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, 2003 and Ending December 31, 2003

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.

___________________________________________________________________________________

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 2003	Prior 2002
		(In Thousands)
	SERVICE COMPANY PROPERTY
101	Service Company Property (Schedule II)	$ 65,929	$ 84,759
107	Construction work in progress (Schedule II)	-	-
	Total Property	$ 65,929	$ 84,759
108	Less accumulated provision for depreciation and amortization of service company property (Schedule III)	$ 36,156	$ 41,144
	Net Service Company Property	$ 29,773	$ 43,615
	INVESTMENTS
121	Nonutility Property	$ 1,444	$ 890
123	Investments in associate companies (Schedule IV)	-	-
124	Other investments (Schedule IV)	-	-
128	Special Funds	22,104	23,684
	Total Investments	$ 23,548	$ 24,574
	CURRENT AND ACCRUED ASSETS
131	Cash	$ -	$ (54)
134	Special deposits	-	-
135	Working funds	248	83
136	Temporary cash investments (Schedule IV)	-	-
141	Notes receivable	-	-
143	Accounts receivable	1,371	1,535
144	Accumulated provision for uncollectible accounts	-	-
146	Accounts receivable from associate companies (Schedule V)	45,934	30,396
152	Fuel stock expenses undistributed (Schedule VIII)	-	-
154	Materials and supplies	-	-
163	Stores expense undistributed (Schedule VII)	-	-
165	Prepayments	8,782	6,501
171	Interest and Dividends Receivable	-	-
174	Miscellaneous current and accrued assets
	(Schedule VIII)	-	-
	Total Current and Accrued Assets	$ 56,335	$ 38,461
	DEFERRED DEBITS
181	Unamortized debt expense	$ -	$ -
183	Preliminary Survey and Investigation	-	-
184	Clearing accounts	(20)	2
186	Miscellaneous deferred debits (Schedule IX)	44,626	3,524
188	Research, development, or demonstration expenditures (Schedule X)	-	-
190	Accumulated deferred income taxes	(92)	1,036
	Total Deferred Debits	$ 44,514	$ 4,562
	TOTAL ASSETS AND OTHER DEBITS	$ 154,170	$ 111,212
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ANNUAL REPORT OF: PHI Service Company
SCHEDULE I - COMPARATIVE BALANCE SHEET
Account	Assets and Other Debits	As of December 31
		Current 2003			Prior 2002
		(In Thousands)
	PROPRIETARY CAPITAL
201	Common stock issued (Schedule XI)		$ 1	$ 1
211	Miscellaneous paid-in-capital (Schedule XI)		-	-
215	Appropriated retained earnings (Schedule XI)		-	-
216	Unappropriated retained earnings (Schedule XI)		(767)	(492)
	Total Proprietary Capital		$ (766)	$ (491)
	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	$ 8
231	Notes payable		-	-
232	Accounts payable		14,074	8,323
233	Notes payable to associate companies
	(Schedule XIII)		54,570	41,617
234	Accounts payable to associate companies
	(Schedule XIII )		-	-
236	Taxes accrued		(2,435)	697
237	Interest accrued		60	62
238	Dividends declared		-	-
241	Tax collections payable		29	14
242	Miscellaneous current and accrued liabilities
	(Schedule XIII)		79,756	50,715
	Total Current and Accrued Liabilities		$ 146,072	$ 101,436
	DEFERRED CREDITS
253	Other deferred credits		$ -	$ -
254	Other regulatory liabilities		-	-
255	Accumulated deferred investment tax credits		-	-
	Total Deferred Credits		$ -	$ -
	ACCUMULATED DEFERRED INCOME TAXES
282	Accumulated deferred income taxes-Other Property		$ 4,444	$ 6,336
283	Accumulated deferred income taxes-Other		4,420	3,931
	Total Accumulated Deferred Income Taxes		$ 8,864	$ 10,267
	TOTAL LIABILITIES AND PROPRIETARY CAPITAL		$ 154,170	$ 111,212
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ANNUAL REPORT OF: PHI Service Company
For the Year Ended December 31, 2003 (In Thousands)
SCHEDULE II - SERVICE COMPANY PROPERTY
	Description	Balance At Beginning of Year	Additions	Retirements or Sales (1)	Other Changes	Balance At Close of Year
SERVICE COMPANY PROPERTY
Account
301	Organization	$ -	$ -	$ -	$ -	$ -
303	Miscellaneous Intangible Plant	9,460	-	(742)	-	8,718
304	Land and Land Rights	-	1,227	-	-	1,227
305	Structures and Improvements	14,481	-	-	-	14,481
306	Leasehold Improvements	-	-	-	-	-
307	Equipment(2)	53,960	843	(20,106)	(76)	34,621
308	Office Furniture and Equipment	6,858	-	-	-	6,882
309	Automobiles, Other Vehicles and Related Garage Equipment	-	-	-	-	-
310	Aircraft and Airport Equipment	-	-	-	-	-
311	Other Service Company Property(3)	-	-	-	-	-
	SUBTOTAL	$ 84,759	$ 2,070	$ (20,848)	$ (76)	$ 65,929
107	Construction Work in Progress (4)	-	-	-	-	-
	TOTAL	$ 84,759	$ 2,070	$ (20,848)	$ (76)	$ 65,929
	(1) Provide an explanation of those changes considered material:
	Retired $20.1 million of IT Hardware (servers and desktop equipment)
