10-Q

SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549
		FORM 10-Q
Quarterly Report Under Section 13 or 15(d) of the Securities Exchange Act of 1934
For Quarter Ended										June 30, 2002
Commission File Number									000-33049
Pepco Holdings, Inc. (Exact name of registrant as specified in its charter)
Delaware (State or other jurisdiction of incorporation or organization)								52-2297449 (I.R.S. Employer Identification No.)
701 Ninth Street, N.W., Washington, D.C. (Address of principal executive office)											20068 (Zip Code)
202-872-2000 (Registrant's telephone number, including area code)
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 and (2) has been subject to such filing requirements for the past 90 days.
	Yes		[ X ]			No	[  ]
Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date.
Class				Outstanding at June 30, 2002
Common Stock, $0.01 par value					100

TABLE OF CONTENTS

	Page
PART I - Financial Information
Item 1. - Consolidated Financial Statements
Consolidated Statements of Earnings and Retained Income	3
Consolidated Balance Sheets	3
Consolidated Statements of Cash Flows	4
Notes to Consolidated Financial Statements	4
(1)  Organization	4
(2)  Hedge Transactions and New Accounting Standards	5
(3)  Commitments and Contingencies	6
(4)  Subsequent Event	6
Report of Independent Accountants on Review of Interim             Financial Information	7
Item 2. - Management's Discussion and Analysis of Consolidated                 Results of Operations and Financial Condition	8
Item 3. - Quantitative and Qualitative Disclosures about                 Market Risk	9
PART II - Other Information
Item 5. - Other Information	10
Item 6. - Exhibits and Reports on Form 8-K	10
Signatures	11
Independent Accountants Awareness Letter	12

Part I	FINANCIAL INFORMATION
Item 1.	CONSOLIDATED FINANCIAL STATEMENTS

PEPCO HOLDINGS, INC. CONSOLIDATED STATEMENTS OF EARNINGS AND RETAINED INCOME (Unaudited, Millions of Dollars)
	Three Months Ended     June 30,       2002       2001		Six Months Ended June 30, 2002	February 9, 2001 (Inception) through June 30, 2001
REVENUE	$  -	$  -	$  -	$  -
EXPENSES	-	-	-	-
NET INCOME	-	-	-	-
Retained Income at Beginning of Period	-	-	-	-
Retained Income at End of Period	$   -	$   -	$   -	$   -
The accompanying notes are an integral part of these statements.

PEPCO HOLDINGS, INC. CONSOLIDATED BALANCE SHEETS (Unaudited at June 30, 2002)
	June 30,    2002	December 31,     2001
	(Millions of Dollars)
ASSETS
Cash	$   -	$  -
Deferred tax asset (Note 2)	4.2	-
Total Assets	$ 4.2	$  -
LIABILITIES AND SHAREHOLDER'S (DEFICIT) EQUITY
LIABILITIES
Treasury lock hedges (Note 2)	$10.4	-
SHAREHOLDER'S (DEFICIT) EQUITY
Common Stock, $.01 par value (Note 1):     100 shares authorized, issued and outstanding	-	-
Additional Paid-in-Capital	-	-
Accumulated other comprehensive loss	(6.2)	-
Total Shareholder's (Deficit) Equity	(6.2)	-
Total Liabilities and         Shareholder's (Deficit) Equity	$ 4.2	$  -
The accompanying notes are an integral part of these statements.

PEPCO HOLDINGS, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited, Millions of Dollars)
FINANCING ACTIVITIES	Six Months Ended June 30, 2002	February 9, 2001 (Inception) through June 30, 2001
Proceeds from the issuance of    Pepco Holdings common stock	$   -	$  -
Net Increase in Cash and    Cash Equivalents	-	-
Cash and Cash Equivalents at    Beginning of Period	-	-
Cash and Cash Equivalents at    End of Period	$  -	$  -
The accompanying notes are an integral part of these statements.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(1)  Organization

     Pepco Holdings, Inc. (Pepco Holdings or the Company), formerly New RC,
Inc., was incorporated under the laws of Delaware on February 9, 2001, as a
wholly owned subsidiary of Potomac Electric Power Company (Pepco). At
June 30, 2002, Pepco Holdings had 100 shares of common stock issued and
outstanding (with a par value of $.01) for proceeds of $200, or $2.00 per
share. Other than the treasury lock transactions that Pepco Holdings has
entered into, which are discussed in Note (2) Hedge Transactions, herein,
Pepco Holdings had not commenced operations as of June 30, 2002 and therefore
it had no operating results.

     On February 12, 2001, Pepco and Conectiv announced that each company's
board of directors approved an agreement for a strategic transaction whereby
Pepco would acquire Conectiv for a combination of cash and stock valued at
approximately $2.2 billion. After the closing of the acquisition of Conectiv
on August 1, 2002, Pepco and Conectiv became subsidiaries of Pepco Holdings.
The combination will be accounted for as a purchase of Conectiv by Pepco in
the third quarter of 2002. As of August 1, 2002, Pepco Holdings is a holding
company registered under the Public Utility Holding Company Act of 1935, as
amended.

(2)  Hedge Transactions and New Accounting Standards

Treasury Lock Hedges

     In June 2002, Pepco Holdings entered into several treasury lock
transactions with a cumulative notional amount of $1.25 billion, in
anticipation of the issuance of several series of fixed rate debt commencing
in July 2002. These treasury lock transactions, which have been designated
as qualified cash flow hedges in accordance with the provisions of Statement
of Financial Accounting Standards No. 133 entitled "Accounting for Derivative
Instruments and Hedging Activities," are intended to offset the changes in
future cash flows attributable to fluctuations in interest rates.

     The fair value of the treasury locks resulted in a pre-tax loss of $10.4
million at June 30, 2002 ($6.2 million after-tax). The after-tax amount is
reported as a component of accumulated other comprehensive loss in the
shareholders' equity section of Pepco Holdings' consolidated balance sheets
and the pre-tax amount is recorded as a liability. Upon issuance of the debt
the net gain or loss on the settlement of the treasury lock transactions will
be removed from accumulated other comprehensive loss and amortized on Pepco
Holdings' consolidated statements of earnings and retained income over the
life of the related debt. As discussed in Note (4) Subsequent Event, herein,
the debt was not issued in July 2002. Management anticipates it will be
issued at a later date.

Energy Trading Activities

     In 2002, a pronouncement was issued by the Emerging Issues Task Force
entitled EITF Issue No. 02-3 (EITF 02-3) "Accounting for Contracts Involved
in Energy Trading and Risk Management Activities." EITF 02-3 addresses the
presentation of revenue and expense associated with "energy trading book"
contracts on a gross vs. net basis. Previously the EITF concluded that gross
presentation was acceptable, but with the issuance of EITF 02-3 and the
subsequent guidance provided by the EITF in June 2002, net presentation is
required. Two of Pepco Holdings' subsidiaries (after the consummation of the
merger transaction on August 1, 2002), Pepco Energy Services, Inc. and
Conectiv Energy Holding Company, enter into trading activities that are
subject to the provisions of this pronouncement and both historically have
classified these contracts on a gross basis. EITF 02-3 is required to be
implemented effective for the third quarter 2002 reporting cycle. Pepco
Holdings is in the process of completing its evaluation of the extent of its
subsidiaries revenue and expense reclassifications that will be required and
expects that the implementation of EITF 02-3, including the associated
reclassification of certain revenues and expenses, will not have an impact on
its overall financial position or net results of operations.

Costs Associated with Exit or Disposal Activities

     On July 30, 2002, the Financial Accounting Standard Board issued SFAS
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 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 146 is to be applied prospectively to exit or disposal activities
initiated after December 31, 2002. Pepco Holdings is in the process of
assessing the provisions of SFAS 146 in order to determine its impact on its
financial position and results of operations.

(3)  Commitments and Contingencies

     Pepco Holdings' Board of Directors has declared a dividend on common
stock of $.16576079 per share payable September 30, 2002, to shareholders of
record on September 10, 2002.

(4)  Subsequent Event

     Due to unfavorable market conditions that existed at July 31, 2002,
Pepco Holdings did not proceed with the issuance of its series of fixed rate
debt that were hedged by the treasury lock transactions. However, Pepco
Holdings will continue to monitor market conditions and will complete the
issuance at a later date. If the offering is not completed in a reasonable
period, generally within 60 days, the treasury locks would be declassified as
a hedge and therefore the accumulated other comprehensive loss or gain would
be recognized immediately on the Company's statements of earnings and
retained income. The fair value of the treasury locks was a $54.3 million
loss position at July 31, 2002 ($32.4 million after-tax).

             * * * * * * * * * * * * * * * * * * * * * * * * *

     This Quarterly Report on Form 10-Q will automatically be incorporated by
reference in the Prospectus constituting part of Pepco Holdings, Inc.'s
Registration Statements on Form S-3 (Number 333-89938) and on Form S-8
(Numbers 333-96673, 333-96675, and 333-96687), filed under the Securities Act
of 1933.

                       Report of Independent Accountants

To the Board of Directors
and Shareholders of
Pepco Holdings, Inc.

We have reviewed the accompanying consolidated balance sheet of Pepco
Holdings, Inc. (the Company) as of June 30, 2002, and the related
consolidated statements of earnings and retained income for the three and six
month periods ended June 30, 2002 and the three month period ended June 30,
2001 and the period February 9, 2001 (inception) through June 30, 2001 and
the consolidated statement of cash flows for the six month period ended
June 30, 2002 and the period February 9, 2001 (inception) through June 30,
2001. These financial statements are the responsibility of the Company's
management.

We conducted our review in accordance with standards established by the
American Institute of Certified Public Accountants. A review of interim
financial information consists principally of applying analytical procedures
to financial data and making inquiries of persons responsible for financial
and accounting matters. It is substantially less in scope than an audit
conducted in accordance with auditing standards generally accepted in the
United States of America, the objective of which is the expression of an
opinion regarding the financial statements taken as a whole. Accordingly, we
do not express such an opinion.

Based on our review, we are not aware of any material modifications that
should be made to the accompanying consolidated interim financial statements
for them to be in conformity with accounting principles generally accepted in
the United States of America.

We previously audited, in accordance with auditing standards generally
accepted in the United States of America, the consolidated balance sheet as
of December 31, 2001, and the related consolidated statements of earnings and
retained income, and consolidated statement of cash flows for the period
February 9, 2001 (inception) through December 31, 2001 (not presented
herein), and in our report dated January 18, 2002, we expressed an
unqualified opinion on those consolidated financial statements. In our
opinion, the information set forth in the accompanying consolidated balance
sheet at June 30, 2002, is fairly stated, in all material respects, in
relation to the consolidated balance sheet from which it has been derived.

PricewaterhouseCoopers LLP
August 9, 2002

Item 2.

MANAGEMENT'S DISCUSSION AND ANALYSIS OF CONSOLIDATED           RESULTS OF OPERATIONS AND FINANCIAL CONDITION

For information other than the disclosure contained below, refer to Note (1) Organization, which is hereby incorporated by reference, herein. Energy Trading Activities      In 2002, a pronouncement was issued by the Emerging Issues Task Force entitled EITF Issue No. 02-3 (EITF 02-3) "Accounting for Contracts Involved in Energy Trading and Risk Management Activities." EITF 02-3 addresses the presentation of revenue and expense associated with "energy trading book" contracts on a gross vs. net basis. Previously the EITF concluded that gross presentation was acceptable, but with the issuance of EITF 02-3 and the subsequent guidance provided by the EITF in June 2002, net presentation is required. Two of Pepco Holdings' current subsidiaries (after the consummation of the merger transaction on August 1, 2002), Pepco Energy Services, Inc. and Conectiv Energy Holding Company, enter into trading activities that are subject to the provisions of this pronouncement and both historically have classified these contracts on a gross basis. EITF 02-3 is required to be implemented effective for the third quarter 2002 reporting cycle.      Pepco is in the process of completing its evaluation of the extent of the revenue and expense reclassifications that will be required and expects that the implementation of EITF 02-3 will not result in material reclassifications of revenue and expense amounts and will have no impact on Pepco's overall financial position or net results of operations.      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 Conectiv's overall financial position or net results of operations. Additionally, 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 would be eliminated in the reclassification on its stand-alone statements of income. However, this 2001 reclassification will have no impact on Pepco Holdings' operating results as it represents Conectiv's pre-merger operations, which, in accordance with purchase accounting guidelines will not be reflected in Pepco Hold ings' consolidated financial statements.

Item 3.

QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK

Interest Rate Risk      In June 2002, Pepco Holdings entered into several treasury lock transactions with a cumulative notional amount of $1.25 billion, in anticipation of the issuance of several series of fixed rate debt commencing in July 2002. These treasury lock transactions, which have been designated as qualified cash flow hedges in accordance with the provisions of Statement of Financial Accounting Standards No. 133 entitled "Accounting for Derivative Instruments and Hedging Activities," are intended to offset the changes in future cash flows attributable to fluctuations in interest rates.      The fair value of the treasury locks resulted in a pre-tax loss of $10.4 million at June 30, 2002 ($6.2 million after-tax). The after-tax amount is reported as a component of accumulated other comprehensive loss in the shareholders' equity section of Pepco Holdings' consolidated balance sheets and the pre-tax amount is recorded as a liability. Upon issuance of the debt the net gain or loss on the settlement of the treasury lock transactions will be removed from accumulated other comprehensive loss and amortized on Pepco Holdings' consolidated statements of earnings and retained income over the life of the related debt.      Due to unfavorable market conditions that existed at July 31, 2002, Pepco Holdings did not proceed with the issuance of its series of fixed rate debt that were hedged by the treasury lock transactions. However, Pepco Holdings will continue to monitor market conditions and will complete the issuance at a later date. If the offering is not completed in a reasonable period, generally within 60 days, the treasury locks would be declassified as a hedge and therefore the accumulated other comprehensive loss or gain would be recognized immediately on the Company's statements of earnings and retained income. The fair value of the treasury locks was a $54.3 million loss position at July 31, 2002 ($32.4 million after-tax).      The interest rate risk related to the Company's treasury locks was estimated as the potential $50.3 million decrease in fair value at June 30, 2002, that resulted from a hypothetical 10% decrease in the prevailing interest rates.

Part II			OTHER INFORMATION
Item 5.			OTHER INFORMATION
On August 1, 2002, in connection with the formation of Pepco Holdings and the acquisition by Pepco Holdings of Pepco and Conectiv, the following individuals were elected as directors of Pepco Holdings:
	Class I (terms expiring 2003) Terence C. Golden George F. MacCormack Floretta D. McKenzie Lawrence C. Nussdorf Class II (terms expiring 2004) John M. Derrick, Jr. Judith A. McHale Richard B. McGlynn Peter F. O'Malley Class III (terms expiring 2005) Edmund B. Cronin, Jr. Pauline A. Schneider Dennis R. Wraase A. Thomas Young
As of August 1, 2002, the following were elected as the executive officers of Pepco Holdings:
	John M. Derrick, Jr., Chairman and Chief Executive Officer Dennis R. Wraase, President and Chief Operating Officer William T. Torgerson, Executive Vice President and General Counsel Thomas S. Shaw, Executive Vice President Andrew W. Williams, Senior Vice President and Chief Financial Officer Barbara S. Graham, Senior Vice President Ed R. Mayberry, Senior Vice President John D. McCallum, Senior Vice President Joseph M. Rigby, Senior Vice President William J. Sim, Senior Vice President William H. Spence, Senior Vice President James P. Lavin, Vice President and Controller
Item 6.		EXHIBITS AND REPORTS ON FORM 8-K
(a)		Exhibits
		Exhibit 10.1			Employment Agreement of John M. Derrick, Jr. - filed herewith
		Exhibit 10.2			Employment Agreement of Dennis R. Wraase - filed herewith
		Exhibit 10.3			Employment Agreement of William T. Torgerson - filed herewith
		Exhibit 10.4			Employment Agreement of Andrew W. Williams - filed herewith
		Exhibit 10.5			Employment Agreement of Thomas S. Shaw - filed herewith
		Exhibit 10.6			Employment Agreement of Eddie R. Mayberry - filed herewith
		Exhibit 10.7			Employment Agreement of John D. McCallum - filed herewith
		Exhibit 10.8			Employment Agreement of Joseph M. Rigby - filed herewith
		Exhibit 10.9			Employment Agreement of William H. Spence - filed herewith
		Exhibit 10.10			Employment Agreement of William H. Sim - filed herewith
		Exhibit 15			Letter re unaudited interim financial information - filed herewith
		Exhibit 99			Certificate of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350 - filed herewith
(b)		Reports on Form 8-K
		A Current Report on Form 8-K was filed by the Company on May 31, 2002, which included Potomac Electric Power Company's and Conectiv's Joint Press Release dated as of May 31, 2002. The items reported on such Form 8-K were Item 5. (Other Events) and Item 7. (Financial Statements and Exhibits).
		A Current Report on Form 8-K was filed by the Company on June 7, 2002, which included the Company's Pro Forma Financial Statements for the three months ended March 31, 2002 and twelve months ended December 31, 2001. The items reported on such Form 8-K were Item 5. (Other Events) and Item 7. (Financial Statements and Exhibits).
SIGNATURES       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.
August 9, 2002    Date				Pepco Holdings, Inc.       Registrant By:       A. W. WILLIAMS                  A. W. Williams      Senior Vice President and       Chief Financial Officer

                                                                      Exhibit 15

August 9, 2002

Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, DC  20549

Commissioners:

We are aware that our report dated August 9, 2002 on our review of interim
financial information of Pepco Holdings, Inc. (the "Company") as of and for
the period ended June 30, 2002 and included in the Company's quarterly report
on Form 10-Q for the quarter then ended is incorporated by reference in the
Prospectuses constituting parts of the Registration Statements on Form S-8
(Numbers 333-96673, 333-96675, and 333-96687) respectively, and on Form S-3
(Numbers 333-89938).

Very truly yours,

PricewaterhouseCoopers LLP
Washington, DC

EX-10

                                                 EMPLOYMENT AGREEMENT

            This EMPLOYMENT AGREEMENT (the "Agreement") is made as of August 1,
2002 between PEPCO HOLDINGS, INC. (the "Company") and JOHN M. DERRICK,
JR. (the "Executive").

                                                            RECITALS:

            The Board of Directors of the Company (the "Board of Directors") recognizes that
outstanding management of the Company is essential to advancing the best interests of
the Company, its shareholders and its subsidiaries. The Board of Directors believes that
it is particularly important to have stable, excellent management at the present time. The
Board of Directors believes that this objective may be achieved by giving key
management employees assurances of financial security for a period of time, so that they
will not be distracted by personal risks and will continue to devote their full time and best
efforts to the performance of their duties.

            The Human Resources Committee of the Board of Directors (the "Committee")
has recommended, and the Board of Directors has approved, entering into amended and
restated employment agreements with the Company's key management executives in
order to achieve the foregoing objectives. Accordingly, this Agreement amends, restates
and supercedes the employment agreement previously entered into between the Company
and the Executive, dated December 10, 1999 (the "Prior Agreement"). Upon execution
of this Agreement, the Prior Agreement shall be of no further force or effect. The
Executive is a key management executive of the Company and is a valuable member of
the Company's management team. The Company acknowledges that the Executive's
contributions to the past and future growth and success of the Company have been and
will continue to be substantial. The Company and the Executive are entering into this
Agreement to induce the Executive to remain an employee of the Company and to
continue to devote his full energy to the Company's affairs. The Executive has agreed to
continue to be employed by the Company under the terms and conditions hereinafter set
forth.

            NOW, THEREFORE, in consideration of the foregoing and the mutual
undertakings contained in this Agreement, the parties agree as follows:

1.          Term of this Agreement. The term of this Agreement shall begin on the date first
set forth above and shall end on the Executive's normal retirement date of April 1, 2005
(the "Term of this Agreement") or, if earlier, after all of the Company's and the
Executive's obligations hereunder have been satisfied following termination of the
Executive's employment during the Term of this Agreement.

2.          Duties. The Company and the Executive agree that, while employed during the
Term of this Agreement, the Executive will serve in a senior management position with
the Company. The Executive (a) will devote his knowledge, skill and best efforts on a
full-time basis to performing his duties and obligations to the Company (with the
exception of absences on account of illness or vacation in accordance with the Company's
policies and civic and charitable commitments not involving a conflict with the
Company's business), and (b) will comply with the directions and orders of the Board of
Directors with respect to the performance of his duties.

3.          Affiliates. Employment by an Affiliate of the Company or a successor to the
Company will be considered employment by the Company for purposes of this
Agreement, and the Executive's employment with the Company shall be considered
terminated only if the Executive is no longer employed by the Company or any of its
Affiliates or successors. The term "Company" as used in this Agreement will be deemed
to include Affiliates and successors. For purposes of this Agreement, the term "Affiliate"
means the subsidiaries of the Company and other entities under common control with the
Company.

4.          Compensation and Benefits.

             (a)       During the Term of this Agreement, while the Executive is employed by
the Company, the Company will pay to the Executive the following salary and incentive
awards for services rendered to the Company:

                         (i)       The Company will pay to the Executive an annual salary in an
             amount not less than the base salary in effect for the Executive as of the date on
             which this Agreement is executed (in the event the Executive's rate of annual
             base salary is increased, such increased rate shall not be decreased during the
             Term of this Agreement); and

                         (ii)     The Executive will be entitled to receive incentive awards if and to
             the extent that the Board of Directors determines in good faith that the
             Executive's performance merits payment of an award according to the terms of
             the incentive compensation plans applicable to senior executives of the
             Company.

If the Executive is employed by an Affiliate or a successor (as described in Section 3),
the term "Board of Directors" as used in this Section 4(a) and in Section 5(a) means the
Board of Directors of the Executive's employer.

             (b)       During the Term of this Agreement, while the Executive is employed by
the Company, the Executive will be eligible to participate in a similar manner as other
senior executives of the Company in retirement plans, fringe benefit plans, supplemental
benefit plans and other plans and programs provided by the Company for its executives
or employees from time to time.

5.          Termination of Employment.

             (a)       If, during the Term of this Agreement, the Company terminates the
Executive's employment other than for Cause (as defined in Section 8), the Company will
pay to the Executive in cash within 30 days after the Executive's termination of
employment

                         (i)       a lump sum payment equal to three (3) times the sum of: (A) the
              highest annual base salary rate in effect for the Executive at any time during the
              three-year period preceding employment termination, plus (B) the highest of (1)
              the annual bonus for the year in which the termination of employment occurs, or
              (2) the highest annual bonus received by the Executive during the three calendar
              years preceding the calendar year in which the termination of employment
              occurs; and

                         (ii)      any unpaid salary through the date of employment termination,
              unpaid annual bonus for the prior year and a pro-rated portion of the annual
              bonus for the year in which termination of employment occurs.

For purposes of Sections 5(a)(i)(B)(1) and 5(a)(ii), the annual bonus for the year in which
termination of employment occurs will be the "target" annual bonus for such year unless,
before the Executive's termination of employment, the Board of Directors made a good
faith final determination of the amount of the Executive's actual annual bonus for such
year. If the Board of Directors made such a determination, the applicable award will be
computed based on the Board of Directors' determination, rather than on the "target"
amount for such year.

              (b)     If, during the Term of this Agreement, the Company terminates the
Executive's employment other than for Cause (as defined in Section 8), the Executive
will be entitled to receive the following additional benefits determined as of the date of
his termination of employment:

                         (i)       Any outstanding restricted stock that would become vested (that is,
              transferable and nonforfeitable) if the Executive remained an employee through
              the Term of this Agreement will become vested as of the date of the Executive's
              termination of employment (or as of the date described in the next sentence, if
              applicable). In addition, if the Company has agreed to award the Executive
              restricted stock at the end of a performance period, subject to the Company's
              achievement of performance goals, and the date as of which the restricted stock
              is to become vested falls within the Term of this Agreement, the stock will be
              awarded and become vested at the end of the performance period if and to the
              extent that the performance goals are met.

                         (ii)      The Executive will be provided any benefits provided to retirees
              (i.e., medical and other welfare benefits) on the same terms as any retiree who
              has attained age 62 and completed 40 years of service (or, if greater, the
              Executive's actual age and the actual number of years of service the Executive
              had completed at the time of the employment termination).

                         (iii)      If the split dollar insurance arrangement between the Company
              and the Executive is in effect at the time of the Executive's employment
              termination, the Company shall continue to pay all premium amounts with
              respect to the Executive's policy under the Company's split dollar insurance
              program for the lesser of ten (10) years from the date of termination of
              employment or the period of time remaining until the Executive's "Roll Out
              Qualification Date," (as defined in the split dollar program) whichever first
              occurs.

              (c)       If the Executive voluntarily terminates employment with the Company
during the Term of this Agreement under circumstances described in this subsection (c),
the Executive will be entitled to receive the benefits described in subsections (a) and (b)
above as if the Company had terminated the Executive's employment other than for
Cause. Subject to the provisions of this subsection (c), these benefits will be provided if
the Executive voluntarily terminates employment after (i) the Company reduces the
Executive's base salary (except a reduction consistent and proportional with an overall
reduction, due to extraordinary business conditions, in the compensation of all other
senior executives of the Company), (ii) the Executive is not in good faith considered for
incentive awards as described in Section 4(a)(ii), (iii) the Company fails to provide
benefits as required by Section 4(b), (iv) the Company relocates the Executive's place of
employment to a location further than 50 miles from Washington, DC, or (v) the
Company demotes the Executive to a position that is not a senior management position
(other than on account of the Executive's disability, as defined in Section 6 below). In
order for this subsection (c) to be effective: (1) the Executive must give written notice to
the Company indicating that the Executive intends to terminate employment under this
subsection (c), (2) the Executive' s voluntary termination under this subsection must
occur within 60 days after the Executive knows or reasonably should know of an event
described in clause (i), (ii), (iii), (iv), or (v) above, or within 60 days after the last in a
series of such events, and (3) the Company must have failed to remedy the event
described in clause (i), (ii), (iii), (iv), or (v), as the case may be, within 30 days after
receiving the Executive's written notice. If the Company remedies the event described in
clause (i), (ii), (iii), (iv), or (v), as the case may be, within 30 days after receiving the
Executive's written notice, the Executive may not terminate employment under this
subsection (c) on account of the event specified in the Executive's notice. Termination
under the circumstances above shall be deemed an involuntary termination without Cause
for purposes of non-qualified benefit plans.

              (d)       Notwithstanding subsection (a), (b), and (c) of this Section 5, if the
independent public accountants for the Company (the "Accountants") determine that if
the payments and/or benefits to be provided under subsections (a), (b), and (c) of this
Section 5 (and/or any other payments and/or benefits provided or to be provided to the
Executive under any applicable plan, program, agreement or arrangement maintained,
contributed to or entered into by the Company or any group or entity whose actions result
in a change of ownership or effective control (as those terms are defined in Code Section
280G and regulations promulgated thereunder) or any affiliate of the Company) (a
"Payment" or collectively "Payments") were provided to the Executive (x) the Executive
would incur an excise tax under Section 4999 of the Internal Revenue Code of 1986, as
amended (the "Code") (such excise tax, together with any interest and penalties, are
hereinafter collectively referred to as the "Excise Tax"), and (y) the net after tax benefits
to the Executive attributable to the Payments would not be at least $10,000 greater than
the net after tax benefits that would accrue to the Executive if the Payments that would
otherwise cause the Executive to be subject to the Excise Tax were not provided, the
Payments shall be reduced so that the Payments provided to the Executive are the greatest
(as determined by the Accountants) that may be provided without any such Payment
being subject to the Excise Tax. If the Payments are to be reduced under this subsection
5(d), the Executive shall be given the opportunity to designate which Payments shall be
reduced and in what order of priority.

                         (i)       If the Executive receives reduced Payments pursuant to subsection
              5(d), or if it had been determined that no such reduction was required, but it
              nonetheless is established pursuant to the final determination of a court or an
              Internal Revenue Service proceeding that, notwithstanding the good faith of the
              Executive and the Company in applying the terms of subsection 5(d), the
              aggregate Payments to the Executive would result in any Payment being subject
              to the Excise Tax, and that a reduction pursuant to subsection 5(d) should have
              occurred, then the Executive shall be deemed for all purposes to have received a
              loan made on the date of the receipt of the Payments in an amount such that,
              after taking into consideration such loan, no portion of the aggregate Payments
              would be subject to the Excise Tax. The Executive shall have an obligation to
              repay such loan to the Company on demand, together with interest on such
              amount at the applicable Federal rate (as defined in Section 1274(d) of the Code)
              from the date of the Executive's receipt of such loan until the date of such
              repayment.

                         (ii)      If the Executive's Payments are reduced or are to be reduced
              pursuant to subsection 5(d), and it is determined that the Payments were or are to
              be reduced pursuant to subsection 5(d) to a greater extent than was or is
              necessary to avoid the Excise Tax or it is determined that the Executive's
              Payments should not be or should not have been reduced pursuant to subsection
              5(d), then the Company shall promptly pay to the Executive the amount
              necessary so that, after such adjustment, the Executive will have received or be
              entitled to receive the maximum payments payable under this subsection 5(d),
              together with interest at the applicable Federal rate (as defined in Section
              1274(d) of the Code) on amounts that were incorrectly reduced pursuant to
              subsection 5(d).

