Regulatory Assets and Liabilities

12 Months Ended

Dec. 31, 2016

Regulatory Matters

DP&L originally filed its ESP 3 seeking an effective date of January 1, 2017. On October 11, 2016, DP&L amended the application requesting to collect $145.0 million per year for seven years supporting the alternative described in the original filing, named the Distribution Modernization Rider. This plan establishes the terms and conditions for DP&L’s SSO to customers that do not choose a competitive retail electric supplier. In its plan, DP&L recommends including renewable energy attributes as part of the product that is competitively bid, and seeks recovery of approximately $10.5 million of regulatory assets. The plan also proposes a new Distribution Investment Rider to allow DP&L to recover costs associated with future distribution equipment and infrastructure needs. Additionally, the plan establishes new riders set initially at zero, related to energy reductions from DP&L’s energy efficiency programs, and certain environmental liabilities DP&L may incur.

On January 30, 2017, DP&L, in conjunction with nine intervening parties, filed a settlement in the ESP 3 case, which is subject to PUCO approval. DP&L and the intervening parties agreed to a six-year settlement that provides a framework for energy rates and defines components which include, but are not limited to, the following:


•	The establishment of a five-year Distribution Modernization Rider designed to collect $90.0 million in revenue per year to pay debt obligations at DPL and DP&L and position DP&L to modernize and/or maintain its transmission and distribution infrastructure;


•	The establishment of a Distribution Investment Rider for distribution investments, with one component designed to collect $35.0 million in revenue per year to enable the implementation of smart grid and advanced metering ending after the fifth year of the term of the ESP;


•	A commitment by us to separate DP&L’s generation assets from its transmission and distribution assets (if approved by FERC);


•	A commitment to commence a sale process to sell our ownership interests in the Zimmer, Miami Fort and Conesville coal-fired generation plants;


•	A commitment to develop or procure wind and/or solar energy projects in Ohio; and


•	Restrictions on DPL making dividend or tax sharing payments, and various other riders and competitive retail market enhancements.

A hearing on the stipulation has been scheduled for March 8, 2017. A final decision by the PUCO is expected at the end of the second quarter or early in the third quarter of 2017. If the PUCO agrees to the proposed settlement, the average residential customer in the DP&L service territory, using 1,000 kWh on DP&L's SSO, can expect a monthly bill increase of $2.39. There can be no assurance that the ESP 3 stipulation will be approved as filed or on a timely basis, and if the ESP 3 stipulation is not approved on a timely basis or if the final ESP provides for terms that are more adverse than those submitted in DP&L's stipulation, our results of operations, financial condition and cash flows and DPL's ability to meet long-term obligations, in the periods beyond twelve months from the date of this report, could be materially impacted.

In connection with any sale or exiting of our generation plants as contemplated by the ESP settlement or otherwise, DPL and DP&L would expect to incur certain cash and non-cash charges, some or all of which could be material to the business and financial condition of DPL and DP&L.

Regulatory assets and liabilities

In accordance with FASC 980, we have recognized total regulatory assets of $204.0 million and $194.3 million at December 31, 2016 and 2015, respectively, and total regulatory liabilities of $164.1 million and $151.4 million at December 31, 2016 and 2015, 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:



			December 31,
$ in millions	Type of Recovery	Amortization Through	2016		2015
Regulatory assets, current:
Fuel and purchased power recovery costs	A	2016	$	—	$	13.9
Economic development costs	A	2017	0.1		0.5
Total regulatory assets, current			0.1		14.4
Regulatory assets, non-current:
Pension benefits	B	Ongoing	97.6		91.6
Deferred recoverable income taxes	B/C	Ongoing	35.9		36.4
Unrecovered OVEC charges	D	Undetermined	21.0		10.5
Fuel costs	B	Undetermined	15.4		12.7
Unamortized loss on reacquired debt	B	Various	8.0		9.0
Smart grid and advanced metering infrastructure costs	D	Undetermined	7.3		7.3
Rate case costs	D	Undetermined	6.3		1.9
Generation separation costs	D	Undetermined	5.7		3.9
Retail settlement system costs	D	Undetermined	3.1		3.1
Consumer education campaign	D	Undetermined	3.0		3.0
Other miscellaneous	D	Undetermined	0.6		0.5
Total regulatory assets, non-current			203.9		179.9

