Edgar Filing: PEPCO HOLDINGS INC

Form U-13-60

Form U-13-60
Mutual and Subsidiary Service Companies

ANNUAL REPORT

For the Period

Beginning January 1, 2004 and Ending December 31, 2004

TO THE

U.S. SECURITIES AND EXCHANGE COMMISSION

PHI Service Company

A Subsidiary Service Company

Date of Incorporation: January 16, 1998

State or Sovereign Power under which Incorporated or Organized: Delaware

Location of Principal Executive Offices of Reporting Company:

800 King Street
Wilmington, DE 19899

Name, title, and address of officer to whom correspondence concerning this
report should be addressed:

James P. Lavin
Vice President & Controller
701 Ninth Street, N.W.
Washington, DC 20068

Name of Principal Holding Company Whose Subsidiaries are served
by Reporting Company:

Pepco Holdings, Inc.

___________________________________________________________________________________

INSTRUCTIONS FOR USE OF FORM U-13-60
1.	TIME OF FILING. Rule 94 provides that on or before the first day of May in each calendar year, each mutual service company and each subsidiary service company as to which the Commission shall have made a favorable finding pursuant to Rule 88, and every service company whose application for approval or declaration pursuant to Rule 88 is pending shall file with the Commission an annual report on Form U-13-60 and in accordance with the Instructions for that form.
2.	NUMBER OF COPIES. Each annual report shall be filed in duplicate. The company should prepare and retain at least one extra copy for itself in case correspondence with reference to the report becomes necessary.
3.	PERIOD COVERED BY REPORT. The first report filed by any company shall cover the period from the date the Uniform System of Accounts was required to be made effective as to that company under Rules 82 and 93 to the end of that calendar year. Subsequent reports should cover a calendar year.
4.	REPORT FORMAT. Reports shall be submitted on the forms prepared by the Commission. If the space provided on any sheet of such form is inadequate, additional sheets may be inserted of the same size as a sheet of the form or folded to such size.
5.	MONEY AMOUNTS DISPLAYED. All money amounts required to be shown in financial statements may be expressed in whole dollars, in thousands of dollars or in hundred thousands of dollars, as appropriate and subject to provisions of Regulation S-X (Section 210.3-01(c)).
6.	DEFICITS DISPLAYED. Deficits and other like entries shall be indicated by the use of either brackets or a parenthesis with corresponding reference in footnotes. (Regulation S-X, Section 210.3-01 (c)).
7.	MAJOR AMENDMENTS OR CORRECTIONS. Any company desiring to amend or correct a major omission or error in a report after it has been filed with the Commission shall submit an amended report Including only those pages, schedules, and entries that are to be amended or corrected. A cover letter shall be submitted requesting the Commission to Incorporate the amended report changes and shall be signed by a duly authorized officer of the company.
8.	DEFINITIONS. Definitions contained in Instruction 01-8 to the Uniform System of Accounts for Mutual Service Companies and Subsidiary Service Companies, Public Utility Holding Company Act of 1935, as amended February 2, 1979 shall be applicable to words or terms used specifically within this Form U-13-60.
9.	ORGANIZATION CHART. The service company shall submit with each annual report a copy of its current organization chart.
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10.	METHODS OF ALLOCATION. The service company shall submit with each annual report a listing of the currently effective methods of allocation being used by the service company and on file with the Securities and Exchange Commission pursuant to the Public Utility Holding Company Act of 1935.
11.	ANNUAL STATEMENT OF COMPENSATION FOR USE OF CAPITAL BILLED. The service company shall submit with each annual report a copy of the annual statement supplied to each associate company in support of the amount of compensation for use of capital billed during the calendar year.
12.	ELECTRONIC FILERS. Electronic filers are subject to Regulation S-T and the EDGAR Filer Manual. Any rule or instruction therein shall be controlling unless otherwise specifically provided in rules or instructions pertaining to the submission format documents.
	Data that appears in tabular or columnar format shall be marked as prescribed in the EDGAR Filer Manual.
	Signatures shall be in typed form rather than manual format. See rule 13 of Regulation S-T.
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LISTING OF SCHEDULES AND ANALYSIS OF ACCOUNT
Description of Schedules and Accounts		Schedule or Account Number		Page Number
COMPARATIVE BALANCE SHEET		Schedule	I	4-5
	Service Company Property	Schedule	II	6-7
	Accumulated Provision for Depreciation and Amortization of Service Company Property	Schedule	III	8
	Investments	Schedule	IV	9
	Accounts Receivable from Associate Companies	Schedule	V	10-10a
	Fuel Stock Expenses Undistributed	Schedule	VI	11
	Stores Expense Undistributed	Schedule	VII	12
	Miscellaneous Current and Accrued Assets	Schedule	VIII	13
	Miscellaneous Deferred Debits	Schedule	IX	14
	Research, Development, or Demonstration Expenditures	Schedule	X	15
	Proprietary Capital	Schedule	XI	16
	Long-Term Debt	Schedule	XII	17
	Current and Accrued Liabilities	Schedule	XIII	18
	Notes to Financial Statements	Schedule	XIV	19-20
COMPARATIVE STATEMENT OF INCOME		Schedule	XV	21
	Analysis of Billing - Associate Companies	Account	457	22
	Analysis of Billing - Non associate Companies	Account	458	23
	Analysis of Charges for Service - Associate and Non associate Companies	Schedule	XVI	24
	Schedule of Expense by Department or Service Function	Schedule	XVII	25-27
	Departmental Analysis of Salaries	Account	920	28-29
	Outside Services Employed	Account	923	30-32
	Employee Pensions and Benefits	Account	926	33
	General Advertising Expenses	Account	930.1	34
	Miscellaneous General Expenses	Account	930.2	35
	Rents	Account	931	36
	Taxes Other Than Income Taxes	Account	408	37
	Donations	Account	426.1	38
	Other Deductions	Account	426.5	39
	Notes to Statement of Income	Schedule	XVIII	40
LISTING OF INSTRUCTIONAL FILING REQUIREMENTS
Description of Reports or Statements
ORGANIZATION CHART				41-42
METHODS OF ALLOCATION				43-48
ANNUAL STATEMENT OF COMPENSATION FOR USE OF CAPITAL BILLED				49
SIGNATURE				50
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ANNUAL REPORT OF: PHI Service Company
SCHEDULE I - COMPARATIVE BALANCE SHEET
Give balance sheet of the Company as of December 31 of the current and prior year
Account	Assets and Other Debits	As of December 31
		Current 2004	Prior 2003
		(In Thousands)
	SERVICE COMPANY PROPERTY
101	Service Company Property (Schedule II)	$ 69,272	$ 65,929
107	Construction work in progress (Schedule II)	-	-
	Total Property	$ 69,272	$ 65,929
108	Less accumulated provision for depreciation and amortization of service company property (Schedule III)	$ 43,382	$ 36,156
	Net Service Company Property	$ 25,890	$ 29,773
	INVESTMENTS
121	Nonutility Property	$ 4,449	$ 1,444
123	Investments in associate companies (Schedule IV)	-	-
124	Other investments (Schedule IV)	-	-
128	Special Funds	17,197	22,104
	Total Investments	$ 21,646	$ 23,548
	CURRENT AND ACCRUED ASSETS
131	Cash	$ (5)	$ -
134	Special deposits	-	-
135	Working funds	1,554	248
136	Temporary cash investments (Schedule IV)	-	-
141	Notes receivable	-	-
143	Accounts receivable	1,410	1,371
144	Accumulated provision for uncollectible accounts	-	-
146	Accounts receivable from associate companies (Schedule V and XIV)	49,828	45,934
152	Fuel stock expenses undistributed (Schedule VI)	-	-
154	Materials and supplies	-	-
163	Stores expense undistributed (Schedule VII)	-	-
165	Prepayments	10,015	8,782
171	Interest and Dividends Receivable	-	-
172	Rents Receivable	51	-
174	Miscellaneous current and accrued assets (Schedule VIII)	-	-
	Total Current and Accrued Assets	$ 62,853	$ 56,335
	DEFERRED DEBITS
181	Unamortized debt expense	$ -	$ -
183	Preliminary Survey and Investigation	-	-
184	Clearing accounts	(20)	(20)
186	Miscellaneous deferred debits (Schedule IX)	25,094	44,626
188	Research, development, or demonstration expenditures (Schedule X)	-	-
190	Accumulated deferred Income taxes	3,803	(92)
	Total Deferred Debits	$ 28,877	$ 44,514
	TOTAL ASSETS AND OTHER DEBITS	$ 139,266	$ 154,170
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ANNUAL REPORT OF: PHI Service Company
SCHEDULE I - COMPARATIVE BALANCE SHEET
Account	Liabilities and Other Credits	As of December 31
		Current 2004			Prior 2003
		(In Thousands)
	PROPRIETARY CAPITAL
201	Common stock issued (Schedule XI)		$ 1	$ 1
211	Miscellaneous paid-in-capital (Schedule XI)		(3,375)	-
215	Appropriated retained earnings (Schedule XI)		-	-
216	Unappropriated retained earnings (Schedule XI)		(4,159)	(767)
	Total Proprietary Capital		$ (7,533)	$ (766)
	LONG - TERM DEBT
223	Advances from associate companies (Schedule XII)		$ -	$ -
224	Other long-term debt (Schedule XII)		-	-
225	Unamortized premium on long-term debt		-	-
226	Unamortized discount on long-term debt		-	-
	Total Long - Term Debt		$ -	$ -
	CURRENT AND ACCRUED LIABILITIES
184	Clearing accounts		$ 18	$ 18
231	Notes payable		-	-
232	Accounts payable		16,518	14,074
233	Notes payable to associate companies (Schedule XIII)		10,367	54,570
234	Accounts payable to associate companies (Schedule XIII )		-	-
236	Taxes accrued		4,630	(2,435)
237	Interest accrued		35	60
238	Dividends declared		-	-
241	Tax collections payable		(44)	29
242	Miscellaneous current and accrued liabilities (Schedule XIII)		114,040	79,756
	Total Current and Accrued Liabilities		$ 145,564	$ 146,072
	DEFERRED CREDITS
253	Other deferred credits		$ 3,590	$ -
254	Other regulatory liabilities		-	-
255	Accumulated deferred investment tax credits		-	-
	Total Deferred Credits		$ 3,590	$ -
	ACCUMULATED DEFERRED INCOME TAXES
282	Accumulated deferred Income taxes-Other Property		$ 406	$ 4,444
283	Accumulated deferred Income taxes-Other		(2,761)	4,420
	Total Accumulated Deferred Income Taxes		$ (2,355)	$ 8,864
	TOTAL LIABILITIES AND PROPRIETARY CAPITAL		$ 139,266	$ 154,170
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ANNUAL REPORT OF: PHI Service Company
For the Year Ended December 31, 2004 (In Thousands)
SCHEDULE II - SERVICE COMPANY PROPERTY
	Description		Balance At Beginning of Year	Additions	Retirements or Sales (1)	Other Changes (1)	Balance At Close of Year
SERVICE COMPANY PROPERTY
Account
301	Organization		$ -	$ -	$ -	$ -	$ -
303	Miscellaneous Intangible Plant		8,718	417	-	6,704	15,839
304	Land and Land Rights		1,227	-	-	(2)	1,225
305	Structures and Improvements		14,481	-	-	-	14,481
306	Leasehold Improvements		-	-	-	-	-
307	Equipment (2)		34,621	176	(3,983)	31	30,845
308	Office Furniture and Equipment		6,882	-	-	-	6,882
309	Automobiles, Other Vehicles and Related Garage Equipment		-	-	-	-	-
310	Aircraft and Airport Equipment		-	-	-	-	-
311	Other Service Company Property (3)		-	-	-	-	-
	SUBTOTAL		$ 65,929	$ 593	$ (3,983)	$ 6,733	$ 69,272
107	Construction Work in Progress (4)		-	-	-	-	-
	TOTAL		$ 65,929	$ 593	$ (3,983)	$ 6,733	$ 69,272
	(1)	Retired $3.983 million of obsolete network hardware and desktop computers and transferred $6.704 million of software used by multiple PHI companies into the Service Company from Pepco.

