10-Q

UNITED STATES 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										September 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 September 30, 2002
Common Stock, $0.01 par value					163,633,699

PEPCO HOLDINGS, INC. AND SUBSIDIARIES TABLE OF CONTENTS
	Page
PART I - Financial Information
Item 1. - Financial Statements
Consolidated Statements of Earnings and Retained Income for the three        and nine months ended September 30, 2002 and September 30, 2001	1
Consolidated Balance Sheets as of September 30, 2002 and        December 31, 2001	2
Consolidated Statements of Cash Flows for the nine months ended        September 30, 2002 and September 30, 2001	3
Notes to Consolidated Financial Statements	4
Report of Independent Accountants on Review of Interim        Financial Information	22
Item 2. - Management's Discussion and Analysis of Financial                 Condition and Results of Operations	23
Item 3. - Quantitative and Qualitative Disclosures about                 Market Risk	42
Item 4. - Controls and Procedures	44
PART II - Other Information
Item 1. - Legal Proceedings	45
Item 6. - Exhibits and Reports on Form 8-K	48
Signatures and Certifications	50
Independent Accountants Awareness Letter	54

Part I    FINANCIAL INFORMATION
Item 1.   CONSOLIDATED FINANCIAL STATEMENTS
PEPCO HOLDINGS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF EARNINGS AND RETAINED INCOME (Unaudited)
	Three Months Ended September 30,		Nine Months Ended September 30,
	2002	2001	2002	2001
(Millions, except $ per share data)
Operating Revenue
Pepco	$  516.6	$  545.7	$1,223.4	$1,410.4
Conectiv Power Delivery	456.0	-	456.0	-
Conectiv Energy	390.4	-	390.4	-
PES	250.0	165.6	567.3	400.7
Other Non-Regulated	28.2	27.1	79.6	75.8
(Loss) Gain on divestiture of generation assets	-	(18.4)	-	31.8
Total Operating Revenue	1,641.2	720.0	2,716.7	1,918.7
Operating Expenses
Fuel and purchased energy	1,076.4	398.8	1,664.9	996.9
Other operation and maintenance	165.8	91.6	317.1	277.1
Depreciation and amortization	72.7	45.1	149.1	129.0
Other taxes	68.5	51.3	162.7	142.1
Total Operating Expenses	1,383.4	586.8	2,293.8	1,545.1
Operating Income	257.8	133.2	422.9	373.6
Other Income (Expenses)
Interest and dividend income	6.5	8.2	19.0	54.6
Interest expense	(66.8)	(27.7)	(130.4)	(115.2)
Loss from Equity Investments	(4.3)	(6.5)	(5.7)	(17.0)
Other income	2.4	.9	2.0	5.0
Total Other Expenses	(62.2)	(25.1)	(115.1)	(72.6)
Preferred Stock Dividend Requirements    of Subsidiaries	6.1	3.6	13.2	10.7
Income Tax Expense	74.3	35.8	110.5	109.7
Net Income	$  115.2	$   68.7	$  184.1	$  180.6
Retained Income at Beginning of Period	$  981.8	$  965.3	$  967.4	$  929.7
Dividends on Common Stock	(36.2)	(26.9)	(89.7)	(99.7)
Cancelled Pepco Treasury Stock	(215.8)	-	(215.8)	-
Other Comprehensive (Loss)/Income, Net of Tax	(62.4)	3.1	(63.4)	(.4)
Retained Income, Net of Other Comprehensive    (Loss)/Income, Net of Tax, at End of Period	$  782.6	$1,010.2	$  782.6	$1,010.2
Basic Average Common Shares Outstanding	144.4	107.9	119.7	108.9
Basic Earnings Per Share of Common Stock	$.80	$.64	$1.54	$1.66
Diluted Average Common Shares Outstanding	144.4	107.9	119.7	109.3
Diluted Earnings Per Share of Common Stock	$.80	$.64	$1.54	$1.66
Cash Dividends Per Share of Common Stock	$.25	$.25	$ .75	$.915
The accompanying Notes are an integral part of these Consolidated Financial Statements.

PEPCO HOLDINGS, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (Unaudited)
	September 30, 2002	December 31, 2001
ASSETS	(Millions of Dollars)
CURRENT ASSETS
Cash and cash equivalents	$   89.7	$  515.5
Marketable securities	164.8	161.2
Accounts receivable, less allowance for uncollectible      accounts of $37.5 and $9.5	1,174.5	401.2
Fuel, materials and supplies - at average cost	160.8	37.8
Prepaid expenses and other	71.6	24.2
Total Current Assets	1,661.4	1,139.9
INVESTMENTS AND OTHER ASSETS
Goodwill	1,418.3	-
Regulatory assets, net	1,240.9	14.3
Investment in finance leases	1,039.6	736.0
Other	561.7	642.3
Total Investments and Other Assets	4,260.5	1,392.6
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment	10,347.9	4,361.9
Accumulated depreciation	(3,621.4)	(1,608.5)
Net Property, Plant and Equipment	6,726.5	2,753.4
TOTAL ASSETS	$12,648.4	$5,285.9
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Short-term debt	$1,615.0	$  458.2
Accounts payable and accrued payroll	620.2	224.1
Capital lease obligations due within one year	15.7	15.2
Interest and taxes accrued	243.9	92.6
Other	437.4	175.3
Total Current Liabilities	2,932.2	965.4
DEFERRED CREDITS
Regulatory liabilities, net	49.3	-
Income taxes	1,270.4	501.6
Investment tax credits	70.3	24.7
Other	489.7	38.8
Total Deferred Credits	1,879.7	565.1
LONG-TERM DEBT AND CAPITAL LEASE OBLIGATIONS	4,547.8	1,722.4
COMPANY OBLIGATED MANDATORILY REDEEMABLE PREFERRED SECURITIES    OF SUBSIDIARY TRUST WHICH HOLDS SOLELY PARENT JUNIOR    SUBORDINATED DEBENTURES	290.0	125.0
PREFERRED STOCK
Serial preferred stock	35.3	35.3
Redeemable serial preferred stock	83.3	49.5
Total Preferred Stock	118.6	84.8
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY
Common stock, $.01 and $1 par value, respectively - authorized      400,000,000 and 200,000,000 shares, respectively - issued      163,633,699 shares and 118,544,883 shares, respectively	1.6	118.5
Premium on stock and other capital contributions	2,098.2	1,028.3
Capital stock expense	(2.3)	(12.9)
Accumulated other comprehensive loss	(70.1)	(6.7)
Retained income	852.7	974.1
	2,880.1	2,101.3
Less cost of shares of common stock in treasury       (none and 11,323,707 shares, respectively)	-	(278.1)
Total Shareholders' Equity	2,880.1	1,823.2
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY	$12,648.4	$5,285.9
The accompanying Notes are an integral part of these Consolidated Financial Statements.

PEPCO HOLDINGS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
	Nine Months Ended September 30,
	2002	2001
	(Millions of Dollars)
OPERATING ACTIVITIES
Net income	$   184.1	$    180.6
Adjustments to reconcile net income to net cash    from (used by) operating activities:
Depreciation and amortization	149.1	129.0
Gain on divestiture of generation assets	-	(31.8)
Changes in:
Accounts receivable	(21.4)	(41.9)
Regulatory assets, net	89.1	(182.2)
Prepaid expenses	63.5	409.4
Accounts payable and accrued payroll	11.7	(20.8)
Interest and taxes accrued, including Federal income          tax refund of $135.4 million in 2002	160.7	(704.0)
Net other operating activities, including divestiture          related items in 2001	(34.9)	22.4
Net Cash From (Used By) Operating Activities	601.9	(239.3)
INVESTING ACTIVITIES
Acquisition of Conectiv, net of cash acquired	(1,075.6)	-
Net investment in property, plant and equipment	(251.2)	(177.1)
Proceeds from/changes in:
Divestiture of generation assets	-	156.2
Purchase of leveraged leases	(280.4)	-
Sales of marketable securities, net of purchases	-	52.7
Purchases of other investments, net of sales	(13.7)	(59.7)
Net other investing activities	(7.5)	(5.4)
Net Cash Used By Investing Activities	(1,628.4)	(33.3)
FINANCING ACTIVITIES
Dividends paid on preferred and common stock	(93.8)	(103.5)
Redemption of preferred stock	(2.0)	(5.5)
Reacquisition of the Company's common stock	(2.2)	(73.9)
Issuances of debt, net of reacquisitions	823.8	(725.7)
Cost of issuances and financings	(122.1)	-
Net other financing activities	(3.0)	9.4
Net Cash From (Used By) Financing Activities	600.7	(899.2)
Net Decrease In Cash and Cash Equivalents	(425.8)	(1,171.8)
Cash and Cash Equivalents at Beginning of Period	515.5	1,864.6
CASH AND CASH EQUIVALENTS AT END OF PERIOD	$    89.7	$   692.8
The accompanying Notes are an integral part of these Consolidated Financial Statements.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (1)  Organization      Pepco Holdings, Inc. (Pepco Holdings or the Company, formerly New RC, Inc.), a registered holding company under the Public Utility Holding Company Act of 1935 (PUHCA), was incorporated under the laws of Delaware on February 9, 2001 for the purpose of effecting Potomac Electric Power Company's (Pepco) acquisition of Conectiv. In accordance with the terms of the merger agreement, upon the consummation of the merger on August 1, 2002, Pepco and Conectiv became wholly owned subsidiaries of Pepco Holdings. Additionally, Pepco, through a series of transactions, transferred its ownership interests in it pre-merger subsidiaries Potomac Capital Investment Corporation (PCI) and Pepco Energy Services, Inc. (PES) to Pepco Holdings and PCI transferred its ownership interests in its pre-merger subsidiary Pepco Communications, Inc. (Pepcom) to Pepco Holdings. These transactions resulted in PCI, PES, and Pepcom becoming wholly owned subsidiaries of Pepco Holdings. Pepco Holdings manages its operations as described below. Power Delivery      The largest component of Pepco Holdings' business is power delivery, which is conducted through its subsidiaries Pepco, Delmarva Power & Light Company (DPL), and Atlantic City Electric Company (ACE). Pepco, DPL and ACE are all regulated public utilities in the jurisdictions in which they serve customers. The operations of DPL and ACE collectively are referred to as "Conectiv Power Delivery." Pepco      Pepco is engaged in the transmission and distribution of electricity in Washington, D.C. and major portions of Prince George's and Montgomery Counties in suburban Maryland. Under settlements entered into with regulatory authorities, Pepco is required to provide electricity supply at specified rates (which we refer to as "default service") to customers in Maryland until July 2004 and to customers in Washington, D.C. until February 2005. Under a full requirements contract entered into in 2000 in connection with the purchase by Mirant Corporation of substantially all of Pepco's electricity generation assets, Mirant is obligated to supply Pepco with all of the capacity and energy needed to fulfill these default service obligations at fixed prices that are lo wer than currently approved tariff rates that Pepco charges for providing such service. If Mirant were to fail to fulfill its supply obligations, Pepco would have to find alternative sources of supply at rates then prevailing. Conectiv Power Delivery      DPL is engaged in the transmission and distribution of electricity in Delaware and portions of Maryland and Virginia and provides gas distribution service in northern Delaware. Under regulatory settlements, DPL is required to provide default electricity service in Maryland until July 2003 for non-residential customers and until July 2004 for residential customers, to customers in Delaware until May 2006 and to customers in Virginia until January 2004 (which may be extended to July 2007). Conectiv Energy (described below) supplies all of DPL's default service load requirements under a supply agreement that ends June 30, 2004. Conectiv Energy's resources for supplying DPL's default service load include electricity generated by Conectiv Energy's plants and purchased electricity, including purchases under long-term agreements. DPL purchases gas supplies for its customers from marketers and producers in the spot market and under short-term and long-term ag reements.      ACE is engaged in the transmission and distribution of electricity in southern New Jersey. ACE has default service obligations for approximately 20 percent of the electricity supply to its customers. It expects to fulfill these obligations through the generation output from the fossil-fuel fired generating plants held for sale, as discussed below, and through existing purchase power agreements with non-utility generators. ACE also currently owns fossil fuel-fired electric generating plants with 740 MW of capacity. The Basic Generation Service (BGS) auction awarded approximately 1,900 MW, or 80% of ACE's BGS load, to four suppliers for the period from August 1, 2002 to July 31, 2003. As discussed in Note 5. Commitments and Contingencies, herein, ACE is in the process of selling these plants. For times during this period that precede the sale of ACE's plants, ACE plans to sell, in the wholesale market, the portion of its electricity supply that exce eds the load requirement of the BGS customers. Competitive Energy      This component of the Company's business is conducted through its subsidiaries Conectiv Energy Holding Company (Conectiv Energy) and PES. Conectiv Energy      Conectiv Energy supplies power to DPL and provides wholesale power and ancillary services to the PJM power pool. Conectiv Energy's generation asset strategy focuses on mid-merit plants with operating flexibility, multi-fuel capability and low capital requirements that can quickly change their output level on an economic basis. Mid-merit plants generally are operated during times when demand for electricity rises and prices are higher. Conectiv Energy also engages in energy trading to take advantage of price fluctuations and arbitrage opportunities.      As of September 30, 2002, Conectiv Energy owned and operated electric generating plants with 2,294 MW of capacity. In January 2002 Conectiv Energy began construction of a 1,100 MW combined cycle plant with six combustion turbines at a site in Bethlehem, Pennsylvania that is expected to become partially operational by the end of 2002 and fully operational by the end of 2003. In addition, Conectiv Energy has ordered seven combustion turbines which, with additional equipment, could be configured into up to three combined cycle plants with approximately 550 MW of capacity each. Construction of these additional plants is subject to market conditions but is currently expected to occur in phases and to be completed by 2007, with delivery of the combustion turbines occurring in phases through 2003. Through September 30, 2002 a total of $172.1 million has been paid for these turbines. The total amount to be paid is expected to be approximately $235 million.< /P> PES      PES provides retail electricity and natural gas to residential, commercial, industrial and governmental customers in the District of Columbia and states in the mid-Atlantic region. PES also provides integrated energy management solutions to commercial, industrial and governmental customers, including energy-efficiency contracting, development and construction of "green power" facilities, equipment operation and maintenance, fuel management, and appliance service agreements. In addition, PES owns electricity generation plants with approximately 800 MW of peaking capacity, the output of which PES sells in the wholesale market. PES also purchases and sells electricity and natural gas in the wholesale markets to support its commitments to its retail customers. Other Non-Regulated      This component of Pepco Holdings' business is conducted through its subsidiaries PCI and Pepcom. PCI      PCI manages a portfolio of financial investments and strategic operating businesses that are designed to provide the Company with supplemental earnings and cash flow. PCI has been redirecting its investment operations to focus on investments that are related to the energy industry, such as energy leveraged leases. These transactions involve PCI's purchase and leaseback of utility assets, located outside of the United States, that provide a long-term, stable stream of cash flow and earnings. PCI has reduced its previous concentration of investments in the aircraft industry from 33 aircraft in 1995 to three aircraft currently. PCI also owns a ten-story, 360,000 square foot office building in downtown Washington, D.C., which is leased to Pepco and serves as Pepco Holdings' and Pepco's corporate headquarters.      PCI's utility industry products and services are provided through various operating companies. Its underground electric services company, W.A. Chester, provides high voltage construction and maintenance services to utilities and to other customers throughout the United States. PCI also owns Severn Cable, which provides low voltage electric and telecommunication construction and maintenance services in the Washington, D.C. area. Pepcom      Pepcom owns a 50% interest in Starpower Communications, LLC, a joint venture with RCN Corporation, which provides cable and telecommunication services to households in the Washington, D.C. area.      Additionally, PUHCA imposes certain restrictions on the operations of registered holding companies and their subsidiaries and therefore, Pepco Holdings has a subsidiary service company that provides a variety of support services to Pepco Holdings' and its subsidiaries. The costs of the service company are directly assigned or allocated to Pepco Holdings' or its subsidiaries based on prescribed allocation factors listed in the service agreement filed with, and approved by, the SEC. Approved allocation factors include, but are not limited to, operating and maintenance expenses and a three-factor ratio that is defined as an average of the number of employees ratio, labor dollar ratio, and asset cost ratio. (2)  Merger Transaction General      On August 1, 2002, Pepco's acquisition of Conectiv was consummated through a series of merger transactions and an exchange of cash and Pepco Holdings' common stock. In accordance with the terms of the merger agreement, existing holders of Conectiv common stock and Class A common stock, outstanding immediately prior to the merger, received cash in the aggregate amount of $1.1 billion and approximately 56.2 million shares of Pepco Holdings common stock. The number of Pepco Holdings shares issued to Conectiv shareholders was determined based on a formula outlined in the merger agreement, which is included in the Company's Registration Statement on Form S-4 (Number 333-57042). The stock was valued at $18.26 per share, resulting in stock consideration paid to existing Conectiv shareholders of approximately $1 billion. The valuation of Pepco Holdings shares was determined based on the closing market prices on the New York Stock Exchange of Pepco's common stock 3 days before and 3 days after the date that the amount of Pepco Holdings common shares to be issued to Conectiv shareholders became fixed (July 25, 2002). Additionally, Pepco incurred approximately $35.6 million in direct acquisition costs which are treated as consideration paid for Conectiv. Also, under the terms of the merger agreement approximately $1.7 million in existing Conectiv stock options and performance accelerated restricted stock (PARS) were converted to PHI options and PARS. Accordingly, as illustrated in the table below, total consideration paid for Conectiv was approximately $2.2 billion.      The merger was accounted for using the purchase method of accounting, with Pepco as the acquirer of Conectiv. In accordance with the provisions of the purchase method of accounting, Pepco compared the total cost to acquire Conectiv to the estimated fair values (on August 1, 2002, the date of acquisition) of the Conectiv assets acquired and liabilities assumed. The excess of cost over the fair value of Conectiv's assets and liabilities acquired was recorded as goodwill.
The following table summarizes the estimated fair value of Conectiv's assets and liabilities at August 1, 2002 and calculates the resulting goodwill balance (amounts are in millions). Certain valuation assumptions are still being assessed by management and therefore the goodwill calculation and measurement may be subject to refinement over the next fiscal year following the merger.
Total Consideration Paid for Conectiv:
Cash paid to existing Conectiv shareholders	$1,095.2
Stock issued to existing Conectiv shareholders	1,025.6
Conversion of Conectiv options/PARS	1.7
Pepco direct merger costs	35.6
		$2,158.1
Fair Value of Conectiv's Assets/Liabilities:
Assets
Property, Plant and Equipment, Net	3,639.5
Investments and Other Assets	1,443.6
Current Assets	873.5
Total Assets	$5,956.6
Liabilities
Preferred Stock and Securities	200.8
Long-Term Debt	1,489.9
Current Liabilities	2,234.3
Deferred Credits and Other	1,428.4
Total Liabilities	$5,353.4
Less:  Fair Value of Net Assets Acquired		603.2
Deferred Income Tax Liability		209.6
Add:   Liabilities Assumed		73.0
Goodwill		$1,418.3
Substantially all of the total goodwill balance is attributable to Pepco Holdings' power delivery business.
Pro Forma Information      Pro forma unaudited financial information for Pepco Holdings on a consolidated basis, giving effect to the merger as if it had occurred at the beginning of each period presented, is presented below. This pro forma information is not necessarily indicative of the results that would have occurred, or that will occur in the future. Amounts, except earnings per share, are in millions.

		Three Months Ended September 30,		Nine Months Ended September 30,
		2002	2001	2002	2001
Operating Revenue		$2,127.7	$1,760.8	$5,169.8	$5,127.0
Income from Continuing Operations (a)		$   95.6	$  125.5	$  205.1	$  524.7
Average Shares Outstanding		163.4	167.0	163.4	167.0
Basic and Diluted Earnings Per Share (a)		$.59	$.75	$1.26	$3.14
Additional Supplemental Pro Forma Information:
Income from Continuing Operations, per GAAP (see above)		$   95.6	$  125.5	$  205.1	$  524.7
Adjustments to Remove the Impact of Special Items:
Merger Related Costs		48.1	8.8	49.6	9.5
Loss (Gain) on Sales of Assets		-	11.0	11.2	(235.5)
Income from Continuing Operations, Excluding Special Items		$  143.7	$  145.3	$  265.9	$  298.7
Earnings Per Share, Excluding Special Items (a)		$.88	$.87	$1.63	$1.79
(a)	This amount presents the pro forma impact of $700 million in debt issued in September 2002 at 7.15%, the proceeds of which were used to fund the acquisition. Total debt issued in September 2002 was $1.5 billion. The remaining $800 million in debt was used for general corporate purposes. Pro forma earnings per share, excluding special items, if the pro forma impact of the entire $1.5 billion in debt was calculated would be $.84 and $.83 per share for the three months ended September 30, 2002 and 2001, respectively, and $1.49 and $1.65 per share for the nine months ended September 30, 2002 and 2001.

(3)  Summary of Significant Accounting Policies Financial Statement Presentation General      The consolidated financial statements include the accounts of Pepco Holdings and its wholly owned subsidiaries. All intercompany balances and transactions between subsidiaries have been eliminated. Investments in entities in which the Company has a 20% to 50% interest are accounted for using the equity method. The information furnished in the accompanying consolidated financial statements reflects all adjustments (which consist only of normal recurring accruals) which are, in the opinion of management, necessary for a fair presentation of the Company's results of operations for the interim periods presented. The accompanying consolidated financial statements and notes thereto should be read in conjunction with Pepco's and Conectiv's 2001 Forms 10-K and first and second quarter 2002 Forms 10-Q. Certain prior period amounts have been reclassified in order to conform to the current period presentation.      With respect to the unaudited financial information of Pepco Holdings for the nine-month period ended September 30, 2002, included in the Form 10-Q, PricewaterhouseCoopers LLP reported that they have applied limited procedures in accordance with professional standards for a review of such information. However, their separate report dated November 13, 2002 appearing herein, states that they did not audit and they do not express an opinion on that unaudited financial information. Accordingly, the degree of reliance on their report on such information should be restricted in light of the limited nature of the review procedures applied. PricewaterhouseCoopers LLP is not subject to the liability provisions of Section 11 of the Securities Act of 1933 for their report on the unaudited financial information because that report is not a "report" or a "part" of the registration statement prepared or certified by PricewaterhouseCoopers LLP within the meaning of Sections 7 and 11 of the Act. Consolidated Financial Statement Composition      As a result of the merger transaction on August 1, 2002, Pepco Holdings' accompanying unaudited consolidated balance sheet as of September 30, 2002 includes the accounts of Pepco Holdings and its subsidiaries (discussed in Note (1) Organization, herein), after giving effect to the merger transaction and resulting purchase accounting entries discussed in Note (2) Merger Transaction, herein. Since Pepco was the acquiring company, in accordance with the purchase method of accounting, Pepco represents the "predecessor" company. Accordingly, the prior year consolidated balance sheet as of December 31, 2001, includes only the consolidated accounts of Pepco and its pre-merger subsidiaries, PCI and PES, as previously reported by Pepco.      The accompanying unaudited consolidated statements of earnings for the three and nine months ended September 30, 2002 include Pepco's and its pre-merger subsidiaries' results for the entire periods presented consolidated with Conectiv and its subsidiaries results starting on August 1, 2002, the date the merger was consummated. The 2001 operating amounts reflect only the consolidated operations of Pepco and its pre-merger subsidiaries, as previously reported by Pepco.      Accordingly, due to the application of the purchase method of accounting that was used to record the merger transaction, the 2002 and 2001 balances included in the accompanying unaudited consolidated financial statements are not comparable.
Summarized Financial Information of Conectiv      The following represents Conectiv's and its subsidiaries' consolidated historical condensed statement of earnings information for the two post-merger months of August and September 2002 and consolidated historical condensed balance sheet as of September 30, 2002. These amounts are included in Pepco Holdings' consolidated financial statements for the periods ended September 30, 2002. Amounts are in millions.
Condensed Statement of Earnings	Months of August and September,       2002
Operating revenue	$847.9
Operating expense	771.3
Operating income	76.6
Net Income	33.2
Condensed Balance Sheet	As of September 30, 2002
Current assets	$  895.1
Noncurrent assets	5,568.2
Total Assets	$6,463.3
Current liabilities	$2,442.0
Noncurrent liabilities	2,643.1
Preferred stock	35.8
Shareholders' equity	1,342.4
Total Liabilities and Shareholders' Equity	$6,463.3
Use of Estimates      The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America, such as Statement of Position 94-6 "Disclosure of Certain Significant Risks and Uncertainties," requires management to make certain estimates and assumptions. These assumptions affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Examples of estimates used by the Company include the calculation of the allowance for uncollectible accounts, environmental remediation costs and anticipated collections, unbilled revenue, pension activity, fair values used in the purchase method of accounting and the resulting goodwill balance. Actual results may differ significantly from these estimates under different assumptions or conditions. Regulation of Utility Operations      Pepco is regulated by the Maryland Public Service Commission (Maryland Commission), the District of Columbia Public Service Commission (D.C. Commission), and its wholesale business is regulated by the Federal Energy Regulatory Commission (FERC). Conectiv Power Delivery is subject to regulation by the Delaware Public Service Commission (Delaware Commission), the Maryland Commission, the New Jersey Board of Public Utilities (NJBPU), the Virginia State Corporation Commission (Virginia Commission), and FERC. Accounting For the Effects of Certain Types of Regulation      The requirements of SFAS No. 71 (SFAS 71) "Accounting for the Effects of Certain Types of Regulation" apply to the Power Delivery businesses of Pepco, DPL, and ACE. SFAS 71 allows regulated entities, in appropriate circumstances, to establish regulatory assets and to defer the income statement impact of certain costs that are expected to be recovered in future rates. Management's assessment of the probability of recovery of regulatory assets requires judgment and interpretation of laws, regulatory commission orders, and other factors. Should existing facts or circumstances change in the future to indicate that a regulatory asset is not probable of recovery, then the regulatory asset would be charged to earnings. Revenue Recognition      Power Delivery revenues primarily include revenues from the supply and delivery of electricity to the customers of Pepco, DPL, and ACE. Revenues from the supply and delivery of natural gas to DPL's customers are also included in Power Delivery. Competitive Energy revenues are primarily derived from electricity and natural gas trading activities and generation, which is the sale of electricity, capacity, and ancillary services from deregulated electric generating plants. It also includes revenues from wholesale and retail sales of electricity and natural gas to customers that are supplied by purchases in wholesale markets and revenues from energy management products and services. Other Non-Regulated revenues are provided primarily by Pepco Holdings non-regulated subsidiaries, including PCI and Pepcom.      The Power Delivery businesses recognize revenues for the supply and delivery of electricity and gas upon delivery to the customer, including amounts for services rendered, but not yet billed. Conectiv Energy recognizes revenue when delivery is substantially complete for non-trading activities, and on a mark-to-market basis for trading activities. PES recognizes revenue for its wholesale and retail commodity business upon delivery to customers. Revenues for PES' energy efficiency construction business is recognized using the percentage of completion method of revenue recognition and revenues from its operation and maintenance and other products and services contracts are recognized when earned. Revenues from the Other Non-Regulated business line are principally recognized when services are performed or products are delivered, however revenue from PCI's utility industry services contracts is recognized using the percentage-of-completion method of revenue recognition, which recognizes revenue as work progresses on the contract. Accounting For Derivatives      Changes in the fair value of derivatives that are not hedges, under SFAS No. 133 (SFAS No. 133), "Accounting for Derivative Instruments and Hedging Activities", are recognized in earnings. The gain or loss on a derivative that hedges exposure to variable cash flow of a forecasted transaction is initially recorded in other comprehensive income (a separate component of common stockholders' equity) and is subsequently reclassified into earnings when the forecasted transaction occurs. If a forecasted transaction is no longer probable, the deferred gain or loss in accumulated other comprehensive income is immediately reclassified to earnings. Changes in the fair value of other hedging derivatives result in a change in the value of the asset, liability, or firm commitment being hedged to the extent the hedge is effective. Any ineffective portion of a hedge is recognized in earnings immediately.      In June 2002, Pepco Holdings entered into several treasury lock transactions in anticipation of the issuance of several series of fixed rate debt by the end of September 2002. These treasury lock transactions, which have been designated as qualified cash flow hedges in accordance with the provisions of SFAS 133, were intended to offset the changes in future cash flows attributable to fluctuations in interest rates. Each reporting period, the after-tax fair value amount of the hedge was 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 was recorded as a liability. Upon the closing of the sale of the debt on September 6, 2002, the net loss on the settlement of the treasury lock transactions of $63.4 million (after-tax) was recorded as accumulated other comprehensive loss and began to be amortized on Pepco Holdings' consolidated statements of earnings into i nterest expense over the life of the related debt. Additionally, the fair value of the liability of $106.1 million (pre tax) was paid by Pepco Holdings on September 4, 2002, the hedge settlement date.      Conectiv Energy engages in commodity hedging activities to minimize the risk of market fluctuations associated with the purchase and sale of energy commodities (natural gas, petroleum, coal and electricity). The majority of these hedges relate to the procurement of fuel for the power plants, fixing the cash flows from the plant output, and securing power for electric load service. Conectiv Energy's hedging activities are conducted using derivative instruments designated as cash flow hedges, which are designed to reduce the variability in future cash flows. Conectiv Energy's commodity hedging objectives, in accordance with its risk management policy, are primarily the assurance of stable and known cash flows and the fixing of favorable prices and margins when they become available.      Conectiv Bethlehem, LLC (CBI), a subsidiary of Conectiv Energy, entered into an interest rate swap agreement for the purpose of managing its overall borrowing rate and limiting its interest rate risk associated with debt it has issued. CBI currently hedges 50-75% of its variable rate debt. CBI formally designated its interest rate swap agreements as a cash flow hedge.      PES purchased natural gas futures and electricity forward contracts to hedge price risk in connection with the purchase of physical natural gas and electricity for delivery to customers in future months. PES accounts for its natural gas futures and electricity forward contracts as cash flow hedges of forecasted transactions.      PCI has entered into interest rate swap agreements for the purpose of managing its overall borrowing rate and limiting its interest rate risk associated with debt it has issued. PCI currently hedges 100% of its variable rate debt and approximately 21% of its fixed rate debt for the Medium Term Note program. PCI formally designated its interest rate swap agreements as both cash flow hedge and fair value hedge instruments.      On October 25, 2002, the EITF rescinded Issue No. 98-10 (EITF 98-10), "Accounting for Contracts Involved in Energy Trading and Risk Management Activities." The Company's interpretation of EITF 98-10 is consistent with the current rules that are being applied under SFAS No. 133 and therefore management does not believe that rescinding EITF 98-10 will impact its financial position or results of operations.      A detail of the components of comprehensive income is as follows:

	Three Months Ended    September 30,		Nine Months Ended   September 30,
	2002	2001	2002	2001
Net income	$115.2	$68.7	$184.1	$180.6
Other comprehensive (loss)/income, net of taxes
Energy commodity derivative instruments     designated as cash flow hedges
Unrealized gain from cash flow hedges       net of reclassification adjustments and net       of taxes of $.2 million for the three and nine       months ended September 30, 2002, respectively	.3	-	.3	-
Marketable Securities
Unrealized gain/(loss) on marketable securities       net of reclassification adjustments and net of       taxes of $.2 million and $3.5 million for the       three and nine months ended September 30, 2002,       respectively, and net of taxes of $2 million and       $.3 million for the three and nine months       ended September 30, 2001, respectively	.5	3.8	5.7	.7
Treasury lock
Unrealized loss from treasury lock net       of taxes of $38.5 million and $42.7 million       for the three and nine months ended       September 30, 2002, respectively	(56.4)	-	(62.6)	-
Interest rate swap agreement designated as cash     flow hedge
Unrealized loss from cash flow hedge net       of reclassification adjustments and net of       taxes of $3.7 million for the three and nine       months ended September 30, 2002 and net of taxes       of $.3 million and $.6 million for the three       and nine months ended September 30, 2001	(6.8)	(.7)	(6.8)	(1.1)
Other comprehensive (loss)/income, net of taxes	(62.4)	3.1	(63.4)	(.4)
Comprehensive income	$ 52.8	$71.8	$120.7	$180.2
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," which 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 and September 2002, net presentation is required. Conectiv Energy and PES enter into trading activities that are subject to the provisions of this pronouncement and both historically have classified these contracts on a gross basis.      Conectiv Energy and PES have completed their evaluation of the financial statement reclassification required by EITF 02-3. Beginning with July 2002, all trades were recorded net and therefore no reclassification was required for the three months ended September 30, 2002. Accordingly, Conectiv Energy's results for the post-merger months of August and September 2002, included in Pepco Holding's operating results herein, reflect no revenue or expense reclassification. PES revenues decreased from $423.6 million to $401 million for the nine months ended September 30, 2002 and from approximately $212.1 million to $165.6 million and from approximately $481.2 million to $400.7 million, for the three and nine months ended September 30, 2001, respectively. There is no impact on Conectiv Energy's or PES'overall financial position or net results of operations as a result of the implementation of EITF 02-3. Accounting For Marketable Securities      The Company holds marketable equity securities which are classified as available-for-sale securities under SFAS No. 115, Accounting for Certain Investments in Debt and Equity Securities. Unrealized holding gains and losses on available-for-sale securities are excluded from earnings and are reported in accumulated other comprehensive income on the accompanying consolidated balance sheets. However, if a decline in fair value of an available-for-sale security is determined to be other than temporary, then the cost basis of the security is written down to fair value and the decline in fair value is included in earnings. Accounting for Goodwill and Certain Other Intangibles      Effective January 1, 2002, Pepco Holdings adopted the full provisions of SFAS No. 141, Business Combinations, and SFAS No. 142, Goodwill and Other Intangible Assets. SFAS No. 141 requires business combinations initiated after June 30, 2001 to be accounted for using the purchase method of accounting and broadens the criteria for recording intangible assets apart from goodwill. Conectiv evaluated its existing goodwill and intangibles acquired prior to June 30, 2001 using the criteria of SFAS 141, which resulted in no impact to the Company's financial statements. SFAS 142 requires that purchased goodwill and certain indefinite-lived intangibles no longer be amortized, but instead be tested for impairment at least annually. The Company evaluated its intangible assets and determined that all such assets have determinable lives. SFAS 142 prescribes a two-phase process for impairment testing of goodwill. The first phase, required to be completed by December 31, 2002, screens for impairment; the second phase (if necessary) measures the impairment.
(4)  Segment Information      Based on the provisions of SFAS No. 131 "Disclosures about Segments of an Enterprise and Related Information," Pepco Holdings' management has identified the following reportable segments: Pepco, Conectiv Power Delivery, Conectiv Energy, PES, and Other Non-Regulated. Intercompany (intersegment) revenues and expenses are not eliminated at the segment level for purposes of presenting segment financial results. Elimination of these intercompany amounts is accomplished using the "Eliminations and Other" column. Segment financial information for the three and nine months ended September 30, 2002 and 2001 is as follows.

		Three Months Ended September 30, 2002                  (In Millions)
		Power Delivery Segments		Competitive Energy Segments
		Pepco	Conectiv	Conectiv	PES	Other Non- Regulated	(a) Elim.& Other	PHI Cons.
Operating Revenue		$  516.7	$  456.7	$  557.0	$250.1	$   27.7	$(167.0)	$ 1,641.2
Operating Expense		375.7	407.6	516.4	244.4	9.0	(169.7)	1,383.4
Operating Income		141.0	49.1	40.6	5.7	18.7	2.7	257.8
Net Income		70.3	21.4	22.4	3.4	7.9	(10.2)	115.2
Total Assets   (at 9/30/02)		$3,587.8	$4,528.2	$1,917.4	$262.4	$1,565.2	$ 787.4	$12,648.4
		Three Months Ended September 30, 2001                  (In Millions)
		Power Delivery Segments		Competitive Energy Segments
		Pepco	Conectiv	Conectiv	PES	Other Non- Regulated	(a) Elim.& Other	PHI Cons.
Operating Revenue		$527.3	-	-	$165.6	$   29.7	$    (2.6)	$  720.0
Operating Expense		413.3	-	-	154.8	21.3	(2.6)	586.8
Operating Income		114.0	-	-	10.8	8.4	-	133.2
Net Income		60.3	-	-	4.2	4.2	-	68.7
Total Assets   (at 9/30/01)		$5,172.9	-	-	$217.3	$1,218.7	$(1,191.8)	$5,417.1
Note:	The unaudited condensed statements of earnings for the three months ended September 30, 2002 above include Pepco and its pre-merger subsidiaries (PCI and PES) results for the entire periods presented consolidated with Conectiv and its subsidiaries results starting on August 1, 2002, the date the merger was consummated. The 2001 operating amounts reflect only the operations of Pepco and its pre-merger subsidiaries, as previously reported by Pepco. Accordingly, the amounts between years are not comparable.
(a)	"Eliminations and Other" represents unallocated Pepco Holdings capital costs, such as the acquisition financing and the amortization (income) of "purchase accounting" related adjustments to the fair value of non-regulated Conectiv assets and liabilities as of August 1, 2002, and the elimination of intercompany revenues and expenses.

		Nine Months Ended September 30, 2002               (In Millions)
		Power Delivery Segments		Competitive Energy Segments
		Pepco	Conectiv	Conectiv	PES	Other Non- Regulated	(a) Elim.& Other	PHI Cons.
Operating Revenue		$1,223.5	$456.7	$557.0	$567.4	$79.0	$(166.9)	$2,716.7
Operating Expense		948.8	407.6	516.4	561.0	29.7	(169.7)	2,293.8
Operating Income		274.7	49.1	40.6	6.4	49.3	2.8	422.9
Net Income		125.3	21.4	22.4	4.4	20.9	(10.3)	184.1
Total Assets   (at 9/30/02)		$3,587.8	$4,528.2	$1,917.4	$262.4	$1,565.2	$ 787.4	$12,648.4
		Nine Months Ended September 30, 2001               (In Millions)
		Power Delivery Segments		Competitive Energy Segments
		Pepco	Conectiv	Conectiv	PES	Other Non- Regulated	(a) Elim.& Other	PHI Cons.
Operating Revenue		$1,442.2	-	-	$400.7	$79.2	$(3.4)	$1,918.7
Operating Expense		1,102.1	-	-	384.2	62.2	(3.4)	1,545.1
Operating Income		340.1	-	-	16.5	17.0	-	373.6
Net Income		168.4	-	-	8.2	4.0	-	180.6
Total Assets   (at 9/30/01)		$5,172.9	-	-	$217.3	$1,218.7	$(1,191.8)	$5,417.1
Note:	The unaudited condensed statements of earnings for the nine months ended September 30, 2002 above include Pepco and its pre-merger subsidiaries (PCI and PES) results for the entire periods presented consolidated with Conectiv and its subsidiaries results starting on August 1, 2002, the date the merger was consummated. The 2001 operating amounts reflect only the operations of Pepco and its pre-merger subsidiaries, as previously reported by Pepco. Accordingly, the amounts between years are not comparable.
(a)	"Eliminations and Other" represents unallocated Pepco Holdings capital costs, such as the acquisition financing and the amortization (income) of "purchase accounting" related adjustments to the fair value of non-regulated Conectiv assets and liabilities as of August 1, 2002, and the elimination of intercompany revenues and expenses.

(5)  Commitments and Contingencies

Termination of Agreements for Sale of ACE Electric Generating Plants

     The agreements between ACE and NRG Energy, Inc. (NRG) for the sale of ACE's fossil fuel-fired electric generating plants (740 MW of capacity), including the Deepwater Station and B.L. England Station, and ACE's interests in Conemaugh and Keystone Stations, were subject to termination by either party after February 28, 2002. NRG delivered notice to Conectiv on April 1, 2002 terminating these agreements. On May 23, 2002, Conectiv announced that it initiated a second competitive bidding process to sell these ACE-owned fossil fuel-fired electric generating plants. Conectiv expects that the competitive bidding process will conclude by the end of 2002. Conectiv cannot predict the results of the competitive bidding process, whether the process will result in any sales agreements, whether the NJBPU will grant the required approval of any resulting sales agreements, or any related impacts upon recoverable stranded costs.

     The BGS auction awarded about 1,900 MW, or 80% of ACE's BGS load to four suppliers for the period from August 1, 2002 to July 31, 2003. The remaining 20% of ACE's BGS load is supplied utilizing ACE's electric supply, consisting of its fossil fuel-fired electric generating plants (excluding Deepwater), which are used first to meet such BGS load, and its NUG contracts, to the extent such electric generating plants are not sufficient to satisfy such load. Any portion of ACE's electric supply that exceeds the load requirement of the BGS customers is sold in the wholesale market. In addition, if any of the four suppliers awarded 80% of ACE's BGS load default on performance, ACE will offer the defaulted load to the other winning bidders. If they are not interested, ACE will then procure the needed supply from the wholesale market. Any costs related to this new supply that are not covered by remuneration from the supplier in default will be included in the calculation of deferr ed electric service costs, which are subject to NJBPU review and future recovery in customer rate increases.

Pepco Regulatory Contingencies

     Final briefs on Pepco's District of Columbia divestiture proceeds sharing application were filed on July 31, 2002 following an evidentiary hearing in June 2002. That application was filed to implement a provision of the Company's D.C. Commission approved divestiture settlement that provided for a sharing of any net proceeds from the sale of its generation related assets. A principal issue in the case is whether a sharing between customers and shareholders of the excess deferred income taxes and accumulated deferred investment tax credits associated with the sold assets would violate the normalization provisions of the Internal Revenue Code and implementing regulations. Other issues deal with the inclusion of internal costs and cost allocations, with respect to which Pepco believes its calculations are correct. Accordingly, Pepco is of the strong belief that its calculation of the customers share of divestiture proceeds is correct and that its position should pr evail before the D.C. Commission or upon judicial review. The potential exists that Pepco could be required to make additional gain sharing payments to D.C. customers. Such additional payments, which cannot be estimated, would be charged to expense and could have a material adverse effect on results of operations in the quarter and year in which a decision is rendered; however, Pepco does not believe that additional payments, if any, will have a material adverse impact on its financial position. It is impossible to predict when the D.C. Commission will issue a decision.

     Pepco filed its divestiture proceeds plan application in Maryland in April 2001. Reply briefs were filed in May 2002 and Pepco is awaiting a Proposed Order from the Hearing Examiner. It is a certainty that some party or parties will appeal the Hearing Examiner's Proposed Order to the Maryland Commission. The principal issue in the case is the same normalization issue that was raised in the D.C. case. Other issues deal with the inclusion of internal costs and cost allocations, with respect to which Pepco believes its calculations are correct. Accordingly, Pepco is of the strong belief that its calculation of the customers share of divestiture proceeds is correct and that its position should prevail before the Maryland Commission or upon judicial review. The potential also exists that Pepco would be required to make additional gain sharing payments to Maryland customers. Such additional payments, which cannot be estimated, would be charged to expense and could hav e a material adverse effect on results of operations in the quarter and year in which a decision is rendered; however, Pepco does not believe that additional payments, if any, will have a material adverse impact on its financial position. It is impossible to predict when the Hearing Examiner or the Maryland Commission will issue their decisions.

Other Regulatory Matters

     On September 9, 2002, New Jersey enacted an amendment (Amendment) to the 1999 Electric Discount and Energy Competition Act (the New Jersey Act). The Amendment permits the NJBPU to authorize the securitization of deferred balances of electric public utilities resulting from the provisions of the New Jersey Act. The NJBPU may authorize the issuance of transition bonds by an electric public utility or other financing entity in order to (i) recover stranded costs deemed eligible for rate recovery in a stranded cost recovery order; (ii) recover rate reduction requirements determined by the NJBPU to be necessary under the provisions of the New Jersey Act; or (iii) recover basic generation service transition costs. The NJBPU may approve transition bonds with scheduled amortization of up to fifteen years if related to stranded cost recoveries or recoveries of basic generation service transition costs, or the remaining term of a purchase power agreement if related to the buyout or buydown of long-term purchase power contracts with non-utility generators (NUGs).

     On September 20, 2002, the NJBPU issued a Bondable Stranded Costs Rate Order (Financing Order) to ACE authorizing the issuance of $440 million of Transition Bonds. The proceeds of these bonds will be used to recover the stranded costs associated with the divestiture of the ACE nuclear assets, the buyout of the Pedricktown NUG contract and the buydown of the American Ref-Fuel NUG contract. Also included in the amount authorized is $20 million of transaction costs and capital reduction costs. Conectiv expects that the bonds will be issued by the end of 2002, although this is dependent on conditions in the relevant capital markets at the times of the offerings.

     ACE formed Atlantic City Electric Transition Funding LLC (ACE Transition Funding) during 2001 as a special purpose entity (SPE) for the sole purpose of purchasing and owning the bondable transition property (BTP), issuing transition bonds (Bonds), pledging ACE Transition Funding's interest in BTP and other collateral to the bond trustee to collateralize the Bonds, and performing activities that are necessary, suitable or convenient to accomplish these purposes. Proceeds from the sale of Bonds will be transferred to ACE in consideration for the BTP, and ACE will repurchase debt and/or equity related to the stranded costs and NUG contracts noted above. When issued, the Bonds of ACE Transition Funding will be included in Conectiv's Consolidated Balance Sheet.

Environmental Matters

     The Company through its subsidiaries is subject to regulation with respect to the environmental effects of their operations, including air and water quality control, solid and hazardous waste disposal, and limitations on land use by various federal, regional, state, and local authorities. Federal and state statutes authorize governmental agencies to compel responsible parties to clean up certain abandoned or uncontrolled hazardous waste sites. Costs may be incurred to clean up facilities found to be contaminated due to current and past disposal practices. The Company's liability for clean-up costs is affected by the activities of these governmental agencies and private land-owners, the nature of past disposal practices, the activities of others (including whether they are able to contribute to clean-up costs), and the scientific and other complexities involved in resolving clean up-related issues (including whether a subsidiary of the Company or a corporate predecessor is responsible for conditions on a particular parcel). Conectiv's current liabilities include $17.3 million as of September 30, 2002 ($17.7 million as of December 31, 2001) for potential clean-up and other costs related to sites at which a Conectiv subsidiary is a potentially responsible party or alleged to be a third party contributor. The accrued liability as of September 30, 2002 included $10 million for remediation and other costs associated with environmental contamination that resulted from an oil release at the Indian River power plant (which was sold on June 22, 2001) and reflects the terms of a related consent agreement reached with the Delaware Department of Natural Resources and Environmental Control during 2001. The Company does not expect such future costs to have a material effect on its financial position or results of operations.

Litigation

     During 1993, Pepco was served with Amended Complaints filed in three jurisdictions (Prince George's County, Baltimore City and Baltimore County), in separate ongoing, consolidated proceedings each denominated, "In re: Personal Injury Asbestos Case." Pepco (and other defendants) were brought into these cases on a theory of premises liability under which plaintiffs argue that Pepco was negligent in not providing a safe work environment for employees of its contractors who allegedly were exposed to asbestos while working on Pepco's property. Initially, a total of approximately 448 individual plaintiffs added Pepco to their Complaints. While the pleadings are not entirely clear, it appears that each plaintiff seeks $2 million in compensatory damages and $4 million in punitive damages from each defendant. In a related proceeding in the Baltimore City case, Pepco was served, in September 1993, with a third-party complaint by Owens Corning Fiberglass, Inc. (Owens Corning) al leging that Owens Corning was in the process of settling approximately 700 individual asbestos-related cases and seeking a judgment for contribution against Pepco on the same theory of alleged negligence set forth above in the plaintiffs' case. Subsequently, Pittsburgh Corning Corp. (Pittsburgh Corning) filed a third-party complaint against Pepco, seeking contribution for the same plaintiffs involved in the Owens Corning third-party complaint. Since the initial filings in 1993, approximately 90 additional individual suits have been filed against Pepco. The third-party complaints involving Pittsburgh Corning and Owens Corning were dismissed by the Baltimore City Court during 1994 without any payment by Pepco. While the aggregate amount specified in the remaining suits would exceed $400 million, Pepco believes the amounts are greatly exaggerated, as were the claims already disposed of. The amount of total liability, if any, and any related insurance recovery cannot be precisely determined at this time; ho wever, based on information and relevant circumstances known at this time, Pepco does not believe these suits will have a material adverse effect on its financial position. However, an unfavorable decision rendered against Pepco could have a material adverse effect on results of operations in the year in which a decision is rendered.

     On October 24, 2000, the City of Vineland, New Jersey (City), filed an action in a New Jersey Superior Court to acquire ACE electric distribution facilities located within the City limits by eminent domain. On March 13, 2002, ACE and the City signed an agreement that provides for ACE to sell the electric distribution facilities within the City limits, and the related customer accounts, for $23.9 million. The proceeds are being received in installments as milestones are met, and are proceeding on schedule. The remaining proceeds should be received in the second quarter of 2004, when the final milestones will be completed. At that time the assets and customers will be transferred to the City and the sale will be recorded by ACE.

