0001193125-12-075999.txt : 20120224 0001193125-12-075999.hdr.sgml : 20120224 20120223203324 ACCESSION NUMBER: 0001193125-12-075999 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 47 CONFORMED PERIOD OF REPORT: 20111231 FILED AS OF DATE: 20120224 DATE AS OF CHANGE: 20120223 FILER: COMPANY DATA: COMPANY CONFORMED NAME: ATLANTIC CITY ELECTRIC CO CENTRAL INDEX KEY: 0000008192 STANDARD INDUSTRIAL CLASSIFICATION: ELECTRIC SERVICES [4911] IRS NUMBER: 210398280 STATE OF INCORPORATION: NJ FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 001-03559 FILM NUMBER: 12635512 BUSINESS ADDRESS: STREET 1: 800 KING STREET STREET 2: PO BOX 231 CITY: WILMINGTON STATE: DE ZIP: 19899 BUSINESS PHONE: 6096454100 MAIL ADDRESS: STREET 1: 800 KING STREET STREET 2: PO BOX 231 CITY: WILMINGTON STATE: DE ZIP: 19899 FILER: COMPANY DATA: COMPANY CONFORMED NAME: DELMARVA POWER & LIGHT CO /DE/ CENTRAL INDEX KEY: 0000027879 STANDARD INDUSTRIAL CLASSIFICATION: ELECTRIC & OTHER SERVICES COMBINED [4931] IRS NUMBER: 510084283 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 001-01405 FILM NUMBER: 12635513 BUSINESS ADDRESS: STREET 1: 800 KING ST STREET 2: PO BOX 231 CITY: WILMINGTON STATE: DE ZIP: 19899 BUSINESS PHONE: 3024293114 MAIL ADDRESS: STREET 1: 800 KING ST STREET 2: P O BOX 231 CITY: WILMINGTON STATE: DE ZIP: 19899 FILER: COMPANY DATA: COMPANY CONFORMED NAME: POTOMAC ELECTRIC POWER CO CENTRAL INDEX KEY: 0000079732 STANDARD INDUSTRIAL CLASSIFICATION: ELECTRIC SERVICES [4911] IRS NUMBER: 530127880 STATE OF INCORPORATION: VA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 001-01072 FILM NUMBER: 12635514 BUSINESS ADDRESS: STREET 1: 701 NINTH STREET, NW STREET 2: OFFICE OF CORPORATE SECY., ROOM 1300 CITY: WASHINGTON STATE: DC ZIP: 20068 BUSINESS PHONE: 2028722000 MAIL ADDRESS: STREET 1: 701 NINTH STREET, NW STREET 2: OFFICE OF CORPORATE SECY., ROOM 1300 CITY: WASHINGTON STATE: DC ZIP: 20068 FILER: COMPANY DATA: COMPANY CONFORMED NAME: PEPCO HOLDINGS INC CENTRAL INDEX KEY: 0001135971 STANDARD INDUSTRIAL CLASSIFICATION: ELECTRIC & OTHER SERVICES COMBINED [4931] IRS NUMBER: 522297449 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 001-31403 FILM NUMBER: 12635515 BUSINESS ADDRESS: STREET 1: SUITE 1300 STREET 2: 701 NINTH STREET, NW CITY: WASHINGTON STATE: DC ZIP: 20068 BUSINESS PHONE: 202-872-2000 MAIL ADDRESS: STREET 1: SUITE 1300 STREET 2: 701 NINTH STREET, NW CITY: WASHINGTON STATE: DC ZIP: 20068 FORMER COMPANY: FORMER CONFORMED NAME: NEW RC INC DATE OF NAME CHANGE: 20010302 10-K 1 d226617d10k.htm FORM 10-K UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K ANNUAL REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 2011 Commission File Number Exact Name of Registrant as Specified in its Charter, State or Other Jurisdiction of Incorporation, Address of Principal Executive Offices, Zip Code and Telephone Number (Including Area Code) I.R.S. Employer Identification Number PEPCO HOLDINGS, INC. (Pepco Holdings or PHI), a Delaware corporation 701 Ninth Street, N.W. Washington, D.C. 20068 Telephone: (202)872-2000 POTOMAC ELECTRIC POWER COMPANY (Pepco), a District of Columbia and Virginia corporation 701 Ninth Street, N.W. Washington, D.C. 20068 Telephone: (202)872-2000 DELMARVA POWER & LIGHT COMPANY (DPL), a Delaware and Virginia corporation 500 North Wakefield Drive, 2^nd Floor Newark, DE 19702 Telephone: (202)872-2000 ATLANTIC CITY ELECTRIC COMPANY (ACE), a New Jersey corporation 500 North Wakefield Drive, 2^nd Floor Newark, DE 19702 Telephone: (202)872-2000 _______________________________________________________________________ Securities registered pursuant to Section 12(b) of the Act: Registrant Title of Each Class Name of Each Exchange on Which Registered Pepco Holdings Common Stock, $.01 par value New York Stock Exchange Securities registered pursuant to Section 12(g) of the Act: Registrant Title of Each Class Pepco Common Stock, $.01 par value DPL Common Stock, $2.25 par value ACE Common Stock, $3.00 par value Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Pepco Holdings Yes x No ¨ Pepco Yes ¨ No x DPL Yes ¨ No x ACE Yes ¨ No x Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Pepco Holdings Yes ¨ No x Pepco Yes ¨ No x DPL Yes ¨ No x ACE Yes ¨ No x Indicate by check mark whether each registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months and (2) has been subject to such filing requirements for the past 90 days. Pepco Holdings Yes x No ¨ Pepco Yes x No ¨ DPL Yes x No ¨ ACE Yes x No ¨ Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such Pepco Holdings Yes x No ¨ Pepco Yes x No ¨ DPL Yes x No ¨ ACE Yes x No ¨ Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K (applicable to Pepco Holdings only). x _______________________________________________________________________ Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. Large Accelerated Filer Accelerated Filer Non- Accelerated Filer Smaller Reporting Company Pepco Holdings x ¨ ¨ ¨ Pepco ¨ ¨ x ¨ DPL ¨ ¨ x ¨ ACE ¨ ¨ x ¨ Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Pepco Holdings Yes ¨ No x Pepco Yes ¨ No x DPL Yes ¨ No x ACE Yes ¨ No x Pepco, DPL, and ACE meet the conditions set forth in General Instruction I(1)(a) and (b) of Form 10-K and are therefore filing this Form 10-K with the reduced disclosure format specified in General Instruction I(2) of Form 10-K. Registrant Aggregate Market Value of Voting