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ANNUAL REPORT OF: PHI Service Company
For the Year Ended December 31, 2004 (In Thousands)
SCHEDULE II - CONTINUED
(2)	Sub accounts are required for each class of equipment owned. The service company shall provide a listing by sub account of equipment additions during the year and the balance at the close of the year:
	Subaccount Description		Additions	Balance At Close of Year
	Computer Hardware		$ 176	$ 22,293
	Computer Software		-	8,132
	Typewriters, Calculators, Copiers, & Duplicating		-	-
	Office Services Printing and Stationary Equipment		-	-
	Cafeteria & Kitchen Equipment		-	420
	TOTAL		$ 176	$ 30,845
(3)	Describe Other Service Company Property:
	Not Applicable
(4)	Describe Construction Work in Progress:
	Asset Under Construction	Capitalized Date	Value	Description
	Not Applicable
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ANNUAL REPORT OF: PHI Service Company
For the Year Ended December 31, 2004 (In Thousands)
SCHEDULE III
ACCUMULATED PROVISION FOR DEPRECIATION AND AMORTIZATION OF SERVICE COMPANY PROPERTY
	Description		Balance At Beginning of Year	Additions Charged to Account 403	Retirements (1)	Other Changes Add (Deduct)	Balance At Close of Year
Account
301	Organization		$ -	$ -	$ -	$ -	$ -
303	Miscellaneous Intangible Plant		6,863	2,695	-	982	10,540
304	Land and Land Rights		-	-	-	-	-
305	Structures and Improvements		2,062	477	-	-	2,539
306	Leasehold Improvements		-	-	-	-	-
307	Equipment		25,208	5,031	(2,943)	1	27,297
308	Office Furniture and Equipment		2,023	983	-	-	3,006
309	Automobiles, Other Vehicles and Related Garage Equipment		-	-	-	-	-
310	Aircraft and Airport Equipment		-	-	-	-	-
311	Other Service Company Property		-	-	-	-	-
	TOTAL		$ 36,156	$ 9,186	$(2,943)	$ 983	$43,382
	(1)	The $2.943 million decrease in depreciation is primarily related to the retirement of $3.983 million of obsolete network hardware and desktop computers.

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ANNUAL REPORT OF: PHI Service Company
For the Year Ended December 31, 2004 (In Thousands)
SCHEDULE IV - INVESTMENTS
INSTRUCTIONS: Complete the following schedule concerning investments.
	Under Account 124, "Other Investments," state each investment separately, with description, Including the name of the issuing company, number of shares or prIncipal amount, etc.
	Under Account 136, "Temporary Cash Investments," list each investment separately.
	Description		Balance At Beginning of Year	Balance At Close of Year
	Account 123 - Investment in Associate Companies		$ -	$ -
	Account 124 - Other Investments		-	-
	Account 136 - Temporary Cash Investments		-	-
		TOTAL	$ -	$ -
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ANNUAL REPORT OF: PHI Service Company
For the Year Ended December 31, 2004 (In Thousands)
SCHEDULE V - ACCOUNTS RECEIVABLE FROM ASSOCIATE COMPANIES
INSTRUCTIONS:		Complete the following schedule listing accounts receivable from each associate company. Where the service company has provided accommodation or convenience payments for associate companies, a separate listing of total payments for each associate company by subaccount should be provided.
	Description		Balance At Beginning of Year	Balance At Close of Year
Account 146 - Accounts Receivable from Associate Companies
	Potomac Electric Power Company		$ 14,060	$ 12,896
	Delmarva Power & Light Company		13,426	12,559
	Atlantic City Electric Company		13,324	10,279
	Conectiv Energy Supply, Inc.		(1,069)	4,610
	Potomac Capital Investment Corporation		71	2,258
	Conectiv Atlantic Generation, LLC		481	1,525
	Conectiv Delmarva Generation, Inc.		1,321	1,315
	Pepco Energy Services, Inc.		471	1,170
	Delaware Operating Services Company		914	1,087
	Atlantic Southern Properties		145	746
	Conectiv Pennsylvania Generation LLC		4	640
	PHI Operating Services Company		193	280
	Pepco Holdings, Inc.		35	273
	Vineland Limited, Inc.		340	176
	Conectiv Bethlehem, LLC		629	89
	Conectiv Mid Merit LLC		(5)	46
	Conectiv Thermal Systems		74	37
	ACE REIT, Inc.		16	30
	Vineland General, Inc.		54	18
	Conectiv Properties and Investments, Inc.		(25)	18
	Conectiv Services II, Inc.		-	13
	Thermal Energy Limited Partnership		120	12
	Pepco Communications, Inc.		4	8
	King Street Assurance LTD		11	6
	DCTC-Burney, Inc.		3	5
	Atlantic Generation, Inc.		-	5
	ATE Investments, Inc.		29	3
	Conectiv Energy Holding Company		-	1
	Pedrick Generation, Inc.		118	-
	Conectiv Holding Company, Inc.		55	-
	Binghamton General, Inc.		5	-
	Binghamton Limited, Inc.		4	-
	Atlantic City Electric Transition Funding LLC		1,355	(4)
	Conectiv Solutions LLC		(35)	(80)
	Conectiv Communications, Inc.		(194)	(193)
	TOTAL RECEIVABLES		$ 45,934	$ 49,828
Analysis of Convenience or Accommodation Payments: See Schedule V (a)
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ANNUAL REPORT OF: PHI Service Company
For the Year Ended December 31, 2004 (In Thousands)
SCHEDULE V (a) - Analysis of Convenience or Accommodation Payments
	Company Name	Total Payments
	ACE REIT, Inc.	$ 78
	ACE Transition Funding, LLC	687
	ATE Investment, Inc.	102
	Atlantic City Electric Co.	38,364
	Atlantic Generation, Inc.	3
	Atlantic Southern Properties, Inc.	2,747
	ATS Operating Services, Inc.	40
	Binghamton General Inc.	1
	Binghamton Limited Inc.	1
	Conectiv Holding Company, Inc.	76
	Conectiv Atlantic Generation, LLC	15,735
	Conectiv Bethlehem, LLC	759
	Conectiv Communications, Inc.	25
	Conectiv Delmarva Generation, Inc.	5,127
	Conectiv Energy Holding Co	1
	Conectiv Energy Supply, Inc.	7,137
	Conectiv Mid-Merit, LLC	212
	Conectiv Pennsylvania Generation, LLC	784
	Conectiv Properties & Investments, Inc.	481
	Conectiv Services, Inc.	217
	Conectiv Solutions, LLC	460
	Conectiv Thermal Systems, Inc.	175
	DCI II, Inc.	29
	DCTC-Burney, Inc.	20
	Delaware Operating Services Company	2,910
	Delmarva Power & Light Company	28,930
	King Street Assurance Ltd	2,335
	Pedrick Generation Inc.	6
	Pepco Communications, Inc.	86
	Pepco Energy Services, Inc.	3,311
	Pepco Holdings Inc.	230
	PHI Operating Services Company	164
	Potomac Capital Investment Corp	911
	Potomac Electric Power Company	51,058
	Thermal Energy L.P. I	546
	Vineland General, Inc.	69
	Vineland LTD, Inc.	748
	Total Payments	$ 164,565
	The majority of convenience payments relate to benefits and outside legal, and consulting expenses paid to vendors who bill more than one system affiliate on one invoice, and expenses Incurred by system affiliates who do not have a checking account.
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ANNUAL REPORT OF: PHI Service Company
For the Year Ended December 31, 2004 (In Thousands)
SCHEDULE VI - FUEL STOCK EXPENSE UNDISTRIBUTED
INSTRUCTIONS:		Report the amount of labor and expenses Incurred with respect to fuel stock expenses during the year and indicate amount attributable to each associate company. Under the section headed "summary" listed below give an overall report of the fuel functions performed by the service company.
	Description		Labor	Expenses	Total
Account 152 - Fuel Stock Expenses Undistributed			$ -	$ -	$ -
	TOTAL		$ -	$ -	$ -
Summary:
	Not Applicable
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ANNUAL REPORT OF: PHI Service Company
For the Year Ended December 31, 2004
SCHEDULE VII - STORES EXPENSE UNDISTRIBUTED
INSTRUCTIONS:		Report the amount of labor and expenses Incurred with respect to stores expense during the year and indicate amount attributable to each associate company.
	Description		Labor	Expenses	Total
Account 163 - Stores Expense Undistributed			$ -	$ -	$ -
	TOTAL		$ -	$ -	$ -
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ANNUAL REPORT OF: PHI Service Company
For the Year Ended December 31, 2004 (In Thousands)
SCHEDULE VIII - MISCELLANEOUS CURRENT AND ACCRUED ASSETS
INSTRUCTIONS:		Provide detail of items in this account. Items less than $10,000 may be grouped, showing the number of items in each group.
	Description		Balance At Beginning of Year	Balance At Close of Year
Account 174 - Miscellaneous Current and Accrued Assets			$ -	$ -
	TOTAL		$ -	$ -
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ANNUAL REPORT OF: PHI Service Company
For the Year Ended December 31, 2004 (In Thousands)
SCHEDULE IX - MISCELLANEOUS DEFERRED DEBITS
INSTRUCTIONS:			Provide detail of items in this account. Items less than $10,000 may be grouped by class, showing the number of items in each class.
Description				Balance At Beginning of Year	Balance At Close of Year
Account 186 - Miscellaneous Deferred Debits
	Prepaid Pension (1)			$ 43,158	$ 20,044
	Intangible Asset-Supplemental Executive Retirement Plan			1,483	1,550
	TransAmerica Life Insurance			-	3,500
	Other			(15)	-
	TOTAL			$ 44,626	$ 25,094
	(1)	Includes reclassification of pension liability of $17.7 million which was reclassed from account 242 Miscellaneous and Accrued Liabilities to account 186 - Miscellaneous Deferred Debits in 2004.
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ANNUAL REPORT OF: PHI Service Company
For the Year Ended December 31, 2004 (In Thousands)
SCHEDULE X RESEARCH, DEVELOPMENT OR DEMONSTRATION EXPENDITURES
INSTRUCTIONS:	Provide a description of each material research, development, or demonstration project which Incurred costs by the service corporation during the year.
Description		Amount
Account 188 - RESEARCH, DEVELOPMENT, OR DEMONSTRATION EXPENDITURES		$ -
TOTAL		$ -
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ANNUAL REPORT OF: PHI Service Company

