Pension and Other Postretirement Benefits

12 Months Ended

Dec. 31, 2013

Pension and Other Postretirement Benefits

(9) PENSION AND OTHER POSTRETIREMENT BENEFITS

The following table shows changes in the benefit obligation and plan assets for the years ended December 31, 2013 and 2012:

	Pension Benefits						Other Postretirement Benefits
	2013			2012			2013			2012
	(millions of dollars)
Change in Benefit Obligation
Benefit obligation as of January 1	$	2,494		$	2,124		$	775		$	750
Service cost		53			35			8			7
Interest cost		100			107			29			35
Amendments		3			—			(124	)		—
Actuarial (gain) loss		(277	)		341			(71	)		24
Benefits paid (a)		(135	)		(113	)		(43	)		(41	)
Benefit obligation as of December 31	$	2,238		$	2,494		$	574		$	775
Change in Plan Assets
Fair value of plan assets as of January 1	$	2,039		$	1,694		$	321		$	281
Actual return on plan assets		86			252			56			38
Company and participant contributions		126			206			34			43
Benefits paid (a)		(135	)		(113	)		(43	)		(41	)
Fair value of plan assets as of December 31	$	2,116		$	2,039		$	368		$	321
Funded Status at end of year (plan assets less plan obligations)	$	(122	)	$	(455	)	$	(206	)	$	(454	)

(a) Other Postretirement Benefits paid is net of Medicare Part D subsidy receipts of zero and $4 million in 2013 and 2012, respectively.

At December 31, 2013 and 2012, the PHI Retirement Plan’s accumulated benefit obligation was approximately $2.1 billion and $2.3 billion, respectively. The accumulated benefit obligation differs from the pension benefit obligation presented in the table above in that the accumulated benefit obligation includes no assumption about future compensation levels.

The following table provides the amounts recorded in PHI’s consolidated balance sheets as of December 31, 2013 and 2012:

	Pension Benefits						Other Postretirement Benefits
	2013			2012			2013			2012
	(millions of dollars)
Regulatory asset	$	664		$	934		$	3		$	237
Current liabilities		(6	)		(6	)		—			—
Pension benefit obligation		(116	)		(449	)		—			—
Other postretirement benefit obligations		—			—			(206	)		(454	)
Deferred income tax liabilities, net		(217	)		(216	)		82			88
Accumulated other comprehensive loss, net of tax		25			32			—			—
Net amount recorded	$	350		$	295		$	(121	)	$	(129	)

Amounts included in AOCL (pre-tax) and Regulatory assets at December 31, 2013 and 2012, consist of:

	Pension Benefits				Other Postretirement Benefits
	2013		2012		2013			2012
	(millions of dollars)
Unrecognized net actuarial loss	$	694	$	979	$	117		$	238
Unamortized prior service cost (credit)		10		9		(114	)		(1	)
Total	$	704	$	988	$	3		$	237
Accumulated other comprehensive loss ($25 million and $32 million, net of tax, at December 31, 2013 and 2012, respectively)	$	40	$	54	$	—		$	—
Regulatory assets		664		934		3			237
Total	$	704	$	988	$	3		$	237

Under FASB guidance on regulated operations, a portion of actuarial gains and losses and prior service costs (credits) are included in Regulatory assets (liabilities) in the consolidated balance sheets to reflect expected regulatory recovery of such amounts, which otherwise would be recorded to AOCL. The table below provides the changes in plan assets and benefit obligations recognized in AOCL and Regulatory assets for the years ended December 31, 2013, 2012 and 2011.

	Pension Benefits									Other Postretirement Benefits
	2013			2012			2011			2013			2012			2011
	(millions of dollars)
Amounts amortized during the year:
Amortization of prior service (cost) credit	$	(2	)	$	(1	)	$	—		$	11		$	4		$	5
Amortization of net actuarial (loss)		(67	)		(64	)		(47	)		(12	)		(14	)		(14	)
Amounts arising during the year:
Current year prior service cost (credit)		3			—			19			(124	)		—			6
Current year actuarial (gain) loss		(218	)		220			177			(109	)		4			53
Total recognized in AOCL and Regulatory assets for the year ended December 31	$	(284	)	$	155		$	149		$	(234	)	$	(6	)	$	50

The estimated net actuarial loss and prior service cost for the defined benefit pension plans that will be amortized from AOCL or Regulatory assets into net periodic benefit cost over the next reporting year are $44 million and $2 million, respectively. The estimated net actuarial loss and prior service credit for the OPEB plan that will be amortized from AOCL or Regulatory assets into net periodic benefit cost over the next reporting year are $6 million and $13 million, respectively.

