(8) PROPERTY, PLANT AND EQUIPMENT

Property, plant and equipment is comprised of the following:


	Original Cost		Accumulated Depreciation		Net Book Value
	*(millions of dollars)*
At December 31, 2013
Generation	$	105	$	99	$	6
Distribution		8,896		2,961		5,935
Transmission		2,991		908		2,083
Gas		481		142		339
Construction work in progress		677		—		677
Non-operating and other property		1,417		753		664

Total	$	14,567	$	4,863	$	9,704

At December 31, 2012
Generation	$	107	$	97	$	10
Distribution		8,320		2,954		5,366
Transmission		2,783		866		1,917
Gas		458		137		321
Construction work in progress		692		—		692
Non-operating and other property		1,265		725		540

Total	$	13,625	$	4,779	$	8,846

The non-operating and other property amounts include balances for general plant, intangible plant, distribution plant and transmission plant held for future use as well as other property held by non-utility subsidiaries. Utility plant is generally subject to a first mortgage lien.

Pepco Holdings’ utility subsidiaries use separate depreciation rates for each electric plant account. The rates vary from jurisdiction to jurisdiction.

Jointly Owned Plant

PHI’s consolidated balance sheets include its proportionate share of assets and liabilities related to jointly owned plant. At December 31, 2013 and 2012, PHI’s subsidiaries had a net book value ownership interest of $12 million and $13 million, respectively, in transmission and other facilities in which various parties also have ownership interests. PHI’s share of the operating and maintenance expenses of the jointly-owned plant is included in the corresponding expenses in the consolidated statements of (loss) income. PHI is responsible for providing its share of the financing for the above jointly-owned facilities.

Capital Leases

Pepco leases its consolidated control center, which is an integrated energy management center used by Pepco to centrally control the operation of its transmission and distribution systems. This lease is accounted for as a capital lease and was initially recorded at the present value of future lease payments, which totaled $152 million. The lease requires semi-annual payments of approximately $8 million over a 25-year period that began in December 1994, and provides for transfer of ownership of the system to Pepco for $1 at the end of the lease term. Under FASB guidance on regulated operations, the amortization of leased assets is modified so that the total interest expense charged on the obligation and amortization expense of the leased asset is equal to the rental expense allowed for rate-making purposes. The amortization expense is included within Depreciation and amortization in the consolidated statements of (loss) income. This lease is treated as an operating lease for rate-making purposes.

Capital lease assets recorded within Property, Plant and Equipment at December 31, 2013 and 2012, in millions of dollars, are comprised of the following:


	Original Cost		Accumulated Amortization		Net Book Value
At December 31, 2013
Transmission	$	76	$	41	$	35
Distribution		76		42		34
General		3		3		—

Total	$	155	$	86	$	69

At December 31, 2012
Transmission	$	76	$	37	$	39
Distribution		76		37		39
General		3		3		—

Total	$	155	$	77	$	78

The approximate annual commitments under all capital leases are $15 million for each year 2014 through 2018, and $16 million thereafter.

Deactivation of Pepco Energy Services’ Generating Facilities

During 2012, Pepco Energy Services deactivated its Buzzard Point and Benning Road oil-fired generation facilities. The facilities were located in Washington, D.C. and had a generating capacity of approximately 790 megawatts. During the years ended December 31, 2012 and 2011, PHI has recorded decommissioning costs of $3 million and $2 million, respectively, related to these generating facilities.

Pepco Energy Services placed the facilities into an idle condition termed a “cold closure.” A cold closure requires that the utility service be disconnected so that the facilities are no longer operable and require only essential maintenance until they are completely decommissioned. During the third quarter of 2013, Pepco Energy Services determined that it would be more cost effective to pursue the demolition of the Benning Road generation facility and realization of the scrap metal salvage value of the facility instead of maintaining cold closure status. The demolition of the facility commenced in the fourth quarter of 2013 and is expected to be completed by the end of 2014. Pepco Energy Services will recognize the salvage proceeds associated with the scrap metals at the facility as realized.

Long-Lived Asset Impairment

For the years ended December 31, 2013 and 2012, PHI recorded impairment losses of $4 million ($3 million after-tax) and $12 million ($7 million after-tax), respectively, at Pepco Energy Services associated primarily with its investments in landfill gas-fired electric generation facilities. In 2012, the impairment loss also included the reduction in the estimated net realizable value of the combustion turbines at Buzzard Point. PHI performed a long-lived asset impairment test on the landfill generation facilities of Pepco Energy Services as a result of a sustained decline in energy prices and recent production levels. The asset value of the facilities was written down to their estimated fair value because the future expected cash flows of the facilities were not sufficient to provide recovery of the facilities’ carrying value. PHI estimated the fair value of the facilities by calculating the present value of expected future cash flows using an appropriate discount rate. Both the expected future cash flows and the discount rate used primarily unobservable inputs.

Asset Retirement Obligations

PHI recognizes liabilities related to the retirement of long-lived assets in accordance with ASC 410. In connection with Pepco Energy Services’ decommissioning of the Buzzard Point and Benning Road generation facilities, PHI has recorded an asset retirement obligation of $2 million and $9 million as of December 31, 2013 and 2012, respectively on its consolidated balance sheets.

