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The following is an excerpt from a 10-K SEC Filing, filed by DAYTON POWER & LIGHT CO on 3/5/2003.

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Item 1 - Business

THE COMPANY

The Dayton Power and Light Company ("DP&L" or "the Company") is a public utility incorporated under the laws of Ohio in 1911. The Company sells electricity to residential, commercial, industrial, and governmental customers in a 6,000 square mile area of West Central Ohio. Electricity for the Company'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. The Company's sales reflect the general economic conditions and seasonal weather patterns of the area.

The Company employed 1,464 persons as of December 31, 2002, of which 1,217 were full-time employees and 247 were part-time employees.

All of the outstanding shares of common stock of the Company are held by DPL Inc. ("DPL"), which became the Company's corporate parent, effective April 21, 1986.

The Company's principal executive and business office is located at 1065 Woodman Drive, Dayton, Ohio 45432 - telephone (937) 224-6000.

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 is deemed to be competitive and is not subject to supervision and regulation by the Public Utilities Commission of Ohio ("PUCO"). As required by the legislation, the Company filed its transition plan at the PUCO on December 20, 1999. The Company 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 for customers that continue to purchase power from the Company; guaranteed rates for a six-year period for transmission and delivery services; and recovery of transition costs of approximately $600 million. Under the plan, the Company has the organizational and financial flexibility to continue its growth initiatives.

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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, 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 the Company's market-based sales tariff, which allowed the Company to sell wholesale generation supply at prices that reflect current market prices. 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.

The Company competes with privately and municipally owned electric utilities and rural electric cooperatives, and other alternate fuel suppliers on the basis of price and service. The Company purchases generation capacity from DPL Energy, LLC, a wholly owned subsidiary of DPL.

Like other utilities and energy marketers, the Company from time to time may have electric generating capacity available for sale on the wholesale market. The Company competes with other generators to sell electricity provided by such capacity. The ability of the Company to sell this electricity will depend on how the Company's price, terms and conditions compare to those of other suppliers. In addition, from time to time, the Company makes power purchases from other suppliers.

The Company provides transmission and wholesale electric service to twelve municipal customers which distribute electricity within their corporate limits. In addition to these municipal customers, the Company 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 the Company to the municipalities on specified terms. However, the parties disagree in their interpretation of this portion of the agreement and the Company filed suit against the eleven municipalities on December 28, 1998. The dispute was subsequently settled in 1999. In December 1999, the Company 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.

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 towards participation. The Company 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, the Company 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.

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On May 28, 2002, the Company 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 the Company conditional approval to join PJM. On September 30, 2002, the Company signed an implementation agreement with PJM with the expectation that the Company will be fully integrated into the PJM market by May 1, 2003. On December 11, 2002, the Company 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 the Company had failed to join and transfer operational control to a FERC approved RTO. The Company filed a motion to dismiss the complaint on October 24, 2002. While the Company 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 rulemaking on the Company 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 forecast reporting. The Company 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 the Company's financial position.

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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. The Company 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 the Company of compliance with these rules is unknown at this time.

CONSTRUCTION PROGRAM

Construction additions are expected to approximate $109 million in 2003, and were $129 million 2002 and $164 million in 2001. The capital program includes environmental compliance, which is expected to approximate $39 million in 2003, and was $69 and $58 million in 2002 and 2001, respectively.

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. The Company'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. The Company expects to finance its construction program in 2003 with internal funds.

See ENVIRONMENTAL CONSIDERATIONS for a description of environmental control projects and regulatory proceedings, which may change the level of future construction additions. The potential impact of these events on the Company's operations cannot be estimated at this time.

ELECTRIC OPERATIONS AND FUEL SUPPLY

The Company's present winter generating capability is 3,371,000 KW. Of this capability, 2,843,000 KW (approximately 84%) 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.

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The remaining steam generating capability (371,000 KW) is derived from a generating station owned solely by the Company. The Company's all-time net peak load was 3,130,000 KW, occurring in 1999. The present summer generating capability is 3,269,000 KW.

