Overview and Summary of Significant Accounting Policies

3 Months Ended

Mar. 31, 2022

Significant Accounting Policies [Line Items]

Overview and Summary of Significant Accounting Policies

Overview and Summary of Significant Accounting Policies

Description of Business

DPL is a regional energy company organized in 1985 under the laws of Ohio. DPL has one reportable segment, the Utility segment. See Note 9 – Business Segments for more information relating to this reportable segment. The terms “we,” “us,” “our” and “ours” are used to refer to DPL and its subsidiaries.

DPL is an indirectly wholly-owned subsidiary of AES.

DP&L, a wholly-owned subsidiary of DPL that does business as AES Ohio, is a public utility incorporated in 1911 under the laws of Ohio. Beginning in 2001, Ohio law gave Ohio consumers the right to choose the electric generation supplier from whom they purchase retail generation service; however, retail transmission and distribution services are still regulated. AES Ohio has the exclusive right to provide such transmission and distribution services to approximately 535,000 customers located in West Central Ohio. Additionally, AES Ohio provides retail SSO electric service to residential, commercial, industrial and governmental customers in a 6,000-square mile area of West Central Ohio. AES Ohio sources all of the generation for its SSO customers through a competitive bid process. Principal industries located in AES Ohio’s service territory include automotive, food processing, paper, plastic, manufacturing and defense. AES Ohio's sales reflect the general economic conditions, seasonal weather patterns of the area, the market price of electricity and customer energy efficiency initiatives. AES Ohio owns numerous transmission facilities. AES Ohio sells its proportional share of energy and capacity from its investment in OVEC into the wholesale market.

DPL’s other primary subsidiaries are MVIC and Miami Valley Lighting. MVIC is our captive insurance company that provides insurance services to AES Ohio and our other subsidiaries, and Miami Valley Lighting provides street and outdoor lighting services to customers in the Dayton region. In prior periods, AES Ohio Generation was also a primary subsidiary and sold all of its energy and capacity into the wholesale market. AES Ohio Generation retired its only remaining operating asset in May 2020 and sold it in June 2020. See Note 11 – Discontinued Operations for more information. DPL's subsidiaries are all wholly-owned.

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

AES Ohio’s electric transmission and distribution businesses are subject to rate regulation by federal and state regulators. Accordingly, AES Ohio applies the accounting standards for regulated operations to its electric transmission and distribution businesses and records regulatory assets when incurred costs are expected to be recovered in future customer rates and regulatory liabilities when current cost recoveries in customer rates relate to expected future costs or overcollections of riders.

Financial Statement Presentation

DPL’s Condensed Consolidated Financial Statements include the accounts of DPL and its wholly-owned subsidiaries except for DPL Capital Trust II, which is not consolidated, consistent with the provisions of GAAP.

Certain immaterial amounts from prior periods have been reclassified to conform to the current period presentation.

All material intercompany accounts and transactions are eliminated in consolidation. We have evaluated subsequent events through the date this report is issued.

These financial statements have been prepared in accordance with GAAP, as contained in the FASB ASC, for interim financial statements and Article 10 of Regulation S-X issued by the SEC. Accordingly, they do not include all the information and footnotes required by GAAP for annual fiscal reporting periods. Therefore, our interim financial statements in this report should be read along with the annual financial statements included in our Form 10-K for the fiscal year ended December 31, 2021.

In the opinion of our management, the Condensed Consolidated Financial Statements presented in this report contain all adjustments necessary to fairly state our financial position as of March 31, 2022; our results of operations

for the three months ended March 31, 2022 and 2021, our cash flows for the three months ended March 31, 2022 and 2021 and the changes in our equity for the three months ended March 31, 2022 and 2021. Unless otherwise noted, all adjustments are normal and recurring in nature. Due to various factors, interim results for the three months ended March 31, 2022 may not be indicative of our results that will be realized for the full year ending December 31, 2022.

