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, 2006

OR

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

For the transition period from                 to               

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

1-2385	THE DAYTON POWER AND LIGHT COMPANY	31-0258470
	(An Ohio Corporation)
	1065 Woodman Drive
	Dayton, Ohio 45432
	937-224-6000

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 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.	x
The Dayton Power and Light Company	x

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
DPL Inc.	x	o	o
The Dayton Power and Light Company	o	o	x

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, 2006 was approximately $3.1 billion based on a closing sale price of $26.80 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 22, 2007, 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	113,101,211
The Dayton Power and Light Company	Common Stock	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 2007 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, 2006

	Part I
Item 1	Business	3
Item 1a	Risk Factors	14
Item 1b	Unresolved Staff Comments	19
Item 2	Properties	19
Item 3	Legal Proceedings	19
Item 4	Submission of Matters to a Vote of Security Holders	22
	Part II
Item 5	Market for Registrant’s Common Equity, Related Shareholder Matters and Issuer Purchases of Equity Securities	22
Item 6	Selected Financial Data	24
Item 7	Management’s Discussion and Analysis of Financial Condition and Results of Operations	25
Item 7A	Quantitative and Qualitative Disclosures about Market Risk	48
Item 8	Financial Statements and Supplementary Data	48
Item 9	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure	104
Item 9A	Controls and Procedures	104
Item 9B	Other Information	104
	Part III
Item 10	Directors and Executive Officers of the Registrant	104
Item 11	Executive Compensation	104
Item 12	Security Ownership of Certain Beneficial Owners and Management and Related Shareholder Matters	105
Item 13	Certain Relationships and Related Transactions	105
Item 14	Principal Accountant Fees and Services	105
	Part IV
Item 15	Exhibits and Financial Statement Schedules	106
	Other
	Signatures	117
	Schedule II Valuation and Qualifying Accounts	119
	Subsidiaries of DPL Inc. and The Dayton Power and Light Company
	Consent of Independent Registered Public Accounting Firm

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PART I

Item 1 — Business

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 99% of DPL’s total consolidated revenue and approximately 86% 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 be clearly noted in the section.  Historically, DPL and DP&L have filed separate SEC filings.  Beginning with this report and in the future, DPL Inc. and The Dayton Power and Light Company will file combined SEC reports on an interium and annual basis.

WEBSITE ACCESS TO REPORTS

DPL Inc. and The Dayton Power and Light Company  file current, annual and quarterly reports, proxy statement and other information required by the Securities Exchange Act of 1934, as amended, with the Securities and Exchange Commission (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 web site 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.

ORGANIZATION

DPL Inc.  (DPL) is a diversified 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 The Dayton Power and Light Company (DP&L).  DP&L is a public utility incorporated in 1911 under the laws of Ohio.  DP&L sells electricity to residential, commercial, industrial and 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.  DP&L also purchases retail peak load requirements from DPL Energy, LLC (DPLE, one of DPL’s wholly-owned subsidiaries).  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 (all of which are wholly-owned) include DPLE, which engages in the operation of peaking generating facilities; DPL Energy Resources, Inc. (DPLER), which sells retail electric energy under contract to major industrial and commercial customers in West Central Ohio; MVE, Inc., which was primarily responsible for the management of our financial asset portfolio; and Miami Valley Insurance Company (MVIC), which is our captive insurance company that provides insurance sources to us and our subsidiaries.

DP&L has one significant subsidiary, DPL Finance Company, Inc., which is wholly-owned and provides financing to DPL, DP&L and other affiliated companies.

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

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Under the recently enacted Public Utility Holding Company Act of 2005, the Federal Energy Regulatory Commission (FERC) requires that utility holding companies comply with certain accounting, record retention and filing requirements.  DPL believes it is exempt from these requirements because DP&L’s operations are confined to a single state.  On January 31, 2006, DPL filed a FERC 65B Waiver Notification with the FERC, requesting that the FERC approve DPL’s waiver and avoid FERC regulation.

DPL, DP&L and its subsidiaries employed 1,452 persons as of January 31, 2007, of which 1,203 were full-time employees and 249 were part-time employees.

SIGNIFICANT DEVELOPMENTS

Credit Rating Upgrades

In early 2007 and during 2006, our rating agencies upgraded our corporate credit and debt ratings.  The following table outlines the rating of each company and the date of the upgrade:

	DPL	DP&L	Date
Fitch Ratings	BBB	A	April 2006
Moody’s Investors Service	Baa3	A3	June 2006
Standard & Poor’s Corp.	BBB-	BBB+	February 2007

Peaking Unit Sales

In connection with DPLE’s (subsidiary of DPL) decision to sell the Greenville Station and Darby Station electric peaking generation facilities, DPL concluded that an impairment charge for the Greenville Station and Darby Station assets was required. During the fourth quarter of 2006, DPL recorded a $71.0 million impairment charge to record the write-down of the assets to fair market value and other associated costs related to the sales.

Pollution Control Bonds

On September 13, 2006, the Ohio Air Quality Development Authority (OAQDA) issued $100 million of 4.80% fixed interest rate OAQDA Revenue Bonds 2006 Series A due September 1, 2036. In turn, DP&L then borrowed these funds from the OAQDA.  DP&L is using the proceeds from this borrowing to assist in financing its portion of the costs of acquiring, constructing and installing certain solid waste disposal and air quality facilities at Miami Fort, Killen and Stuart Generating Stations.

Share Repurchase of DPL’s Common Stock

On July 27, 2005, DPL’s Board authorized the repurchase of up to $400 million of common stock from time to time in the open market or through private transactions.  DPL completed this share repurchase program through a series of open market purchases on August 21, 2006.  This resulted in 14.9 million shares being repurchased  at an average price of $26.91 per share and a total cost of $400 million.  These shares are currently held as treasury shares at DPL Inc.

Increase in Dividends on DPL’s Common Stock

On February 1, 2007, DPL’s Board of Directors announced that it had raised the quarterly dividend to $0.26 per share payable March 1, 2007 to common shareholders of record on February 14, 2007.  This increase results in an annualized dividend rate of $1.04 per share, or a 4% increase.

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ELECTRIC SALES AND REVENUES

	DPL Inc.						DP&L (a)
	2006		2005		2004		2006		2005		2004
Electric Sales (millions in kWh)
Residential	5,218		5,520		5,140		5,218		5,520		5,140
Commercial	3,835		3,901		3,777		3,835		3,901		3,777
Industrial	4,286		4,332		4,393		4,286		4,332		4,393
Other retail	1,428		1,437		1,407		1,428		1,437		1,407
Total Retail	14,767		15,190		14,717		14,767		15,190		14,717
Wholesale	3,651		2,716		3,748		3,651		2,716		3,748
Total	18,418		17,906		18,465		18,418		17,906		18,465
Operating Revenues ($ in thousands)
Residential	$	490,514	$	478,226	$	449,411	$	490,514	$	478,226	$	449,411
Commercial	300,908		276,157		267,831		278,082		247,912		239,952
Industrial	240,450		220,453		223,335		130,119		126,506		128,059
Other retail	88,307		81,716		80,370		88,203		81,877		80,623
Other miscellaneous revenues	11,174		10,069		15,863		11,215		10,317		15,914
Total Retail	1,131,353		1,066,621		1,036,810		998,133		944,838		913,959
Wholesale	174,114		133,283		135,219		309,885		257,632		260,341
RTO ancillary revenues	77,231		74,419		17,905		77,231		74,419		17,905
Other revenues, net of fuel costs	10,821		10,586		10,054		—		—		—
Total	$	1,393,519	$	1,284,909	$	1,199,988	$	1,385,249	$	1,276,889	$	1,192,205
Electric Customers at End of Period
Residential	457,054		456,146		453,653		457,054		456,146		453,653
Commercial	49,284		48,853		48,172		49,284		48,853		48,172
Industrial	1,822		1,837		1,851		1,822		1,837		1,851
Other	6,349		6,304		6,337		6,349		6,304		6,337
Total	514,509		513,140		510,013		514,509		513,140		510,013

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

ELECTRIC OPERATIONS AND FUEL SUPPLY

	2006 Summer Generating Capacity
(Amounts in MWs)	Coal Fired	Peaking Units		Total
DPL	2,860	1,549	(a)	4,409
DP&L	2,860	435		3,295

(a)Amounts include 630 MW of peaking capacity relating to the Darby and Greenville stations
that DPL entered into agreements to sell during the fourth quarter of 2006.

DPL’s present summer generating capacity, including Peaking Units, is approximately 4,409 MW.  Of this capacity, approximately 2,860 MW or 65% is derived from coal-fired steam generating stations and the balance of approximately 1,549 MW or 35% consists of combustion turbine and diesel peaking units.

DP&L’s present summer generating capacity, including Peaking Units, is approximately 3,295 MW.  Of this capacity, approximately 2,860 MW or 87% is derived from coal-fired steam generating stations and the balance of approximately 435 MW or 13% consists of combustion turbine and diesel peaking units.

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Combustion turbine output is dependent on ambient conditions and is higher in the winter than in the summer.  Our all-time net peak load was 3,243 MW, occurring July 25, 2005.

Approximately 87% of the existing steam generating capacity is provided by certain units owned as tenants in common with (Duke Energy) The Cincinnati Gas & Electric Company (CG&E) or its subsidiary, Union Heat, Light & Power, and (AEP) Columbus Southern Power Company (CSP).  As tenants in common, each company owns a specified undivided 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 2006, we generated 99% of our electric output from coal-fired units and 1% from oil and natural gas-fired units.

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	412	615
Stuart	C	DP&L	Aberdeen, OH	836	2,388
Conesville-Unit 4	C	CSP	Conesville, OH	129	780
Beckjord-Unit 6	C	CG&E	New Richmond, OH	207	414
Miami Fort-Units 7 & 8	C	CG&E	North Bend, OH	360	1,000
East Bend-Unit 2	C	CG&E	Rabbit Hash, KY	186	600
Zimmer	C	CG&E	Moscow, OH	365	1,300
Combustion Turbines or Diesel
Hutchings	W	DP&L	Miamisburg, OH	23	23
Yankee Street	W	DP&L	Centerville, OH	107	107
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
Greenville Units 1-4 (a)	W	DPLE	Greenville, OH	192	192
Darby Station Units 1-6 (a)	W	DPLE	Darby, OH	438	438
Montpelier Units 1-4	W	DPLE	Montpelier, IN	192	192
Tait Units 4-7	W	DPLE	Moraine, OH	292	292
Total approximate summer generating capacity				4,409	9,024

*W = Wholly-Owned

C = Commonly-Owned

(a)Amounts include 630 MW of peaking capacity relating to the Darby and Greenville stations
that DPL entered into agreements to sell during the fourth quarter of 2006.

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We have substantially all of the total expected coal volume needed to meet our retail and firm wholesale sales requirements for 2007 under contract.  The majority of our contracted coal is purchased at fixed prices.  Some contracts provide for periodic adjustments and some are priced based on market indices.  Substantially all contracts have features that limit price escalations in any given year.   Our sulfur dioxide (SO2) allowance consumption will be reduced in 2007 due to installation of emission control equipment at a portion of the Companies’ generation facilities.  We do not expect to purchase SO2 allowances for 2007.  The exact consumption of SO2 allowances will depend on market prices for power, availability of our generating units, the timing of FGD (flu gas desulfurization) completion and the actual sulfur content of the coal burned.  We do not plan to purchase any nitrogen oxide (NOx) allowances for 2007.

The average cost of fuel used per kilowatt-hour (kWh) was as follows:

	Average Cost of Fuel Used (¢/kWh)
	2006	2005	2004
DPL	2.00	1.93	1.56
DP&L	1.94	1.84	1.53

SEASONALITY

The power generation and delivery business is seasonal and weather patterns have a material impact on operating performance.  In the region served by our subsidiaries, 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.  Historically, the power generation and delivery operations of our subsidiaries have generated less revenue and income when weather conditions are warmer in the winter and cooler in the summer.

RATE REGULATION AND GOVERNMENT LEGISLATION

DP&L’s sales to retail customers are subject to rate regulation by the Public Utilities Commission of Ohio (PUCO).  DP&L’s transmission and wholesale electric rates to municipal corporations, rural electric co-operatives and other distributors of electric energy are subject to regulation by the Federal Energy Regulatory Commission (FERC) under the Federal Power Act.

Ohio law establishes the process for determining rates charged by public utilities.  Regulation of rates encompasses the timing of applications, the effective date of rate increases, the cost basis upon which the rates are based and other related matters.  Ohio law also established the Office of the Ohio Consumers’ Counsel (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 they 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 Consolidated Balance Sheets.  See Note 3 of Notes to Consolidated Financial Statements.

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COMPETITION AND REGULATION

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.  The PUCO maintains jurisdiction over DP&L’s delivery of electricity, the standard offer supply service that customers receive if they do not choose an alternative retail electricity supplier, and over other rates and charges associated with the market development period that began January 2001.

In 2003, the PUCO approved a Stipulation executed by DP&L and other parties that extended the market development period through the end of 2005, and included provisions that generation rates may be modified as of January 1, 2006, by up to 11% of generation rates to reflect increased costs associated with fuel, environmental compliance, taxes, regulatory changes, and security measures.  In 2006, the Ohio Supreme Court affirmed the PUCO’s Order approving the Stipulation.

On April 4, 2005, DP&L filed a request at the PUCO to implement a new rate stabilization surcharge effective January 1, 2006 to recover cost increases associated with environmental capital, related operations and maintenance costs and fuel expenses.  On November 3, 2005, DP&L entered into a settlement agreement that extended DP&L’s rate stabilization period through December 31, 2010.  During this time, DP&L will continue to provide retail electric service at fixed rates with the ability to recover increased fuel and environmental costs through surcharges and riders.  Specifically, the agreement provides for:

·A rate stabilization surcharge equal to 11% of generation rates beginning January 1, 2006 and continuing through December 2010.  Based on 2004 sales, this rider is expected to result in approximately $65 million in net revenues per year.

·A new environmental investment rider to begin January 1, 2007 equal to 5.4% of generation rates, with incremental increases equal to 5.4% each year through 2010.  Based on 2004 sales, this rider is expected to result in approximately $35 million in annual net revenues beginning January 2007, growing to approximately $140 million by 2010.

·An increase to the residential generation discount from January 1, 2006 through December 31, 2008, which is expected to result in a revenue decrease of approximately $7 million per year for three years, based on 2004 sales.  The residential discount is accounted for in the $65 million net revenue stated above will expire on December 31, 2008.

On December 28, 2005, the PUCO adopted the settlement with certain modifications (RSS Stipulation).  The PUCO ruled that the environmental rider will be bypassable by all customers who take service from alternate generation suppliers.  Thus, future additional revenues are dependent upon actual sales and levels of customer switching.  Applications for rehearing were denied and the case was appealed to the Ohio Supreme Court by the Ohio Consumers’ Counsel on April 21, 2006.  The Company cannot predict whether the Ohio Supreme Court will affirm the PUCO’s approval of the RSS Stipulation, affirm it in part subject to modifications, or reject it.  An oral argument has been set for April 17, 2007.

Consistent with the RSS Stipulation approved by the PUCO and prior orders, DP&L made a tariff filing to implement the environmental investment rider beginning January 1, 2007, which was approved by the PUCO in November 2006.

In 2005, DP&L made a tariff filing to recover previously deferred costs associated with administrative fees charged to DP&L under PJM’s FERC-approved tariffs.  In January 2006, the PUCO approved the recovery, effective February 1, 2006, which should result in approximately $8.5 million in additional revenue per year for three years and $6.0 million per year thereafter.

In March 2006, the PUCO approved the recovery of costs and carrying costs associated with billing system changes made to permit DP&L to provide billing services to Competitive Retail Electric Service (CRES) providers.  These costs had previously been deferred for later recovery under a settlement approved in 2004.  In separate orders issued in September and December 2006, the Ohio Supreme Court affirmed the PUCO orders approving the settlement and approving the recovery of costs.  This will result in approximately $7 million in additional annual revenue beginning March 2006 through 2010.

On September 1, 2005, DP&L requested the PUCO authority to recover distribution costs associated with storm restoration efforts for ice storms that took place in December 2004 and January 2005.  In February 2006, DP&L

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filed updated schedules in support of its application.  On July 12, 2006, the PUCO approved DP&L’s filing, allowing the Company to recover approximately $8.6 million in additional revenues over a two-year period.  See Note 3 of Notes to Consolidated Financial Statements.

Ohio Competitive Considerations and Proceedings

As of December 31, 2006, four unaffiliated marketers were registered as CRES providers in DP&L’s service territory.  While there has been some customer switching to date, it represents less than 0.15 percent of sales in 2006. DPLER, an affiliated company, is also a registered CRES provider and accounted for 99.8% of the total kWh supplied by CRES providers within DP&L’s service territory in 2006.  In addition, several communities in DP&L’s service area have 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.

DP&L agreed to implement a Voluntary Enrollment Program (VEP) that would provide customers with an option to choose a competitive supplier to provide their retail generation service should switching not reach 20% in each customer class.  The 20% threshold has never been reached.  In both 2005 and 2006, customers who elected to participate in the program were grouped together and collectively bid out to CRES providers.  No bids were received in either year resulting in zero customer switching under the program.  DP&L is required to execute the same process again in 2007.  Future period effects cannot be determined at this time.

In August of 2006, an electric supply contract with Wright Patterson Air Force Base (WPAFB) expired.  WPAFB is DP&L’s single largest retail customer and represents approximately 1% of its annual revenues.  In November 2006, WPAFB signed a long-term agreement to allow DPLER to supply competitive generation service to WPAFB through 2010.

On February 20, 2003, the PUCO requested comments from interested stakeholders on the proposed rules for the conduct of a competitive bidding process that will take place at the end of the rate stabilization period.  DP&L submitted comments in March 2003.  The PUCO issued final rules on December 23, 2003.  Under DP&L’s RSS Stipulation discussed above, these rules will not affect DP&L until January 1, 2011.  However, the PUCO retains the authority to, at any time, require an Ohio electric utility to conduct a competitive bidding process to measure the market price of competitive retail generation.

Other State Regulatory Proceedings

On August 28, 2006, the Staff of the PUCO issued a report relating to compliance with the Federal Energy Policy of 2005.  In that report the Staff makes recommendations to the Commission to implement new rules and procedures relating to net metering, customer generator interconnection, stand by power, time-of-use rates, and renewable energy portfolio standards.  DP&L, among others, filed comments on September 18, 2006, and reply comments on October 2, 2006.  If adopted by the Commission, the Staff’s recommendations may result in new regulatory requirements for Ohio investor owned utilities related to renewable energy standards, fuel sources, automated meter infrastructure and time differentiated rate options for customers.  DP&L cannot predict the outcome of this proceeding nor the potential cost that may be associated with any new regulations that may be adopted.

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 Regional Transmission Organization (RTO).  In October 2004, DP&L successfully integrated its 1,000 miles of high-voltage transmission into the PJM Interconnection, L.L.C. (PJM) RTO.  The role of the RTO is to administer an electric marketplace 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

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largest competitive wholesale electricity market and plans regional transmission expansion improvements to maintain grid reliability and relieve congestion.

As a member of PJM, DP&L is subject to charges and costs associated with PJM operations as approved by the FERC.  As discussed above in connection with the recovery of such costs in retail rates, these include significant administrative charges.  Additionally, PJM’s role in administering the regional transmission grid and planning regional transmission expansion improvements results in periodic proposals by PJM and other stakeholder members of PJM to the FERC to allocate and charge costs associated with the transmission system to various entities operating within PJM including DP&L.  DP&L and other interested parties have the right to intervene and offer counter-proposals.  The FERC is currently considering how to allocate costs associated with new planned transmission facilities.  None of these costs were allocated to DP&L under PJM’s original filing in the case, but other parties have proposed modified allocation methods that could result in allocations to DP&L.  The FERC is also considering the justness and reasonableness of PJM’s transmission rate design for existing facilities.  DP&L, along with ten other transmission owners, filed in support of PJM’s existing rate design, but other participants have proposed rate designs that would shift significant costs to DP&L.  Due to complexity of the issues and the number of competing proposals under consideration, DP&L cannot determine what effect the final outcome of this proceeding may have on its costs or the extent to which it may be able to recover such costs.

As a member of PJM, the value of DPL’s generation capacity will be affected by changes in the PJM capacity construct.  The new construct introduces a new Reliability Pricing Model (RPM) that will change the way generation capacity is priced and planned for by PJM.  In September 2006, DP&L, along with most of the parties relating to the case, entered into a settlement agreement that generally retains the RPM concept as proposed by PJM, with certain modifications.  The settlement was approved by the FERC on December 21, 2006.  The economic effects of the new capacity market will vary depending on present and projected market conditions.

In connection with DP&L and other utilities joining PJM, the FERC ordered utilities to eliminate certain charges to implement transitional payments, known as Seams Elimination Charge Adjustment (SECA), effective December 1, 2004 through March 31, 2006, subject to refund. Through this proceeding, DP&L was obligated to pay SECA charges to other utilities, but received a net benefit from these transitional payments.  Several parties have sought rehearing of the FERC orders, which are still pending.  The hearing was held in May 2006 and an initial decision was issued on August 10, 2006 that, if upheld by the Commission, would reduce the amount of SECA charges DP&L and other parties are permitted to recover.  DP&L, among others, have taken exception to the initial decision.  A final Commission order on this issue is still pending.  We have entered into a significant number of bi-lateral settlement agreements with certain parties to resolve the matter, which by design will be unaffected by the Commission’s decision to affirm, modify or reject the initial decision.  DP&L management believes that appropriate reserves have been established in the event that SECA collections not resolved by settlement are required to be refunded.  The ultimate outcome of the proceeding establishing SECA rates is uncertain at this time. However, based on the amount of reserves established for this item, the results of this proceeding are not expected to have a material adverse effect on DP&L’s results of operations.

On August 8, 2005, the Energy Policy Act of 2005 (the 2005 Act) was enacted.  This new law encompasses several areas including, but not limited to:  electric reliability, repeal of the Public Utility Holding Company Act of 1935, promotion of energy infrastructure, preservation of a diverse fuel supply for electricity generation and energy efficiency.  Also in response to the Energy Policy Act of 2005, the FERC issued a Notice of Proposed Rulemaking to amend its regulations to incorporate the criteria any entity must satisfy to qualify to be an Electric Reliability Organization (ERO) that will propose and enforce reliability standards subject to FERC approval.  The proposed rule also included related matters on delegating ERO authority, the creation of advisory bodies and reporting requirements.  In October 2006, the FERC also approved new mandatory reliability standards to be effective mid-2007, with requirements applying to certain assets and activities of DP&L and DPL.  The new regulations include potential penalties for failure to comply with these standards.  DPL is currently assessing the compliance plans in place to comply with similar, but voluntary, reliability standards administered by the North American Electric Reliability Council and believes that it will be in full compliance with the new mandatory standards when they become effective.

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 1% of total electricity sales in 2006 represented sales to these municipalities.

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ENVIRONMENTAL CONSIDERATIONS

DPL, DP&L and our subsidiaries’ facilities and operations are subject to a wide range of environmental regulations and laws.  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 Statement of Financial Accounting Standards No. 5 (SFAS 5), “Accounting for Contingencies.”  To the extent a probable loss can only be estimated by reference to a range of equally probable outcomes, and no amount within the range appears to be a better estimate than any other amount, we accrue for the low end of the range.  Because of uncertainties related to these matters, accruals are based on the best information available at the time. DPL, through its captive insurance subsidiary, MVIC, has an actuarial calculated reserve 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.

DP&L’s coal-fired units are subject to the acid rain provisions of the Clean Air Act and the NOx and Ozone Transport rule.   All of the SO2 and NOx emissions data submitted to the United States Environmental Protection Agency (USEPA) pursuant to these provisions for 2005 and the first quarter 2006 were recorded and reported in compliance with USEPA regulations.  Subsequently DP&L detected a malfunction with its emission monitoring system at one of its generation stations 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 operating results or financial position.

Environmental Regulation and Litigation Related to Air Quality

Regulation Proceedings — Air

In 1990 the federal government amended the Clean Air Act (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.  Subsequently, 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.  As a result of the stay, the Ohio Environmental Protection Agency (Ohio EPA) delayed its previously announced intent to adopt the RMRR rule.  On October 20, 2005, USEPA proposed to revise the emissions test for existing electric generating units.  At this time, we are unable to determine the impact of the ERP appeal or the outcome of the proposed emissions test.

In a regulation proceeding relating to the same issue pending before the U.S. Supreme Court in the Duke Energy case, discussed below, the USEPA issued a proposed rule in October 2005 concerning the test for measuring whether modifications to electric generating units should trigger application of New Source Review (NSR) standards under the CAA.  The proposed rule seeks comments on two different hourly emissions test options as well as the USEPA’s current method of measuring previous actual emission levels to projected actual emission levels after the modification.  A third option that tests emissions increase based upon emissions per unit of energy output is also available for comment.  We cannot predict the outcome of this rulemaking or its impact on current environmental litigation.

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 as the Clean Air Interstate Rule (CAIR).  The final rules were signed on March 10, 2005 and were published on May 12, 2005.  On August 24, 2005, the USEPA proposed additional revisions to the CAIR and initiated reconsideration on one issue.  Although we cannot predict the

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outcome of the reconsideration proceedings, the petitions or the pending litigation, CAIR has had and will have a material effect on our operations.  Phase I of CAIR incentivizes the installation of flue gas desulfurization (FGD) equipment and continual operation of the currently installed Selective Catalytic Reduction equipment.  As a result, DP&L is proceeding with the installation of FGD equipment at various generating units.

On January 30, 2004, the USEPA published its proposal to restrict mercury and other air toxics from coal-fired and oil-fired utility plants.  The final Clean Air Mercury Rule (CAMR) was signed March 15, 2005 and was published on May 18, 2005.  The final rules will have a material effect on our operations.  We anticipate that the FGD equipment being installed to meet the requirements of CAIR may be adequate to meet the Phase I requirements of CAMR effective January 1, 2010.  We expect that additional controls will be needed to meet the Phase II requirements of CAMR that go into effect January 1, 2018.  On March 29, 2005, nine states sued USEPA, opposing the regulatory approach taken by USEPA.  On March 31, 2005, various groups requested that USEPA stay implementation of CAMR.  On August 4, 2005, the United States Court of Appeals for the District of Columbia denied the motion for stay.  USEPA is expected to initiate reconsideration proceedings on one or more issues.  We cannot predict the outcome of the reconsideration proceedings or pending litigation.

Under the CAIR and CAMR cap and trade programs for SO2, NOx and mercury, we estimate we will spend more than $225 million from 2007 through 2009 to install the necessary pollution controls.  If CAMR litigation results in plant specific mercury controls, our costs may be higher.  Due to the ongoing uncertainties associated with the litigation of the CAMR, we cannot project the final costs at this time.

On July 15, 2003, the Ohio EPA submitted to the USEPA its recommendations for eight-hour ozone non-attainment boundaries for the metropolitan areas within Ohio.  On April 15, 2004, the USEPA issued its list of ozone non-attainment designations.  DP&L owns and/or operates a number of facilities in counties designated as non-attainment with the ozone national ambient air quality standard.  DP&L does not know at this time what future regulations may be imposed on its facilities and will closely monitor the regulatory process.  Ohio EPA will have until April 15, 2007 to develop regulations to attain and maintain compliance with the eight-hour ozone national ambient air quality standard.  Numerous parties have filed petitions for review.  DP&L cannot predict the outcome of USEPA’s reconsideration petitions.

On January 5, 2005, the USEPA published its final non-attainment designations for the national ambient air quality standard 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 USEPA to decide on all petitions for reconsideration by January 20, 2006.  On January 20, 2006, USEPA denied the petitions for reconsideration.  The Ohio EPA will have three years to develop regulations to attain and maintain compliance with the PM 2.5 national ambient air quality standard.  DP&L cannot determine the outcome of the petition for review or the effect such Ohio EPA regulations will have on its 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, 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.

Sierra Club Litigation

Pending before the U.S. Supreme Court is a proceeding, Environmental Defense v. Duke Energy (Duke Energy) that does not involve the Company as a party but may have a significant effect on the outcome of litigation described below that involves allegations of violations of the CAA.  A key issue in that litigation that may be dispositive with respect to other pending cases is what test to apply for measuring whether modifications to electric generating units should trigger application of New Source Review (NSR) standards under the CAA.   In general terms, the dispute is whether to measure pre- and post-modification emissions based on the rate of emissions per hour of operation or based on total emissions over time.  The latter test, if applied, could trigger NSR requirements for equipment replacements that result in a plant running more often because it is more economical or dependable, even if the emissions rate per hour of operation does not change.  A ruling is expected in the first or second quarter of 2007.  The Company cannot predict the outcome of the Duke Energy

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case.  Moreover, in each of the cases identified below, there may be case-specific facts and allegations that may cause a judge to find that the U.S. Supreme Court’s ruling is based on different facts and allegations and is therefore not controlling in the case before the judge.

In September 2004, the Sierra Club filed a lawsuit against the Company and the other owners of the Stuart Generating Station in the United States District Court for the Southern District of Ohio for alleged violations of the CAA, including issues that may be decided by the Supreme Court in the Duke Energy case and other issues relating to alleged violations of opacity limitations.  DP&L, on behalf of all co-owners, is leading the defense of this matter.  A sizable amount of discovery has taken place and expert reports are scheduled to be filed at various times from May through September, 2007.  Dispositive motions are to be filed in January 2008.  No trial date has been set yet.

Litigation Involving Co-Owned Plants

In March 2000, as amended in June 2004, the United States Department of Justice filed a complaint in an Indiana federal court against Cinergy Corporation (now part of Duke Energy) and two 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 6 and Miami Fort 7).  In August 2006, the Seventh Circuit upheld the district court’s 2005 ruling that an increase in annual emissions could trigger the permitting requirements of the CAA even if there were no increase in hourly emissions per hour of operations.

In November 2004, the State of New York and seven other states filed suit against the American Electric Power Corporation (AEP) and various subsidiaries, alleging various CAA violations at a number of AEP electric generating facilities, including Conesville Unit 4 (co-owned by CG&E, DP&L and Columbus Southern Power (CSP)).  AEP, on behalf of all co-owners, is leading the defense of this matter.  During 2006, a number of procedural and discovery-related disputes were resolved by the Southern District Court of Ohio.  Discovery is ongoing.

In July 2004 and November 2004, various residents of the Village of Moscow, Ohio notified CG&E, as the operator of Zimmer (co-owned by CG&E, DP&L and CSP), of their intent to sue for alleged violations of the CAA and air pollution nuisances.  CG&E, on behalf of all co-owners, is leading the defense of this matter.  One lawsuit was dismissed on procedural grounds.  Several counts of the remaining suit have been dismissed because they were based on activity outside the statute of limitations.

In June 2000, the USEPA issued a Notice of Violation (NOV) to 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 State Implementation Plan (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.

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 6) and CSP (Conesville 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.  DP&L was not identified in the NOVs, civil complaints or state actions.

Environmental Regulation and Litigation Related to 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 USEPA for reconsideration.  We are undertaking studies at two facilities but cannot predict the impact such studies may have on future operations or the outcome of the remanded rulemaking.

In May 2004, the Ohio EPA issued a final National Pollutant Discharge Elimination System permit for J.M. Stuart Station that continued the station’s 316(a) variance which exempts DP&L from having to meet the temperature Standards in the Ohio River.  During the three-year term of the permit, DP&L conducted a thermal discharge

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study to evaluate the technical feasibility and economic reasonableness of water cooling methods other than cooling towers.  We cannot predict the impact of this issue on future operations.

Environmental Regulation and Litigation Related to Land Use and Solid Waste Disposal

DP&L has been identified, either by a government agency or by a private party seeking contribution to site clean-up costs, as a potentially responsible party (PRP) at a site pursuant to state and federal laws.

In September 2002, DP&L and other parties received a special notice that the USEPA considers us to be PRPs 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 USEPA to conduct the RI/FS. Although the information available to DP&L does not demonstrate that it contributed hazardous substances to the site, DP&L will seek from USEPA a de minimis settlement at the site.  Should USEPA pursue a civil action, DP&L will vigorously challenge it.  In December 2003, DP&L and other parties received a special notice that the USEPA considers us to be PRPs 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.

In August 2006, Ohio EPA issued draft rules for interested party comment related to the disposal of industrial waste.  DP&L, through the Ohio Electric Utility Institute submitted comments on the draft rules.  We cannot predict the impact of the draft rules on future operations.

CONSTRUCTION ADDITIONS

	Actual						Projected
$ in millions	2006		2005		2004		2007		2008		2009
DPL Inc.	$	352	$	180	$	98	$	310	$	165	$	130
DP&L	$	349	$	178	$	93	$	310	$	165	$	130

DPL’s construction additions were $352 million, $180 million and $98 million in 2006, 2005 and 2004, respectively, and are expected to approximate $310 million in 2007.

DP&L’s construction additions were $349 million, $178 million and $93 million in 2006, 2005 and 2004, respectively, and are expected to approximate $310 million in 2007.  Planned construction additions for 2007 relate to DP&L’s environmental compliance program, power plant equipment, and its transmission and distribution system.

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.  Over the next three years, DPL, through its subsidiary DP&L, is projecting to spend an estimated $605 million in capital projects, approximately 40% of which is to meet changing environmental standards.  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 in 2007 with a combination of cash on hand, short-term financing, tax-exempt debt and cash flows from operations.

Item 1a — Risk Factors

This annual report and other documents that we file with the SEC and other regulatory agencies, as well as other oral or written 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

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or revise any forward-looking statements, whether as a result of new information, future events or otherwise. These forward-looking statements are identified by terms and phrases such as “anticipate”, “believe”, “intend”, “estimate”, “expect”, “continue”, “should”, “could”, “may”, “plan”, “project”, “predict”, “will”, and similar expressions.

The following is a listing of risk factors that we consider to be the most significant to your decision to invest in our stock.  If any of these events occurs, our business, financial position or results of operation could be materially affected.

The electric industry in Ohio is partially deregulated

Before 2001, electric utilities provided electric generation, transmission and distribution services as a single product to retail customers at prices set by the PUCO.  In 1999, Ohio enacted legislation, effective January 1, 2001, that partially deregulated utility service, making retail generation service a competitive service.  Customers may choose to take generation service from CRES providers that register with the PUCO but are otherwise unregulated.  In connection with this deregulation of the electric industry in Ohio, electric utilities have had to restructure their service and their rates to accommodate competition.

Many of the requirements of the Ohio deregulation law were premised on the assumption that the wholesale generation market and, in turn, the retail generation market, would fully develop by the end of 2005, and that the price for generation for even those customers who choose to continue to purchase the service from the regulated utility would be set purely by the market.  That did not occur.  As a result, the Commission and the utilities, including DP&L, have worked out plans to provide market-based pricing for generation service, but also to stabilize those rates for several years.  What DP&L may propose and what the PUCO will approve in the future regarding pricing and cost recovery will depend on the degree to which the wholesale and retail electric generation markets have developed.

Moreover, the uncertainty of the future of the wholesale and retail markets could cause the Ohio General Assembly to revisit the issue of competition and customer choice.

Switching by DP&L’s customers to unaffiliated CRES providers could occur in the future, despite insignificant activity to date. 

Although retail generation service has been a competitive service since January 1, 2001, the competitive generation market has not developed in DP&L’s service territory to any significant degree.  The following are factors that could result in increased switching by customers to CRES providers in the future:

·Voluntary Enrollment Program

As part of a settlement in a PUCO proceeding, DP&L initiated, in November 2004, a VEP to encourage customers to change electric suppliers.  Although the VEP did not result in a significant increase in the number of customers switching to CRES providers in 2005 or 2006, the VEP will be initiated again in 2007 and could produce different results.

·DP&L’s Standard Service Offer

The RSS Stipulation discussed above, permits customers that take service from a CRES provider to bypass the environmental investment rider (EIR).  Because this charge increases each year, the price that a CRES provider can offer to save customers money changes each year.  Depending on the development of the wholesale market and the level of wholesale prices, CRES providers could become more active in DP&L’s service territory.

·CRES Supplier Initiatives

Customers can elect to take generation service from a CRES provider offering services to customers in DP&L’s service territory.  As of December 31, 2006, five CRES providers have been certified by the PUCO to provide generation service to DP&L customers.  One of those five, DPL Energy Resources, Inc. (DPLER), is an affiliate of DP&L.  Although DPLER supplied 99.8% of the total kWh consumed by customers served by CRES providers in DP&L’s service territory in 2006, at the end of 2006 there was a slight increase in unaffiliated CRES provider activity.  There has been zero residential customer switching to date.  Depending on the development of the wholesale market and the level of wholesale prices, CRES providers could become more active in DP&L’s service territory and may begin to offer

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prices lower than DP&L’s standard offer.  This could result in more switching by DP&L’s customers and a further loss of revenues by DP&L.

·Governmental Aggregation Programs

Another way in which DP&L could experience customer switching is through “governmental aggregation.”  Under this program, municipalities 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 have passed ordinances allowing them to become government aggregators.  Although none has yet implemented an aggregation program, that too, could change provided CRES providers offer prices below DP&L’s standard offer.

DP&L has agreed to provide service at pre-determined rates through December 31, 2010, which limits its ability to pass through its costs to customers. 

DP&L has provided service at rates governed by the PUCO-approved transition, market development, and rate stabilization plans.  Those rates have included a statutorily-required 5% rate reduction in the generation component of its residential rates, a further 2.5% reduction to the residential generation rate through 2008, fixed generation rates through December 31, 2010, and frozen distribution rates through December 31, 2008.  The protection afforded by retail fuel clause recovery mechanisms was eliminated effective January 1, 2001 by the implementation of customer choice in Ohio.  Likewise, through the RSS Stipulation, DP&L extended its commitment to maintain pre-determined rates for generation through December 31, 2010, and in exchange is permitted to charge two new rate riders to offset increases in fuel and environmental costs.   Beginning January 1, 2006 a new Rate Stabilization Surcharge was implemented that recovered approximately $65 million additional revenue in 2006, net of customer discounts and considering less than a full twelve months recovery due to the timing of the PUCO order.  The new environmental investment rider could result in approximately $35 million additional revenue in 2007, net of customer discounts and assuming insignificant levels of customer switching.  The PUCO ruled this rider will be bypassable by all customers who take service from alternative generation suppliers.  Accordingly, the rates DP&L is allowed to charge may or may not match its expenses at any given time.  Therefore, during this period (or possibly earlier by order of the PUCO), while DP&L will be subject to prevailing market prices for electricity, it would not necessarily be able to charge rates that produce timely or full recovery of its expenses.  DP&L has historically maintained its rates at consistent levels since 1994, when the final phase of DP&L’s last traditional rate case was implemented.  However, as DP&L operates under its PUCO-approved RSS Stipulation, there can be no assurance that DP&L would be able to timely or fully recover unanticipated levels of expenses, including but not limited to those relating to fuel, coal and purchased power, compliance with environmental regulation, reliability initiatives, and capital expenditures for the maintenance or repair of its plants or other properties.  Furthermore, the RSS Stipulation is currently subject to an appeal to the Ohio Supreme Court, the result of which cannot be determined.

There are uncertainties relating to the operation and continued development of Regional Transmission Organizations (RTOs).  DP&L has turned over operational control of its high voltage transmission functions to PJM and much of its generation is subject to dispatch by PJM and is therefore subject to PJM’s market rules.

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 DP&L can sell its generation capacity and energy is now more dependent upon the overall operation of the PJM market.  While DP&L can continue to make bi-lateral transactions to sell its generation through a willing-buyer and willing-seller relationship, any transactions that are not pre-arranged are subject to market conditions at PJM.  The rules governing the various regional power markets also change from time to time which could affect DP&L’s cost and revenues.  DP&L incurs fees and costs to participate in the Regional Transmission Organization (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 DP&L.  Likewise, in December 2006, FERC approved PJM’s new Reliability Pricing Model (RPM).  RPM will be effective in mid-2007, and will provide forward and locational pricing for generation capacity.  The financial impact of RPM on DP&L will depend on a variety of factors, including the market behavior of various participants, and as such is unknown at this time.  Because the RTO market rules are continuing to evolve, we

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cannot fully assess the impact that these power markets or other ongoing RTO developments may have on DPL.

We rely principally on coal as the fuel to operate virtually all of the power plants that serve our customers daily. 

Some of our coal suppliers have not performed their contracts as promised and have failed to timely deliver all coal as specified under their contracts.  Such failure could significantly reduce DP&L’s inventory of coal and may cause DP&L to purchase higher priced coal on the spot market.  When the failure is for a short period of time, DP&L can absorb the irregularity due to existing inventory levels.  If we are required to purchase coal on the spot market, it may affect our cost of operations.

DP&L is a co-owner in certain generation facilities where it is a non-operating partner.  DP&L does not procure the fuel for these facilities.  Partner operated facilities do not always have realized coal costs that are equal to our co-owners’ projections.

Greenhouse Gas Emissions

Greenhouse gas (GHG) emissions, consisting primarily of carbon dioxide emissions, are presently unregulated.  Numerous bills have been introduced in Congress to regulate GHG emissions, but to date none have passed.  Future regulation of GHG emissions is uncertain. However, such regulation would be expected to impose costs on our operations.  Such costs could include measures as advanced by various constituencies, including a carbon tax; investments in energy efficiency; installation of CO2 emissions control technology, to the extent such technology exists; purchase of emission allowances, should a trading mechanism be developed; or the use of higher-cost, lower CO2 emitting fuels.  We will continue to make prudent investments in energy efficiency that reduces our GHG emissions intensity.

Flue Gas Desulfurization Project

We are currently constructing flue gas desulfurization (FGD) facilities at five units located at our J. M. Stuart and Killen Electric Generating Stations.  Construction of the FGD facilities at each unit is scheduled to be completed in phases commencing mid-year 2007 through 2009.  We are also co-owners of electric generating stations operated by other investor-owned utilities, who are in various stages of constructing FGD facilities at these stations.  Significant construction delays could adversely affect our ability to operate or may substantially increase our cost to operate these electric generating stations under federal environmental laws and regulations that become effective in 2010.  For those electric generating stations where we are co-owners but do not operate, significant construction delays may substantially increase our pro rata share of the cost to operate those facilities beginning in 2010.

PJM Infrastructure Risks

Annually, PJM, the regional transmission organization that provides transmission services for a large portion of the Midwest United States, performs a review of the capital additions required to provide reliable electric transmission services throughout its territory.  PJM allocates the costs of constructing these facilities to the applicable entity that will benefit from the new construction.  FERC is authorized to provide rate recovery to utilities for the costs they incur to construct these transmission facilities.  To date, we have not been required to construct any new facilities nor have we been assigned any costs as a result of PJM’s annual review, but there is no guarantee that we will not be assigned some costs or be required to construct facilities in the future.

Our stock price may fluctuate

The market price of DPL’s common stock has fluctuated over a wide range.  In addition, the stock market in recent years has experienced significant price and volume variations that have often been unrelated to our operating performance.  Over the past three years, the market price of our common stock has fluctuated with a low of $17.21 and a high of $28.72.  The market price of our common stock may continue to fluctuate in the future and may be affected adversely by factors such as actual or anticipated changes in our operating results, acquisition activity, changes in financial estimates by securities analysts, general market conditions, rumors and other factors.

The following are additional factors, including, but not limited to, regulation and competition, economic conditions, reliance on third parties, operating results fluctuations, regulatory uncertainties and litigation, warrant exercise,  internal controls and environmental compliance, that may affect our future results.

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Regulation and Competition

We operate in a rapidly changing industry with evolving industry standards and regulations.  In recent years a number of federal and state developments aimed at promoting competition triggered industry restructuring.  Regulatory factors, such as changes in the policies and procedures that set rates; changes in tax laws, tax rates, and environmental laws and regulations; changes in DP&L’s ability to recover expenditures for environmental compliance, fuel and purchased power costs and investments made under traditional regulation through rates; and changes to the frequency and timing of rate increases could affect our results of operations and financial condition.  Changes in our customer base, including municipal customer aggregation, could lead to the entrance of competitors in our marketplace, affecting our results of operations and financial condition.  Additionally, financial or regulatory accounting principles or policies imposed by governing bodies can increase our operational and monitoring costs affecting our results of operations and financial condition.

Economic Conditions

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.

During the past few years, the merchant energy industry in many parts of the United States has suffered from oversupply of merchant generation and a decline in trading and marketing activity.  As a result of these market conditions, we continue to evaluate the carrying values of certain long-lived generation assets.

Reliance on Third Parties

We rely on many suppliers for the purchase and delivery of inventory, including coal and equipment components, to operate our energy production, transmission and distribution functions.  Unanticipated changes in our purchasing processes, delays and supplier availability may affect our business and operating results.  In addition, we rely on others to provide professional services, such as, but not limited to, actuarial calculations, internal audit services, payroll processing and various consulting services.

Operating Results Fluctuations

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; unusual maintenance or repairs; changes in fuel and purchased power costs, emissions allowance costs, or availability constraints; environmental compliance; and electric transmission system constraints.

Regulatory Uncertainties and Litigation

In the normal course of business, we are subject to various lawsuits, actions, proceedings, claims and other matters asserted under laws and regulations.  Additionally, we are subject to diverse and complex laws and regulations, including those relating to corporate governance, public disclosure and reporting, and taxation, which are rapidly changing and subject to additional changes in the future.  As further described in Item 3-“Legal Proceedings,” we are also currently involved in various pieces of litigation in which the outcome is uncertain.  Compliance with these rapid changes may substantially increase costs to our organization and could affect our future operating results.

Warrant Exercise

DPL’s warrant holders could exercise their 31,560,000 warrants at their discretion until March 12, 2012.  As a result, DPL could be required to issue up to 31,560,000 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 all warrants would have a dilutive effect on us and would increase the number of common shares outstanding and increase our common share of dividend costs, affecting any existing guidance on EPS and affect our cash flows.

Internal Controls

Our internal controls, accounting policies and practices, and internal information systems are designed to enable us to capture and process transactions in a timely and accurate manner in compliance with generally accepted accounting principles (GAAP) in the United States of America, laws and regulations, taxation requirements, and federal securities laws and regulations.  We implemented corporate governance, internal control and accounting rules issued in connection with the Sarbanes-Oxley Act of 2002.  Our internal controls

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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.  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 impact our financial condition, cash flows or results of operations.

Environmental Compliance

Our facilities (both wholly-owned and co-owned with others) are subject to continuing federal and state environmental laws and regulations.  We believe that we currently comply with all existing federal and state environmental laws and regulations.  We own a non-controlling, minority interest in several generating stations operated by The Cincinnati Gas & Electric Company (CG&E) or its affiliate, Union Heat, Light & Power, and Columbus Southern Power Company (CSP).  Either or both of these parties are likely to take steps to ensure that these stations remain in compliance with applicable environmental laws and regulations.  As a non-controlling owner in these generating stations, we will be responsible for our pro rata share of these expenditures based upon our ownership interest.

Climate Change

Recently we have seen a growing interest in considering legislation or regulation in response to greenhouse gases generated by numerous sources, vehicles, manufacturing and the electric utility industry.  Although, DPL, DP&L and its subsidiaries have operated facilities in compliance with state and federal environmental laws and regulations and is currently engaged in significant capital improvements of five units at the Stuart and Killen Generating Stations for the reduction of SO2, Congress could approve legislation that in the long term may impact operations of the units we and our partners manage or increase the cost for us to do so.

Employees

Many of our employees are under a collective bargaining agreement. If we are unable to negotiate future collective bargaining agreements, we could experience work stoppages which may affect its business and operating results.

Item 1b — Unresolved Staff Comments

None

Item 2 — Properties

Electric

Information relating to our properties is contained in Item 1 — CONSTRUCTION ADDITIONS, and ELECTRIC OPERATIONS AND FUEL SUPPLY, and Note 10 of Notes to Consolidated Financial Statements.

Substantially all property and plant of DP&L is 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 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 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, 2006, cannot be reasonably determined.

Former Executive Litigation

On August 24, 2004, DPL, and its subsidiaries DP&L and MVE, filed a Complaint (and subsequently, amended complaints) against Mr. Forster, Ms. Muhlenkamp and Mr. Koziar (the Defendants) in the Court of Common Pleas of Montgomery County, Ohio asserting legal claims against them 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, including MVE incentives, with the Defendants, and the propriety of the distributions from the plans to the Defendants, and alleging that the Defendants breached their fiduciary duties and breached their consulting and employment contracts.  DPL, DP&L and MVE seek, among

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other things, damages in excess of $25,000, disgorgement of all amounts improperly withdrawn by the Defendants from the plans and a court order declaring that DPL, DP&L and MVE have no further obligations under the consulting and employment contracts due to those breaches.

The Defendants have filed their answers (and subsequently, amended answers)denying liability and filed counterclaims (and subsequently, amended counterclaims) against DPL, DP&L, MVE, various compensation plans (the Plans), and current and former employees and current and former members of our Board of Directors.  These counterclaims, as amended, allege generally that DPL, DP&L, MVE, the Plans and the individual defendants breached the terms of the employment and consulting contracts of the Defendants and the terms of the Plans.  They further allege theories of breach of fiduciary duty, breach of contract, promissory estoppel, tortious interference, conversion, replevin and violations of ERISA under which they seek distribution of deferred compensation balances, conversion of stock incentive units, exercise of options and payment of amounts allegedly owed under the contracts and the Plans.  Defendants’ counterclaims also demand payment of attorneys’ fees.

On March 15, 2005, Mr. Forster and Ms. Muhlenkamp filed a lawsuit in New York state court against the purchasers of the private equity investments in the financial asset portfolio and against outside counsel to DPL and DP&L concerning purported entitlements in connection with the purchase of those investments.  DPL, DP&L and MVE are not defendants in that case; however, DPL, DP&L and MVE are parties to an indemnification agreement with respect to the purchaser defendants.  On August 18, 2005, the Ohio court issued a preliminary injunction against Mr. Forster and Ms. Muhlenkamp that precludes them from pursuing certain key issues raised by Mr. Forster and Ms. Muhlenkamp in their New York lawsuit that are identical to the issues raised in the pending Ohio lawsuit in the New York court or any other forum other than the Ohio litigation.  In addition, the New York court has stayed the New York litigation pending the outcome of the Ohio litigation.  Mr. Forster and Ms. Muhlenkamp have appealed the preliminary injunction and the appeal is pending at the Ohio Supreme Court.

The trial commencement date for this case is set for April 30, 2007.

Cumulatively through December 31, 2006, we have accrued for accounting purposes, obligations of approximately $56 million to reflect claims regarding deferred compensation, estimated MVE incentives and/or legal fees that Defendants assert are payable per contracts.  We dispute Defendants’ entitlement to any of those sums and any other sums the Defendants assert are due to them and, as noted above, we are pursuing litigation against them contesting all such claims.

On or about June 24, 2004, the SEC commenced a formal investigation into the issues raised by the Memorandum (see Note 17 of the Notes to the Consolidated Financial Statements).  Although the SEC has not taken any significant action in furtherance of their investigation during 2006, we stand ready to cooperate with their investigation.

On May 28, 2004, the U.S. Attorney’s Office for the Southern District of Ohio, assisted by the Federal Bureau of Investigation, notified us that it has initiated an inquiry involving the subject matters covered by our internal investigation.   Although the U.S. Attorney’s office and the FBI have not taken any significant action in furtherance of their investigation during 2006, we stand ready to cooperate with their investigation.

On June 24, 2004, the Internal Revenue Service (IRS) began an audit of tax years 1998 through 2003 and issued a series of data requests to us including issues raised in the Memorandum.  The staff of the IRS requested that we provide certain documents, including but not limited to, matters concerning executive/director deferred compensation plans, management stock incentive plans and MVE financial statements.  On September 1, 2005, the IRS issued an audit report for tax years 1998 through 2003 that showed proposed changes to our federal income tax liability for each of those years.  The proposed changes resulted in a total tax deficiency, penalties and interest of approximately $23.9 million as of December 31, 2005.  On November 4, 2005, we filed a written protest to one of the proposed changes.  On April 3, 2006, the IRS conceded the proposed changes that we filed a written protest to and issued a revised audit report for tax years 1998 through 2003.  The revised audit report resulted in a total tax deficiency, penalties and interest of approximately $1.2 million.  We had previously made a deposit with the IRS of approximately $1.3 million that we requested on April 14, 2006 be applied to offset the $1.2 million tax deficiency, penalties and interest for tax years 1998 through 2003.  The Joint Committee on Taxation completed its review of the revised audit report for tax years 1998 through 2003 and sent us a letter dated June 16, 2006 stating that it took no exception to the revised audit report.

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Insurance Recovery Claim

On January 13, 2006, we filed a claim against one of our insurers, Associated Electric & Gas Insurance Services (AEGIS), under a fiduciary liability policy to recoup legal fees associated with our litigation against three former executives.   An arbitration of this matter was held on August 4, 2006.  The arbitration panel ruled on or about September 12, 2006 that the AEGIS policy does not require an advance of defense expenses to us.  Rather, the arbitration panel stated that we are required to file a written undertaking as a condition precedent to repay expenses finally established not to be insured.  We have filed a written undertaking with AEGIS and will continue to pursue resolution of the claim through mediation and arbitration in 2007.

State Income Tax Audit

On February 13, 2006, we received correspondence from the Ohio Department of Taxation (ODT) notifying us that ODT has 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 result in a balance due of $90.8 million before interest and penalties.  We have reviewed the proposed audit adjustments and are vigorously contesting the ODT findings and notice of assessment through all administrative and judicial means available. On March 29, 2006, we filed petitions for reassessment with the ODT to protest each assessment as well as request corrected assessments for each tax year.  On October 12, 2006, we signed a Memorandum of Understanding with the ODT that stated if the ODT’s positions are ultimately sustained in judicial proceedings, the total additional tax liability that we would be subject to for tax years 2002 through 2004 would be no more than $50.7 million before interest as opposed to the $90.8 million stated in the ODT’s correspondence of February 13, 2006.  We believe we have recorded adequate tax reserves related to the proposed adjustments; however, we cannot predict the outcome, which could be material to our results of operations and cash flows.

We are also under audit review by various state agencies for tax years 2002 through 2004.  We have also filed an appeal to the Ohio Board of Tax Appeals for tax years 1998 through 2001.  Depending upon the outcome of these audits and the appeal, we may be required to increase our tax provision if actual amounts ultimately determined exceed recorded reserves.  We believe we have adequate reserves in each tax jurisdiction but cannot predict the outcome of these audits.

Labor Relations Unasserted Claim

In September 2006, we became aware of an unasserted claim under the Fair Labor Standards Act concerning the calculation of overtime rates for our unionized workforce.  By agreement of Local #175 and DP&L, we jointly submitted the claim to a neutral third party who ruled in favor of DP&L’s position.  As a result of this decision, Local #175 has decided not to pursue any claim against DP&L.

Environmental

Pending before the U.S. Supreme Court is a proceeding, Environmental Defense v. Duke Energy (Duke Energy) that does not involve DP&L as a party but may have a significant effect on the outcome of litigation described below that involves allegations of violations of the CAA.  A key issue in that litigation that may be dispositive with respect to other pending cases is what test to apply for measuring whether modifications to electric generating units should trigger application of New Source Review (NSR) standards under the CAA.   In general terms, the dispute is whether to measure pre- and post-modification emissions based on the rate of emissions per hour of operation or based on total emissions over time.  The latter test, if applied, could trigger NSR requirements for equipment replacements that result in a plant running more often because it is more economical or dependable, even if the emissions rate per hour of operation does not change.  A ruling is expected in the first or second quarter of 2007.  DP&L cannot predict the outcome of the Duke Energy case.  Moreover, in each of the cases identified below, there may be case-specific facts and allegations that may cause a judge to find that the U.S. Supreme Court’s ruling is based on different facts and allegations and is therefore not controlling in the case before the judge.

In September 2004, the Sierra Club filed a lawsuit against DP&L and the other owners of the Stuart Generating Station in the United States District Court for the Southern District of Ohio for alleged violations of the CAA, including issues that may be decided by the Supreme Court in the Duke Energy case and other issues relating to alleged violations of opacity limitations.  DP&L, on behalf of all co-owners, is leading the defense of this matter.  A sizable amount of discovery has taken place and expert reports are scheduled to be filed at various times from May through September, 2007.  Dispositive motions are to be filed in January 2008.  No trial date has been set yet.

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Additional information relating to legal proceedings involving DPL and DP&L is contained in Item 1 — ENVIRONMENTAL CONSIDERATIONS, Item 1 — COMPETITION AND REGULATION, and Item 8 — Note 15 of Notes to Consolidated Financial Statements.

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

NONE

PART II

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

As of December 31, 2006, there were 24,434 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 2006 and 2005:

	2006				2005
	High		Low		High		Low
First Quarter	$	27.58	$	25.11	$	26.77	$	24.27
Second Quarter	$	27.82	$	26.25	$	27.67	$	24.08
Third Quarter	$	27.93	$	26.74	$	28.12	$	26.70
Fourth Quarter	$	28.72	$	27.16	$	28.01	$	24.55

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.  As of year-end, all earnings reinvested in the business of DP&L were available for DP&L common stock dividends.  We expect all 2006 earnings reinvested in the business of DP&L to be available for DP&L common stock dividends, payable to DPL.

On February 1, 2006, our Board of Directors authorized a 4% dividend increase on DPL’s common stock, raising the annual dividend on common shares from $0.96 per share to $1.00 per share.  These dividends were paid in each quarter of 2006.

On February 1, 2007, our Board of Directors authorized a 4% dividend increase on DPL’s common stock, raising the annual dividend on common shares from $1.00 per share to $1.04 per share.  These dividends will be paid each quarter during 2007.

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 our equity compensation plans as of December 31, 2006, is disclosed in Item 12 — Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters, which incorporates such information by reference to our proxy statement for the 2007 Annual Meeting of Shareholders.

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Item 6 - Selected Financial Data

	For years ended December 31,
($ in millions except per share amounts or as indicated)	2006			2005			2004			2003			2002
DPL Inc.
Basic earnings (loss) per share of common stock:
Continuing operations (d)	$	1.12		$	1.03		$	1.01		$	0.96		$	1.48
Discontinued operations	$	0.12		$	0.44		$	0.80		$	0.14		$	(0.72	)
Cumulative effect of accounting change (a)	$	—		$	(0.03	)	$	—		$	0.14		$	—
Total basic earnings per common share	$	1.24		$	1.44		$	1.81		$	1.24		$	0.76
Diluted earnings (loss) per share of common stock:
Continuing operations (d)	$	1.03		$	0.97		$	1.00		$	0.94		$	1.42
Discontinued operations	$	0.12		$	0.41		$	0.78		$	0.14		$	(0.69	)
Cumulative effect of accounting change (a)	$	—		$	(0.03	)	$	—		$	0.14		$	—
Total dilutive earnings per common share	$	1.15		$	1.35		$	1.78		$	1.22		$	0.73
Dividends paid per share	$	1.00		$	0.96		$	0.96		$	0.94		$	0.94
Dividends payout ratio	80.7		%	66.7		%	53.0		%	75.8		%	123.7		%
Total Electric sales (millions of kWh)	18,418			17,906			18,465			19,345			19,247
Results of Operations:
Revenues	$	1,393.5		$	1,284.9		$	1,199.9		$	1,191.0		$	1,186.4
Earnings from continuing operations, net of tax (d)	$	125.6		$	124.7		$	121.5		$	114.9		$	177.6
Earnings (loss) from discontinued operations, net of tax	$	14.0		$	52.9		$	95.8		$	16.6		$	(86.5	)
Cumulative effect of accounting change, net of tax	$	—		$	(3.2	)	$	—		$	17.0		$	—
Net Income	$	139.6		$	174.4		$	217.3		$	148.5		$	91.1
Financial Position items at December 31, :
Total Assets	$	3,612.2		$	3,791.7		$	4,165.5		$	4,444.7		$	4,277.7
Long-term Debt (b)	$	1,551.8		$	1,677.1		$	2,117.3		$	1,954.7		$	2,142.3
Trust preferred securities (b)	$	—		$	—		$	—		$	—		$	292.6
Total construction additions	$	351.6		$	179.7		$	98.0		$	102.2		$	165.9
Senior unsecured debt ratings at December 31, : (c)
Fitch Ratings	BBB			BBB-			BB			BBB			BBB
Moody’s Investors Service	Baa3			Ba1			Ba3			Ba1			Baa2
Standard & Poor’s Corporation	BB			BB-			B+			BB-			BBB-
Number of Shareholders - Common Stock	24,434			26,601			28,079			30,366			31,856
The Dayton Power and Light Company
Total Electric sales (millions of kWh)	18,418			17,906			18,465			19,345			19,247
Results of Operations:
Revenues	$	1,385.2		$	1,276.9		$	1,192.2		$	1,183.4		$	1,175.8
Earnings on Common Stock (d)	$	241.6		$	210.9		$	208.1		$	238.5		$	244.7
Financial Position items at December 31, :
Total Assets	$	3,090.3		$	2,738.6		$	2,641.4		$	2,660.1		$	2,757.3
Long-term Debt (b)	$	785.2		$	685.9		$	686.6		$	687.3		$	665.5
Senior secured debt ratings at December 31, : (c)
Fitch Ratings	A			A-			BBB			A			A
Moody’s Investors Service	A3			Baa1			Baa3			Baa1			A2
Standard & Poor’s Corporation	BBB			BBB-			BBB-			BBB-			BBB
Number of Shareholders - Preferred Stock	290			329			357			402			426

(a)In 2003, we recorded a cumulative effect of an accounting change related to the adoption of SFAS 143 “Accounting for Asset   Retirement Obligations”.  In 2005, we recorded an additional obligation in response to FASB Interpretation Number (FIN) 47, “Accounting for Conditional Asset Retirement Obligations, an interpretation of FASB Statement No. 143.”  See Item 7 - Management’s Discussion and Analysis of Financial Condition and Results of Operations.

(b)Excludes current maturities of long-term debt.  Upon adoption of FASB Interpretation Number 46R “Consolidation of Variable Interest Entities (Revised December 2003) an interpretation of ARB No. 51” at December 31, 2003, DPL deconsolidated the DPL Capital Trust II.

(c)During 2006, our rating agencies upgraded our corporate credit and debt ratings.  In February 2007, S&P upgraded the corporate credit rating and debt rating from BB to BBB- for DPL and from BBB to BBB+ for DP&L.

(d)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.  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.

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

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 our future economic performance, taking into account the information currently available to management. These statements are not statements of historical fact. 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; unusual maintenance or repair requirements; changes in fuel costs and purchased power, coal, environmental emissions, gas and other commodity prices; increased competition; regulatory changes and decisions; changes in accounting rules; financial market conditions; and general economic conditions.

Forward-looking statements speak only as of the date of the document in which they are made. These forward-looking statements are identified by terms and phrases such as “anticipate”, “believe”, “intend”, “estimate”, “expect”, “continue”, “should”, “could”, “may”, “plan”, “project”, “predict”, “will”, and similar expressions. 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 financials and related footnotes included in Item 8 — Financial Statements and Supplementary Data.

BUSINESS OVERVIEW

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 99% of DPL’s total consolidated revenue and approximately 86% 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.  Historically, DPL and DP&L have filed separate SEC filings. Beginning with this report and in the future, DPL Inc. and The Dayton Power and Light Company will file combined SEC reports on an interium and annual basis.

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 through this management. 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 fuel source, cost structure and operating characteristics.  We are focused on the operating efficiency of these power plants and maintaining their availability.

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 they may recover and the investment returns that they may collect in customer rates. We are focused on delivering electricity and to maintain high standards of customer service and reliability in a cost-effective manner.

We operate in a regulated and deregulated environment. The electric utility industry has historically operated in a regulated environment. However, in recent years, there have been a number of federal and state regulatory and legislative decisions aimed at promoting competition and providing customer choice. Market participants have therefore created new business models to exploit opportunities. The marketplace is now comprised of independent power producers, energy marketers and traders, energy merchants, transmission and

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distribution providers and retail energy suppliers. There have also been new market entrants and activity among the traditional participants, such as mergers, acquisitions, asset sales and spin-offs of lines of business. In addition, transmission systems are being operated by Regional Transmission Organizations (RTOs).

As part of Ohio’s electric deregulation law, all of the state’s investor-owned utilities were required to join an RTO. DP&L successfully integrated its 1,000 miles of high-voltage transmission into the PJM Interconnection, L.L.C. (PJM) RTO in October 2004. As an RTO, PJM’s role is to administer an electric marketplace and ensure 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.