The table below provides the components of net periodic benefit costs recognized for the years ended December 31, 2013, 2012 and 2011:

	Pension Benefits									Other Postretirement Benefits
	2013			2012			2011			2013			2012			2011
	(millions of dollars)
Service cost	$	53		$	35		$	35		$	8		$	7		$	5
Interest cost		100			107			107			29			35			37
Expected return on plan assets		(145	)		(132	)		(128	)		(20	)		(18	)		(19	)
Amortization of prior service cost (credit)		2			1			—			(11	)		(4	)		(5	)
Amortization of net actuarial loss		67			64			47			12			14			14
Termination benefits		—			—			—			—			1			1
Net periodic benefit cost	$	77		$	75		$	61		$	18		$	35		$	33

The table below provides the split of the combined pension and other postretirement net periodic benefit costs among subsidiaries for the years ended December 31, 2013, 2012 and 2011:

	2013		2012		2011
	(millions of dollars)
Pepco	$	34	$	39	$	43
DPL		18		23		23
ACE		17		24		21
Other subsidiaries		26		24		7
Total	$	95	$	110	$	94

The following weighted average assumptions were used to determine the benefit obligations at December 31:

	Pension Benefits						Other Postretirement Benefits
	2013			2012			2013			2012
Discount rate		5.05	%		4.15	%		5.00	%		4.10	%
Rate of compensation increase		5.00	%		5.00	%		5.00	%		5.00	%
Health care cost trend rate assumed for current year – pre 65		—			—			7.00	%		7.50	%
Health care cost trend rate assumed for current year – post 65		—			—			5.60	%		7.50	%
Rate to which the cost trend rate is assumed to decline for all eligible retirees (the ultimate trend rate)		—			—			5.00	%		5.00	%
Year that the cost trend rate reaches the ultimate trend rate		—			—			2020			2018

Assumed health care cost trend rates may have a significant effect on the amounts reported for the health care plans. A one-percentage-point change in assumed health care cost trend rates would have the following effects, in millions of dollars:

	1-Percentage- Point Increase		1-Percentage- Point Decrease
Increase (decrease) in total service and interest cost	$	1	$	(1	)
Increase (decrease) in postretirement benefit obligation	$	17	$	(19	)

The following weighted average assumptions were used to determine the net periodic benefit cost for the years ended December 31:

	Pension Benefits									Other Postretirement Benefits
	2013			2012			2011			2013			2012			2011
Discount rate		4.15	%		5.00	%		5.65	%		4.10%/4.95	% (a)		4.90	%		5.60	%
Expected long-term return on plan assets		7.00	%		7.25	%		7.75	%		7.00	%		7.25	%		7.75	%
Rate of compensation increase		5.00	%		5.00	%		5.00	%		5.00	%		5.00	%		5.00	%
Health care cost trend rate		—			—			—			7.50	%		8.00	%		8.00	%

(a) The discount rate was updated for remeasurement to 4.95% on July 1, 2013.

PHI utilizes an analytical tool developed by its actuaries to select the discount rate. The analytical tool utilizes a high-quality bond portfolio with cash flows that match the benefit payments expected to be made under the plans.

PHI uses a building block approach to estimate the expected rate of return on plan assets. Under this approach, the percentage of plan assets in each asset class according to PHI’s target asset allocation, at the beginning of the year, is applied to the expected asset return for the related asset class. PHI incorporates long-term assumptions for real returns, inflation expectations, volatility and correlations among asset classes to determine expected returns for a given asset allocation. The pension and postretirement benefit plan assets consist of equity, fixed income, real estate and private equity investments. PHI periodically reviews its asset mix and rebalances assets to the target allocation.

