-based awards issued in DPL’s common stock will be distributed from treasury stock.  DPL has sufficient treasury stock to satisfy all outstanding share-based awards.

Determining Fair Value

Valuation and Amortization Method — We estimate the fair value of stock options and RSUs using a Black-Scholes-Merton model; performance shares are valued using a Monte Carlo simulation; restricted shares are valued at the closing market price on the day of grant and the Directors’ RSUs are valued at the closing market price on the day prior to the grant date.  We amortize the fair value of all awards on a straight-line basis over the requisite service periods, which are generally the vesting periods.

Expected Volatility — Our expected volatility assumptions are based on the historical volatility of DPL common stock.  The volatility range captures the high and low volatility values for each award granted based on its specific terms.

Expected Life — The expected life assumption represents the estimated period of time from grant until exercise and reflects historical employee exercise patterns.

Risk-Free Interest Rate — The risk-free interest rate for the expected term of the award is based on the corresponding yield curve in effect at the time of the valuation for U.S. Treasury bonds having the same term as the expected life of the award, i.e., a five year bond rate is used for valuing an award with a five year expected life.

Expected Dividend Yield — The expected dividend yield is based on DPL’s current dividend rate, adjusted as necessary to capture anticipated dividend changes and the 12 month average DPL common stock price.

Expected Forfeitures — The forfeiture rate used to calculate compensation expense is based on DPL’s historical experience, adjusted as necessary to reflect special circumstances.

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Stock Options

In 2000, DPL’s Board of Directors adopted and DPL’s shareholders approved The DPL Inc. Stock Option Plan.  On April 26, 2006, DPL’s shareholders approved The DPL Inc. 2006 Equity and Performance Incentive Plan (EPIP).  With the approval of the EPIP, no new awards will be granted under The DPL Inc. Stock Option Plan, but shares relating to awards that are forfeited or terminated under The DPL Inc. Stock Option Plan may be granted under the EPIP.  As of December 31, 2009, there were no unvested stock options.

Summarized stock option activity was as follows:

	For the years ended
	December 31,
	2009			2008			2007
Options:
Outstanding at beginning of year	836,500			946,500			5,091,500
Granted	—			—			—
Exercised	(419,000		)	(110,000		)	(525,000		)
Forfeited (a)	—			—			(3,620,000		)
Outstanding at year-end	417,500			836,500			946,500
Exercisable at year-end	417,500			836,500			946,500
Weighted average option prices per share:
Outstanding at beginning of year	$	24.64		$	24.09		$	21.95
Granted	$	—		$	—		$	—
Exercised	$	21.53		$	18.56		$	26.79
Forfeited	$	—		$	—		$	20.38
Outstanding at year-end	$	27.16		$	24.64		$	24.09
Exercisable at year-end	$	27.16		$	24.64		$	24.09

(a)  As a result of the settlement of the former executive litigation on May 21, 2007, 3.6 million outstanding options shown above were forfeited in the second quarter of 2007 and another approximately one million disputed options not shown above were also forfeited.

The following table reflects information about stock options outstanding at December 31, 2009:

		Options Outstanding			Options Exercisable
		Weighted-	Weighted-			Weighted-
		Average	Average			Average
Range of Exercise		Contractual	Exercise			Exercise
Prices	Outstanding	Life (in Years)	Price		Exercisable	Price
$14.95 - $21.00	141,000	0.7	$	20.97	141,000	$	20.97
$21.01 - $29.63	276,500	1.0	$	29.42	276,500	$	29.42

The following table reflects information about stock option activity during the period:

	For the years ended
	December 31,
$ in millions	2009		2008		2007
Weighted-average grant date fair value of options granted during the period	$	—	$	—	$	—
Intrinsic value of options exercised during the period	$	2.2	$	1.0	$	2.3
Proceeds from stock options exercised during the period	$	9.0	$	2.2	$	14.6
Excess tax benefit from proceeds of stock options exercised	$	0.7	$	0.3	$	1.3
Fair value of shares that vested during the period	$	—	$	—	$	—
Unrecognized compensation expense	$	—	$	—	$	—
Weighted average period to recognize compensation expense (in years)	—		—		—

No options were granted during 2007, 2008 or 2009.

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Restricted Stock Units (RSUs)

RSUs were granted to certain key employees prior to 2001.  As a result of the settlement of the former executive litigation, all disputed RSUs (1.3 million) were forfeited by three former executives (see Note 17 of Notes to Consolidated Financial Statements).  There were 3,311 RSUs outstanding as of December 31, 2009, none of which has vested.  The non-vested RSUs will be paid in cash upon vesting in 2010.  Non-vested RSUs are valued quarterly at fair value using the Black-Scholes-Merton model to determine the amount of compensation expense to be recognized.  Non-vested RSUs do not earn dividends.

			Weighted-Avg.
	Number of		Grant Date
$ in millions	RSUs		Fair Value
Non-vested at January 1, 2009	10,120		$	0.2
Granted in 2009	—		—
Vested in 2009	(6,809	)	(0.1		)
Forfeited in 2009	—		—
Non-vested at December 31, 2009	3,311		$	0.1

Summarized RSU activity was as follows:

	For the years ended
	December 31,
	2009		2008		2007
RSUs:
Outstanding at beginning of year	10,120		22,976		1,334,339
Granted	—		—		—
Dividends	—		—		11,656
Exercised	(6,809	)	(11,253	)	(20,097	)
Forfeited	—		(1,603	)	(1,302,922	)
Outstanding at period end	3,311		10,120		22,976
Exercisable at period end	—		—		—

Compensation expense is recognized each quarter based on the change in the market price of DPL common stock.

As of December 31, 2009, 2008 and 2007, liabilities recorded for outstanding RSUs were $0.1 million, $0.2 million and $0.6 million, respectively, which are included in Other deferred credits on the balance sheets.

The following table shows the assumptions used in the Black-Scholes-Merton model to calculate the fair value of the non-vested RSUs during the respective periods:

	For the years ended
	December 31,
	2009	2008	2007
Expected volatility	17.9%	24.8% - 28.1%	6.1% - 15.3%
Weighted-average expected volatility	17.9%	26.0%	13.0%
Expected life (years)	0.6	1.0 - 2.0	1.0 - 3.0
Expected dividends	5.1%	4.5%	3.8%
Weighted-average expected dividends	5.1%	4.5%	3.8%
Risk-free interest rate	0.2%	0.2% - 0.4%	3.0% - 3.3%

Performance Shares

Under the EPIP, the Board adopted a Long-Term Incentive Plan (LTIP) under which DPL will grant a targeted number of performance shares of common stock to executives.  Grants under the LTIP will be awarded based on a Total Shareholder Return Relative to Peers performance.  No performance shares will be earned in a performance period if the three-year Total Shareholder Return Relative to Peers is below the threshold of the 40th percentile.  Further, the LTIP awards will be capped at 200% of the target number of performance shares, if the Total Shareholder Return Relative to Peers is at or above the threshold of the 90th percentile.  The Total Shareholder Return Relative to Peers is considered a market condition under FASC 718.  There is a three year requisite service period for each portion of the performance shares.

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The schedule of non-vested performance share activity for the year ended December 31, 2009 follows:

	Number of		Weighted-Avg.
	Performance		Grant Date
$ in millions	Shares		Fair Value
Non-vested at January 1, 2009	119,855		$	3.3
Granted in 2009	124,588		2.8
Vested in 2009	(47,355	)	(1.6		)
Forfeited in 2009	(6,739	)	(0.2		)
Non-vested at December 31, 2009	190,349		$	4.3

	For the years ended
	December 31,
	2009		2008		2007
Performance shares:
Outstanding at beginning of year	156,300		142,108		154,768
Granted	124,588		93,298		78,559
Exercised	—		—		(22,462	)
Expired	(36,445	)	(37,426	)	(21,583	)
Forfeited	(6,739	)	(41,680	)	(47,174	)
Outstanding at period end	237,704		156,300		142,108
Exercisable at period end	47,355		36,445		37,426

The following table reflects information about performance share activity during the period:

	For the years ended
	December 31,
$ in millions	2009		2008		2007
Weighted-average grant date fair value of performance shares granted during the period	$	2.8	$	2.2	$	2.6
Intrinsic value of performance shares exercised during the period	$	—	$	—	$	0.6
Proceeds from performance shares exercised during the period	$	—	$	—	$	—
Excess tax benefit from proceeds of performance shares exercised	$	—	$	—	$	—
Fair value of performance shares that vested during the period	$	1.6	$	0.8	$	0.8
Unrecognized compensation expense	$	2.1	$	1.6	$	1.9
Weighted average period to recognize compensation expense (in years)	1.7		1.6		1.7

The following table shows the assumptions used in the Monte Carlo Simulation to calculate the fair value of the performance shares granted during the period:

	For the years ended
	December 31,
	2009	2008	2007
Expected volatility	22.8% - 23.3%	15.0% - 15.7%	15.8% - 17.3%
Weighted-average expected volatility	22.8%	15.1%	16.6%
Expected life (years)	3.0	3.0	3.0
Expected dividends	5.4% - 5.6%	3.5% - 4.1%	3.3% - 3.9%
Weighted-average expected dividends	5.6%	4.1%	3.4%
Risk-free interest rate	0.3% - 1.5%	2.2% - 3.2%	4.5% - 4.9%

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Restricted Shares

Under the EPIP, the Board granted shares of DPL Restricted Shares to various executives.  The Restricted Shares are registered in the executive’s name, carry full voting privileges, receive dividends as declared and paid on all DPL common stock and vest after a specified service period.

In July 2008, the Board of Directors granted compensation awards to a select group of management employees.  The management restricted stock awards have a three-year requisite service period, carry full voting privileges and receive dividends as declared and paid on all DPL common stock.

On September 17, 2009, the DPL Board of Directors approved a two-part equity compensation award under DPL’s 2006 Equity and Performance Incentive Plan for certain of DPL’s executive officers.  The first part is a restricted share grant and the second part is a matching restricted share grant.  A total of 90,036 restricted shares were granted on September 17, 2009 as part of the restricted share grant.  These restricted shares generally vest after five years if the participant remains continuously employed with DPL or a subsidiary and if the year over year average basic EPS has increased by at least 1% per year from 2009 - 2013.  Under the matching restricted share grant, participants will have a three-year period from the date of plan implementation during which they may purchase DPL common stock equal in value to up to two times their base salary.  DPL will match the shares purchased with another grant of restricted stock (matching restricted share grant).  The percentage match by DPL is detailed in the table below.  The matching restricted share grant will generally vest over a three year period if the participant continues to hold the originally purchased shares and remains continuously employed with DPL or a subsidiary. The restricted shares are registered in the executive’s name, carry full voting privileges and receive dividends as declared and paid on all DPL common stock.

The matching criteria are:

Value (Cost Basis) of
Shares Purchased as a	Company % Match of
% of 2009 Base Salary	Shares Purchased
<25%	25%
25% to <50%	50%
50% to <100%	75%
100% to 200%	125%

The matching percentage will be applied on a cumulative basis and adjusted at the end of each quarter.

Restricted stock can only be awarded in DPL common stock.

	Number of		Weighted-Avg.
	Restricted		Grant Date
$ in millions	Shares		Fair Value
Non-vested at January 1, 2009	69,147		$	1.9
Granted in 2009	159,050		4.2
Vested in 2009	(10,000	)	(0.3		)
Forfeited in 2009	—		—
Non-vested at December 31, 2009	218,197		$	5.8

	For the years ended
	December 31,
	2009		2008		2007
Restricted shares:
Outstanding at beginning of year	69,147		42,200		19,000
Granted	159,050		39,347		23,200
Exercised	(10,000	)	(1,000	)	—
Forfeited	—		(11,400	)	—
Outstanding at period end	218,197		69,147		42,200
Exercisable at period end	—		—		—

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The following table reflects information about restricted share activity during the period:

	For the years ended
	December 31,
$ in millions	2009		2008		2007
Weighted-average grant date fair value of restricted shares granted during the period	$	4.2	$	1.1	$	0.7
Intrinsic value of restricted shares exercised during the period	$	0.3	$	—	$	—
Proceeds from restricted shares exercised during the period	$	—	$	—	$	—
Excess tax benefit from proceeds of restricted shares exercised	$	—	$	—	$	—
Fair value of restricted shares that vested during the period	$	0.3	$	—	$	—
Unrecognized compensation expense	$	4.3	$	1.3	$	0.9
Weighted average period to recognize compensation expense (in years)	3.4		2.7		2.8

Non-Employee Director Restricted Stock Units

Under the EPIP, as part of their annual compensation for service to DPL and DP&L, each non-employee Director receives a retainer in RSUs on the date of the annual meeting of shareholders.  The RSUs will become non-forfeitable on April 15 of the following year.  All of the RSUs become non-forfeitable in the event of death, disability, or change in control; but if the Director resigns or retires prior to the April 15 vesting date, the vested shares will be distributed on a pro rata basis.  The RSUs accrue quarterly dividends in the form of additional RSUs.  Upon vesting, the RSUs will become exercisable and will be distributed in DPL common stock, unless the Director chooses to defer receipt of the shares until a later date.  The RSUs are valued at the closing stock price on the day prior to the grant and the compensation expense is recognized evenly over the vesting period.

	Number of		Weighted-Avg.
	Director		Grant Date
$ in millions	RSUs		Fair Value
Non-vested at January 1, 2009	15,546		$	0.4
Granted in 2009	20,016		0.5
Dividends accrued in 2009	1,737		—
Exercised and issued in 2009	(2,066	)	(0.1		)
Exercised and deferred in 2009	(14,521	)	(0.4		)
Forfeited in 2009	—		—
Non-vested at December 31, 2009	20,712		$	0.4
	For the years ended
	December 31,
	2009		2008			2007
Restricted stock units:
Outstanding at beginning of year	15,546		13,573			—
Granted	20,016		17,022			14,920
Dividends accrued	1,737		931			348
Exercised and issued	(2,066	)	(7,910		)	(142	)
Exercised and deferred	(14,521	)	(6,921		)	—
Forfeited	—		(1,149		)	(1,553	)
Outstanding at period end	20,712		15,546			13,573
Exercisable at period end	—		—			—

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The following table reflects information about non-employee director RSU activity during the period:

	For the years ended
	December 31,
$ in millions	2009		2008		2007
Weighted-average grant date fair value of non-employee director RSUs granted during the period	$	0.5	$	0.5	$	0.5
Intrinsic value of non-employee director RSUs exercised during the period	$	0.4	$	0.4	$	—
Proceeds from non-employee director RSUs exercised during the period	$	—	$	—	$	—
Excess tax benefit from proceeds of non-employee director RSUs exercised	$	—	$	—	$	—
Fair value of non-employee director RSUs that vested during the period	$	0.5	$	0.5	$	0.3
Unrecognized compensation expense	$	0.1	$	0.1	$	0.1
Weighted average period to recognize compensation expense (in years)	0.3		0.3		0.3

Management Performance Shares

On May 28, 2008, the Board of Directors granted compensation awards for select management employees.  The grants have a three year requisite service period and certain performance conditions during the performance period.  The management performance shares can only be awarded in DPL common stock.

	Number of		Weighted-Avg.
	Mgt. Performance		Grant Date
$ in millions	Shares		Fair Value
Non-vested at January 1, 2009	39,144		$	1.1
Granted in 2009	48,719		1.0
Vested in 2009	—		—
Forfeited in 2009	(3,622	)	(0.1		)
Non-vested at December 31, 2009	84,241		$	2.0
	For the years ended
	December 31,
	2009		2008			2007*
Management Performance Shares:
Outstanding at beginning of year	39,144		—			—
Granted	48,719		39,144			—
Exercised	—		—			—
Forfeited	(3,622	)	—			—
Outstanding at period end	84,241		39,144			—
Exercisable at period end	—		—			—

*Management performance shares were not issued in 2007.

The following table shows the assumptions used in the Monte Carlo Simulation to calculate the fair value of the management performance shares granted during the period:

	For the years ended
	December 31,
	2009		2008		2007*
Expected volatility	22.8	%	14.9	%	0.0	%
Weighted-average expected volatility	22.8	%	14.9	%	0.0	%
Expected life (years)	3.0		3.0		—
Expected dividends	5.6	%	3.9	%	0.0	%
Weighted-average expected dividends	5.6	%	3.9	%	0.0	%
Risk-free interest rate	1.5	%	2.9	%	0.0	%

*Management performance shares were not issued in 2007.

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The following table reflects information about management performance share activity during the period:

	For the years ended
	December 31,
$ in millions	2009		2008		2007*
Weighted-average grant date fair value of management perfomance shares granted during the period	$	1.0	$	1.1	$	—
Intrinsic value of management performance shares exercised during the period	$	—	$	—	$	—
Proceeds from management performance shares exercised during the period	$	—	$	—	$	—
Excess tax benefit from proceeds of management performance shares exercised	$	—	$	—	$	—
Fair value of management performance shares that vested during the period	$	—	$	—	$	—
Unrecognized compensation expense	$	1.0	$	0.8	$	—
Weighted average period to recognize compensation expense (in years)	1.6		2.0		—

*Management performance shares were not issued in 2007.

13.  Redeemable Preferred Stock

DP&L has $100 par value preferred stock, 4,000,000 shares authorized, of which 228,508 are outstanding as of December 31, 2009.  DP&L also has $25 par value preferred stock, 4,000,000 shares authorized, none of which was outstanding as of December 31, 2009.  The table below details the preferred shares outstanding at December 31, 2009.

			Redemption		Shares	Par Value at		Par Value at
	Preferred		Price at		Outstanding at	December 31,		December 31,
	Stock		December 31,		December 31,	2009		2008
	Rate		2009		2009	($ in millions)		($ in millions)
DP&L Series A	3.75	%	$	102.50	93,280	$	9.3	$	9.3
DP&L Series B	3.75	%	$	103.00	69,398	7.0		7.0
DP&L Series C	3.90	%	$	101.00	65,830	6.6		6.6
Total					228,508	$	22.9	$	22.9

The DP&L preferred stock may be redeemed at DP&L’s option as determined by its Board of Directors at the per-share redemption prices indicated above, plus cumulative accrued dividends.  In addition, DP&L’s Amended Articles of Incorporation contain provisions that permit preferred stockholders to elect members of the Board of Directors in the event that cumulative dividends on the preferred stock are in arrears in an aggregate amount equivalent to at least four full quarterly dividends.  Since this potential redemption-triggering event is not solely within the control of DP&L, the preferred stock is presented on the Balance Sheets as “Redeemable Preferred Stock” in a manner consistent with temporary equity.

As long as any DP&L preferred stock is outstanding, DP&L’s Amended Articles of Incorporation also 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 $1.2 million.  This dividend restriction has historically not impacted DP&L’s ability to pay cash dividends and, as of December 31, 2009, DP&L’s retained earnings of $640.3 million were all available for common stock dividends payable to DPL.  We do not expect this restriction to have an effect on the payment of cash dividends in the future.  DPL records dividends on preferred stock of DP&L within Interest expense on the Statements of Results of Operations.

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14.  Common Shareholders’ Equity

DPL has 250,000,000 authorized common shares, of which 118,966,767 are outstanding at December 31, 2009.

Dividend Reinvestment Plan

On March 1, 2009, DPL introduced a new direct stock purchase and dividend reinvestment plan. The plan provides both registered shareholders and new investors with the ability to purchase shares and also to reinvest their dividends.  This plan is administered by Computershare Trust Company, N.A., and not by DPL.

Shareholder Rights Plan

In September 2001, DPL’s Board of Directors renewed its Shareholder Rights Plan, attaching one right to each common share outstanding at the close of business on December 13, 2001.  The rights separate from the common shares and become exercisable at the exercise price of $130 per right in the event of certain attempted business combinations.  The renewed plan expires on December 31, 2011.

Warrants

In February 2000, DPL entered into a series of recapitalization transactions which included the issuance of 31.6 million warrants for an aggregate purchase price of $50 million.  The warrants are exercisable, in whole or in part, for common shares at any time during the twelve-year period commencing on March 13, 2000.  Each warrant is exercisable for one common share, subject to anti-dilution adjustments (e.g., stock split, stock dividend) at an exercise price of $21.00 per common share.

In addition, in the event of a declaration, issuance or consummation of any dividend, spin-off or other distribution or similar transaction by DPL of the capital stock of any of its subsidiaries, additional warrants of such subsidiary will be issued to the warrant holder so that after the transaction, the warrant holder will have the same interest in the fully diluted number of common shares of such subsidiary the warrant holder had in DPL immediately prior to such transaction.

Pursuant to the warrant agreement, DPL has authorized common shares sufficient to provide for the exercise in full of all outstanding warrants.

The table below details the net change during 2009 of DPL’s outstanding warrants:

	Number
in millions	of Warrants
Outstanding warrants at January 1, 2009	19.6
Warrants repurchased at an average price of $2.94 each	(8.6	)
Warrants exercised under cashless transactions	(5.5	)
Warrants exercised for cash	(3.7	)
Outstanding warrants at December 31, 2009	1.8

The warrants repurchased were cancelled by DPL on the dates they were repurchased.  As a result of the warrants exercised under both cash and cashless provisions, DPL issued a total of 5.0 million shares of common stock from treasury stock and in turn received total cash proceeds of $77.7 million.  DPL used a portion of the proceeds to repurchase warrants directly from holders and the remaining proceeds were used to repurchase shares under its Stock Repurchase Program discussed below.

Stock Repurchase Program

On October 28, 2009, the DPL Board of Directors approved a Stock Repurchase Program under which DPL may use proceeds from the exercise of warrants to repurchase warrants or its common stock from time to time in the open market, through private transactions or otherwise. The Stock Repurchase Program will run through June 30, 2012, which is three months after the end of the warrant exercise period.  Under the Stock Repurchase Program, DPL repurchased a total of 2.4 million shares at an average per share price of $26.96 during the quarter ended December 31, 2009.  At December 31, 2009, the amount still available that could be used to repurchase stock under the Stock Repurchase Program is approximately $3.9 million but could be higher if additional warrants are exercised for cash in the future.

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ESOP

During October 1992, our Board of Directors approved the formation of a Company-sponsored ESOP to fund matching contributions to DP&L’s 401(k) retirement savings plan and certain other payments to eligible full-time employees.  This leveraged ESOP is funded by an exempt loan, which is secured by the ESOP shares.  As debt service payments are made on the loan, shares are released on a pro rata basis.  ESOP shares used to fund matching contributions to DP&L’s 401(k) vest after three years of service; other compensation shares awarded vest immediately.

In general, participants are eligible for lump sum payments upon termination of their employment and the submission and subsequent approval of an application for benefits.  Earlier distributions can occur for a Qualified Domestic Relations Order or for death.  Otherwise, distribution must occur within 60 days after the plan year in which the later of one of the following events occur: 65th birthday, 10th anniversary of participation, or termination of employment.  Participants are allowed to take distributions during employment if older than 59½ and/or for a hardship as defined in the Plan document.  Additionally, participants may elect on a quarterly basis to diversify their vested ESOP shares into DP&L’s 401(k) retirement savings plan.  Distributions are made in cash unless the participant requests the distribution be made in stock.  A repurchase obligation exists for vested shares held by the ESOP if they cannot be sold in the open market.  The fair value of shares subject to the repurchase obligation at December 31, 2009 and 2008 was approximately $57.6 million and $42.4 million, respectively.

In 1992, the Plan entered into a $90 million loan agreement with DPL in order to purchase shares of DPL common stock in the open market.  The term loan agreement provided for principal and interest on the loan to be paid prior to October 9, 2007, with the right to extend the loan for an additional ten years.  In 2007, the maturity date was extended to October 7, 2017.  Effective January 1, 2009, the interest on the loan was amended to a fixed rate of 2.06%, payable annually.  Dividends received by the ESOP for unallocated shares are used to repay the principal and interest on the ESOP loan to DPL.  Dividends on the allocated shares are charged to retained earnings.

The ESOP used the full amount of the loan to purchase 4.7 million shares of DPL common stock in the open market.  As a result of the 1997 stock split, the ESOP held 7.1 million shares of DPL common stock.  The cost of shares held by the ESOP and not yet released is reported as a reduction of Common shareholders’ equity.  At December 31, 2009, Common shareholders’ equity reflects the cost of 2.8 million unreleased shares held in suspense by the DPL Inc. Employee Stock Ownership Trust.  The fair value of the 2.8 million ESOP shares held in suspense at December 31, 2009 was $77.5 million.  When shares are committed to be released from the ESOP, compensation expense is recorded based on the fair value of the shares committed to be released, with a corresponding credit to our equity.  Compensation expense associated with the ESOP, which is based on the fair value of the shares committed to be released for allocation, amounted to $4.0 million in 2009, $1.5 million in 2008 and $9.0 million in 2007.

For purposes of EPS computations and in accordance with GAAP, we treat ESOP shares as outstanding if they have been allocated to participants, released or have been committed to be released.  As of December 31, 2009, the ESOP has 4.2 million shares allocated to participants with an additional 21 thousand shares which have been released but unallocated to participants.  ESOP cumulative shares outstanding for the calculation of EPS were 4.2 million in 2009, 4.0 million in 2008 and 3.9 million in 2007.

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15.  Comprehensive Income (Loss)

Comprehensive income (loss) is defined as the change in equity (net assets) of a business entity during a period from transactions and other events and circumstances from non-owner sources.  It includes all changes in equity during a period except those resulting from investments by owners and distributions to owners.   Comprehensive income (loss) has two components: Net income (loss) and Other comprehensive income (loss).

The following table provides the tax effects allocated to each component of Other comprehensive income (loss) for the years ended December 31, 2009, 2008 and 2007:

	DPL									DP&L
	Amount			Tax						Amount			Tax
	before			(expense) /			Amount			before			(expense) /			Amount
$ in millions	tax			benefit			after tax			tax			benefit			after tax
2007:
Unrealized gains / (losses) on financial instruments	$	(1.4	)	$	0.5		$	(0.9	)	$	(11.9	)	$	4.2		$	(7.7	)
Deferred gains / (losses) on cash flow hedges	(7.1		)	1.6			(5.5		)	(7.1		)	1.6			(5.5		)
Unrealized gains / (losses) on pension and postretirement benefits	3.4			(1.2		)	2.2			3.4			(1.2		)	2.2
Other comprehensive income (loss)	$	(5.1	)	$	0.9		$	(4.2	)	$	(15.6	)	$	4.6		$	(11.0	)
2008:
Unrealized gains / (losses) on financial instruments	$	(0.8	)	$	0.3		$	(0.5	)	$	(15.0	)	$	5.2		$	(9.8	)
Deferred gains / (losses) on cash flow hedges	(1.3		)	(0.4		)	(1.7		)	(1.3		)	(0.4		)	(1.7		)
Unrealized gains / (losses) on pension and postretirement benefits	(33.1		)	11.6			(21.5		)	(33.4		)	11.7			(21.7		)
Other comprehensive income (loss)	$	(35.2	)	$	11.5		$	(23.7	)	$	(49.7	)	$	16.5		$	(33.2	)
2009:
Unrealized gains / (losses) on financial instruments	$	0.8		$	(0.3	)	$	0.5		$	4.2		$	(1.5	)	$	2.7
Deferred gains / (losses) on cash flow hedges	(4.3		)	0.6			(3.7		)	(4.3		)	0.6			(3.7		)
Unrealized gains / (losses) on pension and postretirement benefits	(4.1		)	1.4			(2.7		)	(4.1		)	1.4			(2.7		)
Other comprehensive income (loss)	$	(7.6	)	$	1.7		$	(5.9	)	$	(4.2	)	$	0.5		$	(3.7	)

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The following table provides the detail of each component of Other comprehensive income (loss) reclassified to Net income during the years ended December 31, 2009, 2008 and 2007:

DPL

$ in millions	2009			2008			2007
Unrealized gains on financial instruments net of income tax expense of $1.1 million in 2007. There were no unrealized gains or losses reclassified to earnings in 2009 or 2008.	$	—		$	—		$	2.0
Deferred gains on cash flow hedges net of income tax expenses of $1.8 million, $2.2 million and $1.5 million, respectively.	5.9			6.5			5.1
Unrealized losses on pension and postretirement benefits net of income tax benefits of $1.1 million, $0.7 million and $0.8 million, respectively.	(2.1		)	(1.3		)	(1.5		)
	$	3.8		$	5.2		$	5.6

DP&L

$ in millions	2009			2008			2007
Unrealized gains on financial instruments net of income tax expenses of $0.4 million, $1.4 million and $6.3 million, respectively.	$	0.7		$	2.7		$	11.6
Deferred gains on cash flow hedges net of income tax expenses of $1.8 million, $2.2 million and $1.5 million, respectively.	5.9			6.5			5.1
Unrealized losses on pension and postretirement benefits net of income tax benefits of $1.1 million, $0.7 million and $0.8 million, respectively.	(2.1		)	(1.3		)	(1.5		)
	$	4.5		$	7.9		$	15.2

Accumulated Other Comprehensive Income (Loss)

AOCI is included on our balance sheets within the Common shareholders’ equity sections.  The following table provides the components that constitute the balance sheet amounts in AOCI at December 31, 2009 and 2008:

DPL

$ in millions	2009			2008
Financial instruments, net of tax	$	0.2		$	(0.3	)
Cash flow hedges, net of tax	13.3			17.0
Pension and postretirement benefits, net of tax	(42.5		)	(39.8		)
Total	$	(29.0	)	$	(23.1	)

DP&L

$ in millions	2009			2008
Financial instruments, net of tax	$	9.5		$	6.7
Cash flow hedges, net of tax	13.3			17.0
Pension and postretirement benefits, net of tax	(42.5		)	(39.8		)
Total	$	(19.7	)	$	(16.1	)

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16.  EPS

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

The common-equivalent shares excluded from the calculation of diluted EPS, because they were anti-dilutive, were not material for all the periods ended December 31, 2009, 2008 and 2007.  These shares may be dilutive in the future.

The following illustrates the reconciliation of the numerators and denominators of the basic and diluted EPS computations:

	2009					2008					2007
$ and shares in millions except				Per					Per		(a)			Per
per share amounts	Income		Shares	Share		Income		Shares	Share		Income		Shares	Share
Basic EPS	$	229.1	112.9	$	2.03	$	244.5	110.2	$	2.22	$	221.8	107.9	$	2.06
Effect of Dilutive Securities:
Stock Incentive Units			—					—					0.5
Warrants (b)			1.1					5.0					8.6
Stock options, performance and restricted shares (c)			0.2					0.2					0.8
Diluted EPS	$	229.1	114.2	$	2.01	$	244.5	115.4	$	2.12	$	221.8	117.8	$	1.88

(a)    Income after discontinued operations.

(b)    For information relating to warrant activity, see Note 14 of Notes to Consolidated Financial Statements.

(c)    Starting January 1, 2009, restricted shares are included in Basic Shares pursuant to the update to FASC 260,

“Earnings per Share.”  See Note 1 of Notes to Consolidated Financial Statements.

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17.  Executive Litigation

On May 21, 2007, we settled litigation with three former executives.  As part of this settlement, the three former executives relinquished and dismissed all their claims including those related to certain deferred compensation, RSUs, MVE incentives, stock options and legal fees. The RSUs and stock options relinquished and forfeited were 1.3 million and 3.6 million, respectively.  Prior to the settlement date, we had accrued obligations of $64.2 million.  Included in these amounts was $3.1 million associated with the forfeiture of stock options.  In exchange for our payment of $25 million and the relinquishment by the former executives of certain contested compensation discussed above, all of these claims by all parties were settled and released.

DPL

As a result of this settlement, during 2007, DPL realized a net pre-tax gain in continuing and discontinued operations of approximately $31.0 million and $8.2 million, respectively.  The net gain is comprised of the reversal of the $64.2 million of accrued obligations less the $25 million settlement.  The obligations related to the discontinued operations were associated with the management of DPL’s financial asset portfolio, which was conducted in our MVE subsidiary.  The MVE operations were discontinued in 2005 with the sale of the financial asset portfolio.  The $25 million settlement expense was allocated between continuing and discontinued operations based on the proportionate share of the obligations of each.

DP&L

As a result of this settlement during 2007, DP&L realized a net pre-tax gain in continuing operations of $35.3 million.  Accrued obligations associated with the former executives’ litigation were recorded by DP&L since the obligations were associated with our non-qualified benefit plans.  DP&L had no ownership of DPL’s discontinued financial asset portfolio business, therefore these liabilities were reversed and DP&L’s net pre-tax gain was recorded within continuing operations.

The $25 million settlement was funded from the sale of financial assets held in DP&L’s Master Trust Plan for deferred compensation.  As part of this transaction, during the second quarter ended June 30, 2007, DPL and DP&L recorded a $3.2 million realized gain which was reflected in investment income.

18.  Insurance Recovery

On April 30, 2007, DP&L executed a settlement agreement for $14.5 million with one of our insurers, Associated Electric & Gas Insurance Services (AEGIS), under a fiduciary liability policy to recoup a portion of legal fees associated with our litigation against three former executives.  This was recorded as a reduction to operation and maintenance expense during 2007.

On May 16, 2007, DPL filed a claim with Energy Insurance Mutual (EIM) to recoup legal expenses associated with our litigation against certain former executives.  Arbitration on that claim occurred on May 13, 2009.  The arbitration panel issued a ruling in Phase 1 of the arbitration on September 25, 2009, finding that most of the claims involving the former executives were covered.  In accordance with GAAP, DPL recorded expenses totaling $7.5 million in 2008 but has not recorded any assets for possible recovery of these expenses.  The matter is pending.

19.  Contractual Obligations, Commercial Commitments and Contingencies

DPL — Guarantees

In the normal course of business, DPL enters into various agreements with its wholly-owned subsidiaries, DPLE and DPLER, providing financial or performance assurance to third parties.  These agreements are entered into primarily to support or enhance the creditworthiness otherwise attributed to DPLE and DPLER on a stand-alone basis, thereby facilitating the extension of sufficient credit to accomplish DPLE’s and DPLER’s intended commercial purposes.

At December 31, 2009, DPL had $51 million of guarantees to third parties for future financial or performance assurance under such agreements, on behalf of DPLE and DPLER.  The guarantee arrangements entered into by DPL with these third parties cover all present and future obligations of DPLE and DPLER to such beneficiaries and are terminable at any time by DPL upon written notice to the beneficiaries. The carrying amount of obligations for commercial transactions covered by these guarantees and recorded in our Consolidated Balance Sheets was $0.6 million and $1.6 million at December 31, 2009 and 2008, respectively.

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In two separate transactions in November and December 2006, DPL also agreed to be a guarantor of the obligations of DPLE regarding the sale, in April 2007, of the Darby Electric Peaking Station to American Electric Power and the sale of the Greenville Electric Peaking Station to Buckeye Electric Power, Inc.  In both cases, DPL agreed to guarantee the obligations of DPLE over a multiple-year period as follows:

$ in millions	2008		2009		2010
Darby	$	23.0	$	15.3	$	7.7
Greenville	$	11.1	$	7.4	$	3.7

To date, neither DPL nor DP&L have incurred any losses related to the guarantees of DPLE’s obligations and we believe it is remote that either DPL or DP&L would be required to perform or incur any losses in the future associated with any of the above guarantees of DPLE’s obligations.

DP&L — Equity Ownership Interest

DP&L owns a 4.9% equity ownership interest in an electric generation company which is recorded using the cost method of accounting under GAAP.  As of December 31, 2009, DP&L could be responsible for the repayment of 4.9%, or $54.4 million, of a $1,110 million debt obligation that matures in 2026.  This would only happen if this electric generation company defaulted on its debt payments.  As of December 31, 2009, we have no knowledge of such a default.

Contractual Obligations and Commercial Commitments

We enter into various contractual obligations and other commercial commitments that may affect the liquidity of our operations.  At December 31, 2009, these include:

			Payment Year
$ in millions	Total		2010		2011-2012		2013-2014		Thereafter
DPL
Long-term debt	$	1,324.4	$	100.0	$	297.4	$	470.0	$	457.0
Interest payments	740.0		71.5		115.1		71.4		482.0
Pension and postretirement payments	253.8		23.8		48.9		51.1		130.0
Capital leases	0.6		0.6		—		—		—
Operating leases	0.5		0.3		0.2		—		—
Coal contracts (a)	1,694.3		498.1		577.2		184.4		434.6
Limestone contracts (a)	48.4		5.5		11.4		12.0		19.5
Purchase orders and other contractual obligations	162.6		56.9		84.9		14.6		6.2
Total contractual obligations	$	4,224.6	$	756.7	$	1,135.1	$	803.5	$	1,529.3
DP&L
Long-term debt	$	884.4	$	100.0	$	—	$	470.0	$	314.4
Interest payments	454.8		39.4		78.3		48.2		288.9
Pension and postretirement payments	253.8		23.8		48.9		51.1		130.0
Capital leases	0.6		0.6		—		—		—
Operating leases	0.5		0.3		0.2		—		—
Coal contracts (a)	1,694.3		498.1		577.2		184.4		434.6
Limestone contracts (a)	48.4		5.5		11.4		12.0		19.5
Purchase orders and other contractual obligations	164.8		58.0		86.0		14.6		6.2
Total contractual obligations	$	3,501.6	$	725.7	$	802.0	$	780.3	$	1,193.6

(a)  Total at DP&L-operated units

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Long-term debt:

DPL’s long-term debt as of December 31, 2009, consists of DP&L’s first mortgage bonds and tax-exempt pollution control bonds and DPL’s unsecured senior notes.  These long-term debt amounts include current maturities but exclude unamortized debt discounts.

DP&L’s long-term debt as of December 31, 2009, consists of first mortgage bonds and tax-exempt pollution control bonds.  These long-term debt amounts include current maturities but exclude unamortized debt discounts.

See Note 7 of Notes to Consolidated Financial Statements.

Interest payments:

Interest payments associated with the long-term debt described above.  The interest payments relating to variable-rate debt are projected using the interest rate prevailing at December 31, 2009.

Pension and postretirement payments:

As of December 31, 2009, DPL, through its principal subsidiary DP&L, had estimated future benefit payments as outlined in Note 9 of Notes to Consolidated Financial Statements.  These estimated future benefit payments are projected through 2019.

Capital leases:

As of December 31, 2009, DPL, through its principal subsidiary DP&L, had one immaterial capital lease that expires in September 2010.

Operating leases:

As of December 31, 2009, DPL, through its principal subsidiary DP&L, had several immaterial operating leases with various terms and expiration dates.

Coal contracts:

DPL, through its principal subsidiary DP&L, has entered into various long-term coal contracts to supply the coal requirements for the generating plants it operates.  Some contract prices are subject to periodic adjustment and have features that limit price escalation in any given year.

Limestone contracts:

DPL, through its principal subsidiary DP&L, has entered into various limestone contracts to supply limestone used in the operation of FGD equipment at its generating facilities.

Purchase orders and other contractual obligations:

As of December 31, 2009, DPL and DP&L had various other contractual obligations including non-cancelable contracts to purchase goods and services with various terms and expiration dates.

Reserve for uncertain tax positions:

Due to the uncertainty regarding the timing of future cash outflows associated with our unrecognized tax benefits of $19.3 million, we are unable to make a reliable estimate of the periods of cash settlement with the respective tax authorities and have not included such amounts in the contractual obligations table above.

Contingencies

In the normal course of business, we are subject to various lawsuits, actions, proceedings, claims and other matters asserted under laws and regulations.  We believe the amounts provided in our Consolidated Financial Statements, as prescribed by GAAP, are adequate in light of the probable and estimable contingencies.  However, there can be no assurances that the actual amounts required to satisfy alleged liabilities from various legal proceedings, claims, tax examinations, and other matters, including the matters discussed below, and to comply with applicable laws and regulations, will not exceed the amounts reflected in our Consolidated Financial Statements.  As such, costs, if any, that may be incurred in excess of those amounts provided as of December 31, 2009, cannot be reasonably determined.

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Governmental and Regulatory Inquiries

On March 10, 2004, DPL’s and DP&L’s Corporate Controller sent a memorandum (the Memorandum) to the Chairman of the Audit Committee of our Board of Directors.  The Memorandum expressed the Corporate Controller’s “concerns, perspectives and viewpoints” regarding financial reporting and governance issues within DPL and DP&L.  In response, the Board initiated an internal investigation whose findings and recommendations led to corrective action taken regarding internal controls, process issues and the tone at the top.

On May 28, 2004, the U.S. Attorney’s Office for the Southern District of Ohio, assisted by the Federal Bureau of Investigation, notified DPL and DP&L that it had initiated an inquiry involving matters connected to our internal investigation.  This inquiry remains pending.

On or about June 24, 2004, the SEC commenced a formal investigation into the issues raised by the Memorandum.  This investigation remains pending.

Environmental Matters

DPL, DP&L and our subsidiaries’ facilities and operations are subject to a wide range of environmental regulations and laws by federal, state and local authorities.  As well as imposing continuing compliance obligations, these laws and regulations authorize the imposition of substantial penalties for noncompliance, including fines, injunctive relief and other sanctions. In the normal course of business, we have investigatory and remedial activities underway at these facilities to comply, or to determine compliance, with such regulations.  We record liabilities for losses that are probable of occurring and can be reasonably estimated.  DPL, through its wholly owned captive insurance subsidiary MVIC, has an actuarially calculated reserve of $1.2 million for environmental matters.  We evaluate the potential liability related to probable losses quarterly and may revise our estimates.  Such revisions in the estimates of the potential liabilities could have a material effect on our results of operations, financial position or cash flows.

Air Quality

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

On October 27, 2003, the USEPA published final rules regarding the equipment replacement provision (ERP) of the routine maintenance, repair and replacement (RMRR) exclusion of the CAA.  Activities at power plants that fall within the scope of the RMRR exclusion do not trigger new source review requirements, including the imposition of stricter emission limits.  On December 24, 2003, the United States Court of Appeals for the D.C. Circuit stayed the effective date of the rule pending its decision on the merits of the lawsuits filed by numerous states and environmental organizations challenging the final rules.  On June 6, 2005, the USEPA issued its final response on the reconsideration of the ERP exclusion.  The USEPA clarified its position, but did not change any aspect of the 2003 final rules.  This decision was appealed and the D.C. Circuit vacated the final rules on March 17, 2006.  The scope of the RMRR exclusion remains uncertain due to this action by the D.C Circuit, as well as multiple litigations not directly involving us where courts are defining the scope of the exception with respect to the specific facts and circumstances of the particular power plants and activities before the courts.  While we believe that we have not engaged in any activities with respect to our existing power plants that would trigger the new source review requirements, if new source review requirements were imposed on any of DP&L’s existing power plants, the results could be materially adverse to us.

The USEPA issued a proposed rule on October 20, 2005 concerning the test for measuring whether modifications to electric generating units should trigger application of New Source Review (NSR) standards under the CAA.  A supplemental rule was also proposed on May 8, 2007 to include additional options for determining if there is an emissions increase when an existing electric generating unit makes a physical or operational change.  The rule was challenged by environmental organizations and has not been finalized.  While we cannot at this time predict the outcome of this rulemaking, any finalized rules could materially affect our operations.

On December 17, 2003, the USEPA proposed the Interstate Air Quality Rule (IAQR) designed to reduce and permanently cap SO2 and NOx emissions from electric utilities.  The proposed IAQR focused on states, including Ohio, whose power plant emissions are believed to be significantly contributing to fine particle and ozone pollution in other downwind states in the eastern United States.  On June 10, 2004, the USEPA issued a supplemental proposal to the IAQR, now renamed the CAIR.  The final rules were signed on March 10, 2005 and were published on May 12, 2005.  CAIR created an interstate trading program for annual NOx emission

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allowances and made modifications to an existing trading program for SO2.  On August 24, 2005, the USEPA proposed additional revisions to the CAIR.  On July 11, 2008, the U.S. Court of Appeals for the District of Columbia Circuit issued a decision to vacate the USEPA’s CAIR and its associated Federal Implementation Plan and remanded to the USEPA with instructions to issue new regulations that conformed with the procedural and substantive requirements of the CAA.  The Court’s decision, in part, invalidated the new NOx annual emission allowance trading program and the modifications to the SO2 emission trading program established by the March 10, 2005 rules, and created uncertainty regarding future NOx and SO2 emission reduction requirements and their timing.  The USEPA and a group representing utilities filed a request on September 24, 2008 for a rehearing before the entire Court.  On December 23, 2008, the U.S. Court of Appeals issued an order on reconsideration that permits CAIR to remain in effect until the USEPA issues new regulations that would conform to the CAA requirements and the Court’s July 11, 2008 decision.  In January 2010, the Court ordered the USEPA to file a response to a Petition for Mandamus filed by parties in the original case who are now seeking a Court order to require the USEPA to issue new regulations by March 1, 2010.  We are currently unable to predict the outcome of this Petition or the timing or impact of any new regulations relating to CAIR.  CAIR has and will continue to have a material effect on our operations.

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

In the fourth quarter of 2007, DP&L began a program for selling excess emission allowances, including annual NOxemission allowances and SO2 emission allowances that were the subject of CAIR trading programs.  In subsequent quarters, DP&L recognized gains from the sale of excess emission allowances to third parties.  The court’s CAIR decision affected the trading market for excess allowances and impacted DP&L’s program for selling additional excess allowances in 2008.  Although in January 2009 we resumed selling excess allowances due to the revival of the trading market, the long-term impact of the court’s decision, and of the actions the USEPA or others will take in response to this decision, is not fully known at this time and could have an adverse effect on us.

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

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

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

In response to a U.S. Supreme Court decision that the USEPA has the authority to regulate CO2 emissions from motor vehicles, the USEPA made a finding that CO2 and certain other gases are pollutants under the CAA.  The USEPA has not yet identified the specifics of how these newly designated pollutants will be regulated.  In April 2009, the USEPA issued a proposed endangerment finding under the CAA.  The proposed finding determined that CO2 and other GHGs from motor vehicles threaten the health and welfare of future generations by contributing to climate change.  If the proposed finding is finalized, it could lead to the regulation of CO2 and other GHGs from sources other than motor vehicles, including coal-fired plants that we own and operate.  Recently, several bills have been introduced at the federal level to regulate GHG emissions.  In June 2009, the U.S. House of Representatives passed H.R. 2454, the American Clean Energy and Security Act (ACES).  This proposed legislation targets a reduction in the emission of GHGs from large sources by 80% in 2050 through an economy wide cap and trade program.  ACES also includes energy efficiency and renewable energy initiatives.  Approximately 99% of the energy we produce is generated by coal.  DP&L’s share of CO2 emissions at generating stations we own and co-own is approximately 16 million tons annually.  Proposed GHG legislation finalized at a future date could have a significant effect on DP&L’s operations and costs, which could adversely affect our net income, cash flows and financial position.  However, due to the uncertainty associated with such legislation, we are currently unable to predict the final outcome or the financial impact that this legislation will have on us.  On September 22, 2009, the USEPA issued a final rule for mandatory reporting of GHGs from large sources that emit 25,000 metric tons per year or more of CO2,  including electric generating units.  The first report is due in March 2011 for 2010 emissions.  This reporting rule will guide development of policies and programs to reduce emissions.  DP&L does not anticipate that this reporting rule will result in any significant cost or other impact on current operations.

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

The USEPA proposed revisions to its primary NAAQS for SO2 on November 16, 2009.  This would replace the current 24-hour standard and current annual standard.  This regulation is expected to be finalized in 2010.  At this time, DP&L cannot determine the effect of this potential change, if any, on its operations.

On September 16, 2009, the USEPA announced that it would reconsider the 2008 national ground level ozone standard.  A more stringent ambient ozone standard may lead to stricter NOx emission standards in the future.  At this point, DP&L cannot determine the effect of this potential change, if any, on its operations.

Air Quality — Litigation Involving Co-Owned Plants

In March 2000, as amended in June 2004, the U.S. Department of Justice filed a complaint in the United States District Court, Southern District of Indiana, Indianapolis Division against Cinergy Corp. (now part of Duke Energy) and two Cinergy subsidiaries for alleged violations of the CAA at various generation units operated by PSI Energy, Inc. and CG&E, including generation units co-owned by DP&L (Beckjord Unit 6 and Miami Fort Unit 7).  A retrial has been held in which the second jury found for Duke Energy on some allegations, but for plaintiffs with respect to units at another one of Duke Energy’s wholly-owned facilities.  In a separate phase II remedies trial with respect to violations found in the first trial, Duke Energy was ordered to close down three of its wholly-owned generating units by September 2009, surrender some emission allowances and pay a fine.  None of the violations found or remedies ordered relate to generating units owned in part by DP&L.

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

On September 21, 2004, the Sierra Club filed a lawsuit against DP&L and the other owners of the J.M. Stuart generating station in the U.S. District Court for the Southern District of Ohio for alleged violations of the CAA and the station’s operating permit.  On August 7, 2008, a consent decree was filed in the U.S. District Court in full settlement of these CAA claims.  Under the terms of the consent decree, DP&L and the other owners of the J.M. Stuart generating station agreed to: (i) certain emission targets related to NOx, SO2 and particulate matter; (ii) make energy efficiency and renewable energy commitments that are conditioned on receiving PUCO approval for the recovery of costs; (iii) forfeit 5,500 SO2 allowances; and (iv) provide funding to a third party non-profit organization to establish a solar water heater rebate program.  DP&L and the other owners of the station also entered into an attorneys’ fee agreement to pay a portion of the Sierra Club’s attorney and expert witness fees.  The parties to the lawsuit filed a joint motion on October 22, 2008, seeking an order by the U.S. District Court approving the consent decree with funding for the third party non-profit organization set at $300,000.  On October 23, 2008, the U.S. District Court approved the consent decree.  On October 21, 2009, the Sierra Club filed with the U.S. District Court a motion for enforcement of the consent decree based on the Sierra Club’s interpretation of the consent decree that would require certain NOx emissions that DP&L has been excluding from its computations to be included for purposes of complying with the emission targets and reporting requirements of the consent decree.  DP&L believes that it is properly computing and reporting NOx emissions under the consent decree and has opposed the Sierra Club’s motion.  A decision on the motion is expected before the end of the first quarter 2010.  Because J.M. Stuart Station’s NOx emissions are well below the 2009 and 2010 limits in the consent decree under either method of calculation, an adverse decision would have no effect in 2010 on operations or costs.  An adverse decision could affect compliance costs in future years when the NOx limits are further reduced under the consent decree.

Air Quality — Notices of Violation Involving Co-Owned Plants

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

In June 2000, the USEPA issued a NOV to the DP&L-operated J.M. Stuart generating station (co-owned by DP&L, CG&E, and CSP) for alleged violations of the CAA.  The NOV contained allegations consistent with NOVs and complaints that the USEPA had recently brought against numerous other coal-fired utilities in the Midwest.  The NOV indicated the USEPA may: (1) issue an order requiring compliance with the requirements of the Ohio SIP; or (2) bring a civil action seeking injunctive relief and civil penalties of up to $27,500 per day for each violation.  To date, neither action has been taken.  At this time, DP&L cannot predict the outcome of this matter.

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

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

Air Quality — Other Issues Involving Co-Owned Plants

In 2006, DP&L detected a malfunction with its emission monitoring system at the DP&L-operated Killen generating station (co-owned by DP&L and CG&E) and ultimately determined its SO2 and NOx emissions data were under reported.  DP&L has petitioned the USEPA to accept an alternative methodology for calculating actual emissions for 2005 and the first quarter 2006.  DP&L has sufficient allowances in its general account to cover the understatement and is working with the USEPA to resolve the matter.  Management does not believe the ultimate resolution of this matter will have a material impact on results of operations, financial position or cash flows.

Air Quality — Notices of Violation Involving Wholly-Owned Plants

In 2007, the Ohio EPA and the USEPA issued NOVs to DP&L for alleged violations of the CAA at the O.H. Hutchings Station.  The NOVs alleged deficiencies relate to stack opacity and particulate emissions.  Discussions are under way with the USEPA, the U.S. Department of Justice and Ohio EPA.  DP&L has provided data to those agencies regarding its maintenance expenses and operating results.  On December 15, 2008, DP&L received a request from the USEPA for additional documentation with respect to those issues and other CAA issues including issues relating to capital expenses and any changes in capacity or output of the units at the O.H. Hutchings station.  During 2009, DP&L has continued to submit various other operational and performance data to the USEPA in compliance with its request.  DP&L is currently unable to determine the timing, costs or method by which the issues may be resolved and continues to work with the USEPA on this issue.

On November 18, 2009, the USEPA issued a NOV to DP&L for alleged New Source Review (NSR) violations of the CAA at the O.H. Hutchings Station relating to capital projects performed in 2001 involving Unit 3 and Unit 6.  DP&L does not believe that that the two projects described in the NOV were modifications subject to NSR.  DP&L is unable to determine the timing, costs or method by which these issues may be resolved and continues to work with the USEPA on this issue.

Water Quality

On July 9, 2004, the USEPA issued final rules pursuant to the Clean Water Act governing existing facilities that have cooling water intake structures.  The rules require an assessment of impingement and/or entrainment of organisms as a result of cooling water withdrawal.  A number of parties appealed the rules to the Federal Court of Appeals for the Second Circuit in New York and the Court issued an opinion on January 25, 2007 remanding several aspects of the rule to the USEPA for reconsideration.  Several parties petitioned the U.S. Supreme Court for review of the lower court decision.  On April 14, 2008, the Supreme Court elected to review the lower court decision on the issue of whether the USEPA can compare costs with benefits in determining the best technology available for minimizing adverse environmental impact at cooling water intake structures.  Briefs were submitted to the Court in the summer of 2008 and oral arguments were held in December 2008.  In April 2009, the U.S. Supreme Court ruled that the USEPA did have the authority to compare costs with benefits in determining best technology available.  The USEPA is developing proposed regulations which it hopes to issue for public comment by mid-2010.

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

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In September 2009, the USEPA announced that it will be revising technology-based regulations governing water discharges from steam electric generating facilities such as J.M. Stuart, Killen and O.H. Hutchings Stations.  The rulemaking will include the collection of information via an industry-wide questionnaire as well as targeted water sampling efforts at selected facilities.  Subsequent to the information collection effort, it is anticipated that the USEPA will release a proposed rule in 2011 with final regulations issued in late 2012 or early 2013.  At present, DP&L is unable to predict the impact this rulemaking will have on its operations.

Land Use and Solid Waste Disposal

In September 2002, DP&L and other parties received a special notice that the USEPA considers us to be a PRP for the clean-up of hazardous substances at the South Dayton Dump landfill site.  In August 2005, DP&L and other parties received a general notice regarding the performance of a Remedial Investigation and Feasibility Study (RI/FS) under a Superfund Alternative Approach.  In October 2005, DP&L received a special notice letter inviting it to enter into negotiations with the USEPA to conduct the RI/FS.  No recent activity has occurred with respect to that notice or PRP status.  More recently, DP&L has received requests by the USEPA and the existing PRP group to allow access to be given to DP&L’s service center building site, which is across the street from the landfill site.  The USEPA requested access to drill monitoring and test wells to determine the extent of the landfill site’s contamination as well as to assess whether certain chemicals used at the service center building site might have migrated through groundwater to the landfill site.  Pursuant to an Administrative Order issued by the USEPA requiring access to DP&L’s service center building site, DP&L has granted such access and drilling of soil borings and installation of monitoring wells occurred in the fall of 2009.  DP&L believes the chemicals used at its service center building site were appropriately disposed of and have not contributed to the contamination at the South Dayton Dump landfill site.  While DP&L is unable at this time to predict the outcome of this matter, if DP&L were required to contribute to the clean-up of the site, it could have a material adverse effect on us.  DP&L is also unable at this time to predict whether the monitoring and test wells may lead to any actions relating to the service center building site independent of the South Dayton Dump clean-up.

In December 2003, DP&L and other parties received a special notice that the USEPA considers us to be a PRP for the clean-up of hazardous substances at the Tremont City landfill site.  Information available to DP&L does not demonstrate that it contributed hazardous substances to the site.  While DP&L is unable at this time to predict the outcome of this matter, if DP&L were required to contribute to the clean-up of the site, it could have a material adverse effect on us.

In November 2007, a PRP group contacted DP&L seeking our financial participation in a settlement that the group had reached with the federal government with respect to the clean-up of an industrial site once owned by Carolina Transformer, Inc.  DP&L’s business records clearly show we did not conduct business with Carolina Transformer that would require our participation in any clean-up of the site.  DP&L has declined to participate in the clean-up of this site.  While DP&L is unable at this time to predict the outcome of this matter, if DP&L were required to contribute to the clean-up of the site, it could have a material adverse effect on us.

During 2008, a major spill occurred at an ash pond owned by the Tennessee Valley Authority (TVA) as a result of a dike failure.  The spill generated a significant amount of national news coverage, and support for tighter regulations for the storage and handling of coal combustion products.  DP&L has ash ponds at the Killen, O.H. Hutchings and J.M. Stuart stations which it operates, and also at generating stations operated by others but in which DP&L has an ownership interest.  We frequently inspect our ash ponds and do not anticipate any similar failures.  It is widely expected that the federal government will propose new regulations covering ash generated from the combustion of coal and including additional monitoring, testing, or construction standards with respect to ash ponds and ash landfills.  During March 2009, the USEPA, through a formal Information Collection Request, collected information on ash pond facilities across the country, including those at Killen and J.M. Stuart stations.  Subsequently the USEPA collected similar information for O.H. Hutchings Station.  In addition, during August and October 2009, representatives of the USEPA visited J.M. Stuart Station to collect information on plant operations relative to the production and handling of by-products.  Due to the wide range of possible outcomes, DP&L is unable at this time to predict the timing or the financial impact of any future governmental initiative that may occur.

In addition, as a result of the TVA ash pond spill, there has been increasing advocacy to regulate coal combustion byproducts as hazardous waste under the Resource Conservation Recovery Act, Subtitle C.  On October 15, 2009, the USEPA provided a draft rule to the Office of Management and Budget for interagency review.  The draft rule proposed to regulate coal ash as a hazardous waste, with limited beneficial reuse.  DP&L is unable at this time to predict the financial impact of this regulation, but if coal combustion byproducts are regulated as hazardous waste, it is expected to have a material adverse impact on operations.

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Legal and Other Matters

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

On May 16, 2007, DPL filed a claim with Energy Insurance Mutual (EIM) to recoup legal expenses associated with our litigation against certain former executives.  Arbitration on that claim occurred on May 13, 2009.  The arbitration panel issued a ruling in Phase 1 of the arbitration on September 25, 2009, finding that most of the claims involving the former executives were covered.  The matter is pending.

As a member of PJM, DP&L is also subject to charges and costs associated with PJM operations as approved by the FERC.  FERC Orders issued in 2007 regarding the allocation of costs of large transmission facilities within PJM, could result in additional costs being allocated to DP&L of approximately $12 million or more annually by 2012.  DP&L filed a notice of appeal to the U.S. Court of Appeals, D.C. Circuit on March 18, 2008 challenging the allocation method.  The appeal was consolidated with other appeals taken by other interested parties of the same FERC Orders and the consolidated cases were assigned to the 7th Circuit.  On August 6, 2009, the 7th Circuit ruled that the FERC had failed to provide a reasoned basis for the allocation method it had approved.  Rehearings were filed by other interested litigants and denied by the Court, which then remanded the matter to the FERC for further proceedings.  On January 21, 2010, the FERC issued a procedural order on remand establishing a paper hearing process under which PJM will make an informational filing in late February.  Subsequently PJM and other parties, including DP&L, will be able to file initial comments, testimony, and recommendations and reply comments.  Absent future changes to the procedural schedule that may occur for a number of reasons including if settlement discussions are held, the paper hearing process should be complete and the case ready for FERC consideration in 2010.  FERC did not establish a deadline for its issuance of a substantive order.  DP&L cannot predict the timing or the likely outcome of the proceeding.  Until such time as FERC may act to approve a change in methodology, PJM will continue to apply the allocation methodology that had been approved by FERC in 2007.  Although we continue to maintain that these costs should be borne by the beneficiaries of these projects and that DP&L is not one of these beneficiaries, any new credits or additional costs resulting from the ultimate outcome of this proceeding will be reflected in DP&L’s TCRR rider which is already in place to pass through RTO-related costs and credits.

