10-K 1 a06-2328_110k.htm ANNUAL REPORT PURSUANT TO SECTION 13 AND 15(D)

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-K

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

SECURITIES EXCHANGE ACT OF 1934

ý For the fiscal year ended December 31, 2005

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		(I.R.S. Employer
incorporation or organization)		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		Name of each exchange on which registered
Common Stock, $0.01 par value and Preferred Share Purchase Rights		New York Stock Exchange

Outstanding at

February 28, 2006

126,556,404

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

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
Yes ý No o

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Exchange Act.

Yes o No ý

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. ý

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act.

Large accelerated filer ý

Accelerated filer o

Non-accelerated filer o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes o No ý

The aggregate market value of the registrant’s common stock held by non-affiliates of the registrant as of June 30, 2005 was approximately $3.5 billion based on a closing sale price on that date as reported on the New York Stock Exchange.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the registrant’s definitive proxy statement for its 2006 Annual Meeting of Shareholders are incorporated by reference in Part III of this Form 10-K.

DPL INC.

Index to Annual Report on Form 10-K

Fiscal Year Ended December 31, 2005

		Page No.
	Part I
Item 1	Business	3
Item 1a	Risk Factors	17
Item 1b	Unresolved Staff Comments	21
Item 2	Properties	21
Item 3	Legal Proceedings	22
Item 4	Submission of Matters to a Vote of Security Holders	25

	Part II
Item 5	Market for Registrant’s Common Equity, Related Shareholder Matters and Issuer Purchases of Equity Securities	25
Item 6	Selected Financial Data	27
Item 7	Management’s Discussion and Analysis of Financial Condition and Results of Operations	28
Item 7A	Quantitative and Qualitative Disclosures about Market Risk	47
Item 8	Financial Statements and Supplementary Data	48
Item 9	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure	94
Item 9A	Controls and Procedures	94
Item 9B	Other Information	94

	Part III
Item 10	Directors and Executive Officers of the Registrant	94
Item 11	Executive Compensation	95
Item 12	Security Ownership of Certain Beneficial Owners and Management and Related Shareholder Matters	95
Item 13	Certain Relationships and Related Transactions	95
Item 14	Principal Accountant Fees and Services	95

	Part IV
Item 15	Exhibits and Financial Statement Schedules	96

	Other
	Signatures	103
	Schedule II Valuation and Qualifying Accounts	105
	Subsidiaries of DPL Inc.
	Consent of Independent Registered Public Accounting Firm

Available Information

DPL Inc. (DPL, the Company, we, us, our, or ours unless the context indicates otherwise) 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 we file at the SEC’s public reference room located at 100 F Street N.E., Washington, D.C. 20549, USA. Please call the SEC at (800) SEC-0330 for further information on the public reference rooms. Our SEC filings are also available to the public from the SEC’s web site at http://www.sec.gov.

Our public internet site is http://www.dplinc.com. We make available, free of charge, through our internet site, our 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 our 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 we electronically file such material with, or furnish it to, the SEC.

In addition, our public internet site includes other items related to corporate governance matters, including, among other things, our governance guidelines, charters of various committees of the Board of Directors and our 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.

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

Our 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, one of our wholly-owned subsidiaries). 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.

Our significant subsidiaries (all of which are wholly-owned) include DPLE, which engages in the operation of peaking generating facilities; DPL Energy Resources, Inc. (DPLER), which sells retail electric energy under contract to major industrial and commercial customers in West Central Ohio; MVE, Inc., which was primarily responsible for the management of our financial asset portfolio; DPL Finance Company, Inc., which provides financing to us and our subsidiaries; and Miami Valley Insurance Company (MVIC), our captive insurance company that provides insurance sources to us and our subsidiaries.

We conduct our principal business in one business segment - Electric.

Under the recently-enacted Public Utility Holding Company Act of 2005, the Federal Energy Regulatory Commission (FERC) requires that utility holding companies comply with certain accounting, record retention and filing requirements. We believe we are exempt from these requirements because DP&L’s operations are confined to a single state. On January 31, 2006, we filed a FERC 65B Waiver Notification with the FERC, requesting that the FERC approve our waiver and avoid FERC regulation.

DPL and our subsidiaries employed 1,381 persons as of December 31, 2005, of which 1,147 were full-time employees and 234 were part-time employees.

SIGNIFICANT DEVELOPMENTS

Sale of Private Equity Funds

On February 13, 2005, our subsidiaries, 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. Sales proceeds and any related gains or losses were recognized as the sale of each fund closed. Among other closing conditions, each fund required the transaction to be approved by the respective general partner. During 2005, MVE and MVIC completed the sale of their interests in forty-three private equity funds and a portion of one private equity fund resulting in a $46.6 million pre-tax gain ($53.1 million less $6.5 million professional fees) from discontinued operations and providing approximately $796 million in net proceeds, including approximately $52 million in distributions from funds while held for sale. As part of this pre-tax gain, we realized $30 million that was previously recorded as an unrealized gain in other comprehensive income.

During this same period, MVE entered into alternative closing arrangements with AlpInvest/Lexington 2005, LLC for funds where legal title to said funds could not be transferred until a later time. Pursuant to these arrangements, MVE transferred the economic aspects of the remaining private equity funds, consisting of two funds and a portion of another fund, to AlpInvest/Lexington 2005, LLC without a change in ownership of the interests. The terms of the alternative arrangements do not meet the criteria for recording a sale. We are obligated to remit to AlpInvest/Lexington 2005, LLC any distributions MVE receives from these funds, and AlpInvest/Lexington 2005, LLC is obligated to provide funds to us to pay any contribution notice, capital call or other payment notice or bill for which MVE receives notice with respect to such funds. The alternative arrangements resulted in a deferred gain of $27.1 million until such terms of a sale can be completed (contingent upon receipt of general partner approvals of the transfer) and provided approximately $72.3 million in net proceeds on these funds. We recorded an impairment loss of $5.6 million to write down to estimated fair value the assets transferred pursuant to the alternative arrangements. Ownership of these funds will transfer after the general partners of each of the separate funds consent to the transfer. It is anticipated that this will occur no later than the first quarter of 2007.

Debt Reduction

During 2005 we used part of the proceeds from the sale of its private equity funds to retire all or part of four outstanding long-term debt issues in the aggregate amount of $446.6 million as described below.

On May 15, 2005 we redeemed all of the outstanding 7.83% Senior Notes due 2007 in the amount of $39 million. A premium of 5.38% was paid on the 7.83% Senior Notes that were redeemed.

On July 14, 2005, we extended an Offer to Purchase three debt securities for a maximum aggregate purchase price of $246 million. The Offer to Purchase was made in three tiers. The first tier was to purchase all the tendered 8.125% Capital Securities due 2031 up to the aggregate purchase price of $246 million. The second tier was to purchase as many of the tendered 6.875% Senior Notes due 2011 with funds remaining from the aggregate purchase price. If any funds were still remaining, the third tier was to purchase as many as possible of the tendered 8.0% Senior Notes due 2009.

On August 11, 2005, we executed the results of the Offer to Purchase and purchased $105.0 million of the 8.125% Capital Securities, $102.6 million of the 6.875% Senior Notes and none of the 8.0% Senior Notes. Premiums of 26.46% and 10.32% were paid on the 8.125% Capital Securities and on the 6.875% Senior Notes, respectively, that were tendered and accepted for purchase.

On August 29, 2005, we executed a make whole call option and purchased $200 million of the 8.25% Senior Notes due 2007. A premium of 5.69% was paid on the 8.25% Senior Notes that were tendered and accepted for purchase.