     The Company, through its subsidiaries, is involved in other legal and administrative (including environmental) proceedings before various courts and agencies with respect to matters arising in the ordinary course of business. Management is of the opinion that the final disposition of these proceedings will not have a material adverse effect on the Company's financial position or results of operations.

Dividends Declared

     Pepco Holdings' Board of Directors has declared a quarterly dividend on common stock of $.25 to be paid December 31, 2002, to shareholders of record on December 10, 2002.

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

                       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. and its subsidiaries (the Company) as of September 30, 2002, and the related consolidated statements of earnings for each of the three-month and nine-month periods ended September 30, 2002 and the consolidated statement of cash flows for the nine-month period ended September 30, 2002. 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 generally accepted auditing standards, 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.

PricewaterhouseCoopers LLP
November 13, 2002

Item 2.		MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL     CONDITION AND RESULTS OF OPERATIONS
OVERVIEW      Pepco Holdings, Inc. (Pepco Holdings or the Company, formerly New RC, Inc.), a registered holding company under the Public Utility Holding Company Act of 1935 (PUHCA), was incorporated under the laws of Delaware on February 9, 2001 for the purpose of effecting Potomac Electric Power Company's (Pepco) acquisition of Conectiv, which was consummated on August 1, 2002. Upon the completion of the merger, Pepco and Conectiv became wholly owned subsidiaries of Pepco Holdings. Additionally, Pepco, through a series of transactions, transferred its ownership interests in it pre-merger subsidiaries Potomac Capital Investment Corporation (PCI) and Pepco Energy Services, Inc. (PES) to Pepco Holdings and PCI transferred its ownership interests in its pre-merger subsidiary Pepco Communications, Inc. (Pepcom) to Pepco Holdings. These transactions resulted in PCI, PES, and Pepcom becoming wholly owned subsidiaries of Pepco Holdings. Pepco Holdings manages the operations of it s subsidiaries, as described below. Power Delivery      The largest component of Pepco Holdings' business is power delivery, which is conducted through its subsidiaries Pepco, Delmarva Power & Light Company (DPL), and Atlantic City Electric Company (ACE). Pepco, DPL and ACE are all regulated public utilities in the jurisdictions in which they serve customers. The operations of DPL and ACE collectively are referred to as "Conectiv Power Delivery." Pepco      Pepco is engaged in the transmission and distribution of electricity in Washington, D.C. and major portions of Prince George's and Montgomery Counties in suburban Maryland. As of September 30, 2002, Pepco delivered power to approximately 716,000 customers. Under settlements entered into with regulatory authorities, Pepco is required to provide electricity supply at specified rates (which we refer to as "default service") to customers in Maryland until July 2004 and to customers in Washington, D.C. until February 2005. Under a full requirements contract entered into in 2000 in connection with the purchase by Mirant Corporation of substantially all of Pepco's electricity generation assets, Mirant is obligated to supply Pepco with all of the capacity and energy needed to fulfill these default service obligations at fixed prices that are lower than currently approved tariff rates that Pepco charges for providing such service. If Mirant were to fail to fulfill its supply obliga tions, Pepco would have to find alternative sources of supply at rates then prevailing. Conectiv Power Delivery      DPL is engaged in the transmission and distribution of electricity in Delaware and portions of Maryland and Virginia and provides gas distribution service in northern Delaware. As of September 30, 2002, DPL delivered electricity to approximately 482,000 customers and gas to approximately 114,000 customers. Under regulatory settlements, DPL is required to provide default electricity service in Maryland until July 2003 for non-residential customers and until July 2004 for residential customers; to customers in Delaware until May 2006 and to customers in Virginia until January 2004 (which may be extended to July 2007). Conectiv Energy (described below) supplies all of DPL's default service load requirements under a supply agreement that ends June 30, 2004. Conectiv Energy's resources for supplying DPL's default service load include electricity generated by Conectiv Energy's plants and purchased electricity, including purchases under long-term agreements. DPL purchases gas sup plies for its customers from marketers and producers in the spot market and under short-term and long-term agreements.      ACE is engaged in the transmission and distribution of electricity in southern New Jersey. ACE has default service obligations for approximately 20 percent of the electricity supply to its customers. It expects to fulfill these obligations through the generation output from the fossil-fuel fired generating plants held for sale, as discussed below, and through existing purchase power agreements with non-utility generators. As of September 30, 2002, ACE delivered electricity to approximately 509,000 customers. ACE also currently owns fossil fuel-fired electric generating plants. ACE anticipates selling these generation assets. The agreements between ACE and NRG Energy, Inc. (NRG) for the sale of ACE's fossil fuel-fired electric generating plants (740 MW of capacity), including the Deepwater Station and B.L. England Station, and ACE's interests in Conemaugh and Keystone Stations, were subject to termination by either party after February 28, 2002. NRG delivered notice to Conectiv on April 1, 2002 terminating these agreements. On May 23, 2002, Conectiv announced that it initiated a second competitive bidding process to sell these ACE-owned fossil fuel-fired electric generating plants. Conectiv expects that the competitive bidding process will conclude by the end of 2002. Conectiv cannot predict the results of the competitive bidding process, whether the process will result in any sales agreements, whether the NJBPU will grant the required approval of any resulting sales agreements, or any related impacts upon recoverable stranded costs. The BGS auction awarded about 1,900 MW, or 80% of ACE's BGS load to four suppliers for the period from August 1, 2002 to July 31, 2003. The remaining 20% of ACE's BGS load is supplied utilizing ACE's electric supply, consisting of its fossil fuel-fired electric generating plants (excluding Deepwater), which are used first to meet such BGS load, and its NUG contracts, to the extent such electric generating plants are not sufficient to satis fy such load. Any portion of ACE's electric supply that exceeds the load requirement of the BGS customers is sold in the wholesale market. In addition, if any of the four suppliers awarded 80% of ACE's BGS load default on performance, ACE will offer the defaulted load to the other winning bidders. If they are not interested, ACE will then procure the needed supply from the wholesale market. Any costs related to this new supply that are not covered by remuneration from the supplier in default will be included in the calculation of deferred electric service costs, which are subject to NJBPU review and future recovery in customer rate increases. Competitive Energy      This component of the Company's business is conducted through its subsidiaries Conectiv Energy Holding Company (Conectiv Energy) and PES. Conectiv Energy      Conectiv Energy supplies power to DPL and provides wholesale power and ancillary services to the PJM power pool. Conectiv Energy's generation asset strategy focuses on mid-merit plants with operating flexibility, multi-fuel capability and low capital requirements that can quickly change their output level on an economic basis. Mid-merit plants generally are operated during times when demand for electricity rises and prices are higher. Conectiv Energy also engages in energy trading to take advantage of price fluctuations and arbitrage opportunities.      As of September 30, 2002, Conectiv Energy owned and operated electric generating plants with 2,294 MW of capacity. In January 2002 Conectiv Energy began construction of a 1,100 MW combined cycle plant with six combustion turbines at a site in Bethlehem, Pennsylvania that is expected to become partially operational by the end of 2002 and fully operational by the end of 2003. In addition, Conectiv Energy has ordered seven combustion turbines which, with additional equipment, could be configured into up to three combined cycle plants with approximately 550 MW of capacity each. Construction of these additional plants is subject to market conditions but is currently expected to occur in phases and to be completed by 2007, with delivery of the combustion turbines occurring in phases through 2003. Through September 30, 2002 a total of $172.1 million has been paid for these turbines. The total amount to be paid is expected to be approximately $235 million. PES      PES provides retail electricity and natural gas to residential, commercial, industrial and governmental customers in the District of Columbia and states in the mid-Atlantic region. PES also provides integrated energy management solutions to commercial, industrial and governmental customers, including energy-efficiency contracting, development and construction of "green power" facilities, equipment operation and maintenance, fuel management, and appliance service agreements. In addition, PES owns electricity generation plants with approximately 800 MW of peaking capacity, the output of which PES sells in the wholesale market. PES also purchases and sells electricity and natural gas in the wholesale markets to support its commitments to its retail customers. Other Non-Regulated      This component of Pepco Holdings' business is conducted through its subsidiaries PCI and Pepcom. PCI      PCI manages a portfolio of financial investments and strategic operating businesses that are designed to provide us with supplemental earnings and cash flow. PCI has been redirecting its investment operations to focus on investments that are related to the energy industry, such as energy leveraged leases. These transactions involve PCI's purchase and leaseback of utility assets, located outside of the United States, that provide a long-term, stable stream of cash flow and earnings. PCI has reduced its previous concentration of investments in the aircraft industry from 33 aircraft in 1995 to three aircraft currently. PCI also owns a ten-story, 360,000 square foot office building in downtown Washington, D.C., which is leased to Pepco and serves as Pepco Holdings' and Pepco's corporate headquarters.      PCI's utility industry products and services are provided through various operating companies. Its underground electric services company, W.A. Chester, provides high voltage construction and maintenance services to utilities and to other customers throughout the United States. PCI also owns Severn Cable, which provides low voltage electric and telecommunication construction and maintenance services in the Washington, D.C. area. Pepcom      Pepcom owns a 50% interest in Starpower Communications, LLC, a joint venture with RCN Corporation, which provides cable and telecommunication services to households in the Washington, D.C. area. CRITICAL ACCOUNTING POLICIES      The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America, such as Statement of Position 94-6 "Disclosure of Certain Significant Risks and Uncertainties," requires the use of estimates and assumptions that affect the reported amounts of assets and liabilities, revenues and expenses, and related disclosures of contingent assets and liabilities in the consolidated financial statements and accompanying notes. Examples of estimates used by the Company include the calculation of the allowance for uncollectible accounts, environmental remediation costs and anticipated collections, unbilled revenue, pension activity, fair values used in the purchase method of accounting and the resulting goodwill balance.      The U.S. Securities and Exchange Commission (SEC) has defined a company's most critical accounting policies as the ones that are most important to the portrayal of the company's financial condition and results of operations, and which require the company to make its most difficult and subjective judgments, often as a result of the need to make estimates of matters that are inherently uncertain. Based on this definition, Pepco Holdings has identified the critical accounting policies and judgments as addressed below. Although Pepco Holdings believes that its estimates and assumptions are reasonable, they are based upon information presently available. Actual results may differ significantly from these estimates under different assumptions or conditions. Revenue Recognition      Power Delivery revenues primarily include revenues from the supply and delivery of electricity to the customers of Pepco, DPL, and ACE. Revenues from the supply and delivery of natural gas to DPL's customers are also included in Power Delivery. Competitive Energy revenues are primarily derived from electricity and natural gas trading activities and strategic generation, which is the sale of electricity, capacity, and ancillary services from deregulated electric generating plants. It also includes revenues from wholesale and retail sales of electricity and natural gas to customers that are supplied by purchases in wholesale markets and revenues from energy management products and services. Other Non-Regulated revenues are provided primarily by Pepco Holdings non-utility subsidiaries, including PCI and Pepcom.      The Power Delivery businesses recognize revenues for the supply and delivery of electricity and gas upon delivery to the customer, including amounts for services rendered, but not yet billed. Conectiv Energy recognizes revenue when delivery is substantially complete for non-trading activities, and on a mark-to-market basis for trading activities. PES recognizes revenue for its wholesale and retail commodity business upon delivery to customers. Revenues for PES' energy efficiency construction business is recognized using the percentage of completion method of revenue recognition and revenues from its operation and maintenance and other products and services contracts are recognized when earned. Revenues from the Other Non-Regulated business line are principally recognized when services are performed or products are delivered, however revenue from PCI's utility industry services contracts is recognized using the percentage-of-completion method of revenue recognition, which recognizes revenue as work progresses on the contract.
Accounting For the Effects of Certain Types of Regulation      The requirements of SFAS No. 71 (SFAS 71) "Accounting for the Effects of Certain Types of Regulation" apply to the Power Delivery businesses of Pepco, DPL, and ACE. SFAS 71 allows regulated entities, in appropriate circumstances, to establish regulatory assets and to defer the income statement impact of certain costs that are expected to be recovered in future rates. Management's assessment of the probability of recovery of regulatory assets requires judgment and interpretation of laws, regulatory commission orders, and other factors. Should existing facts or circumstances change in the future to indicate that a regulatory asset is not probable of recovery, then the regulatory asset would be charged to earnings. Accounting for Goodwill and Certain Other Intangibles      Effective January 1, 2002, Pepco Holdings adopted the full provisions of SFAS No. 141, Business Combinations, and SFAS No. 142, Goodwill and Other Intangible Assets. SFAS No. 141 requires business combinations initiated after June 30, 2001 to be accounted for using the purchase method of accounting and broadens the criteria for recording intangible assets apart from goodwill. Conectiv evaluated its existing goodwill and intangibles acquired prior to June 30, 2001 using the criteria of SFAS 141, which resulted in no impact to the Company's financial statements. SFAS 142 requires that purchased goodwill and certain indefinite-lived intangibles no longer be amortized, but instead be tested for impairment at least annually. The Company evaluated its intangible assets and determined that all such assets have determinable lives. SFAS 142 prescribes a two-phase process for impairment testing of goodwill. The first phase, required to be completed by December 31, 2002, screens for impairment; the second phase (if necessary) measures the impairment. Accounting For Derivatives      SFAS No. 133 (SFAS No. 133), "Accounting for Derivative Instruments and Hedging Activities" requires derivative instruments to be measured at fair value. The gain or loss on a derivative that hedges exposure to variable cash flow of a forecasted transaction is initially recorded in other comprehensive income (a separate component of common stockholders' equity) and is subsequently reclassified into earnings when the forecasted transaction occurs. If a forecasted transaction is no longer probable, the deferred gain or loss in accumulated other comprehensive income is immediately reclassified to earnings. Changes in the fair value of other hedging derivatives result in a change in the value of the asset, liability, or firm commitment being hedged; to the extent the hedge is effective. Any ineffective portion of a hedge is recognized in earnings immediately.      In June 2002, Pepco Holdings entered into several treasury lock transactions 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 SFAS 133, are intended to offset the changes in future cash flows attributable to fluctuations in interest rates. Each reporting period, the after-tax fair value amount of the hedge was 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 was recorded as a liability. Upon the closing of the sale of the debt on September 6, 2002, the net loss on the settlement of the treasury lock transactions of $63.4 million (after tax) was recorded as accumulated other comprehensive loss and began to be amortized on Pepco Holdings' consolidated statements of earnings into int erest expense over the life of the related debt. Additionally, the fair value of the liability of $106.1 million (pre tax) was paid by Pepco Holdings on September 4, 2002, the hedge settlement date.      Conectiv Energy engages in commodity hedging activities to minimize the risk of market fluctuations associated with the purchase and sale of energy commodities (natural gas, petroleum, coal and electricity). The majority of these hedges relate to the procurement of fuel for its power plants, fixing the cash flows from the plant output, and securing power for electric load service. Conectiv Energy's hedging activities are conducted using derivative instruments designated as cash flow hedges, which are designed to reduce the variability in future cash flows. Conectiv Energy's commodity hedging objectives, in accordance with its risk management policy, are primarily the assurance of stable and known cash flows and the fixing of favorable prices and margins when they become available.      Conectiv Bethlehem, LLC (CBI), a subsidiary of Conectiv Energy, entered into an interest rate swap agreement for the purpose of managing its overall borrowing rate and limiting its interest rate risk associated with debt it has issued. CBI currently hedges 50-75% of its variable rate debt. CBI formally designated its interest rate swap agreements as a cash flow hedge.      PES purchased natural gas futures and electricity forward contracts to hedge price risk in connection with the purchase of physical natural gas and electricity for delivery to customers in future months. PES accounts for its natural gas futures and electricity forward contracts as cash flow hedges of forecasted transactions.      PCI has entered into interest rate swap agreements for the purpose of managing its overall borrowing rate and limiting its interest rate risk associated with debt it has issued. PCI currently hedges 100% of its variable rate debt and approximately 21% of its fixed rate debt for the Medium Term Note program. PCI formally designated its interest rate swap agreements as both cash flow hedge and fair value hedge instruments.      Unrealized losses on Conectiv's derivatives designated as cash flow hedges, resulted in a loss balance of $6.5 million, after income taxes, in accumulated other comprehensive income as of September 30, 2002. The unrealized cash flow hedge losses primarily resulted from a decline in prices associated with natural gas expected to be used by electric generating plants. These and other cash flow hedges are intended to reduce the volatility of future cash flows.      On October 25, 2002, the EITF rescinded Issue No. 98-10 (EITF 98-10) "Accounting for Contracts Involved in Energy Trading and Risk Management Activities." The Company's interpretation of EITF 98-10 is consistent with the current rules that are being applied under SFAS No. 133 and therefore management does not believe that rescinding EITF 98-10 will impact its financial position or results of operations.
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," which 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 and September 2002, net presentation is required. Conectiv Energy and PES enter into trading activities that are subject to the provisions of this pronouncement and both historically have classified these contracts on a gross basis.      Conectiv Energy and PES have completed their evaluation of the financial statement reclassification required by EITF 02-3. Beginning with July 2002, all trades were recorded net and therefore no reclassification was required for the three months ended September 30, 2002. Accordingly, Conectiv Energy's results for the post-merger months of August and September 2002, included in Pepco Holding's operating results herein, reflect no revenue or expense reclassification. PES revenues decreased from $423.6 million to $401 million for the nine months ended September 30, 2002 and from approximately $212.1 million to $165.6 million and from approximately $481.2 million to $400.7 million, for the three and nine months ended September 30, 2001, respectively. There is no impact on Conectiv Energy's or PES' overall financial position or net results of operations as a result of the implementation of EITF 02-3. Accounting For Marketable Securities      Conectiv and PCI hold marketable equity securities which are classified as available-for-sale securities under SFAS 115, Accounting for Certain Investments in Debt and Equity Securities. Unrealized holding gains and losses on available-for-sale securities are excluded from earnings and are reported in accumulated other comprehensive income on the accompanying consolidated balance sheets. However, if a decline in fair value of an available-for-sale security is determined to be other than temporary, then the cost basis of the security is written down to fair value and the decline in fair value is included in earnings. CONSOLIDATED RESULTS OF OPERATIONS LACK OF COMPARABILITY OF OPERATING RESULTS WITH PRIOR PERIOD      As a result of the merger transaction on August 1, 2002, Pepco Holdings' accompanying unaudited consolidated balance sheet as of September 30, 2002 includes the accounts of Pepco Holdings and its subsidiaries (discussed in the "Overview" section, herein), after giving effect to the merger transaction and resulting purchase accounting entries. Since Pepco was the acquiring company, in accordance with the purchase method of accounting, Pepco represents the "predecessor" company. Accordingly, the prior year consolidated balance sheet as of December 31, 2001, includes only the consolidated accounts of Pepco and its pre-merger subsidiaries, PCI and PES, as previously reported by Pepco.      The accompanying unaudited consolidated statements of earnings for the three and nine months ended September 30, 2002 include Pepco's and its pre-merger subsidiaries' results for the entire periods presented consolidated with Conectiv's and its subsidiaries' results starting on August 1, 2002, the date the merger was consummated. The 2001 operating amounts reflect only the consolidated operations of Pepco and its pre-merger subsidiaries, as previously reported by Pepco.      Accordingly, due to the application of the purchase method of accounting that was used to record the merger transaction, the 2002 and 2001 balances included in the accompanying unaudited consolidated financial statements are not comparable. OPERATING REVENUE Three Months Ended      Total consolidated operating revenue for the three months ended September 30, 2002, was $1,641.2 million compared to $720 million for the corresponding quarter last year. Intercompany revenue has been eliminated for purposes of this analysis. A detail of these amounts is as follows:
			Three Months Ended
			2002	2001		Change
Pepco			$  516.6	$545.7		$(29.1)
Conectiv Power Delivery			456.0	-		456.0
Conectiv Energy			390.4	-		390.4
PES			250.0	165.6		84.4
Other Non-Regulated			28.2	27.1		1.1
Loss on divestiture of    generation assets			-	(18.4)		18.4
Total			$1,641.2	$720.0
The decrease in Pepco's operating revenue during the 2002 quarter primarily results from a decrease of $43.7 million in standard offer service revenue due to increased customer migration to alternate suppliers during the 2002 quarter. Retail access to a competitive market for generation services was made available to all Maryland customers on July 1, 2000 and to D.C. customers on January 1, 2001. At September 30, 2002, 14% of the Utility's Maryland customers and 12% of its D.C. customers have chosen alternate suppliers. These customers accounted for 1,134 megawatts of load in Maryland (of Pepco's total load of 3,369) and 1,195 megawatts of load in D.C. (of Pepco's total load of 2,326). The decrease in standard offer service revenue was partially offset by a $20.5 million increase in delivery revenue due to higher delivered kilowatt hour sales (11% increase) from hotter weather than experienced last year. Cooling degree hours were appr oximately 42% above normal during the 2002 period.      The amounts for Conectiv Power Delivery and Conectiv Energy represent their post-merger operations for the months of August and September 2002.      The increase in operating revenues at PES primarily results from growth in its retail commodity business.      The 2001 quarter included an $18.4 million loss that resulted from the settlement of certain disputes with Mirant Corporation in connection with the 2000 asset divestiture. Nine Months Ended      Total consolidated operating revenue for the nine months ended September 30, 2002, was $2,716.7 million compared to $1,918.7 million for the corresponding nine-month period last year. Intercompany revenue has been eliminated for purposes of this analysis. A detail of these amounts is as follows:
			Nine Months Ended
			2002	2001		Change
Pepco			$1,223.4	$1,410.4		$(187.0)
Conectiv Power Delivery			456.0	-		456.0
Conectiv Energy			390.4	-		390.4
PES			567.3	400.7		166.6
Other Non-Regulated			79.6	75.8		3.8
Gain on divestiture of    generation assets			-	31.8		(31.8)
Total			$2,716.7	$1,918.7
The decrease in Pepco's operating revenue during the 2002 nine month period primarily results from a decrease of $193.2 million in standard offer service revenue due to increased migration to alternative suppliers, partially offset by a $15.4 million increase in delivery revenue due to hotter than normal weather during the period.      The amounts for Conectiv Power Delivery and Conectiv Energy represent their post-merger operations for the months of August and September 2002.      The increase in PES' operating revenue results from growth in its retail commodity business.      The gain on divestiture of generation assets of $31.8 million in 2001 resulted from the sale of Pepco's interest in the Conemaugh generating station. OPERATING EXPENSES Three Months Ended      Total consolidated operating expenses for the three months ended September 30, 2002, were $1,383.4 million compared to $586.8 million for the corresponding quarter last year. Intercompany expenses have been eliminated for purposes of this analysis. A detail of these amounts is as follows:
			Three Months Ended
			2002	2001		Change
Pepco			$  375.7	$410.7		$(35.0)
Conectiv Power Delivery			278.9	-		278.9
Conectiv Energy			479.8	-		479.8
PES			242.4	154.8		87.6
Other Non-Regulated			9.0	21.3		(12.3)
Eliminations and Other			(2.4)	-		(2.4)
Total			$1,383.4	$586.8
The decrease in Pepco's operating expenses during the 2002 quarter primarily results from a $44.2 million decrease in fuel and purchased energy expense due to less energy purchased because of increased customer migration. This decrease was partially offset by an increase in other taxes of $4.8 million due to higher Maryland property taxes ($2.1 million) and higher delivery taxes ($2 million).      The amounts for Conectiv Power Delivery and Conectiv Energy represent their post-merger operations for the months of August and September 2002.      The increase in PES' operating expenses results from growth in its retail commodity business.      The decrease in Other Non-Regulated operating expenses primarily results from lower depreciation expense incurred as a result of fewer aircraft on operating leases in 2002. Also, the decrease is attributable to the timing of contractual utility related services.     "Eliminations and Other" in 2002 primarily represents unallocated Pepco Holdings' capital costs, such as the acquisition financing and the amortization of "purchase accounting" related adjustments to the fair value of non-regulated Conectiv assets and liabilities as of August 1, 2002. Intercompany revenue and expense are also eliminated in this line item. Nine Months Ended      Total consolidated operating expenses for the nine months ended September 30, 2002, were $2,293.8 million compared to $1,545.1 million for the corresponding nine-month period last year. Intercompany expenses have been eliminated for purposes of this analysis. A detail of these amounts is as follows:
			Nine Months Ended
			2002	2001		Change
Pepco			$  948.8	$1,098.7		$(149.9)
Conectiv Power Delivery			278.9	-		278.9
Conectiv Energy			479.8	-		479.8
PES			559.0	384.2		174.8
Other Non-Regulated			29.7	62.2		(32.5)
Eliminations and Other			(2.4)	-		(2.4)
Total			$2,293.8	$1,545.1
The decrease in Pepco's operating expense during the 2002 nine month period results from a $166.3 million decrease in fuel and purchase energy expense due to less energy purchased due to higher customer migration. This decrease was partially offset by an increase of $4.1 million in O&M expenses due to an increase in general power delivery expenses ($2.7 million); an increase of $4 million in depreciation expense; and an increase of $8.2 million in other taxes due to higher Maryland property taxes ($6.4 million) and higher delivery taxes and Pennsylvania property taxes ($1.8 million).      The amounts for Conectiv Power Delivery and Conectiv Energy represent their post-merger operations for the months of August and September 2002.      The increase in PES' operating expenses results from growth in its retail commodity business.      The decrease in Other Non-Regulated operating expenses primarily results from lower depreciation expense incurred as a result of fewer aircraft on operating leases in 2002. OTHER INCOME (EXPENSES) Three Months Ended      Total consolidated other expenses for the three months ended September 30, 2002, were $62.2 million compared to $25.1 million for the corresponding quarter last year. A detail of these amounts is as follows:
			Three Months Ended
			2002	2001		Change
Pepco			$(17.6)	$ (8.1)		$ 9.5
Conectiv Power Delivery			(18.6)	-		18.6
Conectiv Energy			(1.1)	-		1.1
PES			(.1)	(2.6)		(2.5)
Other Non-Regulated			(9.4)	(14.4)		(5.0)
Eliminations and Other			(15.4)	-		15.4
Total			$(62.2)	$(25.1)
The increase in Pepco's other income (expenses) during the 2002 quarter results from a $4.1 million decrease in interest income earned primarily due to lower proceeds remaining to invest from Pepco's 2000 and 2001 generating asset divestitures and due to an increase of $4.2 million in interest expense during the quarter due to interest incurred on the Company's outstanding debt.      The amounts for Conectiv Power Delivery and Conectiv Energy represent their post-merger operations for the months of August and September 2002.      The decrease in Other Non-Regulated other income (expense) results from the timing of financial transactions. Nine Months Ended      Total consolidated other expenses for the nine months ended September 30, 2002, were $115.1 million compared to $72.6 million for the corresponding nine-month period last year. A detail of these amounts is as follows:
			Nine Months Ended
			2002	2001		Change
Pepco			$ (52.1)	$(31.5)		$20.6
Conectiv Power Delivery			(18.6)	-		18.6
Conectiv Energy			(1.1)	-		1.1
PES			(.1)	(1.2)		(1.1)
Other Non-Regulated			(27.8)	(39.9)		(12.1)
Eliminations and Other			(15.4)	-		15.4
Total			$(115.1)	$(72.6)
The increase in Pepco's other expenses during the 2002 nine month period results from a $33.7 million decrease in interest income primarily due to lower proceeds remaining to invest from the Company's 2000 and 2001 divestitures and due to a decrease of $18.5 million in interest expense due to lower interest on commercial paper ($4.4 million) and as a result of the payoff of approximately $100 million in debt ($13 million).      The amounts for Conectiv Power Delivery and Conectiv Energy represent their post-merger operations for the months of August and September 2002.      The decrease in Other Non-Regulated other income (expense) primarily results from Pepcom's improved margins, reduced selling, general and administrative expenses, and the favorable impact of the termination of the requirement to amortize goodwill. INCOME TAX EXPENSE (BENEFIT) Three Months Ended      Total consolidated income tax expense for the three months ended September 30, 2002, was $74.3 million compared to $35.8 million for the corresponding quarter last year. A detail of these amounts is as follows:
			Three Months Ended
			2002	2001		Change
Pepco			$46.8	$42.0		$ 4.8
Conectiv Power Delivery			15.7	-		15.7
Conectiv Energy			9.4	-		9.4
PES			2.1	4.0		(1.9)
Other Non-Regulated			(2.1)	(10.2)		8.1
Eliminations and Other			2.4	-		2.4
Total			$74.3	$35.8
The increase in Pepco's income tax expense during the 2002 quarter results from the fact that the 2001 quarter included a nonrecurring credit in other taxes in the 2001 quarter from the loss on the Mirant dispute ($8.6 million), partially offset by lower taxes in the 2002 quarter ($1.6 million) due to lower interest income.      The amounts for Conectiv Power Delivery and Conectiv Energy represent their post-merger operations for the months of August and September 2002.      The decrease in Other Non-Regulated income tax benefit results from the timing of financial transactions in 2001 versus 2002. Nine Months Ended      Total consolidated income tax expense for the nine months ended September 30, 2002, was $110.5 million compared to $109.7 million for the corresponding nine-month period last year. A detail of these amounts is as follows:
			Nine Months Ended
			2002	2001		Change
Pepco			$ 84.0	$129.5		$(45.5)
Conectiv Power Delivery			15.7	-		15.7
Conectiv Energy			9.4	-		9.4
PES			2.6	7.1		(4.5)
Other Non-Regulated			(3.6)	(26.9)		23.3
Eliminations and Other			2.4	-		2.4
Total			$110.5	$109.7
The decrease in Pepco's income tax expense during the 2002 nine month period results from lower taxes as a result of lower interest income ($11.4 million) and due to the fact that the 2001 period included taxes on the Company's generating plant divestitures ($34.3 million).      The amounts for Conectiv Power Delivery and Conectiv Energy represent their post-merger operations for the months of August and September 2002.      The decrease in PES' income tax expense results from reduced earnings in its commodity business.      The decrease in Other Non-Regulated income tax benefit principally results from the tax benefit associated with one-time transactions completed in 2001. CAPITAL RESOURCES AND LIQUIDITY Sources of Liquidity      Due to $601.9 million of cash provided by operating activities, $1,628.4 million of cash used by investing activities, and $600.7 million of cash provided by financing activities, cash and cash equivalents decreased by $425.8 million during the nine months ended September 30, 2002. This decrease results from the fact that $1,075.6 million in cash was used to acquire Conectiv (net of Conectiv cash acquired).      Pepco Holdings relies on access to bank and capital markets as a significant source of liquidity for capital requirements not satisfied by cash provided by its subsidiaries operations. Pepco Holdings generates no operating income on its own. Accordingly, Pepco Holdings' ability to pay dividends to its common stockholders will depend on dividends received from its subsidiaries. Pepco Holdings' ability to borrow funds or issue securities and the return demanded by investors are affected by the issuing company's credit ratings. In addition to their future financial performance, the ability of the subsidiaries to pay dividends to Pepco Holdings will be subject to the limits imposed by: state corporate and regulatory laws, which contain limitations on the funds that can be used to pay dividends and, in the case of regulatory laws, may require the prior approval of the relevant utility regulatory commissions before dividends can be paid; the 1935 Act, which prohibits the payment of dividends by a registered holding company or any of its subsidiaries out of capital or unearned surplus without the prior approval of the SEC; the provisions of their respective charters and bylaws; and the prior rights of holders of existing and future preferred stock, mortgage bonds and other long-term debt issued by the subsidiaries, and other restrictions in connection with other liabilities. PUHCA Restrictions      Because the Company is a holding company registered under PUHCA, it must obtain SEC approval to issue securities. Under PUHCA, Pepco Holdings may not pay dividends on the shares of common stock from an accumulated deficit or from paid-in-capital without United States Securities and Exchange Commission (SEC) approval. PUHCA also prohibits Pepco Holdings to borrow from its subsidiaries. Under an SEC Financing Order dated July 31, 2002 (the "Financing Order"), Pepco Holdings is authorized to issue equity, preferred securities and debt securities in an aggregate amount not to exceed $3.5 billion through the authorization period ending June 30, 2005. The external financing limit includes a short-term debt outstanding limitation of $2.5 billion. Pepco Holdings is also authorized to enter into guarantees to third parties or otherwise provide credit support with respect to obligations of its subsidiaries for up to $3.5 billion. The Financing Order requires that, in order to is sue debt or equity securities, the Company must maintain a ratio of common stock equity to total capitalization (consisting of common stock, preferred stock, if any, long-term debt and short-term debt) of at least 30 percent. If this ratio falls below 30 percent (and the Company does not obtain from the SEC an amended order permitting it to maintain a lower ratio), the Company will not have the authority to issue either debt or equity securities, including additional commercial paper issued to refinance maturing commercial paper. As of September 30, 2002, the Company's common equity ratio was 30.9 percent or approximately $80 million in excess of the 30 percent threshold. The Company intends to take such actions as necessary to prevent the common equity ratio from dropping below 30 percent, including the sale of additional shares of common stock. In this regard, the Company has filed with the SEC a shelf registration statement for the sale of additional debt and equity securities. This shelf registratio n has been declared effective by the SEC. The Company may also seek an amendment to the SEC order that would permit the common equity ratio to temporarily drop below 30 percent for a period of time. Financing      Pepco Holdings entered into a $1.1 billion short term bridge facility on August 1, 2002 and borrowed the full $1.1 billion to fund $700 million of the merger cash consideration, and repay commercial paper and Conectiv bank loans due upon merger closing. The facility was repaid in full on September 6, 2002 with proceeds from Pepco Holding's note offering.      Pepco Holdings issued $1.35 billion of unsecured notes on September 6, 2002: $350 million of 5.50% notes due August 15, 2007, $750 million of 6.45% notes due August 15, 2012, and $250 million of 7.45% notes due August 15, 2032. The net proceeds from the offering totaled $1.34 billion. Pepco Holdings offered the notes in an unregistered transaction. The proceeds from the sale of the notes were used to repay approximately $1.1 billion of indebtedness outstanding under a short-term bridge facility entered into on August 1, 2002 in connection with the merger, and to repay approximately $240 million of Pepco Holdings' outstanding commercial paper, including approximately $106.1 million of commercial paper issued to fund the settlement of treasury lock transactions entered into in June 2002 in anticipation of the offering of the notes.      On September 19, 2002 Pepco Holdings issued an additional $150 million of the 5.5% notes due August 15, 2007 (which were consolidated to form a single series with the $350 million 5.5% notes due 2007, issued by Pepco Holdings on September 6). The net proceeds from the offering totaled $151.7 million. Pepco Holdings offered the notes in an unregistered transaction. The proceeds from the sale of the notes were used to repay outstanding commercial paper.      Pepco Holdings established a $1 billion commercial paper program effective August 1, 2002 with Merrill Lynch, Credit Suisse First Boston and Bank One as dealers. This program replaced the Pepco, Conectiv and PCI programs which were terminated at the end of August 2002.      Pepco Holdings has established a $1.5 billion 364-day revolving credit facility with various financial institutions. Pepco Holdings' borrowing sublimit under the Agreement is $1 billion, which will primarily be used to back up its commercial paper program. The $1.5 billion facility includes a $300 million letter of credit sublimit.      On June 4, 2002, Conectiv sold $250 million in principal amount of 5.30% Notes due June 1, 2005 (the Initial Notes). In October 2002, the Initial Notes were exchanged for Notes, the form and terms of which are the same as the Initial Notes and are registered under the Securities Act of 1933, as amended.      On October 1, 2002, DPL redeemed $30 million of 6.95% First Mortgage Bonds and $12 million of 6.59% Medium Term Notes. Pension Funding      As a result of recent declines in the values of securities in the financial markets, the pension assets of Pepco and Conectiv have failed to achieve the level of returns assumed in the determination of their pension expense accruals thus far during 2002. As a result, should the financial markets remain at the lower levels of September 30, 2002 or decline further, additional funds will need to be contributed to its pension plans in order to achieve a funding level of 100% with respect to its pension liabilities. Based on current estimates of pension liabilities at year end 2002, such additional funding could be at least $25 million. In addition, due to current lower asset values in its pension plans and the potential need to modify the assumptions used to value its pension liabilities, Pepco and Conectiv could experience a substantially higher level of pension expense in the near term and until the financial markets' performance improves. Both the funding amount and th e pension expense accrual will be determined by the actual return on plan assets for the year, which depends on the performance of the financial markets during the balance of the year, and the level of interest rates at year end 2002, which cannot be definitively predicted. Shareholder Dividend Reinvestment Plan and Employee Benefit Plans Under the Company's Shareholder Dividend Reinvestment Plan and under various employee benefit plans of the Company and its subsidiaries, the Company can satisfy its obligations to supply Company common stock for the plans either by selling newly issued shares to the plans or by contributing cash that the plan administrators then use to purchase common stock in the open market. From August 1, 2002 to the date of this report, the Company issued an aggregate of 343,078 shares of it common stock to fund its obligations under the plans. Dividend Policy and Restrictions      The Company's annual dividend rate on its common stock is determined by the Board of Directors on a quarterly basis and takes into consideration, among other factors, current and possible future developments which may affect the Company's income and cash flows. The Company's Board of Directors declared a quarterly dividend per share of common stock of 25 cents payable on December 31, 2002 to holders of record on December 10, 2002. Previously, the Board declared a "pro-rata" period dividend of $.16576079 per share following the August 1 merger which was paid September 30, 2002 to holders of record on September 10, 2002. Under PUHCA, Pepco Holdings may not pay dividends on the shares of common stock from an accumulated deficit or paid-in capital without SEC approval. Pepco Holdings' common dividends paid to stockholders are currently funded from the common dividends that Pepco, DPL, and ACE pay to Pepco Holdings. Under PUHCA, Pepco, DPL, and ACE are prohibited from pay ing a dividend from an accumulated deficit or paid-in-capital, unless SEC approval is obtained. Also, certificates of incorporation of Pepco, DPL, and ACE have certain other limitations on the payment of common dividends to Pepco Holdings. Other Regulatory Matters      On September 9, 2002, New Jersey enacted an amendment (Amendment) to the 1999 Electric Discount and Energy Competition Act (the New Jersey Act). The Amendment permits the NJBPU to authorize the securitization of deferred balances of electric public utilities resulting from the provisions of the New Jersey Act. The NJBPU may authorize the issuance of transition bonds by an electric public utility or other financing entity in order to (i) recover stranded costs deemed eligible for rate recovery in a stranded cost recovery order; (ii) recover rate reduction requirements determined by the NJBPU to be necessary under the provisions of the New Jersey Act; or (iii) recover basic generation service transition costs. The NJBPU may approve transition bonds with scheduled amortization of up to fifteen years if related to stranded cost recoveries or recoveries of basic generation service transition costs, or the remaining term of a purchase power agreement if related to the buyout or buydown of long-term purchase power contracts with non-utility generators (NUGs).      On September 20, 2002, the NJBPU issued a Bondable Stranded Costs Rate Order (Financing Order) to ACE authorizing the issuance of $440 million of Transition Bonds. The proceeds of these bonds will be used to recover the stranded costs associated with the divestiture of the ACE nuclear assets, the buyout of the Pedricktown NUG contract and the buydown of the American Ref-Fuel NUG contract. Also included in the amount authorized is $20 million of transaction costs and capital reduction costs. Conectiv expects that the bonds will be issued by the end of 2002, although this is dependent on conditions in the relevant capital markets at the times of the offerings.      ACE formed Atlantic City Electric Transition Funding LLC (ACE Transition Funding) during 2001 as a special purpose entity (SPE) for the sole purpose of purchasing and owning the bondable transition property (BTP), issuing transition bonds (Bonds), pledging ACE Transition Funding's interest in BTP and other collateral to the bond trustee to collateralize the Bonds, and performing activities that are necessary, suitable or convenient to accomplish these purposes. Proceeds from the sale of Bonds will be transferred to ACE in consideration for the BTP, and ACE will repurchase debt and/or equity related to the stranded costs and NUG contracts noted above. When issued, the Bonds of ACE Transition Funding will be included in Conectiv's Consolidated Balance Sheet. Working Capital      At September 30, 2002 current assets totaled $1.7 billion versus current liabilities of $2.9 billion, including approximately $500 million in long-term debt due within one year. Although the Company currently has in place a $1.5 billion working capital facility, it intends to lower its current liabilities over the next twelve months through a combination of long-term financing strategies, including debt, securitized debt, and other securities. Trading Activities      Conectiv Energy's and PES' energy contracts for trading activities which are accounted for at fair value are shown in the table below. All fair values are based on prices actively quoted or prices provided by other external sources.
			Energy Trading Contracts Fair Value as of September 30, 2002
Sources of Fair Value			Total Fair Value	Maturity Less than  1 Year		Maturity 1-3  Years
			(Dollars in Millions)
Prices actively quoted			$40.2	$43.6		$(3.4)
Prices provided by   other external sources			10.0	3.0		7.0
Total			$50.2	$46.6		$ 3.6
The change in the fair value of Conectiv Energy's and PES' energy trading contracts for the nine months ended September 30, 2002 is shown in the table below.
					Fair Value of Energy Trading Contracts
(Dollars in Millions)
Fair value of contracts outstanding as of December 31, 2001					$28.0
Less:  Contracts realized or otherwise settled					35.8
Plus:  Fair value of new contracts when initially entered					-
Changes in fair value attributable to changes in          valuation techniques and assumptions					-
Other changes in fair value					58.0
Fair value of contracts outstanding as of September 30, 2002					$50.2
FORWARD LOOKING STATEMENTS      Some of the statements contained in this Form 10-Q are forward-looking statements within the meaning of Section 21E of the Securities Exchange Act and are subject to the safe harbor created by the Private Securities Litigation Reform Act of 1995. These statements include declarations regarding the Company's intents, beliefs and current expectations. In some cases, you can identify forward-looking statements by terminology such as "may," "will," "should," "expects," "plans," "anticipates," "believes," "estimates," "predicts," "potential" or "continue" or the negative of such terms or other comparable terminology. Any forward-looking statements are not guarantees of future performance, and actual results could differ materially from those indicated by the forward-looking statements. Forward-looking statements involve estimates, assumptions, known and unknown risks, uncertainties and other factors that may cause our or our industry's actual results, levels of activity, performance or achievements to be materially different from any future results, levels of activity, performance or achievements expressed or implied by such forward-looking statements.      The forward-looking statements contained and incorporated by reference herein are qualified in their entirety by reference to the following important factors, which are difficult to predict, contain uncertainties, are beyond the Company's control and may cause actual results to differ materially from those contained in forward-looking statements:
·	Prevailing governmental policies and regulatory actions affecting the energy industry, including with respect to allowed rates of return, industry and rate structure, acquisition and disposal of assets and facilities, operation and construction of plant facilities, recovery of purchased power expenses, and present or prospective wholesale and retail competition (including but not limited to retail wheeling and transmission costs);
·	Changes in and compliance with environmental and safety laws and policies;
·	Weather conditions;
·	Population growth rates and demographic patterns;
·	Competition for retail and wholesale customers;
·	General economic conditions, including potential negative impacts resulting from an economic downturn;
·	Growth in demand, sales and capacity to fulfill demand;
·	Changes in tax rates or policies or in rates of inflation;
·	Changes in project costs;
·	Unanticipated changes in operating expenses and capital expenditures;
·	Capital market conditions;
·	Restrictions imposed by the Public Utility Holding Company Act of 1935;
·	Competition for new energy development opportunities and other opportunities;
·	Legal and administrative proceedings (whether civil or criminal) and settlements that influence our business and profitability;
·	Pace of entry into new markets;
·	Success in marketing services;
·	Trading counterparty credit risk;
·	Ability to secure electric and natural gas supply to fulfill sales commitments at favorable prices;
·	Volatility in market demand and prices for energy, capacity and fuel;
·	Operating performance of power plants;
·	Interest rate fluctuations and credit market concerns; and
·	Effects of geopolitical events, including the threat of domestic terrorism.
Any forward-looking statements speak only as to the date of this Form 10-Q and the Company undertakes no obligation to update any forward-looking statements to reflect events or circumstances after the date on which such statement are made or to reflect the occurrence of unanticipated events. New factors emerge from time to time, and it is not possible for the Company to predict all of such factors, nor can the Company assess the impact of any such factor on our business or the extent to which any factor, or combination of factors, may cause results to differ materially from those contained in any forward-looking statement.      The Company undertakes no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. The foregoing review of factors should not be construed as exhaustive.
Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Market Risk      Market risk represents the potential loss arising from adverse changes in market rates and prices. Certain of Pepco Holdings financial instruments are exposed to market risk in the form of interest rate risk, equity price risk, commodity risk, and credit and nonperformance risk. Pepco Holdings management takes an active role in the risk management process and has developed policies and procedures that require specific administrative and business functions to assist in the identification, assessment and control of various risks. Management reviews any open positions in accordance with strict policies in order to limit exposure to market risk. Interest Rate Risk      Pepco Holdings debt is subject to the risk of fluctuating interest rates in the normal course of business. Pepco Holdings manages interest rates through the use of fixed and, to a lesser extent, variable rate debt. The effect of a hypothetical 10% change in interest rates on the annual interest costs for short-term and variable rate debt was approximately $3.8 million as of September 30, 2002.      PCI uses interest rate swap agreements to manage its overall borrowing rate and limit its interest rate risk. The potential loss in fair value from these agreements resulting from a hypothetical 10% increase in base interest rates was estimated at $3.4 million at September 30, 2002. Equity Price Risk      Conectiv holds investments in marketable equity securities and venture capital funds, which invest in securities of technology and service companies related to energy, utility, and communication industries and PCI invests in marketable securities, which consist primarily of preferred stocks with mandatory redemption features and investment grade commercial paper. Conectiv is exposed to equity price risk through the securities invested in by the venture capital funds, and the marketable securities held directly by Conectiv and PCI are exposed to equity price risk from all of the securities. The potential change in the fair value of these investments resulting from a hypothetical 10% decrease in quoted securities prices was approximately $9.9 million as of September 30, 2002. Due to the nature of these investments and market conditions, the fair value of these investments may change by substantially more than 10%. Commodity Price Risk      Conectiv's participation in wholesale energy markets includes trading and arbitrage activities, which expose Conectiv to commodity market risk. To the extent Conectiv has net open positions, controls are in place that are intended to keep risk exposures within management-approved risk tolerance levels. Conectiv engages in commodity hedging activities to minimize the risk of market fluctuations associated with the purchase and sale of energy commodities (natural gas, petroleum, coal and electricity). The majority of these hedges relate to the procurement of fuel for its power plants, fixing the cash flows from the plant output, and securing power for electric load service. Conectiv's hedging activities are conducted using derivative instruments designed as cash flow hedges, which are designed to reduce the volatility on future cash flows. Conectiv's energy commodity hedging objectives, in accordance with its risk management policy, are primarily the assurance of stable and known cash flows and the fixing of favorable prices and margins when they become available. Conectiv manages to the objective of hedging the variability in future cash flows for forecasted energy output from its generation assets at 75% or greater of such forecasted output over a period of 36 months. As of September 2002, Conectiv's average forecasted hedge position for the forward 36 months was projected to meet that objective.      Counterparties to its various hedging and trading contracts expose Conectiv to credit losses in the event of nonperformance. Management has evaluated such risk, implemented credit checks and established reserves for credit losses. Conectiv is also at risk for a decrease in market liquidity to levels that affect its capability to execute its commodity participation strategies. Conectiv believes the commodity markets to be sufficiently liquid to support its market participation.      Conectiv Energy uses a value-at-risk model to assess the market risk of its electricity, gas, coal, and petroleum product commodity activities. The model includes physical forward contracts used for hedging and trading, and commodity derivative instruments. Value-at-risk represents the potential gain or loss on instruments or portfolios due to changes in market factors, for a specified time period and confidence level. Conectiv Energy estimates value-at-risk across its power, gas, coal, and petroleum products commodity business using a delta-gamma variance/covariance model with a 95 percent, one-tailed confidence level and assuming a five-day holding period. Since value-at-risk is an estimate, it is not necessarily indicative of actual results that may occur. Conectiv Energy's calculated value-at-risk with respect to its commodity price exposure associated with contractual arrangements for hedging and trading was approximately $15.1 million as of September 30, 2002. The average, high, and low value-at-risk for the two months ended September 30, 2002 was $22.9 million, $30.3 million and $12.8 million, respectively.      The value-at-risk amounts discussed above include derivatives which are used for hedging. For risk management purposes, Conectiv Energy calculates value-at-risk on derivatives used for trading. This model assumes a one-day holding period, but is otherwise identical to the contractual value-at-risk model above. The value-at-risk on derivatives used for trading was $.8 million as of September 30, 2002 and the average, high, and low for the two months ended September 30, 2002 was $3.3 million, $5.3 million and $.8 million, respectively.      Pepco Holdings recently started measuring company-wide value-at-risk for all unregulated energy commodity activities. This involves computing a combined value-at-risk for Conectiv Energy and PES. Pepco Holding's calculated value-at-risk with respect to its commodity price exposure associated with contractual arrangements for hedging and trading was approximately $22.1 million as of September 30, 2002. Pepco Holding's value-at-risk on derivatives used for trading was $.9 million as of September 30, 2002. Credit and Nonperformance Risk     Certain of the Company's agreements may be subject to credit losses and nonperformance by the counterparties to the agreements. However, the Company anticipates that the counterparties will be able to fully satisfy their obligations under the agreements. The Company attempts to minimize credit risk exposure to trading counterparties and brokers through formal credit policies, monitoring procedures, the use of standardized agreements, which allow for the netting of positive and negative exposures associated with a single counterparty, and collateral requirements under certain circumstances. Valuation allowances are provided for credit risk.
Item 4.		CONTROLS AND PROCEDURES
(a)  Evaluation of Disclosure Controls and Procedures      Based on their evaluation as of a date within 90 days of the filing date of this Quarterly Report on Form 10-Q, the Company's principal executive officer and principal financial officer have concluded that the Company's disclosure controls and procedures (as defined in Rules 13a-14(c) and 15d-14(c) under the Securities Exchange Act of 1934 (the "Exchange Act")) are effective to ensure that information required to be disclosed by the Company in reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in Securities and Exchange Commission rules and forms. (b)  Changes in Internal Controls      There were no significant changes in the Company's internal controls or in other factors that could significantly affect these controls subsequent to the date of their evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.
Part II		OTHER INFORMATION
Item 1.		LEGAL PROCEEDINGS
Environmental Matters      The Company through its subsidiaries is subject to regulation with respect to the environmental effects of their operations, including air and water quality control, solid and hazardous waste disposal, and limitations on land use by various federal, regional, state, and local authorities. Federal and state statutes authorize governmental agencies to compel responsible parties to clean up certain abandoned or uncontrolled hazardous waste sites. Costs may be incurred to clean up facilities found to be contaminated due to current and past disposal practices. The Company's liability for clean-up costs is affected by the activities of these governmental agencies and private land-owners, the nature of past disposal practices, the activities of others (including whether they are able to contribute to clean-up costs), and the scientific and other complexities involved in resolving clean up-related issues (including whether a subsidiary of the Company or a corporate predecessor is responsible for conditions on a particular parcel). Conectiv's current liabilities include $17.3 million as of September 30, 2002 ($17.7 million as of December 31, 2001) for potential clean-up and other costs related to sites at which a Conectiv subsidiary is a potentially responsible party or alleged to be a third party contributor. The accrued liability as of September 30, 2002 included $10 million for remediation and other costs associated with environmental contamination that resulted from an oil release at the Indian River power plant (which was sold on June 22, 2001) and reflects the terms of a related consent agreement reached with the Delaware Department of Natural Resources and Environmental Control during 2001. The Company does not expect such future costs to have a material effect on its financial position or results of operations. Litigation      During 1993, Pepco was served with Amended Complaints filed in three jurisdictions (Prince George's County, Baltimore City and Baltimore County), in separate ongoing, consolidated proceedings each denominated, "In re: Personal Injury Asbestos Case." Pepco (and other defendants) were brought into these cases on a theory of premises liability under which plaintiffs argue that Pepco was negligent in not providing a safe work environment for employees of its contractors who allegedly were exposed to asbestos while working on Pepco's property. Initially, a total of approximately 448 individual plaintiffs added Pepco to their Complaints. While the pleadings are not entirely clear, it appears that each plaintiff seeks $2 million in compensatory damages and $4 million in punitive damages from each defendant. In a related proceeding in the Baltimore City case, Pepco was served, in September 1993, with a third-party complaint by Owens Corning Fiberglass, Inc. (Owens Corning) al leging that Owens Corning was in the process of settling approximately 700 individual asbestos-related cases and seeking a judgment for contribution against Pepco on the same theory of alleged negligence set forth above in the plaintiffs' case. Subsequently, Pittsburgh Corning Corp. (Pittsburgh Corning) filed a third-party complaint against Pepco, seeking contribution for the same plaintiffs involved in the Owens Corning third-party complaint. Since the initial filings in 1993, approximately 90 additional individual suits have been filed against Pepco. The third-party complaints involving Pittsburgh Corning and Owens Corning were dismissed by the Baltimore City Court during 1994 without any payment by Pepco. While the aggregate amount specified in the remaining suits would exceed $400 million, Pepco believes the amounts are greatly exaggerated, as were the claims already disposed of. The amount of total liability, if any, and any related insurance recovery cannot be precisely determined at this time; ho wever, based on information and relevant circumstances known at this time, Pepco does not believe these suits will have a material adverse effect on its financial position. However, an unfavorable decision rendered against Pepco could have a material adverse effect on results of operations in the year in which a decision is rendered.      On October 24, 2000, the City of Vineland, New Jersey (City), filed an action in a New Jersey Superior Court to acquire ACE electric distribution facilities located within the City limits by eminent domain. On March 13, 2002, ACE and the City signed an agreement that provides for ACE to sell the electric distribution facilities within the City limits, and the related customer accounts, for $23.9 million. The proceeds are being received in installments as milestones are met, and are proceeding on schedule. The remaining proceeds should be received in the second quarter of 2004, when the final milestones will be completed. At that time the assets and customers will be transferred to the City and the sale will be recorded by ACE.      The Company, through its subsidiaries, is involved in other legal and administrative (including environmental) proceedings before various courts and agencies with respect to matters arising in the ordinary course of business. Management is of the opinion that the final disposition of these proceedings will not have a material adverse effect on the Company's financial position or results of operations. Termination of Agreements for Sale of ACE Electric Generating Plants      The agreements between ACE and NRG Energy, Inc. (NRG) for the sale of ACE's fossil fuel-fired electric generating plants (740 MW of capacity), including the Deepwater Station and B.L. England Station, and ACE's interests in Conemaugh and Keystone Stations, were subject to termination by either party after February 28, 2002. NRG delivered notice to Conectiv on April 1, 2002 terminating these agreements. On May 23, 2002, Conectiv announced that it initiated a second competitive bidding process to sell these ACE-owned fossil fuel-fired electric generating plants. Conectiv expects that the competitive bidding process will conclude by the end of 2002. Conectiv cannot predict the results of the competitive bidding process, whether the process will result in any sales agreements, whether the NJBPU will grant the required approval of any resulting sales agreements, or any related impacts upon recoverable stranded costs.      The BGS auction awarded about 1,900 MW, or 80% of ACE's BGS load to four suppliers for the period from August 1, 2002 to July 31, 2003. The remaining 20% of ACE's BGS load is supplied utilizing ACE's electric supply, consisting of its fossil fuel-fired electric generating plants (excluding Deepwater), which are used first to meet such BGS load, and its NUG contracts, to the extent such electric generating plants are not sufficient to satisfy such load. Any portion of ACE's electric supply that exceeds the load requirement of the BGS customers is sold in the wholesale market. In addition, if any of the four suppliers awarded 80% of ACE's BGS load default on performance, ACE will offer the defaulted load to the other winning bidders. If they are not interested, ACE will then procure the needed supply from the wholesale market. Any costs related to this new supply that are not covered by remuneration from the supplier in default will be included in the calculation of deferr ed electric service costs, which are subject to NJBPU review and future recovery in customer rate increases. Pepco Regulatory Contingencies      Final briefs on Pepco's District of Columbia divestiture proceeds sharing application were filed on July 31, 2002 following an evidentiary hearing in June 2002. That application was filed to implement a provision of the Company's D.C. Commission approved divestiture settlement that provided for a sharing of any net proceeds from the sale of its generation related assets. A principal issue in the case is whether a sharing between customers and shareholders of the excess deferred income taxes and accumulated deferred investment tax credits associated with the sold assets would violate the normalization provisions of the Internal Revenue Code and implementing regulations. Other issues deal with the inclusion of internal costs and cost allocations, with respect to which Pepco believes its calculations are correct. Accordingly, Pepco is of the strong belief that its calculation of the customers share of divestiture proceeds is correct and that its position should pr evail before the D.C. Commission or upon judicial review. The potential exists that Pepco could be required to make additional gain sharing payments to D.C. customers. Such additional payments, which cannot be estimated, would be charged to expense and could have a material adverse effect on results of operations in the quarter and year in which a decision is rendered; however, Pepco does not believe that additional payments, if any, will have a material adverse impact on its financial position. It is impossible to predict when the D.C. Commission will issue a decision.      Pepco filed its divestiture proceeds plan application in Maryland in April 2001. Reply briefs were filed in May 2002 and Pepco is awaiting a Proposed Order from the Hearing Examiner. It is a certainty that some party or parties will appeal the Hearing Examiner's Proposed Order to the Maryland Commission. The principal issue in the case is the same normalization issue that was raised in the D.C. case. Other issues deal with the inclusion of internal costs and cost allocations, with respect to which Pepco believes its calculations are correct. Accordingly, Pepco is of the strong belief that its calculation of the customers share of divestiture proceeds is correct and that its position should prevail before the Maryland Commission or upon judicial review. The potential also exists that Pepco would be required to make additional gain sharing payments to Maryland customers. Such additional payments, which cannot be estimated, would be charged to expense and could hav e a material adverse effect on results of operations in the quarter and year in which a decision is rendered; however, Pepco does not believe that additional payments, if any, will have a material adverse impact on its financial position. It is impossible to predict when the Hearing Examiner or the Maryland Commission will issue their decisions.