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ANNUAL REPORT OF: PHI Service Company
For the Year Ended December 31, 2003 (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		$ 843	$ 26,069
	Computer Software		-	8,132
	Typewriters, Calculators, Copiers, & Duplicating		-	-
	Office Services Printing and Stationary Equipment		-	-
	Cafeteria & Kitchen Equipment		-	420
	TOTAL		$ 843	$ 34,621
(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, 2003 (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	5,524	1,821	(482)	-	6,863
304	Land and Land Rights	-			-	-
305	Structures and Improvements	1,586	476	-	-	2,062
306	Leasehold Improvements	-			-	-
307	Equipment(2)	32,992	9,793	(17,520)	(57)	25,208
308	Office Furniture and Equipment	1,042	981	-	-	2,023
309	Automobiles, Other Vehicles and Related Garage Equipment	-	-	-	-	-
310	Aircraft and Airport Equipment	-	-	-	-	-
311	Other Service Company Property	-	-	-	-	-
	TOTAL	$ 41,144	$ 13,071	$(18,002)	$ (57)	$36,156
	(1) Provide an explanation of those changes considered material:
	Retired $20.1 million of IT Hardware (servers and desktop equipment)
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ANNUAL REPORT OF: PHI Service Company
For the Year Ended December 31, 2003 (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, 2003 (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		$ (786)	$ 14,060
	Delmarva Power & Light Company		11,102	13,426
	Atlantic City Electric Company		12,965	13,324
	Atlantic City Electric Transition Funding LLC		3	1,355
	Conectiv Delmarva Generation, Inc.		1,393	1,321
	Delaware Operating Services Company		-	914
	PHI Operating Services Company		-	193
	Conectiv Bethlehem, LLC		475	629
	Conectiv Atlantic Generation, LLC		139	481
	Pepco Energy Services, Inc.		188	471
	Vineland Limited, Inc.		1	340
	Atlantic Southern Properties		113	145
	Thermal Energy Limited Partnership		231	120
	Pedrick Generation, Inc.		149	118
	Conectiv Thermal Systems		57	74
	Potomac Capital Investment Corporation		37	71
	Conectiv Holding Company, Inc.		148	55
	Vineland General, Inc.		2	54
	Pepco Holdings, Inc.		72	35
	ATE Investments, Inc.		2	29
	ACE REIT, Inc.		-	16
	King Street Assurance LTD		10	11
	Binghamton General, Inc.		5	5
	Conectiv Pennsylvania Generation LLC		42	4
	Pepco Communications, Inc.		6	4
	Binghamton Limited, Inc.		3	4
	DCTC-Burney, Inc.		2	3
	Conectiv Energy Holding Company		1,056	-
	Conectiv Services II, Inc.		10	-
	Conectiv Operating Services Company		1,658	-
	Atlantic Generation, Inc.		27	-
	Vital Services Home, LLC		11	-
	Conectiv Mid Merit LLC		231	(5)
	Conectiv Properties and Investments, Inc.		152	(25)
	Conectiv Solutions LLC		44	(35)
	Conectiv Communications, Inc.		(180)	(194)
	Conectiv Energy Supply, Inc.		1,028	(1,069)
	TOTAL RECEIVABLES		$ 30,396	$ 45,934
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, 2003 (In Thousands)
SCHEDULE V (a) - Analysis of Convenience or Accommodation Payments
	Company Name	Total Payments
	ACE REIT, Inc	$ 16
	ATE Investments, Inc.	99
	Atlantic City Electric Company	37,690
	Atlantic City Electric Transition Funding, LLC	1,277
	Atlantic Generation, Inc.	81
	Atlantic Jersey Thermal Systems	4
	Atlantic Southern Properties	1,739
	ATS Operating Services, Inc	24
	Binghamton General Inc	1
	Conectiv Atlantic Generation, LLC	12,918
	Conectiv Bethlehem, LLC	983
	Conectiv Communications, Inc.	116
	Conectiv Delmarva Generation, Inc.	5,550
	Conectiv Energy Holding Co.	1
	Conectiv Energy Supply, Inc.	8,007
	Conectiv Holding Company, Inc.	340
	Conectiv Mid-Merit, Inc.	223
	Conectiv Mid-Merit, LLC	154
	Conectiv Operating Services Company	1,015
	Conectiv Pennsylvania Generation	93
	Conectiv Pennsylvania Generation, LLC	91
	Conectiv Properties and Investments, Inc.	361
	Conectiv Services II, Inc.	964
	Conectiv Solutions, LLC	185
	Conectiv Thermal Systems	449
	DCI II, Inc.	100
	DCTC-Burney, Inc.	6
	Delaware Operating Services Company	3,151
	Delmarva Power & Light Company	32,011
	King Street Assurance Ltd	8,928
	Pedrick Generation Inc.	12
	Pepco Holdings Inc	3,220
	PHI Operating Services Company	228
	Potomac Capital Investment Corp	432
	Potomac Electric Power Company	45,241
	Potomac Energy Services, Inc.	377
	Thermal Energy Limited Partnership	947
	Vineland General, Inc.	40
	Vineland LTD, Inc.	328
Total Payments		$ 167,402
	The majority of convenience payments relate to benefits and outside legal, consulting and purchased power 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.
-10a- ____________________________________________________________________________________

