Pepco Holdings Reports First-Quarter 2008 Earnings; Conference Call Scheduled

Business Wire, May 8, 2008

WASHINGTON -- Pepco Holdings, Inc. (NYSE:POM) today reported first quarter 2008 consolidated earnings of $99.2 million, or 49 cents per share, compared to $51.6 million, or 27 cents per share, in the first quarter of 2007. There were no special items in the first quarter of 2008 or the first quarter of 2007. The weighted average number of basic shares outstanding for the first quarter of 2008 was 200.7 million compared to 192.3 million for the first quarter of 2007.

The earnings increase for the first quarter of 2008 as compared to the 2007 quarter was driven by improved performance across the businesses. Higher Power Delivery earnings resulted from the impact of the Maryland distribution base rate orders issued in June 2007 and the District of Columbia base rate order issued in January 2008, higher network transmission revenue, and a favorable income tax adjustment, partially offset by lower weather related kWh sales and higher operation and maintenance expenses. Conectiv Energy realized higher earnings primarily due to opportunities resulting from its generating units' operating flexibility and dual-fuel capability, firm natural gas transportation and storage positions, and fuel hedges, coupled with increasing fuel prices and volatility. Higher capacity prices and new default supply contracts with utilities in the New England market also contributed to the increase in earnings. Higher Pepco Energy Services earnings were due to more favorable congestion costs, higher capacity prices, and higher electric delivery volumes.

"Our strong performance this quarter demonstrates the strategic value of our integrated portfolio of businesses as we benefited from the operating flexibility of our generating fleet, our constructive regulatory outcomes, and the continued strength of our retail business," said Dennis R. Wraase, Chairman and Chief Executive Officer. "Conectiv Energy had an outstanding quarter. Our generating assets, natural gas storage, and pipeline capacity enabled us to capitalize on short-term power and fuel price volatility, driving operating income up 121% over the first quarter of last year." He added, "In addition to seeing the positive impacts of our distribution rate cases in Power Delivery's results, our 'Blueprint for the Future' initiative recently reached another important milestone with the approval of our demand response programs in Maryland. At Pepco Energy Services, we saw 14% electric sales growth reflecting our continued expansion into new markets. For the remainder of 2008, we will remain focused on executing our business plan and building on our strong first quarter results."

First-Quarter Highlights

Operations

* Power Delivery electric sales were 12,120 gigawatt hours (GWhs) in the first quarter of 2008 compared to 12,557 GWhs for the same period last year. Heating degree days (electric service territory) decreased by 9% for the three months ended March 31, 2008, compared to the same period in 2007. Weather-adjusted electric sales were 12,280 GWhs in the first quarter of 2008 compared to 12,425 GWhs for the same period last year.

* Conectiv Energy's gross margin from Merchant Generation and Load Service was $115.0 million in the first quarter of 2008, compared to $63.9 million in the first quarter of 2007. The increase resulted primarily from opportunities resulting from its generating units' operating flexibility and dual-fuel capability, firm natural gas transportation and storage positions, and fuel hedges, coupled with increasing fuel prices and volatility. Higher capacity prices and new default supply contracts with utilities in the New England market were also positive factors.

* Conectiv Energy's total generation output was 948 GWhs in the first quarter of 2008 compared to 1,018 GWhs in the first quarter of 2007. The decrease was driven primarily by lower oil unit run time.

* Pepco Energy Services' gross margin from Retail Energy Supply was $22.8 million in the first quarter of 2008, compared to $7.0 million in the first quarter of 2007. The increase resulted primarily from more favorable congestion costs, higher capacity prices, and higher electric delivery volumes.

* Pepco Energy Services had retail electric sales of 4,766 GWhs in the first quarter of 2008, compared to 4,196 GWhs in the first quarter of 2007. This 14% increase primarily reflects the acquisition of additional commercial and industrial customer loads.

Regulatory Matters

* On April 18, 2008, the Maryland Public Service Commission issued orders approving the Pepco and Delmarva Power proposed demand response programs in connection with the "Blueprint for the Future" initiatives. The orders authorize cost recovery through surcharge mechanisms and provide for incentives.

* On March 18, 2008, Atlantic City Electric, Delmarva Power, and Pepco filed for a 150 basis point return on equity "adder" for eight Regional Transmission Expansion Plan (RTEP) regional-benefit upgrades with an aggregate construction cost of $274 million.

* On Jan. 30, 2008, the District of Columbia Public Service Commission (DCPSC) issued an order in Pepco's base rate case. The order authorized 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 opened a Phase II proceeding to address the DCPSC's authority to implement such a mechanism.