10-Q

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2002

OR

o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission file number 1-13895

CONECTIV

(Exact name of registrant as specified in its charter)

Delaware
(State of incorporation)

51-0377417
(I.R.S. Employer
Identification No.)

800 King Street, P.O. Box 231, Wilmington, Delaware
(Address of principal executive offices)
19899
(Zip Code)

Registrant’s telephone number, including area code
302-429-3018

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes x No o

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

Class	Shares Outstanding at June 30, 2002
Common Stock, $0.01 par value	83,067,713
Class A Common Stock, $0.01 par value	5,742,315

Conectiv

Table of Contents

		Page
PART I.	FINANCIAL INFORMATION:
Item 1.	Financial Statements
	Consolidated Statements of Income for the three and six months    ended June 30, 2002, and June 30, 2001	1-2
	Consolidated Statements of Comprehensive Income for the three    and six months ended June 30, 2002, and June 30, 2001	3
	Consolidated Balance Sheets as of June 30, 2002, and December    31, 2001	4-5
	Consolidated Statements of Cash Flows for the six months    ended June 30, 2002, and June 30, 2001	6
	Notes to Consolidated Financial Statements	7-18
Item 2.	Management’s Discussion and Analysis of Financial Condition    and Results of Operations	19-31
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	32-33
PART II.	OTHER INFORMATION
Item 1.	Legal Proceedings	34
Item 5.	Other Information	34
Item 6.	Exhibits and Reports on Form 8-K	35

SIGNATURE 36

i

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

CONECTIV
CONSOLIDATED STATEMENTS OF INCOME
(Dollars in Thousands, Except Per Share Amounts)
(Unaudited)

	Three Months Ended June 30,						Six Months Ended June 30,
	2002			2001			2002			2001
OPERATING REVENUES
Electric	$	817,077		$	898,828		$	1,545,061		$	1,660,940
Gain on sales of electric generating plants		—			297,140			15,817			297,140
Gas		173,470			364,983			384,907			1,003,068
Other services		109,673			137,626			206,209			273,582
		1,100,220			1,698,577			2,151,994			3,234,730
OPERATING EXPENSES
Electric fuel and purchased energy and capacity		576,253			640,165			1,114,033			1,131,269
Gas purchased		145,775			358,671			330,807			982,683
Other services' cost of sales		95,386			110,520			181,320			224,184
Operation and maintenance		125,458			135,410			241,073			235,515
Impairment of investment in leveraged leases		17,585			—			17,585			—
Depreciation and amortization		49,517			60,192			98,371			120,535
Taxes other than income taxes		15,190			18,472			30,798			38,355
Deferred electric service costs		(24,234	)		(53,554	)		(40,432	)		(58,321	)
		1,000,930			1,269,876			1,973,555			2,674,220
OPERATING INCOME		99,290			428,701			178,439			560,510
OTHER INCOME		5,743			66,443			6,466			69,195
INTEREST EXPENSE
Interest charges		40,056			50,009			77,676			103,041
Capitalized interest and allowance for borrowed funds       used during construction		(4,036	)		(4,821	)		(8,343	)		(9,752	)
		36,020			45,188			69,333			93,289
PREFERRED STOCK DIVIDEND REQUIREMENTS    OF SUBSIDIARIES		4,044			5,043			8,088			10,202
INCOME FROM CONTINUING OPERATIONS    BEFORE INCOME TAXES		64,969			444,913			107,484			526,214
INCOME TAXES		27,482			186,105			45,951			221,591
		37,487			258,808			61,533			304,623
DISCONTINUED TELECOMMUNICATION    OPERATIONS
LOSS FROM OPERATIONS, NET OF INCOME       TAXES		—			(2,685	)		—			(7,696	)
LOSS FROM DISPOSAL, NET OF INCOME       TAXES		—			(118,788	)		—			(118,788	)
NET INCOME	$	37,487		$	137,335		$	61,533		$	178,139

(Continued on following page)

See accompanying Notes to Consolidated Financial Statements.

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CONECTIV
CONSOLIDATED STATEMENTS OF INCOME
(Dollars in Thousands, Except Per Share Amounts)
(Unaudited)

(Continued from previous page)

	Three Months Ended June 30,					Six Months Ended June 30,
	2002		2001			2002			2001
EARNINGS (LOSS) APPLICABLE TO COMMON    STOCK
Common stock
Continuing operations	$	36,884	$	255,682		$	62,740		$	300,605
Discontinued telecommunication operations
Loss from operations		—		(2,685	)		—			(7,696	)
Loss from disposal		—		(118,788	)		—			(118,788	)
Class A common stock		603		3,126			(1,207	)		4,018
	$	37,487	$	137,335		$	61,533		$	178,139
COMMON STOCK
Average shares outstanding (000)
Common stock		82,704		82,704			82,704			82,704
Class A common stock		5,742		5,742			5,742			5,742
Earnings (loss) per average share-basic and diluted
Common stock
Continuing operations	$	0.45	$	3.09		$	0.76		$	3.63
Discontinued telecommunication operations
Loss from operations	$	—	$	(0.03	)	$	—		$	(0.09	)
Loss from disposal	$	—	$	(1.44	)	$	—		$	(1.44	)
Class A common stock	$	0.11	$	0.54		$	(0.21	)	$	0.70
Dividends declared per share
Common stock	$	0.22	$	0.22		$	0.44		$	0.44
Class A common stock	$	0.25	$	0.25		$	0.75		$	1.05

See accompanying Note to Consolidated Financial Statements,

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CONECTIV
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Dollars in Thousands)
(Unaudited)

	Three Months Ended June 30,						Six Months Ended June 30,
	2002			2001			2002			2001
Net income	$	37,487		$	137,335		$	61,533		$	178,139
Other comprehensive income / (loss) , net of taxes
Energy commodity derivative instruments designated as cash       flow hedges
Unrealized gain / (loss) from cash flow hedges net of         reclassification adjustments and net of taxes of $16,553 and         $27,662 for the three months ended June 30, 2002 and 2001,         respectively, and net of taxes of $46,408 and $38,372 for the         six months ended June 30, 2002 and 2001, respectively		23,958			(40,036	)		67,170			(55,538	)
Cumulative effect of a change in accounting resulting from         adoption of Statement of Financial Accounting Standards         No. 133, “Accounting for Derivative Instruments and         Hedging Activities,” net of taxes of $2,380		—			—			—			3,445
Unrealized loss on marketable securities net of reclassification       adjustments and net of taxes of $494 and $777 for the three       months ended June 30, 2002 and 2001, respectively, and net       of taxes of $1,159 and $821 for the six months ended June 30,       2002 and 2001, respectively		(918	)		(1,443	)		(2,153	)		(1,525	)
Other comprehensive income / (loss), net of income taxes		23,040			(41,479	)		65,017			(53,618	)
Comprehensive income	$	60,527		$	95,856		$	126,550		$	124,521

See accompanying Notes to Consolidated Financial Statements.

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CONECTIV
CONSOLIDATED BALANCE SHEETS
(Dollars in Thousands)
(Unaudited)

	June 30, 2002		December 31, 2001
ASSETS
Current Assets
Cash and cash equivalents	$	28,791	$	52,871
Accounts receivable, net of allowances of $32,676 and $32,162, respectively		675,630		636,404
Inventories, at average cost
Fuel (coal, oil and gas)		63,734		81,448
Materials and supplies		41,151		44,604
Deferred energy supply costs		—		25,525
Prepayments and other		70,235		76,107
		879,541		916,959
Investments
Investment in leveraged leases, held for sale as of June 30, 2002		26,976		45,314
Funds held by trustee		9,788		12,136
Other investments		52,985		60,845
		89,749		118,295
Property, Plant and Equipment
Electric generation		1,221,624		1,067,464
Electric transmission and distribution		2,863,460		2,792,615
Gas transmission and distribution		298,043		291,052
Other electric and gas facilities		355,475		363,373
Other property, plant, and equipment		180,697		181,838
		4,919,299		4,696,342
Less: Accumulated depreciation		1,850,823		1,784,170
Net plant in service		3,068,476		2,912,172
Construction work-in-progress		675,192		584,440
Goodwill, net of accumulated amortization of $42,817 and $42,817, respectively		313,124		313,124
		4,056,792		3,809,736
Deferred Charges and Other Assets
Regulatory assets:
Recoverable stranded costs, net		927,030		944,529
Other non-current regulatory assets		335,145		294,114
Prepaid pension costs		94,391		91,891
Unamortized debt expense		37,597		25,513
License fees		19,894		20,581
Other		39,823		34,664
		1,453,880		1,411,292
Total Assets	$	6,479,962	$	6,256,282

See accompanying Notes to Consolidated Financial Statements.

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CONECTIV
CONSOLIDATED BALANCE SHEETS
(Dollars in Thousands)
(Unaudited)

CAPITALIZATION AND LIABILITIES	June 30, 2002			December 31, 2001
Current Liabilities
Short-term debt	$	1,057,928		$	1,039,820
Long-term debt due within one year		365,096			397,963
Variable rate demand bonds		158,430			158,430
Accounts payable		350,870			351,382
Derivative instruments		72,117			87,876
Other current liabilities		229,874			197,109
		2,234,315			2,232,580
Deferred Credits and Other Liabilities
Other postretirement benefits obligation		96,162			89,836
Deferred income taxes, net:
Assets held and used		835,691			843,039
Leveraged leases held for sale as of June 30, 2002		54,676			—
Deferred investment tax credits		47,914			49,542
Regulatory liability for New Jersey income tax benefit		49,262			49,262
Above-market purchased energy contracts and other electric restructuring       liabilities		76,175			85,326
Derivative instruments		4,703			28,852
Other		44,943			43,736
		1,209,526			1,189,593
Capitalization
Common stock: $0.01 per share par value; 150,000,000 shares authorized; shares       outstanding — 83,067,713 in 2002, and 82,957,613 in 2001		831			830
Class A common stock, $0.01 per share par value; 10,000,000 shares authorized;       shares outstanding — 5,742,315 in 2002 and 2001		57			57
Additional paid-in capital — common stock		1,030,515			1,027,790
Additional paid-in capital — Class A common stock		93,738			93,738
Retained earnings		230,173			209,336
Unearned compensation		(3,744	)		(1,719	)
Accumulated other comprehensive income		(914	)		(65,931	)
Total common stockholders’ equity		1,350,656			1,264,101
Preferred stock and securities of subsidiaries:
Not subject to mandatory redemption		35,813			35,813
Subject to mandatory redemption		—			12,450
Company obligated mandatorily redeemable preferred securities of subsidiary       trusts holding solely company debentures		165,000			165,000
Long-term debt		1,483,983			1,356,003
Long-term capital lease obligation		669			742
		3,036,121			2,834,109
Commitments and Contingencies (Note 11)
Total Capitalization and Liabilities	$	6,479,962		$	6,256,282

See accompanying Notes to Consolidated Financial Statements.

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CONECTIV
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in Thousands)
(Unaudited)

	Six Months Ended June 30,
	2002			2001
CASH FLOWS FROM OPERATING ACTIVITIES
Net income	$	61,533		$	178,139
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		98,445			130,097
Deferred income taxes, net		2,939			(19,463	)
Gains on sales of electric generating plants		(15,817	)		(297,140	)
Impairment of investment in leveraged leases		17,585			—
Deferred electric service costs and gas supply costs		(12,885	)		(69,411	)
Recognition of deferred gain on contract termination		—			(73,015	)
Provision for loss on disposal of discontinued operations		—			177,245
Net change in:
Accounts receivable		(75,623	)		(97,445	)
Inventories		21,167			(22,951	)
Accounts payable		125,797			(11,483	)
Accrued / prepaid taxes		22,741			109,654
Other current assets & liabilities (1)		(3,325	)		(26,694	)
Other, net		10,896			(18,699	)
Net cash provided (used) by operating activities		253,453			(41,166	)
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures		(335,781	)		(254,967	)
Investments in partnerships		(2,475	)		(21,224	)
Proceeds from sales of electric generating plants		10,000			641,734
Proceeds from other assets sold		8,710			23,862
Increase in funds held by trustee		—			(172,837	)
Other, net		(268	)		(1,977	)
Net cash provided (used) by investing activities		(319,814	)		214,591
CASH FLOWS FROM FINANCING ACTIVITIES
Common stock dividends paid		(40,792	)		(45,693	)
Preferred stock redeemed		(12,450	)		(11,500	)
Long-term debt issued		296,000			59,000
Long-term debt redeemed		(201,010	)		(12,298	)
Principal portion of capital lease payments		(73	)		(5,971	)
Net increase in short-term debt		18,108			73,392
Cost of issuances and refinancings		(17,502	)		(3,876	)
Net cash provided by financing activities		42,281			53,054
Net change in cash and cash equivalents		(24,080	)		226,479
Cash and cash equivalents at beginning of period		52,871			123,562
Cash and cash equivalents at end of period	$	28,791		$	350,041

______________

(1) Other than debt and deferred income taxes classified as current.

See accompanying Notes to Consolidated Financial Statements.

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CONECTIV
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

Note 1 . Financial Statement Presentation

Conectiv’s consolidated condensed interim financial statements contained herein include the accounts of Conectiv and its majority-owned subsidiaries and reflect all adjustments, consisting of only normal recurring adjustments, necessary in the opinion of management for a fair presentation of interim results. In accordance with regulations of the Securities and Exchange Commission (SEC), disclosures that would substantially duplicate the disclosures in Conectiv’s 2001 Annual Report on Form 10-K have been omitted. Accordingly, Conectiv’s consolidated condensed interim financial statements contained herein should be read in conjunction with Conectiv’s 2001 Annual Report on Form 10-K.

As discussed in Notes 1, 5, and 27 to the Consolidated Financial Statements included in Item 8 of Part II of Conectiv’s 2001 Annual Report on Form 10-K, due to the sale of substantially all of the assets of the Telecommunication business segment on November 14, 2001, the Telecommunication business segment operating results for the three and six months ended June 30, 2001 and the loss from disposal of the business are classified as discontinued telecommunication operations within the Consolidated Statements of Income. As discussed in Notes 1 and 27 to the Consolidated Financial Statements included in Item 8 of Part II of Conectiv’s 2001 Annual Report on Form 10-K, under-recoveries of costs related to Basic Generation Service (BGS) for the three and six months ended June 30, 2001 have been reclassified within the Consolidated Statements of Income from electric operating revenues to operating expenses, as a separate line item captioned “Deferred electric service costs.” Certain other reclassifications of prior period data have been made to conform with the current presentation.

Conectiv is in the process of assessing the recent pronouncement issued by the Emerging Issues Task Force (EITF), entitled EITF 02-3 “Accounting for Contracts Involved in Energy Trading and Risk Management Activities.” EITF 02-3 addresses the presentation of revenues and expenses associated with “energy trading book” contracts on a gross versus net basis. Previously, the EITF concluded that presentation on a gross basis was acceptable and Conectiv presented the revenues and expenses of its energy trading business on that basis in its public financial disclosures. With the issuance of EITF 02-3 and the subsequent guidance provided by the EITF in June 2002, presentation on a net basis is required, effective for the third quarter 2002 reporting cycle.

Conectiv has not completed its evaluation of the financial statement reclassification required by EITF 02-3. However, Conectiv believes that the implementation of EITF 02-3, because of financial statement line item changes, likely will: (i) materially decrease Conectiv’s gross revenues and revenue growth; (ii) result in higher gross margins as a percentage of gross revenues; and (iii) have no impact on its overall financial position or earnings. For the year ended December 31, 2001, Conectiv’s commodity trading gross revenues were approximately $1.9 billion; Conectiv expects that a substantial portion of these revenues, and the related expenses, would be eliminated in the reclassification.

On April 30, 2002, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards (SFAS) No. 145, “Rescission of FASB Statements No. 4, 44, and 64, Amendment of FASB Statement No. 13, and Technical Corrections.” SFAS No. 145 rescinds SFAS No. 4, “Reporting Gains and Losses from Extinguishment of Debt (an amendment of APB Opinion No. 30).” SFAS No. 4 had required that material gains and losses on extinguishment of debt be classified as an extraordinary item. Under SFAS No. 145, SFAS No. 4 is rescinded effective for fiscal years beginning after May 15, 2002. Due to the rescission of SFAS No. 4, it is less likely that a gain or loss on extinguishment of debt would be classified as an extraordinary item in Conectiv’s Consolidated Statement of Income. Among other things, SFAS No. 145 also amends SFAS No. 13, “Accounting for Leases,” to require that certain

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lease modifications that have economic effects similar to sale-leaseback transactions be accounted for in the same manner as sale-leaseback transactions.

On July 30, 2002, the FASB issued SFAS No. 146, “Accounting for Costs Associated with Exit or Disposal Activities.” The standard requires companies to recognize costs associated with exit or disposal costs when they are incurred rather than at the date of a commitment to an exit or disposal plan. The primary effect of applying SFAS No. 146 will be on the timing of recognition of costs associated with exit or disposal activities. In many cases, those costs will be recognized as liabilities in periods following a commitment to a plan, not at the date of the commitment. SFAS No. 146 is to be applied prospectively to exit or disposal activities initiated after December 31, 2002.

Effective January 1, 2002, Conectiv implemented SFAS No. 142, “Goodwill and Other Intangible Assets” (SFAS No. 142). Under SFAS No. 142, goodwill that has not been included in the rates of a regulated utility subject to SFAS No. 71, “Accounting for the Effects of Certain Types of Regulation,” is no longer amortized. The portion of goodwill included in regulated utility rates ($16.1 million as of June 30, 2002 and $17.5 million as of December 31, 2001) has been reclassified from goodwill to “other non-current regulatory assets” and continues to be amortized as a regulatory asset. Conectiv’s goodwill balance of $313.1 million as of June 30, 2002 and December 31, 2001 is associated with the Power Delivery business segment, as defined in Note 12 to the Consolidated Financial Statements included herein. Conectiv recently completed a test for the impairment of goodwill in accordance with the implementation requirements of SFAS No. 142. The test resulted in no impairment of goodwill, as of January 1, 2002, because the fair value of the Power Delivery business segment exceeded its book value carrying amount, including goodwill.

The following table reconciles reported net income and earnings from continuing operations per common share to amounts adjusted to exclude the amortization of goodwill, after income taxes.

	Three Months Ended June 30,				Six Months Ended June 30,
	2002		2001		2002		2001
	(Dollars in Thousands, Except Per Share Amounts )
Reported net income	$	37,487	$	137,335	$	61,533	$	178,139
Add back: Goodwill amortization		—		2,033		—		4,091
Adjusted net income	$	37,487	$	139,368	$	61,533	$	182,230
Reported basic and diluted earnings per share of common stock    from continuing operations	$	0.45	$	3.09	$	0.76	$	3.63
Add back: Goodwill amortization		—		.03		—		.05
Adjusted earnings per share	$	0.45	$	3.12	$	0.76	$	3.68

Note 2 . Supplemental Cash Flow Information

	Six Months Ended June 30,
	2002		2001
	(Dollars in Thousands)
Cash paid (received) for:
Interest, net of amounts capitalized	$	68,052	$	91,496
Income taxes, net of refunds	$	(17,133)	$	51,530

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Note 3 . Income Taxes

The amounts computed by multiplying “Income from continuing operations before income taxes” by the federal statutory rate is reconciled in the table below to income tax expense on continuing operations.

	Three Months Ended June 30,												Six Months Ended June 30,
	2002						2001						2002						2001
	Amount			Rate			Amount			Rate			Amount			Rate			Amount			Rate
Statutory federal income tax    expense	$	22,739			35	%	$	155,720			35	%	$	37,619			35	%	$	184,175			35	%
State income taxes, net of    federal benefit		5,993			9			27,748			6			9,204			8			33,557			6
Regulatory asset basis difference		—						4,876			1			—						4,876			1
Depreciation		1,000			1			1,474			—			2,000			2			2,947			1
Non-deductible goodwill		—			—			632			—			—			—			1,265			—
Investment tax credit    amortization		(814	)		(1	)		(6,578	)		(1	)		(1,628	)		(2	)		(7,851	)		(1	)
Other, net		(1,436	)		(2	)		2,233			1			(1,244	)		(1	)		2,622			2
Income taxes	$	27,482			42	%	$	186,105			42	%	$	45,951			42	%	$	221,591			44	%

Note 4 . Acquisition of Conectiv

The information below updates the information included in Note 4 to the Consolidated Financial Statements included in Item 8 of Part II of Conectiv’s 2001 Annual Report on Form 10-K.

On August 1, 2002, Conectiv was acquired by Pepco Holdings, Inc. (PHI) in a transaction pursuant to an Agreement and Plan of Merger (the Conectiv/Pepco Merger Agreement), dated as of February 9, 2001, among PHI (formerly New RC, Inc.), Conectiv and Potomac Electric Power Company (Pepco), in which Pepco and Conectiv merged with subsidiaries of PHI (the Conectiv/Pepco Merger). As a result of the Conectiv/Pepco Merger, Conectiv and Pepco each became subsidiaries of PHI. The outstanding shares of Conectiv common stock and Conectiv Class A common stock were cancelled and the common stock of Merger Sub B was converted into 100 shares of $0.01 par value per share common stock of Conectiv, owned by Pepco Holdings Inc.

The holders of Conectiv common stock, par value $.01 per share, and Conectiv Class A common stock, par value $.01 per share, outstanding immediately prior to the Conectiv/Pepco Merger will receive, in exchange for their shares, cash in the aggregate amount of approximately $1.1 billion and approximately 56.2 million shares of PHI common stock. The number of shares of PHI common stock, cash or combination thereof received by each holder of Conectiv common stock or Class A common stock depends on the stockholder’s individual election (or failure to make an election) and the prorationing provisions of the Conectiv/Pepco Merger Agreement. Pursuant to the terms of the Rights Amendment, dated as of February 9, 2001, to the Rights Agreement, dated as of April 23, 1998, between Conectiv and Conectiv Resource Partners, Inc., as Rights Agent, the Conectiv common stock Rights and Conectiv Class A common stock Rights, declared as dividends by the Conectiv board of directors on April 23, 1998, expired immediately prior to the consummation of the Conectiv/Pepco Merger.

The terms of merger approvals from regulatory agencies in Delaware, Maryland, and New Jersey include certain conditions which are expected to result in a charge to Conectiv’s third quarter 2002 earnings, as a result of the closing of the Conectiv/Pepco Merger. The Decision and Order issued by the New Jersey

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Board of Public Utilities (NJBPU) on July 3, 2002 requires Atlantic City Electric Company (ACE) to forgo recovery through customer rates of $30.5 million of deferred electric service costs and for ACE to contribute $1.0 million to a fund supporting southern New Jersey schools. Also, the orders issued by the Delaware Public Service Commission (DPSC) and Maryland Public Service Commission (MPSC) that approved the Conectiv/Pepco Merger require approximately $1.5 million of contributions to certain funds.

Note 5 . Investments

As a result of Conectiv’s decision to sell its investment in leveraged leases, Conectiv was required to test its investment for impairment and the test showed that Conectiv’s investment in leveraged leases was impaired as of June 30, 2002. Accordingly, a $17.6 million before-tax impairment charge ($10.1 million after-tax or $0.12 per share of Conectiv common stock) was recorded in the second quarter of 2002, which reduced the carrying amount of Conectiv’s investment in leveraged leases from $44.6 million to $27.0 million. On July 3, 2002, Conectiv sold its leveraged lease portfolio of three aircraft and two containerships for cash of $24.4 million and a note, which had an estimated fair value of $5.1 million at the time of the sale.

As discussed in Note 8 to the Consolidated Financial Statements included in Item 8 of Part II of Conectiv’s 2001 Annual Report on Form 10-K, an indirect Conectiv subsidiary holds a limited partner interest in EnerTech Capital Partners, L.P. and EnerTech Capital Partners II, L.P. (the EnerTech funds). The EnerTech funds are venture capital funds that invest in energy-related technology and service companies related to energy, utility, and communication industries. Conectiv’s other investments include other venture capital funds and marketable equity securities.

For the three months ended June 30, 2002 and 2001, the results from Conectiv’s investments were losses of $1.0 million after-taxes ($0.01 per share of common stock) and $5.2 million after-taxes ($0.06 per share of common stock), respectively. For the six months ended June 30, 2002 and 2001, the results from Conectiv’s investments were losses of $3.1 million after-taxes ($0.04 per share of common stock) and $5.0 million after-taxes ($0.06 per share of common stock), respectively.

The unrealized net holding loss on marketable securities included in accumulated other comprehensive income was $2.9 million after income taxes as of June 30, 2002 and $0.8 million after income taxes as of December 31, 2001.

Note 6 . Sales Of Electric Generating Plants

Gains on Sales of Electric Generating Plants

As disclosed in Note 13 to the Consolidated Financial Statements included in Item 8 of Part II of Conectiv’s 2001 Annual Report on Form 10-K, Delmarva Power & Light Company (DPL) and another Conectiv subsidiary realized a gain on June 22, 2001 on the sale of ownership interests in fossil fuel-fired electric generating plants (1,080.8 megawatts (MW) of capacity), including the Indian River electric generating plant. The $297.1 million pre-tax gain ($175.0 million after taxes or $2.12 per share of common stock) recorded in the second quarter of 2001 is included in operating revenues in the Consolidated Statements of Income for the three and six months ended June 30, 2001.

The second quarter 2001 gain on the sale of electric generating plants was recorded net of estimated selling expenses, including anticipated environmental clean-up costs for the Indian River electric generating plant. In the first quarter of 2002, DPL reached an agreement with an insurer to settle DPL’s insurance claim for environmental clean-up costs associated with the Indian River electric generating plant. Due to DPL’s insurance claim settlement and revised estimates of selling expenses, the gain on the

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sale of the plants increased by $15.8 million before income taxes ($9.4 million after income taxes or $0.11 per share of common stock) in the first quarter of 2002 and is included in operating revenues for the six months ended June 30, 2002.

Termination of Agreements for Sale of Electric Generating Plants

As disclosed in Note 13 to Conectiv’s Consolidated Financial Statements included in Item 8 of Part II of Conectiv’s 2001 Annual Report on Form 10-K, the agreements between ACE and NRG Energy, Inc. (NRG) for the sale of ACE’s fossil fuel-fired electric generating plants (740 MW of capacity), including the Deepwater Station and B.L. England Station, and ACE’s interests in Conemaugh and Keystone Stations, were subject to termination by either party after February 28, 2002. NRG delivered notice to Conectiv on April 1, 2002 terminating these agreements. On May 23, 2002, Conectiv announced that it initiated a second competitive bidding process to sell these ACE-owned fossil fuel-fired electric generating plants. Conectiv expects that the competitive bidding process will result in final sales agreements in the early fall of 2002. Such agreements are subject to review and approval by the NJBPU. Conectiv cannot predict the results of the competitive bidding process, whether the NJBPU will approve any resulting sales agreements, or any related impacts upon recoverable stranded costs.

As discussed in Note 10 to Conectiv’s Consolidated Financial Statements included in Item 8 of Part II of Conectiv’s 2001 Annual Report on Form 10-K, the BGS auction awarded about 1,900 MW, or 80% of ACE’s BGS load to four suppliers for the period from August 1, 2002 to July 31, 2003. For times during this period that precede the sale of ACE’s plants discussed above, ACE expects to sell, in the wholesale market, the portion of its electricity supply which exceeds the load requirement of the BGS customers.

Note 7 . Accumulated Other Comprehensive Income
(Dollars in Thousands)

The June 30, 2002 balance for accumulated other comprehensive income of $(914) included $(2,934) for unrealized losses on marketable securities and $2,020 for unrealized gains from energy commodity derivative instruments designated as cash flow hedges. The December 31, 2001 balance for accumulated other comprehensive income of $(65,931) included $(781) for unrealized losses on marketable securities and $(65,150) for unrealized losses from energy commodity derivative instruments designated as cash flow hedges.

The following table summarizes the after-tax activity for the six months ended June 30, 2002 for the portion of accumulated other comprehensive income arising from transactions related to energy commodity derivative instruments designated as cash flow hedges.

Accumulated other comprehensive income as of December 31, 2001, for    energy commodity derivative instruments	$	(65,150	)
Net unrealized hedging gains		34,465
Reclassification to earnings because the forecasted energy commodity    transactions were no longer expected to occur within the forecast    period		—
Reclassification to earnings because the forecasted energy commodity    transaction occurred		32,705
Accumulated other comprehensive income as of June 30, 2002, for    energy commodity derivative instruments	$	2,020

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Note 8 . Conectiv Common Stock and Conectiv Class A Common Stock

For information concerning the effect of the Conectiv/Pepco Merger on Conectiv common stock and Conectiv Class A common stock, see Note 4 to the Consolidated Financials Statements herein.

Conectiv’s Board of Directors declared a dividend of $0.22 per share of common stock for the three months ended March 31, 2002 and a dividend of $0.22 for the three months ended June 30, 2002. In connection with the closing of the Conectiv/Pepco Merger on August 1, 2002, Conectiv’s Board of Directors declared a special dividend of $0.07 per share of common stock.

For general information about Class A common stock, and information about dividend payments, conversion and redemption provisions, and allocation of consideration in a subsequent merger, refer to Note 17 to the Consolidated Financial Statements included in Item 8 of Part II of Conectiv’s 2001 Annual Report on Form 10-K.

Under the Conectiv/Pepco Merger Agreement, from February 9, 2001 through the closing of the Conectiv/Pepco Merger, dividends on Class A common stock could be paid at an annual rate up to 90% of the earnings applicable to Class A common stock. Conectiv’s Board of Directors declared a dividend of $0.50 per share of Class A common stock for the three months ended March 31, 2002 and a dividend of $0.25 for the three months ended June 30, 2002. The dividend for the three months ended March 31, 2002 included a one-time payment of $0.25 per share of Class A common stock and resulted in dividends more closely approximating 90% of the earnings applicable to Class A common stock for the period from April 1, 2001 to March 31, 2002. In connection with the closing of the Conectiv/Pepco Merger on August 1, 2002, Conectiv’s Board of Directors declared a special dividend of $0.08 per share of Class A common stock.