ANNUAL REPORT OF: PHI Service Company
For the Year Ended December 31, 2003 (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, 2003 (In Thousands)
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, 2003
(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, 2003 (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		$ -	$ 43,158
	Intangible Asset-Supplemental Executive Retirement Plan		1,483	1,483
	SAP Costs-Deferred		2,000	-
	Property Sales		42	-
	Other		(1)	(15)
	TOTAL		$ 3,524	$ 44,626
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ANNUAL REPORT OF: PHI Service Company
For the Year Ended December 31, 2003 (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, 2003

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

$ -

Account 215 - Appropriated Retained Earnings

TOTAL

$ -

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)

Dividends Paid

Balance At Close of Year

Account 216 - Unappropriated
Retained Earnings

$ (492)

$ (275)

$ -

$ (767)

TOTAL

$ (492)

$ (275)

$ -

$ (767)

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____________________________________________________________________________________

ANNUAL REPORT OF: PHI Service Company

For the Year Ended December 31, 2003
(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, 2003 (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			$ 41,617	$ 54,570
	TOTAL		$ 41,617	$ 54,570
Account 234 - Accounts Payable to Associate Companies			$ -	$ -
			-	-
	TOTAL		$ -	$ -
Account 242 - Miscellaneous Current and Accrued Liabilities
	Pension/OPEB		$ 15,272	$ 42,329
	Deferred Savings and Thrift		19,172	18,460
	Accrued Vacation		2,200	8,769
	Incentive		7,112	4,482
	Severance		5,230	3,764
	Health Claims Reserve		1,808	1,808
	Supplemental Executive Retirement Plan		(2,079)	(67)
	License Fees		1,899	-
	Other		101	211
	TOTAL		$ 50,715	$ 79,756
-18- ___________________________________________________________________________________

ANNUAL REPORT OF: PHI Service Company
For the Year Ended December 31, 2003 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 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, 2003, had a projected benefit obligation of $1,579.2 million and trust fund assets with a fair value of $1,462.8 million, resulting in an under-funded status of $116.4 million. Due to an unrecognized actuarial loss, an asset of $140.9 million was reflected on PHI's Consolidated December 31, 2003 Balance Sheet. During 2003, the Service Company incurred expense of $12.8 million for pension service and interest costs, net of expected return on assets.
	Service Company employees are covered by PHI's other postretirement benefit plans which as of December 31, 2003 had a projected benefit obligation of $511.9 million and trust fund assets with a fair value of $145.2 million, resulting in an under-funded status of $366.7 million, of which $266.9 million was reflected on PHI's Consolidated December 31, 2003 Balance Sheet. During 2003, the Service Company incurred an expense of $15.2 million for other postretirement service and interest costs, net of expected return on assets.
	During 2003, the proportionate share of the Pepco Prepaid Pension Asset ($43.2 million) and Accrued OPEB liability ($7.6 million) related to former Pepco employees who moved into the Service Company effective January 1, 2003 was transferred to the Service Company.
	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 $3.0 million in 2003.
5.	Rents
	The Service Company leases office buildings and business equipment from associate companies. These eases are accounted for as operating leases.
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, 2003 and 2002 (In Thousands)
SCHEDULE XV - COMPARATIVE STATEMENT OF INCOME
	Account	Description	Current Year 2003	Prior Year 2002
		INCOME
	457	Services rendered to associate companies	$ 333,925	$ 263,094
	458	Services rendered to nonassociate companies	-	-
	421	Miscellaneous income or loss	-	-
		TOTAL INCOME	$ 333,925	$ 263,094
		EXPENSE
	912-13	Marketing & Advertising	$ 141	$ 182
	920	Salaries and wages	124,945	114,723
	921	Office Supplies and expenses	31,298	22,868
	922	Administrative expenses transferred-credit	-	-
	923	Outside services employed	45,040	45,965
	924	Property insurance	4,080	958
	925	Injuries and damages	7,815	2,647
	926	Employee pensions and benefits	63,937	41,266
	928	Regulatory commission expense	-	-
	929	Duplicate charges-credit	(39)	(11)
	930.1	General advertising expense	154	122
	930.2	Miscellaneous general expenses	5,795	3,519
	931	Rents	31,603	15,546
	932	Maintenance of structures and equipment	246	238
	403	Depreciation and amortization expense	13,071	12,847
	408	Taxes other than income taxes	1,553	494
	409	Income taxes	550	957
	410	Provision for deferred income taxes	(275)	(428)
	411	Provision for deferred income taxes-credit	-	-
	411.5	Investment tax credit	-	-
	426.1	Donations	903	633
	426.5	Other deductions	2,845	90
	427	Interest on long-term debt	-	-
	430	Interest on debt to associate companies	538	1,007
	431	Other interest expense	-	-
		TOTAL EXPENSES	$ 334,200	$ 263,623
		NET INCOME OR (LOSS)	$ (275)	$ (529)
-21- ________________________________________________________________________________________

