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&lt;p style="MARGIN-TOP: 0px; MARGIN-BOTTOM: 0px"&gt;&lt;font style="FONT-FAMILY: Times New Roman" size="2"&gt;&lt;b&gt;(3) &lt;u&gt;NEWLY ADOPTED
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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;i&gt;Business Combinations
(ASC 805)&lt;/i&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 accounting guidance on
business combinations was amended by the FASB effective beginning
January&amp;#xA0;1, 2009. The amendment did not change the fundamental
concepts that the acquisition method of accounting be used and that
an acquirer must be identified for each business combination.
However, the guidance expanded the definition of a business subject
to this guidance and also requires the acquirer to recognize
changes in the amount of its deferred tax benefits that are
realizable because of a business combination either in income from
continuing operations or directly in contributed capital, depending
on the circumstances.&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;On April&amp;#xA0;1, 2009, the
FASB issued additional guidance to clarify the accounting for the
initial recognition and measurement, subsequent measurement and
accounting, and disclosure of assets and liabilities arising from
contingencies in a business combination. The additional guidance
requires that assets acquired and liabilities assumed in a business
combination that arise from contingencies be measured at fair value
if the acquisition date fair value of that asset and liability can
be determined during the measurement period. If the acquisition
date fair value cannot be determined, then the asset or liability
would be measured in accordance with FASB guidance on contingencies
(ASC 450).&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 new guidance applies
prospectively to business combinations for which the acquisition
date is on or after January&amp;#xA0;1, 2009. The adoption of the
guidance did not have a material impact on PHI&amp;#x2019;s overall
financial condition, results of operations, or cash
flows.&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;i&gt;Fair Value Measurement
and Disclosures (ASC 820)&lt;/i&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;There is a variety of new
accounting guidance from the FASB that is effective for different
financial reporting periods during 2009. Nonrecurring fair value
measurement guidance for non-financial assets and non-financial
liabilities was effective beginning January&amp;#xA0;1, 2009 for PHI.
The adoption of this guidance did not have a material impact on the
fair value measurements of PHI&amp;#x2019;s non-financial assets and
non-financial liabilities.&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;New FASB guidance for the
fair value measurement of liabilities issued with inseparable
third-party credit enhancements was also effective beginning
January&amp;#xA0;1, 2009 for PHI. The guidance applies to liabilities
such as debt, derivatives, and other instruments that are
guaranteed by third parties. The effect of the credit enhancement
may not be included in the fair value measurement of the liability,
even if the liability has an inseparable third-party credit
enhancement. The issuer is required to disclose the existence of
the inseparable third-party credit enhancement on the issued
liability. The adoption of the guidance did not have a material
impact on PHI&amp;#x2019;s overall financial condition, results of
operations, or cash flows.&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 adopted new FASB
guidance in the second quarter of 2009 for fair value measurement
when markets are inactive and distressed. This guidance was
effective for interim periods ending after June&amp;#xA0;15, 2009. The
guidance outlines a two-step test to identify inactive and
distressed markets and provides a fair value application example
for financial instruments when both conditions are met. The
guidance primarily applies to PHI&amp;#x2019;s valuation of its
derivatives in the event they were being valued using information
from inactive and distressed markets. These market conditions would
require management to exercise judgment regarding how the market
information is incorporated into the measurement of fair value.