2006 FINANCIAL OVERVIEW

As more fully discussed in later sections of this MD&A, the following were the significant themes and events for 2006:

·DPL’s revenues increased 8% over 2005 resulting from the rate stabilization surcharge and other regulated asset recovery riders improving gross margin and profitability.  DPL’s fuel, purchased power costs, and operation and maintenance increased over 2005 by 4%, 19% and 21%, respectively.  DPL’s cash flow from operations of $308.7 million was in line with the cash flow from operations of $314.7 million in 2005.

·DP&L’s revenues increased 8% over 2005 resulting from the rate stabilization surcharge and other regulated asset recovery riders improving gross margin and profitability.   DP&L’s fuel, purchased power costs, and operation and maintenance increased over 2005 by 5%, 17% and 17%, respectively. DP&L’s cash flow from operations of $365.7 million was in line with the cash flow from operations of $366.8 million in 2005.

·In connection with DPLE’s decision to sell the Greenville Station and Darby Station electric peaking generation facilities, DPL concluded that an impairment charge for the Greenville Station and Darby Station assets was required. During the fourth quarter of 2006, DPL recorded a $71.0 million impairment charge to record the fair market write-down of the assets and other associated costs related to the sale.

·On September 13, 2006, the Ohio Air Quality Development Authority (OAQDA) issued $100 million of 4.80% fixed interest rate OAQDA Revenue Bonds 2006 Series A due September 1, 2036. In turn, DP&L then borrowed these funds from the OAQDA. DP&L is using the proceeds from these borrowings to assist in financing its portion of the costs of acquiring, constructing and installing certain solid waste disposal and air quality facilities at Miami Fort, Killen and Stuart Generating Stations.

·On July 27, 2005, DPL’s Board authorized the repurchase of up to $400 million of common stock from time to time in the open market or through private transactions. DPL completed this share repurchase program on August 21, 2006. These Board-authorized repurchase transactions resulted in 14.9 million shares being repurchased, or 11.7% of the outstanding stock at December 31, 2005 at an average price of $26.91 per share. These shares are currently held as treasury shares at DPL.

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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 The Dayton Power and Light Company (DP&L) and all of DP&L’s consolidated subsidiaries. DP&L provides approximately 99% 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.

Financial Highlights - DPL

$ in millions	2006			2005			2004
Revenues:
Retail	$	1,131.4		$	1,066.6		$	1,036.8
Wholesale	174.1			133.3			135.1
RTO ancillary	77.2			74.4			17.9
Other revenues, net of fuel costs	10.8			10.6			10.1
Total Revenues	$	1,393.5		$	1,284.9		$	1,199.9
Less: Fuel	349.1			336.9			263.1
Purchased power (a)	159.0			133.3			113.1
Gross margins (b)	$	885.4		$	814.7		$	823.7
Gross margins as a percentage of revenues	63.5		%	63.4		%	68.6		%
Operating Income	$	281.0		$	339.1		$	336.5
Earnings per share:
Continuing Operations	$	1.12		$	1.03		$	1.01
Discontinued Operations	0.12			0.44			0.80
Cumulative effect of accounting change	—			(0.03		)	—
Net Income	$	1.24		$	1.44		$	1.81

(a)Purchased power includes ancillary charges from PJM of $49.4 million, $48.5 million and $12.3 million for 2006, 2005 and 2004 respectively.

(b)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.

DPL Inc. - - 2006 Compared to 2005

For the year ended December 31, 2006, basic earnings per share of $1.24 decreased $0.20 from the same period in 2005. The decline was primarily due to a $0.32 per share decrease in Earnings from Discontinued Operations reflecting lower investment income and lower gains on the sale of investments. Most of the investments were sold during 2005. Basic earnings per share for Earnings from Continuing Operations were $0.09 higher in 2006 compared to 2005. This increase is the result of higher revenues relating to the impact of the rate stabilization plan and lower interest expense, partially offset by a $71.0 million impairment charge for the peaking units, higher fuel and purchased power costs and higher operation and maintenance expenses.

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DPL Inc. - - 2005 Compared to 2004

For the year ended December 31, 2005, basic earnings per share of $1.44 decreased $0.37 from the same period in 2004. The decline was primarily due to a $0.36 per share decrease in Earnings from Discontinued Operations reflecting lower investment income, partially offset by the gain on the sale of investments (In February 2005, DPL agreed to sell its respective interests in forty-six private equity funds). Basic earnings per share for Earnings from Continuing Operations were $0.02 higher in 2005 compared to 2004. This increase is the result of higher revenues relating to higher retail sales volume and ancillary revenues associated with the participation in PJM. Also contributing to this increase were lower operation and maintenance expenses driven by lower corporate costs, higher investment income and lower interest expense related to debt refinancing in 2004. These increases were partially offset by higher fuel and purchased power costs and a $61.2 million charge for the early redemption of debt.

For 2005, basic earnings per share includes a $0.03 after-tax charge related to the cumulative effect of a change in accounting for asset retirement obligations at certain power generating stations.

DPL Inc. — Revenues

For the year ended December 31, 2006, revenues increased $108.6 million, or 8% to $1,393.5 from $1,284.9 for the same period in the prior year. This increase was primarily the result of higher average retail rates and higher wholesale sales volume, partially offset by lower retail sales volume and lower average rates for wholesale revenues. Retail revenues increased $64.8 million primarily resulting from an increase in average rates related to the Rate Stabilization Plan surcharge and other regulated asset recovery riders resulting in a $93.0 million price variance, partially offset by lower retail sales volume resulting in a $29.4 million volume variance. Sales volume declined 3% in 2006 from 2005 due to milder weather which resulted in lower heating and cooling degree days. Heating degree days declined 11% and cooling degree days declined 20%. Wholesale revenue increased $40.8 million primarily related to a 34% increase in sales volume (935 GWh) resulting in a $45.8 million volume variance, partially offset by a decrease in wholesale average rates resulting in a $5.0 million price variance. For 2006, the RTO ancillary revenues increased $2.8 million or 4% to $77.2 million from $74.4 million in 2005. RTO ancillary revenues primarily consist of compensation for use of DP&L’s transmission assets, regulation services, reactive supply and operating reserves.

For the year ended December 31, 2005, revenues of $1,284.9 million increased $85 million, or 7% from $1,199.9 million for the same period in 2004. This increase was primarily the result of increased retail sales volume, higher average rates for wholesale revenues, and ancillary revenues associated with participation in PJM that was partially offset by lower wholesale sales volume. Retail revenues increased $29.8 million, primarily resulting from increased sales volume of $32.8 million and $2.8 million in higher average rates, partially offset by $5.8 million in lower miscellaneous retail revenues reflecting transmission services provided in 2004 that are now provided through PJM. Residential customers comprised the bulk of the increase in sales volume reflecting greater weather extremes experienced in 2005 compared to 2004 as cooling degree days were up 39% to 1,075 in 2005 compared to 771 in 2004 and heating degree days were up 4% to 5,702 in 2005 compared to 5,500 in 2004. Wholesale revenue decreased $1.8 million, primarily related to a $37.2 million decline in sales volume that was nearly offset by a $35.4 million increase related to higher average market rates. For 2005, ancillary revenues from RTOs were $74.4 million compared to $17.9 million for 2004, as we did not participate in PJM until October 2004.

DPL Inc. - Margins, Fuel and Purchased Power

For 2006, gross margin of $885.4 million increased $70.7 million, or 9%, from $814.7 million in 2005. As a percentage of total revenues, gross margin remained flat in 2006 at 63.5% compared to 63.4% in 2005. This result reflects the favorable impact of the rate stabilization plan on revenues offsetting the increasing fuel and purchase power costs. In prior years, rising fuel and purchase power costs had eroded gross margin. Fuel costs, which include coal, gas, oil and emission allowance costs, increased by $12.2 million, or 4%, in 2006 compared to the same period in 2005 primarily due to increased fuel prices. Purchased power increased $25.7 million, or 19% in 2006 compared to the same period in 2005 primarily resulting from increased charges of $30.8 million relating to higher purchased power volume and an increase of $0.9 million in RTO ancillary costs. These increases were partially offset by lower average market rates reducing purchased power costs by $6.0 million. The increase in purchase power volume resulted from our decision to purchase power at lower average market rates instead of running our higher cost generating facilities. In addition, from time to time, we purchased power when our generating facilities were not available due to scheduled maintenance and forced outages.

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For 2005, gross margin of $814.7 million decreased by $9.0 million from $823.7 million for 2004. As a percentage of total revenues, gross margin decreased by 5.2 percentage points to 63.4% from 68.6%. This decline is primarily the result of increased fuel and purchased power costs, partially offset by an increase in revenues, principally from RTO ancillary revenues and higher average wholesale rates. Fuel costs, which include coal, gas, oil and emission allowance costs, increased by $73.8 million or 28% for 2005 compared to the same period in 2004 primarily resulting from higher average fuel prices of $64.1 million as well as increased generation of $9.7 million. Purchased power costs increased by $20.2 million for 2005 compared to 2004 primarily resulting from increased charges of $36.2 million associated with operating in PJM (we did not participate in PJM until October 2004) and $28.2 million related to higher average market prices, partially offset by $44.2 million related to lower purchased power volume.

DPL Inc. - Operation and Maintenance

$ in millions	2006 vs. 2005
Legal costs	$	13.5
Power production costs	10.4
RTO administrative fees	5.5
Low-Income Assistance Program	5.1
Lump sum bonus and retirement payments	3.7
Line clearance	2.7
Mark-to-market adjustments and forfeitures of restricted stock units (RSUs)	2.6
Long-term incentive compensation	2.1
Pension and benefits	1.0
Directors’ and Officers’ liability insurance	(3.2		)
Sarbanes-Oxley compliance fees	(1.1		)
Other, net	4.1
Total operation and maintenance expense	$	46.4

For 2006, operation and maintenance expense increased $46.4 million or 21% compared to 2005 year primarily resulting from a $13.5 million increase in legal fees primarily related to the litigation with former executives; a $10.4 million increase in power production costs consisting of $4.1 million of coal brokering credits received in 2005 that were not received in 2006 and increased operating and maintenance expenses of $3.1 million which related to cost of removal and peaker engine repairs; $5.5 million in PJM administrative fees, including $2.5 million deferred in 2005 by PUCO authority (rate relief was granted in February 2006); $5.1 million increase in the low-income assistance program costs; $3.7 million of lump sum bonus and retirement payments to former executives (not related to our ongoing litigation with the three former executives); $2.7 million of line clearance; a $2.6 million increase in mark-to-market adjustments and forfeitures of restricted stock units; $2.1 million in long-term incentive compensation relating to performance and restricted shares compensation; and a $1.0 million increase in pension and benefits expenses.  These increases were partially offset by a $3.2 million decrease in Directors’ and Officers’ liability insurance premiums and a $1.1 million decrease in Sarbanes-Oxley compliance fees.

$ in millions	2005 vs 2004
Directors’ & Officers’ liability insurance	$	(8.3	)
Legal and special investigations	(5.8		)
Executive and management compensation	(5.8		)
Sarbanes-Oxley compliance and external/internal audit fees	(3.5		)
Low-Income Assistance Program	(2.3		)
Pension and benefits	(0.7		)
Electric production, transmission and distribution costs	4.5
Other, net	3.8
Total operation and maintenance expense	$	(18.1	)

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For 2005, operation and maintenance expense decreased $18.1 million or 8% compared to 2004 as a result of lower corporate costs that were partially offset by increased electric production, transmission and distribution expenses. Corporate costs declined from the prior year primarily resulting from a decrease of $8.3 million in Directors’ and Officers’ liability insurance premiums; approximately $5.8 million related to the decreased level of activity regarding various internal and governmental investigations as well as the securities litigation; $5.8 million in lower executive and management compensation costs; $3.5 million in reduced Sarbanes-Oxley 404 compliance costs and external/internal audit fees; $2.3 million in decreased Low Income Assistance Program costs; and $0.7 million of lower benefits costs (a decrease of $2.8 million for a 2004 adjustment in disability reserves was nearly offset by an increase in pension costs of $2.1 million). These decreases were partially offset by a $4.5 million increase in electric production, transmission, and distribution costs, primarily related to generation operations costs for lime used for pollution control and electric production boiler maintenance costs as well as higher costs related to electric distribution operation and maintenance.

DPL Inc. — Impairment of Peaking Stations

In connection with DPLE’s decision to sell the Greenville Station and Darby Station electric peaking generation facilities, DPL concluded that an impairment charge for the Greenville Station and Darby Station assets was required.  Greenville Station consists of four natural gas peaking units with a net book value of approximately $66 million. Darby Station consists of six natural gas peaking units with a net book value of approximately $156 million. DPLE plans to sell the Greenville and Darby Station assets for $49 million and $102 million, respectively. These sales are expected to take place during the first half of 2007.

During the fourth quarter of 2006, DPL recorded a $71.0 million impairment charge to record the fair market write-down of the assets and other associated costs related to the sale. These assets are now held for sale and are no longer being depreciated. There was no such activity in 2005. See Note 14 of the Notes to the Consolidated Financial Statements.

DPL Inc. — Depreciation and Amortization

For 2006, depreciation and amortization expense increased $4.5 million from 2005 relating to completed projects in both the distribution and production areas increasing our overall plant base.

Depreciation and amortization expense was $3.2 million higher in 2005 as compared to 2004 primarily as a result of completed projects in the distribution area (including new services, line transformers, poles, station equipment and overhead and underground conductor) and in the production area (mainly due to the SCRs for Stuart, Killen and Zimmer) that were put into service in the second quarter of 2004.

DPL Inc. - Amortization of Regulatory Assets

For 2006, amortization of regulatory assets increased $5.6 million to $7.6 million compared to the same period in 2005. The increase in amortization of regulatory assets reflects $2.6 million for the amortization of costs incurred to accommodate unbundled rates and electric choice bills in the customer billing system; $1.3 million for the amortization of PJM administrative fees deferred for the period October 2004 through January 2006; $1.2 million for the amortization of incremental 2004/2005 severe storm costs; $0.3 million for the amortization of costs incurred to integrate DP&L into the PJM system; and $0.2 million for the amortization of the Rate Stabilization Surcharge rate case expenses.

For 2005, amortization of regulatory assets increased $1.3 million to $2.0 million compared to the same period in 2004 primarily resulting from PJM start-up costs amortization of $1.1 million and PJM integration costs amortization of $0.2 million reflecting DP&L’s entrance into the PJM market on October 1, 2004.

DPL Inc. - Investment Income

For 2006, investment income decreased $33.1 million to $17.8 million from $50.9 million for the same period in 2005. This decrease was primarily the result of a $23.4 million decrease in gains on public and income investments realized in 2005, a $4.6 million in foreign currency translation gains realized in 2005 for the liquidation of investments denominated in Euros, and a $4.8 million decrease in interest income resulting from lower cash balances in 2006 compared to 2005.

For 2005, investment income increased by $43.0 million compared to 2004 primarily resulting from a net gain on the disposal of public equity and income investments of $23.5 million and from $18.5 million in interest income, principally from new short-term investments relating to a cash surplus from the sale of the private equity portfolio.

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DPL Inc. - Interest Expense

For 2006, interest expense decreased $35.5 million, or 26%, compared to the same period in 2005 resulting from the debt reduction that occurred in 2004 and 2005 and a higher capitalized interest of $10.9 million in 2006 compared to 2005 associated with our major construction projects.

For 2005, interest expense decreased $22.5 million, or 14%, compared to 2004 due to the debt reduction of $462.6 million and a full year impact of the $500 million debt retirement completed in 2004 (partially financed with a $175 million note).

DPL Inc. - Charge for Early Redemption of Debt

In 2005, DPL recorded $61.2 million in charges resulting from premiums paid for the early redemption of debt, including write-offs of unamortized debt expense and debt discounts.

DPL Inc. - Other Income (deductions)

For 2006, other income (deductions) was $14.7 million less than the same period in 2005 primarily due to gains of $12.3 million realized in 2005 from the sale of pollution control emission allowances. There were no sales of pollution control emission allowances during 2006.

For 2005, other income was $9.7 million greater than 2004 primarily reflecting $3.5 million of additional gains realized in 2005 over 2004 resulting from sales of pollution control emission allowances; $1.6 million of lower fees resulting from the 2004 cancellation and replacement of DP&L’s revolving credit facility and our term loan termination and $1.5 million from the 2004 write-off of the remaining term loan debt expense resulting from our term loan termination.

DPL Inc. - Income Tax Expense

For 2006, income taxes from continuing operations decreased $10.1 million, or 13%, compared to 2005 due to a decrease in pre-tax book income, a decrease in the effective tax rate primarily reflecting the phase-out of the Ohio Franchise Tax and adjustments recorded in 2005 and 2006 to true-up book tax expense to the tax return.

For 2005, income tax expense from continuing operations increased $13.4 million compared to 2004 resulting from higher income, increased accrual for open tax years and lower state tax coal credits.

On June 30, 2005, Governor Taft signed House Bill 66 into law which significantly changed the tax structure in Ohio.  The major provisions of the bill included phasing-out the Ohio Franchise Tax, phasing-out the Ohio Personal Property Tax for non-utility taxpayers and phasing-in a Commercial Activities Tax.  The Ohio Franchise Tax phase-out required second quarter 2005 adjustments to income tax expense.  Income taxes from continuing operations were reduced by $1.5 million while income taxes from discontinued operations were increased by $1.3 million as a result of the tax law change.  Other applicable provisions of House Bill 66 have been reflected in the consolidated financial statements.

DPL Inc. - - Discontinued Operations, Net of Tax

On February 13, 2005, our subsidiaries, 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.   Sales proceeds and any related gains or losses were recognized as the sale of each fund closed. Among other closing conditions, each fund required the transaction to be approved by the respective general partner of each fund. During 2005, MVE and MVIC completed the sale of their interests in forty-three and a portion of one of those private equity funds resulting in a $46.6 million pre-tax gain ($53.1 million less $6.5 million professional fees) from discontinued operations and provided approximately $796 million in net proceeds, including approximately $52 million in net distributions from funds while held for sale. As part of this pre-tax gain, DPL realized $30 million that was previously recorded as an unrealized gain as part of other comprehensive income.

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 another fund, to AlpInvest/Lexington 2005, LLC without a change in ownership of the interests. The terms of the alternative arrangements do not meet the criteria for recording a sale. We are obligated to remit to AlpInvest/Lexington 2005, LLC any distributions MVE receives from these funds, and AlpInvest/Lexington 2005,

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LLC is obligated to provide funds to us to pay any contribution notice, capital call or other payment notice or bill for which MVE receives notice with respect to such funds. The alternative arrangements resulted in a deferred gain of $27.1 million until such terms of a sale can be completed (contingent upon receipt of general partner approvals of the transfer) and in 2005 provided approximately $72 million in net proceeds on these funds.   DPL recorded an impairment loss of $5.6 million in the second quarter of 2005 to write down assets transferred pursuant to the alternative arrangements to estimated fair value. Ownership of these funds transfer after the general partners of each of the separate funds consent to the transfer.

On March 31, 2006, MVE completed the sale of the remaining portion of one private equity fund, for which MVE had previously entered into an alternative closing arrangement resulting in the recognition of $13.2 million of the deferred gain. On August 31, 2006, MVE completed the sale of a portion of one of the two remaining private equity funds, resulting in recognition of $5.7 million of the deferred gain. The sale of the residual portion of this private equity fund will be completed during the first quarter of 2007, resulting in the recognition of approximately $8.2 million of the deferred gain. The transfer of the remaining fund is expected to be completed in 2008.

	For the years ended
	December 31,
$ in millions	2006			2005			2004
Earnings from discontinued operations:
Investment income	$	—		$	41.3		$	178.5
Investment expenses	(1.3		)	(9.5		)	(23.6		)
Income from discontinued operations	(1.3		)	31.8			154.9
Gain realized from sale	18.9			53.1			—
Broker fees and other expenses	—			(6.5		)	—
Loss recorded	—			(5.6		)	—
Net gain on sale	18.9			41.0			—
Earnings before income taxes	17.6			72.8			154.9
Income tax expense	(3.6		)	(19.9		)	(59.1		)
Earnings from discontinued operations, net	$	14.0		$	52.9		$	95.8
Cash Flow:
Net proceeds from sale of portfolio	$	—		$	744.2		$	—
Net proceeds from transfer	—			72.3			—
Net distributions from funds	—			51.9			203.9
Total cash flow from discontinued operations	$	—		$	868.4		$	203.9

There was no investment income from discontinued operations during 2006, however there was $1.3 million of legal costs associated with the ongoing litigation (see Note 11 of Notes to Consolidated Financial Statements). Income from discontinued operations (pre-tax) for the year ended December 31, 2005 of $31.8 million is comprised of $41.3 million of investment income less $9.5 million of associated management fees and other expenses.

For the year ended December 31, 2006, we recognized $18.9 million of the deferred gain from the sale of the remaining private equity funds described above. For the year ended December 31, 2005, we recognized a $46.6 million pre-tax gain ($53.1 million less $6.5 million of professional fees), recorded a $5.6 million impairment loss, deferred gains of $27.1 million on transferred funds from discontinued operations, and provided approximately $868 million in net proceeds, including approximately $52 million in net distributions from funds held for sale. We will continue to incur minor amounts of fees in the near term.

DPL Inc. - Cumulative Effect of Accounting Change, Net of Tax

In 2005, the cumulative effect of an accounting change resulted in a charge of $3.2 million related to the adoption of the provisions of FASB Interpretation No. 47, “Accounting for Conditional Asset Retirement Obligations an interpretation of FASB Statement No. 143” (FIN 47).  (See Note 1 of Notes to Consolidated Financial Statements.)

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

Income Statement Highlights — DP&L

$ in millions	2006			2005			2004
Revenues:
Retail	$	998.1		$	944.9		$	914.0
Wholesale	309.9			257.6			260.3
RTO ancillary	77.2			74.4			17.9
Total Revenues	$	1,385.2		$	1,276.9		$	1,192.2
Less: Fuel	335.2			317.9			257.0
Purchased power (a)	171.9			147.1			116.4
Gross margins (b)	$	878.1		$	811.9		$	818.8
Gross margins as a percentage of revenues	63.4		%	63.6		%	68.7		%
Operating Income	$	402.5		$	382.6		$	369.4

(a)Purchased power includes ancillary charges from PJM of $49.4 million, $48.5 million and $12.3 million for 2006, 2005 and 2004  respectively.

(b)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.

DP&L — Revenues

For 2006, revenues increased 8% to $1,385.2 million compared to $1,276.9 million in 2005, reflecting an increase of $108.3 million.  This increase was primarily the result of higher average rates for retail sales, greater wholesale sales volume and increased ancillary revenues associated with participation in a RTO.  These increases were partially offset by lower retail sales volume and lower average rates for wholesale sales.  Retail revenues increased $53.2 million, primarily resulting from a $78.3 million increase relating to higher average rates and increased miscellaneous revenues of $0.9 million, partially offset by decreased sales volume of $26.0 million resulting from milder weather experienced in 2006 compared to 2005.  The higher average rates were primarily the result of the rate stabilization plan surcharge, and regulated asset recovery riders implemented throughout 2006.  Wholesale revenues increased $52.3 million, primarily related to a $88.6 million increase in sales volume, partially offset by a $36.3 million decrease in average market rates.  During 2006, RTO ancillary revenues increased $2.8 million to $77.2 million from $74.4 million in 2005.  Heating degree days were down 11% to 5,076 in 2006 compared to 5,702 in 2005.  In addition, cooling degree days were down 20% to 855 in 2006 compared to 1,075 in 2005.

For 2005, revenues increased 7% to $1,276.9 million compared to $1,192.2 million in 2004, reflecting an increase of $84.7 million.  This increase was primarily the result of increased retail sales volume, higher average rates for wholesale and retail revenues, and ancillary revenues associated with participation in PJM that was partially offset by lower wholesale sales volume.  Retail revenues increased $30.9 million, primarily resulting from increased sales volume of $28.9 million and $7.6 million in higher average rates, partially offset by $5.6 million in lower miscellaneous retail revenues reflecting transmission services provided in 2004 that are now provided through PJM.  Residential customers comprised the bulk of the increase in sales volume reflecting greater weather extremes experienced in 2005 compared to 2004 as cooling degree days were up 39% to 1,075 in 2005 compared to 771 in 2004 and heating degree days were up 4% to 5,702 in 2005 compared to 5,500 in 2004.  Wholesale revenue decreased $2.7 million, primarily related to a $71.6 million decline in sales volume that was nearly offset by a $68.9 million increase related to higher average market rates.  For 2005, ancillary revenues from RTOs were $74.4 million compared to $17.9 million for 2004, as we did not participate in PJM until October 2004.  RTO ancillary revenues primarily consist of compensation for use of our transmission assets, regulation services, reactive supply and operating reserves.

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DP&L - Margins, Fuel and Purchased Power

For 2006, gross margin increased $66.2 million to $878.1 million from $811.9 million in 2005.  As a percentage of total revenues, gross margin remained relatively flat in 2006 at 63.4% compared to 63.6% in 2005.  This result reflects the favorable impact of the rate stabilization plan on revenues offsetting the increasing fuel and purchased power costs.  In prior years, rising fuel and purchased power costs had eroded gross margin.  Fuel costs, which include coal, gas, oil and emission allowance costs, increased by $17.3 million or 5% in 2006 as a result of higher market prices. Purchased power costs increased by $24.8 million or 17% in 2006 compared to 2005 primarily resulting from higher volumes of power purchased.  The increase in purchased power volume resulted from our decision to purchase power at lower average market rates instead of running our higher cost generating facilities.  In addition, from time to time, we had to purchase power to source power sales when our generating facilities were not available due to scheduled maintenance and forced outages.

For 2005, gross margin decreased by $6.9 million to $811.9 million from $818.8 million in 2004.  As a percentage of total revenues, gross margin decreased by 5.1 percentage points to 63.6% from 68.7%.  This decline is primarily the result of a $91.6 million increase in fuel and purchased power costs, offset by an $84.7 million increase in revenues (see discussion of revenue variance above).  Fuel costs increased by $60.9 million for 2005 compared to the same period in 2004 primarily resulting from higher average fuel prices as well as an increased volume of electric generation.  Purchased power costs increased by $30.7 million for 2005 compared to the same period in 2004 primarily resulting from increased ancillary charges of $36.2 million associated with moving power across PJM (we did not participate in PJM until October 2004) as well as increases related to higher average market prices, partially offset by lower purchased power volume.

DP&L - - Operation and Maintenance

$ in millions	2006 vs. 2005
Power production costs	$	10.4
Low-Income Assistance Program	5.6
RTO administration fees	5.5
Lump sum bonus and retirement payments	3.7
Line clearance	2.7
Long-term incentive compensation	1.9
Reserves for insurance, injuries/damages/environmental	1.9
Pension and benefits	0.9
Mark-to-market adjustments and forfeitures of restricted stock units (RSUs)	0.9
Directors’ and Officers’ liability insurance	(1.2		)
Sarbanes-Oxley compliance fees	(1.1		)
Other, net	2.2
Total operation and maintenance expense	$	33.4

For 2006, operation and maintenance expense increased $33.4 million or 17% compared to 2005 primarily resulting from a $10.4 million increase in power production costs consisting of $4.1 million of coal brokering credits received in 2005 that were not received in 2006 and increased operating and maintenance expenses of $3.1 million which related to cost of removal and peaker engine repairs; a $5.6 million increase in the Low-Income Assistance Program costs; $5.5 million in PJM administrative fees, including $2.5 million deferred in 2005 by PUCO authority (rate relief was granted in February 2006); $3.7 million of lump sum bonus and retirement payments for former executives (not related to our ongoing litigation with the three former executives); $2.7 million related to line clearance; $1.9 million increase in long-term incentive costs; a $1.9 million increase in reserves for insurance, injuries and damages; a $0.9 million increase in pension and benefits expenses; and a $0.9 million increase in mark-to-market adjustments and forfeitures of restricted stock units.  These increases were partially offset by a $1.2 million decrease in Directors’ and Officers’ liability insurance premiums and a $1.1 million decrease in Sarbanes-Oxley compliance fees.

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$ in millions	2005 vs 2004
Directors’ and Officers’ liability insurance	(14.8		)
Executive and management compensation	(10.2		)
Sarbanes-Oxley compliance and external/internal audit fees	(3.5		)
RTO administrative fees	(1.6		)
Reduction in capitalized insurance and claims costs	(0.3		)
Pension and benefits	0.6
Electric production, transmission and distribution costs	$	4.1
Other, net	(0.4		)
Total operation and maintenance expense	$	(26.1	)

For 2005, operation and maintenance expense decreased $26.1 million or 12% compared to same period in 2004 as a result of lower corporate costs that were partially offset by increased electric production, transmission and distribution expenses.  Corporate costs declined from the prior year primarily resulting from a decrease of $14.8 million in Directors’ and Officers’ liability insurance premiums; $10.2 million in lower executive and management compensation costs; $3.5 million in reduced Sarbanes-Oxley 404 compliance costs and external / internal audit fees; and $1.6 million in lower PJM administrative fees resulting from a PUCO order to defer these costs until they can be recovered through rates starting in February 2006.  These decreases were partially offset by a $4.1 million increase in electric production, transmission and distribution costs, primarily related to generation operations costs for lime used for pollution control and electric production boiler maintenance costs as well as higher costs related to electric distribution, operation and maintenance.  In addition, pension and benefits costs rose by $0.6 million reflecting an increase in pension costs of $2.0 million that was nearly offset by a $1.4 million decrease for other post employment benefits, principally a 2004 adjustment in disability reserves.

DP&L - Depreciation and Amortization

Depreciation and amortization increased $6.1 million in 2006 compared to 2005 primarily reflecting a higher plant base.

Depreciation and amortization increased $2.8 million in 2005 as compared to 2004 primarily as a result of completed projects in the distribution area (including new services, line transformers, poles, station equipment, and overhead and underground conductor) and in the production area (mainly due to the SCRs for Stuart, Killen and Zimmer) that were put into service in the second quarter of 2004.

DP&L - Amortization of Regulatory Assets

For 2006, amortization of regulatory assets increased $5.6 million to $7.6 million compared to the same period in 2005.  The increase in amortization of regulatory assets reflects $2.6 million for the amortization of costs incurred to accommodate unbundled rates and electric choice bills in the customer billing system; $1.3 million for the amortization of PJM administrative fees deferred for the period October 2004 through January 2006; $1.2 million for the amortization of incremental 2004/2005 severe storm costs; $0.3 million for the amortization of costs incurred to integrate DP&L into the PJM system; and $0.2 million for the amortization of the Rate Stabilization Surcharge rate case expenses.

For 2005, amortization of regulatory assets increased $1.3 million to $2.0 million compared to the same period in 2004 primarily resulting from PJM start-up costs amortization of $1.1 million and PJM integration costs amortization of $0.2 million reflecting DP&L’s entrance into the PJM market on October 1, 2004.

DP&L - - Interest Expense

Interest expense decreased $14.7 million or 39% in 2006 compared to 2005, primarily relating to $10.9 million of increased capitalized interest resulting from higher pollution control capital expenditures at the generating plants and $5.3 million of lower interest expense reflecting the refinancing of pollution control bonds at reduced interest rates in 2005, lower debt service charges associated with DPL’s early retirement of ESOP debt, and the elimination of the interest penalty resulting from the delayed exchange offer of the $470 million 5.125% Series First Mortgage Bonds. These decreases were slightly offset by $1.4 million of interest expense associated with DP&L’s new $100 million 4.8% Series pollution control bonds issued September 13, 2006.

Interest expense decreased $5.4 million or 12% in 2005 compared to 2004, primarily from $2.6 million of lower debt service charges associated with our early retirement of ESOP debt; lower amortization of $1.1 million

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associated with reacquired debt; $1.0 million from the elimination of the interest penalty on the $470 million 5.125% Series First Mortgage Bonds resulting from the delayed exchange offer registration of those securities; and $0.2 million of greater capitalized interest in 2005 as compared to 2004.

DP&L - - Charge for Early Redemption of Debt

In 2005, DP&L recorded $4.1 million in charges resulting from premiums paid for the early redemption of debt, including write-offs of unamortized debt expense and debt discounts.

DP&L - Other Income

For 2006, other income (deductions) decreased $7.8 million compared to the same period in 2005.  This decrease is primarily attributable to $12.3 million in gains recognized on the sale of pollution control emission allowances during 2005, partially offset by $7.0 million in reduced investment management fees.

For 2005, other income was $7.7 million greater than 2004 primarily reflecting $3.5 million of additional gains in 2005 over 2004 from sales of pollution control emission allowance.

DP&L - Income Tax Expense

For 2006, income tax expense increased $4.1 million compared to the same period in 2006 primarily resulting from higher income.

For 2005, income tax expense increased $17.3 million compared to the same period in 2004 resulting from higher income, increased accrual for open tax years and lower state coal tax credits.

On June 30, 2005, Governor Taft signed House Bill 66 into law which significantly changed the tax structure in Ohio.  The major provisions of the bill include phasing-out the Ohio Franchise Tax, phasing-out the Personal Property Tax for non-utility taxpayers and phasing-in a Commercial Activities Tax.  As a result of House Bill 66, income taxes were reduced by $1.6 million.  Other applicable provisions of House Bill 66 have been reflected in the consolidated financial statements.

DP&L - Cumulative Effect of Accounting Change, Net of Tax

In 2005, the cumulative effect of an accounting change resulted in a charge of $3.2 million related to the adoption of the provisions of FASB Interpretation No. 47, “Accounting for Conditional Asset Retirement Obligations an interpretation of FASB Statement No. 143” (FIN 47).  See Note 1 of Notes to Consolidated Financial Statements.

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FINANCIAL CONDITION, LIQUIDITY AND CAPITAL REQUIREMENTS

DPL’s financial condition, liquidity and capital requirements, includes the consolidated results of its principal subsidiary The Dayton Power and Light Company and all of DP&L’s consolidated subsidiaries.  All material intercompany accounts and transactions have been eliminated in consolidation.

On July 27, 2005, DPL’s Board authorized the repurchase of up to $400 million of common stock from time to time in the open market or through private transactions.  DPL completed this share repurchase program through a series of open market purchases on August 21, 2006.  This resulted in 14.9 million shares being repurchased at an average price of $26.91 per share and a total cost of $400 million.  These shares are currently held as treasury shares at DPL Inc.

The following details the repurchase activity and options exercised during 2006 affecting treasury shares:

	Number of Treasury Shares Held		Settlement Dollar Amount ($ in millions)
Balance at December 31, 2005	36,197,807
Activity:
January	406,000		$	10.6
February	564,000		15.2
March	4,765,700		129.5
April	214,700		5.9
May	2,163,000		57.9
June	4,848,300		129.1
July	417,400		11.1
August	1,483,332		40.7
Total repurchased at December 31, 2006	14,862,432		$	400.0
Options exercised first quarter of 2006	(10,000	)
Options exercised fourth quarter of 2006	(345,000	)
Net activity	14,507,432
Balance at December 31, 2006	50,705,239

DPL’s Cash Position

DPL’s cash and cash equivalents totaled $262.2 million at December 31, 2006, compared to $595.8 million at December 31, 2005, a decrease of $333.6 million.  In addition, DPL had no short-term investments available for sale at December 31, 2006 in comparison to $125.8 million at December 31, 2005. The decrease in cash and cash equivalents and short-term investments available for sale was primarily attributed to $357.5 million in capital expenditures, $400.0 million used for the purchase of treasury shares and $112.4 million in dividends paid on common stock, partially offset by $308.7 million in cash generated from operating activities and $89.9 million restricted fund draws to fund pollution control capital expenditures.  At December 31, 2006, DPL had $10.1 million restricted funds held in trust relating to the issuance of the $100 million pollution control bonds.  These funds will be used to fund the pollution control capital expenditures.

In 2005, DPL began investing in Auction Rate Securities (ARS).  ARS are variable rate state and municipal bonds that trade at par value.  Interest rates on ARS are reset every seven, twenty-eight or thirty-five days through a modified Dutch auction.  DPL had the option to hold at market, re-bid or sell each ARS on the interest reset date.  Although ARS are issued and rated as long-term bonds, they are priced and traded as short-term securities available for resale because of the market liquidity provided through the interest rate reset mechanism.  Each ARS purchased by DPL was tax-exempt, AAA rated and insured by a third-party insurance company.            As of June 30, 2006, all of DPL’s ARS were sold.

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DP&L’s Cash Position

DP&L’s cash and cash equivalents totaled $46.1 million at December 31, 2006, remained relatively unchanged when compared to $46.2 million at December 31, 2005.  At December 31, 2006, DP&L had $10.1 million restricted funds held in trust relating to the issuance of the $100 million pollution control bonds.  These funds will be used to fund the pollution control capital expenditures.

Operating Activities

For the years ended December 31, 2006, 2005 and 2004, cash flows from operations were as follows:

Net Cash provided by Operating Activities

	2006		2005		2004
DPL	$	308.7	$	314.1	$	132.7
DP&L	$	365.7	$	366.8	$	381.2

The tariff-based revenue from our energy business continues to be the principal source of cash from operating activities.  Management believes that the diversified retail customer mix of residential, commercial, and industrial classes coupled with the rate relief approved by the PUCO for 2006 and beyond provides us with a reasonably predictable gross cash flow from operations.

DPL’s Cash provided by Operating Activities

DPL generated net cash from operating activities of $308.7 million, $314.1 million and $132.7 million in 2006, 2005 and 2004, respectively.  The net cash provided by operating activities in 2006 was primarily the result of operating profitability, partially offset by an increase in cash used for working capital, specifically payments for taxes and inventories.  The net cash provided by operating activities for 2005 was primarily the result of operating profitability, partially offset by cash used for working capital, specifically accounts payable and inventories.  The net cash provided by operating activities in 2004 was primarily the result of operating profitability, partially offset by cash used for the shareholder litigation settlement and cash used for working capital, specifically payments for taxes and inventories.

DP&L’s Cash provided by Operating Activities

DP&L generated net cash from operating activities of $365.7 million, $366.8 million and $381.2 million in 2006, 2005 and 2004, respectively.  The net cash provided by operating activities for 2006 was primarily the result of operating profitability, partially offset by cash used for working capital, specifically for accounts payable and inventories. The net cash provided by operating activities for 2005 was primarily the result of operating profitability, partially offset by cash used for working capital, specifically for accounts payable, inventories and the timing of tax payments.  The net cash provided by operating activities in 2004 was primarily the result of operating profitability, and cash provided from working capital, specifically the timing of tax payments, offset by the rising cost of coal inventories.

Investing Activities

For the years ended December 31, 2006, 2005 and 2004, cash flows from investing activities were as follows:

Net Cash (used for)/provided by Investing Activities

	2006			2005			2004
DPL	$	(229.5	)	$	689.6		$	182.3
DP&L	$	(354.8	)	$	(178.4	)	$	(79.9	)

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DPL’s Cash (used for) / provided by Investing Activities

DPL’s net cash used for investing activities was $229.5 million in 2006 compared to DPL’s net cash flows provided by investing activities of $689.6 million and $182.3 million in 2005 and 2004, respectively.  Net cash flows used for investing activities in 2006 were related to capital expenditures and the purchases of short-term investments and securities, partially offset by the sale of short-term investments and securities.  Net cash flows provided by investing activities for 2005 were related to the proceeds from the sale of the private equity securities which are classified as discontinued operations and the sale of short-term investments and public securities unrelated to discontinued operations, partially offset by capital expenditures and purchases of short-term investments and securities. Net cash flows provided by investing activities for 2004 were related to the proceeds from the sale of the private equity securities which are classified as discontinued operations, proceeds from the sale of property and the sale of short-term investments and public securities unrelated to discontinued operations.  These cash inflows were partially offset by capital expenditures and purchases of short-term investments and securities.

DP&L’s Cash (used for) Investing Activities

DP&L’s net cash flows used for investing activities were $354.8 million, $178.4 million and $79.9 million in 2006, 2005 and 2004, respectively.  Net cash flows used for investing activities for 2006 and 2005 were due to capital expenditures. Net cash flows used for investing activities for 2004 were due to capital expenditures, offset by the proceeds from the sale of property.

Financing Activities

For the years ended December 31, 2006, 2005 and 2004, cash flows from financing activities were as follows:

Net Cash (used for) Financing Activities

	2006			2005			2004
DPL	$	(412.8	)	$	(610.0	)	$	(450.5	)
DP&L	$	(11.0	)	$	(159.4	)	$	(301.3	)

DPL’s Cash (used for) Financing Activities

DPL’s net cash flows used for financing activities were $412.8 million, $610.0 million and $450.5 million in 2006, 2005 and 2004, respectively.  Net cash flows used for financing activities in 2006 were the result of cash used to repurchase $400.0 million of common stock and pay dividends to common stockholders of $112.4 million.  These uses of cash were partially offset by $89.9 million of withdrawals from the trust set up as a result of issuing the pollution control bonds and cash received relating to the exercise of stock options of $7.8 million.  Net cash flows used for financing activities for 2005 were primarily the result of cash used to retire $462.6 million of long-term debt, pay premiums on the early redemption of debt of $54.7 million and pay dividends to common stockholders of $115.3 million.  These uses of cash were partially offset by cash received relating to the exercise of stock options of $22.7 million.  Net cash flows used for financing activities for 2004 were primarily the result of funds used for the retirement of $500 million of the 6.82% Series Senior Notes and dividends paid to common stockholders, partially offset by the issuance of $175 million unsecured 8% Series Senior Notes used to provide partial funding for the retirement of the $500 million 6.82% Series Senior Notes.  Annual dividends declared increased to $0.96 per share in 2004 from $0.94 per share in 2003.

On February 1, 2006, our Board of Directors announced that it had raised the quarterly dividend to $0.25 per share payable March 1, 2006 to DPL’s common shareholders of record on February 14, 2006.  This increase resulted in an annualized dividend rate of $1.00 per share, or a 4% increase during 2006.  On February 1, 2007, our Board of Directors announced that it had raised the quarterly dividend to $0.26 per share payable March 1, 2007 to common shareholders of record on February 14, 2007.  This increase results in an annualized dividend rate of $1.04 per share, or a 4% increase that will be paid during 2007.

DP&L’s Cash (used for) Financing Activities

DP&L’s net cash flows used for financing activities were $11.0 million, $159.4 million and $301.3 million in 2006, 2005 and 2004, respectively.  Net cash flows used for financing activities for 2006 were the result of cash used to pay common stock dividends to DPL of $100.0 million, partially offset by $89.9 million of withdrawals

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from the trust set up as a result of issuing the pollution control bonds.  Net cash flows used for financing activities for 2005 were primarily the result of cash used to retire $218.9 million of long-term debt and pay common stock dividends to DPL of $150.0 million.  These uses of cash were partially offset by the net cash received from the issuance of long-term debt.      Net cash flows used for financing activities for 2004 were for the payment of common and preferred dividends and the retirement of long-term debt.

DPL and DP&L have obligations to make future payments for capital expenditures, debt agreements, lease agreements and other long-term purchase obligations, and have certain contingent commitments such as guarantees. We believe our cash flows from operations, the credit facilities (existing or future arrangements), the senior notes, and other short- and long-term debt financing, will be sufficient to satisfy our future working capital, capital expenditures and other financing requirements for the foreseeable future.  Our ability to generate positive cash flows from operations is dependent on general economic conditions, competitive pressures, and other business and risk factors described in Item 1a of this Form 10-K.   If we are unable to generate sufficient cash flows from operations, or otherwise comply with the terms of our credit facilities and the senior notes, we may be required to refinance all or a portion of our existing debt or seek additional financing alternatives.  A discussion of each of our critical liquidity commitments is outlined below.

Capital Requirements

CONSTRUCTION ADDITIONS

	Actual						Projected
$ in millions	2006		2005		2004		2007		2008		2009
DPL Inc.	$	352	$	180	$	98	$	310	$	165	$	130
DP&L	$	349	$	178	$	93	$	310	$	165	$	130

DPL’s construction additions were $352 million, $180 million and $98 million in 2006, 2005 and 2004, respectively, and are expected to approximate $310 million in 2007.

DP&L’s construction additions were $349 million, $178 million and $93 million in 2006, 2005 and 2004, respectively, and are expected to approximate $310 million in 2007.  Planned construction additions for 2007 relate to DP&L’s environmental compliance program, power plant equipment, and its transmission and distribution system.

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.  Over the next three years, DPL, through its subsidiary DP&L, is projecting to spend an estimated $605 million in capital projects, approximately 40% of which is to meet changing environmental standards.  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 in 2007 with a combination of cash on hand, short-term financing, tax-exempt debt and cash flows from operations.

Debt and Debt Covenants

On March 25, 2004, DPL completed a $175 million private placement of unsecured 8% Series Senior Notes due March 2009.  The Senior Notes will not be redeemable prior to maturity except that DPL has the right to redeem the notes for a make-whole payment at the adjusted treasury rate plus 0.25%.  The 8% Series Senior Notes were issued pursuant to its indenture dated as of March 1, 2000, and pursuant to authority granted in the Board resolutions dated March 25, 2004.  The notes impose a limitation on the incurrence of liens on the capital stock of any of DPL’s significant subsidiaries and require DPL and its subsidiaries to meet a consolidated coverage ratio of 2 to 1 prior to incurring additional indebtedness.  The limitation on the incurrence of additional indebtedness does not apply to (i) indebtedness incurred to refinance existing indebtedness, (ii) subordinated indebtedness and (iii) up to $150 million of additional indebtedness.  In addition to the events of default specified in the indenture, an event of default under the notes includes a payment default or acceleration of indebtedness under any other indebtedness of DPL or any of its subsidiaries which aggregates $25 million or more.  The

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purchasers were granted registration rights in connection with the private placement under an Exchange and Registration Rights Agreement.  Pursuant to this agreement, DPL was obligated to file an exchange offer registration statement by July 22, 2004, have the registration statement declared effective by September 20, 2004 and consummate the exchange offer by October 20, 2004.                DPL failed (1) to have a registration statement declared effective and (2) to complete the exchange offer according to this timeline.  As a result, DPL had been accruing additional interest at a rate of 0.5% per year for each of these two violations, up to an additional interest rate not to exceed in the aggregate 1.0% per year.  As each violation was cured, the additional interest rate decreased by 0.5% per annum.  DPL’s exchange offer registration statement for these securities was declared effective by the SEC on June 27, 2006.  As a result, on June 27, 2006, DPL ceased accruing 0.5% of the additional interest.  On July 31, 2006, DPL ceased accruing the other 0.5% of additional interest when the exchange of registered notes for the unregistered notes was completed.  By completing the exchange, DPL reduced the annual interest expense by $1.8 million.

During the first quarter 2006, the Ohio Department of Development (ODOD) awarded DP&L the ability to issue over the next three years up to $200 million of qualified tax-exempt financing from the ODOD’s 2005 volume cap carryforward.  The financing is to be used to partially fund the ongoing flue gas desulfurization capital projects.  The PUCO approved DP&L’s application for this additional financing on July 26, 2006.

On September 13, 2006, the Ohio Air Quality Development Authority (OAQDA) issued $100 million of 4.80% fixed interest rate OAQDA Revenue bonds 2006 Series A due September 1, 2036.  In turn, DP&L borrowed these funds from the OAQDA.  The payment of principal and interest on the Bonds when due is insured by an insurance policy issued by Financial Guaranty Insurance Company.  DP&L is using the proceeds from these borrowings to assist in financing its portion of the costs of acquiring, constructing and installing certain solid waste disposal and air quality facilities at Miami Fort, Killen and Stuart Generating Stations.  These facilities are currently under construction and the proceeds from the borrowing have been placed in escrow with the trustee (the Bank of New York) and are being drawn upon only as facilities are built and qualified costs are incurred.  In the event any of the proceeds are not drawn, DP&L would eventually be required to return the unused proceeds to bondholders.  DP&L expects to draw down the remaining available funds from this borrowing during the first quarter of 2007.

DP&L expects to use the remaining $100 million of volume cap carryforward prior to the end of 2008.  DP&L is planning to issue in conjunction with the OAQDA this $100 million of tax-exempt bonds to finance the remaining solid waste disposal facilities at Miami Fort, Killen, Stuart and Conesville Generating Stations.

On November 21, 2006, DP&L entered into a new $220 million unsecured revolving credit agreement replacing its $100 million facility.  This new agreement has a five year term that expires on November 21, 2011 and that 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.  This covenant is currently met.  DP&L had no outstanding borrowings under this credit facility at December 31, 2006.  Fees associated with this credit facility are approximately $0.2 million per year.  Changes in credit ratings, however, may affect fees and the applicable interest.  This revolving credit agreement also contains a $50 million letter of credit sublimit.  As of December 31, 2006, DP&L had no outstanding letters of credit against the facility.

On February 24, 2005, DP&L entered into an amendment to extend the term of its Master Letter of Credit Agreement with a financial lending institution for one year and to reduce the maximum dollar volume of letters of credit to $10 million.  On February 17, 2006, DP&L renewed its $10 million  agreement for one year.  This agreement supports performance assurance needs in the ordinary course of business.  This agreement was not renewed in 2007. 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.  As of December 31, 2006, DP&L had two outstanding letters of credit for a total of $2.2 million.

Issuance of additional amounts of first mortgage bonds by DP&L is limited by the provisions of its mortgage; however, management believes that DP&L continues to have sufficient capacity to issue first mortgage bonds to satisfy its requirements in connection with its current refinancing and construction programs.  The amounts and timing of future financings will depend upon market and other conditions, rate increases, levels of sales and construction plans.

There are no inter-company debt collateralizations or debt guarantees between DPL and its subsidiaries.  None of the debt obligations of DPL or DP&L are guaranteed or secured by affiliates and no cross-collateralization exists between any subsidiaries.

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Credit Ratings

Currently, DPL’s senior unsecured and DP&L’s senior secured debt credit ratings are as follows:

	DPL Inc.	DP&L	Outlook	Effective
Fitch Ratings	BBB	A	Stable	April 2006
Moody’s Investors Service	Baa3	A3	Positive	June 2006
Standard & Poor’s Corp.	BBB-	BBB+	Stable	February 2007

Off-Balance Sheet Arrangements

DPL and DP&L do not have any off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that are material to investors.

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, 2006, these include:

Contractual Obligations

			Payment Year
			Less Than		2 - 3		4 - 5		More Than
$ in millions	Total		1 Year		Years		Years		5 Years
DPL Inc.
Long-term debt	$	1,774.8	$	225.0	$	275.0	$	297.4	$	977.4
Interest payments	1,101.8		98.8		171.2		144.0		687.8
Pension and postretirement payments	235.6		22.0		45.2		46.5		121.9
Capital leases	2.9		0.9		1.4		0.6		—
Operating leases	0.7		0.3		0.3		0.1		—
Coal contracts (a)	554.6		324.4		118.4		111.8		—
Limestone contracts	58.7		1.7		9.5		10.8		36.7
Other contractual obligations	391.7		328.5		53.7		9.5		—
Total contractual obligations	$	4,120.8	$	1,001.6	$	674.7	$	620.7	$	1,823.8
DP&L
Long-term debt	$	783.2	$	—	$	—	$	—	$	783.2
Interest payments	571.9		39.1		78.3		78.3		376.2
Pension and postretirement payments	235.6		22.0		45.2		46.5		121.9
Capital leases	2.9		0.9		1.4		0.6		—
Operating leases	0.7		0.3		0.3		0.1		—
Coal contracts (a)	554.6		324.4		118.4		111.8		—
Limestone contracts	58.7		1.7		9.5		10.8		36.7
Other contractual obligations	391.5		328.4		53.6		9.5		—
Total contractual obligations	$	2,599.1	$	716.8	$	306.7	$	257.6	$	1,318.0

(a)DP&L-operated units

Long-term debt:

DPL’s long-term debt as of December 31, 2006, consists of DP&L’s first mortgage bonds, tax-exempt pollution control bonds, DPL unsecured notes and includes current maturities and unamortized debt discounts.  During 2006, DP&L entered into $100 million of long-term tax-exempt debt.

DP&L’s long-term debt as of December 31, 2006, consists of first mortgage bonds, tax-exempt pollution control bonds and includes an unamortized debt discount.

See Note 8 of Notes to Consolidated Financial Statements.

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Interest payments:

Interest payments associated with the Long-term debt described above.

Pension and postretirement payments:

As of December 31, 2006, DP&L had estimated future benefit payments as outlined in Note 5 of Notes to Consolidated Financial Statements.  These estimated future benefit payments are projected through 2015.

Capital leases:

As of December 31, 2006, DP&L had two capital leases that expire in November 2007 and September 2010.

Operating leases:

As of December 31, 2006, DPL and DP&L had several operating leases with various terms and expiration dates.  Not included in this total is approximately $88,000 per year related to right of way agreements that are assumed to have no definite expiration dates.

Coal contracts:

DP&L has entered into various long-term coal contracts to supply portions of its coal requirements for its generating plants.  Contract prices are subject to periodic adjustment and have features that limit price escalation in any given year.

Limestone contracts:

DP&L has entered into various limestone contracts to supply limestone for its generating facilities.

Other contractual obligations:

As of December 31, 2006, DPL and DP&L had various other contractual obligations including non-cancelable contracts to purchase goods and services with various terms and expiration dates.

We enter into various commercial commitments, which may affect the liquidity of our operations.  At December 31, 2006, these include:

Credit facilities:

In November 2006, DP&L replaced its previous $100 million revolving credit agreement with a $220 million five year facility that expires on November 21, 2011.  At December 31, 2006, there were no borrowings outstanding under this credit agreement.  DP&L has the ability to increase the size of the facility by an additional $50 million at any time.

Guarantees:

DP&L owns a 4.9% equity ownership interest in an electric generation company.  As of December 31, 2006, DP&L could be responsible for the repayment of 4.9%, or $21.8 million, of a $445 million debt obligation that matures in 2026.

In two separate transactions in November and December 2006, DPL agreed to be a guarantor of the obligations of its wholly-owned subsidiary, DPL Energy, LLC (DPLE) regarding the pending sale 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 has agreed to guarantee the obligations of DPLE over a multiple year period as follows:

	2007		2008		2009		2010
Darby	$	30.6	$	23.0	$	15.3	$	7.7
Greenville	$	14.8	$	11.1	$	7.4	$	3.7

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MARKET RISK

As a result of its operating, investing and financing activities, we are subject to certain market risks including changes in commodity prices for electricity, coal, environmental emissions and gas and fluctuations in interest rates.  Commodity pricing exposure includes the impacts of weather, market demand, increased competition and other economic conditions.  For purposes of potential risk analysis, we use sensitivity analysis to quantify potential impacts of market rate changes on the results of operations. The sensitivity analysis represents hypothetical changes in market values that may or may not occur in the future.

Commodity Pricing Risk

Approximately 12.5% of DPL’s and 22% of DP&L’s 2006 electric revenues were from sales of excess energy and capacity in the wholesale market.  Energy and capacity in excess of the needs of existing retail customers are sold in the wholesale market when we can identify opportunities with positive margins. As of December 31, 2006, a hypothetical increase or decrease of 10% in DPL’s annual wholesale revenues could result in approximately an $11 million increase or decrease to net income, assuming no increases in fuel and purchased power costs.  As of December 31, 2006, a hypothetical increase or decrease of 10% in DP&L’s annual wholesale revenues could result in approximately a $20 million increase or decrease to net income, assuming no increases in fuel and purchased power costs.

DPL’s fuel (including coal, gas, oil and emission allowances) and purchased power costs as a percent of total operating costs in 2006 and 2005 were 46% and 50%, respectively.   DP&L’s fuel (including coal, gas, oil and emission allowances) and purchased power costs as a percent of total operating costs was 52% in both 2006 and 2005.  We have substantially all of the total expected coal volume needed to meet our retail and firm wholesale sales requirements for 2007 under contract.  The majority of our contracted coal is purchased at fixed prices.  Some contracts provide for periodic adjustment and some are priced based on market indices.  Substantially all contracts have features that limit price escalations in any given year.  Our consumption of SO2 allowances should decline in 2007 due to planned emission control upgrades.  We do not expect to purchase SO2 allowances for 2007.  The exact consumption of SO2 allowances will depend on market prices for power, availability of our generation units, the timing of emission control equipment upgrade completion, and the actual sulfur content of the coal burned.  DP&L does not plan to purchase NOx allowances for 2007.  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.  Based on weather normalized sales and our co-owners’ projections, fuel costs are forecasted to be flat in 2007 compared to 2006.

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 production costs. As of December 31, 2006, a hypothetical increase or decrease of 10% in DPL’s annual fuel and purchased power costs could result in approximately a $30 million increase or decrease to net income.  As of December 31, 2006, a hypothetical increase or decrease of 10% in DP&L’s annual fuel and purchased power costs could result in approximately a $29 million increase or decrease to net income.

Interest Rate Risk

As a result of our normal borrowing and leasing activities, our 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.  Our long-term debt represents publicly and privately held secured and unsecured notes and debentures with fixed interest rates.  At December 31, 2006, we had no short-term borrowings.

The carrying value of DPL’s debt was $1,777.7 million at December 31, 2006, consisting of DP&L’s first mortgage bonds, DP&L’s tax-exempt pollution control bonds, our unsecured notes and DP&L’s capital leases.  The fair value of this debt was $1,798.5 million, based on current market prices or discounted cash flows using current rates for similar issues with similar terms and remaining maturities.  The principal cash repayments and related weighted average interest rates by maturity date for long-term, fixed-rate debt at December 31, 2006, are as follows:

44

	DPL’s Long-term Debt
	Amount
Expected MaturityDate	($ in millions)		Average Rate
2007	$	225.9	8.2%
2008	100.7		6.3%
2009	175.7		8.0%
2010	0.6		6.9%
2011	297.4		6.9%
Thereafter	977.4		5.6%
Total	$	1,777.7	6.4%
Fair Value	$	1,798.5

The carrying value of DP&L’s debt was $786.1 million at December 31, 2006, consisting of our first mortgage bonds, our tax-exempt pollution control bonds, and our capital leases.  The fair value of this debt was $785.8 million, based on current market prices or discounted cash flows using current rates for similar issues with similar terms and remaining maturities.  The principal cash repayments and related weighted average interest rates by maturity date for long-term, fixed-rate debt at December 31, 2006, are as follows:

	DP&L’s Long-term Debt
	Amount
Expected MaturityDate	($ in millions)		Average Rate
2007	$	0.9	6.2%
2008	0.7		6.9%
2009	0.7		6.9%
2010	0.6		6.9%
2011	—		—
Thereafter	783.2		5.0%
Total	$	786.1	5.0%
Fair Value	$	785.8

Debt maturities for DPL and DP&L in 2007 are expected to be financed with a combination of tax-exempt pollution control bonds and internal funds.

Debt retirements occurring in 2006 are discussed under FINANCIAL CONDITION, LIQUIDITY AND CAPITAL REQUIREMENTS.

45

CRITICAL ACCOUNTING ESTIMATES

DPL’s and DP&L’s consolidated financial statements are prepared in accordance with 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.  Significant items subject to such judgments include: the carrying value of property, plant and equipment; unbilled revenues; the valuation of insurance and claims costs; valuation allowances for receivables and deferred income taxes; the valuation of reserves related to current litigation; and assets and liabilities related to employee benefits.

Long-Lived Assets:  In accordance with Statement of Financial Accounting Standards No. 144 “Accounting for the Impairment or Disposal of Long-Lived Assets” (SFAS 144), 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 and/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.

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 collectibility is reasonably assured.  We record electric revenues when delivered to customers.  Customers are billed throughout the month as electric meters are read.  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.  Our estimates of unbilled revenues use systems that consider various factors to calculate retail customer consumption at the end of each month.  These estimates are based on the volume of energy delivered, historical usage and growth by customer class, and the effect of weather variations on usage patterns.  Given the use of these systems 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.

Additionally, DP&L is subject to regulatory orders addressing the justness and reasonableness of the PJM and Midwest Independent Transmission System Operator (MISO) rates and related revenue distribution protocols.  DP&L’s management is required to make assumptions, estimates and judgments relating to the possibility of refund of these revenues.  These assumptions, estimates and judgments are based on management’s experience and are believed to be reasonable at the time.  As a result of these assumptions, estimates and judgments, DP&L is deferring a portion of these revenues for which management believes is subject to refund.  The deferred amount recorded was $18.7 million and $20.5 million at December 31, 2006 and December 31, 2005, respectively.  The above amount collected under the Seams Elimination Charge Adjustment (SECA) rates are subject to refund, and the ultimate outcome of the proceeding establishing SECA rates is uncertain at this time.  However, based on the amount of reserves established for this item, the results of this proceeding are not expected to have a material adverse effect on our financial condition, results of operations or cash flows.

Income Taxes:  We apply the provisions of FASB Statement of Financial Accounting Standards No. 109, “Accounting for Income Taxes” (SFAS 109).  SFAS 109 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 Taxes in the

46

Consolidated Balance Sheets.  Deferred Tax Assets are recognized for deductible temporary differences. Valuation reserves are provided 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 the income taxes will be recoverable / refundable through future revenues.

We file a consolidated U.S. federal income tax return in conjunction with our subsidiaries.  The consolidated tax liability is allocated to each subsidiary as specified in our tax allocation agreement which provides a consistent, systematic and rational approach. See Note 4 of Notes to Consolidated Financial Statements.

Regulatory Assets and Liabilities:  Application of FASB Statement of Financial Accounting Standards No. 71, “Accounting for the Effects of Certain Types of Regulation” (SFAS 71) depends on our ability to collect cost-based rates from customers.  The recognition of regulatory assets requires a continued assessment of the recovery of the costs based on actions of the regulators.  We capitalize incurred costs as deferred regulatory assets when there is a probable expectation that the costs incurred will be recovered in future revenues as a result of the regulatory process. Regulatory liabilities represent current recovery of expected future costs. When applicable we apply judgment in the use of these principles and these estimates are based on expected usage by a customer class over the designated recovery period. See Note 3 of Notes to Consolidated Financial Statements for further disclosure of regulatory amounts.

Asset Retirement Obligations:  In accordance with FASB Statement of Financial Accounting Standards No.143, “Accounting for Asset Retirement Obligations” (SFAS 143) and FASB Interpretation No. 47 (FIN No. 47), “Accounting for Conditional Asset Retirement Obligations, an interpretation of FASB Statement No. 143,” 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.  SFAS 143 also requires that components of previously recorded depreciation related to the cost of removal of assets upon retirement, whether legal asset retirement obligations 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 asset retirement obligations. These assumptions and estimates are based on historical experience and assumptions that we believe to be reasonable at the time.

Insurance and Claims Costs: In addition to insurance provided through third-party providers, our wholly-owned captive subsidiary (MVIC) provides insurance coverage solely to us and to our subsidiaries.  Insurance and Claims Costs on the Consolidated Balance Sheets includes insurance reserves of approximately $22 million and $24 million for 2006 and 2005, respectively, based on actuarial methods and loss experience data.  Such reserves are actuarially determined, in the aggregate, 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 and disclose pension and postretirement benefits in accordance with the provisions of Statement of Financial Accounting Standards No. 158, “Employers’ Accounting for Defined Benefit Pensions and other Postretirement Plans, an amendment to FASB Statements 87, 88, 106 and 132R.”  This Standard requires 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.

In 2007, we are maintaining our long-term rate of return assumptions of 8.50% for pension and 6.75% for other postretirement benefits assets that reflect the effect of recent trends on our long-term view.  We are also maintaining our assumed discount rate of 5.75% for pension and postretirement benefits expense to reflect current interest rate conditions.  Changes in other components used in the determination of pension and postretirement benefits costs will result in approximately the same level of expense in 2007 as in 2006 ($5.5 million), excluding any special adjustments required under SFAS 88.  We do not anticipate any special adjustments to expense in 2007.

47

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

LEGAL AND OTHER MATTERS

A discussion of LEGAL AND OTHER MATTERS is described in Note 15 of Notes to Consolidated Financial Statements and in Item 3 - LEGAL PROCEEDINGS.  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 Inc. (DPL) and The Dayton Power and Light Company (DP&L).  DP&L is the principal subsidiary of DPL providing approximately 99% of DPL’s total consolidated revenue and approximately 86% 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.  Historically, DPL and DP&L have filed separate SEC filings.  Beginning with this report and in the future, DPL Inc. and The Dayton Power and Light Company will file combined SEC reports on an interium and annual basis.

48

DPL INC.