The average remaining service periods for participating employees of the benefit plans was approximately 11 years for both 2013 and 2012. PHI utilizes plan census data to estimate these average remaining service periods. PHI uses the IRS prescribed mortality tables to estimate the average life expectancy. The IRS prescribed tables for 2013 and 2012 were used to determine net periodic pension and OPEB cost for the same respective years. The tables for 2014 and 2013 were used for determining the benefit obligations as of December 31, 2013 and 2012, respectively.

Benefit Plan Modifications

During 2013, PHI approved two amendments to its other postretirement benefits plan. These amendments impacted the retiree health care and the retiree life insurance benefits, and were effective on January 1, 2014. As a result of the amendments, which were cumulatively significant, PHI remeasured its accumulated postretirement benefit obligation for other postretirement benefits as of July 1, 2013. The remeasurement resulted in a $193 million reduction of the accumulated postretirement 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 resulted in a $17 million reduction in net periodic benefit cost for other postretirement benefits during 2013, when compared to 2012. Approximately 37% of net periodic other postretirement benefit costs were capitalized in 2013.

Plan Assets

Investment Policies and Strategies

In developing its allocation policy for the assets in the PHI Retirement Plan and the other postretirement benefit plan, PHI examined projections of asset returns and volatility over a long-term horizon. In connection with this analysis, PHI evaluated the risk and return tradeoffs of alternative asset classes and asset mixes given long-term historical relationships as well as prospective capital market returns. PHI also conducted an asset-liability study to match projected asset growth with projected liability growth to determine whether there is sufficient liquidity for projected benefit payments. PHI developed its asset mix guidelines by incorporating the results of these analyses with an assessment of its risk posture, and taking into account industry practices. PHI periodically evaluates its investment strategy to ensure that plan assets are sufficient to meet the benefit obligations of the plans. As part of the ongoing evaluation, PHI may make changes to its targeted asset allocations and investment strategy.

PHI’s pension investment strategy is designed to meet the following investment objectives:

• Generate investment returns that, in combination with funding contributions from PHI, provide adequate funding to meet all current and future benefit obligations of the plan.

• Provide investment results that meet or exceed the assumed long-term rate of return, while maintaining the funded status of the plan at acceptable levels.

• Improve funded status over time.

• Decrease contribution and expense volatility as funded status improves.

To achieve these investment objectives, PHI’s investment strategy divides the pension program into two primary portfolios:

Return-Seeking Assets—These assets are intended to provide investment returns in excess of pension liability growth and reduce existing deficits in the funded status of the plan. The category includes a diversified mix of U.S. large and small cap equities, non-U.S. developed and emerging market equities, real estate, and private equity.

Liability-Hedging Assets—These assets are intended to reflect the sensitivity of the plan’s liabilities to changes in discount rates. This category includes a diversified mix of long duration, primarily investment grade credit and U.S. treasury securities.

PHI follows an asset-liability management strategy for PHI Retirement Plan assets in order to reduce the effects of future volatility of the fair value of its pension plan assets relative to its pension plan liabilities. For example, in 2013, this strategy uses a 66% target allocation to fixed income investments, primarily in high quality, longer-maturity fixed income securities. The PHI Retirement Plan asset allocations at December 31, 2013 and 2012, by asset category, were as follows:

Asset Category	Plan Assets at December 31,						Target Plan Asset Allocation
	2013			2012			2013			2012
Equity		31	%		30	%		28	%		32	%
Fixed Income		62	%		62	%		66	%		62	%
Other (real estate, private equity)		7	%		8	%		6	%		6	%
Total		100	%		100	%		100	%		100	%

PHI’s other postretirement benefit plan asset allocations at December 31, 2013 and 2012, by asset category, were as follows:

Asset Category	Plan Assets at December 31,						Target Plan Asset Allocation
	2013			2012			2013			2012
Equity		63	%		62	%		60	%		60	%
Fixed Income		31	%		36	%		35	%		35	%
Cash		6	%		2	%		5	%		5	%
Total		100	%		100	%		100	%		100	%

PHI will rebalance the plan asset portfolios when the actual allocations fall outside the ranges outlined in the investment policy or as funded status improves over a reasonable period of time.