This guidance did not have a material impact on PHI&amp;#x2019;s overall
financial condition, results of operations, or cash
flows.&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;Effective beginning with
its June&amp;#xA0;30, 2009 financial statements, PHI began disclosing
the fair value of debt issued by PHI and its utilities on a
quarterly basis in Note (13), &amp;#x201C;Fair Value Disclosures,&amp;#x201D;
in accordance with FASB guidance which is effective for interim
reporting periods ending after June&amp;#xA0;15, 2009. Disclosures for
the prior year-end balance sheet were also required.&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;i&gt;Consolidation (ASC
810)&lt;/i&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 FASB established new
accounting and reporting standards for a non-controlling interest
(also called a &amp;#x201C;minority interest&amp;#x201D;) in a subsidiary and
for the deconsolidation of a subsidiary. The new guidance clarified
that a non-controlling interest in a subsidiary is an ownership
interest in the consolidated entity that should be separately
reported in the consolidated financial statements.&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 guidance was effective
prospectively for financial statement reporting periods beginning
January&amp;#xA0;1, 2009 for PHI, except for the financial statement
presentation and disclosure requirements which also apply to prior
reporting periods presented. As of January&amp;#xA0;1, 2009, PHI
adopted the provisions of this guidance and reclassified $6 million
of non-controlling interests from the minority interest line item
of its balance sheet to a component of equity. Otherwise, the
adoption of the guidance did not have a material impact on
PHI&amp;#x2019;s overall financial condition, results of operations, or
cash flows.&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;i&gt;Derivatives and Hedging
Disclosures (ASC 815)&lt;/i&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 FASB issued new
disclosure requirements for derivatives and hedging effective for
financial statement reporting periods beginning January&amp;#xA0;1,
2009 for PHI. Some of the new disclosures include derivative
objectives and strategies, derivative volumes by product type,
classification and gross fair values of derivative assets and
liabilities, classification and amounts of gains and losses on
derivatives and related hedged items, and credit-risk-related
contingent features in derivatives. PHI adopted the new
requirements beginning with its March&amp;#xA0;31, 2009 financial
statements with comparative disclosures for prior reporting
periods. The disclosures are included within Note (12),
&amp;#x201C;Derivative Instruments and Hedging
Activities.&amp;#x201D;&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;i&gt;Earnings Per Share (ASC
260)&lt;/i&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 FASB issued new
guidance to determine when unvested instruments granted in
share-based payment transactions are participating securities prior
to vesting and, therefore, need to be included in the earnings
allocation in computing earnings per share (EPS). As of
January&amp;#xA0;1, 2009, PHI adopted the provisions of this guidance
for the presentation of EPS data in the consolidated statements of
income and Note (11), &amp;#x201C;Earnings Per Share.&amp;#x201D; All prior
period EPS information presented was adjusted retrospectively to
conform to the provisions of the guidance. The adoption did not
result in a change in the reported EPS for prior periods
presented.&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;i&gt;Investments &amp;#x2013;
Equity Method and Joint Ventures (ASC 323)&lt;/i&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 FASB issued guidance
addressing the accounting for equity method investments including:
(i)&amp;#xA0;how an equity method investment should initially be
measured, (ii)&amp;#xA0;how it should be tested for impairment, and
(iii)&amp;#xA0;how to account for an equity method investee&amp;#x2019;s
issuance of shares. As of January&amp;#xA0;1, 2009, PHI adopted the
provisions of this guidance and there was no material impact on
PHI&amp;#x2019;s overall financial condition, results of operations, or
cash flows.&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;i&gt;Investments &amp;#x2013; Debt
and Equity Securities (ASC 320)&lt;/i&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 FASB issued new
guidance on other-than-temporary impairment (OTTI) of debt and
equity securities. The guidance requires information about the
credit and noncredit component of an OTTI event and when an OTTI
event has occurred. It requires separate display of losses related
to credit deterioration and losses related to other market factors
on the statements of income. Market-related losses would be
recorded in other comprehensive income if it is not likely that the
investor will have to sell the security prior to recovery. PHI
adopted this guidance as of April&amp;#xA0;1, 2009, and concluded that
none of its debt and equity securities investments were within its
scope. The new guidance, therefore, did not have a material impact
on PHI&amp;#x2019;s overall financial condition, results of operations,
or cash flows.&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;i&gt;Subsequent Events (ASC
855)&lt;/i&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;Beginning with its
June&amp;#xA0;30, 2009 financial statements, PHI adopted new FASB
guidelines for the disclosure of events that occur after the
balance sheet reporting date but before the financial statements
are issued. The new guidance requires the disclosure of the date
through which PHI has assessed the impact of subsequent events on
the financial statements. The new guidance was effective for
interim or annual financial periods ending after June&amp;#xA0;15,
2009. PHI has disclosed this subsequent events date in Note (2),
&amp;#x201C;Significant Accounting Policies.&amp;#x201D;&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;i&gt;FASB Accounting
Standards Codification (ASC 105)&lt;/i&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 ASC identifies the
sources of accounting principles and the framework for selecting
the principles used in the preparation of non-governmental
financial statements presented under GAAP. In addition, it replaces
the current reference system for standards and guidance with a new
numerical designation system known as the ASC. The ASC will be the
single source reference system for all authoritative GAAP. The ASC
is numerically organized by topic, subtopic, section, and
subsection.&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 ASC is effective for
financial statements issued for interim and annual periods ending
after September&amp;#xA0;15, 2009. PHI has adopted the ASC guidance and
referencing system for GAAP in its September&amp;#xA0;30, 2009
financial statements. Entities are not required to revise previous
financial statements for the change in references to GAAP. The
adoption of ASC did not result in a change in accounting principle
for PHI, therefore, it did not have a material impact on
PHI&amp;#x2019;s overall financial condition, results of operations, or
cash flows.&lt;/font&gt;&lt;/p&gt;
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ACCOUNTING STANDARDS&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;&lt;i&gt;Business Combinations
(ASC 805)&lt;/i&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 accounting guidance on
business combinations was amended by the FASB effective beginning
January&amp;#xA0;1, 2009. The amendment did not change the fundamental
concepts that the acquisition method of accounting be used and that
an acquirer must be identified for each business combination.