For the Year Ended December 31, 2004

SCHEDULE XI - PROPRIETARY CAPITAL

Outstanding
Close of Period

Account Number

Class of Stock

Number of Shares Authorized

Par or Stated Value Per Share

No. of Shares

Total Amount

201

Common Stock Issued

1,000

$ 1.00

1,000

$ 1,000

INSTRUCTIONS:

Classify amounts in each account with brief explanation, disclosing the general nature of transactions which gave rise to the reported amounts.

Description

Amount

Account 211 - Miscellaneous Paid-In Capital-Other Comprehensive Income (1)

$ (3,375)

Account 215 - Appropriated Retained Earnings

TOTAL

$ (3,375)

INSTRUCTIONS:

Give particulars concerning net Income or (loss) during the year, distinguishing between compensation for the use of capital owed or net loss remaining from servicing nonassociates per the General Instructions of the Uniform System of Accounts. For dividends paid during the year in cash or otherwise, provide rate percentage, amount of dividend, date declared and date paid.

Description

Balance At Beginning of Year

Net Income
or
(Loss) (2)

Dividends Paid

Balance At Close of Year

Account 216 - Unappropriated
Retained Earnings

$ (767)

$ (3,392)

$ -

$ (4,159)

TOTAL

$ (767)

$ (3,392)

$ -

$ (4,159)

(1)

See footnote 4 on Schedule XIV.

(2)

See footnote 1 on Schedule XVIII.

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ANNUAL REPORT OF: PHI Service Company

For the Year Ended December 31, 2004
(In Thousands)

SCHEDULE XII - LONG-TERM DEBT

INSTRUCTIONS:

Advances from associate companies should be reported separately for advances on notes, and advances on open account. Names of associate companies from which advances were received shall be shown under the class and series of obligation column. For Account 224 - Other Long-Term Debt provide the name of the creditor company or organization, terms of the obligation, date of maturity, interest rate, and the amount authorized and outstanding.

Terms of Oblig Class & Series of Obligation

Date
of
Maturity

Interest Rate

Amount Amortized

Balance At Beginning of Year

Additions

Deductions (1)

Balance At Close of Year

Account 223 - Advances from
Associate Companies:

$ -

Account 224 - Other Long-Term Debt

TOTAL

$ -

(1) Give an explanation of deductions:

Not Applicable

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ANNUAL REPORT OF: PHI Service Company
For the Year Ended December 31, 2004 (In Thousands)
SCHEDULE XIII - CURRENT AND ACCRUED LIABILITIES
INSTRUCTIONS:		Provide balance of notes and accounts payable to each associate company. Give description and amount of miscellaneous current and accrued liabilities. Items less than $10,000 may be grouped, showing the number of items in each group.
	Description		Balance At Beginning of Year	Balance At Close of Year
Account 233 - Notes Payable to Associate Companies Pepco Holdings, Inc. Money Pool			$ 54,570	$ 10,367
	TOTAL		$ 54,570	$ 10,367
Account 234 - Accounts Payable to Associate Companies			$ -	$ -
			-	-
	TOTAL		$ -	$ -
Account 242 - Miscellaneous Current and Accrued Liabilities
	Pension/OPEB (1)		$ 42,329	$ 36,729
	Deferred Savings and Thrift		18,460	25,048
	Accrued Vacation		8,769	9,193
	Incentive		4,482	17,806
	Severance		3,764	3,656
	Health Claims Reserve		1,808	2,436
	Supplemental Executive Retirement Plan		(67)	16,846
	Disability		-	1,634
	Accrued Sick Pay		-	274
	Other		211	418
	TOTAL		$ 79,756	$ 114,040
	(1) Pension liability at 12/31/03 of $17.7 million was reclassified against the pension asset in account 186-Miscellaneous Deferred Debits in 2004. Balance at 12/31/04 represents OPEB liability only.
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ANNUAL REPORT OF: PHI Service Company
For the Year Ended December 31, 2004 SCHEDULE XIV -- NOTES TO FINANCIAL STATEMENTS
INSTRUCTIONS:		The space below is provided for important notes regarding the financial statements or any account thereof. Furnish particulars as to any significant contingent assets of liabilities existing at the end of the year. Notes relating to financial statements shown elsewhere in this report may be indicated here by reference
1.	Organization
	On August 1, 2002, Conectiv was acquired by Pepco Holdings, Inc. (PHI) in a transaction pursuant to an Agreement and Plan of Merger (the Conectiv/Pepco Merger Agreement), dated as of February 9, 2001, among PHI (formerly New RC, Inc.), Conectiv and Potomac Electric Power Company (Pepco), in which Pepco and Conectiv merged with subsidiaries of PHI (the Conectiv/Pepco Merger). As a result of the Conectiv/Pepco Merger, Conectiv and Pepco each became subsidiaries of PHI. In addition, Conectiv contributed Conectiv Resource Partners, Inc. (the name of which changed to PHI Service Company on August 8, 2002) (CRP) to PHI, effective August 1, 2002. CRP was the service company for Conectiv for the period prior to the Conectiv/Pepco Merger, and continued as the service company for PHI for the period subsequent to the merger, operating under its new name, PHI Service Company.
2.	Service Company Property and Non-Utility Property
	PHI Service Company (Service Company) property and non-utility property are stated at original cost, including property additions. Capitalized interest is included in the original cost and represents the cost of borrowed and equity funds used to finance construction of new facilities. The annual provision for depreciation on service company and non-utility property is computed on the straight-line basis using composite rates by classes of depreciable property. Accumulated depreciation is charged with the cost of depreciable property retired, including removal costs less salvage and other recoveries.
3.	Income Taxes
	PHI Service Company, as a subsidiary of Pepco Holdings, Inc. (PHI), is included in the consolidated federal income tax return of PHI. Income taxes are allocated to the Service Company based upon its taxable income or loss, determined on a separate return basis. The financial statements include two categories of income taxes-current and deferred. Current income taxes represent the Service Company's share of amounts of tax expected to be reported on PHI's federal and state income tax returns. Deferred income tax assets and liabilities represent the tax effects of temporary differences between the financial statements and tax bases of existing assets and liabilities and are measured using presently enacted tax rates. Deferred income tax expense represents the net change during the reporting period in the net deferred tax liability.
-19- ______________________________________________________________________________________
4.	Pension and Other Postretirement Benefits
	Service Company employees are covered by the PHI retirement plan. Effective December 31, 2002, following the August 1, 2002 Pepco and Conectiv merger, the Pepco General Retirement Plan and the Conectiv Retirement Plan were merged into the Pepco Holdings Retirement Plan (PHI Retirement Plan). The provisions and benefits of the merged plan for Service Company employees are identical to the original Conectiv plan. in which each employee participated prior to the merger of the plans. That is, Service Company employees who are former Pepco employees are provided benefits identical to the former Pepco General Retirement Plan and Service Company employees who are former CRP employees are provided benefits identical to the former Conectiv Retirement Plan. The PHI Retirement Plan, as of December 31, 2004, had a projected benefit obligation of $1,648.0 million and trust fund assets with a fair value of $1,523.5 million, resulting in an under-funded status of $124.5 million. Due to an unrecognized actuarial loss, an asset of $139.7 million was reflected on PHI's Consolidated December 31, 2004 Balance Sheet. During 2004, the Service Company incurred net periodic benefit cost of $7.8 million for pension service and interest costs, net of expected return on assets related to the PHI Retirement and Nonqualified plans.
	In 2004, PHI was required to recognize an additional minimum liability related to its nonqualified pension plan as prescribed by SFAS No. 87. The liability was recorded as a reduction to shareholder's equity (other comprehensive income), and the equity will be restored to the balance sheet in future periods when the accrued benefit liability exceeds the accumulated benefit obligation at future measurement dates. The reduction to shareholder's equity (net of taxes) recorded by PHI Service Company was $3.4 million.
	Service Company employees are covered by PHI's other postretirement benefit plans which as of December 31, 2004 had a projected benefit obligation of $593.5 million and trust fund assets with a fair value of $164.9 million, resulting in an under-funded status of $428.6 million, of which $269.6 million was reflected on PHI's Consolidated December 31, 2004 Balance Sheet. During 2004, the Service Company Incurred an expense of $17.0 million for other postretirement service and interest costs, net of expected return on assets.
	PHI also maintains 401(k) savings plans for covered employees, Including employees of the Service Company. Under these plans, PHI makes contributions on behalf of participants. The amount expensed by the Service Company for PHI's matching contributions was $3.1 million in 2004.
5.	Rents
	The Service Company leases office buildings and business equipment from associate companies. These leases are accounted for as operating leases. In 2003, PHI Service Company entered into a long-term, non-cancelable lease for PHI's corporate headquarters located in Washington, DC (Edison Place lease). In February 2005, the SEC Chief Accountant issued a letter to the Chairman of the Center for Public Company Audit Firms of the AICPA that addressed the SEC's views regarding the accounting for operating leases, including the accounting for scheduled rent increases. As a result of this letter, PHI reviewed all of its operating leases and determined that its Edison Place lease included scheduled rent increases that need to be "normalized" over the life of the lease. Because PHI had not filed its 2004 Form 10-K, PHI adjusted 2004 net income to reflect the impact on 2004 rent expense (increasing rent expense by $3.6 million). However, because of the nature and timing of the adjustment, PHI chose not to bill out the rent change to the applicable affiliate companies until February of 2005.
	The difference between the "normalized" lease expense and the actual rent payments for the Edison Place lease is reflected as a deferred credit on the Service Company Balance Sheet. The rent expense for the Edison Place lease is expected to exceed the annual payments until 2016 at which time the deferred credit will start to reverse.
6.	Money Pool
	The Money Pool exists to permit affiliate companies to borrow excess cash from other affiliate companies. PHI Service Company serves as the Administrator for the System Money Pool.
-20- ______________________________________________________________________________________