Risk Management

Pension and other postretirement benefit plan assets may be invested in separately managed accounts in which there is ownership of individual securities, shares of commingled funds or mutual funds, or limited partnerships. Commingled funds and mutual funds are subject to detailed policy guidelines set forth in the fund’s prospectus or fund declaration, and limited partnerships are subject to the terms of the partnership agreement.

Separate account investment managers are responsible for achieving a level of diversification in their portfolio that is consistent with their investment approach and their role in PHI’s overall investment structure. Separate account investment managers must follow risk management guidelines established by PHI unless authorized in writing by PHI.

Derivative instruments are permissible in an investment portfolio to the extent they comply with policy guidelines and are consistent with risk and return objectives. Under no circumstances may such instruments be used speculatively or to leverage the portfolio. Separately managed accounts are prohibited from holding securities issued by the following firms:

• PHI and its subsidiaries,

• PHI’s pension plan trustee, its parent or its affiliates,

• PHI’s pension plan consultant, its parent or its affiliates, and

• PHI’s pension plan investment manager, its parent or its affiliates

Fair Value of Plan Assets

As defined in the FASB guidance on fair value measurement and disclosures (ASC 820), fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The FASB’s fair value framework includes a hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (level 1) and the lowest priority to unobservable inputs (level 3). If the inputs used to measure the financial instruments fall within different levels of the hierarchy, the categorization is based on the lowest level input that is significant to the fair value measurement of the instrument. Investments are classified within the fair value hierarchy as follows:

Level 1: Investments are valued using quoted prices in active markets for identical instruments.

Level 2: Investments are valued using other significant observable inputs (e.g., quoted prices for similar investments, interest rates, credit risks, etc).

Level 3: Investments are valued using significant unobservable inputs, including internal assumptions.

There were no significant transfers between level 1 and level 2 during the years ended December 31, 2013 and 2012.

The following tables present the fair values of PHI’s pension and other postretirement benefit plan assets by asset category within the fair value hierarchy levels, as of December 31, 2013 and 2012:

	Fair Value Measurements at December 31, 2013
	(millions of dollars)
Asset Category	Total		Quoted Prices in Active Markets for Identical Instruments (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Pension Plan Assets:
Equity
Domestic (a)	$	432	$	185	$	213	$	34
International (b)		217		215		1		1
Fixed Income (c)		1,309		—		1,298		11
Other
Private Equity		53		—		—		53
Real Estate		61		—		—		61
Cash Equivalents (d)		44		44		—		—
Pension Plan Assets Subtotal		2,116		444		1,512		160
Other Postretirement Plan Assets:
Equity (e)		233		204		29		—
Fixed Income (f)		113		113		—		—
Cash Equivalents		22		22		—		—
Postretirement Plan Assets Subtotal		368		339		29		—
Total Pension and Other Postretirement Assets	$	2,484	$	783	$	1,541	$	160

(a) Predominantly includes domestic common stock and commingled funds.

(b) Predominantly includes foreign common and preferred stock and warrants.

(c) Predominantly includes corporate bonds, government bonds, municipal/provincial bonds, collateralized mortgage obligations and commingled funds.

(d) Predominantly includes cash investment in short-term investment funds.

(e) Includes domestic and international commingled funds.

(f) Includes fixed income commingled funds.

	Fair Value Measurements at December 31, 2012
	(millions of dollars)
Asset Category	Total		Quoted Prices in Active Markets for Identical Instruments (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Pension Plan Assets:
Equity
Domestic (a)	$	367	$	169	$	170	$	28
International (b)		254		250		1		3
Fixed Income (c)		1,256		—		1,243		13
Other
Private Equity		56		—		—		56
Real Estate		74		—		—		74
Cash Equivalents (d)		32		32		—		—
Pension Plan Assets Subtotal		2,039		451		1,414		174
Other Postretirement Plan Assets:
Equity (e)		199		171		28		—
Fixed Income (f)		115		115		—		—
Cash Equivalents		7		7		—		—
Postretirement Plan Assets Subtotal		321		293		28		—
Total Pension and Other Postretirement Plan Assets	$	2,360	$	744	$	1,442	$	174

(a) Predominantly includes domestic common stock and commingled funds.