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

Cash, Cash Equivalents and Restricted Cash

The following table provides a summary of cash, cash equivalents, and restricted cash amounts reported on the Condensed Consolidated Balance Sheets that reconcile to the total of such amounts as shown on the Condensed Consolidated Statements of Cash Flows:

$ in millions	March 31, 2022		December 31, 2021
Cash and cash equivalents	$	32.1	$	26.6
Restricted cash (included in Prepayments and other current assets)	0.1		0.1
Cash, Cash Equivalents, and Restricted Cash, End of Period	$	32.2	$	26.7

Accounts Receivable and Allowance for Credit Losses

Accounts receivable were as follows as of March 31, 2022 and December 31, 2021:

	March 31,		December 31,
$ in millions	2022		2021
Accounts receivable, net:
Customer receivables	$	47.4	$	42.3
Unbilled revenue	17.0		19.2
Amounts due from affiliates	3.7		3.1
Due from PJM transmission enhancement settlement	1.7		1.7
Other	4.3		5.5
Allowance for credit losses	(0.2)		(0.3)
Total accounts receivable, net	$	73.9	$	71.5

The following table is a roll forward of our allowance for credit losses related to the accounts receivable balances for the three months ended March 31, 2022 and 2021:

$ in millions	Beginning Allowance Balance		Current Period Provision		Write-offs Charged Against Allowances		Recoveries Collected		Ending Allowance Balance
2022	$	0.3	$	(0.1)	$	(0.2)	$	0.2	$	0.2
2021	$	2.8	$	—	$	(0.7)	$	0.2	$	2.3

The allowance for credit losses primarily relates to utility customer receivables, including unbilled amounts. Expected credit loss estimates are developed by disaggregating customers into those with similar credit risk characteristics and using historical credit loss experience. In addition, we also consider how current and future economic conditions are expected to impact collectability, as applicable, including the economic impacts of the COVID-19 pandemic on our receivable balance as of March 31, 2022. Amounts are written off when reasonable collections efforts have been exhausted. During 2021, the current period provision and allowance for credit losses have decreased due to lower past due customer receivable balances.

Inventories

Inventories consist of materials and supplies as of March 31, 2022 and December 31, 2021.

Accounting for Taxes Collected from Customers and Remitted to Governmental Authorities

AES Ohio collects certain excise taxes levied by state or local governments from its customers. These taxes are accounted for on a net basis and not included in revenue. The amounts of such taxes collected for the three months ended March 31, 2022 and 2021 were as follows:

	Three months ended
	March 31,
$ in millions	2022		2021
Excise taxes collected	$	13.1	$	12.9

Accumulated other comprehensive loss

The amounts reclassified out of Accumulated other comprehensive loss by component during the three months ended March 31, 2022 and 2021 are as follows:

Details about Accumulated Other Comprehensive Loss components	Affected line item in the Condensed Consolidated Statements of Operations	Three months ended
		March 31,
$ in millions		2022		2021
Net gains on cash flow hedges (Note 4):
	Interest expense	$	(0.2)	$	(0.2)
	Income tax expense	0.1		—
	Net of income taxes	(0.1)		(0.2)
Amortization of defined benefit pension items (Note 7):
	Other expense	0.3		0.6
	Income tax benefit	(0.1)		(0.1)
	Net of income taxes	0.2		0.5
Total reclassifications for the period, net of income taxes		$	0.1	$	0.3

The changes in the components of Accumulated other comprehensive loss during the three months ended March 31, 2022 are as follows:

$ in millions	Change in cash flow hedges		Change in unfunded pension and postretirement benefit obligations		Total
Balance as of January 1, 2022	$	12.8	$	(17.6)	$	(4.8)
Amounts reclassified from AOCL to earnings	(0.1)		0.2		0.1
Net current period other comprehensive income / (loss)	(0.1)		0.2		0.1
Balance as of March 31, 2022	$	12.7	$	(17.4)	$	(4.7)

New Accounting Pronouncements Adopted in 2022 – We have assessed and determined that the new accounting pronouncements adopted did not have a material impact on our consolidated financial statements.

New Accounting Pronouncements Issued But Not Yet Effective – The following table provides a brief description of recent accounting pronouncements that could have a material impact on our consolidated financial statements. Accounting pronouncements not listed below were assessed and determined to be either not applicable or are expected to have no material impact on our consolidated financial statements.