In June 2009, the NERC, a FERC-certified electric reliability organization responsible for developing and enforcing mandatory reliability standards, commenced a routine audit of DP&L’s operations.  The audit, which was for the period June 18, 2007 to June 25, 2009, evaluated DP&L’s compliance with 42 requirements in 18 NERC-reliability standards.  DP&L is currently subject to a compliance audit at a minimum of once every three years as provided by the NERC Rules of Procedure. This audit was concluded in June 2009 and its findings revealed that DP&L had some Possible Alleged Violations (PAVs) associated with five NERC Reliability Standards.  In response to the report, DP&L filed mitigation plans with NERC to address the PAVs.  These mitigation plans have been accepted and DP&L is currently awaiting a proposal for settlement from NERC.  While we are currently unable to determine the extent of penalties, if any, that may be imposed on DP&L, we do not believe such penalties will have a material impact on our results of operations.

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20.  Selected Quarterly Information (Unaudited)

DPL

		For the three months ended
$ in millions except per share amount		March 31,				June 30,				September 30,				December 31,
and common stock market price		2009		2008		2009		2008		2009		2008		2009		2008
Revenues		$	415.0	$	416.1	$	361.2	$	378.8	$	407.3	$	414.5	$	405.4	$	392.2
Operating income		127.0		142.7		81.9		85.6		116.5		96.2		102.8		111.0
Net income		$	69.2	$	77.3	$	42.1	$	47.6	$	67.9	$	48.0	$	49.9	$	71.6
Earnings per share of common stock:
Basic		$	0.62	$	0.71	$	0.38	$	0.43	$	0.60	$	0.44	$	0.43	$	0.64
Diluted		$	0.61	$	0.66	$	0.37	$	0.41	$	0.59	$	0.42	$	0.43	$	0.63
Dividends declared and paid per share		$	0.285	$	0.275	$	0.285	$	0.275	$	0.285	$	0.275	$	0.285	$	0.275
Common stock market price	— High	$	23.28	$	30.18	$	23.46	$	28.70	$	26.53	$	26.76	$	28.68	$	24.59
	— Low	$	19.27	$	24.58	$	21.18	$	26.10	$	22.79	$	23.00	$	25.16	$	19.16

DP&L

	For the three months ended
	March 31,				June 30,				September 30,				December 31,
$ in millions	2009		2008		2009		2008		2009		2008		2009		2008
Revenues	$	403.6	$	413.9	$	351.9	$	376.4	$	398.2	$	401.5	$	396.7	$	381.1
Operating income	$	124.8	$	146.4	$	78.9	$	90.5	$	115.2	$	93.5	$	103.0	$	106.2
Net income	$	77.0	$	89.0	$	46.8	$	63.3	$	74.0	$	54.8	$	61.1	$	78.7
Earnings on common stock	$	76.8	$	88.8	$	46.6	$	63.1	$	73.8	$	54.6	$	60.8	$	78.4
Dividends paid on common stock to parent	$	175.0	$	80.0	$	45.0	$	—	$	50.0	$	—	$	55.0	$	75.0

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Report of Independent Registered Public Accounting Firm

The Board of Directors and Stockholders

DPL Inc.:

We have audited the accompanying Consolidated Balance Sheets of DPL Inc. and subsidiaries (the Company) as of December 31, 2009 and 2008, and the related Consolidated Statements of Results of Operations, Shareholders’ Equity and Cash Flows for each of the years in the three-year period ended December 31, 2009. In connection with our audits of the consolidated financial statements, we have audited the consolidated financial statement schedule, “Schedule II — Valuation and Qualifying Accounts.” We also have audited the Company’s internal control over financial reporting as of December 31, 2009, based on criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). The Company’s management is responsible for these consolidated financial statements, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Report on Internal Control Over Financial Reporting. Our responsibility is to express an opinion on these consolidated financial statements and an opinion on the Company’s internal control over financial reporting based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement and whether effective internal control over financial reporting was maintained in all material respects. Our audits of the consolidated financial statements included 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. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 2009 and 2008, and the results of its operations and its cash flows for each of the years in the three-year period ended December 31, 2009, in conformity with U.S. generally accepted accounting principles. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2009, based on criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission.

KPMG LLP

Philadelphia, Pennsylvania
February 11, 2010

136

Report of Independent Registered Public Accounting Firm

The Board of Directors and Stockholder

The Dayton Power and Light Company:

We have audited the accompanying Balance Sheets of The Dayton Power and Light Company (DP&L) as of December 31, 2009 and 2008, and the related Statements of Results of Operations, Shareholder’s Equity and Cash Flows for each of the years in the three-year period ended December 31, 2009. In connection with our audits of the financial statements, we have audited the financial statement schedule, “Schedule II — Valuation and Qualifying Accounts.” We also have audited DP&L’s internal control over financial reporting as of December 31, 2009, based on criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). DP&L’s management is responsible for these financial statements, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Report on Internal Control Over Financial Reporting. Our responsibility is to express an opinion on these financial statements and an opinion on DP&L’s internal control over financial reporting based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement and whether effective internal control over financial reporting was maintained in all material respects. Our audits of the financial statements included 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. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of DP&L as of December 31, 2009 and 2008, and the results of its operations and its cash flows for each of the years in the three-year period ended December 31, 2009, in conformity with U.S. generally accepted accounting principles. Also in our opinion, DP&L maintained, in all material respects, effective internal control over financial reporting as of December 31, 2009, based on criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission.

KPMG LLP

Philadelphia, Pennsylvania

February 11, 2010

137

Item 9 —  Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

None.

Item 9A — Controls and Procedures

Disclosure Controls and Procedures

Our Chief Executive Officer (CEO) and Chief Financial Officer (CFO) are responsible for establishing and maintaining our disclosure controls and procedures.  These controls and procedures were designed to ensure that material information relating to us and our subsidiaries are communicated to the CEO and CFO.  We evaluated these disclosure controls and procedures as of the end of the period covered by this report with the participation of our CEO and CFO.  Based on this evaluation, our CEO and CFO concluded that our disclosure controls and procedures are effective: (i) to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms; and (ii) to ensure that information required to be disclosed by us in the reports that we submit under the Exchange Act is accumulated and communicated to our management, including our principal executive and principal financial officers, or persons performing similar functions, as appropriate, to allow timely decisions regarding required disclosure.

There was no change in our internal control over financial reporting during the most recently completed fiscal period that has materially affected, or is reasonably likely to materially affect, internal control over financial reporting.

The following report is our report on internal control over financial reporting as of December 31, 2009.

Management’s Report on Internal Control over Financial Reporting

We are responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Exchange Act Rule 13a-15(f).  Under the supervision and with the participation of management, including the CEO and CFO, we conducted an evaluation of the effectiveness of our internal control over financial reporting based on the framework in Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission.  Based on an evaluation under the framework in Internal Control - Integrated Framework, we concluded that our internal control over financial reporting was effective as of December 31, 2009.

Our internal control over financial reporting as of December 31, 2009, has been audited by KPMG LLP, the independent registered public accounting firm that audited the financial statements contained herein, as stated in their report which is included herein.

Item 9B — Other Information

None.

138

PART III

Item 10 — Directors, Executive Officers and Corporate Governance

The information required to be furnished pursuant to this item with respect to Directors and Executive Officers of DPL will be set forth under the captions “Election of Directors” and “Executive Officers” in DPL’s proxy statement (the Proxy Statement) to be furnished to shareholders in connection with the solicitation of proxies by our Board of Directors for use at the 2010 Annual Meeting of Shareholders to be held on April 28, 2010 and is incorporated herein by reference.

The information required to be furnished pursuant to this item for DPL with respect to Section 16(a) Beneficial Ownership Reporting Compliance, the Audit Committee, the Audit Committee financial expert and the registrant’s code of ethics will be set forth under in the “Corporate Governance” section in the Proxy Statement and is incorporated herein by reference.

Item 11 — Executive Compensation

The information required to be furnished pursuant to this item for DPL will be set forth under the captions “Executive Compensation,” “Compensation Discussion and Analysis (CD&A)” and “Compensation Committee Report on Executive Compensation” in the Proxy Statement and is incorporated herein by reference.

Item 12 — Security Ownership of Certain Beneficial Owners and Management and Related Shareholder Matters

The information required to be furnished pursuant to this item for DPL will be set forth under the captions “Security Ownership of Certain Beneficial Owners,” “Security Ownership of Management” and “Equity Compensation Plan Information” in the Proxy Statement and is incorporated herein by reference.

Item 13 — Certain Relationships and Related Transactions, and Director Independence

The information required to be furnished pursuant to this item for DPL will be set forth under the caption “Related Person Transactions” and “Independence” in the Proxy Statement and is incorporated herein by reference.

Item 14 — Principal Accountant Fees and Services

The information required to be furnished pursuant to this item for DPL will be set forth under the caption “Audit and Non-Audit Fees” in the Proxy Statement and is incorporated herein by reference.

Accountant Fees and Services

The following table presents the aggregate fees billed for professional services rendered to DPL and DP&L by KPMG LLP for 2009 and 2008.  Other than as set forth below, no professional services were rendered or fees billed by KPMG LLP during 2009 and 2008.

KPMG LLP	2009 Fees Billed		2008 Fees Billed
Audit Fees (1)	$	1,394,680	$	1,409,800
Audit-Related Fees (2)	46,000		84,800
Tax Fees (3)	7,870		—
All Other Fees	—		—
Total	$	1,448,550	$	1,494,600

(1)Audit fees relate to professional services rendered for the audit of our annual financial statements and the reviews of our quarterly financial statements.

(2)Audit-related fees relate to services rendered to us for assurance and related services.

(3)Tax fees consisted principally of tax compliance services. Tax compliance services are services rendered based upon facts already in existence or transactions that have already occurred to document, compute, and obtain government approval for amounts to be included in tax filings.

139

PART IV

Item 15 — Exhibits and Financial Statement Schedules

(a)       The following documents are filed as part of this report:

	Page No.
1.             Financial Statements
DPL - Consolidated Statements of Results of Operations for each of the three years in the period ended December 31, 2009	67
DPL - Consolidated Statements of Cash Flows for each of the three years in the period ended December 31, 2009	68
DPL - Consolidated Balance Sheets at December 31, 2009 and 2008	69
DPL - Consolidated Statement of Shareholders’ Equity for each of the three years in the period ended December 31, 2009	71
DP&L - Consolidated Statements of Results of Operations for each of the three years in the period ended December 31, 2009	72
DP&L - Consolidated Statements of Cash Flows for each of the three years in the period ended December 31, 2009	73
DP&L - Consolidated Balance Sheets at December 31, 2009 and 2008	74
DP&L - Consolidated Statement of Shareholder’s Equity for each of the three years in the period ended December 31, 2009	76
Notes to Consolidated Financial Statements	77
DPL - Report of Independent Registered Public Accounting Firm	136
DP&L - Report of Independent Registered Public Accounting Firm	137
2.             Financial Statement Schedule
For each of the three years in the period ended December 31, 2009:
Schedule II — Valuation and Qualifying Accounts	151

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.

140

3.Exhibits

DPL and DP&L exhibits are incorporated by reference as described unless otherwise filed as set forth herein.

The exhibits filed as part of DPL’s and DP&L’s Annual Report on Form 10-K, respectively, are:

DPL Inc.	DP&L	Exhibit Number	Exhibit	Location(1)
X		3(a)	Amended Articles of Incorporation of DPL Inc., as of September 25, 2001	Exhibit 3 to Report on Form 10-K/A for the year ended December 31, 2001 (File No. 1-9052)
X		3(b)	Amended Regulations of DPL Inc., as of April 27, 2007	Exhibit 3(b) to Report on Form 10-K for the year ended December 31, 2007 (File No. 1-9052)
	X	3(c)	Amended Articles of Incorporation of The Dayton Power and Light Company, as of January 4, 1991	Exhibit 3(b) to Report on Form 10-K/A for the year ended December 31, 1991 (File No. 1-2385)
	X	3(d)	Regulations of The Dayton Power and Light Company, as of April 9, 1981	Exhibit 3(a) to Report on Form 8-K filed on May 3, 2004 (File No. 1-2385)
X	X	4(a)	Composite Indenture dated as of October 1, 1935, between The Dayton Power and Light Company and Irving Trust Company, Trustee with all amendments through the Twenty-Ninth Supplemental Indenture	Exhibit 4(a) to Report on Form 10-K for the year ended December 31, 1985 (File No. 1-2385)
X	X	4(b)	Forty-First Supplemental Indenture dated as of February 1, 1999, between The Dayton Power and Light Company and The Bank of New York, Trustee	Exhibit 4(m) to Report on Form 10-K for the year ended December 31, 1998 (File No. 1-2385)
X	X	4(c)	Forty-Second Supplemental Indenture dated as of September 1, 2003, between The Dayton Power and Light Company and The Bank of New York, Trustee	Exhibit 4(r) to Report on Form 10-K for the year ended December 31, 2003 (File No. 1-9052)
X	X	4(d)	Forty-Third Supplemental Indenture dated as of August 1, 2005, between The Dayton Power and Light Company and The Bank of New York, Trustee	Exhibit 4.4 to Report on Form 8-K filed August 24, 2005 (File No. 1-2385)
X	X	4(e)	Rights Agreement dated September 25, 2001 between DPL Inc. and Equiserve Trust Company, N.A.	Exhibit 4 to Report on Form 8-K filed September 28, 2001 (File No. 1-9052)

141

DPL Inc.	DP&L	Exhibit Number	Exhibit	Location(1)
X		4(f)	Securities Purchase Agreement dated as of February 1, 2000 by and among DPL Inc., and DPL Capital Trust I, Dayton Ventures LLC and Dayton Ventures, Inc. and certain exhibits thereto	Exhibit 99(b) to Schedule TO-I filed February 4, 2000 (File No. 1-9052)
X		4(g)	Amendment to Securities Purchase Agreement dated as of February 24, 2000 among DPL Inc., DPL Capital Trust I, Dayton Ventures LLC and Dayton Ventures, Inc.	Exhibit 4(g) to Report on Form 10-K for the year ended December 31, 2005 (File No. 1-9052)
X		4(h)	Form of Warrant to Purchase Common Shares of DPL Inc.	Exhibit 4(h) to Report on Form 10-K for the year ended December 31, 2005 (File No. 1-9052)
X		4(i)	Securityholders and Registration Rights Agreement dated as of March 13, 2000 among DPL Inc., DPL Capital Trust I, Dayton Ventures LLC and Dayton Ventures, Inc.	Exhibit 4(i) to Report on Form 10-K for the year ended December 31, 2005 (File No. 1-9052)
X		4(j)	Amendment to Securityholders and Registration Rights Agreement, dated August 24, 2001 among DPL Inc., DPL Capital Trust I, Dayton Ventures LLC and Dayton Ventures, Inc.	Exhibit 4(j) to Report on Form 10-K for the year ended December 31, 2005 (File No. 1-9052)
X		4(k)	Amendment to Securityholders and Registration Rights Agreement, dated December 6, 2004 among DPL Inc., DPL Capital Trust I, Dayton Ventures LLC and Dayton Ventures, Inc.	Exhibit 4(k) to Report on Form 10-K for the year ended December 31, 2005 (File No. 1-9052)
X		4(l)	Amendment to Securityholders and Registration Rights Agreement, dated as of January 12, 2005 among DPL Inc., DPL Capital Trust I, Dayton Ventures LLC and Dayton Ventures, Inc	Exhibit 4(j) to Report on Form 10-K for the year ended December 31, 2005 (File No. 1-9052)
X		4(m)	Indenture dated as of March 1, 2000 between DPL Inc. and Bank One Trust Company, National Association	Exhibit 4(b) to Registration Statement No. 333-37972

142

DPL Inc.	DP&L	Exhibit Number	Exhibit	Location(1)
X		4(n)	Exchange and Registration Rights Agreement dated as of August 24, 2001 between DPL Inc., Morgan Stanley & Co. Incorporated, Bank One Capital Markets, Inc., Fleet Securities, Inc. and NatCity Investments, Inc.	Exhibit 4(a) to Registration Statement No. 333-74568
X		4(o)	Officer’s Certificate of DPL Inc. establishing exchange notes, dated August 31, 2001	Exhibit 4(c) to Registration Statement No. 333-74568
X		4(p)	Indenture dated as of August 31, 2001 between DPL Inc. and The Bank of New York, Trustee	Exhibit 4(a) to Registration Statement No. 333-74630
X		4(q)	First Supplemental Indenture dated as of August 31, 2001 between DPL Inc. and The Bank of New York, as Trustee	Exhibit 4(b) to Registration Statement No. 333-74630
X		4(r)	Amended and Restated Trust Agreement dated as of August 31, 2001 among DPL Inc., The Bank of New York, The Bank of New York (Delaware), the administrative trustees named therein, and several Holders as defined therein	Exhibit 4(c) to Registration Statement No. 333-74630
	X	4(s)	Forty-Fourth Supplemental Indenture dated as of September 1, 2006 between the Bank of New York, Trustee and The Dayton Power and Light Company	Filed herewith as Exhibit 4(s)
X		4(t)	Exchange and Registration Rights Agreement dated as of August 24, 2001 among DPL Inc., DPL Capital Trust II and Morgan Stanley & Co. Incorporated	Exhibit 4(d) to Registration Statement No. 333-74630
X	X	4(u)	Forty-Sixth Supplemental Indenture dated as of December 1, 2008 between The Bank of New York Mellon, Trustee and The Dayton Power and Light Company	Exhibit 4(x) to Report on Form 10-K for the year ended December 31, 2008 (File No. 1-2385)

143

DPL Inc.	DP&L	Exhibit Number	Exhibit	Location(1)
X	X	10(a)*	The Dayton Power and Light Company Directors’ Deferred Stock Compensation Plan, as amended through December 31, 2000	Exhibit 10(a) to Report on Form 10-K for the year ended December 31, 2000 (File No. 1-9052)
X	X	10(b)*	The Dayton Power and Light Company 1991 Amended Directors’ Deferred Compensation Plan, as amended and restated through December 31, 2007	Exhibit 10(b) to Report on Form 10-K for the year ended December 31, 2007 (File No. 1-9052)
X	X	10(c)*	The Dayton Power and Light Company Management Stock Incentive Plan as amended and restated through December 31, 2007	Exhibit 10(c) to Report on Form 10-K for the year ended December 31, 2007 (File No. 1-9052)
X	X	10(d)*	The Dayton Power and Light Company Key Employees Deferred Compensation Plan, as amended through December 31, 2000	Exhibit 10(d) to Report on Form 10-K for the year ended December 31, 2000 (File No. 1-9052)
X	X	10(e)*	Amendment No. 1 to The Dayton Power and Light Company Key Employees Deferred Compensation Plan, as amended through December 31, 2000, dated as of December 7, 2004	Exhibit 10(g) to Report on Form 10-K for the year ended December 31, 2005 (File No. 1-9052)
X	X	10(f)*	The Dayton Power and Light Company Supplemental Executive Retirement Plan, as amended February 1, 2000	Filed herewith as Exhibit 10(f)
X	X	10(g)*	Amendment No. 1 to The Dayton Power and Light Company Supplemental Executive Retirement Plan, as amended through February 1, 2000 and dated as of December 7, 2004	Exhibit 10(i) to Report on Form 10-K for the year ended December 31, 2005 (File No. 1-9052)
X		10(h)*	DPL Inc. Stock Option Plan	Exhibit 10(f) to Report on Form 10-K for the year ended December 31, 2000 (File No. 1-9052)
X		10(i)*	2003 Long-Term Incentive Plan of DPL Inc.	Exhibit 10(aa) to Report on Form 10-K for the year ended December 31, 2003 (File No. 1-9052)

144

DPL Inc.	DP&L	Exhibit Number	Exhibit	Location(1)
X	X	10(j)*	Summary of Executive Medical Insurance Plan	Exhibit 10(m) to Report on Form 10-K for the year ended December 31, 2005 (File No. 1-9052)
X		10(k)*	DPL Inc. Executive Incentive Compensation Plan, as amended and restated through December 31, 2007	Exhibit 10(l) to Report on Form 10-K for the year ended December 31, 2007 (File No. 1-9052)
X		10(l)*	DPL Inc. 2006 Equity and Performance Incentive Plan as amended and restated through December 31, 2007	Exhibit 10(m) to Report on Form 10-K for the year ended December 31, 2007 (File No. 1-9052)
X		10(m)*	Form of DPL Inc. Amended and Restated Long-Term Incentive Plan - Performance Shares Agreement	Exhibit 10(n) to Report on Form 10-K for the year ended December 31, 2007 (File No. 1-9052)
X		10(n)*	DPL Inc. Severance Pay and Change of Control Plan, as amended and restated through December 31, 2007	Exhibit 10(o) to Report on Form 10-K for the year ended December 31, 2007 (File No. 1-9052)
X		10(o)*	DPL Inc. Supplemental Executive Defined Contribution Retirement Plan, as amended and restated through December 31, 2007	Exhibit 10(p) to Report on Form 10-K for the year ended December 31, 2007 (File No. 1-9052)
X		10(p)*	DPL Inc. 2006 Deferred Compensation Plan For Executives, as amended and restated through December 31, 2007	Exhibit 10(q) to Report on Form 10-K for the year ended December 31, 2007 (File No. 1-9052)
X		10(q)*	DPL Inc. Pension Restoration Plan, as amended and restated through December 31, 2007	Exhibit 10(r) to Report on Form 10-K for the year ended December 31, 2007 (File No. 1-9052)
X	X	10(r)*	Participation Agreement dated August 2, 2007 among DPL Inc., The Dayton Power and Light Company and Teresa F. Marrinan	Exhibit 10(s) to Report on Form 10-K for the year ended December 31, 2007 (File No. 1-9052)
X	X	10 (s)*	Participation Agreement dated March 27, 2007 among DPL Inc., The Dayton Power and Light Company and Scott J. Kelly	Exhibit 10(t) to Report on Form 10-K for the year ended December 31, 2007 (File No. 1-9052)

145

DPL Inc.	DP&L	Exhibit Number	Exhibit	Location(1)
X	X	10(t)*	Participation Agreement and Waiver dated February 27, 2006 among DPL Inc., The Dayton Power and Light Company and Gary G. Stephenson	Exhibit 10(u) to Report on Form 10-K for the year ended December 31, 2007 (File No. 1-9052)
X	X	10 (u)*	Participation Agreement dated January 13, 2007 among DPL Inc., The Dayton Power and Light Company and Daniel J. McCabe	Exhibit 10(x) to Report on Form 10-K for the year ended December 31, 2007 (File No. 1-9052)
X		10(v)*	Management Stock Option Agreement dated as of January 1, 2001 between DPL Inc. and Arthur G. Meyer	Exhibit 10(cc) to Report on Form 10-K for the year ended December 31, 2005 (File No. 1-9052)
X	X	10(w)*	Participation Agreement and Waiver dated March 6, 2006 among DPL Inc., The Dayton Power and Light Company and Arthur G. Meyer, dated March 6, 2006	Filed herewith as Exhibit 10(w)
X	X	10(x)*	Participation Agreement dated September 8, 2006 among DPL Inc., The Dayton Power and Light Company and Paul M. Barbas	Exhibit 10.2 to Form 8-K filed September 8, 2006 (File No. 1-9052)
X	X	10(y)*	Participation Agreement dated June 30, 2006 among DPL Inc., The Dayton Power and Light Company and Frederick J. Boyle	Exhibit 10.1 to Form 8-K filed July 3, 2006 (File No. 1-9052)
X		10(z)*	Letter Agreement between DPL Inc. and Glenn E. Harder, dated June 20, 2006	Exhibit 10.1 to Form 8-K filed June 21, 2006 (File No. 1-9052)

146

DPL Inc.	DP&L	Exhibit Number	Exhibit	Location(1)
X	X	10(aa)	Credit Agreement, dated as of November 21, 2006 among The Dayton Power and Light Company, KeyBank National Association and certain lending institutions, and Amendment No. 1 to Credit Agreement, dated as of April 9, 2009	Filed herewith as Exhibit 10(aa)
X	X	10(bb)	Credit Agreement, dated as of April 21, 2009 by and among The Dayton Power and Light Company and the lenders party thereto and PNC Bank, National Association	Exhibit 10.1 to Form 8-K filed October 8, 2009 (File No. 1-2385)
X		10(cc)*	Form of DPL Inc. Amended and Restated Non-Employee Director Restricted Stock Units Agreement	Exhibit 10(uu) to Report on Form 10-K for the year ended December 31, 2007 (File No. 1-9052)
X		10(dd)*	DPL Inc. 2006 Deferred Compensation Plan for Non-Employee Directors, as amended and restated through December 31, 2007	Exhibit 10(v v) to Report on Form 10-K for the year ended December 31, 2007 (File No. 1-9052)
X	X	10(ee)*	Participation Agreement dated January 3, 2008 among DPL Inc., The Dayton Power and Light Company and Douglas C. Taylor	Exhibit 10(a) to Form 10-Q for the quarter ended March 31, 2008 (File No. 1-9052)
X		10(ff)*	Restricted Stock Agreement dated May 6, 2008 by and between DPL Inc. and Paul M. Barbas	Exhibit 99.1 to Form 8-K filed May 8, 2008 (File No. 1-9052)
X		10(gg)*	Form of DPL Inc. Restricted Stock Agreement	Exhibit 10(d) to Report on Form 10-Q for the quarter ended June 30, 2009 (File No. 1-9052)
X		10(hh)*	Form of DPL Inc. 2009 Career Grant and Matching Restricted Stock Agreement	Exhibit 10(b) to Report on Form 10-Q for the quarter ended September 30, 2009 (File No. 1-9052)
X	X	10(ii)*	Participation Agreement dated May 18, 2009, among DPL Inc., The Dayton Power and Light Company and Joseph W. Mulpas	Exhibit 10(c) to Report on Form 10-Q for the quarter ended June 30, 2009 (File No. 1-9052)

147

DPL Inc.	DP&L	Exhibit Number	Exhibit	Location(1)
X	X	21	List of Subsidiaries of DPL Inc. and The Dayton Power and Light Company	Filed herewith as Exhibit 21
X		23(a)	Consent of KPMG LLP	Filed herewith as Exhibit 23(a)
X		31(a)	Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002	Filed herewith as Exhibit 31(a)
X		31(b)	Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002	Filed herewith as Exhibit 31(b)
	X	31(c)	Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002	Filed herewith as Exhibit 31(c)
	X	31(d)	Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002	Filed herewith as Exhibit 31(d)
X		32(a)	Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002	Filed herewith as Exhibit 32(a)
X		32(b)	Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002	Filed herewith as Exhibit 32(b)
	X	32(c)	Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002	Filed herewith as Exhibit 32(c)
	X	32(d)	Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002	Filed herewith as Exhibit 32(d)

* Management contract or compensatory plan

Exhibits referencing File No. 1-9052 have been filed by DPL Inc. and those referencing File No. 1-2385 have been filed by The Dayton Power and Light Company

Pursuant to paragraph (b) (4) (iii) (A) of Item 601 of Regulation S-K, we have 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 us and our subsidiaries on a consolidated basis, but we hereby agree to furnish to the SEC on request any such instruments.

148

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, DPL Inc. and The Dayton Power and Light Company has duly caused this report to be signed on their behalf by the undersigned, thereunto duly authorized.

		DPL Inc.
February 11, 2010	By:
		/s/ Paul M. Barbas
		Paul M. Barbas President and Chief Executive Officer
		(principal executive officer)

		The Dayton Power and Light Company
	By:
February 11, 2010		/s/ Paul M. Barbas
		Paul M. Barbas
		President and Chief Executive Officer
		(principal executive officer)

149

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of DPL Inc. and The Dayton Power and Light Company and in the capacities and on the dates indicated.

/s/ P.M. Barbas	Director, President and Chief Executive Officer	February 10, 2010
(P.M. Barbas)	(principal executive officer)
/s/ R. D. Biggs	Director	February 10, 2010
(R. D. Biggs)
/s/ P. R. Bishop	Director and Vice-Chairman	February 10, 2010
(P. R. Bishop)
/s/ F.F. Gallaher	Director	February 10, 2010
(F.F. Gallaher)
/s/ B. S. Graham	Director	February 10, 2010
(B. S. Graham)
/s/ G.E. Harder	Director and Chairman	February 10, 2010
(G.E. Harder)
/s/ L.L. Lyles	Director	February 10, 2010
(L.L. Lyles)
/s/ P.B. Morris	Director	February 10, 2010
(P.B. Morris)
/s/ N.J. Sifferlen	Director	February 10, 2010
(N.J. Sifferlen)
/s/ F.J. Boyle	Senior Vice President, Chief Financial Officer and	February 10, 2010
(F.J. Boyle)	Treasurer (principal financial officer)
/s/ J.W. Mulpas	Vice President, Controller and Chief Accounting Officer	February 10, 2010
(J.W. Mulpas)	(principal accounting officer)

150

Schedule II

DPL Inc.

VALUATION AND QUALIFYING ACCOUNTS

For the years ended December 31, 2007 - 2009

$ in thousands

	Balance at
	Beginning				Deductions		Balance at
Description	of Period		Additions		(1)		End of Period
2009:
Deducted from accounts receivable — Provision for uncollectible accounts	$	1,084	$	5,168	$	5,151	$	1,101
Deducted from deferred tax assets — Valuation allowance for deferred tax assets	$	10,685	$	1,270	$	—	$	11,955
2008:
Deducted from accounts receivable — Provision for uncollectible accounts	$	1,518	$	4,277	$	4,711	$	1,084
Deducted from deferred tax assets — Valuation allowance for deferred tax assets	$	12,429	$	1,482	$	3,226	$	10,685
2007:
Deducted from accounts receivable — Provision for uncollectible accounts	$	1,430	$	5,678	$	5,590	$	1,518
Deducted from deferred tax assets — Valuation allowance for deferred tax assets	$	10,132	$	2,676	$	379	$	12,429

(1) Amounts written off, net of recoveries of accounts previously written off.

The Dayton Power and Light Company

VALUATION AND QUALIFYING ACCOUNTS

For the years ended December 31, 2007 - 2009

$ in thousands

	Balance at
	Beginning				Deductions		Balance at
Description	of Period		Additions		(1)		End of Period
2009:
Deducted from accounts receivable — Provision for uncollectible accounts	$	1,084	$	5,168	$	5,151	$	1,101
Deducted from deferred tax assets — Valuation allowance for deferred tax assets	$	—	$	—	$	—	$	—
2008:
Deducted from accounts receivable — Provision for uncollectible accounts	$	1,518	$	4,277	$	4,711	$	1,084
Deducted from deferred tax assets — Valuation allowance for deferred tax assets	$	348	$	—	$	348	$	—
2007:
Deducted from accounts receivable — Provision for uncollectible accounts	$	1,430	$	5,678	$	5,590	$	1,518
Deducted from deferred tax assets — Valuation allowance for deferred tax assets	$	277	$	71	$	—	$	348

(1) Amounts written off, net of recoveries of accounts previously written off.

151

EX-4.(S)

Exhibit 4(s)

THE DAYTON POWER AND LIGHT COMPANY

AND

THE BANK OF NEW YORK

(formerly Irving Trust Company)
Trustee

Forty-Fourth Supplemental Indenture

Dated as of September 1, 2006

THE DAYTON POWER AND LIGHT COMPANY

FORTY-FOURTH SUPPLEMENTAL INDENTURE
DATED AS OF SEPTEMBER 1, 2006

TABLE OF CONTENTS

	Page
Parties	1
Recitals	1
Granting Clauses	7
FIRST. REAL PROPERTY AND INTERESTS IN REAL PROPERTY	8
SECOND. ELECTRIC GENERATING PLANTS	8
THIRD. TRANSMISSION LINES	8
FOURTH. SUBSTATIONS AND SUBSTATION SITES	8
FIFTH. ELECTRIC DISTRIBUTION SYSTEMS	9
SIXTH. LIQUEFIED PETROLEUM GAS PRODUCTION AND STORAGE FACILITIES	9
SEVENTH. GAS DISTRIBUTION SYSTEMS	9
EIGHTH. OFFICE AND DEPARTMENTAL BUILDINGS	10
NINTH. TELEPHONE LINES	10
TENTH. FRANCHISES	10
ELEVENTH. OTHER REAL ESTATE AND APPURTENANCES	10
TWELFTH. PROPERTY HEREAFTER TO BECOME SUBJECT TO THE LIEN OF THE FIRST MORTGAGE AS AMENDED	11
Habendum Clause	11
Subject Clause	12
Grant in Trust	12

ARTICLE ONE. BONDS OF THE 4.80% POLLLUTION CONTROL SERIES 2006 DUE 2036 AND ISSUE THEREOF		13
Sec. 1.	Series and Form of New Bonds	13
Sec. 2.	Issue of New Bonds	13
Sec. 3.	Dates, Interest, etc., of New Bonds	13
Sec. 4.	Denominations and Exchangeability of New Bonds; Temporary Bonds may be Authenticated and Delivered	14
Sec. 5.	Mandatory Redemption of New Bonds and Redemption Price	14
Sec. 6.	Extraordinary Optional Redemptin of New Bonds and Redemption Price	15
Sec. 7.	Optional Redemption of New Bonds and Redemption Price	15
Sec. 8.	Notice of Redemption of New Bonds	15
Sec. 9.	New Bonds Deemed Paid in Certain Circumstances	16
Sec. 10.	New Bonds Deemed Paid in Additional Circumstances	16
Sec. 11.	Surrender of New Bonds in Certain Circumstances	16
Sec. 12.	Application of Article Ten of First Mortgage as Amended	16
Sec. 13.	Form of New Bonds	17
ARTICLE TWO. COVENANTS OF THE COMPANY		17
Sec. 1.	Confirmation of Covenants by Company in First Mortgage	17
Sec. 2.	Covenant of the Company and Legal Opinion as to Recording	17
ARTICLE THREE. MISCELLANEOUS		17
Sec. 1.	Authentication and Delivery of New Bonds in Advance of the Recording of Forty-Fourth Supplemental Indenture	17
Sec. 2.	Forty-Fourth Supplemental Indenture to Form Part of First Mortgage	17
Sec. 3.	Definitions in First Mortgage Shall Apply to Forty-Fourth Supplemental Indenture	18
Sec. 4.	Execution in Counterparts	18
Testimonium		S-1
Signatures		S-1
Acknowledgments		S-2
Exhibit A - Form of New Bond

FORTY-FOURTH SUPPLEMENTAL INDENTURE, dated as of September 1, 2006, between THE DAYTON POWER AND LIGHT COMPANY, a corporation of the State of Ohio (hereinafter sometimes called the Company), party of the first part, and THE BANK OF NEW YORK (formerly Irving Trust Company), a corporation of the State of New York (hereinafter sometimes called the Trustee), as Trustee, party of the second part.

WHEREAS, the Company has heretofore executed and delivered to Irving Trust Company (now The Bank of New York) a certain Indenture, dated as of October 1, 1935 (hereinafter sometimes called the First Mortgage), to secure the payment of the principal of and interest on an issue of bonds of the Company, unlimited in aggregate principal amount (hereinafter sometimes called the Bonds); and

WHEREAS, the Company has issued under the First Mortgage its Bonds of a series known as the First and Refunding Mortgage Bonds, 3½% Series Due 1960, authorized in unlimited aggregate principal amount, all of which have been redeemed or otherwise retired; and

WHEREAS, in Article Two of the First Mortgage it is provided in substance, among other things, that the Bonds may be issued in series, the Bonds of each series maturing on such dates and bearing interest at such rates, respectively, as the Board of Directors of the Company may determine prior to the authentication thereof; and

WHEREAS, the Company has heretofore executed and delivered to the Trustee forty-three supplemental Indentures numbered, dated and, except as set forth below, providing for their respective series of First Mortgage Bonds, all as set forth in the tabulation below:

			Principal
Supplemental		Series	Amount
Indenture	Dated As Of	Provided For	Outstanding
First	March 1, 1937	31/4% Series	None
		Due 1962
Second	January 1, 1940	3% Series	None
		Due 1970
Third	October 1, 1945	23/4% Series	None
		Due 1975
Fourth	January 1, 1948	3% Series	None
		Due 1978
Fifth	December 1, 1948	3% Series A,	None
		Due 1978
Sixth	February 1, 1952	31/4% Series	None
		Due 1982
Seventh	September 1, 1954	3% Series	None
		Due 1984

			Principal
Supplemental		Series	Amount
Indenture	Dated As Of	Provided For	Outstanding
Eighth	November 1, 1957	5% Series	None
		Due 1987
Ninth	March 1, 1960	51/8% Series	None
		Due 1990
Tenth	June 1, 1963	4.45% Series	None
		Due 1993
Eleventh	May 1, 1967	55/8% Series	None
		Due 1997
Twelfth	June 15, 1968	63/4% Series	None
		Due 1998
Thirteenth	October 1, 1969	81/4% Series	None
		Due 1999
Fourteenth	June 1, 1970	91/2% Series	None
		Due 2000
Fifteenth	August 1, 1971	81/8% Series	None
		Due 2001
Sixteenth	October 3, 1972	None issued	None
Seventeenth	November 1, 1973	8% Series	None
		Due 2003
Eighteenth	October 1, 1974	101/8% Series	None
		Due 1981
Nineteenth	August 1, 1975	10.70% Series	None
		Due 2005
Twentieth	November 15, 1976	83/4% Series	None
		Due 2006
Twenty-First	April 15, 1977	6.35% Series	None
		Due 2007
Twenty-Second	October 15, 1977	81/2% Series	None
		Due 2007
Twenty-Third	April 1, 1978	8.95% Series	None
		Due 1998
Twenty-Fourth	November 1, 1978	91/2% Series	None
		Due 2003
Twenty-Fifth	August 1, 1979	101/4% Series	None
		Due 1999

2

			Principal
Supplemental		Series	Amount
Indenture	Dated As Of	Provided For	Outstanding
Twenty-Sixth	December 1, 1979	121/8% Series	None
		Due 2009
Twenty-Seventh	February 1, 1981	145/8% Series	None
		Due 1988
Twenty-Eighth	February 18, 1981	141/2% Series	None
		Due 1988
Twenty-Ninth	September 1, 1981	17% Series	None
		Due 1991
Thirtieth	March 1, 1982	163/4% Series	None
		Due 2012
Thirty-First	November 1, 1982	111/2% Series	None
		Due 2012-A
Thirty-Second	November 1, 1982	111/2% Series	None
		Due 2012-B
Thirty-Third	December 1, 1985	91/2% Series	None
		Due 2015
Thirty-Fourth	April 1, 1986	9% Series	None
		Due 2016
Thirty-Fifth	December 1, 1986	87/8% Series	None
		Due 2016
Thirty-Sixth	August 15, 1992	6.40% Pollution	None
		Control Series
		1992-A
		Due 2027
		6.40% Pollution	None
		Control Series
		1992-B
		Due 2027
Thirty-Seventh	November 15, 1992	6.50% Pollution	None
		Control Series
		1992-C
		Due 2022
Thirty-Eighth	November 15, 1992	8.40% Series	None
		Due 2022
Thirty-Ninth	January 15, 1993	8.15% Series	None
		Due 2026

3

			Principal
Supplemental		Series	Amount
Indenture	Dated As Of	Provided For	Outstanding
Fortieth	February 15, 1993	77/8% Series	None
		Due 2024
Forty-First	February 1, 1999	None issued	None
Forty-Second	September 1, 2003	5.125% Series	$	470,000,000
		Due 2013
Forty-Third	August 1, 2005	4.80% Pollution Control Series 2005-A Due 2034	$	41,300,000
		4.80% Pollution Control Series 2005-B Due 2034	$	137,800,000
		4.70% Pollution Control Series 2005-C Due 2028	$	35,275,000

WHEREAS, said Eleventh Supplemental Indenture, which created the 55/8% Series Due 1997, provided in its Article Three for certain amendments to the First Mortgage, as theretofore amended, each such amendment to become effective on the earliest date on which either (a) there shall not be any Bonds outstanding of Series Due 1975, Series Due 1978, Series A, Due 1978, Series Due 1982, Series Due 1984, or Series Due 1993, or (b) there shall have been executed and delivered a supplemental indenture or indentures embodying said amendment (either alone or with other amendments) consented to by the holders of seventy-five per centum (75%) in aggregate principal amount of the Bonds at the time outstanding of the series enumerated in the foregoing clause (a), or of each said series of which Bonds are then outstanding; and

WHEREAS, said Fifteenth Supplemental Indenture, which created the 81/8% Series Due 2001, provided (a) in its Article Four for an amendment to the First Mortgage, as theretofore amended, to become effective on the date on which the amendments provided for by Section 3 of Article Three of said Eleventh Supplemental Indenture shall become effective and (b) in its

4

Article Five for certain additional amendments to the First Mortgage, as theretofore amended, to become effective on the earliest date on which either (i) there shall not be any Bonds outstanding of Series Due 1975, Series Due 1978, Series A, Due 1978, Series Due 1982, Series Due 1984, Series Due 1993, Series Due 1997, Series Due 1998, Series Due 1999, or Series Due 2000, or (ii) there shall have been executed and delivered a supplemental indenture or indentures embodying said amendments (either alone or with other amendments) consented to by the holders of seventy-five per centum (75%) in aggregate principal amount of the Bonds at the time outstanding of the series enumerated in the foregoing clause (i), or of each said series of which Bonds are then outstanding; and

WHEREAS, the Company has heretofore executed and delivered to the Trustee a Sixteenth Supplemental Indenture dated as of October 3, 1972, which provided in its Article One for an amendment of Article Five of the First Mortgage, as theretofore amended, altering the requirements for the opinion of counsel to be delivered to the Trustee as a condition precedent to the authentication and delivery of additional Bonds under Article Five or the withdrawal of cash under Article Seven of the First Mortgage, as theretofore amended; and

WHEREAS, none of the Bonds of Series Due 1975, Series Due 1978, Series A, Due 1978, Series Due 1982, Series Due 1984, or Series Due 1993 remain outstanding and the amendments contained in said Eleventh Supplemental Indenture have become effective; and

WHEREAS, none of the Bonds of Series Due 1975, Series Due 1978, Series A, Due 1978, Series Due 1982, Series Due 1984, Series Due 1993, Series Due 1997, Series Due 1998, Series Due 1999, or Series Due 2000 remain outstanding and the amendments contained in said Fifteenth Supplemental Indenture that did not theretofore become effective by virtue of the Sixteenth Supplemental Indenture have become effective; and

WHEREAS, said Forty-Second Supplemental Indenture, which created the 51/8% Series Due 2013, provided in its Article Two for certain amendments to the First Mortgage, as theretofore amended, to become effective on the earliest date on which either (i) there shall not be any Bonds outstanding of 6.35% Series Due 2007, Pollution Control Series 1992-A Due 2027, Pollution Control Series 1992-B Due 2027, Pollution Control Series 1992-C Due 2022, Series Due 2026 and Series Due 2024, or (ii) there shall have been executed and delivered a supplemental indenture or indentures embodying said amendment (either alone or with other amendments) consented to by the holders of seventy-five per centum (75%) in aggregate principal amount of the Bonds at the time outstanding of the series enumerated in the foregoing clause (i); and

WHEREAS, none of the Bonds of 6.35% Series Due 2007, Pollution Control Series 1992-A Due 2027, Pollution Control Series 1992-B Due 2027, Pollution Control Series 1992-C Due 2022, Series Due 2026 and Series Due 2024 remain outstanding and the amendments contained in said Forty-Second Supplemental Indenture have become effective; and

  WHEREAS, the First Mortgage as amended by the First through the Forty-Third Supplemental Indentures is hereinafter called the First Mortgage as amended; and

5

WHEREAS, it is provided in Article Seven of the First Mortgage as amended, among other things, that the Company may issue additional Bonds thereunder upon the deposit with the Trustee of cash equal to the principal amount of such additional Bonds to be issued; it is provided in Article Six of the First Mortgage as amended, among other things, that if Bonds are paid, retired, redeemed, canceled or surrendered to the Trustee for cancellation (except when canceled pursuant to certain provisions of the First Mortgage as amended), the Company may issue additional Bonds thereunder in principal amount equivalent to the principal amount of the Bonds so paid, retired, redeemed, canceled or surrendered to the Trustee for cancellation; it is provided in Article Five of the First Mortgage as amended, among other things, that the Company may issue additional Bonds thereunder upon the basis of property additions in accordance with and subject to the conditions, provisions and limitations set forth in said Article Five; and it is provided in Article Eighteen of the First Mortgage as amended, among other things, that the Company and the Trustee may from time to time enter into one or more indentures supplemental to the First Mortgage as amended for the purposes, among other things which may be therein set forth, to mortgage or pledge additional property under the First Mortgage as amended and to establish the terms and provisions of any series of Bonds other than the Series Due 1960; and

WHEREAS, the Company, pursuant to resolutions duly adopted by its Board of Directors at a meeting of said Board of Directors duly called and held, has determined under and in accordance with the provisions of the First Mortgage as amended and of this Forty-Fourth Supplemental Indenture to create a new series of Bonds to be known as its First Mortgage Bonds, 4.80% Pollution Control Series 2006 Due 2036 (hereinafter sometimes called the New Bonds), which shall be limited to the aggregate principal amount of $100,000,000; and

WHEREAS, the New Bonds are to be issued by the Company to the Ohio Air Quality Development Authority (hereinafter called the Authority), or its assignee, to evidence and secure the obligations of the Company to repay the loan of the proceeds of the sale of the Project Bonds (as hereinafter defined) made by the Authority to the Company, pursuant to a certain Loan Agreement, dated as of September 1, 2006, between the Authority and the Company (hereinafter called the Loan Agreement), to assist in the financing of the Company’s portion of the cost of acquisition, construction and installation of certain “air quality facilities” (as that term is defined and used in Section 3706.01, of the Ohio Revised Code) installed in connection with: Units 7 and 8 at the Miami Fort Generating Station located in Hamilton County, Ohio as to which the Company at the date hereof owns an undivided 36% interest as tenant in common with another public utility company, Unit 2 at the Killen Generating Station located in Adams County, Ohio as to which the Company at the date hereof owns an undivided 67% interest as tenant in common with another public utility company, Units 1-4 at the J. M. Stuart Generating Station located in Brown and Adams Counties, Ohio as to which the Company at the date hereof owns an undivided 35% interest as tenant in common with two other public utility companies, and Unit 4 at the Conesville Generating Station in Coshocton County, Ohio as to which the Company at the date hereof owns an undivided 16.5% interest as tenant in common with two other public utility companies (such interests in said facilities being hereinafter called the Project); and

WHEREAS, the loan by the Authority in respect of the Project is to be funded by the proceeds derived from the sale by the Authority of State of Ohio Collateralized Air Quality

6

Development Revenue Bonds, 2006 Series A (The Dayton Power and Light Company Project), in the aggregate principal amount of $100,000,000 (hereinafter called the Project Bonds); and

WHEREAS, the Project Bonds are to be issued under a certain Trust Indenture, dated as of September 1, 2006 (hereinafter called the Project Bonds Indenture), between the Authority and The Bank of New York, as Trustee (hereinafter in such capacity called the Project Bond Trustee), and the New Bonds are to be assigned by the Authority to the Project Bond Trustee as security for the payment of the principal of and interest on the Project Bonds and are to be delivered by the Company on behalf of the Authority directly to the Project Bond Trustee; and

WHEREAS, the New Bonds and the Trustee’s certificate to be endorsed on all the New Bonds are to be respectively and substantially in the forms established hereby and approved by the aforesaid resolutions, which are substantially in the form of Exhibit A hereto; and

WHEREAS, at a meeting of the Board of Directors of the Company, the Board of Directors adopted a resolution that authorized officers of the Company to approve the form, terms and provisions of this Forty-Fourth Supplemental Indenture (including the form of the New Bonds), and the execution by the Company of this Forty-Fourth Supplemental Indenture; and

WHEREAS, all things necessary to make the New Bonds hereinafter described, when duly authenticated by the Trustee and issued by the Company, valid, binding and legal obligations of the Company, and to make this Indenture a valid and binding agreement supplemental to the First Mortgage as amended, have been done and performed.

NOW, THEREFORE, THIS INDENTURE WITNESSETH

that, in order further to secure the payment of all the Bonds at any time issued and outstanding under the First Mortgage as amended or this Forty-Fourth Supplemental Indenture according to their tenor, purport and effect, as well the interest thereon as the principal thereof, and further to secure the performance and observance of all the covenants and conditions therein and in the First Mortgage as amended and herein contained, and further to set forth the terms and conditions upon which the New Bonds are to be issued, secured and held, and for and in consideration of the premises and of the acceptance or purchase of the New Bonds by the holders or registered owners thereof, and of the sum of one dollar, lawful money of the United States of America, to the Company duly paid by the Trustee at or before the ensealing and delivery of this Forty-Fourth Supplemental Indenture, the receipt whereof is hereby acknowledged, the Company has executed and delivered this Forty-Fourth Supplemental Indenture, and has granted, bargained, sold, released, conveyed, assigned, transferred, pledged, set over and confirmed, and by these presents does grant, bargain, sell, release, convey, assign, transfer, pledge, set over and confirm unto the Trustee, and to its successor or successors in said trust, and to it and its and their assigns forever, and does hereby subject to the lien of the First Mortgage as heretofore and hereby amended all the following described properties (all of which properties are included in and constitute a part of the “mortgaged property” and the “mortgaged and pledged property” as such terms are used and defined in the First Mortgage as heretofore and hereby amended and whenever used in the First Mortgage as heretofore and hereby amended such terms include and refer to such properties), to wit:

7

FIRST.

REAL PROPERTY AND INTERESTS IN REAL PROPERTY.

All and singular, all real property and interests in real property acquired by the Company between August 1, 2005, the date of the Forty-Third Supplemental Indenture, and the date of this Forty-Fourth Supplemental Indenture, and owned by the Company at the latter date.

SECOND.

ELECTRIC GENERATING PLANTS.

All electric generating plants and stations of the Company acquired by it between August 1, 2005, the date of the Forty-Third Supplemental Indenture, and the date of this Forty-Fourth Supplemental Indenture, and owned by it at the latter date, including all power houses, buildings, structures and works, and the land on which the same are situated, and all other lands and easements, rights-of-way, permits, privileges, towers, poles, wires, machinery, equipment, appliances, appurtenances and supplies forming a part of such plants and stations, or any of them, or occupied, enjoyed or used in connection therewith.

THIRD.

TRANSMISSION LINES.

All electric overhead and underground transmission lines of the Company acquired by it between August 1, 2005, the date of the Forty-Third Supplemental Indenture, and the date of this Forty-Fourth Supplemental Indenture, and owned by it at the latter date, including towers, poles, pole lines, conduits, manholes, switching devices, insulators, and other structures, appliances, devices and equipment, and all the property forming a part thereof or appertaining thereto, and all service lines extending therefrom, together with all real property, rights-of-way, easements, permits, privileges, franchises, and rights for or relating to the construction, maintenance or operation thereof, through, over, under or upon any private property or any public way within as well as without the corporate limits of any municipal corporation.

FOURTH.

SUBSTATIONS AND SUBSTATION SITES.

All substations and switching stations of the Company acquired by it between August 1, 2005, the date of the Forty-Third Supplemental Indenture, and the date of this Forty-Fourth Supplemental Indenture, and owned by it at the latter date, for transforming or otherwise regulating electric current at any of its plants, together with all buildings, transformers, wires, cables, insulators, structures, appliances, devices, equipment and all other property, real or personal, forming a part of, or appertaining thereto, or used, occupied or enjoyed in connection with any of such substations and switching stations.

8

FIFTH.

ELECTRIC DISTRIBUTION SYSTEMS.

All electric distribution systems of the Company acquired by it between August 1, 2005, the date of the Forty-Third Supplemental Indenture, and the date of this Forty-Fourth Supplemental Indenture, and owned by it at the latter date, including substations, transformers, switchboards, towers, poles, wires, insulators, conduits, cables, manholes, appliances, devices, equipment and all other property, real or personal, forming a part of or appertaining thereto, or used, occupied or enjoyed in connection with such distribution systems or any of them, together with all rights-of-way, easements, permits, privileges, franchises, and rights in or relating to the construction, maintenance or operation thereof, through, over, under or upon any private property or public ways within as well as without the corporate limits of any municipal corporation.

SIXTH.

LIQUEFIED PETROLEUM GAS PRODUCTION AND STORAGE FACILITIES.

All additions to liquefied petroleum gas production plants and storage facilities of the Company acquired by it between August 1, 2005, the date of the Forty-Third Supplemental Indenture, and the date of this Forty-Fourth Supplemental Indenture, and owned by it at the latter date, including all buildings, structures, underground storage caverns, and works, and the land on which the same are situated, and all other lands and easements, rights-of-way, permits, privileges, pipe lines, machinery, equipment, appliances, appurtenances and supplies forming a part of such plants and stations, or any of them, or occupied, enjoyed or used in connection therewith.

SEVENTH.

GAS DISTRIBUTION SYSTEMS.

All gas distribution systems of the Company acquired or constructed by it between August 1, 2005, the date of the Forty-Third Supplemental Indenture, and the date of this Forty-Fourth Supplemental Indenture, and owned by it at the latter date, for distribution of gas, including pipes, mains, conduits, meters, appliances, equipment, and all other property, real or personal, forming a part of or appertaining to or used, occupied or enjoyed in connection with such distribution systems, or any of them, together with all rights-of-way, easements, permits, privileges, franchises and rights, for or relating to the construction, maintenance or operation thereof, through, over, under or upon any private property or any public streets or highways, within as well as without the corporate limits of any municipal corporation.

9

EIGHTH.

OFFICE AND DEPARTMENTAL BUILDINGS.

All office and departmental buildings of the Company, including the real estate on which such structures stand, acquired by it between August 1, 2005, the date of the Forty-Third Supplemental Indenture, and the date of this Forty-Fourth Supplemental Indenture, and owned by it at the latter date, appertaining to, used, occupied or enjoyed in connection with the rendition of public utility service.

NINTH.

TELEPHONE LINES.

All telephone lines of the Company acquired by it between August 1, 2005, the date of the Forty-Third Supplemental Indenture, and the date of this Forty-Fourth Supplemental Indenture, and owned by it at the latter date, used or available for use in the operation of its properties or otherwise.

TENTH.

FRANCHISES.

All and singular the franchises, grants, immunities, privileges and rights of the Company granted to or acquired by it between August 1, 2005, the date of the Forty-Third Supplemental Indenture, and the date of this Forty-Fourth Supplemental Indenture, and to which it was entitled at the latter date, including all and singular the franchises, grants, immunities, privileges and rights of the Company granted by all municipalities or political subdivisions, and all right, title and interest therein owned by the Company on the date of the execution of this Forty-Fourth Supplemental Indenture, and all renewals, extensions and modifications of said franchises, grants, immunities, privileges and rights, or any of them, and of all other franchises, grants, immunities, privileges and rights now subject to the lien of the First Mortgage as amended.

ELEVENTH.

OTHER REAL ESTATE AND APPURTENANCES.

A.            All other real estate and interests in real estate and all other physical electric power and light, gas and other property owned by the Company at the date of execution of this Forty-Fourth Supplemental Indenture.

B.            All other real estate and interests in real estate and all other physical electric power and light, gas and other property which the Company may hereafter acquire or construct.

C.            All present and future appurtenances of the real estate and interests in real estate which now are, or hereafter shall be, subject to the lien of the First Mortgage as amended, and all plants, works, buildings, structures, fixtures, improvements, betterments and additions now owned, or hereafter acquired or constructed by the Company, upon any of the real estate which,

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or interests in which, now are or hereafter shall be subject to the lien of the First Mortgage as amended.

D.            All corporate rights, privileges, immunities and franchises, powers, licenses, easements, leases, contracts and other rights and all renewals and extensions thereof held or acquired for use or used upon, or in connection with or appertaining to, any of the properties which now are or hereafter shall be subject to the lien of the First Mortgage as amended, or which the Company has or may have the right to exercise in respect of any of said properties.

E.             All machinery, tools and equipment now owned or hereafter acquired by the Company, which now or hereafter belong or appertain to or are used in connection with the plants, works, transmission lines, distribution systems, buildings, structures and fixtures which now are or hereafter shall be subject to the lien of the First Mortgage as amended.

Together with all and singular the tenements, hereditaments and appurtenances belonging or in any way appertaining to the aforesaid property or any part thereof, with the reversion and reversions, remainder and remainders, rents, issues, income and profits thereof, and all the estate, right, title, interest and claim whatsoever at law or in equity, which the Company now has or which it may hereafter acquire in and to the aforesaid property and every part and parcel thereof.

It is not intended to include in the lien of the First Mortgage as amended and this grant shall not be deemed to apply (1) to any revenues, earnings, rents, issues, income or profits of the mortgaged property, or any cash (except cash deposited with the Trustee pursuant to any of the provisions of the First Mortgage as heretofore and hereby amended), or any bills, notes or accounts receivable, contracts or choses in action, or any materials or supplies or construction equipment, or any merchandise, equipment or apparatus manufactured or acquired for the purpose of sale or resale in the usual course of business, except in case of the happening of a completed default as defined in Section 1 of Article Twelve of the First Mortgage as heretofore and hereby amended, and following such completed default, in case the Trustee or a receiver or trustee shall enter upon and take possession of the mortgaged property, or (2) in any case, to any cars, trucks or other vehicles of any nature for the transportation of personnel, materials or equipment by any means which may have been acquired after the effective date of the amendment to this Clause made by or pursuant to the provisions of the Eleventh Supplemental Indenture, or to any bonds, notes, evidences of indebtedness, shares of stock or other securities, except such as may be specifically subjected to the lien of the First Mortgage as amended.

TWELFTH.

PROPERTY HEREAFTER TO BECOME SUBJECT TO THE LIEN OF
THE FIRST MORTGAGE AS AMENDED.

A.            Any and all property, real, personal and mixed, including franchises, grants, immunities, privileges and rights, which the Company may hereafter acquire or to which it may hereafter become entitled, excepting, however, the following property which is not intended to be subjected to the lien of the First Mortgage:  (1) any revenues, earnings, rents, issues, income or profits of the mortgaged property, or any cash (except cash deposited with the Trustee pursuant to any of the provisions of the First Mortgage as heretofore and hereby amended), or

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any bills, notes or accounts receivable, contracts or choses in action, or any materials or supplies or construction equipment, or any merchandise, equipment or apparatus manufactured or acquired for the purpose of sale or resale in the usual course of business, except in case of the happening of a completed default as defined in Section 1 of Article Twelve of the First Mortgage as heretofore and hereby amended, and following such completed default, in case the Trustee or a receiver or trustee shall enter upon and take possession of the mortgaged property, or (2) in any case, any cars, trucks or other vehicles of any nature for the transportation of personnel, materials or equipment by any means, or any bonds, notes, evidences of indebtedness, shares of stock or other securities, except such as may be specifically subjected to the lien of the First Mortgage as amended.

B.            Any and all property of every name and nature, including shares of stock, bonds, other securities or obligations and cars, trucks or other vehicles for the transportation of personnel, materials or equipment by any means, which, from time to time after the execution of this Forty-Third Supplemental Indenture, by delivery or by writing of any kind for the purposes hereof, shall have been conveyed, mortgaged, pledged, assigned or transferred by, or by anyone on behalf of, the Company to the Trustee, which is hereby authorized to receive any property at any and all times, as and for additional security, and also, when and as provided in the First Mortgage as amended as and for substituted security, for the payment of the Bonds to be issued under the First Mortgage as amended, and to hold and apply any and all such property subject to the terms hereof and of the First Mortgage as amended.

TO HAVE AND TO HOLD all such properties, real, personal and mixed, mortgaged, pledged or conveyed by the Company as aforesaid, or intended so to be, unto the Trustee and its successors and assigns forever.

SUBJECT, HOWEVER, as to property hereby conveyed, to liens for taxes, assessments and other charges levied or to be levied by the State of Ohio and any of the subdivisions thereof for the years 2005 and 2006 and thereafter and, as to any property hereafter acquired by the Company and which may become subject to the lien of the First Mortgage as amended, to any lien or charge thereon existing at the time of the acquisition thereof by the Company;

IN TRUST NEVERTHELESS, upon and subject to the terms, conditions and stipulations hereinafter and in the First Mortgage as amended set forth, for the equal and proportionate benefit and security of the holders from time to time of the Bonds and interest coupons issued and to be issued under the First Mortgage as amended and this and other indentures supplemental thereto, without preference, priority or distinction as to lien or otherwise of any of the Bonds and coupons over any others by reason of priority in time of issue, sale or negotiation thereof or otherwise howsoever, and for the uses and purposes and upon and subject to the terms, conditions, provisions and agreements in the Bonds and hereinafter and in the First Mortgage as amended expressed and declared.