However, the guidance expanded the definition of a business subject
to this guidance and also requires the acquirer to recognize
changes in the amount of its deferred tax benefits that are
realizable because of a business combination either in income from
continuing operations or directly in contributed capital, depending
on the circumstances.&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;On April&amp;#xA0;1, 2009, the
FASB issued additional guidance to clarify the accounting for the
initial recognition and measurement, subsequent measurement and
accounting, and disclosure of assets and liabilities arising from
contingencies in a business combination. The additional guidance
requires that assets acquired and liabilities assumed in a business
combination that arise from contingencies be measured at fair value
if the acquisition date fair value of that asset and liability can
be determined during the measurement period. If the acquisition
date fair value cannot be determined, then the asset or liability
would be measured in accordance with FASB guidance on contingencies
(ASC 450).&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 new guidance applies
prospectively to business combinations for which the acquisition
date is on or after January&amp;#xA0;1, 2009. The adoption of the
guidance did not have a material impact on Pepco&amp;#x2019;s overall
financial condition, results of operations, or cash
flows.&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;i&gt;Fair Value Measurement
and Disclosures (ASC 820)&lt;/i&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;There is a variety of new
accounting guidance from the FASB that is effective for different
financial reporting periods during 2009. Nonrecurring fair value
measurement guidance for non-financial assets and non-financial
liabilities was effective beginning January&amp;#xA0;1, 2009 for Pepco.
The adoption of this guidance did not have a material impact on the
fair value measurements of Pepco&amp;#x2019;s non-financial assets and
non-financial liabilities.&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;Effective beginning with
the June&amp;#xA0;30, 2009 financial statements, Pepco began disclosing
the fair values of its financial instruments each quarter in
accordance with FASB guidance. This new guidance is effective for
interim reporting periods ending after June&amp;#xA0;15, 2009 and
disclosures for the prior year-end balance sheet are required. The
primary impact of the new guidance is disclosing the fair value of
debt issued by Pepco on a quarterly basis in Note (9), &amp;#x201C;Fair
Value Disclosures.&amp;#x201D;&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;i&gt;Consolidation (ASC
810)&lt;/i&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 FASB established new
accounting and reporting standards for a non-controlling interest
(also called a &amp;#x201C;minority interest&amp;#x201D;) in a subsidiary and
for the deconsolidation of a subsidiary. The new guidance clarified
that a non-controlling interest in a subsidiary is an ownership
interest in the consolidated entity that should be separately
reported in the consolidated financial statements.&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 guidance was effective
prospectively for financial statement reporting periods beginning
January&amp;#xA0;1, 2009 for Pepco, except for the financial statement
presentation and disclosure requirements which also apply to prior
reporting periods presented. As of January&amp;#xA0;1, 2009, Pepco
adopted the provisions of this guidance and the provisions did not
have a material impact on Pepco&amp;#x2019;s overall financial
condition, results of operations, or cash flows.&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;i&gt;Subsequent Events (ASC
855)&lt;/i&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;Beginning with its
June&amp;#xA0;30, 2009 financial statements, Pepco adopted new FASB
guidelines for the disclosure of events that occur after the
balance sheet reporting date but before the financial statements
are issued. The new guidance requires the disclosure of the date
through which Pepco has assessed the impact of subsequent events on
the financial statements. The new guidance was effective for
interim or annual financial periods ending after June&amp;#xA0;15,
2009. Pepco has disclosed this subsequent events date in Note (2),
&amp;#x201C;Significant Accounting Policies.&amp;#x201D;&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;i&gt;FASB Accounting
Standards Codification (ASC 105)&lt;/i&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 ASC identifies the
sources of accounting principles and the framework for selecting
the principles used in the preparation of non-governmental
financial statements presented under GAAP. In addition, it replaces
the current reference system for standards and guidance with a new
numerical designation system known as the ASC. The ASC will be the
single source reference system for all authoritative GAAP. The ASC
