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Overview and Summary of Significant Accounting Policies

12 Months Ended

Dec. 31, 2022

Significant Accounting Policies [Line Items]

Business Description and Basis of Presentation

DPL, an indirectly wholly-owned subsidiary of AES, is a diversified regional energy 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 consumers the right to choose the electric generation supplier from whom they purchase retail generation service; however, transmission and distribution services are still regulated. AES Ohio has the exclusive right to provide such service to its approximately 536,000 customers located in West Central Ohio. 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. AES Ohio owned interests in the retired Hutchings Coal Station until its transfer in 2020 and currently owns numerous transmission facilities. 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 also 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 14 – DISCONTINUED OPERATIONS for additional 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.

Overview and Summary of Significant Accounting Policies

OVERVIEW AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Description of Business

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

Financial Statement Presentation

We prepare Consolidated Financial Statements for DPL. DPL’s 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. All material intercompany accounts and transactions are eliminated in consolidation. We have evaluated subsequent events through the date this report is issued. Certain amounts from prior periods have been reclassified to conform to the current period presentation.

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 revenues 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 revenues; the valuation of allowances for receivables 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 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.

Restricted Cash

Restricted cash includes cash which is restricted as to withdrawal or usage. The restrictions relate to cash required for certain balance requirements.

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


	December 31,
$ in millions	2022		2021
Cash and cash equivalents	$	30.5	$	26.6
Restricted cash (included in Prepayments and other current assets)	0.1		0.1
Cash, Cash Equivalents and Restricted Cash, End of Period	$	30.6	$	26.7

Accounts Receivable and Allowance for Credit Losses

The following table summarizes accounts receivable as of December 31, 2022 and 2021:


	December 31,
$ in millions	2022		2021
Accounts receivable, net
Customer receivables	$	61.3	$	42.3
Unbilled revenues	24.0		19.2
Amounts due from affiliates	3.2		3.1
Other	3.9		7.2
Allowance for credit losses	(0.5)		(0.3)
Total accounts receivable, net	$	91.9	$	71.5

The following table is a rollforward of our allowance for credit losses related to the accounts receivable balances for the years ended December 31, 2022 and 2021:


$ in millions	Beginning Allowance Balance		Current Period Provision		Write-offs Charged Against Allowance		Recoveries Collected		Ending Allowance Balance
2022	$	0.3	$	2.5	$	(4.1)	$	1.8	$	0.5
2021	$	2.8	$	(0.4)	$	(3.5)	$	1.4	$	0.3

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. Amounts are written off when reasonable collections efforts have been exhausted.

Inventories

Inventories are carried at average cost, net of reserves, and consist of materials and supplies used for utility operations.

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 revenues 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 for more information.

Property, Plant and Equipment

New property, plant and equipment additions are stated at cost. For regulated transmission and distribution property, cost includes direct labor and material, allocable overhead expenses and AFUDC. AFUDC represents the cost of borrowed funds and equity used to finance regulated construction projects. Capitalization of AFUDC and interest ceases at either project completion or at the date specified by regulators. AFUDC and capitalized interest was $7.2 million, $3.7 million and $3.0 million in the years ended December 31, 2022, 2021 and 2020, respectively.

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, consistent with composite depreciation practices.

Impairment of Long-lived Assets

GAAP requires that we test long-lived assets for impairment when indicators of impairment exist. If an asset is deemed to be impaired, we are required to write down the asset to its fair value with a charge to current earnings. The net book value of our property, plant, and equipment was $1,885.0 million and $1,700.8 million as of December 31, 2022 and 2021, respectively. We do not believe any of these assets are currently impaired. In making this assessment, we consider such factors as: the overall condition and distribution capacity of the assets; the expected ability to recover additional expenditures in the assets; and the anticipated demand and relative pricing of retail electricity in our service territory.

Depreciation

Depreciation expense is calculated using the straight-line method, which allocates the cost of property over its estimated useful life. For DPL’s transmission and distribution assets, straight-line depreciation is applied monthly on an average composite basis using group rates that approximated 3.3% in 2022, 3.7% in 2021 and 3.8% in 2020. Depreciation expense was $76.7 million, $72.9 million and $70.0 million for the years ended December 31, 2022, 2021 and 2020, respectively. Depreciation and amortization expense in the Consolidated Statements of Operations is presented net of regulatory deferrals of depreciation expense and also includes amortization of intangible assets and amortization of previously deferred regulatory costs.

