Pension and Other Postretirement Benefits

(8) PENSION AND OTHER POSTRETIREMENT BENEFITS

The following Pepco Holdings information is for the three months ended September 30, 2013 and 2012:


	Pension Benefits						Other Postretirement Benefits
	2013			2012			2013			2012
	*(millions of dollars)*
Service cost	$	14		$	8		$	2		$	2
Interest cost		25			27			6			9
Expected return on plan assets		(36	)		(33	)		(5	)		(5	)
Amortization of prior service cost (benefit)		—			1			(4	)		(1	)
Amortization of net actuarial loss		16			16			2			4

Net periodic benefit cost	$	19		$	19		$	1		$	9

The following Pepco Holdings information is for the nine months ended September 30, 2013 and 2012:


	Pension Benefits						Other Postretirement Benefits
	2013			2012			2013			2012
	*(millions of dollars)*
Service cost	$	40		$	26		$	6		$	6
Interest cost		75			80			22			26
Expected return on plan assets		(109	)		(99	)		(15	)		(14	)
Amortization of prior service cost (benefit)		1			2			(6	)		(3	)
Amortization of net actuarial loss		50			48			10			11
Termination benefits		—			—			—			1

Net periodic benefit cost	$	57		$	57		$	17		$	27

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. 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 target liability as defined under the Pension Protection Act of 2006. In the second quarter of 2013, PHI made a discretionary tax-deductible contribution to the PHI Retirement Plan in the amount of $60 million. In the first quarter of 2013, PHI, DPL and ACE made discretionary tax-deductible contributions to the PHI Retirement Plan in the amounts of $20 million, $10 million and $30 million, respectively. In the first quarter of 2012, Pepco, DPL and ACE made discretionary tax-deductible contributions to the PHI Retirement Plan in the amounts of $85 million, $85 million and $30 million, respectively, which brought the PHI Retirement Plan assets to the funding target level for 2012 under the Pension Protection Act.

Other Postretirement Benefit Plan Amendment

During 2013, PHI approved two amendments to its other postretirement benefits plan. These amendments impacted the retiree medical plan and the retiree life insurance benefits, and will be effective on January 1, 2014. As a result of the amendments, which were cumulatively significant, PHI remeasured its projected benefit obligation for other postretirement benefits as of July 1, 2013. The remeasurement resulted in a $193 million reduction of the projected benefit obligation, which included recording a prior service credit of $124 million, which will be amortized over approximately ten years, and a $69 million reduction from a change in the discount rate from 4.10% as of December 31, 2012 to 4.95% as of July 1, 2013. The remeasurement is expected to result in a $13 million reduction in net periodic benefit cost for other postretirement benefits during 2013. Approximately 30% of net periodic other postretirement benefit costs are capitalized.

Pension and Other Postretirement Benefits

(7) PENSION AND OTHER POSTRETIREMENT BENEFITS

Pepco accounts for its participation in its parent’s single-employer plans, Pepco Holdings’ non-contributory retirement plan (the PHI Retirement Plan) and the Pepco Holdings, Inc. Welfare Plan for Retirees, as participation in multiemployer plans. PHI’s pension and other postretirement net periodic benefit cost for the three months ended September 30, 2013 and 2012, before intercompany allocations from the PHI Service Company, were $20 million and $28 million, respectively. Pepco’s allocated share was $8 million and $10 million, respectively, for the three months ended September 30, 2013 and 2012. PHI’s pension and other postretirement net periodic benefit cost for the nine months ended September 30, 2013 and 2012, before intercompany allocations from the PHI Service Company, were $74 million and $84 million, respectively. Pepco’s allocated share of the net periodic benefit cost was $27 million and $30 million, respectively, for the nine months ended September 30, 2013 and 2012.

In the first quarter of 2012, Pepco made a discretionary tax-deductible contribution to the PHI Retirement Plan of $85 million.