ASU Number and Name	Description	Date of Adoption	Effect on the financial statements upon adoption
2020-04 and 2021-01, Reference Rate Form (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting	The amendments in these updates provide optional expedients and exceptions for applying GAAP to contracts, hedging relationships and other transactions that reference to LIBOR or another reference rate expected to be discontinued by reference rate reform, and clarify that certain optional expedients and exceptions in Topic 848 for contract modifications and hedge accounting apply to derivatives that are affected by the discounting transition. These amendments are effective for a limited period of time (March 12, 2020 - December 31, 2022). Implementation - We have established a process to measure and mitigate risks associated with the cessation of LIBOR. As part of this initiative, alternative benchmark rates have been, and continue to be, assessed, and implemented for newly executed agreements. Many of our existing agreements include provisions designed to facilitate an orderly transition from LIBOR. To the extent that the terms of the credit agreements do not align following the cessation of LIBOR rates, we will seek to negotiate contract amendments with counterparties or additional derivatives contracts.	Effective for all entities as of March 12, 2020 through December 31, 2022	We are implementing the reference rate reform and do not expect these amendments to have a material impact on our consolidated financial statements. See Implementation for further details.

Subsidiaries [Member]

Significant Accounting Policies [Line Items]

Overview and Summary of Significant Accounting Policies

Overview and Summary of Significant Accounting Policies

Description of Business

DP&L, which does business as AES Ohio, is a public utility incorporated in 1911 under the laws of Ohio. Beginning in 2001, Ohio law gave Ohio consumers the right to choose the electric generation supplier from whom they purchase retail generation service; however, retail transmission and distribution services are still regulated. AES Ohio has the exclusive right to provide such transmission and distribution services to approximately 535,000 customers located in West Central Ohio. Additionally, AES Ohio provides retail SSO electric service to residential, commercial, industrial and governmental customers in a 6,000-square mile area of West Central Ohio. AES Ohio sources all of the generation for its SSO customers through a competitive bid process. Principal industries located in AES Ohio’s service territory include automotive, food processing, paper, plastic, manufacturing and defense. AES Ohio's sales reflect the general economic conditions, seasonal weather patterns of the area, the market price of electricity and customer energy efficiency initiatives. AES Ohio owns numerous transmission facilities. AES Ohio sells its proportional share of energy and capacity from its investment in OVEC into the wholesale market. AES Ohio has one reportable segment, the Utility segment. In addition to AES Ohio's electric transmission and distribution businesses, the Utility segment includes revenues and costs associated with AES Ohio's investment in OVEC. AES Ohio is a subsidiary of DPL. The terms “we,” “us,” “our” and “ours” are used to refer to AES Ohio.

AES Ohio’s electric transmission and distribution businesses are subject to rate regulation by federal and state regulators. Accordingly, AES Ohio applies the accounting standards for regulated operations to its electric transmission and distribution businesses and records regulatory assets when incurred costs are expected to be recovered in future customer rates and regulatory liabilities when current cost recoveries in customer rates relate to expected future costs or overcollections of riders.

Financial Statement Presentation

AES Ohio does not have any subsidiaries.

We have evaluated subsequent events through the date this report is issued.

Certain immaterial amounts from prior periods have been reclassified to conform to the current period presentation.

These financial statements have been prepared in accordance with GAAP, as contained in the FASB ASC, for interim financial statements and Article 10 of Regulation S-X issued by the SEC. Accordingly, they do not include all the information and footnotes required by GAAP for annual fiscal reporting periods. Therefore, our interim financial statements in this report should be read along with the annual financial statements included in our Form 10-K for the fiscal year ended December 31, 2021.

In the opinion of our management, the Condensed Financial Statements presented in this report contain all adjustments necessary to fairly state our financial position as of March 31, 2022; our results of operations for the three months ended March 31, 2022 and 2021, our cash flows for the three months ended March 31, 2022 and 2021 and the changes in our equity for the three months ended March 31, 2022 and 2021. Unless otherwise noted, all adjustments are normal and recurring in nature. Due to various factors, interim results for the three months ended March 31, 2022 may not be indicative of our results that will be realized for the full year ending December 31, 2022.

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

Cash, Cash Equivalents and Restricted Cash

The following table provides a summary of cash, cash equivalents, and restricted cash amounts reported on the Condensed Balance Sheets that reconcile to the total of such amounts as shown on the Condensed Statements of Cash Flows:

$ in millions	March 31, 2022		December 31, 2021
Cash and cash equivalents	$	17.9	$	14.4
Restricted cash (included in Prepayments and other current assets)	0.1		0.1
Cash, Cash Equivalents, and Restricted Cash, End of Period	$	18.0	$	14.5

Accounts Receivable and Allowance for Credit Losses

Accounts receivable were as follows as of March 31, 2022 and December 31, 2021:

