UNITED
STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
|X| ANNUAL
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal
year ended December 31, 2002
OR
|_| 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 Identification No.) | |
| incorporation or organization) | ||
| 1065 Woodman Drive, Dayton, Ohio | 45432 | |
| (Address of principal executive offices) | (Zip Code) |
Registrant’s telephone number, including area code: 937-224-6000
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Outstanding
at December 31, 2002 |
Name
of each exchange on which registered | ||
| |
|
| ||
| Common Stock, $0.01 par value | ||||
| and Preferred Share Purchase Rights | 126,501,404 | New York Stock Exchange |
Securities registered pursuant to Section 12(g) of the Act: NONE
Indicate by check mark 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. |_|
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 |X| NO |_|
Indicate by check mark whether the registrant is an accelerated filer (as defined in Exchange Act Rule 126-2). YES |X| NO |_|
The aggregate market value of the common stock held by nonaffiliates of the registrant as of December 31, 2002 was $1,940,531,537 based on a closing price of $15.34 on such date.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the definitive Proxy Statement for the 2003 Annual Meeting of Shareholders of the registrant are incorporated by reference into Part III.
DPL INC.
Index to
Annual Report on Form 10-K
Fiscal Year Ended December 31, 2002
Available Information
DPL makes available free of charge on or through its Internet website its annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and amendments to those reports as soon as reasonably practicable after such material is electronically filed with or furnished to the SEC. DPL’s Internet website address is www.dplinc.com.
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PART I
Item 1 - BusinessDPL INC.
DPL Inc. (“DPL”) was organized in 1985 under the laws of Ohio to engage in the acquisition and holding of securities of corporations for investment purposes. The executive offices of DPL are located at 1065 Woodman Drive, Dayton, Ohio 45432 - telephone (937) 224-6000.
DPL’s principal subsidiary is The Dayton Power and Light Company (“DP&L”). DP&L is a public utility incorporated under the laws of Ohio in 1911. 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 generated at eight power plants and is distributed to more than 500,000 retail customers. Principal industries served include automotive, food processing, paper, technology, and defense. DP&L’s sales reflect the general economic conditions and seasonal weather patterns of the area.
Other subsidiaries of DPL include DPL Energy, LLC (“DPLE”), which engages in the operation of peaking generating facilities, and marketing of wholesale electric energy; Plaza Building, Inc., which owns all the capital stock of MVE, Inc.; MVE, Inc., which provides financial support services to DPL and its subsidiaries; and Miami Valley Insurance Company, an insurance company for DPL and its subsidiaries.
DPL and its subsidiaries are exempt from registration with the Securities and Exchange Commission under the Public Utility Holding Company Act of 1935 because its utility business operates solely in Ohio.
DPL and its subsidiaries employed 1,478 persons as of December 31, 2002, of which 1,231 were full-time employees and 247 were part-time employees.
COMPETITION
In October 1999, legislation became effective in Ohio that gave electric utility customers a choice of energy providers as of January 1, 2001. Under the legislation, electric generation, aggregation, 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 Public Utilities Commission of Ohio (“PUCO”). As required by the legislation, DP&L filed its transition plan at the PUCO on December 20, 1999. DP&L received PUCO approval of its plan on September 21, 2000.
The transition plan provides for a three-year transition period, which began on January 1, 2001 and ends on December 31, 2003. The plan also provides for a 5% residential rate reduction on the generation component of the rates, which reduced annual revenue by approximately $14 million; rate certainty for the three-year period
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for customers that continue to purchase power from DP&L; guaranteed rates for a six-year period for transmission and delivery services; and recovery of transition costs of approximately $600 million. Under the plan, DPL has the organizational and financial flexibility to continue its growth initiatives.
On October 28, 2002, DP&L filed with the PUCO requesting an extension of its market development period from December 31, 2003 to December 31, 2005. If approved by the PUCO as requested, the extension of the market development period will continue DP&L’s current rate structure and provide its retail customers with rate stability. It is unknown when the PUCO will rule on this request.
On September 30, 1996, the Federal Energy Regulatory Commission (“FERC”) conditionally accepted DP&L’s market-based sales tariff, which allowed DP&L to sell wholesale generation supply at prices that reflect current market prices. At the same time, the FERC approved the application and authorization of DPLE to sell and broker wholesale electric power and also charge market-based prices for such power. DPL Energy Resources, Inc. and Miami Valley Lighting, LLC filed at the FERC for market-based rate authority on November 16, 2000 and received FERC authority on December 13, 2000 and December 15, 2000, respectively. DPL Energy Resources, Inc. received approval from the PUCO on December 8, 2000 to provide competitive retail electric service. On September 27, 2002, DP&L filed an updated market power analysis with the FERC in support of its authority to sell power at market-based rates.