is numerically organized by topic, subtopic, section, and
subsection.&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 ASC is effective for
financial statements issued for interim and annual periods ending
after September&amp;#xA0;15, 2009. Pepco has adopted the ASC guidance
and referencing system for GAAP in its September&amp;#xA0;30, 2009
financial statements. Entities are not required to revise previous
financial statements for the change in references to GAAP. The
adoption of ASC did not result in a change in accounting principle
for Pepco; therefore, it did not have a material impact on
Pepco&amp;#x2019;s overall financial condition, results of operations,
or cash flows.&lt;/font&gt;&lt;/p&gt;
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          <NonNumbericText>&lt;div&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;(3) &lt;u&gt;NEWLY ADOPTED
ACCOUNTING STANDARDS&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;&lt;i&gt;Business Combinations
(ASC 805)&lt;/i&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 accounting guidance on
business combinations was amended by the FASB effective beginning
January&amp;#xA0;1, 2009. The amendment did not change the fundamental
concepts that the acquisition method of accounting be used and that
an acquirer must be identified for each business combination.
However, the guidance expanded the definition of a business subject
to this guidance and also requires the acquirer to recognize
changes in the amount of its deferred tax benefits that are
realizable because of a business combination either in income from
continuing operations or directly in contributed capital, depending
on the circumstances.&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;On April&amp;#xA0;1, 2009, the
FASB issued additional guidance to clarify the accounting for the
initial recognition and measurement, subsequent measurement and
accounting, and disclosure of assets and liabilities arising from
contingencies in a business combination. The additional guidance
requires that assets acquired and liabilities assumed in a business
combination that arise from contingencies be measured at fair value
if the acquisition date fair value of that asset and liability can
be determined during the measurement period. If the acquisition
date fair value cannot be determined, then the asset or liability
would be measured in accordance with FASB guidance on contingencies
(ASC 450).&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 new guidance applies
prospectively to business combinations for which the acquisition
date is on or after January&amp;#xA0;1, 2009. The adoption of the
guidance did not have a material impact on DPL&amp;#x2019;s overall
financial condition, results of operations, or cash
flows.&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;i&gt;Fair Value Measurement
and Disclosures (ASC 820)&lt;/i&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;There is a variety of new
accounting guidance from the FASB that is effective for different
financial reporting periods during 2009. Nonrecurring fair value
measurement guidance for non-financial assets and non-financial
liabilities was effective beginning January&amp;#xA0;1, 2009 for DPL.
The adoption of this guidance did not have a material impact on the
fair value measurements of DPL&amp;#x2019;s non-financial assets and
non-financial liabilities.&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;New FASB guidance for the
fair value measurement of liabilities issued with inseparable
third-party credit enhancements was also effective beginning
January&amp;#xA0;1, 2009 for DPL. The guidance applies to liabilities
such as debt, derivatives, and other instruments that are
guaranteed by third parties. The effect of the credit enhancement
may not be included in the fair value measurement of the liability,
even if the liability has an inseparable third-party credit
enhancement. The issuer is required to disclose the existence of
the inseparable third-party credit enhancement on the issued
liability. The adoption of the guidance did not have a material
impact on DPL&amp;#x2019;s overall financial condition, results of
operations, or cash flows.&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 adopted new FASB
guidance in the second quarter of 2009 for fair value measurement
when markets are inactive and distressed. This guidance was
effective for interim periods ending after June&amp;#xA0;15, 2009. The
guidance outlines a two-step test to identify inactive and
distressed markets and provides a fair value application example
for financial instruments when both conditions are met. The
guidance primarily applies to DPL&amp;#x2019;s valuation of its
derivatives in the event they were being valued using information
from inactive and distressed markets. These market conditions would
require management to exercise judgment regarding how the market
information is incorporated into the measurement of fair value.