Stock Repurchase Plan

On July 27, 2005, our Board authorized the repurchase up to $400 million of stock from time to time in the open market through private transactions. During December 2005, a total of 406,000 shares at a cost of $10.6 million were repurchased and settled in January 2006. These shares are currently held as treasury shares. There were no other repurchases during 2005 and 2004.

Rate Stabilization Surcharge

On April 4, 2005, DP&L filed a request at the Public Utilities Commission of Ohio (PUCO) to implement a new rate stabilization surcharge effective January 1, 2006 to recover cost increases associated with environmental capital and related Operations and Maintenance costs, and fuel expenses. On November 3, 2005, DP&L entered into a settlement agreement that extended DP&L’s rate stabilization period through December 31, 2010. During this time, the Company will continue to provide retail electric service at fixed rates with the ability to recover increased fuel and environmental costs through surcharges and riders. Specifically, the agreement provides for:

• A rate stabilization surcharge equal to 11% of generation rates beginning January 1, 2006 and continuing through December 2010. Based on 2004 sales, this rider is expected to result in approximately $65 million in net revenues per year.

• A new environmental investment rider to begin January 1, 2007 equal to 5.4% of generation rates, with incremental increases equal to 5.4% each year through 2010. Based on 2004 sales, this rider is expected to result in approximately $35 million in annual net revenues beginning January 2007, growing to approximately $140 million by 2010.

• An increase to the residential generation discount from January 1, 2006 through December 31, 2008 which is expected to result in a revenue decrease of approximately $7 million per year for three years, based on 2004 sales. The residential discount will expire on December 31, 2008.

On December 28, 2005, the PUCO adopted the settlement with certain modifications (RSS Stipulation). The PUCO ruled that the environmental rider will be bypassable by all customers who take service from alternate generation suppliers. Future additional revenues are dependent upon actual sales and levels of customer switching. On February 22, 2006, the PUCO denied applications for rehearing filed by the Office of the Ohio Consumers’ Counsel (OCC), as well as Ohio Partners for Affordable Energy.

Collective Bargaining Agreement Ratification

On December 2, 2005, Local 175 of the Utility Workers of America ratified a new three year collective bargaining agreement with DP&L. Major components include: 3%, 2% and 2.5% annual wage increases over three years, improvements to the pension and 401(k) programs, increases in DP&L’s contribution to employees’ healthcare costs, employment security for three years, measurable productivity and service improvements, an emergency response program targeted to enhance customer service response time and changes in DP&L’s illness benefits. On December 31, 2005, 760 employees were members of Local 175.

Increase in Dividends on Common Stock

On February 1, 2006, our Board of Directors announced that it had raised the quarterly dividend to $0.25 per share payable March 1, 2006 to common shareholders of record on February 14, 2006. This increase results in an annualized dividend rate of $1.00 per share, or a 4% increase.

Governmental and Regulatory Inquiries

On April 7, 2004, we received notice that the staff of the PUCO was conducting an investigation into the financial condition of DP&L as a result of previously disclosed matters raised by one of our executives during the 2003 year-end financial closing process (the Memorandum). On May 27, 2004, the PUCO ordered DP&L to file a plan of utility financial integrity that outlined the actions the Company had 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. On June 29, 2005, the PUCO closed its investigation citing significant positive actions we had taken including changes in our Board of Directors as well as our executive management of DP&L, and that no apparent diminution of service quality had occurred because of the events that initiated the investigation.

On May 20, 2004, the staff of the SEC notified us that it was conducting an inquiry covering our exempt status under the Public Utility Holding Company Act of 1935 (the ‘35 Act). The staff of the SEC requested we provide certain documents and information on a voluntary basis. On October 8, 2004, we received a notice from the SEC that a question existed as to whether such exemption from the Public Utility Holding Company Act was detrimental to the public interest or the interests of investors or consumers. On November 5, 2004, we filed a good faith application seeking an order of exemption from the SEC. In light of the repeal of the ‘35 Act, effective February 8, 2006, and based upon the information previously provided to the staff of the SEC, this inquiry is moot.

On March 3, 2005, DP&L received a notice that the Federal Energy Regulatory Commission (FERC) had instituted an operational audit of DP&L regarding its compliance with the Code of Conduct within the transmission and generation areas. On October 7, 2005, the FERC issued its Findings and Conclusions, stating that DP&L “generally complied with the FERC Standard of Conduct” except for three areas, all of which were corrected to the satisfaction of the FERC prior to the issuance of these Findings and Conclusions.

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 our common stock for an exercise price of $21.00. Additionally, as a part of Dayton Ventures, LLC’s investment in us, we sold and issued 6,800,000 shares of voting preferred shares, 200,000 shares of which we redeemed in 2001. During December 2004 and January 2005 in four transactions, Dayton Ventures, LLC transferred all of its warrants to an unaffiliated third party which has subsequently transferred approximately 25 million warrants to unaffiliated third parties. In conjunction with transactions in 2005, we repurchased at par of $0.01 per share 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 was no longer eligible to receive an annual $1 million management, consulting and financial services fee and Dayton Ventures, LLC no longer had the right to designate one person to serve as a DPL and DP&L director or to designate one person to serve as a non-voting observer on DPL and DP&L Boards of Directors.

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.

DP&L filed an Electric Transition Plan with the PUCO and received regulatory approval of the plan on September 21, 2000 which provided for a three-year market development period and specified rates, which included the recovery of approximately $600 million in transition costs.

On October 28, 2002, DP&L filed with the PUCO a request for an extension of its market development period through December 31, 2005. On September 2, 2003, the PUCO adopted a Stipulation entered into by DP&L and certain parties to the proceeding with modifications (the MDP Stipulation). The MDP Stipulation also provided 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 conditionally approved an increase to the residential generation discount commencing January 1, 2006. The PUCO’s decision was appealed to the Ohio Supreme Court. On December 17, 2004, the Ohio Supreme Court affirmed the PUCO’s Order, approving the MDP Stipulation.

As a part of the MDP 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. During 2005, approximately 51 thousand residential customers that volunteered for the program were bid out to Competitive Retail Electric Service (CRES) providers who were registered in DP&L’s service territory. In August 2005, the fourth and final bid took place, however no bids were received and the 2005 program ended. As part of the RSS Stipulation, DP&L agreed to implement the Voluntary Enrollment Program again in 2006 and 2007. The magnitude of any customer switching and the financial impact of this program were not material to our 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 requested 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 rate stabilization period. DP&L submitted comments in March 2003. The PUCO issued final rules on December 23, 2003. Under DP&L’s RSS Stipulation discussed above, these rules will not affect DP&L until January 1, 2011. However, the PUCO retains the authority to, at any time, require an Ohio electric utility to conduct a competitive bidding process to measure the market price of competitive retail generation.

As of December 31, 2005, four 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 2005. 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 their generation load.

There was a complaint filed on January 21, 2004 at the PUCO concerning the pricing of DP&L’s billing services. Previously, on December 16, 2003, a complaint was filed at the PUCO alleging that DP&L had 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 that resolves all matters in the barrier to competition 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. This Order gives DP&L the right to defer costs of approximately $16 million and later file for recovery over a five year period, subject to PUCO approval. The Office of the Ohio Consumers’ Counsel (OCC) filed a Motion for Rehearing which was later denied by the PUCO and on May 23, 2005, the OCC appealed the order to the Ohio Supreme Court. On June 17, 2005, DP&L filed a subsequent case, requesting PUCO approval for recovery of the deferred billing costs plus carrying charges beginning January 1, 2006. If approved as proposed, this new rider will result in approximately $7 million in additional annual revenue through 2010. A hearing was held on January 23, 2006, and a PUCO decision is pending in this case. On August 16, 2005, the OCC filed a Complaint against DP&L in Mercer County Common Pleas Court relating to billing costs that may be charged to residential customers. DP&L filed a motion to dismiss the case. On February 24, 2006, the OCC filed a notice of voluntary dismissal of the Mercer County proceeding.