Item 6.	EXHIBITS AND REPORTS ON FORM 8-K
(a)	Exhibits
	Exhibit 4.1	Registration Rights Agreement, dated as of September 6, 2002, between the Company and Merrill Lynch & Co., Merrill Lynch, Pierce, Fenner & Smith Incorporated, Banc One Capital Markets, Inc., Credit Suisse First Boston Corporation, Scotia Capital (USA) Inc., Wachovia Securities, Inc., Banc of America Securities LLC, Legg Mason Wood Walker, Incorporated, BNY Capital Markets, Inc., Mellon Financial Markets, LLC, SunTrust Capital Markets, Inc., and The Williams Capital Group, L.P. with respect to the Company's Note Program - filed herewith
	Exhibit 4.2	Registration Rights Agreement, dated as of September 19, 2002, between the Company and Merrill Lynch & Co., Merrill Lynch, Pierce, Fenner & Smith Incorporated, Banc One Capital Markets, Inc., Credit Suisse First Boston Corporation, Scotia Capital (USA) Inc., Wachovia Securities, Inc., Banc of America Securities LLC, Legg Mason Wood Walker, Incorporated, BNY Capital Markets, Inc., Mellon Financial Markets, LLC, SunTrust Capital Markets, Inc., and The Williams Capital Group, L.P. with respect to the Company's Note Program - filed herewith
	Exhibit 10.1	Purchase Agreement, dated as of September 3, 2002, between the Company and Merrill Lynch & Co., Merrill Lynch, Pierce, Fenner & Smith Incorporated, and Banc One Capital Markets, Inc., as Representatives of the several Initial Purchasers with respect to the Company's Note Program - filed herewith
	Exhibit 10.2	Purchase Agreement, dated as of September 16, 2002, between the Company and Merrill Lynch & Co., Merrill Lynch, Pierce, Fenner & Smith Incorporated, and Banc One Capital Markets, Inc., as Representatives of the several Initial Purchasers with respect to the Company's Note Program - filed herewith
	Exhibit 15	Letter re unaudited interim financial information - filed herewith
	Exhibit 99	Annual and Quarterly Certifications (Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002) - filed herewith
(b)	Reports on Form 8-K
	A Current Report on Form 8-K/A was filed by Pepco Holdings on July 3, 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/A were Item 5 (Other Events) and Item 7 (Financial Statements and Exhibits).
	A Current Report on Form 8-K was filed by Pepco Holdings on July 18, 2002. The item reported on such Form 8-K was Item 5 (Other Events).
	A Current Report on Form 8-K was filed by Pepco Holdings on August 2, 2002. The items reported on such Form 8-K were Item 2 (Acquisition or Disposition of Assets) and Item 7 (Financial Statements and Exhibits).
	A Current Report on Form 8-K/A was filed by Pepco Holdings on August 14, 2002. The items reported on such Form 8-K were Item 2 (Acquisition or Disposition of Assets) and Item 7 (Financial Statements and Exhibits).
	A Current Report on Form 8-K was filed by Pepco Holdings on September 4, 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 Pepco Holdings on September 12, 2002. The item reported on such Form 8-K was Item 5 (Other Events).

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.
November 13, 2002    Date				Pepco Holdings, Inc.       Registrant By:   /s/ A. W. WILLIAMS                       A. W. Williams      Senior Vice President and       Chief Financial Officer
CERTIFICATIONS
I, John M. Derrick, Jr., Chief Executive Officer of Pepco Holdings, Inc., certify that:
1.	I have reviewed this quarterly report on Form 10-Q of Pepco Holdings, Inc.
2.	Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report;
3.	Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report;
4.	The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchanges Act Rules 13a-14 and 15d-14) for the registrant and we have:
	a)	designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared;
	b)	evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the "Evaluation Date"); and
	c)	presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;
5.	The registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent function):
	a)	all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and
	b)	any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and
6.	The registrant's other certifying officers and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.
Date:  November 13, 2002			/s/ JOHN M. DERRICK, JR.             John M. Derrick, Jr. Chairman and Chief Executive Officer
I, Andrew W. Williams, Chief Financial Officer of Pepco Holdings, Inc., certify that:
1.	I have reviewed this quarterly report on Form 10-Q of Pepco Holdings, Inc.
2.	Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report;
3.	Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report;
4.	The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchanges Act Rules 13a-14 and 15d-14) for the registrant and we have:
	a)	designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared;
	b)	evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the "Evaluation Date"); and
	c)	presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;
5.	The registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent function):
	a)	all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and
	b)	any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and
6.	The registrant's other certifying officers and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.
Date:  November 13, 2002			/s/ A. W. WILLIAMS                 Andrew W. Williams Senior Vice President and Chief Financial Officer

                                                                  Exhibit 15

November 13, 2002

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

Commissioners:

We are aware that our report dated November 13, 2002 on our review of interim financial information of Pepco Holdings, Inc. (the "Company") as of and for the period ended September 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 (Number 333-89938).

Very truly yours,

PricewaterhouseCoopers LLP
Washington, DC

Exhibit 12 Statements Re. Computation of Ratios
The computations of the coverage of fixed charges before income taxes, and the coverage of combined fixed charges and preferred dividends for the nine months ended September 30, 2002, and for each of the years 2001 through 1997, on a consolidated basis, are as follows.
	Nine     Months Ended  September 30, 2002		For the Year Ended December 31,
			2001	2000	1999	1998	1997
			(Dollar Amounts in Millions)
Net income		$184.1	$192.3	$369.1	$256.7	$234.8	$179.8
Taxes based on income		110.5	83.5	341.2	114.5	122.3	65.6
Income before taxes		294.6	275.8	710.3	371.2	357.1	245.4
Fixed charges:
Interest charges		133.0	166.4	230.7	208.7	208.6	216.1
Interest factor in rentals		8.1	23.8	23.6	23.8	24.0	23.7
Total fixed charges		141.1	190.2	254.3	232.5	232.6	239.8
Competitive subsidiary capitalized interest		(2.4)	(2.7)	(3.9)	(1.8)	(0.6)	(0.5)
Income before income taxes and fixed charges		$433.3	$463.3	$960.7	$601.9	$589.1	$484.7
Coverage of fixed charges		3.07	2.44	3.78	2.59	2.53	2.02
Preferred dividend requirements		$  4.1	$  5.0	$  5.5	$  8.9	$ 18.0	$ 16.5
Ratio of pre-tax income to net income		1.60	1.43	1.92	1.45	1.52	1.36
Preferred dividend factor		$  6.6	$  7.2	$10.6	$12.9	$27.4	$22.4
Total fixed charges and preferred dividends		$147.7	$197.4	$264.9	$245.4	$260.0	$262.2
Coverage of combined fixed charges and preferred dividends		2.93	2.35	3.63	2.45	2.27	1.85

Exhibit 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 September 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.
Dated:  November 13, 2002	/s/ JOHN M. DERRICK, JR.          John M. Derrick, Jr. Chairman and Chief Executive Officer
Dated:  November 13, 2002	/s/ A. W. WILLIAMS                 Andrew W. Williams Senior Vice President and   Chief Financial Officer

EX-4

Registration Rights Agreement


Dated as of September 6, 2002


among


Pepco Holdings, Inc.


and


Merrill Lynch & Co.
Merrill Lynch, Pierce, Fenner & Smith
Incorporated
Banc One Capital Markets, Inc.
Credit Suisse First Boston Corporation
Scotia Capital (USA) Inc.
Wachovia Securities, Inc.
Banc of America Securities LLC
Legg Mason Wood Walker, Incorporated
BNY Capital Markets, Inc.
Mellon Financial Markets, LLC
SunTrust Capital Markets, Inc.
The Williams Capital Group, L.P.

as Initial Purchasers

REGISTRATION RIGHTS AGREEMENT

This Registration Rights Agreement (the "Agreement") is made and entered into this 6^th day of September, 2002, among Pepco Holdings, Inc., a Delaware corporation (the "Company"), and Merrill Lynch & Co., Merrill Lynch, Pierce, Fenner & Smith Incorporated ("Merrill Lynch"), Banc One Capital Markets, Inc. ("Banc One"), Credit Suisse First Boston Corporation, Scotia Capital (USA) Inc., Wachovia Securities, Inc., Banc of America Securities LLC, Legg Mason Wood Walker, Incorporated, BNY Capital Markets, Inc., Mellon Financial Markets, LLC, SunTrust Capital Markets, Inc. and The Williams Capital Group, L.P. (collectively, the "Initial Purchasers"), for whom Merrill Lynch and Banc One are acting as representatives.

This Agreement is made in connection with the Purchase Agreement, dated September 3, 2002, among the Company and the Initial Purchasers (the "Purchase Agreement"), which provides for the sale by the Company to the Initial Purchasers of $350,000,000 aggregate principal amount of the Company's 5.50% Notes due 2007, $750,000,000 aggregate principal amount of the Company's 6.45% Notes due 2012, and $250,000,000 aggregate principal amount of the Company's 7.45% Notes due 2032 (collectively, the "Securities"). In order to induce the Initial Purchasers to enter into the Purchase Agreement, the Company has agreed to provide to the Initial Purchasers and their direct and indirect transferees the registration rights set forth in this Agreement. The execution of this Agreement is a condition to the closing under the Purchase Agreement.
In consideration of the foregoing, the parties hereto agree as follows:

1.          Definitions.

            As used in this Agreement, the following capitalized defined terms shall have the following meanings:

            "1933 Act" shall mean the Securities Act of 1933, as amended from time to time.

            "1934 Act" shall mean the Securities Exchange Act of l934, as amended from time to time.

            "Closing Date" shall mean the Closing Time as defined in the Purchase Agreement.

            "Company" shall have the meaning set forth in the preamble and shall also include the Company's successors.

            "Depositary" shall mean The Depository Trust Company, or any other depositary appointed by the Company, provided, however, that such depositary must have an address in the Borough of Manhattan, in the City of New York.

            "Exchange Offer" shall mean the exchange offer by the Company of Exchange Securities for Registrable Securities pursuant to Section 2.1 hereof.

            "Exchange Offer Registration" shall mean a registration under the 1933 Act effected pursuant to Section 2.1 hereof.

            "Exchange Offer Registration Statement" shall mean an exchange offer registration statement on Form S-4 (or, if applicable, on another appropriate form), and all amendments and supplements to such registration statement, including the Prospectus contained therein, all exhibits thereto and all documents incorporated by reference therein.

            "Exchange Period" shall have the meaning set forth in Section 2.1 hereof.

            "Exchange Securities" shall mean, collectively, (a) the 5.50% Exchange Notes due 2007, (b) the 6.45% Exchange Notes due 2012, and (c) the 7.45% Exchange Notes due 2032 issued by the Company under the Indenture, each series containing terms identical in all material respects (except for references to certain interest rate provisions, restrictions on transfers, restrictive legends and mandatory redemption) to the Securities of the series for which it is being exchanged, to be offered to Holders in exchange for Registrable Securities of the comparable series pursuant to the Exchange Offer.

            "Holder" shall mean any holder from time to time of Registrable Securities (including any of the Initial Purchasers).

            "Indenture" shall mean the Indenture relating to the Securities, dated as of September 6, 2002, between the Company and The Bank of New York, as trustee, as the same may be amended, supplemented, waived or otherwise modified from time to time in accordance with the terms thereof.

            "Initial Purchaser" or "Initial Purchasers" shall have the meaning set forth in the preamble.

            "Majority Holders" shall mean the Holders of a majority of the aggregate principal amount of Outstanding (as defined in the Indenture) Registrable Securities.

            "Participating Broker-Dealer" shall mean any Holder (which may include any of the Initial Purchasers) that is a broker-dealer electing to exchange Securities acquired for its own account as a result of market-making activities or other trading activities for Exchange Securities.

            "Person" shall mean an individual, partnership (general or limited), corporation, limited liability company, trust or unincorporated organization, or a government or agency or political subdivision thereof.

            "Private Exchange" shall have the meaning set forth in Section 2.1 hereof.

            "Private Exchange Securities" shall have the meaning set forth in Section 2.1 hereof.

            "Prospectus" shall mean the prospectus included in a Registration Statement, including any preliminary prospectus, and any such prospectus as amended or supplemented by any prospectus supplement, including any such prospectus supplement with respect to the terms of the offering of any portion of the Registrable Securities covered by a Shelf Registration Statement, and by all other amendments and supplements to a prospectus, including post-effective amendments, and in each case including all material incorporated by reference therein.

            "Purchase Agreement" shall have the meaning set forth in the preamble.

            "Registrable Securities" shall mean the Securities and, if issued, the Private Exchange Securities; provided, however, that Securities and, if issued, the Private Exchange Securities, shall cease to be Registrable Securities when (i) a Registration Statement with respect to such Securities shall have been declared effective under the 1933 Act and such Securities shall have been disposed of pursuant to such Registration Statement, (ii) such Securities have been sold to the public pursuant to Rule l44 (or any similar provision then in force, but not Rule 144A) under the 1933 Act, (iii) such Securities shall have ceased to be Outstanding, (iv) the Exchange Offer is consummated (except in the case of Private Exchange Securities or Securities purchased directly from the Company and continued to be held by the Initial Purchasers) or (v) two years (or such shorter period as may hereafter be provided in Rule 144(k) under the 1933 Act (or similar rule)) have elapsed since the original issuance date of the Securities.

            "Registration Expenses" shall mean any and all expenses incident to performance of or compliance by the Company with this Agreement, including without limitation: (i) all SEC, stock exchange or National Association of Securities Dealers, Inc. (the "NASD") registration and filing fees, including, if applicable, the fees and expenses of any "qualified independent underwriter" (and its counsel) that is required to be retained by any holder of Registrable Securities in accordance with the rules and regulations of the NASD, (ii) all fees and expenses incurred in connection with compliance with state securities or blue sky laws and compliance with the rules of the NASD (including reasonable fees and disbursements of counsel for any underwriters or Holders in connection with blue sky qualification of any of the Exchange Securities or Registrable Securities and any filings with the NASD), (iii) all expenses of any Persons in preparing or assisting in preparing, word processing, printing and distributing any Registration Statement, any Prospectus, any amendments or supplements thereto, any underwriting agreements, securities sales agreements and other documents relating to the performance of and compliance with this Agreement, (iv) all fees and expenses incurred in connection with the listing, if any, of any of the Registrable Securities on any securities exchange or exchanges, (v) all rating agency fees, (vi) the fees and disbursements of counsel for the Company and of the independent public accountants of the Company, including the expenses of any special audits or "cold comfort" letters required by or incident to such performance and compliance, (vii) the fees and expenses of the Trustee, and any escrow agent or custodian, (viii) the reasonable fees and expenses of the Initial Purchasers in connection with the Exchange Offer, including the reasonable fees and expenses of counsel to the Initial Purchasers in connection therewith, (ix) the reasonable fees and disbursements of Pillsbury Winthrop LLP (or such other firm as shall be designated by the Company), special counsel representing the Holders of Registrable Securities (the "Special Counsel") and (x) any fees and disbursements of the underwriters customarily required to be paid by issuers or sellers of securities and the fees and expenses of any special experts retained by the Company in connection with any Registration Statement, but excluding underwriting discounts and commissions and transfer taxes, if any, relating to the sale or disposition of Registrable Securities by a Holder.

            "Registration Statement" shall mean any Exchange Offer Registration Statement or Shelf Registration Statement that covers any of the Exchange Securities or Registrable Securities pursuant to the provisions of this Agreement, and all amendments and supplements to any such Registration Statement, including post-effective amendments, in each case including the Prospectus contained therein, all exhibits thereto and all material incorporated by reference therein.

            "SEC" shall mean the Securities and Exchange Commission or any successor agency or government body performing the functions currently performed by the United States Securities and Exchange Commission.

            "Shelf Registration" shall mean a registration effected pursuant to Section 2.2 hereof.

            "Shelf Registration Statement" shall mean a "shelf" registration statement of the Company pursuant to the provisions of Section 2.2 of this Agreement that covers any of the Registrable Securities on an appropriate form under Rule 415 under the 1933 Act, or any similar rule that may be adopted by the SEC, and all amendments and supplements to such registration statement, including post-effective amendments, in each case including the Prospectus contained therein, all exhibits thereto and all material incorporated by reference therein.

            "Trustee" shall mean the trustee with respect to the Securities under the Indenture.

2.          Registration Under the 1933 Act.

2.1        Exchange Offer. The Company shall, for the benefit of the Holders, at the Company's cost, (A) prepare and, within 180 days following the Closing Date, file with the SEC an Exchange Offer Registration Statement on an appropriate form under the 1933 Act with respect to a proposed Exchange Offer and the issuance and delivery to the Holders, in exchange for the Registrable Securities of each series (other than Private Exchange Securities), of a like principal amount of Exchange Securities of a comparable series, (B) use its commercially reasonable efforts to cause the Exchange Offer Registration Statement to be declared effective under the 1933 Act within 240 days following the Closing Date, (C) use its commercially reasonable efforts to keep the Exchange Offer Registration Statement effective until the closing of the Exchange Offer and (D) use its commercially reasonable efforts to cause the Exchange Offer to be consummated not later than 270 days following the Closing Date. The Exchange Securities will be issued under the Indenture. Upon the effectiveness of the Exchange Offer Registration Statement, the Company shall promptly commence the Exchange Offer, it being the objective of such Exchange Offer to enable each Holder eligible and electing to exchange Registrable Securities of each series for Exchange Securities of the comparable series (assuming that such Holder (a) is not an affiliate of the Company within the meaning of Rule 405 under the 1933 Act, (b) is not a broker-dealer tendering Registrable Securities acquired directly from the Company, (c) acquires the Exchange Securities in the ordinary course of such Holder's business and (d) has no arrangements or understandings with any Person to participate in the Exchange Offer for the purpose of distributing the Exchange Securities) to transfer such Exchange Securities from and after their receipt without any limitations or restrictions under the 1933 Act and under state securities or blue sky laws.

          In connection with the Exchange Offer, the Company shall:

          (a)           mail as promptly as practicable to each Holder a copy of the Prospectus forming part of the Exchange Offer Registration Statement, together with an appropriate letter of transmittal and related documents;

          (b)           keep the Exchange Offer open for acceptance for a period of not less than 30 calendar days after the date notice thereof is mailed to the Holders (or longer if required by applicable law) (such period referred to herein as the "Exchange Period");

          (c)           utilize the services of the Depositary for the Exchange Offer;

          (d)           permit Holders to withdraw tendered Registrable Securities at any time prior to 5:00 p.m. (Eastern Time), on the last business day of the Exchange Period, by sending to the institution specified in the notice, a telegram, telex, facsimile transmission or letter setting forth the name of such Holder, the principal amount of Registrable Securities delivered for exchange, and a statement that such Holder is withdrawing such Holder's election to have such Securities exchanged;

          (e)           notify each Holder that any Registrable Security not tendered will remain outstanding and continue to accrue interest, but will not retain any rights under this Agreement (except in the case of the Initial Purchasers and Participating Broker-Dealers as provided herein); and

(f)           otherwise comply in all respects with all applicable laws relating to the Exchange Offer.           If, prior to consummation of the Exchange Offer, the Initial Purchasers hold any Securities acquired by them directly from the Company and having the status of an unsold allotment in the initial distribution, the Company upon the request of any Initial Purchaser shall, simultaneously with the delivery of the Exchange Securities in the Exchange Offer, issue and deliver to such Initial Purchaser in exchange (the "Private Exchange") for the Securities of each series held by such Initial Purchaser as of the end of the Exchange Period, a like principal amount of debt securities of the Company that are identical (except that such securities shall bear appropriate transfer restrictions) to the Exchange Securities of the comparable series (the "Private Exchange Securities").           The Exchange Securities and the Private Exchange Securities shall be issued under (i) the Indenture or (ii) an indenture identical in all material respects to the Indenture and which, in either case, has been qualified under the Trust Indenture Act of 1939, as amended (the "TIA"), or is exempt from such qualification and shall provide that the Exchange Securities shall not be subject to the transfer restrictions set forth in the Securities but that the Private Exchange Securities shall be subject to such transfer restrictions. The terms of each series of Exchange Securities and Private Exchange Securities shall provide that such series of Exchange Securities and Private Exchange Securities and the Securities of the corresponding series shall vote and consent together on all matters as one class and that none of the Exchange Securities, the Private Exchange Securities or the Securities of any corresponding series will have the right to vot e or consent as a separate class on any matter. The Private Exchange Securities of each series shall be of the same series as, and the Company shall use commercially reasonable efforts to have the Private Exchange Securities bear the same CUSIP number as, the comparable series of Exchange Securities. The Company shall not have any liability under this Agreement solely as a result of such Private Exchange Securities not bearing the same CUSIP number as the Exchange Securities.           As soon as practicable after the close of the Exchange Offer and/or the Private Exchange, as the case may be, the Company shall:

(i)          accept for exchange all Registrable Securities duly and properly tendered and not validly withdrawn pursuant to the Exchange Offer in accordance with the terms of the Exchange Offer Registration Statement and the letter of transmittal which shall be an exhibit thereto;           (ii)         accept for exchange all Securities properly tendered pursuant to the Private Exchange;           (iii)        deliver to the Trustee for cancellation all Registrable Securities so accepted for exchange; and

(iv)        cause the Trustee promptly to authenticate and deliver Exchange Securities or Private Exchange Securities, as the case may be, of the appropriate series to each Holder of Registrable Securities so accepted for exchange in a principal amount equal to the principal amount of the Registrable Securities of such Holder so accepted for exchange.

Interest on each Exchange Security and Private Exchange Security will accrue from the last date on which interest was paid on the Registrable Securities surrendered in exchange therefor or, if no interest has been paid on the Registrable Securities, from the date of original issuance. The Exchange Offer and the Private Exchange shall not be subject to any conditions, other than (i) that the Exchange Offer or the Private Exchange, or the making of any exchange by a Holder, does not violate applicable law or any applicable interpretation of the staff of the SEC, (ii) the due tendering of Registrable Securities in accordance with the Exchange Offer and the Private Exchange, (iii) that each Holder of Registrable Securities exchanged in the Exchange Offer shall have represented that (A) all Exchange Securities to be received by it shall be acquired in the ordinary course of its business, (B) at the time of the consummation of the Exchange Offer it shall have no arrangement or understanding with any person to participate in the distribution (within the meaning of the 1933 Act) of the Exchange Securities, (C) it is not an "affiliate" of the Company as defined in Rule 405 of the 1933 Act, (D) if it is not a broker-dealer, it is not engaged in, and does not intend to engage in, the distribution of the Exchange Securities, (E) if it is a broker-dealer, it will receive Exchange Securities in exchange for Securities that were acquired for its own account as a result of market-making activities or other trading activities, and it acknowledges that it will deliver a prospectus meeting the requirements of the 1933 Act in connection with any resale of those Exchange Securities, and (F) if it is a broker-dealer, it did not purchase the Securities being tendered in the Exchange Offer directly from the Company for resale pursuant to Rule 144A or any other available exemption from registration under the 1933 Act, and shall have made such other representations as may be reasonably necessary under applicable SEC rules, regulations or interpretations to render the use of Form S-4 or other appropriate form under the 1933 Act available and (iv) that no action or proceeding shall have been instituted or threatened in any court or by or before any governmental agency with respect to the Exchange Offer or the Private Exchange which, in the Company's judgment, would reasonably be expected to impair the ability of the Company to proceed with the Exchange Offer or the Private Exchange. The Company shall inform the Initial Purchasers of the names and addresses of the Holders to whom the Exchange Offer is made, and the Initial Purchasers shall have the right to contact such Holders to facilitate the tender of Registrable Securities in the Exchange Offer. For purposes hereof, the Exchange Offer and the Private Exchange as to each series shall be deemed a separate offer, and the failure to satisfy the conditions as to any one offer shall not affect any other offer.

Each Holder hereby acknowledges and agrees that any Participating Broker-Dealer and any such Holder using the Exchange Offer to participate in a distribution of the Exchange Securities: (1) could not under SEC policy as in effect on the date of this Agreement rely on the position of the SEC enunciated in Morgan Stanley and Co., Inc. (available June 5, 1991) and Exxon Capital Holdings Corporation (available May 13, 1988), as interpreted in the SEC's letter to Shearman & Sterling dated July 2, 1993, and similar no-action letters (including any no-action letter obtained based on the representations in clause (iii) above), and (2) must comply with the registration and prospectus delivery requirements of the 1933 Act in connection with the secondary resale transaction and that such a secondary resale transaction should be covered by an effective registration statement containing the selling security holder information required by Item 507 and 508 , as applicable, of Regulation S-K, and the SEC standard instructions for filing forms under the 1933 Act, if the resales are of Exchange Securities obtained by such Holder in exchange for Securities acquired by such Holder directly from the Company.           2.2          Shelf Registration.           (a)           If (i) because of any changes in law, SEC rules or regulations or applicable interpretations thereof by the staff of the SEC, the Company is not permitted to file the Exchange Offer Registration Statement or effect the Exchange Offer as contemplated by Section 2.1 hereof, (ii) for any other reason the Exchange Offer Registration Statement is not declared effective within 240 days following the Closing Date or the Exchange Offer is not consummated within 270 days following the Closing Date, or (iii) prior to the end of the Exchange Period, any Initial Purchaser requests in writing with respect to Private Exchange Securities or Securities purchased directly from the Company and continued to be held by such Initial Purchaser as of the end of the Exchange Period, then the following provisions shall apply:

(A) The Company shall prepare and file with the SEC within 30 days after the earliest of (i) the date on which the Company determines that it is not permitted to file the Exchange Offer Registration Statement or effect the Exchange Offer, (ii) the date that is 240 days after the Closing Date if the Exchange Offer Registration Statement has not been declared effective by such date, (iii) the date that is 270 days after the Closing Date if the Exchange Offer has not been consummated by such date, and (iv) the date a written request is received by the Company pursuant to Section 2.2(a)(iii), a Shelf Registration Statement relating to the offer and sale of the Registrable Securities by the Holders from time to time in accordance with the methods of distribution elected by the Majority Holders participating in the Shelf Registration and set forth in such Shelf Registration Statement and shall use its commercially reasonable efforts to cause such Shel f Registration Statement to be declared effective as promptly as practicable thereafter.

(B) The Company shall use its commercially reasonable efforts to keep the Shelf Registration Statement continuously effective (subject to Section 2.2(a)(C)) in order to permit the Prospectus forming a part thereof to be usable by Holders for a period of (1) two years from the date the Shelf Registration Statement is declared effective by the SEC plus (2) the number of days during which use of a Prospectus is suspended pursuant to Section 2.2(a)(C), or for such shorter period that will terminate when all Registrable Securities covered by the Shelf Registration Statement have been sold pursuant to the Shelf Registration Statement or cease to be Outstanding or otherwise to be Registrable Securities (the "Effectiveness Period"); provided, however, that the Effectiveness Period in respect of the Shelf Registration Statement shall be extended to the extent required to permit dealers to comply with the applicable prospectus delivery requirement s of Rule 174 under the 1933 Act.           (C) The Company may suspend the use of the Prospectus forming a part of the Shelf Registration Statement for a period not to exceed 30 days in any one instance or an aggregate of 60 days in any twelve-month period for valid business reasons to avoid premature public disclosure of a pending corporate transaction, including, without limitation, pending acquisitions and divestitures; provided that the Company promptly thereafter complies with the requirements of Section 3, as then applicable, and in calculating the length of the suspension period, there shall be included all days from the date of the suspension to the date the Company has complied with Section 3, as then applicable, or has notified each Holder that no action is required of the Company under Section 3, as then applicable.

(b)          Notwithstanding any other provisions hereof, the Company shall use its commercially reasonable efforts to ensure that (i) the Shelf Registration Statement and any amendment thereto and any Prospectus forming part thereof and any supplement thereto complies in all material respects with the 1933 Act and the rules and regulations thereunder, (ii) the Shelf Registration Statement and any amendment thereto does not, when it becomes effective, contain an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein not misleading and (iii) any Prospectus forming part of any Shelf Registration Statement, and any supplement to such Prospectus (as amended or supplemented from time to time), does not include an untrue statement of a material fact or omit to state a material fact necessary in order to make the stat ements, in light of the circumstances under which they were made, not misleading.           The Company shall not permit any securities other than Registrable Securities to be included in the Shelf Registration Statement. The Company further agrees, if necessary, to supplement or amend the Shelf Registration Statement, as required by Section 3(b) below, and to furnish to the Holders of Registrable Securities copies of any such supplement or amendment promptly after its being used or filed with the SEC.

          2.3          Expenses.  The Company shall pay all Registration Expenses in connection with the registration pursuant to Section 2.1 or 2.2. Each Holder shall pay all underwriting discounts and commissions and transfer taxes, if any, relating to the sale or disposition of such Holder's Registrable Securities pursuant to the Shelf Registration Statement.

          2.4          Effectiveness. An Exchange Offer Registration Statement pursuant to Section 2.1 hereof or a Shelf Registration Statement pursuant to Section 2.2 hereof will not be deemed to have become effective unless it has been declared effective by the SEC; provided, however, that if, after it has been declared effective, the offering of Registrable Securities pursuant to an Exchange Offer Registration Statement or a Shelf Registration Statement is interfered with by any stop order, injunction or other order or requirement of the SEC or any other governmental agency or court, such Registration Statement will be deemed not to have become effective during the period of such interference, until the offering of Registrable Securities pursuant to such Registration Statement may legally resume.

          2.5          Interest. The Securities will provide that in the event that (a) the Exchange Offer is not consummated as to any Securities eligible to be exchanged for Exchange Securities pursuant thereto in accordance with the terms of this Agreement, or in lieu thereof a Shelf Registration Statement with respect to such Securities is not declared effective, in either case, on or prior to the 270th calendar day following the Closing Date, (b) if, pursuant to Section 2.2(a)(iii), an Initial Purchaser has requested Shelf Registration with respect to Private Exchange Securities or Securities, a Shelf Registration Statement covering such Private Exchange Securities or Securities is not declared effective on or prior to the later of (i) the 60th calendar day following the Company's receipt of the written request specified in Section 2.2(a)(iii) and (ii) the earlier of (A) the 240^th calendar day following the Closing Date and (B) the effective date of the Exchange Offer Registration Statement, or (c) (i) after the Exchange Offer Registration Statement has been declared effective, such Registration Statement thereafter ceases to be effective at any time during the Exchange Period or (ii) after the Shelf Registration Statement has been declared effective, such Registration Statement or the Prospectus forming a part thereof ceases to be effective or usable in connection with resale of Securities at any time prior to the expiration of the Effectiveness Period other than as provided in Section 2.2(a)(C) (each such event referred to in clauses (a) through (c) above, a "Registration Default"), the interest rate borne by the Registrable Securities as to which such Registration Default has occurred shall be increased ("Additional Interest") by one-quarter of one percent per annum upon the occurrence of each Registration Default. Following the cure of all Registration Defaults with respect to such Registrable Securities, the accrual of Additional Interest with respect to such Registrable Securities will cease and the interest rate will revert to the original rate. Notwithstanding anything to the contrary in this Section 2.5, the Company shall not be obligated to pay Additional Interest to a Holder of Registrable Securities if such Holder failed to comply with its obligations to make the representations set forth in Section 2.1 or fails to, or elects not to, participate in the Exchange Offer.

          The Company shall notify the Trustee within three business days after each and every date on which a Registration Default occurs. Additional Interest shall be paid by depositing with the Trustee, in trust, for the benefit of the Holders of Registrable Securities, on or before the applicable semiannual interest payment date, immediately available funds in sums sufficient to pay the Additional Interest then due. The Additional Interest due shall be payable on each interest payment date to the record Holder of Securities entitled to receive the interest payment to be paid on such date as set forth in the Indenture. Each obligation to pay Additional Interest shall be deemed to accrue from and includingthe date on which a Registration Default occurs to but excluding the date on which all Registration Defaults are cured.

          3.          Registration Procedures.

          In connection with the obligations of the Company with respect to Registration Statements pursuant to Sections 2.1 and 2.2 hereof, the Company shall:

          (a)          prepare and file with the SEC a Registration Statement, within the relevant time period specified in Section 2, on the appropriate form under the 1933 Act, which form (i) shall be selected by the Company, (ii) shall, in the case of a Shelf Registration, be available for the sale of the Registrable Securities by the selling Holders thereof, (iii) shall comply as to form in all material respects with the requirements of the applicable form and include or incorporate by reference all financial statements required by the SEC to be filed therewith or incorporated by reference therein, and (iv) shall comply in all respects with the requirements of Regulation S-T under the 1933 Act, and use its commercially reasonable efforts to cause such Registration Statement to become effective and remain effective in accordance with Section 2 hereof;

          (b)          prepare and file with the SEC such amendments and post-effective amendments to each Registration Statement as may be necessary under applicable law to keep such Registration Statement effective for the applicable period; and cause each Prospectus to be supplemented by any required prospectus supplement, and as so supplemented to be filed pursuant to Rule 424 (or any similar provision then in force) under the 1933 Act and comply with the provisions of the 1933 Act, the 1934 Act and the rules and regulations thereunder applicable to them with respect to the disposition of all securities covered by each Registration Statement during the applicable period in accordance with the intended method or methods of distribution by the selling Holders thereof (including sales by any Participating Broker-Dealer);

          (c)          in the case of a Shelf Registration, (i) notify each Holder of Registrable Securities, at least five business days prior to filing, that a Shelf Registration Statement with respect to the Registrable Securities is being filed and advising such Holders that the distribution of Registrable Securities will be made in accordance with the method selected by the Majority Holders participating in the Shelf Registration; (ii) furnish to each Holder of Registrable Securities and to each underwriter of an underwritten offering of Registrable Securities, if any, without charge, as many copies of each Prospectus, including each preliminary Prospectus, and any amendment or supplement thereto and such other documents as such Holder or underwriter may reasonably request, including financial statements and schedules and, if the Holder so requests, all exhibits in order to facilitate the public sale or other disposition of the Registrable Securities; and (iii) hereby consent to the use of the Prospectus or any amendment or supplement thereto by each of the selling Holders of Registrable Securities in connection with the offering and sale of the Registrable Securities covered by the Prospectus or any amendment or supplement thereto;

          (d)          use its commercially reasonable efforts to register or qualify the Registrable Securities under all applicable state securities or "blue sky" laws of such jurisdictions as any Holder of Registrable Securities covered by a Registration Statement and each underwriter of an underwritten offering of Registrable Securities shall reasonably request by the time the applicable Registration Statement is declared effective by the SEC, and do any and all other acts and things which may be reasonably necessary or advisable to enable each such Holder and underwriter to consummate the disposition in each such jurisdiction of such Registrable Securities owned by such Holder; provided, however, that the Company shall not be required to (i) qualify as a foreign corporation or as a dealer in securities in any jurisdiction where it would not otherwise be required to qualify but for this Section 3(d), or (i i) take any action which would subject it to general service of process or taxation in any such jurisdiction where it is not then so subject;

          (e)           notify promptly each Holder of Registrable Securities under a Shelf Registration or any Participating Broker-Dealer who has notified the Company that it is utilizing the Exchange Offer Registration Statement as provided in paragraph (f) below and, if requested by such Holder or Participating Broker-Dealer, confirm such advice in writing promptly (i) when a Registration Statement has become effective and when any post-effective amendments and supplements thereto become effective, (ii) of any request by the SEC or any state securities authority for post-effective amendments and supplements to a Registration Statement and Prospectus or for additional information after the Registration Statement has become effective, (iii) of the issuance by the SEC or any state securities authority of any stop order suspending the effectiveness of a Registration Statement or the initiation of any proceedings for that purpose, (iv) in the case of a Shelf Registration, if, between the effective date of a Registration Statement and the closing of any sale of Registrable Securities covered thereby, the representations and warranties of the Company contained in any underwriting agreement, securities sales agreement or other similar agreement, if any, relating to the offering cease to be true and correct in all material respects, (v) of the happening of any event or the discovery of any facts during the period a Shelf Registration Statement is effective which makes any statement made in such Registration Statement or the related Prospectus untrue in any material respect or which requires the making of any changes in such Registration Statement or Prospectus in order to make the statements therein not misleading, (vi) of the receipt by the Company of any notification with respect to the suspension of the qualification of Registrable Securities or Exchange Securities, as the case may be, for sale in any jurisdiction or the initiation or threatening of any proceeding for such purpose and (vii) of any determination by the Company that a post-effective amendment to such Registration Statement would be appropriate;

(f)          (i) in the case of the Exchange Offer Registration Statement (A) include in the Exchange Offer Registration Statement a section entitled "Plan of Distribution" which section shall be reasonably acceptable to Merrill Lynch on behalf of the Participating Broker-Dealers, and which shall contain a summary statement of the positions taken or policies made by the staff of the SEC with respect to the potential "underwriter" status of any broker-dealer that holds Registrable Securities acquired for its own account as a result of market-making activities or other trading activities and that will be the beneficial owner (as defined in Rule 13d-3 under the Exchange Act) of Exchange Securities to be received by such broker-dealer in the Exchange Offer, whether such positions or policies have been publicly disseminated by the staff of the SEC or such positions or policies, in the reasonable jud gment of Merrill Lynch on behalf of the Participating Broker-Dealers and its counsel, represent the prevailing views of the staff of the SEC, including a statement that any such broker-dealer who receives Exchange Securities for Registrable Securities pursuant to the Exchange Offer may be deemed a statutory underwriter and must deliver a prospectus meeting the requirements of the 1933 Act in connection with any resale of such Exchange Securities, (B) furnish to each Participating Broker-Dealer who has delivered to the Company the notice referred to in Section 3(e), without charge, as many copies of each Prospectus included in the Exchange Offer Registration Statement, including any preliminary prospectus, and any amendment or supplement thereto, as such Participating Broker-Dealer may reasonably request, (C) hereby consent to the use of the Prospectus forming part of the Exchange Offer Registration Statement or any amendment or supplement thereto, by any Person subject to the prospectus delivery re quirements of the SEC, including all Participating Broker-Dealers, in connection with the sale or transfer of the Exchange Securities covered by the Prospectus or any amendment or supplement thereto, and (D) include in the transmittal letter or similar documentation to be executed by an exchange offeree in order to participate in the Exchange Offer (x) the following provision:
	"If the exchange offeree is a broker-dealer holding Registrable Securities acquired for its own account as a result of market-making activities or other trading activities, it will deliver a prospectus meeting the requirements of the 1933 Act in connection with any resale of Exchange Securities received in respect of such Registrable Securities pursuant to the Exchange Offer;" and
(y) a statement to the effect that by a broker-dealer making the acknowledgment described in clause (x) and by delivering a Prospectus in connection with the resale of Exchange Securities, the broker-dealer will not be deemed to admit that it is an underwriter within the meaning of the 1933 Act; and

                    (ii)          in the case of any Exchange Offer Registration Statement, the Company agrees to deliver to the Initial Purchasers on behalf of the Participating Broker-Dealers upon the effectiveness of the Exchange Offer Registration Statement (A) an opinion of counsel or opinions of counsel in form and substance (with customary exceptions) reasonably acceptable to the Initial Purchasers addressing the matters set forth in Exhibit A, (B) officers' certificates substantially in the form customarily delivered in a public offering of debt securities and (C) a comfort letter or comfort letters in customary form to the extent permitted by Statement on Auditing Standards No. 72 of the American Institute of Certified Public Accountants (or if such a comfort letter is not permitted, an agreed upon procedures letter in customary form) fro m the Company's independent certified public accountants (and, if necessary, any other independent certified public accountants of any subsidiary of the Company or of any business acquired by the Company for which financial statements are, or are required to be, included in the Registration Statement) at least as broad in scope and coverage as the comfort letter or comfort letters delivered to the Initial Purchasers in connection with the initial sale of the Securities to the Initial Purchasers;

          (g)          (i) in the case of an Exchange Offer, furnish counsel for the Initial Purchasers and (ii) in the case of a Shelf Registration, furnish Special Counsel for the Holders of Registrable Securities copies of any comment letters received from the SEC or any other request by the SEC or any state securities authority for amendments or supplements to a Registration Statement and Prospectus or for additional information;

          (h)          use all commercially reasonable efforts to obtain the withdrawal of any order suspending the effectiveness of a Registration Statement at the earliest possible moment;

          (i)          in the case of a Shelf Registration, furnish to each Holder of Registrable Securities, and each underwriter, if any, without charge, at least one conformed copy of each Registration Statement and any post-effective amendment thereto, including financial statements and schedules (without documents incorporated therein by reference and all exhibits thereto, unless requested);

          (j)          in the case of a Shelf Registration, cooperate with the selling Holders of Registrable Securities to facilitate the timely preparation and delivery of certificates representing Registrable Securities to be sold and not bearing any restrictive legends; and enable such Registrable Securities to be in such denominations (consistent with the provisions of the Indenture) and registered in such names as the selling Holders or the underwriters, if any, may reasonably request at least three business days prior to the closing of any sale of Registrable Securities;

          (k)           in the case of a Shelf Registration, upon the occurrence of any event or the discovery of any facts, each as contemplated by Sections 3(e)(v) and 3(e)(vi) hereof, as promptly as practicable after the occurrence of such an event, but subject to Section 2.2(a)(C), use its best efforts to prepare a supplement or post-effective amendment to the Registration Statement or the related Prospectus or any document incorporated therein by reference or file any other required document so that, as thereafter delivered to the purchasers of the Registrable Securities or Participating Broker-Dealers, such Prospectus will not contain at the time of such delivery any untrue statement of a material fact or omit to state a material fact necessary to make the statements therein, in light of the circumstances under which they were made, not misleading or will remain so qualified. At such time as such disclosure is otherwise made by the Company or the Company determines that such disclosure is not necessary, in each case to correct any misstatement of a material fact or to include any omitted material fact, the Company agrees promptly to furnish each Holder such number of copies of the Prospectus as amended or supplemented, as such Holder may reasonably request, or promptly to notify each Holder of such determination that such disclosure is not necessary;

          (l)          in the case of a Shelf Registration Statement, prior to the completion of the distribution by the Initial Purchasers of the Registrable Securities or Private Exchange Securities registered thereunder as evidenced by a notice in writing from Merrill Lynch on behalf of the Initial Purchasers to the Company, the Company will furnish to Merrill Lynch on behalf of the Initial Purchasers, at least 24 hours (or such shorter period as is reasonably required by the circumstances) prior to the filing thereof with the SEC, a draft of each document which is to be filed by the Company with the SEC and incorporated by reference in the Shelf Registration Statement or the Prospectus forming part thereof;

          (m)          obtain a CUSIP number for all Exchange Securities, Private Exchange Securities or Registrable Securities, as the case may be, not later than the effective date of a Registration Statement, and provide the Trustee with certificates for the Exchange Securities, Private Exchange Securities or the Registrable Securities, as the case may be, in a form eligible for deposit with the Depositary;

          (n)          (i) cause the Indenture to be qualified under the TIA in connection with the registration of the Exchange Securities or Registrable Securities, as the case may be, (ii) cooperate with the Trustee and the Holders to effect such changes to the Indenture as may be required for the Indenture to be so qualified in accordance with the terms of the TIA and (iii) execute, and use its commercially reasonable efforts to cause the Trustee to execute, all documents as may be required to effect such changes, and all other forms and documents required to be filed with the SEC to enable the Indenture to be so qualified in a timely manner;

          (o)          in the case of a Shelf Registration, enter into reasonable and customary agreements (including underwriting agreements) and take all other customary and appropriate actions in order to expedite or facilitate the disposition of such Registrable Securities and in such connection whether or not an underwriting agreement is entered into and whether or not the registration is an underwritten registration:

(i)          make such representations and warranties to the Holders of such Registrable Securities and the underwriters, if any, in form, substance and scope as are customarily made by issuers to underwriters in similar underwritten offerings as may be reasonably requested by them;           (ii)         obtain an opinion or opinions of counsel to the Company and updates thereof (which counsel and opinions (in form, scope and substance) shall be reasonably satisfactory to the managing underwriters, if any, and the holders of a majority in principal amount of the Registrable Securities being sold) addressed to each selling Holder and the underwriters, if any, covering the matters customarily covered in opinions requested in sales of securities or underwritten offerings and such other matters as may be reasonably requested by such Holders and underwriters;           (iii)        obtain "cold comfort" letters and updates thereof from the Company's independent certified public accountants (and, if necessary, any other independent certified public accountants of any subsidiary of the Company or of any business acquired by the Company for which financial statements are, or are required to be, included in the Registration Statement) addressed to the underwriters, if any, and use reasonable efforts to have such letter addressed to the selling Holders of Registrable Securities (to the extent consistent with Statement on Auditing Standards No. 72 of the American Institute of Certified Public Accounts), such letters to be in customary form and covering matters of the type customarily covered in "cold comfort" letters to underwriters in connection with similar underwritten offerings;           (iv)         if an underwriting agreement is entered into, cause the same to set forth indemnification provisions and procedures substantially equivalent to the indemnification provisions and procedures set forth in Section 4 hereof with respect to the underwriters and all other parties to be indemnified pursuant to said Section or, at the request of any underwriters, in the form customarily provided to such underwriters in similar types of transactions; and           (v)          deliver such documents and certificates as may be reasonably requested and as are customarily delivered in similar offerings to the Holders of a majority in principal amount of the Registrable Securities being sold and the managing underwriters, if any.