Other Postretirement Benefit Plan Amendment

During 2013, PHI approved two amendments to its other postretirement benefits plan. These amendments impacted the retiree medical plan and the retiree life insurance benefits and will be effective on January 1, 2014. As a result of the amendments, which were cumulatively significant, PHI remeasured its projected benefit obligation for other postretirement benefits as of July 1, 2013. The remeasurement is expected to result in a $4 million reduction in Pepco’s net periodic benefit cost for other postretirement benefits during 2013. Approximately 30% of net periodic other postretirement benefit costs are capitalized.

Pension and Other Postretirement Benefits

(8) PENSION AND OTHER POSTRETIREMENT BENEFITS

DPL accounts for its participation in its parent’s single-employer plans, Pepco Holdings’ non-contributory retirement plan (the PHI Retirement Plan) and the Pepco Holdings, Inc. Welfare Plan for Retirees, as participation in multiemployer plans. PHI’s pension and other postretirement net periodic benefit cost for the three months ended September 30, 2013 and 2012, before intercompany allocations from the PHI Service Company, were $20 million and $28 million, respectively. DPL’s allocated share was $4 million and $6 million for the three months ended September 30, 2013 and 2012, respectively. PHI’s pension and other postretirement net periodic benefit cost for the nine months ended September 30, 2013 and 2012, before intercompany allocations from the PHI Service Company, were $74 million and $84 million, respectively. DPL’s allocated share of the net periodic benefit cost was $14 million and $18 million for the nine months ended September 30, 2013 and 2012, respectively.

In the first quarter of 2013, DPL made a discretionary tax-deductible contribution to the PHI Retirement Plan of $10 million. In the first quarter of 2012, DPL made a discretionary tax-deductible contribution to the PHI Retirement Plan of $85 million.

Other Postretirement Benefit Plan Amendment

During 2013, PHI approved two amendments to its other postretirement benefits plan. These amendments impacted the retiree medical plan and the retiree life insurance benefits and will be effective on January 1, 2014. As a result of the amendments, which were cumulatively significant, PHI remeasured its projected benefit obligation for other postretirement benefits as of July 1, 2013. The remeasurement is expected to result in a $3 million reduction in DPL’s net periodic benefit cost for other postretirement benefits during 2013. Approximately 30% of net periodic other postretirement benefit costs are capitalized.

Pension and Other Postretirement Benefits

(7) PENSION AND OTHER POSTRETIREMENT BENEFITS

ACE accounts for its participation in its parent’s single-employer plans, Pepco Holdings’ non-contributory retirement plan (the PHI Retirement Plan) and the Pepco Holdings, Inc. Welfare Plan for Retirees, as participation in multiemployer plans. PHI’s pension and other postretirement net periodic benefit cost for the three months ended September 30, 2013 and 2012, before intercompany allocations from the PHI Service Company, were $20 million and $28 million, respectively. ACE’s allocated share was $4 million and $6 million for the three months ended September 30, 2013 and 2012, respectively. PHI’s pension and other postretirement net periodic benefit cost for the nine months ended September 30, 2013 and 2012, before intercompany allocations from the PHI Service Company, were $74 million and $84 million, respectively. ACE’s allocated share of the net periodic benefit cost was $14 million and $18 million for the nine months ended September 30, 2013 and 2012, respectively.

In the first quarter of 2013, ACE made a discretionary tax-deductible contribution to the PHI Retirement Plan of $30 million. In the first quarter of 2012, ACE made a discretionary tax-deductible contribution to the PHI Retirement Plan of $30 million.

Other Postretirement Benefit Plan Amendment

During 2013, PHI approved two amendments to its other postretirement benefits plan. These amendments impacted the retiree medical plan and the retiree life insurance benefits and will be effective on January 1, 2014. As a result of the amendments, which were cumulatively significant, PHI remeasured its projected benefit obligation for other postretirement benefits as of July 1, 2013. The remeasurement is expected to result in a $2 million reduction in ACE’s net periodic benefit cost for other postretirement benefits during 2013. Approximately 30% of net periodic other postretirement benefit costs are capitalized.