On September 1, 2005, DP&L filed an application requesting the PUCO grant it authority to recover distribution costs associated with storm restoration efforts for ice storms that took place in December

2004 and January 2005. On February 10, 2006, DP&L filed updated schedules in support of its application upon discussions with PUCO Staff. If approved as proposed, this new rider is designed to recover over $6.5 million in previously deferred costs plus carrying costs for a total of $8.6 million over a two year period. (See Note 3 of Notes to Consolidated Financial Statements.)

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.

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 51 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, the world's largest, competitive wholesale electricity market, and plans regional transmission expansion improvements to maintain grid reliability and relieve congestion.

As a member of PJM, the value of DP&L’s generation capacity may be affected by a PJM proposal pending before The Federal energy Regulatory Commission (FERC). The proposal introduces a new Reliability Pricing Model (RPM) that would change the way generation capacity is priced and planned for by PJM. The outcome of this proceeding is uncertain at this time.

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

As of December 31, 2004, DP&L had invested a total of approximately $18.0 million in its efforts to join an RTO. On March 8, 2005, DP&L, along with Commonwealth Edison and American Electric Power Service Corporation, filed to recover a portion of integration expenses to join an RTO. On May 6, 2005, FERC approved the filing subject to certain modifications, allowing for recovery to begin in 2005. Recovery of these costs is dependent on pending settlement discussions.

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, plus carrying charges, until such time as DP&L obtained the authority to adjust its rates to recover this cost from customers (i.e., after January 1, 2006). On June 1, 2005, the PUCO authorized DP&L to defer the PJM administrative fee, plus carrying charges incurred after the date of our application. On July 1, 2005, the OCC filed an Application for

Rehearing, which was subsequently denied by the PUCO, and on September 9, 2005 the case was appealed to the Ohio Supreme Court. On July 1, 2005, DP&L filed a subsequent case requesting PUCO authority for recovery of the PJM administrative fee from retail customers. On January 25, 2006, the PUCO issued an order approving the tariff as filed, which should result in approximately $8 million in additional revenue per year for three years beginning in February 2006. On February 13, 2006, the OCC filed an application for rehearing claiming the PUCO erred by not conducting a hearing and rejecting the OCC’s request for intervention. Commission action on the rehearing application is pending.

On July 23, 2003, the FERC issued an Order that the rates for transmission service of seven companies, including DP&L, may be unjust, unreasonable, or unduly discriminatory or preferential. DP&L is operating under FERC-approved rates through December 2008. In addition, the FERC ordered transitional payments, known as Seams Elimination Charge Adjustment (SECA), effective December 1, 2004 through March 31, 2006, subject to refund. Through this proceeding, we are obligated to pay SECA charges to other utilities but we receive a net benefit from these transitional payments. Several parties have sought rehearing of the FERC orders and there likely will be appeals filed in the matter. All motions for rehearing are pending. The hearing is scheduled to take place in May 2006. Beginning May 2005, DP&L began receiving these FERC ordered transitional payments and has received over $23 million of SECA collections, net of SECA charges, through December 2005. DP&L management believes that appropriate reserves have been established in the event that SECA collections are required to be refunded. The ultimate outcome of the proceeding establishing SECA rates is uncertain at this time. However, based on the amount of reserves established for this item, the results of this proceeding are not expected to have a material adverse effect on DP&L’s financial condition, results of operations or cash flows.

On May 31, 2005, the FERC instituted a proceeding under Federal Power Act Section 206 concerning the justness and reasonableness of PJM’s rate design. This proceeding sets the rates for hearing and requests that all of PJM members, which include DP&L, address the justness and reasonableness of the current rate design. On November 22, 2005, DP&L, along with ten other transmission owners, filed in support of PJM’s existing rate design. DP&L cannot determine what effect, if any, the outcome of this proceeding may have on its future recovery of transmission revenues. An April 18, 2006 hearing is scheduled in this case.

On August 8, 2005, the Energy Policy Act of 2005 (the 2005 Act) was enacted. This new law encompasses several areas including, but not limited to: electric reliability, repeal of the Public Utility Holding Company Act of 1935, promotion of energy infrastructure, preservation of a diverse fuel supply for electricity generation and energy efficiency. As a result of this legislation, the PUCO initiated an investigation to review their actions with respect to net metering, smart metering and demand response, cogeneration, and interconnection standards. The PUCO received comments on this proceeding and has established a series of technical conferences. At the conclusion of the conferences, parties will have an opportunity to provide additional comments by April 28, 2006. The PUCO could approve new regulatory requirements as a result of this proceeding. Also in response to the Energy Policy Act of 2005, on September 1, 2005, the FERC issued a Notice of Proposed Rulemaking to amend its regulations to incorporate the criteria any entity must satisfy to qualify to be an Electric Reliability Organization (ERO) that will propose and enforce reliability standards subject to FERC approval. The proposed rule also included related matters on delegating ERO authority, the creation of advisory bodies and reporting requirements. Other rulemakings are expected as a result

of the Energy Policy Act of 2005, such that DP&L cannot at this time measure the financial, operating and reporting impact of this new law.

On October 11, 2005, the FERC issued a proposed rulemaking relating to significant modifications to the FERC’s regulations on the Public Utility Regulatory Policies Act (PURPA). A final rule was issued on February 2, 2006 that supports the development of new cogeneration facilities that truly conserve energy. The new rules (1) assume new cogeneration facilities of 5 megawatts or less satisfy the requirement that the thermal output of the new cogeneration facility is used in a productive and beneficial manner; (2) ensure that there is continuing progress in the development of efficient electric energy generating technology and extend existing efficiency standards from gas and oil-fired qualified facilities to coal-fired qualifying facilities; (3) partially eliminate qualifying facility exemptions from regulation under the Federal Power Act; and (4) require that 50 percent of the annual energy output of the facility will be used for industrial, commercial, institutional or residential purposes and not sold to a utility. The impact of this rule change on DP&L is unclear at this time.

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. On October 7, 2005, the FERC issued its Findings and Conclusions, stating that DP&L “generally complied with the FERC’s Standard of Conduct” with a few recommendations that were corrected to the satisfaction of the FERC prior to the issuance of their Findings and Conclusions.

On April 7, 2004, DP&L received notice that the staff of the PUCO was conducting an investigation into the financial condition of DP&L as a result of financial reporting and governance issues raised by the 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 expressed its intention to continue to cooperate with the PUCO in their investigation. On March 29, 2005, the OCC filed comments with the PUCO on DP&L’s financial plan of integrity, requesting the PUCO continue the investigation and monitor DP&L’s progress toward implementation of its financial plan of integrity. On June 29, 2005, the PUCO closed its investigation, citing significant positive actions taken by DP&L including changes in the Board of Directors as well as executive management of DP&L, and that no apparent diminution of service quality has occurred because of the events that initiated the investigation.

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, we transferred $5 million from our operating cash to our subsidiary, MVIC, in satisfaction of this requirement during the fourth quarter of 2004. In 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. During 2005 the private equity financial assets owned by MVIC were sold along with the rest of the private equity funds. MVIC distributed dividends to DPL from the proceeds of these sales. During the review of the second quarter financial statements, we noted that these transactions inadvertently caused the shareholder equity of MVIC to fall below the required level. In discussions with the Vermont Department of Banking, Insurance, Securities and Health Care Administration it was decided that we would maintain a loss reserve to shareholder equity ratio of 3:1 in MVIC. As a result, during the third quarter of 2005 we transferred $12.3 million from our operating cash to MVIC in satisfaction of this new requirement.