and Non-Voting Common Equity Held by Non-Affiliates of the Registrant at June 30, 2011 Number of Shares of Common Stock of the Registrant Outstanding at February 15, 2012 Pepco Holdings $4,432,800,000 (a) ($.01 par value) Pepco None (b) 100 ($.01 par value) DPL None (c) 1,000 ($2.25 par value) ACE None (c) 8,546,017 ($3.00 par value) (a) Solely for purposes of calculating this aggregate market value, PHI has defined its affiliates to include (i) those persons who were, as of June 30, 2011, its executive officers, directors and beneficial owners of more than 10% of its common stock, and (ii) such other persons who were, as of June 30, 2011, controlled by, or under common control with, the persons described in clause (i) above. (b) All voting and non-voting common equity is owned by Pepco Holdings. (c) All voting and non-voting common equity is owned by Conectiv, LLC, a wholly owned subsidiary of Pepco Holdings. THIS COMBINED FORM 10-K IS SEPARATELY FILED BY PEPCO HOLDINGS, PEPCO, DPL AND ACE. INFORMATION CONTAINED HEREIN RELATING TO ANY INDIVIDUAL REGISTRANT IS FILED BY SUCH REGISTRANT ON ITS OWN BEHALF. EACH REGISTRANT MAKES NO REPRESENTATION AS TO INFORMATION RELATING TO THE OTHER REGISTRANTS. _______________________________________________________________________ DOCUMENTS INCORPORATED BY REFERENCE Portions of the Pepco Holdings, Inc. definitive proxy statement for the 2012 Annual Meeting of Stockholders to be filed with the Securities and Exchange Commission within 120 days after December 31, 2011 are incorporated by reference into Part III of this report. _______________________________________________________________________ TABLE OF CONTENTS Page [1]Glossary of Terms i [2]Forward-Looking Statements 1 [3]PART I [4]Item 1. - Business 3 [5]Item 1A. - Risk Factors 23 [6]Item 1B. - Unresolved Staff Comments 37 [7]Item 2. - Properties 38 [8]Item 3. - Legal Proceedings 39 [9]Item 4. - Mine Safety Disclosures 39 [10]PART II [11]Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities 40 [12]Item 6. - Selected Financial Data 43 [13]Item 7. - Management’s Discussion and Analysis of Financial Condition and Results of Operations 44 [14]Item 7A. - Quantitative and Qualitative Disclosures About Market Risk 125 [15]Item 8. - Financial Statements and Supplementary Data 128 [16]Item 9. - Changes in and Disagreements With Accountants on Accounting and Financial Disclosure 321 [17]Item 9A. - Controls and Procedures 321 [18]Item 9B. - Other Information 322 [19]PART III [20]Item 10. - Directors, Executive Officers and Corporate Governance 323 [21]Item 11. - Executive Compensation 323 [22]Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters 323 [23]Item 13. - Certain Relationships and Related Transactions, and Director Independence 323 [24]Item 14. - Principal Accounting Fees and Services 324 [25]PART IV [26]Item 15. - Exhibits and Financial Statement Schedules 324 [27]Schedule I - Condensed Financial Information of Parent Company 326 [28]Schedule II - Valuation and Qualifying Accounts 331 349 [30]Exhibit 12 - Statements Re: Computation of Ratios [31]Exhibit 21 - Subsidiaries of the Registrant [32]Exhibit 23 - Consents of Independent Registered Public Accounting Firm [33]Exhibits 31.1-31.8 - Rule 13a-14a/15d-14(a) Certifications [34]Exhibits 32.1-32.4 - Section 1350 Certifications _______________________________________________________________________ GLOSSARY OF TERMS The following is a glossary of terms, abbreviations and acronyms that are used in the Reporting Companies’ SEC reports. The terms, abbreviations and acronyms used have the meanings set forth below, unless the context requires otherwise. Term Definition ACE Atlantic City Electric Company ACE Funding Atlantic City Electric Transition Funding LLC ADITC Accumulated deferred investment tax credits AFUDC Allowance for funds used during construction AOCL Accumulated other comprehensive loss AMI Advanced metering infrastructure ASC Accounting Standards Codification BART Best Available Retrofit Technology BGS Basic Generation Service BGS-CIEP BGS-Commercial and Industrial Energy Price BGS-FP BGS-Fixed Price Bondable Transition Property Principal and interest payments on the transition bonds and related taxes, expenses and fees BSA Bill Stabilization Adjustment Budget Support Act The Fiscal Year 2012 Budge Support Act of 2011, approved by the Council of the District of Columbia on June 14, 2011 CAIR Clean Air Interstate Rule issued by EPA Calpine Calpine Corporation, the purchaser of Conectiv Energy’s wholesale power generation business CERCLA Comprehensive Environmental Response, Compensation, and Liability Act of 1980 Conectiv Conectiv, LLC (formerly Conectiv), a wholly owned subsidiary of PHI and the parent of DPL and ACE Conectiv Energy Conectiv Energy Holding Company and its subsidiaries CSAPR Cross-State Air Pollution Rule DCPSC District of Columbia Public Service Commission DDOE District of Columbia Department of the Environment Default Electricity Supply The supply of electricity by PHI’s electric utility subsidiaries at regulated rates to retail customers who do not elect to purchase electricity from a competitive supplier, and which, depending on the jurisdiction, is also known as SOS or BGS DPL Delmarva Power & Light Company DEDA Delaware Economic Development Authority DOE U.S. Department of Energy DPSC Delaware Public