CONSOLIDATED STATEMENTS OF RESULTS OF OPERATIONS

	For the years ended December 31,
$ in millions except per share amounts	2006			2005			2004
Revenues	$	1,393.5		$	1,284.9		$	1,199.9
Cost of revenues:
Fuel	349.1			336.9			263.1
Purchased power	159.0			133.3			113.1
Total cost of revenues	508.1			470.2			376.2
Gross margin	885.4			814.7			823.7
Operating expenses:
Operation and maintenance	265.4			219.0			237.1
Impairment of peaking stations	71.0			—			—
Depreciation and amortization	151.8			147.3			144.1
General taxes	108.6			107.3			105.3
Amortization of regulatory assets	7.6			2.0			0.7
Total operating expenses	604.4			475.6			487.2
Operating income	281.0			339.1			336.5
Investment income	17.8			50.9			7.9
Interest expense	(102.2		)	(137.7		)	(160.2		)
Charge for early redemption of debt	—			(61.2		)	—
Other income (deductions)	(1.2		)	13.5			3.8
Earnings from continuing operations before income tax	195.4			204.6			188.0
Income tax expense	69.8			79.9			66.5
Earnings from continuing operations	125.6			124.7			121.5
Earnings from discontinued operations, net of tax	14.0			52.9			95.8
Cumulative effect of accounting change, net of tax	—			(3.2		)	—
Net Income	$	139.6		$	174.4		$	217.3
Average number of common shares outstanding (millions)
Basic	112.3			121.0			120.1
Diluted	121.9			129.1			122.1
Earnings per share of common stock
Basic:
Earnings from continuing operations	$	1.12		$	1.03		$	1.01
Earnings from discontinued operations	0.12			0.44			0.80
Cumulative effect of accounting change	—			(0.03		)	—
Total Basic	$	1.24		$	1.44		$	1.81
Diluted:
Earnings from continuing operations	$	1.03		$	0.97		$	1.00
Earnings from discontinued operations	0.12			0.41			0.78
Cumulative effect of accounting change	—			(0.03		)	—
Total Diluted	$	1.15		$	1.35		$	1.78
Dividends paid per share of common stock	$	1.00		$	0.96		$	0.96

           See Notes to Consolidated Financial Statements.

49

DPL INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

	For the years ended December 31,
$ in millions	2006			2005			2004
Cash flows from operating activities:
Net income	$	139.6		$	174.4		$	217.3
Less: Income from discontinued operations	(14.0		)	(52.9		)	(95.8		)
Income from continuing operations	125.6			121.5			121.5
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	151.8			147.3			144.1
Impairment of peaking stations	71.0			—			—
Amortization of regulatory assets	7.6			2.0			0.7
Charge for early redemption of debt	—			61.2			—
Cumulative effect of accounting change, net of tax	—			3.2			—
Shareholder litigation	—			—			(70.0		)
Deferred income taxes	(32.7		)	(7.1		)	22.2
Captive insurance provision	(2.4		)	(0.6		)	(1.1		)
Gain on sale of other investments	(2.2		)	(28.8		)	(3.3		)
Gain on sale of property	—			—			(1.8		)
Changes in certain assets and liabilities:
Accounts receivable	(36.4		)	(12.5		)	7.1
Accounts payable	41.8			(11.7		)	(12.9		)
Accrued taxes payable	(12.7		)	15.0			(62.8		)
Accrued interest payable	4.9			(13.2		)	(8.0		)
Prepayments	5.4			2.2			0.4
Inventories	(5.2		)	(8.0		)	(20.0		)
Deferred compensation assets	0.4			4.4			12.6
Deferred compensation obligations	2.3			7.4			5.2
Other	(10.5		)	31.8			(1.2		)
Net cash provided by operating activities	308.7			314.1			132.7
Cash flows from investing activities:
Capital expenditures	(357.5		)	(180.1		)	(87.7		)
Purchases of short-term investments and securities	(856.0		)	(641.2		)	(26.1		)
Sales of short-term investments and securities	984.0			642.5			89.9
Proceeds from the sale of property	—			—			2.3
Cash flow from discontinued operations	—			868.4			203.9
Net cash (used for)/provided by investing activities	(229.5		)	689.6			182.3
Cash flows from financing activities:
Issuance of long-term debt, net	—			211.2			174.7
Exercise of stock options	7.8			22.7			—
Tax impact related to exercise of stock options	1.9			—			—
Retirement of long-term debt	—			(673.8		)	(510.4		)
Premiums paid for early redemption of debt	—			(54.7		)	—
Retirement of preferred securities	—			(0.1		)	—
Issuance of pollution control bonds	100.0			—			—
Pollution control bond proceeds held in trust	(100.0		)	—			—
Withdrawal of restricted funds held in trust	89.9			—			—
Dividends paid on common stock	(112.4		)	(115.3		)	(114.8		)
Purchase of Company’s common stock	(400.0		)	—			—
Net cash (used for) financing activities	(412.8		)	(610.0		)	(450.5		)
Cash and cash equivalents:
Net change	(333.6		)	393.7			(135.5		)
Balance at beginning of period	595.8			202.1			337.6
Cash and cash equivalents at end of period	$	262.2		$	595.8		$	202.1
Supplemental cash flow information:
Interest paid, net of amounts capitalized	$	91.4		$	146.1		$	162.1
Income taxes paid, net	$	113.6		$	71.2		$	107.9
Non-cash financing and investing activities:
Restricted funds held in trust (see Note 8 of Notes to Consolidated Financial Statements)	$	10.1		$	—		$	—

See Notes to Consolidated Financial Statements.

50

DPL INC.

CONSOLIDATED BALANCE SHEETS

	At December 31,
$ in millions	2006			2005
ASSETS
Current assets:
Cash and cash equivalents	$	262.2		$	595.8
Short-term investments available for sale	—			125.8
Restricted funds held in trust	10.1			—
Accounts receivable, less provision for uncollectible accounts of $1.4 and $1.0, respectively	225.0			194.9
Inventories, at average cost	85.4			80.2
Taxes applicable to subsequent years	48.0			45.9
Other current assets	37.7			20.2
Total current assets	668.4			1,062.8
Property:
Held and used:
Property, plant and equipment	4,718.5			4,667.7
Less: Accumulated depreciation and amortization	(2,159.2		)	(2,094.8		)
Total net property held and used	2,559.3			2,572.9
Assets held for sale (Note 14):
Property, plant and equipment	283.5			—
Less: Accumulated depreciation and amortization	(132.3		)	—
Total net property held for sale	151.2			—
Other noncurrent assets:
Regulatory assets (Note 3)	148.6			83.8
Other assets	84.7			72.2
Total other noncurrent assets	233.3			156.0
Total Assets	$	3,612.2		$	3,791.7

See Notes to Consolidated Financial Statements.

51

DPL INC.

CONSOLIDATED BALANCE SHEETS

	At December 31,
$ in millions	2006		2005
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
Current portion - long-term debt	$	225.9	$	0.9
Accounts payable	169.4		130.2
Accrued taxes	155.2		178.5
Accrued interest	35.2		28.9
Other current liabilities	38.3		31.1
Total current liabilities	624.0		369.6
Noncurrent liabilities:
Long-term debt	1,551.8		1,677.1
Deferred taxes	355.2		327.0
Unamortized investment tax credit	43.6		46.4
Insurance and claims costs	21.9		24.3
Other deferred credits	280.7		286.3
Total noncurrent liabilites	2,253.2		2,361.1
Cumulative preferred stock not subject to mandatory redemption	22.9		22.9
Commitments and contingencies (Note 15)
Common shareholders’ equity:
Common stock, at par value of $0.01 per share:

	December 2006	December 2005
Shares authorized	250,000,000	250,000,000
Shares issued	163,724,211	163,724,211
Shares outstanding	113,018,972	127,526,404	1.1			1.3
Other paid-in capital, net of treasury stock			—			25.1
Warrants			50.0			50.0
Common stock held by employee plans			(69.0		)	(86.1		)
Accumulated other comprehensive loss			(6.5		)	(14.2		)
Retained earnings			736.5			1,062.0
Total common shareholders’ equity			712.1			1,038.1
Total Liabilities and Shareholders’ Equity			$	3,612.2		$	3,791.7

See Notes to Consolidated Financial Statements.

52

DPL Inc.

Consolidated Statement of Shareholders’ Equity

											Common
											Stock			Accumulated
	Common Stock (a)					Other					Held by			Other
	Outstanding					Paid-in					Employee			Comprehensive			Retained
$ in millions	Shares		Amount			Capital			Warrants		Plans			Income			Earnings			Total
Beginning balance	126,501,404		$	1.3		$	12.0		$	50.0	$	(84.4	)	$	57.7		$	865.7		$	902.3
2004:
Net income																	217.3
Net change in unrealized gains on financial instruments, net of reclassification adjustments														9.3
Net change in unrealzed gains on foreign currency translation adjustments														6.2
Net change in deferred gains on cash flow hedges														(1.5		)
Minimum pension liability														(0.4		)
Deferred income taxes related unrealized gains (losses)														(5.8		)
Total comprehensive income																				225.1
Common stock dividends (b)																	(86.2		)	(86.2		)
Employee / Director stock plans						4.1					(1.3		)				0.4			3.2
Other						(0.3		)									(0.1		)	(0.4		)
Ending balance	126,501,404		$	1.3		$	15.8		$	50.0	$	(85.7	)	$	65.5		$	997.1		$	1,044.0
2005:
Net income																	174.4
Net change in unrealized (losses) on financial instruments, net of reclassification adjustments														(15.3		)
Net change in unrealzed (losses) on foreign currency translation adjustments														(46.3		)
Net change in deferred gains on cash flow hedges														(3.4		)
Minimum pension liability														(63.0		)
Deferred income taxes related unrealized gains (losses)														48.2
Total comprehensive income																				94.6
Common stock dividends (b)																	(115.3		)	(115.3		)
Treasury shares purchased (c)	—					(10.6		)									—			(10.6		)
Treasury stock reissued	1,025,000					16.9											5.8			22.7
Employee / Director stock plans						3.0					(0.4		)							2.6
Other														0.1						0.1
Ending balance	127,526,404		$	1.3		$	25.1		$	50.0	$	(86.1	)	$	(14.2	)	$	1,062.0		$	1,038.1
2006:
Net income																	139.6
Net change in unrealized gains on financial instruments, net of reclassification adjustments														1.6
Net change in deferred gains on cash flow hedges														0.7
Minimum pension liability														11.8
Deferred income taxes related unrealized gains (losses)														(29.9		)
Total comprehensive income																				123.8
Common stock dividends (b)																	(112.4		)	(112.4		)
Treasury shares purchased (c)	(14,862,432	)	(0.1		)	(389.3		)												(389.4		)
Treasury stock reissued	355,000					360.4											(352.6		)	7.8
Tax effects to equity						1.8														1.8
Employee / Director stock plans						1.8					17.1						(0.1		)	18.8
Other			(0.1		)	0.2											—			0.1
FAS 158 adjustmenet														23.5						23.5
Ending balance	113,018,972		$	1.1		$	(0.0	)	$	50.0	$	(69.0	)	$	(6.5	)	$	736.5		$	712.1

(a)   $0.01 par value, 250,000,000 shares authorized.

(b)   Common stock dividends were $0.96 per share in 2004 and 2005, respectively, and $1.00 in 2006.

(c)   Number of shares outstanding at December 31, 2005 were not affected by the December 30, 2005 transaction to purchase 406,000 shares as the share repurchase was settled in early January 2006.  DPL completed the share repurchase program in August 2006.

See Notes to Consolidated Financial Statements

53

THE DAYTON POWER AND LIGHT COMPANY

CONSOLIDATED STATEMENTS OF RESULTS OF OPERATIONS

	For the years ended December 31,
$ in millions except per share amounts	2006			2005			2004
Revenues	$	1,385.2		$	1,276.9		$	1,192.2
Cost of revenues:
Fuel	335.2			317.9			257.0
Purchased power	171.9			147.1			116.4
Total cost of revenues	507.1			465.0			373.4
Gross margin	878.1			811.9			818.8
Operating expenses:
Operation and maintenance	231.7			198.3			224.4
Depreciation and amortization	130.0			123.9			121.1
General taxes	106.3			105.1			103.2
Amortization of regulatory assets	7.6			2.0			0.7
Total operating expenses	475.6			429.3			449.4
Operating income	402.5			382.6			369.4
Investment income	6.7			6.1			5.0
Interest expense	(23.4		)	(38.1		)	(43.5		)
Charge for early redemption of debt	—			(4.1		)	—
Other income (deductions)	(1.2		)	6.6			(1.1		)
Earnings Before Income Tax and Cumulative Effect of Accounting Change	384.6			353.1			329.8
Income tax expense	142.2			138.1			120.8
Earnings before Cumulative Effect of Accounting Change	242.4			215.0			209.0
Cumulative effect of accounting change, net of tax	—			(3.2		)	—
Net Income	$	242.4		$	211.8		$	209.0
Preferred dividends	0.8			0.9			0.9
Earnings on common stock	$	241.6		$	210.9		$	208.1

See Notes to Consolidated Financial Statements.

54

THE DAYTON POWER AND LIGHT COMPANY

CONSOLIDATED STATEMENTS OF CASH FLOWS

	For the years ended December 31,
$ in millions	2006			2005			2004
Cash flows from operating activities:
Net income	$	242.4		$	211.8		$	209.0
Adjustments:
Depreciation and amortization	130.0			123.9			121.1
Amortization of regulatory assets	7.6			2.0			0.7
Deferred income taxes	(16.3		)	(13.3		)	(16.2		)
Charge for early redemption of debt	—			4.1			—
Cumulative effect of accounting change, net of tax	—			3.2			—
Gain on sale of property	—			—			(1.8		)
Changes in certain assets and liabilities:
Accounts receivable	(29.0		)	(17.1		)	6.6
Accounts payable	43.3			6.5			11.5
Net intercompany receivables from parent	0.5			(0.1		)	(0.2		)
Accrued taxes payable	0.5			31.5			58.4
Accrued interest payable	1.3			(0.9		)	0.5
Prepayments	5.5			2.3			0.6
Inventories	(5.2		)	(7.9		)	(20.2		)
Deferred compensation assets	2.5			0.7			8.8
Deferred compensation obligations	0.1			6.7			5.2
Other	(17.5		)	13.4			(2.8		)
Net cash provided by operating activities	365.7			366.8			381.2
Cash flows from investing activities:
Capital expenditures	(354.8		)	(178.4		)	(82.2		)
Proceeds from the sale of property	—			—			2.3
Net cash (used for) investing activities	(354.8		)	(178.4		)	(79.9		)
Cash flows from financing activities:
Issuance of long-term debt, net	—			210.4			—
Issuance of pollution control bonds	100.0			—			—
Pollution control bond proceeds held in trust	(100.0		)	—			—
Withdrawal of restricted funds held in trust	89.9			—			—
Retirement of long-term debt	—			(218.9		)	(0.4		)
Dividends paid on preferred stock	(0.9		)	(0.9		)	(0.9		)
Dividends paid on common stock	(100.0		)	(150.0		)	(300.0		)
Net cash (used for) financing activities	(11.0		)	(159.4		)	(301.3		)
Cash and cash equivalents:
Net change	(0.1		)	29.0			—
Balance at beginning of period	46.2			17.2			17.2
Cash and cash equivalents at end of period	$	46.1		$	46.2		$	17.2
Supplemental cash flow information:
Interest paid, net of amounts capitalized	$	77.9		$	36.5		$	39.5
Income taxes paid, net	$	158.1		$	119.0		$	79.9
Non-cash financing activities: Restricted funds held in trust	$	10.1		$	—		$	—

See Notes to Consolidated Financial Statements.

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THE DAYTON POWER AND LIGHT COMPANY

CONSOLIDATED BALANCE SHEETS

	At December 31,
$ in millions	2006			2005
ASSETS
Current assets:
Cash and cash equivalents	$	46.1		$	46.2
Restricted funds held in trust	10.1			—
Accounts receivable, less provision for uncollectible accounts of $1.4 and $1.0, respectively	205.6			182.7
Inventories, at average cost	83.0			77.7
Taxes applicable to subsequent years	48.0			45.9
Other current assets	38.2			19.3
Total current assets	431.0			371.8
Property:
Property, plant and equipment	4,450.6			4,118.0
Less: Accumulated depreciation and amortization	(2,079.0		)	(1,973.3		)
Net property	2,371.6			2,144.7
Other noncurrent assets:
Regulatory assets	148.6			83.8
Other assets	139.1			138.3
Total other noncurrent assets	287.7			222.1
Total Assets	$	3,090.3		$	2,738.6

See Notes to Consolidated Financial Statements.

56

THE DAYTON POWER AND LIGHT COMPANY

CONSOLIDATED BALANCE SHEETS

	At December 31,
$ in millions	2006		2005
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
Accounts payable	166.2		116.2
Accrued taxes	159.6		167.7
Accrued interest	12.6		9.8
Other current liabilities	36.3		28.4
Total current liabilities	374.7		322.1
Noncurrent liabilities:
Long-term debt	785.2		685.9
Deferred taxes	360.2		323.2
Unamortized investment tax credit	43.6		46.4
Other deferred credits	272.5		258.7
Total noncurrent liabilities	1,461.5		1,314.2
Cumulative preferred stock not subject to mandatory redemption	22.9		22.9
Commitments and contingencies (Note 15)
Common shareholders’ equity:
Common stock, at par value of $0.01 per share:	0.4		0.4
Other paid-in capital	783.7		783.4
Accumulated other comprehensive income	15.1		5.1
Retained earnings	432.0		290.5
Total common shareholders’ equity	1,231.2		1,079.4
Total Liabilities and Shareholders’ Equity	$	3,090.3	$	2,738.6

See Notes to Consolidated Financial Statements.

57

THE DAYTON POWER AND LIGHT COMPANY

CONSOLIDATED STATEMENT OF SHAREHOLDERS’ EQUITY

							Accumulated
	Common Stock (a)			Other			Other
	Outstanding			Paid-in			Comprehensive			Retained
$ in millions	Shares	Amount		Capital			Income			Earnings			Total
Beginning balance	41,172,173	$	0.4	$	780.5		$	38.2		$	321.7		$	1,140.8
2004:
Net income										209.0
Net change in unrealized gains (loses) on financial instruments, net of reclassification adjustments							12.6
Net change in deferred gains on cash flow hedges							(1.5		)
Minimum pension liability							(0.4		)
Deferred income taxes related unrealized gains (losses)							(5.8		)
Total comprehensive income													213.9
Common stock dividends										(300.0		)	(300.0		)
Preferred stock dividend										(0.9		)	(0.9		)
Employee / Director stock plans				2.3									2.3
Other				0.1						(0.1		)	—
Ending balance	41,172,173	$	0.4	$	782.9		$	43.1		$	229.7		$	1,056.1
2005:
Net income										211.8
Net change in unrealized gains (loses) on financial instruments, net of reclassification adjustments							1.9
Net change in deferred gains on cash flow hedges							(3.4		)
Minimum pension liability							(63.0		)
Deferred income taxes related unrealized gains (losses)							26.4
Total comprehensive income													173.7
Common stock dividends										(150.0		)	(150.0		)
Preferred stock dividend										(0.9		)	(0.9		)
Employee / Director stock plans				0.5									0.5
Other							0.1			(0.1		)	—
Ending balance	41,172,173	$	0.4	$	783.4		$	5.1		$	290.5		$	1,079.4
2006:
Net income										242.4
Net change in unrealized gains (loses) on financial instruments, net of reclassification adjustments							3.9
Net change in deferred gains on cash flow hedges							0.7
Minimum pension liability							11.8
Deferred income taxes related unrealized gains (losses)							(30.2		)
Total comprehensive income													228.6
Common stock dividends										(100.0		)	(100.0		)
Preferred stock dividends										(0.8		)	(0.8		)
Tax effects to equity				1.8									1.8
Employee / Director stock plans				(1.6		)							(1.6		)
Other				0.1						(0.1		)	—
FAS 158 adjustment							23.8						23.8
Ending balance	41,172,173	$	0.4	$	783.7		$	15.1		$	432.0		$	1,231.2

(a) 50,000,000 shares authorized.

See Notes to Consolidated Financial Statements.

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Notes to Consolidated Finanial Statements

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 99% of DPL’s total consolidated revenue and approximately 86% 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.  Historically, DPL and DP&L have filed separate SEC filings.  Beginning with this report and in the future, DPL Inc. and The Dayton Power and Light Company will file combined SEC reports on an interim and annual basis.

DPL’s results of operations, financial position and cash flows, includes the consolidated results of its subsidiaries, including its subsidiary DP&L and all of its consolidated subsidiaries.  All material intercompany accounts and transactions have been eliminated in consolidation.  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.     Summary of Significant Accounting Policies and Overview

Description of Business

DPL is a diversified regional energy company organized in 1985 under the laws of Ohio.  DPL’s principal subsidiary is The Dayton Power and Light Company (DP&L).  DP&L is a public utility incorporated in 1911 under the laws of Ohio.  DP&L sells electricity to residential, commercial, industrial and 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.  DP&L also purchases retail peak load requirements from DPL Energy LLC (DPLE, one of our wholly-owned subsidiaries).  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 significant subsidiaries (all of which are wholly-owned) include DPLE, which engages in the operation of peaking generating facilities; DPL Energy Resources, Inc. (DPLER), which sells retail electric energy under contract to major industrial and commercial customers in West Central Ohio; MVE, Inc., which was primarily responsible for the management of our financial asset portfolio; and Miami Valley Insurance Company (MVIC), our captive insurance company that provides insurance sources to us and our subsidiaries.   DP&L has one significant subsidiary, DPL Finance Company, Inc., which is wholly-owned and provides financing to DPL, DP&L and other affiliated companies.

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

Basis of Consolidation

We prepare consolidated financial statements in accordance with generally accepted accounting principles (GAAP) in the United States of America.  The consolidated financial statements include the accounts of DPL and DP&L and their majority-owned subsidiaries.  Investments that are not majority owned are accounted for using the equity method when our investment allows us the ability to exert significant influence, as defined by GAAP.  Undivided interests in jointly-owned generation facilities are consolidated on a pro rata basis.  All material intercompany accounts and transactions are eliminated in consolidation.

Estimates, Judgments and Reclassifications

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 at the date of the financial statements and the revenue and expenses of the period reported.  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.  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 costs; valuation allowances for receivables and deferred income taxes; regulatory assets and liabilities; reserves recorded for income tax exposures; litigation; and assets and liabilities related to employee benefits.  Actual results may differ from those estimates.  Certain amounts from prior periods have been reclassified to conform to the current reporting presentation.  In 2005, DPL has separately disclosed the earnings from discontinued operations, net of income taxes, which in prior periods were reported with elements

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of continued operations.  In 2005, DPL also separately disclosed the investing portions of the cash flows attributable to its discontinued operations (there was no impact on the operating or investing portions of the cash flows), which in prior periods were reported on a combined basis as a single amount.

Revenues

We record revenue for services provided but not yet billed to more closely match revenues with expenses.  Accounts receivable on DPL’s Consolidated Balance Sheets include unbilled revenue of $68.7 million and $63.6 million in 2006 and 2005, respectively.  Accounts receivable on DP&L’s Consolidated Balance Sheets include unbilled revenue of $61.0 million and $57.5 million in 2006 and 2005, respectively.  Also included in revenues are amounts charged to customers through a surcharge for recovery of uncollected amounts from certain eligible low-income households.  These charges for both DPL and DP&L were $11.9 million for 2006, $6.2 million for 2005, and $8.3 million for 2004.

Allowance for Uncollectible Accounts

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

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 property, cost includes direct labor and material, allocable overhead costs 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 as of the date specified by regulators.  AFUDC capitalized related to borrowed funds was $50 thousand in 2006, and zero in 2005 and 2004.  AFUDC capitalized for equity funds was $0.4 million in 2006, zero in 2005, and $0.5 million in 2004.

For unregulated property, cost includes direct labor, material and overhead costs and interest capitalized during construction using FASB Statement of Accounting Standard No. 34, Capitalization of Interest Cost.  Capitalized interest was $12.9 million in 2006, $2.6 million in 2005 and $1.8 million in 2004.

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.

Depreciation

Depreciation expense is calculated using the straight-line method, which depreciates 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 3.3% in 2006, 3.3% in 2005 and 3.4% in 2004.  DPL’s depreciation expense was $151.8 million in 2006, $147.3 million in 2005 and $144.1 million in 2004.

The following is a summary of DPL’s property, plant and equipment with corresponding composite depreciation rates at December 31, 2006 and 2005:

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DPL

			Composite				Composite
$ in millions	2006		Rate		2005		Rate
Regulated:
Transmission	$	343.5	2.4	%	$	341.8	2.6	%
Distribution	1,050.8		3.8	%	968.9		3.4	%
General	66.0		7.5	%	63.1		9.5	%
Non-depreciable	54.2		0.0	%	54.0		0.0	%
Total regulated	$	1,514.5			$	1,427.8
Unregulated:
Production (a)	$	3,048.0	3.2	%	$	3,008.3	3.2	%
Other	44.9		7.0	%	45.2		7.6	%
Non-depreciable	18.6		0.0	%	18.4		0.0	%
Total unregulated	$	3,111.5			$	3,071.9
Total property in service	$	4,626.0	3.3	%	$	4,499.7	3.3	%
Construction work in process	376.0		0.0	%	168.0		0.0	%
Total property, plant and equipment	$	5,002.0			$	4,667.7

(a)During 2006, DPL entered into agreements to sell 630 MW of its peaking capacity relating to the Darby and Greenville stations of which $283.5 million of the assets presented in this table are held for sale at December 31, 2006.

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 3.2% in 2006, 3.2% in 2005, and 3.3% in 2004.  DP&L’s depreciation expense was $130.0 million in 2006, $123.9 million in 2005, and $121.1 million in 2004.

The following is a summary of DP&L’s property, plant and equipment with corresponding composite depreciation rates at December 31, 2006 and 2005:

DP&L

			Composite				Composite
$ in millions	2006		Rate		2005		Rate
Regulated:
Transmission	$	343.5	2.4	%	$	341.8	2.6	%
Distribution	1,050.8		3.8	%	968.9		3.4	%
General	66.0		7.5	%	63.1		9.5	%
Non-depreciable	54.2		0.0	%	54.0		0.0	%
Total regulated	$	1,514.5			$	1,427.8
Unregulated:
Production	$	2,545.6	3.0	%	$	2,509.8	3.0	%
Non-depreciable	15.3		0.0	%	15.3		0.0	%
Total unregulated	$	2,560.9			$	2,525.1
Total property in service	$	4,075.4	3.2	%	$	3,952.9	3.2	%
Construction work in process	375.2		0.0	%	165.1		0.0	%
Total property, plant and equipment	$	4,450.6			$	4,118.0

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Asset Retirement Obligations

We adopted the provisions of the Financial Accounting Standards Board (FASB) Statement of Financial Accounting Standards No. 143, “Accounting for Asset Retirement Obligations” (SFAS 143) during 2003.  SFAS 143 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 allocated to expense over the useful life of the asset.  SFAS 143 also requires that components of previously recorded depreciation related to the cost of removal of assets upon retirement, whether legal asset retirement obligations or not, must be removed from a company’s accumulated depreciation reserve.  Our legal obligations associated with the retirement of our long-lived assets under SFAS 143 consisted primarily of river intake and discharge structures, coal unloading facilities, loading docks, ice breakers and ash disposal facilities.  Estimating the amount and timing of future expenditures of this type requires significant judgment.  Management routinely updates this estimating as additional information becomes available.

In March of 2005, the FASB issued FASB Interpretation No. 47 (FIN No. 47), “Accounting for Conditional Asset Retirement Obligations, an interpretation of FASB Statement No. 143.”  We implemented FIN No. 47 in the fourth quarter of 2005 effective January 1, 2005 for certain asset retirement obligations, primarily the removal of asbestos, at some of our generation stations.  Application of FIN No. 47 resulted in an increase in our net property, plant and equipment of $1.8 million and an increase in our asset retirement obligation of $7.2 million.  The difference of $5.3 million represents the before tax ($3.2 million after tax) cumulative effect of the adoption of FIN No. 47, as of January 1, 2005.  The before tax impact on 2005 net income was $0.9 million ($0.5 million after tax) which consisted of $0.6 million of accretion expense and $0.3 million depreciation expense

If FIN No. 47 had been applied as of January 1, 2003, our asset retirement obligation would have increased by $9.4 million and $10.3 million at January 1, 2004 and December 31, 2004, respectively. Our asset retirement obligation was $13.2 million at December 31, 2005, which consisted of $5.4 million related to the adoption of SFAS 143 in 2003 and $7.8 million related to the adoption of FIN No. 47 in 2005. Our asset retirement obligation was $11.7 million at December 31, 2006, which consisted of $5.4 million related to the adoption of SFAS 143 in 2003 and $7.8 million related to the adoption of FIN No. 47 in 2005.

Changes in the Liability for Asset Obligations

$ in millions	2006			2005
Balance at December 31, 2005	$	13.2		$	5.1
Accretion expense	0.3			0.9
Additions	—			7.2
Settlements	(0.4		)	—
Estimated cashflow revisions	(1.4		)	—
Balance at December 31, 2006	$	11.7		$	13.2

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 asset retirement obligations associated with these assets.  We have recorded $86.2 million and $81.7 million in estimated costs of removal at December 31, 2006 and 2005, respectively as regulatory liabilities for our transmission and distribution property.  See Note 3 of Notes to Consolidated Financial Statements.

Changes in the Liability for Asset Obligations

$ in millions	2006			2005
Balance at December 31, 2005	$	81.7		$	77.5
Accretion expense	—			—
Additions	7.8			6.9
Settlements	(3.3		)	—
Estimated cashflow revisions	—			(2.7		)
Balance at December 31, 2006	$	(86.2	)	$	(81.7	)

Regulatory Accounting

We apply the provisions of FASB Statement of Financial Accounting Standards No. 71, (SFAS 71) “Accounting for the Effects of Certain Types of Regulation” to the transmission and distribution portion of our business.  In accordance with SFAS 71, regulatory assets and liabilities are recorded in the Consolidated Balance Sheets.  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.

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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.  See Note 3 of Notes to Consolidated Financial Statements.

We evaluate our regulatory assets each period and believe recovery of these is probable.  We have received or requested a return on certain regulatory assets for which we are currently recovering or seeking recovery through rates.  If we were required to terminate application of SFAS 71 for all of our regulated operations, we would have to record the amounts of all regulatory assets and liabilities in the Consolidated Statement of Results of Operations at that time.  See Note 3 of Notes to Consolidated Financial Statements.

Accounts Receivable

Our accounts receivable includes utility customer receivables, amounts due from our partners for jointly-owned property, wholesale and subsidiary customer receivables, and electric unbilled revenue.  We also include miscellaneous accounts receivables such as refundable Franchise taxes.  The amount is presented net of a provision for uncollectible accounts on the accompanying consolidated balance sheets.

Inventory

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

Emission Allowances

We account for our emission allowances as inventory, and record emission allowance inventory at historical 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 quarter.  Emission allowances are added to inventory when the EPA issues us emission allowances at no cost or when we purchase emission allowances.  Purchased emission allowances are recorded in inventory at the purchase price, including any related transaction fees.  Emission allowances are deducted from inventory when used in the production of electricity or when we sell excess emission allowances.  Emission allowances used during the production of electricity are charged to fuel costs at the weighted average cost for that vintage.  The excess / (shortfall) of the sales price over the weighted average cost for any emission allowances sold, less related fees, is recorded as a gain / (loss) in other income (deductions).  Emission allowances received as part of an exchange of emission allowances are recorded at the carrying cost of the emission allowances given up, with no gain or loss recorded.

Repairs and Maintenance

Costs associated with all planned work and 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 either capitalized or expensed based on defined units of property as required by the Federal Energy Regulatory Commission (FERC).

Income Taxes

We apply the provisions of FASB Statement of Financial Accounting Standards No. 109, “Accounting for Income Taxes” (SFAS 109).  SFAS 109 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 Taxes in the Consolidated Balance Sheets.  Deferred tax assets are recognized for deductible temporary differences.  Valuation reserves are provided 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 the income taxes will be recoverable / refundable through future revenues.

We file a consolidated U.S. federal income tax return in conjunction with our subsidiaries.  The consolidated tax liability is allocated to each subsidiary as specified in our tax allocation agreement which provides a consistent, systematic and rational approach.  See Note 4 of Notes to Consolidated Financial Statements.

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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.  DPL’s cash and cash equivalents were $262.2 million at December 31, 2006 and $595.8 million at December 31, 2005.  DP&L’s cash and cash equivalents were $46.1 million at December 31, 2006 and $46.2 million at December 31, 2005.  At December 31, 2006, we had $10.1 million restricted funds held in trust relating to the issuance of the $100 million pollution control bonds.  These funds will be used to fund the pollution control capital expenditures.

Financial Instruments

We apply the provision of FASB Statement of Financial Accounting Standards No. 115, “Accounting for Certain Investments in Debt and Equity Securities”  (SFAS 115), for our investments in debt and equity financial instruments of publicly traded entities and classify the securities 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 valuation of public equity security investments is based upon market quotations.  The cost basis for public equity security and fixed maturity investments is average cost and amortized cost, respectively.

Captive Insurance Subsidiary

In addition to insurance provided through third-party providers, a wholly-owned captive subsidiary of DPL provides insurance coverage solely to us and to our subsidiaries. Insurance and Claims Costs on the Consolidated Balance Sheets includes insurance reserves of approximately $22 million and $24 million for 2006 and 2005, respectively, based on actuarial methods and loss experience data.  Such reserves are actuarially determined, in the aggregate, 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.

Financial Derivatives

We follow FASB Statement of Financial Accounting Standards No. 133, “Accounting for Derivative Instruments and Hedging Activity” (SFAS 133), as amended.  SFAS 133 requires that all derivatives be recognized as either assets or liabilities in the Consolidated Balance Sheets and be measured at fair value, and changes in the fair value be 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 as discussed below.

The FASB issued Statement of Financial Accounting Standards No. 149, “Amendment of Statement 133 on Derivative Instruments and Hedging Activities” (SFAS 149).  SFAS 149 amends and clarifies financial accounting and reporting for derivative instruments, including those embedded in other contracts, and for hedging activities and is effective for contracts entered into or modified after June 30, 2003.

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.  The FASB concluded that electric utilities could apply the normal purchases and sales exception for option-type contracts and forward contracts in electricity subject to specific criteria for the power buyers and sellers under capacity contracts.  Accordingly, we apply the normal purchases and sales exception as defined in SFAS 133 and account for these contracts upon settlement.

Pension and Postretirement Benefits

We account and disclose pension and postretirement benefits in accordance with the provisions of Statement of Financial Accounting Standards No. 158, “Employers’ Accounting for Defined Benefit Pensions and other Postretirement Plans, an amendment to FASB Statements 87, 88, 106 and 132R.”  This Standard requires 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.

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Legal, Environmental and Regulatory 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, adequately reflect probable and estimable contingencies.  We record liabilities for probable estimated loss in accordance with Statement of Financial Accounting Standards No. 5 (SFAS 5), “Accounting for Contingencies.”  To the extent of a probable loss can only be estimated by reference to a range of equally probable outcomes, and no amount within the range appears to be a better estimate than any other amount, we accrue for the low end of the range.  However, there can be no assurances that the actual amounts required to satisfy alleged liabilities from various legal proceedings, claims, and other matters, and to comply with applicable laws and regulations, will not exceed the amounts reflected in our consolidated financial statements or will not have a material adverse effect on our consolidated results of operations, financial condition or cash flows.  As such, costs, if any, that may be incurred in excess of those amounts provided as of December 31, 2006, cannot currently be reasonably determined.

Recently Issued Accounting Standards

Stock-Based Compensation

In December 2004, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standard No. 123 (revised 2004), “Share-Based Payment” (SFAS 123R).  SFAS 123R replaces SFAS 123, “Accounting for Stock-Based Compensation,” and supersedes Accounting Principles Board (APB) Opinion No. 25 (Opinion 25), “Accounting for Stock Issued to Employees.”  SFAS 123R requires a public entity to measure the cost of employee services received and paid with equity instruments to be based on the fair-value of such equity on the grant date.  This cost is recognized in results of operations over the period in which employees are required to provide service.  Liabilities initially incurred are based on the fair-value of equity instruments and are to be re-measured 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.  Cash retained from the excess tax benefits is presented in the statement of cash flows as financing cash inflows.  The provisions of this Statement became effective as of January 1, 2006.  Our December 31, 2006 year-to-date pre-tax results of operations were increased by approximately $0.7 million as a result of the adoption of SFAS 123R.  See Note 9 of Notes to Consolidated Financial Statements.

How Taxes Collected from Customers and Remitted to Governmental Authorities Should be Presented in the Income Statement

In June 2006, the FASB ratified the consensus of Emerging Issues Task Force (EITF) Issue No. 06-3, “How Taxes Collected from Customers and Remitted to Governmental Authorities Should be Presented in the Income Statement (That Is, Gross versus Net Presentation)” (EITF 06-3). EITF 06-3 indicates that the income statement presentation on either a gross basis or a net basis of the taxes within the scope of the issue is an accounting policy decision.   The consensus is this issue should be applied to interim and annual reporting periods beginning after December 15, 2006.  We are in the process of evaluating EITF 06-3 and have not determined the impact to our overall results of operations, financial position or cash flows.

Accounting for Uncertainty in Income Taxes

In July 2006, the FASB issued Interpretation No. 48, “Accounting for Uncertainty in Income Taxes” (FIN 48), effective for fiscal years beginning after December 15, 2006.  FIN 48 requires a two-step approach to determine how to recognize tax benefits in the financial statements where recognition and measurement of a tax benefit must be evaluated separately.  A tax benefit will be recognized only if it meets a “more-likely-than-not” recognition threshold.  For tax positions that meet this threshold, the tax benefit recognized is based on the largest amount of tax benefit that is greater than 50 percent likely of being realized upon ultimate settlement with the taxing authority.  We have evaluated the requirements of FIN 48 and the adoption of this interpretation and we do not believe at this time that the impact will be significant to our overall results of operations, cash flows or financial position.

Accounting for Fair Value Measurements

In September 2006, the FASB issued Statement of Financial Accounting Standards No. 157, “Fair Value Measurements,” (SFAS 157) effective for fiscal years beginning after November 15, 2007.  This Standard applies whenever other standards require (or permit) assets or liabilities to be measured at fair value.  The Standard clarifies the principle that fair value should be based on the assumptions market participants would use when pricing the asset or liability.  In support of this principle, the Standard establishes a fair value hierarchy that prioritizes the information used to develop those standards.  The fair value hierarchy gives the highest priority to quoted prices in active markets and the lowest priority to unobservable data, for example, the reporting entity’s own data.  Under the Standard, fair value measurements would be separately disclosed by level within the fair value hierarchy.  The Standard does not expand the use of fair value in any new

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circumstances.  We are currently evaluating the impact of adopting SFAS 157, and have not yet determined the significance of this new rule to our overall results of operations, financial position or cash flows.

Employers’ Accounting for Defined Benefit Pension and Other Postretirement Plans

In September 2006, the FASB issued Financial Accounting Standards  No. 158,  “Employers’ Accounting for Defined Benefit Pension and Other Postretirement Plans, an amendment of FASB Statements No. 87, 88, 106 and 132(R)” (SFAS158).  This Statement requires an employer that is a business entity and sponsors one or more single-employer defined benefit plans to:  a.) recognize the funded status of a benefit plan; b.) recognize as a component of other comprehensive income, 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; c.) measure defined benefit plan assets and obligations as of the date of the employer’s fiscal year-end statement of financial position; d.) disclose in the notes to financial statements additional information about certain effects on net periodic benefit cost for the next fiscal year that arise from delayed recognition of the gains or losses, prior service costs or credits, and transition asset or obligation. This Statement is effective for fiscal years ending after December 15, 2006 except for the measuring of plan assets at the employer’s fiscal year end which is effective for fiscal years ending after December 15, 2008.  We have adopted FAS 158 effective December 31, 2006.  See Note 5 of the Consolidated Financial Statements.

Considering the Effects of Prior Year Misstatements when Quantifying Misstatements in Current Year Financial Statements

In September 2006, the Securities and Exchange Commission (SEC) issued Staff Accounting Bulletin No. 108 (Topic 1N):  “Considering the Effects of Prior Year Misstatements when Quantifying Misstatements in Current Year Financial Statements” (SAB 108).  The SEC believes that a registrant should quantify a current year misstatement using both the iron curtain approach and the rollover approach.  If the over/understatement of current year expense is material to the current year, after all of the relevant quantitative and qualitative factors are considered, the prior year financial statements should be corrected.  Correcting prior year financial statements for immaterial errors would not require previously filed reports to be amended.  We have evaluated our accounts and determined that SAB 108 does not impact our reported results.

Accounting for Planned Major Maintenance Activity

In September 2006, the FASB posted Financial Statement of Position AUG AIR-1 — “Accounting for Planned Major Maintenance Activity” (FSP AUG AIR-1).   Previous guidance for planned major maintenance, such as repairing or replacing a boiler, allowed four different methods for accruing for these major repairs.  These included direct expense, built-in overhaul, deferral and accrue-in-advance.  The FASB has decided that the accrue-in-advance method is no longer valid because it allows a liability to accrue for future charges that may or may not happen.  We use the direct expense method for major planned maintenance which calls for expensing the charges as incurred.  Since we do not use the accrue-in-advance method, this FSP will have no effect on our overall results of operations, financial position or cash flows.

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2. Supplemental Financial Information

DPL Inc.

	At December 31,
$ in millions	2006			2005
Accounts receivable, net:
Unbilled revenue	$	68.7		$	63.6
Retail customers	65.0			60.8
Partners in commonly-owned plants	51.5			37.7
Wholesale and subsidiary customers	15.8			6.0
PJM including financial transmission rights	13.1			11.0
Other	7.1			2.5
Refundable franchise tax	5.2			14.3
Provision for uncollectible accounts	(1.4		)	(1.0		)
Total accounts receivable, net	$	225.0		$	194.9
Inventories, at average cost:
Fuel and emission allowances	$	52.4		$	48.6
Plant materials and supplies	32.6			31.4
Other	0.4			0.2
Total inventories, at average cost	$	85.4		$	80.2
Other current assets:
Deposits and other advances	$	17.8		$	9.2
Prepayments	13.3			5.1
Derivatives	3.2			—
Current deferred income taxes	2.0			5.4
Other	1.4			0.5
Total other current assets	$	37.7		$	20.2
Property, plant and equipment:
Construction work in process	$	376.0		$	168.0
Property, plant and equipment	4,626.0			4,499.7
Total property, plant and equipment (a)	$	5,002.0		$	4,667.7
Other deferred assets:
Master Trust assets	$	39.4		$	32.0
Unamortized loss on reacquired debt	20.4			22.0
Unamortized debt expense	10.6			10.2
Commercial activities tax benefit	6.8			—
Investments	7.0			7.2
Other	0.5			0.8
Total other deferred assets	$	84.7		$	72.2
Accounts Payable:
Trade payables	$	75.7		$	26.1
Fuel accruals	37.3			39.5
Other	56.4			64.6
Total accounts payable	$	169.4		$	130.2
Other current liabilities:
Customer security deposits	$	19.4		$	19.2
Pension and retiree benefits payable	5.8			—
Financial transmission rights — future proceeds	2.7			—
Payroll taxes payable	0.1			2.3
Other	10.3			9.6
Total other current liabilities	$	38.3		$	31.1
Other deferred credits:
Asset retirement obligations — regulated property	$	86.3		$	81.7
Trust obligations	76.2			74.5
Pension liabilities	37.7			23.7
Retiree health and life benefits	28.5			32.9
SECA net revenue subject to refund	18.7			20.5
Asset retirement obligations — generation property	11.7			13.2
Deferred gain on sale of portfolio	8.2			27.1
Legal reserves	3.4			3.0
Environmental reserves	0.1			0.1
Other	9.9			9.6
Total other deferred credits	$	280.7		$	286.3

(a)  $283.5 of the assets presented in this table are held for sale.

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DP&L

	At December 31,
$ in millions	2006			2005
Accounts receivable, net:
Retail customers	$	65.0		$	60.7
Partners in commonly-owned plants	51.5			37.7
Unbilled revenue	61.0			57.5
PJM including financial transmission rights	13.9			11.0
Wholesale and subsidiary customers	8.3			2.7
Refundable franchise tax	3.1			11.8
Other	4.2			2.3
Provision for uncollectible accounts	(1.4		)	(1.0		)
Total accounts receivable, net	$	205.6		$	182.7
Inventories, at average cost:
Fuel and emission allowances	$	52.4		$	48.6
Plant materials and supplies	30.2			29.0
Other	0.4			0.1
Total inventories, at average cost	$	83.0		$	77.7
Other current assets:
Deposits and other advances	$	17.0		$	5.8
Prepayments	15.8			7.7
Derivatives	3.2			—
Current deferred income taxes	0.7			4.9
Other	1.5			0.9
Total other current assets	$	38.2		$	19.3
Property, plant and equipment:
Construction work in process	$	375.2		$	165.1
Property, plant and equipent	4,075.4			3,952.9
Total property, plant and equipment	$	4,450.6		$	4,118.0
Other deferred assets:
Master Trust assets	$	109.0		$	107.7
Unamortized loss on reacquired debt	20.4			22.0
Unamortized debt expense	8.6			7.4
Investments	0.6			0.6
Other	0.5			0.6
Total other deferred assets	$	139.1		$	138.3
Accounts Payable:
Trade payables	$	74.7		$	25.6
Fuel accruals	36.7			38.1
Other	54.8			52.5
Total accounts payable	$	166.2		$	116.2
Other current liabilities:
Customer security deposits	$	19.4		$	19.2
Financial transmission rights — future proceeds	2.7			—
Current portion long-term debt	0.9			0.9
Payroll taxes payable	0.2			2.3
Pension and retiree benefits payable	5.8			—
Other	7.3			6.0
Total other current liabilities	$	36.3		$	28.4
Other deferred credits:
Asset retirement obligations — regulated property	$	86.3		$	81.7
Trust obligations	76.2			74.5
Retiree health and life benefits	28.5			32.9
Pension liabilities	37.7			23.7
SECA net revenue subject to refund	18.7			20.5
Asset retirement obligations — generation property	11.7			13.2
Legal reserves	3.4			3.0
Environmental reserves	0.1			0.1
Other	9.9			9.1
Total other deferred credits	$	272.5		$	258.7

DPL Inc.

	For the years ended
$ in millions	2006			2005
Cash flows - Other:
Payroll taxes payable	$	(2.1	)	$	2.3
Deferred management fees	—			7.9
Deposits and other advances	(8.5		)	(0.9		)
Deferred storm costs	(0.1		)	(5.5		)
FERC transitional payment deferral	(1.8		)	20.5
Other	2.0			7.5
Total cash flows - Other	$	(10.5	)	$	31.8

DP&L

	For the years ended
$ in millions	2006			2005
Cash flows - other:
Payroll taxes payable	$	(2.1	)	$	2.3
Deposits and other advances	(11.0		)	(2.1		)
Deferred storm costs	(0.1		)	(5.5		)
FERC transitional payment deferral	(1.8		)	20.5
Other	(2.5		)	(1.8		)
Total cash flows - other	$	(17.5	)	$	13.4

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3. Regulatory Matters

We apply the provisions of SFAS 71 to our regulated operations.  This accounting standard defines regulatory assets as the deferral of costs expected to be recovered in future customer rates and regulatory liabilities as current cost recovery of expected future expenditures.

Regulatory liabilities are reflected on the Consolidated Balance Sheets under the caption entitled “Other Deferred Credits”.  Regulatory assets and liabilities on the Consolidated Balance Sheets include:

	Type of	Amortization	At December 31,
$ in millions	Recovery (a)	Through	2006		2005
Regulatory Assets:
Deferred recoverable income taxes	C/B	Ongoing	$	53.1	$	28.8
Pension and postretirement benefits	C	Ongoing	47.1		—
Electric Choice systems costs	F	2010	13.5		16.7
Regional transmission organization costs	C	2014	11.4		12.9
Deferred storm costs	C	2008	5.4		6.5
PJM administrative costs	F	2009	4.6		5.6
Power plant emission fees	C	Ongoing	4.5		3.8
Rate case expenses	F	2010	3.5		3.5
Retail settlement system costs			3.1		3.1
PJM integration costs	F	2015	1.4		1.9
Other costs			1.0		1.0
Total regulatory assets			$	148.6	$	83.8
Regulatory Liabilities:
Asset retirement obligations - regulated property			$	86.3	$	81.7
Postretirement benefits			7.6		—
SECA net revenue subject to refund			18.7		20.5
Total regulatory liabilities			$	112.6	$	102.2

(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.

Regulatory Assets

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.

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.  Since currently existing temporary differences between the financial statements and the related tax basis of assets will reverse in subsequent periods, deferred recoverable income taxes are amortized.

Pension and postretirement benefits represent the unfunded benefit obligation related to the transmission and distribution areas of our electric business.  We have historically recorded these costs on the accrual basis and this is how these costs have been historically recovered through rates.  This factor, combined with the historical precedents from the PUCO and the FERC, make these costs probable of future rate recovery.

Electric Choice systems costs represent costs incurred to modify the customer billing system for unbundled rates and electric choice bills relative to other generation suppliers and information reports provided to the state administrator of the low-income electric program.  In February 2005, the PUCO approved a stipulation allowing us to recover certain costs incurred for modifications to its billing system from all customers in its service territory.  We filed a subsequent case to implement the PUCO’s order to begin charging customers for billing costs.  On March 1, 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 Regional Transmission Organization that controls the receipts and delivery of bulk power within the service area.  These costs are being amortized over a 10-year period that commenced in October 2004.

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Deferred storm costs include costs incurred by us to repair damage from December 2004 and January 2005 ice storms.  We filed to recover these costs from retail ratepayers over a two year period.  On July 12, 2006, the PUCO approved our tariff as proposed and we began recovering these deferred costs over a two-year period beginning August 1, 2006.  

PJM administrative costs contain the administrative fees billed by PJM to us as a member of the PJM Interconnection, LLC Regional Transmission Organization (RTO).  Pursuant to a PUCO order issued on January 25, 2006, these deferred costs will be recovered over a 3-year period from retail ratepayers beginning February 2006.

Power plant emission fees represent costs paid to the State of Ohio for environmental monitoring that are or will be recovered over various periods under a PUCO rate rider from customers.

Retail settlement system costs represent costs to implement a retail settlement system that reconciles the amount of energy a competitive retail electric service (CRES) supplier delivers to its customers and what its customers actually use.  Based on case precedent in other utilities’ cases, the cost of this system is recoverable through DP&L’s next transmission rate case that will be filed at the FERC.  The timing of this case is uncertain at this time.

PJM integration costs include infrastructure costs and other related expenses incurred by PJM and reimbursed by DP&L to integrate us into the RTO.  Pursuant to a FERC order, the costs are being recovered over a 10-year period beginning May 2005 from wholesale customers within PJM. 

Rate case expenses represent costs incurred in connection with the Rate Stabilization Surcharge that was approved by the PUCO and implemented in January 2006.  These costs are being amortized over a five-year period.

Other costs include consumer education advertising regarding electric deregulation and costs pertaining to a recent rate case and are or will be recovered over various periods.

Regulatory Liabilities

Asset retirement obligations — regulated property reflect an estimate of amounts recovered in rates that are expected to be expended to remove existing transmission and distribution property from service upon retirement.

Postretirement benefits reflect a regulatory liability that was recorded for the portion of the unrealized gain on our postretirement trust assets related to the transmission and distribution areas of our electric business.  The company has historically recorded these transactions on the accrual basis and this is how these costs have historically been recovered through rates.  This factor, combined with the historical precedents from the PUCO and the FERC, make it probable that these amounts will be reflected in future rates.

SECA (Seams Elimination Charge Adjustment) net revenue subject to refund represents our estimate of probable refunds for net revenue collected in 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, but no ruling has been issued.  We began receiving and paying these transitional payments in May 2005.

4.  Income Taxes

For the years ended December 31, 2006, 2005 and 2004, DPL’s components of income tax were as follows:

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DPL Inc.

	For the years ended
	December 31,
$ in millions	2006			2005			2004
Computation of Tax Expense
Federal income tax (a)	$	68.7		$	71.9		$	66.3
Increases (decreases) in tax resulting from —
State income taxes, net of federal effect (b)	(4.0		)	1.2			1.2
Depreciation	(3.1		)	(1.3		)	(4.0		)
Investment tax credit amortized	(2.9		)	(2.9		)	(2.9		)
Non-deductible compensation	0.2			0.2			—
Section 199 — domestic production deduction	(0.8		)	(1.6		)	—
Accrual for open tax years (c)	5.1			11.2			5.3
Other, net	6.6			1.2			0.6
Total tax expense (d)	$	69.8		$	79.9		$	66.5
Components of Tax Expense
Taxes currently payable (b)	$	109.3		$	85.0		$	44.3
Deferred taxes —
Depreciation and amortization	(37.9		)	(11.7		)	(3.3		)
Shareholder litigation	—			—			23.2
Other	1.3			9.5			5.2
Deferred investment tax credit, net	(2.9		)	(2.9		)	(2.9		)
Total tax expense (d)	$	69.8		$	79.9		$	66.5

Components of Deferred Tax Assets and Liabilities

	At December 31,
$ in millions	2006			2005
Net Non-Current Assets (Liabilities)
Depreciation/property basis	$	(380.3	)	$	(402.2	)
Income taxes recoverable	(18.6		)	(10.1		)
Regulatory assets	(9.7		)	(9.4		)
Investment tax credit	15.2			16.3
Investment loss	2.9			9.6
Compensation and employee benefits	39.2			38.7
Insurance	1.6			1.8
Other (e)	(5.5		)	28.3
Net non-current (liabilities)	$	(355.2	)	$	(327.0	)
Net Current Assets
Other	$	2.0		$	5.4
Net current assets	$	2.0		$	5.4

(a)   The statutory tax rate of 35% was applied to pre-tax income from continuing operations before preferred dividends.

(b)   We have recorded $10.4 million, ($2.1) million and $11.7 million in 2006, 2005 and 2004, respectively, for state tax credits available related to the consumption of coal mined in Ohio.

(c)   We have recorded $5.1 million, $11.2 million and $5.3 million in 2006, 2005 and 2004, respectively, of tax provision 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.

(d)   Excludes ($2.1) million in 2005 of income taxed reported as cumulative effect of accounting change, net of income taxes. Also excludes $3.6 million in 2006, $19.9 million in 2005 and $59.1 million in 2004 of income taxes reported as discontinued operations.

(e)   The Other non-current liabilities caption includes deferred tax assets related to state tax net operating loss carryforwards, net of related valuation allowances of $10.1 million in 2006 and $6.8 million in 2005. The majority of these net operating losses are Ohio franchise tax loss carryforwards that expire after the phase-out of the Ohio franchise tax is completed in 2008. Remaining Ohio franchise tax loss carryforwards after 2008 can be used to offset the Ohio Commercial Activity Tax liability and do not expire until after 2029.

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For the years ended December 31, 2006, 2005 and 2004, DP&L’s components of income tax were as follows:

DP&L

	For the years ended
	December 31,
$ in millions	2006			2005			2004
Computation of Tax Expense
Federal income tax (a)	$	134.6		$	123.6		$	115.4
Increases (decreases) in tax resulting from —
State income taxes, net of federal effect (b)	2.4			7.4			7.0
Depreciation	(3.1		)	(1.3		)	(3.9		)
Investment tax credit amortized	(2.9		)	(2.9		)	(2.9		)
Non-deductible compensation	0.1			0.2			—
Section 199 — domestic production deduction	(0.8		)	(1.6		)	—
Accrual for open tax years (c)	5.1			11.2			5.3
Other, net	6.8			1.5			(0.1		)
Total tax expense (d)	$	142.2		$	138.1		$	120.8
Components of Tax Expense
Taxes currently payable (b)	$	158.5		$	149.4		$	136.8
Deferred taxes —
Depreciation and amortization	(17.1		)	(16.4		)	(10.0		)
Other	3.7			8.0			(3.1		)
Deferred investment tax credit, net	(2.9		)	(2.9		)	(2.9		)
Total tax expense (d)	$	142.2		$	138.1		$	120.8

Components of Deferred Tax Assets and Liabilities

	At December 31,
$ in millions	2006			2005
Net Non-Current Assets (Liabilities)
Depreciation/property basis	$	(368.1	)	$	(367.6	)
Income taxes recoverable	(18.6		)	(10.1		)
Regulatory assets	(9.7		)	(9.4		)
Investment tax credit	15.3			16.3
Compensation and employee benefits	39.2			38.7
Other (e)	(18.3		)	8.9
Net non-current (liabilities)	$	(360.2	)	$	(323.2	)
Net Current Assets
Other	$	0.7		$	4.9
Net current assets	$	0.7		$	4.9

(a)   The statutory tax rate of 35% was applied to pre-tax income from continuing operations before preferred dividends.

(b)   We have recorded $10.4 million, ($2.1) million and $11.7 million in 2006, 2005 and 2004, respectively, for state tax credits available related to the consumption of coal mined in Ohio.

(c)   We have recorded $5.1 million, $11.2 million and $5.3 million in 2006, 2005 and 2004, respectively, of tax provision 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.

(d)   Excludes ($2.1) million in 2005 of income taxed reported as cumulative effect of accounting change, net of income taxes.

(e)   The Other non-current liabilities caption includes deferred tax assets related to state tax net operating loss carryforwards, net of related valuation allowances of $0.3 million in 2006 and zero in 2005. The majority of these net operating losses are Ohio franchise tax loss carryforwards that expire after the phase-out of the Ohio franchise tax is completed in 2008. Remaining Ohio franchise tax loss carryforwards after 2008 can be used to offset the Ohio Commercial Activity Tax liability and do not expire until after 2029.

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5.  Pension and Postretirement Benefits

We sponsor 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 (not related to our ongoing litigation with three former executives).  These liabilities totaled approximately $0.5 million at December 31, 2006.

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 (New SERP) which replaces the Company’s Supplemental Executive Retirement Plan (SERP) that was terminated as to new participations in 2000. The Compensation Committee of the Board of Directors will designate the eligible employees.  Pursuant to the New SERP, we will provide a supplemental retirement benefit to participants by crediting an account established for each participant in accordance with the Plan requirements.  We shall designate as hypothetical investment funds under the New SERP 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 shall 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.  We have funded the union-eligible health benefit using a Voluntary Employee Beneficiary Association Trust.

We adopted SFAS 158 “Employers’ Accounting for Defined Benefit Pension and Other Postretirement Plans, an amendment of FASB Statements No. 87, 88, 106 and 132(R)” for the year ended December 31, 2006.  Certain disclosures in regard to prior service costs, transition costs and net gains/losses are not available for 2006 because SFAS 158 was adopted on a prospective basis.  The incremental effects of adopting FAS 158 are set out in the following table:

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Incremental Effect of Applying FASB Statement No. 158 on Individual Line Items in the Consolidated Balance
Sheet for Pension and Postretirement Benefits

December 31, 2006

(in millions)

	Before Application of Statement 158		Adjustments				After Application of Statement 158
debit/(credit)	December 31, 2006		Pension		Post-Retirement		December 31, 2006
Other current liabilities	—		(0.4	)	(0.5	)	(0.9	)
Other deferred credits	(32.3	)	(25.9	)	10.8		(47.4	)
Deferred income taxes	8.0		12.5		(3.6	)	16.9
Regulatory asset	—		47.0		0.1		47.1
Deferred income taxes	—		(16.4	)	(0.1	)	(16.5	)
Regulatory liability—Other deferred credits	—		—		(7.6	)	(7.6	)
Deferred income taxes	—		—		2.7		2.7
Accumulated other comprehensive (gain)/loss (before tax)	55.1		(20.6	)	(2.9	)	31.6
Deferred income taxes	(19.3	)	7.2		1.0		(11.1	)
Accumulated other comprehensive (gain)/loss (after tax)	35.8		(13.4	)	(1.9	)	20.5

A regulatory asset was recorded for the portion of the unfunded obligation related to the transmission and distribution areas of our electric business.  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, assets and amounts recorded on the Consolidated Balance Sheets as of December 31.  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.

	Pension						Postretirement
$ in millions	2006			2005			2006			2005
Change in Benefit Obligation During Year
Benefit obligation at January 1	$	299.1		$	280.5		$	31.1		$	32.0
Service cost	4.2			3.9			—			—
Interest cost	16.7			15.7			1.5			1.8
Plan amendments	—			9.3			—			—
Actuarial (gain) loss	0.3			8.2			(2.6		)	0.4
Benefits paid	(25.8		)	(18.5		)	(2.9		)	(3.1		)
Benefit obligation at December 31	$	294.5		$	299.1		$	27.1		$	31.1
Change in Plan Assets During Year
Fair value of plan assets at January 1	$	260.0		$	265.9		$	7.9		$	8.9
Actual return on plan assets	26.8			12.2			0.2			0.1
Contributions to plan assets	5.4			0.4			1.8			2.0
Benefits paid	(25.8		)	(18.5		)	(2.9		)	(3.1		)
Fair value of plan assets at December 31	$	266.4		$	260.0		$	7.0		$	7.9
Funded Status of Plan	$	(28.1	)	$	(39.1	)	$	(20.1	)	$	(23.2	)
Amounts Recognized in the Consolidated Balance Sheets at December 31 (a)
Current liabilities	$	(0.4	)	N/A			$	(0.4	)	N/A
Non-current liabilities	(27.7		)	N/A			(19.7		)	N/A
Net asset/(liability) at December 31	$	(28.1	)	N/A			$	(20.1	)	N/A
Amounts Recognized in Accumulated Other Comprehensive Income, Regulatory Assets and Regulatory Liabilities (a)
Net transition obligation (asset)	$	—		N/A			$	0.2		N/A
Prior service cost (credit)	14.6			N/A			—			N/A
Net actuarial loss (gain)	66.8			N/A			(10.6		)	N/A
Accumulated other comprehensive income, regulatory assets and regulatory liabilities, pre-tax	$	81.4		N/A			$	(10.4	)	N/A

(a)The requirements of SFAS 158 are not applied retrospectively and do not apply to disclosures for 2005.

The accumulated benefit obligation for our defined benefit pension plans was $282.7 million and $287.6 million at December 31, 2006 and 2005, respectively.

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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	2006			2005			2004			2006			2005			2004
Service cost	$	4.2		$	3.9		$	3.5		$	—		$	—		$	—
Interest cost	16.6			15.7			16.0			1.5			1.8			1.9
Expected return on assets (a)	(21.7		)	(21.5		)	(21.7		)	(0.5		)	(0.5		)	(0.6		)
Amortization of unrecognized:
Actuarial (gain) loss	3.9			3.8			2.0			(1.3		)	(0.8		)	(1.1		)
Prior service cost	2.6			2.3			2.7			—			—			—
Transition obligation (asset)	—			—			—			0.2			0.2			0.2
Net benefit cost (income) before adjustments	5.6			4.2			2.5			(0.1		)	0.7			0.4
Settlement costs (b)	2.6			—			—			—			—			—
Special termination benefit cost (c)	0.3			0.2			—			—			—			—
Curtailment cost (d)	—			0.1			—			—			—			—
Net benefit cost (income) after adjustments	$	8.5		$	4.5		$	2.5		$	(0.1	)	$	0.7		$	0.4

(a)The market-related value of assets is equal to the fair value of assets at implementation with subsequent asset gains and losses recognized in the market-related value systematically over a three-year period.

(b)The settlement cost relates to a former officer (not related to our ongoing litigation with three former executives) who has elected to receive a lump sum distribution in 2007 from the Supplemental Executive Retirement Plan.

(c)In 2006 and 2005, special termination benefit costs were recognized as a result of 32 employees who participated in a voluntary early retirement program.  16 employees retired at various dates during 2005 and 16 additional employees retired at various dates during 2006; this program was completed as of April 1, 2006.

(d)In 2005, a curtailment cost was recognized as a result of a freeze in benefits for the remaining active employee participating in the Supplemental Executive Retirement Plan.

DP&L’s pension and postretirement plan assets were comprised of the following asset categories at December 31:

	Pension				Postretirement
Asset Category	2006		2005		2006		2005
Equity securities	59	%	51	%	0	%	0	%
Debt secruities	38	%	48	%	100	%	100	%
Real estate	0	%	0	%	0	%	0	%
Other	3	%	1	%	0	%	0	%
Total	100	%	100	%	100	%	100	%

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.  At December 31, 2006, there were no shares of DPL common stock held as plan assets.

Our expected return on plan asset assumptions, used to determine benefit obligations, are based on historical long-term rates of return on investment, 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 reasonability and appropriateness.

