Regulatory Matters

12 Months Ended

Dec. 31, 2013

Note 4 – Regulatory Matters

In accordance with FASC 980, we have recognized total regulatory assets of $180.5 million and $206.6 million as of December 31, 2013 and 2012 and total regulatory liabilities of $121.1 million and $117.4 million as of December 31, 2013 and 2012. Regulatory assets and liabilities are classified as current or non-current based on the term in which recovery is expected. See Note 1 for accounting policies regarding Regulatory Assets and Liabilities.

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



			December 31,
$ in millions	Type of Recovery (a)	Amortization Through	2013		2012
Regulatory assets, current:
Transmission costs	F	2014	$	2.6	$	7.0
Fuel and purchased power recovery costs	C	2014		6.3		14.1
Energy efficiency program	F	2014		7.7		-
Other miscellaneous		2014		4.2		-
Total regulatory assets, current			$	20.8	$	21.1

Regulatory assets, non-current:
Deferred recoverable income taxes	B/C	Ongoing	$	32.4	$	35.1
Pension benefits	C	Ongoing		77.1		88.9
Unamortized loss on reacquired debt	C	Various		10.9		11.9
Deferred storm costs	D	Undetermined		25.6		24.4
CCEM smart grid and advanced metering infrastructure costs	D			6.6		6.6
Energy efficiency program costs	F	2014		-		5.2
Consumer education campaign	D	Undetermined		3.0		3.0
Retail settlement system costs	D	Undetermined		3.1		3.1
Other miscellaneous		Undetermined		1.0		7.3
Total regulatory assets, non-current			$	159.7	$	185.5

Regulatory liabilities, current:
Other miscellaneous			$	-	$	0.1
Total regulatory liabilities, current			$	-	$	0.1

Regulatory liabilities, non-current:
Estimated costs of removal - regulated property			$	115.0	$	112.1
Postretirement benefits				5.6		5.0
Other miscellaneous				0.5		0.2
Total regulatory liabilities, non-current			$	121.1	$	117.3

(a)

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

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

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

F – Recovery of incurred costs plus rate of return.

Regulatory Assets

Transmission costs represent the costs related to transmission, ancillary service and other PJM-related charges that have been incurred as a member of PJM. On an annual basis, retail rates are adjusted to true-up costs with recovery in rates.

Fuel and purchased power recovery costs represent prudently incurred fuel, purchased power, derivative, emission and other related costs which will be recovered from or returned to customers in the future through the operation of the fuel and purchased power recovery rider. The fuel and purchased power recovery rider fluctuates based on actual costs and recoveries and is modified at the start of each seasonal quarter. As part of the PUCO approval process, an outside auditor reviews fuel costs and the fuel procurement process. An audit of 2012 fuel costs occurred in 2013. On June 12, 2013, and applicable for the calendar year 2012 period, we received a report from that external auditor recommending a pre-tax disallowance of $5.3 million in charges to the fuel and purchased power recovery rider in 2012; a portion of which was recorded as a reserve against the regulatory asset. A hearing in this case was held on December 9, 2013, and we expect an order in the case in the second quarter of 2014.

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

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

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

Regional transmission organization costs represent costs incurred to join an RTO. The recovery of these costs will be requested in a future FERC rate case. In accordance with FERC precedence, we are amortizing these costs over a 10-year period that began in 2004 when we joined the PJM RTO. Due to the short-term nature of the remaining amortization period, the balance was reclassified to current regulatory assets in 2013 and is included in Other miscellaneous in the table above.

Deferred storm costs relate to costs incurred to repair the damage caused to DP&L’s transmission and distribution equipment by major storms in 2008, 2011 and 2012. DP&L filed an application with the PUCO in 2012 to recover these costs. There has been disagreement among DP&L, the PUCO staff and other intervenors in the case as to what portion of these storm costs should be recoverable. We continue to believe the costs we have deferred are probable for recovery based on established regulatory practices in the state of Ohio. A hearing is scheduled for this matter in March 2014. The outcome of this case is uncertain at this time.

CCEM smart grid and AMI costs represent costs incurred as a result of studying and developing distribution system upgrades and implementation of AMI. On October 19, 2010, DP&L elected to withdraw its case pertaining to the Smart Grid and AMI programs. The PUCO accepted the withdrawal in an order issued on January 5, 2011. The PUCO also indicated that it expects DP&L to continue to monitor other utilities’ Smart Grid and AMI programs and to explore the potential benefits of investing in Smart Grid and AMI programs and that DP&L will, when appropriate, file new Smart Grid and/or AMI business cases in the future. We plan to file to recover these deferred costs in a future regulatory rate proceeding. Based on past PUCO precedent, we believe these costs are probable of future recovery in rates.