ANNUAL REPORT OF: PHI Service Company
For the Year Ended December 31, 2003 (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		$25,909	$74,203	*	$ 201	$100,313
Atlantic City Electric Company		19,567	69,741	*	166	89,474
Atlantic City Electric Transition Funding LLC		75	-		-	75
Conectiv Properties and Investments, Inc.		53	78		1	132
DCI II, Inc.		1	-		-	1
Conectiv Operating Services Company		1,466	254		-	1,720
Delaware Operating Services Company		3,187	5,087		23	8,297
PHI Operating Services Company		69	1,275		-	1,344
DCTC-Burney, Inc.		46	9		-	55
Conectiv Energy Supply, Inc.		18,610	2,532		11	21,153
Conectiv Delmarva Generation, Inc.		1,905	9,061		53	11,019
Conectiv Atlantic Generation, LLC		855	1,595		6	2,456
Conectiv Mid Merit, Inc.		462	76		-	538
Conectiv Mid Merit LLC		388	54		-	442
Conectiv Bethlehem LLC		3,922	645		8	4,575
Conectiv Pennsylvania Generation, Inc.		128	6		-	134
Conectiv Pennsylvania Generation LLC		64	13		-	77
Conectiv Energy Holding Co.		2	-		-	2
Atlantic Southern Properties		52	133		1	186
Atlantic Generation, Inc.		51	9		-	60
Vineland Limited, Inc.		11	1			12
Vineland General, Inc.		11	1			12
ATE Investments, Inc.		6	3		-	9
King Street Assurance LTD		16	56		-	72
Conectiv Services II, Inc.		63	-		-	63
Conectiv Solutions LLC		52	40		-	92
Conectiv Thermal Systems		272	667		1	940
Thermal Energy Limited Partnership		99	253		3	355
Conectiv Communications, Inc.		29	85		-	114
Potomac Electric Power Company		22,048	60,684		53	82,785
Potomac Capital Investment Corporation		70	1,093		1	1,164
Pepco Communications, Inc.		-	50		-	50
Pepco Energy Services, Inc.		117	4,804		10	4,931
Pepco Holdings, Inc.		18	1,228		-	1,246
Conectiv Holding Company, Inc.		27	-		-	27
TOTAL		$99,651	$233,736		$ 538	$333,925
*	Includes a total of $82.9 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. These groups, and their related costs, are in the Service Company because they provide services to both of these 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, 2003 (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			$ -	$ 141	$ 141	$	$	$	$	$ 141	$ 141
920	Salaries and wages			49,178	75,767	124,945		-	-	49,178	75,767	124,945
921	Office Supplies and expenses			4,544	26,754	31,298	-	-	-	4,544	26,754	31,298
922	Administrative expenses transferred-credit			-	-	-	-	-	-	-	-	-
923	Outside services employed			11,908	33,132	45,040	-	-	-	11,908	33,132	45,040
924	Property insurance			-	4,080	4,080	-	-	-	-	4,080	4,080
925	Injuries and damages			-	7,815	7,815	-	-	-	-	7,815	7,815
926	Employee pensions and benefits			22,382	41,555	63,937	-	-	-	22,382	41,555	63,937
928	Regulatory commission expense			-	-	-	-	-	-	-	-	-
929	Duplicate charges-credit			-	(39)	(39)				-	(39)	(39)
930.1	General advertising expense			-	154	154	-	-	-	-	154	154
930.2	Miscellaneous general expenses			159	5,636	5,795	-	-	-	159	5,636	5,795
931	Rents			6,752	24,851	31,603	-	-	-	6,752	24,851	31,603
932	Maintenance of structures and equipment			-	246	246	-	-	-	-	246	246
403	Depreciation and amortization expense			4,728	8,343	13,071	-	-	-	4,728	8,343	13,071
408	Taxes other than income taxes			-	1,553	1,553	-	-	-	-	1,553	1,553
409	Income taxes			-	275	275	-	-	-	-	275	275
410	Provision for deferred income taxes			-	(275)	(275)	-	-	-	-	(275)	(275)
411	Provision for deferred income taxes-credit			-	-	-	-	-	-	-	-	-
411.5	Investment tax credit			-	-	-	-	-	-	-	-	-
426.1	Donations			-	903	903	-	-	-	-	903	903
426.5	Other deductions			-	2,845	2,845	-	-	-	-	2,845	2,845
427	Interest on long-term debt			-	-	-	-	-	-	-	-	-
431	Other interest expense			-	-	-	-	-	-	-	-	-
		TOTAL EXPENSES		$99,651	$233,736	$333,387	$ -	$ -	$ -	$99,651	$233,736	$333,387
Compensation for Use of Equity Capital
430	Interest on debt to associate companies					538	-	-	-	-	538	538
		TOTAL COST OF SERVICES				$333,925	$ -	$ -	$ -	$99,651	$234,274	$333,925
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, 2003 (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	$ 141	$ -	$ -	$ -	$ 8	$ -	$ 11	$ -	$ -
920	Salaries and wages	124,945	3,353	3,940	1,081	1,224	22,134	20,666	438	1,368
921	Office Supplies and expenses	31,298	2,413	414	277	98	15,622	5,215	44	66
922	Administrative expenses transferred-credit	-	-	-	-	-	-	-	-	-
923	Outside services employed	45,040	83	581	111	393	22,992	4,347	1,721	67
924	Property insurance	4,080	-	-	-	-	-	-	-	-
925	Injuries and damages	7,815	-	-	-	-	-	-	-	-
926	Employee pensions and benefits	63,937	63,820	-	-	-	-	-	-	-
928	Regulatory commission expense	-	-	-	-	-	-	-	-	-
929	Duplicate Charges-credit	(39)	(39)	-	-	-	-	-	-	-
930.1	General advertising expense	154		4	-	1	-	-	-	-
930.2	Miscellaneous general expenses	5,794	163	401	35	211	1,729	994	53	7
931	Rents	31,603	9,742	-		15	13,775	224	-	-
932	Maintenance of structures and equipment	246	-	-	-	-	-	-	-	-
403	Depreciation and amortization expense	13,071	-	-	-	-	8,207	1,017	-	-
408	Taxes other than income taxes	1,553	15	-	-	-	992	-	-	-
409	Income taxes	550	550	-	-	-	-	-	-	-
410	Provision for deferred income taxes	(275)	(275)	-	-	-	-	-	-	-
411	Provision for deferred income taxes-credit	-	-	-	-	-	-	-	-	-
411.5	Investment tax credit	-	-	-	-	-	-	-	-	-
426.1	Donations	903	-	744	2	30	-	1	-	4
426.5	Other deductions	2,845		-	-	-	2,845	-	-	-
427	Interest on long-term debt	-	-	-	-	-	-	-	-	-
430	Interest on debt to associate companies	538	538	-	-	-	-	-	-	-
431	Other interest expense	-	-	-	-	-	-	-	-	-
	TOTAL EXPENSES	$334,200	$80,363	$6,084	$1,506	$1,980	$88,296	$32,475	$2,256	$1,512
-25- ____________________________________________________________________________________________________________________________

