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The authors investigate the mechanism by which the carrier density of p-CdTe:P in solar cells decreases due to heat treatment. By successive etching of a heat-treated sample, a carrier-density profile resulting from carrier loss near the surface was found to be a real effect. Experiments with varying cadmium and phosphorous vapor pressures are presented which indicate that compensation occurs through the formation of PCd antisite donors. Observations of the reverse reaction by annealing a sample of p-CdTe:P with CdTe powder after first annealing in vacuum shows that it does occur but at a much slower rate than the formation of the PCd defects.