(b) Predominantly includes foreign common and preferred stock and warrants.

(c) Predominantly includes corporate bonds, government bonds, municipal/provincial bonds, collateralized mortgage obligations and commingled funds.

(d) Predominantly includes cash investment in short-term investment funds.

(e) Includes domestic and international commingled funds.

(f) Includes fixed income commingled funds.

There were no significant concentrations of risk in pension and OPEB plan assets at December 31, 2013 and 2012.

Valuation Techniques Used to Determine Fair Value

Equity

Equity securities are primarily comprised of securities issued by public companies in domestic and foreign markets plus investments in commingled funds, which are valued on a daily basis. PHI can exchange shares of the publicly traded securities and the fair values are primarily sourced from the closing prices on stock exchanges where there is active trading, therefore they would be classified as level 1 investments. If there is less active trading, then the publicly traded securities would typically be priced using observable data, such as bid/ask prices, and these measurements would be classified as level 2 investments. Investments that are not publicly traded and valued using unobservable inputs would be classified as level 3 investments.

Commingled funds with publicly quoted prices and active trading are classified as level 1 investments. For commingled funds that are not publicly traded and have ongoing subscription and redemption activity, the fair value of the investment is the net asset value (NAV) per fund share, derived from the underlying securities’ quoted prices in active markets, and are classified as level 2 investments. Investments in commingled funds with redemption restrictions that use NAV are classified as level 3 investments.

Fixed Income

Fixed income investments are primarily comprised of fixed income securities and fixed income commingled funds. The prices for direct investments in fixed income securities are generated on a daily basis. Like the equity securities, fair values generated from active trading on exchanges are classified as level 1 investments. Prices generated from less active trading with wider bid/ask prices are classified as level 2 investments. If prices are based on uncorroborated and unobservable inputs, then the investments are classified as level 3 investments.

Commingled funds with publicly quoted prices and active trading are classified as level 1 investments. For commingled funds that are not publicly traded and have ongoing subscription and redemption activity, the fair value of the investment is the NAV per fund share, derived from the underlying securities’ quoted prices in active markets, and are classified as level 2 investments. Investments in commingled funds with redemption restrictions that use NAV are classified as level 3 investments.

Other – Private Equity and Real Estate

Investments in private equity and real estate funds are primarily invested in privately held real estate investment properties, trusts and partnerships, as well as equity and debt issued by public or private companies. As a practical expedient, PHI’s interest in the fund or partnership is estimated at NAV. PHI’s interest in these funds cannot be readily redeemed due to the inherent lack of liquidity and the primarily long-term nature of the underlying assets. Distribution is made through the liquidation of the underlying assets. PHI views these investments as part of a long-term investment strategy. These investments are valued by each investment manager based on the underlying assets. The majority of the underlying assets are valued using significant unobservable inputs and often require significant management judgment or estimation based on the best available information. Market data includes observations of the trading multiples of public companies considered comparable to the private companies being valued. The funds utilize valuation techniques consistent with the market, income and cost approaches to measure the fair value of certain real estate investments. As a result, PHI classifies these investments as level 3 investments.

The investments in private equity and real estate funds require capital commitments, which may be called over a specific number of years. Unfunded capital commitments as of December 31, 2013 and 2012 totaled $12 million and $15 million, respectively.