Total regulatory assets			$	204.0	$	194.3

Regulatory liabilities, current:
Competitive bidding			$	16.1	$	9.1
Energy efficiency program			14.1		9.2
Transmission costs			3.3		3.7
Reconciliation rider			—		2.1
Other miscellaneous			0.2		0.3
Total regulatory liabilities, current			33.7		24.4
Regulatory liabilities, non-current:
Estimated costs of removal - regulated property			126.5		121.8
Postretirement benefits			3.9		5.2
Total regulatory liabilities, non-current			130.4		127.0

Total regulatory liabilities			$	164.1	$	151.4

A – Recovery of incurred costs plus rate of return.

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

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

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

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. This rider was discontinued in 2016 and the remaining balance was transferred to the Competitive Bid True-up rider.

Fuel costs - long term represent unrecovered fuel costs related to DP&L’s fuel rider from 2010 through 2015 resulting from a declining SSO customer base. DP&L has requested recovery of these costs as part of its pending Distribution Rate Case filing.

Economic development costs represent costs incurred to promote economic development within the State of Ohio. These costs are being recovered through an Economic Development Rider that is subject to a bi-annual true-up process for any over/under recovery of costs.

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 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.

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.

Unrecovered OVEC charges includes the portion of charges from OVEC that were not recoverable through DP&L’s fuel rider beginning in October 2014. Because the fuel rider was discontinued in 2016, all OVEC costs, net of OVEC revenues received through PJM, are now deferred into this asset. DP&L expects to recover these costs through a future rate proceeding.

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 FERC and PUCO rules.

Smart Grid and AMI costs represent costs incurred as a result of studying and developing distribution system upgrades and the 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. This plan is currently under development and we plan to seek recover of these deferred costs in a regulatory rate proceeding in the near future. Based on past PUCO precedent, we believe these costs are probable of future recovery in rates.

Rate case costs represent costs associated with preparing a distribution rate case. DP&L has requested recovery of these costs as part of its pending distribution rate case filing.

Generation separation costs represent financing, redemption and other costs related to the divestiture of DP&L’s generation assets. The PUCO directed DP&L to divest its generation assets by January 1, 2017. DP&L requested and was granted permission by the PUCO to defer all financing, redemption and related costs it incurs to transfer its generation assets. DP&L has requested recovery of these costs as part of its pending distribution rate case filing.

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. DP&L has requested recovery of these costs as part of its pending Distribution Rate Case filing.

Consumer education campaign represents costs for consumer education advertising regarding electric deregulation. DP&L has requested recovery of these costs as part of its pending distribution rate case filing.

Regulatory liabilities

Competitive bidding represents costs associated with the development and implementation of a competitive bidding process, establishing contracts to supply power for DP&L’s SSO load, as well as the net over/under recovery of the cost of the power purchased from the bid winners.

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. In addition to recovery of program costs, this rider has allowed for DP&L to recover lost margin associated with decreases in sales as a result of the programs implemented. The authority to recover lost margin included a maximum amount, which DP&L reached in the fourth quarter of 2015. Consequently, we discontinued accruing an asset for lost revenues after the maximum was reached. On December 13, 2016 DP&L filed its Energy Efficiency portfolio case with the PUCO that specifies, among other things, that DP&L can collect lost distribution revenues for 2016 and going forward through the EER. The amount of lost revenues earned and accrued in 2016 is $20.1 million. Based on multiple parties’ agreement and past PUCO precedent on the treatment of lost distribution revenues for other utilities, it is probable, but not certain, DP&L will recover this amount. In addition, this rider provides that DP&L can earn a “shared savings” incentive that is tiered depending upon the level of success the programs reach. In 2015 and 2016, the maximum shared savings was accrued based upon performance, which is equal to $4.5 million after income taxes.