CONSTRUCTION ADDITIONS

Construction additions were $180 million, $98 million and $102 million in 2005, 2004 and 2003, respectively, and are expected to approximate $365 million in 2006. Planned construction additions

for 2006 relate to DP&L’s environmental compliance program, power plant equipment, and its transmission and distribution system.

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 three years, we are projecting to spend an estimated $750 million in capital projects, approximately 60% of which is to meet changing environmental standards. Our ability to complete capital projects and the reliability of future service will be affected by our financial condition, the availability of internal funds and the reasonable cost of external funds, and adequate and timely return on these capital investments. We expect to finance our construction additions in 2006 with a combination of cash and short-term investments on hand, tax-exempt debt and 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 our operations cannot be estimated at this time.

ELECTRIC OPERATIONS AND FUEL SUPPLY

Our present summer generating capacity – including Peaking Units — is approximately 4,405 MW. Of this capacity, approximately 2,856 MW or 65% is derived from coal-fired steam generating stations and the balance of approximately 1,549 MW or 35% 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. Our all-time net peak load was 3,243 MW, occurring July 25, 2005.

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) or its subsidiary, Union Heat, Light & Power, 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 2005, we generated 99% of our 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

Operating

MW Rating

Station

Ownership*

Company

Location

DPL Portion

Total

Coal Units

Hutchings

DP&L

Miamisburg, OH

365

Killen

DP&L

Wrightsville, OH

412

615

Stuart

DP&L

Aberdeen, OH

832

2,376

Conesville-Unit 4

CSP

Conesville, OH

129

780

Beckjord-Unit 6

CG&E

New Richmond, OH

207

414

Miami Fort-Units 7 & 8

CG&E

North Bend, OH

360

1,000

East Bend-Unit 2

CG&E

Rabbit Hash, KY

186

600

Zimmer

CG&E

Moscow, OH

365

1,300

Combustion Turbines or Diesel

Hutchings

DP&L

Miamisburg, OH

Yankee Street

DP&L

Centerville, OH

107

Monument

DP&L

Dayton, OH

Tait Diesels

DP&L

Dayton, OH

Sidney

DP&L

Sidney, OH

Tait Units 1-3

DP&L

Moraine, OH

256

Killen

DP&L

Wrightsville, OH

Stuart

DP&L

Aberdeen, OH

Greenville Units 1-4

DPLE

Greenville, OH

192

Darby Station Units 1-6

DPLE

Darby, OH

438

Montpelier Units 1-4

DPLE

Montpelier, IN

192

Tait Units 4-7

DPLE

Moraine, OH

292

Total approximate summer generating capacity

4,405

9,012

*W = Wholly-Owned

C = Commonly-Owned

We have approximately 95% of the total expected coal volume needed for 2006 under contract. The percentage of coal under contract at our individual facilities is as low as 80%. Contracted coal volumes at certain facilities exceed 100% of the expected need. Due to the differences in contracted volumes at various facilities, it is expected we will be in the spot market for more than 5% of our 2006 coal volume at some facilities while we may make no spot purchases at other facilities. We may have excess coal volumes to meet 2007 needs at some facilities. The majority of our contracted coal is purchased at fixed prices. Some contracts provide for periodic adjustment and some are priced based on market indices. Substantially all contracts have features that limit price escalations in any given year. Our 2006 emission allowance (SO2) consumption is expected to be similar to 2005. Our holdings of 2006 SO2 allowances are approximately equal to its expected needs. There may be small exchanges of allowances between 2006 and future years to balance our 2006 position. We do not expect to purchase allowances outright for 2006. The exact consumption of SO2 allowances will depend on market prices for power, availability of our generating units and the actual sulfur content of the coal burned.

The average cost of fuel used per kilowatt-hour (kWh) generated was 1.93¢ in 2005, 1.56¢ in 2004 and 1.33¢ in 2003.

SEASONALITY

The power generation and delivery business is seasonal and weather patterns have a material impact on operating performance. In the region served by our subsidiaries, demand for electricity is generally greater in the summer months associated with cooling and in the winter months associated with heating as compared to other times of the year. Historically, the power generation and delivery operations of our subsidiaries have generated less revenue and income when weather conditions are warmer 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 Office of the Ohio Consumers’ Counsel (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 Sheets. (See Note 3 of Notes to Consolidated Financial Statements.)

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. Governance also includes 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 and new legislation could be enacted that may affect our 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 two 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.

On March 1, 2000, the United States Department of Justice filed a complaint against Cinergy Corporation and two subsidiaries (USA v. Cinergy Corp. et al) for alleged violations of the CAA at various generation units operated by PSI Energy, Inc. and CG&E. The complaint was amended June 24, 2004 and includes generation units operated by CG&E and co-owned by DP&L (Beckjord 6 and Miami Fort 7). The suit seeks (1) injunctive relief to require installation of pollution control technology on various generating units at CG&E’s W.C. Beckjord and Miami Fort Stations, and PSI’s Cayuga, Gallagher, Wabash River, and Gibson Stations, and (2) civil penalties in amounts of up to $27,500 per day for each violation. In addition, three northeast states and two environmental groups have intervened in the case. In August 2005, the district court issued a ruling regarding the emissions test that it will apply to Cinergy at the trial of the case. Contrary to Cinergy’s argument, the district court ruled that in determining whether a project was projected to increase annual emissions, it would not hold hours of operation constant. However, the district court subsequently certified the matter for interlocutory appeal to the Seventh Circuit Court of Appeals, which has the discretion to accept the appeal at this time. Oral arguments have been scheduled for May 29, 2006.

In June 2000, the USEPA issued a NOV to DP&L-operated Stuart Generating 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. The NOV indicated EPA may (1) issue an order requiring compliance with the requirements of the Ohio SIP or (2) bring a civil action seeking injunctive relief and civil penalties of up to $27,500 per day for each violation. To date, neither action has been taken.

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 case is currently in discovery; a trial date has not been set.

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. The plaintiffs have filed a number of additional notices of intent to sue and two lawsuits raising claims similar to those in the original claim. One lawsuit was dismissed on procedural grounds and the remaining two have been consolidated. The plaintiffs have filed for class action status; a decision has not yet been reached on this 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 January 6, 2006, the court ordered the consolidation of this case with another similar suit; a trial date for the remedy phase of the consolidated cases has not yet been set.

On October 27, 2003, the USEPA published its final rules regarding the equipment replacement provision (ERP) of the routine maintenance, repair and replacement (RMRR) exclusion of the CAA. Subsequently, on December 24, 2003, the United States 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 the stay, the Ohio Environmental Protection Agency (Ohio EPA) delayed its previously announced intent to adopt the RMRR rule. On October 20, 2005, USEPA proposed to revise the emissions test for existing electric generating units. At this time, we are unable to determine the impact of the ERP appeal or the outcome of the proposed emission test.

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 nitrogen oxide (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. On May 31, 2004, DP&L began operation of its Selective Catalytic Reduction equipment (SCRs). DP&L’s NOx reduction strategy and incurred 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 NOx emissions from electric utilities. The proposed IAQR focused 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). The final rules were signed on March 10, 2005 and were published on May 12, 2005. On August 24, 2005, the USEPA proposed additional revisions to the CAIR and initiated reconsideration on one issue. Although we cannot predict the outcome of the

reconsideration proceedings, the petitions or pending litigation, CAIR has had and will have a material effect on our operations. We anticipate that Phase I of CAIR will require the installation of flue gas desulphurization (FGD) equipment and continual operation of the currently-installed SCR. As a result, DP&L is proceeding with the installation of FGD equipment at various generating units.

