XML 28 R12.htm IDEA: XBRL DOCUMENT

Regulatory Matters (Notes)

12 Months Ended

Dec. 31, 2023

Schedule of Regulatory Assets and Liabilities [Text Block]

REGULATORY MATTERS

AES Ohio ESPs and Smart Grid Comprehensive Settlement

AES Ohio ESP - Ohio law requires utilities to file either an ESP or MRO plan to establish SSO rates. AES Ohio is currently operating pursuant to ESP 4, described in the paragraph below. From November 1, 2017 through December 18, 2019, AES Ohio operated pursuant to an approved ESP plan, which was initially approved on October 20, 2017 (ESP 3). On December 18, 2019, the PUCO approved AES Ohio's Notice of Withdrawal and reversion to its prior rate plan (ESP 1). Among other items, the PUCO Order approving the ESP 1 rate plan included reinstating the non-bypassable RSC Rider, which provided annual revenue of approximately $79.0 million. The OCC has appealed to the Ohio Supreme Court the PUCO’s decision approving the reversion to ESP 1 as well as argued for a refund of the RSC revenue dating back to August 2021. Oral argument regarding this appeal, which has been consolidated with the appeal regarding the Smart Grid Comprehensive Settlement described in the paragraph below, is expected but not yet scheduled. We are unable to predict the outcome of this appeal, but if this results in terms that are more adverse than AES Ohio's current ESP rate plan, it could have a material adverse effect on our results of operations, financial condition and cash flows.

Smart Grid Comprehensive Settlement - On October 23, 2020, AES Ohio entered into a Stipulation and Recommendation (the Settlement) with the staff of the PUCO, various customers and organizations representing

customers of AES Ohio and certain other parties with respect to, among other matters, AES Ohio's applications pending at the PUCO for (i) approval of AES Ohio's plan to modernize its distribution grid (Smart Grid Phase 1), (ii) findings that DP&L passed the SEET for 2018 and 2019, and (iii) findings that AES Ohio's ESP 1 satisfies the SEET and the more favorable in the aggregate (MFA) regulatory test. On June 16, 2021, the PUCO issued their opinion and order accepting the stipulation as filed. The OCC appealed the final PUCO order to the Ohio Supreme Court on December 6, 2021. Oral arguments regarding this appeal, which have been consolidated with the appeal regarding the reversion to ESP 1 described in the paragraph above, are expected but not yet scheduled.

Smart Grid Phase 2 Plan - In February 2024, AES Ohio filed a Smart Grid Phase 2 with the PUCO proposing to invest approximately $683 million in capital projects over a 10-year period following the Smart Grid Phase 1, which ends June 2025. There are three principal components of AES Ohio’s Smart Grid Phase 2: 1) Distribution Operations, 2) Advanced Intelligence 3) Telecommunications and Cybersecurity. These initiatives will also allow AES Ohio to be ready to leverage and integrate Distributed Energy Resources into its grid. If approved, AES Ohio will implement a comprehensive grid modernization project that will deliver benefits to customers, society as a whole and to AES Ohio. A procedural schedule is expected that will provide for an Order by the second quarter of 2025 prior to the end of Smart Grid Phase 1.

ESP 4 - On September 26, 2022, AES Ohio filed its latest ESP (ESP 4) with the PUCO. ESP 4 is a comprehensive plan to enhance and upgrade its network and improve service reliability, provide greater safeguards for price stability and continue investments in local economic development.

On April 10, 2023, AES Ohio entered into a Stipulation and Recommendation with the PUCO Staff and seventeen parties (the “Settlement”) with respect to AES Ohio’s ESP 4 application, and, on August 9, 2023, the PUCO approved the Settlement without modification. The Settlement provides for a three-year ESP without a rate stability charge, and, in addition to other items, provides for the following:

•A Distribution Investment Rider for the term of the ESP allowing for the timely recovery of distribution investments by AES Ohio based on a 9.999% return on equity, subject to revenue caps;

•The recovery of approximately $66.0 million related to past expenditures by AES Ohio plus future carrying costs and the recovery of incremental vegetation management expenses up to certain annual limits during the term of ESP 4. During the third quarter of 2023, AES Ohio deferred $28.3 million of previously recognized purchased power costs and an additional $10.7 million of carrying costs related to this recovery; and

•Funding of programs for assistance to low-income customers and for economic development.