	March 31,		December 31,
$ in millions	2022		2021
Accounts receivable, net:
Customer receivables	46.5		$	41.6
Unbilled revenue	17.0		19.2
Amounts due from affiliates	4.3		4.4
Due from PJM transmission enhancement settlement	1.7		1.7
Other	4.3		5.3
Allowance for credit losses	(0.2)		(0.3)
Total accounts receivable, net	$	73.6	$	71.9

The following table is a roll forward of our allowance for credit losses related to the accounts receivable balances for the three months ended March 31, 2022 and 2021:

$ in millions	Beginning Allowance Balance		Current Period Provision		Write-offs Charged Against Allowances		Recoveries Collected		Ending Allowance Balance
2022	$	0.3	$	(0.1)	$	(0.2)	$	0.2	$	0.2
2021	$	2.8	$	—	$	(0.7)	$	0.2	$	2.3

The allowance for credit losses primarily relates to utility customer receivables, including unbilled amounts. Expected credit loss estimates are developed by disaggregating customers into those with similar credit risk characteristics and using historical credit loss experience. In addition, we also consider how current and future economic conditions are expected to impact collectability, as applicable, including the economic impacts of the COVID-19 pandemic on our receivable balance as of March 31, 2022. Amounts are written off when reasonable collections efforts have been exhausted. During 2021, the current period provision and allowance for credit losses have decreased due to lower past due customer receivable balances.

Inventories

Inventories consist of materials and supplies as of March 31, 2022 and December 31, 2021.

Accounting for Taxes Collected from Customers and Remitted to Governmental Authorities

AES Ohio collects certain excise taxes levied by state or local governments from its customers. These taxes are accounted for on a net basis and not included in revenue. The amounts of such taxes collected for the three months ended March 31, 2022 and 2021 were as follows:

	Three months ended
	March 31,
$ in millions	2022		2021
Excise taxes collected	$	13.1	$	12.9

Accumulated other comprehensive loss

The amounts reclassified out of Accumulated other comprehensive loss by component during the three months ended March 31, 2022 and 2021 are as follows:

Details about Accumulated Other Comprehensive Loss components	Affected line item in the Condensed Consolidated Statements of Operations	Three months ended
		March 31,
$ in millions		2022		2021
Amortization of defined benefit pension items (Note 6):
	Other expense	0.9		1.3
	Income tax benefit	(0.2)		(0.3)
	Net of income taxes	0.7		1.0
Total reclassifications for the period, net of income taxes		$	0.7	$	1.0

The changes in the components of Accumulated other comprehensive loss during the three months ended March 31, 2022 are as follows:

$ in millions	Change in Accumulated other comprehensive loss
Balance as of January 1, 2022	$	(31.8)
Amounts reclassified from AOCL to earnings	0.7
Net current period other comprehensive income	0.7
Balance as of March 31, 2022	$	(31.1)

New Accounting Pronouncements Adopted in 2022 – We have assessed and determined that the new accounting pronouncements adopted did not have a material impact on our financial statements.

New Accounting Pronouncements Issued But Not Yet Effective – The following table provides a brief description of recent accounting pronouncements that could have a material impact on our financial statements. Accounting pronouncements not listed below were assessed and determined to be either not applicable or are expected to have no material impact on our financial statements.

ASU Number and Name	Description	Date of Adoption	Effect on the financial statements upon adoption
2020-04 and 2021-01, Reference Rate Form (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting	The amendments in these updates provide optional expedients and exceptions for applying GAAP to contracts, hedging relationships and other transactions that reference to LIBOR or another reference rate expected to be discontinued by reference rate reform, and clarify that certain optional expedients and exceptions in Topic 848 for contract modifications and hedge accounting apply to derivatives that are affected by the discounting transition. These amendments are effective for a limited period of time (March 12, 2020 - December 31, 2022). Implementation - We have established a process to measure and mitigate risks associated with the cessation of LIBOR. As part of this initiative, alternative benchmark rates have been, and continue to be, assessed, and implemented for newly executed agreements. Many of our existing agreements include provisions designed to facilitate an orderly transition from LIBOR. To the extent that the terms of the credit agreements do not align following the cessation of LIBOR rates, we will seek to negotiate contract amendments with counterparties or additional derivatives contracts.	Effective for all entities as of March 12, 2020 through December 31, 2022	We are implementing the reference rate reform and do not expect these amendments to have a material impact on our financial statements. See Implementation for further details.