DPL competes through its principal subsidiaries, DP&L and DPLE. DP&L competes with privately and municipally owned electric utilities and rural electric cooperatives, and other alternate fuel suppliers on the basis of price and service. DPLE markets over 4,600 megawatts of generation capacity in retail and wholesale energy markets.
Like other utilities and energy marketers, DP&L and DPLE from time to time have electric generating capacity available for sale on the wholesale market. DP&L and DPLE compete with other generators to sell electricity provided by such capacity. 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. In addition, from time to time, DP&L makes power purchases from other suppliers.
DP&L provides transmission and wholesale electric service to twelve municipal customers, which distribute electricity within their corporate limits. In addition to these municipal customers, DP&L maintains an interconnection agreement with one municipality that has the capability to generate a portion of its energy requirements. Sales to municipalities represented 1.2% of total electricity sales in 2002.
The municipal agreements provide, among other things, for the sale of firm power by DP&L to the municipalities on specified terms. However, the parties disagreed in their interpretation of this portion of the agreement and DP&L filed suit against the eleven municipalities on December 28, 1998. The dispute was subsequently settled in 1999. In December 1999, DP&L filed a second suit against the municipalities to claim the municipalities’ initial failure to pay for certain services rendered under the contract. The municipalities filed a complaint at the FERC claiming violation of a mediation clause. On November 4, 2002, the FERC issued an order in the case that was favorable to DP&L, and is not expected to result in a material impact on DP&L’s financial position.
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The FERC issued a final rule on December 20, 1999 specifying the minimum characteristics and functions for Regional Transmission Organizations (“RTO”). The rule required that all public utilities that own, operate, or control interstate transmission lines file a proposal to join an RTO by October 15, 2000 or file a description of efforts taken to participate in an RTO, reasons for not participating in an RTO, any obstacles to participation in an RTO, and any plans for further work toward participation. DP&L filed with the FERC on October 16, 2000 to join the Alliance RTO. On December 19, 2001, the FERC issued an order rejecting the Alliance RTO as a stand-alone RTO. However, on April 24, 2002, the FERC approved the Alliance RTO companies’ proposal to form an independent transmission company that will operate under the umbrella of an existing RTO. As of December 31, 2002, DPL had invested approximately $8 million in its efforts to join the Alliance RTO. The FERC recognized in its order that substantial losses were incurred to establish the Alliance RTO and that it would consider proposals for rate recovery of prudently incurred costs.
On May 28, 2002, DP&L filed a notice with the FERC stating its intention to join the PJM Interconnection, L.L.C. (“PJM”), an organization responsible for the operation and control of the bulk electric power system throughout major portions of five Mid-Atlantic states and the District of Columbia. On July 31, 2002, the FERC granted DP&L conditional approval to join PJM. On September 30, 2002, DP&L signed an implementation agreement with PJM with the expectation that DP&L will be fully integrated into the PJM market by May 1, 2003. On December 11, 2002, DP&L executed the PJM West Transmission Owners Agreement and along with the other new PJM companies, jointly submitted the PJM Open Access Transmission Tariff (“OATT”) filing. This filing adopts a transitional rate design that will maintain revenue and cost neutrality while eliminating all seams within the newly expanded PJM.
On September 12, 2002, the Ohio Consumers’ Counsel, Industrial Energy Users-Ohio and American Municipal Power-Ohio, Inc. filed a complaint with the PUCO alleging that DP&L had failed to join and transfer operational control to a FERC approved RTO. DP&L filed a motion to dismiss the complaint on October 24, 2002. While DP&L intends to vigorously defend this case, the impact of the complaint cannot be determined at this time.
On July 31, 2002, the FERC issued a Standard Market Design Notice of Proposed Rulemaking (“SMD NOPR”). The SMD NOPR establishes a set of rules to standardize wholesale electric market design to create wholesale competition and efficient transmission systems. The impact of this proposed rulemaking on DP&L cannot be determined at this time.
On July 22, 1998, the PUCO approved the implementation of Minimum Electric Service and Safety Standards for all of Ohio’s investor-owned electric utilities. This order details minimum standards of performance for a variety of service-related functions, effective July 1, 1999. On December 21, 1999, the PUCO issued additional rules proposed by the PUCO staff, which were designed to guide the electric utility companies as they prepare to enter into deregulation. These rules include certification of providers of competitive retail electric services, minimum competitive retail electric service standards, monitoring the electric utility market, and establishing procedures for alternative dispute resolution. There were also rules issued to amend existing rules for noncompetitive electric service and safety standards and electric companies long-term
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forecast reporting. DP&L submitted comments on the proposed rules on January 31, 2000. The rules were finalized by the PUCO in June 2000 and did not have a material impact on DP&L’s financial position.