Additionally, with approval of this Settlement, the distribution rates that were approved by the PUCO on December 14, 2022, and are described in the paragraph below, became effective on September 1, 2023.

Distribution Rate Case

On November 30, 2020, AES Ohio filed a new distribution rate case application with the PUCO to increase AES Ohio’s base rates for electric distribution service to address, in part, increased costs of materials and labor and substantial investments to improve distribution structures. On December 14, 2022, the PUCO issued an order on the application. Among other matters, the order:

•Establishes a revenue increase of $75.6 million for AES Ohio’s base rates for electric distribution service; and

•Provides for a return on equity of 9.999% and a cost of long-term debt of 4.4% on a distribution rate base of $783.5 million and based on a capital structure of 53.87% equity and 46.13% long-term debt.

These rates went into effect on September 1, 2023 with the approval of AES Ohio's ESP 4.

FERC Transmission Rates

On March 3, 2020, AES Ohio filed an application before the FERC seeking to change its existing stated transmission rates to formula transmission rates that would be updated each calendar year. An uncontested settlement was filed December 10, 2020 and approved April 15, 2021. Among other things, the settlement established new depreciation rates for AES Ohio’s transmission assets and an authorized return on equity of 9.85%, and started an amortization process to return excess deferred taxes created by the TCJA. Pursuant to the approved

mechanisms and formula, transmission rates are adjusted each calendar year to reflect projected costs, adjusted to a true-up of actual revenue and costs incurred in the prior year.

Regulatory Assets and Liabilities

In accordance with ASC 980 - Regulated Operations ("ASC 980"), we have recognized total regulatory assets of $212.3 million and $169.0 million at December 31, 2023 and 2022, respectively, and total regulatory liabilities of $200.1 million and $239.1 million at December 31, 2023 and 2022, respectively. Regulatory assets and liabilities are classified as current or non-current based on the term in which recovery is expected. See Note 1. Overview and Summary of Significant Accounting Policies for accounting policies regarding Regulatory Assets and Liabilities.

The following table presents DPL’s Regulatory assets and liabilities:


	Type of Recovery	Amortization Through	December 31,
$ in millions			2023		2022
Regulatory assets, current:
Undercollections to be collected through rate riders	A/B	2024	$	51.7	$	38.7
Uncollectible expense being recovered in base rates	B	2024	1.7		—
Vegetation management being recovered in base rates	B	2024	2.7		—
Rate case expenses being recovered in base rates	B	2024	0.5		0.5
Total regulatory assets, current			56.6		39.2

Regulatory assets, non-current:
Pension benefits	A/B	Ongoing	62.6		64.2


Regulatory compliance costs	A	2028	45.0		6.4
Energy efficiency	D	Undetermined	4.1		—
Smart grid and AMI costs	B/C	Ongoing	3.2		2.3
Unamortized loss on reacquired debt	B	Ongoing	1.1		2.0
Deferred storm costs	B	Ongoing	2.2		8.7
Deferred rate case costs	B	2028	1.5		1.9
Deferred vegetation management	B	2028	19.9		21.9
CIS replacement	D	Undetermined	3.1		1.1
Transmission formula rate debits	B	2025	6.7		—
Decoupling deferral	A	2028	—		13.8
Uncollectible deferral	B	2028	6.3		7.5
Total regulatory assets, non-current			155.7		129.8

Total regulatory assets			$	212.3	$	169.0

Regulatory liabilities, current:
Overcollection of costs to be refunded through rate riders	A/B	2024	$	14.7	$	27.6
Transmission formula rate credits	B	2024	3.3		12.8
Total regulatory liabilities, current			18.0		40.4

Regulatory liabilities, non-current:
Estimated costs of removal - regulated property		Not Applicable	134.2		136.8
Deferred income taxes payable through rates		Ongoing	42.6		45.2
TCJA regulatory liability	B	Ongoing	1.0		4.5
Transmission formula rate credits	B	2024	—		5.4
PJM transmission enhancement settlement	B	2025	1.7		3.5
Postretirement benefits	B	Ongoing	2.6		3.3
Total regulatory liabilities, non-current			182.1		198.7

Total regulatory liabilities			$	200.1	$	239.1

A – Recovery of incurred costs plus rate of return.