ANNUAL REPORT OF: PHI Service Company
For the Years Ended December 31, 2004 and 2003 (In Thousands)
SCHEDULE XV - COMPARATIVE STATEMENT OF INCOME
	Account	Description	Current Year 2004	Prior Year 2003
		INCOME
	457	Services rendered to associate companies	$ 342,536	$ 333,925
	458	Services rendered to nonassociate companies	-	-
	421	Miscellaneous Income or loss	-	-
		TOTAL INCOME	$ 342,536	$ 333,925
		EXPENSE
	912-13	Marketing & Advertising	$ 112	$ 141
	920	Salaries and wages	147,326	124,945
	921	Office Supplies and expenses	27,651	31,298
	922	Administrative expenses transferred-credit	-	-
	923	Outside services employed	49,797	45,040
	924	Property insurance	4,245	4,080
	925	Injuries and damages	9,087	7,815
	926	Employee pensions and benefits	58,536	63,937
	928	Regulatory commission expense	117	-
	929	Duplicate charges-credit	(888)	(39)
	930.1	General advertising expense	573	154
	930.2	Miscellaneous general expenses	4,263	5,795
	931	Rents	29,897	31,603
	932	Maintenance of structures and equipment	377	246
	403	Depreciation and amortization expense	9,192	13,071
	408	Taxes other than Income taxes	3,435	1,553
	409	Income taxes	12,346	550
	410	Provision for deferred Income taxes	8,138	(275)
	411	Provision for deferred Income taxes-credit	(20,682)	-
	411.5	Investment tax credit	-	-
	426.1	Donations	1,026	903
	426.5	Other deductions	1,040	2,845
	427	Interest on long-term debt	-	-
	430	Interest on debt to associate companies	340	538
	431	Other interest expense	-	-
		TOTAL EXPENSES	$ 345,928	$ 334,200
		NET INCOME OR (LOSS) (1)	$ (3,392)	$ (275)
	(1)	See footnote 1 on Schedule XVIII.
-21- __________________________________________________________________________________________

ANNUAL REPORT OF: PHI Service Company
For the Year Ended December 31, 2004 (In Thousands)
ANALYSIS OF BILLING
ASSOCIATE COMPANIES - ACCOUNT 457
Name of Associate Company	Direct Costs Charged 457-1	Indirect Costs Charged 457-2		Compensation For Use of Capital 457-3	Total Amount Billed
Delmarva Power & Light Company	$28,565	$ 69,731	*	$ 81	$ 98,377
Atlantic City Electric Company	21,112	64,167	*	61	85,340
Atlantic City Electric Transition Funding LLC	55	-		-	55
Conectiv Properties and Investments, Inc.	44	58		-	102
DCI II, Inc.	5	-		-	5
Delaware Operating Services Company	3,827	4,906		9	8,742
PHI Operating Services Company	203	2,333		1	2,537
DCTC-Burney, Inc.	77	7		-	84
Conectiv Energy Supply, Inc.	17,326	7,421		4	24,751
Conectiv Delmarva Generation, Inc.	2,383	8,936		21	11,340
Conectiv Atlantic Generation, LLC	1,208	2,928		5	4,141
Conectiv Mid Merit LLC	237	35		-	272
Conectiv Bethlehem LLC	1,073	1,484		8	2,565
Conectiv Pennsylvania Generation LLC	132	9		-	141
Conectiv Energy Holding Co.	16	-		-	16
Atlantic Southern Properties	52	129		-	181
Atlantic Generation, Inc.	6	8		-	14
Vineland Limited, Inc.	9	4		-	13
Vineland General, Inc.	7	2		-	9
Binghamton Limited, Inc.	1	-		-	1
Binghamton General, Inc.	4	-		-	4
Pedrick Gen., Inc.	1	-		-	1
ATE Investment, Inc.	7	10		-	17
King Street Assurance LTD	28	55		-	83
Conectiv Services II, Inc.	35	-		-	35
Conectiv Solutions LLC	79	28		-	107
Conectiv Thermal Systems	126	321		1	448
Atlantic Jersey Thermal Systems, Inc.	2	-		-	2
ATS Operating Services, Inc.	1	-		-	1
Thermal Energy Limited Partnership	126	252		1	379
Conectiv Communications, Inc.	28	86		-	114
Potomac Electric Power Company	21,860	68,075	*	131	90,066
Potomac Capital Investment Corporation	215	2,911		1	3,127
Pepco Communications, Inc.	16	65		-	81
Pepco Energy Services, Inc.	567	6,450		25	7,042
Pepco Holdings, Inc.	13	2,320		-	2,333
Conectiv Holding Company, Inc.	10	-		-	10
TOTAL	$99,456	$242,731		$349	$342,536
* Includes a total of $72.2 million charged only to Delmarva Power & Light Company and Atlantic City Electric Company (who do business as "Conectiv Power Delivery") related to services provided by Conectiv Power Delivery business support groups. Additionally, the indirect costs include $14.9 million charged by groups supporting all PHI Power Delivery utilities.
-22- __________________________________________________________________________________________

ANNUAL REPORT OF: PHI Service Company

For the Year Ended December 31, 2003
(In Thousands)

ANALYSIS OF BILLING

NONASSOCIATE COMPANIES - ACCOUNT 458

Name of Nonassociate Company

Direct
Costs
Charged
458-1

Indirect
Costs
Charged
458-2

Compensation
For Use
of Capital
458-3

Total
Cost

Excess
or
Deficiency
458-4

Total
Amount
Billed

TOTAL

$ -

INSTRUCTION: Provide a brief description of the services rendered to each nonassociate company.

NOT APPLICABLE

-23-
___________________________________________________________________________________________

