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&lt;p style="MARGIN-TOP: 6px; MARGIN-BOTTOM: 0px"&gt;&lt;font style="FONT-FAMILY: Times New Roman" size="2"&gt;&lt;b&gt;(1)&amp;#xA0;&lt;u&gt;ORGANIZATION&lt;/u&gt;&lt;/b&gt;&lt;/font&gt;&lt;/p&gt;
&lt;p style="MARGIN-TOP: 6px; MARGIN-BOTTOM: 0px"&gt;&lt;font style="FONT-FAMILY: Times New Roman" size="2"&gt;Pepco Holdings, Inc. (PHI
or Pepco Holdings), a Delaware corporation incorporated in 2001, is
a diversified energy company that, through its operating
subsidiaries, is engaged primarily in two businesses:&lt;/font&gt;&lt;/p&gt;
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&amp;#xA0;&lt;/p&gt;
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&lt;p align="left"&gt;&lt;font style="FONT-FAMILY: Times New Roman" size="2"&gt;the distribution, transmission and default supply of
electricity and the delivery and supply of natural gas (Power
Delivery), conducted through the following regulated public utility
companies, each of which is a reporting company under the
Securities Exchange Act of 1934, as amended:&lt;/font&gt;&lt;/p&gt;
&lt;/td&gt;
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&amp;#xA0;&lt;/p&gt;
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&lt;p align="left"&gt;&lt;font style="FONT-FAMILY: Times New Roman" size="2"&gt;Potomac Electric Power Company (Pepco), which was incorporated
in Washington, D.C. in 1896 and became a domestic Virginia
corporation in 1949,&lt;/font&gt;&lt;/p&gt;
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&lt;p align="left"&gt;&lt;font style="FONT-FAMILY: Times New Roman" size="2"&gt;Delmarva Power&amp;#xA0;&amp;amp; Light Company (DPL), which was
incorporated in Delaware in 1909 and became a domestic Virginia
corporation in 1979, and&lt;/font&gt;&lt;/p&gt;
&lt;/td&gt;
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&amp;#xA0;&lt;/p&gt;
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&lt;p align="left"&gt;&lt;font style="FONT-FAMILY: Times New Roman" size="2"&gt;Atlantic City Electric Company (ACE), which was incorporated in
New Jersey in 1924.&lt;/font&gt;&lt;/p&gt;
&lt;/td&gt;
&lt;/tr&gt;
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&amp;#xA0;&lt;/p&gt;
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&lt;p align="left"&gt;&lt;font style="FONT-FAMILY: Times New Roman" size="2"&gt;competitive energy generation, marketing and supply
(Competitive Energy) conducted through subsidiaries of Conectiv
Energy Holding Company (collectively Conectiv Energy) and Pepco
Energy Services, Inc. and its subsidiaries (collectively, Pepco
Energy Services).&lt;/font&gt;&lt;/p&gt;
&lt;/td&gt;
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&lt;p style="MARGIN-TOP: 12px; MARGIN-BOTTOM: 0px"&gt;&lt;font style="FONT-FAMILY: Times New Roman" size="2"&gt;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 the PHI Service Company are
charged to PHI and the participating operating subsidiaries in
accordance with cost allocation methodologies set forth in the
service agreement.&lt;/font&gt;&lt;/p&gt;
&lt;p style="MARGIN-TOP: 12px; MARGIN-BOTTOM: 0px"&gt;&lt;font style="FONT-FAMILY: Times New Roman" size="2"&gt;The following is a
description of each of PHI&amp;#x2019;s two principal business
operations:&lt;/font&gt;&lt;/p&gt;
&lt;p style="MARGIN-TOP: 18px; MARGIN-BOTTOM: 0px"&gt;&lt;font style="FONT-FAMILY: Times New Roman" size="2"&gt;&lt;b&gt;Power
Delivery&lt;/b&gt;&lt;/font&gt;&lt;/p&gt;
&lt;p style="MARGIN-TOP: 6px; MARGIN-BOTTOM: 0px"&gt;&lt;font style="FONT-FAMILY: Times New Roman" size="2"&gt;The largest component of
PHI&amp;#x2019;s business is Power Delivery. Each of Pepco, DPL and ACE
is a regulated public utility in the jurisdictions that comprise
its service territory. Each company owns and operates a network of
wires, substations and other equipment that is classified either as
transmission or distribution facilities. Transmission facilities
are high-voltage systems that carry wholesale electricity into, or
across, the utility&amp;#x2019;s service territory. Distribution
facilities are low-voltage systems that carry electricity to
end-use customers in the utility&amp;#x2019;s service territory.
Together the three companies constitute a single segment for
financial reporting purposes.&lt;/font&gt;&lt;/p&gt;
&lt;p style="MARGIN-TOP: 12px; MARGIN-BOTTOM: 0px"&gt;&lt;font style="FONT-FAMILY: Times New Roman" size="2"&gt;Each company is responsible
for the delivery of electricity and, in the case of DPL, natural
gas, in its service territory, for which it is paid tariff rates
established by the applicable local public service commissions.