B – Recovery of incurred costs without a rate of return.

C – Includes costs associated with Smart Grid Phase 2 development for which recovery is not yet determined but is considered probable of occurring in future rate proceedings.

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

Current regulatory assets and liabilities

Current regulatory assets primarily represent costs that are being recovered per specific rate orders; recovery for the remaining costs is probable, but not certain. Current regulatory assets include: (i) the Energy Efficiency Rider, (ii) the Economic Development Rider, (iii) the Storm Cost Rider, (iv) the Legacy Generation Rider, (v) the Infrastructure Investment Rider, (vi) the Regulatory Compliance Rider, (vii) the Proactive Reliability Optimization Rider, and (viii) the Distribution Investment Rider. Also included are the current portion of rate case expense, vegetation management, and uncollectible expense costs.

Current regulatory liabilities include the overcollection of standard offer costs and certain transmission related costs, including the current portion of the PJM transmission enhancement settlement (discussed below), the transmission rate true-up, the Transmission Cost Recovery Rider overcollection and the TCJA regulatory liability.

AES Ohio is earning a return on $9.3 million of the net undercollections / (overcollections) to be collected / (refunded) through rate riders including: (i) the Energy Efficiency Rider, (ii) the Economic Development Rider, and (iii) the Regulatory Compliance Rider, partially offset by the overcollection of standard offer costs and transmission costs.

Pension benefits

Pension benefits represent the qualifying ASC 715 costs of our regulated operations that for ratemaking purposes are deferred for future recovery. We recognize an asset for a plan’s overfunded status or a liability for a plan’s underfunded status, and recognize, as a component of OCI, the changes in the funded status of the plan that arise during the year that are not recognized as a component of net periodic benefit cost. This regulatory asset represents the regulated portion that would otherwise be charged as a loss to OCI. As per PUCO and FERC precedents, these costs are probable of future rate recovery.

Regulatory compliance costs

Regulatory compliance costs represent the long-term portion of the regulatory compliance costs which include the following costs: (i) Consumer Education Campaign, (ii) Retail Settlement System, (iii) Generation Separation, (iv) Bill Format Redesign, (v) Green Pricing Tariff, (vi) Supplier Consolidated Billing, (vii) Decoupling, (viii) a portion of previously deferred uncollectible costs, and (ix) unrecovered purchased power deferrals, and related carrying charges, approved in ESP 4. The balance of this regulatory asset earns a return with a maximum total to be accrued of $4.0 million. These costs are being recovered over a five-year period that began September 2023 through the Regulatory Compliance Rider approved in ESP 4.

Energy Efficiency Rider

Energy Efficiency Rider represents deferred expense and shared savings associated with energy efficiency programs that provide incentives and rebates for customers to improve the way they use electricity. The deferred expenses and shared savings were incurred prior to Ohio’s energy efficiency change in legislation and are therefore probable for recovery. The PUCO is currently conducting a prudency review, and a PUCO staff report was issued on February 2, 2024.

Smart Grid and AMI costs

Smart Grid and AMI costs represent costs incurred as a result of studying and developing distribution system upgrades and implementation of AMI related to Smart Grid Phase 1 and 2. AES Ohio developed Smart Grid Phase 1, which focuses on implementing new technology in the distribution business to upgrade customer meters, provide new customer programs related to energy efficiency and time-based rates, make certain infrastructure improvements, and upgrade substation and telecommunication equipment. Smart Grid Phase 1 costs are being recovered over a period of 4 years. AES Ohio has proposed Smart Grid Phase 2, which is pending before the PUCO.

Unamortized loss on reacquired debt

Unamortized loss on reacquired debt represents losses on long-term debt reacquired or redeemed in prior periods that have been deferred. These deferred losses are being amortized over the lives of the original issues in accordance with the rules of the FERC and the PUCO.