                         (iii)     Gross-Up Payment.

                                    (A)     Anything in this Agreement to the contrary notwithstanding,
                                               if it shall be determined that any Payments would be subject
                                               to the Excise Tax or any interest or penalties are incurred,
                                               and it is determined that the Payments should not be
                                               reduced pursuant to subsection 5(d), then the Executive
                                               shall be entitled to receive an additional payment (a "Gross-
                                               Up Payment") in an amount such that after payment by the
                                               Executive of all taxes (including any interest or penalties
                                               imposed with respect to such taxes), including, without
                                               limitation, any income taxes, employment taxes (and any
                                               interest and penalties imposed with respect thereto) and
                                               Excise Taxes imposed upon the Gross-Up Payment, the
                                               Executive retains an amount of the Gross-Up Payment equal
                                               to the Excise Tax imposed upon the Payments.

                                    (B)     All determinations required to be made under this subsection
                                               5(d)(iii), including whether and when a Gross-Up Payment
                                               is required and the amount of such Gross-up Payment and
                                               the assumptions to be utilized in arriving at such
                                               determination, shall be made by the Accountants, who shall
                                               provide detailed supporting calculations both to the
                                               Company and the Executive within 15 business days of the
                                               receipt of notice from the Executive that there has been a
                                               Payment, or such earlier time as is requested by the
                                               Company. All fees and expenses of the Accountants shall
                                               be borne solely by the Company. Any Gross-Up Payment,
                                               as determined pursuant to this subsection 5(d)(iii), shall be
                                               paid by the Company to the Executive within five days of
                                               the receipt of the Accountants' determination. Any
                                               determination made independently and in good faith by the
                                               Accountants shall be binding upon the Company and the
                                               Executive. As a result of the uncertainty in the application
                                               of Sections 280G and 4999 of the Code, at the time of the
                                               initial determination by the Accountants hereunder, it is
                                               possible that Gross-Up Payments which will not have been
                                               made by the Company should have been made
                                                ("Underpayment") consistent with the calculations required
                                               to be made hereunder. In the event that the Company
                                               exhausts its remedies pursuant to subsection 5(d)(iii)(C) and
                                               the Executive thereafter is required to make a payment of
                                               any Excise Tax, the Accountants shall determine the amount
                                               of the Underpayment that has occurred and any such
                                               Underpayment shall be promptly paid by the Company to or
                                               for the benefit of the Executive.

                                     (C)     The Executive shall notify the Company in writing of any
                                               claim by the Internal Revenue Service that, if successful,
                                               would require the payment by the Company of the Gross-
                                               Up Payment. Such notification shall be given as soon as
                                               practicable but no later than thirty business days after the
                                               Executive is informed in writing of such claim and shall
                                               apprise the Company of the nature of such claim and the
                                               date on which such claim is requested to be paid. The
                                               Executive shall not pay such claim prior to the expiration of
                                               the 30-day period following the date on which it gives such
                                               notice to the Company (or such shorter period ending on the
                                               date that any payment of taxes with respect to such claim is
                                               due). If the Company notifies the Executive in writing prior
                                               to the expiration of such period that it desires to contest
                                               such claim, the Executive shall:

                                               (1)       give the Company any information reasonably
                                                           requested by the Company relating to such claim,

                                               (2)       take such action in connection with contesting such
                                                           claim as the Company shall reasonably request in
                                                           writing from time to time, including, without
                                                           limitation, accepting legal representation with
                                                           respect to such claim by an attorney reasonably
                                                           selected by the Company,

                                               (3)       cooperate with the Company in good faith in order
                                                          effectively to contest such claim, and

                                               (4)       permit the Company to participate in any
                                                           proceedings relating to such claim;

                                               provided, however, that the Company shall bear and pay
                                               directly all costs and expenses (including additional interest
                                               and penalties) incurred in connection with such contest and
                                               shall indemnify and hold the Executive harmless, on an
                                               after-tax basis, for any Excise Tax or income tax (including
                                               interest and penalties with respect thereto) imposed as a
                                               result of such representation and payment of costs and
                                               expenses. Without limitation on the foregoing provisions of
                                               this subsection 5(d)(iii), the Company shall control all
                                               proceedings taken in connection with such contest and, at its
                                               sole option, may pursue or forego any and all administrative
                                               appeals, proceedings, hearings and conferences with the
                                               taxing authority in respect of such claim and may, at its sole
                                               option, either direct the Executive to pay the tax claimed
                                               and sue for a refund or contest the claim in any permissible
                                               manner, and the Executive agrees to prosecute such contest
                                               to a determination before any administrative tribunal, in a
                                               court of initial jurisdiction and in one or more appellate
                                               courts, as the Company shall determine; provided, further,
                                               that if the Company directs the Executive to pay such claim
                                               and sue for a refund, the Company shall advance the amount
                                               of such payment to the Executive, on an interest-free basis
                                               and shall indemnify and hold the Executive harmless, on an
                                               after-tax basis, from any Excise Tax or income tax
                                               (including interest or penalties with respect thereto)
                                               imposed with respect to such advance or with respect to any
                                               imputed income with respect to such advance; and provided,
                                               further, that any extension of the statute of limitations
                                               relating to payment of taxes for the taxable year of the
                                               Executive with respect to which such contested amount is
                                               claimed to be due is limited solely to such contested
                                               amount. Furthermore, the Company's control of the contest
                                               shall be limited to issues with respect to which a Gross-Up
                                               Payment would be payable hereunder and the Executive
                                               shall be entitled to settle or contest, as the case may be any
                                               other issue raised by the Internal Revenue Service or any
                                               other taxing authority.

                                     (D)    If, after the receipt by the Executive of an amount advanced
                                               by the Company pursuant to subsection 5(d)(iii)(C), the
                                               Executive becomes entitled to receive any refund with
                                               respect to such claim, the Executive shall (subject to the
                                               Company's complying with the requirements of subsection
                                               5(d)(iii)) promptly pay to the Company the amount of such
                                               refund (together with any interest paid or credited thereon
                                               after taxes applicable thereto). If after the receipt by the
                                               Executive of an amount advanced by the Company pursuant
                                               to subsection 5(d)(iii), a determination is made that the
                                               Executive shall not be entitled to any refund with respect to
                                               such claim and the Company does not notify the Executive
                                               in writing of its intent to contest such denial of refund prior
                                               to the expiration of 30 days after such determination, then
                                               such advance shall be forgiven and shall not be required to
                                               be repaid and the amount of such advance shall offset, to the
                                               extent thereof, the amount of Gross-Up Payment required to
                                               be paid.

6.          Disability or Death. Upon the Executive's death or disability, the provisions of
Sections 1, 2, 4, and 5 of this Agreement will terminate. This contract provides no
benefits due to disability or death in addition to any death, disability and other benefit
provided under the Company benefit plans in which the executive participates. The
Executive shall be considered disabled if the Executive is entitled to long-term disability
benefits under the Company's disability plan or policy.

7.          Other Post-Termination Benefits. In addition to any payments or benefits to
which the Executive may become entitled under this Agreement, upon the termination of
the Executive's employment (including, without limitation, termination of the Executive's
employment upon expiration of the Term of this Agreement), the Executive shall receive
the following:

             (a)       The Executive will receive a monthly supplemental retirement benefit
equal to (i) 1/12 of 65% of the sum of (A) the Executive's annual base salary rate at the
time of termination of employment and (B) the highest annual bonus received by the
Executive during the three calendar years preceding the calendar year in which the
termination of employment occurs, less (ii) the monthly retirement benefits the Executive
receives in such month under the Company's qualified defined benefit retirement plan
and any non-qualified defined benefit retirement or supplemental retirement plans
(together, the "Retirement Plans"). The supplemental retirement benefit provided
pursuant to this subsection 7(a) shall be paid to the Executive in cash on the first day of
each month beginning in the month following the month in which the Executive's
employment terminates and continuing until the Executive's death. If the Executive is
survived by a spouse, following the Executive's death, the Executive's surviving spouse
shall receive from the Company a monthly payment in cash equal to 75% of the amount
determined under subpart (i) of this subsection, less the monthly retirement benefits, if
any, the Executive's surviving spouse receives under the Retirement Plans. Following
termination of employment, the monthly supplemental retirement benefits the Executive
and/or the Executive's spouse receives under this Section 7(a) shall be adjusted for cost of
living increases at the same rate as are the benefits under the Company's qualified defined
benefit retirement plan.

             (b)       The Executive shall receive financial services (for tax preparation and
planning) at the Company's expense until the Executive's 70th birthday, at the same level
as is received by the Company's then chief executive officer.

             (c)       In order to provide a location and support to allow the Executive to
continue to provide community services and to represent the Company in the community
with charities and other organizations until the Executive's 70th birthday, at the
Company's expense, the Executive shall receive a parking space at Edison Place, office
space at a location selected by the Executive in Washington, DC, and secretarial services,
each until the Executive's 70th birthday; provided, however, that the office space shall
not be at the Company's headquarters and the office space's annual rent may not exceed
$100,000 per year.

             (d)       For the two year period following termination of Executive's employment,
the Company shall reimburse the Executive the expenses of civic and trade organizations
in which he participated, and at the same level, as at the time of termination of
employment.

8.          Cause. For purposes of this Agreement, the term "Cause" means (i) intentional
fraud or material misappropriation with respect to the business or assets of the Company,
(ii) persistent refusal or willful failure of the Executive to perform substantially his duties
and responsibilities to the Company, other than an asserted responsibility which would
give rise under Section 5(c) above to a right to terminate and have such termination
considered an involuntary termination without Cause, which continues after the
Executive receives notice of such refusal or failure, (iii) conduct that constitutes
disloyalty to the Company, and that materially damages the property, business or
reputation of the Company, or (iv) conviction of a felony involving moral turpitude.

9.           Termination. This Agreement shall terminate upon the successful completion of
the Term of this Agreement; provided, however, that if the Executive's employment is
terminated during the Term of this Agreement and the Company's and the Executive's
obligations under Sections 5, 7, 10 or 11 hereof have not been satisfied as of the last day
of the Term of this Agreement, such obligations shall survive the expiration of the Term
of this Agreement and shall remain in effect until such time as all such obligations have
been satisfied. The Executive, if he has remained an employee during the Term of this
Agreement and has attained a minimum of age 55, shall be considered vested in the
benefits provided under the Company's Supplemental Executive Retirement Plan,
Executive Performance Supplemental Retirement Plan and Supplemental Benefit Plan.
No additional payments are required by the termination of this Agreement.

10.          Fees and Expenses. The Company will pay all reasonable fees and expenses, if
any, (including, without limitation, legal fees and expenses) that are incurred by the
Executive to enforce this Agreement and that result from a breach of this Agreement by
the Company, unless such fees and expenses result from a claim made by the Executive
that is deemed by an arbitrator, mediator, or court, as applicable, to be frivolous or made
in bad faith, in which case each party shall pay its own fees and expenses.

11.          Tax Withholding. The Company may withhold from all amounts payable under
this Agreement an amount necessary to satisfy its income and payroll tax withholding
obligations.

12.          Assignment. The rights and obligations of the Company under this Agreement
will inure to the benefit of and will be binding upon the successors and assigns of the
Company. If the Company is consolidated or merged with or into another corporation, or
if another entity purchases all or substantially all of the Company's assets, the surviving
or acquiring corporation will succeed to the Company's rights and obligations under this
Agreement. The Executive's rights under this Agreement may not be assigned or
transferred in whole or in part, except that the personal representative of the Executive's
estate will receive any amounts payable under this Agreement after the death of the
Executive.

13.           Rights Under this Agreement. The right to receive benefits under the
Agreement will not give the Executive any proprietary interest in the Company or any of
its assets. Benefits under the Agreement will be payable from the general assets of the
Company, and there will be no required funding of amounts that may become payable
under the Agreement. The Executive will for all purposes be a general creditor of the
Company. The interest of the Executive under the Agreement cannot be assigned,
anticipated, sold, encumbered or pledged and will not be subject to the claims of the
Executive's creditors.

14.           Notice. For purposes of this Agreement, notices and all other communications
to the Executive must be in writing addressed to the Executive or his personal
representative at his last known address. All notices to the Company must be directed to
the attention of the Board of Directors. Such other addresses may be used as either party
may have furnished to the other in writing. Notices are effective when mailed if sent by
United States registered mail, return receipt requested, postage prepaid. Notices sent
otherwise are effective when received. Notwithstanding the forgoing, notices of change
of address are effective only upon receipt.

15.           Miscellaneous. To the extent not governed by federal law, this Agreement will
be construed in accordance with the law of the State of Maryland without reference to its
conflict of laws rules. No provisions of this Agreement may be modified, waived or
discharged unless such waiver, modification or discharge is agreed to in writing and the
writing is signed by the Executive and the Company. A waiver of any breach of or
compliance with any provision or condition of this Agreement is not a waiver of similar
or dissimilar provisions or conditions. The invalidity or unenforceability of any
provision of this Agreement will not affect the validity or enforceability of any other
provision of this Agreement, which will remain in full force and effect. This Agreement
may be executed in one or more counterparts, all of which will be considered one and the
same agreement. As of the date first above written, the Prior Agreement shall be
amended, restated and superceded in its entirety and shall no longer be of any force or
effect.

           WITNESS the following signatures.

PEPCO HOLDINGS, INC.                                         EXECUTIVE



By:        D. R. WRAASE                                                    JOHN M. DERRICK, JR.     
      Its President & COO                                                     John M. Derrick, Jr.

EX-10

                                            EMPLOYMENT AGREEMENT

       This EMPLOYMENT AGREEMENT (the "Agreement") is made as of August 1,
2002 between PEPCO HOLDINGS, INC. (the "Company") and DENNIS R. WRAASE
(the "Executive").

                                                RECITALS:

          The Board of Directors of the Company (the "Board of Directors") recognizes that
outstanding management of the Company is essential to advancing the best interests of
the Company, its shareholders and its subsidiaries. The Board of Directors believes that
it is particularly important to have stable, excellent management at the present time. The
Board of Directors believes that this objective may be achieved by giving key
management employees assurances of financial security for a period of time, so that they
will not be distracted by personal risks and will continue to devote their full time and best
efforts to the performance of their duties.

          The Human Resources Committee of the Board of Directors (the "Committee") has
recommended, and the Board of Directors has approved, entering into amended and
restated employment agreements with the Company's key management executives in
order to achieve the foregoing objectives. Accordingly, this Agreement amends, restates
and supercedes the employment agreement previously entered into between the Company
and the Executive, dated December 10, 1999 (the "Prior Agreement"). Upon execution
of this Agreement, the Prior Agreement shall be of no further force or effect. The
Executive is a key management executive of the Company and is a valuable member of
the Company's management team. The Company acknowledges that the Executive's
contributions to the past and future growth and success of the Company have been and
will continue to be substantial. The Company and the Executive are entering into this
Agreement to induce the Executive to remain an employee of the Company and to
continue to devote his full energy to the Company's affairs. The Executive has agreed to
continue to be employed by the Company under the terms and conditions hereinafter set
forth.

          NOW, THEREFORE, in consideration of the foregoing and the mutual
undertakings contained in this Agreement, the parties agree as follows:

1.       Term of this Agreement. The term of this Agreement shall begin on the date first
set forth above and shall end on the fifth anniversary thereof; provided, however, that, on
such fifth anniversary, the term of this Agreement shall be automatically extended until
the Executive's normal retirement date of April 1, 2009, unless either party gives notice
to the other at least 6 months prior to such anniversary that the term of this Agreement
shall not be extended (the initial 5 year term of this Agreement and, if extended, the
extension thereof, shall hereinafter be referred to as the "Term of this Agreement").
Notwithstanding the forgoing, if the Executive's employment is terminated during the
Term of this Agreement and all of the Company's and the Executive's obligations
hereunder have been satisfied prior to the end of the Term of this Agreement, this
Agreement shall expire upon satisfaction of all such obligations.

2.       Duties. The Company and the Executive agree that, while employed during the
Term of this Agreement, the Executive will serve in a senior management position with
the Company. The Executive (a) will devote his knowledge, skill and best efforts on a
full-time basis to performing his duties and obligations to the Company (with the
exception of absences on account of illness or vacation in accordance with the Company's
policies and civic and charitable commitments not involving a conflict with the
Company's business), and (b) will comply with the directions and orders of the Board of
Directors and Chief Executive Officer of the Company with respect to the performance of
his duties.

3.       Affiliates. Employment by an Affiliate of the Company or a successor to the
Company will be considered employment by the Company for purposes of this
Agreement, and the Executive's employment with the Company shall be considered
terminated only if the Executive is no longer employed by the Company or any of its
Affiliates or successors. The term "Company" as used in this Agreement will be deemed
to include Affiliates and successors. For purposes of this Agreement, the term "Affiliate"
means the subsidiaries of the Company and other entities under common control with the
Company.

4.       Compensation and Benefits.

           (a)      During the Term of this Agreement, while the Executive is employed by the
Company, the Company will pay to the Executive the following salary and incentive
awards for services rendered to the Company:

                      (i)     The Company will pay to the Executive an annual salary in an amount
           not less than the base salary in effect for the Executive as of the date on which this
           Agreement is executed (in the event the Executive's rate of annual base salary is
           increased, such increased rate shall not be decreased during the Term of this
           Agreement); and

                      (ii)    The Executive will be entitled to receive incentive awards if and to the
            extent that the Board of Directors determines in good faith that the Executive's
            performance merits payment of an award according to the terms of the incentive
            compensation plans applicable to senior executives of the Company.

If the Executive is employed by an Affiliate or a successor (as described in Section 3),
the term "Board of Directors" as used in this Section 4(a) and in Section 5(a) means the
Board of Directors of the Executive's employer.

           (b)      During the Term of this Agreement, while the Executive is employed by the
Company, the Executive will be eligible to participate in a similar manner as other senior
executives of the Company in retirement plans, fringe benefit plans, supplemental benefit
plans and other plans and programs provided by the Company for its executives or
employees from time to time.

5.       Termination of Employment.

          (a)       If, during the Term of this Agreement, the Company terminates the
Executive's employment other than for Cause (as defined in Section 7), the Company will
pay to the Executive in cash within 30 days after the Executive's termination of
employment

                     (i)     a lump sum payment equal to three (3) times the sum of: (A) the
          highest annual base salary rate in effect for the Executive at any time during the
          three-year period preceding employment termination, plus (B) the highest of (1) the
          annual bonus for the year in which the termination of employment occurs, or (2)
          the highest annual bonus received by the Executive during the three calendar years
          preceding the calendar year in which the termination of employment occurs; and
          any unpaid salary through the date of employment termination, unpaid annual
          bonus for the prior year and a pro-rated portion of the annual bonus for the year in
          which termination of employment occurs.

                     (ii)    For purposes of Sections 5(a)(i)(B)(1), 5(a)(ii), and 5(b)(ii), the annual
          bonus for the year in which termination of employment occurs will be the "target"
          annual bonus for such year unless, before the Executive's termination of
          employment, the Board of Directors made a good faith final determination of the
          amount of the Executive's actual annual bonus for such year. If the Board of
          Directors made such a determination, the applicable award will be computed based
          on the Board of Directors' determination, rather than on the "target" amount for
          such year.

          (b)       If, during the Term of this Agreement, the Company terminates the
Executive's employment other than for Cause (as defined in Section 7), the Executive
will be entitled to receive the following additional benefits determined as of the date of
his termination of employment:

                      (i)     Any outstanding restricted stock that would become vested (that is,
          transferable and nonforfeitable) if the Executive remained an employee through the
          Term of this Agreement will become vested as of the date of the Executive's
          termination of employment (or as of the date described in the next sentence, if
          applicable). In addition, if the Company has agreed to award the Executive
          restricted stock at the end of a performance period, subject to the Company's
          achievement of performance goals, and the date as of which the restricted stock is
          to become vested falls within the Term of this Agreement, the stock will be
          awarded and become vested at the end of the performance period if and to the
          extent that the performance goals are met.

                      (ii)     A supplemental retirement benefit payable in cash in a lump sum
          equal to the difference between (A) the present value of the vested retirement
          benefits that the Executive had accrued at the time of termination of employment
          under the Company's qualified defined benefit retirement plan (the "Retirement
          Plan"), any excess or supplemental retirement plans in which the Executive
          participates and/or other supplemental retirement benefits to which the Executive is
          entitled under any contract or agreement (together, the "SERPs"), assuming for this
          purpose that the Executive would begin receiving benefits at the first early
          retirement date provided under the applicable plan or, if the Executive is eligible to
          receive retirement benefits upon termination of employment under the applicable
          plan, assuming the Executive will begin receiving benefits at the time of
          termination of employment, and (B) the benefit the Executive would be entitled to
          receive under the Retirement Plan and the SERPs, assuming for all such benefit
          determinations: (1) that the Executive's Final Average Earnings are equal to the
          Executive's annual rate of base salary in effect in accordance with this Agreement
          immediately before the employment termination, plus the highest annual bonus
          awarded to the Executive for the three years preceding the year in which the
          termination occurs or, if higher, the annual bonus for the year in which the
          termination occurs, and (2) that the Executive had reached age 62 and had
          completed 40 years of service (or, if greater, the age and years of service the
          Executive would have reached at the end of the Term of this Agreement in effect at
          the time of the employment termination). For purposes of the calculations required
          under this Section 5(b)(ii), the same actuarial assumptions that are used under the
          Company's qualified retirement plan shall be used.

                      (iii)     The Executive will be provided any other benefits provided to
          retirees (i.e., medical and other welfare benefits) on the same terms as any retiree
          who has attained age 62 and completed 40 years of service (or, if greater, the
          Executive's actual age and the actual number of years of service the Executive had
          completed at the time of the employment termination).

                      (iv)     If the split dollar insurance arrangement between the Company and
          the Executive is in effect at the time of the Executive's employment termination,
          the Company shall continue to pay all premium amounts with respect to the
          Executive's policy under the Company's split dollar insurance program for the
          lesser of ten (10) years from the date of termination of employment or the period of
          time remaining until the Executive's "Roll Out Qualification Date," (as defined in
          the split dollar program) whichever first occurs.

          (c)        If the Executive voluntarily terminates employment with the Company
during the Term of this Agreement under circumstances described in this subsection (c),
the Executive will be entitled to receive the benefits described in subsections (a) and (b)
above as if the Company had terminated the Executive's employment other than for
Cause. Subject to the provisions of this subsection (c), these benefits will be provided if
the Executive voluntarily terminates employment after (i) the Company reduces the
Executive's base salary (except a reduction consistent and proportional with an overall
reduction, due to extraordinary business conditions, in the compensation of all other
senior executives of the Company), (ii) the Executive is not in good faith considered for
incentive awards as described in Section 4(a)(ii), (iii) the Company fails to provide
benefits as required by Section 4(b), (iv) the Company relocates the Executive's place of
employment to a location further than 50 miles from Washington, DC, (v) the Company
demotes the Executive to a position that is not a senior management position (other than
on account of the Executive's disability, as defined in Section 6 below), or (vi) the
Company notifies the Executive pursuant to Section 1 hereof that the Term of this
Agreement shall not be extended beyond its initial five (5) year term. In order for this
subsection (c) to be effective: (1) the Executive must give written notice to the Company
indicating that the Executive intends to terminate employment under this subsection (c),
(2) the Executive' s voluntary termination under this subsection must occur within 60
days after the Executive knows or reasonably should know of an event described in
clause (i), (ii), (iii), (iv), (v), or (vi) above, or within 60 days after the last in a series of
such events, and (3) the Company must have failed to remedy the event described in
clause (i), (ii), (iii), (iv), (v), or (vi), as the case may be, within 30 days after receiving the
Executive's written notice. If the Company remedies the event described in clause (i),
(ii), (iii), (iv), or (v), as the case may be, within 30 days after receiving the Executive's
written notice, the Executive may not terminate employment under this subsection (c) on
account of the event specified in the Executive's notice. Termination under the
circumstances above shall be deemed an involuntary termination without Cause for
purposes of non-qualified benefit plans.

          (d)        Notwithstanding subsection (a), (b), and (c) of this Section 5, if the
independent public accountants for the Company (the "Accountants") determine that if
the payments and/or benefits to be provided under subsections (a), (b), and (c) of this
Section 5 (and/or any other payments and/or benefits provided or to be provided to the
Executive under any applicable plan, program, agreement or arrangement maintained,
contributed to or entered into by the Company or any group or entity whose actions result
in a change of ownership or effective control (as those terms are defined in Code Section
280G and regulations promulgated thereunder) or any affiliate of the Company) (a
"Payment" or collectively "Payments") were provided to the Executive (x) the Executive
would incur an excise tax under Section 4999 of the Internal Revenue Code of 1986, as
amended (the "Code") (such excise tax, together with any interest and penalties, are
hereinafter collectively referred to as the "Excise Tax"), and (y) the net after tax benefits
to the Executive attributable to the Payments would not be at least $10,000 greater than
the net after tax benefits that would accrue to the Executive if the Payments that would
otherwise cause the Executive to be subject to the Excise Tax were not provided, the
Payments shall be reduced so that the Payments provided to the Executive are the greatest
(as determined by the Accountants) that may be provided without any such Payment
being subject to the Excise Tax. If the Payments are to be reduced under this subsection
5(d), the Executive shall be given the opportunity to designate which Payments shall be
reduced and in what order of priority.

                      (i)       If the Executive receives reduced Payments pursuant to subsection
          5(d), or if it had been determined that no such reduction was required, but it
          nonetheless is established pursuant to the final determination of a court or an
          Internal Revenue Service proceeding that, notwithstanding the good faith of the
          Executive and the Company in applying the terms of subsection 5(d), the aggregate
          Payments to the Executive would result in any Payment being subject to the Excise
          Tax, and that a reduction pursuant to subsection 5(d) should have occurred, then
          the Executive shall be deemed for all purposes to have received a loan made on the
          date of the receipt of the Payments in an amount such that, after taking into
          consideration such loan, no portion of the aggregate Payments would be subject to
          the Excise Tax. The Executive shall have an obligation to repay such loan to the
          Company on demand, together with interest on such amount at the applicable
          Federal rate (as defined in Section 1274(d) of the Code) from the date of the
          Executive's receipt of such loan until the date of such repayment.

                       (ii)     If the Executive's Payments are reduced or are to be reduced
          pursuant to subsection 5(d), and it is determined that the Payments were or are to
          be reduced pursuant to subsection 5(d) to a greater extent than was or is necessary
          to avoid the Excise Tax or it is determined that the Executive's Payments should
          not be or should not have been reduced pursuant to subsection 5(d), then the
          Company shall promptly pay to the Executive the amount necessary so that, after
          such adjustment, the Executive will have received or be entitled to receive the
          maximum payments payable under this subsection 5(d), together with interest at
          the applicable Federal rate (as defined in Section 1274(d) of the Code) on amounts
          that were incorrectly reduced pursuant to subsection 5(d).

                       (ii)     Gross-Up Payment.

                                 (A)     Anything in this Agreement to the contrary notwithstanding, if
                                            it shall be determined that any Payments would be subject to
                                            the Excise Tax or any interest or penalties are incurred, and it
                                            is determined that the Payments should not be reduced
                                            pursuant to subsection 5(d), then the Executive shall be
                                            entitled to receive an additional payment (a "Gross-Up
                                            Payment") in an amount such that after payment by the
                                            Executive of all taxes (including any interest or penalties
                                            imposed with respect to such taxes), including, without
                                            limitation, any income taxes, employment taxes (and any
                                            interest and penalties imposed with respect thereto) and
                                            Excise Taxes imposed upon the Gross-Up Payment, the
                                            Executive retains an amount of the Gross-Up Payment equal
                                            to the Excise Tax imposed upon the Payments.

                                 (B)     All determinations required to be made under this subsection
                                            5(d)(iii), including whether and when a Gross-Up Payment is
                                            required and the amount of such Gross-up Payment and the
                                            assumptions to be utilized in arriving at such determination,
                                            shall be made by the Accountants, who shall provide detailed
                                            supporting calculations both to the Company and the
                                            Executive within 15 business days of the receipt of notice
                                            from the Executive that there has been a Payment, or such
                                            earlier time as is requested by the Company. All fees and
                                            expenses of the Accountants shall be borne solely by the
                                            Company. Any Gross-Up Payment, as determined pursuant
                                            to this subsection 5(d)(iii), shall be paid by the Company to
                                            the Executive within five days of the receipt of the
                                            Accountants' determination. Any determination made
                                            independently and in good faith by the Accountants shall be
                                            binding upon the Company and the Executive. As a result of
                                            the uncertainty in the application of Sections 280G and 4999
                                            of the Code, at the time of the initial determination by the
                                            Accountants hereunder, it is possible that Gross-Up
                                            Payments which will not have been made by the Company
                                            should have been made ("Underpayment") consistent with
                                            the calculations required to be made hereunder. In the event
                                            that the Company exhausts its remedies pursuant to
                                            subsection 5(d)(iii)(C) and the Executive thereafter is
                                            required to make a payment of any Excise Tax, the
                                            Accountants shall determine the amount of the
                                            Underpayment that has occurred and any such Underpayment
                                            shall be promptly paid by the Company to or for the benefit
                                            of the Executive.

