Income Taxes

12 Months Ended

Dec. 31, 2016

Income Taxes [Line Items]

Income Taxes

Income Taxes

DPL’s components of income tax expense on continuing operations were as follows:

	Years ended December 31,
$ in millions	2016			2015			2014
Computation of tax expense / (benefit)
Federal income tax expense / (benefit)(a)	$	(277.6	)	$	(81.0	)	$	25.4
Increases (decreases) in tax resulting from:
State income taxes, net of federal effect	(1.0		)	(0.1		)	0.8
Depreciation of AFUDC - Equity	2.7			(3.5		)	(3.4		)
Investment tax credit amortized	(0.4		)	(0.5		)	(0.5		)
Section 199 - domestic production deduction	(4.5		)	(4.1		)	(1.1		)
Non-deductible goodwill impairment	—			111.0			—
Accrual (settlement) for open tax years	2.2			—			(6.6		)
Other, net (b)	(0.2		)	(1.8		)	0.8
Tax expense / (benefit)	$	(278.8	)	$	20.0		$	15.4
Components of tax expense / (benefit)
Federal - current	$	14.7		$	30.1		$	(5.2	)
State and Local - current	0.6			0.8			0.4
Total current	15.3			30.9			(4.8		)
Federal - deferred	(290.2		)	(9.9		)	19.6
State and local - deferred	(3.9		)	(1.0		)	0.6
Total deferred	(294.1		)	(10.9		)	20.2
Tax expense / (benefit)	$	(278.8	)	$	20.0		$	15.4

(a) The statutory tax rate of 35% was applied to pre-tax earnings.

(b) Includes expense of $(0.3) million, $0.2 million and $0.4 million in the years ended December 31, 2016, 2015, and 2014, respectively, of income tax related to adjustments from prior years.

Effective and Statutory Rate Reconciliation

The following table summarizes a reconciliation of the U.S. statutory federal income tax rate to DPL's effective tax rate, as a percentage of income from continuing operations before taxes for the years ended December 31, 2016, 2015 and 2014:

	Years ended December 31,
	2016		2015		2014
Statutory Federal tax rate	35.0	%	35.0	%	35.0	%
State taxes, net of Federal tax benefit	0.1	%	0.1	%	1.1	%
AFUDC - Equity	(0.3	)%	1.5	%	(4.7	)%
Amortization of investment tax credits	—	%	0.2	%	(0.7	)%
Section 199 - domestic production deduction	0.6	%	1.8	%	(1.6	)%
Non-deductible goodwill impairment	—	%	(48.0	)%	—	%
Other, net	(0.3	)%	0.8	%	(7.9	)%
Effective tax rate	35.1	%	(8.6	)%	21.2	%

Deferred Income Taxes

Deferred income taxes reflect the net tax effects of (a) temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes and (b) operating loss carryforwards. These items are stated at the enacted tax rates that are expected to be in effect when taxes are actually paid or recovered. Investment tax credits related to utility property have been deferred and are being amortized over the estimated useful lives of the related property.

Components of Deferred Tax Assets and Liabilities
	December 31,
$ in millions	2016			2015
Net non-current assets / (liabilities)
Depreciation / property basis	$	(255.3	)	$	(539.8	)
Income taxes recoverable	(11.9		)	(12.0		)
Regulatory assets	(7.8		)	(10.6		)
Investment tax credit	0.5			0.7
Compensation and employee benefits	5.5			3.1
Intangibles	(1.5		)	(8.4		)
Long-term debt	(0.7		)	(1.1		)
Other (a)	18.8			(0.6		)
Net non-current liabilities	$	(252.4	)	$	(568.7	)

(a) The Other caption includes deferred tax assets of $24.9 million in 2016 and $26.0 million in 2015 related to state and local tax net operating loss carryforwards, net of related valuation allowances of $3.3 million in 2016 and $17.2 million in 2015. These net operating loss carryforwards expire from 2017 to 2030.

The following table presents the tax expense / (benefit) related to pensions, postemployment benefits, cash flow hedges and financial instruments that were credited to Accumulated other comprehensive loss.

	Years ended December 31,
$ in millions	2016			2015		2014
Tax expense / (benefit)	$	(9.6	)	$	6.3	$	(9.1	)

Uncertain Tax Positions

We apply the provisions of GAAP relating to the accounting for uncertainty in income taxes. A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows:

$ in millions
Balance at December 31, 2014	$	3.0
Calendar 2015
Tax positions taken during prior period	—
Lapse of Statute of Limitations	—
Balance at December 31, 2015	3.0
Calendar 2016
Tax positions taken during prior period	2.2
Lapse of Statute of Limitations	(1.5		)
Balance at December 31, 2016	$	3.7

Of the December 31, 2016 balance of unrecognized tax benefits, $0.9 million is due to uncertainty in the timing of deductibility.

We recognize interest and penalties related to unrecognized tax benefits in Income tax expense. The amounts accrued as well as the expense / (benefit) recorded were not material for the years ended December 31, 2016, 2015 and 2014.

