10-K 1 a05-4474_110k.htm 10-K

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

ý ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE

SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2004

o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE

SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission File Number 1-9052

DPL INC.

(Exact name of registrant as specified in its charter)

OHIO		31-1163136
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

1065 Woodman Drive, Dayton, Ohio		45432
(Address of principal executive offices)		(Zip Code)

Registrant’s telephone number, including area code: 937-224-6000

Securities registered pursuant to Section 12(b) of the Act:

Title of each class		Outstanding at March 7, 2005		Name of each exchange on Which registered
Common Stock, $0.01 par value and Preferred Share Purchase Rights		126,501,404		New York Stock Exchange

Securities registered pursuant to Section 12(g) of the Act: NONE

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

YES ý NO o

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. o

Indicate by check mark whether the registrant is an accelerated filer (as defined in Exchange Act Rule 12b-2).

YES ý NO o

The aggregate market value of the common stock held by nonaffiliates of the registrant as of June 30, 2004, was approximately $2.3 billion based on a closing price of $19.42 on such date.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the registrant’s definitive proxy statement for its 2005 Annual Meeting of Shareholders are incorporated by reference in Part III of this Form 10-K. The definitive proxy statement will be filed by the registrant with the Securities and Exchange Commission no later than 120 days from the end of the registrant’s fiscal year ended December 31, 2004.

DPL INC.

Index to Annual Report on Form 10-K

Fiscal Year Ended December 31, 2004

		Page No.
	Part I
Item 1	Business	3
Item 2	Properties	15
Item 3	Legal Proceedings	15
Item 4	Submission of Matters to a Vote of Security Holders	19

	Part II
Item 5	Market for Registrant’s Common Equity and Related Shareholder Matters	19
Item 6	Selected Financial Data	20
Item 7	Management’s Discussion and Analysis of Financial Condition and Results of Operations	21
Item 7A	Quantitative and Qualitative Disclosures about Market Risk	41
Item 8	Financial Statements and Supplementary Data	42
Item 9	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure	89
Item 9A	Controls and Procedures	89
Item 9B	Other Information	90
	Part III
Item 10	Directors and Executive Officers of the Registrant	90
Item 11	Executive Compensation	90
Item 12	Security Ownership of Certain Beneficial Owners and Management and Related Shareholder Matters	90
Item 13	Certain Relationships and Related Transactions	90
Item 14	Principal Accountant Fees and Services	90

	Part IV
Item 15	Exhibits, Financial Statement Schedules and Reports on Form 8-K	91

	Other
	Signatures	100
	Schedule II Valuation and Qualifying Accounts	102
	Subsidiaries of DPL Inc.
	Consent of Independent Registered Public Accounting Firm—KPMG
	Consent of Independent Registered Public Accounting Firm—PWC
	Certifications

Available Information

DPL Inc. (DPL or the Company) files current, annual and quarterly reports, proxy statements and other information required by the Securities Exchange Act of 1934, as amended, with the Securities and Exchange Commission (SEC). You may read and copy any document the Company files at the SEC’s public reference room located at 450 Fifth Street, NW, Washington, D.C. 20549, USA. Please call the SEC at (800) SEC-0330 for further information on the public reference rooms. The Company’s SEC filings are also available to the public from the SEC’s web site at http://www.sec.gov.

The Company’s public internet site is http://www.dplinc.com. The Company makes available through its internet site, its annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and Forms 3, 4 and 5 filed on behalf of directors and executive officers and amendments to those reports filed or furnished pursuant to the Securities Exchange Act of 1934, as amended, as soon as reasonably practicable after it electronically files such material with, or furnishes it to, the SEC.

In addition, the Company’s public internet site includes other items related to corporate governance matters, including, among other things, the Company’s governance guidelines, charters of various committees of the Board of Directors and the Company’s code of business conduct and ethics applicable to all employees, officers and directors. You may obtain copies of these documents, free of charge, by sending a request, in writing, to DPL Investor Relations, 1065 Woodman Drive, Dayton, Ohio 45432.

PART I

Item 1 – Business

DPL INC.

DPL Inc. (DPL or the Company) is a diversified regional energy company organized in 1985 under the laws of Ohio. The executive offices of DPL are located at 1065 Woodman Drive, Dayton, Ohio 45432 - telephone (937) 224-6000.

DPL’s principal subsidiary is The Dayton Power and Light Company (DP&L). DP&L is a public utility incorporated in 1911 under the laws of Ohio. DP&L sells electricity to residential, commercial, industrial and governmental customers in a 6,000 square mile area of West Central Ohio. Electricity for DP&L’s 24 county service area is primarily generated at eight coal-fired power plants and is distributed to more than 500,000 retail customers. DP&L also purchases retail peak load requirements from DPL Energy LLC (DPLE). Principal industries served include automotive, food processing, paper, plastic manufacturing, and defense. DP&L’s sales reflect the general economic conditions and seasonal weather patterns of the area. DP&L sells any excess energy and capacity into the wholesale market.

Other significant subsidiaries of DPL (all of which are wholly-owned) include DPLE, which engages in the operation of peaking generating facilities; DPL Energy Resources, Inc. (DPLER), sells retail electric energy under contract to major governmental, industrial and commercial customers in West Central Ohio; MVE, Inc. (MVE), which is primarily responsible for the management of the Company’s financial asset portfolio; Plaza Building, Inc., which owns all the capital stock of MVE; DPL Finance Company, Inc., which provides financing opportunities for DPL Inc. and its subsidiaries; and Miami Valley Insurance Company (MVIC), a captive insurance company for DPL and its subsidiaries.

The principal businesses of the Company are conducted in two business segments. These segments are Electric and Financial Asset Portfolio. Refer to Note 11 in the Notes to Consolidated Financial Statements for additional information.

DPL is exempt from registration with the Securities and Exchange Commission under the Public Utility Holding Company Act of 1935 because its utility business operates in a single state. DPL currently maintains its exempt status due to its filing of a Form U-1 with the SEC. Refer to Significant Developments, Governmental and Regulatory Inquiries below for further information.

DPL and its subsidiaries employed 1,452 persons as of December 31, 2004, of which 1,195 were full-time employees and 257 were part-time employees.

SIGNIFICANT DEVELOPMENTS

Governmental and Regulatory Inquiries

On April 7, 2004, the Company received notice that the staff of the Public Utilities Commission of Ohio (PUCO) is conducting an investigation into the financial condition of DP&L as a result of previously disclosed matters raised by a Company employee during the 2003 year-end financial closing process (the Thobe Memorandum). On May 27, 2004, the PUCO ordered DP&L to file a plan of utility financial integrity that outlines the actions the Company has taken or will take to insulate DP&L utility operations and customers from its unregulated activities. DP&L was required to file this plan by March 2, 2005. On February 4, 2005, DP&L filed its protection plan with the PUCO and will continue to cooperate with the PUCO to resolve any outstanding issues in this investigation.

On May 20, 2004, the staff of the SEC notified the Company that it was conducting an inquiry covering the exempt status of the Company under the Public Utility Holding Company Act of 1935.

The staff of the SEC has requested the Company provide certain documents and information on a voluntary basis. The Company is cooperating with the inquiry. On October 8, 2004, DPL received a notice from the SEC that a question exists as to whether such exemption from the Public Utility Holding Company Act may be detrimental to the public interest or the interests of investors or consumers. Under applicable rules, DPL would lose its exemption 30 days following this notice and be required to register as a holding company under the Public Utility Holding Company Act and become subject to additional regulation thereunder. However, on November 5, 2004, DPL delayed the requirement to become registered by filing a good faith application seeking an order of exemption from the Securities and Exchange Commission. DPL will remain exempt pending a decision from the Securities and Exchange Commission on that application. DPL cannot predict what action the Securities and Exchange Commission may take in connection with its application or whether it will be able to remain an exempt holding company.