ANNUAL REPORT OF: PHI Service Company
For the Year Ended December 31, 2003 (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
912-13	Marketing & Advertising	$ -	$ 42	$ -	$ -	$ -	$ -	$ -	$ -
920	Salaries and wages	3,028	3,892	7,846	1,198	3,499	530	2,949	609
921	Office Supplies and expenses	294	653	424	71	1,387	104	109	25
922	Administrative expenses transferred-credit	-	-	-	-	-	-	-	-
923	Outside services employed	777	3,042	1,778	64	1,597	268	291	970
924	Property insurance	-	-	-	4,080	-	-	-	-
925	Injuries and damages	-	-	-	7,815	-	-	-	-
926	Employee pensions and benefits	-	91	-	-	-	-	-	-
928	Regulatory commission expense	-	-	-	-	-	-	-	-
929	Duplicate Charges-credit	-	-	-	-	-	-	-	-
930.1	General advertising expense	-	34	-	-	-	-	-	-
930.2	Miscellaneous general expenses	134	305	10	39	(7)	151	51	389
931	Rents	14	7	-	-	-	22	-	7,146
932	Maintenance of structures and equipment	-	-	-	-	-	-	-	246
403	Depreciation and amortization expense	-	1,342	-	-	-	-	172	918
408	Taxes other than income taxes	-	-	1	-	-	-	-	545
409	Income taxes	-	-	-	-	-	-	-	-
410	Provision for deferred income taxes	-	-	-	-	-	-	-	-
411	Provision for deferred income taxes-credit	-	-	-	-	-	-	-	-
411.5	Investment tax credit	-	-	-	-	-	-	-	-
426.1	Donations	-	-	-	-	-	69	-	-
426.5	Other deductions	-	-	-	-	-	-	-
427	Interest on long-term debt	-	-	-	-	-	-	-
430	Interest on debt to associate companies	-	-	-	-	-	-	-
431	Other interest expense	-	-	-	-	-	-	-	-
	TOTAL EXPENSES	$4,247	$9,408	$10,059	$13,267	$6,476	$1,144	$3,572	$10,848
-26- _________________________________________________________________________________________________________________________

ANNUAL REPORT OF: PHI Service Company
For the Year Ended December 31, 2003 (In Thousands)
SCHEDULE XVII - SCHEDULE OF EXPENSE DISTIBUTION BY
DEPARTMENT OR SERVICE FUNCTION
Description of Items		Vehicle Management		Security & Doc Services	Regulatory		Delivery LOB Support	Energy LOB Support
912-13	Marketing & Advertising	$ -	$ -			$ -	$ 7	$ 73
920	Salaries and wages	402	597			3,234	20,871	22,086
921	Office Supplies and expenses	24	274			116	1,769	1,899
922	Administrative expenses transferred-credit	-	-			-	-	-
923	Outside services employed	7	906			80	3,611	1,354
924	Property insurance	-	-			-	-	-
925	Injuries and damages	-	-			-	-	-
926	Employee pensions and benefits	-	-			-	-	26
928	Regulatory commission expense	-	-			-	-	-
929	Duplicate Charges-credit	-	-			-	-	-
930.1	General advertising expense	-	-			-	115	-
930.2	Miscellaneous general expenses	14	52			28	514	521
931	Rents	-	611			-	7	40
932	Maintenance of structures and equipment	-	-			-	-	-
403	Depreciation and amortization expense	46	-			-	1,369	-
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	-	-			1	31	21
426.5	Other deductions	-	-			-	-	-
427	Interest on long-term debt	-	-			-	-	-
430	Interest on debt to associate companies	-	-			-	-	-
431	Other interest expense	-	-			-	-	-
	TOTAL EXPENSES	$ 493	$ 2,440			$ 3,459	$ 28,294	$ 26,020
-27- ________________________________________________________________________________________________________________________

