(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, 2014
Generation	$	104	$	100	$	4
Distribution		9,527		3,021		6,506
Transmission		3,252		934		2,318
Gas		511		153		358
Construction work in progress		688		—		688
Non-operating and other property		1,383		751		632

Total	$	15,465	$	4,959	$	10,506

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

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, 2014 and 2013, PHI’s subsidiaries had a net book value ownership interest of $15 million and $12 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 income (loss). 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 income (loss). This lease is treated as an operating lease for rate-making purposes.

Capital lease assets recorded within Property, Plant and Equipment at December 31, 2014 and 2013 are comprised of the following:


	Original Cost		Accumulated Amortization		Net Book Value
	*(millions of dollars)*
At December 31, 2014
Transmission	$	76	$	46	$	30
Distribution		76		46		30

Total	$	152	$	92	$	60

At December 31, 2013
Transmission	$	76	$	41	$	35
Distribution		76		42		34
General		3		3		—

Total	$	155	$	86	$	69

The approximate annual commitments under all capital leases are $15 million in each of the years 2015 through 2018 and $16 million in 2019.

Deactivation of Pepco Energy Services’ Generating Facilities

During 2012, Pepco Energy Services deactivated its Buzzard Point and Benning Road oil-fired generation facilities. Pepco Energy Services is demolishing the Benning Road generation facility and realizing the scrap metal salvage value of the facility. The demolition of the facility commenced in the fourth quarter of 2013 and is expected to be completed in the first quarter of 2015. Pepco Energy Services is recognizing the salvage proceeds associated with the scrap metals at the facility as realized.

Long-Lived Asset Impairment

During 2014, PHI recorded impairment losses of $81 million ($48 million after-tax) at Pepco Energy Services associated with its combined heat and power thermal generating facilities and operations in Atlantic City, which reduced the carrying amount of its long-lived assets in Atlantic City from $83 million to $2 million at December 31, 2014. PHI performed long-lived asset impairment tests on asset groups comprising substantially all of the long-lived assets in Atlantic City as a result of significant adverse changes in the financial condition of its customers and the business climate in Atlantic City. The assets were written down to their estimated fair values because the future estimated undiscounted cash flows from the asset groups were significantly lower than their carrying value. PHI estimated the fair values of the asset groups from a market participant’s perspective by calculating the present value of estimated future cash flows over the useful lives of the assets using an appropriate discount rate. Both the estimated future cash flows and the discount rate were based on primarily unobservable, Level 3 inputs. The estimated future cash flows were probability weighted based on several potential outcomes regarding forecasted revenues and expenses associated with each asset group. Forecasted revenues and expenses were, in part, based on estimated future commodity prices from an external valuation specialist. In addition, PHI forecasted customer usage volumes and the associated operations and maintenance expenses and capital expenditures. A 10 percent change in the estimated cash flows would not have a significant impact on the estimated fair value of the assets. PHI also selected a discount rate that would reflect a market return on the estimated cash flows. PHI considered a range of discount rates between 10 percent and 16 percent. A one percent change in the discount rate assumptions would not have a significant impact on the estimated fair value of the assets.

During 2013, PHI recorded impairment losses of $4 million ($3 million after-tax) at Pepco Energy Services associated primarily with its investments in landfill gas-fired electric generation facilities. 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 the 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 had asset retirement obligations of zero and $2 million as of December 31, 2014 and 2013, respectively, on its consolidated balance sheets.

During 2013, Pepco Energy Services determined to pursue the demolition of the Benning Road generation facility. As a result of this determination, Pepco Energy Services reduced its asset retirement obligation related to the facility by $2 million.

The sale of the wholesale power generation business of Conectiv Energy Holding Company and its subsidiaries (collectively, Conectiv Energy) 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 for 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

(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, 2014
Distribution	$	1,928	$	489	$	1,439
Transmission		1,107		248		859
Gas		511		153		358
Construction work in progress		125		—		125
Non-operating and other property		275		131		144

Total	$	3,946	$	1,021	$	2,925

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

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, 2014
Distribution	$	5,668	$	2,082	$	3,586
Transmission		1,306		463		843
Construction work in progress		312		—		312
Non-operating and other property		478		271		207

Total	$	7,764	$	2,816	$	4,948

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

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, 2014 and 2013 are comprised of the following:


	Original Cost		Accumulated Amortization		Net Book Value
At December 31, 2014	*(millions of dollars)*
Transmission	$	76	$	46	$	30
Distribution		76		46		30

Total	$	152	$	92	$	60

At December 31, 2013
Transmission	$	76	$	41	$	35
Distribution		76		42		34
Other		3		3		—

Total	$	155	$	86	$	69

The approximate annual commitments under all capital leases are $15 million in each of the years 2015 through 2018, and $16 million thereafter.

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, 2014
Generation	$	10	$	9	$	1
Distribution		1,931		450		1,481
Transmission		839		223		616
Construction work in progress		115		—		115
Non-operating and other property		178		78		100

Total	$	3,073	$	760	$	2,313

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

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, 2014 and 2013, ACE’s subsidiaries had a net book value ownership interest of $11 million and $8 million, respectively, 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.