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This paper develops techniques to design plug-in hybrid electric vehicle (PHEV) power management algorithms that optimally balance lithium-ion battery pack health and energy consumption cost. As such, this research is the first to utilize electrochemical battery models to optimize the power management in PHEVs. Daily trip length distributions are integrated into the problem using Markov chains with absorbing states. We capture battery aging by integrating two example degradation models: solid-electrolyte interphase (SEI) film formation and the “Ah-processed” model. This enables us to optimally tradeoff energy cost versus battery-health. We analyze this tradeoff to explore how optimal control strategies and physical battery system properties are related. Specifically, we find that the slope and convexity properties of the health degradation model profoundly impact the optimal charge depletion strategy. For example, solutions that balance energy cost and SEI layer growth aggressively deplete battery charge at high states-of-charge (SoCs), then blend engine and battery power at lower SoCs.