                                 (C)      The Executive shall notify the Company in writing of any
                                             claim by the Internal Revenue Service that, if successful,
                                             would require the payment by the Company of the Gross-Up
                                             Payment. Such notification shall be given as soon as
                                             practicable but no later than thirty business days after the
                                             Executive is informed in writing of such claim and shall
                                             apprise the Company of the nature of such claim and the date
                                             on which such claim is requested to be paid. The Executive
                                             shall not pay such claim prior to the expiration of the 30-day
                                             period following the date on which it gives such notice to the
                                             Company (or such shorter period ending on the date that any
                                             payment of taxes with respect to such claim is due). If the
                                             Company notifies the Executive in writing prior to the
                                             expiration of such period that it desires to contest such claim,
                                             the Executive shall:

                                             (1)    give the Company any information reasonably
                                                      requested by the Company relating to such claim,

                                             (2)   take such action in connection with contesting such
                                                     claim as the Company shall reasonably request in
                                                     writing from time to time, including, without
                                                     limitation, accepting legal representation with respect
                                                     to such claim by an attorney reasonably selected by
                                                     the Company,

                                             (3)    cooperate with the Company in good faith in order
                                                     effectively to contest such claim, and

                                             (4)    permit the Company to participate in any proceedings
                                                      relating to such claim;

                                             provided, however, that the Company shall bear and pay
                                             directly all costs and expenses (including additional interest
                                             and penalties) incurred in connection with such contest and
                                             shall indemnify and hold the Executive harmless, on an after-
                                             tax basis, for any Excise Tax or income tax (including
                                             interest and penalties with respect thereto) imposed as a
                                             result of such representation and payment of costs and
                                             expenses. Without limitation on the foregoing provisions of
                                             this subsection 5(d)(iii), the Company shall control all
                                             proceedings taken in connection with such contest and, at its
                                             sole option, may pursue or forego any and all administrative
                                             appeals, proceedings, hearings and conferences with the
                                             taxing authority in respect of such claim and may, at its sole
                                             option, either direct the Executive to pay the tax claimed and
                                             sue for a refund or contest the claim in any permissible
                                             manner, and the Executive agrees to prosecute such contest
                                             to a determination before any administrative tribunal, in a
                                             court of initial jurisdiction and in one or more appellate
                                             courts, as the Company shall determine; provided, further,
                                             that if the Company directs the Executive to pay such claim
                                             and sue for a refund, the Company shall advance the amount
                                             of such payment to the Executive, on an interest-free basis
                                             and shall indemnify and hold the Executive harmless, on an
                                             after-tax basis, from any Excise Tax or income tax (including
                                             interest or penalties with respect thereto) imposed with
                                             respect to such advance or with respect to any imputed
                                             income with respect to such advance; and provided, further,
                                             that any extension of the statute of limitations relating to
                                             payment of taxes for the taxable year of the Executive with
                                             respect to which such contested amount is claimed to be due
                                             is limited solely to such contested amount. Furthermore, the
                                             Company's control of the contest shall be limited to issues
                                             with respect to which a Gross-Up Payment would be payable
                                             hereunder and the Executive shall be entitled to settle or
                                             contest, as the case may be any other issue raised by the
                                             Internal Revenue Service or any other taxing authority.

                                 (D)       If, after the receipt by the Executive of an amount advanced
                                             by the Company pursuant to subsection 5(d)(iii)(C), the
                                             Executive becomes entitled to receive any refund with
                                             respect to such claim, the Executive shall (subject to the
                                             Company's complying with the requirements of subsection
                                             5(d)(iii)) promptly pay to the Company the amount of such
                                             refund (together with any interest paid or credited thereon
                                             after taxes applicable thereto). If after the receipt by the
                                             Executive of an amount advanced by the Company pursuant
                                             to subsection 5(d)(iii), a determination is made that the
                                             Executive shall not be entitled to any refund with respect to
                                             such claim and the Company does not notify the Executive in
                                             writing of its intent to contest such denial of refund prior to
                                             the expiration of 30 days after such determination, then such
                                             advance shall be forgiven and shall not be required to be
                                             repaid and the amount of such advance shall offset, to the
                                             extent thereof, the amount of Gross-Up Payment required to
                                             be paid.

6.         Disability or Death. Upon the Executive's death or disability, the provisions of
Sections 1, 2, 4, and 5 of this Agreement will terminate. This contract provides no
benefits due to disability or death in addition to any death, disability and other benefit
provided under the Company benefit plans in which the executive participates. The
Executive shall be considered disabled if the Executive is entitled to long-term disability
benefits under the Company's disability plan or policy.

7.         Cause. For purposes of this Agreement, the term "Cause" means (i) intentional
fraud or material misappropriation with respect to the business or assets of the Company,
(ii) persistent refusal or willful failure of the Executive to perform substantially his duties
and responsibilities to the Company, other than an asserted responsibility which would
give rise under Section 5(c) above to a right to terminate and have such termination
considered an involuntary termination without Cause, which continues after the
Executive receives notice of such refusal or failure, (iii) conduct that constitutes
disloyalty to the Company, and that materially damages the property, business or
reputation of the Company, or (iv) conviction of a felony involving moral turpitude.

8.         Termination. This Agreement shall terminate upon the successful completion of
the Term of this Agreement; provided, however, that if the Executive's employment is
terminated during the Term of this Agreement and the Company's and the Executive's
obligations under Sections 5, 9 or 10 hereof have not been satisfied as of the last day of
the Term of this Agreement, such obligations shall survive the expiration of the Term of
this Agreement and shall remain in effect until such time as all such obligations have
been satisfied. No additional payments are required by the termination of this
Agreement. The Executive, if he has remained an employee during the Term of this
Agreement and has attained a minimum of age 55, shall be considered vested in the
benefits provided under the Company's Supplemental Executive Retirement Plan,
Executive Performance Supplemental Retirement Plan and Supplemental Benefit Plan.

9.          Fees and Expenses. The Company will pay all reasonable fees and expenses, if
any, (including, without limitation, legal fees and expenses) that are incurred by the
Executive to enforce this Agreement and that result from a breach of this Agreement by
the Company, unless such fees and expenses result from a claim made by the Executive
that is deemed by an arbitrator, mediator, or court, as applicable, to be frivolous or made
in bad faith, in which case each party shall pay its own fees and expenses.

10.        Tax Withholding. The Company may withhold from all amounts payable under
this Agreement an amount necessary to satisfy its income and payroll tax withholding
obligations.

11.        Assignment. The rights and obligations of the Company under this Agreement
will inure to the benefit of and will be binding upon the successors and assigns of the
Company. If the Company is consolidated or merged with or into another corporation, or
if another entity purchases all or substantially all of the Company's assets, the surviving
or acquiring corporation will succeed to the Company's rights and obligations under this
Agreement. The Executive's rights under this Agreement may not be assigned or
transferred in whole or in part, except that the personal representative of the Executive's
estate will receive any amounts payable under this Agreement after the death of the
Executive.

12.        Rights Under this Agreement. The right to receive benefits under the Agreement
will not give the Executive any proprietary interest in the Company or any of its assets.
Benefits under the Agreement will be payable from the general assets of the Company,
and there will be no required funding of amounts that may become payable under the
Agreement. The Executive will for all purposes be a general creditor of the Company.
The interest of the Executive under the Agreement cannot be assigned, anticipated, sold,
encumbered or pledged and will not be subject to the claims of the Executive's creditors.

13.        Notice. For purposes of this Agreement, notices and all other communications to
the Executive must be in writing addressed to the Executive or his personal representative
at his last known address. All notices to the Company must be directed to the attention of
the Chief Executive Officer. Such other addresses may be used as either party may have
furnished to the other in writing. Notices are effective when mailed if sent by United
States registered mail, return receipt requested, postage prepaid. Notices sent otherwise
are effective when received. Notwithstanding the forgoing, notices of change of address
are effective only upon receipt.

14.        Miscellaneous. To the extent not governed by federal law, this Agreement will
be construed in accordance with the law of the State of Maryland without reference to its
conflict of laws rules. No provisions of this Agreement may be modified, waived or
discharged unless such waiver, modification or discharge is agreed to in writing and the
writing is signed by the Executive and the Company. A waiver of any breach of or
compliance with any provision or condition of this Agreement is not a waiver of similar
or dissimilar provisions or conditions. The invalidity or unenforceability of any
provision of this Agreement will not affect the validity or enforceability of any other
provision of this Agreement, which will remain in full force and effect. This Agreement
may be executed in one or more counterparts, all of which will be considered one and the
same agreement. As of the date first above written, the Prior Agreement shall be
amended, restated and superceded in its entirety and shall no longer be of any force or
effect.

          WITNESS the following signatures.

PEPCO HOLDINGS, INC.                                              EXECUTIVE


By:   JOHN M. DERRICK, JR.                                             D. R. WRAASE          
      Chairman of the Board and Chief                               Dennis R. Wraase
      Executive Officer

EX-10

                                             EMPLOYMENT AGREEMENT

        This EMPLOYMENT AGREEMENT (the "Agreement") is made as of August 1,
2002 between PEPCO HOLDINGS, INC. (the "Company") and WILLIAM T.
TORGERSON (the "Executive").

                                                 RECITALS:

        The Board of Directors of the Company (the "Board of Directors") recognizes that
outstanding management of the Company is essential to advancing the best interests of
the Company, its shareholders and its subsidiaries. The Board of Directors believes that
it is particularly important to have stable, excellent management at the present time. The
Board of Directors believes that this objective may be achieved by giving key
management employees assurances of financial security for a period of time, so that they
will not be distracted by personal risks and will continue to devote their full time and best
efforts to the performance of their duties.

        The Human Resources Committee of the Board of Directors (the "Committee") has
recommended, and the Board of Directors has approved, entering into amended and
restated employment agreements with the Company's key management executives in
order to achieve the foregoing objectives. Accordingly, this Agreement amends, restates
and supercedes the employment agreement previously entered into between the Company
and the Executive, dated December 10, 1999 (the "Prior Agreement"). Upon execution
of this Agreement, the Prior Agreement shall be of no further force or effect. The
Executive is a key management executive of the Company and is a valuable member of
the Company's management team. The Company acknowledges that the Executive's
contributions to the past and future growth and success of the Company have been and
will continue to be substantial. The Company and the Executive are entering into this
Agreement to induce the Executive to remain an employee of the Company and to
continue to devote his full energy to the Company's affairs. The Executive has agreed to
continue to be employed by the Company under the terms and conditions hereinafter set
forth.

        NOW, THEREFORE, in consideration of the foregoing and the mutual undertakings
contained in this Agreement, the parties agree as follows:

1.     Term of this Agreement. The term of this Agreement shall begin on the date first set
forth above and shall end on the fifth anniversary thereof; provided, however, that, on
such fifth anniversary, the term of this Agreement shall be automatically extended until
the Executive's normal retirement date of June 1, 2009, unless either party gives notice to
the other at least 6 months prior to such anniversary that the term of this Agreement shall
not be extended (the initial 5 year term of this Agreement and, if extended, the extension
thereof, shall hereinafter be referred to as the "Term of this Agreement").
Notwithstanding the forgoing, if the Executive's employment is terminated during the
Term of this Agreement and all of the Company's and the Executive's obligations
hereunder have been satisfied prior to the end of the Term of this Agreement, this
Agreement shall expire upon satisfaction of all such obligations.

2.     Duties. The Company and the Executive agree that, while employed during the
Term of this Agreement, the Executive will serve in a senior management position with
the Company. The Executive (a) will devote his knowledge, skill and best efforts on a
full-time basis to performing his duties and obligations to the Company (with the
exception of absences on account of illness or vacation in accordance with the Company's
policies and civic and charitable commitments not involving a conflict with the
Company's business), and (b) will comply with the directions and orders of the Board of
Directors and Chief Executive Officer of the Company with respect to the performance of
his duties.

3.     Affiliates. Employment by an Affiliate of the Company or a successor to the
Company will be considered employment by the Company for purposes of this
Agreement, and the Executive's employment with the Company shall be considered
terminated only if the Executive is no longer employed by the Company or any of its
Affiliates or successors. The term "Company" as used in this Agreement will be deemed
to include Affiliates and successors. For purposes of this Agreement, the term "Affiliate"
means the subsidiaries of the Company and other entities under common control with the
Company.

4.     Compensation and Benefits.

        (a)     During the Term of this Agreement, while the Executive is employed by the
Company, the Company will pay to the Executive the following salary and incentive
awards for services rendered to the Company:

                 (i)     The Company will pay to the Executive an annual salary in an amount
        not less than the base salary in effect for the Executive as of the date on which this
        Agreement is executed (in the event the Executive's rate of annual base salary is
        increased, such increased rate shall not be decreased during the Term of this
        Agreement); and

                 (ii)    The Executive will be entitled to receive incentive awards if and to the
        extent that the Board of Directors determines in good faith that the Executive's
        performance merits payment of an award according to the terms of the incentive
        compensation plans applicable to senior executives of the Company.

If the Executive is employed by an Affiliate or a successor (as described in Section 3),
the term "Board of Directors" as used in this Section 4(a) and in Section 5(a) means the
Board of Directors of the Executive's employer.

        (b)     During the Term of this Agreement, while the Executive is employed by the
Company, the Executive will be eligible to participate in a similar manner as other senior
executives of the Company in retirement plans, fringe benefit plans, supplemental benefit
plans and other plans and programs provided by the Company for its executives or
employees from time to time.

5.     Termination of Employment.

        (a)     If, during the Term of this Agreement, the Company terminates the
Executive's employment other than for Cause (as defined in Section 7), the Company will
pay to the Executive in cash within 30 days after the Executive's termination of
employment

                 (i)     a lump sum payment equal to three (3) times the sum of: (A) the highest
        annual base salary rate in effect for the Executive at any time during the three-year
        period preceding employment termination, plus (B) the highest of (1) the annual
        bonus for the year in which the termination of employment occurs, or (2) the highest
        annual bonus received by the Executive during the three calendar years preceding
        the calendar year in which the termination of employment occurs; and

                 (ii)    any unpaid salary through the date of employment termination, unpaid
        annual bonus for the prior year and a pro-rated portion of the annual bonus for the
        year in which termination of employment occurs.

For purposes of Sections 5(a)(i)(B)(1), 5(a)(ii), and 5(b)(ii), the annual bonus for the year
in which termination of employment occurs will be the "target" annual bonus for such
year unless, before the Executive's termination of employment, the Board of Directors
made a good faith final determination of the amount of the Executive's actual annual
bonus for such year. If the Board of Directors made such a determination, the applicable
award will be computed based on the Board of Directors' determination, rather than on
the "target" amount for such year.

        (b)     If, during the Term of this Agreement, the Company terminates the
Executive's employment other than for Cause (as defined in Section 7), the Executive
will be entitled to receive the following additional benefits determined as of the date of
his termination of employment:

                 (i)     Any outstanding restricted stock that would become vested (that is,
        transferable and nonforfeitable) if the Executive remained an employee through the
        Term of this Agreement will become vested as of the date of the Executive's
        termination of employment (or as of the date described in the next sentence, if
        applicable). In addition, if the Company has agreed to award the Executive
        restricted stock at the end of a performance period, subject to the Company's
        achievement of performance goals, and the date as of which the restricted stock is to
        become vested falls within the Term of this Agreement, the stock will be awarded
        and become vested at the end of the performance period if and to the extent that the
        performance goals are met.

                 (ii)    A supplemental retirement benefit payable in cash in a lump sum equal to
        the difference between (A) the present value of the vested retirement benefits that
        the Executive had accrued at the time of termination of employment under the
        Company's qualified defined benefit retirement plan (the "Retirement Plan"), any
        excess or supplemental retirement plans in which the Executive participates and/or
        other supplemental retirement benefits to which the Executive is entitled under any
        contract or agreement (together, the "SERPs"), assuming for this purpose that the
        Executive would begin receiving benefits at the first early retirement date provided
        under the applicable plan or, if the Executive is eligible to receive retirement
        benefits upon termination of employment under the applicable plan, assuming the
        Executive will begin receiving benefits at the time of termination of employment,
        and (B) the benefit the Executive would be entitled to receive under the Retirement
        Plan and the SERPs, assuming for all such benefit determinations: (1) that the
        Executive's Final Average Earnings are equal to the Executive's annual rate of base
        salary in effect in accordance with this Agreement immediately before the
        employment termination, plus the highest annual bonus awarded to the Executive for
        the three years preceding the year in which the termination occurs or, if higher, the
        annual bonus for the year in which the termination occurs, and (2) that the Executive
        had reached age 62 and had completed 40 years of service (or, if greater, the age and
        years of service the Executive would have reached at the end of the Term of this
        Agreement in effect at the time of the employment termination). For purposes of the
        calculations required under this Section 5(b)(ii), the same actuarial assumptions that
        are used under the Company's qualified retirement plan shall be used.

                 (iii)     The Executive will be provided any other benefits provided to retirees
        (i.e., medical and other welfare benefits) on the same terms as any retiree who has
        attained age 62 and completed 40 years of service (or, if greater, the Executive's
        actual age and the actual number of years of service the Executive had completed at
        the time of the employment termination).

                 (iv)     If the split dollar insurance arrangement between the Company and the
        Executive is in effect at the time of the Executive's employment termination, the
        Company shall continue to pay all premium amounts with respect to the Executive's
        policy under the Company's split dollar insurance program for the lesser of ten (10)
        years from the date of termination of employment or the period of time remaining
        until the Executive's "Roll Out Qualification Date," (as defined in the split dollar
        program) whichever first occurs.

        (c)     If the Executive voluntarily terminates employment with the Company during
the Term of this Agreement under circumstances described in this subsection (c), the
Executive will be entitled to receive the benefits described in subsections (a) and (b)
above as if the Company had terminated the Executive's employment other than for
Cause. Subject to the provisions of this subsection (c), these benefits will be provided if
the Executive voluntarily terminates employment after (i) the Company reduces the
Executive's base salary (except a reduction consistent and proportional with an overall
reduction, due to extraordinary business conditions, in the compensation of all other
senior executives of the Company), (ii) the Executive is not in good faith considered for
incentive awards as described in Section 4(a)(ii), (iii) the Company fails to provide
benefits as required by Section 4(b), (iv) the Company relocates the Executive's place of
employment to a location further than 50 miles from Washington, DC, (v) the Company
demotes the Executive to a position that is not a senior management position (other than
on account of the Executive's disability, as defined in Section 6 below), or (vi) the
Company notifies the Executive pursuant to Section 1 hereof that the Term of this
Agreement shall not be extended beyond its initial five (5) year term. In order for this
subsection (c) to be effective: (1) the Executive must give written notice to the Company
indicating that the Executive intends to terminate employment under this subsection (c),
(2) the Executive' s voluntary termination under this subsection must occur within 60
days after the Executive knows or reasonably should know of an event described in
clause (i), (ii), (iii), (iv), (v), or (vi) above, or within 60 days after the last in a series of
such events, and (3) the Company must have failed to remedy the event described in
clause (i), (ii), (iii), (iv), or (v), as the case may be, within 30 days after receiving the
Executive's written notice. If the Company remedies the event described in clause (i),
(ii), (iii), (iv), (v), or (vi), as the case may be, within 30 days after receiving the
Executive's written notice, the Executive may not terminate employment under this
subsection (c) on account of the event specified in the Executive's notice. Termination
under the circumstances above shall be deemed an involuntary termination without Cause
for purposes of non-qualified benefit plans.

        (d)     Notwithstanding subsection (a), (b), and (c) of this Section 5, if the
independent public accountants for the Company (the "Accountants") determine that if
the payments and/or benefits to be provided under subsections (a), (b), and (c) of this
Section 5 (and/or any other payments and/or benefits provided or to be provided to the
Executive under any applicable plan, program, agreement or arrangement maintained,
contributed to or entered into by the Company or any group or entity whose actions result
in a change of ownership or effective control (as those terms are defined in Code Section
280G and regulations promulgated thereunder) or any affiliate of the Company) (a
"Payment" or collectively "Payments") were provided to the Executive (x) the Executive
would incur an excise tax under Section 4999 of the Internal Revenue Code of 1986, as
amended (the "Code") (such excise tax, together with any interest and penalties, are
hereinafter collectively referred to as the "Excise Tax"), and (y) the net after tax benefits
to the Executive attributable to the Payments would not be at least $10,000 greater than
the net after tax benefits that would accrue to the Executive if the Payments that would
otherwise cause the Executive to be subject to the Excise Tax were not provided, the
Payments shall be reduced so that the Payments provided to the Executive are the greatest
(as determined by the Accountants) that may be provided without any such Payment
being subject to the Excise Tax. If the Payments are to be reduced under this subsection
5(d), the Executive shall be given the opportunity to designate which Payments shall be
reduced and in what order of priority.

                 (i)     If the Executive receives reduced Payments pursuant to subsection 5(d),
        or if it had been determined that no such reduction was required, but it nonetheless is
        established pursuant to the final determination of a court or an Internal Revenue
        Service proceeding that, notwithstanding the good faith of the Executive and the
        Company in applying the terms of subsection 5(d), the aggregate Payments to the
        Executive would result in any Payment being subject to the Excise Tax, and that a
        reduction pursuant to subsection 5(d) should have occurred, then the Executive shall
        be deemed for all purposes to have received a loan made on the date of the receipt of
        the Payments in an amount such that, after taking into consideration such loan, no
        portion of the aggregate Payments would be subject to the Excise Tax. The
        Executive shall have an obligation to repay such loan to the Company on demand,
        together with interest on such amount at the applicable Federal rate (as defined in
        Section 1274(d) of the Code) from the date of the Executive's receipt of such loan
        until the date of such repayment.

                 (ii)     If the Executive's Payments are reduced or are to be reduced pursuant to
        subsection 5(d), and it is determined that the Payments were or are to be reduced
        pursuant to subsection 5(d) to a greater extent than was or is necessary to avoid the
        Excise Tax or it is determined that the Executive's Payments should not be or should
        not have been reduced pursuant to subsection 5(d), then the Company shall promptly
        pay to the Executive the amount necessary so that, after such adjustment, the
        Executive will have received or be entitled to receive the maximum payments
        payable under this subsection 5(d), together with interest at the applicable Federal
        rate (as defined in Section 1274(d) of the Code) on amounts that were incorrectly
        reduced pursuant to subsection 5(d).

                 (iii)    Gross-Up Payment.

                           (A)     Anything in this Agreement to the contrary notwithstanding, if it
                                      shall be determined that any Payments would be subject to the
                                      Excise Tax or any interest or penalties are incurred, and it is
                                      determined that the Payments should not be reduced pursuant to
                                      subsection 5(d), then the Executive shall be entitled to receive an
                                      additional payment (a "Gross-Up Payment") in an amount such
                                      that after payment by the Executive of all taxes (including any
                                      interest or penalties imposed with respect to such taxes),
                                      including, without limitation, any income taxes, employment
                                      taxes (and any interest and penalties imposed with respect
                                      thereto) and Excise Taxes imposed upon the Gross-Up Payment,
                                      the Executive retains an amount of the Gross-Up Payment equal
                                      to the Excise Tax imposed upon the Payments.

                           (B)     All determinations required to be made under this subsection
                                      5(d)(iii), including whether and when a Gross-Up Payment is
                                      required and the amount of such Gross-up Payment and the
                                      assumptions to be utilized in arriving at such determination, shall
                                      be made by the Accountants, who shall provide detailed
                                      supporting calculations both to the Company and the Executive
                                      within 15 business days of the receipt of notice from the
                                      Executive that there has been a Payment, or such earlier time as is
                                      requested by the Company. All fees and expenses of the
                                      Accountants shall be borne solely by the Company. Any Gross-
                                      Up Payment, as determined pursuant to this subsection 5(d)(iii),
                                      shall be paid by the Company to the Executive within five days of
                                      the receipt of the Accountants' determination. Any determination
                                      made independently and in good faith by the Accountants shall be
                                      binding upon the Company and the Executive. As a result of the
                                      uncertainty in the application of Sections 280G and 4999 of the
                                      Code, at the time of the initial determination by the Accountants
                                      hereunder, it is possible that Gross-Up Payments which will not
                                      have been made by the Company should have been made
                                      ("Underpayment") consistent with the calculations required to be
                                      made hereunder. In the event that the Company exhausts its
                                      remedies pursuant to subsection 5(d)(iii)(C) and the Executive
                                      thereafter is required to make a payment of any Excise Tax, the
                                      Accountants shall determine the amount of the Underpayment
                                      that has occurred and any such Underpayment shall be promptly
                                      paid by the Company to or for the benefit of the Executive.

                           (C)     The Executive shall notify the Company in writing of any claim
                                      by the Internal Revenue Service that, if successful, would require
                                      the payment by the Company of the Gross-Up Payment. Such
                                      notification shall be given as soon as practicable but no later than
                                      thirty business days after the Executive is informed in writing of
                                      such claim and shall apprise the Company of the nature of such
                                      claim and the date on which such claim is requested to be paid.
                                      The Executive shall not pay such claim prior to the expiration of
                                       the 30-day period following the date on which it gives such
                                       notice to the Company (or such shorter period ending on the date
                                       that any payment of taxes with respect to such claim is due). If
                                       the Company notifies the Executive in writing prior to the
                                       expiration of such period that it desires to contest such claim, the
                                       Executive shall:

                                       (1)     give the Company any information reasonably requested
                                                 by the Company relating to such claim,

                                       (2)     take such action in connection with contesting such claim
                                                 as the Company shall reasonably request in writing from
                                                 time to time, including, without limitation, accepting legal
                                                 representation with respect to such claim by an attorney
                                                 reasonably selected by the Company,

                                       (3)      cooperate with the Company in good faith in order
                                                  effectively to contest such claim, and

                                       (4)       permit the Company to participate in any proceedings
                                                   relating to such claim;

                                       provided, however, that the Company shall bear and pay directly
                                       all costs and expenses (including additional interest and
                                       penalties) incurred in connection with such contest and shall
                                       indemnify and hold the Executive harmless, on an after-tax basis,
                                       for any Excise Tax or income tax (including interest and
                                       penalties with respect thereto) imposed as a result of such
                                       representation and payment of costs and expenses. Without
                                       limitation on the foregoing provisions of this subsection 5(d)(iii),
                                       the Company shall control all proceedings taken in connection
                                       with such contest and, at its sole option, may pursue or forego
                                       any and all administrative appeals, proceedings, hearings and
                                       conferences with the taxing authority in respect of such claim
                                       and may, at its sole option, either direct the Executive to pay the
                                       tax claimed and sue for a refund or contest the claim in any
                                       permissible manner, and the Executive agrees to prosecute such
                                       contest to a determination before any administrative tribunal, in a
                                       court of initial jurisdiction and in one or more appellate courts, as
                                       the Company shall determine; provided, further, that if the
                                       Company directs the Executive to pay such claim and sue for a
                                       refund, the Company shall advance the amount of such payment
                                       to the Executive, on an interest-free basis and shall indemnify
                                       and hold the Executive harmless, on an after-tax basis, from any
                                       Excise Tax or income tax (including interest or penalties with
                                       respect thereto) imposed with respect to such advance or with
                                       respect to any imputed income with respect to such advance; and
                                       provided, further, that any extension of the statute of limitations
                                       relating to payment of taxes for the taxable year of the Executive
                                       with respect to which such contested amount is claimed to be due
                                       is limited solely to such contested amount. Furthermore, the
                                       Company's control of the contest shall be limited to issues with
                                       respect to which a Gross-Up Payment would be payable
                                       hereunder and the Executive shall be entitled to settle or contest,
                                       as the case may be any other issue raised by the Internal Revenue
                                       Service or any other taxing authority.

                           (D)      If, after the receipt by the Executive of an amount advanced by
                                       the Company pursuant to subsection 5(d)(iii)(C), the Executive
                                       becomes entitled to receive any refund with respect to such
                                       claim, the Executive shall (subject to the Company's complying
                                       with the requirements of subsection 5(d)(iii)) promptly pay to the
                                       Company the amount of such refund (together with any interest
                                       paid or credited thereon after taxes applicable thereto). If after
                                       the receipt by the Executive of an amount advanced by the
                                       Company pursuant to subsection 5(d)(iii), a determination is
                                       made that the Executive shall not be entitled to any refund with
                                       respect to such claim and the Company does not notify the
                                       Executive in writing of its intent to contest such denial of refund
                                       prior to the expiration of 30 days after such determination, then
                                       such advance shall be forgiven and shall not be required to be
                                       repaid and the amount of such advance shall offset, to the extent
                                       thereof, the amount of Gross-Up Payment required to be paid.