Energy efficiency program costs represent costs incurred to develop and implement various customer programs addressing energy efficiency. These costs are being recovered through an Energy Efficiency Rider (EER) that began July 1, 2009 and that is subject to an annual true-up for any over/under recovery of costs.

Consumer education campaign represents costs for consumer education advertising regarding electric deregulation. DP&L will be seeking recovery of these costs as part of our next distribution rate case filing at the PUCO. The timing of such a filing has not yet been determined.

Retail settlement system costs represent costs to implement a retail settlement system that reconciles the energy a CRES supplier delivers to its customers with what its customers actually use. Based on case precedent in other utilities’ cases, the costs are recoverable through a future DP&L rate proceeding.

Other costs primarily include RPM capacity, other PJM and rate case costs and alternative energy costs that are or will be recovered over various periods.

Regulatory Liabilities

Fuel and purchased power recovery costs Please see “Regulatory Assets – Fuel and purchased power recovery costs” above.

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.

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

DP&L [Member]

Regulatory Matters

Note 4 – Regulatory Matters

In accordance with FASC 980, we have recognized total regulatory assets of $180.5 million and $203.8 million as of December 31, 2013 and 2012, respectively and total regulatory liabilities of $121.1 million and $117.4 million as of December 31, 2013 and 2012, respectively. Regulatory assets and liabilities are classified as current or non-current based on the term in which recovery is expected. See Note 1 for accounting policies regarding Regulatory Assets and Liabilities.

The following table presents DP&L’s Regulatory assets and liabilities:



			December 31,
$ in millions	Type of Recovery (a)	Amortization Through	2013		2012
Regulatory assets, current:
Transmission costs	F	2014	$	2.6	$	7.0
Fuel and purchased power recovery costs	C	2014		6.3		11.3
Energy efficiency program	F	2014		7.7		-
Other miscellaneous		2014		4.2		-
Total regulatory assets, current			$	20.8	$	18.3

Regulatory assets, non-current:
Deferred recoverable income taxes	B/C	Ongoing	$	32.4	$	35.1
Pension benefits	C	Ongoing		77.1		88.9
Unamortized loss on reacquired debt	C	Various		10.9		11.9
Deferred storm costs	D	Undetermined		25.6		24.4
CCEM smart grid and advanced metering infrastructure costs	D			6.6		6.6
Energy efficiency program costs	F	2014		-		5.2
Consumer education campaign	D	Undetermined		3.0		3.0
Retail settlement system costs	D	Undetermined		3.1		3.1
Other miscellaneous		Undetermined		1.0		7.3
Total regulatory assets, non-current			$	159.7	$	185.5

Regulatory liabilities, current:
Other miscellaneous			$	-	$	0.1
Total regulatory liabilities, current			$	-	$	0.1

Regulatory liabilities, non-current:
Estimated costs of removal - regulated property			$	115.0	$	112.1
Postretirement benefits				5.6		5.0
Other miscellaneous				0.5		0.2
Total regulatory liabilities, non-current			$	121.1	$	117.3

(a)

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

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

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

F – Recovery of incurred costs plus rate of return.

Regulatory Assets

Fuel and purchased power recovery costs represent prudently incurred fuel, purchased power, derivative, emission and other related costs which will be recovered from or returned to customers in the future through the operation of the fuel and purchased power recovery rider. The fuel and purchased power recovery rider fluctuates based on actual costs and recoveries and is modified at the start of each seasonal quarter. As part of the PUCO approval process, an outside auditor reviews fuel costs and the fuel procurement process. An audit of 2012 fuel costs occurred in 2013. On June 12, 2013, we received a report from that external auditor recommending a pre-tax disallowance of $5.3 million of costs; a portion of which was recorded as a reserve against the regulatory asset. A hearing in this case was held on December 9, 2013 and we expect an order in the case in the second quarter of 2014.

Other costs primarily include RPM capacity, other PJM and rate case costs and alternative energy costs that are or will be recovered over various periods.

Regulatory Liabilities

Fuel and purchased power recovery costs Please see “Regulatory Assets – Fuel and purchased power recovery costs” above.