Service Commission DRP Shareholder Dividend Reinvestment Plan Dynamic Pricing A pricing mechanism that rewards SOS customers for lowering their energy use during those times when energy demand and, consequently, the cost of supplying electricity, are higher EBITDA Earnings before interest, taxes, depreciation, and amortization EDC Electricity Distribution Company EDIT Excess Deferred Income Taxes EmPower Maryland A DSM program for Pepco and DPL EPA U.S. Environmental Protection Agency Exchange Act Securities Exchange Act of 1934, as amended FASB Financial Accounting Standards Board FERC Federal Energy Regulatory Commission FHACA Flood Hazard Area Control Act FPA Federal Power Act GAAP Accounting principles generally accepted in the United States of America i _______________________________________________________________________ Term Definition GCR Gas Cost Rate GWh Gigawatt hour HPS Hourly Priced Service IFRS International Financial Reporting Standards IIP ACE’s Infrastructure Investment Program IRS Internal Revenue Service ISDA International Swaps and Derivatives Association ISRA Industrial Site Recovery Act Line Losses Estimates of electricity and gas expected to be lost in the process of its transmission and distribution to customers LTIP The Pepco Holdings, Inc. Long-Term Incentive Plan MAPP Mid-Atlantic Power Pathway Market Transition Charge Tax Revenue ACE receives, and pays to ACE Funding to recover income taxes associated with Transition Bond Charge revenue Mcf Thousand Cubic Feet MDC MDC Industries, Inc. Medicare Act Medicare Prescription Drug Improvement and Modernization Act of 2003 Medicare Part D A prescription drug benefit under the Medicare Act MFVRD Modified fixed variable rate design Mirant Mirant Corporation MMBtu One Million British Thermal Units MPSC Maryland Public Service Commission MSCG Morgan Stanley Capital Group, Inc. MWh Megawatt hours NAV Net Asset Value NERC North American Electric Reliability Corporation NYMEX New York Mercantile Exchange NJBPU New Jersey Board of Public Utilities NJDEP New Jersey Department of Environmental Protection NOx Nitrogen oxide NPCC Northeast Power Coordinating Council NPDES National Pollutant Discharge Elimination System NPL National Priorities List NUGs Non-utility generators OPEB Other postretirement benefit PARS Performance accelerated restricted stock PCBs Polychlorinated biphenyls PCI Potomac Capital Investment Corporation and its subsidiaries Pepco Potomac Electric Power Company Pepco Energy Services Pepco Energy Services, Inc. and its subsidiaries Pepco Holdings or PHI Pepco Holdings, Inc. PJM PJM Interconnection, LLC PJM RTO PJM regional transmission organization Power Delivery The operations of Pepco, DPL and ACE, engaged primarily in the transmission, distribution and default supply of electricity and the distribution and supply of natural gas PPA Power purchase agreement PRP Potentially responsible party ii _______________________________________________________________________ Term Definition PUHCA 2005 Public Utility Holding Company Act of 2005 RECs Renewable energy credits Regulated T&D Electric Revenue Revenue from the transmission and the distribution of electricity to PHI’s customers within its service territories at regulated rates Reporting Company Each of PHI, Pepco, DPL and ACE Revenue Decoupling Adjustment An adjustment equal to the amount by which revenue from distribution sales differs from the revenue that Pepco and DPL are entitled to earn based on the approved distribution charge per customer RFC ReliabilityFirst Corporation RFP Request for proposals RI/FS Remedial investigation and feasibility study RIM Reliability investment recovery mechanism ROE Return on equity RPM Reliability Pricing Model RPS Renewable Energy Portfolio Standards SEC Securities and Exchange Commission SO[2] Sulfur dioxide SOCA Standard Offer Capacity Agreement SOS Standard Offer Service (the supply of electricity by Pepco in the District of Columbia, by Pepco and DPL in Maryland and by DPL in Delaware to retail customers who have not elected to purchase electricity from a competitive supplier) SPCC Spill Prevention, Control, and Countermeasure plans, required pursuant to federal regulations requiring plans for facilities using oil-containing equipment in proximity to surface waters T&D Transmission and distribution Transition Bonds Transition Bonds issued by ACE Funding VADEQ Virginia Department of Environmental Quality VaR Value at Risk VRDBs Variable Rate Demand Bonds WACC Weighted average cost of capital iii _______________________________________________________________________ FORWARD-LOOKING STATEMENTS Some of the statements contained in this Annual Report on Form 10-K with respect to Pepco Holdings, Inc. (PHI or Pepco Holdings), Potomac Electric Power Company (Pepco), Delmarva Power & Light Company (DPL) and Atlantic City Electric Company (ACE), including each of their respective subsidiaries, are forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended (the Exchange Act), and Section 27A of the Securities Act of 1933, as amended, and are subject to the safe harbor created thereby and by the Private Securities Litigation Reform Act of 1995. These statements include declarations regarding the intents, beliefs, estimates and current expectations of one or more Reporting Companies or their subsidiaries. In some