Our overall expected long-term rate of return on assets is approximately 8.50% for pension plan assets and approximately 6.75% for retiree welfare plan assets.  This expected return is based exclusively on historical returns, without adjustments.  There can be no assurance of our ability to generate that rate of return in the future.

Our overall discount rate was evaluated in relation to the December 31, 2006 Hewitt Yield Curve.  The Hewitt Yield Curve represents a portfolio of top-quartile AA-rated bonds used to settle pension obligations and supported a weighted average discount rate of 5.75% at December 31, 2006.  Peer data and historical returns were also reviewed to verify the reasonability and appropriateness of our discount rate used in the calculation of benefit obligations and expense.

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

	Pension				Postretirement
Benefit Obligation Assumptions	2006		2005		2006		2005
Discount rate for obligations	5.75	%	5.75	%	5.75	%	5.75	%
Rate of compensation increases	4.00	%	4.00	%	N/A		N/A

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

	Pension						Postretirement
Net Periodic Benefit Cost (Income) Assumptions	2006		2005		2004		2006		2005		2004
Discount rate	5.75	%	5.75	%	6.25	%	5.75	%	5.75	%	6.25	%
Expected rate of return on plan assets	8.50	%	8.50	%	8.50	%	6.75	%	6.75	%	6.75	%
Rate of compensation increases	4.00	%	4.00	%	4.00	%	N/A		N/A		N/A

The assumed health care cost trend rates at December 31 are as follows:

	Expense				Benefit Obligations
Health Care Cost Assumptions	2006		2005		2006		2005
Current health care cost trend rate	10.00	%	10.00	%	10.00	%	10.00	%
Ultimate health care cost trend rate	5.00	%	5.00	%	5.00	%	5.00	%
Ultimate health care cost trend rate - year	2011		2010		2012		2011

The assumed health care cost trend rates have a significant 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 ($ in millions)	Increase 1%		Decrease 1%
Service cost plus interest cost	$	0.1	$	(0.1)
Benefit obligation	$	1.5	$	(1.3)

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

Estimated Future Benefit Payments
$ in millions	Pension		Postretirement
2007	$	19.4	$	2.6
2008	$	19.8	$	2.6
2009	$	20.2	$	2.6
2010	$	20.7	$	2.5
2011	$	20.9	$	2.4
2012 - 2016	$	111.9	$	10.0

We expect to contribute $0.4 million to its pension plan and $2.6 million to its other postretirement benefit plan in 2007.

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6.  Common Shareholders’ Equity

DPL has 250,000,000 authorized common shares, of which 113,018,972 are outstanding at December 31, 2006.  DPL had 902,490 authorized but unissued shares reserved for its dividend reinvestment plan at December 31, 2005.  The plan provides that either original issue shares or shares purchased on the open market may be used to satisfy plan requirements.

On July 27, 2005, DPL’s Board authorized the repurchase of up to $400 million of common stock from time to time in the open market or through private transactions.  DPL completed this share repurchase program on August 21, 2006.  In total, 14.9 million shares were repurchased at a cost of $400.0 million.  These Board-authorized repurchase transactions resulted in an 11.7% reduction of the outstanding stock of December 31, 2005 at an average price of $26.91 per share.  These shares are currently held as treasury shares.  There were no other repurchases during 2006 and 2005.

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.

In February 2000, DPL entered into a series of recapitalization transactions including the issuance of $550 million of a combination of voting preferred and trust preferred securities and warrants to an affiliate of investment company Kohlberg Kravis Roberts & Co. (KKR).  As part of this recapitalization transaction, 31.6 million warrants were issued.  These warrants were sold 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 (i.e., stock split, stock dividend).  The exercise price of the warrants is $21.00 per common share, subject to anti-dilution adjustments.

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 reserved authorized common shares sufficient to provide for the exercise in full of all outstanding warrants.

During December 2004 and January 2005, Dayton Ventures, LLC requested that we transfer all of Dayton Ventures, LLC’s warrants to Lehman Brothers, Inc. (Lehman) in four transactions.  Lehman has subsequently transferred a large number of these warrants to unaffiliated third parties.  During one of these transactions in 2005, Dayton Ventures, LLC agreed to sell back to DPL at par all of the outstanding 6,600,000 voting preferred shares.  As a result of the reduction of Dayton Ventures, Inc.’s warrant ownership below 12,640,000, Dayton Ventures, LLC was no longer eligible to receive an annual $1 million management, consulting and financial services fee and it no longer had the right to designate one person to serve as a director of the DPL and DP&L and no longer had the right to designate one person to serve as a non-voting observer of DPL and DP&L.  Currently, Dayton Ventures, LLC does not have any ownership interest in DPL or DP&L.

DPL has a leveraged Employee Stock Ownership Plan (ESOP) to fund matching contributions to DP&L’s 401(k) retirement savings plan and certain other payments to full-time employees.  Common shareholders’ equity is reduced for the cost of 3.8 million unallocated shares held by the trust and for 2.7 million shares related to other employee plans, of which a total of 6.5 million shares reduce the number of common shares used in the calculation of earnings per share.

Dividends received by the ESOP for unallocated shares were used to repay the principal and interest on an ESOP loan to DPL.  As debt service payments were made on the loan, shares are released on a pro-rata basis.  Dividends on the allocated shares are charged to retained earnings.

ESOP cumulative shares allocated to employees and outstanding for the calculation of earnings per share were 3.4 million in 2006, 3.2 million in 2005, and 3.0 million in 2004.  Compensation expense associated with

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the ESOP, which is based on the fair value of the shares allocated, amounted to $3.7 million in 2006, $3.1 million in 2005, and $2.5 million in 2004.

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 sooner terminated 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 the Company’s common stock were reserved for issuance under the EPIP.

7.  Preferred Stock

DPL:	Series B, no par value, 8,000,000 shares authorized; no shares outstanding as of December 31, 2006
DP&L:	$25 par value, 4,000,000 shares authorized, no shares outstanding; and $100 par value, 4,000,000 shares authorized, 228,508 shares without mandatory redemption provisions outstanding.

					Current Shares	Par Value at		Par Value at
			Current		Outstanding at	December 31,		December 31,
			Redemption		December 31,	2006		2005
Preferred Stock Rate			Price		2006	($ in millions)		($ in millions)
DPL Series B (a)	0.00	%	$	0.01	—	$	—	$	—
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

(a)DPL purchased all of its outstanding Series B shares during 2005.

In February 2000, DPL entered into a series of recapitalization transactions including the issuance of $550 million of a combination of voting preferred and trust preferred securities and warrants to an affiliate of investment company KKR.  As part of DPL’s 2000 recapitalization transaction, trust preferred securities sold to KKR had an aggregate face amount of $550 million, and were issued at an initial discounted aggregate price of $500 million, with a maturity of 30 years (subject to acceleration six months after the exercise of the warrants), and distributions at a rate of 8.5% of the aggregate face amount per year.  DPL recognized the entire trust preferred securities original issue discount of $50 million upon issuance.

In August 2001, DPL issued $300 million of trust preferred securities to institutional investors at 8.125% and $400 million of senior unsecured notes at 6.875%.  The August 2001 trust preferred securities have a term of 30 years and the senior unsecured notes have a term of 10 years.  In the fourth quarter of 2003, DPL adopted FIN46R and deconsolidated the DPL Capital Trust II, which resulted in transferring the August 2001 trust preferred securities to the DPL Capital Trust II and establishing a note to Capital Trust II for $300 million at 8.125%.  In August 2005, DPL redeemed $105 million of these Capital Securities, leaving $195 million outstanding.

The voting preferred shares (DPL Series B) were not redeemable, except at the option of the holder.  DPL agreed to redeem such number so that at no time would the holder and its affiliates maintain an ownership interest of greater than 4.9% of the voting rights of DPL.  DPL’s Series B preferred shares may only be transferred or otherwise disposed of together with a corresponding number of warrants, unless the holder and its affiliates hold a greater number of warrants than DPL’s Series B preferred shares, in which case the holder may transfer any such excess warrants without transferring DPL’s Series B preferred shares.  If the holder of a warrant wishes to exercise warrants that are not excess warrants, DPL will redeem simultaneously with the exercise of such warrants an equal number of DPL’s Series B preferred shares held by such holder. DPL repurchased 6,600,000

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DPL Series B preferred shares on January 12, 2005 at par for an aggregate purchase price of $66,000.  There are currently no Series B preferred shares outstanding.

The DP&L preferred stock may be redeemed at DPL’s option at the per-share prices indicated, plus cumulative accrued dividends.

As long as any 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.  As of year-end, all earnings reinvested in the business of DP&L were available for Common Stock dividends.  DPL records dividends on preferred stock of DP&L as part of interest expense.  We expect all 2006 earnings reinvested in the business of DP&L to be available for DP&L common stock dividends, payable to DPL.

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8.  Long-term Debt

DPL Inc.		At December 31,
$ in millions		2006			2005
DP&L —	First mortgage bonds maturing 2013 - 5.125%	$	470.0		$	470.0
DP&L —	Pollution control series maturing 2036 - 4.80%	100.0			—
DP&L —	Pollution control series maturing through 2034 - 4.78% (a)	214.4			214.4
		784.4			684.4
DPL Inc. —	Note to Capital Trust II 8.125% due 2031	195.0			195.0
DPL Inc. —	Senior Notes 6.875% Series due 2011	297.4			297.4
DPL Inc. —	Senior Notes 6.25% Series due 2008	100.0			100.0
DPL Inc. —	Senior Notes 8.25% Series due 2007	—			225.0
DPL Inc. —	Senior Notes 8.00% Series due 2009	175.0			175.0
DP&L —	Obligations for capital leases	2.0			3.0
Unamortized debt discount (b)		(2.0		)	(2.7		)
Total		$	1,551.8		$	1,677.1

(a)Weighted average interest rate for 2006 and 2005.

(b)DP&L’s unamortized debt discount was $(1.2) million and $(1.5) million for December 31, 2006 and 2005, respectively.

DP&L	At December 31,
$ in millions	2006			2005
First mortgage bonds maturing 2013 - 5.125%	$	470.0		$	470.0
Pollution control series maturing 2036 - 4.80%	100.0			—
Pollution control series maturing through 2034 - 4.78% (a)	214.4			214.4
	784.4			684.4
Obligations for capital leases	2.0			3.0
Unamortized debt discount	(1.2		)	(1.5		)
Total	$	785.2		$	685.9

(a)   Weighted average interest rate for 2006 and 2005.

At December 31, 2006, DPL’s scheduled maturities of long-term debt, including capital lease obligations, over the next five years are $225.9 million in 2007, $100.7 million in 2008, $175.7 million in 2009, $0.6 million in 2010 and $297.4 million in 2011.

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At December 31, 2006, DP&L’s scheduled maturities of long-term debt, including capital lease obligations, over the next five years are $0.9 million in 2007, $0.7 million in 2008, $0.7 million in 2009, $0.6 million in 2010 and none in 2011. Substantially all property of DP&L is subject to the mortgage lien securing the first mortgage bonds. 

On March 25, 2004, DPL completed a $175 million private placement of unsecured 8% Series Senior Notes due March 2009.  The Senior Notes will not be redeemable prior to maturity except that DPL has the right to redeem the notes for a make-whole payment at the adjusted treasury rate plus 0.25%.  The 8% Series Senior Notes were issued pursuant to its indenture dated as of March 1, 2000, and pursuant to authority granted in Board resolutions dated March 25, 2004.  The notes impose a limitation on the incurrence of liens on the capital stock of any of DPL’s significant subsidiaries and require DPL and its subsidiaries to meet a consolidated coverage ratio of 2 to 1 prior to incurring additional indebtedness.  The limitation on the incurrence of additional indebtedness does not apply to (i) indebtedness incurred to refinance existing indebtedness, (ii) subordinated indebtedness and (iii) up to $150 million of additional indebtedness.  In addition to the events of default specified in the indenture, an event of default under the notes includes a payment default or acceleration of indebtedness under any other indebtedness of DPL or any of its subsidiaries which aggregates $25 million or more.  The purchasers were granted registration rights in connection with the private placement under an Exchange and Registration Rights Agreement.  Pursuant to this agreement, DPL was obligated to file an exchange offer registration statement by July 22, 2004, have the registration statement declared effective by September 20, 2004 and consummate the exchange offer by October 20, 2004.    DPL failed (1) to have a registration statement declared effective and (2) to complete the exchange offer according to this timeline.  As a result, DPL had been accruing additional interest at a rate of 0.5% per year for each of these two violations, up to an additional interest rate not to exceed in the aggregate 1.0% per year.  As each violation was cured, the additional interest rate decreased by 0.5% per annum.  DPL’s exchange offer registration statement for these securities was declared effective by the SEC on June 27, 2006.  As a result, on June 27, 2006, DPL ceased accruing 0.5% of the additional interest.  On July 31, 2006, DPL ceased accruing the other 0.5% of additional interest when the exchange of registered notes for the unregistered notes was completed.  By completing the exchange, DPL reduced the annual interest expense by $1.8 million.

During the first quarter of 2006, the Ohio Department of Development (ODOD) awarded DP&L the ability to issue over the next three years up to $200 million of qualified tax-exempt financing from the ODOD’s 2005 volume cap carryforward.  The financing is to be used to partially fund the ongoing flue gas desulfurization (FGD) capital projects.  The PUCO approved DP&L’s application for this additional financing on July 26, 2006.

On September 13, 2006, the Ohio Air Quality Development Authority (OAQDA) issued $100 million of 4.80% fixed interest rate OAQDA Revenue Bonds 2006 Series A due September 1, 2036.  In turn, DP&L borrowed these funds from the OAQDA.  The payment of principal and interest on the Bonds when due is insured by an insurance policy issued by Financial Guaranty Insurance Company.  DP&L is using the proceeds from these borrowings to assist in financing its portion of the costs of acquiring, constructing and installing certain solid waste disposal and air quality facilities at Miami Fort, Killen and Stuart Generating Stations.  These facilities are currently under construction and the proceeds from the borrowing have been placed in escrow with a trustee (the Bank of New York) and are being drawn upon only as facilities are built and qualified costs are incurred.  In the event any of the proceeds are not drawn, DP&L would eventually be required to return the unused proceeds to bondholders.  DP&L expects to draw down the remaining available funds from this borrowing by the end of the second quarter 2007.

DP&L expects to use the remaining $100 million of volume cap carryforward prior to the end of 2008.  DP&L is planning to issue in conjunction with the OAQDA another $100 million of tax-exempt bonds to finance the remaining solid waste disposal facilities at Miami Fort, Killen, Stuart and Conesville Generating Stations.

On November 21, 2006, DP&L entered into a new $220 million unsecured revolving credit agreement replacing its $100 million facility.  This new agreement has a five-year term that expires 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.  This covenant is currently met.  DP&L had no outstanding borrowings under this credit facility at December 31, 2006.  Fees associated with this credit facility are approximately $0.2 million per year.  Changes in credit ratings, however, may affect fees and the applicable interest rate.  This revolving credit agreement also contains a $50 million letter of credit sublimit.  As of December 31, 2006, DP&L had no outstanding letters of credit against the facility.

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On February 24, 2005, DP&L entered into an amendment to extend the term of its Master Letter of Credit Agreement with a financial lending institution for one year and to reduce the maximum dollar volume of letters of credit to $10 million.  On February 17, 2006, DP&L renewed its $10 million agreement for one year.  This agreement supports performance assurance needs in the ordinary course of business.  This agreement was not renewed in 2007.  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.  As of December 31, 2006, DP&L had two outstanding letters of credit for a total of $2.2 million.

There are no inter-company debt collateralizations or debt guarantees between DPL, DP&L and their subsidiaries.  None of the debt obligations of DPL or DP&L are guaranteed or secured by affiliates and no cross-collateralization exists between any subsidiaries.

9.  Stock-Based Compensation

We adopted SFAS 123R on January 1, 2006 using the modified prospective approach for stock options and restricted stock units (RSUs).  As a result of the adoption of SFAS 123R, we recognized $0.7 million less compensation expense for the year ended December 31, 2006, as compared to what we would have recognized under SFAS 123.

In 2000, DPL’s Board of Directors adopted and DPL’s shareholders approved The DPL Inc. Stock Option Plan.  The plan provides that “no single Participant shall receive Options with respect to more than 2,500,000 shares.”  Options granted in 2000, 2001 and 2002 were fully vested as of December 31, 2005 and expire ten years from the grant date.  In 2003, 100,000 options were granted which vest equitably over five years and expire ten years from the grant date.  In 2004, 200,000 options were granted that vested over nineteen months and expire approximately 6.5 years from the grant date; 100,000 of these options vested in May 2005 and the remaining 100,000 vested in May 2006.  Another 20,000 options were granted in 2004 that vested in five months and expire ten years from the grant date.  In December 2004, 30,000 options were granted that vest equitably over three years and expire ten years from the grant date.  In 2005, 350,000 options were granted that vested in June 2006 and expire three years from the grant date.  At December 31, 2006, there were 1,528,500 options available for grant.  On April 26, 2006, DPL’s shareholders approved The DPL Inc. 2006 Equity and Performance Incentive Plan (EPIP).  With the approval of 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.

The schedule of option activity for the twelve months ended December 31, 2006 was as follows:

			Weighted-Avg.
	Number of		Grant Date
$ in millions	Options		Fair Value
Non-vested at January 1, 2006	510,000		$	2.2
Granted in 2006	—		$	—
Vested in 2006	(460,000	)	$	(2.0	)
Forfeited in 2006	(40,000	)	$	(0.1	)
Non-vested at December 31, 2006	10,000		$	0.1

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Summarized stock option activity was as follows:

	For year ended			For year ended
	December 31,			December 31,
	2006			2005
Options:
Outstanding at beginning of year	5,486,500			6,165,500
Granted	—			350,000
Exercised	(355,000		)	(1,025,000		)
Forfeited	(40,000		)	(4,000		)
Outstanding at year-end (a)	5,091,500			5,486,500
Exercisable at year-end	5,081,500			4,100,000
Weighted average option prices per share:
Outstanding at beginning of year	$	21.86		$	21.39
Granted	$	—		$	26.82
Exercised	$	21.00		$	21.18
Forfeited	$	15.88		$	29.63
Outstanding at year-end	$	21.95		$	21.86
Exercisable at year-end	$	21.94		$	20.98

(a)In dispute with certain former executives, among other things, are approximately 1 million forfeited options not included above and 3.6 million outstanding options that are included above. See Note 15 of Notes to Consolidated Financial Statements.

No stock options were granted in 2006.  The weighted-average fair value of options granted was $3.80 per share in 2005.  The fair values of the options were estimated as of the dates of grant using a Black-Scholes option pricing model.

There were 355,000 stock options exercised during 2006.  The market value of options that were vested at December 31, 2006 was approximately $32 million.  Shares issued upon share option exercise are issued from treasury stock.  DPL has sufficient treasury stock to satisfy outstanding options.

The following table reflects information about stock options outstanding at December 31, 2006:

		Options Outstanding			Options Exercisable
		Weighted-	Weighted-			Weighted-
		Average	Average			Average
		Contractual	Exercise			Exercise
Range of Exercise Prices	Outstanding	Life	Price		Exercisable	Price
$14.95 - $21.00	4,305,000	3.5 years	$	20.42	4,305,000	$	20.42
$21.01 - $29.63	786,500	2.7 years	$	28.01	776,000	$	28.05

As of December 31, 2006, there was $0.1 million of total unrecognized compensation cost related to non-vested stock options granted under the Plan.  We expect to recognize $0.1 million of this cost in 2007.

In addition, RSUs were granted to certain key employees prior to 2001.   There were 1.3 million RSUs outstanding as of December 31, 2006, of which 1.3 million were vested.  Substantially all of the vested RSUs are in dispute as part of our ongoing litigation with Peter H. Forster, formerly DPL’s Chairman; Caroline E. Muhlenkamp, formerly DPL’s Group Vice President and Interim Chief Financial Officer; and Stephen F. Koziar, formerly DPL’s Chief Executive Officer and President.  The remaining 0.1 million non-vested RSUs will be paid in cash upon vesting and will vest as follows:  20,097 in 2007; 14,688 in 2008; 10,205 in 2009; and 5,008 in 2010.  Vested RSUs are marked to market each quarter and any adjustment to compensation expense is recognized at that time.  Non-vested RSUs are valued quarterly at fair value using the Black-Scholes model to determine the amount of compensation expense to be recognized.  Non-vested RSUs do not earn dividends.

The following management assumptions were used in the Black-Scholes model to calculate the fair value of the non-vested stock options and RSUs:

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Volatility	9.5 - 26.1	%
Expected life (years)	0.6  -  3.6
Dividend yield rate	3.7  -  4.7	%
Risk-free interest rate	4.3  -  4.9	%

At the 2006 Annual Shareholder’s Meeting, DPL’s shareholders approved The DPL Inc. 2006 Equity and Performance Incentive Plan.  Under the EPIP, the Board adopted a Long-Term Incentive Plan (LTIP) under which DPL will award a targeted number of performance shares of common stock to executives.  Awards 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 performance condition under FAS 123R.  The requisite performance period for each tranche of the Performance Shares is:

Tranche 1	January 1, 2004 to December 31, 2006
Tranche 2	January 1, 2005 to December 31, 2007
Tranche 3	January 1, 2006 to December 31, 2008

The schedule of non-vested performance share activity for the twelve months ended December 31, 2006 follows:

	Number of		Weighted-Avg.
	Performance		Grant Date
$ in millions	Shares		Fair Value
Non-vested at January 1, 2006	—		$	—
Granted in 2006	244,423		$	6.3
Vested in 2006	(44,045	)	$	(1.2	)
Forfeited in 2006	(89,655	)	$	(2.4	)
Non-vested at December 31, 2006	110,723		$	2.7

	December 31,
	2006
Performance Shares:
Outstanding at beginning of year	—
Granted	244,423
Exercised	—
Forfeited	(89,655	)
Outstanding at end of period	154,768
Exercisable at end of period	44,045

Performance shares do not have an exercise price.

As of December 31, 2006, there was $1.9 million of total unrecognized compensation cost related to non-vested performance shares granted under the LTIP.  We expect to recognize $1.5 million of this cost in 2007 and $0.4 million in 2008.  A forfeiture rate of 20% was estimated in calculating the compensation expense.

Shares issued upon achievement of the required performance condition will be issued from treasury stock.  DPL believes it has sufficient treasury stock to satisfy outstanding performance shares.

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The following management assumptions were used in the Monte Carlo simulation calculated by an actuarial consultant to estimate the fair value of the performance shares:

Volatility	17.9% - 20.3%
Expected life (years)	3.0
Dividend yield rate	3.7%
Risk-free interest rate	4.6% - 4.7%

On October 2, 2006, Paul M. Barbas (President and Chief Executive Officer) was granted 19,000 shares of DPL Inc. Restricted Stock (Restricted Shares), granted under the 2006 Equity and Performance Incentive Plan.  The Restricted Shares are to be registered in Mr. Barbas’ name, receive dividends as declared and paid on all DPL common stock and will vest in two tranches.  A total of 9,000 Restricted Shares shall become non-forfeitable on December 31, 2009 if Mr. Barbas remains in the continuous employ of the Company until such date.  The remaining 10,000 Restricted Shares will become non-forfeitable on December 31, 2011 if Mr. Barbas remains a Company employee.

	Number of	Weighted-Avg.
	Performance	Grant Date
$ in millions	Shares	Fair Value
Non-vested at January 1, 2006	—	$	—
Granted in 2006	19,000	$	0.5
Vested in 2006	—	$	—
Forfeited in 2006	—	$	—
Non-vested at December 31, 2006	19,000	$	0.5

	December 31,
	2006
Restricted Shares:
Outstanding at beginning of year	—
Granted	19,000
Exercised	—
Forfeited	—
Outstanding at end of period	19,000
Exercisable at end of period	—

Restricted shares do not have an exercise price.

As of December 31, 2006, there was $0.5 million of total unrecognized compensation cost related to non-vested restricted shares granted under the EPIP.  We expect to recognize $0.1 million of this cost annually over the next five years.

Restricted shares will be issued from treasury stock.  DPL believes it has sufficient treasury stock to satisfy outstanding restricted shares.

For the quarter ended December 31, 2006, total compensation expense was $1.7 million with an associated tax benefit of $0.7 million.  Compensation expense for the year ended December 31, 2006 was $5.8 million for all share-based compensation (stock options, RSUs, restricted shares and performance shares) and the tax benefit associated with these expenses was $2.1 million.

For the year ended December 31, 2006, operating income was $0.7 million higher under SFAS 123R than under SFAS 123, while the impact to net income was $0.5 million due to a decrease in the tax benefit of $0.2 million.  There was no impact on basic or diluted earnings per share.

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10.  Ownership of Facilities

We and other Ohio utilities have undivided ownership interests in seven 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, as well as 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, 2006, we had $359 million of construction in progress at such facilities.  Our share of the operating cost of such facilities is included in the Consolidated Statement of Results of Operations, and its share of the investment in the facilities is included in the Consolidated Balance Sheets.

Our undivided ownership interest in such facilities at December 31, 2006, is as follows:

			DP&L
	DP&L Share		Investment
		Production	Gross Plant
	Ownership	Capacity	In Service
	(%)	(MW)	($ in millions)
Production Units:
Beckjord Unit 6	50.0	210	$	62
Conesville Unit 4	16.5	129	34
East Bend Station	31.0	186	198
Killen Station	67.0	428	427
Miami Fort Units 7 & 8	36.0	360	195
Stuart Station	35.0	839	383
Zimmer Station	28.1	365	1,045
Transmission (at varying percentages)			89

11.  Discontinued Operations

	For the years ended
	December 31,
$ in millions	2006			2005			2004
Investment income	$	—		$	41.3		$	178.5
Investment expenses	(1.3		)	(9.5		)	(23.6		)
Income from discontinued operations	(1.3		)	31.8			154.9
Gain realized from sale	18.9			53.1			—
Broker fees and other expenses	—			(6.5		)	—
Loss recorded	—			(5.6		)	—
Net gain on sale	18.9			41.0			—
Earnings before income taxes	17.6			72.8			154.9
Income tax expense	(3.6		)	(19.9		)	(59.1		)
Earnings from discontinued operations, net	$	14.0		$	52.9		$	95.8

On February 13, 2005, DPL’s subsidiaries, 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.  Sales proceeds and any related gains or losses were recognized as the sale of each fund closed.  Among other closing conditions, each fund required the transaction to be approved by the respective general partner of each fund.  During 2005, MVE and MVIC completed the sale of their interests in forty-three and a portion of one of those private equity funds resulting in a $46.6 million pre-tax gain ($53.1 million less $6.5 million professional fees) from discontinued operations and provided approximately $796 million in net proceeds, including approximately $52 million in net distributions from funds

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while held for sale.  As part of this pre-tax gain, we realized $30 million that was previously recorded as an unrealized gain in other comprehensive income.

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 terms of the alternative arrangements do not meet the criteria for recording a sale.  DPL is obligated to remit to AlpInvest/Lexington 2005, LLC any distributions MVE receives from these funds, and AlpInvest/Lexington 2005, LLC is obligated to provide funds to DPL to pay any contribution notice, capital call or other payment notice or bill for which MVE receives notice with respect to such funds.  The alternative arrangements resulted in a 2005 deferred gain of $27.1 million until such terms of a sale can be completed (contingent upon receipt of general partner approvals of the transfer) and in 2005 provided approximately $72 million in net proceeds on these funds.  We recorded an impairment loss of $5.6 million in the second quarter of 2005 to write down assets transferred pursuant to the alternative arrangements to estimated fair value.  Ownership of these funds will transfer after the general partners of each of the separate funds consent to the transfer.

On March 31, 2006, MVE completed the sale of the remaining portion of one private equity fund, for which MVE had previously entered into an alternative closing arrangement resulting in the recognition of $13.2 million of the deferred gain.  On August 31, 2006, MVE completed the sale of a portion of one of the two remaining private equity funds, resulting in recognition of $5.7 million of the deferred gain.  The sale of the residual portion of this private equity fund was completed during the first quarter of 2007, resulting in the recognition of approximately $8.2 million of the deferred gain.  The transfer of the one remaining fund is expected to be completed in 2008.

DPL did not have any income from discontinued operations in 2006 due to the sale of the portfolio, but there were $1.3 million in legal fees directly relating to the ongoing litigation related to the asset portfolio.  DPL’s  income from discontinued operations (pre-tax) for the year ended December 31, 2005 of $31.8 million is comprised of $41.3 million of investment income less $9.5 million of associated management fees and other expenses.  Income from discontinued operations (pre-tax) for the year ended December 31, 2004 of $154.9 million is comprised of $178.5 million of investment income less $23.6 million of associated management fees and other expenses.

For the year ended December 31, 2006, DPL recognized $18.9 million of the gain deferred in 2005 from the sale of the portfolio.  For the year ended December 31, 2005, DPL recognized a $41.0 million pre-tax gain ($53.1 million less $6.5 million of professional fees and $5.6 million impairment loss), deferred gains of $27.1 million on transferred funds from discontinued operations, and provided approximately $868.4 million in net proceeds, including approximately $52 million in net distributions from funds held for sale.  DPL will continue to incur minor amounts of fees in the near term.

In 2006 and 2005, DPL has separately disclosed the earnings from discontinued operations, net of income taxes, which in prior periods were reported with elements of continued operations.  Also in 2006 and 2005, we have separately disclosed the investing portions of the cash flows attributable to its discontinued operations (there was no impact on the operating or investing portions of the cash flows), which in prior periods were reported on a combined basis as a single amount.

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12.  Financial Instruments

The fair value of financial instruments is based on current public market prices, discounted cash flows using current rates for similar issues with similar terms and remaining maturities or independent party valuations, which are believed to approximate market.  The basis on which the cost of a security sold or the amount reclassified out of accumulated other comprehensive income was determined by specific identification.  The table below presents the fair value, unrealized gains and losses, and cost of these instruments at December 31, 2006 and 2005.

	At December 31,
	2006												2005
			Gross Unrealized												Gross Unrealized
					Losses												Losses
					less			more									less			more
					than 12			than 12									than 12			than 12
$ in millions	Fair Value		Gains		months			months			Cost		Fair Value		Gains		months			months			Cost
DPL Inc.
Assets
Public Securities
Available-for-sale Securities	$	39.9	$	5.5	$	(0.7	)	$	(3.1	)	$	38.2	$	24.8	$	3.5	$	(0.2	)	$	(2.9	)	$	24.4
Hold-to-maturity Debt securities (a)	—		—		—			—			—		7.9		—		(0.2		)	—			8.1
Derivatives	3.2		3.2		—			—			—		—		—		—			—			—
Total assets	$	43.1	$	8.7	$	(0.7	)	$	(3.1	)	$	38.2	$	32.7	$	3.5	$	(0.4	)	$	(2.9	)	$	32.5
Liabilities
Long-term debt (b)	$	1,798.5									$	1,777.7	$	1,717.5									$	1,678.0
Capitalization
Unallocated shares in ESOP	$	101.1									$	44.1	$	100.1									$	49.3
DP&L
Assets
Public Securities
Available-for-sale Securities	$	109.5	$	41.1	$	(0.7	)	(3.1		)	$	72.2	$	100.4	$	36.7	$	(0.2	)	$	(2.9	)	$	66.8
Hold-to-maturity Debt securities (a)													7.9		—		(0.2		)	—			8.1
Derivatives	3.2		3.2		—			—			—		—		—		—			—			—
Total assets	$	112.7	$	44.3	$	(0.7	)	$	(3.1	)	$	72.2	$	108.3	$	36.7	$	(0.4	)	$	(2.9	)	$	74.9
Liabilities
Long-term debt (b)	$	785.8									$	786.1	$	685.2									$	686.8

(a)  Maturities range from 2006 to 2035.

(b)  Includes current maturities.

In the normal course of business, we enter into various financial instruments, including derivative financial instruments.  These instruments consist of forward contracts that are used to reduce our exposure to changes in energy and commodity prices.  These financial instruments are designated at inception as highly effective cash-flow hedges and are measured for effectiveness both at inception and on an ongoing basis, with gains or losses deferred in Accumulated Other Comprehensive Income until the underlying hedged transaction is realized, canceled or otherwise terminated.  The forward contracts generally mature within twelve months.

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13.  Earnings per Share

Basic earnings per share (EPS) are based on the weighted-average number of DPL common shares outstanding during the year.  Diluted earnings per share are 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 this weighted-average computation are shares held by DP&L’s Master Trust Plan for deferred compensation and by the ESOP.

For the years 2006, 2005, and 2004, respectively, approximately 0.4 million, 0.5 million, and 28.0 million warrants and stock options were excluded from the computation of diluted earnings per share because they were anti-dilutive.  These warrants and stock options could be dilutive in the future.

The following illustrates the reconciliation of the numerators and denominators of the basic and diluted earnings per share computations for income after discontinued operations and cumulative effect of accounting change:

	2006					2005					2004
$  in millions except per	(a)			Per		(a)			Per		(a)			Per
share amounts	Income		Shares	Share		Income		Shares	Share		Income		Shares	Share
Basic EPS	$	139.6	112.3	$	1.24	$	174.4	121.0	$	1.44	$	217.3	120.1	$	1.81
Effect of Dilutive Securities:
Stock Incentive Units			1.3					1.2					1.2
Warrants			7.1					6.1					0.6
Stock options, performance and restricted shares			1.2					0.8					0.2
Diluted EPS	$	139.6	121.9	$	1.15	$	174.4	129.1	$	1.35	$	217.3	122.1	$	1.78

(a)  Income after discontinued operations and cumulative effect of accounting change.

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14.  Assets Held for Sale

In connection with DPLE’s (significant subsidiary of DPL) decision to sell the Greenville Station and Darby Station electric peaking generation facilities, DPL concluded that an impairment charge for the Greenville Station and Darby Station assets was required.  Greenville Station consists of four natural gas peaking units with a net book value of approximately $66 million.  Darby Station consists of six natural gas peaking units with a net book value of approximately $156 million.  DPLE plans to sell the Greenville Station and Darby Station assets for $49 million and $102 million, respectively, in two separate transactions.  These sales are expected to take place during the first half of 2007.

During the fourth quarter of 2006, DPL recorded a $71.0 million impairment charge to record the fair market write-down of the assets and other associated costs related to the sale.

These assets are no longer being depreciated.  The assets and liabilities held for sale in the Consolidated Balance Sheet are as follows:

($ in millions)
Current Assets:
Inventories	$	0.2
Property:
Property, plant and equipment	$	283.5
Less: Accumulated depreciation and amortization	(132.3		)
Net Property, plant and equipment	$	151.2
Current Liabilities:
Accounts payable and accrued expenses	$	0.2

15.  Contractual Obligations, Commercial Commitments and Contingencies

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, 2006, these include:

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Contractual Obligations

			Payment Year
			Less Than		2 - 3		4 - 5		More Than
$ in millions	Total		1 Year		Years		Years		5 Years
DPL
Long-term debt	$	1,774.8	$	225.0	$	275.0	$	297.4	$	977.4
Interest payments	1,101.8		98.8		171.2		144.0		687.8
Pension and postretirement payments	235.6		22.0		45.2		46.5		121.9
Capital leases	2.9		0.9		1.4		0.6		—
Operating leases	0.7		0.3		0.3		0.1		—
Coal contracts (a)	554.6		324.4		118.4		111.8		—
Limestone contracts	58.7		1.7		9.5		10.8		36.7
Other contractual obligations	391.7		328.5		53.7		9.5		—
Total contractual obligations	$	4,120.8	$	1,001.6	$	674.7	$	620.7	$	1,823.8
DP&L
Long-term debt	$	783.2	$	—	$	—	$	—	$	783.2
Interest payments	571.9		39.1		78.3		78.3		376.2
Pension and postretirement payments	235.6		22.0		45.2		46.5		121.9
Capital leases	2.9		0.9		1.4		0.6		—
Operating leases	0.7		0.3		0.3		0.1		—
Coal contracts (a)	554.6		324.4		118.4		111.8		—
Limestone contracts	58.7		1.7		9.5		10.8		36.7
Other contractual obligations	391.5		328.4		53.6		9.5		—
Total contractual obligations	$	2,599.1	$	716.8	$	306.7	$	257.6	$	1,318.0

(a)DP&L-operated units

Long-term debt:
DPL’s long-term debt as of December 31, 2006, consists of DP&L’s first mortgage bonds, tax-exempt pollution control bonds, DPL unsecured notes and includes current maturities and unamortized debt discounts.   During 2006, DP&L entered into $100 million of long-term tax-exempt debt.

DP&L’s long-term debt as of December 31, 2006, consists of first mortgage bonds, tax-exempt pollution control bonds and includes an unamortized debt discount.

See Note 8 of Notes to Consolidated Financial Statements.

Interest payments:
Interest payments associated with the Long-term debt described above.

Pension and postretirement payments:
As of December 31, 2006, DP&L had estimated future benefit payments as outlined in Note 5 of Notes to Consolidated Financial Statements.  These estimated future benefit payments are projected through 2015.

Capital leases:
As of December 31, 2006, DP&L had two capital leases that expire in November 2007 and September 2010.

Operating leases:
As of December 31, 2006, DPL and DP&L had several operating leases with various terms and expiration dates.  Not included in this total is approximately $88,000 per year related to right of way agreements that are assumed to have no definite expiration dates.

Coal contracts:
DP&L has entered into various long-term coal contracts to supply portions of its coal requirements for its generating plants.  Contract prices are subject to periodic adjustments and have features that limit price escalation in any given year.

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Limestone contracts:
DP&L has entered into various limestone contracts to supply limestone for its generating facilities.

Other contractual obligations:
As of December 31, 2006, DPL and DP&L had various other contractual obligations including non-cancelable contracts to purchase goods and services with various terms and expiration dates.

We enter into various commercial commitments, which may affect the liquidity of our operations.  At December 31, 2006, these include:

Credit facilities:
In November 2006, DP&L replaced its previous $100 million revolving credit agreement with a $220 million five year facility that expires on November 21, 2011.  At December 31, 2006, there were no borrowings outstanding under this credit agreement.  DP&L has the ability to increase the size of the facility by an additional $50 million at any time.

Guarantees:
DP&L owns a 4.9% equity ownership interest in an electric generation company.  As of December 31, 2006, DP&L could be responsible for the repayment of 4.9%, or $21.8 million, of a $445 million debt obligation that matures in 2026.

In two separate transactions in November and December 2006, DPL agreed to be a guarantor of the obligations of its wholly-owned subsidiary, DPL Energy, LLC (DPLE) regarding the pending sale 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 has agreed to guarantee the obligations of DPLE over a multiple year period as follows:

	2007		2008		2009		2010
Darby	$	30.6	$	23.0	$	15.3	$	7.7
Greenville	$	14.8	$	11.1	$	7.4	$	3.7

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.  (See Note 1 of Notes to Consolidated Financial Statements.)  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 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, 2006, cannot be reasonably determined.

Environmental Matters

DPL, DP&L and our subsidiaries’ facilities and operations are subject to a wide range of environmental regulations and law.  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 have been identified, either by a government agency or by a private party seeking contribution to site clean-up costs, as a potentially responsible party (PRP) at two sites pursuant to state and federal laws.  We record liabilities for

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probable estimated loss in accordance with Statement of Financial Accounting Standards No. 5 (SFAS 5), “Accounting for Contingencies.”  To the extent a probable loss can only be estimated by reference to a range of equally probable outcomes, and no amount within the range appears to be a better estimate than any other amount, we accrue for the low end of the range.  Because of uncertainties related to these matters accruals are based on the best information available at the time.  We evaluate the potential liability related to probable losses quarterly and may revise its estimates.  Such revisions in the estimates of the potential liabilities could have a material effect on our results of operations and financial position.

Legal Matters

Former Executive Litigation

On August 24, 2004, DPL, and its subsidiaries DP&L and MVE, filed a Complaint (and subsequently, amended complaints) against Mr. Forster, Ms. Muhlenkamp and Mr. Koziar (the Defendants) in the Court of Common Pleas of Montgomery County, Ohio asserting legal claims against them 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 the Defendants, and the propriety of the distributions from the plans to the Defendants, and alleging that the Defendants breached their fiduciary duties and breached their consulting and employment contracts.  DPL, DP&L and MVE seek, among other things, damages in excess of $25,000, disgorgement of all amounts improperly withdrawn by the Defendants from the plans and a court order declaring that DPL, DP&L and MVE have no further obligations under the consulting and employment contracts due to those breaches.

The Defendants have filed their answers (and subsequently, amended answers)denying liability and filed counterclaims (and subsequently, amended counterclaims) against DPL, DP&L, MVE, various compensation plans (the Plans), and current and former employees and current and former members of our Board of Directors.  These counterclaims, as amended, allege generally that DPL, DP&L, MVE, the Plans and the individual defendants breached the terms of the employment and consulting contracts of the Defendants, and the terms of the Plans.  They further allege theories of breach of fiduciary duty, breach of contract, promissory estoppel, tortious interference, conversion, replevin and violations of ERISA under which they seek distribution of deferred compensation balances, conversion of stock incentive units, exercise of options and payment of amounts allegedly owed under the contracts and the Plans.  Defendants’ counterclaims also demand payment of attorneys’ fees.

On March 15, 2005, Mr. Forster and Ms. Muhlenkamp filed a lawsuit in New York state court against the purchasers of the private equity investments in the financial asset portfolio and against outside counsel to DPL and DP&L concerning purported entitlements in connection with the purchase of those investments.  DPL, DP&L and MVE are not defendants in that case; however, the three of us are parties to an indemnification agreement with respect to the purchaser defendants.  On August 18, 2005, the Ohio court issued a preliminary injunction against Mr. Forster and Ms. Muhlenkamp that precludes them from pursuing certain key issues raised by Mr. Forster and Ms. Muhlenkamp in their New York lawsuit that are identical to the issues raised in the pending Ohio lawsuit in the New York court or any other forum other than the Ohio litigation.  In addition, the New York court has stayed the New York litigation pending the outcome of the Ohio litigation.  Mr. Forster and Ms. Muhlenkamp have appealed the preliminary injunction and the appeal is pending at the Ohio Supreme Court.

The trial commencement date for this case is set for April 30, 2007.

Cumulatively through December 31, 2006, we have accrued for accounting purposes, obligations of approximately $56 million to reflect claims regarding deferred compensation, estimated MVE incentives and/or legal fees that Defendants assert are payable per contracts.  We dispute Defendants’ entitlement to any of those sums and, as noted above, are pursuing litigation against them contesting all such claims.

On or about June 24, 2004, the SEC commenced a formal investigation into the issues raised by the Memorandum (see Note 17 of the Notes to the Consolidated Financial Statements).  Although the SEC has not taken any significant action in furtherance of their investigation during 2006, we stand ready to cooperate with their investigation.

On May 28, 2004, the U.S. Attorney’s Office for the Southern District of Ohio, assisted by the Federal Bureau of Investigation, notified us that it has initiated an inquiry involving the subject matters covered by our internal

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investigation. Although the U.S. Attorney’s office and the FBI have not taken any significant action in furtherance of their investigation during 2006, we stand ready to cooperate with their investigation.

On June 24, 2004, the Internal Revenue Service (IRS) began an audit of tax years 1998 through 2003 and issued a series of data requests to us including issues raised in the Memorandum.  The staff of the IRS requested that we provide certain documents, including but not limited to, matters concerning executive/director deferred compensation plans, management stock incentive plans and MVE financial statements.  On September 1, 2005, the IRS issued an audit report for tax years 1998 through 2003 that showed proposed changes to our federal income tax liability for each of those years.  The proposed changes resulted in a total tax deficiency, penalties and interest of approximately $23.9 million as of December 31, 2005.  On November 4, 2005, we filed a written protest to one of the proposed changes.  On April 3, 2006, the IRS conceded the proposed changes that we filed a written protest to and issued a revised audit report for tax years 1998 through 2003.  The revised audit report resulted in a total tax deficiency, penalties and interest of approximately $1.2 million.  We had previously made a deposit with the IRS of approximately $1.3 million that we requested on April 14, 2006 be applied to offset the $1.2 million tax deficiency, penalties and interest for tax years 1998 through 2003.  The Joint Committee on Taxation completed its review of the revised audit report for tax years 1998 through 2003 and sent us a letter dated June 16, 2006 stating that it took no exception to the revised audit report.

Insurance Recovery Claim

On January 13, 2006, we filed a claim against one of our insurers, Associated Electric & Gas Insurance Services (AEGIS), under a fiduciary liability policy to recoup legal fees associated with our litigation against three former executives.   An arbitration of this matter was held on August 4, 2006.  The arbitration panel ruled on or about September 12, 2006 that the AEGIS policy does not require an advance of defense expenses to us.  Rather, the arbitration panel stated that we are required to file a written undertaking as a condition precedent to repay expenses finally established not to be insured.  We have filed a written undertaking with AEGIS and will continue to pursue resolution of the claim through mediation and arbitration in 2007.

State Income Tax Audit

On February 13, 2006, we received correspondence from the Ohio Department of Taxation (ODT) notifying us that ODT has 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 result in a balance due of $90.8 million before interest and penalties.  We have reviewed the proposed audit adjustments and are vigorously contesting the ODT findings and notice of assessment through all administrative and judicial means available. On March 29, 2006, we filed petitions for reassessment with the ODT to protest each assessment as well as request corrected assessments for each tax year.  On October 12, 2006, we signed a Memorandum of Understanding with the ODT that stated if the ODT’s positions are ultimately sustained in judicial proceedings, the total additional tax liability that we would be subject to for tax years 2002 through 2004 would be no more than $50.7 million before interest as opposed to the $90.8 million stated in the ODT’s correspondence of February 13, 2006.  We believe we have recorded adequate tax reserves related to the proposed adjustments; however, we cannot predict the outcome, which could be material to our results of operations and cash flows.

We are also under audit review by various state agencies for tax years 2002 through 2004.  We have also filed an appeal to the Ohio Board of Tax Appeals for tax years 1998 through 2001.  Depending upon the outcome of these audits and the appeal, we may be required to increase our tax provision if actual amounts ultimately determined exceed recorded reserves.  We believe we have adequate reserves in each tax jurisdiction but cannot predict the outcome of these audits.

Labor Relations Unasserted Claim

In September 2006, DP&L became aware of an unasserted claim under the Fair Labor Standards Act concerning the calculation of overtime rates for its unionized workforce.  By agreement of Local #175 and DP&L, we jointly submitted the claim to a neutral third party who ruled in favor of DP&L’s position.  As a result of this decision, Local #175 has decided not to pursue any claim against DP&L.

Environmental

Pending before the U.S. Supreme Court is a proceeding, Environmental Defense v. Duke Energy that does not involve DP&L as a party but may have a significant effect on the outcome of litigation described below that involves allegations of violations of the CAA.  A key issue in that litigation that may be dispositive with respect to other pending cases is what test to apply for measuring whether modifications to electric generating units should trigger application of New Source Review (NSR) standards under the CAA.   In general terms, the dispute is whether to measure pre- and post-modification emissions based on the rate of

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emissions per hour of operation or based on total emissions over time.  The latter test, if applied, could trigger NSR requirements for equipment replacements that result in a plant running more often because it is more economical or dependable, even if the emissions rate per hour of operation does not change.  A ruling is expected in the first or second quarter of 2007.  DP&L cannot predict the outcome of the Duke Energy case.  Moreover, in each of the cases identified below, there may be case-specific facts and allegations that may cause a judge to find that the U.S. Supreme Court’s ruling is based on different facts and allegations and is therefore not controlling in the case before the judge.

In September 2004, the Sierra Club filed a lawsuit against DP&L and the other owners of the Stuart Generating Station in the United States District Court for the Southern District of Ohio for alleged violations of the CAA, including issues that may be decided by the Supreme Court in the Duke Energy case and other issues relating to alleged violations of opacity limitations.  DP&L, on behalf of all co-owners, is leading the defense of this matter.  A sizable amount of discovery has taken place and expert reports are scheduled to be filed at various times from May through September, 2007.  Dispositive motions are to be filed in January 2008.  No trial date has been set yet.

16.  Certain Relationships and Related Transactions

On March 13, 2000, Dayton Ventures, Inc. and Dayton Ventures, LLC, affiliates of Kohlberg Kravis Roberts & Co. LLC (KKR), purchased a combination of trust preferred securities issued by a trust established by DPL, DPL voting preferred shares and warrants to purchase DPL’s common shares for an aggregate of $550 million. The trust preferred securities were redeemed at par in 2001 with proceeds of a new issuance of trust preferred securities and DPL’s Senior Notes.  The 6.6 million Series B voting preferred shares had voting power not exceeding 4.9% of the total outstanding voting power of our voting securities and were purchased by Dayton Ventures, LLC for an aggregate purchase price of $68 thousand. The warrants to purchase approximately 31.6 million common shares (representing approximately 19.9% of the common shares then outstanding) have a term of 12 years, an exercise price of $21 per share, and were purchased by Dayton Ventures, LLC for an aggregate purchase price of $50 million. In connection with the March 13, 2000 transaction, DPL and KKR also entered into an agreement under which we paid KKR an annual management, consulting and financial services fee of $1.0 million.  The agreement also stated that we would provide KKR with an opportunity to provide investment banking services on such terms as the parties may agree and at such time as any such services may be required.  We also agreed to reimburse KKR and their affiliates for all reasonable expenses incurred in connection with the services provided under this agreement, including travel expenses and expenses of its counsel.  We and KKR terminated this agreement on January 12, 2005.  During December 2004 through January 2005, KKR initiated a series of agreements to transfer all of the warrants to an unaffiliated third party.  This transferee subsequently transferred a large portion of the warrants to multiple unrelated third parties.  In January 2005, as part of one of these transfers, KKR sold back to us all of the outstanding Series B voting preferred shares at par of $0.01 per share for $66 thousand.

Under the Securityholders and Registration Rights Agreement among DPL Inc., DPL Capital Trust I, Dayton Ventures, LLC and Dayton Ventures, Inc., KKR had the right to designate one person for election to, and one person to attend as a non-voting observer at all meetings of, the DPL and DP&L Boards of Directors for as long as Dayton Ventures, LLC and its affiliates continue to beneficially own at least 12.64 million of our common shares, including shares issuable upon exercise of warrants.  Scott M. Stuart, a director during fiscal 2003, and George R. Roberts, a non-voting observer, were the KKR designees in 2003 pursuant to this agreement.  Mr. Stuart resigned from the Board and Mr. Roberts ceased to be a non-voting observer of the Board as of April 2004.  As a result of the transfer of warrants from KKR to an unaffiliated third party during December 2004 through January 2005, KKR no longer owned any warrants or common stock.  Accordingly, KKR no longer had the right to appoint one member and one observer to both DPL and DP&L Boards of Directors and the Securityholders and Registration Rights Agreement was amended to delete these, and other rights.

In 1996, DPL entered into a consulting contract pursuant to which Peter H. Forster agreed to (i) serve, in a non-employee capacity, as Chairman of the Board of Directors of DPL, DP&L and MVE, and as Chairman of the Executive Committee of our Board of Directors and (ii) provide advisory and strategic planning consulting services.  That contract became the subject of litigation after Mr. Forster resigned on May 16, 2004.  (See Note 15 of Notes to Consolidated Financial Statements.)

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In June 2001, DPL’s subsidiaries, MVE, of which Mr. Forster was Chairman, Miami Valley Development Company (MVDC) and Miami Valley Insurance Company (MVIC), each entered into a management services agreement (the MSAs) with Valley Partners, Inc. (Valley) for the provision of ongoing oversight and management of each subsidiary’s financial asset holdings following a change of control of DPL or sale of the financial assets portfolio to an unaffiliated third party.  Valley was a Florida corporation the sole stockholders, directors and officers of which were Mr. Forster and Ms. Muhlenkamp.

In October 2001, we entered into an Administrative Services Agreement (the ASA) with Valley and the individual trustees of certain master trusts which hold the assets of various executive and director compensation plans.  The ASA engaged Valley to provide administrative and recordkeeping functions on behalf of the master trusts upon a change of control of DPL, as well as the provision of investment advice, in exchange for an administration fee in addition to the annual management fee payable to Valley.

In October 2001, DPL and DP&L also entered into a Trustee Fee Agreement (the TFA) with Richard Chernesky, Richard Broock and Frederick Caspar, attorneys at Chernesky, Heyman & Kress P.L.L.  Upon a change of control of DPL or DP&L, Messrs. Chernesky, Broock and Caspar would become the sole trustees of the master trusts for an annual fee of $500,000 and would succeed to all of the duties of our Compensation Committee under the compensation plans funded through the master trusts.

The MSAs, ASA and TFA (Valley Partners Agreements) were terminated by an agreement executed in January 2004, but effective as of December 15, 2003.  The financial assets were not sold or transferred prior to such termination and therefore the agreements never became effective and no compensation was ever paid under them.  Copies of the Valley Partners Agreements were filed as exhibits to our 2003 Form 10-K.

On April 26, 2004, DPL entered into a New Trustee Fee Agreement (New TFA) with Messrs. Chernesky, Broock and Caspar that would have become effective upon a change of control of DPL or DP&L.  If the New TFA became effective, it provided that Messrs. Chernesky, Broock and Caspar would serve as the sole trustees of the master trusts in exchange for an annual fee of $250,000 during the New TFA’s term.  A copy of the New TFA was filed as an exhibit to our 2003 Form 10-K.  On October 14, 2004, at the request of DPL and DP&L, Messrs. Chernesky, Broock and Caspar submitted their resignations to us and DP&L.

On February 2 and 3, 2004, Mr. Koziar sent letters to Mr. Forster and Ms. Muhlenkamp purporting to amend their consulting and employment agreements to provide change of control protections regarding their MVE payments.  In addition, on February 2, 2004, Mr. Koziar sent Mr. Forster a letter purporting to amend his consulting agreement to provide additional terms and to increase his compensation.  However, none of those purported amendments had been approved by our Compensation Committee.  Mr. Forster and Ms. Muhlenkamp resigned and Mr. Koziar retired on May 16, 2004.

We have initiated legal proceedings asserting breach of fiduciary duty and breach of contract by Messrs. Forster and Koziar and Ms. Muhlenkamp, and challenging the propriety and/or validity of certain contract terminations, purported amendments and agreements.  (See Note 15 of Notes to Consolidated Financial Statements.)

17.  Other Matters

Audit Committee Investigation and Related Matters

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 Audit Committee).  The Memorandum expressed the Corporate Controller’s “concerns, perspectives and viewpoints” regarding financial reporting and governance issues within the Company.

On March 15, 2004, our Audit Committee retained the law firm of Taft, Stettinius & Hollister LLP (TS&H) to represent the Audit Committee in an independent review of each of the matters raised by the Memorandum.  TS&H subsequently retained an accounting firm as a forensic accountant to assist in this review.  On April 27, 2004, TS&H submitted a written report of its findings to the members of the Audit Committee (the Report).  A copy of the Report was filed as an exhibit to our 2003 Form 10-K.  While TS&H stated that it did not uncover and no person had indicated to it any uncorrected material inaccuracies in our books and records, it did, however, recommend further follow-up by the Audit Committee and improvements relating to disclosures, communication, access to information, internal controls and the culture of the Company in certain areas.  Based upon information received after issuing the Report, TS&H revised its analysis and prepared a supplement to the

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Report, dated May 25, 2004 (the Supplement).  A copy of the Supplement was filed as an exhibit to our 2003 Form 10-K.

Our Audit Committee considered the Report and Supplement at a meeting held on May 16, 2004.  After its review and consideration, the Audit Committee recommended that the full Board of Directors accept the Report and the Supplement.  At a meeting held on May 16, 2004, our Board of Directors accepted the Report and Supplement, including the findings and recommendations set forth therein.  Mr. Forster and Ms. Muhlenkamp resigned and Mr. Koziar retired on May 16, 2004, and subsequently DPL and DP&L have been involved in litigation with them  (see Note 15 of Notes to Consolidated Financial Statements).  In addition, in 2004 corrective action was taken with regard to internal controls, process issues and tone at the top as identified in the Report.

Governmental and Regulatory Inquiries

On May 20, 2004, the staff of the SEC notified DPL that it was conducting an inquiry covering our exempt status under the Public Utility Holding Company Act of 1935 (the ‘35 Act).  The staff of the SEC requested DPL provide certain documents and information on a voluntary basis.  On October 8, 2004, DPL received a notice from the SEC that a question existed as to whether such exemption from the Public Utility Holding Company Act was detrimental to the public interest or the interests of investors or consumers.  On November 5, 2004, DPL filed a good faith application seeking an order of exemption from the SEC.  In light of the repeal of the ‘35 Act, effective February 8, 2006, and based upon the information previously provided to the staff of the SEC, this inquiry is moot.

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.  We are cooperating with this investigation.

On or about June 24, 2004, the SEC commenced a formal investigation into the issues raised by the Memorandum.  DPL and DP&L are cooperating with the investigation.

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Report of Independent Registered Public Accounting Firm

The Board of Directors
DPL Inc.:

We have audited the accompanying consolidated balance sheets of DPL Inc. and subsidiaries (the Company) as of December 31, 2006 and 2005, and the related consolidated statement of results of operations, shareholders’ equity, and cash flows for each of the years in the three-year period ended December 31, 2006. In connection with our audits of the consolidated financial statements, we have audited the consolidated financial statement schedule, “Schedule II - Valuation and Qualifying Accounts” for each of the years in the three-year period ended December 31, 2006. These consolidated financial statements and the financial statement schedule are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements 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 audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

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, 2006 and 2005, and the consolidated results of their operations and their cash flows for each of the years in the three-year period ended December 31, 2006, in conformity with United States generally accepted accounting principles. Also, in our opinion, the related financial statement schedules when considered in relation to the basic consolidated financial statements taken as a whole, present fairly in all materials respects, the information set forth therein.

As discussed in Note 1 to the consolidated financial statements, effective January 1, 2006, the Company adopted FASB Statement of Financial Accounting Standard No. 123 (Revised), Share-Based Payment.  Also discussed in Note 1 to the consolidated financial statements effective December 31, 2006 the Company adopted FASB Statement of Financial Accounting Standard No. 158, Employers’ Accounting for Defined Benefit Pension and Other Postretirement Plans, an amendment of FASB Statements No. 87, 88, 106 and 132(R).

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the effectiveness of the Company’s internal controls over financial reporting as of December 31, 2006, based on criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO), and our report dated February 22, 2007 expressed an unqualified opinion on management’s assessment of, and the effective operation of, internal control over financial reporting.

/s/ KPMG LLP

KPMG LLP

Kansas City, Missouri

February 22, 2007

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Report of Independent Registered Public Accounting Firm on Internal Controls

The Board of Directors
DPL Inc.:

We have audited management’s assessment, included in the Management’s Report on Internal Control Over Financial Reporting appearing under Item 9A, that DPL Inc. and subsidiaries (the Company) maintained effective internal control over financial reporting as of December 31, 2006, 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 maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting. Our responsibility is to express an opinion on management’s assessment and an opinion on the effectiveness of the Company’s internal control over financial reporting based on our audit.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, evaluating management’s assessment, testing and evaluating the design and operating effectiveness of internal control, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

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, management’s assessment that the Company maintained effective internal control over financial reporting as of December 31, 2006, is fairly stated, in all material respects, based on criteria established in Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).  Also, in our opinion, the Company maintained, in all material respects, effective internal controls over financial reporting as of December 31, 2006, based on criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheets of the Company as of December 31, 2006 and 2005, 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, 2006, and our report dated February 22, 2007, expressed an unqualified opinion on those consolidated financial statements.

/s/ KPMG LLP

KPMG LLP

Kansas City, Missouri

February 22, 2007

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Report of Independent Registered Public Accounting Firm

The Board of Directors and Shareholder of
The Dayton Power and Light Company:

We have audited the accompanying consolidated balance sheets of The Dayton Power and Light Company (DP&L) and subsidiaries as of December 31, 2006 and 2005, 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, 2006. In connection with our audits of the consolidated financial statements, we have audited the consolidated financial statement schedule, “Schedule II — Valuation and Qualifying Accounts” for each of the years in the three-year period ended December 31, 2006. These consolidated financial statements and the financial statement schedules are the responsibility of DP&L’s management.  Our responsibility is to express an opinion on these consolidated financial statements 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 audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of DP&L as of December 31, 2006 and 2005, and the consolidated results of their operations and their cash flows for each of the years in the three-year period ended December 31, 2006, in conformity with United States generally accepted accounting principles. Also, in our opinion, the related financial statement schedules when considered in relation to the basic consolidated financial statements taken as a whole, present fairly in all material respects, the information set forth therein.

As discussed in Note 1 to the consolidated financial statements, effective January 1, 2006 the Company adopted FASB Statement of Financial Accounting Standard No. 123 (Revised), Share-Based Payment.  Also discussed in Note 1 to the consolidated financial statements effective December 31, 2006 the Company adopted FASB Statement of Financial Accounting Standard No. 158, Employers’ Accounting for Defined Benefit Pension and Other Postretirement Plans, an amendment of FASB Statements No. 87, 88, 106 and 132(R).

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the effectiveness of the Company’s internal controls over financial reporting as of December 31, 2006, based on criteria established in Internal Control – Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO), and our report dated February 22, 2007 expressed an unqualified opinion on management’s assessment of, and the effective operation of, internal control over financial reporting.

/s/ KPMG

KPMG

Kansas City, Missouri

February 22, 2007

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Report of Independent Registered Public Accounting Firm on Internal Controls

The Board of Directors and Shareholders of
The Dayton Power and Light Company:

We have audited management’s assessment, included in the Management’s Report on Internal Control Over Financial Reporting appearing under Item 9A, that The Dayton Power and Light Company (DP&L) and subsidiaries maintained effective internal control over financial reporting as of December 31, 2006, 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 maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting.  Our responsibility is to express an opinion on management’s assessment and an opinion on the effectiveness of DP&L’s internal control over financial reporting based on our audit.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, evaluating management’s assessment, testing and evaluating the design and operating effectiveness of internal control, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

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, management’s assessment that DP&L maintained effective internal control over financial reporting as of December 31, 2006, is fairly stated, in all material respects, based on criteria established in Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).  Also, in our opinion, DP&L maintained, in all material respects, effective internal controls over financial reporting as of December 31, 2006, based on criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheets of DP&L as of December 31, 2006 and 2005, 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, 2006, and our report dated February 22, 2007, expressed an unqualified opinion on those consolidated financial statements.

/s/ KPMG

KPMG

Kansas City, Missouri

February 22, 2007

102

DPL Inc. - Selected Quarterly Information (Unaudited)

	For the three months ended
	March 31,				June 30,				September 30,				December 31,
$ in millions	2006		2005		2006		2005 (a)		2006		2005 (a)		2006 (b)		2005
Revenues	$	341.1	$	307.1	$	309.0	$	293.4	$	392.5	$	357.4	$	350.9	$	327.0
Operating Income	103.2		81.9		55.9		62.3		98.5		99.6		23.4		95.3
Earnings from continuing operations	51.3		36.1		22.6		16.7		47.4		25.7		4.3		46.2
Earnings from discontinued operations, net of taxes	7.6		37.6		—		5.2		3.4		0.2		3.0		9.9
Cumulative effect of accounting change, net of taxes	—		—		—		—		—		—				(3.2		)
Net Income	$	58.9	$	73.7	$	22.6	$	21.9	$	50.8	$	25.9	$	7.3	$	52.9
Basic earnings per share of common stock:
Continuing operations	$	0.43	$	0.30	$	0.20	$	0.14	$	0.44	$	0.21	$	0.04	$	0.38
Discontinued operations	0.06		0.31		—		0.04		0.03		—		0.03		0.09
Cumulative effect of accounting change	—		—		—		—		—		—		—		(0.03		)
Total basic earnings per common share	$	0.49	$	0.61	$	0.20	$	0.18	$	0.47	$	0.21	$	0.07	$	0.44
Diluted earnings per share of common stock:
Continuing operations	$	0.40	$	0.28	$	0.18	$	0.13	$	0.40	$	0.20	$	0.04	$	0.36
Discontinued operations	0.06		0.30		—		0.04		0.03		—		0.02		0.08
Cumulative effect of accounting change	—		—		—		—		—		—		—		(0.03		)
Total diluted earnings per common share	$	0.46	$	0.58	$	0.18	$	0.17	$	0.43	$	0.20	$	0.06	$	0.41
Dividends paid per share	$	0.25	$	0.24	$	0.25	$	0.24	$	0.25	$	0.24	$	0.25	$	0.24
Common stock market price - High	$	27.58	$	26.77	$	27.82	$	27.67	$	27.93	$	28.12	$	28.72	$	28.01
— Low	$	25.11	$	24.27	$	26.25	$	24.08	$	26.74	$	26.70	$	27.16	$	24.55

(a)    Earnings from continuing operations in the second and third quarters of 2005 include charges of $2.1 million and $59.1 million, respectively, for the early redemption of debt.