Each company also supplies electricity at regulated rates to retail
customers in its service territory who do not elect to purchase
electricity from a competitive energy supplier. The regulatory term
for this supply service is Standard Offer Service in Delaware, the
District of Columbia and Maryland; and Basic Generation Service
(BGS) in New Jersey. In this Form 10-Q, these supply services are
referred to generally as Default Electricity Supply.&lt;/font&gt;&lt;/p&gt;
&lt;p style="MARGIN-TOP: 0px; MARGIN-BOTTOM: 0px"&gt;&lt;font size="1"&gt;&amp;#xA0;&lt;/font&gt;&lt;/p&gt;
&lt;p style="MARGIN-TOP: 0px; MARGIN-BOTTOM: 0px"&gt;&lt;font style="FONT-FAMILY: Times New Roman" size="2"&gt;&lt;b&gt;Competitive
Energy&lt;/b&gt;&lt;/font&gt;&lt;/p&gt;
&lt;p style="MARGIN-TOP: 6px; MARGIN-BOTTOM: 0px"&gt;&lt;font style="FONT-FAMILY: Times New Roman" size="2"&gt;The Competitive Energy
business provides competitive generation, marketing and supply of
electricity and gas, and related energy management services,
primarily in the mid-Atlantic region. PHI&amp;#x2019;s Competitive
Energy operations are conducted through Conectiv Energy and Pepco
Energy Services, each of which is treated as a separate operating
segment for financial reporting purposes.&lt;/font&gt;&lt;/p&gt;
&lt;p style="MARGIN-TOP: 12px; MARGIN-BOTTOM: 0px"&gt;&lt;font style="FONT-FAMILY: Times New Roman" size="2"&gt;PHI is continuing to
evaluate the retail energy supply business of Pepco Energy Services
relative to PHI&amp;#x2019;s strategic objectives with a view toward a
possible restructuring, sale or wind down of the business. Among
the factors being considered in this analysis is the return PHI
earns by investing capital in the retail energy supply business as
compared to alternative investments. PHI expects the retail energy
supply business to remain profitable based on its existing contract
backlog and because the variability of margins has been reduced by
entering into corresponding wholesale energy purchase contracts.
With the increased cost of capital associated with its collateral
obligations factored into its retail pricing, Pepco Energy Services
is experiencing reduced retail customer retention levels and
reduced levels of new retail customer acquisitions. In March 2009,
Pepco Energy Services entered into a credit intermediation
arrangement with an investment banking firm, which is more fully
described in Note (9), &amp;#x201C;Debt,&amp;#x201D; under the heading
&amp;#x201C;Collateral Requirements of the Competitive Energy
Business.&amp;#x201D; The arrangement eliminates the collateral
requirements with respect to a portion of Pepco Energy
Services&amp;#x2019; wholesale electricity supply contracts.&lt;/font&gt;&lt;/p&gt;
&lt;p style="MARGIN-TOP: 18px; MARGIN-BOTTOM: 0px"&gt;&lt;font style="FONT-FAMILY: Times New Roman" size="2"&gt;&lt;b&gt;Other Business
Operations&lt;/b&gt;&lt;/font&gt;&lt;/p&gt;
&lt;p style="MARGIN-TOP: 6px; MARGIN-BOTTOM: 0px"&gt;&lt;font style="FONT-FAMILY: Times New Roman" size="2"&gt;Through its subsidiary
Potomac Capital Investment Corporation (PCI), PHI maintains a
portfolio of cross-border energy sale-leaseback transactions, with
a book value at September&amp;#xA0;30, 2009 of approximately $1.4
billion. This activity constitutes a fourth operating segment for
financial reporting purposes, which is designated as &amp;#x201C;Other
Non-Regulated.&amp;#x201D;&lt;/font&gt;&lt;/p&gt;
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Company (Pepco) is engaged in the transmission and distribution of
electricity in Washington, D.C. and major portions of Prince
George&amp;#x2019;s County and Montgomery County in suburban Maryland.
Pepco provides Default Electricity Supply, which is the supply of
electricity at regulated rates to retail customers in its
territories who do not elect to purchase electricity from a
competitive supplier, in both the District of Columbia and
Maryland. Default Electricity Supply is known as Standard Offer
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wholly owned subsidiary of Pepco Holdings, Inc. (Pepco Holdings or
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      <Label>Notes to Financial Statements [Abstract]</Label>
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&lt;p style="MARGIN-TOP: 6px; MARGIN-BOTTOM: 0px"&gt;&lt;font style="FONT-FAMILY: Times New Roman" size="2"&gt;&lt;b&gt;(1)
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&lt;p style="MARGIN-TOP: 6px; MARGIN-BOTTOM: 0px"&gt;&lt;font style="FONT-FAMILY: Times New Roman" size="2"&gt;Delmarva Power&amp;#xA0;&amp;amp;
Light Company (DPL) is engaged in the transmission and distribution
of electricity in Delaware and portions of Maryland and provides
gas distribution service in northern Delaware. Additionally, DPL
supplies electricity at regulated rates to retail customers in its
territories who do not elect to purchase electricity from a
competitive supplier. The regulatory term for this service is
Standard Offer Service in both Delaware and Maryland.&lt;/font&gt;&lt;/p&gt;
&lt;p style="MARGIN-TOP: 12px; MARGIN-BOTTOM: 0px"&gt;&lt;font style="FONT-FAMILY: Times New Roman" size="2"&gt;DPL is a wholly owned
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&lt;p style="MARGIN-TOP: 12px; MARGIN-BOTTOM: 0px"&gt;&lt;font style="FONT-FAMILY: Times New Roman" size="2"&gt;In January 2008, DPL
completed the sale of its Virginia retail electric distribution
assets and the sale of its Virginia wholesale electric transmission
assets, both located on Virginia&amp;#x2019;s Eastern Shore.&lt;/font&gt;&lt;/p&gt;
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