Computation of Earnings (Loss) Applicable to Conectiv Class A Common Stock

	Three Months Ended June 30,						Six Months Ended June 30,
	2002			2001			2002			2001
	(Dollars in Thousands)
Net earnings of ACE	$	13,659		$	22,820		$	18,407		$	31,563
Exclude non-utility activities of ACE		89			62			69			37
Net earnings / (loss) of Conectiv Atlantic Generation, LLC (CAG)		(1,541	)		(1,430	)		(2,900	)		3,120
Net income of Atlantic Utility Group		12,207			21,452			15,576			34,720
Pro-rata portion of fixed notional charge of $40 million per year		(10,000	)		(10,000	)		(20,000	)		(20,000	)
Company Net Income (Loss) Attributable to the Atlantic Utility    Group		2,207			11,452			(4,424	)		14,720
Outstanding Atlantic Utility Fraction		27.3	%		27.3	%		27.3	%		27.3	%
Earnings (loss) applicable to Class A Common Stock	$	603		$	3,126		$	(1,207	)	$	4,018

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Summarized Combined Income Statement Information of ACE and CAG

	Three Months Ended June 30,				Six Months Ended June 30,
	2002		2001		2002		2001
	(Dollars in Thousands)
Operating revenues	$	246,394	$	305,232	$	468,925	$	547,068
Operating income	$	32,597	$	51,551	$	52,073	$	91,408
Net income	$	12,426	$	21,923	$	16,124	$	35,749
Earnings applicable to common stock	$	12,118	$	21,390	$	15,507	$	34,683

Summarized Combined Balance Sheet Information of ACE and CAG

	June 30, 2002		December 31, 2001
	(Dollars in Thousands)
Current assets	$	294,091	$	278,855
Noncurrent assets		2,320,614		2,264,179
Total assets	$	2,614,705	$	2,543,034
Current liabilities	$	540,622	$	410,011
Noncurrent liabilities		1,252,384		1,298,616
Preferred securities and stock		101,231		113,681
Common stockholder’s equity		720,468		720,726
Total capitalization and liabilities	$	2,614,705	$	2,543,034

Note 9 . Debt

Short-Term Debt

As of June 30, 2002, Conectiv had a $1,057.9 million short-term debt balance (2.5% average interest rate) which included $382.0 million of short-term notes held by financial institutions and $675.9 million of commercial paper. As of December 31, 2001, Conectiv’s short-term debt balance of $1,039.8 million had an average interest rate of 2.9%.

Effective with the Conectiv/Pepco Merger, Conectiv’s credit agreements of $1.035 billion in the aggregate and DPL’s credit agreement of $105 million were terminated. PHI entered into a $1.5 billion credit agreement for general corporate purposes, including commercial paper back-up. Under the PHI credit agreement, a borrowing sublimit of $1.0 billion exists for PHI and a borrowing sublimit of $500 million exists for aggregate borrowings by Pepco, DPL, and ACE, limited to $300 million for each such borrower. Conectiv is not a party to the PHI credit agreement. Conectiv expects that its future funding requirements will be satisfied primarily through dividends received from its subsidiaries and funding from PHI.

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DPL Long-Term Debt Financing Activity

On February 1, 2002, DPL redeemed $27.5 million of 8.5% First Mortgage Bonds, due February 1, 2022.

On behalf of DPL, the Delaware Economic Development Authority issued $46 million of long-term bonds and loaned the proceeds to DPL on May 30, 2002. The bonds issued included $15.0 million of variable rate Exempt Facilities Refunding Bonds, due May 1, 2032, and $31.0 million of 5.2% Pollution Control Refunding Revenue Bonds, due February 1, 2019. The bonds that were issued are not secured by a mortgage or security interest in property of DPL. On June 3, 2002, DPL used the proceeds to redeem $46.0 million of bonds outstanding, including $15.0 million of 6.85% bonds, due May 1, 2022, and $31.0 million of 6.75% bonds, due May 1, 2019.

On June 1, 2002, DPL redeemed $2.0 million of 6.95% Amortizing First Mortgage Bonds.

ACE Long-Term Debt Financing Activity

On April 1, 2002, ACE redeemed at maturity $20 million of unsecured 6.46%, Medium Term Notes.

On May 28, 2002, ACE redeemed at maturity $5 million of secured 7.04%, Medium Term Notes.

Conectiv Long-Term Debt Financing Activity

On June 1, 2002, Conectiv redeemed at maturity $100 million of unsecured 6.73% Medium Term Notes.

On June 4, 2002, Conectiv sold $250 million in principal amount of 5.30% Notes due June 1, 2005 (the Notes). The Notes were not offered pursuant to a registration statement filed under the Securities Act of 1933, but Conectiv has agreed to use its reasonable best efforts to (i) file an exchange offer registration statement no later than 120 days after the closing of the Note offering, (ii) cause the registration statement to be declared effective no later than 180 days after such closing (the effectiveness deadline), and (iii) cause an exchange offer for the Notes to be completed no later than 30 business days after the effectiveness deadline. If Conectiv has not caused these actions to be taken within the specified time periods, additional interest of 0.25% per annum will accrue until the required actions have been completed.

Conectiv Bethlehem, Inc. Project Financing

On June 25, 2002, Conectiv Bethlehem, Inc. (CBI), a subsidiary of Conectiv Energy Holding Company (CEH) and an indirect subsidiary of Conectiv, entered into a Credit Agreement (CBI Credit Agreement) with various banks and financial institutions. CBI is constructing new mid-merit power plants in Bethlehem, Pennsylvania. Under the CBI Credit Agreement, CBI may borrow up to $365 million as a construction loan and convert the construction loan to a term loan after completing construction of the two 545 MW combined cycle power plants (CBI Project). Borrowings under the CBI Credit Agreement are secured by a lien on CBI and all tangible, intangible, and real property of CBI.

CBI expects to convert the construction loan to a term loan, on one of the following dates: February 27, 2004, April 30, 2004, June 30, 2004, August 31, 2004 or September 30, 2004 (Term Loan Conversion Date), as provided for in the CBI Credit Agreement. CBI is required to repay any portion of the construction loan not converted to a term loan at the Term Loan Conversion Date or no later than September 30, 2004. Four semi-annual principal payments begin six months after the Term Loan Conversion Date. Depending on the Term Loan Conversion Date, the amount of the term loan principal, which is repaid by the total of the four semi-annual payments, is approximately 12.89% to 14.7%. The remaining principal of the term loan (and any unpaid accrued interest or fees) is due upon the loan’s maturity, which is the later of June 25, 2006, or the second anniversary of the Term Loan Conversion Date.

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For borrowings under the CBI Credit Agreement, CBI has the option of choosing an interest rate based on the London inter-bank offering rate (LIBOR) plus (i) 1.625%, or (ii) 1.75%, for construction and term loans, respectively. The CBI Credit Agreement requires CBI to hedge the interest rate on at least 50% of principal borrowings and on at least 75% of principal borrowings if LIBOR exceeds 4.0% for three or six month borrowing periods. On July 11, 2002, CBI entered into an interest rate swap agreement on 75% of the anticipated forward monthly loan balances outstanding. The notional amount of the swap will increase with the expected draw schedule of the construction loan (an average of $221 million). The swap agreement provides for CBI to receive interest based on a variable rate and to pay interest based on a fixed rate of 4.15%. The swap agreement is expected to effectively convert the variable interest rate on 75% of the expected average loan balance to the fixed rate of 4.15%.

In connection with the CBI Credit Agreement, Conectiv provides a guarantee associated with the Conectiv Energy Supply Inc. (CESI) agreement to purchase energy and capacity from CBI (CESI/CBI Power Agreement) and other guarantees related to obligations of Conectiv subsidiaries under agreements related to constructing and operating the CBI Project. Generally, Conectiv’s guarantee obligations will not exceed the amount of the debt outstanding under the CBI Credit Agreement and do not guarantee CBI’s obligation to repay the debt. If Conectiv’s credit ratings fall below the “Minimum Ratings Requirement” specified by the CBI Credit Agreement, then, in an amount equal to Conectiv’s outstanding guarantees, Conectiv is required to either: (i) deposit cash, (ii) obtain a letter of credit, or (iii) have another qualified party provide such guarantees. The “Minimum Ratings Requirement” of the CBI Credit Agreement is not met if Conectiv’s unsecured senior long-term debt (i) is rated lower than Baa3 by Moody’s Investor Service (Moody’s) or BBB- by Standard & Poors (S&P) or (ii) Conectiv’s unsecured senior long-term debt is rated Baa3 by Moody’s or BBB- by S&P and Conectiv receives a “negative outlook” or is placed on “credit watch negative” by Moody’s or S&P.

Upon substantial completion of construction of the CBI Project, the CBI Credit Agreement requires that revenues from the CBI Project be deposited with a bank that administers the disbursement of cash (Administrative Agent) based on the terms of a “depository agreement.” The depository agreement requires that cash be applied to (i) pay operating costs and principal and interest on the loans and (ii) establish reserves for debt service and major scheduled maintenance of the CBI Project, before cash is released to CBI for other uses, such as the payment of dividends by CBI to Conectiv or Conectiv subsidiaries.

The CBI Credit Agreement contains a number of events of default that could be triggered by defaults on Conectiv or CBI debt, bankruptcy, CBI’s loss of collateral, defaults by CBI under CBI Project agreements such as the CESI/CBI Power Agreement, and material adverse changes in CBI’s regulatory status.

Financing Authorizations under the Public Utility Holding Company Act of 1935

As a registered holding company under the Public Utility Holding Company Act of 1935 (PUHCA), Conectiv is required to obtain SEC authorization for certain financing transactions. On July 31, 2002, the SEC issued an order to PHI (PHI Financing Order) authorizing certain financing transactions. The PHI Financing Order superseded financing orders that the SEC had previously issued to Conectiv concerning Conectiv financing authorizations. The PHI Financing Order contains no material restrictions on Conectiv’s ability to conduct its financing activities, as planned currently.

Note 10 . Preferred Stock

On May 1, 2002, ACE redeemed 124,500 shares of its $7.80 annual dividend rate preferred stock, under mandatory and optional redemption provisions, at the $100 per share stated value or $12.45 million in total.

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Note 11 . Contingencies

Environmental Matters

Hazardous Substances

Conectiv’s subsidiaries are subject to regulation with respect to the environmental effects of their operations, including air and water quality control, solid and hazardous waste disposal, and limitations on land use by various federal, regional, state, and local authorities. Federal and state statutes authorize governmental agencies to compel responsible parties to clean up certain abandoned or uncontrolled hazardous waste sites. Costs may be incurred to clean up facilities found to be contaminated due to current and past disposal practices. Conectiv’s liability for clean-up costs is affected by the activities of these governmental agencies and private land-owners, the nature of past disposal practices, the activities of others (including whether they are able to contribute to clean-up costs), and the scientific and other complexities involved in resolving clean up-related issues (including whether a Conectiv subsidiary or a corporate predecessor is responsible for conditions on a particular parcel). Conectiv’s current liabilities include $18.2 million as of June 30, 2002 ($17.7 million as of December 31, 2001) for potential clean-up and other costs related to sites at which a Conectiv subsidiary is a potentially responsible party or alleged to be a third party contributor. The accrued liability as of June 30, 2002 included $10.5 million for remediation and other costs associated with environmental contamination that resulted from an oil release at the Indian River power plant (which was sold on June 22, 2001) and reflects the terms of a related consent agreement reached with the Delaware Department of Natural Resources and Environmental Control during 2001. Conectiv does not expect such future costs to have a material effect on its financial position or results of operations.

Air Quality Regulations

On July 11, 2001, the New Jersey Department of Environmental Protection (NJDEP) denied ACE’s request to renew a permit variance, effective through July 30, 2001, that authorized Unit 1 at the B.L. England station to burn coal containing greater than 1% sulfur. ACE has appealed the denial. The NJDEP has issued a stay of the denial to authorize ACE to operate Unit 1 with the current fuel until October 31, 2002 and an addendum to the permit/certificate to operate authorizing a trial burn of coal with a sulfur content less than 2.6%. Management is not able to predict the outcome of ACE’s appeal, including the effects, if any, of trial burn results on the appeal.

On January 31, 2002, Conectiv notified the NJDEP that it was unable to procure all of the 2001 Discrete Emission Reductions (DER) credits required by January 30, 2002 under New Jersey’s NOx (oxides of nitrogen) Reasonably Available Control Technology (RACT) rules. To satisfy 2001 NOx RACT requirements, ACE and CAG had planned to purchase DER credits for certain electric generating units from Public Service Electric & Gas Company (PSEG) but the credits were removed from the market under a PSEG January 2002 consent decree. On May 4, 2002, ACE, CAG, and the NJDEP entered into an Administrative Consent Order (ACO) to address the ACE and CAG 2001 DER credit shortfall and NJDEP’s allegations that ACE had failed to comply with DER credit use restrictions from 1996 to 2001. The ACO eliminates requirements for ACE and CAG to purchase DER credits for certain ACE and CAG electric generating units through May 1, 2005 and provides, among other things, for installation of new controls on CAG’s electric generating units ($3 million estimated cost), a $1.0 million penalty, a $1.0 million contribution to promote, develop and enhance an urban airshed reforestation project, and operating hour limits at ACE’s Deepwater Unit No. 4.

The United States Environmental Protection Agency (USEPA) requested data from a number of electric utilities regarding older coal-fired units in order to determine compliance with the regulations for the Prevention of Significant Deterioration of Air Quality (PSD). A number of settlements of litigation

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brought as a result of such inquiries alleging violations of so-called new source standards have been announced. ACE has responded to a number of requests from the USEPA and the NJDEP for data on coal-fired operations at the Deepwater and B.L. England electric generating stations. Management cannot predict the impact, if any, of these inquiries on Deepwater or B.L. England operations.

Other Matters

On October 24, 2000, the City of Vineland, New Jersey, filed an action in a New Jersey Superior Court to acquire ACE electric distribution facilities located within the City limits by eminent domain. On March 13, 2002, ACE and the City signed an agreement which provides for ACE to receive $23.9 million for the electric distribution facilities within the City limits. The carrying value of the electric distribution facilities was approximately $8.8 million, as of June 30, 2002. After a transition period of 18 to 24 months primarily to reconfigure facilities, the transaction is expected to close and the City is expected to begin providing electric service to the City’s residents previously served by ACE.

12 . Business Segments

The following information is presented in accordance with SFAS No. 131, “Disclosures about Segments of an Enterprise and Related Information.” Amounts previously reported for the business of supplying electricity to customers of ACE and DPL who have not chosen an alternative electricity supplier have been reclassified from the Energy business segment to the Power Delivery business segment. Conectiv’s business segments under SFAS No. 131 are as follows:

“Energy” includes (i) electricity generation by mid-merit electric generating plants, and the purchase, trading and sale of electricity, including wholesale sales between affiliated subsidiaries; (ii) gas and other energy supply and trading activities, (iii) power plant operation services, and (iv) district heating and cooling systems operation services provided by Conectiv Thermal Systems, Inc.

“Power Delivery” includes (i) activities related to delivery and supply of electricity at regulated rates to customers of ACE and DPL, (ii) the operations of ACE’s electric generating plants, (iii) the operations of DPL’s electric generating plants through their sale on June 22, 2001, and (iv) the delivery and supply of natural gas at regulated rates to DPL’s customers.

The operating results for business segments are evaluated based on “Earnings Before Interest and Taxes,” which is generally equivalent to Operating Income plus Other Income, less certain interest charges allocated to the business segments. As noted below, the business segment information presented herein excludes the second quarter 2002 $17.6 million pre-tax charge for the impairment of investment in leveraged leases, $4.3 million of the first quarter 2002 pre-tax gain on sale of electric generating plants, the second quarter 2001 $297.1 million pre-tax gain on sales of electric generating plants, and the second quarter 2001 $73.0 million pre-tax gain primarily from recognition of a previously deferred gain related to termination of a contract with the Pedricktown partnership.

Under contracts between CESI and DPL, effective April 1, 2001, CESI began supplying to DPL the electricity requirements of DPL’s default customers (customers that have not chosen an alternative supplier). The pricing of electricity under a contract, which became effective September 1, 2001, transferred the risk, or reward, associated with DPL’s default electric service business to CESI. Due to the contract, the earnings before interest and taxes related to DPL’s default electric service business are included in the Energy business segment for the second quarter of 2002 ($32.5 million) and the six months ended June 30, 2002 ($66.4 million), but are included in Power Delivery for the second quarter of 2001 ($15.4 million) and the six months ended June 30, 2001 ($34.1 million). The earnings before interest and taxes of the Power Delivery business segment for the six months ended June 30, 2001 also include $16.3 million from DPL’s termination of its membership in a nuclear industry

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mutual insurance company, as discussed in Note 14 to the Consolidated Financial Statements included in Item 8 of Part II of Conectiv’s 2001 Annual Report on Form 10-K.

	Three Months Ended June 30, 2002						Three Months Ended June 30, 2001
Business Segments	Revenues			Earnings Before Interest and Taxes			Revenues			Earnings Before Interest and Taxes
	(Dollars in Thousands)
Energy	$	773,293		$	56,466		$	945,584		$	40,652
Power Delivery		526,296			65,004			611,283			103,406
All Other		1,723			(2,545	)		1,353			(18,690	)
Total	$	1,301,312	(1)	$	118,925	(2)	$	1,558,220	(3)	$	125,368	(4)

______________

(1) Intercompany revenues that are eliminated in consolidation are included in business segment revenues as follows: Energy business segment — $198,917; Power Delivery business segment — $1,024; All Other business segments — $1,151.

(2) “Earnings before interest and taxes” less the $17,585 impairment of investment in leveraged leases, $36,312 of interest expense and preferred stock dividends, and $59 of certain other adjustments equals consolidated income from continuing operations before income taxes.

(3) The $297,140 pre-tax gain from the sale of electric generating plants is excluded from business segment revenues. Intercompany revenues that are eliminated in consolidation are included in business segment revenues as follows: Energy business segment — $156,621; Power Delivery business segment $162.

(4) “Earnings before interest and taxes” plus the $297,140 pre-tax gain from the sale of electric generating plants and the $73,015 pre-tax gain primarily from recognition of a previously deferred gain related to termination of a contract with the Pedricktown partnership, and less $48,529 of interest expense and preferred stock dividends and $2,081 of consolidation and other adjustments equals consolidated income from continuing operations before income taxes.

	Six Months Ended June 30, 2002						Six Months Ended June 30, 2001
Business Segments	Revenues			Earnings Before Interest and Taxes			Revenues			Earnings Before Interest and Taxes
	(Dollars in Thousands)
Energy	$	1,476,835		$	61,243		$	2,070,876		$	57,970
Power Delivery		1,055,372			134,489			1,249,376			223,494
All Other		4,147			(5,318	)		5,548			(22,965	)
Total	$	2,536,354	(1)	$	190,414	(2)	$	3,325,800	(3)	$	258,499	(4)

______________

(1) Intercompany revenues that are eliminated in consolidation are included in business segment revenues as follows: Energy business segment-$396,567; Power Delivery business segment-$1,205; All Other business segments-$2,405. Excludes $15,817 of revenues reported as “Gain on sales of electric generating plants” in the Consolidated Statement of Income.

(2) “Earnings before interest and taxes” less the $17,585 impairment of investment in leveraged leases, $69,849 of interest expense and preferred stock dividends, plus $4,329 of the pre-tax gain on sale of electric generating plants, and plus $175 of certain other adjustments equals consolidated income from continuing operations before income taxes.

(3) The $297,140 pre-tax gain from the sale of electric generating plants is excluded from business segment revenues. Intercompany revenues that are eliminated in consolidation are included in business segment revenues as follows: Energy business segment-$387,859; Power Delivery business segment $162; All Other business segments-$189.

(4) “Earnings before interest and taxes” plus the $297,140 pre-tax gain from the sale of electric generating plants and the $73,015 pre-tax gain primarily from recognition of a previously deferred gain related to termination of a contract with the Pedricktown partnership, and less $99,854 of interest expense and preferred stock dividends and $2,586 of consolidation and other adjustments equals consolidated income from continuing operations before income taxes.

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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Acquisition of Conectiv

The information below updates the information included in Note 4 to the Consolidated Financial Statements included in Item 8 of Part II of Conectiv’s 2001 Annual Report on Form 10-K.

On August 1, 2002, Conectiv was acquired by Pepco Holdings, Inc. (PHI) in a transaction pursuant to an Agreement and Plan of Merger (the Conectiv/Pepco Merger Agreement”), dated as of February 9, 2001, among PHI (formerly New RC, Inc.), Conectiv and Potomac Electric Power Company (Pepco), in which Pepco and Conectiv merged with subsidiaries of PHI (the Conectiv/Pepco Merger). As a result of the Conectiv/Pepco Merger, Conectiv and Pepco each became subsidiaries of PHI. The outstanding shares of Conectiv common stock and Conectiv Class A common stock were cancelled and the common stock of Merger Sub B was converted into 100 shares of $0.01 par value per share common stock of Conectiv, owned by Pepco Holdings Inc.

The holders of Conectiv common stock, par value $.01 per share, and Conectiv Class A common stock, par value $.01 per share, outstanding immediately prior to the Conectiv/Pepco Merger will receive, in exchange for their shares, cash in the aggregate amount of approximately $1.1 billion and approximately 56.2 million shares of PHI common stock. The number of shares of PHI common stock, cash or combination thereof received by each holder of Conectiv common stock or Class A common stock depends on the stockholder’s individual election (or failure to make an election) and the prorationing provisions of the Conectiv/Pepco Merger Agreement. Pursuant to the terms of the Rights Amendment, dated as of February 9, 2001, to the Rights Agreement, dated as of April 23, 1998, between Conectiv and Conectiv Resource Partners, Inc., as Rights Agent, the Conectiv common stock Rights and Conectiv Class A common stock Rights, declared as dividends by the Conectiv board of directors on April 23, 1998, expired immediately prior to the consummation of the Conectiv/Pepco Merger.

The terms of merger approvals from regulatory agencies in Delaware, Maryland, and New Jersey include certain conditions which are expected to result in a charge to Conectiv’s third quarter 2002 earnings, as a result of the closing of the Conectiv/Pepco Merger. The Decision and Order issued by the New Jersey Board of Public Utilities (NJBPU) on July 3, 2002 requires ACE to forgo recovery through customer rates of $30.5 million of deferred electric service costs and for ACE to contribute $1.0 million to a fund supporting southern New Jersey schools. Also, the orders issued by the DPSC and MPSC that approved the Conectiv/Pepco Merger require approximately $1.5 million of contributions to certain funds.

Common Stock Earnings From Continuing Operations

Earnings from continuing operations applicable to common stock were $36.9 million, or $0.45 per share for the second quarter of 2002, compared to $255.7 million, or $3.09 per share for the second quarter of 2001. Earnings from continuing operations applicable to common stock were $62.7 million, or $0.76 per share for the six months ended June 30, 2002, compared to $300.6 million, or $3.63 per share for the six months ended June 30, 2001. The items that contributed to earnings per share of common stock from continuing operations are listed in the table below and are explained by the accompanying text.

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After-tax contribution to earnings per share of common stock from continuing operations

	Three Months Ended June 30,						Six Months Ended June 30,
	2002			2001			2002			2001
(1) Energy, Power Delivery, and Other Businesses	$	0.58		$	0.53		$	0.81		$	1.07
(2) Investment losses		(0.01	)		(0.06	)		(0.04	)		(0.06	)
(3) Impairment of investment in leveraged leases		(0.12	)		—			(0.12	)		—
(4) Gains on sales of electric generating plants		—			2.12			0.11			2.12
(5) Gain on contract termination		—			0.50			—			0.50
	$	0.45		$	3.09		$	0.76		$	3.63

(1) Energy, Power Delivery, and Other Businesses

As discussed in Note 12 to the Consolidated Financial Statements herein, Conectiv redefined its business segments in 2002. Power Delivery, which had previously included the operating results for delivering electricity to customers of ACE and DPL and delivering gas to DPL’s customers, now also includes the operating results for supplying electricity and gas to those customers. Although the Energy business does not include operating results for the sale of electricity directly to DPL’s customers, the operating results of the Energy business for the three and six months ended June 30, 2002 include the results of a contract under which CESI supplies to DPL the electricity requirements of DPL’s default electric service customers (CESI/DPL Power Agreement). The pricing of electricity under the contract, which became effective September 1, 2001, transferred the risk, or reward, associated with DPL’s default electric service business from the Power Delivery business segment (and DPL) to the Energy business segment (and CESI).

As shown above, the contribution to earnings per share of common stock by “Energy, Power Delivery, and Other Businesses” increased by $0.05 to $0.58 for the second quarter of 2002, from $0.53 for the second quarter of 2001. This increase primarily resulted from lower interest expense, cessation of goodwill amortization, and higher earnings from the Energy business segment, partly offset by lower earnings from the Power Delivery business segment. Earnings of the Energy business segment increased due to the CESI/DPL Power Agreement and gains from natural gas and electricity trading. These favorable factors for the Energy business segment were partly offset by lower revenues and profits from deregulated electric generating plants due to lower market prices for electricity. Earnings of the Power Delivery business segment decreased mainly due to the cost of replacing the electricity produced by DPL’s electric generating plants that were sold June 22, 2001, and also due to other increases in operating expenses.

As shown above, the contribution to earnings per share of common stock by “Energy, Power Delivery, and Other Businesses” decreased by $0.26 to $0.81 for the six months ended June 30, 2002, from $1.07 for the six months ended June 30, 2001. This decrease was primarily due to lower earnings from the Power Delivery business segment, partly offset by lower interest expense, cessation of goodwill amortization, and higher earnings from the Energy business segment. The Power Delivery business segment earnings decrease reflects the cost of replacing the electricity produced by DPL’s electric generating plants that were sold June 22, 2001, increases in other operating expenses and lower customer usage of electricity and gas, due to warmer winter weather during 2002. Earnings of the Energy business segment increased due to the CESI/DPL Power Agreement and gains from natural gas and electricity trading. These favorable factors for the Energy business segment were partly offset by lower revenues and profits from deregulated electric generating plants due to lower market prices for electricity. Also, the Energy business segment’s earnings for the six months ended June 30, 2001 included a $9.8 million after-tax gain, or $0.12 per share, from termination of DPL’s membership in a nuclear mutual insurance company, as discussed in Note 14 to the Consolidated Financial Statements included in Item 8 of Part II of Conectiv’s 2001 Annual Report on Form 10-K.

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Conectiv’s participation in energy markets results in exposure to commodity market risk. Conectiv has controls in place that are intended to keep risk exposures within certain management-approved risk tolerance levels. For additional information concerning commodity market risk, see “Item 3. Quantitative and Qualitative Disclosures About Market Risk,” included herein.

(2) Investment losses

For the three months ended June 30, 2002 and 2001, the results from Conectiv’s investments were losses of $1.0 million after-taxes ($0.01 per share of common stock) and $5.2 million after-taxes ($0.06 per share of common stock), respectively. For the six months ended June 30, 2002 and 2001, the results from Conectiv’s investments were losses of $3.1 million after-taxes ($0.04 per share of common stock) and $5.0 million after-taxes ($0.06 per share of common stock), respectively.

Investment losses for the three and six months ended June 30, 2002 decreased mainly due to losses during the same periods last year from termination of an investment in an internet start-up venture. The second quarter of 2002 also benefited from lower losses from Conectiv’s investment in the EnerTech Funds, which invest in energy-related technology and service companies related to energy, utility, and communication industries.

(3) Impairment of investment in leveraged leases

As a result of Conectiv’s decision to sell its investment in leveraged leases, Conectiv was required to test its investment for impairment and the test showed that Conectiv’s investment in leveraged leases was impaired as of June 30, 2002. Accordingly, a $17.6 million before-tax impairment charge ($10.1 million after-tax or $0.12 per share of Conectiv common stock) was recorded in the second quarter of 2002, which reduced the carrying amount of Conectiv’s investment in leveraged leases from $44.6 million to $27.0 million. On July 3, 2002, Conectiv sold its leveraged lease portfolio of three aircraft and two containerships for cash of $24.4 million and a note, which had an estimated fair value of $5.1 million at the time of the sale.

(4) Gains on sales of electric generating plants

As disclosed in Note 13 to the Consolidated Financial Statements included in Item 8 of Part II of Conectiv’s 2001 Annual Report on Form 10-K, DPL and another Conectiv subsidiary realized a gain on June 22, 2001 on the sale of ownership interests in fossil fuel-fired electric generating plants (1,080.8 megawatts (MW) of capacity), including the Indian River electric generating plant. The $297.1 million pre-tax gain ($175.0 million after taxes or $2.12 per share of common stock) recorded in the second quarter of 2001 is included in operating revenues in the Consolidated Statements of Income for the three and six months ended June 30, 2001.

The second quarter 2001 gain on the sale of electric generating plants was recorded net of estimated selling expenses, including anticipated environmental clean-up costs for the Indian River electric generating plant. In the first quarter of 2002, DPL reached an agreement with an insurer to settle DPL’s insurance claim for environmental clean-up costs associated with the Indian River electric generating plant. Due to DPL’s insurance claim settlement and revised estimates of selling expenses, the gain on the sale of the plants increased by $15.8 million before income taxes ($9.4 million after income taxes or $0.11 per share of common stock) in the first quarter of 2002 and is included in operating revenues for the six months ended June 30, 2002.

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(5) Gain on contract termination

Income from continuing operations for the three and six months ended June 30, 2001 includes a gain of $41.4 million after income taxes, or $0.50 per share of common stock, from the recognition of a previously deferred gain related to termination of a purchased power contract. The pre-tax gain of $73.0 million is included in Other Income. For additional information, see Note 11 to the Consolidated Financial Statements included in Item 8 of Part II of Conectiv’s 2001 Annual Report on Form 10-K.

Discontinued Telecommunication Operations

As discussed in Notes 1, 5, and 27 to the Consolidated Financial Statements included in Item 8 of Part II of Conectiv’s 2001 Annual Report on Form 10-K, substantially all of the assets of the Telecommunication business segment were sold on November 14, 2001. The $118.8 million after-tax loss ($1.44 loss per share of common stock) that resulted from the disposal of the Telecommunication business segment is classified under discontinued telecommunication operations within the Consolidated Statements of Income. The after-tax losses for operations of the Telecommunication business segment of $2.7 million after-taxes or $0.03 per share of common stock for the three months ended June 30, 2001, and $7.7 million after taxes or $0.09 per share of common stock for the six months ended June 30, 2001, are classified under discontinued telecommunication operations within the Consolidated Statements of Income.