(b)    Earnings from continuing operations in the fourth quarter of 2006 included a $44.2 million ($71 million pre-tax) impairment charge resulting from DPL’s decision to sell two of its peaking stations. See Note 14 of the Notes to the Consolidated Financial Statements.

DP&L - - Selected Quarterly Information (Unaudited)

	For the three months ended
	March 31,				June 30,				September 30				December 31,
$ in millions	2006		2005		2006		2005		2006		2005		2006		2005
Revenues	$	339.1	$	305.1	$	306.7	$	291.4	$	390.3	$	355.5	$	349.1	$	324.9
Operating Income	115.5		91.4		72.7		76.0		107.1		112.1		107.2		103.1
Income before income taxes and cumulative effect of accounting change	110.2		87.9		69.5		65.1		103.0		100.8		101.9		99.3
Income before cumulative effect of accounting change	66.9		53.3		44.0		35.9		64.0		63.1		67.5		62.7
Net Income	66.9		53.3		44.0		35.9		64.0		63.1		67.5		59.5
Earnings on common stock	66.7		53.1		43.8		35.7		63.8		62.9		67.3		59.2
Cash dividends paid	$	—	$	75.0	$	—	$	—	$	—	$	—	$	100.0	$	75.0

103

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 reporting.

The following report is our report on internal control over financial reporting as of December 31, 2006.

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, 2006.

Our assessment of the effectiveness of our internal control over financial reporting as of December 31, 2006, 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.

PART III

Item 10 - - Directors and Executive Officers of DPL Inc.

The information required to be furnished pursuant to this item with respect to Directors of DPL Inc. will be set forth under captioned “Election of Directors” in DPL Inc.’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 2007 Annual Meeting of Shareholders to be held on April 27, 2007 and is incorporated herein by reference.

The information required to be furnished pursuant to this item for DPL Inc. with respect to the identification of the Audit Committee, the Audit Committee financial expert and the registrant’s code of ethics will be set forth under the caption “Corporate Governance” 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 Inc. will be set forth under the caption “Executive Compensation” in the Proxy Statement and is incorporated herein by reference.

104

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 Inc. 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

The information required to be furnished pursuant to this item for DPL Inc. will be set forth under the caption “Certain Relationships and Related Transactions” 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 Inc. will be set forth under the caption “Audit and Non-Audit Fees” in the Proxy Statement and is incorporated herein by reference.

DP&L Accountant Fees and Services

The following table presents the aggregate fees billed for professional services rendered to us by KPMG LLP and PricewaterhouseCoopers LLP for 2006 and 2005.  Other than as set forth below, no professional services were rendered or fees billed by KPMG LLP during 2006 and 2005.

KPMG LLP	Fees Invoiced 2006		Fees Invoiced 2005
Audit Fees (1)	$	1,762,728	$	2,511,912
Audit-Related Fees (2)	147,030		55,712
Tax Fees (3)	—		2,435
All Other Fees (4)	—		—
Total	$	1,909,758	$	2,570,059

PricewaterhouseCoopers LLP
Audit Fees (1)	$	—	$	96,350
Audit-Related Fees (2)	—		14,400
Tax Fees (3)	—		—
All Other Fees (4)	1,500		—
Total	$	1,500	$	110,750

(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 relate to services rendered to us for tax compliance, tax planning and advice.

(4)Other services performed include certain advisory services in connection with accounting research and do not include any fees for financial information systems design and implementation.

105

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 Inc. - Consolidated Statements of Results of Operations for each of the three years in the period ended December 31, 2006	49
DPL Inc. - Consolidated Statements of Cash Flows for each of the three years in the period ended December 31, 2006	50
DPL Inc. - Consolidated Balance Sheets at December 31, 2006 and 2005	51
DPL Inc. - Consolidated Statement of Shareholders’ Equity for each of the three years in the period ended December 31, 2006	53
DP&L - Consolidated Statements of Results of Operations for each of the three years in the period ended December 31, 2006	54
DP&L - Consolidated Statements of Cash Flows for each of the three years in the period ended December 31, 2006	55
DP&L - Consolidated Balance Sheets at December 31, 2006 and 2005	56
DP&L - Consolidated Statement of Shareholders’ Equity for each of the three years in the period ended December 31, 2006	58
Notes to Consolidated Financial Statements	59
DPL Inc. - Report of Independent Registered Public Accounting Firm	99
DPL Inc. - Report of Independent Registered Public Accounting Firm on Internal Controls	100
DP&L - Report of Independent Registered Public Accounting Firm	101
DP&L - Report of Independent Registered Public Accounting Firm on Internal Controls	102
2.  Financial Statement Schedule
For each of the three years in the period ended December 31, 2006:
Schedule II — Valuation and Qualifying Accounts	120

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.

106

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	X	2(a)	Copy of Asset Purchase Agreement, dated December 14, 1999, between The Dayton Power and Light Company, Indiana Energy, Inc., and Number-3CHK, Inc.	Exhibit 2 to Report on Form 10-Q for the quarter ended September 30, 2000 (File No. 1-9052)
X		3(a)	Copy of Amended Articles of Incorporation of DPL Inc. dated September 25, 2001	Exhibit 3 to Report on Form 10-K/A for the year ended December 31, 2001 (File No. 1-2385)
X		3(b)	Regulations of DPL Inc.	Exhibit 3(b) to Form 8-K filed on May 3, 2004 (File No. 1-9052)
	X	3(c)	Copy of Amended Articles of Incorporation of The Dayton Power and Light Company dated 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	Exhibit 3(a) to Report on Form 8-K filed on April 30, 2004 (File No. 1-2385)
X	X	4(a)	Copy of Composite Indenture dated as of October 1, 1935, between DP&L and The Bank of New York, 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)	Copy of Forty-First Supplemental Indenture dated as of February 1, 1999, between DP&L 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)	Copy of Forty-Second Supplemental Indenture dated as of September 1, 2003, between DP&L 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. 1-2385)

107

X	X	4(d)	Copy of Forty-Third Supplemental Indenture dated as of August 1, 2005, between DP&L and The Bank of New York, Trustee	Exhibit 4.4 to Report on Form 8-K filed on August 24, 2005 (File No. 1-2385)
X	X	4(e)	Copy of Rights Agreement between DPL Inc. and Equiserve Trust Company, N.A.	Exhibit 4 to Report on Form 8-K dated September 25, 2001 (File No. 1-9052)
X		4(f)	Copy of 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 dated 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)	Copy of Warrant Form initially issued as of February 1, 2000	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 February 1, 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 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)

108

X	X	4(m)	Copy of Credit Agreement dated as of June 1, 2004 between The Dayton Power and Light Company, KeyBank National Association (as administrative agent and lead arranger) and the lending institutions named therein	Exhibit 4(ee) to Report on Form 10-K for the year ended December 31, 2003 (File No. 1-2385)
X	X	4(n)	Copy of Credit Agreement dated as of May 31, 2005 between The Dayton Power and Light Company, KeyBank National Association (as administrative agent and lead arranger) and the lending institutions named therein	Exhibit 10.1 to Form 8-K filed on June 28, 2005 (File No. 1-9052)
X		4(o)	Officer’s Certificate of DPL Inc. establishing $175 million Senior Note due 2009, dated March 25, 2004	Exhibit 4.1 to Form 8-K, filed on March 29, 2004 (File No. 1-9052)
X		4(p)	Exchange and Registration Rights Agreement dated March 25, 2004 between DPL Inc. and the purchasers	Exhibit 4.2 to Form 8-K, filed on March 29, 2004 (File No. 1-9052)
X		4(q)	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
X		4(r)	Officer’s Certificate of DPL Inc. establishing exchange notes, dated March 1, 2000	Exhibit 4(c) to Registration Statement No. 333-37972
X		4(s)	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(t)	Officer’s Certificate of DPL Inc. establishing exchange notes, dated August 31, 2001	Exhibit 4(c) to Registration Statement No. 333-74568
X		4(u)	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(v)	First Supplemental Indenture dated as of August 31, 2001 relating to the subordinated debentures between DPL Inc. and The Bank of New York	Exhibit 4(b) to Registration Statement No. 333-74630

109

X		4(w)	Amended and Restated Trust Agreement dated as of August 31, 2001 relating to DPL Capital Trust II, the Capital Securities and the Common Securities among DPL Inc., the depositor, The Bank of New York, as property trustee, The Bank of New York (Delaware)	Exhibit 4(c) to Registration Statement No. 333-74630
	X	4(x)	Forty Fourth Supplemental Indenture to the First and Refunding Mortgage, dated as of September 1, 2006 between the Bank of New York, as trustee and The Dayton Power and Light Company	Exhibit 4.2 to Form 8-K filed on September 19, 2006 (File No. 1-2385)
X		4(y)	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	10(a)*	Copy of Directors’ Deferred Stock Compensation Plan amended 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)*	Copy of Directors’ 1991 Amended Deferred Compensation Plan as amended through December 31, 2000	Exhibit 10(b) to Report on Form 10-K for the year ended December 31, 2000 (File No. 1-9052)
X	X	10(c)*	Amendment No. 1 to Directors’ 1991 Amended Deferred Compensation Plan as amended through December 31, 2000 and dated as of December 7, 2004	Exhibit 10(c) to Report on Form 10-K for the year ended December 31, 2005 (File No. 1-9052)
X	X	10(d)*	Copy of Management Stock Incentive Plan amended December 31, 2000	Exhibit 10(c) 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 Management Stock Incentive Plan amended December 31, 2000 and dated as of December 7, 2004	Exhibit 10(e) to Report on Form 10-K for the year ended December 31, 2005 (File No. 1-9052)

110

X	X	10(f)*	Copy of Key Employees Deferred Compensation Plan amended 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(g)*	Amendment No. 1 to Key Employees Deferred Compensation Plan amended December 31, 2000 and 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(h)*	Copy of Supplemental Executive Retirement Plan amended February 1, 2000	Exhibit 10(e) to Report on Form 10-K for the year ended December 31, 2003 (File No. 1-2385)
X	X	10(i)*	Amendment No. 1 to Supplemental Executive Retirement Plan amended 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	X	10(j)*	Copy of Stock Option Plan	Exhibit 10(f) to Report on Form 10-K for the year ended December 31, 2000 (File No. 1-9052)
X	X	10(k)*	2003 Long-Term Incentive Plan of DPL Inc. dated as of January 20, 2003	Exhibit 10(aa) to Report on Form 10-K for the year ended December 31,2003 (File No. 1-9052)
X		10(l)*	Summary of Executive Life Insurance Plan	Exhibit 10(l) to Report on Form 10-K for the year ended December 31, 2005 (File No. 1-9052)
X		10(m)*	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	X	10(n)*	DPL Inc. Executive Incentive Compensation Plan	Exhibit 10.1 to Form 8-K/A filed on March 2, 2006 (File No. 1-9052)
X		10(o)*	DPL Inc. Executive Incentive Compensation Plan and Schedule A as amended September 5, 2006	Exhibit 10.3 to Form 8-K filed on September 8, 2006 (File No. 1-9052)

111

X	X	10(p)*	DPL Inc. 2006 Equity and Performance Incentive Plan	Exhibit 10.2 to Form 8-K/A filed on March 2, 2006 (File No. 1-9052)
X	X	10(q)*	Form of the Long-Term Incentive Plan - Performance Shares Agreement	Exhibit 10.3 to Form 8-K/A filed on March 2, 2006 (File No. 1-9052)
X	X	10(r)*	DPL Inc. Severance Pay and Change of Control Plan	Exhibit 10.4 to Form 8-K/A filed on March 2, 2006 (File No. 1-9052)
X	X	10(s)*	DPL Inc. Supplemental Executive Defined Contribution Retirement Plan	Exhibit 10.5 to Form 8-K/A filed on March 2, 2006 (File No. 1-9052)
X		10(t)*	DPL Inc. 2006 Deferred Compensation Plan For Executives	Exhibit 10.2 to Form 8-K filed on September 25, 2006 (File No. 1-9052)
X		10(u)*	DPL Inc. Pension Restoration Plan	Exhibit 10.3 to Form 8-K filed on September 25, 2006 (File No. 1-9052)
X	X	10(v)*	Letter Agreement dated as of September 20, 2004 and Management Stock Option Agreement, as amended, dated as of October 5, 2004, between DPL Inc. and Robert D. Biggs	Exhibits 10.2 and 10.3 to Report on Form 8-K filed on October 8, 2004 (File No. 1-9052)
X	X	10(w)*	Amended and Restated Employment Agreement Dated as of August 31, 2005 effective as of January 1, 2005 between DPL Inc., The Dayton Power and Light Company and Robert D. Biggs	Exhibit 10.1 to Report on Form 8-K filed on September 2, 2005 (File No. 1-9052)
X	X	10(x)*	Management Stock Option Agreement dated as of August 31, 2005 between DPL Inc. and Robert D. Biggs	Exhibit 10.2 to Report on Form 8-K filed on September 2, 2005 (File No. 1-9052)

112

X	X	10(y)*	Employment agreement dated as of January 3, 2003, between DPL Inc., The Dayton Power and Light Company and James V. Mahoney	Exhibit 10(j) to Report on Form 10-K for the year ended December 31, 2003 (File No. 1-9052)
X	X	10(z)*	Change of Control Agreement dated as of January 3, 2003, between DPL Inc., The Dayton Power and Light Company and James V. Mahoney and Management Stock Option Agreement dated January 3, 2003 between DPL Inc. and James V. Mahoney	Exhibit 10(o) to Report on Form 10-K for the year ended December 31, 2003 (File No.1-9052)
X	X	10(aa)*	Employment agreement dated as of December 21, 2004 between DPL Inc., The Dayton Power and Light Company and James V. Mahoney	Exhibit 10.1 to Form 8-K filed on December 28, 2004 (File No. 1-9052)
X	X	10(bb)*	Participation Agreement and Waiver among DPL Inc., The Dayton Power and Light Company and James V. Mahoney, dated March 7, 2006	Exhibit 10.1 to Form 8-K filed on March 10, 2006 (File No. 1-9052)
X	X	10(cc)*	Employment Agreement dated as of May 18, 2006 among DPL Inc., The Dayton Power and Light Company and James V. Mahoney	Exhibit 10.1 to Form 8-K filed on May 24, 2006 (File No. 1-9052)
X	X	10(dd)*	Amendment of Employment Agreement dated as of July 31, 2006 between James V. Mahoney, DPL Inc. and The Dayton Power and Light Company	Exhibit 10.5 to Report on Form 10-Q filed August 1, 2006 (File No. 1-9052)
X	X	10(ee)*	Employment agreement dated as of December 14, 2004 between DPL Inc., The Dayton Power and Light Company and John J. Gillen	Exhibit 10.2 to Form 8-K filed on December 28, 2004 (File No. 1-9052)
X	X	10(ff)*	Management Stock Option Agreement dated as of December 29, 2004 between DPL Inc. and John J. Gillen	Exhibit 10(u) to Report on Form 10-K for the year ended December 31, 2005 (File No. 1-9052)
X	X	10(gg)*	Participation Agreement and Waiver dated June 29, 2006 between DPL Inc., The Dayton Power and Light Company and John J. Gillen	Exhibit 10.2 to Form 8-K filed on July 3, 2006 (File No. 1-9052)
X	X	10(hh)*	Employment agreement dated as of September 17, 2003, between DPL Inc. and W. Steven Wolff	Exhibit 10(k) to Report on Form 10-K for the year ended December 31, 2003 (File No.1-9052)
X	X	10(ii)*	Change of Control Agreement dated as of September 10, 2004, between DPL Inc., The Dayton Power and Light Company and W. Steven Wolff	Exhibit 10(dd) to Report on Form 8-K filed September 23, 2004 (File No. 1-9052)

113

X	X	10(jj)*	Participation Agreement and Waiver among DPL Inc., The Dayton Power and Light Company and W. Steven Wolff, dated February 24, 2006	Exhibit 10.7 to Form 8-K filed on March 2, 2006 (File No. 1-9052)
X	X	10(kk)*	Employment Agreement dated as of December 17, 2003 between DPL Inc. and Patricia K. Swanke	Exhibit 10(l) to Report on Form 10-K for the year ended December 31, 2003 (File No.1-9052)
X	X	10(ll)*	Change of Control Agreement dated as of July 1, 2004 between DPL Inc., The Dayton Power and Light Company and Patricia K. Swanke and Management Stock Option Agreement dated as of January 1, 2001 between DPL Inc. and Patricia K. Swanke	Exhibit 10(s) to Report on Form 10-K for the year ended December 31, 2004 (File No. 1-9052)
X	X	10(mm)*	Participation Agreement and Waiver among DPL Inc., The Dayton Power and Light Company and Patricia K. Swanke, dated February 28, 2006	Exhibit 10.6 to Form 8-K filed on March 2, 2006 (File No. 1-9052)
X	X	10(nn)*	Employment Agreement and Change of Control Agreement dated as of September 17, 2004 between DPL Inc., The Dayton Power and Light Company and Gary Stephenson	Exhibit 10(ee) to Report on Form 8-K filed on September 23, 2004 (File No. 1-9052)
X	X	10(oo)*	Employment agreement dated as of June 9, 2003, as amended by attached letter dated October 18, 2004, between DPL Inc., The Dayton Power and Light Company and Miggie E. Cramblit	Exhibit 10(gg) to Report on Form 10-K for the year ended December 31, 2003 (File No. 1-9052)
X	X	10(pp)*	Change of Control Agreement dated as of December 15, 2000 between DPL Inc., The Dayton Power and Light Company and Arthur G. Meyer	Exhibit 10(bb) to Report on Form 10-K for the year ended December 31, 2005 (File No. 1-9052)
X	X	10(qq)*	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(rr)*	Participation Agreement and Waiver among DPL Inc., The Dayton Power and Light Company and Arthur G. Meyer, dated March 6, 2006	Exhibit 10.2 to Form 8-K filed on March 10, 2006 (File No. 1-9052)

114

X		10(ss)*	Participation Agreement dated September 8, 2006 between DPL Inc., The Dayton Power and Light Company and Paul M. Barbas	Exhibit 10.2 to Form 8-K filed on September 8, 2006 (File No. 1-9052)
X	X	10(tt)*	Participation Agreement dated June 30, 2006 between DPL Inc., The Dayton Power and Light Company and Frederick J. Boyle	Exhibit 10.1 to Form 8-K filed on July 3, 2006 (File No. 1-9052)
X		10(uu)*	Letter Agreement between DPL Inc. and Glenn E. Harder, dated as of June 20, 2006	Exhibit 10.1 to Form 8-K filed on June 20, 2006 (File No. 1-9052)
X		10(vv)	Purchase and Sale Agreement dated as of February 13, 2005 between MVE, Inc., Miami Valley Insurance Company and AlpInvest/Lexington 2005, LLC	Exhibit 10.1 to Form 8-K filed on February 18, 2005 (File No. 1-9052)
X		10(ww)	Asset Purchase Agreement dated as of December 21, 2006 between DPL Energy, LLC and Buckeye Power, Inc.	Filed herewith as Exhibit 10(ww)
X		10(xx)	Asset Purchase Agreement dated as of November 28, 2006 between DPL Energy, LLC and Columbus Southern Power Company	Filed herewith as Exhibit 10(xx)
	X	10(yy)	Revolving Credit Agreement, dated as of November 21, 2006 between KeyBank N.A., JPMorgan Chase, N.A., Fifth Third Bank and The Dayton Power and Light Company	Exhibit 10.1 to Form 8-K filed on November 28, 2006 (File No. 1-2385)
X	X	10(zz)	Form of the Long-Term Incentive Plan — Performance Shares Agreement as amended February 20, 2007	Filed herewith as Exhibit 10(zz)
X	X	18	Copy of preferability letter relating to change in accounting for unbilled revenues from Price Waterhouse LLP	Exhibit 10.1 to Form 8-K filed on February 18, 2005 (File No. 1-9052)
X	X	21	List of Subsidiaries of DPL Inc.	Filed herewith as Exhibit 21
X		23(a)	Consent of KPMG LLP	Filed herewith as Exhibit 23(a)
X	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)

115

X	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	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	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	X	99(a)	Report of Taft, Stettinius & Hollister LLP, dated April 26, 2004	Exhibit 99(a) to Report on Form 10-K for the year ended December 31, 2003 (File No. 1-9052)
X	X	99(b)	Supplement to the April 26, 2004 Report of Taft, Stettinius & Hollister LLP, dated May 15, 2004	Exhibit 99(b) to Report on Form 10-K for the year ended December 31, 2003 (File No. 1-9052)
X	X	99(c)	Complaint filed in Montgomery County Court of Common Pleas, Montgomery County, Ohio — DPL Inc., The Dayton Power and Light Company and MVE, Inc. v. Peter H. Forster, Caroline E. Muhlenkamp and Stephen F. Koziar, Jr.	Exhibit 99(d) to Report on Form 10-K for the year ended December 31, 2003 (File No. 1-9052)

*Management contract or compensatory plan

(1)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.

116

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 22, 2007	By:	/s/ Paul M. Barbas
		Paul M. Barbas President and Chief Executive Officer (principal executive officer)

		The Dayton Power and Light Company
February 22, 2007	By:	/s/ Paul M. Barbas
		Paul M. Barbas President and Chief Executive Officer (principal executive officer)

117

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/ R. D. Biggs	Director	February 22, 2007
(R. D. Biggs)
/s/ P. R. Bishop	Director	February 22, 2007
(P. R. Bishop)
/s/ B. S. Graham	Director	February 22, 2007
(B. S. Graham)
/s/ E. Green	Director	February 22, 2007
(E. Green)
/s/ G.E. Harder	Director and Non-Executive Chairman	February 22, 2007
(G. E. Harder)
/s/ W A. Hillenbrand	Director and Vice-Chairman	February 22, 2007
(W A. Hillenbrand)
/s/ L.L. Lyles
(L. L. Lyles)	Director	February 22, 2007
/s/ P.M. Barbas	Director, President and Chief	February 22, 2007
(P.M. Barbas)	Executive Officer (principal executive officer)
/s/ N.J. Sifferlen
(N.J. Sifferlen)	Director	February 22, 2007
/s/ J. J. Gillen	Senior Vice President and	February 22, 2007
(J. J. Gillen)	Chief Financial Officer (principal financial and principal accounting officer)
/s/ F.J. Boyle	Corporate Controller and	February 22, 2007
(F.J. Boyle)	Chief Accounting Officer

118

Schedule II

DPL Inc.

VALUATION AND QUALIFYING ACCOUNTS

For the years ended December 31, 2004-2006

$ in thousands
Description	Balance at Beginning of Period		Additions		Deductions (1)		Balance at End of Period
2006:
Deducted from accounts receivable—
Provision for uncollectible accounts	$	1,044	$	4,835	$	4,449	$	1,430
2005:
Deducted from accounts receivable—
Provision for uncollectible accounts	$	1,085	$	3,582	$	3,623	$	1,044
2004:
Deducted from accounts receivable—
Provision for uncollectible accounts	$	6,003	$	3,371	$	8,289	$	1,085

(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, 2004-2006

$ in thousands
Description	Balance at Beginning of Period		Additions		Deductions (1)		Balance at End of Period
2006:
Deducted from accounts receivable—
Provision for uncollectible accounts	$	1,044	$	4,835	$	4,449	$	1,430
2005:
Deducted from accounts receivable—
Provision for uncollectible accounts	$	1,085	$	3,582	$	3,623	$	1,044
2004:
Deducted from accounts receivable—
Provision for uncollectible accounts	$	3,617	$	885	$	3,417	$	1,085

(1) Amounts written off, net of recoveries of accounts previously written off.

119

EX-10.WW

Exhibit 10 (ww)

Execution Copy

ASSET PURCHASE AGREEMENT

dated December 21, 2006

By and Between

DPL Energy, LLC

and

Buckeye Power, Inc.

TABLE OF CONTENTS

		Page
ARTICLE I
Definitions		1
1.01	Definitions	1
1.02	Interpretation	8
1.03	Knowledge	8
ARTICLE II
Purchase and Sale, Purchase Price, Allocation and Other Related Matters		9
2.01	Purchase and Sale	9
2.02	Purchase Price	9
2.03	Initial Purchase Price	9
2.04	Purchase Price Holdback	9
2.05	Assumed Liabilities and Retained Liabilities	9
2.06	Sales and Transfer Taxes	10
2.07	Allocation of Purchase Price	10
2.08	Parent Guaranty	10
ARTICLE III
Closing and Closing Date Deliveries		11
3.01	Closing	11
3.02	Closing Deliveries by Seller	11
3.03	Closing Deliveries by Purchaser	11
3.04	Cooperation	12
ARTICLE IV
Pre-Closing Filings		12
4.01	Government Filings	12
4.02	FERC Regulatory Filing	12
4.03	Cooperation in Regulatory Review Process	13
4.04	PJM Notification of Sale and Scheduling and Bidding for day of Closing	13
4.05	2007/2008 RPM Bidding	13
ARTICLE V
Pre-Closing Covenants		14
5.01	Due Diligence Review	14
5.02	Pending Closing	14
5.03	Cooperation	15
5.04	No Shop	15

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5.05	Workforce	15
5.06	Tax Abatement Agreement	16
5.07	EFT Service Agreement	16
ARTICLE VI
Pre-Closing Deliveries		16
6.01	Pre-Closing Title Policy and Survey Delivery	16
ARTICLE VII		17
Warranties and Representations of Seller
7.01	Organization and Good Standing	17
7.02	Authority	17
7.03	No Violations and Consents	17
7.04	Brokers	18
7.05	Required Assets	18
7.06	Contracts	18
7.07	Insurance	18
7.08	Title to Real Property	19
7.09	Title to Purchased Assets	19
7.10	Intellectual Property	19
7.11	Litigation	19
7.12	Compliance With Laws	19
7.13	Labor Matters	20
7.14	Taxes	20
7.15	Licenses and Permits	20
7.16	Environmental Compliance	21
7.17	Purchaser Pipeline Acquisition Costs	21
7.18	Disclaimer of Warranties	21
ARTICLE VIII
Warranties and Representations of Purchaser		22
8.01	Due Incorporation	22
8.02	Authority	22
8.03	No Violations	22
8.04	Brokers	22
8.05	Litigation	22
8.06	Financing	22
ARTICLE IX
Conditions to Closing Applicable to Purchaser		23
9.01	No Termination	23
9.02	Bring-Down of Seller Warranties	23
9.03	No Material Adverse Effect	23
9.04	Pending Actions	23

ii

9.05	Material Contracts	23
9.06	Assigned Permits	23
9.07	Other Consents and Approvals	23
9.08	All Necessary Documents	24
9.09	Title Policy	24
9.10	Brokers and Consultants	24
ARTICLE X
Conditions to Closing Applicable to Seller		24
10.01	No Termination	24
10.02	Bring-Down of Purchaser Warranties	24
10.03	Pending Actions	25
10.04	Consents and Approvals	25
10.05	All Necessary Documents	25
ARTICLE XI
Termination		25
11.01	Termination	25
ARTICLE XII
Indemnification		26
12.01	Seller Indemnification	26
12.02	Limitation	26
12.03	Purchaser Indemnification	27
12.04	Indemnification Notice	27
12.05	Indemnification Procedure	28
12.06	Effect of Indemnity Payments	28
ARTICLE XIII
Confidentiality		28
13.01	Confidentiality of Materials	28
13.02	Remedy	29
ARTICLE XIV
Certain Other Understandings		29
14.01	Post Closing Access to Records and Records Retention	29
14.02	Obligations not Performed by Closing	30
14.03	Avoidance of Double Withholding Taxes	30
14.04	Removal of Trademarks, Etc	30
14.05	[Intentionally left blank.]	30
14.06	Tax Matters.	30
14.07	O&M Transition Services Agreement Option	32

iii

ARTICLE XV
Miscellaneous		32
15.01	Cost and Expenses	32
15.02	Entire Agreement	32
15.03	Counterparts	32
15.04	Assignment, Successors and Assigns	32
15.05	Savings Clause	33
15.06	Headings	33
15.07	Risk of Loss	33
15.08	Governing Law	33
15.09	Dispute Resolution	33
15.10	Press Releases	34
15.11	U.S. Dollars	34
15.12	Survival	34
15.13	Notices	34
15.14	No Third Party Beneficiaries	35
15.15	Jurisdiction and Consent to Service	35
15.16	WAIVER OF A JURY TRIAL	35
15.17	No Presumption Against Drafter	36

iv

ASSET PURCHASE AGREEMENT

This Asset Purchase Agreement made and entered into this 21st day of December, 2006 (this “Agreement”) by and between Buckeye Power, Inc., an Ohio corporation not-for-profit (“Purchaser”), and DPL Energy, LLC, an Ohio limited liability company (“Seller”).

Recitals:

A.            Seller owns the Greenville, Ohio peaking power generation facility, as more fully described in Schedule I attached hereto (the “Facility”).

B.            Seller desires to sell the Facility and the assets and properties exclusively relating to the Facility hereinafter described as Purchased Assets and Purchaser desires to acquire the Facility and the Purchased Assets, on the terms and subject to the conditions hereinafter set forth.

Now, therefore, in consideration of the covenants and agreements hereinafter set forth, the parties hereto agree as follows:

ARTICLE I

Definitions

1.01         Definitions.  The following terms shall have the meanings set forth below unless otherwise expressly provided or unless the context clearly requires otherwise:

“AAA Rules” has the meaning set forth in Section 15.09.

“Additional Contracts” has the meaning set forth in clause (v) of the definition of “Purchased Assets.”

 “Affiliate” shall mean a Person which, directly or indirectly is controlled by, controls, or is under common control with another Person.  As used in the preceding sentence, “control” shall mean (i) the ownership of more than 50% of the voting securities or other voting interest of any Person, or (ii) the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of such Person, whether through the ownership of voting securities, by contract or otherwise.

“Arbitration Notice” has the meaning set forth in Section 15.09(b).

“Assigned Contracts” has the meaning set forth in clause (v) of the definition of “Purchased Assets.”

“Assigned Intellectual Property” has the meaning set forth in clause (vi) of the definition of “Purchased Assets.”

“Assigned Permits” has the meaning set forth in clause (vii) of the definition of “Purchased Assets.”

“Assumed Liabilities” has the meaning set forth in Section 2.05(a).

1

“Closing” has the meaning set forth in Section 3.01.

“Closing Date” has the meaning set forth in Section 3.01.

“Code” shall mean the Internal Revenue Code of 1986, as amended, and the final and temporary Treasury Regulations promulgated thereunder.

“Compensation Agreements” has the meaning set forth in Section 7.14(c).

“Date of the Notice of Claim” has the meaning set forth in Section 12.05(c).

“Disclosure Schedule” shall mean the schedules attached to this Agreement.

“Dispute” has the meaning set forth in Section 15.09(a).

“DOJ” shall mean the United States Department of Justice.

“DP&L” shall mean The Dayton Power & Light Company, an Ohio corporation.

“Easements” has the meaning set forth in clause (iv) of the definition of “Purchased Assets.”

“EFT Service Agreement” shall mean that Rate Schedule EFT Enhanced Firm Transportation Service Form of Transportation Agreement (Contract No. 20552) dated as of April 1, 2006, between Panhandle and Seller, including the letter agreement dated December 15, 2005 between Panhandle and Seller.

“Electric Interconnection Agreement” has the meaning set forth in clause (ix) of the definition of “Retained Assets”.

“Environmental Laws” shall mean any applicable federal, state or local Law relating to:  (a) releases or threatened releases of Hazardous Substances; (b) the exposure to, manufacture, handling, transport, use, treatment, storage or disposal of Hazardous Substances or materials containing Hazardous Substances; (c) pollution or protection of the environment or human health; (d) natural resources or natural resource damages; or (e) occupational safety or health.

“Facility” has the meaning set forth in the Recitals and Schedule I hereto.

“FERC” shall mean the Federal Energy Regulatory Commission.

“FERC Regulatory Filing” has the meaning set forth in Section 4.02.

“First Half” shall mean, with respect to any Tax year, the period from and including January 1 to and including June 30 of such year.

“Governmental Authority” shall mean the government of the United States or any foreign country or any state or political subdivision of any thereof and any entity, body or authority exercising executive, legislative, judicial, regulatory or administrative functions of or pertaining to government, including any quasi-governmental entities established to perform such functions.

“Guarantor” means DPL Inc.

2

“Hazardous Substances” shall mean (a) any pollutant, contaminant, waste or chemicals, materials, compounds, constituents or substances, subject to regulation under any Environmental Laws, including without limitation those defined or designated under the following federal statutes and their state counterparts, as well as such statutes’ implementing regulations:  the Hazardous Materials Transportation Act, the Comprehensive Environmental Response, Compensation and Liability Act, the Atomic Energy Act, the Toxic Substances Control Act, and the Federal Insecticide, Fungicide, and Rodenticide Act; (b) petroleum and petroleum products including crude oil and any fractions thereof; (c) natural gas, synthetic gas and any mixtures thereof; (d) asbestos in any form; and (e) polychlorinated biphenyls.

 “Holdback Amount” has the meaning set forth in Section 2.04.

“Indemnified Party” has the meaning set forth in Section 12.04.

“Indemnifying Party” has the meaning set forth in Section 12.04.

“Information” has the meaning set forth in Section 13.01.

“Initial Purchase Price” has the meaning set forth in Section 2.03.

“Insured Parcels” has the meaning set forth in Section 6.01(a).

“Inventory” has the meaning set forth in clause (ii) of the definition of Purchased Assets.

“IRS” shall mean the Internal Revenue Service.

“Law” shall mean any law (including common law), statute, regulation, ordinance, rule, order, decree, judgment, consent decree, settlement agreement or governmental requirement enacted, promulgated or imposed or entered into or agreed with by any Governmental Authority.

“Lien” shall mean any mortgage, lien (except for any lien for taxes not yet due and payable), charge, restriction, pledge, security interest, option, lease or sublease, claim, right of any third party, easement, encroachment or encumbrance.

“Material Adverse Effect” shall mean (a) any change in, or effect on, the Facility as currently operated by Seller that is or is reasonably likely to be materially adverse to the results of operations or financial condition of the Facility, after giving effect to this Agreement, or (b) any materially adverse change in the ability of Seller to perform its obligations under this Agreement or any of the Exhibits hereto, except that the term “Material Adverse Effect” shall not include changes, events, conditions, restrictions or burdens caused by or resulting from (i) conditions affecting the electric generation industry generally but not affecting the Facility or the Purchased Assets in any manner or degree significantly different from the electric generation industry as a whole, (ii) United States or global economic conditions or financial markets generally, or (iii) the announcement of the transactions contemplated by this Agreement.

“Material Contracts” has the meaning set forth in Section 7.06(a).

“Notice of Claim” has the meaning set forth in Section 12.04.

3

“O&M Transition Services Agreement” means the O&M Transition Services Agreement between Purchaser and Seller substantially in the form attached hereto as Exhibit F.

“Panhandle” shall mean Panhandle Eastern Pipe Line Company, LP.

“Parent Guaranty” means the guaranty of the Guarantor attached hereto as Exhibit A.

“Permitted Exceptions” shall mean, with respect to the Real Property, the following:

(a)           liens or encumbrances relating to the Assumed Liabilities;

(b)           all liens for Taxes, assessments, both general and special, and other governmental charges which are not due and payable as of the Closing Date;

(c)           all building codes and zoning ordinances and other Laws of any Governmental Authority heretofore, now or hereafter enacted, made or issued by any such Governmental Authority affecting the Real Property;

(d)           all easements, rights-of-way, covenants, conditions, restrictions, reservations, licenses, agreements, and other similar matters of record in the appropriate governmental offices;

(e)           all encroachments, overlaps, boundary line disputes, shortages in area, drainage and other easements, cemeteries and burial grounds and other similar matters not of record that would be disclosed by an accurate survey or inspection of the Real Property;

(f)            all electric, telephone, gas, sanitary sewer, storm sewer, water and other utility lines, pipelines, service lines and facilities of any nature now located on, over or under the Real Property, and all licenses, easements, rights-of-way and other similar agreements relating thereto that would be disclosed by an accurate survey or inspection of the Real Property;

(g)           all existing public and private roads and streets (whether dedicated or undedicated), and all railroad lines and rights-of-way affecting the Real Property;

(h)           all rights with respect to the ownership, mining, extraction and removal of minerals of whatever kind and character (including, without limitation, all coal, iron ore, oil, gas, sulfur, methane gas in coal seams, limestone and other minerals, metals and ores) that have been granted, leased, excepted or reserved prior to the date hereof; and

(i)            inchoate mechanic’s and materialmen’s liens for construction in progress and workmen’s, repairmen’s, warehousemen’s and carrier’s liens arising in the ordinary course of business.

“Permitted Real Estate Exceptions” has the meaning set forth in Section 6.01(a).

“Person” shall mean any natural person, corporation, limited liability company, partnership, joint venture, trust, association or unincorporated entity of any kind.

4

“Pipeline” shall mean the approximately 42.5 mile long natural gas pipeline and associated easements and rights-of-way, that extends from an interconnection with Panhandle’s main pipeline at Glen Karn, Ohio to Harden, Ohio, and interconnects with a pipeline lateral that serves the Facility, all as more particularly described in the Pipeline Agreements.

“Pipeline Agreements” shall mean that certain agreement dated as of July 9, 1993, by and between DP&L and Panhandle, as amended on November 1, 1994, and as further amended by agreement among Panhandle, DP&L and Seller on December 22, 1999, certain portions of which have been assigned by DP&L to Vectren pursuant to that certain Asset Purchase Agreement dated December 14, 1999; that certain agreement dated as of November 1, 1999 by and between DP&L and Seller, certain portions of which have been assigned by DP&L to Vectren pursuant to that certain Asset Purchase Agreement dated December 14, 1999; that certain Operational Agreement for Z-51 Pipeline by and between DP&L and Seller, certain portions of which have been assigned by DP&L to Vectren pursuant to that certain Asset Purchase Agreement dated December 14, 1999; that certain Construction, Ownership and Operation Agreement by and between Panhandle and Seller dated as of July 7, 2000; and that certain Reimbursement, Construction, Ownership and Operation Agreement by and among Panhandle, TETCO, and Seller dated June 23, 2000.  For the avoidance of doubt, any DP&L interests in the Pipeline Agreements that were not transferred to Vectren were transferred to Seller, and DP&L no longer has any interest in the Pipeline Agreements.

“PJM” shall mean PJM Interconnection, LLC, a FERC-approved regional transmission organization and energy market.

“Pratt & Whitney Repair Report” shall mean the report delivered by Pratt & Whitney to Seller generally evidencing the completion of the repair of the damage to unit 1B at the Facility identified in the Pratt & Whitney Greenville 1B Borescope Inspection Report dated September 1, 2006, and the Pratt & Whitney Revised Borescope Inspection Report dated September 13, 2006.

“Properties” has the meaning set forth in clause (iv) of definition of Purchased Assets.

“Purchase Price” has the meaning set forth in Section 2.02.

“Purchased Assets” shall mean the following described assets, rights and properties, except for the Retained Assets:

(i)            the Facility;

(ii)           except as otherwise set forth on Schedule II, all inventories for use exclusively in connection with the Facility, including all such inventories of demineralized water, chemicals, supplies, raw materials, work-in-progress and finished goods (“Inventory”);

(iii)          except as otherwise set forth on Schedule III, the tangible assets, machinery, equipment, tools, dies, molds, spare parts, vehicles, transportation equipment, furniture and office equipment, construction-in-progress, and computer hardware of Seller that constitute the Facility or are used exclusively in connection with the Facility or that are located on the Real Property;

(iv)          Seller’s rights, title and interest (A) in and to the real properties described in Schedule IV (“Real Property”) together with all buildings, other improvements, fixtures and appurtenances, and all other rights and privileges thereunto belonging or appertaining, (B) under the real property leases described in the Schedule V (“Real Property Leases”), and (C) under the

5

easements, rights of way, real property licenses described in Schedule VI (“Easements”; together with the Real Property and the Real Property Leases, the “Properties”);

(v)           Seller’s right, title and interest in, to or under (A) the Material Contracts and (B) the personal property leases and other contracts, agreements and commitments arising from and relating exclusively to the Purchased Assets or the Facility that would be required to be described on Schedule 7.06(a) but for the exceptions set forth in Section 7.06(a) below, including those contracts listed on Schedule VII (the “Additional Contracts,” and together with the Material Contracts, the “Assigned Contracts”);

(vi)          Seller’s right, title and interest in and to the following intellectual property to the extent related exclusively to the Facility and set forth in Schedule VIII: trade names, trademarks, trademark registrations, trademark applications, service marks, service mark registrations, service mark applications; copyrights, copyright registrations, copyright applications; patent rights (including, without limitation, issued patents, applications, divisions, continuations and continuations-in-part, reissues, patents of addition, utility models and inventors’ certificates); licenses with respect to any of the foregoing; trade secrets, proprietary manufacturing information and inventions, operating and systems software, drawings and designs; customer and vendor lists and the goodwill associated with any of the foregoing (the “Assigned Intellectual Property”);

(vii)         any governmental licenses and permits of Seller relating exclusively to the Facility to the extent any of the same are transferable or assignable to Purchaser and as described on Schedule IX (the “Assigned Permits”);

(viii)        except for Retained Books and Records, at least one copy (in its existing hard copy or electronic form) of each of the following:  the operating and maintenance records; operating, safety and maintenance manuals; engineering design plans and specifications; blueprints and as-built drawings; procedures; environmental data and reports; governmental filings; and inspection and test reports related exclusively to the Facility that are in Seller’s possession (subject to the right of Seller to redact information in such records that is not related exclusively to the Facility and to retain archival copies).  This is not to include accounting records of Seller or third party proprietary items for which consent to transfer cannot be obtained as listed on Schedule X.  The foregoing is not intended to require Seller to modify or reformat any of the information provided pursuant to this subparagraph or to search or produce database or email archives, routine correspondence, SEC or FERC filings, records relating to internal project approvals, negotiations with contractors or vendors, or any other materials that are not necessary to the future ownership, operation or maintenance of the Facility or the Purchased Assets; and

(ix)           to the extent acquired by Seller from Panhandle prior to Closing, Seller’s 50% ownership interest in the Pipeline.

“Real Property” has the meaning set forth in clause (iv) of the definition of “Purchased Assets.”

“Real Property Leases” has the meaning set forth in clause (iv) of the definition of “Purchased Assets”.

“Retained Assets” shall mean the following described assets, rights and properties of Seller:

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(i)            all cash and cash equivalents, including, without limitation, bank overdrafts and marketable securities;

(ii)           any accounts receivable or intercompany obligations owed to Seller by any Affiliate of Seller;

(iii)          all insurance policies of Seller or acquired or assumed by Seller prior to the Closing Date pertaining to the Facility and all rights of Seller of every nature and description under or arising out of such insurance policies;

(iv)          all rights to use the name “DPL Energy” and all derivatives thereof;

(v)           claims for refunds of Taxes paid by Seller;

(vi)          all past, present and future claims, causes of action, choses in action, rights of recovery and rights of set-off of any kind arising out of or relating to events prior to the Closing Date, except to the extent, but only to the extent, such claims or causes of action offset the liabilities assumed by Purchaser pursuant to this Agreement or the Assignment and Assumption Agreement;

(vii) any rights, interest or assets not included in the Purchased Assets;

(viii)        the assets, properties, rights and interests of Seller not related to the Facility;

(ix)           all rights, if any, of Seller for refunds of transmission credits under the Interconnection Service Agreement dated June 2006 among PJM Interconnection, LLC, Seller, and DP&L (“Electric Interconnection Agreement”), relating to payments, if any, made by Seller under such agreement for upgrades to the transmission system of DP&L;

(x)            all rights of Seller under this Agreement and the agreements and instruments delivered to Seller by Purchaser pursuant to this Agreement;

(xi)           the Retained Contracts; and

(xii)          the other assets listed on Schedule XI.

“Retained Contracts” means those contracts set forth on Schedule 7.06(b).

“Retained Books and Records” shall mean (i) all corporate seals, minute books, charter documents, entity ownership records, original tax and financial records and such other files, books and records to the extent they relate to any of the Retained Assets or Retained Liabilities or the organization, existence, capitalization or debt financing of Seller or of any Affiliate of Seller and (ii) all books and records of Seller prepared in connection with or relating in any way to the transactions contemplated by this Agreement.

“Retained Liabilities” has the meaning set forth in Section 2.05(b).

“Second Half” shall mean, with respect to any Tax year, the period from and including July 1 to and including December 31 of such year.

“Tax Abatement Agreement” has the meaning set forth in Section 7.14(c).

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“Taxes” shall mean all taxes, charges, fees, duties (including custom duties), levies or other assessments, including income, commercial activity, gross receipts, net proceeds, capital gains, capital stock, ad valorem, turnover, real, personal and other property (tangible and intangible), sales, use, franchise, excise, value added, stamp, leasing, lease, user, transfer, fuel, excess profits, occupational, interest equalization, windfall profits, unitary, license, payroll, environmental, disability, severance, employees’ income withholding, other withholding unemployment and Social Security taxes, duties, assessments, charges (including recapture of tax items or benefits) and any payments in lieu of taxes or fees pursuant to compensation agreements or otherwise, which are imposed by, or pursuant to agreements with, any Governmental Authority, and such term shall include any interest, penalties or additions to tax attributable thereto.

“Tax Period” shall mean any period prescribed by any Governmental Authority for which a Tax Return is required to be filed or a Tax is required to be paid.

“Tax Return” shall mean all returns and reports of or with respect to Taxes required to be filed with any Governmental Authority or depository.

“TETCO” shall mean Texas Eastern Transmission Corporation.

“Threshold” has the meaning set forth in Section 12.02(b).

“Unassigned Contracts” has the meaning set forth in Section 14.02(b).

“Vectren” shall mean Vectren Energy Delivery of Ohio, Inc., Vectren Corporation, and/or Indiana Gas Company, Inc., as the context requires.

1.02         Interpretation.  Unless the context of this Agreement otherwise requires, (a) words of any gender shall be deemed to include each other gender, (b) words using the singular or plural number shall also include the plural or singular number, respectively, (c) references to “hereof”, “herein”, “hereby” and similar terms shall refer to this entire Agreement; and (d) all references in this Agreement to Articles, Sections, Schedules and Exhibits shall mean and refer to Articles, Sections, Schedules and Exhibits of this Agreement, (e) all references to statutes and related regulations shall include all amendments of the same and any successor or replacement statutes and regulations, (f) references to any Person shall be deemed to mean and include the successors and permitted assigns of such Person (or, in the case of a Governmental Authority, Persons succeeding to the relevant functions of such Person); and (g) the words, “include,” “includes” and “including” shall be deemed to be followed by the words “without limitation.”

1.03         Knowledge.  As used herein the terms “knowledge” or “best knowledge” shall have the same meaning and shall mean the actual knowledge of Gary Stephenson, Vice President of Seller; Mandy Goubeaux, Manager, Generation Investment Planning, DP&L, Randall Griffin, Chief Regulatory Counsel, DP&L, and Chris Hergenrather, Tax Manager of DP&L, as it relates to Seller; and Patrick O’Loughlin as it relates to Purchaser, in each instance after due inquiry and reasonable investigation.

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ARTICLE II

Purchase and Sale, Purchase Price,
Allocation and Other Related Matters

2.01         Purchase and Sale.  Upon the terms and subject to the conditions of this Agreement, at the Closing Seller shall sell, assign, convey, transfer and deliver to Purchaser and Purchaser shall acquire from Seller the Purchased Assets.

2.02         Purchase Price.  The aggregate purchase price (the “Purchase Price”) payable by Purchaser for the Purchased Assets shall be Forty-Nine Million One Hundred Eighty Thousand Dollars ($49,180,000), which price is inclusive of Inventory.

2.03         Initial Purchase Price.  At the Closing, Purchaser shall pay to Seller, by wire transfer of immediately available funds to a bank account designated by Seller prior to the Closing, an amount equal to the Purchase Price, less the Holdback Amount, if any (the “Initial Purchase Price”).

2.04         Purchase Price Holdback.  In the event that the repairs to unit 1B of the Facility are not completed (which completion shall be evidenced by delivery to Purchaser of the Pratt & Whitney Repair Report) and paid for by Seller as contemplated by Section 5.02(i) prior to the Closing Date, Purchaser shall hold back from the Purchase Price One Million Dollars ($1,000,000) (the “Holdback Amount”).  In such event, the Holdback Amount will be paid to Seller, or retained by Purchaser, when, as and to the extent provided in Section 14.02(a) of this Agreement.

2.05         Assumed Liabilities and Retained Liabilities.  (a)  As additional consideration for the purchase of the Purchased Assets, Purchaser shall, at the Closing, assume, agree to perform, and in due course pay and discharge, the following debts, obligations and liabilities of Seller relating to the Facility, in each case in accordance with the terms thereof, except to the extent that such debts, obligations or liabilities, but for a breach or default by Seller, would have been paid, performed or otherwise discharged on or prior to the Closing Date or to the extent the same arise out of any such  breach or default or out of any event that, after the giving of notice or with the lapse of time, or both, would constitute a breach or default by Seller (the “Assumed Liabilities”):

(i)            all liabilities and obligations arising or accruing after the Closing under the Assigned Contracts, to the extent that such Assigned Contracts are either assigned to Purchaser as of the Closing Date or, if not so assigned, Purchaser receives the benefits thereof as contemplated by Section 14.02(b) of this Agreement;

(ii)           all liabilities and obligations to comply with the Assigned Permits in connection with the operation of the Facility after the Closing;

(iii)          all liabilities and obligations arising out of the ownership of the Assigned Intellectual Property after the Closing;

(iv)          Purchaser’s share of any prorated Taxes as provided in Section 14.06 below; and

(v)           all other liabilities and obligations arising out of the ownership or operation of the Facility accruing after the Closing on the Closing Date and related to any period after the Closing.

(b)           Except for the Assumed Liabilities, Purchaser shall not assume by virtue of this Agreement, the Assumption Agreement, or any other ancillary agreement, or the transactions contemplated hereby or thereby, and shall have no liability for, any debts, liabilities or obligations of

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Seller of any nature, fixed or contingent, known or unknown, relating to the Facility or otherwise (the “Retained Liabilities”), including the following:

(i)            all liabilities and obligations arising out of or relating to the Retained Assets;

(ii)           all liabilities and obligations to comply with the Assigned Permits in connection with the operation of the Facility prior to the Closing;

(iii)          all liabilities and obligations arising out of the ownership of the Assigned Intellectual Property prior to the Closing;

(iv)          all liabilities and obligations of Seller for any federal, state, local or foreign Taxes for any periods prior to the Closing whether or not relating to the Facility, including liability for any tax adjustment relating to a period prior to the Closing that arises after the Closing Date and Seller’s share of any prorated Taxes as provided in Section 14.06 below;

(v)           all of Seller’s or its Affiliates’ liabilities and obligations for Seams Elimination Cost/Charge Adjustment/Assignment (SECA) charges under the Electric Interconnection Agreement or otherwise;

(vi)          all liabilities and obligations arising or accruing under the Assigned Contracts prior to the Closing; and

(vii)         all other liabilities and obligations arising out of the ownership or operation of the Facility accruing prior to the Closing.

(c)           This Section 2.05 is not intended to and shall not benefit any Person other than Seller and Purchaser.

(d)           All of the Retained Liabilities shall remain and be the debts, obligations and liabilities of Seller, and Purchaser shall have no liability or responsibility for any of the debts, obligations or liabilities arising therefrom.

2.06         Sales and Transfer Taxes.  (a) Purchaser and Seller shall each pay one-half of  the cost of any real property transfer or similar tax imposed by any Governmental Authority which arises out of the transfer or recordation of the Real Property; and (b) Purchaser shall pay all other transfer, sales, purchase, use, value added, excise or similar taxes imposed by any Governmental Authority which arises out of the transfer of any of the other Purchased Assets.

2.07         Allocation of Purchase Price.  The Purchase Price shall be allocated among the Purchased Assets in accordance with Schedule 2.07.  Each party shall complete IRS Form 8594 consistently with such allocation and cooperate with the other party in the preparation of Form 8594 and furnish the other party with a copy of such form prepared in draft form, within a reasonable period before the filing due date of such form, and neither Seller nor Purchaser shall file any tax return or take a position with a tax authority that is inconsistent with such allocation.  If Seller and Purchaser are not able to agree as to the allocation of the Purchase Price, then each party shall make its own allocation of the Purchase Price and file IRS Form 8594 as it shall determine.

2.08         Parent Guaranty.  On the date hereof, the Guarantor has executed and delivered to Purchaser the Parent Guaranty.

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ARTICLE III

Closing and Closing Date Deliveries

3.01         Closing.  The term “Closing” as used herein shall refer to the actual conveyance, transfer, assignment and delivery of the Purchased Assets to Purchaser in exchange for the Initial Purchase Price to Seller pursuant to Section 2.03 of this Agreement.  The Closing shall take place at the offices of Thompson Hine LLP, 10 West Broad St., Columbus, Ohio, at 10:00 a.m. local time on the fifth business day following the date upon which all of the conditions precedent set forth in Articles IX and X of this Agreement are satisfied or waived by the appropriate party hereto, subject to Article XI of this Agreement, or at such other place and time or on such other date as is mutually agreed to in writing by Seller and Purchaser (“Closing Date”).

3.02         Closing Deliveries by Seller.  At the Closing, Seller shall deliver to Purchaser:

(a)           A general warranty deed in substantially the form attached hereto as Exhibit B, duly executed by Seller, for all Real Property conveying to Purchaser good, marketable and insurable (at regular rates) title to the Real Property, free and clear of any and all Liens, except the Permitted Real Estate Exceptions;

(b)           An Easements Assignment and Assumption Agreement in substantially the form attached hereto as Exhibit C, duly executed by Seller, conveying to Purchaser good and marketable title to the Easements, free and clear of any and all Liens, except the Permitted Real Estate Exceptions;

(c)           All such bills of sale, lease assignments, trademark assignments, copyright assignments, patent assignments, contract assignments and other documents and instruments of sale, assignment, conveyance and transfer, as Purchaser or its counsel may deem necessary or desirable, duly executed by Seller, including a Bill of Sale in substantially the form attached hereto as Exhibit D, duly executed by Seller, for the Facility, an Assignment and Assumption Agreement in substantially the form attached hereto as Exhibit E, duly executed by Seller, for the Real Property Leases, the Assigned Contracts, the Assigned Intellectual Property and the Assigned Permits;

(d)           Certified copies of minutes or unanimous written consents of the Board of Managers of Seller approving the execution, delivery and performance of this Agreement and the consummation of the transactions contemplated by this Agreement;

(e)           A Certificate, dated the Closing Date, executed by the appropriate officers of Seller, required by Section 9.02 of this Agreement; and

(f)            Such other documents, agreements, instruments and certificates as Purchaser, its financing providers, or its counsel may reasonably request to carry out the purposes of this Agreement, including, but not limited to, the documents to be delivered pursuant to Article IX of this Agreement and, if Purchaser has informed Seller in writing during the option period set forth in Section 14.07 that Purchaser intends to enter into the O&M Transition Services Agreement, such agreement duly executed by Seller.

3.03         Closing Deliveries by Purchaser.  At the Closing, Purchaser shall deliver to Seller:

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(a)           The Initial Purchase Price;

(b)           Certified copies of minutes or unanimous written consents of the Board of Trustees of Purchaser approving the execution, delivery and performance of this Agreement and the consummation of the transactions contemplated under this Agreement;

(c)           A Certificate, dated the Closing Date, executed by the appropriate officers of Purchaser, required by Section 10.02 of this Agreement;

(d)           The Assignment and Assumption Agreement, duly executed by Purchaser, reflecting the assumption by Purchaser of the liabilities set forth in Section 2.05(a) of this Agreement;

(e)           Ohio direct pay permit; and

(f)            Such other documents, agreements, instruments and certificates as Seller or its counsel may reasonably request to carry out the purposes of this Agreement, including, but not limited to, the documents to be delivered pursuant to Article X of this Agreement and, if Purchaser has informed Seller in writing during the option period set forth in Section 14.07 that Purchaser intends to enter into the O&M Transition Services Agreement, such agreement duly executed by Purchaser.

3.04         Cooperation.  Seller and Purchaser shall, on request, on and after the Closing Date, cooperate with one another by furnishing any additional information, executing and delivering any additional documents and/or instruments and doing any and all such other things as may be reasonably required by the parties or their counsel to consummate or otherwise implement the transactions contemplated by this Agreement.

ARTICLE IV

Pre-Closing Filings

4.01         Government Filings.  Seller and Purchaser covenant and agree with each other (a) subject to the allocation of responsibility set forth in Section 4.02, promptly to file, or  cause to be promptly filed, with any Governmental Authority, all such notices, applications or other documents as may be necessary to consummate the transactions contemplated hereby, including any required filings with FERC, and (b) thereafter diligently to pursue all consents or approvals from any such Governmental Authorities as may be necessary to consummate the transactions contemplated hereby.

4.02           FERC Regulatory Filing.

(a)           Seller shall have primary responsibility for the preparation and filing of the regulatory filing(s) to be made to FERC requesting approval under Section 203 (and Section 205, if necessary) of the Federal Power Act (the “FERC Regulatory Filing”).  Upon the request of Seller, Purchaser shall use its commercially reasonable efforts to cooperate with the Seller to prepare and file the FERC Regulatory Filing.  The parties hereto acknowledge and agree that no filings with the Public Utilities Commission of Ohio have been made, nor are they required or intended to be made, nor are such filings a condition precedent to the Closing.

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(b)           Purchaser and Seller shall use commercially reasonable efforts to file as soon as practicable after the date hereof the FERC Regulatory Filing, and execute all agreements and documents, in each case, to obtain as promptly as practicable approval under Section 203 (and Section 205, if necessary) of the Federal Power Act.  Purchaser and Seller shall act diligently, and shall coordinate in completing and submitting the FERC Regulatory Filing.  Purchaser and Seller shall each have the right to review and approve (which approval shall not be unreasonably delayed or withheld) in advance all of the information relating to the transactions contemplated by this Agreement which appears in the FERC Regulatory Filing.  Purchaser and Seller agree that all telephonic calls and meetings with the FERC regarding the transactions contemplated by this Agreement shall be conducted by Purchaser and Seller jointly.

4.03         Cooperation in Regulatory Review Process.  Each party shall consult and cooperate in the regulatory review process.  Notwithstanding anything in this Agreement to the contrary, each party agrees not to oppose, obstruct, or otherwise interfere with, in any manner whatsoever, the efforts of the other party to obtain consent, clearance or approval required by any Governmental Authority or applicable Law with respect to the transactions contemplated hereby.

4.04         PJM Notification of Sale and Scheduling and Bidding for day of Closing.

(a)           Seller and Purchaser shall cooperate in the transfer of the Facility from Seller’s account with PJM to Purchaser’s account with PJM which cooperation shall include the transfer of ownership of the Facility on the Closing Date and the allocation of costs and revenues related to the Facility for the Closing Date.  Seller has provided to or shall provide to Purchaser as of the Closing Date access to all historical GADS data related to the Facility.

(b)           For any Facility bids submitted to PJM that will be effective on the Closing Date, Seller agrees to bid the Facility units in accordance with the following guidelines:

(i)            At the Seller’s calculated maximum allowable cost pursuant to PJM Manual 15 - Cost Development Guideline (or such other guideline that may replace the PJM Manual 15 — Cost Development Guideline) for the units at the Facility plus the allowable 10% markup, and

(ii)           Using a delivered gas price equivalent to the average Intercontinental Exchange (“ICE”) high trade/settlement (as determined by Seller in its discretion) for “Dominion South” and “TCO Pool” for a gas flow day that coincides with the Closing Date plus the applicable adders for pipeline fuel, transportation, storage/balancing, and other adders deemed appropriate by Seller to deliver fuel to the Facility.

4.05         2007/2008 RPM Bidding.  The parties agree and acknowledge that capacity rights within PJM’s current capacity market construct as well as its proposed Reliability Pricing Model (“RPM”) construct shall flow to Purchaser as of the Closing Date.  If the Closing Date occurs after the bidding window for the 2007/2008 delivery year base residual auction, Seller shall bid the units into the RPM process at a value that in Seller’s sole discretion approximates the avoidable cost (as defined by PJM and calculated in a manner consistent with how Seller calculates avoidable cost for its other peaking facilities) of making the Facility available for the 2007/2008 PJM delivery year.  Seller shall then transfer the Facility to Purchaser in the PJM system as of the Closing Date. The parties shall transfer both the RPM capacity benefits and PJM market seller responsibilities relating to the Facility to Purchaser as of the Closing Date.

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ARTICLE V

Pre-Closing Covenants

5.01         Due Diligence Review.  (a)  Pending Closing, Seller shall at all reasonable times and upon reasonable prior notice make the properties, assets, books and records pertaining exclusively to the Facility available for examination, inspection and review by Purchaser and its lenders, agents and representatives; provided, however, Purchaser’s inspections and examinations shall not unreasonably disrupt the normal operations of the Facility, and provided further, the scope of Purchaser’s inspections and examinations shall not include Seller’s employee records, Seller’s accounting records that do not relate to the future operation of the Facility or commercially sensitive information not related exclusively to the Facility, as reasonably determined by Seller.  In addition, Seller shall use commercially reasonable efforts to provide Purchaser with reasonable access, to the extent Seller has such access, to all books and records relating to the Pipeline in order for Purchaser to perform due diligence on the Pipeline.

(b)           Purchaser covenants and agrees with Seller to promptly notify Seller if Purchaser or its representatives in the course of their pre-Closing due diligence determine that there are any inaccuracies in, or breaches or violations of, any of Seller’s representations, warranties or covenants contained in this Agreement.

5.02         Pending Closing.  Pending the Closing, and unless otherwise consented to by Purchaser, Seller shall:

(a)           conduct and carry on operations at the Facility in the ordinary course, consistent with past practices;

(b)           not purchase, sell, lease, mortgage, pledge or otherwise acquire or dispose of any material properties or assets of or in connection with the Facility, except for tangible personal property purchased, sold or otherwise disposed of in the ordinary course, consistent with past practices, and not unusual in type or amount;

(c)           not enter into, or become obligated under, any lease, contract, agreement or commitment with respect to the Facility, except (i) for any agreements for the purchase of supplies (including gas) or Inventory or the sale of Inventory in the ordinary course, consistent with past practices, and not unusual in type or amount, (ii) for any other lease, contract, agreement or commitment having a term of one (1) year or less and involving either a payment by or to Seller of less than $50,000, or (iii) as otherwise set forth in Schedule 5.02;

(d)           not materially change, amend, or otherwise modify or terminate any Material Contract;

(e)           maintain in full force and effect with respect to the Facility, policies of insurance of the same type, character and coverage as the policies currently carried and described in Schedule 7.07;

(f)            not make any material changes in its accounting systems, policies, principles or practices related solely to the Facility, except as required by Law;

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(g)           except as set forth in Schedule 5.02, not authorize or make any capital expenditures related to the Facility which individually or in the aggregate are in excess of $100,000;

(h)           not agree to do any of the items prohibited by Section 5.02(b), (c), (d), (f) or (g);

(i)            diligently pursue the repair of the damage to unit 1B at the Facility identified in the Pratt & Whitney Greenville 1B Borescope Inspection Report dated September 1, 2006, and the Pratt & Whitney Revised Borescope Inspection Report dated September 13, 2006, and pay and otherwise be fully responsible for the cost of such repairs (including repair work in the following areas:  the 3rd, 4th, 5th and 6th stages of the Low Pressure Compressor; the 7th, 8th and 9th stages of the High Pressure Compressor; and the Turbine Exhaust Case); and

5.03         Cooperation.  (a) Pending the Closing Date, the parties shall proceed with all reasonable diligence and use commercially reasonable efforts to obtain the written consents, authorizations or approvals required for the consummation of transactions contemplated by this Agreement, including the consents, authorizations or approvals of any third parties required to assign the Material Contracts and Assigned Permits to Purchaser; provided, however, Seller shall have no obligation to pay any third Person a fee to obtain any such consent, authorization or approval not already provided for by the applicable agreement or Law.