On March 21, 2002, the PUCO staff proposed modifications to the Minimum Electric Service and Safety Standards, which establish performance standards for various service related functions of investor-owned electric utilities. The proposed modifications impact billing, collections, allocation of customer payments, meter reading, and distribution circuit performance. DP&L submitted comments and reply comments on the proposed rules, and filed an application for rehearing on October 26, 2002. The PUCO issued the final rules on September 26, 2002, but has granted applications for rehearing to provide more time for rule review. The cost to DP&L of compliance with these rules is unknown at this time.
CONSTRUCTION PROGRAM
Construction additions are expected to approximate $110 million in 2003 and were $166 and $339 million in 2002 and 2001, respectively. The capital program includes the development of natural gas-fired combustion turbine generation peaking units and environmental compliance as follows:
| $ in millions | 2003* | 2002 | 2001 | ||||
| Generation peaking units | $ — | $35 | $ | 173 | |||
| Environmental compliance | 40 | 69 | 58 | ||||
*Expected
Current year construction expenditures included significant progress on DPL’s NOx compliance program, power plant maintenance, and the completion of DPL’s combustion turbine program. The final phase of the combustion turbine program came on line in July 2002, adding 480 megawatts valued at $179 million. DPL’s generating capacity now totals more than 4,600 megawatts, with a generation mix of 65% low-cost coal-fired and 35% natural gas-fired generation. DPL has not contracted for further capacity additions.
Construction plans are subject to continuing review and are expected to be revised in light of changes in financial and economic conditions, load forecasts, legislative and regulatory developments and changing environmental standards, among other factors. DPL’s ability to complete its capital projects and the reliability of future service will be affected by its financial condition, the availability of external funds at reasonable cost, and adequate and timely rate recovery. DPL expects to finance its construction program in 2003 with internal 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 impact of these events on DPL’s operations cannot be estimated at this time.
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ELECTRIC OPERATIONS AND FUEL SUPPLY
DPL’s present winter generating capability is 4,787,000 KW. Of this capability, 2,843,000 KW (approximately 59%) is derived from coal-fired steam generating stations and the balance consists of combustion turbine and diesel-powered peaking units. Approximately 87% (2,472,000 KW) of the existing steam generating capability is provided by certain units owned as tenants in common with The Cincinnati Gas & Electric Company (“CG&E”) or with CG&E and Columbus Southern Power Company (“CSP”). 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.
The remaining steam generating capability (371,000 KW) is derived from a generating station owned solely by DP&L. DP&L’s all-time net peak load was 3,130,000 KW, occurring in 1999. The present summer generating capability is 4,447,000 KW.
| MW Rating | ||||||||||
| Operating | DPL | |||||||||
| Station | Ownership* | Company | Location | Portion | Total | |||||
| Coal Units | ||||||||||
| Hutchings | W | DP&L | Miamisburg, OH | 371 | 371 | |||||
| Killen | C | DP&L | Wrightsville, OH | 402 | 600 | |||||
| Stuart | C | DP&L | Aberdeen, OH | 820 | 2,340 | |||||
| Conesville-Unit 4 | C | CSP | Conesville, OH | 129 | 780 | |||||
| Beckjord-Unit 6 | C | CG&E | New Richmond, OH | 210 | 420 | |||||
| Miami Fort-Units 7 & 8 | C | CG&E | North Bend, OH | 360 | 1,000 | |||||
| East Bend-Unit 2 | C | CG&E | Rabbit Hash, KY | 186 | 600 | |||||
| Zimmer | C | CG&E | Moscow, OH | 365 | 1,300 | |||||
| Combustion Turbines or Diesel | ||||||||||
| Hutchings | W | DP&L | Miamisburg, OH | 33 | 33 | |||||
| Yankee Street | W | DP&L | Centerville, OH | 138 | 138 | |||||
| Monument | W | DP&L | Dayton, OH | 12 | 12 | |||||
| Tait | W | DP&L | Dayton, OH | 10 | 10 | |||||
| Sidney | W | DP&L | Sidney, OH | 12 | 12 | |||||
| Tait Gas Turbines 1-3 | W | DP&L | Moraine, OH | 304 | 304 | |||||
| Killen | C | DP&L | Wrightsville, OH | 16 | 24 | |||||
| Stuart | C | DP&L | Aberdeen, OH | 3 | 10 | |||||
| Greenville | W | DPLE | Greenville, OH | 236 | 236 | |||||
| Darby Station Units 1-6 | W | DPLE | Darby, OH | 480 | 480 | |||||
| Montpelier Units 1-4 | W | DPLE | Montpelier, IN | 224 | 224 | |||||
| Tait Units 4-7 | W | DPLE | Moraine, OH | 320 | 320 | |||||
| *W = Wholly-Owned | ||||||||||
| C = Commonly Owned | ||||||||||
In order to transmit energy to their respective systems from their commonly owned generating units, the companies have constructed and own, as tenants in common, 847 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 July 2001, DPL completed a 40.2-mile long, 345,000-volt circuit between CG&E’s Foster
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Substation and DP&L’s Bath Substation. The circuit is jointly owned by DP&L and CG&E.