Dividends on Common Stock

Conectiv’s Board of Directors declared a dividend of $0.22 per share of common stock for the three months ended March 31, 2002 and a dividend of $0.22 for the three months ended June 30, 2002. In connection with the closing of the Conectiv/Pepco Merger on August 1, 2002, Conectiv’s Board of Directors declared a special dividend of $0.07 per share of common stock.

Class A Common Stock Earnings Summary

Prior to cancellation of Class A common stock in connection with the Conectiv/Pepco Merger, under Conectiv’s Restated Certificate of Incorporation, Class A common stock had an interest in the earnings of the Atlantic Utility Group (AUG) in excess of a notional fixed charge of $40 million per year. The AUG included the assets and liabilities of the electric generation, transmission, and distribution businesses of ACE that existed on August 9, 1996 and were regulated by the NJBPU. The AUG included electric generation assets that ACE contributed, effective July 1, 2000, to Conectiv Atlantic Generation, LLC (CAG). For any reporting period, if the AUG earned less than the pro-rata portion of the annual fixed notional charge, a loss was applicable to Class A common stock. For additional information concerning the computation of earnings applicable to Class A common stock and other general information concerning Class A common stock, including information about dividend payments, conversion and redemption provisions, and allocation of consideration in a subsequent merger, refer to Note 17 to the Consolidated Financial Statements included in Item 8 of Part II of Conectiv’s 2001 Annual Report on Form 10-K.

Earnings applicable to Class A common stock were $0.6 million, or $0.11 per share, for the second quarter of 2002, compared to $3.1 million, or $0.54 per share, for the second quarter of 2001. Earnings per share of Class A common stock decreased by $0.43 for the second quarter of 2002 primarily due to higher operating expenses of ACE’s electric utility business, lower earnings from deregulated electric generating units, and also because ACE had earned a return on its ownership interest in nuclear electric generating plants prior to October 18, 2001, when such interests were sold.

For the six months ended June 30, 2002, a loss of $1.2 million, or $0.21 per share, was applicable to Class A common stock because the AUG earned less than the pro-rata portion ($20 million) of the annual fixed

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notional charge of $40 million. For the six months ended June 30, 2001, earnings of $4.0 million, or $0.70 per share, were applicable to Class A common stock. In addition to the unfavorable factors discussed above that affected the second quarter of 2002, the $0.91 decrease in earnings per share of Class A common stock for the six months ended June 30, 2002 reflects lower customer usage of electricity due to warmer winter weather during 2002.

Dividends on Class A Common Stock

Under the Conectiv/Pepco Merger Agreement, from February 9, 2001 through the closing date of the Conectiv/Pepco Merger, dividends on Class A common stock could be paid at an annual rate up to 90% of the earnings applicable to Class A common stock. Conectiv’s Board of Directors declared a dividend of $0.50 per share of Class A common stock for the three months ended March 31, 2002 and a dividend of $0.25 for the three months ended June 30, 2002. The dividend for the three months ended March 31, 2002 included a one-time payment of $0.25 per share of Class A common stock and resulted in dividends more closely approximating 90% of the earnings applicable to Class A common stock for the period from April 1, 2001 to March 31, 2002. In connection with the closing of the Conectiv/Pepco Merger on August 1, 2002, Conectiv’s Board of Directors declared a special dividend of $0.08 per share of Class A common stock.

Termination of Agreements for Sale of Electric Generating Plants

As disclosed in Note 13 to Conectiv’s Consolidated Financial Statements included in Item 8 of Part II of Conectiv’s 2001 Annual Report on Form 10-K, the agreements between ACE and NRG Energy, Inc. (NRG) for the sale of ACE’s fossil fuel-fired electric generating plants (740 MW of capacity), including the Deepwater Station and B.L. England Station, and ACE’s interests in Conemaugh and Keystone Stations, were subject to termination by either party after February 28, 2002. NRG delivered notice to Conectiv on April 1, 2002 terminating these agreements. On May 23, 2002, Conectiv announced that it initiated a second competitive bidding process to sell these ACE-owned fossil fuel-fired electric generating plants. Conectiv expects that the competitive bidding process will result in final sales agreements in the early fall of 2002. Such agreements are subject to review and approval by the NJBPU. Conectiv cannot predict the results of the competitive bidding process, whether the NJBPU will approve any resulting sales agreements, or any related impacts upon recoverable stranded costs.

As discussed in Note 10 to Conectiv’s Consolidated Financial Statements included in Item 8 of Part II of Conectiv’s 2001 Annual Report on Form 10-K, the BGS auction awarded about 1,900 MW, or 80% of ACE’s Basic Generation Service (BGS) load to four suppliers for the period from August 1, 2002 to July 31, 2003. For times during this period that precede the sale of ACE’s plants discussed above, ACE expects to sell, in the wholesale market, the portion of its electricity supply which exceeds the load requirement of the BGS customers.

Accounting for Contracts Involved in Energy Trading and Risk Management Activities

Conectiv is in the process of assessing the recent pronouncement issued by the Emerging Issues Task Force (EITF), entitled EITF 02-3 “Accounting for Contracts Involved in Energy Trading and Risk Management Activities.” EITF 02-3 addresses the presentation of revenues and expenses associated with “energy trading book” contracts on a gross versus net basis. Previously, the EITF concluded that presentation on a gross basis was acceptable and Conectiv presented the revenues and expenses of its energy trading business on that basis in its public financial disclosures. With the issuance of EITF 02-3 and the subsequent guidance provided by the EITF in June 2002, presentation on a net basis is required, effective for the third quarter 2002 reporting cycle.

Conectiv has not completed its evaluation of the financial statement reclassification required by EITF 02-3. However, Conectiv believes that the implementation of EITF 02-3, because of financial statement line

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item changes, likely will: (i) materially decrease Conectiv’s gross revenues and revenue growth; (ii) result in higher gross margins as a percentage of gross revenues; and (iii) have no impact on its overall financial position or earnings. For the year ended December 31, 2001, Conectiv’s commodity trading gross revenues were approximately $1.9 billion; Conectiv expects that a substantial portion of these revenues, and the related expenses, would be eliminated in the reclassification.

Electric Revenues

	Three Months Ended June 30,				Six Months Ended June 30,
	2002		2001		2002		2001
	(Dollars in millions)
Regulated electric revenues	$	486.9	$	495.3	$	943.1	$	975.8
Non-regulated electric revenues		330.2		403.5		602.0		685.1
Total electric revenues	$	817.1	$	898.8	$	1,545.1	$	1,660.9

The table above shows the amounts of electric revenues earned that are subject to price regulation (regulated) and that are not subject to price regulation (non-regulated). “Regulated electric revenues” include revenues for delivery (transmission and distribution) service and electricity supply service within the service areas of ACE and DPL.

The gross margin earned from total electric revenues is equal to electric revenues decreased by “electric fuel and purchased energy and capacity” expenses and increased by “deferred electric service costs.” The gross margin earned from total electric revenues decreased $47.1 million to $265.1 million for the second quarter of 2002, from $312.2 million for the second quarter of 2001. The gross margin earned from total electric revenues decreased $116.5 million to $471.5 million for the six months ended June 30, 2002, from $588.0 million for the six months ended June 30, 2001. These decreases reflect the cost of replacing the electricity produced by DPL’s electric generating plants that were sold in the second quarter of 2001, a lower amount of “deferred electric service costs,” lower wholesale sales by deregulated electric generating plants, and lower wholesale electricity prices. The gross margin for the six months ended June 30, 2002 was also adversely affected by lower customer usage of electricity due to warmer winter weather in 2002.

Regulated Electric Revenues

“Regulated electric revenues” decreased by $8.4 million to $486.9 million for the second quarter of 2002, from $495.3 million for the second quarter of 2001. “Regulated electric revenues” decreased by $32.7 million to $943.1 million for the six months ended June 30, 2002, from $975.8 million for the six months ended June 30, 2001. These decreases were primarily attributed to lower interchange and resale sales due to the sale of electric generating plants during 2001, partly offset by an increase in retail revenues due to less use of alternative suppliers by customers and other retail variances. For the six months ended June 30, 2002, retail revenues also reflect the effect of lower customer usage of electricity due to warmer winter weather in 2002.

Effective August 1, 2002, in accordance with the provisions of New Jersey’s Electric Discount and Energy Competition Act and the NJDEP’s Final Decision and Order concerning restructuring ACE’s electric utility business, ACE reduced electric rates by approximately $30 million, or 3.2%, on an annualized basis. For background information concerning the rate decreases which resulted from the restructuring of ACE’s electric utility business, see Note 10 to the Consolidated Financial Statements included in Item 8 of Part II of Conectiv’s 2001 Annual Report on Form 10-K.

See “Deferred Electric Service Costs” within the discussion of Operating Expenses below for information concerning a filing by ACE for a $71.6 million annual rate increase, with a proposed effective date of

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August 1, 2003.

Non-regulated Electric Revenues

“Non-regulated electric revenues” result primarily from electricity trading activities and strategic generation, which is the sale of electricity, capacity and ancillary services from deregulated electric generating plants. “Non-regulated electric revenues” decreased by $73.3 million, to $330.2 million for the second quarter of 2002 from $403.5 million for the second quarter of 2001. The $73.3 million decrease for the second quarter of 2002 was primarily attributed to a $61.8 million decrease from lower electricity trading prices, and also reflected lower sales by strategic electric generation plants. “Non-regulated electric revenues” decreased by $83.1 million, to $602.0 million for the six months ended June 30, 2002 from $685.1 million for the six months ended June 30, 2001. The $83.1 million decrease in “non-regulated electric revenues” for the six months ended June 30, 2002 was primarily due to a $54.9 million decrease related to lower sales by strategic electric generation plants, reflecting lower wholesale electricity prices and the adverse effect of warmer winter weather on electricity usage. Other variances that contributed to the decrease for the six-month period were lower electricity trading prices and Conectiv’s exit from the competitive retail electricity markets.

Gas Revenues

	Three Months Ended June 30,				Six Months Ended June 30,
	2002		2001		2002		2001
	(Dollars in millions)
Regulated gas revenues	$	27.8	$	31.2	$	91.4	$	103.4
Non-regulated gas revenues		145.7		333.8		293.5		899.7
Total gas revenues	$	173.5	$	365.0	$	384.9	$	1,003.1

DPL has gas revenues from on-system natural gas sales, which generally are subject to price regulation, and from the transportation of natural gas for customers. Conectiv subsidiaries also trade and sell natural gas in transactions that are not subject to price regulation. The table above shows the amounts of gas revenues from sources that were subject to price regulation (regulated) and that were not subject to price regulation (non-regulated).

The gross margin (gas revenues less gas purchased) from total gas revenues increased $21.4 million to $27.7 million for the second quarter of 2002, from $6.3 million for the second quarter of 2001. The gross margin from total gas revenues increased $33.7 million to $54.1 million for the six months ended June 30, 2002, from $20.4 million for the six months ended June 30, 2001. The increases in gross margin were mainly due to more favorable results of natural gas trading.

“Regulated gas revenues” decreased by $3.4 million for the second quarter of 2002 and by $12.0 million for the six months ended June 30, 2002 primarily due to a lower volume of natural gas sold to retail customers due to warmer winter weather in 2002.

“Non-regulated gas revenues” decreased by $188.1 million, to $145.7 million for the second quarter of 2002 from $333.8 million for the second quarter of 2001 primarily due to a lower volume of natural gas trading, and also due to Conectiv’s exit from competitive retail gas markets. “Non-regulated gas revenues” decreased by $606.2 million, to $293.5 million for the six months ended June 30, 2002 from $899.7 million for the six months ended June 30, 2001. The $606.2 million revenue decrease for the six-month period included $417.3 million from lower volumes of gas trading, $118.2 million attributed to lower gas trading prices, and $70.7 million primarily due to exiting the competitive retail gas business.

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Other Services Revenues

“Other services” revenues decreased $27.9 million to $109.7 million for the second quarter of 2002, from $137.6 million for the second quarter of 2001. “Other services” revenues decreased $67.4 million to $206.2 million for the six months ended June 30, 2002, from $273.6 million for the six months ended June 30, 2001. These revenue decreases were primarily due to lower revenues from the sale of petroleum products, including heating oil, mainly due to lower volume and prices, which were adversely affected by the warmer winter weather.

Primarily due to prior year gains on trading coal, the gross margin from “other services” revenues (revenues less costs of sales) decreased by $12.8 million for the second quarter of 2002 and by $24.5 million for the six months ended June 30, 2002.

Operating Expenses

Electric Fuel and Purchased Energy and Capacity

“Electric fuel and purchased energy and capacity” decreased by $63.9 million for the second quarter of 2002 and by $17.2 million for the six months ended June 30, 2002. These decreases were primarily due to lower average energy trading prices and less electricity production by deregulated electric generating units, partly offset by the cost of replacing the electricity produced by DPL’s electric generating plants that were sold June 22, 2001.

Gas Purchased

Gas purchased decreased by $212.9 million to $145.8 million for the second quarter of 2002, from $358.7 million for the second quarter of 2001. Gas purchased decreased by $651.9 million to $330.8 million for the six months ended June 30, 2002, from $982.7 million for the six months ended June 30, 2001. The decreases were mainly due to lower volumes of gas purchased for trading ($156.1 million and $423.9 million decreases for the three- and six-month periods, respectively), lower prices paid for gas purchased for trading ($34.6 million and $152.8 million decreases for the three- and six-month periods, respectively), and lower competitive retail and regulated retail sales.

Other Services’ Cost of Sales

Other services’ cost of sales decreased $15.1 million in the second quarter of 2002 and $42.9 million for the six months ended June 30, 2002 mainly due to a lower volume of petroleum products purchased at a lower average price, partly offset by cost increases for coal trading and other activities.

Operation and Maintenance Expenses

Operation and maintenance expenses decreased $10.0 million for the second quarter of 2002 mainly due to the sale of electric generating plants during 2001, partly offset by higher pension and other postretirement benefits expense. Operations and maintenance expenses increased $5.6 million for the six months ended June 30, 2002 mainly due to $16.3 million received by DPL in the first quarter of 2001 for termination of its membership in a nuclear mutual insurance company, higher pension and other postretirement benefits expense, and other increases, partly offset by decreases from the sale of electric generating plants during 2001. Pension expense has increased during 2002 mainly due to the adverse effects of stock market conditions on the fair value of trust fund assets and amortization of previous actuarial gains.

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Depreciation and Amortization

Depreciation and amortization expenses decreased $10.7 million for the second quarter of 2002 and $22.2 million for the six months ended June 30, 2002 primarily due to the sale of electric generating plants during 2001 and no longer amortizing goodwill due to SFAS No. 142, partly offset by an increase for depreciation of new mid-merit electric generating plants.

Taxes Other Than Income Taxes

Taxes other than income taxes decreased $3.3 million for the second quarter of 2002 and $7.6 million for the six months ended June 30, 2002 mainly due to expiration of the amortization of a regulatory asset for New Jersey state excise taxes and lower gross receipts taxes on lower revenues.

Deferred Electric Service Costs

For the second quarter of 2002 and the six months ended June 30, 2002, there were decreases of $29.3 million and $17.9 million, respectively, in the amount of electric service costs deferred mainly due to lower costs related to ACE providing Basic Generation Service.

The balance for ACE’s deferred electric service costs was $149.5 million as of June 30, 2002. The Decision and Order issued by the NJBPU in connection with the Conectiv/Pepco Merger requires ACE to forgo recovery through customer rates of $30.5 million of deferred electric service costs, effective upon the closing of the Conectiv/Pepco Merger. On August 1, 2002, in accordance with the provisions of New Jersey’s Electric Discount and Energy Competition Act and the NJDEP’s Final Decision and Order concerning restructuring ACE’s electric utility business, ACE petitioned the NJBPU for a $71.6 million, or 8.4%, annualized increase in electric rates, effective August 1, 2003. This proposed rate increase is intended to recover ACE’s deferred cost balance as of August 1, 2003 over a four-year period and reset Power Delivery rates such that an under-recovery of certain costs is no longer embedded in rates. ACE’s recovery of the deferred costs is subject to review by the NJBPU, which will determine the amount of cost recovery in accordance with New Jersey’s Electric Discount and Energy Competition Act. Also, the Governor of New Jersey has convened a task force to review deferred balances of New Jersey electric utilities and the task force is expected to issue a report in September 2002.

Other Income

Other Income for the three and six months ended June 30, 2001 includes a pre-tax gain of $73.0 million from the recognition of a previously deferred gain related to termination of a purchased power contract, as discussed in Note 11 to the Consolidated Financial Statements included in Item 8 of Part II of Conectiv’s 2001 Annual Report on Form 10-K. Excluding the variance attributable to the $73.0 million gain on termination of a purchased power contract, Other Income increased $12.3 million for the second quarter 2002 and $10.3 million for the six months ended June 30, 2002, mainly due to lower losses on investments, interest income accrued on deferred electric service costs under the terms of the NJBPU’s Final Decision and Order issued in 2001 concerning restructuring ACE’s utility business, and other positive variances.

Interest Expense

Interest expense, net of capitalized amounts, decreased $9.2 million for the second quarter of 2002 and $24.0 million for the six months ended June 30, 2002, primarily due to lower amounts of outstanding long-term debt, including current maturities, and lower interest rates, which resulted in lower interest expense on Conectiv’s $1.1 billion of short-term debt, $158.4 million of variable rate demand bonds, and $249.8 million of other debt with variable rates.

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Income Taxes

Income taxes decreased by $158.6 million for the second quarter of 2002 and $175.6 million for the six months ended June 30, 2002 mainly due to lower income from continuing operations before income taxes.

Liquidity and Capital Resources

Due to $253.5 million of cash provided by operating activities, $319.8 million of cash used by investing activities, and $42.3 million of cash provided by financing activities, cash and cash equivalents decreased by $24.1 million during the six months ended June 30, 2002.

For the six months ended June 30, 2002 compared to the same period in 2001, net cash flows from operating activities increased by $294.6 million. A decrease in working capital requirements for energy trading and hedging activities, lower interest expense payments, and higher income tax refunds were the primary factors that resulted in the increase in net cash flow from operations.

Capital expenditures of $335.8 million for the six months ended June 30, 2002 included $234.3 million for mid-merit electric generation plants and the remaining expenditures were primarily for the electric transmission and distribution systems of ACE and DPL. On May 15, 2002, the waste heat recovery boiler and steam turbine that was installed for combined cycle operation at the new mid-merit Hay Road plant (Hay Road Units 5-8) began commercial operation, bringing the electric generating capacity of Hay Road Units 5-8 to 545 MW. Construction at the Bethlehem, Pennsylvania site also continued to move forward. At the Bethlehem site, two 545 MW combined cycle power plants are expected to be installed. Three combustion turbines are expected to be in service by the end of 2002, and the remaining three are expected to be operational by the second quarter of 2003. The waste heat recovery boilers and related steam turbines are expected to be operational in phases, beginning in mid-2003.

In order to finance the power plants under construction at the Bethlehem site, CBI entered into the CBI Credit Agreement with various banks and financial institutions on June 25, 2002. Under this agreement, CBI may borrow up to $365 million as a construction loan and convert the construction loan to a term loan after completing construction of the two 545 MW combined cycle power plants. The construction loan period and term loan period are expected to be approximately two years each. Borrowings under the CBI Credit Agreement bear interest based upon a variable interest rate and are secured by a lien on CBI and all tangible, intangible, and real property of CBI. On July 11, 2002, CBI entered into an interest rate swap agreement which effectively converted the variable interest rate on 75% of the expected average loan balance ($221 million) to a fixed rate of 4.15%.

The CBI Credit Agreement contains various terms and conditions which include the following: (i) Guarantees by Conectiv associated with CESI’s agreement to purchase energy and capacity from CBI and other guarantees related to obligations of Conectiv subsidiaries under agreements related to constructing and operating the CBI Project; (ii) A “ratings trigger” requirement that could possibly result in the deposit of cash up to the amount of the loan in the event Conectiv’s debt ratings fall below certain levels, (iii) A “depository agreement” governing the disbursement of cash provided by the operations of the power plants, and (iv) Events of default. See “Conectiv Bethlehem, Inc. Project Financing” in Note 9 to the Consolidated Financial Statements herein for additional information concerning these terms and conditions.

Conectiv’s financing activities for the six months ended June 30, 2002 included the following (i) payment of $40.8 million of common dividends, (ii) the redemption of the $12.45 million of ACE’s $7.80 annual dividend rate preferred stock on May 1, 2002; (iii) an $18.1 million increase in short-term debt; (iv) payment of $17.5 million of financing costs primarily associated with the CBI Credit Agreement; (v) the issuance of $296.0 million of long-term debt, including $250 million of 5.3% notes, due June 1, 2005, issued by Conectiv

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and $46 million of bonds issued on behalf of DPL, including $15.0 million of variable rate bonds due May 1, 2032 and $31.0 million of 5.2% bonds due February 1, 2019; and (vi) the redemption of $201.0 million of long-term debt including $27.5 million of DPL’s 8.5% First Mortgage Bonds on February 1, 2002, $46.0 million of DPL’s bonds (6.78% average fixed rate) on June 3, 2002, $20.0 million of ACE’s 6.46% Medium Term Notes on April 1, 2002, $5.0 million of ACE’s 7.04% Medium Term Notes on May 28, 2002, and $100.0 million of Conectiv’s 6.73% Medium Term Notes on June 1, 2002. Also see Note 9 to the Consolidated Financial Statements herein for other information concerning debt of Conectiv and its subsidiaries.

Conectiv’s capital structure including short-term debt and current maturities of long-term debt, expressed as a percentage of total capitalization, is shown below.

	June 30, 2002			December 31, 2001
Common stockholders’ equity		29.2	%		28.5	%
Preferred stock		0.8	%		1.1	%
Preferred trust securities		3.6	%		3.7	%
Long-term debt and variable rate demand bonds		35.6	%		34.2	%
Short-term debt and current maturities of long-term debt		30.8	%		32.5	%

As of June 30, 2002, Conectiv had a $1,057.9 million short-term debt balance (2.5% average interest rate) which included $382.0 million of short-term notes held by financial institutions and $675.9 million of commercial paper.

Effective with the Conectiv/Pepco Merger, Conectiv’s credit agreements of $1.035 billion in the aggregate and DPL’s credit agreement of $105 million were terminated. PHI entered into a $1.5 billion credit agreement for general corporate purposes, including commercial paper back-up. Under the PHI credit agreement, a borrowing sublimit of $1.0 billion exists for PHI and a borrowing sublimit of $500 million exists for aggregate borrowings by Pepco, DPL, and ACE, limited to $300 million for each such borrower. Conectiv is not a party to the PHI credit agreement. Conectiv expects that its future funding requirements will be satisfied primarily through dividends received from its subsidiaries and funding from PHI.

Conectiv’s ratio of earnings to fixed charges under the SEC Method is shown below. See Exhibit 12, Ratio of Earnings to Fixed Charges, for additional information.

	Six Months Ended June 30,		Year Ended December 31,
	2002		2001		2000		1999		1998		1997
Ratio of Earnings to    Fixed Charges (SEC Method)		2.11		3.80		2.33		2.20		2.55		2.72

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Conectiv’s energy contracts for trading activities which are accounted for at fair value are shown in the table below. All fair values are based on prices actively quoted or prices provided by other external sources.

	Energy Trading Contracts Fair Value as of June 30, 2002
Sources of Fair Value	Total Fair Value		Maturity Less than 1 Year		Maturity 1-3 Years
	(Dollars in Millions)
Prices actively quoted	$	42.8	$	45.6	$	(2.8	)
Prices provided by other external sources		18.6		12.3		6.3
Total	$	61.4	$	57.9	$	3.5

The change in the fair value of Conectiv’s energy trading contracts for the six months ended June 30, 2002 is shown in the table below.

	Fair Value Of Energy Trading Contracts
	(Dollars in Millions)
Fair value of contracts outstanding as of December 31, 2001		$29.0
Less: Contracts realized or otherwise settled		6.3
Plus: Fair value of new contracts when initially entered		—
Changes in fair value attributable to changes in valuation techniques and assumptions		—
Other changes in fair value		38.7
Fair value of contracts outstanding as of June 30, 2002		$61.4

On May 8, 2002, Moody’s Investor Service (Moody’s) issued a press release confirming the securities ratings of Conectiv, ACE and DPL. On May 14, 2002, Standard & Poor’s (S&P) issued a press release confirming the corporate credit rating of Conectiv and lowering the corporate credit ratings of ACE and DPL. S&P also announced ratings actions for the securities of Conectiv, ACE and DPL, some of which included downgrades.

The credit ratings assigned to securities of Conectiv, ACE and DPL are shown in the table below:

Conectiv

ACE

DPL

Type of Security

Moody’s

S&P

Moody’s

S&P

Moody’s

S&P

Corporate credit rating

Baa1

BBB

+

A3

BBB

+

A3

A

-

Senior secured debt

—

—

A2

BBB

+

A2

A

Senior unsecured debt

Baa1

BBB

A3

BBB

A3

BBB

+

Short-term debt

P-2

A-2

P-1

A-2

P-1

A-2

Preferred stock

—

—

Baa2

BBB

-

Baa2

BBB

Preferred trust securities

—

—

Baa1

BBB

-

Baa1

BBB

The previous ratings for securities of Conectiv, ACE and DPL can be found in Item 7 of Part II of Conectiv’s 2001 Annual Report on Form 10-K. Securities ratings are not a recommendation to buy, sell or hold securities. Ratings are subject to revision or withdrawal at any time by the respective rating agencies. Each rating should be evaluated independently of any other rating. Changes in credit ratings could affect Conectiv’s cost of capital and access to capital markets as well as affect the liquidity of Conectiv’s energy trading activities.

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Forward-Looking Statements

The Private Securities Litigation Reform Act of 1995 (the “Litigation Reform Act”) provides a “safe harbor” for forward-looking statements to encourage such disclosures without the threat of litigation, provided those statements are identified as forward-looking and are accompanied by meaningful, cautionary statements identifying important factors that could cause the actual results to differ materially from those projected in the statements. Forward-looking statements have been made in this Report. Such statements are based on beliefs of Conectiv’s management (“Management”) as well as assumptions made by and information currently available to Management. When used herein, the words “will,” “anticipate,” “estimate,” “expect,” “objective,” and similar expressions are intended to identify forward-looking statements. In addition to any assumptions and other factors referred to specifically in connection with such forward-looking statements, factors that could cause actual results to differ materially from those contemplated in any forward-looking statements include, among other, the following: prevailing federal and state governmental policies and regulatory actions affecting the energy industry, including without limitation with respect to allowed rates of return, industry and rate structures, acquisition and disposal of assets and facilities, operation and construction of plant facilities, recovery of purchased power expenses, deregulation of energy supply, unbundling of delivery services, and present or prospective wholesale and retail competition (including without limitation retail wheeling and transmission costs); an increasingly competitive and volatile energy marketplace, including without limitation volatility in market demand and prices for energy, capacity and fuel and competition for new energy development opportunities and other opportunities; potential negative impacts resulting from an economic downturn; ability to secure electric and natural gas supply to fulfill sales commitments at favorable prices; operating performance of power plants; sales retention and growth; population growth rates and demographic patterns; growth in demand, sales and capacity to fulfill demand; the effects of weather; changes in construction or project costs; unanticipated changes in operating expenses and capital expenditures; operating restrictions; increased costs and construction delays attributable to environmental and safety laws, regulations and policies; legal and administrative proceedings (whether civil or criminal) and settlements that influence the company’s business and profitability; changes in tax rates or policies or in rates of inflation; restrictions on the ability to obtain financing and other restrictions imposed by the Public Utility Holding Company Act of 1935; capital market conditions; interest rate fluctuations and credit market concerns; and effects of geopolitical events, including the threat of domestic terrorism.

Any forward-looking statements speak only as of the date of this Report and Conectiv undertakes no obligation to publicly update or revise any forward-looking statements to reflect events or circumstances after the date on which such statements are made or to reflect the occurrence of unanticipated events. New factors emerge from time to time and it is not possible for Conectiv to predict all such factors, nor can it assess the impact of any such factor on Conectiv’s business or the extent to which any factor, or combination of factors, may cause results to differ materially from those contained in any forward-looking statements. The foregoing list of factors pursuant to the Litigation Reform Act should not be construed as exhaustive or as admission regarding the adequacy of disclosures made prior to the effective date of the Litigation Reform Act.

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Item 3. Quantitative and Qualitative Disclosures About Market Risk

As previously disclosed under “Quantitative and Qualitative Disclosures About Market Risk” on pages II-30 to II-31 of Conectiv’s 2001 Annual Report on Form 10-K, Conectiv is subject to market risks, including interest rate risk, equity price risk, and commodity price risk. An update appears below.

Interest Rate Risk

Conectiv is subject to the risk of fluctuating interest rates in the normal course of business. Conectiv manages interest rates through the use of fixed and, to a lesser extent, variable rate debt. The effect of a hypothetical 10% change in interest rates on the annual interest costs for short-term and variable rate debt was approximately $3.5 million as of June 30, 2002 and $3.9 million as of December 31, 2001.

Equity Price Risk

As discussed in Note 8 to the Consolidated Financial Statements included in Item 8 of Part II of Conectiv’s 2001 Annual Report on Form 10-K, Conectiv holds investments in marketable equity securities and venture capital funds, which invest in securities of technology and service companies related to energy, utility, and communication industries. Conectiv is exposed to equity price risk through the securities invested in by the venture capital funds and the marketable securities held directly by Conectiv. The potential change in the fair value of these investments resulting from a hypothetical 10% change in quoted securities prices was approximately $1.8 million as of June 30, 2002 and $2.0 million as of December 31, 2001. Due to the nature of these investments and market conditions, the fair value of these investments may change by substantially more than 10%.