ANNUAL REPORT OF: PHI Service Company
For the Year Ended December 31, 2003 (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	$ 3,940	$ 253	$ 3,687	$ -	13
Environmental & Safety	1,081	-	1,081	-	13
Corporate Communications	1,224	-	1,224	-	15
Government Affairs	530	-	530	-	5
Information Systems	22,133	-	22,133	-	292
Customer Care	20,667	-	20,667	-	384
Regulatory	3,234	-	3,234	-	36
Internal Audit	1,368	-	1,368	-	19
Legal & Corp Secr	3,466	104	3,362	-	37
Human Resources	3,892	-	3,892	-	55
Controller	7,846	-	7,846	-	99
Claims & Insurance	1,198	-	1,198	-	19
Treasury	3,499	70	3,429	-	35
Procurement & Supply Chain	2,949	-	2,949	-	33
Facility & Real Estate Services	609	-	609	-	9
-28- ________________________________________________________________________________________

ANNUAL REPORT OF: PHI Service Company
For the Year Ended December 31, 2003 (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
Vehicle Management	$ 402		$ 402	$ -	5
Security & Document Services	597	-	597	-	12
Delivery LOB Support	20,871	-	20,871	-	275
Energy LOB Support	22,085	-	22,085	-	209
Corporate	3,354	-	3,354	-	-
	$124,945	$ 427	$ 124,517	$ -	1,565
-29- ________________________________________________________________________________________

ANNUAL REPORT OF: PHI Service Company Inc.
For the Year Ended December 31, 2003 (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	$ 1,570
	ADVANCED NETWORK SOLUTION		Temporary Employment Services	NA	1,106
	COMPUTER TEMPORARIES INC		Temporary Employment Services	NA	602
	AJILON		Temporary Employment Services	NA	326
	CORNERSTONE MANAGEMENT CONSULTING		Temporary Employment Services	NA	309
	STUDLEY PROFESSIONAL STAFFING		Temporary Employment Services	NA	297
	RANDSTAD		Temporary Employment Services	NA	186
	MRC INC		Temporary Employment Services	NA	165
	INTEGRITY STAFFING SOLUTIONS		Temporary Employment Services	NA	127
	MISCELLANEOUS				811
	(30 ITEMS LESS THAN $100,000)
	TOTAL				$5,499
Market Research Services:
	MISCELLANEOUS			NA	22
	(2 ITEMS LESS THAN $100,000)
	TOTAL				$22
Maintenance Services:
	IBM GLOBAL SERVICES US		Computer Consultants/Services	NA	11,172
	VISALIGN LLC		Computer Consultants/Services	NA	2,699
	SUN MICROSYSTEMS INC		Computer Consultants/Services	NA	695
	STORAGE TECHNOLOGY CORP		Computer Consultants/Services	NA	673
	XEROX CORPORATION		Copier Maintenance Services	NA	301
	CISCO		Computer Consultants/Services	NA	289
	PEPCO - IT SERVICES		Computer Consultants/Services	NA	196
	INSTALLSHIELD SOFTWARE CORP		Computer Consultants/Services	NA	190
	IBM CORPORATION		Computer Consultants/Services	NA	154
	AMERICAN BUILDING MAINTENANCE		Janitorial Services	NA	148
	NETWORK EQUIPMENT TECHNOLOGIES		Communications Services	NA	132
	MISCELLANEOUS			NA	888
	(77 ITEMS LESS THAN $100,000)
	TOTAL				$17,537
Legal Services:
	COVINGTON & BURLING		Professional Legal Services	NA	709
	RR DONNELLEY RECEIVABLES		Professional Legal Services	NA	399
	PEPPER HAMILTON & SCHEETZ LLP		Professional Legal Services	NA	189
	ARIA A KLEES		Professional Legal Services	NA	167
	SKADDEN ARPS SLATE MEAGHER & FLOM		Professional Legal Services	NA	110
	MISCELLANEOUS			NA	760
	(41 ITEMS LESS THAN $100,000)
	TOTAL				$ 2,334
-30- _________________________________________________________________________________________

ANNUAL REPORT OF: PHI Service Company Inc.
For the Year Ended December 31, 2003 (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	$ 379
	TOTAL			$ 379
Advertising Services:
	MISCELLANEOUS		NA	$ 64
	(8 ITEMS LESS THAN $100,000)
	TOTAL			$ 64
Training Services:
	MISCELLANEOUS		NA	$ 195
	(18 ITEMS LESS THAN $100,000)
	TOTAL			$ 195
Collection Services:
	NCO FINANCIAL SYSTEM INC	Collection Services	NA	2,179
	MISCELLANEOUS		NA	20
	(2 ITEMS LESS THAN $100,000)
	TOTAL			$2,199
Other Services:
	FLK CONSULTING SERVICES	Consulting Services	NA	1,449
	JAMES LEE WITT ASSOCIATES LLC	Consulting Services	NA	801
	AON CONSULTING INC	Human Resource Services	NA	775
	STANTON COMMUNICATIONS INC	Communications Services	NA	709
	BOARD OF DIRECTORS FEES/DEFERRALS	Consulting Services	NA	480
	BROOKS COURIER SERVICE INC	Courier Services	NA	381
	TWENTY FIRST CENTURY COMMUNICATIONS	Answering Services	NA	306
	AVAYA INC	Consulting Services	NA	284
	KPMG CONSULTING	Financial Consulting Services	NA	279
	SUNGARD RECOVERY SERVICES INC	Disaster Recovery Support Services	NA	275
	SIEGFRIED GROUP LLP	Financial Consulting Services	NA	273
	MAHONEY CONSULTING GROUP	Consulting Services	NA	272
	MARKET STRATEGIES INC	Consulting Services	NA	268
	UTILITY SYSTEMS SOLUTIONS	Operations Consulting Services	NA	255
	MDSI-MOBILE DATA SOLUTIONS	Software support services	NA	251
	OCE PRINTING SYSTEMS USA INC	Printing Services	NA	247
	MELLON CONSULTANTS INC	Consulting Services	NA	233
-31- ________________________________________________________________________________________