On or about June 24, 2004, the SEC commenced a formal investigation into the issues raised by the Thobe Memorandum. The Company is cooperating with the investigation.

On May 28, 2004, the U.S. Attorney’s Office for the Southern District of Ohio, assisted by the Federal Bureau of Investigation, notified the Company that it has initiated an inquiry involving the subject matters covered by the Company’s internal investigation. The Company is cooperating with this investigation.

Commencing on or about June 24, 2004, the Internal Revenue Service (IRS) has issued a series of data requests to the Company regarding issues raised in the Thobe Memorandum. The staff of the IRS has requested that the Company provide certain documents, including but not limited to, matters concerning executive/director deferred compensation plans, management stock incentive plans and MVE financial statements. The Company is cooperating with these requests.

On March 3, 2005, DP&L received a notice that the FERC had instituted an operational audit of DP&L regarding its compliance with its Code of Conduct within the transmission and generation areas. The FERC has provided DP&L with a data request and DP&L is cooperating in the furnishing of requested information. DP&L cannot predict the outcome of this operational audit.

Sale of Warrants and Repurchase of Voting Preferred Shares

As a result of an investment made by Dayton Ventures, LLC, an affiliate of Kohlberg, Kravis & Roberts & Co. (KKR), in March 2000, Dayton Ventures, LLC owned 31,560,000 warrants. During the twelve year period commencing March 13, 2000, each warrant can be exercised and converted into a common share of the Company for an exercise price of $21.00. Additionally as a part of Dayton Ventures, LLC’s investment in the Company, the Company sold and issued 6,800,000 shares of voting preferred shares, 200,000 shares of which were subsequently redeemed by the Company. During December 2004 and January 2005 in four transactions, Dayton Ventures, LLC transferred all of its warrants to an unaffiliated third party which subsequently transferred approximately 25 million warrants to unaffiliated third parties. In conjunction with transactions in 2005, the Company repurchased at par all of the outstanding 6,600,000 voting preferred shares. As a result of the reduction of Dayton Ventures, LLC’s warrant ownership below 12,640,000, KKR is no longer eligible to receive an annual $1 million management, consulting and financial services fee and Dayton Ventures, LLC no longer has the right to designate one person to serve as a director of the Company and DP&L or to designate one person to serve as a non-voting observer of the Company and DP&L. Currently, Dayton Ventures, LLC does not have any ownership interest in the Company or DP&L.

PJM Integration

As part of Ohio’s electric deregulation law, all of the state’s investor-owned utilities are required to join a Regional Transmission Organization (RTO). In October 2004, DP&L successfully integrated its 1,000 miles of high-voltage transmission into the PJM Interconnection, L.L.C. (PJM) RTO.

The role of the RTO is to administer an electric marketplace and insure reliability. PJM ensures the reliability of the high-voltage electric power system serving 44 million people in all or parts of Delaware, Indiana, Illinois, Kentucky, Maryland, Michigan, New Jersey, Ohio, Pennsylvania, Tennessee, Virginia, West Virginia and the District of Columbia. PJM coordinates and directs the operation of the region’s transmission grid; administers a competitive wholesale electricity market, the

world’s largest; and plans regional transmission expansion improvements to maintain grid reliability and relieve congestion.

Portfolio Sale

On February 13, 2005, MVE and MVIC entered into an agreement to sell their respective interests in forty-six private equity funds to AlpInvest/Lexington 2005, LLC, a joint venture of AlpInvest Partners and Lexington Partners, Inc. The sale is expected to generate estimated net proceeds (pretax) of $850 million. The purchase price will be adjusted for capital calls, which the buyer has assumed, and distributions after June 30, 2004. The value of the private equity interests at fair value as of December 31, 2004 is $826.3 million which includes $41 million of cost investments the Company excluded from the sale and excludes $8 million of prepaid management fees and $39 million of unrealized gains included in accumulated other comprehensive income on the Consolidated Balance Sheet. The sale does not include the public securities and cash previously held in the Company’s financial asset portfolio.

The sale and transfer of each private equity investment is subject to the approval of the general partner or other applicable manager of each investment and other customary closing conditions. Closing for the sale of the investments will occur as required approvals are obtained. Although DPL and AlpInvest/Lexington 2005, LLC believe the required approvals will be obtained for all funds, it is possible that consents could be withheld or delayed for one or more funds. The agreement is structured to encourage the timely closing of each fund. DPL has guaranteed the performance of its subsidiaries under the purchase and sale agreement. At the closings, the buyer will assume all future obligations under the investments that are required, including future capital calls.

DPL will use a portion of the proceeds from the sale to repurchase debt. In addition, the Company is evaluating other potential uses of the proceeds including investments in the core energy business.

COMPETITION AND REGULATION

DP&L has historically operated in a rate-regulated environment providing electric generation and energy delivery, consisting of transmission and distribution services, as a single product to its retail customers. Prior to the legislation discussed below, DP&L did not have retail competitors in its service territory.

In October 1999, legislation became effective in Ohio that gave electric utility customers a choice of energy providers beginning on January 1, 2001. Under this legislation, electric generation, power marketing, and power brokerage services supplied to retail customers in Ohio are deemed to be competitive and are not subject to supervision and regulation by the PUCO.

As required by this legislation, DP&L filed its transition plan (Electric Transition Plan) with the PUCO on December 20, 1999. DP&L received the PUCO approval of its plan on September 21, 2000.

The Electric Transition Plan provided for a three-year transition period, which began on January 1, 2001 and ended on December 31, 2003. The plan also provided for a 5% residential rate reduction on the generation component of the rates, which reduced annual revenue by approximately $14 million; rate certainty for the three-year period for customers that continued to purchase power from DP&L; guaranteed rates for a six-year period for transmission and delivery services; and recovery by DP&L of transition costs of approximately $600 million.

On October 28, 2002, DP&L filed with the PUCO a request for an extension of its market development period from December 31, 2003 to December 31, 2005 that, if granted, would continue DP&L’s current rate structure and provide its retail customers with rate stability. On May 28, 2003, DP&L filed with the PUCO a Stipulation and Recommendation entered into with five other parties (Ohio Consumers’ Counsel (the OCC), Industrial Energy Users-Ohio, PUCO Staff, Partners for Affordable Energy, and Community Action Partnership of the Greater Dayton Area). On September 2, 2003, the PUCO issued an Opinion and Order adopting the Stipulation with modifications (the Stipulation). The Stipulation provides the following: DP&L’s market development period will continue

through December 31, 2005; retail generation rates will remain frozen at present levels; a credit issued to customers who elect competitive retail generation service will increase over two years; and a rate stabilization period from January 1, 2006 through December 31, 2008, during which DP&L’s retail generation rates in effect on January 1, 2004 will serve as market-based rates. The Stipulation also provides that beginning January 1, 2006, rates may be modified by up to 11% of generation rates to reflect increased costs associated with fuel, environmental compliance, taxes, regulatory changes, and security measures. Further, the PUCO may approve an increase to the residential generation discount commencing January 1, 2006. The PUCO denied applications for rehearing on October 22, 2003. The PUCO’s decision was appealed to the Ohio Supreme Court on December 19, 2003. That appeal was argued before the Ohio Supreme Court on October 12, 2004. On December 17, 2004, the Ohio Supreme Court affirmed the PUCO’s Order approving the Stipulation.

As a part of the Stipulation, DP&L agreed to implement a Voluntary Enrollment Process that would provide customers with an option to choose a competitive supplier to provide their retail generation service should switching not reach 20% in each customer class by October 2004. Customers that volunteered for the program were bid out to Competitive Retail Electric Service (CRES) providers who are registered in DP&L’s service territory. On March 8, 2005, DP&L learned that no bids were received and re-bidding will occur within 60 days. The magnitude of any customer switching and the financial impact of this program are not expected to be material to DPL’s results of operations, cash flows or financial position in 2005. Future period effects cannot be determined at this time.