Commodity Price Risk

Conectiv’s participation in wholesale energy markets includes trading and arbitrage activities, which expose Conectiv to commodity market risk. To the extent Conectiv has net open positions, controls are in place that are intended to keep risk exposures within management-approved risk tolerance levels. Conectiv engages in commodity hedging activities to minimize the risk of market fluctuations associated with the purchase and sale of energy commodities (natural gas, petroleum, coal and electricity). Some of Conectiv’s hedging activities are conducted using derivative instruments designated as “cash flow hedges,” which are designed to reduce the variability in future cash flows. Conectiv also hedges its commodity ownership (including electricity produced by Conectiv’s electric generating plants) with offsetting energy transactions (including sales of electricity and other commodities). Conectiv’s energy commodity hedging objectives, in accordance with its risk management policy, are primarily the assurance of stable and known cash flows and the fixing of favorable prices and margins when they become available. Conectiv manages to the objective of hedging the variability in future cash flows for forecasted energy output from its generation assets at 75% or greater of such forecasted output over a period of 36 months. As of June 2002, Conectiv’s average forecasted hedge position for the forward 36 months exceeded that objective.

Counterparties to its various hedging and trading contracts expose Conectiv to credit losses in the event of nonperformance. Management has evaluated such risk, implemented credit checks and established reserves for credit losses. Conectiv is also at risk for a decrease in market liquidity to levels that affect its capability to execute its commodity participation strategies. Conectiv believes the commodity markets to be sufficiently liquid to support its market participation.

Conectiv uses a value-at-risk model to assess the market risk of its electricity, gas, and petroleum products commodity activities. The model includes fixed price sales commitments, physical forward contracts, and commodity derivative instruments. Value-at-risk represents the potential gain or loss on instruments or portfolios due to changes in market factors, for a specified time period and confidence level. Conectiv estimates value-at-risk across its power, gas, and petroleum products commodity business using a delta-normal variance/covariance model with a 95 percent confidence

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level and assuming a five-day holding period. Since value-at-risk is an estimate, it is not necessarily indicative of actual results that may occur. Conectiv’s calculated value-at-risk with respect to its commodity price exposure associated with contractual arrangements was approximately $17.6 million as of June 30, 2002 compared to $3.7 million as of December 31, 2001. The increase reflects a higher level of energy trading activities as of June 30, 2002, in comparison to December 31, 2001. The average, high, and low value-at-risk for the six months ended June 30, 2002 was $22.8 million, $47.8 million and $3.5 million, respectively.

The value-at-risk amounts discussed above include derivatives which are used for hedging. For risk management purposes, Conectiv calculates value-at-risk excluding derivatives used for hedging. The value-at-risk excluding derivatives used for hedging was $1.3 million as of June 30, 2002 and the average, high, and low for the six months ended June 30, 2002 was $6.1 million, $13.8 million and $1.2 million, respectively.

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PART II. OTHER INFORMATION

Item 1. Legal Proceedings

Information reported under the heading “Environmental Matters,” “Air Quality Regulations” in Note 11 to the Consolidated Financial Statements under Item 1 in Part I herein, is incorporated by reference.

Information reported under the heading “Other Matters” in Note 11 to the Consolidated Financial Statements under Item 1 in Part I herein, concerning an agreement for ACE to sell electric distribution facilities to the City of Vineland is incorporated by reference.

Item 5. Other Information

During May and June 2002, CESI responded on the following dates to Federal Energy Regulatory Commission (FERC) inquiries concerning CESI’s energy trading activities: (i) May 17, 2002, to a FERC data request asking whether it had engaged in any of the questionable energy trading strategies in which Enron had engaged; (ii) May 23, 2002, to a FERC data request asking whether it had engaged in any “round trip” or “wash” transactions in the Western System Coordinating Counsel; and (iii) June 5, 2002, to a FERC data request asking whether it had engaged in any “round trip” or “wash” transactions in gas into California or Texas. In all of the responses, CESI stated that it did not engage in any such transactions.

The following information updates the disclosure in Part I of Conectiv’s 2001 Annual Report on Form 10-K concerning the PJM Interconnection, L.L.C. (PJM). On April 1, 2002, the transmission system of Allegheny Power began operating under the PJM’s functional control as PJM West. Allegheny Power operates in parts of Maryland, Ohio, Pennsylvania, Virginia, and West Virginia. On June 26, 2002, American Electric Power, Commonwealth Edison, Illinois Power, and National Grid signed a memorandum of understanding with PJM to develop an independent transmission company that would operate as part of PJM West and expand the size of PJM West. On June 25, 2002, Dominion and PJM signed an agreement, which is subject to regulatory approvals, for Dominion’s transmission lines to be operated on a regional basis by PJM, as PJM South.

On August 1, 2002, Conectiv’s Board of Directors, as reported in Item 10 of Part III of Conectiv’s 2001 Annual Report on Form 10-K, were replaced in connection with the change in control that resulted from the Conectiv/Pepco Merger. The following persons were named to the new Board of Directors:

John M. Derrick, Jr., Chairman
Dennis R. Wraase, Director
William T. Torgerson, Director
Andrew W. Williams, Director
Thomas S. Shaw, Director.

John M. Derrick, Jr. is Chairman and Chief Executive Officer of PHI, and Chairman and Chief Executive Officer of Conectiv. Dennis R. Wraase is President and Chief Operating Officer of PHI. Andrew W. Williams is Senior Vice President and Chief Financial Officer of PHI. Thomas S. Shaw is Executive Vice President of PHI, and President and Chief Operating Officer of Conectiv.

The executive officers of Conectiv, as previously reported on page I-12 in Part I of Conectiv’s 2001 Annual Report on Form 10-K changed as a result of the Conectiv/Pepco Merger, effective August 1, 2002. Howard E. Cosgrove and John C. van Roden were replaced and the following were elected as executive officers of Conectiv:

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John M. Derrick, Chairman and Chief Executive Officer
Thomas S. Shaw, President and Chief Operating Officer
James P. Lavin, Senior Vice President and Chief Financial Officer
Barbara S. Graham, Senior Vice President
Joseph M. Rigby, Senior Vice President
William H. Spence, Senior Vice President

Until August 14, 2002, Thomas S. Shaw is the designated principal executive officer for Conectiv, after which John M. Derrick, as Chief Executive Officer, will assume that responsibility. After August 14, 2002, Conectiv expects that Andrew W. Williams will be Senior Vice President and Chief Financial Officer, and James P. Lavin will be Vice President and Controller.

Item 6. Exhibits and Reports on Form 8-K

(a) Exhibits

Exhibit Number
3-A	Restated Certificate of Incorporation of Conectiv, effective August 1, 2002
3-B	Conectiv’s Amended and Restated By-Laws, effective August 1, 2002
10-A	Non-Competition, Non-Solicitation, and Confidentiality Agreement by and between Conectiv and Howard E. Cosgrove
10-B	Change in Control Severance Agreement – Howard Cosgrove
10-C	Non-Competition, Non-Solicitation, and Confidentiality Agreement by and between Conectiv and John C. van Roden, Jr.
10-D	Change in Control Severance Agreement – John C. van Roden, Jr.
10-E	Restricted Stock Agreement between Thomas S. Shaw and Conectiv
12	Ratio of Earnings to Fixed Charges
99	Certificate of Chief Executive Officer and Chief Financial Officer

(b) Reports on Form 8-K

On April 2, 2002, Conectiv filed a Current Report on Form 8-K dated April 1, 2002 reporting on Item 5, Other Events.

On June 7, 2002, Conectiv filed a Current Report on Form 8-K dated June 7, 2002 reporting on Item 7, Financial Statements and Exhibits.

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SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

	Conectiv   (Registrant)
Date:    August 14, 2002	/s/ Thomas S. Shaw
	Thomas S. Shaw, President and Chief Operating Officer (Principal Executive Officer)
	/s/ James P. Lavin
	James P. Lavin
	Senior Vice President and Chief Financial Officer (Principal Financial and Accounting Officer)

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EX-3.A

Exhibit 3-A

RESTATED CERTIFICATE OF INCORPORATION OF CONECTIV,
EFFECTIVE AUGUST 1, 2002

RESTATED
CERTIFICATE OF INCORPORATION
OF
CONECTIV

            A.   The present name of the corporation is Conectiv. The corporation was originally incorporated under the name DS, Inc., which name was changed to Conectiv, Inc. on December 24, 1996 and to Conectiv on March 1, 1998. The original certificate of incorporation was filed with the Secretary of State of the State of Delaware on August 8, 1996.

            B.   This Restated Certificate of Incorporation of the corporation, which both restates and further amends the provisions of the corporation’s Certificate of Incorporation, as amended, was duly adopted in accordance with the provisions of Sections 242 and 245 of the General Corporation Law of the State of Delaware and by the written consent of its sole stockholder in accordance with Section 228 of the General Corporation Law of the State of Delaware.

            C.   The Certificate of Incorporation of the corporation is hereby amended and restated to read in its entirety as follows:

             FIRST:        The name of this Corporation is “Conectiv” (the “Corporation”).

             SECOND :   The address of the Corporation’s registered office in the State of Delaware is 800 King Street in the City of Wilmington, County of New Castle, 19801. The name of its registered agent at such address is Conectiv Resource Partners, Inc. c/o Legal Department.

             THIRD :      The purpose of the Corporation is to engage in any lawful act or activity for which corporations may be organized under the General Corporation Law of Delaware.

             FOURTH :   The total number of shares of stock that the Corporation shall have authority to issue shall be One Thousand (1,000) shares of Common Stock, par value one cent ($0.01) per share.

             FIFTH :      In furtherance and not in limitation of the powers conferred by the laws of the State of Delaware, the Board of Directors is expressly authorized to make, alter and repeal the by-laws of the Corporation, subject to the power of the stockholders of the Corporation to alter or repeal any by-law whether adopted by them or otherwise.

             SIXTH :      Unless and except to the extent that the by-laws of the Corporation shall so require, the election of directors of the Corporation need not be by written ballot.

             SEVENTH :   The Corporation reserves the right at any time, and from time to time, to amend, alter, change or repeal any provision contained in this Restated Certificate of Incorporation, and other provisions authorized by the laws of the State of Delaware at the time in force may be added or inserted, in the manner now or hereafter prescribed by law; and all rights, preferences and privileges of whatsoever nature conferred upon stockholders, directors or any

other persons whomsoever by and pursuant to this Restated Certificate of Incorporation in its present form or as hereafter amended are granted subject to the rights reserved in this article.   

             EIGHTH:     LIMITATION ON DIRECTOR LIABILITY AND

             INDEMNIFICATION OF DIRECTORS AND OFFICERS

                        SECTION I. LIMITED LIABILITY. A person who is or was a director of the Corporation shall not be personally liable to the Corporation or its stockholders for monetary damages for breach of fiduciary duty as a director, except for liability (a) for any breach of the director’s duty of loyalty to the Corporation or its stockholders, (b) for acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law, (c) under Section 174 of the DGCL, or (d) for any transaction from which the director derived an improper personal benefit. If the DGCL is amended to authorize corporate action further eliminating or limiting the personal liability of directors, then the liability of the directors of the Corporation shall be eliminated or limited to the fullest extent permitted by the DGCL, as so amended. The elimination and limitation of liability provided herein shall continue after a director has ceased to occupy such position as to acts or omissions occurring during such director’s term or terms of office, and no amendment, repeal or modification of this Article IX shall apply to or have any effect on the liability or alleged liability of any director of the Corporation for or with respect to any acts or omissions of such director occurring prior to such amendment, repeal or modification.

                        SECTION II. RIGHT TO INDEMNIFICATION.

                        1.   Each person who was or is a party or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative (hereinafter a “ proceeding ”), by reason of the fact that he or she, or the person of whom he or she is the legal representative, is or was a director or officer of the Corporation or is or was serving at the request of the Corporation as a director, officer, employee or agent of another corporation or of a partnership, joint venture, trust or other enterprise, including service with respect to employee benefit plans, shall be indemnified and held harmless by the Corporation to the fullest extent authorized by the DGCL, as the same exists or may hereafter be amended (but, in the case of any such amendment, only to the extent that such amendment permits the Corporation to provide broader indemnification rights than said law permitted the Corporation to provide prior to such amendment), against all expenses, liability and loss (including attorneys’ fees, judgments, fines, ERISA excise taxes or penalties and amounts paid or to be paid in settlement) reasonably incurred or suffered by such person in connection therewith and such indemnification shall continue as to a person who has ceased to be a director, officer, employee or agent and shall inure to the benefit of his or her heirs, executors and administrators; provided, however, that, except as provided in this Article VIII, Section II, the Corporation shall indemnify any such person seeking indemnification in connection with a proceeding (or part thereof) initiated by such person only if authorized by the Board of Directors of the Corporation. Any indemnification under this Article VIII, Section II (unless ordered by a court) shall be made by the Corporation only as authorized in the specific case upon a determination that indemnification of the director, officer, employee or agent is proper in the circumstances because he or she has met the applicable standard set forth in the

2

DGCL. Such a determination shall be made (a) by a majority vote of the directors who are not parties to such action, suit or proceeding, even though less than a quorum; (b) by independent legal counsel (compensated by the Corporation) in a written opinion; (c) by the stockholders; or (d) in any other manner permitted by the DGCL. In addition to the right to indemnification conferred in this Article VIII, Section II, each of the above persons shall have the right to be paid by the Corporation the expenses incurred in defending any such proceeding in advance of its final disposition; provided , however , that, if the DGCL requires, the payment of such expenses incurred by a director or officer in his or her capacity as a director or officer of the Corporation (and not in any other capacity in which service was or is rendered by such person while a director or officer, including, without limitation, service to an employee benefit plan) in advance of the final disposition of a proceeding, shall be made only upon delivery to the Corporation of an undertaking, by or on behalf of such director or officer, to repay all amounts so advanced if it shall ultimately be determined that such director or officer is not entitled to be indemnified under this Section II or otherwise. The Corporation may, by action of its Board of Directors, provide indemnification to employees and agents of the Corporation with the same scope and effect as the foregoing indemnification of directors and officers. The right to indemnification and to an advancement of expenses conferred in this Article VIII, Section II, shall be a contract right.

                        2.   If a claim under paragraph 1 of this Section II is not paid in full by the Corporation within 30 days after a written claim has been received by the Corporation, the claimant may at any time thereafter bring suit against the Corporation to recover the unpaid amount of the claim and, if successful in whole or in part, the claimant shall be entitled to be paid also the expense of prosecuting such claim (including attorneys’ fees). It shall be a defense to any such action (other than an action brought to enforce a claim for expenses incurred in defending any proceeding in advance of its final disposition where the required undertaking, if any is required, has been tendered to the Corporation) that the claimant has not met the standard of conduct which makes it permissible under the DGCL for the Corporation to indemnify the claimant for the amount claimed, but the burden of proving such defense shall be on the Corporation. Neither the failure of the Corporation (including its Board of Directors, independent legal counsel, or its stockholders) to have made a determination prior to the commencement of such action that indemnification of the claimant is proper in the circumstances because he or she has met the applicable standard of conduct set forth in the DGCL, nor an actual determination by the Corporation (including its Board of Directors, independent legal counsel, or its stockholders) that the claimant has not met such applicable standard of conduct, shall be a defense to the action or create a presumption that the claimant has not met the applicable standard of conduct. In any suit brought by the claimant to enforce a right to indemnification or to an advancement of expenses hereunder, or brought by the Corporation to recover an advancement of expenses pursuant to the terms of an undertaking, the burden of proving that the claimant is not entitled to be indemnified, or to such advancement of expenses, under this Article VIII or otherwise shall be on the Corporation.

                        3.   The rights to indemnification and the payment of expenses incurred in defending a proceeding in advance of its final disposition conferred in this Article VIII, Section II, shall not be exclusive of any other right which any person may have or hereafter acquire under any statute, provision of this Certificate of Incorporation, bylaw, agreement, vote of stockholders or disinterested directors, or otherwise.

3

                        4.   The Corporation may maintain insurance, at its expense, to protect itself and any director, officer, employee or agent of the Corporation or another corporation, partnership, joint venture, trust or other enterprise against any such expense, liability or loss, whether or not the Corporation would have the power to indemnify such person against such expense, liability or loss under the DGCL.

                        5.   The Corporation may enter into an indemnity agreement with any director, officer, employee or agent of the Corporation, or of another corporation, partnership, joint venture, trust or other enterprise, upon terms and conditions that the Board of Directors deems appropriate, as long as the provisions of the agreement are not impermissible under applicable law.

                        6.   Any amendment or repeal of this Article VIII, Section II, shall not be retroactive in effect.

                        7.   In case any provision in this Article VIII, Section II, shall be determined at any time to be unenforceable in any respect, the other provisions shall not in any way be affected or impaired thereby, and the affected provision shall be given the fullest possible enforcement in the circumstances, it being the intention of the Corporation to afford indemnification and advancement of expenses to the persons indemnified hereby to the fullest extent permitted by law.

                        8.   The Corporation may, by action of the Board of Directors, authorize one or more officers to grant rights to indemnification and advancement of expenses to employees or agents of the Corporation on such terms and conditions as such officer or officers deem appropriate under the circumstances.

             NINTH:    That the effective date and time of the merger shall be 4:01 p.m. on August 1, 2002.

           IN WITNESS WHEREOF, Conectiv has caused this Restated Certificate of Incorporation to be executed by Thomas S. Shaw, its President, as of the 1st day of August, 2002.

CONECTIV
By:	/s/ Thomas S. Shaw
Name: Title:	Thomas S. Shaw President

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EX-3.B

EXHIBIT 3-B

CONECTIV’S AMENDED AND RESTATED BY-LAWS, EFFECTIVE AUGUST 1, 2002

CONECTIV

AMENDED AND RESTATED BYLAWS

ARTICLE I

OFFICES

            Section 1. Offices . The registered office shall be in the State of Delaware. The Corporation may have offices at such other places both within and without the State of Delaware as the Board of Directors may from time to time determine or as may be necessary or convenient to the business of the Corporation.

ARTICLE II

MEETINGS OF STOCKHOLDERS

            Section 1. Annual Meeting . The annual meeting of the stockholders of the Corporation shall be held on such date, at such time, and at such place (if any) within or without the State of Delaware as shall be designated from time to time by the Board of Directors and stated in the notice of the meeting. In lieu of holding an annual meeting of stockholders at a designated place, the Board of Directors may, in its sole discretion, determine that any annual meeting of stockholders may be held solely by means of remote communication.

            Section 2. Special Meetings . Special meetings of the stockholders of the Corporation shall be held on such date, at such time, and at such place (if any) within or without the State of Delaware as shall be designated from time to time by the Board of Directors and stated in the notice of the meeting. In lieu of holding a special meeting of stockholders at a designated place, the Board of Directors may, in its sole discretion, determine that any special meeting of stockholders may be held solely by means of remote communication.

            Section 3. Notice of Meetings and Record Date . (a) The Corporation shall give notice of any annual or special meeting of stockholders. Notices of meetings of the stockholders shall state the place, if any, date, and hour of the meeting, and the means of remote communication, if any, by which stockholders and proxyholders may be deemed to be present in person and vote at such meeting. In the case of a special meeting, the notice shall state the purpose or purposes for which the meeting is called. No business other than that specified in the notice thereof shall be transacted at any special meeting. Unless otherwise provided by applicable law or the Certificate of Incorporation, notice shall be given to each stockholder entitled to vote at such meeting not fewer than ten days or more than sixty days before the date of the meeting.

                        (b)   Notice to stockholders may be given by writing in paper form or solely in the form of electronic transmission as permitted by this subsection (b). If given by writing in paper form, notice may be delivered personally, may be delivered by mail, or, with the

consent of the stockholder entitled to receive notice, may be delivered by facsimile telecommunication or any of the other means of electronic transmission specified in this subsection (b). If mailed, such notice shall be delivered by postage prepaid envelope directed to each stockholder at such stockholder’s address as it appears in the records of the Corporation. Any notice to stockholders given by the Corporation shall be effective if delivered or given by a form of electronic transmission to which the stockholder to whom the notice is given has consented. Notice given pursuant to this subsection shall be deemed given: (1) if by facsimile telecommunication, when directed to a facsimile telecommunication number at which the stockholder has consented to receive notice; (2) if by electronic mail, when directed to an electronic mail address at which the stockholder has consented to receive notice; (3) if by posting on an electronic network together with separate notice to the stockholder of such specific posting, upon the later of (A) such posting and (B) the giving of such separate notice; and (4) if by any other form of electronic transmission, when directed to the stockholder. An affidavit of the secretary or an assistant secretary or of the transfer agent or other agent of the Corporation that the notice has been given by personal delivery, by mail, or by a form of electronic transmission shall, in the absence of fraud, be prima facie evidence of the facts stated therein.

                        (c)   Notice of any meeting of stockholders need not be given to any stockholder if waived by such stockholder either in a writing signed by such stockholder or by electronic transmission, whether such waiver is given before or after such meeting is held. If such a waiver is given by electronic transmission, the electronic transmission must either set forth or be submitted with information from which it can be determined that the electronic transmission was authorized by the stockholder.

                        (d)   In order that the Corporation may determine the stockholders entitled to notice of or to vote at any meeting of stockholders or any adjournment thereof, the Board of Directors may fix a record date, which record date shall not precede the date upon which the resolution fixing the record date is adopted by the Board of Directors, and which record date shall not be more than sixty or fewer than ten days before the date of such meeting. If no record date is fixed by the Board of Directors, the record date for determining stockholders entitled to notice of or to vote at any meeting of stockholders or any adjournment thereof shall be at the close of business on the day next preceding the day on which notice is given, or, if notice is waived, at the close of business on the day next preceding the day on which the meeting is h eld.

            Section 4. Quorum and Adjournment . Except as otherwise required by law, by the Certificate of Incorporation of the Corporation, or by these Bylaws, the presence, in person or represented by proxy, of the holders of a majority of the aggregate voting power of the stock issued and outstanding, entitled to vote thereat, shall constitute a quorum for the transaction of business at all meetings of the stockholders. If such majority shall not be present or represented at any meeting of the stockholders, the stockholders present, although less than a quorum, shall have the power to adjourn the meeting to another time and place.

            Section 5. Adjourned Meetings . When a meeting is adjourned to another time and place, if any, unless otherwise provided by these Bylaws, notice need not be given of the adjourned meeting if the date, time, and place, if any, thereof and the means of remote

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communication, if any, by which stockholders and proxyholders may be deemed to be present in person and vote at such adjourned meeting, are announced at the meeting at which the adjournment is taken. At the adjourned meeting, the stockholders may transact any business that might have been transacted at the original meeting. A determination of stockholders of record entitled to notice of or to vote at a meeting of stockholders shall apply to any adjournment of such meeting; provided , however , that the Board of Directors may fix a new record date for the adjourned meeting. If an adjournment is for more than 30 days or, if after an adjournment, a new record date is fixed for the adjourned meeting, a notice of the adjourned meeting shall be given to each stockholder entitled to vote at the meeting.

            Section 6. Vote Required . Except as otherwise provided by law or by the Certificate of Incorporation:

                        (a)   Directors shall be elected by a plurality in voting power of the shares present in person or represented by proxy at a meeting of the stockholders and entitled to vote in the election of directors; and

                        (b)   Whenever any corporate action other than the election of directors is to be taken, it shall be authorized by a majority in voting power of the shares present in person or represented by proxy at a meeting of stockholders and entitled to vote on the subject matter.

            Section 7. Manner of Voting; Proxies . (a) At each meeting of stockholders, each stockholder having the right to vote shall be entitled to vote in person or by proxy. Each stockholder shall be entitled to vote each share of stock having voting power and registered in such stockholder’s name on the books of the Corporation on the record date fixed for determination of stockholders entitled to vote at such meeting.

                        (b)   Each person entitled to vote at a meeting of stockholders or to express consent or dissent to corporate action in writing without a meeting may authorize another person or persons to act for such stockholder by proxy, but no such proxy shall be voted or acted upon after three years from its date, unless the proxy provides for a longer period. A proxy shall be irrevocable if it states that it is irrevocable and if, and only so long as, it is coupled with an interest sufficient in law to support an irrevocable power. Proxies need not be filed with the Secretary of the Corporation until the meeting is called to order, but shall be filed before being voted. Without limiting the manner in which a stockholder may authorize another person or persons to act for such stockholder as proxy, the following shall constitute valid mea ns by which a stockholder may grant such authority:

            (1)   A stockholder may execute a writing authorizing another person or persons to act for such stockholder as proxy. Execution may be accomplished by the stockholder or the stockholder’s authorized officer, director, employee, or agent signing such writing or causing such person’s signature to be affixed to such writing by any reasonable means including, but not limited to, by facsimile signature; and

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            (2)   A stockholder may authorize another person or persons to act for such stockholder as proxy by transmitting or authorizing the transmission of a telegram, cablegram, or other means of electronic transmission to the person or persons who will be the holder of the proxy or to an agent of the proxyholder(s) duly authorized by such proxyholder(s) to receive such transmission; provided , however , that any such telegram, cablegram, or other means of electronic transmission must either set forth or be submitted with information from which it can be determined that the telegram, cablegram, or other electronic transmission was authorized by the stockholder. If it is determined that any such telegram, cablegram, or other electronic transmission is valid, the inspectors or, if there are no inspectors, such other persons making that determination, shall specify the information upon which they relied.

Any copy, facsimile telecommunication, or other reliable reproduction of a writing or electronic transmission authorizing a person or persons to act as proxy for a stockholder may be substituted or used in lieu of the original writing or electronic transmission for any and all purposes for which the original writing or electronic transmission could be used; provided , however , that such copy, facsimile telecommunication, or other reproduction shall be a complete reproduction of the entire original writing or electronic transmission.

            Section 8. Remote Communication . For the purposes of these Bylaws, if authorized by the Board of Directors in its sole discretion, and subject to such guidelines and procedures as the Board of Directors may adopt, stockholders and proxyholders may, by means of remote communication:

            (A)   participate in a meeting of stockholders; and

            (B)   be deemed present in person and vote at a meeting of stockholders whether such meeting is to be held at a designated place or solely by means of remote communication, provided that (i) the Corporation shall implement reasonable measures to verify that each person deemed present and permitted to vote at the meeting by means of remote communication is a stockholder or proxyholder, (ii) the Corporation shall implement reasonable measures to provide such stockholders and proxyholders a reasonable opportunity to participate in the meeting and to vote on matters submitted to the stockholders, including an opportunity to read or hear the proceedings of the meeting substantially concurrently with such proceedings, and (iii) if any stockholder or proxyholder votes or takes other action at the meeting by means of remote communication, a record of such vote or other action shall be maintained by the c orporation.

            Section 9. Stockholder Action Without a Meeting . (a) Except as otherwise provided by law or by the Certificate of Incorporation, any action required to be taken at any meeting of stockholders of the Corporation, or any action that may be taken at any annual or special meeting of such stockholders, may be taken without a meeting, without prior notice, and without a vote, if a consent or consents in writing setting forth the action so taken, shall be signed by the holders of outstanding stock having not less than the minimum number of votes

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that would be necessary to authorize or take such action at a meeting at which all shares entitled to vote thereon were present and voted and shall be delivered to the Corporation by delivery to its registered office in the State of Delaware, its principal place of business, or an officer or agent of the Corporation having custody of the book or books in which meetings of stockholders are recorded; provided , however , that delivery made to the Corporation’s registered office in the State of Delaware shall be by hand or by certified mail, return receipt requested. Prompt notice of the taking of the corporate action without a meeting by less than unanimous written consent shall be given to those stockholders who have not consented in writing and who, if the action had been taken at a meeting, would have been entitled to notice of the meeting if the record date for such meeting had been the date that written consents signed by a sufficient number of the holders to take the action were delivered to the Corporation.

                        (b)   A telegram, cablegram, or other electronic transmission consenting to an action to be taken and transmitted by a stockholder or proxyholder, or by a person or persons authorized to act for a stockholder or proxyholder, shall be deemed to be written, signed, and dated for the purposes of these Bylaws, provided that any such telegram, cablegram, or other electronic transmission sets forth or is delivered with information from which the Corporation can determine (A) that the telegram, cablegram, or other electronic transmission was transmitted by the stockholder or proxyholder or by a person or persons authorized to act for the stockholder or proxyholder and (B) the date on which such stockholder or proxyholder or authorized person or persons transmitted such telegram, cablegram, or electronic transmission. Any consent by means of telegram, cablegram, or other electronic transmission shall be deemed to have been signed on the date on which such telegram, cablegram, or electronic transmission was transmitted. No consent given by telegram, cablegram, or other electronic transmission shall be deemed to have been delivered until such consent is reproduced in paper form and until such paper form shall be delivered to the Corporation by delivery to its registered office in the State of Delaware, its principal place of business or an officer or agent of the Corporation having custody of the book in which proceedings of meetings of stockholders are recorded. Delivery made to a Corporation’s registered office shall be made by hand or by certified or registered mail, return receipt requested. Notwithstanding the foregoing limitations on delivery, consents given by telegram, cablegram, or other electronic transmission may be otherwise delivered to the principal place of business of the Corporation or to an officer or agent of the Corporation having custody of the book in which proceedings of meetings of stockholders are recorded if, to the extent, and in the manner provided by resolution of the Board of Directors of the Corporation.

                        (c)   Any copy, facsimile, or other reliable reproduction of a consent in writing (or reproduction in paper form of a consent by telegram, cablegram, or electronic transmission) may be substituted or used in lieu of the original writing (or original reproduction in paper form of a consent by telegram, cablegram, or electronic transmission) for any and all purposes for which the original consent could be used, provided that such copy, facsimile, or other reproduction shall be a complete reproduction of the entire original writing (or original reproduction in paper form of a consent by telegram, cablegram, or electronic transmission).

                        (d)   In order to determine the stockholders entitled to consent to corporate action in writing without a meeting, the Board of Directors may fix a record date. Such record date shall not precede the date upon which the resolution fixing the record date is

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adopted by the Board of Directors, and shall not be more than ten days after the date upon which the resolution fixing the record date is adopted by the Board of Directions. If no record date has been fixed by the Board of Directors, the record date for determining stockholders entitled to consent to corporate action in writing without a meeting, when no prior action of the Board of Directors is required by applicable law, the Certificate of Incorporation, or these Bylaws, shall be the first date on which a signed written consent setting forth the action taken or proposed to be taken is delivered to the Corporation in the manner set forth in subsections (a) and (b) of this Section 9. If no record date has been fixed by the Board of Directors and prior action of the Board of Directors is required by applicable law, the Certificate of Incorporation, or these Bylaws, the record date for determining stockholders entitled to consent to corporate action in writing without a meeting shall be the close of business on the day on which the Board of Directors adopts the resolution taking such prior action.