Intangibles

Intangibles include software and renewable energy credits. Renewable energy credits are carried on a weighted average cost basis and amortized as they are used or retired. Finite-lived intangible assets include capitalized software amortized over its estimated useful lives. These capitalized software intangible assets have a seven year-weighted average amortization period. The following table presents the cost and related accumulated amortization

of capitalized software, the related amortization expense is included in Depreciation and amortization in the Consolidated Statements of Operations, and the estimated future amortization:


			December 31,
$ in millions			2022		2021
Capitalized software			$	105.0	$	64.9

Accumulated amortization			$	(36.1)	$	(33.1)

	Years ended December 31,
	2022		2021		2020
Amortization expense	$	3.3	$	3.2	$	3.3

Estimated future amortization
Years ending December 31,
2023					$	2.8
2024					2.8
2025					2.4
2026					2.0
2027					1.1
Total					$	11.1

Implementation Costs Related to Software as a Service

DPL has recorded prepayments for implementation costs related to software as a service in support of utility customer services of $12.5 million and $8.0 million as of December 31, 2022 and 2021, respectively, and these are recorded within Other non-current assets on the accompanying Consolidated Balance Sheets.

Debt Issuance Costs

Costs incurred in connection with the issuance of long-term debt are deferred and presented as a direct reduction from the face amount of that debt and amortized over the related financing period using the effective interest method. Debt issuance costs related to a line-of-credit or revolving credit facility are deferred and presented as an asset and amortized over the related financing period. Make-whole payments in connection with early debt retirements are classified as cash flows used in financing activities.

Financial Instruments

Our Master Trust investments in debt and equity financial instruments of publicly traded entities are classified as equity investments. These equity securities are carried at fair value and unrealized gains and losses on these securities are recorded in Other income. As these financial instruments are held to be used for the benefit of employees or former employees participating in employee benefit plans and are not used for general operating purposes, they are classified as non-current in Other non-current assets on the Consolidated Balance Sheets. See

Note 4 – FAIR VALUE for additional information.

Financial Derivatives

We have contracts involving the physical delivery of energy. Because these contracts qualify for the normal purchases and normal sales scope exception in ASC 815 - Derivatives and Hedging, we have elected to account for them as accrual contracts, which are not adjusted for changes in fair value.

We have, in the past, used interest rate hedges to manage the interest rate risk of our variable rate debt. We used cash flow hedge accounting when the hedge or a portion of the hedge was deemed to be highly effective, which resulted in changes in fair value being recorded within accumulated other comprehensive loss, a component of shareholder’s deficit. We elected not to offset net derivative positions in the consolidated financial statements. Accordingly, we did not offset such derivative positions against the fair value of amounts recognized for the right to reclaim cash collateral or the obligation to return cash collateral under master netting agreements. See Note 5 – DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES for additional information.

Accumulated other comprehensive loss

The amounts reclassified out of Accumulated other comprehensive loss by component during the years ended December 31, 2022, 2021 and 2020 are as follows:


Details about AOCL Components	Affected line in the Consolidated Statements of Operations	Years ended December 31,
$ in millions		2022		2021		2020





Gains and losses on cash flow hedges (Note 5):
	Interest expense	(1.0)		(1.0)		(1.1)



	Income tax effect	0.2		0.2		0.2
	Net of income taxes	(0.8)		(0.8)		(0.9)





Amortization of unfunded pension and other postretirement obligations (Note 8):
	Other expense	1.3		2.5		1.3
	Income tax effect	(0.3)		(0.6)		(0.3)
	Net of income taxes	1.0		1.9		1.0

Total reclassifications for the period, net of income taxes		$	0.2	$	1.1	$	0.1

The changes in the components of Accumulated other comprehensive loss during the years ended December 31, 2022 and 2021 are as follows:


$ in millions	Gains / (losses) on cash flow hedges		Change in unfunded pension and other postretirement obligations		Total
Balance at January 1, 2021	$	13.6	$	(25.9)	$	(12.3)

Other comprehensive income before reclassifications	—		6.4		6.4
Amounts reclassified from accumulated other comprehensive loss to earnings	(0.8)		1.9		1.1
Net current period other comprehensive income / (loss)	(0.8)		8.3		7.5




Balance at December 31, 2021	12.8		(17.6)		(4.8)

Other comprehensive income before reclassifications	—		2.2		2.2
Amounts reclassified from accumulated other comprehensive loss to earnings	(0.8)		1.0		0.2
Net current period other comprehensive income / (loss)	(0.8)		3.2		2.4