cases, you can identify forward-looking statements by terminology such as “may,” “might,” “will,” “should,” “could,” “expects,” “intends,” “assumes,” “seeks to,” “plans,” “anticipates,” “believes,” “projects,” “estimates,” “predicts,” “potential,” “future,” “goal,” “objective,” or “continue” or the negative of such terms or other variations thereof or comparable terminology, or by discussions of strategy that involve risks and uncertainties. Forward-looking statements involve estimates, assumptions, known and unknown risks, uncertainties and other factors that may cause one or more Reporting Company’s or their subsidiaries’ actual results, levels of activity, performance or achievements to be materially different from any future results, levels of activity, performance or achievements expressed or implied by such forward-looking statements. Therefore, forward-looking statements are not guarantees or assurances of future performance, and actual results could differ materially from those indicated by the forward-looking The forward-looking statements contained herein are qualified in their entirety by reference to the following important factors, which are difficult to predict, contain uncertainties, are beyond each Reporting Company’s or their subsidiaries’ control and may cause actual results to differ materially from those contained in forward-looking Changes in governmental policies and regulatory actions affecting the energy industry, including allowed rates of return, industry and rate structure, acquisition and disposal of assets and facilities, operation and construction of transmission and distribution facilities and the recovery of purchased power expenses; The outcome of pending and future rate cases, including the possible disallowance of costs and expenses; The expenditures necessary to comply with regulatory requirements, including regulatory orders, and to implement reliability enhancement, emergency response and customer service improvement programs; Possible fines, penalties or other sanctions assessed by regulatory authorities against PHI’s regulated utilities; Weather conditions affecting usage and emergency restoration costs; Population growth rates and changes in demographic patterns; Changes in customer energy demand due to conservation measures and the use of more energy-efficient products; General economic conditions, including the impact of an economic downturn or recession on energy usage; Changes in and compliance with environmental and safety laws and 1 _______________________________________________________________________ Changes in tax rates or policies; Changes in rates of inflation; Changes in accounting standards or practices; Unanticipated changes in operating expenses and capital expenditures; Rules and regulations imposed by, and decisions of, federal and/or state regulatory commissions, PJM Interconnection, LLC (PJM), the North American Electric Reliability Corporation (NERC) and other applicable electric reliability organizations; Legal and administrative proceedings (whether civil or criminal) and settlements that affect a Reporting Company’s or their subsidiaries’ business and profitability; Pace of entry into new markets; Interest rate fluctuations and the impact of credit and capital market conditions on the ability to obtain funding on favorable terms; and Effects of geopolitical events, including the threat of domestic terrorism or cyber attacks. These forward-looking statements are also qualified by, and should be read together with, the risk factors included in Part I, Item 1A. “Risk Factors” in this Annual Report on Form 10-K, and investors should refer to such risk factors in evaluating the forward-looking statements contained in this Form 10-K. Any forward-looking statements speak only as to the date of this Form 10-K for each Reporting Company and none of the Reporting Companies undertakes an obligation to update any forward-looking statements to reflect events or circumstances after the date on which such statements are made or to reflect the occurrence of unanticipated events. New factors emerge from time to time, and it is not possible for a Reporting Company to predict all such factors, nor can the impact of any such factor be assessed on such Reporting Company’s or its subsidiaries’ business (viewed independently or together with the business or businesses of some or all of the other Reporting Companies or their subsidiaries) or the extent to which any factor, or combination of factors, may cause results to differ materially from those contained in any forward-looking statement. The foregoing factors should not be construed as exhaustive. 