ANNUAL REPORT OF: PHI Service Company
For the Year Ended December 31, 2004 (In Thousands)
SCHEDULE XVI - ANALYSIS OF CHARGES FOR SERVICES
ASSOCIATE AND NONASSOCIATE COMPANIES
				Associate Company Charges			Nonassociate Company Charges			Total Charges for Service
Description of Items				Direct Costs	Indirect Costs	Total	Direct Costs	Indirect Costs	Total	Direct Costs	Indirect Costs	Total
912-13	Marketing & Advertising			$ -	$ 112	$ 112	$ -	$ -	$ -	$ -	$ 112	$ 112
920	Salaries and wages			53,289	94,037	147,326	-	-	-	53,289	94,037	147,326
921	Office Supplies and expenses			4,396	23,255	27,651	-	-	-	4,396	23,255	27,651
922	Administrative expenses transferred-credit			-	-	-	-	-	-	-	-	-
923	Outside services employed			8,185	41,611	49,797	-	-	-	8,185	41,611	49,797
924	Property insurance			-	4,245	4,245	-	-	-	-	4,245	4,245
925	Injuries and damages			-	9,087	9,087	-	-	-	-	9,087	9,087
926	Employee pensions and benefits			23,521	35,015	58,536	-	-	-	23,521	35,015	58,536
928	Regulatory commission expense			-	117	117	-	-	-	-	117	117
929	Duplicate charges-credit			-	(888)	(888)	-	-	-	-	(888)	(888)
930.1	General advertising expense			-	573	573	-	-	-	-	573	573
930.2	Miscellaneous general expenses			428	3,835	4,263	-	-	-	428	3,835	4,263
931	Rents (1)			5,460	24,437	29,897	-	-	-	5,460	24,437	29,897
932	Maintenance of structures and equipment			-	377	377	-	-	-	-	377	377
403	Depreciation and amortization expense			4,177	5,015	9,192	-	-	-	4,177	5,015	9,192
408	Taxes other than Income taxes			-	3,435	3,435	-	-	-	-	3,435	3,435
409	Income taxes			-	12,346	12,346	-	-	-	-	12,346	12,346
410	Provision for deferred Income taxes			-	8,138	8,138	-	-	-	-	8,138	8,138
411	Provision for deferred Income taxes-credit			-	(20,682)	(20,682)	-	-	-	-	(20,682)	(20,682)
411.5	Investment tax credit			-	-	-	-	-	-	-	-	-
426.1	Donations			-	1,026	1,026	-	-	-	-	1,026	1,026
426.5	Other deductions			-	1,040	1,040	-	-	-	-	1,040	1,040
427	Interest on long-term debt			-	-	-	-	-	-	-	-	-
431	Other interest expense			-	-	-	-	-	-	-	-	-
		TOTAL EXPENSES		$99,456	$246,132	$345,588	$ -	$ -	$ -	$99,456	$246,132	$345,588
Compensation for Use of Equity Capital
430	Interest on debt to associate companies					340	-	-	-	-	340	340
		TOTAL COST OF SERVICES				$345,928	$ -	$ -	$ -	$99,456	$246,472	$345,928
(1)	See footnote 1 on Schedule XVIII.
INSTRUCTION:			Total cost of service will equal for associate and nonassociate companies the total amount billed under their separate analysis of billing schedules.
-24- ______________________________________________________________________________________________________________________________

ANNUAL REPORT OF: PHI Service Company
For the Year Ended December 31, 2004 (In Thousands)
SCHEDULE XVII - SCHEDULE OF EXPENSE DISTIBUTION BY
DEPARTMENT OR SERVICE FUNCTION
Description of Items		Total Amount	Overhead	Executive Management	Environmental & Safety	Corporate Communications	Information Services	Customer Care	Corporate Secretary	Internal Audit
912-13	Marketing & Advertising	$ 112	$ -	$ 10	$ -	$ 4	$ -	$ 5	$ -	$ -
920	Salaries and wages	147,326	15,007	4,383	1,018	1,303	22,179	19,032	505	1,553
921	Office Supplies and expenses	27,651	-	453	254	51	14,717	4,620	29	66
922	Administrative expenses transferred-credit	-	-	-	-	-	-	-	-	-
923	Outside services employed	49,797	1,041	767	164	314	15,459	2,642	1,638	2,881
924	Property insurance	4,245	-	-	-	-	-	-	-	-
925	Injuries and damages	9,087	-	-	-	-	-	-	-	-
926	Employee pensions and benefits	58,536	58,565	-	-	-	-	-	-	-
928	Regulatory commission expense	117	-	-	-	-	-	-	-	-
929	Duplicate Charges-credit	(888)	(888)	-	-	-	-	-	-	-
930.1	General advertising expense	573	-	21	-	1	-	-	-	-
930.2	Miscellaneous general expenses	4,263	4	405	49	29	1,689	542	13	7
931	Rents	29,897	20,945	15	-	-	14,442	262	8	-
932	Maintenance of structures and equipment	377	-	-	-	-	-	-	-	-
403	Depreciation and amortization expense	9,192	-	-	-	-	4,157	590	-	-
408	Taxes other than Income taxes	3,435	14	-	-	-	317	-	-	-
409	Income taxes	12,346	12,346	-	-	-	-	-	-	-
410	Provision for deferred Income taxes	8,138	8,138	-	-	-	-	-	-	-
411	Provision for deferred Income taxes-credit	(20,682)	(20,682)	-	-	-	-	-	-	-
411.5	Investment tax credit	-	-	-	-	-	-	-	-	-
426.1	Donations	1,026	-	893	3	-	-	2	-	4
426.5	Other deductions	1,040	-	-	-	-	1,040	-	-	-
427	Interest on long-term debt	-	-	-	-	-	-	-	-	-
430	Interest on debt to associate companies	340	340	-	-	-	-	-	-	-
431	Other interest expense	-	-	-	-	-	-	-	-	-
	TOTAL EXPENSES	$345,928	$94,830	$6,947	$1,488	$1,702	$74,000	$27,695	$2,193	$4,511
-25- ______________________________________________________________________________________________________________________________

ANNUAL REPORT OF: PHI Service Company
For the Year Ended December 31, 2004 (In Thousands)
SCHEDULE XVII - SCHEDULE OF EXPENSE DISTIBUTION BY
DEPARTMENT OR SERVICE FUNCTION
Description of Items		Legal	Human Resources	Controller	Claims & Insurance	Treasury	Government Affairs	Procurement & Supply Chain	Facility & Real Estate Services	Corporate Risk
912-13	Marketing & Advertising	$ -	$ 55	$ -	$ -	$ 4	$ -	$ -	$ -	$ -
920	Salaries and wages	3,673	3,704	6,448	1,254	3,114	638	2,394	951	646
921	Office Supplies and expenses	458	503	288	40	872	169	190	61	56
922	Administrative expenses transferred-credit	-	-	-	-	-	-	-	-	-
923	Outside services employed	545	5,185	4,278	98	1,100	395	273	3,656	47
924	Property insurance	-	-	-	4,245	-	-	-	-	-
925	Injuries and damages	-	-	-	9,087	-	-	-	-	-
926	Employee pensions and benefits	-	(29)	-	-	-	-	-	-	-
928	Regulatory commission expense	-	-	-	-	-	-	-	-	-
929	Duplicate Charges-credit	-	-	-	-	-	-	-	-	-
930.1	General advertising expense	-	71	-	-	-	1	-	-	-
930.2	Miscellaneous general expenses	43	208	80	6	(263)	264	(382)	269	15
931	Rents	16	6	-	-	-	97	-	(6,595)	-
932	Maintenance of structures and equipment	-	-	-	-	-	-	-	377	-
403	Depreciation and amortization expense	-	2,201	-	-	113	-	172	918	-
408	Taxes other than Income taxes	-	-	1	-	-	-	-	3,104	-
409	Income taxes	-	-	-	-	-	-	-	-	-
410	Provision for deferred Income taxes	-	-	-	-	-	-	-	-	-
411	Provision for deferred Income taxes-credit	-	-	-	-	-	-	-	-	-
411.5	Investment tax credit	-	-	-	-	-	-	-	-	-
426.1	Donations	-	-	-	-	-	112	-	-	-
426.5	Other deductions	-	-	-	-	-	-	-	-	-
427	Interest on long-term debt	-	-	-	-	-	-	-	-	-
430	Interest on debt to associate companies	-	-	-	-	-	-	-	-	-
431	Other interest expense	-	-	-	-	-	-	-	-	-
	TOTAL EXPENSES	$4,735	$11,905	$11,094	$14,730	$4,940	$1,676	$2,647	$ 2,741	$ 764
-26- ___________________________________________________________________________________________________________________________

ANNUAL REPORT OF: PHI Service Company
For the Year Ended December 31, 2004 (In Thousands)
SCHEDULE XVII - SCHEDULE OF EXPENSE DISTIBUTION BY
DEPARTMENT OR SERVICE FUNCTION
Description of Items		Vehicle Management		General Services	Regulatory		Delivery LOB Support	Energy LOB Support
912-13	Marketing & Advertising	$ -	$ 1			$ 1	$ 15	$ 18
920	Salaries and wages	383	3,430			3,352	27,878	24,480
921	Office Supplies and expenses	537	232			113	2,218	1,726
922	Administrative expenses transferred-credit	-	-			-	-	-
923	Outside services employed	32	1,075			127	6,466	1,615
924	Property insurance	-	-			-	-	-
925	Injuries and damages	-	-			-	-	-
926	Employee pensions and benefits	-	-			-	-	-
928	Regulatory commission expense	-	-			-	-	-
929	Duplicate Charges-credit	-	-			-	-	-
930.1	General advertising expense	-	-			-	470	10
930.2	Miscellaneous general expenses	15	177			27	767	415
931	Rents	-	806			-	(142)	35
932	Maintenance of structures and equipment	-	-			-	-	-
403	Depreciation and amortization expense	12	-			-	1,028	-
408	Taxes other than Income taxes	-	-			-	-	-
409	Income taxes	-	-			-	-	-
410	Provision for deferred Income taxes	-	-			-	-	-
411	Provision for deferred Income taxes-credit	-	-			-	-	-
411.5	Investment tax credit	-	-			-	-	-
426.1	Donations	-	-			5	5	2
426.5	Other deductions	-	-			-	-	-
427	Interest on long-term debt	-	-			-	-	-
430	Interest on debt to associate companies	-	-			-	-	-
431	Other interest expense	-	-			-	-	-
	TOTAL EXPENSES	$ 979	$ 5,721			$ 3,625	$ 38,705	$ 28,301
-27- __________________________________________________________________________________________________________________________