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ARTICLE ONE.

BONDS OF THE 4.80% POLLUTION CONTROL SERIES 2006 DUE 2036 AND ISSUE THEREOF.

SECTION 1.               There shall be a series of Bonds designated “4.80% Pollution Control Series 2006 Due 2036”, each of which shall bear the descriptive title First Mortgage Bond.  The aggregate principal amount of New Bonds which may be outstanding under the First Mortgage as amended and this Forty-Fourth Supplemental Indenture shall be limited to $100,000,000, except as provided in Section 9 of Article Two of the First Mortgage as amended.

SECTION 2.               Upon the execution and delivery of this Forty-Fourth Supplemental Indenture and upon delivery of $100,000,000 aggregate principal amount of the New Bonds, executed by the Company, and upon compliance by the Company with the provisions of Article Five, Article Six or Article Seven or any or all of said Articles, as the case may be, of the First Mortgage as amended, the Trustee shall, without awaiting the filing or recording of this Forty-Fourth Supplemental Indenture, authenticate the New Bonds and deliver the New Bonds as provided in said Article Five, Article Six or Article Seven.

SECTION 3.               The New Bonds shall be dated as provided in Section 3 of Article Two of the First Mortgage as amended; shall mature on September 1, 2036; and shall bear interest from September 13, 2006 as provided in said Section 3 of Article Two at the rate of four and eighty hundredths per centum (4.80%) per annum until paid or redeemed as hereinafter provided, payable on March 1, 2007 and thereafter semi-annually on each March 1 and September 1, and on the maturity date, to the Bondholders in whose names such New Bonds are registered at the close of business on February 15 or August 15, except that if the Company shall default in the payment of any installment of interest on any New Bonds, such interest in default shall be paid to the Bondholders in whose names the New Bonds are registered at the close of business on a date established for the payment of such defaulted interest by the Company in any lawful manner.  The New Bonds shall be payable as to both principal and interest in such coin or currency of the United States of America as at the time of payment is legal tender for the payment of public and private debts, at the office or agency of the Company in the Borough of Manhattan, The City of New York.  The amount of interest payable for any period will be computed on the basis of a 360-day year consisting of twelve 30-day months.  In the event that any date on which principal or interest is payable on the New Bonds is not a Business Day (as defined below), the payment of the principal or interest payable on such date will be made on the next succeeding day which is a Business Day (and without any interest or other payment in respect of any such delay), with the same force and effect as if made on the date the payment was originally payable.  “Business Day” means any day, other than a Saturday or Sunday, or a day on which banking institutions or trust companies in The City of New York are generally authorized or required by law, regulation or executive order to remain closed or a day on which the corporate trust office of the Trustee is closed for business.

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SECTION 4.           The New Bonds shall be issued in denominations of $5,000 and any integral multiple of $5,000.

Whenever any New Bond or New Bonds shall be surrendered at the office or agency of the Company in said Borough of Manhattan for exchange for a New Bond or New Bonds of other authorized denomination or denominations, the Company shall execute, and the Trustee shall authenticate and deliver, upon cancellation of the New Bond or New Bonds so surrendered, a New Bond or New Bonds of such other authorized denomination or denominations of like aggregate principal amount as the Bondholder making the exchange shall have requested and shall be entitled to receive.  On presentation of any New Bond which is to be redeemed pursuant to the provisions of Section 5 of this Article One in part only, the Company shall execute, and the Trustee shall authenticate and deliver, a New Bond or New Bonds in principal amount equal to the unredeemed portion of the New Bond so presented.

The Company shall not be required to (a) register a transfer of, or exchange, any New Bond during a period of fifteen (15) days next preceding any selection of New Bonds to be redeemed or (b) register a transfer of, or exchange, any New Bond which shall have been selected for redemption in whole or in part.

A service charge will not be made for any registration of transfer or exchange of New Bonds, but the Company may require payment of a sum sufficient to cover any stamp tax or other governmental charge payable in connection therewith.

Until definitive New Bonds shall be ready for delivery, the Company may execute and, upon request of the Company, the Trustee shall authenticate and deliver, in lieu of such definitive New Bonds but subject to the same provisions, limitations and conditions except as to the denominations thereof, temporary printed or lithographed New Bonds as provided in Section 8 of Article One of the First Mortgage as amended.  Such temporary New Bonds shall be exchangeable for definitive New Bonds, when ready for delivery, in the manner provided in the First Mortgage as amended, and shall in all other respects be subject to and entitled to the benefits of the terms and provisions and lien of this Forty-Fourth Supplemental Indenture, and the terms and provisions and lien of the First Mortgage as amended as therein provided.

SECTION 5.           The New Bonds shall be subject to mandatory redemption by the Company prior to maturity at any time in whole or in part at a redemption price of 100% of the principal amount to be redeemed, plus accrued and unpaid interest to the redemption date, upon receipt by the Trustee of notice from the Project Bond Trustee to the effect that (a) the Company is required to deliver moneys to the Project Bond Trustee for the redemption of the Project Bonds in whole or in part, as the case may be, as provided in Section 6.3 of the Loan Agreement and (b) an equivalent principal amount of the Project Bonds are being concurrently called for redemption.  Said notice shall specify the redemption date of such New Bonds (which redemption date shall be the same date as the redemption date specified in said notice for the Project Bonds being currently redeemed).  Any such redemption shall be made upon the notice and in the manner provided in this Article One, subject to the provisions of the First Mortgage as amended.

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SECTION 6.           The New Bonds shall be subject to redemption, at the option of the Company, prior to maturity at any time, in whole or in part, at a redemption price of 100% of the principal amount to be redeemed, plus accrued and unpaid interest to the redemption date, upon receipt by the Trustee of an officers’ certificate to the effect that (a) the Company has given notice to the Project Bond Trustee that the Company is exercising its option to direct the redemption of Project Bonds in whole or in part, as provided in Section 6.2 of the Loan Agreement and (b) an equivalent principal amount of New Project Bonds are being concurrently called for redemption.  Such officers’ certificate shall have attached to it a copy of said notice to the Project Bond Trustee and shall specify the redemption date of such New Bonds (which redemption date shall be not less than 45 days (unless a shorter period shall be acceptable to the Trustee) after the date of the mailing of such certificate and shall be the same date as the redemption date specified in said attached notice for the Project Bonds being concurrently redeemed).  Any such redemption shall be made upon the notice, which may be conditional as provided in Section 8 of this Article One, and in the manner provided in this Article One, subject to the provisions of the First Mortgage as amended.

SECTION 7.           The New Bonds shall also be subject to redemption prior to maturity, at the option of the Company, in whole or in part, at anytime on or after September 1, 2016, at a redemption price equal to 100% of the principal amount thereof, plus accrued and unpaid interest to the redemption date.

Prior to any such redemption, the Trustee shall have received an officers’ certificate to the effect that (a) the Company has given notice to the Project Bond Trustee that the Company is exercising its option to deliver moneys to the Project Bond Trustee for the redemption of Project Bonds in whole or in part, as the case may be, as provided in Section 6.1 of the Loan Agreement and (b) an equivalent principal amount of Project Bonds are being concurrently called for redemption.  Such officers’ certificate shall specify the principal amount of the New Bonds to be redeemed, shall have attached to it a copy of said notice to the Project Bond Trustee and shall specify the redemption date of such New Bonds (which redemption date shall be not less than 45 days (unless a shorter period shall be acceptable to the Trustee) after the date of the mailing of such certificate and shall be the same date as the redemption date specified in said attached notice for the Project Bonds being concurrently redeemed).  Any such redemption shall be made upon the notice, which may be conditional as provided in Section 8 of this Article One, and in the manner provided in this Article One, subject to the provisions of the First Mortgage as amended.

SECTION 8.           Subject to the provisions of the First Mortgage as amended, written notice of redemption of the New Bonds pursuant to any of Sections 5, 6 or 7 of this Article One shall be given by the Trustee by mailing, first class postage prepaid, or delivering by hand to the registered owner of such New Bonds to be redeemed a notice of such redemption at its last address as it shall appear upon the books of the Company for the registration and transfer of such New Bonds.  Any notice of redemption pursuant to said Sections 5, 6 or 7 shall be mailed or delivered by hand as least 30 days and not earlier than 60 days before the redemption date; provided, however, that the registered owner or owners of all New Bonds may consent in writing to a shorter notice period, and

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such consent, if filed with the Trustee, shall be binding upon the Company and such registered owners and their transferees.  In the case of any notice of redemption of New Bonds pursuant to said Sections 6 or 7, such notice shall state that such redemption is conditional to the same extent and with the same effect, if any, as the notice of redemption of the Project Bonds being concurrently redeemed.

SECTION 9.           In the event any Project Bonds shall be purchased by the Company and surrendered by the Company to the Project Bond Trustee for cancellation or shall be otherwise surrendered to the Project Bond Trustee for cancellation pursuant to the Project Bonds Indenture (except upon exchange for other Project Bonds), New Bonds equivalent in principal amount to the Project Bonds so surrendered shall be deemed to have been paid, but only when and to the extent that (a) such payment of the principal amount of such New Bonds shall be noted by an agency of the Company on the schedule of payments on such New Bonds and (if such agency is not the Trustee) written notice by such agency of such notation shall have been received by the Trustee or (b) such New Bonds shall have been surrendered to and cancelled by the Trustee as provided in Section 11 of this Article One.

SECTION 10.         In the event and to the extent the principal of or interest on any Project Bonds shall be paid, whether at maturity, upon redemption or otherwise, out of funds held by the Project Bond Trustee or out of any other funds or shall otherwise be deemed to be paid, an equal amount of principal or interest, as the case may be, payable with respect to an aggregate principal amount of New Bonds equal to an aggregate principal amount of such Project Bonds shall be deemed to have been paid, but, in the case of such payment of principal of such New Bonds, only when and to the extent that (a) such payment of the principal amount thereof shall be noted by any agency of the Company on the schedule of payments on such New Bonds and (if such agency is not the Trustee) written notice by such agency of such notation shall have been received by the Trustee or (b) such New Bonds shall have been surrendered to and cancelled by the Trustee as provided in Section 11 of this Article One.

SECTION 11.         When payment of any principal amount of a New Bond is made as provided in Section 9 or 10 of this Article One, the registered owner thereof shall surrender it to an agency of the Company for notation and notification or to the Trustee for cancellation as provided in such Section.  All New Bonds deemed to have been paid in full as provided in Section 9 or 10 of this Article One shall be surrendered to the Trustee for cancellation and the Trustee shall forthwith cancel the same.  In the event that part of a New Bond shall be deemed to have been paid as provided in said Section 9 or 10, the registered owner may at its option surrender such New Bond to the Trustee for cancellation, in which event the Trustee shall cancel such New Bond and the Company shall execute and the Trustee shall authenticate and deliver, without charge to the registered owner, New Bonds in such authorized denominations as shall be specified by the registered owner in an aggregate principal amount equal to  the unpaid balance of the principal amount of such surrendered New Bond.

SECTION 12.         Except as in this Forty-Fourth Supplemental Indenture otherwise provided with respect to any matter or question, the provisions of Article Ten of the First

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Mortgage as amended shall be applicable in the case of the redemption of all or any part of the New Bonds at any time outstanding.  The term “officers’ certificate as used in this Article One shall mean a certificate signed by the President or a Vice President and any other Vice President, the Treasurer, Assistant Treasurer, the Secretary or Assistant Secretary or any other officer of the Company.

SECTION 13.         The New Bonds shall be in fully registered form only.  The form of the New Bonds, and of the Trustee’s certificate of authentication thereon, shall be substantially as set forth in Exhibit A.

ARTICLE TWO.

COVENANTS OF THE COMPANY.

SECTION 1.           All covenants and agreements by the Company in the First Mortgage as heretofore and hereby amended are hereby confirmed.

SECTION 2.           Promptly after the execution and delivery of this Forty-Fourth Supplemental Indenture, the Company will take such action with respect to the recording, filing, re-recording and refiling of the First Mortgage as amended and this Forty-Fourth Supplemental Indenture as may be necessary to make effective the lien intended to be created hereby, and will furnish to the Trustee an opinion of counsel selected by the Company and satisfactory to the Trustee (who may be of counsel to the Company) either (a) stating that in the opinion of such counsel such action has been taken with respect to the recording, filing, re-recording and refiling of the First Mortgage as amended and this Forty-Fourth Supplemental Indenture as to make effective the lien intended to be created thereby, and reciting the details of such action, or (b) stating that in the opinion of such counsel no such action is necessary to make such lien effective.

ARTICLE THREE.

MISCELLANEOUS.

SECTION 1.           The New Bonds may be authenticated and delivered by the Trustee and issued by the Company in advance of the recording or filing of this Forty-Fourth Supplemental Indenture.

SECTION 2.           The provisions of this Forty-Fourth Supplemental Indenture shall become effective immediately upon the execution and delivery hereof.  From and after the initial issue of the New Bonds, this Forty-Fourth Supplemental Indenture shall form a part of the First Mortgage and all the terms and conditions herein contained shall be deemed to be part of the terms of the First Mortgage, as fully and with the same effect as if all the terms and provisions of this Forty-Fourth Supplemental Indenture, including the provisions which determine the dates on which the amendments herein made shall become effective, had been set forth in the First Mortgage as originally executed.  Except as modified or amended by this Forty-Fourth Supplemental Indenture, the First Mortgage

17

as amended shall remain and continue in full force and effect in accordance with the terms and provisions thereof, and all the covenants, conditions, terms and provisions of the First Mortgage, as heretofore modified and amended and as further modified and amended by this Forty-Fourth Supplemental Indenture, shall be applicable with respect to the New Bonds, except insofar as such covenants, conditions, terms and provisions are limited and applicable only to the Bonds of another or other series, or are expressed to continue only so long as Bonds of another or other series are outstanding, and all the covenants, conditions, terms and provisions of the First Mortgage as amended with respect to the Trustee shall remain in full force and effect and be applicable to the Trustee under this Forty-Fourth Supplemental Indenture in the same manner as though set out herein at length.  All representations and recitals contained in this Forty-Fourth Supplemental Indenture and in the New Bonds (save only the Trustee’s certificates upon said New Bonds) are made by and on behalf of the Company, and the Trustee is in no way responsible therefor or for any statement therein contained.

SECTION 3.           The terms defined in Article One of the First Mortgage as heretofore and hereby amended, when used in this Forty-Fourth Supplemental Indenture, shall, respectively, have the meanings set forth in said Article One.

SECTION 4.           This Forty-Fourth Supplemental Indenture may be simultaneously executed in several counterparts and each counterpart shall be an original instrument.

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IN WITNESS WHEREOF, THE DAYTON POWER AND LIGHT COMPANY has caused this instrument to be signed on its behalf by its President or a Vice President and its corporate seal to be hereunto affixed and attested by its Secretary or an Assistant Secretary, in the City of Dayton, Ohio, and THE BANK OF NEW YORK has caused this instrument to be signed on its behalf by a Vice President or an Assistant Vice President and its corporate seal to be hereunto affixed and attested by a Vice President, Assistant Vice President or an Assistant Treasurer, in The City of New York, New York, as of the day and year first above written.

	THE DAYTON POWER AND LIGHT COMPANY
	By
		John J. Gillen
		Senior Vice President and Chief Financial Officer
[SEAL]
Attest:
Miggie E. Cramblit
Vice President, General Counsel
and Corporate Secretary
Signed and acknowledged in our presence by
The Dayton Power and Light Company

[Forty-Fourth Supplemental Indenture, dated as of September 1, 2006, to Indenture dated as of October 1, 1935, executed by The Dayton Power and Light Company to Irving Trust Company (now The Bank of New York), as Trustee]

	THE BANK OF NEW YORK,
	as Trustee
	By
		Louis P. Young
		Vice President
[SEAL]
Attest:
Franca Ferrara
Assistant Vice President
Signed and acknowledged in our presence by
The Bank of New York

STATE OF OHIO,	)	ss.:
COUNTY OF MONTGOMERY	)

On this        day of September, 2006, personally appeared before me, a Notary Public within and for said County in the State aforesaid, John J. Gillen, and Miggie E. Cramblit, to me known and known to me to be, respectively, the Senior Vice President and Chief Financial Officer and the Vice President, General Counsel and Corporate Secretary of THE DAYTON POWER AND LIGHT COMPANY, one of the corporations which executed the foregoing instrument, who severally acknowledged that they did sign and seal said instrument as such Senior Vice President and Chief Financial Officer and Vice President, General Counsel and Corporate Secretary for and on behalf of said corporation and that the same is their free act and deed as such Senior Vice President and Chief Financial Officer and Vice President, General Counsel and Corporate Secretary, respectively, and the free and corporate act and deed of said corporation; and said John J. Gillen, being by me duly sworn, did depose and say: that he resides in Delaware County, Pennsylvania; that he is the Senior Vice President and Chief Financial Officer of THE DAYTON POWER AND LIGHT COMPANY, one of the corporations described in and which executed the above instrument; that he knows the seal of said corporation; that the seal affixed to said instrument is such corporate seal; that it was so affixed by order of the Board of Directors of said corporation; and that he signed his name thereto by like order.

IN WITNESS WHEREOF I have hereunto set my hand and official seal.

[SEAL]

TIMOTHY G. RICE, Attorney at Law

Notary Public, State of Ohio

My Commission has no expiration date,

Section 147.03 O.R.C.

STATE OF NEW YORK,	)	ss.:
COUNTY OF NEW YORK	)

On this 8th day of September, 2006, personally appeared before me, a Notary Public within and for said County in the State aforesaid, Louis P. Young and Franca Ferrara, to me known and known to me to be, respectively, a Vice President and an Assistant Vice President of THE BANK OF NEW YORK, one of the corporations which executed the foregoing instrument, who severally acknowledged that they did sign and seal said instrument as such Vice President and Assistant Vice President for and on behalf of said corporation and that the same is their free act and deed as such Vice President and Assistant Vice President, respectively, and the free and corporate act and deed of said corporation; and said Louis P. Young being by me duly sworn, did depose and say: that he resides in Plainview, New York; that he is a Vice President of THE BANK OF NEW YORK, one of the corporations described in and which executed the above instrument; that he knows the seal of said corporation; that the seal affixed to said instrument is such corporate seal; that it was so affixed by order of the Board of Directors of such corporation; and that he signed his name thereto by like order.

IN WITNESS WHEREOF I have hereunto set my hand and official seal.

[SEAL]

Carlos R. Luciano

Notary Public, State of New York

No. 41-4765897

Qualified in Queens County

Commission Expires April 30, 2010

This instrument prepared by

Timothy G. Rice, Esq.

Attorney at Law

The Dayton Power and Light Company

1065 Woodman Drive

Dayton, Ohio 45432

EX-10.(F)

Exhibit 10(f)

THE DAYTON POWER AND LIGHT COMPANY

SUPPLMENTAL EXECUTIVE RETIREMENT PLAN

(As Amended Through February 1, 2000)

Section 1.Establishment of the Plan

1.1Establishment of the Plan.  The Dayton Power and Light Company established, effective as of January 1, 1977, a supplemental retirement plan for Eligible Executives of the Company which plan shall be known as the Supplemental Executive Retirement Plan (the “Plan”).

1.2Description of the Plan.  This Plan has been established in order to provide supplemental retirement benefits (and as such the Plan is exempt from the participation, vesting, funding and fiduciary requirements of Title I of the Employee Retirement Income Security Act of 1974, as amended), and to prevent frustration of the purposes of the Plan in the event of a Change of Control as defined herein.

1.3Purpose of the Plan.In addition to the description of the Plan as set forth in subsection 1.2 above, the primary objectives of the Company in establishing this Plan are as follows:

a)To enhance the ability of the Company to recruit executives who could not earn adequate benefits under the Qualified Plan because of short service potential.

b)To enhance the ability to retain and motivate Eligible Executives in similar situations and eliminate individual deferred compensation arrangements for the purpose of providing competitive retirement benefits.

c)To permit earlier than normal retirement of Eligible Executives when and if desirable. The provisions of this Plan are applicable to Eligible Executives of the Company who retire or terminate employment on or after January 1, 1977 and are approved by the Committee. Any person who retired from or terminated employment with the Company prior to January 1, 1977 shall not be eligible for any benefits under this Plan.

Section 2.Definitions

2.1Definition.  Whenever used in the Plan the following terms shall have the respective meanings set forth below:

a)“Board of Directors” means the Board of Directors of DPL Inc. in place from time to time prior to a Change of Control.

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b)“CEO” means the Chief Executive Officer of DPL, duly installed, from time to time, prior to a Change of Control. However, “Committee” will be substituted for “CEO” in discussing the CEO’s rights and benefits in the Plan.

c)“Change of Control” means any change in control of DPL, or its principal subsidiary, DP&L, of a nature that would be required to be reported in response to Item 6(e) of Schedule 14A of Regulation 14A promulgated under the Securities Exchange Act of 1934, as amended (the “Exchange Act”) as determined by the Board of Directors in its sole discretion; provided that, without limitation, such a Change of Control shall be deemed to have occurred if (i) any “person” (as such term is defined in Sections 13(d) and 14(d)(2) of the Exchange Act; hereafter, a “Person”) other than DPL or DP&L or an entity then directly or indirectly controlling, controlled by or under common control with DPL or DP&L is on the date hereof or becomes or commences a tender offer to become the beneficial owner, directly or indirectly, of securities of DPL or DP&L representing (A) 15% or more of the combined voting power of the then outstanding securities of DPL or DP&L if the acquisition of such beneficial ownership or such tender offer is not approved by the Board of Directors prior to the acquisition or the commencement of such tender offer or (B) 50% or more of such combined voting power in all other cases; (ii) DPL or DP&L enters into an agreement to merge or consolidate itself, or an agreement to consummate a “combination” or “majority share acquisition” in which it is the “acquiring corporation” (as such terms are defined in Ohio Rev. Code 1701.01 as in effect on December 31, 1990) and in which shareholders of DPL or DP&L, as the case may be, immediately prior to entering into such agreement, will beneficially own immediately after the effective time of the merger, consolidation, combination or majority share acquisition, securities of DPL or DP&L or any surviving or new corporation, as the case may be, having less than 50% of the “voting power” of DPL or DP&L or any surviving or new corporation, as the case may be, including “voting power” exercisable on a contingent or deferred basis as well as immediately exercisable “voting power”, excluding any merger of DPL into DP&L or of DP&L into DPL; (iii) DPL or DP&L enters into an agreement to sell, lease, exchange or otherwise transfer or dispose of all or substantially all of its assets to any Person other than to a wholly-owned subsidiary or, in the case of DP&L, to DPL; but not including (A) a mortgage or pledge of assets granted in connection with a financing or (B) a spin-off or sale of assets if DPL continues in existence and its common shares are listed on a national securities exchange, quoted on the automated quotation system of a national securities association or traded in the over-the-counter market; (iv) any transaction referred to in (ii) or (iii) above is consummated; or (v) those persons serving as directors of DPL or DP&L on February 1, 2000 (the “Original Directors”) and/or their Successors do not constitute a majority of the whole Board of Directors of DPL or DP&L, as the case may be (the term “Successors” shall mean those directors whose election or nomination for election by shareholders has been approved by the vote of at least two-thirds of the Original Directors and previously qualified Successors serving as directors of DPL or DP&L, as the case may be, at the time of such election or nomination for election).

d)“Committee” means the Compensation and Management Review Committee of the Board of Directors of DPL Inc. or such other committee(s) as may be designated by the Board of Directors of DPL Inc. from time to time to administer the Plan.

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e)“Company” means The Dayton Power and Light Company (“DP&L”), DPL Inc. (also referred to as “DPL”), and any entity which, prior to a Change of Control is controlling, controlled by or under common control with DP&L or DPL Inc.

f)“Effective Date” means January 1, 1977.

g)“Eligible Executive” means each employee who is a participant in “Retirement Income Plan Two of The Dayton Power and Light Company,” as in effect from time to time, including any successor plan thereto (the “Qualified Plan”) (i) who has been approved for participation in the Plan from time to time by the CEO and the Committee or (ii) who participates in the Company’s Key Employees Deferred Compensation Plan but who has been selected by the CEO or the Committee to be only entitled to the benefit provided in Section 4.5 hereof. As memorialized in separate letter agreements, the participation by certain employees in the Plan was terminated effective as of January 1, 2000 and the present value, as determined by the Committee, of each such employee’s accrued benefits under the Plan was credited to the Standard Deferral Account of such employee under the Company’s Key Employees Deferred Compensation Plan. These employees are no longer “Eligible Participants.”

h)“Final Average Compensation” means the monthly average of any Eligible Executive’s total earnings paid for services performed for the Company, without the restrictions or limitations imposed by Sections 415, 401(a)(17), or any other provision of the Internal Revenue Code of 1986, as amended, including, without limitation, any extraordinary forms of earnings such as bonuses, deferred and incentive compensation in the year earned (provided, however, that in the case of a multiple year incentive compensation program the earnings attributable to the incentive period, once determined, shall be allocated equally to each year in the incentive period) and employee deferrals under the Company’s “Savings Plan” or contributions to the Company’s other benefit plans in the year the deferral or contribution is made, as follows:

1)For a normal retirement under subsection 4.1, for the three calendar years, whether or not consecutive, out of the last ten completed consecutive calendar years during which the Eligible Executive received compensation (or fewer if the Eligible Executive has not completed ten calendar years) prior to the year in which the first of the following occurs (i) his Normal Retirement Date (under the Qualified Plan); or (ii) his cessation of employment with the Company; or (iii) his 65th birthday; which yield the highest average; or

2)For an early retirement under subsection 4.2 hereof, for the three calendar years, whether or not consecutive, out of the last ten consecutive completed calendar years during which the Eligible Executive received compensation (or fewer if the Eligible Executive has not completed ten calendar years) prior to the year in which the first of the following occurs (i) his Early Retirement Date (under the Qualified Plan) or (ii) his cessation of employment with the Company; which yield the highest average.

i)“Primary Social Security Benefit” means the monthly amount as determined by the Committee (in consultation with an actuary selected by the Committee) which an Eligible Executive would receive at the earliest possible retirement age upon timely and proper

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application to the Social Security Administration and on the assumption that such executive would not engage in disqualifying employment under the Federal Social Security Act as in effect on the date of determination. Any nonlegislative change in a method, factor or index (such as a Consumer Price Index) used to compute Social Security benefits occurring during the year of determination will not be taken into account. If a Participant’s Primary Social Security Benefit must be estimated, it will be based on the assumptions that (a) the Social Security Act will not be amended after the date of determination; and (b) the Eligible Executive’s compensation is his Final Average Compensation.

j)“Other Benefit” means, for each Eligible Executive, the estimated monthly benefit that can be provided as a life annuity beginning at the date his benefit payments under this Plan commence, based upon the amount of monthly retirement benefits under the Qualified Plan, or under any other qualified pension or retirement plan whether or not sponsored by the Company (“Non-Company Plan”), and inclusive of the estimated monthly benefit that would have been provided under any Non-Company Plan had the Eligible Executive not received any prior lump sum payments from such plan, which is based on service for which the Eligible Executive receives Service and Benefit Service credit hereunder, but excluding any Non-Company Plan savings plan similar to the Savings Plan, or the benefit from any Non-Company Plan to the extent attributable to employee contributions. The Committee shall determine such Other Benefit in consultation with an actuary selected by the Committee, using such accepted actuarial tables and reasonable interest assumptions and actuarial reduction factors, if appropriate, as the Committee shall determine. The adjustment for Other Benefit as described in subsections 4.1(b)(2) and 4.3(b)(2) hereof, shall be made not only in the case of one actually receiving an Other Benefit, but also in the case of one who would be entitled to receive an Other Benefit but is not actually receiving it in that he does not make application therefor.

k)“Service” and “Benefit Service” means an Eligible Executive’s period of service with the Company, as determined by the Committee, using the rules set forth in the Qualified Plan as in effect when the Eligible Executive’s service terminated, it is specifically intended under this Plan to include as Service and Benefit Service any period of employment with the Company prior to the Eligible Executive’s coverage under this Plan and also such period of employment as an employee of the Company prior to becoming an Eligible Executive. The Committee may, in its sole discretion, approve the inclusion as Service and Benefit Service of any period of employment with another company prior to an Eligible Executive’s period of employment by the Company, using the same rules to credit such service as are used for the crediting of service for employment with the Company.

Section 3.Eligibility and Participation

3.1Eligibility.  Any employee of the Company who is an Eligible Executive (as defined herein) shall be eligible to participate in the Plan.

3.2Participation.  An Eligible Executive who is eligible for this Plan under subsection 3.1 above shall remain covered hereunder until the first to occur of (a) or (b) below:

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a)the date the Committee shall determine that his participation shall cease, provided that such determination is made prior to the Eligible Executive’s retirement or

b)the later of (i) or (ii) below:

(i)the date upon which his Service terminates for any reason.

(ii)the date upon which he is no longer entitled to receive any benefits hereunder.

Provided, however, that under (b) above if an Eligible Executive’s service terminates on or after he becomes eligible to receive (then or thereafter) a benefit under this Plan he shall be entitled to such benefit as provided herein, and if an Eligible Executive’s Service terminates before he becomes eligible to receive (then or thereafter) a benefit under this Plan, he thereupon shall cease participation in the Plan unless and until he thereafter becomes eligible to participate again in accordance with subsections 2.1(g) and 3.1 hereof.

Section 4.Benefits

4.1Normal Retirement Benefits

a)Eligibility.  An Eligible Executive shall be eligible to receive a normal retirement benefit under the Plan, in accordance with and subject to the provisions of the Plan, upon termination of his Service which occurs on or after his 62nd birthday.

b)Amount.  A retired Eligible Executive who is eligible to receive a normal retirement benefit pursuant to (a) above, shall be entitled to a monthly normal retirement benefit equal to the amount determined in 1) below less the amount determined in 2) and 3) below:

1)An amount equal to (i) multiplied by (ii) below:

(i)The sum of (A) and (B) below minus the amount in (C) below:

A)87% of his first $800 of Final Average Compensation;

B)57% of his Final Average Compensation in excess of $800;

C)the amount of his Primary Social Security Benefit.

(ii)a fraction, the numerator of which is his total months of Benefit Service (not to exceed 240), and the denominator of which is 240.

2)His Other Benefit.

3)The value of any benefit previously received under this Plan.

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c)Commencement and Duration.  Except as provided in subsection 4.7, monthly normal retirement benefit payments for an Eligible Executive covered by subsection 4.1(a) above shall begin as of the first day of the calendar month next following the date such Eligible Executive’s Service terminates, and shall be paid as a single life annuity for the Eligible Executive.

4.2Early Retirement Benefits.

a)Eligibility.  An Eligible Executive shall be eligible to receive an early retirement benefit under the Plan, in accordance with and subject to the provisions of the Plan, upon termination of his Service prior to his 62nd birthday but after he has completed at least 10 years of Service.

b)Amount.  A retired Eligible Executive who is eligible to receive an early retirement pursuant to subsection 4.2(a) above shall be entitled to receive a monthly early retirement benefit computed in the same manner as a normal retirement benefit under subsection 4.1(b) hereof, based upon his Final Average Compensation as determined under subsection 2.1(h)(2) hereof, and his Benefit Service as of the date his Service terminates, reduced by 1/4 of 1% for each calendar month by which his first benefit payment precedes the first of the month next following his 62nd birthday; provided, however, that such reduction shall in no event exceed twenty-one percent (21 %) in the aggregate.

c)Commencement and Duration.  Except as provided in subsection 4.7, monthly early retirement benefit payments for an Eligible Executive covered by subsection 4.2(a) above shall begin as of the first day of the calendar month next following the date such Eligible Executive’s Service terminates; provided however, that payments shall not commence earlier than the calendar month coincident with or next succeeding the Eligible Executive’s 55th birthday. By election filed by the Eligible Executive prior to the time of his termination, benefit payments hereunder may be delayed until the first of any calendar month before the Eligible Executive’s 65th birthday. In all cases, payments hereunder shall be paid as a single life annuity for the Eligible Executive.

4.3[Intentionally left blank.]

4.4Surviving Spouse/Estate Benefit

a)Pre-Retirement Spousal Benefit.  If an Eligible Executive dies before commencement of monthly retirement benefit payments under this Plan, and leaves a surviving spouse (“Spouse”), then such Eligible Executive’s Spouse shall be entitled to receive a monthly benefit under the Plan. The monthly benefit shall commence on a date beginning within thirty (30) days after the death of the Eligible Executive, and shall be equal to the monthly benefit amount to which the Eligible Executive would have been entitled under subsection 4.1, 4.2 or 4.5 hereunder had he terminated employment on the date of his death and began to collect payments immediately, with an appropriate discount to present value in the event that the Eligible Executive had not yet reached his 55th birthday, which benefit shall continue for that number of months that is equivalent to the Eligible Executive’s remaining actuarial life expectancy

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determined as of the date monthly benefits under the Plan began, as determined by the Committee in consultation with an actuary selected by it.

b)Post-Retirement Benefit.  If an Eligible Executive dies after the commencement of monthly retirement benefit payments under this Plan, then such Eligible Executive’s Spouse, or designated beneficiary if there is no such Spouse, or estate if there is no designated beneficiary shall be entitled to receive a monthly benefit under this Plan equal to the monthly benefit received by the Eligible Executive, which benefit shall continue for that number of months that is equivalent to the Eligible Executive’s remaining actuarial life expectancy determined as of the date monthly benefits under the Plan began, as determined by the Committee in consultation with an actuary selected by it.

4.5Benefit for Persons Participating Only in The Dayton Power and Light Company Key Employee Deferred Compensation Plan.  Notwithstanding any other provision in this Plan to the contrary, an employee who participates in The Dayton Power and Light Company Key Employee Deferred Compensation Plan and who is not an Eligible Executive pursuant to Section 2.1(g)(i) hereof, will receive a benefit under this Plan equal (and limited) to:

a)The benefit he would have received under the Qualified Plan if he had not deferred compensation under The Dayton Power and Light Company Key Employee Deferred Compensation Plan; less

b)The benefit actually paid under the Qualified Plan; less

c)The value of any benefit previously received under this Plan.

The benefit under this section will be paid in the manner provided in Section 4.1(c), 4.2(c), 4.4 or 4.6, as appropriate, depending on the circumstances affecting the employee’s termination.

4.6Lump Sum Amount.

a)Request For Conversion of Benefit to Lump Sum Amount.  An Eligible Executive may submit a written request to the Committee within sixty (60) days prior to or after termination of Service requesting that all of the Eligible Executive’s benefits payable pursuant to Section 4.1, 4.2, or 4.5 of the Plan be converted into a Lump Sum Amount (as defined in subsection 4 and that such Lump Sum Amount be paid either in a single lump sum payment or in annual installments over a period of up to 20 years, together with earnings on the unpaid balance determined in accordance with this subsection 4.6(a). The lump sum payment, or the first installment payment, as the case may be, shall, if approved as provided in subsection 4.6(b), be made, unless otherwise determined by the Committee in its discretion, on or prior to the January 31 immediately after approval of the request (but, subject to subsections 4.6(e) and 4.7, no earlier than age 55), with subsequent annual installments, if payments are to be made in annual installments, to be paid on or prior to each January 31 thereafter until the “Unpaid Amount” has been paid in full.

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If an Eligible Executive’s benefits under the Plan have been converted into a Lump Sum Amount in accordance with this Section 4.6 and such Eligible Executive (an “Electing Executive”) has requested that such Lump Sum Amount be paid in annual installments, then, for purposes of measuring the amounts which may be distributed under the Plan, the “Unpaid Amount” of such Electing Executive shall be deemed invested in such “Eligible Investment Options” as such Electing Executive may designate from time to time as provided herein. For purposes of the Plan, the term “Unpaid Amount” means, at any time with respect to any Electing Executive, such Electing Executive’s Lump Sum Amount (together with any dividends, interest, distributions or other amounts credited thereto pursuant to this subsection 4.6(a)) less the aggregate amount of all installment payments theretofore made to such Electing Executive and the term “Eligible Investment Options” means those securities, mutual funds or other investment vehicles set forth on Schedule I hereto, as such Schedule I may be modified from time to time by the Committee upon at least 30 days’ prior notice to the Electing Executives.

Each Electing Executive shall have the option, ,by delivering to the Secretary of Company a completed Investment Option Election Form in the form attached hereto as Exhibit D (or such other form as the Committee may designate from time to time) on or prior to each such date as the Committee may specify from time to time for such purpose or, in the case of the first election, on or prior to the conversion of such Electing Executive’s benefits under the Plan into a Lump Sum Amount (each of the foregoing dates, an “Election Date”), to designate or change, in a percentage equal to at least 10%, the portions of his Unpaid Amount which shall be deemed invested in each Eligible Investment Option as of each Election Date. Any such designation by an Electing Executive shall remain in effect until changed in accordance with the preceding sentence. Any increase in the percentage of an Electing Executive’s Unpaid Amount deemed invested in an Eligible Investment Option effected on any Election Date shall be deemed to be a purchase of such Eligible Investment Option and any decrease in the percentage of an Electing Executive’s Unpaid Amount deemed invested in an Eligible Investment Option effected on any Election Date shall be deemed to be a sale of such Eligible Investment Option, and any such purchase or sale shall be deemed to have occurred as of the last business day immediately prior to such Election Date at the closing price of such Eligible Investment Option on such date. In the absence of any such designation by an Electing Executive with respect to all or any portion of his Unpaid Amount, such Unpaid Amount (or such portion) shall be credited with interest on the first day of each month in an amount equal to one-twelfth of the simple average yield of the annualized AA utility bond averages as published monthly in Moody’s Bond Survey for the preceding quarter. All dividends, interest, distributions and other amounts paid or distributed from time to time with respect to any Eligible Investment Option in which all or any portion of an Electing Executive’s Unpaid Amount is deemed invested shall be credited to such Electing Executive’s Unpaid Amount and shall be deemed reinvested in such Eligible Investment Option.

The Company shall not be required to purchase, hold or dispose of any Eligible Investment Options designated by Electing Executives. To the extent that the Company does, in its discretion, purchase or hold any of the Eligible Investment Options designated by Electing Executives, the same shall remain the sole property of the Company, subject to the claims of its general creditors, and no Electing Executive shall have a property interest therein or claim thereto.

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For purposes of any distribution with respect to an Electing Executive’s Unpaid Amount pursuant to this subsection 4.6(a), the amount of such Electing Executive’s Unpaid Amount on any date shall be equal to the value (determined on the basis of the closing prices on the last business day immediately preceding such date) of all Eligible Investment Options in which such Electing Executive’s Unpaid Amount is deemed to be invested on such date and, in the case of a partial distribution of such Electing Executive’s Unpaid Amount, the amount of such distribution shall proportionately reduce the amount which is deemed invested in each Eligible Investment Option.

b)Conditions to Conversion of Benefit to Lump Sum Amount.  The Committee, in its sole discretion, may approve or deny an Eligible Executive’s request made pursuant to subsection 4.6(a) for conversion of the Eligible Executive’s benefit into a Lump Sum Amount, and payment thereof as a lump sum, or as a series of installment payments based thereon, as described in subsection 4.6(a). In addition, the Committee shall, subject to subsections 4.6(d), (e) and (f) hereof in all cases in which a lump sum payment or a series of installment payments based thereon is approved, require that the Eligible Executive enter into a noncompetition agreement with the Company in substantially the form attached hereto as Exhibit A, with the Committee to determine, in its sole discretion, the geographic location of such non-competition agreement. The term of the non-competition agreement shall be for such period from the date of termination as the Committee may, in its sole discretion, determine, if the Lump Sum Amount is paid as a lump sum payment, or for a period equivalent to the period over which installment payments are made if the Lump Sum Amount is paid in installment payments.

c)Computation of Lump Sum Amount.  The conversion of the Eligible Executive’s benefit into a Lump Sum Amount as described in Section 4.6(a) or in Section 4.8 shall be equal to the present value of the amount of monthly benefit the Eligible Executive would be entitled to receive under Sections 4.1, 4.2, or 4.5, as the case may be, determined as of the date of distribution, converted into a lump sum (such lump sum is referred to herein as the “Lump Sum Amount”). The Committee shall determine such conversion using the interest and mortality assumptions contained in Exhibit B hereto.

d)Death of Executive.  Notwithstanding subsection 4.6(b), if an Eligible Executive dies after requesting a lump sum payment or series of fixed installment payments but prior to receiving approval of such payment from the Committee, the lump sum payment or installment payments may be approved notwithstanding the absence of a noncompetition agreement and determined under subsection 4.6(c) based upon facts existing on the date the request was made. If such approval is obtained, or if an Eligible Executive who is receiving the Lump Sum Amount in installment payments dies prior to receipt of all installments then all future payments hereunder shall be paid to the beneficiary or beneficiaries designated by the Eligible Executive, or to the estate of the Eligible Executive on failure to so designate a beneficiary.

e)Change of Control.  Notwithstanding any provision of this Plan (including subsection 4.6(b)), an Eligible Employee shall be entitled to a lump sum payment (the “Lump Sum Payment”), on termination of his/her employment with the Company under circumstances in which payments under paragraph 5.A. [or successor provision] of the Eligible Executive severance letter agreement with the Company would become due and payable to the Eligible

9

Executive (or, if the Eligible Executive is not then a party to a severance letter agreement, under circumstances in which payments under paragraph 5.A. [or successor provision] of the most restrictive severance letter agreement between the Company and any employee [in terms of triggering the Company’s obligation to pay benefits to the employee] would become due and payable to the Eligible Executive if he were a party thereto). The Lump Sum Payment shall equal the lump sum payment computed in accordance with subsection 4.6(c) hereof. The Lump Sum Payment shall be paid immediately upon termination.

Notwithstanding any other provision of the Plan, after a Change of Control, any portion of a distribution to be made to an Electing Executive with respect to the Unpaid amount of such Electing Executive may, at the request of such Electing Executive at least 30 days prior to the scheduled date of such distribution, be made, by the Trustees of the Master Trust(s) pursuant to which benefits under the Plan are being funded, in the sole and absolute discretion of such Trustees, in the form of any Eligible Investment Options actually held by such Master Trust(s) for purposes of funding such distribution to such Electing Executive under the Plan. For purposes of making any such distribution, any Eligible Investment Option so distributed shall be valued at its closing price on the last business day immediately preceding the date of such distribution and such distribution shall be net of any applicable federal, state or local withholding taxes unless the Electing Executive makes a cash payment, concurrently with such distribution, to the Master Trust(s) making such distribution for the purpose of paying such withholding taxes. Nothing contained in this paragraph shall require the Company (or any of the Master Trusts) to purchase, hold or dispose of any Eligible Investment Options designated by Electing Executives. To the extent that any Master Trust holds any Eligible Investment Options, the same shall remain the sole property of the Company, subject to the claims of its general creditors, and no Electing Executive shall have any property interest therein or claim thereto.

(f)Surviving Spouse Lump Sum Benefit.  If an Eligible Executive dies under circumstances in which subsection 4.4(a) hereof would apply, then the Spouse may submit a written request to the Committee within one hundred twenty (120) days after the Eligible Executive’s date of death requesting that the benefits payable pursuant to Section 4.4 be paid in a single lump sum, computed in accordance with the principles of subsection 4.6(c), to be made as soon as reasonably possible after approval of the request. Such request may be approved by the Committee, in its sole discretion, notwithstanding the absence of a non-competition agreement.

(g)Estate Lump Sum Benefit.  If an Eligible Executive dies under circumstances in which subsection 4.4(a) would apply but for the fact that such Eligible Executive does not have a surviving Spouse, then the Eligible Executive’s designated beneficiary shall be entitled to an immediate lump-sum payment equal to the amount which would have been received under subsection 4.6(f) had the Eligible Executive had a surviving Spouse who had requested and been awarded the single lump-sum provided therein. If an Eligible Executive has not designated a beneficiary, or if the designated beneficiary does not survive the Eligible Executive, then such lump-sum amount will be paid to the Eligible Executive’s estate.

4.7Early Distribution.   Notwithstanding any other provision of the Plan to the contrary, the Committee may, upon receiving a written request from the Eligible Executive and determining that a distribution is in the best interest of the Company and the Eligible Executive

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taking into account the financial condition of each, distribute an annuity purchased pursuant to the Plan or make a lump sum distribution, crediting such distribution to the Eligible Executive’s account.

4.8Certain Lump Sum Distributions.  Notwithstanding any other provision of the Plan, in the event that the Company is entitled to make a lump sum distribution to an Eligible Executive pursuant to Section 4.H. of the Company’s Key Employees Deferred Compensation Plan of the amounts then credited to such Eligible Executive’s Standard Deferral Account under such plan (a “Section 4.H. Distribution”), then, whether or not the Company makes such Section 4.H. Distribution, the Company may, at its option, (i) convert the benefits payable to such Eligible Executive pursuant to Section 4.1, 4.2 or 4.5 of the Plan into a Lump Sum Amount in accordance with Section 4.6(c) and distribute such Lump Sum Amount to such Eligible Executive in a single lump sum payment or (ii) if such Eligible Executive’s benefits under Section 4.1, 4.2 or 4.5 of the Plan have been converted into a Lump Sum Amount in accordance with Section 4.6(a) prior thereto and such Lump Sum Amount is being paid in installments in accordance with Section 4.6(a), distribute to such Eligible Executive in a single lump sum payment the entire Unpaid Amount of such Eligible Executive.

Section 5.Administration

5.1Administration.  The Company shall be responsible for the general administration of the Plan and the carrying out of the provisions thereof, and shall have all, rights and powers required in connection therewith, including the right to establish rules for the administration of the Plan and the methods to be used to calculate benefits under this Plan.

Section 6.Financing

6.1Financing of Benefits.  No Eligible Executive shall be required to make any contribution under the Plan. Benefits shall be payable when due, by the Company, from the general assets of the Company.

Section 7.Master Trusts

7.1Participation Accounts.  The Company has established, and may in the future establish, one or more trusts (each such trust, as it may be amended from time to time, is referred to herein as a “Master Trust”) for the purpose, among others, of securing the performance by the Company of its obligation to Eligible Executives to make the distributions under the Plan and has funded one or more of the Master Trusts in an aggregate amount of cash as the Company has determined to be equal to the value of benefits accrued under the Plan, and the Master Trust(s) to which such cash has been transferred may purchase annuities for the Eligible Executives’ accounts equal in value to the benefits accrued under the Plan. Pursuant to one or more of the Master Trusts, each Eligible Executive has been assigned a separate account as a mechanism for measuring the potential benefits which may be distributed in the future. Subsequent transfers of cash which the Company is required to make to the Master Trusts pursuant to Section 7.2 or 8(c) hereof or otherwise shall be allocated among the Master Trusts as the Committee may determine from time to time.

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7.2Successive Transfers.  Within one hundred twenty (120) days after the end of each calendar year, the Company shall transfer an aggregate amount of cash as the Committee shall determine to be equal to the value of benefits accrued by Eligible Executives under the Plan through such calendar year.

7.3Title to Funds.  DP&L shall retain beneficial ownership of all cash or shares transferred to the Master Trusts and such cash or shares will be subject to the claims of DP&L’s creditors. No Eligible Executive or beneficiary has or will have any property interest in the cash or shares held in the Master Trusts or any other specific asset of the Company.

Section 8.Change of Control.  In the event of any Change of Control, as defined herein:

a)Any and all authority and discretion which is exercisable by the Committee, or the CEO, as heretofore or hereafter described in the Plan, shall automatically be transferred to the Trustees of each Master Trust to the extent that benefits under the Plan are being funded under such Master Trust.

b)(Intentionally left blank.)

c)Upon a Change of Control, the Company shall immediately transfer to one or more of the Master Trusts an aggregate amount of cash which, when combined with the other assets of the Master Trusts contributed or accruing thereto under or by reason of Section 7 hereof, is equal to the value of benefits accrued by Eligible Employees under the Plan through the date of Change of Control, and including cash sufficient to make the lump sum payments described in Section 4.6(e) hereof as if termination of employment occurred on the date of such Change of Control.

Section 9.General Provisions

9.1Non-assignability.  Neither a Participant, nor his beneficiary, nor any other individual shall have an right by way of anticipation or otherwise to alienate, sell, transfer, assign, pledge, charge or otherwise dispose of any benefits which may become payable under this Plan, prior to the time that payment of any such benefit is made, and any attempted anticipation, alienation, sale, transfer, assignment, pledge, charge, or other disposition shall be null and void. Furthermore, none of the benefits payable under this Plan shall be subject to the claim or legal process of the creditors of any Participant or of the beneficiary, spouse or former spouse of any Participant or of any other person or entity.

9.2Incompetency.  Every person receiving or claiming benefits under the Plan shall be conclusively presumed to be mentally competent and of age until the Committee receives written notice, in a form and manner acceptable to it, that such person is incompetent or a minor, and that a guardian, conservator, statutory committee under the laws of the State of Ohio, or other person generally vested with the care of his estate has been appointed. In the event that the Committee finds that any person to whom a benefit is payable under the Plan is unable to properly care for his affairs, or is a minor, then any payment due (unless a prior claim therefor shall have been made by a duly appointed legal representative) may be paid to the spouse, a

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child, a parent, or brother or sister, or to any person deemed by the Committee to have incurred expenses for such person otherwise entitled to payment.

In the event a guardian or conservator or statutory committee of the estate of any person receiving or claiming benefits under the Plan shall be appointed by a court of competent jurisdiction, payment shall be made to such guardian or conservator or statutory committee provided that proper proof of appointment is furnished in a form and manner suitable to the Committee. Any payment made under the provisions of this subsection 9.2 shall be a complete discharge of liability therefor under the Plan.

9.3Employment Rights.  The establishment of the Plan shall not be construed as conferring any legal rights upon any Eligible Executive or any person for a continuation  of employment, nor shall it interfere with the rights of the Company to discharge any person and/or to treat him in the same manner as a person not covered by this Plan and without regard to the effect which such treatment might have upon him as a person covered by this Plan.

9.4Notices.  Any notice required or permitted to be given hereunder to an Eligible Executive or spouse will be properly given or delivered or mailed, postage prepaid, to the Eligible Executive or beneficiary at the last post office address as shown on the Company’s records. Any notice, election or any request required or permitted hereunder, which is to be mailed to or requested from the Secretary or the CEO of the Company, shall be delivered or mailed, postage prepaid, as follows:

(i)Prior to a Change of Control; to the

Secretary of DP&L at:

MacGregor Park

Woodman Drive

Dayton, Ohio 45432

Attention: Corporate Secretary

(ii)After a Change of Control; to the Trustees of each Master Trust pursuant to which benefits under the Plan are being funded, at the notice address specified by such Trustees in the applicable trust agreement.

The parties may from time to time change their addresses for receipt of notices by giving notice of such change to the other parties, but no such change shall be deemed to be effective until notice thereof is actually received by the party to whom it is directed.

9.5Waiver of Notice.  Any notice required hereunder may be waived by the person entitled thereto.

9.6Action by Company.  Any action required or permitted to be taken hereunder by the Company or its Board of Directors shall be taken by the Board of Directors, or by any person or persons or committee authorized by the Board of Directors.

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9.7Notice of Address.  Any payment to an Eligible Executive, or in case of his death to his beneficiary, at the last known post office address of the distributee on file with the Company, shall constitute a complete acquittance and discharge to the Company and Director or officer with respect thereto unless the Company shall have received prior written notice of any change in the condition or status of the distributee.  Neither the Company nor any Director or officer shall have the duty or obligation to search for or ascertain the whereabouts of any Eligible Executive or his spouse.

9.8Records.  The records of the Company with respect to the Plan shall be conclusive on all Eligible Executives, all beneficiaries, and all other persons whomsoever.

9.9Forfeiture of Benefits.  Notwithstanding the provisions of Section 4, if he Company determines that an Eligible Executive, while in the employ of the Company or while receiving (or eligible to receive) payment under the Plan, has

a)committed a felony,

b)taken part in a fraud, or

c)been terminated for cause,

the Eligible Executive, as of the date of such determination shall forfeit, at the election of the Company and action of the Committee, all entitlement to payments under this Plan. This subsection 9.9 shall apply, however, for a period of three years following each Change of Control by substituting for b) and c) above the following

b)embezzled, or

c)illegally used drugs

as the circumstance under which an Eligible Executive’s benefits under the Plan may be forfeited.

9.10No Individual Liability.  It is declared to be the express purpose and intention of the Plan that no liability whatever shall attach to or be incurred by the shareholders, officers, or Directors of the Company, or any representatives appointed hereunder by the Company, under or by reason of any of the terms or conditions of the Plan.

9.11Illegality of Particular Provision.  If any particular provision of this Plan shall be found to be illegal or unenforceable, such provision shall not affect the other provisions thereof, but the Plan shall be construed in all respects as if such invalid provision were omitted.

9.12Gender and Number.  Except when indicated by the context, any masculine terminology used herein shall also include the feminine, and the use of any term herein in the singular may also include the plural.

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Section 10.Interpretation and Amendment.  The Plan will be administered by the Committee. The decision of the Committee with respect to the administration of the Plan will be final and binding. The Committee reserves the right prior to a Change of Control, to amend, modify or terminate the Plan; provided, however that (i) no amendment, modification or termination of the Plan shall adversely affect any right or benefit earned or accrued under the Plan by any Eligible Executive prior to any such amendment, modification or termination without the prior written consent of such Eligible Executive and (ii) following a Change of Control the Committee’s discretion under this Section 10 will be exercised as provided in Section 8(a) hereof; provided further that the Trustees shall have no authority to terminate the Plan.

Section 11.Applicable Laws.  The Plan shall be governed by and construed according to the laws of the State of Ohio.

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EXHIBIT A

AGREEMENT NOT TO COMPETE

THIS AGREEMENT is made                                         , 2000 between THE DAYTON POWER AND LIGHT COMPANY, an Ohio corporation (the “Company”) and                                          (the “Executive”), under the following circumstances:

A.The Executive has been employed by the Company for a period of approximately            years. During the course of his employment, the Executive has held a number of executive positions within the Company, including his present position as                                         , and has had access to highly sensitive confidential information relating to the Company and its business.

B.The Executive is retiring from the Company’s employ effective the date hereof.

C.The Executive is a participant in the Company’s Supplemental Executive Retirement Plan (the “Plan”).

D.Pursuant to Section 4.6 of the Plan, the Executive has requested that his benefits under the Plan [be paid in a lump-sum] or [be converted into a “Lump Sum Amount” and be paid in annual installments over a period of            years], rather than as a monthly annuity as otherwise provided in the Plan.

E.Such payment of benefits under the Plan is conditioned, among other things, upon the execution and delivery of this Agreement by the Executive.

NOW, THEREFORE, for and in consideration of good and valuable consideration, the receipt and adequacy of which consideration are hereby acknowledged, the parties intending to be legally bound hereby agree as follows:

Section 1.Covenant Not to Compete.  During the term of this Agreement, the Executive shall not, without the prior written consent of the Company, either for his own account or on behalf of any corporation, person, firm, partnership, association or other entity (whether as an agent, employee, officer, director, shareholder, investor, owner, consultant, joint venturer, partner, trustee or in any other capacity) engage or participate in, directly or indirectly, in any business or enterprise: (i) which is engaged in providing gas and/or electric services on a retail and/or wholesale basis in the States of                                or (ii) which is engaged in any other business being conducted or proposed to be conducted by the Company and/or its parent, DPL Inc. (and/or any of the subsidiaries or affiliates of the Company or DPL Inc.) as of the date hereof; provided, however, that nothing contained in this Section 1 shall prevent the Executive from purchasing and holding for investment less than 5% of the shares of any corporation the shares of which are regularly traded either on a national securities exchange or in the over-the-counter market.

Section 2.Term.  The term of this Agreement shall be for            years commencing on the date hereof.

Section 3.Remedies.  The Executive acknowledges that any violation of Section 1 of this Agreement may cause irreparable harm to the Company and that damages alone are not an adequate remedy. The Executive therefore agrees that the Company shall be entitled to an injunction by any court of competent jurisdiction enjoining, prohibiting and restraining the Executive from the continuance of any such violation, in addition to any monetary damages which might occur by reason of any such violation. The remedies provided in this Agreement are cumulative and shall not exclude any other remedies to which any party hereto may be entitled under this Agreement or applicable law and the exercise of a remedy shall not be deemed an election excluding any other remedy.

Section 4.Enforceability.  If, for any reason, any provision contained in this Agreement should be held invalid in part by a court of competent jurisdiction, then it is the intent of each of the parties hereto that the balance of this Agreement be enforced to the fullest extent permitted by applicable law. It is the intent of each of the parties that the covenant not to compete contained in Section 1 of this Agreement be enforced to the fullest extent permitted by applicable law. Accordingly, in the event that a court of competent jurisdiction determines that the scope of the covenant is too broad to be enforced as written, it is the intent of each of the parties that the court should reform the covenant to such narrower scope as it determines enforceable and this Agreement shall be deemed amended to the extent required to render it valid and enforceable and that such amendment shall apply only with respect to the operation of this Agreement in the jurisdiction of the court which has made such adjudication.

Section 5.Non-waiver.  The failure of any party to require performance of any of the provisions of this Agreement shall not be deemed a waiver of any such provision and the obligations of the parties hereunder shall remain in full force and effect.

Section 6.Assignment and Benefit.  This Agreement shall be binding upon, shall be assignable by and shall inure to the benefit of the Company and its successors and assigns. This Agreement is personal to the Executive and may not be assigned by him.

Section 7.Attorneys’ Fees.  In the event of any litigation concerning any controversy, claim or dispute between the parties arising out of or relating to this Agreement or any breach hereof, or the interpretation hereof, the prevailing party shall be entitled to recover from the losing party reasonable expenses, attorneys’ fees and costs incurred therein. The “prevailing party” means the party determined by the court to have most nearly prevailed, even if such party did not prevail in all matters, and not necessarily the party in whose favor a judgment is rendered. Further, in the event of any default by a party under this Agreement, such defaulting party shall pay all expenses, attorneys’ fees and costs incurred by the other party in connection with such default, whether or not any litigation is commenced.

Section 8.Counterparts. This Agreement may be executed in one or more counterparts, each of which shall be deemed an original and all of which shall constitute one and the same instrument, but only one of which need be produced.

Section 9.Headings.  The headings in this Agreement are for convenience of reference only and shall not limit or otherwise affect the meaning of this Agreement.

Section 10.Governing Law.  This Agreement shall be governed by, and construed and enforced in accordance with, the laws of the State of Ohio.

IN WITNESS WHEREOF, the parties have executed this Agreement on or as of the date first written above.

THE DAYTON POWER AND LIGHT COMPANY

By

Title

EXHIBIT B

The formula used in computing the lump sum provided for in Section 4.6 shall use the following interest rate and mortality assumptions.

A.Interest Rate

The average of the monthly Pension Benefit Guaranty Corporation (“PBGC”) interest rate for immediate annuities, as currently published in Appendix B to part 2619 of the PBGC Regulations (the “PBGC Rate”) for the year end periods 1995 and 1996 was used for the initial period ending December 31, 1998. That initial interest rate was set at 4.6% (see the calculation attached). The interest rate was reset for the period January 1, 1999 through December 31, 2000 at 4.35% based upon the average PBGC Rate for the year end periods 1997 and 1998. The interest rate will be reestablished for future two year periods provided, however, that the rate shall not be adjusted by more than 25 basis points from the prior two year period and provided further that if the rate computed herein for future periods becomes plus or minus 200 basis points from the initial rate, then the Committee shall reevaluate said rate based upon current conditions and fairness to participants.

B.Mortality

The 1983 Individual Annuity Mortality Table shall be used in the computation of the lump sum provided for in Section 4.6.

PBGC IMMEDIATE INTEREST RATES

YEAR END

	2 YEAR AVERAGE
1995	4.50	%
1996	4.75	%
TOTAL	9.25	%
AVERAGE	4.63	%

EXHIBIT C

THE DAYTON POWER AND LIGHT COMPANY

SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN

BENEFICIARY DESIGNATION

All payments required to be made under the Plan to my designated beneficiary in the event of my death shall be made to the following person:

Name of designated beneficiary:

Address of designated beneficiary:

If the above-designated beneficiary does not survive me, the payments will be made to the following successor beneficiary (or to my estate on failure to designate otherwise):

Name of designated beneficiary:

Address of designated beneficiary:

Signature of Executive

Date

This Beneficiary Designation Form was received by the Secretary of the Company on                                         .