ANNUAL REPORT OF: PHI Service Company Inc.
For the Year Ended December 31, 2003 (In Thousands)
OUTSIDE SERVICES EMPLOYED - ACCOUNT 923 (Continued)
From Whom Purchased		Description	Relationship "A"=Associate "NA"=Nonassociate	Amount
	GLOBAL ENTERPRISE MANAGERS INC	Consulting Services	NA	$ 223
	PINNACLE CONSULTING SVCS INC	Consulting Services	NA	217
	PITTMAN MCLENAGAN GROUP LC	Consulting Services	NA	192
	CASSIDY & PINKARD INC	Consulting Services	NA	175
	VERIZON SELECT SERVICES INC	Telecommunications Services	NA	175
	PA CONSULTING GROUP	Consulting Services	NA	174
	MCCLAFFERTY PRINTING CO	Printing Services	NA	172
	BROADGATE CONSULTANTS INC	Consulting Services	NA	170
	WATSON WYATT & COMPANY	Actuarial Services	NA	169
	MW CONSULTING	Consulting Services	NA	165
	JOHN LAND ASSOCIATES INC	Consulting Services	NA	159
	MARGARET M RENO	Consulting Services	NA	148
	ADP	Payroll Services	NA	144
	FRANCIS J KITZINGER	Consulting Services	NA	142
	MELLON BANK	Consulting Services	NA	141
	WEICHERT RELOCATION	Relocation Services	NA	140
	STAR ENVELOPE	Printing Services	NA	136
	NETVERSANT OF PHILADELPHIA	Telecommunications Services	NA	132
	SURVEYSOURCE	Research Services	NA	131
	ADMIRAL SECURITY SERVICES	Security Services	NA	123
	CONCENTRA MEDICAL CENTERS	Human Resource Services	NA	123
	THE PRESIDIO CORPORATION	Computer Consulting Services	NA	121
	DLL SOLUTIONS INC	Consulting Services	NA	120
	AIRBORNE EXPRESS	Courier Services	NA	119
	ACCOUNTING AND BUSINESS	Professional Services	NA	117
	VIRGIL P SABIN	Consulting Services	NA	117
	FUTURTECH CONSULTING INC	Computer Consulting Services	NA	110
	LAURA C MARGIOTTA	Consulting Services	NA	110
	PEREGOFF & ASSOCIATES LLC	Consulting Services	NA	109
	MAINLINE INFORMATION SYSTEMS INC	Computer Consulting Services	NA	102
	MISCELLANEOUS			4,897
	(473 ITEMS LESS THAN $100,000)
	TOTAL			$16,811
	GRAND TOTAL			$45,040
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ANNUAL REPORT OF: PHI Service Company
For the Year Ended December 31, 2003 (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		$ 12,774
	Medical		14,545
	OPEB expenses		15,196
	Supplemental Executive Retirement Plan		2,014
	Accrued Vacation		4,034
	Life insurance		892
	Dental		1,279
	Vision		172
	Savings & Thrift		2,918
	Payroll tax expenses		9,243
	Education Plan		285
	Long-Term Disability		614
	Service Awards		60
	Wellness		62
	Employee Association		66
	COBRA		(28)
	Workman's Compensation Insurance		1,631
	Administration Fees		143
	Deferred Compensation		(433)
	Employee deductions		(1,617)
	Other		87
	TOTAL		$ 63,937
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ANNUAL REPORT OF: PHI Service Company
For the Year Ended December 31, 2003 (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 Ads		Stanton Communications	$ 64
Newspaper Ads		National Advertising Placement	43
Newspaper Ads		Davis Advertising	28
Newspaper Ads		The News Journal	4
Miscellaneous			15
TOTAL			$ 154
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ANNUAL REPORT OF: PHI Service Company
For the Year Ended December 31, 2003 (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		$1,798
	Meals & Entertainment		1,055
	Contractor Consulting		1,025
	Small Tools and equipment		768
	Building facilities work		280
	Sponsorships/Associations		241
	Employee expense reimbursement		70
	Publications/Subscriptions		57
	Utilities expense		46
	Non-Cash Employee Small Gifts		43
	General liability claims		32
	Office equipment, maintenance & software		28
	SAP maintenance costs		27
	Membership Dues		24
	Florist items		11
	Other Miscellaneous expenses		290
			$5,795
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ANNUAL REPORT OF: PHI Service Company
For the Year Ended December 31, 2003 (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		$ 16,981
	Office Equipment and Computers		14,593
	Vehicle Leases		2
	Miscellaneous Rents		27
	TOTAL		$ 31,603
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ANNUAL REPORT OF: PHI Service Company
For the Year Ended December 31, 2003 (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		$ 15
	Sales and Use Taxes		895
	Property Taxes		643
	SUBTOTAL		$ 1,553
(2)	U.S. Government Taxes
			$ -
	SUBTOTAL		$ -
	TOTAL		$ 1,553
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ANNUAL REPORT OF: PHI Service Company
For the Year Ended December 31, 2003 (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	$ 254
	US Chamber of Commerce		Leadership Fund	100
	Salvation Army		Community Welfare	63
	Shore Memorial Hospital		Community Welfare	40
	Edison Electric Institute		Sponsorship of Energy Convention	40
	Junior Achievement		Community Welfare	34
	The Nature Conservancy		Land protection efforts	25
	Delaware Public Policy Institute		Community Welfare	25
	Wilmington Country Club (Youth Golf Prg)		Community Welfare	25
	Delaware State University		Capital Campaign	20
	Communities in Schools of Delaware		Community Welfare	15
	Delaware Volunteer Firemen's Assoc		Community Welfare	15
	Community Foundation of Eastern Shore		Community Welfare	13
	Maryland State Firemen's Assoc		Community Welfare	13
	American Council for Capital Format		Community Welfare	11
	Kingswood Community Center		Community Welfare	10
	Boys & Girls Clubs of Delaware		Community Welfare	10
	Faith Center		Community Welfare	10
	Five Mile Beach Vol. Fireman's Assoc		Community Welfare	8
	LPGA Urban Youth Golf Program		Community Welfare	8
	United Negro College Fund		Community Welfare	8
	American Red Cross		Community Welfare	7
	Children & Families First		Community Welfare	6
	Union Hospital		Community Welfare	5
	Burn Foundation		Community Welfare	5
	Center for Creative Arts		Community Welfare	5
	American Institute for Public Service		Community Welfare	5
	Delaware Museum of Natural History		Community Welfare	5
	MBNA Educational Foundation		Community Welfare	5
	National Black Caucus of State Legislators		Sponsorship	5
	New Jersey State Vol. Firemen's Assoc		Community Welfare	5
	PUMH Foundation Inc.		Community Welfare	5
	Romare Bearden Foundation Inc.		Community Welfare	5
	Delaware Nature Society		Community Welfare	4
	National Association of Black Accountants		Sponsorship	4
	Delaware State Fair		Community Welfare	3
	Latin American Community Center		Community Welfare	3
	National Coalition of 100 Black Women Inc.		Sponsorship	3
	National Conf for Community & Justice		Sponsorship	3
	Cecil County Arts Council		Community Welfare	3
	Other Miscellaneous Donations			70
	TOTAL			$ 903
-38- ____________________________________________________________________________________