(b)           From the date of this Agreement and until the first to occur of the Closing or the termination of this Agreement in accordance with its terms, unless otherwise agreed in writing by the parties, Purchaser and Seller will use all reasonable efforts to satisfy the conditions to closing stated in Article IX and Article X.  Purchaser and Seller will notify each other of any event that occurs, or condition that comes to their attention, that may delay the Closing or that constitutes a breach of their respective representations, warranties, covenants or agreements in this Agreement and will use all reasonable efforts to mitigate any such delay or to cure any such breach.

5.04         No Shop.  Seller will not, and will cause its Affiliates and its and their respective directors, officers, employees, agents, and advisors not to, solicit offers from, negotiate with, execute agreements with, or provide non-public information to, any party other than Purchaser with respect to the possible sale or other disposition of the Facility or the Purchased Assets or any interest therein and will, and will cause its Affiliates and its and their respective directors, officers, employees, agents, and advisors to, cease any current discussions with any party other than Purchaser concerning any such sale or other disposition; provided, however, that the foregoing shall not preclude communications or disclosures necessary to implement the provisions of this Agreement or to comply with accounting or Securities and Exchange Commission disclosure obligations or the rules of any stock exchange.

5.05         Workforce.  Pending Closing and at times determined by Seller in its reasonable discretion after prior written notice from Purchaser to Seller of Purchaser’s desire to interview and/or make an offer of employment to one or more of the employees of Seller listed on Schedule 7.13, Purchaser (or any of its Affiliates or agents or contractors) may (a) interview Seller’s employees who are employed at the Facility to determine whether Purchaser (or any of its Affiliates or agents or contractors) wishes to make offers of employment to any such employee(s), and (b) make offers of employment to any such employee(s); provided, however, that to the extent any such employee accepts an offer of employment from Purchaser (or any of its Affiliates or agents or contractors), Purchaser agrees not to permit, or to cause its Affiliates or agents or contractors not to permit, such employees to commence employment with Purchaser (or any of its Affiliates or agents or contractors) prior to the later of the Closing Date and the termination or expiration of the O&M Transition Services Agreement.

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5.06         Tax Abatement Agreement.  Pending Closing and, if necessary, after the Closing Date, Seller shall use good faith and commercially reasonable efforts to assist Purchaser in obtaining the written approval of Greenville Township and the Darke County Board of Commissioners (and/or other applicable governmental entity) in the transfer of Seller’s Tax Abatement Agreement to Purchaser at, or if necessary, after the Closing.  In the event that such approval is obtained, the Tax Abatement Agreement and the Compensation Agreements shall be transferred and assigned to Purchaser at the Closing or as soon thereafter as is reasonably practicable. In the event that (i) the Tax Abatement Agreement is transferred to Purchaser or (ii) Purchaser enters into a replacement agreement with Greenville Township and the Darke County Board of Supervisors providing for substantially similar benefits as provided to Seller in the Tax Abatement Agreement, then Purchaser agrees to assume at such time all of Seller’s rights and obligations under the Compensation Agreements accruing on and after such date, subject to any required counterparty approval(s) to the transfer thereof. Until Seller and Purchaser are able to obtain written approval of Greenville Township and Darke County (and/or applicable governmental entity) to transfer the Tax Abatement Agreement to Purchaser, the Seller shall be responsible for all obligations (but in no event including property taxes for periods after the Closing) with respect to the Tax Abatement Agreement and the Compensation Agreements until the transfer is completed or each agreement expires or is otherwise cancelled or voided.  In the event that the O&M Transition Services Agreement (if entered into between Seller and Purchaser) would prevent Purchaser from obtaining the benefits of the Tax Abatement Agreement, Purchaser may terminate the O&M Transition Services Agreement in its reasonable discretion.  Notwithstanding anything in this Agreement to the contrary, neither the assignment of the Tax Abatement Agreement nor Purchaser’s entry into any replacement agreement shall be a condition precedent to the obligations of either party under this Agreement.

5.07         EFT Service Agreement.  Seller shall use good faith and commercially reasonable efforts to obtain the written consent of Panhandle to assign to Purchaser Seller’s rights and obligations relating to the Facility under the EFT Service Agreement.

ARTICLE VI

Pre-Closing Deliveries

6.01         Pre-Closing Title Policy and Survey Delivery.  At least twenty (20) days prior to the Closing Date, Seller shall obtain and deliver to Purchaser:

(a)           With respect to the Real Property described on Schedule IV (“Insured Parcels”), an owner’s preliminary title report on title covering a date subsequent to the date hereof, issued by a title insurance company reasonably acceptable to Purchaser, which preliminary report shall contain a commitment of such title insurance company to (i) issue an owner’s title insurance policy on ALTA  Owner’s Form (10-17-1992) insuring Purchaser as to the fee simple title in each Insured Parcel in an amount set forth in Schedule 6.01 and subject only to, (A) Permitted Exceptions, (B) such other minor encumbrances or imperfections, if any, which are not substantial in nature or amount and which do not detract from the value of such parcels of real estate as presently used or impair the operations of the Facility; and (C) such other matters as may be disclosed in Schedule 6.01 or consented to in writing by Purchaser (clauses (A), (B) and (C) are collectively referred to as “Permitted Real Estate Exceptions”); and (ii) affirmatively insure that each such parcel of real estate adjoins a public road or highway and that entrance to and exit from such premises may be had via such public road or highway; and

(b)           ALTA/ACSM Land Title Surveys certified to Purchaser and the title company by a registered land surveyor (registered in the jurisdiction where the property is located) and prepared in

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conformity with Minimum Standard Detail Requirements for ALTA/ACSM Land Title Surveys jointly established and adopted by ALTA and NSPS in 2005, as of a date subsequent to the date hereof, of each Insured Parcel.

(c)           The costs and expenses of the title insurance policies referred to in Section 6.01(a) of this Agreement and the surveys referred to in Section 6.01(b) of this Agreement, shall be paid by Purchaser, whether or not the transactions contemplated under this Agreement are consummated.

ARTICLE VII

Warranties and Representations of Seller

Seller warrants and represents to Purchaser as follows:

7.01         Organization and Good Standing.  Seller is a limited liability company duly formed, validly existing and in good standing under the laws of the State of Ohio.  Seller is duly qualified to transact business and is in good standing in each jurisdiction where such qualification is necessary, except where the failure to be so qualified or in good standing could not reasonably be expected to have a Material Adverse Effect.

7.02         Authority.  Seller has the right and power to enter into, and perform its obligations under this Agreement; and has taken all requisite action to authorize its execution and delivery of this Agreement and the performance of its obligations under this Agreement; and this Agreement has been duly authorized, executed and delivered by Seller and is binding upon, and enforceable against, Seller in accordance with its terms; except as such enforcement may be limited by bankruptcy, insolvency, reorganization, moratorium or other similar laws affecting enforcement of creditors’ rights generally and by general principles of equity (whether applied in a proceeding at law or in equity).

7.03         No Violations and Consents.  (a)  The execution, delivery and performance of this Agreement by Seller does not and will not, after the giving of notice, or the lapse of time, or otherwise, (i) conflict with, result in a breach of, or constitute a default under, the Certificate of Formation or Operating Agreement of Seller, or to Seller’s knowledge, any Law or any Material Contract to which Seller is a party; (ii) result in the creation of any Lien upon any of the Purchased Assets; (iii) to Seller’s knowledge, terminate, amend or modify or, except as disclosed on Schedule 7.03, require the consent of any party under, or give any party the right to terminate, amend, modify, abandon, refuse to perform, any Material Contract to which Seller is a party; or (iv) to Seller’s knowledge, accelerate or modify, or give any party the right to accelerate or modify, the time within which, or the terms under which, any duties or obligations are to be performed by Seller, or any rights or benefits are to be received by any Person, under any Material Contract to which Seller is a party.

(b)           The execution and delivery by Seller of this Agreement does not, and the performance by Seller of its obligations hereunder, including the transfer of the Pipeline to Purchaser if Seller obtains ownership of a 50% interest in the Pipeline prior to Closing, and the transfer of the EFT Service Agreement to Purchaser, will not, require Seller to obtain any consent, approval, authorization or other action of, or make any filing with or give any notice to, any Governmental Authority or Person, except (i) as disclosed in Schedule 7.03, (ii) where failure to obtain such consents, approvals, authorizations or actions, make such filings or give such notices would not have a Material Adverse Effect and (iii) as may be necessary as a result of any facts or circumstances relating solely to Seller. Schedule 7.03 sets forth a true and complete list of each consent, approval, authorization or other action of, or filing with or notice to, any Governmental Authority or Person that is required in connection with

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the execution and delivery by Seller of this Agreement or the performance by Seller of its obligations hereunder (including the assignment of the Material Contracts and the Assigned Permits to Purchaser), except for such consents, approvals, authorizations, actions, filings or notices the failure of which to obtain or make, as applicable, would not have a Material Adverse Effect.

7.04         Brokers.  Except as otherwise set forth in Schedule 7.04, neither this Agreement nor the sale of the Purchased Assets or any other transaction contemplated by this Agreement was induced or procured through any Person acting on behalf of, or representing, Seller or any of its Affiliates as broker, finder, investment banker, financial advisor or in any similar capacity. Seller shall be responsible for the payment of all fees, costs, expenses and other charges to the Persons identified on Schedule 7.04, as well as Pace Global Energy Services, required in connection with the transactions contemplated by this Agreement.

7.05         Required Assets.

(a)           (a)           Except for the Retained Assets described in paragraphs (i)-(vi) and (viii)-(xii) of the definition of “Retained Assets,” all of the material rights, properties and assets required by Seller in connection with owning and operating (including obtaining natural gas transportation services for) the Facility are (i) either owned by Seller or licensed or leased to Seller under one of the contracts or agreements conveyed to Purchaser under this Agreement (except as otherwise contemplated by Section 14.02 hereof) and (ii) included in the Purchased Assets; and

(b)           Except for the Retained Assets described in paragraphs (i)-(vi) and (viii)-(xii) of the definition of “Retained Assets,” and except as set forth in Schedule 7.05(b), the Purchased Assets are sufficient for the operation and maintenance of the Facility in substantially the same manner as historically operated and maintained by Seller.

7.06         Contracts.  (a) Schedule 7.06(a) contains a true and complete schedule setting forth all personal property leases and all other contracts, agreements and commitments to which Seller is a party and relating to the Purchased Assets or operation of the Facility, except (i) any agreements for the purchase of supplies or inventory; (ii) leases, contracts, agreements or commitments which may be terminated by Seller on thirty (30) days or less written notice without penalty to Seller, unless such are material to the operation and maintenance of the Facility, in which case such shall be listed on Schedule 7.06(a); (iii) leases, contracts, agreements or commitments which have a term of one (1) year or less or involve payment by or to Seller of $100,000 or less, unless such are material to the operation and maintenance of the Facility, in which case such shall be listed on Schedule 7.06(a); (iv) the Retained Contracts set forth on Schedule 7.06(b); or (v) the Tax Abatement Agreement and the Compensation Agreements.  The Pipeline Agreements, the Assigned Intellectual Property, and the leases, contracts, agreements and commitments set forth in Schedule 7.06(a) are collectively referred to herein as the “Material Contracts.”

(b)           Other than as set forth in Schedule 7.06(b), neither Seller, nor to Seller’s knowledge, any other party to any of the Material Contracts, has commenced any action against any of the parties to the Material Contracts or given or received any written notice of any material default or violation under any Material Contract that was not withdrawn or dismissed. To Seller’s knowledge, each of the Material Contracts is, or will be at the Closing, valid, binding and in full force and effect against Seller, except as is otherwise set forth on Schedule 7.06(a). Correct and complete copies of the Material Contracts have been made available to Purchaser prior to the date hereof.

7.07         Insurance.  All material properties and risks associated with the Facility are covered by valid and currently effective insurance policies or binders of insurance or programs of

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self-insurance in such types and amounts as are consistent with customary practices and standards in Seller’s industry.  Schedule 7.07 contains a complete list of all material liability, property, accident, casualty, fire, flood, workers’ compensation or other insurance policies and arrangements affecting or relating to the ownership, use or operations of the Purchased Assets or the Facility.

7.08         Title to Real Property.  Seller has good and marketable fee simple title to the Real Property free and clear of all Liens, except for the Permitted Real Estate Exceptions.  Each parcel of Real Property adjoins a public road or highway and entrance to and exit from such premises may be had via such public road or highway. Schedules IV, V and VI contain a true and complete schedule setting forth all real property, real property leases, easements, rights of way, and real property licenses which Seller owns, leases, operates, occupies, subleases or uses relating to the Purchased Assets or operation of the Facility.  Schedule 7.08 contains a complete list of all Permitted Real Estate Exceptions that are of record as of the date of this Agreement.

7.09         Title to Purchased Assets.  Seller has good and marketable title to all the material Purchased Assets consisting of tangible personal property owned by Seller and valid and subsisting leases with respect to all of the material Purchased Assets consisting of tangible personal property leased by Seller and in each case used exclusively in the Facility.  All such owned tangible personal property is owned free and clear of all Liens, except: (a) as set forth in Schedule 7.09; (b) liens for Taxes and assessments not yet payable; (c) liens for Taxes, assessments and charges and other claims, the validity of which Seller is contesting in good faith, provided, however, that Seller shall indemnify Purchaser against and hold it harmless from all liabilities of and damages to Purchaser resulting from such liens; (d) liens securing or relating to liabilities or obligations which are to be assumed by Purchaser pursuant to this Agreement or the Assumption Agreement; and (e) such other minor imperfections of title, Liens, claims and other charges and encumbrances the existence of which would not have a Material Adverse Effect.

7.10         Intellectual Property.  (a)  To Seller’s knowledge, except as set forth in Schedule 7.10, there is not now and has not been during the past three (3) years any infringement or misappropriation by Seller of any valid patent, trademark, trade name, servicemark, copyright or trade secret which relates to the Facility and which is owned by any third party, and there is not now any existing or, to the knowledge of Seller, threatened claim (asserted in writing) against Seller of infringement or misappropriation of any patent, trademark, trade name, servicemark, copyright or trade secret, which relates to the Facility and which is owned by any third party.

(b)           There is no pending or threatened claim by Seller against others for infringement or misappropriation of any trademark, trade name, servicemark, copyright or trade secret owned by Seller and which is utilized in the conduct of the Facility and included in the Purchased Assets.

7.11         Litigation.  Except as set forth in Schedule 7.11, (a) there are no actions, claims or proceedings pending against Seller relating to the Facility or any of the Purchased Assets at law or in equity, before or by any Governmental Authority, or by any other Person; and (b) neither Seller in respect of the Facility nor any of the Purchased Assets is subject to any order, judgment or decree of any Governmental Authority having or which could reasonably be expected to have a Material Adverse Effect.

7.12         Compliance With Laws.  To the best of Seller’s knowledge, Seller is not in material violation of any Law applicable to the Facility or by which any of the Purchased Assets are bound or subject, except (a) as set forth in Schedule 7.12 and (b) for violations the existence of which would not have a Material Adverse Effect.  Notwithstanding the foregoing, compliance with Environmental Laws is exclusively and solely governed by Section 7.16 hereof.

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7.13         Labor Matters.  Schedule 7.13 contains a list of all of the employees of Seller whose primary responsibility relates to the operation or maintenance of the Facility.  All employees employed at the Facility are employees of Seller; provided, however, that certain employees of DP&L may from time to time work at the Facility in connection with their primary responsibilities elsewhere.  There are no collective bargaining agreements to which Seller is a party, relating to employees employed by Seller in connection with the Facility.  To Seller’s knowledge, there are no material organizing efforts presently being made involving any of the employees at the Facility.

7.14         Taxes.  (a) Except as set forth in Schedule 7.14, Seller has duly and timely filed all federal, state and local Tax Returns required to be filed by it with respect to the operation, ownership, assets or activities of, or related to, the Facility or the Purchased Assets and paid all Taxes due (whether or not shown thereon to be due on such Tax Returns).  To the best of Seller’s knowledge, all such Tax Returns were correct and complete.

(b)           There is no lien, or to Seller’s knowledge proposed lien (other than for current Taxes not yet due and payable), against the Facility or the Purchased Assets that arose in connection with any failure, or alleged failure, to file any Tax Returns or to pay any Tax; and

(c)           Seller has not breached any representation or warranty, or failed to perform any covenant or agreement with respect to, or set forth in (i) the Ohio Enterprise Zone Agreement originally dated November 19, 1999 (and subsequently amended), by and between Greenville Township, Darke County Board of Commissioners and DPL Energy, Inc. (the “Tax Abatement Agreement”) or (ii) the certain Compensation Agreements by and between DPL Energy, LLC and the Darke County Board of Commissioners, the Greenville Township and the Greenville School District, respectively, (the “Compensation Agreements”) or otherwise taken any act, or failed to perform any act, that may require the payment or the repayment of the amount of Taxes (or payments or fees under the Compensation Agreements) including any Taxes that would have been payable had the Facility and the Purchased Assets not been exempted from taxation under the Tax Abatement Agreement.

(d)           The term “Seller” for purposes of this Section 7.14 and Section 14.06, relating to Tax Matters, shall include DPL Inc., an Ohio corporation, the owner of the membership interest of Seller

7.15         Licenses and Permits.  (a) Schedule IX(a) sets forth all material governmental licenses and permits acquired or held by Seller or any of its Affiliates in connection with the ownership, operation, maintenance or use of the Facility or the Purchased Assets, except for those required by the Environmental Laws, which are exclusively and solely governed by Section 7.16 hereof.

(b)           Except as set forth in Schedule 7.15 and except for those required by the Environmental Laws which are exclusively and solely governed by Section 7.16 hereof, Seller has, or has applied for, all governmental licenses and permits necessary to own, operate, maintain or use the Facility as it is currently conducted, except for such governmental licenses and permits, the absence of which would not have a Material Adverse Effect.

(c)           Except as set forth in Schedule 7.15 and except as relates to compliance with Environmental Laws which is exclusively and solely governed by Section 7.16 hereof, Seller is in material compliance with each such governmental license and permit and has received no written notice or violation or noncompliance from any Governmental Authority, and Seller has received no written notice or claim asserting or alleging that any of same (i) is not in full force and effect or (ii) is subject to any legal proceeding or unsatisfied condition that (A) is not reasonably expected to be satisfied or (B) if not satisfied could be reasonably expected to allow material modification or revocation.

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7.16         Environmental Compliance.  (a) Schedule IX(b) sets forth all material permits, licenses and approvals of Governmental Authorities under Environmental Laws acquired or held by Seller or any of its Affiliates in connection with the ownership, operation, maintenance or use of the Facility or the Purchased Assets.

(b)           Except as set forth in Schedule 7.16, Seller currently holds or has applied for all permits, licenses and approvals of Governmental Authorities required under Environmental Laws with respect to the Purchased Assets and the Facility except for such permits, licenses or approvals the absence of which would not, individually or in the aggregate, have a Material Adverse Effect, and all such permits, licenses and approvals are transferable to Purchaser at or soon after the Closing.  To the knowledge of Seller, except as set forth in Schedule 7.16, Seller is not in violation of any of such permits, licenses, and approvals, and such permits, licenses and approvals are valid and in good standing.  Seller has not been notified in writing by any Governmental Authority of any actual or potential change in the status or terms and conditions of any such permits, licenses or approvals.

(c)           To the knowledge of Seller, except as set forth in Schedule 7.16, Seller is not in violation of and has no liability under any Environmental Laws with respect to the Purchased Assets, the Facility or the business conducted by Seller therewith.  Seller is not obligated to perform any action or otherwise incur any expense under Environmental Law pursuant to any order, decree, judgment or agreement by which it is bound or has assumed by contract or agreement, and there are no written notices from third parties, nor any actions, claims or proceedings pending or, to the knowledge of Seller, threatened against Seller relating to any Environmental Law, in each case with respect to the Purchased Assets, the Facility or the business conducted by Seller therewith.  To the knowledge of Seller, there has been no release or threatened release of Hazardous Substances on, at, under or from the Facility that could reasonably be expected to result in material liability of Purchaser under any Environmental Law.  Seller has made available to Purchaser all material records and files in the possession, custody or control of, or otherwise reasonably available to, Seller concerning compliance with or liability under Environmental Law, including those concerning the existence of Hazardous Substances in connection with the Purchased Assets, the Facility or the business conducted by Seller therewith.

7.17         Purchaser Pipeline Acquisition Costs.  Subject to the assignment and transfer of the Pipeline Agreements to Purchaser (including obtaining all required consents thereto), and in the event that the Pipeline has not been transferred by Panhandle to Vectren and Seller prior to the Closing, Panhandle has no right to require Purchaser to make any payments to Panhandle to obtain therefrom a fifty percent (50%) undivided ownership interest in the Pipeline; provided, however, that Purchaser shall be responsible for any and all title or other recordation fees and expenses associated with its acquisition of the Pipeline from Panhandle.

7.18         Disclaimer of Warranties.  EXCEPT WITH RESPECT TO THE WARRANTIES AND REPRESENTATIONS SPECIFICALLY SET FORTH IN THIS AGREEMENT AND THE DEED OR DEEDS CONVEYING THE REAL PROPERTY, SELLER MAKES NO WARRANTY, EXPRESS OR IMPLIED, WHETHER OF MERCHANTABILITY, SUITABILITY OR FITNESS FOR A PARTICULAR PURPOSE, OR QUALITY AS TO THE PURCHASED ASSETS, OR ANY PART THEREOF, OR AS TO THE CONDITION OR WORKMANSHIP THEREOF, OR THE ABSENCE OF ANY DEFECTS THEREIN, WHETHER LATENT OR PATENT, IT BEING UNDERSTOOD THAT THE PURCHASED ASSETS ARE TO BE CONVEYED HEREUNDER “AS IS” AND “WHERE IS” ON THE CLOSING DATE, AND IN THEIR THEN PRESENT CONDITION.  PURCHASER SHALL RELY UPON ITS OWN EXAMINATION THEREOF.

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ARTICLE VIII

Warranties and Representations of Purchaser

Purchaser warrants and represents to Seller as follows:

8.01         Due Incorporation.  Purchaser is an Ohio corporation not for profit duly incorporated, validly existing and in good standing under the laws of the State of its incorporation.

8.02         Authority.  Purchaser has the corporate right and power to enter into, and perform its obligations under this Agreement, and has taken all requisite corporate action to authorize its execution and delivery of this Agreement and the performance of its obligations under this Agreement; and this Agreement has been duly executed and delivered by Purchaser and is binding upon, and enforceable against, Purchaser in accordance with its terms; except as such enforcement may be limited by bankruptcy, insolvency, reorganization, moratorium or other similar laws affecting enforcement of creditors’ rights generally and by general principles of equity (whether applied in a proceeding at law or in equity).

8.03         No Violations.  (a)  The execution, delivery or performance of this Agreement by Purchaser does not and will not, after the giving of notice, or the lapse of time, or otherwise: conflict with, result in a breach of, or constitute a default under, the Articles of Incorporation or Code of Regulations of Purchaser, or to Purchaser’s knowledge any Law or any material contract, agreement, commitment or plan to which Purchaser is a party.

(b)           The execution and delivery by Purchaser of this Agreement does not, and the performance by Purchaser of its obligations hereunder will not, require Purchaser to obtain any consent, approval, authorization or other action of, or make any filing with or give any notice to, any Governmental Authority or Person, except (i) as disclosed in Schedule 8.03, (ii) where failure to obtain such consents, approvals, authorizations or actions, make such filings or give such notices would not have a Material Adverse Effect and (iii) as may be necessary as a result of any facts or circumstances relating solely to Purchaser. Schedule 8.03 sets forth a true and complete list of each consent, approval, authorization or other action of, or filing with or notice to, any Governmental Authority or Person that is required in connection with the execution and delivery by Purchaser of this Agreement or the performance by Purchaser of its obligations hereunder.

8.04         Brokers.  Neither this Agreement nor the purchase of the Purchased Assets or any other transaction contemplated by this Agreement was induced or procured through any Person, acting on behalf of, or representing, Purchaser or any of its Affiliates as broker, finder, investment banker, financial advisor or in any similar capacity.

8.05         Litigation.  There are no actions, claims or proceedings pending against Purchaser or any of its assets or properties at law or in equity, before or by any Governmental Authority, or by any other Person, which, individually or in the aggregate, could reasonably be expected to have a material adverse effect on Purchaser or its ability to consummate the transactions contemplated hereby.

8.06         Financing.  Purchaser has received indicative commitment letters from multiple institutional funding sources expressing interest in providing to Purchaser, subject to documentation and other usual and customary conditions, amounts that would be sufficient to fulfill Purchaser’s obligation to pay the Purchase Price hereunder, and Purchaser has no reason to believe that it will be unable to obtain funding in such amounts from such or other sources by the Closing.  Purchaser acknowledges and agrees

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that (i) the transactions contemplated herein are not subject to any type of financing contingency and (ii) the Closing will not be delayed in any manner as a result of Purchaser’s inability to obtain financing.

ARTICLE IX

Conditions to Closing Applicable to Purchaser

The obligations of Purchaser hereunder (including the obligation of Purchaser to close the transactions herein contemplated) are subject to the following conditions precedent:

9.01         No Termination.  Neither Purchaser nor Seller shall have terminated this Agreement pursuant to Section 11.01 hereof.

9.02         Bring-Down of Seller Warranties.  The warranties and representations made by Seller herein to Purchaser that are qualified by materiality shall be true and correct in all respects, and the warranties and representations made by Seller herein to Purchaser that are not so qualified shall be true and correct in all material respects, in each case on and as of the Closing Date with the same effect as if such warranties and representations had been made on and as of the Closing Date and Seller shall have performed and complied with, in all material respects, all agreements, covenants and conditions on its part required to be performed or complied with on or prior to the Closing Date; and at the Closing, Purchaser shall have received a certificate executed by the President or any Vice President of Seller to the foregoing effect.

9.03         No Material Adverse Effect.  Except as set forth in Schedule 9.03, between May 31, 2006, and the Closing Date, there shall have been no Material Adverse Effect.

9.04         Pending Actions.  No investigation, action, suit or proceeding by any Governmental Authority and no action, suit or proceeding by any other Person, shall be pending on the Closing Date which challenges this Agreement and seeks to modify, prohibit or enjoin the consummation of the transactions contemplated hereby.

9.05         Material Contracts.  There will be no outstanding material breaches under any Material Contracts, and all consents of any Governmental Authorities or Persons whose consent is required to assign or transfer the Material Contracts to Purchaser shall have been obtained.  Without limiting the generality of the foregoing, Panhandle shall have confirmed in writing to Seller and Purchaser that (a) Panhandle has not provided notice of any outstanding material breaches by Seller of any of its obligations under the Pipeline Agreements to which Panhandle is a party, (b) none of Seller’s rights under the Pipeline Agreements to which Panhandle is a party have been waived expressly or by implication by Seller, and (c) Panhandle agrees and acknowledges via its consent that Purchaser shall obtain from Seller those same rights and be subject to those same obligations that Seller possessed and was subject to immediately prior to the assignment of the Pipeline Agreements to Purchaser, including the right to obtain from Panhandle a fifty percent (50%) undivided ownership interest in the Pipeline.

9.06         Assigned Permits.  The Assigned Permits will be in effect, there will be no outstanding material violations under any of the Assigned Permits, and all consents, approvals or authorizations of any Governmental Authorities or Persons required to assign or transfer the Assigned Permits to Purchaser shall have been obtained.

9.07         Other Consents and Approvals.  All consents, approvals or authorizations of the Governmental Authorities and other Persons set forth in Schedule 7.03 shall have been obtained; provided, however, that, notwithstanding anything to the contrary in this Agreement, it shall not be a condition precedent to the obligations of either party under this Agreement that any consents or approvals

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required for the assignment to Purchaser of either the Tax Abatement Agreement or any of the Compensation Agreements shall have been obtained.  Any applicable process by which Seller, Panhandle and Purchaser agree to the assignment of Seller’s rights and obligations relating to capacity for the Facility under the EFT Service Agreement shall have been completed, and Panhandle shall have acknowledged that the rate discount pursuant to that certain Letter Agreement dated December 15, 2005, that is appended to the EFT Service Agreement shall continue to be available to Purchaser with respect to such capacity notwithstanding Section 9 of such Letter Agreement and that Purchaser shall have the right of first refusal provided in Section 8 of such Letter Agreement, to the extent Seller has such right.

9.08         All Necessary Documents.  All proceedings to be taken in connection with the consummation of the transactions contemplated by this Agreement, and all documents incident thereto, shall be reasonably satisfactory in form and substance to Purchaser and its counsel, and Purchaser shall have received copies of such documents as Purchaser and its counsel may reasonably request in connection with said transactions, including without limitation, those documents to be delivered pursuant to Sections 3.02 and 4.01 hereof.

9.09         Title Policy.  At the Closing, Seller shall have delivered to Purchaser owner’s title insurance policies dated the Closing Date on ALTA Owner’s Form (10-17-1992) with extended coverage and deletion of the standard exceptions to title customarily contained in such policies, covering the real estate covered by the commitments referred to in Section 6.01(a) hereof issued by the title insurance company which issued such commitments insuring, as of the Closing Date, the fee simple estate of Purchaser in such real estate in the amount set forth in the Schedule 6.01, subject only to the Permitted Real Estate Exceptions.

9.10         Brokers and Consultants.  Seller shall have on or prior to the Closing paid all fees, costs, expenses and other charges to the Persons identified on Schedule 7.04, as well as Pace Global Energy Services, required in connection with the transactions contemplated by this Agreement.

Purchaser shall have the right to waive any of the foregoing conditions precedent.

ARTICLE X

Conditions to Closing Applicable to Seller

The obligations of Seller hereunder (including the obligation of Seller to close the transactions herein contemplated) are subject to the following conditions precedent:

10.01       No Termination.  Neither Purchaser nor Seller shall have terminated this Agreement pursuant to Section 11.01 hereof.

10.02       Bring-Down of Purchaser Warranties.  All warranties and representations made by Purchaser herein to Seller that are qualified by materiality shall be true and correct in all respects, and all warranties and representations made by Purchaser herein to Seller that are not so qualified shall be true and correct in all material respects, in each case on and as of the Closing Date with the same effect as if such warranties and representations had been made on and as of the Closing Date, and Purchaser shall have performed and complied in all material respects (except for the payment of money which shall be absolute) with all agreements, covenants and conditions on its part required to be performed or complied with on or prior to the Closing Date, and at the Closing, Seller shall have received a certificate executed by the President or any Vice President of Purchaser to the foregoing effect.

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10.03       Pending Actions.  No investigation, action, suit or proceeding by any Governmental Authority and no action, suit or proceeding by any other Person shall be pending on the Closing Date which challenges this Agreement and seeks to modify, prohibit or enjoin the consummation of the transactions contemplated hereby.

10.04       Consents and Approvals.  All consents, approvals or authorizations of the Governmental Authorities and other Persons set forth in Schedule 8.03 shall have been obtained; provided, however, that it shall not be a condition precedent to the obligations of either party under this Agreement that any consents or approvals required for the assignment to Purchaser of the Tax Abatement Agreement or any of the Compensation Agreements shall have been obtained.

10.05       All Necessary Documents.  All proceedings to be taken in connection with the consummation of the transactions contemplated by this Agreement, and all documents incident thereto, shall be reasonably satisfactory in form and substance to Seller and its counsel, and Seller and its counsel shall have received copies of such documents as it and its counsel may reasonably request in connection with said transactions, including without limitation, those documents to be delivered pursuant to Section 3.03 hereof.

Seller shall have the right to waive any of the foregoing conditions precedent.

ARTICLE XI

Termination

11.01       Termination.  This Agreement may be terminated at any time prior to the Closing as follows, and in no other manner:

(a)           by mutual written consent of Purchaser and Seller;

(b)           by Purchaser or by Seller, at any time before the Closing, upon written notice of termination by the other party, in the event (i) of a breach hereof by the non-terminating party that would reasonably be expected to give rise to a Material Adverse Effect, if the non-terminating party fails to cure such breach within thirty (30) days following written notification of such breach by the other party; or (ii) any condition to the terminating party’s obligations under this Agreement (other than the payment of money to the non-terminating party) becomes impossible or impracticable to satisfy with the use of commercially reasonable efforts, so long as such impossibility or impracticability is not caused by a breach hereof by such party; provided, however, that if it is reasonably possible that the circumstances giving rise to the impossibility or impracticability may be removed prior to the expiration of the time period provided in Section 11.01(c), then notification of termination by the terminating party may not be given until such time as the removal of such circumstances is no longer reasonably possible or practicable within such time period; or

(c)           by Purchaser or by Seller if the Closing of the transactions contemplated by this Agreement shall not have occurred on or before September 30, 2007, or such later date as may have been agreed upon in writing by the parties hereto; provided, the party seeking to terminate is not in material breach of, or material default under, this Agreement.

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ARTICLE XII

Indemnification

12.01       Seller Indemnification.  Seller agrees to indemnify and hold Purchaser and its successors and permitted assigns, harmless against any loss, damage or expense (including reasonable attorneys’ fees), which arises out of or is in respect of (a) any inaccuracy or misrepresentation in or breach of any of the warranties or representations made by Seller in this Agreement or any other certificate, document, instrument or affidavit furnished by Seller in accordance with the provisions of this Agreement, (b) any breach or failure to perform any of the covenants made by Seller in this Agreement or any other certificate, document, instrument or affidavit furnished by Seller in accordance with the provisions of this Agreement, and (c) any and all Retained Liabilities.

12.02       Limitation.  Purchaser’s right to indemnification pursuant to Article XII of this Agreement is subject to the following limitations:

(a)           Purchaser shall not be entitled to assert any right of indemnification pursuant to Section 12.01(a) or (b) of this Article XII for any loss, damage or expense suffered by Purchaser after eighteen (18) months from the Closing Date, except that (i) indemnification claims arising from Sections 7.01 and 7.02, shall not be limited as to time; (ii) indemnification claims arising from Sections 7.04, 7.10, 7.12, 7.15 and 7.16 may be asserted until the third (3rd) anniversary date of the Closing Date; (iii) indemnification claims arising from Sections 7.08 and 7.09 may be asserted until the fifth (5th) anniversary of the Closing Date; (iv) indemnification claims arising from Section 7.14 may be asserted until six (6) months following the expiration of the applicable statute of limitations pursuant to which a Governmental Authority may make an assessment for Tax; (v) indemnification claims arising from any covenant hereunder which by its nature survives the Closing may be asserted until the third (3rd) anniversary of the Closing Date; (vi) indemnification claims arising from any pre-Closing covenants hereunder may be asserted until six (6) months after the Closing Date; and (vii) any claim by Purchaser for indemnification pursuant to Section 12.01(a) or (b) of this Article XII made prior to the expiration of the applicable time period provided in this Section 12.02(a) shall continue to survive until the final resolution of such claim, and Purchaser shall continue to have the right to be indemnified with respect to any such claim.

(b)           No indemnification claim may be made against Seller for indemnification pursuant to Section 12.01(a) of this Article XII with respect to any individual item of loss, damage or expense, unless such item exceeds $50,000 and unless the aggregate of all such losses, damages and expenses (which individually exceed $50,000) of Purchaser with respect to this Article XII shall exceed $250,000 (“Threshold”), and then Seller shall only be required to pay or be liable for the excess over the Threshold, except that the limitations set forth in this Section 12.02(b) shall not apply to any warranty or representation relating to any Tax.

(c)           Seller’s maximum liability to Purchaser pursuant to Section 12.01(a) of this Article XII shall be thirty percent (30%) of the Initial Purchase Price.

(d)           For the avoidance of doubt, the provisions of Sections 12.02(a), (b) and (c) of this Article XII shall not apply to indemnification claims made against Seller pursuant to Section 12.01(c) of this Article XII or to indemnification claims alleging a breach of Seller’s obligations to indemnify Purchaser under this Article XII; and the provisions of Sections 12.02(b) and (c) of this Article XII shall not apply to indemnification claims made against Seller pursuant to Section 12.01(b) of this Article XII.

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(e)           For the purposes of the limitations of liability set forth in Sections 12.02(b) and (c), in computing such individual or aggregate amounts of claims, the amount of each claim shall be deemed to be an amount (i) net of any tax benefit realizable by Purchaser or any Affiliate thereof by reason of deductibility of such loss, damage or expense (determined by multiplying such deductible amount by the then applicable highest effective corporate income tax rate) and any deferred tax benefit attributable to such loss, damage or expense (determined on the same basis but present valued to the extent obtained through depreciation or amortization deductions) and (ii) net of any insurance proceeds and any indemnity, contribution or other similar payment recoverable by Purchaser or any Affiliate from any third party with respect thereto.

(f)            Purchaser hereby acknowledges and agrees that its sole and exclusive remedy with respect to any and all claims relating to the subject matter of this Agreement and the Assumption Agreement shall be pursuant to the indemnification provisions set forth in this Article XII.  In furtherance of the foregoing, Purchaser hereby waives, to the fullest extent permitted under applicable Law, any and all rights, claims and causes of action it may have against Seller arising under or based upon any Law (including, without limitation, any such rights, claims or causes of action arising under or based upon common law or otherwise) or Environmental Laws, including, but not limited to, the Resource Conservation and Recovery Act and the Comprehensive Environmental Response, Compensation and Liability Act, except for any claims permitted under Article XII of this Agreement.

(g)           Except as set forth in this Agreement, Seller is not making any representation, warranty, covenant or agreement with respect to the matters contained herein.  Anything herein to the contrary notwithstanding, no breach of any representation, warranty, covenant or agreement contained herein shall give rise to any right on the part of Purchaser, after the consummation of the purchase and sale of the Facility and the Purchased Assets contemplated hereby, to rescind this Agreement or any of the transactions contemplated hereby.

(h)           Except for any post-closing obligations of Seller or Purchaser expressly set forth in this Agreement, neither Seller nor Purchaser shall have any liability under any provision of this Agreement for any liabilities and damages to the extent that such liabilities and damages relate to actions taken or not taken by the other party or its Affiliates after the Closing Date.  In no event shall Seller or Purchaser be liable for consequential or punitive damages.  Each party shall take all reasonable steps to mitigate all such liabilities and damages upon and after becoming aware of any event which could reasonably be expected to give rise to such losses, damages and expenses.

12.03       Purchaser Indemnification.  Purchaser agrees to indemnify and hold Seller harmless against any loss, damage or expense (including reasonable attorneys’ fees), which arises out of or is in respect of (a) any material inaccuracy or misrepresentation in or material breach of any of the warranties, representations, covenants or agreements made by Purchaser in this Agreement or in any certificate, document, instrument or affidavit furnished by Purchaser in accordance with the provisions of this Agreement, and (b) any and all Assumed Liabilities, except that the materiality limitation set forth in this Section 12.03 shall not apply to any warranty, representation, covenant or agreement relating to any Tax.

12.04       Indemnification Notice.  Promptly upon obtaining knowledge of any claim, event, facts or demand which gives rise to, or could reasonably be expected to give rise to, a claim for indemnification hereunder (including in the case of a claim pursuant to Section 12.01(a) any claim which is not payable due to the limitations set forth in Section 12.02(b) hereof), any party seeking

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indemnification under this Article XII (an “Indemnified Party”) shall give written notice of such claim or demand (“Notice of Claim”) to the party from which indemnification is sought (an “Indemnifying Party”), setting forth the amount of the claim.  The Indemnified Party shall furnish to the Indemnifying Party, in reasonable detail, such information as it may have with respect to such indemnification claim (including copies of any summons, complaint or other pleading which may have been served on it and any written claim, demand, invoice, billing or other document evidencing or asserting the same).  No failure or delay by the Indemnified Party in the performance of the foregoing shall reduce or otherwise affect the obligation of any Indemnifying Party to indemnify and hold the Indemnified Party harmless, except to the extent that such failure or delay shall have adversely affected the Indemnifying Party’s ability to defend against, settle or satisfy any loss, damage or expense for which the Indemnified Party is entitled to indemnification hereunder.

12.05       Indemnification Procedure.  (a) If the claim or demand set forth in the Notice of Claim given by the Indemnified Party pursuant to Section 12.04 of this Agreement is a claim or demand asserted by a third party, the Indemnifying Party shall have fifteen (15) days after the Date of the Notice of Claim to notify the Indemnified Party in writing of its election to defend such third party claim or demand on behalf of the Indemnified Party.  If the Indemnifying Party elects to defend such third party claim or demand, the Indemnified Party shall make available to the Indemnifying Party and its agents and representatives all records and other materials which are reasonably required in the defense of such third party claim or demand and shall otherwise cooperate with, and assist the Indemnifying Party in the defense of, such third party claim or demand, and so long as the Indemnifying Party is defending such third party claim or demand in good faith, the Indemnified Party shall not pay, settle or compromise such third party claim or demand.  If the Indemnifying Party elects to defend such third party claim or demand, the Indemnified Party shall have the right to participate in the defense of such third party claim or demand, at its own expense.  If the Indemnifying Party does not elect to defend such third party claim or demand, or does not defend such third party claim in good faith, the Indemnified Party shall have the right, in addition to any other right or remedy it may have hereunder, at the Indemnifying Party’s expense, to defend such third party claim or demand; provided, however, that (i) the Indemnified Party shall not have any obligation to participate in the defense of, or defend, any such third party claim or demand; and (ii) the Indemnified Party’s defense of or its participation in the defense of any such third party claim or demand shall not in any way diminish or lessen the obligations of the Indemnifying Party under the agreements of indemnification set forth in this Article XII.

(b)           Except for third party claims being defended in good faith, the Indemnifying Party shall satisfy its obligations hereunder in cash within thirty (30) days after the Date of Notice of Claim.

(c)           The term “Date of the Notice of Claim” as used in this Article XII shall mean the date the Notice of Claim is deemed delivered pursuant to Section 15.13 hereof.

12.06       Effect of Indemnity Payments.  The parties agree to treat all payments made under the indemnity provisions of Article XII of this Agreement as adjustments to the Purchase Price for Tax purposes and that such agreed treatment shall govern for purposes hereof.

ARTICLE XIV

Confidentiality

13.01       Confidentiality of Materials.  The parties hereto agree with respect to all technical, commercial and other information that is furnished or disclosed by the other party to this

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Agreement, including, but not limited to, information regarding such party’s (and its subsidiaries’ and affiliates’) organization, personnel, business activities, customers, policies, assets, finances, costs, sales, revenues, technology, rights, obligations, liabilities and strategies (“Information”), that, unless and until the transaction contemplated by this Agreement shall have been consummated or this Agreement is terminated by either party in accordance with its terms, (a) such Information is confidential and/or proprietary to the furnishing/disclosing party and entitled to and shall receive treatment as such by the receiving party; (b) the receiving party will hold in confidence and not disclose nor use (except in respect of the transactions contemplated by this Agreement) any such Information, treating such Information with the same degree of care and confidentiality as it accords its own confidential and proprietary Information; provided, however, that the receiving party shall not have any restrictive obligation with respect to any Information which (i) is available to the general public, (ii) is or becomes publicly known through no wrongful act or omission of the receiving party, or (iii) is or becomes known by the receiving party without any proprietary restrictions by the furnishing/disclosing party at the time of receipt of such Information; and (c) all such Information furnished to either party by the other, unless otherwise specified in writing, shall remain the property of the furnishing/disclosing party and, in the event this Agreement is terminated, shall be returned to it, together with any and all copies made thereof, upon request for such return by it (except for documents submitted to a governmental agency with the consent of the furnishing/disclosing party or upon subpoena and which cannot be retrieved with reasonable effort) and in the case of (i) oral information furnished to any party by the other which shall have been reduced to writing by the receiving party and (ii) all internal documents of any party describing, analyzing or otherwise containing Information furnished by the other party, all such writings and documents shall be destroyed, upon request, in the event this Agreement is terminated, and each party shall confirm in writing to the other compliance with any such request.

13.02       Remedy.  Each party hereto acknowledges that the remedy at law for any breach by either party of its obligations under Section 13.01 of this Agreement is inadequate and that the other party shall be entitled to equitable remedies, including an injunction, in the event of breach by any other party.

ARTICLE XV

Certain Other Understandings

14.01       Post Closing Access to Records and Records Retention.  (a)  Each party agrees to provide the other with access to all relevant documents and other information relating to the Facility which may be needed by such other party for purposes of preparing tax returns or responding to an audit by any Governmental Authority or for any other reasonable purpose.  Such access will be during normal business hours and not unreasonably interfere with the business or operations of the other party.

(b)           Without limiting Section 14.01(a) above, in order to facilitate the resolution of any claims made by or against or incurred by Seller after the Closing, upon reasonable notice, Purchaser shall, after the Closing:  (i) afford the officers, employees and authorized agents and representatives of Seller reasonable access, during normal business hours, to the offices, properties, books and records of Purchaser with respect to the Facility, (ii) furnish to the officers, employees and authorized agents and representatives of Seller such additional financial and other information regarding the Facility as Seller may from time to time reasonably request and (iii) make available to Seller, the employees of Purchaser whose assistance, testimony or presence of such persons as witnesses in hearings or trials for such purposes is required; provided, however, that such investigation shall not unreasonably interfere with the business or operations of Purchaser and Purchaser shall not be required to furnish any confidential or privileged materials to Seller.

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(c)           Purchaser agrees for a period extending five (5) years after the Closing Date not to destroy or otherwise dispose of any records relating to the Facility for the period prior to its acquisition of the Purchased Assets, provided that Purchaser acquired such records from Seller in connection with this Agreement.  After such five (5) year period, Purchaser may destroy or otherwise dispose of such records if Purchaser shall offer in writing to surrender such records to Seller and Seller shall fail to agree in writing to take possession thereof during the thirty (30) day period after such offer is made.

14.02       Obligations not Performed by Closing.  (a)  In the event that Seller has not on or prior to the Closing Date completed or caused the completion of the repairs described in Section 5.02(i) of this Agreement (as evidenced by delivery to Purchaser of the Pratt and Whitney Repair Report), Seller will, after the Closing, continue to diligently pursue such repairs until such repairs are completed and shall pay and be fully responsible for the cost of such repairs. At such time as such repairs are completed to the reasonable satisfaction of Purchaser, Purchaser shall pay the Unit 1B Holdback Amount to Seller.

(b)           After the Closing, each of Seller and Purchaser agree to attempt diligently to obtain any necessary consents and take all other commercially reasonable actions which may be required to effect the assignment to Purchaser of any of the Assigned Contracts (other than the Material Contracts), and any of the Material Contracts as to which Purchaser waives the conditions set forth in Section 9.05 of this Agreement, that cannot be effectively assigned to Purchaser as of the Closing Date (the “Unassigned Contracts”), and each party will diligently cooperate with the other in obtaining and taking the same, and will take such steps as reasonably requested by such party with respect thereto, all at Seller’s cost.  This Agreement, to the extent permitted by law, shall constitute an equitable assignment by Seller to Purchaser of all of Seller’s rights, benefits, title and interest in and to the Unassigned Contracts, and Purchaser, to the extent of such equitable assignment, shall be deemed to be Seller’s agent for the purpose of completing, fulfilling and discharging all of Seller’s rights and liabilities arising after the Closing Date under the Unassigned Contracts, and Seller shall make commercially reasonable efforts to provide Purchaser with the benefits of the Unassigned Contracts at Seller’s cost.

(c)           In the event that Seller has acquired the 50% ownership interest in the Pipeline pursuant to the Pipeline Agreements prior to Closing, Seller shall assign such ownership interest to Purchaser at Closing.

14.03       Avoidance of Double Withholding Taxes.  Purchaser and Seller hereby acknowledge that the standard procedure described in Section 4 of the Revenue Procedure 2004-53 as promulgated by the IRS with respect to wage reporting, and F.I.C.A., withholding and similar tax and other collections is applicable to Seller’s employees who become employees of Purchaser or its Affiliates.

14.04       Removal of Trademarks, Etc.  As promptly as practicable after the Closing, and in no event later than thirty (30) days after the Closing Date, Purchaser agrees not to use and to delete, remove or otherwise obliterate from the Purchased Assets all trade names and trademarks of Seller or its Affiliates, including, but not limited to, references to “DPL Energy, LLC” and derivatives thereof, including, without limitation, all logos.

14.05       [Intentionally left blank.]

14.06       Tax Matters.

(a)           Seller’s Responsibilities.  Seller shall (i) timely prepare and file when due any Tax Return that is required to include the operations, ownership, assets or activities of, or related to, the

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Facility or the Purchased Assets for any Tax Period ending on or before the Closing Date and (ii) pay all Taxes shown to be due on such Tax Returns or otherwise owing (including payments in lieu of taxes or fees pursuant to the Compensation Agreements or any Taxes for the “Straddle Period” defined below) that are allocable to the Tax Period prior to and including the Closing Date.

(b)           Purchaser’s Responsibilities.  Purchaser shall (i) prepare and file when due all Tax Returns that are required to include the operations, ownership, assets or activities of, or related to, the Facility or the Purchased Assets for any Tax Period ending after the Closing Date (including the “Straddle Period” as hereinafter defined) and (ii) pay all taxes shown to be due on such Tax Returns or otherwise owing (including payments in lieu of taxes or fees pursuant to the Compensation Agreements (to the extent such Compensation Agreements have been assigned to Purchaser under Section 5.06) or any Taxes for the “Straddle Period” as defined below) that are allocable to the Tax Period after the Closing Date.

(c)           Straddle Period.  The “Straddle Period” is any Tax Period beginning before and ending after the Closing Date.  Except as otherwise provided in Section 14.06(d), Taxes and payments in lieu of taxes or fees pursuant to Compensation Agreements for the Straddle Period shall be allocated to Seller and Purchaser, respectively, by multiplying the total amount of such Taxes, payments or fees, by a fraction, the numerator of which is the number of days of the Straddle Period for which each party is responsible for the payment of such Taxes and the denominator of which is the total number of days in the Straddle Period.  To the extent that (i) the Compensation Agreements have been assigned to Purchaser and (ii) Seller has made any payment in 2006 pursuant to such Compensation Agreements which result in a prepayment allocable to any date after the Closing Date, Purchaser shall reimburse Seller for the portion of such prepayment allocable to any date after the Closing Date.  Purchaser agrees that amounts payable under the Compensation Agreements (to the extent such Compensation Agreements have been assigned to Purchaser under Section 5.06) after the Closing Date are solely the responsibility of the Purchaser.

(d)           Ohio Real Property Taxes.  Seller shall pay, or reimburse Purchaser if Purchaser pays, the Ohio real property taxes for the first half of 2006 (billed in December 2006) and the second half of 2006 (billed in June 2007) with respect to the land and buildings comprising the Facility and the Purchased Assets.  Purchaser shall pay the Ohio real property tax for the first half of 2007 (billed in December 2007) and the second half of 2007 (billed in June 2008) with respect to the land and buildings comprising the Facility and the Purchased Assets (“2007 First Half Real Property Taxes” and “2007 Second Half Real Property Taxes,” respectively).  Seller shall reimburse Purchaser for its pro rata share of the 2007 First Half Real Estate Taxes and the 2007 Second Half Real Estate Taxes.  The amount of Seller’s reimbursement to Purchaser for Seller’s pro rata share of the 2007 First Half Real Property Taxes, shall be computed as follows:  multiply the total bill for 2007 First Half Real Property Taxes, as finally determined or adjusted, by a fraction the numerator of which is the number of days from January 1, 2007, to and including the earlier of the Closing Date and June 30, 2007, and the denominator or which is one hundred eighty-three (183) days.  The  amount of Seller’s reimbursement to Purchaser for Seller’s pro rata share of the 2007 Second Half Real Property Taxes, if any, shall be computed as follows:  multiply the total bill for 2007 Second Half Real Property Taxes, as finally determined or adjusted, by a fraction the numerator of which is the number of days from July 1, 2007, to and including the earlier of the Closing Date and December 31, 2007, and the denominator or which is one hundred eighty-three (183) days.  Seller shall pay to Purchaser such reimbursement promptly upon receipt of a copy of the bill for the 2007 First Half Real Property Taxes or 2007 Second Half Real Property Taxes, as applicable, and a computation of the amount of Seller’s reimbursement.

(e)           Ohio Personal Property Taxes.  With respect to the calendar year that begins after December 31, 2006 and includes the Closing Date, the Ohio personal property taxes will be allocated to each party as set forth in this Section 14.06(e).  For Seller’s pro rata share, multiply the total Ohio personal property tax bills for the calendar year, which includes the Closing Date, as finally determined or adjusted, by a fraction the numerator of which is the number of days from the first day of such calendar year to and including the Closing Date and the denominator of which is three hundred and sixty-five

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(365) days, and for the Purchaser’s pro rata share, the total Ohio personal property tax bills for the calendar year that includes the Closing Date, as finally determined and adjusted, less the Seller’s pro rata share.  Seller shall pay the Purchaser Seller’s pro rata share if Purchaser pays the Ohio personal property tax bills for the calendar year that includes the Closing Date, or Purchaser shall pay to Seller Purchaser’s pro rata share if Seller pays the Ohio personal property taxes for the calendar year that includes the Closing Date in each case promptly upon receipt of a copy of the Ohio personal property tax bills for the calendar year that includes the Closing Date and a computation of each party’s pro rata share.  Purchaser agrees that all Ohio personal property taxes for any calendar year beginning after the Closing Date are solely the responsibility of the Purchaser.

14.07     O&M Transition Services Agreement Option.  Unless Purchaser has notified Seller in writing within thirty (30) days after the date hereof of Purchaser’s irrevocable commitment to enter into the O&M Transition Services Agreement, Seller shall have no obligation to enter into such agreement with Purchaser.

ARTICLE XV

Miscellaneous

15.01       Cost and Expenses.  Purchaser will pay its own costs and expenses (including attorneys’ fees, accountants’ fees and other professional fees and expenses) in connection with the negotiation, preparation, execution and delivery of this Agreement and the consummation of the purchase of the Purchased Assets and the other transactions contemplated by this Agreement (except as otherwise specifically provided for herein); and Seller will pay its own costs and expenses (including attorneys’ fees, accountants’ fees and other professional fees and expenses) in connection with the negotiation, preparation, execution and delivery of this Agreement and the consummation of the sale of the Purchased Assets and the other transactions contemplated by this Agreement (except as otherwise specifically provided for herein).

15.02       Entire Agreement.  The Schedules and the Exhibits referenced in this Agreement are incorporated into this Agreement and together contain the entire agreement between the parties hereto with respect to the transactions contemplated hereunder, and supersede all negotiations, representations, warranties, commitments, offers, contracts and writings prior to the date hereof.  No waiver and no modification or amendment of any provision of this Agreement shall be effective unless specifically made in writing and duly signed by the party to be bound thereby.

15.03       Counterparts.  This Agreement may be executed in one or more counterparts, each of which shall be deemed an original, but all of which, together, shall constitute one and the same instrument.

15.04       Assignment, Successors and Assigns.  The respective rights and obligations of the parties hereto shall not be assignable without the prior written consent of the other parties; provided, however, that Purchaser may assign all or part of its rights under this Agreement and delegate all or part of its obligations under this Agreement to one or more corporations or other entities who are Affiliates, in which event all the rights and powers of Purchaser and remedies available to it under this Agreement shall extend to and be enforceable by each such Affiliate.  Any such assignment and delegation shall not release Purchaser from its obligations under this Agreement, and further Purchaser guarantees to Seller the performance by each such Affiliate of its obligations under this Agreement.  In the event of any such assignment and delegation the term “Purchaser” as used in this Agreement shall be deemed to refer to each such Affiliate of Purchaser where reference is made to actions to be taken with respect to the

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acquisition of the Facility or Purchased Assets, and shall be deemed to include both Purchaser and each such Affiliate where appropriate.  This Agreement shall be binding upon and inure to the benefit of the parties hereto and their successors and permitted assigns.

15.05       Savings Clause.  If any provision hereof shall be held invalid or unenforceable by any court of competent jurisdiction or as a result of future legislative action, such holding or action shall be strictly construed and shall not affect the validity or effect of any other provision hereof.

15.06       Headings.  The captions of the various Articles and Sections of this Agreement have been inserted only for convenience of reference and shall not be deemed to modify, explain, enlarge or restrict any of the provisions of this Agreement.

15.07       Risk of Loss.  Risk of loss, damage or destruction to the Purchased Assets shall be upon Seller until the Closing, and shall thereafter be upon Purchaser.

15.08       Governing Law.  The validity, interpretation and effect of this Agreement shall be governed exclusively by the laws of the State of Ohio.

15.09       Dispute Resolution.

(a)           If any issue, dispute, claim or controversy should arise out of or relate to this Agreement involving the parties hereto (“Dispute”) and the parties hereto are unable to resolve the Dispute on or before the thirtieth (30th) day following written notice of such Dispute by a party to the other party, which notice describes in reasonable detail the nature of the Dispute and the facts and circumstances relating thereto, Purchaser shall nominate a member of its senior management team and Seller shall nominate a member of its senior management team for the purpose of a meeting between such representatives at a mutually agreeable time and place to resolve such Dispute.  Such meeting shall take place on or before forty-five (45) days following the date of the notice of the Dispute by a party to the other party, and if the Dispute has not been resolved within fifteen (15) days following such meeting, any party may submit such Dispute to binding arbitration under this Section 15.09.

(b)           Upon demand of any party hereto made within thirty (30) days after the expiration of the fifteen (15)-day period provided in Section 15.09(a), any Dispute shall be resolved by binding arbitration as provided herein.  A party may demand and commence arbitration by delivering to the other party an arbitration notice (“Arbitration Notice”) that includes a general description of the Dispute and a reference to the fact that such Dispute is being referred to arbitration under this Section 15.09.

(c)           Promptly following the delivery of an Arbitration Notice, the parties hereto shall request the American Arbitration Association to designate three disinterested arbitrators pursuant to its Commercial Arbitration Rules (“AAA Rules”).  If any arbitrator resigns, becomes incapacitated, or otherwise refuses or fails to serve or to continue to serve as an arbitrator, the parties hereto shall request the American Arbitration Association to designate a successor pursuant to the AAA Rules.

(d)           The arbitration shall be conducted in the English language in Dayton, Ohio.  The arbitrators shall set the date, the time, and the place of hearing, which must commence on or before ninety (90) days following the designation of the third arbitrator.  The arbitration shall be conducted under the AAA Rules not inconsistent with the provisions of the Agreement.  In connection with any such arbitration, the arbitrators shall construe the Agreement in a manner consistent with the choice of law provisions set forth herein.  The arbitrators shall render their decision on or before ninety (90) days following the commencement of the hearing.  The arbitrators’ decision shall be set forth in writing that

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includes an allocation of the fees and expenses of the arbitrators to the parties and of the legal fees and costs of the parties in connection with the Dispute based on the relative extent to which they do not prevail on their positions.  Each party against which the decision assesses a monetary obligation shall pay that obligation on or before thirty (30) days following the announcement of the decision or such other date as the decision may provide.  The decisions of the arbitrators are final and binding on all parties hereto and are not subject to appeal.  The decisions of the arbitrators may be enforced in any court of competent jurisdiction, and any party may authorize any such court to enter judgment on the arbitrators’ decisions.  Pending the outcome of any arbitration conducted pursuant to this Section 15.09, the parties shall be obligated to continue to perform their respective obligations hereunder.  Except as provided in any arbitrators’ decision rendered in accordance with this Section 15.09, each of the parties hereby undertakes to carry out without delay the provisions of any arbitral award or decision and to bear its own legal fees and costs in connection with any Dispute.

(e)           Notwithstanding the binding arbitration provisions in this Section 15.09, the parties hereto agree to preserve, without diminution, the following remedies that the parties may employ or exercise freely, independently or in connection with an arbitration proceeding or after an arbitration action is brought.  Each party shall have the right to proceed in any court of proper jurisdiction or by self-help to exercise or prosecute the following remedies:  (a) all rights to obtain possession of property; (b) all rights to foreclose against any property or other security by exercising a power of sale granted under the Agreement or under applicable Law or by a judicial foreclosure and sale; (c) all rights of self-help including set-off and peaceful possession of personal property; and (d) obtaining provisional or ancillary remedies including injunctive relief, sequestration, garnishment, attachment, appointment of a receiver and filing an involuntary bankruptcy proceeding.  Preservation of these remedies does not limit the power of the arbitrators to grant similar remedies.

15.10       Press Releases.  Pending Closing, all notices to third parties and all other publicity relating to the transactions contemplated by this Agreement shall be jointly planned, coordinated, and agreed to by Purchaser and Seller, except to the extent disclosures are required by Law.

15.11       U.S. Dollars.  All amounts expressed in this Agreement and all payments required by this Agreement are in United States dollars.

15.12       Survival.  All representations and warranties made by any party in this Agreement shall be deemed made for the purpose of inducing the other party to enter into this Agreement and shall survive the Closing, subject to Section 12.02(a) hereof.

15.13       Notices.  (a)  All notices, requests, demands and other communications under this Agreement shall be in writing and delivered in person or by air courier, or sent by facsimile or sent by certified mail, postage prepaid, and properly addressed as follows:

To The Seller:

DPL Energy, LLC

1065 Woodman Drive

Dayton, OH  45432

Fax:  (937) 259-7848

Attention:  Gary G. Stephenson

With Copy To:

Winston & Strawn LLP

1700 K Street, NW

Washington, DC  20006

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Fax:  (202) 282-5100

Attention:  Gerald P. Farano

To Purchaser:

Buckeye Power, Inc.

6677 Busch Boulevard

Columbus, Ohio 43229

Fax: (614) 846-7108

Attention: Patrick O’Loughlin

With Copy To:

Thompson Hine LLP

10 West Broad St.

Columbus, Ohio 43215

Fax: (614) 469-3361

Attention: Kurt P. Helfrich

(b)            Any party may from time to time change its address for the purpose of notices to that party by a similar notice specifying a new address, but no such change shall be deemed to have been given until it is actually received by the party sought to be charged with its contents.

(c)            All notices and other communications required or permitted under this Agreement which are addressed as provided in this Section 15.13 if delivered personally or by air courier, shall be effective upon delivery; if sent by facsimile, shall be delivered upon receipt of proof of transmission and if delivered by mail, shall be effective upon deposit in the United States mail, postage prepaid.

15.14       No Third Party Beneficiaries.  This Agreement is solely for the benefit of Seller and its successors and permitted assigns with respect to the obligations of Purchaser under this Agreement, and for the benefit of Purchaser and its successors and permitted assigns with respect to the obligations of Seller under this Agreement.  This Agreement shall not be deemed to confer upon or give to any other third party any remedy, claim, liability, reimbursement, cause of action or other right.

15.15       Jurisdiction and Consent to Service.  Subject to the provisions of Section 15.09, each of Seller and Purchaser (i) agrees that any suit, action or proceeding arising out of or relating to this Agreement shall be brought solely in the state or federal courts of the State of Ohio; (ii) consents to the exclusive jurisdiction of each such court in any suit, action or proceeding relating to or arising out of this Agreement; (iii) waives any objection that it may have to the laying of venue in any such suit, action or proceeding in any such court; and (iv) agrees that service of any court paper may be made in such manner as may be provided under applicable laws or court rules governing service of process.

15.16       WAIVER OF A JURY TRIAL.  EACH OF THE PARTIES HERETO IRREVOCABLY WAIVES ANY AND ALL RIGHT TO TRIAL BY JURY IN ANY LEGAL PROCEEDING ARISING OUT OF OR RELATED TO THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY.

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15.17       No Presumption Against Drafter.  Each of the parties hereto has jointly participated in the negotiation and drafting of this Agreement.  In the event of an ambiguity or a question of intent or interpretation arises, this Agreement shall be construed as if drafted jointly by each of the parties hereto and no presumptions or burdens of proof shall arise favoring any party by virtue of the authorship of any of the provisions of this Agreement.

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IN WITNESS WHEREOF, the parties hereto have executed this Asset Purchase Agreement the day and year first above written.