On February 20, 2003, the PUCO issued an Entry requesting comments from interested stakeholders on the proposed rules for the conduct of a competitive bidding process that will take place at the end of the market development period. DP&L submitted comments and reply comments on March 7 and March 21, 2003, respectively. The PUCO issued final rules on December 23, 2003. Under DP&L’s Stipulation discussed above, these rules will not affect DP&L until January 1, 2009.

On March 20, 2003, the PUCO issued an Entry initiating a PUCO investigation regarding the desirability, feasibility, and timing of declaring that retail ancillary metering, billing and/or collection services are competitive retail electric services that consumers may obtain from any supplier. The initiation of this investigation was based on a requirement in the 1999 Ohio deregulation legislation. The PUCO asked interested stakeholders to file comments by June 6, 2003 and reply comments by July 7, 2003. DP&L filed comments and will actively participate in this case and evaluate the potential outcome of this proceeding.

As of December 31, 2004, three unaffiliated marketers were registered as CRES providers in DP&L’s service territory; to date, there has been no significant activity from these suppliers. DPL Energy Resources, Inc. (DPLER), an affiliated company, is also a registered CRES provider and accounted for nearly all load served by CRES providers within DP&L’s service territory in 2004. In addition, several communities in DP&L’s service area have passed ordinances allowing the communities to become government aggregators for the purpose of offering alternative electric generation supplies to their citizens. To date none of these communities have aggregated.

There was a complaint filed on January 21, 2004 at the PUCO concerning the pricing of DP&L’s billing services. Additionally, on December 16, 2003, a complaint was filed at the PUCO alleging that DP&L has established improper barriers to competition. On October 13, 2004, the parties reached a settlement on the pricing of DP&L’s billing services that DP&L will charge CRES providers. Additionally, on October 19, 2004, DP&L entered into a settlement with Dominion Retail, Green Mountain Energy, and the Staff of the PUCO that resolves all matters in the competition barrier complaint. This settlement provides that DP&L will modify the manner in which customer partial payments are applied to billing charges and DP&L will no longer offer to purchase the receivables of CRES providers who operate in DP&L’s certified territory. On February 2, 2005, the PUCO issued an Order approving both settlements with minor modifications. On March 4, 2005, the OCC filed a Motion for Rehearing with the PUCO. That motion is pending.

On March 1, 2005, DP&L filed a pre-filing notice at the PUCO announcing its intent to request a rate stabilization surcharge effective January 1, 2006. The request for a rate surcharge is expected to be filed on or about April 4, 2005 and is pursuant to the Stipulation discussed above. The proposed rate

surcharge request is expected to exceed $100 million and is designed to partially reimburse DP&L for certain increases in its costs of providing electric service related to fuel, environmental compliance, taxes, regulatory changes and security measures. Pursuant to the Stipulation discussed above, the surcharge is capped at 11% of the generation portion of DP&L’s rates. The surcharge, if approved, would produce approximately $76 million in additional revenue in 2006.

Like other electric utilities and energy marketers, DP&L and DPLE may sell or purchase electric products on the wholesale market. DP&L and DPLE compete with other generators, power marketers, privately and municipally owned electric utilities, and rural electric cooperatives when selling electricity. The ability of DP&L and DPLE to sell this electricity will depend on how DP&L’s and DPLE’s price, terms and conditions compare to those of other suppliers.

DP&L provides transmission and wholesale electric service to 12 municipal customers in its service territory, which distribute electricity within their incorporated limits. DP&L also maintains an interconnection agreement with one municipality that has the capability to generate a portion of its energy requirements. Sales to these municipalities represented 1% of total electricity sales in 2004. DP&L’s contract with one municipality expired in February 2005 creating reduced future generation sales to municipalities.

The Federal Energy Regulatory Commission (FERC) issued a final rule on December 20, 1999, which required all public utilities that own, operate, or control interstate transmission lines to file a proposal to join a RTO by October 15, 2000 or file a description of efforts taken to participate in a RTO, reasons for not participating in a RTO, any obstacles to participation in a RTO and any plans for further work toward participation. DP&L filed with the FERC to join the Alliance RTO. On December 19, 2001, the FERC issued an order rejecting the Alliance RTO as a stand-alone RTO. The FERC has recognized in various orders that substantial losses were incurred to establish the Alliance RTO and that it would consider proposals for rate recovery of prudently incurred costs. DP&L invested approximately $8 million in its efforts to join the Alliance RTO. On May 28, 2002, DP&L filed a notice with the FERC stating its intention to join PJM, an organization responsible for the operation and control of the bulk electric power system throughout major portions of five Mid-Atlantic states and the District of Columbia. On July 31, 2002, the FERC granted DP&L conditional approval to join PJM. In June 2003, DP&L turned over certain transmission functions for PJM to operate including management of certain information systems, scheduling, market monitoring and security coordination. On July 30, 2004, DP&L made a filing with the FERC to withdraw its transmission tariff and to become fully integrated into PJM’s tariff effective October 1, 2004. DP&L was fully integrated into PJM on October 1, 2004. As of December 31, 2004, DP&L had invested a total of approximately $18.0 million in its efforts to join a RTO.

Effective October 1, 2004, PJM began to assess a FERC-approved administrative fee on every megawatt consumed by DP&L customers. On October 26, 2004, DP&L filed an application with the PUCO for authority to modify its accounting procedures to defer collection of this PJM administrative fee, effective October 1, 2004, plus carrying charges, until such time as DP&L has obtained the authority to adjust its rates (i.e., after January 1, 2006) pursuant to DP&L’s approved Stipulation and Recommendation. While this application is pending, DP&L is expensing these administrative fees.

The FERC’s July 31, 2002 Order also addressed the justness and reasonableness of the PJM and Midwest Independent Transmission System Operator (MISO) rates and related revenue distribution protocols. On March 31, 2003, an Initial Decision was issued finding that the PJM/MISO’s rates had not been shown to be unjust and unreasonable. On July 23, 2003, the FERC issued an Order rejecting in part the Initial Decision and found that the rates for transmission service through and out of the service territories of seven former Alliance RTO companies, including DP&L, may be unjust, unreasonable, or unduly discriminatory or preferential. Subsequently, the FERC required the parties to enter into settlement discussions. On March 19, 2004, the FERC approved a settlement agreement regarding transmission pricing that allowed DP&L to continue to charge its existing

transmission rate until December 1, 2004. The settlement agreement also outlines the principles and procedures to arrive at a single, long-term transmission pricing structure to be effective December 1, 2004. On September 27, 2004, the FERC instituted a proceeding under Federal Power Act Section 206 to implement a new long-term transmission pricing structure intended to eliminate seams in the PJM and MISO regions. On October 1, 2004, DP&L, along with approximately 60 other parties filed a long-term pricing plan with the FERC. On November 18, 2004, the FERC approved this rate design. In addition, the FERC ordered transitional payments effective December 1, 2004 through March 31, 2006. On February 10, 2005, FERC issued an order that reaffirmed the pricing structure, but set the rates for hearing, subject to refund. The ultimate disposition of this case may affect the recovery of transmission revenues by DP&L.

In a November 1, 2001 Order, as modified on April 14, 2004, the FERC required entities with market-based rate authority to submit their triennial market-based reviews using new criteria. In DP&L’s case, this submission would have been due August 11, 2004. On July 30, 2004, DP&L requested a new compliance date 60 days after integration into PJM to enable DP&L to provide an analysis that reflects the market as it will exist in PJM. On October 14, 2004, the FERC denied that request and on October 15, 2004, DP&L filed its triennial market-based review with the FERC. On December 15, 2004, the FERC issued an order accepting DP&L’s market power analysis, reaffirming DP&L’s market-based rate authority.

