Overview and Summary of Significant Accounting Policies

9 Months Ended

Sep. 30, 2023

Significant Accounting Policies [Line Items]

Overview and Summary of Significant Accounting Policies

OVERVIEW AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

DPL, an indirectly wholly-owned subsidiary of AES, is a holding company organized in 1985 under the laws of Ohio. DPL owns all of the outstanding common stock of DP&L, which does business as AES Ohio. Substantially all of DPL’s business consists of transmitting, distributing and selling of electric energy conducted through its principal subsidiary, AES Ohio. The terms “we,” “us,” “our” and “ours” are used to refer to DPL and its subsidiaries.

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 538,000 customers located in West Central Ohio. Principal industries located in AES Ohio’s service territory include automotive, food processing, paper, plastic, manufacturing and defense. AES Ohio also 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. 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 records revenue and expenses for its proportional share of energy and capacity from its investment in OVEC.

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. 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.

Consolidation

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

Interim Financial Presentation

The accompanying unaudited condensed consolidated financial statements and footnotes have been prepared in accordance with GAAP, as contained in the FASB FASC, for interim financial information 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. In the opinion of management, the interim financial information includes all adjustments of a normal recurring nature necessary for a fair presentation of the results of operations, financial position, comprehensive income or loss, changes in shareholder's equity / (deficit), and cash flows. The results of operations for the three and nine months ended September 30, 2023 are not necessarily indicative of expected results for the year ending December 31, 2023. The accompanying condensed consolidated financial statements are unaudited and should be read in conjunction with the 2022 audited consolidated financial statements and footnotes thereto, which are included in our Form 10-K.

Use of Management Estimates

The preparation of consolidated financial statements in conformity with GAAP requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities and the revenue and expenses of the periods reported. Actual results could differ from these estimates and assumptions. Significant items subject to such estimates and assumptions include: the carrying value of property, plant and equipment; unbilled revenue; the valuation of allowances for credit losses and deferred income taxes;

regulatory assets and liabilities; reserves recorded for income tax exposures; litigation; contingencies; and assets and liabilities related to employee benefits.

Cash, Cash Equivalents and Restricted Cash

The following table summarizes 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	September 30, 2023		December 31, 2022
Cash and cash equivalents	$	49.3	$	30.5
Restricted cash (included in Prepayments and other current assets)	0.1		0.1
Cash, Cash Equivalents, and Restricted Cash, End of Period	$	49.4	$	30.6

Accounts Receivable and Allowance for Credit Losses

The following table summarizes accounts receivable as of September 30, 2023 and December 31, 2022:

	September 30,		December 31,
$ in millions	2023		2022
Accounts receivable, net:
Customer receivables	$	60.4	$	61.3
Unbilled revenue	15.8		24.0
Amounts due from affiliates	1.0		3.2
Other	8.9		3.9
Allowance for credit losses	(1.0)		(0.5)
Total accounts receivable, net	$	85.1	$	91.9

The following table is a roll forward of our allowance for credit losses related to the accounts receivable balances for the nine months ended September 30, 2023 and 2022:

	September 30,		September 30,
$ in millions	2023		2022
Allowance for credit losses:
Beginning balance	$	0.5	$	0.3
Current period provision	4.1		1.4
Write-offs charged against allowances	(4.4)		(2.1)
Recoveries collected	0.8		0.8
Ending balance	$	1.0	$	0.4

Inventories

Inventories consist of materials and supplies as of September 30, 2023 and December 31, 2022.

Regulatory Accounting

As a regulated utility, AES Ohio applies the provisions of ASC 980 - Regulated Operations, which gives recognition to the ratemaking and accounting practices of the PUCO and the FERC. Regulatory assets generally represent incurred costs that have been deferred because such costs are probable of future recovery in customer rates. Regulatory assets can also represent performance incentives permitted by the regulator. Regulatory assets have been included as allowable costs for ratemaking purposes, as authorized by the PUCO or established regulatory practices. Regulatory liabilities generally represent obligations to make refunds or future rate reductions to customers for previous over collections or the deferral of revenue collected for costs that AES Ohio expects to incur in the future.

The deferral of costs (as regulatory assets) is appropriate only when the future recovery of such costs is probable. In assessing probability, we consider such factors as specific orders from the PUCO or the FERC, regulatory precedent and the current regulatory environment. To the extent recovery of costs is no longer deemed probable, related regulatory assets would be required to be expensed in current period earnings. Our regulatory assets and liabilities have been created pursuant to a specific order of the PUCO or the FERC or established regulatory practices, such as other utilities under the jurisdiction of the PUCO or the FERC being granted recovery of similar costs. It is probable, but not certain, that these regulatory assets will be recoverable, subject to approval by the PUCO or the FERC. Regulatory assets and liabilities are classified as current or non-current based on the term in

which recovery is expected. See Note 2. Regulatory Matters in Item 8. Financial Statements and Supplementary Data of our Form 10-K for more information.