Secretary

EX-10.(W)

Exhibit 10(w)

DPL INC.

PARTICIPATION AGREEMENT AND WAIVER

This PARTICIPATION AGREEMENT AND WAIVER (“Agreement”) is entered into this 6th day of March 2006 (the “Effective Date”) among DPL Inc., an Ohio corporation (“DPL”), The Dayton Power and Light Company, an Ohio corporation (“DP&L”), and Arthur G. Meyer (“Executive”).

WHEREAS, DPL has implemented a new executive compensation program (the “Program”), generally effective as of January 1, 2006;

WHEREAS, the Program provides benefits pursuant to the following plans that have been approved by the Compensation Committee of the Board of Directors of DPL (the “Committee”) and adopted by the Board of Directors of DPL (the “Board”): the DPL Inc. Severance Pay and Change of Control Plan, the DPL Inc. Supplemental Executive Defined Contribution Retirement Plan, (“EPIP”), the DPL Inc. 2006 Equity and Performance Incentive Plan, and the DPL Inc. Executive Incentive Compensation Plan (collectively, the “Plans”);

WHEREAS, Executive’s participation in the Plans requires execution of this Agreement in order to be eligible to receive benefits under such Program; and

WHEREAS, Executive has entered into Letter Agreements with DPL and DP&L (collectively, the “Company”), dated November 26, 1997 and December 15, 2000, respectively (the “Prior Agreements”);

NOW THEREFORE, in consideration of the promises and agreements contained herein and other good and valuable consideration, the sufficiency and receipt of which are hereby acknowledged, and intending to be legally bound, Executive agrees as follows:

1.             Effective Date.  This Agreement is effective on the date hereof and will continue in effect as provided herein.

2.             Participation in the Plans.  DPL confirms that Executive (a) has been designated by the Committee and the Board to participate in each of the Plans pursuant to the terms thereof, contingent on his execution of this Agreement and, with respect to the EPIP, its approval by the shareholders of the Company at their annual meeting on April 26, 2006, and (b) is eligible to receive additional benefits as such are provided to other similarly situated employees of the Company from time to time.

1

3.             Termination of Prior Agreements.  Executive, for himself and his dependents, successors, assigns, heirs, executors and administrators (and his and their legal representatives of every kind), and the Company hereby agree that, upon execution of this Agreement, the Prior Agreements shall terminate and have no further force and effect.

4.             Remaining Rights.  Notwithstanding the terms of Section 3 of this Agreement, Executive and the Company hereby agree that nothing in this Agreement negates or diminishes Executive’s rights under any agreement other than the Prior Agreements, including the rights (a) to receive medical benefits as described in the letter dated October 28, 1998 from Allen M. Hill to Executive, a copy of which is attached hereto as Exhibit A; (b) to receive supplemental executive retirement benefits as described in a letter dated April 20, 1999, a copy of which is attached hereto as Exhibit B, under the DP&L Supplemental Executive Retirement Plan, as amended on December 7, 2004; (c) with respect to any stock incentive units granted under DP&L’s Management Stock Incentive Plan, as described in and subject to the terms and conditions contained in the Letter Agreement between the Company and Executive, dated October 3, 1996, to which Executive agreed and accepted October 14, 1996, a copy of which is attached hereto as Exhibit C, and as further described in the Letter Agreement between the Company and Executive, dated April 27, 2001, a copy of which is attached hereto as Exhibit D; and (d) to purchase from the Company, to the extent not yet purchased, up to a total of 50,000 Common Shares of the Company at an exercise price of $29 5/8 per share pursuant to the terms of Executive’s Management Stock Option Agreement, dated January 1, 2001, a copy of which is attached hereto as Exhibit E.

5.             Perquisite Allowance.  By executing this Agreement, Executive shall be entitled to receive a perquisite allowance in the amount of $20,000 per year (the “Perquisite Allowance”), for each year that (a) Executive remains designated by the Committee as eligible to receive the Perquisite Allowance and (b) DPL continues to make the Perquisite Allowance available to executive-level employees of the Company.  Executive has been designated by the Committee as eligible to receive the Perquisite Allowance for 2006.  The Perquisite Allowance for 2006 shall be paid as soon as practicable after the Effective Date.  The Perquisite Allowance for years after 2006 shall be paid to Executive as soon as practicable after the Committee designates Executive as eligible to receive the Perquisite Allowance for that year.  The Perquisite Allowance will not be deemed “compensation,” as that term is defined under any of the Plans, nor under any other plan, practice, program or policy of the Company or any of its affiliates, as in effect from time to time.

6.             Non-Solicitation.  As a condition to his eligibility to participate in the Program, Executive hereby agrees that during his employment and for a period of two years following his termination of employment with the Company, Executive will not (a) solicit for employment with himself or any firm or entity with which he is associated, any employee of DPL, its subsidiaries or affiliates, or otherwise disrupt, impair, damage or

2

interfere with DPL’s, its subsidiaries’ or affiliates’ relationships with their employees or (b) solicit for Executive’s own behalf or on behalf of any other person(s), any retail customer of DPL, its subsidiaries or affiliates, that has purchased products or services from the DPL, its subsidiaries or affiliates, at any time (i) with respect to solicitation during employment, during the Executive’s employment or (ii) with respect to solicitation after termination of employment, in the twelve months preceding the date on which Executive’s employment with DPL, its subsidiaries or affiliates is terminated or that DPL, its subsidiaries or affiliates are actively soliciting or have known plans to solicit, for the purpose of marketing or distributing any product, pricing or service competitive with any product, pricing or service then offered by DPL, its subsidiaries or affiliates or which DPL, its subsidiaries or affiliates have known plans to offer.

7.             No Inducement.  Executive agrees and acknowledges that no representations, promises or inducements have been made by the Company to induce Executive to enter into this Agreement other than as set forth herein.

IN WITNESS WHEREOF, the parties hereto have executed this Agreement on the date first written above.

DPL INC.
By:	/s/ James V. Mahoney
	Name: James V. Mahoney
	Title: President and CEO
THE DAYTON POWER AND LIGHT
COMPANY
By:	/s/ James V. Mahoney
	Name: James V. Mahoney
	Title: President and CEO
/s/ Arthur G. Meyer
Arthur G. Meyer

3

Exhibit A

Meyer Medical Benefits

4

Exhibit B

Meyer SERP Letter Agreement

5

Exhibit C

Meyer SIU Letter Agreement, dated October 3, 1996

6

Exhibit D

Meyer SIU Letter Agreement, dated April 27, 2001

7

Exhibit E

Meyer Management Stock Option Agreement

8

October 28, 1998

Mr. Arthur G. Meyer

MacGregor Park

Dear Art,

It is my pleasure to tell you that effective January 1, 1999, you are included in DPL’s executive health care plan.  As well as providing current full medical benefits, this program also ensures that you will have complete medical benefits during your lifetime.

The enclosed packet provides all the necessary information.  If you have any questions, please call Jeanne Holihan.

I appreciate your continued contributions to our Company.

Best regards,

Allen M. Hill

President and

Chief Executive Officer

WorMug For You Today And Tomorrow

Allen M. Hill

President and

Chief Executive Officer

(937)259-7205

April 20, 1999

Art Meyer

MacGregor Park

Dear Art:

It gives me great pleasure to let you know that effective today, you will be part of the Company’s Supplemental Executive Retirement Program (SERP). Your benefit will include all years of service with the Company.

As you know, the SERP program includes all forms of compensation, SIU’s, base pay and incentive pay. Steve Koziar will be sending you a copy of the plan and any needed signature documents.

Again, congratulations. We look forward to your successes.

Sincerely,

cc: Steve Koziar

confidential

The Dayton Power and Light Company · P.O. Box 8815, Dayton, Ohio 45401

Feb10. 2006 10:02 EST

STZPHEN F. KOZ1AR, JR.

Group Vice President

(513) 259.7214

October 3, 1996

Mr. Arthur Meyer

3325 Ridgeway Rd.

Dayton, OH 45429

Dear Art:

In this time of increasing change in the utility industry, we expect to continue to train, educate and develop you as a valued and key employee so that we can remain at the forefront of our competition. Your continued efforts on our behalf are very important to us. On behalf of DPL Inc. and its affiliates (the “Companies”), I would like to confirm our mutual understandings relating to your employment.

As a key employee, you are eligible to be considered to receive Stock Incentive Units under DPL’s Management Stock Incentive Plan. Among other objectives, these awards are intended to give you a long term incentive to remain with and work for DPL’s benefit. In turn, we would like for you to give us assurance that you will not act contrary to DPL’s interests in the future. Accordingly, in consideration of your participation in the Plan, we would like you to agree to the following:

·During the term of your employment with the Companies and, if you voluntarily terminate your employment or if your employment is terminated “for cause,” for a period of two years after such termination, you will not, without our prior written consent, engage, participate or be interested, directly or indirectly, in any business: (i) which is engaged in Ohio, Indiana, Kentucky, Michigan and/or Pennsylvania in providing (as a public utility or otherwise) gas and/or electric power or services on a retail and/or wholesale basis or in providing energy marketing, aggregation and/or procurement services or (ii) which is engaged in any other business being conducted or proposed to be conducted by any of the Companies. The term “for cause” means the termination of your employment as a result of fraud, theft, dishonesty, deliberate misconduct or breach of duty, gross neglect of the duties reasonably assigned to you, the commission of a felony, your breach of this agreement or unsatisfactory performance of your duties because of alcoholism, intoxication or substance abuse.

DPL Inc. · P.O.8815 · Dayton, Ohio 45401

·At all times, you (i) will keep all confidential, nonpublic and/or proprietary information (including, for example, trade secrets, financial information, customer information and business and strategic plans) of the Companies (regardless of when you became aware of such information) in strict confidence and (ii) will not, directly or indirectly, use or disclose to any person in any manner any of such information, except to the extent directly related to and required by your performance of the duties assigned to you by the Companies. You will take all appropriate steps to safeguard such information and to protect it against unauthorized disclosure, misuse, loss or theft. Upon termination of your employment, you will promptly return to the Companies, without retaining any copies, all written or computer readable material containing any of such information, as well as all other property and records of the Companies, in your possession or control.

·If you breach either of the above, all unvested Stock Incentive Units awarded to you under the MSIP will be immediately forfeited.

You acknowledge that this agreement is not intended, and should not be construed, to grant you any right to continued employment or to interfere in any manner with either your right or the right of the Companies to terminate your employment at any time, with or without cause.

If you agree with the above, I would appreciate if you would sign the enclosed copy of this letter and return the same to us.

	Very truly yours,
	DPL Inc.
	By:	/s/ Stephen F. Koziar, Jr.
		Stephen F. Koziar, Jr.
		Group Vice President
ACCEPTED AND AGREED:
[ILLEGIBLE]
Oct 14, 1996
Date
Enclosure

Allen M. Hill

President and

Chief Executive Officer

(937) 259-7205

April 27, 2001

Arthur G. Meyer

DPL Inc.

Dear Art:

Congratulations! The Management SIU program which you participated in ended December 31, 2000. Your total awards, with accrued dividends, is 27,676 SIU’s.

In accordance with the program, SIU’s which have vested will be paid, in cash, in the year in which they vest. Payments will occur on July 15 of each payout year and will be based on the average of the last closing price of the previous three months. Attached is your vesting schedule indicating the timing and amounts of your vested SIU’s.

All program requirements and criteria, including your continuance as an employee, remain effective.

Again, congratulations!

Sincerely,

DPL Inc. · P.O. Box 8815 · Dayton, Ohio 45401

THE DAYTON POWER & LIGHT COMPANY
Management SIU Program
Vesting Schedule

Meyer, Arthur G.

Award		Vested Awards
Year	SIU	2001		2002		2003		2004		2005		2006		2007		2008		2009		2010		Total
1995	2,135	426		426		426		426		431												2,135
1996	2,400			480		480		480		480		480										2,400
1997	5,250					1,050		1,050		1,050		1,050		1,050								5,250
1998	5,000							1,000		1,000		1,000		1,000		1,000						5,000
1999	5,000									1,000		1,000		1,000		1,000		1,000				5,000
2000	5,250											1,050		1,050		1,050		1,050		1,050		5,250
Dividends	2,641	45		96		207		312		418		484		432		321		216		110		2,641
Total	27,675	471		1,002		2,163		3,268		4,379		5,064		4,532		3,371		2,266		1,160		27,676
		$	13,934.00	$	26,363.00	$	33,260.00	$	64,401.00	$	114,133.00	$	0.00	$	0.00	$	0.00	$	0.00	$	0.00	$	252,091.00

DPL INC.

STOCK OPTION PLAN

Management Stock Option Agreement

This Agreement is made as of January 1, 2001 (the “Grant Date”), by and between DPL Inc., an Ohio corporation (the “Company”) and Arthur Meyer (the “Participant”).

WHEREAS, the Committee, pursuant to the Company’s Stock Option Plan (the “Plan”), has made an award to the Participant and authorized and directed the execution and delivery of this Agreement;

NOW, THEREFORE, in consideration of the foregoing, the mutual promises hereinafter set forth, and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Company and the Participant hereby agree as follows:

1.Award.  The Participant is hereby granted a stock option (an “Option”) to purchase from the Company up to a total of 50,000 Common Shares of the Company at $29 5/8 per share (the “Exercise Price”).  The term of such Option shall be ten years, commencing on the Grant Date (the “Term”).  This Option is not intended to qualify as an incentive stock option under Code Section 422.

2.Vesting and Exercise. The Option may be exercised only in accordance with the Plan, as supplemented by this Agreement, and not otherwise.

a.Vesting. During its Term and prior to its earlier termination in accordance with Section 3 of this Agreement, and subject to Section 4 of this Agreement, the Option shall vest in accordance with the following schedule:

Cumulative Percent
of Option		Vested as of December 31
20	%	2001
40	%	2002
60	%	2003
80	%	2004
100	%	2005

b.Exercise. The vested portion of the Option shall become exercisable on January 1, 2006. The Option may be exercised for less than the full number of Shares for which the Option is then exercisable. To the extent then exercisable, the Option may be exercised by the Participant by giving written notice of exercise to the Company in such form as may be provided by the Committee,

specifying the number of Shares with respect to which the Option is to be exercised and such other information as the Committee may require. Such exercise shall be effective upon receipt by the Company of such written notice together with the required payment of the Exercise Price and any applicable withholding taxes.

c.Payment of Exercise Price.  Payment of the Exercise Price may be made by cash, check (subject to collection) or, provided that the Shares have been owned by the Participant for at least six months prior to such payment, by the delivery (or attestation of ownership) of Shares having a Fair Market Value equal to the aggregate Exercise Price and any applicable withholding taxes.  Alternatively, the Participant may make such payment by authorizing the simultaneous sale of Shares (or a sufficient portion thereof) acquired upon exercise through a brokerage or similar arrangement approved in advance by the Committee.  Subject to the foregoing and except as otherwise provided by the Committee before the Option is exercised, the Company will deliver to the Participant, within a reasonable period of time thereafter, a certificate or certificates representing the Shares so acquired, registered in the name of the Participant or in accordance with other delivery instructions provided by the Participant and acceptable to the Committee.

3.Termination. Except as otherwise provided in this Section 3, the Option shall terminate upon the expiration of its Term.

a.If the Participant’s employment or other service terminates for Cause, the Option, whether or not vested, shall be forfeited.

b.If the Participant’s employment or other service terminates for any reason other than for Cause, the Participant shall be entitled to the then vested portion of the Option and the unvested portion shall be forfeited.

c.In no event may the Option be exercised beyond its Term.

4.Change of Control. Notwithstanding the provisions of Sections 2(a) and 2(b) hereof, in the event of a Change of Control, the Option shall immediately vest and become exercisable in its entirety, provided that the Participant’s employment or other service has not terminated prior to the date of such Change of Control.

5.Withholding. The Company shall withhold all applicable taxes required by law from all amounts paid in respect of the Option. A Participant may satisfy the withholding obligation (i) by paying the amount of any such taxes in cash or check (subject to collection), (ii) by the delivery (or attestation of ownership) of

Shares or (iii) with the approval of the Committee, by having Shares deducted from the payment. Alternatively, the Participant may satisfy such obligation by authorizing the simultaneous sale of Shares (or a sufficient portion thereof) acquired upon exercise through a brokerage or similar arrangement approved in advance by the Committee. The amount of the withholding and, if applicable, the number of Shares to be delivered or deducted, as the case may be, shall be determined by the Committee as of when the withholding is required to be made, provided that the number of Shares so delivered or withheld shall not exceed the minimum required amount of such withholding.

6.Non-Assignability. Except as otherwise provided in this Section, the Option is not assignable or transferable other than by will or by the laws of descent and distribution and, during the Participant’s life, may be exercised only by the Participant. The Participant, with the approval of the Committee, which approval may be withheld in its sole discretion, may transfer the Option for no consideration to or for the benefit of any member or members of the Participant’s Immediate Family (including, without limitation, to a trust for the benefit of any member or members of the Participant’s Immediate Family or to a partnership or limited liability company for one or more members of the Participant’s Immediate Family) subject to such limits as the Committee may establish, and the transferee shall remain subject to all the terms and conditions applicable to the Option prior to such transfer. The foregoing right to transfer the Option shall apply to the right to consent to amendments to this Agreement and, in the discretion of the Committee, shall also apply to the right to transfer ancillary rights associated with the Option.

7.Rights as a Shareholder. A Participant shall have no rights as a shareholder with respect to any Shares subject to this award until the date the Participant becomes the holder of record of the Shares.

8.No Right to Continued Service. Nothing herein shall obligate the Company or any Subsidiary to continue the Participant’s employment or other service for any particular period or on any particular basis of compensation.

9.Burden and Benefit. The terms and provisions of this Agreement shall be binding upon, and shall inure to the benefit of, the Participant and his or her executors or administrators, heirs, and personal and legal representatives.

10.Execution. This Option is not enforceable until this Agreement has been signed by the Participant and the Company.  By executing this Agreement, the Participant shall be deemed to have accepted and consented to any action taken or to be taken under the Plan by the Committee, the Board of Directors or their delegates.

11.Governing Law.This Agreement shall be construed and enforced in accordance with the laws of the State of Ohio, without regard to the conflict of laws principles thereof.

12.Modifications.  Except for alterations and amendments permitted under the Plan without the consent of the Participant, no change or modification of this Agreement shall be valid unless it is in writing and signed by the parties hereto.

13.Entire Agreement.  This Agreement, together with the Plan, sets forth all of the promises, agreements, conditions, understandings, warranties and representations between the parties hereto with respect to the Option, and there are no promises, agreements, conditions, understandings, warranties or representations, oral or written, express or implied, between them with respect to the Option other than as set forth herein or therein. The terms and conditions of the Plan, a copy of which has been furnished to the Participant, are incorporated by reference herein, and to the extent that any conflict may exist between any term or provision of this Agreement and any term or provision of the Plan, the term or provision of the Plan shall control.

14.Additional Definitions.  Any capitalized term to the extent not defined below or elsewhere in this Agreement shall have the same meaning as set forth in the Plan.

a.“Cause” means (i) the commission of a felony, (ii) embezzlement, (iii) the illegal use of drugs or (iv) if no Change of Control has occurred other than the entering into of an agreement referred to in items (ii) or (iii) of the definition of Change of Control, the failure by the Participant to substantially perform his duties with the Company or any Subsidiary (other than any such failure resulting from his Disability) as determined by the Committee.

b.“Immediate Family” means the Participant’s spouse, parents, parents-in-law, children, stepchildren, adoptive relationships, sisters, brothers and grandchildren (and, for this purpose, shall also include the Participant).

15.Construction.  The use of any gender herein shall be deemed to include the other gender and the use of the singular herein shall be deemed to include the plural and vice versa, wherever appropriate.

16.Notices. Any and all notices required herein shall be addressed: (i) if to the Company, to the principal executive offices of the Company; and (ii) if to the Participant, to his or her address as reflected in the records of the Company.

17.Invalid or Unenforceable Provisions.  The invalidity or unenforceability of any particular provision of this Agreement shall not affect the other provisions hereof, and this Agreement shall be construed in all respects as if the invalid or unenforceable provisions were omitted.

IN WITNESS WHEREOF, the Company and the Participant have executed this Agreement as of the date first above written.

DPL INC.
By:
	President & CEO
Arthur Meyer

EX-10.(AA)

Exhibit 10(aa)

AMENDMENT NO. 1 TO CREDIT AGREEMENT

This Amendment No. 1 to Credit Agreement (this “Amendment”) is dated as of April     , 2009, by and among THE DAYTON POWER AND LIGHT COMPANY, an Ohio corporation (the “Borrower”), the lending institutions party to the Credit Agreement, as hereinafter defined (the “Lenders”), and KEYBANK NATIONAL ASSOCIATION, a national banking association, as administrative agent for the Lenders (the “Administrative Agent”).

WHEREAS, the Borrower, the Administrative Agent and the Lenders are parties to that certain Credit Agreement, dated as of November 21, 2006, which provides, among other things, for revolving loans, all upon certain terms and conditions stated therein (as amended, restated or otherwise modified from time to time, the “Credit Agreement”);

WHEREAS, the Borrower has requested, and the Administrative Agent and the Lenders have agreed, to amend the Credit Agreement to modify certain provisions thereof;

NOW, THEREFORE, in consideration of the premises and of the mutual covenants herein contained and for other valuable considerations, the Borrower, the Administrative Agent and the Lenders hereby agree as follows:

Section 1.  Definitions.  Each capitalized term used herein and not otherwise defined in this Amendment shall be defined in accordance with the Credit Agreement.

Section 2.  Amendments to Credit Agreement.

2.1Amendments to Section 1.1.  Section 1.1 of the Credit Agreement is hereby amended to amend and restate the definitions of  “Applicable Facility Fee Rate,” “Applicable Margin,” “Base Rate” and “Unfunded Liabilities” in their entirety as follows:

“Applicable Facility Fee Rate” means, on any date of determination, a rate that is determined based upon the S&P Rating, the Moody’s Rating or the Fitch Rating, as follows:

S&P Rating	Moody’s Rating	Fitch Rating	Applicable Facility Fee Rate
A– or higher	A3 or higher	A– or higher	30.00 basis points
BBB+	Baa1	BBB+	35.00 basis points
BBB	Baa2	BBB	40.00 basis points
BBB–	Baa3	BBB–	50.00 basis points
Lower than BBB-	Lower than Baa3	Lower than BBB-	62.50 basis points

If at any time each Rating Agency issues a different rating, then the Applicable Facility Fee Rate shall be determined based on the intermediate rating at such time.  If at any time two Rating Agencies issue the same rating, which is different than the other Rating Agency, the rating issued by such other Rating Agency shall be disregarded, and the Applicable Facility Fee Rate shall be determined based on the two identical ratings at such time.  If there is no S&P Rating and Fitch Rating, then the Applicable Facility Fee Rate shall be determined based on the Moody’s Rating.  If there is no Moody’s Rating and Fitch Rating, then the Applicable Facility Fee Rate

shall be determined based on the S&P Rating.  If there is no Moody’s Rating and S&P Rating, then the Applicable Facility Fee Rate shall be determined based on the Fitch Rating.  If at any time only two Rating Agencies issue a rating and there is a difference of two or more rating levels between such Rating Agencies, then the Applicable Facility Fee Rate shall be determined based on the intermediate rating levels at the midpoint between the ratings issued by such Rating Agencies at such time or, if there is no midpoint, based on the higher intermediate level.  If (i) there is no S&P Rating, Moody’s Rating and Fitch Rating or (ii) an Event of Default has occurred and is continuing, the Applicable Facility Fee Rate shall be the highest rate per annum indicated therefor in the above table.  The S&P Rating, Moody’s Rating and Fitch Rating in effect on any date for purposes of determining the Applicable Facility Fee Rate shall be that S&P Rating, Moody’s Rating and Fitch Rating in effect at the close of business on such date.  Each change in the Applicable Facility Fee Rate resulting from a publicly announced change in the S&P Rating, the Fitch Rating and/or the Moody’s Rating shall be effective during the period commencing on the date of the public announcement thereof and ending on the date immediately preceding the effective date of the next change.

 “Applicable Margin” means, on any date of determination, a rate that is determined, based upon the S&P Rating, the Moody’s Rating or the Fitch Rating, as follows:

S&P Rating	Moody’s Rating	Fitch Rating	Applicable Margin for Eurodollar Loans	Applicable Margin for Base Rate Loans
A– or higher	A3 or higher	A– or higher	200.00 basis points	100.0 basis points
BBB+	Baa1	BBB+	225.00 basis points	125.0 basis points
BBB	Baa2	BBB	250.00 basis points	150.0 basis points
BBB-	Baa3	BBB-	275.00 basis points	175.0 basis points
Lower than BBB-	Lower than Baa3	Lower than BBB-	300.00 basis points	200.0 basis points

If at any time each Rating Agency issues a different rating, then the Applicable Margin shall be determined based on the intermediate rating at such time.  If at any time two Rating Agencies issue the same rating, which is different than the other Rating Agency, the rating issued by such other Rating Agency shall be disregarded, and the Applicable Margin shall be determined based on the two identical ratings at such time.  If there is no S&P Rating and Fitch Rating, then the Applicable Margin shall be determined based on the Moody’s Rating.  If there is no Moody’s Rating and Fitch Rating, then the Applicable Margin shall be determined based on the S&P Rating.  If there is no Moody’s Rating and S&P Rating, then the Applicable Margin shall be determined based on the Fitch Rating.  If at any time only two Rating Agencies issue a rating and there is a difference of two or more rating levels between such Rating Agencies, then the Applicable Margin shall be determined based on the intermediate rating levels at the midpoint between the ratings issued by such Rating Agencies at such time or, if there is no midpoint, based on the higher intermediate level.  If (i) there is no S&P Rating, Moody’s Rating and Fitch Rating or (ii) an Event of Default has occurred and is continuing, the Applicable Margin shall be the highest rate per annum indicated therefor in the above table.  The S&P Rating, Moody’s Rating and Fitch Rating in effect on any date for purposes of determining the Applicable Margin shall be that S&P Rating, Moody’s Rating and Fitch Rating in effect at the close of business on such date. 

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Each change in the Applicable Margin resulting from a publicly announced change in the S&P Rating, the Fitch Rating and/or the Moody’s Rating shall be effective during the period commencing on the date of the public announcement thereof and ending on the date immediately preceding the effective date of the next change.

“Base Rate” means, for any day, a fluctuating interest rate per annum as shall be in effect from time to time which rate per annum shall at all times be equal to the greatest of:  (i) the rate of interest established by KeyBank in Cleveland, Ohio, from time to time, as its “prime rate,” whether or not publicly announced, which interest rate may or may not be the lowest rate charged by it for commercial loans or other extensions of credit; (ii) the Federal Funds Effective Rate in effect from time to time, determined one Business Day in arrears, plus 1/2 of 1% per annum; and (iii) the Adjusted Eurodollar Rate that would be applicable for a Eurodollar Loan requested two Business Days prior to such date with a one month interest period, plus 1.00% per annum.

“Unfunded Liabilities” means the amount, if any, by which the present value of all vested and unvested accrued benefits under all Single Employer Plans exceeds the fair market value of all such Plan assets allocable to such benefits, all as set forth in the then most recent annual actuarial valuation report for such Plans provided to the Borrower or any of its Subsidiaries using the actuarial assumptions set forth in such report and permitted by applicable law or, in the context of a notice of intent to terminate, or termination of, a Plan, determined as of the date of the Plan’s termination using PBGC actuarial assumptions for Plan terminations.

2.2Amendments to Section 9.1.  Section 9.1(i) of the Credit Agreement is hereby amended and restated in its entirety as follows:

(i)ERISA:  (i) any member of the Borrower’s Controlled Group shall fail to pay when due an amount or amounts aggregating in excess of $30,000,000 which it shall have become liable to pay under Title IV of ERISA, or notice of intent to terminate a Plan or Plans of such Borrower which in the aggregate have Unfunded Liabilities in excess of $30,000,000 shall be filed under Title IV of ERISA by such Borrower or any member of the Controlled Group, any plan administrator of the Plan or Plans or any combination of the foregoing or any Reportable Event that would reasonably be expected to have a Material Adverse Effect shall occur in connection with any Plan; (ii) the Borrower or any member of the Controlled Group shall have been notified by the sponsor of a Multiemployer Plan that it has incurred withdrawal liability to such Multiemployer Plan in an amount that, when aggregated with all other amounts required to be paid to Multiemployer Plans by the Borrower or any other member of the Controlled Group as withdrawal liability (determined as of the date of such notification), exceeds $10,000,000 or requires payment exceeding $10,000,000 per annum; or (iii) the Borrower or any other member of the Controlled Group shall have been notified by the sponsor of a Multiemployer Plan that such Multiemployer Plan is in reorganization or is being terminated, within the meaning of Title IV of ERISA, if as a result of such reorganization or termination the aggregate annual contribution of the Borrower and the other members of the Controlled Group (taken as a whole) to all Multiemployer Plans that are then in reorganization or being terminated have been or will be increased over the amounts contributed to such Multiemployer Plans for the respective plan years of each such Multiemployer Plan immediately preceding the plan in year in which the reorganization or termination occurs by an amount exceeding $10,000,000; or

Section 3.  Effectiveness.

3.1Conditions Precedent.  The effectiveness of this Amendment is subject to the satisfaction of the following conditions precedent:

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(i)Amendment Executed.  This Amendment shall have been executed by the Borrower, the Administrative Agent and the Required Lenders, and counterparts hereof as so executed shall have been delivered to the Administrative Agent.

(ii)Fees, etc.  The Borrower shall have paid (i) an amendment fee to the Administrative Agent, for the pro rata benefit of each Lender executing this Amendment based on the Commitment of such Lender, in an amount equal to 25 basis points times the amount of such Lender’s Commitment, (ii) to the Administrative Agent for its own account, the fees separately agreed to between the Borrower and the Administrative Agent, and (iii) all reasonable out-of-pocket fees and expenses of the Administrative Agent and of special counsel to the Administrative Agent in connection with the preparation, negotiation, execution and delivery of this Amendment.

3.2Effective Date.  This Amendment shall be effective on the date upon which the conditions precedent set forth in Section 3.1 above are satisfied.  Unless otherwise specifically set forth herein, each of the amendments and other modifications set forth in this Amendment shall be effective on and after such date.

Section 4.  Representations and Warranties.  The Borrower hereby represents and warrants to the Administrative Agent and the Lenders that (a) it has the legal power and authority to execute and deliver this Amendment, (b) the officer executing this Amendment on its behalf has been duly authorized to execute and deliver the same and bind it with respect to the provisions hereof, (c) no Default or Event of Default exists under the Credit Agreement, nor will any occur immediately after the execution and delivery of this Amendment, and (d) as of the date hereof, such it has no claim or offset against, or defense or counterclaim to, its obligations or liabilities under the Credit Agreement or any other Credit Document.

Section 5.  Miscellaneous.

5.1Credit Agreement Unaffected.  Each reference that is made in the Credit Agreement or any Credit Document to the Credit Agreement shall hereafter be construed as a reference to the Credit Agreement, as amended hereby.  Except as herein otherwise specifically provided, all provisions of the Credit Agreement shall remain in full force and effect and be unaffected hereby.  This Amendment is a Credit Document.

5.2Counterparts.This Amendment may be executed in any number of counterparts, by different parties hereto in separate counterparts and by facsimile signature, each of which when so executed and delivered shall be deemed to be an original and all of which taken together shall constitute but one and the same agreement.

5.3Expenses.  The Borrower agrees to pay on demand all costs and expenses incurred by the Administrative Agent in connection with the preparation, negotiation and execution of this Amendment, including without limitation, the reasonable costs, fees, expenses and disbursements of the Administrative Agent’s legal counsel.

5.4Severability.  Any term or provision of this Amendment held by a court of competent jurisdiction to be invalid or unenforceable shall not impair or invalidate the remainder of this Amendment, and the effect thereof shall be confined to the term or provision so held to be invalid or unenforceable.

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5.5Entire Agreement.  This Amendment is specifically limited to the matters expressly set forth herein.  This Amendment and all other instruments, agreements and documents executed and delivered in connection with this Amendment embody the final, entire agreement among the parties hereto with respect to the subject matter hereof and supersede any and all prior commitments, agreements, representations and understandings, whether written or oral, relating to the matters covered by this Amendment, and may not be contradicted or varied by evidence of prior, contemporaneous or subsequent oral agreements or discussions of the parties hereto.  There are no oral agreements among the parties hereto relating to the subject matter hereof or any other subject matter relating to the Credit Agreement.

5.6Governing Law.  The rights and obligations of all parties hereto shall be governed by the laws of the State of New York, without regard to principles of conflicts of laws.

5.7JURY TRIAL WAIVER.  THE BORROWER, THE ADMINISTRATIVE AGENT AND EACH OF THE LENDERS HEREBY WAIVE ANY RIGHT TO HAVE A JURY PARTICIPATE IN RESOLVING ANY DISPUTE, WHETHER SOUNDING IN CONTRACT, TORT OR OTHERWISE, AMONG THE BORROWER, THE ADMINISTRATIVE AGENT AND THE LENDERS, OR ANY THEREOF, ARISING OUT OF, IN CONNECTION WITH, RELATED TO, OR INCIDENTAL TO THE RELATIONSHIP ESTABLISHED AMONG THEM IN CONNECTION WITH THIS AMENDMENT OR ANY NOTE OR OTHER INSTRUMENT, DOCUMENT OR AGREEMENT EXECUTED OR DELIVERED IN CONNECTION HEREWITH OR THE TRANSACTIONS RELATED THERETO.

[Signature Pages Follow.]

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THE DAYTON POWER AND LIGHT COMPANY

By:

Name:

Title:

KEYBANK NATIONAL ASSOCIATION,

as a Lender, LC Issuer and as the Administrative Agent

By:

Name:

Title:

JPMORGAN CHASE BANK, N.A.

By:

Name:

Title:

FIFTH THIRD BANK

By:

Name:

Title:

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CREDIT AGREEMENT

Among

THE DAYTON POWER AND LIGHT COMPANY
as Borrower

THE LENDING INSTITUTIONS NAMED THEREIN
as Lenders

And

KEYBANK NATIONAL ASSOCIATION
as an LC Issuer, the Administrative Agent and
Lead Arranger

dated as of
November 21, 2006

$220,000,000 Revolving Facility

ARTICLE I.	DEFINITIONS AND TERMS		6
Section 1.1		Certain Defined Terms	6
Section 1.2		Computation of Time Periods	24
Section 1.3		Accounting Terms	25
Section 1.4		Terms Generally	25
ARTICLE II.	AMOUNT AND TERMS OF LOANS		25
Section 2.1		Establishment of the Credit Facility	25
Section 2.2		Commitments for Loans	25
Section 2.3		Borrowing, Continuation or Conversion of Loans	25
Section 2.4		Letters of Credit	26
Section 2.5		Funding Obligations; Disbursement of Funds	31
Section 2.6		Evidence of Obligations	32
Section 2.7		Interest	32
Section 2.8		Increased Costs; Illegality	34
Section 2.9		Breakage Compensation	35
Section 2.10		Increased Costs to LC Issuers	36
Section 2.11		Change of Lending Office; Replacement of Lenders	36
ARTICLE III.	FEES; COMMITMENTS		37
Section 3.1		Fees	37
Section 3.2		Increase in Commitments	38
Section 3.3		Voluntary Termination/Reduction of Commitments	39
Section 3.4		Termination of Commitments	39
ARTICLE IV.	PAYMENTS		39
Section 4.1		Repayment of Loans	39
Section 4.2		Voluntary Prepayments	39
Section 4.3		Mandatory Payments and Prepayments	40
Section 4.4		Method and Place of Payment	41
Section 4.5		Net Payments	41
ARTICLE V.	CONDITIONS PRECEDENT		43
Section 5.1		Conditions Precedent at Closing Date	43
Section 5.2		Conditions Precedent to the Making of Loans	44
Section 5.3		Conditions Precedent to the Conversion or Continuation of Loans	45
ARTICLE VI.	REPRESENTATIONS AND WARRANTIES		45
Section 6.1		Corporate Status	45
Section 6.2		Corporate Power and Authority	46

Section 6.3		No Violation	46
Section 6.4		Governmental Approvals	46
Section 6.5		Litigation, etc.	46
Section 6.6		Use of Proceeds; Margin Regulations	47
Section 6.7		Financial Statements	47
Section 6.8		Solvency	47
Section 6.9		No Material Adverse Change	47
Section 6.10		Tax Returns and Payments	47
Section 6.11		Title to Properties	48
Section 6.12		Lawful Operations; Compliance with Agreements	48
Section 6.13		Environmental Matters	48
Section 6.14		ERISA	48
Section 6.15		Intellectual Property	49
Section 6.16		Investment Company Act; Federal Power Act	49
Section 6.17		True and Complete Disclosure	49
ARTICLE VII.	AFFIRMATIVE COVENANTS		49
Section 7.1		Reporting Requirements	50
Section 7.2		Books, Records and Inspections	51
Section 7.3		Insurance	51
Section 7.4		Payment of Taxes and Claims	51
Section 7.5		Preservation of Existence, etc.	52
Section 7.6		Good Repair	52
Section 7.7		Compliance with Statutes, Regulations, Orders, Restrictions	52
Section 7.8		Fiscal Years, Fiscal Quarters	52
Section 7.9		Use of Proceeds	52
Section 7.10		Senior Debt	52
ARTICLE VIII.	NEGATIVE COVENANTS		53
Section 8.1		Changes in Business	53
Section 8.2		Merger, Consolidation, Asset Sales	53
Section 8.3		Liens	54
Section 8.4		Investments	54
Section 8.5		Financial Covenant	55
Section 8.6		Transactions with Affiliates	55
Section 8.7		Material Agreements	55
Section 8.8		Use of Proceeds/Margin Regulations	55

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Section 8.9		No Dividend Restrictions	55
Section 8.10		Swap Agreements	56
ARTICLE IX.	EVENTS OF DEFAULT		56
Section 9.1		Events of Default	56
Section 9.2		Acceleration; Remedies	58
Section 9.3		Application of Liquidation Proceeds	58
ARTICLE X.	THE ADMINISTRATIVE AGENT		59
Section 10.1		Appointment	59
Section 10.2		Delegation of Duties	60
Section 10.3		Exculpatory Provisions	60
Section 10.4		Reliance by Administrative Agent	60
Section 10.5		Notice of Default	60
Section 10.6		Non-Reliance	61
Section 10.7		Indemnification	61
Section 10.8		The Administrative Agent in Individual Capacity	61
Section 10.9		Successor Administrative Agent	62
Section 10.10		Other Agents	62
ARTICLE XI.	MISCELLANEOUS		62
Section 11.1		Payment of Expenses	62
Section 11.2		Right of Setoff	64
Section 11.3		Notices	64
Section 11.4		Benefit of Agreement	65
Section 11.5		No Waiver; Remedies Cumulative	67
Section 11.6		Payments Pro Rata; Sharing of Setoffs	68
Section 11.7		Governing Law; Submission to Jurisdiction; Venue; Waiver of Jury Trial	69
Section 11.8		Counterparts	69
Section 11.9		Integration	69
Section 11.10		Headings Descriptive	70
Section 11.11		Amendment or Waiver	70
Section 11.12		Survival of Indemnities	71
Section 11.13		Domicile of Loans	71
Section 11.14		Confidentiality	71
Section 11.15		Lender Register	72
Section 11.16		General Limitation of Liability	72
Section 11.17		Limitations on Liability of the LC Issuers	72

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Section 11.18	No Duty	73
Section 11.19	Lenders and Agent Not Fiduciary to Borrower	73
Section 11.20	Survival of Representations and Warranties	73
Section 11.21	Severability	73
Section 11.22	Independence of Covenants	73
Section 11.23	Interest Rate Limitation	74
Section 11.24	Treasury Regulations	74
Section 11.25	USA Patriot Act	74

Exhibit A	-	Revolving Note
Exhibit B-1	-	Notice of Borrowing, Continuation or Conversion
Exhibit B-2		LC Request
Exhibit C	-	Compliance Certificate
Exhibit D	-	Closing Certificate
Exhibit E	-	Assignment Agreement
Exhibit F	-	Legal Opinion of General Counsel of the Borrower

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This CREDIT AGREEMENT, dated as of November 21, 2006, is entered into by and among the following:

(i)THE DAYTON POWER AND LIGHT COMPANY, an Ohio corporation (the “Borrower”);

(ii)the Lenders, defined below, from time to time party hereto; and

(iii)KEYBANK NATIONAL ASSOCIATION, a national banking association, as the Administrative Agent, defined below, and Lead Arranger.

RECITALS:

A.The Borrower has applied to the Lenders for a credit facility to replace its existing senior debt facility and to provide working capital and funds for other lawful purposes.

B.Subject to and upon the terms and conditions set forth herein, the Lenders are willing to make available to the Borrower the credit facility provided for herein.

AGREEMENT:

In consideration of the premises and the mutual covenants contained herein, the parties hereto agree as follows:

ARTICLE I.

DEFINITIONS AND TERMS

Section 1.1Certain Defined Terms.  As used herein, the following terms shall have the meanings herein specified unless the context otherwise requires:

“Acquisition” means any acquisition (a) on a going concern basis (whether by purchase, lease or otherwise) of assets constituting a business or a division or line of business of a Person that is not a Subsidiary of the Borrower, and (b) of a majority of the outstanding equity or other similar interests in any such Person (whether by merger, stock purchase or otherwise).

“Adjusted Eurodollar Rate” means, with respect to each Interest Period for a Eurodollar Loan, (a) the rate per annum appearing on the applicable electronic page of Reuters or any successor to or substitute for such service, providing rate quotations comparable to those currently provided by such service, as determined by the Administrative Agent from time to time for purposes of providing quotations of interest rates applicable to Dollar deposits in the London interbank market), at approximately 11:00 a.m. (London time) two Business Days prior to the commencement of such Interest Period, as the rate for Dollar deposits with a maturity comparable to such Interest Period, divided (and rounded to the nearest one one hundredth of 1%) by (b) a percentage equal to 100% minus the then stated maximum rate of all reserve requirements (including, without limitation, any marginal, emergency, supplemental, special or other reserves and without benefit of credits for proration, exceptions or offsets that may be available from time to time) applicable to any member bank of the Federal Reserve System in respect of Eurocurrency liabilities as defined in Regulation D (or any successor category of liabilities under Regulation D); provided, however, that if the rate referred to in clause (a) above is not available at any such time for any reason, then the rate referred to in clause (a) shall instead be the average (rounded to the nearest one one hundredth of 1%) of the rates at which Dollar deposits of $5,000,000 are offered to

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the Reference Banks in the London interbank market at approximately 11:00 a.m. (London time), two Business Days prior to the commencement of such Interest Period, for contracts that would be entered into at the commencement of such Interest Period.

“Administrative Agent” means KeyBank in its capacity as administrative agent for the Lenders, together with any successor to the Administrative Agent appointed pursuant to Section 10.9.

“Affiliate” means, with respect to any Person, any other Person directly or indirectly controlling, controlled by, or under direct or indirect common control with such Person, or, in the case of any Lender that is an investment fund, the investment advisor thereof and any investment fund having the same investment advisor.  A Person shall be deemed to control a second Person if such first Person possesses, directly or indirectly, the power (a) to vote 10% or more of the securities having ordinary voting power for the election of directors or managers of such second Person or (b) to direct or cause the direction of the management and policies of such second Person, whether through the ownership of voting securities, by contract or otherwise.  Notwithstanding the foregoing, (i) a director, officer or employee of a Person shall not, solely by reason of such status, be considered an Affiliate of such Person; and (ii) neither the Administrative Agent nor any Lender shall in any event be considered an Affiliate of the Borrower or any of its Subsidiaries.

“Agent Fee Letter” means the Agent Fee Letter, dated as of the date hereof, between the Administrative Agent and the Borrower, as the same may from time to time be amended, restated, supplemented or otherwise modified.

“Aggregate Revolving Facility Exposure” means, at any time, the sum of (a) the aggregate principal amounts of all Loans outstanding at such time and (b) the aggregate amount of the LC Outstandings at such time.

“Agreement” means this Credit Agreement, as the same may from time to time be amended, restated, supplemented or otherwise modified.

“Applicable Facility Fee Rate” means, on any date of determination, a rate that is determined based upon the S&P Rating, the Moody’s Rating or the Fitch Rating, as follows:

S&P Rating	Moody’s Rating	Fitch Rating	Applicable Facility Fee Rate
A or higher	A2 or higher	A or higher	6.00 basis points
A–	A3	A–	7.00 basis points
BBB+	Baa1	BBB+	8.00 basis points
BBB	Baa2	BBB	10.00 basis points
BBB–	Baa3	BBB–	12.50 basis points
Lower than BBB-	Lower than Baa3	Lower than BBB-	17.50 basis points

If at any time each Rating Agency issues a different rating, then the Applicable Facility Fee Rate shall be determined based on the intermediate rating at such time.  If at any time two Rating Agencies issue the same rating, which is different than the other Rating Agency, the rating issued by such other

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Rating Agency shall be disregarded, and the Applicable Facility Fee Rate shall be determined based on the two identical ratings at such time.  If there is no S&P Rating and Fitch Rating, then the Applicable Facility Fee Rate shall be determined based on the Moody’s Rating.  If there is no Moody’s Rating and Fitch Rating, then the Applicable Facility Fee Rate shall be determined based on the S&P Rating.  If there is no Moody’s Rating and S&P Rating, then the Applicable Facility Fee Rate shall be determined based on the Fitch Rating.  If at any time only two Rating Agencies issue a rating and there is a difference of two or more rating levels between such Rating Agencies, then the Applicable Facility Fee Rate shall be determined based on the intermediate rating levels at the midpoint between the ratings issued by such Rating Agencies at such time or, if there is no midpoint, based on the higher intermediate level.  If (i) there is no S&P Rating, Moody’s Rating and Fitch Rating or (ii) an Event of Default has occurred and is continuing, the Applicable Facility Fee Rate shall be the highest rate per annum indicated therefor in the above table.  The S&P Rating, Moody’s Rating and Fitch Rating in effect on any date for purposes of determining the Applicable Facility Fee Rate shall be that S&P Rating, Moody’s Rating and Fitch Rating in effect at the close of business on such date.  Each change in the Applicable Facility Fee Rate resulting from a publicly announced change in the S&P Rating, the Fitch Rating and/or the Moody’s Rating shall be effective during the period commencing on the date of the public announcement thereof and ending on the date immediately preceding the effective date of the next change.

“Applicable Lending Office” means, with respect to each Lender, the office or offices designated by such Lender to the Administrative Agent as such Lender’s lending office or offices for purposes of this Agreement.

“Applicable Margin” means, on any date of determination, a rate that is determined, based upon the S&P Rating, the Moody’s Rating or the Fitch Rating, as follows:

S&P Rating	Moody’s Rating	Fitch Rating	Applicable Margin for Eurodollar Loans	Applicable Margin for Base Rate Loans
A or higher	A2 or higher	A or higher	19.00 basis points	0.0 basis points
A–	A3	A–	23.00 basis points	0.0 basis points
BBB+	Baa1	BBB+	27.00 basis points	0.0 basis points
BBB	Baa2	BBB	35.00 basis points	0.0 basis points
BBB-	Baa3	BBB-	47.50 basis points	0.0 basis points
Lower than BBB-	Lower than Baa3	Lower than BBB-	60.00 basis points	0.0 basis points

If at any time each Rating Agency issues a different rating, then the Applicable Margin shall be determined based on the intermediate rating at such time.  If at any time two Rating Agencies issue the same rating, which is different than the other Rating Agency, the rating issued by such other Rating Agency shall be disregarded, and the Applicable Margin shall be determined based on the two identical ratings at such time.  If there is no S&P Rating and Fitch Rating, then the Applicable Margin shall be determined based on the Moody’s Rating.  If there is no Moody’s Rating and Fitch Rating, then the Applicable Margin shall be determined based on the S&P Rating.  If there is no Moody’s Rating and S&P Rating, then the Applicable Margin shall be determined based on the Fitch Rating.  If at any time only two Rating Agencies issue a rating and there is a difference of two or more rating levels between such Rating Agencies, then the Applicable Margin shall be determined based on the intermediate rating levels

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at the midpoint between the ratings issued by such Rating Agencies at such time or, if there is no midpoint, based on the higher intermediate level.  If (i) there is no S&P Rating, Moody’s Rating and Fitch Rating or (ii) an Event of Default has occurred and is continuing, the Applicable Margin shall be the highest rate per annum indicated therefor in the above table.  The S&P Rating, Moody’s Rating and Fitch Rating in effect on any date for purposes of determining the Applicable Margin shall be that S&P Rating, Moody’s Rating and Fitch Rating in effect at the close of business on such date.  Each change in the Applicable Margin resulting from a publicly announced change in the S&P Rating, the Fitch Rating and/or the Moody’s Rating shall be effective during the period commencing on the date of the public announcement thereof and ending on the date immediately preceding the effective date of the next change.

“Applicable Utilization Fee Rate” means, on any date of determination, a rate that is determined based upon the S&P Rating, the Moody’s Rating or the Fitch Rating, as follows:

S&P Rating	Moody’s Rating	Fitch Rating	Applicable Facility Fee Rate
A or higher	A2 or higher	A or higher	5.00 basis points
A–	A3	A–	5.00 basis points
BBB+	Baa1	BBB+	5.00 basis points
BBB	Baa2	BBB	5.00 basis points
BBB–	Baa3	BBB–	5.00 basis points
Lower than BBB–	Lower than Baa3	Lower than BBB–	10.00 basis points

If at any time each Rating Agency issues a different rating, then the Applicable Utilization Fee Rate shall be determined based on the intermediate rating at such time.  If at any time two Rating Agencies issue the same rating, which is different than the other Rating Agency, the rating issued by such other Rating Agency shall be disregarded, and the Applicable Utilization Fee Rate shall be determined based on the two identical ratings at such time.  If there is no S&P Rating and Fitch Rating, then the Applicable Utilization Fee Rate shall be determined based on the Moody’s Rating.  If there is no Moody’s Rating and Fitch Rating, then the Applicable Utilization Fee Rate shall be determined based on the S&P Rating.  If there is no Moody’s Rating and S&P Rating, then the Applicable Utilization Fee Rate shall be determined based on the Fitch Rating.  If at any time only two Rating Agencies issue a rating and there is a difference of two or more rating levels between such Rating Agencies, then the Applicable Utilization Fee Rate shall be determined based on the intermediate rating levels at the midpoint between the ratings issued by such Rating Agencies at such time or, if there is no midpoint, based on the higher intermediate level.  If (i) there is no S&P Rating, Moody’s Rating and Fitch Rating or (ii) an Event of Default has occurred and is continuing, the Applicable Utilization Fee Rate shall be the highest rate per annum indicated therefor in the above table.  The S&P Rating, Moody’s Rating and Fitch Rating in effect on any date for purposes of determining the Applicable Utilization Fee Rate shall be that S&P Rating, Moody’s Rating and Fitch Rating in effect at the close of business on such date.  Each change in the Applicable Utilization Fee Rate resulting from a publicly announced change in the S&P Rating, the Fitch Rating and/or the Moody’s Rating shall be effective during the period commencing on the date of the public announcement thereof and ending on the date immediately preceding the effective date of the next change.

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“Approved Fund” means a fund that is administered or managed by a Lender or an Affiliate of a Lender.

“Asset Sale” means the sale, transfer or other disposition (including by means of Sale and Lease-Back Transactions, and by means of mergers, consolidations, and liquidations of a corporation, partnership or limited liability company of the interests therein of the Borrower or any of its Subsidiaries) by the Borrower or any of its Subsidiaries to any Person of any of their respective assets, provided that the term Asset Sale specifically excludes any sales, transfers or other dispositions of inventory, or obsolete or excess furniture, fixtures, equipment or other Property, real or personal, tangible or intangible, in each case in the ordinary course of business.

“Assignment Agreement” means an Assignment Agreement substantially in the form of Exhibit E.

“Augmenting Lender” has the meaning provided in Section 3.2(a).

“Authorized Officer” means any of the following officers of the Borrower: the Chief Executive Officer, the Chief Financial Officer, the President, the Chief Operating Officer, any Group Vice President, any Vice President or the Treasurer.

“Bankruptcy Code” means Title 11 of the United States Code entitled “Bankruptcy,” as now or hereafter in effect, or any successor thereto.

“Base Rate” means, for any period, a fluctuating interest rate per annum as shall be in effect from time to time which rate per annum shall at all times be equal to the greater of (a) the rate of interest established by KeyBank in Cleveland, Ohio, from time to time, as its prime rate, whether or not publicly announced, which interest rate may or may not be the lowest rate charged by it for commercial loans or other extensions of credit; and (b) the Federal Funds Effective Rate in effect from time to time, determined one Business Day in arrears, plus 1/2 of 1% per annum.

“Base Rate Loan” means each Loan bearing interest at a rate based upon the Base Rate.

“Borrower” has the meaning provided in the first paragraph of this Agreement.

“Borrowing” means the incurrence of Loans consisting of one Type of Loan, by the Borrower from all of the Lenders on a pro rata basis on a given date (or resulting from Conversions or Continuations on a given date), having in the case of Eurodollar Loans the same Interest Period.

“Business Day” means, (a) for all purposes other than as covered by clause (b) below, any day that is not a Saturday, Sunday or day on which commercial banks in the city in which the Payment Office is located are authorized or required by law or other governmental actions to close and (b) with respect to all notices and determinations in connection with, and payments of principal and interest on, Eurodollar Loans, any day that is a Business Day described in clause (a) and that is also a day for trading by and between banks in Dollar deposits in the London interbank market.

“Capital Lease” means, as applied to any Person, any lease of any Property (whether real, personal or mixed) by such Person, as lessee, that, in conformity with GAAP, is accounted for as a capital lease on the balance sheet of that Person.

“Capitalized Lease Obligations” means all obligations under Capital Leases of the Borrower or any of its Subsidiaries in each case taken at the amount thereof accounted for as liabilities and identified

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as “capital lease obligations” (or any similar words) on a consolidated balance sheet of the Borrower and its Subsidiaries prepared in accordance with GAAP.

“Cash Equivalents” means any of the following:

(a)securities issued or directly and fully guaranteed or insured by the United States of America or any agency or instrumentality thereof (provided that the full faith and credit of the United States of America is pledged in support thereof) having maturities of not more than one year from the date of acquisition;

(b)Dollar denominated time deposits, certificates of deposit and bankers’ acceptances of (i) any Lender or (ii) any bank whose short-term commercial paper rating from S&P is at least A-1 or the equivalent thereof or from Moody’s is at least P-1 or the equivalent thereof (any such bank, an “Approved Bank”), in each case with maturities of not more than three months from the date of acquisition;

(c)commercial paper issued by any Lender or Approved Bank or by the parent company of any Lender or Approved Bank and commercial paper issued by, or guaranteed by, any industrial or financial company with a short- term commercial paper rating of at least A-1 or the equivalent thereof by S&P or at least P-1 or the equivalent thereof by Moody’s, or guaranteed by any industrial company with a long term unsecured debt rating of at least A or A2, or the equivalent of each thereof, from S&P or Moody’s, as the case may be, and in each case maturing within 90 days after the date of acquisition;

(d)fully collateralized repurchase agreements entered into with any Lender or Approved Bank having a term of not more than 30 days and covering securities described in clause (a) above;

(e)investments in money market funds substantially all the assets of which are comprised of securities of the types described in clauses (a) through (d) above;

(f)investments in money market funds access to which is provided as part of “sweep” accounts maintained with a Lender or an Approved Bank;

(g)investments in industrial development revenue bonds that (i) “re-set” interest rates not less frequently than quarterly, (ii) are entitled to the benefit of a remarketing arrangement with an established  broker dealer, and (iii) are supported by a direct pay letter of credit covering principal and accrued interest that is issued by an Approved Bank;

(h)investments in pooled funds or investment accounts consisting of investments of the nature described in the foregoing clause (g); and

(i)other investments not specifically described in any of clauses (a) through (h) above that have been approved in writing by the Administrative Agent.

“CERCLA” means the Comprehensive Environmental Response, Compensation, and Liability Act of 1980, as the same may be amended from time to time, 42 U.S.C. § 9601 et seq.

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“Change of Control” means any of the following:

(a)during any 12-month period (or, if less, during the period beginning on the Closing Date and ending on the date of determination), individuals who at the beginning of such period constituted the Parent’s Board of Directors (together with any new directors whose election by the Parent’s Board of Directors or whose nomination for election by the Parent’s shareholders was approved by a vote of a majority of the directors who either were directors at the beginning of such period or whose election or nomination was previously so approved) cease for any reason to constitute a majority of the Board of Directors of the Parent;

(b)any “person” or “group” (as such terms are used in Sections 13(d) and 14(d) of the 1934 Act, but excluding any employee benefit plan of such person or its subsidiaries, and any person or entity acting in its capacity as trustee, agent or other fiduciary or administrator of any such plan) becomes the “beneficial owner” (as defined in Rules 13d-3 and 13d-5 under the 1934 Act, except that a person or group shall be deemed to have “beneficial ownership” of all securities that such person or group has the right to acquire (such right, an “option right”), whether such right is exercisable immediately or only after the passage of time), directly or indirectly, of 20% or more of the equity securities of the Parent entitled to vote for members of the board of directors or equivalent governing body of the Parent on a fully-diluted basis (and taking into account all such securities that such person or group has the right to acquire pursuant to any option right); or

(c)the Parent shall cease to own, free and clear of all Liens and other encumbrances and on a fully diluted basis, 100% of the outstanding shares of all classes of stock of the Borrower ordinarily having the right to vote at an election of directors, or any contingency shall occur that causes any class of stock of the Borrower, the shares of which are not owned by the Parent, to have the right to vote at an election of directors.

“Closing Date” means the date on which the conditions specified in Section 5.1 are satisfied.

“Closing Fee Letter” means the Closing Fee Letter, dated as of the date hereof, between the Borrower and the Administrative Agent, for the benefit of the Lenders, as the same may from time to time be amended, restated, supplemented or otherwise modified.

“Code” means the Internal Revenue Code of 1986, as amended from time to time, and the regulations promulgated thereunder.

“Commercial Letter of Credit” means any letter of credit or similar instrument issued for the purpose of providing the primary payment mechanism in connection with the purchase of materials, goods or services in the ordinary course of business.

“Commitment” means, with respect to each Lender, its obligation to make Loans to the Borrower from time to time pursuant to Section 2.1, in an aggregate principal amount at any one time outstanding not to exceed the amount, if any, set forth opposite such Lender’s name on Annex I as its “Commitment” or in the case of any Lender that becomes a party hereto pursuant to an Assignment Agreement, the obligation of such Lender to make Loans in an aggregate principal amount at any one time outstanding not to exceed the amount set forth as the “Amount of Assigned Share” in each Assignment Agreement to which such Lender is a party thereto as the assignee, as any such Commitments may be reduced from time to time pursuant to Section 3.3, 3.4 and/or 9.2, increased from time to time pursuant to Section 3.2, and/or adjusted from time to time as a result of assignments to or from such Lender pursuant to Section 11.4.

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“Compliance Certificate” means a certificate, substantially in the form of the attached Exhibit C.

“Consolidated Net Income” means, for any period, the net income (or loss), without deduction for minority interests, of the Borrower and its Subsidiaries on a consolidated basis for such period taken as a single accounting period determined in conformity with GAAP.

“Consolidated Net Worth” means, at any time, all amounts that, in conformity with GAAP, would be included under the caption “total stockholders’ equity” (or any like caption) on a consolidated balance sheet of the Borrower as of such time, provided that in no event shall Consolidated Net Worth include any amounts in respect of Redeemable Stock.

“Consolidated Tangible Assets” means at any time the consolidated total assets of the Borrower and its Subsidiaries calculated on a consolidated basis as of such time, but excluding therefrom goodwill, patents, patent applications, permits, trademarks, trade names, copyrights, licenses, franchises, experimental expense, organizational expense, unamortized debt discount and expense, the excess of cost of shares acquired over book value of related assets and such other assets that are properly classified as “intangible assets” in accordance with GAAP.