2 _______________________________________________________________________ Part I Item 1. BUSINESS Overview Pepco Holdings, a Delaware corporation incorporated in 2001, is a holding company that, through the following regulated public utility subsidiaries, is engaged primarily in the transmission, distribution and default supply of electricity and, to a lesser extent, the distribution and supply of natural gas: Potomac Electric Power Company, which was incorporated in Washington, D.C. in 1896 and became a domestic Virginia corporation in 1949, Delmarva Power & Light Company, which was incorporated in Delaware in 1909 and became a domestic Virginia corporation in 1979, and Atlantic City Electric Company, which was incorporated in New Jersey in Through Pepco Energy Services, Inc. and its subsidiaries (collectively, Pepco Energy Services), PHI also provides energy efficiency and renewable energy services primarily to government and institutional customers. Pepco Energy Services is in the process of winding down its competitive electricity and natural gas retail supply business and preparing for the retirement of its two oil-fired generating In addition, through Potomac Capital Investment Corporation (PCI), PHI holds several cross-border energy lease investments as described below under the heading “Other Business Operations.” The following chart shows, in simplified form, the corporate structure of PHI and its principal subsidiaries: LOGO 3 _______________________________________________________________________ PHI Service Company, a subsidiary service company of PHI, provides a variety of support services, including legal, accounting, treasury, tax, purchasing and information technology services, to PHI and its operating subsidiaries. These services are provided pursuant to a service agreement among PHI, PHI Service Company and the participating operating subsidiaries. The expenses of PHI Service Company are charged to PHI and the participating operating subsidiaries in accordance with cost allocation methods set forth in the service agreement. Pepco Holdings’ management has identified its operating segments at December 31, 2011 as (i) Power Delivery, consisting of the operations of Pepco, DPL and ACE, engaged primarily in the transmission, distribution and default supply of electricity and the distribution and supply of natural gas, (ii) Pepco Energy Services and (iii) Other Non-Regulated, consisting primarily of the operations of PCI. For financial information relating to PHI’s segments, see Note (5), “Segment Information,” to the consolidated financial statements of PHI. Discontinued Operations In April 2010, the Board of Directors approved a plan for the disposition of PHI’s competitive wholesale power generation, marketing and supply business, which had been conducted through subsidiaries of Conectiv Energy Holding Company (Conectiv Energy). On July 1, 2010, PHI completed the sale of Conectiv Energy’s wholesale power generation business to Calpine Corporation (Calpine) for $1.64 billion. The disposition of Conectiv Energy’s remaining assets and businesses not included in the Calpine sale, including its load service supply contracts, energy hedging portfolio and certain tolling agreements, has been substantially completed. The operations of Conectiv Energy, which previously comprised a separate segment for financial reporting purposes, are being accounted for as a discontinued operation. For further information on the former Conectiv Energy segment and the disposition of its assets, operations and obligations, see Note (20), “Discontinued Operations,” to the consolidated financial statements of Investor Information Each Reporting Company maintains an Internet web site, at the Internet address listed below: Reporting Company Internet Address PHI http://www.pepcoholdings.com Pepco http://www.pepco.com DPL http://www.delmarva.com ACE http://www.atlanticcityelectric.com Each of PHI, Pepco, DPL and ACE files reports with the Securities and Exchange Commission (SEC) under the Exchange Act. Copies of the Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, and all amendments to those reports, of each Reporting Company are made available free of charge on PHI’s Internet Web site as soon as reasonably practicable after such documents are electronically filed with or furnished to the SEC. Copies of these reports may be found at http://www.pepcoholdings.com/investors. The information contained on the web sites listed above is not a part of this Form 10-K, and any web site references are not intended to be made through active hyperlinks. Business Strategy PHI’s business strategy is to become a top-performing, regulated power delivery company focused on: investing in transmission and distribution infrastructure to improve reliability of electric service; building a smarter grid to automate certain functions on the electric system, restore power more efficiently and provide customers detailed energy information to help them control their energy costs; investing in advanced technologies, new processes and personnel to enhance the customer experience during power restoration, including delivering enhanced customer communications; pursuing a regulatory strategy that results in earning reasonable rates of return and timely cost recovery of PHI’s investments; 4 _______________________________________________________________________ growing PHI’s energy services business by providing comprehensive energy management solutions and developing, installing and operating renewable energy solutions; and demonstrating PHI’s core values of safety, diversity and environmental stewardship through PHI’s business approaches and tangible business practices and outcomes. To further its business strategy, PHI may examine transactions involving its existing businesses, including entering into joint ventures, disposing of businesses or making acquisitions. PHI also may refine components of its business strategy as it deems necessary or appropriate in response to business factors and conditions, including