ARTICLE III

DIRECTORS

            Section 1. Number . The number of directors that shall constitute the whole Board of Directors initially shall be one (1), and thereafter shall be such number of directors to be determined from time to time by resolution adopted by the Board of Directors.

            Section 2. Powers . The Board of Directors shall exercise all of the powers of the Corporation except such as are by applicable law, by the Certificate of Incorporation of this Corporation, or by these Bylaws conferred upon or reserved to the stockholders of any class or classes or series thereof.

            Section 3. Resignations and Removal . (a) Any director may resign at any time by giving written notice in writing or by electronic transmission to the Board of Directors or the Secretary; provided , however , that if such notice is given by electronic transmission, such electronic transmission must either set forth or be submitted with information from which it can be determined that the electronic transmission was authorized by the director. Such resignation shall take effect at the date of receipt of such notice or at any later time specified therein. Acceptance of such resignation shall not be necessary to make it effective.

                        (b)   Except as otherwise may be provided in the Certificate of Incorporation, any director or the entire Board of Directors may be removed with or without cause, by the holders of capital stock having a majority in voting power of the shares entitled to vote in the election of directors.

            Section 4. Regular Meetings . Regular meetings of the Board of Directors shall be held on such dates and at such times and places, within or without the State of Delaware, as shall from time to time be determined by the Board of Directors, such determination to constitute the only notice of such regular meetings to which any director shall be entitled. In the absence of any such determination, such meetings shall be held, upon notice to each director in accordance

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with Section 7 of this Article III, at such times and places, within or without the State of Delaware, as shall be designated by the Chairman of the Board.

            Section 5. Special Meetings . Special meetings of the Board of Directors shall be held at the call of the Chairman of the Board at such times and places, within or without the State of Delaware, as he or she shall designate, upon notice to each director in accordance with Section 7 of this Article III. Special meetings shall be called by the Secretary on like notice at the written request of a majority of the directors then in office.

            Section 6. Notice . Notice of any regular (if required) or special meeting of the Board of Directors may be given verbally in person, verbally by telephone (including by leaving verbal notice on a message or recording device), or in writing. If in writing, notice shall be delivered personally, by mail, by facsimile transmission (directed to the facsimile transmission number for which the director has consented to receive notice), by telegram, by electronic mail (directed to such electronic mail address to which the director has consented to receive notice), or by other form of electronic transmission pursuant to which the director has consented to receive notice. If notice is given verbally in person, verbally by telephone, or in writing by personal delivery, by facsimile transmission, by telegram, by electronic mail, or by other form of electronic transmission pursuant to which the director has consent ed to receive notice, then such notice shall be given on not less than twenty-four hours’ notice to each director. If written notice is delivered by mail, then it shall be given on not less than three (3) calendar days’ notice to each director.

            Section 7. Waiver of Notice . Notice of any meeting of the Board of Directors, or any committee thereof, need not be given to any member if waived by him or her in writing or by electronic transmission, whether before or after such meeting is held, or if he or she shall sign the minutes or attend the meeting, except that if such director attends a meeting for the express purpose of objecting at the beginning of the meeting to the transaction of any business because the meeting is not lawfully called or convened, then such director shall not be deemed to have waived notice of such meeting. If waiver of notice is given by electronic transmission, such electronic transmission must either set forth or be submitted with information from which it can be determined that the electronic transmission was authorized by the director.

            Section 8. Quorum and Powers of a Majority . At all meetings of the Board of Directors and of each committee thereof, a majority of the members of the Board of Directors or of such committee shall be necessary and sufficient to constitute a quorum for the transaction of business. The act of a majority of the members present at any meeting of the Board of Directors or a committee thereof at which a quorum is present shall be the act of the Board of Directors or such committee, unless by express provision of law, of the Certificate of Incorporation, or of these Bylaws, a different vote is required, in which case such express provision shall govern and control. In the absence of a quorum, a majority of the members present at any meeting may, without notice other than announcement at the meeting, adjourn such meeting from time to time until a quorum is present.

            Section 9. Manner of Acting . (a) Members of the Board of Directors, or any committee thereof, may participate in any meeting of the Board of Directors or such committee by means of conference telephone or other communications equipment by means of which all

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persons participating therein can hear each other, and participation in a meeting by such means shall constitute presence in person at such meeting.

                        (b)   Any action required or permitted to be taken at any meeting of the Board of Directors or any committee thereof may be taken without a meeting if all members of the Board of Directors or such committee, as the case may be, consent thereto in writing or by electronic transmission, and the writing or writings or electronic transmission or transmissions are filed with the minutes of proceedings of the Board of Directors or such committee; provided however , that such electronic transmission or transmissions must either set forth or be submitted with information from which it can be determined that the electronic transmission or transmissions were authorized by the director. Such filing shall be in paper form if the minutes are maintained in paper form and shall be in electronic form if the minutes are maint ained in electronic form.

            Section 10. Committees . The Board of Directors may designate one or more committees, each committee to consist of one or more directors, which to the extent provided in said resolution or resolutions shall have and may exercise the powers and authority of the Board of Directors in the management of the business and affairs of the Corporation (including the power and authority to designate other committees of the Board of Directors); provided, however, that no such committee shall have the power or authority in reference to the following matters: (i) approving or adopting, or recommending to the stockholders, any action or matter expressly required by the General Corporation Law of the State of Delaware to be submitted to stockholders for approval or (ii) adopting, amending, or repealing any Bylaw of the Corporation. The Board of Directors may designate one or more directors as alternate members of any committee to replace any absent or disqualified member of the committee. In the absence or disqualification of a member of a committee, the member or members present at any meeting of such committee and not disqualified from voting, whether or not such member or members constitute a quorum, may unanimously appoint another member of the Board of Directors to act at the meeting in place of such absent or disqualified director.

            Section 11. Committee Procedure, Limitations of Committee Powers . (a) Except as otherwise provided by these Bylaws, each committee shall adopt its own rules governing the time, place, and method of holding its meetings and the conduct of its proceedings and shall meet as provided by such rules or by resolution of the Board of Directors. Unless otherwise provided by these Bylaws or any such rules or resolutions, notice of the time and place of each meeting of a committee shall be given to each member of such committee as provided in Section 6 of this Article III with respect to notices of meetings of the Board of Directors.

                        (b)   Each committee shall keep regular minutes of its proceedings and report the same to the Board of Directors when required.

                        (c)   Any member of any committee may be removed from such committee either with or without cause, at any time, by the Board of Directors at any meeting thereof. Any vacancy in any committee shall be filled by the Board of Directors in the manner prescribed by the Certificate of Incorporation or these Bylaws for the original appointment of the members of such committee.

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            Section 12. Vacancies and Newly-Created Directorships . Unless otherwise provided in the Certificate of Incorporation or in these Bylaws, vacancies and newly-created directorships resulting from any increase in the authorized number of directors may be filled by a majority of the directors then in office, although less than a quorum, or by a sole remaining director. Unless otherwise provided in the Certificate of Incorporation or these Bylaws, when one or more directors shall resign from the Board, effective at a future date, a majority of directors then in office, including those who have resigned, shall have the power to fill such vacancy or vacancies, the vote thereon to take effect when such resignation or resignations shall become effective.

            Section 13. Compensation . (a) The Board of Directors, by a resolution or resolutions, may fix, and from time to time change, the compensation of Directors.

                        (b)   Each director shall be entitled to reimbursement from the Corporation for his or her reasonable expenses incurred with respect to duties as a member of the Board of Directors or any committee thereof.

                        (c)   Nothing contained in these Bylaws shall be construed to preclude any director from serving the Corporation in any other capacity and from receiving compensation from the Corporation for service rendered to it in such other capacity.   

ARTICLE IV

OFFICERS

            Section 1. Number . The officers of the Corporation shall include a President, one or more Vice Presidents (including one or more Executive Vice Presidents and one or more Senior Vice Presidents if deemed appropriate by the Board of Directors), a Secretary, and a Treasurer. The Board of Directors also may elect such other officers as the Board of Directors may from time to time deem appropriate or necessary.

            Section 2. Election of Officers, Term, and Qualifications . The officers of the Corporation shall be elected from time to time by the Board of Directors and, except as may otherwise be expressly provided in a contract of employment duly authorized by the Board of Directors, shall hold office at the pleasure of the Board of Directors. Except for the Chairman of the Board and the Vice Chairman of the Board, none of the officers of the Corporation needs to be a director of the Corporation. Any two or more offices may be held by the same person to the extent permitted by the General Corporation Law of the State of Delaware.

            Section 3. Removal . Any officer elected by the Board of Directors may be removed, either with or without cause, by the Board of Directors at any meeting thereof, or to the extent delegated to the Chairman of the Board, by the Chairman of the Board.

            Section 4. Resignations . Any officer of the Corporation may resign at any time by giving notice in writing or by electronic transmission to the Board of Directors or to the

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Chairman of the Board; provided , however , that if such notice is given by electronic transmission, such electronic transmission must either set forth or be submitted with information from which it can be determined that the electronic transmission was authorized by the officer. Such resignation shall take effect at the date of the receipt of such notice or at any later time specified therein and, unless otherwise specified therein, the acceptance of such resignation shall not be necessary to make it effective.

            Section 5. Salaries . The salaries of all officers of the Corporation shall be fixed by the Board of Directors from time to time, and no officer shall be prevented from receiving such salary by reason of the fact that he or she also is a director of the Corporation.

            Section 6. The President . The President shall be the chief executive officer of the Corporation. The President shall have, subject to the supervision, direction, and control of the Board of Directors, the general powers and duties of supervision, direction, and management of the affairs and business of the Corporation customarily and usually associated with the position of chief executive officer, including, without limitation, all powers necessary to direct and control the organizational and reporting relationships within the Corporation.

            Section 7. The Vice Presidents . Each Vice President if any shall be elected, shall have such powers and perform such duties as may from time to time be assigned to him or her by the Board of Directors or the President.

            Section 8. The Secretary and Assistant Secretaries . (a) The Secretary shall attend meetings of the Board of Directors and meetings of the stockholders and record all votes and minutes of all such proceedings in a book or books kept for such purpose. The Secretary shall have all such further powers and duties as are customarily and usually associated with the position of Secretary or as may from time to time be assigned to him or her by the Board of Directors or the President.

                        (b)   Each Assistant Secretary shall have such powers and perform such duties as may from time to time be assigned to him or her by the Board of Directors, the President, or the Secretary. In the case of absence or disability of the Secretary, the Assistant Secretary designated by the President (or, in the absence of such designation, by the Secretary) shall perform the duties and exercise the powers of the Secretary.

            Section 11. The Treasurer and Assistant Treasurers . (a) The Treasurer shall have custody of the Corporation’s funds and securities, shall be responsible for maintaining the Corporation’s accounting records and statements, shall keep full and accurate accounts of receipts and disbursements in books belonging to the Corporation, and shall deposit or cause to be deposited moneys or other valuable effects in the name and to the credit of the Corporation in such depositories as may be designated by the Board of Directors. The Treasurer also shall maintain adequate records of all assets, liabilities, and transactions of the Corporation and shall assure that adequate audits thereof are currently and regularly made. The Treasurer shall have all such further powers and duties as are customarily and usually associated with the position of Treasurer or as may from time to time be assigned to him or her by the Board of Directors or the President.

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                        (b)   Each Assistant Treasurer shall have such powers and perform such duties as may from time to time be assigned to him or her by the Board of Directors or the Treasurer. In the case of absence or disability of the Treasurer, the Assistant Treasurer designated by the President (or, in the absence of such designation, by the Treasurer) shall perform the duties and exercise the powers of the Treasurer.

ARTICLE V

STOCK

            Section 1. Certificates . The shares of capital stock of the Corporation shall be represented by certificates, unless the Board of Directors provides by resolution or resolutions that some or all of the shares of any class or classes, or series thereof, of the Corporation’s capital stock shall be uncertificated. Notwithstanding the adoption of any such resolution or resolutions by the Board of Directors providing for uncertificated shares, to the extent required by law, every holder of capital stock of the Corporation represented by certificates, and upon request, every holder of uncertificated shares, shall be entitled to a certificate representing such shares. Certificates for shares of stock of the Corporation shall be issued under the seal of the Corporation, or a facsimile thereof, and shall be numbered and shall be entered in the books of the Corporation as they are issued. Each certificate shall bear a serial number, shall exhibit the holder’s name and the number of shares evidenced thereby, and shall be signed by the Chairman of the Board or a Vice Chairman, if any, or the President or any Vice President, and by the Secretary or an Assistant Secretary or the Treasurer or an Assistant Treasurer. Any or all of the signatures on the certificate may be a facsimile. If any officer, transfer agent, or registrar who has signed or whose facsimile signature has been placed upon a certificate shall have ceased to be such officer, transfer agent, or registrar before such certificate is issued, the certificate may be issued by the Corporation with the same effect as if such person or entity were such officer, transfer agent, or registrar at the date of issue.

            Section 2. Transfers . Transfers of stock of the Corporation shall be made on the books of the Corporation only upon surrender to the Corporation of a certificate (if any) for the shares duly endorsed or accompanied by proper evidence of succession, assignment, or authority to transfer; provided , however , that such succession, assignment, or transfer is not prohibited by the Certificate of Incorporation, these Bylaws, applicable law, or contract. Thereupon, the Corporation shall issue a new certificate (if requested) to the person entitled thereto, cancel the old certificate (if any), and record the transaction upon its books.

            Section 3. Lost, Stolen, or Destroyed Certificates . Any person claiming a certificate of stock to be lost, stolen, or destroyed shall make an affidavit or an affirmation of that fact, and shall give the Corporation a bond of indemnity in satisfactory form and with one or more satisfactory sureties, whereupon a new certificate (if requested) may be issued of the same tenor and for the same number of shares as the one alleged to be lost, stolen, or destroyed.

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            Section 4. Registered Stockholders . The names and addresses of the holders of record of the shares of each class and series of the Corporation’s capital stock, together with the number of shares of each class and series held by each record holder and the date of issue of such shares, shall be entered on the books of the Corporation. The Corporation shall be entitled to recognize the exclusive right of a person registered on its books as the owner of shares of capital stock of the Corporation as the person entitled to exercise the rights of a stockholder, including, without limitation, the right to vote in person or by proxy at any meeting of the stockholders of the Corporation. The Corporation shall not be bound to recognize any equitable or other claim to or interest in any such shares on the part of any other person, whether or not it shall have express or other notice thereof, except as otherwi se expressly provided by the General Corporation Law of the State of Delaware.

            Section 5. Additional Powers of the Board . (a) In addition to those powers set forth in Section 2 of Article III, the Board of Directors shall have power and authority to make all such rules and regulations as it shall deem expedient concerning the issue, transfer, and registration of certificates for shares of stock of the Corporation, including the use of uncertificated shares of stock, subject to the provisions of the General Corporation Law of the State of Delaware, the Certificate of Incorporation, and these Bylaws.

                        (b)   The Board of Directors may appoint and remove transfer agents and registrars of transfers, and may require all stock certificates to bear the signature of any such transfer agent and/or any such registrar of transfers.

ARTICLE VI

INDEMNIFICATION

            Section 1. Indemnification . (a) The Corporation shall indemnify, to the full extent that it shall have power under applicable law to do so and in a manner permitted by such law, any person made or threatened to be made a party to any threatened, pending, or completed action, suit, or proceeding, whether civil, criminal, administrative, or investigative (hereinafter, a “Proceeding”), by reason of the fact that such person is or was a director or officer of the Corporation, or is or was serving at the request of Corporation as a director or officer of another corporation, partnership, joint venture, trust, or other enterprise, including service with respect to an employee benefit plan (collectively, “Another Enterprise”).

                        (b)   The Corporation may indemnify, to the full extent that it shall have power under applicable law to do so and in a manner permitted by such law, any person made or threatened to be made a party to any Proceeding, by reason of the fact that such person is or was an employee or agent of the Corporation, or is or was serving at the request of the Corporation as an employee or agent of Another Enterprise.

            Section 2. Advancement of Expenses . (a) With respect to any person made or threatened to be made a party to any threatened, pending, or completed Proceeding, by reason of the fact that such person is or was a director or officer of the Corporation or is or was serving at

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the request of the Corporation as a director or officer of Another Enterprise, the Corporation shall pay the expenses (including attorneys’ fees) incurred by such person in defending any such Proceeding in advance of its final disposition (hereinafter an “advancement of expenses”); provided , however , that any advancement of expenses shall be made only upon receipt of an undertaking (hereinafter an “undertaking”) by such person to repay all amounts advanced if it shall ultimately be determined by final judicial decision from which there is no further right to appeal (hereinafter a “Final Adjudication”) that such person is not entitled to be indemnified for such expenses under this Article VI or otherwise. Anything herein to the contrary notwithstanding, with respect to a Proceeding (or part thereof) initiated against the Corporation by a director or officer of the Corporation (or by a person serving at the request of the Corporation as a director or officer of Another Enterprise), the Corporation shall not be required to indemnify or to pay the expenses (including attorneys’ fees) incurred by such person in prosecuting such Proceeding (or part thereof) or in defending any counterclaim, cross-claim, affirmative defense, or like claim of the Corporation in connection with such Proceeding (or part thereof) in advance of the final disposition of such Proceeding (or part thereof) unless such Proceeding was authorized by the Board of Directors of the Corporation.

                        (b)   With respect to any person made or threatened to be made a party to any Proceeding, by reason of the fact that such person is or was an employee or agent of the Corporation, or is or was serving at the request of the Corporation as an employee or agent of Another Enterprise, the Corporation may, in its discretion and upon such terms and conditions, if any, as the Corporation deems appropriate, pay the expenses (including attorneys’ fees) incurred by such person in defending any such Proceeding in advance of its final disposition.

            Section 3. Contract Rights . With respect to any person made or threatened to be made a party to any Proceeding, by reason of the fact that such person is or was a director or officer of the Corporation, or is or was serving at the request of the Corporation as a director or officer of Another Enterprise, the rights to indemnification and to the advancement of expenses conferred in Sections 1(a) and 2(a) of this Article VI shall be contract rights.

            Section 4. Claims . (a) If (X) a claim under Section 1(a) of this Article VI with respect to any right to indemnification is not paid in full by the Corporation within sixty days after a written demand has been received by the Corporation or (Y) a claim under Section 2(a) of this Article VI with respect to any right to the advancement of expenses is not paid in full by the Corporation within twenty days after a written demand has been received by the Corporation, then the person seeking to enforce a right to indemnification or to an advancement of expenses, as the case may be, may at any time thereafter bring suit against the Corporation to recover the unpaid amount of the claim.

                        (b) If successful in whole or in part in any suit brought pursuant to Section 4(a) of this Article VI, or in a suit brought by the Corporation to recover an advancement of expenses (whether pursuant to the terms of an undertaking or otherwise), the person seeking to enforce a right to indemnification or an advancement of expenses hereunder or the person from whom the Corporation sought to recover an advancement of expenses, as the case may be, shall be entitled to be paid by the Corporation the reasonable expenses (including attorneys’ fees) of prosecuting or defending such suit.

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                        (c)   In any suit brought by a person seeking to enforce a right to indemnification hereunder (but not a suit brought by a person seeking to enforce a right to an advancement of expenses hereunder), it shall be a defense that the person seeking to enforce a right to indemnification has not met any applicable standard for indemnification under applicable law. With respect to any suit brought by a person seeking to enforce a right to indemnification or right to advancement of expenses hereunder or any suit brought by the Corporation to recover an advancement of expenses (whether pursuant to the terms of an undertaking or otherwise), neither (i) the failure of the Corporation to have made a determination prior to commencement of such suit that indemnification of such person is proper in the circumstances because such person has met the applicable standards of conduct under applicable law, nor (ii) an actual determination by the Corporation that such person has not met such applicable standards of conduct, shall create a presumption that such person has not met the applicable standards of conduct or, in a case brought by such person seeking to enforce a right to indemnification, be a defense to such suit.

                        (d)   In any suit brought by a person seeking to enforce a right to indemnification or to an advancement of expenses hereunder, or by the Corporation to recover an advancement of expenses (whether pursuant to the terms of an undertaking or otherwise), the burden shall be on the Corporation to prove that the person seeking to enforce a right to indemnification or to an advancement of expenses or the person from whom the Corporation seeks to recover an advancement of expenses is not entitled to be indemnified, or to such an advancement of expenses, under this Article VI or otherwise.

            Section 5. Non-Exclusive Rights . The indemnification and advancement of expenses provided in this Article VI shall not be deemed exclusive of any other rights to which any person may be entitled under any bylaw, agreement, vote of stockholders or disinterested directors, or otherwise, both as to action in such person’s official capacity and as to action in another capacity while holding such office, and shall continue as to a person who has ceased to be such director, officer, employee, or agent and shall inure to the benefit of the heirs, executors, and administrators of such person.

            Section 6. Insurance . The Corporation may purchase and maintain insurance on behalf of any person who is or was a director, officer, employee, or agent of the Corporation, or is or was serving at the request of the Corporation as a director, officer, employee, or agent of Another Enterprise against any liability asserted against such person and incurred by such person in any such capacity, or arising out of such person’s status as such, whether or not the Corporation would have the power to indemnify such person against such liability under the provisions of this Article VI or otherwise.

ARTICLE VII

MISCELLANEOUS

            Section 1. Books and Records . (a) Any books or records maintained by the Corporation in the regular course of its business, including its stock ledger, books of account,

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and minute books, may be kept on, or by means of, or be in the form of, any information storage device or method; provided , however , that the books and records so kept can be converted into clearly legible paper form within a reasonable time. The Corporation shall so convert any books or records so kept upon the request of any person entitled to inspect such records pursuant to the Certificate of Incorporation, these Bylaws, or the provisions of the General Corporation Law of the State of Delaware.

                        (b)   It shall be the duty of the Secretary or other officer of the Corporation who shall have charge of the stock ledger to prepare and make, at least ten days before every meeting of the stockholders, a complete list of the stockholders entitled to vote thereat, arranged in alphabetical order, and showing the address of each stockholder and the number of shares registered in the stockholder’s name. Nothing contained in this subsection (b) shall require the Corporation to include electronic mail addresses or other electronic contact information on such list. Such list shall be open to the examination of any stockholder, for any purpose germane to the meeting for a period of at least 10 days prior to the meeting: (i) on a reasonably accessible electronic network, provided that the information required to gain access to s uch list is provided with the notice of the meeting, or (ii) during ordinary business hours, at the principal place of business of the Corporation. In the event that the Corporation determines to make the list available on an electronic network, the Corporation may take reasonable steps to ensure that such information is available only to stockholders of the Corporation. If the meeting is to be held at a place, then the list shall be produced and kept at the time and place of the meeting during the whole time thereof, and may be inspected by any stockholder who is present. If the meeting is to be held solely by means of remote communication, then the list shall also be open to the examination of any stockholder during the whole time of the meeting on a reasonably accessible network, and the information required to access such list shall be provided with the notice of the meeting. The stock ledger shall be the only evidence of the identity of the stockholders entitled to examine such list.

                        (c)   Except to the extent otherwise required by law, or by the Certificate of Incorporation, or by these Bylaws, the Board of Directors shall determine from time to time whether and, if allowed, when and under what conditions and regulations the stock ledger, books, records, and accounts of the Corporation, or any of them, shall be open to inspection by the stockholders and the stockholders’ rights, if any, in respect thereof. The stock ledger shall be the only evidence of the identity of the stockholders entitled to examine the stock ledger, the books, records, or accounts of the Corporation.

            Section 2. Voting Shares in Other Business Entities . The President or any other officer of the Corporation designated by the Board of Directors may vote any and all shares of stock or other equity interest held by the Corporation in any other corporation or other business entity, and may exercise on behalf of the Corporation any and all rights and powers incident to the ownership of such stock or other equity interest.

            Section 3. Record Date for Distributions and Other Actions . In order that the Corporation may determine the stockholders entitled to receive payment of any dividend or other distribution, or allotment of any rights, or the stockholders entitled to exercise any rights in respect of any change, conversion, or exchange of capital stock, or for the purpose of any other

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lawful action, except as may otherwise be provided in these Bylaws, the Board of Directors may fix a record date. Such record date shall not precede the date upon which the resolution fixing such record date is adopted, and shall not be more than sixty days prior to such action. If no record date is fixed, the record date for determining stockholders for any such purpose shall be the close of business on the day on which the Board of Directors adopts the resolution relating thereto.

            Section 4. Fiscal Year . The fiscal year of the Corporation shall be such fiscal year as the Board of Directors from time to time by resolution shall determine.

            Section 5. Electronic Transmission . For purposes of these Bylaws, “electronic transmission” means any form of communication, not directly involving the physical transmission of paper, that creates a record that may be retained, retrieved, and reviewed by a recipient thereof, and that may be directly reproduced in paper form by such a recipient through an automated process.

            Section 6. Amendment . These Bylaws may be altered, amended, or repealed at any meeting of the Board of Directors, or at any meeting of the stockholders of the Corporation.

END OF BYLAWS

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EX-10.A

EXHIBIT 10-A

NON-COMPETITION, NON-SOLICITATION, AND CONFIDENTIALITY
AGREEMENT BY AND BETWEEN CONECTIV AND HOWARD E. COSGROVE

NON-COMPETITION, NON-SOLICITATION,
AND CONFIDENTIALITY AGREEMENT

            THIS NON-COMPETITION, NON-SOLICITATION, AND CONFIDENTIALITY AGREEMENT (the “ Agreement ”), is made on this 18TH day of June, 2002 by and between Conectiv, with its principal place of business at 800 King Street, P.O. Box 231, Wilmington, Delaware, 19899, including, unless the context clearly otherwise requires, its subsidiaries and affiliates (together, “Conectiv”),and Howard E. Cosgrove (the “Executive”).

            WHEREAS, the Executive is employed by Conectiv as Chairman and Chief Executive Officer and in such capacity, had, has, and will continue to have access to Conectiv’s employees, customers, vendors, trade secrets, and proprietary information; and

            WHEREAS, Conectiv has entered into a Agreement and Plan of Merger, dated as of February 9, 2001, with Potomac Electric Power Company (“PEPCO”) and New RC, Inc. by which Conectiv and PEPCO will become wholly-owned subsidiaries of New RC, Inc. (together with its affiliates and subsidiaries, “the Company”); and

            WHEREAS, by virtue of the years of valuable service the Executive has provided to Conectiv in a position in which the Executive has made significant policy decisions and contributed to the establishment of the strategic direction and compensation policies of Conectiv, the Executive possesses significant knowledge of and experience in connection with the business of Conectiv, including specifics regarding the compensation and benefits of its key executives that would place him in a position to recruit such executives if he were to engage in a competing or similar business; and

            WHEREAS, Conectiv is prepared to make a substantial cash payment to the Executive in the event the Merger is consummated, as set forth in Section 2 below, provided that the Executive makes certain assurances that he will not be in a position that is potentially adverse to, or that otherwise would harm, the business interests of Conectiv or the Company; and

            WHEREAS, the Executive desires to enter into this Agreement in exchange for such cash payment.

            NOW THEREFORE, in consideration of these premises and intending to be legally bound hereby, Conectiv and the Executive hereby agree as follows:

SECTION 1.     Definitions . Capitalized terms used herein will have the meanings set forth in the preamble of this Agreement, or as set forth below:

            1.1.    “ Competing Business ” means (a) any electric or gas energy supplier or distributor located in or servicing the eastern third of the United States (north of Georgia) and (b) any other corporation, or unincorporated entity, engaged in the same business in which Conectiv or PEPCO (or any affiliate thereof) is engaged at the time of this Agreement or at the time the Executive

terminates employment with Conectiv or the Company, marketing to the same or similar customers or in the same geographic area.

            1.2.   “ Proprietary Information ” means confidential, proprietary, business and technical information or trade secrets of Conectiv or the Company. Such Proprietary Information shall include, but shall not be limited to, the following items and information relating to the following items: (a) computer codes or instructions (including source and object code listings, program logic algorithms, subroutines, modules or other subparts of computer programs and related documentation, including program notation), computer processing systems and techniques, all computer inputs and outputs (regardless of the media on which stored or located), hardware and software configurations, designs, architecture and interfaces, (b) business research, studies, procedures and costs, (c) financial data, (d) distribution methods, (e) marketing data, methods, plans and efforts, (f) the identities of Conectiv’s or the Company’s relationship(s) with actual and prospective customers, contractors and suppliers, (g) the terms of contracts and agreements with customers, contractors and suppliers, (h) the needs and requirements of, and course of dealing with, actual or prospective customers, contractors and suppliers, (i) personnel information, including but not limited to benefit programs, pay scales, and incentive programs, and (j) customer and vendor credit information. Failure by Conectiv or the Company to mark any of the Proprietary Information as confidential or proprietary shall not affect its status as Proprietary Information under the terms of this Agreement.

            1.4.   “ Restricted Period ” means the entire period of the Executive’s employment by Conectiv or the Company and the 36 calendar months following the termination of such employment.

            1.5.   “ Restrictive Covenants ” means the provisions contained in Section 3.1 of this Agreement.

SECTION 2.    Transaction and Signing Bonus . Within 15 days following the consummation of the Merger, Conectiv will make a single sum cash payment to the Executive of $7,741,515, less any required tax withholding.

SECTION 3.    Non-Compete; Confidentiality; Non-Solicitation . In consideration of the payment described above in Section 2 , the Executive agrees to be bound by the Restrictive Covenants set forth in this Section 3 .

