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

Business Wire, August 6, 2007

WASHINGTON -- 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.