Reconciliations of the beginning and ending balances of PHI’s fair value measurements using significant unobservable inputs (level 3) for investments in the pension plan for the years ended December 31, 2013 and 2012 are shown below:

	Fair Value Measurements Using Significant Unobservable Inputs (Level 3)
	(millions of dollars)
	Equity			Fixed Income			Private Equity			Real Estate			Total Level 3
Balance as of January 1, 2013	$	31		$	13		$	56		$	74		$	174
Transfer in (out) of Level 3		—			(3	)		—			—			(3	)
Purchases		—			—			2			2			4
Sales		(5	)		(1	)		—			(13	)		(19	)
Settlements		—			2			(4	)		(10	)		(12	)
Unrealized gain/(loss)		7			—			(7	)		7			7
Realized gain		2			—			6			1			9
Balance as of December 31, 2013	$	35		$	11		$	53		$	61		$	160

	Fair Value Measurements Using Significant Unobservable Inputs (Level 3)
	(millions of dollars)
	Equity			Fixed Income			Private Equity			Real Estate			Total Level 3
Balance as of January 1, 2012	$	27		$	9		$	64		$	65		$	165
Transfer in (out) of Level 3		—			2			—			—			2
Purchases		4			2			4			5			15
Sales		(4	)		(1	)		—			—			(5	)
Settlements		(1	)		1			(8	)		(5	)		(13	)
Unrealized gain/(loss)		4			—			(11	)		8			1
Realized gain		1			—			7			1			9
Balance as of December 31, 2012	$	31		$	13		$	56		$	74		$	174

Cash Flows

Contributions—PHI Retirement Plan

PHI’s funding policy with regard to 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. During 2013, PHI, DPL and ACE made discretionary tax-deductible contributions to the PHI Retirement Plan in the amounts of $80 million, $10 million and $30 million, respectively, which brought the PHI Retirement Plan assets to the funding target level for 2013 under the Pension Protection Act. During 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 plan assets to the funding target level for 2012 under the Pension Protection Act.

Contributions—Other Postretirement Benefit Plan

In 2013 and 2012, Pepco contributed $6 million and $5 million, respectively, DPL contributed $3 million and $7 million, respectively, and ACE contributed $6 million and $7 million, respectively, to the other postretirement benefit plan. In 2013 and 2012, contributions of $7 million and $13 million, respectively, were made by other PHI subsidiaries.

Expected Benefit Payments

Estimated future benefit payments to participants in PHI’s pension and other postretirement benefit plans, which reflect expected future service as appropriate, are as follows:

Years	Pension Benefits		Other Postretirement Benefits
	(millions of dollars)
2014	$	159	$	38
2015		136		39
2016		139		39
2017		142		40
2018		147		40
2019 through 2023	$	795	$	201

Medicare Prescription Drug Improvement and Modernization Act of 2003 (Medicare Act)

On December 8, 2003, the Medicare Act became effective. The Medicare Act introduced Medicare Part D, as well as a federal subsidy to sponsors of retiree health care benefit plans that provide a benefit that is at least actuarially equivalent to Medicare Part D. Pepco Holdings sponsors postretirement health care plans that provide prescription drug benefits that PHI plan actuaries have determined are actuarially equivalent to Medicare Part D. In 2012, Pepco Holdings received $4 million in federal Medicare prescription drug subsidies. PHI did not receive the Part D subsidy in 2013 and will not receive it in the future due to the implementation of an Employer Group Waiver Plan which is not eligible for Part D reimbursements.

Pepco Holdings Retirement Savings Plan

Pepco Holdings has a defined contribution retirement savings plan. Participation in the plan is voluntary. All participants are 100% vested and have a nonforfeitable interest in their own contributions and in the Pepco Holdings’ company matching contributions, including any earnings or losses thereon. Pepco Holdings’ matching contributions were $12 million, $12 million and $11 million for the years ended December 31, 2013, 2012 and 2011, respectively.

Potomac Electric Power Co [Member]

Pension and Other Postretirement Benefits

(8) PENSION AND OTHER POSTRETIREMENT BENEFITS

Pepco accounts for its participation in its parent’s single-employer plans, Pepco Holding’s non-contributory retirement plan (the PHI Retirement Plan) and the Pepco Holdings, Inc. Welfare Plan for Retirees (the PHI OPEB Plan), as participation in multiemployer plans. For 2013, 2012 and 2011, Pepco was responsible for $34 million, $39 million and $43 million, respectively, of the pension and other postretirement net periodic benefit cost incurred by PHI. Pepco made a discretionary, tax-deductible contribution of zero, $85 million and $40 million to the PHI Retirement Plan for the years ended December 31, 2013, 2012 and 2011, respectively. In addition, Pepco made contributions of $6 million, $5 million and $7 million, respectively, to the PHI OPEB Plan for the years ended December 31, 2013, 2012 and 2011. At December 31, 2013 and 2012, Pepco’s Prepaid pension expense of $332 million and $353 million, respectively, and Other postretirement benefit obligations of $61 million and $66 million, respectively, effectively represent assets and benefit obligations resulting from Pepco’s participation in the Pepco Holdings benefit plans.

