Pepco Holdings Reports Full-Year and Fourth-Quarter 2007 Earnings; Conference Call Scheduled

Business Wire, Feb 29, 2008

WASHINGTON -- Pepco Holdings, Inc. (NYSE:POM) today reported full year 2007 consolidated earnings of $334.2 million, or $1.72 per share, compared to $248.3 million, or $1.30 per share, in 2006. Excluding special items (as described below), earnings for the full year 2007 would have been $296.5 million, or $1.53 per share, compared to $254.1 million, or $1.33 per share, in 2006. The weighted average number of basic shares outstanding in 2007 was 193.9 million compared to 190.6 million in 2006.

The earnings increase, excluding special items, for the full year 2007 as compared to the prior year was driven primarily by increased Merchant Generation and Load Service margins at Conectiv Energy due to higher generation output, improved energy spark spreads, and higher capacity prices. An earnings increase at Power Delivery was the result of higher weather-related kWh sales and the impact of the Maryland distribution base rate orders for Pepco and Delmarva Power issued in June 2007, partially offset by higher operation and maintenance expenses.

"Our results for the year reflect continued progress in executing our strategic plan. We benefited from utility infrastructure investments and constructive regulatory outcomes," said Dennis R. Wraase, Chairman, President and Chief Executive Officer. "Our Competitive Energy businesses demonstrated strong performance in 2007. Conectiv Energy's gross margin was in the upper half of its forecasted range and increased 25% as compared to last year. Pepco Energy Services' net income from ongoing business operations was up 12% driven by increased retail electric sales. In 2007, we also reached key milestones with the approval of the Mid-Atlantic Power Pathway transmission project by the PJM Interconnection's board of managers and our "Blueprint for the Future" filings progressing in all jurisdictions. In addition to our Blueprint filings, we continue to work collaboratively with legislators and regulators at the state and federal levels and have taken a leadership role in using energy efficiency and demand response as a cost effective method of favorably impacting the effects of climate change. In 2008, we will remain committed to aggressively pursuing energy efficiency and demand-side management programs, investing in utility infrastructure, controlling costs in the Power Delivery business, as well as building on the successes of the Competitive Energy businesses."

For the fourth quarter of 2007, consolidated earnings were $57.8 million, or 29 cents per share, compared to $36.3 million, or 19 cents per share, for the fourth quarter of 2006. There were no special items for the fourth quarter of 2007. Excluding a special item described below, earnings for the fourth quarter of 2006 would have been $37.9 million, or 20 cents per share. The weighted average number of basic shares outstanding for the fourth quarter of 2007 was 196.9 million compared to 191.5 million for the same period in the prior year.

The increase in earnings for the fourth quarter of 2007 compared to 2006 earnings, excluding a special item, was supported by the Power Delivery and the Competitive Energy businesses. The earnings increase at Power Delivery was primarily due to higher weather-related kWh sales, the impact of the Maryland distribution base rate orders for Pepco and Delmarva Power issued in June 2007, and higher network transmission revenue, partially offset by higher operation and maintenance expenses. At Conectiv Energy, higher earnings were driven by Merchant Generation and Load Service, primarily due to higher generation output, improved energy spark spreads, and higher capacity prices. At Pepco Energy Services, higher earnings were driven by higher capacity prices, higher electric volumes, more favorable congestion costs, and higher margins on construction projects.

Full Year Highlights

Regulatory

* On Jan. 30, 2008, the District of Columbia Public Service Commission (DCPSC) issued an order in Pepco's base rate case. The order authorizes a $28.3 million increase in electric distribution base rates annually, effective Feb. 20, 2008, and a 10.0% return on equity. The DCPSC supported the concept of a Bill Stabilization Adjustment mechanism, which decouples revenues from kilowatt-hour sales, and will issue a subsequent order opening a Phase II proceeding to address potential statutory issues concerning the DCPSC's ability to implement such a mechanism.

* On Jan. 2, 2008, Delmarva Power completed the sale of its Virginia distribution assets and substantially all of its Virginia transmission assets for an aggregate sales price of approximately $50.6 million, after closing adjustments. The buyer of the distribution assets is A&N Electric Cooperative and the buyer of the transmission assets is Old Dominion Electric Cooperative. These sales are expected to result in an immaterial gain to Delmarva Power that will be recorded in the first quarter of 2008. These sales also eliminated Delmarva Power's obligation to provide default service in Virginia.