“Consolidated Total Capitalization” means the sum of Consolidated Total Debt and Consolidated Net Worth and, to the extent not otherwise included, preferred stock of the Borrower.

“Consolidated Total Debt” means the sum (without duplication) of all Indebtedness of the Borrower and of each of its Subsidiaries, all as determined on a consolidated basis.

“Continue”, “Continuation” and “Continued” each refers to a continuation of Eurodollar Loans for an additional Interest Period as provided in Section 2.3.

“Controlled Group” means all members of a controlled group of corporations or other business entities and all trades or businesses (whether or not incorporated) under common control that, together with the Borrower or any of its Subsidiaries, are treated as a single employer under Section 414 of the Code.

“Convert”, “Conversion” and “Converted” each refers to a conversion of Loans of one Type into Loans of another Type, pursuant to Section 2.3.

“Credit Documents” means this Agreement, the Notes, if any, the Agent Fee Letter, the Closing Fee Letter, each Letter of Credit and each other LC Document.

“Credit Event” means any Borrowing, Conversion, Continuation or any LC Issuance.

“Credit Facility” means the credit facility established under this Agreement pursuant to which (a) the Lenders shall make Loans to the Borrower, and shall participate in LC Issuances, pursuant to the Commitment of each such Lender, and (b) each LC Issuer shall issue Letters of Credit for the account of the Borrower in accordance with the terms of this Agreement.

“Default” means any event, act or condition that with notice or lapse of time, or both, would constitute an Event of Default.

“Defaulting Lender” means any Lender with respect to which a Lender Default is in effect.

“Dollars” and the sign “$” each means lawful money of the United States.

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“Eligible Assignee” means (a) a Lender (other than a Defaulting Lender), (b) an Affiliate of a Lender (other than a Defaulting Lender), (c) an Approved Fund, and (d) any other Person (other than a natural person) approved by (i) the Administrative Agent, and (ii) unless an Event of Default has occurred and is continuing, the Borrower (each such approval not to be unreasonably withheld or delayed); provided that notwithstanding the foregoing, “Eligible Assignee” shall not include the Borrower or any of the Affiliates or Subsidiaries of the Borrower.

“Energy-Related Business” means any business engaged in or directly related to:  (a) the production, sale, brokerage, management, transportation, delivery or other provision of energy products, including but not limited to, electricity, natural gas, oil, coal, propane and renewable energy producing materials, (b) the provision of energy conservation services, including, but not limited to, energy audits, installation of energy conservation devices, energy efficient equipment and related systems, (c) the provision of services and equipment in connection with the procurement of such energy products or conservation of energy, (d) engineering, consulting, construction, operational or maintenance services in connection with such energy products, the conservation of energy or with equipment utilizing such energy products or (e) the manufacturing of equipment used in connection with energy production or conservation.

“Environmental Claims” means any and all administrative, regulatory or judicial actions, suits, demands, demand letters, claims, liens, notices of non-compliance or violation, investigations or proceedings relating in any way to any Environmental Law or any permit issued under any such law, including, without limitation, (a) any and all claims by governmental or regulatory authorities for enforcement, cleanup, removal, response, remedial or other actions or damages pursuant to any applicable Environmental Law, and (b) any and all claims by any third party seeking damages, contribution, indemnification, cost recovery, compensation or injunctive relief resulting from the storage, treatment or Release (as defined in CERCLA) of any Hazardous Materials or arising from alleged injury or threat of injury to health, safety or the environment.

“Environmental Law” means any applicable Federal, state, foreign or local statute, law, rule, regulation, ordinance, code, binding and enforceable guideline, binding and enforceable written policy and rule of common law now or hereafter in effect and in each case as amended, and any binding and enforceable judicial or administrative interpretation thereof, including, without limitation, any judicial or administrative order, consent, decree or judgment issued to or rendered against the Borrower or any of its Subsidiaries relating to the environment, employee health and safety or Hazardous Materials, including, without limitation, CERCLA; RCRA; the Federal Water Pollution Control Act, 33 U.S.C. § 1251 et seq.; the Clean Air Act, 42 U.S.C. § 7401 et seq.; the Safe Drinking Water Act, 42 U.S.C. § 300f et seq.; the Oil Pollution Act of 1990, 33 U.S.C. § 2701 et seq.; the Emergency Planning and the Community Right-to-Know Act of 1986, 42 U.S.C. § 11001 et seq., the Hazardous Material Transportation Act, 49 U.S.C. § 5101 et seq. and the Occupational Safety and Health Act, 29 U.S.C. § 651 et seq. (to the extent it regulates occupational exposure to Hazardous Materials); and any state and local or foreign counterparts or equivalents, in each case as amended from time to time.

“ERISA” means the Employee Retirement Income Security Act of 1974, as amended from time to time, and the regulations promulgated thereunder.

“Eurodollar Loans” means each Loan bearing interest at a rate based on the Adjusted Eurodollar Rate.

“Event of Default” has the meaning provided in Section 9.1.

“Exemption Certificate” has the meaning provided in Section 4.5(b)(ii).

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“Existing Credit Agreement” means the Credit Agreement, dated as of May 31, 2005, among the Borrower, the lenders party thereto, and KeyBank, as administrative agent.

“Facility Fees” has the meaning provided in Section 3.1(a).

“Federal Funds Effective Rate” means, for any period, a fluctuating interest rate equal for each day during such period to the weighted average of the rates on overnight Federal Funds transactions with members of the Federal Reserve System arranged by Federal Funds brokers, as published for such day (or, if such day is not a Business Day, for the next preceding Business Day) by the Federal Reserve Bank of New York, or, if such rate is not so published for any day that is a Business Day, the average of the quotations for such day on such transactions received by the Administrative Agent from three Federal Funds brokers of recognized standing selected by the Administrative Agent.

“Fees” means all amounts payable pursuant to, or referred to in, Section 3.1, together with any other fees payable pursuant to this Agreement or any other Credit Document.

“Fitch” means Fitch Investors Service Inc. and its successors.

“Fitch Rating” means, on any date of determination, the rating accorded the Borrower’s senior unsecured long-term debt by Fitch (or if the Obligations are secured, the rating accorded to the Borrower’s senior secured long-term debt by Fitch), or if such rating is unavailable, the Borrower’s long-term issuer default rating accorded to it by Fitch.

“FPA” means the Federal Power Act, as amended, and all rules and regulations promulgated thereunder.

“GAAP” means generally accepted accounting principles in the United States of America as in effect from time to time.

“Governmental Authority” means any nation or government, any state or other political subdivision thereof, any agency, authority, instrumentality, regulatory body, court, administrative tribunal, central bank or other entity exercising executive, legislative, judicial, taxing, regulatory or administrative powers or functions of or pertaining to government.

“Guaranty Obligations” means as to any Person (without duplication) any obligation of such Person guaranteeing any Indebtedness (“primary Indebtedness”) of any other Person (the “primary obligor”) in any manner, whether directly or indirectly, including, without limitation, any obligation of such Person, whether or not contingent, (a) to purchase any such primary Indebtedness or any Property constituting direct or indirect security therefor, (b) to advance or supply funds (i) for the purchase or payment of any such primary Indebtedness or (ii) to maintain working capital or equity capital of the primary obligor or otherwise to maintain the net worth or solvency of the primary obligor, (c) to purchase Property, securities or services primarily for the purpose of assuring the owner of any such primary Indebtedness of the ability of the primary obligor to make payment of such primary Indebtedness, or (d) otherwise to assure or hold harmless the owner of such primary Indebtedness against loss in respect thereof, provided, however, that the term Guaranty Obligation shall not include endorsements of instruments for deposit or collection in the ordinary course of business.  The amount of any Guaranty Obligation shall be deemed to be an amount equal to the stated or determinable amount of the primary Indebtedness in respect of which such Guaranty Obligation is made or, if not stated or determinable, the maximum reasonably anticipated liability in respect thereof (assuming such Person is required to perform thereunder) as determined by such Person in good faith.

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“Hazardous Materials” means (a) any petrochemical or petroleum products, radioactive materials, asbestos in any form that is or could become friable, urea formaldehyde foam insulation, transformers or other equipment that contain dielectric fluid containing levels of polychlorinated biphenyls, and radon gas; and (b) any chemicals, materials or substances defined as or included in the definition of “hazardous substances”, “hazardous wastes”, “hazardous materials”, “restricted hazardous materials”, “extremely hazardous wastes”, “restrictive hazardous wastes”, “toxic substances”, “toxic pollutants”, “contaminants” or “pollutants”, or words of similar meaning and regulatory effect, under any applicable Environmental Law.

“Increasing Lender” has the meaning provided in Section 3.2(a).

“Indebtedness” means, with respect to any Person, all of the following (without duplication):

(a)all indebtedness of such Person for borrowed money;

(b)all bonds, notes, debentures and similar debt securities of such Person;

(c)the deferred purchase price of capital assets or services that in accordance with GAAP would be shown on the liability side of the balance sheet of such Person;

(d)non-contingent obligations to reimburse any other Person in respect of amounts paid under a letter of credit or similar instrument to the extent that such reimbursement obligations remain outstanding after such obligations become non-contingent;

(e)all obligations, contingent or otherwise, of such Person in respect of bankers’ acceptances;

(f)all Indebtedness of a second Person secured by any Lien on any Property owned by such first Person, whether or not such Indebtedness has been assumed;

(g)all Capitalized Lease Obligations of such Person;

(h)the present value, determined on the basis of the implicit interest rate, of all basic rental obligations under all Synthetic Leases of such Person;

(i)the full outstanding balance of trade receivables, notes or other instruments sold with full recourse (and the portion thereof subject to potential recourse, if sold with limited recourse), other than in any such case any thereof sold solely for purposes of collection of delinquent accounts;

(j)the stated value, or liquidation value if higher, of all Redeemable Stock of such Person; and

(k)all Guaranty Obligations of such Person;

provided, however, that (i) neither trade payables nor other similar accrued expenses, in each case arising in the ordinary course of business, nor obligations in respect of insurance policies or performance or surety bonds that themselves are not guarantees of Indebtedness (nor drafts, acceptances or similar instruments evidencing the same nor obligations in respect of letters of credit supporting the payment of the same), shall constitute Indebtedness; and (ii) the Indebtedness of any Person shall in any event include (without duplication) the Indebtedness of any other entity (including any general partnership in which

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such Person is a general partner) to the extent such Person is liable thereon as a result of such Person’s ownership interest in or other relationship with such entity, except to the extent the terms of such Indebtedness provide expressly that such Person is not liable thereon.

“Interest Period” means, with respect to each Eurodollar Loan, a period of one, two, three or six months as selected by the Borrower, provided that (a) the initial Interest Period for any Borrowing of Eurodollar Loans shall commence on the date of such Borrowing (the date of a Borrowing resulting from a Conversion or Continuation shall be the date of such Conversion or Continuation) and each Interest Period occurring thereafter in respect of such Borrowing shall commence on the day on which the next preceding Interest Period expires; (b) if any Interest Period begins on a day for which there is no numerically corresponding day in the calendar month at the end of such Interest Period, such Interest Period shall end on the last Business Day of such calendar month; (c) if any Interest Period would otherwise expire on a day that is not a Business Day, such Interest Period shall expire on the next succeeding Business Day, provided that if any Interest Period would otherwise expire on a day that is not a Business Day but is a day of the month after which no further Business Day occurs in such month, such Interest Period shall expire on the next preceding Business Day; (d) no Interest Period for any Eurodollar Loan may be selected that would end after the Maturity Date; and (e) if, upon the expiration of any Interest Period, the Borrower has failed to (or may not) elect a new Interest Period to be applicable to the respective Borrowing of Eurodollar Loans as provided above, the Borrower shall be deemed to have elected to Convert such Borrowing to a Base Rate Loan effective as of the expiration date of such current Interest Period.

“Investment” means (a) any direct or indirect purchase or other acquisition by the Borrower or any of its Subsidiaries of any of the capital stock or other equity interest of any other Person, including any partnership or joint venture interest in such Person; (b) any loan or advance to, guarantee or assumption of debt or purchase or other acquisition of any other debt (other than accounts receivable arising in the ordinary course of business on terms customary in the trade) of, any Person by the Borrower or any of its Subsidiaries; or (c) any purchase or other acquisition (in one transaction or a series of transactions) of assets of another Person that constitute a business unit or all or a substantial part of the business of, such Person.

“KeyBank” means KeyBank National Association, a national banking association, together with its successors and assigns.

“LC Commitment Amount” means $50,000,000.

“LC Documents” means, with respect to any Letter of Credit, any documents executed in connection with such Letter of Credit, including the Letter of Credit itself.

“LC Fee” means any of the fees payable pursuant to Section 3.1(c) or Section 3.1(d) in respect of Letters of Credit.

“LC Issuance” means the issuance of any Letter of Credit by any LC Issuer for the account of the Borrower in accordance with the terms of this Agreement, and shall include any amendment thereto that increases the Stated Amount thereof or extends the expiry date of such Letter of Credit.

“LC Issuer” means KeyBank or any of its Affiliates, or such other Lender that is requested by the Borrower and agrees to be an LC Issuer hereunder and is approved by the Administrative Agent.

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“LC Outstandings” means, at any time, the sum, without duplication, of (a) the aggregate Stated Amount of all outstanding Letters of Credit and (b) the aggregate amount of all Unpaid Drawings with respect to Letters of Credit.

“LC Participant” has the meaning provided in Section 2.4(g)(i).

“LC Participation” has the meaning provided in Section 2.4(g)(i).

“LC Request” has the meaning provided in Section 2.4(b).

“Leaseholds” means, with respect to any Person, all the right, title and interest of such Person as lessee or licensee in, to and under leases or licenses of land, improvements and/or fixtures.

“Lenders” means the Persons listed on Annex I and any other Person that becomes a party hereto pursuant to an Assignment Agreement, other than any such Person that ceases to be a party hereto pursuant to an Assignment Agreement.

“Lender Default” means (a) the refusal (which has not been retracted) of a Lender in violation of the requirements of this Agreement to make available its portion of any incurrence of Loans or (b) a Lender having notified the Administrative Agent and/or the Borrower that it does not intend to comply with its obligations under Section 2.2.

“Lender Register” has the meaning provided in Section 11.15.

“Letter of Credit” means any Standby Letter of Credit or Commercial Letter of Credit, in each case issued by any LC Issuer under this Agreement pursuant to Section 2.4 for the account of the Borrower.

“Lien” means any mortgage, pledge, security interest, encumbrance, lien or charge of any kind (including any agreement to give any of the foregoing, any conditional sale or other title retention agreement or any lease in the nature thereof).

“Loan” has the meaning provided in Section 2.2.

“Margin Stock” has the meaning provided in Regulation U.

“Material Adverse Effect” means any or all of the following:  (a) a material adverse effect on the business, operations, Property, assets, liabilities, financial or other condition, or prospects of the Borrower and its Subsidiaries, taken as a whole, or when used with reference to any other Person, such Person and its Subsidiaries, taken as a whole, as the case may be; (b) a material adverse effect on the ability of the Borrower to perform its obligations under the Credit Documents to which it is a party; (c) a material adverse effect on the ability of the Borrower and its Subsidiaries, taken as a whole, to pay their liabilities and obligations as they mature or become due; or (d) a material adverse effect on the validity, effectiveness or enforceability, as against the Borrower, of any of the Credit Documents to which it is a party.

“Maturity Date” means the earlier to occur of (a) November 21, 2011, or (b) the date on which (i) the Total Commitment is terminated pursuant to Section 9.2(a) and/or (ii) all Loans and other Obligations are declared due and payable pursuant to Section 9.2(b).

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“Minimum Borrowing Amount” means (a) for Base Rate Loans, $1,000,000, with minimum increments thereafter of $500,000, and (b) for Eurodollar Loans, $5,000,000, with minimum increments thereafter of $500,000.

“Moody’s” means Moody’s Investors Service, Inc. and its successors.

“Moody’s Rating” means, on any date of determination, the rating accorded the Borrower’s senior unsecured long-term debt by Moody’s (or if the Obligations are secured, the rating accorded to the Borrower’s senior secured long-term debt by Moody’s), or if such rating is unavailable, the Borrower’s long-term issuer credit rating accorded to it by Moody’s.

“Multiemployer Plan” means a Plan maintained pursuant to a collective bargaining agreement or any other arrangement as to which the Borrower or any member of the Controlled Group is a party to which more than one employer is obligated to make contributions.

“1933 Act” means the Securities Act of 1933, as amended.

“1934 Act” means the Securities Exchange Act of 1934, as amended.

“Non-Defaulting Lender” means each Lender other than a Defaulting Lender.

“Non-Increasing Lender” has the meaning provided in Section 3.2(b).

“Note” has the meaning provided in Section 2.6(d).

“Notice of Borrowing, Continuation or Conversion” has the meaning provided in Section 2.3(b).

“Notice Office” means the office of the Administrative Agent at 127 Public Square, Cleveland, Ohio 44114, Attention: Yvette M. Dyson-Owens (facsimile: (216) 689-5962), or such other office of the Administrative Agent, as the Administrative Agent may designate to the Borrower from time to time.

“Obligations” means all amounts, direct or indirect, contingent or absolute, of every type or description, and at any time existing, owing by the Borrower to the Administrative Agent or any Lender or any LC Issuer pursuant to the terms of this Agreement or any other Credit Document (including, without limitation, interest and fees that accrue after the commencement by or against the Borrower of any insolvency proceeding, regardless of whether such interest and fees are allowed claims in such proceeding and any and all indemnification obligations hereunder).

“Operating Lease” means, with respect to any Person, any lease of any Property (whether real, personal or mixed) by such Person as lessee that, in conformity with GAAP, is not accounted for as a Capital Lease on the balance sheet of such Person.

“Parent” means DPL Inc., an Ohio corporation.

“Payment Office” means the office of the Administrative Agent at 127 Public Square, Cleveland, Ohio 44114, Attention: Yvette M. Dyson-Owens (facsimile: (216) 689-5962), or such other office of the Administrative Agent, as the Administrative Agent may designate to the Borrower from time to time.

“PBGC” means the Pension Benefit Guaranty Corporation established pursuant to Section 4002 of ERISA, or any successor thereto.

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“Percentage” means, at any time for any Lender, the percentage obtained by dividing such Lender’s Commitment by the Total Commitment, provided, that if the Total Commitment has been terminated, the Percentage for each Lender shall be determined by dividing such Lender’s Commitment immediately prior to such termination by the Total Commitment immediately prior to such termination.

“Permitted Acquisition” means and includes any Acquisition as to which all of the following conditions are satisfied:  (a) such Acquisition (i) involves a line or lines of an Energy-Related Business, and (ii) involves a Person or a line or lines of business that are located and operated in the United States; (b) no Default or Event of Default shall exist prior to or immediately after giving effect to such Acquisition; (c) such Acquisition is not being consummated on a hostile basis and has been approved by the Board of Directors of the target Person and no material challenge to such Acquisition shall be pending or threatened by any shareholder or director of the seller or Person to be acquired, and (d) as of the date of the consummation of such Acquisition, all approvals required in connection therewith shall have been obtained.

“Permitted Liens” means Liens permitted by Section 8.3.

“Permitted Restrictive Covenant” means (a) any covenant or restriction contained in this Agreement, (b) any covenant or restriction contained in any other agreement that is less burdensome than any covenant or restriction contained in this Agreement, (c) in the case of transfers by any Subsidiary of the Borrower to the Borrower or another Subsidiary of the Borrower of any property or assets, any agreement setting forth customary restrictions on the subletting, assignment or transfer of any property or asset that is a lease, license or conveyance of similar property or assets; (d) in the case of transfers by any Subsidiary of the Borrower to the Borrower or another Subsidiary of the Borrower of any property or assets, any agreement with the holder of a Lien otherwise permitted to exist under Section 8.3(e)(ii) restricting on customary terms the transfer of any property or assets subject thereto; (e) any agreement evidencing or setting forth the terms of any refunding, refinancing or replacement Indebtedness the incurrence of which is not prohibited by this Agreement that contains any such restrictions to the extent such restrictions are no less favorable to the Borrower or any of its Subsidiaries or to the rights or interest of the Lenders than the terms in effect in the Indebtedness being so refunded, refinanced or replaced immediately prior to such refunding, refinancing or replacement; (f) any agreement that has been entered into by the Borrower or any of its Subsidiaries for the sale, lease, transfer or other disposition of any of its property or assets so long as such sale, lease, transfer or other disposition is otherwise permitted to be made under Section 8.2; and (g) any agreement evidencing Indebtedness outstanding on the date a Person first becomes a Subsidiary of the Borrower; provided, that such agreement was not created in contemplation of the purchase or other acquisition of such Person by the Borrower or any of its Subsidiaries and does not extend to or cover any property or assets other than the property or assets of the Person becoming such Subsidiary.

“Person” means any individual, partnership, joint venture, firm, corporation, limited liability company, association, trust or other entity or any government or political subdivision or any agency, department or instrumentality thereof.

“Plan” means an employee pension benefit plan that is covered by Title IV of ERISA or subject to minimum funding standards under Section 412 of the Code as to which the Borrower or any member of the Controlled Group may have any liability.

“Property” means, with respect to any Person, any and all property, whether real, personal, tangible, intangible, or mixed, of such Person, or other assets owned, leased or operated by such Person.

“Rating Agency” means any of Fitch, Moody’s or S&P.

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“RCRA” means the Resource Conservation and Recovery Act, as the same may be amended from time to time, 42 U.S.C. § 6901 et seq.

“Real Property” means, with respect to any Person, all of the right, title and interest of such Person in and to land, improvements and fixtures, including Leaseholds.

“Redeemable Stock” means, with respect to any Person, any capital stock or similar equity interests of such Person that (a) is by its terms subject to mandatory redemption, in whole or in part, pursuant to a sinking fund, scheduled redemption or similar provisions, at any time prior to the latest Maturity Date; or (b) otherwise is required to be repurchased or retired on a scheduled date or dates, upon the occurrence of any event or circumstance, at the option of the holder or holders thereof, or otherwise, at any time prior to the latest Maturity Date under this Agreement, other than any such repurchase or retirement occasioned by a “change of control” or similar event.

“Reference Banks” means (a) KeyBank and (b) any other Lender or Lenders selected as a Reference Bank by the Administrative Agent.

“Regulation D” means Regulation D of the Board of Governors of the Federal Reserve System as from time to time in effect and any successor to all or a portion thereof establishing reserve requirements.

“Regulation U” means Regulation U of the Board of Governors of the Federal Reserve System as from time to time in effect and any successor to all or a portion thereof establishing margin requirements.

“Related Parties” means, with respect to any Person, such Person’s Affiliates and the directors, officers, employees, agents and advisors of such Person and of such Affiliate.

“Reportable Event” means a reportable event as defined in Section 4043 of ERISA and the regulations issued under such section, with respect a Plan, excluding, however, such events as to which the PBGC has by regulations waived the requirement of Section 4043(a) of ERISA that it be notified within 30 days of the occurrence of such event; provided, however, that a failure to meet the minimum funding standard of Section 412 of the Code and of Section 302 of ERISA shall be a Reportable Event regardless of the issuance any such waiver of the notice requirement in accordance with either Section 4043(a) of ERISA or Section 412(d) of the Code.

“Required Lenders” means, (a) if there are no more than two Lenders, both Lenders or, (b) if there are more than two Lenders, Non-Defaulting Lenders whose Revolving Facility Exposure and Unutilized Commitment constitute at least 51% of the sum of the Aggregate Revolving Facility Exposure and Unutilized Commitments of Non-Defaulting Lenders.

“Revolving Facility Exposure” means, for any Lender at any time, the sum of (a) the principal amount of Loans made by such Lender and outstanding at such time, and (b) such Lender’s share of the LC Outstandings at such time.

“S&P” means Standard & Poor’s Ratings Group, a division of McGraw Hill, Inc., and its successors.

“S&P Rating” means, on any date of determination, the rating accorded to the Borrower’s senior unsecured long-term debt by S&P (or if the Obligations are secured, the rating accorded to the Borrower’s senior secured long-term debt by S&P).

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“Sale and Lease-Back Transaction” means any arrangement with any Person providing for the leasing by the Borrower or any Subsidiary of the Borrower of any Property (except for temporary leases for a term, including any renewal thereof, of not more than one year and except for leases between the Borrower and a Subsidiary of the Borrower or between Subsidiaries of the Borrower), which Property has been or is to be sold or transferred by the Borrower or such Subsidiary to such Person.

“SEC” means the United States Securities and Exchange Commission.

“SEC Regulation D” means Regulation D as promulgated under the 1933 Act, as the same may be in effect from time to time.

“Single Employer Plan” means a Plan maintained by the Borrower or any member of the Controlled Group for employees of the Borrower or any member of the Controlled Group.

“Standard Permitted Liens” means the following:

(a)Liens for taxes not yet delinquent or Liens for taxes being contested in good faith and by appropriate proceedings for which adequate reserves in accordance with GAAP have been established;

(b)Liens in respect of Property or assets imposed by law that were incurred in the ordinary course of business, such as carriers’, warehousemen’s, materialmen’s and mechanics’ Liens and other similar Liens arising in the ordinary course of business, that (i) do not secure payment obligations more than 60 days past due; (ii) do not, in the aggregate, materially detract from the value of such Property or assets or materially impair the use thereof in the operation of the business of the Borrower or any of its Subsidiaries and do not secure any Indebtedness; or (iii) are contested in good faith by appropriate proceedings and for which adequate reserves shall have been set aside on the books of the Borrower or its respective Subsidiary, as the case may be;

(c)bankers’ Liens and rights of setoff arising by operation of law and contractual rights of setoff;

(d)Liens arising from judgments, decrees or attachments in circumstances not constituting an Event of Default under Section 9.1(g);

(e)Liens (other than any Lien imposed by ERISA) incurred or deposits made in the ordinary course of business in connection with workers’ compensation, unemployment insurance and other types of social security; and mechanic’s Liens, carrier’s Liens, and other Liens to secure the performance of tenders, statutory obligations, contract bids, government contracts, performance and return-of-money bonds and other similar obligations, incurred in the ordinary course of business (exclusive of obligations in respect of the payment for borrowed money), whether pursuant to statutory requirements, common law or consensual arrangements;

(f)leases or subleases granted in the ordinary course of business to others not interfering in any material respect with the business of the Borrower or any of its Subsidiaries and any interest or title of a lessor under any lease not in violation of this Agreement;

(g)easements, rights-of-way, zoning or other restrictions, charges, encumbrances, defects in title, prior rights of other Persons, and obligations contained in similar instruments, in each case that do not involve, and are not likely to involve at any future time, either individually or in the aggregate, (i) a substantial and prolonged interruption or disruption of the business

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activities of the Borrower and its Subsidiaries considered as an entirety, or (ii) a Material Adverse Effect;

(h)precautionary filing of Uniform Commercial Code financing statements by lessors in connection with Operating Leases;

(i)Liens arising from the rights of lessors under leases (including financing statements regarding Property subject to lease) permitted under this Agreement, provided that such Liens are only in respect of the Property subject to, and secure only, the respective lease (and any other lease with the same or an affiliated lessor); and

(j)rights of consignors of goods, whether or not perfected by the filing of a financing statement under the UCC.

“Standby Letter of Credit” means any standby letter of credit issued for the purpose of supporting workers compensation, liability insurance, releases of contract retention obligations, contract performance guarantee requirements and other bonding obligations or for other lawful purposes.

“Stated Amount” of each Letter of Credit shall mean the maximum amount available to be drawn thereunder (regardless of whether any conditions or other requirements for drawing could then be met).

“Subsidiary” means, with respect to any Person, (a) any corporation more than 50% of whose stock of any class or classes having by the terms thereof ordinary voting power to elect a majority of the directors of such corporation (irrespective of whether at the time stock of any class or classes of such corporation shall have or might have voting power by reason of the happening of any contingency) is at the time owned by such Person directly or indirectly through Subsidiaries and (b) any partnership, limited liability company, association, joint venture or other entity in which such Person directly or indirectly through Subsidiaries, has more than a 50% equity interest at the time or in which the Borrower, one or more other Subsidiaries of the Borrower, or the Borrower and one or more Subsidiaries of the Borrower, directly or indirectly, has the power to direct the policies, management and affairs thereof.  Unless otherwise expressly provided, all references herein to “Subsidiary” shall mean a Subsidiary of the Borrower.

“Substantial Portion” means, with respect to the Property of the Borrower and its Subsidiaries, Property that (a) represents more than 10% of the Consolidated Tangible Assets of the Borrower and its Subsidiaries as would be shown in the consolidated financial statements of the Borrower and its Subsidiaries as at the beginning of the twelve-month period ending with the month in which such determination is made or (b) is responsible for more than 10% of the consolidated net sales or of the Consolidated Net Income of the Borrower and its Subsidiaries as reflected in the financial statements referred to in clause (a) above.

“Swap Agreement” means (a) any and all rate swap transactions, basis swaps, credit derivative transactions, forward rate transactions, commodity swaps, commodity options, forward commodity contracts, equity or equity index swaps or options, bond or bond price or bond index swaps or options or forward bond or forward bond price or forward bond index transactions, interest rate options, forward foreign exchange transactions, cap transactions, floor transactions, collar transactions, currency swap transactions, cross-currency rate swap transactions, currency options, spot contracts, or any other similar transactions or any combination of any of the foregoing (including any options to enter into any of the foregoing), irrespective of whether any such transaction is governed by or subject to any master agreement, and (b) any and all transactions of any kind, and the related confirmations, that are subject to the terms and conditions of, or governed by, any form of master agreement published by the International

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Swaps and Derivatives Association, Inc., any International Foreign Exchange Master Agreement, or any other master agreement (any such master agreement, together with any related schedules, a “Master Agreement”), including any such obligations or liabilities under any Master Agreement.

“Synthetic Lease” means any lease (a) that is accounted for by the lessee as an Operating Lease, and (b) under which the lessee is intended to be the “owner” of the leased Property for Federal income tax purposes.

“Taxes” has the meaning provided in Section 4.5(a).

“Total Commitment” means the sum of the Commitments of the Lenders.

“Type” means any type of Loan determined with respect to the interest option applicable thereto, i.e., a Base Rate Loan or Eurodollar Loan.

“UCC” means the Uniform Commercial Code as in effect from time to time.  Unless otherwise specified, the UCC shall refer to the UCC as in effect in the State of Ohio.

“Unfunded Liabilities” means the amount, if any, by which the present value of all vested and unvested accrued benefits under all Single Employer Plans exceeds the fair market value of all such Plan assets allocable to such benefits, all determined as of the then most recent valuation date for such Plans using PBGC actuarial assumptions for single employer plan terminations.

“United States” and “U.S.” each means United States of America.

“Unpaid Drawing” means, with respect to any Letter of Credit, the aggregate amount of the draws made on such Letter of Credit that have not been reimbursed by the Borrower or converted to a Loan pursuant to Section 2.4(f)(i), and, in each case, all interest that accrues thereon pursuant to this Agreement.

“Unutilized Commitment” means, at any time, with respect to any Lender, the excess of (a) such Lender’s Commitment at such time over (b) such Lender’s Revolving Facility Exposure at such time.

“Unutilized Total Commitment” means, at any time, the excess of (a) the Total Commitment at such time over (b) the Aggregate Revolving Facility Exposure at such time.

“USA Patriot Act” means the Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism (USA PATRIOT Act) Act of 2001.

“Utilization Fees” has the meaning provided in Section 3.1(b).

“Wholly-Owned Subsidiary” means each Subsidiary of the Borrower at least 95% of whose capital stock, equity interests and partnership interests, other than director’s qualifying shares or similar interests, are owned directly or indirectly by the Borrower.

Section 1.2Computation of Time Periods.  In this Agreement in the computation of periods of time from a specified date to a later specified date, the word “from” means “from and including,” the words “to” and “until” each means “to but excluding,” and the word “through” means “through and including.”

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Section 1.3Accounting Terms.  Except as otherwise specifically provided herein, all terms of an accounting or financial nature shall be construed in accordance with GAAP, as in effect from time to time.

Section 1.4Terms Generally.  The definitions of terms herein shall apply equally to the singular and plural forms of the terms defined.  Whenever the context may require, any pronoun shall include the corresponding masculine, feminine and neuter forms.  The words “include”, “includes” and “including” shall be deemed to be followed by the phrase “without limitation”.  The word “will” shall be construed to have the same meaning and effect as the word “shall”.  Unless the context requires otherwise, (a) any definition of or reference to any agreement, instrument or other document herein shall be construed as referring to such agreement, instrument or other document as from time to time amended, restated, supplemented or otherwise modified (subject to any restrictions on such amendments, restatements, supplements or modifications set forth herein), (b) any reference herein to any Person shall be construed to include such Person’s successors and assigns, (c) the words “herein”, “hereof” and “hereunder”, and words of similar import, shall be construed to refer to this Agreement in its entirety and not to any particular provision hereof, (d) all references herein to Sections, Annexes, Schedules and Exhibits shall be construed to refer to Sections of, and Annexes, Schedules and Exhibits to, this Agreement, and (e) the words “asset” and “property” (or “Property”) shall be construed to have the same meaning and effect and to refer to any and all Real Property, tangible and intangible assets and properties, including cash, securities, accounts and contract rights, and interests in any of the foregoing.

ARTICLE II.

AMOUNT AND TERMS OF LOANS

Section 2.1Establishment of the Credit Facility.  On the Closing Date, and subject to and upon the terms and conditions set forth in this Agreement and the other Credit Documents, the Administrative Agent, the Lenders, and each LC Issuer agree to establish the Credit Facility for the benefit of the Borrower; provided, however, that at no time will (i) the Aggregate Credit Facility Exposure exceed the Total Credit Facility Amount, or (ii) the Credit Facility Exposure of any Lender exceed the aggregate amount of such Lender’s Commitment.

Section 2.2Commitments for Loans.  Subject to and upon the terms and conditions herein set forth, each Lender severally agrees to make a revolving loan or revolving loans (each a “Loan” and, collectively, the “Loans”) to the Borrower, which Loans (a) may be incurred by the Borrower at any time and from time to time on and after the Closing Date and prior to the Maturity Date; (b) except as otherwise provided herein, may, at the option of the Borrower, be incurred and maintained as, or Converted into, Loans that are Base Rate Loans or Eurodollar Loans, in each case denominated in Dollars, provided that all Loans made as part of the same Borrowing shall, unless otherwise specifically provided herein, consist of Loans of the same Type; (c) may be repaid or prepaid and re-borrowed in accordance with the provisions hereof; and (d) shall not be made if, after giving effect to any such Loan, (i) the Revolving Facility Exposure of any Lender would exceed such Lender’s Commitment, (ii) the Aggregate Revolving Facility Exposure would exceed the Total Commitment, or (iii) the Borrower would be required to prepay Loans or cash collateralize Letters of Credit pursuant to 4.3(a).

Section 2.3Borrowing, Continuation or Conversion of Loans.

(a)Borrowings, Continuations and Conversions.  The Borrower may, in accordance with the provisions set forth in this Section and subject to the other terms and conditions of this Agreement, (i) request Borrowings, (ii) Convert all or a portion of the outstanding principal amount of Loans of one Type into a Borrowing or Borrowings of another Type of Loans that can be made pursuant to the terms of

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this Agreement and (iii) Continue a Borrowing of Eurodollar Loans at the end of the applicable Interest Period as a new Borrowing of Eurodollar Loans with a new Interest Period, provided that (A) any Conversion of Eurodollar Loans into Base Rate Loans shall be made on, and only on, the last day of an Interest Period for such Eurodollar Loans, (B) Base Rate Loans may only be Converted into Eurodollar Loans if no Default under Section 9.1(a) or Event of Default is in existence on the date of the Conversion unless the Required Lenders otherwise agree, and (C) Base Rate Loans may not be Converted into Eurodollar Loans during any period when such Conversion is not permitted under Section 2.8.

(b)Notice of Borrowings, Continuation and Conversion.  Each Borrowing, Continuation or Conversion of a Loan shall be made upon notice in the form provided for below, which notice shall be provided by the Borrower to the Administrative Agent at the Notice Office not later than (i) in the case of each Borrowing of or Continuation of or Conversion into a Eurodollar Loan, 12:00 noon (local time at its Notice Office) at least three Business Days’ prior to the date of such Borrowing, Continuation or Conversion and (ii) in the case of each Borrowing of or Conversion into a Base Rate Loan, 12:00 noon (local time at its Notice Office) on the proposed date of such Borrowing or Conversion.  Each such request shall be made by an Authorized Officer delivering written notice of such request substantially in the form of Exhibit B (each such notice, a “Notice of Borrowing, Continuation or Conversion”) or by telephone (to be confirmed immediately in writing by delivery of an Authorized Officer of a Notice of Borrowing, Continuation or Conversion), and in any event each such request shall be irrevocable and shall specify (A) the aggregate principal amount of the Loans to be made (which shall be in the Minimum Borrowing Amount) pursuant to such Borrowing or, if applicable, the Borrowings to be Continued or Converted, (B) the date of the Borrowing, Continuation or Conversion (which shall be a Business Day), (C) whether the Borrowing will consist of Base Rate Loans or Eurodollar Loans or, in the case of a Continuation or Conversion, the Loans to be Continued or Converted, and (D) if applicable, the initial Interest Period thereto or, in the case of a Continuation, the new Interest Period.  Without in any way limiting the obligation of the Borrower to confirm in writing any telephonic notice permitted to be given hereunder, the Administrative Agent may act prior to receipt of written confirmation without liability upon the basis of such telephonic notice believed by the Administrative Agent in good faith to be from an Authorized Officer entitled to give telephonic notices under this Agreement on behalf of the Borrower.  In each such case, the Administrative Agent’s record of the terms of such telephonic notice shall be conclusive absent manifest error.

(c)Minimum Borrowing Amount.  The aggregate principal amount of each Borrowing by the Borrower shall not be less than the Minimum Borrowing Amount.  No partial Conversion of a Borrowing of Eurodollar Loans shall reduce the outstanding principal amount of the Eurodollar Loans made pursuant to such Borrowing to less than the Minimum Borrowing Amount applicable thereto.

(d)Maximum Borrowings.  More than one Borrowing may be incurred by the Borrower on any day, provided that (i) if there are two or more Borrowings on a single day by the Borrower that consist of Eurodollar Loans, each such Borrowing shall have a different initial Interest Period, and (ii) at no time shall there be more than six Borrowings of Eurodollar Loans outstanding hereunder.

(e)Notice to Lenders. The Administrative Agent shall promptly give each Lender written notice (or telephonic notice promptly confirmed in writing) of (i) each proposed Borrowing, (ii) such Lender’s proportionate share thereof and (iii) the other matters covered by the Notice of Borrowing, Continuation or Conversion relating thereto.

Section 2.4Letters of Credit.

(a)LC Issuances.  Subject to and upon the terms and conditions set forth herein, the Borrower may request an LC Issuer at any time and from time to time to issue, for the account of

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the Borrower, and each LC Issuer agrees to issue from time to time, Letters of Credit in a form acceptable to such LC Issuer and the Administrative Agent and denominated and payable in Dollars; provided, however, that notwithstanding the foregoing, no LC Issuance shall be made if, after giving effect thereto, (i) the LC Outstandings would exceed the LC Commitment Amount, (ii) the Revolving Facility Exposure of any Lender would exceed such Lender’s Commitment, (iii) the Aggregate Revolving Facility Exposure would exceed the Total Commitment, or (iv) the Borrower would be required to prepay Loans or cash collateralize Letters of Credit pursuant to Section 4.3(a). Subject to Section 2.4(c), each Letter of Credit shall have an expiry date (including any renewal periods) occurring not later than the earlier of (y) one year from the date of issuance thereof, or (z) 30 Business Days prior to the Maturity Date.

(b)LC Requests.  Whenever the Borrower desires that a Letter of Credit be issued for its account, the Borrower shall give the Administrative Agent and the applicable LC Issuer written or telephonic notice (in the case of telephonic notice, promptly confirmed in writing if so requested by the Administrative Agent) which, if in the form of written notice, shall be substantially in the form of Exhibit B-2 (each such request, a “LC Request”), or transmit by electronic communication (if arrangements for doing so have been approved by the applicable LC Issuer), prior to 11:00 A.M. (local time at the Notice Office) at least three Business Days (or such shorter period as may be acceptable to the relevant LC Issuer) prior to the proposed date of issuance (which shall be a Business Day), which LC Request shall include such supporting documents that such LC Issuer customarily requires in connection therewith.  In the event of any inconsistency between any of the terms or provisions of any LC Document and the terms and provisions of this Agreement respecting Letters of Credit, the terms and provisions of this Agreement shall control.

(c)Auto-Renewal Letters of Credit.  If the Borrower so requests in any applicable LC Request, each LC Issuer shall agree to issue a Letter of Credit that has automatic renewal provisions; provided, however, that any Letter of Credit that has automatic renewal provisions must permit such LC Issuer to prevent any such renewal at least once in each twelve-month period (commencing with the date of issuance of such Letter of Credit) by giving prior notice to the beneficiary thereof not later than a day in each such twelve-month period to be agreed upon at the time such Letter of Credit is issued.  Once any such Letter of Credit that has automatic renewal provisions has been issued, the Lenders shall be deemed to have authorized (but may not require) such LC Issuer to permit the renewal of such Letter of Credit at any time to an expiry date not later than 30 Business Days prior to the Maturity Date; provided, however, that such LC Issuer shall not permit any such renewal if (i) such LC Issuer has determined that it would have no obligation at such time to issue such Letter of Credit in its renewed form under the terms hereof, or (ii) it has received notice (which may be by telephone or in writing) on or before the day that is two Business Days before the date that such LC Issuer is permitted to send a notice of non-renewal from the Administrative Agent, any Lender or the Borrower that one or more of the applicable conditions specified in Section 5.2 is not then satisfied.

(d)Applicability of ISP98 and UCP.  Unless otherwise expressly agreed by the applicable LC Issuer and the Borrower, when a Letter of Credit is issued, (i) the rules of the “International Standby Practices 1998” published by the Institute of International Banking Law & Practice (or such later version thereof as may be in effect at the time of issuance) shall apply to each Standby Letter of Credit, and (ii) the rules of the Uniform Customs and Practice for Documentary Credits, as most recently published by the International Chamber of Commerce at the time of issuance (including the International Chamber of Commerce’s decision published by the Commission on Banking Technique and Practice on April 6, 1998 regarding the European single currency (euro)) shall apply to each Commercial Letter of Credit.

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(e)Notice of LC Issuance.  Each LC Issuer shall, on the date of each LC Issuance by it, give the Administrative Agent, each applicable Lender and the Borrower written notice of such LC Issuance, accompanied by a copy to the Administrative Agent of the Letter of Credit or Letters of Credit issued by it.  Each LC Issuer shall provide to the Administrative Agent a quarterly (or monthly if requested by any applicable Lender) summary describing each Letter of Credit issued by such LC Issuer and then outstanding and an identification for the relevant period of the daily aggregate LC Outstandings represented by Letters of Credit issued by such LC Issuer.

(f)Reimbursement Obligations.

(i)The Borrower hereby agrees to reimburse each LC Issuer, by making payment directly to such LC Issuer in immediately available funds at the payment office of such LC Issuer, for any Unpaid Drawing with respect to any Letter of Credit immediately after, and in any event on the date on which, such LC Issuer notifies the Borrower of such payment or disbursement (which notice to the Borrower shall be delivered reasonably promptly after any such payment or disbursement), such payment to be made in Dollars, with interest on the amount so paid or disbursed by such LC Issuer, to the extent not reimbursed prior to 1:00 P.M. (local time at the payment office of the applicable LC Issuer) on the date of such payment or disbursement, from and including the date paid or disbursed to but not including the date such LC Issuer is reimbursed therefor at a rate per annum that shall be the rate then applicable to Loans pursuant to Section 2.09(a)(i) that are Base Rate Loans or, if not reimbursed on the date of such payment or disbursement, at the Default Rate, any such interest also to be payable on demand.  If by 11:00 A.M. on the Business Day immediately following notice to it of its obligation to make reimbursement in respect of an Unpaid Drawing, the Borrower has not made such reimbursement out of its available cash on hand or, in the case of the Borrower, a contemporaneous Borrowing hereunder (if such Borrowing is otherwise available to the Borrower), (x) the Borrower will in each case be deemed to have given a Notice of Borrowing for Loans that are Base Rate Loans in an aggregate principal amount sufficient to reimburse such Unpaid Drawing (and the Administrative Agent shall promptly give notice to the Lenders of such deemed Notice of Borrowing), (y) the Lenders shall, unless they are legally prohibited from doing so, make the Loans contemplated by such deemed Notice of Borrowing (which Loans shall be considered made under Section 2.02), and (z) the proceeds of such Loans shall be disbursed directly to the applicable LC Issuer to the extent necessary to effect such reimbursement and repayment of the Unpaid Drawing, with any excess proceeds to be made available to the Borrower in accordance with the applicable provisions of this Agreement.

(ii)Obligations Absolute.  The Borrower’s obligation under this Section to reimburse each LC Issuer with respect to Unpaid Drawings (including, in each case, interest thereon) shall be absolute and unconditional under any and all circumstances and irrespective of any setoff, counterclaim or defense to payment that the Borrower may have or have had against such LC Issuer, the Administrative Agent or any Lender, including, without limitation, any defense based upon the failure of any drawing under a Letter of Credit to conform to the terms of the Letter of Credit or any non-application or misapplication by the beneficiary of the proceeds of such drawing; provided, however, that the Borrower shall not be obligated to reimburse an LC Issuer for any wrongful payment made by such LC Issuer under a Letter of Credit as a result of acts or omissions constituting willful misconduct or gross negligence on the part of such LC Issuer.

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(g)LC Participations.

(i)Immediately upon each LC Issuance, the LC Issuer of such Letter of Credit shall be deemed to have sold and transferred to each Lender with a Commitment, and each such Lender (each an “LC Participant”) shall be deemed irrevocably and unconditionally to have purchased and received from such LC Issuer, without recourse or warranty, an undivided interest and participation (an “LC Participation”), to the extent of such Lender’s Percentage of the Stated Amount of such Letter of Credit in effect at such time of issuance, in such Letter of Credit, each substitute Letter of Credit, each drawing made thereunder, the obligations of the Borrower under this Agreement with respect thereto (although LC Fees relating thereto shall be payable directly to the Administrative Agent for the account of the Lenders as provided in Section 3.1(c) and the LC Participants shall have no right to receive any portion of any fees of the nature contemplated by Section 3.1(d) or in the Agent Fee Letter), the obligations of the Borrower under any LC Documents pertaining thereto, and any security for, or guaranty pertaining to, any of the foregoing.

(ii)In determining whether to pay under any Letter of Credit, an LC Issuer shall not have any obligation relative to the LC Participants other than to determine that any documents required to be delivered under such Letter of Credit have been delivered and that they appear to comply on their face with the requirements of such Letter of Credit.  Any action taken or omitted to be taken by an LC Issuer under or in connection with any Letter of Credit, if taken or omitted in the absence of gross negligence or willful misconduct, shall not create for such LC Issuer any resulting liability.

(iii)If an LC Issuer makes any payment under any Letter of Credit and the Borrower shall not have reimbursed such amount in full to such LC Issuer pursuant to Section 2.4(f), such LC Issuer shall promptly notify the Administrative Agent, and the Administrative Agent shall promptly notify each LC Participant of such failure, and each LC Participant shall promptly and unconditionally pay to the Administrative Agent for the account of such LC Issuer, the amount of such LC Participant’s Percentage of such payment in Dollars and in same-day funds; provided, however, that no LC Participant shall be obligated to pay to the Administrative Agent its Percentage of such unreimbursed amount for any wrongful payment made by such LC Issuer under a Letter of Credit as a result of acts or omissions constituting willful misconduct or gross negligence on the part of such LC Issuer.  If the Administrative Agent so notifies any LC Participant required to fund a payment under a Letter of Credit prior to 11:00 A.M. (local time at its Notice Office) on any Business Day, such LC Participant shall make available to the Administrative Agent for the account of the relevant LC Issuer such LC Participant’s Percentage of the amount of such payment on such Business Day in same-day funds.  If and to the extent such LC Participant shall not have so made its Percentage of the amount of such payment available to the Administrative Agent for the account of the relevant LC Issuer, such LC Participant agrees to pay to the Administrative Agent for the account of such LC Issuer, forthwith on demand, such amount, together with interest thereon, for each day from such date until the date such amount is paid to the Administrative Agent for the account of such LC Issuer at the Federal Funds Effective Rate.  The failure of any LC Participant to make available to the Administrative Agent for the account of the relevant LC Issuer its Percentage of any payment under any Letter of Credit shall not relieve any other LC Participant of its obligation hereunder to make available to the Administrative Agent for the account of such LC Issuer its Percentage of any payment under any Letter of Credit on the date required, as specified above, but no LC Participant shall be responsible for the failure of any other LC Participant to make available to the

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Administrative Agent for the account of such LC Issuer such other LC Participant’s Percentage of any such payment.

(iv)Whenever an LC Issuer receives a payment of a reimbursement obligation as to which the Administrative Agent has received for the account of such LC Issuer any payments from the LC Participants pursuant to subpart (iii) above, such LC Issuer shall pay to the Administrative Agent and the Administrative Agent shall promptly pay to each LC Participant that has paid its Percentage thereof, in same-day funds, an amount equal to such LC Participant’s Percentage of the principal amount thereof and interest thereon accruing after the purchase of the respective LC Participations, as and to the extent so received.

(v)The obligations of the LC Participants to make payments to the Administrative Agent for the account of each LC Issuer with respect to Letters of Credit shall be irrevocable and not subject to counterclaim, set-off or other defense or any other qualification or exception whatsoever and shall be made in accordance with the terms and conditions of this Agreement under all circumstances, including, without limitation, any of the following circumstances:

(A)any lack of validity or enforceability of this Agreement or any of the other Credit Documents;

(B)the existence of any claim, set-off defense or other right that the Borrower may have at any time against a beneficiary named in a Letter of Credit, any transferee of any Letter of Credit (or any Person for whom any such transferee may be acting), the Administrative Agent, any LC Issuer, any Lender, or other Person, whether in connection with this Agreement, any Letter of Credit, the transactions contemplated herein or any unrelated transactions (including any underlying transaction between the Borrower and the beneficiary named in any such Letter of Credit), other than any claim that the Borrower may have against any applicable LC Issuer for gross negligence or willful misconduct of such LC Issuer in making payment under any applicable Letter of Credit;

(C)any draft, certificate or other document presented under the Letter of Credit proving to be forged, fraudulent, invalid or insufficient in any respect or any statement therein being untrue or inaccurate in any respect;

(D)the surrender or impairment of any security for the performance or observance of any of the terms of any of the Credit Documents; or

(E)the occurrence of any Default or Event of Default.

(vi)To the extent any LC Issuer is not indemnified by the Borrower, the LC Participants will reimburse and indemnify such LC Issuer, in proportion to their respective Percentages, for and against any and all liabilities, obligations, losses, damages, penalties, claims, actions, judgments, costs, expenses or disbursements of whatsoever kind or nature that may be imposed on, asserted against or incurred by such LC Issuer in performing its respective duties in any way related to or arising out of LC Issuances by it; provided, however, that no LC Participants shall be liable for any portion of such liabilities, obligations, losses, damages, penalties, claims, actions, judgments,

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costs, expenses or disbursements resulting from such LC Issuer’s gross negligence or willful misconduct.

Section 2.5Funding Obligations; Disbursement of Funds.

(a)Several Nature of Funding Obligations.  The Commitments of each Lender hereunder and the obligation of each Lender to make Loans and acquire and fund LC Participations, as the case may be, are several and not joint obligations.  No Lender shall be responsible for any default by any other Lender in its obligation to make Loans or fund any participation hereunder and each Lender shall be obligated to make the Loans provided to be made by it and fund its participations required to be funded by it hereunder, regardless of the failure of any other Lender to fulfill any of its Commitments hereunder.  Nothing herein and no subsequent termination of the Commitments pursuant to Section 3.4 shall be deemed to relieve any Lender from its obligation to fulfill its commitments hereunder and in existence from time to time or to prejudice any rights that the Borrower may have against any Lender as a result of any default by such Lender hereunder.

(b)Borrowings Pro Rata.  All Loans made, and LC Participations acquired by each Lender, shall be made or acquired, as the case may be, on a pro rata basis based upon each Lender’s Percentage of the amount of such Borrowing or Letter of Credit in effect on the date the applicable Borrowing is to be made or the Letter of Credit is to be issued.

(c)Notice to Lenders. The Administrative Agent shall promptly give each Lender, as applicable, written notice (or telephonic notice promptly confirmed in writing) of each proposed Borrowing, or Conversion or Continuation thereof, and LC Issuance, and of such Lender’s proportionate share thereof or participation therein and of the other matters covered by the Notice of Borrowing, Continuation or Conversion, or LC Request, as the case may be, relating thereto.

(d)Funding of Loans.  No later than 2:00 P.M. (local time at the Payment Office) on the date specified in each Notice of Borrowing, Continuation or Conversion, each Lender will make available its pro rata share, if any, of each Borrowing requested to be made on such date in the manner provided below.  All amounts shall be made available to the Administrative Agent in Dollars and immediately available funds at the Payment Office and the Administrative Agent promptly will make available to the Borrower by depositing to its account at the Payment Office the aggregate of the amounts so made available in the type of funds received.

(e)Advance Funding.  Unless the Administrative Agent shall have been notified by any Lender prior to the date of Borrowing that such Lender does not intend to make available to the Administrative Agent its portion of the Borrowing or Borrowings to be made on such date, the Administrative Agent may assume that such Lender has made such amount available to the Administrative Agent on such date of Borrowing, and the Administrative Agent, in reliance upon such assumption, may (in its sole discretion and without any obligation to do so) make available to the Borrower a corresponding amount.  If such corresponding amount is not in fact made available to the Administrative Agent by such Lender and the Administrative Agent has made available same to the Borrower, the Administrative Agent shall be entitled to recover such corresponding amount from such Lender.  If such Lender does not pay such corresponding amount forthwith upon the Administrative Agent’s demand therefor, the Administrative Agent shall promptly notify the Borrower, and the Borrower shall immediately pay such corresponding amount to the Administrative Agent.  The Administrative Agent shall also be entitled to recover from such Lender or the Borrower, as the case may be, interest on such corresponding amount in respect of each day from the date such corresponding amount was made available by the Administrative Agent to the Borrower to the date such corresponding amount is recovered by the Administrative Agent, at a rate per annum equal to (x) if paid by such Lender, the

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overnight Federal Funds Effective Rate or (y) if paid by the Borrower, the then applicable rate of interest, calculated in accordance with Section 2.7, for the respective Loans (but without any requirement to pay any amounts in respect thereof pursuant to Section 2.7).

(f)Rights Not Prejudiced. Nothing herein and no subsequent termination of the Commitments pursuant to Section 3.3 or 3.4 shall be deemed to relieve any Lender from its obligation to fulfill its commitments hereunder and in existence from time to time or to prejudice any rights that the Borrower may have against any Lender as a result of any default by such Lender hereunder.

Section 2.6Evidence of Obligations.

(a)Loan Accounts of Lenders.  The Obligations of the Borrower owing to each Lender shall be evidenced by, and each Lender shall maintain in accordance with its usual practice, an account or accounts established by such Lender, which account or accounts shall include the amounts of principal and interest payable and paid to such Lender from time to time hereunder.

(b)Loan Accounts of Administrative Agent.  The Administrative Agent shall maintain accounts in which it shall record (i) the amount of each Loan made hereunder, the Type thereof and the Interest Period and applicable interest rate if such Loan is a Eurodollar Loan, (ii) the amount of any principal due and payable or to become due and payable from the Borrower to each Lender hereunder, and (iii) the amount of any sum received by the Administrative Agent hereunder for the account of the Lenders and each Lender’s share thereof.

(c)Effect of Loan Accounts.  The entries made in the accounts maintained pursuant to Section 2.6(a) and (b) shall be prima facie evidence of the existence and amounts of the obligations recorded therein; provided, that the failure of any Lender or the Administrative Agent to maintain such accounts or any error therein shall not in any manner affect the obligation of the Borrower to repay or prepay the Loans or any other amounts in accordance with the terms of this Agreement.

(d)Notes.  Upon request of any Lender, the Borrower’s obligation to pay the principal of, and interest on, the Loans made to it by each Lender shall be evidenced by a promissory note of the Borrower substantially in the form of Exhibit A with blanks appropriately completed in conformity herewith (each a “Note” and, collectively, the “Notes”), provided that the decision of any Lender not to request a Note shall in no way detract from the Borrower’s obligation to repay the Loans and other amounts owing by the Borrower to such Lender.  Any Note issued by the Borrower to a Lender shall:  (i) be executed by the Borrower; (ii) be payable to the order of such Lender and be dated on or prior to the Closing Date; (iii) be payable in the principal amount of the Loans evidenced thereby; (iv) mature on the Maturity Date; (v) bear interest as provided in Section 2.7 in respect of the Base Rate Loans or Eurodollar Loans, as the case may be, evidenced thereby; (vi) be subject to mandatory prepayment as provided in Section 4.3; and (vii) be entitled to the benefits of this Agreement and the other Credit Documents.

Section 2.7Interest.

(a)Interest on Base Rate Loans.  During such periods as a Loan is a Base Rate Loan, it shall bear interest at a fluctuating rate per annum that shall at all times be equal to the Base Rate in effect from time to time plus the Applicable Margin in effect from time to time for such Loan.

(b)Interest on Eurodollar Loans.  During such periods as a Loan is a Eurodollar Loan, it shall bear interest at a rate per annum that shall at all times during an Interest Period therefor be the relevant Adjusted Eurodollar Rate for such Eurodollar Loan for such Interest Period plus the Applicable Margin in effect from time to time for such Loan.

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(c)Default Interest.  Notwithstanding the above provisions, if a Default under Section 9.1(a) or an Event of Default has occurred and is continuing, then, upon written notice by the Administrative Agent (which notice the Administrative Agent shall give at the direction of the Required Lenders), (i) all outstanding amounts of principal and, to the extent permitted by law, all overdue interest, in respect of each Loan shall bear interest, payable on demand, at a rate per annum equal to 2% per annum above the interest rate that is or would be applicable from time to time pursuant to Section 2.7(a), and (ii) the LC Fees shall be increased by an additional 2% per annum in excess of the LC Fees otherwise applicable thereto.  If any amount (other than the principal of and interest on the Loans) payable by the Borrower under the Credit Documents is not paid when due, upon written notice by the Administrative Agent (which notice the Administrative Agent shall give at the direction of the Required Lenders), such amount shall bear interest, payable on demand, at a rate per annum equal to 2% per annum above the interest rate that is or would be applicable from time to time pursuant to Section 2.7(a).

(d)Accrual and Payment of Interest.  Interest shall accrue from and including the date of any Borrowing to but excluding the date of any prepayment or repayment thereof and shall be payable:

(i)in respect of each Base Rate Loan, in arrears on the last Business Day of each December, March, June and September and on the Maturity Date;

(ii)in respect of each Eurodollar Loan, on the last day of each Interest Period applicable thereto and, in the case of an Interest Period in excess of three months, on the dates that are successively 90 days after the commencement of such Interest Period and on the Maturity Date;

(iii)in respect of any repayment or prepayment of any Loan (other than a prepayment of a Base Rate Loan), on the date of such repayment or prepayment;

(iv)in respect of any Conversion of any Eurodollar Loan prior to the end of the current Interest Period therefor, on the effective date of such Conversion; and

(v)in respect of any interest payment pursuant to Section 2.7(c), on demand.

(e)Computations of Interest.  All computations of interest on Eurodollar Loans and other amounts (other than Base Rate Loans) hereunder shall be made on the actual number of days elapsed over a year of 360 days, and all computations of interest on Base Rate Loans and Unpaid Drawings hereunder shall be made on the actual number of days elapsed over a year of 365 or 366 days, as applicable.