DP&L generated 97% of its electric output from coal-fired units in 2002. The remainder was from oil or natural gas-fired units, which were used to meet peak demands.
DP&L has contracted approximately 95% of its total coal requirements for 2003 with the balance to be obtained by spot market purchases. The prices to be paid by DP&L under its long-term coal contracts are subject to adjustment in accordance with various indices. Each contract has features that will limit price escalations in any given year.
The average fuel cost per kilowatt-hour (“kWh”) generated of fuel burned for electric generation (coal, gas and oil) for the year was 1.26¢ in 2002, 1.31¢ in 2001, and 1.18¢ in 2000. With the onset of competition in January 2001, the Electric Fuel Component became part of the Standard Offer Generation Rate. See RATE REGULATION AND GOVERNMENT LEGISLATION and ENVIRONMENTAL CONSIDERATIONS.
GAS OPERATIONS AND GAS SUPPLY
In October 2000, DP&L completed the sale of its natural gas retail distribution assets and certain liabilities for $468 million in cash. The transaction resulted in a pre-tax gain of $183 million ($121 million net of taxes). Proceeds from the sale were used to finance the regional generation expansion and reduce outstanding short-term debt.
On June 30, 2001, MVR sold substantially all of its customer contracts. The sale of these contracts did not have a material effect on overall results.
RATE REGULATION AND GOVERNMENT LEGISLATION
DP&L’s sales to retail customers are subject to rate regulation by the PUCO and various municipalities. DP&L’s wholesale electric rates to municipal corporations and other distributors of electric energy are subject to regulation by the FERC under the Federal Power Act.
Ohio law establishes the process for determining rates charged by public utilities. Regulation of rates encompasses the timing of applications, the effective date of rate increases, the cost basis upon which the rates are based and other related matters. Ohio law also establishes the Office of the Ohio Consumers’ Counsel (the “OCC”), which has the authority to represent residential consumers in state and federal judicial and administrative rate proceedings.
Ohio legislation extends the jurisdiction of the PUCO to the records and accounts of certain public utility holding company systems, including DPL. The legislation extends the PUCO’s supervisory powers to a holding company system’s general condition and capitalization, among other matters, to the extent that they relate to the costs associated with the provision of public utility service.
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Based on existing regulatory authorization, regulatory assets on the Consolidated Balance Sheet include:
| At December 31, | ||||||
| ($ in millions) | 2002 | 2001 | ||||
| Regulatory transition costs (a) | $ | 49.3 | $ | 97.2 | ||
| Income taxes recoverable through | ||||||
| future revenues (b) | 34.6 | 39.2 | ||||
| Other costs (b) | 21.8 | 20.7 | ||||
| Total | $ | 105.7 | $ | 157.1 | ||
(a) As discussed in the COMPETITION section, DP&L received PUCO approval of its transition plan for the deregulation of its generation business. Accordingly, DP&L discontinued the use of its regulatory accounting model for its generation operations. As a result, a $63.7 million before tax benefits ($41.4 million net of taxes) reduction of generation-related regulatory assets was recorded in the third quarter of 2000 as an extraordinary item and other generation-related regulatory assets were reclassified to the “Regulatory transition costs” asset.
(b) Certain deferred costs remain authorized for recovery by regulators. These relate primarily to DP&L’s electric transmission and distribution operations and are being amortized over the recovery period of the assets involved.
Under the legislation passed in 1999, the percentage of income payment plan (“PIPP”) for eligible low income households was converted to a Universal Service Fund in 2001. The universal service program is administered by the Ohio Department of Development and provides for full recovery of arrearages for qualifying low income customers. As part of DP&L’s Electric Transition Plan, DP&L was granted authority to recover PIPP arrearages remaining as of December 31, 2000 as part of a transition charge.
In 2000, the PUCO amended the rules for Long-Term Forecast Reports for all investor-owned electric transmission and distribution companies in Ohio. Under these rules, each transmission and/or distribution company must annually file a Long-Term Electric Forecast Report, which presents 10-year energy and demand transmission and distribution forecasts. The reports also must contain information on the company’s existing and planned transmission and distribution systems, as well as a substantiation of the need for any system upgrades or additions. DP&L filed a combined 2000/2001 Long-Term Electric Forecast Report under these amended rules in March 2001.
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The PUCO is composed of five commissioners appointed to staggered five-year terms. The current Commission is composed of the following members:
| Name | Beginning of Term | End of Term | ||
|
|
||||
| Judith A. Jones | April 2002 | April 2007 | ||
| Clarence D. Rogers | February 2001 | April 2006 | ||
| Rhonda H. Fergus | April 2000 | April 2005 | ||
| Chairman Alan R. Schriber | April 1999 | April 2004 | ||
| Donald L. Mason | April 1998 | April 2003 | ||
See COMPETITION for more detail regarding the impact of legislation passed in October 1999.
