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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

For the quarterly period ended June 30, 2002

OR

Commission file number 1-1405

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes x No o

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

All 1,000 issued and outstanding shares of Delmarva Power & Light Company common stock, $2.25 per share par value, are owned by Conectiv.

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DELMARVA POWER & LIGHT COMPANY

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Part 1. FINANCIAL INFORMATION

Item 1. Financial Statements

DELMARVA POWER & LIGHT COMPANY
CONSOLIDATED STATEMENTS OF INCOME
(Dollars in Thousands)
(Unaudited)

See accompanying Notes to Consolidated Financial Statements.

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DELMARVA POWER & LIGHT COMPANY
CONSOLIDATED BALANCE SHEETS
(Dollars in Thousands)
(Unaudited)

See accompanying Notes to Consolidated Financial Statements.

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DELMARVA POWER & LIGHT COMPANY
CONSOLIDATED BALANCE SHEETS
(Dollars in Thousands)
(Unaudited)

See accompanying Notes to Consolidated Financial Statements.

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DELMARVA POWER & LIGHT COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in Thousands)
(Unaudited)

______________

See accompanying Notes to Consolidated Financial Statements.

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DELMARVA POWER & LIGHT COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

Note 1.     Financial Statement Presentation

The consolidated condensed interim financial statements contained herein include the accounts of Delmarva Power & Light Company (DPL) and its wholly owned subsidiary and reflect all adjustments, consisting of only normal recurring adjustments, necessary in the opinion of management for a fair presentation of interim results. In accordance with regulations of the Securities and Exchange Commission (SEC), disclosures that would substantially duplicate the disclosures in DPL’s 2001 Annual Report on Form 10-K have been omitted. Accordingly, DPL’s consolidated condensed interim financial statements contained herein should be read in conjunction with DPL’s 2001 Annual Report on Form 10-K.

The following information updates the disclosure Note 1 to the Consolidated Financial Statements included in Item 8 of Part II of DPL’s 2001 Annual Report on Form 10-K concerning the Agreement and Plan of Merger among Pepco Holdings, Inc. (formerly New RC, Inc.), Conectiv and Potomac Electric Power Company (Pepco) (the Conectiv/Pepco Merger Agreement). On August 1, 2002, Conectiv was acquired by Pepco Holdings, Inc. in a transaction pursuant to the Conectiv/Pepco Merger Agreement, in which Pepco and Conectiv merged with subsidiaries of Pepco Holdings, Inc. (the Conectiv/Pepco Merger). As a result of the Conectiv/Pepco Merger, Pepco and Conectiv and their respective subsidiaries (including DPL) each became subsidiaries of Pepco Holdings, Inc. DPL continues as a wholly-owned, direct subsidiary of Conectiv.

The Maryland Public Service Commission (MPSC) and the Delaware Public Service Commission (DPSC) issued orders on April 11 and 16, 2002, respectively, approving the Conectiv/Pepco Merger. The orders issued by the DPSC and MPSC require approximately $1.5 million of contributions to certain funds. For additional information concerning the terms of the MPSC and DPSC orders, see Note 7 to the Consolidated Financial Statements included in Item 8 of Part II of DPL’s 2001 Annual Report on Form 10-K.

On April 30, 2002, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards (SFAS) No. 145, “Rescission of FASB Statements No. 4, 44, and 64, Amendment of FASB Statement No. 13, and Technical Corrections.” SFAS No. 145 rescinds SFAS No. 4, “Reporting Gains and Losses from Extinguishment of Debt (an amendment of APB Opinion No. 30).” SFAS No. 4 had required that material gains and losses on extinguishment of debt be classified as an extraordinary item. Under SFAS No. 145, SFAS No. 4 is rescinded effective for fiscal years beginning after May 15, 2002. Due to the rescission of SFAS No. 4, it is less likely that a gain or loss on extinguishment of debt would be classified as an extraordinary item in DPL’s Consolidated Statement of Income. Among other things, SFAS No. 145 also amends SFAS No. 13, “Accounting for Leases,” to require that certain lease modifications that have economic effects similar to sale-leaseback transactions be accounted for in the same manner as sale-leaseback transactions.

On July 30, 2002, the FASB issued SFAS No. 146, “Accounting for Costs Associated with Exit or Disposal Activities.” The standard requires companies to recognize costs associated with exit or disposal costs when they are incurred rather than at the date of a commitment to an exit or disposal plan. The primary effect of applying SFAS No. 146 will be on the timing of recognition of costs associated with exit or disposal activities. In many cases, those costs will be recognized as liabilities in periods following

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a commitment to a plan, not at the date of the commitment. SFAS No. 146 is to be applied prospectively to exit or disposal activities initiated after December 31, 2002.