ANNUAL REPORT OF: PHI Service Company
For the Year Ended December 31, 2004 (In Thousands)
DEPARTMENTAL ANALYSIS OF SALARIES - ACCOUNT 920
Name of Department		Departmental Salary Expense Included in Amounts Billed to
Indicate each department or service function.	Total Amount	Parent Company	Other Associates	Non Associates	Number of Personnel End of Year
Executive Management	$ 4,383	$ 285	$ 4,098	$ -	12
Environmental & Safety	1,018	-	1,018	-	13
Corporate Communications	1,303	-	1,303	-	15
Information Systems	22,179	-	22,179	-	267
Customer Care	19,032	-	19,032	-	363
Regulatory	3,352	-	3,352	-	37
Internal Audit	1,553	-	1,553	-	19
Legal	3,673	-	3,673	-	34
Corporate Secretary	505	50	454	-	5
Human Resources	3,704	-	3,704	-	47
Controller	6,447	71	6,376	-	86
Claims & Insurance	1,254	-	1,254	-	19
Treasury	3,115	46	3,069	-	33
Government Affairs	638	-	638	-	5
Procurement & Supply Chain	2,394	-	2,394	-	29
Facility & Real Estate Services	951	-	951	-	12
Corporate Risk	647	65	582	-	5
-28- __________________________________________________________________________________________

ANNUAL REPORT OF: PHI Service Company
For the Year Ended December 31, 2004 (In Thousands)
DEPARTMENTAL ANALYSIS OF SALARIES - ACCOUNT 920 (continued)
Name of Department		Departmental Salary Expense Included in Amounts Billed to
Indicate each department or service function.	Total Amount	Parent Company	Other Associates	Non Associates	Number of Personnel End of Year
Vehicle Management	$ 383	$ -	$ 383	$ -	5
General Services	3,430	-	3,430	-	67
Delivery LOB Support	27,878	-	27,878	-	339
Energy LOB Support	24,480	-	24,480	-	200
Corporate	15,007	-	15,007	-	-
	$147,326	$ 517	$ 146,809	$ -	1,607
-29- __________________________________________________________________________________________

ANNUAL REPORT OF: PHI Service Company Inc.
For the Year Ended December 31, 2004 (In Thousands)
OUTSIDE SERVICES EMPLOYED - ACCOUNT 923
INSTRUCTIONS:		Provide a breakdown by subaccount of outside services employed. If the aggregate amounts paid to any one payee and Included within one subaccount is less than $100,000, only the aggregate number and amount of all such payments Included within the subaccount need be shown. Provide a subaccount for each type of service.
From Whom Purchased			Description	Relationship "A"=Associate "NA"=Nonassociate	Amount
Temporary Services:
	WHITE AMBER		Temporary Employment Services	NA	$ 5,259
	MRC INC.		Temporary Employment Services	NA	289
	MCCLAFFERTY PRINTING CO		Temporary Employment Services	NA	215
	TR SYSTEMS INC.		Temporary Employment Services	NA	168
	UTILITY SYSTEMS SOLUTIONS		Temporary Employment Services	NA	146
	SIEGFRIED GROUP LLP		Temporary Employment Services	NA	135
	FRANCIS J KITZINGER		Temporary Employment Services	NA	129
	MISCELLANEOUS				466
	(18 ITEMS LESS THAN $100,000)
	TOTAL				$ 6,807

Market Research Services:
	MISCELLANEOUS			NA	37
	(3 ITEMS LESS THAN $100,000)
	TOTAL				$ 37

Maintenance Services:
	IBM GLOBAL SERVICES US		Computer Consultants/Services	NA	5,323
	VISALIGN LLC		Computer Consultants/Services	NA	2,657
	CISCO		Computer Consultants/Services	NA	289
	SUN MICROSYSTEMS INC.		Computer Consultants/Services	NA	249
	STORAGE TECHNOLOGY CORP		Copier Maintenance Services	NA	217
	NETWORK EQUIPMENT TECHNOLOGIES		Computer Consultants/Services	NA	202
	IBM CORPORATION		Computer Consultants/Services	NA	184
	XEROX CORPORATION		Computer Consultants/Services	NA	171
	AMERICAN BUILDING MAINTENANCE		Computer Consultants/Services	NA	154
	SIEMENS ENTERPRISE NETWORKS LLC		Janitorial Services	NA	115
	PRESIDIO CORPORATION		Communications Services	NA	105
	MISCELLANEOUS			NA	777
	(71 ITEMS LESS THAN $100,000)
	TOTAL				$10,443

Legal Services:
	DAVIES CONSULTING INC.		Professional Legal Services	NA	1,208
	COVINGTON & BURLING		Professional Legal Services	NA	313
	PEPPER HAMILTON LLP		Professional Legal Services	NA	124
	MISCELLANEOUS		Professional Legal Services	NA	768
	(40 ITEMS LESS THAN $100,000)
	TOTAL				$ 2,413

-30- ____________________________________________________________________________________________

ANNUAL REPORT OF: PHI Service Company Inc.
For the Year Ended December 31, 2004 (In Thousands)
OUTSIDE SERVICES EMPLOYED - ACCOUNT 923 (Continued)
From Whom Purchased		Description	Relationship "A"=Associate "NA"=Nonassociate	Amount
Audit Services:
	PRICEWATERHOUSECOOPERS LLP	Audit Services	NA	$3,426
	MISCELLANEOUS	Audit Services	NA	-
	(0 ITEM LESS THAN $100,000)
	TOTAL			$3,426

Advertising Services:
	MISCELLANEOUS		NA	18
	(6 ITEMS LESS THAN $100,000)
	TOTAL			$ 18

Training Services:
	EMERGENCY PREPAREDNESS	Training Services	NA	121
	MISCELLANEOUS		NA	129
	(16 ITEMS LESS THAN $100,000)
	TOTAL			$ 250

Collection Services:
	NCO FINANCIAL SYSTEM INC.	Collection Services	NA	1,238
	MISCELLANEOUS		NA	16
	(2 ITEMS LESS THAN $100,000)
	TOTAL			$1,254

Other Services:
	KPMG LLP	Consulting Services	NA	3,994
	CASSIDY & PINKARD INC.	Facility Support Services	NA	1,870
	AON CONSULTING INC.	Human Resource Services	NA	1,861
	DELOITTE & TOUCHE	Consulting Services	NA	912
	ACCENTURE	Consulting Services	NA	828
	MERCER HUMAN RESOURCE CONSULTING	Human Resource Services	NA	772
	MELLON CONSULTANTS INC.	Consulting Services	NA	709
	WACHOVIA BANK N A	Financial Consulting Services	NA	577
	BOARD OF DIRECTORS	Board of Directors	NA	552
	STANTON COMMUNICATIONS INC.	Communications Services	NA	519
	PA CONSULTING GROUP	Consulting Services	NA	437
	BROOKS COURIER SERVICE INC.	Courier Services	NA	419
	DOGGETT'S PARKING COMPANY	Facility Support Services	NA	414
	ACCOUNTING AND BUSINESS	Professional Services	NA	361
	RR DONNELLEY RECEIVABLES	Professional Financial Services	NA	358
	ADMIRAL SECURITY SERVICES	Security Services	NA	354
	PITTMAN MCLENAGAN GROUP LC	Consulting Services	NA	298
	AVAYA INC.	Communication Services	NA	278
	CREDIT SUISSE FIRST BOSTON	Financial Consulting Services	NA	277
	SCOTIABANK	Financial Services	NA	269
	MDSI-MOBILE DATA SOLUTIONS	Software support services	NA	266
-31- __________________________________________________________________________________________

ANNUAL REPORT OF: PHI Service Company Inc.
For the Year Ended December 31, 2004 (In Thousands)
OUTSIDE SERVICES EMPLOYED - ACCOUNT 923 (Continued)
From Whom Purchased		Description		Relationship "A"=Associate "NA"=Nonassociate	Amount
	WATSON WYATT & COMPANY	Actuarial Services	NA		$ 247
	MARSH USA	Insurance Services	NA		246
	OCE PRINTING SYSTEMS USA INC.	Printing Services	NA		229
	META GROUP INC.	Security Services	NA		179
	META SECURITY GROUP	Security Services	NA		174
	SUNGARD RECOVERY SERVICES INC.	Disaster Recovery Support Services	NA		173
	VERIZON SELECT SERVICES INC.	Telecommunications Services	NA		170
	ATLANTIC COAST ALARM INC.	Security Services	NA		156
	LAKE CONSULTING INC.	Human Resource Services	NA		154
	BLC CORPORATION	Computer Consulting Services	NA		149
	JOHN LAND ASSOCIATES INC.	Consulting Services	NA		148
	BOSTON PACIFIC COMPANY, INC.	Consulting Services	NA		143
	NOBLE COMPUTER CONSULTING INC.	Computer Consulting Services	NA		136
	TWENTY FIRST CENTURY COMMUNICATIONS	Answering Services	NA		136
	CONCENTRA MEDICAL CENTERS	Human Resource Services	NA		120
	FUTURTECH CONSULTING INC.	Computer Consulting Services	NA		117
	OFFICE MOVERS	Facility Support Services	NA		114
	GLOBAL ENTERPRISE MANAGERS INC.	Computer Consulting Services	NA		113
	DONNA M POWELL	Financial Consulting Services	NA		110
	EASY i INC.	Security Services	NA		104
	MISCELLANEOUS		NA		5,706
	(441 ITEMS LESS THAN $100,000)
	TOTAL				$25,149

	GRAND TOTAL				$49,797
-32- __________________________________________________________________________________________

ANNUAL REPORT OF: PHI Service Company
For the Year Ended December 31, 2004 (In Thousands)
EMPLOYEE PENSIONS AND BENEFITS - ACCOUNT 926
INSTRUCTIONS:		Provide a listing of each pension plan and benefit program provided by the service company. Such listing should be limited to $25,000.
	Description		Amount
	Pension		$ 5,443
	Medical		14,390
	OPEB expenses		17,023
	Supplemental Executive Retirement Plan		2,313
	Accrued Vacation		(200)
	Accrued Sick Pay		175
	IBNR Reserve		628
	Life insurance		742
	Dental		1,365
	Vision		198
	Savings & Thrift		3,125
	Payroll tax expenses		9,492
	Education Plan		421
	Long-Term Disability		2,499
	Service Awards		49
	Wellness		20
	Employee Association		63
	COBRA		31
	Workman's Compensation Insurance		2,132
	Administration Fees		327
	Employee contributions		(1,749)
	Other		49
	TOTAL		$ 58,536
-33- ________________________________________________________________________________________