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.

Reconciliation rider represents the costs that exceed 10 percent of the base amount of the following riders: Fuel, RPM, Alternative Energy and Competitive Bidding. This rider is in an overcollection position and will be discontinued after this overcollection has been refunded to customers.

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.

THE DAYTON POWER AND LIGHT COMPANY [Member]

Regulatory Assets [Line Items]

Regulatory Assets and Liabilities

Regulatory Matters


•	The establishment of a five-year Distribution Modernization Rider designed to collect $90.0 million in revenue per year to pay debt obligations at DPL and DP&L and position DP&L to modernize and/or maintain its transmission and distribution infrastructure;


•	The establishment of a Distribution Investment Rider for distribution investments, with one component designed to collect $35.0 million in revenue per year to enable the implementation of smart grid and advanced metering ending after the fifth year of the term of the ESP;


•	A commitment by us to separate DP&L’s generation assets from its transmission and distribution assets (if approved by FERC);


•	A commitment to commence a sale process to sell our ownership interests in the Zimmer, Miami Fort and Conesville coal-fired generation plants;


•	A commitment to develop or procure wind and/or solar energy projects in Ohio; and


•	Restrictions on DPL making dividend or tax sharing payments, and various other riders and competitive retail market enhancements.

A hearing on the stipulation has been scheduled for March 8, 2017. A final decision by the PUCO is expected at the end of the second quarter or early in the third quarter of 2017. If the PUCO agrees to the proposed settlement, the average residential customer in the DP&L service territory, using 1,000 kWh on DP&L's SSO, can expect a monthly bill increase of $2.39. There can be no assurance that the ESP 3 stipulation will be approved as filed or on a timely basis, and if the ESP 3 stipulation is not approved on a timely basis or if the final ESP provides for terms that are more adverse than those submitted in DP&L's stipulation, our results of operations, financial condition and cash flows and our ability to meet long-term obligations, in the periods beyond twelve months from the date of this report, could be materially impacted.

Regulatory assets and liabilities

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



			December 31,
$ in millions	Type of Recovery	Amortization Through	2016		2015
Regulatory assets, current:
Fuel and purchased power recovery costs	A	2016	$	—	$	13.9
Economic development costs	A	2017	0.1		0.5
Total regulatory assets, current			0.1		14.4
Regulatory assets, non-current:
Pension benefits	B	Ongoing	97.6		91.6
Deferred recoverable income taxes	B/C	Ongoing	35.9		36.4
Unrecovered OVEC charges	D	Undetermined	21.0		10.5
Fuel costs	B	Undetermined	15.4		12.7
Unamortized loss on reacquired debt	B	Various	8.0		9.0
Smart grid and advanced metering infrastructure costs	D	Undetermined	7.3		7.3
Rate case costs	D	Undetermined	6.3		1.9
Generation separation costs	D	Undetermined	5.7		3.9
Retail settlement system costs	D	Undetermined	3.1		3.1
Consumer education campaign	D	Undetermined	3.0		3.0
Other miscellaneous	D	Undetermined	0.6		0.5
Total regulatory assets, non-current			203.9		179.9

Total regulatory assets			$	204.0	$	194.3

Regulatory liabilities, current:
Competitive bidding			$	16.1	$	9.1
Energy efficiency program			14.1		9.2
Transmission costs			3.3		3.7
Reconciliation rider			—		2.1
Other miscellaneous			0.2		0.3
Total regulatory liabilities, current			33.7		24.4
Regulatory liabilities, non-current:
Estimated costs of removal - regulated property			126.5		121.8
Postretirement benefits			3.9		5.2
Total regulatory liabilities, non-current			130.4		127.0

Total regulatory liabilities			$	164.1	$	151.4

A – Recovery of incurred costs plus rate of return.

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

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

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

Regulatory assets

Rate case costs represent costs associated with preparing a distribution rate case. DP&L has requested recovery of these costs as part of its pending distribution rate case filing.

Regulatory liabilities