ENVIRONMENTAL CONSIDERATIONS
The operations of DPL and DP&L, including the commonly owned facilities operated by DP&L, CG&E and CSP, are subject to federal, state, and local regulation as to air and water quality, disposal of solid waste and other environmental matters, including the location, construction and initial operation of new electric generating facilities and most electric transmission lines. The possibility exists that current environmental regulations could be revised which could change the level of estimated construction expenditures. See CONSTRUCTION PROGRAM.
Air Quality
The Clean Air Act Amendments of 1990 (the “CAA”) have limited sulfur dioxide and nitrogen oxide emissions nationwide. The CAA restricts emissions in two phases. Phase I compliance requirements became effective on January 1, 1995 and Phase II requirements became effective on January 1, 2000.
DP&L’s environmental compliance plan (“ECP”) was approved by the PUCO on May 6, 1993, and on November 9, 1995, the PUCO approved the continued appropriateness of the ECP. Phase I requirements were met by switching to lower sulfur coal at several commonly owned electric generating facilities and increasing existing scrubber removal efficiency. Total capital expenditures to comply with Phase I of the CAA were approximately $5.5 million. Phase II requirements are being met primarily by switching to lower sulfur coal at all non-scrubbed coal-fired electric generating units.
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 CAA. Generation units operated by CG&E (Beckjord 6) and CSP (Conesville 4) and co-owned by DP&L were referenced in these actions. Numerous northeast states have filed complaints or have indicated that they will be joining the USEPA’s action against CG&E and CSP. DP&L was not identified in the NOVs, civil complaints or state actions. In December 2000, CG&E announced that it had reached an Agreement in Principle with the USEPA and other plaintiffs in an effort to settle the claims. Discussions on the final terms of the settlement are ongoing. Therefore, it is not possible to determine the outcome of these
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claims or the impact, if any, on DP&L. In June 2000, the USEPA issued a NOV to DP&L-operated J.M. Stuart Station (co-owned by DP&L, CG&E, and CSP) for alleged violations of the CAA. The NOV contained allegations consistent with NOVs and complaints that the USEPA had recently brought against numerous other coal-fired utilities in the Midwest. DPL will vigorously challenge the NOV. At this time, it is not possible to determine the outcome of these claims or the impact, if any, on DP&L.
On November 22, 2002, the USEPA announced its final rule package on New Source Review reform and its proposed rule on the definition of “routine maintenance, repair and replacement.” On December 31, 2002, the final and proposed rules were published in the Federal Register. Several northeast states have brought lawsuits challenging the final rule in the United States Court of Appeals for the District of Columbia. While DP&L will conduct an extensive review of the published rules, it does not expect the rule changes to have a material effect on DP&L’s financial position, earnings, or cash flow.
In September 1998, the USEPA issued a final rule requiring states to modify their State Implementation Plans (“SIPs”) under the CAA. The modified SIPs are likely to result in further nitrogen oxide (“NOx”) reduction requirements placed on coal-fired generating units by 2004. In order to meet these NOx requirements, DP&L’s capital expenditures are estimated to total approximately $175 million, of which $136 million has been spent to-date. Industry groups and others appealed the rules in United States District Court. The requirement for states to submit revised implementation plans has been stayed until the outcome of the litigation. In March 2000, the United States District Court upheld the rule. Industry groups and others have appealed this decision. As a result of the litigation, the Court extended the compliance date of the rule an additional year, until May 31, 2004. In March 2001, the United States Supreme Court refused to hear further appeals of the SIP rules. In December 1999, the USEPA issued final rules granting various CAA Section 126 petitions filed by northeast states. DP&L’s facilities were identified, among many others, in the rulemaking. In January 2002, the USEPA announced that reductions required under the CAA Section 126 rulemaking will be extended until May 31, 2004 to be consistent with the NOx SIP rule. DP&L’s current NOx reduction strategy and associated expenditures to meet the SIP call should satisfy the rulemaking reduction requirements.
On July 18, 2002, the Ohio Environmental Protection Agency (“Ohio EPA”) adopted rules that will constitute Ohio’s SIP for NOx reductions. The state rules are substantially similar to the reductions required under the federal CAA Section 126 rulemaking and federal NOx SIP rule. The USEPA has conditionally approved Ohio’s NOx SIP. On January 16, 2003, the USEPA’s final approval of Ohio’s NOx SIP appeared in the Federal Register. DP&L’s current NOx reduction strategy and associated expenditures to meet the federal reduction requirements should satisfy the state SIP reduction requirements.
On December 14, 2000, the USEPA issued a determination that coal- and oil-fired electric generating units should be regulated for emissions of mercury and hazardous air pollutants. The USEPA is expected to issue proposed rules by December 2003 and final rules by December 2004. The impact of the regulatory determination cannot be determined at this time.