            3.1.    Restrictive Covenants .

                        (a)   During the Restricted Period, the Executive will not do any of the following, directly or indirectly, in the eastern third of the United States (north of the state of Georgia) or any other place where Conectiv or the Company has conducted business during the tenure of Executive’s employment with Conectiv or the Company (except with respect to lines of business in which the Company no longer engages), without the prior written consent of Conectiv or the Company, as applicable:

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                                     (i)     Non-Competion . Engage or participate in any Competing Business;

                                     (ii)     Restrictions on Ownership . Become interested in (as owner, stockholder, lender, partner, co-venture, director, officer, employee, agent or consultant) any person, firm, corporation, association or other entity engaged in any Competing Business. Notwithstanding the foregoing, the Executive may hold up to 2% of the outstanding securities of any class of any publicly-traded securities of any company;

                                     (iii)     Non-Solicitation of Business . Solicit or call on, either directly or indirectly, (A) for purposes of selling goods or products competitive with goods or products sold by Conectiv or the Company, any customer with whom Conectiv or the Company shall have dealt or any prospective customer that Conectiv or the Company shall have identified and solicited at any time during the Executive’s employment, or engagement as a consultant, by Conectiv or the Company; or (B) for the purposes of purchasing goods or products competitive with goods or products purchased by Conectiv or the Company for resale by Conectiv or the Company, any supplier with whom Conectiv or the Company shall have dealt at any time during the Executive’s employment, or engagement as a consultant, by Conectiv or the Company;

                                     (iv)     Non-Interference with Business . Influence or attempt to influence any supplier, customer or potential customer of Conectiv or the Company to terminate or modify any written or oral agreement or course of dealing with Conectiv or the Company; or

                                     (v)     Non-Solicitation of Employees . Influence or attempt to influence any person to either (A) terminate or modify any employment, consulting, agency, distributorship or other arrangement with Conectiv or the Company, or (B) employ or retain, or arrange to have any other person or entity employ or retain, any person who has been employed or retained by Conectiv or the Company as an employee, consultant, agent or distributor of Conectiv or the Company at any time during the Restricted Period. It is understood that this sub-paragraph (v) does not prevent the Executive from responding truthfully to requests by prospective employers or recruiters for recommendations or information concerning any such person’s performance as an employee of Conectiv or the Company, provided that Executive did not initiate such request or refer such person for the employment or retention that is the subject of the request, and further provided that Executive shall not receive any compensation in any form as a result of any hiring or retention of such person.

                        (b)    Confidentiality . The Executive recognizes and acknowledges that the Proprietary Information is a valuable, special and unique asset of the business of Conectiv or the Company. As a result, both during the period of the Executive’s employment with Conectiv or the Company and thereafter, the Executive shall not, without the prior written consent of Conectiv or the Company, as applicable, for any reason either directly or indirectly divulge to any third-party or use for his own benefit, or for any purpose other than the exclusive benefit of Conectiv or the Company, any Proprietary Information revealed, obtained or developed in the course of his employment, or engagement as a consultant, by Conectiv or the Company; provided, however , that nothing herein contained shall restrict the Executive’s ability to make

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such disclosures during the Executive’s period of employment or engagement with Conectiv or the Company as may be necessary or appropriate to the effective and efficient discharge of his duties as an employee or consultant or as such disclosures may be required by law. If the Executive or any of his representatives becomes legally compelled to disclose any of the Proprietary Information,

the Executive will provide Conectiv or the Company with prompt written notice so that the Company may seek a protective order or other appropriate remedy.

                        (c)    Property . All right, title and interest in and to Proprietary Information shall be and remain the sole and exclusive property of Conectiv or the Company. During the period of employment, and engagement as a consultant, by Conectiv or the Company, the Executive shall not remove from Conectiv or the Company’s offices or premises any documents, records, notebooks, files, correspondence, reports, memoranda or similar materials of or containing Proprietary Information, or other materials or property of any kind belonging to Conectiv or the Company unless necessary or appropriate in accordance with the duties and responsibilities required by or appropriate for his position and, in the event that such materials or property are removed, all of the foregoing shall be returned to their proper files or places of safekeeping as promptly as possible after the removal shall serve its specific purpose. The Executive shall not make, retain, remove and/or distribute any copies of any of the foregoing for any reason whatsoever except as may be necessary in the discharge of his assigned duties and shall not divulge to any third person the nature of and/or contents of any of the foregoing or of any other oral or written information to which he may have access or with which for any reason he may become familiar, except as disclosure shall be necessary in the performance of his duties; and upon the termination of his employment with Conectiv or the Company, he shall leave with or return to Conectiv or the Company all originals and copies of the foregoing then in his possession, whether prepared by the Executive or by others.

                        (d)    Duty to Keep Company Informed . In order to ensure that the Conectiv and the Company may retain the benefit of the Restrictive Covenants, the Executive agrees to notify Conectiv (or after the Merger, the Company) of any employment or retention as consultant that he may enter into, and to provide specific information upon request regarding the Executive’s activities. In the event Executive provides such notice and information at least 30 days prior to the commencement of such employment or consultancy, Conectiv or the Company shall respond to such Executive within 30 days (or if later, within 30 days after additional information has been submitted by the Executive in response to a request for such information) regarding the Company’s initial determination regarding whether such employment or consultancy falls within the scope of the Restrictive Covenants.

            3.2.    Acknowledgments . The Executive acknowledges that the Restrictive Covenants are reasonable and necessary to protect the legitimate interests of Conectiv or the Company and its affiliates and that, in the absence of such restrictions, Conectiv would not enter into this Agreement. Therefore, the Executive acknowledges that the Restrictive Covenants are entered into in order to induce Conectiv to make the payment described in Section 2 . The Executive further acknowledges that the duration and geographic scope of Section 3.1(a) are reasonable

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given the nature of Conectiv’s business and the position of authority and responsibility that the Executive holds within Conectiv or may hold within the Company.

            3.3.    Rights and Remedies Upon Breach .

                        (a)    Specific Enforcement . The Executive acknowledges that any breach by him, willfully or otherwise, of the Restrictive Covenants will cause continuing and irreparable injury to Conectiv or the Company for which monetary damages would not be an adequate remedy. The Executive shall not, in any action or proceeding to enforce any of the provisions of this Agreement, assert the claim or defense that such an adequate remedy at law exists. In the event of any such breach by the Executive, Conectiv or the Company shall have the right to enforce the Restrictive Covenants by seeking injunctive or other relief in any court, without any requirement that a bond or other security be posted, and this Agreement shall not in any way limit remedies of law or in equity otherwise available to Conectiv or the Company. If an action at law or in equity is necessary to enforce or interpret the terms of this Agreement, the prevailing party shall be entitled to recover, in addition to any other relief, reasonable attorneys’ fees, costs and disbursements.

                        (b)    Extension of Restrictive Period . If the Executive breaches any of the Restrictive Covenants contained in Section 3.1(a) , then the Restricted Period shall be extended for a period of time equal to the period of time that the Executive is in breach of such restriction.

                        (c)    Return of Payment and Accounting . If the Executive engages in a material breach of any of the Restrictive Covenants, the Executive will be required to return the payment described in Section 2 above, plus interest accruing from the date of payment to the Executive to the date of such repayment at a rate of 2% above the prime rate, as determined by the Company, to Conectiv or the Company, as applicable, and Conectiv or the Company will have the right and remedy to require the Executive to account for and pay over to the Company all compensation, profits, monies, accruals, increments or other benefits derived or received by the Executive as the

result of any action constituting a breach of the Restrictive Covenants. These rights and remedies will be in addition to, and not in lieu of, any other rights and remedies available to Conectiv or the Company under law or in equity. Notwithstanding the foregoing, no return of payment will be required unless (i) the damages caused by the breach are significant and proportionate to the penalty hereunder, or (ii) the Executive fails to cease and remedy the breaching activity within thirty (30) days after receiving notice from Conectiv or the Company indicating the manner in which the breach has occurred and demanding such cessation and remediation.

            3.4.    Judicial Modification . If any court determines that the Restrictive Covenants, or any part thereof, is unenforceable because of the duration or geographical scope of such provision, such court shall have the power to modify such provision and, in its modified form, such provision shall then be enforceable.

            3.5.    Disclosure of Restrictive Covenants . The Executive agrees to disclose the existence and terms of the restrictive covenants set forth in this Section 3 to any employer that the Executive may work for during the Restricted Period.

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            3.6.    Enforceability . If any court holds the Restrictive Covenants unenforceable by reason of their breadth or scope or otherwise, it is the intention of the parties hereto that such determination not bar or in any way affect the right of Conectiv or the Company to the relief provided above in the courts of any other jurisdiction within the geographical scope of such Restrictive Covenants.

SECTION 4.    Miscellaneous

            4.1.    Successors and Assigns . This Agreement shall inure to the benefit of and be binding upon Conectiv, the Company, and the Executive and their respective successors, executors, administrators, heirs and/or permitted assigns; provided, however , that neither the Executive nor Conectiv or the Company may make any assignments of this Agreement or any interest herein, by operation of law or otherwise, without the prior written consent of the other party, except that, without such consent, Conectiv or the Company may assign this Agreement to any successor to all or substantially all of its assets and business by means of liquidation, dissolution, merger, consolidation, transfer of assets, or otherwise.

            4.2.    Notice . Any notice or communication required or permitted under this Agreement shall be made in writing and (a) sent by overnight courier, (b) mailed by certified or registered mail, return receipt requested or (c) sent by telecopier, addressed as follows:

                        If to the Executive:

                                     #13 Rockland Mills
                                     P.O. Box 197
                                     Rockland, DE 19732

                        If to Company:

                                     Before Merger:

                                     Conectiv
                                     800 King Street
                                     P.O Box 231
                                     Wilmington, DE 19899
                                     Attn: General Counsel

                                     After Merger:

                                     PEPCO Holdings Inc.
                                     Legal Department
                                     701 Ninth St. N.W.
                                     Washington, D.C. 20068

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                                     Attn: General Counsel

                        with a copy to:

                                     Pepper Hamilton LLP
                                     3000 Two Logan Square
                                     18th & Arch Streets
                                     Philadelphia, PA 19103
                                     Attention: Susan K. Hoffman, Esquire
                                     Fax: 215-981-4750

or to such other address as either party may from time to time duly specify by notice given to the other party in the manner specified above.

            4.3.    Entire Agreement; Amendments . This Agreement contains the entire agreement and understanding of the parties hereto relating to the subject matter hereof, and merges and supersedes all prior and contemporaneous discussions, agreements and understandings of every nature relating to the subject matter hereof. This Agreement may not be changed or modified, except by an Agreement in writing signed by each of the parties hereto.

            4.4.    Waiver . Any waiver by either party of any breach of any term or condition in this Agreement shall not operate as a waiver of any other breach of such term or condition or of any other term or condition, nor shall any failure to enforce any provision hereof operate as a waiver of such provision or of any other provision hereof or constitute or be deemed a waiver or release of any other rights, in law or in equity.

            4.5.    Governing Law . This Agreement shall be governed by, and enforced in accordance with, the laws of the State of Delaware without regard to the application of the principles of conflicts of laws.

            4.6.    Severability . Whenever possible, each provision of this Agreement will be interpreted in such manner as to be effective and valid under applicable law, but if any provision of this Agreement is held to be invalid, illegal or unenforceable in any respect under any applicable law or rule in any jurisdiction, such invalidity, illegality or unenforceability will not affect any other provision or the effectiveness or validity of any provision in any other jurisdiction, and this Agreement will be reformed, construed and enforced in such jurisdiction as if such invalid, illegal or unenforceable provision had never been contained herein.

            4.7.    Section Headings . The section headings in this Agreement are for convenience only; they form no part of this Agreement and shall not affect its interpretation.

            4.8.    Consent to Suit; Fees . Any legal proceeding arising out of or relating to this Agreement shall be instituted in the United States District Court for the District of Delaware, or if such court does not have jurisdiction or will not accept jurisdiction, in any court of general

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jurisdiction in Wilmington, Delaware, and the Executive and Conectiv hereby consent to the personal and exclusive jurisdiction of such court and hereby waive any objection that the Executive or Conectiv or the Company may have to personal jurisdiction, the laying of venue of any such proceeding and any claim or defense of inconvenient forum. In the event of any legal proceeding arising out of or relating to the enforcement or interpretation of this Agreement, the party prevailing in such proceeding shall be entitled to payment from the other party of all reasonable attorneys’ fees, costs and disbursements incurred by the prevailing party in connection with such proceeding.

            4.9.    Counterparts and Facsimiles . This Agreement may be executed, including execution by facsimile signature, in one or more counterparts, each of which shall be deemed an original, and all of which together shall be deemed to be one and the same instrument.

                        IN WITNESS WHEREOF, Conectiv has caused this Agreement to be executed by its duly authorized officers, and the Executive has executed this Agreement, in each case as of the date first above written.

CONECTIV
By:	/s/ Donald E. Cain
Title:	VP-HRPI Conectiv

HOWARD E. COSGROVE

/s/ Howard E. Cosgrove

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EX-10.B

EXHIBIT 10-B

CHANGE IN CONTROL SEVERANCE AGREEMENT – HOWARD COSGROVE

CHANGE-IN-CONTROL
SEVERANCE AGREEMENT

                        This Agreement, dated as of June 18, 2002, by and between Conectiv, with its principal place of business at 800 King Street, P.O. Box 231, Wilmington, Delaware, 19899 (the “Company”), and Howard E. Cosgrove (the “Executive”), which is a substitution and replacement of a prior Agreement by and between Company and the Executive dated January 15, 1999.

                        WHEREAS, the Company considers it essential to the best interests of its stockholders to foster the continuous employment of key management personnel, and recognizes that, as is the case with many publicly held corporations, the possibility of a change in control may exist and that such possibility, and the uncertainty and questions which it may raise among management, may result in the distraction or departure of management personnel to the detriment of the Company and its stockholders; and

                        WHEREAS, the Board of Directors of the Company has determined that appropriate steps should be taken to reinforce and encourage the Executive’s continued attention and dedication to the Executive’s assigned duties without distraction in the face of potentially disturbing circumstances arising from the possibility of a change in control of the Company, although no such change is presently known to be contemplated.

                        NOW THEREFORE, in consideration of the mutual covenants and agreements hereinafter contained and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows:

Section 1
DEFINITIONS

                        Except as may otherwise be specified or as the context may otherwise require, the following terms shall have the respective meanings set forth below whenever used herein:

                        “Base Salary” shall mean the annual base rate of regular compensation of the Executive immediately before a Change in Control, or if greater, the highest annual such rate at any time during the 12-month period immediately preceding the Change in Control.

                        “Board” shall mean the Board of Directors of the Company.

                        “Cause” shall mean (i) the willful and continued failure by the Executive substantially to perform his duties with the Employer (other than any such failure resulting from incapacity due to physical or mental illness of the Executive, or any such actual or anticipated failure after the issuance of a Notice of Termination for Good Reason) or (ii) the willful engaging by the Executive in conduct which is demonstrably and materially injurious to the Employer, monetarily or otherwise. For purposes hereof, no act, or failure to act, on the Executive’s part, shall be deemed “willful” unless done, or omitted to be done, by the Executive not in good faith and without reasonable belief that any act or omission was in the best interest of the Employer.

                        “Change in Control” shall mean the first to occur, after the date hereof, of any of the following:

                                                        (i)   if any Person is or becomes the “beneficial owner” (as defined in Rule 13d-3 under the Securities Exchange Act), directly or indirectly, of securities of the Company (not including in the securities beneficially owned by such Person any securities acquired directly from the Company or its Subsidiaries) representing 25% or more of either the then outstanding shares of Stock of the Company or the combined voting power of the Company’s then outstanding securities;

                                                        (ii)   if during any period of 24 consecutive months during the existence of this Agreement commencing on or after the date hereof, the individuals who, at the beginning of such period, constitute the Board (the “Incumbent Directors”) cease for any reason other than death to constitute at least a majority thereof; provided that a director who was not a director at the beginning of such 24-month period shall be deemed to have satisfied such 24-month requirement (and be an Incumbent Director) if such director was elected by, or on the recommendation of or with the approval of, at least two-thirds of the directors who then qualified as Incumbent Directors either actually (because they were directors at the beginning of such 24-month period) or by prior operation of this clause (ii);

                                                        (iii)   the consummation of a merger or consolidation of the Company with any other corporation other than (A) a merger or consolidation which would result in the voting securities of the Company outstanding immediately prior to such merger or consolidation continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving entity or any parent thereof) at least 60% of the combined voting power of the voting securities of the Company or such surviving entity or any parent thereof outstanding immediately after such merger or consolidation, or (B) a merger or consolidation effected to implement a recapitalization of the Company (or similar transaction) in which no Person is or becomes the beneficial owner, as defined in clause (i), directly or indirectly, of securities of the Company (not including in the securities beneficially owned by such Person any securities acquired directly from the Company or its Subsidiaries) representing 40% or more of either the then outstanding shares of Stock of the Company or the combined voting power of the Company’s then outstanding securities; or

                                                        (iv)   the stockholders of the Company approve a plan of complete liquidation or dissolution of the Company, or there is consummated an agreement for the sale or disposition by the Company of all or substantially all of the Company’s assets, other than a sale or disposition by the Company of all or substantially all of the Company’s assets to an entity, at least 60% of the combined voting power of the voting securities of which are owned by Persons in substantially the same proportion as their ownership of the Company immediately prior to such sale.

                        Upon the occurrence of a Change in Control as provided above, no subsequent event or condition shall constitute a Change in Control for purposes of this Agreement, with the result that there can be no more than one Change in Control hereunder.

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                        It is understood that the consummation of the merger by and among Conectiv, New RC, and Potomac Electric Power Co. as proposed in a written agreement (the “Merger Agreement”) shall be a Change in Control for purposes of this Agreement.

                        “Code” shall mean the Internal Revenue Code of 1986, as amended.

                        “Company” shall mean, subject to Section 4.1(a), Conectiv, a Delaware corporation.

                        “Covered Termination” shall mean if, within the one-year period immediately following a Change in Control, the Executive (i) is terminated by the Employer without Cause (other than on account of death or Disability), or (ii) terminates his employment with the Employer for Good Reason. The Executive shall not be deemed to have terminated for purposes of this Agreement merely because he or she ceases to be employed by the Employer and becomes employed by a new employer involved in the Change in Control; provided that such new employer shall be bound by this Agreement as if it were the Employer hereunder with respect to the Executive. It is expressly understood that no Covered Termination shall be deemed to have occurred merely because, upon the occurrence of a Change in Control, the Executive ceases to be employed by the Employer and does not become employed by a successor to the Employer after the Change in Control if the successor makes an offer to employ the Executive on terms and conditions which, if imposed by the Employer, would not give the Executive a basis on which to terminate employment for Good Reason.

                        “Date of Termination” shall mean the date on which a Covered Termination occurs.

                        “Disability” shall mean the occurrence after a Change in Control of the incapacity of the Executive due to physical or mental illness, whereby the Executive shall have been absent from the full-time performance of his duties with the Employer for six consecutive months.

                        “Employer” shall mean the Company (if and for so long as the Executive is employed thereby) and each Subsidiary which may now or hereafter employ the Executive or, where the context so requires, the Company and such Subsidiaries collectively. A subsidiary which ceases to be, directly or indirectly, through one or more intermediaries, controlling, controlled by or under common control with the Company prior to a Change in Control (other than in connection with and as an integral part of a series of transactions resulting in a Change in Control) shall, automatically and without any further action, cease to be (or be part of) the Employer for purposes hereof.

                        “Good Reason” shall mean, without the express written consent of the Executive, the occurrence after a Change in Control of any of the following circumstances, unless such circumstances are fully corrected prior to the Date of Termination specified in the Notice of Termination given in respect thereof:

                                                        (i)   assignment to the Executive of any duties inconsistent in any materially adverse respect with his position, authority, duties or responsibilities from those in effect immediately prior to the Change in Control;

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                                                        (ii)   a reduction in the Executive’s Base Salary as in effect immediately before the Change in Control;

                                                        (iii)   a material reduction in the Executive’s aggregate compensation opportunity, comprised only of (A) the Executive’s Base Salary, (B) bonus opportunity, if any, and (C) long-term or other incentive compensation opportunity, if any (taking into account, in the case of such bonus and incentive opportunities, without limitation, any target, minimum and maximum amounts payable and the attainability and otherwise the reasonability of any performance hurdles, goals and other measures);

                                                        (iv)   the Company’s requiring the Executive to be based at any office or location more than 50 miles from that location at which the Executive performed his services immediately prior to the occurrence of a Change in Control, except for travel reasonably required in the performance of the Executive’s responsibilities; or

                                                        (v)   the failure of the Employer to obtain a reasonable agreement from any successor to assume and agree to perform this Agreement, as contemplated in Section 4.1(a).

                        “Notice of Termination” shall mean a notice given by the Employer or Executive, as applicable, which shall indicate the specific termination provision in this Agreement relied upon and shall set forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of the Executive’s employment under the provisions so indicated.

                        “Person” shall have the meaning ascribed thereto by Section 3(a)(9) of the Securities Exchange Act, as modified and used in Sections 13(d) and 14(d) thereof (except that such term shall not include (i) the Company or any of its Subsidiaries, (ii) a trustee or other fiduciary holding securities under an employee benefit plan of the Company or any of its Subsidiaries, (iii) an underwriter temporarily holding securities pursuant to an offering of such securities, (iv) a corporation owned, directly or indirectly, by the stockholders of the Company in substantially the same proportion as their ownership of stock of the Company, or (v) such Executive or any “group” (as such term is used in Sections 13(d) and 14(d) of the Securities Exchange Act) which includes the Executive).

                        “Potential Change in Control” shall mean the occurrence, before a Change in Control, of any of the following:

                                                        (i)   if the Company enters into an agreement, the consummation of which would result in the occurrence of a Change in Control;

                                                        (ii)   if the Company or any Person publicly announces an intention to take or to consider taking actions which, if consummated, would constitute a Change in Control;

                                                        (iii)   if any Person becomes the “beneficial owner” (as defined in Rule 13d-3 under the Securities Exchange Act), directly or indirectly, of securities of the Company (not including in the securities beneficially owned by such Persons any securities

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acquired directly from the Company or its Subsidiaries) representing 15% or more of either the then outstanding shares of Stock of the Company or the combined voting power of the Company’s then outstanding securities; or

                                                        (iv)   if the Board adopts a resolution to the effect that, for purposes of this Agreement, a Potential Change in Control has occurred.

                        “Securities Exchange Act” shall mean the Securities Exchange Act of 1934, as amended.

                        “Stock” shall mean the common stock, $.01 par value, of the Company.

                        “Subsidiary” shall mean any entity, directly or indirectly, through one or more intermediaries, controlled by the Company.

                        “Target Annual Bonus” shall mean the Executive’s annual bonus for the Employer’s fiscal year in which the Date of Termination occurs, which bonus would be paid or payable if the Executive and the Employer were to satisfy all conditions to the Executive’s receiving the annual bonus at target (although not necessarily the maximum annual bonus); provided that such amount shall be annualized for any fiscal year consisting of less than 12 full months; and provided, further, that, if at the time of a Change in Control it is substantially certain that a bonus at a level beyond target will be paid or payable for the fiscal year, then the bonus which is substantially certain to be paid or payable, rather than the target bonus, shall be used for these purposes.

Section 2
BENEFITS

                        2.1.   If a Covered Termination occurs, then

                                     (a)    for a period of three years after such termination, the Employer shall arrange to make available to the Executive medical, dental, vision, group life and disability benefits that are at least at a level (and cost to the Executive) that is substantially similar in the aggregate to the level of such benefits which was available to the Executive immediately prior to the Change in Control; provided that (i) the Employer shall be required to provide group life and disability benefits only to the extent it is able to do so on reasonable terms and at a reasonable cost, (ii) the Employer shall not be required to provide benefits under this Section 2.1(a) upon and after the Change in Control which are in excess of those provided to a significant number of executives of similar status who are employed by the Employer from time to time upon and after the Change in Control, and (iii) no type of benefit otherwise to be made available to the Executive pursuant to this Section 2.1(a) shall be required to be made available to the extent that such type of benefit is made available to the Executive by any subsequent employer of the Executive; and

                                     (b)    The Company shall pay, at the time and manner provided in Section 2.2(a), the product of (i) the Executive’s Target Annual Bonus for the year in which the Date of

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Termination occurs (or, if higher, as in effect at the time of the Change in Control) and (ii) a fraction, the numerator of which is the number of days in the current fiscal year through the Date of Termination, and the denominator of which is 365.

                        2.2.   (a)   The payments provided for in Section 2.1 shall (except as otherwise expressly provided therein or as provided in Section 2.2(b) or as otherwise expressly provided hereunder) be made as soon as practicable, but in no event later than 30 days, following the Date of Termination.

                                     (b)    Notwithstanding any other provision of this Agreement to the contrary, no payment or benefit otherwise provided for under or by virtue of the foregoing provisions of this Agreement shall be paid or otherwise made available unless and until the Employer shall have first received from the Executive (no later than 60 days after the Employer has provided to the Executive estimates relating to the payments to be made under this Agreement) a valid, binding and irrevocable general release, in form and substance acceptable to the Employer in its discretion; provided that the Employer shall be permitted to defer any payment or benefit otherwise provided for in this Agreement to the 15th day after its receipt of such release and time at which it has become valid, binding and irrevocable. The Employer may require that any such release contain an agreement of the Executive to notify the Employer of any benefit made available by a subsequent employer as contemplated by clause (iii) of the proviso to Section 2.1(c).

                        2.3.   Notwithstanding any other provision of this Agreement to the contrary, to the extent permitted by the Worker Adjustment and Retraining Notification Act (“WARN”), any benefit payable hereunder to the Executive as a consequence of the Executive’s Covered Termination shall be reduced by any amounts required to be paid under Section 2104 of WARN to the Executive in connection with such Covered Termination.

                        2.4.   In consideration of the promises contained herein, the Executive hereby waives the provisions of the Incentive Compensation Plan that would provide for immediate vesting of the restricted stock granted to him during 1998, 1999, 2000, 2001, and 2002 prior to the date of this Agreement upon the consummation of the pending Agreement and Plan of Merger dated as of February 9, 2001 pursuant to which Conectiv and Potomac Electric Power Co. will become wholly-owned subsidiaries of Pepco Holdings, Inc., and further agrees to surrender and waive any ownership rights to such restricted stock upon the consummation of such Agreement and Plan of Merger.

Section 3
PARACHUTE TAX PROVISIONS

                        3.1.   If all, or any portion, of the payments and benefits provided under this Agreement, if any, either alone or together with other payments and benefits which the Executive receives or is entitled to receive from the Company or its affiliates, would constitute an excess

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“parachute payment” within the meaning of Section 280G of the Code (whether or not under an existing plan, arrangement or other agreement) (each such parachute payment, a “Parachute Payment”), and would result in the imposition on the Executive of an excise tax under Section 4999 of the Code, then, in addition to any other benefits to which the Executive is entitled under this Agreement or otherwise, the Executive shall be paid an amount in cash equal to the sum of the excise taxes payable by the Executive by reason of receiving Parachute Payments plus the amount necessary to place the Executive in the same after-tax position (taking into account any and all applicable federal, state and local excise, income or other taxes at the highest possible applicable rates on such Parachute Payments (including, without limitation, any payments under this Section 3.1)) as if no excise taxes had been imposed with respect to Parachute Payments (the “Parachute Gross-up”). Any Parachute Gross-up otherwise required by this Section 3.1 shall not be made later than the time of the corresponding payment or benefit hereunder giving rise to the underlying Section 4999 excise tax, even if the payment of the excise tax is not required under the Code until a later time. Any Parachute Gross-up otherwise required under this Section 3.1 shall be made whether or not there is a Change in Control, whether or not payments or benefits are payable under this Agreement, whether or not the payments or benefits giving rise to the Parachute Gross-up are made in respect of a Change in Control and whether or not the Executive’s employment with the Employer shall have been terminated.

                        3.2.   Except as may otherwise be agreed to by the Company and the Executive, the amount or amounts (if any) payable under this Section 3 shall be conclusively determined by the Company’s independent auditors (who served in such capacity immediately prior to the Change in Control), whose determination or determinations shall be final and binding on all parties. The Executive hereby agrees to utilize such determination or determinations, as applicable, in filing all of the Executive’s tax returns with respect to the excise tax imposed by Section 4999 of the Code. If such independent auditors refuse to make the required determinations, then such determinations shall be made by a comparable independent accounting firm of national reputation reasonably selected by the Company. Notwithstanding any other provision of this Agreement to the contrary, as a condition to receiving any Parachute Gross-up payment, the Executive hereby agrees to be bound by and comply with the provisions of this Section 3.2.

                        3.3.   In all respects, and notwithstanding the foregoing, any Parachute Gross-up shall be paid pursuant to, and the Executive shall comply with the terms of, the Gross-up and Legal Fee Plan which has previously been adopted by the Company.

Section 4
MISCELLANEOUS

                        4.1.   (a)   The Company shall require any successor (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all of the business or assets of the Company expressly to assume and agree to perform under the terms of this Agreement in the same manner and to the same extent that the Company and its affiliates would be required to perform it if no such succession had taken place (provided that such a requirement to perform which arises by operation of law shall be deemed to satisfy the requirements for such an express assumption and agreement), and in such event the Company (as constituted prior to such succession) shall have no further obligation under or with respect to this

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Agreement. Failure of the Company to obtain such assumption and agreement with respect to the Executive prior to the effectiveness of any such succession shall be a breach of the terms of this Agreement with respect to the Executive and shall entitle the Executive to compensation from the Employer (as constituted prior to such succession) in the same amount and on the same terms as the Executive would be entitled to hereunder were the Executive’s employment terminated for Good Reason following a Change in Control, except that for purposes of implementing the foregoing, the date on which any such succession becomes effective shall be deemed the Date of Termination. As used in this Agreement, “Company” shall mean the Company as hereinbefore defined and any successor to its business or assets as aforesaid which assumes and agrees (or is otherwise required) to perform this Agreement. Nothing in this Section 4.1(a) shall be deemed to cause any event or condition which would otherwise constitute a Change in Control not to constitute a Change in Control.

                                     (b)    Notwithstanding Section 4.1(a), the Company shall remain liable to the Executive upon a Covered Termination after a Change in Control if (i) the Executive is not offered continuing employment by a successor to the Employer or (ii) the Executive declines such an offer and the Executive’s resulting termination of employment otherwise constitutes a Covered Termination hereunder.