On January 25, 2005, the FERC issued an Order that, in part, found that PJM is authorized in certain circumstances to limit the price at which certain generators can offer to sell their power to PJM during periods of electric transmission constraints and thereby removed a previous exemption from these limitations for generation units constructed after 1996. DPL is actively appealing this decision. This order does not impact DPL’s coal-fired facilities. The Company does not expect this Order to materially affect results of operations and financial condition for 2005.

On April 7, 2004, the Company received notice that the staff of the PUCO is conducting an investigation into the financial condition of DP&L as a result of financial reporting and governance issues raised by the Thobe Memorandum. On May 27, 2004, the PUCO ordered DP&L to file a plan of utility financial integrity that outlines the actions the Company has taken or will take to insulate DP&L utility operations and customers from its unregulated activities. DP&L was required to file this plan by March 2, 2005. On February 4, 2005, DP&L filed its protection plan with the PUCO and will continue to cooperate with the PUCO to resolve any outstanding issues in this investigation.

DP&L had requested approval from the PUCO to extend the filing of its Annual 2003 Report until after the filing of its 2003 Form 10-K. On February 1, 2005, DP&L filed its Annual 2003 Report with the PUCO. DP&L had also previously requested approval from the FERC to extend the filing of its FERC Form 1 and FERC Form 3-Qs until after the filing of its 2003 Form 10-K. DP&L filed its FERC Form 1 and all outstanding FERC Form 3-Qs on December 30, 2004.

On June 7, 2004, DPLE filed an Application for Determination of Status as an Exempt Wholesale Generator with the FERC that was approved by the FERC on July 30, 2004.

On August 2, 2004, in order to strengthen MVIC’s financial position, the Vermont Department of Banking, Insurance, Securities and Health Care Administration notified MVIC of MVIC’s requirement to reduce its intercompany receivable to a maximum no greater than MVIC’s total capital and surplus plus $250,000 minimum capital. As a result, the Company transferred $5 million from its operating cash to its subsidiary, MVIC, in satisfaction of this requirement during the fourth quarter of 2004. These funds will be available to pay insurance claims and other operating expenses of MVIC. During January 2005, MVE transferred a private equity financial asset valued in excess of $31.5 million to MVIC to further strengthen MVIC’s financial position and liquidity.

CONSTRUCTION ADDITIONS

Construction additions were $98 million, $102 million and $166 million in 2004, 2003 and 2002, respectively, and are expected to approximate $175 million in 2005.

Planned construction additions for 2005 relate to DPL’s environmental compliance program, power plant equipment, and its transmission and distribution system. During the last three years, capital expenditures have been utilized to meet DPL’s state and federal standards for Nitrogen Oxide (NOx) emissions from power plants, to make power plant improvements, and to complete construction on approximately 1,200 megawatts (MW) of combustion turbines. In July 2002, the final phase of the combustion turbine program came on line, adding approximately 480 MW at an investment of $179 million. DPL has not contracted for further capacity additions at this time.

Capital projects are subject to continuing review and are revised in light of changes in financial and economic conditions, load forecasts, legislative and regulatory developments and changing environmental standards, among other factors. Over the next four years, DPL is projecting to spend an estimated $850 million in capital projects, approximately 60% of which is to meet changing environmental standards. DPL’s ability to complete its capital projects and the reliability of future service will be affected by its financial condition, the availability of internal and external funds at reasonable cost, and adequate and timely return on these capital investments. DPL expects to finance its construction additions in 2005 with internally-generated funds.

See ENVIRONMENTAL CONSIDERATIONS for a description of environmental control projects and regulatory proceedings that may change the level of future construction additions. The potential effect of these events on DPL’s operations cannot be estimated at this time.

ELECTRIC OPERATIONS AND FUEL SUPPLY

DPL’s present summer generating capacity is approximately 4,400 MW. Of this capacity, approximately 2,800 MW or 64% is derived from coal-fired steam generating stations and the balance of approximately 1,600 MW or 36% consists of combustion turbine and diesel peaking units. Combustion turbine output is dependent on ambient conditions and is higher in the winter than in the summer. The Company’s all-time net peak load was 3,130 MW, occurring in 1999.

Approximately 87% of the existing steam generating capacity is provided by certain units owned as tenants in common with The Cincinnati Gas & Electric Company (CG&E) and Columbus Southern Power Company (CSP). As tenants in common, each company owns a specified undivided share of each of these units, is entitled to its share of capacity and energy output, and has a capital and operating cost responsibility proportionate to its ownership share. DP&L’s remaining steam generating capacity (approximately 365 MW) is derived from a generating station owned solely by DP&L. Additionally, DP&L, CG&E and CSP own as tenants in common, 884 circuit miles of 345,000-volt transmission lines. DP&L has several interconnections with other companies for the purchase, sale and interchange of electricity.

In 2004, DPL generated 99% of its electric output from coal-fired units and 1% from oil or natural gas-fired units.

The following table sets forth DP&L’s and DPLE’s generating stations and where indicated, those stations which DP&L owns as tenants in common.

				Approximate Summer
				MW Rating
Station	Ownership*	Operating Company	Location	DPL Portion	Total
Coal Units
Hutchings	W	DP&L	Miamisburg, OH	365	365
Killen	C	DP&L	Wrightsville, OH	402	600
Stuart	C	DP&L	Aberdeen, OH	820	2,340
Conesville-Unit 4	C	CSP	Conesville, OH	129	780
Beckjord-Unit 6	C	CG&E	New Richmond, OH	207	414
Miami Fort-Units 7 & 8	C	CG&E	North Bend, OH	360	1,000
East Bend-Unit 2	C	CG&E	Rabbit Hash, KY	186	600
Zimmer	C	CG&E	Moscow, OH	365	1,300

Combustion Turbines or Diesel
Hutchings	W	DP&L	Miamisburg, OH	23	23
Yankee Street	W	DP&L	Centerville, OH	107	107
Monument	W	DP&L	Dayton, OH	12	12
Tait Diesels	W	DP&L	Dayton, OH	10	10
Sidney	W	DP&L	Sidney, OH	12	12
Tait Units 1-3	W	DP&L	Moraine, OH	256	256
Killen	C	DP&L	Wrightsville, OH	12	18
Stuart	C	DP&L	Aberdeen, OH	3	10
Greenville Units 1-4	W	DPLE	Greenville, OH	192	192
Darby Station Units 1-6	W	DPLE	Darby, OH	438	438
Montpelier Units 1-4	W	DPLE	Montpelier, IN	192	192
Tait Units 4-7	W	DPLE	Moraine, OH	292	292

*W = Wholly-Owned

C = Commonly-Owned

As of February 15, 2005, DP&L has contracted for 97% of its projected coal requirements for 2005 with any incremental purchases made in the spot market. The prices to be paid by DP&L under its long-term coal contracts are either fixed or subject to periodic adjustment. Each contract has features that will limit price escalations in any given year. DP&L has also covered all of its estimated 2005 emission allowance requirements. DP&L expects its 2005 coal and net emission allowance costs to exceed its 2004 coal and net emission allowance costs by approximately 10%.

The average cost of fuel used per kilowatt-hour (kWh) generated was 1.52¢ in 2004, 1.33¢ in 2003 and 1.34¢ in 2002. With the onset of competition in January 2001, the Electric Fuel Component was frozen under DP&L’s Electric Transition Plan and is reflected in the Standard Offer Generation rate to its customers. See RATE REGULATION AND GOVERNMENT LEGISLATION and ENVIRONMENTAL CONSIDERATIONS.

SEASONALITY

The power generation and delivery business is seasonal and weather patterns can have a material impact on operating performance. In the region served by DPL’s subsidiaries, demand for electricity is generally greater in the summer months associated with cooling and greater in the winter months associated with heating as compared to other times of the year. Historically, the power generation and delivery operations of DPL’s subsidiaries have generated less revenue and income when weather conditions are milder in the winter and cooler in the summer.