6.       Disability or Death. Upon the Executive's death or disability, the provisions of
Sections 1, 2, 4, and 5 of this Agreement will terminate. This contract provides no
benefits due to disability or death in addition to any death, disability and other benefit
provided under the Company benefit plans in which the executive participates. The
Executive shall be considered disabled if the Executive is entitled to long-term disability
benefits under the Company's disability plan or policy.

7.       Cause. For purposes of this Agreement, the term "Cause" means (i) intentional
fraud or material misappropriation with respect to the business or assets of the Company,
(ii) persistent refusal or willful failure of the Executive to perform substantially his duties
and responsibilities to the Company, other than an asserted responsibility which would
give rise under Section 5(c) above to a right to terminate and have such termination
considered an involuntary termination without Cause, which continues after the
Executive receives notice of such refusal or failure, (iii) conduct that constitutes
disloyalty to the Company, and that materially damages the property, business or
reputation of the Company, or (iv) conviction of a felony involving moral turpitude.

8.       Termination. This Agreement shall terminate upon the successful completion of
the Term of this Agreement; provided, however, that if the Executive's employment is
terminated during the Term of this Agreement and the Company's and the Executive's
obligations under Sections 5, 9 or 10 hereof have not been satisfied as of the last day of
the Term of this Agreement, such obligations shall survive the expiration of the Term of
this Agreement and shall remain in effect until such time as all such obligations have
been satisfied. No additional payments are required by the termination of this
Agreement. The Executive, if he has remained an employee during the Term of this
Agreement and has attained a minimum of age 55, shall be considered vested in the
benefits provided under the Company's Supplemental Executive Retirement Plan,
Executive Performance Supplemental Retirement Plan and Supplemental Benefit Plan.

9.        Fees and Expenses. The Company will pay all reasonable fees and expenses, if
any, (including, without limitation, legal fees and expenses) that are incurred by the
Executive to enforce this Agreement and that result from a breach of this Agreement by
the Company, unless such fees and expenses result from a claim made by the Executive
that is deemed by an arbitrator, mediator, or court, as applicable, to be frivolous or made
in bad faith, in which case each party shall pay its own fees and expenses.

10.      Tax Withholding. The Company may withhold from all amounts payable under
this Agreement an amount necessary to satisfy its income and payroll tax withholding
obligations.

11.      Assignment. The rights and obligations of the Company under this Agreement
will inure to the benefit of and will be binding upon the successors and assigns of the
Company. If the Company is consolidated or merged with or into another corporation, or
if another entity purchases all or substantially all of the Company's assets, the surviving
or acquiring corporation will succeed to the Company's rights and obligations under this
Agreement. The Executive's rights under this Agreement may not be assigned or
transferred in whole or in part, except that the personal representative of the Executive's
estate will receive any amounts payable under this Agreement after the death of the
Executive.

12.      Rights Under this Agreement. The right to receive benefits under the Agreement
will not give the Executive any proprietary interest in the Company or any of its assets.
Benefits under the Agreement will be payable from the general assets of the Company,
and there will be no required funding of amounts that may become payable under the
Agreement. The Executive will for all purposes be a general creditor of the Company.
The interest of the Executive under the Agreement cannot be assigned, anticipated, sold,
encumbered or pledged and will not be subject to the claims of the Executive's creditors.

13.      Notice. For purposes of this Agreement, notices and all other communications to
the Executive must be in writing addressed to the Executive or his personal representative
at his last known address. All notices to the Company must be directed to the attention of
the Chief Executive Officer. Such other addresses may be used as either party may have
furnished to the other in writing. Notices are effective when mailed if sent by United
States registered mail, return receipt requested, postage prepaid. Notices sent otherwise
are effective when received. Notwithstanding the forgoing, notices of change of address
are effective only upon receipt.

14.     Miscellaneous. To the extent not governed by federal law, this Agreement will be
construed in accordance with the law of the State of Maryland without reference to its
conflict of laws rules. No provisions of this Agreement may be modified, waived or
discharged unless such waiver, modification or discharge is agreed to in writing and the
writing is signed by the Executive and the Company. A waiver of any breach of or
compliance with any provision or condition of this Agreement is not a waiver of similar
or dissimilar provisions or conditions. The invalidity or unenforceability of any
provision of this Agreement will not affect the validity or enforceability of any other
provision of this Agreement, which will remain in full force and effect. This Agreement
may be executed in one or more counterparts, all of which will be considered one and the
same agreement. As of the date first above written, the Prior Agreement shall be
amended, restated and superceded in its entirety and shall no longer be of any force or
effect.

        WITNESS the following signatures.

PEPCO HOLDINGS, INC.                                              EXECUTIVE


By:   JOHN M. DERRICK, JR.                                         WILLIAM T. TORGERSON  
       Chairman of the Board and Chief                           William T. Torgerson
       Executive Officer

EX-10

                                           EMPLOYMENT AGREEMENT

This EMPLOYMENT AGREEMENT (the "Agreement") is made as of August 1, 2002
between PEPCO HOLDINGS, INC. (the "Company") and ANDREW W. WILLIAMS
(the "Executive").

                                                   RECITALS:

The Board of Directors of the Company (the "Board of Directors") recognizes that
outstanding management of the Company is essential to advancing the best interests of
the Company, its shareholders and its subsidiaries. The Board of Directors believes that
it is particularly important to have stable, excellent management at the present time. The
Board of Directors believes that this objective may be achieved by giving key
management employees assurances of financial security for a period of time, so that they
will not be distracted by personal risks and will continue to devote their full time and best
efforts to the performance of their duties.

In order to achieve the foregoing objectives, the Human Resources Committee of the
Board of Directors (the "Committee") has recommended, and the Board of Directors has
approved, entering into employment agreements with the Company's key management
executives, which agreements will supercede in their entirety the executives' existing
severance agreements. Accordingly, this Agreement supercedes the severance agreement
previously entered into between the Company and the Executive, dated December 28,
1999 (the "Prior Agreement"). Upon execution of this Agreement, the Prior Agreement
shall be of no further force or effect. The Executive is a key management executive of
the Company and is a valuable member of the Company's management team. The
Company acknowledges that the Executive's contributions to the past and future growth
and success of the Company have been and will continue to be substantial. The
Company and the Executive are entering into this Agreement to induce the Executive to
remain an employee of the Company and to continue to devote his full energy to the
Company's affairs. The Executive has agreed to continue to be employed by the
Company under the terms and conditions hereinafter set forth.

NOW, THEREFORE, in consideration of the foregoing and the mutual undertakings
contained in this Agreement, the parties agree as follows:

1.   Term of this Agreement. The term of this Agreement shall begin on the date first set
forth above and shall end on the third anniversary thereof; provided, however, that, on
such third anniversary, the term of this Agreement shall be automatically renewed for an
additional three (3) years unless either party gives notice to the other at least 6 months
prior to such anniversary that the term of this Agreement shall not be renewed (the initial
3 year term of this Agreement and, if extended, the extension thereof, shall hereinafter be
referred to as the "Term of this Agreement"). Notwithstanding the forgoing, if the
Executive's employment is terminated during the Term of this Agreement and all of the
Company's and the Executive's obligations hereunder have been satisfied prior to the end
of the Term of this Agreement, this Agreement shall expire upon satisfaction of all such
obligations.

2.   Duties. The Company and the Executive agree that, while employed during the Term
of this Agreement, the Executive will serve in a senior management position with the
Company. The Executive (a) will devote his knowledge, skill and best efforts on a full-
time basis to performing his duties and obligations to the Company (with the exception of
absences on account of illness or vacation in accordance with the Company's policies and
civic and charitable commitments not involving a conflict with the Company's business),
and (b) will comply with the directions and orders of the Board of Directors and Chief
Executive Officer of the Company (or any designee thereof) with respect to the
performance of his duties.

3.   Affiliates. Employment by an Affiliate of the Company or a successor to the
Company will be considered employment by the Company for purposes of this
Agreement, and the Executive's employment with the Company shall be considered
terminated only if the Executive is no longer employed by the Company or any of its
Affiliates or successors. The term "Company" as used in this Agreement will be deemed
to include Affiliates and successors. For purposes of this Agreement, the term "Affiliate"
means the subsidiaries of the Company and other entities under common control with the
Company.

4.   Compensation and Benefits.

(a)  During the Term of this Agreement, while the Executive is employed by the
Company, the Company will pay to the Executive the following salary and incentive
awards for services rendered to the Company:

                   (i)     The Company will pay to the Executive an annual salary in an amount
                  not less than the base salary in effect for the Executive as of the date on which
                  this Agreement is executed (in the event the Executive's rate of annual base
                  salary is increased, such increased rate shall not be decreased during the Term
                  of this Agreement); and

                  (ii)     The Executive will be entitled to receive incentive awards if and to the
                  extent that the Board of Directors determines in good faith that the Executive's
                  performance merits payment of an award according to the terms of the
                  incentive compensation plans applicable to senior executives of the Company.

If the Executive is employed by an Affiliate or a successor (as described in Section 3),
the term "Board of Directors" as used in this Section 4(a) and in Section 5(a) means the
Board of Directors of the Executive's employer.

(b)  During the Term of this Agreement, while the Executive is employed by the
Company, the Executive will be eligible to participate in a similar manner as other senior
executives of the Company in retirement plans, fringe benefit plans, supplemental benefit
plans and other plans and programs provided by the Company for its executives or
employees from time to time.

5.   Termination of Employment.

If, during the Term of this Agreement, the Company terminates the Executive's
employment other than for Cause (as defined in Section 7), the Company will pay to the
Executive in cash within 30 days after the Executive's termination of employment


                  (i)     a lump sum payment equal to three (3) times the sum of: (A) the highest
                  annual base salary rate in effect for the Executive at any time during the three-
                  year period preceding employment termination, plus (B) the highest of (1) the
                  annual bonus for the year in which the termination of employment occurs, or
                   (2) the highest annual bonus received by the Executive during the three
                  calendar years preceding the calendar year in which the termination of
                  employment occurs; and

                  (ii)     any unpaid salary through the date of employment termination, unpaid
                  annual bonus for the prior year and a pro-rated portion of the annual bonus for
                  the year in which termination of employment occurs.

For purposes of Sections 5(a)(i)(B)(1) and 5(a)(ii), the annual bonus for the year in which
termination of employment occurs will be the "target" annual bonus for such year unless,
before the Executive's termination of employment, the Board of Directors made a good
faith final determination of the amount of the Executive's actual annual bonus for such
year. If the Board of Directors made such a determination, the applicable award will be
computed based on the Board of Directors' determination, rather than on the "target"
amount for such year.

(b)  If, during the Term of this Agreement, the Company terminates the Executive's
employment other than for Cause (as defined in Section 7), the Executive will be entitled
to receive the following additional benefits determined as of the date of his termination of
employment:

                  (i)     Any outstanding restricted stock that would become vested (that is,
                  transferable and nonforfeitable) if the Executive remained an employee
                  through the Term of this Agreement will become vested as of the date of the
                  Executive's termination of employment (or as of the date described in the next
                  sentence, if applicable). In addition, if the Company has agreed to award the
                  Executive restricted stock at the end of a performance period, subject to the
                  Company's achievement of performance goals, and the date as of which the
                  restricted stock is to become vested falls within the Term of this Agreement,
                  the stock will be awarded and become vested at the end of the performance
                  period if and to the extent that the performance goals are met.

                  (ii)     A supplemental retirement benefit payable in cash in a lump sum equal
                  to the difference between (A) the present value of the vested retirement
                  benefits that the Executive had accrued at the time of termination of
                  employment under the Company's qualified defined benefit retirement plan
                   (the "Retirement Plan"), any excess or supplemental retirement plans in
                  which the Executive participates and/or other supplemental retirement benefits
                  to which the Executive is entitled under any contract or agreement (together,
                  the "SERPs"), assuming for this purpose that the Executive would begin
                  receiving benefits at the first early retirement date provided under the
                  applicable plan or, if the Executive is eligible to receive retirement benefits
                  upon termination of employment under the applicable plan, assuming the
                  Executive will begin receiving benefits at the time of termination of
                  employment, and (B) the benefit the Executive would be entitled to receive
                  under the Retirement Plan and the SERPs assuming for all such benefit
                  determinations that the Executive was three years older than the Executive's
                  actual age and had three additional years of service. For purposes of the
                  calculations required under this Section 5(b)(ii), the same actuarial
                  assumptions that are used under the Company's qualified retirement plan shall
                  be used.

                  (iii)     If the split dollar insurance arrangement between the Company and the
                  Executive is in effect at the time of the Executive's employment termination,
                  the Company shall continue to pay all premium amounts with respect to the
                  Executive's policy under the Company's split dollar insurance program for the
                  lesser of ten (10) years from the date of termination of employment or the
                  period of time remaining until the Executive's "Roll Out Qualification Date,"
                   (as defined in the split dollar program) whichever first occurs.

(c)  If the Executive voluntarily terminates employment with the Company during the
Term of this Agreement under circumstances described in this subsection (c), the
Executive will be entitled to receive the benefits described in subsections (a) and (b)
above as if the Company had terminated the Executive's employment other than for
Cause. Subject to the provisions of this subsection (c), these benefits will be provided if
the Executive voluntarily terminates employment after (i) the Company reduces the
Executive's base salary (except a reduction consistent and proportional with an overall
reduction, due to extraordinary business conditions, in the compensation of all other
senior executives of the Company), (ii) the Executive is not in good faith considered for
incentive awards as described in Section 4(a)(ii), (iii) the Company fails to provide
benefits as required by Section 4(b), (iv) the Company relocates the Executive's primary
place of employment to a location, other than either the Washington, D.C. or
Wilmington, Delaware metropolitan areas, further than 50 miles from the Executive's
primary place of employment on the first day of the Term of this Agreement, or (v) the
Company demotes the Executive to a position that is not a senior management position
(other than on account of the Executive's disability, as defined in Section 6 below). In
order for this subsection (c) to be effective: (1) the Executive must give written notice to
the Company indicating that the Executive intends to terminate employment under this
subsection (c), (2) the Executive' s voluntary termination under this subsection must
occur within 60 days after the Executive knows or reasonably should know of an event
described in clause (i), (ii), (iii), (iv), or (v) above, or within 60 days after the last in a
series of such events, and (3) the Company must have failed to remedy the event
described in clause (i), (ii), (iii), (iv), or (v), as the case may be, within 30 days after
receiving the Executive's written notice. If the Company remedies the event described in
clause (i), (ii), (iii), (iv), or (v), as the case may be, within 30 days after receiving the
Executive's written notice, the Executive may not terminate employment under this
subsection (c) on account of the event specified in the Executive's notice. Termination
under the circumstances above shall be deemed an involuntary termination without Cause
for purposes of non-qualified benefit plans.

(d)  Notwithstanding subsection (a), (b), and (c) of this Section 5, if the independent
public accountants for the Company (the "Accountants") determine that if the payments
and/or benefits to be provided under subsections (a), (b), and (c) of this Section 5 (and/or
any other payments and/or benefits provided or to be provided to the Executive under any
applicable plan, program, agreement or arrangement maintained, contributed to or
entered into by the Company or any group or entity whose actions result in a change of
ownership or effective control (as those terms are defined in Code Section 280G and
regulations promulgated thereunder) or any affiliate of the Company) (a "Payment" or
collectively "Payments") were provided to the Executive (x) the Executive would incur
an excise tax under Section 4999 of the Internal Revenue Code of 1986, as amended (the
"Code") (such excise tax, together with any interest and penalties, are hereinafter
collectively referred to as the "Excise Tax"), and (y) the net after tax benefits to the
Executive attributable to the Payments would not be at least $10,000 greater than the net
after tax benefits that would accrue to the Executive if the Payments that would otherwise
cause the Executive to be subject to the Excise Tax were not provided, the Payments shall
be reduced so that the Payments provided to the Executive are the greatest (as determined
by the Accountants) that may be provided without any such Payment being subject to the
Excise Tax. If the Payments are to be reduced under this subsection 5(d), the Executive
shall be given the opportunity to designate which Payments shall be reduced and in what
order of priority.

                  (i)     If the Executive receives reduced Payments pursuant to subsection 5(d),
                  or if it had been determined that no such reduction was required, but it
                  nonetheless is established pursuant to the final determination of a court or an
                  Internal Revenue Service proceeding that, notwithstanding the good faith of
                  the Executive and the Company in applying the terms of subsection 5(d), the
                  aggregate Payments to the Executive would result in any Payment being
                  subject to the Excise Tax, and that a reduction pursuant to subsection 5(d)
                  should have occurred, then the Executive shall be deemed for all purposes to
                  have received a loan made on the date of the receipt of the Payments in an
                  amount such that, after taking into consideration such loan, no portion of the
                  aggregate Payments would be subject to the Excise Tax. The Executive shall
                  have an obligation to repay such loan to the Company on demand, together
                  with interest on such amount at the applicable Federal rate (as defined in
                  Section 1274(d) of the Code) from the date of the Executive's receipt of such
                  loan until the date of such repayment.

                  (ii)     If the Executive's Payments are reduced or are to be reduced pursuant to
                  subsection 5(d), and it is determined that the Payments were or are to be
                  reduced pursuant to subsection 5(d) to a greater extent than was or is
                  necessary to avoid the Excise Tax or it is determined that the Executive's
                  Payments should not be or should not have been reduced pursuant to
                  subsection 5(d), then the Company shall promptly pay to the Executive the
                  amount necessary so that, after such adjustment, the Executive will have
                  received or be entitled to receive the maximum payments payable under this
                  subsection 5(d), together with interest at the applicable Federal rate (as
                  defined in Section 1274(d) of the Code) on amounts that were incorrectly
                  reduced pursuant to subsection 5(d).

                  (iii)     Gross-Up Payment.

                              (A)      Anything in this Agreement to the contrary notwithstanding, if
                                          it shall be determined that any Payments would be subject to
                                          the Excise Tax or any interest or penalties are incurred, and it
                                          is determined that the Payments should not be reduced
                                          pursuant to subsection 5(d), then the Executive shall be entitled
                                          to receive an additional payment (a "Gross-Up Payment") in an
                                          amount such that after payment by the Executive of all taxes
                                          (including any interest or penalties imposed with respect to
                                          such taxes), including, without limitation, any income taxes,
                                          employment taxes (and any interest and penalties imposed with
                                          respect thereto) and Excise Taxes imposed upon the Gross-Up
                                          Payment, the Executive retains an amount of the Gross-Up
                                          Payment equal to the Excise Tax imposed upon the Payments.

                               (B)      All determinations required to be made under this subsection
                                          5(d)(iii), including whether and when a Gross-Up Payment is
                                          required and the amount of such Gross-up Payment and the
                                          assumptions to be utilized in arriving at such determination,
                                          shall be made by the Accountants, who shall provide detailed
                                          supporting calculations both to the Company and the Executive
                                          within 15 business days of the receipt of notice from the
                                          Executive that there has been a Payment, or such earlier time as
                                          is requested by the Company. All fees and expenses of the
                                          Accountants shall be borne solely by the Company. Any
                                          Gross-Up Payment, as determined pursuant to this subsection
                                          5(d)(iii), shall be paid by the Company to the Executive within
                                          five days of the receipt of the Accountants' determination.
                                          Any determination made independently and in good faith by
                                          the Accountants shall be binding upon the Company and the
                                          Executive. As a result of the uncertainty in the application of
                                          Sections 280G and 4999 of the Code, at the time of the initial
                                          determination by the Accountants hereunder, it is possible that
                                          Gross-Up Payments which will not have been made by the
                                          Company should have been made ("Underpayment") consistent
                                          with the calculations required to be made hereunder. In the
                                          event that the Company exhausts its remedies pursuant to
                                          subsection 5(d)(iii)(C) and the Executive thereafter is required
                                          to make a payment of any Excise Tax, the Accountants shall
                                          determine the amount of the Underpayment that has occurred
                                          and any such Underpayment shall be promptly paid by the
                                          Company to or for the benefit of the Executive.

                              (C)       The Executive shall notify the Company in writing of any
                                           claim by the Internal Revenue Service that, if successful,
                                           would require the payment by the Company of the Gross-Up
                                           Payment. Such notification shall be given as soon as
                                           practicable but no later than thirty business days after the
                                           Executive is informed in writing of such claim and shall
                                           apprise the Company of the nature of such claim and the date
                                           on which such claim is requested to be paid. The Executive
                                           shall not pay such claim prior to the expiration of the 30-day
                                           period following the date on which it gives such notice to the
                                           Company (or such shorter period ending on the date that any
                                           payment of taxes with respect to such claim is due). If the
                                           Company notifies the Executive in writing prior to the
                                           expiration of such period that it desires to contest such claim,
                                           the Executive shall:

                                           (1)      give the Company any information reasonably
                                                      requested by the Company relating to such claim,

                                           (2)      take such action in connection with contesting such
                                                      claim as the Company shall reasonably request in
                                                      writing from time to time, including, without limitation,
                                                      accepting legal representation with respect to such
                                                      claim by an attorney reasonably selected by the
                                                      Company,

                                           (3)       cooperate with the Company in good faith in order
                                                      effectively to contest such claim, and

                                            (4)      permit the Company to participate in any proceedings
                                                       relating to such claim;

                                            provided, however, that the Company shall bear and pay
                                            directly all costs and expenses (including additional interest
                                            and penalties) incurred in connection with such contest and
                                            shall indemnify and hold the Executive harmless, on an after-
                                            tax basis, for any Excise Tax or income tax (including interest
                                            and penalties with respect thereto) imposed as a result of such
                                            representation and payment of costs and expenses. Without
                                            limitation on the foregoing provisions of this subsection
                                            5(d)(iii), the Company shall control all proceedings taken in
                                            connection with such contest and, at its sole option, may
                                            pursue or forego any and all administrative appeals,
                                            proceedings, hearings and conferences with the taxing
                                            authority in respect of such claim and may, at its sole option,
                                            either direct the Executive to pay the tax claimed and sue for a
                                            refund or contest the claim in any permissible manner, and the
                                            Executive agrees to prosecute such contest to a determination
                                            before any administrative tribunal, in a court of initial
                                            jurisdiction and in one or more appellate courts, as the
                                            Company shall determine; provided, further, that if the
                                            Company directs the Executive to pay such claim and sue for
                                            a refund, the Company shall advance the amount of such
                                            payment to the Executive, on an interest-free basis and shall
                                            indemnify and hold the Executive harmless, on an after-tax
                                            basis, from any Excise Tax or income tax (including interest
                                            or penalties with respect thereto) imposed with respect to such
                                            advance or with respect to any imputed income with respect
                                            to such advance; and provided, further, that any extension of
                                            the statute of limitations relating to payment of taxes for the
                                            taxable year of the Executive with respect to which such
                                            contested amount is claimed to be due is limited solely to
                                            such contested amount. Furthermore, the Company's control
                                            of the contest shall be limited to issues with respect to which a
                                            Gross-Up Payment would be payable hereunder and the
                                            Executive shall be entitled to settle or contest, as the case may
                                            be any other issue raised by the Internal Revenue Service or
                                            any other taxing authority.

                              (D)        If, after the receipt by the Executive of an amount advanced
                                            by the Company pursuant to subsection 5(d)(iii)(C), the
                                            Executive becomes entitled to receive any refund with respect
                                            to such claim, the Executive shall (subject to the Company's
                                            complying with the requirements of subsection 5(d)(iii))
                                            promptly pay to the Company the amount of such refund
                                            (together with any interest paid or credited thereon after taxes
                                            applicable thereto). If after the receipt by the Executive of an
                                            amount advanced by the Company pursuant to subsection
                                            5(d)(iii), a determination is made that the Executive shall not
                                            be entitled to any refund with respect to such claim and the
                                            Company does not notify the Executive in writing of its intent
                                            to contest such denial of refund prior to the expiration of 30
                                            days after such determination, then such advance shall be
                                            forgiven and shall not be required to be repaid and the amount
                                            of such advance shall offset, to the extent thereof, the amount
                                            of Gross-Up Payment required to be paid.

6.   Disability or Death. Upon the Executive's death or disability, the provisions of
Sections 1, 2, 4, and 5 of this Agreement will terminate. This contract provides no
benefits due to disability or death in addition to any death, disability and other benefit
provided under the Company benefit plans in which the executive participates. The
Executive shall be considered disabled if the Executive is entitled to long-term disability
benefits under the Company's disability plan or policy.

7.   Cause. For purposes of this Agreement, the term "Cause" means (i) intentional fraud
or material misappropriation with respect to the business or assets of the Company, (ii)
persistent refusal or willful failure of the Executive to perform substantially his duties
and responsibilities to the Company, other than an asserted responsibility which would
give rise under Section 5(c) above to a right to terminate and have such termination
considered an involuntary termination without Cause, which continues after the
Executive receives notice of such refusal or failure, (iii) conduct that constitutes
disloyalty to the Company, and that materially damages the property, business or
reputation of the Company, or (iv) conviction of a felony involving moral turpitude.

8.   Termination. This Agreement shall terminate upon the successful completion of the
Term of this Agreement; provided, however, that if the Executive's employment is
terminated during the Term of this Agreement and the Company's and the Executive's
obligations under Sections 5, 9 or 10 hereof have not been satisfied as of the last day of
the Term of this Agreement, such obligations shall survive the expiration of the Term of
this Agreement and shall remain in effect until such time as all such obligations have
been satisfied. No additional payments are required by the termination of this
Agreement.

9.   Fees and Expenses. The Company will pay all reasonable fees and expenses, if any,
(including, without limitation, legal fees and expenses) that are incurred by the Executive
to enforce this Agreement and that result from a breach of this Agreement by the
Company, unless such fees and expenses result from a claim made by the Executive that
is deemed by an arbitrator, mediator, or court, as applicable, to be frivolous or made in
bad faith, in which case each party shall pay its own fees and expenses.

10.  Tax Withholding. The Company may withhold from all amounts payable under this
Agreement an amount necessary to satisfy its income and payroll tax withholding
obligations.

11.  Assignment. The rights and obligations of the Company under this Agreement will
inure to the benefit of and will be binding upon the successors and assigns of the
Company. If the Company is consolidated or merged with or into another corporation, or
if another entity purchases all or substantially all of the Company's assets, the surviving
or acquiring corporation will succeed to the Company's rights and obligations under this
Agreement. The Executive's rights under this Agreement may not be assigned or
transferred in whole or in part, except that the personal representative of the Executive's
estate will receive any amounts payable under this Agreement after the death of the
Executive.

12.  Rights Under this Agreement. The right to receive benefits under the Agreement
will not give the Executive any proprietary interest in the Company or any of its assets.
Benefits under the Agreement will be payable from the general assets of the Company,
and there will be no required funding of amounts that may become payable under the
Agreement. The Executive will for all purposes be a general creditor of the Company.
The interest of the Executive under the Agreement cannot be assigned, anticipated, sold,
encumbered or pledged and will not be subject to the claims of the Executive's creditors.

13.  Notice. For purposes of this Agreement, notices and all other communications to the
Executive must be in writing addressed to the Executive or his personal representative at
his last known address. All notices to the Company must be directed to the attention of
the Chief Executive Officer. Such other addresses may be used as either party may have
furnished to the other in writing. Notices are effective when mailed if sent by United
States registered mail, return receipt requested, postage prepaid. Notices sent otherwise
are effective when received. Notwithstanding the forgoing, notices of change of address
are effective only upon receipt.

14.  Miscellaneous. To the extent not governed by federal law, this Agreement will be
construed in accordance with the law of the State of Maryland without reference to its
conflict of laws rules. No provisions of this Agreement may be modified, waived or
discharged unless such waiver, modification or discharge is agreed to in writing and the
writing is signed by the Executive and the Company. A waiver of any breach of or
compliance with any provision or condition of this Agreement is not a waiver of similar
or dissimilar provisions or conditions. The invalidity or unenforceability of any
provision of this Agreement will not affect the validity or enforceability of any other
provision of this Agreement, which will remain in full force and effect. This Agreement
may be executed in one or more counterparts, all of which will be considered one and the
same agreement. As of the date first above written, the Prior Agreement shall be
superceded in its entirety and shall no longer be of any force or effect.

WITNESS the following signatures.

PEPCO HOLDINGS, INC.                                         EXECUTIVE

      JOHN M. DERRICK, JR.                                     A. W. WILLIAMS
By:__________________________                   _________________________
     Chairman of the Board and Chief
     Executive Officer

EX-10

                                            EMPLOYMENT AGREEMENT

        This EMPLOYMENT AGREEMENT (the "Agreement") is made as of August 1,
2002 (the "Effective Date") between PEPCO HOLDINGS, INC. (the "Company") and
THOMAS S. SHAW (the "Executive").

                                                         RECITALS:

        The Board of Directors of the Company (the "Board of Directors") recognizes that
outstanding management of the Company is essential to advancing the best interests of
the Company, its shareholders and its subsidiaries. The Board of Directors believes that
it is particularly important to have stable, excellent management at the present time. The
Board of Directors believes that this objective may be achieved by giving key
management employees assurances of financial security for a period of time, so that they
will not be distracted by personal risks and will continue to devote their full time and best
efforts to the performance of their duties.