Effective January 1, 2002, DPL implemented SFAS No. 142, “Goodwill and Other Intangible Assets” (SFAS No. 142). Under SFAS No. 142, goodwill that has not been included in the rates of a regulated utility subject to SFAS No. 71, “Accounting for the Effects of Certain Types of Regulation,” is no longer amortized. The portion of goodwill included in regulated utility rates ($16.1 million as of June 30, 2002 and $17.5 million as of December 31, 2001) has been reclassified from goodwill to “other non-current regulatory assets” and continues to be amortized as a regulatory asset.

For the three months ended June 30, 2001, net income was $147.3 million and net income adjusted to exclude the $0.2 million charge for goodwill amortization was $147.5 million. For the six months ended June 30, 2001, net income was $186.3 million and net income adjusted to exclude the $0.4 million charge for goodwill amortization was $186.7 million.

DPL’s goodwill balance of $48.5 million as of June 30, 2002 and December 31, 2001 is associated with Conectiv’s Power Delivery business segment. Effective January 1, 2002, Conectiv redefined its business segments. Conectiv’s Power Delivery business segment, which had previously included the operating results for delivering electricity to DPL’s customers now also includes the operating results for supplying electricity to DPL’s customers. As a result, all material aspects of DPL’s operations are conducted in Conectiv’s Power Delivery business segment.

Based on the requirements of SFAS No. 142, DPL conducted a test for the impairment of goodwill as of January 1, 2002, by comparing the fair value of its Power Delivery business to its book value carrying amount, including goodwill. The test resulted in no impairment of goodwill, as of January 1, 2002, because the fair value of DPL’s Power Delivery business exceeded its book value carrying amount, including goodwill.

Note 2.     Related Party Transactions

For background information concerning DPL’s contracts with Conectiv Energy Supply, Inc. (CESI) for the purchase of electric energy and capacity, see Note 2 to the Consolidated Financial Statements included in Item 8 of Part II to DPL’s 2001 Annual Report on Form 10-K.

DPL’s operating expenses and revenues include amounts for transactions with CESI and other Conectiv subsidiaries. DPL purchased electric energy and capacity from CESI in the amounts of $148.9 million and $286.2 million during the three- and six-months ended June 30, 2002, respectively, and $13.4 million and $21.3 million during the three- and six-months ended June 30, 2001, respectively. DPL also leased certain assets to other Conectiv subsidiaries, and operating revenues included $2.9 million and $5.2 million for the three- and six-months ended June 30, 2002, respectively, and $4.3 million and $9.8 million for the three- and six-months ended June 30, 2001, respectively, for these transactions.

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Note 3.     Supplemental Cash Flow Information

Note 4.     Income Taxes

The amounts computed by multiplying “Income before income taxes” by the federal statutory rate is reconciled in the table below to income tax expense on continuing operations.

Note 5.     Gains on Sales of Electric Generating Plants

As disclosed in Note 8 to the Consolidated Financial Statements included in Item 8 of Part II of DPL’s 2001 Annual Report on Form 10-K, DPL realized a gain on June 22, 2001 on the sale of ownership interests in fossil fuel-fired electric generating plants (954 megawatts (MW) of capacity), including the Indian River electric generating plant. The $221.2 million pre-tax gain ($129.4 million after taxes) recorded in the second quarter of 2001 is included in operating revenues in the Consolidated Statements of Income for the three and six months ended June 30, 2001.

The second quarter 2001 gain on the sale of electric generating plants was recorded net of estimated selling expenses, including anticipated environmental clean-up costs for the Indian River electric generating plant. In the first quarter of 2002, DPL reached an agreement with an insurer to settle DPL’s insurance claim for environmental clean-up costs associated with the Indian River electric generating plant. Due to DPL’s insurance claim settlement and revised estimates of selling expenses, the gain on the sale of the plants increased by $11.6 million before income taxes ($6.9 million after income taxes) in the first quarter of 2002 and is included in operating revenues for the six months ended June 30, 2002.

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Note 6.     Debt

On February 1, 2002, DPL redeemed $27.5 million of 8.5% First Mortgage Bonds, due February 1, 2022.

On behalf of DPL, the Delaware Economic Development Authority issued $46 million of long-term bonds and loaned the proceeds to DPL on May 30, 2002. The bonds issued included $15.0 million of variable rate Exempt Facilities Refunding Bonds, due May 1, 2032, and $31.0 million of 5.2% Pollution Control Refunding Revenue Bonds, due February 1, 2019. The bonds that were issued are not secured by a mortgage or security interest in property of DPL. On June 3, 2002, DPL used the proceeds to redeem $46.0 million of bonds outstanding, including $15.0 million of 6.85% bonds, due May 1, 2022, and $31.0 million of 6.75% bonds, due May 1, 2019.

On June 1, 2002, DPL redeemed $2.0 million of 6.95% Amortizing First Mortgage Bonds.