Deferred storm costs

Deferred storm costs represent the long-term portion of deferred costs for major storms which occurred during the second-half of 2023. AES Ohio files semi-annual petitions seeking recovery of storm costs. Recovery of these costs is probable, but not certain.

Rate case expenses

Rate case expenses represent costs associated with preparing distribution rate cases. AES Ohio was granted recovery of the 2020 rate case costs through base rates over a period of 5 years, without a rate of return.

Vegetation management costs

Vegetation management costs represent costs incurred from outside contractors for tree trimming and other vegetation management services. Historically deferred costs from 2018-2020 are being recovered in base rates with an amortization period of five years. In addition, ESP 4 approved a Proactive Reliability Optimization Rider which granted recovery of costs deferred starting from 2021 forward with an annual baseline of $20.0 million, subject to an annual maximum deferral of $7.5 million. These historical costs are also being recovered with an amortization period of five years. Annual spending less than the vegetation management baseline amount will result in a reduction to the regulatory asset or creation of a regulatory liability.

CIS replacement costs

Customer Information System (“CIS”) replacement costs represent operation and maintenance expenses associated with the implementation of a new CIS system. Deferral of these costs subject to an $8.8 million maximum deferral was approved in the Smart Grid Phase 1 Order, subject to demonstration that the functionality is available and a reasonableness prudence review. Recovery of these costs was requested and approved in Case No. 22-0900-EL-SSO to be included in the new Regulatory Compliance Rider, once the CIS is used and useful.

Transmission formula rate debits/credits

Transmission formula rate assets and liabilities represent the amounts due from/to customers as a result of the implementation of transmission formula rates, which are adjusted each year based on actual revenue and costs from a previous year, as described above under "FERC Transmission Rates".

Decoupling deferral

The decoupling deferral was approved for recovery via the Regulatory Compliance Rider in the ESP 4 Order and was reclassified to the Regulatory Compliance Rider asset in August 2023. The decoupling deferral represented the change in the revenue requirement based on a per customer methodology in the stipulation approved in the DRO and includes deferrals through December 18, 2019.

Uncollectible deferral

Uncollectible deferral represents deferred uncollectible expense associated with the nonpayment of electric service, less the revenue associated with the bypassable uncollectible portion of the standard offer rate. The 2023 distribution rate case order established that these costs would be recovered in base rates over a period of five years.

Estimated costs of removal - regulated property

Estimated costs of removal - regulated property reflect an estimate of amounts collected in customer rates for costs that are expected to be incurred in the future to remove existing transmission and distribution property from service when the property is retired.

Deferred income taxes payable through rates

Deferred income taxes payable through rates represent deferred income tax liabilities recognized from the normalization of flow-through items as the result of taxes previously charged to customers. A deferred income tax asset or liability is created from a difference in income recognition between tax laws and accounting methods. As a regulated utility, AES Ohio includes in ratemaking the impacts of current income taxes and changes in deferred income tax liabilities or assets. Accordingly, this liability reflects the estimated deferred taxes AES Ohio expects to return to customers in future periods.

TCJA regulatory liability

TCJA regulatory liability represents the long-term portion of both protected and unprotected excess Accumulated Deferred Income Taxes ("ADIT") for both transmission and distribution portions, grossed up to reflect the revenue requirement. As a part of the DRO, AES Ohio agreed that savings from the TCJA attributable to distribution facilities, including the excess ADIT and the regulatory liability, constitute amounts that will be returned to customers. As a result of the TCJA and subsequent DRO, AES Ohio entered into a stipulation to resolve all remaining TCJA items related to its distribution rates, including a proposal to return no less than $4.0 million per year for the first five years unless fully returned in the first five years via a tax savings cost rider for the distribution portion of the balance. On September 26, 2019, an order approved the stipulation in its entirety.

PJM transmission enhancement settlement

PJM transmission enhancement settlement liability represents the transmission enhancement settlement charges for which AES Ohio is due a refund per FERC Order EL05-121-009 issued on May 31, 2018. The Order states that customers are due a refund for part of these charges which will be received starting August 2018 through 2025. Refunds received will be returned to customers via the transmission cost rider.

Postretirement benefits

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

Subsidiaries [Member]