Following is a summary of the tax years open to examination by major tax jurisdiction:

U.S. Federal – 2011 and forward

State and Local – 2011 and forward

None of the unrecognized tax benefits are expected to significantly increase or decrease within the next twelve months other than those subject to expiring statute of limitations.

THE DAYTON POWER AND LIGHT COMPANY [Member]

Income Taxes [Line Items]

Income Taxes

Income Taxes

DP&L’s components of income tax expense were as follows:

	Years ended December 31,
$ in millions	2016			2015			2014
Computation of tax expense / (benefit)
Federal income tax expense / (benefit) (a)	$	(418.5	)	$	49.3		$	53.8
Increases (decreases) in tax resulting from:
State income taxes, net of federal effect	(5.0		)	0.4			1.2
Depreciation of AFUDC - Equity	3.3			(2.8		)	(2.7		)
Investment tax credit amortized	(2.3		)	(2.4		)	(2.5		)
Section 199 - domestic production deduction	(5.3		)	(6.1		)	(4.6		)
Accrual (settlement) for open tax years	3.4			—			(6.6		)
Other, net (b)	2.0			(3.3		)	1.1
Tax expense / (benefit)	$	(422.4	)	$	35.1		$	39.7
Components of tax expense / (benefit)
Federal - current	$	51.6		$	55.8		$	34.1
State and Local - current	0.6			0.8			0.5
Total current	52.2			56.6			34.6
Federal - deferred	(466.3		)	(21.0		)	4.1
State and local - deferred	(8.3		)	(0.5		)	1.0
Total deferred	(474.6		)	(21.5		)	5.1
Tax expense / (benefit)	$	(422.4	)	$	35.1		$	39.7

(a) The statutory tax rate of 35% was applied to pre-tax earnings.

(b) Includes expense of $2.9 million, expense of $0.4 million and benefit of $0.7 million in the years ended December 31, 2016, 2015 and 2014, respectively, of income tax related to adjustments from prior years.

Effective and Statutory Rate Reconciliation

The following table summarizes a reconciliation of the U.S. statutory federal income tax rate to DP&L's effective tax rate, as a percentage of income from continuing operations before taxes for the years ended December 31, 2016, 2015 and 2014:

	Years ended December 31,
	2016		2015		2014
Statutory Federal tax rate	35.0	%	35.0	%	35.0	%
State taxes, net of Federal tax benefit	0.4	%	0.3	%	0.8	%
AFUDC - Equity	(0.3	)%	(2.0	)%	(1.7	)%
Amortization of investment tax credits	0.2	%	(1.7	)%	(1.6	)%
Section 199 - domestic production deduction	0.4	%	(4.3	)%	(3.0	)%
Other - net	(0.4	)%	(2.5	)%	(3.8	)%
Effective tax rate	35.3	%	24.8	%	25.7	%

Deferred Income Taxes

Deferred income taxes reflect the net tax effects of (a) temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes and (b) operating loss carryforwards. These items are stated at the enacted tax rates that are expected to be in effect when taxes are actually paid or recovered. Investment tax credits related to utility property have been deferred and are being amortized over the estimated useful lives of the related property.

Components of Deferred Tax Assets and Liabilities
	December 31,
$ in millions	2016			2015
Net non-current Assets / (Liabilities)
Depreciation / property basis	$	(129.8	)	$	(608.8	)
Income taxes recoverable	(11.9		)	(12.0		)
Regulatory assets	(9.1		)	(11.5		)
Investment tax credit	6.3			7.0
Compensation and employee benefits	1.1			3.6
Other	(2.9		)	(9.5		)
Net non-current liabilities	$	(146.3	)	$	(631.2	)

The following table presents the tax (benefit) / expense related to pensions, postemployment benefits, cash flow hedges and financial instruments that were credited to Accumulated other comprehensive loss.

	Years ended December 31,
$ in millions	2016			2015		2014
Tax expense / (benefit)	$	(7.0	)	$	7.5	$	(6.0	)

Uncertain Tax Positions

We apply the provisions of GAAP relating to the accounting for uncertainty in income taxes. A reconciliation of the beginning and ending amount of unrecognized tax benefits for DP&L is as follows:

$ in millions
Balance at December 31, 2014	$	3.0
Calendar 2015
Tax positions taken during prior period	—
Lapse of Statute of Limitations	—
Balance at December 31, 2015	3.0
Calendar 2016
Tax positions taken during prior period	3.4
Lapse of Statute of Limitations	(1.5		)
Balance at December 31, 2016	$	4.9

Of the December 31, 2016 balance of unrecognized tax benefits, $0.9 million is due to uncertainty in the timing of deductibility.

We recognize interest and penalties related to unrecognized tax benefits in Income tax expense. The amounts accrued and expense (benefit) recorded were not material for each period presented.

Following is a summary of the tax years open to examination by major tax jurisdiction:

U.S. Federal – 2011 and forward

State and Local – 2011 and forward

None of the unrecognized tax benefits are expected to significantly increase or decrease within the next twelve months other than those subject to expiring statute of limitations.