(f)Information as to Interest Rates.  The Administrative Agent upon determining the interest rate for any Borrowing or any change in interest rate applicable to any Borrowing as a result of a change in the Applicable Margin, a change in the Base Rate, the implementation of the default rate or otherwise, shall promptly notify the Borrower and the Lenders thereof, provided that (i) any such change shall be immediately effective as and when such change occurs without regard to when the Administrative Agent provides any such notice, and (ii) the failure of the Administrative Agent to give any such notice shall in no way detract from or affect the obligation of the Borrower to pay interest at the changed rate.  If the Administrative Agent is unable to determine the Adjusted Eurodollar Rate for any Borrowing of Eurodollar Loans based on the quotation service referred to in clause (i) of the definition of the term Adjusted Eurodollar Rate, it will promptly so notify the Reference Banks and each Reference Bank will furnish the Administrative Agent timely information for the purpose of determining the Adjusted Eurodollar Rate for such Borrowing.  If any one or more of the Reference Banks shall not timely furnish such information, the Administrative Agent shall determine the Adjusted Eurodollar Rate for such Borrowing on the basis of timely information furnished by the remaining Reference Banks.

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Section 2.8Increased Costs; Illegality.

(a)If (x) in the case of clause (i) below, the Administrative Agent or (y) in the case of clauses (ii) and (iii) below, any Lender, shall have determined on a reasonable basis (which determination shall, absent manifest error, be final and conclusive and binding upon all parties hereto):

(i)on any date for determining the Adjusted Eurodollar Rate for any Interest Period that, by reason of any changes arising after the Closing Date affecting the London interbank market, adequate and fair means do not exist for ascertaining the applicable interest rate on the basis provided for in the definition of Adjusted Eurodollar Rate; or

(ii)at any time, that such Lender shall incur increased costs or reductions in the amounts received or receivable hereunder in an amount that such Lender deems material with respect to any Eurodollar Loans (other than any increased cost or reduction in the amount received or receivable resulting from the imposition of or a change in the rate of taxes or similar charges) because of (x) any change since the Closing Date in any applicable law, governmental rule, regulation, guideline, order or request (whether or not having the force of law), or in the interpretation or administration thereof and including the introduction of any new law or governmental rule, regulation, guideline, order or request (such as, for example, but not limited to, a change in official reserve requirements, but, in all events, excluding reserves includable in the Adjusted Eurodollar Rate pursuant to the definition thereof) and/or (y) other circumstances adversely affecting the London interbank market or the position of such Lender in such market; or

(iii)at any time, that the making or continuance of any Eurodollar Loan has become unlawful by compliance by such Lender in good faith with any change since the Closing Date in any law, governmental rule, regulation, guideline or order, or the interpretation or application thereof, or would conflict with any thereof not having the force of law but with which such Lender customarily complies or has become impracticable as a result of a contingency occurring after the Closing Date that materially adversely affects the London interbank market;

then, and in each such event, such Lender (or the Administrative Agent in the case of clause (i) above) shall (x) on or promptly following such date or time and (y) within 10 Business Days of the date on which such event no longer exists give notice (by telephone confirmed in writing) to the Borrower and to the Administrative Agent of such determination (which notice the Administrative Agent shall promptly transmit to each of the other Lenders).  Thereafter (x) in the case of clause (i) above, Eurodollar Loans shall no longer be available until such time as the Administrative Agent notifies the Borrower and the Lenders that the circumstances giving rise to such notice by the Administrative Agent no longer exist, and any Notice of Borrowing, Continuation or Conversion given by the Borrower with respect to Eurodollar Loans that have not yet been incurred, Converted or Continued shall be deemed rescinded by the Borrower or, in the case of a Notice of Borrowing, Continuation or Conversion, shall, at the option of the Borrower, be deemed converted into a Notice of Borrowing, Continuation or Conversion for Base Rate Loans to be made on the date of Borrowing contained in such Notice of Borrowing, Continuation or Conversion, (y) in the case of clause (ii) above, the Borrower shall pay to such Lender, upon written demand therefor, such additional amounts (in the form of an increased rate of, or a different method of calculating, interest or otherwise as such Lender shall determine) as shall be required to compensate such Lender, for such increased costs or reductions in amounts receivable hereunder (a written notice as to the additional amounts owed to such Lender, showing the basis for the calculation thereof, which basis must be reasonable, submitted to the Borrower by such Lender shall, absent manifest error, be final and conclusive and binding upon all parties hereto) and (z) in the case of clause (iii) above, the Borrower shall

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take one of the actions specified in Section 2.8(b) as promptly as possible and, in any event, within the time period required by law.

(b)At any time that any Eurodollar Loan is affected by the circumstances described in Section 2.8(a)(ii) or (iii), the Borrower may (and in the case of a Eurodollar Loan affected pursuant to Section 2.8(a)(iii) the Borrower shall) either (i) if the affected Eurodollar Loan is then being made pursuant to a Borrowing, by giving the Administrative Agent telephonic notice (confirmed promptly in writing) thereof on the same date that the Borrower was notified by a Lender pursuant to Section 2.8(a)(ii) or (iii), cancel such Borrowing, convert the related Notice of Borrowing, Continuation or Conversion into one requesting a Borrowing of Base Rate Loans or require the affected Lender to make its requested Loan as a Base Rate Loan, or (ii) if the affected Eurodollar Loan is then outstanding, upon at least one Business Day’s notice to the Administrative Agent, require the affected Lender to Convert each such Eurodollar Loan into a Base Rate Loan, provided that if more than one Lender is affected at any time, then all affected Lenders must be treated the same pursuant to this Section 2.8(b).

(c)If any Lender shall have determined that after the Closing Date, the adoption of any applicable law, rule or regulation regarding capital adequacy, or any change therein, or any change in the interpretation or administration thereof by any governmental authority, central bank or comparable agency charged by law with the interpretation or administration thereof, or compliance by such Lender or its parent corporation with any request or directive regarding capital adequacy (whether or not having the force of law) of any such authority, central bank, or comparable agency, in each case made subsequent to the Closing Date, has or would have the effect of reducing by an amount reasonably deemed by such Lender to be material the rate of return on such Lender’s or its parent corporation’s capital or assets as a consequence of such Lender’s commitments or obligations hereunder to a level below that which such Lender or its parent corporation could have achieved but for such adoption, effectiveness, change or compliance (taking into consideration such Lender’s or its parent corporation’s policies with respect to capital adequacy), then from time to time, within 15 days after demand by such Lender (with a copy to the Administrative Agent), the Borrower shall pay to such Lender such additional amount or amounts as will compensate such Lender or its parent corporation for such reduction.  Each Lender, upon determining in good faith that any additional amounts will be payable pursuant to this Section 2.8(c), will give prompt written notice thereof to the Borrower, which notice shall set forth, in reasonable detail, the basis of the calculation of such additional amounts, which basis must be reasonable, although the failure to give any such notice shall not release or diminish any of the Borrower’s obligations to pay additional amounts pursuant to this Section 2.6(c) upon the subsequent receipt of such notice.

(d)Notwithstanding anything in this Agreement to the contrary, no Lender shall be entitled to compensation or payment or reimbursement of other amounts under Section 2.8 or 4.5 for any amounts incurred or accruing prior to the Closing Date or more than 270 days prior to the giving of notice to the Borrower of additional costs or other amounts of the nature described in such Sections.

Section 2.9Breakage Compensation.  The Borrower shall compensate each applicable Lender, upon its written request (which request shall set forth the detailed basis for requesting and the method of calculating such compensation), for all reasonable losses, costs, expenses and liabilities (including, without limitation, any loss, cost, expense or liability incurred by reason of the liquidation or reemployment of deposits or other funds required by such Lender to fund its Eurodollar Loans that such Lender may sustain):  (i) if for any reason (other than a default by such Lender or the Administrative Agent) a Borrowing of Eurodollar Loans does not occur on a date specified therefor in a Notice of Borrowing, Conversion or Continuation (whether or not withdrawn by the Borrower); (ii) if any repayment, prepayment, Conversion or Continuation of any of its Eurodollar Loans occurs on a date that is not the last day of an Interest Period applicable thereto; (iii) if any prepayment of any of its Eurodollar Loans is not made on any date specified in a notice of prepayment given by the Borrower; (iv) as a result

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of an assignment by a Lender of any Eurodollar Loan other than on the last day of the Interest Period applicable thereto pursuant to a request by the Borrower pursuant to Section 2.8(b); or (v) as a consequence of (x) any other default by the Borrower to repay or prepay its Eurodollar Loans when required by the terms of this Agreement or (y) an election made pursuant to Section 2.8(b).  The Borrower shall pay such Lender the amount shown as due on any such request within 10 days after receipt thereof.

Section 2.10Increased Costs to LC Issuers.  If after the Closing Date, the adoption of any applicable law, rule or regulation, or any change therein, or any change in the interpretation or administration thereof by any Governmental Authority, central bank or comparable agency charged with the interpretation or administration thereof, or compliance by any LC Issuer or any Lender with any request or directive (whether or not having the force of law) by any such authority, central bank or comparable agency (in each case made subsequent to the Closing Date) shall either (i) impose, modify or make applicable any reserve, deposit, capital adequacy or similar requirement against Letters of Credit issued by such LC Issuer or such Lender’s participation therein, or (ii) impose on such LC Issuer or any Lender any other conditions affecting this Agreement, any Letter of Credit or such Lender’s participation therein; and the result of any of the foregoing is to increase the cost to such LC Issuer or such Lender of issuing, maintaining or participating in any Letter of Credit, or to reduce the amount of any sum received or receivable by such LC Issuer or such Lender hereunder (other than any increased cost or reduction in the amount received or receivable resulting from the imposition of or a change in the rate of taxes or similar charges), then, upon demand to the Borrower by such LC Issuer or such Lender (a copy of which notice shall be sent by such LC Issuer or such Lender to the Administrative Agent), the Borrower shall pay to such LC Issuer or such Lender such additional amount or amounts as will compensate any such LC Issuer or such Lender for such increased cost or reduction.  A certificate submitted to the Borrower by any LC Issuer or any Lender, as the case may be (a copy of which certificate shall be sent by such LC Issuer or such Lender to the Administrative Agent), setting forth, in reasonable detail, the basis for the determination of such additional amount or amounts necessary to compensate any LC Issuer or such Lender as aforesaid shall be conclusive and binding on the Borrower absent manifest error, although the failure to deliver any such certificate shall not release or diminish the Borrower’s obligations to pay additional amounts pursuant to this Section 3.04.

Section 2.11Change of Lending Office; Replacement of Lenders.

(a)Each Lender agrees that, upon the occurrence of any event giving rise to the operation of Section 2.8(a)(ii) or (iii) or 2.8(c) with respect to such Lender, it will, if requested by the Borrower, use reasonable efforts (subject to overall policy considerations of such Lender) to designate another Applicable Lending Office for any Loans or Commitment affected by such event, provided that such designation is made on such terms that such Lender and its Applicable Lending Office suffer no economic, legal or regulatory disadvantage, with the object of avoiding the consequence of the event giving rise to the operation of any such Section.

(b)If any Lender requests any compensation, reimbursement or other payment under Section 2.8(a)(ii) or (iii), 2.8(c) or 3.2(b) with respect to such Lender, or if any Lender is a Defaulting Lender, then the Borrower may, at its sole expense and effort, upon notice to such Lender and the Administrative Agent, require such Lender to assign and delegate, without recourse (in accordance with the restrictions contained in Section 11.4(c)), all its interests, rights and obligations under this Agreement to an Eligible Assignee that shall assume such obligations; provided that (i) the Borrower shall have received the prior written consent of the Administrative Agent, which consent shall not be unreasonably withheld, (ii) such Lender shall have received payment of an amount equal to the outstanding principal of its Loans, accrued interest thereon, accrued fees and all other amounts payable to it hereunder, from the assignee (to the extent of such outstanding principal and accrued interest and fees) or the Borrower (in the case of all other amounts, including any breakage compensation under Section 2.7 and any amounts

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accrued and owing to such Lender under Section 2.8(a)(ii) or (iii), 2.8(c) or 3.2(b)), and (iii) in the case of any such assignment resulting from a claim for compensation, reimbursement or other payments required to be made under Section 2.8(a)(ii) or (iii), 2.8(c) or 3.2(b) with respect to such Lender, such assignment will result in a reduction in such compensation, reimbursement or payments.  A Lender shall not be required to make any such assignment and delegation if, prior thereto, as a result of a waiver by such Lender or otherwise, the circumstances entitling the Borrower to require such assignment and delegation cease to apply.

(c)Nothing in this Section 2.11 shall affect or postpone any of the obligations of the Borrower or the right of any Lender provided in Section 2.8.

ARTICLE III.

FEES; COMMITMENTS

Section 3.1Fees.

(a)Facility Fees.  The Borrower agrees to pay to the Administrative Agent facility fees (“Facility Fees”) for the account of each Non-Defaulting Lender that has a Commitment for the period from the Closing Date to the Maturity Date, computed for each day at a rate per annum equal to the Applicable Facility Fee Rate in effect for such day times the amount of such Non-Defaulting Lender’s Commitment in effect on such day.  Facility Fees shall be due and payable in arrears on the last Business Day of each December, March, June and September and on the Maturity Date.

(b)Utilization Fee.  The Borrower agrees to pay to the Administrative Agent utilization fees (the “Utilization Fees”) for the account of each Non-Defaulting Lender that has a Commitment for each day on which the Aggregate Revolving Facility Exposure exceeds 50% of the Total Commitment, computed for each such day at a rate per annum equal to the Applicable Utilization Fee Rate times the Revolving Facility Exposure of such Non-Defaulting Lender on such day.  Utilization Fees, if any, shall be due and payable quarterly in arrears on the last Business Day of each December, March, June and September and on the Maturity Date.

(c)LC Fees.

(i)Standby Letters of Credit.  The Borrower agrees to pay to the Administrative Agent, for the ratable benefit of each Lender with a Commitment based upon each such Lender’s Percentage, a fee in respect of each Letter of Credit issued hereunder that is a Standby Letter of Credit for the period from the date of issuance of such Letter of Credit until the expiration date thereof (including any extensions of such expiration date that may be made at the election of the account party or the beneficiary), computed for each day at a rate per annum equal to (A) the Applicable Margin for Loans that are Eurodollar Loans in effect on such day times (B) the Stated Amount of such Letter of Credit on such day.  The foregoing fees shall be payable quarterly in arrears on the last Business Day of each December, March, June and September and on the Maturity Date.

(ii)Commercial Letters of Credit.  The Borrower agrees to pay to the Administrative Agent for the ratable benefit of each Lender based upon each such Lender’s Percentage, a fee in respect of each Letter of Credit issued hereunder that is a Commercial Letter of Credit in an amount equal to (A) the Applicable Margin for Loans that are Eurodollar Loans in effect on the date of issuance times (B) the Stated Amount of such Letter of Credit.  The foregoing fees shall be payable on the date of issuance of such Letter of Credit.

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(d)Fronting Fees.  The Borrower agrees to pay directly to each LC Issuer, for its own account, a fee in respect of each Letter of Credit issued by it, payable on the date of issuance (or any increase in the amount, or renewal or extension) thereof, computed at the rate of 0.125% per annum on the Stated Amount thereof for the period from the date of issuance (or increase, renewal or extension) to the expiration date thereof (including any extensions of such expiration date which may be made at the election of the beneficiary thereof).

(e)Additional Charges of LC Issuer.  The Borrower agrees to pay directly to each LC Issuer upon each LC Issuance, drawing under, or amendment, extension, renewal or transfer of, a Letter of Credit issued by it such amount as shall at the time of such LC Issuance, drawing under, amendment, extension, renewal or transfer be the processing charge that such LC Issuer is customarily charging for issuances of, drawings under or amendments, extensions, renewals or transfers of, letters of credit issued by it.

(f)Other Fees.  The Borrower shall pay to the Administrative Agent, on the Closing Date and thereafter, for its own account and/or for distribution to the Lenders, such fees as heretofore agreed by the Borrower and the Administrative Agent or the Lenders as set forth in the Agent Fee Letter, the Closing Fee Letter or any other similar agreement.

(g)Computations of Fees.  All computations of Facility Fees, Utilization Fees, LC Fees and other Fees hereunder shall be made on the actual number of days elapsed over a year of 360 days.

Section 3.2Increase in Commitments.

(a)At any time after the Closing Date, the Borrower may, by written notice to the Administrative Agent, request that the Total Commitment be increased by an amount not to exceed $50,000,000 in the aggregate for all such increases from the Closing Date until the Maturity Date, provided that no Default or Event of Default has occurred and is continuing at the time of such request and on the date of any such increase.  The Administrative Agent shall deliver a copy of such request to each Lender.  The Borrower shall set forth in such request the amount of the requested increase in the Total Commitment (which shall be in minimum increments of $10,000,000 and a minimum amount of $10,000,000) and the date on which such increase is requested to become effective (which shall be not less than 10 Business Days nor more than 60 days after the date of such notice and that, in any event, must be at least 60 days prior to the Maturity Date).  The Borrower may arrange for one or more banks or other entities that are Eligible Assignees to provide a Commitment hereunder pursuant to this Section 3.2(a) (each such Person so agreeing being an “Augmenting Lender”) and/or the Borrower may offer to each Lender the opportunity to increase its Commitment by its Percentage of the proposed increased amount.  Each Lender shall, by notice to the Borrower and the Administrative Agent given not more than 10 days after the date of the Administrative Agent’s notice, either agree to increase its Commitment by all or a portion of the offered amount (each such Lender so agreeing being an “Increasing Lender”) or decline to increase its Commitment (and any such Lender that does not deliver such a notice within such period of 10 days shall be deemed to have declined to increase its Commitment and each Lender so declining or being deemed to have declined being a “Non-Increasing Lender”).  Each Augmenting Lender shall execute all such documentation as the Administrative Agent shall reasonably specify to evidence its Commitment and/or its status as a Lender with a Commitment hereunder.  Any increase in the Total Commitment may be made in an amount that is less than the increase requested by the Borrower if the Borrower is unable to arrange for, or chooses not to arrange for, Augmenting Lenders.

(b)Each of the parties hereto agrees that the Administrative Agent may take any and all actions as may be reasonably necessary to ensure that after giving effect to any increase in the Total Commitment pursuant to this Section 3.2(b), the outstanding Loans (if any) are held by the Lenders with

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Commitments in accordance with their new Percentages. This may be accomplished at the discretion of the Administrative Agent:  (w) by requiring the outstanding Loans to be prepaid with the proceeds of new Borrowings; (x) by causing the Non-Increasing Lenders to assign portions of their outstanding Loans to Increasing Lenders and Augmenting Lenders; (y) by permitting the Borrowings outstanding at the time of any increase in the Total Commitment pursuant to this Section 3.2(b) to remain outstanding until the last days of the respective Interest Periods therefor, even though the Lenders would hold such Borrowings other than in accordance with their new Percentages; or (z) by any combination of the foregoing.  Any prepayment or assignment described in this paragraph (ii) shall be subject to Section 2.7 hereof but otherwise without premium or penalty.  In addition, in connection with any increase in the Total Commitment pursuant to this Section the Administrative Agent may, in consultation with the Borrower, appoint any Lender as a Syndication Agent, Documentation Agent, Co-Agent or other similar title.

Section 3.3Voluntary Termination/Reduction of Commitments.  Upon at least three Business Days’ prior irrevocable written notice (or telephonic notice confirmed in writing) to the Administrative Agent at the Notice Office (which notice the Administrative Agent shall promptly transmit to each of the Lenders), the Borrower shall have the right to:

(a)terminate in whole the Total Commitment, provided that (i) all outstanding Loans and Unpaid Drawings are contemporaneously prepaid in accordance with Section 4.2, and (ii) either there are no outstanding Letters of Credit or the Borrower shall contemporaneously cause all outstanding Letters of Credit to be surrendered for cancellation (any such Letters of Credit to be replaced by letters of credit issued by other financial institutions acceptable to each LC Issuer and the Lenders); or

(b)partially and permanently reduce the Unutilized Total Commitment, provided that (i) any such reduction shall apply to proportionately and permanently reduce the Commitment of each of the Lenders; (ii) such reduction shall apply to proportionately and permanently reduce the LC Commitment Amount, but only to the extent that the Unused Total Commitment would be reduced below any such limits; (iii) no such reduction shall be permitted if the Borrower would be required to make a mandatory prepayment of Loans or cash collateralize Letters of Credit pursuant to Section 4.3(a), and (iv) any partial reduction of the Unutilized Total Commitment pursuant to this Section 3.3(b) shall be in the amount of at least $10,000,000 (or, if greater, in integral multiples of $500,000).

Section 3.4Termination of Commitments.  The Total Commitment (and the Commitment of each Lender) shall terminate on the Maturity Date.

ARTICLE IV.

PAYMENTS

Section 4.1Repayment of Loans.  The Borrower shall repay the aggregate principal amount of each outstanding Loan to the Administrative Agent for the ratable account of the Lenders on the earlier of (a) 364 days after the date such Loan is made or deemed made and (b) the Maturity Date.

Section 4.2Voluntary Prepayments.  The Borrower shall have the right to prepay any of its Loans, in whole or in part, without premium or penalty (except as specified below), from time to time on the following terms and conditions:

(a)the Borrower shall give the Administrative Agent at the Notice Office written or telephonic notice (in the case of telephonic notice, promptly confirmed in writing if so requested by the Administrative Agent) of its intent to prepay the Loans, the amount of such prepayment and (in the case of Eurodollar Loans) the specific Borrowing(s) pursuant to which made, which notice shall be received by

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the Administrative Agent by (i) 12:00 noon (local time at the Notice Office) three Business Days prior to the date of such prepayment, in the case of any prepayment of Eurodollar Loans, or (ii) 12:00 noon (local time at the Notice Office) one Business Day prior to the date of such prepayment, in the case of any prepayment of Base Rate Loans, and which notice shall promptly be transmitted by the Administrative Agent to each of the Lenders;

(b)in the case of prepayment of any Borrowings, each partial prepayment of any such Borrowing shall be in an aggregate principal of at least $2,000,000 or an integral multiple of $1,000,000 in excess thereof, in the case of Base Rate Loans, and at least $1,000,000 or an integral multiple of $500,000 in excess thereof, in the case of Eurodollar Loans;

(c)no partial prepayment of any Loans made pursuant to a Borrowing shall reduce the aggregate principal amount of such Loans outstanding pursuant to such Borrowing to an amount less than the Minimum Borrowing Amount applicable thereto;

(d)each prepayment in respect of any Loans made pursuant to a Borrowing shall be applied pro rata among such Loans; and

(e)each prepayment of Eurodollar Loans pursuant to this Section 4.2 on any date other than the last day of the Interest Period applicable thereto, in the case of Eurodollar Loans shall be accompanied by any amounts payable in respect thereof under Section 2.7.

Section 4.3Mandatory Payments and Prepayments.  The Loans shall be subject to mandatory repayment or prepayment in accordance with the following provisions:

(a)Mandatory Payments. The Loans shall be subject to mandatory repayment or prepayment (in the case of any partial prepayment conforming to the requirements as to the amounts of partial prepayments set forth in Section 4.2(b))), and the LC Outstandings shall be subject to cash collateralization requirements, in accordance with the following provisions:

(i)Maturity Date.  The entire principal amount of all outstanding Loans shall be repaid in full on the Maturity Date.

(ii)Loans Exceed the Commitments.  If on any date (after giving effect to any other payments on such date) (A) the Aggregate Credit Facility Exposure exceeds the Total Credit Facility Amount, or (B) the Revolving Facility Exposure of any Lender exceeds such Lender’s Commitment, then, in the case of each of the foregoing, the Borrower shall, on such day, prepay on such date the principal amount of Loans and, after Loans have been paid in full, Unpaid Drawings, in an aggregate amount at least equal to such excess.

(iii)LC Outstandings Exceed LC Commitment  If on any date the LC Outstandings exceed the LC Commitment Amount, then the Borrower shall, on such day, pay to the Administrative Agent an amount in cash equal to such excess and the Administrative Agent shall hold such payment as security for the reimbursement obligations of the Borrower hereunder in respect of Letters of Credit pursuant to a cash collateral agreement to be entered into in form and substance reasonably satisfactory to the Administrative Agent, each LC Issuer and the Borrower (which shall permit certain investments in Cash Equivalents satisfactory to the Administrative Agent, each LC Issuer and the Borrower until the proceeds are applied to any Unpaid Drawings or to any other Obligations in accordance with any such cash collateral agreement).

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(b)Particular Loans to be Prepaid.  With respect to each repayment or prepayment of Loans required by this Section 4.3, the Borrower shall designate the Types of Loans that are to be repaid or prepaid and the specific Borrowing(s) pursuant to which such repayment or prepayment is to be made, provided that (i) the Borrower shall first so designate all Loans that are Base Rate Loans and Eurodollar Loans with Interest Periods ending on the date of repayment or prepayment prior to designating any other Eurodollar Loans for repayment or prepayment, (ii) if the outstanding principal amount of Eurodollar Loans made pursuant to a Borrowing is reduced below the applicable Minimum Borrowing Amount as a result of any such repayment or prepayment, then all the Loans outstanding pursuant to such Borrowing shall be Converted into Base Rate Loans, and (iii) each repayment and prepayment of any Loans made pursuant to a Borrowing shall be applied pro rata among such Loans. In the absence of a designation by the Borrower as described in the preceding sentence, the Administrative Agent shall, subject to the above, make such designation in its sole discretion with a view, but no obligation, to minimize breakage costs owing under Section 2.7. Any repayment or prepayment of Eurodollar Loans pursuant to this Section 4.3 shall in all events be accompanied by such compensation as is required by Section 2.7.

Section 4.4Method and Place of Payment.

(a)Except as otherwise specifically provided herein, all payments under this Agreement shall be made to the Administrative Agent for the ratable (based on its pro rata share) account of the Lenders entitled thereto, not later than 12:00 noon (local time at the Payment Office) on the date when due and shall be made at the Payment Office in immediately available funds and in lawful money of the United States of America, it being understood that written notice by the Borrower to the Administrative Agent to make a payment from the funds in the Borrower’s account at the Payment Office shall constitute the making of such payment to the extent of such funds held in such account.  Any payments under this Agreement that are made later than 12:00 noon (local time at the Payment Office) shall be deemed to have been made on the next succeeding Business Day. Whenever any payment to be made hereunder shall be stated to be due on a day that is not a Business Day, the due date thereof shall be extended to the next succeeding Business Day and, with respect to payments of principal, interest shall be payable during such extension at the applicable rate in effect immediately prior to such extension.

(b)If at any time insufficient funds are received by and available to the Administrative Agent to pay fully all amounts of principal, interest and Fees then due hereunder and an Event of Default is not then in existence, such funds shall be applied (i) first, towards payment of interest and Fees then due hereunder, ratably among the parties entitled thereto in accordance with the amounts of interest and Fees then due to such parties, and (ii) second, towards payment of principal then due hereunder, ratably among the parties entitled thereto in accordance with the amounts of principal then due to such parties.

Section 4.5Net Payments.

(a)All payments made by the Borrower hereunder, under any Note or any other Credit Document, will be made without setoff, counterclaim or other defense.  Except as provided for in Section 4.5(b), all such payments will be made free and clear of, and without deduction or withholding for, any present or future taxes, levies, imposts, duties, fees, assessments or other charges of whatever nature now or hereafter imposed by any jurisdiction or by any political subdivision or taxing authority thereof or therein with respect to such payments (but excluding any tax imposed on or measured by the net income or net profits of a Lender pursuant to the laws of the jurisdiction under which such Lender is organized or the jurisdiction in which the Applicable Lending Office of such Lender is located or any subdivision thereof or therein) and all interest, penalties or similar liabilities with respect to such non-excluded taxes, levies imposts, duties, fees, assessments or other charges (all such non-excluded taxes, levies, imposts, duties, fees assessments or other charges being referred to collectively as “Taxes”).  If any Taxes are so levied or imposed, the Borrower agrees to pay the full amount of such Taxes and such

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additional amounts as may be necessary so that every payment by it of all amounts due hereunder, under any Note or under any other Credit Document, after withholding or deduction for or on account of any Taxes, will not be less than the amount provided for herein or in such Note or in such other Credit Document.  Subject to Section 2.8(d), the Borrower will furnish to the Administrative Agent within 45 days after the date the payment of any Taxes (or any withholding or deduction on account thereof) is made, certified copies of tax receipts, or other evidence satisfactory to the Lender, evidencing such payment by the Borrower.  The Borrower will indemnify and hold harmless the Administrative Agent and each Lender, and reimburse the Administrative Agent or such Lender upon its written request, for the amount of any Taxes levied against, imposed on, or paid by the Administrative Agent or any Lender within 30 days of any written request therefor.

(b)Each Lender that is not incorporated under the laws of the United States of America or any State thereof (each a “Non-U.S. Lender”) agrees to provide to the Borrower and the Administrative Agent on or prior to the Closing Date, or in the case of a Lender that is an assignee or transferee of an interest under this Agreement pursuant to Section 11.4 (unless the respective Lender was already a Lender hereunder immediately prior to such assignment or transfer and such Lender is in compliance with the provisions of this Section 4.5(b)), on the date of such assignment or transfer to such Lender, and from time to time thereafter if required by the Borrower or the Administrative Agent: (i) an accurate and complete original signed copy of Internal Revenue Service Form W-8BEN, W-8ECI, W-8EXP or W-8IMY (or successor, substitute or other appropriate form and, in the case of Form W-8IMY, any related documentation necessary to establish the claimed exemption) certifying to such Lender’s entitlement to a complete exemption from U.S. withholding tax with respect to payments to be made under this Agreement, any Note or any other Credit Document, and (ii) in the case of a Lender seeking to qualify for the portfolio interest exemption, a certificate in form and substance acceptable to the Administrative Agent (any such certificate, an “Exemption Certificate”) certifying to such Lender’s entitlement to such exemption.  In addition, each Lender agrees that from time to time after the Closing Date, when a lapse in time or change in circumstances renders the previous certification obsolete or inaccurate in any material respect, it will deliver to the Borrower and the Administrative Agent a new accurate and complete original signed copy of the applicable Internal Revenue Service Form, including any related documentation or Exemption Certificate, and such other forms as may be required to confirm or establish the entitlement of such Lender to a continued exemption from U.S. withholding tax with respect to payments under this Agreement, any Note or any other Credit Document.  Notwithstanding anything to the contrary contained in Section 4.5(a), but subject to Section 11.4(c) and the immediately succeeding sentence, (x) the Borrower shall be entitled, to the extent it is required to do so by law, to deduct or withhold Taxes imposed by the United States (or any political subdivision or taxing authority thereof or therein) from interest, fees or other amounts payable hereunder for the account of any Non-U.S. Lender that has not provided to the Borrower such forms or such Exemption Certificate and related documentation that establish a complete exemption from such deduction or withholding and (y) the Borrower shall not be obligated pursuant to Section 4.5(a) to gross-up payments to be made to a Lender in respect of Taxes imposed by the United States or any additional amounts with respect thereto (I) to the extent such Taxes result from a Lender’s failure to provide the Borrower the Internal Revenue Service forms required to be provided to the Borrower pursuant to this Section 4.5(b) or (II) to the extent that such forms do not establish a complete exemption from withholding of such Taxes at the time the Lender first became a Lender under this Agreement.  The Borrower agrees to pay additional amounts and indemnify each Lender in the manner set forth in Section 4.5(a) (without regard to the identity of the jurisdiction requiring the deduction or withholding) in respect of any Taxes deducted or withheld by it as a result of any changes after the Closing Date in any applicable law, treaty, governmental rule, regulation, guideline or order, or in the interpretation thereof, relating to the deducting or withholding of income or similar Taxes.

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(c)The Borrower will indemnify and hold harmless the Administrative Agent and each Lender, and reimburse each upon its written request within 30 days thereof, for the amount of any documentary, excise, stamp, property or other similar taxes, duties, fees, assessments or other charges imposed with respect to the execution, delivery, filing or enforcement of any Credit Document.

(d)If any Lender, in its sole opinion, determines that it has finally and irrevocably received or been granted a refund in respect of any Taxes paid as to which indemnification has been paid by the Borrower pursuant to this Section, it shall promptly remit such refund (including any interest received in respect thereof), net of all out-of-pocket costs and expenses; provided, that the Borrower agrees to promptly return any such refund (plus interest) to such Lender if such Lender is required to repay such refund to the relevant taxing authority. Any such Lender shall provide the Borrower with a copy of any notice of assessment from the relevant taxing authority (redacting any unrelated confidential information contained therein) requiring repayment of such refund.  Nothing contained herein shall impose an obligation on any Lender to apply for any such refund.

(e)If the Borrower is required to pay additional amounts to the Administrative Agent or any Lender pursuant to this Section 4.5, then the Administrative Agent or such Lender shall use reasonable efforts (consistent with legal and regulatory restrictions) to change the jurisdiction of its office, branch, subsidiary or affiliate, or take other appropriate action, so as to eliminate any additional payment by the Borrower that may thereafter accrue, if such change or other action, in the judgment of the Administrative Agent or such Lender, as the case may be, is not otherwise disadvantageous to the Administrative Agent or such Lender.

ARTICLE V.

CONDITIONS PRECEDENT

Section 5.1Conditions Precedent at Closing Date.  This Agreement shall become effective upon the satisfaction of each of the following conditions:

(a)Credit Agreement.  This Agreement shall have been executed by the Borrower, the Administrative Agent, each LC Issuer and each of the Lenders.

(b)Notes.  The Borrower shall have executed and delivered to the Administrative Agent a Note for the account of each Lender that has requested a Note.

(c)Fees and Expenses.  The Borrower shall have (i) executed and delivered to the Administrative Agent the Agent Fee Letter and the Closing Fee Letter and (ii) paid or caused to be paid all Fees required to be paid by it on the Closing Date pursuant to Section 3.1 and all reasonable fees and expenses of the Administrative Agent and of special counsel to the Administrative Agent that have been invoiced at least two Business Days prior to such date in connection with the preparation, negotiation, execution and delivery of this Agreement and the other Credit Documents and the consummation of the transactions contemplated hereby and thereby.

(d)Corporate Resolutions and Approvals.  The Administrative Agent shall have received certified copies of the resolutions of the Board of Directors of the Borrower, approving the Credit Documents, and of all documents evidencing other necessary corporate action, governmental approvals, if any, and other consents or approvals with respect to the execution, delivery and performance by the Borrower of the Credit Documents.

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(e)Incumbency Certificates.  The Administrative Agent shall have received a certificate of the Secretary or an Assistant Secretary of the Borrower, certifying the names and true signatures of the officers of the Borrower authorized to sign the Credit Documents and any other documents to which the Borrower is a party that may be executed and delivered in connection herewith.

(f)Corporate Charter and Good Standing Certificates.  The Administrative Agent shall have received:  (i) an original certified copy of the Articles of Incorporation of the Borrower and any and all amendments and restatements thereof, certified as of a recent date by the relevant Secretary of State and certified by the Secretary or an Assistant Secretary of the Borrower as being true, correct and complete and in full force and effect as of the Closing Date; (ii) the code of regulations of the Borrower and any and all amendments and restatements thereof certified by the Secretary or an Assistant Secretary of the Borrower as being true, correct, and complete and in full force and effect as of the Closing Date; and (iii) an original good standing certificate from the Secretary of State of the state of incorporation, dated as of a recent date, certifying as to the good standing of the Borrower.

(g)Opinions of Counsel.  The Administrative Agent shall have received opinions of counsel, which shall be addressed to the Administrative Agent and each of the Lenders and dated the Closing Date, from the General Counsel of the Borrower, in substantially the form of Exhibit F.

(h)Existing Credit Agreement.  The Borrower shall have terminated the commitments of the lenders under each of the Existing Credit Agreement, repaid any borrowings thereunder and terminated or released all Liens granted in connection therewith and provided evidence, in form and substance satisfactory to the Administrative Agent, of the same to the Administrative Agent.

(i)Financial Statements.  The Administrative Agent and the Lenders shall have received the financial statements referred to in Section 6.7(a), which financial statements shall be acceptable to the Administrative Agent and the Lenders.

(j)Borrower’s Closing Certificate.  The Administrative Agent shall have received a certificate in the form attached hereto as Exhibit D, dated the Closing Date, of an Authorized Officer of the Borrower to the effect that, at and as of the Closing Date and both before and after giving effect to the initial Borrowings hereunder, if any, on the Closing Date, and the application of the proceeds thereof:  (i) all conditions set forth in Section 5.1 have been satisfied; (ii) no Default or Event of Default has occurred or is continuing; and (iii) all representations and warranties of the Borrower contained herein or in the other Credit Documents are true and correct in all material respects with the same effect as though such representations and warranties had been made on and as of the Closing Date, except that as to any such representations and warranties that expressly relate to an earlier specified date, such representations and warranties are only represented as having been true and correct in all material respects as of the date when made.

Section 5.2Conditions Precedent to the Making of Loans.

(a)The obligations of the Lenders and each LC Issuer to make or participate in each Loan and/or LC Issuance are subject, at the time thereof, to the satisfaction of the following conditions:

(i)Notice of Borrowing, Continuation or Conversion.  The Administrative Agent (and in the case of subpart (B) below, the applicable LC Issuer) shall have received, as applicable, (A) a Notice of Borrowing, Continuation or Conversion meeting the requirements of Section 2.3 with respect to the Borrowing of a Loan, or (B) an LC Request meeting the requirements of Section 2.4(b) with respect to each LC Issuance.

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(ii)No Default; Representations and Warranties.  At the time of the making of a Loan to the Borrower or LC Issuance and after giving effect thereto, (A) there shall exist no Default or Event of Default, (B) all representations and warranties of the Borrower contained herein (other than the representation and warranty contained in Section 6.9) or in the other Credit Documents shall be true and correct in all material respects with the same effect as though such representations and warranties had been made on and as of the date such Loan is made, except to the extent that such representations and warranties expressly relate to an earlier specified date, in which case such representations and warranties shall have been true and correct in all material respects as of the date when made, and (C) the aggregate of the principal amount of all outstanding Loans and LC Outstandings shall not exceed the amount authorized under the Borrower’s order of The Public Utilities Commission of Ohio (or any successor thereto) in effect at such time that authorizes the Borrower to incur Indebtedness hereunder.

(iii)Other Documents. The Borrower shall have delivered to the Administrative Agent copies of such approvals and other documents as the Administrative Agent, the LC Issuer or any Lender (through the Administrative Agent) may reasonably request.

(b)The acceptance of the benefits of each Loan shall constitute a representation and warranty by the Borrower to each of the Lenders and each LC Issuer that all of the applicable conditions specified in Sections 5.1 and 5.2 have been satisfied as of the times referred to in such Sections.  All of the certificates, legal opinions and other documents and papers referred to in this Article V, unless otherwise specified, shall be delivered to the Administrative Agent for the account of each of the Administrative Agent and the Lenders and, except for the Notes, in sufficient counterparts for the Administrative Agent and the Lenders, and the Administrative Agent will promptly distribute to the Lenders their respective Notes and the copies of such other certificates, legal opinions and documents.

Section 5.3Conditions Precedent to the Conversion or Continuation of Loans.  The obligations of the Lenders to Convert or Continue any Loan are subject, at the time thereof, to the receipt by the Administrative Agent of a Notice of Borrowing, Continuation or Conversion meeting the requirements of Section 2.3 with respect to the Conversion or Continuation, as applicable, of a Loan.

ARTICLE VI.

REPRESENTATIONS AND WARRANTIES

To induce the Lenders and each LC Issuer to enter into this Agreement and to make the Loans and to issue and to participate in the Letters of Credit provided for herein, the Borrower makes the following representations and warranties to, and agreements with, the Lenders and each LC Issuer, all of which shall survive the execution and delivery of this Agreement and the making of each Loan:

Section 6.1Corporate Status.  Each of the Borrower and its Subsidiaries (a) is a duly organized or formed and validly existing corporation, partnership or limited liability company, as the case may be, in good standing under the laws of the jurisdiction of its formation and has the corporate, partnership or limited liability company power and authority, as applicable, to own its Property and assets and to transact the business in which it is engaged, and (b) has been duly qualified and is authorized to do business in all jurisdictions where it is required to be so qualified except where the failure to be so qualified would not have a Material Adverse Effect.  Each Subsidiary of the Borrower (and the direct and indirect ownership interest of the Borrower therein) as of the date hereof and the jurisdiction of incorporation of Borrower and each such Subsidiary as of the date hereof is listed on Schedule 6.1.

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Section 6.2Corporate Power and Authority.  The Borrower has the corporate or other organizational power and authority to execute, deliver and carry out the terms and provisions of the Credit Documents to which it is party and has taken all necessary corporate or other organizational action to authorize the execution, delivery and performance of the Credit Documents to which it is party.  The Borrower has duly executed and delivered each Credit Document to which it is party and each Credit Document to which it is party constitutes the legal, valid and binding agreement or obligation of the Borrower enforceable in accordance with its terms, except to the extent that the enforceability thereof may be limited by applicable bankruptcy, insolvency, reorganization, moratorium or other similar laws generally affecting creditors’ rights and by equitable principles (regardless of whether enforcement is sought in equity or at law).

Section 6.3No Violation.  Neither the execution, delivery and performance by the Borrower of the Credit Documents to which it is party nor compliance with the terms and provisions thereof (a) will contravene any provision of any law, statute, rule, regulation, order, writ, injunction or decree of any Governmental Authority applicable to the Borrower or its properties and assets, (b) will conflict with or result in any breach of, any of the terms, covenants, conditions or provisions of, or constitute a default under, or result in the creation or imposition of (or the obligation to create or impose) any Lien upon any of the Property or assets of the Borrower pursuant to the terms of any material promissory note, bond, debenture, indenture, mortgage, deed of trust, credit or loan agreement, or any other agreement or other instrument, to which the Borrower is a party or by which it or any of its Property or assets are bound or to which it may be subject, or (c) will violate any provision of the certificate or articles of incorporation, regulations or bylaws, or other charter documents of the Borrower.

Section 6.4Governmental Approvals.  No order, consent, approval, license, authorization, or validation of, or filing, recording or registration with, or exemption by, any Governmental Authority is required in connection with (i) any extension of credit hereunder when made, (ii) the execution, delivery and performance by the Borrower of any Credit Document to which it is a party or (iii) the legality, validity, binding effect or enforceability of any Credit Document to which the Borrower is a party, except for orders, consents, approvals, licenses, authorizations, validations, filings, recordings, registrations and/or exemptions required with respect to such extension of credit that have been obtained or made and are in full force and effect at the time of such extension of credit.

Section 6.5Litigation, etc.

(a)There are no actions, suits or proceedings pending or, to, the knowledge of the Borrower, threatened with respect to the Borrower or any of its Subsidiaries (i) that have, or could reasonably be expected to have, a Material Adverse Effect except as set forth on Schedule 6.5, or (ii) that question the validity or enforceability of any of the Credit Documents, or of any action to be taken by any of the Borrower pursuant to any of the Credit Documents.

(b)No action, suit, proceeding or investigation has been instituted, or to the knowledge of the Borrower or any of its Subsidiaries, threatened, and no rule, regulation, order, judgment or decree has been issued or proposed to be issued by any Governmental Authority that, solely as a result of the incurrence of Indebtedness or the entering into this Agreement or any other Credit Document or any transaction contemplated hereby or thereby, would cause or deem the Administrative Agent or the Lenders or any Affiliate of any of them to be subject to, or not exempted from, regulation under the FPA.

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Section 6.6Use of Proceeds; Margin Regulations.

(a)The proceeds of all Loans and LC Issuances will be utilized to provide working capital and funds for general corporate and other lawful purposes not inconsistent with the requirements of this Agreement (including, without limitation, to backstop the issuance of commercial paper).

(b)The Borrower is not engaged in the business of extending credit for the purpose of purchasing or carrying any Margin Stock.  At no time would more than 25% of the value of the assets of the Borrower or its consolidated Subsidiaries that are subject to any “arrangement” (as such term is used in Section 221.2(g) of such Regulation U) hereunder be represented by Margin Stock.

Section 6.7Financial Statements.  The Borrower has furnished to the Lenders and the Administrative Agent complete and correct copies of (a) the audited consolidated balance sheets of the Borrower and its consolidated Subsidiaries as of December 31, 2005 and the related audited consolidated statements of income, shareholders’ equity, and cash flows of the Borrower and its consolidated Subsidiaries for the fiscal years then ended, accompanied by the report thereon of KPMG LLP; and (b) the condensed consolidated balance sheets of the Borrower and its consolidated Subsidiaries as of September 30, 2006, and the related condensed consolidated statements of income and of cash flows of the Borrower and its consolidated Subsidiaries for the fiscal period then ended.  All such financial statements have been prepared in accordance with GAAP, consistently applied (except as stated therein), and fairly present in all material respects the financial position of the entities described in such financial statements as of the respective dates indicated and the consolidated results of their operations and cash flows for the respective periods indicated, subject in the case of any such financial statements that are unaudited, to normal audit adjustments, none of which shall be material.  As of the Closing Date, the Borrower and its Subsidiaries do not have any material or significant contingent liability (other than any liability incident to any litigation, arbitration or proceeding that could not reasonably be expected to have a Material Adverse Effect) that is not reflected in the foregoing financial statements or the notes thereto in accordance with GAAP.

Section 6.8Solvency.  The Borrower is not insolvent as defined in any applicable state or federal statute, nor will the Borrower be rendered insolvent by the execution and delivery of this Agreement or any of the Credit Documents to the Administrative Agent, each LC Issuer and the Lenders.

Section 6.9No Material Adverse Change.  At no time during the period from December 31, 2005 through the date of this Agreement has there been a change in the financial or other condition, business, affairs or prospects of the Borrower and its Subsidiaries taken as a whole, or their properties and assets considered as an entirety, except for changes none of which, individually or in the aggregate, has had or could reasonably be expected to have, a Material Adverse Effect.

Section 6.10Tax Returns and Payments.  The Borrower and each of its Subsidiaries has filed all federal income tax returns and all other material tax returns, domestic and foreign, required to be filed by it and has paid all material taxes and assessments payable by it that have become due, other than those not yet delinquent and except for those contested in good faith.  The Borrower and each of its Subsidiaries has established on its books such charges, accruals and reserves in respect of taxes, assessments, fees and other governmental charges for all fiscal periods as are required by GAAP.  The Borrower does not know of any proposed assessment for additional federal, foreign or state taxes for any period, or of any basis therefor, that, individually or in the aggregate, taking into account such charges, accruals and reserves in respect thereof as the Borrower and its Subsidiaries have made, could reasonably be expected to have a Material Adverse Effect.

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Section 6.11Title to Properties.  The Borrower and each of its Subsidiaries has good and marketable title, in the case of Real Property, and good title (or valid Leaseholds, in the case of any leased Property), in the case of all other Property, to all of its material properties and assets free and clear of Liens other than Liens permitted under Section 8.3.  The interests of the Borrower and each of its Subsidiaries in the properties reflected in the most recent balance sheet referred to in Section 6.7, taken as a whole, were sufficient, in the judgment of the Borrower, as of the date of such balance sheet for purposes of the ownership and operation of the businesses conducted by the Borrower and such Subsidiaries.

Section 6.12Lawful Operations; Compliance with Agreements.  The Borrower and each of its Subsidiaries:  (a) holds all necessary federal, state and local governmental licenses, registrations, certifications, permits and authorizations necessary to conduct its business; (b) is in full compliance with all material requirements imposed by law, regulation or rule, whether federal, state or local, that are applicable to it, its operations, or its properties and assets, including without limitation, applicable requirements of Environmental Laws; and (c) is in full compliance with all material terms, covenants and conditions of any promissory note, bond, debenture, indenture, mortgage, deed of trust, credit or loan agreement, or any other agreement or other instrument, to which it is a party or by which it or any of its Property or assets are bound or to which it may be subject, except in the case of clause (a), (b) or (c) of this Section 6.12 for any failure to obtain and maintain in effect, or noncompliance, that, individually or in the aggregate, could not reasonably be expected to have a Material Adverse Effect.

Section 6.13Environmental Matters.  The Borrower and each of its Subsidiaries is in compliance with all Environmental Laws governing its business, except to the extent that any such failure to comply (together with any resulting penalties, fines or forfeitures) would not reasonably be expected to have a Material Adverse Effect.  All licenses, permits, registrations or approvals required for the conduct of the business of the Borrower and each of its Subsidiaries under any Environmental Law have been secured and the Borrower and each of its Subsidiaries is in substantial compliance therewith, except for such licenses, permits, registrations or approvals the failure to secure or to comply therewith is not reasonably likely to have a Material Adverse Effect.  Neither the Borrower nor any of its Subsidiaries has received written notice, or otherwise knows, that it is in any respect in noncompliance with, breach of or default under any applicable writ, order, judgment, injunction, or decree to which the Borrower or such Subsidiary is a party or that would affect the ability of the Borrower or such Subsidiary to operate any Real Property and no event has occurred and is continuing that, with the passage of time or the giving of notice or both, would constitute noncompliance, breach of or default thereunder, except in each such case, such noncompliance, breaches or defaults as would not reasonably be expected to, in the aggregate, have a Material Adverse Effect.  There are no Environmental Claims pending or, to the best knowledge of the Borrower, threatened wherein an unfavorable decision, ruling or finding would reasonably be expected to have a Material Adverse Effect.  There are no facts, circumstances, conditions or occurrences on any Real Property now or at any time owned, leased or operated by the Borrower or any of its Subsidiaries or on any Property adjacent to any such Real Property, that are known by the Borrower or as to which the Borrower or any such Subsidiary has received written notice, that could reasonably be expected:  (i) to form the basis of an Environmental Claim against the Borrower or any of its Subsidiaries or any Real Property of the Borrower or any of its Subsidiaries; or (ii) to cause such Real Property to be subject to any restrictions on the ownership, occupancy, use or transferability of such Real Property under any Environmental Law, except in each such case, such Environmental Claims or restrictions that individually or in the aggregate would not reasonably be expected to have a Material Adverse Effect.

Section 6.14ERISA.

(a)Each Plan complies in all material respects with all applicable requirements of law and regulations, no Reportable Event has occurred with respect to any Plan, neither the Borrower nor any

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other member of the Controlled Group has withdrawn from any Plan or initiated steps to do so, and no steps have been taken to reorganize or terminate any Plan.

(b)Neither the Borrower nor any of its Subsidiaries is an entity deemed to hold “plan assets” within the meaning of 29 C.F.R. § 2510.3-101 of an employee benefit plan (as defined in Section 3(3) of ERISA) which is subject to Title I of ERISA or any plan (within the meaning of Section 4975 of the Code), and neither the execution of this Agreement nor the making of Loans hereunder gives rise to a prohibited transaction within the meaning of Section 406 of ERISA or Section 4975 of the Code.

Section 6.15Intellectual Property.  The Borrower and each of its Subsidiaries has obtained or has the right to use all material patents, trademarks, service marks, trade names, copyrights, licenses and other rights with respect to the foregoing necessary for the present and planned future conduct of its business, without any known conflict with the rights of others, except for such patents, trademarks, service marks, trade names, copyrights, licenses and rights, the loss of which, and such conflicts, that in any such case individually or in the aggregate would not reasonably be expected to have a Material Adverse Effect.

Section 6.16Investment Company Act; Federal Power Act.  None of the Borrower or any of its Subsidiaries is subject to regulation with respect to the creation or incurrence of Indebtedness under the Investment Company Act of 1940, as amended.  None of the Borrower or any of its Subsidiaries, or any Affiliate of any of them, is subject to regulation under the FPA or under applicable state or other laws and regulations respecting the rates or the financial or organizational regulation of electric utilities, as a result of the creation or incurrence of the Obligations or the entering into this Agreement or any other Credit Document or the consummation of any transaction contemplated hereby or thereby.

Section 6.17True and Complete Disclosure.  All factual information (taken as a whole) heretofore or contemporaneously furnished by or on behalf of the Borrower or any of its Subsidiaries in writing to the Administrative Agent or any Lender for purposes of or in connection with this Agreement or any transaction contemplated herein is, and all other such factual information (taken as a whole) hereafter furnished by or on behalf of such Person in writing to any Lender will be, true and accurate in all material respects on the date as of which such information is dated or certified and not incomplete by omitting to state any material fact necessary to make such information (taken as a whole) not misleading at such time in light of the circumstances under which such information was provided, except that any such future information consisting of pro forma information and financial projections prepared by the Borrower is only represented herein as being based on good faith estimates and assumptions believed by such Persons to be reasonable at the time made, it being recognized by the Lenders that such projections as to future events are not to be viewed as facts and that actual results during the period or periods covered by any such projections may differ materially from the projected results.

ARTICLE VII.

AFFIRMATIVE COVENANTS

The Borrower hereby covenants and agrees that on the Closing Date and thereafter so long as this Agreement is in effect and until such time as the Total Commitment has been terminated, no Notes remain outstanding and the Loans, together with interest, Fees and all other Obligations incurred hereunder and under the other Credit Documents, have been paid in full:

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Section 7.1Reporting Requirements.

The Borrower will furnish to each Lender and the Administrative Agent:

(a)Annual Financial Statements.  As soon as available and in any event within 90 days after the close of each fiscal year of the Borrower, commencing with the fiscal year ending December 31, 2006, the consolidated and consolidating balance sheets of the Borrower and its consolidated Subsidiaries as at the end of such fiscal year and the related consolidated and consolidating statements of income, of stockholders’ equity and of cash flows for such fiscal year, in each case setting forth comparative figures for the preceding fiscal year, all in reasonable detail and accompanied by an opinion with respect to such consolidated financial statements of independent public accountants of recognized national standing selected by the Borrower, which opinion shall be unqualified and shall (i) state that such accountants audited such consolidated financial statements in accordance with generally accepted auditing standards, that such accountants believe that such audit provides a reasonable basis for their opinion, and that in their opinion such consolidated financial statements present fairly, in all material respects, the consolidated financial position of the Borrower and its consolidated Subsidiaries as at the end of such fiscal year and the consolidated results of their operations and cash flows for such fiscal year in conformity with generally accepted accounting principles, or (ii) contain such statements as are customarily included in unqualified reports of independent accountants in conformity with the recommendations and requirements of the American Institute of Certified Public Accountants (or any successor organization).

(b)Quarterly Financial Statements.  As soon as available and in any event within 45 days after the close of each of the first three quarterly accounting periods in each fiscal year of the Borrower, the unaudited consolidated and consolidating balance sheets of the Borrower and its consolidated Subsidiaries as at the end of such quarterly period and the related unaudited consolidated and consolidating statements of income and of cash flows for such quarterly period and/or for the fiscal year to date, and setting forth, in the case of such unaudited consolidated statements of income and of cash flows, comparative figures for the related periods in the prior fiscal year, and that shall be certified on behalf of the Borrower by the Chief Financial Officer or other Authorized Officer, subject to changes resulting from normal year-end audit adjustments.

(c)Officer’s Compliance Certificates.  At the time of the delivery of the financial statements provided for in Sections 7.1(a) and (b), a Compliance Certificate signed by an Authorized Officer, which shall include calculations of the financial covenants set forth in Section 8.5.

(d)Notice of Default, Litigation or Material Adverse Effect.  Promptly, and in any event within three Business Days, in the case of clause (i) below, or five Business Days, after the Borrower or any of its Subsidiaries obtains knowledge thereof, notice of (i) the occurrence of any event that constitutes a Default or Event of Default, which notice shall specify the nature thereof, the period of existence thereof and what action the Borrower has taken or proposes to take with respect thereto, and (ii) the commencement of, or any other material development concerning, any litigation, governmental or regulatory proceeding pending against the Borrower or any of its Subsidiaries, or any other event that could reasonably be expected to have a Material Adverse Effect.

(e)ERISA.  As soon as possible and in any event within ten days after the Borrower knows that any Reportable Event has occurred with respect to any Plan, a statement, signed by an Authorized Officer, describing such Reportable Event and the action that the Borrower proposes to take with respect thereto.

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(f)Single Employer Plans. Within 270 days after the close of each fiscal year of the Borrower, the Borrower will deliver to each of the Lenders a statement of the Unfunded Liabilities, certified as correct by an actuary enrolled under ERISA.

(g)Environmental Notices.  Promptly, and in any event within 10 days after receipt thereof by the Borrower or any Subsidiary of the Borrower, a copy of (a) any notice or claim to the effect that the Borrower or any of its Subsidiaries is or may be liable to any Person as a result of the release by the Borrower, any of its Subsidiaries, or any other Person of any Hazardous Materials into the environment, and (b) any notice alleging any violation of any Environmental Law by the Borrower or any of its Subsidiaries, which in the case of either (a) or (b) above could reasonably be expected to have a Material Adverse Affect.

(h)Annual and Quarterly Reports, Proxy Statements and other Reports Delivered to Stockholders Generally.  Promptly after transmission thereof to its stockholders, copies of all annual, quarterly and other reports and all proxy statements that the Borrower furnishes to its stockholders generally.

(i)Other Information.  Promptly, but in any event within 10 Business Days upon request therefor, such other information or documents (financial or otherwise) relating to the Borrower or any of its Subsidiaries as the Administrative Agent or any Lender (through the Administrative Agent) may reasonably request from time to time.

Section 7.2Books, Records and Inspections.  The Borrower will, and will cause each of its Subsidiaries to, (a) keep proper books of record and account, in which full and correct entries shall be made of all financial transactions and the assets and business of the Borrower or such Subsidiaries, as the case may be, in accordance with GAAP; and (b) permit, upon at least two Business Days’ notice to the Chief Financial Officer of the Borrower, officers and designated representatives of the Administrative Agent or any of the Lenders to visit and inspect any of the properties or assets of the Borrower and any of its Subsidiaries in whomsoever’s possession (but only to the extent the Borrower or such Subsidiary has the right to do so to the extent in the possession of another Person), to examine the books of account of the Borrower and any of its Subsidiaries, and make copies thereof and take extracts therefrom, and to discuss the affairs, finances and accounts of the Borrower and of any of its Subsidiaries with, and be advised as to the same by, its and their officers and independent accountants and independent actuaries, if any, all at such reasonable times and intervals and to such reasonable extent as the Administrative Agent or any of the Lenders may request. All costs and expenses incurred by the Administrative Agent or any Lender in connection with any of the foregoing shall be paid by the Administrative Agent or such Lender, as the case may be, unless an Event of Default shall have occurred and be continuing at the time such costs and/or expenses are incurred, in which case all such costs and expenses shall be paid by the Borrower.

Section 7.3Insurance.  The Borrower will, and will cause each of its Subsidiaries to, (i) maintain insurance coverage by such insurers and in such forms and amounts and against such risks as are generally consistent with the insurance coverage maintained by the Borrower and its Subsidiaries at the date hereof, and (ii) forthwith upon any Lender’s written request, furnish to such Lender such information about such insurance as such Lender may from time to time reasonably request, which information shall be prepared in form and detail satisfactory to such Lender and certified by an Authorized Officer.

Section 7.4Payment of Taxes and Claims.  The Borrower will pay and discharge, and will cause each of its Subsidiaries to pay and discharge, all taxes, assessments and governmental charges or levies imposed upon it or upon its income or profits, or upon any properties belonging to it, prior to the

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date on which penalties attach thereto, and all lawful claims that, if unpaid, might become a Lien or charge upon any properties of the Borrower or any of its Subsidiaries; provided that neither the Borrower nor any of its Subsidiaries shall be required to pay any such tax, assessment, charge, levy or claim that is being contested in good faith and by proper proceedings if it has maintained adequate reserves with respect thereto in accordance with GAAP.  Without limiting the generality of the foregoing, the Borrower will, and will cause each of its Subsidiaries to, pay in full all of its wage obligations to its employees in accordance with the Fair Labor Standards Act (29 U.S.C. Sections 206-207) and any comparable provisions of applicable law.

Section 7.5Preservation of Existence, etc.  The Borrower will, and will cause each of its Subsidiaries to, (a) preserve, renew and maintain in full force and effect its legal existence and good standing under the laws of the jurisdiction of its organization except in a transaction permitted by Section 8.2; (b) take all reasonable action to maintain all rights, privileges, permits, licenses and franchises necessary or desirable in the normal conduct of its business, except to the extent that failure to do so could not reasonably be expected to have a Material Adverse Effect; and (c) preserve or renew all of its registered patents, trademarks, trade names and service marks, the non-preservation of which could reasonably be expected to have a Material Adverse Effect.