regulatory requirements. Description of Business Power Delivery PHI’s primary business is Power Delivery. Power Delivery in 2011, 2010 and 2009, produced 79%, 73%, and 67%, respectively, of PHI’s consolidated operating revenues and 78%, 81%, and 78%, respectively, of PHI’s consolidated operating income. Each utility comprising Power Delivery is regulated in the jurisdictions that encompass its electricity distribution service territory and is regulated by FERC for its electricity transmission facilities. DPL also is a regulated natural gas utility serving portions of Delaware. In the aggregate, Power Delivery distributes electricity to more than 1.8 million customers in the mid-Atlantic region and delivers natural gas to approximately 124,000 customers in Delaware. None of PHI’s three utilities owns any electric generation Distribution and Default Supply of Electricity Pepco, DPL and ACE each owns and operates a network of wires, substations and other equipment that are classified as transmission facilities, distribution facilities or common facilities (which are used for both transmission and distribution). Transmission facilities carry wholesale electricity into, or across, the utility’s service territory. Distribution facilities carry electricity from the transmission facilities to the end-use customers located in the utility’s service territory. Each utility is responsible for the distribution of electricity in its service territory, for which it is paid tariff rates established by the applicable local public service commissions. Each utility also supplies electricity at regulated rates to retail customers in its service territory who do not elect to purchase electricity from a competitive retail supplier. The regulatory term for this default supply service is Standard Offer Service (SOS) in Delaware, the District of Columbia and Maryland, and Basic Generation Service (BGS) in New Jersey. In this Form 10-K, these supply services are referred to generally as Default Electricity Supply. Transmission of Electricity and Relationship with PJM The transmission facilities owned by Pepco, DPL and ACE are interconnected with the transmission facilities of contiguous utilities and are part of an interstate power transmission grid over which electricity is transmitted throughout the mid-Atlantic portion of the United States and parts of the Midwest. Pepco, DPL and ACE each is a member of the PJM Regional Transmission Organization (PJM RTO), the regional transmission organization designated by the Federal Energy Regulatory Commission (FERC) to coordinate the movement of wholesale electricity within a region consisting of all or parts of Delaware, Illinois, Indiana, Kentucky, Maryland, Michigan, New Jersey, North Carolina, Ohio, Pennsylvania, Tennessee, Virginia, West Virginia and the District of Columbia. 5 _______________________________________________________________________ PJM, the FERC-approved independent grid operator, manages the transmission grid and the wholesale electricity market in the PJM RTO region. Any entity that wishes to have wholesale electricity delivered at any point within the PJM RTO region must obtain transmission services from PJM. In accordance with FERC-approved rules, Pepco, DPL, ACE and the other transmission-owning utilities in the region make their transmission facilities available to the PJM RTO, and PJM directs and controls the operation of these transmission facilities. For transmission services, transmission owners are paid rates proposed by the transmission owner and approved by FERC. PJM provides billing and settlement services, collects transmission service revenue from transmission service customers and distributes the revenue to the transmission owners. PJM also directs the regional transmission planning process within the PJM RTO region. The PJM Board of Managers reviews and approves each PJM regional transmission expansion plan, including whether to include new construction of transmission facilities proposed by PJM RTO members in the plan and, if so, the target in-service date for those facilities. Seasonality The operating results of Power Delivery historically have been directly related to the volume of electricity delivered to its customers, producing higher revenues and net income during periods when customers consumed higher amounts of electricity (usually during periods of extreme temperatures) and lower revenues and net income during periods when customers consumed lower amounts of electricity (usually during periods of mild temperatures). This has been due in part to the long standing practice by which the applicable public service commissions set distribution rates based on a fixed charge per kilowatt-hour of electricity used by the customer. Because most of the costs associated with the distribution of electricity do not vary with the volume of electricity delivered, this pricing mechanism also contributed to seasonal variations in net income. As a result of the implementation of a BSA for retail customers of Pepco and DPL in Maryland in June 2007 and for customers of Pepco in the District of Columbia in November 2009, distribution revenues have been decoupled from the amount of electricity delivered. Under the BSA, utility customers pay an approved distribution charge for their electric service which does not vary by electricity