During 2013, Pepco Energy Services determined that it would be more cost effective to pursue the demolition of the Benning Road generation facility instead of maintaining cold closure status. As a result of this change in intent, Pepco Energy Services reduced its asset retirement obligation related to the facility by $2 million.

The sale of the Conectiv Energy wholesale power generation business to Calpine Corporation (Calpine) did not include a coal ash landfill site located at the Edge Moor generating facility, which PHI intends to close. The preliminary estimate of the costs to PHI to close the coal ash landfill ranges from approximately $2 million to $3 million, plus annual post-closure operations, maintenance and monitoring costs for 30 years. PHI has recorded an asset retirement obligation of $6 million on its consolidated balance sheet related to the Edge Moor landfill.

Property, Plant and Equipment

(7) PROPERTY, PLANT AND EQUIPMENT

Property, plant and equipment is comprised of the following:


	Original Cost		Accumulated Depreciation		Net Book Value
	*(millions of dollars)*
At December 31, 2013
Distribution	$	5,287	$	2,027	$	3,260
Transmission		1,223		444		779
Construction work in progress		312		—		312
Non-operating and other property		488		301		187

Total	$	7,310	$	2,772	$	4,538

At December 31, 2012
Distribution	$	4,949	$	1,995	$	2,954
Transmission		1,166		419		747
Construction work in progress		303		—		303
Non-operating and other property		432		291		141

Total	$	6,850	$	2,705	$	4,145

The non-operating and other property amounts include balances for general plant, distribution plant and transmission plant held for future use, intangible plant and non-utility property. Utility plant is generally subject to a first mortgage lien.

Capital Leases

Pepco leases its consolidated control center, which is an integrated energy management center used by Pepco to centrally control the operation of its transmission and distribution systems. This lease is accounted for as a capital lease and was initially recorded at the present value of future lease payments. The lease requires semi-annual payments of approximately $8 million over a 25-year period that began in December 1994, and provides for transfer of ownership of the system to Pepco for $1 at the end of the lease term. Under FASB guidance on regulated operations, the amortization of leased assets is modified so that the total interest expense charged on the obligation and amortization expense of the leased asset is equal to the rental expense allowed for rate-making purposes. The amortization expense is included within Depreciation and amortization in the statements of income. This lease is treated as an operating lease for rate-making purposes.

Capital lease assets recorded within Property, plant and equipment at December 31, 2013 and 2012 are comprised of the following:


	Original Cost		Accumulated Amortization		Net Book Value
	*(millions of dollars)*
At December 31, 2013
Transmission	$	76	$	41	$	35
Distribution		76		42		34
Other		3		3		—

Total	$	155	$	86	$	69

At December 31, 2012
Transmission	$	76	$	37	$	39
Distribution		76		37		39
Other		3		3		—

Total	$	155	$	77	$	78

The approximate annual commitments under capital leases are $15 million for each year 2014 through 2018, and $16 million thereafter.

Property, Plant and Equipment

(8) PROPERTY, PLANT AND EQUIPMENT

Property, plant and equipment is comprised of the following:


	Original Cost		Accumulated Depreciation		Net Book Value
	*(millions of dollars)*
At December 31, 2013
Distribution	$	1,788	$	492	$	1,296
Transmission		982		243		739
Gas		481		142		339
Construction work in progress		158		—		158
Non-operating and other property		264		139		125

Total	$	3,673	$	1,016	$	2,657

At December 31, 2012
Distribution	$	1,664	$	498	$	1,166
Transmission		877		233		644
Gas		458		137		321
Construction work in progress		206		—		206
Non-operating and other property		217		132		85

Total	$	3,422	$	1,000	$	2,422

The non-operating and other property amounts include balances for general plant, plant held for future use, intangible plant and non-utility property. Utility plant is generally subject to a first mortgage lien.

Property, Plant and Equipment

(7) PROPERTY, PLANT AND EQUIPMENT

Property, plant and equipment is comprised of the following:


	Original Cost		Accumulated Depreciation		Net Book Value
	*(millions of dollars)*
At December 31, 2013
Generation	$	10	$	9	$	1
Distribution		1,821		442		1,379
Transmission		786		221		565
Construction work in progress		110		—		110
Non-operating and other property		174		79		95

Total	$	2,901	$	751	$	2,150

At December 31, 2012
Generation	$	10	$	9	$	1
Distribution		1,707		461		1,246
Transmission		740		214		526
Construction work in progress		133		—		133
Non-operating and other property		181		103		78

Total	$	2,771	$	787	$	1,984

The non-operating and other property amounts include balances for general plant, plant held for future use, intangible plant and non-utility property. Utility plant is generally subject to a first mortgage lien.

Jointly Owned Plant

ACE’s consolidated balance sheets include its proportionate share of assets and liabilities related to jointly owned plant. At December 31, 2013 and 2012, ACE’s subsidiaries had a net book value ownership interest of $8 million in transmission and other facilities in which various parties also have ownership interests. ACE’s share of the operating and maintenance expenses of the jointly-owned plant is included in the corresponding expenses in the consolidated statements of income. ACE is responsible for providing its share of the financing for the above jointly-owned facilities.