The above shall be done at (i) the effectiveness of such Registration Statement (and each post-effective amendment thereto) and (ii) each closing under any underwriting agreement as and to the extent required thereunder;

          (p)          in the case of a Shelf Registration or if a Prospectus is required to be delivered by any Participating Broker-Dealer in the case of an Exchange Offer, make available for inspection by representatives of the Holders of the Registrable Securities, any underwriters participating in any disposition pursuant to a Shelf Registration Statement, any Participating Broker-Dealer and any counsel or accountant retained by any of the foregoing, all financial and other records, pertinent corporate documents and properties of the Company reasonably requested by any such persons, and cause the respective officers, directors, employees, and any other agents of the Company to supply all information reasonably requested by any such representative, underwriter, Special Counsel or accountant in connection with a Registration Statement, and make such representatives of the Company available for discussion of such documents as shall be reasonably requested by the Initial Purchasers; in each case subject to such confidentiality procedures, with respect to information not required by law to be disclosed, as the Company shall reasonably determine;

          (q)          (i)  in the case of an Exchange Offer Registration Statement, a reasonable time prior to the filing of any Exchange Offer Registration Statement, any Prospectus forming a part thereof, any amendment to an Exchange Offer Registration Statement or amendment or supplement to such Prospectus (but not including any amendment to the Exchange Offer Registration Statement or amendment or supplement to such Prospectus through the filing of any document which is to be incorporated by reference therein), provide copies of such document to the Initial Purchasers and Special Counsel to the Holders of Registrable Securities and make such changes in any such document prior to the filing thereof as the Initial Purchasers or Special Counsel to the Holders of Registrable Securities may reasonably request in a timely manner and, except as otherwise required by applicable law, not file any such do cument in a form of which the Initial Purchasers on behalf of the Holders of Registrable Securities and Special Counsel to the Holders of Registrable Securities shall not have previously been furnished a copy or to which the Initial Purchasers on behalf of the Holders of Registrable Securities or Special Counsel to the Holders of Registrable Securities shall reasonably object in a timely manner, and make the representatives of the Company available for discussion of such documents as shall be reasonably requested by the Initial Purchasers; and

                     (ii)           in the case of a Shelf Registration, a reasonable time prior to filing any Shelf Registration Statement, any Prospectus forming a part thereof, any amendment to such Shelf Registration Statement or amendment or supplement to such Prospectus (but not including any amendment to the Shelf Registration Statement or amendment or supplement to such Prospectus through the filing of any document which is to be incorporated by reference therein), provide copies of such document to the Holders of Registrable Securities to be included therein, to the Initial Purchasers, to Special Counsel for the Holders and to the underwriter or underwriters of an underwritten offering of Registrable Securities, if any, make such changes in any such document prior to the filing thereof as the Initial Purchasers, the Special Counsel to the Holders or the underwriter or underwriters reasonably request in a timely manner and not file any such document in a form of which the Majority Holders, the Initial Purchasers on behalf of the Holders of Registrable Securities, Special Counsel for the Holders of Registrable Securities or any underwriter shall not have previously been furnished a copy or to which the Majority Holders, the Initial Purchasers on behalf of the Holders of Registrable Securities, Special Counsel to the Holders of Registrable Securities or any underwriter shall reasonably object in a timely manner, and make the representatives of the Company available for discussion of such document as shall be reasonably requested by the Holders of Registrable Securities, the Initial Purchasers on behalf of such Holders, Special Counsel for the Holders of Registrable Securities or any underwriter.

          (r)          in the case of a Shelf Registration, use its commercially reasonable efforts to cause all Registrable Securities to be listed on any securities exchange on which similar debt securities issued by the Company are then listed if requested by the Majority Holders, or if requested by the underwriter or underwriters of an underwritten offering of Registrable Securities, if any;

          (s)          in the case of a Shelf Registration, use its commercially reasonable efforts to cause the Registrable Securities to be rated by the appropriate rating agencies, if so requested by the Majority Holders, or if requested by the underwriter or underwriters of an underwritten offering of Registrable Securities, if any;

          (t)          otherwise comply with all applicable rules and regulations of the SEC and make available to its security holders, as soon as reasonably practicable, an earnings statement covering at least 12 months which shall satisfy the provisions of Section 11(a) of the 1933 Act and Rule 158 thereunder;

          (u)          cooperate and assist in any filings required to be made with the NASD and, in the case of a Shelf Registration, in the performance of any due diligence investigation by any underwriter and its counsel (including any "qualified independent underwriter" that is required to be retained in accordance with the rules and regulations of the NASD); and

          (v)          upon consummation of the Exchange Offer or a Private Exchange, deliver a customary opinion or opinions of counsel to the Company addressed to the Trustee for the benefit of all Holders of Registrable Securities participating in the Exchange Offer or Private Exchange, and which includes an opinion that (i) the Company has duly authorized, executed and delivered the Exchange Securities and/or Private Exchange Securities, as applicable, and the related indenture, and (ii) each of the Exchange Securities and related indenture constitute a legal, valid and binding obligation of the Company, enforceable against the Company in accordance with its respective terms (with customary exceptions).

           In the case of a Shelf Registration Statement, the Company may (as a condition to such Holder's participation in the Shelf Registration) require each Holder of Registrable Securities to furnish to the Company such information regarding the Holder and the proposed distribution by such Holder of such Registrable Securities as the Company may from time to time reasonably request in writing.

          Merrill Lynch on behalf of the Initial Purchasers promptly shall notify the Company in writing of the completion of the distribution by the Initial Purchasers of any Registrable Securities and Private Exchange Securities registered under a Shelf Registration Statement.

          In the case of a Shelf Registration Statement, each Holder agrees that, upon receipt of any notice from the Company (i) of the happening of any event or the discovery of any facts, each of the kind described in Section 3(e)(v) hereof or (ii) that the Company is suspending the use of the Prospectus that is part of the Shelf Registration Statement pursuant to Section 2.2(a)(C), such Holder shall forthwith discontinue disposition of Registrable Securities pursuant to such Shelf Registration Statement until such Holder's receipt of (1) the copies of the supplemented or amended Prospectus contemplated by Section 3(k) hereof or (2) notification that no such Prospectus is required, and, if so directed by the Company, such Holder will deliver to the Company (at its expense) all copies in such Holder's possession, other than permanent file copies then in such Holder's possession, of the Prospectus covering such Registrable Securities current at the time of r eceipt of such notice.

          In the event that the Company fails to effect the Exchange Offer or file any Shelf Registration Statement and maintain the effectiveness of any Shelf Registration Statement as provided herein, the Company shall not file any Registration Statement with respect to any securities (within the meaning of Section 2(1) of the 1933 Act) of the Company other than Registrable Securities until such failure is cured.

          If any of the Registrable Securities covered by any Shelf Registration Statement are to be sold in an underwritten offering, the underwriter or underwriters and manager or managers that will manage such offering will be selected by the Majority Holders of such Registrable Securities included in such offering and shall be acceptable to the Company. No Holder of Registrable Securities may participate in any underwritten registration hereunder unless such Holder (a) agrees to sell such Holder's Registrable Securities on the basis provided in any underwriting arrangements approved by the persons entitled hereunder to approve such arrangements and (b) completes and executes all questionnaires, powers of attorney, indemnities, underwriting agreements and other documents required under the terms of such underwriting arrangements.

          4.          Indemnification; Contribution.

          (a)         The Company agrees to indemnify and hold harmless the Initial Purchasers, each Holder, each Participating Broker-Dealer, each Person who participates as an underwriter in connection with a Shelf Registration (any such Person for all purposes of this Section 4 being an "Underwriter") and each Person, if any, who controls any of such parties within the meaning of Section 15 of the 1933 Act or Section 20 of the 1934 Act as follows:

(i)          against any and all loss, liability, claim, damage and expense whatsoever, as incurred, arising out of any untrue statement or alleged untrue statement of a material fact contained in any Registration Statement (or any amendment or supplement thereto) pursuant to which Exchange Securities or Registrable Securities were registered under the 1933 Act, including all documents incorporated therein by reference, or the omission or alleged omission therefrom of a material fact required to be stated therein or necessary to make the statements therein not misleading, or arising out of any untrue statement or alleged untrue statement of a material fact contained in any Prospectus (or any amendment or supplement thereto) or the omission or alleged omission therefrom of a material fact necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading;           (ii)         against any and all loss, liability, claim, damage and expense whatsoever, as incurred, to the extent of the aggregate amount paid in settlement of any litigation, or any investigation or proceeding by any governmental agency or body, commenced or threatened, or of any claim whatsoever based upon any untrue statement or omission, or any such alleged statement or omission, in either case of the nature described in clause (i) above; provided that any such settlement is effected with the written consent of the Company; and           (iii)        against any and all expense whatsoever, as incurred (including the fees and disbursements of counsel chosen by any indemnified party), reasonably incurred in investigating, preparing or defending against any litigation, or any investigation or proceeding by any governmental agency or body, commenced or threatened, or any claim whatsoever based upon any untrue statement or omission, or any alleged untrue statement or omission, in either case of the nature described in clause (i) above, to the extent that any such expense is not paid under clause (i) or (ii) above;

provided, however, that this indemnity agreement as to any indemnified party shall not apply to any loss, liability, claim, damage or expense to the extent arising out of any untrue statement or omission or alleged untrue statement or omission made in reliance upon and in conformity with written information furnished to the Company by such indemnified party expressly for use in a Registration Statement (or any amendment thereto) or any Prospectus (or any amendment or supplement thereto).

          (b)          Each Holder severally, but not jointly, agrees to indemnify and hold harmless the Company, the Initial Purchasers, each Underwriter and the other selling Holders, and each of their respective directors and officers, and each Person, if any, who controls the Company, the Initial Purchasers, any Underwriter or any other selling Holder within the meaning of Section 15 of the 1933 Act or Section 20 of the 1934 Act, against any and all loss, liability, claim, damage and expense described in the indemnity contained in Section 4(a) hereof, as incurred, but only with respect to untrue statements or omissions, or alleged untrue statements or omissions, made in the Shelf Registration Statement (or any amendment or supplement thereto) or any Prospectus included therein (or any amendment or supplement thereto) in reliance upon and in conformity with written information with respect to such Holder furnished to the Company by such Holder expressly for use in the Shelf Registration Statement (or any amendment or supplement thereto) or such Prospectus (or any amendment or supplement thereto); provided, however, that no such Holder shall be liable for any claims hereunder in excess of the amount of net proceeds received by such Holder from the sale of Registrable Securities pursuant to such Shelf Registration Statement.

          (c)          Each indemnified party shall give notice as promptly as reasonably practicable to each indemnifying party of any action or proceeding commenced against it in respect of which indemnity may be sought hereunder, but failure to so notify an indemnifying party shall not relieve such indemnifying party from any liability hereunder to the extent it is not materially prejudiced as a result thereof and in any event shall not relieve it from any liability which it may have otherwise than on account of this indemnity agreement. An indemnifying party may participate at its own expense in the defense of any such action; provided, however, that counsel to the indemnifying party shall not (except with the consent of the indemnified party) also be counsel to the indemnified party. In no event shall the indemnifying party or parties be liable for the fees and expenses of more than one counsel (in addi tion to any local counsel) separate from their own counsel for all indemnified parties in connection with any one action or separate but similar or related actions in the same jurisdiction arising out of the same general allegations or circumstances. No indemnifying party shall, without the prior written consent of the indemnified parties, settle or compromise or consent to the entry of any judgment with respect to any litigation, or any investigation or proceeding by any governmental agency or body, commenced or threatened, or any claim whatsoever in respect of which indemnification or contribution could be sought under this Section 4 (whether or not the indemnified parties are actual or potential parties thereto), unless such settlement, compromise or consent (i) includes an unconditional release of each indemnified party from all liability arising out of such litigation, investigation, proceeding or claim and (ii) does not include a statement as to or an admission of fault, culpability or a failure to act by or on behalf of any indemnified party.

          (d)           If the indemnification to which a party is entitled under this Section 4 is for any reason unavailable to or insufficient to hold harmless an indemnified party in respect of any losses, liabilities, claims, damages or expenses referred to therein, then each indemnifying party shall contribute to the aggregate amount of such losses, liabilities, claims, damages and expenses incurred by such indemnified party in such proportion as is appropriate to reflect the relative fault of each indemnifying party on the one hand and the Holders and the indemnified party on the other hand in connection with the statements or omissions which resulted in such losses, liabilities, claims, damages or expenses, as well as any other relevant equitable considerations.

          Relative fault shall be determined by reference to, among other things, whether any such untrue or alleged untrue statement of a material fact or omission or alleged omission to state a material fact relates to information supplied by the indemnifying party or the indemnified party, and each such party's relative intent, knowledge, access to information and opportunity to correct or prevent such statement or omission.

          The Company, the Holders and the Initial Purchasers agree that it would not be just and equitable if contribution pursuant to this Section 4 were determined by pro rata allocation (even if the Initial Purchasers were treated as one entity for such purpose) or by any other method of allocation which does not take account of the equitable considerations referred to above in this Section 4. The aggregate amount of losses, liabilities, claims, damages and expenses incurred by an indemnified party and referred to above in this Section 4 shall be deemed to include any legal or other expenses reasonably incurred by such indemnified party in investigating, preparing or defending against any litigation, or any investigation or proceeding by any governmental agency or body, commenced or threatened, or any claim whatsoever based upon any such untrue or alleged untrue statement or omission or alleged omission.

          Notwithstanding the provisions of this Section 4, (i) no Initial Purchaser shall be required to contribute any amount in excess of the amount by which the total price at which the Securities and Private Exchange Securities sold by it pursuant to a registration effected hereunder exceeds the amount of any damages which such Initial Purchaser has otherwise been required to pay by reason of such untrue or alleged untrue statement or omission or alleged omission and (ii) no Holder shall be required to contribute in excess of the amount by which the net proceeds received by such Holder from the sale of Registrable Securities by it pursuant to a registration effected hereunder exceeds the amount of any damages which such Holder has otherwise been required to pay by reason of such untrue or alleged untrue statement or omission or alleged omission.

          No Person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the 1933 Act) shall be entitled to contribution from any Person who was not guilty of such fraudulent misrepresentation.

          For purposes of this Section 4, each Person, if any, who controls an Initial Purchaser, Underwriter or Holder within the meaning of Section 15 of the 1933 Act or Section 20 of the 1934 Act shall have the same rights to contribution as such Initial Purchaser, Underwriter or Holder, and each director of the Company, and each Person, if any, who controls the Company within the meaning of Section 15 of the 1933 Act or Section 20 of the 1934 Act shall have the same rights to contribution as the Company. The Initial Purchasers' respective obligations to contribute pursuant to this Section 4 are several in proportion to the principal amount of Securities set forth opposite their respective names in Schedule A to the Purchase Agreement and not joint. The obligations of each Holder to contribute pursuant to this Section 4 are several and not joint and in the same proportion of all contributions of Holders required hereunder as such Holder's Registrable Securities sold pursuant to the Registration Statement is of the total amount of Registrable Securities sold pursuant to the Registration Statement. Any Underwriters' respective obligations to contribute pursuant to this Section 4 are several in the proportions specified in the relevant underwriting agreement and not joint.

          5.          Miscellaneous.

          5.1        Rule 144 and Rule 144A. For so long as the Company is subject to the reporting requirements of Section 13 or 15 of the 1934 Act, the Company covenants that it will file the reports required to be filed by it under the 1933 Act and Section 13(a) or 15(d) of the 1934 Act and the rules and regulations adopted by the SEC thereunder. If the Company ceases to be so required to file such reports, the Company covenants that it will upon the request of any Holder of Registrable Securities (a) make publicly available such information as is necessary to permit sales pursuant to Rule 144 under the 1933 Act, (b) deliver such information to a prospective purchaser as is necessary to permit sales pursuant to Rule 144A under the 1933 Act and it will take such further action as any Holder of Registrable Securities may reasonably request, and (c) take such further action that is reasonabl e in the circumstances, in each case, to the extent required from time to time to enable such Holder to sell its Registrable Securities without registration under the 1933 Act within the limitation of the exemptions provided by (i) Rule 144 under the 1933 Act, as such Rule may be amended from time to time, (ii) Rule 144A under the 1933 Act, as such Rule may be amended from time to time, or (iii) any similar rules or regulations hereafter adopted by the SEC. Upon the request of any Holder of Registrable Securities, the Company will deliver to such Holder a written statement as to whether it has complied with such requirements.

          5.2        No Inconsistent Agreements. The Company has not entered into and the Company will not after the date of this Agreement enter into any agreement which is inconsistent with the rights granted to the Holders of Registrable Securities in this Agreement or otherwise conflicts with the provisions hereof. The rights granted to the Holders hereunder do not and will not for the term of this Agreement in any way conflict with the rights granted to the holders of the Company's other issued and outstanding securities under any such agreements.

          5.3         Amendments and  Waivers. The provisions of this Agreement, including the provisions of this sentence, may not be amended, modified or supplemented, and waivers or consents to departures from the provisions hereof may not be given unless the Company has obtained the written consent of Holders of at least a majority in aggregate principal amount of the Outstanding Registrable Securities affected by such amendment, modification, supplement, waiver or departure.

          5.4        Notices. All notices and other communications provided for or permitted hereunder shall be made in writing by hand delivery, registered first-class mail, telex, telecopier, or any courier guaranteeing overnight delivery (a) if to a Holder, at the most current address given by such Holder to the Company by means of a notice given in accordance with the provisions of this Section 5.4, which address initially is the address set forth in the Purchase Agreement with respect to the Initial Purchasers; and (b) if to the Company, initially at the Company's address set forth in the Purchase Agreement, and thereafter at such other address of which notice is given in accordance with the provisions of this Section 5.4.

          All such notices and communications shall be deemed to have been duly given: at the time delivered by hand, if personally delivered; five business days after being deposited in the mail, postage prepaid, if mailed; when answered back, if telexed; when receipt is acknowledged, if telecopied; and on the next business day if timely delivered to an air courier guaranteeing overnight delivery.

          Copies of all such notices, demands, or other communications shall be concurrently delivered by the person giving the same to the Trustee under the Indenture, at the address specified in such Indenture.

          5.5        Successor and Assigns. This Agreement shall inure to the benefit of and be binding upon the successors, assigns and transferees of each of the parties, including, without limitation and without the need for an express assignment, subsequent Holders; provided that nothing herein shall be deemed to permit any assignment, transfer or other disposition of Registrable Securities in violation of the terms of the Purchase Agreement or the Indenture. If any transferee of any Holder shall acquire Registrable Securities, in any manner, whether by operation of law or otherwise, such Registrable Securities shall be held subject to all of the terms of this Agreement, and by taking and holding such Registrable Securities such person shall be conclusively deemed to have agreed to be bound by and to perform all of the terms and provisions of this Agreement, including the restrictions on resale se t forth in this Agreement and, if applicable, the Purchase Agreement, and such person shall be entitled to receive the benefits hereof.

          5.6         Third Party  Beneficiaries. Each Initial Purchaser, when it no longer holds any beneficial interest in Securities or Exchange Securities or Private Exchange Securities, shall be a third party beneficiary to the agreements made hereunder between the Company, on the one hand, and the Holders, on the other hand, and shall have the right to enforce such agreements directly to the extent they deem such enforcement necessary or advisable to protect their rights or the rights of Holders hereunder. Each Holder of Registrable Securities shall be a third party beneficiary to the agreements made hereunder between the Company, on the one hand, and the Initial Purchasers, on the other hand, and shall have the right to enforce such agreements directly to the extent it deems such enforcement necessary or advisable to protect its rights hereunder. Each Underwriter shall be a third party beneficiary to the agreements made hereunder for its benefit and shall have the right to enforce such agreements directly to the extent it deems such enforcement necessary or advisable to protect its rights hereunder.

          5.7        Restriction on Resales. Until the expiration of two years after the original issuance of the Securities, the Company will not, and will cause its "affiliates" (as such term is defined in Rule 144(a)(1) under the 1933 Act) not to, resell any Securities which are "restricted securities" (as such term is defined under Rule 144(a)(3) under the 1933 Act) that have been reacquired by any of them.

          5.8        Counterparts. This Agreement may be executed in any number of counterparts and by the parties hereto in separate counterparts, each of which when so executed shall be deemed to be an original and all of which taken together shall constitute one and the same agreement.

          5.9        Headings. The headings in this Agreement are for convenience of reference only and shall not limit or otherwise affect the meaning hereof.

          5.10      GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAW OF THE STATE OF NEW YORK WITHOUT REGARD TO THE PRINCIPLES OF CONFLICT OF LAWS THEREOF.

          5.11       Severability. In the event that any one or more of the provisions contained herein, or the application thereof in any circumstance, is held invalid, illegal or unenforceable, the validity, legality and enforceability of any such provision in every other respect and of the remaining provisions contained herein shall not be affected or impaired thereby.

IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first written above.
	Pepco Holdings, Inc. By:                                                                  Name: Title:
Confirmed and accepted as of the date first above written: Merrill Lynch & Co. Merrill Lynch, Pierce, Fenner & Smith                         Incorporated Banc One Capital Markets, Inc. BY: Merrill Lynch & Co.          Merrill Lynch, Pierce, Fenner & Smith                                  Incorporated By:                                                                                  Name: Title: For themselves and as representatives of the other Initial Purchasers.

		Exhibit A
	[LETTERHEAD OF COVINGTON & BURLING]
1.          The Exchange Offer Registration Statement, at the time it became effective, and the Prospectus, at the time it was filed with the SEC pursuant to Rule 424 under the 1933 Act (other than the financial statements, including the notes thereto, and other financial and statistical data and supplemental schedules included or incorporated by reference therein and the Form T-1, as to which we express no opinion), complied as to form in all material respects with the requirements of the 1933 Act and the applicable rules and regulations promulgated under the 1933 Act.           2.          The Indenture has been qualified under the Trust Indenture Act of 1939, as amended.           3.          The Registration Statement has become effective under the 1933 Act, and, to the best of our knowledge, no stop order suspending the effectiveness of the Registration Statement has been issued and no proceedings for that purpose have been instituted or are pending or contemplated by the SEC.           4.          In passing upon the form of the Exchange Offer Registration Statement and the form of Prospectus, we necessarily assume the correctness and completeness of the statements made and information included therein by the Company. We have not, however, independently verified and are not passing upon, and do not assume any responsibility for, the accuracy, completeness or fairness of the statements contained in the Exchange Offer Registration Statement and the Prospectus. However, based on our examination of the Exchange Offer Registration Statement and the Prospectus and participation in conferences with your representatives and those of the Company, your counsel and the Company's accountants in connection with the Exchange Offer Registration Statement and the Prospectus, nothing which came to our attention in the course of such review has caused us to believe that, at the time it became effe ctive, the Exchange Offer Registration Statement (except for financial statements, including the notes thereto, financial schedules and other financial or statistical data included or incorporated by reference therein, as to which we express no comment) contained an untrue statement of a material fact or omitted to state a material fact required to be stated therein or necessary to make the statements therein not misleading or that the Prospectus, at the time it was filed with the SEC pursuant to Rule 424 under the 1933 Act or at the date hereof (except for financial statements, including the notes thereto, financial schedules and other financial or statistical data included or incorporated by reference therein, as to which we express no comment), contained or contains an untrue statement of a material fact or omitted or omits to state a material fact necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading.

EX-4

EXECUTION COPY

Registration Rights Agreement Dated as of September 19, 2002 among Pepco Holdings, Inc. and Merrill Lynch & Co. Merrill Lynch, Pierce, Fenner & Smith Incorporated Banc One Capital Markets, Inc. Credit Suisse First Boston Corporation Scotia Capital (USA) Inc. Wachovia Securities, Inc. Banc of America Securities LLC Legg Mason Wood Walker, Incorporated BNY Capital Markets, Inc. Mellon Financial Markets, LLC SunTrust Capital Markets, Inc. The Williams Capital Group, L.P. as Initial Purchasers