On January 30, 2004, the USEPA published its proposal to restrict mercury and other air toxics from coal-fired and oil-fired utility plants. The final Clean Air Mercury Rule (CAM-R) was signed March 15, 2005 and was published on May 18, 2005. The final rules will have a material effect on our operations. We anticipate that the FGD being planned to meet the requirements of CAIR may be adequate to meet the Phase I requirements of CAM-R. We expect that additional controls will be needed to meet the Phase II requirements of CAM-R that go into effect January 1, 2018. On March 29, 2005, nine states sued USEPA, opposing the regulatory approach taken by USEPA. On March 31, 2005, various groups requested that USEPA stay implementation of CAM-R. On August 4, 2005, the United States Court of Appeals for the District of Columbia denied the motion for stay. EPA is expected to initiate reconsideration proceedings on one or more issues. We cannot predict the outcome of the reconsideration proceedings or pending litigation.

Under the CAIR and CAM-R cap and trade programs for SO_2,NOx and mercury, we estimate we will spend more than $453 million from 2006 through 2008 to install the necessary pollution controls. If CAM-R litigation results in plant specific mercury controls, our costs may be higher. Due to the ongoing uncertainties associated with the litigation of the CAM-R, we 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. Ohio EPA will have until April 15, 2007 to develop regulations to attain and maintain compliance with the eight-hour ozone national ambient air quality standard. Numerous parties have filed petitions for review. DP&L cannot predict the outcome of USEPA’s reconsideration petitions.

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. On November 30, 2005, the court ordered USEPA to decide on all petitions for reconsideration by January 20, 2006. On January 20, 2006, USEPA denied the petitions for reconsideration. 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 the petition for review 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. A number of parties appealed the rules to the federal Court of Appeals for the Second Circuit in New York. The Company anticipates that future studies may be needed at certain generating facilities. We cannot predict the impact such studies may have on future operations or the outcome of litigation proceedings.

On May 5, 2004, the USEPA issued its proposed regional haze rule, which addresses how states should determine the best available retrofit technology (BART) for sources covered under the regional haze rule. Final rules were published July 6, 2005, providing States with several options for determining whether sources in the State should be subject to BART. In the final rule, USEPA made

the determination that CAIR achieves greater progress than BART and may be used by States as a BART substitute. Numerous units owned and operated by us will be impacted by BART. We cannot determine the extent of the impact until Ohio determines how BART will be implemented.

On May 4, 2004, the Ohio EPA issued a final National Pollutant Discharge Elimination System 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.

On October 13, 2005, the USEPA issued a proposed rule concerning the test for measuring whether modifications to electric generating units should trigger application of New Source Review (NSR) standards under the CAA. The proposed rule seeks comments on two different hourly emissions test options as well as the USEPA’s current method of measuring previous actual emission levels to projected actual emission levels after the modification. A third option that tests emissions increase based upon emissions per unit of energy output is also available for comment. We cannot predict the outcome of this rulemaking or its impact on current environmental litigation.

Land Use

In September 2002, DP&L and other parties received a special notice that the USEPA considers us to be PRPs for the clean-up of hazardous substances at the South Dayton Dump landfill site. On August 4, 2005, DP&L and other parties received a general notice regarding the performance of a Remedial Investigation and Feasibility Study (RI/FS) under a Superfund Alternative approach. On October 5, 2005, DP&L received a special notice letter inviting it to enter into negotiations with USEPA to conduct the RI/FS. Although the information available to DP&L does not demonstrate that it contributed hazardous substances to the site, DP&L will seek from USEPA a de minimis settlement at the site. Should USEPA pursue a civil action, DP&L will vigorously challenge it.

DPL INC.

OPERATING STATISTICS

ELECTRIC OPERATIONS

	Years Ended December 31,
	2005		2004		2003
Electric Sales (millions of kWh)
Residential	5,520		5,140		5,071
Commercial	3,901		3,777		3,699
Industrial	4,332		4,393		4,330
Other retail	1,437		1,407		1,409
Total retail	15,190		14,717		14,509

Wholesale	2,716		3,748		4,836

Total	17,906		18,465		19,345

Operating Revenues ($ in thousands)
Residential	$	478,226	$	449,411	$	442,239
Commercial	276,157		267,831		264,067
Industrial	220,453		223,335		221,961
Other retail	81,716		80,370		80,583
Other miscellaneous revenues	10,069		15,863		12,895
Total retail	1,066,621		1,036,810		1,021,745

Wholesale	133,283		135,129		159,250

RTO ancillary revenues	74,419		17,905		—

Other revenues, net of fuel costs	10,586		10,054		9,970

Total	$	1,284,909	$	1,199,898	$	1,190,965

Electric Customers at End of Period
Residential	456,146		453,653		450,958
Commercial	48,853		48,172		47,253
Industrial	1,837		1,851		1,863
Other	6,304		6,337		6,322

Total	513,140		510,013		506,396

Item 1a – Risk Factors

This annual report and other documents that we file with the SEC and other regulatory agencies, as well as other oral or written statements we may make from time to time, contain information based on management’s beliefs and include forward-looking statements (within the meaning of the Private Securities Litigation Reform Act of 1995) that involve a number of known and unknown risks, uncertainties and assumptions. These forward-looking statements are not guarantees of future performance, and there are a number of factors including, but not limited to, those listed below, which could cause actual outcomes and results to differ materially from the results contemplated by such forward-looking statements. We do not undertake any obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. These forward-looking statements are identified by terms and phrases such as “anticipate”, “believe”, “intend”, “estimate”, “expect”, “continue”, “should”, “could”, “may”, “plan”, “project”, “predict”, “will”, and similar expressions.

The following is a listing of risk factors that we consider to be the most significant to your decision to invest in our stock. If any of these events occurs, our business, financial position or results of operation could be materially affected.

Our stock price may fluctuate

The market price of our common stock has fluctuated over a wide range. In addition, the stock market in recent years has experienced significant price and volume variations that have often been unrelated to our operating performance. Over the past three years, the market price of our common stock has fluctuated with a low of $11.95 and a high of $28.12. The market price of our common stock may continue to fluctuate in the future and may be affected adversely by factors such as actual or anticipated changes in our operating results, acquisition activity, changes in financial estimates by securities analysts, general market conditions, rumors and other factors.

The electric industry in Ohio is partially deregulated

Before 2001, electric utilities provided electric generation, transmission and distribution services as a single product to retail customers at prices set by The Public Utilities Commission of Ohio (PUCO). But in 1999, Ohio enacted legislation, effective January 1, 2001, that partially deregulated utility service, making retail generation service a competitive service. Customers may choose to take generation service from competitive retail electric service (CRES) providers that register with the PUCO but are otherwise unregulated. In connection with this partial deregulation of the electric

industry in Ohio, electric utilities have had to restructure their service and their rates to accommodate competition.

Many of the requirements of the Ohio deregulation law were premised on the assumption that the wholesale generation market and, in turn, the retail generation market, would fully develop by the end of 2005, and that the price for generation for even those customers who choose to continue to purchase the service from the regulated utility would be set purely by the market. But that did not occur. As a result, the Commission and the utilities, including DP&L, have worked out plans to provide market-based pricing for generation service, but also to stabilize those rates for several years. What DP&L may propose, and what the PUCO will approve, in the future regarding pricing and cost recovery will depend on the degree to which the wholesale and retail electric generation markets have developed.

Moreover, the uncertainty of the future of the wholesale and retail markets could cause the Ohio General Assembly to revisit the issue of competition and customer choice.

Although there has not yet been significant switching by DP&L’s customers to CRES providers, that could occur in the future.

Although retail generation service has been a competitive service since January 1, 2001, the competitive generation market has not developed in DP&L’s service territory to any significant degree. But there are factors that could result in increased switching by customers to CRES providers in the future:

• Voluntary Enrollment Procedure

As part of a settlement in a PUCO proceeding, DP&L initiated, in November 2004, a voluntary enrollment procedure (VEP) to encourage customers to change electric suppliers. Although the VEP did not result in a significant increase in the number of customers switching to CRES providers, the VEP will be initiated again in 2006 and 2007 and could produce different results.

