Contractual Obligations, Commercial Commitments and Contingencies

12 Months Ended

Dec. 31, 2015

Contractual Obligations, Commercial Commitments and Contingencies

Note 12 – Contractual Obligations, Commercial Commitments and Contingencies

DPL – Guarantees

In the normal course of business, DPL enters into various agreements with its wholly-owned subsidiaries, DPLE and DPLER, providing financial or performance assurance to third parties. These agreements are entered into primarily to support or enhance the creditworthiness otherwise attributed to these subsidiaries on a stand-alone basis, thereby facilitating the extension of sufficient credit to accomplish these subsidiaries’ intended commercial purposes.

At December 31, 2015, DPL had $17.3 million of guarantees on behalf of DPLE to third parties for future financial or performance assurance under such agreements. In addition, DPL had $1.9 million of guarantees on behalf of DPLER which were released in January 2016 as a result of the sale of DPLER. The guarantee arrangements entered into by DPL with these third parties cover present and future obligations of DPLE and present obligations of DPLER to such beneficiaries and are terminable at any time by DPL upon written notice to the beneficiaries. All guarantees on behalf of DPLER were terminated in January 2016. The carrying amount of obligations for commercial transactions covered by these guarantees and recorded in our Consolidated Balance Sheets was $0.5 million and $1.6 million at December 31, 2015 and 2014, respectively.

To date, DPL has not incurred any losses related to these guarantees and we believe it is remote that DPL would be required to perform or incur any losses in the future associated with any of the above guarantees.

Equity Ownership Interest

DP&L has a 4.9% equity ownership interest in an electric generation company which is recorded using the cost method of accounting under GAAP. At December 31, 2015, DP&L could be responsible for the repayment of 4.9%, or $74.5 million, of a $1,519.9 million debt obligation comprised of both fixed and variable rate securities with maturities between 2016 and 2040. This would only happen if this electric generation company defaulted on its debt payments. At December 31, 2015, we have no knowledge of such a default.

Contractual Obligations and Commercial Commitments

We enter into various contractual obligations and other commercial commitments that may affect the liquidity of our operations. At December 31, 2015, these include:

	Payments due in:
$ in millions	Total	Less than 1 year	2 - 3 years	4 - 5 years	More than 5 years
DPL:
Coal contracts (a)	374.2	186.9	187.3	—	—
Purchase orders and other contractual obligations	83.8	24.4	30.0	29.4	—

(a) Total at DP&L operated units.

Coal contracts:

DPL, through its principal subsidiary DP&L, has entered into various long-term coal contracts to supply the coal requirements for the generating stations it operates. At December 31, 2015, 73% of our future committed coal obligations are with a single supplier. Some contract prices are subject to periodic adjustment and have features that limit price escalation in any given year.

Purchase orders and other contractual obligations:

At December 31, 2015, DPL had various other contractual obligations, including non-cancelable contracts, to purchase goods and services with various terms and expiration dates.

Contingencies

In the normal course of business, we are subject to various lawsuits, actions, proceedings, claims and other matters asserted under laws and regulations. We believe the amounts provided in our Consolidated Financial Statements, as prescribed by GAAP, are adequate in light of the probable and estimable contingencies. However, there can be no assurances that the actual amounts required to satisfy alleged liabilities from various legal proceedings, claims, tax examinations, and other matters, including the matters discussed below, and to comply with applicable laws and regulations, will not exceed the amounts reflected in our Consolidated Financial Statements. As such, costs, if any, that may be incurred in excess of those amounts provided as of December 31, 2015, cannot be reasonably determined.

Environmental Matters

DPL’s and DP&L’s facilities and operations are subject to a wide range of federal, state and local environmental regulations and laws. The environmental issues that may affect us include:

• The federal CAA and state laws and regulations (including SIPs) which require compliance, obtaining permits and reporting as to air emissions,

• Litigation with federal and certain state governments and certain special interest groups regarding whether modifications to or maintenance of certain coal-fired generating stations require additional permitting or pollution control technology, or whether emissions from coal-fired generating stations cause or contribute to global climate changes,

• Rules and future rules issued by the USEPA and the Ohio EPA that require substantial reductions in SO₂, particulates, mercury, acid gases, NO_X, and other air emissions. DP&L has installed emission control technology and is taking other measures to comply with required and anticipated reductions,

• Rules and future rules issued by the USEPA and the Ohio EPA that require reporting and reductions of GHGs,

• Rules and future rules issued by the USEPA associated with the federal Clean Water Act, which prohibits the discharge of pollutants into waters of the United States except pursuant to appropriate permits, and

• Solid and hazardous waste laws and regulations, which govern the management and disposal of certain waste. The majority of solid waste created from the combustion of coal and fossil fuels is fly ash and other coal combustion by-products.