			REGISTRATION RIGHTS AGREEMENT
This Registration Rights Agreement (the "Agreement") is made and entered into this 19th day of September, 2002, among Pepco Holdings, Inc., a Delaware corporation (the "Company"), and Merrill Lynch & Co., Merrill Lynch, Pierce, Fenner & Smith Incorporated ("Merrill Lynch"), Banc One Capital Markets, Inc. ("Banc One"), Credit Suisse First Boston Corporation, Scotia Capital (USA) Inc., Wachovia Securities, Inc., Banc of America Securities LLC, Legg Mason Wood Walker, Incorporated, BNY Capital Markets, Inc., Mellon Financial Markets, LLC, SunTrust Capital Markets, Inc. and The Williams Capital Group, L.P. (collectively, the "Initial Purchasers"), for whom Merrill Lynch and Banc One are acting as representatives.           This Agreement is made in connection with the Purchase Agreement, dated September 16, 2002, among the Company and the Initial Purchasers (the "Purchase Agreement"), which provides for the sale by the Company to the Initial Purchasers of $150,000,000 aggregate principal amount of the Company's 5.50% Notes due 2007 (the "Securities"). In order to induce the Initial Purchasers to enter into the Purchase Agreement, the Company has agreed to provide to the Initial Purchasers and their direct and indirect transferees the registration rights set forth in this Agreement. The execution of this Agreement is a condition to the closing under the Purchase Agreement.           In consideration of the foregoing, the parties hereto agree as follows:           1.           Definitions.           As used in this Agreement, the following capitalized defined terms shall have the following meanings:           "1933 Act" shall mean the Securities Act of 1933, as amended from time to time.           "1934 Act" shall mean the Securities Exchange Act of l934, as amended from time to time.           "Closing Date" shall mean the September 6, 2002.           "Company" shall have the meaning set forth in the preamble and shall also include the Company's successors.           "Depositary" shall mean The Depository Trust Company, or any other depositary appointed by the Company, provided, however, that such depositary must have an address in the Borough of Manhattan, in the City of New York.           "Exchange Offer" shall mean the exchange offer by the Company of Exchange Securities for Registrable Securities pursuant to Section 2.1 hereof.           "Exchange Offer Registration" shall mean a registration under the 1933 Act effected pursuant to Section 2.1 hereof.           "Exchange Offer Registration Statement" shall mean an exchange offer registration statement on Form S-4 (or, if applicable, on another appropriate form), and all amendments and supplements to such registration statement, including the Prospectus contained therein, all exhibits thereto and all documents incorporated by reference therein.           "Exchange Period" shall have the meaning set forth in Section 2.1 hereof.           "Exchange Securities" shall mean the 5.50% Exchange Notes due 2007 issued by the Company under the Indenture, containing terms identical in all material respects (except for references to certain interest rate provisions, restrictions on transfers and restrictive legends) to the Securities, to be offered to Holders in exchange for Registrable Securities pursuant to the Exchange Offer.           "Holder" shall mean any holder from time to time of Registrable Securities (including any of the Initial Purchasers).           "Indenture" shall mean the Indenture relating to the Securities, dated as of September 6, 2002, between the Company and The Bank of New York, as trustee, as the same may be amended, supplemented, waived or otherwise modified from time to time in accordance with the terms thereof.           "Initial Purchaser" or "Initial Purchasers" shall have the meaning set forth in the preamble.           "Majority Holders" shall mean the Holders of a majority of the aggregate principal amount of Outstanding (as defined in the Indenture) Registrable Securities           "Participating Broker-Dealer" shall mean any Holder (which may include any of the Initial Purchasers) that is a broker-dealer electing to exchange Securities acquired for its own account as a result of market-making activities or other trading activities for Exchange Securities.           "Person" shall mean an individual, partnership (general or limited), corporation, limited liability company, trust or unincorporated organization, or a government or agency or political subdivision thereof.           "Private Exchange" shall have the meaning set forth in Section 2.1 hereof.           "Private Exchange Securities" shall have the meaning set forth in Section 2.1 hereof.           "Prospectus" shall mean the prospectus included in a Registration Statement, including any preliminary prospectus, and any such prospectus as amended or supplemented by any prospectus supplement, including any such prospectus supplement with respect to the terms of the offering of any portion of the Registrable Securities covered by a Shelf Registration Statement, and by all other amendments and supplements to a prospectus, including post-effective amendments, and in each case including all material incorporated by reference therein.           "Purchase Agreement" shall have the meaning set forth in the preamble.           "Registrable Securities" shall mean the Securities and, if issued, the Private Exchange Securities; provided, however, that Securities and, if issued, the Private Exchange Securities, shall cease to be Registrable Securities when (i) a Registration Statement with respect to such Securities shall have been declared effective under the 1933 Act and such Securities shall have been disposed of pursuant to such Registration Statement, (ii) such Securities have been sold to the public pursuant to Rule l44 (or any similar provision then in force, but not Rule 144A) under the 1933 Act, (iii) such Securities shall have ceased to be Outstanding, (iv) the Exchange Offer is consummated (except in the case of Private Exchange Securities or Securities purchased directly from the Company and continued to be held by the Initial Purchasers) or (v) two years (or such shorter period as may hereafter be provided in Rule 144(k) under the 1933 A ct (or similar rule)) have elapsed since the original issuance date of the Securities.           "Registration Expenses" shall mean any and all expenses incident to performance of or compliance by the Company with this Agreement, including without limitation: (i) all SEC, stock exchange or National Association of Securities Dealers, Inc. (the "NASD") registration and filing fees, including, if applicable, the fees and expenses of any "qualified independent underwriter" (and its counsel) that is required to be retained by any holder of Registrable Securities in accordance with the rules and regulations of the NASD, (ii) all fees and expenses incurred in connection with compliance with state securities or blue sky laws and compliance with the rules of the NASD (including reasonable fees and disbursements of counsel for any underwriters or Holders in connection with blue sky qualification of any of the Exchange Securities or Registrable Securities and any filings with the NASD), (iii) all expenses of any Persons in preparing or assisting in preparing, word processing, printing and distributing any Registration Statement, any Prospectus, any amendments or supplements thereto, any underwriting agreements, securities sales agreements and other documents relating to the performance of and compliance with this Agreement, (iv) all fees and expenses incurred in connection with the listing, if any, of any of the Registrable Securities on any securities exchange or exchanges, (v) all rating agency fees, (vi) the fees and disbursements of counsel for the Company and of the independent public accountants of the Company, including the expenses of any special audits or "cold comfort" letters required by or incident to such performance and compliance, (vii) the fees and expenses of the Trustee, and any escrow agent or custodian, (viii) the reasonable fees and expenses of the Initial Purchasers in connection with the Exchange Offer, including the reasonable fees and expenses of counsel to the Initial Purchasers in connection th erewith, (ix) the reasonable fees and disbursements of Pillsbury Winthrop LLP (or such other firm as shall be designated by the Company), special counsel representing the Holders of Registrable Securities (the "Special Counsel") and (x) any fees and disbursements of the underwriters customarily required to be paid by issuers or sellers of securities and the fees and expenses of any special experts retained by the Company in connection with any Registration Statement, but excluding underwriting discounts and commissions and transfer taxes, if any, relating to the sale or disposition of Registrable Securities by a Holder.           "Registration Statement" shall mean any Exchange Offer Registration Statement or Shelf Registration Statement that covers any of the Exchange Securities or Registrable Securities pursuant to the provisions of this Agreement, and all amendments and supplements to any such Registration Statement, including post-effective amendments, in each case including the Prospectus contained therein, all exhibits thereto and all material incorporated by reference therein.           "SEC" shall mean the Securities and Exchange Commission or any successor agency or government body performing the functions currently performed by the United States Securities and Exchange Commission.           "Shelf Registration" shall mean a registration effected pursuant to Section 2.2 hereof.           "Shelf Registration Statement" shall mean a "shelf" registration statement of the Company pursuant to the provisions of Section 2.2 of this Agreement that covers any of the Registrable Securities on an appropriate form under Rule 415 under the 1933 Act, or any similar rule that may be adopted by the SEC, and all amendments and supplements to such registration statement, including post-effective amendments, in each case including the Prospectus contained therein, all exhibits thereto and all material incorporated by reference therein.           "Trustee" shall mean the trustee with respect to the Securities under the Indenture.           2.         Registration Under the 1933 Act.           2.1       Exchange Offer.  The Company shall, for the benefit of the Holders, at the Company's cost, (A) prepare and, within 180 days following the Closing Date, file with the SEC an Exchange Offer Registration Statement on an appropriate form under the 1933 Act with respect to a proposed Exchange Offer and the issuance and delivery to the Holders, in exchange for the Registrable Securities (other than Private Exchange Securities), of a like principal amount of Exchange Securities, (B) use its commercially reasonable efforts to cause the Exchange Offer Registration Statement to be declared effective under the 1933 Act within 240 days following the Closing Date, (C) use its commercially reasonable efforts to keep the Exchange Offer Registration Statement effective until the closing of the Exchange Offer and (D) use its commercially reasonable efforts to cause the Exchan ge Offer to be consummated not later than 270 days following the Closing Date. The Exchange Securities will be issued under the Indenture. Upon the effectiveness of the Exchange Offer Registration Statement, the Company shall promptly commence the Exchange Offer, it being the objective of such Exchange Offer to enable each Holder eligible and electing to exchange Registrable Securities for Exchange Securities (assuming that such Holder (a) is not an affiliate of the Company within the meaning of Rule 405 under the 1933 Act, (b) is not a broker-dealer tendering Registrable Securities acquired directly from the Company, (c) acquires the Exchange Securities in the ordinary course of such Holder's business and (d) has no arrangements or understandings with any Person to participate in the Exchange Offer for the purpose of distributing the Exchange Securities) to transfer such Exchange Securities from and after their receipt without any limitations or restrictions under the 1933 Act and unde r state securities or blue sky laws.           In connection with the Exchange Offer, the Company shall:           (a)       mail as promptly as practicable to each Holder a copy of the Prospectus forming part of the Exchange Offer Registration Statement, together with an appropriate letter of transmittal and related documents;           (b)       keep the Exchange Offer open for acceptance for a period of not less than 30 calendar days after the date notice thereof is mailed to the Holders (or longer if required by applicable law) (such period referred to herein as the "Exchange Period");           (c)       utilize the services of the Depositary for the Exchange Offer;           (d)       permit Holders to withdraw tendered Registrable Securities at any time prior to 5:00 p.m. (Eastern Time), on the last business day of the Exchange Period, by sending to the institution specified in the notice, a telegram, telex, facsimile transmission or letter setting forth the name of such Holder, the principal amount of Registrable Securities delivered for exchange, and a statement that such Holder is withdrawing such Holder's election to have such Securities exchanged;           (e)       notify each Holder that any Registrable Security not tendered will remain outstanding and continue to accrue interest, but will not retain any rights under this Agreement (except in the case of the Initial Purchasers and Participating Broker-Dealers as provided herein); and           (f)       otherwise comply in all respects with all applicable laws relating to the Exchange Offer.           If, prior to consummation of the Exchange Offer, the Initial Purchasers hold any Securities acquired by them directly from the Company and having the status of an unsold allotment in the initial distribution, the Company upon the request of any Initial Purchaser shall, simultaneously with the delivery of the Exchange Securities in the Exchange Offer, issue and deliver to such Initial Purchaser in exchange (the "Private Exchange") for the Securities held by such Initial Purchaser as of the end of the Exchange Period, a like principal amount of debt securities of the Company that are identical (except that such securities shall bear appropriate transfer restrictions) to the Exchange Securities (the "Private Exchange Securities").           The Exchange Securities and the Private Exchange Securities shall be issued under (i) the Indenture or (ii) an indenture identical in all material respects to the Indenture and which, in either case, has been qualified under the Trust Indenture Act of 1939, as amended (the "TIA"), or is exempt from such qualification and shall provide that the Exchange Securities shall not be subject to the transfer restrictions set forth in the Securities but that the Private Exchange Securities shall be subject to such transfer restrictions. The terms of the Exchange Securities and Private Exchange Securities shall provide that such Exchange Securities and Private Exchange Securities and the Securities shall vote and consent together on all matters as one class and that none of the Exchange Securities, the Private Exchange Securities or the Securities will have the right to vote or consent as a separate class on any matter. The Private Exchange Securit ies shall be of the same series as, and the Company shall use commercially reasonable efforts to have the Private Exchange Securities bear the same CUSIP number as, the Exchange Securities. The Company shall not have any liability under this Agreement solely as a result of such Private Exchange Securities not bearing the same CUSIP number as the Exchange Securities.           As soon as practicable after the close of the Exchange Offer and/or the Private Exchange, as the case may be, the Company shall:
	(i)          accept for exchange all Registrable Securities duly and properly tendered and not validly withdrawn pursuant to the Exchange Offer in accordance with the terms of the Exchange Offer Registration Statement and the letter of transmittal which shall be an exhibit thereto;
	(ii)         accept for exchange all Securities properly tendered pursuant to the Private Exchange;
	(iii)        deliver to the Trustee for cancellation all Registrable Securities so accepted for exchange; and
	(iv)        cause the Trustee promptly to authenticate and deliver Exchange Securities or Private Exchange Securities, as the case may be, to each Holder of Registrable Securities so accepted for exchange in a principal amount equal to the principal amount of the Registrable Securities of such Holder so accepted for exchange.
Interest on each Exchange Security and Private Exchange Security will accrue from the last date on which interest was paid on the Registrable Securities surrendered in exchange therefor or, if no interest has been paid on the Registrable Securities, from the date of original issuance. The Exchange Offer and the Private Exchange shall not be subject to any conditions, other than (i) that the Exchange Offer or the Private Exchange, or the making of any exchange by a Holder, does not violate applicable law or any applicable interpretation of the staff of the SEC, (ii) the due tendering of Registrable Securities in accordance with the Exchange Offer and the Private Exchange, (iii) that each Holder of Registrable Securities exchanged in the Exchange Offer shall have represented that (A) all Exchange Securities to be received by it shall be acquired in the ordinary course of its business, (B) at the time of the consummation of the Exchange Offer it shall have no arrangement or understanding with any person to participate in the distribution (within the meaning of the 1933 Act) of the Exchange Securities, (C) it is not an "affiliate" of the Company as defined in Rule 405 of the 1933 Act, (D) if it is not a broker-dealer, it is not engaged in, and does not intend to engage in, the distribution of the Exchange Securities, (E) if it is a broker-dealer, it will receive Exchange Securities in exchange for Securities that were acquired for its own account as a result of market-making activities or other trading activities, and it acknowledges that it will deliver a prospectus meeting the requirements of the 1933 Act in connection with any resale of those Exchange Securities, and (F) if it is a broker-dealer, it did not purchase the Securities being tendered in the Exchange Offer directly from the Company for resale pursuant to Rule 144A or any other available exemption from registration under the 1933 Act, and shall have made such other represent ations as may be reasonably necessary under applicable SEC rules, regulations or interpretations to render the use of Form S-4 or other appropriate form under the 1933 Act available and (iv) that no action or proceeding shall have been instituted or threatened in any court or by or before any governmental agency with respect to the Exchange Offer or the Private Exchange which, in the Company's judgment, would reasonably be expected to impair the ability of the Company to proceed with the Exchange Offer or the Private Exchange. The Company shall inform the Initial Purchasers of the names and addresses of the Holders to whom the Exchange Offer is made, and the Initial Purchasers shall have the right to contact such Holders to facilitate the tender of Registrable Securities in the Exchange Offer. For purposes hereof, the Exchange Offer and the Private Exchange shall be deemed a separate offer, and the failure to satisfy the conditions as to any one offer shall not affect any other offer.           Each Holder hereby acknowledges and agrees that any Participating Broker-Dealer and any such Holder using the Exchange Offer to participate in a distribution of the Exchange Securities: (1) could not under SEC policy as in effect on the date of this Agreement rely on the position of the SEC enunciated in Morgan Stanley and Co., Inc. (available June 5, 1991) and Exxon Capital Holdings Corporation (available May 13, 1988), as interpreted in the SEC's letter to Shearman & Sterling dated July 2, 1993, and similar no-action letters (including any no-action letter obtained based on the representations in clause (iii) above), and (2) must comply with the registration and prospectus delivery requirements of the 1933 Act in connection with the secondary resale transaction and that such a secondary resale transaction should be covered by an effective registration statement containing the selling security holder information required by Item 507 and 508, a s applicable, of Regulation S-K, and the SEC standard instructions for filing forms under the 1933 Act, if the resales are of Exchange Securities obtained by such Holder in exchange for Securities acquired by such Holder directly from the Company.
2.2        Shelf Registration.           (a)        If (i) because of any changes in law, SEC rules or regulations or applicable interpretations thereof by the staff of the SEC, the Company is not permitted to file the Exchange Offer Registration Statement or effect the Exchange Offer as contemplated by Section 2.1 hereof, (ii) for any other reason the Exchange Offer Registration Statement is not declared effective within 240 days following the Closing Date or the Exchange Offer is not consummated within 270 days following the Closing Date, or (iii) prior to the end of the Exchange Period, any Initial Purchaser requests in writing with respect to Private Exchange Securities or Securities purchased directly from the Company and continued to be held by such Initial Purchaser as of the end of the Exchange Period, then the following provisions shall apply:
		(A) The Company shall prepare and file with the SEC within 30 days after the earliest of (i) the date on which the Company determines that it is not permitted to file the Exchange Offer Registration Statement or effect the Exchange Offer, (ii) the date that is 240 days after the Closing Date if the Exchange Offer Registration Statement has not been declared effective by such date, (iii) the date that is 270 days after the Closing Date if the Exchange Offer has not been consummated by such date, and (iv) the date a written request is received by the Company pursuant to Section 2.2(a)(iii), a Shelf Registration Statement relating to the offer and sale of the Registrable Securities by the Holders from time to time in accordance with the methods of distribution elected by the Majority Holders participating in the Shelf Registration and set forth in such Shelf Registration Statement and shall use its commercially reasonable efforts to cause such Shel f Registration Statement to be declared effective as promptly as practicable thereafter.           (B) The Company shall use its commercially reasonable efforts to keep the Shelf Registration Statement continuously effective (subject to Section 2.2(a)(C)) in order to permit the Prospectus forming a part thereof to be usable by Holders for a period of (1) two years from the date the Shelf Registration Statement is declared effective by the SEC plus (2) the number of days during which use of a Prospectus is suspended pursuant to Section 2.2(a)(C), or for such shorter period that will terminate when all Registrable Securities covered by the Shelf Registration Statement have been sold pursuant to the Shelf Registration Statement or cease to be Outstanding or otherwise to be Registrable Securities (the "Effectiveness Period"); provided, however, that the Effectiveness Period in respect of the Shelf Registration Statement shall be extended to the extent required to permit dealers to comply with the applicable prospectus delivery requirements o f Rule 174 under the 1933 Act.           (C) The Company may suspend the use of the Prospectus forming a part of the Shelf Registration Statement for a period not to exceed 30 days in any one instance or an aggregate of 60 days in any twelve-month period for valid business reasons to avoid premature public disclosure of a pending corporate transaction, including, without limitation, pending acquisitions and divestitures; provided that the Company promptly thereafter complies with the requirements of Section 3, as then applicable, and in calculating the length of the suspension period, there shall be included all days from the date of the suspension to the date the Company has complied with Section 3, as then applicable, or has notified each Holder that no action is required of the Company under Section 3, as then applicable.
(b)       Notwithstanding any other provisions hereof, the Company shall use its commercially reasonable efforts to ensure that (i) the Shelf Registration Statement and any amendment thereto and any Prospectus forming part thereof and any supplement thereto complies in all material respects with the 1933 Act and the rules and regulations thereunder, (ii) the Shelf Registration Statement and any amendment thereto does not, when it becomes effective, contain an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein not misleading and (iii) any Prospectus forming part of any Shelf Registration Statement, and any supplement to such Prospectus (as amended or supplemented from time to time), does not include an untrue statement of a material fact or omit to state a material fact necessary in order to make the statements, in light o f the circumstances under which they were made, not misleading.           The Company shall not permit any securities other than Registrable Securities to be included in the Shelf Registration Statement. The Company further agrees, if necessary, to supplement or amend the Shelf Registration Statement, as required by Section 3(b) below, and to furnish to the Holders of Registrable Securities copies of any such supplement or amendment promptly after its being used or filed with the SEC.           2.3       Expenses. The Company shall pay all Registration Expenses in connection with the registration pursuant to Section 2.1 or 2.2. Each Holder shall pay all underwriting discounts and commissions and transfer taxes, if any, relating to the sale or disposition of such Holder's Registrable Securities pursuant to the Shelf Registration Statement.           2.4       Effectiveness. An Exchange Offer Registration Statement pursuant to Section 2.1 hereof or a Shelf Registration Statement pursuant to Section 2.2 hereof will not be deemed to have become effective unless it has been declared effective by the SEC; provided, however, that if, after it has been declared effective, the offering of Registrable Securities pursuant to an Exchange Offer Registration Statement or a Shelf Registration Statement is interfered with by any stop order, injunction or other order or requirement of the SEC or any other governmental agency or court, such Registration Statement will be deemed not to have become effective during the period of such interference, until the offering of Registrable Securities pursuant to such Registration Statement may legally resume.           2.5       Interest. The Securities will provide that in the event that (a) the Exchange Offer is not consummated as to any Securities eligible to be exchanged for Exchange Securities pursuant thereto in accordance with the terms of this Agreement, or in lieu thereof a Shelf Registration Statement with respect to such Securities is not declared effective, in either case, on or prior to the 270th calendar day following the Closing Date, (b) if, pursuant to Section 2.2(a)(iii), an Initial Purchaser has requested Shelf Registration with respect to Private Exchange Securities or Securities, a Shelf Registration Statement covering such Private Exchange Securities or Securities is not declared effective on or prior to the later of (i) the 60th calendar day following the Company's receipt of the written request specified in Section 2.2(a)(iii) and (ii) the earlier of (A) the 240th calendar day following the Closing Date and (B) the effective date of the Exchange Offer Registration Statement, or (c) (i) after the Exchange Offer Registration Statement has been declared effective, such Registration Statement thereafter ceases to be effective at any time during the Exchange Period or (ii) after the Shelf Registration Statement has been declared effective, such Registration Statement or the Prospectus forming a part thereof ceases to be effective or usable in connection with resale of Securities at any time prior to the expiration of the Effectiveness Period other than as provided in Section 2.2(a)(C) (each such event referred to in clauses (a) through (c) above, a "Registration Default"), the interest rate borne by the Registrable Securities as to which such Registration Default has occurred shall be increased ("Additional Interest") by one-quarter of one percent per annum upon the occurrence of each Registration Default. Following the cure of all Registration Defaults with respect to such Regist rable Securities, the accrual of Additional Interest with respect to such Registrable Securities will cease and the interest rate will revert to the original rate. Notwithstanding anything to the contrary in this Section 2.5, the Company shall not be obligated to pay Additional Interest to a Holder of Registrable Securities if such Holder failed to comply with its obligations to make the representations set forth in Section 2.1 or fails to, or elects not to, participate in the Exchange Offer.           The Company shall notify the Trustee within three business days after each and every date on which a Registration Default occurs. Additional Interest shall be paid by depositing with the Trustee, in trust, for the benefit of the Holders of Registrable Securities, on or before the applicable semiannual interest payment date, immediately available funds in sums sufficient to pay the Additional Interest then due. The Additional Interest due shall be payable on each interest payment date to the record Holder of Securities entitled to receive the interest payment to be paid on such date as set forth in the Indenture. Each obligation to pay Additional Interest shall be deemed to accrue from and includingthe date on which a Registration Default occurs to but excluding the date on which all Registration Defaults are cured.           3.       Registration Procedures.           In connection with the obligations of the Company with respect to Registration Statements pursuant to Sections 2.1 and 2.2 hereof, the Company shall:           (a)       prepare and file with the SEC a Registration Statement, within the relevant time period specified in Section 2, on the appropriate form under the 1933 Act, which form (i) shall be selected by the Company, (ii) shall, in the case of a Shelf Registration, be available for the sale of the Registrable Securities by the selling Holders thereof, (iii) shall comply as to form in all material respects with the requirements of the applicable form and include or incorporate by reference all financial statements required by the SEC to be filed therewith or incorporated by reference therein, and (iv) shall comply in all respects with the requirements of Regulation S-T under the 1933 Act, and use its commercially reasonable efforts to cause such Registration Statement to become effective and remain effective in accordance with Section 2 hereof;           (b)       prepare and file with the SEC such amendments and post-effective amendments to each Registration Statement as may be necessary under applicable law to keep such Registration Statement effective for the applicable period; and cause each Prospectus to be supplemented by any required prospectus supplement, and as so supplemented to be filed pursuant to Rule 424 (or any similar provision then in force) under the 1933 Act and comply with the provisions of the 1933 Act, the 1934 Act and the rules and regulations thereunder applicable to them with respect to the disposition of all securities covered by each Registration Statement during the applicable period in accordance with the intended method or methods of distribution by the selling Holders thereof (including sales by any Participating Broker-Dealer);           (c)       in the case of a Shelf Registration, (i) notify each Holder of Registrable Securities, at least five business days prior to filing, that a Shelf Registration Statement with respect to the Registrable Securities is being filed and advising such Holders that the distribution of Registrable Securities will be made in accordance with the method selected by the Majority Holders participating in the Shelf Registration; (ii) furnish to each Holder of Registrable Securities and to each underwriter of an underwritten offering of Registrable Securities, if any, without charge, as many copies of each Prospectus, including each preliminary Prospectus, and any amendment or supplement thereto and such other documents as such Holder or underwriter may reasonably request, including financial statements and schedules and, if the Holder so requests, all exhibits in order to facilitate the public sale or other disposition o f the Registrable Securities; and (iii) hereby consent to the use of the Prospectus or any amendment or supplement thereto by each of the selling Holders of Registrable Securities in connection with the offering and sale of the Registrable Securities covered by the Prospectus or any amendment or supplement thereto;           (d)       use its commercially reasonable efforts to register or qualify the Registrable Securities under all applicable state securities or "blue sky" laws of such jurisdictions as any Holder of Registrable Securities covered by a Registration Statement and each underwriter of an underwritten offering of Registrable Securities shall reasonably request by the time the applicable Registration Statement is declared effective by the SEC, and do any and all other acts and things which may be reasonably necessary or advisable to enable each such Holder and underwriter to consummate the disposition in each such jurisdiction of such Registrable Securities owned by such Holder; provided, however, that the Company shall not be required to (i) qualify as a foreign corporation or as a dealer in securities in any jurisdiction where it would not otherwise be required to qualify but for this Section 3(d), or (ii) take any action which would subject it to general service of process or taxation in any such jurisdiction where it is not then so subject;            (e)       notify promptly each Holder of Registrable Securities under a Shelf Registration or any Participating Broker-Dealer who has notified the Company that it is utilizing the Exchange Offer Registration Statement as provided in paragraph (f) below and, if requested by such Holder or Participating Broker-Dealer, confirm such advice in writing promptly (i) when a Registration Statement has become effective and when any post-effective amendments and supplements thereto become effective, (ii) of any request by the SEC or any state securities authority for post-effective amendments and supplements to a Registration Statement and Prospectus or for additional information after the Registration Statement has become effective, (iii) of the issuance by the SEC or any state securities authority of any stop order suspending the effectiveness of a Registration Statement or the initiation of any proceedings for that purpos e, (iv) in the case of a Shelf Registration, if, between the effective date of a Registration Statement and the closing of any sale of Registrable Securities covered thereby, the representations and warranties of the Company contained in any underwriting agreement, securities sales agreement or other similar agreement, if any, relating to the offering cease to be true and correct in all material respects, (v) of the happening of any event or the discovery of any facts during the period a Shelf Registration Statement is effective which makes any statement made in such Registration Statement or the related Prospectus untrue in any material respect or which requires the making of any changes in such Registration Statement or Prospectus in order to make the statements therein not misleading, (vi) of the receipt by the Company of any notification with respect to the suspension of the qualification of Registrable Securities or Exchange Securities, as the case may be, for sale in any jurisdiction or the initiation or threatening of any proceeding for such purpose and (vii) of any determination by the Company that a post-effective amendment to such Registration Statement would be appropriate;            (f)       (i)   in the case of the Exchange Offer Registration Statement (A) include in the Exchange Offer Registration Statement a section entitled "Plan of Distribution" which section shall be reasonably acceptable to Merrill Lynch on behalf of the Participating Broker-Dealers, and which shall contain a summary statement of the positions taken or policies made by the staff of the SEC with respect to the potential "underwriter" status of any broker-dealer that holds Registrable Securities acquired for its own account as a result of market-making activities or other trading activities and that will be the beneficial owner (as defined in Rule 13d-3 under the Exchange Act) of Exchange Securities to be received by such broker-dealer in the Exchange Offer, whether such positions or policies have been publicly disseminated by the staff of the SEC or such positions or policies, in the reasonable judgment of Merrill Lynch on behalf of the Participating Broker-Dealers and its counsel, represent the prevailing views of the staff of the SEC, including a statement that any such broker-dealer who receives Exchange Securities for Registrable Securities pursuant to the Exchange Offer may be deemed a statutory underwriter and must deliver a prospectus meeting the requirements of the 1933 Act in connection with any resale of such Exchange Securities, (B) furnish to each Participating Broker-Dealer who has delivered to the Company the notice referred to in Section 3(e), without charge, as many copies of each Prospectus included in the Exchange Offer Registration Statement, including any preliminary prospectus, and any amendment or supplement thereto, as such Participating Broker-Dealer may reasonably request, (C) hereby consent to the use of the Prospectus forming part of the Exchange Offer Registration Statement or any amendment or supplement thereto, by any Person subject to the prospectus delivery require ments of the SEC, including all Participating Broker-Dealers, in connection with the sale or transfer of the Exchange Securities covered by the Prospectus or any amendment or supplement thereto, and (D) include in the transmittal letter or similar documentation to be executed by an exchange offeree in order to participate in the Exchange Offer (x) the following provision:
"If the exchange offeree is a broker-dealer holding Registrable Securities                       acquired for its own account as a result of market-making activities or                       other trading activities, it will deliver a prospectus meeting the                       requirements of the 1933 Act in connection with any resale of Exchange                       Securities received in respect of such Registrable Securities pursuant to                       the Exchange Offer;" and
(y) a statement to the effect that by a broker-dealer making the acknowledgment described in clause (x) and by delivering a Prospectus in connection with the resale of Exchange Securities, the broker-dealer will not be deemed to admit that it is an underwriter within the meaning of the 1933 Act; and                       (ii)   in the case of any Exchange Offer Registration Statement, the Company agrees to deliver to the Initial Purchasers on behalf of the Participating Broker-Dealers upon the effectiveness of the Exchange Offer Registration Statement (A) an opinion of counsel or opinions of counsel in form and substance (with customary exceptions) reasonably acceptable to the Initial Purchasers addressing the matters set forth in Exhibit A, (B) officers' certificates substantially in the form customarily delivered in a public offering of debt securities and (C) a comfort letter or comfort letters in customary form to the extent permitted by Statement on Auditing Standards No. 72 of the American Institute of Certified Public Accountants (or if such a comfort letter is not permitted, an agreed upon procedures letter in customary form) from the Company's independent certi fied public accountants (and, if necessary, any other independent certified public accountants of any subsidiary of the Company or of any business acquired by the Company for which financial statements are, or are required to be, included in the Registration Statement) at least as broad in scope and coverage as the comfort letter or comfort letters delivered to the Initial Purchasers in connection with the initial sale of the Securities to the Initial Purchasers;            (g)       (i) in the case of an Exchange Offer, furnish counsel for the Initial Purchasers and (ii) in the case of a Shelf Registration, furnish Special Counsel for the Holders of Registrable Securities copies of any comment letters received from the SEC or any other request by the SEC or any state securities authority for amendments or supplements to a Registration Statement and Prospectus or for additional information;           (h)       use all commercially reasonable efforts to obtain the withdrawal of any order suspending the effectiveness of a Registration Statement at the earliest possible moment;           (i)       in the case of a Shelf Registration, furnish to each Holder of Registrable Securities, and each underwriter, if any, without charge, at least one conformed copy of each Registration Statement and any post-effective amendment thereto, including financial statements and schedules (without documents incorporated therein by reference and all exhibits thereto, unless requested);           (j)       in the case of a Shelf Registration, cooperate with the selling Holders of Registrable Securities to facilitate the timely preparation and delivery of certificates representing Registrable Securities to be sold and not bearing any restrictive legends; and enable such Registrable Securities to be in such denominations (consistent with the provisions of the Indenture) and registered in such names as the selling Holders or the underwriters, if any, may reasonably request at least three business days prior to the closing of any sale of Registrable Securities;           (k)       in the case of a Shelf Registration, upon the occurrence of any event or the discovery of any facts, each as contemplated by Sections 3(e)(v) and 3(e)(vi) hereof, as promptly as practicable after the occurrence of such an event, but subject to Section 2.2(a)(C), use its best efforts to prepare a supplement or post-effective amendment to the Registration Statement or the related Prospectus or any document incorporated therein by reference or file any other required document so that, as thereafter delivered to the purchasers of the Registrable Securities or Participating Broker-Dealers, such Prospectus will not contain at the time of such delivery any untrue statement of a material fact or omit to state a material fact necessary to make the statements therein, in light of the circumstances under which they were made, not misleading or will remain so qualified. At such time as such disclosure is otherwise made by the Company or the Company determines that such disclosure is not necessary, in each case to correct any misstatement of a material fact or to include any omitted material fact, the Company agrees promptly to furnish each Holder such number of copies of the Prospectus as amended or supplemented, as such Holder may reasonably request, or promptly to notify each Holder of such determination that such disclosure is not necessary;           (l)       in the case of a Shelf Registration Statement, prior to the completion of the distribution by the Initial Purchasers of the Registrable Securities or Private Exchange Securities registered thereunder as evidenced by a notice in writing from Merrill Lynch on behalf of the Initial Purchasers to the Company, the Company will furnish to Merrill Lynch on behalf of the Initial Purchasers, at least 24 hours (or such shorter period as is reasonably required by the circumstances) prior to the filing thereof with the SEC, a draft of each document which is to be filed by the Company with the SEC and incorporated by reference in the Shelf Registration Statement or the Prospectus forming part thereof;           (m)       obtain a CUSIP number for all Exchange Securities, Private Exchange Securities or Registrable Securities, as the case may be, not later than the effective date of a Registration Statement, and provide the Trustee with certificates for the Exchange Securities, Private Exchange Securities or the Registrable Securities, as the case may be, in a form eligible for deposit with the Depositary;            (n)       (i) cause the Indenture to be qualified under the TIA in connection with the registration of the Exchange Securities or Registrable Securities, as the case may be, (ii) cooperate with the Trustee and the Holders to effect such changes to the Indenture as may be required for the Indenture to be so qualified in accordance with the terms of the TIA and (iii) execute, and use its commercially reasonable efforts to cause the Trustee to execute, all documents as may be required to effect such changes, and all other forms and documents required to be filed with the SEC to enable the Indenture to be so qualified in a timely manner;           (o)       in the case of a Shelf Registration, enter into reasonable and customary agreements (including underwriting agreements) and take all other customary and appropriate actions in order to expedite or facilitate the disposition of such Registrable Securities and in such connection whether or not an underwriting agreement is entered into and whether or not the registration is an underwritten registration:
		(i)       make such representations and warranties to the Holders of such Registrable Securities and the underwriters, if any, in form, substance and scope as are customarily made by issuers to underwriters in similar underwritten offerings as may be reasonably requested by them;           (ii)      obtain an opinion or opinions of counsel to the Company and updates thereof (which counsel and opinions (in form, scope and substance) shall be reasonably satisfactory to the managing underwriters, if any, and the holders of a majority in principal amount of the Registrable Securities being sold) addressed to each selling Holder and the underwriters, if any, covering the matters customarily covered in opinions requested in sales of securities or underwritten offerings and such other matters as may be reasonably requested by such Holders and underwriters;           (iii)   obtain "cold comfort" letters and updates thereof from the Company's independent certified public accountants (and, if necessary, any other independent certified public accountants of any subsidiary of the Company or of any business acquired by the Company for which financial statements are, or are required to be, included in the Registration Statement) addressed to the underwriters, if any, and use reasonable efforts to have such letter addressed to the selling Holders of Registrable Securities (to the extent consistent with Statement on Auditing Standards No. 72 of the American Institute of Certified Public Accounts), such letters to be in customary form and covering matters of the type customarily covered in "cold comfort" letters to underwriters in connection with similar underwritten offerings;            (iv)     if an underwriting agreement is entered into, cause the same to set forth indemnification provisions and procedures substantially equivalent to the indemnification provisions and procedures set forth in Section 4 hereof with respect to the underwriters and all other parties to be indemnified pursuant to said Section or, at the request of any underwriters, in the form customarily provided to such underwriters in similar types of transactions; and            (v)        deliver such documents and certificates as may be reasonably requested and as are customarily delivered in similar offerings to the Holders of a majority in principal amount of the Registrable Securities being sold and the managing underwriters, if any.
The above shall be done at (i) the effectiveness of such Registration Statement (and each post-effective amendment thereto) and (ii) each closing under any underwriting agreement as and to the extent required thereunder;           (p)       in the case of a Shelf Registration or if a Prospectus is required to be delivered by any Participating Broker-Dealer in the case of an Exchange Offer, make available for inspection by representatives of the Holders of the Registrable Securities, any underwriters participating in any disposition pursuant to a Shelf Registration Statement, any Participating Broker-Dealer and any counsel or accountant retained by any of the foregoing, all financial and other records, pertinent corporate documents and properties of the Company reasonably requested by any such persons, and cause the respective officers, directors, employees, and any other agents of the Company to supply all information reasonably requested by any such representative, underwriter, Special Counsel or accountant in connection with a Registration Statement, and make such representatives of the Company available for discussion of such documents as shall be reasonably requested by the Initial Purchasers; in each case subject to such confidentiality procedures, with respect to information not required by law to be disclosed, as the Company shall reasonably determine;           (q)       (i)  in the case of an Exchange Offer Registration Statement, a reasonable time prior to the filing of any Exchange Offer Registration Statement, any Prospectus forming a part thereof, any amendment to an Exchange Offer Registration Statement or amendment or supplement to such Prospectus (but not including any amendment to the Exchange Offer Registration Statement or amendment or supplement to such Prospectus through the filing of any document which is to be incorporated by reference therein), provide copies of such document to the Initial Purchasers and Special Counsel to the Holders of Registrable Securities and make such changes in any such document prior to the filing thereof as the Initial Purchasers or Special Counsel to the Holders of Registrable Securities may reasonably request in a timely manner and, except as otherwise required by applicable law, not file any such document in a form o f which the Initial Purchasers on behalf of the Holders of Registrable Securities and Special Counsel to the Holders of Registrable Securities shall not have previously been furnished a copy or to which the Initial Purchasers on behalf of the Holders of Registrable Securities or Special Counsel to the Holders of Registrable Securities shall reasonably object in a timely manner, and make the representatives of the Company available for discussion of such documents as shall be reasonably requested by the Initial Purchasers; and                       (ii)       in the case of a Shelf Registration, a reasonable time prior to filing any Shelf Registration Statement, any Prospectus forming a part thereof, any amendment to such Shelf Registration Statement or amendment or supplement to such Prospectus (but not including any amendment to the Shelf Registration Statement or amendment or supplement to such Prospectus through the filing of any document which is to be incorporated by reference therein), provide copies of such document to the Holders of Registrable Securities to be included therein, to the Initial Purchasers, to Special Counsel for the Holders and to the underwriter or underwriters of an underwritten offering of Registrable Securities, if any, make such changes in any such document prior to the filing thereof as the Initial Purchasers, the Special Counsel to the Holders or the underw riter or underwriters reasonably request in a timely manner and not file any such document in a form of which the Majority Holders, the Initial Purchasers on behalf of the Holders of Registrable Securities, Special Counsel for the Holders of Registrable Securities or any underwriter shall not have previously been furnished a copy or to which the Majority Holders, the Initial Purchasers on behalf of the Holders of Registrable Securities, Special Counsel to the Holders of Registrable Securities or any underwriter shall reasonably object in a timely manner, and make the representatives of the Company available for discussion of such document as shall be reasonably requested by the Holders of Registrable Securities, the Initial Purchasers on behalf of such Holders, Special Counsel for the Holders of Registrable Securities or any underwriter.           (r)       in the case of a Shelf Registration, use its commercially reasonable efforts to cause all Registrable Securities to be listed on any securities exchange on which similar debt securities issued by the Company are then listed if requested by the Majority Holders, or if requested by the underwriter or underwriters of an underwritten offering of Registrable Securities, if any;           (s)       in the case of a Shelf Registration, use its commercially reasonable efforts to cause the Registrable Securities to be rated by the appropriate rating agencies, if so requested by the Majority Holders, or if requested by the underwriter or underwriters of an underwritten offering of Registrable Securities, if any;           (t)       otherwise comply with all applicable rules and regulations of the SEC and make available to its security holders, as soon as reasonably practicable, an earnings statement covering at least 12 months which shall satisfy the provisions of Section 11(a) of the 1933 Act and Rule 158 thereunder;           (u)       cooperate and assist in any filings required to be made with the NASD and, in the case of a Shelf Registration, in the performance of any due diligence investigation by any underwriter and its counsel (including any "qualified independent underwriter" that is required to be retained in accordance with the rules and regulations of the NASD); and           (v)       upon consummation of the Exchange Offer or a Private Exchange, deliver a customary opinion or opinions of counsel to the Company addressed to the Trustee for the benefit of all Holders of Registrable Securities participating in the Exchange Offer or Private Exchange, and which includes an opinion that (i) the Company has duly authorized, executed and delivered the Exchange Securities and/or Private Exchange Securities, as applicable, and the related indenture, and (ii) each of the Exchange Securities and related indenture constitute a legal, valid and binding obligation of the Company, enforceable against the Company in accordance with its respective terms (with customary exceptions).           In the case of a Shelf Registration Statement, the Company may (as a condition to such Holder's participation in the Shelf Registration) require each Holder of Registrable Securities to furnish to the Company such information regarding the Holder and the proposed distribution by such Holder of such Registrable Securities as the Company may from time to time reasonably request in writing.           Merrill Lynch on behalf of the Initial Purchasers promptly shall notify the Company in writing of the completion of the distribution by the Initial Purchasers of any Registrable Securities and Private Exchange Securities registered under a Shelf Registration Statement.           In the case of a Shelf Registration Statement, each Holder agrees that, upon receipt of any notice from the Company (i) of the happening of any event or the discovery of any facts, each of the kind described in Section 3(e)(v) hereof or (ii) that the Company is suspending the use of the Prospectus that is part of the Shelf Registration Statement pursuant to Section 2.2(a)(C), such Holder shall forthwith discontinue disposition of Registrable Securities pursuant to such Shelf Registration Statement until such Holder's receipt of (1) the copies of the supplemented or amended Prospectus contemplated by Section 3(k) hereof or (2) notification that no such Prospectus is required, and, if so directed by the Company, such Holder will deliver to the Company (at its expense) all copies in such Holder's possession, other than permanent file copies then in such Holder's possession, of the Prospectus covering such Registrable Securities current at the time of r eceipt of such notice.           In the event that the Company fails to effect the Exchange Offer or file any Shelf Registration Statement and maintain the effectiveness of any Shelf Registration Statement as provided herein, the Company shall not file any Registration Statement with respect to any securities (within the meaning of Section 2(1) of the 1933 Act) of the Company other than Registrable Securities until such failure is cured.           If any of the Registrable Securities covered by any Shelf Registration Statement are to be sold in an underwritten offering, the underwriter or underwriters and manager or managers that will manage such offering will be selected by the Majority Holders of such Registrable Securities included in such offering and shall be acceptable to the Company. No Holder of Registrable Securities may participate in any underwritten registration hereunder unless such Holder (a) agrees to sell such Holder's Registrable Securities on the basis provided in any underwriting arrangements approved by the persons entitled hereunder to approve such arrangements and (b) completes and executes all questionnaires, powers of attorney, indemnities, underwriting agreements and other documents required under the terms of such underwriting arrangements.           4.       Indemnification; Contribution.           (a)       The Company agrees to indemnify and hold harmless the Initial Purchasers, each Holder, each Participating Broker-Dealer, each Person who participates as an underwriter in connection with a Shelf Registration (any such Person for all purposes of this Section 4 being an "Underwriter") and each Person, if any, who controls any of such parties within the meaning of Section 15 of the 1933 Act or Section 20 of the 1934 Act as follows:
		(i)       against any and all loss, liability, claim, damage and expense whatsoever, as incurred, arising out of any untrue statement or alleged untrue statement of a material fact contained in any Registration Statement (or any amendment or supplement thereto) pursuant to which Exchange Securities or Registrable Securities were registered under the 1933 Act, including all documents incorporated therein by reference, or the omission or alleged omission therefrom of a material fact required to be stated therein or necessary to make the statements therein not misleading, or arising out of any untrue statement or alleged untrue statement of a material fact contained in any Prospectus (or any amendment or supplement thereto) or the omission or alleged omission therefrom of a material fact necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading;< BR>           (ii)      against any and all loss, liability, claim, damage and expense whatsoever, as incurred, to the extent of the aggregate amount paid in settlement of any litigation, or any investigation or proceeding by any governmental agency or body, commenced or threatened, or of any claim whatsoever based upon any untrue statement or omission, or any such alleged statement or omission, in either case of the nature described in clause (i) above; provided that any such settlement is effected with the written consent of the Company; and           (iii)     against any and all expense whatsoever, as incurred (including the fees and disbursements of counsel chosen by any indemnified party), reasonably incurred in investigating, preparing or defending against any litigation, or any investigation or proceeding by any governmental agency or body, commenced or threatened, or any claim whatsoever based upon any untrue statement or omission, or any alleged untrue statement or omission, in either case of the nature described in clause (i) above, to the extent that any such expense is not paid under clause (i) or (ii) above;
provided, however, that this indemnity agreement as to any indemnified party shall not apply to any loss, liability, claim, damage or expense to the extent arising out of any untrue statement or omission or alleged untrue statement or omission made in reliance upon and in conformity with written information furnished to the Company by such indemnified party expressly for use in a Registration Statement (or any amendment thereto) or any Prospectus (or any amendment or supplement thereto).           (b)       Each Holder severally, but not jointly, agrees to indemnify and hold harmless the Company, the Initial Purchasers, each Underwriter and the other selling Holders, and each of their respective directors and officers, and each Person, if any, who controls the Company, the Initial Purchasers, any Underwriter or any other selling Holder within the meaning of Section 15 of the 1933 Act or Section 20 of the 1934 Act, against any and all loss, liability, claim, damage and expense described in the indemnity contained in Section 4(a) hereof, as incurred, but only with respect to untrue statements or omissions, or alleged untrue statements or omissions, made in the Shelf Registration Statement (or any amendment or supplement thereto) or any Prospectus included therein (or any amendment or supplement thereto) in reliance upon and in conformity with written information with respect to such Holder furnished to the Com pany by such Holder expressly for use in the Shelf Registration Statement (or any amendment or supplement thereto) or such Prospectus (or any amendment or supplement thereto); provided, however, that no such Holder shall be liable for any claims hereunder in excess of the amount of net proceeds received by such Holder from the sale of Registrable Securities pursuant to such Shelf Registration Statement.           (c)       Each indemnified party shall give notice as promptly as reasonably practicable to each indemnifying party of any action or proceeding commenced against it in respect of which indemnity may be sought hereunder, but failure to so notify an indemnifying party shall not relieve such indemnifying party from any liability hereunder to the extent it is not materially prejudiced as a result thereof and in any event shall not relieve it from any liability which it may have otherwise than on account of this indemnity agreement. An indemnifying party may participate at its own expense in the defense of any such action; provided, however, that counsel to the indemnifying party shall not (except with the consent of the indemnified party) also be counsel to the indemnified party. In no event shall the indemnifying party or parties be liable for the fees and expenses of more than one counsel (in addition to any local counsel) separate from their own counsel for all indemnified parties in connection with any one action or separate but similar or related actions in the same jurisdiction arising out of the same general allegations or circumstances. No indemnifying party shall, without the prior written consent of the indemnified parties, settle or compromise or consent to the entry of any judgment with respect to any litigation, or any investigation or proceeding by any governmental agency or body, commenced or threatened, or any claim whatsoever in respect of which indemnification or contribution could be sought under this Section 4 (whether or not the indemnified parties are actual or potential parties thereto), unless such settlement, compromise or consent (i) includes an unconditional release of each indemnified party from all liability arising out of such litigation, investigation, proceeding or claim and (ii) does not include a statement as to or an admission of fault, culpability or a failure to act by or on behalf o f any indemnified party.           (d)       If the indemnification to which a party is entitled under this Section 4 is for any reason unavailable to or insufficient to hold harmless an indemnified party in respect of any losses, liabilities, claims, damages or expenses referred to therein, then each indemnifying party shall contribute to the aggregate amount of such losses, liabilities, claims, damages and expenses incurred by such indemnified party in such proportion as is appropriate to reflect the relative fault of each indemnifying party on the one hand and the Holders and the indemnified party on the other hand in connection with the statements or omissions which resulted in such losses, liabilities, claims, damages or expenses, as well as any other relevant equitable considerations.            Relative fault shall be determined by reference to, among other things, whether any such untrue or alleged untrue statement of a material fact or omission or alleged omission to state a material fact relates to information supplied by the indemnifying party or the indemnified party, and each such party's relative intent, knowledge, access to information and opportunity to correct or prevent such statement or omission.            The Company, the Holders and the Initial Purchasers agree that it would not be just and equitable if contribution pursuant to this Section 4 were determined by pro rata allocation (even if the Initial Purchasers were treated as one entity for such purpose) or by any other method of allocation which does not take account of the equitable considerations referred to above in this Section 4. The aggregate amount of losses, liabilities, claims, damages and expenses incurred by an indemnified party and referred to above in this Section 4 shall be deemed to include any legal or other expenses reasonably incurred by such indemnified party in investigating, preparing or defending against any litigation, or any investigation or proceeding by any governmental agency or body, commenced or threatened, or any claim whatsoever based upon any such untrue or alleged untrue statement or omission or alleged omission.            Notwithstanding the provisions of this Section 4, (i) no Initial Purchaser shall be required to contribute any amount in excess of the amount by which the total price at which the Securities and Private Exchange Securities sold by it pursuant to a registration effected hereunder exceeds the amount of any damages which such Initial Purchaser has otherwise been required to pay by reason of such untrue or alleged untrue statement or omission or alleged omission and (ii) no Holder shall be required to contribute in excess of the amount by which the net proceeds received by such Holder from the sale of Registrable Securities by it pursuant to a registration effected hereunder exceeds the amount of any damages which such Holder has otherwise been required to pay by reason of such untrue or alleged untrue statement or omission or alleged omission.            No Person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the 1933 Act) shall be entitled to contribution from any Person who was not guilty of such fraudulent misrepresentation.            For purposes of this Section 4, each Person, if any, who controls an Initial Purchaser, Underwriter or Holder within the meaning of Section 15 of the 1933 Act or Section 20 of the 1934 Act shall have the same rights to contribution as such Initial Purchaser, Underwriter or Holder, and each director of the Company, and each Person, if any, who controls the Company within the meaning of Section 15 of the 1933 Act or Section 20 of the 1934 Act shall have the same rights to contribution as the Company. The Initial Purchasers' respective obligations to contribute pursuant to this Section 4 are several in proportion to the principal amount of Securities set forth opposite their respective names in Schedule A to the Purchase Agreement and not joint. The obligations of each Holder to contribute pursuant to this Section 4 are several and not joint and in the same proportion of all contributions of Holders required hereunder as such Holder's Registrab le Securities sold pursuant to the Registration Statement is of the total amount of Registrable Securities sold pursuant to the Registration Statement. Any Underwriters' respective obligations to contribute pursuant to this Section 4 are several in the proportions specified in the relevant underwriting agreement and not joint.           5.       Miscellaneous.           5.1     Rule 144 and Rule 144A. For so long as the Company is subject to the reporting requirements of Section 13 or 15 of the 1934 Act, the Company covenants that it will file the reports required to be filed by it under the 1933 Act and Section 13(a) or 15(d) of the 1934 Act and the rules and regulations adopted by the SEC thereunder. If the Company ceases to be so required to file such reports, the Company covenants that it will upon the request of any Holder of Registrable Securities (a) make publicly available such information as is necessary to permit sales pursuant to Rule 144 under the 1933 Act, (b) deliver such information to a prospective purchaser as is necessary to permit sales pursuant to Rule 144A under the 1933 Act and it will take such further action as any Holder of Registrable Securities may reasonably request, and (c) take such further action that is reasonable in the circumsta nces, in each case, to the extent required from time to time to enable such Holder to sell its Registrable Securities without registration under the 1933 Act within the limitation of the exemptions provided by (i) Rule 144 under the 1933 Act, as such Rule may be amended from time to time, (ii) Rule 144A under the 1933 Act, as such Rule may be amended from time to time, or (iii) any similar rules or regulations hereafter adopted by the SEC. Upon the request of any Holder of Registrable Securities, the Company will deliver to such Holder a written statement as to whether it has complied with such requirements.           5.2     No Inconsistent Agreements. The Company has not entered into and the Company will not after the date of this Agreement enter into any agreement which is inconsistent with the rights granted to the Holders of Registrable Securities in this Agreement or otherwise conflicts with the provisions hereof. The rights granted to the Holders hereunder do not and will not for the term of this Agreement in any way conflict with the rights granted to the holders of the Company's other issued and outstanding securities under any such agreements.           5.3     Amendments and Waivers. The provisions of this Agreement, including the provisions of this sentence, may not be amended, modified or supplemented, and waivers or consents to departures from the provisions hereof may not be given unless the Company has obtained the written consent of Holders of at least a majority in aggregate principal amount of the Outstanding Registrable Securities affected by such amendment, modification, supplement, waiver or departure.           5.4     Notices. All notices and other communications provided for or permitted hereunder shall be made in writing by hand delivery, registered first-class mail, telex, telecopier, or any courier guaranteeing overnight delivery (a) if to a Holder, at the most current address given by such Holder to the Company by means of a notice given in accordance with the provisions of this Section 5.4, which address initially is the address set forth in the Purchase Agreement with respect to the Initial Purchasers; and (b) if to the Company, initially at the Company's address set forth in the Purchase Agreement, and thereafter at such other address of which notice is given in accordance with the provisions of this Section 5.4.           All such notices and communications shall be deemed to have been duly given: at the time delivered by hand, if personally delivered; five business days after being deposited in the mail, postage prepaid, if mailed; when answered back, if telexed; when receipt is acknowledged, if telecopied; and on the next business day if timely delivered to an air courier guaranteeing overnight delivery.           Copies of all such notices, demands, or other communications shall be concurrently delivered by the person giving the same to the Trustee under the Indenture, at the address specified in such Indenture.           5.5     Successor and Assigns. This Agreement shall inure to the benefit of and be binding upon the successors, assigns and transferees of each of the parties, including, without limitation and without the need for an express assignment, subsequent Holders; provided that nothing herein shall be deemed to permit any assignment, transfer or other disposition of Registrable Securities in violation of the terms of the Purchase Agreement or the Indenture. If any transferee of any Holder shall acquire Registrable Securities, in any manner, whether by operation of law or otherwise, such Registrable Securities shall be held subject to all of the terms of this Agreement, and by taking and holding such Registrable Securities such person shall be conclusively deemed to have agreed to be bound by and to perform all of the terms and provisions of this Agreement, including the restrictions on resale set forth in this Ag reement and, if applicable, the Purchase Agreement, and such person shall be entitled to receive the benefits hereof.           5.6     Third Party Beneficiaries. Each Initial Purchaser, when it no longer holds any beneficial interest in Securities or Exchange Securities or Private Exchange Securities, shall be a third party beneficiary to the agreements made hereunder between the Company, on the one hand, and the Holders, on the other hand, and shall have the right to enforce such agreements directly to the extent they deem such enforcement necessary or advisable to protect their rights or the rights of Holders hereunder. Each Holder of Registrable Securities shall be a third party beneficiary to the agreements made hereunder between the Company, on the one hand, and the Initial Purchasers, on the other hand, and shall have the right to enforce such agreements directly to the extent it deems such enforcement necessary or advisable to protect its rights hereunder. Each Underwriter shall be a third party beneficiary to the agreemen ts made hereunder for its benefit and shall have the right to enforce such agreements directly to the extent it deems such enforcement necessary or advisable to protect its rights hereunder.           5.7     Restriction on Resales. Until the expiration of two years after the original issuance of the Securities, the Company will not, and will cause its "affiliates" (as such term is defined in Rule 144(a)(1) under the 1933 Act) not to, resell any Securities which are "restricted securities" (as such term is defined under Rule 144(a)(3) under the 1933 Act) that have been reacquired by any of them.           5.8     Counterparts. This Agreement may be executed in any number of counterparts and by the parties hereto in separate counterparts, each of which when so executed shall be deemed to be an original and all of which taken together shall constitute one and the same agreement.           5.9     Headings. The headings in this Agreement are for convenience of reference only and shall not limit or otherwise affect the meaning hereof.           5.10    GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAW OF THE STATE OF NEW YORK WITHOUT REGARD TO THE PRINCIPLES OF CONFLICT OF LAWS THEREOF.            5.11     Severability. In the event that any one or more of the provisions contained herein, or the application thereof in any circumstance, is held invalid, illegal or unenforceable, the validity, legality and enforceability of any such provision in every other respect and of the remaining provisions contained herein shall not be affected or impaired thereby.             IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first written above.
				Pepco Holdings, Inc. By: _______________________________ Name: Title:

Confirmed and accepted as of the date first above written:
Merrill Lynch & Co. Merrill Lynch, Pierce, Fenner & Smith                         Incorporated Banc One Capital Markets, Inc.
BY: Merrill Lynch & Co.          Merrill Lynch, Pierce, Fenner & Smith                                  Incorporated By: Name: Title:
For themselves and as representatives of the other Initial Purchasers.
		Exhibit A
	[LETTERHEAD OF COVINGTON & BURLING]
1.          The Exchange Offer Registration Statement, at the time it became effective, and the Prospectus, at the time it was filed with the SEC pursuant to Rule 424 under the 1933 Act (other than the financial statements, including the notes thereto, and other financial and statistical data and supplemental schedules included or incorporated by reference therein and the Form T-1, as to which we express no opinion), complied as to form in all material respects with the requirements of the 1933 Act and the applicable rules and regulations promulgated under the 1933 Act.           2.          The Indenture has been qualified under the Trust Indenture Act of 1939, as amended.           3.          The Registration Statement has become effective under the 1933 Act, and, to the best of our knowledge, no stop order suspending the effectiveness of the Registration Statement has been issued and no proceedings for that purpose have been instituted or are pending or contemplated by the SEC.           4.          In passing upon the form of the Exchange Offer Registration Statement and the form of Prospectus, we necessarily assume the correctness and completeness of the statements made and information included therein by the Company. We have not, however, independently verified and are not passing upon, and do not assume any responsibility for, the accuracy, completeness or fairness of the statements contained in the Exchange Offer Registration Statement and the Prospectus. However, based on our examination of the Exchange Offer Registration Statement and the Prospectus and participation in conferences with your representatives and those of the Company, your counsel and the Company's accountants in connection with the Exchange Offer Registration Statement and the Prospectus, nothing which came to our attention in the course of such review has caused us to believe that, at the time it became effe ctive, the Exchange Offer Registration Statement (except for financial statements, including the notes thereto, financial schedules and other financial or statistical data included or incorporated by reference therein, as to which we express no comment) contained an untrue statement of a material fact or omitted to state a material fact required to be stated therein or necessary to make the statements therein not misleading or that the Prospectus, at the time it was filed with the SEC pursuant to Rule 424 under the 1933 Act or at the date hereof (except for financial statements, including the notes thereto, financial schedules and other financial or statistical data included or incorporated by reference therein, as to which we express no comment), contained or contains an untrue statement of a material fact or omitted or omits to state a material fact necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading.

EX-10

PEPCO HOLDINGS, INC.