RATE REGULATION AND GOVERNMENT LEGISLATION

DP&L’s sales to retail customers are subject to rate regulation by the PUCO. DP&L’s wholesale electric rates to municipal corporations and other distributors of electric energy are subject to regulation by the FERC under the Federal Power Act.

Ohio law establishes the process for determining rates charged by public utilities. Regulation of rates encompasses the timing of applications, the effective date of rate increases, the cost basis upon which the rates are based and other related matters. Ohio law also established the OCC, which has the authority to represent residential consumers in state and federal judicial and administrative rate proceedings.

Ohio legislation extends the jurisdiction of the PUCO to the records and accounts of certain public utility holding company systems, including DPL. The legislation extends the PUCO’s supervisory powers to a holding company system’s general condition and capitalization, among other matters, to the extent that they relate to the costs associated with the provision of public utility service. Based on

existing PUCO authorization, regulatory assets and liabilities are recorded on the Consolidated Balance Sheet. (See Note 3 of Notes to Consolidated Financial Statements.)

Under legislation passed in 1999, the percentage of income payment plan (PIPP) for eligible low-income households was converted to a Universal Service Fund in 2001. The universal service program is administered by the Ohio Department of Development and provides for full recovery of arrearages for qualifying low-income customers.

See COMPETITION AND REGULATION for more detail regarding the effect of legislation.

ENVIRONMENTAL CONSIDERATIONS

The operations of DPL and DP&L, including DP&L’s commonly-owned facilities, are subject to a wide range of federal, state, and local environmental regulations and laws as to air and water quality, disposal of solid waste and other environmental matters, including the location, construction and operation of new and existing electric generating facilities and most electric transmission lines. As such, existing environmental regulations may be periodically revised. In addition to revised rules, new legislation could be enacted that may affect the Company’s estimated construction expenditures. See CONSTRUCTION ADDITIONS. In the normal course of business, DP&L has ongoing programs and activities underway at these facilities to comply, or to determine compliance, with such existing, new and/or proposed regulations and legislation.

DP&L has been identified, either by a government agency or by a private party seeking contribution to site clean-up costs, as a potentially responsible party (PRP) at a number of sites pursuant to state and federal laws. DP&L records liabilities for probable estimated loss in accordance with Statement of Financial Accounting Standards No. 5 (SFAS 5), “Accounting for Contingencies.” To the extent a probable loss can only be estimated by reference to a range of equally probable outcomes, and no amount within the range appears to be a better estimate than any other amount, DP&L accrues for the low end of the range. Because of uncertainties related to these matters, accruals are based on the best information available at the time. DP&L evaluates the potential liability related to probable losses quarterly and may revise its estimates. Such revisions in the estimates of the potential liabilities could have a material effect on the Company’s results of operations and financial position.

Air and Water Quality

In November 1999, the United States Environmental Protection Agency (USEPA) filed civil complaints and Notices of Violations (NOVs) against operators and owners of certain generation facilities for alleged violations of the Clean Air Act (CAA). Generation units operated by CG&E (Beckjord 6) and Columbus Southern Power Company (CSP) (Conesville 4) and co-owned by DP&L were referenced in these actions. Numerous northeast states have filed complaints or have indicated that they will be joining the USEPA’s action against CG&E and CSP. DP&L was not identified in the NOVs, civil complaints or state actions. In December 2000, CG&E announced that it had reached an Agreement in Principle with the USEPA and other plaintiffs in an effort to settle the claims. As of December 31, 2004, discussions on the final terms of the settlement continue and the outcome of these claims or the effect, if any, on DP&L has not been determined. In June 2000, the USEPA issued a NOV to DP&L-operated J.M. Stuart Station (co-owned by DP&L, CG&E, and CSP) for alleged violations of the CAA. The NOV contained allegations consistent with NOVs and complaints that the USEPA had recently brought against numerous other coal-fired utilities in the Midwest. DP&L intends to vigorously challenge the NOV given the final routine maintenance repair and replacement rules discussed below.

On September 21, 2004, the Sierra Club filed a lawsuit against the Company and the other owners of the Stuart Generating Station in the United States District Court for the Southern District of Ohio for alleged violations of the CAA. The Company intends to vigorously defend this matter.

On July 27, 2004, various residents of the Village of Moscow, Ohio notified CG&E, as the operator of Zimmer (co-owned by CG&E, DP&L and CSP), of their intent to sue for alleged violations of the CAA and air pollution nuisances. On November 17, 2004, a citizens’ suit was filed against CG&E (Freeman v. CG&E). DP&L believes the allegations are meritless and believes CG&E, on behalf of all co-owners, will vigorously defend the matter.

On November 18, 2004, the State of New York and seven other states filed suit against the American Electric Power Corporation (AEP) and various subsidiaries, alleging various CAA violations at a number of AEP electric generating facilities, including Conesville Unit 4 (co-owned by CG&E, DP&L and CSP). DP&L believes the allegations are without merit and that AEP, on behalf of all co-owners, will vigorously defend the matter.

On October 27, 2003, the USEPA published its final rules regarding the equipment replacement provision of the routine maintenance, repair and replacement (RMRR) exclusion of the CAA. Subsequently, on December 24, 2003, the U.S. Court of Appeals for the D.C. Circuit stayed the effective date of the rule pending its decision on the merits of the lawsuits filed by numerous states and environmental organizations challenging the final rules. As a result of this ruling, it is expected that the Ohio Environmental Protection Agency (Ohio EPA) will delay its previously announced intent to adopt the RMRR rule. At this time, DP&L is unable to determine the timing of this adoption.

In September 1998, the USEPA issued a final rule requiring states to modify their State Implementation Plans (SIPs) under the CAA. On July 18, 2002, the Ohio EPA adopted rules that constitute Ohio’s NOx SIP, which is substantially similar to the federal CAA Section 126 rulemaking and federal NOx SIP. On August 5, 2003, the USEPA published its conditional approval of Ohio’s NOx SIP, with an effective date of September 4, 2003. Ohio’s SIP requires NOx reductions at coal-fired generating units effective May 31, 2004. In order to meet these NOx requirements, DP&L’s capital expenditures for the installation of selective catalytic reduction (SCR) equipment totaled approximately $175 million. On May 31, 2004, DP&L began operation of its SCRs. DP&L’s NOx reduction strategy and associated expenditures to meet the federal reduction requirements should satisfy the Ohio SIP NOx reduction requirements.

On December 17, 2003, the USEPA proposed the Interstate Air Quality Rule (IAQR) designed to reduce and permanently cap sulfur dioxide (SO₂) and nitrogen oxide emissions from electric utilities. The proposed IAQR focuses on states, including Ohio, whose power plant emissions are believed to be significantly contributing to fine particle and ozone pollution in other downwind states in the eastern United States. On June 10, 2004, the USEPA issued a supplemental proposal to the IAQR, now renamed as the Clean Air Interstate Rule (CAIR). Until final rules are published, DP&L cannot determine the effect of the proposed rules on DP&L’s operations.

On January 30, 2004, the USEPA published its proposal to restrict mercury and other air toxins from coal-fired and oil-fired utility plants. DP&L is reviewing the various proposed options and the impact of each option. Until final rules are published, DP&L cannot determine the effect of the proposed rules on DP&L’s operations.

Under the proposed cap and trade options for SO₂ and NOx, as well as mercury, DP&L estimates it will spend more than $500 million from 2004 through 2009 to install the necessary pollution controls. Plant specific mercury controls may result in higher costs. Due to the uncertainties associated with the proposed requirements, DP&L cannot project the final costs at this time.

On July 15, 2003, the Ohio EPA submitted to the USEPA its recommendations for eight-hour ozone nonattainment boundaries for the metropolitan areas within Ohio. On April 15, 2004, the USEPA issued its list of ozone nonattainment designations. DP&L owns and/or operates a number of facilities in counties designated as nonattainment with the ozone national ambient air quality standard. DP&L does not know at this time what future regulations may be imposed on its facilities and will closely monitor the regulatory process. Following the final designation of the nonattainment

areas, the Ohio EPA will have three years to develop regulations to attain and maintain compliance with the eight-hour ozone national ambient air quality standard. The IAQR/CAIR addresses harmonization with these issues. It is expected that the Ohio EPA will revise its SIP consistent with the IAQR/CAIR when these rules are finalized.