• CRES Supplier Initiatives

Even without the VEP, customers can elect to take generation service from a competitive retail electric service (CRES) provider. As of December 31, 2005, five CRES providers have been certified by the PUCO to provide generation service in DP&L’s service territory. One of those five, DPL Energy Resources, Inc. (DPLER), is an affiliate of DP&L. Although DPLER has accounted for nearly all of the load served by CRES providers in DP&L’s service territory since retail competition began in 2001, that could change. Depending on the development of the wholesale market and the level of wholesale prices, CRES providers could become more active in DP&L’s service territory and could begin to offer better prices than they do now. This could result in more switching by DP&L’s customers and a further loss by DP&L of its generation business.

• Governmental Aggregation Programs

Another possible way in which DP&L could lose generation customers is through “governmental aggregation,” which was permitted in the restructuring legislation. Under this program, municipalities may contract with a CRES provider to provide generation service to the customers located within the municipal boundaries. Several communities in DP&L’s service territory have passed ordinances allowing them to become government aggregators. Although none has yet implemented an aggregation program, that too, could change if CRES providers are able to make lower-priced offers as a result of decreasing prices in the wholesale market.

DP&L’s ability to increase its rate to recover increased costs is limited.

As a result of the failure of the market to develop as anticipated, DP&L has proposed to stabilize its market-based generation rates rather than subject customers to the volatile rates that would otherwise be applicable in the absence of the rate stabilization plan. DP&L’s distribution rates will be unchanged through December 31, 2008 and its generation rates will be maintained through December 31, 2008. Although the PUCO has approved several riders that will permit DP&L to offset increases in fuel and environmental costs, the environmental rider is not payable by customers that take generation service from a CRES provider. Thus, a significant migration of customers from DP&L’s generation service to CRES providers could affect DP&L’s ability to recover those costs. Moreover, DP&L will not be able to adjust its rates during the rate stabilization period for increases in other expenses or to recover capital expenditures.

DP&L has agreed to provide service at pre-determined rates through December 31, 2010, which limits its ability to pass through its costs to customers.

DP&L has provided service at rates governed by the PUCO-approved transition, market development, and rate stabilization plans. Those rates have included a statutorily-required 5% residential rate reduction in the generation component of its rates, a further 2.5% reduction to the residential generation rate, with its generation rates frozen through December 31, 2010, and guaranteed distribution rates through December 31, 2008. The protection afforded by retail fuel clause recovery mechanisms was eliminated effective January 1, 2001 by the implementation of customer choice in Ohio. The RSS Stipulation (as defined above), although subject to judicial review, extends DP&L’s commitment to maintain pre-determined rates for distribution through December 31, 2008, with limited ability to recover certain costs after December 31, 2005. Likewise, through the RSS Stipulation, DP&L extended its commitment to maintain pre-determined rates for generation through December 31, 2010, and in exchange is permitted to charge two new rate riders to offset increases in fuel and environmental costs. Beginning January 1, 2006 a new Rate Stabilization Surcharge was implemented that should recover approximately $60 to $65 million additional revenue in 2006, net of customer discounts and considering less than a full twelve months recovery due to the timing of the PUCO order. The new environmental investment rider could result in approximately $35 million additional revenue in 2007, net of customer discounts and assuming no customer switching. The PUCO ruled this rider will be bypassable by all customers who take service from alternative generation suppliers. Accordingly, the rates DP&L is allowed to charge may or may not match its expenses at any given time. Therefore, during this period (or possibly earlier by order of the PUCO), and, thereafter, while DP&L will be subject to prevailing market prices for electricity, it would not necessarily be able to charge rates that produce timely or full recovery of its expenses. DP&L has historically maintained its rates at consistent levels since 1994, when the last phase of DP&L’s last traditional rate case was implemented. However, as DP&L operates under its PUCO-approved RSS Stipulation, there can be no assurance that DP&L would be able to timely or fully recover unanticipated levels of expenses, including but not limited to those relating to fuel, coal and purchased power, compliance with environmental regulation, reliability initiatives, and capital expenditures for the maintenance or repair of its plants or other properties.

There are uncertainties relating to the ultimate development of Regional Transmission Organizations (RTOs), including the PJM to which DP&L has given control of its transmission functions.

On October 1, 2004, DP&L gave PJM control of its transmission functions and fully integrated into PJM. Problems or delays that may arise in the operation of RTOs may restrict DP&L’s ability to sell power produced by its generating capacity to certain markets if there is insufficient transmission capacity otherwise available. The rules governing the various regional power markets may also change from time to time which could affect DP&L’s costs and revenues. While RTO rates are designed to be revenue neutral, DP&L’s revenues from customers to whom they currently provide transmission services could decrease. DP&L will incur fees and increased costs to participate in an RTO, it may be limited with respect to the price at which power may be offered for sale from certain generating units, and it may be required to expand its transmission system according to decisions

made by an RTO rather than its internal planning process. Because the RTO market rules are continuing to evolve, we cannot fully assess the impact that these power markets or other ongoing RTO developments may have on DP&L and us.

We rely principally on coal as the fuel to operate virtually all of the power plants that serve our customers daily. We are dependant on our coal suppliers to continually supply our power plants to avoid an interruption in our generation of electricity.

Some of our coal suppliers have not performed their contracts as promised and have failed to timely deliver all coal as specified under their contracts. Such failure could significantly reduce DP&L’s inventory of coal and may cause DP&L to purchase higher priced coal on the spot market. When the failure is for a short period of time, DP&L can absorb the irregularity due to existing inventory levels. If we are required to purchase coal on the spot market, it may affect our cost of operations.

There are additional factors, including, but not limited to, regulation and competition, economic conditions, reliance on third parties, operating results fluctuations, regulatory uncertainties and litigation, warrant exercise, internal controls and environmental compliance, that may affect our future results.

Regulation/Competition

We operate in a rapidly changing industry with evolving industry standards and regulations. In recent years a number of federal and state developments aimed at promoting competition triggered industry restructuring. Regulatory factors, such as changes in the policies and procedures that set rates; changes in tax laws, tax rates, and environmental laws and regulations; changes in DP&L’s ability to recover expenditures for environmental compliance, fuel and purchased power costs and investments made under traditional regulation through rates; and changes to the frequency and timing of rate increases can affect our results of operations and financial condition. Changes in our customer base, including municipal customer aggregation, could lead to the entrance of competitors in our marketplace, affecting our results of operations and financial condition. Additionally, financial or regulatory accounting principles or policies imposed by governing bodies can increase our operational and monitoring costs affecting our results of operations and financial condition.

Economic Conditions

Economic pressures, as well as changing market conditions and other factors related to physical energy and financial trading activities, which include price, credit, liquidity, volatility, capacity, transmission, and interest rates can have a significant effect on our operations and the operations of our retail, industrial and commercial customers.

On October 8, 2005, Delphi Corporation filed for Chapter 11 bankruptcy protection in the U.S. Bankruptcy Court for the Southern District of New York. Delphi represents approximately 1% of our annual revenues.

During the past few years, the merchant energy industry in many parts of the United States has suffered from oversupply of merchant generation and a decline in trading and marketing activity. These market conditions are expected to continue for several years. As a result of these market conditions, we continue to evaluate the carrying values of certain long-lived generation assets.

Reliance on Third Parties

We rely on many suppliers for the purchase and delivery of inventory, including coal, and equipment components to operate our energy production, transmission and distribution functions. Unanticipated changes in our purchasing processes, delays and supplier availability may affect our business and operating results. In addition, we rely on others to provide professional services, such as, but not limited to, actuarial calculations, internal audit services, payroll processing and various consulting services.