DPL ENERGY, LLC

By:

Title:

.	BUCKEYE POWER, INC.
	By:
	Title:

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Exhibits and Schedules

Exhibit	Description
A	Parent Guaranty
B	Form of General Warranty Deed
C	Form of Easements Assignment and Assumption Agreement
D	Form of Bill of Sale
E	Form of Assignment and Assumption Agreement
F	Form of O&M Transition Services Agreement

Schedule	Description
I	Facility
II	Retained Inventory
III	Retained Materials
IV	Real Property
V	Real Property Leases
VI	Easements
VII	Additional Contracts
VIII	Assigned Intellectual Property
IX	Assigned Permits
X	Proprietary Items
XI	Other Retained Assets
2.07	Allocation of Purchase Price
5.02	Permitted Contracts and Expenditures Pending Closing
6.01	Preliminary Title Report
7.03	Seller’s Required Consents and Approvals
7.04	Brokers
7.05	Required Assets
7.06(a)	Material Contracts
7.06(b)	Retained Contracts
7.07	Insurance
7.08	Permitted Real Estate Exceptions of Record
7.09	Liens Against Personal Property
7.10	Intellectual Property Infringement
7.11	Litigation
7.12	Compliance with Laws
7.13	Employees
7.14	Taxes
7.15	Licenses and Permits
7.16	Environmental Compliance
8.03	Purchaser’s Required Consents and Approvals
9.03	Material Adverse Effects

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EX-10.XX

Exhibit 10(xx)

Execution Copy

ASSET PURCHASE AGREEMENT

dated November 28, 2006

By and Between

DPL Energy, LLC

and

Columbus Southern Power Company

TABLE OF CONTENTS

	Page
ARTICLE I Definitions	1
1.01 Definitions	1
1.02 Interpretation	11
1.03 Knowledge	11
ARTICLE II Purchase and Sale, Purchase Price, Allocation and Other Related Matters	12
2.01 Purchase and Sale	12
2.02 Purchase Price	12
2.03 Assumed Liabilities.	12
2.04 Sales and Transfer Taxes	13
2.05 Allocation of Purchase Price	13
2.06 Prorations	13
ARTICLE III Closing and Closing Date Deliveries	13
3.01 Closing	13
3.02 Closing Deliveries by Seller	14
3.03 Closing Deliveries by Purchaser	15
3.04 Cooperation	15
ARTICLE IV Pre-Closing Filings	16
4.01 Government Approvals; Consents	16
4.02 HSR and Other Filings	16
4.03 FERC Regulatory Filing.	17
4.04 Cooperation in Regulatory Review Process	17
4.05 Conditions or Limitations	17
4.06 PJM Notification of Sale and Scheduling and Bidding for day of Closing.	17
ARTICLE V Covenants	18
5.01 Due Diligence Review	18

5.02 Pending Closing	18
5.03 Consents	19
5.04 Environmental Assessments	19
5.05 Notice of Breach	20
5.06 Workforce	20
5.07 Cooperation.	20
5.08 Tax Matters	21
5.09 Market Power Study	23
5.10 Microwave Tower and Substation Easement Agreement	23
ARTICLE VI Title and Survey	23
6.01 Pre-Closing Title Policy and Survey Delivery	23
ARTICLE VII Warranties and Representations of the Seller	24
7.01 Organization and Good Standing	24
7.02 Authority	25
7.03 No Violations and Consents	25
7.04 Brokers	25
7.05 Required Assets	26
7.06 Contracts	26
7.07 Insurance	27
7.08 Title to Real Property	27
7.09 Title to Purchased Assets	27
7.10 Intellectual Property	27
7.11 Litigation	28
7.12 Compliance With Laws	28
7.13 Labor Matters	28
7.14 Taxes	28
7.15 Licenses and Permits	28
7.16 Environmental Compliance	29
7.17 No Misrepresentation in Due Diligence Materials	29
7.18 Properties.	29
7.19 Absence of Material Adverse Effect	30

7.20 Disclaimer of Warranties	30
7.21 Good Utility Practice	30
ARTICLE VIII Warranties and Representations of the Purchaser	30
8.01 Due Incorporation	30
8.02 Authority	30
8.03 No Violations	31
8.04 Brokers	31
8.05 Litigation	31
8.06 Financing	31
ARTICLE IX Conditions to Closing Applicable to Purchaser	31
9.01 No Termination	31
9.02 Bring-Down of Seller Warranties	31
9.03 No Material Adverse Effect	32
9.04 Pending Actions	32
9.05 Consents and Approvals	32
9.06 HSR Act	32
9.07 All Necessary Documents	32
9.08 Title Policy	32
9.09 Estoppel Certificates	33
ARTICLE X Conditions to Closing Applicable to Seller	33
10.01 No Termination	33
10.02 Bring-Down of Purchaser Warranties	33
10.03 Pending Actions	33
10.04 Consents and Approvals	33
10.05 HSR Act	33
10.06 All Necessary Documents	34
ARTICLE XI Termination	34
11.01 Termination	34
11.02 Effect of Termination	34
ARTICLE XII Indemnification	35

12.01 Seller Indemnification	35
12.02 Purchaser Indemnification	35
12.03 Limitation	35
12.04 Indemnification Notice	37
12.05 Indemnification Procedure	37
12.06 Effect of Indemnity Payments	38
ARTICLE XIII Confidentiality	38
13.01 Confidentiality of Materials	38
13.02 Remedy	39
ARTICLE XIV Certain Other Understandings	39
14.01 Post Closing Access to Records and Records Retention	39
14.02 Consents Not Obtained at Closing	40
14.03 Avoidance of Double Withholding Taxes	40
14.04 Use/Removal of Trademarks, Etc.	40
14.05 Supplemental Disclosure Schedule	40
ARTICLE XV Miscellaneous	41
15.01 Cost and Expenses	41
15.02 Entire Agreement	41
15.03 Counterparts	41
15.04 Assignment, Successors and Assigns	41
15.05 Savings Clause	42
15.06 Headings	42
15.07 Risk of Loss	42
15.08 Governing Law	42
15.09 Dispute Resolution.	42
15.10 Press Releases	44
15.11 U.S. Dollars	44
15.12 Survival	44
15.13 Notices	44
15.14 No Third Party Beneficiaries	45
15.15 Jurisdiction and Consent to Service	45
15.16 WAIVER OF A JURY TRIAL	46
15.17 No Presumption Against Drafter	46
15.18 Parent Guaranty	46

ASSET PURCHASE AGREEMENT

This Asset Purchase Agreement made and entered into this 28th day of November, 2006 (this “Agreement”) by and between Columbus Southern Power Company, an Ohio corporation (“Purchaser”), and DPL Energy, LLC, an Ohio limited liability company (“Seller”).

Recitals:

A.            Seller owns a peaking power generation facility, the Darby Facility,  as more fully described herein (collectively, the “Facility”).

B.            Seller desires to sell the Facility and the assets and properties relating to the Facility hereinafter described as Purchased Assets and Purchaser desires to acquire the Purchased Assets, on the terms and subject to the conditions hereinafter set forth.

Now, therefore, in consideration of the covenants and agreements hereinafter set forth, the parties hereto agree as follows:

ARTICLE I

Definitions

1.01         Definitions.  The following terms shall have the meanings set forth below unless otherwise expressly provided or unless the context clearly requires otherwise:

“AAA Rules” has the meaning set forth in Section 15.09(c).

 “Affiliate” shall mean a Person which, directly or indirectly is controlled by, controls, or is under common control with another Person.  As used in the preceding sentence, “control” shall mean (i) the ownership of more than 50% of the voting securities or other voting interest of any Person or (ii) the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of such Person, whether through the ownership of voting securities, by contract or otherwise.

“Arbitration Notice” has the meaning set forth in Section 15.09(b).

“Agreement” has the meaning set forth in the first paragraph hereof.

“Assumed Liabilities” has the meaning set forth in Section 2.03(b).

“Assumption Agreement” has the meaning set forth in Section 3.03(d) hereof.

“Closing” has the meaning set forth in Section 3.01.

“Closing Date” has the meaning set forth in Section 3.01.

“Code” shall mean the Internal Revenue Code of 1986, as amended, and the rules and regulations promulgated thereunder.

“Compensation Agreement” shall mean the agreement between Seller and Westfall Local Schools, dated June 30, 2000, and attached as Exhibit F.

“Cure Period” has the meaning set forth in Section 6.01(c).

“Darby Facility” means the gas-fired facility, with oil-firing capability,  and related facilities, equipment, and near Mount Sterling, Ohio in Pickaway County, owned by Seller, including but not limited to six GE 7EA simple cycle combustion turbines.

“Date of the Notice of Claim” has the meaning set forth in Section 12.05(c).

“Disclosure Schedules” shall mean the disclosure schedules attached to this Agreement.

“Dispute” has the meaning set forth in Section 15.09(a).

“DOJ” shall mean the United States Department of Justice.

“DP&L” shall mean The Dayton Power & Light Company, an Ohio corporation.

“Due Diligence Materials” means those due diligence materials relating to the Facility and made available to Purchaser in the virtual data room for the Facility, including that certain information memorandum dated May 2006.  Note:    DPL to update materials in data room with supplemental materials provided to AEP.

“Effective Time” shall mean 9:00 a.m. local time at the Facility on the Closing Date.

“Enterprise Zone Agreement” shall mean that Enterprise Zone Agreement No. 361-00-01 executed as of August 15, 2000, between Pickaway County, Ohio, and Seller including amendments and attached as Exhibit G.

“Environmental Laws” shall mean any federal, state, local, or foreign law, statute, common law, ordinance, rule, regulation, code, treaty or international agreement having the force of law, license, Permits, authorization, approval, consent, judicial or administrative order, judgment, decree, directive, injunction, requirement, or agreement with any Governmental Authority relating to (a) the pollution, protection, preservation, or restoration of the environment

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(including air,  surface water, groundwater, drinking water supply, surface land, subsurface land, structures, plant and animal life, or any other natural resource), (b) human health or safety, or (c) the exposure to, or the use, storage, recycling, treatment, generation, transportation, processing, handling, labeling, production, distribution, disposal, release, or threatened release, of Hazardous Substances (including releases to ambient air, surface water, groundwater, land, surface and subsurface strata), including, but not limited to: the Comprehensive Environmental Response, Compensation and Liability Act, 42 U.S.C. § 9601 et seq.; the Resource Conservation and Recovery Act, 42 U.S.C. § 6901 et seq.; 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 Hazardous Materials Transportation Act, 49 U.S.C. § 1471 et seq.; the Toxic Substances Control Act, 15 U.S.C. §§ 2601 through 2629; the Oil Pollution Act, 33 U.S.C. § 2701 et seq.; the Emergency Planning and Community Right-to-Know Act, 42 U.S.C. § 11001 et seq.; the Safe Drinking Water Act, 42 U.S.C. §§ 300f through 300j; the Occupational Safety and Health Act, 29 U.S.C. § 651 et seq.; the Surface Mining Control and Reclamation Act of 1977, 30 U.S.C. § 1201 et seq.; the Federal Insecticide, Fungicide, and Rodenticide Act, 7 U.S.C. § 136 et seq.; and any similar state or federal law.

 “Facility” has the meaning set forth in the Recitals hereto.

“FERC” means the Federal Energy Regulatory Commission.

“FERC Regulatory Filing” has the meaning set forth in Section 4.03.

“FTC” shall mean the Federal Trade Commission.

“Gas Feeder Line” shall mean that gas feeder line consisting of approximately 3,200 feet of 20-inch pipe from the Columbia tap to the gas regulator station located at the Facility.

“Good Utility Practice” shall mean any of the practices, methods and acts engaged in or approved by a significant portion of the electric utility industry during the relevant time period, or any of the practices, methods and acts which, in the exercise of reasonable judgment in light of the facts known at the time the decision was made, could have been expected to accomplish the desired result at a reasonable cost consistent with good business practices, reliability, safety and expedition.  Good Utility Practice is not intended to be limited to the optimum practice.

“Governmental Approval” shall mean a Seller Governmental Approval or a Purchaser Governmental Approval, as the case may be.

“Governmental Authority” shall mean the government of the United States or any foreign country or any state or political subdivision thereof, any tribal authority and any department, commission, agency, bureau, entity, body or authority exercising executive, legislative, judicial, regulatory or administrative functions of or pertaining to government,

3

including any quasi-governmental entities established to perform such functions.

“Hazardous Substances” shall mean any substance presently listed, defined, designated, or classified as a contaminant, hazardous substance, toxic substance, hazardous waste or special waste, or that is otherwise regulated under any Environmental Law, including petroleum products, asbestos, urea formaldehyde foam insulation, and lead-containing paints or coatings.

“HSR Act” shall mean the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, and the rules and regulations promulgated thereunder.

“Indemnified Party” has the meaning set forth in Section 12.04.

“Indemnifying Party” has the meaning set forth in Section 12.04.

“Information” has the meaning set forth in Section 13.01.

“Inventory” has the meaning set forth in clause (ii) of the definition of Purchased Assets.

“IRS” shall mean the Internal Revenue Service.

“Law” shall mean any statute, law, ordinance, executive order, rule, or regulation (including a regulation that has been formally promulgated in a rule making proceeding but, pending final adoption, is in proposed or temporary form having force of law); notice having force of law; or judgment, order, decree, injunction, or writ of any Governmental Authority, as in effect from time to time.

“Lien” shall mean any mortgage, lien (except for any lien for Taxes not yet due and payable), charge, restriction, pledge, security interest, option, lease or sublease, collateral assignment, mineral interest, claim, right of any third party, easement, encroachment or other encumbrance.

“Material Adverse Effect” shall mean any change in, or effect on, the Purchased Assets related to the Facility or on the ownership, operation, maintenance, or repair of such Purchased Assets as currently conducted by Seller, or on the ability to make sales of power and ancillary services from the Facility and arrange for the transmission thereof, that is or is reasonably likely to be materially adverse to the condition, value, utility, or useful life of the Purchased Assets related to such Facility, after giving effect to this Agreement, other than changes or effects caused by or resulting from (i) conditions affecting the electric generation industry generally, (ii) United States or global economic conditions or financial markets generally, or (iii) the announcement of the transactions contemplated by this Agreement.

4

“Microwave Tower” shall mean that microwave tower and related equipment owned by DP&L and located at the Facility.

“Microwave Tower and Substation Easement Agreement” shall mean the easement agreement in substantially the form attached hereto as Exhibit A by and between DP&L and Purchaser pursuant to which Purchaser will grant to DP&L a right of access to the Microwave Tower and the Substation on the terms and conditions set forth therein.

“Non-Assumed Liabilities” has the meaning set forth in Section 2.03(b).

“Notice of Claim” has the meaning set forth in Section 12.04.

“Objection Notice” has the meaning set forth in Section 6.01(c).

“Parent Guaranty” shall mean that certain Guaranty dated as of the date hereof executed by DPL Inc. in favor of Purchaser, as supplemented and amended from time to time, a form of which is attached hereto as Exhibit D.

 “Permits” shall mean permits, consents, licenses, franchises, certificates, authorizations, registrations, or waivers, extensions, renewals, or variances relating thereto, in each case issued by any Governmental Authority.

“Permitted Exceptions” shall mean, with respect to the Real Property, the following:

(a)           liens or encumbrances securing the Assumed Liabilities;

(b)           all liens for Taxes, assessments, both general and special, and other governmental charges which are not due and payable as of the Closing Date;

(c)           all building codes and zoning ordinances and other Laws of any Governmental Authority heretofore, now or hereafter enacted, made or issued by any such Governmental Authority affecting the Real Property;

(d)           the easements, rights-of-way, covenants, conditions, restrictions, reservations, licenses, agreements, and other similar matters of record in the appropriate governmental offices that do not materially impair the value or the utility of the Purchased Assets;

(e)           all encroachments, overlaps, boundary line disputes, shortages in area, drainage and other easements, cemeteries and burial grounds and other similar matters that do not materially impair the value or the utility of the Purchased Assets;

5

(f)            all electric, telephone, gas, sanitary sewer, storm sewer, water and other utility lines, pipelines, service lines and facility of any nature now located on, over or under the Real Property, and all licenses, easements, rights-of-way and other similar agreements relating thereto that do not materially impair the value or the utility of the Purchased Assets;

(g)           all existing public and private roads and streets (whether dedicated or undedicated), and all railroad lines and rights-of-way affecting the Real Property that do not materially impair the value or the utility of the Purchased Assets;

(h)           all rights with respect to the ownership, mining, extraction and removal of minerals of whatever kind and character (including all coal, iron ore, oil, gas, sulfur, methane gas in coal seams, limestone and other minerals, metals and ores) which have been granted, leased, excepted or reserved prior to the date hereof that do not materially impair the value or the utility of the Purchased Assets; and

(i)            mechanic’s and materialmen’s liens for construction in progress and workmen’s, repairmen’s, warehousemen’s and carrier’s liens arising in the ordinary course of business securing obligations not yet due.

“Permitted Real Estate Exceptions” has the meaning set forth in Section 6.01(a).

“Person” shall mean any natural person, corporation, limited liability company, partnership, joint venture, trust, association or unincorporated entity of any kind and any Governmental Authority or instrumentality.

“Phase I Environmental Site Assessment” has the meaning set forth in Section 5.04.

“Properties” has the meaning set forth in clause (iii) of definition of Purchased Assets.

“Proration Period” has the meaning set forth in Section 2.05.

“Purchase Price” has the meaning set forth in Section 2.02.

“Purchased Assets” shall mean the following described assets, rights and properties owned by Seller or in which Seller has an interest as of the date hereof or may prior to the Closing Date acquire an interest, and used exclusively in connection with the Facility, except for the Retained Assets:

(i)            the deposits and advances, prepaid expenses and other prepaid items of Seller under any of the Purchased Contracts;

6

(ii)           except as otherwise set forth on Schedule I, all inventories (including inventories of raw materials, work-in-progress and finished goods), the tangible assets, machinery and equipment (including the metering equipment located on that portion designated as property of “DPL Energy” on the single-line diagram attached hereto as Exhibit C, turbine generator units, gas fuel conditioning facility, transformers and other electrical switchgear, pumps, piping and fittings, and including also the fuel forwarding skids moved to the Facility in connection with the transactions contemplated herein), tools, dies, molds, spare parts as set forth on Schedule IA, vehicles, transportation equipment, furniture and office equipment, construction-in-progress, computer hardware and computer software located at the Facility, lubricants, chemicals, fluids, and oils owned by Seller located on the Properties or otherwise held or used in the ownership, operation, maintenance or repair of the Properties, Facility or Inventory or in the pursuit of transactions under the Purchased Contracts (“Inventory”);

(iii)          (A) the Seller’s rights, title and interest in and to the real properties (including easements, rights-of-way and water rights) described in Schedule II (“Real Property”) together with all buildings, other improvements, fixtures and appurtenances, and all other rights, privileges and entitlements thereunto belonging or appertaining and (B) Seller’s right, title, and interest in and to the real property leases described in Schedule III (together with the Real Property, the “Properties”);

(iv)          the Seller’s rights, title and interest in and under the Purchased Contracts and any claims thereunder;

(v)           the Seller’s right, title and interest in and to the following intellectual property to the extent related to the Purchased Assets: copyrights, copyright registrations, copyright applications; patent rights (including issued patents, applications, divisions, continuations and continuations-in-part, reissues, patents of addition, utility models and inventors’ certificates); trade secrets, proprietary manufacturing information and inventions, drawings and designs; customer and vendor lists, the goodwill associated with any of the foregoing and the rights of Seller as licensee under licenses with respect to any of the foregoing;

(vi)          unexpired warranties, if any, as of the Effective Time from third Persons (and claims thereunder) which relate specifically to any of the Purchased Assets and which are transferable to Purchaser;

(vii)         the right of Seller to receive, to the extent transferable, Tax exemptions, Tax credits, Tax reductions, Tax rebates, or other amounts from a Governmental Authority with respect to the Purchased Assets, and all pending applications therefor, that are attributable to the ownership or operation of the Purchased Assets after Closing;

(viii)        rights to insurance proceeds not received before the Effective Time

7

relating to any insured loss of the Purchased Assets incurred before the Effective Time, less any costs incurred by Seller or any of its Affiliates before the Effective Time in the investigation or repair of damage from any such loss;

(ix)           any Permits of the Seller relating to the Purchased Assets, and all pending applications for the issuance or renewal of any of the same, to the extent any of the same are transferable or assignable to the Purchaser;

(x)            all existing allowances for air and water emissions and all greenhouse gas, NOx, and other similar credits, and all pending applications therefor, relating to the Facility to the extent any of the same are transferable or assignable to the Purchaser; provided, however, that this provision is not intended to apply to unused NOx allowances for 2005 and 2006 that are removed by the Ohio EPA from the Seller’s accounts prior to Closing;

(xi)           At least one copy (in its existing hard copy or electronic form) of each of the following:  the operating and maintenance records; maintenance plans and schedules; operating, safety and maintenance manuals; engineering design plans and specifications; construction records as to what was built and where it was built; blueprints and as-built drawings; procedures; environmental data and reports; governmental filings; and inspection and test reports related to the Facility or concerning the Purchased Assets, whether or not exclusively related, that are in Seller’s possession (subject to the right of Seller to redact information in such records that is not related to the Facility and the Purchased Assets and to retain archival copies).  This is not to include third party proprietary items for which consent to transfer cannot be obtained as listed on Schedule IV and accounting records of Seller.  The foregoing is not intended to require Seller to modify or reformat any of the information provided pursuant to this subparagraph or to search or produce database or email archives, routine correspondence, SEC or FERC filings, records relaing to internal project approvals, negotiations with contractors or vendors, or any other materials that are not necessary to the future ownership, operation or maintenance of the Facility or the Purchased Assets.

(xii)          the Seller’s right, title and interest in and to the Gas Feeder Line.

“Purchased Contracts” means those contracts described on Schedule 7.06(a) hereto.

“Purchaser” has the meaning set forth in the first paragraph hereof.

“Purchaser Governmental Approval” shall mean the consents, approvals, filings, notices, authorizations and other actions disclosed in Schedule 8.03 and the applicable requirements of the HSR Act.

8

“Real Property” has the meaning set forth in clause (iii) of the definition of “Purchased Assets.”

“Retained Assets” shall mean the following described assets, rights and properties of Seller or, as specifically denoted below, DP&L:

(i)            all cash and cash equivalents, including bank overdrafts and marketable securities;

(ii)           any accounts receivable or intercompany obligations owed to Seller by any Affiliate of Seller other than those under any Purchased Contract;

(iii)          all insurance policies of Seller or acquired or assumed by Seller prior to the Closing Date pertaining to the Facility and (except for claims described in clause (viii) of the definition of Purchased Assets) all rights of Seller of every nature and description under or arising out of such insurance policies;

(iv)          all rights to use the name “DPL Energy” and all derivatives thereof;

(v)           claims for refunds (including any refunds that may be associated with contested tax items related to Units 5 and 6 of the Facility) of Taxes paid by Seller (except for items described in clause (vii) of the definition of Purchased Assets);

(vi)          all past, present and future claims, causes of action, choses in action, rights of recovery and rights of set-off of any kind, except to the extent related to or arising under the Purchased Contracts or otherwise included in the definition of Purchased Assets or to the extent, but only to the extent, such claims or causes of action offset the liabilities assumed by Purchaser pursuant to this Agreement;

(vii)         any rights, interest or assets not included in the Purchased Assets;

(viii)        all rights of Seller under this Agreement and the agreements and instruments delivered to Seller by Purchaser pursuant to this Agreement;

(ix)           the Seller’s corporate seal, minute books and stock record books, the general ledgers and books of original entry, all income Tax returns and other income Tax records, reports, data, files and documents;

(x)            the Microwave Tower and the Substation, and such other equipment related thereto that is owned by DP&L and located on or adjacent to the Real Property;

(xi)           the Retained Contracts; and

9

(xii)          the other assets listed on Schedule V.

“Retained Contracts” means those contracts described on Schedule 7.06(b).

“Sales Tax” shall mean any sales, use, value added, excise, and other similar Tax, if any, together with all recording or filing fees, notarial fees, and other similar costs that may be imposed upon, or payable, collectible, or incurred in connection with or as a result of the transfer of the Purchased Assets to Purchaser.

“Seller” has the meaning set forth in the first paragraph hereof.

“Seller Governmental Approval” shall mean the consents, approvals, filings, notices, authorizations and other actions disclosed in Schedule 7.03 and the applicable requirements of the HSR Act.

“Seller’s Federal Tax Owner” shall mean DPL Inc., an Ohio corporation.

“Substation” shall mean that Darby Adkins Substation owned by DP&L and located at the Facility.

“Supplemental Disclosure Schedule” has the meaning set forth in Section 14.05.

“Survey” shall have the meaning set forth in Section 6.01(b).

“Tax Incentive Donation Agreement” shall mean the agreement between Seller and Darby Township, dated July 17, 2000, and attached as Exhibit H.

“Tax Proceeding” or “Tax Proceedings” has the meaning set forth in Section 5.08(e).

“Taxes” shall mean all federal, state, local, or foreign taxes, charges, fees, duties (including custom duties), levies or other assessments, including income, alternative or add-on, gross receipts, net proceeds, capital gains, real or personal ad valorem, turnover, real and personal property (tangible and intangible), sales, use, franchise, excise, value added, stamp, leasing, lease, user, transfer, title, documentary, registration, fuel, excess profits, occupational, interest equalization, windfall profits, license, payroll, environmental (including Taxes under Code section 59A), capital stock, disability, severance, employee’s income withholding, other withholding unemployment and Social Security taxes, which are imposed by any Governmental Authority.  “Taxes” shall include (i) any liability for the payment of any amounts described in the preceding sentence or as a result of being a member of an affiliated, consolidated, combined, or unitary group for any taxable period, (ii) any liability for the payment of any amount described in the preceding sentence as a result of being a Person required to withhold or collect

10

Taxes imposed on another Person, (iii) any liability for the payment of any amount described in the preceding sentence or in clause (i) of (ii) of this sentence as a result of being a transferee of, or successor in interest to, any Person or as a result of an express or implied obligation to indemnify any Person, and (iv) any and all interest, penalties, additions to tax, or additional amounts imposed in connection with or with respect to any amount described in this definition.

“Taxing Authority” shall mean with respect to any Tax, the Governmental Authority or political subdivision thereof that imposes such Tax, and the agency (if any) charged with the collection of such Tax for such entity or subdivision, or any agency that grants or administers any exemption, abatement, rebate, or reduction of any Tax or any credit with respect thereto.

“Threshold” has the meaning set forth in Section 12.03(b).

“Title Policy” shall have the meaning set forth in Section 6.01(a).

“Transfer Taxes” shall mean any transfer, real property transfer, goods and services, recordation, documentary, stamp duty, gross receipts, excise, and conveyance Tax and other similar Tax, duty, fee or charge (other than Sales Taxes), as levied by any Taxing Authority in connection with or as a result of the transfer of the Purchased Assets to Purchaser.

1.02         Interpretation.  Unless the context of this Agreement otherwise requires, (a) words of any gender shall be deemed to include each other gender, (b) words using the singular or plural number shall also include the plural or singular number, respectively, (c) references to “hereof”, “herein”, “hereby” and similar terms shall refer to this entire Agreement; (d) the words “include” and “including” mean “including without limitation”, (e) all references in this Agreement to Articles, Sections, Schedules and Exhibits shall mean and refer to Articles, Sections, Schedules and Exhibits of this Agreement, (f) all references to statutes and related regulations shall include all amendments of the same and any successor or replacement statutes and regulations, (g) references to any Person shall be deemed to mean and include the successors and permitted assigns of such Person (or, in the case of a Governmental Authority, Persons succeeding to the relevant functions of such Person), and (h) references to any agreement shall include a reference to all schedules, exhibits and other attachments thereto as such agreement and schedules, exhibits, and other attachments may be amended or supplemented from time to time.

1.03         Knowledge.  As used herein the terms “knowledge” or “best knowledge” shall have the same meaning and shall mean the actual knowledge of Gary Stephenson, Mandy Goubeaux, Randall Griffin and Chris Hergenrather as it relates to Seller and Tim Light, Toby Thomas and Cynthia Butler Carson as it relates to Purchaser, in each instance after due inquiry and reasonable investigation.

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ARTICLE II

Purchase and Sale, Purchase Price,
Allocation and Other Related Matters

2.01         Purchase and Sale.  Upon the terms and subject to the conditions of this Agreement, at the Closing the Seller shall sell, assign, convey, transfer and deliver to Purchaser or its designees and Purchaser or such designees shall acquire from Seller the Purchased Assets.

2.02         Purchase Price.  The aggregate purchase price (the “Purchase Price”) payable by Purchaser for the Purchased Assets shall be One Hundred Two Million Dollars ($102,000,000), less the amount of any insurance proceeds received by Seller or any of its Affiliates whether directly or as a beneficiary after the date hereof and before the Effective Time relating to any insured loss of the Purchased Assets incurred before the Effective Time, after reducing such proceeds by any costs incurred by Seller or any of its Affiliates before the Effective Time in the investigation or repair of damage from any such loss.

2.03         Assumed Liabilities.

(a)           As additional consideration for the purchase of the Purchased Assets, Purchaser hereby agrees to assume on the Closing Date but as of the Effective Time and discharge in accordance with their terms or as otherwise provided by this Agreement only those obligations of Seller related to the Purchased Assets (including the Purchased Contracts) arising and attributable to the period after the Effective Time, other than those obligations arising out of or attributable to any breach or other violation in connection therewith by Seller or incurred as a result of an act or omission of Seller in contravention of the provisions of this Agreement.  Assumed Liabilities are limited to the items expressly described in this Section 2.03.  The foregoing provisions of this Section 2.03 notwithstanding, Purchaser shall not be obligated to assume any liability or obligation as to which Seller, its Affiliate, or the counterparty is in default in any material respect on the Closing Date.

(b)           The debts, liabilities and obligations to be assumed by Purchaser under this Agreement are hereinafter sometimes referred to as the “Assumed Liabilities” and the debts, liabilities and obligations that are not assumed by Purchaser under this Agreement are hereinafter sometimes referred to as “Non-Assumed Liabilities.”

(c)           This Section 2.03 is not intended to and shall not benefit any Person other than Seller and Purchaser.

(d)           All of the Non-Assumed Liabilities shall remain and be the debts, obligations and liabilities of the Seller, and Purchaser shall have no liability or responsibility for any of the debts, obligations or liabilities arising therefrom.  Seller covenants and agrees with

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Purchaser that it shall perform and discharge the Non-Assumed Liabilities.

2.04         Sales and Transfer Taxes.  Purchaser and Seller shall share equally the cost of any (a) real property transfer or similar tax imposed by any Governmental Authority which arises out of the transfer of the Real Property, including any excise tax assessed on any deed conveying the Real Property; and (b) all other transfer, sales, purchase, use, value added, excise or similar taxes imposed by any Governmental Authority which arises out of the transfer of any of the Purchased Assets.

2.05         Allocation of Purchase Price.  The parties agree that the Purchase Price shall be allocated among the Purchased Assets in accordance with Schedule 2.05.  After the Closing, the parties will make consistent use of the allocation, fair market value, and useful lives specified in Schedule 2.05 for all Tax purposes and in all Tax returns, including those required by section 1060 of the Code.  Purchaser agrees to complete IRS Form 8594 consistently with such allocation within 45 days after the Closing Date and to furnish Seller with a copy of such form prepared in draft form, within a reasonable period before the filing due date of such form.  The Form 8594 will be amended from time to time in accordance with Schedule 2.05.  Except to the extent required by applicable Law, neither Seller nor Purchaser shall file any Tax return or take a position with a Tax authority that is inconsistent with such allocation.

2.06         Prorations.  The parties will prorate, as of Closing, all items under those Purchased Contracts that relate to a period that begins prior to the Effective Time and ends after the Effective Time (each a “Proration Period”) (other than Taxes, which are to be prorated as provided in Section 5.08) as follows:  any amount that is appropriately attributed to transactions or activities before Closing will be borne or enjoyed by Seller, and any amount that is appropriately attributed to transactions or activities on or after Closing will be borne or enjoyed by Purchaser.  Any amounts that cannot be so attributed will be borne or enjoyed by the parties in proportion to the number of days, during the billing period related to that amount, that are before Closing and on or after Closing, respectively.  Within ninety (90) days after the Closing, the parties, based upon any and all invoices relating to all Proration Periods, shall agree upon the relative amounts allocable to each party and as required adjust the amount paid by Purchaser to Seller at Closing to reflect such amounts.

ARTICLE III

Closing and Closing Date Deliveries

3.01         Closing.  The term “Closing” as used herein shall refer to the actual conveyance, transfer, assignment and delivery of the Purchased Assets to Purchaser in exchange for the Purchase Price to the Seller pursuant to Section 2.02 of this Agreement.  The Closing shall take place at the offices of Winston & Strawn LLP, 1700 K Street NW, Washington, DC, at 9:00 a.m. local time on the fifth business day following the date upon which all of the conditions precedent set forth in Articles IX and X of this Agreement (other than those that are to be

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satisfied at Closing) are satisfied or waived by the appropriate party hereto, subject to Article XI of this Agreement, or at such other place and time or on such other date as is mutually agreed to in writing by Seller and Purchaser (“Closing Date”).  The Closing shall be effective as of the Effective Time.

3.02         Closing Deliveries by Seller.  At the Closing, the Seller shall deliver to the Purchaser:

(a)           With respect to the Purchased Assets related to the Facility, a general warranty deed for all Real Property, including an assignment with general warranty covenants of all of the easements upon which the Gas Feeder Line is situated;

(b)           With respect to the Purchased Assets related to the Facility, all such bills of sale, lease assignments, trademark assignments, copyright assignments, patent assignments, contract assignments and other documents and instruments of sale, assignment, conveyance and transfer, as the Purchaser or its counsel may deem necessary or desirable;

(c)           Certified copies of minutes or unanimous written consents of the Board of Directors and if required, the members and/or managers of the Seller approving the execution, delivery and performance of this Agreement and the consummation of the transactions contemplated by this Agreement;

(d)           A Certificate, dated the Closing Date, executed by the appropriate officers of the Seller, required by Section 9.02 of this Agreement;

(e)           a non-foreign affidavit dated as of the Closing Date, sworn under penalty of perjury and in form and substance required under the Treasury Regulations issued pursuant to Code §1445 stating that Target is not a “foreign person” as defined in Code §1445 (the “FIRPTA Affidavit”);

(f)            a certificate from the Secretary of State of the Seller’s state of formation certifying as to Seller’s existence and good standing certificates of Seller to the extent provided under the laws of its state of formation and the states in which the Facility is located;

(g)           a reaffirmation of the Parent Guaranty executed by the Guarantor hereunder in form and substance reasonably acceptable to Purchaser;

(h)           a copy of the data room contents on CD; and

(i)            such other documents as the Purchaser or its counsel may reasonably request to carry out the purposes of this Agreement, including the documents to be delivered pursuant to Article IX of this Agreement.

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The items described in clause (x) of the definition of Purchased Assets shall be delivered to Purchaser’s offices in Columbus, Ohio or to the Facility and shall include a general directory of contents and their location.

3.03         Closing Deliveries by Purchaser.  At the Closing, the Purchaser shall deliver to the Seller:

(a)           The Purchase Price, subject to proration and other adjustments and credits as herein provided;

(b)           Certified copies of minutes or unanimous written consents of the Board of Directors, and if required, the stockholders of the Purchaser approving the execution, delivery and performance of this Agreement and the consummation of the transactions contemplated under this Agreement;

(c)           The Certificate, dated the Closing Date, executed by the appropriate officer of the Purchaser, required by Section 10.02 of this Agreement;

(d)           An assumption agreement executed by the Purchaser or the Purchaser’s designee reflecting the assumption of the liabilities set forth in Section 2.03(a) of this Agreement, in the form attached hereto as Exhibit E (the “Assumption Agreement”);

(e)           a certificate from the Secretary of State of the Purchaser’s state of formation and that of each of Purchaser’s designees certifying as to such entity’s existence and good standing certificates of such entity to the extent provided under the laws of its state of formation and the states in which the Facility is located;

(f)            Ohio direct pay permit;

(g)           the Microwave Tower and Substation Easement Agreement executed by Purchaser; and

(h)           such other documents as the Seller or its counsel may reasonably request to carry out the purposes of this Agreement, including the documents to be delivered pursuant to Article X of this Agreement.

3.04         Cooperation.  Subject to the provisions of Section 4.04, the Seller and the Purchaser shall, on request, on and after the Closing Date, cooperate with one another by

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furnishing any additional information, executing and delivering any additional documents and/or instruments and doing any and all such other things as may be reasonably required by the parties or their counsel to consummate or otherwise implement the transactions contemplated by this Agreement.

ARTICLE IV

Pre-Closing Filings

4.01         Government Approvals; Consents.  Subject to the terms and conditions of this Agreement and applicable Law, prior to the Closing each party shall, at its own expense, use its commercially reasonable efforts to take or cause to be taken all actions necessary, proper, or advisable, including all possible appeals, to obtain such party’s Governmental Approvals and all other necessary or appropriate filings, registrations, consents, approvals, certifications, determinations, authorizations, or waivers (including the transfer or re-issuance of Permits) required in order to consummate the transactions contemplated hereby and to take or cause to be taken all actions necessary to comply with the terms upon which any of the same are granted.  The parties hereto acknowledge and agree that no filings with the Public Utilities Commission of Ohio have been made, nor are they required or intended to be made, nor are such filings a condition precedent to the Closing.

4.02         HSR and Other Filings.  Without limitation of the foregoing, each party undertakes and agrees to (i) file (and each party agrees to cause any Person that may be deemed to be the ultimate parent entity or otherwise to control such party to file, if such filing is required by applicable Law) as soon as practicable following the date hereof, a Notification and Report Form under the HSR Act with the FTC and the Antitrust Division of the DOJ (the filing fees payable in connection therewith to be paid by Purchaser); (ii) subject to the allocation of responsibility set forth in Section 4.03, file as soon as practicable after the date hereof any forms or reports required by FERC and any applicable state or local government public utility regulatory bodies; (iii) submit as soon as practicable after the date hereof a request for each other Governmental Approval to be sought by that party; (iv) file as soon as practicable any form or report required by any other Governmental Authority relating to antitrust, competition, trade, Tax, or energy or utility regulation matters; and (v) subject to Section 4.05, take any action and agree to any undertaking necessary to receive any clearance or approval required by any Governmental Authority or applicable Law, in each case, with respect to the transactions contemplated hereby.  Each party shall (and shall cause any such parent entity to) (vi) respond as promptly as practicable to any inquiries or requests received from any Governmental Authority for additional information or documentation; and (vii) not extend any waiting period under the HSR Act or enter into any agreement with any Governmental Authority not to consummate the transactions contemplated hereby, except with the prior consent of the other party.

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4.03         FERC Regulatory Filing.

(a)           The Purchaser shall have primary responsibility for the preparation and filing of the regulatory filing(s) to be made to FERC requesting approval under Section 203 (and Section 205, if necessary) of the Federal Power Act (the “FERC Regulatory Filing”).  Upon the request of the Purchaser, the Seller shall use its commercially reasonable efforts to cooperate with the Purchaser to prepare and file the FERC Regulatory Filing.

(b)           The Purchaser and the Seller shall use commercially reasonable efforts to file as soon as practicable after the date hereof the FERC Regulatory Filing, and execute all agreements and documents, in each case, to obtain as promptly as practicable approval under Section 203 (and Section 205, if necessary) of the Federal Power Act.  The Purchaser and the Seller shall act diligently, and shall coordinate in completing and submitting the FERC Regulatory Filing.  The Purchaser and the Seller shall each have the right to review and approve (which such approval shall not be unreasonably delayed or withheld) in advance all of the information relating to the transactions contemplated by this Agreement which appears in the FERC Regulatory Filing.  The Purchaser and the Seller agree that all telephonic calls and meetings with the FERC regarding the transactions contemplated by this Agreement shall be conducted by the Purchaser and the Seller jointly.

4.04         Cooperation in Regulatory Review Process.  Each party shall consult and cooperate in the regulatory review process.  Notwithstanding anything in this Agreement to the contrary, each party agrees not to oppose, obstruct, or otherwise interfere with, in any manner whatsoever, the efforts of the other party to obtain such party’s Governmental Approvals and all other clearance or approval required by any Governmental Authority or applicable Law with respect to the transactions contemplated hereby.

4.05         Conditions or Limitations.  Nothing in this Agreement will require any party to accept any condition to, limitation on, or other term concerning the grant of any Governmental Approval if such condition, limitation, or other term, alone or in the aggregate with other such conditions, limitations, or other terms would (i) require the disposition by Purchaser of any material asset(s); (ii) have a material adverse effect on either party or any of its Affiliates in its acquisition, ownership, use, operation, or disposition of any property other than the Purchased Assets; or (iii) would materially change or impair the commercial expectation of the Purchaser with respect to the sale or transmission of power from the Facility.

4.06         PJM Notification of Sale and Scheduling and Bidding for day of Closing.

(a)           Seller and Purchaser shall cooperate in the transfer of the Facility from Seller’s account with PJM to Purchaser’s account with PJM which cooperation shall include the transfer of ownership of the Facility on the Closing Date and the allocation of costs and revenues related to the Facility for the Closing Date.  Seller has provided to or shall provide to Purchaser as of the Closing Date access to all historical GADS data related to the Facility.

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(b)           For any Facility bids submitted to PJM that will be effective on the Closing Date, Seller agrees to bid the Facility units in accordance with the following guidelines:

(i)            At the Seller’s calculated maximum allowable cost pursuant to PJM Manual 15 - Cost Development Guideline (or such other guideline that may replace the PJM Manual 15 – Cost Development Guideline) for the units at the Facility plus the allowable 10% markup, and

(ii)           Using a delivered gas price equivalent to the Intercontinental Exchange (“ICE”) “TCO Pool” high trade/settlement (as determined by Seller in its discretion) for a gas flow day that coincides with the Closing Date plus the applicable adders for pipeline fuel, transportation, storage/balancing, and other adders deemed appropriate by Seller to deliver fuel to the Facility.

ARTICLE V

Covenants

5.01         Due Diligence Review.  Pending Closing, the Seller shall at all reasonable times and upon reasonable prior notice make the Facility, properties, assets, books and records, and involved personnel pertaining to the Purchased Assets available for examination, inspection and review by the Purchaser and its lenders, agents and representatives; provided, however, Purchaser’s inspections and examinations shall not unreasonably disrupt the normal operations of the Facility and any interview by the Purchaser of such involved personnel shall require the prior written approval of the Seller.  Neither the representations and warranties of Seller, nor the indemnification obligations of Seller, shall be affected, qualified, modified or deemed waived by reason of the Purchaser’s exercise or failure to exercise its rights under this Section.

5.02         Pending Closing.  Pending the Closing, and unless otherwise consented to by the Purchaser in writing, the Seller shall:

(a)           conduct and carry out operations at the Facility consistent with Good Utility Practices and, in all events, maintain the Purchased Assets in the same condition in all material respects as existed on July 31, 2006;

(b)           not sell, lease, mortgage, pledge or otherwise dispose of any of the Purchased Assets or other material properties or assets of or in connection with the Facility, except for tangible personal property purchased, sold or otherwise disposed of in the ordinary course and the disposal of which does not materially impair the value or the utility of the Purchased Assets;

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(c)           except as set forth on Schedule 5.02(c), not enter into, or become obligated under, any lease, contract, agreement or commitment with respect to the Facility, Properties or Inventory that cannot be terminated by Seller without penalty at or before Closing;

(d)           not materially change, amend, or otherwise modify or terminate any Purchased Contract;

(e)           maintain in full force and effect with respect to the Facility, Properties and Inventory, policies of insurance of the same type, character and coverage as the policies currently carried and described in Schedule 7.07;

(f)            if a spare part set forth on Schedule IA and worth more than $50,000 is used or removed from the inventory of spare parts, replace such spare part with its equivalent before Closing;

(g)           use Inventory and spare parts comprising part of the Purchased Assets only in connection with the Facility, in the ordinary course of business, and in accordance with Good Utility Practice;

(h)           not enter into any labor or collective bargaining agreement with employees at the Facility;

(i)            not enter into, modify, or renew any contract with respect to the sale of electric power or ancillary services from the Facility that will call for the delivery of electric power or ancillary services after the Closing; or

(j)            not agree to do any of the items prohibited by Section 5.02(b), (c), (d), (e) (f), (g), (h), or (i).

5.03         Consents.  Pending the Closing Date, the parties shall proceed with all reasonable diligence and use commercially reasonable efforts to obtain the written consents, authorizations or approvals required for the consummation of transactions contemplated by this Agreement (including the assignment and assumption of the Purchased Contracts); provided, however, neither party shall have any obligation to pay any third Person a fee to obtain any such consent, authorization or approval not already provided for by the applicable agreement or Law.

5.04         Environmental Assessments.  Purchaser shall have the right to obtain, at Purchaser’s expense and from environmental consultants selected by Purchaser, environmental assessments of any of the Properties and all structures thereon for the purpose of determining whether there exists any Hazardous Substance on, about or underneath the Properties or any structure thereon or thereunder, or migrating or threatening to migrate from any of the Properties or any structure thereon or thereunder, or any condition, circumstance, or activity which constitutes a violation of or noncompliance with any Environmental Laws (“Phase I

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Environmental Site Assessment”).  Prior to Closing, if Purchaser’s Phase I Environmental Site Assessment concludes that further investigation is warranted, Purchaser shall provide to Seller a copy of the proposal for a Phase II investigation, which Seller may approve in its sole discretion.  Purchaser shall provide Seller copies of any Phase I or Phase II Environmental Site Assessment reports to Seller, upon Seller’s request.  Seller shall provide to Purchaser and Purchaser’s consultants access to the Facility during normal business hours and upon reasonable notice.

5.05         Notice of Breach.  Pending Closing, each party shall provide notice to the other party within ten (10) days of becoming aware of any material breach of (x) any representations or warranties of such notifying party contained in this Agreement or (y) any of the covenants of such notifying party contained in this Agreement.

5.06         Workforce.  Pending Closing and subject to Seller’s prior written consent, Purchaser may interview Seller’s employees who are employed at the Facility to determine whether Purchaser wishes to make offers of employment to any such employee(s); provided, however, that to the extent any such employee accepts an offer of employment from Purchaser (or any of its Affiliates or agents), Purchaser agrees not to permit, or to cause its Affiliates or agents not to permit, such employees to commence employment with Purchaser (or any of its Affiliates or agents) prior to the Closing Date.

5.07         Cooperation.

(a)           Each party agrees that after the Closing Date it will use its commercially reasonable efforts to cooperate with and make available to the other party, upon reasonable notice and during normal business hours, books and records and information of or relating to the Purchased Assets and other matters relevant to this Agreement which are necessary or useful in connection with Purchaser’s operation or maintenance of the Purchased Assets, any proceeding by a Governmental Authority, preparation of tax returns, or any claim by or against a third party involving the Purchased Assets (other than in connection with disputes between the parties).  The party requesting any such books and records, information, or cooperation shall bear all of the out-of-pocket costs and expenses of the other party reasonably incurred in connection therewith (including out-of-pocket expenses to third parties incurred by any party).

(b)           Purchaser and Seller shall cooperate in good faith pending the Closing Date to insure that there is no interruption in phone or electrical service to the Facility.

(c)           Purchaser and Seller shall cooperate in good faith pending the Closing Date to provide to Purchaser the benefits referenced in that letter dated October 10, 2003, from General Electric International, Inc., pertaining to the replacement of R-17 blades.

(d)           Seller shall provide written notice to Columbia Gas Transmission Corporation of the assignment (to be effective as of the Closing) to Purchaser of Seller’s interest in the NTS Service Agreement dated as of May 14, 2001, by and between Columbia Gas

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Transmission Corporation and Seller, as amended, and shall provide a copy of such written notice to Purchaser.

5.08         Tax Matters.  (a) Except as provided in clause (b) of this Section 5.08 or with respect to items included in Purchased Assets as described in clause (vii) of the definition of Purchased Assets, in respect of Taxes on or with respect to the Purchased Assets, (i) with respect to a taxable period, or portion thereof, that ends before or as of the Closing Date, Seller shall be liable and indemnify Purchaser for all Taxes arising out of or related to a breach of any of the representations and warranties set forth in Section 7.14 of this Agreement or the Covenants of Seller in this Article V, and (ii) Purchaser shall be liable and indemnify Seller for all such Taxes with respect to a taxable period, or portion thereof, that begins on or after the Closing Date.

(b)  Ad valorem property Taxes imposed on or with respect to the Purchased Assets for the Taxable Period that contains the Effective Time shall be prorated between Seller and Purchaser based on their relative number of days of ownership during the Taxable Period, with Seller being responsible for such prorated ad valorem property Taxes for the period ending as of the end of the Closing Date and Purchaser being responsible for such prorated ad valorem property Taxes for the period after the Closing Date.  At the election of either party, the amount to be paid by Purchaser at Closing shall be adjusted by an estimated proration based on the previous year’s Taxes.  The amount of any post-Closing invoice for pro-rated ad valorum property Taxes shall include an adjustment for any settlement or closing of any Tax Proceeding related to the Enterprise Zone Agreement and shall take into account any ad valorem property Taxes previously pro-rated pursuant to this Section 5.08(b).  All amounts receivable or payable between the parties under this Section 5.08(b) will be an adjustment to the Purchase Price.

(c)  Any Tax return to be prepared pursuant to the provisions of this Section 5.08 shall be prepared in a manner consistent with practices followed in prior years with respect to similar Tax returns and in compliance with the applicable Law of each respective jurisdiction, except for changes required by changes in applicable Law.   Purchaser shall not file an amended Tax Return relating to the Purchased Assets for any period ending on or prior to the Closing Date without the consent of Seller, which may be withheld in Seller’s reasonable discretion, and Seller shall not file any Tax Return relating to the Purchased Assets for any period ending after the Closing Date without the prior consent of Purchaser, which may be withheld in Purchaser’s reasonable discretion.

(d)    Seller and Purchaser agree that the transaction pursuant to this Agreement is not subject to Sales Tax in accordance with Title LVII, Chapter 5739 Sales Tax, Sec. 5739.02(B)(8) [Ohio Revised Code] (casual sale exemption) and Title LVII, Chapter 5739 Sales Tax, Sec. 5739.02(B)(40) [Ohio Revised Code] (sale to a provider of electricity).

(e)  Purchaser and Seller shall cooperate fully, and shall cause their respective Affiliates to cooperate fully, as and to the extent reasonably requested by either party, in

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connection with the filing of Tax returns and any audit, litigation, examination, or other proceeding (“Tax Proceeding”) (including, but not limited to, the Tax Proceedings regarding ad valorem property taxes and the Enterprise Zone Agreement) with respect to Taxes of or relating to the Purchased Assets and in connection with the filing of any application with any Taxing authority for approval of the transfer or assignment of any item described in clause (vii) of the definition of Purchased Assets.  Such cooperation shall include the retention and (upon a party’s request) the provision of records and information which are reasonably relevant to any such Tax return, Tax Proceeding, or application and making employees available on a mutually convenient basis to provide additional information and explanation of any material provided hereunder.

(f)  Seller shall use good faith efforts to assist Purchaser in obtaining the written approval of Pickaway County (and/or applicable governmental entity) in the transfer of Seller’s Enterprise Zone Agreement to Purchaser: (i) in the event that the Enterprise Zone Agreement is transferred to Purchaser and pursuant to the provisions of this Section 5.08, Seller will take no position in its Tax Proceedings that would have an adverse material effect upon Purchaser’s enjoyment of the benefits of the transferred Enterprise Zone Agreement (provided that in no event shall resolution of the Tax Proceedings by Seller for less than the full amount of Seller’s claim be considered to materially adversely affect Purchaser’s future tax benefits); and (ii) if Seller and Purchaser are unable to obtain written approval of Pickaway County (and/or applicable governmental entity) to transfer the Enterprise Zone Agreement to Purchaser, the Seller shall be responsible for all obligations (but in no event including property taxes for periods after the Closing) with respect to the Enterprise Zone Agreement, the Compensation Agreement and, the Tax Incentive Donation Agreement until each agreement expires or is otherwise cancelled or voided.  Notwithstanding anything in this Agreement to the contrary, neither the assignment of the Enterprise Zone Agreement nor Purchaser’s entry into any replacement agreement shall be a condition precedent to the obligations of either party under this Agreement.  In the event that the Enterprise Zone Agreement is transferred to Purchaser but the Tax Proceedings (and any appeals) regarding the Enterprise Zone Agreement fail such that any one or more CT Units is excluded from the Enterprise Zone Agreement, Purchaser shall be responsible for any and all payments required in connection with the Compensation Agreement for periods after Closing based upon the total number of CT Units covered by the Enterprise Zone Agreement until such time as the Compensation Agreement expires or is otherwise cancelled or voided.

(g)  Seller shall notify Purchaser within 30 days of Seller’s receipt of notice of a Tax Proceeding related to the Purchased Assets or to Seller but only if the Tax Proceeding could reasonably be expected to affect Purchaser’s ownership or operation of the Purchased Assets after the Closing or result in the imposition of any Tax for which Purchaser is responsible.  Purchaser, at its expense, shall have the right to control the defense and settlement of any such Tax proceeding.

(h)  Except with respect to items included in Purchased Assets as described in clause (vii) of the definition thereof, Seller shall be entitled to any refunds or credits for any

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Taxes relating to the Purchased Assets for periods ending prior to or as of the Closing Date, and Purchaser shall be entitled to any refunds or credits for any Taxes relating to the Purchased Assets for periods on and after the Closing Date.  Any party receiving a refund or the right to a credit to which the other party is entitled shall immediately notify the party so entitled and remit the refund or the value of the credit, as the case may be, within thirty (30) days of receipt of such refund or entitlement to the credit.

(i)  Subject to Section 2.04, Seller shall file all Tax returns required to be filed to report Transfer Taxes imposed on or with respect to the transactions contemplated hereby, shall solely be liable for and shall pay all such Transfer Taxes, and shall indemnify, defend and hold harmless Purchaser and its Affiliates from and against any and all liability for the payment of such Transfer Taxes and the filing of such Tax returns.

5.09         Market Power Study.  Purchaser shall have the right to obtain, at Purchaser’s sole expense and from a consultant selected by Purchaser, a market power study for purposes of determining whether there exist any issues concerning market power or the need to mitigate such market power in connection with Purchaser’s acquisition of the Facility.

5.10         Microwave Tower and Substation Easement Agreement.  Purchaser shall enter into the Microwave Tower and Substation Easement Agreement with DP&L.

ARTICLE VI

Title and Survey

6.01         Pre-Closing Title Policy and Survey Delivery.  No more than thirty (30) days after the date hereof, the Seller shall obtain and deliver to the Purchaser:

(a)           With respect to the Properties, an owner’s preliminary title report covering a date subsequent to the date hereof, issued by a title insurance company reasonably acceptable to the Purchaser, which preliminary report shall contain a commitment of such title insurance company to (i) issue an owner’s title insurance policy (the “Title Policy”) on ALTA 1990 Owner’s Form B insuring the Purchaser as to the fee simple title or other applicable estate in each parcel comprising the Properties, and the grantee’s rights set forth in the easements upon which the Gas Feeder Line is situated,  in an amount set forth in Schedule 6.01 and subject only to, (A) Permitted Exceptions, (B) such other minor encumbrances or imperfections, if any, which are not substantial in nature or amount and which do not detract from the value or utility of the Purchased Assets; and (C) such other matters as are disclosed in Schedule 6.01 or consented to in writing by the Purchaser, including the Microwave Tower and Substation Easement Agreement (clauses (A), (B) and (C) are collectively referred to as “Permitted Real Estate Exceptions”), together with a true, correct, and legible copy of each document referred to in the commitment; and (ii) guarantee that each such parcel of real estate adjoins a public road or highway and that entrance to and exit from such premises may be had via such public road or highway; and

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(b)           A current as-built survey and metes and bounds description of the Properties prepared by a registered land surveyor or engineer, duly licensed in the applicable state (i) in accordance with the “Minimum Standard Detail Requirements for ALTA/ACSM Land Title Surveys”, jointly established and adopted by ALTA, ACSM and NSPS in 1999, and including items 1-4, 6, 7(a), 8-10, 11(a) and (b), and 14-16 of Table A thereof, and (ii) pursuant to the Accuracy Standards (as adopted by ALTA, NSPS and ACSM and in effect on the date thereof), with survey measurements made in accordance with the “Minimum Angle Distance and Closure Requirements for survey measurements which control land boundaries for ALTA/ACSM Land Title Surveys” (the “Survey”).

(c)           No later than fifteen (15) days after Purchaser has received the last of the title report and commitment (and copies of referenced documents) and the Survey, Purchaser shall provide a written notice (“Objection Notice”) to Seller of any material defects or exceptions disclosed by the commitment, any secured transaction search undertaken by Purchaser, or Survey that is not a Permitted Real Estate Exception.  Purchaser shall be deemed to have accepted all defects and exceptions disclosed by the commitment, any secured transaction search undertaken by Purchaser, and Survey to which Purchaser does not object in a timely Objection Notice, and such accepted defects and exceptions shall be deemed to be Permitted Real Estate Exceptions hereunder.  Seller shall have thirty (30) days (the “Cure Period”) from receipt of the Objection Notice to cure any defect or exception which is the subject of an Objection Notice, failing which Purchaser shall have the option to either (i) terminate this Agreement as provided in Section 11.01 by giving written notice to Seller no later than fifteen (15) days following the expiration of the Cure Period or (ii) be deemed to have accepted the Properties subject to all such uncured defects and exceptions disclosed by the commitment, any secured transaction search undertaken by the Purchaser, or Survey, all of which shall be Permitted Real Estate Exceptions hereunder.

(d)           The costs and expenses of the title report, the Title Policy and all endorsements, and the Survey shall be borne by Purchaser, whether or not the transactions contemplated under this Agreement are consummated.  All costs and expenses incurred by Seller in response to any Objection Notice shall be borne by Seller.

ARTICLE VII

Warranties and Representations of the Seller

The Seller warrants and represents to the Purchaser as follows:

7.01         Organization and Good Standing.  The Seller is a limited liability company duly formed, validly existing and in good standing under the laws of the State of Ohio.  Seller is duly qualified to transact business and is in good standing in each jurisdiction where such qualification is necessary, except where the failure to be so qualified or in good standing could not reasonably expected to have a Material Adverse Effect or impair the Seller’s ability to

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perform its obligations hereunder in any material respect.

7.02         Authority.  The Seller has the right and power to enter into, and perform its obligations under this Agreement; and has taken all requisite action to authorize its execution and delivery of this Agreement and the performance of its obligations under this Agreement; and this Agreement has been duly authorized, executed and delivered by the Seller and is binding upon, and enforceable against, the Seller in accordance with its terms; except as such enforcement may be limited by bankruptcy, insolvency, reorganization, moratorium or other similar laws affecting enforcement of creditors’ rights generally and by general principles of equity (whether applied in a proceeding at law or in equity).

7.03         No Violations and Consents.  (a)  The execution, delivery and performance of this Agreement by the Seller does not and will not, after the giving of notice, or the lapse of time, or otherwise, (i) conflict with, result in a breach of, or constitute a default under, the Certificate of Formation or Operating Agreement of the Seller or any of its Affiliates or any Law or any Purchased Contract; (ii) result in the creation of any Lien upon any of the Purchased Assets; (iii) terminate, amend or modify, or give any party the right to terminate, amend, modify, abandon, or refuse to perform, any Purchased Contract; (iv) accelerate or modify, or give any party the right to accelerate or modify, the time within which, or the terms under which, any duties or obligations are to be performed by Seller or any of its Affiliates, or any rights or benefits are to be received by any Person, under any Purchased Contract; or (v) violate or result in a default (or give rise to any right of termination, suspension, modification, cancellation, or acceleration) in any material respect under any other indebtedness or obligation, lease, contract, other agreement, commitment, indenture, mortgage, deed of trust, or other instrument, document, or arrangement to which Seller or any of its Affiliates is a party or by which any of the Purchased Assets is bound.

(b)           The execution and delivery by Seller of this Agreement does not, and the performance by Seller or any of its Affiliates of its obligations hereunder will not, require Seller or any of its Affiliates to obtain any consent, approval, authorization or other action of, or make any filing with or give any notice to, any Governmental Authority, except (a) as disclosed in Schedule 7.03, (b) pursuant to the applicable requirements of the HSR Act, (c) where failure to obtain such consents, approvals, authorizations or actions, make such filings or give such notices would not have a Material Adverse Effect or impair the Seller’s ability to perform its obligations hereunder in any material respect and (d) as may be necessary as a result of any facts or circumstances relating solely to Purchaser.

7.04         Brokers.  Except as otherwise set forth in Schedule 7.04, neither this Agreement nor the sale of the Purchased Assets or any other transaction contemplated by this Agreement was induced or procured through any Person acting on behalf of, or representing, the Seller or any of its Affiliates as broker, finder, investment banker, financial advisor or in any similar capacity.

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7.05         Required Assets.  Except for the items set forth on Schedule 7.05 and the Retained Assets, all of the material rights, properties and assets required by the Seller in connection with the ownership, operation, maintenance, and repair of the Facility, the delivery of fuel thereto from the Columbia tap and the delivery of power and ancillary services therefrom to the Substation, each as of the date hereof, are (a) owned by the Seller or licensed or leased to the Seller under one of the Purchased Contracts (except as otherwise contemplated by Section 14.02 hereof); and (b) included in the Purchased Assets.

7.06         Contracts.  Except for the Purchased Contracts set forth in Schedule 7.06(a) (a complete copy of each of which has been made available to Purchaser), the Retained Contracts set forth in Schedule 7.06(b) and the Enterprise Zone Agreement, Compensation Agreement, and Tax Incentive Donation Agreement, Seller is not a party to, and its properties are not subject to, any contract materially pertaining to the Purchased Assets that meets any of the following descriptions and has a term extending beyond the anticipated Closing Date:  (a) contracts for the purchase, exchange, or sale of electric power or ancillary services; (b) contracts for the transmission of electric power; (c) with respect to the Facility, interconnection contracts, including generation imbalance agreements and similar agreements with the transmission grid operator; (d) other than contracts of the nature addressed by clauses (a), (b), and (c) of this Section 7.06, contracts for the sale, lease, or use of any Purchased Asset or that grant a right or option to purchase, lease, or use any Purchased Asset, or otherwise involving a sharing of profits, losses, costs, or liabilities of the Purchased Assets with any other Person, other than in each case contracts entered into in the ordinary course of business consistent with past practices with an annual or aggregate cost or value of less than $50,000 individually or $150,000 in the aggregate; (e) other than contracts of the nature addressed by clauses (a), (b), and (c) of this Section 7.06, contracts for the future provision or receipt of goods or services relating to the Purchased Assets requiring annual or aggregate payments in excess of $50,000for each individual contract; (f) outstanding futures, swap, collar, put, call, floor, cap, option, or other contracts that are intended to benefit from or reduce or eliminate the risk of fluctuations in the price of commodities (including electric power or gas) the value of securities, interest rates, or the cost or availability of transmission rights; (g) contracts that purport to limit the Facility’s freedom to be used to compete with, or be used in, any business or line of business in any geographic area; or (h) any amendment, supplement, and modification (whether oral or written) in respect of any of the foregoing.

Except as set forth in Schedule 7.06: (a) each Purchased Contract is in full force and effect and is valid and enforceable against all parties thereto in accordance with its terms; (b) except as to Seller Governmental Approvals and the approvals and consents described in Schedule 7.06, each Purchased Contract is assignable by Seller to Purchaser without the consent of any other Person; (c) (i) Seller and, to Seller’s knowledge, each other Person that has or had any obligation or liability under any Purchased Contract is, and at all times since September 30, 2006, has been, in compliance with all applicable terms and requirements of each Purchased Contract in all material respects, and (ii) Seller has not given to or received from any other Person, at any time since September 30, 2006, any written notice or other written communication

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regarding any actual, alleged, possible, or potential violation or breach of, or default under, any Purchased Contract; (d) to Seller’s knowledge, no event has occurred or circumstance exists that in any material respect (with or without notice or lapse of time) may conflict with or give Seller or another Person the right to cancel, modify, terminate, or accelerate the maturity or performance of or payment under any Purchased Contract; (e) there are no renegotiations of, attempts to renegotiate, or outstanding rights or obligations to renegotiate any amounts paid or payable to Seller or any of its Affiliates under any Purchased Contract; and (f) no Affiliate of Seller is the counterparty to any Purchased Contract.

7.07         Insurance.  All material properties and risks associated with the Properties and Facility are covered and shall remain covered through the Closing Date, by valid and currently effective insurance policies or binders of insurance or programs of self-insurance in such types and amounts as are consistent with customary practices and standards in the Seller’s industry.  Schedule 7.07 contains a complete list of all material liability, property, accident, casualty, fire, flood, workers’ compensation or other insurance policies and arrangements affecting or relating to the ownership, use or operations of the Purchased Assets or the Facility.

7.08         Title to Real Property.  Seller has good and indefeasible title to the Real Property and a valid and subsisting leasehold estate to the Properties other than the Real Property, free and clear of all Liens, except for the Permitted Real Estate Exceptions.