On January 5, 2005, the USEPA published its final nonattainment designations for the national ambient air quality standard for Fine Particulate Matter 2.5 (PM 2.5) designations. These designations included counties and partial counties in which DP&L operates and/or owns generating facilities. On March 4, 2005, DP&L and other Ohio electric utilities and electric generators filed a petition for review in the D.C. Circuit Court of Appeals, challenging the final rule creating these designations. The Ohio EPA will have three years to develop regulations to attain and maintain compliance with the PM 2.5 national ambient air quality standard. DP&L cannot determine the outcome of this petition or the effect such Ohio EPA regulations will have on its operations.

In April 2002, the USEPA issued proposed rules governing existing facilities that have cooling water intake structures. Final rules were published in the Federal Register on July 9, 2004. DP&L anticipates that future studies may be needed at certain generating facilities. DP&L cannot predict the impact such studies may have on future operations.

On March 5, 2004, the USEPA issued final national emissions standards for hazardous air pollutants for stationary combustion turbines. The effect of the final standards on DPL’s operations is not expected to be material. On July 1, 2004, the USEPA finalized, but has not yet published, rules that remove four subcategories of new combustion turbines from regulation under the hazardous air pollutant regulations.

On April 14, 2003, the USEPA issued proposed final rules for standards of performance for stationary gas turbines. On May 23, 2003, the USEPA withdrew the direct final rules. The final rules were reissued on July 8, 2004 and were determined to not have an impact on existing combustion turbine facilities.

On May 5, 2004, the USEPA issued its proposed regional haze rule, which addresses how states should determine best available retrofit technology (BART) for sources covered under the regional haze rule. The proposal gives states three options for determining which sources should be subject to BART and provides guidelines for states on conducting the technical analysis of possible controls as BART. The proposal is being issued to respond to the D.C. Circuit’s remand of the regional haze rule in American Corn Growers Association v. USEPA, 291 F.3d 1 (D.C. Cir. 2002), in which the court told the USEPA that the BART determination has to include analysis of the degree of visibility improvement resulting from the use of control technology at each source subject to BART and that the USEPA could not mandate that states follow a collective contribution approach to determine whether sources in the state could reasonably be anticipated to contribute to visibility impairment in a Class I area. DP&L is reviewing the proposed rule to determine the impact on any of its facilities. The USEPA, in its June 10, 2004 supplemental CAIR, has proposed that BART-eligible electric generating units (EGUs) may be exempted from BART if the state complies with the CAIR requirements through the adoption of the CAIR Cap-and-trade program for SO₂ and NOx emissions. If Ohio adopts such a program, BART will not require any additional reductions.

On May 4, 2004, the Ohio EPA issued a final National Pollutant Discharge Elimination System (NPDES) permit for J.M. Stuart Station that continues the station’s 316(a) variance. During the three-year term of the draft permit, DP&L will conduct a thermal discharge study to evaluate the technical feasibility and economic reasonableness of water cooling methods other than cooling towers.

Land Use

DP&L and numerous other parties have been notified by the USEPA or the Ohio EPA that they are Potentially Responsible Parties (PRPs) for clean-up at two superfund sites in Ohio: the Tremont City Landfill in Springfield, Ohio, and the South Dayton Dump landfill site in Dayton, Ohio.

DP&L and numerous other parties received notification from the USEPA in January 2002 that it considers them PRPs for the Tremont City Landfill site. The information available to DP&L does not demonstrate that DP&L contributed any hazardous substances to the site. DP&L plans to vigorously challenge this action.

In September 2002, DP&L and other parties received a special notice that the USEPA considers them to be PRPs for the clean-up of hazardous substances at the South Dayton Dump landfill site. The information available to DP&L does not demonstrate that DP&L contributed hazardous substances to the site. The USEPA seeks recovery of past costs and funding for a Remedial Investigation and Feasibility Study. The USEPA has not provided an estimated clean-up cost for this site. Should the USEPA pursue such action, DP&L will vigorously challenge it.

DPL INC.

OPERATING STATISTICS

ELECTRIC OPERATIONS

	Years Ended December 31,
	2004			2003			2002
Electric Sales (millions of kWh)
Residential	5,140			5,071			5,302
Commercial	3,777			3,699			3,710
Industrial	4,393			4,330			4,472
Other retail	1,407			1,409			1,405
Total retail	14,717			14,509			14,889

Wholesale	3,748			4,836			4,358

Total	18,465			19,345			19,247

Operating Revenues ($in thousands)
Residential	$	449,411		$	442,239		$	463,197
Commercial	267,831			264,067			264,604
Industrial	223,335			221,961			227,960
Other retail	110,772			93,478			_93,316
Total retail	1,051,349			1,021,745			1,049,077

Wholesale	138,495			159,250			124,468

Total	$		1,189,844	$		1,180,995	$	1,173,545

Electric Customers at End of Period
Residential	453,653			450,958			449,153
Commercial	48,172			47,253			47,400
Industrial	1,851			1,863			1,905
Other	6,337			6,322			6,304

Total	510,013			506,396			504,762

Item 2 - Properties

Electric

Information relating to DPL’s properties is contained in Item 1 – CONSTRUCTION ADDITIONS, and ELECTRIC OPERATIONS AND FUEL SUPPLY, and Item 8 – Notes 10 and 11 of Notes to Consolidated Financial Statements.

Substantially all property and plant of DP&L is subject to the lien of the Mortgage securing DP&L’s First Mortgage Bonds.

Item 3 - Legal Proceedings

In the normal course of business, DPL is subject to various lawsuits, actions, proceedings, claims and other matters asserted under laws and regulations. DPL believes the amounts provided in its consolidated financial statements, as prescribed by generally accepted accounting procedures in the United States (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, and other matters discussed below, and to comply with applicable laws and regulations, will not exceed the amounts reflected in DPL’s Consolidated Financial Statements. As such, costs, if any, that may be incurred in excess of those amounts provided as of December 31, 2004, cannot be reasonably determined.

On July 15, 2002, a class action and derivative complaint (the Buckeye Action) for damages was filed by The Buckeye Electric Company Retirement Plan (the Plan) on behalf of itself and other DPL shareholders, and derivatively on behalf of DPL, in the Court of Common Pleas for Montgomery County, Ohio. The defendants included DPL, selected executive officers of DPL, an officer of a DPL subsidiary, the Board of Directors of DPL and PricewaterhouseCoopers LLP (PwC), DPL’s independent accountants at that time. Defendants removed the Buckeye Action to the U.S. District Court for the Southern District of Ohio. The Second Amended Complaint alleged violations of federal securities laws, breach of fiduciary duty, breach of the duty of care, corporate waste, breach of the duty of loyalty and self-dealing, fraud, negligence and misrepresentations by defendants in connection with the establishment and management of DPL’s portfolio of financial assets, which the Plan alleged were inappropriate investments not adequately disclosed to shareholders. The Second Amended Complaint also alleged claims related to PwC and its accounting and auditing of DPL’s financial asset portfolio. The Plan and other class members sought compensatory and punitive damages of not less than $1.1 billion, compensatory damages of $200 million on behalf of DPL, and unspecified punitive damages, attorney’s fees and costs. Additional similar complaints were subsequently filed in the U.S. District Court for the Southern District of Ohio. Additional similar complaints were also filed in both the Montgomery County and Hamilton County, Ohio Courts of Common Pleas. The cases filed in the Montgomery County Court of Common Pleas were consolidated with those filed in the Court of Common Pleas, Hamilton County.