Effective with the Conectiv/Pepco Merger, Pepco Holdings, Inc. entered into a $1.5 billion credit agreement for general corporate purposes, including commercial paper back-up. Under the Pepco Holdings, Inc. credit agreement, a borrowing sublimit of $1.0 billion exists for Pepco Holdings Inc. and a borrowing sublimit of $500 million exists for aggregate borrowings by Pepco, DPL, and Atlantic City Electric Company (ACE), limited to $300 million for each such borrower. DPL’s previous credit agreement of $105 million was terminated.

Note 7.     Contingencies

DPL is subject to regulation with respect to the environmental effect of its operations, including air and water quality control, solid and hazardous waste disposal, and limitation on land use by various federal, regional, state, and local authorities. Federal and state statutes authorize governmental agencies to compel responsible parties to clean up certain abandoned or uncontrolled hazardous waste sites. Costs may be incurred to clean up facilities found to be contaminated due to past disposal practices. DPL’s liability for clean-up costs is affected by the activities of these governmental agencies and private land-owners, the nature of past disposal practices, the activities of others (including whether they are able to contribute to clean-up costs), and the scientific and other complexities involved in resolving clean up-related issues (including whether DPL or a corporate predecessor is responsible for conditions on a particular parcel).

DPL is currently a potentially responsible party at three federal superfund sites. At one of these sites, DPL has resolved its liability for clean up costs through a de minimis settlement with the government. At this site, DPL may be liable for a claim by the state or federal government for natural resource damages. DPL also is alleged to be a third-party contributor at three other federal superfund sites. In addition, DPL has two former coal gasification sites in Delaware and one former coal gasification site in Maryland, each of which is a state superfund site. Also, the Delaware Department of Natural Resources and Environmental Control (DNREC) notified DPL in 1998 that it is a potentially responsible party liable for clean-up of the Wilmington Public Works Yard as a former owner of the property. DPL’s current liabilities included $15.6 million as of June 30, 2002 ($14.5 million as of December 31, 2001) for clean-up and other potential costs related to these sites. The accrued liability as of June 30, 2002 includes $10.5 million for remediation and other costs associated with environmental contamination that resulted from an oil release at the Indian River power plant (which was sold on June 22, 2001) and reflects the terms of a related consent agreement reached with DNREC during 2001. DPL does not expect such future costs to have a material effect on DPL’s financial position or results of operations.

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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Acquisition of Conectiv

The following information updates the disclosure Note 1 to the Consolidated Financial Statements included in Item 8 of Part II of DPL’s 2001 Annual Report on Form 10-K concerning the Agreement and Plan of Merger among Pepco Holdings, Inc. (formerly New RC, Inc.), Conectiv and Potomac Electric Power Company (Pepco) (the Conectiv/Pepco Merger Agreement). On August 1, 2002, Conectiv was acquired by Pepco Holdings, Inc. in a transaction pursuant to the Conectiv/Pepco Merger Agreement, in which Pepco and Conectiv merged with subsidiaries of Pepco Holdings, Inc. (the Conectiv/Pepco Merger). As a result of the Conectiv/Pepco Merger, Pepco and Conectiv and their respective subsidiaries (including DPL) each became subsidiaries of Pepco Holdings, Inc. DPL continues as a wholly-owned, direct subsidiary of Conectiv.

The MPSC and the DPSC issued orders on April 11 and 16, 2002, respectively, approving the Conectiv/Pepco Merger. The orders issued by the DPSC and MPSC require approximately $1.5 million of contributions to certain funds. For additional information concerning the terms of the MPSC and DPSC orders, see Note 7 to the Consolidated Financial Statements included in Item 8 of Part II of DPL’s 2001 Annual Report on Form 10-K.

Gains on Sales of Electric Generating Plants

As disclosed in Note 8 to the Consolidated Financial Statements included in Item 8 of Part II of DPL’s 2001 Annual Report on Form 10-K, DPL realized a gain on June 22, 2001 on the sale of ownership interests in fossil fuel-fired electric generating plants (954 megawatts (MW) of capacity), including the Indian River electric generating plant. The $221.2 million pre-tax gain ($129.4 million after taxes) recorded in the second quarter of 2001 is included in operating revenues in the Consolidated Statements of Income for the three and six months ended June 30, 2001.

The second quarter 2001 gain on the sale of electric generating plants was recorded net of estimated selling expenses, including anticipated environmental clean-up costs for the Indian River electric generating plant. In the first quarter of 2002, DPL reached an agreement with an insurer to settle DPL’s insurance claim for environmental clean-up costs associated with the Indian River electric generating plant. Due to DPL’s insurance claim settlement and revised estimates of selling expenses, the gain on the sale of the plants increased by $11.6 million before income taxes ($6.9 million after income taxes) in the first quarter of 2002 and is included in operating revenues for the six months ended June 30, 2002.

Related Party