ANNUAL REPORT OF: PHI Service Company
For the Year Ended December 31, 2004 (In Thousands)
GENERAL ADVERTISING EXPENSES - ACCOUNT 930.1
INSTRUCTIONS:	Provide a listing of the amount Included in Account 930.1, "General Advertising Expenses", classifying the items according to the nature of the advertising and as defined in the account definition. If a particular class Includes an amount in excess of $3,000 applicable to a single payee, show separately the name of the payee and the aggregate amount applicable thereto.
Description		Name of Payee	Amount
Radio & Newspaper Ads		Stanton Communications	$ 395
Newspaper Ads		National Advertising Placement	48
Employment Ads		TMP Worldwide	33
Employment Ads		Monster.com	18
Radio Ads		Wilmington Blue Rocks	13
Newspaper Ads		Davis Advertising	10
Public Relations Photos		Lisa Goodman Photography	10
Yellow Pages		Coventry	7
Safety Ads		Delaware State Fire Marshals Office	6
Newspaper Ads		1st Responder Newspaper	6
Hispanic Yellow Pages		Vega & Associates	5
Billboard		United Way of Delaware	4
Magazine Ads		Journal Communications	4
Miscellaneous			14
TOTAL			$ 573
-34- _______________________________________________________________________________________

ANNUAL REPORT OF: PHI Service Company
For the Year Ended December 31, 2004 (In Thousands)
MISCELLANEOUS GENERAL EXPENSES - ACCOUNT 930.2
INSTRUCTIONS:		Provide a listing of the amount Included in Account 930.2, "Miscellaneous General Expenses", classifying such expenses according to their nature. Payments and expenses permitted by Section 321(b) (2) of the Federal Election Campaign Act, as amended by Public Law 94-283 in 1976 (2 U.S.C. Section 441 (b) (2)) shall be separately classified.
	Description		Amount
	Material expenses		$1,507
	Meals & Entertainment		1,291
	Small Tools and equipment		1,150
	Building facilities work		511
	Sponsorships/Associations		338
	Contractor Consulting		180
	Utilities expense		123
	Employee expense reimbursement		89
	SAP maintenance costs		45
	Non-Cash Employee Small Gifts		28
	Publications/Subscriptions		28
	Florist items		17
	Office equipment, maintenance & software		12
	Membership Dues		6
	Trust administrative reimbursement		(334)
	Rental Revenue		(411)
	Corporate Credit Card rebates		(430)
	Other Miscellaneous expenses		113
			$4,263
-35- _______________________________________________________________________________________

ANNUAL REPORT OF: PHI Service Company
For the Year Ended December 31, 2004 (In Thousands)
RENTS - ACCOUNT 931
INSTRUCTIONS:		Provide a listing of the amount Included in Account 931, "Rents", classifying such expenses by major groupings of property, as defined in the definition of the Uniform System of Accounts.
	Type of Property		Amount
	Office Rents		$ 14,286
	Office Equipment and Computers		15,567
	Vehicle Leases		1
	Miscellaneous Rents		43
	TOTAL		$ 29,897
-36- ______________________________________________________________________________________

ANNUAL REPORT OF: PHI Service Company
For the Year Ended December 31, 2004 (In Thousands)
TAXES OTHER THAN INCOME TAXES - ACCOUNT 408
INSTRUCTIONS:		Provide an analysis of Account 408, "Taxes Other Than Income Taxes". Separate the analysis into two groups: (1) other than U.S. Government taxes, and (2) U.S. Government taxes. Specify each of the various kinds of taxes and show the amounts thereof. Provide a subtotal for each class of tax.
	Kind of Tax		Amount
(1)	Other Than U.S. Government Taxes
	City of Wilmington		$ 14
	Sales and Use Taxes		310
	Property Taxes		3,111
	SUBTOTAL		$ 3,435
(2)	U.S. Government Taxes		$ -
	SUBTOTAL		$ -
	TOTAL		$ 3,435
-37- ______________________________________________________________________________________

ANNUAL REPORT OF: PHI Service Company
For the Year Ended December 31, 2004 (In Thousands)
DONATIONS - ACCOUNT 426.1
INSTRUCTIONS:		Provide a listing of the amount Included in Account 426.1, "Donations", classifying such expenses by its purpose. The aggregate number and amount of all items of less than $3,000 may be shown in lieu of details.
	Name of Recipient		Purpose of Donation	Amount
	United Way		Community Welfare	$ 440
	US Chamber of Commerce		Leadership Fund	100
	Salvation Army		Community Welfare	55
	Delaware State University		Capital Campaign	35
	Congressional Black Caucus		Sponsorship	25
	The Nature Conservancy		Land protection efforts	20
	Kingswood Community Center		Community Welfare	20
	Communities in Schools of Delaware		Community Welfare	15
	Congressional Award Foundation		Community Welfare	15
	Delaware College of Art & Design		Capital Campaign	15
	Shore Memorial Hospital		Community Welfare	10
	Atlantic General Hospital		Community Welfare	10
	New Jersey Emergency Preparedness		Sponsorship	10
	Beebe Medical Foundation		Community Welfare	10
	University of Maryland College Park		Sponsorship	10
	Pilot School		Scholarship Endowment Fund	10
	Boys & Girls Clubs of Delaware		Community Welfare	10
	Delaware Helpline		Community Welfare	10
	Metropolitan Wilmington Urban League		Sponsorship	10
	National Conference of State Legislators		Sponsorship	10
	Children & Families First		Community Welfare	9
	Junior Achievement		Community Welfare	8
	Five Mile Beach Vol Firemans Assoc		Community Welfare	8
	NJ Shares		Community Welfare	7
	Delaware Volunteer Firemens Assoc		Community Welfare	6
	Maryland State Firemens Assoc		Community Welfare	5
	Chester River Hospital Center		Community Welfare	5
	Center for Creative Arts		Community Welfare	5
	Delaware Art Museum		Community Welfare	5
	Delaware Museum of Natural History		Community Welfare	5
	MBNA Education Foundation		Community Welfare	5
	New Jersey State Vol Firemens Assoc		Community Welfare	5
	Delaware Nature Society		Community Welfare	5
	WOR-WIC Community College		Capital Campaign	5
	National Coalition of 100 Black Women Inc.		Sponsorship	5
	New Mexico State University		Sponsorship-Center for Public Utilities	5
	National Conf for Community & Justice		Sponsorship	5
	National Association of Black Accountants		Sponsorship	4
	Girl Scouts Chesapeake Bay Council		Sponsorship	3
	National Forum for Black Public Administrators		Sponsorship	3
	Other Miscellaneous Donations			78

	TOTAL			$ 1,026
-38- ____________________________________________________________________________________

ANNUAL REPORT OF: PHI Service Company
For the Year Ended December 31, 2004 (In Thousands)
OTHER DEDUCTIONS - ACCOUNT 426.5
INSTRUCTIONS:		Provide a listing of the amount Included in Account 426.5, "Other Deductions", classifying such expenses according to their nature.
	Description		Name of Payee	Amount
	Retirement of IT Assets			$ 1,040
	TOTAL			$ 1,040
-39- ______________________________________________________________________________________

ANNUAL REPORT OF: PHI Service Company
For the Year Ended December 31, 2004 (In Thousands)
SCHEDULE XVIII - NOTES TO STATEMENT OF INCOME
INSTRUCTIONS:	The space below is provided for important notes regarding the statement of Income or any account thereof. Furnish particulars as to any significant Increase in services rendered or expenses Incurred during the year. Notes relating to financial statements shown elsewhere in this report may be indicated here by reference.
	See Notes to Financial Statements, Schedule XIV, pages 19-20
(1) 931 - Rents
A year-end adjustment to rent expense of $3.59 million was recorded in March 2005 prior to filing the Form 10-K for Pepco Holdings, Inc. (PHI) (See footnote 5 on Schedule XIV for additional information). Due to the timing of the adjustment and the impending filing deadline, the costs were not billed to the affiliates until February 2005. The amount charged to each affiliate in February 2005 was as follows:
(In millions)
		Potomac Electric Power Company	$1,547
		Delmarva Power & Light Company	817
		Atlantic City Electric Company	713
		Delaware Operating Services Company	80
		Conectiv Energy Supply Inc.	226
		Conectiv Delmarva Generation, Inc.	104
		Conectiv Atlantic Generation, LLC	38
		Pepco Energy Services, Inc.	65
			$3,590
-40- ______________________________________________________________________________________

PHI SERVICE COMPANY

Organization Chart

Dennis R. Wraase
Chairman & CEO

Andrew W. Williams
President

Thomas S. Shaw
COO

William T. Torgerson
Executive Vice President & General Counsel

Beverly L. Perry
Senior Vice President

Joseph M. Rigby
Senior Vice President & CFO

William J. Sim
Senior Vice President

William H. Spence
Senior Vice President

Anthony J. Kamerick
Vice President & Treasurer

James P. Lavin
Vice President & Controller

Kenneth P. Cohn
Vice President

Jill R. Downs
Vice President

Albert F. Kirby
Vice President

Barbara J. Williams
Vice President

J. Mack Wathen
Vice President

James S. Potts
Vice President

George W. Potts
Vice President

Kevin McGowan
Vice President

Michael W. Maxwell
Vice President

-41-
_______________________________________________________________________________________

PHI SERVICE COMPANY

Organization Chart (continued)

William M. Gausman
Vice President

Kirk J. Emge
Vice President

Ernest L. Jenkins
Vice President

Ellen Sheriff Rogers
Vice President & Secretary

Donna J. Kinzel
Assistant Treasurer

Jeffery E. Snyder
Assistant Treasurer

Diana C. DeAngelis
Assistant Secretary

Nina J. Clements
Assistant Secretary

-42-
_______________________________________________________________________________________