(a Delaware corporation)



$350,000,000 5.50% Notes due 2007
$750,000,000 6.45% Notes due 2012
$250,000,000 7.45% Notes due 2032





PURCHASE AGREEMENT

Dated: September 3, 2002

Table of Contents
						Page
SECTION 1.		Representations and Warranties by the Company				2
		(a)	Representations and Warranties.			2
			(i)	Offering Memorandum.		3
			(ii)	Incorporated Documents.		3
			(iii)	Independent Accountants.		3
			(iv)	Financial Statements.		3
			(v)	No Material Adverse Change in Business.		4
			(vi)	Good Standing of the Company.		4
			(vii)	Good Standing of Designated Subsidiaries.		4
			(viii)	Merger.		4
			(ix)	Authorization of Agreement.		5
			(x)	Authorization of Indenture and Registration Rights Agreement.		5
			(xi)	Authorization of the Securities.		5
			(xii)	Descriptions of the Securities, Indenture and Registration Rights Agreement.		6
			(xiii)	Absence of Defaults and Conflicts.		6
			(xiv)	Absence of Labor Dispute.		6
			(xv)	Absence of Proceedings.		6
			(xvi)	Absence of Further Requirements.		7
			(xvii)	Possession of Licenses and Permits.		7
			(xviii)	Title to Property.		7
			(xix)	Environmental Laws.		8
			(xx)	Investment Company Act.		8
			(xxi)	Similar Offerings.		8
			(xxii)	Rule 144A Eligibility.		9
			(xxiii)	No General Solicitation.		9
			(xxiv)	No Registration Required.		9
			(xxv)	Reporting Company.		9
			(xxvi)	No Direct Selling Efforts.		9
		(b)	Officer's Certificates.			9
SECTION 2.		Sale and Delivery to Initial Purchasers; Closing				9
		(a)	Securities.			9
		(b)	Payment.			9
		(c)	Denominations; Registration.			10
SECTION 3.		Covenants of the Company				10
		(a)	Offering Memorandum.			10
		(b)	Notice and Effect of Material Events.			10
		(c)	Amendment to Offering Memorandum and Supplements.			11
		(d)	Qualification of Securities for Offer and Sale.			11
		(e)	Rating of Securities.			11
		(f)	DTC			11
		(g)	Use of Proceeds.			12
		(h)	Restriction on Sale of Securities.			12
		(i)	Reporting Requirements.			12
SECTION 4.		Payment of Expenses.				12
		(a)	Expenses.			12
		(b)	Termination of Agreement.			12
SECTION 5.		Conditions of Initial Purchasers' Obligations.				12
		(a)	Opinion of Counsel for Company.			13
		(b)	Opinion of Covington & Burling.			13
		(c)	Opinion of Counsel for Initial Purchasers.			13
		(d)	Officers' Certificate.			13
		(e)	Accountants' Comfort Letters.			13
		(f)	Bring-down Comfort Letters.			14
		(g)	Maintenance of Rating.			14
		(h)	Registration Rights Agreement.			14
		(i)	Additional Documents.			14
		(j)	Termination of Agreement.			14
SECTION 6.		Subsequent Offers and Resales of the Securities.				14
		(a)	Offer and Sale Procedures.			14
			(i)	Offers and Sales Only to Qualified Institutional Buyers.		14
			(ii)	No General Solicitation.		15
			(iii)	Purchases by Non-Bank Fiduciaries.		15
			(iv)	Subsequent Purchaser Notification.		15
			(v)	Minimum Principal Amount.		15
			(vi)	Restrictions on Transfer.		15
			(vii)	Delivery of Offering Memorandum.		16
		(b)	Covenants of the Company.			16
			(i)	Integration.		16
			(ii)	Rule 144A Information.		16
			(iii)	Restriction on Resales.		16
		(c)	Qualified Institutional Buyer.			16
		(d)	Resale Pursuant to Rule 903 of Regulation S or Rule 144A.			16
SECTION 7.		Indemnification.				17
		(a)	Indemnification of Initial Purchasers.			17
		(b)	Indemnification of Company.			18
		(c)	Actions against Parties; Notification.			18
SECTION 8.		Contribution.				18
SECTION 9.		Survival of Representations, Warranties and Agreements.				20
SECTION 10.		Termination of Agreement.				20
		(a)	Termination; General.			20
		(b)	Liabilities.			20
SECTION 11.		Default by One or More of the Initial Purchasers.				20
SECTION 12.		Notices.				21
SECTION 13.		Parties.				21
SECTION 14.		GOVERNING LAW AND TIME.				21
SECTION 15.		Effect of Headings.				22
SCHEDULES
	Schedule A - List of Initial Purchasers				Sch	A-1
	Schedule B - Pricing Information				Sch	B-1
	Schedule C-1 - List of Subsidiaries of the Company				Sch	C-1
EXHIBITS
	Exhibit A - Form of Opinion of William T. Torgerson					A-1
	Exhibit B - Form of Opinion of Covington & Burling					B-1

Pepco Holdings, Inc. (a Delaware corporation) $350,000,000 5.50% Notes due 2007 $750,000,000 6.45% Notes due 2012 $250,000,000 7.45% Notes due 2032 PURCHASE AGREEMENT
			September 3, 2002
MERRILL LYNCH & CO. MERRILL LYNCH, PIERCE, FENNER & SMITH                                 INCORPORATED BANC ONE CAPITAL MARKETS, INC.               as Representatives of the several Initial Purchasers c/o Merrill Lynch & Co. Merrill Lynch, Pierce, Fenner & Smith                      Incorporated North Tower World Financial Center New York, New York 10281
Ladies and Gentlemen:           Pepco Holdings, Inc., a Delaware corporation (the "Company"), confirms its agreement with Merrill Lynch & Co., Merrill Lynch, Pierce, Fenner & Smith Incorporated ("Merrill Lynch"), Banc One Capital Markets, Inc. and each of the other initial purchasers named in Schedule A hereto (collectively, the "Initial Purchasers", which term shall also include any initial purchaser substituted as hereinafter provided in Section 11 hereof), for whom Merrill Lynch and Banc One Capital Markets, Inc. are acting as representatives (in such capacity, the "Representatives"), with respect to the issue and sale by the Company and the purchase by the Initial Purchasers, acting severally and not jointly, of the respective principal amounts set forth in said Schedule A of $350,000,000 aggregate principal amount of the Company's 5.50% Notes due 2007, $750,000,000 aggregate principal amount of the Company's 6.45% Notes due 2012, and $250,000,000 agg regate principal amount of the Company's 7.45% Notes due 2032 (collectively, the "Securities"). The Securities are to be issued pursuant to an indenture (the "Indenture") between the Company and The Bank of New York, as trustee (the "Trustee") to be dated as of the date of the closing of the purchase and sale of the Securities hereunder (the "Closing Date"). The term "Indenture", as used herein, includes the Officer's Certificate (as defined in the Indenture) establishing the form and terms of each series of Securities pursuant to Sections 201 and 301 of the Indenture. Securities issued in global form will be issued to Cede & Co. as nominee of The Depository Trust Company ("DTC") pursuant to a letter agreement, to be dated as of the Closing Time (as defined in Section 2(b)) (the "DTC Agreement"), among the Company, the Trustee and DTC.           The Company understands that the Initial Purchasers propose to make an offering of the Securities on the terms and in the manner set forth herein and agree that the Initial Purchasers may resell, subject to the conditions set forth herein, all or a portion of the Securities to purchasers ("Subsequent Purchasers") at any time after this Agreement has been executed and delivered. The Securities are to be offered and sold through the Initial Purchasers without being registered under the Securities Act of 1933, as amended (the "1933 Act"), in reliance upon exemptions therefrom. Pursuant to the terms of the Securities and the Indenture, investors that acquire Securities may only resell or otherwise transfer such Securities if such Securities are hereafter registered under the 1933 Act or if an exemption from the registration requirements of the 1933 Act is available (including the exemption afforded by Rule 144A ("Rule 144A") or Regulation S ("Regul ation S") of the rules and regulations promulgated under the 1933 Act by the Securities and Exchange Commission (the "Commission")).           The Company has prepared and delivered to each Initial Purchaser copies of a preliminary offering circular dated September 3, 2002 (the "Preliminary Offering Memorandum") and has prepared and will deliver to each Initial Purchaser on the date hereof or the next succeeding day, copies of a final offering circular dated September 3, 2002 (the "Final Offering Memorandum"), each for use by such Initial Purchaser in connection with its solicitation of purchases of, or offering of, the Securities. "Offering Memorandum" means, with respect to any date or time referred to in this Agreement or in any document required to be delivered in connection herewith, the most recent offering circular (whether the Preliminary Offering Memorandum or the Final Offering Memorandum, and, in either case, as amended or supplemented), including exhibits thereto and any documents incorporated therein by reference, which has been prepared and delivered by the Company to the Initial Purchasers in connection with their solicitation of purchases of, or offering of, the Securities.           All references in this Agreement to financial statements and schedules and other information which is "described," "disclosed," "contained," "included" or "stated" in the Offering Memorandum (or other references of like import) shall be deemed to mean and include all such financial statements and schedules and other information which are incorporated by reference in the Offering Memorandum; and all references in this Agreement or in any document required to be delivered in connection herewith to amendments or supplements to the Offering Memorandum shall be deemed to mean and include the filing of any document under the Securities Exchange Act of 1934, as amended (the "1934 Act"), which is incorporated by reference in the Offering Memorandum.           SECTION 1.   Representations and Warranties by the Company.           (a)  Representations and Warranties. The Company represents and warrants to each Initial Purchaser as of the date hereof and as of the Closing Time referred to in Section 2(b) hereof as follows:
	(i)     Offering Memorandum. The Offering Memorandum does not, and at the Closing Time will not, include an untrue statement of a material fact or omit to state a material fact necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading; provided that this representation, warranty and agreement shall not apply to statements in or omissions from the Offering Memorandum made in reliance upon and in conformity with information furnished to the Company in writing by any Initial Purchaser through Merrill Lynch expressly for use in the Offering Memorandum.         (ii)    Incorporated Documents. The documents incorporated in the Offering Memorandum at the time they were or hereafter are filed with the Commission complied and will comply in all material respects with the requirements of the 1934 Act and the rules and regulations of the Commission thereunder (the "1934 Act Regulations"), and, when read together with the other information in the Offering Memorandum, at the time the Offering Memorandum was issued and at the Closing Time, did not and will not include an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein not misleading.         (iii)   Independent Accountants. The accountants who audited the financial statements and supporting schedules included in the Offering Memorandum are independent public accountants with respect to Pepco, Conectiv and the Company and their subsidiaries within the meaning of Regulation S-X.         (iv)    Financial Statements. The financial statements of Pepco, together with the related schedules and notes, included in the Offering Memorandum (A) in the case of the balance sheets, present fairly the financial position of Pepco and its consolidated subsidiaries, including the Company, as of the dates indicated, and (B) in the case of the statement of operations, stockholders' equity and cash flows, present fairly such information for Pepco and its consolidated subsidiaries, including the Company, for the periods specified; said financial statements have been prepared in conformity with generally accepted accounting principles ("GAAP") applied on a consistent basis throughout the periods involved, except as otherwise stated therein. The financial statements of Conectiv, together with the related schedules and notes, included in the Offering Memorandum (A) in the case of the balance sheets, present fairly the financial position of Conectiv and its consolidated subsidiaries as of the dates indicated, and (B) in the case of the statement of operations, stockholders' equity and cash flows, present fairly such information for Conectiv and its consolidated subsidiaries for the periods specified; said financial statements have been prepared in conformity with GAAP applied on a consistent basis throughout the periods involved, except as otherwise stated therein. The selected financial data included in the Offering Memorandum present fairly the information shown therein and have been compiled on a basis consistent with that of the audited financial statements included in the Offering Memorandum. The pro forma financial statements and the related notes thereto included in the Offering Memorandum present fairly the information shown therein, have been prepared in accordance with the Commission's rules and guidelines with respect to pro forma financial statements and have been properly compiled on the bases de scribed therein, and the assumptions used in the preparation thereof are reasonable and the adjustments used therein are appropriate to give effect to the transactions and circumstances referred to therein.         (v)     No Material Adverse Change in Business. Since the respective dates as of which information is given in the Offering Memorandum, except as otherwise stated therein, there has been no change in the condition, financial or otherwise, or in the earnings or business affairs of the Company and its subsidiaries considered as one enterprise, whether or not arising in the ordinary course of business, which would have a Material Adverse Effect. For purposes of this Agreement, "Material Adverse Effect" means a material adverse effect on the condition, financial or otherwise, or the earnings or business affairs of the Company and its subsidiaries considered as one enterprise, whether or not arising in the ordinary course of business.         (vi)    Good Standing of the Company. The Company has been duly organized and is validly existing as a corporation in good standing under the laws of the State of Delaware and has corporate power and authority to own, lease and operate its properties and to conduct its business as described in the Offering Memorandum; the Company has the corporate power and authority to enter into and perform its obligations under this Agreement; and the Company is duly qualified as a foreign corporation to transact business and is in good standing in each jurisdiction in which such qualification is required, whether by reason of the ownership or leasing of property or the conduct of business, except where the failure so to qualify or to be in good standing would not result in a Material Adverse Effect. The shares of issued and outstanding capital stock of the Company been duly authorized and validly issued and are full y paid and non-assessable.         (vii)   Good Standing of Designated Subsidiaries. Each "significant subsidiary" of the Company (as such term is defined in Rule 1-02 of Regulation S-X), each of which is listed on Schedule C-1 hereto, and each additional subsidiary listed on Schedule C-1 hereto (together with the significant subsidiaries, each a "Designated Subsidiary" and, collectively, the "Designated Subsidiaries") has been duly organized and is validly existing as a corporation in good standing under the laws of the jurisdiction of its formation, has corporate power and authority to own, lease and operate its properties and to conduct its business as described in the Offering Memorandum and is duly qualified as a foreign corporation to transact business and is in good standing in each jurisdiction in which such qualification is required, whether by reason of the ownership or leasing of property or the conduct of business, except where the failure so to qualify or to be in good standing would not result in a Material Adverse Effect; all of the issued and outstanding capital stock of each Designated Subsidiary has been duly authorized and validly issued, is fully paid and non-assessable and, except for preferred stock, is owned by the Company, directly or through subsidiaries, free and clear of any security interest, mortgage, pledge, lien, encumbrance, claim or equity; none of the outstanding shares of capital stock of the Designated Subsidiaries was issued in violation of any preemptive or similar rights of any security holder of such Designated Subsidiary.         (viii)  Merger. The Agreement and Plan of Merger, dated as of February 9, 2001 among Pepco, the Company and Conectiv (the "Merger Agreement") was duly authorized, executed and delivered by the Company, Pepco and Conectiv, was duly approved by the stockholders of Pepco and Conectiv, and constitutes a valid and binding agreement of Pepco, the Company and Conectiv, enforceable against them in accordance with its terms, except as the enforcement thereof may be limited by bankruptcy, insolvency (including, without limitation, all laws relating to fraudulent transfers), reorganization, moratorium or similar laws affecting enforcement of creditors' rights generally and except as enforcement thereof is subject to general principles of equity (regardless of whether enforcement is considered in a proceeding in equity or at law); the mergers contemplated by the Merger Agreement (collectively, the " Merger") have occurred on the terms contemplated by the Merger Agreement; all regulatory orders with respect to the Merger have become final; except as disclosed in the Offering Memorandum, there are no regulatory or other proceedings challenging the Merger or its effects, which proceedings could reasonably be expected to result in a Material Adverse Effect.         (ix)    Authorization of Agreement. This Agreement has been duly authorized, executed and delivered by the Company.         (x)     Authorization of Indenture and Registration Rights Agreement. Each of the Indenture and the Registration Rights Agreement, to be dated as of the Closing Date, between the Company and the Initial Purchasers (the "Registration Rights Agreement") has been duly authorized by the Company and, when the Indenture has been executed and delivered by the Company and the Trustee and the Registration Rights Agreement has been executed and delivered by the Company and on behalf of the Initial Purchasers, each of the Indenture and the Registration Rights Agreement will constitute a valid and binding agreement of the Company, enforceable against the Company in accordance with its terms, except as the enforcement thereof may be limited by bankruptcy, insolvency (including, without limitation, all laws relating to fraudulent transfers), reorganization, moratorium or similar laws affecting enforcement of cred itors' rights generally, except as enforcement thereof is subject to general principles of equity (regardless of whether enforcement is considered in a proceeding in equity or at law), and except as enforcement of the indemnification provisions of the Registration Rights Agreement may be limited by principles of public policy.         (xi)    Authorization of the Securities. The Securities have been duly authorized and, at the Closing Time, will have been duly executed by the Company and, when authenticated in the manner provided for in the Indenture and delivered against payment of the purchase price therefor as provided in this Agreement, will constitute valid and binding obligations of the Company, enforceable against the Company in accordance with their terms, except as the enforcement thereof may be limited by bankruptcy, insolvency (including, without limitation, all laws relating to fraudulent transfers), reorganization, moratorium or similar laws affecting enforcement of creditors' rights generally and except as enforcement thereof is subject to general principles of equity (regardless of whether enforcement is considered in a proceeding in equity or at law), and will be in the form contemplated by, and entitled to the benefit s of, the Indenture.         (xii)   Descriptions of the Securities, Indenture and Registration Rights Agreement. The descriptions of the Securities, the Indenture and the Registration Rights Agreement contained in the Offering Memorandum are accurate in all material respects.         (xiii)  Absence of Defaults and Conflicts. Neither the Company nor any of its subsidiaries is in violation of its charter or by-laws or in default in the performance or observance of any obligation, agreement, covenant or condition contained in any contract, indenture, mortgage, deed of trust, loan or credit agreement, note, lease or other agreement or instrument to which the Company or any such subsidiary is a party or by which any of them may be bound, or to which any of the property or assets of the Company or any of its subsidiaries is subject (collectively, "Agreements and Instruments") except for such defaults that have not and will not result in a Material Adverse Effect; and the execution, delivery and performance of this Agreement, the Registration Rights Agreement, the Indenture and the Securities and any other agreement or instrument entered into or issued or to be entered into or issued by the Company in connection with the transactions contemplated hereby or thereby and the consummation of the transactions contemplated herein and therein (including the issuance and sale of the Securities and the use of the proceeds from the sale of the Securities as described in the Offering Memorandum under the caption "Use of Proceeds") and compliance by the Company with its obligations hereunder have been duly authorized by all necessary corporate action and do not and will not, whether with or without the giving of notice or passage of time or both, conflict with or constitute a breach of, or default or a Repayment Event (as defined below) under, or result in the creation or imposition of any lien, charge or encumbrance upon any property or assets of the Company or any of its subsidiaries pursuant to, the Agreements and Instruments except for such conflicts, breaches or defaults or liens, charges or encumbrances that, singly or in the aggregate, would not result in a Material Adverse Effect, nor will such action resu lt in any violation of the provisions of the charter or by-laws of the Company or any of its subsidiaries or any applicable law, statute, rule, regulation, judgment, order, writ or decree of any government, government instrumentality or court, domestic or foreign, having jurisdiction over the Company or any of its subsidiaries or any of their assets, properties or operations. As used herein, a "Repayment Event" means any event or condition which gives the holder of any note, debenture or other evidence of indebtedness (or any person acting on such holder's behalf) the right to require the repurchase, redemption or repayment of all or a portion of such indebtedness by the Company or any of its subsidiaries.         (xiv)   Absence of Labor Dispute. No labor dispute with the employees of the Company or any of its subsidiaries exists or, to the knowledge of the Company, is imminent, and the Company is not aware of any existing or imminent labor disturbance by the employees of any of its or any of its subsidiaries' principal suppliers, manufacturers, customers or contractors, which, in either case, could reasonably be expected to result in a Material Adverse Effect.         (xv)    Absence of Proceedings. Except as disclosed in the Offering Memorandum, there is no action, suit, proceeding, inquiry or investigation before or brought by any court or governmental agency or body, domestic or foreign, now pending, or, to the knowledge of the Company, threatened, against or affecting the Company or any of its subsidiaries which could reasonably be expected to result in a Material Adverse Effect, or which could reasonably be expected to materially and adversely affect the consummation of the transactions contemplated by this Agreement or the Merger Agreement or the performance by the Company, Pepco or Conectiv of their obligations hereunder or thereunder. The aggregate of all pending legal or governmental proceedings to which the Company or any of its subsidiaries is a party or of which any of their respective property or assets is the subject which are not described in the Offer ing Memorandum, including ordinary routine litigation incidental to the business, could not reasonably be expected to result in a Material Adverse Effect.         (xvi)   Absence of Further Requirements. Except for (a) such as may be required under the applicable securities laws of the various jurisdictions in which the Securities are offered or sold (b) such registrations, qualifications and orders under federal and state securities laws as are contemplated by the Registration Rights Agreement, (c) such other approvals the failure to obtain which would not have a Material Adverse Effect, and (d) such as have been obtained or made, no filing with, or authorization, approval, consent, license, order, registration, qualification or decree of, any court or governmental authority or agency is necessary or required for the performance by the Company of its obligations hereunder, in connection with the offering, issuance or sale of the Securities hereunder or the consummation of the transactions contemplated by this Agreement or for the due execution, delivery or performance of the Indenture, or the Registration Rights Agreement by the Company.         (xvii)  Possession of Licenses and Permits. The Company and its subsidiaries possess such permits, licenses, approvals, consents and other authorizations (collectively, "Governmental Licenses") issued by the appropriate federal, state, local or foreign regulatory agencies or bodies necessary to conduct the business now operated by them; the Company and its subsidiaries are in compliance with the terms and conditions of all such Governmental Licenses, except where the failure so to comply would not, singly or in the aggregate, have a Material Adverse Effect; all of the Governmental Licenses are valid and in full force and effect, except where the invalidity of such Governmental Licenses or the failure of such Governmental Licenses to be in full force and effect would not have a Material Adverse Effect; and neither the Company nor any of its subsidiaries has received any notice of proceedings relating to the revocat ion or modification of any such Governmental Licenses which, singly or in the aggregate, if the subject of an unfavorable decision, ruling or finding, would result in a Material Adverse Effect.         (xviii) Title to Property. The Company and its subsidiaries have good and marketable title to all real property owned by the Company and its subsidiaries and good title to all other properties owned by them, in each case, free and clear of all mortgages, pledges, liens, security interests, claims, restrictions or encumbrances of any kind except such as (a) are described in the Offering Memorandum or (b) do not, singly or in the aggregate, materially affect the value of such property and do not materially interfere with the use made and proposed to be made of such property by the Company or any of its subsidiaries; and all of the leases and subleases material to the business of the Company and its subsidiaries, considered as one enterprise, and under which the Company or any of its subsidiaries holds properties described in the Offering Memorandum, are in full force and effect, and neither the Company nor any of its sub sidiaries has any notice of any material claim of any sort that has been asserted by anyone adverse to the rights of the Company or any of its subsidiaries under any of the leases or subleases mentioned above, or affecting or questioning the rights of the Company or any subsidiary thereof to the continued possession of the leased or subleased premises under any such lease or sublease.         (xix)   Environmental Laws. Except as described in the Offering Memorandum and except such matters as would not, singly or in the aggregate, result in a Material Adverse Effect, (A) neither the Company nor any of its subsidiaries is in violation of any federal, state, local or foreign statute, law, rule, regulation, ordinance, code, policy or rule of common law or any judicial or administrative interpretation thereof, including any judicial or administrative order, consent, decree or judgment, relating to pollution or protection of human health, the environment (including, without limitation, ambient air, surface water, groundwater, land surface or subsurface strata) or wildlife, including, without limitation, laws and regulations relating to the release or threatened release of chemicals, pollutants, contaminants, wastes, toxic substances, hazardous substances, petroleum or petroleum products (collectively, "Hazardous Materials") or to the manufacture, processing, distribution, use, treatment, storage, disposal, transport or handling of Hazardous Materials (collectively, "Environmental Laws"), (B) the Company and its subsidiaries have all permits, authorizations and approvals required under any applicable Environmental Laws and are each in compliance with their requirements, (C) there are no pending or, to the knowledge of the Company, threatened administrative, regulatory or judicial actions, suits, demands, demand letters, claims, liens, notices of noncompliance or violation, investigation or proceedings relating to any Environmental Law against the Company or any of its subsidiaries and (D) to the knowledge of the Company, there are no events or circumstances that could reasonably be expected to form the basis of an order for clean-up or remediation, or an action, suit or proceeding by any private party or governmental body or agency, against or affecting the Company or any of its subsidiaries relating to Ha zardous Materials or Environmental Laws.         (xx)    Investment Company Act. The Company is not, and upon the issuance and sale of the Securities as herein contemplated and the application of the net proceeds therefrom as described in the Offering Memorandum will not be, an "investment company" or an entity "controlled" by an "investment company" as such terms are defined in the Investment Company Act of 1940, as amended (the "1940 Act")         (xxi)   Similar Offerings. Neither the Company nor any of its affiliates, as such term is defined in Rule 501(b) under the 1933 Act, has, directly or indirectly, solicited any offer to buy, sold or offered to sell or otherwise negotiated in respect of, or will solicit any offer to buy, sell or offer to sell or otherwise negotiate in respect of, in the United States or to any United States citizen or resident, any security which is or would be integrated with the sale of the Securities in a manner that would require the Securities to be registered under the 1933 Act         (xxii)  Rule 144A Eligibility. The Securities are eligible for resale pursuant to Rule 144A and will not be, at the Closing Time, of the same class as securities listed on a national securities exchange registered under Section 6 of the 1934 Act, or quoted in a U.S. automated interdealer quotation system         (xxiii) No General Solicitation. None of the Company, its affiliates or any person acting on its or any of their behalf (other than the Initial Purchasers, as to whom the Company makes no representation) has engaged or will engage, in connection with the offering of the Securities, in any form of general solicitation or general advertising within the meaning of Rule 502(c) under the 1933 Act.         (xxiv) No Registration Required. Subject to compliance by the Initial Purchasers with the representations and warranties set forth in Section 2 and the procedures set forth in Section 6 hereof, it is not necessary in connection with the offer, sale and delivery of the Securities to the Initial Purchasers and to each Subsequent Purchaser in the manner contemplated by this Agreement and the Offering Memorandum to register the Securities under the 1933 Act or to qualify the Indenture under the Trust Indenture Act of 1939, as amended (the "1939 Act").         (xxv)   Reporting Company. The Company is subject to the reporting requirements of Section 13 or Section 15(d) of the 1934 Act.         (xxvi)  No Directed Selling Efforts. With respect to those Securities, if any, sold in reliance on Regulation S, (A) none of the Company, its affiliates or any person acting on its or their behalf (other than the Initial Purchasers, as to whom the Company makes no representation) has engaged or will engage in any directed selling efforts within the meaning of Regulation S and (B) each of the Company and its affiliates and any person acting on its or their behalf (other than the Initial Purchasers, as to whom the Company makes no representation) has complied and will comply with the offering restrictions requirement of Regulation S.
(b)  Officer's Certificates. Any certificate signed by any officer of the Company delivered to the Representatives or to counsel for the Initial Purchasers shall be deemed a representation and warranty by the Company to each Initial Purchaser as to the matters covered thereby.           SECTION 2.  Sale and Delivery to Initial Purchasers; Closing.           (a)  Securities. On the basis of the representations and warranties herein contained and subject to the terms and conditions herein set forth, the Company agrees to sell to each Initial Purchaser, severally and not jointly, and each Initial Purchaser, severally and not jointly, agrees to purchase from the Company, at the price set forth in Schedule B, the aggregate principal amount of Securities set forth in Schedule A opposite the name of such Initial Purchaser, plus any additional principal amount of Securities which such Initial Purchaser may become obligated to purchase pursuant to the provisions of Section 11 hereof.           (b)  Payment. Payment of the purchase price for, and delivery of certificates for, the Securities shall be made at the office of the Company, 701 Ninth Street, N.W., Washington, DC 20068, or at such other place as shall be agreed upon by the Representatives and the Company, at 9:00 A.M. (eastern time) on the third business day after the date hereof (unless postponed in accordance with the provisions of Section 11), or such other time not later than ten business days after such date as shall be agreed upon by the Representatives and the Company (such time and date of payment and delivery being herein called the "Closing Time").           Payment shall be made to the Company by wire transfer of immediately available funds to a bank account designated by the Company, against delivery to the Representatives for the respective accounts of the Initial Purchasers of certificates for the Securities to be purchased by them. It is understood that each Initial Purchaser has authorized the Representatives, for its account, to accept delivery of, receipt for, and make payment of the purchase price for, the Securities which it has agreed to purchase. Merrill Lynch, individually and not as representative of the Initial Purchasers, may (but shall not be obligated to) make payment of the purchase price for the Securities to be purchased by any Initial Purchaser whose funds have not been received by the Closing Time, but such payment shall not relieve such Initial Purchaser from its obligations hereunder.           (c)  Denominations; Registration. Certificates for the Securities shall be in such denominations ($1,000 or integral multiples thereof) and registered in such names as the Representatives may request in writing at least one full business day before the Closing Time. The certificates representing the Securities shall be made available for examination by the Initial Purchasers in Washington, D.C. not later than 10:00 A.M. on the last business day prior to the Closing Time.           SECTION 3.  Covenants of the Company. The Company covenants with each Initial Purchaser as follows:           (a)  Offering Memorandum. The Company, as promptly as possible, will furnish to each Initial Purchaser, without charge, such number of copies of the Preliminary Offering Memorandum, the Final Offering Memorandum and any amendments and supplements thereto and documents incorporated by reference therein as such Initial Purchaser may reasonably request.           (b)  Notice and Effect of Material Events. The Company will immediately notify each Initial Purchaser, and confirm such notice in writing, of (x) any filing made by the Company of information relating to the offering of the Securities with any securities exchange or any other regulatory body in the United States or any other jurisdiction, and (y) prior to the completion of the placement of the Securities by the Initial Purchasers as evidenced by a notice in writing from Merrill Lynch on behalf of the Initial Purchasers to the Company, any material changes in or affecting the condition, financial or otherwise, or the earnings or business affairs of the Company and its respective subsidiaries considered as one enterprise which (i) make any statement in the Offering Memorandum false or misleading or (ii) are not disclosed in the Offering Memorandum. In such event or if during such time any event shall occur as a result of which it is necessary, in the reasonable opinion of any of the Company, its counsel, the Initial Purchasers or counsel for the Initial Purchasers, to amend or supplement the Final Offering Memorandum in order that the Final Offering Memorandum not include any untrue statement of a material fact or omit to state a material fact necessary in order to make the statements therein not misleading in the light of the circumstances then existing, the Company will forthwith amend or supplement the Final Offering Memorandum by preparing and furnishing to each Initial Purchaser an amendment or amendments of, or a supplement or supplements to, the Final Offering Memorandum (in form and substance satisfactory in the reasonable opinion of counsel for the Initial Purchasers) so that, as so amended or supplemented, the Final Offering Memorandum will not include an untrue statement of a material fact or omit to state a material fact necessary in order to make the statements therein, in the light of the circum stances existing at the time it is delivered to a Subsequent Purchaser, not misleading.           (c)  Amendment to Offering Memorandum and Supplements. Prior to the completion of the placement of the Securities by the Initial Purchasers as evidenced by a notice in writing from Merrill Lynch on behalf of the Initial Purchasers to the Company, the Company will advise each Initial Purchaser promptly of any proposal to amend or supplement the Offering Memorandum (but not including any amendment or supplement to the Offering Memorandum through the filing of any document which is to be incorporated by reference therein) and will not effect such amendment or supplement without the consent of the Initial Purchasers, such consent not to be unreasonably withheld or delayed. Neither the consent of the Initial Purchasers, nor the Initial Purchaser's delivery of any such amendment or supplement, shall constitute a waiver of any of the conditions set forth in Section 5 hereof.           Prior to the completion of the placement of the Securities by the Initial Purchasers as evidenced by a notice in writing from Merrill Lynch on behalf of the Initial Purchasers to the Company, the Company will furnish to Merrill Lynch on behalf of the Initial Purchasers, at least 24 hours, or such shorter period as is reasonably required by the circumstances, prior to the filing thereof with the Commission, a draft of each document which is to be filed by the Company with the Commission and incorporated by reference in the Offering Memorandum).           Merrill Lynch on behalf of the Initial Purchasers shall notify the Company in writing of the completion of the placement of the Securities by the Initial Purchasers promptly thereafter.           (d)  Qualification of Securities for Offer and Sale. The Company will use its best efforts, in cooperation with the Initial Purchasers, to qualify the Securities for offering and sale under the applicable securities laws of such states and other jurisdictions as the Representatives may designate and will maintain such qualifications in effect as long as required for the sale of the Securities; provided, however, that the Company shall not be obligated to file any general consent to service of process or to qualify as a foreign corporation or as a dealer in securities in any jurisdiction in which it is not so qualified or to subject itself to taxation in respect of doing business in any jurisdiction in which it is not otherwise so subject.           (e)  Rating of Securities. The Company shall take all reasonable action necessary to enable Standard & Poor's Ratings Services, a division of McGraw Hill, Inc. ("S&P"), and Moody's Investors Service Inc. ("Moody's") to provide their respective credit ratings of the Securities.           (f)  DTC. The Company will cooperate with the Representatives and use its best efforts to permit the Securities to be eligible for clearance and settlement through the facilities of DTC.           (g)  Use of Proceeds. The Company will use the net proceeds received by it from the sale of the Securities in the manner specified in the Offering Memorandum under "Use of Proceeds."           (h)  Restriction on Sale of Securities. During a period of 30 days from the date of the Offering Memorandum, the Company will not, without the prior written consent of Merrill Lynch, directly or indirectly, issue, sell, offer or agree to sell, grant any option for the sale of, or otherwise dispose of, any other debt securities of the Company other than debt securities with maturities of less than one year or securities of the Company that are convertible into, or exchangeable for, the Securities or such other debt securities other than debt securities with maturities of less than one year.           (i)  Reporting Requirements. The Company, during the period when the Offering Memorandum is required to be delivered pursuant to Section 6(a)(vii) hereof, will file all documents required to be filed with the Commission pursuant to the 1934 Act within the time periods required by the 1934 Act and the 1934 Act Regulations.           SECTION 4.  Payment of Expenses.           (a)  Expenses. The Company will be responsible for the payment of all expenses incident to the performance of its obligations under this Agreement, including (i) the preparation, printing, delivery to the Initial Purchasers and any filing of the Offering Memorandum (including financial statements and any schedules or exhibits and any document incorporated therein by reference) and of each amendment or supplement thereto, (ii) the preparation, printing and delivery to the Initial Purchasers of this Agreement, any agreement among Initial Purchasers, the Indenture and such other documents as may be required in connection with the offering, purchase, sale, issuance or delivery of the Securities, (iii) the preparation, issuance and delivery of the certificates for the Securities to the Initial Purchasers, including any transfer taxes, any stamp or other duties payable upon the sale, issuance and delivery of the Sec urities to the Initial Purchasers and any charges of DTC in connection therewith, (iv) the fees and disbursements of the Company's counsel, accountants and other advisors, (v) the qualification of the Securities under securities laws in accordance with the provisions of Section 3(d) hereof, including filing fees and the reasonable fees and disbursements of counsel for the Initial Purchasers in connection therewith and in connection with the preparation of the Blue Sky Survey and any supplement thereto (such fee of counsel not to exceed $5,000), (vi) the fees and expenses of the Trustee, including the fees and disbursements of counsel for the Trustee in connection with the Indenture and the Securities, and (vii) any fees payable in connection with the rating of the Securities.           (b)  Termination of Agreement. If this Agreement is terminated by the Representatives in accordance with the provisions of Section 5 or Section 10(a)(i) hereof, the Company will reimburse the Initial Purchasers for all of their out-of-pocket expenses incurred in connection with the transactions contemplated hereby, including the reasonable fees and disbursements of counsel for the Initial Purchasers.           SECTION 5.  Conditions of Initial Purchasers' Obligations. The obligations of the several Initial Purchasers hereunder are subject to the accuracy of the representations and warranties of the Company contained in Section 1 hereof or in certificates of any officer of the Company delivered pursuant to the provisions hereof, to the performance by the Company of its covenants and other obligations hereunder, and to the following further conditions:           (a)  Opinion of Counsel for Company. At the Closing Time, the Representatives shall have received the opinion, dated as of the Closing Time, of William T. Torgerson, Esq., Executive Vice President and General Counsel of the Company, substantially in the form attached hereto as Exhibit A, together with signed or reproduced copies of such letter for each of the other Initial Purchasers.           (b)  Opinion of Covington & Burling. At the Closing Time, the Representatives shall have received the opinion, dated as of the Closing Time, of Covington & Burling, counsel for the Company, substantially in the form attached hereto as Exhibit B, together with signed or reproduced copies of such letter for each of the other Initial Purchasers.           (c)  Opinion of Counsel for Initial Purchasers. At the Closing Time, the Representatives shall have received the favorable opinion, dated as of the Closing Time, of Pillsbury Winthrop LLP, counsel for the Initial Purchasers, together with signed or reproduced copies of such letter for each of the other Initial Purchasers with respect to the matters set forth in (i), (ii) and the last paragraph of Exhibit A hereto and (i), (ii), (iii) and (iv) of Exhibit B hereto. In giving such opinion, such counsel may rely, as to all matters governed by the laws of jurisdictions other than the law of the State of New York and the federal law of the United States and the General Corporation Law of the State of Delaware, upon the opinions of counsel satisfactory to the Representatives. Such counsel may also state that, insofar as such opinion involves factual matters, they have relied, to the extent they deem proper, upon certificates of o fficers of the Company and its subsidiaries and certificates of public officials.           (d)  Officers' Certificate. At the Closing Time, there shall not have been, since the date hereof or since the respective dates as of which information is given in the Offering Memorandum, any material adverse change in the condition, financial or otherwise, or in the earnings or business affairs of the Company and its subsidiaries considered as one enterprise, whether or not arising in the ordinary course of business, and the Representatives shall have received a certificate of the President or a Vice President of the Company and of the chief financial or chief accounting officer of the Company, dated as of the Closing Time, to the effect that (i) there has been no such material adverse change, (ii) the representations and warranties in Section 1 hereof are true and correct with the same force and effect as though expressly made at and as of the Closing Time, and (iii) the Company has complied with all a greements and satisfied all conditions on its part to be performed or satisfied at or prior to the Closing Time.           (e)  Accountants' Comfort Letters. At the time of the execution of this Agreement, the Representatives shall have received from PricewaterhouseCoopers LLP letters dated such date, in form and substance reasonably satisfactory to the Representatives, together with signed or reproduced copies of such letters for each of the other Initial Purchasers containing statements and information of the type ordinarily included in accountants' "comfort letters" to Initial Purchasers with respect to the financial statements and certain financial information of each of the Company, Pepco and Conectiv contained in the Offering Memorandum.           (f)  Bring-down Comfort Letters. At the Closing Time, the Representatives shall have received from PricewaterhouseCoopers LLP letters, dated as of the Closing Time, to the effect that they reaffirm the statements made with respect to each of the Company, Pepco and Conectiv in the letters furnished pursuant to subsection (f) of this Section, except that the specified date referred to shall be a date not more than three business days prior to the Closing Time.           (g)  Maintenance of Rating. At the Closing Time, the Securities shall be rated at least Baa1 by Moody's and BBB by S&P, and the Company shall have delivered to the Representatives a letter of recent date, from each such rating agency, or other evidence satisfactory to the Representatives, confirming that the Securities have such ratings; and since the date of this Agreement, there shall not have occurred a downgrading in the rating assigned to the Securities or any of the Company's other debt securities by any "nationally recognized statistical rating agency", as that term is defined by the Commission for purposes of Rule 436(g)(2) under the 1933 Act, and no such securities rating agency shall have publicly announced that it has under surveillance or review, with possible negative implications, its rating of the Securities or any of the Company's other debt securities.           (h)  Registration Rights Agreement. At or prior to the Closing Time, the Company shall have executed and delivered the Registration Rights Agreement.           (i)  Additional Documents. At the Closing Time, counsel for the Initial Purchasers shall have been furnished with such documents and opinions as they may reasonably require for the purpose of enabling them to pass upon the issuance and sale of the Securities as herein contemplated, or in order to evidence the accuracy of any of the representations or warranties, or the fulfillment of any of the conditions, herein contained; and all proceedings taken by the Company in connection with the issuance and sale of the Securities as herein contemplated shall be reasonably satisfactory in form and substance to the Representatives and counsel for the Initial Purchasers.           (j)  Termination of Agreement. If any condition specified in this Section shall not have been fulfilled when and as required to be fulfilled, this Agreement may be terminated by the Representatives by notice to the Company at any time at or prior to the Closing Time, and such termination shall be without liability of any party to any other party except as provided in Section 4 and except that Sections 1, 7, 8 and 9 shall survive any such termination and remain in full force and effect.           SECTION 6.  Subsequent Offers and Resales of the Securities.           (a)  Offer and Sale Procedures. Each of the Initial Purchasers and the Company hereby establish and agree to observe the following procedures in connection with the offer and sale of the Securities:
	(i)    Offers and Sales Only to Qualified Institutional Buyers. Offers and sales of the Securities shall only be made (A) to persons whom the offeror or seller reasonably believes to be qualified institutional buyers, as defined in Rule 144A under the 1933 Act ("Qualified Institutional Buyers"), or (B) to non-U.S. persons outside the United States, as defined in Regulation S under the 1933 Act, to whom the offeror or seller reasonably believes offers and sales of the Securities may be made in reliance upon Regulation S under the 1933 Act. Each Initial Purchaser severally agrees that it will not offer, sell or deliver any of the Securities in any jurisdiction outside the United States except under circumstances that will result in compliance with the applicable laws thereof, and that it will take at its own expense whatever action is required to permit its purchase and resale of the Securities in such jurisdictions.           (ii)   No General Solicitation. No general solicitation or general advertising (within the meaning of Rule 502(c) under the 1933 Act) will be used in the United States in connection with the offering or sale of the Securities.           (iii)  Purchases by Non-Bank Fiduciaries. In the case of a non-bank Subsequent Purchaser of a Security acting as a fiduciary for one or more third parties, each third party shall, in the judgment of the applicable Initial Purchaser, be a Qualified Institutional Buyer or a non-U.S. person outside the United States.           (iv)   Subsequent Purchaser Notification. Each Initial Purchaser will take reasonable steps to inform, and cause each of its affiliates to take reasonable steps to inform, persons acquiring Securities from such Initial Purchaser or affiliate, as the case may be, that the Securities (A) have not been and will not be registered under the 1933 Act, (B) are being sold to them without registration under the 1933 Act in reliance on Rule 144A or in accordance with another exemption from registration under the 1933 Act, as the case may be, and (C) may not be offered, sold or otherwise transferred except (1) to the Company or its subsidiaries, (2) outside the United States in accordance with Regulation S, or (3) inside the United States in accordance with (x) Rule 144A to a person whom the seller reasonably believes is a Qualified Institutional Buyer that is purchasing such Securities for its own account or for t he account of a Qualified Institutional Buyer to whom notice is given that the offer, sale or transfer is being made in reliance on Rule 144A or (y) pursuant to another available exemption from registration under the 1933 Act.           (v)    Minimum Principal Amount. No sale of the Securities to any one Subsequent Purchaser will be for less than U.S. $1,000 principal amount and no Security will be issued in a smaller principal amount. If the Subsequent Purchaser is a non-bank fiduciary acting on behalf of others, each person for whom it is acting must purchase at least U.S. $1,000 principal amount of the Securities.           (vi)   Restrictions on Transfer. The transfer restrictions and the other provisions set forth in the Offering Memorandum under the heading "Transfer Restrictions," including the legend required thereby, shall apply to the Securities except as otherwise agreed by the Company and the Initial Purchasers.           (vii)   Delivery of Offering Memorandum. Each Initial Purchaser will deliver to each purchaser of the Securities from such Initial Purchaser, in connection with its original distribution of the Securities, a copy of the Offering Memorandum, as amended and supplemented at the date of such delivery.
(b)  Covenants of the Company. The Company covenants with each Initial Purchaser as follows:
	(i)    Integration. The Company agrees that it will not and will cause its affiliates not to, directly or indirectly, solicit any offer to buy, sell or make any offer or sale of, or otherwise negotiate in respect of, securities of the Company or any of its affiliates of any class if, as a result of the doctrine of "integration" referred to in Rule 502 under the 1933 Act, such offer or sale would render invalid (for the purpose of (i) the sale of the Securities by the Company to the Initial Purchasers, (ii) the resale of the Securities by the Initial Purchasers to Subsequent Purchasers or (iii) the resale of the Securities by such Subsequent Purchasers to others) the exemption from the registration requirements of the 1933 Act provided by Section 4(2) thereof or by Rule 144A or by Regulation S thereunder or otherwise.           (ii)   Rule 144A Information. The Company agrees that, in order to render the Securities eligible for resale pursuant to Rule 144A under the 1933 Act, while any of the Securities remain outstanding, the Company will make available, upon request, to any holder of Securities or prospective purchasers of Securities the information specified in Rule 144A(d)(4), unless the Company furnishes information to the Commission pursuant to Section 13 or 15(d) of the 1934 Act.           (iii)  Restriction on Resales. Until the expiration of two years after the original issuance of the Securities, the Company will not, and will cause its affiliates not to, resell any Securities which are "restricted securities" (as such term is defined under Rule 144(a)(3) under the 1933 Act) that have been reacquired by them.
(c)  Qualified Institutional Buyer. Each Initial Purchaser severally and not jointly represents and warrants to, and agrees with, the Company that it is a Qualified Institutional Buyer and an "accredited investor" within the meaning of Rule 501(a) under the 1933 Act (an "Accredited Investor").           (d)  Resale Pursuant to Rule 903 of Regulation S or Rule 144A. Each Initial Purchaser understands that the Securities have not been and will not be registered under the 1933 Act and may not be offered or sold within the United States, or to, or for the account or benefit of, U.S. persons, except in accordance with Regulation S under the 1933 Act or pursuant to an exemption from the registration requirements of the 1933 Act. Each Initial Purchaser severally represents and agrees, that, except as permitted by Section 6(a) above, it has offered and sold Securities and will offer and sell Securities (i) as part of their distribution at any time and (ii) otherwise until forty days after the later of the date upon which the offering of the Securities commences and the Closing Time, only in accordance with Rule 903 of Regulation S, Rule 144A under the 1933 Act or another applicable exemption from the registration requirements of t he 1933 Act. Accordingly, neither the Initial Purchasers, their affiliates nor any persons acting on their behalf have engaged or will engage in any directed selling efforts with respect to Securities sold hereunder pursuant to Regulation S, and the Initial Purchasers, their affiliates and any person acting on their behalf have complied and will comply with the offering restriction requirements of Regulation S. Each Initial Purchaser severally agrees that, at or prior to confirmation of a sale of Securities pursuant to Regulation S it will have sent to each distributor, dealer or person receiving a selling concession, fee or other remuneration that purchases Securities from it or through it during the restricted period a confirmation or notice to substantially the following effect:
		"The Securities covered hereby have not been registered under the United States Securities Act of 1933 (the "1933 Act") and may not be offered or sold within the United States or to or for the account or benefit of U.S. persons (i) as part of their distribution at any time and (ii) otherwise until forty days after the later of the date upon which the offering of the Securities commenced and the date of closing, except in either case in accordance with Regulation S or Rule 144A under the 1933 Act. Terms used above that are defined by Regulation S have the meaning given to them by Regulation S."
Terms used in the above paragraph that are defined by Regulation S (whether or not signified by initial capital letters) have the meanings given to them by Regulation S.           SECTION 7.  Indemnification.           (a)  Indemnification of Initial Purchasers. The Company agrees to indemnify and hold harmless each Initial Purchaser and each person, if any, who controls any Initial Purchaser within the meaning of Section 15 of the 1933 Act or Section 20 of the 1934 Act as follows:
	(i)     against any and all loss, liability, claim, damage and expense whatsoever, as incurred, arising out of any untrue statement or alleged untrue statement of a material fact contained in the Preliminary Offering Memorandum or the Final Offering Memorandum (or any amendment or supplement thereto), or the omission or alleged omission therefrom of a material fact necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading;         (ii)    against any and all loss, liability, claim, damage and expense whatsoever, as incurred, to the extent of the aggregate amount paid in settlement of any litigation, or any investigation or proceeding by any governmental agency or body, commenced or threatened, or of any claim whatsoever based upon any untrue statement or omission, or any alleged untrue statement or omission, in either case of the nature described in clause (i) above; provided that any such settlement is effected with the written consent of the Company; and         (iii)   against any and all expense whatsoever, as incurred (including the fees and disbursements of counsel chosen by Merrill Lynch), reasonably incurred in investigating, preparing or defending against any litigation, or any investigation or proceeding by any governmental agency or body, commenced or threatened, or any claim whatsoever based upon any untrue statement or omission, or any alleged untrue statement or omission, in either case of the nature described in clause (i) above, to the extent that any such expense is not paid under (i) or (ii) above;
provided, however, that this indemnity agreement shall not apply to any loss, liability, claim, damage or expense to the extent arising out of any untrue statement or omission or alleged untrue statement or omission made in reliance upon and in conformity with written information furnished to the Company by any Initial Purchaser through Merrill Lynch expressly for use in the Preliminary Offering Memorandum or the Final Offering Memorandum (or any amendment or supplement thereto).         (b)  Indemnification of Company. Each Initial Purchaser severally agrees to indemnify and hold harmless the Company and each person, if any, who controls the Company within the meaning of Section 15 of the 1933 Act or Section 20 of the 1934 Act against any and all loss, liability, claim, damage and expense described in the indemnity contained in subsection (a) of this Section, as incurred, but only with respect to untrue statements or omissions, or alleged untrue statements or omissions, made in the Preliminary Offering Memorandum or the Final Offering Memorandum (or any amendment or supplement thereto) in reliance upon and in conformity with written information furnished to the Company by such Initial Purchaser through Merrill Lynch expressly for use in the Offering Memorandum.          (c)  Actions against Parties; Notification. Each indemnified party shall give notice as promptly as reasonably practicable to each indemnifying party of any action commenced against it in respect of which indemnity may be sought hereunder, but failure to so notify an indemnifying party shall not relieve such indemnifying party from any liability hereunder to the extent it is not materially prejudiced as a result thereof and in any event shall not relieve it from any liability which it may have otherwise than on account of this indemnity agreement. In the case of parties indemnified pursuant to Section 7(a) above, counsel to the indemnified parties shall be selected by Merrill Lynch, and, in the case of parties indemnified pursuant to Section 7(b) above, counsel to the indemnified parties shall be selected by the Company. An indemnifying party may participate at its own expense in the defense of any such action; provided, however , that counsel to the indemnifying party shall not (except with the consent of the indemnified party) also be counsel to the indemnified party. In no event shall the indemnifying parties be liable for fees and expenses of more than one counsel (in addition to any local counsel) separate from their own counsel for all indemnified parties in connection with any one action or separate but similar or related actions in the same jurisdiction arising out of the same general allegations or circumstances. No indemnifying party shall, without the prior written consent of the indemnified parties, settle or compromise or consent to the entry of any judgment with respect to any litigation, or any investigation or proceeding by any governmental agency or body, commenced or threatened, or any claim whatsoever in respect of which indemnification could be sought under this Section or contribution could be sought under Section 8 hereof (whether or not the indemnified parties are actual or potential parties thereto), unless such settlement, compromise or consent (i) includes an unconditional release of each indemnified party from all liability arising out of such litigation, investigation, proceeding or claim and (ii) does not include a statement as to or an admission of fault, culpability or a failure to act by or on behalf of any indemnified party.         SECTION 8.  Contribution. If the indemnification to which a party is entitled under Section 7 hereof is for any reason unavailable to or insufficient to hold harmless an indemnified party in respect of any losses, liabilities, claims, damages or expenses referred to therein, then each indemnifying party shall contribute to the aggregate amount of such losses, liabilities, claims, damages and expenses incurred by such indemnified party, (i) in such proportion as is appropriate to reflect the relative benefits received by the Company on the one hand and the Initial Purchasers on the other hand from the offering of the Securities pursuant to this Agreement or (ii) if the allocation provided by clause (i) is not permitted by applicable law, in such proportion as is appropriate to reflect not only the relative benefits referred to in clause (i) above but also the relative fault of the Company on the one hand and of the Initial Purchase rs on the other hand in connection with the statements or omissions which resulted in such losses, liabilities, claims, damages or expenses, as well as any other relevant equitable considerations.         The relative benefits received by the Company on the one hand and the Initial Purchasers on the other hand in connection with the offering of the Securities pursuant to this Agreement shall be deemed to be in the same respective proportions as the total net proceeds from the offering of the Securities pursuant to this Agreement (before deducting expenses) received by the Company and the total amount by which the initial resale price of the Securities exceeds the amount paid to the Company by the Initial Purchasers for the Securities bear to the aggregate initial offering price of the Securities.         The relative fault of the Company on the one hand and the Initial Purchasers on the other hand shall be determined by reference to, among other things, whether any such untrue or alleged untrue statement of a material fact or omission or alleged omission to state a material fact relates to information supplied by the Company or by the Initial Purchasers and the parties' relative intent, knowledge, access to information and opportunity to correct or prevent such statement or omission.         The Company and the Initial Purchasers agree that it would not be just and equitable if contribution pursuant to this Section were determined by pro rata allocation (even if the Initial Purchasers were treated as one entity for such purpose) or by any other method of allocation which does not take account of the equitable considerations referred to above in this Section. The aggregate amount of losses, liabilities, claims, damages and expenses incurred by an indemnified party and referred to above in this Section shall be deemed to include any legal or other expenses reasonably incurred by such indemnified party in investigating, preparing or defending against any litigation, or any investigation or proceeding by any governmental agency or body, commenced or threatened, or any claim whatsoever based upon any such untrue or alleged untrue statement or omission or alleged omission.         Notwithstanding the provisions of this Section, no Initial Purchaser shall be required to contribute any amount in excess of the amount by which the initial resale price of the Securities exceeds the amount of any damages which such Initial Purchaser has otherwise been required to pay by reason of such untrue or alleged untrue statement or omission or alleged omission.         No person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the 1933 Act) shall be entitled to contribution from any person who was not guilty of such fraudulent misrepresentation.         For purposes of this Section, each person, if any, who controls an Initial Purchaser within the meaning of Section 15 of the 1933 Act or Section 20 of the 1934 Act shall have the same rights to contribution as such Initial Purchaser, and each person, if any, who controls the Company within the meaning of Section 15 of the 1933 Act or Section 20 of the 1934 Act shall have the same rights to contribution as the Company, as the case may be. The Initial Purchasers' respective obligations to contribute pursuant to this Section are several in proportion to the principal amount of Securities set forth opposite their respective names in Schedule A hereto and not joint.         SECTION 9.  Survival of Representations, Warranties and Agreements. All representations, warranties and agreements contained in this Agreement or in certificates of officers of the Company submitted pursuant hereto shall remain operative and in full force and effect, regardless of any investigation made by or on behalf of any Initial Purchaser or controlling person, or by or on behalf of the Company, and shall survive delivery of the Securities to the Initial Purchasers.         SECTION 10.  Termination of Agreement.         (a)  Termination; General. The Representatives may terminate this Agreement, by notice to the Company, at any time at or prior to the Closing Time (i) if there has been, since the time of execution of this Agreement or since the respective dates as of which information is given in the Offering Memorandum, any material adverse change in the condition, financial or otherwise, or in the earnings or business affairs of the Company and its subsidiaries considered as one enterprise, whether or not arising in the ordinary course of business, or (ii) if there has occurred any material adverse change in the financial markets in the United States or the international financial markets, any outbreak of hostilities or escalation thereof or other calamity or crisis or any change or development involving a prospective change in national or international political, financial or economic conditions, in each case the effect of which is such as to make it, in the judgment of the Representatives, impracticable or inadvisable to market the Securities or to enforce contracts for the sale of the Securities, or (iii) if trading in any securities of the Company has been suspended or materially limited by the Commission, or if trading generally on the American Stock Exchange or the New York Stock Exchange or in the NASDAQ System has been suspended or materially limited, or minimum or maximum prices for trading have been fixed, or maximum ranges for prices have been required, by any of said exchanges or by such system or by order of the Commission, the National Association of Securities Dealers, Inc. or any other governmental authority, or, a material disruption has occurred in commercial banking or securities settlement or clearance services in the United States, or (iv) if a banking moratorium has been declared by either Federal or New York authorities.         (b)  Liabilities. If this Agreement is terminated pursuant to this Section, such termination shall be without liability of any party to any other party except as provided in Section 4 hereof, and provided further that Sections 1, 7, 8 and 9 shall survive such termination and remain in full force and effect.         SECTION 11.  Default by One or More of the Initial Purchasers. If one or more of the Initial Purchasers shall fail at the Closing Time to purchase the Securities which it or they are obligated to purchase under this Agreement (the "Defaulted Securities"), the Representative(s) shall have the right, within 24 hours thereafter, to make arrangements for one or more of the non-defaulting Initial Purchasers, or any other initial purchasers, to purchase all, but not less than all, of the Defaulted Securities in such amounts as may be agreed upon and upon the terms herein set forth; if, however, the Representative(s) shall not have completed such arrangements within such 24 hour period, then:         (a) if the principal amount of Defaulted Securities does not exceed 10% of the aggregate principal amount of the Securities to be purchased hereunder, each of the non-defaulting Initial Purchasers shall be obligated, severally and not jointly, to purchase the full amount thereof in the proportions that their respective purchase obligations hereunder bear to the purchase obligations of all non-defaulting Initial Purchasers, or         (b) if the principal amount of Defaulted Securities exceeds 10% of the aggregate principal amount of the Securities to be purchased hereunder, this Agreement shall terminate without liability on the part of any non-defaulting Initial Purchaser.         No action taken pursuant to this Section shall relieve any defaulting Initial Purchaser from liability in respect of its default.         In the event of any such default which does not result in a termination of this Agreement, either the Representative(s) or the Company shall have the right to postpone the Closing Time for a period not exceeding seven days in order to effect any required changes in the Offering Memorandum or in any other documents or arrangements. As used herein, the term "Initial Purchaser" includes any person substituted for an Initial Purchaser under this Section.         SECTION 12.  Notices. All notices and other communications hereunder shall be in writing and shall be deemed to have been duly given if received by mail or by any standard form of telecommunication. Notices to the Initial Purchasers shall be directed to the Representatives c/o Merrill Lynch & Co., at North Tower, World Financial Center, New York, New York 10281, attention of Jeffrey Kulik; notices to the Company shall be directed to it at 701 Ninth Street, N.W., Washington, DC 20068, attention of Treasurer.         SECTION 13.  Parties. This Agreement shall inure to the benefit of and be binding upon the Initial Purchasers, the Company and their respective successors. Nothing expressed or mentioned in this Agreement is intended or shall be construed to give any person, firm or corporation, other than the Initial Purchasers, the Company and their respective successors and the controlling persons and officers and directors referred to in Sections 7 and 8 and their heirs and legal representatives, any legal or equitable right, remedy or claim under or in respect of this Agreement or any provision herein contained. This Agreement and all conditions and provisions hereof are intended to be for the sole and exclusive benefit of the Initial Purchasers, the Company and their respective successors, and said controlling persons and officers and directors and their heirs and legal representatives, and for the benefit of no other person, firm or corpor ation. No purchaser of Securities from any Initial Purchaser shall be deemed to be a successor by reason merely of such purchase.         SECTION 14.  GOVERNING LAW AND TIME. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK. EXCEPT AS OTHERWISE SET FORTH HEREIN, SPECIFIED TIMES OF DAY REFER TO NEW YORK CITY TIME.         SECTION 15.  Effect of Headings. The Article and Section headings herein and the Table of Contents are for convenience only and shall not affect the construction hereof.