ANNUAL REPORT OF: PHI Service Company
For the Year Ended December 31, 2003 (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			$ 2,794
	Loss on Disposal of Server			51
	TOTAL			$ 2,845
-39- ______________________________________________________________________________________

ANNUAL REPORT OF: PHI Service Company
For the Year Ended December 31, 2003 (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
-40- ______________________________________________________________________________________

PHI SERVICE COMPANY

Organization Chart

John M. Derrick
Chairman

Dennis R. Wraase
CEO

Thomas S. Shaw
President & COO

William T. Torgerson
Executive Vice President & General Counsel

Andrew W. Williams
Senior Vice President & CFO

Beverly L. Perry
Senior Vice President

Joseph M. Rigby
Senior Vice President

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
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
* Definitions of ratios follows Methods of Allocation pages
-44- ___________________________________________________________________________________
PHI Service Company
Current Methods of Allocation (continued)
Service Department or Function		Basis of Allocation *
Government Affairs		O&M ratio
Corporate Communications		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
* Definitions of ratios follows Methods of Allocation pages
-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, 2003 (In Thousands)
ANNUAL STATEMENT OF COMPENSATION FOR USE OF CAPITAL BILLED
Company	Percent	Allocation of Indirect Interest *	Total Allocation of Interest
Delmarva Power & Light Company	37.3%	$201	$201
Atlantic City Electric Company	30.9%	166	166
Potomac Electric Power Company	9.8%	53	53
Conectiv Delmarva Generation, Inc.	9.8%	53	53
Delaware Operating Services Company	4.3%	23	23
Conectiv Energy Supply, Inc.	2.0%	11	11
Potomac Energy Services, Inc.	1.9%	10	10
Conectiv Bethlehem LLC	1.5%	8	8
Conectiv Atlantic Generation, LLC	1.1%	6	6
Thermal Energy Limited Partnership	0.6%	3	3
Conectiv Properties and Investments, Inc.	0.2%	1	1
Atlantic Southern Properties	0.2%	1	1
Potomac Capital Investment Corporation	0.2%	1	1
Conectiv Thermal Systems	0.2%	1	1
TOTAL	100.0%	$538	$538
* 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: JAMES P. LAVIN (Signature of Signing Officer)
Date: April 30, 2004	James P. Lavin, Vice President & Controller (Printed Name and Title of Signing Officer)
-50- ____________________________________________________________________________________