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In March 2002, the United States Court of Appeals for the District of Columbia upheld the USEPA’s National Ambient Air Quality Standards for ozone and fine particles. The USEPA is conducting a rulemaking regarding these standards. The impact of these standards and rules can not be determined at this time.
In April 2002, the USEPA issued proposed rules governing existing facilities that have cooling water intake structures. Final rules are anticipated in February 2004. The impact of the final rules cannot be determined at this time.
On July 29, 2002, the Bush Administration offered proposed legislation known as the “Clear Skies” initiative. The proposal calls for emissions reductions for sulfur dioxide, nitrogen oxides, and mercury commencing between 2008 and 2010. Senator Jeffords also offered a competing multi-pollutant proposal calling for reductions in sulfur dioxide, nitrogen oxides, mercury, and carbon dioxide emissions with earlier implementation dates. Neither proposal was passed in 2002. Several competing proposed bills revising the air pollution laws have emerged in the 108th session of Congress. The impact of the potential legislation, if passed, cannot be determined at this time.
Land Use
DP&L and numerous other parties have been notified by the USEPA or the Ohio EPA that it considers them Potentially Responsible Parties (“PRP’s”) for clean-up at three superfund sites in Ohio: the North Sanitary (a.k.a. Valleycrest) Landfill in Dayton, Montgomery County, Ohio; the Tremont City Landfill in Springfield, Ohio; and the South Dayton Dump landfill site in Dayton, Ohio.
DP&L and numerous other parties received notification from the Ohio EPA on July 27, 1994 that it considers them PRP’s for clean-up of hazardous substances at the North Sanitary Landfill site in Dayton, Ohio. DP&L has not joined the PRP group formed for the site because the available information does not demonstrate that DP&L contributed hazardous substances to the site. The Ohio EPA has not provided an estimated cost for this site. In October 2000, the PRP group brought an action against DP&L and numerous other parties alleging that DP&L and the others are PRP’s that should be liable for a portion of clean-up costs at the site. While DP&L does not believe it disposed of any hazardous waste at this site, it has entered into an Agreement in Principle with the PRP group to settle any alleged liability for an immaterial amount. The final resolution is not expected to have a material effect on DP&L’s financial position, earnings, or cash flow.
DP&L and numerous other parties received notification from the USEPA in January 2002 for the Tremont City site. The available information does not demonstrate that DP&L contributed any hazardous substances to the site. DP&L will vigorously challenge this action. The final resolution is not expected to have a material effect on DP&L’s financial position, earnings, or cash flow.
In September 2002, DP&L and other parties received a special notice that the USEPA considers them to be PRP’s for the clean up of hazardous substances at the South Dayton Dump landfill site in Dayton, Ohio. The USEPA seeks recovery of past costs and funding for a Remedial Investigation and Feasibility Study. The USEPA has not provided an estimated clean-up cost for this site. The information available does not
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demonstrate that DP&L contributed hazardous substances to the site. DP&L will challenge this action. The final resolution is not expected to have a material effect on DP&L’s financial position, earnings, or cash flow.
DPL INC.
OPERATING
STATISTICS
ELECTRIC OPERATIONS
| Years Ended December 31 | |||||||||
| 2002 | 2001 | 2000 | |||||||
| Electric Sales (millions of kWh) | |||||||||
| Residential | 5,302 | 4,909 | 4,816 | ||||||
| Commercial | 3,710 | 3,618 | 3,540 | ||||||
| Industrial | 4,472 | 4,568 | 4,851 | ||||||
| Other retail | 1,405 | 1,369 | 1,370 | ||||||
| Total retail | 14,889 | 14,464 | 14,577 | ||||||
| Wholesale | 4,358 | 3,591 | 2,946 | ||||||
| Total | 19,247 | 18,055 | 17,523 | ||||||
| Operating Revenues (thousands) | |||||||||
| Residential | $ | 463,197 | $ | 429,932 | $ | 422,733 | |||
| Commercial | 264,604 | 257,663 | 245,097 | ||||||
| Industrial | 227,960 | 229,211 | 236,670 | ||||||
| Other retail | 93,316 | 91,011 | 91,193 | ||||||
| Total retail | 1,049,077 | 1,007,817 | 995,693 | ||||||
| Wholesale | 124,468 | 178,352 | 112,328 | ||||||
| Total | $ | 1,173,545 | $ | 1,186,169 | $ | 1,108,021 | |||
| Electric Customers at End of Period | |||||||||
| Residential | 449,153 | 447,066 | 444,683 | ||||||
| Commercial | 47,400 | 46,815 | 46,218 | ||||||
| Industrial | 1,905 | 1,908 | 1,928 | ||||||
| Other | 6,304 | 6,318 | 6,156 | ||||||
| Total | 504,762 | 502,107 | 498,985 | ||||||
NOTE: See Note 12 to Consolidated Financial Statements for additional information.