        The Human Resources Committee of the Board of Directors (the "Committee") has
recommended, and the Board of Directors has approved, entering into employment
agreements with the Company's key management executives in order to achieve the
foregoing objectives. The Executive is a key management executive of the Company and
is a valuable member of the Company's management team. The Company acknowledges
that the Executive's contributions to the past and future growth and success of the
Company have been and will continue to be substantial. The Company and the Executive
are entering into this Agreement to induce the Executive to remain an employee of the
Company and to continue to devote his full energy to the Company's affairs. The
Executive has agreed to continue to be employed by the Company under the terms and
conditions hereinafter set forth.

        NOW, THEREFORE, in consideration of the foregoing and the mutual undertakings
contained in this Agreement, the parties agree as follows:

1.     Term of this Agreement. The term of this Agreement shall begin on the Effective
Date and shall end on the fifth anniversary thereof ("Term of this Agreement").
Notwithstanding the forgoing, if the Executive's employment is terminated during the
Term of this Agreement and all of the Company's and the Executive's obligations
hereunder have been satisfied prior to the end of the Term of this Agreement, this
Agreement shall expire upon satisfaction of all such obligations.

2.     Duties. The Company and the Executive agree that, while employed during the
Term of this Agreement, the Executive will serve in a senior management position with
the Company. The Executive (a) will devote his knowledge, skill and best efforts on a
full-time basis to performing his duties and obligations to the Company (with the
exception of absences on account of illness or vacation in accordance with the Company's
policies and civic and charitable commitments not involving a conflict with the
Company's business), and (b) will comply with the directions and orders of the Board of
Directors and Chief Executive Officer of the Company with respect to the performance of
his duties.

3.      Affiliates. Employment by an Affiliate of the Company or a successor to the
Company will be considered employment by the Company for purposes of this
Agreement, and the Executive's employment with the Company shall be considered
terminated only if the Executive is no longer employed by the Company or any of its
Affiliates or successors. The term "Company" as used in this Agreement will be deemed
to include Affiliates and successors. For purposes of this Agreement, the term "Affiliate"
means the subsidiaries of the Company and other entities under common control with the
Company.

4.     Compensation and Benefits.

        (a)     During the Term of this Agreement, while the Executive is employed by the
Company, the Company will pay to the Executive the following salary and incentive
awards for services rendered to the Company:

                  (i)     The Company will pay to the Executive an annual salary in an amount
        not less than the base salary in effect for the Executive as of the date on which this
        Agreement is executed (in the event the Executive's rate of annual base salary is
        increased, such increased rate shall not be decreased during the Term of this
        Agreement); and

                  (ii)    The Executive will be entitled to receive incentive awards if and to the
        extent that the Board of Directors determines in good faith that the Executive's
        performance merits payment of an award according to the terms of the incentive
        compensation plans applicable to senior executives of the Company.

If the Executive is employed by an Affiliate or a successor (as described in Section 3),
the term "Board of Directors" as used in this Section 4(a) and in Section 5(a) means the
Board of Directors of the Executive's employer.

        (b)     During the Term of this Agreement, while the Executive is employed by the
Company, the Executive will be eligible to participate in a similar manner as other senior
executives of the Company in retirement plans, fringe benefit plans, supplemental benefit
plans and other plans and programs provided by the Company for its executives or
employees from time to time.

        (c)     The Company shall pay to the Executive $1,000,000 on the first business day
of the month following the Effective Date.

        (d)     For purposes of determining the Executive's benefit under the Company's
supplemental retirement plans, on each of the first, second and third anniversary of the
Effective Date, the Executive shall be credited with an additional year of service and be
deemed one year older than the Executive's actual age if the Executive is employed by
the Company on such anniversary.

5.     Termination of Employment.

        (a)     If, during the Term of this Agreement, the Company terminates the
Executive's employment other than for Cause (as defined in Section 7), the Company will
pay to the Executive in cash within 30 days after the Executive's termination of
employment

                  (i)     a lump sum payment equal to three (3) times the sum of: (A) the highest
        annual base salary rate in effect for the Executive at any time during the three-year
        period preceding employment termination, plus (B) the highest of (1) the annual
        bonus for the year in which the termination of employment occurs, or (2) the highest
        annual bonus received by the Executive during the three calendar years preceding
        the calendar year in which the termination of employment occurs; and

                 (ii)    any unpaid salary through the date of employment termination, unpaid
        annual bonus for the prior year and a pro-rated portion of the annual bonus for the
        year in which termination of employment occurs.

For purposes of Sections 5(a)(i)(B)(1), 5(a)(ii), and 5(b)(ii), the annual bonus for the year
in which termination of employment occurs will be the "target" annual bonus for such
year unless, before the Executive's termination of employment, the Board of Directors
made a good faith final determination of the amount of the Executive's actual annual
bonus for such year. If the Board of Directors made such a determination, the applicable
award will be computed based on the Board of Directors' determination, rather than on
the "target" amount for such year.

        (b)     If, during the Term of this Agreement, the Company terminates the
Executive's employment other than for Cause (as defined in Section 7), the Executive
will be entitled to receive the following additional benefits determined as of the date of
his termination of employment:

                 (i)     Any outstanding restricted stock that would become vested (that is,
        transferable and nonforfeitable) if the Executive remained an employee through the
        Term of this Agreement will become vested as of the date of the Executive's
        termination of employment (or as of the date described in the next sentence, if
        applicable). In addition, if the Company has agreed to award the Executive
        restricted stock at the end of a performance period, subject to the Company's
        achievement of performance goals, and the date as of which the restricted stock is to
        become vested falls within the Term of this Agreement, the stock will be awarded
        and become vested at the end of the performance period if and to the extent that the
        performance goals are met.

                 (ii)     A supplemental retirement benefit payable in cash in a lump sum equal
        to the difference between (A) the present value of the vested retirement benefits that
        the Executive had accrued at the time of termination of employment under the
        Company's qualified defined benefit retirement plan (the "Retirement Plan"), any
        excess or supplemental retirement plans in which the Executive participates and/or
        other supplemental retirement benefits to which the Executive is entitled under any
        contract or agreement (together, the "SERPs"), assuming for this purpose that the
        Executive would begin receiving benefits at the first early retirement date provided
        under the applicable plan or, if the Executive is eligible to receive retirement
        benefits upon termination of employment under the applicable plan, assuming the
        Executive will begin receiving benefits at the time of termination of employment,
        and (B) the benefit the Executive would be entitled to receive under the Retirement
        Plan and the SERPs, assuming for all such benefit determinations. The additional
        credit under Section 4(d) hereof is three. For purposes of the calculations required
        under this Section 5(b)(ii), the same actuarial assumptions that are used under the
        Company's qualified retirement plan shall be used.

        (c)     If the Executive voluntarily terminates employment with the Company during
the Term of this Agreement under circumstances described in this subsection (c), the
Executive will be entitled to receive the benefits described in subsections (a) and (b)
above as if the Company had terminated the Executive's employment other than for
Cause. Subject to the provisions of this subsection (c), these benefits will be provided if
the Executive voluntarily terminates employment after (i) the Company reduces the
Executive's base salary (except a reduction consistent and proportional with an overall
reduction, due to extraordinary business conditions, in the compensation of all other
senior executives of the Company), (ii) the Executive is not in good faith considered for
incentive awards as described in Section 4(a)(ii), (iii) the Company fails to provide
benefits as required by Section 4(b), (iv) the Company relocates the Executive's primary
place of employment to a location, other than the Washington D.C. metropolitan area,
further than 50 miles from the Executive's primary place of employment on the Effective
Date, or (v) the Company demotes the Executive to a position that is not a senior
management position (other than on account of the Executive's disability, as defined in
Section 6 below). In order for this subsection (c) to be effective: (1) the Executive must
give written notice to the Company indicating that the Executive intends to terminate
employment under this subsection (c), (2) the Executive' s voluntary termination under
this subsection must occur within 60 days after the Executive knows or reasonably should
know of an event described in clause (i), (ii), (iii), (iv), or (v) above, or within 60 days
after the last in a series of such events, and (3) the Company must have failed to remedy
the event described in clause (i), (ii), (iii), (iv), or (v), as the case may be, within 30 days
after receiving the Executive's written notice. If the Company remedies the event
described in clause (i), (ii), (iii), (iv), or (v), as the case may be, within 30 days after
receiving the Executive's written notice, the Executive may not terminate employment
under this subsection (c) on account of the event specified in the Executive's notice.
Termination under the circumstances above shall be deemed an involuntary termination
without Cause for purposes of non-qualified benefit plans.

        (d)     Notwithstanding subsection (a), (b), and (c) of this Section 5, if the
independent public accountants for the Company (the "Accountants") determine that if
the payments and/or benefits to be provided under subsections (a), (b), and (c) of this
Section 5 (and/or any other payments and/or benefits provided or to be provided to the
Executive under any applicable plan, program, agreement or arrangement maintained,
contributed to or entered into by the Company or any group or entity whose actions result
in a change of ownership or effective control (as those terms are defined in Code Section
280G and regulations promulgated thereunder) or any affiliate of the Company) (a
"Payment" or collectively "Payments") were provided to the Executive (x) the Executive
would incur an excise tax under Section 4999 of the Internal Revenue Code of 1986, as
amended (the "Code") (such excise tax, together with any interest and penalties, are
hereinafter collectively referred to as the "Excise Tax"), and (y) the net after tax benefits
to the Executive attributable to the Payments would not be at least $10,000 greater than
the net after tax benefits that would accrue to the Executive if the Payments that would
otherwise cause the Executive to be subject to the Excise Tax were not provided, the
Payments shall be reduced so that the Payments provided to the Executive are the greatest
(as determined by the Accountants) that may be provided without any such Payment
being subject to the Excise Tax. If the Payments are to be reduced under this subsection
5(d), the Executive shall be given the opportunity to designate which Payments shall be
reduced and in what order of priority.

                 (i)     If the Executive receives reduced Payments pursuant to subsection 5(d),
        or if it had been determined that no such reduction was required, but it nonetheless is
        established pursuant to the final determination of a court or an Internal Revenue
        Service proceeding that, notwithstanding the good faith of the Executive and the
        Company in applying the terms of subsection 5(d), the aggregate Payments to the
        Executive would result in any Payment being subject to the Excise Tax, and that a
        reduction pursuant to subsection 5(d) should have occurred, then the Executive shall
        be deemed for all purposes to have received a loan made on the date of the receipt of
        the Payments in an amount such that, after taking into consideration such loan, no
        portion of the aggregate Payments would be subject to the Excise Tax. The
        Executive shall have an obligation to repay such loan to the Company on demand,
        together with interest on such amount at the applicable Federal rate (as defined in
        Section 1274(d) of the Code) from the date of the Executive's receipt of such loan
        until the date of such repayment.

                 (ii)    If the Executive's Payments are reduced or are to be reduced pursuant to
        subsection 5(d), and it is determined that the Payments were or are to be reduced
        pursuant to subsection 5(d) to a greater extent than was or is necessary to avoid the
        Excise Tax or it is determined that the Executive's Payments should not be or should
        not have been reduced pursuant to subsection 5(d), then the Company shall promptly
        pay to the Executive the amount necessary so that, after such adjustment, the
        Executive will have received or be entitled to receive the maximum payments
        payable under this subsection 5(d), together with interest at the applicable Federal
        rate (as defined in Section 1274(d) of the Code) on amounts that were incorrectly
        reduced pursuant to subsection 5(d).

                 (iii)     Gross-Up Payment.

                            (A)     Anything in this Agreement to the contrary notwithstanding, if it
                                       shall be determined that any Payments would be subject to the
                                       Excise Tax or any interest or penalties are incurred, and it is
                                       determined that the Payments should not be reduced pursuant to
                                       subsection 5(d), then the Executive shall be entitled to receive an
                                       additional payment (a "Gross-Up Payment") in an amount such
                                       that after payment by the Executive of all taxes (including any
                                       interest or penalties imposed with respect to such taxes),
                                       including, without limitation, any income taxes, employment
                                       taxes (and any interest and penalties imposed with respect
                                       thereto) and Excise Taxes imposed upon the Gross-Up Payment,
                                       the Executive retains an amount of the Gross-Up Payment equal
                                       to the Excise Tax imposed upon the Payments.

                            (B)     All determinations required to be made under this subsection
                                      5(d)(iii), including whether and when a Gross-Up Payment is
                                      required and the amount of such Gross-up Payment and the
                                      assumptions to be utilized in arriving at such determination, shall
                                      be made by the Accountants, who shall provide detailed
                                      supporting calculations both to the Company and the Executive
                                      within 15 business days of the receipt of notice from the
                                      Executive that there has been a Payment, or such earlier time as is
                                      requested by the Company. All fees and expenses of the
                                      Accountants shall be borne solely by the Company. Any Gross-
                                      Up Payment, as determined pursuant to this subsection 5(d)(iii),
                                      shall be paid by the Company to the Executive within five days of
                                      the receipt of the Accountants' determination. Any determination
                                      made independently and in good faith by the Accountants shall be
                                      binding upon the Company and the Executive. As a result of the
                                      uncertainty in the application of Sections 280G and 4999 of the
                                      Code, at the time of the initial determination by the Accountants
                                      hereunder, it is possible that Gross-Up Payments which will not
                                      have been made by the Company should have been made
                                      ("Underpayment") consistent with the calculations required to be
                                      made hereunder. In the event that the Company exhausts its
                                      remedies pursuant to subsection 5(d)(iii)(C) and the Executive
                                      thereafter is required to make a payment of any Excise Tax, the
                                      Accountants shall determine the amount of the Underpayment
                                      that has occurred and any such Underpayment shall be promptly
                                      paid by the Company to or for the benefit of the Executive.

                            (C)     The Executive shall notify the Company in writing of any claim
                                       by the Internal Revenue Service that, if successful, would require
                                       the payment by the Company of the Gross-Up Payment. Such
                                       notification shall be given as soon as practicable but no later than
                                       thirty business days after the Executive is informed in writing of
                                       such claim and shall apprise the Company of the nature of such
                                       claim and the date on which such claim is requested to be paid.
                                       The Executive shall not pay such claim prior to the expiration of
                                       the 30-day period following the date on which it gives such
                                       notice to the Company (or such shorter period ending on the date
                                       that any payment of taxes with respect to such claim is due). If
                                       the Company notifies the Executive in writing prior to the
                                       expiration of such period that it desires to contest such claim, the
                                       Executive shall:

                                       (1)     give the Company any information reasonably requested
                                                 by the Company relating to such claim,

                                       (2)     take such action in connection with contesting such claim
                                                 as the Company shall reasonably request in writing from
                                                 time to time, including, without limitation, accepting legal
                                                 representation with respect to such claim by an attorney
                                                 reasonably selected by the Company,

                                       (3)     cooperate with the Company in good faith in order
                                                 effectively to contest such claim, and

                                       (4)      permit the Company to participate in any proceedings
                                                  relating to such claim;

                                       provided, however, that the Company shall bear and pay directly
                                       all costs and expenses (including additional interest and
                                       penalties) incurred in connection with such contest and shall
                                       indemnify and hold the Executive harmless, on an after-tax basis,
                                       for any Excise Tax or income tax (including interest and
                                       penalties with respect thereto) imposed as a result of such
                                       representation and payment of costs and expenses. Without
                                       limitation on the foregoing provisions of this subsection 5(d)(iii),
                                       the Company shall control all proceedings taken in connection
                                       with such contest and, at its sole option, may pursue or forego
                                       any and all administrative appeals, proceedings, hearings and
                                       conferences with the taxing authority in respect of such claim
                                       and may, at its sole option, either direct the Executive to pay the
                                       tax claimed and sue for a refund or contest the claim in any
                                       permissible manner, and the Executive agrees to prosecute such
                                       contest to a determination before any administrative tribunal, in a
                                       court of initial jurisdiction and in one or more appellate courts, as
                                       the Company shall determine; provided, further, that if the
                                       Company directs the Executive to pay such claim and sue for a
                                       refund, the Company shall advance the amount of such payment
                                       to the Executive, on an interest-free basis and shall indemnify
                                       and hold the Executive harmless, on an after-tax basis, from any
                                       Excise Tax or income tax (including interest or penalties with
                                       respect thereto) imposed with respect to such advance or with
                                       respect to any imputed income with respect to such advance; and
                                       provided, further, that any extension of the statute of limitations
                                       relating to payment of taxes for the taxable year of the Executive
                                       with respect to which such contested amount is claimed to be due
                                       is limited solely to such contested amount. Furthermore, the
                                       Company's control of the contest shall be limited to issues with
                                       respect to which a Gross-Up Payment would be payable
                                       hereunder and the Executive shall be entitled to settle or contest,
                                       as the case may be any other issue raised by the Internal Revenue
                                       Service or any other taxing authority.

                            (D)     If, after the receipt by the Executive of an amount advanced by
                                       the Company pursuant to subsection 5(d)(iii)(C), the Executive
                                       becomes entitled to receive any refund with respect to such
                                       claim, the Executive shall (subject to the Company's complying
                                       with the requirements of subsection 5(d)(iii)) promptly pay to the
                                       Company the amount of such refund (together with any interest
                                       paid or credited thereon after taxes applicable thereto). If after
                                       the receipt by the Executive of an amount advanced by the
                                       Company pursuant to subsection 5(d)(iii), a determination is
                                       made that the Executive shall not be entitled to any refund with
                                       respect to such claim and the Company does not notify the
                                       Executive in writing of its intent to contest such denial of refund
                                       prior to the expiration of 30 days after such determination, then
                                       such advance shall be forgiven and shall not be required to be
                                       repaid and the amount of such advance shall offset, to the extent
                                       thereof, the amount of Gross-Up Payment required to be paid.

6.     Disability or Death. Upon the Executive's death or disability, the provisions of
Sections 1, 2, 4, and 5 of this Agreement will terminate. This contract provides no
benefits due to disability or death in addition to any death, disability and other benefit
provided under the Company benefit plans in which the executive participates. The
Executive shall be considered disabled if the Executive is entitled to long-term disability
benefits under the Company's disability plan or policy.

7.     Cause. For purposes of this Agreement, the term "Cause" means (i) intentional
fraud or material misappropriation with respect to the business or assets of the Company,
(ii) persistent refusal or willful failure of the Executive to perform substantially his duties
and responsibilities to the Company, other than an asserted responsibility which would
give rise under Section 5(c) above to a right to terminate and have such termination
considered an involuntary termination without Cause, which continues after the
Executive receives notice of such refusal or failure, (iii) conduct that constitutes
disloyalty to the Company, and that materially damages the property, business or
reputation of the Company, or (iv) conviction of a felony involving moral turpitude.

8.     Termination. This Agreement shall terminate upon the successful completion of the
Term of this Agreement; provided, however, that if the Executive's employment is
terminated during the Term of this Agreement and the Company's and the Executive's
obligations under Sections 5, 9 or 10 hereof have not been satisfied as of the last day of
the Term of this Agreement, such obligations shall survive the expiration of the Term of
this Agreement and shall remain in effect until such time as all such obligations have
been satisfied. No additional payments are required by the termination of this
Agreement. The Executive, if he has remained an employee during the Term of this
Agreement and has attained a minimum of age 55, shall be considered vested in the
benefits provided under the Company's Supplemental Executive Retirement Plan,
Executive Performance Supplemental Retirement Plan and Supplemental Benefit Plan.

9.     Fees and Expenses. The Company will pay all reasonable fees and expenses, if any,
(including, without limitation, legal fees and expenses) that are incurred by the Executive
to enforce this Agreement and that result from a breach of this Agreement by the
Company, unless such fees and expenses result from a claim made by the Executive that
is deemed by an arbitrator, mediator, or court, as applicable, to be frivolous or made in
bad faith, in which case each party shall pay its own fees and expenses.

10.    Tax Withholding. The Company may withhold from all amounts payable under this
Agreement an amount necessary to satisfy its income and payroll tax withholding
obligations.

11.    Assignment. The rights and obligations of the Company under this Agreement will
inure to the benefit of and will be binding upon the successors and assigns of the
Company. If the Company is consolidated or merged with or into another corporation, or
if another entity purchases all or substantially all of the Company's assets, the surviving
or acquiring corporation will succeed to the Company's rights and obligations under this
Agreement. The Executive's rights under this Agreement may not be assigned or
transferred in whole or in part, except that the personal representative of the Executive's
estate will receive any amounts payable under this Agreement after the death of the
Executive.

12.    Rights Under this Agreement. The right to receive benefits under the Agreement
will not give the Executive any proprietary interest in the Company or any of its assets.
Benefits under the Agreement will be payable from the general assets of the Company,
and there will be no required funding of amounts that may become payable under the
Agreement. The Executive will for all purposes be a general creditor of the Company.
The interest of the Executive under the Agreement cannot be assigned, anticipated, sold,
encumbered or pledged and will not be subject to the claims of the Executive's creditors.

13.     Notice. For purposes of this Agreement, notices and all other communications to
the Executive must be in writing addressed to the Executive or his personal representative
at his last known address. All notices to the Company must be directed to the attention of
the Chief Executive Officer. Such other addresses may be used as either party may have
furnished to the other in writing. Notices are effective when mailed if sent by United
States registered mail, return receipt requested, postage prepaid. Notices sent otherwise
are effective when received. Notwithstanding the forgoing, notices of change of address
are effective only upon receipt.

14.     Miscellaneous. To the extent not governed by federal law, this Agreement will be
construed in accordance with the law of the State of Maryland without reference to its
conflict of laws rules. No provisions of this Agreement may be modified, waived or
discharged unless such waiver, modification or discharge is agreed to in writing and the
writing is signed by the Executive and the Company. A waiver of any breach of or
compliance with any provision or condition of this Agreement is not a waiver of similar
or dissimilar provisions or conditions. The invalidity or unenforceability of any
provision of this Agreement will not affect the validity or enforceability of any other
provision of this Agreement, which will remain in full force and effect. This Agreement
may be executed in one or more counterparts, all of which will be considered one and the
same agreement.

          WITNESS the following signatures.

PEPCO HOLDINGS, INC.                                           EXECUTIVE


By:    JOHN M. DERRICK, JR.                                         T. S. SHAW    
Chairman of the Board and Chief                                  Thomas S. Shaw
Executive Officer

EX-10

                                           EMPLOYMENT AGREEMENT

This EMPLOYMENT AGREEMENT (the "Agreement") is made as of August 1, 2002
between PEPCO HOLDINGS, INC. (the "Company") and EDDIE R. MAYBERRY
(the "Executive").

                                                   RECITALS:

The Board of Directors of the Company (the "Board of Directors") recognizes that
outstanding management of the Company is essential to advancing the best interests of
the Company, its shareholders and its subsidiaries. The Board of Directors believes that
it is particularly important to have stable, excellent management at the present time. The
Board of Directors believes that this objective may be achieved by giving key
management employees assurances of financial security for a period of time, so that they
will not be distracted by personal risks and will continue to devote their full time and best
efforts to the performance of their duties.

In order to achieve the foregoing objectives, the Human Resources Committee of the
Board of Directors (the "Committee") has recommended, and the Board of Directors has
approved, entering into employment agreements with the Company's key management
executives, which agreements will supercede in their entirety the executives' existing
severance agreements. Accordingly, this Agreement supercedes the severance agreement
previously entered into between the Company and the Executive, dated December 28,
1999 (the "Prior Agreement"). Upon execution of this Agreement, the Prior Agreement
shall be of no further force or effect. The Executive is a key management executive of
the Company and is a valuable member of the Company's management team. The
Company acknowledges that the Executive's contributions to the past and future growth
and success of the Company have been and will continue to be substantial. The
Company and the Executive are entering into this Agreement to induce the Executive to
remain an employee of the Company and to continue to devote his full energy to the
Company's affairs. The Executive has agreed to continue to be employed by the
Company under the terms and conditions hereinafter set forth.

NOW, THEREFORE, in consideration of the foregoing and the mutual undertakings
contained in this Agreement, the parties agree as follows:

1.   Term of this Agreement. The term of this Agreement shall begin on the date first set
forth above and shall end on the third anniversary thereof; provided, however, that, on
such third anniversary, the term of this Agreement shall be automatically renewed for an
additional three (3) years unless either party gives notice to the other at least 6 months
prior to such anniversary that the term of this Agreement shall not be renewed (the initial
3 year term of this Agreement and, if extended, the extension thereof, shall hereinafter be
referred to as the "Term of this Agreement"). Notwithstanding the forgoing, if the
Executive's employment is terminated during the Term of this Agreement and all of the
Company's and the Executive's obligations hereunder have been satisfied prior to the end
of the Term of this Agreement, this Agreement shall expire upon satisfaction of all such
obligations.

2.   Duties. The Company and the Executive agree that, while employed during the Term
of this Agreement, the Executive will serve in a senior management position with the
Company. The Executive (a) will devote his knowledge, skill and best efforts on a full-
time basis to performing his duties and obligations to the Company (with the exception of
absences on account of illness or vacation in accordance with the Company's policies and
civic and charitable commitments not involving a conflict with the Company's business),
and (b) will comply with the directions and orders of the Board of Directors and Chief
Executive Officer of the Company (or any designee thereof) with respect to the
performance of his duties.

3.   Affiliates. Employment by an Affiliate of the Company or a successor to the
Company will be considered employment by the Company for purposes of this
Agreement, and the Executive's employment with the Company shall be considered
terminated only if the Executive is no longer employed by the Company or any of its
Affiliates or successors. The term "Company" as used in this Agreement will be deemed
to include Affiliates and successors. For purposes of this Agreement, the term "Affiliate"
means the subsidiaries of the Company and other entities under common control with the
Company.

4.   Compensation and Benefits.

(a)  During the Term of this Agreement, while the Executive is employed by the
Company, the Company will pay to the Executive the following salary and incentive
awards for services rendered to the Company:

                   (i)     The Company will pay to the Executive an annual salary in an amount
                  not less than the base salary in effect for the Executive as of the date on which
                  this Agreement is executed (in the event the Executive's rate of annual base
                  salary is increased, such increased rate shall not be decreased during the Term
                  of this Agreement); and

                  (ii)     The Executive will be entitled to receive incentive awards if and to the
                  extent that the Board of Directors determines in good faith that the Executive's
                  performance merits payment of an award according to the terms of the
                  incentive compensation plans applicable to senior executives of the Company.

If the Executive is employed by an Affiliate or a successor (as described in Section 3),
the term "Board of Directors" as used in this Section 4(a) and in Section 5(a) means the
Board of Directors of the Executive's employer.

(b)  During the Term of this Agreement, while the Executive is employed by the
Company, the Executive will be eligible to participate in a similar manner as other senior
executives of the Company in retirement plans, fringe benefit plans, supplemental benefit
plans and other plans and programs provided by the Company for its executives or
employees from time to time.

5.   Termination of Employment.

If, during the Term of this Agreement, the Company terminates the Executive's
employment other than for Cause (as defined in Section 7), the Company will pay to the
Executive in cash within 30 days after the Executive's termination of employment


                  (i)     a lump sum payment equal to three (3) times the sum of: (A) the highest
                  annual base salary rate in effect for the Executive at any time during the three-
                  year period preceding employment termination, plus (B) the highest of (1) the
                  annual bonus for the year in which the termination of employment occurs, or
                   (2) the highest annual bonus received by the Executive during the three
                  calendar years preceding the calendar year in which the termination of
                  employment occurs; and

                  (ii)     any unpaid salary through the date of employment termination, unpaid
                  annual bonus for the prior year and a pro-rated portion of the annual bonus for
                  the year in which termination of employment occurs.

For purposes of Sections 5(a)(i)(B)(1) and 5(a)(ii), the annual bonus for the year in which
termination of employment occurs will be the "target" annual bonus for such year unless,
before the Executive's termination of employment, the Board of Directors made a good
faith final determination of the amount of the Executive's actual annual bonus for such
year. If the Board of Directors made such a determination, the applicable award will be
computed based on the Board of Directors' determination, rather than on the "target"
amount for such year.

(b)  If, during the Term of this Agreement, the Company terminates the Executive's
employment other than for Cause (as defined in Section 7), the Executive will be entitled
to receive the following additional benefits determined as of the date of his termination of
employment:

                  (i)     Any outstanding restricted stock that would become vested (that is,
                  transferable and nonforfeitable) if the Executive remained an employee
                  through the Term of this Agreement will become vested as of the date of the
                  Executive's termination of employment (or as of the date described in the next
                  sentence, if applicable). In addition, if the Company has agreed to award the
                  Executive restricted stock at the end of a performance period, subject to the
                  Company's achievement of performance goals, and the date as of which the
                  restricted stock is to become vested falls within the Term of this Agreement,
                  the stock will be awarded and become vested at the end of the performance
                  period if and to the extent that the performance goals are met.