MW Rating

Operating Company Station Ownership* Company Location Portion Total
Coal Units

Hutchings W Company Miamisburg, OH 371 371 Killen C Company Wrightsville, OH 402 600 Stuart C Company 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 Company Miamisburg, OH 33 33 Yankee Street W Company Centerville, OH 138 138 Monument W Company Dayton, OH 12 12 Tait W Company Dayton, OH 10 10 Sidney W Company Sidney, OH 12 12 Tait Gas Turbines 1-3 W Company Moraine, OH 304 304 Killen C Company Wrightsville, OH 16 24 Stuart C Company Aberdeen, OH 3 10

*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. The Company has several interconnections with other companies for the purchase, sale and interchange of electricity. In July 2001, the Company completed a 40.2-mile long, 345,000-volt circuit between CG&E's Foster Substation and DP&L's Bath Substation. The circuit is jointly owned by DP&L and CG&E.

The Company generated over 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.

The Company 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 the Company 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.

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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, the Company 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 DPL's regional generation expansion and reduce outstanding short-term debt.

RATE REGULATION AND GOVERNMENT LEGISLATION

The Company's sales to retail customers are subject to rate regulation by the PUCO and various municipalities. The Company'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.

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

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(a) As discussed in the COMPETITION section, the Company received PUCO approval of its transition plan for the deregulation of its generation business. Accordingly, the Company 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 the Company'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 the Company's Electric Transition Plan, the Company 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. The Company filed a combined 2000/2001 Long-Term Electric Forecast Report under these amended rules in March 2001.

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.

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ENVIRONMENTAL CONSIDERATIONS

The operations of the Company, including the commonly owned facilities operated by the Company, 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.

The Company'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 partners CG&E (Beckjord 6) and CSP (Conesville 4) and co-owned by the Company 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. The Company 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 claims or the impact, if any, on the Company. In June 2000, the USEPA issued a NOV to DP&L-operated J.M. Stuart Station (co-owned by the Company, CG&E, and CSP) for alleged violations of the CAA. The NOV contained allegations consistent with NOVs and complaints that the USEPA had previously brought against numerous other coal-fired utilities in the Midwest. The Company 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 the Company.

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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 the Company will conduct an extensive review of the published rules, it does not expect the rule changes to have a material effect on the Company'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, the Company's total capital expenditures are estimated to be 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. The Company'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. The Company'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. The Company'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 generation units should be regulated for emissions of mercury and hazardous air pollutants. The USEPA will issue proposed rules by December 2003 and final rules by December 2004. The impact of the regulatory determination cannot be determined at this time.

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.

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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

The Company and numerous other parties have been notified by the USEPA or the Ohio Environmental Protection Agency ("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.

The Company 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. The Company has not joined the PRP group formed for the site because the available information does not demonstrate that the Company contributed hazadous 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 the Company and numerous other parties alleging that the Company and the others are PRP's that should be liable for a portion of clean-up costs at the site. While the Company 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 the Company's financial position, earnings, or cash flow.

The Company and numerous other parties received notification from the USEPA in January 2002 for the Tremont City site. The available information does not demonstrate that the Company contributed any hazardous substances to the site. The Company will vigorously challenge this action. The final resolution is not expected to have a material effect on the Company's financial position, earnings, or cash flow.

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In September 2002, the Company 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 demonstrate that the Company contributed hazardous substances to the site. The Company will challenge this action. The final resolution is not expected to have a material effect on the Company's financial position, earnings, or cash flow.

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The Dayton Power and Light Company
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

Electric Revenues (thousands)
Residential $ 463,197 $ 429,932 $ 422,733 Commercial 259,496 255,149 245,097 Industrial 204,627 210,022 236,670 Other retail 95,463 92,992 93,227 Total Retail 1,022,783 988,095 997,727 Wholesale 153,055 200,154 112,328

Total $ 1,175,838 $ 1,188,249 $ 1,110,055

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 13 to Consolidated Financial Statements for additional information.

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The Dayton Power and Light Company
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

Total - - 43,291

Gas Revenues (thousands)
Residential - - $ 119,460 Commercial - - 35,262 Industrial - - 11,114 Public authorities - - 4,466 Other - - 13,554

Total - - $ 183,856

Gas Customers at End of Period
Residential - - - Commercial - - - Industrial - - - Public authorities - - -

Total - - -

NOTE:
1) The Company completed the sale of its natural gas retail distribution assets and certain liabilities in October 2000.

2) See Note 13 to Consolidated Financial Statements for additional information.

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