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Pepco Holdings Reports Second-Quarter 2007 Earnings; Conference Call Scheduled


WEBWIRE

Pepco Holdings, Inc. (NYSE: POM) today reported second quarter 2007 consolidated earnings of $57.2 million, or 30 cents per share, compared to $51.2 million, or 27 cents per share, in the second quarter of 2006. There were no special items for the second quarter of 2007 or the second quarter of 2006. The weighted average shares outstanding for the second quarter of 2007 were 193.0 million compared to 190.2 million for the second quarter of 2006.

The increase in earnings for the second quarter of 2007 as compared to the 2006 quarter was due primarily to higher weather related kWh sales at Power Delivery, higher Merchant Generation and Load Service margins at Conectiv Energy driven primarily by higher generation output, and higher Pepco Energy Services earnings related primarily to Energy Services construction activity. Partially offsetting these increases were higher operation and maintenance expenses at Power Delivery and Conectiv Energy and the impact on Power Delivery of lower network transmission revenue resulting from a true-up in the 2006 transmission rates for rates in effect in 2005.
“We recently achieved another regulatory milestone with the electric distribution rate orders received from the Maryland Public Service Commission for Pepco and Delmarva Power,” said Dennis R. Wraase, Chairman, President and Chief Executive Officer. “Importantly, the orders approved the implementation of the Bill Stabilization Adjustment Mechanism which is a key element of our previously announced ”Blueprint for the Future.“ We are committed to aggressively pursuing energy efficiency and demand-side management programs, along with infrastructure development, to help our customers better manage their energy usage, and these orders provide a critical step toward that objective.” He added, “In addition to the approval of the Bill Stabilization Adjustment Mechanism, the orders approved rate increases for Pepco and Delmarva Power and mostly reflected the adherence to regulatory precedents.”

For the six months ended June 30, 2007, consolidated earnings were $108.8 million, or 56 cents per share, compared to $108.0 million, or 56 cents per share, for the same period in the prior year. There were no special items in the six months ended June 30, 2007. Excluding the special items described below, earnings for the six months ended June 30, 2006, would have been $104.3 million, or 54 cents per share. The weighted average shares outstanding for the six months ended June 30, 2007 were 192.6 million compared to 190.0 million for the same period in the prior year.

The increase in earnings for the six months ended June 30, 2007, compared to earnings excluding special items for the same period in the prior year was driven primarily by higher weather related kWh sales at Power Delivery and increased Merchant Generation and Load Service margins at Conectiv Energy due to higher generation output and higher margin supply contracts. Partially offsetting these increases were higher operation and maintenance expenses at Power Delivery and Conectiv Energy and the impact on Power Delivery of lower network transmission revenue resulting from a true-up in the 2006 transmission rates for rates in effect in 2005.

Second-Quarter Highlights
Operations

• Power Delivery electric sales were 12,145 gigawatt hours (GWhs) in the second quarter of 2007 compared to 11,670 GWhs for the same period last year. Heating degree days (electric service territory) increased by 45% for the three months ended June 30, 2007, as compared to the same period in 2006. Cooling degree days (electric service territory) increased by 24% for the three months ended June 30, 2007, compared to the same period in 2006. Weather adjusted electric sales were 11,816 GWhs in the second quarter of 2007 compared to 11,842 GWhs for the same period last year.
• Conectiv Energy’s gross margin from Merchant Generation and Load Service was $51.4 million in the second quarter of 2007, compared to $47.0 million in the second quarter of 2006. The increase resulted primarily from higher generation output.
• Conectiv Energy’s total generating output was 1,172 GWhs in the second quarter of 2007 compared to 834 GWhs in the second quarter of 2006. The increase resulted primarily from a cooler April 2007 and a hotter June 2007.
• Pepco Energy Services’ gross margin from Retail Energy Supply was $20.9 million in the second quarter of 2007, compared to $18.4 million in the second quarter of 2006. The increase was driven by higher retail electric volumes and more favorable natural gas margins.
• Pepco Energy Services had retail electric sales of 4,416 GWhs in the second quarter of 2007, compared to 2,753 GWhs in the second quarter of 2006. This increase primarily reflects the acquisition of additional commercial and industrial customer loads.