On November 6, 2003, the Company and certain of its present and former officers and directors reached an agreement in principle with plaintiffs to settle the DPL Inc. Securities Litigation, and the shareholder class and derivative actions filed against them in Federal and Ohio state courts (the Global Settlement). The Company agreed to pay $70.0 million and certain of the Company’s liability insurers (the Insurers) agreed to pay $65.5 million to settle the DPL Inc. Securities Litigation and the state shareholder class actions. The Insurers agreed to pay $4.5 million to settle the derivative actions. In addition, PwC agreed to pay $5.5 million to settle all claims against it on a global basis. The Global Settlement was subject to approval by the Courts in which the actions were pending after notice to shareholders and class members and fairness hearings before the courts. On December 22, 2003, the Global Settlement was approved in total by the Court of Common Pleas, Hamilton County, Ohio. The U.S. District Court for the Southern District of Ohio approved the Global Settlement except for the petition for plaintiffs’ attorneys’ fees. As a result of the settlement, an after-tax charge of approximately $0.39 per share was recorded in the fourth quarter of 2003. On March 8, 2004, the U.S. District Court for the Southern District of Ohio approved in part the plaintiffs’ petition for plaintiffs’ attorneys’ fees. On May 24, 2004, in accordance with the terms of the Global Settlement, the amounts owed by the Company and the amounts owed by the Company’s liability insurers pursuant to Global Settlement were paid for ultimate distribution to the class. On August 13, 2004, as to state court and August 16, 2004, as to federal court, plaintiffs filed a motion seeking court approval of the distribution of the Global Settlement funds.

On June 7, 2004, the plaintiffs in the action in the Court of Common Pleas of Hamilton County, Ohio, filed a motion for an Order of Contempt, Disgorgement and Rescission against defendants Peter H. Forster, formerly DPL’s Chairman; Caroline E. Muhlenkamp, formerly DPL’s Group Vice President and interim Chief Financial Officer; and Stephen F. Koziar, Jr., formerly DPL’s Chief Executive Officer and President. In their motion, plaintiffs claim that defendants Forster, Muhlenkamp and Koziar breached the Global Settlement and caused DPL and its board of directors to breach the Global Settlement, by causing the Company to distribute to defendants Forster, Muhlenkamp and Koziar approximately $33 million in deferred compensation in December 2003, to pay them unwarranted bonuses, and to reinstate certain stock incentive and benefit plans without proper board approval.

Plaintiffs sought, among other things, disgorgement of monies received by defendants Forster, Muhlenkamp and Koziar and rescission of the reinstatement of the stock incentive and benefits plans. On June 28, 2004, the Company filed a Motion to Strike the plaintiffs’ motion alleging, among other things, that the motion was procedurally defective. Further, on July 22, 2004, the Company filed a Motion for Preliminary Injunction in the U.S. District Court to enjoin the Motion for an Order of Contempt, Disgorgement and Rescission. On August 2, 2004, plaintiffs filed their opposition to defendants’ Motion to Strike and filed their opposition to the Motion for a Preliminary Injunction on August 13, 2004. On October 4, 2004, the U.S. District Court ruled the distribution of the federal class settlement fund to approved claimants would proceed immediately and that plaintiffs would withdraw their Motion for Contempt in state court. This withdrawal was completed on October 4, 2004 and the state court ordered the distribution of the state class settlement fund to approved claimants.

On July 9, 2004, Mr. Forster and Ms. Muhlenkamp filed a lawsuit against the Company, DP&L and MVE in the Circuit Court, Fourth Judicial Circuit, in and for Duval County, Florida. The complaint asserts that the Company, DP&L and MVE (i) wrongfully terminated Mr. Forster and Ms. Muhlenkamp by undermining their authority and responsibility to manage the companies and excluding them from discussions on corporate financial issues and strategic planning after the Thobe Memorandum was distributed and (ii) breached Mr. Forster’s consulting contract and Ms. Muhlenkamp’s employment agreement by denying them compensation and benefits allegedly provided by the terms of such contract and agreement upon their termination from the Company. Mr. Forster and Ms. Muhlenkamp seek damages of an undetermined amount. On August 9, 2004, the defendants removed the case to the U.S. District Court for the Middle District of Florida, Jacksonville Division. On August 16, 2004, the defendants moved to dismiss the litigation based on the Florida federal court’s lack of jurisdiction over the Company, DP&L and MVE, all of whom are companies based in Dayton, Ohio. In the alternative, the defendants requested that the court transfer the case to the U.S. District Court for the Southern District of Ohio, which has jurisdiction in Dayton, Ohio. On September 17, 2004, Mr. Forster and Ms. Muhlenkamp filed memoranda opposing these motions. On November 10, 2004, the U.S. District Court for the Middle District of Florida, Jacksonville Division granted defendants’ motion to dismiss this case.

On August 24, 2004, the Company, DP&L and MVE filed a Complaint against Mr. Forster, Ms. Muhlenkamp and Mr. Koziar in the Court of Common Pleas of Montgomery County, Ohio asserting legal claims against them relating to the termination of the Valley Partners Agreements, challenging the validity of the purported amendments to the Company’s deferred compensation plans and to the employment and consulting agreements with Messrs. Forster and Koziar and Ms. Muhlenkamp, and the propriety of the distributions from the plans to Messrs. Forster and Koziar and Ms. Muhlenkamp, and alleging that Messrs. Forster and Koziar and Ms. Muhlenkamp breached their fiduciary duties and breached their consulting and employment contracts. The Company, DP&L and MVE seek, among other things, damages in excess of $25 thousand, disgorgement of all amounts improperly withdrawn by Messrs. Forster and Koziar and Ms. Muhlenkamp from the deferred compensation plans and a court order declaring that the Company, DP&L and MVE have no further obligations under the consulting and employment contracts due to those breaches.

Defendants Forster, Koziar and Muhlenkamp filed motions to dismiss the Complaint and motions to stay discovery. The Company has filed briefs opposing those motions. In addition, pursuant to applicable statutes, regulations and agreements, the Company has been advancing certain of Defendants’ attorney’s fees and expenses with respect to various matters other than the litigation between Defendants and the Company in Florida and Ohio, and believes that other requested advances are not required. On February 7, 2005, Forster and Muhlenkamp filed a motion in the Company’s Ohio litigation seeking to compel the Company to pay all attorneys’ fees and expenses that it has not advanced to them. The Company has filed a brief opposing that motion. All of the foregoing motions are pending.

The Company continues to evaluate all of these matters and is considering other claims against Defendants Forster, Koziar and/or Muhlenkamp that include, but are not limited to, breach of fiduciary duty or other claims relating to personal and Company investments, the calculation of benefits under the SERP and financial reporting with respect to such benefits, and, with respect to Mr. Koziar, the fulfillment of duties owed to the Company as its legal counsel. Cumulatively through December 31, 2004 the Company has accrued for accounting purposes, obligations of approximately $40 million to reflect claims regarding deferred compensation, estimated MVE incentives and/or legal fees that Defendants assert are payable per contracts. The Company disputes Defendants’ entitlement to any of those sums and, as noted above, is pursuing litigation against them contesting all such claims. The Company cannot currently predict the outcome of that litigation.

On or about June 24, 2004, the SEC commenced a formal investigation into the issues raised by the Thobe Memorandum. The Company is cooperating with the investigation.

On April 7, 2004, the Company received notice that the staff of the PUCO is conducting an investigation into the financial condition of DP&L as a result of the issues raised by the Thobe Memorandum. On May 27, 2004, the PUCO ordered DP&L to file a plan of utility financial integrity that outlines the actions the Company has taken or will take to insulate DP&L utility operations and customers from its unregulated activities. DP&L was required to file this plan by March 2, 2005. On February 4, 2005, DP&L filed its protection plan with the PUCO and will continue to cooperate to resolve any outstanding issues in this investigation.