                                     (c)    This Agreement, and the Executive’s and the Company’s rights and obligations hereunder, may not be assigned by the Executive or, except as provided in Section 4.1(a), the Company, respectively; any purported assignment by the Executive or the Company in violation hereof shall be null and void.

                                     (d)    The terms of this Agreement shall inure to the benefit of and be enforceable by the personal or legal representatives, executors, administrators, successors, heirs, distributees, devisees and legatees of the Executive. If the Executive shall die while an amount would still be payable to the Executive hereunder if they had continued to live, all such amounts, unless otherwise provided herein, shall be paid in accordance with the terms of this Agreement to the Executive’s devisee, legatee or other designee or, if there is no such designee, the Executive’s estate.

                        4.2.   Except as expressly provided in Section 2.1, the Executive shall not be required to mitigate damages or the amount of any payment provided for under this Agreement by seeking other employment or otherwise, nor will any payments or benefits hereunder be subject to offset in the event the Executive does mitigate.

                        4.3.   The Employer shall pay all legal fees and expenses incurred in a legal proceeding by the Executive in seeking to obtain or enforce any right or benefit provided by this Agreement. Such payments are to be made within five days after the Executive’s request for payment accompanied with such evidence of fees and expenses incurred as the Employer reasonably may require; provided that if the Executive institutes a proceeding and the judge or other decision-maker presiding over the proceeding affirmatively finds that the Executive has failed to prevail substantially, the Executive shall pay his own costs and expenses (and, if applicable, return any amounts theretofore paid on the Executive’s behalf under this Section 4.3).

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                        4.4.   (a)   The Executive may file a claim for benefits under this Agreement by written communication to the Board. A claim is not considered filed until such communication is actually received by the Board. Within 90 days (or, if special circumstances require an extension of time for processing, 180 days, in which case notice of such special circumstances shall be provided within the initial 90-day period) after the filing of the claim, the Board shall:

                                                        (i)   approve the claim and take appropriate steps for satisfaction of the claim; or

                                                        (ii)   if the claim is wholly or partially denied, advise the Executive of such denial by furnishing to him or her a written notice of such denial setting forth (A) the specific reason or reasons for the denial; (B) specific reference to pertinent provisions of this Agreement on which the denial is based and, if the denial is based in whole or in part on any rule of construction or interpretation adopted by the Board, a reference to such rule, a copy of which shall be provided to the Executive; (C) a description of any additional material or information necessary for the Executive to perfect the claim and an explanation of the reasons why such material or information is necessary; and (D) a reference to this Section 4.4.

                        4.5.   For the purposes of this Agreement, notice and all other communications provided for in this Agreement shall be in writing and shall be deemed to have been duly given when hand delivered or mailed by United States certified or registered express mail, return receipt requested, postage prepaid, if to the Executive, addressed to the Executive at his or her respective address on file with the Secretary of the Company; if to the Company, addressed to Conectiv, 800 King Street, P.O. Box 231, Wilmington, Delaware 19899-0231, and directed to the attention of its General Counsel; if to the Board, addressed to the Board of Directors, c/o Conectiv, 800 King Street, P.O. Box 231, Wilmington, Delaware, 19899-0231, and directed to the Company’s General Counsel; or to such other address as any party may have furnished to the others in writing in accordance herewith, except that notice of change of address shall be effective only upon receipt.

                        4.6.   Unless otherwise determined by the Employer in an applicable plan or arrangement, no amounts payable hereunder upon a Covered Termination shall be deemed salary or compensation for the purpose of computing benefits under any employee benefit plan or other arrangement of the Employer for the benefit of its employees unless the Employer shall determine otherwise.

                        4.7.   This Agreement is the exclusive arrangement with the Executive applicable to payments and benefits in connection with a change in control of the Company (whether or not a Change in Control), and supersedes any prior arrangements involving the Company or its predecessors or affiliates (including, without limitation, Delmarva Power & Light Company and Atlantic Energy, Inc.) relating to changes in control (whether or not Changes in Control). This Agreement shall not limit any right of the Executive to receive any payments or benefits under an employee benefit or executive compensation plan of the Employer, initially adopted as of or after the date hereof, or otherwise listed in Exhibit A hereto, which are expressly contingent thereunder upon the occurrence of a change in control (including, but not limited to, the acceleration of any rights or benefits thereunder); provided that in no event shall the

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Executive be entitled to any payment or benefit under this Agreement which duplicates a payment or benefit received or receivable by the Executive under any severance or similar plan or policy of the Employer.

                        4.8.   Any payments hereunder shall be made out of the general assets of the Employer. The Executive shall have the status of general unsecured creditor of the Employer, and this Agreement constitutes a mere promise by the Employer to make payments under this Agreement in the future as and to the extent provided herein.

                        4.9.   Nothing in this Agreement shall confer on the Executive any right to continue in the employ of the Employer or interfere in any way (other than by virtue of requiring payments or benefits as may expressly be provided herein) with the right of the Employer to terminate the Executive’s employment at any time.

                        4.10.   The Employer shall be entitled to withhold from any payments or deemed payments any amount of tax withholding required by law.

                        4.11.   Any controversy or claim arising out of or relating to this Agreement or the breach of this Agreement that is not resolved by the Employer and the Executive shall be submitted to arbitration in Wilmington, Delaware, in accordance with Delaware law and the procedures of the American Arbitration Association. The determination of the arbitrator(s) shall be conclusive and binding on the Employer and Executive and judgment may be entered on the arbitrator(s)’ award in any court having jurisdiction.

                        4.12.   (a)   This Agreement may be amended, superseded, canceled, renewed or extended, and the terms hereof may be waived, only by a written instrument signed by the parties or, in the case of a waiver, by the party waiving compliance. No delay on the part of any party in exercising any right, power or privilege hereunder shall operate as a waiver thereof, nor shall any waiver on the part of any party of any such right, power or privilege nor any single or partial exercise of any such right, power or privilege, preclude any other or further exercise thereof or the exercise of any other such right, power or privilege.

                                     (b)    Without limiting the generality of Section 4.12(a), the Board, on written notice to the Executive, may unilaterally terminate this Agreement with respect to Changes in Control occurring after the later of (i) December 31, 2000 or (ii) the first anniversary of the date of such notice. Notwithstanding the foregoing, in the event of a Potential Change in Control, until such time as the transaction or transactions contemplated in connection with such Potential Change in Control, and all related negotiations, are abandoned in their entirety [as determined in good faith and reflected in writing (before a Change in Control) by the Board], this Agreement may not be terminated under this Section 4.12(b) with respect to any Change in Control which ultimately results directly from facts and circumstances constituting such Potential Change in Control if such Potential Change in Control occurs on or before the later of (i) December 31, 2000 or (ii) one year after the first anniversary of the date of the notice referred to in the foregoing sentence.

                                     (c)    Without limiting the generality of Section 4.12(a), if material negotiations involving the Board or the Chief Executive Officer of the Company have

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commenced regarding a transaction which, if consummated, would constitute a Change in Control, and this Agreement is terminated while such negotiations are continuing and actively being pursued by the Board or the Chief Executive Officer, then such termination of this Agreement shall be null and void as applied with respect to the Change in Control (if any) which ultimately results directly from such negotiations; it being expressly understood that this Section 4.12(c) shall not apply with respect to any negotiations which at any time prior to a Change in Control have ceased [as determined in good faith and reflected in writing (prior to a Change in Control) by the Board or Chief Executive Officer (or which otherwise have ceased at a time prior to a Change in Control)].

                        4.13.   The invalidity or unenforceability of any provision of this Agreement shall not affect the validity or enforceability of any other provision of this Agreement which shall remain in full force and effect.

                        4.14.   The use of captions in this Agreement is for convenience. The captions are not intended to and do not provide substantive rights.

                        4.15.   THIS AGREEMENT SHALL BE CONSTRUED, ADMINISTERED AND ENFORCED ACCORDING TO THE LAWS OF THE STATE OF DELAWARE, WITHOUT REGARD TO PRINCIPLES OF CONFLICTS OF LAW, EXCEPT TO THE EXTENT PREEMPTED BY FEDERAL LAW.

                        IN WITNESS WHEREOF, the parties hereto have signed their names, effective as of the date first above written.

CONECTIV
By:	/s/ Donald E. Cain
Name:	Donald E. Cain
Title:	VP HRPI

/s/ Howard E. Cosgrove

Howard E. Cosgrove

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EX-10.C

EXHIBIT 10-C

NON-COMPETITION, NON-SOLICITATION, AND CONFIDENTIALITY AGREEMENT
BY AND BETWEEN CONECTIV AND JOHN C. VAN RODEN, JR.

NON-COMPETITION, NON-SOLICITATION,
AND CONFIDENTIALITY AGREEMENT

            THIS NON-COMPETITION, NON-SOLICITATION, AND CONFIDENTIALITY AGREEMENT (the “ Agreement ”), is made on this 18th day of June, 2002 by and between Conectiv, with its principal place of business at 800 King Street, P.O. Box 231, Wilmington, Delaware, 19899, including, unless the context clearly otherwise requires, its subsidiaries and affiliates (together, “Conectiv”),and John C. van Roden, Jr. (the “Executive”).

            WHEREAS, the Executive is employed by Conectiv as Senior Vice President and Chief Financial Officer and in such capacity, had, has, and will continue to have access to Conectiv’s employees, customers, vendors, trade secrets, and proprietary information; and

            WHEREAS, Conectiv has entered into a Agreement and Plan of Merger, dated as of February 9, 2001, with Potomac Electric Power Company (“PEPCO”) and New RC, Inc. by which Conectiv and PEPCO will become wholly-owned subsidiaries of New RC, Inc. (together with its affiliates and subsidiaries, “the Company”); and

            WHEREAS, by virtue of the years of valuable service the Executive has provided to Conectiv in a position in which the Executive has made significant policy decisions and contributed to the establishment of the strategic direction and compensation policies of Conectiv, the Executive possesses significant knowledge of and experience in connection with the business of Conectiv, including specifics regarding the compensation and benefits of its key executives that would place him in a position to recruit such executives if he were to engage in a competing or similar business; and

            WHEREAS, Conectiv is prepared to make a substantial cash payment to the Executive in the event the Merger is consummated, as set forth in Section 2 below, provided that the Executive makes certain assurances that he will not be in a position that is potentially adverse to, or that otherwise would harm, the business interests of Conectiv or the Company; and

            WHEREAS, the Executive desires to enter into this Agreement in exchange for such cash payment.

            NOW THEREFORE, in consideration of these premises and intending to be legally bound hereby, Conectiv and the Executive hereby agree as follows:

SECTION 1.    Definitions . Capitalized terms used herein will have the meanings set forth in the preamble of this Agreement, or as set forth below:

            1.1.   “ Competing Business ” means (a) any electric or gas energy supplier or distributor located in or servicing the eastern third of the United States (north of Georgia) and (b) any other corporation, or unincorporated entity, engaged in the same business in which Conectiv or PEPCO (or any affiliate thereof) is engaged at the time of this Agreement or at the time the Executive

terminates employment with Conectiv or the Company, marketing to the same or similar customers or in the same geographic area.

            1.2.   “ Proprietary Information ” means confidential, proprietary, business and technical information or trade secrets of Conectiv or the Company. Such Proprietary Information shall include, but shall not be limited to, the following items and information relating to the following items: (a) computer codes or instructions (including source and object code listings, program logic algorithms, subroutines, modules or other subparts of computer programs and related documentation, including program notation), computer processing systems and techniques, all computer inputs and outputs (regardless of the media on which stored or located), hardware and software configurations, designs, architecture and interfaces, (b) business research, studies, procedures and costs, (c) financial data, (d) distribution methods, (e) marketing data, methods, plans and efforts, (f) the identities of Conectiv’s or the Company’s relationship(s) with actual and prospective customers, contractors and suppliers, (g) the terms of contracts and agreements with customers, contractors and suppliers, (h) the needs and requirements of, and course of dealing with, actual or prospective customers, contractors and suppliers, (i) personnel information, including but not limited to benefit programs, pay scales, and incentive programs, and (j) customer and vendor credit information. Failure by Conectiv or the Company to mark any of the Proprietary Information as confidential or proprietary shall not affect its status as Proprietary Information under the terms of this Agreement.

            1.4.   “ Restricted Period ” means the entire period of the Executive’s employment by Conectiv or the Company and the 12 calendar months following the termination of such employment.

            1.5.   “ Restrictive Covenants ” means the provisions contained in Section 3.1 of this Agreement.

SECTION 2.    Transaction and Signing Bonus . Within 15 days following the consummation of the Merger, Conectiv will make a single sum cash payment to the Executive of $2,180,093, less any required tax withholding.

SECTION 3.    Non-Compete; Confidentiality; Non-Solicitation . In consideration of the payment described above in Section 2 , the Executive agrees to be bound by the Restrictive Covenants set forth in this Section 3 .

            3.1.    Restrictive Covenants .

                        (a)   During the Restricted Period, the Executive will not do any of the following, directly or indirectly, in the eastern third of the United States (north of the state of Georgia) or any other place where Conectiv or the Company has conducted business during the tenure of Executive’s employment with Conectiv or the Company (except with respect to lines of business in which the Company no longer engages), without the prior written consent of Conectiv or the Company, as applicable:

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                                     (i)     Non-Competion . Engage or participate in any Competing Business;

                                     (ii)     Restrictions on Ownership. Become interested in (as owner, stockholder, lender, partner, co-venturer, director, officer, employee, agent or consultant) any person, firm, corporation, association or other entity engaged in any Competing Business. Notwithstanding the foregoing, the Executive may hold up to 2% of the outstanding securities of any class of any publicly-traded securities of any company;

                                     (iii)     Non-Solicitation of Business . Solicit or call on, either directly or indirectly, (A) for purposes of selling goods or products competitive with goods or products sold by Conectiv or the Company, any customer with whom Conectiv or the Company shall have dealt or any prospective customer that Conectiv or the Company shall have identified and solicited at any time during the Executive’s employment, or engagement as a consultant, by Conectiv or the Company; or (B) for the purposes of purchasing goods or products competitive with goods or products purchased by Conectiv or the Company for resale by Conectiv or the Company, any supplier with whom Conectiv or the Company shall have dealt at any time during the Executive’s employment, or engagement as a consultant, by Conectiv or the Company;

                                     (iv)     Non-Interference with Business . Influence or attempt to influence any supplier, customer or potential customer of Conectiv or the Company to terminate or modify any written or oral agreement or course of dealing with Conectiv or the Company; or

                                     (v)     Non-Solicitation of Employees . Influence or attempt to influence any person to either (A) terminate or modify any employment, consulting, agency, distributorship or other arrangement with Conectiv or the Company, or (B) employ or retain, or arrange to have any other person or entity employ or retain, any person who has been employed or retained by Conectiv or the Company as an employee, consultant, agent or distributor of Conectiv or the Company at any time during the Restricted Period. It is understood that this sub-paragraph (v) does not prevent the Executive from responding truthfully to requests by prospective employers or recruiters for recommendations or information concerning any such person’s performance as an employee of Conectiv or the Company, provided that Executive did not initiate such request or refer such person for the employment or retention that is the subject of the request, and further provided that Executive shall not receive any compensation in any form as a result of any hiring or retention of such person.

                        (b)    Confidentiality . The Executive recognizes and acknowledges that the Proprietary Information is a valuable, special and unique asset of the business of Conectiv or the Company. As a result, both during the period of the Executive’s employment with Conectiv or the Company and thereafter, the Executive shall not, without the prior written consent of Conectiv or the Company, as applicable, for any reason either directly or indirectly divulge to any third-party or use for his own benefit, or for any purpose other than the exclusive benefit of Conectiv or the Company, any Proprietary Information revealed, obtained or developed in the course of his employment, or engagement as a consultant, by Conectiv or the Company; provided, however , that nothing herein contained shall restrict the Executive’s ability to make

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such disclosures during the Executive’s period of employment or engagement with Conectiv or the Company as may be necessary or appropriate to the effective and efficient discharge of his duties as an employee or consultant or as such disclosures may be required by law. If the Executive or any of his representatives becomes legally compelled to disclose any of the Proprietary Information, the Executive will provide Conectiv or the Company with prompt written notice so that the Company may seek a protective order or other appropriate remedy.

                        (c)    Property .All right, title and interest in and to Proprietary Information shall be and remain the sole and exclusive property of Conectiv or the Company. During the period of employment, and engagement as a consultant, by Conectiv or the Company, the Executive shall not remove from Conectiv or the Company’s offices or premises any documents, records, notebooks, files, correspondence, reports, memoranda or similar materials of or containing Proprietary Information, or other materials or property of any kind belonging to Conectiv or the Company unless necessary or appropriate in accordance with the duties and responsibilities required by or appropriate for his position and, in the event that such materials or property are removed, all of the foregoing shall be returned to their proper files or places of safekeeping as promptly as possible after the removal shall serve its specific purpose. The Executive shall not make, retain, remove and/or distribute any copies of any of the foregoing for any reason whatsoever except as may be necessary in the discharge of his assigned duties and shall not divulge to any third person the nature of and/or contents of any of the foregoing or of any other oral or written information to which he may have access or with which for any reason he may become familiar, except as disclosure shall be necessary in the performance of his duties; and upon the termination of his employment with Conectiv or the Company, he shall leave with or return to Conectiv or the Company all originals and copies of the foregoing then in his possession, whether prepared by the Executive or by others.

                        (d)    Duty to Keep Company Informed . In order to ensure that the Conectiv and the Company may retain the benefit of the Restrictive Covenants, the Executive agrees to notify Conectiv (or after the Merger, the Company) of any employment or retention as consultant that he may enter into, and to provide specific information upon request regarding the Executive’s activities. In the event Executive provides such notice and information at least 30 days prior to the commencement of such employment or consultancy, Conectiv or the Company shall respond to such Executive within 30 days (or if later, within 30 days after additional information has been submitted by the Executive in response to a request for such information) regarding the Company’s initial determination regarding whether such employment or consultancy falls within the scope of the Restrictive Covenants.

            3.2.    Acknowledgments . The Executive acknowledges that the Restrictive Covenants are reasonable and necessary to protect the legitimate interests of Conectiv or the Company and its affiliates and that, in the absence of such restrictions, Conectiv would not enter into this Agreement. Therefore, the Executive acknowledges that the Restrictive Covenants are entered into in order to induce Conectiv to make the payment described in Section 2 . The Executive further acknowledges that the duration and geographic scope of Section 3.1(a) are reasonable

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given the nature of Conectiv’s business and the position of authority and responsibility that the Executive holds within Conectiv or may hold within the Company.

            3.3.    Rights and Remedies Upon Breach .

                        (a)    Specific Enforcement . The Executive acknowledges that any breach by him, willfully or otherwise, of the Restrictive Covenants will cause continuing and irreparable injury to Conectiv or the Company for which monetary damages would not be an adequate remedy. The Executive shall not, in any action or proceeding to enforce any of the provisions of this Agreement, assert the claim or defense that such an adequate remedy at law exists. In the event of any such breach by the Executive, Conectiv or the Company shall have the right to enforce the Restrictive Covenants by seeking injunctive or other relief in any court, without any requirement that a bond or other security be posted, and this Agreement shall not in any way limit remedies of law or in equity otherwise available to Conectiv or the Company. If an action at law or in equity is necessary to enforce or interpret the terms of this Agreement, the prevailing party shall be entitled to recover, in addition to any other relief, reasonable attorneys’ fees, costs and disbursements.

                        (b)    Extension of Restrictive Period . If the Executive breaches any of the Restrictive Covenants contained in Section 3.1(a) , then the Restricted Period shall be extended for a period of time equal to the period of time that the Executive is in breach of such restriction.

                        (c)    Return of Payment and Accounting . If the Executive engages in a material breach of any of the Restrictive Covenants, the Executive will be required to return the payment described in Section 2 above, plus interest accruing from the date of payment to the Executive to the date of such repayment at a rate of 2% above the prime rate, as determined by the Company, to Conectiv or the Company, as applicable, and Conectiv or the Company will have the right and remedy to require the Executive to account for and pay over to the Company all compensation, profits, monies, accruals, increments or other benefits derived or received by the Executive as the result of any action constituting a breach of the Restrictive Covenants. These rights and remedies will be in addition to, and not in lieu of, any other rights and remedies available to Conectiv or the Company under law or in equity. Notwithstanding the foregoing, no return of payment will be required unless (i) the damages caused by the breach are significant and proportionate to the penalty hereunder, or (ii) the Executive fails to cease and remedy the breaching activity within thirty (30) days after receiving notice from Conectiv or the Company indicating the manner in which the breach has occurred and demanding such cessation and remediation.

            3.4.    Judicial Modification . If any court determines that the Restrictive Covenants, or any part thereof, is unenforceable because of the duration or geographical scope of such provision, such court shall have the power to modify such provision and, in its modified form, such provision shall then be enforceable.

            3.5.    Disclosure of Restrictive Covenants . The Executive agrees to disclose the existence and terms of the restrictive covenants set forth in this Section 3 to any employer that the Executive may work for during the Restricted Period.

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            3.6.    Enforceability . If any court holds the Restrictive Covenants unenforceable by reason of their breadth or scope or otherwise, it is the intention of the parties hereto that such determination not bar or in any way affect the right of Conectiv or the Company to the relief provided above in the courts of any other jurisdiction within the geographical scope of such Restrictive Covenants.

SECTION 4.    Miscellaneous

            4.1.    Successors and Assigns . This Agreement shall inure to the benefit of and be binding upon Conectiv, the Company, and the Executive and their respective successors, executors, administrators, heirs and/or permitted assigns; provided, however , that neither the Executive nor Conectiv or the Company may make any assignments of this Agreement or any interest herein, by operation of law or otherwise, without the prior written consent of the other party, except that, without such consent, Conectiv or the Company may assign this Agreement to any successor to all or substantially all of its assets and business by means of liquidation, dissolution, merger, consolidation, transfer of assets, or otherwise.

            4.2.    Notice . Any notice or communication required or permitted under this Agreement shall be made in writing and (a) sent by overnight courier, (b) mailed by certified or registered mail, return receipt requested or (c) sent by telecopier, addressed as follows:

                        If to the Executive:

                                     1439 Lanes End
                                     Villanova, PA 19085

                        If to Company:

                                     Before Merger:

                                     Conectiv
                                     800 King Street
                                     P.O Box 231
                                     Wilmington, DE 19899
                                     Attn: General Counsel

                                     After Merger:

                                     PEPCO Holdings Inc.
                                     Legal Department
                                     701 Ninth St. N.W.
                                     Washington, D.C. 20068

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                                     Attn: General Counsel

                        with a copy to:

                                     Pepper Hamilton LLP
                                     3000 Two Logan Square
                                     18th & Arch Streets
                                     Philadelphia, PA 19103
                                     Attention: Susan K. Hoffman, Esquire
                                     Fax: 215-981-4750

or to such other address as either party may from time to time duly specify by notice given to the other party in the manner specified above.

            4.3.    Entire Agreement; Amendments . This Agreement contains the entire agreement and understanding of the parties hereto relating to the subject matter hereof, and merges and supersedes all prior and contemporaneous discussions, agreements and understandings of every nature relating to the subject matter hereof. This Agreement may not be changed or modified, except by an Agreement in writing signed by each of the parties hereto.

            4.4.    Waiver . Any waiver by either party of any breach of any term or condition in this Agreement shall not operate as a waiver of any other breach of such term or condition or of any other term or condition, nor shall any failure to enforce any provision hereof operate as a waiver of such provision or of any other provision hereof or constitute or be deemed a waiver or release of any other rights, in law or in equity.

            4.5.    Governing Law . This Agreement shall be governed by, and enforced in accordance with, the laws of the State of Delaware without regard to the application of the principles of conflicts of laws.

            4.6.    Severability . Whenever possible, each provision of this Agreement will be interpreted in such manner as to be effective and valid under applicable law, but if any provision of this Agreement is held to be invalid, illegal or unenforceable in any respect under any applicable law or rule in any jurisdiction, such invalidity, illegality or unenforceability will not affect any other provision or the effectiveness or validity of any provision in any other jurisdiction, and this Agreement will be reformed, construed and enforced in such jurisdiction as if such invalid, illegal or unenforceable provision had never been contained herein.

            4.7.    Section Headings . The section headings in this Agreement are for convenience only; they form no part of this Agreement and shall not affect its interpretation.

            4.8.    Consent to Suit; Fees . Any legal proceeding arising out of or relating to this Agreement shall be instituted in the United States District Court for the District of Delaware, or if such court does not have jurisdiction or will not accept jurisdiction, in any court of general

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jurisdiction in Wilmington, Delaware, and the Executive and Conectiv hereby consent to the personal and exclusive jurisdiction of such court and hereby waive any objection that the Executive or Conectiv or the Company may have to personal jurisdiction, the laying of venue of any such proceeding and any claim or defense of inconvenient forum. In the event of any legal proceeding arising out of or relating to the enforcement or interpretation of this Agreement, the party prevailing in such proceeding shall be entitled to payment from the other party of all reasonable attorneys’ fees, costs and disbursements incurred by the prevailing party in connection with such proceeding.

            4.9.    Counterparts and Facsimiles . This Agreement may be executed, including execution by facsimile signature, in one or more counterparts, each of which shall be deemed an original, and all of which together shall be deemed to be one and the same instrument.

                        IN WITNESS WHEREOF, Conectiv has caused this Agreement to be executed by its duly authorized officers, and the Executive has executed this Agreement, in each case as of the date first above written.

CONECTIV
By:	/s/ Howard Cosgrove
Title:

JOHN C. VAN RODEN, JR.

/s/ John C. Van Roden, Jr

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EX-10.D

EXHIBT 10-D

CHANGE IN CONTROL SEVERANCE AGREEMENT – JOHN C. VAN RODEN, JR.

CHANGE-IN-CONTROL
SEVERANCE AGREEMENT

                        This Agreement, dated as of June 18th, 2002, by and between Conectiv, with its principal place of business at 800 King Street, P.O. Box 231, Wilmington, Delaware, 19899 (the “Company”), and John C. van Roden, Jr. (the “Executive”), which is a substitution and replacement of a prior Agreement by and between Company and the Executive dated January 15, 1999.

                        WHEREAS, the Company considers it essential to the best interests of its stockholders to foster the continuous employment of key management personnel, and recognizes that, as is the case with many publicly held corporations, the possibility of a change in control may exist and that such possibility, and the uncertainty and questions which it may raise among management, may result in the distraction or departure of management personnel to the detriment of the Company and its stockholders; and

                        WHEREAS, the Board of Directors of the Company has determined that appropriate steps should be taken to reinforce and encourage the Executive’s continued attention and dedication to the Executive’s assigned duties without distraction in the face of potentially disturbing circumstances arising from the possibility of a change in control of the Company, although no such change is presently known to be contemplated.

                        NOW THEREFORE, in consideration of the mutual covenants and agreements hereinafter contained and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows:

Section 1
DEFINITIONS

                        Except as may otherwise be specified or as the context may otherwise require, the following terms shall have the respective meanings set forth below whenever used herein:

                        “Base Salary” shall mean the annual base rate of regular compensation of the Executive immediately before a Change in Control, or if greater, the highest annual such rate at any time during the 12-month period immediately preceding the Change in Control.

                        “Board” shall mean the Board of Directors of the Company.

                        “Cause” shall mean (i) the willful and continued failure by the Executive substantially to perform his duties with the Employer (other than any such failure resulting from incapacity due to physical or mental illness of the Executive, or any such actual or anticipated failure after the issuance of a Notice of Termination for Good Reason) or (ii) the willful engaging by the Executive in conduct which is demonstrably and materially injurious to the Employer, monetarily or otherwise. For purposes hereof, no act, or failure to act, on the Executive’s part, shall be deemed “willful” unless done, or omitted to be done, by the Executive not in good faith and without reasonable belief that any act or omission was in the best interest of the Employer.

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                        “Change in Control” shall mean the first to occur, after the date hereof, of any of the following:

                                                        (i)   if any Person is or becomes the “beneficial owner” (as defined in Rule 13d-3 under the Securities Exchange Act), directly or indirectly, of securities of the Company (not including in the securities beneficially owned by such Person any securities acquired directly from the Company or its Subsidiaries) representing 25% or more of either the then outstanding shares of Stock of the Company or the combined voting power of the Company’s then outstanding securities;

                                                        (ii)   if during any period of 24 consecutive months during the existence of this Agreement commencing on or after the date hereof, the individuals who, at the beginning of such period, constitute the Board (the “Incumbent Directors”) cease for any reason other than death to constitute at least a majority thereof; provided that a director who was not a director at the beginning of such 24-month period shall be deemed to have satisfied such 24-month requirement (and be an Incumbent Director) if such director was elected by, or on the recommendation of or with the approval of, at least two-thirds of the directors who then qualified as Incumbent Directors either actually (because they were directors at the beginning of such 24-month period) or by prior operation of this clause (ii);

                                                        (iii)   the consummation of a merger or consolidation of the Company with any other corporation other than (A) a merger or consolidation which would result in the voting securities of the Company outstanding immediately prior to such merger or consolidation continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving entity or any parent thereof) at least 60% of the combined voting power of the voting securities of the Company or such surviving entity or any parent thereof outstanding immediately after such merger or consolidation, or (B) a merger or consolidation effected to implement a recapitalization of the Company (or similar transaction) in which no Person is or becomes the beneficial owner, as defined in clause (i), directly or indirectly, of securities of the Company (not including in the securities beneficially owned by such Person any securities acquired directly from the Company or its Subsidiaries) representing 40% or more of either the then outstanding shares of Stock of the Company or the combined voting power of the Company’s then outstanding securities; or

                                                        (iv)   the stockholders of the Company approve a plan of complete liquidation or dissolution of the Company, or there is consummated an agreement for the sale or disposition by the Company of all or substantially all of the Company’s assets, other than a sale or disposition by the Company of all or substantially all of the Company’s assets to an entity, at least 60% of the combined voting power of the voting securities of which are owned by Persons in substantially the same proportion as their ownership of the Company immediately prior to such sale.

                        Upon the occurrence of a Change in Control as provided above, no subsequent event or condition shall constitute a Change in Control for purposes of this Agreement, with the result that there can be no more than one Change in Control hereunder.