Balance at December 31, 2022	$	12.0	$	(14.4)	$	(2.4)

Insurance and Claims Costs

In addition to insurance obtained from third-party providers, MVIC, a wholly-owned captive subsidiary of DPL, provides insurance coverage solely to us and our subsidiaries for workers’ compensation, general liability and property damage on an ongoing basis. Insurance and claims costs associated with MVIC include estimated liabilities of approximately $1.6 million and $2.3 million at December 31, 2022 and 2021, respectively, within Accrued and other current liabilities on the accompanying Consolidated Balance Sheets. DPL has estimated liabilities for medical, life, disability and other reserves for claims costs below certain coverage thresholds of third-party providers of approximately $7.8 million and $9.7 million at December 31, 2022 and 2021, respectively, within Accrued and other current liabilities and Other non-current liabilities on the accompanying Consolidated Balance Sheets. The estimated liabilities for workers’ compensation, medical, life and disability costs at DPL are actuarially determined using certain assumptions. There is uncertainty associated with these 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.

Revenue Recognition

Revenues are recognized from retail and wholesale electricity sales and electricity transmission and distribution delivery services. Revenue is recognized upon transfer of control of promised goods or services to customers in an amount that reflects the consideration to which we expect to be entitled in exchange for those goods or services. Energy sales to customers are based on the reading of their meters that occurs on a systematic basis throughout the month. We recognize the revenues on our Consolidated Statements of Operations 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. At the end of each month, unbilled revenues are determined by the estimation of unbilled energy provided to customers since the date of the last meter reading, estimated line losses, the assignment of unbilled energy provided to customer classes and the average rate per customer class. For additional information, see Note 13 – REVENUES.

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. AES Ohio’s excise taxes and certain other taxes are accounted for on a net basis and recorded as a reduction in revenues in the accompanying Consolidated Statements of Operations. The amounts of such taxes were as follows:


	Years ended December 31,
$ in millions	2022		2021		2020
Excise taxes collected	$	49.2	$	48.7	$	48.1

Repairs and Maintenance

Costs associated with maintenance activities 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 capitalized or expensed based on defined units of property.

Pension and Postretirement Benefits

We recognize in our Consolidated Balance Sheets an asset or liability reflecting the funded status of pension and other postretirement plans with current-year changes from actuarial gains or losses related to our regulated operations, which would otherwise be recognized in AOCL, recorded as a regulatory asset as this can be recovered through future rates. Such changes that are not related to our regulated operations are recognized in AOCL. All plan assets are recorded at fair value. We follow the measurement date provisions of the accounting guidance, which require a year-end measurement date of plan assets and obligations for all defined benefit plans.

We account for and disclose pension and postretirement benefits in accordance with the provisions of GAAP relating to the accounting for pension and other postretirement plans. These GAAP provisions require the use of assumptions, such as the discount rate for liabilities and long-term rate of return on assets, in determining the obligations, annual cost and funding requirements of the plans. Consistent with the requirements of ASC 715 - Compensation - Retirement Benefits, we apply a disaggregated discount rate approach for determining service cost and interest cost for our defined benefit pension plans and postretirement plans.

See Note 8 – BENEFIT PLANS for more information.

Income Taxes

Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the consolidated financial statement carrying amounts of the existing assets and liabilities and their respective income tax bases. We establish an allowance when it is more likely than not that all or a portion of a deferred tax asset will not be realized. Our tax positions are evaluated under a more likely than not recognition threshold and measurement analysis before they are recognized for consolidated financial statement reporting. Uncertain tax positions have been classified as noncurrent income tax liabilities unless expected to be paid within one year. Our policy for interest and penalties is to recognize interest and penalties as a component of the provision for income taxes in the Consolidated Statements of Operations.

Income taxes payable, which are includable in allowable costs for ratemaking purposes in future years, are recorded as regulatory assets or liabilities with a corresponding deferred tax liability or asset. Investment tax credits that reduced federal income taxes in the years they arose have been deferred and are being amortized to income over the useful lives of the properties in accordance with regulatory treatment. See Note 2 – REGULATORY MATTERS for additional information.

DPL and its subsidiaries file U.S. federal income tax returns as part of the consolidated U.S. income tax return filed by AES. The consolidated tax liability is allocated to each subsidiary based on the separate return method which is specified in our tax allocation agreement and which provides a consistent, systematic and rational approach. See Note 7 – INCOME TAXES for additional information.