7.09         Title to Purchased Assets.  Seller has good and marketable title to all the material Purchased Assets consisting of tangible personal property owned by Seller and valid and subsisting leases with respect to all of the material Purchased Assets consisting of tangible personal property leased by Seller.  All such owned tangible personal property is owned free and clear of all Liens, except: (a) as set forth in Schedule 7.09; (b) liens for Taxes and assessments not yet payable; (c) liens securing or relating to liabilities or obligations which are to be assumed by Purchaser pursuant to this Agreement or the Assumption Agreement; and (d) imperfections of title, Liens, claims and other charges and encumbrances the existence of which would not materially impair the value or utility of such property.

7.10         Intellectual Property.   (a) Except as set forth in Schedule 7.10, to Seller’s knowledge there has not been in the past six (6) years, nor is there currently, any infringement or misappropriation arising out of the construction, operation, maintenance, repair, modification, or other activities at or relating to the Facility of any patents, trademarks, service marks, trade names, copyright, or trade secrets owned or controlled by a third-party.

(b)  Except as set forth in Schedule 7.10, to Seller’s knowledge there has not been in the past six (6) years, nor is there currently, any claim or threatened claim, that the operation, maintenance, repair, modification, or other activities at or relating to the Facility infringe or misappropriate any patents, trademarks, service marks, trade names, copyright, or trade secrets owned or controlled by a third-party, nor has there been in the same period of time, any request or demand that a license of any patents, trademarks, service marks, trade names, copyright, or

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trade secrets owned or controlled by a third-party is necessary to continue operation, maintenance, repair, modification, or other activities at or relating to the Facility.

7.11         Litigation.  Except as set forth in Schedule 7.11, (a) there are no actions, claims or proceedings pending against the Seller relating to the Facility or any of the Purchased Assets at law or in equity, before or by any Governmental Authority, or by any other Person, which, individually or in the aggregate, could reasonably be expected to have a Material Adverse Effect; and (b) there is no action, claim, proceeding, order, writ, judgment or decree that seeks to restrain or prohibit or restrains or prohibits the consummation of the transactions contemplated hereby or seeks to impose or imposes any material limitation or restriction on the operation or maintenance of the Purchased Assets or the sale or delivery of electric power or ancillary services therefrom.

7.12         Compliance With Laws.  Seller is not in material violation (and has not received any written notice or allegation of material violation) of any Law applicable to the Purchased Assets or by which any of the Purchased Assets are bound or subject, except as set forth in Schedule 7.12.  Notwithstanding the foregoing, compliance with Environmental Laws is exclusively and solely governed by Sections 7.15 and 7.16 hereof.

7.13         Labor Matters.  All employees employed at the Facility (“Facility Employees”) are employees of Seller; provided, however, that certain employees of DP&L may from time to time work at the Facility in connection with their primary responsibilities at the Substation or elsewhere.  No labor organization has representation rights with respect to the Facility Employees; and there are no collective bargaining agreements relating to the Facility Employees.  To Seller’s knowledge, there are no material organizing efforts presently being made involving any of the employees at the Facility.

7.14         Taxes.  Except as set forth in Schedule 7.14, Seller has duly and timely filed all federal, state and local Tax reports and returns required to be filed by it in respect of the Purchased Assets and Seller’s trade or business with respect thereto and paid all Taxes shown thereon to be due.  There are not pending or threatened in writing any Tax audits or examinations of, or with respect to, the Purchased Assets, and there are no written notices of deficiency, proposed deficiency, or assessment from any Tax authority with respect to Taxes of, or relating to, the Purchased Assets.  All material deficiencies asserted or assessments made for Taxes due with respect to the Purchased Assets as a result of any completed and settled examinations or any concluded litigation have been fully paid.  Seller is disregarded as an entity separate from its owner within the meaning of Treasury Regulation Section 301.7701-3 and neither Seller nor Seller’s Federal Tax Owner has made any elections to the contrary.  Notwithstanding the preceding in this Section 7.14, Seller is currently engaged in Tax Proceedings concerning its Enterprise Zone Agreement.

7.15         Licenses and Permits.  Seller has, or has applied for, all material Permits (including Permits under Environmental Laws) necessary for the ownership, lease, use,

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operation, and maintenance of the Purchased Assets, and all of such Permits are described in Schedule 7.15.  Each such Permit is in full force and effect, and Seller is not in violation of any such Permit in any material respect.  There are no pending or, to Seller’s knowledge, threatened proceedings challenging the validity of, or seeking to revoke, withdraw, suspend, cancel, terminate, or modify any of such Permits.

7.16         Environmental Compliance.  Except as set forth on Schedule 7.16, (a) the Purchased Assets and their operation and maintenance as presently conducted are in compliance with all applicable Environmental Laws in all material respects; (b) Seller has not received any written notice, demand, or request for information from any Governmental Authority indicating that the Purchased Assets or their operation and maintenance may be in violation of any Environmental Law; (c) to Seller’s knowledge, Seller has not disposed of, released, or transported, or arranged for the disposal, release, or transportation of, any Hazardous Substance from the Purchased Assets in violation of any Environmental Law, or in a manner giving rise to material liability or any reporting obligation under any Environmental Law; (d) Seller is not subject to material liabilities or expenditures (fixed or contingent) relating to any suit, settlement, court order, administrative order, regulatory requirement, judgment, or claim asserted or arising under any Environmental Law with respect to the Purchased Assets; (e) Seller has made available to Purchaser copies of all environmental assessments in Seller’s possession or available to Seller involving the Purchased Assets that have been prepared by third parties; and (f) no underground storage tanks regulated by Ohio’s Bureau of Underground Storage Tank Regulations are located on any of the Properties.

7.17         No Misrepresentation in Due Diligence Materials.  To Seller’s knowledge, the Due Diligence Materials contain no material false statement or misrepresentation with respect to the information such Due Diligence Materials purport to present.

7.18         Properties.

(a)           Except as set forth on Schedule 7.18, to Seller’s Knowledge, (i) none of the Properties consists of “wetlands” under applicable federal or state law; (ii) the Properties are zoned for industrial or agricultural purposes; and (iii) no part of the Properties is located in a flood prone area.

(b)           Except as set forth on Schedule 7.18, (i) Seller has not received and has no actual knowledge of any notice or request, formal or informal, from any insurance company or board of fire underwriters identifying any defects in the Properties that would adversely affect the insurability of the Properties;  (ii) all required, material building permits, occupancy permits or other approvals or consents of governmental authorities or public or private utilities having jurisdiction have been obtained with respect to the Properties; (iii) adequate supplies of all public utilities, including, but not limited to, electricity, telephone and other utilities required by law or by the normal use and operation of the Properties (x) are installed to the property lines of the Properties, (y) are connected pursuant to valid permits, (z) are adequate to service the Properties,

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(xx) are adequate to permit full compliance with all requirements of law and normal usage of the Properties by the occupants and their licensees and invitees, and (yy) either enter the Properties through adjoining public streets, or if they pass through adjoining private land, do so in accordance with valid public easements or private easements that inure to the benefit of Seller and its successors in title to the Properties.

7.19         Absence of Material Adverse Effect.  Since July 31, 2006, there has not been a Material Adverse Effect.

7.20         Disclaimer of Warranties.  EXCEPT WITH RESPECT TO THE WARRANTIES AND REPRESENTATIONS SPECIFICALLY SET FORTH IN THIS AGREEMENT, SELLER MAKES NO WARRANTY, EXPRESS OR IMPLIED, WHETHER OF MERCHANTABILITY, SUITABILITY OR FITNESS FOR A PARTICULAR PURPOSE, OR QUALITY AS TO THE PURCHASED ASSETS, OR ANY PART THEREOF, OR AS TO THE CONDITION OR WORKMANSHIP THEREOF, OR THE ABSENCE OF ANY DEFECTS THEREIN, WHETHER LATENT OR PATENT, IT BEING UNDERSTOOD THAT THE PURCHASED ASSETS ARE TO BE CONVEYED HEREUNDER “AS IS” AND “WHERE IS” ON THE CLOSING DATE, AND IN THEIR THEN PRESENT CONDITION.  THE PURCHASER SHALL RELY UPON ITS OWN EXAMINATION THEREOF.

7.21         Good Utility Practice.  Except as set forth on Schedule 7.21, the Facility has been operated and maintained in accordance with Good Utility Practice and applicable manufacturers’ operating manuals.

ARTICLE VIII

Warranties and Representations of the Purchaser

The Purchaser warrants and represents to the Seller as follows:

8.01         Due Incorporation.  The Purchaser is an Ohio corporation duly incorporated, validly existing and in good standing under the laws of the State of its incorporation.

8.02         Authority.  The Purchaser has the corporate right and power to enter into, and perform its obligations under this Agreement, and has taken all requisite corporate action to authorize its execution and delivery of this Agreement and the performance of its obligations under this Agreement; and this Agreement has been duly executed and delivered by the Purchaser and each is binding upon, and enforceable against, the Purchaser in accordance with its terms; except as such enforcement may be limited by bankruptcy, insolvency, reorganization, moratorium or other similar laws affecting enforcement of creditors’ rights generally and by general principles of equity (whether applied in a proceeding at law or in equity).

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8.03         No Violations.  (a)  The execution, delivery or performance of this Agreement by the Purchaser does not and will not, after the giving of notice, or the lapse of time, or otherwise: conflict with, result in a breach of, or constitute a default under, the Certificate of Incorporation or By-laws of the Purchaser, or to Purchaser’s knowledge any Law or any material contract, agreement, commitment or plan to which the Purchaser is a party.

(b)           The execution and delivery by Purchaser and its Affiliates of this Agreement does not, and the performance by Purchaser and its Affiliates of its obligations hereunder will not, require Purchaser to obtain any consent, approval, authorization or other action of, or make any filing with or give any notice to, any Governmental Authority, except (a) as disclosed in Schedule 8.03, (b) pursuant to the applicable requirements of the HSR Act, (c) where failure to obtain such consents, approvals, authorizations or actions, make such filings or give such notices would not impair the Purchaser’s ability to perform its obligations hereunder in any material respect and (d) as may be necessary as a result of any facts or circumstances relating solely to Seller.

8.04         Brokers.  Neither this Agreement nor the purchase of the Purchased Assets or any other transaction contemplated by this Agreement was induced or procured through any Person, acting on behalf of, or representing, the Purchaser or any of its Affiliates as broker, finder, investment banker, financial advisor or in any similar capacity.

8.05         Litigation.  There are no actions, claims or proceedings pending against Purchaser or any of its assets or properties at law or in equity, before or by any Governmental Authority, or by any other Person, which, individually or in the aggregate, could reasonably be expected to have a material adverse effect on Purchaser’s ability to consummate the transactions contemplated hereby.

8.06         Financing.  Purchaser has all the funds necessary to consummate the transactions contemplated by this Agreement.

ARTICLE IX

Conditions to Closing Applicable to Purchaser

The obligations of Purchaser hereunder (including the obligation of Purchaser to close the transactions herein contemplated) are subject to the following conditions precedent:

9.01         No Termination.  Neither Purchaser nor Seller shall have terminated this Agreement pursuant to Section 11.01 hereof.

9.02         Bring-Down of Seller Warranties.  The warranties and representations made by the Seller herein to Purchaser shall have been true and correct in all material respects on

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the date hereof and shall be true and correct in all material respects (except that, in each such case, representations and warranties containing a materiality standard shall have been and shall be true and correct within the materiality standard set forth therein) on and as of the Closing Date with the same effect as if such warranties and representations had been made on and as of the Closing Date and the Seller shall have performed and complied with, in all material respects, all agreements, covenants and conditions on its part required to be performed or complied with in all material respects on or prior to the Closing Date; and at the Closing, Purchaser shall have received a certificate executed by the Board of Directors of Seller to the foregoing effect.

9.03         No Material Adverse Effect.  Between the date hereof and the Effective Time, there shall have been no Material Adverse Effect.

9.04         Pending Actions.  No investigation, action, suit or proceeding by any Governmental Authority and no action, suit or proceeding by any other Person, shall be pending on the Closing Date which challenges this Agreement and seeks to modify, prohibit or enjoin the consummation of the transactions contemplated hereby.

9.05         Consents and Approvals.  All Seller Governmental Approvals and Purchaser Governmental Approvals and other consents, approvals or authorizations of other Persons set forth in Schedule 9.05 shall have been obtained; provided, however, that if Purchaser’s breach of its obligations hereunder caused the failure to obtain any such consent, approval, or authorization Purchaser shall be deemed to have waived this condition to the extent of such failure.

9.06         HSR Act.  The waiting period applicable to the consummation of the transactions contemplated hereunder required pursuant to the provisions of the HSR Act shall have expired.

9.07         All Necessary Documents.  All proceedings to be taken in connection with the consummation of the transactions contemplated by this Agreement and all documents incident thereto, shall be reasonably satisfactory in form and substance to Purchaser and its counsel, and Purchaser shall have received copies of such documents as Purchaser and its counsel may reasonably request in connection with said transactions, including those documents to be delivered pursuant to Section 3.02 hereof.

9.08         Title Policy.  At the Closing, the Seller shall have delivered to Purchaser the Title Policies dated the Closing Date with extended coverage guaranteeing over the standard exceptions to title customarily contained in such policies, survey exceptions, parties in possession exception, and mechanic’s and materialman’s lien exceptions, issued by the title insurance company which issued such commitments insuring, as of the Closing Date, the fee simple or other applicable estate of the Purchaser in the Properties in the amount set forth in Schedule 6.01, subject only to the Permitted Real Estate Exceptions.

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9.09         Estoppel Certificates.  Seller shall have delivered to Purchaser an estoppel certificate executed by the lessor with respect to each Property that is not a Real Property certifying that the lease with respect to such Property is in full force and effect, that the lessee thereunder is not in default under such lease, and such other statements as Purchaser may reasonably request.

Purchaser shall have the right to waive any of the foregoing conditions precedent, except for the condition set forth in Section 9.06 hereof.

ARTICLE X

Conditions to Closing Applicable to Seller

The obligations of Seller hereunder (including the obligation of Seller to close the transactions herein contemplated) are subject to the following conditions precedent:

10.01       No Termination.  Neither Purchaser nor Seller shall have terminated this Agreement pursuant to Section 11.01 hereof.

10.02       Bring-Down of Purchaser Warranties.  All warranties and representations made by Purchaser herein to the Seller shall have been true and correct in all material respects on the date hereof and shall be true and correct in all material respects (except that, in each such case, representations and warranties containing a materiality standard shall have been and shall be true and correct within the materiality standard set forth therein) on and as of the Closing Date with the same effect as if such warranties and representations had been made on and as of the Closing Date, and Purchaser shall have performed and complied in all material respects (except for the payment of money which shall be absolute) with all agreements, covenants and conditions on its part required to be performed or complied with on or prior to the Closing Date, and at the Closing, Seller shall have received a certificate executed by the President or any Vice President of Purchaser to the foregoing effect.

10.03       Pending Actions.  No investigation, action, suit or proceeding by any Governmental Authority and no action, suit or proceeding by any other Person shall be pending on the Closing Date which challenges this Agreement and seeks to modify, prohibit or enjoin the consummation of the transactions contemplated hereby.

10.04       Consents and Approvals.  All Seller Governmental Approvals and Purchaser Governmental Approvals and other consents, approvals or authorizations of other Persons set forth in Schedule 10.04 shall have been obtained; provided, however, that if Seller’s breach of its obligations hereunder caused the failure to obtain any such consent, approval, or authorization Seller shall be deemed to have waived this condition to the extent of such failure.

10.05       HSR Act.  The waiting period applicable to the consummation of the

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transactions contemplated hereunder required pursuant to the HSR Act shall have expired.

10.06       All Necessary Documents.  All proceedings to be taken in connection with the consummation of the transactions contemplated by this Agreement, and all documents incident thereto, shall be reasonably satisfactory in form and substance to Seller and its counsel, and Seller and its counsel shall have received copies of such documents as it and its counsel may reasonably request in connection with said transactions, including those documents to be delivered pursuant to Section 3.03 hereof.

Seller shall have the right to waive any of the foregoing conditions precedent, except for the condition set forth in Section 10.05 hereof.

ARTICLE XI

Termination

11.01       Termination.  This Agreement may be terminated at any time prior to the Closing as follows, and in no other manner:

(a)           by mutual written consent of Purchaser and Seller;

(b)           by Purchaser or by Seller, if at or before the Closing any condition set forth herein for the benefit of the Purchaser or Seller, respectively, shall not have been timely met in all material respects or cannot be timely met in all material respects; provided, the party seeking to terminate is not in material breach of, or material default under, this Agreement;

(c)           by Purchaser or by the Seller if the Closing of the transactions contemplated by this Agreement shall not have occurred on or before June 30, 2007, or such later date as may have been agreed upon in writing by the parties hereto; provided, the party seeking to terminate is not in material breach of, or material default under, this Agreement;

(d)           by Purchaser as provided in Section 6.01(c); or

(e)           by Purchaser or by Seller if any representation or warranty made herein for the benefit of Purchaser or Seller, respectively, or in any certificate, schedule or documents furnished to Purchaser or Seller, respectively, pursuant to this Agreement is untrue in any material respect (except that, in each such case, representations and warranties containing a materiality standard shall have been and be true and correct within the materiality standard set forth therein), or Purchaser or Seller, respectively, shall have defaulted in any material respect in the performance of any material obligation under this Agreement.

11.02       Effect of Termination.  If a party terminates this Agreement in accordance with Section 11.01, such termination will be without liability to such party or to any Affiliate,

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member, shareholder, partner, director, manager, officer, employee, agent, consultant, attorney, or other representative of such party.  Upon a termination of this Agreement, the obligations of the parties hereunder shall be of no further force or effect, provided that:

(a)           the obligations of the parties under Article XII, Article XIII,  15.01, 15.02 and 15.13 and under shall survive such termination; and

(b)           such termination shall be without prejudice to the rights of the parties to any payments due under this Agreement existing at the time of termination; any remedies which either party may then have hereunder or at law; and either party’s right to obtain performance of any obligations provided for in this Agreement which survive termination.

ARTICLE XII

Indemnification

12.01       Seller Indemnification.  The Seller agrees to indemnify, defend and hold the Purchaser and its successors and permitted assigns, harmless against any loss, damage or expense (including reasonable attorneys’ fees), which arises out of or is in respect of (a) any inaccuracy or misrepresentation in or breach of any of the warranties, representations, covenants or agreements made by the Seller in this Agreement, or any other certificate, document, instrument or affidavit furnished by the Seller in accordance with the provisions of this Agreement, (b) any and all Non-Assumed Liabilities, (c) any failure of Seller to notify Purchaser under Section 5.08(g) and (d) fraud or intentional misconduct on the part of Seller or any of its Affiliates in connection with this Agreement or the transactions contemplated hereby.

12.02       Purchaser Indemnification.  The Purchaser agrees to indemnify, defend and hold the Seller harmless against any loss, damage or expense (including reasonable attorneys’ fees), which arises out of or is in respect of (a) any inaccuracy or misrepresentation in or breach of any of the warranties, representations, covenants or agreements made by the Purchaser in this Agreement or in any certificate, document, instrument or affidavit furnished by the Purchaser in accordance with the provisions of this Agreement, (b) any and all Assumed Liabilities, and (c) fraud or intentional misconduct on the part of Purchaser or any of its Affiliates in connection with this Agreement or the transactions contemplated hereby.

12.03       Limitation.  The parties’ rights to indemnification pursuant to Article XII of this Agreement is subject to the following limitations:

(a)           The Indemnified Party shall not be entitled to assert any right of indemnification pursuant to this Article XII for any loss, damage or expense suffered by such party after the second anniversary date of the Closing Date, except (i) that indemnification claims arising from Section 7.16 may be asserted at any time before the earlier of (x) the

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expiration of the statute of limitations applicable to the underlying claim, charge, or cause of action, or (y) the tenth anniversary of the Closing Date; (ii) that indemnification claims arising from Section 7.14 may be asserted at any time before the expiration of the statute of limitations applicable to the underlying claim, charge, or cause of action; (iii) that indemnification claims arising from Sections 7.04, 7.12, 7.15 or 7.17 may be asserted at any time before the third anniversary of the Closing Date; (vi) that indemnification claims (A) arising from Section 13.01 or 7.08, (B) for breach of Seller’s obligations with respect to Non-Assumed Liabilities, (C) for breach of Purchaser’s obligations with respect to Assumed Liabilities or (D) for fraud or intentional misconduct shall not be limited by this Agreement;  and (iv) that if notice of any claim shall have been given before the end of the applicable period under this paragraph (a), the Indemnified Party shall continue to have the right to be indemnified with respect to such claim.

(b)           No indemnification claim (other than a claim for breach of Seller’s obligations with respect to Non-Assumed Liabilities or fraud or intentional misconduct or Purchaser’s obligations with respect to Assumed Liabilities or fraud or intentional misconduct) may be made against a party for indemnification pursuant to this Article XII unless the aggregate of all indemnifiable losses, damages and expenses with respect to this Article XII shall exceed $250,000 (“Threshold”), and then the Indemnifying Party shall only be required to pay or be liable for the excess over the Threshold.  For purposes of applying this paragraph (b) in determining the losses, damages and expenses resulting from any breach of a representation or warranty that contains a materiality standard, such representation or warranty shall be read as if it did not contain such materiality standard.

(c)           The Indemnifying Party’s maximum liability to the other party pursuant to this Agreement other than indemnification claims based on fraud or intentional misconduct shall be thirty percent (30%) of the Purchase Price.

(d)           For the purposes of this Article XII, in computing such aggregate amounts of claims, the amount of each claim shall be deemed to be an amount net of any insurance proceeds and any indemnity, contribution or other similar payment recoverable by the Indemnified Party or any Affiliate from any third party with respect thereto.

(e)           Each party hereby acknowledges and agrees that its sole and exclusive remedy with respect to any and all claims relating to the subject matter of this Agreement and the Assumption Agreement shall be pursuant to the indemnification provisions set forth in this Article XII.  In furtherance of the foregoing, each party hereby waives, to the fullest extent permitted under applicable Law, any and all rights, claims and causes of action it may have against the other party arising under or based upon any Law (including any such rights, claims or causes of action arising under or based upon common law or otherwise) or Environmental Laws, including the Resource Conservation and Recovery Act and the Comprehensive Environmental Response, Compensation and Liability Act.

(f)            Except as set forth in this Agreement or any other certificate, document,

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instrument or affidavit furnished by a party in accordance with the provisions of this Agreement, such party is not making any representation, warranty, covenant or agreement with respect to the matters contained herein.  Anything herein to the contrary notwithstanding, no breach of any representation, warranty, covenant or agreement contained herein or any other certificate, document, instrument or affidavit furnished by a party in accordance with the provisions of this Agreement shall give rise to any right on the part of the other party, after the consummation of the purchase and sale of the Facility and the Purchased Assets contemplated hereby, to rescind this Agreement or any of the transactions contemplated hereby.

(g)           Seller shall have no liability under any provision of this Agreement for any liabilities and damages to the extent that such liabilities and damages relate to actions taken or not taken by Purchaser or its Affiliates after the Closing Date.  In no event shall either party be liable to the other party for consequential or punitive damages.  Each party shall take all reasonable steps to mitigate all such liabilities and damages upon and after becoming aware of any event which could reasonably be expected to give rise to such losses, damages and expenses.

12.04       Indemnification Notice.  Promptly upon obtaining knowledge of any claim, event, facts or demand which gives rise to, or could reasonably be expected to give rise to, a claim for indemnification hereunder (including in the case of a claim pursuant to Section 12.01 or 12.02 any claim which is not payable due to the limitations set forth in Section 12.03(b) hereof), any party seeking indemnification under this Article XII (an “Indemnified Party”) shall give written notice of such claim or demand (“Notice of Claim”) to the party from which indemnification is sought (an “Indemnifying Party”), setting forth the amount of the claim.  The Indemnified Party shall furnish to the Indemnifying Party, in reasonable detail, such information as it may have with respect to such indemnification claim (including copies of any summons, complaint or other pleading which may have been served on it and any written claim, demand, invoice, billing or other document evidencing or asserting the same).  No failure or delay by the Indemnified Party in the performance of the foregoing shall reduce or otherwise affect the obligation of any Indemnifying Party to indemnify, defend and hold the Indemnified Party harmless, except to the extent that such failure or delay shall have adversely affected the Indemnifying Party’s ability to defend against, settle or satisfy any loss, damage or expense for which the Indemnified Party is entitled to indemnification hereunder.

12.05       Indemnification Procedure.  (a) If the claim or demand set forth in the Notice of Claim given by the Indemnified Party pursuant to Section 12.04 of this Agreement is a claim or demand asserted by a third party, the Indemnifying Party shall have fifteen (15) days after the Date of the Notice of Claim to notify the Indemnified Party in writing of its election to defend such third party claim or demand on behalf of the Indemnified Party.  If the Indemnifying Party elects to defend such third party claim or demand, the Indemnified Party shall at the expense of the Indemnifying Party make available to the Indemnifying Party and its agents and representatives all records and other materials which are reasonably required in the defense of such third party claim or demand and shall otherwise cooperate with, and assist the Indemnifying Party in the defense of, such third party claim or demand, and so long as the Indemnifying Party

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is defending such third party claim or demand in good faith, the Indemnified Party shall not pay, settle or compromise such third party claim or demand.  If the Indemnifying Party elects to defend such third party claim or demand, the Indemnified Party shall have the right to participate in the defense of such third party claim or demand, at its own expense.  If the Indemnifying Party does not elect to defend such third party claim or demand, or does not defend such third party claim in good faith, the Indemnified Party shall have the right, in addition to any other right or remedy it may have hereunder, at the Indemnifying Party’s expense, to defend such third party claim or demand; provided, however, that (i) the Indemnified Party shall not have any obligation to participate in the defense of, or defend, any such third party claim or demand; and (ii) the Indemnified Party’s defense of or its participation in the defense of any such third party claim or demand shall not in any way diminish or lessen the obligations of the Indemnifying Party under the agreements of indemnification set forth in this Article XII.  Without the Indemnified Party’s written consent, the Indemnifying Party shall not enter into any settlement of a third party claim unless (i) there is no finding or admission of any violation of legal requirements or any violation of the rights of any Person and no effect on any other claims that may be made against the Indemnified Party or its Affiliates; (ii) the settlement includes a complete and unconditional release of the Indemnified Party with respect to the third party claim; and (iii) the sole relief provided under the settlement is monetary damages that are paid in full by the Indemnifying Party.

(b)           Except for third party claims being defended in good faith, the Indemnifying Party shall satisfy its obligations hereunder in cash within thirty (30) days after the Date of Notice of Claim.

(c)           The term “Date of the Notice of Claim” as used in this Article XII shall mean the date the Notice of Claim is deemed delivered pursuant to Section 15.13(c) hereof.

12.06       Effect of Indemnity Payments.  The parties agree to treat all payments made under the indemnity provisions of Article XII of this Agreement as adjustments to the Purchase Price for Tax purposes and that such agreed treatment shall govern for purposes hereof.

ARTICLE XIII

Confidentiality

13.01       Confidentiality of Materials.  The parties hereto agree with respect to all technical, commercial and other information that is furnished or disclosed by another party, including information regarding such party’s (and its subsidiaries’ and affiliates’) organization, personnel, business activities, customers, policies, assets, finances, costs, sales, revenues, technology, rights, obligations, liabilities and strategies (“Information”), that (a) such Information is confidential and/or proprietary to the furnishing/disclosing party and entitled to and shall receive treatment as such by the receiving party; (b) the receiving party will hold in confidence and not disclose nor use (except in respect of the transactions contemplated by this

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Agreement) any such Information, treating such Information with the same degree of care and confidentiality as it accords its own confidential and proprietary Information; provided, however, that the receiving party shall not have any restrictive obligation with respect to any Information which (i) was prior to the date of its disclosure contained in a printed publication available to the general public, (ii) is or becomes publicly known through no wrongful act or omission of the receiving party, or (iii) is known by the receiving party without any proprietary restrictions by the furnishing/disclosing party at the time of receipt of such Information; and (c) all such Information furnished to either party by the other, unless otherwise specified in writing, shall remain the property of the furnishing/disclosing party and, in the event this Agreement is terminated, shall be returned to it, together with any and all copies made thereof, upon request for such return by it (except for documents submitted to a governmental agency with the consent of the furnishing/disclosing party or upon subpoena and which cannot be retrieved with reasonable effort) and in the case of (i) oral information furnished to any party by the other which shall have been reduced to writing by the receiving party and (ii) all internal documents of any party describing, analyzing or otherwise containing Information furnished by the other party, all such writings and documents shall be destroyed, upon request, in the event this Agreement is terminated, and each party shall confirm in writing to the other compliance with any such request.  The recipient of confidential Information may disclose such confidential Information if required pursuant to a subpoena by a court of competent jurisdiction or by order of a governmental agency or other applicable Law, so long as the party required to disclose the confidential Information provides the other party prior notice (unless such notice is prohibited) of such requirement to permit such party time to seek appropriate relief against such disclosure.  Notwithstanding the foregoing.  Seller’s confidential Information that relates exclusively to the Purchased Assets or is included in the Purchased Assets shall, after closing, be treated as Purchaser’s confidential Information to be protected as provided in this Section from use or disclosure by Seller.

13.02       Remedy.  Each party hereto acknowledges that the remedy at law for any breach by either party of its obligations under Section 13.01 of this Agreement is inadequate and that the other party shall be entitled to equitable remedies, including an injunction, in the event of breach by any other party.

ARTICLE XIV

Certain Other Understandings

14.01       Post Closing Access to Records and Records Retention

The Purchaser agrees for a period extending five (5) years after the Closing Date not to destroy or otherwise dispose of any records relating to the period prior to its acquisition of the Purchased Assets.  After such five (5) year period, the Purchaser may destroy or otherwise dispose of such records if the Purchaser shall offer in writing to surrender such records to the Seller and the Seller shall fail to agree in writing to take possession thereof during the thirty (30)

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day period after such offer is made.

14.02       Consents Not Obtained at Closing.  Each of the Seller and the Purchaser agree to attempt diligently to obtain any necessary consents which may be required to effect the assignment to the Purchaser of the contract obligations transferred under this Agreement and each party will diligently cooperate with the other in obtaining the same, and will take such steps as reasonably requested by such party with respect thereto.  In such cases where such consents have not been obtained by the Closing Date, this Agreement, to the extent permitted by law and if elected by Buyer, shall constitute an equitable assignment by the Seller to the Purchaser of all of the Seller’s rights, benefits, title and interest in and to the assigned contracts and commitments, and the Purchaser shall be deemed to be the Seller’s agent for the purpose of completing, fulfilling and discharging all of the Seller’s rights and liabilities arising after the Closing Date under such assigned contracts and commitments, and the Seller shall take all necessary steps and actions to provide the Purchaser with the benefits of such contracts and commitments.

14.03       Avoidance of Double Withholding Taxes.  The Purchaser and the Seller hereby acknowledge that the standard procedure described in Section 4 of the Revenue Procedure 2004-53 as promulgated by the IRS with respect to wage reporting, and F.I.C.A. withholding and similar tax and other collections is applicable to the Seller’s employees who become employees of Purchaser or its Affiliates.

14.04       Use/Removal of Trademarks, Etc..  Purchaser acknowledges and agrees that it has and, upon consummation of the transactions contemplated hereby shall have, no right, title, interest, license, or any other right whatsoever to use the trade names and trademarks of Seller or its Affiliates, including references to “DPL Energy, LLC” and derivatives thereof, including all logos (“DPL Marks”).   Purchaser shall promptly after the Closing Date but in no event later than sixty (60) days after the Closing Date,  return or destroy all Purchased Assets that are not necessary to the operation or maintenance of the Facility that contain any DPL Marks that are not removable and remove or permanently cover any DPL Marks from the Purchased Assets that are removable.  Purchaser agrees never to challenge Seller’s (or its Affiliates’) ownership of the DPL Marks or any application for registration thereof or any registration thereof or any rights of Seller or its Affiliates therein as a result, directly or indirectly, of its ownership of the Purchased Assets.   Purchaser will not conduct any business or offer any goods or services under any DPL Marks.  Purchaser will not send, or cause to be sent, any correspondence or other materials to any Person on any stationery that contains any DPL Marks or otherwise operate the Facility in any manner which would or might reasonably be expected to confuse any person into believing that Purchaser has any right, title, interest, or license to use any DPL Marks.

14.05       Supplemental Disclosure Schedule.  Seller may supplement the Disclosure Schedules delivered pursuant hereto (as so supplemented, the “Supplemental Disclosure Schedules”) from time to time on or prior to the Closing Date.  Such Supplemental Disclosure

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Schedules shall not be considered in determining whether the condition set forth in Section 9.02 has been met; provided, however, that in determining whether there is a breach of any representation, warranty, covenant or agreement of Seller contained in this Agreement for purposes of the indemnification to be provided by Seller pursuant to Section 12.01 hereof, such representation, warranty, covenant or agreement shall be qualified by the Supplemental Disclosure Schedules.

ARTICLE XV

Miscellaneous

15.01       Cost and Expenses.  The Purchaser will pay its own costs and expenses (including attorneys’ fees, accountants’ fees and other professional fees and expenses) in connection with the negotiation, preparation, execution and delivery of this Agreement and the consummation of the purchase of the Purchased Assets and the other transactions contemplated by this Agreement (except as otherwise specifically provided for herein); and the Seller will pay its own costs and expenses (including attorneys’ fees, accountants’ fees and other professional fees and expenses) in connection with the negotiation, preparation, execution and delivery of this Agreement and the consummation of the sale of the Purchased Assets and the other transactions contemplated by this Agreement (except as otherwise specifically provided for herein).

15.02       Entire Agreement.  The Disclosure Schedules and the Exhibits referenced in this Agreement are incorporated into this Agreement and together contain the entire agreement between the parties hereto with respect to the transactions contemplated hereunder, and supersede all negotiations, representations, warranties, commitments, offers, contracts and writings prior to the date hereof.  No waiver and no modification or amendment of any provision of this Agreement shall be effective unless specifically made in writing and duly signed by the party to be bound thereby.

15.03       Counterparts.  This Agreement may be executed in one or more counterparts, each of which shall be deemed an original, but all of which, together, shall constitute one and the same instrument.

15.04       Assignment, Successors and Assigns.  The respective rights and obligations of the parties hereto shall not be assignable without the prior written consent of the other parties; provided, however, that the Purchaser may assign all or part of its rights under this Agreement and delegate all or part of its obligations under this Agreement to one or more of its Affiliates, in which event all the rights and powers of the Purchaser and remedies available to it under this Agreement shall extend to and be enforceable by each such Affiliate.  Any such assignment and delegation shall not release the Purchaser from its obligations under this Agreement, and further the Purchaser guarantees to the Seller the performance by each such Affiliate of its obligations under this Agreement.  In the event of any such assignment and

41

delegation the term “Purchaser” as used in this Agreement shall be deemed to refer to each such Affiliate of the Purchaser where reference is made to actions or to be taken with respect to the acquisition of the Facility or Purchased Assets, and shall be deemed to include both the Purchaser and each such Affiliate where appropriate.  This Agreement shall be binding upon and inure to the benefit of the parties hereto and their successors and permitted assigns.

15.05       Savings Clause.  If any provision hereof shall be held invalid or unenforceable by any court of competent jurisdiction or as a result of future legislative action, such holding or action shall be strictly construed and shall not affect the validity or effect of any other provision hereof.

15.06       Headings.  The captions of the various Articles and Sections of this Agreement have been inserted only for convenience of reference and shall not be deemed to modify, explain, enlarge or restrict any of the provisions of this Agreement.

15.07       Risk of Loss.  Risk of loss, damage or destruction to the Purchased Assets shall be upon the Seller until the Closing, and shall thereafter be upon the Purchaser.

15.08       Governing Law.  The validity, interpretation and effect of this Agreement shall be governed exclusively by the laws of the State of New York, including Sections 5-1401 and 5-1402 of the New York General Obligations Law.

15.09       Dispute Resolution.

(a)           If any issue, dispute, claim or controversy should arise out of or relate to this Agreement involving the parties hereto (“Dispute”) and the parties hereto are unable to resolve the Dispute on or before the thirtieth (30th) day following written notice of such Dispute by a party to the other party, which notice describes in reasonable detail the nature of the Dispute and the facts and circumstances relating thereto, the Purchaser shall nominate a member of its senior management team and the Seller shall nominate a member of its senior management team for the purpose of a meeting between such representatives at a mutually agreeable time and place to resolve such Dispute.  Such meeting shall take place on or before forty-five (45) days following the date of the notice of the Dispute by a party to the other party.  If the Dispute has not been resolved within sixty (60) days following the date of the notice of the Dispute, any party may commence legal proceedings or submit such Dispute to binding arbitration under this Section 15.09.

(b)           Upon demand of any party hereto made before or within thirty (30) days after institution of any judicial proceeding relating to a Dispute, any Dispute shall be resolved by binding arbitration as provided herein.  Institution of a judicial proceeding by a party does not waive the right of that party to demand arbitration hereunder.  A party may demand and commence arbitration by delivering to the other party an arbitration notice (“Arbitration Notice”) that includes a general description of the Dispute and a reference to the fact that such Dispute is

42

being referred to arbitration under this Section 15.09.

(c)           Promptly following the delivery of an Arbitration Notice, the parties hereto shall endeavor to agree upon a panel of three arbitrators.  If on or before thirty (30) days following the delivery of an Arbitration Notice to the other party they have not so agreed, then the Purchaser, by notice to the Seller, may designate one arbitrator (who shall not be an agent or employee of the Purchaser or any of its Affiliates), and the Seller, by notice to the Purchaser, may designate one arbitrator (who shall not be an agent or employee of the Seller or any of its Affiliates).  The two arbitrators designated as provided in the immediately preceding sentence shall endeavor to designate promptly a third arbitrator.  If either the Purchaser or the Seller have not designated an initial arbitrator on or before thirty (30) days following the delivery of an Arbitration Notice to the other party, or if the two initially designated arbitrators have not designated a third arbitrator within fifteen (15) days of the date for designation of the two arbitrators initially designated, any party may request the American Arbitration Association to designate the remaining arbitrator(s) pursuant to its Commercial Arbitration Rules (“AAA Rules”).  If any arbitrator resigns, becomes incapacitated, or otherwise refuses or fails to serve or to continue to serve as an arbitrator, the party entitled to designate that arbitrator shall designate a successor.

(d)           The arbitration shall be conducted in the English language in Cleveland, Ohio.  The arbitrators shall set the date, the time, and the place of hearing, which must commence on or before ninety (90) days following the designation of the third arbitrator.  The arbitration shall be conducted under the AAA Rules not inconsistent with the provisions of the Agreement.  In connection with any such arbitration, the arbitrators shall construe the Agreement in a manner consistent with the choice of law provisions set forth herein.  The arbitrators shall render their decision on or before ninety (90) days following the commencement of the hearing.  The arbitrators’ decision shall be set forth in a writing that includes an explanation of the reason for such decision and an allocation of the fees and expenses of the arbitrators to the parties based on the relative extent to which they do not prevail on their positions.  Each party against which the decision assesses a monetary obligation shall pay that obligation on or before thirty (30) days following the announcement of the decision or such other date as the decision may provide.  The decisions of the arbitrators are final and binding on all parties hereto and are not subject to appeal.  The decisions of the arbitrators may be enforced in any court of competent jurisdiction, and any party may authorize any such court to enter judgment on the arbitrators’ decisions.  Pending the outcome of any arbitration conducted pursuant to this Section 15.09, the parties shall be obligated to continue to perform their respective obligations hereunder.  Except as provided in any arbitrators’ decision rendered in accordance with this Section 15.09, each of the parties hereby undertakes to carry out without delay the provisions of any arbitral award or decision.  Except as provided in this Section 15.09, each party shall bear its own legal fees and costs in connection with any Dispute.

(e)           Notwithstanding the binding arbitration provisions in this Section 15.09, the parties hereto agree to preserve, without diminution, the following remedies that the parties

43

may employ or exercise freely, independently or in connection with an arbitration proceeding or after an arbitration action is brought.  Each party shall have the right to proceed in any court of proper jurisdiction or by self-help to exercise or prosecute the following remedies:  (a) all rights to obtain possession of property; (b) all rights to foreclose against any property or other security by exercising a power of sale granted under the Agreement or under applicable Law or by a judicial foreclosure and sale; (c) all rights of self-help including set-off and peaceful possession of personal property; and (d) obtaining provisional or ancillary remedies including injunctive relief, sequestration, garnishment, attachment, appointment of a receiver and filing an involuntary bankruptcy proceeding.  Preservation of these remedies does not limit the power of the arbitrators to grant similar remedies.

15.10       Press Releases.  Pending Closing, all notices to third parties and all other publicity relating to the transactions contemplated by this Agreement shall be jointly planned, coordinated, and agreed to by the Purchaser and the Seller, except to the extent disclosures are required by Law or any listing agreement with the NYSE; provided, however, that Seller on the one hand and Purchaser on the other hand may confirm information previously made public in compliance with this Agreement.

15.11       U.S. Dollars.  All amounts expressed in this Agreement and all payments required by this Agreement are in United States dollars.

15.12       Survival.  All representations and warranties made by any party in this Agreement shall be deemed made for the purpose of inducing the other party to enter into this Agreement and shall survive the Closing, subject to Section 12.03 hereof.

15.13       Notices.  (a)  All notices, requests, demand and other communications under this Agreement shall be in writing and delivered in person, or sent by facsimile or sent by certified mail, postage prepaid, and properly addressed as follows:

To The Seller:

DPL Energy, LLC

1065 Woodman Drive

Dayton, OH  45432

Fax:  (937) 259-7848

Attention:  Gary G. Stephenson

With Copy To:

Winston & Strawn LLP

1700 K Street, NW

Washington, DC  20006

Fax:  (202) 282-5100

Attention:  Gerald P. Farano

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To The Purchaser:

Columbus Southern Power Company

c/o Commercial Operations

155 West Nationwide Blvd

Columbus, OH  43215

Ph:  614-583-7430

Fax:  614-583-1601

Attention:  Brian X. Tierney

With Copy To:

AEP Service Corporation

1 Riverside Plaza

Columbus, OH  43215

Ph:  614-716-2929

Fax:  614-716-2014

Attention:  General Counsel

(b)           Any party may from time to time change its address for the purpose of notices to that party by a similar notice specifying a new address, but no such change shall be deemed to have been given until it is actually received by the party sought to be charged with its contents.

(c)           All notices and other communications required or permitted under this Agreement which are addressed as provided in this Section 15.13 if delivered personally or air courier, shall be effective upon delivery; if sent by facsimile, shall be delivered upon receipt of proof of transmission and if delivered by mail, shall be effective upon deposit in the United States mail, postage prepaid.

15.14       No Third Party Beneficiaries.  This Agreement is solely for the benefit of Seller and its successors and permitted assigns with respect to the obligations of Purchaser under this Agreement, and for the benefit of Purchaser and its successors and permitted assigns with respect to the obligations of Seller under this Agreement.  This Agreement shall not be deemed to confer upon or give to any other third party any remedy, claim, liability, reimbursement, cause of action or other right.

15.15       Jurisdiction and Consent to Service.  Subject to the provisions of Section 15.09, each of the Seller and the Purchaser (i) agree that any suit, action or proceeding arising out of or relating to this Agreement shall be brought solely in the state or federal courts of the State of Ohio; (ii) consents to the exclusive jurisdiction of each such court in any suit, action or proceeding relating to or arising out of this Agreement; (iii) waives any objection that it may have to the laying of venue in any such suit, action or proceeding in any such court; and (iv) agrees that service of any court paper may be made in such manner as may be provided under

45

applicable laws or court rules governing service of process.

15.16       WAIVER OF A JURY TRIAL.  EACH OF THE PARTIES HERETO IRREVOCABLY WAIVES ANY AND ALL RIGHT TO TRIAL BY JURY IN ANY LEGAL PROCEEDING ARISING OUT OF OR RELATED TO THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY.

15.17       No Presumption Against Drafter.  Each of the parties hereto has jointly participated in the negotiation and drafting of this Agreement.  In the event of an ambiguity or a question of intent or interpretation arises, this Agreement shall be construed as if drafted jointly by each of the parties hereto and no presumptions or burdens of proof shall arise favoring any party by virtue of the authorship of any of the provisions of this Agreement.

15.18       Parent Guaranty.  The obligations of Seller under this Agreement and the documents to be executed and delivered by Seller at Closing is guaranteed by DPL Inc. under the Parent Guaranty.

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IN WITNESS WHEREOF, the parties hereto have executed this Asset Purchase Agreement the day and year first above written.

DPL ENERGY, LLC

By:

Title:

COLUMBUS SOUTHERN POWER
COMPANY

By:

Title:

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Exhibits and Schedules

Exhibit	Description
A	Microwave Tower and Substation Easement Agreement
B	[Exhibit intentionally left blank]
C	Darby Site Diagram
D	Parent Guaranty
E	Assumption Agreement
F	Compensation Agreement
G	Enterprise Zone Agreement
H	Tax Incentive Donation Agreement

Schedule	Description
I	Excluded Inventory
IA	Spare Parts
II	Real Property
III	Real Property Leases
IV	Proprietary Items
V	Other Retained Assets
2.05	Allocation of Purchase Price
5.02	Pending Closing
6.01	Title Policy and Survey
7.03	Seller Governmental Approvals
7.04	Brokers
7.06(a)	Purchased Contracts
7.06(b)	Retained Contracts
7.07	Insurance
7.09	Title to Purchased Assets
7.10	Intellectual Property
7.11	Litigation
7.12	Compliance with Laws
7.14	Taxes
7.15	Licenses and Permits
7.16	Environmental Compliance
8.03	Purchaser Governmental Approvals
9.05	Other Consents as Conditions Precedent to Purchaser Obligations
10.04	Other Consents as Conditions Precedent to Seller Obligations

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EX-10.ZZ

Exhibit 10(zz)

DPL INC.

LONG-TERM INCENTIVE PLAN  —  PERFORMANCE SHARES AGREEMENT

(Granted Under the 2006 Equity and Performance Incentive Plan)

This Long-Term Incentive Plan  —  Performance Shares Agreement (this “Agreement”) is made as of February ___, 2007 between DPL Inc., an Ohio corporation (“DPL”) and _________________, an employee of DPL or its Subsidiaries (the “Grantee”).

WHEREAS, the Board of Directors of DPL has duly adopted the 2006 Equity and Performance Incentive Plan (the “Plan”), which authorizes DPL to grant to eligible individuals performance shares, each such performance share being equal in value to one share of DPL’s common stock, par value of $0.01 per share (the “Common Shares”);

WHEREAS, the DPL’s shareholders approved the Plan by the affirmative vote of the holders of the requisite number of outstanding Common Shares at DPL’s 2006 Annual Meeting of Shareholders (“Shareholder Approval”); and

WHEREAS, the Board of Directors of DPL has determined that it is desirable and in the best interests of DPL and its shareholders to approve a long-term incentive program in 2006 and, in connection therewith, to grant the Grantee a certain number of performance shares, in order to provide the Grantee with an incentive to advance the interests of DPL, all according to the terms and conditions set forth herein and in the Plan.

NOW, THEREFORE, in consideration of the mutual promises and covenants contained herein, the parties hereto do hereby agree as follows:

ARTICLE I  —  GRANT OF PERFORMANCE SHARES

Section 1.1  Performance Shares Granted.  Subject to the terms of the Plan, DPL hereby grants to the Grantee a targeted number of performance shares equal to ______________ (the “Target Performance Shares”), payment of which depends on DPL’s performance as set forth in this Agreement and in the Statement of Performance Goals (the “Statement of Performance Goals”) approved by the Compensation Committee of DPL’s Board of Directors (the “Committee”).

Section 1.2  Performance Measure.  The Grantee’s right to receive all, any portion of, or more than, the Target Performance Shares will be contingent upon the achievement of specified levels of Total Shareholder Return Relative to Peers (“TSR Relative to Peers”), as set forth in the Statement of Performance Goals and will be measured over the period January 1, 2007 through December 31, 2009 (“Performance Period”).

ARTICLE II  —  EARNING OF PERFORMANCE SHARES

Section 2.1  Below Threshold.  If, upon the conclusion of the Performance Period, TSR Relative to Peers for that Performance Period falls below the threshold level, as set forth in the Performance Matrix contained in the Statement of Performance Goals, no performance shares for that Performance Period shall become earned.

Section 2.2  Between Threshold and Target.  If, upon the conclusion of the Performance Period, TSR Relative to Peers equals or exceeds the threshold level, but is less than the target level, as set forth in the Performance Matrix contained in the Statement of Performance Goals, the Target Performance Shares shall become earned based on performance during the Performance Period, as determined by mathematical interpolation between 50% of the targeted Target Performance Shares and 100% of the Target Performance Shares and rounded up to the nearest whole share.

Section 2.3  Between Target and Intermediate.  If, upon the conclusion of the relevant Performance Period, TSR Relative to Peers equals or exceeds the target level, but is less than the intermediate level, as set forth in the Performance Matrix contained in the Statement of Performance Goals, the Target Performance Shares shall become earned based on performance during the Performance Period, as determined by mathematical interpolation between 100% of the targeted Target Performance Shares and 150% of the Target Performance Shares and rounded up to the nearest whole share.

Section 2.4  Between Intermediate and Maximum.  If, upon the conclusion of the relevant Performance Period, TSR Relative to Peers equals or exceeds the intermediate level, but is less than the maximum level, as set forth in the Performance Matrix contained in the Statement of Performance Goals, the Target Grant Performance Shares shall become earned based on performance during the Performance Period, as determined by mathematical interpolation between 150% of the Target Performance Shares and 200% of the Target Performance Shares and rounded up to the nearest whole share.

Section 2.5  Equals or Exceeds Maximum.  If, upon the conclusion of the Performance Period, TSR Relative to Peers for that Performance Period equals or exceeds the maximum level, as set forth in the Performance Matrix contained in the Statement of Performance Goals, 200% of the Targeted Performance Shares for that Performance Period shall become earned.

Section 2.6  Conditions; Determination of Earned Award.  Except as otherwise provided herein, the Grantee’s right to receive any performance shares is contingent upon his or her remaining in the continuous employ of DPL or a Subsidiary through the end of each Performance Period.  For purposes of this Agreement, the continuous employ of the Grantee shall not be considered interrupted or terminated in the case of sick leave, military leave or any other leave of absence approved by DPL or in the case of transfers between locations of DPL and its Subsidiaries.  Following the Performance Periods, the Committee (or the independent members of the Board of Directors) shall

2

determine whether and to what extent the goals relating to TSR Relative to Peers have been satisfied for each Performance Period and shall determine the number of performance shares that shall have become earned hereunder.

ARTICLE III  —  CHANGE OF CONTROL

If a Change of Control (as defined in the Plan) occurs following Shareholder Approval of the Plan and during the Performance Periods, but before the payment of any performance shares as set forth in Article VII below, DPL shall pay to the Grantee, as soon as practicable following the Change of Control, a pro rata number of the Target Performance Shares based on the number of full months that have elapsed during each Performance Period prior to the Change of Control and the remaining performance shares will be forfeited.

ARTICLE IV  —  DISABILITY OR DEATH

If the Grantee’s employment with DPL or a Subsidiary terminates following Shareholder Approval of the Plan and during the Performance Periods, but before the payment of any performance shares as set forth in Article VII below due to (a) “disability” (as defined in DPL’s long-term disability plan) or (b) death, DPL shall pay to the Grantee or his or her executor or administrator, as the case may be, as soon as practicable following such termination of employment, a pro rata number of the Target Performance Shares based on the number of full months during the Performance Period during which the Grantee was employed by DPL and the remaining performance shares will be forfeited.

ARTICLE V  —  RETIREMENT

If the Grantee’s employment with DPL or a Subsidiary terminates following Shareholder Approval of the Plan and during any Performance Period, but before the payment of any performance shares as set forth in Article VII below due to the Grantee’s retirement approved by the Committee or the Board, DPL shall pay to the Grantee, as soon as practicable following the end of each Performance Period, the performance shares to which the Grantee would have been entitled under Article II above, had the Grantee remained employed by DPL through the end of each of the Performance Periods, prorated based on the number of full months during the Performance Period during which the Grantee was employed by DPL and the remaining performance shares will be forfeited.

ARTICLE VI  —  FORFEITING OF PERFORMANCE SHARES

If the Grantee’s employment with DPL or a Subsidiary terminates before the end of the applicable Performance Period for any reason other than as set forth in Articles IV and V above, the performance shares will be forfeited.

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ARTICLE VII  —  PAYMENT OF PERFORMANCE SHARES

Payment of any performance shares that become earned as set forth herein will be made in the form of Common Shares.  Except as otherwise provided in Articles III, IV and V, payment will be made as soon as practicable after the last fiscal year of each Performance Period and the determination by the Committee (or the independent members of the Board of Directors) of the level of attainment of TSR Relative to Peers, but in no event shall such payment occur after two and a half months from the end of the applicable Performance Period.  Performance shares will be forfeited if they are not earned at the end of the applicable Performance Period and, except as otherwise provided in this Agreement, if the Grantee ceases to be employed by DPL or a Subsidiary at any time prior to such shares becoming earned at the end of each Performance Period.  To the extent that DPL or any Subsidiary is required to withhold any federal, state, local or foreign tax in connection with the payment of earned performance shares pursuant to this Agreement, it shall be a condition to the receipt of such performance shares that the Grantee make arrangements satisfactory to DPL or such Subsidiary for payment of such taxes required to be withheld.  This tax withholding obligation shall be satisfied by DPL withholding performance shares otherwise payable pursuant to this award.

ARTICLE VIII  —  DIVIDENDS

Except as provided in Section 11.5 below, no dividends shall be accrued or earned with respect to the performance shares until such performance shares are earned by the Grantee as provided in Article II hereof.

ARTICLE IX  —  NON-ASSIGNABILITY

The performance shares and the Common Shares subject to this grant are personal to the Grantee and may not be sold, exchanged, assigned, transferred, pledged, encumbered or otherwise disposed of by the Grantee until they become earned as provided in this Agreement; provided, however, that the Grantee’s rights with respect to such performance shares and Common Shares may be transferred by will or pursuant to the laws of descent and distribution.  Any purported transfer or encumbrance in violation of the provisions of this Article IX shall be void, and the other party to any such purported transaction shall not obtain any rights to or interest in such performance shares or Common Shares.

ARTICLE X  —  ADJUSTMENTS

In the event of any change in the number of Common Shares by reason of a merger, consolidation, reorganization, recapitalization, or similar transaction, or in the event of a stock dividend, stock split, or distribution to shareholders (other than normal cash dividends), the Committee shall adjust the number and class of shares subject to outstanding Target Performance Shares and

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Deferred Units (as defined below) and other value determinations applicable to outstanding Target Performance Shares and Deferred Units.  No adjustment provided for in this Article X shall require DPL to issue any fractional share.

ARTICLE XI  —  DEFERRAL

Section 11.1  Ability to Defer.  The Grantee may elect to defer receipt of all or any portion of the earned performance shares, which will be credited to a bookkeeping account in the Grantee’s name.

Section 11.2  Elections.  An election pursuant Section 11.1 must be made in writing and delivered to DPL within 30 days of the date of grant of such performance shares, provided that the election is made at least one year in advance of the earliest date on which the performance shares could be earned.  If the Grantee does not file an election form by the specified date, he or she will receive the performance shares when they otherwise would have been paid pursuant to Article VII.

Section 11.3  Crediting to Accounts.  If a Grantee elects to defer receipt of the earned performance shares, there will be credited to the Grantee’s account as of the day such Common Shares underlying the earned performance shares would have been paid, a number of deferred units (the “Deferred Units”) equal to the number of Common Shares that would otherwise have been delivered to the Grantee pursuant to Article VII on such date.  The Deferred Units credited to the Grantee’s account (plus any additional shares credited pursuant to Section 11.5 below) will represent the number of Common Shares that DPL will issue to the Grantee at the end of the deferral period.  All Deferred Units will be 100% vested at all times.

Section 11.4  Deferral Period.  The Deferred Units will be subject to a deferral period beginning on the date of crediting to the Grantee’s account and ending upon such period as the Grantee may have elected.  The period of deferral will be for a minimum period of one year, except in the case where the Grantee elects a deferral period determined by reference to his or her termination of employment.  The Grantee may elect payment in a lump sum or payment in equal installments.  The Grantee may change the period of deferral by filing a subsequent election with DPL at least twelve months before the date of the previously elected payment date and the newly elected payment date (or payment commencement date) must be at least five years after the previously elected payment date (or the previously elected payment commencement date); provided, however, that such modification shall not be effective unless the Grantee remains an employee for at least twelve months after the date on which such modification was made.  During the deferral period, the Grantee will have no right to transfer any rights under his or her Deferred Units and will have no other rights of ownership therein.

Section 11.5  Dividend Equivalents.  The Grantee’s account will be credited as of the last day of each calendar quarter with that number of additional Deferred Units equal to the amount of cash dividends paid by DPL during such quarter on the number of Common Shares equivalent to the number of Deferred Units in the Grantee’s account from time to time during such quarter divided by the Market Value per Share of one

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Common Share on the day immediately preceding the last business day of such calendar quarter.  Such dividend equivalents, which will likewise be credited with dividend equivalents, will be deferred until the end of the deferral period for the Deferred Units with respect to which the dividend equivalents were credited.

Section 11.6  Early Payment.  Notwithstanding the foregoing provisions, (i) if, upon the Grantee’s termination of employment, the value of the Grantee’s account is less than $500, the amount of the Grantee’s account will be immediately paid to the Grantee in Common Shares, (ii) if a Change of Control occurs, the amount of the Grantee’s account will immediately be paid to the Grantee in full in Common Shares and (iii) in the event of an unforeseeable emergency, as defined in Section 409A of the Internal Revenue Code of 1986, as amended (the “Code”), that is caused by an event beyond the control of the Grantee and that would result in severe financial hardship to the Grantee if acceleration was not permitted, the Committee will accelerate the payment of Common Shares to the Grantee in the Grantee’s account, but only up to the amount necessary to meet the emergency.

ARTICLE XII  —  COMPLIANCE WITH SECTION 409A OF THE CODE

To the extent applicable, it is intended that this Agreement and the Plan comply with the provisions of Section 409A of the Code, so that the income inclusion provisions of Section 409A(a)(1) of the Code do not apply to the Grantee.  This Agreement and the Plan shall be administered in a manner consistent with this intent, and any provision that would cause the Agreement or the Plan to fail to satisfy Section 409A of the Code shall have no force and effect unless and until amended to comply with Section 409A of the Code (which amendment may be retroactive to the extent permitted by Section 409A of the Code and may be made by DPL without the consent of the Grantee).  In particular, to the extent the Grantee has a right to receive payment pursuant to Article III or IV and the event triggering the right to payment does not constitute a permitted distribution event under Section 409A(a)(2) of the Code, then notwithstanding anything to the contrary in Article III, IV or VII above, issuance of the Common Shares will be made, to the extent necessary to comply with Section 409A of the Code, to the Grantee on the earlier of (a) the Grantee’s “separation from service” with DPL (determined in accordance with Section 409A); provided, however, that if the Grantee is a “specified employee” (within the meaning of Section 409A), the Grantee’s date of issuance of the Common Shares shall be the date that is six months after the date of the Grantee’s separation of service with DPL; (b) the date the payment would otherwise occur under this Agreement (to the extent it constitutes a permitted distribution event); or (c) the Grantee’s death.  References to Section 409A of the Code will also include any proposed, temporary or final regulations, or any other guidance, promulgated with respect to such Section by the U.S. Department of the Treasury or the Internal Revenue Service.

ARTICLE XIII  —  MISCELLANEOUS

Section 13.1  Interpretation.  The contents of this Agreement are subject in all respects to the terms and conditions of the Plan as approved by the Board of Directors

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and the shareholders of DPL, which are controlling.  The interpretation and construction by the Board and/or the Committee of any provision of the Plan or this Agreement shall be final and conclusive upon the Grantee, the Grantee’s estate, executor, administrator, beneficiaries, personal representative and guardian and DPL and its successors and assigns.  Unless otherwise indicated, the capitalized terms used in this Agreement shall have the same meanings as set forth in the Plan.

Section 13.2  Fractional Shares.  Any fractional share earned under this Agreement will be rounded up or down to the nearest whole share.

Section 13.3  No Right to Employment.  The grant of the performance shares is discretionary and will not be considered to be an employment contract or a part of the Grantee’s terms and conditions of employment or of the Grantee’s salary or compensation.

Section 13.4  Successors and Assigns.  This Agreement, and the terms and conditions of the Plan, shall bind, and inure to the benefit of the Grantee, the Grantee’s estate, executor, administrator, beneficiaries, personal representative and guardian and DPL and its successors and assigns.

Section 13.5  Governing Law.  This Agreement shall be governed by the laws of the State of Ohio (but not including the choice of law rules thereof).

Section 13.6  Amendment.  Any amendment to the Plan shall be deemed to be an amendment to this Agreement to the extent that the amendment is applicable hereto.  The terms and conditions of this Agreement may not be modified, amended or waived, except by an instrument in writing signed by a duly authorized executive officer at DPL.  Notwithstanding the foregoing, no amendment shall adversely affect the Grantee’s rights under this Agreement without the Grantee’s consent.

ARTICLE XIV  —  NOTICES

All notices under this Agreement to DPL must be delivered personally or mailed to DPL at its principal office, addressed to the attention of the Corporate Secretary.  DPL’s address may be changed at any time by written notice of such change to the Grantee.  All notices under this Agreement to the Grantee will be delivered personally or mailed to the Grantee at his or her address as shown from time to time in DPL’s records.

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IN WITNESS WHEREOF, the parties hereto have duly executed this Long Term Incentive Plan  —  Performance Shares Agreement, or caused this Long-Term Incentive Plan  —  Performance Shares Agreement to be duly executed on their behalf, as of the day and year first above written.

DPL INC.

By:

Name: Paul M. Barbas

Title: President and Chief Executive Officer

Grantee

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EX-21

Exhibit 21

SUBSIDIARIES OF DPL INC.

DPL Inc. had the following subsidiaries on December 31, 2006:

	State of Incorporation
The Dayton Power and Light Company	Ohio
Miami Valley Insurance Company	Vermont
DPL Energy, LLC	Ohio
MVE, Inc.	Ohio
DPL Finance Company, Inc.	Delaware
DPL Energy Resources, Inc.	Ohio

Exhibit 21

SUBSIDIARIES OF THE DAYTON POWER AND LIGHT COMPANY

The Dayton Power and Light Company had the following significant subsidiary on December 31, 2006:

	State of Incorporation
DPL Finance Company, Inc.	Delaware

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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 Statement (No. 333-44370) on Form S-3, and Registration Statement (No. 333-39982) on Form S-8 and Registration Statement (No. 333-139348) on Form S-8 of DPL Inc. and Subsidiaries (the Company) of our reports dated February 22, 2007, with respect to the consolidated balance sheets of the Company as of December 31, 2006 and 2005, 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, 2006, and all related financial statement schedules, management’s assessment of the effectiveness of internal control over financial reporting as of December 31, 2006 and the effectiveness of internal control over financial reporting as of December 31, 2006, which reports appear in the December 31, 2006 annual report on Form 10-K of the Company.  Our report refers to a change in the method of accounting for share-based payments and pension and other postretirement benefit obligations in 2006.

/s/ KPMG LLP

KPMG LLP

Kansas City, Missouri

February 22, 2007

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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. and 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 22, 2007

/s/ Paul M. Barbas

Paul M. Barbas

President and Chief Executive Officer

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EX-31.B

Exhibit 31(b)

CERTIFICATIONS

I, John J. Gillen, certify that:

1.I have reviewed this annual report on Form 10-K of DPL Inc. and 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 cause 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 22, 2007
	/s/ John J. Gillen
	John J. Gillen
	Senior Vice President and Chief Financial Officer

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EX-32.A

Exhibit 32(a)

DPL Inc. and 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 officers of DPL Inc. and The Dayton Power and Light Company (the “Issuers”) 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 Issuers’ Annual Report on Form 10-K for the period ended December 31, 2006, 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 Issuers 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 Issuers 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 22, 2007

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.

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EX-32.B

Exhibit 32(b)

DPL Inc. and 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 officers of DPL Inc. and The Dayton Power and Light Company (the “Issuers”) 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 Issuers’ Annual Report on Form 10-K for the period ended December 31, 2006, 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 Issuers 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 Issuers and furnished to the Securities and Exchange Commission or its staff upon request.

Signed:

/s/ John J. Gillen

John J. Gillen

Senior Vice President and Chief Financial Officer

Date: February 22, 2007

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.

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