Section 7.6Good Repair.  The Borrower will, and will cause each of its Subsidiaries to, ensure that its material properties and equipment used or useful in its business in whomsoever’s possession they may be, are kept in good repair, working order and condition, normal wear and tear excepted, and that from time to time there are made in such properties and equipment all needful and proper repairs, renewals, replacements, extensions, additions, betterments and improvements, thereto, to the extent and in the manner customary for companies in similar businesses.

Section 7.7Compliance with Statutes, Regulations, Orders, Restrictions.  The Borrower will, and will cause each of its Subsidiaries to, comply, in all material respects, with all applicable statutes, regulations and orders of, and all applicable restrictions imposed by, all Governmental Authorities, in respect of the conduct of its business and the ownership of its Property, including, without limitation, ERISA and all applicable Environmental Laws other than those the noncompliance with which would not have, and that would not be reasonably expected to have, a Material Adverse Effect.

Section 7.8Fiscal Years, Fiscal Quarters.  The Borrower shall not change any of its or any of its Subsidiaries’ fiscal years or fiscal quarters (other than the fiscal year or fiscal quarters of a Person that becomes a Subsidiary, made at the time such Person becomes a Subsidiary to conform to the Borrower’s fiscal year and fiscal quarters).

Section 7.9Use of Proceeds.  The Borrower will, and will cause each of its Subsidiaries to, use LC Issuances and the proceeds of all Loans for working capital and for general corporate and other lawful purposes not inconsistent with the requirements of this Agreement (including, without limitation, to backstop the issuance of commercial paper).

Section 7.10Senior Debt.  The Borrower will at all times ensure that (a) the claims of the Lenders in respect of the Obligations of the Borrower will not be subordinate to, and will in all respects rank at least pari passu with or senior to, the claims of every unsecured creditor of the Borrower, and (b) any Indebtedness of the Borrower that is subordinated in any manner to the claims of any other creditor of the Borrower will be subordinated in like manner to such claims of the Lenders.

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ARTICLE VIII.

NEGATIVE COVENANTS

The Borrower hereby covenants and agrees that on the Closing Date and thereafter for so long as this Agreement is in effect and until such time as the Total Commitment has been terminated, no Notes remain outstanding and the Loans, together with interest, Fees and all other Obligations incurred hereunder and under the other Credit Documents, have been paid in full:

Section 8.1Changes in Business.  Neither the Borrower nor any of its Subsidiaries will engage in any business if, as a result, the general nature of the business, taken on a consolidated basis, that would then be engaged in by the Borrower and its Subsidiaries, would be substantially changed from the general nature of the business engaged in by the Borrower and its Subsidiaries on the Closing Date.

Section 8.2Merger, Consolidation, Asset Sales.  The Borrower will not, and will not permit any of its Subsidiaries to, (a) wind up, liquidate or dissolve its affairs, (b) enter into any transaction of merger or consolidation, (c) make or otherwise effect any Asset Sale, or (d) agree to do any of the foregoing at any future time, except that the following shall be permitted:

(i)a Subsidiary of the Borrower may merge with the Borrower, provided that the surviving Person in any such merger shall be the Borrower;

(ii)any Subsidiary of the Borrower may merge with another Subsidiary of the Borrower;

(iii)any Subsidiary of the Borrower may merge with any Person (other than the Borrower or any other Subsidiary of the Borrower), provided that (A) the surviving Person in any such merger shall be such Subsidiary and (B) immediately before and after such merger there shall not exist any Default or Event of Default;

(iv)the Borrower may merge with any Person (other than a Subsidiary of the Borrower), provided that (A) the surviving Person in any such merger shall be the Borrower and (B) immediately before and after such merger there shall not exist any Default or Event of Default;

(v)any Subsidiary of the Borrower may make or effect any Asset Sale to the Borrower or another Wholly-Owned Subsidiary of the Borrower;

(vi)the Borrower may wind up, voluntarily liquidate or dissolve any Subsidiary if (A) such Subsidiary is not a “Significant Subsidiary” (as defined in Regulation S-X under the 1933 Act), and (B) the winding up, voluntary liquidation or dissolution of such Subsidiary will not result in an Event of Default hereunder or otherwise have a Material Adverse Effect;

(vii)in addition to any Asset Sale permitted pursuant to any other subpart in this Section 8.2, the Borrower and its Subsidiaries may make or effect other Asset Sales so long as (A) the aggregate amount (based upon the fair market value of the assets) of all Property sold or otherwise disposed pursuant to all such Asset Sales on and after the Closing Date does not constitute a Substantial Portion of the Property of the Borrower and its Subsidiaries at the time of and after giving effect to any such Asset Sale and (B) at least 80% of the total consideration received by the Borrower or any of its Subsidiaries, as applicable, for such Asset Sale or series of Asset Sales consists of cash or Cash Equivalents;

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(viii)the Borrower and its Subsidiaries shall be permitted to create, incur, assume and suffer to exist Liens permitted pursuant to Section 8.3; and

(ix)the Borrower and its Subsidiaries shall be permitted to make and dispose of the Investments permitted pursuant to Section 8.4.

Section 8.3Liens.  The Borrower will not, and will not permit any of its Subsidiaries to, create, incur, assume or suffer to exist any Lien upon or with respect to any Property or assets of any kind (real or personal, tangible or intangible) of the Borrower or any such Subsidiary whether now owned or hereafter acquired, or sell any such Property or assets subject to an understanding or agreement, contingent or otherwise, to repurchase such Property or assets (including, without limitation, sales of accounts receivable or notes with or without recourse to the Borrower or any of its Subsidiaries, other than for purposes of collection of delinquent accounts in the ordinary course of business) or assign any right to receive income, or file or permit the filing of any financing statement under the UCC or any other similar notice of Lien under any similar recording or notice statute, except that the foregoing restrictions shall not apply to:

(a)the Standard Permitted Liens;

(b)Liens (i) in existence on the Closing Date that are listed, and the Indebtedness secured thereby and the Property subject thereto on the Closing Date described, on Schedule 8.3, or (ii) arising out of the refinancing, extension, renewal or refunding of any Indebtedness secured by any such Liens, provided that the principal amount of such Indebtedness is not increased and such Indebtedness is not secured by any additional assets;

(c)Liens on Property of the Borrower securing the Borrower’s First Mortgage Bonds issued pursuant to the Indenture, dated as of October 1, 1935, as amended, supplemented or otherwise modified from time to time, between the Borrower and The Bank of New York;

(d)Liens on Property of the Borrower in connection with collateralized pollution control bonds;

(e)any (i) Lien existing on any Property at the time such Property is acquired by the Borrower or any of its Subsidiaries or on any Property of any Person at the time such Person becomes, or is merged into, a Subsidiary of the Borrower, provided that (A) such Lien is not created in contemplation of or in connection with such acquisition or such Person becoming, or being merged into, such Subsidiary, as the case may be, (B) such Lien shall not attach or apply to any other Property or assets of the Borrower or any of its Subsidiaries, and (C) such Lien shall secure only those obligations that it secures on the date of such acquisition or the date such Person becomes, or is merged into, such Subsidiary, as the case may be, and any extension or refinancing thereof, so long as the aggregate principal amount so extended or refinanced is not increased, and (ii) Lien securing Indebtedness in respect of purchase money obligations for the acquisition, lease, construction or improvement of fixed assets or Capital Lease Obligations, provided that (A) such Lien only attaches to such fixed assets being acquired, leased, constructed or improved and (B) the Indebtedness secured by such Lien does not exceed the cost or fair market value, whichever is lower, of the fixed assets being acquired, leased, constructed or improved on the date of acquisition, lease, construction or improvement; provided, however, that the aggregate principal amount of Indebtedness at any time outstanding secured by a Lien described in this subsection (e) shall not exceed an amount equal to 5% of the Consolidated Tangible Assets at such time.

Section 8.4Investments.  The Borrower will not, and will not permit any of its Subsidiaries to, make or hold any Investments, except (a) Investments held by the Borrower or any of its Subsidiaries

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in cash or Cash Equivalents; (b) Investments of the Borrower in any of its Subsidiaries; (c) Investments of a Subsidiary of the Borrower in the Borrower or another Subsidiary of the Borrower; (d) Permitted Acquisitions; (e) Investments by the Borrower and its Subsidiaries in account debtors received in connection with the bankruptcy or reorganization, or in settlement of the delinquent obligations of financially troubled suppliers or customers, in the ordinary course of business; (f) promissory notes, earn-outs, other contingent payment obligations and other non-cash consideration received by Borrower or any of its Subsidiaries as partial payment of the total consideration of any Asset Sale made in accordance with Section 8.2(vii); (g) loans and advances by the Borrower and its Subsidiaries to their respective employees in an aggregate amount not to exceed $1,000,000, at any time outstanding; (h) Investments comprised of the purchase of receivables from other energy marketers as required from time to time by one or more applicable Governmental Authorities; (i) other Investments held by the Borrower or its Subsidiaries on the Closing Date that are listed on Schedule 8.4; and (j) Investments by the Borrower and its Subsidiaries not otherwise permitted under this Section 8.4 in an aggregate amount not to exceed $5,000,000, at any time.

Section 8.5Financial Covenant.  The Borrower will not at any time permit the ratio of (i) Consolidated Total Debt to (ii) Consolidated Total Capitalization to exceed 0.65 to 1.00.

Section 8.6Transactions with Affiliates.  The Borrower will not, and will not permit any of its Subsidiaries to, enter into any transaction or series of transactions with any Affiliate (other than, in the case of the Borrower, any Subsidiary of the Borrower, and in the case of a Subsidiary of the Borrower, the Borrower or another Subsidiary of the Borrower) other than in the ordinary course of business of and pursuant to the reasonable requirements of the Borrower’s or such Subsidiary’s business and upon fair and reasonable terms no less favorable to the Borrower or such Subsidiary than would be obtained in a comparable arm’s-length transaction with a Person other than an Affiliate, except (i) sales of goods to an Affiliate for use or distribution outside the United States that in the good faith judgment of the Borrower complies with any applicable legal requirements of the Code, or (ii) agreements and transactions with and payments to officers, directors and shareholders that are either (A) entered into in the ordinary course of business and not prohibited by any of the provisions of this Agreement, or (B) entered into outside the ordinary course of business, approved by the directors or shareholders of the Borrower, and not prohibited by any of the provisions of this Agreement.

Section 8.7Material Agreements.  Neither the Borrower nor any Subsidiary of the Borrower shall default in the performance, observance or fulfillment of any of the obligations, covenants or conditions contained in any agreement, instrument or other document to which the Borrower or such Subsidiary, as applicable, is a party, which default could reasonably be expected to have a Material Adverse Effect.

Section 8.8Use of Proceeds/Margin Regulations.  The Borrower will not, and will not permit any of its Subsidiaries to, use any part of the proceeds of any Borrowing, directly or indirectly, to purchase or carry Margin Stock, or to extend credit to others for the purpose of purchasing or carrying any Margin Stock, in violation of any of the provisions of Regulation T, U or X of the Board of Governors of the Federal Reserve System.

Section 8.9No Dividend Restrictions.  The Borrower shall not permit any of its Subsidiaries to enter into any agreement or otherwise create or cause or permit to exist or become effective any consensual restriction limiting the ability (whether by covenant, event of default or otherwise) of such Subsidiary to (i) pay dividends or make any other distributions on shares of such Subsidiary’s capital stock held by the Borrower or any other Subsidiary of the Borrower or (ii) pay any other obligation owed to the Borrower or any other Subsidiary of the Borrower, provided, however, that this clause (ii) shall not apply to Permitted Restrictive Covenants.

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Section 8.10Swap Agreements.  The Borrower will not, and will not permit any of its Subsidiaries to, enter into any Swap Agreement other than Swap Agreements pursuant to which the Borrower or such Subsidiary has hedged its reasonably estimated interest rate, foreign currency or commodity exposure, and not for speculative purposes.

ARTICLE IX.

EVENTS OF DEFAULT

Section 9.1Events of Default.  Any of the following specified events shall constitute an Event of Default (each an “Event of Default”):

(a)Payments:  the Borrower shall (i) default in the payment when due (whether at maturity, on a date fixed for a scheduled repayment, on a date on which a required prepayment is to be made, upon acceleration or otherwise) of any principal of the Loans or any reimbursement obligation in respect of any Unpaid Drawing; or (ii) default, and such default shall continue for five or more days, in the payment when due of any interest on the Loans or any Fees or any other amounts owing hereunder or under any other Credit Document;

(b)Representations:  any representation, warranty or statement made by the Borrower herein or in any other Credit Document (other than pursuant to Section 6.14(b)) or in any statement or certificate delivered or required to be delivered pursuant hereto or thereto shall prove to be untrue in any material respect on the date as of which made or deemed made;

(c)Certain Covenants:  the Borrower shall default in the due performance or observance by it of any term, covenant or agreement contained in Section 7.1, 7.2(b), 7.5, 7.9 or 7.10 or Article VIII of this Agreement;

(d)Other Covenants:  the Borrower shall default in the due performance or observance by it of any term, covenant or agreement contained in this Agreement or any other Credit Document, other than those referred to in Section 9.1(a), (b) or (c) above, and such default is not remedied within 30 days after the date on which the Borrower receives written notice of such default from the Administrative Agent or any Lender (any such notice to be identified as a “notice of default” and to refer specifically to this paragraph);

(e)Cross Default Under Other Agreements:  the Borrower or any of its Subsidiaries shall (i) default in any payment with respect to any Indebtedness (other than the Obligations), and all grace periods applicable to such payment shall have expired, in an aggregate amount in excess of $10,000,000, regardless of whether the holder or holders of said Indebtedness (or a trustee or agent on behalf of such holder or holders) exercises its rights, if any, to cause such Indebtedness to become due and payable prior to its stated maturity; or (ii) default in the observance or performance of any agreement or condition relating to any such Indebtedness or contained in any instrument or agreement evidencing, securing or relating thereto (and all grace periods applicable to such observance, performance or condition shall have expired), or any other event shall occur or condition exist, the effect of which default or other event or condition is to cause, or to permit the holder or holders of such Indebtedness (or a trustee or agent on behalf of such holder or holders) to cause any such Indebtedness to become due prior to its stated maturity, or any such Indebtedness of the Borrower or any of its Subsidiaries shall be declared to be due and payable, or shall be required to be prepaid (other than by a regularly scheduled required prepayment or redemption, prior to the stated maturity thereof).

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(f)Invalidity of Credit Documents:  any material provision of any Credit Document, at any time after its execution and delivery and for any reason other than as expressly permitted hereunder or under such Credit Document or satisfaction in full of all the Obligations, ceases to be in full force and effect; or the Borrower or any other Person (other than the Administrative Agent or any Lender) contests in any manner the validity or enforceability of any provision of any Credit Document; or the Borrower denies in writing that it has any or further liability or obligation under any Credit Document, or purports to revoke, terminate or rescind any Credit Document;

(g)Judgments:  one or more judgments, orders or decrees shall be entered against the Borrower and/or any of its Subsidiaries involving a liability (other than a liability covered by insurance, as to which the carrier has adequate claims paying ability and has not effectively reserved its rights) of $10,000,000 or more in the aggregate for all such judgments, orders and decrees for the Borrower and its Subsidiaries, and any such judgments or orders or decrees shall not have been vacated, discharged or stayed or bonded pending appeal within 30 days from the entry thereof;

(h)Bankruptcy:  any of the following shall occur:

(i)the Borrower or any of its Subsidiaries (the Borrower and each such Subsidiary, each a “Principal Party”) shall commence a voluntary case concerning itself under the Bankruptcy Code;

(ii)an involuntary case is commenced against any Principal Party under the Bankruptcy Code and the petition is not dismissed within 60 days after commencement of the case;

(iii)a custodian (as defined in the Bankruptcy Code) is appointed for, or takes charge of, a Substantial Portion of the Property of any Principal Party;

(iv)any Principal Party commences (including by way of applying for or consenting to the appointment of, or the taking of possession by, a rehabilitator, receiver, custodian, trustee, conservator or liquidator (collectively, a “conservator”) of itself or all or a Substantial Portion of its Property) any other proceeding under any reorganization, arrangement, adjustment of debt, relief of debtors, dissolution, insolvency, liquidation, rehabilitation, conservatorship or similar law of any jurisdiction whether now or hereafter in effect relating to such Principal Party;

(v)any such proceeding of the type set forth in clause (iv) above is commenced against any Principal Party to the extent such proceeding is consented to by such Person or remains undismissed for a period of 60 days;

(vi)any Principal Party is adjudicated insolvent or bankrupt;

(vii)any order of relief or other order approving any such case or proceeding is entered;

(viii)any Principal Party suffers any appointment of any conservator or the like for it or any Substantial Portion of its Property that continues undischarged or unstayed for a period of 60 days;

(ix)any Principal Party makes a general assignment for the benefit of creditors;

(x)any Principal Party generally does not pay its debts as such debts become due; or

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(xi)any corporate (or similar organizational) action is taken by any Principal Party for the purpose of effecting any of the foregoing;

(i)ERISA:  (i) the Unfunded Liabilities of all Single Employer Plans shall exceed in the aggregate $30,000,000 or any Reportable Event that would reasonably be expected to have a Material Adverse Effect shall occur in connection with any Plan; (ii) the Borrower or any member of the Controlled Group shall have been notified by the sponsor of a Multiemployer Plan that it has incurred withdrawal liability to such Multiemployer Plan in an amount that, when aggregated with all other amounts required to be paid to Multiemployer Plans by the Borrower or any other member of the Controlled Group as withdrawal liability (determined as of the date of such notification), exceeds $10,000,000 or requires payment exceeding $10,000,000 per annum; or (iii) the Borrower or any other member of the Controlled Group shall have been notified by the sponsor of a Multiemployer Plan that such Multiemployer Plan is in reorganization or is being terminated, within the meaning of Title IV of ERISA, if as a result of such reorganization or termination the aggregate annual contribution of the Borrower and the other members of the Controlled Group (taken as a whole) to all Multiemployer Plans that are then in reorganization or being terminated have been or will be increased over the amounts contributed to such Multiemployer Plans for the respective plan years of each such Multiemployer Plan immediately preceding the plan in year in which the reorganization or termination occurs by an amount exceeding $10,000,000; or

(j)Change of Control:  there occurs a Change of Control.

Section 9.2Acceleration; Remedies.  Upon the occurrence of any Event of Default, and at any time thereafter, if any Event of Default shall then be continuing, the Administrative Agent shall, upon the written request of the Required Lenders, by written notice to the Borrower, take any or all of the following actions, without prejudice to the rights of the Administrative Agent or any Lender to enforce its claims against the Borrower in any manner permitted under applicable law:

(a)declare the Total Commitment terminated, whereupon the Commitment of each Lender shall forthwith terminate immediately without any other notice of any kind;

(b)declare the principal of and any accrued interest in respect of all Loans, all Unpaid Drawings and all other Obligations owing hereunder to be, whereupon the same shall become, forthwith due and payable without presentment, demand, protest or other notice of any kind, all of which are hereby waived by the Borrower;

(c)terminate any Letter of Credit that may be terminated in accordance with its terms; and/or

(d)exercise any other right or remedy available under any of the Credit Documents or applicable law;

provided that, if an Event of Default specified in Section 9.1(h) (other than Section 9.1(h)(x)) shall occur, the result that would occur upon the giving of written notice by the Administrative Agent as specified in clauses (a) and/or (b) above shall occur automatically without the giving of any such notice.

Section 9.3Application of Liquidation Proceeds.  All monies received by the Administrative Agent or any Lender from the exercise of remedies hereunder or under the other Credit Documents or under any other documents relating to this Agreement shall, unless otherwise required by the terms of the other Credit Documents or by applicable law, be applied as follows:

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(a)first, to the payment of all expenses (to the extent not otherwise paid by the Borrower) incurred by the Administrative Agent and the Lenders in connection with the exercise of such remedies, including, without limitation, all reasonable costs and expenses of collection, reasonable documented attorneys’ fees, court costs and any foreclosure expenses;

(b)second, to the payment pro rata of interest then accrued on the outstanding Loans and Unpaid Drawings;

(c)third, to the payment pro rata of any fees then accrued and payable to the Administrative Agent or any Lender under this Agreement in respect of the Loans and/or Letters of Credit;

(d)fourth, to the payment pro rata of the principal balance then owing on the outstanding Loans and Unpaid Drawings;

(e)fifth, to the payment to the Lenders of any amounts then accrued and unpaid under Sections 2.6, 2.7, and 4.5, and if such proceeds are insufficient to pay such amounts in full, to the payment of such amounts pro rata;

(f)sixth, to the Administrative Agent for the benefit of each LC Issuer to cash collateralize the Stated Amount of outstanding Letters of Credit;

(g)seventh, to the payment pro rata of all other amounts owed by the Borrower to the Administrative Agent or any Lender or LC Issuer under this Agreement or any other Credit Document; and

(h)finally, any remaining surplus after all of the Obligations have been paid in full, to the Borrower or to whomsoever shall be lawfully entitled thereto.

ARTICLE X.

THE ADMINISTRATIVE AGENT

Section 10.1Appointment.  Each Lender hereby irrevocably designates and appoints KeyBank as Administrative Agent to act as specified herein and in the other Credit Documents, and each such Lender hereby irrevocably authorizes KeyBank as the Administrative Agent for such Lender, to take such action on its behalf under the provisions of this Agreement and the other Credit Documents and to exercise such powers and perform such duties as are expressly delegated to the Administrative Agent by the terms of this Agreement and the other Credit Documents, together with such other powers as are reasonably incidental thereto. The Administrative Agent agrees to act as such upon the express conditions contained in this Article X.  Notwithstanding any provision to the contrary elsewhere in this Agreement, the Administrative Agent shall not have any duties or responsibilities, except those expressly set forth herein or in the other Credit Documents, nor any fiduciary relationship with any Lender or LC Issuer, and no implied covenants, functions, responsibilities, duties, obligations or liabilities shall be read into this Agreement or otherwise exist against the Administrative Agent.  The provisions of this Article X are solely for the benefit of the Administrative Agent, and the Lenders, and neither the Borrower nor any of its Subsidiaries shall have any rights as a third party beneficiary of any of the provisions hereof.  In performing its functions and duties under this Agreement, the Administrative Agent shall act solely as agent of the Lenders and does not assume and shall not be deemed to have assumed any obligation or relationship of agency or trust with or for the Borrower or any of its Subsidiaries.

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Section 10.2Delegation of Duties.  The Administrative Agent may execute any of its duties under this Agreement or any other Credit Document by or through agents or attorneys-in-fact and shall be entitled to advice of counsel concerning all matters pertaining to such duties. The Administrative Agent shall not be responsible for the negligence or misconduct of any agents or attorneys-in-fact selected by it with reasonable care except to the extent otherwise required by Section 10.3.

Section 10.3Exculpatory Provisions.  Neither the Administrative Agent nor any of its respective officers, directors, employees, agents, attorneys-in-fact or affiliates shall be (i) liable for any action lawfully taken or omitted to be taken by it or such Person under or in connection with this Agreement or any other Credit Document (except for its or such Person’s own gross negligence or willful misconduct) or (ii) responsible in any manner to any of the Lenders for any recitals, statements, representations or warranties made by the Borrower or any of its Subsidiaries or any of their respective officers contained in this Agreement, any other Credit Document or in any certificate, report, statement or other document referred to or provided for in, or received by the Administrative Agent under or in connection with, this Agreement or any other Credit Document or for any failure of the Borrower or any Subsidiary of the Borrower or any of their respective officers to perform its obligations hereunder or thereunder.  The Administrative Agent shall not be under any obligation to any Lender to ascertain or to inquire as to the observance or performance of any of the agreements contained in, or conditions of, this Agreement, or to inspect the properties, books or records of the Borrower or any of its Subsidiaries.  The Administrative Agent shall not be responsible to any Lender for the effectiveness, genuineness, validity, enforceability, collectability or sufficiency of this Agreement or any Credit Document or for any representations, warranties, recitals or statements made herein or therein or made in any written or oral statement or in any financial or other statements, instruments, reports, certificates or any other documents in connection herewith or therewith furnished or made by the Administrative Agent to the Lenders or by or on behalf of the Borrower or any of its Subsidiaries to the Administrative Agent or any Lender or be required to ascertain or inquire as to the performance or observance of any of the terms, conditions, provisions, covenants or agreements contained herein or therein or as to the use of the proceeds of the Loans or of the existence or possible existence of any Default or Event of Default.

Section 10.4Reliance by Administrative Agent.  The Administrative Agent shall be entitled to rely, and shall be fully protected in relying, upon any note, writing, resolution, notice, consent, certificate, affidavit, letter, cablegram, telegram, e-mail or other electronic transmission, facsimile transmission, telex or teletype message, statement, order or other document or conversation believed by it, in good faith, to be genuine and correct and to have been signed, sent or made by the proper Person or Persons and upon advice and statements of legal counsel (including, without limitation, counsel to the Borrower or any of its Subsidiaries), independent accountants and other experts selected by the Administrative Agent.  The Administrative Agent shall be fully justified in failing or refusing to take any action under this Agreement or any other Credit Document unless it shall first receive such advice or concurrence of the Required Lenders as it deems appropriate or it shall first be indemnified to its satisfaction by the Lenders against any and all liability and expense that may be incurred by it by reason of taking or continuing to take any such action.  The Administrative Agent shall in all cases be fully protected in acting, or in refraining from acting, under this Agreement and the other Credit Documents in accordance with a request of the Required Lenders (or all of the Lenders, or all of the Lenders (other than any Defaulting Lender), as applicable, as to any matter that, pursuant to Section 11.11, can only be effectuated with the consent of all Lenders, or all Lenders (other than any Defaulting Lender), as the case may be), and such request and any action taken or failure to act pursuant thereto shall be binding upon all the Lenders.

Section 10.5Notice of Default.  The Administrative Agent shall not be deemed to have knowledge or notice of the occurrence of any Default or Event of Default hereunder unless the Administrative Agent has received notice from a Lender or the Borrower referring to this Agreement, describing such Default or Event of Default and stating that such notice is a “notice of default.” If the

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Administrative Agent receives such a notice, the Administrative Agent shall give prompt notice thereof to the Lenders.  The Administrative Agent shall take such action with respect to such Default or Event of Default as shall be reasonably directed by the Required Lenders, provided that unless and until the Administrative Agent shall have received such directions, the Administrative Agent may (but shall not be obligated to) take such action, or refrain from taking such action, with respect to such Default or Event of Default as it shall deem advisable in the best interests of the Lenders.

Section 10.6Non-Reliance.  Each Lender expressly acknowledges that neither the Administrative Agent nor any of its officers, directors, employees, agents, attorneys-in-fact or Affiliates have made any representations or warranties to it and that no act by the Administrative Agent hereinafter taken, including any review of the affairs of the Borrower or any of its respective Subsidiaries, shall be deemed to constitute any representation or warranty by the Administrative Agent to any Lender.  Each Lender represents to the Administrative Agent that it has, independently and without reliance upon the Administrative Agent, or any other Lender, and based on such documents and information as it has deemed appropriate, made its own appraisal of and investigation into the business, assets, operations, property, financial and other conditions, prospects and creditworthiness of the Borrower and its respective Subsidiaries and made its own decision to make its Loans hereunder and enter into this Agreement.  Each Lender also represents that it will, independently and without reliance upon the Administrative Agent, or any other Lender, and based on such documents and information as it shall deem appropriate at the time, continue to make its own credit analysis, appraisals and decisions in taking or not taking action under this Agreement, and to make such investigation as it deems necessary to inform itself as to the business, assets, operations, property, financial and other conditions, prospects and creditworthiness of the Borrower and its Subsidiaries.  The Administrative Agent shall not have any duty or responsibility to provide any Lender with any credit or other information concerning the business, operations, assets, property, financial and other conditions, prospects or creditworthiness of the Borrower or any of its Subsidiaries that may come into the possession of the Administrative Agent or any of its officers, directors, employees, agents, attorneys-in-fact or Affiliates.

Section 10.7Indemnification.  The Lenders agree to indemnify the Administrative Agent and its Related Parties ratably according to their respective Loans and Percentages of the Unutilized Total Commitment, from and against any and all liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, reasonable expenses or disbursements of any kind whatsoever that may at any time (including, without limitation, at any time following the payment of the Obligations) be imposed on, incurred by or asserted against the Administrative Agent or such Related Party in any way relating to or arising out of this Agreement or any other Credit Document, or any documents contemplated by or referred to herein or the transactions contemplated hereby or any action taken or omitted to be taken by the Administrative Agent or such Related Party under or in connection with any of the foregoing, but only to the extent that any of the foregoing is not paid by the Borrower, provided that no Lender shall be liable to the Administrative Agent or such Related Party for the payment of any portion of such liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements to the extent resulting solely from the Administrative Agent’s or such Related Party’s gross negligence or willful misconduct.  If any indemnity furnished to the Administrative Agent or any Related Party for any purpose shall, in the opinion of the Administrative Agent, be insufficient or become impaired, the Administrative Agent may call for additional indemnity and cease, or not commence, to do the acts indemnified against until such additional indemnity is furnished.  The agreements in this Section 10.7 shall survive the payment of all Obligations.

Section 10.8The Administrative Agent in Individual Capacity.  The Administrative Agent and its Affiliates may make loans to, accept deposits from and generally engage in any kind of business with the Borrower, its Subsidiaries and their Affiliates as though not acting as Administrative Agent hereunder.  With respect to the Loans made by it and all Obligations owing to it, the Administrative Agent shall have

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the same rights and powers under this Agreement as any Lender and may exercise the same as though it were not the Administrative Agent, and the terms “Lender” and “Lenders” shall include the Administrative Agent in its individual capacity.

Section 10.9Successor Administrative Agent.  The Administrative Agent may resign at any time upon not less than 30 days notice to the Lenders, each LC Issuer and the Borrower.  Upon receipt of any such notice of resignation, the Required Lenders shall have the right to appoint a successor, provided that, so long as no Event of Default shall have occurred and be continuing, the Borrower shall have the right to consent to any such successor Administrative Agent, such consent not to be unreasonably withheld.  If no such successor shall have been so appointed by the Required Lenders and shall have accepted such appointment within 30 days after the retiring Administrative Agent gives notice of its resignation, then the retiring Administrative Agent may on behalf of the Lenders and each LC Issuer, appoint a successor Administrative Agent, provided that if the Administrative Agent shall notify the Borrower and the Lenders that no such successor is willing to accept such appointment, then such resignation shall nonetheless become effective in accordance with such notice and (i) the retiring Administrative Agent shall be discharged from its duties and obligations hereunder and under the other Credit Documents (except that in the case of any collateral security held by the Administrative Agent on behalf of the Lenders or any LC Issuer under any of the Credit Documents, the retiring Administrative Agent shall continue to hold such collateral security for the benefit of the Lenders until such time as a successor Administrative Agent is appointed) and (ii) all payments, communications and determinations provided to be made by, to or through the Administrative Agent shall instead be made by or to each Lender and LC Issuer directly, until such time as the Required Lenders (with the consent of the Borrower, if applicable) appoint a successor Administrative Agent as provided for above in this paragraph.  Upon the acceptance of a successor’s appointment as Administrative Agent hereunder, such successor shall succeed to and become vested with all of the rights, powers, privileges and duties of the retiring (or retired) Administrative Agent, and the retiring Administrative Agent shall be discharged from all of its duties and obligations hereunder or under the other Credit Documents (if not already discharged therefrom as provided above in this paragraph).  The fees payable by the Borrower to a successor Administrative Agent shall be the same as those payable to its predecessor unless otherwise agreed between the Borrower and such successor.  After the retiring Administrative Agent’s resignation hereunder and under the other Credit Documents, the provisions of this Article and Section 11.1 shall continue in effect for the benefit of such retiring Administrative Agent, its sub-agents and their respective Related Parties in respect of any actions taken or omitted to be taken by any of them while the retiring Administrative Agent was acting as Administrative Agent.

Section 10.10Other Agents.  Any Lender identified herein as a Co-Agent, Syndication Agent, Documentation Agent, Co-Documentation Agent, Managing Agent, Manager, Lead Arranger, Arranger or any other corresponding title, other than “Administrative Agent,” shall have no right, power, obligation, liability, responsibility or duty under this Agreement or any other Credit Document except those applicable to all Lenders as such. Each Lender acknowledges that it has not relied, and will not rely, on any Lender so identified in deciding to enter into this Agreement or in taking or not taking any action hereunder.

ARTICLE XI.

MISCELLANEOUS

Section 11.1Payment of Expenses.

(a)Irrespective of whether the transactions contemplated hereby are consummated, the Borrower agrees to pay (or reimburse the Administrative Agent for) all reasonable out-of-pocket costs

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and expenses of the Administrative Agent in connection with the negotiation, preparation, syndication, administration and execution and delivery of the Credit Documents and the documents and instruments referred to therein and the syndication of the Commitments, including, without limitation, the reasonable fees and disbursements of counsel to the Administrative Agent and its Affiliates.

(b)The Borrower agrees to pay, or reimburse the Administrative Agent for, all reasonable out-of-pocket costs and expenses of the Administrative Agent in connection with any amendment, waiver, consent or other modification of or relating to any of the Credit Documents, including, without limitation, the reasonable fees and disbursements of counsel to the Administrative Agent.

(c)The Borrower agrees to pay, or reimburse the Administrative Agent and the Lenders for, all reasonable out-of-pocket costs and expenses of the Administrative Agent and the Lenders in connection with the enforcement of any of the Credit Documents  or the other documents and instruments referred to therein, including, without limitation, the reasonable fees and disbursements of each counsel to the Administrative Agent and any Lender (including allocated costs of internal counsel).

(d)Without limitation of the preceding Section 11.1(c), in the event of the bankruptcy, insolvency, rehabilitation or other similar proceeding in respect of the Borrower or any of its Subsidiaries, the Borrower agrees to pay all costs of collection and defense, including reasonable attorneys’ fees in connection therewith and in connection with any appellate proceeding or post-judgment action involved therein, which shall be due and payable together with all required service or use taxes.

(e)Without duplication of any of the Borrower’s obligations under Section 4.5(c), the Borrower agrees to pay and hold the Administrative Agent and each of the Lenders harmless from and against any and all present and future stamp and other similar taxes with respect to the foregoing matters and save the Administrative Agent and each of the Lenders harmless from and against any and all liabilities with respect to or resulting from any delay or omission (other than to the extent attributable to any such indemnified Person) to pay such taxes.

(f)The Borrower agrees to indemnify the Administrative Agent, each Lender, and their respective Related Parties (collectively, the “Indemnitees”) from and hold each of them harmless against any and all losses, liabilities, claims, damages or expenses reasonably incurred by any of them as a result of, or arising out of, or in any way related to, or by reason of

(i)any investigation, litigation or other proceeding (whether or not any Lender is a party thereto) related to the entering into and/or performance of any Credit Document or the use of the proceeds of any Loans hereunder or the consummation of any transactions contemplated in any Credit Document, other than any such investigation, litigation or proceeding arising out of transactions solely between or among one or more of the Lenders and/or the Administrative Agent (except any such investigation, litigation or other proceeding brought by one or more Lenders against or involving the Administrative Agent), transactions solely involving the assignment by a Lender of all or a portion of its Loans and Commitments, or the granting of participations therein, as provided in this Agreement, or arising solely out of any examination of a Lender by any regulatory or other governmental authority having jurisdiction over it, or

(ii)the actual or alleged presence of Hazardous Materials in the air, surface water or groundwater or on the surface or subsurface of any Real Property owned, leased or at any time operated by the Borrower or any of its Subsidiaries, the release, generation, storage, transportation, handling or disposal of Hazardous Materials at any location, whether or not owned or operated by the Borrower or any of its Subsidiaries, if the Borrower or any such Subsidiary could have or is alleged to have any responsibility in respect thereof, the non-compliance of any

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such Real Property with foreign, federal, state and local laws, regulations and ordinances (including, without limitation, applicable permits thereunder) applicable thereto, or any Environmental Claim asserted against the Borrower or any of its Subsidiaries, in respect of any such Real Property,

including, in each case, without limitation, the reasonable documented fees and disbursements of counsel incurred in connection with any such investigation, litigation or other proceeding (but excluding in each case under this clause (f) any such losses, liabilities, claims, damages or expenses to the extent incurred by reason of the gross negligence or willful misconduct of the Person to be indemnified or of any other Indemnitee who is such Person or an Affiliate of such Person). To the extent that the undertaking to indemnify, pay or hold harmless any Person set forth in the preceding sentence may be unenforceable because it is violative of any law or public policy, the Borrower shall make the maximum contribution to the payment and satisfaction of each of the indemnified liabilities that is permissible under applicable law.

Section 11.2Right of Setoff.  In addition to any rights now or hereafter granted under applicable law or otherwise, and not by way of limitation of any such rights, upon the occurrence and during the continuance of an Event of Default, each Lender and each LC Issuer is hereby authorized at any time or from time to time, without presentment, demand, protest or other notice of any kind to the Borrower or to any other Person, any such notice being hereby expressly waived, to set off and to appropriate and apply any and all deposits (general or special) and any other Indebtedness at any time held or owing by such Lender or such LC Issuer (including, without limitation, by branches, agencies and Affiliates of such Lender or LC Issuer wherever located) to or for the credit or the account of the Borrower against and on account of the Obligations and liabilities of the Borrower to such Lender or LC Issuer under this Agreement or under any of the other Credit Documents, including, without limitation, all interests in Obligations of the Borrower purchased by such Lender pursuant to Section 11.4(c), and all other claims of any nature or description arising out of or connected with this Agreement or any other Credit Document, irrespective of whether such Lender or LC Issuer shall have made any demand hereunder and although such Obligations, liabilities or claims, or any of them, shall be contingent or unmatured.  Each Lender and LC Issuer agrees promptly to notify the Borrower after any such set off and application, provided, however, that the failure to give such notice shall not affect the validity of such set off and application.

Section 11.3Notices.

(a)Generally.  Except in the case of notices and other communications expressly permitted to be given by telephone (and except as provided in subparagraph (c) below), all notices and other communications provided for herein shall be in writing and shall be delivered by hand or overnight courier service, mailed by certified or registered mail or sent by telecopier as follows:

(i)if to the Borrower, to The Dayton Power and Light Company, 1065 Woodman Drive, Dayton, Ohio  45432, Attention: Joseph R. Boni III (Telecopier No. (937) 259-7147; Telephone No. (937) 259-7230);

(ii)if to the Administrative Agent, to KeyBank National Association, 127 Public Square, Cleveland, Ohio 44114, Attention: Yvette M. Dyson-Owens (Telecopier No. (216) 689-5962; Telephone No. (216) 689-4358); and

(iii)if to a Lender, to it at its address (or telecopier number) set forth on Annex I hereto or, in the case of any Lender that becomes a party to this Agreement by way of assignment under Section 11.4 of this Agreement, to it at the address set forth in the Assignment Agreement to which it is a party;

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(b)           Receipt of Notices.  Notices and communications sent by hand or overnight courier service, or mailed by certified or registered mail, shall be deemed to have been given when received; notices sent by telecopier shall be deemed to have been given when sent and receipt has been confirmed by telephone.  Notices delivered through electronic communications to the extent provided in subparagraph (c) below, shall be effective as provided in such subparagraph (c).

(c)           Electronic Communications.  Notices and other communications to the Administrative Agent, an LC Issuer or any Lender pursuant to Section 7.1(a), (b), (c), (h), (i) or (j) may be delivered or furnished by electronic communication (including e-mail and Internet or intranet websites) pursuant to procedures approved by the Administrative Agent.  The Administrative Agent or the Borrower may, in its discretion, agree to accept notices and other communications to it hereunder by electronic communications pursuant to procedures approved by it, provided that approval of such procedures may be limited to particular notices or communications. Unless the Administrative Agent otherwise prescribes, (i) notices and other communications sent to an e-mail address shall be deemed received upon the sender’s receipt of an acknowledgement from the intended recipient (such as by the “return receipt requested” function, as available, return e-mail or other written acknowledgement), provided that if such notice or other communication is not sent during the normal business hours of the recipient, such notice or communication shall be deemed to have been sent at the opening of business on the next business day for the recipient, and (ii) notices or communications posted to an Internet or intranet website shall be deemed received upon the deemed receipt by the intended recipient at its e-mail address as described in the foregoing clause (i) of notification that such notice or communication is available and identifying the website address therefor.

(d)           Change of Address.  Any party hereto may change its address or telecopier number for notices and other communications hereunder by notice to each of the other parties hereto.

Section 11.4           Benefit of Agreement.

(a)           Successors and Assigns Generally.  This Agreement shall be binding upon and inure to the benefit of and be enforceable by the parties hereto and their respective successors and assigns, provided that the Borrower may not assign or transfer any of its rights or obligations hereunder without the prior written consent of all the Lenders (other than any Defaulting Lender), and, provided, further, that any assignment by a Lender of its rights and obligations hereunder shall be effected in accordance with Section 11.4(c).

(b)           Participations.  Notwithstanding the foregoing, each Lender may at any time grant participations in any of its rights hereunder or under any of the Notes to any Person (other than the Borrower or any of its Affiliates or a natural Person), provided that in the case of any such participation,

(i)            the participant shall not have any rights under this Agreement or any of the other Credit Documents, including, without limitation, rights of consent, approval or waiver (the participant’s rights against such Lender in respect of such participation to be those set forth in the agreement executed by such Lender in favor of the participant relating thereto),

(ii)           such Lender’s obligations under this Agreement (including, without limitation, its Commitment hereunder) shall remain unchanged,

(iii)          such Lender shall remain solely responsible to the other parties hereto for the performance of such obligations,

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(iv)          such Lender shall remain the holder of any Note for all purposes of this Agreement, and

(v)           the Borrower, the Administrative Agent, and the other Lenders shall continue to deal solely and directly with the selling Lender in connection with such Lender’s rights and obligations under this Agreement, and all amounts payable by the Borrower hereunder shall be determined as if such Lender had not sold such participation, except that the participant shall be entitled to the benefits of Sections 2.6, 2.7 and 4.5 of this Agreement to the extent that such Lender would be entitled to such benefits if the participation had not been entered into or sold (provided that the participant shall only be entitled to the benefits of Section 4.5 to the extent that it complies with the requirements of that section as though it were a Lender),

and, provided further, that no Lender shall transfer, grant or sell any participation under which the participant shall have rights to approve any amendment to or waiver of this Agreement or any other Credit Document except to the extent such amendment or waiver would (w) extend the final scheduled maturity of the Loans in which such participant is participating, or reduce the rate or extend the time of payment of interest or Fees thereon (except in connection with a waiver of the applicability of any post-default increase in interest rates), or reduce the principal amount thereof, or increase such participant’s participating interest in any Commitment over the amount thereof then in effect (it being understood that a waiver of any Default or Event of Default shall not constitute a change in the terms of any such Commitment), (x) release any guarantor from its guaranty of any of the Obligations, except strictly in accordance with the terms of the Credit Documents, or (y) consent to the assignment or transfer by the Borrower of any of its rights and obligations under this Agreement.

(c)           Assignments by Lenders.  Any Lender may assign all, or if less than all, a fixed portion, of its Loans, LC Participations and/or Commitment and its rights and obligations hereunder to one or more Eligible Assignees, each of which shall become a party to this Agreement as a Lender by execution of an Assignment Agreement, provided that

(i)            except in the case of (x) an assignment of the entire remaining amount of the assigning Lender’s Loans and/or Commitment or (y) an assignment to another Lender, an Affiliate of such Lender or an Approved Fund with respect to such Lender, the aggregate amount of each such assignment of such Commitment (which for this purpose includes the Loans outstanding thereunder), shall not be less than $5,000,000 (or, if greater, in integral multiples of $1,000,000),

(ii)           in the case of any assignment to an Eligible Assignee at the time of any such assignment the Lender Register shall be deemed modified to reflect the Commitments of such new Lender and of the existing Lenders,

(iii)          upon surrender of the old Notes, if any, upon request of the new Lender, new Notes will be issued, at the Borrower’s expense, to such new Lender and to the assigning Lender, such new Notes to be in conformity with the requirements of Section 2.6 (with appropriate modifications) to the extent needed to reflect the revised Commitments,

(iv)          unless waived by the Administrative Agent, the Administrative Agent shall receive at the time of each such assignment, from the assigning or assignee Lender, the payment of a non-refundable assignment fee of $3,500,

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and, provided further, that such transfer or assignment will not be effective until the Assignment Agreement in respect thereof is recorded by the Administrative Agent on the Lender Register maintained by it as provided herein.

To the extent of any assignment pursuant to this Section 11.4(c) the assigning Lender shall be relieved of its obligations hereunder with respect to its assigned Commitments.

At the time of each assignment pursuant to this Section 11.4(c) to a Person that is not already a Lender hereunder and that is not a United States Person (as such term is defined in Section 7701(a)(30) of the Code) for Federal income tax purposes, the respective assignee Lender shall provide to the Borrower and the Administrative Agent the appropriate Internal Revenue Service Forms (and, if applicable, an Exemption Certificate) described in Section 4.5(b).  To the extent that an assignment of all or any portion of a Lender’s Commitment and related outstanding Obligations pursuant to this Section 11.4(c) would, at the time of such assignment, result in increased costs under Section 4.5 from those being charged by the respective assigning Lender prior to such assignment, then the Borrower shall not be obligated to pay such increased costs (although the Borrower shall be obligated to pay any other increased costs of the type described above resulting from changes after the date of the respective assignment).

Nothing in this Section 11.4(c) shall prevent or prohibit (i) any Lender that is a bank, trust company or other financial institution from pledging its Notes or Loans to a Federal Reserve Bank in support of borrowings made by such Lender from such Federal Reserve Bank, or (ii) any Lender that is a trust, limited liability company, partnership or other investment company from pledging its Notes or Loans to a trustee or agent for the benefit of holders of certificates or debt securities issued by it.  No such pledge, or any assignment pursuant to or in lieu of an enforcement of such a pledge, shall relieve the transferor Lender from its obligations hereunder.

(d)           No SEC Registration or Blue Sky Compliance.  Notwithstanding any other provisions of this Section 11.4, no transfer or assignment of the interests or obligations of any Lender hereunder or any grant of participation therein shall be permitted if such transfer, assignment or grant would require the Borrower to file a registration statement with the SEC or to qualify the Loans under the “Blue Sky” laws of any State.

(e)           Representations of Lenders.  Each Lender initially party to this Agreement hereby represents, and each Person that becomes a Lender pursuant to an assignment permitted by this Section 11.4 will, upon its becoming party to this Agreement, represent that it is a commercial lender, other financial institution or other “accredited” investor (as defined in SEC Regulation D) that makes or acquires loans in the ordinary course of its business and that it will make or acquire Loans for its own account in the ordinary course of such business, provided that subject to the preceding Sections 11.4(b) and (c), the disposition of any promissory notes or other evidences of or interests in Indebtedness held by such Lender shall at all times be within its exclusive control.

Section 11.5           No Waiver; Remedies Cumulative.  No failure or delay on the part of the Administrative Agent or any Lender in exercising any right, power or privilege hereunder or under any other Credit Document and no course of dealing between the Borrower and the Administrative Agent or any Lender shall operate as a waiver thereof; nor shall any single or partial exercise of any right, power or privilege hereunder or under any other Credit Document preclude any other or further exercise thereof or the exercise of any other right, power or privilege hereunder or thereunder.  No notice to or demand on the Borrower in any case shall entitle the Borrower to any other or further notice or demand in similar or other circumstances or constitute a waiver of the rights of the Administrative Agent or the Lenders to any other or further action in any circumstances without notice or demand.  Without limiting the generality of the foregoing, the making of a Loan or any LC Issuance shall not be construed as a waiver of any Default

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or Event of Default, regardless of whether the Administrative Agent, any Lender or any LC Issuer may have had notice or knowledge of such Default or Event of Default at the time.  The rights and remedies herein expressly provided are cumulative and not exclusive of any rights or remedies that the Administrative Agent or any Lender would otherwise have.

Section 11.6           Payments Pro Rata; Sharing of Setoffs.

(a)           The Administrative Agent agrees that promptly after its receipt of each payment from or on behalf of the Borrower in respect of any Obligations, it shall distribute such payment to the Lenders (other than any Lender that has expressly waived in writing its right to receive its pro rata share thereof) pro rata based upon their respective shares, if any, of the Obligations with respect to which such payment was received.  As to any such payment received by the Administrative Agent prior to 1:00 P.M. (local time at the Payment Office) in funds that are immediately available on such day, the Administrative Agent will use all reasonable efforts to distribute such payment in immediately available funds on the same day to the Lenders as aforesaid.

(b)           Each of the Lenders agrees that, if it should receive any amount hereunder (whether by voluntary payment, by realization upon security, by the exercise of the right of setoff or banker’s lien, by counterclaim or cross action, by the enforcement of any right under the Credit Documents, or otherwise) that is applicable to the payment of the principal of, or interest on, the Loans, LC Participations or Fees (other than Fees that are intended to be paid solely to the Administrative Agent or an LC Issuer and amounts payable to a Lender under Sections 2.8, 2.9 or 2.10), of a sum that with respect to the related sum or sums received by other Lenders is in a greater proportion than the total of such Obligation then owed and due to such Lender bears to the total of such Obligation then owed and due to all of the Lenders immediately prior to such receipt, then such Lender receiving such excess payment shall purchase for cash without recourse or warranty from the other Lenders an interest in the Obligations to such Lenders in such amount as shall result in a proportional participation by all of the Lenders in such amount, provided that (i) if all or any portion of such excess amount is thereafter recovered from such Lender, such purchase shall be rescinded and the purchase price restored to the extent of such recovery, but without interest, and (ii) the provisions of this Section 11.6(b) shall not be construed to apply to any payment made by the Borrower pursuant to and in accordance with the express terms of this Agreement, or any payment obtained by a Lender as consideration for the assignment of or sale of a participation in any of its Loans to any assignee or participant pursuant to Section 11.4, other than to the Borrower or any Subsidiary or Affiliate thereof (as to which the provisions of this Section 11.6(b) shall apply).  The Borrower consents to the foregoing and agrees, to the extent it may effectively do so under applicable law, that any Lender acquiring a participation pursuant to the foregoing arrangements may exercise against the Borrower rights of set-off and counterclaim with respect to such participation as fully as if such Lender were a direct creditor of the Borrower in the amount of such participation.

(c)           Notwithstanding anything to the contrary contained herein, the provisions of the preceding Sections 11.6(a) and (b) shall be subject to the express provisions of this Agreement that require, or permit, differing payments to be made to Lenders that are not Defaulting Lenders, as opposed to Defaulting Lenders.

(d)           If any Lender shall fail to make any payment required to be made by it to the Administrative Agent pursuant to Section 2.3(b), then the Administrative Agent may, in its discretion (notwithstanding any contrary provision of this Agreement), apply any amounts thereafter received by the Administrative Agent for the account of such Lender to satisfy such Lender’s obligations to the Administrative Agent under such Sections until all such unsatisfied obligations are fully paid.

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Section 11.7           Governing Law; Submission to Jurisdiction; Venue; Waiver of Jury Trial.

(a)           THIS AGREEMENT AND THE OTHER CREDIT DOCUMENTS AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES HEREUNDER AND THEREUNDER SHALL BE CONSTRUED IN ACCORDANCE WITH AND BE GOVERNED BY THE LAW OF THE STATE OF NEW YORK.  TO THE FULLEST EXTENT PERMITTED BY LAW, THE BORROWER HEREBY UNCONDITIONALLY AND IRREVOCABLY WAIVES ANY CLAIM TO ASSERT THAT THE LAW OF ANY JURISDICTION OTHER THAN THE STATE OF NEW YORK GOVERNS THIS AGREEMENT OR ANY OF THE OTHER CREDIT DOCUMENTS.  Any legal action or proceeding with respect to this Agreement or any other Credit Document may be brought in the Supreme Court of the State of New York sitting in New York County or in the United States District Court of the Southern District of New York, and, by execution and delivery of this Agreement, the Borrower hereby irrevocably accepts for itself and in respect of its Property, generally and unconditionally, the jurisdiction of the aforesaid courts.  The Borrower hereby further irrevocably consents to the service of process out of any of the aforementioned courts in any such action or proceeding by the mailing of copies thereof by registered or certified mail, postage prepaid, to the Borrower at its address for notices pursuant to Section 11.3, such service to become effective 30 days after such mailing or at such earlier time as may be provided under applicable law.  Nothing herein shall affect the right of the Administrative Agent or any Lender to serve process in any other manner permitted by law or to commence legal proceedings or otherwise proceed against the Borrower in any other jurisdiction.

(b)           The Borrower hereby irrevocably waives any objection that it may now or hereafter have to the laying of venue of any of the aforesaid actions or proceedings arising out of or in connection with this Agreement or any other Credit Document brought in the courts referred to in Section 11.7(a) above and hereby further irrevocably waives and agrees not to plead or claim in any such court that any such action or proceeding brought in any such court has been brought in an inconvenient forum.

(c)           EACH OF THE PARTIES TO THIS AGREEMENT HEREBY IRREVOCABLY WAIVES ALL RIGHT TO A TRIAL BY JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM ARISING OUT OF OR RELATING TO THIS AGREEMENT OR ANY OF THE OTHER CREDIT DOCUMENTS (INCLUDING, WITHOUT LIMITATION, ANY AMENDMENTS, WAIVERS OR OTHER MODIFICATIONS RELATING TO ANY OF THE FOREGOING), OR THE TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY.  EACH PARTY HERETO HEREBY (A) CERTIFIES THAT NO REPRESENTATIVE, AGENT OR ATTORNEY OF ANY OTHER PARTY HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT SUCH OTHER PARTY WOULD NOT, IN THE EVENT OF LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVER, AND (B) ACKNOWLEDGES THAT IT AND THE OTHER PARTIES HERETO HAVE BEEN INDUCED TO ENTER INTO THIS AGREEMENT BY, AMONG OTHER THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS IN THIS PARAGRAPH.

Section 11.8           Counterparts.  This Agreement may be executed in any number of counterparts and by the different parties hereto on separate counterparts, each of which when so executed and delivered shall be an original, but all of which shall together constitute one and the same agreement.

Section 11.9           Integration.  This Agreement, the other Credit Documents and any separate letter agreements with respect to fees payable to the Administrative Agent, for its own account and benefit and/or for the account, benefit of, and distribution to, the Lenders, constitute the entire contract among the parties relating to the subject matter hereof and thereof and supersede any and all previous agreements and understandings, oral or written, relating to the subject matter hereof or thereof.

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Section 11.10         Headings Descriptive.  The headings of the several sections and other portions of this Agreement are inserted for convenience only and shall not in any way affect the meaning or construction of any provision of this Agreement.

Section 11.11         Amendment or Waiver.

(a)           Neither this Agreement nor any other Credit Document, nor the terms hereof or thereof, may be amended, changed, waived or otherwise modified unless such amendment, change, waiver or other modification is in writing and signed by the Borrower and the Administrative Agent, and also signed (or consented to in writing by) the Required Lenders, provided that

(i)            no change in, or waiver or other modification otherwise affecting, the amount or time of any scheduled or mandatory reduction in or termination of the Total Commitment provided for in Section 3.3 to which a Lender shall be entitled, shall be made without the written consent of each Lender;

(ii)           no change, waiver or other modification shall:

(A)          increase (1) the Commitment of any Lender hereunder, without the written consent of such Lender, or (2) the Total Commitment, without the consent of all of the Lenders;

(B)           extend or postpone the Maturity Date or any other maturity date provided for herein that is applicable to any Loan of any Lender, extend or postpone any scheduled expiration or termination date provided for herein that is applicable to a Commitment of any Lender, or extend or postpone the expiration date of any Letter of Credit as to which such Lender is an LC Participant beyond the latest expiration date for a Letter of Credit provided for herein, without the written consent of such Lender;

(C)           reduce the principal amount of any Loan made by any Lender, or reduce the rate or extend the time of payment of, or excuse the payment of, interest thereon (other than as a result of waiving the applicability of any post-default increase in interest rates), without the written consent of such Lender; or

(D)          reduce the amount of any Unpaid Drawings as to which any Lender is an LC Participate, or reduce the rate or extend the time of payment of, or excuse the payment of, interest thereon (other than as a result of waiving the applicability of any post-default increase in interest rates), without the written consent of such Lender; or

(E)           reduce the rate or extend the time of payment of, or excuse the payment of, any Fees to which any Lender is entitled hereunder, without the written consent of such Lender; and

(iii)no change, waiver or other modification or termination shall, without the written consent of each Lender (other than a Defaulting Lender) affected thereby,

(A)          release the Borrower from any obligations as a guarantor of its Subsidiaries’ obligations under any Credit Document, except in accordance with the express terms of this Agreement;

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(B)           amend, modify or waive any provision of this Section 11.11, or Section 9.3, 10.7, 11.1, 11.4 or 11.6, or any other provision of any of the Credit Documents pursuant to which the consent or approval of all Lenders, or a number or specified percentage or other required grouping of Lenders is by the terms of such provision explicitly required;

(C)           reduce the percentage specified in, or otherwise modify, the definition of Required Lenders; or

(D)          consent to the assignment or transfer by the Borrower of any of its rights and obligations under this Agreement, except in accordance with the express terms of this Agreement.

Any waiver, consent, amendment or other modification with respect to this Agreement given or made in accordance with this Section 11.11 shall be effective only in the specific instance and for the specific purpose for which it was given or made.

(b)           No provision of Section 2.4 or any other provision in this Agreement specifically relating to Letters of Credit may be amended without the consent of any LC Issuer adversely affected thereby.

(c)           No provision of Article X may be amended without the consent of the Administrative Agent.

Section 11.12         Survival of Indemnities.  All indemnities set forth herein including, without limitation, in Section 2.8, 2.9, 2.10, 4.5, 10.7 or 11.1 shall survive the execution and delivery of this Agreement and the making and repayment of Loans.

Section 11.13         Domicile of Loans.  Each Lender may transfer and carry its Loans at, to or for the account of any branch office, subsidiary or affiliate of such Lender, provided that the Borrower shall not be responsible for costs arising under Section 2.8 resulting from any such transfer (other than a transfer pursuant to Section 2.11) to the extent not otherwise applicable to such Lender prior to such transfer.

Section 11.14         Confidentiality.

(a)           The Administrative Agent, each LC Issuer and the Lenders each agrees to maintain the confidentiality of all Confidential Information (as defined below), except that Confidential Information may be disclosed (i) to its and its Affiliates’ directors, officers, employees and agents, including accountants, legal counsel and other advisors (it being understood that the Persons to whom such disclosure is made will be informed of the confidential nature of such Confidential Information and instructed to keep such Confidential Information confidential), (ii) to any direct or indirect contractual counterparty in any swap, hedge or similar agreement (or to any such contractual counterparty’s professional advisor, so long as such contractual counterparty (or such professional advisor) agrees to be bound by the provisions of this Section 11.14, (iii) to the extent requested by any regulatory authority, (iv) to the extent required by applicable laws or regulations or by any subpoena or similar legal process, (v) to any other party to this Agreement, (vi) to any other creditor of the Borrower that is a direct or intended beneficiary of any of the Credit Documents, (vii) in connection with the exercise of any remedies hereunder or under any of the other Credit Documents, or any suit, action or proceeding relating to this Agreement or any of the other Credit Documents or the enforcement of rights hereunder or thereunder, (viii) subject to an agreement containing provisions substantially the same as those of this Section 11.14, to any assignee of or participant in, or any prospective assignee of or participant in, any of its rights or obligations under this Agreement, (ix) with the consent of the Borrower, or (x) to the extent

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such Confidential Information (A) becomes publicly available other than as a result of a breach of this Section 11.14, or (B) becomes available to the Administrative Agent, any LC Issuer or any Lender on a non-confidential basis from a source other than the Borrower.

(b)           As used in this Section, “Confidential Information” shall mean all information received from the Borrower relating to the Borrower or its business, other than any such information that is available to the Administrative Agent, any LC Issuer or any Lender on a non-confidential basis prior to disclosure by the Borrower, provided that in the case of information received from the Borrower after the Closing Date, such information is clearly identified at the time of delivery as confidential.