If the foregoing is in accordance with your understanding of our agreement, please sign and return to the Company a counterpart hereof, whereupon this instrument, along with all counterparts, will become a binding agreement among the Initial Purchasers and the Company in accordance with its terms.
	Very truly yours, PEPCO HOLDINGS, INC. By:                                                              Title:
CONFIRMED AND ACCEPTED,       as of the date first above written: MERRILL LYNCH & CO. MERRILL LYNCH, PIERCE, FENNER & SMITH                                INCORPORATED BANC ONE CAPITAL MARKETS, INC. By: MERRILL LYNCH, PIERCE, FENNER & SMITH                                       INCORPORATED By:                                                                      Authorized Signatory
For themselves and as Representatives of the other Initial Purchasers named in Schedule A hereto.

SCHEDULE A

Name of Initial Purchaser	Notes Due 2007 Principal Amount	Notes due 2012 Principal Amount	Notes due 2032 Principal Amount
Merrill Lynch, Pierce, Fenner & Smith Incorporated	$ 99,750,000	$213,750,000	$  71,250,000
Banc One Capital Markets, Inc.	99,750,000	213,750,000	71,250,000
Credit Suisse First Boston Corporation	35,875,000	76,875,000	25,625,000
Scotia Capital (USA) Inc.	28,875,000	61,875,000	20,625,000
Wachovia Securities, Inc.	28,875,000	61,875,000	20,625,000
Banc of America Securities LLC	21,875,000	46,875,000	15,625,000
Legg Mason Wood Walker, Incorporated	10,500,000	22,500,000	7,500,000
BNY Capital Markets, Inc.	7,000,000	15,000,000	5,000,000
Mellon Financial Markets, LLC	7,000,000	15,000,000	5,000,000
SunTrust Capital Markets, Inc..	7,000,000	15,000,000	5,000,000
The Williams Capital Group, L.P.	3,500,000	7,500,000	2,500,000
Total	$350,000,000	$750,000,000	$250,000,000

SCHEDULE B PEPCO HOLDINGS, INC. $350,000,000 5.50% Notes due 2007 $750,000,000 6.45% Notes due 2012 $250,000,000 7.45% Notes due 2032
1.	The initial public offering price: Per Note due 2007 99.880% Per Note due 2012 99.737% Per Note due 2032 99.757% of the principal amount thereof, plus accrued interest, if any, from the date of issuance.
2.	The purchase price to be paid by the Initial Purchasers: Per Note due 2007 99.280% Per Note due 2012 99.087% Per Note due 2032 98.882% of the principal amount thereof
3.	The interest rates shall be as follows: Notes due 2007 5.50% per annum. Notes due 2012 6.45% per annum. Notes due 2032 7.45% per annum
4.            The Company may redeem the Securities in whole or in part, at its option, at any time prior to their maturity, at the "make-whole" redemption prices described in the Officer's Certificate delivered pursuant to the Indenture..

SCHEDULE C-1

Company Subsidiaries

Potomac Electric Power Company

Potomac Capital Investment Corporation

Conectiv

Atlantic City Electric Company

Delmarva Power & Light Company

Conectiv Energy Holding Company

Conectiv Delmarva Generation, Inc.

	Exhibit A
[LETTERHEAD OF PEPCO HOLDINGS, INC.]
Ladies and Gentlemen:                        I am Executive Vice President and General Counsel of Pepco Holdings, Inc., a Delaware corporation (the "Company"), and have acted as counsel to the Company in connection with the negotiation, execution and delivery of the Purchase Agreement, dated September 3, 2002, among the Company and the Initial Purchasers (the "Purchase Agreement"). This opinion is being delivered to you in accordance with Section 5(a) of the Purchase Agreement. Capitalized terms not defined herein have the respective meanings set forth in the Purchase Agreement.                        In connection with rendering the opinions set forth herein, I, or my representatives, have reviewed an executed copy of the Purchase Agreement, the Indenture, the Registration Rights Agreement, the Final Offering Memorandum, and the form of the Securities. I, or my representatives, also have examined or caused to be examined originals, or copies that have been certified or otherwise identified to my or their satisfaction as being true copies, of such other instruments, certificates and other documents or records as I or they have deemed necessary or appropriate to enable me to render the opinions set forth below. In my or my representatives' review and examination, I or they have assumed the genuineness of all signatures, the authenticity of all documents submitted to me or them as originals, and the conformity to original documents of all documents submitted to me or them as copies.                        Based upon the foregoing, and subject to the reservations and exceptions set forth herein, I am of the opinion that:                        1.        The Company has been duly incorporated and is validly existing as a corporation in good standing under the laws of the State of Delaware.                        2.        The Company has corporate power and authority to own, lease and operate its properties and to conduct its business as described in, and contemplated by, the Final Offering Memorandum and to enter into and perform its obligations under the Purchase Agreement.                        3.        The Company is duly qualified as a foreign corporation to transact business and is in good standing in each jurisdiction in which such qualification is required, whether by reason of the ownership or leasing of property or the conduct of business, except where the failure so to qualify or to be in good standing would not result in a Material Adverse Effect.                        4.        Each entity named on Schedule C-1 to the Purchase Agreement has been duly incorporated and is validly existing as a corporation in good standing under the laws of the jurisdiction of its incorporation, has corporate power and authority to own, lease and operate its properties and to conduct its business as described in the Final Offering Memorandum and is duly qualified as a foreign corporation to transact business and is in good standing in each jurisdiction in which such qualification is required, whether by reason of the ownership or leasing of property or the conduct of business, except where the failure so to qualify or to be in good standing would not result in a Material Adverse Effect; all of the issued and outstanding capital stock of such subsidiary has been duly authorized and validly issued, is fully paid and non-assessable; to the best of my knowledge and information, all of the issued and outstanding capital stock of such subsidiaries, except for (i) the issued and outstanding shares of Pepco's preferred stock, par value $50 per share, of the $2.44 Series of 1957, the $2.46 Series of 1958, the $2.28 Series of 1965 and the $3.40 Series of 1992, (ii) the issued and outstanding shares of Atlantic City Electric Company's preferred stock of the 4.00% Series of 1944, the 4.35% Series of 1949, the 4.35% Series of 1953, the 4.10% Series of 1954, the 4.75% Series of 1958, and the 5.00% Series of 1960, and (iii) the issued and outstanding shares of Delmarva Power and Light Company's preferred stock of the 4% Series of 1943, the 3.7% Series of 1947, the 4.28% Series of 1949, the 4.56% Series of 1952, the 4.20% Series of 1955, the 5% Series of 1956, the 7.75% series of 1992 and the 6.75% Series of 1992, is owned by the Company, directly or through subsidiaries, free and clear of any security interest, mortgage, pledge, li en, encumbrance, claim or equity.                        5.        The Purchase Agreement has been duly authorized, executed and delivered by the Company.                        6.        The Merger has been consummated in accordance with the terms of the Merger Agreement.                        7.        The documents filed by Pepco, Conectiv and the Company with the Commission pursuant to the 1934 Act and incorporated by reference in the Final Offering Memorandum (other than the financial statements, including the notes thereto, and supporting schedules therein, as to which I express no opinion), when they were filed with the Commission, complied as to form in all material respects with the requirements of the 1934 Act and the rules and regulations of the Commission thereunder.                        8.        Except as disclosed in the Final Offering Memorandum, there is not pending or, to the best of my knowledge, threatened any action, suit, proceeding, inquiry or investigation, to which the Company or any subsidiary thereof is a party, or to which the property of the Company or any subsidiary thereof is subject, before or brought by any court or governmental agency or body, which might reasonably be expected to result in a Material Adverse Effect, or which might reasonably be expected to materially and adversely affect the consummation of the transactions contemplated in the Merger Agreement, the Registration Rights Agreement or the Purchase Agreement or the performance by the Company or Pepco of its obligations thereunder.                        9.        To the best of my knowledge, neither the Company nor any of its subsidiaries is in violation of its charter or by-laws and no default by the Company or any of its subsidiaries exists in the due performance or observance of any obligation, agreement, covenant or condition contained in any contract, indenture, mortgage, loan agreement, note, lease or other agreement or instrument to which the Company or any of its subsidiaries is a party and that is described or referred to in the Final Offering Memorandum except such defaults as have not had and will not have a Material Adverse Effect.                        10.        Except for (a) such as may be required under the applicable securities laws of the various jurisdictions in which the Securities are offered or sold, (b) such registrations, qualifications and orders under federal and state securities laws as are contemplated by the Registration Rights Agreement, and (c) such other approvals the failure to obtain which would not have a Material Adverse Effect, all authorizations, approvals, consents, licenses, orders, registrations, qualifications and decrees of any court or governmental authority or agency, domestic or foreign, necessary or required on the part of the Company or any of its subsidiaries in connection with the due authorization, execution and delivery of the Purchase Agreement and the due execution, delivery or performance of the Indenture or the Registration Rights Agre ement by the Company and for the offering, issuance, sale or delivery of the Securities to the Initial Purchasers and the resale by the Initial Purchasers in accordance with the terms of the Purchase Agreement have been obtained or made.                        11.        The execution, delivery and performance of the Purchase Agreement, the DTC Agreement, the Registration Rights Agreement, the Indenture and the Securities and the consummation of the transactions contemplated in the Purchase Agreement (including the use of the proceeds from the sale of the Securities as described in the Final Offering Memorandum under the caption "Use Of Proceeds") and compliance by the Company with its obligations under the Purchase Agreement, the Registration Rights Agreement, the Indenture and the Securities do not and will not, whether with or without the giving of notice or lapse of time or both, conflict with or constitute a breach of, or default or Repayment Event (as defined in Section 1(a)(xiii) of the Purchase Agreement) under or result in the creation or imposition of any lien, charge or encum brance upon any property or assets of the Company or any subsidiary thereof pursuant to any contract, indenture, mortgage, deed of trust, loan or credit agreement, note, lease or any other agreement or instrument to which the Company or any of its subsidiaries is a party or by which it or any of them may be bound, or to which any of the property or assets of the Company or any subsidiary thereof is subject (except for such conflicts, breaches or defaults or liens, charges or encumbrances as would not have a Material Adverse Effect), nor will such action result in any violation of (a) the provisions of the charter or by-laws of the Company or any of its subsidiaries, (b) any judgment, order, writ or decree, known to me, of any government, government instrumentality or court, domestic or foreign, having jurisdiction over the Company or any of its subsidiaries or any of their respective properties, assets or operations, or (c) any law, statute, rule, regulation that in my experience customarily applies to trans actions of the type contemplated by the Purchase Agreement, the DTC Agreement, the Registration Rights Agreement, the Indenture and the Securities.                        I am not passing upon and do not assume responsibility for the accuracy, completeness or fairness of the statements contained in the Final Offering Memorandum and make no representations that I have independently verified the accuracy, completeness or fairness of such statements, except insofar as such statements refer specifically to me. However, based on my examination of the Final Offering Memorandum, on my general familiarity with the affairs of the Company and on my participation in conferences with officials and other representatives of, and other counsel for, the Company, with PricewaterhouseCoopers LLP, the independent accountants of the Company, and with your representatives and your counsel, I do not believe that the Final Offering Memorandum (except for financial statements, including the notes thereto, financial schedules and other financial data included o r incorporated by reference therein, as to which I express no belief), as of the date of the Purchase Agreement included, and as of the Closing Time includes, an untrue statement of a material fact or omitted or omits to state a material fact necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading.                        I am a member of the Bar of the District of Columbia, and I express no opinion herein as to any laws other than the laws of the District of Columbia, the General Corporation Law of the State of Delaware, the federal laws of the United States and, with respect to the opinions set forth in paragraph 4, the Virginia Stock Corporation Act and the New Jersey Business Corporation Act.                        The opinions contained herein are rendered solely for your benefit and may not be relied on by any other person. The opinions expressed in this letter are limited to the matters set forth herein, and no opinion should be inferred beyond those opinions expressly stated. I assume no obligation to advise you of any facts that come to my attention, or any changes in law, subsequent to the date hereof.
	Very truly yours, William T. Torgerson

			Exhibit B
[LETTERHEAD OF COVINGTON & BURLING]
Ladies and Gentlemen:                        We have acted as special counsel to Pepco Holdings, Inc., a Delaware corporation (the "Company"), in connection with the negotiation, execution and delivery of the Purchase Agreement, dated September 3, 2002, among the Company and the Initial Purchasers (the "Purchase Agreement"). This opinion is being delivered to you in accordance with Section 5(b) of the Purchase Agreement. Unless otherwise defined herein, capitalized terms used herein have the respective meanings provided in the Purchase Agreement.                        We have reviewed the Purchase Agreement, the Indenture, the Registration Rights Agreement, the Final Offering Memorandum, the form of the Securities, and such corporate records, certificates and other documents, and such questions of law, as we have deemed necessary or appropriate for the purposes of rendering this opinion.                        We have assumed that all signatures are genuine, that all documents submitted to us as originals are authentic and that all copies of documents submitted to us conform to the originals. We have assumed further that each Initial Purchaser has duly authorized, executed and delivered the Registration Rights Agreement and that the Registration Rights Agreement is the valid and binding obligation of such Initial Purchaser, enforceable against it in accordance with its terms. We have assumed further that the Company is a corporation duly organized, validly existing and in good standing under the laws of the State of Delaware and has all requisite power, authority and legal right to execute, deliver and perform its obligations under the Indenture, the Registration Rights Agreement, and t he Securities to be issued by it.                        We have made no investigation for the purpose of verifying the assumptions set forth herein.                        Based upon the foregoing, and subject to the qualifications set forth below, we are of the opinion that:                        (i)        Each of the Indenture and the Registration Rights Agreement has been duly authorized, executed and delivered by the Company and constitutes a valid and binding agreement of the Company, enforceable against the Company in accordance with its terms, subject to bankruptcy, insolvency, fraudulent transfer, reorganization, moratorium and other laws of general applicability relating to or affecting creditors' rights and to general equity principles.                         (ii)        The Securities are in the form contemplated by the Indenture and the Officer's Certificate delivered pursuant to Sections 201 and 301 thereof, have been duly authorized by the Company and, when executed by the Company and authenticated by the Trustee in the manner provided in the Indenture and delivered against payment of the purchase price therefor, will constitute valid and binding obligations of the Company, enforceable against the Company in accordance with their terms, subject to bankruptcy, insolvency, fraudulent transfer, reorganization, moratorium and other laws of general applicability relating to or affecting creditors' rights and to general equity principles.                         (iii)        The descriptions of the Securities, the Indenture, and the Registration Rights Agreement contained in the Final Offering Memorandum are accurate in all material respects.                         (iv)        Based upon and assuming the accuracy of the representations and warranties set forth in the Purchase Agreement, it is not necessary in connection with the offer, sale and delivery of the Securities by the Company to the Initial Purchasers and by an Initial Purchaser to a Subsequent Purchaser in the manner contemplated by, and in accordance with the procedures set forth in, the Purchase Agreement and the Final Offering Memorandum to register the Securities under the 1933 Act or to qualify the Indenture under the Trust Indenture Act.                         (v)        The Company is not and will not be, as a result of the use of the proceeds from the sale of the Securities as described in the Final Offering Memorandum under the caption "Use of Proceeds," an "investment company" or an entity "controlled" by an "investment company," as such terms are defined in the 1940 Act.                        We are not passing upon and do not assume responsibility for the accuracy, completeness or fairness of the statements contained in the Final Offering Memorandum and make no representations that we have independently verified the accuracy, completeness or fairness of such statements, except as expressly set forth in paragraph 3 above and insofar as such statements refer specifically to us. However, based on our examination of the Final Offering Memorandum and participation in conferences with your representatives and those of the Company, your counsel and the Company's accountants in connection with the offer and sale of the Securities, nothing which came to our attention in the course of such review has caused us to believe that the Final Offering Memorandum (except for financial statements, including the notes thereto, financial schedules and other financial or statis tical data included or incorporated by reference therein, as to which we express no comment), as of the date of the Purchase Agreement included, and as of the Closing Time includes, an untrue statement of a material fact or omitted or omits to state a material fact necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading.                        The foregoing opinion is subject to the following limitations and qualifications:
(a)	We express no opinion as to:
	(i)	waivers of defenses or other rights or benefits bestowed by operation of law;
	(ii)	indemnification, contribution, or exculpation, to the extent they purport to indemnify any party against, or release or limit any party's liability for, its own breach or failure to comply with statutory obligations, or to the extent such provisions are contrary to public policy;
	(iii)	releases or waivers of unmatured claims or rights;
	(iv)	provisions for liquidated damages and penalties or penalty interest;
	(v)	provisions requiring amendments and waivers to be in writing;
	(vi)	provisions purporting to require a prevailing party in a dispute to pay attorneys' fees and expenses, or other costs, to a non-prevailing party;
	(vii)	provisions making notices effective even if not actually received; or
	(vii)	provisions purporting to make a party's determination conclusive.
(b)	We express no opinion as to any right of setoff, bankers lien or counterclaim or right to the application of property in the possession or control of the Trustee
We are members of the bar of the State of New York. We do not purport to be experts in, and do not express any opinion on, any laws other than the laws of the State of New York, the General Corporation Law of the State of Delaware and, to the extent expressly referred to herein, the federal laws of the United States.                        This opinion is given solely for your benefit and may not be disclosed to any other person without our written consent. This opinion may not be relied upon by any other person without our written consent. We assume no obligation to advise you of any facts that come to our attention, or any changes in law, subsequent to the date hereof.
			Very truly yours, COVINGTON & BURLING

EX-10

	EXECUTION COPY
=========================================================
PEPCO HOLDINGS, INC. (a Delaware corporation) $150,000,000 5.50% Notes due 2007 PURCHASE AGREEMENT
Dated: September 16, 2002
=========================================================

Table of Contents
				Page
SECTION 1.	Representations and Warranties by the Company			2
	(a)	Representations and Warranties.		2
		(i)	Offering Memorandum.	2
		(ii)	Incorporated Documents.	3
		(iii)	Independent Accountants.	3
		(iv)	Financial Statements.	3
		(v)	No Material Adverse Change in Business.	4
		(vi)	Good Standing of the Company.	4
		(vii)	Good Standing of Designated Subsidiaries.	4
		(viii)	Merger.	5
		(ix)	Authorization of Agreement.	5
		(x)	Authorization of Indenture and Registration Rights Agreement.	6
		(xi)	Authorization of the Securities.	6
		(xii)	Descriptions of the Securities, Indenture and Registration Rights Agreement.	6
		(xiii)	Absence of Defaults and Conflicts.	6
		(xiv)	Absence of Labor Dispute.	7
		(xv)	Absence of Proceedings.	7
		(xvi)	Absence of Further Requirements.	7
		(xvii)	Possession of Licenses and Permits.	8
		(xviii)	Title to Property.	8
		(xix)	Environmental Laws.	8
		(xx)	Investment Company Act.	9
		(xxi)	Similar Offerings.	9
		(xxii)	Rule 144A Eligibility.	9
		(xxiii)	No General Solicitation.	9
		(xxiv)	No Registration Required.	10
		(xxv)	Reporting Company.	10
		(xxvi)	No Directed Selling Efforts.	10
	(b)	Officer's Certificates.		10
SECTION 2.	Sale and Delivery to Initial Purchasers; Closing.			10
	(a)	Securities.		10
	(b)	Payment.		10
	(c)	Denominations; Registration.		11
SECTION 3.	Covenants of the Company.			11
	(a)	Offering Memorandum.		11
	(b)	Notice and Effect of Material Events.		11
	(c)	Amendment to Offering Memorandum and Supplements.		12
	(d)	Qualification of Securities for Offer and Sale.		12
	(e)	Rating of Securities.		13
	(f)	DTC.		13
	(g)	Use of Proceeds.		13
	(h)	Restriction on Sale of Securities.		13
	(i)	Reporting Requirements.		13
SECTION 4.	Payment of Expenses.			13
	(a)	Expenses.		13
	(b)	Termination of Agreement.		14
SECTION 5.	Conditions of Initial Purchasers' Obligations.			14
	(a)	Opinion of Counsel for Company.		14
	(b)	Opinion of Covington & Burling.		14
	(c)	Opinion of Counsel for Initial Purchasers.		14
	(d)	Officers' Certificate.		15
	(e)	Accountants' Comfort Letters.		15
	(f)	Maintenance of Rating.		15
	(g)	Registration Rights Agreement.		15
	(h)	Additional Documents.		15
	(i)	Termination of Agreement.		16
SECTION 6.	Subsequent Offers and Resales of the Securities.			16
	(a)	Offer and Sale Procedures.		16
		(i)	Offers and Sales Only to Qualified Institutional Buyers.	16
		(ii)	No General Solicitation.	16
		(iii)	Purchases by Non-Bank Fiduciaries.	16
		(iv)	Subsequent Purchaser Notification.	16
		(v)	Minimum Principal Amount.	17
		(vi)	Restrictions on Transfer.	17
		(vii)	Delivery of Offering Memorandum.	17
	(b)	Covenants of the Company.		17
		(i)	Integration.	17
		(ii)	Rule 144A Information.	18
		(iii)	Restriction on Resales.	18
	(c)	Qualified Institutional Buyer.		18
	(d)	Resale Pursuant to Rule 903 of Regulation S or Rule 144A.		18
SECTION 7.	Indemnification.			19
	(a)	Indemnification of Initial Purchasers.		19
	(b)	Indemnification of Company.		20
	(c)	Actions against Parties; Notification.		20
SECTION 8.	Contribution.			20
SECTION 9.	Survival of Representations, Warranties and Agreements.			22
SECTION 10.	Termination of Agreement.			22
	(a)	Termination; General.		22
	(b)	Liabilities.		22
SECTION 11.	Default by One or More of the Initial Purchasers.			22
SECTION 12.	Notices.			23
SECTION 13.	Parties.			23
SECTION 14.	GOVERNING LAW AND TIME.			24
SECTION 15.	Effect of Headings.			24

SCHEDULES
	Schedule A - List of Initial Purchasers	Sch.	A-1
	Schedule B - Pricing Information	Sch.	B-1
	Schedule C-1 - List of Subsidiaries of the Company	Sch.	C-1
EXHIBITS
	Exhibit A - Form of Opinion of William T. Torgerson		A-1
	Exhibit B - Form of Opinion of Covington & Burling		B-1