AFUDC

AES Ohio capitalizes an allowance for the net cost of funds (interest on borrowed funds and a reasonable rate of return on equity funds) used for construction purposes during the period of construction with a corresponding credit to income. During the three and nine months ended September 30, 2023 and 2022, AFUDC equity and AFUDC debt were as follows:

	Three months ended				Nine months ended
	September 30,				September 30,
$ in millions	2023		2022		2023		2022
AFUDC equity	$	1.3	$	2.0	$	3.8	$	4.0
AFUDC debt	$	1.6	$	(0.4)	$	4.5	$	0.8

AOCL

The amounts reclassified out of AOCL by component during the three and nine months ended September 30, 2023 and 2022 are as follows:

Details about AOCL components	Affected line item in the Condensed Consolidated Statements of Operations	Three months ended				Nine months ended
		September 30,				September 30,
$ in millions		2023		2022		2023		2022
Net gains on cash flow hedges (Note 4):
	Interest expense	$	(0.2)	$	(0.2)	$	(0.7)	$	(0.7)
	Income tax effect	—		0.1		0.1		0.2
	Net of income taxes	(0.2)		(0.1)		(0.6)		(0.5)
Amortization of unfunded pension and other postretirement obligations (Note 7):
	Other expense	—		0.3		0.1		0.9
	Income tax effect	—		(0.1)		—		(0.2)
	Net of income taxes	—		0.2		0.1		0.7
Total reclassifications for the period, net of income taxes		$	(0.2)	$	0.1	$	(0.5)	$	0.2

The changes in the components of AOCL during the nine months ended September 30, 2023 are as follows:

$ in millions	Change in cash flow hedges		Change in unfunded pension and other postretirement obligations		Total
Balance as of January 1, 2023	$	12.0	$	(14.4)	$	(2.4)
Amounts reclassified from AOCL to earnings	(0.6)		0.1		(0.5)
Balance as of September 30, 2023	$	11.4	$	(14.3)	$	(2.9)

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 and nine months ended September 30, 2023 and 2022 were as follows:

	Three months ended				Nine months ended
	September 30,				September 30,
$ in millions	2023		2022		2023		2022
Excise taxes collected	$	12.8	$	13.0	$	35.4	$	37.6

New Accounting Pronouncements Adopted in 2023

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.

Subsidiaries [Member]

Significant Accounting Policies [Line Items]

Overview and Summary of Significant Accounting Policies

OVERVIEW AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

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 538,000 customers located in West Central Ohio. Principal industries located in AES Ohio’s service territory include automotive, food processing, paper, plastic, manufacturing and defense. AES Ohio also 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. 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 records revenue and expenses for its proportional share of energy and capacity from its investment in OVEC. AES Ohio has one reportable segment, the Utility segment. In addition to AES Ohio's electric transmission and distribution businesses, the Utility segment includes revenue and expenses 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.

Interim Financial Presentation

The accompanying unaudited condensed financial statements and footnotes have been prepared in accordance with GAAP, as contained in the FASB FASC, for interim financial information 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. In the opinion of management, the interim financial information includes all adjustments of a normal recurring nature necessary for a fair presentation of the results of operations, financial position, comprehensive income or loss, changes in shareholder's equity, and cash flows. The results of operations for the three and nine months ended September 30, 2023 are not necessarily indicative of expected results for the year ending December 31, 2023. The accompanying condensed financial statements are unaudited and should be read in conjunction with the 2022 audited consolidated financial statements and footnotes thereto, which are included in our Form 10-K.

Use of Management Estimates

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

Cash, Cash Equivalents and Restricted Cash

The following table summarizes 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	September 30, 2023		December 31, 2022
Cash and cash equivalents	$	33.0	$	19.7
Restricted cash (included in Prepayments and other current assets)	0.1		0.1
Cash, Cash Equivalents, and Restricted Cash, End of Period	$	33.1	$	19.8

Accounts Receivable and Allowance for Credit Losses

The following table summarizes accounts receivable as of September 30, 2023 and December 31, 2022:

	September 30,		December 31,
$ in millions	2023		2022
Accounts receivable, net:
Customer receivables	$	59.2	$	60.6
Unbilled revenue	15.8		24.0
Amounts due from affiliates	1.5		4.4
Other	9.0		3.8
Allowance for credit losses	(1.0)		(0.5)
Total accounts receivable, net	$	84.5	$	92.3

The following table is a roll forward of our allowance for credit losses related to the accounts receivable balances for the nine months ended September 30, 2023 and 2022:

	September 30,		September 30,
$ in millions	2023		2022
Allowance for credit losses:
Beginning balance	$	0.5	$	0.3
Current period provision	4.1		1.4
Write-offs charged against allowances	(4.4)		(2.1)
Recoveries collected	0.8		0.8
Ending balance	$	1.0	$	0.4

Inventories

Inventories consist of materials and supplies as of September 30, 2023 and December 31, 2022.