Operating Results Fluctuations

Future operating results are subject to fluctuations based on a variety of factors, including but not limited to: unusual weather conditions; catastrophic weather-related damage; unscheduled generation outages; unusual maintenance or repairs; changes in coal costs, gas supply costs, emissions allowance costs, or availability constraints; environmental compliance; and electric transmission system constraints.

Regulatory Uncertainties and Litigation

In the normal course of business, we are subject to various lawsuits, actions, proceedings, claims and other matters asserted under laws and regulations. Additionally, we are subject to diverse and complex laws and regulations, including those relating to corporate governance, public disclosure and reporting, and taxation, which are rapidly changing and subject to additional changes in the future. As further described in Item 3 - "Legal Proceedings," we are also currently involved in various pieces of litigation in which the outcome is uncertain. Compliance with these rapid changes may substantially increase costs to our organization and could affect our future operating results.

Warrant Exercise

Our warrant holders could exercise their 31,560,000 warrants at their discretion until March 12, 2012. As a result, we could be required to issue up to 31,560,000 common shares in exchange for the receipt of the exercise price of $21.00 per share or pursuant to a cashless exercise process. The exercise of all warrants could have a significant dilutive effect on us and would increase our common share dividend cost and may affect any existing guidance on basic earnings per share.

Internal Controls

Our internal controls, accounting policies and practices, and internal information systems are designed to enable us to capture and process transactions in a timely and accurate manner in compliance with accounting principles generally accepted in the United States of America (GAAP), laws and regulations, taxation requirements, and federal securities laws and regulations. We implemented corporate governance, internal control and accounting rules issued in connection with the Sarbanes-Oxley Act of 2002. Our internal controls and policies have been and continue to be closely monitored by management and our Board of Directors to ensure continued compliance with Section 404 of the Act. While we believe these controls, policies, practices and systems are adequate to verify data integrity, unanticipated and unauthorized actions of employees, temporary lapses in internal controls due to shortfalls in oversight or resource constraints could lead to improprieties and undetected errors that could impact our financial condition, cash flows or results of operations.

Environmental Compliance

Our generating facilities (both wholly-owned and co-owned with others) are subject to continuing federal and state environmental laws and regulations. We believe that we currently comply with all existing federal and state environmental laws and regulations. We own a non-controlling, minority interest in several generating stations operated by The Cincinnati Gas & Electric Company (CG&E) or its affiliate, Union Heat, Light & Power, and Columbus Southern Power Company (CSP). Either or both of these parties are likely to take steps to ensure that these stations remain in compliance with applicable environmental laws and regulations. As non-controlling owners in these generating stations, we will be responsible for our pro rata share of these expenditures based upon our ownership interest.

Item 1b – Unresolved Staff Comments

None

Item 2 - Properties

Electric

Information relating to our properties is contained in Item 1 – CONSTRUCTION ADDITIONS, and ELECTRIC OPERATIONS AND FUEL SUPPLY, and Note 10 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 and Refunding Mortgage, dated as of October 1, 1935 with the Bank of New York, as Trustee (Mortgage).

Item 3 - Legal Proceedings

In the normal course of business, we are subject to various lawsuits, actions, proceedings, claims and other matters asserted under laws and regulations. We believe the amounts provided in our consolidated financial statements, as prescribed by GAAP, for these matters are adequate in light of the probable and estimable contingencies. However, there can be no assurances that the actual amounts may be 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 our Consolidated Financial Statements. As such, costs, if any, that may be incurred in excess of those amounts provided as of December 31, 2005, cannot be reasonably determined.

On August 24, 2004, we, and our subsidiaries DP&L and MVE, filed a Complaint against Mr. Forster, Ms. Muhlenkamp and Mr. Koziar (the Defendants) 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 deferred compensation plans and to the employment and consulting agreements with the Defendants, and the propriety of the distributions from the plans to the Defendants, and alleging that the Defendants breached their fiduciary duties and breached their consulting and employment contracts. We, DP&L and MVE seek, among other things, damages in excess of $25,000, disgorgement of all amounts improperly withdrawn by the Defendants from the plans and a court order declaring that we, DP&L and MVE have no further obligations under the consulting and employment contracts due to those breaches.

The Defendants filed motions to dismiss the Complaint, which the Court subsequently denied. On June 15, 2005, Defendants filed their answers denying liability and filed counterclaims against us, DP&L, MVE, various compensation plans (the Plans), and against the then-current members of our Board of Directors and two of our former Board members. These counterclaims allege generally that DPL, DP&L, MVE, the Plans and the individual defendants breached the terms of the employment and consulting contracts of the Defendants, and the terms of the Plans. They further allege theories of breach of fiduciary duty, breach of contract, promissory estoppel, tortious interference, conversion, replevin and violations of ERISA under which they seek distribution of deferred compensation balances, conversion of stock incentive units, exercise of options and payment of amounts allegedly owed under the contracts and the Plans. Defendants’ counterclaims also demand payment of attorneys’ fees. Motions to dismiss certain of the counterclaims were denied on February 23, 2006.

On March 15, 2005, Mr. Forster and Ms. Muhlenkamp filed a lawsuit in New York state court against the purchasers of the private equity investments in the financial asset portfolio and against outside counsel to us and DP&L concerning purported entitlements in connection with the purchase of those investments. We, DP&L and MVE are not defendants in that case; however, the three of us are parties to an indemnification agreement with respect to the purchaser defendants.

We, DP&L and MVE filed a Motion for Preliminary Injunction in the Ohio case, requesting that the court issue a preliminary injunction against Mr. Forster and Ms. Muhlenkamp regarding the New York lawsuit. On August 18, 2005, the Ohio court issued a preliminary injunction against Mr. Forster and Ms. Muhlenkamp that precludes them from pursuing certain key issues raised by Mr. Forster and Ms. Muhlenkamp in their New York lawsuit that are identical to the issues raised in the pending Ohio lawsuit in the New York court or any other forum other than the Ohio litigation. In addition, the New York court has stayed the New York litigation pending the outcome of the Ohio litigation. Mr. Forster and Ms. Muhlenkamp have appealed the preliminary injunction and the appeal is pending at the Ohio Supreme Court.

The parties continue to proceed with the discovery phase of the litigation, and a number of motions have been filed and briefed with respect to document discovery and depositions. The trial court granted some and overruled some of these pending motions on February 23, 2006.

We continue to evaluate all of the matters relevant to this litigation and are considering other claims against Defendants, Forster, Muhlenkamp and Koziar that include, but are not limited to, breach of fiduciary duty or other claims relating to personal and DPL investments, the calculation of benefits under the Supplemental Executive Retirement Program (SERP) and financial reporting with respect to such benefits, and with respect to Mr. Koziar, the fulfillment of duties owed to us as our legal counsel. Cumulatively through December 31, 2005, we have accrued for accounting purposes, obligations of approximately $52 million to reflect claims regarding deferred compensation, estimated MVE incentives and/or legal fees that Defendants assert are payable per contracts. We dispute Defendants’ entitlement to any of those sums and, as noted above, are pursuing litigation against them contesting all such claims.

On or about June 24, 2004, the SEC commenced a formal investigation into the issues raised by the Memorandum. We are cooperating with the investigation.

On April 7, 2004, the Company received notice that the staff of the PUCO was conducting an investigation into the financial condition of DP&L as a result of the issues raised by the 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. On June 29, 2005, the PUCO closed its investigation, citing significant positive actions we had taken including changes in the Board of Directors as well as the executive management of DP&L, and that no apparent diminution of service quality had occurred because of the events that initiated the investigation.

