Goodwill

12 Months Ended

Dec. 31, 2015

Goodwill

(6) GOODWILL

Substantially all of PHI’s goodwill balance as of December 31, 2015 and 2014 was generated by Pepco’s acquisition of Conectiv (now Conectiv, LLC, to be referred to herein as Conectiv) in 2002 and is allocated entirely to the Power Delivery reporting unit based on the aggregation of its regulated public utility company components for purposes of assessing impairment under FASB guidance on goodwill and other intangibles (ASC 350).

PHI performs an annual impairment assessment as of November 1 each year, or more frequently if indicators of potential impairment exist, to determine whether it is more likely than not that the fair value of a reporting unit to which goodwill relates is less than its carrying value. In evaluating goodwill for impairment, PHI first assesses qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount. For reporting units in which PHI concludes that it is more likely than not that the fair value is more than its carrying value, goodwill is not considered impaired and PHI is not required to perform the two-step goodwill impairment test. Qualitative factors considered in this assessment include industry and market considerations, including the price per share of PHI common stock, overall financial performance, lack of significant changes in any key inputs to the prior year impairment test, including the discount rate and forecasted cash flows, and other relevant events and factors affecting the reporting unit.

For reporting units in which PHI concludes that it is more likely than not that the fair value is less than its carrying value, PHI performs the first step of the goodwill impairment test, which compares the fair value of the reporting unit to its carrying value. If the fair value of the reporting unit exceeds the carrying value of the net assets assigned to that unit, goodwill is not considered impaired and PHI is not required to perform additional testing. If the carrying value of the net assets assigned to the reporting unit exceeds the fair value of the reporting unit, then PHI must perform the second step of the goodwill impairment test to determine the implied fair value of the reporting unit’s goodwill. If PHI determines during this second step that the carrying value of a reporting unit’s goodwill exceeds its implied fair value, PHI records an impairment loss equal to the difference.

For the annual impairment assessment in 2015, PHI qualitatively determined for its Power Delivery reporting unit that it was more likely than not that fair value exceeded carrying value. As a result, PHI did not perform the two-step goodwill impairment test on the Power Delivery reporting unit.

As of December 31, 2015 and 2014, PHI’s goodwill balance was $1,406 million and $1,407 million, respectively, which is net of accumulated impairment losses of $12 million and $18 million, respectively.

Delmarva Power & Light Co/De [Member]

Goodwill

(6) GOODWILL

All of DPL’s goodwill was generated by its acquisition of Conowingo Power Company in 1995.

DPL performs an annual impairment assessment as of November 1 of each year, or more frequently if indicators of potential impairment exist, to determine whether it is more likely than not that the fair value of the DPL reporting unit to which goodwill relates is less than its carrying value. In evaluating goodwill for impairment, DPL first assesses qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount. If DPL concludes that it is more likely than not that the fair value is more than its carrying value, goodwill is not considered impaired and DPL is not required to perform the two-step goodwill impairment test. Qualitative factors considered in this assessment include industry and market considerations, overall financial performance, changes in any key inputs to the prior year impairment test, including the discount rate, and other relevant events and factors affecting the reporting unit.

If DPL concludes that it is more likely than not that the fair value is less than its carrying value, DPL performs the first step of the goodwill impairment test, which compares DPL’s fair value to its carrying value. If DPL’s fair value exceeds the carrying value of DPL’s net assets, goodwill is not considered impaired and DPL is not required to perform additional testing. If the carrying value of DPL’s net assets exceeds DPL’s fair value, then DPL must perform the second step of the goodwill impairment test to determine the implied fair value of DPL’s goodwill. If DPL determines during this second step that the carrying value of DPL’s goodwill exceeds its implied fair value, DPL records an impairment loss equal to the difference.

For the annual impairment assessment in 2015, DPL qualitatively determined that it was more likely than not that fair value exceeded carrying value. As a result, DPL did not perform the two-step goodwill impairment test on that reporting unit.

As of December 31, 2015 and 2014, DPL’s goodwill balance was $8 million. There are no accumulated impairment losses.