Related Party Transactions

In the normal course of business, DPL enters into transactions with related parties. All material intercompany accounts and transactions are eliminated in DPL’s Consolidated Financial Statements. See Note 11 – RELATED PARTY TRANSACTIONS for more information on Related Party Transactions.

In addition to the obligations under the note payable mentioned above, DPL also agreed to a security obligation, which represents a full and unconditional guarantee of payments to the capital security holders of the Master Trust.

Discontinued Operations

Discontinued operations reporting occurs only when the disposal of a business or a group of assets represents a strategic shift that has (or will have) a major effect on our operations and financial results. We report financial results for discontinued operations separately from continuing operations to distinguish the financial impact of disposal transactions from ongoing operations. Prior period amounts in the Consolidated Statements of Operations and Consolidated Balance Sheets are retrospectively revised to reflect the businesses determined to be discontinued operations. The cash flows of businesses that are determined to be discontinued operations are included within the relevant categories within operating, investing and financing activities on the face of the Consolidated Statements of Cash Flows.

Transactions between the businesses determined to be discontinued operations and businesses that are expected to continue to exist after the disposal are not eliminated to appropriately reflect the continuing operations and balances held-for-sale. The results of discontinued operations include any gain or loss recognized on closing or adjustment of the carrying amount to fair value. See Note 14 – DISCONTINUED OPERATIONS for further information.

New accounting pronouncements

The following table provides a brief description of recent accounting pronouncements that had an impact on our consolidated financial statements. Accounting pronouncements not listed below were assessed and determined to be either not applicable or did not have a material impact on our Consolidated Financial Statements.


Accounting Standard	Description	Date of Adoption	Effect on the financial statements upon adoption
New Accounting Standards Adopted
2020-04 and 2021-01 and 2022-06 Reference Rate Reform (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, 2024).	Effective for all entities as of March 12, 2020 through December 31, 2024.	We adopted this standard on a prospective basis and it did not have a material impact on the Consolidated Financial Statements.

Adoption of ASC Topic 326 -, Financial Instruments - Credit Losses

On January 1, 2020, we adopted ASC 326 Financial Instruments - Credit Losses and its subsequent corresponding updates ("ASC 326"). The new standard updates the impairment model for financial assets measured at amortized cost, known as the Current Expected Credit Loss ("CECL") model. For trade and other receivables, held-to-maturity debt securities, loans and other instruments, entities are required to use a new forward-looking "expected loss" model that generally results in the earlier recognition of an allowance for credit losses. For available-for-sale debt securities with unrealized losses, entities measure credit losses as it was done under previous GAAP, except that unrealized losses due to credit-related factors are now recognized as an allowance on the balance sheet with a corresponding adjustment to earnings in the income statement.

We applied the modified retrospective method of adoption for ASC 326. Under this transition method, we applied the transition provisions starting at the date of adoption. The CECL model primarily impacts the calculation of our expected credit losses in gross customer trade accounts receivable. The adoption of ASC 326 and the application of CECL on our trade accounts receivable did not have a material impact on our Consolidated Financial Statements.

THE DAYTON POWER AND LIGHT COMPANY [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 consumers the right to choose the electric generation supplier from whom they purchase retail generation service; however, transmission and distribution services are still regulated. AES Ohio has the exclusive right to provide such service to its approximately 536,000 customers located in West Central Ohio. 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. AES Ohio owned interests in the retired Hutchings Coal Station until its transfer in 2020 and currently owns numerous transmission facilities. 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 also sells its proportional share of energy and capacity from its investment in OVEC into the wholesale market. AES Ohio has only 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 and the historical results of AES Ohio’s retired Hutchings Coal Station, which was sold in 2020. The terms “we,” “us,” “our” and “ours” are used to refer to AES Ohio.

Financial Statement Presentation

AES Ohio does not have any subsidiaries. We have evaluated subsequent events through the date this report is issued.

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

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 revenues 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 revenues; the valuation of allowances for receivables 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 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.

Restricted Cash

Restricted cash includes cash which is restricted as to withdrawal or usage. The restrictions relate to cash required for certain balance requirements.