On May 20, 2004, the staff of the SEC notified the Company that it was conducting an inquiry covering the exempt status of the Company under the Public Utility Holding Company Act of 1935. The staff of the SEC has requested the Company provide certain documents and information on a voluntary basis. The Company is cooperating with the inquiry. On October 8, 2004, DPL received a notice from the SEC that a question exists as to whether such exemption from the Public Utility Holding Company Act may be detrimental to the public interest or the interests of investors or consumers. Under applicable rules, DPL would lose its exemption 30 days following this notice and be required to register as a holding company under the Public Utility Holding Company Act and become subject to additional regulation thereunder. However, on November 5, 2004, DPL delayed the requirement to become registered by filing a good faith application seeking an order of exemption from the Securities and Exchange Commission. DPL will remain exempt pending a decision from the Securities and Exchange Commission on that application. DPL cannot predict what action the Securities and Exchange Commission may take in connection with its application or whether it will be able to remain an exempt holding company.

On December 12, 2003, the Office of Federal Contract Compliance Programs (OFCCP) notified DP&L by letter alleging it had discriminated in the hiring of meter readers during 2000-2001 by utilizing credit checks to determine if applicants had paid their electric bills. On February 12, 2004, DP&L and the OFCCP entered into a Conciliation Agreement whereby DP&L agreed to distribute approximately $0.2 million in compensation to certain affected applicants. DP&L has completed these payments to the affected applicants.

In June 2002, a contractor’s employee received a verdict against DP&L for injuries he sustained while working at a DP&L power station. The Court awarded the contractor’s employee compensatory damages of approximately $0.8 million and prejudgment interest of approximately $0.6 million. On April 28, 2004, the appellate court upheld this verdict except the award for prejudgment interest. On September 1, 2004, the Ohio Supreme Court refused to hear the case, so the matter was remanded to the trial court for a re-determination of whether prejudgment interest should be awarded. The trial court heard this matter on October 15, 2004. On November 1, 2004, DP&L paid approximately $976 thousand to the contractor’s employee to satisfy the judgment and post-judgment interest. On December 6, 2004, the trial court ruled that the prejudgment interest should be reduced to approximately $30 thousand. Both parties have appealed this decision. The appeal is pending.

Additional information relating to legal proceedings involving DPL is contained in Item 1 – COMPETITION AND REGULATION, ENVIRONMENTAL CONSIDERATIONS, and Item 8 – Note 14 of Notes to Consolidated Financial Statements.

Item 4 - Submission of Matters to a Vote of Security Holders

DPL held its Annual Meeting of Shareholders on December 22, 2004 at which securityholders elected four directors nominated for three-year terms expiring 2007. The results of voting were as follows:

	FOR	WITHHELD	BROKER NO-VOTE
Robert D. Biggs	92,052,681	1,075,489	—
Glenn E. Harder	91,569,553	1,558,617	—
W August Hillenbrand	90,735,971	2,392,199	—
Ned J. Sifferlen	91,843,954	1,284,216	—

Securityholders also voted to ratify the selection of KPMG LLP as the Company’s independent auditor for 2004. The results of the voting were as follows:

FOR	AGAINST	ABSTAIN	BROKER NO-VOTE

92,273,218	485,691	369,258	—

Securityholders also voted against a shareholder proposal that recommended that all bonuses shall be based on performance, above and beyond what could normally be expected of an officer of the Company. The results of the voting were as follows:

FOR	AGAINST	ABSTAIN	BROKER NO-VOTE

11,767,946	43,909,888	4,705,918	32,744,415

PART II

Item 5 - Market for Registrant’s Common Equity and Related Stockholder Matters

As of December 31, 2004, there were 28,079 holders of record of DPL common equity, excluding individual participants in security position listings. The following table presents the high and low per share sales prices for DPL common stock as reported by the New York Stock Exchange for each quarter of 2004 and 2003.

	2004				2003
	High		Low		High		Low
First Quarter	$	20.77	$	17.60	$	16.75	$	11.95
Second Quarter	$	19.77	$	17.21	$	16.96	$	12.68
Third Quarter	$	20.64	$	19.02	$	17.15	$	14.55
Fourth Quarter	$	25.36	$	20.30	$	21.15	$	17.40

As long as any Preferred Stock is outstanding, DP&L’s Amended Articles of Incorporation contain provisions restricting the payment of cash dividends on any of its common stock if, after giving effect to such dividend, the aggregate of all such dividends distributed subsequent to December 31, 1946 exceeds the net income of DP&L available for dividends on its Common Stock subsequent to December 31, 1946, plus $1.2 million. As of year-end, all earnings reinvested in the business of DP&L were available for Common Stock dividends.

On April 30, 2004, the Company and DP&L announced that it suspended its quarterly dividend payments. On December 1, 2004, the Company and DP&L resumed its regular quarterly dividends, including payments normally made in June and September.

Additional information concerning dividends paid on DPL common stock is set forth under Selected Quarterly Information in Item 8 – Financial Statements and Supplementary Data.

Information regarding DPL’s equity compensation plans as of December 31, 2004, is disclosed in Item 12 – Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.

Item 6 - Selected Financial Data

			2004	2003	2002		2001	2000
	For the years ended December 31,
DPL Inc.:	Earnings per share of common stock (a)	$	1.81	1.24	0.76		1.62	1.81
	Dividends paid per share	$	0.96	0.94	0.94		0.94	0.94
	Dividend payout ratio	%	53.0	75.8	123.7		58.0	51.9
	Income before extraordinary item andcumulative effect of accountingchange (millions) (a)	$	217.3	131.5	91.1		195.8	277.1
	Electric revenues (millions)	$	1,189.8	1,181.0	1,173.5		1,186.2	1,108.0
	Gas revenues (millions) (b)	$	—	—	—		—	183.8
	Investment income (loss) (millions)	$	184.9	75.8	(102.4	)	26.7	86.6
	Total construction additions (millions)	$	98.0	102.2	165.9		338.9	343.9
	Market value per share at December 31	$	25.11	20.88	15.34		24.08	33.19

DPL Inc.:	Electric sales (millions of kWh) —
	Residential		5,140	5,071	5,302		4,909	4,816
	Commercial		3,777	3,699	3,710		3,618	3,540
	Industrial		4,393	4,330	4,472		4,568	4,851
	Other retail		1,407	1,409	1,405		1,369	1,370
	Total retail		14,717	14,509	14,889		14,464	14,577
	Wholesale		3,748	4,836	4,358		3,591	2,946
	Total		18,465	19,345	19,247		18,055	17,523

	Gas sales (thousands of MCF) (b)
	Residential		—	—	—		—	18,538
	Commercial		—	—	—		—	5,838
	Industrial		—	—	—		—	2,034
	Other		—	—	—		—	776
	Transported gas		—	—	—		—	16,105
	Total		—	—	—		—	43,291

	At December 31,
DPL Inc.:	Book value per share	$	8.67	7.52	6.89		7.13	7.52
	Total assets (millions)	$	4,165.5	4,444.7	4,277.7		4,370.8	4,551.8
	Long-term debt (millions) (c)	$	2,117.3	1,954.7	2,142.3		2,150.8	1,758.5
	Trust preferred securities (c)	$	—	—	292.6		292.4	550.0

	At December 31,
DPL Inc.:	Senior unsecured debt bond ratings —
	Fitch Ratings		BB	BBB	BBB		A-	A-
	Moody’s Investors Service		Ba3	Ba1	Baa2		Baa1	Baa1
	Standard & Poor’s Corporation		BB-	BB-	BBB-		BBB	BBB

DP&L:	First mortgage bond ratings —
	Fitch Ratings		BBB	A	A		AA	AA
	Moody’s Investors Service		Baa3	Baa1	A2		A2	A2
	Standard & Poor’s Corporation		BBB-	BBB-	BBB		BBB+	BBB+

	Number of Shareholders
DPL Inc.:	Common