Regulatory Matters

• On July 19, 2007, the Maryland Public Service Commission issued an order in Pepco’s base rate case. The order authorizes a $10.6 million increase in electric distribution base rates annually, effective June 16, 2007, and a 10% return on equity. The order also authorizes a change in depreciation rates that results in a $30.7 million reduction in pre-tax annual depreciation expense and the adoption of a Bill Stabilization

Adjustment Mechanism, which decouples revenues from kilowatt-hour sales. The change in rates is deemed to be temporary pending resolution of a second phase of the proceeding for the purpose of examining Pepco’s compliance with its Cost Allocation Manual.
• On July 19, 2007, the Maryland Public Service Commission issued an order in Delmarva Power’s base rate case. The order authorizes a $14.9 million increase in electric distribution base rates annually, effective June 16, 2007, and a 10% return on equity. The order also authorizes a change in depreciation rates that results in a $0.9 million reduction in pre-tax annual depreciation expense and the adoption of a Bill Stabilization Adjustment Mechanism, which decouples revenues from kilowatt-hour sales. The change in rates is deemed to be temporary pending resolution of a second phase of the proceeding for the purpose of determining Delmarva Power’s compliance with its Cost Allocation Manual.
• On June 13, 2007, Delmarva Power entered into agreements to sell all of its distribution assets and substantially all of its transmission assets in Virginia for an aggregate sales price of approximately $45 million, subject to closing adjustments. The buyer of the distribution assets is A&N Electric Cooperative and the sale is contingent upon the approval of the Virginia State Corporation Commission. The buyer of the transmission assets is Old Dominion Electric Cooperative and the sale is contingent upon approvals by the Virginia State Corporation Commission and the Federal Energy Regulatory Commission. The transactions are expected to close in the fourth quarter.
• On June 8, 2007, the Virginia State Corporation Commission issued an order stating that the fuel index procedure that was put into place when Delmarva Power sold its generating plants remains applicable on and after July 1, 2007 for purposes of establishing Delmarva Power’s fuel factor. Delmarva Power had asserted that the fuel index procedure would not be effective after June 30, 2007. On July 31, 2007, Delmarva Power appealed the Commission’s decision to the Supreme Court of Virginia.
• On June 8, 2007, the Maryland Public Service Commission issued an order establishing a Pepco/Delmarva Power collaborative on near-term utility sponsored demand-side management initiatives and a state-wide collaborative on advanced metering initiatives and demand-side management programs.
• On April 23, 2007, the District of Columbia Public Service Commission issued an order opening a proceeding to consider Pepco’s “Blueprint for the Future” application which includes plans for demand-side management programs, advanced metering, and distribution automation.
• On June 27, 2007, Conectiv Energy filed its compliance plan as required by the Delaware Multi-Pollutant Regulations. These regulations identified Edge Moor Units 3, 4 and 5 as being subject to its provisions for limiting NOX, SO2, and mercury emissions. The plan filed by Conectiv Energy includes installation of a sodium-based sorbent injection system, Selective Non-Catalytic Reduction (SNCR) systems and carbon injection for Units 3 and 4 and low sulfur oil and a SNCR system at Unit 5. Conectiv Energy believes that with these modifications, it can meet the requirements of the new regulations at an estimated capital cost of $50 million to $80 million, most of which will be spent from 2007 through 2009.

Further details regarding changes in consolidated earnings between 2007 and 2006 can be found in the following schedules. Additional information regarding financial results and recent regulatory events can be found in the Pepco Holdings, Inc. Form 10-Q for the quarter ended June 30, 2007, as filed with the Securities and Exchange Commission, which is available at www.pepcoholdings.com/investors.



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