Pension And Other Postretirement Benefits

6 Months Ended

Jun. 30, 2011

Pension And Other Postretirement Benefits

(8) PENSION AND OTHER POSTRETIREMENT BENEFITS

The following Pepco Holdings information is for the three months ended June 30, 2011 and 2010:

	Pension Benefits						Other Postretirement Benefits
	2011			2010			2011			2010
	(millions of dollars)
Service cost	$	7		$	7		$	1		$	1
Interest cost		27			25			9			9
Expected return on plan assets		(33	)		(25	)		(4	)		(4	)
Amortization of prior service cost		(1	)		—			(1	)		(1	)
Amortization of net actuarial loss		11			10			2			3
Plan amendment		—			1			—			—
Termination benefits		—			—			1			5
Net periodic benefit cost	$	11		$	18		$	8		$	13

The following Pepco Holdings information is for the six months ended June 30, 2011 and 2010:

	Pension Benefits						Other Postretirement Benefits
	2011			2010			2011			2010
	(millions of dollars)
Service cost	$	17		$	18		$	3		$	3
Interest cost		53			55			18			19
Expected return on plan assets		(64	)		(58	)		(9	)		(8	)
Amortization of prior service cost		(1	)		—			(2	)		(2	)
Amortization of net actuarial loss		24			21			6			6
Plan amendment		—			1			—			—
Termination benefits		—			—			1			5
Net periodic benefit cost	$	29		$	37		$	17		$	23

Pension and Other Postretirement Benefits

Net periodic benefit cost related to continuing operations is included in "Other operation and maintenance" expense, net of the portion of the net periodic benefit cost that is capitalized as part of the cost of labor for internal construction projects. PHI's pension and other postretirement net periodic benefits cost for the three and six months ended June 30, 2010, includes one-time charges in the aggregate amount of $6 million related to the sale of Conectiv Energy. After intercompany allocations, the three utility subsidiaries are responsible for substantially all of the total PHI net periodic pension and other postretirement benefit costs related to continuing operations.

Pension Contributions

PHI's funding policy with regard to PHI's non-contributory retirement plan (the PHI Retirement Plan) is to maintain a funding level that is at least equal to the funding target level under the Pension Protection Act of 2006. Under the Pension Protection Act, if a plan incurs a funding shortfall in the preceding plan year, there can be required minimum quarterly contributions in the current and following plan years. Although PHI had no minimum funding requirement under the Pension Protection Act guidelines, Pepco, ACE and DPL, in the first quarter of 2011, made discretionary tax-deductible contributions to the PHI Retirement Plan in the amounts of $40 million, $30 million and $40 million, respectively. The $110 million in contributions brought the PHI Retirement Plan assets to the funding target level for 2011 under the Pension Protection Act. During 2010, PHI Service Company made discretionary tax-deductible contributions totaling $100 million to the PHI Retirement Plan, which brought plan assets to the funding target level for 2010 under the Pension Protection Act. Pepco, ACE and DPL did not make contributions to the PHI Retirement Plan in 2010.

Benefit Plan Modifications Subsequent to June 30, 2011

On July 28, 2011, PHI's Board of Directors approved revisions to certain of PHI's existing benefit programs, including the PHI Retirement Plan. The changes to the PHI Retirement Plan were effected by PHI in order to establish a more unified approach to PHI's retirement programs and to further align the benefits offered under PHI's retirement programs. The changes to the PHI Retirement Plan will be effective on or after January 1, 2012 and will affect the retirement benefits payable to approximately 750 of PHI's employees. All full time employees of PHI and certain subsidiaries are eligible to participate in the PHI Retirement Plan. Retirement benefits for all other employees remain unchanged.

On July 28, 2011, PHI's Board also approved a new, non-tax-qualified Supplemental Executive Retirement Plan (SERP) which will replace PHI's two pre-existing supplemental retirement plans, effective August 1, 2011. Following the effective date of the SERP, pursuant to amendments to such plans, the Conectiv SERP Plan and the PHI Combined SERP Plan will be closed to new participants. The establishment of the new SERP is consistent with PHI's efforts to align retirement benefits for PHI and its subsidiaries with current market practices and to provide similarly situated participants with retirement benefits that are the same or similar in value as compared to the benefits provided under the existing SERPs.

PHI does not believe that the benefit plan modifications will have a material impact on its overall financial condition, results of operations, or cash flows.

Potomac Electric Power Co [Member]

Pension And Other Postretirement Benefits

(6) PENSION AND OTHER POSTRETIREMENT BENEFITS

Pepco accounts for its participation in the Pepco Holdings benefit plans as participation in a multi-employer plan. PHI's pension and other postretirement net periodic benefit cost for the three months ended June 30, 2011 and 2010, before intercompany allocations from the PHI Service Company, were $19 million and $31 million, respectively. Pepco's allocated share was $7 million and $13 million, respectively, for the three months ended June 30, 2011 and 2010. PHI's pension and other postretirement net periodic benefit cost for the six months ended June 30, 2011 and 2010, before intercompany allocations from the PHI Service Company, were $46 million and $60 million, respectively. Pepco's allocated share was $17 million and $20 million, respectively, for the six months ended June 30, 2011 and 2010.

On March 14, 2011, Pepco made a discretionary tax-deductible contribution to PHI's non-contributory retirement plan (the PHI Retirement Plan) of $40 million. Pepco did not make a contribution to the PHI Retirement Plan in 2010.

Delmarva Power & Light Co/De [Member]

Pension And Other Postretirement Benefits

(7) PENSION AND OTHER POSTRETIREMENT BENEFITS

DPL accounts for its participation in the Pepco Holdings benefit plans as participation in a multi-employer plan. PHI's pension and other postretirement net periodic benefit cost for the three months ended June 30, 2011 and 2010, before intercompany allocations from the PHI Service Company, were $19 million and $31 million, respectively. DPL's allocated share was $5 million and $10 million, respectively, for the three months ended June 30, 2011 and 2010. PHI's pension and other postretirement net periodic benefit cost for the six months ended June 30, 2011 and 2010, before intercompany allocations from the PHI Service Company, were $46 million and $60 million, respectively. DPL's allocated share was $12 million and $14 million, respectively, for the six months ended June 30, 2011 and 2010.

On March 14, 2011, DPL made a discretionary tax-deductible contribution to PHI's non-contributory retirement plan (the PHI Retirement Plan) of $40 million. DPL did not make a contribution to the PHI Retirement Plan in 2010.

Atlantic City Electric Co [Member]

Pension And Other Postretirement Benefits

(6) PENSION AND OTHER POSTRETIREMENT BENEFITS

ACE accounts for its participation in the Pepco Holdings benefit plans as participation in a multi-employer plan. PHI's pension and other postretirement net periodic benefit cost for the three months ended June 30, 2011 and 2010, before intercompany allocations from the PHI Service Company, were $19 million and $31 million, respectively. ACE's allocated share was $4 million and $7 million, respectively, for the three months ended June 30, 2011 and 2010. PHI's pension and other postretirement net periodic benefit cost for the six months ended June 30, 2011 and 2010, before intercompany allocations from the PHI Service Company, were $46 million and $60 million, respectively. ACE's allocated share was $10 million and $11 million, respectively, for the six months ended June 30, 2011 and 2010.

On March 14, 2011, ACE made a discretionary tax-deductible contribution to PHI's non-contributory retirement plan (the PHI Retirement Plan) of $30 million. ACE did not make a contribution to the PHI Retirement Plan in 2010.