This guidance did not have a material impact on DPL&amp;#x2019;s overall
financial condition, results of operations, or cash
flows.&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;Effective beginning with
its June&amp;#xA0;30, 2009 financial statements, DPL began disclosing
the fair value of debt issued on a quarterly basis in Note (13),
&amp;#x201C;Fair Value Disclosures,&amp;#x201D; in accordance with FASB
guidance which is effective for interim reporting periods ending
after June&amp;#xA0;15, 2009. Disclosures for the prior year-end
balance sheet were also required.&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;i&gt;Consolidation (ASC
810)&lt;/i&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 FASB established new
accounting and reporting standards for a non-controlling interest
(also called a &amp;#x201C;minority interest&amp;#x201D;) in a subsidiary and
for the deconsolidation of a subsidiary. The new guidance clarified
that a non-controlling interest in a subsidiary is an ownership
interest in the consolidated entity that should be separately
reported in the consolidated financial statements.&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 guidance was effective
prospectively for financial statement reporting periods beginning
January&amp;#xA0;1, 2009 for DPL, except for the financial statement
presentation and disclosure requirements which also apply to prior
reporting periods presented. As of January&amp;#xA0;1, 2009, DPL
adopted the provisions of this guidance and the guidance did not
have a material impact on DPL&amp;#x2019;s overall financial condition,
results of operations, or cash flows.&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;i&gt;Derivatives and Hedging
Disclosures (ASC 815)&lt;/i&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 FASB issued new
disclosure requirements for derivatives and hedging effective for
financial statement reporting periods beginning January&amp;#xA0;1,
2009 for DPL. Some of the new disclosures include derivative
objectives and strategies, derivative volumes by product type,
classification and gross fair values of derivative assets and
liabilities, classification and amounts of gains and losses on
derivatives and related hedged items, and credit-risk-related
contingent features in derivatives. DPL adopted the new
requirements beginning with its March&amp;#xA0;31, 2009 financial
statements with comparative disclosures for prior reporting
periods. The disclosures are included within Note (10),
&amp;#x201C;Derivative Instruments and Hedging
Activities.&amp;#x201D;&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;i&gt;Subsequent Events (ASC
855)&lt;/i&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;Beginning with its
June&amp;#xA0;30, 2009 financial statements, DPL adopted new FASB
guidelines for the disclosure of events that occur after the
balance sheet reporting date but before the financial statements
are issued. The new guidance requires the disclosure of the date
through which DPL has assessed the impact of subsequent events on
the financial statements. The new guidance was effective for
interim or annual financial periods ending after June&amp;#xA0;15,
2009. DPL has disclosed this subsequent events date in Note (2),
&amp;#x201C;Significant Accounting Policies.&amp;#x201D;&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;i&gt;FASB Accounting
Standards Codification (ASC 105)&lt;/i&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 ASC identifies the
sources of accounting principles and the framework for selecting
the principles used in the preparation of non-governmental
financial statements presented under GAAP. In addition, it replaces
the current reference system for standards and guidance with a new
numerical designation system known as the ASC. The ASC will be the
single source reference system for all authoritative GAAP. The ASC
is numerically organized by topic, subtopic, section, and
subsection.&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 ASC is effective for
financial statements issued for interim and annual periods ending
after September&amp;#xA0;15, 2009. DPL has adopted the ASC guidance and
referencing system for GAAP in its September&amp;#xA0;30, 2009
financial statements. Entities are not required to revise previous
financial statements for the change in references to GAAP. The
adoption of ASC did not result in a change in accounting principle
for DPL, therefore, it did not have a material impact on
DPL&amp;#x2019;s overall financial condition, results of operations, or
cash flows.&lt;/font&gt;&lt;/p&gt;
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      <Label>NEWLY ADOPTED ACCOUNTING STANDARDS</Label>
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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;&lt;b&gt;(3) &lt;u&gt;NEWLY ADOPTED
ACCOUNTING STANDARDS&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;&lt;i&gt;Business Combinations
(ASC 805)&lt;/i&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 accounting guidance on
business combinations was amended by the FASB effective beginning
January&amp;#xA0;1, 2009. The amendment did not change the fundamental
concepts that the acquisition method of accounting be used and that
an acquirer must be identified for each business combination.