			Pepco Holdings, Inc. (a Delaware corporation) $150,000,000 5.50% Notes due 2007 PURCHASE AGREEMENT
				September 16, 2002
Merrill Lynch & Co. Merrill Lynch, Pierce, Fenner & Smith                                Incorporated Banc One Capital Markets, Inc.              as Representatives of the several Initial Purchasers c/o Merrill Lynch & Co. Merrill Lynch, Pierce, Fenner & Smith                      Incorporated North Tower World Financial Center New York, New York 10281
Ladies and Gentlemen:              Pepco Holdings, Inc., a Delaware corporation (the "Company"), confirms its agreement with Merrill Lynch & Co., Merrill Lynch, Pierce, Fenner & Smith Incorporated ("Merrill Lynch"), Banc One Capital Markets, Inc. and each of the other initial purchasers named in Schedule A hereto (collectively, the "Initial Purchasers", which term shall also include any initial purchaser substituted as hereinafter provided in Section 11 hereof), for whom Merrill Lynch and Banc One Capital Markets, Inc. are acting as representatives (in such capacity, the "Representatives"), with respect to the issue and sale by the Company and the purchase by the Initial Purchasers, acting severally and not jointly, of the respective principal amounts set forth in said Schedule A of $150,000,000 aggregate principal amount of the Company's 5.50% Notes due 2007 (the "Securities"). The Securities are to be issued pursuant to a n indenture (the "Indenture"), dated as of September 6, 2002, between the Company and The Bank of New York, as trustee (the "Trustee"). The term "Indenture", as used herein, includes the Officer's Certificate (as defined in the Indenture) establishing the form and terms of the Securities pursuant to Sections 201 and 301 of the Indenture. Securities issued in global form will be issued to Cede & Co. as nominee of The Depository Trust Company ("DTC") pursuant to a letter agreement or agreements, to be dated as of or prior to the Closing Time (as defined in Section 2(b)) (the "DTC Agreement"), among the Company, the Trustee and DTC.              The Company understands that the Initial Purchasers propose to make an offering of the Securities on the terms and in the manner set forth herein and agree that the Initial Purchasers may resell, subject to the conditions set forth herein, all or a portion of the Securities to purchasers ("Subsequent Purchasers") at any time after this Agreement has been executed and delivered. The Securities are to be offered and sold through the Initial Purchasers without being registered under the Securities Act of 1933, as amended (the "1933 Act"), in reliance upon exemptions therefrom. Pursuant to the terms of the Securities and the Indenture, investors that acquire Securities may only resell or otherwise transfer such Securities if such Securities are hereafter registered under the 1933 Act or if an exemption from the registration requirements of the 1933 Act is available (including the exemption afforded by Rule 144A ("R ule 144A") or Regulation S ("Regulation S") of the rules and regulations promulgated under the 1933 Act by the Securities and Exchange Commission (the "Commission")).              The Company has prepared and will deliver to each Initial Purchaser on the date hereof or the next succeeding day copies of an offering circular dated September 3, 2002, as supplemented by a supplement thereto dated September 16, 2002 (as so supplemented, the "Offering Memorandum"), for use by such Initial Purchaser in connection with its solicitation of purchases of, or offering of, the Securities. "Offering Memorandum" means, with respect to any date or time referred to in this Agreement or in any document required to be delivered in connection herewith, the Offering Memorandum, as amended or supplemented, including exhibits thereto and any documents incorporated therein by reference, which has been prepared and delivered by the Company to the Initial Purchasers in connection with their solicitation of purchases of, or offering of, the Securities.              The Company has agreed to provide to the Initial Purchasers and their direct and indirect transferees the registration rights set forth in a registration rights agreement to be dated as of or prior to the Closing Time conforming to the description thereof contained in the Offering Memorandum (the "Registration Rights Agreement").              All references in this Agreement to financial statements and schedules and other information which is "described," "disclosed," "contained," "included" or "stated" in the Offering Memorandum (or other references of like import) shall be deemed to mean and include all such financial statements and schedules and other information which are incorporated by reference in the Offering Memorandum; and all references in this Agreement or in any document required to be delivered in connection herewith to amendments or supplements to the Offering Memorandum shall be deemed to mean and include the filing of any document under the Securities Exchange Act of 1934, as amended (the "1934 Act"), which is incorporated by reference in the Offering Memorandum.              SECTION 1.     Representations and Warranties by the Company.              (a)     Representations and Warranties. The Company represents and warrants to each Initial Purchaser as of the date hereof and as of the Closing Time referred to in Section 2(b) hereof as follows:
	(i)         Offering Memorandum. The Offering Memorandum does not, and at the Closing Time will not, include an untrue statement of a material fact or omit to state a material fact necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading; provided that this representation, warranty and agreement shall not apply to statements in or omissions from the Offering Memorandum made in reliance upon and in conformity with information furnished to the Company in writing by any Initial Purchaser through Merrill Lynch expressly for use in the Offering Memorandum.           (ii)       Incorporated Documents. The documents incorporated in the Offering Memorandum at the time they were or hereafter are filed with the Commission complied and will comply in all material respects with the requirements of the 1934 Act and the rules and regulations of the Commission thereunder (the "1934 Act Regulations"), and, when read together with the other information in the Offering Memorandum, at the time the Offering Memorandum was issued and at the Closing Time, did not and will not include an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein not misleading.           (iii)      Independent Accountants. The accountants who audited the financial statements and supporting schedules included in the Offering Memorandum are independent public accountants with respect to Pepco, Conectiv and the Company and their subsidiaries within the meaning of Regulation S-X.           (iv)      Financial Statements. The financial statements of Pepco, together with the related schedules and notes, included in the Offering Memorandum (A) in the case of the balance sheets, present fairly the financial position of Pepco and its consolidated subsidiaries, including the Company, as of the dates indicated, and (B) in the case of the statement of operations, stockholders' equity and cash flows, present fairly such information for Pepco and its consolidated subsidiaries, including the Company, for the periods specified; said financial statements have been prepared in conformity with generally accepted accounting principles ("GAAP") applied on a consistent basis throughout the periods involved, except as otherwise stated therein. The financial statements of Conectiv, together with the related schedules and notes, included in the Offering Memorandum (A) in the case of the balance sheets, present fairly the financial position of Conectiv and its consolidated subsidiaries as of the dates indicated, and (B) in the case of the statement of operations, stockholders' equity and cash flows, present fairly such information for Conectiv and its consolidated subsidiaries for the periods specified; said financial statements have been prepared in conformity with GAAP applied on a consistent basis throughout the periods involved, except as otherwise stated therein. The selected financial data included in the Offering Memorandum present fairly the information shown therein and have been compiled on a basis consistent with that of the audited financial statements included in the Offering Memorandum. The pro forma financial statements and the related notes thereto included in the Offering Memorandum present fairly the information shown therein, have been prepared in accordance with the Commission's rules and guidelines with respect to pro forma financial statements and hav e been properly compiled on the bases described therein, and the assumptions used in the preparation thereof are reasonable and the adjustments used therein are appropriate to give effect to the transactions and circumstances referred to therein.           (v)        No Material Adverse Change in Business.           (vi)       Good Standing of the Company. The Company has been duly organized and is validly existing as a corporation in good standing under the laws of the State of Delaware and has corporate power and authority to own, lease and operate its properties and to conduct its business as described in the Offering Memorandum; the Company has the corporate power and authority to enter into and perform its obligations under this Agreement; and the Company is duly qualified as a foreign corporation to transact business and is in good standing in each jurisdiction in which such qualification is required, whether by reason of the ownership or leasing of property or the conduct of business, except where the failure so to qualify or to be in good standing would not result in a Material Adverse Effect. The shares of issued and outstanding capital stock of the Company been d uly authorized and validly issued and are fully paid and non-assessable.           (vii)      Good Standing of Designated Subsidiaries. Each "significant subsidiary" of the Company (as such term is defined in Rule 1-02 of Regulation S-X), each of which is listed on Schedule C-1 hereto, and each additional subsidiary listed on Schedule C-1 hereto (together with the significant subsidiaries, each a "Designated Subsidiary" and, collectively, the "Designated Subsidiaries") has been duly organized and is validly existing as a corporation in good standing under the laws of the jurisdiction of its formation, has corporate power and authority to own, lease and operate its properties and to conduct its business as described in the Offering Memorandum and is duly qualified as a foreign corporation to transact business and is in good standing in each jurisdiction in which such qualification is required, whether by reason of the ownership or leasing of propert y or the conduct of business, except where the failure so to qualify or to be in good standing would not result in a Material Adverse Effect; all of the issued and outstanding capital stock of each Designated Subsidiary has been duly authorized and validly issued, is fully paid and non-assessable and, except for preferred stock, is owned by the Company, directly or through subsidiaries, free and clear of any security interest, mortgage, pledge, lien, encumbrance, claim or equity; none of the outstanding shares of capital stock of the Designated Subsidiaries was issued in violation of any preemptive or similar rights of any security holder of such Designated Subsidiary.           (viii)    Merger. The Agreement and Plan of Merger, dated as of February 9, 2001 among Pepco, the Company and Conectiv (the "Merger Agreement") was duly authorized, executed and delivered by the Company, Pepco and Conectiv, was duly approved by the stockholders of Pepco and Conectiv, and constitutes a valid and binding agreement of Pepco, the Company and Conectiv, enforceable against them in accordance with its terms, except as the enforcement thereof may be limited by bankruptcy, insolvency (including, without limitation, all laws relating to fraudulent transfers), reorganization, moratorium or similar laws affecting enforcement of creditors' rights generally and except as enforcement thereof is subject to general principles of equity (regardless of whether enforcement is considered in a proceeding in equity or at law); the mergers contemplated by t he Merger Agreement (collectively, the "Merger") have occurred on the terms contemplated by the Merger Agreement; all regulatory orders with respect to the Merger have become final; except as disclosed in the Offering Memorandum, there are no regulatory or other proceedings challenging the Merger or its effects, which proceedings could reasonably be expected to result in a Material Adverse Effect.           (ix)       Authorization of Agreement. This Agreement has been duly authorized, executed and delivered by the Company.           (x)        Authorization of Indenture and Registration Rights Agreement. The Indenture has been duly authorized, executed and delivered by and constitutes a valid and binding agreement of the Company, enforceable against the Company in accordance with its terms except as the enforcement thereof may be limited by bankruptcy, insolvency (including, without limitation, all laws relating to fraudulent transfers), reorganization, moratorium, or similar laws affecting enforcement of creditors' rights generally, and except as enforcement thereof is subject to general principles of equity (regardless of whether enforcement is considered in a proceeding in equity or at law); and the Registration Rights Agreement has been duly authorized by the Company and, when the Registration Rights Agreement has been duly executed and delivered by the Company and on behalf of the Initial Purchasers, it wil l constitute a valid and binding agreement of the Company, enforceable against the Company in accordance with its terms, except as the enforcement thereof may be limited by bankruptcy, insolvency (including, without limitation, all laws relating to fraudulent transfers), reorganization, moratorium or similar laws affecting enforcement of creditors' rights generally, except as enforcement thereof is subject to general principles of equity (regardless of whether enforcement is considered in a proceeding in equity or at law), and except as enforcement of the indemnification provisions thereof may be limited by principles of public policy.           (xi)       Authorization of the Securities. The Securities have been duly authorized and, at the Closing Time, will have been duly executed by the Company and, when authenticated in the manner provided for in the Indenture and delivered against payment of the purchase price therefor as provided in this Agreement, will constitute valid and binding obligations of the Company, enforceable against the Company in accordance with their terms, except as the enforcement thereof may be limited by bankruptcy, insolvency (including, without limitation, all laws relating to fraudulent transfers), reorganization, moratorium or similar laws affecting enforcement of creditors' rights generally and except as enforcement thereof is subject to general principles of equity (regardless of whether enforcement is considered in a proceeding in equity or at law), and will be in the for m contemplated by, and entitled to the benefits of, the Indenture.           (xii)      Descriptions of the Securities, Indenture and Registration Rights Agreement. The descriptions of the Securities, the Indenture and the Registration Rights Agreement contained in the Offering Memorandum are accurate in all material respects.           (xiii)      Absence of Defaults and Conflicts. Neither the Company nor any of its subsidiaries is in violation of its charter or by-laws or in default in the performance or observance of any obligation, agreement, covenant or condition contained in any contract, indenture, mortgage, deed of trust, loan or credit agreement, note, lease or other agreement or instrument to which the Company or any such subsidiary is a party or by which any of them may be bound, or to which any of the property or assets of the Company or any of its subsidiaries is subject (collectively, "Agreements and Instruments") except for such defaults that have not and will not result in a Material Adverse Effect; and the performance of the Indenture, the execution, delivery and performance of this Agreement, the Registration Rights Agreement and the Securities and any other agreement or instrument entered into or issued or to be entered into or issued by the Company in connection with the transactions contemplated hereby or thereby and the consummation of the transactions contemplated herein and therein (including the issuance and sale of the Securities and the use of the proceeds from the sale of the Securities as described in the Offering Memorandum under the caption "Description of the Additional Notes and Related Matters-Use of Proceeds") and compliance by the Company with its obligations hereunder have been duly authorized by all necessary corporate action and do not and will not, whether with or without the giving of notice or passage of time or both, conflict with or constitute a breach of, or default or a Repayment Event (as defined below) under, or result in the creation or imposition of any lien, charge or encumbrance upon any property or assets of the Company or any of its subsidiaries pursuant to, the Agreements and Instruments except for such conflicts, breaches or defaults or liens, charges or encumbrances that, singly or in the aggregate, would not result in a Material Adverse Effect, nor will such action result in any violation of the provisions of the charter or by-laws of the Company or any of its subsidiaries or any applicable law, statute, rule, regulation, judgment, order, writ or decree of any government, government instrumentality or court, domestic or foreign, having jurisdiction over the Company or any of its subsidiaries or any of their assets, properties or operations. As used herein, a "Repayment Event" means any event or condition which gives the holder of any note, debenture or other evidence of indebtedness (or any person acting on such holder's behalf) the right to require the repurchase, redemption or repayment of all or a portion of such indebtedness by the Company or any of its subsidiaries.           (xiv)      Absence of Labor Dispute. No labor dispute with the employees of the Company or any of its subsidiaries exists or, to the knowledge of the Company, is imminent, and the Company is not aware of any existing or imminent labor disturbance by the employees of any of its or any of its subsidiaries' principal suppliers, manufacturers, customers or contractors, which, in either case, could reasonably be expected to result in a Material Adverse Effect.           (xv)       Absence of Proceedings. Except as disclosed in the Offering Memorandum, there is no action, suit, proceeding, inquiry or investigation before or brought by any court or governmental agency or body, domestic or foreign, now pending, or, to the knowledge of the Company, threatened, against or affecting the Company or any of its subsidiaries which could reasonably be expected to result in a Material Adverse Effect, or which could reasonably be expected to materially and adversely affect the consummation of the transactions contemplated by this Agreement or the Merger Agreement or the performance by the Company, Pepco or Conectiv of their obligations hereunder or thereunder. The aggregate of all pending legal or governmental proceedings to which the Company or any of its subsidiaries is a party or of which any of their respective property or assets is th e subject which are not described in the Offering Memorandum, including ordinary routine litigation incidental to the business, could not reasonably be expected to result in a Material Adverse Effect.           (xvi)      Absence of Further Requirements. Except for (a) such as may be required under the applicable securities laws of the various jurisdictions in which the Securities are offered or sold (b) such registrations, qualifications and orders under federal and state securities laws as are contemplated by the Registration Rights Agreement, (c) such other approvals the failure to obtain which would not have a Material Adverse Effect, and (d) such as have been obtained or made, no filing with, or authorization, approval, consent, license, order, registration, qualification or decree of, any court or governmental authority or agency is necessary or required for the performance by the Company of its obligations hereunder, in connection with the offering, issuance or sale of the Securities hereunder or the consummation of the transactions contemplated by this Agreement or for the due execution, delivery or performance of the Registration Rights Agreement, or the performance of the Indenture, by the Company.           (xvii)     Possession of Licenses and Permits. The Company and its subsidiaries possess such permits, licenses, approvals, consents and other authorizations (collectively, "Governmental Licenses") issued by the appropriate federal, state, local or foreign regulatory agencies or bodies necessary to conduct the business now operated by them; the Company and its subsidiaries are in compliance with the terms and conditions of all such Governmental Licenses, except where the failure so to comply would not, singly or in the aggregate, have a Material Adverse Effect; all of the Governmental Licenses are valid and in full force and effect, except where the invalidity of such Governmental Licenses or the failure of such Governmental Licenses to be in full force and effect would not have a Material Adverse Effect; and neither the Company nor any of its subsidiaries has received any notice of proceedings relating to the revocation or modification of any such Governmental Licenses which, singly or in the aggregate, if the subject of an unfavorable decision, ruling or finding, would result in a Material Adverse Effect.           (xviii)    Title to Property. The Company and its subsidiaries have good and marketable title to all real property owned by the Company and its subsidiaries and good title to all other properties owned by them, in each case, free and clear of all mortgages, pledges, liens, security interests, claims, restrictions or encumbrances of any kind except such as (a) are described in the Offering Memorandum or (b) do not, singly or in the aggregate, materially affect the value of such property and do not materially interfere with the use made and proposed to be made of such property by the Company or any of its subsidiaries; and all of the leases and subleases material to the business of the Company and its subsidiaries, considered as one enterprise, and under which the Company or any of its subsidiaries holds properties described in the Offering Memorandum, are in full force and effe ct, and neither the Company nor any of its subsidiaries has any notice of any material claim of any sort that has been asserted by anyone adverse to the rights of the Company or any of its subsidiaries under any of the leases or subleases mentioned above, or affecting or questioning the rights of the Company or any subsidiary thereof to the continued possession of the leased or subleased premises under any such lease or sublease.           (xix)      Environmental Laws. Except as described in the Offering Memorandum and except such matters as would not, singly or in the aggregate, result in a Material Adverse Effect, (A) neither the Company nor any of its subsidiaries is in violation of any federal, state, local or foreign statute, law, rule, regulation, ordinance, code, policy or rule of common law or any judicial or administrative interpretation thereof, including any judicial or administrative order, consent, decree or judgment, relating to pollution or protection of human health, the environment (including, without limitation, ambient air, surface water, groundwater, land surface or subsurface strata) or wildlife, including, without limitation, laws and regulations relating to the release or threatened release of chemicals, pollutants, contaminants, wastes, toxic substances, hazardous substances, p etroleum or petroleum products (collectively, "Hazardous Materials") or to the manufacture, processing, distribution, use, treatment, storage, disposal, transport or handling of Hazardous Materials (collectively, "Environmental Laws"), (B) the Company and its subsidiaries have all permits, authorizations and approvals required under any applicable Environmental Laws and are each in compliance with their requirements, (C) there are no pending or, to the knowledge of the Company, threatened administrative, regulatory or judicial actions, suits, demands, demand letters, claims, liens, notices of noncompliance or violation, investigation or proceedings relating to any Environmental Law against the Company or any of its subsidiaries and (D) to the knowledge of the Company, there are no events or circumstances that could reasonably be expected to form the basis of an order for clean-up or remediation, or an action, suit or proceeding by any private party or governmental body or agency, against or affecting the Com pany or any of its subsidiaries relating to Hazardous Materials or Environmental Laws.           (xx)       Investment Company Act. The Company is not, and upon the issuance and sale of the Securities as herein contemplated and the application of the net proceeds therefrom as described in the Offering Memorandum under the caption "Description of the Additional Notes and Related Matters-Use of Proceeds" will not be, an "investment company" or an entity "controlled" by an "investment company" as such terms are defined in the Investment Company Act of 1940, as amended (the "1940 Act").           (xxi)      Similar Offerings. Neither the Company nor any of its affiliates, as such term is defined in Rule 501(b) under the 1933 Act, has, directly or indirectly, solicited any offer to buy, sold or offered to sell or otherwise negotiated in respect of, or will solicit any offer to buy, sell or offer to sell or otherwise negotiate in respect of, in the United States or to any United States citizen or resident, any security which is or would be integrated with the sale of the Securities in a manner that would require the Securities to be registered under the 1933 Act.           (xxii)     Rule 144A Eligibility. The Securities are eligible for resale pursuant to Rule 144A and will not be, at the Closing Time, of the same class as securities listed on a national securities exchange registered under Section 6 of the 1934 Act, or quoted in a U.S. automated interdealer quotation system.           (xxiii)    No General Solicitation. None of the Company, its affiliates or any person acting on its or any of their behalf (other than the Initial Purchasers, as to whom the Company makes no representation) has engaged or will engage, in connection with the offering of the Securities, in any form of general solicitation or general advertising within the meaning of Rule 502(c) under the 1933 Act.           (xiv)      No Registration Required. Subject to compliance by the Initial Purchasers with the representations and warranties set forth in Section 2 and the procedures set forth in Section 6 hereof, it is not necessary in connection with the offer, sale and delivery of the Securities to the Initial Purchasers and to each Subsequent Purchaser in the manner contemplated by this Agreement and the Offering Memorandum to register the Securities under the 1933 Act or to qualify the Indenture under the Trust Indenture Act of 1939, as amended (the "1939 Act").           (xv)       Reporting Company. The Company is subject to the reporting requirements of Section 13 or Section 15(d) of the 1934 Act.           (xvi)      No Directed Selling Efforts. With respect to those Securities, if any, sold in reliance on Regulation S, (A) none of the Company, its affiliates or any person acting on its or their behalf (other than the Initial Purchasers, as to whom the Company makes no representation) has engaged or will engage in any directed selling efforts within the meaning of Regulation S and (B) each of the Company and its affiliates and any person acting on its or their behalf (other than the Initial Purchasers, as to whom the Company makes no representation) has complied and will comply with the offering restrictions requirement of Regulation S.
(b     Officer's Certificates. Any certificate signed by any officer of the Company delivered to the Representatives or to counsel for the Initial Purchasers shall be deemed a representation and warranty by the Company to each Initial Purchaser as to the matters covered thereby.              SECTION 2.     Sale and Delivery to Initial Purchasers; Closing.              (a)     Securities. On the basis of the representations and warranties herein contained and subject to the terms and conditions herein set forth, the Company agrees to sell to each Initial Purchaser, severally and not jointly, and each Initial Purchaser, severally and not jointly, agrees to purchase from the Company, at the price set forth in Schedule B, the aggregate principal amount of Securities set forth in Schedule A opposite the name of such Initial Purchaser, plus any additional principal amount of Securities which such Initial Purchaser may become obligated to purchase pursuant to the provisions of Section 11 hereof.              (b)     Payment. Payment of the purchase price for, and delivery of certificates for, the Securities shall be made at the office of the Company, 701 Ninth Street, N.W., Washington, DC 20068, or at such other place as shall be agreed upon by the Representatives and the Company, at 9:00 A.M. (eastern time) on the third business day after the date hereof (unless postponed in accordance with the provisions of Section 11), or such other time not later than ten business days after such date as shall be agreed upon by the Representatives and the Company (such time and date of payment and delivery being herein called the "Closing Time").              Payment shall be made to the Company by wire transfer of immediately available funds to a bank account designated by the Company, against delivery to the Representatives for the respective accounts of the Initial Purchasers of certificates for the Securities to be purchased by them. It is understood that each Initial Purchaser has authorized the Representatives, for its account, to accept delivery of, receipt for, and make payment of the purchase price for, the Securities which it has agreed to purchase. Merrill Lynch, individually and not as representative of the Initial Purchasers, may (but shall not be obligated to) make payment of the purchase price for the Securities to be purchased by any Initial Purchaser whose funds have not been received by the Closing Time, but such payment shall not relieve such Initial Purchaser from its obligations hereunder.              Denominations; Registration. Certificates for the Securities shall be in such denominations ($1,000 or integral multiples thereof) and registered in such names as the Representatives may request in writing at least one full business day before the Closing Time. The certificates representing the Securities shall be made available for examination by the Initial Purchasers in Washington, D.C. not later than 10:00 A.M. on the last business day prior to the Closing Time.              SECTION 3.     Covenants of the Company. The Company covenants with each Initial Purchaser as follows:              (a)     Offering Memorandum. The Company, as promptly as possible, will furnish to each Initial Purchaser, without charge, such number of copies of the Offering Memorandum and any amendments and supplements thereto and documents incorporated by reference therein as such Initial Purchaser may reasonably request.              (b)     Notice and Effect of Material Events. The Company will immediately notify each Initial Purchaser, and confirm such notice in writing, of (x) any filing made by the Company of information relating to the offering of the Securities with any securities exchange or any other regulatory body in the United States or any other jurisdiction, and (y) prior to the completion of the placement of the Securities by the Initial Purchasers as evidenced by a notice in writing from Merrill Lynch on behalf of the Initial Purchasers to the Company, any material changes in or affecting the condition, financial or otherwise, or the earnings or business affairs of the Company and its respective subsidiaries considered as one enterprise which (i) make any statement in the Offering Memorandum false or misleading or (ii) are not disclosed in the Offer ing Memorandum. In such event or if during such time any event shall occur as a result of which it is necessary, in the reasonable opinion of any of the Company, its counsel, the Initial Purchasers or counsel for the Initial Purchasers, to amend or supplement the Offering Memorandum in order that the Offering Memorandum not include any untrue statement of a material fact or omit to state a material fact necessary in order to make the statements therein not misleading in the light of the circumstances then existing, the Company will forthwith amend or supplement the Offering Memorandum by preparing and furnishing to each Initial Purchaser an amendment or amendments of, or a supplement or supplements to, the Offering Memorandum (in form and substance satisfactory in the reasonable opinion of counsel for the Initial Purchasers) so that, as so amended or supplemented, the Offering Memorandum will not include an untrue statement of a material fact or omit to state a material fact necessary in order to make the s tatements therein, in the light of the circumstances existing at the time it is delivered to a Subsequent Purchaser, not misleading.              (c)     Amendment to Offering Memorandum and Supplements. Prior to the completion of the placement of the Securities by the Initial Purchasers as evidenced by a notice in writing from Merrill Lynch on behalf of the Initial Purchasers to the Company, the Company will advise each Initial Purchaser promptly of any proposal to amend or supplement the Offering Memorandum (but not including any amendment or supplement to the Offering Memorandum through the filing of any document which is to be incorporated by reference therein) and will not effect such amendment or supplement without the consent of the Initial Purchasers, such consent not to be unreasonably withheld or delayed. Neither the consent of the Initial Purchasers, nor the Initial Purchaser's delivery of any such amendment or supplement, shall constitute a waiver of any of the conditions set forth in Section 5 hereof.              Prior to the completion of the placement of the Securities by the Initial Purchasers as evidenced by a notice in writing from Merrill Lynch on behalf of the Initial Purchasers to the Company, the Company will furnish to Merrill Lynch on behalf of the Initial Purchasers, at least 24 hours, or such shorter period as is reasonably required by the circumstances, prior to the filing thereof with the Commission, a draft of each document which is to be filed by the Company with the Commission and incorporated by reference in the Offering Memorandum.              Merrill Lynch on behalf of the Initial Purchasers shall notify the Company in writing of the completion of the placement of the Securities by the Initial Purchasers promptly thereafter.              (d)     Qualification of Securities for Offer and Sale. The Company will use its best efforts, in cooperation with the Initial Purchasers, to qualify the Securities for offering and sale under the applicable securities laws of such states and other jurisdictions as the Representatives may designate and will maintain such qualifications in effect as long as required for the sale of the Securities; provided, however, that the Company shall not be obligated to file any general consent to service of process or to qualify as a foreign corporation or as a dealer in securities in any jurisdiction in which it is not so qualified or to subject itself to taxation in respect of doing business in any jurisdiction in which it is not otherwise so subject.              (e)     Rating of Securities. The Company shall take all reasonable action necessary to enable Standard & Poor's Ratings Services, a division of McGraw Hill, Inc. ("S&P"), and Moody's Investors Service Inc. ("Moody's") to provide their respective credit ratings of the Securities.              (f)     DTC. The Company will cooperate with the Representatives and use its best efforts to permit the Securities to be eligible for clearance and settlement through the facilities of DTC              (g)     Use of Proceeds. The Company will use the net proceeds received by it from the sale of the Securities in the manner specified in the Offering Memorandum under "Description of the Additional Notes and Related Matters-Use of Proceeds."              (h)     Restriction on Sale of Securities. During a period of 30 days from the date of the Offering Memorandum, the Company will not, without the prior written consent of Merrill Lynch, directly or indirectly, issue, sell, offer or agree to sell, grant any option for the sale of, or otherwise dispose of, any other debt securities of the Company other than debt securities with maturities of less than one year or securities of the Company that are convertible into, or exchangeable for, the Securities or such other debt securities other than debt securities with maturities of less than one year.              (i)     Reporting Requirements. The Company, during the period when the Offering Memorandum is required to be delivered pursuant to Section 6(a)(vii) hereof, will file all documents required to be filed with the Commission pursuant to the 1934 Act within the time periods required by the 1934 Act and the 1934 Act Regulations.              SECTION 4.     Payment of Expenses.              (a)     Expenses. The Company will be responsible for the payment of all expenses incident to the performance of its obligations under this Agreement, including (i) the preparation, printing, delivery to the Initial Purchasers and any filing of the Offering Memorandum (including financial statements and any schedules or exhibits and any document incorporated therein by reference) and of each amendment or supplement thereto, (ii) the preparation, printing and delivery to the Initial Purchasers of this Agreement, any agreement among Initial Purchasers, the Indenture and such other documents as may be required in connection with the offering, purchase, sale, issuance or delivery of the Securities, (iii) the preparation, issuance and delivery of the certificates for the Securities to the Initial Purchasers, including any transfer taxes, any st amp or other duties payable upon the sale, issuance and delivery of the Securities to the Initial Purchasers and any charges of DTC in connection therewith, (iv) the fees and disbursements of the Company's counsel, accountants and other advisors, (v) the qualification of the Securities under securities laws in accordance with the provisions of Section 3(d) hereof, including filing fees and the reasonable fees and disbursements of counsel for the Initial Purchasers in connection therewith and in connection with the preparation of the Blue Sky Survey and any supplement thereto (such fee of counsel not to exceed $5,000), (vi) the fees and expenses of the Trustee, including the fees and disbursements of counsel for the Trustee in connection with the Indenture and the Securities, and (vii) any fees payable in connection with the rating of the Securities.              (b)     Termination of Agreement. If this Agreement is terminated by the Representatives in accordance with the provisions of Section 5 or Section 10(a)(i) hereof, the Company will reimburse the Initial Purchasers for all of their out-of-pocket expenses incurred in connection with the transactions contemplated hereby, including the reasonable fees and disbursements of counsel for the Initial Purchasers.              SECTION 5.     Conditions of Initial Purchasers' Obligations. The obligations of the several Initial Purchasers hereunder are subject to the accuracy of the representations and warranties of the Company contained in Section 1 hereof or in certificates of any officer of the Company delivered pursuant to the provisions hereof, to the performance by the Company of its covenants and other obligations hereunder, and to the following further conditions:              (a)     Opinion of Counsel for Company. At the Closing Time, the Representatives shall have received the opinion, dated as of the Closing Time, of William T. Torgerson, Esq., Executive Vice President and General Counsel of the Company, substantially in the form attached hereto as Exhibit A, together with signed or reproduced copies of such letter for each of the other Initial Purchasers.              (b)     Opinion of Covington & Burling. At the Closing Time, the Representatives shall have received the opinion, dated as of the Closing Time, of Covington & Burling, counsel for the Company, substantially in the form attached hereto as Exhibit B, together with signed or reproduced copies of such letter for each of the other Initial Purchasers.              (c)     Opinion of Counsel for Initial Purchasers. At the Closing Time, the Representatives shall have received the favorable opinion, dated as of the Closing Time, of Pillsbury Winthrop LLP, counsel for the Initial Purchasers, together with signed or reproduced copies of such letter for each of the other Initial Purchasers with respect to the matters set forth in the paragraph immediately following paragraph 11 of Exhibit A hereto and (i), (ii), (iii) and (iv) of Exhibit B hereto. In giving such opinion, such counsel may rely, as to all matters governed by the laws of jurisdictions other than the law of the State of New York and the federal law of the United States and the General Corporation Law of the State of Delaware, upon the opinions of counsel satisfactory to the Representatives. Such counsel may also state that, insofar as such opinion involv es factual matters, they have relied, to the extent they deem proper, upon certificates of officers of the Company and its subsidiaries and certificates of public officials.              (d)     Officers' Certificate. At the Closing Time, there shall not have been, since the date hereof or since the respective dates as of which information is given in the Offering Memorandum, any material adverse change in the condition, financial or otherwise, or in the earnings or business affairs of the Company and its subsidiaries considered as one enterprise, whether or not arising in the ordinary course of business, and the Representatives shall have received a certificate of the President or a Vice President of the Company and of the chief financial or chief accounting officer of the Company, dated as of the Closing Time, to the effect that (i) there has been no such material adverse change, (ii) the representations and warranties in Section 1 hereof are true and correct with the same force and effect as though expressly made at and as of the Closing Time, and (iii) the Company has complied with all agreements and satisfied all conditions on its part to be performed or satisfied at or prior to the Closing Time.              (e)     Accountants' Comfort Letters. At the Closing Time, the Representatives shall have received from PricewaterhouseCoopers LLP letters, dated as of the Closing Time, in form and substance reasonably satisfactory to the Representatives, together with signed or reproduced copies of such letters for each of the other Initial Purchasers containing statements and information of the type ordinarily included in accountants' "comfort letters" to Initial Purchasers with respect to the financial statements and certain financial information of each of the Company, Pepco and Conectiv contained in the Offering Memorandum.              (f)     Maintenance of Rating. At the Closing Time, the Securities shall be rated at least Baa1 by Moody's and BBB by S&P, and the Company shall have delivered to the Representatives a letter of recent date, from each such rating agency, or other evidence satisfactory to the Representatives, confirming that the Securities have such ratings; and since the date of this Agreement, there shall not have occurred a downgrading in the rating assigned to the Securities or any of the Company's other debt securities by any "nationally recognized statistical rating agency", as that term is defined by the Commission for purposes of Rule 436(g)(2) under the 1933 Act, and no such securities rating agency shall have publicly announced that it has under surveillance or review, with possible negative implications, its rating of the Securities or any of the Company's other debt securities.              (g)     Registration Rights Agreement. At or prior to the Closing Time, the Company shall have executed and delivered the Registration Rights Agreement.              (h)     Additional Documents. At the Closing Time, counsel for the Initial Purchasers shall have been furnished with such documents and opinions as they may reasonably require for the purpose of enabling them to pass upon the issuance and sale of the Securities as herein contemplated, or in order to evidence the accuracy of any of the representations or warranties, or the fulfillment of any of the conditions, herein contained; and all proceedings taken by the Company in connection with the issuance and sale of the Securities as herein contemplated shall be reasonably satisfactory in form and substance to the Representatives and counsel for the Initial Purchasers.              (i)     Termination of Agreement. If any condition specified in this Section shall not have been fulfilled when and as required to be fulfilled, this Agreement may be terminated by the Representatives by notice to the Company at any time at or prior to the Closing Time, and such termination shall be without liability of any party to any other party except as provided in Section 4 and except that Sections 1, 7, 8 and 9 shall survive any such termination and remain in full force and effect.              SECTION 6.     Subsequent Offers and Resales of the Securities.              (a)     Offer and Sale Procedures. Each of the Initial Purchasers and the Company hereby establish and agree to observe the following procedures in connection with the offer and sale of the Securities:
	(i)     Offers and Sales Only to Qualified Institutional Buyers. Offers and sales of the Securities shall only be made (A) to persons whom the offeror or seller reasonably believes to be qualified institutional buyers, as defined in Rule 144A under the 1933 Act ("Qualified Institutional Buyers"), or (B) to non-U.S. persons outside the United States, as defined in Regulation S under the 1933 Act, to whom the offeror or seller reasonably believes offers and sales of the Securities may be made in reliance upon Regulation S under the 1933 Act. Each Initial Purchaser severally agrees that it will not offer, sell or deliver any of the Securities in any jurisdiction outside the United States except under circumstances that will result in compliance with the applicable laws thereof, and that it will take at its own expense whatever action is required to permit its purchase and resale of the Securities in such jurisdictions.           (ii)     No General Solicitation. No general solicitation or general advertising (within the meaning of Rule 502(c) under the 1933 Act) will be used in the United States in connection with the offering or sale of the Securities.           (iii)    Purchases by Non-Bank Fiduciaries. In the case of a non-bank Subsequent Purchaser of a Security acting as a fiduciary for one or more third parties, each third party shall, in the judgment of the applicable Initial Purchaser, be a Qualified Institutional Buyer or a non-U.S. person outside the United States.            (iv)    Subsequent Purchaser Notification. Each Initial Purchaser will take reasonable steps to inform, and cause each of its affiliates to take reasonable steps to inform, persons acquiring Securities from such Initial Purchaser or affiliate, as the case may be, that the Securities (A) have not been and will not be registered under the 1933 Act, (B) are being sold to them without registration under the 1933 Act in reliance on Rule 144A or in accordance with another exemption from registration under the 1933 Act, as the case may be, and (C) may not be offered, sold or otherwise transferred except (1) to the Company or its subsidiaries, (2) outside the United States in accordance with Regulation S, or (3) inside the United States in accordance with (x) Rule 144A to a person whom the seller reasonably believes is a Qualified Institutional Buyer that is purchasing such Secu rities for its own account or for the account of a Qualified Institutional Buyer to whom notice is given that the offer, sale or transfer is being made in reliance on Rule 144A or (y) pursuant to another available exemption from registration under the 1933 Act.           (v)     Minimum Principal Amount. No sale of the Securities to any one Subsequent Purchaser will be for less than U.S. $1,000 principal amount and no Security will be issued in a smaller principal amount. If the Subsequent Purchaser is a non-bank fiduciary acting on behalf of others, each person for whom it is acting must purchase at least U.S. $1,000 principal amount of the Securities.           (vi)    Restrictions on Transfer. The transfer restrictions and the other provisions set forth in the Offering Memorandum under the heading "Transfer Restrictions," including the legend required thereby, shall apply to the Securities except as otherwise agreed by the Company and the Initial Purchasers.           (vii)   Delivery of Offering Memorandum. Each Initial Purchaser will deliver to each purchaser of the Securities from such Initial Purchaser, in connection with its original distribution of the Securities, a copy of the Offering Memorandum, as amended and supplemented at the date of such delivery.
(b)     Covenants of the Company. The Company covenants with each Initial Purchaser as follows:
	(i)     Integration. The Company agrees that it will not and will cause its affiliates not to, directly or indirectly, solicit any offer to buy, sell or make any offer or sale of, or otherwise negotiate in respect of, securities of the Company or any of its affiliates of any class if, as a result of the doctrine of "integration" referred to in Rule 502 under the 1933 Act, such offer or sale would render invalid (for the purpose of (i) the sale of the Securities by the Company to the Initial Purchasers, (ii) the resale of the Securities by the Initial Purchasers to Subsequent Purchasers or (iii) the resale of the Securities by such Subsequent Purchasers to others) the exemption from the registration requirements of the 1933 Act provided by Section 4(2) thereof or by Rule 144A or by Regulation S thereunder or otherwise.           (ii)    Rule 144A Information. The Company agrees that, in order to render the Securities eligible for resale pursuant to Rule 144A under the 1933 Act, while any of the Securities remain outstanding, the Company will make available, upon request, to any holder of Securities or prospective purchasers of Securities the information specified in Rule 144A(d)(4), unless the Company furnishes information to the Commission pursuant to Section 13 or 15(d) of the 1934 Act.           (iii)   Restriction on Resales. Until the expiration of two years after the original issuance of the Securities, the Company will not, and will cause its affiliates not to, resell any Securities which are "restricted securities" (as such term is defined under Rule 144(a)(3) under the 1933 Act) that have been reacquired by them.
(c)     Qualified Institutional Buyer. Each Initial Purchaser severally and not jointly represents and warrants to, and agrees with, the Company that it is a Qualified Institutional Buyer and an "accredited investor" within the meaning of Rule 501(a) under the 1933 Act (an "Accredited Investor").              (d)     Resale Pursuant to Rule 903 of Regulation S or Rule 144A. Each Initial Purchaser understands that the Securities have not been and will not be registered under the 1933 Act and may not be offered or sold within the United States, or to, or for the account or benefit of, U.S. persons, except in accordance with Regulation S under the 1933 Act or pursuant to an exemption from the registration requirements of the 1933 Act. Each Initial Purchaser severally represents and agrees, that, except as permitted by Section 6(a) above, it has offered and sold Securities and will offer and sell Securities (i) as part of their distribution at any time and (ii) otherwise until forty days after the later of the date upon which the offering of the Securities commences and the Closing Time, only in accordance with Rule 903 of Regulation S, Rule 144A under the 1933 Act or another applicable exemption from the registration requirements of the 1933 Act. Accordingly, neither the Initial Purchasers, their affiliates nor any persons acting on their behalf have engaged or will engage in any directed selling efforts with respect to Securities sold hereunder pursuant to Regulation S, and the Initial Purchasers, their affiliates and any person acting on their behalf have complied and will comply with the offering restriction requirements of Regulation S. Each Initial Purchaser severally agrees that, at or prior to confirmation of a sale of Securities pursuant to Regulation S it will have sent to each distributor, dealer or person receiving a selling concession, fee or other remuneration that purchases Securities from it or through it during the restricted period a confirmation or notice to substantially the following effect:
		"The Securities covered hereby have not been registered under the United States Securities Act of 1933 (the "1933 Act") and may not be offered or sold within the United States or to or for the account or benefit of U.S. persons (i) as part of their distribution at any time and (ii) otherwise until forty days after the later of the date upon which the offering of the Securities commenced and the date of closing, except in either case in accordance with Regulation S or Rule 144A under the 1933 Act. Terms used above that are defined by Regulation S have the meaning given to them by Regulation S."
Terms used in the above paragraph that are defined by Regulation S (whether or not signified by initial capital letters) have the meanings given to them by Regulation S.              SECTION 7.     Indemnification.              (a)     Indemnification of Initial Purchasers. The Company agrees to indemnify and hold harmless each Initial Purchaser and each person, if any, who controls any Initial Purchaser within the meaning of Section 15 of the 1933 Act or Section 20 of the 1934 Act as follows:
	(i)       against any and all loss, liability, claim, damage and expense whatsoever, as incurred, arising out of any untrue statement or alleged untrue statement of a material fact contained in the Offering Memorandum (or any amendment or supplement thereto), or the omission or alleged omission therefrom of a material fact necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading;           (ii)     against any and all loss, liability, claim, damage and expense whatsoever, as incurred, to the extent of the aggregate amount paid in settlement of any litigation, or any investigation or proceeding by any governmental agency or body, commenced or threatened, or of any claim whatsoever based upon any untrue statement or omission, or any alleged untrue statement or omission, in either case of the nature described in clause (i) above; provided that any such settlement is effected with the written consent of the Company; and           (iii)    against any and all expense whatsoever, as incurred (including the fees and disbursements of counsel chosen by Merrill Lynch), reasonably incurred in investigating, preparing or defending against any litigation, or any investigation or proceeding by any governmental agency or body, commenced or threatened, or any claim whatsoever based upon any untrue statement or omission, or any alleged untrue statement or omission, in either case of the nature described in clause (i) above, to the extent that any such expense is not paid under (i) or (ii) above;
provided, however, that this indemnity agreement shall not apply to any loss, liability, claim, damage or expense to the extent arising out of any untrue statement or omission or alleged untrue statement or omission made in reliance upon and in conformity with written information furnished to the Company by any Initial Purchaser through Merrill Lynch expressly for use in the Offering Memorandum (or any amendment or supplement thereto).              (b)     Indemnification of Company. Each Initial Purchaser severally agrees to indemnify and hold harmless the Company and each person, if any, who controls the Company within the meaning of Section 15 of the 1933 Act or Section 20 of the 1934 Act against any and all loss, liability, claim, damage and expense described in the indemnity contained in subsection (a) of this Section, as incurred, but only with respect to untrue statements or omissions, or alleged untrue statements or omissions, made in the Offering Memorandum (or any amendment or supplement thereto) in reliance upon and in conformity with written information furnished to the Company by such Initial Purchaser through Merrill Lynch expressly for use in the Offering Memorandum.              (c)     Actions against Parties; Notification. Each indemnified party shall give notice as promptly as reasonably practicable to each indemnifying party of any action commenced against it in respect of which indemnity may be sought hereunder, but failure to so notify an indemnifying party shall not relieve such indemnifying party from any liability hereunder to the extent it is not materially prejudiced as a result thereof and in any event shall not relieve it from any liability which it may have otherwise than on account of this indemnity agreement. In the case of parties indemnified pursuant to Section 7(a) above, counsel to the indemnified parties shall be selected by Merrill Lynch, and, in the case of parties indemnified pursuant to Section 7(b) above, counsel to the indemnified parties shall be selected by the Company. An indemnifying party may pa rticipate at its own expense in the defense of any such action; provided, however, that counsel to the indemnifying party shall not (except with the consent of the indemnified party) also be counsel to the indemnified party. In no event shall the indemnifying parties be liable for fees and expenses of more than one counsel (in addition to any local counsel) separate from their own counsel for all indemnified parties in connection with any one action or separate but similar or related actions in the same jurisdiction arising out of the same general allegations or circumstances. No indemnifying party shall, without the prior written consent of the indemnified parties, settle or compromise or consent to the entry of any judgment with respect to any litigation, or any investigation or proceeding by any governmental agency or body, commenced or threatened, or any claim whatsoever in respect of which indemnification could be sought under this Section or contribution could be sought under Section 8 hereof (whethe r or not the indemnified parties are actual or potential parties thereto), unless such settlement, compromise or consent (i) includes an unconditional release of each indemnified party from all liability arising out of such litigation, investigation, proceeding or claim and (ii) does not include a statement as to or an admission of fault, culpability or a failure to act by or on behalf of any indemnified party.              SECTION 8.     Contribution. If the indemnification to which a party is entitled under Section 7 hereof is for any reason unavailable to or insufficient to hold harmless an indemnified party in respect of any losses, liabilities, claims, damages or expenses referred to therein, then each indemnifying party shall contribute to the aggregate amount of such losses, liabilities, claims, damages and expenses incurred by such indemnified party, (i) in such proportion as is appropriate to reflect the relative benefits received by the Company on the one hand and the Initial Purchasers on the other hand from the offering of the Securities pursuant to this Agreement or (ii) if the allocation provided by clause (i) is not permitted by applicable law, in such proportion as is appropriate to reflect not only the relative benefits referred to in clause (i) above but also the relative fault of the Company on the one hand and of the Initial Purchasers on the other hand in connection with the statements or omissions which resulted in such losses, liabilities, claims, damages or expenses, as well as any other relevant equitable considerations.              The relative benefits received by the Company on the one hand and the Initial Purchasers on the other hand in connection with the offering of the Securities pursuant to this Agreement shall be deemed to be in the same respective proportions as the total net proceeds from the offering of the Securities pursuant to this Agreement (before deducting expenses) received by the Company and the total amount by which the initial resale price of the Securities exceeds the amount paid to the Company by the Initial Purchasers for the Securities bear to the aggregate initial offering price of the Securities.              The relative fault of the Company on the one hand and the Initial Purchasers on the other hand shall be determined by reference to, among other things, whether any such untrue or alleged untrue statement of a material fact or omission or alleged omission to state a material fact relates to information supplied by the Company or by the Initial Purchasers and the parties' relative intent, knowledge, access to information and opportunity to correct or prevent such statement or omission.              The Company and the Initial Purchasers agree that it would not be just and equitable if contribution pursuant to this Section were determined by pro rata allocation (even if the Initial Purchasers were treated as one entity for such purpose) or by any other method of allocation which does not take account of the equitable considerations referred to above in this Section. The aggregate amount of losses, liabilities, claims, damages and expenses incurred by an indemnified party and referred to above in this Section shall be deemed to include any legal or other expenses reasonably incurred by such indemnified party in investigating, preparing or defending against any litigation, or any investigation or proceeding by any governmental agency or body, commenced or threatened, or any claim whatsoever based upon any such untrue or alleged untrue statement or omission or alleged omission.              Notwithstanding the provisions of this Section, no Initial Purchaser shall be required to contribute any amount in excess of the amount by which the initial resale price of the Securities exceeds the amount of any damages which such Initial Purchaser has otherwise been required to pay by reason of such untrue or alleged untrue statement or omission or alleged omission.              No person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the 1933 Act) shall be entitled to contribution from any person who was not guilty of such fraudulent misrepresentation.              For purposes of this Section, each person, if any, who controls an Initial Purchaser within the meaning of Section 15 of the 1933 Act or Section 20 of the 1934 Act shall have the same rights to contribution as such Initial Purchaser, and each person, if any, who controls the Company within the meaning of Section 15 of the 1933 Act or Section 20 of the 1934 Act shall have the same rights to contribution as the Company, as the case may be. The Initial Purchasers' respective obligations to contribute pursuant to this Section are several in proportion to the principal amount of Securities set forth opposite their respective names in Schedule A hereto and not joint.              SECTION 9.     Survival of Representations, Warranties and Agreements. All representations, warranties and agreements contained in this Agreement or in certificates of officers of the Company submitted pursuant hereto shall remain operative and in full force and effect, regardless of any investigation made by or on behalf of any Initial Purchaser or controlling person, or by or on behalf of the Company, and shall survive delivery of the Securities to the Initial Purchasers.              SECTION 10.   Termination of Agreement.              (a)       Termination; General. The Representatives may terminate this Agreement, by notice to the Company, at any time at or prior to the Closing Time (i) if there has been, since the time of execution of this Agreement or since the respective dates as of which information is given in the Offering Memorandum, any material adverse change in the condition, financial or otherwise, or in the earnings or business affairs of the Company and its subsidiaries considered as one enterprise, whether or not arising in the ordinary course of business, or (ii) if there has occurred any material adverse change in the financial markets in the United States or the international financial markets, any outbreak of hostilities or escalation thereof or other calamity or crisis or any change or development involving a prospective change in national or in ternational political, financial or economic conditions, in each case the effect of which is such as to make it, in the judgment of the Representatives, impracticable or inadvisable to market the Securities or to enforce contracts for the sale of the Securities, or (iii) if trading in any securities of the Company has been suspended or materially limited by the Commission, or if trading generally on the American Stock Exchange or the New York Stock Exchange or in the NASDAQ System has been suspended or materially limited, or minimum or maximum prices for trading have been fixed, or maximum ranges for prices have been required, by any of said exchanges or by such system or by order of the Commission, the National Association of Securities Dealers, Inc. or any other governmental authority, or, a material disruption has occurred in commercial banking or securities settlement or clearance services in the United States, or (iv) if a banking moratorium has been declared by either Federal or New York authoriti es.              (b)     Liabilities. If this Agreement is terminated pursuant to this Section, such termination shall be without liability of any party to any other party except as provided in Section 4 hereof, and provided further that Sections 1, 7, 8 and 9 shall survive such termination and remain in full force and effect.              SECTION 11.   Default by One or More of the Initial Purchasers. If one or more of the Initial Purchasers shall fail at the Closing Time to purchase the Securities which it or they are obligated to purchase under this Agreement (the "Defaulted Securities"), the Representative(s) shall have the right, within 24 hours thereafter, to make arrangements for one or more of the non-defaulting Initial Purchasers, or any other initial purchasers, to purchase all, but not less than all, of the Defaulted Securities in such amounts as may be agreed upon and upon the terms herein set forth; if, however, the Representative(s) shall not have completed such arrangements within such 24 hour period, then:              (a)     if the principal amount of Defaulted Securities does not exceed 10% of the aggregate principal amount of the Securities to be purchased hereunder, each of the non-defaulting Initial Purchasers shall be obligated, severally and not jointly, to purchase the full amount thereof in the proportions that their respective purchase obligations hereunder bear to the purchase obligations of all non-defaulting Initial Purchasers, or              (b)     if the principal amount of Defaulted Securities exceeds 10% of the aggregate principal amount of the Securities to be purchased hereunder, this Agreement shall terminate without liability on the part of any non-defaulting Initial Purchaser.              No action taken pursuant to this Section shall relieve any defaulting Initial Purchaser from liability in respect of its default.              In the event of any such default which does not result in a termination of this Agreement, either the Representative(s) or the Company shall have the right to postpone the Closing Time for a period not exceeding seven days in order to effect any required changes in the Offering Memorandum or in any other documents or arrangements. As used herein, the term "Initial Purchaser" includes any person substituted for an Initial Purchaser under this Section.              SECTION 12.   Notices. All notices and other communications hereunder shall be in writing and shall be deemed to have been duly given if received by mail or by any standard form of telecommunication. Notices to the Initial Purchasers shall be directed to the Representatives c/o Merrill Lynch & Co., at North Tower, World Financial Center, New York, New York 10281, attention of Jeffrey Kulik; notices to the Company shall be directed to it at 701 Ninth Street, N.W., Washington, DC 20068, attention of Treasurer.              SECTION 13.   Parties. This Agreement shall inure to the benefit of and be binding upon the Initial Purchasers, the Company and their respective successors. Nothing expressed or mentioned in this Agreement is intended or shall be construed to give any person, firm or corporation, other than the Initial Purchasers, the Company and their respective successors and the controlling persons and officers and directors referred to in Sections 7 and 8 and their heirs and legal representatives, any legal or equitable right, remedy or claim under or in respect of this Agreement or any provision herein contained. This Agreement and all conditions and provisions hereof are intended to be for the sole and exclusive benefit of the Initial Purchasers, the Company and their respective successors, and said controlling persons and officers and directors and their heirs and le gal representatives, and for the benefit of no other person, firm or corporation. No purchaser of Securities from any Initial Purchaser shall be deemed to be a successor by reason merely of such purchase.              SECTION 14.   GOVERNING LAW AND TIME. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK. EXCEPT AS OTHERWISE SET FORTH HEREIN, SPECIFIED TIMES OF DAY REFER TO NEW YORK CITY TIME.

SECTION 15.   Effect of Headings. The Article and Section headings herein and the Table of Contents are for convenience only and shall not affect the construction hereof.              If the foregoing is in accordance with your understanding of our agreement, please sign and return to the Company a counterpart hereof, whereupon this instrument, along with all counterparts, will become a binding agreement among the Initial Purchasers and the Company in accordance with its terms.
	Very truly yours, PEPCO HOLDINGS, INC. By:                                                         Title:
CONFIRMED AND ACCEPTED, as of the date first above written: MERRILL LYNCH & CO. MERRILL LYNCH, PIERCE, FENNER & SMITH                               INCORPORATED BANC ONE CAPITAL MARKETS, INC. By:  MERRILL LYNCH, PIERCE, FENNER & SMITH                                       INCORPORATED By:                                                               Authorized Signatory
For themselves and as Representatives of the other Initial Purchasers named in Schedule A hereto.

SCHEDULE A

Name of Initial Purchaser	Principal Amount
Merrill Lynch, Pierce, Fenner & Smith Incorporated	$42,750,000
Banc One Capital Markets, Inc.	42,750,000
Credit Suisse First Boston Corporation	15,375,000
Scotia Capital (USA) Inc.	12,375,000
Wachovia Securities, Inc.	12,375,000
Banc of America Securities LLC	9,375,000
Legg Mason Wood Walker, Incorporated	4,500,000
BNY Capital Markets, Inc.	3,000,000
Mellon Financial Markets, LLC	3,000,000
SunTrust Capital Markets, Inc. .	3,000,000
The Williams Capital Group, L.P.	1,500,000
Total	$150,000,000

SCHEDULE B

PEPCO HOLDINGS, INC.

          1.     The initial public offering price shall be 101.514% of the principal amount of the Securities, plus accrued interest from September 6, 2002 to the date of delivery of the Securities.

          2.     The purchase price to be paid by the Initial Purchasers shall be 100.914% of the principal amount of the Securities, plus accrued interest from September 6, 2002 to the Closing Time.

          3.     The interest rates shall be 5.50% per annum.

         4.     The Company may redeem the Securities in whole or in part, at its option, at any time prior to their maturity, at the "make-whole" redemption prices described in the Officer's Certificate delivered pursuant to the Indenture.

SCHEDULE C-1

Company Subsidiaries

Potomac Electric Power Company

Potomac Capital Investment Corporation

Conectiv

Atlantic City Electric Company

Delmarva Power & Light Company

Conectiv Energy Holding Company

Conectiv Delmarva Generation, Inc.

	Exhibit A
[LETTERHEAD OF PEPCO HOLDINGS, INC.]
Ladies and Gentlemen:                     I am Executive Vice President and General Counsel of Pepco Holdings, Inc., a Delaware corporation (the "Company"), and have acted as counsel to the Company in connection with the negotiation, execution and delivery of the Purchase Agreement, dated September 16, 2002, among the Company and the Initial Purchasers (the "Purchase Agreement"). This opinion is being delivered to you in accordance with Section 5(a) of the Purchase Agreement. Capitalized terms not defined herein have the respective meanings set forth in the Purchase Agreement.                     In connection with rendering the opinions set forth herein, I, or my representatives, have reviewed an executed copy of the Purchase Agreement, the Indenture, the Registration Rights Agreement, the Offering Memorandum, and the form of the Securities. I, or my representatives, also have examined or caused to be examined originals, or copies that have been certified or otherwise identified to my or their satisfaction as being true copies, of such other instruments, certificates and other documents or records as I or they have deemed necessary or appropriate to enable me to render the opinions set forth below. In my or my representatives' review and examination, I or they have assumed the genuineness of all signatures, the authenticity of all documents submitted to me or them as originals, and the conformity to original documents of all documents submitted to me or them as copies.                     Based upon the foregoing, and subject to the reservations and exceptions set forth herein, I am of the opinion that:                     1.     The Company has been duly incorporated and is validly existing as a corporation in good standing under the laws of the State of Delaware.                     2.     The Company has corporate power and authority to own, lease and operate its properties and to conduct its business as described in, and contemplated by, the Offering Memorandum and to enter into and perform its obligations under the Purchase Agreement.                     3.     The Company is duly qualified as a foreign corporation to transact business and is in good standing in each jurisdiction in which such qualification is required, whether by reason of the ownership or leasing of property or the conduct of business, except where the failure so to qualify or to be in good standing would not result in a Material Adverse Effect.                     4.     Each entity named on Schedule C-1 to the Purchase Agreement has been duly incorporated and is validly existing as a corporation in good standing under the laws of the jurisdiction of its incorporation, has corporate power and authority to own, lease and operate its properties and to conduct its business as described in the Offering Memorandum and is duly qualified as a foreign corporation to transact business and is in good standing in each jurisdiction in which such qualification is required, whether by reason of the ownership or leasing of property or the conduct of business, except where the failure so to qualify or to be in good standing would not result in a Material Adverse Effect; all of the issued and outstanding capital stock of such subsidiary has been duly authorized and validly issued, is fully paid and non-assessable; to the best of my knowled ge and information, all of the issued and outstanding capital stock of such subsidiaries, except for (i) the issued and outstanding shares of Pepco's preferred stock, par value $50 per share, of the $2.44 Series of 1957, the $2.46 Series of 1958, the $2.28 Series of 1965 and the $3.40 Series of 1992, (ii) the issued and outstanding shares of Atlantic City Electric Company's preferred stock of the 4.00% Series of 1944, the 4.35% Series of 1949, the 4.35% Series of 1953, the 4.10% Series of 1954, the 4.75% Series of 1958, and the 5.00% Series of 1960, and (iii) the issued and outstanding shares of Delmarva Power & Light Company's preferred stock of the 4% Series of 1943, the 3.7% Series of 1947, the 4.28% Series of 1949, the 4.56% Series of 1952, the 4.20% Series of 1955, the 5% Series of 1956, the 7.75% series of 1992 and the 6.75% Series of 1992, is owned by the Company, directly or through subsidiaries, free and clear of any security interest, mortgage, pledge, lien, encumbrance, claim or equity.                     5.     The Purchase Agreement has been duly authorized, executed and delivered by the Company.                     6.     The Merger has been consummated in accordance with the terms of the Merger Agreement.                     7.     The documents filed by Pepco, Conectiv and the Company with the Commission pursuant to the 1934 Act and incorporated by reference in the Offering Memorandum (other than the financial statements, including the notes thereto, and supporting schedules therein, as to which I express no opinion), when they were filed with the Commission, complied as to form in all material respects with the requirements of the 1934 Act and the rules and regulations of the Commission thereunder.                     8.     Except as disclosed in the Offering Memorandum, there is not pending or, to the best of my knowledge, threatened any action, suit, proceeding, inquiry or investigation, to which the Company or any subsidiary thereof is a party, or to which the property of the Company or any subsidiary thereof is subject, before or brought by any court or governmental agency or body, which might reasonably be expected to result in a Material Adverse Effect, or which might reasonably be expected to materially and adversely affect the consummation of the transactions contemplated in the Merger Agreement, the Registration Rights Agreement or the Purchase Agreement or the performance by the Company or Pepco of its obligations thereunder.                     9.     To the best of my knowledge, neither the Company nor any of its subsidiaries is in violation of its charter or by-laws and no default by the Company or any of its subsidiaries exists in the due performance or observance of any obligation, agreement, covenant or condition contained in any contract, indenture, mortgage, loan agreement, note, lease or other agreement or instrument to which the Company or any of its subsidiaries is a party and that is described or referred to in the Offering Memorandum except such defaults as have not had and will not have a Material Adverse Effect.                     10.    Except for (a) such as may be required under the applicable securities laws of the various jurisdictions in which the Securities are offered or sold, (b) such registrations, qualifications and orders under federal and state securities laws as are contemplated by the Registration Rights Agreement, and (c) such other approvals the failure to obtain which would not have a Material Adverse Effect, all authorizations, approvals, consents, licenses, orders, registrations, qualifications and decrees of any court or governmental authority or agency, domestic or foreign, necessary or required on the part of the Company or any of its subsidiaries in connection with the due authorization, execution and delivery of the Purchase Agreement and the due execution, delivery or performance of the Registration Rights Agreement, or the performance of the Indenture, by the Company and for the offering, issuance, sale or delivery of the Securities to the Initial Purchasers and the resale by the Initial Purchasers in accordance with the terms of the Purchase Agreement have been obtained or made.                     11.    The execution and delivery of the Purchase Agreement, the DTC Agreement, the Registration Rights Agreement and the Securities and the consummation of the transactions contemplated in the Purchase Agreement (including the use of the proceeds from the sale of the Securities as described in the Offering Memorandum under the caption "Description of the Additional Notes and Related Matters-Use Of Proceeds") and compliance by the Company with its obligations under the Purchase Agreement, the DTC Agreement, the Registration Rights Agreement, the Indenture and the Securities do not and will not, whether with or without the giving of notice or lapse of time or both, conflict with or constitute a breach of, or default or Repayment Event (as defined in Section 1(a)(xiii) of the Purchase Agreement) under or result in the creation or imposition of any lien, charge or encumb rance upon any property or assets of the Company or any subsidiary thereof pursuant to any contract, indenture, mortgage, deed of trust, loan or credit agreement, note, lease or any other agreement or instrument to which the Company or any of its subsidiaries is a party or by which it or any of them may be bound, or to which any of the property or assets of the Company or any subsidiary thereof is subject (except for such conflicts, breaches or defaults or liens, charges or encumbrances as would not have a Material Adverse Effect), nor will such action result in any violation of (a) the provisions of the charter or by-laws of the Company or any of its subsidiaries, (b) any judgment, order, writ or decree, known to me, of any government, government instrumentality or court, domestic or foreign, having jurisdiction over the Company or any of its subsidiaries or any of their respective properties, assets or operations, or (c) any law, statute, rule, regulation that in my experience customarily applies to transa ctions of the type contemplated by the Purchase Agreement, the DTC Agreement, the Registration Rights Agreement, the Indenture and the Securities.                     I am not passing upon and do not assume responsibility for the accuracy, completeness or fairness of the statements contained in the Offering Memorandum and make no representations that I have independently verified the accuracy, completeness or fairness of such statements, except insofar as such statements refer specifically to me. However, based on my examination of the Offering Memorandum, on my general familiarity with the affairs of the Company and on my participation in conferences with officials and other representatives of, and other counsel for, the Company, with PricewaterhouseCoopers LLP, the independent accountants of the Company, and with your representatives and your counsel, I do not believe that the Offering Memorandum (except for financial statements, including the notes thereto, financial schedules and other financial data included or incorporated by reference therein, as to which I express no belief), as of the date of the Purchase Agreement included, and as of the Closing Time includes, an untrue statement of a material fact or omitted or omits to state a material fact necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading.                     I am a member of the Bar of the District of Columbia, and I express no opinion herein as to any laws other than the laws of the District of Columbia, the General Corporation Law of the State of Delaware, the federal laws of the United States and, with respect to the opinions set forth in paragraph 4, the Virginia Stock Corporation Act and the New Jersey Business Corporation Act.                     The opinions contained herein are rendered solely for your benefit and may not be relied on by any other person. The opinions expressed in this letter are limited to the matters set forth herein, and no opinion should be inferred beyond those opinions expressly stated. I assume no obligation to advise you of any facts that come to my attention, or any changes in law, subsequent to the date hereof
	Very truly yours, William T. Torgerson

				Exhibit B
[LETTERHEAD OF COVINGTON & BURLING]
Ladies and Gentlemen:                     We have acted as special counsel to Pepco Holdings, Inc., a Delaware corporation (the "Company"), in connection with the negotiation, execution and delivery of the Purchase Agreement, dated September 16, 2002, among the Company and the Initial Purchasers (the "Purchase Agreement"). This opinion is being delivered to you in accordance with Section 5(b) of the Purchase Agreement. Unless otherwise defined herein, capitalized terms used herein have the respective meanings provided in the Purchase Agreement.                     We have reviewed the Purchase Agreement, the Indenture, the Registration Rights Agreement, the Offering Memorandum, the form of the Securities, and such corporate records, certificates and other documents, and such questions of law, as we have deemed necessary or appropriate for the purposes of rendering this opinion.                     We have assumed that all signatures are genuine, that all documents submitted to us as originals are authentic and that all copies of documents submitted to us conform to the originals. We have assumed further that each Initial Purchaser has duly authorized, executed and delivered the Registration Rights Agreement and that the Registration Rights Agreement is the valid and binding obligation of such Initial Purchaser, enforceable against it in accordance with its terms. We have assumed further that the Company is a corporation duly organized, validly existing and in good standing under the laws of the State of Delaware and has all requisite power, authority and legal right to execute, deliver and perform its obligations under the Indenture, the Registration Rights Agreement and the Securities to be issued by it.                     We have made no investigation for the purpose of verifying the assumptions set forth herein.                     Based upon the foregoing, and subject to the qualifications set forth below, we are of the opinion that:                     (i)     Each of the Indenture and the Registration Rights Agreement has been duly authorized, executed and delivered by the Company and constitutes a valid and binding agreement of the Company, enforceable against the Company in accordance with its terms, subject to bankruptcy, insolvency, fraudulent transfer, reorganization, moratorium and other laws of general applicability relating to or affecting creditors' rights and to general equity principles.                     (ii)     The Securities are in the form contemplated by the Indenture and the Officer's Certificate delivered pursuant to Sections 201 and 301 thereof, have been duly authorized by the Company and, when executed by the Company and authenticated by the Trustee in the manner provided in the Indenture and delivered against payment of the purchase price therefor, will constitute valid and binding obligations of the Company, enforceable against the Company in accordance with their terms, subject to bankruptcy, insolvency, fraudulent transfer, reorganization, moratorium and other laws of general applicability relating to or affecting creditors' rights and to general equity principles.                     (iii)     The descriptions of the Securities, the Indenture, and the Registration Rights Agreement contained in the Offering Memorandum are accurate in all material respects.                     (iv)     Based upon and assuming the accuracy of the representations and warranties set forth in the Purchase Agreement, it is not necessary in connection with the offer, sale and delivery of the Securities by the Company to the Initial Purchasers and by an Initial Purchaser to a Subsequent Purchaser in the manner contemplated by, and in accordance with the procedures set forth in, the Purchase Agreement and the Offering Memorandum to register the Securities under the 1933 Act or to qualify the Indenture under the Trust Indenture Act.                     (v)     The Company is not and will not be, as a result of the use of the proceeds from the sale of the Securities as described in the Offering Memorandum under the caption "Description of the Additional Notes and Related Matters-Use of Proceeds," an "investment company" or an entity "controlled" by an "investment company," as such terms are defined in the 1940 Act.                     We are not passing upon and do not assume responsibility for the accuracy, completeness or fairness of the statements contained in the Offering Memorandum and make no representations that we have independently verified the accuracy, completeness or fairness of such statements, except as expressly set forth in paragraph 3 above and insofar as such statements refer specifically to us. However, based on our examination of the Offering Memorandum and participation in conferences with your representatives and those of the Company, your counsel and the Company's accountants in connection with the offer and sale of the Securities, nothing which came to our attention in the course of such review has caused us to believe that the Offering Memorandum (except for financial statements, including the notes thereto, financial schedules and other financial or statistical data included or incorporated by reference therein, as to which we express no comment), as of the date of the Purchase Agreement included, and as of the Closing Time includes, an untrue statement of a material fact or omitted or omits to state a material fact necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading.                     The foregoing opinion is subject to the following limitations and qualifications:                     (a)     We express no opinion as to:
	(i)	waivers of defenses or other rights or benefits bestowed by operation of law;
	(ii)	indemnification, contribution, or exculpation, to the extent they purport to indemnify any party against, or release or limit any party's liability for, its own breach or failure to comply with statutory obligations, or to the extent such provisions are contrary to public policy;
	(iii)	releases or waivers of unmatured claims or rights;
	(iv)	provisions for liquidated damages and penalties or penalty interest;
	(v)	provisions requiring amendments and waivers to be in writing;
	(vi)	provisions purporting to require a prevailing party in a dispute to pay attorneys' fees and expenses, or other costs, to a non-prevailing party;
	(vii)	provisions making notices effective even if not actually received; or
	(viii)	provisions purporting to make a party's determination conclusive.
(b)     We express no opinion as to any right of setoff, bankers lien or counterclaim or right to the application of property in the possession or control of the Trustee.                     We are members of the bar of the State of New York. We do not purport to be experts in, and do not express any opinion on, any laws other than the laws of the State of New York, the General Corporation Law of the State of Delaware and, to the extent expressly referred to herein, the federal laws of the United States                     This opinion is given solely for your benefit and may not be disclosed to any other person without our written consent. This opinion may not be relied upon by any other person without our written consent. We assume no obligation to advise you of any facts that come to our attention, or any changes in law, subsequent to the date hereof.
			Very truly yours, COVINGTON & BURLING