                  (ii)     A supplemental retirement benefit payable in cash in a lump sum equal
                  to the difference between (A) the present value of the vested retirement
                  benefits that the Executive had accrued at the time of termination of
                  employment under the Company's qualified defined benefit retirement plan
                   (the "Retirement Plan"), any excess or supplemental retirement plans in
                  which the Executive participates and/or other supplemental retirement benefits
                  to which the Executive is entitled under any contract or agreement (together,
                  the "SERPs"), assuming for this purpose that the Executive would begin
                  receiving benefits at the first early retirement date provided under the
                  applicable plan or, if the Executive is eligible to receive retirement benefits
                  upon termination of employment under the applicable plan, assuming the
                  Executive will begin receiving benefits at the time of termination of
                  employment, and (B) the benefit the Executive would be entitled to receive
                  under the Retirement Plan and the SERPs assuming for all such benefit
                  determinations that the Executive was three years older than the Executive's
                  actual age and had three additional years of service. For purposes of the
                  calculations required under this Section 5(b)(ii), the same actuarial
                  assumptions that are used under the Company's qualified retirement plan shall
                  be used.

                  (iii)     If the split dollar insurance arrangement between the Company and the
                  Executive is in effect at the time of the Executive's employment termination,
                  the Company shall continue to pay all premium amounts with respect to the
                  Executive's policy under the Company's split dollar insurance program for the
                  lesser of ten (10) years from the date of termination of employment or the
                  period of time remaining until the Executive's "Roll Out Qualification Date,"
                   (as defined in the split dollar program) whichever first occurs.

(c)  If the Executive voluntarily terminates employment with the Company during the
Term of this Agreement under circumstances described in this subsection (c), the
Executive will be entitled to receive the benefits described in subsections (a) and (b)
above as if the Company had terminated the Executive's employment other than for
Cause. Subject to the provisions of this subsection (c), these benefits will be provided if
the Executive voluntarily terminates employment after (i) the Company reduces the
Executive's base salary (except a reduction consistent and proportional with an overall
reduction, due to extraordinary business conditions, in the compensation of all other
senior executives of the Company), (ii) the Executive is not in good faith considered for
incentive awards as described in Section 4(a)(ii), (iii) the Company fails to provide
benefits as required by Section 4(b), (iv) the Company relocates the Executive's primary
place of employment to a location, other than either the Washington, D.C. or
Wilmington, Delaware metropolitan areas, further than 50 miles from the Executive's
primary place of employment on the first day of the Term of this Agreement, or (v) the
Company demotes the Executive to a position that is not a senior management position
(other than on account of the Executive's disability, as defined in Section 6 below). In
order for this subsection (c) to be effective: (1) the Executive must give written notice to
the Company indicating that the Executive intends to terminate employment under this
subsection (c), (2) the Executive' s voluntary termination under this subsection must
occur within 60 days after the Executive knows or reasonably should know of an event
described in clause (i), (ii), (iii), (iv), or (v) above, or within 60 days after the last in a
series of such events, and (3) the Company must have failed to remedy the event
described in clause (i), (ii), (iii), (iv), or (v), as the case may be, within 30 days after
receiving the Executive's written notice. If the Company remedies the event described in
clause (i), (ii), (iii), (iv), or (v), as the case may be, within 30 days after receiving the
Executive's written notice, the Executive may not terminate employment under this
subsection (c) on account of the event specified in the Executive's notice. Termination
under the circumstances above shall be deemed an involuntary termination without Cause
for purposes of non-qualified benefit plans.

(d)  Notwithstanding subsection (a), (b), and (c) of this Section 5, if the independent
public accountants for the Company (the "Accountants") determine that if the payments
and/or benefits to be provided under subsections (a), (b), and (c) of this Section 5 (and/or
any other payments and/or benefits provided or to be provided to the Executive under any
applicable plan, program, agreement or arrangement maintained, contributed to or
entered into by the Company or any group or entity whose actions result in a change of
ownership or effective control (as those terms are defined in Code Section 280G and
regulations promulgated thereunder) or any affiliate of the Company) (a "Payment" or
collectively "Payments") were provided to the Executive (x) the Executive would incur
an excise tax under Section 4999 of the Internal Revenue Code of 1986, as amended (the
"Code") (such excise tax, together with any interest and penalties, are hereinafter
collectively referred to as the "Excise Tax"), and (y) the net after tax benefits to the
Executive attributable to the Payments would not be at least $10,000 greater than the net
after tax benefits that would accrue to the Executive if the Payments that would otherwise
cause the Executive to be subject to the Excise Tax were not provided, the Payments shall
be reduced so that the Payments provided to the Executive are the greatest (as determined
by the Accountants) that may be provided without any such Payment being subject to the
Excise Tax. If the Payments are to be reduced under this subsection 5(d), the Executive
shall be given the opportunity to designate which Payments shall be reduced and in what
order of priority.

                  (i)     If the Executive receives reduced Payments pursuant to subsection 5(d),
                  or if it had been determined that no such reduction was required, but it
                  nonetheless is established pursuant to the final determination of a court or an
                  Internal Revenue Service proceeding that, notwithstanding the good faith of
                  the Executive and the Company in applying the terms of subsection 5(d), the
                  aggregate Payments to the Executive would result in any Payment being
                  subject to the Excise Tax, and that a reduction pursuant to subsection 5(d)
                  should have occurred, then the Executive shall be deemed for all purposes to
                  have received a loan made on the date of the receipt of the Payments in an
                  amount such that, after taking into consideration such loan, no portion of the
                  aggregate Payments would be subject to the Excise Tax. The Executive shall
                  have an obligation to repay such loan to the Company on demand, together
                  with interest on such amount at the applicable Federal rate (as defined in
                  Section 1274(d) of the Code) from the date of the Executive's receipt of such
                  loan until the date of such repayment.

                  (ii)     If the Executive's Payments are reduced or are to be reduced pursuant to
                  subsection 5(d), and it is determined that the Payments were or are to be
                  reduced pursuant to subsection 5(d) to a greater extent than was or is
                  necessary to avoid the Excise Tax or it is determined that the Executive's
                  Payments should not be or should not have been reduced pursuant to
                  subsection 5(d), then the Company shall promptly pay to the Executive the
                  amount necessary so that, after such adjustment, the Executive will have
                  received or be entitled to receive the maximum payments payable under this
                  subsection 5(d), together with interest at the applicable Federal rate (as
                  defined in Section 1274(d) of the Code) on amounts that were incorrectly
                  reduced pursuant to subsection 5(d).

                  (iii)     Gross-Up Payment.

                              (A)      Anything in this Agreement to the contrary notwithstanding, if
                                          it shall be determined that any Payments would be subject to
                                          the Excise Tax or any interest or penalties are incurred, and it
                                          is determined that the Payments should not be reduced
                                          pursuant to subsection 5(d), then the Executive shall be entitled
                                          to receive an additional payment (a "Gross-Up Payment") in an
                                          amount such that after payment by the Executive of all taxes
                                          (including any interest or penalties imposed with respect to
                                          such taxes), including, without limitation, any income taxes,
                                          employment taxes (and any interest and penalties imposed with
                                          respect thereto) and Excise Taxes imposed upon the Gross-Up
                                          Payment, the Executive retains an amount of the Gross-Up
                                          Payment equal to the Excise Tax imposed upon the Payments.

                               (B)      All determinations required to be made under this subsection
                                          5(d)(iii), including whether and when a Gross-Up Payment is
                                          required and the amount of such Gross-up Payment and the
                                          assumptions to be utilized in arriving at such determination,
                                          shall be made by the Accountants, who shall provide detailed
                                          supporting calculations both to the Company and the Executive
                                          within 15 business days of the receipt of notice from the
                                          Executive that there has been a Payment, or such earlier time as
                                          is requested by the Company. All fees and expenses of the
                                          Accountants shall be borne solely by the Company. Any
                                          Gross-Up Payment, as determined pursuant to this subsection
                                          5(d)(iii), shall be paid by the Company to the Executive within
                                          five days of the receipt of the Accountants' determination.
                                          Any determination made independently and in good faith by
                                          the Accountants shall be binding upon the Company and the
                                          Executive. As a result of the uncertainty in the application of
                                          Sections 280G and 4999 of the Code, at the time of the initial
                                          determination by the Accountants hereunder, it is possible that
                                          Gross-Up Payments which will not have been made by the
                                          Company should have been made ("Underpayment") consistent
                                          with the calculations required to be made hereunder. In the
                                          event that the Company exhausts its remedies pursuant to
                                          subsection 5(d)(iii)(C) and the Executive thereafter is required
                                          to make a payment of any Excise Tax, the Accountants shall
                                          determine the amount of the Underpayment that has occurred
                                          and any such Underpayment shall be promptly paid by the
                                          Company to or for the benefit of the Executive.

                              (C)       The Executive shall notify the Company in writing of any
                                           claim by the Internal Revenue Service that, if successful,
                                           would require the payment by the Company of the Gross-Up
                                           Payment. Such notification shall be given as soon as
                                           practicable but no later than thirty business days after the
                                           Executive is informed in writing of such claim and shall
                                           apprise the Company of the nature of such claim and the date
                                           on which such claim is requested to be paid. The Executive
                                           shall not pay such claim prior to the expiration of the 30-day
                                           period following the date on which it gives such notice to the
                                           Company (or such shorter period ending on the date that any
                                           payment of taxes with respect to such claim is due). If the
                                           Company notifies the Executive in writing prior to the
                                           expiration of such period that it desires to contest such claim,
                                           the Executive shall:

                                           (1)      give the Company any information reasonably
                                                      requested by the Company relating to such claim,

                                           (2)      take such action in connection with contesting such
                                                      claim as the Company shall reasonably request in
                                                      writing from time to time, including, without limitation,
                                                      accepting legal representation with respect to such
                                                      claim by an attorney reasonably selected by the
                                                      Company,

                                           (3)       cooperate with the Company in good faith in order
                                                      effectively to contest such claim, and

                                            (4)      permit the Company to participate in any proceedings
                                                       relating to such claim;

                                            provided, however, that the Company shall bear and pay
                                            directly all costs and expenses (including additional interest
                                            and penalties) incurred in connection with such contest and
                                            shall indemnify and hold the Executive harmless, on an after-
                                            tax basis, for any Excise Tax or income tax (including interest
                                            and penalties with respect thereto) imposed as a result of such
                                            representation and payment of costs and expenses. Without
                                            limitation on the foregoing provisions of this subsection
                                            5(d)(iii), the Company shall control all proceedings taken in
                                            connection with such contest and, at its sole option, may
                                            pursue or forego any and all administrative appeals,
                                            proceedings, hearings and conferences with the taxing
                                            authority in respect of such claim and may, at its sole option,
                                            either direct the Executive to pay the tax claimed and sue for a
                                            refund or contest the claim in any permissible manner, and the
                                            Executive agrees to prosecute such contest to a determination
                                            before any administrative tribunal, in a court of initial
                                            jurisdiction and in one or more appellate courts, as the
                                            Company shall determine; provided, further, that if the
                                            Company directs the Executive to pay such claim and sue for
                                            a refund, the Company shall advance the amount of such
                                            payment to the Executive, on an interest-free basis and shall
                                            indemnify and hold the Executive harmless, on an after-tax
                                            basis, from any Excise Tax or income tax (including interest
                                            or penalties with respect thereto) imposed with respect to such
                                            advance or with respect to any imputed income with respect
                                            to such advance; and provided, further, that any extension of
                                            the statute of limitations relating to payment of taxes for the
                                            taxable year of the Executive with respect to which such
                                            contested amount is claimed to be due is limited solely to
                                            such contested amount. Furthermore, the Company's control
                                            of the contest shall be limited to issues with respect to which a
                                            Gross-Up Payment would be payable hereunder and the
                                            Executive shall be entitled to settle or contest, as the case may
                                            be any other issue raised by the Internal Revenue Service or
                                            any other taxing authority.

                              (D)        If, after the receipt by the Executive of an amount advanced
                                            by the Company pursuant to subsection 5(d)(iii)(C), the
                                            Executive becomes entitled to receive any refund with respect
                                            to such claim, the Executive shall (subject to the Company's
                                            complying with the requirements of subsection 5(d)(iii))
                                            promptly pay to the Company the amount of such refund
                                            (together with any interest paid or credited thereon after taxes
                                            applicable thereto). If after the receipt by the Executive of an
                                            amount advanced by the Company pursuant to subsection
                                            5(d)(iii), a determination is made that the Executive shall not
                                            be entitled to any refund with respect to such claim and the
                                            Company does not notify the Executive in writing of its intent
                                            to contest such denial of refund prior to the expiration of 30
                                            days after such determination, then such advance shall be
                                            forgiven and shall not be required to be repaid and the amount
                                            of such advance shall offset, to the extent thereof, the amount
                                            of Gross-Up Payment required to be paid.

6.   Disability or Death. Upon the Executive's death or disability, the provisions of
Sections 1, 2, 4, and 5 of this Agreement will terminate. This contract provides no
benefits due to disability or death in addition to any death, disability and other benefit
provided under the Company benefit plans in which the executive participates. The
Executive shall be considered disabled if the Executive is entitled to long-term disability
benefits under the Company's disability plan or policy.

7.   Cause. For purposes of this Agreement, the term "Cause" means (i) intentional fraud
or material misappropriation with respect to the business or assets of the Company, (ii)
persistent refusal or willful failure of the Executive to perform substantially his duties
and responsibilities to the Company, other than an asserted responsibility which would
give rise under Section 5(c) above to a right to terminate and have such termination
considered an involuntary termination without Cause, which continues after the
Executive receives notice of such refusal or failure, (iii) conduct that constitutes
disloyalty to the Company, and that materially damages the property, business or
reputation of the Company, or (iv) conviction of a felony involving moral turpitude.

8.   Termination. This Agreement shall terminate upon the successful completion of the
Term of this Agreement; provided, however, that if the Executive's employment is
terminated during the Term of this Agreement and the Company's and the Executive's
obligations under Sections 5, 9 or 10 hereof have not been satisfied as of the last day of
the Term of this Agreement, such obligations shall survive the expiration of the Term of
this Agreement and shall remain in effect until such time as all such obligations have
been satisfied. No additional payments are required by the termination of this
Agreement.

9.   Fees and Expenses. The Company will pay all reasonable fees and expenses, if any,
(including, without limitation, legal fees and expenses) that are incurred by the Executive
to enforce this Agreement and that result from a breach of this Agreement by the
Company, unless such fees and expenses result from a claim made by the Executive that
is deemed by an arbitrator, mediator, or court, as applicable, to be frivolous or made in
bad faith, in which case each party shall pay its own fees and expenses.

10.  Tax Withholding. The Company may withhold from all amounts payable under this
Agreement an amount necessary to satisfy its income and payroll tax withholding
obligations.

11.  Assignment. The rights and obligations of the Company under this Agreement will
inure to the benefit of and will be binding upon the successors and assigns of the
Company. If the Company is consolidated or merged with or into another corporation, or
if another entity purchases all or substantially all of the Company's assets, the surviving
or acquiring corporation will succeed to the Company's rights and obligations under this
Agreement. The Executive's rights under this Agreement may not be assigned or
transferred in whole or in part, except that the personal representative of the Executive's
estate will receive any amounts payable under this Agreement after the death of the
Executive.

12.  Rights Under this Agreement. The right to receive benefits under the Agreement
will not give the Executive any proprietary interest in the Company or any of its assets.
Benefits under the Agreement will be payable from the general assets of the Company,
and there will be no required funding of amounts that may become payable under the
Agreement. The Executive will for all purposes be a general creditor of the Company.
The interest of the Executive under the Agreement cannot be assigned, anticipated, sold,
encumbered or pledged and will not be subject to the claims of the Executive's creditors.

13.  Notice. For purposes of this Agreement, notices and all other communications to the
Executive must be in writing addressed to the Executive or his personal representative at
his last known address. All notices to the Company must be directed to the attention of
the Chief Executive Officer. Such other addresses may be used as either party may have
furnished to the other in writing. Notices are effective when mailed if sent by United
States registered mail, return receipt requested, postage prepaid. Notices sent otherwise
are effective when received. Notwithstanding the forgoing, notices of change of address
are effective only upon receipt.

14.  Miscellaneous. To the extent not governed by federal law, this Agreement will be
construed in accordance with the law of the State of Maryland without reference to its
conflict of laws rules. No provisions of this Agreement may be modified, waived or
discharged unless such waiver, modification or discharge is agreed to in writing and the
writing is signed by the Executive and the Company. A waiver of any breach of or
compliance with any provision or condition of this Agreement is not a waiver of similar
or dissimilar provisions or conditions. The invalidity or unenforceability of any
provision of this Agreement will not affect the validity or enforceability of any other
provision of this Agreement, which will remain in full force and effect. This Agreement
may be executed in one or more counterparts, all of which will be considered one and the
same agreement. As of the date first above written, the Prior Agreement shall be
superceded in its entirety and shall no longer be of any force or effect.

WITNESS the following signatures.

PEPCO HOLDINGS, INC.                                         EXECUTIVE

       JOHN M. DERRICK, JR.                                    E. R. MAYBERRY
By:__________________________                    _________________________
     Chairman of the Board and Chief
     Executive Officer

EX-10

                                           EMPLOYMENT AGREEMENT

This EMPLOYMENT AGREEMENT (the "Agreement") is made as of August 1, 2002
between PEPCO HOLDINGS, INC. (the "Company") and JOHN D. MCCALLUM
(the "Executive").

                                                   RECITALS:

The Board of Directors of the Company (the "Board of Directors") recognizes that
outstanding management of the Company is essential to advancing the best interests of
the Company, its shareholders and its subsidiaries. The Board of Directors believes that
it is particularly important to have stable, excellent management at the present time. The
Board of Directors believes that this objective may be achieved by giving key
management employees assurances of financial security for a period of time, so that they
will not be distracted by personal risks and will continue to devote their full time and best
efforts to the performance of their duties.

In order to achieve the foregoing objectives, the Human Resources Committee of the
Board of Directors (the "Committee") has recommended, and the Board of Directors has
approved, entering into employment agreements with the Company's key management
executives, which agreements will supercede in their entirety the executives' existing
severance agreements. Accordingly, this Agreement supercedes the severance agreement
previously entered into between the Company and the Executive, dated December 28,
1999 (the "Prior Agreement"). Upon execution of this Agreement, the Prior Agreement
shall be of no further force or effect. The Executive is a key management executive of
the Company and is a valuable member of the Company's management team. The
Company acknowledges that the Executive's contributions to the past and future growth
and success of the Company have been and will continue to be substantial. The
Company and the Executive are entering into this Agreement to induce the Executive to
remain an employee of the Company and to continue to devote his full energy to the
Company's affairs. The Executive has agreed to continue to be employed by the
Company under the terms and conditions hereinafter set forth.

NOW, THEREFORE, in consideration of the foregoing and the mutual undertakings
contained in this Agreement, the parties agree as follows:

1.   Term of this Agreement. The term of this Agreement shall begin on the date first set
forth above and shall end on the third anniversary thereof; provided, however, that, on
such third anniversary, the term of this Agreement shall be automatically renewed for an
additional three (3) years unless either party gives notice to the other at least 6 months
prior to such anniversary that the term of this Agreement shall not be renewed (the initial
3 year term of this Agreement and, if extended, the extension thereof, shall hereinafter be
referred to as the "Term of this Agreement"). Notwithstanding the forgoing, if the
Executive's employment is terminated during the Term of this Agreement and all of the
Company's and the Executive's obligations hereunder have been satisfied prior to the end
of the Term of this Agreement, this Agreement shall expire upon satisfaction of all such
obligations.

2.   Duties. The Company and the Executive agree that, while employed during the Term
of this Agreement, the Executive will serve in a senior management position with the
Company. The Executive (a) will devote his knowledge, skill and best efforts on a full-
time basis to performing his duties and obligations to the Company (with the exception of
absences on account of illness or vacation in accordance with the Company's policies and
civic and charitable commitments not involving a conflict with the Company's business),
and (b) will comply with the directions and orders of the Board of Directors and Chief
Executive Officer of the Company (or any designee thereof) with respect to the
performance of his duties.

3.   Affiliates. Employment by an Affiliate of the Company or a successor to the
Company will be considered employment by the Company for purposes of this
Agreement, and the Executive's employment with the Company shall be considered
terminated only if the Executive is no longer employed by the Company or any of its
Affiliates or successors. The term "Company" as used in this Agreement will be deemed
to include Affiliates and successors. For purposes of this Agreement, the term "Affiliate"
means the subsidiaries of the Company and other entities under common control with the
Company.

4.   Compensation and Benefits.

(a)  During the Term of this Agreement, while the Executive is employed by the
Company, the Company will pay to the Executive the following salary and incentive
awards for services rendered to the Company:

                   (i)     The Company will pay to the Executive an annual salary in an amount
                  not less than the base salary in effect for the Executive as of the date on which
                  this Agreement is executed (in the event the Executive's rate of annual base
                  salary is increased, such increased rate shall not be decreased during the Term
                  of this Agreement); and

                  (ii)     The Executive will be entitled to receive incentive awards if and to the
                  extent that the Board of Directors determines in good faith that the Executive's
                  performance merits payment of an award according to the terms of the
                  incentive compensation plans applicable to senior executives of the Company.

If the Executive is employed by an Affiliate or a successor (as described in Section 3),
the term "Board of Directors" as used in this Section 4(a) and in Section 5(a) means the
Board of Directors of the Executive's employer.

(b)  During the Term of this Agreement, while the Executive is employed by the
Company, the Executive will be eligible to participate in a similar manner as other senior
executives of the Company in retirement plans, fringe benefit plans, supplemental benefit
plans and other plans and programs provided by the Company for its executives or
employees from time to time.

5.   Termination of Employment.

If, during the Term of this Agreement, the Company terminates the Executive's
employment other than for Cause (as defined in Section 7), the Company will pay to the
Executive in cash within 30 days after the Executive's termination of employment


                  (i)     a lump sum payment equal to three (3) times the sum of: (A) the highest
                  annual base salary rate in effect for the Executive at any time during the three-
                  year period preceding employment termination, plus (B) the highest of (1) the
                  annual bonus for the year in which the termination of employment occurs, or
                   (2) the highest annual bonus received by the Executive during the three
                  calendar years preceding the calendar year in which the termination of
                  employment occurs; and

                  (ii)     any unpaid salary through the date of employment termination, unpaid
                  annual bonus for the prior year and a pro-rated portion of the annual bonus for
                  the year in which termination of employment occurs.

For purposes of Sections 5(a)(i)(B)(1) and 5(a)(ii), the annual bonus for the year in which
termination of employment occurs will be the "target" annual bonus for such year unless,
before the Executive's termination of employment, the Board of Directors made a good
faith final determination of the amount of the Executive's actual annual bonus for such
year. If the Board of Directors made such a determination, the applicable award will be
computed based on the Board of Directors' determination, rather than on the "target"
amount for such year.

(b)  If, during the Term of this Agreement, the Company terminates the Executive's
employment other than for Cause (as defined in Section 7), the Executive will be entitled
to receive the following additional benefits determined as of the date of his termination of
employment:

                  (i)     Any outstanding restricted stock that would become vested (that is,
                  transferable and nonforfeitable) if the Executive remained an employee
                  through the Term of this Agreement will become vested as of the date of the
                  Executive's termination of employment (or as of the date described in the next
                  sentence, if applicable). In addition, if the Company has agreed to award the
                  Executive restricted stock at the end of a performance period, subject to the
                  Company's achievement of performance goals, and the date as of which the
                  restricted stock is to become vested falls within the Term of this Agreement,
                  the stock will be awarded and become vested at the end of the performance
                  period if and to the extent that the performance goals are met.

                  (ii)     A supplemental retirement benefit payable in cash in a lump sum equal
                  to the difference between (A) the present value of the vested retirement
                  benefits that the Executive had accrued at the time of termination of
                  employment under the Company's qualified defined benefit retirement plan
                   (the "Retirement Plan"), any excess or supplemental retirement plans in
                  which the Executive participates and/or other supplemental retirement benefits
                  to which the Executive is entitled under any contract or agreement (together,
                  the "SERPs"), assuming for this purpose that the Executive would begin
                  receiving benefits at the first early retirement date provided under the
                  applicable plan or, if the Executive is eligible to receive retirement benefits
                  upon termination of employment under the applicable plan, assuming the
                  Executive will begin receiving benefits at the time of termination of
                  employment, and (B) the benefit the Executive would be entitled to receive
                  under the Retirement Plan and the SERPs assuming for all such benefit
                  determinations that the Executive was three years older than the Executive's
                  actual age and had three additional years of service. For purposes of the
                  calculations required under this Section 5(b)(ii), the same actuarial
                  assumptions that are used under the Company's qualified retirement plan shall
                  be used.

                  (iii)     If the split dollar insurance arrangement between the Company and the
                  Executive is in effect at the time of the Executive's employment termination,
                  the Company shall continue to pay all premium amounts with respect to the
                  Executive's policy under the Company's split dollar insurance program for the
                  lesser of ten (10) years from the date of termination of employment or the
                  period of time remaining until the Executive's "Roll Out Qualification Date,"
                   (as defined in the split dollar program) whichever first occurs.

(c)  If the Executive voluntarily terminates employment with the Company during the
Term of this Agreement under circumstances described in this subsection (c), the
Executive will be entitled to receive the benefits described in subsections (a) and (b)
above as if the Company had terminated the Executive's employment other than for
Cause. Subject to the provisions of this subsection (c), these benefits will be provided if
the Executive voluntarily terminates employment after (i) the Company reduces the
Executive's base salary (except a reduction consistent and proportional with an overall
reduction, due to extraordinary business conditions, in the compensation of all other
senior executives of the Company), (ii) the Executive is not in good faith considered for
incentive awards as described in Section 4(a)(ii), (iii) the Company fails to provide
benefits as required by Section 4(b), (iv) the Company relocates the Executive's primary
place of employment to a location, other than either the Washington, D.C. or
Wilmington, Delaware metropolitan areas, further than 50 miles from the Executive's
primary place of employment on the first day of the Term of this Agreement, or (v) the
Company demotes the Executive to a position that is not a senior management position
(other than on account of the Executive's disability, as defined in Section 6 below). In
order for this subsection (c) to be effective: (1) the Executive must give written notice to
the Company indicating that the Executive intends to terminate employment under this
subsection (c), (2) the Executive' s voluntary termination under this subsection must
occur within 60 days after the Executive knows or reasonably should know of an event
described in clause (i), (ii), (iii), (iv), or (v) above, or within 60 days after the last in a
series of such events, and (3) the Company must have failed to remedy the event
described in clause (i), (ii), (iii), (iv), or (v), as the case may be, within 30 days after
receiving the Executive's written notice. If the Company remedies the event described in
clause (i), (ii), (iii), (iv), or (v), as the case may be, within 30 days after receiving the
Executive's written notice, the Executive may not terminate employment under this
subsection (c) on account of the event specified in the Executive's notice. Termination
under the circumstances above shall be deemed an involuntary termination without Cause
for purposes of non-qualified benefit plans.

(d)  Notwithstanding subsection (a), (b), and (c) of this Section 5, if the independent
public accountants for the Company (the "Accountants") determine that if the payments
and/or benefits to be provided under subsections (a), (b), and (c) of this Section 5 (and/or
any other payments and/or benefits provided or to be provided to the Executive under any
applicable plan, program, agreement or arrangement maintained, contributed to or
entered into by the Company or any group or entity whose actions result in a change of
ownership or effective control (as those terms are defined in Code Section 280G and
regulations promulgated thereunder) or any affiliate of the Company) (a "Payment" or
collectively "Payments") were provided to the Executive (x) the Executive would incur
an excise tax under Section 4999 of the Internal Revenue Code of 1986, as amended (the
"Code") (such excise tax, together with any interest and penalties, are hereinafter
collectively referred to as the "Excise Tax"), and (y) the net after tax benefits to the
Executive attributable to the Payments would not be at least $10,000 greater than the net
after tax benefits that would accrue to the Executive if the Payments that would otherwise
cause the Executive to be subject to the Excise Tax were not provided, the Payments shall
be reduced so that the Payments provided to the Executive are the greatest (as determined
by the Accountants) that may be provided without any such Payment being subject to the
Excise Tax. If the Payments are to be reduced under this subsection 5(d), the Executive
shall be given the opportunity to designate which Payments shall be reduced and in what
order of priority.

                  (i)     If the Executive receives reduced Payments pursuant to subsection 5(d),
                  or if it had been determined that no such reduction was required, but it
                  nonetheless is established pursuant to the final determination of a court or an
                  Internal Revenue Service proceeding that, notwithstanding the good faith of
                  the Executive and the Company in applying the terms of subsection 5(d), the
                  aggregate Payments to the Executive would result in any Payment being
                  subject to the Excise Tax, and that a reduction pursuant to subsection 5(d)
                  should have occurred, then the Executive shall be deemed for all purposes to
                  have received a loan made on the date of the receipt of the Payments in an
                  amount such that, after taking into consideration such loan, no portion of the
                  aggregate Payments would be subject to the Excise Tax. The Executive shall
                  have an obligation to repay such loan to the Company on demand, together
                  with interest on such amount at the applicable Federal rate (as defined in
                  Section 1274(d) of the Code) from the date of the Executive's receipt of such
                  loan until the date of such repayment.