On May 20, 2004, the staff of the SEC notified us that it was conducting an inquiry covering our exempt status under the Public Utility Holding Company Act of 1935 (the ‘35 Act). The staff of the SEC requested we provide certain documents and information on a voluntary basis. On October 8, 2004, we 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. On November 5, 2004, we filed a good faith application seeking an order of exemption from the SEC. In light of the repeal of the ‘35 Act, effective February 8, 2006, and based upon the information previously provided to the staff of the SEC, this inquiry is moot.

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

On June 24, 2004, the Internal Revenue Service (IRS) began an audit of tax years 1998 through 2003 and issued a series of data requests to us including issues raised in the Memorandum. The staff of the IRS has requested that we provide certain documents, including but not limited to, matters concerning executive/director deferred compensation plans, management stock incentive plans and MVE financial statements. On September 1, 2005, the IRS issued an audit report for tax years 1998 through 2003 that shows proposed changes to our federal income tax liability for each of those years. The proposed changes result in a total tax deficiency, penalties and interest of approximately $23.9 million as of December 31, 2005. On November 4, 2005, we filed a written protest to one of the proposed changes. We believe we are adequately reserved for any tax deficiency, penalties and interest resulting from the proposed changes and as a result, the proposed changes did not adversely affect our results from operations.

We are also under audit review by various state agencies for tax years 2002 through 2004. We have also filed an appeal to the Ohio Board of Tax Appeals for tax years 1998 through 2001. Depending upon the outcome of these audits and the appeal, we may be required to increase our tax provision if actual amounts ultimately determined exceed recorded reserves. We believe we have adequate reserves in each tax jurisdiction but cannot predict the outcome of these audits.

On February 13, 2006, we received correspondence from the Ohio Department of Taxation (ODT) notifying us that ODT has completed their examination and review of our Ohio Corporation Franchise Tax Returns for tax years 2002 through 2004 and that the final proposed audit adjustments result in a balance due of $90.8 million before interest and penalties. We have reviewed the proposed audit adjustments and plan to vigorously contest the ODT findings and forthcoming notice of assessment through all administrative and judicial means available. We believe we have recorded adequate tax reserves related to the proposed adjustments; however, we cannot predict the outcome which could be material to our results of operations and cash flows.

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 and supplied to the OFCCP all follow-up reports required under the Conciliation Agreement.

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 Adams County Court of Common Pleas 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 4th District Court of Appeals 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 Adams County Court of Common Pleas for a re-determination of the amount of prejudgment interest that should be awarded. The trial court heard this matter on October 15, 2004. On November 1, 2004, DP&L paid approximately $976,000 to the contractor’s employee to satisfy the judgment and post-judgment interest. On December 6, 2004, the Adams County Court of Common Pleas ruled that the prejudgment interest should be reduced to approximately $30 thousand. Both parties appealed this decision. On January 25, 2006, the Fourth District Court of Appeals ruled in DP&L’s favor, finding it owed no prejudgment interest to the Plaintiff.

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

In November 2005, AMP-Ohio, a wholesale supplier of electricity to its thirteen member municipalities, requested arbitration of its power supply agreement with DP&L. AMP-Ohio alleges it has a right to receive certain capacity credits. DP&L disagrees with this position and has agreed to arbitrate the dispute. The arbitration is pending. We are unable at this time to determine whether this will have any material impact on our results of operations, cash flows or financial position.

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

NONE

PART II

Item 5 - Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

As of December 31, 2005, there were 26,061 holders of record of our 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 2005 and 2004.

	2005		2004
	High	Low	High	Low
First Quarter	$ 26.77	$ 24.27	$ 20.77	$ 17.60
Second Quarter	$ 27.67	$ 24.08	$ 19.77	$ 17.21
Third Quarter	$ 28.12	$ 26.70	$ 20.64	$ 19.02
Fourth Quarter	$ 28.01	$ 24.55	$ 25.36	$ 20.30

As long as DP&L 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 DP&L common stock dividends. We expect all 2006 earnings reinvested in the business of DP&L to be available for DP&L common stock dividends, payable to DPL.

Issuer Purchases of Equity Securities
	(a)	(b)	(c)	(d)
Period	Total Number of Shares (or Units) Purchased	Average Price Paid per Share (or Unit)	Total Number of Shares (or Units) Purchased as Part of Publicly Announced Plans or Programs (1)	Maximum Number (or Approximate Dollar Value) of Shares (or Units) that May Yet Be Purchased Under the Plans or Programs

December 1-31, 2005	406,000	$26.10	406,000	$389.4 million

(1) Our Board announced the common share repurchase program in a press release dated July 28, 2005. In this announcement our Board authorized up to $400 million to be spent on the repurchase program without a specified expiration date. During December 2005, a total of 406,000 shares at a cost of $10.6 million were repurchased and settled in January 2006. These common shares are currently held as treasury shares. There were no other repurchases during 2005 and 2004.

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

On February 1, 2006, our Board of Directors authorized a 4% dividend increase on our common stock, raising the annual dividend on common shares from $0.96 per share to $1.00 per share.

On July 27, 2005, our Board authorized the repurchase up to $400 million of stock from time to time in the open market, through private transactions. During December 2005 a total of 406,000 shares at a cost of $10.6 million were repurchased and settled in January 2006. These shares are currently held as treasury shares. There were no other repurchases during 2005 and 2004.

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 our equity compensation plans as of December 31, 2005, is disclosed in Item 12 — Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters, which incorporates such information by reference to our proxy statement for the 2006 Annual Meeting of Shareholders.

Item 6 - Selected Financial Data

		2005			2004		2003		2002		2001
	For the years ended December 31,
DPL Inc.:	Basic earnings (loss) per share of common stock:
	Continuing operations	$	1.03		1.01		0.96		1.48		1.87
	Discontinued operations	$	0.44		0.80		0.14		(0.72	)	(0.26	)
	Cumulative effect of accounting change (a)	$	(0.03	)	—		0.14		—		0.01
	Total basic earnings per common share	$	1.44		1.81		1.24		0.76		1.62
	Diluted earnings (loss) per share of common stock:
	Continuing operations	$	0.97		1.00		0.94		1.42		1.75
	Discontinued operations	$	0.41		0.78		0.14		(0.69	)	(0.24	)
	Cumulative effect of accounting change (a)	$	(0.03	)	—		0.14		—		0.01
	Total diluted earnings per common share	$	1.35		1.78		1.22		0.73		1.52

	Dividends paid per share	$	0.96		0.96		0.94		0.94		0.94
	Dividend payout ratio	66.7		%	53.0	%	75.8	%	123.7	%	58.0	%
	Earnings from continuing operations, net of tax	$	124.7		121.5		114.9		177.6		227.0
	Earnings (loss) from discontinued operations, net of taxes	$	52.9		95.8		16.6		(86.5	)	(31.2	)
	Cumulative effect of accounting change, net of taxes (a)	$	(3.2	)	—		17.0		—		1.0
	Net income	$	174.4		217.3		148.5		91.1		196.8

	Revenues (millions)	$	1,284.9		1,199.9		1,191.0		1,186.4		1,201.8
	Total construction additions (millions)	$	179.7		98.0		102.2		165.9		338.9
	Market value per share at December 31	$	26.01		25.11		20.88		15.34		24.08

DPL Inc.:	Electric sales (millions of kWh)
	Residential	5,520			5,140		5,071		5,302		4,909
	Commercial	3,901			3,777		3,699		3,710		3,618
	Industrial	4,332			4,393		4,330		4,472		4,568
	Other retail	1,437			1,407		1,409		1,405		1,369
	Total retail	15,190			14,717		14,509		14,889		14,464
	Wholesale	2,716			3,748		4,836		4,358		3,591
	Total	17,906			18,465		19,345		19,247		18,055