Section 11.15         Lender Register.  The Borrower hereby designates the Administrative Agent to serve as its agent, solely for purposes of this Section 11.15, to maintain a register (the “Lender Register”) on or in which it will record the names and addresses of the Lenders, and the Commitments from time to time of each of the Lenders, the Loans made to the Borrower by each of the Lenders and each repayment and prepayment in respect of the principal amount of such Loans of each such Lender.  Failure to make any such recordation, or (absent manifest error) any error in such recordation, shall not affect the Borrower’s obligations in respect of such Loans.  With respect to any Lender, the transfer of the Commitment of such Lender and the rights to the principal of, and interest on, any Loan made pursuant to such Commitment shall not be effective until such transfer is recorded on the Lender Register maintained by the Administrative Agent with respect to ownership of such Commitment and Loans and prior to such recordation all amounts owing to the transferor with respect to such Commitment and Loans shall remain owing to the transferor.  The registration of assignment or transfer of all or part of any Commitments and Loans shall be recorded by the Administrative Agent on the Lender Register only upon the acceptance by the Administrative Agent of a properly executed and delivered Assignment Agreement pursuant to Section 11.4(c).  The Borrower agrees to indemnify the Administrative Agent from and against any and all losses, claims, damages and liabilities of whatsoever nature that may be imposed on, asserted against or incurred by the Administrative Agent in performing its duties under this Section 11.15, except to the extent attributable to the gross negligence or willful misconduct of the Administrative Agent. The Lender Register shall be available for inspection by the Borrower or any Lender at any reasonable time and from time to time upon reasonable prior notice.

Section 11.16         General Limitation of Liability.  No claim may be made by the Borrower, any Lender, the Administrative Agent, any LC Issuer or any other Person against the Administrative Agent, any LC Issuer or any other Lender or the Affiliates, directors, officers, employees, attorneys or agents of any of them for any damages other than actual compensatory damages in respect of any claim for breach of contract or any other theory of liability arising out of or related to the transactions contemplated by this Agreement or any of the other Credit Documents, or any act, omission or event occurring in connection therewith; and the Borrower, each Lender, the Administrative Agent and each LC Issuer hereby, to the fullest extent permitted under applicable law, waives, releases and agrees not to sue or counterclaim upon any such claim for any special, consequential or punitive damages, whether or not accrued and whether or not known or suspected to exist in its favor.

Section 11.17         Limitations on Liability of the LC Issuers.  The Borrower assumes all risks of the acts or omissions of any beneficiary or transferee of any Letter of Credit with respect to its use of such Letters of Credit.  Neither any LC Issuer nor any of its officers or directors shall be liable or responsible for: (a) the use that may be made of any Letter of Credit or any acts or omissions of any beneficiary or transferee in connection therewith; (b) the validity, sufficiency or genuineness of documents, or of any endorsement thereon, even if such documents should prove to be in any or all respects invalid, insufficient, fraudulent or forged; (c) payment by an LC Issuer against presentation of documents that do not comply with the terms of a Letter of Credit, including failure of any documents to bear any reference or adequate reference to such Letter of Credit; or (d) any other circumstances whatsoever in making or

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failing to make payment under any Letter of Credit, except that the Borrower shall have a claim against an LC Issuer, and an LC Issuer shall be liable to the Borrower, to the extent of any direct, but not consequential, damages suffered by the Borrower that the Borrower proves were caused by (i) such LC Issuer’s willful misconduct or gross negligence in determining whether documents presented under a Letter of Credit comply with the terms of such Letter of Credit or (ii) such LC Issuer’s willful failure to make lawful payment under any Letter of Credit after the presentation to it of documentation strictly complying with the terms and conditions of such Letter of Credit.  In furtherance and not in limitation of the foregoing, an LC Issuer may accept documents that appear on their face to be in order, without responsibility for further investigation.

Section 11.18         No Duty.  All attorneys, accountants, appraisers, consultants and other professional Persons (including, without limitation, the firms or other entities on behalf of which any such Person may act) retained by the Administrative Agent or any Lender with respect to the transactions contemplated by the Credit Documents shall have the right to act exclusively in the interest of the Administrative Agent or such Lender, as the case may be, and shall have no duty of disclosure, duty of loyalty, duty of care, or other duty or obligation of any type or nature whatsoever to the Borrower, to any of its Subsidiaries, or to any other Person, with respect to any matters within the scope of such representation or related to their activities in connection with such representation.  The Borrower agrees, on behalf of itself and its Subsidiaries, not to assert any claim or counterclaim against any such Persons with regard to such matters, all such claims and counterclaims, now existing or hereafter arising, whether known or unknown, foreseen or unforeseeable, being hereby waived, released and forever discharged.

Section 11.19         Lenders and Agent Not Fiduciary to Borrower.  The relationship among the Borrower and its Subsidiaries, on the one hand, and the Administrative Agent, each LC Issuer and the Lenders, on the other hand, is solely that of debtor and creditor, and the Administrative Agent, each LC Issuer and the Lenders have no fiduciary or other special relationship with the Borrower and its Subsidiaries, and no term or provision of any Credit Document, no course of dealing, no written or oral communication, or other action, shall be construed so as to deem such relationship to be other than that of debtor and creditor.

Section 11.20         Survival of Representations and Warranties.  All representations and warranties herein shall survive the making of Loans and all LC Issuances hereunder, the execution and delivery of this Agreement, the Notes and the other documents (the forms of which are attached as Exhibits hereto), the issue and delivery of the Notes, any disposition thereof by any holder thereof, and any investigation made by the Administrative Agent or any Lender or any other holder of any of the Notes or on its behalf.  All statements contained in any certificate or other document delivered to the Administrative Agent or any Lender or any holder of any Notes by or on behalf of the Borrower or of its Subsidiaries pursuant hereto or otherwise specifically for use in connection with the transactions contemplated hereby shall constitute representations and warranties by the Borrower hereunder, made as of the respective dates specified therein or, if no date is specified, as of the respective dates furnished to the Administrative Agent or any Lender.

Section 11.21         Severability.  Any provision of this Agreement held to be invalid, illegal or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such invalidity, illegality or unenforceability without affecting the validity, legality and enforceability of the remaining provisions hereof; and the invalidity of a particular provision in a particular jurisdiction shall not invalidate such provision in any other jurisdiction.

Section 11.22         Independence of Covenants.  All covenants hereunder shall be given independent effect so that if a particular action, event, condition or circumstance is not permitted by any of such covenants, the fact that it would be permitted by an exception to, or would otherwise be within the

73

limitations or restrictions of, another covenant, shall not avoid the occurrence of a Default or an Event of Default if such action is taken or event, condition or circumstance exists.

Section 11.23         Interest Rate Limitation.  Notwithstanding anything herein to the contrary, if at any time the interest rate applicable to any Loan, together with all fees, charges and other amounts that are treated as interest on such Loan under applicable law (collectively the “Charges”), shall exceed the maximum lawful rate (the “Maximum Rate”) that may be contracted for, charged, taken, received or reserved by the Lender holding such Loan in accordance with applicable law, the rate of interest payable in respect of such Loan hereunder, together with all Charges payable in respect thereof, shall be limited to the Maximum Rate and, to the extent lawful, the interest and Charges that would have been payable in respect of such Loan but were not payable as a result of the operation of this Section shall be cumulated and the interest and Charges payable to such Lender in respect of other Loans or periods shall be increased (but not above the Maximum Rate therefor) until such cumulated amount, together with interest thereon at the Base Rate to the date of repayment, shall have been received by such Lender.

Section 11.24         Treasury Regulations.  The Borrower acknowledges that the Administrative Agent and/or one or more of the Lenders may treat the Loans as part of a transaction that is subject to Treasury Regulation Section 1.6011-4 or Section 301.6112-1, and the Administrative Agent and such Lender or Lenders, as applicable, may file such IRS forms or maintain such lists and other records as they may determine is required by such Treasury Regulations.

Section 11.25         USA Patriot Act.  Each Lender subject to the USA Patriot Act hereby notifies the Borrower that pursuant to the requirements of the USA Patriot Act, it is required to obtain, verify and record information that identifies the Borrower, which information includes the name and address of the Borrower and other information that will allow such Lender to identify the Borrower in accordance with the USA Patriot Act.

[Remainder of page intentionally left blank; signature pages follow.]

74

IN WITNESS WHEREOF, each of the parties hereto has caused a counterpart of this Agreement to be duly executed and delivered as of the date first above written.

THE DAYTON POWER AND LIGHT COMPANY

By:

Name:

Title:

KEYBANK NATIONAL ASSOCIATION,

as a Lender, LC Issuer and as the Administrative Agent

By:

Name:

Title:

JPMORGAN CHASE BANK, N.A.

By:

Name:

Title:

FIFTH THIRD BANK

By:

Name:

Title:

Signature Page

to

The Dayton Power and Light Company Credit Agreement

ANNEX I

INFORMATION AS TO LENDERS

Name of Lender	Commitments	Notice Address
KeyBank National Association	Commitment: $80,000,000	KeyBank National Association 127 Public Square Cleveland, Ohio 44114 Facsimile: (216) 689-5962 Attention: Yvette M. Dyson-Owens
JPMorgan Chase Bank, N.A.	Commitment: $70,000,000	JPMorgan Chase Bank, N.A. 10 S. Dearborn, Floor 7 Mail Code IL1-0010 Chicago, Illinois 60603 Facsimile: (312) 385-7096 Attention: Joyce King
Fifth Third Bank	Commitment: $70,000,000	Fifth Third Bank 5050 Kingsley Drive 1 MOC 2B Cincinnati, Ohio 45263

E-1

EXHIBIT A

REVOLVING NOTE

$	Cleveland, Ohio
	, 20

FOR VALUE RECEIVED, the undersigned, THE DAYTON POWER AND LIGHT COMPANY, an Ohio corporation (herein, together with its successors and assigns, the “Borrower”), hereby promises to pay to the order of                                  (the “Lender”), in lawful money of the United States of America and in immediately available funds, at the Payment Office (such term and certain other capitalized terms used herein without definition shall have the meanings ascribed thereto in the Credit Agreement referred to below) of KeyBank National Association (the “Administrative Agent”), the principal sum of                          DOLLARS AND 00/100 ($                      ) or, if less, the then unpaid principal amount of all Loans made by the Lender to the Borrower pursuant to the Credit Agreement, on the Maturity Date.

The Borrower promises also to pay interest in like currency and funds at the Payment Office on the unpaid principal amount of each Loan made by the Lender from the date of such Loan until paid at the rates and at the times provided in Section 2.7 of the Credit Agreement.

This Note is one of the Notes referred to in the Credit Agreement, dated as of November 21, 2006, among the Borrower, the lending institutions from time to time party thereto (including the Lender), and the Administrative Agent (as the same may from time to time be amended, restated, supplemented or otherwise modified, the “Credit Agreement”), and is entitled to the benefits thereof and of the other Credit Documents.  As provided in the Credit Agreement, this Note is subject to mandatory prepayment prior to the Maturity Date, in whole or in part.

In case an Event of Default shall occur and be continuing, the principal of and accrued interest on this Note may be declared to be due and payable in the manner and with the effect provided in the Credit Agreement.

The Borrower hereby waives presentment, demand, protest or notice of any kind in connection with this Note.  No failure to exercise, or delay in exercising, any rights hereunder on the part of the holder hereof shall operate as a waiver of any such rights.

THIS NOTE SHALL BE CONSTRUED IN ACCORDANCE WITH AND BE GOVERNED BY THE LAW OF THE STATE OF NEW YORK.

THE BORROWER HEREBY IRREVOCABLY WAIVES ALL RIGHT TO A TRIAL BY JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM ARISING OUT OF OR RELATING TO THIS NOTE OR ANY OF THE OTHER CREDIT DOCUMENTS (INCLUDING, WITHOUT LIMITATION, ANY AMENDMENTS, WAIVERS OR OTHER MODIFICATIONS RELATING TO ANY OF THE FOREGOING), OR THE TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY.

IN WITNESS WHEREOF, the undersigned has duly executed this Note as of the date first written above.

E-2

THE DAYTON POWER AND LIGHT COMPANY

By:

Name:

Title:

E-3

EXHIBIT B-1

NOTICE OF BORROWING, CONTINUATION OR CONVERSION

, 200    

KeyBank National Association,
as Administrative Agent for the Lenders party
to the Credit Agreement referred to below
127 Public Square
Cleveland, Ohio 44114
Attention:  Yvette M. Dyson-Owens

Re:          Notice of Borrowing, Continuation or Conversion

Ladies and Gentlemen:

[For a Borrowing:

The undersigned, The Dayton Power and Light Company, an Ohio corporation (the “Company”), refers to the Credit Agreement, dated as of November 21, 2006 (as amended, modified or supplemented from time to time, the “Credit Agreement,” the terms defined therein being used herein as therein defined), among the Company, as Borrower, the lending institutions from time to time party thereto (the “Lenders”), and KeyBank National Association, as Administrative Agent for such Lenders, and hereby gives you notice, irrevocably, pursuant to Section 2.3(b) of the Credit Agreement, that the undersigned hereby requests one or more Borrowings under the Credit Agreement, and in that connection therewith sets forth in the schedule attached hereto the information relating to each such Borrowing (collectively the “Proposed Borrowing”) as required by Section 2.3(b) of the Credit Agreement.

The undersigned hereby specifies that the Proposed Borrowing will consist of Loans as indicated in the schedule attached hereto.

The undersigned hereby certifies that the following statements are true on the date hereof, and will be true on the date of the Proposed Borrowing:

(A)          the representations and warranties of the Borrower contained in the Credit Agreement (other than the representation and warranty contained in Section 6.9 of the Credit Agreement) and the other Credit Documents are and will be true and correct in all material respects, before and after giving effect to the Proposed Borrowing and to the application of the proceeds thereof, as though made on such date, except to the extent that such representations and warranties expressly relate to an earlier specified date, in which case such representations and warranties were true and correct in all material respects as of the date when made; and

(B)           no Default or Event of Default has occurred and is continuing, or would result from such Proposed Borrowing or from the application of the proceeds thereof.

[For a Continuation:

The undersigned, The Dayton Power and Light Company, an Ohio corporation (the “Company”), refers to the Credit Agreement, dated as of November 21, 2006 (as amended, modified or supplemented from time to time, the “Credit Agreement,” the terms defined therein being used herein as therein

E-4

defined), among the Company, as Borrower, the lending institutions from time to time party thereto (the “Lenders”), and KeyBank National Association, as Administrative Agent for such Lenders, and hereby gives you notice, irrevocably, pursuant to Section 2.3(b) of the Credit Agreement, that the undersigned hereby requests one or more Continuations of Loans, consisting of one Type of Loan, pursuant to Section 2.3(a) of the Credit Agreement, and in that connection therewith sets forth in the schedule attached hereto the information relating to each such Continuation.]

[For a Conversion:

The undersigned, The Dayton Power and Light Company, an Ohio corporation (the “Company”), refers to the Credit Agreement, dated as of November 21, 2006 (as amended, modified or supplemented from time to time, the “Credit Agreement,” the terms defined therein being used herein as therein defined), among the Company, as Borrower, the lending institutions from time to time party thereto (the “Lenders”), and KeyBank National Association, as Administrative Agent for such Lenders, and hereby gives you notice, irrevocably, pursuant to Section 2.3(b) of the Credit Agreement, that the undersigned hereby requests one or more Conversions of Loans, consisting of one Type of Loan, into Loans of another Type, pursuant to Section 2.3(a) of the Credit Agreement, and in that connection therewith sets forth in the schedule attached hereto the information relating to each such Conversion.]

Very truly yours,

THE DAYTON POWER AND LIGHT COMPANY

By:

Name:

Title:

E-5

BORROWING SCHEDULE

Proposed Borrowing #1:

Business Day			Interest Period
of		Aggregate	if Loans are
Proposed	Type of	Amount	Eurodollar
Borrowing	Loans	of Loans	Loans
	Base Rate Loans		One Month
	Eurodollar Loans		Two Months
			Three Months
, 200	[Circle one of above]	$	Six Months
			[Circle one of above]

Proposed Borrowing #2:

Business Day			Interest Period
of		Aggregate	if Loans are
Proposed	Type of	Amount	Eurodollar
Borrowing	Loans	of Loans	Loans
	Base Rate Loans		One Month
	Eurodollar Loans		Two Months
			Three Months
, 200	[Circle one of above]	$	Six Months
			[Circle one of above]

E-6

CONTINUATION SCHEDULE

Proposed Continuation #1

[of the Loans described in the first table below

into the Loans described in the second table below]

		Aggregate
		Amount	Interest Period
Date of Loans	Type of Loans	of Loans	of Loans
	Eurodollar Loans		One Month
			Two Months
, 200			Three Months
		$	Six Months
			[Circle one of above]

		Aggregate
		Amount	Interest Period
Date of Loans	Type of Loans	of Loans	of Loans
	Eurodollar Loans		One Month
			Two Months
, 200			Three Months
		$	Six Months
			[Circle one of above]

E-7

Proposed Continuation #2

[of the Loans described in the first table below

into the Loans described in the second table below]

		Aggregate
		Amount	Interest Period
Date of Loans	Type of Loans	of Loans	of Loans
	Eurodollar Loans		One Month
			Two Months
, 200			Three Months
		$	Six Months
			[Circle one of above]

		Aggregate
		Amount	Interest Period
Date of Loans	Type of Loans	of Loans	of Loans
	Eurodollar Loans		One Month
			Two Months
, 200			Three Months
		$	Six Months
			[Circle one of above]

E-8

CONVERSION SCHEDULE

Proposed Conversion #1

[of the Loans described in the first table below

into the Loans described in the second table below]

		Aggregate	Interest Period
		Amount	if Loans are
Date of Loans	Type of Loans	of Loans	Eurodollar Loans
	Base Rate Loans		One Month
	Eurodollar Loans		Two Months
			Three Months
, 200	[Circle one of Above]	$	Six Months
			[Circle one of above]

		Aggregate	Interest Period
		Amount	if Loans are
Date of Loans	Type of Loans	of Loans	Eurodollar Loans
	Base Rate Loans		One Month
	Eurodollar Loans		Two Months
			Three Months
, 200	[Circle one of Above]	$	Six Months
			[Circle one of above]

E-9

Proposed Conversion #2

[of the Loans described in the first table below
into the Loans described in the second table below]

		Aggregate	Interest Period
		Amount	if Loans are
Date of Loans	Type of Loans	of Loans	Eurodollar Loans
	Base Rate Loans		One Month
	Eurodollar Loans		Two Months
			Three Months
, 200	[Circle one of Above]	$	Six Months
			[Circle one of above]

		Aggregate	Interest Period
		Amount	if Loans are
Date of Loans	Type of Loans	of Loans	Eurodollar Loans
	Base Rate Loans		One Month
	Eurodollar Loans		Two Months
			Three Months
, 200	[Circle one of Above]	$	Six Months
			[Circle one of above]

E-10

EXHIBIT B-2

LC REQUEST

, 20    

KeyBank National Association,
as Administrative Agent for the Lenders party
to the Credit Agreement referred to below
127 Public Square
Cleveland, Ohio 44114
Attention:  Yvette M. Dyson-Owens

Ladies and Gentlemen:

The undersigned, The Dayton Power and Light Company, an Ohio corporation (the “Company”), refers to the Credit Agreement, dated as of November 21, 2006 (as amended, modified or supplemented from time to time, the “Credit Agreement,” the terms defined therein being used herein as therein defined), among the Company, as Borrower, the lending institutions from time to time party thereto (the “Lenders”), and KeyBank National Association, as Administrative Agent for such Lenders.

Pursuant to Section 2.4(b) of the Credit Agreement, the undersigned hereby requests that KeyBank National Association, as LC Issuer, issue a Letter of Credit on                           , 20     (the “Date of Issuance”) in the aggregate face amount of $                          , for the account of the Borrower.

The beneficiary of the requested Letter of Credit will be                     , and such Letter of Credit will be in support of                        and will have a stated termination date of                           .

The undersigned hereby certifies that the following statements are true on the date hereof, and will be true on the Date of Issuance:

(A)          the representations and warranties of the Credit Parties contained in the Credit Agreement (other than the representation and warranty contained in Section 6.9 of the Credit Agreement) and the other Credit Documents are and will be true and correct in all material respects, before and after giving effect to the issuance of the Letter of Credit, as though made on such date, except to the extent that such representations and warranties expressly relate to an earlier specified date, in which case such representations and warranties were true and correct in all material respects as of the date when made; and

(B)           no Default or Event of Default has occurred and is continuing, or would result after giving effect to the issuance of the Letter of Credit requested hereby.

Copies of all documentation with respect to the supported transaction are attached hereto.

Very truly yours,
THE DAYTON POWER AND LIGHT COMPANY
By:
	Name:
	Title:

E-11

EXHIBIT C

COMPLIANCE CERTIFICATE

For Fiscal Quarter ended                                    

THE UNDERSIGNED HEREBY CERTIFIES THAT:

(1)I am the duly elected                                                of THE DAYTON POWER AND LIGHT COMPANY, an Ohio corporation (the “Borrower”);

(2)I am familiar with the terms of that certain Credit Agreement, dated as of November 21, 2006, among the undersigned, the Lenders, as defined in the Credit Agreement, and KeyBank National Association, as Administrative Agent (as the same may from time to time be amended, restated, supplemented or otherwise modified, the “Credit Agreement”, the terms defined therein being used herein as therein defined), and the terms of the other Credit Documents, and I have made, or have caused to be made under my supervision, a review in reasonable detail of the transactions and condition of the Borrower and its Subsidiaries during the accounting period covered by the attached financial statements;

(3)The review described in paragraph (2) above did not disclose, and I have no knowledge of, the existence of any condition or event that constitutes or constituted a Default or Event of Default, at the end of the accounting period covered by the attached financial statements or as of the date of this Certificate;

(4)The Borrower hereby represents that the representations and warranties made by the Borrower contained in the Credit Agreement (other than the representation and warranty contained in Section 6.9 of the Credit Agreement) and each other Credit Document are true and correct in all material respects as though made on and as of the date hereof, except to the extent that such representations and warranties expressly relate to an earlier specified date, in which case such representations and warranties were true and correct in all material respects as of the date when made; and

(5)Set forth on Attachment I hereto are calculations of the covenants set forth in Sections 8.5 of the Credit Agreement, which calculations show compliance with the terms thereof.

IN WITNESS WHEREOF, I have signed this certificate on                               , 20    .

THE DAYTON POWER AND LIGHT COMPANY

By:

Name:

Title:

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EXHIBIT D

CLOSING CERTIFICATE

Pursuant to Section 5.1(j) of the Credit Agreement, dated as of November 21, 2006 (the “Credit Agreement”; all capitalized terms used herein have the meaning given to them in the Credit Agreement unless otherwise defined herein), among THE DAYTON POWER AND LIGHT COMPANY, an Ohio corporation (the “Borrower”), the lending institutions party thereto (collectively, the “Lenders”) and KEYBANK NATIONAL ASSOCIATION, as administrative agent for the Lenders under the Credit Agreement (“Agent”), the undersigned, being the duly elected, qualified and acting                                            of the Borrower hereby certifies on behalf of the Borrower as follows:

1.all conditions precedent set forth in Section 5.1 of the Credit Agreement have been satisfied;

2.both before and after giving effect to any Borrowings made on the date hereof and the application of the proceeds thereof, no Default or Event of Default has occurred or is continuing; and

3.both before and after giving effect to any Borrowings made on the date hereof and the application of the proceeds thereof, all representations and warranties of the Borrower contained in the Credit Agreement and in the other Credit Documents are true and correct in all material respects with the same effect as though such representations and warranties had been made on and as of the date hereof, except that, as to any such representations and warranties that expressly relate to an earlier specified date, such representations and warranties are only represented as having been true and correct in all material respects as of the date when made.

IN WITNESS WHEREOF, the undersigned has executed this Certificate on November 21, 2006.

THE DAYTON POWER AND LIGHT COMPANY

By:

Name:

Title:

E-13

EXHIBIT E

ASSIGNMENT AGREEMENT

DATE:                 

Reference is made to the Credit Agreement described in Item 2 of Annex I annexed hereto (as the same may from time to time be amended, restated, supplemented or otherwise modified, the “Credit Agreement”).  Unless defined in Annex I attached hereto, terms defined in the Credit Agreement are used herein as therein defined.

                             (the “Assignor”) and                              (the “Assignee”) hereby agree as follows:

1.The Assignor hereby sells and assigns to the Assignee without recourse and without representation or warranty (other than as expressly provided herein), and the Assignee hereby purchases and assumes from the Assignor, that interest in and to all of the Assignor’s rights and obligations under the Credit Agreement as of the date hereof that represents the percentage interest specified in Item 4 of Annex I (the “Assigned Share”) of all of Assignor’s outstanding rights and obligations under the Credit Agreement indicated in Item 4 of Annex I, including, without limitation, all rights and obligations with respect to the Assigned Share of the Assignor’s Commitment and of the Loans and the Notes held by the Assignor.  After giving effect to such sale and assignment, the Assignee’s Commitment will be as set forth in Item 4 of Annex I.

2.The Assignor (i) represents and warrants that it is duly authorized to enter into and perform the terms of this Assignment Agreement, that it is the legal and beneficial owner of the interest being assigned by it hereunder and that such interest is free and clear of any liens or security interests; (ii) makes no representation or warranty and assumes no responsibility with respect to any statements, warranties or representations made in or in connection with the Credit Agreement or the other Credit Documents or the execution, legality, validity, enforceability, genuineness, sufficiency or value of the Credit Agreement or the other Credit Documents or any other instrument or document furnished pursuant thereto; and (iii) makes no representation or warranty and assumes no responsibility with respect to the financial condition of the Borrower or any of its Subsidiaries or the performance or observance by the Borrower of any of its obligations under the Credit Agreement or the other Credit Documents or any other instrument or document furnished pursuant thereto.

3.The Assignee (i) represents and warrants that it is duly authorized to enter into and perform the terms of this Assignment Agreement; (ii) confirms that it has received a copy of the Credit Agreement and the other Credit Documents, together with copies of the financial statements referred to therein and such other documents and information as it has deemed appropriate to make its own credit analysis and decision to enter into this Assignment Agreement; (iii) agrees that it will, independently and without reliance upon the Administrative Agent, the Assignor or any other Lender and based on such documents and information as it shall deem appropriate at the time, continue to make its own credit decisions in taking or not taking action under the Credit Agreement; (iv) appoints and authorizes each Agent to take such action as agent on its behalf and to exercise such powers under the Credit Agreement and the other Credit Documents as are delegated to such Agent by the terms thereof, together with such powers as are reasonably incidental thereto; [and] (v) agrees that it will perform in accordance with their terms all of the obligations that by the terms of the Credit Agreement are required to be performed by it as

E-14

a Lender[; and (vi) to the extent legally entitled to do so, attaches the forms described in Section 4.5(b)(ii) of the Credit Agreement](1).

4.Following the execution of this Assignment Agreement by the Assignor and the Assignee, an executed original hereof (together with all attachments) will be delivered to the Administrative Agent. The effective date of this Assignment Agreement shall be the date of execution hereof by the Assignor, the Assignee and the consent hereof by the Administrative Agent and the receipt by the Administrative Agent of the administrative fee referred to in Section 11.4(c) of the Credit Agreement, unless otherwise specified in Item 5 of Annex I hereto (the “Settlement Date”).

5.Upon the delivery of a fully executed original hereof to the Administrative Agent, as of the Settlement Date, (i) the Assignee shall be a party to the Credit Agreement and, to the extent provided in this Assignment Agreement, shall have the rights and obligations of a Lender thereunder and under the other Credit Documents and (ii) the Assignor shall, to the extent provided in this Assignment Agreement, relinquish its rights and be released from its obligations under the Credit Agreement and the other Credit Documents.

6.It is agreed that upon the effectiveness hereof, the Assignee shall be entitled to (x) all interest on the Assigned Share of the Loans at the rates specified in Item 6 of Annex I, and (y) all Facility Fees (if applicable) on the Assigned Share of the Commitment at the rate specified in Item 7 of Annex I, that, in each case, accrue on and after the Settlement Date, such interest and, if applicable, Facility Fees, to be paid by the Administrative Agent, upon receipt thereof from the Borrower, directly to the Assignee. It is further agreed that all payments of principal made by the Borrower on the Assigned Share of the Loans that occur on and after the Settlement Date will be paid directly by the Administrative Agent to the Assignee.  Upon the Settlement Date, the Assignee shall pay to the Assignor an amount specified by the Assignor in writing that represents the Assigned Share of the principal amount of the respective Loans made by the Assignor pursuant to the Credit Agreement that are outstanding on the Settlement Date, net of any closing costs, and that are being assigned hereunder. The Assignor and the Assignee shall make all appropriate adjustments in payments under the Credit Agreement for periods prior to the Settlement Date directly between themselves on the Settlement Date.

7.THIS ASSIGNMENT AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK.

*  *  *

IN WITNESS WHEREOF, the parties hereto have caused this Assignment Agreement to be executed by their respective officers thereunto duly authorized, as of the date first above written.

[NAME OF ASSIGNOR],	[NAME OF ASSIGNEE],
as Assignor	as Assignee
By:	By:
Name:	Name:
Title:	Title:

(1)If the Assignee is organized under the laws of a jurisdiction outside the United States.

E-15

[Consented to](2) and Accepted:

KEYBANK NATIONAL ASSOCIATION,

as Administrative Agent

By:

Name:

Title:

[Consented to:](3)

THE DAYTON POWER AND LIGHT COMPANY

By:

Name:

Title:

(2)To be added only if the consent of the Administrative Agent is required by the terms of the Credit Agreement.

(3)To be added only if the consent of the Borrower is required by the terms of the Credit Agreement.

E-16

ANNEX I

TO

ASSIGNMENT AND ASSUMPTION AGREEMENT

1.The Borrower:

THE DAYTON POWER AND LIGHT COMPANY

2.Name and Date of Credit Agreement:

Credit Agreement, dated as of November 21, 2006, among The Dayton Power and Light Company, the Lenders from time to time party thereto, and KeyBank National Association, as Administrative Agent.

3.Date of Assignment Agreement:

                    ,             

4.Amounts (as of date of item #3 above):

	Commitment		Loans
Aggregate Amount for all Lenders	$		$
Assigned Share		%		%
Amount of Assigned Share	$		$
Amount Retained by Assignor	$		$

5.Settlement Date:

                    ,             

6.Rate of Interest
to the Assignee:	As set forth in Section 2.7 of the Credit Agreement (unless otherwise agreed to by the Assignor and the Assignee).(4)
7.Fees:	As set forth in Section 3.1(a), (b) and (c) of the Credit Agreement (unless otherwise agreed to by the Assignor and the Assignee).(5)

(4)The Borrower and the Administrative Agent shall direct the entire amount of the interest to the Assignee at the rate set forth in Section 2.7 of the Credit Agreement, with the Assignor and Assignee effecting any agreed upon sharing of interest through payments by the Assignee to the Assignor.

(5)The Borrower and the Administrative Agent shall direct the entire amount of the Fees payable to the Assignor to the Assignee pursuant to Sections 3.1(a), (b) and (c) of the Credit Agreement at the respective rates set forth in the Credit Agreement, with the Assignor and the Assignee effecting any agreed upon sharing of Facility Fees through payment by the Assignee to the Assignor.

E-17

8.Notices:

ASSIGNOR:	ASSIGNEE:
Attention:	Attention:
Telephone No.:	Telephone No.:
Facsimile No.:	Facsimile No.:

9.Payment Instructions:

ASSIGNOR:	ASSIGNEE:
ABA No.	ABA No.
Account No.:	Account No.:
Reference:	Reference:
Attention:	Attention:
Telephone No.:	Telephone No.:
Facsimile No.:	Facsimile No.:

E-18

EXHIBIT F

(Legal Opinion of General Counsel of the Borrower)

See attached.

E-19

TABLE OF CONTENTS

Page

CLOSING CERTIFICATE

Pursuant to Section 5.1(j) of the Credit Agreement, dated as of November 21, 2006 (the “Credit Agreement”; all capitalized terms used herein have the meaning given to them in the Credit Agreement unless otherwise defined herein), among THE DAYTON POWER AND LIGHT COMPANY, an Ohio corporation (the “Borrower”), the lending institutions party thereto (collectively, the “Lenders”) and KEYBANK NATIONAL ASSOCIATION, as administrative agent for the Lenders under the Credit Agreement (“Agent”), the undersigned, being the duly elected, qualified and acting Treasurer of the Borrower hereby certifies on behalf of the Borrower as follows:

1.             all conditions precedent set forth in Section 5.1 of the Credit Agreement have been satisfied;

2.             both before and after giving effect to any Borrowings made on the date hereof and the application of the proceeds thereof, no Default or Event of Default has occurred or is continuing; and

3.             both before and after giving effect to any Borrowings made on the date hereof and the application of the proceeds thereof, all representations and warranties of the Borrower contained in the Credit Agreement and in the other Credit Documents are true and correct in all material respects with the same effect as though such representations and warranties had been made on and as of the date hereof, except that, as to any such representations and warranties that expressly relate to an earlier specified date, such representations and warranties are only represented as having been true and correct in all material respects as of the date when made.

IN WITNESS WHEREOF, the undersigned has executed this Certificate on November 21, 2006.

THE DAYTON POWER AND LIGHT COMPANY

By:

Name:  Joseph R. Boni III

Title:    Treasurer

November 21, 2006

KeyBank National Association

as Administrative Agent under the

Credit Agreement referred to below

-and-

Each of the Lenders a party to

the Credit Agreement referred

to below

Ladies and Gentlemen:

I am the Vice President, General Counsel and Corporate Secretary of The Dayton Power and Light Company, an Ohio corporation (the “Company”).  In such capacity, I have reviewed the Credit Agreement dated as of November 21, 2006 (the “Credit Agreement”) among the Company, the lending institutions party thereto (the “Lenders”) and KeyBank National Association, as Administrative Agent.

I am rendering this opinion to you, at the request of the Company, pursuant to Section 5.1(g) of the Credit Agreement.  Unless otherwise defined herein, terms defined in the Credit Agreement are used herein as therein defined.

In connection with this opinion, I have examined the following:

(i)            the Credit Agreement;

(ii)           the separate promissory notes issued on the date hereof (the “Notes” and, together with the Credit Agreement, the “Loan Documents”) payable to the order of certain of the Lenders executed and delivered by the Company pursuant to Section 5.1(b) of the Credit Agreement; and

(iii)          such corporate records of the Company, such certificates of officers of the Company and of governmental authorities, and such matters of law as I have considered necessary under the circumstances.

In rendering this opinion, I have assumed the genuineness of all signatures (other than the signatures of the officers of the Company executing the Loan Documents on behalf of the Company) and the authenticity of all documents submitted to me as originals and the conformity to the original of all documents submitted to me as certified or photostatic copies.  Moreover, I have assumed the following:

A.            each certificate issued by any governmental authority is accurate, correct, complete and authentic;

B.            all natural persons are legally competent and have sufficient legal capacity;

C.            each of the parties to the Loan Documents (other than the Company) has the requisite power and authority to execute, deliver and perform each of the Loan Documents to which it is a party, and each of the Loan Documents has been duly authorized, executed and delivered by each of the parties thereto (other than the Company);

D.            each of the Loan Documents constitutes a legal, valid and binding obligation of each of the parties thereto (other than the Company), enforceable against such party in accordance with its terms;

E.             any required consent, approval or authorization of, notice or declaration to, license from, or filing or registration with any governmental authority which any party to the Loan Documents (other than the Company) is required to obtain, give or make has been duly obtained, given or made, as appropriate, and any applicable notice or appeal period has passed;

F.             except as set forth in the Loan Documents and the other agreements, documents and instruments executed and delivered in connection therewith, there is no agreement or understanding (written or oral) between or among any of the parties to the Loan Documents, and there is no usage of trade or course of prior dealing between or among such parties, which would, in either case, define, supplement, modify or qualify the terms of any of the Loan Documents;

G.            the conduct of the parties to the Loan Documents has complied with any requirement of good faith, fair dealing and conscionability; such parties will perform their obligations thereunder

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reasonably, in good faith and with fair dealing; and such parties will act reasonably, in good faith and with fair dealing in taking action, exercising discretion or making determinations thereunder; and

H.            there has not been any mutual mistake of fact, fraud, duress or undue influence in connection with the execution and delivery of the Loan Documents.

In addition, I have assumed the accuracy and correctness of (i) all statements of fact contained in certificates of officers of the Company, (ii) all statements of fact contained in certificates of governmental authorities and (iii) all statements of fact and factual representations and warranties contained in the Loan Documents.  I have not reviewed the dockets or records of any court or other governmental authority.  Nothing contrary to the facts contained in such certificates, statements or representations and warranties, however, has come to my attention. Whenever this opinion with respect to the existence or absence of facts is stated to be based upon my knowledge or awareness, it is intended to signify that no information has come to my attention that would give me actual knowledge of the existence or absence of such facts.  However, I have not undertaken any independent investigation to determine the existence or absence of such facts, and no inference as to my knowledge of the existence or absence of such facts should be drawn from my participation in the transactions contemplated by the Credit Agreement.

My opinion is limited solely to matters governed by the laws of the State of Ohio and the federal laws of the United States.

Based upon, and subject to, the foregoing, it is my opinion that:

(a)           The Company is a corporation duly incorporated, validly existing and in good standing under the laws of the State of Ohio with the requisite corporate power and authority to execute and deliver, and to perform its obligations under, the Loan Documents and to conduct the business in which it is now engaged.

(b)           The execution, delivery and performance by the Company of the Loan Documents has been duly authorized by all necessary corporate action on its part and does not: (i) violate or contravene the Articles of Incorporation or Regulations of the Company; (ii) violate or contravene any applicable law, rule or regulation of the State of Ohio or any applicable federal law, rule or regulation or any order, writ, judgment, injunction, decree or award known to me which is binding on the Company or any of its Subsidiaries; or (iii) violate or contravene any material indenture, instrument or

3

agreement to which the Company or any of its Subsidiaries is a party or is subject or by which the Company or any of its Subsidiaries or any of their properties is bound or conflict with or constitute a default under any such indenture, instrument or agreement or result in, or require, the creation or imposition of any Lien in or on any property of the Company or any of its Subsidiaries pursuant to any such indenture, instrument or agreement.

(c)           Each of the Loan Documents has been duly executed and delivered by the Company and constitutes under the laws of the State of Ohio and the federal laws of the United States a legal, valid and binding obligation of the Company, enforceable in accordance with its terms.

(d)           No authorization from, approval or consent of, notice or declaration to, license from, or registration or filing with, any governmental authority or regulatory body of the State of Ohio or any federal governmental authority or regulatory body is required on the part of the Company in connection with the execution and delivery by the Company of the Loan Documents or the performance by the Company of its obligations thereunder or the legality, validity, binding effect or enforceability of any of the Loan Documents, other than authorizations and approvals that have been obtained and are in full force and effect.

(e)           Neither the Company nor any Subsidiary is a “holding company” within the meaning of the Public Utility Holding Company Act of 2005.

(f)            Other than as set forth in Schedule 6.5 to the Credit Agreement, I am not aware of any action, suit or proceeding before or by any court, any other governmental authority or any arbitration panel pending or threatened against or affecting the Company or any of its Subsidiaries which would have a Material Adverse Effect or which seeks to restrain or enjoin, or questions the execution, delivery or performance of, the Loan Documents.

(g)           The borrowings by the Borrower under the Credit Agreement and the application of the proceeds thereof as provided in the Credit Agreement will not violate Regulation T, U or X of the Board of Governors of the Federal Reserve System.

(h)           The Borrower is not required to register as an “investment company” (under, and as defined in, the Investment Company Act of 1940, as amended (the “1940 Act”)) and is not a company controlled by a company required to register as such under the 1940 Act.

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(i)            The Borrower is regulated as a public utility by the Federal Energy Regulatory Commission and by the Public Utilities Commission of Ohio.

This opinion is subject to the following qualifications and limitations:

(1)           The enforceability of the Loan Documents may be limited by applicable bankruptcy, insolvency, fraudulent conveyance or transfer, reorganization, moratorium, rearrangement, liquidation, conservatorship or other laws affecting the rights of creditors generally.

(2)           The enforceability of the Loan Documents and the availability of specific performance, injunctive relief and other forms of equitable relief are subject to general principles of equity (regardless of whether considered in a proceeding in equity or at law), commercial reasonableness, public policy and conscionability.

(3)           No opinion is expressed with respect to the enforceability under the laws of the State of Ohio of any provision of the Loan Documents which purports to require payment or reimbursement of attorneys’ fees or litigation expenses of another party.

(4)           No opinion is expressed with respect to the title (or the quality or character thereof) to any property or the existence or absence of any lien or encumbrance thereon.

(5)           No opinion is expressed with respect to any provision of the Loan Documents that purports to:

(i)            release, exculpate, hold harmless, exempt a party from, require indemnification or contribution or prohibit future business activity to the extent such release, exculpation, hold harmless, exemption, indemnity, contribution or prohibition is contrary to public policy;

(ii)           provide the right to exercise remedies upon the occurrence of a non-material breach of the Loan Documents (including material breaches of non-material provisions thereof);

5

(iii)          define, waive or set standards for good faith, reasonableness, commercial reasonableness, fair dealing or diligence;

(iv)          govern the election of remedies or provide that remedies are cumulative; or

(v)           require the payment or reimbursement of any fee, cost or expense that may be deemed to be unreasonable in nature or amount.

(6)           No opinion is expressed with respect to:

(i)            compliance with any registration, filing, notification, anti-fraud or other provision of any federal or state securities law, rule or regulation;

(ii)           the enforceability of (x) provisions which purport to establish evidentiary standards; (y) provisions relating to waiver of rights or remedies (or the delay or omission of enforcement thereof), disclaimers, liability limitations, releases of legal or equitable rights (including the right to a jury trial), submission to the jurisdiction and venue of any court, liquidated damages (including provisions which may operate as a penalty) or the creation of rights and remedies not permitted under applicable law or contrary to public policy; or (z) provisions which purport to prohibit, restrict or limit the ability of a person to transfer rights or interests in property;

(iii)          the enforceability of any provision that purports to preclude amendment or modification of the Loan Documents orally or through conduct, custom or course of performance, action or dealing;

(iv)          matters relating to employee benefit laws and regulations (including the Employee Retirement Income Security Act of 1974, as amended) or federal, state or local tax laws and regulations;

(v)           any provision of the Loan Documents which requires the payment of interest on interest; or

6

(vi)          federal or state antitrust, unfair competition or similar laws and regulations.

No opinion may be inferred or implied beyond the matters expressly stated herein.  The opinions that are expressed herein are solely for your benefit in connection with the transactions contemplated by the Credit Agreement and may not be relied upon in any manner for any other purpose or by any other person (other than your permitted assigns or participants under the Credit Agreement).  This opinion is as of its date, and I disclaim any undertaking or obligation to advise you of changes that hereafter may be brought to my attention.

Very truly yours,

7

THE DAYTON POWER AND LIGHT COMPANY

CORPORATE SECRETARY’S CERTIFICATE

Pursuant to Sections 5.1(d), (e) and (f) of the Credit Agreement, dated as of November 21, 2006 (the “Credit Agreement”; all capitalized terms used herein have the meaning given to them in the Credit Agreement unless otherwise defined herein), among THE DAYTON POWER AND LIGHT COMPANY, an Ohio corporation (the “Borrower”), the lending institutions party thereto (collectively, the “Lenders”) and KEYBANK NATIONAL ASSOCIATION, as administrative agent for the Lenders under the Credit Agreement (“Agent”), I, Miggie E. Cramblit, the duly elected and qualified Vice President, General Counsel and Corporate Secretary of the Borrower, do hereby certify as follows:

1.             Attached hereto as Exhibit A-1 is a true, correct and complete copy of a certain resolution adopted by the Board of Directors of the Borrower at a meeting duly called and held on November 16, 2006, at which a quorum was present and acting throughout, that grant the authority for officers to approve the Credit Documents, and such resolution has not thereafter been modified or rescinded and is in full force and effect on the date hereof.  Attached as Exhibit A-2 hereto are true, correct and complete copies of all of the other documents evidencing other necessary corporate action, governmental approvals or other consents or approvals with respect to the execution, delivery and performance by the Borrower of the Credit Documents.

2.             The person named below is on the date hereof, and has been at all times pertinent hereto, a duly elected, qualified and acting officer of the Borrower, holding the office set forth opposite his name, and the signature appearing opposite the name of such person is his genuine signature.  Furthermore, said officer shall be considered to be an Authorized Officer who is authorized to sign the Credit Documents and any other documents to which the Borrower is a party.  You may rely on the authority granted in this certificate until notified in writing by the Borrower of any change.

Name	Title	Signature
Joseph R. Boni III	Treasurer

3.             Attached hereto as Exhibit B is a true, correct and complete original copy of the Amended Articles of Incorporation of the Borrower and all amendments thereto, certified by the Ohio Secretary of State.  There has been no amendment to the Amended Articles of Incorporation of the Borrower since the date of the Ohio Secretary of State’s certificate attached hereto as Exhibit B, and the Amended Articles of Incorporation of the Borrower are in full force and effect as of the date hereof.

4.             Attached hereto as Exhibit C is a true, correct and complete copy of the Regulations of the Borrower, which have not been modified since April 9, 1981, and which are in full force and effect as of the date hereof.

5.             Attached hereto as Exhibit D is a true, correct and complete copy of a Good Standing Certificate from the Ohio Secretary of State dated as of November     , 2006, certifying the good standing of the Borrower.

IN WITNESS WHEREOF, the undersigned has signed this certificate as of this 21st day of November, 2006.

Miggie E. Cramblit

Vice President, General Counsel and Corporate Secretary

The person named below is on the date hereof, and has been at all times pertinent hereto, a duly elected, qualified and acting officer of the Borrower, holding the office or offices set forth opposite her name and the signature appearing opposite the name of such person is her genuine signature.  Furthermore, said officer shall be considered to be an Authorized Officer who is authorized to sign the Credit Documents to which the Borrower is a party.  You may rely on the authority granted in this certificate until notified in writing by the Borrower of any change.

Name	Title	Signature
Miggie E. Cramblit	Vice President, General Counsel and Corporate Secretary

Joseph R. Boni III

Treasurer

Exhibit A-1

Exhibit A-2

Exhibit B

Exhibit C

Exhibit D

SCHEDULE 6.1

SUBSIDIARIES

The Borrower holds shares of interest in the following Subsidiaries, all of which are wholly-owned:

(a)DPL RTC Management Company, an Ohio corporation that owned and managed regulatory transition fees.  It currently does no business.

(b)DPL GTC Management Company, an Ohio corporation that owned and managed customer transition fees.  It currently does no business.

(c)DPL Finance Company, Inc., a Delaware corporation that provides financing opportunities among affiliated companies.

(d)DPL EM, LLC, a Delaware limited liability company that owns and manages emission credits.

SCHEDULE 6.5

PENDING OR THREATENED LITIGATION, ARBITRATIONS, GOVERNMENTAL
INVESTIGATIONS, PROCEEDINGS OR INQUIRIES

A.
Name:	Sierra Club v. The Dayton Power and Light Company
	(“DP&L”)
Court:	U.S. District Court for the Southern District of Ohio
Case No.:	04-CV-905
Filing Date:	September 21, 2004

This is a civil action which, as amended, covers alleged violations of the Clean Air Act at the Stuart Electric Generating Station.  Discovery is pending, and DP&L and its partners intend to vigorously defend this matter.

B.
Name:	South Dayton Landfill
Agency:	United States Environmental Protection Agency (“USEPA”)
Issue:	Superfund Site
Alleged Damages:	Estimated clean-up cost is unknown.

USEPA alleges DP&L is a potentially responsible party among numerous others and may share in the cost of the clean-up activities.  DP&L has not joined the PRP group formed for this site because available information does not demonstrate that DP&L contributed hazardous waste to this site.

C.
Matter:	Investigation by Public Utilities Commission of Ohio (“PUCO”)
Agency:	PUCO
Respondent:	DP&L and other public utilities
Filing Date:	March 20, 2003

Issue: Desirability, feasibility and timing for declaring retail ancillary, metering, billing and/or collection services are competitive retail electric services in Ohio that consumers may obtain from any supplier

DP&L has filed its comments with this case.  The PUCO has not issued findings or orders to date.

D.
Name:	DP&L, DPL Inc. and MVE, Inc. v. Forster, et al.
Court:	Montgomery County Court of Common Pleas
Case No.	04-CV-5657
Filing Date:	August 24, 2004
Issue:	DP&L, its corporate and affiliate filed this action in the Montgomery County Court of Common Pleas, Dayton, Ohio, asserting legal claims against Messrs. Forster and Koziar and Ms. Muhlenkamp relating to the termination of the Valley Partners Agreements, challenging the validity of the purported amendments to the deferred compensation plans and to the employment and consulting agreements with Messrs. Forster and Koziar and Ms. Muhlenkamp, and with the propriety of the distributions from the plans to these defendants. Discovery is pending. Trial is scheduled to commence April 30, 2007.
E.
Matter:	Pending informal inquiries by Securities and Exchange Commission
	Pending investigation by U.S. Attorney’s Office for Southern District of Ohio assisted by FBI
Issue:	The recent resignation and/or retirement of selected executive officers and matters raised in the internal memorandum of DP&L’s previous controller to DPL Inc.’s Board of Directors including, but not limited to, allegations concerning disclosure and reporting matters, executive compensation, destruction of DP&L’s property and violation of fiduciary responsibilities
Amount at risk:	Unknown

2

DPL Inc. and DP&L are currently subject to investigations/inquiries by the SEC and the FBI on behalf of the U.S. Attorney’s Office and have pledged their complete cooperation.

F.
Name:	Tremont City Landfill
Agency:	USEPA
Issue:	Superfund Site
Alleged Damages:	Estimated clean-up cost is unknown.

USEPA alleges DP&L is a potentially responsible party among numerous others and may share in the cost of the clean up activities.  DP&L has not joined the PRP group formed for this site because available information does not demonstrate that DP&L contributed hazardous waste to this site.

G.

Name:	Forster et al. v. AlpInvest/Lexington 2005, LLC, et al.
Court:	New York state court
Case No.:	05/600926
Filing Date:	March 15, 2005
Issue:	Mr. Forster and Ms. Muhlenkamp filed a lawsuit in New York state court against the purchasers of the DPL private equity portfolio and against DP&L’s outside counsel regarding purported entitlements in connection with the purchase of the portfolio. While DP&L is not a defendant in this case, we have acknowledged indemnity obligations. DP&L, DPL Inc. and MVE, Inc. jointly filed a Motion for Preliminary Injunction on March 28, 2005 in the Ohio litigation (See F. above) since there is substantial identity of issues between these cases. The trial court has stayed all activity on this case until the conclusion of the analogous Ohio litigation (See D. above).
H.
Name:	Application for Rate Stabilization Surcharge
Agency:	PUCO

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Date:	April 4, 2005
Issue:	Pursuant to its PUCO-approved stipulation to extend the market development period through December 31, 2005, DP&L was authorized to seek a rate stabilization surcharge for an amount not to exceed 11% of generation rates to reflect increased costs associated with fuel, environmental compliance, taxes, regulatory charges and security measures. On April 4, 2005, DP&L filed its rate stabilization surcharge request. If approved as filed, the surcharge would produce approximately $76 million in additional revenues in 2006. This rate was approved by the PUCO in late 2005 and is currently under appeal to the Ohio Supreme Court.
I.
Name	Ohio Franchise Tax
Agency:	Ohio Department of Taxation; Board of Tax Appeals
Date:	February 13, 2006
Issue:	Ohio Department of Tax has assessed DP&L for tax years 2004 and audit adjustment of $90.8 million. DP&L has petitions for reassessment and a request for corrected assessments. On October 12, 2006 DP&L signed a memorandum of understanding that limits our potential exposure after all judicial proceedings are completed to a maximum of $50.7 million. DP&L plans to vigorously defend this matter.
J.
Name:	Fair Labor Standards Act Claim
Agency:	Department of Labor
Date:	September 2006
Issue:	DP&L became aware of an unasserted claim regarding the calculation of overtime rates for our unionized workforce. DP&L will vigorously defend any claim made if and when asserted.

4

SCHEDULE 8.3

LIENS

None.

SCHEDULE 8.4

EXISTING INVESTMENTS

Deposits and Deposit Accounts

Lease, utility or other similar deposits made in the ordinary course of business.  Deposits and deposit accounts made with financial institutions in the ordinary course of business.

Employee Advances

Payroll, travel and similar advances to cover matters expected at the time of such advances ultimately to be treated as expenses for accounting purposes and that are made in the ordinary course of business.

Various loans and advances to employees for office equipment, tuition, and moving expenses made in the ordinary course of business.

Equity in certain non-Subsidiaries

4.9% equity ownership interest in an electric generation company.  As of September 30, 2006, DP&L could be responsible for the repayment of 4.9%, or $21.8 million, of a $445 million debt obligation of such entity that matures in 2026.

EX-21

Exhibit 21

SUBSIDIARIES OF DPL INC.

DPL Inc. had the following subsidiaries at December 31, 2009:

	State of Incorporation
The Dayton Power and Light Company	Ohio
Miami Valley Insurance Company	Vermont
DPL Energy, LLC	Ohio
DPL Energy Resources, Inc.	Ohio

SUBSIDIARIES OF THE DAYTON POWER AND LIGHT COMPANY

The Dayton Power and Light Company did not have any subsidiaries at December 31, 2009.

EX-23.(A)

Exhibit 23(a)

Consent of Independent Registered Public Accounting Firm

The Board of Directors
DPL Inc.:

We consent to the incorporation by reference in the registration statements on Form S-3 (No. 333-44370) and on Form S-8 (Nos. 333-39982 and 333-139348) of DPL Inc. of our report dated February 11, 2010, with respect to the Consolidated Balance Sheets of DPL Inc. and subsidiaries as of December 31, 2009 and 2008, and the related Consolidated Statements of Results of Operations, Shareholders’ Equity and Cash Flows for each of the years in the three-year period ended December 31, 2009, and the related financial statement schedules, and the effectiveness of internal control over financial reporting as of December 31, 2009, which report appears in the December 31, 2009 annual report on Form 10-K of DPL Inc.

KPMG LLP

Philadelphia, Pennsylvania
February 11, 2010

EX-31.(A)

Exhibit 31(a)

CERTIFICATIONS

I, Paul M. Barbas, certify that:

1.I have reviewed this annual report on Form 10-K of DPL Inc.;

2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a)Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b)Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5.The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

(a)All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b)Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: February 11, 2010
	/s/ Paul M. Barbas
	Paul M. Barbas
	President and Chief Executive Officer

EX-31.(B)

Exhibit 31(b)

CERTIFICATIONS

I, Frederick J. Boyle, certify that:

1.I have reviewed this annual report on Form 10-K of DPL Inc.;

2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a)Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5.The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

(a)All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b)Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: February 11, 2010
	/s/ Frederick J. Boyle
	Frederick J. Boyle
	Senior Vice President, Chief Financial Officer and Treasurer

EX-31.(C)

Exhibit 31(c)

CERTIFICATIONS

I, Paul M. Barbas, certify that:

1.I have reviewed this annual report on Form 10-K of The Dayton Power and Light Company;

2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a)   Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b)   Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5.The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

(a)   All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b)   Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: February 11, 2010
	/s/ Paul M. Barbas
	Paul M. Barbas
	President and Chief Executive Officer

EX-31.(D)

Exhibit 31(d)

CERTIFICATIONS

I, Frederick J. Boyle, certify that:

1.I have reviewed this annual report on Form 10-K of The Dayton Power and Light Company;

2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a)   Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5.The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

(a)   All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b)   Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: February 11, 2010
	/s/ Frederick J. Boyle
	Frederick J. Boyle
	Senior Vice President, Chief Financial Officer and Treasurer

EX-32.(A)

Exhibit 32(a)

DPL Inc.

CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350 AS ADOPTED PURSUANT TO SECTION 906

OF THE SARBANES-OXLEY ACT OF 2002

The undersigned officer of DPL Inc. (the “Issuer”) hereby certifies pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that the Issuer’s Annual Report on Form 10-K for the period ended December 31, 2009, which this certificate accompanies, fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 and that the information contained therein fairly presents, in all material respects, the financial condition and results of operations of the Issuer as of the dates and for the periods expressed therein.

A signed original of this written statement required by Section 906 of the Sarbanes-Oxley Act of 2002, or other document authenticating, acknowledging, or otherwise adopting the signature that appears in typed form within the electronic version of this statement required by Section 906 of the Sarbanes-Oxley Act of 2002, has been provided to the Issuer and will be retained by the Issuer and furnished to the Securities and Exchange Commission or its staff upon request.

Signed:

/s/ Paul M. Barbas

Paul M. Barbas

President and Chief Executive Officer

Date: February 11, 2010

The foregoing certificate is being furnished solely pursuant to 18 U.S.C. Section 1350 and is not being filed as part of the Issuer’s Annual Report or as a separate disclosure document.

EX-32.(B)

Exhibit 32(b)

DPL Inc.

CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350 AS ADOPTED PURSUANT TO SECTION 906

OF THE SARBANES-OXLEY ACT OF 2002

The undersigned officer of DPL Inc. (the “Issuer”) hereby certifies pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that the Issuer’s Annual Report on Form 10-K for the period ended December 31, 2009, which this certificate accompanies, fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 and that the information contained therein fairly presents, in all material respects, the financial condition and results of operations of the Issuer as of the dates and for the periods expressed therein.

A signed original of this written statement required by Section 906 of the Sarbanes-Oxley Act of 2002, or other document authenticating, acknowledging, or otherwise adopting the signature that appears in typed form within the electronic version of this statement required by Section 906 of the Sarbanes-Oxley Act of 2002, has been provided to the Issuer and will be retained by the Issuer and furnished to the Securities and Exchange Commission or its staff upon request.

Signed:

/s/ Frederick J. Boyle

Frederick J. Boyle

Senior Vice President, Chief Financial Officer and Treasurer

Date: February 11, 2010

The foregoing certificate is being furnished solely pursuant to 18 U.S.C. Section 1350 and is not being filed as part of the Issuer’s Annual Report or as a separate disclosure document.

EX-32.(C)

Exhibit 32(c)

The Dayton Power and Light Company

CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350 AS ADOPTED PURSUANT TO SECTION 906

OF THE SARBANES-OXLEY ACT OF 2002

The undersigned officer of The Dayton Power and Light Company (the “Issuer”) hereby certifies pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that the Issuer’s Annual Report on Form 10-K for the period ended December 31, 2009, which this certificate accompanies, fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 and that the information contained therein fairly presents, in all material respects, the financial condition and results of operations of the Issuer as of the dates and for the periods expressed therein.

A signed original of this written statement required by Section 906 of the Sarbanes-Oxley Act of 2002, or other document authenticating, acknowledging, or otherwise adopting the signature that appears in typed form within the electronic version of this statement required by Section 906 of the Sarbanes-Oxley Act of 2002, has been provided to the Issuer and will be retained by the Issuer and furnished to the Securities and Exchange Commission or its staff upon request.

Signed:

/s/ Paul M. Barbas

Paul M. Barbas

President and Chief Executive Officer

Date: February 11, 2010

The foregoing certificate is being furnished solely pursuant to 18 U.S.C. Section 1350 and is not being filed as part of the Issuer’s Annual Report or as a separate disclosure document.

EX-32.(D)

Exhibit 32(d)

The Dayton Power and Light Company

CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350 AS ADOPTED PURSUANT TO SECTION 906

OF THE SARBANES-OXLEY ACT OF 2002

The undersigned officer of The Dayton Power and Light Company (the “Issuer”) hereby certifies pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that the Issuer’s Annual Report on Form 10-K for the period ended December 31, 2009, which this certificate accompanies, fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 and that the information contained therein fairly presents, in all material respects, the financial condition and results of operations of the Issuer as of the dates and for the periods expressed therein.

A signed original of this written statement required by Section 906 of the Sarbanes-Oxley Act of 2002, or other document authenticating, acknowledging, or otherwise adopting the signature that appears in typed form within the electronic version of this statement required by Section 906 of the Sarbanes-Oxley Act of 2002, has been provided to the Issuer and will be retained by the Issuer and furnished to the Securities and Exchange Commission or its staff upon request.

Signed:

/s/ Frederick J. Boyle

Frederick J. Boyle

Senior Vice President, Chief Financial Officer and Treasurer

Date: February 11, 2010

The foregoing certificate is being furnished solely pursuant to 18 U.S.C. Section 1350 and is not being filed as part of the Issuer’s Annual Report or as a separate disclosure document.