                  (ii)     If the Executive's Payments are reduced or are to be reduced pursuant to
                  subsection 5(d), and it is determined that the Payments were or are to be
                  reduced pursuant to subsection 5(d) to a greater extent than was or is
                  necessary to avoid the Excise Tax or it is determined that the Executive's
                  Payments should not be or should not have been reduced pursuant to
                  subsection 5(d), then the Company shall promptly pay to the Executive the
                  amount necessary so that, after such adjustment, the Executive will have
                  received or be entitled to receive the maximum payments payable under this
                  subsection 5(d), together with interest at the applicable Federal rate (as
                  defined in Section 1274(d) of the Code) on amounts that were incorrectly
                  reduced pursuant to subsection 5(d).

                  (iii)     Gross-Up Payment.

                              (A)      Anything in this Agreement to the contrary notwithstanding, if
                                          it shall be determined that any Payments would be subject to
                                          the Excise Tax or any interest or penalties are incurred, and it
                                          is determined that the Payments should not be reduced
                                          pursuant to subsection 5(d), then the Executive shall be entitled
                                          to receive an additional payment (a "Gross-Up Payment") in an
                                          amount such that after payment by the Executive of all taxes
                                          (including any interest or penalties imposed with respect to
                                          such taxes), including, without limitation, any income taxes,
                                          employment taxes (and any interest and penalties imposed with
                                          respect thereto) and Excise Taxes imposed upon the Gross-Up
                                          Payment, the Executive retains an amount of the Gross-Up
                                          Payment equal to the Excise Tax imposed upon the Payments.

                               (B)      All determinations required to be made under this subsection
                                          5(d)(iii), including whether and when a Gross-Up Payment is
                                          required and the amount of such Gross-up Payment and the
                                          assumptions to be utilized in arriving at such determination,
                                          shall be made by the Accountants, who shall provide detailed
                                          supporting calculations both to the Company and the Executive
                                          within 15 business days of the receipt of notice from the
                                          Executive that there has been a Payment, or such earlier time as
                                          is requested by the Company. All fees and expenses of the
                                          Accountants shall be borne solely by the Company. Any
                                          Gross-Up Payment, as determined pursuant to this subsection
                                          5(d)(iii), shall be paid by the Company to the Executive within
                                          five days of the receipt of the Accountants' determination.
                                          Any determination made independently and in good faith by
                                          the Accountants shall be binding upon the Company and the
                                          Executive. As a result of the uncertainty in the application of
                                          Sections 280G and 4999 of the Code, at the time of the initial
                                          determination by the Accountants hereunder, it is possible that
                                          Gross-Up Payments which will not have been made by the
                                          Company should have been made ("Underpayment") consistent
                                          with the calculations required to be made hereunder. In the
                                          event that the Company exhausts its remedies pursuant to
                                          subsection 5(d)(iii)(C) and the Executive thereafter is required
                                          to make a payment of any Excise Tax, the Accountants shall
                                          determine the amount of the Underpayment that has occurred
                                          and any such Underpayment shall be promptly paid by the
                                          Company to or for the benefit of the Executive.

                              (C)       The Executive shall notify the Company in writing of any
                                           claim by the Internal Revenue Service that, if successful,
                                           would require the payment by the Company of the Gross-Up
                                           Payment. Such notification shall be given as soon as
                                           practicable but no later than thirty business days after the
                                           Executive is informed in writing of such claim and shall
                                           apprise the Company of the nature of such claim and the date
                                           on which such claim is requested to be paid. The Executive
                                           shall not pay such claim prior to the expiration of the 30-day
                                           period following the date on which it gives such notice to the
                                           Company (or such shorter period ending on the date that any
                                           payment of taxes with respect to such claim is due). If the
                                           Company notifies the Executive in writing prior to the
                                           expiration of such period that it desires to contest such claim,
                                           the Executive shall:

                                           (1)      give the Company any information reasonably
                                                      requested by the Company relating to such claim,

                                           (2)      take such action in connection with contesting such
                                                      claim as the Company shall reasonably request in
                                                      writing from time to time, including, without limitation,
                                                      accepting legal representation with respect to such
                                                      claim by an attorney reasonably selected by the
                                                      Company,

                                           (3)       cooperate with the Company in good faith in order
                                                      effectively to contest such claim, and

                                            (4)      permit the Company to participate in any proceedings
                                                       relating to such claim;

                                            provided, however, that the Company shall bear and pay
                                            directly all costs and expenses (including additional interest
                                            and penalties) incurred in connection with such contest and
                                            shall indemnify and hold the Executive harmless, on an after-
                                            tax basis, for any Excise Tax or income tax (including interest
                                            and penalties with respect thereto) imposed as a result of such
                                            representation and payment of costs and expenses. Without
                                            limitation on the foregoing provisions of this subsection
                                            5(d)(iii), the Company shall control all proceedings taken in
                                            connection with such contest and, at its sole option, may
                                            pursue or forego any and all administrative appeals,
                                            proceedings, hearings and conferences with the taxing
                                            authority in respect of such claim and may, at its sole option,
                                            either direct the Executive to pay the tax claimed and sue for a
                                            refund or contest the claim in any permissible manner, and the
                                            Executive agrees to prosecute such contest to a determination
                                            before any administrative tribunal, in a court of initial
                                            jurisdiction and in one or more appellate courts, as the
                                            Company shall determine; provided, further, that if the
                                            Company directs the Executive to pay such claim and sue for
                                            a refund, the Company shall advance the amount of such
                                            payment to the Executive, on an interest-free basis and shall
                                            indemnify and hold the Executive harmless, on an after-tax
                                            basis, from any Excise Tax or income tax (including interest
                                            or penalties with respect thereto) imposed with respect to such
                                            advance or with respect to any imputed income with respect
                                            to such advance; and provided, further, that any extension of
                                            the statute of limitations relating to payment of taxes for the
                                            taxable year of the Executive with respect to which such
                                            contested amount is claimed to be due is limited solely to
                                            such contested amount. Furthermore, the Company's control
                                            of the contest shall be limited to issues with respect to which a
                                            Gross-Up Payment would be payable hereunder and the
                                            Executive shall be entitled to settle or contest, as the case may
                                            be any other issue raised by the Internal Revenue Service or
                                            any other taxing authority.

                              (D)        If, after the receipt by the Executive of an amount advanced
                                            by the Company pursuant to subsection 5(d)(iii)(C), the
                                            Executive becomes entitled to receive any refund with respect
                                            to such claim, the Executive shall (subject to the Company's
                                            complying with the requirements of subsection 5(d)(iii))
                                            promptly pay to the Company the amount of such refund
                                            (together with any interest paid or credited thereon after taxes
                                            applicable thereto). If after the receipt by the Executive of an
                                            amount advanced by the Company pursuant to subsection
                                            5(d)(iii), a determination is made that the Executive shall not
                                            be entitled to any refund with respect to such claim and the
                                            Company does not notify the Executive in writing of its intent
                                            to contest such denial of refund prior to the expiration of 30
                                            days after such determination, then such advance shall be
                                            forgiven and shall not be required to be repaid and the amount
                                            of such advance shall offset, to the extent thereof, the amount
                                            of Gross-Up Payment required to be paid.

6.   Disability or Death. Upon the Executive's death or disability, the provisions of
Sections 1, 2, 4, and 5 of this Agreement will terminate. This contract provides no
benefits due to disability or death in addition to any death, disability and other benefit
provided under the Company benefit plans in which the executive participates. The
Executive shall be considered disabled if the Executive is entitled to long-term disability
benefits under the Company's disability plan or policy.

7.   Cause. For purposes of this Agreement, the term "Cause" means (i) intentional fraud
or material misappropriation with respect to the business or assets of the Company, (ii)
persistent refusal or willful failure of the Executive to perform substantially his duties
and responsibilities to the Company, other than an asserted responsibility which would
give rise under Section 5(c) above to a right to terminate and have such termination
considered an involuntary termination without Cause, which continues after the
Executive receives notice of such refusal or failure, (iii) conduct that constitutes
disloyalty to the Company, and that materially damages the property, business or
reputation of the Company, or (iv) conviction of a felony involving moral turpitude.

8.   Termination. This Agreement shall terminate upon the successful completion of the
Term of this Agreement; provided, however, that if the Executive's employment is
terminated during the Term of this Agreement and the Company's and the Executive's
obligations under Sections 5, 9 or 10 hereof have not been satisfied as of the last day of
the Term of this Agreement, such obligations shall survive the expiration of the Term of
this Agreement and shall remain in effect until such time as all such obligations have
been satisfied. No additional payments are required by the termination of this
Agreement.

9.   Fees and Expenses. The Company will pay all reasonable fees and expenses, if any,
(including, without limitation, legal fees and expenses) that are incurred by the Executive
to enforce this Agreement and that result from a breach of this Agreement by the
Company, unless such fees and expenses result from a claim made by the Executive that
is deemed by an arbitrator, mediator, or court, as applicable, to be frivolous or made in
bad faith, in which case each party shall pay its own fees and expenses.

10.  Tax Withholding. The Company may withhold from all amounts payable under this
Agreement an amount necessary to satisfy its income and payroll tax withholding
obligations.

11.  Assignment. The rights and obligations of the Company under this Agreement will
inure to the benefit of and will be binding upon the successors and assigns of the
Company. If the Company is consolidated or merged with or into another corporation, or
if another entity purchases all or substantially all of the Company's assets, the surviving
or acquiring corporation will succeed to the Company's rights and obligations under this
Agreement. The Executive's rights under this Agreement may not be assigned or
transferred in whole or in part, except that the personal representative of the Executive's
estate will receive any amounts payable under this Agreement after the death of the
Executive.

12.  Rights Under this Agreement. The right to receive benefits under the Agreement
will not give the Executive any proprietary interest in the Company or any of its assets.
Benefits under the Agreement will be payable from the general assets of the Company,
and there will be no required funding of amounts that may become payable under the
Agreement. The Executive will for all purposes be a general creditor of the Company.
The interest of the Executive under the Agreement cannot be assigned, anticipated, sold,
encumbered or pledged and will not be subject to the claims of the Executive's creditors.

13.  Notice. For purposes of this Agreement, notices and all other communications to the
Executive must be in writing addressed to the Executive or his personal representative at
his last known address. All notices to the Company must be directed to the attention of
the Chief Executive Officer. Such other addresses may be used as either party may have
furnished to the other in writing. Notices are effective when mailed if sent by United
States registered mail, return receipt requested, postage prepaid. Notices sent otherwise
are effective when received. Notwithstanding the forgoing, notices of change of address
are effective only upon receipt.

14.  Miscellaneous. To the extent not governed by federal law, this Agreement will be
construed in accordance with the law of the State of Maryland without reference to its
conflict of laws rules. No provisions of this Agreement may be modified, waived or
discharged unless such waiver, modification or discharge is agreed to in writing and the
writing is signed by the Executive and the Company. A waiver of any breach of or
compliance with any provision or condition of this Agreement is not a waiver of similar
or dissimilar provisions or conditions. The invalidity or unenforceability of any
provision of this Agreement will not affect the validity or enforceability of any other
provision of this Agreement, which will remain in full force and effect. This Agreement
may be executed in one or more counterparts, all of which will be considered one and the
same agreement. As of the date first above written, the Prior Agreement shall be
superceded in its entirety and shall no longer be of any force or effect.

WITNESS the following signatures.

PEPCO HOLDINGS, INC.                                         EXECUTIVE

        JOHN M. DERRICK, JR.                                    JOHN D. MCCALLUM
By:__________________________                    _________________________
     Chairman of the Board and Chief                                  John D. McCallum
     Executive Officer

EX-10

                                              EMPLOYMENT AGREEMENT

This EMPLOYMENT AGREEMENT (the "Agreement") is made as of August 1, 2002
between PEPCO HOLDINGS, INC. (the "Company") and JOSEPH M. RIGBY (the
"Executive").

                                                              RECITALS:

The Board of Directors of the Company (the "Board of Directors") recognizes that
outstanding management of the Company is essential to advancing the best interests of
the Company, its shareholders and its subsidiaries. The Board of Directors believes that
it is particularly important to have stable, excellent management at the present time. The
Board of Directors believes that this objective may be achieved by giving key
management employees assurances of financial security for a period of time, so that they
will not be distracted by personal risks and will continue to devote their full time and best
efforts to the performance of their duties.

In order to achieve the foregoing objectives, the Human Resources Committee of the
Board of Directors (the "Committee") has recommended, and the Board of Directors has
approved, entering into employment agreements with the Company's key management
executives, which agreements will supercede in their entirety the executives' existing
severance agreements. Accordingly, this Agreement supercedes the severance agreement
previously entered into between the Company and the Executive, dated December 4,
2000, (the "Prior Agreement"). Upon execution of this Agreement, the Prior Agreement
shall be of no further force or effect. The Executive is a key management executive of
the Company and is a valuable member of the Company's management team. The
Company acknowledges that the Executive's contributions to the past and future growth
and success of the Company have been and will continue to be substantial. The
Company and the Executive are entering into this Agreement to induce the Executive to
remain an employee of the Company and to continue to devote his full energy to the
Company's affairs. The Executive has agreed to continue to be employed by the
Company under the terms and conditions hereinafter set forth.

NOW, THEREFORE, in consideration of the foregoing and the mutual undertakings
contained in this Agreement, the parties agree as follows:

1.       Term of this Agreement. The term of this Agreement shall begin on the date first
set forth above and shall end on the third anniversary thereof; provided, however, that, on
such third anniversary, the term of this Agreement shall be automatically renewed for an
additional three (3) years unless either party gives notice to the other at least 6 moths
prior to such anniversary that the term of this Agreement shall not be renewed (the initial
3 year term of this Agreement and, if extended, the extension thereof, shall hereinafter be
referred to as the "Term of this Agreement"). Notwithstanding the forgoing, if the
Executive's employment is terminated during the Term of this Agreement and all of the
Company's and the Executive's obligations hereunder have been satisfied prior to the end
of the Term of this Agreement, this Agreement shall expire upon satisfaction of all such
obligations.

2.       Duties. The Company and the Executive agree that, while employed during the
Term of this Agreement, the Executive will serve in a senior management position with
the Company. The Executive (a) will devote his knowledge, skill and best efforts on a
full-time basis to performing his duties and obligations to the Company (with the
exception of absences on account of illness or vacation in accordance with the Company's
policies and civic and charitable commitments not involving a conflict with the
Company's business), and (b) will comply with the directions and orders of the Board of
Directors and Chief Executive Officer of the Company (or any designee thereof) with
respect to the performance of his duties.

3.       Affiliates. Employment by an Affiliate of the Company or a successor to the
Company will be considered employment by the Company for purposes of this
Agreement, and the Executive's employment with the Company shall be considered
terminated only if the Executive is no longer employed by the Company or any of its
Affiliates or successors. The term "Company" as used in this Agreement will be deemed
to include Affiliates and successors. For purposes of this Agreement, the term "Affiliate"
means the subsidiaries of the Company and other entities under common control with the
Company.

4.       Compensation and Benefits.

(a) During the Term of this Agreement, while the Executive is employed by the
Company, the Company will pay to the Executive the following salary and incentive
awards for services rendered to the Company:

            (i)        The Company will pay to the Executive an annual salary in an amount not
            less than the base salary in effect for the Executive as of the date on which this
            Agreement is executed (in the event the Executive's rate of annual base salary is
            increased, such increased rate shall not be decreased during the Term of this
            Agreement); and

             (ii)      The Executive will be entitled to receive incentive awards if and to the
            extent that the Board of Directors determines in good faith that the Executive's
            performance merits payment of an award according to the terms of the incentive
            compensation plans applicable to senior executives of the Company.

If the Executive is employed by an Affiliate or a successor (as described in Section 3),
the term "Board of Directors" as used in this Section 4(a) and in Section 5(a) means the
Board of Directors of the Executive's employer.

(b) During the Term of this Agreement, while the Executive is employed by the
Company, the Executive will be eligible to participate in a similar manner as other senior
executives of the Company in retirement plans, fringe benefit plans, supplemental benefit
plans and other plans and programs provided by the Company for its executives or
employees from time to time.

5.        Termination of Employment.

(a)       If, during the Term of this Agreement, the Company terminates the Executive's
employment other than for Cause (as defined in Section 7), the Company will pay to the
Executive in cash within 30 days after the Executive's termination of employment

             (i)       a lump sum payment equal to three (3) times the sum of: (A) the highest
            annual base salary rate in effect for the Executive at any time during the three-
            year period preceding employment termination, plus (B) the highest of (1) the
            annual bonus for the year in which the termination of employment occurs, or (2)
            the highest annual bonus received by the Executive during the three calendar
            years preceding the calendar year in which the termination of employment occurs;
             and

             (ii)      any unpaid salary through the date of employment termination, unpaid
            annual bonus for the prior year and a pro-rated portion of the annual bonus for the
            year in which termination of employment occurs.

For purposes of Sections 5(a)(i)(B)(1) and 5(a)(ii), the annual bonus for the year in which
termination of employment occurs will be the "target" annual bonus for such year unless,
before the Executive's termination of employment, the Board of Directors made a good
faith final determination of the amount of the Executive's actual annual bonus for such
year. If the Board of Directors made such a determination, the applicable award will be
computed based on the Board of Directors' determination, rather than on the "target"
amount for such year.

(b) If, during the Term of this Agreement, the Company terminates the Executive's
employment other than for Cause (as defined in Section 7), the Executive will be entitled
to receive the following additional benefits determined as of the date of his termination of
employment:

             (i)       Any outstanding restricted stock that would become vested (that is,
            transferable and nonforfeitable) if the Executive remained an employee through
            the Term of this Agreement will become vested as of the date of the Executive's
            termination of employment (or as of the date described in the next sentence, if
            applicable). In addition, if the Company has agreed to award the Executive
            restricted stock at the end of a performance period, subject to the Company's
            achievement of performance goals, and the date as of which the restricted stock is
            to become vested falls within the Term of this Agreement, the stock will be
            awarded and become vested at the end of the performance period if and to the
            extent that the performance goals are met.

             (ii)      A supplemental retirement benefit payable in cash in a lump sum equal to
            the difference between (A) the present value of the vested retirement benefits that
            the Executive had accrued at the time of termination of employment under the
            Company's qualified defined benefit retirement plan (the "Retirement Plan"), any
            excess or supplemental retirement plans in which the Executive participates
            and/or other supplemental retirement benefits to which the Executive is entitled
            under any contract or agreement (together, the "SERPs"), assuming for this
            purpose that the Executive would begin receiving benefits at the first early
            retirement date provided under the applicable plan or, if the Executive is eligible
            to receive retirement benefits upon termination of employment under the
            applicable plan, assuming the Executive will begin receiving benefits at the time
            of termination of employment, and (B) the benefit the Executive would be entitled
            to receive under the Retirement Plan and the SERPs assuming for all such benefit
            determinations that the Executive was three years older than the Executive's
            actual age and had three additional years of service. For purposes of the
            calculations required under this Section 5(b)(ii), the same actuarial assumptions
            that are used under the Company's qualified retirement plan shall be used.

(c) If the Executive voluntarily terminates employment with the Company during the
Term of this Agreement under circumstances described in this subsection (c), the
Executive will be entitled to receive the benefits described in subsections (a) and (b)
above as if the Company had terminated the Executive's employment other than for
Cause. Subject to the provisions of this subsection (c), these benefits will be provided if
the Executive voluntarily terminates employment after (i) the Company reduces the
Executive's base salary (except a reduction consistent and proportional with an overall
reduction, due to extraordinary business conditions, in the compensation of all other
senior executives of the Company), (ii) the Executive is not in good faith considered for
incentive awards as described in Section 4(a)(ii), (iii) the Company fails to provide
benefits as required by Section 4(b), (iv) the Company relocates the Executive's primary
place of employment to a location, other than either the Washington, D.C. or
Wilmington, Delaware metropolitan areas, further than 50 miles from the Executive's
primary place of employment on the first day of the Term of this Agreement, or (v) the
Company demotes the Executive to a position that is not a senior management position
(other than on account of the Executive's disability, as defined in Section 6 below). In
order for this subsection (c) to be effective: (1) the Executive must give written notice to
the Company indicating that the Executive intends to terminate employment under this
subsection (c), (2) the Executive' s voluntary termination under this subsection must
occur within 60 days after the Executive knows or reasonably should know of an event
described in clause (i), (ii), (iii), (iv), or (v) above, or within 60 days after the last in a
series of such events, and (3) the Company must have failed to remedy the event
described in clause (i), (ii), (iii), (iv), or (v), as the case may be, within 30 days after
receiving the Executive's written notice. If the Company remedies the event described in
clause (i), (ii), (iii), (iv), or (v), as the case may be, within 30 days after receiving the
Executive's written notice, the Executive may not terminate employment under this
subsection (c) on account of the event specified in the Executive's notice. Termination
under the circumstances above shall be deemed an involuntary termination without Cause
for purposes of non-qualified benefit plans.

(d) Notwithstanding subsection (a), (b), and (c) of this Section 5, if the independent
public accountants for the Company (the "Accountants") determine that if the payments
and/or benefits to be provided under subsections (a), (b), and (c) of this Section 5 (and/or
any other payments and/or benefits provided or to be provided to the Executive under any
applicable plan, program, agreement or arrangement maintained, contributed to or
entered into by the Company or any group or entity whose actions result in a change of
ownership or effective control (as those terms are defined in Code Section 280G and
regulations promulgated thereunder) or any affiliate of the Company) (a "Payment" or
collectively "Payments") were provided to the Executive (x) the Executive would incur
an excise tax under Section 4999 of the Internal Revenue Code of 1986, as amended (the
"Code") (such excise tax, together with any interest and penalties, are hereinafter
collectively referred to as the "Excise Tax"), and (y) the net after tax benefits to the
Executive attributable to the Payments would not be at least $10,000 greater than the net
after tax benefits that would accrue to the Executive if the Payments that would otherwise
cause the Executive to be subject to the Excise Tax were not provided, the Payments shall
be reduced so that the Payments provided to the Executive are the greatest (as determined
by the Accountants) that may be provided without any such Payment being subject to the
Excise Tax. If the Payments are to be reduced under this subsection 5(d), the Executive
shall be given the opportunity to designate which Payments shall be reduced and in what
order of priority.

             (i)      If the Executive receives reduced Payments pursuant to subsection 5(d), or
            if it had been determined that no such reduction was required, but it nonetheless is
            established pursuant to the final determination of a court or an Internal Revenue
            Service proceeding that, notwithstanding the good faith of the Executive and the
            Company in applying the terms of subsection 5(d), the aggregate Payments to the
            Executive would result in any Payment being subject to the Excise Tax, and that a
            reduction pursuant to subsection 5(d) should have occurred, then the Executive
            shall be deemed for all purposes to have received a loan made on the date of the
            receipt of the Payments in an amount such that, after taking into consideration
            such loan, no portion of the aggregate Payments would be subject to the Excise
            Tax. The Executive shall have an obligation to repay such loan to the Company
            on demand, together with interest on such amount at the applicable Federal rate
            (as defined in Section 1274(d) of the Code) from the date of the Executive's
            receipt of such loan until the date of such repayment.

             (ii)     If the Executive's Payments are reduced or are to be reduced pursuant to
            subsection 5(d), and it is determined that the Payments were or are to be reduced
            pursuant to subsection 5(d) to a greater extent than was or is necessary to avoid
            the Excise Tax or it is determined that the Executive's Payments should not be or
            should not have been reduced pursuant to subsection 5(d), then the Company shall
            promptly pay to the Executive the amount necessary so that, after such
            adjustment, the Executive will have received or be entitled to receive the
            maximum payments payable under this subsection 5(d), together with interest at
            the applicable Federal rate (as defined in Section 1274(d) of the Code) on
            amounts that were incorrectly reduced pursuant to subsection 5(d).

             (iii)    Gross-Up Payment.

                       (A)     Anything in this Agreement to the contrary notwithstanding, if it
                                  shall be determined that any Payments would be subject to the
                                  Excise Tax or any interest or penalties are incurred, and it is
                                  determined that the Payments should not be reduced pursuant to
                                  subsection 5(d), then the Executive shall be entitled to receive an
                                  additional payment (a "Gross-Up Payment") in an amount such that
                                  after payment by the Executive of all taxes (including any interest or
                                  penalties imposed with respect to such taxes), including, without
                                  limitation, any income taxes, employment taxes (and any interest
                                  and penalties imposed with respect thereto) and Excise Taxes
                                  imposed upon the Gross-Up Payment, the Executive retains an
                                  amount of the Gross-Up Payment equal to the Excise Tax imposed
                                  upon the Payments.

                       (B)      All determinations required to be made under this subsection
                                  5(d)(iii), including whether and when a Gross-Up Payment is
                                  required and the amount of such Gross-up Payment and the
                                  assumptions to be utilized in arriving at such determination, shall be
                                  made by the Accountants, who shall provide detailed supporting
                                  calculations both to the Company and the Executive within 15
                                  business days of the receipt of notice from the Executive that there
                                  has been a Payment, or such earlier time as is requested by the
                                  Company. All fees and expenses of the Accountants shall be borne
                                  solely by the Company. Any Gross-Up Payment, as determined
                                  pursuant to this subsection 5(d)(iii), shall be paid by the Company to
                                  the Executive within five days of the receipt of the Accountants'
                                  determination. Any determination made independently and in good
                                  faith by the Accountants shall be binding upon the Company and the
                                  Executive. As a result of the uncertainty in the application of
                                  Sections 280G and 4999 of the Code, at the time of the initial
                                  determination by the Accountants hereunder, it is possible that
                                  Gross-Up Payments which will not have been made by the
                                  Company should have been made ("Underpayment") consistent with
                                  the calculations required to be made hereunder. In the event that the
                                  Company exhausts its remedies pursuant to subsection 5(d)(iii)(C)
                                  and the Executive thereafter is required to make a payment of any
                                  Excise Tax, the Accountants shall determine the amount of the
                                  Underpayment that has occurred and any such Underpayment shall
                                  be promptly paid by the Company to or for the benefit of the
                                  Executive.

                       (C)      The Executive shall notify the Company in writing of any claim by
                                  the Internal Revenue Service that, if successful, would require the
                                  payment by the Company of the Gross-Up Payment. Such
                                  notification shall be given as soon as practicable but no later than
                                  thirty business days after the Executive is informed in writing of
                                  such claim and shall apprise the Company of the nature of such
                                  claim and the date on which such claim is requested to be paid. The
                                  Executive shall not pay such claim prior to the expiration of the 30-
                                  day period following the date on which it gives such notice to the
                                  Company (or such shorter period ending on the date that any
                                  payment of taxes with respect to such claim is due). If the Company
                                  notifies the Executive in writing prior to the expiration of such
                                  period that it desires to contest such claim, the Executive shall:

                                  (1)     give the Company any information reasonably requested by
                                            the Company relating to such claim,

                                  (2)      take such action in connection with contesting such claim as
                                             the Company shall reasonably request in writing from time to
                                             time, including, without limitation, accepting legal
                                             representation with respect to such claim by an attorney
                                             reasonably selected by the Company,

                                  (3)      cooperate with the Company in good faith in order effectively
                                             to contest such claim, and

                                  (4)      permit the Company to participate in any proceedings relating
                                             to such claim;

                                  provided, however, that the Company shall bear and pay directly all
                                  costs and expenses (including additional interest and penalties)
                                  incurred in connection with such contest and shall indemnify and
                                  hold the Executive harmless, on an after-tax basis, for any Excise
                                  Tax or income tax (including interest and penalties with respect
                                  thereto) imposed as a result of such representation and payment of
                                  costs and expenses. Without limitation on the foregoing provisions
                                  of this subsection 5(d)(iii), the Company shall control all
                                  proceedings taken in connection with such contest and, at its sole
                                  option, may pursue or forego any and all administrative appeals,
                                  proceedings, hearings and conferences with the taxing authority in
                                  respect of such claim and may, at its sole option, either direct the
                                  Executive to pay the tax claimed and sue for a refund or contest the
                                  claim in any permissible manner, and the Executive agrees to
                                  prosecute such contest to a determination before any administrative
                                  tribunal, in a court of initial jurisdiction and in one or more
                                  appellate courts, as the Company shall determine; provided, further,
                                  that if the Company directs the Executive to pay such claim and sue
                                  for a refund, the Company shall advance the amount of such
                                  payment to the Executive, on an interest-free basis and shall
                                  indemnify and hold the Executive harmless, on an after-tax basis,
                                  from any Excise Tax or income tax (including interest or penalties
                                  with respect thereto) imposed with respect to such advance or with
                                  respect to any imputed income with respect to such advance; and
                                  provided, further, that any extension of the statute of limitations
                                  relating to payment of taxes for the taxable year of the Executive
                                  with respect to which such contested amount is claimed to be due is
                                  limited solely to such contested amount. Furthermore, the
                                  Company's control of the contest shall be limited to issues with
                                  respect to which a Gross-Up Payment would be payable hereunder
                                  and the Executive shall be entitled to settle or contest, as the case
                                  may be any other issue raised by the Internal Revenue Service or
                                  any other taxing authority.