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DPL INC.
OPERATING STATISTICS
GAS OPERATIONS
| Years Ended December 31 | |||||||
| 2002 | 2001 | 2000 | |||||
| Gas Sales (thousands of MCF) | |||||||
| Residential | — | — | 18,538 | ||||
| Commercial | — | — | 5,838 | ||||
| Industrial | — | — | 2,034 | ||||
| Public authorities | — | — | 776 | ||||
| Transportation gas delivered | — | — | 16,105 | ||||
| |
|
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| Total | — | — | 43,291 | ||||
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|
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| Operating Revenues (thousands) | |||||||
| Residential | — | — | $ | 119,460 | |||
| Commercial | — | — | 35,262 | ||||
| Industrial | — | — | 11,114 | ||||
| Public authorities | — | — | 4,466 | ||||
| Other | — | — | 13,554 | ||||
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|
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| Total | — | — | $ | 183,856 | |||
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| Gas Customers at End of Period | |||||||
| Residential | — | — | — | ||||
| Commercial | — | — | — | ||||
| Industrial | — | — | — | ||||
| Public authorities | — | — | — | ||||
| |
|
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| Total | — | — | —- | ||||
NOTE:
1) DP&L completed
the sale of its natural gas retail distribution assets and certain liabilities
in October 2000.
2) See Note 12 to Consolidated Financial Statements for additional information.
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Electric
Information relating to DP&L’s electric properties is contained in Item 1 – BUSINESS, DPL INC., CONSTRUCTION PROGRAM, and ELECTRIC OPERATIONS AND FUEL SUPPLY, and Item 8 – Notes 4 and 12 of Notes to Consolidated Financial Statements.
Gas
Information relating to DP&L’s gas properties is contained in Item 1 – GAS OPERATIONS AND GAS SUPPLY, and Item 8 – Note 3 of Notes to Consolidated Financial Statements.
Substantially all property and plant of DP&L is subject to the lien of the Mortgage securing DP&L’s First Mortgage Bonds.
Item 3 - Legal ProceedingsOn July 15, 2002, a class action and derivative complaint (the “Buckeye Action”) for damages was filed by The Buckeye Electric Company Retirement Plan (“the Plan”) on behalf of itself and other DPL shareholders, and derivatively on behalf of DPL, in the Court of Common Pleas for Montgomery County, Ohio. The defendants are DPL, selected executive officers of DPL, an officer of a DPL subsidiary, the Board of Directors of DPL, and PricewaterhouseCoopers LLP, DPL’s independent auditors. Defendants removed the Buckeye Action to the U. S. District Court for the Southern District of Ohio (Case No. C-3-02-355). The Second Amended Complaint alleges violations of federal securities laws, breach of fiduciary duty, breach of the duty of care, corporate waste, breach of the duty of loyalty and self-dealing, fraud, negligence and misrepresentations by defendants in connection with the establishment and management of DPL’s portfolio of financial assets, which the Plan alleges were inappropriate investments not adequately disclosed to shareholders. The Second Amended Complaint also alleges claims related to PricewaterhouseCoopers and its accounting and auditing of DPL’s financial portfolio. The Plan and other class members seek compensatory and punitive damages of not less than $1.1 billion, compensatory damages of $200 million on behalf of DPL, and unspecified punitive damages, attorney’s fees, and costs.
On August 2, 2002, a similar class action complaint (the “Lowenstein Action”) was filed by Louis Lowenstein and Michelle Nazarovech on behalf of themselves and other DPL shareholders and derivatively on behalf of DPL in the Court of Common Pleas, Hamilton County, Ohio. The defendants are the same as the Buckeye Action. Defendants removed the Lowenstein Action to the U. S. District Court for the Southern District of Ohio (Case No. C-1-02-574). The First Amended Complaint alleges claims for breach of fiduciary duty, violation of Ohio Rev. Code § 1701.93, negligence, breach of the duty of care, corporate waste, breach of the duty of loyalty, and self-dealing. The First Amended Complaint seeks damages similar to those in the Buckeye Action.
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On September 13, 2002, the Austern Trust (the “Trust”) filed a complaint derivatively on behalf of DPL (the “Austern Trust Action”) against the same defendants named in the Buckeye and Lowenstein Actions. The Trust filed the case in the Court of Common Pleas, Hamilton County, Ohio, and defendants removed it to the U. S. District Court for the Southern District of Ohio. Subsequently, this case was remanded back to the Court of Common Pleas of Hamilton County, Ohio (Case No. A0207067). This complaint alleges derivative claims for breach of fiduciary duty, self-dealing, abuse of control, gross mismanagement, waste of corporate assets, unjust enrichment, and negligence. The Trust seeks compensatory and punitive damages in excess of $200 million, and attorney’s fees, and costs, on behalf of DPL.