Regulatory Accounting

As a regulated utility, AES Ohio applies the provisions of ASC 980 - Regulated Operations, which gives recognition to the ratemaking and accounting practices of the PUCO and the FERC. Regulatory assets generally represent incurred costs that have been deferred because such costs are probable of future recovery in customer rates. Regulatory assets can also represent performance incentives permitted by the regulator. Regulatory assets have been included as allowable costs for ratemaking purposes, as authorized by the PUCO or established regulatory practices. Regulatory liabilities generally represent obligations to make refunds or future rate reductions to customers for previous over collections or the deferral of revenue collected for costs that AES Ohio expects to incur in the future.

The deferral of costs (as regulatory assets) is appropriate only when the future recovery of such costs is probable. In assessing probability, we consider such factors as specific orders from the PUCO or the FERC, regulatory precedent and the current regulatory environment. To the extent recovery of costs is no longer deemed probable, related regulatory assets would be required to be expensed in current period earnings. Our regulatory assets and liabilities have been created pursuant to a specific order of the PUCO or the FERC or established regulatory practices, such as other utilities under the jurisdiction of the PUCO or the FERC being granted recovery of similar costs. It is probable, but not certain, that these regulatory assets will be recoverable, subject to approval by the PUCO or the FERC. Regulatory assets and liabilities are classified as current or non-current based on the term in which recovery is expected. See Note 2. Regulatory Matters in Item 8. Financial Statements and Supplementary Data of our Form 10-K for more information.

AFUDC

AES Ohio capitalizes an allowance for the net cost of funds (interest on borrowed funds and a reasonable rate of return on equity funds) used for construction purposes during the period of construction with a corresponding credit to income. During the three and nine months ended September 30, 2023 and 2022, AFUDC equity and AFUDC debt were as follows:

	Three months ended				Nine months ended
	September 30,				September 30,
$ in millions	2023		2022		2023		2022
AFUDC equity	$	1.3	$	2.0	$	3.8	$	4.0
AFUDC debt	$	1.6	$	(0.4)	$	4.5	$	0.8

AOCL

The amounts reclassified out of AOCL by component during the three and nine months ended September 30, 2023 and 2022 are as follows:

Details about AOCL components	Affected line item in the Condensed Statements of Operations	Three months ended				Nine months ended
		September 30,				September 30,
$ in millions		2023		2022		2023		2022
Amortization of unfunded pension and other postretirement obligations (Note 6):
	Other expense	$	0.2	$	0.8	$	0.5	$	2.6
	Income tax effect	(0.1)		(0.2)		(0.2)		(0.6)
	Net of income taxes	0.1		0.6		0.3		2.0
Total reclassifications for the period, net of income taxes		$	0.1	$	0.6	$	0.3	$	2.0

The changes in the components of AOCL during the nine months ended September 30, 2023 are as follows:

$ in millions	Change in Accumulated other comprehensive loss
Balance as of January 1, 2023	$	(26.8)
Amounts reclassified from AOCL to earnings	0.3
Balance as of September 30, 2023	$	(26.5)

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 and nine months ended September 30, 2023 and 2022 were as follows:

	Three months ended				Nine months ended
	September 30,				September 30,
$ in millions	2023		2022		2023		2022
Excise taxes collected	$	12.8	$	13.0	$	35.4	$	37.6

New Accounting Pronouncements Adopted in 2023 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 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
2023-06 Disclosure Improvements: Codification Amendments in Response to the SEC’s Disclosure Update and Simplification Initiative	In U.S. Securities and Exchange Commission (SEC) Release No. 33-10532, Disclosure Update and Simplification, issued August 17, 2018, the SEC referred certain of its disclosure requirements that overlap with, but require incremental information to, generally accepted accounting principles (GAAP) to the FASB for potential incorporation into the Codification. The amendments in this Update are the result of the Board’s decision to incorporate into the Codification 14 of the 27 disclosures referred by the SEC. The amendments in this Update represent changes to clarify or improve disclosure and presentation requirements of a variety of Topics. Many of the amendments allow users to more easily compare entities subject to the SEC’s existing disclosures with those entities that were not previously subject to the SEC’s requirements. Also, the amendments align the requirements in the Codification with the SEC’s regulations.	The effective date for each amendment will be the date on which the SEC's removal of that related disclosure becomes effective, with early adoption prohibited.	We are currently evaluating the impact of adopting the standard on our condensed financial statements.