usage. This change has had the effect of aligning annual distribution revenues more closely with annual distribution costs. In addition, the change has had the effect of eliminating changes in customer electricity usage, whether due to weather conditions or for any other reason, as a factor having an impact on annual distribution revenue and net income in those jurisdictions. The BSA also eliminates what otherwise might be a disincentive for the utility to aggressively develop and promote efficiency programs. Distribution revenues are not decoupled for the distribution of electricity and natural gas by DPL in Delaware or for the distribution of electricity by ACE in New Jersey, and thus are subject to variability due to changes in customer In contrast to electricity distribution costs, the cost of the electricity supplied, which is the largest component of a customer’s bill, does vary directly in relation to the volume of electricity used by a customer. Accordingly, whether or not a BSA is in effect for the jurisdiction, the revenues of Pepco, DPL and ACE from the supply of electricity and natural gas vary based on consumption and on this basis are seasonal. Because the revenues received by each of the utility subsidiaries for the default supply of electricity and natural gas closely approximate the supply costs, the impact on net income is immaterial, and therefore is not seasonal. Regulated Utility Subsidiaries The following is a more detailed description of the business of each of PHI’s three regulated utility subsidiaries: 6 _______________________________________________________________________ Pepco Pepco is engaged in the transmission, distribution and default supply of electricity in the District of Columbia and major portions of Prince George’s County and Montgomery County in Maryland. Pepco’s service territory covers approximately 640 square miles and has a population of approximately 2.2 million. As of December 31, 2011, Pepco distributed electricity to 788,000 customers (of which 257,000 were located in the District of Columbia and 531,000 were located in Maryland), as compared to 787,000 customers as of December 31, 2010 (of which 256,000 were located in the District of Columbia and 531,000 were located in Maryland). As of December 31, 2009, Pepco distributed electricity to 778,000 customers (of which 252,000 were located in the District of Columbia and 526,000 were located in Maryland). In 2011, Pepco distributed a total of 26,895,000 megawatt hours of electricity, of which 57% was distributed within its Maryland territory and 43% within the District of Columbia. Of this amount, 30% of the total megawatt hours were delivered to residential customers, 50% to commercial customers, and 20% to United States and District of Columbia government customers. In 2010, Pepco distributed a total of 27,665,000 megawatt hours of electricity, of which 57% was distributed within its Maryland territory and 43% within the District of Columbia. Of this amount, 30% of the total megawatt hours were distributed to residential customers, 49% to commercial customers, and 21% to United States and District of Columbia government customers. In 2009, Pepco distributed a total of 26,549,000 megawatt hours of electricity, of which 57% was distributed within its Maryland territory and 43% within the District of Columbia. Of this amount, 29% of the total megawatt hours were distributed to residential customers, 50% to commercial customers, and 21% to United States and District of Columbia government customers. Pepco has been providing SOS in Maryland since July 2004. Pursuant to orders issued by the Maryland Public Service Commission (MPSC), Pepco is obligated to provide SOS (i) to residential and small commercial customers until further action of the Maryland General Assembly and (ii) to medium-sized commercial customers through November 2012. Pepco purchases the electricity required to satisfy these SOS obligations from wholesale suppliers under contracts entered into in accordance with competitive bid procedures approved and supervised by the MPSC. Pepco also is obligated to provide Standard Offer Service, known as Hourly Priced Service (HPS), for large Maryland customers. Power to supply HPS customers is acquired in next-day and other short-term PJM RTO markets. Pepco is entitled to recover from its SOS customers the cost of acquiring the SOS supply, plus an administrative charge that is intended to allow Pepco to recover the administrative costs incurred to provide the SOS and a modest margin. Because the margin varies by customer class, the actual average margin over any given time period depends on the number of Maryland SOS customers in each customer class and the electricity used by such customers. Pepco is paid tariff rates for the distribution of electricity over its transmission and distribution facilities to all electricity customers in its Maryland service territory regardless of whether the customer receives SOS or purchases electricity from another supplier. Pepco has been providing SOS in the District of Columbia since February 2005. Pursuant to orders issued by the District of Columbia Public Service Commission (DCPSC), Pepco is obligated to provide SOS to residential and small, medium-sized and large commercial customers indefinitely. Pepco purchases the electricity required