Other Postretirement Benefit Plan Amendments

During 2013, PHI approved two amendments to its other postretirement benefits plan. These amendments impacted the retiree health care and the retiree life insurance benefits, and were effective on January 1, 2014. As a result of the amendments, which were cumulatively significant, PHI remeasured its accumulated postretirement benefit obligation for other postretirement benefits as of July 1, 2013. The remeasurement resulted in a $4 million reduction in Pepco’s net periodic benefit cost for other postretirement benefits in 2013. Approximately 38% of net periodic other postretirement benefit costs were capitalized in 2013.

Delmarva Power & Light Co/De [Member]

Pension and Other Postretirement Benefits

(9) 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 (the PHI OPEB Plan), as participation in multiemployer plans. For 2013, 2012 and 2011, DPL was responsible for $18 million, $23 million and $23 million, respectively, of the pension and other postretirement net periodic benefit cost incurred by PHI. DPL made discretionary tax-deductible contributions to the PHI Retirement Plan of $10 million, $85 million and $40 million for the years ended December 31, 2013, 2012 and 2011, respectively. In addition, DPL made contributions of $3 million, $7 million and $6 million, respectively, to the PHI OPEB Plan for the years ended December 31, 2013, 2012 and 2011. At December 31, 2013 and 2012, DPL’s Prepaid pension expense of $228 million and $232 million, respectively, and Other postretirement benefit obligations of $23 million and $22 million, respectively, effectively represent assets and benefit obligations resulting from DPL’s participation in the PHI benefit plans.

Other Postretirement Benefit Plan Amendments

During 2013, PHI approved two amendments to its other postretirement benefits plan. These amendments impacted the retiree health care and the retiree life insurance benefits, and were effective on January 1, 2014. As a result of the amendments, which were cumulatively significant, PHI remeasured its accumulated postretirement benefit obligation for other postretirement benefits as of July 1, 2013. The remeasurement resulted in a $3 million reduction in DPL’s net periodic benefit cost for other postretirement benefits in 2013. Approximately 29% of net periodic other postretirement benefit costs were capitalized in 2013.

Atlantic City Electric Co [Member]

Pension and Other Postretirement Benefits

(8) 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 (the PHI OPEB Plan), as participation in multiemployer plans. For 2013, 2012 and 2011, ACE was responsible for $17 million, $24 million and $21 million, respectively, of the pension and other postretirement net periodic benefit cost incurred by PHI. ACE made discretionary tax-deductible contributions to the PHI Retirement Plan of $30 million in each of the years ended December 31, 2013, 2012 and 2011. In addition, ACE made contributions of $6 million, $7 million and $7 million, respectively, to the PHI OPEB Plan for the years ended December 31, 2013, 2012 and 2011. At December 31, 2013 and 2012, ACE’s Prepaid pension expense of $106 million and $88 million, and Other postretirement benefit obligations of $35 million and $34 million, respectively, effectively represent assets and benefit obligations resulting from ACE’s participation in the PHI benefit plans.

Other Postretirement Benefit Plan Amendments

During 2013, PHI approved two amendments to its other postretirement benefits plan. These amendments impacted the retiree health care and the retiree life insurance benefits, and were effective on January 1, 2014. As a result of the amendments, which were cumulatively significant, PHI remeasured its accumulated postretirement benefit obligation for other postretirement benefits as of July 1, 2013. The remeasurement resulted in a $2 million reduction in ACE’s net periodic benefit cost for other postretirement benefits in 2013. Approximately 42% of net periodic other postretirement benefit costs were capitalized in 2013.