However, the guidance expanded the definition of a business subject
to this guidance and also requires the acquirer to recognize
changes in the amount of its deferred tax benefits that are
realizable because of a business combination either in income from
continuing operations or directly in contributed capital, depending
on the circumstances.&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;On April&amp;#xA0;1, 2009, the
FASB issued additional guidance to clarify the accounting for the
initial recognition and measurement, subsequent measurement and
accounting, and disclosure of assets and liabilities arising from
contingencies in a business combination. The additional guidance
requires that assets acquired and liabilities assumed in a business
combination that arise from contingencies be measured at fair value
if the acquisition date fair value of that asset and liability can
be determined during the measurement period. If the acquisition
date fair value cannot be determined, then the asset or liability
would be measured in accordance with FASB guidance on contingencies
(ASC 450).&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 new guidance applies
prospectively to business combinations for which the acquisition
date is on or after January&amp;#xA0;1, 2009. The adoption of the
guidance did not have a material impact on ACE&amp;#x2019;s overall
financial condition, results of operations, or cash
flows.&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;i&gt;Fair Value Measurement
and Disclosures (ASC 820)&lt;/i&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;There is a variety of new
accounting guidance from the FASB that is effective for different
financial reporting periods during 2009. Nonrecurring fair value
measurement guidance for non-financial assets and non-financial
liabilities was effective beginning January&amp;#xA0;1, 2009 for ACE.
The adoption of this guidance did not have a material impact on the
fair value measurements of ACE&amp;#x2019;s non-financial assets and
non-financial liabilities.&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;Effective beginning with
its June&amp;#xA0;30, 2009 financial statements, ACE began disclosing
the fair value of debt issued on a quarterly basis in Note (13),
&amp;#x201C;Fair Value Disclosures,&amp;#x201D; in accordance with FASB
guidance which is effective for interim reporting periods ending
after June&amp;#xA0;15, 2009. Disclosures for the prior year-end
balance sheet were also required.&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;i&gt;Consolidation (ASC
810)&lt;/i&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 FASB established new
accounting and reporting standards for a non-controlling interest
(also called a &amp;#x201C;minority interest&amp;#x201D;) in a subsidiary and
for the deconsolidation of a subsidiary. The new guidance clarified
that a non-controlling interest in a subsidiary is an ownership
interest in the consolidated entity that should be separately
reported in the consolidated financial statements.&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;The guidance was effective
prospectively for financial statement reporting periods beginning
January&amp;#xA0;1, 2009 for ACE, except for the financial statement
presentation and disclosure requirements which also apply to prior
reporting periods presented. As of January&amp;#xA0;1, 2009, ACE
adopted the provisions of this guidance and the provisions did not
have a material impact on ACE&amp;#x2019;s overall financial condition,
results of operations, or cash flows.&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;i&gt;Subsequent Events (ASC
855)&lt;/i&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;Beginning with its
June&amp;#xA0;30 2009 financial statements, ACE adopted new FASB
guidelines for the disclosure of events that occur after the
balance sheet reporting date but before the financial statements
are issued. The new guidance requires the disclosure of the date
through which ACE has assessed the impact of subsequent events on
the financial statements. The new guidance was effective for
interim or annual financial periods ending after June&amp;#xA0;15,
2009. ACE has disclosed this subsequent events date in Note (2),
&amp;#x201C;Significant Accounting Policies.&amp;#x201D;&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;i&gt;FASB Accounting
Standards Codification (ASC 105)&lt;/i&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 ASC identifies the
sources of accounting principles and the framework for selecting
the principles used in the preparation of non-governmental
financial statements presented under GAAP. In addition, it replaces
the current reference system for standards and guidance with a new
numerical designation system known as the ASC. The ASC will be the
single source reference system for all authoritative GAAP. The ASC
is numerically organized by topic, subtopic, section, and
subsection.&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 ASC is effective for
financial statements issued for interim and annual periods ending
after September&amp;#xA0;15, 2009. ACE has adopted the ASC guidance and
referencing system for GAAP in its September&amp;#xA0;30, 2009
financial statements. Entities are not required to revise previous
financial statements for the change in references to GAAP. The
adoption of ASC did not result in a change in accounting principle
for ACE, therefore, it did not have a material impact on
ACE&amp;#x2019;s overall financial condition, results of operations, or
cash flows.&lt;/font&gt;&lt;/p&gt;
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