to satisfy its SOS obligations from wholesale suppliers under contracts entered into in accordance with a competitive bid procedure approved and supervised by the DCPSC. Pepco is entitled to recover from its SOS customers the costs of acquiring the SOS supply, plus an administrative charge that is intended to allow Pepco to recover the administrative costs incurred to provide the SOS and a modest margin. Because the margin varies by customer class, the actual average margin over any given time period depends on the number of District of Columbia SOS customers in each customer class and the amount of electricity used by such customers. Pepco is paid tariff rates for the distribution of electricity over its transmission and distribution facilities to all electricity customers in its District of Columbia service territory regardless of whether the customer receives SOS or purchases electricity from another supplier. 7 _______________________________________________________________________ For the year ended December 31, 2011, 43% of Pepco’s Maryland distribution sales (measured by megawatt hours) were to SOS customers, as compared to 46% and 49% in 2010 and 2009, respectively, and 27% of its District of Columbia distribution sales (measured by megawatt hours) were to SOS customers in 2011, as compared to 29% and 31% in 2010 and 2009, respectively. DPL Exhibit 32.4 Certificate of Chief Executive Officer and Chief Financial Officer of Atlantic City Electric Company (pursuant to 18 U.S.C. Section 1350) I, David M. Velazquez, and I, Anthony J. Kamerick, certify that, to the best of my knowledge, (i) the Report on Form 10-K of Atlantic City Electric Company for the year ended December 31, 2011, filed with the Securities and Exchange Commission on the date hereof fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended, and (ii) the information contained therein fairly presents, in all material respects, the financial condition and results of operations of Atlantic City Electric Company. February 23, 2012 /s/ DAVID M. VELAZQUEZ David M. Velazquez President and Chief Executive Officer February 23, 2012 /s/ A. J. KAMERICK Anthony J. Kamerick Chief Financial Officer A signed original of this written statement required by Section 906 has been provided to Atlantic City Electric Company and will be retained by Atlantic City Electric Company and furnished to the Securities and Exchange Commission or its staff upon request. style="font-family: Times New Roman;" class="_mt" ) 2-K5 @,"!2+T-O M;G1E;G1S(#$Q,C8@,"!2+U)E7!E+U!A9V4^ X+T9I;'1E M6?6TG,"T6E63:CC@1)\ZQV<3@ [6306]- Definition The entire disclosure for information about short-term and long-term debt arrangements, which includes amounts of borrowings under each line of credit, note payable, commercial paper issue, bonds indenture, debenture issue, own-share lending arrangements and any other contractual agreement to repay funds, and about the underlying arrangements, rationale for a classification as long-term, including repayment terms, interest rates, collateral provided, restrictions on use of assets and activities, whether or not in compliance with debt covenants, and other matters important to users of the financial statements, such as the effects of refinancing and noncompliance with debt covenants. [6307]+ References Reference 1: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 210 -SubTopic 10 -Section S99 -Paragraph 1 -Subparagraph (SX 210.5-02.19,20,22) -URI http://asc.fasb.org/extlink&oid=6877327&loc=d3e13212-122682 Reference 2: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Statement of Financial Accounting Standard (FAS) -Number 129 -Paragraph 2, 4 -LegacyDoc This reference is SUPERSEDED by the Accounting Standards Codification effective for interim and annual periods ending after September 15, 2009. This reference is included to help users transition from the previous accounting hierarchy and will be removed from future versions of this taxonomy. Reference 3: http://www.xbrl.org/2003/role/presentationRef -Publisher SEC -Name Regulation S-X (SX) -Number 210 -Section 02 -Paragraph 19, 20, 22 -Article 5 Reference 4: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 505 -SubTopic 10 -Section 50 -Paragraph 3 -URI http://asc.fasb.org/extlink&oid=6928386&loc=d3e21475-112644 [6308]+ Details Name: us-gaap_DebtDisclosureTextBlock Namespace Prefix: us-gaap_ Data Type: nonnum:textBlockItemType Balance Type: na Period Type: duration XML 186 R101.htm IDEA: XBRL DOCUMENT /* Do Not Remove This Comment */ v2.4.0.6 Derivative Instruments And Hedging Activities (Outstanding Energy Commodity Contracts Employed As Cash Flow Hedges) (Details) Dec. 31, 2011 Dec. 31, 2010 Natural Gas (One Million British Thermal Units (MMBtu)) [Member] [6309]Derivative [Line Items] [6310]Derivative, Nonmonetary Notional Amount 8,597,106 Electricity (Megawatt Hours (MWh)) [Member] [6311]Derivative [Line Items] [6312]Derivative, Nonmonetary Notional Amount 614,560 2,677,640 Electricity Capacity (MW-Days) [Member] [6313]Derivative [Line Items] [6314]Derivative, Nonmonetary Notional Amount 34,730 Electricity (Mwh) [Member] [6315]Derivative [Line Items] [6316]Derivative, Nonmonetary Notional Amount 614,560 2,517,200 [6318]- Definition Aggregate notional amount of derivative expressed in nonmonetary units. 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