                        (D)    If, after the receipt by the Executive of an amount advanced by the
                                  Company pursuant to subsection 5(d)(iii)(C), the Executive
                                  becomes entitled to receive any refund with respect to such claim,
                                  the Executive shall (subject to the Company's complying with the
                                  requirements of subsection 5(d)(iii)) promptly pay to the Company
                                  the amount of such refund (together with any interest paid or
                                  credited thereon after taxes applicable thereto). If after the receipt
                                  by the Executive of an amount advanced by the Company pursuant
                                  to subsection 5(d)(iii), a determination is made that the Executive
                                  shall not be entitled to any refund with respect to such claim and the
                                  Company does not notify the Executive in writing of its intent to
                                  contest such denial of refund prior to the expiration of 30 days after
                                  such determination, then such advance shall be forgiven and shall
                                  not be required to be repaid and the amount of such advance shall
                                  offset, to the extent thereof, the amount of Gross-Up Payment
                                  required to be paid.

6.        Disability or Death. Upon the Executive's death or disability, the provisions of
Sections 1, 2, 4, and 5 of this Agreement will terminate. This contract provides no
benefits due to disability or death in addition to any death, disability and other benefit
provided under the Company benefit plans in which the executive participates. The
Executive shall be considered disabled if the Executive is entitled to long-term disability
benefits under the Company's disability plan or policy.

7.        Cause. For purposes of this Agreement, the term "Cause" means (i) intentional
fraud or material misappropriation with respect to the business or assets of the Company,
(ii) persistent refusal or willful failure of the Executive to perform substantially his duties
and responsibilities to the Company, other than an asserted responsibility which would
give rise under Section 5(c) above to a right to terminate and have such termination
considered an involuntary termination without Cause, which continues after the
Executive receives notice of such refusal or failure, (iii) conduct that constitutes
disloyalty to the Company, and that materially damages the property, business or
reputation of the Company, or (iv) conviction of a felony involving moral turpitude.

8.        Termination. This Agreement shall terminate upon the successful completion of
the Term of this Agreement; provided, however, that if the Executive's employment is
terminated during the Term of this Agreement and the Company's and the Executive's
obligations under Sections 5, 9 or 10 hereof have not been satisfied as of the last day of
the Term of this Agreement, such obligations shall survive the expiration of the Term of
this Agreement and shall remain in effect until such time as all such obligations have
been satisfied. No additional payments are required by the termination of this
Agreement.

9.        Fees and Expenses. The Company will pay all reasonable fees and expenses, if
any, (including, without limitation, legal fees and expenses) that are incurred by the
Executive to enforce this Agreement and that result from a breach of this Agreement by
the Company, unless such fees and expenses result from a claim made by the Executive
that is deemed by an arbitrator, mediator, or court, as applicable, to be frivolous or made
in bad faith, in which case each party shall pay its own fees and expenses.

10       Tax Withholding. The Company may withhold from all amounts payable under
this Agreement an amount necessary to satisfy its income and payroll tax withholding
obligations.

11.       Assignment. The rights and obligations of the Company under this Agreement
will inure to the benefit of and will be binding upon the successors and assigns of the
Company. If the Company is consolidated or merged with or into another corporation, or
if another entity purchases all or substantially all of the Company's assets, the surviving
or acquiring corporation will succeed to the Company's rights and obligations under this
Agreement. The Executive's rights under this Agreement may not be assigned or
transferred in whole or in part, except that the personal representative of the Executive's
estate will receive any amounts payable under this Agreement after the death of the
Executive.

12.       Rights Under this Agreement. The right to receive benefits under the Agreement
will not give the Executive any proprietary interest in the Company or any of its assets.
Benefits under the Agreement will be payable from the general assets of the Company,
and there will be no required funding of amounts that may become payable under the
Agreement. The Executive will for all purposes be a general creditor of the Company.
The interest of the Executive under the Agreement cannot be assigned, anticipated, sold,
encumbered or pledged and will not be subject to the claims of the Executive's creditors.

13.       Notice. For purposes of this Agreement, notices and all other communications to
the Executive must be in writing addressed to the Executive or his personal representative
at his last known address. All notices to the Company must be directed to the attention of
the Chief Executive Officer. Such other addresses may be used as either party may have
furnished to the other in writing. Notices are effective when mailed if sent by United
States registered mail, return receipt requested, postage prepaid. Notices sent otherwise
are effective when received. Notwithstanding the forgoing, notices of change of address
are effective only upon receipt.

14.       Miscellaneous. To the extent not governed by federal law, this Agreement will be
construed in accordance with the law of the State of Maryland without reference to its
conflict of laws rules. No provisions of this Agreement may be modified, waived or
discharged unless such waiver, modification or discharge is agreed to in writing and the
writing is signed by the Executive and the Company. A waiver of any breach of or
compliance with any provision or condition of this Agreement is not a waiver of similar
or dissimilar provisions or conditions. The invalidity or unenforceability of any
provision of this Agreement will not affect the validity or enforceability of any other
provision of this Agreement, which will remain in full force and effect. This Agreement
may be executed in one or more counterparts, all of which will be considered one and the
same agreement. As of the date first above written, the Prior Agreement shall be
superceded in its entirety and shall no longer be of any force or effect.

WITNESS the following signatures.

PEPCO HOLDINGS, INC.                                                    EXECUTIVE


By:  JOHN M. DERRICK, JR.                                                   J. M. RIGBY       
Chairman of the Board and Chief
Executive Officer

EX-10

                                              EMPLOYMENT AGREEMENT

This EMPLOYMENT AGREEMENT (the "Agreement") is made as of August 1, 2002
between PEPCO HOLDINGS, INC. (the "Company") and WILLIAM H. SPENCE (the
"Executive").

                                                              RECITALS:

The Board of Directors of the Company (the "Board of Directors") recognizes that
outstanding management of the Company is essential to advancing the best interests of
the Company, its shareholders and its subsidiaries. The Board of Directors believes that
it is particularly important to have stable, excellent management at the present time. The
Board of Directors believes that this objective may be achieved by giving key
management employees assurances of financial security for a period of time, so that they
will not be distracted by personal risks and will continue to devote their full time and best
efforts to the performance of their duties.

In order to achieve the foregoing objectives, the Human Resources Committee of the
Board of Directors (the "Committee") has recommended, and the Board of Directors has
approved, entering into employment agreements with the Company's key management
executives, which agreements will supercede in their entirety the executives' existing
severance agreements. Accordingly, this Agreement supercedes the severance agreement
previously entered into between the Company and the Executive, dated December 4,
2000, (the "Prior Agreement"). Upon execution of this Agreement, the Prior Agreement
shall be of no further force or effect. The Executive is a key management executive of
the Company and is a valuable member of the Company's management team. The
Company acknowledges that the Executive's contributions to the past and future growth
and success of the Company have been and will continue to be substantial. The
Company and the Executive are entering into this Agreement to induce the Executive to
remain an employee of the Company and to continue to devote his full energy to the
Company's affairs. The Executive has agreed to continue to be employed by the
Company under the terms and conditions hereinafter set forth.

NOW, THEREFORE, in consideration of the foregoing and the mutual undertakings
contained in this Agreement, the parties agree as follows:

1.       Term of this Agreement. The term of this Agreement shall begin on the date first
set forth above and shall end on the third anniversary thereof; provided, however, that, on
such third anniversary, the term of this Agreement shall be automatically renewed for an
additional three (3) years unless either party gives notice to the other at least 6 moths
prior to such anniversary that the term of this Agreement shall not be renewed (the initial
3 year term of this Agreement and, if extended, the extension thereof, shall hereinafter be
referred to as the "Term of this Agreement"). Notwithstanding the forgoing, if the
Executive's employment is terminated during the Term of this Agreement and all of the
Company's and the Executive's obligations hereunder have been satisfied prior to the end
of the Term of this Agreement, this Agreement shall expire upon satisfaction of all such
obligations.

2.       Duties. The Company and the Executive agree that, while employed during the
Term of this Agreement, the Executive will serve in a senior management position with
the Company. The Executive (a) will devote his knowledge, skill and best efforts on a
full-time basis to performing his duties and obligations to the Company (with the
exception of absences on account of illness or vacation in accordance with the Company's
policies and civic and charitable commitments not involving a conflict with the
Company's business), and (b) will comply with the directions and orders of the Board of
Directors and Chief Executive Officer of the Company (or any designee thereof) with
respect to the performance of his duties.

3.       Affiliates. Employment by an Affiliate of the Company or a successor to the
Company will be considered employment by the Company for purposes of this
Agreement, and the Executive's employment with the Company shall be considered
terminated only if the Executive is no longer employed by the Company or any of its
Affiliates or successors. The term "Company" as used in this Agreement will be deemed
to include Affiliates and successors. For purposes of this Agreement, the term "Affiliate"
means the subsidiaries of the Company and other entities under common control with the
Company.

4.       Compensation and Benefits.

(a) During the Term of this Agreement, while the Executive is employed by the
Company, the Company will pay to the Executive the following salary and incentive
awards for services rendered to the Company:

            (i)        The Company will pay to the Executive an annual salary in an amount not
            less than the base salary in effect for the Executive as of the date on which this
            Agreement is executed (in the event the Executive's rate of annual base salary is
            increased, such increased rate shall not be decreased during the Term of this
            Agreement); and

             (ii)      The Executive will be entitled to receive incentive awards if and to the
            extent that the Board of Directors determines in good faith that the Executive's
            performance merits payment of an award according to the terms of the incentive
            compensation plans applicable to senior executives of the Company.

If the Executive is employed by an Affiliate or a successor (as described in Section 3),
the term "Board of Directors" as used in this Section 4(a) and in Section 5(a) means the
Board of Directors of the Executive's employer.

(b) During the Term of this Agreement, while the Executive is employed by the
Company, the Executive will be eligible to participate in a similar manner as other senior
executives of the Company in retirement plans, fringe benefit plans, supplemental benefit
plans and other plans and programs provided by the Company for its executives or
employees from time to time.

5.        Termination of Employment.

(a)       If, during the Term of this Agreement, the Company terminates the Executive's
employment other than for Cause (as defined in Section 7), the Company will pay to the
Executive in cash within 30 days after the Executive's termination of employment

             (i)       a lump sum payment equal to three (3) times the sum of: (A) the highest
            annual base salary rate in effect for the Executive at any time during the three-
            year period preceding employment termination, plus (B) the highest of (1) the
            annual bonus for the year in which the termination of employment occurs, or (2)
            the highest annual bonus received by the Executive during the three calendar
            years preceding the calendar year in which the termination of employment occurs;
             and

             (ii)      any unpaid salary through the date of employment termination, unpaid
            annual bonus for the prior year and a pro-rated portion of the annual bonus for the
            year in which termination of employment occurs.

For purposes of Sections 5(a)(i)(B)(1) and 5(a)(ii), the annual bonus for the year in which
termination of employment occurs will be the "target" annual bonus for such year unless,
before the Executive's termination of employment, the Board of Directors made a good
faith final determination of the amount of the Executive's actual annual bonus for such
year. If the Board of Directors made such a determination, the applicable award will be
computed based on the Board of Directors' determination, rather than on the "target"
amount for such year.

(b) If, during the Term of this Agreement, the Company terminates the Executive's
employment other than for Cause (as defined in Section 7), the Executive will be entitled
to receive the following additional benefits determined as of the date of his termination of
employment:

             (i)       Any outstanding restricted stock that would become vested (that is,
            transferable and nonforfeitable) if the Executive remained an employee through
            the Term of this Agreement will become vested as of the date of the Executive's
            termination of employment (or as of the date described in the next sentence, if
            applicable). In addition, if the Company has agreed to award the Executive
            restricted stock at the end of a performance period, subject to the Company's
            achievement of performance goals, and the date as of which the restricted stock is
            to become vested falls within the Term of this Agreement, the stock will be
            awarded and become vested at the end of the performance period if and to the
            extent that the performance goals are met.

             (ii)      A supplemental retirement benefit payable in cash in a lump sum equal to
            the difference between (A) the present value of the vested retirement benefits that
            the Executive had accrued at the time of termination of employment under the
            Company's qualified defined benefit retirement plan (the "Retirement Plan"), any
            excess or supplemental retirement plans in which the Executive participates
            and/or other supplemental retirement benefits to which the Executive is entitled
            under any contract or agreement (together, the "SERPs"), assuming for this
            purpose that the Executive would begin receiving benefits at the first early
            retirement date provided under the applicable plan or, if the Executive is eligible
            to receive retirement benefits upon termination of employment under the
            applicable plan, assuming the Executive will begin receiving benefits at the time
            of termination of employment, and (B) the benefit the Executive would be entitled
            to receive under the Retirement Plan and the SERPs assuming for all such benefit
            determinations that the Executive was three years older than the Executive's
            actual age and had three additional years of service. For purposes of the
            calculations required under this Section 5(b)(ii), the same actuarial assumptions
            that are used under the Company's qualified retirement plan shall be used.

(c) If the Executive voluntarily terminates employment with the Company during the
Term of this Agreement under circumstances described in this subsection (c), the
Executive will be entitled to receive the benefits described in subsections (a) and (b)
above as if the Company had terminated the Executive's employment other than for
Cause. Subject to the provisions of this subsection (c), these benefits will be provided if
the Executive voluntarily terminates employment after (i) the Company reduces the
Executive's base salary (except a reduction consistent and proportional with an overall
reduction, due to extraordinary business conditions, in the compensation of all other
senior executives of the Company), (ii) the Executive is not in good faith considered for
incentive awards as described in Section 4(a)(ii), (iii) the Company fails to provide
benefits as required by Section 4(b), (iv) the Company relocates the Executive's primary
place of employment to a location, other than either the Washington, D.C. or
Wilmington, Delaware metropolitan areas, further than 50 miles from the Executive's
primary place of employment on the first day of the Term of this Agreement, or (v) the
Company demotes the Executive to a position that is not a senior management position
(other than on account of the Executive's disability, as defined in Section 6 below). In
order for this subsection (c) to be effective: (1) the Executive must give written notice to
the Company indicating that the Executive intends to terminate employment under this
subsection (c), (2) the Executive' s voluntary termination under this subsection must
occur within 60 days after the Executive knows or reasonably should know of an event
described in clause (i), (ii), (iii), (iv), or (v) above, or within 60 days after the last in a
series of such events, and (3) the Company must have failed to remedy the event
described in clause (i), (ii), (iii), (iv), or (v), as the case may be, within 30 days after
receiving the Executive's written notice. If the Company remedies the event described in
clause (i), (ii), (iii), (iv), or (v), as the case may be, within 30 days after receiving the
Executive's written notice, the Executive may not terminate employment under this
subsection (c) on account of the event specified in the Executive's notice. Termination
under the circumstances above shall be deemed an involuntary termination without Cause
for purposes of non-qualified benefit plans.

(d) Notwithstanding subsection (a), (b), and (c) of this Section 5, if the independent
public accountants for the Company (the "Accountants") determine that if the payments
and/or benefits to be provided under subsections (a), (b), and (c) of this Section 5 (and/or
any other payments and/or benefits provided or to be provided to the Executive under any
applicable plan, program, agreement or arrangement maintained, contributed to or
entered into by the Company or any group or entity whose actions result in a change of
ownership or effective control (as those terms are defined in Code Section 280G and
regulations promulgated thereunder) or any affiliate of the Company) (a "Payment" or
collectively "Payments") were provided to the Executive (x) the Executive would incur
an excise tax under Section 4999 of the Internal Revenue Code of 1986, as amended (the
"Code") (such excise tax, together with any interest and penalties, are hereinafter
collectively referred to as the "Excise Tax"), and (y) the net after tax benefits to the
Executive attributable to the Payments would not be at least $10,000 greater than the net
after tax benefits that would accrue to the Executive if the Payments that would otherwise
cause the Executive to be subject to the Excise Tax were not provided, the Payments shall
be reduced so that the Payments provided to the Executive are the greatest (as determined
by the Accountants) that may be provided without any such Payment being subject to the
Excise Tax. If the Payments are to be reduced under this subsection 5(d), the Executive
shall be given the opportunity to designate which Payments shall be reduced and in what
order of priority.

             (i)      If the Executive receives reduced Payments pursuant to subsection 5(d), or
            if it had been determined that no such reduction was required, but it nonetheless is
            established pursuant to the final determination of a court or an Internal Revenue
            Service proceeding that, notwithstanding the good faith of the Executive and the
            Company in applying the terms of subsection 5(d), the aggregate Payments to the
            Executive would result in any Payment being subject to the Excise Tax, and that a
            reduction pursuant to subsection 5(d) should have occurred, then the Executive
            shall be deemed for all purposes to have received a loan made on the date of the
            receipt of the Payments in an amount such that, after taking into consideration
            such loan, no portion of the aggregate Payments would be subject to the Excise
            Tax. The Executive shall have an obligation to repay such loan to the Company
            on demand, together with interest on such amount at the applicable Federal rate
            (as defined in Section 1274(d) of the Code) from the date of the Executive's
            receipt of such loan until the date of such repayment.

             (ii)     If the Executive's Payments are reduced or are to be reduced pursuant to
            subsection 5(d), and it is determined that the Payments were or are to be reduced
            pursuant to subsection 5(d) to a greater extent than was or is necessary to avoid
            the Excise Tax or it is determined that the Executive's Payments should not be or
            should not have been reduced pursuant to subsection 5(d), then the Company shall
            promptly pay to the Executive the amount necessary so that, after such
            adjustment, the Executive will have received or be entitled to receive the
            maximum payments payable under this subsection 5(d), together with interest at
            the applicable Federal rate (as defined in Section 1274(d) of the Code) on
            amounts that were incorrectly reduced pursuant to subsection 5(d).

             (iii)    Gross-Up Payment.

                       (A)     Anything in this Agreement to the contrary notwithstanding, if it
                                  shall be determined that any Payments would be subject to the
                                  Excise Tax or any interest or penalties are incurred, and it is
                                  determined that the Payments should not be reduced pursuant to
                                  subsection 5(d), then the Executive shall be entitled to receive an
                                  additional payment (a "Gross-Up Payment") in an amount such that
                                  after payment by the Executive of all taxes (including any interest or
                                  penalties imposed with respect to such taxes), including, without
                                  limitation, any income taxes, employment taxes (and any interest
                                  and penalties imposed with respect thereto) and Excise Taxes
                                  imposed upon the Gross-Up Payment, the Executive retains an
                                  amount of the Gross-Up Payment equal to the Excise Tax imposed
                                  upon the Payments.

                       (B)      All determinations required to be made under this subsection
                                  5(d)(iii), including whether and when a Gross-Up Payment is
                                  required and the amount of such Gross-up Payment and the
                                  assumptions to be utilized in arriving at such determination, shall be
                                  made by the Accountants, who shall provide detailed supporting
                                  calculations both to the Company and the Executive within 15
                                  business days of the receipt of notice from the Executive that there
                                  has been a Payment, or such earlier time as is requested by the
                                  Company. All fees and expenses of the Accountants shall be borne
                                  solely by the Company. Any Gross-Up Payment, as determined
                                  pursuant to this subsection 5(d)(iii), shall be paid by the Company to
                                  the Executive within five days of the receipt of the Accountants'
                                  determination. Any determination made independently and in good
                                  faith by the Accountants shall be binding upon the Company and the
                                  Executive. As a result of the uncertainty in the application of
                                  Sections 280G and 4999 of the Code, at the time of the initial
                                  determination by the Accountants hereunder, it is possible that
                                  Gross-Up Payments which will not have been made by the
                                  Company should have been made ("Underpayment") consistent with
                                  the calculations required to be made hereunder. In the event that the
                                  Company exhausts its remedies pursuant to subsection 5(d)(iii)(C)
                                  and the Executive thereafter is required to make a payment of any
                                  Excise Tax, the Accountants shall determine the amount of the
                                  Underpayment that has occurred and any such Underpayment shall
                                  be promptly paid by the Company to or for the benefit of the
                                  Executive.

                       (C)      The Executive shall notify the Company in writing of any claim by
                                  the Internal Revenue Service that, if successful, would require the
                                  payment by the Company of the Gross-Up Payment. Such
                                  notification shall be given as soon as practicable but no later than
                                  thirty business days after the Executive is informed in writing of
                                  such claim and shall apprise the Company of the nature of such
                                  claim and the date on which such claim is requested to be paid. The
                                  Executive shall not pay such claim prior to the expiration of the 30-
                                  day period following the date on which it gives such notice to the
                                  Company (or such shorter period ending on the date that any
                                  payment of taxes with respect to such claim is due). If the Company
                                  notifies the Executive in writing prior to the expiration of such
                                  period that it desires to contest such claim, the Executive shall:

                                  (1)     give the Company any information reasonably requested by
                                            the Company relating to such claim,

                                  (2)      take such action in connection with contesting such claim as
                                             the Company shall reasonably request in writing from time to
                                             time, including, without limitation, accepting legal
                                             representation with respect to such claim by an attorney
                                             reasonably selected by the Company,

                                  (3)      cooperate with the Company in good faith in order effectively
                                             to contest such claim, and

                                  (4)      permit the Company to participate in any proceedings relating
                                             to such claim;

                                  provided, however, that the Company shall bear and pay directly all
                                  costs and expenses (including additional interest and penalties)
                                  incurred in connection with such contest and shall indemnify and
                                  hold the Executive harmless, on an after-tax basis, for any Excise
                                  Tax or income tax (including interest and penalties with respect
                                  thereto) imposed as a result of such representation and payment of
                                  costs and expenses. Without limitation on the foregoing provisions
                                  of this subsection 5(d)(iii), the Company shall control all
                                  proceedings taken in connection with such contest and, at its sole
                                  option, may pursue or forego any and all administrative appeals,
                                  proceedings, hearings and conferences with the taxing authority in
                                  respect of such claim and may, at its sole option, either direct the
                                  Executive to pay the tax claimed and sue for a refund or contest the
                                  claim in any permissible manner, and the Executive agrees to
                                  prosecute such contest to a determination before any administrative
                                  tribunal, in a court of initial jurisdiction and in one or more
                                  appellate courts, as the Company shall determine; provided, further,
                                  that if the Company directs the Executive to pay such claim and sue
                                  for a refund, the Company shall advance the amount of such
                                  payment to the Executive, on an interest-free basis and shall
                                  indemnify and hold the Executive harmless, on an after-tax basis,
                                  from any Excise Tax or income tax (including interest or penalties
                                  with respect thereto) imposed with respect to such advance or with
                                  respect to any imputed income with respect to such advance; and
                                  provided, further, that any extension of the statute of limitations
                                  relating to payment of taxes for the taxable year of the Executive
                                  with respect to which such contested amount is claimed to be due is
                                  limited solely to such contested amount. Furthermore, the
                                  Company's control of the contest shall be limited to issues with
                                  respect to which a Gross-Up Payment would be payable hereunder
                                  and the Executive shall be entitled to settle or contest, as the case
                                  may be any other issue raised by the Internal Revenue Service or
                                  any other taxing authority.

                        (D)    If, after the receipt by the Executive of an amount advanced by the
                                  Company pursuant to subsection 5(d)(iii)(C), the Executive
                                  becomes entitled to receive any refund with respect to such claim,
                                  the Executive shall (subject to the Company's complying with the
                                  requirements of subsection 5(d)(iii)) promptly pay to the Company
                                  the amount of such refund (together with any interest paid or
                                  credited thereon after taxes applicable thereto). If after the receipt
                                  by the Executive of an amount advanced by the Company pursuant
                                  to subsection 5(d)(iii), a determination is made that the Executive
                                  shall not be entitled to any refund with respect to such claim and the
                                  Company does not notify the Executive in writing of its intent to
                                  contest such denial of refund prior to the expiration of 30 days after
                                  such determination, then such advance shall be forgiven and shall
                                  not be required to be repaid and the amount of such advance shall
                                  offset, to the extent thereof, the amount of Gross-Up Payment
                                  required to be paid.

6.        Disability or Death. Upon the Executive's death or disability, the provisions of
Sections 1, 2, 4, and 5 of this Agreement will terminate. This contract provides no
benefits due to disability or death in addition to any death, disability and other benefit
provided under the Company benefit plans in which the executive participates. The
Executive shall be considered disabled if the Executive is entitled to long-term disability
benefits under the Company's disability plan or policy.

7.        Cause. For purposes of this Agreement, the term "Cause" means (i) intentional
fraud or material misappropriation with respect to the business or assets of the Company,
(ii) persistent refusal or willful failure of the Executive to perform substantially his duties
and responsibilities to the Company, other than an asserted responsibility which would
give rise under Section 5(c) above to a right to terminate and have such termination
considered an involuntary termination without Cause, which continues after the
Executive receives notice of such refusal or failure, (iii) conduct that constitutes
disloyalty to the Company, and that materially damages the property, business or
reputation of the Company, or (iv) conviction of a felony involving moral turpitude.

8.        Termination. This Agreement shall terminate upon the successful completion of
the Term of this Agreement; provided, however, that if the Executive's employment is
terminated during the Term of this Agreement and the Company's and the Executive's
obligations under Sections 5, 9 or 10 hereof have not been satisfied as of the last day of
the Term of this Agreement, such obligations shall survive the expiration of the Term of
this Agreement and shall remain in effect until such time as all such obligations have
been satisfied. No additional payments are required by the termination of this
Agreement.

9.        Fees and Expenses. The Company will pay all reasonable fees and expenses, if
any, (including, without limitation, legal fees and expenses) that are incurred by the
Executive to enforce this Agreement and that result from a breach of this Agreement by
the Company, unless such fees and expenses result from a claim made by the Executive
that is deemed by an arbitrator, mediator, or court, as applicable, to be frivolous or made
in bad faith, in which case each party shall pay its own fees and expenses.

10       Tax Withholding. The Company may withhold from all amounts payable under
this Agreement an amount necessary to satisfy its income and payroll tax withholding
obligations.

11.       Assignment. The rights and obligations of the Company under this Agreement
will inure to the benefit of and will be binding upon the successors and assigns of the
Company. If the Company is consolidated or merged with or into another corporation, or
if another entity purchases all or substantially all of the Company's assets, the surviving
or acquiring corporation will succeed to the Company's rights and obligations under this
Agreement. The Executive's rights under this Agreement may not be assigned or
transferred in whole or in part, except that the personal representative of the Executive's
estate will receive any amounts payable under this Agreement after the death of the
Executive.

12.       Rights Under this Agreement. The right to receive benefits under the Agreement
will not give the Executive any proprietary interest in the Company or any of its assets.
Benefits under the Agreement will be payable from the general assets of the Company,
and there will be no required funding of amounts that may become payable under the
Agreement. The Executive will for all purposes be a general creditor of the Company.
The interest of the Executive under the Agreement cannot be assigned, anticipated, sold,
encumbered or pledged and will not be subject to the claims of the Executive's creditors.

13.       Notice. For purposes of this Agreement, notices and all other communications to
the Executive must be in writing addressed to the Executive or his personal representative
at his last known address. All notices to the Company must be directed to the attention of
the Chief Executive Officer. Such other addresses may be used as either party may have
furnished to the other in writing. Notices are effective when mailed if sent by United
States registered mail, return receipt requested, postage prepaid. Notices sent otherwise
are effective when received. Notwithstanding the forgoing, notices of change of address
are effective only upon receipt.

14.       Miscellaneous. To the extent not governed by federal law, this Agreement will be
construed in accordance with the law of the State of Maryland without reference to its
conflict of laws rules. No provisions of this Agreement may be modified, waived or
discharged unless such waiver, modification or discharge is agreed to in writing and the
writing is signed by the Executive and the Company. A waiver of any breach of or
compliance with any provision or condition of this Agreement is not a waiver of similar
or dissimilar provisions or conditions. The invalidity or unenforceability of any
provision of this Agreement will not affect the validity or enforceability of any other
provision of this Agreement, which will remain in full force and effect. This Agreement
may be executed in one or more counterparts, all of which will be considered one and the
same agreement. As of the date first above written, the Prior Agreement shall be
superceded in its entirety and shall no longer be of any force or effect.

WITNESS the following signatures.

PEPCO HOLDINGS, INC.                                                    EXECUTIVE


By:  JOHN M. DERRICK, JR.                                               WILLIAM H. SPENCE    
Chairman of the Board and Chief
Executive Officer

EX-10

EMPLOYMENT AGREEMENT

EX-99

Certificate of Chief Executive Officer and Chief Financial Officer of Pepco Holdings, Inc. (pursuant to 18 U.S.C. Section 1350)
I, John M. Derrick, Jr., Chairman and Chief Executive Officer, and I, Andrew W. Williams, Senior Vice President and Chief Financial Officer, of Pepco Holdings, Inc. , certify that, to the best of my knowledge, the Quarterly Report on Form 10-Q of Pepco Holdings, Inc. for the quarter ended June 30, 2002, filed with the Securities and Exchange Commission on the date hereof (i) 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 Pepco Holdings, Inc..
	JOHN M. DERRICK, JR.                                          John M. Derrick, Jr. Chairman and Chief Executive Officer August 9, 2002  A. W. WILLIAMS                                                    Andrew W. Williams Senior Vice President and Chief Financial Officer August 9, 2002