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


	December 31,
$ in millions	2022		2021
Cash and cash equivalents	$	19.7	$	14.4
Restricted cash (included in Prepayments and other current assets)	0.1		0.1
Cash, Cash Equivalents and Restricted Cash, End of Period	$	19.8	$	14.5

Accounts Receivable and Allowance for Credit Losses

The following table summarizes accounts receivable as of December 31, 2022 and 2021:


	December 31,
$ in millions	2021		2020
Accounts receivable, net
Customer receivables	$	60.6	$	41.6
Unbilled revenues	24.0		19.2
Amounts due from affiliates	4.4		4.4
Other	3.8		7.0
Allowance for credit losses	(0.5)		(0.3)
Total accounts receivable, net	$	92.3	$	71.9

The following table is a rollforward of our allowance for credit losses related to the accounts receivable balances for the years ended December 31, 2022 and 2021:


$ in millions	Beginning Allowance Balance		Current Period Provision		Write-offs Charged Against Allowance		Recoveries Collected		Ending Allowance Balance
2022	$	0.3	$	2.5	$	(4.1)	$	1.8	$	0.5
2021	$	2.8	$	(0.4)	$	(3.5)	$	1.4	$	0.3

Inventories

Inventories are carried at average cost, net of reserves, and include materials and supplies used for utility operations.

Regulatory Accounting

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 for more information.

Property, Plant and Equipment

New property, plant and equipment additions are stated at cost. For regulated transmission and distribution property, cost includes direct labor and material, allocable overhead expenses and AFUDC. AFUDC represents the cost of borrowed funds and equity used to finance regulated construction projects. Capitalization of AFUDC and interest ceases at either project completion or at the date specified by regulators. AFUDC and capitalized interest was $7.0 million, $3.7 million and $3.0 million in the years ended December 31, 2022, 2021 and 2020, respectively.

Impairment of Long-lived Assets

GAAP requires that we test long-lived assets for impairment when indicators of impairment exist. If an asset is deemed to be impaired, we are required to write down the asset to its fair value with a charge to current earnings. The net book value of our property, plant, and equipment was $1,861.5 million and $1,679.2 million as of December 31, 2022 and 2021, respectively. We do not believe any of these assets are currently impaired. In making this assessment, we consider such factors as: the overall condition and distribution capacity of the assets; the expected ability to recover additional expenditures in the assets; and the anticipated demand and relative pricing of retail electricity in our service territory.

Depreciation

Depreciation expense is calculated using the straight-line method, which allocates the cost of property over its estimated useful life. For AES Ohio’s transmission and distribution assets, straight-line depreciation is applied monthly on an average composite basis using group rates that approximated 2.8% in 2022, 2.8% in 2021 and 2.8% in 2020. Depreciation expense was $75.6 million, $71.6 million and $68.6 million for the years ended December 31, 2022, 2021 and 2020, respectively.

Intangibles


			December 31,
$ in millions			2022		2021
Capitalized software			$	101.5	$	61.6

Accumulated amortization			$	(34.3)	$	(31.1)

	Years ended December 31,
	2022		2021		2020
Amortization expense	$	3.1	$	3.0	$	3.2

Estimated future amortization
Years ending December 31,
2023					$	2.8
2024					2.8
2025					2.4
2026					2.0
2027					1.1
Total					$	11.1

Implementation Costs Related to Software as a Service

AES Ohio has recorded prepayments for implementation costs related to software as a service in support of utility customer services of $12.5 million and $8.0 million as of December 31, 2022 and 2021, respectively, and these are recorded within Other non-current assets on the accompanying Balance Sheets.

Debt Issuance Costs

Financial Instruments

Financial Derivatives

Accumulated other comprehensive loss

The amounts reclassified out of Accumulated other comprehensive loss by component during the years ended December 31, 2022, 2021 and 2020 are as follows:


Details about AOCL Components	Affected line in the Statements of Operations	Years ended December 31,
$ in millions		2022		2021		2020






Gains and losses on cash flow hedges:
	Interest expense	$	—	$	—	$	(0.2)

	Income tax effect	—		—		0.8
	Net of income taxes	—		—		0.6





Amortization of unfunded pension and other postretirement obligations (Note 7):
	Other expense	3.6		5.0		4.0
	Income tax effect	(0.9)		(1.1)		(0.9)
	Net of income taxes	2.7		3.9		3.1

Total reclassifications for the period, net of income taxes		$	2.7	$	3.9	$	3.7

The changes in the components of Accumulated other comprehensive loss during the years ended December 31, 2022 and 2021 are as follows:


$ in millions	Change in Accumulated other comprehensive loss
Balance at January 1, 2021	$	(42.1)