The plaintiffs in the Buckeye, Lowenstein, and Austern Trust Actions are all represented by the same legal counsel.
On October 8, 2002, Robert Garfield filed a class action complaint (the “Garfield Action”) on behalf of himself and other DPL shareholders against DPL and selected executive officers of DPL in the U. S. District Court for the Southern District of Ohio (Case No. C-3-02-460). On October 17, 2002, a similar class action complaint (Case No. C-3-02-479) was filed in the same court by Malcolm Rosenfeld (the “Rosenfeld Action”). Both of the complaints recite many of the same allegations set forth in the Buckeye, Lowenstein and Austern Trust Actions and allege violations of the federal securities laws and demand unspecified compensatory damages, attorney’s fees and costs, and pre-judgement interest.
On October 23, 2002, Judy Nelson filed a complaint derivatively on behalf of DPL (“the Nelson Action”) against selected executive officers of DPL Inc. in the Court of Common Pleas for Montgomery County, Ohio (Case No. 02-7042). This complaint recites many of the same allegations set forth in the Buckeye, Lowenstein, Austern Trust, Garfield and Rosenfeld Actions. The Nelson Action alleges breach of fiduciary duty and seeks unspecified compensatory damages, attorney’s fees and costs, and pre-judgment interest.
On October 29, 2002, Sally Wasson filed a complaint derivatively on behalf of DPL (“the Wasson Action”) against selected executive officers of DPL, former DPL officers, and DPL directors in the Court of Common Pleas for Montgomery County, Ohio (Case No. 02-7190). This complaint recites many of the same allegations set forth in the Buckeye, Lowenstein, Austern Trust, Garfield, Rosenfeld and Nelson Actions. The Wasson Action alleges breach of fiduciary duty and seeks unspecified compensatory damages, and attorney’s fees and costs.
On October 31, 2002 Michael Bennett filed a complaint (“the Bennett Action”) against DPL and selected executive officers of DPL in the U.S. District Court for the Southern District of Ohio (Case No. C-3-02-508). On November 22, 2002 a similar class action complaint (Case No. C-3-02-545) was filed in the same court by Alvin Rosenbaum (“the Rosenbaum Action”). Additionally, on December 2, 2002 another similar complaint (Case No. C-3-02-556) was filed in the same court by Anthony Milite (“the Milite Action”). All three of these complaints recite many of the same allegations set forth in the Buckeye, Lowenstein, Austern Trust, Garfield, Rosenfeld, Nelson and Wasson Actions. The Bennett, Rosenbaum and Milite Actions allege violation of federal
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securities laws and seek unspecified compensatory damages and pre-judgment interest.
On December 24, 2002 the Aston Trust filed a complaint derivatively on behalf of DPL (the “Aston Trust Action”) against DPL, selected executive officers of DPL, an officer of a DPL subsidiary and selected members of the Board of Directors of DPL in the Court of Common Pleas, Hamilton County, Ohio (Case No. A0209809). This complaint recites many of the same allegations set forth in the Buckeye, Lowenstein, Austern Trust, Garfield, Rosenfeld, Nelson, Wasson, Bennett, Rosenbaum and Milite Actions. This complaint alleges derivative claims for breach of fiduciary duty and seeks unspecified compensatory damages, attorney’s fees and costs, on behalf of DPL.
Six of the complaints (Buckeye, Garfield, Rosenfeld, Bennett, Rosenbaum and Milite Actions) have been consolidated for trial in the U.S. District Court for the Southern District of Ohio (Dayton). Additionally, two other complaints (Nelson and Wasson Actions) have been consolidated for trial in the Court of Common Pleas of Montgomery County, Ohio.
DPL intends to vigorously defend all of these cases.
Additional information relating to legal proceedings involving DPL is contained in Item 1 – COMPETITION and ENVIRONMENTAL CONSIDERATIONS, and Item 8 – Note 4 of Notes to Consolidated Financial Statements.
Item 4 - Submission of Matters to a Vote of Security HoldersThere were no submissions to the security holders in the fourth quarter.
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EXECUTIVE
OFFICERS OF THE REGISTRANT
(As of
January 1, 2003)
| Name | Age | Business
Experience, Last Five Years (Positions with Registrant Unless Otherwise Indicated) |
Dates | |||||
| |
||||||||
| Stephen F. Koziar, Jr. | 58 | President and Chief Executive | 1/01/03 - | 1/01/03 | ||||
| Officer, DPL Inc. and DP&L | ||||||||
| Executive Vice President and Chief | 8/28/02 - | 1/01/03 | ||||||
| Operating Officer, DPL Inc. and | ||||||||
| DP&L | ||||||||
| Group Vice President and | 1/31/95 - | 8/28/02 | ||||||
| &nbs | ||||||||