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                        It is understood that the consummation of the merger by and among Conectiv, New RC, and Potomac Electric Power Co. as proposed in a written agreement (the “Merger Agreement”) shall be a Change in Control for purposes of this Agreement.

                        “Code” shall mean the Internal Revenue Code of 1986, as amended.

                        “Company” shall mean, subject to Section 4.1(a), Conectiv, a Delaware corporation.

                        “Covered Termination” shall mean if, within the one-year period immediately following a Change in Control, the Executive (i) is terminated by the Employer without Cause (other than on account of death or Disability), or (ii) terminates his employment with the Employer for Good Reason. The Executive shall not be deemed to have terminated for purposes of this Agreement merely because he or she ceases to be employed by the Employer and becomes employed by a new employer involved in the Change in Control; provided that such new employer shall be bound by this Agreement as if it were the Employer hereunder with respect to the Executive. It is expressly understood that no Covered Termination shall be deemed to have occurred merely because, upon the occurrence of a Change in Control, the Executive ceases to be employed by the Employer and does not become employed by a successor to the Employer after the Change in Control if the successor makes an offer to employ the Executive on terms and conditions which, if imposed by the Employer, would not give the Executive a basis on which to terminate employment for Good Reason.

                        “Date of Termination” shall mean the date on which a Covered Termination occurs.

                        “Disability” shall mean the occurrence after a Change in Control of the incapacity of the Executive due to physical or mental illness, whereby the Executive shall have been absent from the full-time performance of his duties with the Employer for six consecutive months.

                        “Employer” shall mean the Company (if and for so long as the Executive is employed thereby) and each Subsidiary which may now or hereafter employ the Executive or, where the context so requires, the Company and such Subsidiaries collectively. A subsidiary which ceases to be, directly or indirectly, through one or more intermediaries, controlling, controlled by or under common control with the Company prior to a Change in Control (other than in connection with and as an integral part of a series of transactions resulting in a Change in Control) shall, automatically and without any further action, cease to be (or be part of) the Employer for purposes hereof.

                        “Good Reason” shall mean, without the express written consent of the Executive, the occurrence after a Change in Control of any of the following circumstances, unless such circumstances are fully corrected prior to the Date of Termination specified in the Notice of Termination given in respect thereof:

                                                        (i)   assignment to the Executive of any duties inconsistent in any materially adverse respect with his position, authority, duties or responsibilities from those in effect immediately prior to the Change in Control;

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                                                        (ii)   a reduction in the Executive’s Base Salary as in effect immediately before the Change in Control;

                                                        (iii)   a material reduction in the Executive’s aggregate compensation opportunity, comprised only of (A) the Executive’s Base Salary, (B) bonus opportunity, if any, and (C) long-term or other incentive compensation opportunity, if any (taking into account, in the case of such bonus and incentive opportunities, without limitation, any target, minimum and maximum amounts payable and the attainability and otherwise the reasonability of any performance hurdles, goals and other measures);

                                                        (iv)   the Company’s requiring the Executive to be based at any office or location more than 50 miles from that location at which the Executive performed his services immediately prior to the occurrence of a Change in Control, except for travel reasonably required in the performance of the Executive’s responsibilities; or

                                                        (v)   the failure of the Employer to obtain a reasonable agreement from any successor to assume and agree to perform this Agreement, as contemplated in Section 4.1(a).

                        “Notice of Termination” shall mean a notice given by the Employer or Executive, as applicable, which shall indicate the specific termination provision in this Agreement relied upon and shall set forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of the Executive’s employment under the provisions so indicated.

                        “Person” shall have the meaning ascribed thereto by Section 3(a)(9) of the Securities Exchange Act, as modified and used in Sections 13(d) and 14(d) thereof (except that such term shall not include (i) the Company or any of its Subsidiaries, (ii) a trustee or other fiduciary holding securities under an employee benefit plan of the Company or any of its Subsidiaries, (iii) an underwriter temporarily holding securities pursuant to an offering of such securities, (iv) a corporation owned, directly or indirectly, by the stockholders of the Company in substantially the same proportion as their ownership of stock of the Company, or (v) such Executive or any “group” (as such term is used in Sections 13(d) and 14(d) of the Securities Exchange Act) which includes the Executive).

                        “Potential Change in Control” shall mean the occurrence, before a Change in Control, of any of the following:

                                                        (i)   if the Company enters into an agreement, the consummation of which would result in the occurrence of a Change in Control;

                                                        (ii)   if the Company or any Person publicly announces an intention to take or to consider taking actions which, if consummated, would constitute a Change in Control;

                                                        (iii)   if any Person becomes the “beneficial owner” (as defined in Rule 13d-3 under the Securities Exchange Act), directly or indirectly, of securities of the Company (not including in the securities beneficially owned by such Persons any securities acquired directly from the Company or its Subsidiaries) representing 15% or more of either the

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then outstanding shares of Stock of the Company or the combined voting power of the Company’s then outstanding securities; or

                                                        (iv)   if the Board adopts a resolution to the effect that, for purposes of this Agreement, a Potential Change in Control has occurred.

                        “Securities Exchange Act” shall mean the Securities Exchange Act of 1934, as amended.

                        “Stock” shall mean the common stock, $.01 par value, of the Company.

                        “Subsidiary” shall mean any entity, directly or indirectly, through one or more intermediaries, controlled by the Company.

                        “Target Annual Bonus” shall mean the Executive’s annual bonus for the Employer’s fiscal year in which the Date of Termination occurs, which bonus would be paid or payable if the Executive and the Employer were to satisfy all conditions to the Executive’s receiving the annual bonus at target (although not necessarily the maximum annual bonus); provided that such amount shall be annualized for any fiscal year consisting of less than 12 full months; and provided, further, that, if at the time of a Change in Control it is substantially certain that a bonus at a level beyond target will be paid or payable for the fiscal year, then the bonus which is substantially certain to be paid or payable, rather than the target bonus, shall be used for these purposes.

Section 2
BENEFITS

                        2.1.   If a Covered Termination occurs, then

                                     (a)    for a period of three years after such termination, the Employer shall arrange to make available to the Executive medical, dental, vision, group life and disability benefits that are at least at a level (and cost to the Executive) that is substantially similar in the aggregate to the level of such benefits which was available to the Executive immediately prior to the Change in Control; provided that (i) the Employer shall be required to provide group life and disability benefits only to the extent it is able to do so on reasonable terms and at a reasonable cost, (ii) the Employer shall not be required to provide benefits under this Section 2.1(a) upon and after the Change in Control which are in excess of those provided to a significant number of executives of similar status who are employed by the Employer from time to time upon and after the Change in Control, and (iii) no type of benefit otherwise to be made available to the Executive pursuant to this Section 2.1(a) shall be required to be made available to the extent that such type of benefit is made available to the Executive by any subsequent employer of the Executive; and

                                     (b)    The Company shall pay, at the time and manner provided in Section 2.2(a), the product of (i) the Executive’s Target Annual Bonus for the year in which the Date of Termination occurs (or, if higher, as in effect at the time of the Change in Control) and (ii) a

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fraction, the numerator of which is the number of days in the current fiscal year through the Date of Termination, and the denominator of which is 365.

                        2.2.   (a)   The payments provided for in Section 2.1 shall (except as otherwise expressly provided therein or as provided in Section 2.2(b) or as otherwise expressly provided hereunder) be made as soon as practicable, but in no event later than 30 days, following the Date of Termination.

                                     (b)    Notwithstanding any other provision of this Agreement to the contrary, no payment or benefit otherwise provided for under or by virtue of the foregoing provisions of this Agreement shall be paid or otherwise made available unless and until the Employer shall have first received from the Executive (no later than 60 days after the Employer has provided to the Executive estimates relating to the payments to be made under this Agreement) a valid, binding and irrevocable general release, in form and substance acceptable to the Employer in its discretion; provided that the Employer shall be permitted to defer any payment or benefit otherwise provided for in this Agreement to the 15th day after its receipt of such release and time at which it has become valid, binding and irrevocable. The Employer may require that any such release contain an agreement of the Executive to notify the Employer of any benefit made available by a subsequent employer as contemplated by clause (iii) of the proviso to Section 2.1(c).

                        2.3.   Notwithstanding any other provision of this Agreement to the contrary, to the extent permitted by the Worker Adjustment and Retraining Notification Act (“WARN”), any benefit payable hereunder to the Executive as a consequence of the Executive’s Covered Termination shall be reduced by any amounts required to be paid under Section 2104 of WARN to the Executive in connection with such Covered Termination.

                        2.4.   In consideration of the promises contained herein, the Executive hereby waives the provisions of the Incentive Compensation Plan that would provide for immediate vesting of the restricted stock granted to him during 1999, 2000, 2001, and 2002 prior to the date of this Agreement upon the consummation of the pending Agreement and Plan of Merger dated as of February 9, 2001 pursuant to which Conectiv and Potomac Electric Power Co. will become wholly-owned subsidiaries of Pepco Holdings, Inc., and further agrees to surrender

and waive any ownership rights to such restricted stock upon the consummation of such Agreement and Plan of Merger.

Section 3
PARACHUTE TAX PROVISIONS

                        3.1.   If all, or any portion, of the payments and benefits provided under this Agreement, if any, either alone or together with other payments and benefits which the Executive receives or is entitled to receive from the Company or its affiliates, would constitute an excess “parachute payment” within the meaning of Section 280G of the Code (whether or not under an existing plan, arrangement or other agreement) (each such parachute payment, a “Parachute

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Payment”), and would result in the imposition on the Executive of an excise tax under Section 4999 of the Code, then, in addition to any other benefits to which the Executive is entitled under this Agreement or otherwise, the Executive shall be paid an amount in cash equal to the sum of the excise taxes payable by the Executive by reason of receiving Parachute Payments plus the amount necessary to place the Executive in the same after-tax position (taking into account any and all applicable federal, state and local excise, income or other taxes at the highest possible applicable rates on such Parachute Payments (including, without limitation, any payments under this Section 3.1)) as if no excise taxes had been imposed with respect to Parachute Payments (the “Parachute Gross-up”). Any Parachute Gross-up otherwise required by this Section 3.1 shall not be made later than the time of the corresponding payment or benefit hereunder giving rise to the underlying Section 4999 excise tax, even if the payment of the excise tax is not required under the Code until a later time. Any Parachute Gross-up otherwise required under this Section 3.1 shall be made whether or not there is a Change in Control, whether or not payments or benefits are payable under this Agreement, whether or not the payments or benefits giving rise to the Parachute Gross-up are made in respect of a Change in Control and whether or not the Executive’s employment with the Employer shall have been terminated.

                        3.2.   Except as may otherwise be agreed to by the Company and the Executive, the amount or amounts (if any) payable under this Section 3 shall be conclusively determined by the Company’s independent auditors (who served in such capacity immediately prior to the Change in Control), whose determination or determinations shall be final and binding on all parties. The Executive hereby agrees to utilize such determination or determinations, as applicable, in filing all of the Executive’s tax returns with respect to the excise tax imposed by Section 4999 of the Code. If such independent auditors refuse to make the required determinations, then such determinations shall be made by a comparable independent accounting firm of national reputation reasonably selected by the Company. Notwithstanding any other provision of this Agreement to the contrary, as a condition to receiving any Parachute Gross-up payment, the Executive hereby agrees to be bound by and comply with the provisions of this Section 3.2.

                        3.3.   In all respects, and notwithstanding the foregoing, any Parachute Gross-up shall be paid pursuant to, and the Executive shall comply with the terms of, the Gross-up and Legal Fee Plan which has previously been adopted by the Company.

Section 4
MISCELLANEOUS

                        4.1.   (a)   The Company shall require any successor (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all of the business or assets of the Company expressly to assume and agree to perform under the terms of this Agreement in the same manner and to the same extent that the Company and its affiliates would be required to perform it if no such succession had taken place (provided that such a requirement to perform which arises by operation of law shall be deemed to satisfy the requirements for such an express assumption and agreement), and in such event the Company (as constituted prior to such succession) shall have no further obligation under or with respect to this Agreement. Failure of the Company to obtain such assumption and agreement with respect to the Executive prior to the effectiveness of any such succession shall be a breach of the terms of

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this Agreement with respect to the Executive and shall entitle the Executive to compensation from the Employer (as constituted prior to such succession) in the same amount and on the same terms as the Executive would be entitled to hereunder were the Executive’s employment terminated for Good Reason following a Change in Control, except that for purposes of implementing the foregoing, the date on which any such succession becomes effective shall be deemed the Date of Termination. As used in this Agreement, “Company” shall mean the Company as hereinbefore defined and any successor to its business or assets as aforesaid which assumes and agrees (or is otherwise required) to perform this Agreement. Nothing in this Section 4.1(a) shall be deemed to cause any event or condition which would otherwise constitute a Change in Control not to constitute a Change in Control.

                                     (b)    Notwithstanding Section 4.1(a), the Company shall remain liable to the Executive upon a Covered Termination after a Change in Control if (i) the Executive is not offered continuing employment by a successor to the Employer or (ii) the Executive declines such an offer and the Executive’s resulting termination of employment otherwise constitutes a Covered Termination hereunder.

                                     (c)    This Agreement, and the Executive’s and the Company’s rights and obligations hereunder, may not be assigned by the Executive or, except as provided in Section 4.1(a), the Company, respectively; any purported assignment by the Executive or the Company in violation hereof shall be null and void.

                                     (d)    The terms of this Agreement shall inure to the benefit of and be enforceable by the personal or legal representatives, executors, administrators, successors, heirs, distributees, devisees and legatees of the Executive. If the Executive shall die while an amount would still be payable to the Executive hereunder if they had continued to live, all such amounts, unless otherwise provided herein, shall be paid in accordance with the terms of this Agreement to the Executive’s devisee, legatee or other designee or, if there is no such designee, the Executive’s estate.

                        4.2.   Except as expressly provided in Section 2.1, the Executive shall not be required to mitigate damages or the amount of any payment provided for under this Agreement by seeking other employment or otherwise, nor will any payments or benefits hereunder be subject to offset in the event the Executive does mitigate.

                        4.3.   The Employer shall pay all legal fees and expenses incurred in a legal proceeding by the Executive in seeking to obtain or enforce any right or benefit provided by this Agreement. Such payments are to be made within five days after the Executive’s request for payment accompanied with such evidence of fees and expenses incurred as the Employer reasonably may require; provided that if the Executive institutes a proceeding and the judge or other decision-maker presiding over the proceeding affirmatively finds that the Executive has failed to prevail substantially, the Executive shall pay his own costs and expenses (and, if applicable, return any amounts theretofore paid on the Executive’s behalf under this Section 4.3).

                        4.4.   (a)   The Executive may file a claim for benefits under this Agreement by written communication to the Board. A claim is not considered filed until such communication is actually received by the Board. Within 90 days (or, if special circumstances require an extension of time for processing, 180 days, in which case notice of such special

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circumstances shall be provided within the initial 90-day period) after the filing of the claim, the Board shall:

                                                        (i)   approve the claim and take appropriate steps for satisfaction of the claim; or

                                                        (ii)   if the claim is wholly or partially denied, advise the Executive of such denial by furnishing to him or her a written notice of such denial setting forth (A) the specific reason or reasons for the denial; (B) specific reference to pertinent provisions of this Agreement on which the denial is based and, if the denial is based in whole or in part on any rule of construction or interpretation adopted by the Board, a reference to such rule, a copy of which shall be provided to the Executive; (C) a description of any additional material or information necessary for the Executive to perfect the claim and an explanation of the reasons why such material or information is necessary; and (D) a reference to this Section 4.4.

                        4.5.   For the purposes of this Agreement, notice and all other communications provided for in this Agreement shall be in writing and shall be deemed to have been duly given when hand delivered or mailed by United States certified or registered express mail, return receipt requested, postage prepaid, if to the Executive, addressed to the Executive at his or her respective address on file with the Secretary of the Company; if to the Company, addressed to Conectiv, 800 King Street, P.O. Box 231, Wilmington, Delaware 19899-0231, and directed to the attention of its General Counsel; if to the Board, addressed to the Board of Directors, c/o Conectiv, 800 King Street, P.O. Box 231, Wilmington, Delaware, 19899-0231, and directed to the Company’s General Counsel; or to such other address as any party may have furnished to the others in writing in accordance herewith, except that notice of change of address shall be effective only upon receipt.

                        4.6.   Unless otherwise determined by the Employer in an applicable plan or arrangement, no amounts payable hereunder upon a Covered Termination shall be deemed salary or compensation for the purpose of computing benefits under any employee benefit plan or other arrangement of the Employer for the benefit of its employees unless the Employer shall determine otherwise.

                        4.7.   This Agreement is the exclusive arrangement with the Executive applicable to payments and benefits in connection with a change in control of the Company (whether or not a Change in Control), and supersedes any prior arrangements involving the Company or its predecessors or affiliates (including, without limitation, Delmarva Power & Light Company and Atlantic Energy, Inc.) relating to changes in control (whether or not Changes in Control). This Agreement shall not limit any right of the Executive to receive any payments or benefits under an employee benefit or executive compensation plan of the Employer, initially adopted as of or after the date hereof, or otherwise listed in Exhibit A hereto, which are expressly contingent thereunder upon the occurrence of a change in control (including, but not limited to, the acceleration of any rights or benefits thereunder); provided that in no event shall the Executive be entitled to any payment or benefit under this Agreement which duplicates a payment or benefit received or receivable by the Executive under any severance or similar plan or policy of the Employer.

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                        4.8.   Any payments hereunder shall be made out of the general assets of the Employer. The Executive shall have the status of general unsecured creditor of the Employer, and this Agreement constitutes a mere promise by the Employer to make payments under this Agreement in the future as and to the extent provided herein.

                        4.9.   Nothing in this Agreement shall confer on the Executive any right to continue in the employ of the Employer or interfere in any way (other than by virtue of requiring payments or benefits as may expressly be provided herein) with the right of the Employer to terminate the Executive’s employment at any time.

                        4.10.   The Employer shall be entitled to withhold from any payments or deemed payments any amount of tax withholding required by law.

                        4.11.   Any controversy or claim arising out of or relating to this Agreement or the breach of this Agreement that is not resolved by the Employer and the Executive shall be submitted to arbitration in Wilmington, Delaware, in accordance with Delaware law and the procedures of the American Arbitration Association. The determination of the arbitrator(s) shall be conclusive and binding on the Employer and Executive and judgment may be entered on the arbitrator(s)’ award in any court having jurisdiction.

                        4.12.   (a)   This Agreement may be amended, superseded, canceled, renewed or extended, and the terms hereof may be waived, only by a written instrument signed by the parties or, in the case of a waiver, by the party waiving compliance. No delay on the part of any party in exercising any right, power or privilege hereunder shall operate as a waiver thereof, nor shall any waiver on the part of any party of any such right, power or privilege nor any single or partial exercise of any such right, power or privilege, preclude any other or further exercise thereof or the exercise of any other such right, power or privilege.

                                     (b)    Without limiting the generality of Section 4.12(a), the Board, on written notice to the Executive, may unilaterally terminate this Agreement with respect to Changes in Control occurring after the later of (i) December 31, 2000 or (ii) the first anniversary of the date of such notice. Notwithstanding the foregoing, in the event of a Potential Change in Control, until such time as the transaction or transactions contemplated in connection with such Potential Change in Control, and all related negotiations, are abandoned in their entirety [as determined in good faith and reflected in writing (before a Change in Control) by the Board], this Agreement may not be terminated under this Section 4.12(b) with respect to any Change in Control which ultimately results directly from facts and circumstances constituting such Potential Change in Control if such Potential Change in Control occurs on or before the later of (i) December 31, 2000 or (ii) one year after the first anniversary of the date of the notice referred to in the foregoing sentence.

                                     (c)    Without limiting the generality of Section 4.12(a), if material negotiations involving the Board or the Chief Executive Officer of the Company have commenced regarding a transaction which, if consummated, would constitute a Change in Control, and this Agreement is terminated while such negotiations are continuing and actively being pursued by the Board or the Chief Executive Officer, then such termination of this Agreement shall be null and void as applied with respect to the Change in Control (if any) which ultimately results directly from such negotiations; it being expressly understood that this Section

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4.12(c) shall not apply with respect to any negotiations which at any time prior to a Change in Control have ceased [as determined in good faith and reflected in writing (prior to a Change in Control) by the Board or Chief Executive Officer (or which otherwise have ceased at a time prior to a Change in Control)].

                        4.13.   The invalidity or unenforceability of any provision of this Agreement shall not affect the validity or enforceability of any other provision of this Agreement which shall remain in full force and effect.

                        4.14.   The use of captions in this Agreement is for convenience. The captions are not intended to and do not provide substantive rights.

                        4.15.   THIS AGREEMENT SHALL BE CONSTRUED, ADMINISTERED AND ENFORCED ACCORDING TO THE LAWS OF THE STATE OF DELAWARE, WITHOUT REGARD TO PRINCIPLES OF CONFLICTS OF LAW, EXCEPT TO THE EXTENT PREEMPTED BY FEDERAL LAW.

                        IN WITNESS WHEREOF, the parties hereto have signed their names, effective as of the date first above written.

CONECTIV
By:	/s/ Donald E. Cain
Name:	Donald E Cain
Title:	VP-HRPI

/s/ John C. van Roden Jr

John C. van Roden, Jr.

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EX-10.E

EXHIBIT 10-E

RESTRICTED STOCK AGREEMENT BETWEEN THOMAS S. SHAW AND
CONECTIV

RESTRICTED STOCK AGREEMENT

                        THIS RESTRICTED STOCK AGREEMENT (“Agreement”) is made and entered into effective as of the 7th day of June, 2002 (the “Date of Grant”) between Thomas S. Shaw (“Employee”) and Conectiv (the “Company”) and its Subsidiaries (collectively, the “Employer”).

W I T N E S S E T H:

                        WHEREAS, the Employee is eligible to participate in the Conectiv Incentive Compensation Plan (the “Plan”, known as the “Conectiv Incentive Compensation Plan”); and

                        WHEREAS, the Employer wishes to induce Employee to remain employed by Employer to ensure continuation of business operations whether or not the merger involving Employer, Potomac Electric Power Company, and New RC, Inc. (the “Merger”) occurs; and

                        WHEREAS, Employee is willing to accept certain restricted stock in lieu of grants made and to be made under the Plan, as described in more detail herein;

                        NOW, THEREFORE, in consideration of the premises and the undertakings of the parties which follow, it is hereby agreed:

                        1.    Award . Employee is hereby granted 65,000 shares of Restricted Stock (“RS”), subject to the terms of the Plan and subject to further restrictions set forth below. In consideration therefor, Employee hereby surrenders all rights he may have (or might in the future have had) to the 8,100 shares of RS granted to him in January of 2001.

                        2.   Vesting; Acceleration.

                        (a)   Subject to the provisions of Sections 2(b) and 5(b), Employee’s rights with respect to the number of shares of RS awarded hereunder as set forth in the table below shall vest unconditionally on the dates specified in the table below if Employee is employed as an active employee of the Company, an affiliate of the Company, or a successor in interest to the Company (in any such case, the “Successor Employer”) on the specified vesting date.

Vesting Date	Number of Shares Vested
January 1, 2004	15,000
January 1, 2005	15,000 (plus prior vested shares)
January 1, 2006	35,000 (plus prior vested shares)

                        (b)   All unvested shares will become 100% vested if the Employee ceases to be employed by the Company (or any Successor Employer) due to his death or Disability. The shares that otherwise would vest on January 1, 2004 will vest earlier upon the Employee’s termination without Cause or resignation for Good Reason. For this purpose, the terms “Disability,” “Cause” and “Good Reason” will each have the meanings defined in the Change-in-Control Severance Agreement between the Company and the Employee dated December 4, 2000.

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                        (c)   Following termination of employment, any shares of RS that are not then vested will be forfeited by the Employee.

                        3.    Restrictions and Rights .

                        (a)   Prior to vesting, shares of RS shall not be voluntarily or involuntarily sold, assigned, transferred, pledged, alienated, hypothecated or encumbered by the Employee, other than by will or the laws of descent and distribution.

                        (b)   Prior to vesting, Employee shall have voting rights and receive dividends (if any) in cash, without restriction. At the election of the Employee, dividends may be deferred through the Conectiv Deferred Compensation Plan, subject to the limitations set forth therein.

                        4.    Stock Certificates . The RS awarded hereunder shall be evidenced by issuance of one or more stock certificates, which shall be held by the Successor Employer during the restriction period. Such

certificates shall be registered in the name of the Employee and shall bear an appropriate restrictive legend prohibiting sale, transfer, pledge or hypothecation of the RS until the expiration of the restriction period. Upon vesting of any shares of RS awarded hereunder, all restrictions will lapse and certificates representing full ownership of the RS will be issued to the Employee or his or her legal representative, without the restrictive legend described herein.

                        5.    Change in Control .

                        (a)    Notwithstanding any provision of the Plan or of this Agreement, upon the closing of the Merger, 100% of the RS awarded hereunder shall be converted to restricted stock of New RC, Inc., in a number of shares to be determined in accordance with such merger agreement on the same basis as other shares of the Company. The RS that are converted to restricted stock of the new corporation by operation of the foregoing sentence (“Converted RS”) shall be subject to the terms and conditions of the Plan and this Agreement.

                        (b)   In the event any Change in Control other than the Merger does occur, all conditions with respect to the vesting of such RS shall be deemed to have been satisfied, any uncompleted time periods at the date of such Change in Control shall be deemed to have been completed and all restrictions with respect to such outstanding shares of RS shall lapse immediately, and such shares shall be fully vested and nonforfeitable.

                        6.    Subject to Plan . The award of RS is expressly subject to the Plan which is hereby incorporated herein by this reference. To the extent not otherwise expressly defined herein, capitalized terms in this Agreement shall have the meaning set forth in the Plan. In the event that any provision hereof is inconsistent with the Plan, the provisions of the Plan shall govern.

                        7.    Transfer Restrictions . All shares of Stock of the Company received under this Agreement shall be subject to such restrictions on transfer as may be contained in the Company’s Articles of Incorporation, By-Laws, or any stock transfer restriction agreements as may be in effect that cover stock held by officers and key employees of the Company or any subsidiary or parent of the Company, as applicable.

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                        8.    Binding Agreement . The Employee hereby agrees on behalf of himself, his successors, heirs, and personal representatives, to be bound by the terms and conditions of this Agreement.

                        9.    Tax Withholding . Upon the distribution of RS to Employee, Successor Employer shall have the right to withhold any applicable federal, state or local taxes required by law as determined by the Successor Employer. The Committee may permit or require the Employee to have any portion of any withholding or other taxes payable in respect of such distribution of Stock satisfied through the payment of cash by the Employee to the Successor Employer, the retention by the Successor Employer of shares of stock, or delivery of previously-owned shares of the Employee’s stock, having a Fair Market Value equal to the withholding amount.

                        10.    No Right of Service . This Agreement shall not confer upon the Employee any right to continued service, nor shall it interfere in any way with the right of the Company or Successor Employer to terminate the service of the Employee at any time.

                        11.    Governing Law . This Agreement shall be governed by and construed in accordance with the laws of the State of Delaware, without regard to the principles of conflict of laws.

                        SIGNED as of the date and year first above written.

Date: June 7, 2002	By:	/s/ T. S. Shaw
		Thomas S. Shaw

CONECTIV
By:	/s/ Donald E. Cain
	Donald E. Cain

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EX-12

Exhibit 12

Conectiv

Ratio of Earnings to Fixed Charges
(Dollars in Thousands)

	6 Months Ended			Year Ended December 31,
	June 30, 2002			2001			2000			1999			1998			1997
Income from continuing operations	$	61,533		$	377,522		$	203,815		$	143,493		$	170,933		$	106,890
Income taxes		45,951			253,486			151,275			123,079			117,857			76,040
Fixed charges:
Interest on long-term debt       including amortization of       discount, premium and       expense		60,244			142,423			166,256			149,732			133,796			78,350
Other interest		19,935			54,175			60,818			37,743			26,199			12,835
Preferred dividend requirements       of subsidiaries		8,088			18,734			20,383			19,894			17,871			10,178
Total fixed charges		88,267			215,332			247,457			207,369			177,866			101,363
Nonutility capitalized interest		(7,186	)		(15,119	)		(9,278	)		(3,264	)		(1,444	)		(208	)
Undistributed earnings of equity    method investees		—			—			(4,496	)		—			—			—
Earnings before extraordinary    item, income taxes, and fixed    charges	$	188,565		$	831,221		$	588,773		$	470,677		$	465,212		$	284,085
Total fixed charges shown above	$	88,267		$	215,332		$	247,457		$	207,369		$	177,866		$	101,363
Increase preferred stock dividend    requirements of subsidiaries to a    pre-tax amount		1,072			3,644			5,253			6,123			4,901			3,065
Fixed charges for ratio    computation	$	89,339		$	218,976		$	252,710		$	213,492		$	182,767		$	104,428
Ratio of earnings to fixed charges		2.11			3.80			2.33			2.20			2.55			2.72

For purposes of computing the ratio, earnings are income from continuing operations plus income taxes and fixed charges, less nonutility capitalized interest. Fixed charges include gross interest expense, the estimated interest component of rentals, and preferred stock dividend requirements of subsidiaries. Preferred stock dividend requirements for purposes of computing the ratio have been increased to an amount representing the pre-tax earnings which would be required to cover such dividend requirements.

EX-99

Exhibit 99

Certificate of Chief Executive Officer and Chief Financial Officer

of

Conectiv

(pursuant to 18 U.S.C. Section 1350)

            I, Thomas S. Shaw, President and Chief Operating Officer (principal executive officer) of Conectiv; and I, James P. Lavin, Senior Vice President and Chief Financial Officer of Conectiv, each certify that, (i) to the best of my knowledge and belief, the Quarterly Report on Form 10-Q of Conectiv for the quarter ended June 30, 2002, filed with the Securities and Exchange Commission on the date hereof, fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended, and (ii) the information contained therein fairly presents, in all material respects, the financial condition and results of operations of Conectiv.

/s/ Thomas S. Shaw

Thomas S. Shaw
President and Chief Operating Officer
August 14, 2002

/s/ James P. Lavin

James P. Lavin
Senior Vice President and Chief Financial Officer
August 14, 2002