In addition to imposing continuing compliance obligations, these laws and regulations authorize the imposition of substantial penalties for noncompliance, including fines, injunctive relief and other sanctions. In the normal course of business, we have investigatory and remedial activities underway at our facilities to comply, or to determine compliance, with such regulations. We record liabilities for loss contingencies related to environmental matters when a loss is probable of occurring and can be reasonably estimated in accordance with the provisions of GAAP. Accordingly, we have accruals for loss contingencies of approximately$0.9 million for environmental matters. We also have a number of environmental matters for which we have not accrued loss contingencies because the risk of loss is not probable or a loss cannot be reasonably estimated. We evaluate the potential liability related to environmental matters quarterly and may revise our estimates. Such revisions in the estimates of the potential liabilities could have a material adverse effect on our results of operations, financial condition or cash flows.

We have several pending environmental matters associated with our coal-fired generation units. Some of these matters could have material adverse impacts on the operation of the power stations.

THE DAYTON POWER AND LIGHT COMPANY [Member]

Contractual Obligations, Commercial Commitments and Contingencies

Note 11 – Contractual Obligations, Commercial Commitments and Contingencies

DP&L – Equity Ownership Interest

DP&L has a 4.9% equity ownership interest in an electric generation company which is recorded using the cost method of accounting under GAAP. At December 31, 2015, DP&L could be responsible for the repayment of 4.9%, or $74.5 million, of a $1,519.9 million debt obligation comprised of both fixed and variable rate securities with maturities between 2016 and 2040. This would only happen if this electric generation company defaulted on its debt payments. At December 31, 2015, we have no knowledge of such a default.

Contractual Obligations and Commercial Commitments

We enter into various contractual obligations and other commercial commitments that may affect the liquidity of our operations. At December 31, 2015, these include:

	Payments due in:
$ in millions	Total	Less than 1 year	2 - 3 years	4 - 5 years	More than 5 years
DP&L:
Coal contracts (a)	374.2	186.9	187.3	—	—
Purchase orders and other contractual obligations	83.8	24.4	30.0	29.4	—

(a) Total at DP&L operated units.

Coal contracts:

DP&L has entered into various long-term coal contracts to supply the coal requirements for the generating stations it operates. At December 31, 2015, 73% of our future committed coal obligations are with a single supplier. Some contract prices are subject to periodic adjustment and have features that limit price escalation in any given year.

Purchase orders and other contractual obligations:

At December 31, 2015, DP&L had various other contractual obligations, including non-cancelable contracts, to purchase goods and services with various terms and expiration dates.

Contingencies

In the normal course of business, we are subject to various lawsuits, actions, proceedings, claims and other matters asserted under laws and regulations. We believe the amounts provided in our Financial Statements, as prescribed by GAAP, are adequate in light of the probable and estimable contingencies. However, there can be no assurances that the actual amounts required to satisfy alleged liabilities from various legal proceedings, claims, tax examinations, and other matters, including the matters discussed below, and to comply with applicable laws and regulations, will not exceed the amounts reflected in our Financial Statements. As such, costs, if any, that may be incurred in excess of those amounts provided as of December 31, 2015, cannot be reasonably determined.

Environmental Matters

DP&L’s facilities and operations are subject to a wide range of federal, state and local environmental regulations and laws. The environmental issues that may affect us include:

• The federal CAA and state laws and regulations (including SIPs) which require compliance, obtaining permits and reporting as to air emissions,

• Litigation with federal and certain state governments and certain special interest groups regarding whether modifications to or maintenance of certain coal-fired generating stations require additional permitting or pollution control technology, or whether emissions from coal-fired generating stations cause or contribute to global climate changes,

• Rules and future rules issued by the USEPA and the Ohio EPA that require substantial reductions in SO₂, particulates, mercury, acid gases, NO_X, and other air emissions. DP&L has installed emission control technology and is taking other measures to comply with required and anticipated reductions,

• Rules and future rules issued by the USEPA and the Ohio EPA that require reporting and reductions of GHGs,

• Rules and future rules issued by the USEPA associated with the federal Clean Water Act, which prohibits the discharge of pollutants into waters of the United States except pursuant to appropriate permits, and

• Solid and hazardous waste laws and regulations, which govern the management and disposal of certain waste. The majority of solid waste created from the combustion of coal and fossil fuels is fly ash and other coal combustion by-products.

In addition to imposing continuing compliance obligations, these laws and regulations authorize the imposition of substantial penalties for noncompliance, including fines, injunctive relief and other sanctions. In the normal course of business, we have investigatory and remedial activities underway at our facilities to comply, or to determine compliance, with such regulations. We record liabilities for loss contingencies related to environmental matters when a loss is probable of occurring and can be reasonably estimated in accordance with the provisions of GAAP. Accordingly, we have accruals for loss contingencies of approximately$0.9 million for environmental matters. We also have a number of environmental matters for which we have not accrued loss contingencies because the risk of loss is not probable or a loss cannot be reasonably estimated. We evaluate the potential liability related to environmental matters quarterly and may revise our estimates. Such revisions in the estimates of the potential liabilities could have a material adverse effect on our results of operations, financial condition or cash flows.

We have several pending environmental matters associated with our coal-fired generation units. Some of these matters could have material adverse impacts on the operation of the power stations.