Other comprehensive income before reclassifications	6.4
Amounts reclassified from accumulated other comprehensive loss to earnings	3.9
Net current period other comprehensive income	10.3



Balance at December 31, 2021	(31.8)

Other comprehensive income before reclassifications	2.3
Amounts reclassified from accumulated other comprehensive loss to earnings	2.7
Net current period other comprehensive income	5.0

Balance at December 31, 2022	$	(26.8)

Insurance and Claims Costs

In addition to insurance obtained from third-party providers, MVIC, a wholly-owned captive subsidiary of DPL, provides insurance coverage solely to us and other DPL subsidiaries for workers’ compensation, general liability and property damage on an ongoing basis. AES Ohio is responsible for claims costs below certain coverage thresholds of MVIC and third-party insurers for the insurance coverage noted above. AES Ohio has estimated liabilities for medical, life, disability and other reserves for claims costs below certain coverage thresholds of third-party providers of approximately $3.2 million and $3.4 million at December 31, 2022 and 2021, respectively, within Accrued and other current liabilities and Other non-current liabilities on the accompanying Balance Sheets. The estimated liabilities for workers’ compensation, medical, life and disability costs at AES Ohio are actuarially determined using certain assumptions. There is uncertainty associated with these 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.

Revenue Recognition

Revenues are recognized from retail and wholesale electricity sales and electricity transmission and distribution delivery services. Revenue is recognized upon transfer of control of promised goods or services to customers in an amount that reflects the consideration to which we expect to be entitled in exchange for those goods or services. Energy sales to customers are based on the reading of their meters that occurs on a systematic basis throughout the month. We recognize the revenues on our Statements of Operations 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. At the end of each month, unbilled revenues are determined by the estimation of unbilled energy provided to customers since the date of the last meter reading, estimated line losses, the assignment of unbilled energy provided to customer classes and the average rate per customer class. For additional information, see Note 11 – REVENUES.

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. AES Ohio’s excise taxes and certain other taxes are accounted for on a net basis and recorded as a reduction in revenues in the accompanying Statements of Operations. The amounts of such taxes were as follows:


	Years ended December 31,
$ in millions	2022		2021		2020
Excise taxes collected	$	49.2	$	48.7	$	48.1

Repairs and Maintenance

Pension and Postretirement Benefits

We recognize in our Balance Sheets an asset or liability reflecting the funded status of pension and other postretirement plans with current-year changes from actuarial gains or losses related to our regulated operations, which would otherwise be recognized in AOCL, recorded as a regulatory asset as this can be recovered through future rates. Such changes that are not related to our regulated operations are recognized in AOCL. All plan assets are recorded at fair value. We follow the measurement date provisions of the accounting guidance, which require a year-end measurement date of plan assets and obligations for all defined benefit plans.

See Note 7 – BENEFIT PLANS for more information.

Income Taxes

Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of the existing assets and liabilities and their respective income tax bases. We establish an allowance when it is more likely than not that all or a portion of a deferred tax asset will not be realized. Our tax positions are evaluated under a more likely than not recognition threshold and measurement analysis before they are recognized for financial statement reporting. Uncertain tax positions have been classified as noncurrent income tax liabilities unless expected to be paid within one year. Our policy for interest and penalties is to recognize interest and penalties as a component of the provision for income taxes in the Statements of Operations.

AES Ohio files U.S. federal income tax returns as part of the consolidated U.S. income tax return filed by AES. The consolidated tax liability is allocated to each subsidiary based on the separate return method which is specified in our tax allocation agreement and which provides a consistent, systematic and rational approach. See Note 6 – INCOME TAXES for additional information.

Related Party Transactions

In the normal course of business, AES Ohio enters into transactions with other subsidiaries of DPL or AES. See Note 10 – RELATED PARTY TRANSACTIONS for more information on Related Party Transactions.

New accounting pronouncements

The following table provides a brief description of recent accounting pronouncements that had an impact on our financial statements. Accounting pronouncements not listed below were assessed and determined to be either not applicable or did not have a material impact on our Financial Statements.


Accounting Standard	Description	Date of Adoption	Effect on the financial statements upon adoption
New Accounting Standards Adopted
2020-04 and 2021-01 and 2022-06 Reference Rate Reform (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, 2024).	Effective for all entities as of March 12, 2020 through December 31, 2024.	We adopted this standard on a prospective basis and it did not have a material impact on the Financial Statements.

Adoption of ASC Topic 326 -, Financial Instruments - Credit Losses