PHI Service Company
Current Methods of Allocation
Described below are the methods used to allocate costs of the Service Company to Client Companies which cannot practicably be direct charged.
Service Department or Function		Basis of Allocation *
Executive Management		Blended ratio
Procurement & Supply Chain		Material stock expense ratio
Vehicle Resource Management		Vehicle $ ratio
Facilities Services		Square footage ratio for office space and non-office space
Document Services		Employee ratio
Real Estate		Real estate investment ratio
Security		Labor $ ratio
Insurance Administration		Blended ratio
Claims Administration		Historical claims ratio
Regulatory Affairs		Utility cost ratio
CLS Financial Support		Blended ratio
Property insurance and miscellaneous insurance coverage		Asset cost ratio
General liability insurance		Labor $ ratio
Directors and Officers insurance		Asset cost ratio
Cost of Benefits		Employee ratio
* Definitions of ratios follows Methods of Allocation pages
-43- ___________________________________________________________________________________
PHI Service Company
Current Methods of Allocation (continued)
Service Department or Function		Basis of Allocation
Compensation and Benefits Services		Employee ratio
Personnel, Employment and Staffing		Employee ratio
Employee/Labor Relations		Employee ratio
Training and Management Development		Employee ratio
Performance Improvement		Employee ratio
Organizational Development		Employee ratio
Legal Services		Actual legal direct labor charges
Audit Services		O&M ratio
Management of Customer Care		Number of customers ratio
Special Billing		Number of special bills ratio
Corporate Marketing		O&M ratio
Voice Service		Telephone ratio
Data Management		Storage ratio
Operations Management		CPU time ratio
Applications Support		End user ratio
Desktop/Network Support		End user ratio
IS General Management and Administration		Blended ratio

-44- ___________________________________________________________________________________
PHI Service Company
Current Methods of Allocation (continued)
Service Department or Function		Basis of Allocation
Public Affairs		O&M ratio
Environmental & Safety		Blended ratio
Delivery Services		T&D O&M ratio
System Operations Services		Kwh Output ratio
Maintenance Services		Kwh Output ratio
Other Delivery Services		T&D O&M ratio
Energy Business Management and Administration		O&M ratio
Merchant Functions		Merchant Cost ratio
Supply Engineering and Support		O&M ratio
Fuel Supply Function		Kwh generated ratio
Accounts Payable Accounting Services		Number of checks issued ratio
Payroll Accounting Services		Number of employees paid ratio
Asset & Project Accounting Services		Asset system cost ratio
All Other Financial Services		O&M ratio

-45- ___________________________________________________________________________________

Definition of Service Company Current Allocation Methods
Ratio Title	Ratio Description
Employee Ratio	A ratio the numerator of which is the number of employees of a Client Company, the denominator of which is the number of employees in all Client Companies using the service. This ratio will be calculated quarterly.
Square Footage Ratio
office space	A ratio the numerator of which is the number of square feet of office space occupied by a Client Company, the denominator of which is the total number of square feet of office space occupied by all Client Companies using the service.
non-office space	A ratio the numerator of which is the number of square feet of non-office space occupied by a Client Company, the denominator of which is the total number of square feet of non-office space occupied by all Client Companies using the service.
Telephone Ratio	A ratio the numerator of which is the number of telephones used by a Client Company, the denominator of which is the number of telephones used by all Client Companies using the service.
CPU Time Ratio	A ratio the numerator of which is the number of hours of CPU time used for a particular system application, the denominator of which is the total number of CPU hours used by all companies. Costs are allocated to Orders based on this ratio. That cost is then either Included in the cost of other Service Company services or directly routed to the appropriate Client Company.
End User Ratio	A ratio the numerator of which is the number of users of computer systems within a Client Company, the denominator of which is the total number of users of computer systems within all Client Companies using the service.
Labor $ Ratio	A ratio the numerator of which is the amount of labor $ of a Client Company, the denominator of which is total labor $ for all Client Companies using the service. This ratio will be calculated monthly.
Historical Claims Ratio	A ratio the numerator of which is the total claims expense of a Client Company, the denominator of which is the total claims expense for all Client Companies using the service.
-46- ___________________________________________________________________________________

Asset Cost Ratio	A ratio the numerator of which is the total cost of assets in a Client Company, the denominator of which is the total costs of assets for all Client Companies using the service. Assets are limited to plant, property and investments.
O&M Ratio	A ratio the numerator of which is the total direct (i.e., excludes charges allocated by the Service Company) operations and maintenance expense, excluding depreciation and fuel costs, of a Client Company, the denominator of which is total direct operations and maintenance expense, excluding depreciation and fuel costs, of all Client Companies using the service.
Revenue Ratio	A ratio the numerator of which is the total revenues of a Client Company, the denominator of which is the total number of customers for all the Client Companies using the service.
Number of Customers Ratio	A ratio the numerator of which is number of customers served by a Client Company, the denominator of which is the total number of customers for all Client Companies using the service.
Number of Utility Customers Ratio	A ratio the numerator of which is number of utility customers served by a Client Company, the denominator of which is the total number of utility customers for all Client Companies using the service.
Nuclear Installed Capacity Ratio	A ratio the numerator of which is the nuclear facility installed capacity of a Client Company, the denominator of which is the total nuclear facility installed capacity of all Client Companies using the service.
Materials Stock Expense Ratio	A ratio the numerator of which is the materials stock expense of a Client Company, the denominator of which is the total materials stock expense of all Client Companies using the service.
Real Estate Investment	A ratio the numerator of which is the cost of real estate leases and land and buildings owned by a Client Company, the denominator of which is the total cost of real estate leases and land and buildings for all Client Companies using the service.
Number of Special Bills Ratio	A ratio the numerator of which is the number of special bills issued for a Client Company, the denominator of which is the total number of special bills issued for all Client Companies.
Utility Asset Cost Ratio	A ratio the numerator of which is the total cost of utility assets in a Client Company, the denominator of which is the total costs of utility assets for all Client Companies using the service.
-47- ___________________________________________________________________________________

T&D O&M Ratio	A ratio the numerator of which is the total direct (i.e., excludes charges allocated by the Service Company), operations and maintenance expense, excluding depreciation and fuel costs, of a Transmission and Distribution Client Company, the denominator of which is total direct operations and maintenance expense, excluding depreciation and fuel costs, of all Transmission and Distribution Client Companies.
Kwh Generated Ratio	A ratio the numerator of which is the number of kilowatt hours generated by a Client Company, the denominator of which is the total number of kilowatt hours generated by all Client Companies using the service.
Kwh Output Ratio	A ratio the numerator of which is the number of kilowatt hours purchased and generated by a Client Company, the denominator of which is the total number of kilowatt hours purchased and generated by all Client Companies using the service.
Merchant Cost Ratio	A ratio the numerator of which is the dollar amount of direct charges of the merchant function to a specific Client Company, the denominator of which is the total dollar amount of direct charges of the merchant function to all Client Companies using the service.
Vehicle $ Ratio	A ratio the numerator of which is the dollar amount of vehicle charges in a specific Client Company, the denominator of which is the total amount of vehicle charges in all Client Companies using the services.
Blended Ratio	A composite ratio which is comprised of an average of the Employee Ratio, the Labor $ Ratio, and the Asset Cost Ratio, for all Client Companies using the service.
Number of Checks Issued Ratio	A ratio the numerator of which is the number of checks issued for a Client Company, the denominator of which is the total number of checks issued for all Client Companies using the service.
Number of Employees Paid Ratio	A ratio the numerator of which is the number of employees paid for a Client Company, the denominator of which is the total number of employees paid for all Client Companies using the service.
Asset System Cost Ratio	A ratio the numerator of which is the total cost of assets for a Client Company on the asset & project system, the denominator of which is the total cost of assets for all Client Companies using the service on the asset & project system.
Data Storage Ratio	A ratio the numerator of which is the gigabytes of data storage space used for a particular system application, the denominator of which is the total gigabytes of data storage space used for all system applications. Costs are allocated to Orders or Cost Centers based on this ratio. That cost is then either Included in the cost of other Service Company services or directly routed to the appropriate Client Company.
-48- ___________________________________________________________________________________

ANNUAL REPORT OF: PHI Service Company
For the Year Ended December 31, 2004 (In Thousands)
ANNUAL STATEMENT OF COMPENSATION FOR USE OF CAPITAL BILLED
Company	Percent	Allocation of Indirect Interest *	Total Allocation of Interest
Potomac Electric Power Company	37.5%	$131	$131
Delmarva Power & Light Company	23.2%	81	81
Atlantic City Electric Company	17.8%	62	62
Potomac Energy Services, Inc.	7.2%	25	25
Conectiv Delmarva Generation, Inc.	6.0%	21	21
Delaware Operating Services Company	2.6%	9	9
Conectiv Bethlehem LLC	2.3%	8	8
Conectiv Energy Supply, Inc.	1.1%	4	4
Conectiv Atlantic Generation, LLC	1.1%	4	4
Thermal Energy Limited Partnership	0.3%	1	1
PHI Operating Services Company	0.3%	1	1
Potomac Capital Investment Corporation	0.3%	1	1
Conectiv Thermal Systems	0.3%	1	1
TOTAL	100.0%	$349	$349
* Reflects average BLENDED rate for the year.
-49- ____________________________________________________________________________________

ANNUAL REPORT OF: PHI Service Company
SIGNATURE CLAUSE
Pursuant to the requirements of the Public Utility Holding Company Act of 1935 and the rules and regulations of the Securities and Exchange Commission issued thereunder, the undersigned company has duly caused this report to be signed on its behalf by the undersigned officer thereunto duly authorized.
	PHI Service Company (Name of Reporting Company)
	By: /s/ JAMES P. LAVIN (Signature of Signing Officer)
Date: April 29, 2005	James P. Lavin, Vice President & Controller (Printed Name and Title of Signing Officer)
-50- ____________________________________________________________________________________